Lords Sitting of 11 October 1999

Preamble
Reassembling after the Summer Recess, the House met at half-past two of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.
Prayers—Read by the Lord Bishop of Chichester.

Baroness Barker
Elizabeth Jean Barker, having been created Baroness Barker, of Anagach in Highland, for life—Was, in her robes, introduced between the Baroness Hamwee and the Lord Wallace of Saltaire.

Baroness Wilkins
Rosalie Catherine Wilkins, having been created Baroness Wilkins, of Chesham Bois in the County of Buckinghamshire., for life—Was, in her robes, introduced between the Lord Carter and the Lord Ashley of Stoke.
Lord Seaford Lord Seaford—Sat first in Parliament after the death of his kinsman.

Coaches: Roadworthiness Checks
2.48 p.m.
Lord Dunleathasked Her Majesty's Government:
Whether the roadworthiness of coaches in Britain is satisfactory, and whether in recent months one in 10 have failed roadside safety checks carried out by the police and by the Department of the Environment, Transport and the Regions.
The Parliamentary Under-Secretary of State, Department of the Environment, Transport and the Regions (Lord Whitty): My Lords, the Vehicle
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Inspectorate operates a systematic programme of roadworthiness checks, both at the roadside and at operators' premises. Selected checks focused on vehicles with potential defects showed problems with one in 10 vehicles inspected, although these were not all sufficiently serious to prohibit the vehicle from continuing its journey. A more accurate indicator of fleet compliance emerges from the recent random survey at operators' premises which showed that fewer than one in 15 vehicles had one or more defects.
Lord Dunleath: My Lords, I am most grateful to the Minister for his comprehensive reply—all the more so because I know that both he and his department have so much to deal with at present. Obviously, when I tabled this Question, no one could have foretold that two public transport tragedies would occur. In view of the fact that a Statement is to be made later this afternoon, it would be inappropriate for me to say more in that respect. However, is the Minister aware of the increasing number of mainland British coach operators who are re-registering their vehicles with Northern Ireland licence plates? These are not cherished or personalised numbers. Your Lordships will be aware that Northern Ireland plates do not carry an age-related prefix or suffix letter. It would therefore seem a blatant attempt by these operators to hide the age of their coaches. Does the Minister agree that coach passengers, and indeed road users in general, would be better served if this practice were to cease?
Lord Whitty: My Lords, as the noble Lord will be aware, the figures to which I have referred relate to Great Britain and the checks which have been reported on in Great Britain. The Vehicle Inspectorate is in close contact with the Department of the Environment in Northern Ireland because we are aware of some of these problems. Of course if the Vehicle Inspectorate and the police suspect that coaches, wherever registered, have a defect, they can be checked. Checks involving pulling coaches off the road are not related

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to the age of coaches. Nevertheless we are aware that there is a problem here. Discussions are proceeding with the Northern Ireland authorities.
Lord Berkeley: My Lords, does the Minister agree that one bus in 15 found to be defective in a random check is a pretty poor statistic? As a regular bus user I am sometimes glad that I do not travel far in them. Does the Minister agree that the answer is to give the Vehicle Inspectorate a much larger budget with which to undertake its work and to hypothecate some of the fines arising from convictions for defects in order to reduce greatly the figure of one bus in 15 being defective?
Lord Whitty: My Lords, in this area it is far more important to make sure that a dangerous vehicle does not continue its journey or, in the case of a lesser fault, to ensure that it is put right within a limited period of days than it is to impose fines. While there may be concern about resources, the issue of fines is not the most relevant one here. In conjunction with the police, the Vehicle Inspectorate has stepped up its activities substantially in this area, particularly with regard to Operation Tourist and Operation Coachman. That has resulted in publicity being given to these figures.
Viscount Simon: My Lords, is the Minister aware of the anomaly whereby the driver of a UK coach can exceed his hours considerably and not be prohibited from proceeding whereas, under the Road Traffic (Foreign Vehicles) Act 1972, a foreign coach driver can be stopped immediately and prohibited from proceeding? Is that not a road safety anomaly which should be addressed?
Lord Whitty: My Lords, my noble friend is correct to say that there are certain anomalies as regards coach drivers, foreign vehicles and lorry drivers. Last year we indicated in the transport White Paper that we would consider rationalising the regulations which apply to lorries and to public service vehicles in this area where there is some inconsistency as between UK and EU rules. We have deferred doing so until the European directive extending the working time directive to the road haulage sector is completed. As noble Lords may be aware, those negotiations are still proceeding. In the light of that, we shall consult on rationalising the rules about which my noble friend is concerned.
Earl Attlee: My Lords, can the Minister confirm that the Vehicle Inspectorate undertakes its duties without fear or favour, that a vehicle is either safe on the road or it is not, and that age is immaterial? Does the Minister agree that the real problem lies with goods vehicles because the consignor is less concerned with safety than people who hire buses or coaches?
Lord Whitty: My Lords, I can certainly assure the noble Earl that the Vehicle Inspectorate and the police who assist in these inspections carry out their duties without fear or favour and that age is not the key
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concern. Safety is always the key concern. It is difficult to "read across" as regards prohibitions and the assessment of lorries because clearly most lorries are stopped, checked and prohibited on grounds of being overloaded or exceeding drivers' hours. Those grounds do not apply in the same way as regards coach and bus drivers. Nevertheless, there is a problem with regard to lorries. The Vehicle Inspectorate is determined that the general safety of lorries on our roads—as I know the noble Earl will be well aware—is also the concern of respectable operators within the road haulage industry. We hope to take action on that front.
Lord Pilkington of Oxenford: My Lords, does the Minister feel that in view of the fact that the proprietors of these vehicles are ultimately responsible in this matter, his dismissal of fines may endanger the public?
Lord Whitty: My Lords, I did not dismiss fines. I said that the immediate issue is to stop public service vehicles carrying passengers if the former pose a danger on the road. Fines are a secondary matter. I take the noble Lord's point that fines can be an effective deterrent but the main issue is whether we allow unsafe buses to continue to use our roads. The Vehicle Inspectorate has a clear policy that an immediate prohibition is appropriate in those circumstances.

Road Haulage Vehicles: Taxation
2.55 p.m.
Lord Campbell of Croyasked Her Majesty's Government:
Whether they are taking any steps to compensate for the widening differential between taxation applied to British road haulage vehicles, including fuel, and the taxation of similar vehicles registered in continental Europe.
Lord McIntosh of Haringey: My Lords, the Government believe that the best way of helping the UK haulage industry is to create a climate of sustainable economic growth and long-term investment in business. When considering issues of competitiveness, we must look at both the total tax burden and other social and business costs. Taking all those factors into account, the Government believe that the position of UK hauliers compares favourably with the position of hauliers in many other EU member states.
Lord Campbell of Croy: My Lords, I am grateful to the noble Lord for his reply which brings in the question of social taxation and insurance. However, is he aware that besides the road haulage industry other businesses are also affected, such as those which have to own their own lorries because of their trading

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requirements? Would the Minister be surprised if British operators were to apply for registration abroad?
Lord McIntosh of Haringey: My Lords, I would be surprised because that would be an extreme measure to take as regards differences which are marginal or apply in both directions. As I made clear in my first Answer, the climate of sustainable economic growth which has been achieved under this Government is significant, as is the issue of other costs which apply to all businesses, whether or not they are road haulage operators. I refer to corporation tax and income tax.
Lord Islwyn: My Lords, would not the Government be wiser to take note of the old adage that when the cost of transport is put up, that puts up the cost of just about everything, and that that applies particularly in Britain which is essentially a road-based economy?
Lord McIntosh of Haringey: My Lords, of course it is true that the costs of transport affect many sectors of the economy However, our reasons for increasing fuel duty and vehicle excise duty arise to a considerable extent from our statutory obligations under the Kyoto agreements. I hope that my noble friend will agree that pollution affects all sectors of the economy as well as transport costs.
Lord Saatchi: My Lords, will the Minister give his reaction to the action of Eddie Stobart, which is, I believe, Britain's No. 1 road haulage company, which is now registering 250 of its trucks on the Continent? Does the Minister condemn that practice on the ground that it constitutes tax avoidance, or does he praise it on the ground that it maintains competitiveness and employment in a key British industry?
Lord McIntosh of Haringey: My Lords, I have met Eddie Stobart and I have a great respect for him as an entrepreneur. If he chooses to register a certain number of vehicles overseas—a very small proportion of his fleet, I may say—he will of course at some stage run up against cabotage rulings. He may find himself in the position where, if he operates a domestic haulage service in a country other than that in which his vehicles are registered, he will be breaking the law in one country or another.
Baroness Thomas of Walliswood: My Lords, is the Minister aware that as a result of the price differential many lorries are taking large amounts of petrol through the tunnel and on Channel ferries—some in supplementary or additional tanks? Are the Government concerned about the safety implications of this practice? If so, what will they do about it?
Lord McIntosh of Haringey: My Lords, as far as concerns taking normal full tanks through the tunnel and on cross-Channel ferries, there is nothing the Government can do about that. The vehicle manufacturers have the responsibility of making sure
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that those tanks are full. Issues of safety could arise with regard to what I believe are called "belly tanks" for carrying additional petrol. We would be very concerned if the practice were to spread.
Lord Mackay of Ardbrecknish: My Lords, if the Government have to put up the price of petrol in this country in order to meet their Kyoto targets, can the Minister explain to the House and to those of your Lordships who have been on holiday on the Continent during the summer why other continental countries do not seem to feel any obligation to do likewise?
Lord McIntosh of Haringey: My Lords, it is not for me to answer for other European countries; it is for me to say that they are other European countries—a point which seems to have escaped noble Lords opposite. The noble Lord's experience is probably the same as mine—although he has had a good deal more time than I to travel around Europe recently—that other countries have also been putting up their fuel taxes.
Baroness Young of Old Scone: My Lords, can the Minister assure us that the Government will continue with the excellent line they have taken on this issue in order truly to reflect the social and environmental costs of road transport? Will the Government continue to try to find ways to mitigate any burdens on industry—not from this particular measure but from other similar measures in environmental taxation—and not waiver from what is a good, strategic and long-term approach to a deep issue in this country? Can the Minister further assure us that the Government will not waiver in the face of the short-termism that we hear from the Benches opposite?
Lord McIntosh of Haringey: My Lords, the Chancellor said in his July 1997 Budget that the increase in real terms which took place then would be continued "in future Budgets". Indeed, in recent Budgets we have allowed for a continuing increase of the same size in real terms for our public expenditure estimates for the next three years. If my noble friend is asking me about the dim and distant future, such as a period when we might expect to see a return of a Conservative government, I must advise him that I am not willing to go that far into the future.
Lord Campbell of Croy: My Lords, arising from the last question, is the Minister aware that, unfortunately, Scotland and northern Scotland are suffering most from the very high fuel tax?
Lord McIntosh of Haringey: My Lords, it is logically the case that where there are longer distances, more fuel is consumed. The overriding arguments, which I have made clear in my previous answers, apply to Scotland as well as to the rest of the United Kingdom.

Criminal Memoirs Review
3.4 p.m.
Lord McNallyasked Her Majesty's Government:
When they intend to publish the outcome of their criminal memoirs review.
The Parliamentary Under-Secretary of State, Home Office (Lord Bassam of Brighton): My Lords, the review has now completed its work and the report is due to be submitted to my right honourable friend the Home Secretary shortly. Publication of the outcome of the review is likely to follow in the very near future.
Lord McNally: My Lords, I welcome the Minister to the Dispatch Box for what I hope will be a long and distinguished ministerial career.
I am sorry that this issue remains in the long grass where the Attorney-General left it. Perhaps the Minister will react to some other criminal memoirs that have been doing the rounds. Is he aware that it is now a matter of public record that when they should have been running the country, the previous Conservative administration were indulging in what is described as a madhouse of chicanery, double dealing and leaking? In addition, they spent last week walking with dinosaurs. Is not it now clear that for our democracy to function we need a proper, public-spirited, effective Opposition and that the Liberal Democrats will now provide it?
Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord for kindly welcoming me to the Dispatch Box. I shall endeavour to make my stay here as long and as distinguished as I possibly can.
As to criminal memoirs—or political memoirs that might be considered criminal—it is not for me to comment. It would be presumptuous for such a new Minister to comment on the relevant merits of the Opposition parties in the House.
Viscount Astor: My Lords, I welcome the Minister to the Dispatch Box. Does he agree that the supplementary question of the noble Lord, Lord McNally, had nothing to do with the Question on the Order Paper? For that he should be congratulated because, as usual, the Liberal Democrats have irrelevant policies.
As to the matter in hand, does the Minister agree that in principle no convicted criminal should benefit financially while in prison or on parole? Can he say whether the Prison Service has reviewed the standing orders on these matters, which his predecessor said would be carried out in July? Can the Minister say whether that matter is part of the Home Office review?
Lord Bassam of Brighton: My Lords, I am grateful for the question. It would be wrong of me to pre-empt the publication of the review which, as I said, is due in the very near future. As to prison standing orders, I am advised that they are constantly kept under review; that they effectively deal with the problem of memoirs
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published or attempted to be published by prisoners; and that they are regularly drawn to the attention of those who seek to abuse and to get round them. We believe they continue to be effective in most cases. They are designed to protect the public. It is that matter upon which we should focus our minds and which should be paramount in our thoughts. We do not want to see the publication of criminal memoirs which lead to criminals profiting from their ill-gotten gains.
Baroness Sharpies: My Lords, is not this another form of cheque-book journalism?
Lord Bassam of Brighton: My Lords, I agree. It is for that reason that the Government have taken a very hostile view of the publication of criminal memoirs.
Lord Stoddart of Swindon: My Lords, does my noble friend agree that it is completely and utterly shameful that criminal thugs—Biggs, for example—should profit from their crimes? Is not it also shameful that the national press and publishers lionise and fête such people on the one hand and, on the other—I refer particularly to the national press—criticise the Government and the Home Secretary for not dealing with crime in a proper way?
Lord Bassam of Brighton: My Lords, I am sure that we all agree that it is right that we should have a free press. However, a free press comes with a price: it should offer restraint and reason in reporting the views of those who are convicted. I join my noble friend in condemning the publication or attempted publication of outrageous memoirs. The Government—and, I am sure, all Members of the House—will continue to adopt a very hostile attitude towards such publications.
Lord Desai: My Lords, does my noble friend agree that, no matter what we may think of criminals and profiteering, we must not restrict freedom of speech and expression?
Lord Bassam of Brighton: My Lords, I am at one with the noble Lord's comments about freedom of speech. We, as a democracy, must value a free press. It is an important part of our democratic constitution and the way in which government works best. The press and the media generally should reflect on that when they seek to publish outrageous memoirs which can cause only offence, abuse, ill-feeling and unhappiness to those who may be victims of crime.
Lord McNally: My Lords, is not the truth that it is impossible to draft the law to match the indignation? Will we not have to rely on either the sense of good taste and decency of newspaper proprietors and editors—not a very hopeful thought—or on a much-strengthened press complaints code of conduct? Would it not be better for Ministers, having spent so

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many months trying to devise a law on this matter, to return to the Press Complaints Commission and require it to beef up its regulations?
Lord Bassam of Brighton: My Lords, we should give the Press Complaints Commission some credit for the important work that it has undertaken. The noble Lord, Lord Wakeham, met my noble and learned friend Lord Williams to discuss the issues which the noble Lord has quite properly just raised in his question. We should always keep under review the way in which such bodies operate. I believe that they do an important job. Although it may be difficult to draft the legislation that the noble Lord is evidently seeking, I think it is important that in public life we play our part in setting standards. We should inform and advise people that such criminal memoirs should not be published in the way in which many seek; namely, to get around the law and to profit from it.

Iraq: Sanctions
3.10 p.m.
Lord Beaumont of Whitleyasked Her Majesty's Government:
Whether they will press for the lifting of those sanctions on Iraq which affect baby food, bandages, stethoscopes and school books.
The Parliamentary Under-Secretary of State, Foreign and Commonwealth Office (Baroness Scotland of Asthal): My Lords, I hope the House will be pleased to know that sanctions do not prevent Iraq importing the goods mentioned by the noble Lord. Imports of food and medicine have always been allowed. And under the oil-for-food arrangements Iraq is permitted to export oil to fund the purchase of these and other civilian goods including medical equipment, educational materials and spare parts to repair the electricity, water and sanitation and oil sectors. Some 5 billion dollars has been set aside already this year for the purchase of such goods.
Lord Beaumont of Whitley: My Lords, I am delighted to hear the Answer from the Minister. What steps are Her Majesty's Government taking to ensure that such very necessary goods are in fact reaching those people they should reach bearing in mind that until recently there was in that country a death rate of infants aged under five of something in the order of 4,000 or 5,000 a month? Is there nothing that Her Majesty's Government can do to see that appalling figure reduced?
Baroness Scotland of Asthal: My Lords, much of course must depend on Iraq itself and Saddam Hussein. Since the sanctions were imposed, arrangements have been in place to allow Iraq to import food, medicine and other essential civilian goods. Under the oil-for-food arrangements, Iraq is permitted to import a wide range of humanitarian goods, in part to rehabilitate the Iraqi civilian
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infrastructure, including the oil industry. The present phase of oil-for-food, which will expire in November, will be the most valuable yet with oil exports expected to value up to 6.5 billion dollars, 4.3 billion dollars of which will be available to fund the humanitarian programme. There is no restraint at all in relation to the provision of food or help for the under-fives. Much will depend on how the Iraqis themselves utilise that basis.
Lord Moynihan: My Lords, from these Benches I warmly congratulate the Minister on her first appearance at the Dispatch Box answering a Question on foreign affairs. I have given her private office notice of the question I wish to raise. What action are the Government taking to pressurise the Iraqi regime to allow the United Nations to take a larger role in the distribution of medicine and food in southern and central Iraq given that child mortality rates have fallen in northern Iraq where the UN controls distribution under the oil-for-food programme but have increased tragically and disturbingly in southern and central Iraq where Saddam Hussein's regime is in charge of distribution?
Baroness Scotland of Asthal: My Lords, the Government continually call on Iraq to engage more constructively with the UN in the implementation of the oil-for-food programme. Our new draft resolution would allow the UN to take a greater role in the programme. There are high rates of infant and maternal mortality, and that is a matter of serious concern. The United Kingdom has advocated and supported initiatives aimed at targeting the humanitarian effort to help the most vulnerable. The whole of Iraq is subject to the same sanctions regime, but the UNICEF report notes—as the noble Lord pointed out—that rates in the north of Iraq, which is not controlled by the Baghdad regime, are substantially lower. We would suggest that that is more evidence that it is the Baghdad regime which is primarily responsible for the suffering of the Iraqi people. Of course it is entirely in Saddam Hussein's own hands as to how most effectively to address this issue. This Government strongly urge him to address it as a matter of priority for the Iraqi people.
Lord Monkswell: My Lords, from this side of the House I warmly welcome my noble friend to the Dispatch Box. Is she aware that Iraq is one of the most fertile parts of the Middle East and as such has the capacity to grow food to feed its people? There is no real need for it to import food. Can she confirm that the unrestricted import of agricultural machinery and spare parts for agricultural machinery is allowed under the sanctions regime?
Baroness Scotland of Asthal: My Lords, I can confirm that. I can also confirm that when it comes to food, Iraq is so well placed that it is selling food to some of its neighbours and trying to sell food to other neighbours. I believe that that emphasises the information we have that it is very much Saddam Hussein's own determination that he wishes the people

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of Iraq to suffer. We will take no part in that. We have done everything we can to support the Iraqi people so that they can take advantage of all the issues outlined by the noble Lord. It is for Saddam Hussein to make the choice as to whether or not his people continue to suffer in this way.
Baroness Williams of Crosby: My Lords, we on these Benches also congratulate the Minister. Although we shall greatly miss her predecessor on foreign affairs Questions, we are sure that she will bring both radiance and brilliance to the Government Front Bench. I wish to ask a slightly wider question based on the replies the Minister has already given. With regard to the United Nations resolution supported by France, is consideration being given to the possibility of offsetting sanctions against a resumption of United Nations inspections, which I understand is today a lively issue in London, Washington and Paris?
Baroness Scotland of Asthal: My Lords, the position as regards sanctions remains very much the same. The noble Baroness will know that the UK has been at the forefront of Security Council efforts to find a comprehensive way forward on Iraq. In particular we have been working closely with the rest of P5 and we have made good progress on bridging the few remaining gaps. We believe that with a little more flexibility on all sides, there is scope for further agreement. The UK and the Netherlands have circulated a draft Security Council resolution which, if adopted, would implement the vast majority of the recommendations of the three panels established by the Security Council in January. Our draft would create a new body to continue UNSCOM's efforts to answer the outstanding questions on disarmament and to implement the panel recommendation that these be dealt with under a reinforced monitoring system.
Lord Rea: My Lords, what are the obstacles to the British-Dutch proposals mentioned by my noble friend? Will she see that they are accepted by the United Nations as soon as possible because the effects of the sanctions on the ordinary people of Iraq are at the moment very severe? They do not harm Saddam and his friends.
Baroness Scotland of Asthal: My Lords, Her Majesty's Government are doing all they can to persuade all the members of the council of the force of their arguments. There is of course a measure of flexibility and difference of opinion, but we shall not refrain from continuing to force those arguments. Overall, our solution seeks to offer Iraq a clear path to the suspension and eventual lifting of sanctions while maximising humanitarian assistance to the Iraqi people and giving us the assurance we need on weapons of mass destruction. A Security Council united behind the proposals will provide the best chance of persuading Iraq to re-engage with the UN and to avert a further crisis. However, we do have to
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take into account that there are sensitivities on this issue and, while we press with vigour for agreement, we need to take all members with us.

Railway Safety
3.20 p.m.
The Minister of State, Department of the Environment, Transport and the Regions (Lord Macdonald of Tradeston): My Lords, with permission, I wish to make a Statement about the railway accident that happened at Ladbroke Grove Junction on the approach to Paddington Station on 5th October.
"At 11 minutes past eight last Tuesday morning, as we are now so tragically aware, a Great Western train travelling from Cheltenham collided with a Thames train leaving Paddington. The latest casualty list is 29 seriously injured and still in hospital, 30 confirmed dead and more still unaccounted for. All of us will have shared the shock and grief that was experienced across the country after this awful accident. All noble Lords will want to join me in expressing our deepest sympathy to the families and friends of those who have lost their lives. We hope too for the fullest possible recovery of those passengers who were injured.
"For their tireless work in the harrowing aftermath of this accident, your Lordships' House will also want to pay tribute to the emergency workers, police, fire and medical services, and to the other people who came to help so quickly—railway workers, supermarket staff, people working nearby and, of course, the survivors of the collision, some themselves injured, who displayed such courage. I also pay tribute to the staff of the Railway Inspectorate who, in such trying circumstances, worked urgently to report by last Friday their interim findings on the causes of the crash.
"We now know, subject to final confirmation, that the Thames train passed through two cautionary yellow signals and then a red signal before travelling a further 700 metres into the path of the Great Western train. Three times a warning should have sounded, and three times the automatic warning system, which would stop the train if not cancelled, appears to have been overridden. The reasons may now never be known since the Thames driver was among those killed. But the black box, which has now been recovered from the front of his train, may help inform us.
"However, the Chief Inspector of Railways has said that whatever the individual actions or omissions, these should be considered as tragic factors symptomatic of more general problems—in the organisation, culture and systems which should together constitute an effective safety regime. Clearly, the interim report of Her Majesty's Railway Inspectorate raises some fundamental issues, as well as the pressing and specific concerns arising from the Paddington crash. I have placed copies of this report in the Libraries of both Houses.

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"In the inspectors' judgment, this accident would have been prevented had the train protection and warning system (TPWS) been installed and working, on the track and on the Thames train, since TPWS cannot be overridden like the existing automatic warning system. Your Lordships may recall the Railway Safety Regulations 1999, laid before Parliament on 10th August. These require TPWS to be introduced and operational across the railway network by the end of 2003.
"The Railway Inspectorate also noted that the Great Western train, in addition to its standard automatic warning system, was equipped with a pilot automate train protection system. This ATP system was switched off because of its persistent unreliability. However, this was not a factor contributing to the crash.
"The Railway Inspectorate has taken the following immediate actions. Three enforcement notices have been issued which, first, prohibit the use of signal SN109, which was passed at danger by the Thames train, until Railtrack institutes effective measures to prevent further trains from passing at danger; secondly, require Railtrack to introduce by 6th November additional controls at the other 21 signals passed at danger most frequently; and, thirdly, require Railtrack, by the same date, to produce plans to reduce the risk at all remaining signals with a recent history of being passed at danger—the so-called SPAD incidents. As well as issuing these enforcement notices, the Railway Inspectorate has instructed train operating companies to re-brief all drivers on the location en route of suspect signals and on ways of avoiding such SPAD incidents. It also required operators to review their driver training and performance monitoring arrangements. The Government support these actions.
"Additionally the Deputy Prime Minister has asked the Health and Safety Commission to report directly to him each week on the number of signals passed at danger. He has also requested a report by the end of this week on action undertaken by Railtrack to improve safety on the approach to Paddington station.
"There are also wider related issues now being addressed. The number of signals passed at danger has gone down by more than a third over recent years. But last year, 1998–99, the total rose again to 643. Of these incidents most were minor and were contained inside the safety margins on the tracks. However, the number of serious incidents which over-ran these safety margins also increased from 42 to 52 last year.
"The Railway Inspectorate, already concerned about these figures, published a report last month detailing actions companies were required to take to strengthen safety systems. Railtrack's response was received by the inspectorate last week. We are assured that all relevant actions will be taken without delay. We expect the same from the train operating companies.
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"The Government have also received another related report on railway safety. Last year the then Minister for Transport asked the Health and Safety Commission to review Railtrack's role in safety regulation inside the industry. This report is being made public today at the request of the Deputy Prime Minister and I have placed copies in the Libraries of both Houses. I must stress that the report does not suggest that major failures might have resulted from Railtrack's safety regulation role. However, it reports concerns inside the rail industry about aspects of present practice.
"As a consequence, the Deputy Prime Minister announced on Saturday that he had asked the Health and Safety Commission to send in a specialist team to investigate these concerns and advise on any action required. Railtrack has publicly welcomed this initiative.
"In parallel, the Rail Regulator has asked the Health and Safety Executive to advise him, under Section 4 of the Railways Act 1993, on the sufficiency of Railtrack's system for setting safety standards and on questions raised in the HSE report as to the independence from internal pressures of Railtrack's Safety and Standards Directorate. Ministers are minded to transfer the main functions of the Safety and Standards Directorate out of Railtrack in order to ensure public confidence that there is no conflict between safety standards and commercial interest. We shall consider carefully where these functions are best located to ensure greater coherence on safety. If we need to legislate we shall do so.
"Noble Lords should be aware of other actions being taken. We want to identify the safest and most appropriate options from the range of train protection measures presently available or in development. Last week Sir David Davies, former Chief Scientific Adviser to the Ministry of Defence and President of the Royal Academy of Engineering, agreed to assess and report back, by the end of the year, on the effectiveness, practicability and cost of train protection systems, and also on how best to reduce the present incidence of signals passed at danger.
"As noble Lords will know, the public inquiry into the Southall rail crash in 1997, having been delayed by legal proceedings, is now expected to reach conclusions by the end of this year. This inquiry, under the chairmanship of Professor John Uff, is considering, among other things, train protection systems and will have the benefit of Sir David Davies' findings. There will also be a public inquiry into the accident at Paddington. Lord Cullen, who has previously reported on safety in the North Sea oil and gas industry following the disaster on the Piper Alpha platform, will chair this inquiry, and indeed has already visited the accident site and started work. Lord Cullen will be looking not just at the causes of this tragic accident, but also at wider issues of railway safety. Clearly a great deal of

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detailed investigation must still be carried out which may have a bearing on the timescale for Lord Cullen's inquiry.
"The Government will do all they can to avoid undue delay. I have today placed the terms of reference for Lord Cullen's inquiry and Sir David Davies's assessment in the Libraries of both Houses.
"The lasting legacy of this awful accident at Paddington—the outcome of all the urgent action now in progress—must surely be a more open, more responsive, more rigorous culture of safety across our whole rail industry. We owe the victims and their loved ones nothing less, as I am sure your Lordships will agree."
My Lords, that concludes the Statement.
3.30 p.m.
Lord Brabazon of Tara: My Lords, first, I thank the Minister for making the Statement. I welcome the noble Lord to the Dispatch Box in his role as Minister for Transport. Perhaps I may say how much we sympathise with him in the fact that it is this sad occasion that brings him to the Dispatch Box for the first time in that role.
Perhaps I may join the noble Lord in expressing our sincere sympathy for the families and friends of the victims of this terrible disaster, and in wishing a speedy and complete recovery to those who are still in hospital. Perhaps I may also join the noble Lord in praising the role played by all the emergency services and others who have had to work in such appalling conditions, and whose job is not yet over.
Will the Minister say whether all the victims have been accounted for, and will he confirm that the numbers may be lower than had been forecast in the past few days? We very much hope that that is so. Will he also give the House an assurance that all possible help and support are being given to the families of the dead and injured?
The Official Opposition have sought to conduct their response to this terrible tragedy above party politics. Safety should be above party politics. That is the basis upon which we support the Government's decision to establish the two inquiries under Lord Cullen (into the crash) and Sir David Davies (into train safety systems). We look forward to reading the terms of reference of both inquiries. We have offered the co-operation of all former Conservative transport Ministers from whom Labour inherited the railways two and half years ago.
Can we be assured that the inquiry will be conducted as speedily as is possible consistent with thoroughness, and that it will be able to publish interim findings and recommendations which can be acted upon without delay? Can we also be assured that the inquiry will not be delayed by legal proceedings, as in the case of Southall to which the noble Lord referred? Will the Minister confirm that he is already aware that the Official Opposition would like to assist with any emergency legislative measures that are necessary to speed the inquiry on its way?
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We want the inquiries to look at not just the role of Railtrack, which has been the focus of public attention so far, but at such issues as the design and safety of the carriages involved in the crash, their resistance to fire, the need for emergency lighting systems, and means of escape. We also believe that the safety culture of the industry has much to learn from other safety-conscious industries, such as civil aviation, particularly with regard to driver training.
However, the Government have decided not to wait for inquiry findings in one key area. It is the duty of the Opposition to raise any questions that there may be about substantive policy decisions that the Government are making and to scrutinise their actions. It is in that positive spirit that we have questions on three substantive areas.
First, does the Minister agree that it has been the shared objective ever since the Hidden inquiry into the Clapham rail crash in 1988 that systems should be installed across the railways to prevent trains from going through red lights?
Do the Government continue to share the view taken by Ministers in the previous administration on the advice of the Health and Safety Executive that the system known as ATP—automatic train protection—was not a viable bolt-on system and that the alternative train protection warning system had to be developed? Is the Minister satisfied that the installation of TPWS is proceedings as quickly as possible?
Secondly, when did the Government become aware that the number of signals passed at danger (SPADS) was increasing? What action was taken? Does the Minister agree that the matter of SPADS is as much a matter for the train operating companies, their drivers and their driver training policies as it is for Railtrack?
Thirdly, we shall support any immediate action in advance of the Cullen inquiry where there is evidence that it will improve safety standards and safety practice on the railway. On that basis, on what specific evidence or advice did Ministers decide on Saturday to transfer the safety and standards department of Railtrack to an independent body? Can the Minister say whether the new authority will have different instructions from those that Railtrack presently has? Will it use the existing staff? How will the transitional period be handled?
Will the Minister confirm that the HSC report on this issue dated 30th September states:
"We do not see any case for immediate concern on safety grounds in the way that S&SD (Safety and Standards Department of Railtrack) has operated its key safety functions",
and that there would be "short-term substantial disruption" caused by such a move? Will he further confirm that the HSC report states:
"we are not aware of any specific evidence that SSD has executed the key functions with which this review is concerned in a discriminating way",
and that the final paragraph of the conclusion states:
"We therefore think it important that any decision on the way forward should be taken in the light of a wider and more formal sounding of views in the industry"?

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Why have the Government decided to act without any further consultation as recommended in the report, and without waiting for the conclusions of the Cullen inquiry?
Finally, I reiterate our support for the Deputy Prime Minister's sensible decision to instigate the Cullen and Davies inquiries. We shall support the Government in any actions that help the work of those whose job it is to make our railways as safe as possible.
3.36 p.m.
Lord Rodgers of Quarry Bank: My Lords, from these Benches I, too, welcome the Statement, although I greatly regret the necessity for it. I regret also that the Minister finds this the first occasion in his new capacity on which he has to address the House.
I am among many who feel that the clear, open and balanced way in which the Minister has personally dealt with radio and television over the past few days needs to be commended. This has been a highly sensitive and very difficult issue—sensitive for all the reasons that we understand. Here, again, I should like to be associated with everything that has been said about the families and friends of those who were killed or injured and about the different aspects of the emergency services.
The issue is difficult because the causes of the accident are complex. Under pressure, it has been easy to rush to judgment and to look for scapegoats.
I welcome the fact that in what has been said in the House today there has been no argument about the merits or otherwise of privatisation. I was strongly against it at the time, as I believe were all on these Benches. If it had to be done, it was almost certainly done the wrong way. But unless we anticipate any changes in ownership, we must take matters where they are, assume, that the question of ownership is settled, and look at structure and responsibility within the present system.
Perhaps I may suggest one or two guiding principles which do not conflict with what the Minister has already said. The first is that Ministers should not accept more day-to-day responsibility for safety. It is not a ministerial task. It ought to lie with an agency independent of the day-to-day decisions of government and with the industry itself.
Secondly, whatever may be done at the top in regard to safety, responsibility for safety must be dispersed right down the line and cannot be separated from operations. There must be a common culture throughout the industry, affecting everyone who works within it. It follows that everyone must know who is responsible for what, and that there must be adequate monitoring and discipline. Decisions must be quickly made and properly enforced. In that respect, I hope that the Government will bear mind that safety will not be helped by additional layers of bureaucracy. I am slightly worried even now by the number of reports for which the Government have called.
The Minister drew attention to the report of the Railway Inspectorate on this. Historically, most rail accidents have been caused by human error at some
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point. This disaster is likely to be no exception in so far as the driver appears to have gone through a red light on signal SN 109. But that seems to have been a commonplace, even routine, error. That is perhaps the most worrying factor of all affecting public confidence. It did not happen simply on one occasion. As the Minister said, it appears to have happened over 600 times in 1998: 643 signals were passed at red.
Given that we cannot eliminate human error, obviously the role of technology is to reduce the risk to the absolute minimum. Safety must be an integral part of the system and it is plain that industry must pay for safety for that reason.
I have tried to say that the situation calls for urgent measures, but I hope that they will be calm ones, justified on merit alone. In that respect, I should like to ask a few questions about what the Minister said and his present intentions.
First, can he put a figure on the relative effectiveness of automatic train protection (ATP), about 'which many statements have been made? If it is only a partially effective system, it is possible that its introduction might make others lazy about their responsibilities for safety.
Secondly, although the Minister mentioned the Southall inquiry, a number of concerns were expressed this morning at that inquiry about how far Lord Cullen's inquiry might overtake and prejudice it. It would be helpful if the Minister were able to say a word more about how far they may work together. He indicated a separateness which is not in keeping with what was said this morning by many of the parties concerned.
Thirdly, is the Minister satisfied that the Railway Inspectorate, within the Health and Safety Executive, has adequate and skilled staff? It may be clear to others, but it is still not clear to me exactly what its role has been. I had assumed that it was a major one in relation to safety, but most of the discussions since the accident seem to have assumed that that was not the case.
Fourthly, in examining where responsibilities lie, has the rail regulator no responsibilities for safety at the moment? What is the case for placing such responsibilities on him and so, it seems, dispersing responsibilities at the top? What worries me about the now rather more tentative statement about Rail track is the suggestion that the responsibility for safety may be removed from it. That sounds to me an easy and obvious answer, perhaps concerned more with public confidence today than with the long-term best interests of safety. I should like to know more from the Minister and whether he believes that that is a serious possibility or merely something on the table which will be looked at carefully when the calm examination of all the factors takes place.
3.45 p.m.
Lord Macdonald of Tradeston: My Lords, I thank both noble Lords on the Opposition Front Benches for their supportive attitude on the matter. I should like first to address the questions raised by the noble Lord,

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Lord Brabazon. We fear that some people may still be unaccounted for, but the police assure us that the number who might have been killed appears to be much lower than had previously been anticipated.
On support for the bereaved, the train operating companies, the local authorities and the charitable organisations are providing valuable support for the bereaved and injured. I thank all those involved for their efforts.
We believe that we have acted as purposively as we could in these dreadful circumstances and we hope that there will be as little delay as possible in the inquiry to be conducted by Lord Cullen. As we know, the Southall inquiry was delayed by legal proceedings. It is our hope that Lord Cullen will be able to proceed as quickly as possible, having regard to all the relevant facts. We are aware of the possible interaction between the timing of the inquiry and his report and the possibility of any later prosecutions. However, we shall keep the position under review in consultation with the Attorney-General and I am grateful for the offer of support from the Opposition Front Benches to ensure that we reduce any delay.
As the noble Lord, Lord Brabazon, said, the safety culture must be improved. Surely it is fundamental to the whole purpose of Lord Cullen's inquiry. We believe that there is scope for an improvement in that culture across the industry and that these dreadful events have concentrated minds across the industry on the need for a much more co-operative approach and an end to the culture of blame which has existed in some areas.
We hope that we can introduce the train protection warning system as quickly as possible. Orders were laid on 10th August that we wished to see it in place across the network and operating by the end of 2003. However, we know that the Railtrack board has discussed the matter and is investigating to see whether there is any way in which that time-scale can be accelerated. I am grateful to the board for making the matter such a priority.
The noble Lord asked when we had become aware of the increase in the number of signals passed at danger (SPADs). In August this year we were informed by Her Majesty's Railway Inspectorate of the latest figures. More detail was provided in early September when the HSE published its report which also listed action that the industry needed to take to reduce the numbers and dangers. I agree with the observation that a degree of acceptance might have come into attitudes towards signals passed at danger because so many were contained inside the safety margins and because there appeared to be a general reduction from the days of British Rail when, at the start of the decade, there were over 900 such incidents. However, the events of last year interrupted the decline and that is when attention was focused on it.
We were asked whether the transfer from Railtrack of the Safety and Standards Directorate may be premature. I accept what the noble Lord, Lord Brabazon, said, about the report we received. There
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are many well judged and supportive statements in it about the way in which Railtrack conducts its business. I agree with the emphasis put on the fact that while Railtrack looks after the infrastructure, many of the activities on the railways are conducted by the train operating companies.
However, in examining the report, we felt that from inside the industry, from the train operating companies, from the suppliers of equipment and from others on the regulatory side, enough concern was raised about the present operation of the directorate and its location inside Railtrack for us to make it clear that we were minded to see it moved. As I emphasised, Railtrack has accepted our action and welcomed it. About 82 people work in the department; it is not a major part of Railtrack's operations; it is not responsible for all safety on the railways. I want to be clear about that.
I agree that, ultimately, safety is the responsibility of those who carry out the operations. The accountability is theirs, based on principles that I believe go back to 1974 and Lord Robens. The target is to set safety goals and ensure that people are able to organise their activities to meet them, not—as we have been warned against, quite properly, by the noble Lord, Lord Rodgers—to add extra layers of bureaucracy to the process.
In response to the noble Lord, Lord Rodgers, in looking at figures that show the effectiveness of ATP I emphasise that that is a generic term for a whole range of systems. For example, I understand that Eurostar trains that travel to the United Kingdom cross four different systems. What we have been looking at in recent years, beginning with the previous administration, is the effectiveness of a range of systems. In taking their decision not to implement ATP the previous administration responded to the advice of British Rail, Railtrack, the Railways Inspectorate and the HSE. It is also true that the then administration did not have the advantage of a choice of a train protection and warning system. The alternative system had not been developed at that time. We decided that that development was the most practical system to introduce across the country.
I stress that the automatic train protection system was introduced on certain high-speed lines by the previous administration. For example, it exists on the Heathrow Express, Great Western and elements of the Chiltern lines, and will do so on the new Channel Tunnel link. It is not 100 per cent effective and there are difficulties in implementing it. For that reason, the systems presently in use on the Great Western line are prototypes, and new and more advanced systems are planned for the West and East Coast main lines and other fast tracks in prospect. But the system that we have offered is not mutually exclusive with automatic train protection. Certainly, it is a cheaper system but it can be introduced more quickly, perhaps in three to four years. We are informed that, if operated properly with well trained drivers, it would account for 85 per cent. of the present SPAD incidents and ensure that they did not happen. The key factor with all these systems is that they cannot

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be overridden by drivers and are to a large extent proof against human error. That is the present situation.
We are also advised that to introduce ATP more widely, as some have advised, would take longer, perhaps six to seven years, or even 10 years if it was introduced across the country. There is a judgment to be made here. It may be possible to introduce both systems in parallel; they need not be mutually exclusive. We hope that in order to advance on these fronts in addition to the advice of Sir David Davies we shall have the advantage of the findings of the Southall inquiry. I am aware that Professor John Uff was consulted at the time Lord Cullen was appointed. Lord Cullen, who is very experienced in these matters, has also been consulted. Both are content that they can work in parallel with different emphases on their findings, that they can be complementary and that both will be informed by Sir David Davies' findings. We believe that that sequence of inquiries should bring together the best possible information that we can use in the months ahead as quickly as possible. I hope that I have managed to cover most of the main points raised by noble Lords, and I look forward to being able to add further information in subsequent questions.
3.56 p.m.
Lord Clinton-Davis: My Lords, I thank my noble friend for the manner in which he has dealt with the Statement, but can he indicate whether in the terms of reference of the inquiry there will be explicit mention of the role of train drivers, in so far as there may be a need to re-introduce the idea of two train drivers especially on long distance routes, and the role of train guards, bearing in mind that over recent years it appears that there has been a substantial change in practice in that area? Guards now seem to be much more concerned with selling goods to passengers than the duty to protect them, which I understand used to be the rule.
Can my noble friend also indicate whether he approves the statement made very recently by Railtrack, before the accident occurred, that it believed,
"Paddington to be the best protected major terminal station anywhere in the world"?
Was that not remarkable, breathtaking complacency when it was already known that over the years Paddington had been plagued by incidents of signals being passed at red?
Lord Macdonald of Tradeston: My Lords, my noble friend makes a telling point. We shall be looking at all the practices throughout the network, and the breadth of the Cullen remit will ensure that that is so. I have no doubt that many take comfort from the traditional deployment of staff across British Rail. They may also feel that after a period of inevitable dislocation as people are brought together in new groupings it is timely to try to introduce a new culture of safety in the changed structures and re-create the reputation for solidity and good practice that our railways once had. I am not aware of the recent statement relating to the
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approaches to Paddington and the level of protection that they offer. However, in response to my noble friend, we hope that by the time we have completed our inquiries and implemented the findings the approaches to Paddington will be among the safest anywhere.
The Lord Bishop of Hereford: My Lords, first, we thank the Minister for the Statement and welcome him to his responsibilities. We also express deep sympathy with the bereaved and injured as a result of the accident and our great admiration for the heroic work of the emergency services.
I make three brief points, the first of which concerns the safety functions. I am sure that those should be transferred away from Railtrack. I hope that the Government will see fit to put those safety functions into the hands of the rail regulator who is an extremely competent person and stands in a properly independent relationship to Railtrack. Secondly, signal 109 has received a great deal of attention. Railtrack has been heavily criticised in the past week. I believe that some of that criticism is justified and some is misguided or exaggerated. It must be remembered that that signal was altered in March of this year in response to a request from the Health and Safety Executive. All of us will have seen newspaper photographs of the driver's eye view of that signal. One wonders whether the difficulty of sighting that signal is as great as has been maintained.
We should also pay tribute to Railtrack's signalling staff. What has not been mentioned this afternoon, and perhaps is not widely known, is that the signalman who monitored the stretch of track from the Slough signalling centre was instantly aware that the Thames train had passed the signal at red and took immediate action to do what he possibly could—in other words, to put the signal for the Great Western train to red—but alas it was too late and the accident happened. We need to pay tribute to the vigilance of Railtrack's signalling staff and many other staff who work extremely hard and with devoted correctness, often in very stressful circumstances.
Finally, driver morale is absolutely crucial. I am glad that the Government will consider that area. I welcome the Cullen and Davies inquiries. I hope that they will address that issue. Traditionally, the culture of safety on the railways has been paramount and the standard of professionalism among railway staff very high indeed. Has the increase in the number of signals passed at danger to do with the present management of the train operating companies, much of which has passed into the hands of people who are not professional railwaymen and may not understand that paramountcy of safety?
What steps are taken to investigate every signal passed at danger? What is the state of mind of a driver who can pass two warning signals and a signal at red? Is it a lack of professionalism? Is it in most cases to do with some private crisis or anxiety, boredom or familiarity? We know that in very busy areas drivers repeatedly cancel the warning sign because they run against warning signals again and again.

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Perhaps I may conclude with an anecdote. I travel from Cheltenham to Paddington.
Baroness Farrington of Ribbleton: My Lords, with the greatest respect to the right reverend Prelate, there is a time limit of 20 minutes. Perhaps we may hear the anecdote afterwards.
Lord Macdonald of Tradeston: My Lords, the right reverend Prelate raises some fundamental issues. When we consider the safety functions of Railtrack—we have asked an independent team to audit them very quickly—we shall bear in mind some of the questions he has asked about where they might best be relocated. However, the office of the rail regulator is a non-ministerial government department. It is independent. But while the regulator clearly has an important role to play in ensuring that standards are maintained before he grants an operator's licence or any licence exemptions, we do not believe that it would be right to involve the regulator more deeply in the processes of rail safety.
The sighting of the signalling has been a recurring question. Railtrack says that it has tried to address it. I know that the Railway Inspectorate has also brought pressure to bear, not just here but in other areas, to ensure that signalling sighting committees are set up and address those questions as quickly as possible. If any casualness has crept into that regime, the events of last week should ensure that it is driven out as quickly as possible.
I pay tribute to the staff, in particular those at Slough, who tried valiantly but unsuccessfully to stop the accident they saw happening before them on their screens. I am sure that there are as many dedicated, hardworking people on the railways as there ever were. If their morale has been affected by the transitions of recent years, let us hope that by working together inside the industry, creating that co-operative culture of safety and ensuring from all sides of the House and politics that we support the creation of that culture of safety which tries to remove or reduce the adversarial elements which may still be too prevalent we can improve the morale not just of the drivers but of other employees. If the management of the train operating companies needed any reminding of the importance of the duties that it performs, clearly that message has been sent out in the past week. When we consider the regime, people must realise that when lights say "caution" they mean caution and are not to be overridden easily.
I did not answer an earlier question of the noble Lord, Lord Rodgers, about the resources available to the Railway Inspectorate. I know that it has five teams, with three people in each, working up and down the country as well as supporting staff. I was in discussion with it only this morning. It did not suggest to me that it was under-resourced. But if that were the case, I would hope that it would bring the problem forward so that we can ensure that it is addressed.
Lord Campbell of Croy: My Lords, I have a short question to which I hope that there will be a short
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reply. What categories of train carry the black recorder instruments? When they register the information, does it include all the information required for an investigation after an accident?
Lord Macdonald of Tradeston: My Lords, I cannot answer the noble Lord's question in any technical detail. However, I shall inquire and write to him with the information.
Lady Kinloss: My Lords, has any consideration been given to installing seat belts for passengers, particularly on high speed trains? I must declare an interest as I travel on one every week.
Lord Macdonald of Tradeston: My Lords, I have not had registered officially with me from any quarter any formal request for seat belts in trains. I have seen the matter referred to. However, again it is the kind of issue that I am sure will be covered in Lord Cullen's public inquiry.
Lord Hoyle: My Lords, I am sure my noble friend is aware that there is a question mark against the efficiency of TPWS with high speed trains travelling at over 70 miles per hour. Therefore is Sir David Davies' remit wide enough not only to examine TPWS and ATP but also to consider the next generation of digital radio control signalling, ETCS, which might provide a safer system?
Lord Macdonald of Tradeston: My Lords, Sir David Davies' remit is to examine all systems and not just ATP and TPWS. The information available is that TPWS would have coped with about two-thirds of the reported signals passed at danger incidents—as I said earlier, up to 85 per cent with properly trained drivers. Whether the system would work at over 70 miles per hour is as yet unclear. It has been suggested by barristers, I think at the inquiry at Southall, that it would not have worked. The technical advice is that in some circumstances with the equipment properly placed it might have worked. These are the uncertainties which I hope that Sir David Davies will clarify.
Lord Methuen: My Lords, the issue is of particular significance to me. I was a railway signal engineer and I am still a member of the Institution of Railway Signal Engineers, the professional body to which most of these people belong. I know that they will be deeply distressed by what has happened at Paddington.
The industry has a long history of taking note of what happens in these accidents, and of improving their system as a result of the inquiries which have followed, and of working closely with the Railway Inspectorate. I hope, therefore, that an independent Railway Inspectorate will result. I hope that the consideration of criminal proceedings will not delay the inquiry.
Can the Minister comment on the issue—it has not yet been raised—of the absence of rail-mounted heavy lifting gear which could have given more rapid

25
assistance? I understand that the crane had to be brought by road from Carlisle. In the old days of British Rail such heavy rail-mounted equipment would have been at the local depots and available within four hours or so.
Lord Macdonald of Tradeston: My Lords, the availability of the heavy lifting gear has not been raised as yet with me, but I shall take account of what the noble Lord said.
On the suggestion of an independent Railway Inspectorate, let me be clear. We feel that it is for Lord Cullen to make the recommendations. If the recommendations are that there should be inspectorates or other regulatory bodies independent of our department, we shall very gladly accept that advice.
Baroness Young: My Lords, I want to ask two questions. In the wider consideration of the inquiry, will the Government look at the practice of the automatic locking of doors once a train leaves the station? The passengers should not be locked in. As the Minister will be aware, one cannot get off the train; one has to wait for the automatic unlocking before the door will open. Will he satisfy himself that clear instructions are given to passengers who might have to get out of a carriage very quickly under such terrible circumstances?
Secondly, with the greatly increased number of passengers on trains, is the Minister satisfied about the regulations which govern the number of standing passengers'? It is a common sight on trains. Ought not there to be something for passengers to hold on to so that if the train has to stop suddenly for whatever reason they are in a safer position?
Lord Macdonald of Tradeston: My Lords, I take the point, which was well made. Probably all of us were unnerved to read about the problems which passengers had with doors. We welcomed the introduction of central locking because we understood that it would save many lives per year. Indeed, it has.
As regards overcrowding, such an event causes one to take stock and to wonder about people standing in such crowded circumstances at such high speeds. Again, I am sure that Lord Cullen's inquiry will address that issue
Lord Janner of Braunstone: My Lords, my noble friend referred to possible prosecutions. Will he refer the Health and Safety Commission to Section 37 of the Health and Safety at Work etc. Act which provides that, where a director, manager or company secretary is personally responsible through his or her consent, connivance or neglect for a hazard, that individual is liable to be prosecuted? Does he agree that there is far too much complacency among individual directors and managers, with the belief always that if there is a disaster the company will be prosecuted and it will have to pay a fine and will suffer loss of good name? Surely if individuals understood their legal as well as
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their criminal and moral responsibilities they might take more interest in avoiding such awful dangers, the litany of which the Minister set out in his statement.
Lord Macdonald of Tradeston: My Lords, I accept the general principle stated by the noble Lord. I hope that in this case we shall see the public inquiries proceeding without undue delay caused by legal proceedings. However, if changes to the law are required in order to ensure that responsibility is laid with those who might have been responsible—and I suggest nothing in this case—I am sure that such legislation will be brought before Parliament in due course.
Lord Ezra: My Lords, for many years I worked in an industry in which safety was of paramount importance; namely, the mining industry. The success achieved in it becoming the safest deep-mining industry in the world was due to the highly developed culture of safety throughout the enterprise, right from the top to the bottom.
The culture of safety has been mentioned by many speakers today, but will the Minister accept that it is not enough to speak about it or even to make directions about it? Does he agree that it must be given unremitting attention, careful planning and the introduction of a competitive spirit among operators to achieve the greatest safety records and the introduction of new safety measures? That is as important as, if not more important than, clarifying the regulatory system.
Lord Macdonald of Tradeston: My Lords, I agree with the points made by the noble Lord. If the railways require models to look at as they regain their reputation for safety, they will find useful paradigms in industries such as mining. Furthermore, we can look to the aviation industry for a strong safety culture. In doing so, we can dispel the belief that private companies cannot be imbued with a safety culture I do not believe that the two are incompatible. We would like to see the railway industry aspiring to the same culture in safety as exists in the aviation industry and which existed in the mining industry.

Welfare Reform and Pensions Bill
4.14 p.m.
Report received.
Lord Rix Lord Rix moved Amendment No. 1:
Before Clause 1, insert the following new clause—

PART A1 ADDITIONAL PENSION
ADDITIONAL PENSION FOR WIDOWS OR WIDOWERS
.—(1) The Secretary of State shall by regulations make provision for one or more of the following—

(a) to substitute, in any provision of the Contributions and Benefits Act which relates to additional pension for widows or widowers, for any sum payable by way of such pension as is derived from the contributions of a deceased spouse, such higher sum as may be prescribed;

27

(b) to substitute, in any such provision, for any prescribed reference to the year 2000, a reference to such later year as may be prescribed;

(c) to establish a scheme to compensate persons who are widowed after 5th April 2000 and who suffered loss as a result of any action or failure to act in reliance on incorrect information received from a Government department with respect to the reduction in the additional pension payable to them as a result of the enactment of the former section 19 of the Social Security Act 1986.

(2) If regulations under subsection (1) are not in force on 5th April 2000, then until such time as such regulations are in force, the provisions of the Contributions and Benefits Act to which paragraph (a) of that subsection apply shall continue to have effect as in force on that date.
(3) No regulations shall be made under subsection (1) unless a draft of the regulations has been laid before, and approved by a resolution of, each House of Parliament.").
The noble Lord said: My Lords, I shall also refer to Amendments Nos. 49, 101, 102 and 103.
A number of your Lordships are by now familiar with the issues, but I need to explain the emergence at this late stage of a new clause which brings together the previous alternative amendments on additional inherited pensions for widows and widowers. I shall be brief since the principles are simple, albeit the issues are complex once one tackles the detail.
From April next year, people who had relied on inheriting a 100 per cent pension from their spouse—because that is what the law originally provided and that is what they had consistently been told—will find that 100 per cent inheritance reduced to 50 per cent unless this Bill makes provision to the contrary. There is not likely to be another legislative opportunity to make amends before next April.
The mischief goes back to cost-cutting legislation in 1986. That legislation was proposed by the government of the time and approved, not without protest, by the Parliament of the time. Whether from shame or negligence, nobody told the intended victims that they were to lose the rights already acquired before the 1986 legislation and that they were accruing rights at half the expected rate thereafter.
Since they were ignorant of the position, contributors lost the opportunity to make alternative provision for their spouse. This Government have, to their credit, accepted that something needs to be done. Findings of maladministration or illegality, or both, may just be round the corner. The something that might need to be done could be very expensive and I am aware that hard thinking is going on in Whitehall. We might not have a firm statement today on what is to be done, but I did not want your Lordships to move on with no provision made and each of the three amendments standing in the names of, respectively, the noble Lord, Lord Higgins, the noble Earl, Lord Russell, and myself rejected by the Government.
I have therefore tabled a multi-purpose amendment offering a choice of one or other of our respective solutions or some combination of them. The core requirement is that the Government must, before next April, increase the reduced pensions, delay the reduction or compensate those who have lost as a result of the reduction, or some combinations of those.
If the Government have not done so, they must freeze the rules as they are at present until such time as they come forward with a solution. The Government's proposals will require approval in both Houses. I hope that the Minister will accept the amendment. I rather suspect that, like Martin Luther in other circumstances, she can do no other. I beg to move.
Lord Higgins: My Lords, this is a matter which your Lordships debated in Committee and therefore much of the background is before you. However, there are two essential points at issue. First, in 1986 legislation was passed which reduced the widows pension under SERPS by half. It was true to say that at that time Ministers said that this would preserve their rights for the remainder of this century. So there was a very long period between the announcement of the reduction and the time when it came to be implemented, which is soon.
On the substance of the issue, I do not want to dissent from the view taken by the previous government, and, as I understand it, the present Government, with regard to the long-term implications. Our grave concern—reflected in Amendment No. 49—is that the matter was not brought to the attention of those affected. That is not at all a party issue because, alas, the governments of both the main parties have been at fault. That was the case under the previous government and it has been so until quite recently under the present Government.
It has been said—and I do not dissent from it—that those who did not know of the proposed change had suffered as a result of having been misinformed. Consequently, they found that they might have taken action to ameliorate the effect of the change, but did not do so because they were either not informed at all, or in many cases were actually given wrong information. In previous debates, the noble Lord, Lord Rix, suggested that he had quite clear written evidence that that was so. Indeed, wrong information was also given in telephone conversations. Therefore, the question was what should be done to compensate those who may have lost as a result of that lack of information or misinformation. Mr Stephen Timms in another place said that compensation will be paid to anyone,
"who can establish that he or she received advice that did not reflect the change from April 2000 and, as a result, acted to their detriment".—[Official Report, 8/3/99; col. 5.]
There is no question at all that the Government have clearly said that they believe that it is right that compensation should be paid. That is certainly a view which we on this side of the House believe to be the case. The Minister's immediate response was to say that she was taking legal advice on the matter. We have not yet heard what that legal advice is. Perhaps it would be helpful if this afternoon the noble Baroness were to tell the House.
The other development was that a case was put to the Parliamentary Ombudsman to look into the question of whether there has been maladministration. The ombudsman has said that he will report in good time before 6th April 2000. Neither the noble Lord, Lord Rix, nor I are very familiar with the practice at

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Labour Party conferences. I suppose that the amendment before us might reasonably be described as "composite". It does indeed cover a number of different aspects of the problem. In particular, it gives the Government extremely wide discretion. It suggests that the Secretary of State shall have powers by regulation to,
"make provision for one or more of the following".
So he does not have to make that provision for all of them; he can do it for any one of them. As I have already indicated, I would not be in favour of him doing that as far as regards the substantive underlying issue. I make that absolutely clear.
On the other hand, I am greatly in favour of him doing so to ensure that action is taken regarding the proposals for compensation before April 2000. As I understand it, the noble Lord's amendment effectively provides some sanction in that respect; namely, that if the Government do not produce the compensation scheme by then, the status quo shall prevail. In line with my amendment, the noble Lord's amendment would encourage the Government to make such a regulation and to ensure that the scheme is operative by then. He is effectively putting a deadline on the whole operation. I believe that it is right that we should do that; the matter has been going on for quite a considerable time. The Minister's statement to which I referred was as long ago as last March. Presumably, the ombudsman is long advanced in his preparations. I therefore hope that in the light of that the Minister is able to accept the amendment.
Earl Russell: My Lords, I congratulate the noble Lord, Lord Rix, on the persistence and determination with which he has pursued the issue. I congratulate him also on the remarkable ingenuity of his present amendment, and on its elegance. It gives the Government a degree of flexibility that normally exists only in Whitehall's daydreams. I also offer congratulations to my honourable friend Mr Rendel, who first raised the issue in another place and discovered what I believe is still the latest example of misinformation known to us, which is as recent as April of this year.
That example illustrates that this is not a party matter. We have here not a failing of any political party, but of government. It is therefore proper for government to answer that failure. A great many people have either taken actions or failed to take actions which they would otherwise have taken as a consequence of that inaccurate information. The equitable case for some form of compensation is very strong indeed. We have hitherto been arguing about exactly what form that should take. The noble Lord does not mind which method the Government use, but they must use one of them. I shall go along with that.
We have had a lot of argument in the past about the difficulty of discovering exactly who has been misinformed. I understand that difficulty, but if the Government were to be too impressed by that argument, or if they did not wish to accept the amendment of the noble Lord, Lord Rix, they might find that they were left with my Amendment No. 102,
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which is in this group. It has the merit of great simplicity. It simply postpones the introduction of the change by 10 years to allow people to make the necessary provision. However, I believe that the Minister would find that extremely expensive. I do not know what she is going to do in respect of the amendment in the name of the noble Lord, Lord Rix, but if she has been making her financial calculations, she would be well advised to accept it:
"Always keep a-hold of Nurse
For fear of finding something worse".
Lord Davies of Coity: My Lords, I support the main and overwhelming thrust of the Bill because it is intended to reform the welfare and pensions provisions. However, it is intended to do not only that; it is intended to reform those provisions to ensure a greater degree of fairness, and to enable those people who most need help to receive it. I agree that the noble Lord, Lord Rix, has drawn attention to a particular anomaly which will undoubtedly display discrimination. Whether we like it or not, that discrimination was brought about as a result of what was done by the previous administration in 1986. The time bomb was set ticking then and will explode in April next year unless it is corrected. That means that one widow will receive the full entitlement and another widow will receive half the entitlement, depending on which day the husband dies. That is how close it is.
Given the opposition presented by the Labour Opposition in the House of Commons in 1986, I believe that the Government should seriously consider removing that discrimination. They are not responsible for what happened in 1986, but they can correct it now. I certainly hope that the Minister will give us some relief on that matter.
Lord Renton: My Lords, I have been a widower for the past 13½ years. I am now in my 90s. When one's wife died, one noticed and felt keenly that one became a one-man band. One had to do a lot of things which one had never contemplated doing before. Fortunately, thanks to the pension arrangements and my own savings, that did not hurt me financially. But I can imagine that it would hurt a good many people financially, husbands as well as wives.
Therefore, although I broadly support this amendment, I think that perhaps some kind of means test is desirable. Generally speaking I do not like means tests, but obviously if one spouse dies, the other spouse may not be left with sufficient funds to keep things going. He or she may then become dependent upon employing somebody who was not employed before or who must be employed to a greater extent. That is so in my case—our housekeeper now has to do far more than she used to do. So I believe there is a case of substance here and that it is a matter which applies as much to widowers as to widows.
4.30 p.m.
The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham): My Lords, the new clause proposed by the

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noble Lord, Lord Rix, requires the Secretary of State to introduce regulations which have to be approved by both Houses of Parliament to alter the amount of SERPS payable to widows and widowers or either to put off the changes to SERPS for widows and widowers or to compensate those affected by the change. If no regulations were made, the new clause proposed by the noble Lord, Lord Rix, to which I refer at the moment, envisages that the current rules, whereby widows and widowers may inherit all their spouse's SERPS, continue to apply.
The noble Lord, Lord Rix, has also tabled a second amendment which would introduce a phased method of compensation. That proposal was debated in Committee. It would introduce a complex formula to provide compensation on a sliding scale for people who had paid contributions over the affected time period. The rate of compensation payable would depend upon the length of time for which contributions had been paid, with those who had paid contributions between 1978 and 1986 receiving full compensation and those thereafter a reduced sum. There are consequences to this amendment; for example, that the same amount of SERPS might be in payment but, if Mr A had built it up over a longer time than Mr B, Mr A's widow's pension would be that much higher. Therefore there are difficulties with that amendment although it seeks to engage with a very difficult issue: that those closest to that decision are those least likely to be able to adjust their financial circumstances.
The amendments proposed by the noble Lord, Lord Higgins, and other noble Lords would prevent implementation of the change unless the Government had introduced by 5th April 2000 a scheme to compensate those people who had not been able to make alternative provision because they had received inadequate or misleading information from the department. As I explained in Committee, to reverse the change or introduce an open-ended compensation scheme would have the same early and very costly effect but would also carry with it a bill for future expenditure which would continue to increase.
The Liberal Democrat amendment moved by the noble Earl, Lord Russell, would delay the change until 2010. The cumulative cost of that is, I believe, well known. It would be more than £5.5 billion by 2010 with a continuing cost of £1 billion a year for some time after that. We may well be talking about £10 billion or £11 billion or more in total—huge sums of money.
These proposals were debated in Committee and, as I made clear then, the Government recognise that the situation they have inherited is intolerable. The previous government enacted the changes to inherited SERPS 13 years ago. The implementation date was set for April 2000 so that 14 years' notice was given to allow people who might be affected plenty of time to alter their financial arrangements. That government promised wide publicity of the changes yet they did nothing. Not only did they not publicise those changes as they had a duty to do, but they effectively denied
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that any change would happen in terms of the misleading advice that people continued to receive. Misleading information that no change would take place even as the change had already happened in law continued to be given to people under the previous administration for 14 years.
When this Government came into office, they knew nothing of the problem and found out about it only at the end of last year. Since then they have been exploring the problem and all the options for putting the matter right. As noble Lords have said and as the noble Lord, Lord Rix, expressed so eloquently, there is widespread concern about this matter, as he argued in Committee. Many people are deeply worried and they want to know what the Government are proposing to do to put it right. As I have said, there is no easy answer. It is a multi-billion pound problem. Should the Government delay or phase in the change, it would cost £5.5 billion by 2010 with a continuing cost of around £1 billion a year, taking it up to £10 billion or more in total.
We cannot accept the amendment in the name of the noble Lord, Lord Higgins. It attempts to compensate individuals who have received incorrect information and subsequently acted to their detriment or failed to act to their benefit. That could result in paying out less but could result in a big bill for administration. It would also take time to set up. Questions of proof of misinformation, etc, as I think the House acknowledges, would be very complex. Letters or relevant records have probably been scrapped by now; phone calls have probably not been recorded; and there is probably no evidence of counter inquiries.
The noble Lord, Lord Higgins, said that it was not a party matter. I agree that seeking to resolve the problem is not a party matter. It is, however, a party matter which we inherited and it is a mess with which we are trying to deal.
As I believe the noble Lord, Lord Rix, is acknowledging with his proposed new clause, it is important to get the decision right. It is complex; it is expensive. The problem has taken 12 years to emerge. We have not yet had 12 months to resolve it, and we are talking about billions and billions of pounds.
Proposals put forward by the noble Lords, Lord Higgins and Lord Goodhart, would force the Government into introducing a compensation scheme or deferring the change. In contrast, the noble Lord, Lord Rix, with his new clause, is seeking to provide a legislative base for a range of decisions although he has made clear his favourite option in Amendments Nos. 101 and 103. Therefore, the new clause would enable the Government to act in time because legislation in the next parliamentary Session could be too late for some of these options without pre-empting the final decisions.
I can tell the House that the Government will announce the way forward on this exceptionally difficult issue before this Bill completes its passage. Since that is the case and given that the amendment of

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the noble Lord, Lord Rix, does not prejudge the outcome of our deliberations, I am extremely happy to accept it today.
Noble Lords: Hear, hear!
Baroness Hollis of Heigham: My Lords, this does not imply acceptance of any specific proposal but it means that in due course the Government will propose further amendments. They accept the fact that this Bill should make some provision for dealing with the problem which we inherited. As the noble Lord, Lord Rix, again very eloquently said in Committee, it will allow us to address the issue. The public should know that we are taking on board their concerns; that we are addressing the problem; and to that degree seek to reduce some of their anxiety that the clock is ticking and nothing will be done. I cannot as a result accept the subsequent and specific amendments in this group. However, the noble Lord, Lord Rix, has offered in his new clause a truly statesmanlike way forward in the true spirit of a Cross-Bencher. I am glad he felt able to do so and it is very clear today that he was speaking for the entire House. Therefore, on behalf of the Government, I have great pleasure in accepting his first amendment.
Noble Lords: Hear, hear!
Lord Rix: My Lords, I am certain I speak for all parts of your Lordships' House when I say how delighted—indeed staggered, but certainly delighted—I am that the Minister and the Government have seen fit to accept my amendment. I assure the Minister that many, many elderly husbands and wives, putative widows and widowers all, will sleep more easily in their beds tonight knowing that their spouses will be better protected when bereavement eventually strikes. I am of course an interested party in this matter. Therefore, on behalf of my wife and myself and tens of thousands of other husbands and wives: thank you.
On Question, amendment agreed to.
Baroness Castle of Blackburn Baroness Castle of Blackburn moved Amendment No. 2:
Before Clause 1, insert the following new clause—

PART I: COMMENCEMENT
(" . Part I of this Act shall not have effect until comprehensive legislation embodying the pensions proposals outlined in "A new contract for welfare: Partnership In Pensions" (Command 4179) has been introduced.").
The noble Baroness said: The purpose of the amendment is to ensure that Part I, which deals with the stakeholder pensions, shall not be proceeded with until we have the whole picture of the Government's pension provision in legislative form.
The Minister had great fun with me in Committee because I inadvertently quoted the wrong Green Paper. I have corrected that in this amendment, by referring to the December 1998 Green Paper Partnership in Pensions. The Minister rubbed my nose in it, saying that if only I had read that document, I would have understood and seen the whole picture of
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government policy. She said that there was indeed a debate on the scheme in which I had taken part—so how could I claim that the Government had not presented the whole picture?
In the first place, there has never been a debate on that Green Paper in this House. A Statement made in another place was repeated in this House by the Minister, which is the custom. It is also the custom in this House to ask questions on a Statement, not to debate it. When I tried to put in my pennyworth, I was slapped over the knuckles by my noble friend Lord McIntosh of Haringey on the Front Bench, who pointed out that I had taken four minutes of the 20 minutes allowed to Back-Benchers to question Ministers on a Statement. I hope that the Minister will correct the misleading impression she gave that we all had plenty of opportunity to discuss the Green Paper and should therefore be familiar with it.
The concession that the Minister has just made to Lord Rix shows that she is today in a giving mood and that we shall get other concessions as we go along. Some of us laboured very hard in Committee to put forward reasoned arguments for important changes. We did not get much response. Amendment No. 2 is an example of a reasoned argument for important change.
The tenor of our complaint, as embodied in the amendment, is that it is disrespectful to Parliament to bring forward a Bill one section of which deals with the stakeholder pension, on which we are asked to vote and which will become law, whereas we are left in the dark about what the Government really intend over the pensions picture as a whole. I must in all gentleness point out to the Minister that the fact that certain proposals have been put forward in one of the Government's famous glossies called a "Green Paper"—although I believe it was actually yellow and blue—is not enough evidence for us to go on. Is it not true that until one gets to the stern moment of legislative decision, one does not get anything really clear-cut?
I remind the Minister that in another glossy—our manifesto in the last general election—we made a pledge to retain SERPS for those who wished to remain in it. The Minister queried me on that as well. I beg her to read that that manifesto most carefully, as I have done, in which it is indicated, although not in the Bill, that SERPS is to be abolished and replaced by a combination of the state second pension and the stakeholder pension. What is the Government's comprehensive aim on pensions? I urge the House to take this seriously. This is not just a would-be clever debating point.
We are told that the Government's aim with the sort of structure hinted at—but which is not before us in the Bill—will result in moving all pensioners out of dependence on means-testing, yet the Government have admitted that even with the combination of stakeholder pension and state second pension, by 2050 one in four pensioners in this country will still be dependent on means-tested aid. How could that possibly be accepted by the House? Ought we not to examine how that disastrous situation is reached?
Poverty is not just about the lack of certain material things. It is also about being deprived of one's dignity and independence. If the Government envisage that in the middle of the next century one in four pensioners will still be dependent on the uncertain charity of the taxpayer, that is a confession that the Government's structure is inadequate—and should affect their policy on restoring the earnings link, for example.
There are other aspects of pensions policy that some of us have urged for so long. We shall go on urging them. We will not be silenced. I know that the Government must be feeling immensely pleased with the smoothness with which they are getting away with fragmenting pensions policy into salami slices and slipping them all through this House because most people cannot be expected to understand what is going on. We insist that the Government are honest with us and give a clear overall picture in a form that we can then vote upon before they ask us to vote on one of their salami slices.
I hope that the House will take Amendment No. 2 seriously and support my noble friend Lady Turner of Camden and me when we press it to a vote—unless of course the Minister plans to make another concession early this afternoon. I beg to move.
4.45 p.m.
Lord Higgins: My Lords, in a previous debate on these matters the noble Baroness said that if she and I went on agreeing, people would start talking. I find myself, with some surprise, in agreement with a considerable number of the points she made both in Committee and today. The noble Baroness rightly quotes the Labour Party manifesto, which stated that Labour would retain SERPS for those who wished to remain in it. Perhaps the Minister will say whether or not that is still the Government's position. As I understand it, the Government do not propose to do that which was stated in their manifesto but instead say that people will be better off under the state second pension.
Perhaps I ought to repeat something that I said in Committee: there is some danger in these debates of getting into a semantic difficulty if we do not clearly distinguish between the state second pension—in capital letters, so to speak—and a second pension generally, which may refer to a whole range of different things. If the Government are, indeed, saying that the state second pension is a better substitute for SERPS, that needs to be carefully examined.
On closer inspection, there are three major catches. First, those higher levels of entitlement will only arrive on future earnings from a given implementation date. In other words, there will be no increase in entitlement on the basis of current or past contributions. I imagine that it will be almost a generation before one notices any difference. Secondly, although employees' rights to the new second pension on earnings up to £9,000 will, in the next century, accrue at double the rate of SERPS, nonetheless, that impressive rise will be substantially paid for and compensated by halving the
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rate of accrual in the next band of income from £9,000 to £18,500. Perhaps the Minister could confirm that. I am seeking to get at what the second state pension is all about. Thirdly, a number of those in receipt of the state pension will inevitably find that they are receiving it instead of means-tested benefits. That point is not reflected properly in the tables and charts in the Green Paper to which the noble Baroness now rightly refers.
If I understand her correctly, the noble Baroness argues that it is difficult to take a firm view on the question of stakeholder pensions, and so on, if we do not have before us the Government's overall proposals and, as she rightly said, in legislative form. It is the case that one does not discover what is going on until one sees the proposals in the form of a Bill before your Lordships' House.
Much greater clarity is needed as to exactly how the state second pension and the stakeholder pension will fit together. The Green Paper to which the amendment of the noble Baroness refers is a lengthy document which will take some while to implement on a comprehensive basis. Nonetheless, paragraph 31 states:
"Once stakeholder pension schemes have become established (we expect in about five years time), the State Second Pension will become flat rate, paying all its members at a single rate which will be double [that] … under SERPS".
However, how we move from one to the other is not at all clear. It will be extremely difficult to appraise the stakeholder pension unless we are much clearer than we are at present on the state second pension. I hope that the Minister, in the sympathetic mode in which she begun the afternoon, will be able to tell us rather more about the way the two fit together. My impression is that that is now quite difficult to ascertain, and the timing even more so. However, apparently, as the stakeholder pension proceeds, so the state second pension is to be transformed. It will help those at the very bottom end of the scale but will cease to help those further up the scale and do nothing for those in occupational schemes which, I believe everyone is now agreed, is the best way for pension provision to be made.
One of the regrettable aspects about this situation is that as I understand it—perhaps the Minister could confirm this—since the present Government came into office there has not been set up a single final salary-related pension scheme. That is perhaps not least because of the action taken by the Chancellor of the Exchequer in his first Budget with regard to changes in the tax system. There is a real danger that unless we are much clearer on the points made by the noble Baroness, people will defer taking decisions on pensions. That is of grave concern. We all know that it is important to contribute early on to a pension. The contributions in the early years produce far more than those made later. However, the uncertainty now being created is likely to lead people to delay in that way.
I fear also that unless we are clearer on such matters and unless this is carried out in a comprehensive way, as requested by the noble Baroness, a number of people will also hesitate to take up their company pensions. I have some experience of that from my own

37
knowledge. Some people are saying, "If there are stakeholder pensions, we will not yet take up a company pension because we do not know whether the stakeholder pension will be better."
There are now some products about which we are told, "These are, effectively, a pre-cursor to the stakeholder pension. Take out a new pension with this company and we will convert it into a stakeholder one". However, that does not solve the problem.
We have a great deal of business ahead of us. However, it seems to me, particularly with regard to the relationship between the stakeholder pension and the second pension, that considerably more clarity is needed than we have at present. Finally, perhaps the Minister can tell us when she expects legislation on the second state pension to come before the House.
Lord Goodhart: My Lords, nobody in this House can speak on the subject of pensions with authority equal to that of the noble Baroness, Lady Castle of Blackburn. She was the author of the 1975 legislation which has been the basis of our system of occupational and personal pensions ever since. Anything she says, therefore, has to be listened to with great attention.
We, on these Benches, have considerable sympathy for the amendment tabled by the noble Baroness, though for somewhat different reasons from those which she expressed. It would, perhaps, be unwise for her to assume that our sympathy would go as far as supporting her in the Division Lobby should she seek to divide the House.
The noble Baroness based her amendment on her objection to the abolition of SERPS and the failure of the Government to go back to the earnings-link for the basic state pension. On those issues, we support the Government rather than the noble Baroness. I do not think that it is appropriate for me to go into those reasons now. No doubt they will be raised when we reach Amendments Nos. 53 and 55 tabled in the names of the noble Baronesses, Lady Castle of Blackburn and Lady Turner of Camden. However, perhaps for reasons more similar to those raised by the noble Lord, Lord Higgins, we too regret that the opportunity was not taken up to introduce legislation to set out in more detail the Government's proposals for the second state pension.
It is clear that this is a three-legged stool. We already have a minimum income guarantee, which does not require primary legislation; the stakeholder pension and, in between the two is a second state pension. We have the first and third legs but we do not know what the legislation is to be regarding the second state pension. We believe that the interface between that and the stakeholder pension will be essential to the proper working of the new pension system which the Government propose to introduce, and with which we have a considerable measure of sympathy. We therefore regret that the Government did not feel able to introduce the legislation for the second state pension at the same time as that introduced for the stakeholder pension.
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If the stakeholder pension is to go ahead before the second state pension is introduced, it will have some value. It will operate as what might be called a "cheap and cheerful" alternative to the more elaborate rules which now govern occupational and personal pensions. To that extent it is all to the good and we would not object to its introduction even before the second state pension is introduced.
However, I take the opportunity to say that we regret the failure to deal now with the second state pension. We shall listen with care to what the Minister says as to why it has been impossible to do that now.
5 p.m.
Lord Clarke of Hampstead: My Lords, like the previous speaker, I have listened intently to the expertise of my noble friend Lady Castle, not only in this debate, but over many years. I therefore make my comments with some trepidation.
Amendment No. 2 is clear. It says that we should do nothing to improve the law on pensions until we can do everything. But in my view, to delay progress would be wrong. It is one thing to say that we must assess the Government's pensions proposals as a whole—that is what the Government asked us to do when they published their proposals last December in Partnership in Pensions. It is another thing entirely to say that we should not act on any of those proposals until we can act on them all.
It is surely right that we should make progress as and when we can. Some of the Government's proposals do not need primary legislation. In relation to the minimum income guarantee for pensioners, for example, it must be right that the Government act immediately to help those pensioners who depend on income support. Is it not right that the poorest pensioners should receive priority treatment'' What advantage could there be in delaying helping them until the whole of the Government's pensions programme can be implemented?
Similarly, I believe that the Government are right to press ahead with laying down the legal foundations for stakeholder pensions. We should remember that stakeholder pensions are aimed at the many people who do not at present receive a sufficient wage to enable them to save for their retirement. Occupational pensions are a good option for those whose employer provides one. Personal pensions are fine for those who earn enough to make them financially worth while. But what of those whose employer does not provide an occupational scheme or those on moderate earnings who find the cost of personal pensions prohibitively high? Surely we should be looking to help them as soon as we reasonably can.
Stakeholder pensions are a new idea and will require an innovative response from the pensions industry. The Government need to make it clear to the pensions industry that they are committed to the success of the

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new scheme. If legislation were delayed, the industry would begin to doubt the Government's intentions, and that would benefit nobody.
Baroness Turner of Camden: My Lords, I support my noble friend's amendment. I attached my name to it. Partnership in Pensions, the document to which it makes reference, sets out an entirely new framework for pensions provision. It is a pensions framework quite different from anything that we have seen before. Chapter 6 covers reform of SERPS and refers to the second state pension. Chapter 7 introduces the framework for the stakeholder pensions.
Chapter 7 is extremely detailed and it is clear that a number of alternatives have been under consideration. We know also that the Government engaged on a comprehensive consultation exercise. I am in favour of that, but we still do not know what the results will be and how the proposed framework will be affected, particularly (as some previous speakers said) in relation to the whole question of the second state pension.
As was stated by the noble Lord, Lord Higgins, we must also consider the uncertainty created in the minds of those who might otherwise be involved with occupational pension provision. I recently visited a conference arranged by the National Association of Pension Funds. It is concerned about the possibility that stakeholder provision, as presently formulated, could have a deleterious effect on occupational pension schemes in the future. Of course, we do not know whether or not that will be the case; we have not seen the whole framework of pensions provision and do not know what the complete picture will be.
It makes sense, therefore, that we should have the opportunity of looking at pensions provision as a whole before segments of it are put into operation. On those grounds, I support my noble friend's amendment.
Baroness Hollis of Heigham: My Lords, Amendment No. 2 would insert a condition that Part I of the Bill shall not take effect until comprehensive legislation has been introduced on our wider proposals for pensions reform. We discussed a similar amendment in Committee.
The proposals we outlined in detail in the Green Paper, Partnership in Pensions, published in December 1998, set out a new insurance contract for pensions. As my noble friend said, it was brought forward in a Statement; a Green Paper—not a "glossy" as my noble friend described (there is nothing "glossy" about it, except the colour on the front)—consisting of over 105 pages, together with appendices. Questions were asked on that paper following the delivery of the Statement. Since then, as my noble friend will be aware, if there was any ambiguity in the House as to what the Government intended, there has been ample opportunity to table an Unstarred Question or to seek a Wednesday debate on the subject. No Peer has done so. We had the Statement on the Green Paper, and we have had the occasional Starred Question on the
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matter. Until this late stage, noble Lords seemed to be well aware of the contours of the Government's proposals.
As the noble Lord, Lord Goodhart, said, it is a three-step approach. The first step is for those, mostly elderly, people who have not had the opportunity to build up a pension and who want to make sure that they receive adequate protection in their old age; the second is the state second pension for low earners. The scheme will reform SERPS. It will be a "pay-as-you-go" scheme for those who would otherwise have little access to a decent pension in their old age. Thirdly, there will be the stakeholder pension, which is what we are discussing today.
Those contours have been clear for almost 12 months. If any noble Lords were uncertain about the Government's proposals, it was open to them at any stage to table an Unstarred Question or to seek a debate. They have not chosen to do so. That is why it is puzzling that this matter should arise at this late stage.
Our approach in the Green Paper was to build a modern and affordable pensions system which ensures that everyone has the opportunity to achieve a decent income in retirement. The pensions system we inherited does not do that. We recognise the strengths of the current system, but it leaves several gaps. First, it does nothing to encourage those who could, but do not, save for their retirement, to begin making provision. Secondly, it does nothing to help those who cannot afford to save to achieve security when they retire. Thirdly, those on low earnings or outside the labour market, those most in need of help, particularly women in part-time and low paid jobs, do not benefit from SERPS. Finally, many people do not have access to high quality, second-tier pensions.
Occupational pension schemes are one of the great welfare success stories, but they are not available to everyone. Personal pensions can be a useful substitute where people change jobs frequently, but again are not suitable for everyone, particularly those with moderate or low earnings. My noble friend Lady Turner has been in the forefront—rightly so—of criticising some of the misselling activity that has lain behind their growth.
Our integrated strategy for the future of pensions aims to meet the needs of those different groups. First, we are committed to ensuring security in retirement—that is, security for current pensioners. We have moved quickly to put policies into place. As the noble Lord, Lord Goodhart, acknowledged, we introduced the new minimum income guarantee in April to provide immediate help to today's poorest pensioners, increasing their income support by three times the rate of inflation. Single pensioners now receive £75, couples receive £116.
So that all pensioners can share in rising national prosperity, our long-term aim, as resources permit, is for the minimum income guarantee to be increased in line with earnings, not prices. As a first step towards that, the increase next April will be based on earnings. That will ensure that the value of the extra help is maintained next year.

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The minimum income guarantee—pensioners can have access to that through home visits, the post or the telephone; they do not need to step inside a benefit office—is an entitlement which will make a real difference to the poorest pensioners as quickly as possible. It is the most effective way to help those most in need.
But we are doing much more than that. In our first Budget we allocated £200 million, introducing winter fuel payments for pensioners. The last Budget increased winter fuel payments to £100 each, which will benefit around 10 million pensioners and over 7 million households. We also gave a guarantee on tax—a package worth £1 billion overall. As well as that, we reduced VAT on fuel and scrapped eye-test charges for the over-60s. But that is only the first step in a strategy designed to extend the benefits of secure retirement to all our pensioners.
My noble friend Lady Castle asked about the Government's proposals. Our plans are to reform both state and private pensions so that all those who spend a lifetime in work or in caring will build up rights to a pension sufficient to take them above the minimum income guarantee. If they are low earners, they will probably go into the reformed SERPS, but because the state second pension is SERPS without the "ER"—the earnings related aspect—it will redistribute to the poorest, as SERPS never did.
Secondly, with the state second pension, those earning under £9,000 a year and those who cannot work because they are caring, ill or disabled will see a dramatic improvement in their state pension provision. For example, someone on £6,000 a year in 20/50 terms will be getting £45 on SERPS but on the state second pension he or she would be getting nearly double that sum with £80. So the state second pension will reform SERPS for the better as regards those who are the least well-off.
In this Bill we are introducing reforms to make it easier for those future pensioners who can save in a funded scheme to do so. Our new low-cost and flexible stakeholder pension schemes will provide a better return for the hard-earned savings of moderate earners. We want to give these people the opportunity to boost their retirement income by providing access to a good value pension scheme—stakeholder pensions—to which they can contribute extra when their earnings and other circumstances allow.
As I said before, personal pensions can provide a reasonable option for many. This Bill sets out the legislative framework for stakeholder pension schemes to provide the value for money and flexibility which is missing from so many existing arrangements. We think that it is vital that stakeholder pension schemes are available for people to join as soon as possible. Even a short delay in starting a pension arrangement can have a considerable impact on the level of pension which is available at retirement; for example, someone aged 25 who delays starting a pension for five years could lose 16 per cent of his potential pension, while someone aged 45 could lose one quarter of his pension if he waited for five years.
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That is why we have brought forward this legislation at the earliest opportunity, following the publication of the Green Paper. Potential scheme providers need time to plan and make preparations, so they need to know what we will be asking them to do. The industry needs to know where it stands and not have the detailed proposals, in terms of the regulations upon which we have been consulting with it over the summer, thrown up into the air by an amendment moved at the Report stage of this Bill. That would be unfair to the industry and unfair to those who will benefit from the new arrangements that will be put into place.
The Government need to ensure that the necessary administrative and regulatory arrangements are put in place so that we can ensure that schemes are efficient and secure. We need to act with some urgency, but we are also conscious of the need to get the details right.
I believe that the noble Lord, Lord Higgins, asked me two specific questions. First, he asked me about the state second pension and the accrual rates. He asked me to explain what we intend to achieve by introducing a 40 per cent accrual rate up to £9,000. The noble Lord thought that that would be paid for by a 10 per cent accrual rate for the band £9,000 to £20,000. Perhaps I may correct that misunderstanding. All contributors will get a 40 per cent accrual rate on the band of earnings from the LEL to £9,000. In addition, there will be 10 per cent on earnings of £9,000 to £20,000. Therefore, moderate earners will gain, although not by as much as low earners. We are unapologetic about this because we think that the pension policy of previous governments of all colours has not done enough for those low-paid earners. There are no losers at any level of earnings above LEL.
Secondly, if I understood him correctly, the noble Lord, Lord Higgins, raised the point that no new occupational pension schemes have been set up under the present Government. We understand that 30,000 new schemes were set up in 1997–98; 24,000 schemes have been set up so far this financial year—
Lord Higgins: My Lords, final salary schemes.
Baroness Hollis of Heigham: My Lords, I do not have the breakdown for that. However, the important point is that something like well over 90 per cent of all occupational schemes are final salary schemes at present. In today's labour market where people move from job to job and are in and out of work, especially if they are women, it is not always clear that final salary schemes based on traditional models of middle-class professional male work, which show an income level for 40 years at a time, are the most appropriate way forward. Where people are in careers which are insecure, there is much to be said for having the benefit of a portable, funded money purchase scheme rather than a final salary scheme.
We set out many of the detailed proposals in an extensive programme of consultation over this summer, as my noble friend Lady Turner acknowledged. These will have given those in the industry important information about our thinking on many of the detailed issues that will affect the

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establishment and operation of stakeholder schemes. We have received many hundreds of extremely helpful and well-considered responses on these papers and are currently refining our proposals with the aim of announcing decisions around the turn of the year.
The amendment seeks to provide that the stakeholder clauses should not come into effect until the Government's other pension proposals are set out in legislation. I accept that pension reforms need to be judged as a whole: that is why we published the Green Paper. However, my noble friend Lord Clarke is absolutely right, I do not believe that this means that we should not do anything until we can do everything. What my noble friend Lady Castle calls "salami" I would call an incremental approach to delivering the policies and philosophies outlined in the Green Paper that noble Lords discussed at the time and, had they so wished, have had ample opportunity to discuss further.
As I said, it is important that we do this as quickly as possible. If this Bill is improved, we expect stakeholder pension schemes to be able to operate from April 2001. However, changes involving the new state second pension are not expected to come into force until April 2002 at the earliest. We do not see that this need cause problems; indeed, why should there be any? They are different forms of pensions for different groups of our citizens: one is a pay-as-you-go scheme, while the other is a funded scheme. I give way.
Lord Higgins: My Lords, none the less, one needs to look at the two side by side. If indeed the second state pension will not come into effect until 2002, is there any reason why the Government could not publish draft clauses, as has been done most successfully with a number of other pieces of legislation? In that way we could see the detail, which is the concern of the noble Baroness, Lady Castle.
5.15 p.m.
Baroness Hollis of Heigham: My Lords, if that is the concern of my noble friend Lady Castle—I am not sure that it is—I should emphasise that these are two separate and different pensions: one is funded, one is a pay-as-you-go scheme. The funded scheme is the one that we are introducing in this Bill; that is the innovation. The pay-as-you-go scheme is a reform and an adaptation of what we already have—SERPS. Subject to approval being given for it to be included in the next Queen's Speech, we will then have the opportunity to discuss it in three or four months' time.
We have a perfectly reasonable timetable. The big, important and new innovatory changes fall under the stakeholder pension which we are discussing now. They were based on six consultation documents issued through the summer. The industry is expecting this timetable and I think that it would be appalled if we were now to turn that upside down. The proposals regarding the state second pension, which I hope will be included in the Queen's Speech next autumn, will be a reform, an adaptation and a development of SERPS. However, unlike SERPS, it will help the lower paid. In my view, therefore, it will be a much better scheme.
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These are different types of scheme for different groups of the population: one is a pay-as-you-go scheme and the other is funded. One will be delivered by the private sector and the other by the state. Therefore, they do not need to be read alongside one another. They do not interact in some important way in that sense over and beyond the philosophy outlined in the Green Paper. I do not believe that my noble friend is right to say that it is reasonable not to go forward with the state second pension, which is the complicated, new funded scheme, until she has the details of the reform steps in her hands. She knows the broad philosophy. I shall certainly take up the point about the clauses because I think that it would be perfectly reasonable to try to get that in the public domain as quickly as we can. However, to hold up the entire stakeholder pension, which industry is counting on us to deliver in time, for the sake of not being able to discuss a totally different pay-as-you-go pension—a development of SERPS—seems to me to be deeply unreasonable.
I hope that I have provided your Lordships with some reassurance. We intend to bring forward legislation to implement the state second pension as soon as the parliamentary timetable allows. While I cannot give a guarantee about that, it is certainly our aim, as I said, that the new state second pension will have been introduced into Parliament by the time that the stakeholder pensions legislation comes into effect.
I hope that in the light of those remarks my noble friends Lady Castle and Lady Turner will feel able to withdraw their amendment. They are asking me for what they term a "concession". However, it is not a concession. It would effectively constitute a wrecking amendment as regards this part of the Bill. Stakeholder pensions would be put into suspense for a year or more until the state second pension had been fully discussed. What does that mean?
If this House cares about providing a funded, portable, cheap, transparent and secure pension for those who most need it—that is, low earners, the self-employed, those moving from job to job and those who have fallen out of the labour market, perhaps to have a child—it will not support this amendment. If Members of your Lordships' House are concerned about the good will and the detailed consultation that has taken place with the private pension providers, they will not support this amendment. It would effectively delay the implementation of this Bill and an important move on the part of the Government to ensure that there is pension provision for those in need.
My noble friend seeks to delay the introduction of that measure. I do not believe that that is because she does not know what we are proposing. I think that it is because she does not like what we are proposing. That is a very different and, in my view, unacceptable reason. I hope that if my noble friend is minded to press the amendment to a Division your Lordships will not support her because the price of supporting her will not be paid by your Lordships but by the low paid, the self-employed and women who will be denied the

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earliest possible opportunity to get the pension provision to which they are entitled and which they have been led to believe they will obtain.
Baroness Castle of Blackburn: The Minister has given us one of her eloquent and rather long-winded justifications of government policy. But the more I listened, the more I thought she was proving the case that. Lady Turner and I had made. To serious parliamentarians, ministerial eulogies are no substitute for hard legislative facts. She has not, for instance, explained why, although the Government set up a pensions review body way back in 1996 to examine pensions policy as a whole and only later produced a document on the stakeholder pension, the only thing we have is the stakeholder pension.
I am sorry, but we really are being asked to take too much on trust. I give one example. We know that the Government are trying to divide pensioners into two halves: those on means-tested benefits and those who privately finance themselves because they are able to. We are given a wonderful picture of the minimum income guarantee of £75. However, even then I would point out that that is less generous than the £90-odd that the basic state pension as of right would be today if Lady Thatcher's government had not cancelled the earnings link for its uprating. However, the minimum income guarantee ceases to be a guarantee and the term becomes a mockery unless the Government commit themselves by law to an annual uprating in line with earnings. "Oh" says the Minister, "in the longer term we are hoping that we might do that"; in other words, we are right, but we must wait and trust the Government. What does she mean by "in the longer term"? Why should Parliament be fobbed off with language such as that?
I could go on, through all her long speech, pointing out items such as that. However, I shall not abuse the time of the House, as I am afraid she sometimes does in trying to lay low her adversaries. I am far from convinced and utterly dissatisfied by her reply. However, it is extraordinarily difficult in this complex field to get over to people who are not as "soaked" in the matter as Lady Turner and I, far example, just what is happening. I shall discontentedly withdraw my amendment in the hope that perhaps we might rally our troops for Third Reading. One never knows! I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 1 [Meaning of "stakeholder pension scheme"]:
Lord Higgins Lord Higgins moved Amendment No. 3:
Page 1, line 12, leave out subsection (2)1.
The noble Lord said: My Lords, we tabled a somewhat similar amendment in Committee in the sense of this being a probing amendment. We now have rather more information than we did at that stage. I am sure this is totally out of order, but I hope that I may make two remarks. First, I think that the noble Baroness will have discovered from our previous discussion that there has not been any final salary scheme created since the Government came into power. Secondly, I welcome what she said about
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considering the detailed clauses on the state second pension because I believe that will be a tremendous help. That worked well as regards the subject of VAT and saved much time.
Baroness Hollis of Heigham: My Lords, I said that I would reflect on the matter and decide whether it made sense. I gave absolutely no commitment on the matter. In the spirit of trying to be helpful, I shall see what we can do.
Lord Higgins: My Lords, I thank the noble Baroness for those comments. This amendment concerns whether the stakeholder pension scheme should be set up under a trust arrangement or under some other arrangement. The Government seem to have vacillated quite a bit on that. I refer to the not particularly glossy consultation brief No. 5 which concerns the Government's proposals for governance of stakeholder pensions. We now have a lot more detail than we had previously. Therefore, it would be wrong of me to take up your Lordships' time by going through it as if it were a consultation paper and I were one of the consultees.
However, I shall make a few remarks. On page six of the consultation paper, the Government say that they,
"are not convinced that finding individuals to take on the role of trustees in schemes will be an insuperable difficulty".
I think that they are being over-optimistic in that regard. One has only to consider the extraordinary obligations that one takes on if one becomes a trustee of a pension scheme, and the risks which are involved in doing that, to realise that if we are to have a multiplicity of stakeholder schemes it will be difficult to find trustees who are able to do a proper job and, in particular, to make sure that they are independent.
I am not particularly keen on the paragraph which states that the,
"onus will be on the financial service company to identify individuals willing to act as trustees".
The next question is whether they will be paid. If they are to be paid, that will increase the cost considerably. Professional trustees do not come cheap, as opposed to voluntary trustees. What particularly worries me is paragraph 27 which concerns liability and states:
"Trustees will ultimately be financially liable for the operation of the scheme".
Of course, trustees are always liable in terms of carrying out their duties properly. However, that is rather different from what is stated here. The paper further states:
"In the event that a scheme was unable to operate within the charge limit, the trustees would be liable for any costs in excess of the charging limit".
I find that a strange statement. We have trustees 'who will presumably operate in the same way as a company pension scheme trustee. But trustees are, of course, responsible for exercising their trust. Action may be taken against them—indeed, severe action, such as imprisonment and so on—if they do not act properly. However, if a scheme does not meet its

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charges in the way which is suggested simply because it goes over the 1 per cent limit set by the Government, to say that the trustees are personally liable for that—I refer to paragraph 27 of the paper—seems to me rather extraordinary. The paper makes a number of other points about independence and so on. Of course, the trustees must be independent and if they fail in that respect, they will find themselves liable for penalties in the way that I described a moment or two ago.
I do not wish to weary the House by going through the consultation paper in general; it is helpful to have it before us in order that we may consider it. I am interested to know what kind of representations the Government have received as a result of its publication.
5.30 p.m.
Baroness Turner of Camden: My Lords, I rise to oppose to some degree what the noble Lord, Lord Higgins, said and to oppose Amendment No. 3. My Amendment No. 4 is grouped with it and puts a rather contrary point of view.
It is stated in subsection (2):
"The first condition is that the scheme is established under a trust or in such other way as may be prescribed".
My amendment seeks to delete the words:
"or in such other way as may be prescribed".
In other words, I want all such schemes to be written under trust law.
When stakeholder pensions were first mooted I got the clear impression that this was the Government's intention. That seems to be borne out to some degree by the consultation paper. Since that time I believe that sections of the pensions industry have mounted a small campaign against that. In its consultation brief on the governance of stakeholder pension schemes the DSS includes a suggested alternative to the trust-based arrangements, and yet I think the DSS clearly favours the trust-based concept. It has said that a board of trustees will provide an effective counterweight to the financial services companies which will be involved in stakeholder pension schemes. I could not agree more.
Lord Higgins: My Lords, I apologise for interrupting. I am also entirely content with the trust arrangement. It was simply in the form of a probing amendment that I raised the point. I do not dissent from what the noble Baroness said.
Baroness Turner of Camden: My Lords, if I may, I shall continue to speak to my amendment because it is grouped with that of the noble Lord.
Almost all the surveys of pension provision which have taken place over the years have emphasised the importance of trustees—in the case of occupational pension schemes, trustees representative of the employees concerned. It is accepted that such trustees provide a vital sense of security and reassurance for the scheme members. Furthermore, as has already been indicated, trustees have quite significant
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responsibilities, for which training is required. That is provided by unions in particular and by many companies operating such schemes. The stakeholder concept does not involve any lesser need for membership security and accountability. Indeed, as I said in Committee, many friendly societies and unions may wish to set up such schemes for the benefit of members who may not have access to occupational schemes. It is certain that such schemes would need member trustees.
I believe that one objection has been made on the grounds of excessive cost, although there is a DSS view that if a stakeholder scheme recruits a large enough number of members the trustee costs could work out at only a fraction of the capped 1 per cent fund charge.
Another objection is whether trustees can realistically be found. This has been mentioned already by the noble Lord, Lord Higgins. I do not think this is so much of a problem, as in some cases trustees could be drawn from the stakeholder scheme sponsors, such as a union, employers' organisations or others, while in other cases financial services companies could arrange experienced trustees.
Under the suggested secure stakeholder management governance the proposal is that an FSA-authorised stakeholder manager would run the scheme as a regulated investment business and adhere to a contract made with the members. The manager would be required to register the scheme with OPRA and provide limited information. There could possibly be an advisory committee to represent members' interests. I do not think that is an adequate alternative to trust-based governance.
Through choice, many financial services companies would obviously not introduce a trustee body to be responsible for any of their products. Trustee bodies will increase costs—another point which has already been made—as they see it, although I have indicated that the increase could well be marginal spread over a large membership.
Trustees may also change the service provider in the future if they felt that it did not provide adequate value, leaving poor providers with low volumes of business. I should have thought that this was all to the good and to the benefit ultimately of the pensioner population. Moreover, nowhere in the proposed alternative model is there a requirement for the scheme to be run in members' interests, as was originally envisaged in the Green Paper. The advisory committee representing the interests of scheme members is only optional. I understand that OPRA has already said that the alternative proposal lacks an intermediary who is independent. I refer to trustees.
Trustees are needed to act on behalf of a largely unsophisticated and economically vulnerable group of contributors. The use of the term "secure stakeholder management" may give an impression of greater financial security than exists. As I said in Committee when the issue was raised by the Opposition, I am firmly committed to the idea of governance based on trust law, with trustees whose duty it is to ensure that the scheme is run in the interests of members. I was

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under the firm impression that this was the Government's view as well. The amendment I put before your Lordships this afternoon seeks to delete,
"or in such other way as may be prescribed".
That means that in future such schemes will have to be written under trust law and with trustees, which I thought was the original concept.
Baroness Hollis of Heigham: My Lords, these amendments cover our proposals for the governance of stakeholder pension schemes. Amendment No. 3, which was moved by the noble Lord, Lord Higgins, seeks to remove the requirement for stakeholder pension schemes to be established under a trust. I am slightly surprised that he said it is a probing amendment. I do not know why this matter was not regarded as having been appropriately dealt with in Committee or why we should have probing amendments on Report. Perhaps we have different understandings of the conventions of the House.
Amendment No. 4 was spoken to by my noble friend Lady Turner of Camden with her impeccable courtesy. The amendment seeks to ensure that schemes can be set up only with a trust; that is, that there should be no alternative forms of governance. I wish to explain why we think that both forms of governance are likely to be necessary and appropriate.
An identical amendment to Amendment No. 3 was tabled at Committee stage. We explained then that we believe trusts are an integral part of our proposals for stakeholder pension schemes. The noble Lord in his aside to my noble friend Lady Turner accepted that this was the desirable form of governance and had no objections to it. We have always made it clear that we want stakeholder pension schemes to have a structure which ensures that they are run in their members' best interests. Trust law is a proven and effective means of ensuring that schemes look after their members' interests—rather than those of the pension provider—and of providing valuable security and protection.
We accept that supporting a trustee structure will have costs for schemes, particularly smaller schemes where these costs are borne by relatively few members. We do not expect that for the majority of schemes these costs will be excessive. Over time, trustees should be able to deliver reductions in overall scheme costs by negotiating on behalf of scheme members, which should offset the direct costs of trustees. We remain convinced of the value of trustees in ensuring that contributions are used to secure value for money from scheme providers and that schemes comply with the minimum standards we will set for them. They should help to obtain good quality of information and high standards of service for their members. We are therefore legislating for stakeholder pension schemes to be set up under trust law. Our consultation paper on governance set out our specific proposals for the operation of trust-based schemes.
The noble Lord, Lord Higgins, pressed me on what was the implication of, I believe, paragraph 27 of what I call the yellow document on governance. The noble Lord thought it was perhaps unreasonable to expect
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trustees to bear the additional costs of charges. However, someone must be liable for ensuring that schemes meet the charging limit and for covering any overrun in costs. The precise issue of who will be liable will be a matter for schemes. The noble Lord will know that the consultation paper continues in the following paragraph that trustees could, for example, reach a contractual arrangement with the source provider of the scheme under which the provider would take on this liability or arrange suitable insurance. But the buck has to stop somewhere, and that is one of the proposals.
Lord Higgins: My Lords, will the noble Baroness allow me to intervene? Yes, of course, it is possible for the trustees to get an indemnity in the way the noble Baroness has suggested. However, I do not think it will be possible to secure insurance against the kind o f risk stated here, as against a breach of trust.
Baroness Hollis of Heigham: My Lords, our response to the consultation document should certainly not raise the fears suggested by the noble Lord. However, I will be happy to take away the points that he has made and look further into them. The last thing that we want to do is to put such a responsibility on trustees that we deter appropriate people from coming forward to take on the posts and responsibilities of trustees. In so far as there may be difficulties, I am happy to look at it again.
The noble Lord asked from where trustees might be drawn and who would want to be a trustee. I thought that that point had been well answered by my noble friend Lady Turner. We expect trustees to be drawn from a number of sources including representatives of organisations setting up the schemes, trades unions, employers' associations, employers, scheme members and independent individuals who have worked in the pensions industry. Trustees may also be individuals who have a particular interest in the industry on which the scheme is based, or they may simply want to be of service to the community.
The noble Lord, Lord Higgins, also raised the broader issue of the question of trustee liability in more general terms. We have received a number of consultation responses, including those from OPRA concerning trustee liability generally. We are considering carefully what has been said on this subject. The secure stakeholder management model provides an alternative governance structure which may be suitable in situations where for a number of reasons a trustee model may not be appropriate. However, if the noble Lord has any further worries about the appropriateness of this structure or alternatively the degree of risk that he feels trustees may be exposed to, then I repeat that I shall be happy to exchange correspondence or have further discussions on this before Third Reading. I am sure we have the same objectives here; namely, that of ensuring that we have a good range of trustees from which we can draw.
We have always accepted that in some types of stakeholder pension scheme it might be difficult to put in place the trust-based model, for example where

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schemes are set up directly by financial service companies. In this type of scheme, where there is no affinity group link—perhaps they are all hairdressers—it may be harder to establish a properly representative board of trustees. As I have said before in our discussions, we are prepared to consider alternatives to the trust-based model, where they produce a comparable degree of protection for members.
In the pensions Green Paper we sought views from the industry on suitable alternative structures and a similar invitation was included in the consultation paper issued jointly by the Treasury and DSS on new flexibility in pension investment. We have now considered carefully what the industry has had to say on alternative governance structures.
Since our debate in Committee, we have taken account of those views in a more detailed consultation paper on stakeholder pension governance. This included proposals for "secure stakeholder management" as an alternative to trust-based schemes. Under the suggested model, schemes would be run by a stakeholder manager authorised by the Financial Services Authority. We envisage that the manager would have a number of functions similar to those of trustees, including ensuring that schemes met the minimum standards. Members' rights in schemes would be set out in a contract and the manager would be required to report to members on the value of their fund and on how schemes have performed in comparison with a number of appropriate benchmarks.
We have sought views on this proposal and will be developing it further in the light of the responses received. If it, or any other alternative, does provide appropriate security and protection for members, the Bill provides the flexibility to incorporate it in the framework for stakeholder schemes.
As I have said, we want to ensure that stakeholder pension schemes can cater for all those on modest earnings who do not have the chance to join an occupational scheme. We expect that schemes will be established both by affinity groups and, on a more general basis, by individual providers or groups of providers. Allowing schemes to be set up under either a trust or a suitable alternative which meets those same quality conditions will offer schemes the flexibility to choose the most suitable governance structure.
Our primary concern has always been the protection of members' interests. I believe that the Government's proposals will offer that protection and I therefore urge your Lordships to withdraw the amendments.
Baroness Turner of Camden: My Lords, before the noble Baroness sits down, I wonder whether she could answer a question? I believe that the DSS has established a working group on this issue. Does that
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working group include members who have had experience of being trustees or who are at present trustees of pension schemes?
Baroness Hollis of Heigham: My Lords, if my noble friend is referring to the group under the chairmanship of Tom Ross, then certainly that group does have considerable experience. However, I cannot tell her whether the individual members of that group have had personal experience of serving as trustees. However, what they do have—including Tom Ross himself, as my noble friend will know—is very extensive experience of the pensions industry.
Baroness Turner of Camden: My Lords, may I make a recommendation on that point?
Baroness Hollis of Heigham: My Lords, I shall write to my noble friend about the qualifications of those members, if that is the group to which she is referring.
Lord Higgins: My Lords, this has been a helpful discussion. As I understand it, a probing amendment has no official recognition in this House. I am not aware that there is any reason why such an amendment should not be tabled at Report stage as well as in Committee. Be that as it may, it has been very helpful indeed to have had some clarification of the issues which have been raised, and I welcome the kind offer of the noble Baroness to exchange correspondence before Third Reading on the technical points that I have raised. Subject to that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 4 not moved.]
5.45 p.m.
Baroness Castle of Blackburn Baroness Castle of Blackburn moved Amendment No. 5:
Page 1, line 17, leave out subsection (4).
The noble Baroness said: I beg to move Amendment No. 5 standing in my name and that of Lady Turner. This amendment is a variant of one that we put down for Committee stage. Being such a variant, I hope it establishes the complete reasonableness of our approach. The purpose of this amendment is to remove that section of the Bill on the stakeholder pension which says that it must be a money purchase scheme. At Committee stage we moved to insert the word "not" to be a money purchase scheme. On second thoughts, at this Report stage we have accepted the text tabled by Lord Higgins; that is to say, to leave the matter open. Therefore, we only want to take away that part of the Bill—and it is not much, by the way—which is quite specific about what the stakeholder pension must and must not be.
We are therefore suggesting that the words "money purchase" be removed from the Bill. That matter, along with many other aspects of the stakeholder pension, will fall to be decided later. It makes for greater flexibility to put it in that way. I say to the Minister in all seriousness: is it not fairer to leave the

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issue open? Why be specific on this one particular point? Other conditions under which people contribute or do not contribute and so on are to be prescribed later. But one thing is not to be prescribed later; it is to be decided now, and that is that they must be money purchase schemes. Why be specific in that rather arbitrary way? What is so wonderful about a money purchase scheme that we must insist on it in the text of the Bill?
Of course, a money purchase scheme means that someone will not get a defined pension. When you contribute, you dc not know exactly what you will get when you retire. It depends on the play of the market, and how much your contribution may yield when it has been invested. Many people much prefer the security of a defined pension even if it is a bit more modest. I put it to the House: why should we say that it must be one thing under this heading and not under any other?
I am greatly at a loss to understand the mind of the Government on this. What has inspired it? Of course a money purchase scheme takes away the risk from the employer and puts it on the employee. Therefore, it gives uncertainty to the planning of anyone seeking to provide for his or her pension in retirement.
I hopefully ask the Minister to consider our amendment very carefully. I also hope that Lord Higgins will see it in himself, on this point at any rate, to support our amendment.
Lord Higgins: My Lords, I am not sure I can possibly resist that invitation but I fear that there is a real problem. I should like very much to see schemes which are final salary schemes, but I have some difficulty in seeing how that might be the case as far as concerns stakeholder pensions. Indeed, if the Minister can explain that to us, I shall be delighted, and then the noble Baroness, Lady Castle, the noble Baroness, Lady Hollis, and I will be equally content.
Baroness Hollis of Heigham: My Lords, Amendment No. 5 would remove the requirement that stakeholder pension schemes should, with exceptions to be prescribed, be provided on a money purchase basis. We discussed a somewhat similar amendment in Committee. I shall recap on why we think that money purchase arrangements are the most suitable for stakeholder pension schemes.
Stakeholder pensions are designed to fill a significant gap in the pensions market. They will provide affordable, funded pension provision for a large number of people, for the first time. These people will be able to see their own "pot" of money grow and to look forward to a secure income in retirement. We believe that the most effective way to promote financial security in retirement for most people is to encourage provision of funded pensions and personal savings. Stakeholder pension schemes are central to those plans.
Salary-related schemes are excellent value for many people. Personal pensions are suitable for many high earners who do not have access to an occupational
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scheme. The state second pension will help those who cannot afford to save towards their retirement. There are a number of reasons why we believe that money purchase schemes are the most suitable arrangements for stakeholder pensions. Salary-related schemes are excellent value for many people who stay in the same job for a long time with ascending salaries, but they require a sponsor—usually an employer—to stand behind the pension promise. In other words, if there is any shortfall, the employer has to make good that shortfall. That is his responsibility under defined benefit schemes.
It is unlikely that there will be such a sponsor for stakeholder pension schemes, so providing benefits on a salary-related basis is not a feasible option. If it were, the employer would already be offering an occupational pension with a defined benefit scheme. It would also provide real problems for someone who went into such a scheme and then came out of the labour market and wanted to continue paying in. Would we expect the former employer to stand as the deliverer of the promise for someone who was no longer a member of his workforce but was paying into a scheme? Money purchase schemes are also simpler and more flexible arrangements than salary-related schemes. They enable each individual to have a readily identifiable "pot" of money, into which they can put different sums each month during the course of the year or irregularly, according to their resources. They can pay in when they are not actually in work.
This has clear advantages. The concept will be familiar to almost everyone. Schemes will be able to issue members with regular statements of how much their "pot" is currently worth, scheme charges will be easier to understand and compare, and transfers of funds will be much more straightforward. The complexity of the existing arrangements often discourages people from starting a pension. We believe that providing benefits on any basis other than money purchase will inevitably be hugely complex and therefore less attractive to people who are thinking about providing for their retirement for the first time. Those who are already sophisticated in pension arrangements—either employees or employers—are likely already to have occupational pension schemes or good alternatives. These are for those people who are working for employers who do not offer such a scheme. We want to provide a alternative for them to a decent occupational pension.
However, the Government recognise that there are rapid developments in pensions and it is possible that in the future suitable arrangements may be developed. The power to prescribe exceptions gives us the flexibility to allow other forms of arrangements provided, of course, that they still satisfy the other conditions for stakeholder pension scheme status. We would want to ensure that such schemes would remain secure, flexible and value-for-money arrangements. I hope that in the light of that explanation, the noble Baroness will withdraw her amendment.
Baroness Castle of Blackburn: I see a glimmer of light in the Minister's final remarks. She does see

55
situations in which the provision for exemptions might lead to the kind of flexibility that we are seeking to achieve in the amendment. Well, it is only a small ray of comfort. The emphasis still remains on the money purchase scheme, which is fine and dandy if world markets are booming and everyone is getting something for nothing. In this battle with the Government we have to be thankful for small rays of light. In view of what the Minister said, I withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 6:
Page 1, line 20, leave out ("or section 176 of the Pension Schemes (Northern Ireland) Act 1993").
The noble Baroness said: My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 12, 15, 29, 30, 32 to 38, 40, 277 and 281. These technical amendments clarify the application of occupational pensions legislation to stakeholder pension schemes and set out the position in relation to Northern Ireland.
First, I shall deal with the Northern Ireland amendments. These clarify the territorial application of the stakeholder pension provisions and the relationship between this legislation and the corresponding provisions we expect to be made in Northern Ireland. As your Lordships will be aware, Northern Ireland generally takes responsibility for its own legislative requirements in respect of pensions, and that will continue under the Northern Ireland Assembly. Full details of how the Assembly will discharge its duties have not yet been decided and we have been in discussion with Northern Ireland colleagues and legal advisers on the most sensible approach for stakeholder pension scheme legislation.
The amendments ensure that this Bill is compatible with the corresponding Northern Ireland legislation that is to be drawn up. Employers in Great Britain will be required to offer access to a scheme registered under this Bill, and employers in Northern Ireland to a scheme registered under corresponding Northern Ireland legislation. I do not propose to talk about each amendment in great detail, but I should like to take the opportunity to explain, in broad terms, how the arrangements will work.
Part I of the Bill—that is, the stakeholder clauses—will extend to England, Scotland and Wales. The corresponding provisions for Northern Ireland will then be made in Northern Ireland legislation. We expect the two sets of legislation to be similar; for example, the conditions a Northern Ireland stakeholder pension scheme will have to meet are likely to be the same, and these schemes will need to register with the Occupational Pensions Regulatory Authority. This authority will have the power to investigate breaches of the Northern Ireland stakeholder legislation, including the employer access requirement.
We are also making sure that all appropriate relevant employees are properly covered by the legislation. The employer access requirement in this Bill will cover all employers with relevant employees in Great Britain, and employers based in Great Britain who employ people outside the United Kingdom. We expect that the equivalent Northern Ireland employer access requirement will cover employers with relevant employees in Northern Ireland, and Northern Ireland employers who employ people outside the United Kingdom.
Clearly, while the stakeholder pension conditions remain the same in both sets of legislation, it will be a simple matter for schemes to register with the Occupational Pensions Regulatory Authority under both provisions. Those schemes will then be able to be designated by employers in both Great Britain and Northern Ireland.
I should also like to mention briefly the second set of amendments in this group. Amendments Nos. 34 to 37 are minor and technical amendments to ensure that the appropriate provisions of existing legislation are applied to stakeholder pension schemes. In particular, they will ensure that occupational pension scheme legislation will apply to stakeholder pension schemes only where appropriate.
Paragraph 2 of Schedule 1 applies certain sections of the Pensions Schemes Act 1993 and the Pensions Act 1995 to trust-based stakeholder pension schemes which are personal pension schemes. This set of amendments makes minor changes to these applications. I could develop that point, but it may be that your Lordships will not need further information. In the light of my explanation, I hope that your Lordships will support the amendments. I beg to move.
6 p.m.
Lord Higgins: My Lords, here is a whole batch of amendments. Indeed, a large number of government amendments have been tabled throughout the Bill for this Report stage. With her customary courtesy, the noble Baroness wrote to me explaining—or, more accurately, apologising for—that fact. After all, the Bill has been through its Committee stages. Some of the amendments relate to matters that we raised in Committee. I am not clear whether all the amendments relating to Northern Ireland are the result of any change in the situation there since the Bill completed its passage in the other place. At all events, it is unsatisfactory that there should be so many. I presume that it is either the result of a lack of ministerial guidance or of the draftsman simply waking up rather late in the day. If the latter is true, I hope that some suitable reprimand will be delivered. As the Minister said, the amendments are largely technical. Only now have we received an explanation of the Northern Ireland amendments. I shall consult my noble friends

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who are more aware of the situation in Northern Ireland than I am to see whether any particular points need to be introduced at Third Reading.
Baroness Hollis of Heigham: My Lords, I take the reproof. I do not like bringing amendments on Report either. I accept that charge. All I would say is that it is not peculiar to this Bill or this Government. I remember the passage of the Pensions Act 1995 when I spoke from the Opposition Benches without support, save of course the huge support of my noble friends on the Front Bench. I have checked on the number of amendments introduced by the government then. It was 260—rather more than we are introducing to this Bill. I accept that it is a perennial problem of government. Many of the amendments are technical. I understand that in regard to the Northern Ireland amendments parliamentary counsel waited until the last possible moment because they were trying to see the shape of developments, if any, progressed in the Northern Ireland Assembly. They used the period of the Summer Recess in the hope that the situation might be fully resolved. It has not been, and that is why we are having to approach the matter in this way.
Some of the other amendments coming through at this stage are in response to requests by the Delegated Powers and Deregulation Committee. I believe it is right to say that we have accepted every proposal that the committee has made to us. The rest are in response to issues raised in this House, including, for example, changes to the national insurance contribution, with which we shall deal in our debates on Wednesday. So there is good reason for each batch of amendments. However, I accept that it is not the most desirable way to proceed. In the light of that, I hope that the House will accept my proposals.
Earl Russell: My Lords, before the Minister sits down, if, as the noble Lord, Lord Higgins, put it, the draftsman woke up rather late in the day, should we not say, "Better late than never"?
Baroness Hollis of Heigham: My Lords, that is right. It is my understanding that parliamentary draftsmen take a long time to train. In anticipation of the Labour Government wanting a whole series of legislative measures pushed through quickly because they had a huge commitment in their manifesto, the previous administration might have been kind enough to start training and employing those parliamentary counsel five years ago in readiness for us!
On Question, amendment agreed to.
Lord Higgins Lord Higgins moved Amendment No. 7:
Page 1, line 21, at end insert ("but there shall be no requirement to take out a stakeholder pension in the form of an annuity by a specified age").
The noble Lord said: My Lords, this is an important amendment, standing also in the names of my noble friends. It relates to the question of annuities. It suggests that, so far as the stakeholder pension is concerned, there should be no requirement to take an
58
annuity at a specified date. Amendment No. 50 is related to this one and refers to annuities more generally.
The noble Baroness said that it is important for people to be able to look forward to a secure income in retirement. That will have a hollow ring for those who retired about 18 months ago on money purchase schemes. Their retirement coincided with a fall in the Stock Market which reduced the value of their fund. On top of that, they saw a huge fall in annuity rates compared with a couple of years or so previously. Indeed, some found themselves obliged to take their pension at a level that was only some 60 per cent of what they had originally expected or had expected 24 months or so in advance of their actual retirement date.
Against that background, I find it extraordinary that in regard to the stakeholder pension the Government have committed themselves to stating what pension people may expect on retirement. If the amount varies by that much over a period of two years, it is certainly likely to vary a great deal more over a longer period.
There are several different aspects to the amendment. The first relates to whether people need to take the pension at a particular time—for example, when they retire. The fact that they are presently obliged to do so can have severe consequences. When people come to draw the stakeholder pension, they may feel that they would like to defer it and not be forced to take the annuity at that particular time.
There is a second aspect to the question of timing; namely, whether people are obliged to take an annuity at the age of 75. There has been growing pressure against the change in demographic background since the time of Beveridge—that that limit is not appropriate. I believe I am correct in saying that at the time of Beveridge people were expected to survive only two years after retirement age. Now, the period is vastly longer. It is likely that a number of people at the age of 75—not looking at the actuarial tables but at their general state of health and given their other financial circumstances—may feel that they would prefer to delay drawing their pension because they do not desperately need it and may feel that they would like to do so if their life expectancy is quite a bit longer than the average. The fact that they have to take the pension as the clock ticks at 75 may mean that they do so at a disadvantageous moment.
Annuity rates have plummeted. That is to some extent a reflection of the fall in the rate of inflation. That being so, one may say that it does not matter that the annuity rate is lower because the rate of inflation is lower. But there is no guarantee that the inflation rate will be at the same level at the moment when one wishes to draw the annuity.
It should also be stressed that the reason annuity rates have plummeted has to a large extent been that the Government have issued very little long-term date debt of the duration required to meet the needs of pension funds and others who feel that they have to hold annuities in order to meet their liabilities. It is a

59
point that the Chancellor may wish to consider. If the Government expect to move into long-term surplus, the dangers are even greater that the annuity rate will fall further. So the timing aspect relates to the moment at which people have to take their pension, whether when they retire or whether at 75. Somewhat different considerations apply in each case. Our amendment suggests that the stakeholder pension ought not to force people into these particular circumstances.
The other aspect is not one of timing. It relates to whether an annuity is anyway the most appropriate form in which to take one's pension. Given the increase in life expectancy, people may well feel that, if they are to survive only two years, an annuity is not wholly inappropriate. But if people have a considerable life expectancy, they may do better to invest their pension in some other form of financial asset.
Recently, the Government have to some extent relaxed the rules on annuities, particularly with regard to so-called "draw-down policies". They are a highly sophisticated instrument and are not to be undertaken by the unwary. Reports by actuaries such as William Mercer do not suggest that, welcome though the changes may be in some ways, they are likely to meet the main problem I seek to address this afternoon.
If one is forced to take the pension as an annuity, it gives one no scope for making possibly preferable other investments. It locks one into a situation in regard to when one dies and the annuity comes to an end.
Another important point which may commend itself to the House is that the fact that at present the pension has to be taken as an annuity discriminates considerably against women. Women have a greater life expectancy than men and annuities for them are lower than for men. So, the fact that the present arrangements force people to take an annuity as their pension means that women are worse off than men. If they were able to use some other form of financial instrument, it would be to their advantage.
When the matter came up at Committee stage, the noble Baroness referred to a point which I had not seen spelt out in black and white before. At col. 1122 of Hansard for 24th June, she said:
"Under Inland Revenue legislation the funds built up in money purchase schemes—"
which is what we are talking about—
"must be used to purchase an annuity. Perhaps I could remind your Lordships why this annuity rule exists. It reflects the fact that the tax privileges accorded to pension contributions are given in order to ensure that the beneficiaries have an income throughout retirement".
Of course, it is quite possible for people to use an alternative form of financial instrument which would give them an income throughout retirement. It depends very much on the level of pension.
The noble Baroness continued (still at col. 1122):
"This avoids the risk of an individual having to rely on a low pension income and perhaps income related benefits because they have spent the proceeds of their fund in the early years of retirement".
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There's the rub. There is no reason why one should not have a less restrictive rule if, in the light of the amendment, that was the Government's view. That rule would say that people must at least take as much in the form of a secure income—namely, an annuity, albeit unfavourable—on the basis of having enough money to keep them off means-tested benefits. The Government could do that, although it depends on the level. In relation to the stakeholder pensions, that may not be unimportant.
Another provision which I ought to mention and of which I was not previously aware is that, apparently, if a person dies before taking the pension, proceeds may be obtained from it but there is a tax charge of 35 per cent. I was not aware of that. Presumably, one could introduce some flexibility into the scheme by saying, "If you want to give away or give back the tax advantage and retire, you could get the money on that basis". However, that is taking us rather wide of the amendment.
It seems to me that these arguments have now "ripened" to the point where, in relation to both timing and the financial efforts involved, because the market has developed considerably, and against a background of a demographic change and people living much longer, we ought not to continue with the kind of restrictions which have previously been imposed. It ought to be possible to meet the objections from the Inland Revenue and others. Such changes would be helpful in avoiding discrimination against women. I beg to move.
6.15 p.m.
Lord Goodhart: My Lords, I regret that I am unable to support the noble Lord, Lord Higgins, on this amendment. We agree that problems may be faced by people who retire at certain times. As the noble Lord pointed out, 18 months ago a particular combination of circumstances made it difficult for those who retired at that time and who wished to take out a pension immediately. Since then, the considerable rise in the stock market has made things look rather different.
That is dealt with to a considerable extent by the fact that prospective pensioners are now allowed to defer taking their pension until they reach the age of 75. A few people go on working and are therefore in a position to defer taking a pension until they reach that age. Those who retire at some point between 60 and 70—the normal retirement ages—can defer taking their pension for a considerable time until the economic situation becomes more favourable.
However, it seems to me that the whole basis of pension schemes is that the pension builds up a fund which at some point has to be "annuitised". Pension funds are not simply a tax-favoured savings scheme which can be drawn on by someone at any time after they reach retirement age and in any manner that they wish. Other kinds of tax-favoured savings schemes, such as ISAs, give a facility to draw them down with much more flexibility.
The purpose of an annuity is to provide a regular income in retirement. On the one hand, it prevents pension-holders from spending the contents of their

61
fund early and therefore having to rely on state benefits as they reach a greater age and have used up their fund. On the other hand, it prevents pension-holders from saving up their pension funds in order to pass them on to their children. Once again, that is clearly not the purpose for which the tax relief is given.
Therefore, we on these Benches are unconvinced that there is any need to depart from the principle, which has existed ever since the beginning of tax relief for occupational pension schemes, that sooner or later, unless someone dies before reaching the age of 75, the fund will have to be "annuitised".
Lord Williams of Elvel: My Lords, I wonder whether the noble Lord, Lord Higgins, has understood the present state of the market. First, as regards age, to advance the age would imply a significant difference in the present way that pension providers in the private sector manage their portfolios. I can say that from personal experience. Secondly, if there is a guaranteed annuity, the problem is when the guarantee starts. However, a number of products are coming onto the market, which I researched this morning, which provide for with-profits annuities and other kinds of annuities which do not necessarily fix the annuity in a particular frame so that they are not, for example, disadvantageous to women, or whatever. They are being developed by the major pension providers. I hope that the noble Lord, Lord Higgins, will do his research and understand that these possibilities are available and that the market is coping with them.
Lord McIntosh of Haringey: My Lords, we debated this issue at Committee stage and considered the whole issue of the merits o f annuities, as we have heard from the quotation of my noble friend Lady Hollis by the noble Lord, Lord Higgins. Amendment No. 7 seeks to remove the requirement to purchase an annuity with the stakeholder pension fund, while Amendment No. 50 prohibits a pension scheme from requiring a member to take an annuity by a specified age. Since we have debated it before, I must go over the same ground again.
The fundamental point is that a deal has been done. In return for tax privileges related to contributions to pensions, the Government have taken the view that it is right for the proceeds of those funds to provide a stream of income on retirement. This reflects the fact that the Government want people to save for their old age. The key feature of an annuity is that it provides a guaranteed income for the remainder of the pensioner's life. That applies whether a traditional type of annuity is chosen or the pensioner opts for one which is in some way investment-linked, such as a with-profits annuity of the kind to which my noble friend Lord Williams referred.
As was made clear from the quotation of my noble friend Lady Hollis at Committee stage, in return for providing this tax privilege the state seeks to ensure that those who take advantage of it do not run the risk of looking to the state for their income in retirement. But the annuity rule includes flexibilities, and we propose that they should be extended to members of
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stakeholder pensions. Income drawdown—I believe that the noble Lord, Lord Higgins, attributed it to this Government but it was introduced by the previous government in 1995—has been available between the ages of 50 and 75 and allows a person to draw an income from the fund while deferring the purchase of an annuity.
The upside of the income drawdown is that in allowing him or her to choose the timing of an annuity purchase the person in the meantime is able to benefit from any investment growth. As the small print at the bottom and the gabbled words read out at the end of television advertisements always say, investments, annuities and even inflation can go up and down. Despite the observation of the noble Lord, Lord Higgins, Gordon Brown does not walk on water nearly all the time. However, there is a risk that investment performance may be inadequate to maintain the value of the fund and the person ultimately suffers a substantial reduction in income compared with what would have been achieved by the purchase of a secure annuity on retirement.
The noble Lord, Lord Higgins, referred to security. One cannot have all kinds of security all the time, but most people prefer to opt for peace of mind when they retire by taking their annuity at that time, because even though it may not be entirely what they expected in the full flush of high inflation or a different investment market, what they take at the time of retirement is what they will get until they die. There are exceptions. Those with large funds and a willingness to accept the attendant risks may be justified in taking the drawdown option, but there is a danger of fund depletion in such a plan which increases with age. A balance needs to be struck between allowing flexibility to the individual in the timing of annuity purchase and ensuring the achievement of the underlying objective: the provision of a secure income for the remainder of the pensioner's life. In our view, to require annuitisation by the age of 75—in other words, taking advantage of the changes introduced in 1995—strikes the right balance.
We continue to monitor the position. The Inland Revenue is now conducting a special exercise to assess how the current arrangements on income drawdown and annuity purchase are working in practice. We shall take account of the information obtained in this research in assessing whether any changes to the current rules are needed. Annuity rates are set by the market and reflect a number of factors, such as life expectancy and long-term interest rates. The noble Lord, Lord Higgins, said that they discriminated against women. Annuities bought with protected rights—that is, the part of pension savings derived from contracting out of the state scheme—are by definition unisex; in other words, they are at the same rate for men and women. If women get a smaller amount per year it is because of the expectation that they will receive that smaller amount for more years. I believe that there is a certain logic in that.
We accept that annuity rates have fallen in recent years, but that should not be considered in isolation. Inflation which ran at 6.6 per cent. during the previous

63
government's stewardship is now under tight control; in other words, Gordon Brown does walk on water. That will benefit everyone, especially pensioners because their pensions will maintain their purchasing power into old age better in a low inflation economy which we are determined to maintain.
I stress that the current economic environment does not mean that to buy an annuity is a bad deal. The stable economy which the Government are delivering provides scope for sustained growth in pension funds which means bigger annuities. Lower inflation means that an annuity will buy more. That is a far better prescription than a boom and bust economy which would have a far more serious effect on someone's real income in retirement.
The noble Lord, Lord Higgins, went so far as to cast doubt on whether an annuity was the best alternative. He was answered to a considerable extent by my noble friend Lord Williams. I ask the noble Lord to bear in mind the point made so effectively by the Minister in Committee that this is a deal which has been made in return for tax privileges. We cannot afford to provide those tax privileges and at the same time allow people to fall into dependence on the state in retirement. That is the reason for these provisions, and I hope that the noble Lord will withdraw his amendment.
Lord Higgins: My Lords, I deal first with the point just made by the noble Lord. It may well be that in considering the position with regard to stakeholder pensions, if the amendment is accepted some further sophistication should be introduced to provide that a certain amount must be drawn in the form of an annuity, but there is no reason why the whole amount should be included in that.
I turn to the points made by the noble Lord, Lord Williams. I am aware that in this respect the market is developing considerably, for example in the field of profits-related annuities. None the less, the terms vary considerably and it may be that some other type of investment is preferable to an annuity in either form. The situation depends to a great extent on inflation. At Committee stage the noble Baroness stressed that an individual could obtain an index-linked annuity, but she went on to say that she believed that that could be done on very favourable terms at the moment. I have received a large number of letters from individuals who do not believe that to be the case.
As to a guaranteed income in retirement, whatever be the good intentions of any government rates of inflation fluctuate considerably. Unless one has taken what is, on the whole, a rather tough deal on an index-linked annuity—even then not on very favourable terms—one will have to consider the effect of inflation on that annuity. As people live longer, so inflation is likely to erode the annuity considerably. Certainly, in terms of real income some of my former constituents in Worthing did not find themselves on a very secure basis as inflation affected their fixed income rather than some other financial instrument which might have given them a greater degree of protection.
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It is true that last year there was an unfortunate conjuncture of the stock market and annuity rates. None the less, some of those people who retired may find that they are a burden on the state. In that respect also I have already suggested it is possible to provide a floor but for the overall change to be made. That would meet the point of the noble Lord, Lord McIntosh, about there being some kind of deal in this respect.
The noble Lord, Lord Williams, did not cover the point about the 75-year situation. That is one of our major concerns which we think is covered by the amendment.
Women have a lower annuity rate because they tend to live longer and therefore draw the income for a longer period of time. But in those circumstances it may be better for them not to be as restricted as at present on timing or the annuity itself. We believe that the present system is too inflexible. Accordingly, I should like to test the opinion of the House on this matter.
6.31 p.m.
On Question, Whether the said amendment (No. 7) shall be agreed to?
Their Lordships divided: Contents, 145; Not-Contents, 137.

Division No. 1

CONTENTS

Addison, V.

Cross, V.

Alexander of Tunis, E.

De L'Isle, V.

Alexander of Weedon, L.

Dean of Harptree, L.

Anelay of St. Johns, B.

Denbigh, E.

Astor, V.

Denman, L.

Astor of Hever, L.

Derwent, L.

Attlee, E.

Dixon-Smith, L.

Belstead, L.

Downshire, M.

Berners, B.

Dundonald, E.

Bethell, L.

Eames, L.

Biddulph, L.

Eccles of Moulton, B.

Birdwood, L.

Eden of Winton, L.

Blaker. L.

Elibank, L.

Blatch, B.

Elles, B.

Boardman, L.

Elton, L.

Bowness, L.

Fookes, B.

Brabazon of Tara, L.

Geddes, L.

Brentford, V.

Glenarthur, L.

Bridgeman, V.

Glentoran, L.

Brougham and Vaux, L.

Gray, L.

Buccleuch and Queensberry, D.

Greenway, L.

Buckinghamshire, E.

Haddington, E.

Buscombe, B.

Harding of Petherton, L.

Byford, B.

Harmsworth, L.

Cadman, L.

Henley, L.[Teller.]

Campbell of Alloway, L.

Higgins, L.

Carnock, L.

Holderness, L.

Carr of Hadley, L.

HolmPatrick, L.

Chadlington, L.

Hothfield, L.

Chesham, L.

Ironside, L.

Clanwilliam, E.

James of Holland Park, B.

Clark of Kempston, L.

Jenkin of Roding, L.

Coleridge, L.

Jopling, L.

Colwyn, L.

Kelvedon, L.

Cope of Berkeley, L.

Kenilworth, L.

Courtown, E.[Teller.]

Kintore, E.

Cranborne, V.

Knight of Collingtree, B.

65

Laing of Dunphail, L.

Onslow, E.

Lane of Horsell, L,

Onslow of Woking, L.

Leigh, L.

Oppenheim Barnes, B.

Liverpool, E.

Park of Monmouth, B.

Lucas, L.

Pender, L.

Lucas of Chilworth, L.

Perry of Southwark, B.

Luke, L.

Pilkington of Oxenford, L.

Lyell, L.

Radnor, E.

McColl of Dulwich, L.

Rawlings, B.

Mackay of Ardbrecknish, L.

Reay, L.

Mancroft, L.

Renton, L.

Marsh, L.

Roberts of Conwy, L.

Mayhew of Twysden, L.

Romney, E.

Merrivale, L.

Rotherwick. L.

Mersey, V.

Rowallan, L.

Miller of Hendon, B.

Ryder of Wensum, L.

Monk Bretton, L.

St. Davids, V.

Monro of Langholm, L.

Saltoun of Abernethy, Ly.

Monson, L.

Seccombe, B.

Monteagle of Brandon, L.

Sharpies, B.

Montgomery of Alamein, V.

Shaw of Northstead, L.

Morris, L.

Soulsby of Swaffham Prior, L.

Mowbray and Stourton, L.

Stewartby, L.

Strathcarron, L.

Moynihan, L.

Strathclyde, L.

Munster, E.

Swansea, L.

Murton of Lindisfarne, L.

Swinfen, L.

Napier and Ettrick, L.

Tebbit, L.

Naseby, L.

Teviot, L.

Newall, L.

Torrington, V.

Norfolk, D.

Trefgame, L.

Norrie, L.

Trumpington, B.

Northbrook, L.

Vivian, L.

Northesk, E.

Windlesham, L.

Norton, L.

Wise, L.

Nunburnholme, L.

Young, B.

NOT-CONTENTS

Acton, L.

Elder, L.

Addington, L.

Evans of Parkside, L.

Ahmed, L.

Evans of Watford, L.

Alli, L

Falconer of Thoroton, L.

Amos, B.

Faulkner of Worcester, L.

Archer of Sandwell, L.

Farrington of Ribbleton, B.

Bach, L.

Gilbert, L.

Barker, B.

Gladwin of Clee, L.

Barnett, L.

Goodhart, L.

Bassam of Brighton, L.

Gordon of Strathblane, L.

Berkeley, L.

Gould of Potternewton, B.

Blackstone, B.

Graham of Edmonton, L.

Blease. L.

Grantchester, L.

Brett, L.

Grey, E.

Brooke of Alverthorpe, L.

Hacking, L.

Brookman, L.

Hampton, L

Brooks of Tremorfa, L.

Harris of Greenwich, L.

Bruce of Donington, L.

Harris of Haringey, L.

Burlison, L.

Haskel, L.

Carlisle, E.

Hayman, B.

Carter. L.[Telter.]

Hilton of Eggardon, B.

Castle of Black burn, B.

Hogg of Cumbernauld, L.

Chandos, V.

Hollis of Heigham, B.

Christopher, L.

Howie of Troon, L.

Clarke of Hampstead, L.

Hoyle, L.

Clinton-Davis, L.

Hughes of Woodside, L.

Crawley, B.

Hunt of Kings Heath, L.

Currie of Marylebone, L.

Irvine of Lairg, L. (Lord

David, B.

Chancellor.)

Davies of Coity, L.

Islwyn, L.

Dean of Thornton-le-Fylde, B.

Janner of Braunstone, L.

Desai, L.

Jay of Paddington, B. (Lord

Dholakia, L.

Privy Seal)

Donoughue, L.

Jenkins of Putney, L.

Dormand of Easington, L.

Kennedy of The Shaws, B.

Dubs, L.

Kennet, L.

Dunleath, L.

Kilbracken, L.

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King of West Bromwich, L.

Renwick of Clifton, L.

Kirkhill, L.

Rodgers of Quarry Bank. L.

Lea of Crondall, L.

Russell, E.

Lockwood, B.

Sainsbury of Turville, L.

Lofthouse of Pontefract, L.

Sawyer, L.

Longford, E.

Scotland of Asthal, B.

Lovell-Davis, L.

Serota, B.

Macdonald of Tradeston, L.

Sewel, L.

McIntosh of Haringey, L.

Shepherd, L.

[Teller.]

Shore of Stepney, L.

Mackenzie of Framwellgate, L.

Simon, V.

McNair, L.

Simon of Highbury, L.

Mallalieu, B.

Smith of Clifton, L.

Mason of Barnsley, L.

Smith of Gilmorehill, B.

Merlyn-Rees, L.

Stoddart of Swindon, L.

Milner of Leeds, L.

Strabolgi, L.

Mishcon, L.

Strange, B.

Molloy, L.

Symons of Vernham Dean, B.

Monkswell, L.

Taylor of Blackburn, L.

Morris of Manchester, L.

Taylor of Gryfe, L.

Murray of Epping Forest, L.

Thomas of Walliswood, B.

Palmer, L.

Thornton, B.

Peston, L.

Turner of Camden, B.

Pitkeathley, B.

Varley, L.

Plant of Highfield, L.

Walker of Doncaster, L.

Ponsonby of Shulbrede, L.

Wallace of Saltaire, L.

Prys-Davies, L.

Warwick of Undercliffe, B.

Puttnam, L.

Weatherill, L.

Ramsay of Cartvale, B.

Wedderburn of Charlton, L.

Razzall, L.

Whitty.L.

Rea, L.

Williams of Crosby, B.

Redesdale, L.

Williams of Elvel, L.

Rendell of Babergh, B.

Williams of Mostyn, L.

On Question, amendments agreed to.

Resolved in the affirmative, and amendment agreed to accordingly.
6.41 p.m.
Lord Higgins Lord Higgins moved Amendment No. 8:
Page 1, line 22, leave out subsection (5).
The noble Lord said: My Lords, I hope that the Minister will excuse me if I say that this is also a probing amendment. It is related to administrative expenses.
There has been a great deal of discussion about administrative expenses, in particular the 1 per cent limit which the Government suggest should be imposed on those who administer stakeholder pensions. We have been told that some in the industry have been prepared to accept that limit and we can understand that progress has been made. It would be fair to say that the effect of the introduction of the proposals for stakeholder pensions has led to some increase in the competitive pressures in the market. As a result of that, some charges on existing schemes have been reduced.
However, a number of press reports, one as late as 16th September, stated that,
"Darling may lift the I per cent charge cap".
It would be helpful to know whether that is the Government's position. Furthermore, a number of subsequent amendments relate to commission; for example, that tabled by the noble Earl, Lord Russell. The noble Baroness has tabled an amendment relating to the costs of administration being borne by members and another relating to advice. At this first stage of the

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discussion on these points, perhaps we may know whether it is the Government's intention to impose the limit and whether they think it is appropriate.
Lord Renton: My Lords, I must confess that I find Clause 1, which defines stakeholder pension schemes, one of the most incomprehensible pieces of legislation I have come across in 54 years in one House or another of Parliament. Within that clause, it is difficult to envisage how subsection (5) will work. The strange thing is that the various issues which must be worked out under paragraphs (a), (b) and (c) will be difficult to calculate. Indeed, it will mean going into people's personal finances in a subtle, perhaps sometimes complex, way. I believe that what my noble friend Lord Higgins said requires careful attention and I hope that the Government will consider simplifying this subsection.
6.45 p.m.
Lord McIntosh of Haringey: My Lords, the pensions Green Paper outlined our proposals for minimum standards for stakeholder pension schemes and, as the noble Lord will recognise, on 2nd June we published detailed proposals for the minimum standards in a consultation document. They include setting restrictions on the way in which charges may be made and an overall limit on the charges.
Amendment No. 8 would mean that schemes could charge their members in any way and at any level they wished. The noble Lord said that this is a probing amendment about the 1 per cent limit on charges. However, I must take the amendment as it stands and it gives complete freedom to schemes to charge as they wish. I shall do my best to respond to the probe, but in the end I shall have to ask the noble Lord to withdraw his amendment on the basis of what it states rather than on the basis of what he states.
I want to explain why we consider that a simple and transparent charging structure should be one of the fundamental features of stakeholder pension schemes. Before leaving that point, perhaps I may say to the noble Lord, Lord Renton, that there is no question of any investigation into anyone's personal finances. We are concerned here only with the charges that may be made; with the level of the charges, which should not be more than 1 per cent; and with the basis on which the charges are made, which is the total value of the fund.
For many people, the only option of saving for retirement is a personal pension, but the charging nature of some personal pensions bears heavily on smaller investors or penalises those who have to stop contributing to their scheme. Many personal pensions charge in a complicated way, making it difficult for scheme members to understand how the overall charge has been worked out. Terms and conditions vary widely making it hard for potential members to compare the products available.
That is why the consultation paper issued in June proposed that stakeholder pension schemes may charge only in a certain way; that is, a single charge on the value of the fund. No additional charges will be allowed for transferring in or out of a stakeholder scheme or for
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stopping or changing contributions. We have sought views on these proposals and we are currently evaluating them in the light of the responses we have received, but the majority of those who responded favoured a single charge on the value of the fund.
I understand the concern of the noble Lord, Lord Higgins, in proposing the amendment. We accept that we are setting a challenge for schemes. Of course, it is a challenge that has already been met by some schemes. There is the printing industry scheme, the engineering and electrical workers' scheme and the Virgin scheme. We intend to make it a challenge, but we want to make sure that those who join stakeholder schemes get a good deal.
Some people argue—I did not hear the noble Lord, Lord Higgins, do so—that market forces alone will drive down costs. Some providers have developed plans for lower costs and flexible personal pensions. That is excellent. We are pleased that they have encouraged the development of better value personal pensions for those seeking to make retirement provision, but we do not believe that this should be left to chance.
We have also proposed that there should be a 1 per cent limit on total charges. Every fraction on the charge makes a lower final pension for pension scheme members. The limit on charges provides them with important reassurance. We are determined to strike a hard bargain on behalf of the consumer. It is with that in mind that we propose the challenging but realistic limit of 1 per cent. In proposing that figure, we have taken into account responses to the Green Paper.
We have considered available information on the range of charges in personal pensions. We have already seen schemes being offered at that level and lower. I acknowledge straightaway that most of those responding to the consultation exercise have argued for a higher limit. We are evaluating the responses carefully and we shall announce our decision in due course. The final level will be set out in regulations using the power in subsection (5) which the amendment seeks to remove.
Therefore, I can only say to the noble Lord, Lord Higgins, that he should not believe everything that he reads in the press and that he should not expect me to anticipate the final result of the consultations or to announce from this Dispatch Box what the figure is going to be when the regulations come out. The regulations will be subject to parliamentary scrutiny. I shall not allow the noble Lord to probe me any further. He can probe me as much as he likes, but he will not get any more answers. I hope that on that basis he will see fit to withdraw the amendment.
Lord Higgins: My Lords, I agree with the noble Lord that one should not believe everything that one sees in the press, although his response seems to suggest that one does not know whether to believe it or not. At all events, I understand from his answer that the question of the 1 per cent charge cap is still under consideration and that the Government have not yet made up their mind. As I said earlier, a number of subsequent amendments relate to that question and to the particular question of charges for advice and so forth. It is probably better to defer further discussion until the matter is dealt with at an appropriate place in the Marshalled List. I beg leave to withdraw the amendment.
Amendment, by leave. withdrawn.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 9:
Page 1, line 22, leave out from ("that") to ("or") on page 2, line 2, and insert ("no part of—

(a)any payment made to the scheme by a member of the scheme:

(b)any income or capital gain arising from the investment of a payment made to the scheme by or on behalf of a member,").

The noble Baroness said: My Lords, I beg leave to move Amendment No. 9 standing in my name and that of my noble friend Lady Castle of Blackburn. The subsection would then read that:
"no part of—

(a) any payment made to the scheme by a member of the scheme; or

(b) any income or capital gain arising from the investment of a payment made to the scheme by or on behalf of a member,

may be used to defray the administrative expenses of the scheme, to pay commission or in any other way which does not result in the provision of benefits for or in respect of members".
The effect of the amendment would he that the whole of the schemes; expenses, commission and so forth, would be borne by the employer or the provider of the scheme. The employee's contributions and funds and the funds' investment income would be used solely for the provision of benefits. That would have two advantages. First, the employer would have to contribute at least the amount needed to meet those expenses. That would have the advantage that the employer would have an interest in endeavouring to keep down the charges. Secondly, there would then be no need to lay down a minimum level of charges.
I believe that the House is aware that my noble friend and I are supporters of the concept of occupational pensions. This amendment is in a way an attempt to ensure that members who participate in a stakeholder scheme have some of the advantages which accrue to members of an occupational scheme, in that employers in an occupational scheme obviously have to bear an amount of the cost and have also to make a contribution themselves. The amendment does not demand, as later amendments do, that the employer should make a contribution, but it suggests that the employer should contribute at least a minimum amount to meet expenses, or the provider if it is not a case of an employment situation.
I believe that that measure would be of benefit to employee members and would perhaps encourage the growth of stakeholder pensions in situations where there was no occupational scheme but where employees needed to have the benefit of coverage. I beg to move.
Baroness Hollis of Heigham: My Lords, I rather imagined that the noble Lord, Lord Higgins, would not be rising to support the amendment, and I was not disappointed.
Amendment No. 9 would mean that stakeholder pension schemes could make no charges on their members. Effectively, under the amendment, schemes could not operate unless costs could be recovered from an employer or other sponsoring organisation—perhaps the Government. If the costs were met by the scheme provider, they would have to be recovered by them in some other way; perhaps in terms of the effectiveness of either the
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investment policy or the gap between buying and selling of funds held in the scheme. They would certainly not be carrying that out on a non-profit basis.
Amendment No. 9 would mean that charges could not be taken from members and therefore would have to go somewhere else. Of course we want schemes to offer value for money. That is one of the reasons we have proposed that charges should be made only in a certain way and should be below a limit of 1 per cent of the value of the fund. To go further and prevent charges entirely would undermine the schemes altogether. Many of the people whom we are seeking to help work for employers who have elected not to fund an occupational scheme. To expect such employers then voluntarily to meet those charges is not realistic; nor, as I have explained, do we see this as the area on which it is appropriate to concentrate state help.
The net effect of the amendment, were it to be pursued by my noble friend, would be to prevent the operation of stakeholder schemes. That would leave around five million people without the opportunity to join a stakeholder pension scheme. We think that the new schemes are a vital part of pension choice. We want them to be readily available. Therefore I hope that my noble friend will not pursue her amendment.
Baroness Turner of Camden: My Lords, I thank my noble friend for her response to the amendment. I do not share her view that the amendment, if passed, would mean that stakeholder pension schemes would cease to operate. If a similar amendment—perhaps not with this wording—were to be passed, such schemes would be very attractive to employees and would perhaps result in greater pressure for a scheme to be introduced. However, in view of what has been said this evening, it is certainly not my intention to call a vote on the issue. I shall look carefully at what my noble friend has said in Hansard tomorrow morning. beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Goodhart Lord Goodhart moved Amendment No. 10:
Page 2, line 4, leave out (", to pay commission").
The noble Lord said: My Lords, in moving the amendment I shall speak also to Amendment No. 11 which is tabled in my name and grouped with it.
I say frankly that the point is something of a hobby-horse of mine and indeed has been for some years past. Insurance brokers and advisers act in law as agents of their clients—the people who go to them to receive recommendations on what kind of insurance policy they should buy. The brokers are paid for their services not by their clients, but by the insurance companies whose policies they recommend their clients to buy. There is therefore an obvious and straightforward conflict of interest on the part of the insurance brokers between their own personal interests and those of their clients.
The law in general requires an agent to account to his client for any benefit received from a third party in connection with the agency. However, there are some Victorian cases which held that that principle does not apply to the case of insurance. I believe that that is wrong. I believe that the general law should apply to insurance brokers and advisers in the same way as it applies to agents

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generally. The duty of an agent is to act solely in the interests of his or her client. If one insurer is offering the agent a bigger commission than other insurers, there is a strong and obvious inducement for the broker to recommend the policy with the bigger commission. No doubt many insurance brokers and advisers resist that temptation, but it is one which should not be there.
The loophole also encourages insurers to compete in offering larger commissions rather than larger benefits for a given premium. Commission in those circumstances is frankly no less than legalised bribery. The buyers accept it because the real cost is hidden by the front-end loading of policies which absorbs the cost of the commission paid to the insurance broker. What we should do is say to the buyers of policies, "If you want honest and disinterested advice, you are more likely to receive it if you pay for it yourself'. As the Social Security Committee in the other place quoted from a witness in its report on pensions and divorce,
"if advice has got a value then it also has a cost"
If you pay for advice yourself, you get more insurance for the same premium. Therefore, I should like to ban those who hold themselves out as independent brokers or advisers from taking commission at all. Such a ban might be in practice—perhaps not technically—outside the scope of the Bill were that to be applied across the board to all kinds of pension policies. But surely at least we can start with stakeholder pensions, particularly as advice is less likely to be needed in the case of such pensions which are relatively simple and straightforward and where the great majority of people are in any case likely to go for what is a designated scheme in their individual case. Therefore, I propose that commission should not be a permitted expense of providers of stakeholder pensions. I beg to move.
7 p.m.
Lord McIntosh of Haringey: My Lords, I am grateful to the noble Lord for admitting that this is what he describes as a "hobbyhorse". In Committee he described commissions as "institutionalised bribery" and I can see how strongly he feels on the issue. However, I hope to persuade him that, given that we have now agreed that there will be a limit both on the total charges to be made by providers of a scheme and a single method of calculation of how that limit shall be arrived at, his amendment would be an intrusion into matters which are not properly the concern of government.
Traditionally, of course, the noble Lord is right. Those involved in the sale of personal pensions have been remunerated at least in part by the payment of commission. The payment of commission upfront can often lead to charges which bear heavily in the early years. That is why personal pensions can be poor value, particularly for those who find that they have to stop paying after a short period in the scheme. That was one of the major issues in the mis-selling of personal pensions in the 1980s and early 1990s. It is also one of the reasons why there is a complex structure of charges which bear heavily on small investors and make it difficult for scheme members to understand how the overall charge is worked out. As far as that goes, I am entirely in sympathy with what the noble Lord says.
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However, I am not convinced that it is necessary to go so far as to ban the payment of commission for stakeholder pension schemes. We are confident that our proposals for minimum standards, which we set out in the consultation paper in June, will ensure that schemes cannot charge in ways which would impact disproportionately on those with moderate earnings or penalise those who need to take contributions breaks. As I explained when we were debating Amendment No. 8, stakeholder pensions could charge only in a certain way; that is, through a single charge on the value of the fund. We propose also that there should be a 1 per cent limit on total charges; low additional charges for transferring in or out of the stakeholder scheme; or for stopping or changing contributions. We believe that that will provide the simple and transparent charging structure that is essential if stakeholder pensions are to provide members with good value for money and make it easy for them to make comparisons between different schemes.
As I said in Committee, I do not believe that whether or not commission is paid is an issue for government at all. Perhaps I may be so bold as to quote myself. I said,
"it seems to me that commission is a way of incurring marketing costs—and marketing costs are part of the costs of running a pension scheme".—[Official Report, 24/6/99; col. 1128]
It is not for us to decide how a pension scheme provider should allocate this cost. So far as concerns the customer, commission is the same as any other back-office cost or any other cost. It reduces the value of the individual fund.
Given the protection which is provided for in the way in which a charge can be made and which will be provided for in regulation on the amount of the charge, I hope that I have persuaded the noble Lord, Lord Goodhart, that his amendment is an unnecessary restriction on the commercial judgment of pension scheme providers and that he will feel able to withdraw it.
Lord Goodhart: My Lords, the noble Lord, Lord McIntosh, will not be altogether surprised to hear that he has not persuaded me of that. He will perhaps also not be altogether surprised to hear that I take the view that this is not an appropriate amendment on which to divide the House. Therefore, having raised the issue and having had my say, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 11 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 12:
Page 2, line 8, leave out ("or section 109 of the Pension Schemes (Northern Ireland) Act 1993").
Lord Higgins Lord Higgins moved Amendment No. 13:
Page 2, line 11, leave out from ("to") and ("and") in line 12 and insert ("a minimum contribution level of £20 per month").
The noble Lord said: My Lords, this amendment relates to two issues which we have already discussed: the question of charges and whether adequate income will be provided by a stakeholder pension. I raised the issue of charges in Committee on a rather more modest amendment. I believe that it related to £10 a month. I pointed out that if the Government adhere to their policy of saying that there is a cap of 1 per cent on the annual charge, there is a real

73
problem with people taking out a stakeholder pension if the amount which they put in is very low. Therefore, I suggested that there should be some minimum level; otherwise, clearly, the return which the provider receives is likely to be negligible in relation to the charge which he is allowed to make. That is likely to deter people.
I believe that in any case whether or not there needs to be some minimum level of contribution is a difficult issue because we shall find that although a person contributes throughout his working life, the pension which he receives at the end of the day is less than the minimum income guarantee now proposed by the Government. As we understand it, that will be related to earnings. However, in her earlier remarks, the noble Baroness left out the small print which normally occurs in government documents; namely, "if resources allow".
At all events, it is obviously wrong to encourage people to invest in a stakeholder scheme if one finds that at the end of the day they receive nothing in return because the income it produces is less than the minimum income guarantee. Therefore, on both these points I believe it would be helpful to have the Government's view. It is, of course, the case that people's incomes may vary substantially over their working life. Even so, given the whole emphasis placed earlier by the Government on people providing an income which does rise above the minimum income guarantee, there would seem to be some case for this particular amendment.
At this stage, I do not propose to move Amendment No. 14. I beg to move.
Baroness Hollis of Heigham: My Lords, these amendments relate to the level of contributions to stakeholder pension schemes. Amendment No. 13 would put on the face of the Bill a level of £20 for the minimum contributions that stakeholder pension schemes can require their members to make. Amendment No. 14 seeks to specify a maximum limit for contributions to stakeholder pension schemes. We debated amendments almost identical to these in Committee, and I am intrigued as to why the minimum suggested has increased from £10 to £20 since then.
Clause 1(7) is intended to give stakeholder pension scheme members the flexibility to contribute either on a regular basis or as and when they can—something that is not possible with many existing personal pensions. It also provides the power to make regulations specifying minimum contribution levels and other restrictions on contributions. We made it clear in the Green Paper that any scheme that requires a minimum contribution should not be able to set it above a specified amount. To ensure that people who can afford only modest contributions are not excluded, our consultation document on minimum standards, issued in June, proposed that amount should be £10. I agree that at the time it was sort of a tickover sum, but that is what it was intended to be.
Our consultation document proposed that there should be no requirement for contributions to be made on a regular basis, such as once a month as suggested by Amendment No. 13. One of our key aims is that stakeholder pension schemes are flexible enough to adapt to people's changing circumstances. We want people to be able to make contributions as often as they wish, by either
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regular payments or one-off payments—which might suit someone who is self-employed, for example, rather better. For those in employment, regular monthly contributions make sense, but unemployed people may wish to make small contributions (as and when they can afford to do so), while they look for work, and we want them to be able to do that. Similarly, we want to allow those who take breaks from work—to raise a family, for example—to make one-off contributions from time to time. We want to ensure that stakeholder schemes cater for people who want to make irregular lump-sum payments; for example, self-employed people who may receive a large one-off payment for a specific contract.
In the consultation document we sought views on the compatibility of that proposal with the variety of ways in which schemes may collect contributions. We expect that most stakeholder pension schemes will receive contributions either through individual direct debit arrangements or through the employer's payroll system. Our proposal to allow one-off payments means that they may have to accept other methods of payment.
We are evaluating our proposals in light of the responses we have received to the consultation paper. In particular, we are mindful that many people have said that the £10 minimum contribution is too low and that it will place an excessive burden on schemes. We shall consider those views carefully before coming to a final decision. We want to ensure that our proposals achieve the right balance between flexibility for members and the costs to schemes of handling very small contributions.
Our final proposals for the minimum standards will be set out in regulations, which will give us the flexibility to amend the levels of contributions in future if it becomes appropriate to do so. We think that it is reasonable to go down that route, rather than specify a figure in primary legislation.
The main aim of Amendment No. 14 is to allow stakeholder scheme member`, to contribute up to a flat-rate amount of £5,000 or a figure calculated as a percentage of earnings using the existing Inland Revenue limits, where that is higher than £5,000. I hope that your Lordships recognise that things have moved on considerably since Committee. I indicated then that the Government were considering carefully the points that had been made on the operation of the proposed tax regime for stakeholder pensions. In particular, there were concerns about the integration of the simplified tax regime for stakeholder pensions with the existing tax limits for personal pensions.
On 16th September, we issued a consultation paper—the claret-coloured one—that set out our revised proposals on tax. We have accepted the weight of the arguments that prompted the amendment, but we have gone much further in radically simplifying the tax rules for stakeholder and personal pensions. For the first time, we are offering people who cannot work—including disabled people and carers—the opportunity to build up their own pension and to benefit from the tax reliefs available to earners. The proposals have been widely welcomed by the pensions industry, which has recognised the radical thinking that has gone into them. It has welcomed also the reduction in red tape for pension providers.

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The new arrangements will allow members to contribute up to either £3,600 a year or to the age and earnings-related limits for personal pension schemes where those are higher. Precisely the same rules will apply to stakeholder and personal pensions, avoiding any tax complications for people who are thinking of joining a scheme.
We have not gone as far as the amendment in setting the tax limit at £5,000. Your Lordships will recognise that some limit is needed to put a cap on the cost to the Exchequer from pension tax relief. We think that £3,600 is a sensible figure. In practice, 95 per cent of existing pension scheme members pay in less than £3,600 each year. To go any higher would have a cost, but would provide little benefit for the moderate earners who are the main target for stakeholder pensions. To put in a figure of £5,000 when one is talking about a stakeholder target figure of between £9,000 and £20,000 seems extremely high.
We have listened and revised our proposals in the light of views expressed in this House and elsewhere. It is not our intention to set out the tax arrangements in the Bill. The Inland Revenue and the DSS are continuing to consult on the proposals for a new integrated tax regime. Those proposals will be brought forward in a forthcoming Finance Bill—which will of course be debated in another place in due course. In the light of the revised proposals and the explanations that I have given, I hope that the noble Lord feels able to withdraw the amendment.
7.15 p.m.
Lord Higgins: My Lords, we are grateful to the Minister for her reply. We still have some concerns about the minimum payment level. It may be that people will find—despite fluctuations in income and the ability to make lump-sum payments—that they are gaining nothing from all their contributions because the proceeds fall below the minimum income guarantee. The Government should give that point further consideration, whether by way of a refund or contributions or whatever; otherwise, that will serve as a considerable deterrent to people trying to do the arithmetic involved, when working out whether or not joining a scheme would be worth while.
Baroness Hollis of Heigham: My Lords, I intended to present this information when we debate income support levels but for the noble Lord's information, somebody who contributes over a full working life—there are certain assumptions about earnings increasing 4 per cent a year and so on—will only have to pay in £3.50 a week or £13 a month, of which perhaps half could come from recycled rebates, to float them above the level for a stakeholder pension. If they were to put in something like £50 a month or £12.50 a week—half of which or more, according to the person's age, could be recycled rebates, so that is a gross figure and not a net figure because a net figure could be half that or less—they would acquire a pension over a working life of the order of £75 a week on top of their state pension. Even quite small sums—£10, for example—would produce a worthwhile figure if that were net of the recycled rebates. If one added that £10 into the recycled rebates, one could have (on certain assumptions about earnings and inflation over a lifetime) a pension of perhaps £50 a week. We should
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not underestimate the power of compounding over a lifetime and the addition of both the employee's net contribution and the recycled rebate.
Lord Higgins: My Lords, I am grateful to the noble Baroness for her intervention. With a number of amendments, the arguments have gone back and forth, and replies relevant to one can be used for another. I shall study carefully the illuminating figures that the Minister has just given.
As to the tax limit and so on, we have referred to a number of consultation documents. Consultation brief No. 6, which has a red cover in this case—
Baroness Hollis of Heigham:Claret, my Lords.
Lord Higgins: My Lords, burgundy perhaps. Someone has to be the straight man in this act.
A number of the proposals have been widely welcomed, with surprise in some cases. As I understand the tax proposals, if someone who has no income makes a contribution to their pension, they will get a handout from the Inland Revenue. I cannot recall that happening on any previous occasion. Perhaps it is regrettable that will appear in the Finance Bill in another place rather than be debated here. In the light of the Minister's helpful remarks, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 14 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 15:
Page 2, line 16, leave out ("or the Pension Schemes (Northern Ireland) Act 1993").
Lord Higgins Lord Higgins moved Amendment No. 16:
Page 2, line 18, at end insert ("or other insurance contracts, annuity contracts or pension arrangements which satisfy the prescribed arrangements").
The noble Lord said: My Lords, Amendment No. 16 concerns an important issue on the question of transferability of assets from one particular form of contract into the stakeholder pension scheme. It is linked with Amendment No. 17. I am not sure whether or not that amendment accepts my proposal. If that is so, we can make rapid progress. However, there are one or two points which should be made.
Incidentally, I believe that perhaps the noble Baroness was not accurate with regard to final salary schemes in saying that there are difficulties on transferring. One can always leave the final salary amount in the existing scheme, as indeed I did. The noble Lord, Lord McIntosh, shakes his head.
Lord McIntosh of Haringey: My Lords, you can always have a frozen pension, but if you change jobs three or four times in your 20s and 30s, you will land up with three or four "piddling" little frozen pensions which will not add up to a proper final salary scheme.
Lord Higgins: My Lords, speaking from personal experience, I served roughly the same length of time with a

77
well-known multinational as I did as a Minister. The frozen pension did a great deal better than the ministerial one. Be that as it may, as we understand it the stakeholder scheme must accept transfers from other schemes but there are some risks as far as concerns the trustees. I refer, for example, to schemes which do not have fully equalised benefits for men and women. I am not sure whether that point has been taken into account.
The issue of transfer values is difficult and much involved in discussions with actuaries, and so on. We will need to ensure that trustees who transfer, for example, from a defined contribution scheme (like that of a company) to a stakeholder scheme do not suddenly find that there are problems. If the amendment tabled by the noble Baroness embraces my amendment—no doubt it is far better drafted—I look forward with interest to what she has to say. I beg to move.
Lord McIntosh of Haringey: My Lords, the noble Lord is quite right. He moved the same amendment in Committee and I said that we were prepared to consider it further; indeed I quite welcomed it.
The reason for extending the provision is that occupational and personal pensions are not the only type of recognised pension arrangements. Other types include retirement annuity contracts and certain other types of annuity or insurance policies. Insurance and annuity contracts can, for example, be used to give effect to an ex-employee's rights in the former employer's occupational pension scheme. Once our proposals for pension sharing on divorce are introduced, a spouse who becomes entitled to a share of the former spouse's pension and is not at that time a member of a pens: on scheme will be able to buy a deferred annuity. It is possible that those people may, in future, want to transfer such rights into a stakeholder pension scheme.
There is nothing in our original proposal which would have prevented a stakeholder scheme from accepting transfer from such arrangements. However, since we last discussed the issue, I have had an opportunity to consider it further. I am pleased to say that on reflection we can see no reason why this provision should not be amended to ensure consistency of treatment between different types of arrangements. We have tabled Amendment No. 17 to include transfers of rights in the types of pension arrangements that we have been discussing. It meets what I believe to be the purpose of Amendment No. 16 but has simply been expressed somewhat differently, on legal advice, to achieve the intended effect.
Lord Higgins: My Lords, I am not a lawyer and therefore I fully accept that this is no doubt better drafted than my own amendment. I am glad that the Government have been prepared to accept the principle of what we argued in Committee. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 17:
Page 2, line 18, at end insert—

("( ) contracts and schemes approved under Chapter III of Part XIV of the Income and Corporation Taxes Act 1988 (retirement annuity contracts);

( ) annuities and insurance policies purchased or transferred for the purpose of giving effect to rights under pension schemes; and

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( ) annuities purchased or entered into for the purpose of discharging liability' in respect of pension credits under section 26(1)(b) or under corresponding Northern Ireland legislation.").

Lord Higgins Lord Higgins moved Amendment No. 18:
Page 2, line 20, at end insert—
("(10) The ninth condition is that the scheme shall provide full and accurate advice to any person who applies to join the scheme as to how a stakeholder pension would benefit the applicant compared to other types of pension and shall tell the applicant that they have up to twenty-five days to cancel the application without cost or penalty; and an applicant to a stakeholder pension scheme shall have up to twenty-five days from receiving the said advice to cancelling the said application without cost or penalty.").
The noble Lord said: My Lords, Amendment No. 18, which stands in my name, suggests that it should be a condition of the stakeholder scheme that it shall provide full and accurate advice to any person who applies to join the scheme as to how their pension would benefit the applicant compared with other types of pension, and tells the applicant that they have 25 days to cancel if they think it is wrong.
This clearly relates to the question of advice and concerns one of the problems which arose with regard to the so-called "1 per cent cap" on the charge which the stakeholder scheme can make for provision of the pension. As I understand it, the Government are changing their view somewhat as regards that matter. They are tending to say that there may be some additional charge for advice. That is an important shift. One of the reasons why charges are as they are in existing schemes is that the amount which is charged "up front" includes a charge for providing advice. However, as the noble Lord, Lord Goodhart, stated earlier, that commission may indeed be paid in a way which is not justified.
Essentially, we are suggesting that there should be a sensible system for advice. The noble Lord, Lord Williams, suggested earlier that I was not taking into account the increase in the number of products available—"products" is the right word. The more one looks at such products, the more difficult advice becomes. Despite the fact that the noble Baroness argued earlier that the state second pension is somehow totally separated from the stakeholder pension, there are considerations there which individuals may wish to take into account when deciding whether or not to join a stakeholder scheme. Indeed, that is so more generally.
In particular, there are other difficulties. Dare I mention the provision by the Treasury of the so-called LISA? We have heard nothing at all about LISA. It appears to have sunk without trace. Clearly people will need advice as to whether they should go in for a stakeholder scheme or what appears to be a competitive product offered by the Treasury. It looks like a complete alternative to the stakeholder pension scheme. Will the advice given by the stakeholder promoter take that into account? Referring back to the comments made by the noble Baroness, Lady Castle, an area to be considered is whether people have the whole picture so far as concerns the present situation. None the less, I do not wish to detain your Lordships longer. I hope that we can have some reassurance from the Government with regard to the question of adequate advice

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and, in particular, whether it is now considered appropriate for a charge to be made for it by the provider of the stakeholder pension. I beg to move.
Lord Renton: My Lords, before my noble friend sits down, I wonder whether it would be in order for him to reply to the short point that I wish to put. Amendment No. 20 is tabled with Amendment No. 18. His explanation referred mainly to Amendment No. 18. In the first line of Amendment No. 20 we see the expression, "a decision tree". I have never before seen such an expression. It sounds like an attractive possibility. I wonder whether my noble friend could explain how the Treasury is expected to interpret that expression. The noble Lord, Lord McIntosh, is holding up a piece of paper which I have not yet seen. He may care to interrupt me in order to shorten the proceedings.
Lord Higgins: My Lords, I am grateful to my noble friend, in particular for drawing my attention to the grouping which for a moment I had overlooked. In Committee I argued strongly for the use of a decision tree as a helpful means of obtaining advice. The document being waved by the noble Lord, Lord McIntosh, is in fact consultation paper No. 4, unless I am mistaken.
Lord McIntosh of Haringey: My Lords, it is the "tangerine" document.
7.30 p.m.
Lord Higgins: My Lords, it all seems to be related to drink, though I am not clear why. It looks more like "Tizer", to me, but "Tizer" is a product which died out some years ago—certainly my investment in the company producing it was a mistake.
At the back of the document my noble friend will find a decision tree. The tree begins with the question, "Are you self-employed?". If the answer is "yes", a series of questions follow, and if the answer is "no", an alternative series of question is asked. It should enable people to decide whether or not they should invest in a stakeholder pension. Not only is there a decision tree number one, but also a decision tree number two which begins with the question, "How many years do you have to go before state retirement age?" It does not say what we do if we are over state retirement age, but it operates in the same way.
There is a case for that form of simplified advice. Of course, there are considerable dangers in that, but I understand that the Government are proposing to produce official decision trees of this kind which will help people to decide whether or not to take out a stakeholder pension. The problem is that it will not take one through the woods in a way which takes into account all the possible forms of pension which might be taken out instead of a stakeholder pension and, for example—I come back to the point I was making earlier—whether or not one should invest in the Treasury's competitive product LISA, rather than a stakeholder pension.
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I welcome the fact that the document contains this idea and will be happy to discuss it with my noble friend Lord Renton if he cares to do so.
Lord Renton: My Lords, I believe it is in order for me to speak now. I asked my noble friend a question and he answered it at length. Perhaps I may now venture to express an opinion on Amendment No. 20.
My noble friend knows well that I support him on every possible occasion, but the words in Amendment No. 20,
"and other forms of saving",
are of extremely wide application. It would be unusual for the Treasury to consider the vast range of savings vehicles that could be considered applicable. Some people may say that the best form of saving is to buy an antique picture, or something even more incredible, a picture by Van Gogh. They hope that it will increase in value over the years and that is where they will devote their savings. I find that difficult to follow.
I am not trying to introduce a difficulty for my noble friend. I greatly admire the constructive attitude he has adopted in interpreting this complex piece of legislation. However, I find that proposition slightly problematical.
Lord Higgins: My Lords—
Lord McIntosh of Haringey: My Lords, I do not feel that a third speech would be appropriate at this stage.
Amendments Nos. 18 and 20 concern the provision of information and advice to prospective members of stakeholder pension schemes. We debated identical amendments in Committee.
I said then that joining a pension scheme is one of the most important financial decisions that most people will ever make. It requires a long-term commitment. In order to encourage people to make that commitment, they need to be aware of the benefit of saving for their retirement and be properly informed about any scheme that they are considering joining. Individuals must also be confident that their proposed arrangement is suitable for them and that it is secure, flexible enough to cope with changing circumstances, and will deliver good value for money. It is vital that people make decisions which take full and proper account of their circumstances.
As the noble Lord, Lord Higgins, said, we made proposals for the provision of information and advice on stakeholder pensions in a document we call the "tangerine" document, published on 2nd August. They reflect our commitment to good, accurate financial information and advice being available to all potential members.
We are proposing that all prospective members of a stakeholder pension scheme will receive good quality, understandable information to help them to make a reasoned choice about joining the scheme. As part of that, the consultation document makes clear that we are developing decision trees, which the noble Lord, Lord Higgins, has been kind enough to explain to the House, which will help to guide people by setting out their options and prompting them to work through a number of key questions about their circumstances. We did a similar thing earlier this year in the Employment Relations Bill which contained a number of decision diagrams. I am glad that in

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neither case have we put forward the horrible algebraic formulas which were a feature of the legislation of the previous government; notably, their unsuccessful local government legislation. We believe that, for some people, that information will be sufficient to enable them to make an informed decision about the most suitable arrangement for them.
Decision trees will have a useful role to play as part of a package of information about stakeholder schemes and for some they will be sufficient. But we are not saying that they will be a substitute for advice in all cases. We recognise that many potential members will want or need additional help in considering their pension options and that for some it will involve individual, personal financial advice. For many of those, the advice will be straightforward, focusing, for example, on whether they should join a specific scheme, but others, such as those who have already taken out a personal pension, are likely to need more detailed and complex advice.
The noble Lord, Lord Higgins, suggested that we have already accepted that there should be an extra charge for advice. That is a matter still awaiting consultation. One option considered was that more detailed advice may be made available at an additional charge. We are considering responses to that which will feed into a decision on any appropriate charge limit.
We must strike a balance between the protection for consumers and the costs imposed on schemes and their members. We want stakeholder schemes to offer an appropriate level of advice within the overall charge and are now consulting on the best way to ensure that. It will be a challenge for scheme providers who may need to find new and low-cost ways of delivering advice, but we are determined that stakeholder pensions will be a good deal for those who join them. We shall be carrying out further work on the content and lay-out of the decision trees, but we think that it should be part of the FSA's guidance—the scheme providers—rather than something which comes from the Government.
As I hope I have made clear, although we are very sympathetic to the thrust of the amendments—I trust that that is confirmed by our consultation document—the wording of these particular amendments cannot be accepted at this time.
Lord Higgins: My Lords, I am grateful to the Minister for that response. I believe that he has taken up some of the points made by my noble friend. However, as far as concerns the provision of advice, it clearly needs to take into account the point which he made; namely, that there are various forms of saving, and so on. The decision tree really needs to take that into account. In those circumstances, I should have thought that there was at least some case for a degree of official guidance in the matter. In particular, some guidance as to what choice should be made in given circumstances as regards certain government products.
I had hoped that we might have some further elucidation with regard to the mysterious question of LISAs and whet her they are an alternative to stakeholder pensions, but answer came there none. Perhaps we may get something after the dinner break. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Amos: My Lords, I beg to move that further consideration on Report be now adjourned. In moving this Motion, perhaps I may suggest that the Report stage begin again not before 8.40 p.m.
Moved accordingly, and, on Question, Motion agreed to.

European Council: Policing, Immigration and Judicial Co-operation
7.41 p.m.
Lord Wallace of Saltaire Lord Wallace of Saltaire rose to ask her Majesty's Government what will be the significance of the European Council at Tampere on 15th and 16th October for United Kingdom policing, immigration control and judicial co-operation.
The noble Lord said: My Lords, I have been listening with fascination to how decision trees lead one into the woods. I am sorry that we now have to move on to another subject. The Unstarred Question standing in my name asks Her Majesty's Government,
"what will be the significance of the European Council—
which will take two full days of our Prime Minister's time in Tampere this coming weekend—
"for United Kingdom policing, immigration control and judicial co-operation".
We have this brief debate tonight because Sub-Committee F of the European Communities Committee, of which I have the honour to be the chair, produced a report on this topic at the end of July, and there has not yet been time to have a proper debate. I hope that this dinner-hour debate will not be considered as a full and proper debate. I very much hope—and I say this to the Government Whips—that time will be found for a full-length debate after the Tampere European Council, in the light of the important decisions due to be taken at that council. This, then, is a brief, interim debate on the important issues at stake to open up public information and public debate just a little before next weekend. The significance of developments in this field is very large.
Through successive inquiries of our committee, we have all been struck by just how rapidly co-operation has developed in this whole area of justice and home affairs over the past 10 years. Large numbers of officials from the Home Office, from the Lord Chancellor's Department, from the Scottish departments concerned, from the National Criminal Intelligence Service (which was partly created to cope with the growing amount of European business) and from the National Crime Squad, now travel to Brussels and other European capitals every week. We have somewhere between 15 and 20 police liaison officers permanently stationed in other European capitals. Our Home Secretary is on first-name terms with his opposite numbers in most other European capitals and so far, in the past few weeks, has spent two days in Turku at an informal meeting of justice and home affairs Ministers. He also attended a full meeting

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on 4th October to discuss the agenda for Tampere. Moreover, today, our foreign ministers met to complete preparations for next weekend's agenda.
This is a very large and important area. The Home Secretary has been an extremely co-operative Minister in working with the European Communities Committee of this House. When he came to give evidence to us in July, he agreed that the comparison one should make as regards what is now on the agenda of the European Council should be with the 1992 programme. That was agreed in 1986–87 as a five-year programme for transforming the internal market and, at the end of that five-year period, it required some substantial further treaty amendments. Perhaps I may quote what the Home Secretary said to our committee:
"We hope that this will lead to practical progress in terms of improved co-operation at every level between justice and home affairs ministries within the EU and some of the institutions of the EU, fundamentally to improve the enforcement of law within the European Union and access to it as well".
We questioned the Home Secretary a little further on the comparison with the 1992 programme, remembering how much further it took Mrs. Thatcher than she had intended, and he said that he would not necessarily flinch if, at the end of this process, further constitutional treaty amendments were made.
One of the issues which the Home Secretary told us in July was unlikely to be on the agenda, which clearly will be discussed next weekend, is the proposal for a European Union charter of fundamental rights. It is intended to incorporate this into the treaty in the course of the intergovernmental conference next year. I understand that heads of government will be asked at Tampere to agree who will form the drafting committee for the fundamental declaration. In many ways, that will be as important as the 1951 European Convention on Human Rights. We will need to look at that in those terms. So there are several large issues here to which this House and the other place will need to give full attention.
There are severe dangers in the lack of public information and understanding. On several occasions during the past two years various members of our subcommittee have said that the real danger is that at some point the Daily Mail will wake up and say, "Germans take over British law", or even, "Stop the Euro superstate in the name of the law". However, it is the Daily Telegraph which has headlined this today, and I am sorry to see that it is a newly-elected Conservative Member of the European Parliament making a number of grossly inaccurate and ill-informed statements about what is currently happening.
My impression was that this is an all-party development. Indeed, much of what has happened in the past 10 years happened under a Conservative government. I recommend to Members of this House the extremely constructive and useful evidence that Michael Howard, the last Conservative Home Secretary, gave to our committee 18 months ago on
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how useful and normal he had found the evolution of co-operation among Ministers of justice and home affairs.
There are three main areas on the agenda—immigration and asylum, organised crime and judicial co-operation. Perhaps I may say a few words about each of them. First, there is a disjunction between the Bill currently going through this House on immigration and asylum and the issues which our Home Secretary and others will be discussing during the course of the Tampere European Council. One of the ways in which we ought to be bringing practical cooperation at the European level together with national legislation is to feed back into our national legislation, as we change it, some of this interconnection.
In the British Government's UK position paper for the Tampere European Council, I see the statement that,
"the United Kingdom believes that the European Union should develop a global approach to asylum and immigration".
That is not exactly what is happening in the Bill currently before the House. I read a very interesting letter today from the UN High Commission for Refugees which pointed out the significance of moves towards a European common approach to refugees in that it would clearly affect the whole way in which global policy towards refugees develops within the developed countries. So large issues are, again, at stake here. My noble friend Lord Russell reminded me this morning that it is important that the EU agrees a common definition of "refugees", and that that common definition should be on the liberal side.
There is a refugee crisis across the world. Today I read the European Union's action plans on Somalia, Afghanistan, Iraq and Morocco. I gather that there is also an interim report on the refugee crisis in southeastern Europe. These have large implications, not just for justice and home affairs Ministers but also for European Union foreign policy, which I understand Foreign Ministers are discussing today. If we are to have a coherent policy towards the countries from which refugees have come, we will need to have a rather active and co-ordinated foreign policy as such.
There are now 40,000 Somali refugees and their families in this country, which is a third of the Somalis in the European Union. However, I should note that Britain is not the softest touch within the European Union. It emerges clearly from the document that I have just been reading that the Netherlands and Germany still take a more generous approach than we do.
The agenda will contain many items on organised crime. I was rather struck today to read a brief from Statewatch, a civil liberties organisation, that criticised the agenda on organised crime, mainly because it was not taking all crime into consideration. It argued that European citizens now live increasingly across a European space, and that if British citizens wish for civil or criminal redress in other countries they are entitled—as Jack Straw has said to our committee—to that kind of redress from the courts of other countries. I know that improved police co-operation is on the

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agenda. There is nothing in the way of a common European police force—which is what the Daily Telegraph threatens us all with—but there are a number of useful practical ways forward.
Judicial co-operation is rapidly emerging as a third useful area. I refer to the need for convergence of standards and assumptions to build co-operation and also to build better access to justice for the citizen. There is the suggestion— which the Home Secretary has also made—of a European enforcement order. When awarded a judgment against a citizen or a company in another country one can insist on having this enforced. If our citizens live across the European space they are entitled to access to justice across the European space.
The United Kingdom's approach to this matter has not changed much from government to government. The current Minister argues—as indeed his predecessor did—that we should pursue practical cooperation which may in time lead to treaty change. Some of our colleagues in other governments want to define the principles first and sort out the practice later, but we are all likely to end up in the same place in five or 10 years' time. This is an area where developments are moving extremely fast. The 1992 programme caught the public in this country and in a number of other countries unawares. The action programme for freedom, security and justice should not. I hope that in a small way this debate will do a little to illuminate the agenda already under discussion. I call on the Government to inform us all a great deal more fully and to publish a good deal more. I hope that after the Tampere European Council this House will have the opportunity for a much fuller debate.
7.52 p.m.
Lord Bethell: My Lords, I congratulate the noble Lord, Lord Wallace, on introducing this brief debate. I offer a qualified congratulation to the Government on taking forward this question of co-operation in judicial and policing matters. I look forward very much to hearing from the Minister what exactly is on the agenda for Tampere, if it is now known, and something of what the proceedings will be. I share the hope of the noble Lord, Lord Wallace, that after Tampere we shall have the opportunity of a wide-ranging debate, even though some of us may not be here to hear it. Nevertheless, we hope that it will happen at least.
I well recall 10 years ago attending the birth of what is now Europol in a portacabin just south of Strasbourg—it was then called the European drugs unit—listening to the ideas put forward for cooperation between police services all over the European Community and thinking to myself that no one could possibly object to that because the plans for the exacerbation of the war against crime made such common sense and were so necessary and so important. We all saw how the criminals were working in co-operation. They paid no attention to boundaries. They had good equipment for crossing frontiers. They did not care about exchange control or about moving
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money into and out of various banks. Somehow the police were hamstrung and had less freedom than the criminals who were able to exchange information much more easily. Therefore, I am pleased that Europol has at last come to fruition. I hope that police co-operation will be one of the matters discussed at Tampere.
However, there is no doubt that there are objectors. On the one hand there is the ultra civil libertarian who is worried at what he sees as an emerging "big brother" on an international scale emanating from Brussels, which somehow seems to make it worse. On the other hand—as pointed out by my noble friend Lord Wallace; I believe he mentioned the Daily Telegraph in this connection—an article was written by a Member of the European Parliament along the lines that a police officer is a constable and an expression of the sovereignty of the nation state. There are those who believe that the constable should not step outside the boundaries of the nation state. In that, they distinguish between the police officer and the soldier. For many centuries the British soldier has fought outside the boundaries of the nation state in alliance with other soldiers from other countries and no one has thought that he was acting in any way out of the ordinary or cooperating with foreigners. During the Second World War the entire British Armed Forces were placed under the command of a foreigner. Recently in Bosnia and in East Timor foreigners have commanded British forces and no one bats any kind of an eyelid. However, for some reason, there are those who look askance at a policeman who wishes to work with his colleagues abroad.
I hope that this matter will be resolved. I declare my interest in that I am an adviser to the Police Federation but I have not consulted it before deciding what to say. I look at Europe, however, and see the dangers that appear, particularly from the east. I refer to the trade in nuclear material that is devastatingly worrying and the massive increase in the drugs trade, much of it from Russia and the former Soviet Union. I refer to the enormous movement of stolen automobiles—not from this country—from Germany and France into eastern Europe and Russia. I refer also to the build-up of illegal immigration from the east, not only of citizens of the former Soviet Union but also of those in Asia who are using the former Soviet Union as a transit area. Recently in Lithuania I was told that there were an estimated 1.5 million refugees in Belarus who were threatening to cross into Poland and Germany through Lithuania. In south-east Europe, there is the sad trade in human beings as it is called—the massive prostitution emanating from the former Soviet Union which is extremely exploitative of the young women involved.
I believe that all these matters need to be carefully discussed by the heads of government. I am very pleased that the noble Lord and his sub-committee have this question in their sights. I trust that they will be returning to it after the Tampere meeting.
8 p.m.
Lord Bruce of Donington: My Lords, I rise to support the insistence of the noble Lord, Lord Wallace of Saltaire, at the conclusion of the short contribution he was able to make, that the House should have a full opportunity to debate in detail the extremely important matters that have been raised in connection with the harmonisation or otherwise of judicial affairs and immigration, not only illegal immigration but also economic integration, to which the noble Lord referred in his report.
Earlier this year, in spring, the Select Committee considering European matters felt the sap rising in its attitude towards the world. It decided to have a debate on precisely the question that the noble Lord, Lord Bassam, is required to answer this evening within the space of 12 minutes. The committee proceeded with expedition under the very efficient chairmanship of the noble Lord, Lord Wallace. It examined the Home Secretary personally on these matters for one and a half hours and examined two of his officials, together with two officials from the Lord Chancellor's Department, for a further 16 pages of text in the report which was ultimately produced. It was most productive. I compliment my colleagues—hereditary or otherwise—who served on the committee on their excellent work in the examination, which they undertook with the greatest possible thoroughness.
The committee also interviewed the leader of the Fair Trials Abroad Trust, whose evidence was of vital importance. It also had the opportunity of examining the German interior minister, together with Commissioner Gradin, whose contribution was most enlightening, and a series of others.
The committee then produced a report which included evidence, consisting of some 76 pages, and conclusions, consisting of some 16 pages—there were 95 pages in all—which comprised a complete summary of the vital matters the committee thought were likely to be discussed at Tampere. The committee raised precisely the same questions as have been raised this afternoon by the noble Lord in 10 minutes and which are to be answered by my noble friend—with whom I deeply sympathise—in 12 minutes. That is quite impossible.
The report showed that there were peripheral differences as to the method of co-operation in Europe. I refer to whether that should be achieved by harmonising the law or by co-operation in the practice of the law. Those matters were very adequately discussed, as was illegal immigration and, even though the committee was not there for this, there were overtones about possible economic migration which cast shadows in my mind in connection with possible future developments of the single currency. The committee went into all of those matters in very great detail.
In the time available to me, I can do no more than venture to touch on the contents of this report. I shall, however, mention that some evidence was given to the committee by Mr Jakobi, the leader of the Fair Trials Abroad Trust. He gave startling evidence about the
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quality of justice within Europe and some of the various member states. I commend that particular section to any Members of your Lordships' House who are interested in fairness and justice. You will see some appalling incidents in the administration of justice in certain member states; for example, some judges are appointed when they leave school. There is no question of experience at the Bar or as solicitors; they go straight onto the Bench. However, I shall not refer to that here and now because my time is nearly up.
I sincerely trust that during the current year Members of the House will read the 19th Report of the Select Committee (HL Paper 101). Much of what they will read in it—if only they will read it—will make their hair curl. It will make us very chary indeed of how our representatives at Tampere conduct themselves. I am apprehensive that we will get a presidential communiqué, prepared in advance by the Commission, its contents probably unknown by those who will eventually sign it, which will take us further along the road the Commission wants. We shall judge and we shall see. In the mean time, as my time is up, I have the greatest pleasure in sitting down.
8.10 p.m.
Lord Inglewood: My Lords, I begin my remarks by expressing my thanks to the noble Lord, Lord Wallace, for this timely debate. As he said, the Tampere summit is this coming weekend.
I should explain to your Lordships that I was a member of Sub-Committee F. I was not materially involved in the production of the report because I was involved in the European parliamentary elections, since when I have come off the committee. I hope and believe that I can make a small contribution to the House by bringing what I might perhaps describe as a little bit of news from the front, as did my noble friend Lord Bethell.
The campaign in Europe is fought not only in the Council of Ministers—where Ministers can advise us as to what is going on—but also in other European institutions. The matters to be discussed at Tampere traditionally were discussed according to the general rules of 19th century diplomacy, intergovernmentally. We all know that the world is changing, as a number of your Lordships have already remarked. In the very short period since the Maastricht Treaty, an entirely new forum has arisen in which these matters are considered across western Europe. The systems of decision-making have changed. As we know from your Lordships' House and elsewhere in the country, that is extremely controversial in itself. If I may use an ecclesiastical metaphor or comparison, it is liturgical rather than doctrinal. I am very anxious that we establish this evening the Government's position on the doctrine rather than on the liturgy that accompanies the summit. What is the Government's main policy on the matters which will be under discussion? Where precisely do they stand? What do they see might be negotiable, and what is not negotiable in an area that is extremely important to the theory and practice of government?

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I have explained to your Lordships on a number of occasions that I believe that one of the greatest weaknesses of the European political system has been the failure right across Europe of national parliaments to hold governments to account and to obtain answers from them about their actions in the Council of Ministers. I very much hope that the Government will underscore their self-proclaimed European credentials by giving straightforward, unequivocal answers to the House this evening.
In the context of the Tampere summit, inevitably most of the discussion will be about criminal matters. However, I should like to take up the rest of my time with a few remarks about the civil side of judicial cooperation. This is very much on the Tampere agenda and is very important, as the noble Lord, Lord Wallace, pointed out. When all is said and done, we cannot have a true single market—a citizen's single market—without sensibly priced, user-friendly means of redress where there are breakdowns in commercial transactions across different national jurisdictions, as is, unfortunately, inevitable. I am particularly anxious to hear what plans the Government have to get to grips with and tackle those problems.
In the context of the civil aspect of Tampere, I must express my concern about what is known, in a rather unattractive English word, as the "Amsterdamisation" of the Brussels and Rome conventions, and in particular how the proposed regulations to bring the two international conventions within the Community system will deal with the so-called "country of origin" principle. As your Lordships know, the country of origin principle is one of the core principles around which the single market has been built. There is a risk—this is clear from what is presenly being debated in Europe—that there may be a move to shift the basis of the single market away from the country of origin principle. That is so not least in the case of e-commerce, which is itself the subject of a considerable quantity of European Union legislation currently in the pipeline.
There appears to be a real danger of a fundamental shift in the basis of the issues. I believe—I understand that this is also the view of the Government—that this poses a very real threat to the working of the single market. It arises principally from dealing with such intergovernmental conventions, and their transposition into European Community law.
As I said earlier, I understand that the Government's view on these matters is much the same as mine. It is their view that the erosion of the country of origin principle would in fact be extremely damaging. If that is the case, I hope that the Minister will he able to support that unequivocally, and will explain to the House the steps the Government are taking to safeguard this important element in the construction of the whole single market.
8.11 p.m.
Lord Elibank: My Lords, first, I welcome the conference. It will be an exceptional one, relating to justice and home affairs. There has not I believe been
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anything like it at such a senior level in the history of the Community. A great mass of work has been done at a somewhat more junior level on all the subjects under discussion. However, to have the Prime Ministers and Presidents discuss the issues is a notable step forward.
The committee had one main fear, and that is that the agenda may be overcrowded. There are three very substantial items or headings for discussion, and there are only two days in which to discuss them. In those circumstances, there must be a risk that the heads of state will confine themselves to rather bland statements of principle and delegate any kind of serious discussion to sub-committees. If that happens, I do not think that a great deal of profit will come from this meeting.
When our committee visited Brussels we saw that the Finnish presidency had gone to a great deal of trouble to cope with the difficulties and to anticipate the problems that will arise. One must hope, with a certain trepidation, that the heads of state will cope adequately with the meeting and will produce constructive results.
I intend to speak only on one or two aspects of judicial affairs, which is one of the headings to be discussed. First, I should say how much I and the rest of the committee welcome the stance of the Government on the treatment of law and judicial matters; that is to say, they have said that they will support wholeheartedly recognition between Community countries of judicial administrative matters and judicial decisions, but that they will not in any way move towards harmonisation. Harmonisation is a long-term goal. It may be that in the course of years or decades there could be a coining together of the legal systems of the various countries. However, as your Lordships well know, there is a sharp division between the common law under which we are governed and the system obtaining on the Continent, based largely on Roman law and the Code Napoléon.
However, within the limits of recognition, there is a great deal which can be done. First, I shall deal with the criminal side, which can perhaps be divided into administration and judicial jurisprudence. It has been suggested by the Government that administratively there is much that could be done on matters such as arrest warrants, witness summonses and warrants for search and seizure to speed up the administration of justice if there was a general recognition and acceptance of the procedures of other countries. The actual jurisdiction is a more difficult matter.
I believe the way ahead lies in starting modestly. If we could recognise the decisions of courts in criminal matters which relate to crimes of less gravity, we could make a modest start and build up a measure of confidence. After all, in this country, 90 to 95 per cent of criminal matters are dealt with satisfactorily by distinguished men and women who by and large have no legal training. We are well satisfied and happy to accept their decisions provided of course that there is

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an appropriate appellate structure available to those who wish to appeal. The same could be done with criminal matters within the Community.
Similarly, as regards civil matters, if an amount could be selected—most civil cases turn on cash— below which we would accept pretty much without question the judgments of courts in other countries of the Community, that too would be a way to start a recognition procedure. Starting modestly is I think the key to this. A low-level cash limitation of around 1,000 euros could be set where we would accept any decision of any court in the Community up to that amount. Subsequently, when perhaps years have gone past and confidence has grown, we could perhaps raise that level. Done gradually, this could introduce a great improvement in respect of the administration of justice in the Community. I believe that that is the correct way to proceed in this matter.
8.17 p.m.
Lord Lester of Herne Hill: My Lords, I have had the great privilege of serving on Sub-committee F under the skilled chairmanship of my noble friend Lord Wallace of Saltaire. I should like to say briefly what a great pleasure it is to work on that committee. Its members are not dogmatic, there is no ideology, we are not divisive and we do not act in a partisan way; I believe that we are open minded.
First, since I had little to do with the preparation of this report because I was away elsewhere for most of the time, let me also say that it is an excellent report. Secondly, I was able to hear the Home Secretary and the Home Office advisers give evidence, and I should like to add to the tributes paid by Lord Bruce of Donington that they were quite conspicuous in the excellence of the evidence that they gave. Thirdly, we should all welcome the fact that there is parliamentary scrutiny, albeit of a very straitened and unsatisfactory kind in this truncated debate in a corset of time.
I entirely agree with the comments of the noble Lord, Lord Bruce of Donington, and the points made at the beginning of the debate by my noble friend Lord Wallace about the importance of the issues and the vital need for proper parliamentary debate. The reason why the system has worked well on this occasion is that, thanks to the speed with which the report has been produced, we are able this evening to ask the Minister to answer questions and respond to the debate before the Prime Minister and the Home Secretary go to Finland next weekend. That seems to me to be a most desirable outcome, although the matters will need further debate afterwards.
I have time to deal with only one aspect of the subject—criminal justice and policing. I agree, just as the committee agreed, with the broad approach adopted by the Government. That approach is to be pragmatic; not to attempt to do the impossible, which is to harmonise the substance of criminal law and procedure across Europe, but to make it much easier for those accused of serious crimes to be tried in the place where the crime was committed and for them to
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be transferred across frontiers while fair procedures—I shall come back to this point—are guaranteed for their trials.
For the reasons given by, for example, the noble Lord, Lord Elibank, the Government are quite right not to attempt to harmonise the substance of criminal law. After all, we in the United Kingdom have not even achieved that in England and Wales. We do not, alas, have a proper criminal code and we certainly have not harmonised criminal law and procedure north and south of the Border. If we cannot do it in the United Kingdom, we certainly cannot expect that to happen across Europe; and nor is it necessarily desirable, because the criminal code reflects different values of different systems. But one point is quite clear: all of us in Europe believe that corruption, trafficking in human beings, drug smuggling, rape, the sexual exploitation of children and terrorism—to take the examples given to us in evidence by the Commission—are serious crimes which need to be tackled seriously and effectively without undue technicality or legalism. That is why what is happening in the criminal justice field is very important.
However, the missing element is the effective safeguards that need to be built into the system to make sure that trials are fair. The first point on which the Home Secretary expressed agreement was that the crimes one should tackle should be mainstream crimes; and not crimes against the state, not controversial crimes like blasphemy or insulting a head of state, to take a real life example. They should be the kind of crimes to which I have referred. The second point is that political offences should be excluded from any notion of easier extradition. Thirdly, national courts will need to go on providing effective safeguards where an accused person is likely to face an unfair trial in another state of the European Union. Fourthly, there has to be some pan-European safeguard where national courts, from whatever part of the European Union, are not able to do their job properly by guaranteeing a fair trial.
The missing element—on this point I think that I would lose the support of the noble Lord, Lord Bruce of Donington—is that the European Court of Justice has not been given the power to provide effective safeguards in areas like the Europol Convention or in areas of the kind we are discussing this evening. What we would seek to find out from the Minister above all—I gave notice to his office that I would raise this point—is what kind of effective national and European safeguards the Government accept as the necessary condition for the kind of approach that they are seeking to persuade other member states to adopt when they go to Finland. Can the Minister give an assurance that moves to facilitate the easy transfer of the accused across states will be balanced by effective judicial safeguards, national and European? Otherwise this will be bad news for the protection of the rights and liberties of the individual. I say that not as an ultra liberal, to use the phrase of the noble Lord, Lord Bethell, but simply as someone concerned that we should catch, prosecute, convict and sentence criminals and make sure that the process is fair.

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Before I sit down, perhaps I may say that I sympathise with the Minister who is new in office. He is filling the large shoes left by the noble and learned Lord, Lord Williams of Mostyn. I congratulate him on that. I realise that he is not a lawyer but hope that he will be able to answer some of those questions, either today or hereafter.
8.25 p.m.
Viscount Bridgeman: My Lords, I know that this is not quite the first time the noble Lord, Lord Bassam, has appeared at the Dispatch Box but it is the first day and from these Benches I should like to welcome him and congratulate him on his appointment. I should like also to thank the noble Lord, Lord Wallace of Saltaire, for initiating this debate and congratulate him and his colleagues on Sub-Committee F on their comprehensive and informative report.
From these Benches we support closer co-operation on such vital issues as asylum, immigration and the fight against crime, but only on an intergovernmental basis. It must not involve an erosion of countries' rights to make decisions on these matters for themselves. On 23rd September the President of the Commission, Mr Romano Prodi, wrote Mr Paavo Lipponen, the Prime Minister of Finland, a letter which we on these Benches find somewhat disturbing. Perhaps I may quote two extracts from that letter. First, Mr Prodi wrote:
"The protection of the Community's financial interests offers an interesting and appropriate first area for introducing the idea of a European public prosecutor".
Later on in that letter he stated:
"The Amsterdam treaty and the Vienna action plan already set out a demanding programme of work over the next two to five years which, when completed, will form the basis of a single European asylum system. I am personally very interested in the idea of going further still and working towards a single European Union asylum procedure".
That letter is but one instance of the policy of creeping federalisation—we might call it federalisation by stealth—which we detect among the Council of Ministers.
I would therefore ask the Minister to give us a categoric assurance ahead of Tampere on four points. First, will the Government guarantee to veto any proposal for an operational role for Europol? We are the first to agree that Europol will greatly improve police co-operation—a point made by my noble friend Lord Bethell—in the fight against crime across the Union. However, we do not wish to see an EU-appointed police force with the ability to undertake investigations itself rather than for these to be carried out by the police forces of the nation states.
Secondly, I ask for an assurance from the Minister that there will be no agreement at Tampere to modify one of the cornerstones of British justice; namely, trial by jury. Thirdly, will he allay the concerns on this side of the House that there may be initiatives at Tampere to move towards the creation of a trans-European criminal code? The fight against fraud should not be used as a cover for introducing corpus juris, with all that that would entail, including the establishment of
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a public prosecutor with powers to conduct investigations outside our legal system but inside the United Kingdom.
The noble Lord, Lord Bruce of Donington, referred to Mr Stephen Jakobi of Fair Trials Abroad and to the wide disparity of judicial calibre across the Community. My noble friend Lord Elibank referred to the difference between the two procedures— the Code Napoleon, where a judge is drawn from a distinct judicial career, unlike in this country where he comes from the most experienced body of courtroom lawyers. Even if the judicial standards of all judges could be raised to best country practice, the continental system is itself' totally alien to this country and offers no advantages or benefits and its imposition here should be resisted.
Fourthly, may we have an assurance that proposals for a Community-wide procedure for asylum seekers is also resisted? As your Lordships are aware, we on these Benches are broadly supportive of the provisions of the Immigration and Asylum Bill which is currently passing through the House. However, I must ask the Minister for a guarantee that the United Kingdom will continue to be able to make its own decisions about accepting asylum seekers, having regard to the UN Convention on Human Rights but also taking into account the law and order infrastructure of the United Kingdom which in many respects differs from that in continental Europe.
I hope that the Government and these Benches may not be as far apart on some of the points as might seem to be the case. Certainly, I note from the Select Committee's report that the Home Secretary in his evidence to the committee talked about co-operation rather than harmonisation. That would appear to have been the theme in the television programme yesterday. All this we welcome.
Nevertheless, I must remind the House, and with due respect to my noble friends Lord Bethel] and Lord Inglewood, that in June electors gave the Conservatives a clear mandate for our policy on Europe. I quote from our election manifesto:
"The establishment of the European police office (Europol) will greatly improve police co-operation and the fight against crime in Europe. However, we believe it is important that judicial affairs and home affairs issues should be decided largely on an intergovernmental basis, protecting countries' rights to make decisions on such matters themselves. In particular, we will oppose resolutely moves towards the creation of a Europe-wide criminal justice system as outlined in plans prepared under the aegis of the European Commission for a corpus juris".
That was the mandate which was endorsed by the electorate last June, of which I hope Her Majesty's Government have taken careful note. I look forward to hearing the Minister's reply.
8.30 p.m.
Lord Bassam of Brighton: My Lords, first, I congratulate the noble Lord, Lord Wallace, on bringing this matter before the House. This has been an extremely interesting and wide-ranging debate, whether one is an enthusiast or a sceptic on the subject. I have found it extremely illuminating. If I do not

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manage to cover all the points that noble Lords have raised, I promise to take careful account of those points and reply in writing. I am grateful to those noble Lords who gave me advance warning of their intentions in the debate. It was most helpful.
I want to say to the noble Lord, Lord Wallace, that, frightening though the Daily Telegraph may sometimes be, I am among those who believe that it has a good sports page and not much more. That may not be my guide and rudder throughout the course of my speech; however, the noble Lord may like to bear that in mind.
The special European Council at Tampere is a very significant occasion. As we all acknowledge, it will be the first time that heads of state and heads of government will have been able to focus their attention exclusively on justice and home affairs co-operation in the European Union.
Justice and home affairs co-operation are increasingly important areas of EU work. It is therefore hardly surprising when EU member states face formidable and increasing challenges from illegal immigration, mass influxes of refugees, drugs and organised crime, to take three examples. There were 300,000 asylum applications in the EU in 1998, a 20 per cent increase on the 1997 figures. The UN estimates that the global turnover of criminal organisations is larger than Britain's GDP. Over five-and-a-half thousand kilograms of heroin were seized in EU countries in 1996, and a recent estimate suggests well over 1 million problem drug users in 10 of the 15 EU countries. Therefore, Tampere makes a case all of its own for increased co-operation across European states. We now have a clearer legal framework within which to carry forward such co-operation and treaty provisions which fully recognise member states' continuing competence in such fields as the police and judicial co-operation.
The Government see the Tampere Summit as an important opportunity to give JHA work the high profile it deserves; to establish the priorities and guidelines for future work; and to endorse specific measures that will contribute to the overall objective, now enshrined in the Amsterdam Treaty, of establishing an,
"Area of Freedom, Security and Justice".
The Government have given considerable thought to how Tampere may best respond to the challenges.
There are four particular ideas that we have been pressing strongly. First, I would refer to the ideas that we have launched on mutual recognition of criminal court decisions. Secondly, I would draw attention to our ideas for a series of initiatives on crime prevention and youth crime. Thirdly, we have been instrumental, along with some other member states, in putting together a comprehensive EU strategy for dealing with immigration and asylum. Fourthly, we have proposed a new initiative in the area of civil justice designed to make it as easy as possible for citizens of one country to use the legal system of another.
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The Government welcomed the decision of the Select Committee to review prospects for Tampere. We have read the committee's report with great care. It is thoughtful and perceptive and has been fully taken into account in the Government's preparations for the European Council. We were pleased to note that in all three of the central areas which Tampere will address (asylum and immigration, cross-border crime and the European judicial area) the Select Committee broadly shares the Government's view as to the right approach.
My right honourable friend the Home Secretary submitted a memorandum late last week responding to the report in detail, and a number of noble Lords have referred to it. Before referring to the particular matters that it raises, I should like to make the point that, if I were asked to identify the overall priority for Tampere, it would be that it should produce results which are seen by members of the public throughout Europe as likely to make a real difference to their quality of life and prosperity—because JHA matters. International organised crime affects people's daily lives. Street crime fuelled by drugs, prostitutes who are trafficked across member state frontiers, multi-million pound frauds and the laundering of the proceeds and illegal immigration are significant problems which concern us all and which all member states must address together.
I now move on to specific subject areas. Immigration and asylum issues are attracting an ever higher priority within the European Union, due in part to recent events in the Balkans. The Government welcome the focus that the European Council will place on these concerns. Tampere, we believe, should take the opportunity to set in hand a global, cross-pillar asylum and immigration strategy.
The second major area of EU co-operation which will be addressed at Tampere is that of cross-border crime. To make an impact any strategy must address these threats at two levels: that of law enforcement and that of its vital counterpart, effective judicial cooperation, to ensure that when criminals are identified and arrested they can be dealt with effectively in the courts.
As far as the first of those three elements is concerned, we have in Europol an excellent tool to assist the investigative work of member states by the timely collection and analysis of criminal intelligence. However, we are keen to go further and to explore ways in which European law enforcement agencies can work more closely together in order to tackle trans-national crime. We have put forward two initiatives which we believe will push forward this work. They are the European police chiefs operational task force and the European police college.
Turning now to judicial co-operation, the Government welcome the committee's support for their initiative on mutual recognition of judicial decisions. There is clear evidence of real dissatisfaction on the part of police and examining magistrates across the European Union with the traditional mechanisms of judicial co-operation. Many noble Lords touched on that point. We ignore the practitioners at our peril

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and it is increasingly clear that a new approach is required to overcoming the barriers of jurisdiction, which are so easily crossed by criminals but continue to impede the recovery of fugitives and the gathering of evidence for successful prosecutions.
At present, the EU is relying on practical measures to improve traditional mechanisms of mutual legal assistance and extradition. However, the Government have come to the view that a more radical approach is required. There are some who say that the solution lies in wholesale unification or harmonisation of criminal law in the European Union, linked to the creation of a European public prosecutor with jurisdiction in every member state. That is the approach proposed in the scheme known as corpus juris, on which work has been under way under the auspices of the Commission. The Government do not believe that it is a feasible or desirable solution, even if initially confined to the area of fraud against the European Community's financial interests. It would take many years to bring about, and we believe that pragmatism, as many noble Lords suggested, would be the best way forward in this area.
Instead, we propose a work programme leading in stages to making judicial orders and warrants enforceable in another member state with the minimum of formality, which many noble Lords have highlighted as being desirable.
One of the important aspects in this whole policy area is access to justice. The second UK initiative concerns access to justice. Under the theme of establishing a European judicial area, Tampere will also be considering what more can be done to improve the way national law works across European borders and citizens' access to justice. The Government consider that to be an important area of business and we have put forward proposals for an ambitious programme of work aimed at making it easier for ordinary citizens, and in particular small businesses, to resolve small and medium-sized civil claims across European borders.
A raft of European legislation already protects consumers and others against, for example, misleading advertisements, dodgy timeshare sellers and package holidays that do not come up to scratch. But in our view there is an important gap in the legislation. In practice, resolving civil claims across borders is a difficult, nightmarish and expensive business and tends to be the preserve of large commercial enterprises and those with substantial claims. Small and medium-sized civil disputes of the kind that might affect tourists, travellers and small traders tend to be uneconomic to bring.
I have already said that the Government consider this to be an important area of business. Let me give some illustrations as to why. A recent survey found that 24 per cent of member states' citizens buy goods or services while travelling abroad worth up to £2,000. Ten per cent of those consumers are unsatisfied and two-thirds of them are unable or unwilling to pursue their claims. This means that of 88 million people buying across borders, 8 million consumers are unsatisfied and 5 million consumers are unable to pursue their claims.
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If our initiatives are to come to fruition, it will enable those many hundreds of thousands of citizens who travel within the European Union to obtain redress in circumstances in which at present it is simply uneconomic for them to do so. We believe our proposals will bring real benefits. They are ambitious objectives.
While the Government retain their firm commitment to the control of the UK's borders, we nevertheless recognise the global nature of the problems of illegal immigration. This calls for a concerted response in conjunction with other member states of the EU and with countries of source and transit migrants. We believe that Tampere should set the EU an objective: to tackle illegal immigration and its causes and to give fair treatment to legal migrants and genuine asylum seekers. Equally, Tampere must face squarely the problems caused by the growth in sophisticated organised crime whose practitioners respect no national frontiers. I have outlined some of the proposals we shall put forward. Cross-border co-operation by the police and other agencies is essential.
I hope that what I have said underscores the importance which the Government attach to the discussions at Tampere this coming week. JHA co-operation has, at least in presentational terms, often been the poor relation of other EU business. This cannot go on. Everyone has the right to ask that co-operation within the European Union against such threats as organised crime must be pursued energetically, coherently and with eyes fixed unwaveringly on the day-to-day priorities and concerns of our citizens.
I believe that our approach to Tampere does exactly those things and answers many of the points raised in an interesting and wide-ranging debate this evening.
Lord Lester of Herne Hill: My Lords, before the Minister sits down, I wonder whether he could deal with one other matter of which he was given notice. It is the Government's position on effective safeguards for the accused against unfair trials going beyond the European Human Rights Convention, which is obviously not a sufficient safeguard by itself.
Lord Bassam of Brighton: My Lords, I am grateful to the noble Lord for raising that point again with me.
We believe that we have identified adequate safeguards in our approach to Tampere. The UK paper for Tampere gives a clear indication that this will be one of the essential elements of mutual recognition. The wording reads:
"Approximation of law into specifically and carefully defined circumstances relating to serious crime where this is necessary to make the mutual recognition of decisions possible, and t o reassure public opinion that the decisions have been taken in accordance with minimum standards which protect civil liberties".
A more detailed UK paper on mutual recognition, tabled in the EU Multi-Disciplinary Group on Organised Crime, made clear that some common minimum rules or safeguards will be needed. Copies of

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the paper were made available to the House of Lords inquiry on corpus juris earlier this year. I trust that that answers the noble Lord's point.
Lord Bruce of Donington: My Lords, finally before the noble Lord sits down, perhaps I may ask him whether the Government can take steps, after the conference has taken place, to obtain a properly authenticated English translation of the conclusions as put by the president.
Lord Bassam of Brighton: My Lords, I shall endeavour to ensure that that is the case and will write to the noble Lord on the point.

Welfare Reform and Pensions Bill
8.44 p.m.
Consideration of amendments on Report resumed.
Lord Higgins Lord Higgins moved Amendment No. 19:
After Clause 1, insert the following new clause—

PARTICIPATION IN STAKEHOLDER PENSION SCHEMES
(" . Participation in a stakeholder pension scheme shall not preclude participation in other pension arrangements.").
The noble Lord said: This amendment standing in my name and the names of my noble friends is to insert a new clause after Clause 1. This matter has excited some interest outside the Chamber and raises an important question. I presume that it is not the Government's intention, within the limits set by the Inland Revenue concerning contributions to a pension scheme, that if someone takes out a stakeholder pension scheme that person is not allowed to take out other forms of pension arrangements. They may be varied, for example they could be a system of ISAs as well as a straight pension arrangement of the personal pension kind or something else. In particular, it is important to consider whether—and I should be interested in the Government's view—they should stand alongside pension schemes which are operated by a company in addition to a stakeholder pension scheme.
One of our concerns is that some of those already with company schemes will cease to operate them if they think that they can simply treat the government scheme as theirs and abandon schemes which may be preferable to the stakeholder scheme. I should be interested to hear what the Minister says and whether it is the Government's intention that stakeholder schemes should be held alongside other schemes, especially in relation to the state second pension which we discussed earlier and which the noble Baroness regards as totally separate from the stakeholder pensions. I beg to move.
Lord Goodhart: My Lords, Amendment No. 21 standing in my name has been grouped with this one. My amendment is more elaborate than the one moved
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by the noble Lord, Lord Higgins, and contains a second element. It proposes a new clause, subsection (1) of which says that:
"Nothing in regulations … shall prohibit the payment to stakeholder pension schemes of contributions up to the [tax] limit".
That is the maximum amount that can be subscribed to a pension scheme by a prospective pensioner, an employee. It varies according to the age of the employee.
I put that in because it was originally proposed by the Government that they would provide that a person could pay up to £3,600 to a stakeholder pension but not more than that, even if they were entitled by the tax rules to contribute more than £3,600. Of course, if that had been the case it would have affected a great many employees. For example, someone aged 51 to 55 need only have had an income of £12,000 a year to find that they were entitled to contribute more than £3,600 under the Inland Revenue rules.
However, as the noble Baroness said earlier—and it has been confirmed to me that this is the case—the Government have changed their mind and will now allow contributions to be made to stakeholder schemes up to the relevant tax limits, even though they are higher than £3,600. They will keep the £3,600 limit if that is higher than the revenue limits.
That seems to me to be a substantial step forward because it involves what would otherwise have been the serious problem of what would happen to someone whose earnings made it possible for him to contribute more than £3,600 under the Inland Revenue rules. It would have compelled him at least to take out another pension if that had been possible, which it might not have been. It is now clear that somebody will not have to leave the stakeholder pension altogether or take out a separate pension with another provider under another scheme once his or her income reaches a level where he or she can contribute more than £3,600 a year.
However, the remainder of the amendment is something about which I am still anxious to inquire. It raises the same point which was raised by the noble Lord, Lord Higgins: what is the Government's position about membership of more than one scheme? It appears that there is no obvious reason why it should not be possible for somebody, if he or she wishes, to belong to both a stakeholder scheme and a personal pension scheme provided the total contributions to both schemes do not exceed the Revenue limit. I hope that the Government will be able to confirm that that is so. It may be a little more complicated in the case of somebody who belongs to an occupational pension scheme which is on a defined benefit basis. In that case it may be very difficult to work out how to ensure that the Revenue limits are not exceeded. That does not seem to me to be beyond the wit of the very clever brains in the Inland Revenue. For that reason, subsection (4) of our proposed new clause provides that the Secretary of State and the Board of Inland Revenue must lay before Parliament proposals for

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legislation to enable somebody to be a member of both a stakeholder scheme and the defined benefit occupational pension scheme.
Having said that, like the noble Lord, Lord Higgins, I await with interest the Government's response. I very much welcome what they have already said in response to the first point that I raised about the upper limits of contributions to stakeholder pensions.
Baroness Hollis of Heigham: My Lords, I am grateful to both noble Lords for the thoughtful way in which they have spoken to these amendments. I agree that in terms of the implications for pension holders this is one of the most important issues that we are discussing tonight. I am grateful that both noble Lords have recognised the degree to which the Government have responded to representations made not only by the industry but in your Lordships' House. I shall try to spell out the position, because this matter is absolutely pivotal to the implications of how the stakeholder pension fits into the web of other pension provision. As I said in the earlier debate, the consultation document came out on 16th September.
These new proposals will introduce a simpler integrated tax regime for personal pensions and stakeholder pension schemes. The proposed new arrangements will allow members to contribute up to either £3,600 a year or the age and earnings-related limit for personal pension schemes, whichever is the higher. This removes the potential awkwardness that someone who starts to pay into a stakeholder scheme and subsequently wants to pay in more than £3,600 may otherwise have to close down his or her stakeholder pension.
Where the personal pension limits would be higher they will also be available to stakeholder scheme members. There will be nothing to stop people from holding more than one such pension at the same time subject to the relevant overall contribution limits; in other words, one can have concurrent schemes. For example, people already with a personal pension will be able to take out a stakeholder pension as well if they wish. This could help those who are committed to contribute a certain amount to a personal pension but with heavy cancellation penalties who might prefer to pay any further contributions into a stakeholder scheme.
The noble Lord, Lord Higgins, asked whether one could have a stakeholder pension and also pay into the state second pension. Yes. As with SERPS, a member of a stakeholder scheme will have the option of contracting out of the state second pension and receive a rebate, but it will also be possible to be in the state second pension and make contributions to a stakeholder pension—like a personal pension—on top of that.
These proposals should help all stakeholder and personal pension schemes by reducing the costs of checking against the Revenue limits and helping to make advice simpler for potential members. The proposals also sweep away the limitation which has until now restricted pension provision to those in
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employment. We propose that any adult will be able to pay up to £3,600 a year into a stakeholder or personal pension with the benefit of tax relief, irrespective of his or her employment status. For the first time carers, people with disabilities and non-working partners will be able to build up pensions in their own right with the same tax reliefs that are on offer to the employed. This also has a very positive read across to pension sharing. It allows one to continue to build on a pot that may have come from a pension share even if one is not necessarily in the labour market. We believe that this is a major improvement which we hope your Lordships will welcome.
As to the interaction of stakeholder pensions and personal pensions, I hope your Lordships accept that these proposals fully meet the concerns which prompted the amendments. The amendments also seek to deal with the issue of dual membership of occupational schemes and stakeholder pensions. During Committee the noble Lords, Lord Good hart and Lord Freeman, set out the arguments for dual membership. I have much sympathy with what they said. The consultation paper does not rule out dual membership, but it does make clear the practical problems which can arise when a final salary occupational scheme is held alongside a money purchase arrangement. Clearly, there are no problems if both are money purchase arrangements. A final salary arrangement is more complicated. The noble Lord, Lord Goodhart, recognises that the nature of the tax limits is quite different in final salary schemes and, therefore, dual membership is not a simple matter. We must be careful that in trying to give people the flexibility of dual membership we do not add an undue degree of complexity to the operation of schemes.
The claret/burgundy consultation paper proposes that occupational pension schemes which operate on a money purchase basis should have the option of operating under the integrated tax regime for stakeholder pensions and personal pensions. This will, therefore, provide dual membership in respect of some occupational schemes.
Lord Higgins: My Lords, does it mean that now someone may have both a personal pension and an occupational pension?
Baroness Hollis of Heigham: My Lords, I want to be very careful in what I say. Perhaps the noble Lord will allow me to check the position. Our minds are not closed to the idea of allowing someone to hold a stakeholder pension alongside a final salary occupational pension, but we need to think carefully about the practicalities. The consultation paper invites proposals from the pensions industry as to how dual membership may be achieved without introducing excessive complications into the operation and policing of pension schemes and an excessive increase in the cost of tax relief.
I believe that these proposals go a long way to meet the concerns which underlie the amendments and reflect our determination to respond positively to the

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industry's concerns. However, they are not issues for this Bill. It is normal and appropriate practice for the Inland Revenue to publish details of changes to tax regimes for pension schemes. Subject to further consultation, the proposals for a new integrated tax regime will be brought forward in a forthcoming Finance Bill which will be debated in another place in due course. I hope to provide the answer to the noble Lord's question, if not on this amendment perhaps on a later one.
None the less, in the light of the implications of the £3,600 limit, or alternatively the higher age and rebates, for personal pensions on the one hand and, on the other hand, the issue of concurrent membership of personal pensions and stakeholder pensions and membership of second pensions and occupational money purchase schemes, I hope that I have addressed your Lordships' questions. If we can find a way to do it we believe that it will be attractive, but at the moment the complexities seem to be very difficult to address. Obviously, we are still considering how to brigade this with a final salary scheme. We are not against it in principle, but at the moment the complexities appear to be overwhelming. We are seeking advice on this matter. We may be able to return to your Lordships' House in due course if we have a clearer mind on the matter. At the moment, the expectation is that final salary schemes will be excluded from this arrangement.
In the light of that, I hope that noble Lords will feel able to withdraw the amendment. I have taken some time to spell it out. I believe that the issue is pivotal to the whole Bill and, therefore, the amendments are extremely helpful.
9 p.m.
Lord Higgins: My Lords, the noble Baroness is right to say that this is a pivotal issue. We all welcome the flexible attitude which the Government have adopted to the points raised by the noble Lord, Lord Goodhart, myself and others at an earlier stage. What she described as the "claret" document is in many ways an extremely good and helpful document, as have been her remarks today.
I do not expect an answer now on this point. However, the noble Baroness stressed the difficulty of integrating a stakeholder scheme with a defined benefit scheme. As she rightly says, the situation in each is very different. I am not sure whether it is a non-problem in the sense that up to the Revenue limits imposed I should be surprised if it were not the case that it is always better to put the money into a defined benefit scheme rather than into a stakeholder pension—I talk off the top of my head—not least because the defined benefit scheme would have a company contribution attached to it which the stakeholder pension will not. I am glad to have the support of the noble Baroness, Lady Castle. While it is worth examining this in depth, I am not sure that we do not have a non-problem on our hands on that aspect.
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Other than that, I believe that we are making progress. It is to be welcomed.
Baroness Hollis of Heigham: My Lords, before the noble Lord sits down, I was hoping for a yes or no answer to his previous question. I am told it is not that sort of question. It is as well that I did not rely on body language from the Box.
On the combining of a personal pension with an occupational scheme—it is not at present straightforward—under current law one can belong to a contracted-in occupational scheme and have a personal pension which is used for contracting out only. One cannot contribute one's earnings to both schemes unless it is in respect of two or more different employments. The position for the future is outlined, apart from that, in the claret-coloured document. I hope that that clarifies the situation. At this stage we do not propose any change in the claret document on that point.
Lord Higgins: My Lords, I am grateful to the noble Baroness. It may have been a short question, but it was not simple. I shall read carefully what she said. I think that she accurately described the present position, which paragraph 18.1 makes clear. I am not clear—it is very complicated—whether any change is proposed. I ask the noble Baroness not to reply to that at this stage in the hope that we shall have a satisfactory answer at a later stage. Subject to that, I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 20 and 21 not moved.]
Clause 2 [Registration of stakeholder pension schemes]:
Lord Higgins Lord Higgins moved Amendment No. 22:
Page 2, line 30, at end insert—

("( ) the premiums received will ensure a pension in excess of that which will be received if an individual is entitled to the Minimum Pension Guarantee;").

The noble Lord said: My Lords, we have already touched on the subject matter of this amendment, which seeks to provide that the premiums received will ensure a pension in excess of that which will be received if an individual is entitled to a minimum pension guarantee. The noble Baroness has touched on this and produced some interesting arithmetic which suggests that that will always be the case. If it is not always so, it raises the question whether the person concerned is paying in money for which he or she will receive absolutely no benefit at the end of the day. If that is so, should we not make some arrangement to ensure that the premiums are refunded or something of that kind? It will not be a problem in the immediate future. It is a long way ahead. But the minimum pension guarantee is earnings related and may tend to increase more quickly than a stakeholder pension invested in a defined contribution scheme. Many years hence we may find a lot of disgruntled people saying that they have contributed all the way along for nothing.
It is a concern which we should bear in mind to see whether there is any way of protecting people in those circumstances.
Baroness Hollis of Heigham: My Lords, the amendment is identical to one we discussed in Committee and adds an additional condition for the registration of stakeholder pension schemes. In order to he registered as a stakeholder scheme, the scheme's trustees or, where appropriate, other responsible individuals would have to declare that the contributions paid into the scheme would provide a pension in excess of the minimum income guarantee. I assume that the noble Lord is concerned about our expectations about the interplay between a state contributions and stakeholder scheme and the relationship to the existing benefit system.
As noble Lords are aware, the minimum income guarantee provides a vital safety-net for people who have been unable to make their own retirement provision. At current rates, it guarantees an income of at least £75 a week for a single pensioner and nearly £117 a week for a pensioner couple. We have said that, as resources allow, we will aim to uprate the minimum income guarantee over the long term in line with earnings, so that all pensioners can share in the increasing prosperity of the nation. The Chancellor announced in the last Budget that it would rise in line with earnings next year, reflecting our commitment to providing security for today's poorest pensioners—our immediate priority. As will arise under another amendment, we are also looking at ways to modify the rules on the treatment of capital, so as to reward savings.
The minimum income guarantee is intended as a fall-back for those who cannot afford to save for a decent pension. It gives much needed help to those who are the poorest. What we are seeking to do with our other reforms—the stakeholder pension in this Bill and I hope, should we get it, the state second pension in the next Bill in a few months' time—is to ensure that no one who works throughout his or her working life will need to rely on the guarantee. So, the new state second pension will give extra help to the lowest earners, who currently receive little or nothing from SERPS.
But moderate earners should be in a position to save more than the compulsory minimum which all employees must currently pay towards SERPS. Our proposals will give these people the opportunity to save in stakeholder pension schemes, enabling them to build funded pensions which can lift them above the level of the minimum income guarantee. This amendment would require stakeholder pension schemes to give an undertaking that they will provide a pension in excess of the minimum income guarantee.
There are a lot of difficulties with that approach. Schemes would be required to look into the future and give an undertaking that members will receive a pension in excess of the minimum guarantee. Although forecasts can be made, these are very different from giving a firm undertaking and taking on that liability. Investment returns are, of course, subject
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to a degree of uncertainty and there may be other factors; for example, the level of the minimum income guarantee when the youngest members of stakeholder schemes reach retirement age, in around 40 years' time. So I do not think the phrasing of the amendment is reasonable or indeed feasible. I assume that the noble Lord is probing how we see the interaction of the levels of provision.
The amendment also raises the issue of liability should the scheme fail to deliver the promised pension. Most stakeholder pension schemes will either be set up directly by, or in partnership with, a commercial undertaking such as an insurance company. And it would, I fear, be unrealistic to expect such undertakings to make the open-ended commitment which this amendment requires.
Our overall aim for stakeholder schemes is to extend the opportunity for moderate earners to save in good value, funded pensions. We believe that the practical consequences of the amendment as phrased would restrict stakeholder schemes to the higher paid, as schemes would only accept higher earners who could afford to contribute considerable sums which could safely be expected to produce a pension in excess of the minimum income guarantee. In other words, it would be the equivalent of cherry picking on the part of the pension firm to make sure that it was never exposed to any possible risk for whatever reason.
Furthermore, the amendment does not take into account the existence of the basic state pension. Even a relatively small second-tier pension, whether state or funded, should be enough to lift most people above the minimum income guarantee when combined with the basic state pension. I say "most" rather than the noble Lord's "all" because that would depend on how many years you contributed and therefore what year you pull out. So, it would deny many moderate earners the chance to make their own private provision, undermining our objectives for stakeholder schemes.
However—and this was the information I was giving across the Dispatch Box earlier—it is worth reminding ourselves that a small contribution will over the whole period of a working life produce a valuable return. It will make certain assumptions for pensions; for example, that earnings will grow at 1.5 per cent faster than prices. If one assumed that the basic state pension rose in line with prices; that MIG rose in line with earnings; that the real rate of return on investments is 4 per cent; together with a full working life—fairly basic assumptions—it would mean that—and these figures are quite remarkable—a contribution of £15 a month, or £3.50 a week, over a full working life would produce a pension equal to the projected gap between the state pension and MIG if MIG were earnings related. A contribution of £50 a month would produce a pension of about £75 a week, or greater than the state pension and MIG currently combined.
Of course, that £50 a month, or £13 a week, is a gross figure; and, according to one's age and level of contributions, anywhere between 45 per cent of this, if one is on an income of £200 a week at the age of 30,

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and 90 per cent at 50 could be coming from recycled rebates. So the net cost to the payer-in would probably be no more than half that £50 a month and could well be less. Over a full working life, it would still produce a pension of £75 a week to add to the basic state pension.
These sums are worth while. They are modest contributions. The crucial issue is the length of time involved in making the contributions. That is what makes it possible and that is why delays would be so unwise. Therefore, I understand the concerns which have prompted the amendment. We are determined that our reforms will enable as many as possible to retire on an income that exceeds the minimum income guarantee. But a contribution of £3.50 a week gross, and then at least half of that netted out for national insurance rebates, would float you above MIG level, which is what the noble Lord was asking. I repeat that £50 a month gross on these assumptions, and net only half of that or less, would float people on to a pension of about £75 a week in addition to their state pension.
However, the amendment seeks to impose a requirement on schemes which in my view would not only be unworkable but which also has serious implications for the successful delivery of our pension reforms. And it would impact on the stakeholder pensions alone. No similar requirement is proposed or needed for other pension schemes. No one ever mentions, for example, personal pensions—the last time I saw the statistics they showed that 60 per cent of those with a personal pension did nothing other than recycle their MIG rebates. As a result, most of them will still need income related benefits in their old age because there were no additional contributions.
The noble Lord is not making that requirement on personal pensions, which would have a more effective cutting edge, only on stakeholder pensions. On the assumption that the noble Lord was really asking me about the interplay between the two levels, I hope that he will feel that the information was useful and clarifies the situation and shows that over the long term this will prove a very good deal indeed for people on modest incomes putting in relatively modest sums. I hope that in the light of that the noble Lord will feel able to withdraw his amendment.
Lord Higgins: My Lords, the House will be grateful for the Minister's, as always, eloquent exposition. She described the amendment as not reasonable, not feasible, unrealistic and unworkable. One cannot help feeling that there must be something wrong with it somewhere! However, I was fascinated by what she said and believe that we should fax it immediately to Mr Frank Field, who may have different views on this aspect since in the past he used dramatic words about the likelihood of getting a benefit from contributions to some pension schemes. Subject to that, the Minister has given an interesting reply and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
9.15 p.m.
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 23:
Page 2, line 35, after ("scheme") insert ("or that the scheme was established to replace an occupational pension scheme").
The noble Baroness said: My Lords, Clause 2(3) of the Bill allows OPRA to refuse to register a stakeholder scheme which does not fulfil the conditions of Clause 1. This amendment gives a similar power to refuse registration to a stakeholder scheme if OPRA is satisfied on reasonable grounds that the intended scheme replaces an existing occupational scheme.
The Government have said on many occasions that they support occupational pension schemes. I believe that they have been a success story and I believe that my noble friend the Minister shares that view. Their growth in the UK was largely stimulated by the plan introduced by my noble friend Lady Castle of Blackburn in the mid-70s. In addition to providing earnings-related pensions to many who could never before have contemplated them—employees in small companies without pension schemes and so forth—by setting standards for contracting out, it improved existing schemes and actually resulted in the creation of a number of new schemes.
As a result, a generation of pensioners is now much better off than its predecessors—that is, the pensioners who had the opportunity to belong to occupational schemes arising during that period. The stakeholder concept may have—quite unwittingly—the opposite effect. The National Association of Pension Funds, whose meetings I attend fairly regularly, is very concerned that since the employer has an obligation to give access only to a provider, many will believe that that fulfils their obligation. Some employers may feel that having afforded access and agreed to deduct contributions from salaries, there is no need for them to do anything else. Their employees are in a scheme and they have nothing further to bother about; therefore the amount of pension that they receive is a matter for those individual employees.
There is really no substitute for a good occupational scheme. Stakeholder schemes must not be used to replace them. I am sure that that is not the Government's intention, but it may well be the ultimate result. In good occupational schemes the employer is always under an obligation to make a contribution, which is often far higher than the contribution rate paid by the employee. There are usually other benefits in the scheme as well. If stakeholder schemes are allowed to replace such very good provision on all sorts of perhaps spurious grounds advanced by providers, it will not be to the ultimate advantage of pensioners. I hope that the Government will be prepared to look favourably on the amendment which is intended to be helpful. I beg to move.
Lord Higgins: My Lords, I merely add to the noble Baroness's remarks that I share the fear she mentioned. There is some danger that because a company has an occupational scheme which involves

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it in making contributions, it may somehow now regard a stakeholder scheme as the norm, or in some ways the Government's ideal, and will therefore no longer feel obliged to go beyond what it is currently doing. Alternatively, it may simply close the existing scheme to existing members and move over to stakeholder schemes for new joiners. There is a real danger here and I should be interested to hear the Government's response.
Baroness Hollis of Heigham: My Lords, Amendment No. 23 gives OPRA the power to refuse to register or, if it has already been registered, to remove from the register, a stakeholder pension scheme if it is satisfied that it was set up to replace an occupational scheme. Stakeholder pensions are aimed at those people who do not have access to an occupational pension. Membership of an occupational scheme is not an option for the 35 per cent of employees whose employers do not offer a scheme.
I hope that my noble friend will recognise that we share the same commitment to occupational schemes and that we therefore intend stakeholder pension schemes to be a supplement (for those 35 per cent of employees) rather than to replace occupational schemes, which currently cover more than half those in the labour market.
I do not believe that there is anything in our proposals which should lead employers to close existing occupational schemes when they would not otherwise have done so. Employers who now offer an occupational scheme to all employees will not be affected by the requirement to designate a stakeholder scheme. Where employers currently exclude some employees—such as part-timers—they will have the option of changing the occupational scheme rules so that they are included. Equally, I believe it right that we should expect other employers at least to provide access to a good value pension scheme.
I now turn to the particular amendment. I do not believe that, if adopted, it would do anything to protect overall pension provision. An employer with an occupational pension scheme will have to offer a stakeholder scheme only if the occupational scheme does not offer membership to all employees. Affected employers will have a choice: to offer a stakeholder scheme or to extend membership of the occupational pension to all employees. Both measures should increase overall membership.
Of course, as the noble Lord, Lord Higgins, suggested, the employer could simply close the occupational pension and merely offer access to the stakeholder scheme. I believe that that is the concern behind the amendment. We should, however, remember that no employer is compelled to offer an occupational scheme. For those who do offer such a scheme it would surely be perverse to cancel arrangements that are long-established and working well simply because provision has now to be made for all members of the workforce. It is not an onerous additional responsibility.
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But even if we assumed, in the worst possible scenario, that an employer closed his scheme and went over either to a stakeholder or to a money purchase scheme or whatever, I do not believe that the amendment would help. There would be enormous practical difficulties in establishing that a stakeholder scheme had been set up expressly to replace an occupational pension scheme. Indeed, in many cases we expect stakeholder pension schemes to be set up to cater for groups of members spread across a range of employers. Even if it could be shown that the stakeholder pension scheme had been set up to replace an occupational pension scheme, refusal to register the replacement scheme could simply make it more difficult for the employer to comply with the employer access requirement. I cannot believe that that is what my noble friend intended.
Therefore, I hope that my noble friend will accept our commitment to occupational schemes. I hope that she will accept that we do not follow her reasoning on this—that employers will be motivated to close clown good occupational schemes and take up a stakeholder scheme where, for example, so far they have not moved from final salary to money purchase over the past few years. There has been virtually no movement on that front, or very little.
In the light of that explanation and the fact that, even were this amendment to be passed it would not offer any protection against what she most fears, I ask my noble friend to withdraw her amendment.
Baroness Turner of Camden: My Lords, I thank my noble friend for that explanation of the Government's position. Unfortunately I have some doubts about it because it seems to me that a number of employers might very well find that closing their scheme and opting for a stakeholder scheme is a cheaper option, a cheaper option that would enable them to fulfil their obligation as they see it and still provide access for their employees to some form of pension provision. I believe that that could be a very real danger with the proposition contained in this Bill. As I indicated earlier, I am not alone in that belief. That is the view of a number of quite large pension schemes represented in the NAPF. That view was advanced very strongly by the president of the NAPF at a meeting which I recently attended.
Therefore, a genuine fear exists among proponents of occupational schemes that this could have a weakening effect. One must remember, of course, that the number of new final salary schemes that have been opened in recent years is very small.
Lord Higgins: None.
Baroness Turner of Camden: My Lords, the noble Lord, Lord Higgins, says that there is none. Yes, exactly, because employers regard it as an open-ended and expensive commitment and they may well regard the stakeholder provision as a very much cheaper option. That is one reason that I felt it was a good idea

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to table this amendment. However, I do not intend to call a Division on this issue at this particular stage, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 3 [Duty of employers to facilitate access to stakeholder pension schemes]:
Lord Higgins Lord Higgins moved Amendment No. 24:
Page 3, line 24, after the second ("of") insert ("10 or more").
The noble Lord said: My Lords, this amendment relates to whether individual companies should have an obligation to provide stakeholder schemes to their employees. The purpose of the amendment is to suggest that there should be some restraint on that inasmuch as very small firms may find that an onerous commitment. I notice with interest on a later amendment that the Government themselves are becoming rather worried about the way in which particular schemes may impose an obligation on employers. The amendment is seeking effectively to put that particular point to the Government. Having said that, I believe it ties in to some extent with the consultative documents. I believe I am right in saying that these are the Green and Orange ones now related to employers' access and the Government's proposals and to the question of clearing arrangements as regards contributions. Although it would not be right to act as consultees in this context—that has been happening outside this Chamber—the Government might wish to indicate the extent to which their proposals on those two documents have been favoured. I was struck by the reaction of the Institute of Directors to the brief on employees' access:
"We reject the idea that employers should be required to provide access to stakeholder schemes through payroll deductions. An employer may choose to offer that facility, but that is the employer's decision. The proposal in this Brief is but the latest in a long line of examples of the Government asking employers to do extra work for no reward."
The institute also argues—and this is very relevant to the amendment—
"If an access requirement is to be imposed on employers at all, there should certainly be an exemption for smaller employers. Office of National Statistics figures for September 1997 (the latest available) show that exempting firms with up to ten employees would exclude 83% of employers but only 20% of employees."
I wonder to what extent those points were reflected in other representations made to the Government, and in particular whether representations have been made on behalf of small firms that they should not have that additional burden placed upon them. I beg to move.
Lord Renton: My Lords, my noble friend made a very valid point. The precedents to which he rightly referred are concerned with much simpler circumstances than will be established under the Bill. For each employer, in respect of each of his employees, to have to enter into the exceedingly complicated and sometimes obscure provisions that are to be applied under the new stakeholding scheme does not seem
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reasonable. The precedents that my noble friend quoted make a strong case for his amendment. I hope that the Government will look at it sympathetically.
Lord Goodhart: My Lords, again I am unable to support the noble Lord, Lord Higgins. There is obviously an element of burden on small employers in particular. We certainly have concerns about that, and for that reason we joined the Conservatives and the noble Lord, Lord Higgins, in opposing the proposal that small employers should not be required to pay the working families tax credit through the payroll. That step placed a burden on employers without conferring any particular benefit on employees.
In this case, if employers with fewer than 10 employees are excluded, the effect will be that those employees will to a large extent be excluded from the benefits of stakeholder pensions. They will not get access to a designated pension through their employer, which we believe will be of real detriment to them. For that reason, while having some sympathy for the motives behind the amendment, we are unable to support it.
Baroness Hollis of Heigham: My Lords, Amendment No. 24 limits the application of the employer access requirement to those employers with 10 or more relevant employees—an issue raised in Committee. I said then that our purpose in introducing the requirement on employers to offer access is twofold. We want to be sure that stakeholder pension schemes can deliver better value for money and we want to encourage people to join them. We therefore need a scheme that is cost-effective and as simple as possible. We think it right that employers should play a part in helping to make that a reality for people who cannot join an occupational scheme.
9.30 p.m.
The pensions Green Paper proposed that employers would have to designate and provide information about a stakeholder pension scheme for all those employees to whom the requirement applies. They would then allow scheme representatives access to those employees and offer payroll deductions for those who choose to join the scheme. Employers who already offer an occupational scheme to all employees will not be affected and other employers will be exempt in respect of any of their employees who could join an occupational scheme or those whose earnings fall below the LEL (lower earnings limit) for paying National Insurance contributions.
The Green Paper also sought views on whether the access requirement should be voluntary for particular groups of employers, reflecting our commitment to minimise the impact on business of this new requirement. After we debated this issue in Committee, we issued a further consultation paper setting out more detailed proposals. Some people have been disappointed that we did not propose an exemption based on the number of employees working

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for an employer. There have been concerns that the additional burden and extra costs might be disproportionate for small businesses.
Perhaps I may expand a little on our thinking. We are concerned that prescribing an exemption at a specific level could itself have a distorting effect on business, by influencing employer decisions about staffing levels and whether to go above or below the specific level. This is an argument we had on the WFTC, as I am sure your Lordships will well recall. It could limit our ability to make stakeholder pension schemes widely available through the workplace. Only about 200,000 of over 1.2 million employers in this country have 10 or more employees.
Adopting this amendment would mean exempting around 84 per cent of all employers in this country from the scope of the Bill. Whereas a high proportion of larger employers already offer an occupational pension scheme, smaller employers are much less likely to do so. It is precisely among the smaller employers that the current problem exists of their employees not going into a scheme. If we followed the noble Lord, we would accentuate that problem. At the moment, less than one in five working companies of under 20 has an occupational pension scheme. The proportion would be even higher if it was under one in 10. However, nearly half of those in companies of under 20 are in an occupational scheme. That shows that the problem of employees not having access to a second private pension is most acute in the very small companies which the amendment of the noble Lord seeks to exclude, in which case, frankly, we do not need to bother.
At the moment we are not proposing an exemption for employers based on size alone. We are concerned, however, that our proposals strike the right balance between the need to ensure wider access to good value pension schemes and the impact upon small businesses. We recognise that our detailed proposals have prompted a great deal of debate. We are currently evaluating them in the light of the responses received and will be considering them further.
In any case, our detailed proposals will be set out in regulations. That will give us the flexibility to prescribe exceptions to the access requirement if it became clear that that was justified either in the light of consultation or through the experience of operating schemes. We believe that that is preferable to specifying any possible further exemptions in primary legislation.
Lord Higgins: My Lords, I thank the noble Baroness for giving way. One particular concern is that this would pose a burden if done through the payroll rather than by people who become members of a stakeholder scheme doing it by direct debit, which seems equally efficient. Would the noble Baroness be prepared to consider that the size of the firm is related to whether or not this has to be included in its payroll? This echoes the discussion we had on WFTC.
Lord Renton: My Lords, before the noble Baroness replies, perhaps I may ask another question which is closely related and just as relevant. She has told us that
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84 per cent of employers would be affected if the amendment is carried. However, the import ant point is, what percentage of employees would be affected? Does she have that figure?
Baroness Hollis of Heigham: My Lords, approximately 80 per cent of firms employ under 10 people, and approximately 75 per cent of employees work for larger firms. However, the point is that they work for firms where there is already an occupational pension scheme because such schemes are to be found in the larger firms. Therefore, our problem is that the people to whom we most want to offer stakeholder pensions are precisely those who would not or might not have access to any such scheme were the amendment tabled by the noble Lord to be carried.
I realise that this is Report stage and not Committee, but did I understand the noble Lord, Lord Higgins, to say that he accepted that employers should continue to be required to make available to employees information in relation to a registered stakeholder scheme, but that he felt that employers should not subsequently need to handle the payroll deductions? Is he making a distinction between the two processes?
Lord Higgins: My Lords, it is not quite the same. I was saying that even if one were to accept the argument of the noble Baroness—which is doubtful—perhaps one could make an exemption for small firms by way of saying that they do not have to collect the money.
Baroness Hollis of Heigham: My Lords, the noble Lord is saying that firms would still have a responsibility to make available a scheme without necessarily acting as the collection agency. That is one of the suggestions put to us by some of those commenting on the document.
I have some sympathy with that proposal. We are certainly considering that, and arrangements for suggestions in response to the consultation document. But we will not be doing anything which subverts or undermines the possibility of our encouraging people in the smallest firms (who are the ones least likely to have a second pension) not to join the stakeholder scheme. It is not impossible that the noble Lord's suggestion is one that we could actively follow, but I make no guarantees in that regard. We are still considering the matter in the light of the consultation exercise. We want to ensure that the employees of small firms have access to building up a decent occupational scheme and, in the absence of an occupational scheme, a stakeholder scheme.
Lord Higgins: My Lords, we are grateful for the comments of the noble Baroness. My point was that, even if the Government felt that they ought not, on the basis of sizes to exclude firms from informing employees about a scheme, none the less more and more burdens are being placed on them and there may be a case for exempting them from collecting the money week in week out, bearing in mind that employees probably turn over much more quickly in

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small firms than in large firms. I shall be grateful if the noble Baroness will consider that alternative. Subject to that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Castle of Blackburn Baroness Castle of Blackburn moved Amendment No. 25:
Page 3, line 31, at end insert ("other than those who prefer to acquire earnings-related pension rights under section 44(3)(b) of the Contributions and Benefits Act (SERPS).").
The noble Baroness said: Amendment No. 25 relates to a theme to which Lady Turner and I have often returned during debates; that is, the need to give people the freedom to choose. In this case it is the freedom to choose SERPS rather than any other government alternative. This amendment asks that people should not be compelled or induced to go into a stakeholder pension if they prefer to remain in SERPS. The Minister may be surprised how many people, according to my postbag, are deeply attached to SERPS and, given the option, would choose to remain in it.
My moving of this amendment gives the Minister an opportunity to answer two questions which she has so far avoided answering. First, is it not a fact that the manifesto on which this Government were elected contained the phrase,
"Labour will retain SERPS as an option for those who wish to remain within it"?
Secondly, how does the Minister intend to embody that option in this part of the Bill? I beg to move.
Lord Goodhart: My Lords, at this point we come on to SERPS. Amendment No. 25 has been grouped with Amendment No. 54, which is a directly pro-SERPS amendment. We on these Benches are not enthusiasts for SERPS. With hindsight, we believe that the cost of SERPS benefits were seriously underestimated when SERPS was set up. One of the problems with such a scheme, where the contributions start immediately but the liability for payment does not mature for many decades to come, is that it is easy to create a lot of chickens and it takes those chickens a long time to come home to roost.
By the 1980s it was clear that either benefits had to be cut or national insurance contributions had to be increased to provide for SERPS. By going wholly for cuts, I have to say that the Conservatives took the wrong decision. But something had to be done. Therefore, in that respect, we believe that the scheme was flawed from the start. We also believe that the Government should provide a fixed-rate pension.
We accept that the second state pension and the basic pension will do a good deal better to provide a fixed-rate pension for many people, especially low-paid employees, than the basic pension alone. However, we do not think that the Government should provide earnings-related pensions. We believe that, for higher earners, they should be obliged to provide their own funded pensions to top-up state benefits and that the Government's financial contributions to those should be limited to tax relief.
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Therefore, we believe that the Government are right to phase out SERPS. However, as we will explain more fully when we get to Amendment No. 31, we also believe that membership of a pension scheme, whether it be a stakeholder scheme, a personal scheme or an occupational scheme, on earnings up to the upper earnings limit should be compulsory as a replacement for SERPS for medium and higher earners. Be that as it may, we on these Benches are unable to support Amendments Nos. 25 and 54.
Lord Higgins: My Lords, I shall not detain the House for more than a few moments. We discussed these issues to some extent when dealing with the earlier amendment. We considered whether the substitution of the state second pension for SERPS would be to the advantage of individuals who might contribute to it. I raised a number of points to which the Minister gave fairly complicated answers. Therefore, I should like to take into account what she said by reading her response in Hansard before I take a firm view on the matter.
I have a simple question for the Minister. Despite the manifesto commitment—no doubt she will be able to remind the noble Baroness about that—she is asserting that the state second pension will actually be more advantageous than continuing SERPS. My simple question is this: does the Minister think that the new arrangement will be more or less expensive than retaining SERPS? Moreover, if there is no difference as far as concerns cost, is there any reason why individuals who want to remain in SERPS should not be allowed to do so if they so wish?
9.45 p.m.
Baroness Hollis of Heigham: My Lords, as we have heard, these amendments seek to preserve the right of an individual to remain a member of the state earnings related pension scheme. Amendment No. 25 would exempt employers from designating a stakeholder pension scheme for any employees who opt to stay in SERPS. As I understand it, Amendment No. 54 would give employees a continuing option to remain in SERPS, which would also apply after the state second pension is introduced.
I understand the pride and belief in SERPS of my noble friend Lady Castle. However, time has moved on. Given the changes that have been made to SERPS over the years, in particular the hatchet job that was done in 1986, we believe that the time has come for its reform. We accept that the desirable option is for people to have a good, funded occupational scheme with a defined benefit or a defined contribution, according to the circumstances. However, we also believe that the state system has a vital role to play. Many people cannot afford to save enough themselves to provide a decent income in retirement. This includes not only very low earners but carers and disabled people who may never have the opportunity to build up a pension.
We considered these problems seriously in our pensions review and concluded that membership of SERPS was not the right answer. By its nature SERPS gives the lowest benefits to the lowest earners. It

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currently gives nothing at all to those who do not earn anything. The new state second pension which will reform SERPS—with, I hope, the approval of Parliament—will ensure that those who need the most help (low earners, carers and disabled people with broken work records) will get higher pensions. I remind your Lordships that anyone in a state second pension between the lower earning level, which is about £3,500, and £9,000 will pay in pro rata but will get hack a pension, whatever their income—whether it is £3,600 or £6,000—as if they were paying in £9,000. It is a redistribution that SERPS did not even begin to contemplate. Therefore it will be worth far more for low earners than SERPS would ever provide. For example, as I mentioned earlier this evening, on a figure of £6,000 someone would receive nearly double the sum from the state second pension as he would from SERI'S for the same sum of money.
My noble friend pressed me on the manifesto commitment. SERPS is not being abandoned; it is being reformed in that the earnings related element which gives most to those who pay most and least to those who pay least is to be reformed through the introduction of a state second pension which, as I say, will give more help to low and moderate earners, carers and long-term disabled people with broken work records. But obviously people's accrued rights in the existing system will build up and continue in the new system.
The noble Lord, Lord Higgins, pressed me on the costs of the scheme. It will be much less than SERPS as originally envisaged. The original cost of SERPS would have been about £40 billion but eventually came down to about £12.5 billion as a result of removing the best 20 years, reducing the accrual rates and some of the other measures of 1986 and 1988. The scheme will cost much less than SERPS as originally envisaged; it will cost rather more than the current SERPS. That is because we are quite deliberately using the mechanism of the state second pension to give help for a decent pension to those who otherwise would not qualify to be lifted off means tested benefits. Without this, people who could not get much from SERPS would remain on means tested benefits. Because we are going for a state second pension which, frankly, is undisguisedly redistributive towards the poorest, those who cannot work, those who have been disabled and those who are carers, it will cost more. I am proud that we are introducing this. I think that it is one of the best measures that we are introducing at the moment.
We shall produce a state second pension which is SERPS without the earnings related element and reducing the threat of means testing in retirement. Any extra savings people manage to put by—they can be quite modest—will add to their retirement income rather than being eaten up by means tests. This must be considered in conjunction with what we discussed earlier; namely, the question of capital limits.
I return to the amendments themselves. By requiring employers to offer access to a stakeholder pension scheme we are not compelling employees to join that scheme. Membership of SERPS, and in due course the state second pension, which is the reformed SERPS,
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will remain an option, as it is now. Amendment No. 25 as it stands would therefore add a rather unnecessary additional complication for employers and for the regulator seeking to check compliance by making the requirement on the employer dependent on whether individual employees elect to remain in SERPS.
The main effect of Amendment No. 54 would be to retain SERPS in the future alongside the state second pension. As I say, this misunderstands the state second pension. We do not propose to abolish SERPS and replace it with a new benefit. Rather, SERPS is to be reformed and enhanced by the introduction of the state second pension. When the state second pension is introduced most people will gain and no one will lose. Women will benefit in particular both as carers and as low earners, including many part-time workers.
I know that my noble friends may have concerns about stage two of the state second pension when benefits become flat rate—that is, for those over the £9,000 figure—but we have not set a date for this as it will be dependent on stakeholder pensions becoming successfully established in the market-place.
I believe that to follow my noble friends' amendment would produce confusion and complexity and, above all, it would not help those who most need help. No one will lose by the developments of the state second pension on the one hand and the stakeholder pension on the other. However, if employees were misguidedly to remain in SERPS unreformed, as opposed to the reformed SERPS, they could well be worse off under my noble friends' proposals than under ours. We are improving SERPS by ensuring that it delivers to the poorest, those who cannot afford to go into funded schemes.
I hope that with that explanation my noble friend will feel able to rejoice with me in the changes that will be introduced by the state second pension.
Baroness Castle of Blackburn: I cannot but admire the dexterity with which the Minister wriggles out of an earlier statement to the House in which she said at first that there was no manifesto commitment on SERPS. Now, when faced with the text of the manifesto, she has a new evasive technique, which is to say "Oh, but we are retaining SERPS. Mind you, we are altering its entire nature, but it is still SERPS". I know that the noble Lady is far too well informed not to be aware that the whole purpose behind the state earnings-related pension scheme was to give manual workers and blue-collar workers the same right to relate their retirement income to what they had earned when they were at work as middle-class and white-collar workers have enjoyed for years. That was the whole point of it.
I remember Dick Crossman introducing his national superannuation plan to our party conference years ago, saying that he was determined to end apartheid in old age. One of the deepest anxieties I have about this whole pension scheme—so far as it. has been unfolded to us; it has been a bit hit and miss—is that it wants to continue apartheid in old age by saying that one class of people is so poor that it must have a

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flat-rate benefit and can never enjoy an earnings-related scheme. On the other hand, there is the curious ambivalence about the Government when they say "Oh, earnings-related schemes are terrible for the poor, but we intend to embody them in the stakeholder pension as one of the main planks". If earnings-related pensions are wrong, why is it that the Government's main policies are based on that?
As to what the Conservatives and Liberal Democrats offer, I must say that we had a remarkable demonstration by them in chorus this evening, paying obeisance to the nanny state. They said "Oh, but this House knows best. We all know best. We cannot allow these benighted people to be led astray into choosing a scheme—SERPS—which we know is not good for them".
I should point out that all that Amendment No. 25 asks for is choice. What has happened to our society that we can sit here dispensing our wisdom and denying people the right to judge for themselves whether the state earnings-related pension scheme suits them best or not? That is all I am asking. I am not saying we should force it on them. Obviously I have more faith in people's right to freedom and in their judgment than any of the noble Lords opposite and my noble friend the Minister.
This is a theme that my noble friend Lady Turner and I have pressed and will continue to press; namely, that people have a right to an informed choice. The more I hear of the Government's plans, the more imperative I think it is for that choice to be retained. There are so many loopholes in the Government's policies. Every time we ask one question the Minister gets up with the same outpourings of enthusiastic eulogies of what the Government will do. Why it is not embodied in the Bill I will never know; we will have to take it on trust.
I do not believe that half of it will work as the Minister said; that all these wonderful increases in pensions will accrue to people by such and such a date in the next century. I do not believe her, because when you break down her figures, you will find that the basic level depends on the basic state pension. The Government earlier rejected Lady Turner's and my plea that the basic state pension can continue to offer a fair share of rising national prosperity only if we restore the earnings rule introduced by the 1974 Labour Government for its annual uprating. Without that, it will shrivel.
I will say this for the previous Conservative government: at least they were honest. They said, "Oh yes, the basic state pension will wither on the vine". We do not say that. We imply that by a kind of miraculous transformation, it will actually flourish. However, as a percentage of earnings, it is destined to shrink. I believe that, by refusing to listen to those of us who have worked very hard on this subject for many years, this Government will suddenly find that their elaborate machinery will come unstuck. The Minister has a right to shake her head, but if she believes she is right, and I am wrong, why not give people the choice? That is all we ask.
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All right, I know that she has so hypnotised this House that there is not much point in pressing this to a vote. I shall withdraw the amendment, but by heavens, I shall not give up the fight.
Amendment, by leave, withdrawn.
[Amendments Nos. 26 and 27 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 28:
Page 4, line 13, at end insert—
("( ) An employer is not, whether before designating a scheme for the purposes of subsection (2) or at any time while a scheme is designated by him for those purposes, under any duty—

(a) to make any enquiries, or act on any information, about the scheme for any purpose not connected with—

(i) ascertaining whether the scheme is for the time being registered under section 2,

(ii) ascertaining the persons to whom it offers membership, or

(iii) enabling him to comply with subsection (3), or

(b) in particular, to investigate or monitor, or make any judgment as to, the past, present or future performance of the scheme.").

The noble Lord said: My Lords, your Lordships will recall that we discussed this matter in Committee. There were concerns that an employer might be held liable by employees if the scheme designated under the employer access requirement performed badly, became insolvent, or met with other difficulties. Some of those commenting on the original proposals, including employer representatives, also expressed such concerns.
We said in Committee that we would look at this to see whether we could include a statement in the Bill which addressed the concerns. I am pleased to say that this has proved possible, hence Amendment No. 28.
Even as it stands, Clause 3 does not impose any duty on an employer to designate a scheme which performs to a particular standard. It has never been the intention that employers should have to do more than select a scheme from the register and offer access to it in the way set out in Clause 3. Nevertheless, we want to respond to the concerns that have been expressed and we accept that it is wise to include this extra safeguard to make certain that employers are adequately protected.
The amendment does not, of course, exempt employers from their normal duties towards their employees. For example, if they misinformed employees about the designated scheme, or misled them, a liability could arise under the general law of negligence.
Of course, we hope that employers will take some action if they discover a serious problem with a designated scheme. They could perhaps notify the Occupational Pensions Regulatory Authority or they might tell their own employees. Such actions would be both prudent and proper. But proper compliance with the requirements of this legislation should not, of itself, expose employers to risks of litigation. This amendment is intended to put that beyond doubt. The amendment explicitly protects an employer from

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particular liabilities which might otherwise arise from choosing a designated stakeholder pension scheme under the employer access requirement.
I hope that your Lordships will feel that this amendment is in line with the spirit of our discussions in Committee, and will support it. I beg to move.
Lord Higgins: My Lords, the House is grateful to the noble Lord for tabling an amendment which, as he rightly said, arose from our discussions in Committee. I was somewhat surprised to see it set down in such stark terms, but I believe it is right that the position should be made clear. My understanding is that not only were representations made at the Committee stage but there were also some responses to the Government's consultation brief on employer access. For example, the Institute of Directors said that it was not good enough to say that it would be very unlikely that an employer would be regarded as negligent if a scheme designated in good faith subsequently performed poorly or experienced problems.
Unless I have misread the wording of the clause, it seems to me that the Government have gone beyond what was said earlier and that this positively clarifies the position with regard to the responsibilities, or perhaps I might more accurately say the non-responsibilities, of employers. However, there is one point about which I am not absolutely clear. The Institute of Directors argues that if a scheme is designated, inevitably in the nature of things employees will tend to say to the employer, "You are designating this, but is it or is it not a good thing?". If the employer responds, he will thereby be giving investment advice. This is not a question of whether the employer is being negligent with regard to the laws to which the noble Lord referred in his speech. My understanding is that it would be positively illegal for employers to give that advice unless they were registered as an appropriate financial adviser.
Therefore, I wish to ask the Minister a very simple question. Despite the wording of the amendment, which is intended to be helpful, what is the position if an employer, in the circumstances I have just described, feels that it is difficult not to give some advice to his employees and then finds that he may be responsible for or be held accountable for—put it how you will—the advice which he has given? At the moment it seems that the clause does not cover that point.
10 p.m.
Lord McIntosh of Haringey: My Lords, all I can do is say that the amendment is very clear. It says that the employer is not under any duty to make any inquiries, or act on any information, about the points with which the amendment is concerned or under any duty to investigate or monitor, or make any judgment as to the past, present or future performance of the scheme. The noble Lord is asking me what would happen if an employer who recognises that he is not under any such duty goes ahead and gives advice. The only advice I can give to him is that he does so at his own risk, because employers are no more exempt from the
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general law about financial advisers than anyone else in the country. If they purport to give financial advice, they must be subject to the general law. What we can do, and what we have done, is exempt them from any duty to put themselves at risk in this way.
Lord Higgins: My Lords, before the noble Lord sits down, it is true that the position is as he described. But many small employers may not realise that that is the position. Will the Government take steps to ensure that they are clear not only that they do not have a duty to give any such advice but that they are positively prohibited and that it is illegal for them to do so?
Lord McIntosh of Haringey: My Lords, I am sure that it will be necessary for there to be guidelines to employers on the implementation of the legislation. There will be regulations and there will be guidance notes for employers. I am sure that they will make the issue to which the noble Lord refers perfectly clear. But what we have done in the legislation is to put beyond any doubt the fact that employers are not under any duty to go further than is set out in the Bill as it will be amended. I beg to move.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 29 and 30:
Page 4, line 14, at end insert—
(""employer" means any employer, whether or not resident or incorporated in any part of the United Kingdom;").
Page 4, line 21, leave out ("except those") and insert ("employed in Great Britain and also, in the case of an employer resident or incorporated in any part of Great Britain, all employees of his employed outside the United Kingdom, but with the exception, in the case of any employer, of any employees of his").
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 31:
Page 4, line 26, at end insert—
("( ) Regulations may prescribe that, when a designated scheme has been agreed, the employer and the employee members shall each have the obligation to make at least minimum payments into the scheme.").
The noble Baroness said: My Lords, with this amendment we return to an issue that was raised in Committee. The amendment I proposed then provided that the employer should have to make a contribution. This amendment includes both the employer and the employee in the scheme.
If stakeholder schemes are to play a major part in pension provision in the future, steps must be taken to ensure that they really do make adequate provision for pensioners in the next century. We do not want to repeat with this provision—as I am sure the Government do not—even in a minor way, the disaster that occurred with personal pensions.
The new stakeholder pension schemes will be on a money purchase basis, as has been explained on several occasions during earlier debates. In other words, the resulting pension will be based on what the investment of contributions has earned during the

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working life of the pensioner. It is my experience that very few people understand what that could mean. Nor is it always realised just how much they may have to pay into a scheme in order to receive an adequate income on retirement if they are simply contributing by themselves. Many people will not see pension contributions as a priority, particularly at a time in their lives when they are paying off the mortgage and bringing up children.
A good occupational pension scheme—preferably one based on the final salary concept—is still the best way of securing a comfortable income in retirement. The Bill proposes that employers should have the obligation to make stakeholder access available to employees and thus introduce the concept of the designated scheme. But that does not carry with it an obligation on the part of the employer to make any payment into the scheme. The only obligation is for the pension provider to be given access to the employees, and of course the employer then has the obligation to deduct contributions. That approach has certain problems to which I have referred. There is a possibility that some employers may prefer a stakeholder scheme to a good occupational scheme. We have already discussed the issue in relation to previous amendments. I still feel that there is a problem in that respect. However, so far as concerns the amendment, many employers now see that if they have to make contributions they will have to have some care and interest in the kind of designated scheme that is on offer.
Incidentally, the NAPF research to which I referred earlier raised the very real possibility that some employers would be short-sighted enough to want to close their schemes and embark upon a stakeholder scheme. But if they have to pay into the stakeholder scheme, the temptation to do so is likely to be reduced.
Therefore, the concerns that I expressed in regard to the previous amendment could be laid to rest via the proposition advanced in this amendment; namely, that employers should have the obligation to make a contribution into a designated scheme, which would mean that they would then have an interest in that scheme and its success and in encouraging their employees to belong to the scheme. In other words, it would not exactly duplicate an occupational scheme but have certain features of an occupational scheme. In that respect, it would be an advance on what is presently proposed in the Bill. I beg to move.
Lord Goodhart: My Lords, the noble Baroness may have been disappointed in the extent to which she received, or did not receive, support from these Benches on the earlier amendments which she and the noble Baroness, Lady Castle, moved. On this occasion, however, we strongly support the amendment. We believe that the idea of compulsory contributions by employer and employee is essential if the stakeholder pension is to be the success that we hope it will be.
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It is essential that people should be required to make reasonable provision for their old age. That involves the unfunded basic pension and the state second pension, which is also unfunded, for those on low earnings who cannot afford premiums to a stakeholder scheme. We also believe that those with higher earnings should be required, not just encouraged, to contribute to a funded pension. The provision for a funded retirement pension involves what is in effect a tripartite contract between employee, employer and the Government. The employee contributes part of his or her earnings. The employer also contributes, and in doing so recognises a social duty to provide for employees on retirement. The Government contribute by way of tax relief, because a funded pension relieves the Government of the burden of providing support in old age out of taxation.
If that scheme, that tripartite contract, is to work, employer participation is essential. We will not get good pensions for employees unless employers also contribute. We have already heard the figures: most large employers recognise this and provide occupational schemes for their employees, now widely recognised as deferred pay for doing the job.
Those who do not provide occupational pensions—many of them small employers who in practice cannot do so—should contribute to stakeholder pensions. But if it is compulsory for employers to contribute, it must also be compulsory for employees to join the scheme, because otherwise they will come under severe pressure from some of their employers not to join the scheme and to relieve the employers of the burden of contributing to it.
As we understand it, the ultimate government aim is to make it more beneficial for those earning more than £9,000 to opt out of the state second pension and into the stakeholder pension. It cannot be compulsory at the crossover level of about £9,000 because there are many people whose incomes will fluctuate around that level. But we believe it should be compulsory to join a stakeholder pension or an occupational pension once the employee's earnings exceed, let us say, £12,000 so that there is a substantial margin above the £9,000 crossover point. I shall not go into what the precise figure ought to be. That cannot be done before the second state pension is introduced and it should not include an obligation for people to join stakeholder pensions if they are at an age where they cannot build up a meaningful stakeholder pension before their retirement. But we believe that basically the scheme—which we think is in many ways a good one—will not work in anything like the way it should unless there is compulsory membership either of the stakeholder pension or an alternative occupational or pension scheme. We believe, therefore, that, as proposed in the amendment, powers to make this a compulsory requirement should be included in the Bill so that they can be exercised once the state second pension is up and running.
10.15 p.m.
Baroness Hollis of Heigham: My Lords, Amendment No. 31 provides powers to require

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employers and employees to contribute a minimum amount into the stakeholder pension scheme designated by the employer. This is a difficult point. Noble Lords will recall that we discussed the issue of compulsion in Committee and I explained then why the Government had decided not to increase the level of compulsory saving by individuals or to require a contribution by employers.
We also said in Committee that there is already an element of compulsion in the pension system. Everyone, apart from the lowest paid, must pay national insurance contributions, giving entitlement to the basic state retirement pension. For employees, national insurance contributions provide entitlement to the state earnings-related pension. Those employees who choose to make an equivalent arrangement through joining a contracted out occupational pension scheme or an appropriate pension scheme receive a rebate of their national insurance contributions or pay contributions at a lower rate to reflect the SERPS benefits they have given up.
I am sure that your Lordships would agree that the current compulsory pension system—that is, for those who are employees above LEL—has many strengths. But the fact remains that for a number of reasons it does not ensure a decent pension for all employees. The basic state pension has a lower value in real terms than when SERPS was introduced. SERPS has been cut back severely from its original design. Labour market changes mean that many people tend to contribute over shorter periods, and because it is earnings-related—a point discussed fully earlier this evening—SERPS gives the smallest benefits to the lowest earners. Therefore, they take the poverty of their working lives into their old age.
When we embarked on our review of the pensions system we seriously considered whether increasing the level of compulsory saving was the most appropriate response. We think now that it is not. To make the lowest paid save more will do little to improve their final pension and will place a considerable extra burden on their already stretched finances. To force moderate earners to save more in a pension would not necessarily lead them to save more overall; they would possibly save less in other forms.
Higher earners—those who are well up into the stakeholder range and beyond—already contribute enough into the state system to lift them well clear of the minimum income guarantee in retirement. Two-thirds of those earning over £15,000 a year already save an extra 5 per cent of earnings in occupational or personal pension arrangements without any additional compulsion; in other words, compulsion would be necessary precisely for those people who can least afford to make pension contributions. Compulsion is not a panacea.
Our new proposed framework, in particular the new state second pension, will ensure that the lowest earners receive much more help. We shall bring carers and some disabled people into the state second pension for the first time without any additional compulsion. We must also increase awareness of the need for
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pensions. People need to understand what kind of retirement income they can expect and how any additional quite modest extra saving, provided it is begun sufficiently early in working life, can make a useful addition. That is why we propose that everyone should receive an annual statement of the pensions that they have currently accumulated, both state and private, and what those pensions are likely to be worth when they retire.
To return to the amendment, I understand the concerns behind my noble friend's proposal to increase the level of compulsory savings by stakeholder pension scheme members, but I also note that quizzical eyebrows have been raised by the noble Lord, Lord Goodhart. I am rather intrigued as to why my noble friend has not proposed that membership of the employers' designated scheme should be compulsory for employees. To impose a minimum level of contribution on those who have joined a scheme voluntarily may possibly be a strong incentive not to join the scheme at all. I am sure that that is not what my noble friend intends. However, I am sure that we share the same objectives. Where we differ is in the best way to achieve them. We believe that the state second pension, with as much attraction as possible of those currently not covered—the self-employed—into the stakeholder scheme, may be the best way to extend coverage, which is what this is all about.
The amendment also provides for a minimum payment from the employer. We have said before that we see an important role for employers in their employees' pension provision. Many firms, particularly larger ones, already make valuable contributions to occupational schemes and in some cases to group personal pensions. However, stakeholder pensions are aimed primarily at those who are not fortunate enough to have access to an employer's scheme. They are intended to help those on moderate earnings—those in the £9,000 or £10,000 to £20,000 range—build up a funded second-tier pension. If they are to succeed in meeting our objectives we need to make them attractive to employers as well as employees.
Clause 3 of this Bill will require employers to offer access to a stakeholder pension scheme for those employees who are not offered an occupational scheme. This will be an additional responsibility on employers but we believe that it is reasonable. As we have made clear, we shall take steps to minimise the burden of that responsibility. But to go further and require employers to contribute to their employees' stakeholder pension schemes would be unreasonable. There would be a significant extra new cost for employers and the benefits to lower paid employees—those most in need of help—would be small. They are the ones who would normally come within the state second pension. We do not believe that it is appropriate to require employers to contribute more than they already do via the national insurance system.
We shall evaluate the effect of our proposed reforms, but we are not convinced that additional compulsory saving by employees, or compulsion on employers to contribute, is the best way to address the

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challenges that we face. Therefore, I hope that in the light of my response tonight my noble friend will feel able to withdraw her amendment.
Baroness Turner of Camden: My Lords, I thank the Minister for that contribution although I am not terribly happy with it. As she said earlier, the stakeholder scheme is intended for those situations in which the people concerned do not have access to an occupational scheme. That means that the employer is not at present making any payment to the scheme or pension provision of his employees.
The amendment was drafted specifically not to have immediate effect but to provide that,
"regulations may prescribe that, when a designated scheme has been agreed, the employer and the employee members shall each have the obligation to make at least minimum payments into the scheme".
In other words, it was intended to indicate that when there was a scheme the employer would have in sight the possibility that when the regulations were in effect he would have to make some contribution towards it.
We are not just talking about the very low earners. I still believe that many people will not be willing necessarily to put aside enough money for a reasonable pension even if they are not earning at the lowest level. Often people are asked to contribute to a pension when there are other calls upon their income: they are bringing up children or paying off the mortgage, and so on. Pension contributions are usually the last thing they think about. I believe that some measure of compulsion on both sides will be necessary if the scheme is to work properly.
However, I suspect that it is not a good idea to call a vote on the issue at this time of the evening. I am not happy with the response received. I hope that as matters progress and, as indicated earlier, the Government have not entirely dismissed the notion of compulsion. As matters progress, it may become necessary for the Government to consider again the provisions made. In that case, perhaps they will again consider the possibility of compelling both sides in industry to make a contribution. In the circumstances, I shall not call a vote at this stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 4 [Obtaining information with respect to compliance with section 3]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 32:
Page 4, line 29, at end insert (", or

( ) corresponding Northern Ireland legislation,").

Clause 5 [Powers of inspection for securing compliance with section 3]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 33:
Page 5, line 3, after ("3") insert ("or corresponding Northern Ireland legislation"). On Question, amendment agreed to.
Schedule 1 [Application of 1993 and 1995 Acts to registered schemes]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendments Nos. 34 to 38:
Page 89, line 22, at end insert ("to (13)").
Page 89, line 25, at end insert ("except subsection (3)").
Page 89, line 28, leave out from ("91") to end of line and insert (", 92 and 94 (assignment and forfeiture etc.) except section 91(5)(d);").
Page 89, line 29, leave out ("96") and insert ("96(2)(c)").
Page 90, line 18, leave out from first ("to") to end of line 19 and insert (", or to any subsection of, section 1 or 2 includes a reference to any provision in force in Northern Ireland corresponding to that section or (as the case may be) that subsection; and the reference in sub-paragraph (1) to any pension scheme includes a personal pension scheme (as well as an occupational scheme) within the meaning of the Pension Schemes (Northern Ireland) Act 1993.").
Clause 7 [Reduced rates of contributions etc: power to specify different percentages]:
[Amendment No. 39 not moved.]
Clause 9 [Monitoring of employers' payments to personal pension schemes]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 40:
Page 11, line 10, at end insert—
("( ) References in this section to, or to any provision of, section 111A include references to corresponding provisions of Northern Ireland legislation; and in this section as it has effect in relation to those corresponding provisions, "employee" and "employer" have the meaning they have for the purposes of those provisions."").
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 41:
After Clause 10, insert the following new clause—

EQUAL TREATMENT RULE
(" . In section 62 of the Pensions Act 1995, after subsection (3) there shall be inserted—
"(3A) An equal treatment rule has the effect that where—

(a) an unmarried partner is employed on like work with a married person in the same employment,

(b) an unmarried partner is employed on work rated as equivalent with that of a married person in the same employment, or

(c) an unmarried partner is employed on work which, not being work in relation to which paragraph (a) or (b) applies, is, in terms of the demands made (for instance under such headings as effort, skill and decision) of equal value to that of a married person in the same employment,

but (apart from the rule) should any of the terms referred to in subsection (2) become less favourable to the unmarried partner than to the married person, the terms shall be treated as so modified as not to be less favourable.
(3B) For the purposes of subsection (3A), an unmarried partner is a person who—

(a) is living with another person of the same sex or of the opposite sex in the same household; and

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(b) has been living with that person in the same household for at least two years; and

(c) is living (luring the whole of that period as the husband or wife of that other person."").

The noble Baroness said: My Lords, we now come to a different aspect of pension provision. Amendment No. 41 is concerned with equal treatment. It seeks to ensure that unmarried partners of pension scheme members have similar rights to those of married partners of scheme members. In putting down the amendment I intended a move in the direction of what seems to me to be a more modern way of thinking.
I am a proponent of marriage. After all, before I became a widow I had been happily married for over 40 years. But one has to admit that society is changing. In many ways I think that it is improving. It is becoming more tolerant of lifestyles which depart from the traditional. An increasing number of couples remain in stable relationships for many years without getting officially married; and the same is true of same sex couples—lesbian and gay couples—some of whose relationships are more harmonious and more stable than others in more conventional arrangements. The number of cohabiting couples is expected to rise to about 3 million in 2001. Cohabitation is now socially accepted, with only a minority of people disapproving, even in the older age groups.
The proportion of adults aged 16 to 59 cohabiting has risen to around 25 per cent, which is double the level of 15 years ago. One-third of all births are now outside marriage, but three-quarters of them are registered by parents living together at the same address.
The rights and responsibilities of cohabitees are increasingly being recognised in other areas: by the Government in relation to housing and social security; by the law in relation to inheritance and compensation; by the Law Commission in its forthcoming report on property rights of home sharers; and by the Law Society which recommended that cohabitants should obtain equivalent rights to pensions as divorcees on separation.
Moreover, the Government, through the Minister, often tell us that times have changed and that we must therefore modernise in order to keep up with these changes; hence the amendment that I have put before your Lordships today. I tabled it at the request of my union, MSF. The text was originally drafted by the union's lawyers. Unions often have to cope with pleas from unmarried partners of deceased members and it is difficult to tell a woman who may have lived with a man for more than 20 years and had his children that she has no legal claim under a pension scheme. But that has happened on a number of occasions and the same is true of same-sex partners.
The text of the amendment, however, does not rely on the test of dependency. I am advised that in certain other areas of the law, the tendency has been to move away from dependency and to rely on cohabitation. For example, the Inheritance (Provision for Family and Dependants) Act 1975 was changed in 1995 at the instigation of the Law Commission. The commission
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recommended that cohabitants should be able to apply for benefits under the 1975 Act without the need to show dependency. As a result, a new category of cohabitant was inserted into the Act defined as a person who:
"during the whole of the period of two years ending immediately before the date when the deceased died … was living

(a) in the same household as the deceased and

(b) as the husband or wife of the deceased".

A similar definition appears in Section 1 of the Fatal Accidents Act. Again, there is a reference to two years immediately prior to the date of death. In the amendment, however, the draft defines the two-year period by reference to the date when any claim is made.
I hope that the Minister will be willing to look with favour on what is proposed here, even if the text as it stands may not be completely acceptable. I also hope that it will not be opposed on grounds of cost. To do so would be most unfair to unmarried partners as the scheme member will in most cases have had to pay the same contribution as that paid by the deceased partner in a married relationship.
However, I am indebted to Stonewall for some excellent research material produced last year, copies of which were sent to the then Minister of State a t the DSS, Mr John Denham. A detailed questionnaire was sent to a number of top pension schemes. The results show that partners' pensions, where these are provided, do not create significant additional administration costs and that, indeed, costs as a whole are not an issue. Most schemes would not want to increase members' contributions in order to meet the cost of partners' pensions. Indeed, it is surely clear that in making actuarial assumptions about the level of contributions required, actuaries must assume that each scheme member will have a partner, so whether that partner is married or unmarried must be immaterial.
It is clear that many pension schemes are making an effort to provide partners' pensions for unmarried and same-sex partners. But Inland Revenue rules, which allow pensions for unmarried and same-sex partners only at the trustees' discretion, can sometimes make for difficulties and complications. The arguments that partners' pensions would place financial burdens on employers and act as a disincentive to the continuation of final salary pension schemes does not appear to be substantiated.
I know that changes in society and the way in which society looks at issues take some getting used to, but after a while they become accepted. I well remember back in the 1970s when I was a union official, making a proposition during negotiations on a pension scheme with a very large employer; an employer, moreover, with a very good reputation for employee relations. I suggested that widowers' pensions be provided in the scheme; they already had widows' pensions. The employer's representatives on the other side of the table looked at me in horror and said, "Widowers' pensions—you can't be serious". Now we take widowers' pensions for granted and we accept that widows and widowers should have equal treatment. It

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would be contrary to our perception of equality for that not to be so. I hope that we shall be able to take the same steps to keep up today and to accept my amendment. I beg to move.
10.30 p.m.
Lord Goodhart: My Lords, this is an extremely important amendment and one which we support in principle. It would now be widely accepted that where two unmarried adults, whether of the same sex or of different sexes, are living together in a personal relationship, and where one is financially dependent on the other, that dependency should be recognised by the terms of pension schemes. "Dependence" should of course include inter-dependence.
As the noble Baroness has explained, the purpose of the amendment is to go further than that and to provide something equivalent to a widow's or widower's pension as of right and not merely to extend it to cases of dependency. Again, that is a position with which my party would agree. But while we accept the position in principle, there are certainly problems with this particular amendment. I do not believe that it in fact achieves what it sets out to do. I do not believe that it is appropriate for me to explain why that is the case—no doubt the Minister will do that.
If that objective is to be achieved, it will need a great deal of careful thought. There are issues relating to how one defines the relevant personal relationships. I am not sure that simply living in the same household for two years would in itself be a wholly satisfactory test. However, it is desirable that more thought should be given to the matter. We should certainly like to see the Government undertaking first to set up a study of when and how it would be possible to provide pensions for unmarried partners on a basis equivalent to that for married couples. We should also like the Government to undertake to come back with appropriate proposals in future pensions legislation.
Baroness Hollis of Heigham: My Lords, I thank my noble friend for what I thought was a powerful and moving speech. As always, her arguments are cogent and eloquent.
It may be helpful if I begin by explaining briefly the requirements of Section 62 of the Pensions Act 1995. Section 62 sets out the equal treatment requirements for OP schemes. In general terms, schemes need to treat men and women equally if they do the same work or work of equal value. For example, men and women must be offered access to the scheme on equal terms. They also receive the same benefits in relation to service from 17 May 1990. The proposed amendment would extend the equal treatment requirements to married and unmarried couples. As my noble friend has said, the main area affected would be the payment of survivors' benefits.
At present, Inland Revenue rules allow survivors' benefits to be paid to anyone who is financially dependent or inter-dependent on the deceased person. Therefore there is already scope to carry out what the
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amendment seeks to achieve. As we said in the Green Paper, we do not believe that new provisions are needed in the legislation. Employers who offer occupational pension schemes decide whether or not the scheme will provide survivors' benefits. For example, some schemes may be non-contributory, but one may have to contribute extra if one is to receive survivors' benefits in one's particular case.
If those benefits are provided, scheme rules may specify that they are payable only to widows and widowers. However, evidence suggests that a growing number of schemes no longer restrict survivors' benefits to married couples. Many schemes now provide survivors' benefits not only to unmarried heterosexual couples, but also to same sex couples. The Government welcome that provision.
The NAPF national pension fund survey of 1988 indicated that 75 per cent of private sector schemes provide pensions for unmarried partners and 45 per cent of them for same sex partners on a discretionary basis. However, the public sector's statistics show that the equivalent to 75 per cent for unmarried partners in the public sector is 28 per cent, and for same sex partners 45 per cent in the private sector is 20 per cent in the public sector. As I say, this is a matter for scheme trustees.
The proposed amendment would compel schemes to provide survivors' benefits to married and unmarried couples on the same basis. We cannot support this amendment for two basic reasons. First, we must remember that if we compel schemes to extend survivors' benefits, that will result in increased costs for those schemes that currently restrict survivors' benefits to widows and widowers. Although accurate costs are difficult to estimate, the Government Actuary's Department has suggested that the costs could be in excess of £½billion a year for each year of future service. Those costs should not be inflicted lightly on schemes and contributing members.
My noble friend suggested that members would pay the same contribution whether they were married or not and asked why they should not give them the same level of benefit? But my noble friend, who has more experience in pension matters than perhaps any 20 of us in this Chamber, will know that the actuary takes account of the benefits to be provided under the scheme rules and makes assumptions on matters like the proportion of members who are married at retirement or death. That assumption would have to be increased and would have to be reflected in contribution rates if more people were eligible for survivors' benefits. Therefore costs could and would increase.
Secondly, we need to consider the cost for public service schemes which are funded by public expenditure and thus the general taxpayer. As I say, there lies the biggest gap in this form of provision. It has been estimated that £200 million of the figure just mentioned of £1 billion would be for public service schemes. Therefore, any such move to extend survivors' benefits would need detailed consideration with all those who would face extra costs.

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For example, when we debated Amendment No. 23 earlier, my noble friend expressed her concern that the introduction of stakeholder schemes could act as an incentive for employers to close down their occupational pensions. Yet stakeholder pensions will not make any difference to the cost of providing an occupational scheme. By contrast, this amendment could impose substantial extra cost on those schemes. In some cases, employers might believe that it would make the future of the scheme unviable. Therefore, while I understand the intention behind my noble friend's proposal and personally sympathise with it, I must stress that this is a complicated issue. It would be rash to legislate. I am not going to go into why this amendment might be technically deficient. I do not believe there is any point because my noble friend was arguing from the point of principle. I very much hope that schemes which have discretionary powers will choose to move in this way. But we believe that for the time being schemes are best left to make their own decision.
In terms of the thoughtful contribution of the noble Lord, Lord Goodhart, I was reflecting on whether there would be additional advantage in looking at the matter further. I cannot give that undertaking at the moment. However, this is an issue which has come before the Government several times already—certainly since I have been on this side of the Chamber. I believe it is fair to say that the Government are very sympathetic to the extension of such rights where possible. As I say, our difficulty is that we do not want, on the one hand, to make stakeholder schemes less cost effective and, on the other hand, the implications for the public service schemes are really rather substantial. I hope that the tide is moving in the direction of my noble friend's proposals. But, as I say, I believe this is an issue which is yet to be resolved. With those comments I would hope that my noble friend could withdraw her amendment.
Earl Russell: My Lords, before the Minister sits down, perhaps she could confirm that she and I both belong to the university superannuation scheme which is perhaps the only scheme which for a long time has made the type of provision for which 'this amendment asks. Has she ever heard any member of that scheme complain about the resulting cost?
Baroness Hollis of Heigham: No, my Lords, because while those university schemes are not as well paid as they would like to be, they are relatively better paid. The salaries of university lecturers start at £17,000 and go up to about £50,000 for vice-chancellors. That is very different from stakeholder or other occupational schemes. Also, the university scheme is privately, not publicly, funded such as those for the police, teachers, the Civil Service or whatever. That is where the costs would fall on the Exchequer.
I agree with the push of the noble Earl's question. If schemes put the question to their membership with full and proper information about the extension of choice in lifestyle that would then be available without worries for the future, that could prove compelling and
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members might be willing to pay the extra cost. I hope so. At the moment, the Government's position is that it is for private schemes to determine, within their discretionary powers, whether to extend benefits. There is nothing to stop the membership of such schemes pressing for the extension of benefits to unmarried partners. If they were to do so, I would be cheering them on.
Baroness Turner of Camden: My Lords, I thank my noble friend for her sympathetic response and the noble Lord, Lord Goodhart, for his support. I accept that the wording of the amendment is not all that it might be and, for that reason, I do not intend to press it to a vote. I am grateful to the Minister for giving the clear impression that the Government are very sympathetic and that the times are moving in this direction. I am glad to learn that 75 per cent of private schemes already comply with the general thrust of the amendment. I was aware that there had been a lot of progress in that respect in recent years.
The problem lies with public sector schemes—the exception being the USS, to which the noble Earl referred. Unfortunately, public sector schemes have not moved as fast. In light of the Minister's statements this evening, I hope that the remaining 25 per cent of private sector schemes that have not followed suit will feel inclined to do so. One hopes that attention will be paid to the Government's views and that eventually, with public sector schemes, unmarried partners will receive the equality of treatment to which they are entitled. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 [Excessive pension contributions made by persons who have become bankrupt: Scotland]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 42:
Page 21, line 26, leave out ("debtor's").
The noble Lord said: My Lords, in moving this amendment, I would like to speak also to Amendments Nos. 43, 44. 56, and 229 to 257. This group of amendments makes changes to the provisions for the protection of pensions on bankruptcy. These are complex measures and parliamentary counsel has taken the opportunity afforded by the Summer Recess to look again at the way in which they are drafted. The amendments simply correct or clarify the legislation. They do not involve any changes in policy. May I stop there or shall I explain the amendments in more detail?
Noble Lords: No.
Lord McIntosh of Haringey: Then, my Lords, I beg to move.
Lord Astor of Hever: My Lords, the House will be grateful to the noble Lord for his explanation of the amendments. We are concerned about the intention behind the drafting of Amendments Nos. 229 to 257 relating to the Bankruptcy (Scotland) Act 1985 and the Insolvency Act 1985. Our concern focuses on the

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proposal to delete references to "excessive contributions" and to replace them with the term "is recoverable". If these amendments were to be accepted, the consequences for the creditor of the debtor who is bankrupt may be very serious indeed.
If a debtor tried to defeat the interests of a creditor by entering into a pension-sharing transaction which could be deemed to be a gratuitous alienation or unfair preference in terms of the Bankruptcy (Scotland) Act 1985 or the Insolvency Act 1985 and made excessive contributions into that arrangement, the creditor, as the Bill currently stands, would be entitled to claim the amount to which he or she is legally entitled; namely, the full extent of the excessive contribution.
If, however, the House accepts the amendments, the creditor's rights would be limited to the extent of what is "recoverable". In some situations, that could be significantly less than that to which the creditor should be legally entitled. Accordingly, in those situations the debtor would have successfully frustrated the interests and rights of the creditor by placing beyond his or her grasp the difference between the excessive contributions and what is recoverable.
We do not accept that this is a desirable policy objective. We want to prevent pension sharing becoming a source of problems for the courts in years to come. We therefore hope that the Government will give this matter serious consideration before Third Reading.
10.45 p.m.
Lord McIntosh of Haringey: My Lords, I did my best, but I should have read out the fuller brief. I shall have to do so now because the noble Lord is entitled to a proper answer to his questions. He referred particularly to the amendments which relate to the Bankruptcy (Scotland) Act.
Amendments Nos. 42 to 44, 238, 245 and 246 are only there to ensure consistency in the usage of terms with the rest of the Bankruptcy (Scotland) Act. I do not think that the noble Lord will have any problem with that.
Amendments Nos. 233, 234, 242, and 244, together with Amendments Nos. 250, 251, 254, and 256 make clear the position of the former spouse in relation to the recovery of excessive contributions from her pension share. Although it is generally accepted that there needs to be a mechanism to recover excessive contributions that are contained in the former spouse's pension share, I think we would all agree that the provision needs to be carefully drafted so that only the excessive contributions, and nothing more, are recovered. That is what these amendments do. The amendments make it clear that it is only the balance of any excessive contributions not recovered by the court order against the bankrupt that can be recovered from the former spouse.
Amendments Nos. 229 to 232, 235 to 237, 243, 247 to 249, 252, 253 and 255 are further technical amendments. In the comments I have just made, I referred to the recovery of excessive contributions
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from the former spouse's pension share. I used the phrase "excessive contributions", however, as a shorthand term. Properly, the phrase is best restricted to the bankrupt and his contributions to the pension. What may be recoverable from the former spouse is an amount equivalent to those excessive contributions, if any, which cannot be recovered from the bankrupt's pension. These amendments bring out that technical distinction. I assure the noble Lord that although the term "excessive contributions" is being replaced, this is purely a technical change and the policy remains unchanged.
Perhaps I may say a word about bankruptcy law in Scotland because that was the thrust of the noble Lord's argument. Current bankruptcy law in Scotland provides that the permanent trustee in bankruptcy can apply to a court to seek recovery of property or funds in three circumstances where he believes that a transaction has had the effect of defeating creditors: first, gratuitous alienation, where property has passed to another person at less than full value; secondly, unfair preferences, where one creditor has been unfairly preferred to another and, thirdly, he can also apply to overturn a court order made on divorce. The new measures allow recovery from the former spouse's pension share but build on those existing provisions.
I would be happy to answer any questions which the noble Lord may have. Indeed, I shall ensure that the questions he raised are dealt with in a letter which I shall write to him before Third Reading. I hope that he will agree, on that basis, that it is appropriate that I should commend the amendments to the House.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendments Nos. 43 and 44:
Page 22, line 12, leave out ("debtor's").
Page 22, line 35, leave out ("debtor's").
Lord Higgins Lord Higgins moved Amendment No. 45:
Before Clause 17, insert the following new clause—

INCOME SUPPORT: CAPITAL LIMIT FOR PENSIONERS
(" .—(1) The Income Support (General) Regulations 1987 shall be amended as follows.
(2) At the beginning of regulation 45 (capital limit) there is inserted "Subject to regulation 45A".
(3) After regulation 45 there is inserted—
"45A. For the purposes of section 22(6) of the Social Security Act 1986 as it applies to income support (no entitlement to benefit if capital exceeds prescribed amount), the prescribed amount for persons of pensionable age is £16,000."").
The noble Lord said: My Lords, it will be convenient to consider also Amendments Nos. 46 to 48. The amendments are best grouped in two pairs, taking Amendments Nos. 45 and 46 together and Amendments Nos. 47 and 48 together. I shall not burden your Lordships at this hour by reading out the terms of the amendments but simply explain them.
The difference between the two sets of amendments is that Amendments Nos. 47 and 48 include a provision for uprating the capital allowances, to which

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I shall refer in a moment, in line each with inflation, whereas Amendments Nos. 45 and 46 do not. On reflection, at the present level of inflation, Amendments Nos. 47 and 48 are probably not necessary and l shall therefore concentrate on Amendments Nos. 45 and 46.
These amendments are important for this reason. It is now well recognised that the capital limits which determine whether pensioners are entitled to income support are long overdue for increase. This legislation gives us an opportunity, which may not arise for some considerable time, to provide that increase.
At the moment, individual pensioners on income support are "allowed" £3,000 capital before their income support is reduced. When that capital reaches £8,000 they lose their entitlement to income support altogether. For reasons I shall put forward in a moment, those figures are long overdue for amendment. The situation with regard to housing and council tax benefit is somewhat similar. Nothing happens up to £3,000, but after £16,000 the housing and tax benefits are effectively eliminated.
I am slightly puzzled by a document I received from the Department of Social Security which says that higher limits apply in relation to the top end of the scale for income support and jobseeker's allowance "for people in nursing homes". I am puzzled as to how people in nursing homes may be entitled to jobseeker's allowance, but I leave that matter on one side; there may be some reason for it.
At all events, it is clear that there is an assumption that these limits are imposed because they are likely to generate an income which will be useful to the individual concerned instead of income support. In fact, the department's document suggests that that is not so. It says in terms that:
"These graduated reductions are not intended to represent any return that could be obtained from investing capital. The system provides a straightforward method of calculating the weekly contribution which people with capital in excess of £3,000 are expected to make from those resources to help meet their normal living expenses".
I find that to be total gobbledegook and do not understand what the department is seeking to say. The common-sense approach is that limits are supposed to be imposed on the basis that if the individual holds this amount of capital, then he derived from it an income which is a substitute for income support. If that is so, one must consider whether the limits are now appropriate in line with what such sums of capital are likely to produce.
There are some differences in limits between different social security benefits. But what prompted me to table the amendments were the discussions we had on a previous Bill with regard to the limits for working families' tax credit where people would receive some benefit if they had an income of, in some cases, over £20,000 a year. If they have an income of £20,000 a year some contribution is made to their expenses by the Inland Revenue, but if they have capital as small as £3,000—and certainly by £8,000—the system makes no provision for them whatever at the higher limit and it is tapered between the two.
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Therefore, these amendments seek to raise the limit and to alter the taper in line with the argument that I am putting forward.
There is, of course, a traditional Treasury argument on the matter—I forget how many letters I may have signed pointing this out—which is that the first £3,000 of capital is ignored. Consequently, the implicit rate of interest on capital of, say, £3,250 is very low: indeed, I believe that the department calculates that 1.6 per cent would be the equivalent rate of interest. However, by the time you get up to £8,000, the equivalent rate of interest is 13 per cent.
I looked through the Sunday newspapers in order to consider where one might reasonably invest this meagre amount of capital so as to get an income which would justify one's social security benefits being reduced but had some difficulty in finding anything yielding more than 6 per cent. It seems quite clear to us on this side of the House that an increase is long overdue. The figures that we have selected for these amendments are arbitrary to some extent, but there are considerable cost implications involved. Therefore, it would be helpful if the Minister could give us some indication of the likely cost of such changes. We could then consider before Third Reading the exact way in which we should proceed on the matter.
For years on constituency interview nights on a Friday evening I had elderly ladies coming to see me and saying, "I have £5,000 capital and my income support will be chopped back. If I have £8,000 it will be eliminated altogether". In their hearts they feel that this is somehow their last remaining barrier against any unforeseen disaster which may befall them. Therefore, it is important for us to take that aspect into account. As I say, week after week that argument was put to one and one was tempted to say, "Well, the best thing you can do is to go on a world cruise and then come back and claim income support". But, alas, the legislation makes provision for that and, should it happen, they will be clobbered anyway.
I hope that the Minister will respond sympathetically and give us some idea of what the appropriate figures might be. As this Bill will probably be the last opportunity for some time to do something about this situation, we could then decide by Third Reading what is an appropriate change to make. I beg to move.
Earl Russell: My Lords, I should like to thank the noble Lord, Lord Higgins, for drawing our attention to the case of people in nursing homes receiving jobseeker's allowance. It reminds me of the conditions imposed when women were first allowed to join the Northern Irish Civil Service: they were allowed three children, but were not allowed to be married.
I strongly agree with the overall thrust of these amendments. In fact, it is a point that I have been making on uprating statements since long before either of the other two noble Lords who have spoken were Members of this House. However, the noble Lord, Lord Higgins, made one point with which I disagree. He said that Amendments Nos. 47 and 48 were not

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particularly urgent at the moment because the present rate of inflation is low. I agree with the maxim that the time to mend the roof is when the sun is shining. If we are to introduce regular uprates—and that is what I am after here—the sensible moment to do so is when there is a low rate of inflation and the immediate first step upwards is not as expensive as it might otherwise be.
When you get a long delay in uprating any particular benefit, you face the danger of the worth of the thing in effect becoming nugatory. The Minister will remember what happened in the Parliament before last to child benefit. So that it is clear I am not making a purely party point, I refer also to the prime ministership of Harold Wilson and to what happened to dog licences. They had not been uprated for so long that the cost of uprating them reached a level which would have been absolutely prohibitory. The only thing that they could do then was to abolish them.
These capital limits may or may not have been rightly fixed in 1988. They were perhaps a little ungenerous even in 1988. But what was a little ungenerous in 1988 is extremely ungenerous now. We have been going 11 years without any uprating of these capital limits. Every year that it is put off the change becomes more expensive when it is introduced. I hope that in this window of low inflation the Minister will grasp the nettle while the stings are not particularly painful. It will only be worse afterwards!
11 p.m.
Baroness Hollis of Heigham: My Lords, I have heard some compelling arguments that the measure will only be worse afterwards as it comes near the top of the tree!
As we have heard, these amendments would have the effect of increasing the capital limits in income support. The current lower limit of £3,000 below which all is ignored for benefit purposes would become £8,000, and the upper limit, the cut off, would become £16,000. The noble Lord goes still further by proposing that these new rates should be increased each year to match inflation. I have every sympathy with the noble Lord's desire, belated as it may be, to tackle the problems outlined in our Green Paper Partnerships in Pensions published in December 1998.
As noble Lords have said tonight, and as government certainly recognise, the way that the rules of benefit work can be unfair to those who have saved. As the Green Paper made clear, people resent the fact that savings can disqualify them from benefit while non-savers get support. The noble Lord, Lord Higgins, was concerned about the taper of £3,000 to £8,000 and the putative rate of return, the £1 for every £2.50. It is perhaps worth mentioning that as far as we can tell, approximately two-thirds of pensioner households have capital of £8,000 or less, although usually pensioners do not like to tell us these things. But certainly most pensioners come within the existing rules. It is clear too that they are out of date.
We had some fun as regards the entitlement to JSA. Like the noble Lord, I was trying to think under what circumstances it might apply. People under pension
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age would be entitled to residential care and nursing home allowances where, for example, they were receiving drug rehabilitation treatment. However, that is fairly uncommon and it did not occur to any Members of your Lordships' House even in the wildest flight of imagination that that might be the explanation. Someone in a nursing home is much more likely to receive IB or IS on grounds of sickness or disability, as the noble Lord thought.
As I say, the Government share the view that the present rules of benefit seem unfair to those who have saved. It is particularly difficult for people who are on the margins; that is, the £3,000 or £8,000 figures. Wherever the line is drawn that will be a problem. As regards income other than from capital, we have already taken action. Our minimum income guarantee paid through income support is set to rise over time with earnings. Therefore I believe that that matter has been addressed. But the same is not true of capital. To restore the value of the capital limits in today's terms—we should remember that the lower figure was introduced in 1988 and the upper figure in 1990—would cost around £100 million. Revalued rates would produce a lower band of around £4,500, with an upper band of £11,000. I refer to the RPI in this connection. To go a step further, the cost of these amendments would be double that—around £200 million, to apply between the £8,000 to £16,000 figure.
Our priority is to maintain the minimum income guarantee. However, our research on pensioner take-up which we publish this week shows that the reasons pensioners do not take up their entitlement to income support are complex. They include a reluctance to go inside a benefits office. Some pensioners do not realise that they do not have to go inside a benefits office at all; that it can all be done by post and phone. We need to get the message across that the minimum income guarantee is an entitlement by right and not by some kind of default. As I said, some pensioners have very modest savings but are, none the less, reluctant to draw on them and keep them for their funeral. They therefore live on an income which is below MIG by virtue of the capital rules.
Like Members opposite and my noble friends behind me, we favour increases to the capital limits. Processing these matters is not easy. We welcome the Opposition's belated conversion to this policy, they having done nothing for seven years. I am intrigued that the noble Lord opposite is now a convert. Indeed, I am even more intrigued since Mr Willetts made his speech at the Conservative Party conference entirely on the basis that he would cut social security expenditure. So far noble Lords opposite are adding multi-millions to social security expenditure. I am happy to see that he reasserts his traditional independence from the other place on behalf of the poor, the sick and the elderly.
The Government are determined to reward thrift, particularly in those who save for old age. The capital limits on income support have been in place since 1988 and 1990 and have not been increased since then. We recognise that those rules appear to be unfair to those who have saved. They are unfair. There is a range of

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options for reform, from increasing the amount of savings that people can hold before entitlement is reduced or extinguished to introducing some kind of disregard on pensioners' income. We are listening to views and we will bring forward proposals later in this parliament. With that assurance, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Higgins: My Lords, I thank the Minister for that reply. In particular it was helpful to have the figures for the cost of simply uprating the capital limits from the last time that a change was made. As I understand it, the cost is £100 million a year. If the amendments that. I have tabled were accepted, the figure would be £200 million a year. In comparison with many of the other figures that we have debated on this Bill and on the Working Families' Tax Credit Bill, I hesitate to say that the figures are not as large as I expected them to be. It is helpful to have that information.
I note what the Minister said about action. The question is whether one should delay for as long as was stated. Her words were a little imprecise; if I understood her correctly she said "during the course of this Parliament". She did not advance any particular reason why, since we are all agreed, it could not be done comparatively rapidly. I fully accept that there was a delay under the previous Government and a further delay under this Government. There ought to be some change made. I am grateful to the Minister for her informative reply. We shall consider whether we should return to the matter at Third Reading. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 46 to 50 not moved.]
Baroness Strange Baroness Strange moved Amendment No. 51:
After Clause 18, insert the following new clause—

WAR PENSIONS FOR WIDOWS
(" .—(1) A widow in receipt of a widow's pension under any of the enactments mentioned in subsection (2) ("the DSS pension"), and in receipt of a pension paid under the Armed Forces Pension scheme shall on remarriage or when living together as husband and rife with a member of the opposite sex, only relinquish the DSS pension if the Forces Family Pension (attributable) is retained.
(2) The enactments referred to in subsection (1) are—

(a) the Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983, and any order reenacting the provisions of that order,

(b) the Personal Injuries (Civilians) Scheme 1983, and any subsequent scheme made under the Personal Injuries (Emergency Provisions Act) 1939,

(c) any scheme made under the Pensions (Navy, Army, Air Force and Mercantile Marine) Act 1939 or the Polish Resettlement Act 1947 applying the provisions of any such order as is referred to in paragraph (a),

(d) the order made under section 1(5) of the Ulster Defence Regiment Act 1969 concerning pensions and other grants in respect of disablement or death due to service in the Ulster Defence Regiment.").

The noble Baroness said: My Lords, having read the splendid way in which the noble Baroness, Lady Fookes, moved a similar amendment in Committee,
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and the massive and eloquent support she had from my noble kinsman Lord Russell, from the noble Lords, Lord Morris of Manchester, Lord Campbell of Croy and Lord Higgins, the noble Baroness, Lady Dean, and, indeed, from the Minister, it might be better if I were not here today. Such flattering, lovely—though possibly not very true—and delightful to read things were said about me that I felt I had to reply in person.
It is also possible that this is the last chance I may have of righting a very considerable injustice to the post-1973 war widows. Therefore I have to speak.
As I stated before, on the death of her husband a post-1973 war widow receives two pensions; one from the DSS and a second one, the attributable forces pension, from the MoD. It is called an attributable pension, not because the husband has contributed towards it—although of course he has—but because his death is directly attributable to his service life either through fighting for his country in a theatre of war, or through his work as a peacekeeper, or indeed his training to fulfil those roles. All over the world our Armed Forces are at risk even today. In July a British officer and a Gurkha sergeant were killed in Kosovo. Our forces are still involved in East Timor. They are at risk in Northern Ireland. We are still carrying out sorties against Iraq and we are training in Sierra Leone. They must have the emotional security when going on dangerous operations of knowing that their loved ones will be provided for if they do not return. Without that security, it will become even more difficult to recruit or to retain highly trained personnel.
There is nothing new about this amendment. The War Widows Association has been campaigning ever since I have had the good fortune to be associated with them. The attributable forces family pension should be for life regardless of future marital status. We believe that this pension, an occupational pension to which the husband contributed, should be the wife's for life. There are no more than 2,700 post-1973 war widows to whom this could apply. We all hope that there will not be any more. The amendment seeks to keep the attributable forces family pension for life for all those 2,700 post-1973 widows who have not so far remarried, and for any subsequent war widows. It is not retrospective and it does not seek to provide pensions for any post-1973 war widows who have in fact remarried. However, after speaking to friends of mine, I wish that it would. Even some of those who do not remarry can be penalised. I know of at least one lady who has had a mortgage application turned down on the grounds that her pension is not secure for life and could disappear if she changed her marital status.
Less than 1 per cent of these ladies have remarried. It may be that few will, but many of them are young, with young children who grow and eat and always seem to need new shoes. To lose a secure income is rather like shutting your eyes and jumping out of the window. They are thinking very carefully about remarrying or indeed forming a permanent relationship. They cannot afford to lose their pension. On the other hand, with pension splitting on divorce, which is also in the Bill, a divorced person will get a

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share of the pension for life regardless of future marital status. It does not seem fair that war widows should receive less favourable treatment than divorcees. Both the Goode and the Bett Reports recommend that the attributable forces family pension should be for life regardless of future marital status.
Perhaps I could make a small plea on economic grounds. No government wants to spend money, certainly not new money. This amendment would not cause the expenditure of any more money at all. The Government are already paying the DSS pension and the MoD pension to post-1973 war widows. If the attributable pension could be for life and could be retained on a second marriage, some ladies might remarry, thus giving up the DSS pension. The Treasury would then save on one whole pension. I am sure that the Minister will find that an attractive idea. I am sure that the Treasury would too, if they thought about it. I beg to move.
Earl Russell: My Lords, when Barry Goldwater stood for the presidency of the United States, a story went around that he was about to be signed up by 18th Century Fox. When I look at the attitude towards women in the 1973 Act which this amendment seeks to repeal, I cannot help feeling that it is just about as old fashioned as Barry Goldwater.
The 1973 Act attempts to provide, like a Tudor husband making his will, that the widow shall live sole, chaste and unmarried. That is, first, a gross impertinence, and secondly, it rests on the view of women as people who are to be kept by some man. That is grossly out of line with the facts of the present day.
The thinking of the 1973 Act appears to be that a woman needs compensation for her husband being killed in war if she has no other man to keep her, but as soon as she has another man to keep her, "Well, that's all right, isn't it? We don't need to worry about it any more". That is not the way we think these days.
The compensation to a war widow must be occupational, as the noble Baroness, Lady Strange, said. However, that compensation must also be for the pain, the suffering and the loss, and not just be provided as a substitute income. If that kind of compensation for loss is not recognised, all armies in all periods will have to face up to the fact that it will be very hard indeed to get people to fight. There is here something that is urgently in need of attention. I hesitate to say that the Government need to be brought into the 20th century. It has been left a little late for that. But they might at least come into the 18th in time to catch up with the 21st.
11.15 p.m.
Lord Morris of Manchester: My Lords, I congratulate the noble Baroness, Lady Strange, on her speech in moving this important amendment. She is held in the highest regard by war widows and rightly so. No parliamentarian in either House has striven, or strives now, harder to enhance the well-being of war
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widows than the noble Baroness. Her presidency of the War Widows Association of Great Britain is but one mark of their regard and deep affection for her.
Jenny Green, in a statement for the association in support of the amendment, describes the "iniquity" of treating war widows who remarry less favourably than they would be treated in other schemes. As Jenny knows, I have given it as my view that, of all the duties that it falls to Parliament to discharge, none is of more compelling priority than our bounden duty to act justly to men and women who were prepared to lay down their lives for this country and to the dependants of those who did so. That is the case for making provision for Britain's war widows at least as good as that in any other scheme.
I am sure that my noble friend Lady Hollis, who in Opposition campaigned long and hard for war widows, will want to reply as helpfully as she can to this debate for I know that her commitment is as genuine now as it was then. In particular, I hope that my noble friend will give due weight to the fact that significantly less than 1 per cent of the war widows affected by this amendment remarry; and to the clearly expressed insistence, both of Sir Michael Bett's independent review team and the Goode report, that all service widows' pensions should be for life regardless of any change in marital status.
Lord Freyberg: My Lords, I, too, support the amendment put forward by my noble friend Lady Strange. As the Government have recognised on many previous occasions, the Armed Forces are unique in that members are called upon to put their lives at risk because of the nature of their work. As the noble Baroness, Lady Strange, said, at the moment there are British forces in Kosovo, East Timor and other high-risk locations around the world. Their pensions are occupational and contributory. If they are killed in the line of duty, their widows quite rightly become recipients of this pension, but only so long as they remain single and do not cohabit, in which case they lose all their pension. It seems quite wrong that should a widow wish to remarry a few years after her serviceman husband has died, she loses any right to the pension, regardless of how many years he may have paid into it and regardless of the children who may have been left fatherless and without their father's potential income.
In addition, the nature of service life ensures that the majority of service widows are unable to pursue their own careers or accrue the occupational benefits of their own profession. That they should further be denied the security of the spouse's pension seems doubly wrong.
It should be noted that, while only 21 per cent of all public pension schemes in the UK are for life, 84 per cent of all private pension schemes in the UK are. What happens in the private sector is of relevance, as the principle of comparability is the basis of the Armed Forces salary rate and pension benefit, as pensions are really deferred pay.

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Furthermore, the Bett independent review recommended that all service widows should receive a pension for life, regardless of any change in marital status. At present, the Treasury pays both the DSS and the MoD pension to post-1973 war widows. Through this amendment we ask only that the attributable forces family pension be paid for life. The DSS pension would be relinquished on remarriage.
It is wrong that young widows with young children should be denied the opportunity to bring up their children in the family units of their choice. As has been mentioned, there are currently 2,650 post-1973 war widows. The current policy on their husbands' pensions ensures that 99 per cent do not remarry or even cohabit. If the Government were to institute pensions for life for post-1973 war widows, there would therefore be no substantial cost to the Government, and they would enable these widows to form relationships and live in a manner which most people would consider a basic human right.
This is not a new issue. I tabled a similar amendment as part of the Victory Widows Campaign in 1995. I therefore wholeheartedly support the amendment.
Baroness Park of Monmouth: My Lords, I, too, strongly support the amendment for reasons which have already been stated, but which perhaps bear restating. First, I believe it is right that if a young widow wishes to give her children the opportunity to have a father again and a man in the family, that is extremely important to family life. Secondly, I need hardly say that I believe that members of the forces and their wives, given the life that service wives have to lead, are particularly deserving of support. Thirdly, and not least, I note that the Ulster Regiment is covered by this provision, and I am sorry to say that there have been grave dangers to life and limb and there may well continue to be. I therefore hope very much that, for reasons of humanity and common sense, the amendment will be supported.
Baroness Dean of Thornton-le-Fylde: My Lords, I, too, support the principles behind the amendment moved by the noble Baroness, Lady Strange. This is not the first time that the issue has been debated. I well remember debating it, when we were on the other side of House, alongside my noble friend the Minister.
We are discussing a welfare Bill, and I accept that this is an issue for the MoD. But one equally has to accept that, when dealing with a major piece of legislation relating to pensions, one cannot avoid the opportunity of bringing out this issue. The present situation is grossly unfair and it is wrong.
I must declare an interest as chairman of the Armed Forces Pay Review Body. However, I have no conflict as we do not deal with pensions. What we do deal with within our remit is comparability. The pension referred to by the noble Baroness, Lady Strange, is not the DSS pension. It is what I as a lay person would call an occupational pension scheme, for which there is an abatement from the salary of those Armed Forces
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personnel of, currently, 7 per cent. That is a 1 per cent larger abatement than MPs currently have on their salary for their pension scheme.
Nor is it any use employing the argument that this does not happen totally in the public sector. There is no other part of the public sector that is like the services. Wives in the services are told that they must move their home. They do not have a job, they cannot build up a career and pension; if they do not go their husbands do not get promotion.
The issue should be considered with "joined up" government thinking. I am delighted to see my noble friend the Minister with the MoD portfolio on the Front Bench tonight. This pension is paid for. It involves a small number of people. But that is not the real argument for saying that it should be paid. It is perhaps a factor in weighting. I congratulate the noble Baroness on bringing the matter forward. if it is not dealt with under this Bill there will be no opportunity to consider it. I know that a review of pension schemes in the services is taking place at the moment, but there is no guarantee that it will deal with the matter. Nor is it highly likely that it will deal with retrospection. It will deal with widows in the future but not the group of women many of whom were widowed at a young age. One would think that because they were widowed at a young age they would remarry; 1 per cent remarry because they do not have the confidence to do without the pension in the future. I gather that percentage is lower than in civilian life.
I know that the Minister has understanding and compassion on the subject, particularly the divorce point mentioned by the noble Baroness, Lady Strange. My noble friend on the Front Bench was instrumental in getting the law changed in that regard. I suggest there will be an anomaly if we have the pensions of divorced servicemen's wives treated as an asset. They receive half of that under the general legislation on divorce and pensions, yet if the husband dies the wife receives nothing. I ask my noble friend to consider the matter. I know it will be difficult for her to concede the point this evening because it is not covered by the Bill. However, is she prepared to have discussions with her colleagues in the MoD? The two departments are separate but it is one issue.
Perhaps we may hope that in the current pensions review the matter will be considered seriously. The noble Baroness put forward the argument in a compassionate way. But it is not a matter of compassion; it is a matter of right and wrong. What is going on at the moment is wrong.
11.30 p.m.
Lord Mackay of Ardbrecknish: My Lords, I have not taken part in any social security debates since the election. I decided on that course for two reasons: I thought it was unfair on my noble friends on the Front Bench who had taken over the responsibilities that I should look over their shoulders. It was also a tinge unfair to the noble Baroness, Lady Hollis of Heigham, to have her predecessor always breathing down her

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neck. Perhaps I had also had enough of what had become known as the Hollis-Mackay show and decided to break at least one leg of it.
I return to the subject tonight because I remember your Lordships bruising and battering me on it and defeating me when we put through the pensions Bill. I say to the noble Baroness, Lady Hollis, that the MoD is absolutely wrong in the attitude it has taken. I agree with whatever the noble Baroness will say about the DSS war widow's pension. I do not resile from a word I said from the Government Dispatch Box on the subject. I have no doubt the same words will be used by the noble Baroness later about the DSS war widows' pension. I believe she agreed with me when she was the Opposition spokesman on that pension. There is no doubt that, like the other DSS pensions, they are related to the status of the applicant. If someone is no longer a widow, they can no longer have a widow's pension. Whether it is the DSS widow's pension in general or the war widow's DSS pension in particular, the principle does not change.
However, when we come to the Armed Forces pension scheme, the matter is entirely different. Arguments have moved on from where they were four or five years ago because of pension splitting on divorce. If I may describe it in general terms, the Armed Forces pension scheme, as the noble Baroness, Lady Dean, said, is a normal occupational pension scheme. In a good number of occupational pension schemes the widow keeps her pension regardless of whether her status changes. I fully accept that there are differences. I understand that about 84 per cent of the private schemes in the UK pay a widow's benefit regardless of whether she remarries. The public position is different. About 20 per cent of schemes continue to pay regardless of a change in status.
I understand the argument of the Government about read-over. I was aware of that argument when I was inside government. I only say that, as I thought at the time, the read-over is without foundation. The Armed Forces are completely different. One could perhaps argue about the police and fire services but not to the same degree as the Armed Forces, in which men, and now women, are expected to put their lives on the line at a very early age, whether in earnest or in training, and can be killed. The widow, and now widower, is left dependent on the Armed Forces attributable pension scheme and the DSS scheme.
Many of these people are young. I recall going to Belfast to meet the widows of members of the Ulster Defence Regiment. I said to your Lordships on an earlier occasion that a more sobering event could not be imagined. Many of these young women with young children were told that if they remarried they would lose the pension that their husbands thought would be for their wives' benefit if they were killed. When I was Minister I wrote a number of letters to my ministerial colleagues in the MoD to suggest that they look at the position on pensions. The Bett review helped me a bit. I had little confidence then, as now, that the MoD would change its position. I believe that it should do so.
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It is the MoD which should be targeted tonight. I feel sorry for the noble Baroness. Perhaps she will, like me, have to defend an MoD position with which she is not entirely happy. I was not entirely happy with it. I went from your Lordships' House and wrote some very blunt letters to my colleagues in the MoD. I am not sure that I am supposed to say that, but I am not too bothered about it. I am absolutely certain that the MoD should look again at its position on pensions.
I believe that the position has been made much worse because of another part of the Bill; namely, that which deals with pension sharing on divorce. I have not spoken about that. I am pleased to see that the Government have taken on board most of what was contained in the Green and White Papers which I was instrumental in producing. But we end up with the following situation. For simplicity, I take the case of two married men who are both employed in the military. One couple decides to divorce. In future the wife will be able to take a portion of the pension pot and keep it whether she remains a widow, remarries or even cohabits. However, in the case of the other couple, if the husband is killed in active service, in practice or in any other attributable way his widow will lose the pension the moment she remarries. I do not believe for a moment that that is fair.
I do not know whether this amendment is properly worded, addresses the issue or whatever. I am aware of all the things that Ministers say. I never liked to hide under the protection of a badly drafted amendment. I can see that the Government may not like the fact that there is a fallback in the sense that the DSS pension should continue to be paid. I fully agree—if the noble Baroness, Lady Hollis of Heigham, says it—that the DSS pension must be lost on remarriage or cohabitation, but the MoD must face up to its responsibilities. I am pleased to see that the Minister, the noble Baroness, Lady Symons of Vernham Dean, is on the Front Bench listening to the debate. The MoD has a responsibility for the men and women it employs, for whom it has a pension scheme, and to be fair to attributable war widows thanks to the service. That is why I have come today to support the noble Baroness, Lady Strange. I was about to call her my noble friend; I hope that she is still my noble friend despite where she sits in the Chamber. I hope that the Government will listen to the plea from around your Lordships' House that the MoD should now change its pension scheme so that it is paid to war widows for their lifetimes regardless of whether they remarry or cohabit.
Baroness Buscombe: My Lords, I, too, have considerable regard for the spirit of the amendment. It amplifies the determination which the War Widows Association has shown in its will to change an outdated and iniquitous rule.
The amendment, so eloquently moved by the noble Baroness, Lady Strange, seeks to maximise the pressure that can be placed upon the Government to require at least one of its departments to respect the position of war widows who may wish to form a stable relationship, or remarry, without financial penalty.

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In considering the implications of the amendment, it is important to make clear the distinction, as others have done this evening, between the DSS pension and the forces family pension. As we understand it, the DSS pension specifically compensates the 'widows for loss of financial maintenance by a husband who has died as a result of service. It is not an occupational pension. In contrast, the forces family pension is an occupational pension: a contributory scheme that is currently under review by the Ministry of Defence.
With regard to occupational pension schemes, the lot of widows who subsequently cohabit or remarry varies from scheme to scheme, some allowing an individual to retain that occupational pension once she ceases to be a widow and some not. Indeed, at Committee stage the Minister gave specific examples in the public sector, including the police service, the National Health Service, the fire service and Members of Parliament whereby an individual loses her right to an occupational pension once she ceases to be a widow.
In local government the position has recently changed and I sensed from the Minister at Committee stage that, as she said, the world is changing and others may follow suit. The question now is whether the Ministry of Defence will follow suit. The many reasons why the Ministry of Defence should follow suit have been fully rehearsed both at Commit tee stage and this evening. It is now indefensible to support a position which is in effect a deterrent to marriage.
The challenge now is how to force the hand of the Ministry of Defence to change its position. I wonder whether the Minister is able this evening to give an inkling as to the current thinking of those at the Ministry of Defence who are undertaking this review, given, we understand, that recommendations as a result of the review will be forthcoming shortly.
Further, given the wording of the amendment and the reference to the DSS pension, I believe that it is also appropriate to ask whether the Minister can confirm whether there are any other cases whereby the DSS continues to pay a pension as a result of widowhood in the event that the individual ceases to be a widow. ask that question given the drafting of the amendment. It could mean that if in the event of the review the Ministry of Defence does not change its position, a war widow who has a DSS pension would hold an advantage over others with DSS pensions who remarry. As we understand it, war widows would be the only recipients of a DSS pension who would continue to receive that pension upon remarriage.
We are very sympathetic to the amendment and fully support its principles. However, we have doubts about the drafting.
Baroness Hollis of Heigham: My Lords, I too want first to pay tribute to the work carried out by the War Widows Association of Great Britain and its president, my noble friend Lady Strange. I know from meeting its members regularly how vigorously and unselfishly they work t o help those service widows who suffer the pain of widowhood and the difficulties that can follow.
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The occasion which comes home to me most was the war widows' march to the Cenotaph and the lunch afterwards on the Saturday before Remembrance Sunday. Last year, the noble Baroness, Lady Strange, and myself led that group and it was a day of both pride and sadness for what they and their former husbands had achieved on behalf of this country. We also know how tenacious the association is in fighting for improvements in the various pension schemes which provide for servicemen's widows.
In Committee, we debated a similar amendment. It sought payment of the DSS war widow's pension for life, regardless of whether she remarried or was living with a man as his wife. It would be paid regardless of income. As the noble Baroness, Lady Buscombe, suspected, there is no situation in DSS in which someone who acquires a widow's pension continues to keep it when she is no longer a widow. I am sure that your Lordships are well aware of the situation, but in case there are any difficulties, I should point out that we are talking about two separate pensions. War widows are currently entitled to the war widow's pension, which is the war widows' equivalent of the civilian benefit. It is also the case that certain war widows are eligible for the equivalent in civilian terms of an occupational pension which is run by the MoD.
Of those two pensions, as the noble Baroness, Lady Buscombe, suspected and as the noble Lord, Lord Mackay, said, it would be without precedence and the implications would be enormous if one were to suggest that someone who received a state pension by virtue of being a widow should continue to keep that when the state of widowhood no longer applied. It would be as though my noble friend Lady Turner—she will forgive me for being personal—or myself in receipt of widow's benefit were to keep that in remarrying. It would he regarded as inappropriate because the state of widowhood at which it became no longer existed.
However, that is very different from the occupational pension which increasingly applies not just to widows but to unmarried partners and, in some cases, same-sex partners. That is a totally different pension.
In Committee, the amendment was withdrawn by the noble Baroness, Lady Fookes, on the grounds that the noble Baroness had intended an amendment to seek continuous payment not of the DSS pension—because everyone here accepts that you could not do that—but of the equivalent to the occupational pension, the attributable widow's pension paid under the Armed Forces Pensions Scheme. But, unfortunately, today's amendment seeks to retain the DSS pension when the widow is living with another man, unless the MoD attributable widow's pension is paid for such tames.
We simply cannot have a war widow's pension—that would be unreasonable—the equivalent to the war widow's benefit paid when someone remarries. The problem is that the widow's attributable pension ends also when the widow remarries or lives with another man as his wife.
The quality of attentiveness to the speeches made tonight shows how sensitive the House is to these concerns and how it recognises the force and the power

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of the arguments put in particular by my noble friend Lady strange. I cannot accept the particular argument as it applies to the DSS because it breaches the basic DSS principle that a widow's pension is to compensate for the state of widowhood. We cannot justify paying a war widow's pension in those circumstances to someone who has remarried.
I would emphasise that should a war widow be unfortunate enough to become widowed again, or the second marriage ends in divorce, she is eligible to have her war widow's pension reinstated. The point is that rather than have the civilian equivalent, she receives the much more generous war widow's pension. That amendment was moved in 1995 by the noble Lord, Lord Freyberg, with our enthusiastic support. We knew even then that the heart of the noble Lord, Lord Mackay, was not fully in the words which he was uttering on behalf of the then government's position.
It is clear that the DSS situation is not of concern to Members of your Lordships' House, but it is the situation of the MoD attributable pension. Like many other public service occupational schemes, the armed forces scheme ceases to be paid of the widow remarries or cohabits. That policy is increasingly out of line with private sector schemes, but not out of line with most public sector schemes.
I should add—this was referred to by the noble Lady, Baroness Buscombe—that although the local government pension scheme has introduced provisions to award spouses pensions for life, that is being paid for out of local authority pension funds, and therefore by members' contributions.
As I mentioned in Committee, the armed forces pension scheme, which is the occupational pension scheme, is currently the subject of a major review announced by my honourable friend the Minister of State for the Armed Forces on 23rd September last year. That review is primarily the responsibility of my right honourable friend the Secretary of State for Defence. It would be wrong for me to try to predict the outcome of that review, although I assure your Lordships that he has been made aware of the concerns raised tonight.
However, we are keeping in close touch with the work. Many noble Lords have said tonight that they appreciate the fact that my noble friend Lady Symons, the Minister in this House responsible for defence, is attending the debate tonight and listening to the views expressed. She has made it clear to me—and I am authorised to say it—that she would welcome a meeting with the War Widows Association and with representatives from the DSS, which would probably be myself, to pursue the matter further and to make sure that the review currently being undertaken pays full weight to the concerns being expressed tonight. The amendment was a device, not to change matters in relation to the DSS, but to get at the MoD occupational pension. I hope that in the light of what I have said, my noble friend—I insist on using those words—Lady Strange will feel able to withdraw her amendment, and that she will join me in seeking and taking further those talks.
11.45 p.m.
Earl Russell: My Lords, I thank the Minister warmly for what she has said. Before she sits down, I ask whether she will consider how much of the resistance to the amendment would collapse if one were to take the word "pension" out of the attributable forces family pension, and to describe it as an "industrial injuries compensation"?
Baroness Hollis of Heigham: My Lords, I am sure that the noble Earl will understand if I insist on passing on that question.
Baroness Strange: My Lords, I thank all noble Lords who have supported me tonight; that is, my noble kinsman Lord Russell, the noble Lord, Lord Morris of Manchester, my noble friend Lord Freyberg, my noble friend Lady Park of Monmouth, my noble friend Lady Dean—there is nothing written in Erskine Mar about Cross-Benchers having noble friends, so I think that they can all be my noble friends—and my noble friends Lord Mackay of Ardbrecknish and Lady Buscombe, who supported me. I thank them very much indeed. What they said was very moving and made me feel quite tearful and a little bit like jumping on to the Floor and falling behind the Benches. I am not going to. It is quite clear to me, and I hope that it is also quite clear to my noble friend Lady Hollis, what the opinion of this House is. I am very greatly tempted to divide the House.
However, despite listening to my noble friend Lady Hollis, I feel a bit as if I were a kitten enmeshed in a ball of wool when one pension is called against another pension. I know exactly what I am talking about and I think probably that she does too. I should like to thank her very much for what she has said and for her promise to arrange a meeting with the MoD, with the ladies and me, preferably. We may therefore be able to put pressure on the MoD and explain the situation very clearly because we do feel that this is a great injustice. Perhaps the MoD may be able to see its way to putting the matter right. It would also help it a great deal with its recruitment. Having said that, I also think that it is rather late at night and I have apologies to make to the Captain of the Gentlemen at Arms, who was very persuasive. It is a long time since I caught the 6 o'clock train this morning from Dundee. Therefore, I shall return to fight another day. I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
Lord Morris of Manchester Lord Morris of Manchester moved Amendment No. 52:
After Clause 18, insert the following new clause—

PART IIA BENEFITS AND PENSIONS: DUTY OF SECRETARY OF STATE
SECRETARY OF STATE TO HAVE REGARD TO NECESSARY MINIMUM LEVEL OF INCOME
.—(1) When determining levels of social security benefits and pensions, the Secretary of State shall take into account the minimum level of income necessary to maintain good health and cover essential needs.
(2) In considering the minimum level of income in subsection (I) above, the Secretary of State shall take into consideration the need to—

(a) combat social exclusion.

(b) maintain satisfactory standards of child development. and

(c) ensure respect for human dignity.

(3) The Secretary of State shall commission annual independent research on the minimum level of income needed to maintain good health and cover essential needs in subsection (1) and shall publish the results of such research.
(4) The Secretary of State shall also have regard to the results of such research commissioned under subsection (3) above when setting levels of other benefits as may be prescribed.").
The noble Lord said: My Lords, I beg to move. There is a notable difference between this occasion and the debate on the issue addressed by my amendment in Committee on 20th July. I then confided to your Lordships that I had not volunteered to move the amendment: my clear and noble friend Lady Castle had, as it were, volunteered for me. It was at her suggestion that I was asked to propose the amendment and I was very glad to do so.
Sadly, my noble friend could not be here for that debate. But she is with us now, much to my delight, only days after celebrating her 89th birthday, on which I know the House as a whole most warmly congratulates her.
Noble Lords: Hear, hear!
Lord Morris of Manchester: My Lords, I speak as a supporter of the Government's determination to eliminate poverty. It was unequivocally affirmed in their Green Paper on welfare reform in 1997, which included as one of its foremost success measures,
"a guarantee of a decent income for all".
Recalling that guarantee in a recent letter of support for this amendment, Age Concern England told me:
"We welcome the intention of providing a decent income for all, but question how it can be taken forward without any attempt to establish what is meant by 'decent'".
The National Children's Home (NCH) sees my amendment as providing the "missing link" in current social policy making:
"Many individuals and organisations are working hard to support and make a reality of the Government's efforts to tackle social exclusion and improve public health",
they write,
"but to try to do so without tackling the fundamental issue addressed by your amendment is to have one hand tied behind our backs".
The Reverend Paul Nicholson, of the Zacchaeus 2000 Trust, to whom I am deeply indebted for his unfailing help in preparing for this debate, entirely agrees. In a letter to my noble friend Lady Hollis dated 17th August, he wrote:
"I share, admire and will work for the success of the Government's ambitious approach to tackling poverty".
But like countless others who have written to me since I raised the issue in Committee in July, he is concerned that the lack of fully researched minimum income standards makes any policy to eliminate poverty rudderless.
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In a long and fortunate parliamentary life, I have had many warm responses to legislative changes that I initiated; but never before have I had so many for moving a single amendment. Age Concern England, the NCH, Barnardo's, the NSPCC, Church Action on Poverty, the Low Pay Unit, the Maternity Alliance, the Association of Directors of Social Services and the UK Public Health Association are just some of the scores of admirable organisations that see this amendment as essential to combating social exclusion and protecting human dignity. They are, all of them, organisations that work much closer to social realities than most of us here and to which the Government should listen with attention and respect.
What also unites them is a deep and genuine concern that policy-making is blind if we fail clearly to state, in legislation as important as this Bill, the criteria that should inform any meaningful definition of a minimum acceptable standard of living. They express that concern not in the expectation of eliminating poverty overnight, but simply to ensure that an inevitably gradual approach to doing so is both well-conceived and "joined-up" in the sense of having weighed the implications of policy decisions for departments all across Whitehall.
Agreement on a meaningful definition of a minimum acceptable standard of living is all the more necessary because it is so widely and wrongly assumed that, as societies become more prosperous and irrespective of whether any minimum standard is set, wealth inexorably trickles down and poverty is reduced. Ours is a strong and prosperous economy, as my right honourable friend the Chancellor of the Exchequer told the Labour Party Conference at Bournemouth on 27th September. But my right honourable friend the Prime Minister said from the same rostrum the following day that we still have, on his estimate, 3 million children living in poverty. I rejoice in the Prime Minister's commitment to end that shaming comment on our strong and prosperous economy; and I am sure he will do so all the more quickly if we can now define what we mean in using such terms as "decent" in describing the "guaranteed income for all" to which we are pledged.
The myth that poverty disappears in prosperous societies, whether or not any minimum acceptable standard of living is set, is most graphically demonstrated by what has happened to Britain's poor since the link between social security benefits and the higher of average earnings or prices was broken by the then Conservative Government in 1980. From 1980 to 1998, average earnings in Britain increased by £115 a week at 1998 prices. Over the same period, the weekly income of a couple living on income support failed even to keep up with prices. Had it done so, their income support of £79 a week in 1998 would have been £5 higher. Thus while average annual earnings were £5,980 higher in 1998 than in 1980, the standard of living of couples on income support fell below even what it was in 1980.
The finding of a most helpful study by the Library of the House of Lords of the sums accruing to the Exchequer from breaking the link between earnings and social security benefits shows that they totalled

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£119.3 billion in the years from 1980–81 to 1996–97. That far exceeds Britain's total spending on social security benefits in the current year and represents a brutal switch of resources from the poor in our society to other and more fortunate people. Increased wealth from 1980 to 1997 in Britain created not a trickle but a flood; and its direction was up, not down.
Speaking in the House on 17th June, my noble friend Lady Hollis told your Lordships:
"Under the previous Administration the rate of growth of the social security budget was 4 per cent over the previous Parliament. Under this Administration the rate of growth is 2 per cent".—[Official Report, 17/6/99; col. 416.]
Even the 2 per cent. growth is due primarily to the number of elderly people living longer and to bringing people who were unemployed back into work. And to put it mildly, the challenge of creating the socially just society to which we are committed is unlikely to be met by progressively cutting the rate of growth of social security spending achieved by an Administration who transferred to taxpayers £119.3 billion from people on social security.
Some 750,000 people now have social fund loans from the Benefits Agency. The average weekly repayment is £7, but repayments of £ 12 per week are not uncommon. They require the unemployed to fund emergencies out of inadequate incomes, thus forcing them into more unpayable debt. The stress that causes is bad for families and bad for society. The suicide rate among the poor is four times that of professional workers. The divorce rate is also four times higher and life expectancy is five years lower.
In March 1999, the Treasury showed that 4 million children were living in poverty in 1995—three times the number 20 years ago—and that two out of every five children are born poor. The British Medical Association reports that poor families in the UK now include some of the unhealthiest children in the developed world. Only Albania has a higher proportion of dangerously underweight babies than Britain.
A survey by the European Anti-Poverty Network showed that the UK had 32 per cent of children living in poor households in 1993 when defining poverty as half the average income—the worst in Europe. Nations which set minimum income standards recorded half or less than half that rate: among them the Netherlands with 16 per cent, Belgium 15 per cent and France 12 per cent. Denmark was the lowest at 5 per cent.
When people apply for income support the Benefits Agency undertakes a means inquiry and then notifies applicants whether or not they are entitled to it. If they are entitled the Agency's letter tells them:
"…how much money the law says you need to live on each week".
If they are not entitled the letter says:
"You have more money coming in than the law says you need to live on".
Yet there is no list, quantification or costing by Government of need. The law "says" but the law does not "know" because need is not defined. It is a
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remarkably misleading letter in the absence of any official and empirical research into essential needs to enable the setting of minimum income standards.
We are sadly behind international practice in not setting minimum income standards. Among other countries, they are set in Australia, Finland, Germany, New Zealand, Norway, Sweden and the United States. A range of methods are used which differ in their attention to specific measures of need. In Finland, Germany, Norway and Sweden, one use of minimum income standards is to set an income floor below which courts cannot enforce debt repayments, fines and attachment of earnings. They reschedule them. But in England and Wales there is no income floor below which the poor cannot be imprisoned to keep up with local taxes or child maintenance imposed on fathers by the CSA.
Charles Dickens wrote:
"Annual income £20, annual expenditure nineteen pounds nineteen and six, result happiness.
Annual income £20. annual expenditure £20 and sixpence, result misery".
More visibly now than then the misery is shared by us all in highly expensive poverty-related ill health, crime, debt and educational under-achievement. While no estimates are available of poverty-related costs to public funds, they are clearly enormous and need urgently to be addressed and reduced. For therein lies the answer to those who fear that minimum living standards cost more. In fact the absence of such standards already costs far, far more than public accounts ever disclose.
It clearly is irrational that, while aiming to eliminate child poverty in 20 years, we have no official estimate of the minimum incomes required for essential needs and to promote good health among pregnant women and children. Yet the methodology to provide us with the information needed to set standards is available. It was pioneered by the Family Budget Unit at King's College, London.
This is a hugely supported and necessary amendment to the Bill. If my noble friend feels that its drafting could be improved, I shall be content to discuss this with her between now and Third Reading; and indeed, to respond positively to any suggestion she may have for accepting at least the principle of what is proposed in an amendment which its supporters see as supportive of the Government's own objectives: indeed essential to their achievement. What possible objection can there be to discussing the principle of my amendment with, among other trustees and advisers of the Family Budget Unit, Chris Pond MP, Archy Kirkwood MP, Jim Lester and Professors Jonathan Bradshaw and David Piachaud? I beg to move.
Midnight
Earl Russell: My Lords, earlier this afternoon I was thinking about the underlying issues behind this amendment. I remembered a school physics lesson. The teacher was asking us to define a yard, and immediately batted back all the definitions such as "three feet" on the grounds that they were simply tautological and

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circular. He was just about to launch into his extremely technical definition in terms of energy when an historian at the back of the room put up his hand and said. "Sir, wasn't it the length of King Henry II's arm?"
I am reminded of that story when I think of how benefit levels have come to be what they are. They have come to be what they are by a process of historical accident followed by regular uprating strictly in line with prices or earnings, as the case may be.
There is no reason, over a period of this length, why the elements in an essential budget necessary to maintain good health should remain in exactly the same proportion. Indeed, to take one obvious example, bus fares have gone up far out of line with all the rest of inflation. That is why, when the National Consumer Council considered the cost of shopping for food in rural Wales, it found that it came in 20 per cent above the figures indicated by the RPI. That is one of the reasons why rural poverty in Britain today is a serious problem.
I was talking to someone at our party conference from Somerset—not exactly one of the dark corners of the land—who had to pay £6 in bus fares for her and her child every time she went to sign on. The Acheson report drew attention to food deserts. They are areas where prices are extremely relevant to the cost of an adequate diet. So it would make sense, at this distance of time, to conduct research which reassesses the provisions necessary to the maintenance of good health and works out whether the purely historic or accidental way in which benefit levels have been set is right.
This is a modest amendment. It does not call for a return to the earnings link; it does not call for the expenditure off £119 million; it does not even call for any immediate increase in benefit. It calls on the Secretary of State to commission annual independent research on the minimum level of income needed to maintain good health. It then calls on him to have regard to that research in setting benefit levels in future. It would allow a good deal for phasing were it to be found that the benefit levels were too low.
Since the early 1990s there has been a growing chorus of research indicating that benefit levels are too low. There was the National Children's Home research of 1993; the National Consumer Council's survey, Your Food: Whose Choice?; the Medical Research Council's research on low birth rate.
Low birth rate is clearly correlated to diet. The Minister will undoubtedly say that it is also correlated to smoking, and I shall anticipate her in that. But if she argues that that is not an answer to what I am saying now, I would point out that those things can both be true independently of each other and to be concerned about one is no reason for saying that one should not be concerned about the other. Low birth rate is also correlated to reduced intelligence in the child. So the disadvantages are passed on from generation to generation.
That sharply underlines the point being made by the noble Lord, Lord Morris of Manchester, about the costs of poverty. The costs to public funds may be considerable. I was glad also that he touched on the
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point of the number of other countries which have found it necessary and practical to fix a minimum level. I never understand why all sorts of elementary social provisions are perfectly possible for large numbers of other countries whose civil services are not conspicuously better than ours, but as soon as we come within these shores the technical difficulties become overwhelming. It is high time something was done to address that problem.
Clearly in Committee we did not strike a sympathetic chord when we introduced this issue. I do not have the quotation here. My recollection is that the Minister accused us of "poverty of aspiration". If that is a misquotation I shall apologise. But I hold a letter that the Minister wrote to the Reverend Paul Nicholson in reply to his letter of 22nd July. She said:
"the Government's approach to tackling poverty is much more ambitious than simply to raise benefit rates".
That sounds a little like Winnie the Pooh when he was asked whether he wanted honey or condensed milk on his bread. He said, "Both please"; but in order not to seem greedy he added, "But don't bother about the bread".
I fully accept that raising benefit levels alone is not a solution to the problem of poverty: that needs jobs and wages. I believe that that is common ground between us. I am arguing that it is very difficult, even if you create the jobs, to take serious steps to alleviate poverty. The Acheson Report found that if benefit levels are low enough they can be incompatible with good health because people not in good health—we shall deal with that on Wednesday when we discuss incapacity benefit—are not very good at getting jobs and not always very good at keeping jobs when they have them. Therefore, if benefit levels are actually harming our health, they are seriously harming the attempt to get more people into work.
Therefore, whatever the Minister may say about the Government's ambitions being higher, if those ambitions do not include the problem of benefit levels they will not succeed. The Minister may say—in fact, I strongly suspect that she will; although I think that she will be a little cautious in how she words it—that I am being alarmist about the problem of benefit levels at present. That is perhaps so. However, if it is, the independent research will show that it is indeed so. I should have thought that the Treasury would be rather relieved to find that out.
The Lord Bishop of Oxford: My Lords, I know that in this House tonight we are united on a number of issues. First, there is the fact that, sadly, the poor suffer more illness and die younger. There is also their disadvantage when it comes to education and jobs. The figures behind these assertions have been set out in a number of detailed reports which have been referred to in the course of the proceedings on the Bill. I shall certainly not repeat them. We know that these sad statistics, which tragically reflect unfulfilled and foreshortened lives, are all too true.
Secondly, we are united in wanting the disadvantaged—some 1 million people—to take their proper place in our increasingly prosperous society. We

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want to include the excluded and improve the life prospects of the most marginalised. I also believe that the Government are sincere in trying to do this and that there have been a number of most welcome developments over the past two years. However, we know from previous discussions on the issue that a basic disagreement is focused in the amendment.
The amendment calls on the Government to have regard to the,
"minimum level of income necessary to maintain good health and cover essential needs".
Those of us who believe that there could and should be agreed minimum levels are not talking simply about the level of benefits. We certainly do not want to encourage dependence and passivity. We want everyone who can work to work and we recognise that incentives are an inescapable aspect of a free-market system. But, even with the working families' tax credit, many families will not have an adequate income as assessed by the Family Budget Unit at King's College, London. Let us take, for example, the net income before housing costs and council tax of a single earning couple with two children under the age of 11 who were on £144 per week. With the working families' tax credit, the government figure would bring their weekly income up to £175 a week. However, the Family Budget Unit assessment of what is really necessary is £204 a week, so there is a shortfall of nearly £29 as regards what is really needed.
On previous occasions the Minister has said that the Government like to take into account a range of research. Of course that is so. However, the validity of the Family Budget Unit research has not been refuted. If there is research which shows that it is possible for families to survive on less than the Family Budget Unit figures it is important to see that research and to assess it. In 1992 the European Commission recommended that the resources considered sufficient to cover essential needs with regard to human dignity should be fixed. A similar plea was made in the Churches' 1985 report Faith in the City. As we have already heard this evening, a number of countries have already agreed such levels.
People have different tastes and different standards of living. We like to spend our money on different things. However, if half a dozen of us got together after this debate for two hours at the bar we could agree on the minimum on which we could survive which is reasonably compatible with our health. This amendment does not ask for anything extraordinary, simply an agreed minimum level. I believe that most of us would judge the carefully researched Family Budget Unit figures as a reasonable guide to that minimum. If this is disputed, let us commission some annual independent research, as the amendment suggests, and let that minimum level be used as a benchmark for all benefit claims.
This is an important amendment which the Churches care about desperately, as is indicated by the number of right reverend prelates present this evening. I very much hope that the Minister will at least be able to accept the general principle contained in the amendment.
12.15 a.m.
Lord Rea: My Lords, I had not intended to speak to this amendment. In fact I had not intended to be here at this time of night at all. However, I have been much moved by the speech of my noble friend Lord Morris; also by that of the noble Earl, Lord Russell, opposite and that of the right reverend Prelate. I remind my noble friend that the recommendations in this sensible and modest amendment are precisely in line with the recommendations of the report which was commissioned by the Government, the Acheson Report on inequalities in health. As my noble friend Lord Morris said, it follows the recommendations of a good recent British Medical Association book on child health problems in Britain today.
While I hope that my noble friend can accept this amendment—there are perhaps reasons why she cannot—I also hope very much that in what she says she will recognise the important arguments that have been put forward. We cannot solve the problems of poverty in this country only by increasing the proportion of our people in work. There will be a number of people who are unable to work, and there are even those who are in work to whom some of the measures in this amendment will apply.
Viscount Brentford: My Lords, I confess that I have always detested defining poverty as something like half the average income in the country, not only because that always seems to me to be a rough and ready judgment but also because either poverty or average income can move up or down without necessarily affecting the other. What I like about the amendment is that it contains a definition which would be updated every year that would tell us where the line ought to be drawn.
As has already been mentioned, research has suggested that the minimum practical cost of heating, lighting, food, clothes and other essential needs exceeds the current benefit levels. I fully accept what the noble Baroness, Lady Hollis, rightly pointed out in Committee; namely, that the Government aim to produce a range of measures to ease poverty. We hope that that will be successful. However, this amendment deals with just one aspect of that.
Certainly in the UK poverty is not the same thing as I and many other noble Lords have seen in other countries, where there is a far greater absolute poverty than anybody in receipt of any social security benefits here experiences. We have a duty here to ensure that people have the power not to live in poverty. We need a definition like this to achieve that. My biggest concern is for the health and welfare of the children who are suffering in deprived families. If this small amendment, which will help to ease that, can be accepted, I shall be very pleased.
Baroness Park of Monmouth: My Lords, this is a subject upon which I would normally never dare to speak. I rise to say something very simple. We are always being told about joined-up writing. It seems to me that if ever there was a case of a need for joined-up writing, this is it. As has been said by several people,

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including the noble Lord, one of the problems that beset poor people is stress and ill health—particularly stress, which is becoming a bigger and bigger problem. I feel that the departments dealing with the money we spend on our health have everything to gain by seeing a regular annual review of this kind. We could well be saving money by spending money in this way. If one is ever to justify the idea of trying to make all departments work together rather than proceeding separately, this is an excellent example. It is very much strengthened by the proposal that it should be a regular, annual, independent review.
The Lord Bishop of Hereford: My Lords, I spoke very warmly in support of a similar amendment moved by the noble Lord, Lord Morris, in July. Some of the points I wanted to make have already been made and it is very late.
In supporting this new amendment, I am encouraged by the enormous range of support which has been expressed by Church leaders. Some of your Lordships may have seen the letter in The Times this morning. There were six signatories printed but I believe that in the final count 112 Church leaders signed that letter. They were from the African and Caribbean Baptist, Methodist, Orthodox, Presbyterian, Roman Catholic and United Reform Churches, together with 42 bishops of the Church of England. That is an extraordinary degree of unanimity and support from the Churches of this country. We signed it because we are in touch with the misery of poverty in the United Kingdom. Our clergy and our ministers see its consequences in their daily ministry in the inner cities, in the bleak outer estates and in the rural areas, as the noble Earl, Lord Russell, pointed out. It is an extraordinary list of Church leaders and, together with the evidence which the noble Lord, Lord Morris, mentioned from many voluntary, specialist organisations, I believe it puts together a voice for the poor, to which I hope the Government will listen and take action with some urgency.
We are asking the Government to endorse the dignity of human life for the poorest people in the nation; that they may have enough to eat; that they may keep warm and clothed; that they may afford bus fares in order to find shopping which is not the most expensive; that they can feel included as part of society. Yes, we want to see people in properly paid work; it is much the best way for them to feel included and valued citizens. Yes, we support health action zones and anti-smoking programmes; all this is desirable. But the noble Baroness, Lady Hollis, in replying to the debate in July said:
"The face of poverty in this country … is the face of a child".—[Official Report, 20/7/99; col. 884.]
She also said:
"We are a government prepared to be judged by results".—[Official Report, 20/7/99; col. 887.]
and she criticised the "poverty of aspiration" behind the debate of 20th July. I do not believe there is any poverty of aspiration in our desire to see healthy children developing well. There is indignation, there is shame, but in so many parts of the United Kingdom this is not
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so. However well intentioned, the results of the Government's policies so far, as we have heard, are to leave in this country more underweight and malnourished babies than almost anywhere else in the developed world. That means under-weight babies borne by ill-fed, pregnant mothers; more problems in terms of childhood illness, mental retardation, behavioural disorder and, in later years, unemployability and greater vulnerability to being sucked into a life of drugs and crime.
One of the letters sent in support of this amendment came from the NSPCC. It was, I believe, a very powerful and moving letter saying that,
"The pressures involved in coping with inadequate income cause stress, which exacerbates the health problems experienced because of poor diet, inadequate heating and poor housing and increases the likelihood of family tension and breakdown".
The letter continued:
"Child abuse occurs across all classes and the actual causes arc complex. Nevertheless, most children on child protection registers are from low income families and the most commonly identified stress factors in all registered cases of child abuse are unemployment and debt".
The connection between inadequate income, debt and child abuse is serious and convincing evidence of the need for this amendment.
There is a group of Christians walking from St. Columba's Holy Island of Iona to London. They are coming to see the Chancellor of the Exchequer on Monday next week. They are marching to support the principles behind this amendment, to establish minimum income standards, to make it possible for people to enjoy good health and live in dignity, and to set benefit levels which in each case enable those needs to be met.
This amendment does not ask for a flat-rate increase in benefits. It is asking for the information that will allow the benefits to be targeted where real need still exists. I hope that the Minister can assure us that those Christian pilgrims will be able to receive good news from the Chancellor next week.
Lord Higgins: My Lords, one must speak with great diffidence in a debate of this kind in your Lordships' House as a number of noble Lords, including the right reverend Prelate who has just spoken, have firsthand experience of the kind of problems that we are discussing. It is extremely helpful to have debates of this kind. However, it is unfortunate that it should have to take place so late at night.
There has been considerable representation on the issue from a number of outside bodies, including the Zacchaeus 2000 Trust. It is important that we should examine their research. However, it is also important that we should be rigorous in determining precisely what it is that we are talking about. As I suggested in Committee, it is important to draw a distinction between the level of absolute poverty of a kind that might be experienced in South America or Africa (where clearly the vast mass of the population are much worse off than anyone in this country) and that

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encountered here. In a sense we are talking about comparative poverty, and again one can run into difficult problems of definition.
One definition of poverty includes anyone living on less than half the national average income. Of course, if that is so, it is a constantly moving target in the sense that, as incomes generally go up, so people who are said to be living in poverty will be living at a different level. However, what has worried me about some of the arguments we have heard this evening is that if we were to determine absolute levels for nutrition and so on—and presumably the Minister would take them into account—such factors would be constant and would not go up in terms of social security benefits or with changes in the prosperity of the country as a whole.
I do not wish to burden the House for long, but I should like to repeat the point I made in Committee about secondary poverty. Whatever level of income one sets, there will be some at or near the poverty line who will then not use the resources provided to alleviate their poverty. I give again the example of smoking. Studies carried out by the Policy Studies Institute have shown that the Revenue received back by Customs and Excise on tobacco and so forth have suggested that some—not all of course—of the problems referred to this evening arise as a result of that secondary poverty and the inter-relationship between the poverty itself and other problems.
However, what is important is that there should be adequate research into these matters. There is a whole range of research like the Acheson report, which has been referred to, that certainly the Government ought to take into account.
However, I think it is an appropriate response of the Government to say that they of course study all the research and take it into account. Indeed, I would be astonished if it were not the case that in reaching his decisions on these difficult matters the Secretary of State did not do so. My only doubt about it is the extent to which it is sensible to include the provisions in legislation. I say that because many of the items specified are not clearly and closely defined—certainly not in quantitative terms. Therefore, I believe that the appropriate way to proceed is by having on as many occasions as possible the kind of debate we are having today. However, whether one should incorporate the provisions in legislation as such, I have some doubts.
12.30 a.m.
Baroness Hollis of Heigham: My Lords, I thank my noble friend Lord Morris very warmly for his inspired and informative speech. Indeed, if I may be so impertinent, I thank the House for the eloquent and moving speeches which have been made in support of my noble friend. I am also grateful to have the opportunity to say what the Government are proposing to do in the light of these and other issues and to say what the Government are going to do about tackling poverty and social exclusion.
As noble Lords will know, we debated a similar amendment in Committee and I hope I made it clear during that debate that the Government were
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determined to create a fair and more socially just society. Since then my right honourable friend the Secretary of State for Social Security has launched the Government's first annual report on their strategy for tackling poverty and social exclusion—Opportunity for all. I am sure that your Lordships have been reading the report, with its 160 or 170 pages, in advance of today's discussion.
The report sets out the steps that the Government are taking to realise their belief in a fairer society. It confronts the poverty of opportunity that denies many individuals and their families opportunities to learn, to work and to live healthy and fulfilling lives. The report has come out since the Committee stage discussions in your Lordships' House. It is one of the bravest and boldest documents that this Government, or any government in my recent experience, have published on the subject. It makes clear what the problems are as the Government judge them, what the Government believe they need to do to address those problems and what the indicators are—the measures of success or otherwise—by which the Government will be judged. Furthermore, the report will be reviewed annually and will be informed, as the noble Lord, Lord Higgins, suggested, by the research that is continuously coming out each and every year.
Perhaps I may take just one aspect—the issues associated with lone parents: their opportunities, benefits, strategies for dealing with poverty, moves into work and so on. By my reckoning there have probably been two dozen major pieces of research over the past two years. I have read them all and I am fairly sure that the noble Earl, Lord Russell, has read them all. This type of research continually and regularly informs the Government's work and will certainly be informing the review of the poverty audit which we will be conducting each and every year and by which the Government may be held to account.
Our strategy includes help to those on low incomes, but goes further, seeking to tackle the causes of poverty. Those causes, as my noble friend so rightly said, and as was said also by the right reverend Prelates the Bishops of Oxford and of Hereford, are multifaceted. One in five children lives in a family where no parent works; I million children live in fractured families where they do not get the maintenance they should and therefore they are unnecessarily poor; thousands of children leave school without even basic skills; and 3 million people have been out of work and dependent on benefits for more than two years. We know that it is persistent poverty—longevity on benefits, not benefit levels as such—that scars and may do so in a way that goes through from generation to generation.
We are committed to making a difference to people's lives. Too many people are denied opportunities because they do not have appropriate skills and they face difficulties sustaining jobs. Too many feel unsafe, too many do not have access to good-quality public services. All those factors condemn people to a life of poverty and social exclusion. Together, they interlock to create a cycle of disadvantage in which, as noble Lords have said, deprivation is layered on disadvantage through the generations in the fields of health,

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education, income, access to work and family stability that is passed on as a dowry to children who then remain edgy observers of other people's prosperity.
Our strategy aims to break that cycle and to halt the transmission of low expectations, low aspirations and low outcomes from parent to child. We are committed to providing that opportunity. That is why we are: tackling the causes of social exclusion, not just alleviating the symptoms, although that is necessary too; creating a fairer society in which everyone has the opportunity to achieve his or her full potential; and investing in individuals and communities to help them take control of their lives.
We know that the benefit system has an active role to play. It is there to protect, support and sustain the vulnerable in their time of greatest need. Noble Lords are no doubt aware that two key groups among the most disadvantaged are lone parent families and elderly pensioners. Those are the two groups that most face poverty in Britain today, and this is particularly the case, therefore, with the children of those lone parents. We have already done much to help those two groups, spending over £4 billion in this Parliament on pensioners alone and, for lone parents, ensuring record increases in child benefit; help for the first time in finding work; and better arrangements for child support, which I hope to have the pride and pleasure of introducing in the next Queen's Speech if legislative time permits. We are also beginning work on a child tax credit which could eventually lead to a basic citizen's income for children. I agree with the quotation given by the right reverend Prelate the Bishop of Hereford that the face of poverty in this country is the face of a child. The way to tackle that is, as far as possible, to build an income for children that is portable from benefit status into work and thus ensure that that child has a decent springboard for life.
This amendment focuses on benefit rates. In setting these, we examined findings from a wide range of research on adequacy. Those findings disagree. That struck me when the noble Earl, Lord Russell, and I exchanged arguments over the future removal of lone parents' additional benefit over that of families. There is research to indicate that in some cases two-parent families where neither parent is in work are at a greater disadvantage than lone parents; other studies indicate that lone parents are at a greater disadvantage. What was clear was the finding on longevity on benefit. The finding was also clear in relation to lone parents with the same level of income—tested by sophisticated studies of indicators of acute hardship: for example, did the lone parent have more than three out of 10 of the following: did he or she lack a pair of winter shoes; was he or she unable to afford a roast dinner; was he or she unable to afford seven days' holiday in the UK in a modest setting such as a caravan? It was shown that, income for income, some lone parents suffered that hardship, and some did not. The general explanation was the length of time that they spent on benefit rather than the income level itself. In turn, the length of time they spent on benefit was almost entirely correlated with, on the one hand, how close they were to the labour market, how recently they had been in work and how
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adequately skilled they were, and on the other how much child support they received in order to return to work. Those findings taught me that benefit levels alone are just part of the issue, even for lone parents who are among the poorest of the poor.
Subsection (2) of the amendment requires that we take into consideration the need to maintain satisfactory standards of child development. I absolutely agree. We are putting children at the heart of our strategy. The Prime Minister has made it our objective to eradicate child poverty within 20 years. That is, again, a commitment of dazzling bravery on his part in terms of the standards by which we must be judged.
Four of the 30 indicators that we have set out in the report cover the issues by which we shall be judged: an increase in the proportion of 19 year-olds with at least five GCSEs or equivalent. That is worth emphasising because it is clear that the lone parents who go back to work and whose children do well are those with GCSEs. It is the education qualification of the parents even more than the income or benefit level of parents and even more than the longevity on benefits that predicts the outcome for children. The research reported in the past fortnight shows that the GCSE test is the best possible predictor for a lone parent of what her child will go on to do.
Another indicator is the reduction in the proportion of children living in workless households of a given size, over the economic cycle. We have already seen that beginning to happen and we must do more. Another indicator is a reduction in the proportion of children in households with relatively low incomes and a reduction in the proportion of children living in poor housing. We have already put in place a range of policies to achieve that.
We are investing £540 million in Sure Start schemes across the UK. I have the privilege of being the Minister in the Lords responsible for the Sure Start programme. Sure Start programmes are set in the most disadvantaged areas and we have so far named 68 trailblazers and we have another tranche coming through. They will bring together, with the joined-up thinking for which noble Lords have called, early education, health provision, family support and nurturing of all families with children under four and in the period before birth. They will support those parents where the parenting is less than adequate, where the parent herself may have been damaged in her upbringing. She may have to re-learn how to parent. Sure Start will come in with her support and goodwill and it will ensure that the children do not suffer the deprivation she had as a child.
In that way, we will ensure that children are ready for school, ready to learn and acquire education skills, GCSEs and are free to spring forward.
As I have already mentioned, we are investing £19 billion to drive up standards in education. We are already seeing improvements in educational attainment for 11 year-olds in literacy and so on. We have also taken on some of the research findings. We are introducing a range of measures to increase the income

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of families with children. There are increases of nearly £5 a week on the rate of income support and the working families tax credit from last week. There is a record increase in child benefit from last April and there will be an above inflation increase next year. There will be a new children's tax credit worth £416 a year from April 2001.
The combined effects of the last two Budgets and the national minimum wage will give the poorest one-fifth of families with children an extra £1,000 a year. That is an extra £20 a week. For the majority, work is the best and surest route out of poverty and social exclusion, but, as the amendment makes clear, as the Government acknowledge and as Opportunity for all states, for some people work is not possible, that route out of poverty is not available to them.
Subsection 2(b) proposes that we should consider the minimum level of income in order to combat social exclusion. We recognise our responsibility to those living on the edges and margins, the twilights and shadows of our society. I hardly need to remind the House that it was this Government who had the courage to set up in the Cabinet Office the Social Exclusion Unit so that we could tackle issues neglected for too long. Even a quick look at the 30 indicators we have set out shows that we are prepared to be judged on our progress. Your Lordships will be derelict in your duty if you do not judge us on our progress in that respect. The indicators include a reduction in the number of people sleeping rough; a reduction in cocaine and heroin use by young people and a reduction in the death rate from suicide and undetermined injury. Those are all issues on which your Lordships have spoken movingly tonight.
We all agree that economic prosperity and social justice depend on people being able to achieve their potential. But for too long too many have been denied the opportunities to do so. We are determined to restore the opportunities for all our society.
The amendment is part of that approach, but I hope that I have shown today that we still believe that it is too narrow. The amendment sets out three factors to be taken into account and we have set out 30 measures in the document. We have made it clear that we are prepared to be judged on them each and every year. If there are other issues to be taken into account, we are prepared to listen. I am happy to agree to the suggestion of my noble friend Lord Morris that I should meet
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trustees of the Family Budget Unit, and pass on their views to the Secretary of State. Since the Bill was introduced last autumn, DSS Ministers, including myself, have met representatives of almost all the major organisations which represent the interests of children, families, the disabled and older people ranging from CPAG to Age Concern, Gingerbread, the Poverty Alliance, the Disability Alliance and so on. I am more than willing to meet, listen to and learn from the trustees of the Family Budget Unit and take their concerns on board.
In the light of our broader policy to produce opportunity for all and bring people out of the shadows of social exclusion and into the mainstream of life and society, in the light of the fact that since Committee stage we have published our poverty audit and standards by which we shall be judged and also in the light of our willingness to meet those representatives to whom my noble friend Lord Morris has referred, I hope that my noble friend will feel able to withdraw his amendment.
12.45 a.m.
Lord Northbourne: My Lords, before the noble Baroness sits down, can she give an assurance that Parliament will have the opportunity annually to debate the Government's annual poverty audit?
Baroness Hollis of Heigham: My Lords, it is open to any noble Lord to seek to discuss this at any time, and I would be delighted to do so.
Lord Morris of Manchester: My Lords, I listened carefully to my noble friend's reply. She clearly appreciates the strength of feeling behind the amendment, and the support for it is remarkably wide ranging by any standard. My noble friend's willingness to enter into discussion about what we are seeking is encouraging, and I most strongly urge her and the Secretary of State to move as quickly as possible in doing so. In the hope that we shall now be entering into meaningful dialogue about the way forward to the more rational approach to social policy that we envisage I shall not press the amendment at this stage—for it was not victory that we sought tonight but a sensible agreement on an issue that is primarily about humanity and common sense. I hope that that is what can now be achieved. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Castle of Blackburn Baroness Castle of Blackburn moved Amendment No. 53:
After Clause 18, insert the following new clause—

WEEKLY RATE OF BASIC PENSION
(". In section 44(4) of the Contributions and Benefits Act, for "£66.75" there shall be substituted "£75".").
The noble Baroness said: Amendment No. 53 has been grouped with Amendment No. 55. The amendments represent two main strands of policy among those of us who wish to destroy the dependency culture in this country and encourage people to stand on their own feet. We heard a most impressive speech by Lord Morris on the amendment just debated. We were all in broad agreement with the amendment and the sentiments that he expressed. But we would also agree that in analysing poverty a very important factor is low self-esteem. I believe that the Minister also agrees with that; indeed, she hinted at it.
Therefore, what we seek to do in Amendment 53 is to embody the Government's own measurement of need—£75 a week for a single pensioner—in a basic state pension as of right. This is designed to remove from applicants the demeaning business of explaining every scrap of income and having it analysed, poured over and generally suspected until the facts have been fully established. The Government have themselves established a measurement of need which is the £75 a week for a single pensioner embodied in the minimum income guarantee.
So the Government have said, "If we are to give people enough to keep them out of need, this is the amount we should pay". But at the same time they say that all their spending must be targeted: that only the poorest pensioners should receive this sum. I found it an interesting contrast with what the Government say on other aspects of their policy. For instance, I am the first warmly to applaud the Government on what they are doing about child benefit. As the Minister rightly said, it is being increased to a spectacular degree. The Government have resisted siren voices which said that it should be taxed or means tested. "No", say the Government, "that shall be a child's right". Good. But it is a little difficult to reconcile that with other government statements about the need for targeting.
Let us consider the National Health Service. Again I applaud the Government for giving it such a high priority in their future public spending. But the whole essence of the health service is that it is the right of citizens; there is no targeting. Imagine what would happen to the ethic of the health service if it were to be means tested. We all know that it would undermine health for people to have to rely on what they have put into private insurance before they could be sure what they would get out. No: we say that the health service is the right of people as citizens; and that surely is the best way to establish social inclusion.
We have all expressed agreement about the need to attack poverty and to have definitions which enable us to meet need. But suddenly the Government say, "This sum shall not be the pensioners' as of right even though they have contributed towards it all their lives". I believe that that gulf is immensely dangerous for the Government's whole strategy. If they are to sell the need for targeting—"We must spend all our resources on the poorest people"—it is eating away at the ethic underlying their excellent policies on child benefit and the NHS. I warn the Government that there are dangers in that.
Amendment No. 53 seeks to provide that the basic state pension shall be raised to the Government's own measurement of need: £75 a week for a single pensioner instead of the £66.75 he or she receives at present. I make two points. First, it can be afforded. I had a little exchange of views over this earlier with the Minister. The Government Actuary's recent report on the uprating of benefits indicates that there is a margin above the prudent safety level which he said must be observed in the fund if all future demands are to be met. It would cost £3.8 billion to adopt Amendment No. 53. But the Government Actuary has said that there is something like £5.9 billion in the National Insurance Fund above the prudent level which the Government. Actuary said must be observed at all times.
At this hour of the night or morning, wherever we are at, we do not want to start jousting about elaborate figures. However, after an exchange of detailed correspondence, the Minister must now recognise that the figures we quoted from the Government Actuary's report are right.
I want to make a second point about the £75 as of right. It is the contributory pension. People have paid in what they have been asked to pay to balance the national insurance fund. The £75 is an extremely modest sum because if the earnings link for the uprating of the basic state pension, which the Labour Government of 1974 introduced, had not been immediately abolished by Lady Thatcher coming into power, the single pensioner's basic state pension would not be just £75 a week, it would be £93.
That earnings-related pension had to be adjusted by the Government Actuary in terms of the contributions needed to cover it. If that had been done and had been accepted as a target and people had made the necessary contributions to cover it over the past years, it would be balancing itself now. It is not the pensioners' fault.
When I introduced SERPS, the earnings link and other pension improvements in that 1974 government, we had to put in our White Paper the Government Actuary's assessment of the cost and what figures would be needed in contributions to cover it. A substantial increase in contributions was necessary and I know that some people said, "Oh, good, they've got themselves into trouble now. People will never accept that". On the contrary; it

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was extremely acceptable. People are sensible if you tell them that what they want has to be paid for somehow and they had better face up to it.
So we are not making a wild demand. We are not asking for that lost ground to be recovered all at once. We are realists and we are reasonable. However, we say to the Government, "Look, what's the good of telling us that you're going to have an annual assessment of what really constitutes need, and in the mean time here is our assessment of need; £75 a week, and then deny that as the basis of the basic state pension?".
That merely means that instead of rolling back the tide of means-testing wherever possible, we are institutionalising it in our new pensions policy. In my view, that is one of the reasons why so many pensioners have been reluctant to take up the income support to which they are entitled. That annoys me a little bit and I am trying to be reasonable at this late hour. However, for the Minister to say, "Ah, but you see we have had these pilot schemes and we are discovering that one of the reasons why people are not taking up pensions is that they have got too much money, not too little; they have been saving and they want to hang on to that; they do not want it to be counted", and then for her to go on to say, "We fully agree that the Government must encourage thrift"; I am sorry, but I do not think it tallies.
As regards these pilot schemes, for the Minister to release titbits to us out of context is not right. These pilot schemes produced their reports in December last year. The Minister can trot out little bits of those reports, while we are ignorant of the context of the figures to which she refers. She owes it to us to let us have the analysis of all those reports of pilot schemes investigating why people do not claim Income Support to which they are entitled. We ought to have a proper evaluation of those reports placed before us.
I am told that it is now hoped that we may receive them this December. But, really, why take a year? Once again it is taking policy bit by bit and giving us a great spiel about why such a bit here is essential and not giving us the whole picture. I am sure that the Minister must deplore that long delay. It has not delayed the Government going ahead with some aspect of their pensions legislation. I believe that that legislation ought to be suspended until we have a more complete picture of what has influenced people and what we should be aiming for.
Amendment No. 55 calls for the restoration of the earnings link for the future uprating of pensions. If we do not do that, the gap between the benefits as of right and the means tested benefits is going to grow. The Government have said that in the longer term they are hoping to uprate the minimum income guarantee in line with earnings. But why do only that, while refusing to uprate the pension as of right on the same criteria? We are due, at any moment now, to have an announcement of the coming year's uprating.
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I heard a rumour—we were told it this week. If the Government insist that they are sticking by price indexing and if the basic pension to which people have contributed to get something as of right is to be uprated in line with the Retail Price Index—which I gather is up by about 1.1 per cent, while earnings have gone up by 4 per cent—then the basic state pensioner is going to fall behind in a society which is becoming increasingly comfortable.
If you take the figure of 1.1 per cent and work out the uprated increase, I believe it amounts to 72 pence, which—as some wit pointed out—is the price of a bag of peanuts. The resentment among pensioners will deepen, because they have their dignity. I do not believe that one can tackle poverty while riding roughshod over that dignity. I do not believe that targeting is the answer. People must of course contribute for what they receive, but it is government's job to alter the contributions so as to cover the needs of the National Insurance Fund. That is just, as the Government raise taxation to cover the cost of the National Health Service; just, as they have to spend money on increasing Child Benefit. Why should the pensioner be singled out for the indignity of targeting? I do not believe that either the financial poverty or that psychological poverty which keeps people down will be abolished by constantly extending the area of means testing. I beg to move.
Lord Goodhart: My Lords, I speak for myself but I suspect also for almost every other Member of your Lordships' House here this evening in expressing my envy of the remarkable stamina in her 90th year of the noble Baroness, Lady Castle. Therefore, it is with regret that we are able to give her Amendments Nos. 53 and 55 only a rather limited degree of support.
We accept that the earnings link for the basic pension is not sustainable in the long run. We believe also that a blanket increase in the basic pension to a level of £75 will not directly help the poorest pensioners, because it just brings that amount up to the minimum income guarantee. Therefore, it follows that most of the extra money will go to those whose incomes are already above the minimum income guarantee.
Of course, it will relieve poor pensioners from the need to claim the minimum income guarantee, and we accept that that is indeed a significant benefit. In the long term, we hope that the problem will be dealt with by the government proposal for a second state pension, which will indeed lift many state pensions above the MIG level.
However, we believe that there is a better way in which, without giving an increase to all other pensioners whether or not they need it, many of the neediest pensioners could be taken more or less immediately out of the need to claim the minimum income guarantee: that is, we should target increases

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on older pensioners. That proposal has been made on many occasions by my honourable friend Professor Steven Webb in the House of Commons.
Older pensioners are those who are likely to have the greatest needs and, simultaneously, the lowest incomes. Therefore, we should like to see a substantial increase in the basic pension for pensioners at the age of 75 or 80 as opposed to the absolutely absurd increase of 25p per week which is now paid to 80 year-old pensioners. To that extent, we are glad to be able to support the principle behind the amendments moved so powerfully by the noble Baroness.
Baroness Turner of Camden: My Lords, perhaps I may add a few words to what my noble friend said about the earnings link. The removal of the earnings link and its replacement by a link to the retail price index has meant a decline in the relative value of the basic pension and consequent impoverishment of large numbers of today's pensioners. There is no doubt at all about that. That means that large numbers of them are dependent on income support, which is, of course, means tested.
Many who are entitled to it, estimated by the national pensioners convention at about 700,000, do not claim it, which has been referred to already by my noble friend, largely because older people in general particularly loathe and fear means testing. The problem with the Government's minimum income guarantee, to which the noble Lord, Lord Goodhart, referred, is that that too will be means tested.
The Government seem desperately concerned that any increase in the basic state pension may go to people who, in their opinion, do not really need it. I presume that that means largely those who are already benefiting from occupational pension schemes. But many of those schemes were based on the assumption that they top up the basic state pension and so the state pension is frequently a necessary element in the pension provision of even those with an occupational pension.
Moreover, the really well-to-do will have any increase which comes to them taxed out of existence because taxes will be payable by people who are really well off. One cannot help feeling that state benefits are looked upon even by this Government as some form of charity. Contributory benefits are not charity. They are part of the social insurance scheme to which we have all contributed during our working lives. There is a right to benefit at the end of such a working life.
A return to the principle of the earnings link henceforth—we are not asking for it to be backdated—would at least give older people the right. which has been denied to them, of a basic level of living without the need to justify it by some form of means testing, which many regard as humiliating. We are talking about benefits for people of the
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wartime generation—people who made sacrifices and laid the basis for our present prosperity, and the future advances that we may make. They really do deserve better than to have to rely on means testing to provide them with a decent standard of living. I support Amendment No. 53 and, very much, Amendment No. 55.
Baroness Crawley: My Lords, my noble friend Lady Castle makes powerful arguments that will find support throughout the House, but Amendment No. 53 in particular does not answer the case of the growing divide between pensioners at the top in terms of their financial means and those at the bottom.
That gap between rich and poor has grown dramatically over the past 20 years. The income of the top one fifth of single pensioners has increased 76 per cent since 1979 and those in the bottom half—many of them women—saw their income grow only 28 per cent. I cannot agree that Amendment No. 53 answers that enormous and growing divide, which needs to be addressed. The amendment offers a blanket solution that does not address that growing divide.
1.15 a.m.
Baroness Hollis of Heigham: My Lords, the noble Baroness, Lady Castle, clearly explained that the purpose of Amendment No. 83 is to increase the basic state retirement pension to £75 per week, while the second amendment would allow for uprating each year in line with the growth in prices or earnings—whichever is the greater.
I cannot anticipate the Secretary of State. He is required by law to review the rate of retirement pension and other benefits each year. He will announce the outcome later this year in the usual way. I understand why the noble Baroness has again tabled these amendments, which she withdrew previously, but the key drawbacks remain—the huge costs of the increases and. as was said by the noble Lord, Lord Goodhart and my noble friend Lady Crawley, they would put extra money in the pockets of those who do not need it as opposed to those in greatest need.
This Government, with the devolved assemblies, are determined to tackle poverty and social exclusion. The gap between the richest and the poorest pensioners is widening. For both single pensioners and pensioner couples, the average income of the richest one fifth has increased twice as fast as the poorest one fifth in the past 17 years. In 1995/96, nearly one third of pensioners—around 3 million people—had household incomes in the top half of the overall income distribution for the population as a whole.
Recent research by Professor Robert Walker of Loughborough University was published in The Times in September. As he says, times have changed:
"A generation ago, the stereotype of the poverty-stricken pensioner was grounded in truth. Not so today. Some pensioners are very poor but most are not".

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He adds that the Government's problem is that public opinion—in this House as well as outside—
"has not caught up with the mass of changes that have occurred".
He goes on to show that the average income of pensioners in real terms from 1979 to 1996 grew by 70 per cent, whereas that of the rest of the population grew by 40 per cent. In 1979, nearly half of all pensioners were in the lowest fifth of income. Now it is only about 24 per cent; almost the same proportion as you would expect on any distribution. In 1979, 57 per cent of pensioners were on means-tested benefits; now, it is 40 per cent. Our task, therefore, is to help the quarter of pensioners in the lowest fifth of income without spending money on those who frankly do not need it.
As my noble friend said, her amendment would increase the pension to the level of the minimum income guarantee, which this Government introduced to help the poorest pensioners from this April.
Professor Robert Walker of Loughborough University, who is head of this research, goes on to state:
"Raising the state pension would make richer pensioners richer and would not help the poorest, since the latter would lose out on means-tested benefits".
Those are not my words but those of the head of one of the most well-regarded research institutes in the country.
In other words, the amendment would give better-off pensioners more, including everybody in your Lordships' House who is of pensionable age. It would not help the poorest on income-related benefits who would lose it pound for pound. It would go to all when perhaps only one-fifth would need it, and they are precisely the ones who will not get it.
Therefore, it would give better-off pensioners more, but it would not help the poorest on income-related benefits. That does not fit well with our policy priorities which are seeking to tackle the problems of those on low income and to establish a decent pension structure for those coming through of working age.
Next April, the minimum income guarantee will be increased in line with earnings. This is a substantial increase for those pensioners who need it most. After next year's rise, a pensioner couple over 80 will be over £8 per week better off in real terms over the two-year period. However, we can only make such a substantial difference because we have concentrated the extra help on those who need it most. Had we not done so, I suspect that the amount for those who are the poorest would have been a quarter, a fifth or a tenth of that sum if we had to spread it across the pensioner population as a whole.
My noble friend's second point was about the affordability of the increase. The initial cost of increasing the basic pension, and the linked benefits
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such as incapacity and widow's benefits, would be about £4.3 billion a year initially. Even with price uprating thereafter, it would be necessary to increase National Insurance contribution rates by about 1 per cent after two to three years. But the cost of uprating the proposed £75 pension in line with earnings would be much more substantial, reaching £10 billion in 2010 and continuing to grow thereafter.
My noble friend suggested, as she has on previous occasions, that her proposals could be paid for with the surplus in the National Insurance Fund. However, there are three reasons why we have to look beyond a simple comparison of the first year cost of this increase and the current surplus in the National Insurance Fund. First, that surplus cannot be drawn on indefinitely whereas the cost of these amendments continues over time. The surplus would be eliminated in two years flat. Secondly, the expected success of our new stakeholder pensions will mean payment of more rebates out of the National Insurance Fund, bringing expenditure and income more closely into line. Thirdly, it would not be prudent for any government to make a long-term expenditure commitment based on projections of surpluses in future years. Those projections are subject to quite wide swings. For example, at the end of December 1991 the Government Actuary Report forecast an end of year balance of 17 per cent of benefit expenditure, but 11 months later that had been revised to 10 per cent. That gap was worth £3 billion in today's terms. Variations of that degree from the 17 per cent prophesied to the out-turn only 11 months later of only 10 per cent mean that the current surplus can, and has in the past, often quite quickly disappear. We could not, therefore, use this as a building block with which to fund permanent annual increases, as my noble friend suggests.
I understand the arguments behind these amendments. However, we are talking about large sums of money which would not be well targeted. We have already done much for pensioners and we shall do more. In this Government we have introduced the winter fuel payments and the like. Those are simply the first steps. However, in my view we should not build on them with the untargeted spending proposed here.
At the end of the day, the amendment tabled by my noble friends would, in the words of Professor Walker, ensure that rich pensioners became richer while the poorest pensioners would see no improvement in their lot at all. That is not a position that I can recommend to the House. I urge my noble friends to withdraw their amendment.
Baroness Turner of Camden: My Lords, before my noble friend sits down, is she aware that, according to highly publicised statistics, 65 per cent of all pensioners have an income that is much less than the income tax threshold? That means that a lot of people are quite poor.
Baroness Hollis of Heigham: My Lords, the income tax threshold is appropriately privileged to pensioners. But I repeat that since 1979 pensioner income has risen by 70 per cent. I could go on, but what has clearly happened since 1979—I know my noble friend will not disagree with me—is that in almost every household structure in the country we have seen inequality widen. Whereas if we asked back in 1979 who were the poor, the answer would have been a pensioner; if we asked today, the answer is a child.
What has happened is that four-fifths of pensioners have done relatively well since 1979 by virtue of occupational pensions, access to savings and the flow of income from that. But the bottom fifth have been left behind—and they are the ones we are seeking to help. If we help all, we cannot help the poorest, and that is our priority.
Baroness Castle of Blackburn: The Minister has not pointed out to the House—I feel she owes it to us to do so—that whet. increasing any services across the board (say, child benefit) and therefore giving to some who do not need it, we rely on getting a good deal of it back through the tax system. That is point number one which my noble friend always ignores in her figures; the fact that the well-to-do have to pay tax. In my view, they should be paying more than at present, but even allowing for the present levels, we get some of it back. Her statistics in that regard therefore are one-sided. She also always implies that this sort of accumulative cost (about which she warns us) is taking place against a background of expanding national income and as a percentage of the national wealth and is, therefore, manageable.
It is too late for us to continue this ding dong. I know the Minister will appreciate that I am profoundly dissatisfied with her answer, as is Lady Turner. But I shall withdraw the amendment because at this late hour it is absurd to expect the House to vote on anything. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 54 and 55 not moved.]
Schedule 2 [Pensions: miscellaneous amendments]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 56:
Page 92, line 34, after ("months") insert ("immediately").
Schedule 3 [Pension sharing orders: England and Wales]:
Lord Goodhart Lord Goodhart moved Amendment No. 57:
Page 96, leave out lines 16 to 20.
The noble Lord said: My Lords, I shall deal with this amendment as quickly as I can. Amendments Nos. 58 and 59 and 67 to 69 are grouped with Amendment No. 56.
I begin by saying that this is the first group of amendments that deals with the subject of pension
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sharing, which takes up a large part of this Bill. It is in fact remarkable how few amendments there are in this part of the Bill and that is a tribute to the careful and detailed spadework which has been done on these proposals under the aegis of the present Government and their predecessors. It is now clearly an idea whose time has come.
Amendment No. 56 deals with one minor defect in the Bill. Under the Bill it will not be possible to have, in respect of the same divorce, both a pension-sharing order and an earmarking order, the difference between them being that a pension-sharing order gives the spouse part of the fund which is set up to provide a pension, whereas an earmarking order provides the spouse with part of the pension itself or other benefits when they are paid.
We accept that pension sharing and earmarking are normally alternatives, but there may be cases where both kinds of order are appropriate. Obviously, you cannot have a sharing and an earmarking order in respect of the pension at the same time, but there is no practical reason why you cannot have a sharing order in respect of the pension and an earmarking order for non-pension benefits, such as the death in service benefit. This has been pointed out in submissions to the Social Security Select Committee in the other place by the Association of Pension Lawyers and by the Solicitor's Family Law Association.
The earmarking of a death in service benefit may be valuable where a husband is, for example, required to contribute to the maintenance of the children of a marriage. In such a case, if the wife has no access to the death in service benefit, serious hardship may be suffered after the husband's death. However, the death in service benefit has no cash equivalent transfer value, or very little, and it cannot therefore be adequately covered by including it in the pension sharing order. Therefore, in appropriate cases, which would probably be relatively few, why cannot a pension sharing order together with an earmarking order be allowed for non-pension benefits?
Lord Astor of Hever: My Lords, unfortunately we on this side of the House cannot support Amendment No. 57 moved by the noble Lord, Lord Goodhart. We feel that it would be a mistake to remove these lines from the Bill, as it would create uncertainty. The lines in question prevent an order being granted for a second time against pension benefits, with which we agree. The amendment would allow changes to pension-sharing arrangements, which are already agreed and in place. We cannot support such a change.
Similarly, we cannot support Amendment No. 58, which would remove the ability of a court to vary an order after it is made and before a divorce is absolute. We believe that pension-sharing arrangements should be finalised at the time of divorce and not before.
Baroness Hollis of Heigham: My Lords, the purpose of Amendments Nos. 57 and 68 is to remove the restrictions in England and Wales on pension sharing in relation to earmarked pensions and on earmarking pensions that have been shared. Similarly, in Scotland, Amendment No. 69 would enable a pension-sharing agreement and an earmarking order in respect of the same pension arrangement.
Under the Bill it will not be possible to pension share a pension arrangement which is subject to an earmarking order. As the noble Lord, Lord Astor, rightly pointed out, this is not an arbitrary restriction. It is to protect former spouses and to prevent them from losing out through no fault of their own. If, for example, an earmarking order is made of, say, 50 per cent of the pension payments to be made under a pension arrangement, the value of those payments will fall by one-half if the pension rights out of which they are to be paid are shared on a 50–50 basis. That would not be fair.
I turn now to the restriction on earmarking. The Bill provides that where the parties to the marriage have already shared a particular pension arrangement, the court may not make an earmarking order in relation to that arrangement and those parties. The justification for the restriction is that it will promote the "clean break" on divorce. This principle underlies the whole of the pension-sharing legislation. Put simply, divorcing spouses have to make a choice whether to share, earmark or off-set the value of their pensions. The policy prevents the same spouse coming back for several bites of the cherry while permitting subsequent spouses to have a bite of what is left of the cherry after the previous pension share.
It would seem odd to me—and, indeed, unreasonable—to put a spouse in a position where his or her original pension entitlement had been divided and shared with a former spouse, probably significantly reducing the benefits payable to the original pensioner and any new spouse, and then to provide that even those remaining benefits could be earmarked in favour of the former spouse with whom the pension had been shared and who had thereby been given his or her own pension. That seems to us to be far too much.
The noble Lord, Lord Goodhart, wondered whether we could have a concession for the earmarking of death in service benefits alone. That is a contingent benefit which is unlikely in many, or in most, cases to be paid out. No former spouse could depend on receiving such a benefit and such benefits are not included in the cash equivalent transfer valuations of pension rights. We believe that to allow death benefits to be earmarked when a pension is shared would not be consistent with the
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encouragement of clean breaks. It would also be unfair to second families. If a pension has been shared and a new pension created in favour of a former spouse, why should that spouse, rather than any new spouse or family, also benefit from the death of his or her former partner?
Therefore, I am afraid that we do not accept the push of the noble Lord's position. However, if I have misunderstood him in any way I should be glad if he would write to me and we can pursue the matter through correspondence. In the light of those remarks I hope that the noble Lord will be willing to withdraw his amendments.
1.30 a.m.
Lord Goodhart: My Lords, I believe that the noble Lord, Lord Astor of Hever, has somewhat missed the point here. What I am really getting at is not so much the possibility of making orders on two different occasions—which I agree would be unsatisfactory—but, more importantly, what is excluded from the Bill is the possibility of making those orders on the same occasion; that is, on the occasion of the divorce making both the pension sharing order and an earmarking order in respect of non-pension benefits, in particular the death in service benefit, although there could be others. I believe that that is unnecessary and could cause hardship in some cases. I certainly think that it is unlikely to be used frequently but I do not think that it is either necessary or desirable to exclude it. However, in view of the time of night and the fact that this is not an amendment of the first order of importance, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 4 [Amendments of sections 25B to 25D of the Matrimonial Causes Act 1973]:
[Amendments Nos. 58 and 59 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.60:
Page 100, line 12, after ("include") insert—

("(a) provision for calculation or verification in accordance with guidance from time to time prepared by a prescribed person, and

(b)")

The noble Baroness said: My Lords, in moving Amendment No. 60 I wish to speak also to those amendments which are grouped with it. We come to a group of amendments to the pension sharing provisions in the Bill. I shall be as speedy as I can. I shall give the briefest of explanations as they are essentially technical.
I start with Amendments Nos. 60 to 66, 218, 224, 226 to 228, 267, 278 and 279. These amendments are largely drafting changes which move provisions from one part of the Bill to another. They relate to the powers already in the Bill to make regulations in terms of information, the recovery of charges, the valuation of pension rights and the recovery of

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certain charges by pension arrangements. At present these regulation-making powers are in separate provisions for England, Wales and Scotland. We propose to consolidate them for the whole of Great Britain.
There is, however, one significant departure from the equivalent provisions in the Bill; namely, that the amendments enable the regulations to extend to requests for information and earmarking orders emanating from Northern Ireland. This ensures that regulations can require any pension arrangement in Great Britain to supply the relevant pension information in connection with divorce or nullity proceedings in any part of the UK.
Amendment No. 84 is a simple amendment to tidy up the legislation by removing a superfluous definition of "regulatory authority". Amendments Nos. 89 to 91 are technical amendments to the Social Security Contributions and Benefits Act 1992. They are designed to ensure that pension debits and credits are revalued in the same way as the additional pension that has been shared.
Amendments Nos. 220 and 282 ensure that the references to the Bill in the Income and Corporation Taxes Act 1988 which were inserted by this year's Finance Act are correct. Amendments Nos. 221 and 222 correct a minor drafting defect in provisions in the Bill which amend the Pension Schemes Act 1993. Amendments Nos. 225 and 268 ensure that the calculation of cash equivalents for pension sharing purposes is consistent with the provisions already in the Pension Schemes Act and in the rest of this Bill.
Amendment No, 214 is again a technical amendment to delete Clause 80(4)(c) which should have been removed from the face of the Bill as a consequence of Amendment No. 157 which was accepted by your Lordships in Committee on 20th July.
Finally, Amendments Nos. 215 to 219 are technical amendments to the Family Law (Scotland) Act 1985. As the House may be aware, in about 90 per cent of cases in Scotland matrimonial property is shared by minute of agreement without the need for a court order.
These amendments ensure that the Scottish courts cannot make earmarking orders or pension sharing orders if a pension sharing agreement is in effect in relation to the same marriage and the same pension arrangement. The court should be able to make such orders if the agreement is varied or set aside, and provision for this is made in the amendment. The amendments also make it clear that pension sharing orders and earmarking orders cannot, as we have just discussed, be made in the same divorce proceedings in relation to the same pension arrangements. The amendments will ensure that pension sharing terms in negotiated agreements can be set aside only by the courts when a decree of divorce is granted.
There are a number of amendments here but the policy remains the same. I am sure that your Lordships will agree that it is important that the legislation is as clear as possible for both scheme members and pension arrangements. I urge noble Lords to accept these amendments. If any noble Lord wishes a fuller explanation of any one of these, I shall be happy to write to him. I beg to move.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 61:
Page 100, leave out lines 17 to 39.
Clause 22 [Extension to overseas divorces etc.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 62 and 63:
Page 26, line 33, leave out ("and (2D)").
Page 26, leave out lines 35 to 38.)
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 64 to 66:
After Clause 22, insert the following new clause—

Miscellaneous
SUPPLY OF PENSION INFORMATION IN CONNECTION WITH DIVORCE ETC
.—(1) The Secretary of State may by regulations—

(a) make provision imposing on the person responsible for a pension arrangement, or on the Secretary of State, requirements with respect to the supply of information relevant to any power with respect to—

(i)financial relief under Part II of the Matrimonial Causes Act 1973 or Part III of the Matrimonial and Family Proceedings Act 1984 (England and Wales powers in relation to domestic and overseas divorce etc.),

(ii)financial provision under the Family Law (Scotland) Act 1985 or Part IV of the Matrimonial and Family Proceedings Act 1984 (corresponding Scottish powers), or

(iii)financial relief under Part III of the Matrimonial Causes (Northern Ireland) Order 1978 or Part IV of the Matrimonial and Family Proceedings (Northern Ireland) Order 1989 (corresponding Northern Ireland powers),

(b) make provision about calculation and verification in relation to the valuation of—

(i) benefits under a pension arrangement, or

(ii) shareable state scheme rights,

for the purposes of regulations under paragraph (a)(i) or (iii),

(c) make provision about calculation and verification in relation to—

(i) the valuation of shareable rights under a pension arrangement or shareable state scheme rights for the purposes of regulations under paragraph (a)(ii), so far as relating to the making of orders for financial provision (within the meaning of the Family Law (Scotland) Act 1985), or

(ii) the valuation of benefits under a pension arrangement for the purposes of such regulations, so far as relating to the making of orders under section 12A of that Act,

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(d) make provision for the purpose of enabling the person responsible for a pension arrangement to recover prescribed charges in respect of providing information in accordance with regulations under paragraph (a).

(2) Regulations under subsection (1)(b) or (c) may include provision for calculation or verification in accordance with guidance from time to time prepared by a person prescribed by the regulations.
(3) Regulations under subsection (1)(d) may include provision for the application in prescribed circumstances, with or without modification, of any provision made by virtue of section 38(2).
(4) In subsection (1)—

(a)the reference in paragraph (c)(i) to shareable rights under a pension arrangement is to rights in relation to which pension sharing is available under Chapter I of Part IV, or under corresponding Northern Ireland legislation, and

(b) the references to shareable state scheme rights are to rights in relation to which pension sharing is available under Chapter II of Part IV, or under corresponding Northern Ireland legislation.").

After Clause 22, insert the following new clause—

CHARGES BY PENSION ARRANGEMENTS IN RELATION TO EARMARKING ORDERS
(" . The Secretary of State may by regulations make provision for the purpose of enabling the person responsible for a pension arrangement to recover prescribed charges in respect of complying with—

(a) an order under section 23 of the Matrimonial Causes Act 1973 (financial provision orders in connection with divorce etc.), so far as it includes provision made by virtue of section 25B or 25C of that Act (powers to include provision about pensions),

(b) an order under section 12A(2) or (3) of the Family Law (Scotland) Act 1985 (powers in relation to pensions lump sums when making a capital sum order), or

(c) an order under Article 25 of the Matrimonial Causes (Northern Ireland) Order 1978, so far as it includes provision made by virtue of Article 27B or 27C of that Order (Northern Ireland powers corresponding to those mentioned in paragraph (a)).").

After Clause 23, insert the following new clause—

INTERPRETATION OF PART III
("—(1) In this Part—

"occupational pension scheme" has the same meaning as in the Pension Schemes Act 1993,

"pension arrangement" means

(a) an occupational pension scheme,

(b) a personal pension scheme,

(c) a retirement annuity contract,

(d) an annuity or insurance policy purchased, or transferred, for the purpose of giving effect to rights under an occupational pension scheme or a personal pension scheme, and

(e) an annuity purchased, or entered into, for the purpose of discharging liability in respect of a pension credit under section 26(1)(b) or under corresponding Northern Ireland legislation;

"personal pension scheme" has the same meaning as in the Pension Schemes Act 1993;

"prescribed" means prescribed by regulations made by the Secretary of State;

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"retirement annuity contract" means a contract or scheme approved under Chapter III of Part XIV of the Income and Corporation Taxes Act 1988;

"trustees or managers", in relation to an occupational pension scheme or a personal pension scheme, means—

(a) in the case of a scheme established under a trust, the trustees of the scheme, and

(b) in any other case, the managers of the scheme.

(2) References to the person responsible for a pension arrangement are —

(a) in the case of an occupational pension scheme or a personal pension scheme, to the trustees or managers of the scheme,

(b) in the case of a retirement annuity contract or an annuity falling within paragraph (d) or (e) of the definition of "pension arrangement" above, the provider of the annuity, and

(c) in the case of an insurance policy falling within paragraph (d) of the definition of that expression, the insurer.").

Clause 25 [Activation of pension sharing]:
[Amendments Nos. 67 to 69 not moved.]
Lord Astor of Hever Lord Astor of Hever moved Amendment No. 70:
Page 29, line 8, leave out ("2") and insert ("3").
The noble Lord said: My Lords, in moving Amendment No. 70, I shall speak also to consequential Amendment No. 71.
As presently drafted, the pension sharing order or agreement will be treated as ineffective in Scotland if the person responsible for a pension arrangement to which the order or agreement relates does not receive copies of, inter alia, the pension sharing order or agreement and the relevant decree of divorce or declarator of annulment within two months of the date of the extract of the decree or declarator. It is anticipated that the burden of sending the relevant documents to the person responsible for the pension arrangement will rest with the parties to the divorce or annulment. In practice this will normally be the person who will benefit from the pension sharing.
The effect of the amendment is to extend the period available in which the person responsible for the arrangement can receive the relevant documentation and information as may be prescribed. We on these Benches are of the view that a two-month time limit may not allow sufficient time in which to serve the appropriate documentation. While subsection (10) makes provision for the court in Scotland to extend the two month period, it will apply only in exceptional cases and an application must be made to a sheriff. Rather than burden the courts with unnecessary applications to extend the period, the time limit should simply be extended to three months. I beg to move.
Baroness Hollis of Heigham: My Lords, Amendments Nos. 70 and 71 relate to the process of pension sharing applying in Scotland. While in England and Wales it will be the courts that will send

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the relevant matrimonial documents to the person responsible for the pension arrangement—and so start the period during which the pension share must be implemented—in Scotland the process in an action for divorce is driven by the parties to that divorce. So in Scotland it would be for the parties to send the relevant documents to the person responsible for the pension arrangement.
When preparations for the Bill were first being made, the pensions industry suggested to officials in the DSS that it would be necessary to include in the Bill a provision that would encourage the parties in Scotland to submit the relevant documents with due speed. Noble Lords will understand that it could be possible for the submission of these documents to be delayed. It may be that one party to the divorce might see an advantage in delaying matters. The result would be that the pension share would be delayed, perhaps indefinitely, and that would undermine the intentions behind Part IV of the Bill.
Accordingly, when in June 1998 the draft Bill was published, the Government included the provision that is now Clause 25(7). This provides a two-month time limit for the pension arrangement to receive the relevant documents, otherwise the pension sharing is treated as ineffective. This was in direct response to the Government listening to and reacting to the views of the pensions industry. We believe that it allows sufficient time for the parties to submit the relevant documents.
However, the Government were prepared to consider this provision further when the Law Society of Scotland suggested that there might be genuine circumstances where it would not be possible for the parties to submit the relevant documents within the two-month period. The Law Society thought it would be invidious if this were to happen. It sought a provision that would allow judicial intervention in exceptional circumstances. Consequently the Bill includes a provision in Clause 25(10) to allow the sheriff to extend the two-month period in exceptional cases.
As there is already on the face of the Bill a provision that would allow the two-month period to be extended in exceptional circumstances, we do not need the amendments suggested by the noble Lord opposite. The effect of the amendments would be to provide a three-month period in all cases. This would extend the period during which the parties and the pension arrangement would have to wait before the pension arrangement could even begin to implement the pension sharing. This would lead to all-round frustration and would unduly delay the settlement of post-divorce arrangements.
I think the exceptional circumstances provision meets the need underlying this amendment without introducing unnecessary delay. I hope that the noble Lord will not press his amendments.
Lord Astor of Hever: My Lords, I thank the Minister for that explanation. I am sorry that she has not gone the small distance and accepted three months rather than two months, but I do understand her reasons, particularly on the exceptional arrangements. In the light of that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 71 not moved.]
Clause 26 [Creation of pension debits and credits]:
Lord Astor of Hever Lord Astor of Hever moved Amendment No. 72:
Page 29, line 43, leave out ("of the appropriate amount") and insert ("calculated in accordance with section 28").
The noble Lord said: My Lords, in speaking to Amendment No. 72, I shall speak also to Amendments Nos. 76 to 81, 85 and 86 in this group of rather technical amendments.
Clause 26 is pivotal to the pension sharing provisions in that it specifies that the relevant member's pension rights will be subject to a debit and the former spouse will become entitled to a pension credit equal to the amount of the debit. This clause is intrinsically linked to Clause 28 which provides a mechanism for calculating the reduction of the benefit. It is vital that the basis for quantifying the pension debit is clear. We feel that. Amendment No. 72 is necessary to link the process of calculation to Clause 28.
Clause 28 provides for pension debits which reduce in certain circumstances the benefit or future benefits to which the member is entitled. We believe that a distinction should be drawn between pension arrangements which provide defined benefits and those whose members can qualify for money purchase benefits. Amendments Nos. 76 and 77 are designed to ensure that where there is a defined benefit it is the extent of that benefit which is reduced. However, where there are accrued rights to qualifying money purchase benefits, the debit will take the form of a reduction of the money in the member's pension pot. The current wording of the clause does not provide for a reduction in the money purchase pot as it focuses on the benefits ultimately payable from the scheme.
Amendment No. 78 is a consequential amendment necessary to take account of the distinction between accrued rights in qualifying money purchase schemes and other qualifying benefits or future benefits referred to in subsection (1)(b). Amendment No. 79 clarifies which benefits or future benefits are to be taken into account for the purpose of calculating the reduction of benefits or future benefits. It ensures that only those benefits or future benefits to which the person was entitled at the time of the transfer are taken into account. Accordingly, death in service benefit would not be reduced because a member would not be entitled to benefit from it at the time of transfer.
Subsection (2) deals with the case of an active member of an occupational pension scheme who is in pensionable service on the day the order or agreement takes effect. The current drafting of the clause does not make it clear which benefits or future benefits are to be included for the purpose of calculating the extent of the pension debit. This amendment removes any ambiguity.
Amendment No. 80 ensures that a reduction in a qualifying benefit does not result in a reduction in a non-qualifying benefit. It is not intended that certain benefits such as a widow's death in service pension, for example, would be reduced as they are not qualifying benefits in terms of Clause 28(3). In the view of the Law Society of Scotland, such benefits will be reduced if they are a proportion of the member's pension. This amendment will highlight that the distinction between qualifying and non-qualifying benefits has to be made at an early stage so that the extent of the pension debit can be accurately determined and non-qualifying benefits not unjustifiably reduced.
Amendment No. 81 is a consequential amendment which extends the application of the definition of a qualifying benefit to include proposed Clause 28(2)(a). Finally, Amendments Nos. 85 and 86 insert definitions of the words "accrued rights" and "money purchase benefits" in the Bill. This will ensure that there is clarity in the terminology adopted in our proposed amendments to Clause 28. I beg to move.
1.45 a.m.
Baroness Hollis of Heigham: My Lords, I am deeply disappointed to see that there are not at least 15 speakers wishing to support the noble Lord and his amendments. They are important but extremely technical amendments. They are concerned essentially with the mechanics of the pension debit—the reduction in the pension rights of the member whose pension has been shared.
The amendments proposed reflect a concern, which I understand is shared by the Law Society of Scotland, that the provisions in the Bill relating to the pension debit would be clearer if the treatment of money purchase benefits was separated out from the treatment of other benefits. The main effect of the amendments would be that where money purchase benefits have been shared, then the pension debit should be calculated and deducted on the transfer day—that is the day on which the relevant pension sharing order or provision takes effect. By contrast, if the benefits concerned are salary-related, then the pension debit should be calculated at an appropriate date in the future; for example, when the member retires and draws his pension.
In creating this distinction between money purchase and salary-related benefits, the amendments seem intended to tie the reduction under Clause 28(1) to a particular date, depending on the type of benefits to be shared. We do not believe that that is either
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desirable or necessary. As drafted, we believe that the provisions in the Bill will provide the flexibility to deal not only with the vast range of pension schemes that exist but also with contingencies such as early ill-health and deferred retirements.
A further implication of the amendment is that Clause 28(2) as drafted could be interpreted as requiring two deductions in members' pension rights in the money purchase case. However, the Government's view is that this is not the case. As we have made clear in the Explanatory Notes to the Bill, the policy intention is that for a member of a money purchase scheme, the debit will take the form of a once and for all reduction of a percentage of the money in the pension "pot" at the time liability for the pension credit is discharged.
It is clear from the noble Lord's remarks that behind Amendments Nos. 79 and 80 lies a concern that death in service benefits will be reduced following a pension share. Again, we do not believe that that is the case. Subsection(3) of Clause 28 defines a benefit as a qualifying benefit only if the cash equivalent of the pension debit includes an amount in respect of that benefit. However, the cash equivalent will not include the value of a death in service benefit, which means that it would not be a qualifying benefit and therefore would not be reduced as a result of pension share. For completeness, I should add that essentially this group of amendments does not change the way in which the member's salary-related pension benefits are reduced following a pension share.
As I said at the outset, Clause 28 is a difficult provision on which much effort was expended when the pension sharing provisions were drawn up. We are not persuaded that the amendments tabled actually change the way in which the provisions work. Instead they introduce a degree of rigidity into the process which might of itself create difficulties; for example, in dealing with hybrid schemes where the member has a mixture of salary-related and money purchase benefits or where the scheme rules provide for an unusual package of benefits.
I do hope that the brief explanation that I have provided, on what is difficult territory for lay people such as myself, will be sufficient to persuade the noble Lord to withdraw the amendment. Again, I am more than happy to follow this up with any further correspondence that seems appropriate.
Lord Astor of Hever: My Lords, I thank the Minister for that reply and I apologise to the House for introducing at this very late hour these technical and complicated amendments. However, they are matters of great concern to the Law Society of Scotland. In view of the late hour, I shall not add anything. I shall read Hansard carefully and consider what the Minister has said. Possibly we can correspond. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 73 to 75 not moved.]
Clause 28 [Reduction of benefit]:
[Amendments Nos. 76 to 81 not moved.]
Clause 29 [Effect on contracted-out rights]:
Lord Astor of Hever Lord Astor of Hever moved Amendment No. 82:
Page 32, line 9, leave out subsection (3)
The noble Lord said: My Lords, I rise to move Amendment No. 82 and to speak to the consequential amendment, Amendment No. 83. Amendment No. 82 removes the provision for the reduction of guaranteed minimum pension in consequence of the pension debit. We are of the view that the proposed Section 15A is incompatible with Clause 28. Clause 28 assumes that benefit under a pension arrangement is calculated in accordance with scheme and statutory provisions and then the pension debit applies.
Clause 29(3) would, however, alter the basis of calculating benefits by reducing the member's guaranteed minimum pension for the purposes of calculating revaluation under Schedule 3 to the Pension Schemes Act 1993.
In terms of Clause 28, the member's benefit continues to be calculated as if the pension sharing had not taken place. When the member's benefits come into payment on his retirement—the future benefit referred to in Clause 28(2)—a negative deferred pension is calculated and deducted at that time. If the member's GMP is reduced in terms of new Section 15A at the time of the order, that would alter the method of calculating the member's benefits as a scheme would no longer test its benefits against the full GMP or calculate revaluation and protection based on the full GMP. The member's total benefits are already reduced by Clause 28(1) once they come into payment, so there is no need for any special provision for GMP.
We must ensure that these clauses are workable before they become law. I accept that the Minister's department has gone some way to be flexible in this matter in correspondence with the Law Society of Scotland. However, the society has made it clear that it does not feel that the concessions go far enough. Clause 29(3) should therefore be deleted. I beg to move.
Baroness Hollis of Heighani: My Lords, Amendments Nos. 82 and 83 proposed by the noble Lord would result in an inconsistency in the legislation on pension sharing and the general rules on contracting out. In particular, it would pull the provisions in Clause 29 out of line with those in Clause 28. The latter clause makes provision for each qualifying benefit which forms part of the member's shareable rights to be reduced by the appropriate percentage specified in the pension sharing order.
Perhaps I may briefly explain the function of Clause 29(3). For consistency with the provisions in Clause 28, this subsection inserts a new Section 15A into the Pensions Schemes Act 1993 that provides for the reduction of the guaranteed minimum pension as a result of a pension debit. The practical effect of
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Section 15A is that the scheme trustees will be discharged of their liability to pay a full GMP to the member whose rights are subject to a pension debit.
As noble Lords are no doubt aware, employers making occupational pension provision can contract their employees out of the state earnings-related pension scheme. Prior to 6th April 1997, the contracting-out bargain required employers operating salary-related schemes to pay a minimum level of pension. That was called the GMP. From 6th April 1997 individuals no longer build up an entitlement to a GMP for future service; instead, the scheme has to satisfy an overall test of quality.
Section 15A puts it beyond all doubt that schemes can pay a reduced GMP as a result of a pension sharing order or agreement without breaking the contracting-out rules. In the absence of Section 15A, members with GMP rights whose pension rights were reduced by a pension sharing order might consider themselves as remaining entitled to a full GMP and take steps to secure it. That would be contrary to the policy intention and could leave schemes at risk of having to foot the bill for the part of the pension debit relating to the GMP.
I hope that that brief explanation has reassured the House, and in particular the noble Lord, Lord Astor, that Section 15A is indispensable to the correct operation and proper interpretation of the legislation. It provides an important protection for trustees who put a reduced GMP into payment when the member retires. I therefore urge the noble Lord to withdraw his amendment.
Lord Astor of Hever: My Lords, the House will be grateful to the Minister for that full reply. In the light of what she has said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 83 not moved.]
Clause 34 [Requirements relating to pension credit benefit]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 84:
Page 42, leave out lines 28 and 29.
Clause 43 [Interpretation of Chapter I]:
[Amendments Nos. 85 and 86 not moved.]
Lord Astor of Hever Lord Astor of Hever moved Amendment No. 87:
Page 48, line 32, after ("(1)") insert—

("(i) where the benefits secured by the annuity are payable to the trustees of a trust, to the trustees of that trust, and

(ii) where the benefits secured by the annuity are payable to the beneficiaries").

The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendment No. 88. These are probing amendments to establish who is responsible for pension arrangements in terms of the Bill.
In view of the Minister's earlier comments tonight, I hope that she will accept that I merely seek clarification. The amendments would remove any ambiguity which currently exists in relation to who is responsible for pension arrangements. There is doubt as to who would be responsible in the case of a buyout policy written under the trust.
One argument is that the order applies to the insurer and that that restricts the amount payable to the trustees. The other argument is that the insurers should pay the money to the trustees and then the trustees ought to be responsible for implementing the order.
The amendments remove that ambiguity and make it clear that the trustees are always the "responsible person" and that the insurer would come in as responsible person only if there were no trustees. I beg to move.
2 a.m.
Baroness Hollis of Heigham: My Lords, we have heard that Amendments Nos. 87 and 88 are intended to modify the definition of "person responsible for a pension arrangement". I am grateful to the noble Lord for explaining the reasons behind the amendments. I agree with him that where specific definitions in legislation lack clarity, we should, as far as possible, try to correct that. To that end, these are helpful amendments. However, I do not accept that the definitions to which these amendments refer are unclear. I understand that in discussion with officials the National Association of Pension Funds has indicated that it is content with the current definitions as drafted.
The Bill places various obligations on persons responsible for pension arrangements. The term "pension arrangement" is a new definition. It primarily covers occupational and personal pension schemes, but it also includes other types of pension provision, such as retirement annuity contracts, buyout policies and insurance policies used to discharge liability for the pension credits acquired by a former spouse as a result of a pension sharing order. This is because we want pension sharing to be available in respect of all pension rights where it is practical for those rights to be shared, not just pension rights held in an occupational or personal pension scheme.
There will be a number of obligations on persons responsible for pension arrangements; for example, to provide information and valuations and to implement pension sharing orders within specific time-scales. We believe that Clause 43(2) is clear about who is responsible for meeting these obligations. In cases where rights are secured under an annuity contract or insurance policy, we believe that it is appropriate for the responsibility to rest with the annuity provider or the insurer, even in those cases where the policy is written under trust; that is, where the benefits are paid to the pension scheme trustees. With these types of pension arrangement the insurer is generally responsible for the day-to-day
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administration of the annuity contract or insurance policy, while the trustees usually have only a peripheral role. In our view, therefore, it would be an unnecessary burden to place the responsibility for the arrangement on the trustees in such cases as the amendment suggests.
If, exceptionally, an annuity provider or insurer has difficulty in implementing a pension sharing order because of the action or inaction of the trustees of a pension scheme, OPRA will take this into account in determining what needs to be done and has the power to impose sanctions. Again, we do not believe that there is a case for shifting responsibility to the trustees. I hope that that clarifies the position and that, in the light of my explanation, the noble Lord will feel able to withdraw his amendment.
Lord Astor of Hever: My Lords, I thank the Minister for that reply which clarifies the matter. I was particularly pleased to hear her remarks about NAPF. I have not spoken to that body. In the light of that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 88 not moved.]
Schedule 6 [Effect of state scheme pension debits and credits]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 89 to 91:
Page 106, line 19, after ("before") insert ("the end of").
Page 107, line 2, after ("before") insert ("the end of").
Page 107, line 41, after ("before") insert ("the end of").
Baroness Fookes Baroness Fookes moved Amendment No. 92:
Before Clause 49, insert the following new clause—

ENTITLEMENT TO PENSION ETC UPRATING: RESIDENCE OUTSIDE GREAT BRITAIN
(" .—(1) The Contributions and Benefits Act shall be amended as follows.
(2) In section 119 (persons outside Great Britain), at the beginning there shall be inserted "Subject to section 119A".
(3) After section 119 there shall be inserted—
"Entitlement to pension etc uprating (residence outside Great Britain)
119A. Notwithstanding the provisions of any other enactment, no person who is entitled to a retirement pension under Part II or III of this Act shall be disqualified by reason of residence outside Great Britain from any benefit under this Act, or any uprating of any such benefit, if he would have been entitled to such benefit or such uprating if he had instead been resident in Great Britain."").
The noble Baroness said: My Lords, in moving Amendment No. 92 I should like to speak also to the second amendment in my name which complements the first. I make no apology for seeking to raise it at this hour: the importance of the topic does not diminish because it is late. This is a very longstanding grievance which these amendments seek to remedy. I am sure that noble Lords will be aware that

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British pensioners who go to live abroad immediately find that their pension is frozen and that for many no upratings are allowed. There are some pensioners who are lucky enough to live in countries where there are reciprocal arrangements for upratings, but there are about 433,000 pensioners whose pensions are completely frozen. The first amendment seeks to get rid of this bar so that we can consider in the second amendment how changes may be made to remedy the situation.
It is a long-standing grievance that has met the deaf ears of Ministers of both political parties, so there is nothing to choose between past governments in this regard. It has always been a question of cost. But there is a very real sense of grievance among these pensioners who are scattered across the globe. They feel that they contributed to an insurance scheme, albeit a state one, and that having made the contributions they are entitled to the benefits.
The Social Security Select Committee in the other place which looked at this matter and reported in 1997—Mr Frank Field chaired that committee at the time—pointed out bluntly that in reality it was a taxation system and it could be changed at any moment by the government of the day. But that is not how pensioners see it; they still believe it to be a contributory system and that they are, therefore, entitled to it.
The grievance is compounded by the fact that some pensioners get the upratings if they live in particular countries but others do not. This is startlingly illustrated by someone who lives in the south of Canada or the north of the United States. The line is very fine. For example, in 1974 a single pensioner without a wife who lived on one side would have had a pension of £10. That would equate to about £65, but if he was living on the Canadian side it would still be £10. For a widow who retired 30 years ago at the age of 60—there are many 90 year-olds about—a pension of £5 would still be £5. People suffer in a very practical way because there has been no upgrading.
I realise that the real enemy is the money that it would cost to put it right. That is why in my second amendment I suggest that the Secretary of State should have consultations with the various governments involved to see whether some compromise may be reached that falls short of full uprating but which nevertheless removes the main grievances, with a report to Parliament within a year. I had in mind that perhaps the upratings might not be updated but would take place from now. Alternatively, one might give the upratings to older pensioners, say those over 80 or 85, so that those in most need who are dealt a greater blow by reason of age and size of pension that they receive may be helped. One might find a compromise in other ways. I am not sure whether that would be acceptable, but it is something that should be explored.
I very much hope that I get a sympathetic response from the Minister, although my years in politics suggest that that may be misguided and overoptimistic. None the less, because this is a matter of such importance to our pensioners, many of whom would have served in war—we have a special feeling for those—I must make the point as strongly as I can whether it be two o'clock in the morning or in the afternoon. I beg to move.
Lord Goodhart: My Lords, I have tabled Amendment No. 104 which is grouped with the amendments of the noble Baroness, Lady Fookes. My amendment is very much to the same effect as Amendment No. 92. As the noble Baroness said, this is an attempt to remedy a longstanding grievance. It was raised at Committee stage, and I think is rightly raised again.
There are about 850,000 pensioners resident outside the United Kingdom. They have earned their pensions by paying national insurance contributions in the United Kingdom. I recognise that they have not earned those pensions in the strict legal sense because, as we all know, contributions by current earners pay for the current pensioners not for the pensions of the contributors themselves. But those contributions have given them a moral right to the pension.
Non-residents receive a pension whether they are still in this country or abroad when they reach the state pension age. I could see some argument or logic—I would not for a moment agree with it—in saying that if you are non-resident you receive no pension. But it is a wholly indefensible anomaly to say that you receive your pension but you do not have it uprated along with everyone else who gets a pension. Most of the non-resident pensioners do not receive the yearly uprating of pensions in line with prices. It is true that when that rule was introduced pensions were uprated in line with earnings. There may be some argument for not uprating them in line with earnings but none that I can see for not uprating them in line with prices.
Of those pensioners, 390,000 live in the European Union or in countries where, by virtue of a reciprocal arrangement, they have the benefit of the uplift. But about 450,000 receive no uplift and therefore in real terms they get a year by year cut in their pensions as they get older. In past years, when inflation was high, there has been a large cut in real terms.
I recognise that some benefits such as jobseeker's allowance or income support cannot appropriately be paid to non-residents. But pensioners are in a different position. They have earned a moral right to the pension by the contributions that they have paid. Some may have worked in the United Kingdom for only a few years and will receive only a small pension.

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Furthermore, non-resident pensioners are saving money for United Kingdom taxpayers because they impose no burden on the National Health Service or on social services. The problem is that non-residents have little clout because few of them have votes. Refusal of uprating is impossible to justify on principle. The only defence put forward by the noble Baroness at Committee stage was cost, which is alleged to be some £275 million a year. I accept that that is a significant amount, but it is not enormous and is more than covered by the additional tax that is intended to be secured by the blocking-up of the personal service company loophole.
The Government say that this is not a priority for expenditure. But the Government and the United Kingdom taxpayer should recognise that the rights of this defenceless group should be recognised as a matter of common justice.
Lord Monkswell: My Lords, I had not intended to speak but it is only right that the Benches on this side of the House should be associated with the recognition of the perceived unfairness of the situation: that some overseas pensioners receive uprating and others do not.
I take exception with the noble Baroness's amendment where it suggests that we should take unilateral action. We all recognise that pensioners who live overseas in countries which have a reciprocal arrangement receive uprating. While I object to the proposed amendment to deal with the unfairness and anomaly, the House should recognise that unfairness and anomaly. I hope that the Government recognise the need to address the issue not by a unilateral uprating and indexation of pensions from the United Kingdom on its own but by taking urgent steps to ensure that we negotiate the right reciprocal arrangements to deal with this heartfelt problem.
Lord Higgins: My Lords, I am sure that the House will want to congratulate my noble friend Lady Fookes not only on her stamina but also on her patience. She has sat through all the debates, which have been going on for some time. No doubt many late nights in the Chair of another place provided her with both those attributes.
My noble friend raises an important issue which we discussed in Committee. Somewhat to my surprise, I found myself seeking to approach it with an open mind. The issue has been around for so long that one's views have perhaps ossified. In the light of correspondence I have received from a number of people overseas, I discovered that I was wrong in one or two of the remarks I made in Committee. I suggested that the increases were being paid for by taxation, by those who were resident here as against the people resident overseas. In fact, it is a pay-as-you-go system based on the contributory principle. As the noble Lord, Lord Goodhart, pointed out, to the extent that they contributed and then retired, they might reasonably expect to receive the same benefits
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as other people who happen to be living here. But of course the difference is made up by the contributions of those who remain, not retired, because the whole system is based on the idea that pensions being paid today are financed by those who have not retired, and the thing goes on from stage to stage in that way.
It is right that we should reconsider the matter. After the Committee stage, I took the opportunity to refresh my memory and read in more detail the report of the Social Security Select Committee of another place. It examined the matter in some detail and made specific recommendations to which I shall turn in a moment. However, on reflection, I find the whole reciprocal arrangement rather strange. I am not sure how we got into the position of saying, "If you pay ours, we'll pay yours". It is a strange arrangement and rightly gives rise to some claims of discrimination. Whether you are uprated or not depends not on whether you went abroad, but to which country you happened to go. That is not a good basis for deciding the matter one way or the other.
However, those arrangements exist and have been to the advantage of those who have gone abroad if they were fortunate or clever enough to go to a country which had a reciprocal arrangement. Therefore, I was rather disturbed after the Committee stage to receive an e-mail suggesting that the Australians, who I understand are included in the reciprocal arrangement—
Noble Lords: No.
Lord Higgins: My Lords, not so. In that case, I am puzzled by the e-mail which I received. It suggested that, following a meeting with Alistair Darling, the Australian Social Security Minister, Jocelyn Newman, gave notice to the UK that Australia intended to end the social security agreement with the UK because of the UK's intransigence on the frozen pension issue. In that case, I am puzzled by the e-mail and do not understand exactly what the position is. It would be helpful if the Minister could throw some light on that.
At all events, after the Select Committee in the other place had looked at the matter in considerable depth, the conclusion was that it is a question of priorities. There is some cost—of the order mentioned by the noble Lord, Lord Goodhart. It is a question of whether that is something that is appropriate to give priority to rather than some alternative use of the equivalent amount of money. The report suggests that there should be a free vote on the issue. If the House is to assess priorities, it seems to me that there could be some case for that argument.
As to the second amendment moved by my noble friend, there may be some case for those consultations, although it seems to me that the real problem is that there is clearly an anomalous situation when some countries have a reciprocal arrangement and others do not. It is right that we should reconsider the issue. I am glad that my noble

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friend has taken the opportunity at 2.15 in the morning to raise the point. Since I gather that we are not competing with the Commons on the parliamentary programme, it may be that there are those getting up now in Canada or wherever who have been listening to what she has to say and probably complaining about the reply which we may receive from the Minister.
2.15 a.m.
Baroness Hollis of Heigham: Yes, my Lords, if they are, then they probably will.
The amendments have one purpose: to attempt to redress the situation where more than half of UK pensioners living overseas do not receive annual cost of living increases in their retirement pension. The House is well aware that the issue has been discussed for many years and has been considered in previous debates, including the Committee stage of this Bill. I am aware of the importance which some Members of the House attach to the issue and of the strength of feeling among many UK pensioners overseas. In return, noble Lords know the Government's position well and I do not believe—as the noble Lord, Lord Higgins, suggested—that they will be particularly surprised at my response to the amendments proposed.
UK pensions are paid anywhere in the world. We pay some 870,000 pensioners in more than 150 countries. In 1998 the UK paid over £1 billion in retirement pensions to pensioners living abroad. Some 470,000 of those pensioners have what is commonly referred to as a frozen pension—in other words, it is fixed at the point at which they left the UK permanently or at the rate initially awarded on retirement if the person is already resident abroad. The pension remains frozen at the rate payable when a person ceases to live permanently in the UK.
Upratings are only paid within the EEA, in the Channel Islands, the Isle of Man and in about a dozen other countries where certain long-standing social security arrangements, going back to the 1950s for the most part and certainly before the 1970s, exist.
Noble Lords must also recognise that pensioners who live abroad have chosen to do so, and they knew that their pension would be frozen when they made that decision. That position does not represent a change in government policy—it has not changed since 1955. It is not solely a priority for this Government to reconsider and it is not just the Government's view. The Social Security Select Committee came to the same conclusion in 1996 when they considered the matter. If it wants a free vote on this, I wonder whether it would like a free vote on all areas of government expenditure so that on the basis of free votes we can all decide what our priorities are.
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We already know the scale of the total cost of uprating all frozen UK state pensions paid a broad to the rate of pensions in the UK. It would be some £300 million per year for all countries affected. The amendment as drafted also seems to suggest that any pensioner could be entitled to attendance allowance as well. If that happened it would add many millions to the bill.
The noble Lord, Lord Higgins, read from the e-mail about the Australian Government. The Australian Government recently announced that they will be ending their social security agreement with the UK because we have rejected their proposal for a limited unfreezing. Over 45 per cent of frozen rate pensioners live in Australia and total unfreezing would cost £129 million. The Australian proposal would apply only to the 3,000 people who already receive the means-tested Australian old age pension and those who start to get a UK pension in Australia in the future. It would not benefit the great majority of the 200,000 UK pensioners resident in Australia. In other words, the Australian Government asked not for a total unfreezing but for a certain response from us for the 3,000 who already receive the means-tested Australian age pension. That would not affect the majority of those living there.
It may be helpful if I repeat the figures I gave to noble Lords when we discussed this issue. My noble friend Lord Monkswell seemed to suggest that all we needed was a reciprocal arrangement; that we should then have symmetry and all would be well. That is simply not the case. At the moment, for example, there are 17,000 Australian citizens living in this country while there are 210,000 UK citizens living in Australia. From New Zealand, 7,600 live here; 34,000 of our citizens live there. From Canada, 9,500 live here; 138,000 British citizens live there. Therefore, though it might be reciprocal, any unfreezing would not be at all symmetrical. The costs would very heavily fall on the UK Government.
I can only repeat what I have said before: those UK pensioners living abroad have chosen to do so in full knowledge of how it would affect their pension. As is very clear from these figures, we are not talking about equality of spending between two countries. Our overall position is clear. We do not consider unfreezing to be a priority call on resources. Those who have chosen to live abroad cannot have first call on resources in the light of some of the issues about social exclusion and so on which we have been talking about tonight. We have much to do to improve the position of pensioners and indeed the very poor who are in the greatest need in the UK. I regret, therefore, that I shall not be able to accept the amendment proposed tonight.
Baroness Fookes: My Lords, as I was not expecting any concessions, I have not been disappointed. However, that does not mean that I do not: remain annoyed nor that I shall not continue to work on what I believe to be an injustice. Clearly, for the time being, I shall make an orderly retreat but only so that

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I can regroup to fight another day. In those circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 93 not moved.]
Lord McIntosh of Haringey: My Lords, I beg to move that consideration on Report be now adjourned.
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Moved accordingly, and, on Question, Motion agreed to.

City of Newcastle upon Tyne Bill [H.L.]
Committed to an Unopposed Bill Committee.
House adjourned at twenty-three minutes past two o'clock.