Lords Sitting of 1 November 2004

Preamble
The House met at half-past two of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.
Prayers—Read by the Lord Bishop of Rochester.

Iraq Survey Group Report: Weapons of Mass Destruction
Lord Redesdale Lord Redesdale asked Her Majesty's Government:
In the light of references in the Iraq Survey Group report to two vehicles found in Iraq suspected of being involved in the production of weapons of mass destruction, what were the components of British manufacture and the companies that produced them.
The Minister of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, the vehicles were carefully examined by the Iraq Survey Group (ISG), which concluded that it was not practicable to use them for the production of biological agents. Valves found in the vehicles had been supplied by a British company, but they could have had a number of applications in general-purpose machinery and were not subject to control under UN sanctions on Iraq.
Lord Redesdale: My Lords, I thank the Minister for her Answer. However, she completely failed to answer the Question, which clearly referred to the companies involved. This is not an abstract question: the companies that supplied those parts could be traced and we could find out whether those vehicles were part of the order supplied by Marconi.
If that is the case, it very difficult to understand how those vehicles could ever have been associated with the weapons of mass destruction programme. If that is so,
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there are very serious questions that must be asked of the Government about why, when I asked the question the first time, they used exemption from freedom of information as a reason for not giving me the answers. Can the Minister give the names of the companies and the parts' numbers?
Baroness Symons of Vernham Dean: My Lords, no, I cannot. I shall try to explain to the noble Lord. These vehicles were not part of the weapons of mass destruction programme. That is what the ISG concluded. The noble Lord will know that if he has read the report. We do not think that they are the same vehicles that were identified by Secretary of State Colin Powell in March 2003.
Although there has been no question of the parts having been exported to Iraq in breach of export controls, the MoD and the agencies have said that we should not name the companies publicly. That might lead to unfounded speculation that the company had been involved in the export of goods which had a WMD application. Such speculation would be damaging to the reputation of the company.
I know that the noble Lord has been worried about that, but he must read the report sensibly in order to understand that this has nothing to do with weapons of mass destruction, that the valves have nothing to do with weapons of mass destruction and that nothing in this will help him on his fishing expedition.
Lord Campbell of Alloway: My Lords, in the circumstances as they exist today in Iraq, what is the conceivable constructive purpose of this Question?
Baroness Symons of Vernham Dean: My Lords, the noble Lord, Lord Redesdale, to be fair to him, has been fairly consistent in his questions about these two vehicles. The problem is that the two vehicles in the report are not the two vehicles that originally excited the noble Lord's attention.
Lord Campbell-Savours: My Lords, now that the Duelfer report, which was published last month in

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the United States, has revealed that anthrax supplied by the American Type Culture Collection Company was the exclusive strain used in the Iraqi biological weapons programme—strain No. 14578—is there not a basis now on which we can legitimately criticise the United States for its export policies during the 1980s?
Baroness Symons of Vernham Dean: My Lords, it would not be the first time that criticism has been made not only of the United States but also of many countries, including this country, about export policies in the 1980s. However, I remind my noble friend that this Question is about the ISG report on the production of weapons of mass destruction in relation to these particular vehicles. That is why I am answering the Question in that way.
The noble Lord may have some very relevant points about wider issues, including United States' exports. I am sure that those other issues—indeed, there are many more to be examined in depth in the ISG—would be a very satisfactory subject for further discussion.
Baroness Williams of Crosby: My Lords, these mobile laboratories played a very large part in the evidence adduced for the run-up to the Iraqi war. In January 2003, President Bush in his State of the Union address directly referred to mobile weapons laboratories. The following month Colin Powell referred to mobile production facilities. Reference was further made both in the second dossier that the Government produced in September 2002 and in the Hutton report. The so-called mobile weapons laboratories have played a very central part.
As I understand it, the Minister has said that they were different vehicles. First, can she therefore point to why it was that my noble friend in his persistent questioning received no reply in answer to several questions on this issue? Secondly, what mobile laboratories had the Government in mind when they produced the evidence that they put in their own dossier in September 2002?
Baroness Symons of Vernham Dean: My Lords, I shall have to check this out, but I think that what we had in mind was exactly what Secretary of State Colin Powell referred to in his evidence to the United Nations in 2003. However, the fact is that the two vehicles to which the noble Lord referred in his Question have been examined by the ISG. They are similar in design but they do not match the vehicles that were described by Secretary of State Powell.
These vehicles were subsequently discovered in northern Iraq shortly after the end of the conflict. They have been fully examined by coalition experts who concluded that their purpose was for the production of hydrogen to fill meteorological balloons. That is a very different point from that raised by the noble Lord in
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relation to weapons of mass destruction. If there is a point that he wants to go back on over those vehicles, I am afraid that he will have to readdress his Question.
Lord Howell of Guildford: My Lords, as, in the Minister's own words, the ISG report raises many new issues and as, under the toxic and biological weapons convention, it has long been completely illegal to export any weapons or items connected with weapons of mass destruction anywhere—Iraq or anywhere else—can the Minister say whether, in the light of the ISG report, reports from the new Iraqi Government and the 12,000-page dossier from the old Iraqi Government before the invasion, there is any evidence that is leading to new proposed prosecutions or, indeed, announced prosecutions against any firms that may have indulged in those illegal activities?
Baroness Symons of Vernham Dean: My Lords, again, I am afraid that the noble Lord's point is well wide of the Question. This Question concerns vehicles that have nothing to do with weapons of mass destruction: neither the vehicles nor the valves within them; and there is no question of illegal export. That is why I have answered the Question in this way. There may well be other issues arising from the ISG on which I would welcome a further discussion. No one knows better than noble Lords on the Liberal Democrat Benches how much I enjoy our robust exchanges on these matters.
Lord Wallace of Saltaire: My Lords, do we know what has happened to the original vehicles to which Colin Powell referred? Have they been somehow lost in the interim? Where did the two different vehicles come from?
Baroness Symons of Vernham Dean: My Lords, oddly enough, in a country the size of Iraq I cannot help the noble Lord regarding the whereabouts of two particular vehicles. What I can help the noble Lord with is the two vehicles looked at by the ISG which, it concluded, were different from those referred to by Colin Powell.

Mobile Phones: Use by Motorists
2.44 p.m.
Viscount Tenby Viscount Tenby asked Her Majesty's Government:
What steps they are taking to evaluate the effectiveness of the regulation banning the use of hand-held telephones by drivers in moving vehicles.
Lord Davies of Oldham: My Lords, the Department for Transport carries out regular surveys of mobile phone use by drivers. The survey carried out in September this year found that the use of hand-held mobile phones by car drivers had dropped by over 25 per cent since September 2003.
Viscount Tenby: My Lords, I am grateful to the noble Lord for that helpful reply. However, is he

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aware—I am sure that he is—that independent reports from all over the country show that this law is being flouted by motorists on a massive scale? I can only confirm that from my daily personal experience. Is that because the law is unenforceable or is it due to lack of police resources as more and more officers are transferred from traffic to other duties?
Lord Davies of Oldham: My Lords, why people do not obey the law is a matter for conjecture, but the issue with regard to penalties is important. In a memorandum to the Select Committee on Transport in the other place, the Government made it clear that when legislative time permits, we should increase the penalties for the use of hand-held mobile phones when driving, making it an endorsable offence carrying a £60 fine and three penalty points. However, the regulation has been in place for only nine or 10 months. We have concentrated our efforts on providing information for the public and issuing warnings about the fact that this is an offence.
Lord Faulkner of Worcester: My Lords, is my noble friend aware that research into the effectiveness of a similar ban in New York demonstrated that the use of hand-held phones by car drivers fell by 50 per cent in the first year, but that by the end of the second year, due to the absence of proper enforcement and publicity, such telephone use had returned almost to its original level? Is not the answer to this problem the one he hinted at in his response to the noble Viscount: if this offence is endorsable and subject to penalty points, which we hope it will be through the implementation of a new road traffic Bill, the problem of enforcement should be largely overcome?
Baroness Fookes: My Lords—
Noble Lords: Order.
Lord Davies of Oldham: My Lords, I hear what my noble friend says about the experience in New York during the second year regarding offences of this kind. However, we have had only one year of a ban and we are pleased that it has had some effect. However, the improvement has not been as good as we would have hoped and we are bearing in mind the research referred to by my noble friend. That is why we have indicated that, at the first available opportunity, we will take legislative measures to make the punishment for this offence more severe.
Lord McColl of Dulwich: My Lords, does the regulation banning the use of hand-held telephones also apply to the use of hand-held dictaphones and even the eating of hand-held bananas?
Lord Davies of Oldham: My Lords, it is the case that a driver may be committing an offence if, in the eyes of a police officer, he is not in full control of his vehicle. That may be due to the use of a hand-held telephone,
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but it might be as a result of eating a banana or some other comestible. Let us be clear: the driver is expected to be in full control of the vehicle. Any activity carried on in that vehicle by the driver which gives rise to the suspicion that he may not be in full control leaves him open to prosecution.
Baroness Boothroyd: My Lords, does a bicycle constitute a moving vehicle under these regulations? Daily I see cyclists taking their lives into their hands by having one hand on the handlebars and the other holding a mobile telephone. Is any action being taken in regulations to control this type of activity?
Lord Davies of Oldham: My Lords, this particular offence applies to the use of hand-held mobile telephones while driving, but cyclists too must be in control of the machines they are riding. If their actions could lead to loss of control of the bicycle at a crucial moment, which could result in a potentially serious accident, they too are potentially committing an offence.
Lord Bradshaw: My Lords, I declare an interest as a member of the Thames Valley Police Authority. Since the regulation came into force we have been prosecuting approximately 180 people per month. But is the Minister satisfied that the present penalty regime is sufficient? New fixed penalties for dropping litter, for letting off fireworks, for shoplifting and for a number of other offences are coming into force today, but police resources will not permit the collection of small fines. It really is essential that, through regulation, we move to increase the penalties very seriously.
Lord Davies of Oldham: My Lords, I agree with the noble Lord. Because we see difficulties with regard to enforcement, and because the improvement in driving behaviour has not been as marked as we would have hoped, we have indicated that in due course we will make this an endorsable offence. Drivers are concerned about penalty points being attached to their licences.
Baroness Fookes: My Lords, I apologise for earlier jumping the gun. I do not see the point of increasing the penalties in any form if drivers are not caught in the first place. What action will be taken to improve enforcement in that sense?
Lord Davies of Oldham: My Lords, enforcement regarding this offence depends on the person committing the offence being observed doing so, and therefore requires a police officer to have seen the offence being carried out. However, the same applies to the wearing of seat belts and we all appreciate that drivers' behaviour regarding the use of seat belts has improved enormously, with very few drivers breaking that law. The situation regarding the use of mobile phones has not improved to the extent we would like, and therefore in due course we

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are setting out to increase the level of punishments as well as encouraging police officers to monitor the position with care.
The Earl of Erroll: My Lords, does the Minister agree that losing one's livelihood is a little severe for answering just four telephone calls?
Lord Davies of Oldham: My Lords, nobody will lose their livelihood for a first offence. The indication is that we would increase the fine from £30 to £60 and put three points on the licence. As the noble Earl recognises, four such offences would have to be committed before a licence was withdrawn and livelihood threatened. Of course, repeat offenders do risk that happening, and so they should.

European Communities Act 1972
2.52 p.m.
Lord Taverne Lord Taverne asked Her Majesty's Government:
Whether they have any plans to amend the European Communities Act 1972.
Baroness Symons of Vernham Dean: My Lords, yes. As we indicated in the White Paper—Command Paper 6309—presented to Parliament on 9 September 2004, it is our intention to introduce a Bill to Parliament to give effect to the EU Constitution in United Kingdom law through amendment to the European Communities Act 1972.
Lord Taverne: My Lords, is it not correct that the leader of the Conservative Party, Mr Howard, as well as Mr Redwood, have announced that they intend to amend the European Communities Bill if the planned negotiation to repatriate fisheries policies is not successful? They intend to act unilaterally and disregard their obligations under the European treaties. Is it not surprising that a government who, we understand, still aspire to office—
Noble Lords: Party!
Lord Taverne: My Lords, I am sorry; is it not surprising that a party that still aspires to office should publicly announce that it intends to tear up any treaties that it does not like and behave in a manner that would be a disgrace to a banana republic?
Baroness Symons of Vernham Dean: My Lords, I do not answer for Mr Howard or Mr Redwood. However, as the noble Lord was kind enough to offer me such a splendid gift, I must say that I agree with him in every sense except the bit about the party opposite being in government. It is remarkable that they want to repeal legislation which, after all, they introduced.
Lord Renton: My Lords—
Lord Howell of Guildford: My Lords, let me have a go at answering the Question. I would have thought that it was crashingly obvious. The whole argument for the new constitution has been that it will simplify and embrace all existing treaties, so it is perfectly obvious that all the other treaties will have to be amended—in fact, nullified—in the legislation being introduced, which we recognise. However, we also recognise that, if the constitution fails, we will need to renegotiate many issues including the fisheries policy. I do not see any difficulty about that at all. Indeed, it will be necessary.
However, without anticipating the gracious Speech, when this legislation is introduced it will be much the most massive piece of European legislation in this House, dealing with amending all previous legislation connected to all the earlier treaties that your Lordships have ever faced. Will the Minister confirm that that is the prospect before us, even if, as is almost certain, the constitution eventually falters and fails?
Baroness Symons of Vernham Dean: My Lords, as usual the noble Lord, Lord Howell of Guildford, has demonstrated how much more sensible he is than either Mr Howard or Mr Redwood. However, he said that the legislation would have to be amended. It has to be amended with reference to a treaty, not with reference to off-the-cuff wishes of various members of the party opposite. It will be amended with reference to what the European heads of government signed up to last Friday.
On the question of how big this legislation will be, your Lordships will have just a few more weeks to wait because I hope the Bill will be published shortly after the gracious Speech. In the mean time, I recommend to your Lordships the guide to the European Union published at 2:15 this afternoon. It is a good read.
Lord Hannay of Chiswick: My Lords, if the constitutional treaty fails to be approved in a referendum here, does the Minister agree that the situation is not as the noble Lord described because the treaty of Nice would apply? The treaty of Nice was denounced by the noble Lord and his colleagues as an appalling treaty when it was ratified. What has happened since then?
Baroness Symons of Vernham Dean: My Lords, the noble Lord, Lord Hannay, is quite right. If the constitution is not approved in a referendum the position will be as it pertains today. That is true of the legislation not receiving a good wind from any country in the European Union.
Lord Roberts of Conwy: My Lords, I suggest very strongly that we will have this legislation during the next Session. Does that mean that it will be introduced before or after the referendum?
Baroness Symons of Vernham Dean: My Lords, the legislation will be introduced in the usual way. We have been through this process with the four treaties subsequent to the accession treaty; most recently with the treaty of Nice. The treaty will come before the House, the House will debate it in the usual way, and the referendum will be subsequent to that debate.
Lord Tomlinson: My Lords, will my noble friend tell me what progress is being made with the annotated version of the new draft constitution that is being prepared and whether that work indicates clearly what I believe to be the case—namely, that the vast majority of clauses in the treaty of Rome actually pass into the new treaty unchanged and the changes are nothing like as dramatic as some noble Lords opposite would have us believe?
Baroness Symons of Vernham Dean: Yes, my Lords, we have been over this matter several times before. Some of the more dramatic claims made by the party opposite about the nature of this treaty will be shown to have been completely erroneous. The paper to which my noble friend Lord Tomlinson referred is in draft form and I hope that it will be published before the end of this year. However, in the mean time I say again to your Lordships: the guide to the European Union is a very good read.
Lord Wallace of Saltaire: My Lords, does the Minister accept that many people—we are told—on the Conservative side appear to be supporting Kerry in the elections rather than Bush precisely on the grounds that a US administration that picks and chooses which bits of international law it wants is not one to be trusted? Does she also accept that, inside the European Union, the idea that one can pick and choose which bits of this multilateral basis for co-operation to accept is not acceptable if one wants to be considered a fulltime member?
Baroness Symons of Vernham Dean: My Lords, we are not in the position of being able to cherry-pick a way through the treaty. I am frequently asked by noble Lords opposite whether it is possible to amend the treaty. I say to your Lordships over and again that, unsurprisingly, it is not possible to amend the treaty that has been agreed by 25 countries. On the question of the election in the United States, we have just a little longer to wait.
Lord Garel-Jones: My Lords—
Lord Renton: My Lords—
Lord Grocott: My Lords, we are already one minute into the time allocated for the fourth Question in the name of the noble Baroness, Lady Hanham.

Gypsy and Traveller Encampments
2.59 p.m.
Baroness Hanham Baroness Hanham asked Her Majesty's Government:
Whether provisions in the Planning and Compulsory Purchase Act 2003 and the Housing Bill, currently before the House, could prevent the situation which has arisen in North Curry, Somerset, and elsewhere where, after sale, land has been occupied by Traveller or Gypsy encampments; and, if not, what steps they will take in this respect.
The Minister of State, Office of the Deputy Prime Minister (Lord Rooker): My Lords, planning authorities have enforcement powers to deal with unauthorised development. The Planning and Compulsory Purchase Act 2004 adds temporary stop notices enabling authorities to stop further development. Planning circular l/94 contains Gypsy planning policy, and a revised circular is in preparation and will be issued shortly. The Housing Bill currently before the House, as the Question says, will require authorities to identify Gypsy accommodation needs and develop strategies to meet them. Local authorities will be able to use those powers to provide for, and control, Gypsy and Traveller encampments. Notwithstanding all that, existing powers allow for stop notices, which, I regret, it took a week to issue in the case that the noble Baroness mentions.
Baroness Hanham: My Lords, I thank the Minister for that reply. In the light of what he said, does he believe that the current legislation and any pending legislation are strong enough to deal with a situation such as has arisen in North Curry and Homer Green over the weekend? Is he aware that in at least one village, residents have already decided that their only protection is to club together to buy surplus land, as they feel so threatened by what has happened? Does he also know whether the human rights of the people who live in those villages has been breached?
Lord Rooker: My Lords, discussing individual cases is difficult, particularly the one to which the Question relates. Local authorities have the power to act in advance, if they believe that something is likely to take place. They can do that now. I do not know whether the authority in question could have done that; it seems to have shut down at half-past five on Friday, and I have seen press reports that its 24-hour helpline was not in operation until Monday. There will be difficulties in such a situation.
The broad answer to the noble Baroness's question about whether the combination of powers could be used to prevent such situations is that yes, they could be. Whether they will be used depends on individual circumstances. If some local authorities have not embraced the original circular 1/94, which is not working that well, and have not provided alternative sites, it is likely that the courts would take a different view, depending on the circumstances. Many local

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authorities cope quite adequately with issues of Traveller encampments, and it is up to others to follow the best practice.
Lord Avebury: My Lords, it is disappointing that the people of North Curry were not satisfied with the explanation of the current legislation which I gave them in a series of e-mails.
Would the Minister agree that, at the last count, there were 425 caravans on unauthorised sites in the south-west region, of which 197 were on unauthorised developments? Would he explain how the situation would be dealt with when the new regime begins when the Planning and Compulsory Purchase Act 2004 comes into force? Will the land that is made available under that Act be given in preference to people who are on unauthorised developments? How will they be persuaded to move off them, when they have spent money purchasing the land and developing their sites?
Lord Rooker: My Lords, taking the last point first, simply buying a piece of land does not give people the right to do what they want with it. They must apply for planning permission and follow the process. The implication of the noble Lord's question is one that I completely reject—that just because someone has bought land he can do what he likes with it, irrespective of the planning rules.
I cannot answer the first part of the noble Lord's question, simply because the legislation is not in full force at present. Only time will tell how the local authorities take it up. As he knows, there are new procedures in the Housing Bill regarding Gypsy encampments. I hope that a revised circular 1/94—the existing circular is not working well—will go a considerable way to solving the problem. But planning permission is needed in the cases of these developments.
Baroness Whitaker: My Lords, does not my noble friend agree that, despite the government amendments to the Housing Bill, which go far to provide the kind of authorised sites which would obviate the problems to which the noble Baroness, Lady Hanham, refers, there is still a residual need for the Secretary of State to be able to direct a local authority to provide an authorised site when there are unauthorised encampments and/or evictions?
Lord Rooker: My Lords, I would be in trouble if I gave a detailed answer to that question, mainly because it would be taken completely out of context, not by my noble friend but by others. The old system did not work under the Caravan Sites Act 1968, when local authorities were forced to provide a site. Circular 1/94 succeeded that provision and has not worked out completely satisfactorily.
At present there are some 3,500 caravans on unauthorised developments. The problem is not evenly spread around the country, as many local authorities have provided sites for encampments, and the system works extremely well. In that case, it is much more difficult for people to do what has been
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done in the case that we are discussing—to jump the queue by arguing that there are not enough sites and that therefore such action must be taken, in the hope that the courts will support them. That is not a satisfactorily way in which to proceed; frankly, it is a way in which to create anarchy and discord between communities, and we do not want that to happen.
There are plenty of examples in the country of the system working extremely well. We want to ensure that best practice is followed by all. I hope that the combination of the new legislation and the new circular will bring that about.
Lord Marsh: My Lords, would the Minister say what distinguishes this particular group of people from the rest of the population, who are expected to obtain accommodation for themselves and their families in a normal way?
Lord Rooker: My Lords, these people have got accommodation—it travels around with them. It is not illegal to have a nomadic life, but there are sets of rules and norms that must be followed as to making encampments and settlements and bringing about developments. What has been done wrong in the past is to treat those matters separately. With the changes in the legislation brought about by the planning and housing Bills, and the new circular, we are mainstreaming provision. In that way, when local authorities consider the totality of housing needs for their area, they will take everybody into account, including those with problems of access due to disability and other reasons, those who may need temporary or key worker accommodation, and sites for Travellers and Gypsies. If they mainstream the provision, we are less likely to have the problems that we have been discussing.

Pensions Bill
3.6 p.m.
Report received.
Clause 1 [The Pensions Regulator]:
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 1:
Page 1, line 12, at end insert—
"() The persons appointed under subsection (1)(c) shall include at least one appearing to the Secretary of State to be representative of employees and at least one appearing to the Secretary of State to be representative of employers, in addition to others with a knowledge of life assurance business and administration of occupational pension schemes."
The noble Baroness said: My Lords, in moving the amendment, I shall speak to Amendment No. 121.
This is a very important Bill. It attempts among other things to restore a sense of security to members of occupational pension schemes, and establishes a regulator with more powers than previous bodies of a similar kind. The amendment is similar, though not the same, as the one that I moved in Committee. Membership of the regulator is important from the

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point of view of acceptability and credibility. In Committee, the amendment that I proposed was rather more detailed and, in the view of some Members of the Committee, rather prescriptive. But I want to insert a requirement that bodies representative of both employees and employers are represented on the governing body of the regulator. Amendment No. 121 would repeat that requirement later in the Bill with regard to the board of the Pension Protection Fund, which is also established by the Bill. Similar, although not precisely the same wording, has been used in relation to the PPF.
We know that the Government will ensure that there are people on the regulator's governing body with a professional knowledge of life assurance and pension schemes, but we want to ensure that two other categories are also represented: employers and employees. I know that in the past governments have always ensured that those categories were represented on previous bodies that have dealt with pensions. It so happens that for a number of years I was a member of the Occupational Pensions Board. I was a Minister's nominee on that occasion; the TUC was separately represented, as were employers. There were also people there with a great deal of experience of the pensions industry. When I was first appointed, we were under the very wise and experienced guidance of our chairman, the noble Lord, Lord Allen of Abbeydale.
The Occupational Pensions Board had very limited powers, and the intention is that the bodies established under this new Bill will have much more power. In the light of the recent experience of the pensions industry, much more will be expected of the body. In such circumstances, credibility and acceptability is even more important. That is why it is important to set out in the Bill which categories will have an absolute entitlement to representation.
It should be emphasised that I am not seeking in this amendment to provide for specific representation with accountability to report back or anything like that. I simply want to ensure that, when these important bodies are established, those most concerned—which means most of us with an interest in occupational pensions—will feel that the important decisions are being made by people with a direct knowledge of the way such decisions are likely to impact on those directly affected.
Therefore, although the rewording is not very marvellous, I shall be satisfied if my noble friend the Minister accepts the principle. Perhaps rather better wording can be devised. I beg to move.
Lord Skelmersdale: My Lords, all due respect to the noble Baroness, Lady Turner, but I hope that the Minister will not accept the principle of the amendment. As the noble Baroness said, she raised this issue in Committee but, naturally, withdrew it for further consideration. I agreed then, and I agree now, with the noble Lord, Lord Borrie, on the basis that I,
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too, do not like shopping lists in legislation. Indeed, I have a track record in that respect if anyone cares to look it up.
That said, I am aware that the Occupational Pensions Board, on which the noble Baroness, Lady Turner, was a distinguished member, did indeed have designated seats for union and employer representatives. However, life moves on. I am almost certain, although I have not double-checked it, that OPRA did not have such dedicated seats. None the less, that body did have non-statutory employee and union representatives. From what the Minister said in Grand Committee, I am quite sure that any reasonable Secretary of State, in—as the Bill says—consultation with the regulator, will review the balance of the board.
So I do not much like the idea of appointees with knowledge of no less than four specific topics, especially as two members will be executive and by definition will have experience of the life assurance business. There may be only three non-executives, but I still believe that experience will show that more are required, though not necessarily in that particular respect with these particular skills.
Lord Oakeshott of Seagrove Bay: My Lords, we have some sympathy with the intention of the amendment. The problem is that it is worded a bit too restrictively and the word "representative" is probably not appropriate; it has a slightly corporatist flavour. It would be very disappointing if people with this sort of experience were not on the board representing either individually or in combination. I think that the amendment, as the noble Baroness has moved it, is rather too formal and too rigid. I do not think that we would support it in this form.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, I, too, will join the chorus of those not supporting my noble friend's amendment. I can be brief because many of the arguments have already been voiced.
We do not think that it is desirable to limit the potential membership of the board by a shopping list of interests that should be represented. I absolutely appreciate and accept—as the noble Lord, Lord Skelmersdale, said—that members of both the regulator and the board must be able to understand and take into account the interests of those who will be affected by their decisions and that members must have understanding of the area in which they operate. To paraphrase the noble Lord, Lord Skelmersdale, I would be amazed if the substance of what my noble friend wanted did not turn out in practice to be the event.
We do not think that the amendment is appropriate on the face of the legislation, primarily because we do not want to use the word "representative" in quite the way it is used. That could cause people to believe that they have to maintain opinions representative of a particular group, and we could then have conflicts of interest.

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As I understand it, an example of a current non-departmental public body that has sectional representation on the governing board is OPRA. I am advised that there have been a number of specific examples where members have felt obliged to excuse themselves from taking part in specific decisions because of the conflict with the interests of the groups they were appointed to represent. In the process, we have lost the benefit of their experience, background and wisdom, which we could have had if they did not feel that they had to represent a much more narrowly focused group.
For those arguments and the arguments already expressed, I hope that my noble friend will feel able to withdraw her amendment. We cannot accept it. Our approach is not unusual. None of the other legislation governing appointments to, for example, the Financial Services Authority, the Financial Services Compensation Scheme and the Bank of England's Court of Directors requires sectional representation. It is not a path that we want to go down. We have had problems, or so OPRA tells us, with that path. We think that it is time to move on.
However, I would be amazed if what my noble friend wants in substance does not turn out to be the case in practice. I hope that, having skilfully argued the point both in Committee and on Report, she feels able to withdraw the amendment.
3.15 p.m.
Baroness Turner of Camden: My Lords, I thank my noble friend the Minister for that response. I certainly accept that, in substance, perhaps what I am after will turn out to be the case. In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment No. 2:
Page 264, line 32, leave out "pension,"
The noble Lord said: My Lords, it will be convenient, I think, to debate with this amendment Amendments Nos. 3, 4, 122, 123 and 124 and Amendment No. 131 in the name of the noble Lord, Lord Oakeshott.
The amendment is concerned with the pensions which it is appropriate to pay to members of the regulator and the Pension Protection Fund staff. We had a considerable discussion of this subject in Grand Committee in the Moses Room. The essence of the amendment is to be found in Amendment No. 4, which says:
"The Regulator must make such contributory pensions arrangements, broadly comparable to those in the private sector for such persons as the Secretary of State may determine".
There are two aspects of that. In order to clarify the situation in Committee, I intervened in the speech by the noble Baroness, Lady Hollis, and asked whether
16
they will be civil servants, to which she replied, no, these people will not be civil servants. In response to a further intervention from me on whether the pensions will be on a contributory or non-contributory basis, she said that it will be,
"non-contributory, but I believe that I am right in saying that there is a contribution payment for dependants, which is a voluntary addition … I am not sure about the details, but it is a largely non-contributory scheme".—[Official Report, 15/7/04; col. GC 347.]
I think that there is growing public concern—one might almost say resentment—at the huge disparity that has been developing, particularly since 1997, the effect that various actions by the Government have had on private sector schemes, and the very large difference that now exists between those who have pension schemes in the public sector and those who have them in the private sector. That is combined with concern about the increasing cost of those public sector schemes. A recent estimate said that unfunded liabilities were reaching something like £600 million, which is an increase of more than 50 per cent since the most recent official estimate of £380 million, in March 2002.
So we are seeing a huge increase in the liabilities of pension schemes in the public sector. The effect of not amending the Bill in the way which is suggested will be to increase that still further. This is, of course, a very marginal change—no one would dispute that—but I think that we have now reached the stage, in the light of general public opinion on the issue and the points that I have just been making, that people would not wish to see the disparity extended further and new groups coming into the kind of scheme that the Government apparently envisage for the staff of these two bodies.
There are three aspects of the problem. First, the scheme is non-contributory. Secondly, it is index linked. Thirdly, it is a final salary scheme. We are all in favour of final salary schemes; the sadness is the extent to which those have been curtailed in recent times. As for index linking, we had considerable debate in Committee about whether that was appropriate and to what extent. The Government are, in fact, reducing it for many schemes.
However, the crucial matter, it seems to me, is whether or not the scheme is contributory. On the problems that I just mentioned, if one looks elsewhere in the public sector, very large numbers of schemes are contributory. As I understand it, members' contributions for the existing police and fire-fighters pension scheme constitute 11 per cent. The relevant figure for the proposed police pension scheme is 9.5 per cent. Generally speaking, schemes in the public sector tend to be contributory. However, that will not be the case for the group that we are discussing. There is anyway a strong case for schemes being contributory in the sense that the individual participates and contributes towards the benefit which he will eventually receive.
Given that these two bodies will be dealing with people whose pension schemes have effectively collapsed and whose expectations of retirement will be severely diminished, it seems strange that the schemes

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which are being introduced for those operating this rescue plan should be at the very upper end of available pension schemes in all three respects which I have mentioned.
In Committee the noble Baroness drew attention to one or two private schemes which are still non-contributory. However, they are very few in number. Under present circumstances, given the effect of actions which have been taken I would be astonished if anyone started up a new final salary scheme. However, the idea of anyone setting up a new non-contributory final salary scheme seems to me virtually inconceivable. There is a real problem here. We are not suggesting at all that there should not be an appropriate pension scheme; on the contrary we are suggesting that these people's pension schemes should be appropriate.
In Committee the noble Baroness argued that the provision was the same anyway and that it depended how you sliced it between pension schemes on the one hand and pay on the other. Of course, one can do it in different ways. None the less, getting the balance right is an important aspect of the matter. Certainly so far as the public sector in general is concerned, there are also important implications regarding whether matters are settled up front or whether we are yet further increasing the overhang of debt which will fall on future generations. I refer to the whole question of intergenerational transfers and the issues we debated regarding the Government's balance sheet. As I understand it, these liabilities, like other public sector liabilities, will not appear on the Government's balance sheet.
For all those reasons it seems to me that these are sensible amendments. They in no way undermine the overall structure but they would set a framework within which the arrangements for pay and other benefits should be set without running into the kind of problems that I have sought to underline. I beg to move.
Lord Oakeshott of Seagrove Bay: My Lords, I wish to speak to Amendment No. 131 to which my noble friend Lady Barker and I have added our names. I wish to speak also to Amendments Nos. 4 and 124, to which my noble friend and I have added our names, in support of the noble Lords, Lord Higgins and Lord Skelmersdale.
At the beginning of Report I should again declare my interest as a pension fund investment manager since 1976. However, unlike Members of the House of Commons, I do not have to declare an interest as someone who is likely to be a beneficiary of an index linked public sector pension. There is a serious point here. It necessarily falls to us at this end of the Chamber to raise the serious point that symbolically comes out in this set of amendments of whether we can allow to continue the slide into two nations in pension provision in this country, which is highlighted so well in the Turner report.
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Turner sets out the four different categories of risk in pension provision: longevity risk; investment return risk; default risk and earnings progression risk. As he points out:
"In state PAYG schemes and in private DB schemes with price-indexed benefits, the provider bears all these risks and the individual none".
We on these Benches oppose the Government's present proposals for the staff of the regulator and of the PPF to receive the full Civil Service non-contributory pensions with unlimited indexation. Usually, of course, in public sector pension provision it is the income tax payer or the council tax payer who takes all the risk. As we have heard, on Turner's best estimate the unfunded liability has now grown to £475 billion. However, in this case in particular the risk of this almost unquantifiable liability for the future will fall instead on all the private sector defined benefit pension schemes in the country, many of which are closed to new entrants and where benefits such as I have mentioned are as rare as hens' teeth.
In Committee the noble Baroness raised the matter of whether a Crown guarantee should be given if there were a separately funded scheme for the PPF. It seems to me that that is rather a red herring. We on these Benches would have no objection if there were a separately funded scheme for the PPF staff, as, for example, with the Financial Services Authority. We would have no problem if it were considered appropriate to give a Crown guarantee for that so that they would not need to pay the levies themselves. We do not mind the state guaranteeing the benefits; what we do mind is that the benefits should be on a much more generous and very different basis from normal good quality private sector benefits. That is why I have tabled the amendment suggesting that they should be broadly comparable to those provided by constituent companies of the FTSE 100 index for their employees in the United Kingdom on similar salaries. We are talking about a good quality private sector scheme, but not a scheme which is virtually unknowable for new entrants in the private sector.
We do not think that the benefits I have mentioned are fair or constitute a fair sharing of the risk between the employees of the PPF and the regulator on the one hand and the members of pension schemes, who are effectively their customers, on the other. We do not believe that the staff in the PPF and the regulator should effectively have their pensions hermetically sealed against the risks faced by private sector pension fund members. For all those reasons we believe that Amendment No. 131 is sensible and that Amendments Nos. 4 and 124 should also be supported.
Lord Lea of Crondall: My Lords, before my noble friend the Minister replies, it may be worth rioting that I had written on my Order Paper the word "symbolism". Two seconds after I had written that word, the noble Lord, Lord Oakeshott, said that to some degree this is a question of symbolism. He then talked about the two nations, which paraphrased what the noble Lord, Lord Higgins, said. If we are at some point to have a debate about Adair Turner and about

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the whole relationship with the different sectors of the economy, we cannot adopt the principle of the school playground that if someone has a toffee apple but I do not have one, the other person will not have one. That is not the spirit in which the whole question should be approached. I make that simple point.
Baroness Turner of Camden: It seems to me that Amendment No. 4 is rather odd regarding certain schemes being broadly comparable to those in the private sector as the private sector has an enormous range of pension provision at the moment: there are defined benefit schemes; defined contribution schemes; stakeholder schemes; group stakeholder schemes; personal pensions and so on. It seems to me that it is not a good notion for the schemes that we are discussing to be comparable to those in the private sector.
Moreover, I have always felt that having a good public sector scheme as a reference point is a model way of showing how to provide for employees. I do not think that it is to anybody's detriment to have good public sector schemes; they provide an example to the rest of industry and employers of what can be achieved and what ought to be achieved for employees. I do not support the amendments.
3.30 p.m.
Baroness Noakes: My Lords, I support my noble friend's amendments, and want to talk initially about the position of non-executive directors. Most of the discussion to date has been on the broad generality of pensions being provided for the regulator and the Pension Protection Fund, whereas my noble friend's amendment also covers pensions being paid to non-executive directors.
Experience in the private sector is that non-executive directors are not in pensionable employment. That also includes non-executive chairmen, which I understand will be the position for the chairman of the Pensions Regulator. By implication, as chairman of non-executive directors, he will be a non-executive chairman.
The Bill sets out some extremely unusual practices—compared with private sector practice. Would that it were otherwise, since I spend quite a lot of time as a non-executive director when I am not here, but I assure noble Lords that pensions do not come with non-executive appointments.
The debate has ranged more widely, and I certainly support the intent behind the amendments tabled by my noble friend and those in the name of the Liberal Democrats. There is a slight problem, which has been raised, about what is comparable to good private sector practice or FTSE 100 practice, as there is a great variety of schemes. If the amendment is to have any meaning, it should be expressed in terms of modern schemes. We could hone that considerably as modern schemes are contributory and are likely to be money purchase, not defined benefit. A little more definition would be helpful to those who have to operate such
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schemes. That said, I fully support the direction of travel of the amendments, which are essential for such a body.
Lord Fowler: My Lords, I confirm what my noble friend has just said. As a non-executive chairman of two companies, I certainly confirm that pensions are not paid at all—indeed, I am not sure whether that would be against the rules of corporate governance.
Important points were made by my noble friend Lord Higgins, and supported by my Isle of Wight neighbour, the noble Lord, Lord Oakeshott, on the emerging public cost, the future burden for generations to come and the non-contributory basis of the scheme. I am aware that people like me—an ex-MP and an ex-Minister—are the beneficiaries of a public sector scheme. It could be argued that people in glass houses should not throw stones, but I am encouraged by the fact that ministerial pensions were contributory—and I imagine still are—and that in my time, unlike now, were of such insignificance that an interest in supplementary provision was important. Although it would be untrue to say that I left the Government to spend more time building up my personal pension, that became an interest.
The issue is important because I remember making pensions policy in the old Department of Health and Social Security, which was all done under one roof. When I first arrived my civil servants were strong on public pensions, but were nothing like as strong on private provision. That is no criticism of them; they were men and women of the highest integrity, but they knew very little of the world of private pensions. While I was there, we got round that by forming a small team who did understand all the issues, and by recruiting a rather good Minister of State, called John Major. I am not sure what has become of him, but I hope now that Mr Kinnock is joining us here, he might follow that example.
Most people in this country are covered by private pension provision. Private pensions are currently under more pressure than I have ever seen in my political lifetime. We all know that final salary schemes are closing. The Government are lamentably failing to provide incentives for private saving and, overall, there is a feeling of crisis. It is all very well to have the initial diagnosis of the pension commission, but we still have no policies, and we shall not get them until after the Government are re-elected, if they are.
In the circumstances, we do not want the staff of the Pensions Regulator to be comfortably insulated from all those factors. We want people who understand what is taking place, and who recognise the experience of the vast majority of people. There is no substitute for personal experience. I wholeheartedly support what my noble friend Lord Higgins said. He made an important point, which I hope the Government will accept.
Baroness Hollis of Heigham: My Lords, this group of amendments would amend Part 1 of Schedules 1 and 5, which deal with the Pensions Regulator and the PPF board.

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Before addressing the amendments specifically, I shall explain our intention behind the provisions that would be amended. As the noble Baroness, Lady Noakes, recognised, six of the seven amendments—Nos. 2 to 4 and 122 to 124—deal with the pension provision of non-executive members of the Pensions Regulator and the PPF. Each hoard will initially have five non-executive members, plus an non-executive chairman.
Schedules 1 and 5 allow the Secretary of State to determine the amount of contributions for, and payment of, pensions for non-executive board members. However, other than the chairmen, we have no plans to make any pension provision for non-executive board members. We are meeting the concerns expressed today, as we are not proposing to do what some of your Lordships fear.
The six amendments relate to Schedules 1 and 5, which deal with the remuneration of non-executive members of the respective boards—the regulator and the fund. We do not propose to pay pensions to such members at any rate, so I hope that the noble Lord will withdraw his amendments. We share the view that that would be inappropriate for all the reasons adduced by noble Lords.
Amendment No. 131, which was tabled by the noble Lord, Lord Oakeshott, deals with pension provision not only for the chairman but for PPF staff, as opposed to executive board members. We anticipate that the PPF will have 45 to 50 staff in April 2005, increasing to about 100 during subsequent months.
Concern has been expressed, which has been echoed here today, about providing Civil Service pensions that it is believed are salary-related and non-contributory. That is the case for the older classic scheme of the Civil Service. But, since 2002, the new Civil Service scheme, called the premium scheme, fairly closely resembles good practice if not best practice, in the private sector.
The noble Lord, Lord Oakeshott, asked whether we had done any research on comparable FTSE 100 companies. We said that we had been unable to do that, but over the summer, my staff looked at schemes in the public domain—through the pension profiles 2003—and we have information on some 50 of those 100 FTSE schemes. Many of those companies are involved in manufacturing or whatever, and are not necessarily financial service industries. Of those 50 schemes on which we have information—I cannot say whether they are representative of the 100; they were all that we could in good faith get hold of—35 are DB, 24 have 1/60th accrual, five are more generous than the Civil Service scheme, and six are less generous. Twelve have employee contributions running from 0 per cent to 3.5 per cent, 16 have 3.5 per cent, and seven have 5 per cent to 7.5 per cent, which is a mean average of 3.7 per cent employee contributions to DB schemes.
The closest comparators to the Civil Service scheme in terms of the job that the PPF and the regulator will do—Friends Provident, Bank of Scotland, HBOS, Pru, RBS, the Royal Sun Alliance—are non-contributory, according to my latest information.
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However, it is perfectly possible that they have since been closed to new members; I would not wish to argue about that. Thirty-three of them had price indexation and so on.
The Civil Service premium scheme, to which new members of the board and the regulator will coma, is a DB scheme with accrual rates of 1/60th and a contribution levy of 3.5 per cent. That compares to the 3.7 per cent that was the mean average of the 50 schemes that we have been able to identify. In terms of issues such as some of dependency, the Civil Service scheme is less generous than some others with which we compared it.
Having said all that, I want to say that the Government are virtually meeting the spirit of what the noble Lord argues for. The scheme will be contributory and DB, and will have a level of contribution broadly in line with those 50 of the FTSE companies on which we have been able to get information. In that sense, it is contributory and broadly comparable. Our information is incomplete. None the less, in good faith, one can see that the new Civil Service scheme is broadly comparable.
Lord Oakeshott of Seagrove Bay: My Lords, I thank the noble Baroness very much for that information, so far as it goes. I have two questions. How many of the 50 schemes are open to new entrants, which is obviously the relevant figure? How many of them have unlimited indexation of pensions in payment?
Baroness Hollis of Heigham: My Lords, I said that we did not know on the first point. My information was published in 2003, so by definition it is 18 months out of date. I suspect that the Bank of Scotland and HBOS scheme may very well be closed to new members, for example. I cannot go beyond the information that I have given. However, the schemes are contributory, and I have given the noble Lord the statistics I have on the levels of contribution. In good faith, we cannot get more information than that.
Lord Oakeshott of Seagrove Bay: My Lords, what about unlimited indexation of pensions in payment? That is the critical point that needs to be addressed.
Baroness Hollis of Heigham: My Lords, three questions were put to me. One was whether the scheme was DB. The second was whether it was contributory. The third was whether it was broadly comparable to the private sector in terms of indexation. Many of those schemes have limited price indexation, and some have full price indexation. In that sense, it is perfectly true that the Civil Service is among the best rather than average practice on indexation; the noble Lord is correct on that. However, on other issues, such as dependency, the Civil Service scheme is somewhat less generous.
Lord Higgins: My Lords, the noble Baroness seems to be taking a rather different line from the one that she took in Committee. She said then that the scheme would not be contributory. If I understand her

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correctly she, no doubt persuaded by the arguments that we put forward at that stage, is saying that it will be contributory. Is that right?
Baroness Hollis of Heigham: No, my Lords. What I sought to say in Committee applied to anyone coming across from the Civil Service. For example, we expect that many of the staff currently in OPRA will be seconded across, in which case they preserve their existing pension rights, which are non-contributory. As would be expected under the TUPE Regulations or anything else, new staff joining the Civil Service after—I think—April 2002 have a choice of a stakeholder personal pension scheme or coming into the new premium scheme, which is contributory. The noble Lord asked us to consider that.
Lord Fowler: My Lords, how many of the 50 private schemes on which the noble Baroness has information allow pensions for non-executive chairmen?
3.45 p.m.
Baroness Hollis of Heigham: My Lords, I do not have that information. We are drawing comparisons between, in some cases for the regulator and the PPF board, highly skilled people and FTSE companies—possibly largely drinks companies, and so on—that may have quite a high number of moderately earning staff. I have not been able to get any information about what I would call more "top hat" pensions, those of people with professional qualifications—accountants, actuaries, lawyers and so forth. That information is not published in existing publications that I have seen. Not surprisingly, companies are rather reluctant to give us detail about the pension arrangements for their highly paid staff, in much the same way as I am sure that they would be reluctant to give us details about their 17 per cent pay increases on average over the past year.
I am comparing the Civil Service pension scheme with comparators that, by definition, are likely to be people in different occupations from those that would be the true comparators. I am sharing with the House, in good faith, the public information that we have been able to gather.
If we were to have a separate pension scheme, the set-up costs would be extremely high—about £122,000, with running costs of £50,000 a year. That would be much higher than offering access to the Civil Service premium pension scheme, which is very inexpensive to run in administrative terms. If there were any worsening of conditions, we would have to look at the total remuneration package, an issue that the noble Baroness, Lady Noakes, and I debated. She said that I was right in theory but not in practice.
I have taken legal advice, and the approach suggested could result in legal challenge on whether any particular scheme was comparable with any others. Amendment No. 131 is not the route that we want to go. I hope that what I have said allays some of the concerns and anxieties expressed in Committee. The first six amendments apply to non-executive
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members of boards, for whom we do not intend to pay pensions at any rate. In that case, the noble Baroness, Lady Noakes, the noble Lord, Lord Fowler, and I are on the same side. On Amendment No. 131, I have tried to give a description of the Civil Service scheme to which new entrants will go, which is genuinely broadly comparable to the 50 of the FTSE companies on which we have information. I recognise that some of that information may be out of date, but we have done our best over the summer to get the information that I was pressed to give in Committee.
With that information, I think that we are meeting the substance of what was suggested by the noble Lord, Lord Higgins. The first six amendments will not apply as he argued, and on Amendment No. 131 we are offering a scheme that is broadly comparable with, but not tied to, individual FTSE companies. With that reply, I hope that he will feel able to withdraw his amendment.
Baroness Noakes: My Lords, I was grateful to the noble Baroness for explaining that the Government had no intention of paying pensions to non-executive directors. First, will she therefore explain why they are taking the power to do so? It seems wrong in principle to take a power that one does not intend to use. Secondly, will she confirm that that intention extends to the chairmen of the bodies concerned, who are non-executive as I understand it? Do the Government have no intention of paying pensions to the chairmen of the regulator or the PPF?
Baroness Hollis of Heigham: My Lords, there is a power because we might, for example, at some stage want to have a deputy chairman. We are expecting to provide pension contributions for the PPF chairman, and it is right that we do so. Each chairman will be expected to commit an average of two to four days each week to the organisation. Given that the chairmen of the boards are virtually full-time appointments—not quite, but very substantially—we think it right that they should attract some form of pension arrangement. The appropriate route for them is access to a Civil Service pension.
As I say, we have the reserve power because, in some future case if the workload is extremely heavy, we might need to appoint a deputy chairman—also a non-executive, but with much heavier responsibilities than other members. We might therefore want to take that power. However, as we understand it at the moment, the remaining non-executives will give about 20 days of their time a year, so we think it right that they should not attract pensions, for exactly the same reasons as those given by the noble Baroness.
Lord Higgins: My Lords, those of us who were present in the debates in Committee will be somewhat surprised by the comments of the noble Baroness. On that occasion it seemed that she was opposed to what we were saying. She is now saying, effectively, that she accepts the amendments. In the light of that and the further points which she has made, and if it is the case that the amendments were to be accepted, there would

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be no point in voting on them. But it is strange that we get one answer in Committee and seem to get a completely different answer at Report.
In those circumstances, we should study carefully what the noble Baroness has now said and return to these matters at Third Reading. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 3 and 4 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.5:
Page 269, line 30, at end insert—
"() the power to issue a clearance statement under section (Section 39 contribution notices: clearance statements);"
The noble Baroness said: My Lords, the government amendments in this group address the moral hazard clauses that rightly exercised all sides of the Committee at some length in July. I hope that your Lordships have had the opportunity to read the consultation document, which we produced in the summer, on the moral hazard clauses. I should like to take this opportunity to thank those who took part constructively in that consultation. I know that they were concerned with not only meeting business needs, but ensuring that the clauses would work in practice to protect members—which we all desire.
Indeed, PricewaterhouseCoopers, one of the consultees, has welcomed the amendments and commented:
"We appreciate the time the Government has dedicated to ensuring that the moral hazard clauses are workable in practice with minimum impact on British business".
Perhaps I may also pay tribute to the staff who have worked extremely hard over the summer with a range of bodies and individuals to produce what I hope that your Lordships will welcome as a valuable document and a genuine effort to meet the concerns raised in Committee.
These amendments are a package designed to ensure that these clauses provide protection—and work in practice while meeting the industry's concerns. The purpose of the amendments is to give the regulator powers to protect members, the PPF and those who pay its levies, from those who act to avoid their pension liabilities and to ensure that, when it is reasonable, companies cannot leave the pension scheme with a service company or weak member of the group without guaranteeing that pension promise.
I am sure that all noble Lords recognise the dilemma of moral hazard and will support the Government in their broad aims. But, as I have said, the devil is in the detail and we had a thorough discussion in Committee. I realise that the amendments, of which there are many, are a package. Not all of those who were consulted achieved everything that they wished for and some would have preferred a different outcome—for example, on the time limit issue, to which we may return to later, the views expressed ranged from two months to seven years. There was no consensus at any stage, nor even a moral majority, for a particular time limit. Not surprisingly, some of those who found themselves in the minority during the consultation exercise may, understandably,
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now be seeking to amend the Government's package and to revisit what we thought had been settled by consent, as far as possible, during the discussion—subject to parliamentary approval.
I hope that that is not the case and that there will not be an unpicking of matters where the majority of those with whom we consulted supported the Government's actions. I am afraid that that may open the door to further amendments at Third Reading from aggrieved parties who felt that the Government had backed their views. It is difficult.
I propose to speak more broadly to the first amendment, which is an overview of all the amendments in the Government's group, which reflects the issues raised in Committee. They are a genuine attempt to address the concerns raised by noble Lords opposite in Committee. However, the noble Lord, Lord Higgins, has perfectly properly tabled amendments to the Government's amendments, which the Opposition wish to be considered separately. In an effort to be helpful, I have pulled out of the group the relevant government amendments—for example, Amendments Nos. 25 and 29, and, if the noble Lord, Lord Hunt, wishes, I will pull out Amendment No. 35—so that the opposition amendments may be debated separately. If noble Lords wish to test the opinion of the House, of course they must feel free to do so.
The down side might be that we could revisit the same issue several times at different points this afternoon. That would be a price that we had to pay. That would be the most constructive way forward, if all noble Lords are content with that arrangement— "blue sky" debate now, with specific points of concern being separated from the government amendments. At that stage, I am sure that we would all try to he as brief as possible.
Perhaps I may first deal with Amendment No. 93 and how we intend to use the powers in it to modify and make regulations dealing with partnerships and limited liability partnerships. This has been a matter of some concern and I have been asked to make clear in Hansard where the Government are coming from. When making regulations in respect of partnerships and limited liability partnerships, and taking account in particular of the widespread use of limited liability partnerships in the private equity and venture capital industry, we intend to treat partnerships and limited liability partnerships as far as possible as if they were companies. We will be consulting on the regulations. I could enlarge on that issue if noble Lords wished me to pursue the matter.
I wish to deal with only the headline amendments and issues, and we shall return to specific pressure points later, when I shall do my best to answer questions. Leaving aside the matter of limited partnerships and although there are no opposition amendments, government amendments, in response to real concerns of which I was persuaded in Committee, were tabled regarding the regulator operating a clearance procedure so that companies would know where they stood in advance—and so that they could act in good faith without fear of penalties following their best efforts to rescue companies.
We asked during consultation whether that clearance procedure should be detailed on the face of the Bill or be headline. The answer was clear—emphatically that it should be headline. Our amendments reflect that. The clearance procedure introduced by Amendments Nos. 51 and 80 has been welcomed by an array of groups, including the CBI and the British Venture Capitalist Association. The CBI said:
"The introduction of a clearance procedure by the Government is welcome recognition of the need to provide business with sufficient certainty surrounding future relevant corporate activity".
The BVCA said:
"We welcome the changes to the draft Bill following the helpful and constructive discussions that we have had with DWP. The introduction of a clearance procedure is a welcome improvement".
However, there is still concern regarding a handful of issues—the time taken by the regulator to issue a clearance statement and the resources of the regulator to deal with the applications. Regarding timing, the regulator must consider the application as soon as is reasonably practicable. That means exactly what it says and is designed to ensure that the system works for different situations and that the statement is issued as soon as possible. For example, in some situations, such as corporate takeovers, the regulator will have to consider and respond to the application within 48 hours. There may be other circumstances when a longer period is appropriate; for example, clearance of a compromise agreement. That flexibility, welcomed by industry, is being built into the planning for the clearance system.
The regulator will issue guidance on its operation of the clearance system. Your Lordships will be pleased to hear that such a good working relationship was established over the summer that many of those involved in the consultation have volunteered to continue working with officials to produce the guidance and will be able to ensure that there are timeframes to suit their needs.
As I said, another concern is the resources for the regulation. I know that there is concern that the regulator's staff will not be up to the task, but I can assure your Lordships that work is under way, involving external experts, to ensure that the regulator can operate the process effectively and has the appropriate skills and staff to do so. We are anticipating the assistance of many of those involved in the consultation exercise to achieve just that.
4 p.m.
I could go on about the clearance procedure, but I shall simply say that we are working with the industry, which is well content with what we are doing. We are continuing detailed discussions with industry to enable us to develop a guidance procedure so that everyone knows where they stand.
I want to thank all Members of the Committee for airing the issue so thoroughly—it was not a party issue, as we recognised the problems. That allowed us
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to take it back to the groups in industry to achieve the responses that are reflected in the document that we have today and that are embodied in the amendment the Government have tabled.
Another concern of industry was the lack of a backstop—Amendments Nos. 35 and 35A. That is a separate issue and one to which we can return in due course.
Amendments Nos. 25 and 29 remove insolvency practitioners acting in accordance with their functions from the scope of contribution notices. Again, we shall come to that in due course.
Amendment No. 42, which was not challenged, adds a factor to those that the regulator must consider when deciding whether it is reasonable to issue a contribution notice. I was pressed on this matter in Committee: what was the purpose of the act or failure, and was the act to prevent or to limit loss of employment? The noble Lord, Lord Higgins, was very clear on the dilemmas that could face a company trying to protect jobs, but at the same time trying to play fair by its pension scheme. Therefore, it is only right that the regulator should consider that; after all, without an employer, there can be no occupational pension. Employees can continue to contribute to personal pension provision, but if they lose their employment most do not have the resources to do so. Again, we have produced amendments to ensure that the regulator can take into account the intention behind the act when it affects issues like employment. That will come up through the clearance procedure.
Amendment No. 29 deals with insolvency practitioners and we are aware that other professionals are in the same situation. The fact that we are taking regulatory powers to exempt further groups may be sufficient comfort, but the noble Lord, Lord Higgins, may want to address the issue on its merits later. I believe that we have taken a power by regulation that I think, and hope, will address the concerns he expressed on their behalf.
Financial support directions, as your Lordships will recall, are designed to ensure that in the case of an underfunded scheme, attached to a weak or service company, an associated or connected party may be asked to guarantee the pension liabilities. I think it is right to say that the majority of the concerns about the moral hazard clauses have been focused on the scope of those directions.
Amendment No. 58, with new subsections (5) and (5A), provides that a financial service direction cannot be issued to individuals, save in certain circumstances. That covers all individuals, including shareholders. It may be worth my while enlarging on this point—I have been brief on some of the others. The only situation in which the regulator may consider issuing an FSD to an individual is when the employer is an individual. In those circumstances, individuals associated and connected with the employer may be liable; for example, in the case of a sole trader who has taken all the profit from a business and passed it to her husband, the regulator may issue an FSD to the husband. That is the only situation in which we envisage that applying.
We have also introduced a reasonableness test in Amendment No. 58 on the issue of financial support directions, which was urged on us in Committee, and a further factor to both reasonableness tests in relation to FSDs: that is, the value of any benefits received directly or indirectly from the employer by the person to whom the regulator is considering issuing the FSD. I think that that should catch inappropriate, bad faith, manipulative practice.
Taken as a whole, these provisions will ensure that, for example, in a case where an investor has a majority shareholding in five companies, but the companies have no other connection, it would not be reasonable to issue an FSD to the other companies. When considering in that case whether to issue an FSD to the investor, the regulator would have to consider whether he had received any benefit, such as profit or dividends, from the employer in relation to the scheme when deciding what is reasonable.
In Amendments Nos. 31 and 33 we have made it clear that the arrangements for financial support which are put in place do not have to be for the full pension liabilities, but for an amount up to the total of those liabilities, subject to the regulator's approval.
I have concentrated on the amendments on which the Opposition have not, through amendments, challenged the Government. I have tried to explain the Government's thinking on them. I have skated briefly over the amendments which I am sure will be explored in greater detail. I ask noble Lords to bear in mind that this is a package that we have worked on over the summer in consultation with the industry. It has been a very successful exercise. In so far as noble Lords helped to prod us into that activity—I suspect that, at the same time, officials were already engaged in extensive consultation—and in so far as the discussion in Committee allowed us to focus the concerns more appropriately than might otherwise have been the case, I believe that we are all the beneficiaries of that procedure.
With that slightly lengthy speech, I hope that your Lordships will feel that the Government have responded to concerns expressed in Committee and that in the document we have built a consensus around the package to address the issues of moral hazard. I beg to move.
Lord Higgins: My Lords, when considering the Bill it is important always to recall the fact that its overall impact is likely to discourage companies from continuing with final salary schemes. The levy, to which we shall turn later, will certainly have that effect. Companies can escape the consequences of many of these problems if they simply abandon their schemes.
I cannot recall for a very long time a Bill that has been quite as complicated, or one on which, in a sense, it is so difficult to focus. When I first saw the Government's groupings for Report stage, I believed it would be quite impossible to achieve any kind of sensible discussion. I am glad that the Government have at least agreed to dissociate from the group some of the amendments that they have tabled to which we
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have also tabled amendments. In the subsequent debates, we must try as hard as we can to isolate particular issues. I fully accept what the noble Baroness has said. We examined these issues in 11 or so sittings in Committee and she has sought to respond to the problems. However, the problems are very real and they remain so.
We can all accept that we wish to take steps to deal with the so-called moral hazard problem; that is to say, unscrupulous employers seeking to abandon their pension obligations and unload the responsibility on to the Pension Protection Fund. When I originally spoke on the devices put forward by the Government to prevent that happening, I said that the clauses as introduced would deter investment within the UK by overseas companies and curtail growth; they would deter entrepreneurs from rescuing companies in trouble; they would make investors liable in respect of companies over which they do not exercise control; they would create uncertainty about individual and commercial companies' responsibilities; they would undermine the concept of limited liability; and they would further deter companies from setting up defined benefit pension schemes.
In Committee we sought, as we must seek now, to try to avoid those real dangers. If we do not do so, it is certainly arguable that the benefits of the scheme will be outweighed by the very real dangers to which I have just referred. As a result of the Government's consultations during the summer, one would like to think that these problems are now solved.
The noble Baroness referred to some proposed changes. In particular, the clearance procedures will be an advantage, although that depends very much on how successfully we can devise such a clearance procedure. There is still very widespread concern. Perhaps I may quote from one group. The National Association of Pension Funds stated:
"We continue … to have major concerns as to whether the Government's changes to these clauses will go far enough. If not, then they are likely to lead to huge job losses and the winding-up of underfunded pension schemes on an unprecedented scale. This in turn would place a considerable strain on the PPE".
It goes on to say that,
"these comments are not unduly alarmist. They are, we believe, a fair assessment of the current position and represent the generally accepted view amongst those most closely involved with UK pension provision".
These are very serious misgivings about the situation we have reached, even after the Committee stage and the Government's consultation process.
Our task this afternoon and at Third Reading, against a terribly tight timetable—the gap between Third Reading and the Queen's Speech is a matter of a few days—will be extremely difficult. That is why we have tabled amendments dealing with specific issues, which I hope the noble Baroness will be prepared to accept.
It is very sad that we have reached this stage with so much still undecided and with so many dangers and problems not solved. The Bill has been through the House of Commons. It was programmed and of course it was impossible to debate it in as much detail as one

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would normally have hoped. On top of that, many of the provisions arrived at the very last moment before it left the Commons and arrived in our Lordships' House.
On the outstanding issues, there are problems of defining what is meant by "good faith", which is never a good concept to introduce in legislation; there is the whole issue of retrospection, on which my noble friend Lord Hunt and others have tabled amendments; there is the whole question of personal liability and insolvency practitioners—but, as I understand it, no similar arrangement is made for those engaged in the business of rescuing companies, other than those technically described as insolvency practitioners; and there is the whole issue of defining what is "reasonable" as far as concerns action by the regulator. There is a whole range of issues. I shall not go through them further; we shall reach them on subsequent amendments.
What I can say at this stage is that we on this side will do everything we can to try to ensure that the Bill is in a state where it does not do more harm than good. That will not be easy; I cannot remember a more complicated and difficult Bill. We must all work to try to achieve that. However, we are grateful for the changes the noble Baroness has already mentioned, although I think that some of them—clearance procedure and so on—we will need to come to at Third Reading.
We are still receiving representations from a number of outside bodies, some of them over the weekend, on points which previously we had not really understood or considered.
Having said that, I think that the amendments the noble Baroness proposes will go some way to help, and we must do all can to improve the Bill.
Lord Oakeshott of Seagrove Bay: My Lords, from these Benches I set out our general approach to these moral hazard amendments and the package as it now stands. Like the noble Lord, Lord Higgins, I have received a considerable volume of amendments.
I do not know whether noble Lords will remember a few years ago when speed-reading courses were advertised, but, certainly, in order to play an active part in this Bill, if one was not a speed reader before one certainly is by now.
Generally speaking, we are happy, or at least a good deal happier than we were in Committee about how the Government are striking the difficult balance between proper protection for pension funds and keeping an active and liquid market going in companies, and in parts of companies, in this country so that the market does not seize up.
4.15 p.m.
We think a six-year cut-off period is reasonable and that generally the balance is about right. Some of the criticism has been that some of the Government's proposals verge on the naïve. One needs to understand how venture capitalists work and in particular those
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who do big buy-out transactions. The whole nature of taking public companies private or doing these deals is to increase risk. It is to reduce equity, to gear up as far as you can and to borrow a lot of money. If you get it right you make an awful lot of money and if you get it wrong the company gets into difficulties. So it is not merely a question of dealing with unscrupulous employers, it is dealing with people who, as a perfectly legitimate and clearly stated part of their business, are in the business of increasing risk in certain circumstances.
In Committee, we spoke about situations like Marks & Spencer and WH Smith, both of which are substantial companies with a lot of equity. We tried to look at what the effect on the pension fund would be if they vanished. I supported, and still do, the view taken by their pension trustees that they would need to inject a good deal of money in the fund if the solvency of the company was quickly reduced. So we must be realists. It is, we believe, reasonable that these protections are in place. That is why we take the attitude we do.
On the concerns mentioned by the noble Lord, Lord Higgins, about the NAPF, I met the NAPF on Friday afternoon and discussed these and a lot of other clauses in the Bill. I did not get the feeling that its concerns on these clauses were now very major. It was more concerned on issues of detail in other parts of the Bill, such as the Pension Protection Fund and the financial assistance scheme, matters which no doubt we will be dealing with in the next few days. I would not have summed them up as being major concerns on this issue. With that, I broadly support the thrust of the Government's amendments but obviously we shall be looking in great detail at them as we go along and indeed at the Official Opposition's amendments.
Lord Hunt of Wirral: My Lords, I should like to respond positively to the Minister's invitation to deal with the headline issues—to participate in a blue skies debate. At the outset of my remarks I should like to pay tribute to the Minister for the constructive and non-partisan approach which she has taken during much of the marathon progress of this Bill, whose long-term importance is matched by its complexity. Throughout she has been courteous and considerate and at times she has displayed an unusual and commendable willingness to change tack significantly when the force of the argument has demanded it.
The Bill as it now stands is by no means perfect. I agree with my noble friend Lord Higgins, who has rightly diagnosed the real dangers and major concerns which remain, but I do not think that anyone would deny that substantial progress has been made in the wake of the consultation period during the summer.
That is especially so with regard to these so-called moral hazard clauses. The interested bodies who have been consulted have told me how pleased they were to have had the opportunity to air their concerns at the highest level and to have those concerns properly addressed and considered.

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The amendments the Government have tabled as a result of those consultations have gone a long way towards removing, or at least substantially alleviating, concerns that have been raised with regard to the moral hazard clauses as they were originally presented. In particular, Ministers have now come at least some of the way towards addressing and assuaging the fears of insolvency practitioners and turnaround professionals who were concerned about how they might carry out their functions in the future. The Minister will recall that there was genuine concern that the clauses dealing with contribution notices could impose large and uncertain liabilities on those undertaking insolvency appointments or advising on turnaround. Therefore, firms that could be and should be saved would not be saved. That is the last thing that any of us would want.
Those concerns have been recognised and, to some extent, dealt with by this cluster of amendments. In particular, I know that R3, the representative body for licensed insolvency practitioners, is pleased to see specific reference to exemptions for insolvency practitioners and prescribed persons.
However, the amendments, commendable as they are, do not go quite far enough to satisfy the concerns of those who do not take formal appointments in insolvencies, notably turnaround professionals. They might act as directors or advise companies and, by doing so, could still be in danger of unfairly being required to pay under a contribution notice. I am sure that that is an unintended result and the amendments to the clause in the name of my noble friend Lord Lucas address the issue directly. I strongly commend those amendments to the Minister as entirely in keeping and consistent with the Government's amendments to the moral hazard clauses.
When we come to my amendment to Clause 39, the Minister will be aware that in the past few weeks, many stakeholders have expressed a view about the appropriate time limit for looking back at acts that might warrant the issue of a contribution notice. But we will come to that debate in a moment.
So my plea to the Minister is that she continue to listen to the constructive arguments and consider each of the amendments as having been tabled to improve the overall package. I say to the Minister, please do not regard the package, as she initially suggested, as inflexible and rigid. That is not the right way forward.
Lord Lucas: My Lords, I am very grateful to the Minister for what she has produced, which, as others have said, seems to go a very long way towards dealing with the problems—but, as noble Lords have also said, absolutely not all the way. Would it not have been a great deal better if we had had pre-legislative scrutiny on the Bill, when all these matters could have been dealt with on a proper timescale and in better depth? Then, at Report, we could have been polishing rather than wondering whether we have left some enormous hole in the Bill.
The potential liabilities are enormous. The difference between the deficits that FTSE 100 companies think that they have and the Section 75
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deficits is about £100 billion. An awful lot in the Bill is edging companies towards having to admit, certainly early on, the Section 75 deficits as a contingent liability. Secondly, because they impact through the clearance procedures, every time you want to declare a dividend, every time you want to do something that involves putting money out of reach of the pension fund, time and again the Bill edges us towards the point where the Section 75 liabilities are the ones recognised in the balance sheet. For the FTSE 100, that represents about two and a half years of UK profits. We do not want that lot to fall in all at once. I think that it will happen over time, but we should be conscious of the fact that it is a very large shift of money from the corporate sector to pension funds. Although none of us disagrees that that should happen, we should recognise that we want it to happen in an orderly fashion.
I do not mind restricting ourselves to considering this as a package, but let us criticise it as any other package to see whether we can improve it, not from the point of view of advancing one sectional interest or another but just seeing whether it works as a package. In that regard, I should like to ask a few general questions of the Minister—as she said, we will come to the details of the amendments when we consider our amendments.
The Minister talks about the resources available to the regulator. What volume of applications does she expect, especially under Amendment No. 51? Given retrospection and the six-year limit in particular, an awful lot of people will want clearance for their dividends and other transactions, let alone where there has been some extraordinary recapitalisation or takeover by a venture capital or development capital company. Anyone within the range of financial difficulties if he admits the whole of his Section 75 deficits will worry about those clauses. I should have thought that there will be thousands and thousands of applications hitting the regulator's desk on day one. How on earth will he deal with them?
Secondly, where will investors find themselves? In the Government's opinion, after the amendments, are we still in the position where an investor who has put money into a company in difficulties, say, can find the whole of his wealth swallowed up by a pension fund of that company if that company goes wrong? The noble Baroness has at least given us comfort that the investor's other investments will not suffer. I suppose that that is something, but it is not exactly going to attract people to help out troubled companies if the whole of their wealth, not just the money that they put into the company, can disappear.
Thirdly, can the noble Baroness illustrate how the clearance procedures will work? From these and other documents that I have seen, I do not have a feeling of what a clearance statement will look like. What sort of assurance will it give to someone who receives one? How is paragraph (5) of Amendment No. 51 to operate where it says, "You have got a clearance statement, but we might change it later"? Perhaps the noble Baroness could give an example of what we are considering as a clearance statement. I do not have any

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problem with it not being in the Bill, but I should like to know what sort of thing is envisaged. Will it be absolutely clear, absolute and self-contained or will it be much fuzzier? What powers does the regulator have to include whatever he wants in clearance statements?
There is no great description of what those statements can contain. Are there limitations? Can he reach any agreement that he wants with the person to whom he gives the statement? Can he do any deal and issue a clearance statement on the basis of it, or is it quite a limited concept that must be operated along strict guidelines? I should be grateful for some elucidation of that.
Baroness Hollis of Heigham: My Lords, first, I am grateful for the general welcome to the Government's approach, and especially the comments of the noble Lords, Lord Oakeshott and Lord Hunt, acknowledging how far all parties involved have been able to create a consensus on many of these issues. The noble Lord, Lord Higgins, cited the National Association of Pension Funds, but the noble Lord, Lord Oakeshott, responded to that point, so I will not take its concerns further. All I would do is continue to invite NAPF to engage fully in the consultation process with government, in the way that other organisations have done. I am sure that we would all benefit from that.
The noble Lord, Lord Higgins, asked me about the words, "good faith". He is of course right, but they are used about 700 times in legislation, I am assured—the wonders of computers. Therefore, rather like "knowingly", "recklessly", and so on, those phrases have a well established understanding. He said that he was worried about personal liability and I accept that. That was one of the themes in our discussion in Committee: the degree of exposure that individuals might have. That was picked up by the noble Lord, Lord Lucas. I think that your Lordships accept that I tried to make clear that investment in other companies was not regarded as being connected for these purposes just because it was one person putting money into separate companies. In that sense, as the noble Lord, Lord Lucas, said, they do not end up being bankrupted.
However, in terms of individuals, we specifically asked during the summer consultation what views there were about individuals' liability for contribution notices and there was general agreement with the Government's approach, as can be seen on page 47 of our report. That is because, to be issued with a contribution notice—as opposed to a financial support directive—an individual must be a party to, or knowingly assist in, the act or failure, and the regulator must consider whether it is reasonable to issue a notice. When considering whether it is reasonable, the regulator will consider the individual's involvement in the act and the person's relationship with the employer and the pension scheme. That means that anyone on the periphery, such as the secretary and so on, is not caught.
4.30 p.m.
That is the context in which we discussed our approach with industry. I understand that they were
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more than satisfied with the Government's approach. If it would help noble Lords to have other personal liability issues dealt with on the record in Hansard, either now or at Third Reading, I would be grateful if they would write to me. I would then make an effort to put the appropriate assurances into Hansard, if that should prove a comfort.
The noble Lord, Lord Oakeshott, broadly welcomed the package, although obviously he has concerns about some of the individual elements, as does the noble Lord, Lord Hunt—we shall come back to those. The noble Lord, Lord Lucas, said that he was worried about whether we went far enough and talked about inflexibility. Our problem is that, genuinely, the document that has come before noble Lords is the result of consensus, as far as we could build it, around where most of industry cohered. In some cases, individual organisations may disagree or have a more narrowly focused concern, and we may not have been fully able to satisfy them. If there are new arguments, piec s of evidence or considerations that have not so far been expressed or heard, I would be very happy to take them away and ask my officials to consider them.
The amendments that we have tabled today are not the end of the story. I was at pains to emphasise that a lot of the guidance associated with the clearance scheme will come out of discussion with the industry. The efore, I cannot describe the process as fully as I would wish, before industry has described to us how it would like to see the process work.
We do not yet know what the volume of applications will be. We have asked our consultees to consider the matter. They are working with us and will try to estimate the volume, after which we will be able to see whether we have an appropriate match of resources. It is obviously an apt question, because speed will be of the essence in some cases and inadequate resources could create delays. We have yet to identify likely volumes; we need industry's help on that.
Lord Higgins: My Lords, the level of resources is absolutely crucial to the clearance procedure. As the noble Baroness rightly points out, time may be of the essence in a deal. Is there any way of ensuring that, if there are delays beyond a certain point in reaching decisions, the resources will—I was going to add "automatically" but that is not possible—be increased? If the clearance procedure is to be anything other than mere window-dressing and if it is to be so effective as to prevent serious commercial problems arising, the resources must be there to deal with the process expeditiously.
Baroness Hollis of Heigham: My Lords, I do not dissent at all from that; the noble Lord is exactly right. That is why we are working with industry. None of us is very sure yet what the volume will be—whether there will be thousands and thousands, as the noble Lord, Lord Lucas, anticipated, or a much smaller proportion. When we obtain an estimate from industry of the likely volume, whether or not that happens before the Bill is complete, I will be very happy to write to the noble Lord,

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Lord Higgins, and other noble Lords on the resource implications and to seek to give him the assurance he wants. First, we must get some sense of the scale and the capacity of the regulator to build up resources over time, should he need to do so.
Staying with the three questions that the noble Lord, Lord Lucas, asked, individual investors cannot be issued a financial support directive; they can be issued only a contribution notice, the protection of which I have already described. They can get a contribution notice only if they are party to the act one of the main purposes of which is to avoid pensions liability. So there would be a high hurdle for the regulator to clear before a contribution notice could be exercised.
We will issue guidance on how the clearance system will operate. It will set out what should, if possible, be included in the application, depending on the act and type of clearance sought. I was asked to give an example. An application for a clearance statement to confirm that the applicant was not a party to an act with the main purpose of preventing the recovery of pension liabilities would require different information compared to an application that it would not be reasonable to issue a contribution notice—for example, if the action is taken to save jobs. The regulator must consider that as soon as is reasonably practicable. The application for a clearance statement will be dealt with under a standard procedure, as dealt with in Amendment Nos. 111 and 112. Refusal of a clearance statement will be referable to the Pensions Regulator tribunal, as dealt with in Amendment No. 114.
I have enlarged on my opening remarks, which may help noble Lords. Beyond that, all I can say is that there is no way that my department will pursue the matter without the full and active co-operation, information and expertise of the interested parties. As their views become clear and as I receive information that I can bring to the House, I assure noble Lords that we will do so. It may take a while but, as the noble Lord, Lord Hunt, was kind enough to say, our approach is non-partisan and constructive. We seek to tap the expertise that is out there, which, I hope, will enrich our proceedings. I would be grateful if noble Lords would accept the amendments.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.6:
Page 269, line 32, at end insert—
"() the power to issue a clearance statement under section
(Financial support directions: clearance statements);"
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.7:
Page 269, line 32, at end insert—
"() the power to make an order under section 152(8); () the power to make an order under section 217(4);"
The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 11, 13 to 24, 94, 97, 98, 113, 117 to 120 and 231. This is a fairly large group of amendments, each of which makes
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a minor, technical change to the Bill. Many of the amendments are consequential on amendments or new clauses introduced in Grand Committee. For example, Amendments Nos.13 to 23 update Clauses 24 and 31, which refer to the regulator's freezing powers in line with the new definition of "scheme rules" in Clause 316. Amendment Nos. 113, 117 and 11 are just the provisions relating to the regulatory decision-making procedures of the regulator to take account of powers now conferred on the regulator by Clauses 152(8), 217(4) and 290.
In the interests of the more urgent issues that we must consider this afternoon, I shall not speak to each individual amendment in this group unless noble Lords would prefer me to do so. I can assure them that they are minor, technical and largely consequential. I hope that, on the basis of that, noble Lords will accept the amendments. I beg to move.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 8:
Page 270, line 44, leave out from "for" to end of line 1 on page 271 and insert"—

(a) the modification of an occupational pension scheme under section 69 of the Pensions Act 1995 (c.26) or under any corresponding provision in force in Northern Ireland, or

(b) the issuing of a clearance statement under section (Section 39 contribution notices: clearance statements) or (Financial support directions: clearance statements) or under any corresponding provision in force in Northern Ireland."

On Question, amendment agreed to.
Clause 4 [Regulator's functions]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 9:
Page 2, line 43, at end insert—
"() In discharging its functions the Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) must act in a way—

(a) which is compatible with its objectives under section 5, and

(b) which is appropriate for the purpose of meeting those objectives.

() In discharging its functions the Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) must have regard to—

(a) the need to use its resources in the most efficient and economic way,

(b) the principle that a burden or restriction which is imposed should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction,

(c) the need to minimise any adverse effects that may arise from anything done in the discharge of those functions, and

(d) the interests of all persons who may be affected (including members, employers and others with an interest in, or an obligation in respect of, the scheme concerned).

() The Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) shall have regard to the need for openness regarding its activities and shall consult with interested persons and their representative bodies when developing policies, procedures and practices."
The noble Lord said: My Lords, this amendment is identical to one moved in Grand Committee by my noble friend Lord Higgins. We make no apology for tabling it again, as it found universal approval. At that time, the Minister said:
"The amendment seeks to make the regulator more accountable in its policies, procedures and practices. It also aims to ensure that the duties and functions of the regulator discharged to the non-executive committee and the Determinations Panel meet the regulator's objectives specified in Clause 5".—[Official Report, 6/7/04; GC 141.]
That is our intention. The Minister felt, however, that the amendment was unnecessary. If, as the Minister said, the amendment is unnecessary, why did the Government feel the need to put an almost identical form of words into one of their Acts of Parliament—the Financial Services and Markets Act 2000—which, as my noble friend Lady Noakes knows better than I, created an earlier register?
The Financial Services Authority also had statutory objectives set out in that Act. Parliament, well after the Act setting up OPRA, felt it necessary not just to set statutory objectives but to specify a set of principles that the regulator must follow in doing its work. That must have been seen as part of the accountability framework. Why do not the same arguments hold good for the Pensions Regulator? I beg to move.
Baroness Hollis of Heigham: My Lords, the amendment would set a statutory framework for the way in which the regulator, including its non-executive committee and the Determinations Panel discharged its functions. It is a duplicate of an amendment that the noble Lord tabled in Grand Committee. At the time, the noble Lord said, on withdrawing the amendment, that he should table a more specific amendment on Report. I regret to say that he has not done so. I was not unsympathetic to the broad aims of the amendment, but we needed something tighter to get to grips with.
We all agree that the regulator should act in an open, efficient and economic way. The noble Lord will not misunderstand me if I tease him and say that that is sort of apple pie-ish. Obviously, that is right. The amendment, however, is unnecessary and could create legal ambiguity.
The first part of the amendment refers to the regulator's objectives set out in Clause 5. That clause already requires the regulator to act in accordance with its statutory objectives, which may be summarised as protecting the benefits of members of OP schemes; protecting the benefits of members of work-based personal pension schemes; reducing the risk of situations arising that may lead to compensation being payable from the PPF; and promoting and improving understanding of the good administration of work-based pension schemes. Given that, I cannot see what the first subsection of the noble Lord's amendment would bring in addition to what is already there.
The next part of the amendment would require the regulator to act in an efficient and proportionate manner; to minimise any adverse effects; to consider the interests of all persons affected by its activities; and to have regard to openness, including the use of
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consultation. Given the consultation processes that we have been through this summer, I hope that the noble Lord will not challenge us on that front. I should say that, at any rate, general administrative law principles will apply to the regulator. That means that, at all times and in everything that it does, the regulator must act fairly, reasonably and properly, which implies having due regard to efficiency and economy. These not only encompass the broad intention of the noble Lord's amendment but go even wider.
In addition, the Bill makes further provision to ensure that the regulator will be accountable for its use of resources—for example, through published accounts, audits and annual reports to the Secretary of State, which will be laid before both Houses of Parliament. The regulator will also hold a great deal of information about individuals, schemes and employers. Some of it will be sensitive, which is why we, rightly pressed by the noble Lord, Lord Higgins, in particular, have made specific and detailed provision for the regulator's use of information. It would be entirely inappropriate to require the regulator to be as open with that information, which may relate to tax records and so on, as the noble Lord's amendment would necessitate.
The regulator also already has a duty to consider the wider interests of members and anyone directly affected by its exercise of regulatory functions. That is provided by Clause 98. Again, I do not see what the noble Lord's amendment brings in addition to that clause alongside those relating to its decision-making procedures and the tribunal.
I turn to the final part of the amendment, and I understand the noble Lord's comments about consultation. I have given full commitments. I can think of no point in our 11 days in Committee at which I have not sought to respond positively to and honour a request for consultation. I have tried continually to emphasise that the regulator will consult when appropriate, for example, on codes of practice, all of which must be drafted and consulted on before they are sent out, as well as the moral hazard clearance procedures. However, my legal advice is that this part of the amendment could tie the regulator to a potentially hazardous degree.
If the regulator becomes too close to those whom it is supposed to regulate, it will, over time, become dominated by them. We are anxious that the regulator, while having full consultation with organisations, as it should, does not enter into too cosy a relationship with industry and other group representatives, rather than maintaining the appropriate authority, which will allow it to balance the interests of all affected groups. We should remember that, in some cases, such groups may be strongly opposed to each other. The regulator's position would be invidious if it were believed to be too close to a particular group. Of course, the regulator will consult when it is appropriate to do so. I hope that the noble Lord will accept that.
The noble Lord drew on the example of the FSA and asked why, if the FSA had a statutory duty to use its resources efficiently, did such a duty not apply here? Unlike the regulator, which is an NDPB, the FSA is a non-governmental body and a company limited by

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guarantee. That being so, the general administrative law principles to which I referred do not apply to the FSA. That is why it is appropriate for the FSA to be under a statutory duty to use its resources efficiently. I hope that the noble Lord, Lord Skelmersdale, will accept that there is a distinction between the bodies and that that is why the clause is framed as it is.
4.45 p.m.
Lord Skelmersdale: My Lords, I am grateful to the noble Baroness for that full answer. However, as I said, I make no apology for having tabled the amendment, even if the noble Baroness thinks that the first part of it was "apple pie". She will remember the first part of that quotation—"motherhood"—so it is appropriate that she should have used the expression or half of it.
I agree that the Bill has been the most consulted-on of any in my considerable time in your Lordships' House. I am grateful to the Minister for repeating the fact that consultation has not now come to a grinding halt. In some of her earlier remarks, she gave the impression—to me, anyway—that it might have. I am delighted to be disabused.
I also take the point about the difference between a company limited by guarantee and a non-departmental body. However, there is no reason why such a non-departmental body should not be bound by the principles of efficiency and openness, including the financial side.
I shall look further into the matter. As usual, I hope that I will not have to bring it back, but I am afraid that I can make no promises on that score. Having said all that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 6 [Supplementary powers]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 10:
Page 3, line 27, after "anything" insert "of an administrative nature"
The noble Lord said: My Lords, the Minister said to me several times in Committee that, if outside bodies agreed with my amendments, she would think seriously about accepting them. If she can tease me on the last amendment, I can tease her back on this one.
This amendment comes from just such a body. I can give the Minister the comfort of knowing that, at this stage, it is a probing amendment. Like my noble friend Lord Higgins, I regret the fact that it should still be necessary to table probing amendments on Report, after almost four months.
Be that as it may, Clauses 4 and 5 set out the regulator's functions and objectives. Clause 6, to which the amendment relates, refers to supplementary powers. Clause 6 provides that the regulator can do anything, other than borrow money, that is,
"calculated to facilitate the exercise of its functions, or is incidental or conducive to their exercise".
The powers are very wide-ranging, so wide-ranging that I would like to know what is envisaged. What kind of action would be regarded as being "conducive" or "incidental" to the exercise of the regulator's powers?
The examples given in the Explanatory Notes suggest that the supplementary powers referred to in the clause will be of an administrative nature. The Explanatory Notes state:
"This power enables the Regulator to, for example, lease office space, print stationery, etc."
In other words, they are administrative.
Potentially, the powers could go very much wider than that. I am therefore trying to find out from the Minister exactly how far they go. I beg to move.
Baroness Hollis of Heigham: My Lords, I understand the noble Lord's concern. I hope that once I have given the explanation he will be content. Clause 6 allows the regulator to do anything which is calculated to facilitate the exercise of its functions or is incidental or conducive 10 their exercise, as quoted by the noble Lord. The express exception is that the regulator may not borrow money.
The provision of such supplementary powers is quite usual when a non-departmental public body (NDPB) is created; for example, under the Pensions Act 1995, OPRA has similar powers. However, I know that that argument is not sufficient.
Any NDPB may exercise only those powers and functions that are conferred on it by governing legislation. The powers provided by Clause 6 enable the regulator to undertake such supplementary powers as are necessary to exercise its statutory functions efficiently and effectively.
However, such activities are not purely administrative in nature. For example, the making of contracts is a common-law power. Clause 6, as currently drafted, enables the regulator to exercise such powers. By restricting the scope of Clause 6 only to those functions of an administrative nature, the regulator would be unable to enter into any contracts.
That means, for example, that the regulator would be unable to lease office space or enter into any supply contracts, such as with stationery suppliers or cleaning contractors. It would therefore somewhat circumscribe—I think one could say—his activity. I am sure that that is not what is intended by the noble Lord.
However, perhaps I may reassure the noble Lord that this clause does not give the regulator any unfettered or unnecessarily wide powers. The power is limited to those functions or tasks that are calculated to assist or facilitate the regulator in the exercise of its statutory functions and so on. There are no additional regulatory powers and it has no power to change any such powers beyond what the Bill already provides.
Given our previous discussion, the regulator is also subject to any overriding provisions to act fairly, efficiently, with propriety and to ensure value for money in the use of public funds, which includes its exercise of any supplementary power.
The noble Lord has already said that this is a probing amendment, and I am glad to put this on the record. If we were to limit the clause in the way that the amendment suggests, it would mean that the regulator, as I explained in one example, could not undertake any

43
contract. That would eviscerate his activity entirely. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Skelmersdale: My Lords, unlike the last time, I am totally convinced by that argument. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 2 [The reserved regulatory functions]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 11:
Page 276, line 29, at end insert—
"The power to issue a ring-fencing notice under section 290."
On Question, amendment agreed to.
Clause 21 [Pension liberation: restraining orders]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.12:
Page 14, line 38, at end insert "or by this section"
The noble Baroness said: My Lords, this is a technical amendment to one of the clauses introduced in Grand Committee to arm the Pensions Regulator with the necessary powers successfully to combat the illegal activities of pension liberation schemes, which I think came as a shock to quite a number of us, including me. I remember the speeches of noble friends on that very well.
Clause 21 provides the Pensions Regulator with a power to make a restraining order in relation to a bank account where it is satisfied that the account contains money that has been liberated from a pension scheme and that the account is held by or on behalf of the liberator.
The effect of a restraining order is that nothing can be put into and nothing can be withdrawn from the restrained amount during the period that the order is in place. Subsection (6) provides that a restraining order can be extended by an "extension order". Subsection (9) provides that where a restraining order has effect, the deposit taker must return to the payer any money credited to the restrained account in breach of the order.
The amendment expands the scope of Clause 21(11) to make it clear that a breach of any of the provisions in Clause 21, entitled, "Pension liberation: restraining orders", as well as a breach of an obligation imposed by a restraining order could lead to the imposition of a sanction under Section 10 of the Pensions Act 1995, entitled, "Civil penalties". I ask your Lordships to accept the amendment.
Perhaps I may make one final quick point. When we discussed restitution orders in Grand Committee on 8 July—at Hansard, col. GC 178—I said I understood that individuals could apply for restitution orders under the existing provisions of the Crown Proceedings Act, but that I wanted to check on it.
In the event, I found that that was not correct. I wrote to Members of the Committee—all of those present I hope today—accordingly on 21 July. I explained that the regulator can apply for restitution orders under Clause 20, although individuals can approach the regulator to
44
do so on their behalf. I would not normally detain the House by repeating something that I immediately corrected in correspondence. But I have been asked to do so in order that the position is unambiguous and is available in Hansard. With that slight digression, I hope that your Lordships will accept government Amendment No. 12. I beg to move.
On Question, amendment agreed to.
Clause 24 [Freezing orders]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 13 to 20:
Page 16, line 36, after "scheme" insert "rules"
Page 17, line 8, at end insert "rules"
Page 17, line 10, after "scheme" insert "rules"
Page 17, line 16, after first "scheme" insert "rules"
Page 17, line 25, leave out "under" and insert "towards"
Page 17, line 28, leave out "under" and insert "towards"
Page 17, line 44, after "scheme" insert "rules"
Page 17, line 48, leave out subsection (8).
On Question, amendments agreed to.
Clause 31 [Power to give a direction where freezing order ceases to have effect]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 21 to 23:
Page 21, line 25, after "scheme" insert "rules"
Page 21, line 28, at end insert "rules"
Page 21, line 40, after "scheme" insert "rules"
On Question, amendments agreed to.
Clause 35 [Suspension orders]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 24:
Page 24, line 18, leave out ""effect"" and insert ""have effect""
On Question, amendment agreed to.
Clause 39 [Contribution notices where avoidance of employer debt]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 25:
Page 28, line 17, after "employer," insert—
() the Regulator is of the opinion that the person, in being a party to the act or failure, was not acting in accordance with his functions as an insolvency practitioner in relation to another person,"
The noble Baroness said: My Lords, I shall speak to government Amendment No. 25, which is aligned with opposition Amendment No. 26—an amendment to the government amendment. The government amendments that we have laid after consultation provide that the regulator may not issue a contribution notice to an insolvency practitioner if he is acting in accordance with his functions. Functions is defined by reference to Section 388 of the Insolvency Act 1986.
We have consulted closely with the Insolvency Service on this amendment, which is clear that there are occasions when an insolvency practitioner may not be acting in accordance with his functions. We therefore have to allow the regulator to decide if the act of the insolvency practitioner is in accordance with those functions; for example, an administrator has a wide range of functions—everything from continuing

45
the business to the power to transfer to subsidiaries of the company the whole or any part of the business and property of the company.
For example, in the case of a company group, rather than seeking to keep the whole group as a going concern, the administrator could use his powers to wind up the company with the pension scheme attached but—this is an absurd example, but I shall give it—sells the remainder of the group to his brother-in-law at a much reduced price. I think that your Lordships will agree that this is unlikely to be acting in accordance with his functions as he would not be acting in the best interests of all the creditors.
When making that decision, the regulator will be taking advice—both legal and from insolvency practitioners—and the insolvency practitioner in question will be able to make representations about why he is acting in accordance with his functions and not going beyond them.
Of course, the regulator will also take into account any professional guidance to insolvency practitioners. Indeed, a further safeguard is that if the practitioner in question chose he could seek a review of the regulator's decision by the Pensions Regulator Tribunal.
As I say, we have had support from the Insolvency Service. As far as I am aware—I checked this morning—we have had no comments, criticisms or worries expressed from any quarter on this government amendment. I am not sure what the noble Lord's anxieties are; I am sure that he will explain them fully to the House. But I hope that, with the words about where the Government are coming from, the noble Lord feels that some of his concerns have been addressed in my opening remarks. I beg to move.
5 p.m.
Lord Higgins Lord Higgins moved, as an amendment to government Amendment No. 25, Amendment No. 26:
Line 2, leave out "the Regulator is of the opinion that"
The noble Lord said: My Lords, this amendment is tabled in my name and that of my noble friend Lord Skelmersdale. I understand the reason for the government amendment, but it does not seem satisfactory. This is the first of the government amendments to which we have tabled an amendment in order to improve it.
I am slightly surprised to learn that the noble Baroness has not had any representations on this because I was under the impression that she had. However, in our amendment we seek to delete the words,
"the Regulator is of the opinion that",
in the government amendment because in our view it seems unlikely that insolvency practitioners will derive sufficient comfort from the provision and be satisfied that they are not at risk of attack while exercising their duties. The crucial point is that insolvency practitioners are already subject to judicial supervision, but here the Government are now adding what is in effect a further regulatory layer.
In general, the only way in which an individual's opinion, in this case that of the regulator, may be challenged in court is by successfully contending that the opinion is so unreasonable that no reasonable individual would have adopted it. The regulator, in being given his opinion, is thus given an extremely wide latitude of decision by which the insolvency practitioner would be bound. If the clause is adopted in its current form, the result will be that in the future insolvency practitioners will need to look over their shoulders for fear of finding themselves the subject of a contribution notice from the regulator, who happens to be of a particular opinion. If a defined benefit scheme is at issue, this has the potential to make it unsafe for insolvency practitioners to act in the insolvency process and therefore they may be unwilling to take on such a job.
As I have pointed out, insolvency practitioners are already subject to judicial oversight and therefore it ought to be sufficient for the regulator to challenge the decisions of insolvency practitioners in court rather than be both prosecutor and judge in his own right. There is a case for removing this discretion, given that if the regulator does have an opinion on the matter he can test it in court. Otherwise it seems that a deterrent would operate for any insolvency practitioner taking on a particular job if suddenly he found that the opinion of the regulator went against him. However, he would be able to attack that opinion only on the basis of it being unreasonable which, for the reasons I have mentioned, would be unlikely to succeed.
We think that our amendment would be an improvement to the Bill. Given the normally sympathetic approach of the noble Baroness, I should have thought that she would be able to accept our amendment, in which case we shall be able to accept her government amendment. I beg to move.
Baroness Hollis of Heigham: My Lords, I do not think that there is any dispute between us, but very occasionally there are errant insolvency practitioners. I have cases in which practitioners have been involved in certain profoundly improper practices. We do not expect this to arise very often, if at all, on the grounds that the professional body will seek to regulate and that normally, in the event of insolvency, the PPF would be a creditor to the arrangements.
However, the noble Lord pressed me on why the regulator's opinion is required as opposed to simply leaving it to the court to determine whether the insolvency practitioner had acted improperly. The court would not be considering whether to issue a contribution notice because that is the regulator's job. Therefore, it is the responsibility of the regulator to determine whether, in certain very rare cases, an insolvency practitioner had gone improperly beyond his professional functions. He may have done so possibly for personal gain and advantage; indeed, I have cases in my file where that has happened. This is not a territory for the court, rather it is for the regulator to determine a contributions notice.

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I have to say that the Insolvency Service, which regulates insolvency practitioners, is happy with the provision. I repeat that, as of this morning, I have received no representations from any quarter either about the Government's approach or that the responsibility devolving on to the regulator is inappropriate. If the noble Lord has evidence to that effect or wishes to bring forward individuals to discuss the matter, I shall be perfectly happy to see whether there are any concerns or worries which have not been addressed. However, I have not had them, my officials have not had them and the Insolvency Service has not had them.
The noble Lord suggested that the court could regulate, but it would not be appropriate for the court to do so for the reasons I have advanced in evidence. The regulator has to make a judgment call on whether to exercise a contribution notice. He must judge whether, on certain very rare occasions, an insolvency practitioner has trespassed beyond his proper professional functions.
In view of my explanation, coupled with an invitation to consider coming back to me if he has any evidence that we have obviously overlooked or not considered, I hope that the noble Lord will feel able to withdraw his amendment and to accept the government amendment as it stands.
Lord Oakeshott of Seagrove Bay: My Lords, I gather that I am allowed to intervene briefly. Before the noble Baroness sits down, perhaps she will allow me to say that I find her answer persuasive.
Lord Higgins: My Lords, despite that intervention, I am afraid that I do not. The problem is that if the regulator really thinks that something improper has been done, surely it is more appropriate for him to go to the courts rather than simply to issue a contribution notice. In that case, unless the person affected can demonstrate that the regulator is being totally unreasonable in the way I described earlier, he has no redress at all. That seems pretty unfair.
Baroness Hollis of Heigham: My Lords, I do not think that that is quite the case. Perhaps I was speaking too quickly, but I had hoped to establish that if the insolvency practitioner believes that the regulator is acting inappropriately in exercising his judgment, he may seek a review of the decision by making an approach to the Pensions Regulator Tribunal. However, in some cases speed can be of the essence, as noble Lords observed earlier.
Lord Higgins: My Lords, I understand the point, but I am not sure whether it is true in this case. In what sense would speed be of the essence regarding the matter now under discussion?
We have a problem in that we are at the Report stage and we did not have these representations during our deliberations in Committee. However, I repeat that I am not sure why time would be of the essence in such
48
a case. Looking at the matter again, I am also rather puzzled by the way in which the Government have drafted their amendment. Subsection (3)(a) states that:
"The Regulator may issue a contribution notice to a person only if—
(a) the Regulator is of the opinion that the person was a party to an act",
and so forth. The expression, "the Regulator is of the opinion" turns up again in subsection (3)(b)(ii). Why does he have to have an opinion twice? I am not at all clear why that is so. This is rather unsatisfactory at Report stage because, unlike the noble Lord, Lord Oakeshott, I am not persuaded by the argument. Perhaps all we can do is come back to this at Third Reading. That may be an indication of how unsatisfactory it is when points arise this late in our deliberations.
Baroness Hollis of Heigham: My Lords, I wonder if I can help the noble Lord a little more. He is obviously concerned about this, but I have to say that I do not share his concern. The regulator cannot go to court; he can consider only whether to issue a contribution notice. We have made it clear that insolvency practitioners are exempt from any liability for contributions provided that they exercise their functions in a professional way. This comes into play only where they do not exercise their functions in a professional way by, say, defrauding the fund.
I regret to say that I have three or four cases in my files which outline how there have been bad apples among insolvency practitioners. In such cases, the regulator may wish to include them in a contribution notice. The courts cannot issue that contribution notice. The regulator cannot go to the courts for it. It may be important to get additional resources into the scheme, which is why I said that speed could be of the essence, although not invariably. A court hearing may take six months, a year or two years. What happens in the mean time: does one freeze the scheme? I find that difficult to handle.
There is a recourse—quite rightly. Any insolvency practitioner who feels that the regulator is exercising his judgment improperly can to go to the tribunal. Given all of that, I am perfectly happy to write to the noble Lord rather more fully with background papers from the Insolvency Service and see whether those allay his concerns. If they do not, he may wish to return to the matter at Third Reading.
Lord Higgins: My Lords, I am grateful for that statement. However, if I withdraw my amendment and accept the Government's amendment, I would not wish that to be regarded as ruling out returning to the matter at a later stage in any way. I beg leave to withdraw the amendment.
Amendment No. 26, as an amendment to Amendment No. 25, by leave, withdrawn.
On Question, Amendment No. 25 agreed to.
Lord Lucas Lord Lucas moved Amendment No.27:
Page 28, line 19, at end insert ", and
() the person is not an individual, or knew or should have known that the act or failure fell within this section"
The noble Lord said: My question for the noble Baroness is this: with the Bill as amended are there people who could potentially be subject to a contribution notice who are essentially innocent bystanders? They may be people who are involved just because of the process involved but who do not have actual executive responsibility. They may have to do something to make the process happen but they are not actually the sort of people who should be asked a question. Whether a particular act looked at in retrospect actually contributes to taking money out of the hands of pensioners can be an obscure question in some circumstances.
I agree with the main scope of this clause, but in its breadth it could potentially make liable people who, through playing a part in accordance with their ordinary employment, sign or facilitate the drawing up of a document or take part in the distribution of a dividend or whatever it might be but are not actually involved in having responsibility for it. I beg to move.
5.15 p.m.
Baroness Hollis of Heigham: My Lords, the answer to the question asked by noble Lord, Lord Lucas, about whether an "innocent bystander" could be involved is no, they could not. When considering whether it is reasonable, the regulator will consider the individual's involvement in the act and the relationship the person has with the employer and the pension scheme. That means that those employees who have no control over the employer or what is done and are peripheral to the act—the noble Lord's innocent bystanders, such as a secretary typing the letter—will not be issued with a contribution notice.
Having removed individuals there is a further and second limitation of the amendment in that the person must know or should have known that the act fell within this section. We have already shown that in order to exercise his powers the regulator must show that the person was a party to the act, and that the act, for example, prevented recovery of the whole or part of the Section 75 debt, and consider it reasonable to issue the notice as I have already described.
The basic answer to the noble Lord's question of whether innocent bystanders could be caught in this clause is "no".
Lord Lucas: My Lords, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 28:
Page 28, line 19, at end insert ", and
() the person was neither a turnaround professional nor a person failing within section 39(14) at the relevant time"
The noble Lord said: In moving Amendment No. 28, I shall also speak to Amendments Nos. 40, 48 and 49.
I hope that this is an illustration of how Amendment No. 29 will be used in practice. It is obviously impractical to insert these amendments into the Bill as they are drafted. They merely serve to illustrate the complexity of what has to be done. However, I hope that they also illustrate to the noble Baroness the requirement that these things must, in some way or another, be achieved.
There is a very fine body of men and, to some extent, women who are involved in rescuing companies. We occasionally see them on television giving chief executives a hard time. We all wonder how companies can be run with such inadequacy of management and strategy. However, that happens a good deal of the time and it is very much in the interests of the employees and others involved in the business that these companies are rescued. It is a dangerous business. These people often risk their own assets. They certainly put a great deal of time and expertise into their work and the company may well be in a parlous financial position. It is desirable that these people should be able to continue to operate. I hope that the noble Baroness will take these amendments as an illustration of what I hope Amendment No. 29 will be used for and that she will be able to give me comfort that it will be the Government's intention to use that amendment in just that way. I beg to move.
Baroness Hollis of Heigham: Yes, my Lords. Again, as a direct response to the question asked by the noble Lord, Lord Lucas, the amendment, which relates to the power by regulation to exclude other bodies, may well be used in that way if the Society of Turnaround Professionals is persuasive of that activity. I have no reason to think that it may not be. The professionals have participated fully in the consultation process and their views have been extremely valuable. I hope that they will continue to work with us on the clearance procedure.
The reason that those professionals are not included in the Bill as it currently stands is that they are not, like insolvency practitioners, a statutory regulated body, professional though they are. They do not have statutory functions as insolvency practitioners do. They may be company chairmen or chief executives or have other different skills. With the amendment, we wish to leave the door open to excluding them and other groups. That is why we have taken powers to stop the regulator from issuing a contribution notice in such circumstances as may be prescribed.
The message to the society is to continue to work with us. If as a result of that we believe that it should be expressly excluded, we have the powers to do so. That is one of the reasons why, as the noble Lord, Lord Lucas, suspected, the amendment is there. I understand that the society finds that position acceptable. In the light of those assurances and our appreciation of the work done in our consultation exercise, I hope that the noble Lord will be able to withdraw his amendments.
Lord Lucas: My Lords, indeed. I would like to return the compliment by saying that the Society of

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Turnaround Professionals has been delighted by the helpful responses received from the DWP at every stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 29:
Page 28, line 19, at end insert—
() But the Regulator may not issue a contribution notice, in such circumstances as may be prescribed, to a person of a prescribed description."
The noble Baroness said: My Lords, I spoke to this amendment in the most headline terms possible when we originally discussed Amendment No. 5 and the amendments grouped with it. I will move the government amendment and then invite the noble Lord, Lord Higgins—who sought to amend the government amendment—to speak. I shall then return to the matter. I beg to move.
Lord Higgins Lord Higgins moved, as an amendment to Amendment No. 29, Amendment No.30:
Line 2, after "notice" insert "either—

(a) if a court order sanctioning the act or failure has been obtained; or

(b) "

The noble Lord said: the effect of the amendment would be for the clause to read:
"But the Regulator may not issue a contribution notice either—if a court order sanctioning the act or failure has been obtained; or in such circumstances as may be prescribed, to a person of a prescribed description".
Currently, it remains possible under the Bill for trustees of the pension scheme and the employer to "compromise", which is the technical expression, a contingent or actual debt on the employer arising from the operation of Section 5 of the Pensions Act 1995. In the jargon that is known as a Bradstock compromise.
Indeed, government Amendment No. 16 specifically contemplates such compromises continuing to be possible providing they are entered into in good faith, whatever that means. We discussed that matter earlier. But if that is so, the Government are happy that it continues.
In many cases, the trustees of a scheme would seek the court's sanction of a Bradstock compromise for their own protection. That may become even more common in future, given the Government's intention of excluding schemes that have entered into a Bradstock compromise from the protection of the Pension Protection Fund. None the less, the trustees may still regard a Bradstock compromise as desirable for reasons of, for example, the prospect of continued employment for the members, as a result of reaching the compromise.
As the clause currently stands, with the government amendments, it is possible for the regulator to overrule a decision of the court by imposing further liability on those involved. Although employers may clear a proposed Bradstock compromise in advance with the regulator, in effect that leaves the employer with the
52
necessity of clearing it with one authority while the trustees may need to clear it with the court, for reasons that I have just set out. There is a double-barrelled effect here which, on balance, seems undesirable.
Although employers may clear a proposed Bradstock agreement in advance with the regulator, the trustees are in a somewhat different position. It is obviously undesirable if, in complicated financial circumstances, the employers go down one route to try to sort out the problem and try to prevent the thing going bust and people losing their jobs, while the trustees have to go through what is obviously a more lengthy process. It would seem better if, instead of going down both those routes, the situation were dealt with in a single hearing for all parties. If the regulator does not give sanction to a scheme, the most appropriate forum would seem to be the court.
Instead of having two separate routes for the employer and the trustees, it would be better to have a single arrangement. That is what we are seeking to do in the light of the Government's amendment, which is otherwise a hopeful one. Although I have talked largely of the Bradstock compromise, it would be appropriate in a wider sense, when an act or failure has the court's sanction, that the regulator should be precluded from double-banking it by issuing a notice. So, by and large, we believe that our amendment would improve the Government's amendment. Their amendment goes some way to meet the points made in Committee, but there is a case for simplifying the procedure—not least because, as the Minister said, if a court case is needed as well as another procedure, the whole process may collapse because it has run out of time. I beg to move.
Baroness Hollis of Heigham: My Lords, Amendment No. 30 would introduce a new exclusion to the scope of contribution notices, that the regulator may not issue a contribution notice to a person if the act or failure which prevented the recovery of a Section 75 debt or reduced the amount of that debt, was ratified by the court.
If an act or failure was sanctioned by the court, the regulator would have to take that into consideration when deciding if it was reasonable to issue a contribution notice. For example, in the case of compromise agreements, we would expect the regulator's guidance to provide that compromise agreements sanctioned by the court would mean that those agreements were in good faith and would therefore not fall foul of clause 39(4)(a)(ii). The employer may choose to seek clearance from the regulator—which is precisely what we would encourage him to do—to avoid such situations for the act, rather than using the expensive court route as, at the time when a compromise agreement occurs, money is in short supply. One hopes that, with a clearance procedure in place, the measure will present less of a problem than the noble Lord envisages.
In future, should an employer wish to compromise a pension debt, if an insolvency event has occurred, the board of the PPF will be a party to that compromise and ensure that scheme members and levy payers are properly represented in those negotiations. With this Bill we are strengthening the powers of the regulator to

53
protect members of pension schemes. Taking these powers away and relying on the courts to protect members is in my view misguided. What is the point in providing the regulator with powers to protect members in situations which we know are happening but then giving those who can afford expensive lawyers the opportunity to get round these provisions?
I shall give an example, which I believe is a telling one. There is a recent case, whose name I cannot give because it has not been published—but I am sure that noble Lords will guess which case I am referring to—in which the court approved the withdrawal of 11 subsidiaries from a pension scheme with a deficit of £875 million because the subsidiaries had no liability to the trustees to fund a deficit on the buy-out basis—because until this Bill and regulations come into force employers leaving multi-employer schemes only have to fund till the MFR level and the principle of last man standing applies, even when the last man is made of straw.
The court found in the case of company "T" that, in those circumstances, there was no duty to the trustees to have regard to their interests—and therefore, of course, no duty to have regard to the scheme members. The result is that members of that scheme, following that court decision, particularly deferred members, are facing a drop to in some cases less than 25 pence in the pound of the pension they expected, because the court could not take the interests of the trustees into account. The Bradstock decision was taken at a time when there was no full buy-out debt and no PPF, and it is by no means certain that the court would make the same decision today.
I also note that if an act is done to comply with a court order, then the main purpose of that act is to comply with the court order, not to avoid pension liabilities. Through our amendments, the Government have already exempted administrators acting in accordance with their functions. These clauses are designed to protect members—and it is the regulator who is their champion. Courts have specific duties and powers and are not, for example, always required to consider the members' interests, as the regulator is by Clause 98. The "T" case, with liabilities of £875 million, is a powerful example of such a situation.
Your Lordships may consider the position of the Pensions Ombudsman, who cannot bind third parties—who tried to but could not—as having a quasi-court function. He is in the same position, because of the two-party consideration.
I hope noble Lords do not think that I am over-reliant on this fact, but the waiver that we are discussing was not asked for in the very extensive consultation that we had this summer. I would normally expect the regulator, like OPRA, to accept that referring a compromise to the court is evidence of good faith. I would hope that the clearance procedure has rendered that route unnecessary. So far, in possibly the biggest case of pension deficit surfacing in this country, the courts were unable to protect members' interests, when a regulator might have been able to do so more effectively. With that argument and
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explanation, and the assurances that in future there should be alternative and more satisfactory routes to deploy, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Higgins: My Lords, I am grateful for that comprehensive reply on what is obviously an extremely complicated subject. The noble Baroness went to considerable lengths in the consultations during the summer to include all the major groups, but she pointed out in her report on the consultations that it had not been possible to consult everyone whom they might have consulted. It is becoming apparent that there were some groups which were not consulted, and which have only recently realised the full implications of the Bill, having studied the Committee stage. Therefore, the danger of the double-barrelled shotgun approach to which I referred has only recently come to light.
The other point, which emerges clearly from what the Minister was saying, is that the importance of getting all this right is emphasised by the very large sums of money to which she referred, and the large number of jobs that may be affected if the arrangement goes wrong. There is obviously a problem here, as the way in which the legislation will work will result in jobs being lost because the contribution notice is called for in circumstances where the situation takes a time to resolve.
5.30 p.m.
Baroness Hollis of Heigham: My Lords, does the amendment that the Government introduced earlier, about the implications for employment being taken into account, not go some way to meeting the noble Lord's legitimate concern about the dilemma for the employer?
Lord Higgins: Yes, my Lords, what the noble Baroness is saying is right. But one of the problems throughout the Bill has been that we may find that employment is jeopardised as a result of the way in which it operates. I am sure that that is not something that she, I or either side of the House would wish to see. The amendments that have been tabled already go some way to making that explicit.
There is an important fact to be taken into account. Given that there are employers and trustees involved, we need to ensure that the purely procedural way in which the Bill operates is as right as we can get it. It may not be possible to make it watertight. In due course, if that turns out to be the case, we may find cases where we are found to have legislated wrongly. Having said that, I shall study the Minister's reply, which goes into considerable detail and gives specific cases. I shall seek to get my mind round this undoubtedly very complicated point. I beg leave to withdraw my amendment to her amendment.
Amendment No. 30, as an amendment to Amendment No. 29, by leave, withdrawn.
On Question, amendment agreed to.
Lord Lucas Lord Lucas moved Amendment No. 31:
Page 28, line 24, leave out "was, or might become," and insert "should reasonably have been considered to become"
The noble Lord said: My Lords, I apologise to the House that my amendment is very badly drafted but I do not want to attempt a redraft on the hoof, not least because I do not know exactly what I want to say. I know what I want to achieve. This is the crucial subsection, which potentially imposes the Section 75 liability on the people who might be served contribution notices. I would like to make sure that it is easier to justify a going concern basis in company accounts and to give the companies involved more certainty as to the quantum of the liability.
To deal with the first point first, if we are going to keep this liability in the notes, where the accountants seem to want it, and not have it on the face of the balance sheet, then the accountants must be able to say that, on the basis of a going concern, they do not think the liability will hit the company. I expect the liability will migrate to the face of the balance sheet anyway, but I would prefer that that happened over 20 years or so as it would be easier to withstand the shock. But every time a decision is made to take money out of the reach of the pension fund, either by inter-company trading, by paying a dividend or by any of the other ways in which assets are moved within a group or without, other than straightforward third-party transactions, the accountants will have to ask whether it falls within this clause and this absolute liability will be judged in hindsight. Six years down the road, the regulator, using his best hindsight, will consider whether one of the purposes of a transaction was to remove money outwith the pension fund for the benefit of other people.
That is a very harsh light to be thrown on any transaction, particularly when one is dealing with enormous potential liabilities, or in an environment where a company's profits can plunge quite quickly and six years can be a long time in the history of a company between a comfortable state of affluence and one of near penury. I would like to see something in the Bill that makes it clear that what is required of the company is that it takes a reasonable judgment that what it is doing is not likely to disadvantage the pension fund. For example, it will he exempt under this clause if there is a great deal of room between the quantum of the liabilities and the assets it has to hand and there is no reason to expect that things will turn down. In other words, hindsight is limited and the auditors and the company can take comfort from the fact that the situation is being looked on a going concern basis and will not be judged five and a half years later with a great deal of hindsight.
Secondly, I would like to achieve some certainty about the quantum of the liability. Section 75 of the Pensions Act is all very well for a buy-out basis but that essentially says that it is a figure that can fluctuate with the market. Suppose that the market becomes worse and the experience of people providing the buy-out is bad and it costs twice as much to do a buy-out than it did at the time when a transaction was undertaken. In those circumstances, it would seem that the company
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was in difficulties with a doubled deficit on its pension fund, whereas it was not with the deficit that actually existed. Under those circumstances, how can a company be sure what the deficit being looked at is?
I am not clear that there is any statutory basis for establishing what this deficit is, so that one can defend oneself. If one says that there is a deficit of £100 million in a fund, how does one establish that to the satisfaction of the regulator? Is there a figure that he has to believe or can he do his own calculations? In any event, even if it is thought to be £100 million and, three years down the road, it turns out to be £200 million, should one not have allowed for that possibility under this clause? Under the wording here, should one not have thought that a market might get worse and that one should be dead sure that one would not fall under this? By extension, one has to start asking for the regulator's clearance for absolutely everything.
I would like to see some certainty. I would like to see it made clear that what is being looked for here is a sensible going concern basis. Then one can look at the liability and say that it is quite out of sight that there will be any difficulty paying the amount so that the annual dividend can happily be distributed and it is not going to be called into question some years later on a completely different basis. I beg to move.
Baroness Noakes: My Lords, I do not know whether the wording of my noble friend's amendment achieves what he wants to achieve.
Lord Lucas: My Lords, it does not.
Baroness Noakes: My Lords, I shall say a few things about the problem that my noble friend is trying to put before the Minister. When he discussed this with me briefly last week, it was the first time that I had started to think about when a contingent liability would need to be recorded in the accounts—sometimes of many different companies that are associates of an employer—and when that tipped over into requiring a provision in the accounts. I have thought about it seriously since then and I do not think that there is a precedent for legislation that would have a similar effect on potentially such a large number of accounts, because of the ripple effect when the regulator decides to take some action. My noble friend is saying that this will remain a big uncertainty unless we have clearance notices for absolutely everything. That may well lead accountants—who by nature are cautious and want to be prudent—into recording a number of matters either in their notes or possibly in the accounts themselves. That, in turn, could exacerbate what may well be an underlying financial weakness. I do not have the answer to that, but I think that my noble friend has raised some very real points. I hope that the Minister will think about them.
Baroness Hollis of Heigham: My Lords, I can respond to the amendment only with the words that I have. As the noble Lord would expect, I have been wrestling with the syntax as it stands. I could make a

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political joke—about people being hostile to all taxes, including syntax—but think that I had better wait until after tomorrow.
Amendment No. 31 relates to the debt due. The noble Lord, Lord Lucas, says that he has tabled the amendment to make it clear that a reasonable judgment is called for. However, that is exactly what the wording in the clause allows for.
As your Lordships will know, an actuary is able to calculate at any point the deficiency in the funding position of the scheme in relation to Section 75 of the Pensions Act 1995—"the full buy-out" debt. That may be calculated for a number of reasons but is necessary in order that the full liabilities of the scheme can be ascertained. It is also intended that the position on wind-up of a scheme will be disclosed to members as part of the annual funding statement they will receive. If the Section 75 debt has not become due, there is always the possibility that it might become due should the employer become insolvent or the scheme wind up.
The test we are using is whether the purpose of the act was to prevent the recovery of any Section 75 debt that is, or might become, due. This amendment would mean that the test is whether the purpose of the act was to prevent the recovery of Section 75 debt that should reasonably have been considered to become due. That merely confuses matters without adding to the substance.
The section is not about looking at the employer, but about assessing the level of the Section 75 debt, whether it is real or contingent—whether it is yet to be crystallised. We are advised that the existence of this provision does not mean that there has to be a note in the accounts; it is too remote.
If I have not fully addressed all the noble Lord's concerns, perhaps he will write to me. Given the wording of his amendment to the Government's position, I think that that is as far as I can go today. I therefore hope that he will feel able to withdraw his amendment.
Lord Lucas: My Lords, I am grateful to the noble Baroness for that answer. However, I do not think that there is any way of squaring the fact that the Section 75 deficit will have to be disclosed in letters to pensioners with the assertion that it would not then appear in the accounts. I do not think that you can do that. If it is real enough to be put in a letter to pensioners, it will absolutely have to be in the accounts. I think that a board that tried to say otherwise would be in great difficulties. However, I think that it will be there only as a contingent liability in the notes.
The noble Baroness is saying that the Section 75 liability, as stated by the company's actuary, is to be taken as the figure in this part of the Bill. I do not see that in the Bill anywhere. I do not see any provision that the company actuary's opinion is to be taken as gospel in this. It would be interesting if it were; it would help the Equitable Life actuaries to no end if we were to say that their decisions are not challengeable. It seems to me that it will be quite hard for a company to know what this figure is or is supposed to be.
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I think that it will also be quite hard to distinguish between an act that "had the effect of" depriving the pensioners of access to assets and one that "had the intention of". I think that it will be quite difficult, looking back five or six years, to say, "There was no other intention. It is just the way life has turned out, guv".
So I think that the Government are saying that this is actually quite a serious liability. If one is investing in a company, one has to be aware of that figure. Should life turn sour for the company, it means that life is going to turn sour extremely fast. It will also be the figure that is taken into account by anyone who might ever think of buying the company. As the noble Lord. Lord Oakeshott, said earlier, if they are doing it with any element of leverage, then this liability will become real extremely fast, and quite right, too—I agree with him. It is becoming a crucial figure in the calculation of a company's value.
5.45 p.m.
Lord Lea of Crondall: My Lords, perhaps the noble Lord will comment further on the very interesting point raised by the noble Baroness, Lady Noakes. Does not the accountancy profession stand side by side with legislators in bearing responsibility on this issue? If the accounts have to address it, does that have to be dealt with in the Bill in the way in which the noble Lord is trying to identify? What responsibility does the accountancy profession have to identify what the accounts must include? The noble Baroness seemed to have a different answer.
Baroness Noakes: My Lords, as a former president of the institute, perhaps I should try to speak for the accountancy profession. I think that accountants will follow the legislation. If they find legislation that has certain consequences, they will generically advise their members on how it should be treated in the accounts. I am not surprised that nothing is available at the moment. When there is a generic issue, it is normal for guidance to be given on how to treat it and the circumstances in which to treat it as a contingent liability or a liability to be recognised in the accounts. I imagine that that will be considered in due course. It is not something that I would expect to have available here and now.
Lord Lucas: My Lords, I am grateful to the noble Lord and to my noble friend for that. I agree that these things come quite slowly. They tend to have to be agreed through national procedures and, these days, I suspect, European if not international procedures. This one ought to come out as national guidance at some time. However, it can take quite a long time for these things to filter through.
The position that was reached on the Marks & Sparks pension fund and on the W H Smith pension fund is something that has long been implicit in legislation, but it has started to emerge in practice and to be generally accepted only in the past year or two. These things can take a very long time to work through, particularly in the area of pensions, until a hard case is decided the right way and it suddenly becomes obvious that that was the position all along.

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I understand why the noble Baroness says that we should look at this as an absolute liability and not hedge it about. We will come later to a similar amendment. I think that I will try to press her certainly before Third Reading, and perhaps on Third Reading, on this question of how a company can establish what its Section 75 deficit is to the satisfaction of the regulator without having on every occasion to provide the regulator with its calculations. That would give the regulator an enormous amount of work to do to no good end.
As I say, we will return to the issue in a later amendment. I will raise it again then. For now, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 32 and 33:
Page 28, line 28, leave out from "due" to "would" and insert ", to compromise or otherwise settle such a debt, or to reduce the amount of such a debt which"
Page 28, line 29, leave out "and"
On Question, amendments agreed to.
Lord Higgins Lord Higgins moved Amendment No.34:
Page 28, line 31, leave out " 1lth June 2003" and insert "such date as the Regulator shall first issue a code of practice pursuant to section 88(2)(1)"
The noble Lord said: My Lords, I think that it will be convenient to consider Amendment No. 107 with this amendment. There is a slightly complicated interrelationship between these two amendments, which in some ways are grouped rather strangely. Perhaps I may begin at the end.
The second amendment, Amendment No. 107, is concerned with amending Clause 88, on page 65 of the Bill, which is concerned with codes of practice. We are suggesting that that section should be amended in accordance with Amendment No. 107, so that guidance will be issued on how the regulator will use the power to issue contribution notices and also financial support directions.
In view of what the noble Baroness said in Committee we are rather surprised that in relation to such extremely serious matters as contribution notices and financial support directions there is no requirement for the code of practice to be included among the other guidance which will be issued by the regulator to those who need to comply with it. There is a case for amending the code of practice in the way described in our amendment. Although the two amendments that we are discussing rather anticipate later clauses in the Bill due to the way in which they have been grouped it may be convenient for the noble Baroness to comment on that aspect of the matter at this stage.
Having said that, Amendment No. 34 is concerned with the issue of retrospection. My noble friend Lord Hunt has tabled a later amendment on retrospection. Amendment No. 34 proposes to delete the
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words "11th June 2003"—which is the date back to which the Government propose to go—and insert the words,
"such date as the Regulator shall first issue a code of practice pursuant to section 88(2)(1)".
The clause would then read,
"on or after such date as the Regulator shall first issue a code of practice pursuant to section 88(2)(1)".
Our amendment is designed to deal with the problem of retrospection and to suggest that instead of the clause being retrospective it should be implemented from the date when the code of practice is produced. We argued previously that, generally speaking, backdating the retrospective effect of the Bill to 11 June 2003 was not justified. Indeed, it is argued that if it were backdated to then, it would be appropriate for the intention of the statute to be stated at the time of the relevant announcement. It is certainly arguable in this case that at 11 June 2003 no clarity existed with regard to the Government's intentions in this Bill. In fact, that probably was not the case until 27 April 2004. I refer to an announcement made by the Minister concerned who said:
"We will have to introduce protection against engineering designed to circumvent the intent of our proposals".—[Official Report, Commons, 11/6/03; col. 696.]
It is arguable that even that was not sufficiently clear for the retrospection not to be challenged in the courts. Indeed, it is also arguable that to make the provision as retrospective as the Government propose is contrary to the human rights legislation. In short, there seems a case for the Government to drop the retrospective effect. I realise that is a fairly radical proposal. It would be helpful if the noble Baroness spelt out precisely what the reasons are for going back to 11 June 2003, and why in the Government's view such retrospection—which I believe both your Lordships' House and another place have always regarded as something to be avoided if possible—is necessary. Unless there are overwhelming reasons why that should be the case commencing the provision when the situation is much clearer and the codes of practice have been issued would seem to be a better course. I beg to move.
Lord Oakeshott of Seagrove Bay: My Lords, I have some sympathy with the arguments of the noble Lord, Lord Higgins, on retrospection. However, I was not quite clear what he was arguing for. Indeed, I wonder whether 27 April 2004 would be a sensible compromise date. I look forward to hearing from both the noble Lord and the Minister.
Baroness Noakes: My Lords, I support my noble friend's amendments. The problem is that since the original announcement companies have been put on notice that the effect of some of the actions that they have taken would be reversed in some way. I shall be interested to hear from the noble Baroness why June 2003 is the right date. However, since that date, while companies will have been aware in a general way that certain actions may in effect be reversed, they have not been aware of anything specific. In particular, the

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clearance statement procedure has not been available to them since that date and will not be available to them until this Bill is passed. Therefore, there is a period during which they could not have obtained a clearance statement, and there could be considerable uncertainty in terms of what they could or should have done during that period.
My noble friend's two amendments in this group together propose one way forward, which is to have a code of practice and for the relevant date to apply when that becomes available. I understand why the Government might want an earlier date although I do not necessarily agree that there is an appropriate earlier date. Clause 39(6) refers to the matters that the regulator considers reasonable to take into account. Does the Minister consider that, if the date is to stay the same, there ought to be specific reference to the regulator considering the time at which the acts took place, in particular in this period of—I am sure the Minister will agree—considerable uncertainty for companies? I support the amendment but I wonder whether there might be another way of achieving the same effect.
Lord Lucas: My Lords, I echo entirely what my noble friend has said. There is not wide appreciation of where this Bill is going at the moment and its implications. We are trying to cover new implications of it even today. Certainly I do not think that the development capital community realised that the whole business of its doing deals with the trustees of pension funds to keep companies alive was liable to be reopened with regard to unlimited personal liability under something issued as an obiter dictum by a Minister. I understand that this is a matter which will have to be judged by the regulator but, as my noble friend said, I should very much like the regulator to be able to take into account the fact that this was an act done at a stage when the implications of a ministerial statement may not have been fully realised.
Lord Fowler: My Lords, I support my noble friend Lord Higgins and what has just been said by my other two noble friends. The point is a practical and legal one; namely, that the terms of a statute must have been clear at the time of the announcement. However, it seems to me anything but clear that that has been the case in this regard. It does not seem to me that any clarity existed before 27 April 2004 at the very earliest. I refer to the Secretary of State's announcement that:
"We will have to introduce protection against engineering designed to circumvent the intent of our proposals".—[Official Report, Commons, 11/6/03; col. 696.]
I am not sure it can be argued that that gives sufficient indication of what is to follow. It is extremely important that the Minister tells the House exactly what it is that the Government are relying upon because at the moment it is anything but clear.
6 p.m.
Lord Lea of Crondall: My Lords, it may be that the noble Lord is not satisfied on the clarity of the position on circumventing the intentions of the Act. But he has
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not addressed the point that there is a prima facie question that must be dealt with, which is that if somebody acts to circumvent the intention of the act, it cannot wait until some date well into the future.
Baroness Hollis of Heigham: My Lords, my noble friend has summed up the matter accurately.
The amendments would remove any element of retrospection and indeed—and this is my problem with them—give those employers who wish to avoid pension liabilities extra time to do so. I am sure that that is something that none of us wants. The amendments would specifically stop the regulator acting before the publication of a code of practice in relation to the clause. It is not our intention to make it mandatory that the regulator issue a code of practice in relation to contribution notices.
Lord Higgins: My Lords, did the noble Baroness say that it was or was not? Will she please repeat what she said?
Baroness Hollis of Heigham: My Lords, I deliberately spoke as slowly and theatrically as I could, but I shall repeat what I said to help the noble Lord.
It is not our intention to make it mandatory that the regulator issue a code of practice in relation to contribution notices. The hinge on which the amendment hangs may not even exist.
Codes of practice are intended to provide schemes with the regulator's interpretation of pensions law, thus assisting schemes in improving compliance and encouraging best practice. The subject matter of codes, which is evident in the list of codes that the regulator is required to produce in Clause 88(2), are the functions and duties that the law requires of those with legal responsibilities to schemes, such as trustees, managers, employers and professional advisers. A code of practice is therefore not an appropriate means for the regulator to set out how it proposes to exercise one of its regulatory functions.
On Second Reading on 10 June, I gave assurances to the House that the regulator will issue guidance. Essentially, codes of practice are how the regulator expects other people to behave; guidance is how it expects the regulator to behave—broadly. I reiterated that in Grand Committee.
We now have two new clauses that require the regulator to operate a clearance procedure for both contribution notices and financial support directions. That has received wide welcome from the House today. As I said earlier, the regulator will issue guidance on how it will operate the clearance system and give examples on how the regulator will act in particular circumstances. We have commitments from the CBI, the Society of Turnaround Professionals, the British Venture Capitalists Association, and so on, to work with us on that.
However, irrespective of whether we are talking about guidance or a code of practice, the effect of the amendment would be to stop the regulator acting in

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relation to events after 11 June 2003 until some specified, or unspecified, date in the future. That is not appropriate, and I shall explain why not.
On 11 June 2003 the Secretary of State announced that the Pension Protection Fund would be created, as well as regulations, to impose the Section 75 debt on solvent employers at a full buy-out level in respect of schemes that commence winding-up on or after 11 June 2003, the Government's intention being to ensure that solvent employers who close a pension scheme must honour their whole pension promise and fully buy out members' benefits. They are, after all, solvent.
That announcement gave any employer who considered dumping pension liabilities on the PPF an increased incentive to do so, as was accepted by the honourable Member for Havant, Mr Willetts, who, in the debate on 11 June 2003, described this as employers who,
"shed their pension responsibilities to a different legal entity, like a snake shedding its skin, and emerge as a company without pensions".—[Official Report, Commons, 11/6/03; col. 685.]
Unless the regulator is able to make those who act—or fail to act—to avoid their pension liabilities contribute to the scheme's funding position, there is a very real danger that employers, or connected persons, will effectively be given a period of grace in which to take action to circumvent the employer debt provisions, knowing that they can do so with impunity, despite the provisions of 11 June 2003. That could result in a serious increase in claims on the PPF in the early days of its existence, which in turn would put huge pressure on the levy payer and might undermine the sustainability of the PPF.
Sadly—and this is what a colleague calls the "killer fact"—OPRA is aware of cases when, in spite of the Secretary of State's warning, it appears that employers are currently taking action, or may have already taken action, aimed at dumping liabilities on the PPF.
I shall give an example. It is a real one, but I shall use ficticious names. The "Large" pension scheme was set up many years ago initially under an employer called Large Group plc. As the business changed over the years, Large Group plc divested itself of many of its parts, which then became separate or even competing companies. They all still participate in the scheme which currently has more than 20 participating employers, and which is now a multi-employer scheme for non-associated companies.
Large Group plc, whose liabilities represent 50 per cent of the liabilities of the scheme, placed itself into voluntary liquidation on 1 June 2004, which triggers the winding-up of the scheme and crystallises the Section 75 debt of £2 million, but which is calculated on the MFR basis because Large Group plc now counts as insolvent. It is for that reason that Large Group plc has chosen to place itself in voluntary liquidation. It knows that had the winding-up occurred before then, the debt would have been £50 million.
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I surely do not have to tell anybody in your Lordships' House of the devastating effect on scheme members of such underfunding. In those circumstances, the regulator may consider imposing a contribution notice of up to that sum on Large Group plc.
OPRA is monitoring those cases and assisting the trustees where appropriate, but it is vital for the members of those schemes, and for those who pay the levy, that the Pensions Regulator has powers to deal with those schemes.
We believe, therefore, that this limited retrospection is appropriate. However, the noble Lord, Lord Oakeshott, suggested that, given the possible uncertainties of the June 2003 date, there may be a case for substituting April 2004. If it would be helpful to your Lordships, without giving a full commitment, I am willing to take the matter away in good faith to see whether we can do that, and still prevent employers manipulating the system and dumping their liabilities on the PPF without protection for levy payers. I am happy to do that in good faith. As ever, I guarantee nothing, but it seems that that degree of limited retrospection would at least cap it, whereas some forward look to a code of practice or guidance, which may never happen, is too open-ended an invitation. OPRA already has experience of that degree of manipulation.
If that would be a satisfactory way forward, perhaps the noble Lord could withdraw his amendment, and I shall see what I can do on Third Reading.
Lord Higgins: My Lords, I am grateful to the noble Baroness for that extensive reply and the cogency of the example that she gave. I accept there would be real dangers on moving the date forward. All of us are at one that we do not want solvent employers dumping their pension fund liabilities on the PPF. That has been common ground in the House from the beginning.
We should certainly look at the possibility of another date. There are two things that we might need to know. The noble Baroness says that OPRA is already aware of some such cases. It would be difficult to say that we should take those back to the dates when they happened. That would almost certainly end up in the courts. There are real problems, but nevertheless I have always had a strong feeling that retrospection is bad and should be avoided if possible. It may be that a compromise is the best way round that issue.
Perhaps the noble Baroness can raise the issue on the next amendment, which is related to this one, of how vulnerable either of the two dates that we have mentioned—2003 and 2004—are to action in the courts. As my noble friend Lord Fowler said, it is fairly well established to what extent one can make things retrospective without the risk of being overturned, or the risk of ending up in the European Court of Human Rights.
If we are going to act this way—the noble Baroness made a pretty persuasive case—we clearly need to be careful exactly where we do it. It would be silly to backdate the provision and find that we get lost in the courts, in which case other schemes that we would like

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to catch would feel that they could avoid the consequences. I do not know what legal advice she has received.
Baroness Hollis of Heigham: My Lords—
Lord Higgins: My Lords, perhaps it might be better to talk about it on the next amendment, rather than by way of intervention, so that the noble Baroness can give a rather fuller reply. We may wish to return to codes of practice, but I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 35:
Page 28, line 33, at end insert ", and
() it is either—

(i) an act which occurred during the period of six years ending with the determination by the Regulator to exercise the power to issue the contribution notice in question, or

(ii) a failure which first occurred during, or continued for the whole or part of, that period."

The noble Baroness said: My Lords, I beg to move.
Lord Hunt of Wirral Lord Hunt of Wirral moved, as an amendment to Amendment No. 35, Amendment No. 35A:
Line 3, leave out "six" and insert "three"
The noble Lord said: My Lords, my amendment would, in government Amendment No. 35, leave out the period of six years and insert that of three years. In view of the constant reference to legal advice, I feel obliged to declare my interest—I hope that most noble Lords are aware of it—as senior partner of Beachcroft Wansbroughs, a firm of solicitors. However, I am very carefully not giving any legal advice on the question raised by my noble friend Lord Higgins, because it is too difficult to do so. There are other reasons as well. Who can predict what the courts may or may not decide about the matter?
As the Minister is aware, with respect to the amendment, many stakeholders have expressed a view over the appropriate time limit for looking back at acts that might warrant the issue of a contribution notice. She shared with us the advice that she and her colleagues in the department had received, which was that the period should range from seven months to seven years, or thereabouts. There is obviously a collection of views. Ministers appear to have decided that six years is appropriate because, it is said, it can take around four years for a pension scheme to produce audited accounts.
It may help us all if the Minister can give us some examples of where that has taken as long as four years. I have talked to a number of interested parties. R3 and the Institute of Chartered Accountants in England and Wales have raised with me that it seems clear that four years is too long. I am advised that is very rare indeed for a pension scheme to take anything like four years
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to produce its accounts. Therefore, I would welcome some advice from her on how she has reached a conclusion that is not borne out by any of the information that I have received.
I direct the Minister to the Occupational Pension Schemes (Investment) Regulations 1996, which require audited accounts to be produced within seven months of the scheme's year end. Perhaps that is why some body suggested seven months as the appropriate period. Failure to produce an audited account within seven months of the scheme's year end is a matter for the Occupational Pensions Regulatory Authority. The professional bodies with which I have consulted on the point keep stressing that it is quite exceptional for audited accounts to take considerably longer than seven months to be produced.
Further, from a purely practical and commercial standpoint, six years is surely an excessively long time for the potential threat of a contribution notice to hang over the heads of professionals and directors concerned. Such a long period is plainly unreasonable unless there is good reason to have it. With respect, I do not think that the Minister will be able to produce a series of good reasons to justify such a long period for looking back. I await her comments with great interest.
6.15 p.m.
That is why I tabled an amendment that proposed three years, a period longer than the advice given to me. It is a period that the professional bodies that have expressed concern over the issue would be happy to see in the Bill, rather than the six-year period. I would have thought three years comfortably long enough to cover the issue which the Government seek to address.
Going back to the previous debate, I join my noble friend Lord Higgins in asking the Minister to give us a sense of the advice that she has received on the issue of human rights and the possibility of a challenge. We do not want to see legislation pass through this House with the best of intentions, having been agreed by everyone concerned, and then find that some clever person can find a reason to challenge it successfully. It is in that context that I beg to move.
Lord Oakeshott of Seagrove Bay: My Lords, we do not support the noble Lord's amendment. I understand the point that, in normal circumstances, accounts will be produced much sooner, but we are not talking about normal circumstances. We are probably talking about situations where, prima facie, odd things are going on, and about how we can deal with more than suspicion of problems. Being rather a cynic, I remind him of the old City expression, "Bad figures take much longer to add up". Bad figures take even longer to add up when those involved do not necessarily want them to add up or want some things to happen. Six years is a reasonable cut-off. What is important is that there is a cut-off date. On that basis, we are happy to support the Government's position.
Lord Lucas: My Lords, I am happy enough with six years, but the Government have to recognise the

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consequences of the period. Six years is well beyond the horizon in which most people even have a hope of seeing how their businesses will go. Let us imagine the example of a successful entrepreneur who takes over a large retail group that is not doing very well. He makes a success of it and pays himself an enormous dividend because of his success. Five years later, because of the successive downturn in the economy, the success of Wal-Mart or whatever, the business is in trouble and it is clear that the money that went out five years earlier by way of dividend has reduced the amount of money available to pensioners.
Looking back, where an act has had the effect of reducing money available to pensioners, it is very hard to show that that was not part of its intention—that it was not part of the entrepreneur's intention five years ago to say, "Let's get my money out while it's good, and the pensioners can take the risks of the business running forward". Under those circumstances, everyone who does a capital reconstruction or declares a dividend will have to seek clearance for it, because they cannot see far enough ahead.
The effect of the provision will be that people have to seek clearance. Perhaps that is a good thing, but it will enormously increase the business of the regulator. Those concerned will have to get clearance every time—otherwise, five and a half years later, they are liable to be bitten very hard and personally. For the sake of troubling the regulator, that is not worth the candle; so they will trouble the regulator. The Government have to recognise that the difference between six years and three years is that in three years people could be reasonably confident about the future of their business and would be prepared to take a risk. If it was six years, they would not.
Lord Higgins: My Lords, perhaps the Minister could clarify two points. First, in relation to the point just made by my noble friend, there will be some delay regarding clearance before the scheme is operating. The noble Baroness has just this afternoon made proposals for a clearance procedure. But between now and when the clearance procedure is operative, there may well be people who have to make commercial decisions where they may feel that they are vulnerable and are not able to obtain clearance in the mean time. Can the Minister give us some idea when she anticipates that the clearance procedure will be become operative?
Secondly, I am now somewhat confused about exactly how far the Government are proposing to backdate that, because the argument regarding accounts taking that long does not seem to be the general view. If some were taking that long, then surely some action should have been taken anyway by OPRA, or whoever. Or is it the case that they would return to the date when they thought that an announcement was made that would stand up in the courts?
Baroness Hollis of Heigham: My Lords, regarding the noble Lord's first point about legal advice—I have
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legal advice for the previous discussion, not for this one; so I would not wish to guarantee that there was a read-across. However, the Law Officers' advice to us was that the original June 2003 date was compliant with ECHR, but we have moved on from that during today's discussions. So the degree to which we could resist a challenge, as has been suggested, is high.
Lord Higgins: My Lords, it is somewhat difficult at times to catch precisely the comments of the noble Baroness. She was saying that the 2003 date was legitimate. Do she and her lawyers think that the statements made by the Government at that time provided a sufficient basis to backdate the matter that far, without it being challenged?
Baroness Hollis of Heigham: My Lords, yes, that is the legal advice that I have received from the Law Officers regarding the previous amendment. Backdating to that limited retrospection for June 2003 was ECHR compliant.
Regarding the amendment, it has already been mentioned in a previous discussion that there was a wide range of views regarding the appropriate cut-off point. Perhaps I should remind your Lordships that when we originally started no cut-off point was proposed at all. It was as a result of the debate in Committee, as the noble Lord, Lord Oakeshott, has reminded us, that the Government have come forward with an amendment for a cut-off period. The primary reason for that proposal is that it is consistent and in line with the Inland Revenue's powers and the period for which they backdate and investigate.
Any confusion has been entirely our error and not that of the noble Lord, Lord Hunt, regarding his reference to the production of audited accounts. He is right to say that they do not take four years to produce. That is because we should not have been using the words "audited accounts", except on occasions when, as the noble Lord, Lord Oakeshott, said, there has been some elaborate arrangement of figures. We should have referred to the scheme's actuarial valuation. I apologise to the noble Lord, Lord Hunt. It was contained in the document—and the only person out of the entire constituency of industry, voluntary organisations, Peers of the Realm and Ministers to have spotted that was the eagle-eyed noble Lord. He receives the brainy prize today.
Lord Higgins: My Lords, if the noble Baroness is saying that there will be a triennial revaluation, it is a red herring. Many pension funds, although they are obliged to have a revaluation every three years, can easily carry out valuations between those times. Indeed, I have arranged for that to be done myself. Arguing for a triennial revaluation of pension funds is no good.
Baroness Hollis of Heigham: My Lords, the issue of whether that is a good argument might be helped if I was permitted to make it. Then the noble Lord could say that I have not persuaded him; and, from the sound of it, I am not going to.

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I assure the noble Lord that the actuarial valuation for a scheme is required not more than every three years and the scheme actuary has up to 12 months to certify it. As I remember, when we were dealing with Part 7 of the Bill in Committee, regarding cross-boundary schemes, as far as I recall, part of the original European directive was for annual valuations. The position of one of our representatives was to argue that we desired triennial revaluations, but with the ability to produce interim accounts to match how the industry currently operates.
However, given that there are triennial valuations and the scheme actuary has up to 12 months to certify it, there can be an interval of four years between a scheme's actuarial valuations. That is one of the reasons for the problems with the pacing of the timetable for introducing a risk factor regarding the levy. We are dealing with the same body of information.
In deciding on the appropriate period for the backstop, because we took on board your Lordships' views that there should be one, we considered that alongside the representations we received and examined the precedents. If the problem is discovered in the actuarial valuation, that gives the regulator only two years to be alerted to the problem, investigate and issue a warning notice to those to whom it is considering issuing a contribution notice, receive their representation and make a determination. It is not that long, I would suggest.
A six-year backstop—which is used by the Inland Revenue and is familiar to most businesses—is not unreasonable, given that it hinges on the ability to make full actuarial valuations every three years. So I hope that your Lordships would accept that the Government have moved a long way from having unlimited retrospection to a backstop that accepts the triennial cycle, and have left a space for the scheme actuary to validate the accounts. That leaves up to two years for the regulator to investigate matters if he is uneasy. I hope your Lordships will accept that and that the noble Lord, Lord Hunt, will withdraw the amendment.
Lord Hunt of Wirral: My Lords, that was a helpful exchange and I am grateful to the Minister for explaining the background to the statement that was previously made. Given that the noble Baroness has corrected the way in which the period was explained and put that in context, I can see the arguments more clearly. I am grateful to her and will carefully consider her points. In those circumstances, I beg leave to withdraw the amendment.
Amendment No. 35A, as an amendment to Amendment No.35, by leave, withdrawn.
Lord Lucas Lord Lucas moved, as an amendment to Amendment No.35, Amendment No.36:
Line 4, leave out "determination by the Regulator" and insert "giving of written notice by the Regulator to the employer in relation to the scheme that it is minded"
The noble Lord said: My Lords, I do not see that the words,
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"determination by the Regulator to exercise",
give rise to a verifiable date. The exercising of the power has a date attached to it. But I do not see how the "determination" of the regulator has a date assignable to it. So the purpose of the amendment is to assign such a date by making it clear that, at the moment when he carries out his determination, the regulator must somehow signify that he has done it. That is the only point that I wish to make. If we are backdating by six years, we must know when we are backdating from. I beg to move.
6.30 p.m.
Baroness Hollis of Heigham: My Lords, in Amendment No. 36 the noble Lord, Lord Lucas, seeks to clarify the base date by referring to written notice from the regulator that,
"it is minded to exercise the power",
rather than the date it determines to exercise the power. I am baffled by this. I cannot see how this clarifies the base date; it merely exchanges one date for another. In any event, Clause 94(2)(a) provides for all directly affected parties to receive a warning notice. However, it is from the determination date that various matters flow: the decision to exercise the function and the time period to make a reference to the tribunal. Therefore, it is appropriate to use it as the end date for the relevant period. I hope that the noble Lord will withdraw his amendment.
Lord Lucas: My Lords, how is the determination date established? Where in the Bill is there a procedure for establishing that date? If it is not in the Bill, how does the noble Baroness contend that that date will be established?
Baroness Hollis of Heigham: My Lords, I have already referred the noble Lord to Clause 94(2)(a). I shall have to leaf through the Bill to find it for him and I shall write to him to that effect.
Lord Lucas: My Lords, I shall look at the Bill, but I did not see it in my quick look at the Bill when the noble Baroness was speaking. However, it is absolutely crucial that the date should be definite. Therefore, some event has to take place; determination has to be evidenced in writing with a date attached to it. That has to be a public date which is knowable by the employer and by the others subject to this clause. At the moment I do not see it. If it is somewhere in the Bill, my amendment is entirely unnecessary; if it is not in the Bill, I should be grateful if the noble Baroness would write to me to tell me how it will be established.
Baroness Hollis of Heigham: My Lords, I shall.
Lord Lucas: My Lords, I beg leave to withdraw the amendment.
Amendment No. 36, as an amendment to Amendment No.35, by leave, withdrawn.
On Question, Amendment No.35 agreed to.
Lord Lucas Lord Lucas moved Amendment No. 37:
Page 28, line 35, leave out "deliberate"
The noble Lord said: My Lords, after 12 years in this House, I should know better than to try nerdy redrafting of government Bills. The only purpose of this amendment is that I cannot see that the insertion of the word "deliberate" is consistent with the drafting of the rest of the clause. The word "deliberate" appears only in the governing paragraph and it does not appear in the sub-paragraphs. The only point I am making is that I do not believe that that is consistent. I beg to move.
Baroness Hollis of Heigham: My Lords, I do not want to be rude, but this is the kind of matter that perhaps should have been clarified in Committee. The noble Lord says that he is puzzled by the drafting. Amendment No.37 removes the word "deliberate" before "failure". The noble Lord, Lord Lucas, says that that is because the phrase "deliberate failure" is used in subsection (3)(a), which requires that,
"the person was a party to an act or a deliberate failure to act".
However, Clause 39(5) defines who is included as a party to an act or a deliberate failure. If we remove the word "deliberate" from line 35, Clause 39(5) would read,
"the parties to an act or a failure",
which would leave uncertain who is a party to an act or a deliberate failure. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Lucas: My Lords, as expected, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Higgins Lord Higgins moved Amendment No. 38:
Page 28, line 35, leave out "include those persons who" and insert "shall not include those persons who do not"
The noble Lord said: My Lords, like my noble friend Lord Lucas, one hesitates to seek to engage in drafting Bills for the Government. Alas, this is such a case. We believe that it is little more than a purely semantic argument. In Committee on 8 July, we discussed it in a slightly different form, under Amendment No. 99. We said then:
"The current clause does not appear to expand the class of people who may receive contribution notices",
nor does it appear to use the word "include" to limit the class.
"Therefore, the only effect of the current subsection is that it appears to give the regulator certainty that a person who knowingly assists in an act or a deliberate failure to act falls within the scope of those [the regulator] may attack".—[Official Report, 8/7/04; cols. GC 218–9.]
Having said that, the proposed amendment reverses the order in which the matter is taken. The noble Baroness said that all it does is to put the test into the negative rather than the positive, but we have had representations suggesting that, if the Government do
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not put it the other way around, the courts may interpret it in a way in which the Government do not intend.
On reflection, I am inclined to go along with what my noble friend Lord Lucas said just now. I do not know whether the noble Baroness has received any representations on this. She shakes her head. Again, it appears that we have received representations which she has not received. The best thing is to follow her example when up against the wall, and to say that I shall write to her about this matter. She can consider it between now and Third Reading and if she finds the argument as convincing as I do—although I am not able to articulate it as precisely as I would like—she can table an amendment at Third Reading. There does seem to be a genuine feeling that the way in which the clause is drafted at the moment is unsatisfactory. I shall drop her a line. If I move the amendment, she need not reply and then I shall withdraw it. I beg to move.
Lord Skelmersdale: My Lords, I beg leave to withdraw my noble friend's amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 39:
Page 28, line 36, leave out "knowingly assist in the act or failure" and insert "assist in the act or failure who knew, or should have known, that one of its purposes fell within subsection (4)"
The noble Lord said: My Lords, Amendment No.39 tackles the same matter from a slightly different angle. Such acts may appear to many involved in them to be entirely innocuous. If one is involved in undertaking a capital reconstruction, or the payment of a dividend from a company, many people will assist in that process who are not privy to the intent that the regulator may some six years later decide lay behind it. To them it is an entirely normal process; they sign off as accountants or as lawyers on a particular process and because they do not know the inner workings of the company or its expectations of trading five years out, it may not be apparent to them at all that that is an act that carries with it any danger of breaching this clause. Under those circumstances, I cannot see that it is right to catch people who are just doing an ordinary, proper, honest job of work on what appears to them to be an honest transaction, involving the kind of personal liabilities included in this clause. I beg to move.
Baroness Hollis of Heigham: My Lords, I do not believe that there is any difference between us. I am puzzled why the noble Lord thinks that his drafting improves the drafting of the Bill compared to the word "knowingly". Thanks to computers, I am assured that there are at least 1,200 references to the use of the word in legislation, including, for example, 17 in the Companies Act 1986. I do not believe that anyone can be in any doubt as to its meaning.
Clearly, the point is that one has to know what one is doing. The word "knowingly" is used in the Financial Services and Markets Act, where it is an offence for an authorised person knowingly or recklessly to give an

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appointed auditor information that is false. I cannot believe that the noble Lord is not familiar with the word "knowingly"; I cannot believe that he thinks there is any ambiguity about it; I find his substituted phrase far more ambiguous as opposed to this word which has been clearly defined in law, regularly used and used by the courts on many an occasion. I do not know whether he will agree with me but, with all due respect, I do not see the point of this amendment. The word "knowingly" has a well established history and encapsulates what we are seeking to establish.
Baroness Noakes: My Lords, the noble Baroness said that the word "knowingly" is used much in legislation, which is true, but my noble friend was making the point that this refers to persons not knowingly in connection with the act. One can be connected with an act by drafting a document, by typing it or whatever, but that does not mean that one has anything to do with the purpose of it. That is what my noble friend was trying to say. If the noble Baroness looks at the many examples that her computer has spewed out, she will find that "knowingly" does not carry the same burden she is trying to make it carry in this clause.
Baroness Hollis of Heigham: My Lords, I was counting on the fact that we had already discussed this issue when we talked about secretaries typing out things. In other words, we are engaging in the same issue as the noble Lord raised on his phrase "innocent bystanders". I thought that we had dealt with the issue and that I had given the reassurances sought by the noble Lord.
Lord Skelmersdale: My Lords, before the noble Baroness finally sits down, she, as my noble friend remarked quite rightly, said that "knowingly" appears over and over again in legislation. Will she give an example of where "knowingly" includes the meaning in the second line of my noble friend's amendment; namely "should have known". I would have thought that they were two different things.
Baroness Hollis of Heigham: My Lords, I can give one example, although it is not in a related piece of legislation. For example, in the case of knowingly possessing an explosive material, the Crown would have to prove both that the accused knew he had the material and that he knew it was explosive. I think that that catches the example of the noble Lord, Lord Skelmersdale.
In the case of the noble Lord, Lord Lucas, the regulator will have to show, for example, that the person it is considering issuing the notice to knew that he was assisting in the act. We have already covered the issue in relation to professionals and we have already covered the issue in relation to innocent bystanders. So I have to say that I am not able to accept the amendment. I do not think that it adds to the thrust of the legislation and could actually lead to considerable ambiguity in the way it is drafted.
Lord Lucas: My Lords, I do not wish to defend the drafting of my own amendment. I am prepared to
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admit to my permanent fallibility when it comes to that, but I do wish to attack the drafting of the Bill again. In the example given by the noble Baroness of knowingly possessing explosives, "knowingly" applies to something which is—if you know what you are doing—quite evidently against the law. It is quite evidently wrong-doing. But what "knowingly" applies to here is something which may, to the understanding of an intelligent professional person, be an entirely legal act without any stain on anyone's character whatever.
For example, you have a solvent company with plenty of money about it and a recent report on the pension fund shows that there is plenty of money in the company to meet this Section 75 deficit. No obvious questions arise in the course of the transaction about whether anything is wrong. All you are doing is making sure that the legal side of the capital repayments stack up and everything is done tickety-boo. However, the directors of the company know very well that an enormous liability is materialising somewhere else and they are after getting some money out of the shareholders before that particular bombshell breaks.
In the amendment the "knowingly" is assisting in a perfectly legal transaction. What you know you are doing is something which should have no implications at all. The "knowingly" should apply to the wrongful act not to the act which is in no way wrongful. A solicitor who involves himself in drafting the legal side of a perfectly respectable capital repayment from a company should not suffer personal liability because of something which is unknowable to him.
Baroness Hollis of Heigham: My Lords, this is Report stage, it is not Committee stage. We could have explored this matter in Committee. We did not. We have now had three separate interchanges after I thought we had closed the issue. The noble Lord also knows that we had a previous amendment on this. I am just a little surprised that he is not building on the discussions we had. We start each amendment as though the previous discussions have never occurred.
On professionals—solicitors and auditors mentioned in the example—the answer is that they are not connected or associated with the employer merely by providing services to him and unless there is another connection they would not fall within the scope of the notice. We have already discussed the innocent bystanders, the professionals and the concept of "knowingly". We seem to be retreading the same ground on Report in the style that we would in Committee when we have already discussed the issues of the state of the professional.
6.45 p.m.
Lord Lucas: My Lords, in that case I shall go away and read again the Committee stage in Hansard. I apologise for not having understood what was there. It seemed that the wording was extremely clear; that if you assist in the act you are a party to it. But I shall go

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away and study Hansard. I did not see it there when I read it through the first time. I apologise for that. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No.40 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos.41 and 42:
Page 29, line 4, leave out from "company" to end of line 6 and insert "within the meaning of subsection (11) of section 435 of the Insolvency Act 1986 (c. 45), whether the person has or has had control of the employer within the meaning of subsection (10) of that section),"
Page 29, line 12, at end insert—
"() all the purposes of the act or failure to act (including whether a purpose of the act or failure was to prevent or limit loss of employment),"
On Question, amendments agreed to.
Lord Lucas Lord Lucas moved Amendment No. 43:
Page 29, line 12, at end insert—
"() the amount of any benefit received or possessed by the person in relation to the employer or any person connected with the employer or an associate of the employer,"
The noble Lord said: My Lords, Amendment No. 43 concerns the regulator's view of the circumstances under which he should issue a notice. It seems to me that how much money a person has should not be relevant. Just because a person is rich he should not be gone after for a contribution. What should matter is the amount which an individual has benefited from the company and the amount of his culpability. The fact that he happens to be a rich man or a poor man might affect the effectiveness of the contributions notice.
I do not think that people should be gone after just because they have the money, even if they do not otherwise justify chasing up under a contribution notice. I know it is to the benefit of the pensioners; I just do not think that it is the right way to pursue an individual. I beg to move.
Baroness Noakes: My Lords, I support my noble friend's amendment. The amendment implies that it would be a good thing if you were likely to come within Clause 39 to be over-borrowed and under-saved—which of course has been the direction of government policy over the past seven years; perhaps it is therefore consistent with government policy. However, it seems to me to be extraordinary that it gives that incentive.
How is the regulator supposed to know what the financial circumstances of an individual are? That is a rather complex evaluation. I cannot see how the regulator is going to get that kind of information.
Baroness Hollis of Heigham: My Lords, I am not sure whether the amendments do what the noble Lord seeks. Amendments Nos. 43 and 44 seek to remove consideration of a person's financial circumstances from the factors the regulator must consider in deciding whether it is reasonable to impose a contribution notice of a certain amount and replace it with a consideration
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of the benefit a person has received from the employer or connected or associated persons. There is a tension between this amendment and the next group of amendments, Amendments Nos. 45 and 61, in the name of the noble Lord, Lord Higgins.
When considering whether it is reasonable to issue a contribution notice specifying the payment of a certain amount, we believe that in those circumstances it is appropriate that a person's financial circumstances are taken into account.
What we do not want to do is to rob Peter to pay Paul—for example, by making an associated company pay an amount into the pension scheme, if that would make that company insolvent or indeed affect the funding of that company's pension scheme.
Equally, in the case of individuals, we do not want the regulator to impose a contribution notice that would bankrupt an individual. Certainly, as it stands, this amendment would mean that the salary, company car and luncheon vouchers of anyone employed by the employer or connected or associated companies would have to be considered by the regulator. It does not even relate to any benefit from the act or failure to act.
On the specific question put to me by the noble Baroness, Lady Noakes, the individual making representations in response to the warning notice will be able to give details of financial circumstances he wants the regulator to consider. So I think that there are appropriate procedures in place. With that response, I hope the noble Lord will be able to withdraw his amendment.
Lord Lucas: I think that we are facing in different directions, but the Government win and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 44 not moved.]
Lord Higgins Lord Higgins moved Amendment No. 45:
Page 29, line 14, at end insert—
"() whether the imposition of liability under this section on the person will substantially affect the funding of the scheme, and
() that the purpose of imposition of liability under this section is intended to be curative of the scheme funding, and not punitive of the individual."
The noble Lord said: My Lords, with this amendment I think that it will be convenient also to consider Amendment No. 61. To some extent, we considered this issue in Committee and, generally speaking, Clause 39(6) provides a non-exclusive list of circumstances to decide whether a person falls within the scope of an attack by the regulator. The regulator then has to consider whether it is appropriate to attack—to use that word again—the person and for how much. Generally speaking, although the subsection requires the regulator to consider the person's financial circumstances, for the reasons that the noble Baroness just mentioned, there is no requirement on the regulator to consider what effect it will have on the scheme.
From what the noble Baroness said in Committee, we understand that it is not intended that the imposition of such a notice should be punitive, in some way punishing the individual who has been selected—I suppose that that would be the right word—by the regulator. On the other hand, it does not seem that the regulator is required to consider to what extent any notice that he issues to an individual will help the scheme. We are seeking to ensure that, as the noble Baroness said, the charge would not be punitive but, at the same time, in deciding how much to charge, the regulator ought to take into account to what extent it is material—I suppose that that would be the right word—in helping to cover the deficit in the scheme. Unless it is made fairly clear that he must not go round charging huge amounts that are none the less immaterial to the scheme, he may be subject to challenge in the court.
We hope that the noble Baroness will repeat the point that she made about it not being punitive, but also, we suggest, it would be appropriate for the regulator to consider what effect the charge that he makes will have and whether it is significant in relation to the scheme as a whole. I beg to move.
Baroness Hollis of Heigham: My Lords, we discussed these amendments in broad terms in Committee and I am happy to make clear again, as I was invited to by the noble Lord, that the provision is about scheme funding and is not intended to be punitive. I am happy to give that assurance.
I repeat one argument from Committee. The amendment leaves unresolved how we decide what is a substantial effect on funding. In Committee, I asked: if it means £100 per member, is that substantial? That could be 10 per cent of some members' benefits or 2.5 per cent of others. How is the regulator supposed to decide?
However, when working on the amendments over the weekend, it struck me that there is a much more serious objection to the noble Lord's amendments that I had not grasped at first. I wonder whether he is comfortable with the implications of that. Those are that, on his account, it would mean that if the deficit was sufficiently large—let us say £2 million rather than £200,000—the bigger the scheme and the bigger the deficit and the bigger the shortfall, the less the likelihood, by definition, that any contribution could be substantial or could have a substantial effect on funding.
Therefore, under the amendment, the bigger the sin, so to speak—although I am trying not to use punitive language—so the bigger the deficit and the more likely that that contribution would not have a substantial effect. Therefore, the bigger the deficit, the more likely it is that the offender, or the person failing to make good, would get off without having to make a contribution. As a result, we would catch only the smaller deficits and the smaller fry.
In other words, the effect of the amendment would be that the bigger the pension deficit, the less likely it would be that the regulator could issue a contribution
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notice or an FSD. It would be only when a scheme was small or not very underfunded that the contribution would be substantial and therefore that the regulator could act. As I said, it just struck me that that cannot be what the noble Lord intends, but that is the consequence of his amendment in all logic—that is where I got to on Saturday. So I invite the noble Lord to reflect on that and see that that would be the consequence of his action.
The important thing is that if it is not punitive one is looking for a proportionate response, considering what resources the individual or company may have, and what effect serving a contribution notice or an FSD might have. I have already made it clear that we are not seeking to bankrupt or be punitive, but to go down the path of the amendment would mean that the bigger the deficit, the less leverage the regulator could have. I am sure that that is not what the noble Lord intends, so I hope that he will withdraw his amendment.
Lord Higgins: My Lords, I am grateful for that reply and, in particular, for her reiteration on the Floor of the House that it is not intended that any charge made by the regulator should be punitive. I understand her perception over the weekend concerning some aspects of the amendment. There are still some things about which I feel somewhat unhappy at the back of my mind concerning the relative size of the amount that the individual may have compared to the size of the scheme, but I am happy to let the matter rest at the moment, for the reasons that the noble Baroness mentioned. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 46 and 47:
Page 29, line 15, leave out subsection (7).
Page 29, line 30, at end insert—
"() For the purposes of this section "insolvency practitioner", in relation to a person, means—

(a) a person acting as an insolvency practitioner, in relation to that person, in accordance with section 388 of the Insolvency Act 1986 (c. 45), or

(b) an insolvency practitioner within the meaning of section 119(9)(b) (persons of a prescribed description)."

On Question, amendments agreed to.
[Amendments Nos. 48 and 49 not moved.]
Clause 41 [Content and effect of a section 39 contribution notice]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 50:
Page 31, line 18, after "P" insert", or with P and other persons,"
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 51:
After Clause 42, insert the following new clause—

SECTION 39 CONTRIBUTION NOTICES: CLEARANCE STATEMENTS
(1) An application may be made to the Regulator under this section for the issue of a clearance statement within paragraph (a), (b) or (c) of subsection (2) in relation to circumstances described in the application.
(2) A clearance statement is a statement, made by the Regulator, that in its opinion in the circumstances described in the application—

(a) the applicant would not be, for the purposes of subsection (3)(a) of section 39, a party to an act or a deliberate failure to act falling within subsection (4)(a) of that section,

(b) it would not be reasonable to impose any liability on the applicant under a contribution notice issued under section 39, or

(c) such requirements of that section as may be prescribed would not be satisfied in relation to the applicant.

(3) Where an application is made under this section, the Regulator—

(a) may request further information from the applicant;

(b) may invite the applicant to amend the application to modify the circumstances described.

(4) Where an application is made under this section, the Regulator must as soon as reasonably practicable—

(a) determine whether to issue the clearance statement, and

(b) where it determines to do so, issue the statement.

(5) A clearance statement issued under this section binds the Regulator in relation to the exercise of the power to issue a contribution notice under section 39 to the applicant unless—

(a) the circumstances in relation to which the exercise of the power under that section arises are not the same as the circumstances described in the application, and

(b) the difference in those circumstances is material to the exercise of the power."

The noble Baroness said: My Lords, I beg to move.
Lord Lucas Lord Lucas moved, as an amendment to Amendment No. 51, Amendment No. 52:
Line 3, after "Regulator" insert "(or, until the Regulator has signified his readiness to accept such applications, a person designated by the Secretary of State)"
The noble Lord said: My Lords, this amendment is intended to make the Government elucidate what they intend to do about transactions that took place between whatever is the backdating date and the date when the regulator opens his doors for business. To some extent, the noble Baroness has answered this question by suggesting that the backdating date might be moved forward to something closer to today, but that still does not answer the question of what happens to tomorrow's transaction.
However, I am told that you can run along to OPRA and get clearance from it. So perhaps the Government are already doing that. If not, I should like to know what the Government suppose should happen to transactions now, rather than when the regulator is up and running. I beg to move.
Baroness Hollis of Heigham: My Lords, obviously the clearance scheme cannot come into operation until consultation regulations and anything else appropriate
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to it are in place. So we are not talking about before the Act itself comes into force—from April 2005, we hope, subject to parliamentary approval.
The noble Lord asked whether OPRA could give clearance. Forcing OPRA, which has no such powers, to deal with statutory clearance now and giving it the powers that it would need to do so would mean an under-resourced clearance system with no guidance or procedures in place that could be overrun with clearance applications. The result would be a system that breaks down before the regulator even starts. That would completely undermine confidence in the system, which would be undesirable.
By allowing time before the clearance system is in force, we allow time to work with the industry to develop guidance and procedures. We will also be able to work with it to estimate the likely number of applications to ensure that the regulator is sufficiently resourced to deal with them, all in a timescale appropriate to the urgency of the application. Again we revisit a previous amendment.
Part of the difficulty is that the noble Lord has de-grouped every one of these amendments and some of them would have more helpfully been dealt with together. He asked me about what volume of applications we anticipate and when the resources will be in place. By dealing with the amendments separately, we keep reiterating the same information. I am just mindful of how many other areas your Lordships may want to explore.
7 p.m.
We are aware neither of another suitable body that might carry out the clearance procedure before the Pensions Regulator opens its door in April nor of a body that would deal with any appeals relating to the refusal of clearance. That would have to be underpinned by parliamentary authority. We cannot start amending our Bills as they go through to provide transitional arrangements, thereby delaying even further the introduction of the formal system.
When the regulator commences in April, the clearance system can be used for acts or failures to act. Our original proposals were for those since 11 June 2003, but earlier I gave a commitment to the House that I would be willing to reconsider that date and see whether it should be April 2004. I cannot give the noble Lord another body; we cannot go faster than we are going. We would have to underpin another body with legal powers, which would further delay the introduction of the bona fide clearance scheme. With that explanation, I hope that the noble Lord will withdraw his amendment.
Lord Lucas: My Lords, I understand the noble Baroness's answer. Effectively, she is saying, "If you have a transaction that raises any serious questions under this clause, do not do it until next April". That is probably reasonable advice. I beg leave to withdraw the amendment.

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Amendment No. 52, as an amendment to Amendment No. 51, by leave, withdrawn.
Lord Lucas Lord Lucas moved, as an amendment to Amendment No. 51, Amendment No. 53:
Line 14, at end insert—
"() A clearance statement may exempt the applicant from any future contribution in respect of the act or failure, or may grant such exemption subject to conditions."
The noble Lord said: My Lords, my question here is whether the noble Baroness anticipates that a clearance statement will be able to do what is set out in this amendment. Does she envisage that a clearance statement will be able to do the things that Amendment No. 53 would make explicit? I am happy for the provision to be buried invisibly in the Bill, so long as this is what a clearance statement can do. I beg to move.
Baroness Hollis of Heigham: My Lords, we do not yet know what a clearance statement will look like. I am sorry to keep repeating myself, but I am being invited to do so by the noble Lord: we have already discussed the matter. We said that we were working on ensuring that the regulator had sufficient resources and expertise to deal with clearance statements. He is working with organisations and will have the experience of bodies such as the CBI, the Society of Turnaround Professionals and the British Venture Capital Association to draw on in order to develop the structure of the clearance system.
What I can say about a clearance statement is that it will he clear about who the clearance is for and the act or failure which the clearance is in respect of. The statement will also be clear about what the clearance is for—for example, the person is not a party to an act or failure, is not a service company or is insufficiently resourced; the act or failure does not fall under Clause 39(4)(a); or it would not be reasonable for a contribution notice or financial support direction to be issued. It would also indicate the evidence relied upon and the reasons for the clearance statement being issued or refused.
However, we must rely on the material in the application. If the material information given is incorrect or there is a material change in circumstances, the regulator would not then be bound by his previous decision. As I said, we are consulting on these matters. Nobody has suggested that there should be conditional clearance, and it was accepted by all that a clearance could not be binding if there was a material change in circumstances or if all the facts were not revealed.
I do not know whether I can say anything further because the noble Lord is asking me to anticipate the outcome of discussions and consultation. I have explained on previous amendments that that is the process that we are going through. He has now tabled an amendment ungrouped which asks us to determine that which we are in the business of consulting on. I cannot help him further at the moment. We may have more information later; we certainly should have more
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when bodies of regulations come before the House in the spring. If the exercise is to be meaningful, we must consult, and we are in the middle of doing so.
Lord Lucas: My Lords, I understood that point from what the noble Baroness said earlier and from the wording of the amendment. But I do not see in her amendment the powers to enable the clearance statement to do whatever it is decided during consultation that it should do. Perhaps I am misunderstanding the wording, but it does not seem to endow the clearance statement with any broad powers.
The point of Amendment No. 53 is to illustrate the sort of thing that a clearance statement might be expected to do if it is to fit in with the ordinary, day-to-day requirements of the sort of people who will seek it. It is not clear to me from the noble Baroness's amendment that it is possible, whatever the results of the consultation, for a clearance statement to do the sort of thing set out in my amendment. Perhaps I have misunderstood the matter; we can return to it when we deal with the next set of clearance statements.
My problem is not that the noble Baroness is undertaking consultation. I understand that this has happened at a late stage and that she is working fully and co-operatively with the right people and will doubtless achieve the right answer. But I do not see that the amendment gives her the power to make of a clearance statement whatever it is decided should be made of one during consultation. That is my misunderstanding. I will return to the matter when next we debate this amendment. For the moment, I beg leave to withdraw the amendment.
Amendment No. 53, as an amendment to Amendment No. 51, by leave, withdrawn.
[Amendment No. 54, as an amendment to Amendment No. 51, not moved.]
Lord Lucas Lord Lucas moved, as an amendment to Amendment No. 51, Amendment No. 55:
Line 28, after "application," insert—
"() a condition of the clearance statement has been breached,"
The noble Lord said: My Lords, the trouble I have here is with subsection (5) of the noble Baroness's amendment and what she has just said about it—that is to say, "You will get this clearance but if circumstances change, the clearance will be withdrawn". I understand entirely that, if false information has been given, it is reasonable that the clearance should not stand. But, in the context of a pension fund deficit, "circumstances change" can mean all sorts of things; for example, the stock market going down or a change in the financial circumstances of a company. If the system is to be founded on those shifting sands, it will be worth very little.
I would like clarification, not of where consultation will end, but of the Government's present position on the sort of circumstances in which a clearance statement might be withdrawn under this provision. Are we saying that, if a company has agreed to provide further funds but three years down the road finds itself

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in financial difficulties, the whole system of protection will dissolve? Are we actively requiring a malevolent act to trigger this section? It is entirely unclear—to me, at least from the noble Baroness's amendment what the intention is. It is unclear whether these should be robust statements that can be relied upon to stand up over the decades, or whether they will dissolve like a sandcastle as the tide of a recession comes in. I beg to move.
Baroness Hollis of Heigham: My Lords, again, I am sorry but we should have had one discussion on this issue. It would have saved a lot of repetition and we could have dealt with all the noble Lord's concerns together. This is not a sensible way of proceeding. I shall try again.
The clearance procedure binds the regulator not to issue a contribution notice or an FSD in circumstances in the application. In other words, it certifies that the procedure can go ahead. There was no support in our consultation for conditional clearance, and equally there cannot surely be any support for a clearance which, having been given on one body of information is then expected to continue to apply when the body of information on which it was based has materially changed. For example, if the regulator received an application for clearance in relation to a contribution notice on the grounds that it would not be reasonable to issue a notice because another main purpose of the act was to prevent the loss of 1,000 jobs, and the regulator gave clearance on that basis, but one month later those 1,000 jobs were lost, that would be a material change such as the regulator might not consider itself bound by the clearance.
Surely the noble Lord cannot be arguing that, once clearance has been given, whatever may happen subsequently, that clearance remains applicable down the ears. That cannot be sensible.
The provision means that, on the basis of the information provided, assuming that it is not misinformation or information subject to material change—in which case the person concerned should come back to the regulator for further clearance, a perfectly reasonable thing to do—the clearance binds the regulator not to issue a contribution notice or an FSD, but to allow things to proceed. That is the sensible way forward.
Lord Higgins: My Lords, I am seeking to follow those complex points. Is not the example that the noble Baroness gave rather strange? If a clearance is given because it is hoped that jobs will be saved and the jobs are not, in fact, saved, the situation would, clearly, have materially changed. However, that would not undermine the reason for giving the clearance in the first place. All that has happened is that the attempt that was made to save the jobs has failed. We could not then say that the clearance was not valid or that there
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would be no further clearance on the same facts. I dare say that the argument that the noble Baroness puts forward is correct, but the example is a bad one.
Baroness Hollis of Heigham: My Lords, we must go back to the previous discussion that is giving us all the problems. As a result of the arguments rightly pressed on me by the noble Lord, we made it clear in one of the government amendments that one consideration that the regulator might take into account was the effect on employment. We all accepted that that might be a legitimate consideration, particularly if a scheme was largely made up of active members, rather than deferred members or existing pensioners.
The regulator may, on that basis, decide to give clearance—in other words, it may not expect the pension deficit to be remedied in certain ways, in order to preserve the solvency of the company or to preserve jobs. If, however, the jobs are lost and the decision to lift the burden from the employer has had no effect, meaning that the employer should continue to fund the scheme, the clearance would no longer apply. That seems legitimate. If the clearance was given in order to save the jobs and the jobs were not saved, the employer would remain liable for the deficit in the pension fund for the members whose jobs have gone. In that case, the regulator may well consider that a contribution notice or an FSD is the right course of action.
Lord Lucas: My Lords, I find that a chilling reply. The clearance statements will be worthless. They offer absolutely nothing. How will someone who is setting out to save a company know that jobs were to be saved? Why would someone put his money at risk in a company in the hope that he can get things right? Six months down the road, things may have gone wrong, and, having tried to save the company, he will have the company's entire pension liability dumped on his shoulders.
Baroness Hollis of Heigham: My Lords, that is a completely false statement. Any company that has made a pension promise to its employees should, while it remains solvent, meet that promise. In some circumstances, however, involving restructuring, the employer and possibly the scheme members and trustees might prefer to trade greater risk to the scheme funding for their pensions in order to save their jobs. That would be an honourable activity, and it would be proper for them to seek clearance, so that there would be no criticism of their good faith.
If that did not happen and the jobs went, the employers would, if the noble Lord's amendment were made, have clearance covering the job losses that they were trying to prevent as well as clearance covering the requirement to meet their contribution to the pension fund. In that case, the scheme members would lose their job and their pension because the clearance notice would, under the noble Lord's proposals, remain eternally valid, whatever may have happened subsequently. That cannot be right. The key consideration is whether the circumstances are materially different. If the regulator

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were bound as in the example given, the pension debt would be avoided and perhaps 1,000 jobs would be lost in a month.
The noble Lord cannot be saying that, once someone is given clearance, that clearance should be valid for all subsequent changes, in good faith or had. The primary job of the regulator is to ensure that the pension liability is honoured. In certain rare circumstances, it may, in order to save the company, make sense to restructure and trade the greater security for jobs. If that does not happen, the moral liability and, I hope, the legal liability to make good the pension deficit would revert to the employer. He will have had only a temporary waiver, so to speak, through the clearance procedure, to allow the restructuring to go ahead to save the jobs. If that does not happen, the original obligation remains in place.
7.15 p.m.
Lord Lucas: My Lords, it is astonishing that we should get to this point in considering what we all thought was a believable and genuine attempt by the Government to offer something to people dealing with companies in difficult circumstances. It is a sandcastle; it will be washed away by the first incoming wave, and nothing will be left.
It is not only the company and its pensioners who are involved in such transactions; there are other people. There are banks that agree not to call in their loans, and there are investors who agree to put in other money. The deal is done by a lot of people putting things at risk, in the hope that the company will go right. The pensioners are asked to put some of their rights at risk. If they choose to do so, they must take the risk along with everybody else; they cannot have a double bite at the cherry. I agree that there may be limited circumstances, if the pensioners are just doing a deal with the company, in which it might be reasonable, but, if other parties are involved, it cannot hold.
I agree with the noble Baroness that, if bad faith is involved, no arrangements should stand. Are we saying, however, that an arrangement on the back of which banks and other investors have put up money to rescue a company will all he washed away just because trading goes bad?
Baroness Hollis of Heigham: My Lords, I shall quote the CBI on the matter:
"We also recognise the need for the Regulator to be able to modify their decision if there is a material change in circumstances".
I am saying what the CBI has said. It recognises the point. Everyone in the consultation exercise, apart from the noble Lord in particular—he may have other supporters in the House—agreed that the clearance order must not be binding if there has been a material change in circumstances. That does not stop someone coming forward for a second clearance.
If the job losses are a year or two down the line, the situation would be different from one in which they happen within a month, in which there is an issue of
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bad faith. All those whom we consulted—I have just quoted the CBI—believe that the Government's position is correct. I hope that the noble Lord, Lord Lucas, will not use apocalyptic phrases about sandcastles being washed away with the tide. Clearly, the CBI does not share his view.
Lord Lea of Crondall: My Lords, I trust that I am being helpful in saying this. If, after reading Hansard tomorrow, the noble Lord thinks that there is one outstanding point arising from all the comprehensive responses that my noble friend has given, such a matter could be clarified in correspondence. It would cover the point that the noble Lord thinks that he still has to make. That stage has now been reached, and the noble Lord should reflect on the central remaining point that, he thinks, has not been covered.
Lord Lucas: My Lords, the noble Baroness has brought the discussion to a sensible conclusion. She has said exactly what she means by the clause, and she quoted the CBI at me. I shall take the quotation back to the CBI tomorrow and ask what it means. I think that there is fundamental misunderstanding about the circumstances in which the deals can and should be done. It is possible that the misunderstanding is mine; I accept that.
Before I withdraw the amendment, I shall address the other question that the noble Baroness addressed to me about why we are dealing with these amendments singly rather than all together. It is because we are having a discussion on a fundamental new part of the Bill introduced on Report. If this was Committee stage, we could group everything together. The parts that I did not understand, I could come back on. We could have one discussion which funnelled into a fairly early conclusion.
This Bill has not been produced in a final form; it had to be radically rewritten late. We have had fundamental changes introduced by the Government on Report. The rules of Report necessarily mean that we have a rather stilted debate, which I know that the noble Baroness finds tiresome. So do I. I would much rather have seen this in the Bill when it came to us.
Baroness Hollis of Heigham: My Lords, I have no problem with the noble Lord deciding to handle his amendments in any way that he sees fit. I am saying that most of his amendments so far—we still have another half a dozen to go—come into the same bundle of issues at slightly different angles. It would have been helpful for the House if they had been grouped. We could have considered a block of concerns with an attempt by me to answer those concerns, which could have been pressed if need be. Then we could have moved on.
Lord Lucas: My Lords, I beg leave to withdraw the amendment.
Amendment No. 55, as an amendment to Amendment No. 51, by leave, withdrawn.
Lord Lucas Lord Lucas moved, as an amendment to Amendment No. 51, Amendment No. 56:
Line 30, at end insert—
(6) For the purposes of this section an applicant may be a single person, several people acting together, or one or more persons acting on behalf of other persons or classes of persons described in the application."
The noble Lord said: My Lords, I would like to know whether it is the noble Baroness's present intention that this should be possible. I beg to move.
Baroness Hollis of Heigham: My Lords, group applications will be able to be made in a practical way so that not all the information supporting the application will need to be repeated separately by each party. However, an application has to be considered separately for each person. That is because the reasons for clearance are likely to be different in respect of each person and the clearance statements will have to reflect that.
For example, in the case of a corporate takeover, the employer may receive clearance because it would not be reasonable to issue a contribution notice. But the acquiring company may receive clearance because one of the main purposes of the Act is not to avoid pension liabilities.
The noble Lord's amendment would prevent the regulator issuing a clearance notice to each party and giving different reasons for clearance to each, which would make the clearance system unworkable. We know that those most likely to use this system are keen for multiple applications. They will be able to work with us to ensure that the system is practical for them. I hope that the noble Lord feels able to withdraw his amendment.
Lord Lucas: My Lords, I am grateful for that clarification. I beg leave to withdraw the amendment.
Amendment No. 56, as an amendment to Amendment No. 51, by leave withdrawn.
On Question, Amendment No. 51 agreed to.
Clause 43 [Financial support directions]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 57:
Page 33, line 22, leave out from second "to" to end of line 24 and insert "one or more persons."
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 58:
Page 33, line 25, leave out subsection (5) and insert—
"(5) But the Regulator may issue such a direction to a person only if—

(a) the person is at the relevant time a person falling within subsection (5A), and

(b) the Regulator is of the opinion that it is reasonable to impose the requirements of the direction on that person.

(5A) A person falls within this subsection if the person is—

(a) the employer in relation to the scheme,

(b) an individual who—

(i) is an associate of an individual who is the employer, but

(ii) is not an associate of that individual by reason only of being employed by him, or

(c) a person, other than an individual, who is connected with or an associate of the employer.

(5B) The Regulator, when deciding for the purposes of subsection (5)(b) whether it is reasonable to impose the requirements of a financial support direction on a particular person, must have regard to such matters as the Regulator considers relevant including, where relevant, the following matters—

(a) the relationship which the person has or has had with the employer (including, where the employer is a company within the meaning of subsection (11 ) of section 435 of the Insolvency Act 1986 (c. 45), whether the person has or has had control of the employer within the meaning of subsection (10) of that section),

(b) in the case of a person falling within subsection (5A)(b) or (c), the value of any benefits received directly or indirectly by that person from the employer,

(c) any connection or involvement which the person has or has had with the scheme,

(d) the financial circumstances of the person, and

(e) such other matters as may be prescribed."

The noble Baroness said: My Lords, I beg to move Amendment No. 58.
Lord Lucas Lord Lucas moved, as an amendment to Amendment No. 58, Amendment No. 59:
Line 12, after "him" insert "or being a shareholder in a company"
The noble Lord said: My Lords, when the noble Baroness addressed this amendment in her speech on her mega-group, I am afraid that I did not catch exactly how individuals who fall within Clause 43(5)(a) are being exempted and why it is only employees who are being exempted. It seems to me that someone—an individual—who is associated only by reason of being a shareholder of the company should not be caught either. I beg to move.
Baroness Hollis of Heigham: My Lords, as the noble Lord, Lord Lucas, suspected, we have already discussed that. Individual shareholders are already exempt under the government amendments that we have discussed.
However, corporate shareholders who have control of the company are still within the scope. I am sure that your Lordships will agree that it is right to do so. With that, I hope that I have answered the noble Lord's question.
Lord Lucas: My Lords, the noble Baroness has answered my question. I beg leave to withdraw the amendment.
Amendment No. 59, as an amendment to Amendment No. 58, by leave, withdrawn.
[Amendment Nos. 60 and 61, as amendments to Amendment No. 58, not moved.]
On Question, Amendment No. 58 agreed to.
Clause 44 [Meaning of "service company" and "insufficiently resourced"]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 62:
Page 33, line 41, leave out subsection (2) and insert—
"() An employer ("E") is a "service company" at the relevant time if—

(a) E is a company within the meaning given by section 735(1) of the Companies Act 1985 (c.6).

(b) E is a member of a group of companies, and

(c) E's turnover, as shown in the latest available accounts for E prepared in accordance with section 226 of that Act, is solely or principally derived from amounts charged for the provision of the services of employees of E to other members of that group."

The noble Baroness said: My Lords, I beg to move.
Lord Lucas Lord Lucas moved, as an amendment to Amendment No.62, Amendment No.63:
Line 8, leave out from "charged" to "to" in line 9.
The noble Lord said: My Lords, it seems to me that the purpose of the noble aroness's amendment is to define a "service company", under paragraph (c), which states that turnover is,
"principally derived from amounts charged for the provision of the services of employees".
But if one wanted to get out from under that, it would he quite simple. One just has to stick some turnover in from somewhere else; a bit of inter-company trading and purchases could be put through. Turnover could be generated at vanishingly small margins—just as a computer entry—through the books of the company. It is done often enough as part of VAT schemes and other things to create a company that appears to have a trade but, in fact, is just doing some of the purchasing for a company. I have seen it plenty of times: I am a director of one of them. We should not leave that door open. My amendment intends to close it. I beg to move.
Baroness Noakes: My Lords, I support my noble friend's amendment, not on the grounds that companies are often used for elaborate VAT schemes but, in the ordinary course of events, groups of companies often have one or more companies that they designate as group service companies. Sometimes they confine themselves to managing the payroll and recharging the services of the employees. But very often they do many other things.
For example, they collect together the costs of outsourced activities. One example would be outsourced internal audit, which often forms a central cost. There might be central insurance arrangements and many other things that are perfectly ordinary activities. So one would find what I think that the Government are trying to identify; that is, a company that collects together all of the employees doing other
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things as well. Therefore, this definition will not identify the companies that the Minister wants it to. Therefore, I support my noble friend's amendment.
Baroness Hollis of Heigham: My Lords, obviously we have taken advice on this. We are confident that companies which attempt to do what the noble Baroness has described would, if there was another company with sufficient net assets, still be caught by the "insufficiently resourced" test.
Service companies are a widely accepted way of companies setting up their affairs. It is right and proper to deal with them separately from insufficiently resourced companies. However, we are confident that the clause will catch those which we are concerned about. As I have said before, the regulator has other powers in relation to scheme funding. There may be a judgment call on that, but obviously we have done a lot of work on it and we are confident that these will work.
If the noble Baroness has any evidence or additional arguments, I would be very glad to have them. As a result, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Lucas: My Lords, of course I will. I wanted to make the point. I do not see what the service company subsection is in there for at all if everything can be caught by the "insufficiently resourced" measure. What more can I do? I beg leave to withdraw the amendment.
Amendment No.63, as an amendment to Amendment No.62, by leave, withdrawn.
On Question, Amendment No. 62 agreed to.
Lord Evans of Temple Guiting: My Lords, I beg to move that further consideration on Report be now adjourned. In moving this Motion, I suggest that the Report stage begin again not before 8.30 p.m.
Moved accordingly, and, on Question, Motion agreed to.

Sudan: Darfur
7.30 p.m.
Baroness Cox Baroness Cox rose to ask Her Majesty's Government what is their response to recent developments in Sudan, with particular reference to the crisis in Darfur.
The noble Baroness said: My Lords, I am most grateful for the opportunity to raise this Question tonight as the situation in Sudan is so grave, and I am deeply grateful to all noble Lords who will be speaking. My only regret is that, given the short notice for the Question, some other noble Lords who would also have made valuable contributions cannot be here. I refer in particular to my noble friend Lord Alton who has recently visited Darfur. I have read his detailed report, and his findings inform my contribution.
The toll of human suffering in Darfur includes 70,000 killed and 1.6 million displaced, with 200,000 who have fled to Chad, as well as countless victims of

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atrocities such as torture and rape. UNHCR's recent report, Volume 3, 2004, describes Darfur as, "today's worst humanitarian crisis", and graphically portrays the horrors inflicted on countless innocent civilians. I quote:
"Gunmen on horseback killed indiscriminately, raped, pillaged and torched the mud-brick houses".
Detailed stories of individual horror show the human agony and anguish behind the statistics and generalities:
"They ripped my child from my back, and when they saw he was a boy, they killed him in front of me".
Numerous other reports, such as the Human Rights Watch report in May this year, Darfur destroyed: ethnic cleansing by government and militia forces in western Sudan, give details of mass killings of civilians, looting and destruction of property, burning of crops, aerial bombardment and mass rapes. There have also been credible, authoritative reports of the use of chemical weapons, specifically micotoxins, by the Government in Sudan in conjunction with Syrian experts. The catalogue of atrocity and man-made suffering is endless and horrendous.
There are of course complex issues behind this conflict. The local population has long felt marginalised and deeply concerned about lack of involvement in discussions and decisions concerning the distribution of wealth and power in a future Sudan, prompting some of the rebel insurrection. However, the response of the Government of Sudan has been brutal, involving support from the infamous Janjaweed, which has been a major force in the widespread attacks on civilians and the appalling catalogue of death, destruction and atrocities. Forces of the Government of Sudan have also been heavily involved themselves in offences against civilians, and the infamous aerial attacks by low flying helicopters and bombardment from higher flying Antonovs. There is indeed a strong case for indictment of the Government of Sudan for genocide, war crimes and crimes against humanity.
Some of this horror has been publicised by the media which have, belatedly, focused on Sudan. Images of the horrors of Darfur have appeared on our television screens, while many accounts and analyses have featured in the print media. Such coverage has helped to bring pressure to bear on national governments, international organisations and aid agencies to try to alleviate the humanitarian crisis, to bring about a ceasefire and to hasten a political solution.
However, any solution to the tragedy of Darfur must be set in the wider context of the long-running war in Sudan. Tragically, the media arrived too late for the 2 million people already dead and over 4 million already displaced in other parts of Sudan. Since the National Islamic Front regime seized power in 1989, I have made 27 visits to areas it has designated as "no go" to United Nations Operation Lifelines Sudan and other aid agencies. I have walked through killing fields similar to those of Darfur, in Bahr-el-Ghazal, the Nuba mountains, western and eastern Upper Nile and southern Blue Nile. I have also witnessed the suffering
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inflicted on the Beja people, driven from their lands into the harsh deserts of eastern Sudan, and the deliberate bombing of hospitals and feeding centres in many parts of southern Sudan administered by the SPLM.
Many commentators continue to speak and write powerful and well-justified criticisms of the Government of Sudan's genocidal policies. I respect and endorse their concerns.
However, it is perhaps time also to turn to endeavours to bring more humanitarian relief, which is urgently needed if many more thousands of lives are not to be lost in the near future, and also to political initiatives to bring peace and justice to all the people of Sudan. In doing so, perhaps I may pay tribute to all the efforts which have been made in numerous peace initiatives—culminating in Navaisha and Abuja, and the recent announcement that the UN Security Council will be convening two meetings in Nairobi. The US Ambassador to the United Nations, John Danforth, has claimed:
"This is certainly more than symbolism. It furthers the peace process in Sudan [and] is an opportunity for the Security Council to demonstrate to all sides in Sudan that the international community is not going to go away".
Many other initiatives are already under way, such as the deployment of African Union forces, although there are widespread concerns over delays in their availability and the adequacy of their capability. Other responses are also being advocated which will, I am sure, be mentioned by other noble Lords and by the Minister.
Perhaps I may limit myself to one recent development that involves an organisation which I was privileged to help to launch last year in Indonesia: the International Islamic-Christian Organisation for Reconciliation and Reconstruction, which abbreviates to IICORR. We have been able to play a constructive role in the conflict areas of Maluku, and we have been grateful to receive support from Her Majesty's Government in this process.
I have recently been approached by representatives of key political groups in Khartoum, including some within the government, to ask IICORR to help to develop comprehensive peace initiatives and political solutions which will be necessary if democracy and civil society are to develop in Sudan. I therefore welcome the opportunity to raise that possibility here tonight. I realise that the Minister may not be in a position to make any commitment this evening, but she may be aware that two weeks ago I wrote to her honourable friend Chris Mullin, the Minister, on this matter, and I hope that Her Majesty's Government might be willing to consider this proposal sympathetically in due course.
Given IICORR's commitment to working with representatives of different faith traditions and its credibility in helping to promote reconciliation and reconstruction—the two must go hand in hand—in conflict zones in Indonesia, we are pleased that some of the key players in Sudan see our organisation as possibly being in a position to play an appropriate role there, in particular given that I have been such a long-standing and outspoken critic of the Government of Sudan's record of gross violations of human rights.
I am always prepared to listen to genuine proposals for peace and policies genuinely intended to bring justice for all the people of Sudan, and if IICORR could play a helpful role—with the blessing of Her Majesty's Government and, perhaps I may dare to suggest, appropriate support—we in IICORR would be happy to make whatever contribution we could.
But I must naturally emphasise the caveat that I am aware that one partner to any negotiations will be a regime with incalculable quantities of blood on its hands, which has repeatedly continued to kill even while it talked peace. Therefore there will be a need for clear-cut conditions and safeguards built into any initiatives to ensure that we are not crying "peace" when there is no peace. This requirement is of course inherent in any peace process, whether IICORR is involved or not.
Any viable peace process must include modalities for oversight by experts and independent verification that commitments made by the various participants are fulfilled. Moreover, while it is sometimes advisable to conduct negotiations discreetly, there must still be complete transparency as far as many elements of the peace-making process are concerned.
I conclude by thanking once again all those contributing to this debate, for addressing the continuing tragedy in Sudan and highlighting the agonies of its long-suffering people. I look forward very much to the Minister's reply, which will be heard with great interest by all concerned—those who are suffering, those who are trying to bring relief, and those who are trying to achieve a peaceful settlement which will not betray any who deserve justice.
This is a critical time for Sudan. The enormous toll of man-made agonies inflicted on its people, much of it untold, has been allowed to continue for far too long. It is my hope and prayer that there may be some rays of hope on that dark horizon in the form of initiatives which will help to bring reconciliation based on realism. For only on that basis can there be a true and lasting peace so yearned for by the vast majority of the people of Sudan.
7.39 p.m.
Lord Elton: My Lords, like all your Lordships, I am deeply grateful to the noble Baroness, Lady Cox, for the way in which she has turned the spotlight yet again on one of the most painfully troubled parts of the world. I speak with great diffidence in this debate. Everybody who speaks in it knows more about the subject than I do. I only joined the throng because it was such a small one and it seemed that your Lordships owed more notice to this problem of acute importance to large areas of the world than the short list that I saw before the weekend was likely to accord it.
I would also like to record my admiration for the noble Baroness for her own exploits in this and many other parts of the world. She may become weary of that sort of plaudit, but your Lordships will not tire of giving it.
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As a relative amateur in this field, I should say that it dawned on me relatively late that Darfur is not a cauldron seething on its own on the hob; it is actually part of a vast sea of trouble. No settlement can ignore the complexity of the problem facing us. If we try to overlay, as I did, maps of the administrative regions of Sudan—both actual and theoretical—and the ethnic geography, including the nomadic geography, the rainfall and ecology which determine the behaviour of many communities there, the mineral resources and the economic interests of outside countries in these resources, one begins to see that it is an absolute cat's cradle of competing stresses. I left out of that list the underlying religious tension, which tints it all with a sad form of violence.
What is the correlation between the attitudes of other powers to the use, for example, of sanctions, and the extent of the interest in the development of the mineral resources of those other powers, especially in the oil of the Sudan? In looking at that particular map, one must remember that we are looking at all of this in the context of a world that has become rather frightened of outside intervention in the affairs of broken-down countries as a result of the recent and continuing war in Iraq. The intervention of the African Union is extremely welcome and I join others—I am sure—in welcoming the facilitation, support and finance for that provided by Her Majesty's Government. However, does the Minister know the intended eventual strength of that force and its intended eventual remit? Will the resources available to it in terms of the command structure and training as well as equipment be equal to those tasks? We all have an interest in establishing peace in an explosive situation. It is better that the intervention should be by people from the same continent than those from afar.
The scale as well as the complexity of this tragedy is difficult to grasp. My noble friend said—correctly I believe—that about 1.6 million people have been displaced. They have become IDPs or internal displaced persons. That figure refers to four times as many people as took part in the Countryside Alliance mass demonstration, which most of us saw covering every vacant space east and west in the main thoroughfares through London. When she says that there have been 70,000 deaths since February 2003, that works out at 580 days, which is 120 people per day being killed. Do the Government still reject the suggestion made by the noble Lord, Lord Alton, that this situation should now be termed genocide by the United Nations?
The reports of all the bodies to have reported, including the noble Baroness, the noble Lord, Lord Alton, Human Rights Watch international and many others concluded that this is genocide. It is not a question merely of semantics, but of what position the rest of the world takes towards what is going on there and the extent to which it feels morally as we'll as politically able to intervene.
On the question of the moral positions of countries, will the Minister reassure me about two figures that I have recently seen? Both are taken from the UN commodity database. One is that more than 180 tonnes

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of arms were shipped from Britain to Sudan in the past three years. The other is that in 2002, Sudan imported from the United Kingdom arms and ammunition to the value of 184,392 dollars. I apologise for not giving notice of that question, but I only saw the figures recently myself. I assume that those are not official sanctioned exports and it would be welcome to hear from the Government what their attitude is to these and what steps they are taking to close that particular means of supply of material going almost certainly and pretty directly to the Janjaweed via the Government of Sudan.
The tension, complexity, bitterness and duration of strife in Darfur and the wider Sudan calls for extraordinary sorts of intervention. Your Lordships may have forgotten that I am half Norwegian. I take pride in the skills which the Norwegian education system now inculcates in all its schoolchildren in conflict resolution, which is a curriculum subject. The country as a whole plays a remarkable role internationally. However, there is room for other skills. Those which my noble friend—she remains my noble friend although she has migrated internally to the other side of the House—has displayed in bringing together the Muslim and Christian people of good will, with the courage not merely to declare their friendship but also to expose it in areas of the most bitter conflict, could bring a very welcome ray of light.
I have had my seven minutes. I am glad that it is the noble Baroness, Lady Symons of Vernham Dean, who is answering this debate rather than anyone else.
7.47 p.m.
Lord Roberts of Llandudno: My Lords, I also join in expressing my gratitude to the noble Baroness for initiating this discussion. However, I must disagree with the noble Lord, Lord Elton. He probably knows a great deal more about the situation than I do.
Over many years, we know that this northern part of Africa has suffered so much—so many crises and disasters of mammoth proportions. My introduction came at the time of the Ethiopian famine some years ago. It was then that I realised the scale and severity of the plight of so many millions of people. Tens, scores and thousands of people died and the miracle is that so many managed to survive. However, one of the most emotional experiences of my life was to meet some of the survivors. They had nothing at all. They were rescued from this disaster. They were dressed in flimsy gowns—that is all they had. I cradled some of their children and babies in my arms and wept. Those people had lived in such great tragedy.
Famine, war—usually civil war—and the inability to access more modern techniques and facilities may condemn millions of people to lifestyles that cannot have changed very much in 3,000 years. Often, these disasters can themselves be of Old Testament proportions. Now, not for the first time by any means, we have a grave situation in the Darfur region of Sudan and another humanitarian crisis. There the completely innocent and vulnerable—the weakest people in those communities—are condemned to an existence that we in the West, in our comfort, cannot comprehend at all.
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Where do we begin to resolve the short-term situation, which will then make it possible to tackle the long-term transformation of so many human lives? First of all, I suggest that any such programme must be international. Surely we must have learnt the lesson that the days of one nation doing its own thing and going along regardless of the rest are over once and for all. I am so grateful for what the United Nations has done and is doing in Sudan. With the African Union, it is taking the lead to protect the people and establish a real peace. Is this not an opportunity for the United Kingdom to take a leading role in international compassion?
I have a dream—many of us have dreams—that one nation could be the nation that gives the moral lead to the rest of the world. There was a time when I believed that India might do it, when Mahatma Gandhi was there. There was a time when I believed that perhaps Israel could do it, with all those people coming in from the Holocaust, from more than 140 different nations. And yet we were unable to see that lead from those people.
Cannot the United Kingdom be the one nation able to provide that lead in international compassion? We have a long way to go. I was studying today the table of overseas aid, which shows the percentage of national product that each nation gives. In Europe, we are number 11 in that league table. We need to lift our sights and our vision and become the people who provide, not perhaps military or even political, but a compassionate, caring and moral lead to the rest of the world. A fraction of the money spent in Iraq could have done so much in real, long-term nation building. Where is the will to halt arms sales to other countries like Sudan, especially to those that are weak and most vulnerable? Cannot Her Majesty's Government take the lead in the council of the United Nations to bring an end to those arms sales?
Finally, is the Minister satisfied with the role played by the United Kingdom in the matters that I have raised this evening? I am grateful for the opportunity to share my concerns with those in the Chamber.
7.52 p.m.
The Lord Bishop of Salisbury: My Lords, I, too, welcome this debate and congratulate the noble Baroness, Lady Cox, who is indefatigable in this regard, on securing it. It is good to be able to come to your Lordships' House and know that we shall be kept up to date and up to the mark by the noble Baroness.
In addition to urging the Government to do all that they can to bring to an end the conflict in Darfur and to relieve the enormous sufferings of the displaced people, I want to relate how these events are viewed by my friends and colleagues in the Episcopal Church of Sudan, with whom our diocese has been linked for so long.
Darfur is on the western edge of the vast diocese of El Obeid, an area considerably larger than the Principality of Wales. On that western fringe, the percentage of Christians is probably no more than 5 to 10 per cent. None the less, they have been attacked by Janjaweed

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militias and by the Government of Sudan forces alike. Most of their churches have been destroyed and such Church leaders who have not escaped have been killed. In those conditions, the Government of Sudan's refusal to let medical supplies through to the Church-sponsored clinics, and a suspicion that they are withholding food supplies and using that as a weapon, raise serious questions.
The conflict is not centred on Arab-Christian conflict; inter-Arab conflict between divided branches of the former National Islamic Front provides a novel twist to this extraordinary conflict and disruption. On a different front, that conflict in Darfur is providing the Government of Sudan with a reason to go slow on the peace proposals in the south. The Churches perceive that the hard-won accords of the IGAD peace process to be in jeopardy. One consultant to the peace process in peace and conflict resolution describes the situation thus:
"The Government of Sudan has created the present situation in Darfur as one of its strategies to delay peace talks in Southern Sudan. It does not want the protocols so far signed. Similarly, it wants to use the situation in Darfur to mobilise internal fronts that have fragmented so much that in the space of three months, it announced two attempted coups. Furthermore, the Government of Sudan wanted to mobilise support from Arab World and this was obvious from the reaction of the Arab World to the international community about situation in Darfur … At international level, attention was diverted from Peace Talks in Naivasha to humanitarian crisis in Darfur … the conflict in Darfur has a direct impact on the peace process in the South".
That is the view of a skilled and committed person working in conflict resolution to try to get the existing accord signed.
With some 1.5 million persons displaced in that region, and hunger, disease and exhaustion at unprecedented levels, even for Africa, any exposure to the rest of the world of what is going on must be welcomed. Any means that our Government can use to put pressure—public pressure, that is—on the Government of Sudan will be widely welcomed and hugely beneficial.
In the Churches in Sudan, it is widely believed that the conflict in Darfur has been fomented to destabilise the area and to displace people from potentially rich areas with mineral resources. Darfur is an area relatively rich in those resources. I received an e-mail this morning from Francis Loyo, Bishop of Rokon, who is studying for a masters degree in Durham this year and is in regular touch with his fellow countrymen. Bishop Francis sees one ray of hope. He says:
"These divergent views have played well into the hands of the Government of Sudan. However, the only ray of light at the end of the tunnel is the continued international pressure on the Government of Sudan. The UN Security Council has thrown its weight fully on the process. The UN Security Council voted unanimously on 26 October to conduct its business in the Kenyan Capital of Nairobi for two days next month in an effort to end Africa's longest civil war in Southern Sudan. This is the clearest boost for the peace process: the UN Security Council has sent missions abroad many times, but it has only moved its official meetings out of New York on three occasions since 1992. This is a great boost to the peace and an indication that the international community is serious about peace in Sudan and wants to see it through".
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I hope that we shall do all that we can to support the United Nations in that matter and ensure that we make the most of the opportunities for publicity that it will bring. I look forward to the Minister's response—and to her assurance that our Government will pursue the matter and support the United Nations.
7.58 p.m.
Lord Avebury: My Lords, yet again we are greatly indebted to the noble Baroness, Lady Cox, as we have been so often over the years, for drawing our attention to the formidable problems in Sudan, particularly those in Darfur. As the right reverend Prelate has just said, that has overshadowed all the rest of the problems in Sudan in recent months, as the death toll and number of refugees, or displaced people, has risen inexorably.
As has been said, this is a humanitarian catastrophe on a scale much bigger than that of Kosovo. However, the United Nations, though at last acting under Chapter 7 of the charter, which allows the imposition of manager duties on member states, has allowed Sudan to dictate the pace and scale of the response to the emergency. With great difficulty, Khartoum has been persuaded to agree to the expanded AU mission. The Government of Sudan wanted the mandate to be limited to monitoring and observing compliance with the ceasefire agreement of last April. However, the AU has given the mission power to protect civilians whom it encounters, who are under immediate threat and in the immediate vicinity.
It is important that civilians should know precisely under what circumstances they can look to AU troops for protection if they come under Janjaweed or Government of Sudan attack, if they are to be persuaded to return to the charred remains of their villages.
It is long odds against the AU witnessing an attack with only 3,000 troops in a territory the size of France. In Liberia, for example, UNMIL has five times as many troops, and 1,000 police as well, in a smaller area. In eastern DRC, the Security Council has authorised a total of 16,700 troops, which is still short of the 23,900 recommended by the Secretary-General. These are much larger figures than the number of troops in the AU mission to Darfur. Can the Minister say whether the UK will press for an increase in the force and an extension of its mandate so that it is explicitly required to protect civilians?
In carrying out its monitoring functions, will the AU have reconnaissance aircraft and who will provide them? The UN uses helicopters in Afghanistan, DRC, Sierra Leone and Georgia. In Darfur, it has helicopters and an AN-12 cargo plane for humanitarian relief. Nyala, El Fasher and El Geneina airports are open, so the AU should have its own helicopters and light aircraft. If observers on such an aircraft detect an attack on civilians, will that mean that they have encountered a threat and would they be able to call in ground troops under the mandate?

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What has happened to the idea, which has frequently been raised, of a no-fly zone prohibiting Sudanese military flights over Darfur so that returning civilians have one less threat to face? As the noble Baroness has reminded us, reports are still coming in of bombing raids, which are detailed by Amnesty International in the report of its September mission and in the Secretary-General's October 4 report of attacks by helicopter gunships continuing right up to the end of September. Thus, Sudan is in breach of Security Council Resolution 1564, which calls on it to refrain from conducting military flights in and over the Darfur region.
It has also been asked to disarm and demobilise the Janjaweed militia but the Secretary-General says that it has submitted no information on the methodology or the timeframe for disarmament, nor has it handed over, as required, the serial numbers of the weapons collected and the keys to their containers. It has not complied with the Security Council's earlier demand for an end to impunity for the,
"systematic campaign against the unarmed civilian population",
as the UN expert on human rights in Sudan described it at the General Assembly last week.
These are very serious breaches of Sudan's duty to obey the decisions of the United Nations made under Chapter VII and the UK must consider what further measures the Security Council should take to secure compliance.
The noble Lord, Lord Elton, asked if we should label the events of Darfur as genocide, as the US Secretary of State, Colin Powell, has already done. But we need some degree of co-operation from the regime if the AU is to be effective in preventing further bloodshed, rape and brutality of the kind described in the chilling report of the mission of Amnesty International a month ago. AU troops and monitors and the humanitarian agencies are all there with the reluctant permission of the authorities in Khartoum and if further progress is to be made towards a stable peace, self-government and human rights in the region, then it has to be through persuasion rather than compulsion. The AU has come a long way towards establishing an effective continental system of conflict prevention and peace-keeping and we should continue to support and reinforce the mechanisms that it has developed, rather than taking a route of which other African states would not approve.
As for the negotiations in Abuja, there are many differences still to be resolved, for example, the disarmament of the militias, which has to precede cantonment, and making the no-fly zone over Darfur mandatory. The rebels say that the AU force is grossly inadequate. They do not trust the new police force, which is supposed to maintain order, but which, they say, includes Janjaweed war criminals. It is a fact that the issue of trust makes it very hard to progress but also the rebels feel that they lack the technical negotiating skills, as five of their leading representatives told me when I met them recently in your Lordships' House. Perhaps the AU
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might offer to help them find independent advisers to help the Abuja process keep pace with the peacekeepers' deployment in Darfur itself.
As MSF says in its report published today, for well over a year the people of Darfur have endured a vicious campaign of terror and the GoS and the international community have completely failed them. Action is now under way, but in terms of protection and humanitarian aid a great deal more is urgently required. As my noble friend has said, our Government must keep up the pressure in the Security Council and in our bilateral relations with other African states so that we can bring the agony of Darfur to an end as soon as possible.
8.5 p.m.
Lord Astor of Hever: My Lords, I would also like to thank the noble Baroness, Lady Cox, for initiating this very important debate. I share the admiration of the noble Lord, Lord Elton, for the noble Baroness's continued efforts to keep Sudan in the headlines. I can but reiterate what other noble Lords have said regarding the importance of keeping the political spotlight on Sudan. When your Lordships returned from the Summer Recess, we on these Benches expressed our deep regret and frustration at the deteriorating situation. Indeed, in terms of the number of deaths and incidents of torture, it echoed the horrors of Rwanda and dwarfed those of Bosnia and, as the noble Lord, Lord Avebury, said, of Kosovo.
Last week, rebel groups abruptly broke off talks with the Sudanese Government. Nigeria and Rwanda, whose efforts we very much welcome, have sent in emergency troops to join those African soldiers already there. Meanwhile, the UN envoy says that the violence, which has already displaced 1.6 million people, is increasing. The right reverend Prelate told the House some of the terrible problems that the Churches are facing in Sudan. These are not signs of things getting better; indeed, they are getting progressively worse. USAid estimates that at least 80,000 people have died in Darfur alone since 2003. Meanwhile, aid workers report that currently 1,000 people are dying each day. The noble Baroness, Lady Cox, is right to say that this is genocide and that the government of Sudan are guilty of war crimes and crimes against humanity.
Can the noble Baroness inform the House of the timetable for the completion of the UN commission's report looking into the question of genocide in Sudan? In light of the collapse of peace negotiations, can the noble Baroness inform the House what steps Her Majesty's Government can take to try to prevent both sides violating the ceasefire?
Once again, we see the people of a country suffering due to internal strife. The Famine Early Warning System Network has reported that despite some rainfall in the past two months, pasture conditions continue to suffer. Drinking and irrigation water levels remain low, with no relief expected until the rainy season next year. This chronic water shortage is hampering the establishment of new refugee camps. In existing overcrowded camps, particularly those in Chad, water is fast running out. The

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ground water reserves are drying up from over-extraction, and the standard 15 litres per refugee per day has dropped to only six litres. In addition, the World Food Programme emergency assessment concludes that the situation is beyond serious.
One in six households is severely short of food, with a food gap greater than 50 per cent while twice as many struggle to meet minimum levels of food intake. High rates of child malnutrition and overall poor health of the population are symptomatic of inadequate access to health services and food. The refugees are totally dependent on international assistance due to loss of livelihood on top of food shortages.
There are still frequent reports of aid agencies having difficulties in getting to refugees, particularly those in the Darfur region, despite promises of open access. Can the noble Baroness update the House on the current situation now the rebels have failed to sign the humanitarian protocol? My noble friend Lord Elton asked questions about the remit and the resources of the AU, as did the noble Lord, Lord Avebury. Perhaps I may therefore ask the noble Baroness what powers the AU force has to ensure the safe access and delivery of humanitarian supplies.
While it is essential that relief is delivered, where needed, in Darfur and the camps, it is vital that we look to the long-term issues that may plunge those already suffering into even deeper crisis. What steps are Her Majesty's Government taking to monitor the environmental impact of the large-scale population displacement and livelihood disruption which will reduce the longevity of the camps and the ability of refugees eventually to return once peace is achieved? What parallel assistance plans are in place to cater for the poorest residents and the most affected infrastructure and housing outside the IDP camps? There is always the danger, once aid is flowing freely to the camps, that the stability and improved camp services, such as better healthcare, will surpass other areas and could act as a pull factor to those living outside them.
The same issues that have blighted this conflict are now growing in stature, while the rest of the world has been slow to act. We need to ensure that we help Sudan, not only now, but in the future, to plan for its recovery. We commend the work of the AU forces. However, at the moment it appears that for each step forward the peace process takes, it slips back three. The noble Baroness, Lady Cox, is right to say that the international community is not going away from this issue. It must not go away. As the right reverend Prelate said, that is the only ray of light. The noble Lord, Lord Roberts, suggested that Her Majesty's Government should take the moral lead on Sudan. I certainly look forward to hearing what plans the Government have to deliver after all the passionate and tough talk on Africa.
8.13 p.m.
Baroness Symons of Vernham Dean: My Lords, I, too, thank the noble Baroness, Lady Cox, for introducing this debate. She was, as always on this subject, lucid, convincing and passionate.
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Her Majesty's Government remain gravely concerned by the continuing crisis in Darfur. Your Lordships will have read the latest very disturbing World Health Organisation mortality report. It estimates that between 6,000 and 10,000 people in Darfur are dying each month. The report puts the number of dead, so far, at between 35,000 and 70,000 people, with almost 1.5 million internally displaced. As the noble Baroness, Lady Cox, told us, the situation in Darfur remains very insecure: attacks continue, civilian protection remains a major concern, and the humanitarian needs in Darfur are enormous.
Since the last debate in this House there has been some progress. I remind the noble Lord, Lord Astor of Hever, that humanitarian access in Darfur has greatly improved. There are many more international non-governmental organisations and agencies working in Darfur, bringing humanitarian relief to more and more people. There are now an estimated 800 international and more than 5,000 national staff working in Darfur. I am sure that your Lordships will join me in acknowledging the remarkable efforts of these brave people.
Of course, as access to Darfur improves, the increasing needs of the internally displaced person (IDP) population are becoming clearer to the international community. Since September 2003 Her Majesty's Government have allocated £62.5 million to the humanitarian relief effort in Darfur. I assure the noble Lord, Lord Roberts of Llandudno, that we are the second largest bilateral donor of humanitarian aid. We have also been lobbying others to do more.
As many of your Lordships acknowledged this evening, improving the security situation is now the key priority. In order to stem the growing IDP numbers, the fighting has to stop. People will return to their homes only when they believe it is safe to do so. My right honourable friend the Prime Minister pressed this point and others with President Bashir when he visited Sudan on 6 October. President Bashir agreed to a five-point plan to improve security in Darfur. He agreed to: co-operate in full with an expanded African Union mission; notify the AU of the location of its forces; confine its forces and militia to barracks, if the rebels also did so; and immediately and unilaterally implement the Abuja humanitarian protocol and conclude the comprehensive peace agreement as soon as possible. We are closely monitoring the Government of Sudan's compliance with these commitments given to our Prime Minister and the other commitments they have given to the international community.
The noble Lord, Lord Elton, specifically raised the matter of the arms allegedly supplied by Britain. We rigorously enforce the EU arms embargo that has been in place since 1994. We believe that the UN statistics are inaccurate and we have already asked the UN to correct its records on the matter. We take it as seriously as the noble Lord, Lord Elton, implied that we should.

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I acknowledge the enormity of the horrors described by the noble Baroness, Lady Cox, and the point made by the right reverend Prelate the Bishop of Salisbury about the importance of the Government of Sudan co-operating with international efforts. It is welcome that the Government of Sudan have agreed to co-operate with the international community and to comply with the requirements placed upon them by Security Council Resolutions 1556 and 1564, which the United Kingdom sponsored. However, the Prime Minister made clear that the Government of Sudan would be judged not by their words, but by their actions. Should they fail to fulfil their promises, the Security Council resolutions set out the measures—including, but not limited to, sanctions—that the council is prepared to take against the Sudanese Government.
The noble Lord, Lord Astor of Hever, asked about the rebels. The African Union—
Lord Elton: My Lords, if the noble Baroness will forgive me, she says that there is a commitment to sanctions if the conditions are not met. Have we not heard that members of the Security Council have said that they will veto them?
Baroness Symons of Vernham Dean: My Lords, no doubt there are some members of the Security Council who will feel that that is the case. However, that does not stop us pressing the issue. As we all acknowledge, the United Nations is where we try to solve these issues, but not exclusively. If the noble Lord will give me a moment or two, I shall try to deal with some of the other areas where we can try to improve the situation. One of those is in relation to the African Union ceasefire commission, which reports that the rebels also continue to violate the ceasefire—a point that the noble Lord, Lord Astor of Hever, was anxious that I cover in dealing with the position of the rebels.
When the Secretary-General makes his monthly report to the Security Council this Friday, he will focus not only on progress made by the Government of Sudan, but on whether the rebel groups have been fulfilling their commitments—an important point that the noble Lord, Lord Astor of Hever, raised. We must leave the rebel groups in no doubt that the international community will take action against them should they not honour their promises. This is the message that my honourable friend the Minister for Africa, Mr Mullin, gave to the leadership of the main Darfur rebel group, the SLM, when they visited London three weeks ago.
The noble Lord, Lord Elton, asked about the attitudes of other powers. Like the noble Lords, Lord Elton and Lord Avebury, I hope that the African Union's decision to expand its monitoring mission in Darfur is one that we can all acknowledge is a real movement in the right direction. I say in answer to the specific points made by the noble Lords, Lord Elton and Lord Avebury, that over the coming weeks the African Union will increase the number of its troops in Darfur from less than 500 to more than 3,000. The first
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troops from Nigeria and Rwanda have already arrived. During his visit to Sudan the Prime Minister announced that the United Kingdom would be contributing a further £12 million, in addition to the £2 million we provided in May, to assist the AU in expanding its mission.
I assure the noble Lord, Lord Avebury, that we are considering what logistical and technical support we can provide to the AU. We currently have a military planner working with the AU in Addis Ababa, and we have been instrumental in securing 80 million euros in funding from the European Union.
In answer to the point made by the noble Lord, Lord Astor of Hever, the African Union will have a vital role to play in improving security in Darfur. Its increased numbers will allow it to monitor the situation on the ground more proactively. A more visible AU presence should help to rebuild the confidence of the people of Darfur.
All those who have spoken this evening have raised the vital issues of human rights and genocide. The noble Lord, Lord Roberts of Llandudno, spoke on human rights with huge conviction. Of course, the Government are gravely concerned by the terrible violations and crimes against humanity that have taken place in Darfur. My right honourable friend the Prime Minister made clear to the Government of Sudan that there can be no impunity for such crimes.
We strongly welcomed, and indeed pressed for, the establishment of the International Commission of Inquiry. In answer to the noble Lord, Lord Elton, the commission will investigate violations of human rights in Darfur and determine whether those crimes amount to genocide. It will also determine who should be held accountable. In answer to a specific question of the noble Lord, Lord Astor of Hever, we expect the commission to report back in three months.
However, the Government are taking action now to address the human rights situation. We have made it clear to all sides that those violations must stop. We funded the original eight human rights monitors from the Office of the High Commissioner for Human Rights, which has just increased the number of its monitors in Darfur to 16. And a number of UN protection-oriented agencies have, with UK funding, begun programmes to train the Government of Sudan police and their armed forces in human rights law. Those agencies are addressing the issues in all three Darfur states.
My right honourable friend the Foreign Secretary was also able to secure visas to Darfur for human rights agencies Amnesty International and Human Rights Watch. Amnesty International, which before my right honourable friend's intervention had been denied access to Darfur, reported that it was allowed to carry out its investigations without hindrance. That is very welcome news. I can tell the right reverend Prelate the Bishop of Salisbury that our embassy in Khartoum is in close touch with the Churches and takes up the concerns that are brought to its attention.

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The persecution against Christians as a religious group is somewhat less clear. Southerners of all religions suffer from mistreatment, as the right reverend Prelate acknowledged, but in other areas, many thousands of Christians worship freely.
As a number of your Lordships have suggested, it is clear that the only way in which to resolve the problems in Darfur, as in the rest of Sudan, is through a political process. That is why we have placed such great emphasis over the past few years on the peace talks between the Sudanese Government and the Sudan People's Liberation Movement—the SPLM—in Kenya, and more recently, on the AU-led Darfur peace talks taking place in Abuja.
The United Kingdom's special representative—now Alastair McPhail—continues to attend the talks in Kenya, and we have sent an observer to the peace talks in Abuja, where he is playing an active role in pressing for peace.
In Abuja, we are pressing the Government of Sudan and the rebel groups to sign the humanitarian protocol, which they agreed at the last round of talks. Both the Sudanese Government and the Sudan Liberation Movement—SLM—have given their commitment to do so and to implement the protocol immediately. We are also pressing both sides to negotiate in good faith on the remaining security issues.
In Kenya, first Vice-President Taha and the SPLM leader, John Garang, made good progress on the comprehensive peace agreement. The parties will return later this month to resolve the remaining issues. Both sides have told us that they are keen to sign a comprehensive peace agreement before the end of the year. We believe that that is possible. That comprehensive peace agreement could provide the framework for a comprehensive peace in the whole of Sudan, including Darfur.
The noble Baroness, Lady Cox, referred to a possible role in the peace process for the International Islamic-Christian Organisation for Reconciliation and Reconstruction. I know that the noble Baroness has met my right honourable friend the Minister for Africa to discuss that point. I assure her that the joint DfID and FCO Sudan unit will carefully consider the proposal put to it.
I strongly agree with the right reverend Prelate about the importance of international pressure in the conflict. The UN will shortly publish its 2005 Sudan appeal. The international community will need to increase its contributions throughout 2005 so that agencies working in Darfur and throughout Sudan can continue to bring food and medicine to those who desperately need it. Your Lordships will know that the Prime Minister recently announced that the United Kingdom would contribute £100 million to Sudan—I emphasise that for the noble Lord, Lord Roberts—for humanitarian and development assistance next year, subject to the signature of the comprehensive peace agreement.
The Prime Minister's visit demonstrates the importance that the Government attach to a successful resolution of Sudan's crisis. That pressure on the
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Government of Sudan has led to some positive steps forward. There is also greater co-operation with the international community. As I said, the rebels must adhere to the ceasefire and show commitment to negotiating a political solution. We shall maintain the pressure on both sides. The expansion of the humanitarian effort is achieving some results. The numbers of people receiving food aid grew from 940,000 in August to 1.4 million in September, but there is much more to do to safeguard the victims and prepare the way for them to return home in safety. The expanded African Union force offers hope for the future, and we will ensure that the international community reinforces its efforts to solve the crisis.
Sudan now has an opportunity to bring about an end to the fighting which has ravaged the country and its people for so long—too long. But as I have said before in this House, implementing the peace agreement will be harder than negotiating it. It is vital that the international community helps Sudan through the difficult but essential period of transition it faces. As our involvement in the peace process and the generous humanitarian and development aid shows, the Government are committed to doing that and to helping to create a peaceful and prosperous Sudan, where the needs of all its peoples are considered. For Sudan, and Africa as a whole, the price of failure and the rewards for success are very great.
Baroness Crawley: My Lords, I beg to move that the House do now adjourn during pleasure until 8.30 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 8.27 to 8.31 p.m.]

Pensions Bill
Consideration of amendments on Report resumed on Clause 44.
[Amendment No. 64 not moved.]
Baroness Noakes Baroness Noakes moved Amendment No. 65:
Page 34, line 5, leave out "net assets" and insert "resources"
The noble Baroness said: My Lords, my noble friend Lord Higgins thinks that I have not been doing enough during this Report stage, so I have been put in the lead on this group of amendments. In moving the amendment, I shall also speak to Amendment No.71. They replace the concept of "net assets" in the test of being insufficiently resourced.
First, I apologise to the Minister for not writing to her on the points which arose during Grand Committee debates. When I reviewed the Hansard report of our discussion I did not feel that there was much that I could add and I was pleased to note that the Government had included the matter of "net assets" in their summer consultation.
I believe that Clause 44 tries to measure whether an employer is "good for" a percentage of the Section 75 debt. I was particularly concerned in Grand Committee by the Minister's explanation that net

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assets would be based on Section 264(2) of the Companies Act 1985. That means that, via other sections, the definition of net assets is tied to the accounting provisions of Schedule 4 to the Companies Act 1985.
Schedule 4 basically values assets using the historical cost convention unless a company opts to use the alternative valuation bases. The net effect of those rules is that net assets as shown in a company's accounts ought not to be overstated by reference to their values in use on a going concern basis, but they could easily be under-stated on that basis. As I am sure that noble Lords are aware, the accounts give no guide to the market values of the assets on a break-up basis.
There are a number of problems with using accounting net assets. First, company A and company B might have identical assets; company A might use the historical cost convention and company B might use the alternative valuation basis. For example, company B might have revalued its property assets.
Secondly, listed companies now have to convert to international financial reporting standards, which are different in some important respects from existing UK generally accepted accounting principles. So there could be a difference in the accounts values, simply because listed company A is using a different accounting code from that used by unlisted company B. So, using "net assets" can give odd results between different companies.
But my main point is that using accounting net assets is the wrong test. There are companies which have few net assets on their balance sheets but which generate significant profits. Retail operations which operate from leased premises and which have their stock financed by creditors and carry few debtors are one example.
At the other extreme we could have a company with long-term assets on the balance sheet—for example, a mine—but with low profits and cash flow because the market for its output is depressed. Which would be the better bet for a pension obligation, the net asset-poor/profit-rich retail operation or the asset-rich profit-poor coal mine? Using net assets as shown in the accounts simply leads in the wrong direction.
The important point is to establish whether the employer has resources available to meet his pension obligations. That, in turn, depends on whether a business is generating or can generate sufficient cash. The value of a business should really he the net present value of the cash flows of the business less any liabilities. What we are valuing is not the net assets, but the business itself. That is why we need to move away from the concept of net assets and aim at a valuation of the whole business. My amendments use the term "resources". There may be a better term or phrase than that, but I suggest that it is not "net assets".
I conclude by giving another example of why "net assets" gives the wrong answer. I shall use two supermarkets—supermarket S and supermarket T. Let us assume that they operate from similar retail premises, which are leased, so they have little balance-sheet value
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in the historical cost accounts. The profitability of supermarket T is superior to that of supermarket S because of its purchasing skills, its merchandising know-how, and its general business management skills. In fact, it is because supermarket T has better people running the business but, of course, there is no value for them on the balance sheet because they are not a net asset.
If one goes down the net asset route under Clause 44, one could end up valuing supermarkets S and T at the same value, which simply would not be sensible. I accept that the definition of net assets is to be prescribed, but my main point is that the detail should not be based on net assets, but should start from a different position—namely, the value of the business. I hope that the Government will reconsider this. I beg to move.
Lord Higgins: My Lords, it is not always the case that economists and accountants agree on issues of the kind to which my noble friend has referred. On this occasion, I believe that is the case. Valuation is a complex process and my noble friend is extremely expert in that area. I believe that it is appropriate to take heed of what she has said and find a more sensible definition than that which appears in the Bill. I make no comment at all about her example of supermarkets S and T, as I am sure her selection was purely a matter of probability.
Lord Lea of Crondall: My Lords, perhaps I can make a comment while wearing my economist hat. This is fascinating, but I do not know whether noble Lords can throw light on how this would work. I do not know where exactly this form is used. It raises some interesting questions. If the Government had tabled the matter like this, I believe that there would have been much criticism about how workable it would be.
Lord Oakeshott of Seagrove Bay: My Lords, we on these Benches support the spirit of the amendments of the noble Baroness, as we did in Committee. She made rather heavy weather of the supermarket analogy. I can think of a much simpler example of an enterprise that makes enormous profits with virtually no fixed assets: leading firms of chartered accountants, as she is only too well aware. I feel that in the spirit of this, some ability to pay should come into the equation; it is not purely a matter of assets that may not be realisable.
Lord Lucas: My Lords, I support my noble friend. In the amendment I did not move, I obliquely raised a couple of other questions, which I should like to put to the Government. First, one difficulty of starting to raid company assets like this is that you may endanger its pension funds because a pension fund has no specific handle on its employer for its Section 75 debt. But perhaps some other company in the group gets there first and collars the assets, leaving the company's own pensioners to swing in the wind. I think that that would be unfortunate.

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Secondly, coming back to the question I raised earlier, how does a company establish this Section 75 debt value? What is the official approved method of establishing a value which the regulator will believe?
Baroness Hollis of Heigham: My Lords, it is clear that the noble Baroness, Lady Noakes, has persuaded the noble Lords, Lord Higgins and Lord Oakeshott. Actually she has also persuaded me, which means that although I cannot for technical reasons accept the amendment, as drafted, I expect to return to the issue at Third Reading with an amendment. So I hope that the noble Baroness is content.
We shall continue to discuss with those involved in the moral hazard consultation how this should be defined and to see whether we need to go any further on it, but I think that the noble Baroness is probably right. In that case, I hope that she will withdraw her amendment. Almost certainly we shall return to the issue at Third Reading.
Baroness Noakes: My Lords, "probably right" is indeed great praise from the noble Baroness. The noble Lord, Lord Lea, asked whether people actually did this valuation: they do. When I learned accounting many years ago they did not, but now they do. Nowadays there are some normal rules which are used by everyday accountants to value whole businesses as part of the routine of accounting. So there is a body of experience to do it, and it is not very arcane. I am delighted with what the Minister has said. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 66:
Page 34, line 6, after "meet" insert "the amount which is"
On Question, amendment agreed to.
[Amendment No. 67 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.68:
Page 34, line 8, leave out from "who" to end of line 10 and insert "falls within subsection (5A)(b) or (c) of section 43 and who has sufficient net assets to meet the amount which is the difference between—

(i) the amount of the net assets of the employer, and

(ii) the amount which is the prescribed percentage of the estimated section 75 debt."

On Question, amendment agreed to.
[Amendments Nos. 69 to 71 not moved.]
Clause 45 [Meaning of "financial support"]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos.72 to 75:
Page 34, line 32, leave out "companies who are"
Page 34, line 33, after "for" insert "the whole or part of"
Page 34, line 36, after "company" insert "(within the meaning given in section 736 of the Companies Act 1985 (c.6))"
Page 34, line 37, after "for' insert "the whole or part of"
On Question, amendments agreed to.
Lord Lucas Lord Lucas moved Amendment No.76:
Page 34, line 40, at end insert "over a prescribed timescale"
The noble Lord said: My Lords, Amendment No.76 gives me a chance to ask the noble Baroness what sort of timescale she has in mind for this sort of provision. Certainly, in discussions with those who were in contact with her department before and during Committee there seemed to be some question of these arrangements having to be put in place very fast over a matter of a few years. I hope that the noble Baroness will be able to confirm that they are now thinking that a longer timescale would usually be appropriate. These are very large liabilities. They need to be absorbed in the corporate system without undue strain. We should be looking at decades rather than years. I beg to move.
Baroness Hollis of Heigham: My Lords, I do not know whether we have again completely misunderstood the noble Lord's amendment. Certainly, we do not think that it is appropriate to give an end date to support per se a financial support direction, because we hope of course that the pension scheme and the employer will continue ad infinitum, so to speak.
If the recipient of a financial support direction feels that it is no longer appropriate or wishes to vary it, he can apply to the regulator to vary or revoke the direction under Clause 99. Otherwise it will continue in order to ensure that the scheme remains funded.
8.45 p.m.
Lord Lucas: My Lords, obviously I did not explain myself sufficiently when I wrote to the noble Baroness. I shall do so again. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.77:
Page 34, line 41, at end insert—
() The Regulator may not issue a notice under subsection (1) approving the details of one or more arrangements falling within subsection (2) unless it is satisfied that the arrangement is, or the arrangements are, reasonable in the circumstances."
The noble Baroness said: My Lords, I beg to move.
Lord Lucas Lord Lucas moved, as an amendment to Amendment No.77, Amendment No.78:
Line 2, leave out "may not" and insert "shall"
The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendment No.79. The noble Baroness's amendment seems to state the obvious: before issuing a notice, the regulator must be satisfied that things are all right. I cannot see how the regulator would ever issue such documents if things were not all right. In my amendment I have turned the provision around to see whether it makes more sense

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to provide that, if the regulator thinks that everything is all right, he must issue a notice. Either way, I do not really see the purpose of the clause. I beg to move.
Lord Skelmersdale: My Lords, wearing my drafting hat—so far, I have been very careful not to do so during this stage—I, too, was very confused about the government amendment. It states:
"The Regulator may not issue a notice under subsection (1) approving the details of one or more arrangements falling within subsection (2) unless it is satisfied that the arrangement is, or the arrangements are, reasonable in the circumstances".
Given modern judicial review, everything that the regulator does must be reasonable otherwise he will be done by the legal members of your Lordships' House. Therefore, it is absolutely right that my noble friend Lord Lucas should question the amendment. What perhaps is not absolutely right is the fact that my noble friend did not raise his queries when the original amendment was moved with the group beginning with government Amendment No.5. However, with the greatest respect to everybody, I believe that that is a detail.
Baroness Hollis of Heigham: My Lords, government Amendment No.77, which the House has already agreed, provides for the regulator to approve the arrangements if they are reasonable in the circumstances. The regulator, when issuing an FSD, will not prescribe the appropriate procedures; it is up to the recipients to put in place arrangements that the regulator then approves. We will seek views regarding any other arrangements that may be prescribed. Although, to date, none has been identified, we will be happy to take suggestions to be added in by regulations.
Again, I am not sure that I can go beyond that. I hope that the noble Lord will feel able to withdraw his amendment; otherwise, we are simply repeating the point made on the previous amendment: if a recipient of an FSD feels that it is inappropriate, he can apply under Clause 99 to revoke it and so on. I am going over the same ground again.
Lord Lucas: My Lords, I find myself totally confused by the noble Baroness's response, but I shall read it in Hansard. I beg leave to withdraw the amendment.
Amendment No.78, as an amendment to Amendment No.77, by leave, withdrawn.
[Amendment No.79, as an amendment to Amendment No.77, not moved.]
On Question, Amendment No.77 agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.80:
After Clause 45, insert the following new clause—

FINANCIAL SUPPORT DIRECTIONS: CLEARANCE STATEMENTS
(1) An application may be made to the Regulator under this section for the issue of a clearance statement within paragraph (a), (b) or (c) of subsection (2) in relation to circumstances described in the application and relating to an occupational pension scheme.
(2) A clearance statement is a statement, made by the Regulator, that in its opinion in the circumstances described in the application—

(a) the employer in relation to the scheme would not be a service company for the purposes of section 43,

(b) the employer in relation to the scheme would not be insufficiently resourced for the purposes of that section, or

(c) it would not be reasonable to impose the requirements of a financial support direction, in relation to the scheme, on the applicant.

(3) Where an application is made under this section, the Regulator—

(a) may request further information from the applicant;

(b) may invite the applicant to amend the application to modify the circumstances described.

(4) Where an application is made under this section, the Regulator must as soon as reasonably practicable—

(a) determine whether to issue the clearance statement, and

(b) where it determines to do so, issue the statement.

(5) A clearance statement issued under this section binds the Regulator in relation to the exercise of the power to issue a financial support direction under section 43 in relation to the scheme to the applicant unless—

(a) the circumstances in relation to which the exercise of the power under that section arises are not the same as the circumstances described in the application, and

(b) the difference in those circumstances is material to the exercise of the power."

The noble Baroness said: My Lords, I beg to move.
[Amendments Nos.81 and 82, as amendments to Amendment No.80, not moved.]
Lord Lucas Lord Lucas moved, as an amendment to Amendment No. 80, Amendment No. 83:
Line 18, at end insert—
"() A clearance statement may exempt the applicant from any future contribution in respect of the scheme, or in respect of the obligations of the scheme at a date, or may grant such exemption subject to conditions."
The noble Lord said: My Lords, I wish briefly to return to this matter. In Grand Committee, we ended our conversation on an identical amendment having achieved what I thought was a very unsatisfactory understanding of what the Government intended. I sought to illustrate the circumstances in which this situation might arise.
A company may be in trouble and its pension fund short of money. Someone may come along to consider taking that company on and making it better. It may be that that person could put the pension scheme in a better situation than would be the case if the company were allowed to go bust, even though it would still be a long way short of the pension promise made by the old employer. It may be that, on the basis of projections for the takeover of the company and of additional contributions coming into the pension fund, the pensioners will see the difficult position improving slowly over the years. That would be a reasonable thing for the regulator to agree to. The pensioners are doing better than they would otherwise and better than if the company went bust, and the acquiring company is making a reasonable contribution towards helping out with the situation.
If there cannot be a situation that will hold over the years and the company that has been acquired does not do as well as expected and cannot make the payments into the pension fund that were indicated, the regulator will, under subsection (5), say that circumstances have changed and will visit the whole pension fund deficit on the acquiring company. That is fundamentally wrong and unfair. It will inhibit ordinary, sensible commercial transactions.
If the arrangements are to work, they must hold down the years. They must hold out against changing circumstances or, at least, be capable of doing so. The regulator must be able to promise that the clearance statement will hold good against changes in circumstances, otherwise no one will ever take on a company in such circumstances. Companies will be allowed to go bust and go through liquidation, which is in nobody's interests. I beg to move.
Baroness Hollis of Heigham: My Lords, I am not sure that the noble Lord has taken us any further than our earlier debate on Amendment No. 53, when he talked about sandcastles and all the rest of it. I quoted the CBI, which appeared not to share his views, and argued that I was aware of nobody else who shared his views or had expressed them to us. All of the parties of whom I am aware who took part in the discussions on the moral hazard document that everybody has seen agreed—almost across the board—that, if material circumstances changed, the clearance agreement would not hold. The clearance agreement will not hold in perpetuity, come what may. It will deal with a particular situation in which someone needs to know how to act.
We have already discussed the matter. The noble Lord believes that a clearance should exempt the applicant from any future contribution in respect of the scheme and does not think that conditional clearance should be granted. We disagree, and, as far as I know, the consultation exercise has confirmed that the Government's approach is correct and that the approach taken by the noble Lord is not.
The noble Lord made a point about the benefit factor. That is exactly what the reasonableness test is designed to deal with. That is covered by Amendment No.58, which we have already dealt with. That amendment relates to FSDs and the value of any benefits received directly or indirectly from the employer by the person to whom the regulator is considering issuing the FSD. We have already discussed that.
I am sorry that I cannot take the noble Lord any further. We simply disagree. Until I am persuaded by industry that there is a serious issue about responding to material changes in circumstances that we have not addressed, I will not be able to accept the amendment.
Lord Skelmersdale: My Lords, before the noble Government—I mean, "the noble Baroness"—sits down, I must ask about something. Actually, the way that she has been talking, she might be the noble Government, but be that as it may.
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I listened carefully before the break, and I have listened carefully now. I am surprised that it has not occurred to anybody that the restructuring might take so long that it would be appropriate to produce a new contribution notice, in certain circumstances, after some time. Have the noble Baroness and the department taken that into consideration when considering what the CBI did or did not say?
Baroness Hollis of Heigham: My Lords, we can certainly look into that and I shall reply. But the core issue is whether, with a clearance statement or whatever, that is a permanent guarantee, come what may. We cannot accept that; it would be quite unreasonable.
Lord Skelmersdale: My Lords, I know that this is not Committee stage, but perhaps I may come back again. It must be extremely unfair on everyone if they are left hanging on a thread for an unlimited period. But I will not pursue the point any further.
Lord Lucas: My Lords, the noble Baroness has challenged me to go away and find someone in industry who agrees with me. If I can, I shall. That is a reasonable request. I understand what the noble Baroness says about Amendment No. 58, but it merely draws the regulator's attention to things that it should have regard to. It does not say that it should be limited to the benefit received. It is quite unclear how the regulator will move in taking those things into account, particularly if it has a pension fund with a large deficit that needs filling and the new owner, or whoever, is the only available company to go after. Under those circumstances, it would probably choose to ignore Clause 43(5)(b) and say, "Well, you may not have received any benefit from this arrangement. But none the less you are the owner, so you're the fellow". However, for the moment, I beg leave to withdraw the amendment.
Amendment No. 83, as an amendment to Amendment No.80, by leave, withdrawn.
[Amendments Nos. 84 and 85, as amendments to Amendment No. 80, not moved.]
On Question, Amendment No. 80 agreed to.
Clause 46 [Contribution notices where non-compliance with financial support direction]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos.86 to 89:
Page 35, line 22, leave out from "company" to end of line 23 and insert "within the meaning of subsection (11) of section 435 of the Insolvency Act 1986 (c. 45), whether the person has or has had control of the employer within the meaning of subsection (10) of that section),"
Page 35, line 23, at end insert—
"() in the case of a person to whom the financial support direction was issued as a person falling within section 43(5A)(b) or (c), the value of any benefits received directly or indirectly by that person from the employer."
Page 35, line 26, leave out from "company" to end of line 27 and insert "within the meaning of subsection (11) of section 435 of the Insolvency Act 1986 (c.45), whether the person has or has had control of that company within the meaning of subsection (10) of that section),"
Page 35, line 32, leave out subsection (5).
On Question, amendments agreed to.
Clause 48 [Content and effect of a section 46 contribution notice]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.90:
Page 37, line 12, after "P" insert ", or with P and other persons,"
On Question, amendment agreed to.
Clause 50 [Sections 43 to 49: interpretation]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos.91 and 92:
Page 38, leave out lines 36 and 37.
Page 38, line 39, at end insert "and "member" in relation to such a group is to be construed accordingly"
On Question, amendments agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.93:
After Clause 55, insert the following new clause—

SECTIONS 39 TO 55: PARTNERSHIPS AND LIMITED LIABILITY PARTNERSHIPS
(1) For the purposes of any of sections 39 to 55, regulations may modify any of the definitions mentioned in subsection (2) (as applied by any of those sections) in relation to—

(a) a partnership or a partner in a partnership;

(b) a limited liability partnership or a member of such a partnership.

(2) The definitions mentioned in subsection (1) are—

(a) section 249 of the Insolvency Act 1986 (c.45) (connected persons),

(b) section 435 of that Act (associated persons),

(c) section 74 of the Bankruptcy (Scotland) Act 1985 (c. 66) (associated persons), and

(d) section 736 of the Companies Act 1985 (c. 6) (meaning of "subsidiary" and "holding company" etc).

(3) Regulations may also provide that any provision of sections 39 to 50 applies with such modifications as may be prescribed in relation to—

(a) any case where a partnership is or was—

(i) the employer in relation to an occupational pension scheme, or

(ii) for the purposes of any of those sections, connected with or an associate of the employer;

(b) any case where a limited liability partnership is—

(i) the employer in relation to an occupational pension scheme, or

(ii) for the purposes of any of those sections, connected with or an associate of the employer.

(4) Regulations may also provide that any provision of sections 51 to 55 applies with such modifications as may be prescribed in relation to a partnership or a limited liability partnership.
(5) For the purposes of this section—

(a) "partnership" includes a firm or entity of a similar character formed under the law of a country or territory outside the United Kingdom, and

(b) references to a partner are to be construed accordingly.

(6) For the purposes of this section, "limited liability partnership" means—

(a) a limited liability partnership formed under the Limited Liability Partnerships Act 2000 (c.12) or the Limited Liability Partnerships Act (Northern Ireland) 2002 (c. 12 (N.I.)), or

(b) an entity which is of a similar character to such a limited liability partnership and which is formed under the law of a country or territory outside the United Kingdom,

and references to a member of a limited liability partnership are to be construed accordingly.
(7) This section is without prejudice to—

(a) section 305 (power to modify this Act in relation to certain categories of scheme), and

(b) section 316(4) (power to extend the meaning of "employer")."

On Question, amendment agreed to.
Clause 67 [Duty to notify the Regulator of certain events]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.94:
Page 51, line 8, leave out from "the" to end of line and insert "meaning given by section 124;"
On Question, amendment agreed to.
Clause 69 [Reports by skilled persons]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 95:
Page 52, line 3, at end insert—
"() This section is subject to section 309."
The noble Lord said: My Lords, I apologise because I have lost my speaking note. I am sorry: I have got myself into a total muddle.
Baroness Hollis of Heigham: My Lords, I think that the noble Lord's amendment is about gathering information and whether Clause 309, which deals with protected items, needs to be repeated at each stage or whether it is, so to speak, an umbrella under which all such references are covered.
Lord Skelmersdale: My Lords, I am grateful. The noble Baroness is absolutely correct. I rather think that she has just moved my amendment for me. Clearly, the point is that since Clause 309 is referred to earlier on, it is not in these particular cases. The object of the exercise is to determine why not and whether it should be. On that basis, the noble Baroness and I beg to move.
9 P.m.
Baroness Hollis of Heigham: My Lords, in that happy spirit, we do not disagree about the purpose here, but we do not think that the amendments tabled by the noble Lord are necessary, and I shall explain why.
This group of amendments seeks to ensure that whenever the regulator or the board exercise powers to gather information under Clauses 69, 70, 73 and 188 to 190, their actions will be subject to the provisions of Clause 309. As noble Lords know, this clause deals with protected items, which is information that is subject to legal privilege and that individuals are therefore not required to disclose.

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However, the provisions of Clause 309 apply to the whole of the Bill. Subsection (1) specifies that:
"A person may not be required under or by virtue of this Act to produce, disclose or permit the inspection of any protected items".
So Clause 309 ensures that persons may not be required by any power of the Bill to provide such protected items to any person. That includes information in the clauses I have identified. These amendments are therefore unnecessary.
Furthermore, they could actually reduce the scope and effectiveness of the overriding provisions of Clause 309. There is a very sound reason why Clause 309 is an overriding provision rather than making specific provision in each place it may have effect. That is because the current drafting ensures that wherever and whenever the question of disclosure to another party arises, there can be no doubt that Clause 309 applies.
Adding references to Clause 309 in some clauses and not in others would suggest that Clause 309 does not apply to any clause where there is no such reference. The amendments could, at best, create legal ambiguity. The view of the Association of Pension Lawyers is that these amendments would,
"dilute section 296 [under the old drafting] if it is only referred to in some sections".
The independent professional body is on our side in that it prefers the way that we have handled this issue.
The noble Lord, Lord Skelmersdale, could respond by saying that we should add a reference to Clause 309 wherever it occurs. Again, that is not as straightforward as it might seem. Until any Bill is in force, it may not be immediately obvious that an overriding provision has effect on a particular clause until a real example arises in practice. That is why we have overriding provisions.
Other examples of overriding provisions are detailed in Clause 301 covering service of notifications, Clause 302 covering electronic form and Clause 307 covering offences by bodies corporate.
This is conventional drafting for an overriding clause. If we were to do as the noble Lord suggests, the reference would have to be inserted at any and every possible reference, and that would apply equally to all the overriding clauses. However, the advice we have had both within the House and from the Association of Pension Lawyers is that they prefer this form of drafting because it is secure against all possible questions of ambiguity. I hope, with that explanation, that we do not disagree and that we are on safer ground if we do not take up his suggestion. I hope that he will feel able to withdraw his amendment.
Lord Skelmersdale: My Lords, this is very curious. If Clause 309 is overriding, why is it mentioned in some clauses and not in others? I leave that thought with the Minister for Third Reading. If she is right and the clause is overriding—
Baroness Hollis of Heigham: My Lords, it is.
Lord Skelmersdale: My Lords, in that case it is not necessary to mention it earlier at all. As I have said, I
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leave that with the Minister to consider between now and Third Reading in 10 days or so. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 70 [Provision of information]:
[Amendment No. 96 not moved.
Clause 71 [Inspection of premises]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos.97 and 98:
Page 53, line 34, at end insert—
"Part 7 (cross-border activities within European Union);"
Page 53, line 46, at end insert—
"Chapter 5 of Part 4 (early leavers: cash transfer sums and contribution refunds);"
On Question, amendments agreed to.
Clause 73 [Inspection of premises: powers of inspectors]:
[Amendment No. 99 not moved.]
Clause 76 [Warrants]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 100:
Page 59, line 33, leave out from third "to" to "and" in line 35 and insert "the sheriff,"
The noble Baroness said: My Lords, in moving Amendment No. 100, I shall speak also to Amendment No. 226. These are probably the most exciting amendments of the day. We are doing well this evening, and long may that last. They arise in response to an amendment tabled by the noble Baroness, Lady Noakes, on 30 July in Grand Committee. I responded by saying that the noble Baroness had raised a valid point and agreed to look again at the clause.
As currently drafted, Clauses 76 and 192 allow a Justice of the Peace to grant a warrant. However, I accept that in Scotland it is in the interests of justice that such warrants be considered and granted by the sheriff rather than by a Justice of the Peace, which is the effect of these two amendments.
I notice that the noble Lord, Lord Skelmersdale, has tabled similar amendments. However, apparently, reference must be to "the" rather than "a" sheriff, which is why we seem to have gone for belt and braces. On a happy note of such consensus I hope that your Lordships are pleased, delighted, thrilled and excited by these amendments. I beg to move.
Lord Skelmersdale: My Lords, the Minister was good enough to accept three of the amendments that we put forward in Committee. This is the first thereof. I was rather surprised to hear my noble friend Lady Noakes getting the praise when I think that I am right in saying that it was my amendment. However, in a spirit of co-operation, friendliness and everything else—
Baroness Noakes: My Lords, I think that I helped the noble Lord out by standing in for him one day and moving his amendments.
Lord Skelmersdale: My Lords, I am not entirely sure that that was the right day, but never mind. In the spirit

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of co-operation and friendliness, it was not for any niggardly reason that I tabled Amendment No. 101, but to keep the Minister to her promise. I am delighted that she has kept it. She looks rather shocked, but it is my normal practice to keep the government of the day in check simply because it is a bounce-back from the days when I was in her position.
Baroness Hollis of Heigham: My Lords, did the noble Lord keep his promises?
Lord Skelmersdale: My Lords, it is not that I did not keep my promises, but I found that members of the Opposition tabled amendments to make sure that I did. I saw no good reason to change and I make no apology for tabling Amendment No.101. I am not sure that I can use all the adjectives of acceptance and praise that the Minister suggested. None the less, I am very pleased that she has kept the promise made in Grand Committee and I have no objection to her amendment whatsoever.
On Question, amendment agreed to.
[Amendment No. 101 not moved.]
Clause 80 [Restricted information]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.102:
Page 60, line 35, leave out from beginning to "restricted"
The noble Baroness said: In moving Amendment No.102, I shall also speak to Amendments Nos. 103 to 106, 228, 229, 230, 232 and 235. This group of amendments tightens up the provisions relating to the use of tax information by the regulator, the board of the PPF, or any person to whom either of those bodies has disclosed tax information. With reference to Section 182 of the 1989 Finance Act, "tax information" is defined as any information held by any person in the exercise of tax functions.
As my colleagues in the other place and I have said previously during the scrutiny of this Bill, the Government's policy on the use of tax information is to ensure that the commissioners of the Inland Revenue, or of Customs and Excise as appropriate, effectively retain ownership of any tax information, even when there is a legitimate reason to allow legislation to enable it to be passed on to another body. There are circumstances in which either the regulator or the board of the PPF may reasonably require tax information in order to perform their functions and duties. That is why Clauses 86 and 200 enable tax information to be disclosed to those two bodies. We discussed that matter briefly in Committee.
However, the current drafting of the Bill contains two potential loopholes that could enable tax information to be onwardly disclosed without the prior consent of the commissioners. The amendments would close those loopholes and ensure that failure to obtain the commissioners' prior consent to disclose is an offence. I know that your Lordships have strong views on this matter so I hope that you will welcome the tightening up
120
of the provisions relating to the use of tax information in the Bill. I would be happy to go into details of any of the particular amendments. However, we are basically responding to the spirit of the previous debate and seeking to close loopholes that we have found. I beg to move.
Lord Higgins: My Lords, the Minister is right in saying that these are matters that give rise to strong feelings. To the extent that the amendments seek to restrict the transmission of so-called tax information, the Government's proposal is certainly something that we welcome.
I have one or two points to make in connection with that matter. As I understand it, the commissioners can agree to disclose tax information. I presume that the Minister will be able to confirm that that means personal tax information of individuals—for example, on their income tax form—to people in the regulator's office. Previously, I have been concerned by the level at which such authorisation proceeds, and to ensure that such information, which is obviously highly personal, does not leak to a wider audience. Could the noble Baroness tell us at what level in the Civil Service hierarchy the information will be controlled, between the Revenue and the regulator?
Secondly, the staff of the regulator are not civil servants and would not therefore be bound in exactly the same way as civil servants would be bound, with regard to responsibility for the Official Secrets Act, and so on. What steps are being taken to ensure that those employed by the regulator, who are not civil servants, will maintain the degree of confidentiality which is in my view essential?
Baroness Hollis of Heigham: My Lords, the noble Lord is correct on the point about personal tax. The provision applies to personal tax, but only if it is relevant to TPR and PPF functions. Unauthorised disclosure by the TPR or PPF officials is a criminal offence—so the matter is taken very seriously indeed.
I will need to come back to the noble Lord on what level authorisation will take place. I am told that it is at a senior level, but I do not have the precise grading. If the noble Lord wishes to know, I will ensure that he gets that information.
Lord Higgins: My Lords, essentially we would like to know whether that is the normal level at which authorisation takes place between departments. Or should it be at a higher level because it goes outside the government machine?
Baroness Hollis of Heigham: My Lords, I am assured that the authorisation is at the chief executive level or the director, as appropriate, if personal tax information is involved. That surprises me, as I had thought that that decision would be made at a lower level than that. But it is made at the very highest level.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.103:
Page 60, line 40, leave out "except" and insert—
"(1A) Subsection (1) is subject to—

(a) subsection (1B), and

(b) sections 69(9), 81 to 86 and 233.

(1B) Subject to section 86(4), restricted information may be disclosed"
On Question, amendment agreed to.
Clause 81 [Information supplied to the Regulator by corresponding overseas authorities]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.104:
Page 61, line 24, leave out "80" and insert "80(1B)"
On Question, amendment agreed to.
Clause 85 [Other permitted disclosures]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.105:
Page 63, line 13, at end insert "or of the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)),"
On Question, amendment agreed to.
Clause 86 [Tax information]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.106:
Page 64, line 33, leave out from "Sections" to "except" in line 34 and insert "80(1B), 81 to 85 and 233 do not apply to tax information which is disclosed to the Regulator as mentioned in subsection (3), and such information may not be disclosed by the Regulator or any person who receives the information directly or indirectly from the Regulator"
On Question, amendment agreed to.
Clause 88 [Codes of practice]:
[Amendment No. 107 not moved.]
9.15 p.m.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 108:
Page 66, line 3, at end insert—
"() Any code of practice issued by the Regulator must include an analysis of the costs and benefits of the code."
The noble Lord said: My Lords, we now reach a rather more serious point, relating to the codes of practice, which was an issue—albeit of slightly lesser note—throughout Second Reading and Grand Committee. Now, I am afraid that I am at it again.
Clause 88(1) gives the new Pensions Regulator the power to issue codes of practice, which will provide "practical guidance" on complying with the requirements imposed on people by pensions legislation. That is fair enough—that is quite right. Breaching a code of practice will not in itself lead to legal proceedings, but the code will be admissible in evidence in such legal proceedings. There are certain areas in which the Pensions Regulator must provide codes of practice. In addition, he will be free to issue codes of practice on any other issue related to pensions legislation.
Under the Bill as drafted, the regulator could use codes of practice in a way that imposes large costs on those providing pensions in return for minimal or questionable additional security for pension scheme members. This is
122
because the codes of practice will not have to include at any stage an analysis of the costs and benefits of the regulator's guidance. I believe that it would be preferable if the principle of proportionality—one of the Better Regulation Task Force's five principles of good regulation—was enshrined in the legislation from the start. The Financial Services Authority, which I mentioned a little earlier, is required under Sections 155 and 157 of its parent Act to undertake and publish cost/benefit analyses of proposed rules and guidance. These amendments would ensure that this regulator has to follow comparable rules.
I accept that similar amendments were discussed in Grand Committee and I hope that I am not going to be blasted yet again for repeating arguments that were made in Grand Committee. In response to those amendments, the Minister quoted the Cabinet Office document Better policy making: A guide to regulatory impact assessment, published in 1998. She said:
"Even if you think the effects of your proposals are likely to be negligible, it is still good practice to produce an RIA".
Of course, she was quoting from the Cabinet Office document.
"It is not always clear when a proposal is being formulated whether there will be any impact on business … Early consultation or informal soundings with your stakeholders will be particularly important in the situation".
The Minister also stated:
"The regulator will follow these good practice guidelines for its code of practice … where in doubt, there should be cost benefit analysis".—[Official Report, 13/7/04; col. GC 301.]
But I observe that the Government have not sought to change the wording of the Bill so there is no guarantee that the Pensions Regulator will follow such guidance in practice. The amendments would enshrine in law what the Government, the Opposition and the pensions industry have all said that they want to see and they would ensure that the new regulator has robust practices and broad support from the outset. The whole object of this exercise is to ensure the broad support of industry for the regulator, which, as I said on Second Reading, is a more stringent organisation than the current OPRA, for reasons that we all know well. Therefore, if this is the price of that broad support, I hope that the Minister will accept it in spirit, if not in verbiage. I beg to move.
Baroness Hollis of Heigham: My Lords, I am afraid that I am not able to respond to the noble Lord, Lord Skelmersdale, as he would wish. Clause 88 gives the regulator power to issue codes of practice and Clause 89 sets out the procedure for the issue and publication of the codes. These amendments would impose a statutory obligation on the regulator to include a cost/benefit analysis in codes of practice.
I accept that it has been raised with us, as the noble Lord suggested, by various external bodies. We accept that it is a principle of good regulation that regulatory impact, including costs and benefits of codes of practice, should be assessed. We do not dispute that. There should also be statements, including in Parliament, to that effect. But we think that there needs to be some flexibility over when and how

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regulatory impact is assessed. We would not wish to be bound by a further statutory obligation in respect of the process for codes. Such an assessment of cost/ benefit may not be cost-effective. We also feel that, on occasion, it may be necessary to issue a code that is urgent without assessing costs and benefits, for example, to address a serious loophole in pensions legislation that is being exploited to the detriment of scheme members. There would be financial implications of such a statutory obligation and costs that would be passed on directly to schemes through the levy.
So, although we are required to consult through the development code, as we are doing under Clause 85, we think that that is the most effective way of assessing the costs that would be imposed by a code on the industry. We do not think that the noble Lord's proposal is the most appropriate way to go. I am afraid that I will not be able to help him tonight.
Baroness Noakes: My Lords, before the noble Baroness sits down, can she explain the difference between the regulatory arrangements that are being set up for the Pensions Regulator which affect pretty much all businesses, and those in the Financial Services and Markets Act which affect a large number of financial services businesses? The requirement was written into that legislation because it was recognised at the outset that significant regulatory burdens would be imposed. In principle, this legislation will impose similar burdens on business. It therefore seems perfectly reasonable that the FSA model should be adopted for the Pensions Regulator, rather than assuming that the regulator is just another NDPB that occasionally issues a bit of guidance that affects industry. This is a very serious area. That is why the amendment has been tabled in this way.
Baroness Hollis of Heigham: My Lords, as the noble Baroness, Lady Noakes, will know better than most of us, there are important differences in this respect between the FSA and the Pensions Regulator. First, the FSA can write its own regulations through its rule-making power. The Pensions Regulator's legislative powers, in contrast, are restricted to regulatory decisions such as freezing orders. Its codes of practice provide guidance and set standards but do so strictly in respect of legislative requirements set by Parliament.
The FSA, on the other hand, is able to issue a code which interprets legislative requirements that should also set, for example, the conduct expected of the individuals whom it regulates. Moreover, FSA legislation, including its codes of practice, is not subject to parliamentary approval. The Pensions Regulator's codes of practice will require the Secretary of State's approval and are subject to Parliament's approval.
Given those important differences, I do not think it reasonable to make the read-across as the noble Baroness has done. The greater powers and independence of the FSA argue for stronger measures to ensure that it is accountable—as it is in its regulatory
124
impact assessment—separately from ministerial accountability to Parliament. The Pensions Regulator will be subject to that through the codes.
Lord Oakeshott of Seagrove Bay: My Lords, before the noble Baroness sits down, can she explain how Parliament will be able to review these codes of practice if no Cost/benefit analysis is attached? I am bound to say that I do not find her answers persuasive on this occasion.
Baroness Hollis of Heigham: My Lords, as I said, the codes of practice will be drawn up in consultation with industry. The draft codes will be published. I expect there to be either a regulatory impact assessment or an explanation of why that was not appropriate. In that case, the regulator can either think again or decide to pursue his path in that direction. However, the two examples that I gave seem to me good examples of where the costs will outweigh the benefits of a cost/ benefit analysis.
Lord Skelmersdale: My Lords, the Minister is absolutely right. There is parliamentary procedure for approval of the code of practice. There is also another parliamentary procedure for the revocation of codes of practice, under Clauses 89 and 90. However, that does not help. There will be occasions when such codes of practice do not bind the regulator himself, and I think that that is a mistake. I shall read very carefully what the noble Baroness said, but I do not believe that she has given a particularly full answer to this point.
As for the difference between the FSA and the regulator, I would suggest that the real answer in the back of the Minister's mind was a four-letter word: cash. Cash could very well be involved here. So, I do not think that that is a valid reason. At this time of night, however, I shall not pursue the point any further. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 89 [Procedure for issue and publication of codes of practice]:
[Amendment No. 109 not moved.]
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 110:
Page 66, line 35, at end insert ", and
() in such a manner that provides a minimum period of twelve weeks for the submission of responses"
The noble Lord said: My Lords, I have just referred to Clauses 89 and 90. This amendment to Clause 89 would ensure that each consultation exercise on a draft code of practice had a minimum period of 12 weeks for the submission of responses. I welcome all the consultation which is going on both before this Bill gets Royal Assent and that which the Government have said will continue until we eventually get the final orders. I and my noble friend Lord Higgins are very grateful for the timetable which the noble Baroness sent out recently.
Clause 89 outlines the procedure for issuing draft and final codes of practice. Amending the Bill to ensure that each consultation has a minimum 12-week

125
period for the submission of responses would enshrine criterion one of the Cabinet Office's own code of practice on consultation in the Bill. This provides the following direction:
"Consult widely throughout the process—"
the department and its Ministers have, indeed, done that—
"allowing a minimum of 12 weeks for written consultation at least once during the development of policy".
The development of policy is a slightly elastic term. The Minister might well say that she and her department have been meeting this throughout the consultations on the preparation for this Bill, and, of course, she would be right. However, the development of policy on this particular Bill goes way beyond Royal Assent. It goes through codes of practice and through the various orders, as the noble Baroness admitted several times in Grand Committee and, indeed, several times today. Therefore, consultation will not finish with Royal Assent.
The quotation states,
"allowing a minimum of 12 weeks for written consultation … during the development of policy".
The noble Baroness might note that in repeating the quotation I left out the vital words "at least once". That is not good enough. This amendment would ensure that pension providers and other interested parties, including organisations that directly represent pension scheme members, would have sufficient time and information to prepare accurate and thorough consultation responses. Indeed, amending the legislation in the way that I propose is the best way to ensure that these organisations have a full say in the development of each code of practice. The amendment would again—I presume that I shall get the same answer—replicate the practice of the FSA which seeks to provide at least 12 weeks not once but for each consultation.
Insurance companies and others are concerned about the potential for overlapping or conflicting messages from the various regulatory bodies once the Pensions Regulator is up and running. Harmonising the consultation procedures for the FSA and the Pensions Regulator, both of whom will be involved in these activities, would be a small step in the right direction to help to avoid this. The legislation will allow Parliament to have 40 sitting days to consider the draft codes because they involve negative resolution and that is the praying time. Prior to that the Secretary of State will have as long as he or she needs to approve the draft codes. Given these arrangements it should be uncontroversial to ensure that the pensions industry also has sufficient time for proper scrutiny.
As a safeguard the clause, if amended in this way, would still be subject to Clause 89(4), which would ensure that where the Secretary of State considers consultation inexpedient for reasons of urgency—there will, inevitably, be occasions where urgency is paramount—it would not be necessary to have a statutory minimum consultation period of the sort proposed. I believe that the new regulator will be far stronger from the outset and will instil greater confidence if he has effective and clear procedures for
126
seeking comments and input from those in the pensions industry and elsewhere, who will be directly affected by its guidelines. On that basis, I beg to move.
9.30 p.m.
Baroness Hollis of Heigham: My Lords, Clause 89 specifies in detail the procedure that must be followed for the issue and publication of codes of practice.
Before a code of practice can be issued by the regulator, a draft of the code must be published for consultation with people whom the regulator considers appropriate, and anyone further who the Secretary of State requires the regulator to consult. In the same way now, OPRA produces detailed guidance notes. It consults in advance, as appropriate. It may be up to 12 weeks—and routinely, which will not surprise your Lordships because we are all guilty—all the responses come in at the very last moment, which the external advisory group acknowledged last month.
We discussed the amendment in Grand Committee in July and I still believe that it is unnecessary and probably undesirable to legislate for a statutory 12- week consultation period. The regulator is firmly committed to consultation throughout the process of developing codes. Indeed, codes of practice can be issued by the regulator only after consultation has taken place with the appropriate industry and DWP policy representatives. Therefore, a formal 12-week consultation at the end of the process following consultation on draft codes would not be justifiable, helpful or meaningful in all cases.
The regulator will be working to ensure a "no surprises" approach in developing the codes, and working with the industry throughout the process, not just at the end. The only exception to consultation is when there is a need to issue a code as a matter of urgency—a provision contained in Clause 89(4)(b) that excludes a requirement for the regulator to consult if the,
"Secretary of State considers consultation inexpedient by reason of urgency".
Amendment No.110 would directly conflict with that provision, so I ask the noble Lord, Lord Skelmersdale, to withdraw his amendment, given my description of the process that the regulator would expect to engage in.
Lord Skelmersdale: My Lords, I have two points to make. First, what on earth gave the Minister and her advisers the idea that the 12 weeks would be at the end of the process? The amendment makes no reference to that whatever.
Secondly, I accept that the draft order must be published and consulted upon. As I said earlier, there will be negative resolution procedure to approve it—or rather, with negative resolution procedure, I should say for Parliament to disapprove it. That would be a more accurate way of explaining the position.
I shall clearly have to go back to the pensions industry to see what it thinks of the Minister's remarks. Although we have agreed, we had a little go at the matter in Grand Committee. I do not think that

127
either today's or the previous response is very helpful, but at this time of night there is nothing I can do about that, so I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 91 [The Regulator's procedure in relation to its regulatory functions]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos.111 to 113:
Page 67, line 41, at end insert—
"() the power to issue a clearance statement under section (Section 39 contribution notices: clearance statements),"
Page 68, line 2, at end insert—
"() the power to issue a clearance statement under section
(Financial support directions: clearance statements),"
Page 68, line 4, at end insert—
"() the power to make an order under section 152(8),
() the power to make an order under section 217(4),"
On Question, amendments agreed to.
Clause 94 [Standard procedure]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos.114 to 117:
Page 69, line 44, at end insert—
"() Subsection (3) does not apply where the determination which is the subject-matter of the determination notice is a determination to issue a clearance statement under section (Section 39 contribution notices: clearance statements) or (Financial support directions: clearance statements)."
Page 69, line 45, leave out "that determination" and insert "the determination which is the subject-matter of the determination notice"
Page 69, line 45, after "function" insert "and subsection (3) applies"
Page 70, line II, at end insert—
"() the power to make an order under section 152(8);
() the power to make an order under section 217(4);"
On Question, amendments agreed to.
Clause 99 [Powers to vary or revoke orders, notices or directions etc]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 118 and 119:
Page 75, line 20, leave out "or"
Page 75, line 23, at end insert ", or
"() such other orders, notices or directions made, issued or given by the Regulator, in the exercise of a regulatory function, as may be prescribed."
On Question, amendments agreed to.
Schedule 4 [The Pensions Regulator Tribunal]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No.120:
Page 285, line 29, at end insert—
"In Schedule 15D to that Act (permitted disclosures of information) (as inserted by Schedule 2 to the Companies (Audit, Investigations and Community Enterprise) Act 2004), after paragraph 44 insert—
"44A A disclosure for the purposes of proceedings before the Pensions Regulator Tribunal.""
On Question, amendment agreed to.
Clause 106 [Membership of the Board]:
[Amendment No. 121 not moved.]
Schedule 5 [The Board of the Pension Protection Fund]:
[Amendments Nos. 122 to 124 not moved.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 125:
Page 290, line 14, leave out "(4)" and insert "18A(1)"
The noble Baroness said: My Lords, in moving the amendment, I shall speak also to Amendments Nos. 126 to 130, 218, 222 and 233. The group of amendments brings consistency to how the PPF board administers and delegates its various levy functions, but it may be helpful if I begin by setting out why they are required.
The PPF board will be required to determine issues such as which schemes, as prescribed by the Secretary of State, are required to pay an initial and pension protection levy, and if so the amount payable. Although it will be for the board to reach such determinations, the Pensions Regulator will actually hold the data on which they will be based. The Bill allows the board to delegate the calculation, invoicing and collection functions relating to those levies to the Pensions Regulator. However, any determination reached by the Pensions Regulator will still be made on behalf of the PPF board.
A scheme may disagree with a determination that has been made by the Pensions Regulator on the board's behalf. For example, if the levy has been calculated on a scheme membership of 500 where there are, in fact, only 50 members, the scheme trustees are likely to request that the determination is reviewed. For reasons of administrative efficiency, it makes sense for any first-stage review to be undertaken by the regulator. Amendments Nos. 125 to 130 therefore make provision for that.
In order to delegate the first stage of the review process on fraud compensation levy determinations, which is also provided for by Amendments Nos. 125 to 130, the board must be allowed to delegate the identification of liable schemes and the calculation and invoicing of any fraud compensation levy to the Pensions Regulator. Amendment No. 222, which mirrors provisions on the other levies in Clause 179, therefore clarifies that the above functions must be carried out by the board and that the board may delegate those functions to the regulator. If a scheme requests a first-stage review in relation to any fraud issue determined by the regulator, the regulator will undertake the review on behalf of the board.
In order to achieve that, we have added two new "reviewable matters" to Schedule 9 through Amendment No. 233. The first is whether a scheme is liable to pay the fraud compensation levy. The second relates to the amount of fraud compensation levy payable by a scheme. If the regulator chooses to outsource his levy administration functions to a third-party contractor, using paragraph 21(e) of Schedule 1, the combined effect of the amendments will be to enable the regulator to require the contractor to undertake any first-stage review in those cases. We are talking about basic information.
Finally, a minor technical amendment to Clause 177—Amendment No. 218—clarifies that where the board has delegated its risk-based levy collection activities to the regulator, eligible schemes should provide the regulator rather than the board with an actuarial valuation for calculating the risk-based levy. I beg to move.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 126 to 130:
Page 290, line 14, leave out "sub-paragraph (1)" and insert "paragraph 18(1)"
Page 290, line 16, at end insert "any delegable review function.
(2) Where the Regulator is required to or may exercise any function on behalf of the Board by virtue of—

(a) section 179(4) or 187(6B) (administrative functions relating to levies),

(b) section 179(7)(b) or 187(8)(b) (recovery of levies), or

(c) regulations under section 179(8) or 187(9) (collection, recovery and waiver of levies),

the Board may also require the Regulator to exercise on behalf of the Board any delegable review function.
(3) In this paragraph, "delegable review function", in relation to a delegated function, means—"
Page 290, line 17, after "205(1)(a)" insert "or (3)(a)"
Page 290, line 18, leave out "that" and insert "the delegated"
Page 290, line 26, after "(4)" insert—
""delegated function" means a function which is exercisable on behalf of the Board as mentioned in sub-paragraph (1) or (2);"
On Question, amendments agreed to.
[Amendment No. 131 not moved.]
Clause 108 [Board's functions]:
Lord Higgins Lord Higgins moved Amendment No. 132:
Page 79, line 26, at end insert—
"() In discharging its functions, the Board (and, in relation to the functions set out in section 110(5), the Non-Executive Committee as defined in section 110(1)) must act in a way—

(a) which is compatible with the objectives of this Part, and

(b) which is appropriate for the purposes of meeting those objectives.

() In discharging its functions, the Board (and, where relevant, its Non-Executive Committee) must have regard to—

(a) the need to use resources in the most efficient and economic way,

(b) the need to minimise any adverse effects that may arise from anything done in the need to discharge of those functions, and

(c) the need for openness with regard to its activities."

The noble Lord said: My Lords, noble Lords will recall that the amendment is similar to one that I moved in Committee. Before I turn to its substance, I want to make a suggestion to the House that was put in mind to me by the noble Lord, Lord Jenkin of Roding, who was much concerned with the then Energy Bill.
We had 11 sittings in Committee and need to look back, for example, to our earlier debates on these matters. It is terribly tedious to cart around 11 full daily parts of Hansard. They contain the report of proceedings not only in Grand Committee, but of
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other debates that took place on each particular day. Much of what we are saying here may be of subsequent interest to those in the industry. It might be helpful if, instead of them having to plough through innumerable thick Hansards covering much information which is not relevant, the bound volume of the Grand Committee and, perhaps, the Report stage, might be put in a single volume. I do not recall that that has been done before, but when we are dealing with Bills of this size and companies ask for all the individual parts, it must result in an enormous number of volumes. Perhaps noble Lords and the other place should consider some alternative form of presentation.
The amendment is somewhat similar to one which we moved in Grand Committee, designed to set out the manner in which the board would operate. The initial reaction to the amendment was favourable—even the noble Lord, Lord Borrie, said that it was well done, although he ended by asking whether it was necessary. That was an unfortunate remark, because the Minister said, "No, it's not necessary". Consequently she rejected the amendment.
During the earlier debate on codes of practice, reference was made to the situation regarding the Financial Services and Markets Act 2000, which created another regulator. In the context of codes of practice, the noble Baroness suggested that it was not appropriate to follow the precedent that was carried out regarding that Act. But the amendment is almost word-for-word the section of that Act that sought to give a statutory framework to the work of the Financial Services Authority. The amendment seeks to do the same. There is a clear analogy with the work of the regulator. It is not appropriate that the manner in which the regulator operates should simply emerge some time after we pass the legislation.
It would be better that some framework should appear on the face of the Bill. Following the FSMA precedent, that would be more appropriate than the situation that exists regarding OPRA, to which the noble Baroness referred when she rejected the similar amendment in Committee. The legislation regarding OPRA is older than the FSMA legislation; both the FSMA legislation and the amendment would be more in keeping with the manner in which matters such as corporate governance have developed in recent years. It is appropriate to set out some statutory framework which would create a situation in which the regulator could operate under legislation set down by this House, rather than one which emerges at a later stage, with all the uncertainty and vagueness that that is likely to entail. I beg to move.
Baroness Hollis of Heigham: My Lords, the Opposition's amendment seeks to set a statutory framework for how the PPF board and its non-executive committee discharge their functions. Perhaps I may concentrate on the PPF board. We all agree that the board should act in an open, efficient and economic manner. So, at first sight, the amendment might seem a sensible additional means of assurance as to the way in

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which the board will operate. There were worded amendments regarding the board and PPF in Committee.
However, my briefing says that the amendment is unnecessary, is arguably ambiguous, probably unworkable and legally unenforceable. That aside, it is sensible. I cannot support the amendment because it poses difficulties, both of principle and practice. It is unnecessary, because, in accordance with general administrative law principles—which is one of the distinctions between us and the FSA regarding the code of professional practice within which we operate—the board will, in any event, be obliged to exercise its powers in a fair, reasonable and proper manner and, where applicable, with proportionality.
9.45 p.m.
The first part of the amendment refers to the objectives of Part 2, but as the PPF board does not have specific statutory objectives, there will be an immediate obstacle to the board's ability to achieve that aim. Any yardstick would have to be in the form of non-statutory, self-imposed targets or objectives which would make it hard to implement and achievement would be very hard to impose or to measure. I really do not see, and I find it difficult to assess, what value the first part of the amendment would add.
Part 2 as a whole, in conjunction with Schedule 5, provides the legal and procedural framework for the board's activities. Taking these powers together, it is difficult to see how the board could legally act in a way that would be inconsistent with its remit. Again, we are back into the apple-pie situation.
On the second part of the amendment, general administrative law principles, concerning openness and efficiency, would at any rate apply to the PPF. Those mean that, at all times and in everything that it does, the board acts in an efficient and proportionate manner and with due regard to efficiency and economy. As public bodies, the regulator and the board will also be bound by data protection and freedom of information Acts which govern their use of information and the obligations for openness.
However, given the nature of some of the information that the regulator and the board may hold—I refer back to the discussion we had only 10 minutes ago—which could include tax information, it would not be appropriate to require them to be as open as the amendment would necessitate, which is why we have made specific provision, for example, to protect legal professional privilege and the definitions and uses of restricted information.
Lord Higgins: My Lords, I have difficulty relating the first part of the response of the noble Baroness to the second part. As regards openness, I would have thought that that applies equally to the FSA, not perhaps with regard to tax information, but certainly with regard to a number of other matters. I do not
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believe that anyone has suggested that similar provisions for the FSA have been unworkable. I do not understand why she believes it is unworkable.
Baroness Hollis of Heigham: We do not disagree that in terms of the amendment this is an appropriate description of how the board should operate. As I said, in that sense it is apple-pie stuff: being efficient, economical, resourceful, full of integrity, and so on. The point is that within the framework of general administrative law, that is how an NDPB must operate; those are its responsibilities; those are its requirements; and those are its controls. Therefore, the only difference between us is whether or not we spell it all out on the face of the Bill. We say that that is not necessary because that is already the framework within which that body must operate.
As regards the FSA, the difference is that the FSA is a statutory body; it is not an NDPB. It has power to make its own legislation; it is not accountable to Parliament in the usual way; and it does not come within the framework of general administrative law which is the vocabulary, the language, the narrative, if you like, within which those bodies will operate. That is the basic distinction. It is a distinction that was explored earlier this evening.
I assure noble Lords that I do not believe that there is any difference in principle between us. We do not believe that this is necessary on the face of the Bill because to perform its duties properly and diligently it has to perform exactly in the way described by the noble Lord, as general administrative law requires it to do.
Lord Higgins: My Lords, why did the Minister say that it was unworkable?
Baroness Hollis of Heigham: My Lords, we could have fun with some of the words in this clause; for example,
"the need to minimise any adverse effects that may arise from anything done in the need to discharge of those functions".
One could have questions about conflicting interests between various parties, the need for openness with regard to its activities—we have problems there with tax information, and so on, which again would probably make it unworkable—and legal provision information. If the noble Lord really wants me to, I could have a go at most of the paragraphs of the amendment. However, I do not believe that the amendment adds anything to the way in which, subject to general administrative law and good practice, the regulator and the pension protection fund are required to operate. I suppose I think it is redundant.
Lord Higgins: My Lords, I do not find that to be a satisfactory reply, even at this hour of night. The noble Baroness has not explained her opening remark that the provision was "unworkable", which is the kind of phrase which ministerial drafts tend typically to use. She has not demonstrated how it is unworkable; still

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less has she demonstrated why the FSA finds that its provisions are unworkable. I really think that there is a fairly close analogy with regard to that.
Having said that, I would not wish to pursue the matter this late at night. However, I shall wish to consider it rather more carefully again. I thought the Minister gave an unsatisfactory answer. There is a case for giving the provision a statutory framework, rather than leaving it to be decided after the matter has passed into law. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas Lord Lucas moved Amendment No. 133:
Leave out Clause 110.
The noble Lord said: My Lords, we had a long discussion in Grand Committee about this rather strange and unusual arrangement for a non-executive committee. The noble Baroness assured us that there was a precedent in government that worked beautifully, but that she would go away and check that that was so and that everything was tickety-boo. I think that the Bank of England is the only example of this arrangement having been perpetrated in the UK. I should very much like a report from the noble Baroness on her researches. I beg to move.
Baroness Noakes: My Lords, I should like to say a couple of things before the noble Baroness replies. Since we discussed the matter in Grand Committee, I have gone away and looked again at the two examples that were quoted: first, the Bank of England; and, secondly, the FSA. The FSA has a rather restricted set of functions for its non-executive directors. If you look at its annual report you will find absolutely no mention of it. The FSA operates itself as though this requirement for a non-executive committee does not exist. You can find in an obscure bit of the website a typed-up government statement that there is a non-executive committee which repeats the Act, but it appears to have no impact whatever on how the FSA operates.
It is some years now since I was associated with the Bank of England, but in its annual report there is a governance and accountability statement which explains how "Nedco"—the non-executive committee—actually works. As I explained to the Grand Committee, Nedco is chaired by its senior non-executive and has the executive to the bank in attendance. The court then meets. Both meetings—Nedco and court—have the same people. They do not have separate people, so the concept of Nedco as a separate organisation has no meaning in the Bank of England. The final sentence in the particular paragraph in the Bank of England's annual report for 2004 says that,
"from time to time Nedco has a private meeting without the executive present to consider matters such as its own annual report".
The net effect of all that is that the Bank of England operates as though the Act did not exist. It does not have a separate non-executive committee in any meaningful sense at all.
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This grand experiment was brought in post-1997. It does not exist throughout the public sector and did not exist before 1997. It was brought in only by those bodies that the Treasury had significant influence on in the early days of the Labour Government.
I suggest to the Minister that this experiment has been a failure and should not be visited on all future bodies that are created by government. We should go back to unitary boards, which has been the conventional model for all public sector bodies for as long as I can remember.
Lord Higgins: My Lords, I very much agree with my noble friend. We discussed this matter at some length in Grand Committee. I think that the effect of creating this sort of subgroup tends to be divisive. On balance, we think that it would not be appropriate to go down that route. I agree with my noble friend.
Baroness Hollis of Heigham: My Lords, the first question asked of me was what research we have done. Basically, that was the research that I was going after. I was just checking back on what I said in July. I am certainly willing to seek advice and briefing on the effect on the Bank of England, but in all the briefing that I have read, I am led to believe that NDPBs, as they are now developed by government, will proceed down that road, unless there are very good reasons to proceed otherwise and that that is where best practice lies, as based on both the Higgs report and the report on corporate governance.
I know that it is late at night and, in any case, I defer to the Baroness, Lady Noakes, who has served as a non-executive director of the Bank of England, but I have briefing here on the Bank of England structure that suggests that this is an appropriate model for us to follow.
As I said, we discussed it at great length and there was perhaps more common ground between us than has been acknowledged. I hope that, as a House, we can agree that, first, as a body corporate, the PPF needs a unitary governing board that is empowered as a whole to make decisions on the strategic direction, management and finances of the organisation.
Secondly, I hope that we agree that the role of the non-executive members of the board is distinct from that of the executives and should be recognised as such. Thirdly, I hope that we agree that the PPF is a new kind of organisation with an especially sensitive remit. Therefore, as I say, we have produced a structure that we believe is consistent with the Higgs report and the Combined Code on Corporate Governance. We think that the non-executive committee will have a key role to play: for example, in the strategic direction of the board; in ensuring that the board meets its objectives while ensuring that its financial affairs are properly controlled; and in monitoring the board's adherence to its reporting requirements to the Secretary of State.
We think that the board's performance will therefore be strengthened by having a formalised non-executive committee, but we see that very much as complementing and not subverting the meetings of the

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board as a whole. That is better for transparency than having an informal system of get-togethers among non-executive members that would not be guaranteed to encompass all the roles that we envisage, and where they were not required to account for their actions in the board's annual report—for example, in scrutinising performance.
I could go on, but I did what I said I would do, which is to research the structure of the Bank of England. I am led to believe that that was an appropriate model for us to follow. The noble Baroness shakes her head; she may be right. I would not wish to engage in hand-to-hand fighting about the Bank of England, for she has infinitely greater experience of this than I, but all the guidance that we are now receiving from both the Higgs report and the combined code suggests that this is the way to go. That is why I fear that the Government have not heard anything tonight or in Committee to suggest that we should change our mind about the clause.
Baroness Noakes: My Lords, before the noble Baroness sits down, she asserted that Higgs, which was earlier asserted to be completely irrelevant to the bodies under this Bill, supports this structure. It does not. Higgs merely requires the non-executives to meet once a year to consider the chairman's performance and to meet the chairman—who, of course, is not a non-executive—to consider the chief executive's performance. There is
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absolutely nothing in Higgs that requires the non-executives to meet for any other purpose. Indeed, anything else would be wholly contrary to the unitary board that is a prized and central feature of our corporate governance in this land. I do not know what the Minister's officials are telling her about Higgs, but it is not true.
Lord Lucas: My Lords, I hope that my noble friend and I will be able to persuade the noble Baroness that this is an issue that we should take seriously on Third Reading. It is daft to allow this to go on. In the two instances in which it has been tried, it does not work. As it is structured, it will be nothing but a hindrance, to the extent that it is employed at all, to maintaining a unitary and effective board. One can take some comfort from the fact that the two organisations have survived with it, but that is absolutely not the way to go and if we let this go on to be a precedent it will crop up again and again until, at some point, it does some real damage. Clearly, this amendment as drafted does not pick it up in all the right ways. Until Third Reading, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Evans of Temple Guiting: My Lords, I beg to move that consideration on Report be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.
House adjourned at ten o'clock.