HL Deb 01 November 2004 vol 666 cc79-90

(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—

  1. (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,
  2. (b) it would not be reasonable to impose any liability on the applicant under a contribution notice issued under section 39, or
  3. (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—

  1. (a) may request further information from the applicant;
  2. (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—

  1. (a) determine whether to issue the clearance statement, and
  2. (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—

  1. (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
  2. (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 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 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.

Amendment No. 52, as an amendment to Amendment No. 51, by leave, withdrawn.

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 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 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 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 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 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 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 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 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 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—

  1. (a) the person is at the relevant time a person falling within subsection (5A), and
  2. (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—

  1. (a) the employer in relation to the scheme,
  2. (b) an individual who—
    1. (i) is an associate of an individual who is the employer, but
    2. (ii) is not an associate of that individual by reason only of being employed by him, or
  3. (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—

  1. (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),
  2. (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,
  3. (c) any connection or involvement which the person has or has had with the scheme,
  4. (d) the financial circumstances of the person, and
  5. (e) such other matters as may be prescribed."

The noble Baroness said: My Lords, I beg to move Amendment No. 58.

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 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—

  1. (a) E is a company within the meaning given by section 735(1) of the Companies Act 1985 (c.6).
  2. (b) E is a member of a group of companies, and
  3. (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 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 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.

Forward to