Littlewoods and Telegraph Pension Funds

– in the House of Commons at 4:58 pm on 5 March 2015.

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Motion made, and Question proposed, That this House do now adjourn.—(Mel Stride.)

Photo of Nadine Dorries Nadine Dorries Conservative, Mid Bedfordshire 5:00, 5 March 2015

I am proud to represent the seat of Mid Bedfordshire, but I am also proud to have been born and bred in Liverpool. I have secured this Adjournment debate because I am gravely concerned that the pensions of many thousands of people in Liverpool and elsewhere in Britain, including in my constituency, might be in danger and that if things go badly wrong the British people, via the Pension Protection Fund, will be called on to pick up the pieces.

We must not forget the lessons learned from the Robert Maxwell scandal. Potentially, billions of pounds of public money is at stake, placed at risk by the pension schemes of the companies ultimately controlled by two men, Sir David and Sir Frederick Barclay, also known as the Barclay twins.

The twins are rich men, although perhaps not as rich as they appear to be, who live in Monaco and in a pseudo-Gothic castle on the island of Brecqhou, off Sark, to avoid British tax. They do not pay their fair share of tax, yet their company, Shop Direct, formerly known as Littlewoods, is suing the British taxpayer for £1.2 billion in compound interest for overpayment of tax on a company the Barclay twins did not even own when the event took place. Some might call that greedy. I do. The Barclay twins are avariciously greedy.

The Twins are notoriously reclusive, which is rather weird, as they own The Daily Telegraph, and they are notoriously aggressive in defence of their own reputations. Twice they have sued British journalists in France. The BBC “Panorama” journalist John Sweeney was convicted of criminal libel in France for comments he made on BBC Radio Guernsey. In 2005, The Times was sued by the twins, again in France. Some might call it hypocritical for owners of a British newspaper that regularly dishes out dirt to sue competitor journalists in a foreign jurisdiction. I call that hypocritical. When I wrote a critical judgment of their actions on my blog, they harassed my blog site host with midnight e-mails from lawyers in New York, France and London, forcing my host to close down my blog for a few hours. The Barclay twins are deeply hypocritical.

People who watched the “Panorama” programme “The Tax Havens Twins”, still available on YouTube, saw ordinary people on Sark give witness that they have been bullied by the twins’ representative on the island. The Barclay twins are also bullies.

The danger to public funds from the twins is fundamentally simple, although the details are murky and obscure, perhaps deliberately so. The twins’ companies, including Shop Direct and Yodel, are losing money hand over fist. Yodel has a loan with HSBC worth £250 million pounds, and if we add that to other loans we see that the twins’ companies owe about £l billion to the banks. That may all be with HSBC, and not just the £250 million as reported. In addition, Shop Direct has traded receipts from its loan book for a £1.25 billion pound facility with a clearing bank, believed to be HSBC.

On the rare occasion when profits are made, they are shelled out of the individual company and transferred to parent and/or grandparent companies often incorporated offshore in the British Virgin Islands, Bermuda and other offshore havens. In plain English, the twins’ businesses are losing massive amounts of cash, and when they do not they are hollowed out. If the pension funds suddenly needed a fresh injection of funds, how easy would it be for the pension trustees to extract that money from this complex maze of offshore accounts?

The answer to the question turns on the strength of the pension fund covenants. Again, the picture is not clear, and that is not good. Let us take the Littlewoods scheme, the Littlewoods plan, the GUS ex-gratia unfunded scheme and the unfunded scheme for members. I will refer to them as “the scheme” for short, and that scheme is worth £1.37 billion.

One of the problems highlighted by the Robert Maxwell scandal was that too many of the pension fund trustees were dependent on Robert Maxwell. How many of the Littlewoods scheme trustees are genuinely independent of the twins? One, maybe two. Of the eight trustees, I can identify five that are not. The Pensions Regulator recommends the appointment of a professional trustee for a large scheme. As far as we can tell, no such appointment has been made. It also recommends two independent trustees. Of the two that are in place, one has been there since 1997, the other since 2008—that is not independent.

With a pension scheme worth £1.37 billion, it is very worrying that the recommendations of the Pensions Regulator appear to be ignored. That is at the heart of this matter. The dire financial performance of Shop Direct and Yodel, the £1 billion of loans, and the trade of the Shop Direct loan book for a further £1.25 billion give rise to concerns that the trustees must, by law, address. Minister, is that happening?

Recently, journalist Peter Oborne left The Daily Telegraph because, he said, the paper was defrauding its readers. He said that it had gone soft on HSBC because it did not want to lose advertising income. Mr Oborne understated the problem. The Daily Telegraph went soft on HSBC not just for fear of losing advertising money but because the twins’ companies are in so much debt to HSBC—at least £250 million, possibly as much as £1 billion in loans if HSBC is the bank behind the loan-book deal. The Daily Telegraph owners may have a further £1.25 billion of reasons to be soft on the tax cheats’ bank. We are talking a cool £2 billion-plus here, not the £250 million that was recently reported.

As I have told the House, the twins are suing the taxpayer in the Supreme Court for almost exactly the same amount as the loan book agreement, which by the way, requires renewal every 12 months, making it very vulnerable. They have already received the simple interest and principal amounting to over £470 million so they have already taken a fair slug of our money. But it is not enough. These offshore, non-UK taxpayers would like the British taxpayer to transfer to their pockets the cost of four operational hospitals or 12 running schools. But they may not win their case in the Supreme Court. The twins’ companies underlying the pension funds may end up in a serious amount of debt, running into billions, just like Robert Maxwell’s companies.

If the twins win their case, how are to we ensure that the £1.2 billion remains on British soil to safeguard the scheme from future poor investment returns? As we know, that happens. It is the reason why the Pension Protection Fund was established—to protect members and contributors from scheme shortfalls. I fear that the money will be siphoned offshore, leaving the tax payer via the Pension Protection Fund to pick up the £1 billion-plus price tag if the group continues to perform financially as badly as it has been doing.

The Barclays winning or losing their £1.2 billion court case makes no difference to this scenario. If they win, they could siphon the money abroad and the British taxpayer will pick up the bill. If they lose, the British taxpayer picks up the bill by picking up any shortfall in the scheme fund. Can we depend on the Barclay twins to do the right thing should the scheme suffer a shortfall? We can only make that assessment based on their financial track record and character. We know that they are in serious debt. We know that they were criticized for their role in the Crown Agents scandal going all the way back to 1973. As Mr Paddy McKillen, the owner of three London hotels, can testify, they lack scruples. Mr McKillen’s American social security number was stolen in order to gain access to his financial information as part of an aggressive and hostile takeover of his business.

Let us take a look at the experience of the islanders on Sark. For years they have been bullied, blackmailed, threatened and terrorised. People have fled the island, others have woken to find flyers and papers with their personal information posted across the island. When the wife of the seigneur of Sark fell seriously ill, the twins’ man on the island attacked the seigneur, and all because the Barclays want control of the island and for it to be run as they see fit. The character of the twins can be summed up in three words: greedy, hypocritical and bullying.

What assurance can the Minister provide that if the Barclay twins win their victory in court and get £1.2 billion from the taxpayer, the money will stay here in the UK for the benefit of the scheme fund members, should there be a shortfall? What guarantee can he give that if there were a shortfall, the British taxpayer will not be funding the scheme via the Pension Protection Fund? Has the Pensions Regulator looked into this matter, given the poor financial performance and indebtedness of the contributing companies?

The Robert Maxwell pensions scandal happened because too many people— journalists, politicians, pension fund trustees and lawyers—held their tongue for fear of legal threats and intimidation. Today, the Government protect individuals against pension fund loss via the PPF, but that fund could not survive a hit to the tune of £1 billion. I know the Minister will be keen to provide reassurance that all is well with the fund, but all is not well when one considers the existing make-up of the fund trustees. We are not just concerned about today. Just under the surface, things are not well. I urge the Minister to use his good offices and impress on the Pensions Regulator the need to evaluate at the very least the composition and validity of the scheme trustees.

Today the foundations of the Barclay twins’ empire are cracking. Tomorrow the walls may come tumbling down. I hope that as a consequence of the dire financial circumstances of the Barclay twins’ companies, there will be no threat to the long-term security of the pensioners dependent on them. I hope I am wrong, but I fear I may be right.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions 5:11, 5 March 2015

I begin by congratulating Nadine Dorries on securing this debate. I will focus my remarks on the Littlewoods and Telegraph pension funds and the matters that fall within my responsibility. I hope that I can respond helpfully to her concerns.

The security of pension scheme members’ pensions is always a matter of concern to me and to the House, and rightly so. It might help to clarify one or two points about the regulatory regime and the protection afforded to members, because it differs according to the type of scheme, and the risk of a shortfall differs according to the type of scheme. Within Littlewoods and Telegraph there are different sorts of pension schemes, some of which are at risk of shortfall and some of which are not. It might help if I put that on the record at the outset.

Photo of Nadine Dorries Nadine Dorries Conservative, Mid Bedfordshire

May I clarify one point? Although the title of the debate is Littlewoods and Telegraph pension schemes, I deliberately did not speak about the Telegraph pension scheme because it came to my attention today that it is in the process of changing, for whatever reason, its fund managers, so I felt that it was inappropriate to comment on it.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

For the record, the Telegraph pension plan is what is called a defined contribution pension scheme, and it is therefore not capable of having a shortfall and there are no pension promises attached to the plan. There used to be a Telegraph executive pension scheme, which is now closed. I believe it transferred into the Telegraph pension plan, so my understanding is that none of the members of those schemes is at risk of shortfall, regardless of the position of the sponsoring employer.

The hon. Lady raised the Littlewoods and Shop Direct schemes. Both of those are salary-related schemes. The Shop Direct scheme, which is separate from the Littlewoods one, covers around 400 staff. I understand that it is closed to new members and for contributions by existing members. Under the regulatory regime, schemes are valued, their assets and liabilities are measured, and if there is a shortfall, plans are put in place to deal with it. I understand that the assets of the Shop Direct scheme at the last valuation were £120 million, with liabilities of £100 million. So the Shop Direct scheme is currently in surplus, which is relatively unusual for a scheme of this sort.

Let me say a little about how the Littlewoods pension scheme operates. The way in which such pension schemes operate is that there is a triennial valuation. The assets and liabilities are valued and the last triennial valuation of the Littlewoods scheme was in December 2012. Obviously, things have moved on since then and the figures arguably are different now. The last triennial valuation gave assets of £1 billion and a deficit—in excess, therefore, of the assets—of around £176 million. The way the regulatory regime works means that that amount does not have to be found overnight—obviously, the liabilities might run on for decades—so something called a recovery plan has to be put in place, and it has to be agreed by the trustees and the sponsoring employer and signed off by the Pensions Regulator. The company is currently five years into a recovery plan that will run until December 2021, and the fact that it was signed off in 2012 means that the regulator was content that it was appropriate to respond to the deficit and the scheme as it then stood. The Littlewoods pension trust has since been paying around £12 million a year into the scheme, in line with the plan, and I understand that from July 2016 that amount will increase to £15 million.

Obviously I cannot comment on the hon. Lady’s wider remarks on corporate structures and various other matters, but I can say that, as far as we are aware, the recovery plan has been adhered to, it was agreed and signed off by the regulator, and the payments in line with the plan have been made.

Photo of Nadine Dorries Nadine Dorries Conservative, Mid Bedfordshire

The Minister has rightly detailed the assets, but can he clarify who would have first call on those assets if there was a shortfall in the scheme, if the company was in dire financial straits and if it had £2 billion of debts: the pension scheme or the banks?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

As the hon. Lady says, the pension scheme is underwritten by the Pension Protection Fund. There is a regulatory regime to ensure that companies do not hide money, for example. I will say a little more about that, because she raised the issue of money going offshore. Essentially, the regulator has powers to ensure that, when there is an insolvency event and a shortfall in the pension fund, companies cannot simply walk away with money that has been squirreled away elsewhere. The regulator has powers to ensure that money that should be accessible in the event of insolvency is accessible. If there is still a shortfall, the Pension Protection Fund comes into play. I will respond in a moment to her comment that the Pension Protection Fund is essentially a hit on the taxpayer, because the situation is slightly more complicated than that.

Let me return to a point the hon. Lady made about the governance of the schemes. The members’ interests in any pension scheme of that sort are meant to be protected by trustees. I agree that it is important that the trustees are properly appointed and that they do their job in line with the law. With regard to the Littlewoods scheme, by law there have to be member-nominated trustees. My understanding is that there are four such trustees on the Littlewoods scheme and two on the smaller Shop Direct scheme. As far as we can see, the membership of the trustee board is in line with statutory requirements.

All trustees, whether appointed by the company or nominated by members, have the same fiduciary duty to scheme members: however they got on board, they all have the same duty. If the hon. Lady has any reason to think that any member of the trustee board is not fulfilling their fiduciary duty to scheme members, I encourage her to give the names directly to the Pensions Regulator and provide it with evidence for that assertion. Those founded allegations would then be investigated. We certainly believe that trustees have an important job to do. If there are any concerns that they are not doing that job, she should certainly raise them directly with the Pensions Regulator, with names and evidence. The fact that someone has been a trustee for a long time does not in and of itself make them biased or unfit to be a trustee, but clearly the rules require at least a third of the board to be nominated by scheme members. They are not representatives of the members as such, but they all have a legal duty to all the members.

Let me move on to the regulatory regime that is meant to protect members. The key point is that every three years the scheme has to be valued: we measure the assets and the liability. If there is a shortfall, a plan has to be put in place, as it has been for the Littlewoods scheme. Three years later, a fresh action is taken, with assets and liabilities measured. If there is still a shortfall, a revised recovery plan is brought in. The idea is to strike a balance, ensuring that the scheme is properly funded and that, if there is an insolvency event, members are protected and the Pension Protection Fund is protected, but without killing the goose that lays the golden egg.

We do not insist on an excessively rapid filling in of pension scheme deficits, because it might undermine the solvency of the sponsoring employer, which is the best guarantee of getting the pensions paid. We try to strike a balance. A recovery plan is an agreement between the trustees and the sponsoring employer and it is signed off by the Pensions Regulator. As I have said, the last recovery plan is being stuck to so far, so whatever else might be happening in the corporate group or to the funds of the company, the obligations to the pension scheme, in line with the recovery plan, are being met.

The hon. Lady asked, quite properly, what happens if money goes offshore. I assure her that the Pensions Regulator has powers to act if it believes that money that should properly be available to the employer and then to the pension fund is somehow being concealed and removed from the country. The regulator can issue a financial support direction, which requires the employer or a connected or associated person to put in place financial support for the pension scheme. The regulator has demonstrated that it can take effective action against employers, even when an employer is based overseas.

To give an example from January and the Carrington Wire pension scheme, the regulator issued warning notices to two companies based in Russia and subsequently reached an £8.5 million settlement with them. In addition, the regulator has in the past also taken action against companies based in America, Canada and the Bahamas. Although I absolutely understand the concerns that money going offshore inevitably makes things more complicated—I accept that—the regulator’s powers and ability to act are not restricted to the UK. The regulator can take action in other courts and has successfully recovered money when that has proved necessary.

On the case under discussion, I stress that, as far as we can see, there is a recovery plan and the payments are being met. If the regulator had concerns that payments were not being met, it could take action, but as long as the triennial valuations are happening, the scheme is being properly governed and the payments are being made, that is what is required of the sponsoring employer.

The hon. Lady referred to the Pension Protection Fund as a risk to the taxpayer. To be clear, the revenue of the PPF comes from the assets of pension schemes where there has been an insolvency event. The assets go into the PPF, so there is then an investment return on them. The PPF also raises a levy, which is not taxpayer-funded; the levy is on sponsoring employers of remaining salary-related pension schemes. Obviously, the Pensions Regulator is trying to protect the PPF—we do not want any claims, if possible, on the PPF—but in the event of an insolvency the PPF pays members’ pensions with, roughly speaking, 100% for those who have reached scheme pension age and 90% for those who have not, with some limitations on indexation and some caps. Any shortfall between PPF-level benefits and the amount of money that goes in from an insolvent employer and their scheme is made up from the PPF. That money comes from the levy payers, who are sponsoring employers, and not from the taxpayer.

The only indirect impact on the taxpayer, I suppose, could be if someone’s pension is substantially reduced and they are so poor in retirement that they claim means-tested benefits. There could be a marginal impact on the taxpayer, but the way PPF works means that, if schemes end up in it, the cost—for example, through increased levies—is borne by other sponsoring employers. Of course, we care about that. We do not want other sponsoring employers—“good” and solvent employers responsible for final salary pension schemes—to face any bill in excess of that which they need to face. Of course, it matters to us that people meet their liabilities and recovery plans, but that is not something that will have a direct impact on the taxpayer.

It is entirely proper to seek assurances that we are on our guard and protecting the interests of scheme members. The people in place to protect the interests of scheme members are the trustees. We have looked at the composition of the trustees of these pension schemes and, on the face of it, there is nothing irregular or out of line with what they are legally required to do. However, if the hon. Lady has evidence to the contrary, I encourage her to share it with the regulator.

The funding position of many schemes is in deficit, and some have bigger deficits than in the Littlewoods case. As I have said, one scheme is actually in surplus, which is quite unusual. For a scheme in deficit, there is a process of recovery plans that must be adhered to. We take that very seriously, and we would not accept a sponsoring employer saying that it cannot afford to meet the recovery plan if it turns out that it has money stashed somewhere else.

We have powers to intervene in corporate restructurings. If the Pensions Regulator believes that a sponsoring employer is somehow artificially contriving the structure of its business to shield assets and generate insolvency, meaning that there is suddenly no money to be found, the regulator can take pre-emptive action by refusing to clear various forms of corporate restructuring or, more normally, by placing conditions on corporate restructurings, and that sometimes results in a corporate restructuring not happening.

I reassure the hon. Lady that we are not entirely passive in all of this: we do not sit and wait for things to go wrong. There is a systematic three-year valuation process, and there is a process for agreeing credible recovery plans. We do not let such plans run on into the middle distance in the vague hope that in 20 years’ time somebody will have some cash; we make them realistic so that the deficit is recovered in a reasonable period. We try to make sure that schemes are well governed. The regulator has a trustee toolkit to equip trustees and enable them to do their job properly, and it would act on any concerns about trustees not doing their job properly.

I hope that I have been able to respond to the hon. Lady’s concerns. As we have established, the Telegraph scheme is not of the kind that can generate a shortfall, so that issue does not arise. The Littlewoods scheme does have a deficit, but a recovery plan is in place, and as far as we can see it is being adhered to. If it was not adhered to, we would be in a position to take action, and we would do so. I hope that is helpful to the House.

Question put and agreed to.

House adjourned.