Motion on Amendments 1 to 47

Public Service Pensions and Judicial Offices Bill [HL] - Commons Amendments – in the House of Lords at 4:03 pm on 9th March 2022.

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Viscount Younger of Leckie:

Moved by Viscount Younger of Leckie

That this House do agree with the Commons in their Amendments 1 to 47.

1: Clause 1, page 2, line 3, leave out leave out subsection (4) and insert— “(4) The second condition is that the service in question is—(a) pensionable service under a Chapter 1 legacy scheme,(b) pensionable service under a Chapter 1 new scheme that would have been pensionable service under a Chapter 1 legacy scheme but for the person’s failure to meet a condition relating to the person’s attainment of normal pension age, or another specified age, by a specified date, or(c) excess teacher service.The second condition is met if all of the service in question falls within paragraphs (a) to (c) (even if it does not all fall within only one of those paragraphs).”

2: Clause 1, page 2, line 37, at end insert “, or(c) is, as a result of a local government contracting-out transfer, pensionable service under a pension scheme that offers pension arrangements that are broadly comparable with those offered to the person before the transfer.”

3: Clause 1, page 3, line 3, after “scheme” insert “or excess teacher service”

4: Clause 4, page 5, line 4, at end insert—“(3A) In a case in which any of the person’s remediable service in the employment or office in question is excess teacher service, “the relevant Chapter 1 legacy scheme”, in relation to so much of the person’s remediable service as is excess teacher service, means the local government new scheme mentioned in section 98(2).”

5: Clause 6, page 7, line 10, leave out “in relation to the scheme”

6: Clause 10, page 9, line 19, leave out “in relation to the scheme”

7: Clause 14, page 11, line 21, leave out “in relation to the scheme”

8: Clause 14, page 12, line 13, leave out “in relation to the Chapter 1 legacy scheme”

9: Clause 15, page 12, line 27, leave out “in relation to the scheme”

10: Clause 15, page 13, line 1, leave out “in relation to the Chapter 1 legacy scheme”

11: Clause 16, page 13, line 37, leave out “in relation to the scheme”

12: Clause 16, page 13, line 42, leave out “in relation to the scheme”

13: Clause 16, page 14, line 1, leave out “in relation to the scheme”

14: Clause 17, page 14, line 37, leave out “in relation to the scheme”

15: Clause 22, page 19, line 20, at end insert—“(da) provision about the benefits payable in respect of a child of a deceased member where—the member has remediable service in an employment or office, andthe child is not living in the same household as an adult survivor of the member;”

16: Clause 22, page 19, line 20, at end insert—“(db) provision about cases in which a person has remediable service in an employment or office any of which is excess teacher service;(dc) provision about cases in which a person has remediable service in an employment or office and also has service in an employment or office as a teacher which—(i) takes place in the period beginning with the day after the closing date and ending with 31 March 2022,(ii) is pensionable service under a Chapter 1 new scheme, and(iii) is not remediable service;”

17: Clause 22, page 19, line 20, at end insert—“(dd) provision about cases in which a person has a partnership pension account;”

18: Clause 22, page 19, line 20, at end insert—“(de) provision about cases in which a person is made redundant;”

19: Clause 22, page 20, line 17, at end insert—““adult survivor”, in relation to a member of a Chapter 1 scheme who has remediable service, means a surviving spouse, civil partner or other adult who is entitled under the scheme to a pension determined (to any extent) by reference to the member’s remediable service;”

20: Clause 22, page 20, line 19, at end insert—““child”, in relation to a member of a Chapter 1 scheme, means any individual who—(a) is entitled to receive benefits under the scheme in their capacity as a child of the member, or(b) would have been entitled to receive benefits under the scheme in that capacity on the assumption that any election under this Chapter was, or was not, made in respect of the member;”

21: Clause 22, page 20, line 19, at end insert—““made redundant”: a reference to a person being “made redundant” includes, in relation to a member of the armed forces, a person becoming entitled to a redundancy payment under—(a) Part 2 of the Armed Forces (Redundancy, Resettlement and Gratuity Earnings Schemes) (No 2) Order 2010 (S.I. 2010/ 832),(b) the Armed Forces Redundancy Scheme Order 2006 (S.I. 2006/55), or(c) the Armed Forces Redundancy Scheme Order 2020 (S.I. 2020/1298);”

22: Clause 23, page 21, line 5, leave out “in relation to the scheme”

23: Clause 25, page 22, line 11, leave out “in relation to the scheme”

24: Clause 25, page 22, line 15, leave out “in relation to the scheme”

25: Clause 27, page 24, line 20, leave out “given by the Treasury”

26: Clause 27, page 24, line 22, leave out “the Treasury has consulted” and insert “consultation with”

27: Clause 30, page 26, line 32, leave out “in relation to the scheme”

28: Clause 38, page 30, leave out lines 28 to 33

29: Clause 38, page 30, line 44, leave out from beginning to end of line 11 on page 31

30: Clause 38, page 31, line 48, leave out “Part” and insert “Chapter”

31: Clause 39, page 32, line 12, leave out “all of”

32: Clause 39, page 32, line 17, at end insert—“The second condition is met if all of the service in question falls within paragraphs (a) and (b) (even if it does not all fall within only one of those paragraphs).”

33: Clause 62, page 50, line 47, leave out “given by the Treasury”

34: Clause 62, page 51, line 1, leave out “the Treasury has consulted” and insert “consultation with”

35: Clause 75, page 55, leave out lines 34 to 39

36: Clause 77, page 57, line 3, leave out Clause 77

37: Clause 78, page 57, line 33, leave out Clause 78

38: Before Clause 79, insert the following new Clause—“Meaning of “remediable service”(1) For the purposes of this Chapter any continuous period of service of a person in an employment or office is “remediable service” in that employment or office if the following four conditions are met.(2) In this section “the service in question” means the service mentioned in subsection (1).(3) The first condition is that the service in question takes place in the period—(a) beginning with the day after the closing date, and(b) ending with 31 March 2022 or, if earlier, the date on which the person attains legacy scheme normal pension age.(4) The second condition is that the service in question is pensionable service under a local government new scheme (including where the service is excess teacher service that is so pensionable by virtue of section 2(1)).(5) The third condition is that the person was, on 31 March 2012 or any earlier day, in pensionable service under—(a) a Chapter 1 legacy scheme (within the meaning of Chapter 1),(b) a judicial legacy scheme (within the meaning of Chapter 2), or(c) a local government legacy scheme. (6) The fourth condition is that there is no disqualifying gap in service falling within the period—(a) beginning with the day after the most recent day in relation to which the third condition is met, and(b) ending with the day before the first day of the service in question.(7) In subsection (3)—“the closing date” means—(a) 31 March 2014 in relation to service which is pensionable service under regulations under section 7 of SA 1972 which relate to persons in England and Wales;(b) 31 March 2015 in relation to service which is pensionable service under any other local government new scheme;“legacy scheme normal pension age” means—(a) in a case in which the person meets the third condition in relation to a local government legacy scheme, the person’s normal pension age under that scheme;(b) otherwise, the age of 65.(8) In subsection (6) “disqualifying gap in service” means a period longer than 5 years at no time during which is the person in service in an employment or office which—(a) is pensionable service under—(i) a Chapter 1 scheme (within the meaning of Chapter 1),(ii) a judicial scheme (within the meaning of Chapter 2), or(iii) a local government scheme,(b) is, as a result of a Fair Deal transfer, pensionable service under a Fair Deal scheme, or(c) is, as a result of a local government contracting-out transfer, pensionable service under a pension scheme that offers pension arrangements that are broadly comparable with those offered to the person before the transfer.”

39: Insert the following new Clause—“Power to pay final salary benefits(1) Scheme regulations for a local government new scheme may make provision under which the benefits payable under the scheme, so far as they are determined by reference to a member’s remediable service in any employment or office, are final salary benefits.(2) The reference in subsection (1) to remediable service includes—(a) remediable service within the meaning of Chapter 1 that has been transferred in from a Chapter 1 scheme, and(b) remediable service within the meaning of Chapter 2 that has been transferred in from a judicial scheme.(3) Scheme regulations made by virtue of subsection (1) may, in particular, include provision under which final salary benefits are only payable under the scheme to or in respect of a person who has service in multiple employments or offices if—(a) so much of the service as is otherwise pensionable under another local government scheme, or under a Chapter 1 scheme or a judicial scheme, is transferred in to the scheme, or(b) the service is aggregated for the purposes of determining those benefits.(4) Scheme regulations for a local government new scheme may make provision under which the benefits payable under the scheme, so far as they are determined by reference to a member’s final salary transferred-in service in any employment or office, are final salary benefits.(5) For the purposes of subsection (4) a member’s service in an employment or office is “final salary transferred-in service” if—(a) the service has been transferred in from another pension scheme, and(b) before the transfer, the benefits payable under that other scheme, so far as determined by reference to the service, were final salary benefits.(6) Except as provided by the preceding provisions of this section, scheme regulations for a local government new scheme may not make provision under which the benefits payable under the scheme that are determined by reference to a member’s pensionable service in an employment or office are final salary benefits.”

40: Insert the following new Clause—“Section (Power to pay final salary benefits): transitional provision(1) Any provision of scheme regulations that—(a) was, at any time before the coming into force of section (Power to pay final salary benefits)(1), made (or purportedly made) in relation to a local government new scheme under—(i) section 18 of PSPA 2013 or section 18 of PSPA(NI) 2014 (restriction of existing pension schemes), or(ii) any other enactment, and(b) could have been made under section (Power to pay final salary benefits)(1) if it had been in force at that time,is treated as having been made under section (Power to pay final salary benefits)(1).(2) Section (Power to pay final salary benefits)(6) does not affect the continued operation of any scheme regulations made before the coming into force of that provision.”

41: Insert the following new Clause—“Pension credit members(1) Scheme regulations for a local government new scheme may make provision about the benefits payable to or in respect of a relevant pension credit member and the corresponding pension debit member.(2) In this section “relevant pension credit member”, in relation to a local government new scheme, means a member of the scheme who has rights under the scheme—(a) which are attributable (directly or indirectly) to a pension credit, and(b) the value of which was determined (to any extent) by reference to the value of benefits payable in respect of the remediable service in an employment or office of another member.(3) In this section “the corresponding pension debit member”, in relation to a relevant pension credit member, means the member mentioned in subsection (2)(b).(4) The provision that may be made by scheme regulations under this section includes, in particular—(a) provision modifying any provision of this Chapter in its application to persons of a description specified in the regulations;(b) provision corresponding to, or applying, any provision of this Chapter, with or without modifications.(5) In this section—“modifying” includes disapplying or supplementing (and cognate expressions are to be construed accordingly);“pension debit” means a debit under section 29(1)(a) of WPRA 1999 or Article 26(1)(a) of WRP(NI)O 1999;“pension credit” means a credit under section 29(1)(b) of WPRA 1999 or Article 26(1)(b) of WRP(NI)O 1999.”

42: Insert the following new Clause—“Further powers to make provision about special cases(1) Scheme regulations for a local government new scheme may make further provision relating to a member who has remediable service in an employment or office.(2) The provision that may be made under subsection (1) includes, in particular, provision about cases in which a person has remediable service in an employment or office any of which is excess teacher service.(3) Scheme regulations for a local government new scheme may make provision about injury and compensation benefits payable under a relevant injury and compensation scheme to or in respect of a member who has remediable service in an employment or office.(4) Provision made under subsection (3) may in particular be made by amending the relevant injury and compensation scheme.(5) In subsections (3) and (4) and this subsection—(a) “injury and compensation scheme” means a pension scheme that is listed in Schedule 6 to PSPA 2013 or Schedule 6 to PSPA(NI) 2014 (existing injury and compensation schemes); (b) an injury and compensation scheme is “relevant”, in relation to a local government new scheme, if it is connected with the local government new scheme;(c) a reference to “injury and compensation benefits” payable under an injury and compensation scheme is a reference to—(i) in the case of an injury and compensation scheme in relation to which Schedule 6 to PSPA 2013 or Schedule 6 to PSPA(NI) 2014 specifies particular benefits, those benefits;(ii) in the case of any other injury and compensation scheme, any benefits payable under the scheme.(6) The provision that may be made by scheme regulations under this section includes, in particular—(a) provision modifying any provision of this Chapter in its application to persons of a description specified in the regulations;(b) provision corresponding to, or applying, any provision of this Chapter, with or without modifications.(7) In this section “modifying” includes disapplying or supplementing (and cognate expressions are to be construed accordingly).”

43: Insert the following new Clause—“Power to pay compensation(1) The scheme manager for a local government new scheme may pay amounts by way of compensation in respect of compensatable losses incurred by members or, in the case of deceased members, their personal representatives.(2) Scheme regulations for a local government new scheme may make provision under which an employer in relation to the scheme is required to reimburse the scheme manager for amounts paid under subsection (1).(3) For the purposes of this section a loss incurred by a member, or by a member’s personal representatives, is “compensatable” if and to the extent that—(a) either of the following conditions is met, and(b) the loss is of a description specified in Treasury directions.(4) The first condition is that the loss is attributable to, or is reasonably regarded as attributable to, a relevant breach of a non-discrimination rule.(5) The second condition is that the loss is attributable to the application of any provision of, or made under, this Chapter.(6) In this section (subject to subsection (8)) “loss” includes a loss of any kind including, in particular, a Part 4 tax loss.(7) In this section “Part 4 tax loss”, in relation to a member, means a loss arising as a result of the member—(a) incurring a charge, or incurring an increased charge, under Part 4 of FA 2004, or(b) not being entitled to a relief, or being entitled to less relief, under that Part of that Act.(8) In this section “loss” does not include an amount that is payable under this Chapter or under regulations made by virtue of this Chapter.(9) In this section “non-discrimination rule” means a rule that is, or at any time was, included in a local government scheme by virtue of—(a) section 61 of EA 2010, or(b) paragraph 2 of Schedule 1 to EEAR(NI) 2006.(10) For the purposes of this section a breach of a non-discrimination rule is “relevant” if it arises from the application of a provision of scheme regulations made before 1 April 2022 under which the benefits payable under the scheme that are determined by reference to a member’s pensionable service in an employment or office are final salary benefits.(11) Subsection (1) does not confer power to pay amounts by way of compensation in respect of compensatable losses so far as—(a) any person has already received amounts by way of compensation in respect of them, or(b) amounts that any person has paid the scheme have been reduced by amounts in respect of them, whether pursuant to an order of a court or tribunal or otherwise.”

44: Insert the following new Clause—“Indirect compensation(1) Scheme regulations for a local government new scheme may make provision under which, where a member has incurred a compensatable loss that is a Part 4 tax loss—(a) the member is not paid an amount under section (Power to pay compensation) by way of compensation in respect of the loss, and(b) the member is instead paid such additional benefits under the scheme as may be determined in accordance with the regulations.(2) In this section “compensatable loss” and “Part 4 tax loss” have the same meaning as in section (Power to pay compensation).”

45: Insert the following new Clause—“Interest and process(1) Scheme regulations for a local government new scheme may make provision—(a) under which interest is required to be calculated and paid on relevant amounts;(b) about the process by which relevant amounts (and any interest on them) are to be paid.(2) Scheme regulations made by virtue of subsection (1)(b) may, in particular, include provision—(a) about when relevant amounts (and any interest on them) are to be paid (including provision under which they are paid in instalments);(b) under which relevant amounts (and any interest on them) may be paid only on the making of an application;(c) conferring rights of appeal against decisions taken under the regulations.(3) In this section “relevant amounts” means any amounts that are payable by the scheme to a person under or by virtue of this Chapter.”

46: Insert the following new Clause—“Treasury directions(1) The powers mentioned in subsection (2) must be exercised in accordance with Treasury directions.(2) The powers are—(a) the power to make scheme regulations by virtue of section (Pension credit members) (pension credit members) and any powers exercisable by virtue of such regulations;(b) the power to make scheme regulations by virtue of section (Further powers to make provision about special cases) (further powers to make provision about special cases) and any powers exercisable by virtue of such regulations;(c) the power of a scheme manager under section (Power to pay compensation)(1) (power to pay compensation);(d) the power to make scheme regulations by virtue of section (Power to pay compensation)(2) (power to require employer to reimburse compensation paid by scheme manager) and any powers exercisable by virtue of such regulations;(e) the power to make scheme regulations by virtue of section (Indirect compensation)(1) (indirect compensation) and any powers exercisable by virtue of such regulations;(f) the power to make scheme regulations by virtue of section (Interest and process)(1) (interest and process) and any powers exercisable by virtue of such regulations.(3) Treasury directions under this section may provide for amounts that are to be paid by a scheme in relation to a member to be determined—(a) taking into account the particular circumstances of the member and (if different) the person to whom the amount is to be paid, or(b) without taking into account any or all of the particular circumstances of that person or those persons. (4) Treasury directions under this section that relate to the calculation and payment of interest, and variations and revocations of such directions, may only be made after consultation with the Government Actuary.(5) For the definition of “Treasury directions”, see section (Interpretation of Chapter)(1).”

47: After Clause 79, insert the following new Clause—“Interpretation of Chapter(1) In this Chapter—“Chapter 1 scheme” has the same meaning as in Chapter 1; “final salary benefits” has the meaning given by subsection (2); “judicial scheme” has the same meaning as in Chapter 2;“local government legacy scheme” has the meaning given by section 79(3);“local government new scheme” has the meaning given by section 79(2);“local government scheme” has the meaning given by section 79(1); “scheme regulations”—(a) in relation to a local government new scheme within section 79(2)(a) has the same meaning as in PSPA 2013 (see section 1(4) of that Act);(b) in relation to a local government new scheme within section 79(2)(b) has the same meaning as in PSPA(NI) 2014 (see section 1(4) of that Act);“Treasury directions” means—(a) in relation to a local government scheme within section 79(2)(a) or (3)(a), directions given by the Treasury;(b) in relation to a local government scheme within section 79(2)(b) or (3)(b), directions given by the Department of Finance in Northern Ireland.(2) For the purposes of this Chapter, benefits payable under a pension scheme to or in respect of a member are “final salary benefits” if they are determined by reference to the member’s pensionable earnings, or highest, average or representative pensionable earnings, in a specified period ending at, or defined by reference to—(a) the time when the member’s pensionable service in relation to the scheme ends, or(b) the time when the member attains normal pension age under a local government legacy scheme.(3) Where—(a) a member of a pension scheme has service in multiple employments or offices that is pensionable service under the scheme, and(b) the service is aggregated for the purpose of determining the amount of any benefit under the scheme,the service is treated for the purposes of this Chapter as service in a single employment or office (and references to the employment or office in relation to the service are to be read accordingly).”

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

My Lords, with the leave of the House, I will also speak to the other amendments and the Motions in the name of the noble Lord, Lord Davies of Brixton. Before I turn to the Commons amendments, I will take a moment to remind your Lordships of what the Public Service Pensions and Judicial Offices Bill will achieve. The Bill ensures that those who deliver our valued public services continue to receive guaranteed benefits in retirement that are among the best available, on a fair and equal basis. It is also vital in addressing the resourcing challenges facing the judiciary, recognising the unique constitutional role of judges. As has been acknowledged throughout the Bill’s passage, this is a complex and technical matter. The Bill covers more than 40 schemes, each of which has its own individual layers of detail and complexity.

Since the Bill’s introduction, the Government have continued to work closely with each of the public service pension schemes, with stakeholders and with departments to check and re-check the Bill to ensure that it will deliver our commitments to remove the discrimination and offer a complete and effective remedy. This has been crucial and has led to a number of refinements being made to the Bill during its stages in the other place.

I recognise that a large volume of amendments is being considered today but I hope noble Lords will agree that the Bill returns to this Chamber in an even stronger position than when it left. I therefore propose that the House agree with the Commons in its Amendments 1 to 81. The House will, I hope, be pleased to hear that I will not set out the detail of each and every amendment, but I hope that your Lordships will find it helpful if I briefly explain the themes that they address. I will of course be happy to turn to specific amendments if your Lordships have any questions they would like to ask.

The first theme is reforms to the cost control mechanism, which relates to Amendments 48, 49 and 52. Your Lordships may recall that the cost control mechanism is designed to ensure a fair balance of risk between public service pension scheme members and taxpayers with respect to the costs of these schemes. The Government asked the Government Actuary to review the cost control mechanism after the provisional results of the 2016 valuations suggested that the mechanism was too volatile and not operating in line with its objectives. Following publication of the final report in June 2021, the Government consulted on three of the recommendations and published their response in October 2021. These reforms will be implemented from the 2020 valuations onwards.

Commons Amendment 48 would implement the framework for two of these three reforms: the reformed scheme-only design and the economic check. I will take each of these in turn. The reformed scheme-only design means that legacy scheme costs are excluded from the mechanism. This would make it more stable and reduce intergenerational unfairness because comparatively younger members’ benefits or contributions will not change based on the cost of legacy schemes they had little, or no, access to. Although this transfers the risk associated with legacy scheme costs to the Exchequer, it ensures consistency between the set of benefits being assessed and the set of benefits potentially being adjusted.

As the Government Actuary’s report makes clear, it does not seem possible for the mechanism to be able to protect the taxpayer unless it considers the wider economic outlook. The economic check—the second reform—will therefore ensure consistency between member benefit or contribution changes and changes in the wider economic outlook. There will be a higher bar for benefit reductions or contribution increases if the country’s long-term economic outlook has improved. This will equally apply to benefit increases or contribution reductions if the long-term economic outlook has worsened.

Therefore, the economic check will operate symmetrically for the benefit of both members and taxpayers. It will operate in a transparently and be linked to an objective and independent measure of expected long-term earnings and GDP growth from the OBR. Given that the economic check can only offset or prevent breaches, not cause them, the likelihood of changes to member benefits or contributions will decline. The reforms will make the mechanism more stable and allow it to operate more in line with its objectives, giving members greater certainty with respect to their retirement incomes.

The second theme concerns amendments relating to the local government workforce, where a number of amendments to Chapter 3 of Part 1 were brought forward by the Government in the Commons to ensure a full and robust remedy for local government workers; for reference, these are Commons Amendments 2, 28 to 30, 36 to 47, 50, 51, 55 to 60, 62, 64, 65, 72 and 75 to 77. The amendments are largely technical, including a significant number designed to ensure that many of the complexities relating to other public service pension schemes that have already been addressed in the Bill are also addressed in local government.

The Government are also making an important change to align the eligibility criteria for protection in local government with other public service pension schemes. Under the amended approach, members who were in pensionable service on or before 31 March 2012 would be in scope of remedy if they leave local government and return within five years, as well as meeting qualifying criteria.

I turn next to a single amendment that concerns a change to regulatory procedure for implementing regulations with respect to the reformed judicial pension scheme. Commons Amendment 61 will simply allow the regulations to be made under the “made affirmative” procedure instead of the draft affirmative, which is the usual process for judicial scheme regulations. This is simply a matter of timing. As the draft affirmative procedure could take four to six weeks, we must rely on the “made affirmative” procedure in order to launch the scheme on 1 April 2022. The change ensures that the reformed pension scheme is in place for all judges on 1 April and that there will be no gap in judicial pensions arrangements. Allow me to reassure the House that the “made affirmative” procedure means that Parliament will still get to scrutinise and debate the draft Judicial Pension Scheme Regulations 2022. This scrutiny is important, given the unique constitutional role of the judiciary. Furthermore, the power is narrowly drawn—it can only be exercised for regulations made within 28 days of Royal Assent and will not apply to any future amendments to judicial pension schemes.

The Ministry of Justice has carried out extensive consultation both on the principles of the new scheme and the draft Judicial Pension Scheme Regulations 2022. This has demonstrated broad support for the new scheme, which provides significantly improved benefits for all members of the judiciary compared to the 2015 scheme. There is agreement that the scheme should help address the recruitment and retention issues in the judiciary, which are considered to be primarily due to the introduction of the 2015 scheme.

I turn next to the issue of guidance on investment decisions for the Local Government Pension Scheme, which, as your Lordships may know, is different to the other main public service pension schemes as it is funded rather than unfunded. My right honourable friend Robert Jenrick, the Member for Newark, in the other place proposed Commons Amendment 54, which would expand existing powers in the Public Service Pensions Act 2013 to allow the responsible authority of a public service pension scheme to issue guidance or directions to the scheme managers to cover investment decisions that it is not proper for the scheme manager to take in light of the UK’s foreign and defence policy.

The Government support that amendment, which is in line with the Government’s manifesto commitments to stopping public bodies from pursuing their own direct or indirect boycotts, divestment and sanctions campaigns against foreign countries, known as BDS. Rather than promoting coexistence, debate and dialogue, these boycotts undermine community cohesion. There is evidence of divisive BDS campaigns in public bodies, including local authorities attempting to declare boycotts. Administering authorities can of course make decisions based on sound environmental, social and governance—so-called ESG—considerations. For example, funds may well choose to not invest based on legitimate concerns over a company’s polluting activities or its poor governance. However, what is clearly inappropriate is for a fund to adopt divisive BDS policies that are inconsistent with UK foreign policy. Sanctions should be determined by the UK Government alone. It is not for local authorities or public bodies to be pursuing their own foreign policy agendas.

Your Lordships may be aware that the Government intend to bring forward wider legislation on BDS, when parliamentary time allows, to ban public bodies from imposing such boycotts and divestments. This will of course be subject to scrutiny in both Houses in the usual way. This amendment signals the Government’s intent and provides the powers for the responsible authority to issue guidance or directions on this matter. It is important to note that the amendment would place no immediate duty on scheme managers to take any such investment or divestment decisions.

If the responsible authority were to issue guidance or directions, this would be subject to the usual 12-week consultation. I hope that this gives the House reassurance that the devising of any parameters related to this amendment would involve extensive engagement with the LGPS community over a number of months, during which time all views and concerns would be considered, so as to ensure they do not inadvertently restrict proper account of ESG matters.

Finally, I will cover the remaining amendments—Amendments 1, 3 to 13, 15 to 21, 25, 26, 31 to 35, 53, 63, 66 to 71, 73 and 79 to 81, which are minor and technical. These amendments are for clarification and are primarily to ensure that the Bill offers a comprehensive pensions remedy for eligible members in particular circumstances or special cases. For example, Amendments 15, 19 and 20 ensure that where a member has died and a child pension is already in payment which would be impacted by a decision taken by someone outside the child’s household, schemes have the powers to make regulations to allow that pension to be protected. A further example under this theme is in Commons Amendments 79 and 81, which change the reference to the Special Educational Needs Tribunal for Wales to the Education Tribunal for Wales, as the tribunal was renamed during the passage of the Bill.

I will be happy to provide further information on any of these amendments should your Lordships have any questions, but I hope these small examples demonstrate just how technical these changes are. I assure the House that they all share the aim of ensuring as robust a remedy as possible. With that, I beg to move.

Photo of Lord Davies of Brixton Lord Davies of Brixton Labour 4:15 pm, 9th March 2022

My Lords, while I do not have a current interest to declare, it would be appropriate for me to mention that, until last August, I was a consultant to a number of trade unions, advising them in this specific area. It appears in the register of interests, but I no longer undertake that work. I thank the Minister for providing more background to the legislation. He has been extremely helpful in ensuring that the fullest information is available on the changes being made at this stage.

However, it is worth recalling that, when the Bill was introduced last July, it dealt with two main issues: first and principally, it provided the remedy for the Government’s unlawful age discrimination in the Public Service Pensions Act 2013; secondly, it established a one-of-a-kind pension scheme for judges and, as a bit of an add-on, increased their retirement age. That is how it left your Lordships’ House.

In the Commons, two significant new issues were added. In Committee, amendments were introduced that made significant changes to the cost control mechanism that applies to public service pension schemes—this is Amendment 48—and then, on Report, Amendment 54 was introduced, which will allow the Secretary of State to issue directions to the trustees of local government pension schemes about how they invest their members’ money. It must be stressed that both these issues are completely new and have no direct connection with what was in the Bill when we considered it previously. Therefore, it is entirely proper—indeed, necessary—that we should give both amendments adequate consideration. I will argue that they are both objectionable.

I will come back to local government pension schemes, but I start with Amendment 48, which provides for significant changes in the cost control mechanism. This is complicated stuff and time is limited, and I am sure that many noble Lords want to get on with subsequent business, but the Government need to rethink their approach—hence the Motions in my name. The key change to the mechanism proposed by the Government is the addition of what is described as an “economic test”. This is completely new; it constitutes a significant change to the mechanism and is clearly outside the repeatedly given guarantees that there would be a 25-year stable regime to administer public service pensions.

Whatever was decided back in 2011 was meant to remain for a generation, and repeated promises were made that there would be no surprises. It is important to understand that these promises went beyond what was ultimately included in the subsequent legislation. For example, following the negotiations that took place on the reforms, the then Chief Secretary to the Treasury, Danny Alexander, said that reform along the lines the Government had proposed could endure for 25 years:

“It will be a sustainable deal that will endure for at least 25 years”.—[Official Report, Commons, 2/11/11; col. 929.]

In the same vein, the Minister for the Cabinet Office, the then Francis Maude MP, gave a guarantee that

“outside of the scheme designs parameters” there would be

“no further reform for the next 25 years.”—[Official Report, Commons, 20/12/11; col. 151WS.]

This proposal, the introduction of the economic test, is a clear breach of the commitment given by the Government in 2011. The agreement reached then was difficult for many unions and members to accept, as it amounted to public servants paying more, working more and getting less, but unions engaged in the negotiations in good faith and most accepted the resulting deal. The cost-control mechanism set out at that time was a key part of that arrangement.

From the hard information we have been given so far about the economic test, it gives the appearance of being designed to allow the Government to override the results of the cost-control mechanism in the event of what is termed a downward breach of the cost cap. A downward breach is when the value of members’ benefits falls by a significant amount—by a tenth or more, roughly speaking. Such a fall in the value of members’ benefits can arise from a combination of factors, but principally from a reduction in longevity compared with what was expected or from lower rates of inflation, to which benefit increases are linked.

The situation is that the value of members’ benefits might fall significantly and, consequently, they are entitled to an offsetting increase in their benefits to restore their value. But with this amendment the Government are given the power to cancel the increase on a basis that so far is ill defined. The Government and the Minister emphasised the potential for the economic check to be used to override an upward breach and stop the consequent cuts in members’ benefits, if the existing benefits are considered affordable.

To summarise, on the one hand, when growth in the economy is greater than expected, members will not have to suffer cuts in benefits. On the other hand, if economic growth is less than expected, members will not enjoy increases in benefits to which they would otherwise have been entitled. The problem is that it introduces a large degree of subjectivity and potential for political considerations to influence what should be a transparent and objective process. This need for objectivity is only increased by the mistrust generated by the Government’s response to the initial 2016 valuations of public service schemes.

The Minister in the Commons said that the cost-control mechanism

“will operate in a transparent way and be linked to an objective and independent measure of expected long-term earnings and GDP growth from the Office for Budget Responsibility”.—[Official Report, Commons, Public Service Pensions and Judicial Offices Bill Committee, 27/1/22; col. 33.]

But we have no idea in any detail how this will operate. We have no idea how transparent and open to debate it will be.

The detail will be set out in Treasury directions, which never come before this House, let alone the Commons. Treasury directions are not like delegated legislation. They are made by the Government with no form of accountability, so the Government will effectively be able to tear up the cost-control mechanism that unions were promised would last 25 years. That is why I believe Treasury directions are unsuitable for something so significant that will affect the terms of employment of our public sector workers.

The Minister needs to look again at how to restore trust and confidence in public service pensions in future without resiling from the promises given 10 years ago. At the very least, will the Minister spell out for the House in more detail how the Government propose to get from the figures provided by the Office for Budget Responsibility to the ultimate decision not to proceed with increases to which members are entitled?

Having addressed the issue of Amendment 48, I will shift gear somewhat and move on to Amendment 54. I am opposed to the new clause, which was introduced in the Commons on Report—a very late stage of the Bill’s progress through the Commons. It gives the Secretary of State the power to issue guidance or directions to authorities that administer public sector pension schemes that would ban them from taking investment decisions that conflict with the UK’s foreign and defence policy. In practice, as has been explained, this affects only the Local Government Pension Scheme, as it is the only significant public sector pension scheme that has investments.

The new clause would reverse the decision of the Supreme Court in the case involving the Palestinian Solidarity Campaign. The full judgment is worth reading as it sets out the argument against ministerial involvement in trustee decisions with force and clarity. The court found that the Secretary of State was wrong to claim that the Local Government Pension Scheme administrators were part of the machinery of the state. This claim fails to recognise that the administrators have duties which, at a practical level, are similar to those of trustees and that they consider themselves as quasi-trustees who should act in members’ best interests. The court also found the Secretary of State’s claim that contributions to the scheme are ultimately funded by the taxpayer equally misleading, as the fund represents the contributing employees’ money, not state money.

The proponents of the new clause tried to make BDS the issue, but it is actually about government overreach. The Supreme Court ruled that the power of the Secretary of State to issue guidance to local authorities has to respect their primary responsibility as quasi-trustees of the fund. The Secretary of State was not entitled, therefore, to make authorities give effect to his own policies in preference to those that they themselves thought it right to adopt in fulfilment of their fiduciary duties.

I want to make it clear that I do not want to be thought of as simply wishing to dodge the issue of BDS. I would welcome a debate on BDS, but that is not what we are discussing here today. This amendment does not mention BDS and potentially goes much wider, with a potential impact on the whole environmental, social and governance agenda.

The House will be aware that there is general support for initiatives that help pension schemes with assessing ESG-related risks. Indeed, the Government have enacted legislation that requires schemes to consider ESG objectives. It is now accepted that pension funds’ fiduciary responsibilities to members, which prioritise generating investment returns, permit scope to allow the removal of investments on non-economic grounds if they do not materially harm investment fulfilments.

It should also be understood that the Local Government Pension Scheme advisory board for England and Wales has produced guidance on responsible investment and provided investment decision-makers with a range of information, case studies and tools to help them meet the challenges involved. This guidance should be sufficient, and it is not necessary, therefore, to consider further legislative intervention in the operation of their investments or changes to the long-standing law in this area.

I understand that the Pensions and Lifetime Savings Association—the body that represents workplace pension schemes, including the Local Government Pension Scheme—has written to the Treasury to urge the Government to give more time and thought to how this would work in practice before it is adopted into law. We know, as the Minister has explained, that the Government are also considering more widely what role investment funds can play, particularly in promoting local investment, as part of their levelling-up agenda.

I have three more points. First, it should be recognised that in the context of the Local Government Pension Scheme, investment decisions have a potential impact on the contributions paid by employers and members of the scheme. Decisions made to align with government policies may result in additional costs to local government employers and employees, and to the many private sector operations included in their schemes.

Secondly, there is some doubt as to whether the amendment in its current form will work in the way that is intended. It fails to resolve the potential conflict between the Secretary of State’s directions and the trustees’ continuing duties to their members. It calls into question the relationship between the power of the state over individual property rights. At the very least, there is a question about interference with rights under the European Convention on Human Rights.

Thirdly, how are the foreign and defence policy objectives to be decided? There is no clue in the amendment about how rulings and decisions are to be made as to what constitutes the country’s foreign and defence policies. Often, they can be in conflict, and what should the schemes do in those cases?

To conclude, hasty and ill-thought-out legislation on such a complex issue is likely to result in many unintended consequences. If it is to be considered further, it would be better to look at it in the context of the Government’s wider policy on investments by public bodies. As the Minister has explained, the Government have a manifesto commitment to ban public bodies from imposing their own direct or indirect boycott, disinvestment or sanction campaigns against foreign countries. Perhaps the Minister could tell us more about whether they are going to procced with this policy, and if so, how? Given the lack of clarity about the commitment, until the Government come forth with worked-out proposals in this area, what we have here seems premature and opportunistic.

Photo of Baroness Deech Baroness Deech Crossbench 4:30 pm, 9th March 2022

My Lords, let there be no obfuscation. We know what local authorities have already been trying in relation to BDS. We should be clear that the boycott which the noble Lord, Lord Davies, is anxious to facilitate is aimed at one state only. Local authorities have not been trying to divest from China, Myanmar, North Korea, nor even Russia, but only one state—Israel. The BDS movement is intended to delegitimise Israel, and ultimately destroy the state. Singling out Israel for boycott is out of all proportion to other states in this troubled world, and it is anti-Semitic. That is because it applies double standards and denies the Jewish people own right to self-determination, as defined in the IHRA definition.

The noble Lord, Lord Davies, is also reckless as to the interests of public pension holders, who, if asked, would not want to be drawn into a Middle East conflict and are likely to wish to continue to enjoy the fruits of investment in Israeli technology and medical products, not to mention technology that goes into iPads, iPhones, electric car batteries, and other important everyday products. BDS almost always equates to anti-Semitism, which is why Sir Keir Starmer has come out against it and continues his efforts to rid the Labour Party of the anti-Semitism found to be present in it by the EHRC. It does not help the peace process; BDS fuels a rise in anti-Semitic incidents, and the growing number of assaults on Jews and Jewish community buildings. We cannot allow local authorities to make flag-waving foreign policy decisions, bringing their communities into conflicts which are not relevant. Do we want local government pensions scheme investing in Russia? There is no reason why government policies should not be determinative of this.

Bearing in mind our discussions this afternoon, in the Second World War, over 1 million Jews died in Ukraine. Today, Israel has taken in thousands of refugees from Ukraine, Jewish and non-Jewish. Never again will persecuted Jews have no safe place to go, for Israel is the haven for them and the home for survivors of the Holocaust. This is the moral choice that faces your Lordships in relation to Amendment 54A. It is clear that the amendment of the noble Lord, Lord Davies, is not it.

Photo of Baroness Sheehan Baroness Sheehan Liberal Democrat

My Lords, I speak at this stage of the Bill because Commons Amendment 54 was tabled so very late on Report in the Commons, after it had already been through this House where it started. How extraordinary it is that an amendment with such potentially wide-ranging impact should have been tabled so that no meaningful scrutiny was possible, with so little notice that the local government pension scheme advisory board was only able to publish its consent after the amendment was passed in the other place.

The concerns the amendment raises are substantial. They go to the heart of who takes the decision on how an individual’s money is invested. Should it be the Government, or should it be the representatives of the people whose money is being invested, which in this case would be the scheme administrators who fulfil the same functions as pension fund trustees? The crux of Amendment 54 is that it is the Government’s money, and the Government should be the final arbiter of the decision. However, when that was tested in 2020, the Supreme Court disagreed and ruled against that contention, asserting that the funds of members of public centre pension schemes belong to the members. It is not public money.

Amendment 54 from the Government seeks in effect to negate that decision. If it were to become law, the Government could issue guidance or directions—and I quote from the explanatory guidance—that

“public sector pension schemes, including the local government pension scheme … may not make investment decisions that conflict with the UK’s foreign and defence policy.”

The crucial decision of who will make the divestment decisions based on ESG and ethical considerations, if Amendment 54 were in place, becomes more blurred.

Some examples may help to illustrate the frictions that could arise. What is happening in Ukraine is uppermost in all our minds. This is not about anti-Semitism; this is about humanitarian concerns. That is why those decisions are taken. What is happening in Ukraine is something we all care about enormously. Many people are outraged by the Russian regime’s callous disregard for innocent civilians who dare to resist their advance. Suppose an LGPS scheme decided to divest from a Russian-owned organisation that is not on the sanctions list—this was the situation not so long ago with Gazprom —the existence of Amendment 54 on the statute book could have deterred that scheme. That, in effect, would be its consequence, given its vague wording and potentially broad application.

Local councils should have a duty to invest ethically, and they should be able to do so unequivocally in alignment with the UN guiding principles on business and human rights. If what is in those principles are not clear to any noble Lords in the Chamber, perhaps they should Google it. It speaks to a very specific example. In areas of the world where states are in breach of international law with clearly documented and verified violations of the human rights of civilian populations, such as is occurring on a regular and sustained basis in the occupied Palestinian territory, local authorities should be able to exercise their ethical judgment and divest from companies that produce and deal in goods from the illegal Israeli settlements in Palestinian territories. However, through Amendment 54, the Government could mandate that if they were to do so, they would be in conflict with the UK’s foreign and defence policy. That cannot be right.

On another issue, fund administrators also have a responsibility to invest in alignment with domestic legislation, such as meeting our net-zero target by 2050, and with international agreements, such as the Glasgow climate accord, agreed at COP 26 just last year. It is not just a responsibility to safeguard environmental and natural assets that is at stake: ultimately, it is the fiduciary duty of fund managers to act in the financial interests of their members.

In 2020, in his annual letter to CEOs, Larry Fink, CEO of BlackRock, the world’s largest assets manager with $10 trillion of assets under management, stated that

“climate risk is investment risk.”

Mark Carney, too, has warned that continued investments in fossil fuels risks write-offs and stranded assets. Local authorities must be able to divest from sources of oil, gas and coal wherever in the world they happen to be, regardless of whether that decision is in alignment with the Government’s foreign and defence policy. Not only must local authorities be able to meet their ESG requirement, they must also be able to fulfil their fiduciary duty. This amendment will hamper their ability to do both, and it should not be included in this Bill.

Photo of Baroness Altmann Baroness Altmann Conservative

My Lords, I will address both amendments from the noble Lord, Lord Davies, with whom I so often wholly agree on pension matters; but I am afraid that, in these instances, I find myself in disagreement.

As regards Amendment 48, I would like to make it clear that I support both the amendments that were passed in the Commons. I also believe that public sector workers deserve good pensions. They have good pensions. This stems from the changes that were made in the Hutton review in 2011. I confess that I was astonished at the time that a 25-year settlement seemed to have been agreed in the context of defined benefit pensions, for which costs can change so dramatically in that kind of timeframe. Indeed, employers have found that the costs have significantly increased.

In 2010 or so, the cost of providing a standard public sector pension would have been, perhaps, between 30% and 40% of salary. Subsequent to that, the costs have risen to at least 40% to 50% of salary, if not more than that. So, in effect, there has been a significant pay increase—albeit in deferred pay—for local government workers and public sector workers in general.

The 2016 valuation, based on various assumptions, also does not necessarily mean that the costs at the time would be the ones that are experienced today. Were a valuation to be conducted, say, three years later, four years later or five years later, there would be a significant increase in cost, but by relying wholly on the 2016 valuation and not factoring in the judgments of the courts in terms of the transitional protections agreed, it would appear that the workforce should have increased pension offers, which would subsequently need to be potentially reversed under this economic test.

Part of the problem stems from the expectation—which is wholly unrealistic—that there can be a 25-year guarantee for the kind of defined benefit pensions that are underwritten by taxpayers. That is also an important consideration because local government pension schemes do not belong to the Pension Protection Fund. The benefits promised to the workforce are underwritten by what are called employers, but they are actually taxpayers across the whole country, whether it is council tax payers or ultimately general taxpayers. Given the fiscal situation that we are currently in, and given the changes in the fiscal situation that can accrue, I believe that there is clearly a government interest and a taxpayer interest in the delivery of the benefits of these schemes. It is not just individuals’ money; it belongs to all of us, because we underwrite the full value of all public sector pensions, including the LGPS—which is not, as I say, part of the Pension Protection Fund, so there is no other underwriting available.

So I believe that Amendment 48 is appropriate and I will turn briefly to Amendment 54, where similar concerns would arise. The Secretary of State is now able to directly administer, in accordance with this amendment, that local government pension schemes should not make investment decisions contrary to UK foreign and defence policy. That seems to me to be not unreasonable, given the taxpayer underwriting. There should not be politically motivated boycotts or divestment.

This amendment also fulfils the Government’s manifesto commitment in this regard to stop public bodies running their own independent direct or indirect boycotts. BDS should be nothing to do with pensions. It is just about politics. Given the government under- writing, as other noble Lords have indicated, effectively, the BDS movement has been about one country and encapsulates anti-Semitism. It delegitimises Israel’s right to self-defence and judges that only Israel is guilty of prolonging the conflict between the Palestinians and Israelis. Such assessments have no place in pension decisions. This is also in opposition to government policy, and I commend the Government for their steadfast opposition to BDS and their support for the Abraham accords.

I also find it very difficult to comprehend some of the briefings that we have received which suggest that, by passing this amendment, which would take away the current ability for local authorities to decide of their own accord that they disagree with government policy and would like to impose movements that take money out of, for example, Israel, this is somehow an ethical decision. Anti-Semitism cannot be an ethical decision. One may argue about the breadth of the wording of the amendment and, as my noble friend the Minister said, the Government may or may not decide to disagree with such investments. But insisting that there is no possibility, and that the Government and taxpayers, who underwrite these investments, should not be able to step in and make such politically motivated decisions, or decisions motivated by policies that do not accord with government thinking and manifesto commitments and so on, I believe is appropriate. Therefore, I urge noble Lords to support these amendments, and I apologise to the noble Lord, Lord Davies, because I fundamentally disagree with him on these issues.

Photo of Lord Macdonald of River Glaven Lord Macdonald of River Glaven Crossbench 4:45 pm, 9th March 2022

My Lords, I entirely agree with the noble Baronesses, Lady Deech and Lady Altmann, that BDS is a discriminatory and racist movement whose object is the destruction of the state of Israel, and unmistakably so. However, I do not agree with them that that is a reason in itself for supporting Amendment 54. For all the reasons articulated by the noble Baroness, Lady Sheehan, my view is that this amendment represents overreach by the Government and has hardly received the sort of scrutiny that such an important measure clearly requires.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

My Lords, I had not intended to speak in this debate except to say a few words on the cost control amendments, at the request of my noble friend Lady Janke, who is leading for us on this issue. I shall now say very little on cost control, except that I am very much in the same camp as the noble Lord, Lord Davies.

My answer to the noble Baroness, Lady Altmann, is that if the Government decide that a commitment they made to a 25-year agreement is one that they no longer wish to keep, they should reopen the negotiations, not turn to Parliament in the late stages of the passage of a Bill and take for themselves powers to simply override the commitment that they once made. This was supposed, from a public pensions perspective, to be a Bill that simply corrected unlawful parts of the structure that the Government had entered into that were struck down by the courts in the McCloud judgment. The Government used that as an opportunity to go far beyond that.

I have problems with the cost control mechanism altogether, because it basically says that the mistakes the Government made need to be paid for by the scheme members as a whole: we will correct the injustice to a particular group, but the cost of that will be picked up by the other pensioners in the scheme. Now the Government have essentially said that if they mismanage the economy, that cost needs to be picked up by the members in the scheme as well. At the very least, they should have gone back and negotiated with the parties with whom the original arrangement was structured.

I shall now speak to the other amendment, partly because of a word used by the noble Baronesses, Lady Deech and Lady Altmann: “anti-Semitism”. When I read Amendment 54, it is a direction—I think the Minister tried to emphasise that it is guidance, but it is not guidance, it is a direction, and it says that very clearly in the amendment. I was told that various people were very concerned not to vote against it in the Commons because they were afraid that they would be labelled anti-Semitic. I thought, “Nonsense, not in a Parliament like this, not among people of the standing we have in the House of Commons and the House of Lords.” Yet, I heard very clearly from the noble Baroness, Lady Deech, the notion that opposing the amendment is anti-Semitic. I oppose it, and I dare her ever to say that I am anti-Semitic.

When I see those crowds of refugees coming out of Ukraine, they are to me an evocation of my grandparents, my aunts, my uncles and my cousins who were taken to concentration camps or as slave labour for the Hungarian army on the Russian front. In every political campaign I have waged, I have been attacked for being a Jew. In the most striking attack, a physical attack on my son and on me with eggs and flour, we had to be barricaded into a room and rescued by riot police. I dare the noble Baroness to label me anti-Semitic, but I oppose that amendment, and precisely for the reason that the noble Lord, Lord Macdonald, gave: this is total overreach. Israel and that issue is the excuse.

I look at the actions of the Government in so many ways. When I look at the powers they have taken away from local government, essentially trying to reconstruct it just as an agency of central government departments; when I look at what happens in this House, with skeleton Bills and Henry VIII clauses; when I look at the way that powers that came from the European Union were transferred directly to regulators, becoming, in effect, no longer either visible or, certainly, accountable, I see a constant shift of a central Government that feels they have the right to reach in and take and do whatever they please. With their 80-seat majority in the Commons, they can achieve exactly that and this measure is exactly part of that.

I referred to my family and will do so again. My grandsons have not only the heritage of those who died in the Holocaust but the heritage of those who were slaves. Had this particular amendment been available when Margaret Thatcher was Prime Minister, she could have—and I think we know would have—directed local government pensions to invest in apartheid South Africa and would not have permitted anyone who objected who was part of those pensions to have refused that investment. To me, that is outrageous and it is the fundamental flaw that sits within this amendment.

Looking at this amendment, I say to the noble Baroness, Lady Altmann, who suggested that these pension funds are somehow owned by the taxpayer, that these pension arrangements are in lieu of salary. I do not believe that anyone would say that the salary paid to a local government official should be invested under government direction, so why should the pension of a local government official be invested under government direction?

I will speak later on the economic crime Bill, very much in support of sanctions against Russia. However, those sanctions apply to everybody; they apply to every asset, public and private, and to every pension. The rules are universal. I do not have a problem with universal rules, used in extremis, which is exactly the proposition that the Government will make to us today. I do have a problem, however, when local government is singled out—when the pensions of local government servants now come under the direction of the political interest of a Government. If the Government feel so strongly that the current trustees are behaving inappropriately, they could easily have made an arrangement whereby investment decisions are put to the members; they could let them decide what they think is ethical from their perspective and how their money should be used.

I agree very much with those who have said that this is overreach. If anybody uses that word “anti-Semitism” to address opposition to this, it tells you how utterly empty the policy is in and of itself.

Photo of Lord Mann Lord Mann Non-affiliated

My Lords, we could have a long and interesting debate on the question of anti-Semitism, but I fear that issues are getting slightly confused. Unless I have read this government proposal inaccurately, the Government are not proposing to give themselves powers to instruct any local authority on what it should do; they are giving themselves powers to prevent local authorities involving themselves in what local authorities might like to describe as foreign policy.

I am, on balance, in favour of this proposal, but I could put an argument against it, which would be about its impact on the BDS movement—which is, I think, in my lifetime, the most unsuccessful political campaign that I have seen. It has attempted to close down links between British academics and Israeli universities and academics and, as a consequence, those links have been greatly enhanced and deepened. It has attempted to target all sorts of investments and has failed to do so. There is an example, though, of a local authority attempting to do what might be caught out by this amendment. Sussex County Council, in 2021, following a big campaign—well, not very big, but noisy—by a small number of people demanding that it boycott Israel, made a decision. But when one looks at the decision that it made, it was not making a foreign policy statement expressly; it was fiduciary duty, the council claimed.

Did the council boycott Israel, or the alleged targets, the settlements—that was the original concept of the BDS campaign—but, having failed in that, then shift to Israel? No, it did not. It went to where things have now shifted again. It targeted multinational companies that were, it alleged, operating in Israel. The precise companies that it targeted and the products that it cited were exactly—and I mean exactly—the same products and companies that Zelensky and the Ukrainians are repeatedly requesting to defend themselves from the Russian invasion. That is what that would have meant in terms of disinvestment. The BDS campaign was not a success anywhere. It is about the impact on the Jewish community—particularly the young Jewish community, which gets this and worse thrown in its face repeatedly and constantly. It is about virtue-signalling, when the people who did it did not even have the bottle to say what it was about but pretended, in that one example, that it was fiduciary duty. That is what is particularly abhorrent to me.

It seems a nonsense that local councils, without any consultation with anyone, should try to determine their own particular aspects of British foreign policy. We elect parliamentarians to do that. We, the unelected, can scrutinise in our modest and I hope sensible way, but we elect parliamentarians to do that. It is the essence of electing parliamentarians that, for better or worse, they determine British foreign policy. Councillors and councils should do what councillors and councils should do—I have been a councillor in the past—and not cross over. That is the modesty of this proposal, as I understand it; it therefore seems, not least because some of these aspects were in the Government’s manifesto, that it would not be appropriate for this House to reject it.

I look forward to listening to the Minister—but please, Minister, if you stray into the BDS campaign in any way, do not give credit to a failed, miserable campaign that is run by extremists and targets the Jewish community. We should ensure that it remains a failed campaign and allow the good people of Israel, Palestinians and everyone else to get on with their lives.

Photo of Lord Leigh of Hurley Lord Leigh of Hurley Conservative 5:00 pm, 9th March 2022

My Lords, it is always a great privilege to follow the noble Lord, Lord Mann, whose excellent speech has clarified a number of things for me—and the rest of the House, I hope—about how we should look at Amendments 54 and 54A. I am somewhat puzzled by the assertion from the noble Lord, Lord Davies of Brixton, that Amendment 54 has nothing to do with BDS. I have listened to the debate in the House of Commons and, indeed, the debate this afternoon, and that does not ring true with me.

The predominant drive of the BDS campaign and its leadership is not criticism of Israel’s policies, which would be fair enough, but a demonisation and delegitimisation of Israel using other people’s money—and it is other people’s money. The BDS campaign promotes a biased and simplistic approach to the complex Israeli-Palestinian conflict and presents this dispute over territorial and nationalist claims as if it is the fault of just one party: Israel. The BDS campaign does not support Israeli-Palestinian peace negotiations and, by the way, rejects the two-state solution to the conflict that many people in this House would like to see. Many of the founding goals of the BDS movement, including denying the Jewish people the universal right to self-determination, along with the strategies employed in the BDS campaign, are anti-Semitic. Let us be clear. Many individuals—not all, of course—involved in the BDS campaign are driven by opposition to Israel’s very existence as a Jewish state.

I was in Manchester with my daughter, who is a student at Manchester University. We went shopping in the city centre and encountered a BDS rally. The people there were chanting a chant that noble Lords may have heard: “From the river to the sea”. Do you know what that means? My daughter asked me, “What does that mean for my friends in Israel?” It means their annihilation.

BDS campaigns create tensions in communities in the UK, particularly on college campuses, which result in harassment or intimidation of Jews and non-Jewish Israeli supporters. This sometimes includes overtly anti-Semitic expressions and acts. As I said, this uses taxpayers’ money. This dynamic can create an environment in which, apart from anything else, anti-Semitism can be expressed more freely. I would not wish to suggest that anyone who supports the amendment of the noble Lord, Lord Davies, is anti-Semitic at all; I want to make the point about the BDS.

The Government are preparing legislation for the next parliamentary Session to stop public bodies from pursuing BDS activities because of their harmful impact on our foreign policy and trade interests. As has been said, the 2019 Conservative Party manifesto pledged to

“ban public bodies from imposing their own direct or indirect boycotts … against foreign countries.”

The Prime Minister himself has previously criticised public policies for adopting

“their own pseudo foreign policies against countries which with nauseating frequency turns out to be Israel.”

To his credit, in 2021, the Labour leader, Sir Keir Starmer, stated that:

“Labour does not—and will not—support BDS.”

I hope that Amendment 54 will receive full support from all Members of this House, and that all Members of this House will oppose Amendment 54A. Abstaining is not sufficient.

Photo of Lord Polak Lord Polak Conservative

My Lords, it is a pleasure to follow my noble friend. I will be brief. The UK is Israel’s third largest trading partner, with £2.7 billion-worth of British exports and an overall trade relationship worth £4.8 billion. With improved and growing relations in the Middle East between the Arab world and Israel—the Abraham accords were referred to—and the UK’s very strong connection with Israel, I must say that the BDS campaign is a relic of a past war which is no longer being fought in the region, but rather by a small and divisive minority here in the UK.

Amendment 54, which has passed in the other place, will put an end to the politicisation of public sector pension funds. The main goal of local authorities—in my view as someone who is not a pensions expert—is to improve community cohesion, create local jobs and increase economic growth opportunities in their area. Supporting this amendment will allow the Government to send a clear message that global cohesion on an international scale—and the enhancement of economic growth and opportunity on a local level—should not be jeopardised by the divisive politics of a very small minority.

Photo of Baroness Janke Baroness Janke Liberal Democrat Spokesperson (Work and Pensions), Liberal Democrat Lords Spokesperson (Work and Pensions)

My Lords, I too thank the Minister for his presentation and the noble Lord, Lord Davies, for bringing forward these amendments. I also declare my interest as set out in the register.

As my noble friend Lady Kramer said, Amendment 54 is a crude and oppressive attempt to fetter the discretion of local government pension schemes. It was introduced late and with minimum scrutiny. The Government should not be in the business of directing how local government pension schemes should invest their funds. These funds are set up under strict legal requirements, as we have seen. Their members are very often vocal about wishing to have ethical considerations considered as part of their investments. As far as I can see, schemes do not appear to have been damaged in any way by investments of local government pension schemes.

The job of pension scheme managers should not be to look at UK foreign policy when setting their investment strategy. That really is not their job. Foreign policy changes, and Governments change, so are we really expecting local government pension scheme fund managers to change their long-term investment strategy every time the UK’s foreign policy changes?

As I said, local government pension schemes aspire to invest ethically, with the members of such pension schemes having the right to express their ethical views and to have them taken into account. Why should these people not require ethical considerations? As my noble friend Lady Kramer mentioned, a clear example in the 1980s was disinvestment from South Africa. The then UK Government were obdurate and determined to defend South Africa from financial sanctions despite the violence, discrimination and widespread human rights abuses of apartheid. I, for one, cannot see why pension schemes should not reflect the views of their members when they want to protest against human rights being abused, as was happening in South Africa.

In the mid-1980s one in four Britons were boycotting South African goods. Many local councils followed their local communities and measures were taken to disinvest from South Africa, including pension schemes, and there were boycotts of South African goods and the boycott of Barclays Bank, which pulled out of South Africa. It was certainly said at the time that foreign banks calling in South African loans was one of the reasons given by the South African President that enabled him to agree with his party the release of Nelson Mandela. So I do not accept that pension schemes should not be used for these purposes.

I feel that this is a measure introduced by a Government with an authoritarian record who wish to take more and more powers to themselves and using the whole idea of BDS to justify that. The amendment is also so loosely worded—as my noble friend Lady Kramer has said, it is directions, not advice, that is being given— that it could easily prevent local government pension schemes making prudent investment decisions based on environmental, social and governance considerations, as is part of their code of conduct. For example, the local authority pension scheme of my former authority, Bristol, sought to disinvest from the tobacco industry as a result of the campaign by Smokefree Bristol. I know of local authorities that wish to disinvest from Saudi Arabia on the grounds of arms sales, and others are looking at boycotting investment in China on the basis of its treatment of the Uighurs and its conduct of the affairs of Hong Kong. As my noble friend Lady Sheehan has said, carbon-neutral boycott is now a common principle, and many local authority pension schemes wish to disinvest from further investment in local gas and coal.

We have experienced in other legislation the relentless expansion of government powers. There is an opportunity in this amendment for the Government to interfere in pension scheme investment when it is not in line with their own views—and I have to say that Governments are notoriously slow in catching up with public opinion.

I thank the noble Lord, Lord Leigh, for clarifying that criticism of the Government of Israel is not at all anti-Semitic. I would also like to thank the noble Baroness, Lady Deech, for her contribution—although she seemed to imply that if we support this Motion then we are somehow being anti-Semitic. I disagree with the noble Baroness, Lady Altmann, with whom I have had the pleasure of working on many pension schemes issues: I do not believe that there is any anti-Semitic intention behind this. I do not see why, if people object to the Israeli Government’s treatment of the human rights of Palestinians, they should not demonstrate that and campaign for disinvestment from Israel if that is part of their beliefs.

The amendment is ill thought-out, badly worded, hastily constructed and has been introduced with no scrutiny, and I do not believe we should support it. If the noble Lord, Lord Davies, moves his amendment and tests the opinion of the House, we will support him.

Photo of Lord Ponsonby of Shulbrede Lord Ponsonby of Shulbrede Shadow Spokesperson (Justice), Shadow Spokesperson (Home Affairs) 5:15 pm, 9th March 2022

My Lords, I thank the Minister for his presentation, and I shall speak first to Amendment 48, on the cost control mechanism. We agree with the points made by my noble friend Lord Davies of Brixton, reiterated and added to by the noble Baronesses, Lady Kramer and Lady Janke. In the Commons, we raised these concerns over the introduction of what the Government call the “symmetrical economic check” and voted that this particular reform of the mechanism should not be added to the Bill. I will not repeat the background, which has been expertly put forward by my noble friend, but will just echo the concern that this breaks the Treasury’s 25-year guarantee that there would be no further fundamental reforms.

In 2011, the Government’s Paymaster-General said that those reforms represented a settlement for a generation, and they arose out of the 2011 Hutton review. Further, does the Minister recognise our concern that these reforms risk undermining the faith of public service workers in their pension schemes? What does the Minister expect of future reforms? Since the Government are clearly set on pushing ahead with the economic check, what would be most helpful now are answers to the questions put by my noble friend Lord Davies on how that would work in practice.

We raised concerns in the House of Commons that the check was insufficiently transparent and gave too much room for ministerial interpretation. As has been said, the Government’s answer is that discretion will be limited as the check will be linked to objective and independent figures from the OBR, although that particular element is not set out in the Bill. I should be grateful if the Minister confirmed that. I am hopeful that he will be able to provide some more detailed answers on the process that we should expect and how the OBR figures will be used—a point made by my noble friend Lord Davies.

Turning to Amendment 54, it is fair to say that it is an unexpected addition to what is in reality a technical Bill. It causes one to reflect on the Government’s lack of control of their own Back-Benchers in the House of Commons. The Labour Party supports the broad thrust of the new clause but shares concerns over its wide scope and possible unintended consequences. We also agree with the noble Baronesses, Lady Kramer and Lady Janke, that there is a huge element of government overreach here and we are mindful that the amendment represents directions, not guidance.

We in the Labour Party are unequivocal in our opposition to the divisive and discriminatory use of BDS against the State of Israel. We do not believe that such an approach is appropriate or would enhance the prospects of peace through a negotiated settlement to the conflict, based on a two-state solution. However, regrettably, the clause is poorly worded, too broad in scope and, as we have heard, could cause difficulties for local authorities wanting to take a principled stance on, for example, China’s treatment of the Uighurs. Many other examples have been given in the debate. It is clear that the Government have chosen to progress the Bill with this additional clause but also intend to introduce further legislation in the Queen’s Speech that will be more detailed in this area. It would be helpful if the Minister clarified what comes next and how concerns raised in today’s debate will be considered. What ongoing engagement are the Government having with the Local Government Association, which has raised concerns, and many other bodies interested in this area? I understand that a full consultation process is required before any guidance or directions can be issued under the new clause. What will that consultation process look like? Are there plans to launch a consultation, or will that not be entered into until further legislation is brought forward at the Queen’s Speech?

Finally, I repeat a question on Russia asked by a noble Lord. If schemes want to divest quickly, for example because of links to Russia—Gazprom was mentioned—would anything in the directions under this clause of the Bill put that ability to act in jeopardy in the future? Can the Minister talk to this specific point? It is obviously extremely pertinent right now but there may well be similar issues in future.

Just to be clear, if my noble friend were to press his amendment to a vote, we would abstain.

Photo of Viscount Younger of Leckie Viscount Younger of Leckie Lord in Waiting (HM Household) (Whip)

My Lords, I am pleased to know that the great majority of the amendments have been well received. I thank all noble Lords for their considered contributions. There was quite a bit to cover and a number of questions. As noble Lords would expect, I will do my best to answer them all, or as many as possible within the timeframe allowed.

As the noble Lord, Lord Davies, said, two key themes have emerged in today’s debate. The first is guidance on investment decisions for the Local Government Pension Scheme, and the second is the economic check element of the cost control mechanism reforms. I will start with the latter and turn first to the CCM, as it is called, and in particular the economic check, as raised specifically by the noble Lord, Lord Davies of Brixton. I will speak to Amendment 48. I understand from the noble Lord’s contribution that his concern is specifically with this check, but it is important to note that the effect of rejecting Commons Amendment 48 would be also to reject the framework for the reformed scheme-only design, which, as the noble Lord will be aware, is widely supported overall.

I turn to why we think the economic check is needed. It will ensure consistency between member benefit or contribution changes and changes in the wider economic outlook, as I addressed in my opening speech. To address the question of whether this is objective, the economic check will be linked to the OBR’s independent and objective measure of expected long-term GDP growth and the long-term earnings assumption. It will operate purely mechanically, with no scope for interference from individuals or groups from within government or outside. It will therefore operate transparently and be linked to an objective and independent measure of expected long-term earnings and GDP growth. Further details on the design and operation of the economic check have been set out in the Government’s consultation response published, as the noble Lord in particular will be aware, in October 2021.

I will go a little further on the clause making reference to different sectors of the economy. The Bill implements the framework for the economic check, which will ensure consistency with member benefit and contribution changes. The Bill will allow Treasury directions to set out how the economic check should operate its scheme valuations, including whether and to what extent the growth in the economy, or any sector of the economy, of the UK or any part of the UK should be taken into account. This will allow the economic check to be based on the OBR’s independent projections of long-term UK GDP growth. I will talk more about directions in just a moment. We believe that these reforms will make the mechanism more stable from the 2020 valuations onwards and allow it to operate more in line with its objectives, giving members greater certainty with respect to their retirement incomes.

I turn to points raised by the noble Lords, Lord Davies and Lord Ponsonby, my noble friend Lady Altmann and others on the 25-year guarantee. I took note of the points raised, but the Government do not believe that these reforms breach the 25-year guarantee. The elements protected by the 25-year guarantee are set out in legislation—namely, Section 22 of the Public Service Pensions Act 2013—and the cost control mechanism is not included.

The Government are making these changes following a thorough and independent review of the mechanism by the Government Actuary and a full and open consultation process. As I have noted, the Government Actuary’s report makes clear that it does not seem possible for the mechanism to be able to protect the taxpayer unless it considers the wider economic outlook. The symmetrical operation of the economic check will also protect members. Furthermore, the reforms will lead to a more stable mechanism, with both benefit reductions and improvements becoming less likely, which aligns with the spirit of the 25-year guarantee.

I turn to the original objectives of the cost control mechanism, on which I will again delve into more detail to try to give noble Lords some reassurance. The noble Lord, Lord Davies, asked for greater clarity on the CCM. As I set out in my opening remarks, the Government asked the Government Actuary to review the mechanism following provisional results from the 2016 valuations. This was the first time the mechanism was tested, and the provisional results indicated floor breaches across all schemes for which results were assessed, leading to concerns that the mechanism was too volatile.

As part of this review, the Government Actuary was asked to assess whether and to what extent the mechanism was working in line with the original policy objectives for the mechanism. These objectives are to protect taxpayers from unforeseen costs, to maintain the value of schemes to members and to provide stability and certainty on benefit levels, so the mechanism should be triggered only by extraordinary, unpredictable events. These objectives have been retained since the mechanism was first introduced in the Public Service Pensions Act 2013.

The mechanism was introduced following the recommendations of the Independent Public Service Pensions Commission in 2011. The commission, as the House will know, was chaired by the noble Lord, Lord Hutton of Furness, and specifically recommended a mechanism to protect the Exchequer from increased costs. However, the final mechanism negotiated between the Government and member representatives is symmetrical and so also maintains the value of pensions to members when costs fall.

Let me now turn to the second theme of BDS, as raised by several noble Lords. I hope I can give some reassurances. It was particularly raised by the noble Lord, Lord Davies, and the noble Baronesses, Lady Sheehan and Lady Kramer. I thought the remarks from the noble Lord, Lord Mann, were interesting, very balanced and very helpful. I hope my remarks chime to a large extent with what he said.

As I set out in opening, Commons Amendment 54 does not put a requirement on schemes to make any immediate decisions regarding their investments. It expands existing powers for the responsible authorities to issue guidance or directions, both of which would be drafted and consulted on. I reiterate that this would involve extensive engagement with the LGPS community over the usual 12-week consultation period, during which time all views and concerns would be considered. Any guidance or directions produced would set the parameters out in detail.

There will be consultation with the LGPS community when framing such parameters to ensure that all views and concerns are considered, including on ESG matters, which were raised by the noble Baroness, Lady Janke. I understand that the contributions made by several noble Lords, including the noble Baroness, were to do with ESG. I hope I can ease concerns by assuring the House that this amendment is strictly in relation to UK foreign and defence policy, as reiterated very strongly by the noble Lord, Lord Mann. Any guidance or directions issued would not seek to restrict decisions that meet the Law Commission’s test for investment decisions influenced by non-financial considerations except in a very narrow area concerned with UK foreign and defence policy.

In all other areas the existing tests would apply, namely that scheme managers must have good reason to think that scheme members would share their particular concern and the decision does not involve a risk of significant financial detriment to the fund. If issued, such guidance would seek to provide protection to LGPS funds by preventing decisions which would otherwise have been subject to challenge under the aforementioned Law Commission tests. To reiterate, this power would not be used to restrict the proper account of ESG matters in investment decisions.

To go a little further, I reiterate that these anti-boycott provisions are not about fossil fuels or climate change. The Government have passed legislation to require pension schemes to state clearly their policy on how they take account of climate change and its risks. Clearly, climate change will have long-term financial consequences. Notwithstanding that, fuels like natural gas will continue to play a vital role in Britain’s energy mix, particularly in the production of hydrogen as we transition to a net-zero economy. We need fossil fuel companies to invest in the new technologies to help deliver what we must do to reach net zero.

I will move on to focus on the use of “directions” as opposed to “guidance”—or just to discuss both—a point raised in particular by the noble Lords, Lord Davies and Lord Ponsonby. Administering authorities must have regard to guidance issued by the responsible authority. Directions allow responsible authorities to direct specific action by a scheme manager. For example, a direction may be considered appropriate if the responsible authority is satisfied that the administering authority is failing to act in accordance with guidance.

A power to issue directions is part of the existing statutory framework regarding investments, as set out in LGPS investment regulations in 2016. As was set out in guidance on the regulations, before issuing any directions the Secretary of State must consult the administering authorities concerned and, before reaching a decision, must have regard to all relevant evidence, including reports under Section 13 of the Public Service Pensions Act 2013, reports from the scheme advisory board or from the relevant local pension board, and any representations made in response to the consultation with the relevant administering authority. I can therefore assure the House that any directions or guidance issued under the new power relating to BDS in the LGPS would be subject to the same safeguards.

The noble Lord, Lord Ponsonby, raised an important point about future legislation. I am not sure I can give him too much reassurance on that, but I can say that BDS is an important issue, and that the Government will bring forward comprehensive legislation on the matter as soon as parliamentary time allows. I am sure that will not satisfy him, but that is as far as I am able to go.

Russia was raised by the noble Baronesses, Lady Sheehan and Lady Kramer—quite rightly, in light of the horrors in Ukraine. In addition to clarifying the position with respect to this amendment, I remind the House of the decisive action taken by the Government in response to Russia’s invasion of Ukraine. Since 24 February, we have announced an unprecedented package of sanctions, targeting 17 key Russian banks and more than 220 individuals and entities, including businesses and their subsidiaries, at the heart of Putin’s regime and in Belarus. Last week, the Government introduced the Economic Crime (Transparency and Enforcement) Bill, which the House will be well aware of. Rather coincidentally, we will have the opportunity to debate that Bill imminently. It will reform the system of unexplained wealth orders and introduce a new register of overseas companies owning property in the UK, which, together, will prevent foreign owners from laundering their money in UK property.

I appreciate that this Bill overall is particularly complex and technical, and the number of amendments made could be said to increase both these qualities. However, I hope that they provide greater clarity and certainty as to how the remedy prescribed in the Bill and all other relevant measures will be implemented. I am very grateful for this short debate today and for the contributions noble Lords have made. I hope my responses have provided some reassurances as a result.

Motion agreed.