Clause 34 - Automatic enrolment: powers to create general exceptions

Pensions Bill – in a Public Bill Committee at 4:45 pm on 9th July 2013.

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Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions) 4:45 pm, 9th July 2013

I beg to move amendment 14, in clause 34, page 18, line 16, at end insert—

‘(5) Regulations under this section shall be made only for the purposes of resolving inconsistencies or making technical adjustments or both, and may not be made to achieve substantive changes in policy. In particular, they shall not be made to exempt entire classes of business or businesses, such as small and medium-sized businesses, from automatic enrolment.

(6) Regulations under this section shall be laid before and approved by resolution of both Houses of Parliament.’.

The justification for the amendment emerges from my reading of the Bill and from questions that I asked some of those who gave evidence to the Committee. As I understand it, clause 34 is drafted very widely—so widely, in fact, that it would allow entire classes of employers to be exempted—and regulations made under clause 34 are not required by clause 45 to be approved by a resolution of each House of Parliament. As the Bill stands, that would allow a future Secretary of State abruptly to implement any such proposals regarding exemptions of categories of employer without Parliament having wished to make that possible or discussed it.

When I asked Neil Carberry of the CBI about clause 34 in the oral evidence session, he undertook to go away and look at it. I am delighted that he wrote to the Minister and to me and—I imagine—to the Committee. The crux of the CBI’s position is that in principle

“the CBI supports the intention of the clause. It is, however, too broadly drafted. As written, the provisions for exemptions will be framed by categories or descriptions of workers, or”— the next four words are italicised—

“in some other way which will be at the discretion of the Secretary of State for Work and Pensions. The inclusion of ‘in some other way’ would provide too broad a power to government to change the scope of automatic enrolment at any time it saw fit. For instance, it would provide the Secretary of State with a secondary legislation power to exempt some businesses. This is a move the CBI could not support, as it undermines the consensus that was reached on pensions reform by giving exempted firms a cost advantage over those within the” auto-enrolment

“regime. We believe, therefore, that the Government should remove the term ‘in some other way’ to address this.”

The CBI put the point well and that is the justification for our amendment.

I have no doubt that the Minister will say—I will believe him when he does—that the intention is to use the clause’s power sparingly to avoid anomalies in the system. I cannot really do better than the CBI’s response, however, and have to say that the provision is too widely drafted. The amendment would tighten up clause 34 to ensure that a future Secretary of State or Government could not use the power in a much wider way than the Minister intends.

I am sure that the Minister will forgive us saying that some of the context around auto-enrolment has been the potential impact of the famous or infamous, depending on one’s point of view, Adrian Beecroft report that was undertaken for the Prime Minister. When I first came into this role, that was the context in which some auto-enrolment stuff was discussed. I believe that Mr Beecroft made some recommendations, although my attempts to source a copy of the report through a freedom of information request sadly fell on deaf ears. We have, however, seen changes to the auto-enrolment regime and we know that some interests are concerned about auto-enrolment’s impact on various groups of employers, but I know that my view and the Minister’s view is that auto-enrolment must encompass as wide a cross-section and range of employers and employees as possible.

In that spirit, I hope that the Minister will ensure that there can be no shenanigans regarding the usage of clause 34 at some point in the future. The CBI suggested our amendment, but the TUC has also pointed out the clause’s drafting problems. I ask the Minister to accept the amendment, but if he cannot accept it from me, I ask him to accept it from the CBI and the TUC so that the situation that I have outlined does not arise.

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

Clause 34 is designed to ensure that we do not automatically enrol people whom it would be a bit daft to enrol. The danger of everything being in primary legislation is that people do what they think is right and then a situation that was not thought of arises or becomes more prevalent and flexibility is required. The Government published another consultation in March 2013 titled “Technical Changes to Automatic Enrolment”. I am happy to send the hon. Gentleman a copy if he has not seen it.

On page 24, under “Automatic enrolment—other changes”, is “Excluding certain categories of worker from the automatic enrolment duty”. We have been explicit about the kind of categories that we have in  mind. One example might be active members of money purchase schemes who have given notice of retirement—people who have told their employer that they are about to retire, but, because the law says that they have to be auto-enrolled, have to be put in a pension scheme by their employer the week before they retire, leaving them having to opt out after leaving the firm.

Another example might be people who have handed in their notice during a deferral period—the firm is going to auto-enrol them, but has deferred doing so, but they hand in their notice and the notice period goes past the end of the deferral, so the employer has to enrol them even though they are going to leave. At a pensions conference, I came across one employer who had had to auto-enrol someone who had not started with the firm and not even actually worked for it, because of a change of mind. Such things need to be dealt with.

There is a briefing paper on clause 34, of which we have notified the Committee. It has been published, in case hon. Members want further details, and it includes those kind of examples. Another one that we are often asked about is wealthier individuals who have exceeded their lifetime income tax limits—enhanced or fixed tax protection cases. It is patently obvious that those folks should immediately opt out, so that they do not undermine their protection on tax relief, but we still require employers to put them in, assuming and hoping that they will opt out again. That is a bit of a waste of time for everyone.

In all such things, we are trying to think of things that have been brought to our attention as automatic enrolment has started, so that we can avoid bringing it into disrepute. In theory, one might imagine that we know what they all are. Truth tells us, however, that as time goes by, new things arise. For example, we set up payroll periods—we have weekly rates, fortnightly rates, four-weekly rates, monthly rates and all the rest of it—but then someone said, “Ah, yes, but if you teach in a private school, you might be paid three times a year, once each term. Have you thought of that?” So we need another bit of the rules to deal with three payments a year. Only when we are doing things—in real time, live running—do we come across new examples.

Clause 34 is therefore deliberately broadly drafted to enable us to cover situations as they arise, to avoid auto-enrolment being a waste of time. I understand that the CBI is worried about the clause because it does not want us to use it to exclude small firms. Had we been going to use it to exclude small firms, however, we would bloomin’ well have done it by now, because we could have done. When we rescheduled the roll-out to small firms, we chose to do it by giving them extra time, but we did not exclude them. The Government took that decision, and I stand by it.

The hon. Gentleman says, “Yes, I trust you”—as he regularly says—“but what about your dastardly successors?” After the next election, a malign Government might step in and want to exclude small firms, but if a malign Government come along and want to exclude small firms, they will just pass a law and do it. We cannot stop a future Government excluding small firms. Even if we accepted his amendment—and he will not be surprised to learn there are issues about how it is worded—and put the provision into the Bill, a Government that wanted to exclude small firms would just remove it again. We cannot bind future Governments, and this  Government do not need binding, because we have made our position perfectly clear: clause 34 is about odd exceptional cases and things that might arise.

On the amendment, a number of things are unclear. What is a “technical adjustment”? One might argue that the whole Bill is a technical adjustment on one level. When is a change a technical adjustment? When is it resolving inconsistencies or both, or neither? What is a “change in policy”? If, in another bit of the Bill, we changed the threshold for small pots from £10,000 to £50,000, is that a change in policy a technical adjustment? Such things would end up being settled in the courts. The amendment, although I appreciate that it is probing, does not deliver the clarity that we need.

Finally, I know that the hon. Gentleman is an exhaustive seeker after truth, prober and scrutiniser of the Government, and I am disappointed that his FOI request did not yield a copy of the Beecroft report, but I am advised that it is on the internet.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions) 5:00 pm, 9th July 2013

I am sure that that was a response to what the Minister described as me being an exhaustive seeker after truth, which makes me sound like someone out of a DC comic—[ Interruption. ]

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

I think I drew that interruption from the hon. Member for South Derbyshire, so I cannot complain.

The Minister referred to drafting issues with our amendment. I am interested in that. I have looked at the ones he has mentioned so far and, unsurprisingly, I do not take that view. I guess that it is always in the nature of such things that each side has its own draftsmen and never the twain shall meet unless, of course, going back to our first day in Committee, it is to discuss avant-garde drafting.

I have cautioned the Minister before about misrepresenting my position. This time he says that I said, “I trust you.” That is putting it a bit strongly; I would not want to go that far. Although he has many excellent attributes, he is subject to having to deal with conflicting interests in a balance of forces. I do not doubt his good intentions, but it is absolutely possible that after the next election he will be go on to greater things and someone else will be in the hot seat, although he might say that there is no greater thing than pensions, and I would expect nothing less from him.

The Minister mentioned that the CBI is concerned about the Government using such a widely drafted clause. My understanding is that he agrees that it is widely drafted, but that it is necessary for the reasons he set out. The CBI is concerned about exemptions for smaller employers and, to be fair, we can see why, given what we understood to be in Beecroft—and now we can find out; when I sit down I will be googling the report.

In all seriousness, there is a balance to be struck here. All Governments inevitably want as wide a freedom of manoeuvre as possible, but in this case we have the concerns expressed by the CBI and the TUC, and the background to the Beecroft proposals for termination, or rather my understanding of the desire to free small businesses from what Mr Beecroft sees as burdens—I have to be careful, because I have not yet read the  report. I remember that, at the time, it was considered that the report was an evidence-free zone, that it was basically Mr Beecroft’s personal reflections on what he had perceived—

Photo of Anne Main Anne Main Conservative, St Albans

Order. I am sure that we will not travel too far down the road of a report that Mr McClymont has not read.

Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions)

No, especially since it is on the internet now, and we can all get it ourselves. My point is that the CBI and the TUC are understandably concerned about the context of the proposals in the report. We must not forget that the proposals had an impact on auto-enrolment. The moving back of the staging dates was, I believe, a product of the influence of the report and the higher echelons of Government. The Minister is looking quizzically. If I am wrong I am happy for him to correct me, but that is certainly my suspicion—I shall put it no stronger than that.

The Minister says that the amendment is a probing one, but it is important because we need to understand the powers that the Bill gives and does not give to the Government. I do not want to put words into his mouth, but he says that the amendment does not do the  job of making the clause as broad or as narrow as it needs to be, and we do not agree. We do not intend to press the amendment to a Division at this stage, but we encourage him to continue to consider the matter and to take representations from the CBI, the TUC and other interested parties. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

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

I hope that, in my remarks on amendment 14, I set out the purpose of clause 34 and the sorts of situations in which we envisage it might be applied. It is very much a tidying-up measure, and I am grateful to the hon. Gentleman for his intention not to oppose it. I commend that the clause stand part of the Bill.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.— (Karen Bradley.)

Adjourned till Thursday 11 July at half-past Eleven o’clock.

Written evidence reported to the Houses of Parliament

PB 43 Association of British Insurers

PB 44 Childhood Bereavement Network

PB 45 Anita Craggs

PB 46 EEF

PB 47 Pauline Walker

PB 48 Elaine Calvert

PB 49 Catherine M Kirby Supplementary

PB 50 NAPF Supplementary

PB 51 Jay Ginn