We are in that ominous section of the Bill marked “Other”, which will get the pensions aficionados going. Clause 39 affects only one pension scheme in the land. It is relatively unusual to pass legislation that affects only one pension scheme, but this one does. It relates to the BT pension scheme. There is some complexity attached to the BT pension scheme, relating to the fact that BT was privatised and to the role of a Crown guarantee in a privatised pension scheme. Given that BT pensions are subject to a Crown guarantee, one might then assume that Pension Protection Fund arrangements should not apply, because if BT became insolvent the pensions were protected anyway. So why should BT pay a Pension Protection Fund levy?
Not surprisingly, BT took the view that it should not have to pay this levy. But the European authorities looked at the issue and said that BT, compared with other telecom providers at home and abroad, might be seen to be favourably treated. That is because another telecom provider in the same market has to pay a PPF levy and BT did not because of the Crown guarantee. So there is a conflicting argument here: on the one hand, BT pensions covered by the Crown guarantee were not at risk, so why pay the levy? On the other hand, if they did not pay the levy, is that fair relative to others in the same industry who do have to pay?
In the end, the judgment was that BT did not have pay the levy at the time, but that was then challenged. The clause brings about compliance with the EC decision that it was unfair that BT did not have to pay the levy. It affects only the BT pension scheme and allows PPF levies to be paid for the periods that were in dispute. That is a slightly informal account of what went on, but I hope it has helped the Committee to get a sense of the background to the clause.
I shall clarify what the clause does—suffice it to say that this is an area in which there has been a good deal of litigation, so a measure of precision on my part might not go amiss. The clause provides for regulation-making powers to enable recovery of the PPF levies—the protection levy and the administration levy—as required by the decision of the Commission of 11 February 2009. The outstanding levies are for the years 2005-06 to 2008-09 for the pension protection levy and 2005-06 to 2009-10 for the administration levy. It is respect of the levies for those years that the Government need to legislate.
The main purpose of the clause is to ensure full compliance with the Commission’s decision. As the Committee will know, there are two levies: the protection levy, which is largely risk based and goes towards PPF compensation, and the administration levy, which meets the PPF running costs. In its decision of 11 February 2009, the Commission ruled that the exemption, arising from a Crown guarantee, of the BT pension scheme from payment of levies to the PPF constituted an incompatible state aid and must cease.
The PPF, the BT pension scheme trustee and BT plc reached an agreement in respect of the PPF risk-based levy from 2005-06 to 2008-09 through the setting up of an escrow account—a blocked account containing only the maximum amount of levies that could be due in respect of each levy year, up to and including 2008-09, plus the applicable recovery interest—pending the outcome of BT plc’s appeal against the Commission decision. That arrangement was agreed by the Commission.
Regulations were introduced in March 2010 to ensure future compliance on the PPF protection risk-based levy and in July 2010 for compliance on the PPF administration levy. The Government are therefore compliant with the Commission’s decision, apart from the recovery of the levies between 2005-06 and 2009-10. The clause will enable the Secretary of State to make regulations to recover those moneys and ensure full compliance.
The Commission expects the UK Government to apply the same reasoning to schemes in a comparable legal situation when the facts are the same. However, the regulations made under the clause will have limited application, as the Government are not aware of any other scheme in the same position—that is not surprising, really. We therefore believe that the clause will apply only to the BT pension scheme, and only for the period I have described. The money will go into the Pension Protection Fund and will benefit members of occupational pension schemes and their employers.