“(1) The Secretary of State must, within 12 months of the passing of this Act, publish a report on the impact on corporate productivity of defined benefit schemes.

(2) The report must include an assessment of—

(a) investment strategies of defined benefit funds,

(b) the returns on investment of defined benefit funds, and

(c) the impact of investment strategies and returns on productivity.

(3) The Secretary of State must lay a copy of the report before both Houses of Parliament.”—

This new clause would require the Government to commission a report on the impact on corporate productivity of defined benefit schemes.

Brought up, and read the First time.

I beg to move, That the Clause be read a Second time.

With this it will be convenient to discuss the following:

New clause 34—Recognition rules for Defined Benefit scheme deficits—

“(1) The Secretary of State must by regulations revise the balance sheet recognition rules for Defined Benefit pension scheme deficits.

(2) Revision of the balance sheet recognition rules under subsection (1) may include allowing the deferment or partial deferment of deficits to future financial years when calculating the balance sheet.”

This new clause would require the Secretary of State to revise the balance sheet recognition rules for Defined Benefit pension scheme deficits.

New clause 35—Alternative disclosure for long-term deficits—

“(1) When a Defined Benefit pension scheme has a long-term deficit, it shall be permitted to disclose the deficit on an alternative basis, rather than recognising the full deficit as an immediate liability, if a formal recovery plan has been agreed.

(2) For subsection (1) to apply, a formal recovery plan must have been—

(a) agreed by the scheme trustees, and

(b) approved by The Pensions Regulator.

(3) The Pensions Regulator shall issue guidance on the format and content of the alternative disclosure specified in subsection (1).”

This new clause permits DB schemes to disclose a long-term deficit on an alternative basis.

When we look at the thrust of the Bill, the mandation measure is all about trying to get pension funds to help to create greater productivity within the UK economy. A couple of days ago, in a very helpful Intervention on a speech made by my hon. Friend the Member for Mid Leicestershire, the hon. Member for Hendon made the point that, while we are standing against mandation, we must ask: what are we standing in favour of? How are we trying to get behind the grain of the Bill? These three new clauses respond to that question of what we are doing to ensure that the Bill actually can use pension fund money to promote economic growth, invest into the UK and get better returns for the pensioners.

One of the problems facing defined-benefit pension schemes is that, in response to the outrage over Maxwell and Mirror Group Newspapers pinching money from pension schemes back in the 1980s and 1990s, rules were introduced that were basically designed to ensure that it would not happen again. They were introduced in such a way to ensure that, if a defined-benefit pension scheme were to go into deficit, the deficit would be reflected on the balance sheet of the host company.

We still see that today in some larger companies; I think the British Telecom pension scheme currently has a deficit of £7 billion, and that appears on British Telecom’s balance sheet. That does two fundamental things. First, if a company has a deficit on its balance sheet, that restricts its ability to raise equity or debt to invest into its business, so the host business cannot expand because it has a defined-benefit pension scheme with a deficit attached to it.

A second problem then comes as a result of the Maxwell rules: the trustees of a defined-benefit scheme with a host company will be reluctant to invest that into high-volatility assets. We know that, over a long period of time, the equity market will perform far better than the bond market. The problem is that we can have volatile markets in the short term, which could introduce a deficit in the defined-benefit pension scheme that translates to a deficit on the balance sheet.

For example, if we look at stock market performances from the 1980s to now, we will see a very steady rise in the stock markets over time, which have done particularly well. However, if we go back to 1987 or various other times, such as 2000-01, we will see big stock market crashes that will have appeared on the balance sheets of those defined-benefit pension scheme host companies. As a result, these pension schemes are missing out on the long-term growth to push away the short-term volatility that hits the host company. With these three new clauses, we are trying to get that out of the way so that defined-benefit pension schemes feel more comfortable about investing in higher-growth and therefore higher-volatility assets.

We have tabled three new clauses. New Clause 33 would require the Secretary of State to publish within 12 months a Government report assessing the impact of defined-benefit pension schemes on corporate productivity —essentially, we are trying to ask them to really define what the problem is. The report would analyse the investment strategies of DB funds, the returns generated and how those factors influence overall business productivity. It aims to provide a comprehensive understanding of the relationship between pension scheme management and host company economic performance. The report would be laid before both Houses of Parliament for transparency and parliamentary oversight.

New clause 34 is on the revision of balance sheet recognition rules for DB deficits; it gets to the nub of the problem. The new clause would ask the Secretary of State to revise accounting rules for recognising DB scheme deficits on company balance sheets. The revision may include permitting companies to defer or partly defer deficit recognition to future financial years. The goal is to mitigate short-term financial pressure on companies, allowing them to manage pension liabilities better without damaging immediate creditworthiness or investment capability. To put it another way, British Telecom would suddenly find that it did not have a deficit of £7 billion on its balance sheet and could crack on with doing more investment.

New clause 35 is on alternative disclosure for long-term DB deficits. The new clause would permit defined-benefit schemes with long-term deficits to disclose those deficits on an alternative basis, rather than recognising the full deficit immediately as a liability on the host company’s balance sheet. To qualify, the scheme must have a formal recovery plan that is agreed by scheme trustees and approved by the Pensions Regulator. The Pensions Regulator would provide guidance on the format and content of that alternative disclosure. This approach acknowledges long-term deficit recovery plans, offering schemes flexibility and potentially reducing volatility in reported financial positions.

In summary, the new clauses collectively seek to address concerns about the impact of DB pension scheme deficits on business and economic productivity. By requiring Government evaluation, revising accounting recognition rules and providing alternative disclosure methods, the new clauses aim to balance the protection of pension members’ interests with support for business investment and growth. I am sure that at the very least when we press new clause 33 to a vote, there will be enthusiasm to support it from the hon. Member for Hendon, because it absolutely responds to the point he made on Tuesday.

I am grateful to the hon. Member for Wyre Forest for tabling the new clauses, and for his impressive consistency; he has spoken to this issue many times not only in this Committee, but elsewhere, and I have heard him. I agree on some of the wider issues he is raising, particularly his reflections on some of the impacts of decisions taken in the late 1990s. Before I come to the more technical responses to the new clauses, the hon. Member’s objective is to see different investment approaches taken by defined-benefit schemes. Many issues that were historically the case have been removed by the passing of time, because they are now closed schemes whose investments are now changing for other reasons, not because of the questions of regulatory pressure in the 1990s and so on. I leave that as an aside.

To give the hon. Member a bit more optimism, based on the Bill, I already have schemes saying to me that they may take different approaches on investments because of the option of a surplus release. That gives a different incentive structure for employers about what they wish to see their pension schemes doing, and for trustees, if there is a sharing of the benefits of upside risk that comes with that. I have had several large employer’s pension schemes raising that issue with me in the recent past. That is to give him some case for optimism to set against the long-term pessimism.

I will turn to the details of the new clauses. New Clause 33 would require the Government to produce and lay a report before both Houses of Parliament, with an assessment of the investment strategies of defined-benefit pension schemes and their impact on productivity.

There is already a requirement for defined-benefit schemes to produce much of that information in their triennial valuation and to submit key documents to the Pensions Regulator, including information on investments and changes in asset allocations over time, so the regulator has much of the information already. In addition, multiple reports are already produced annually on defined-benefit schemes and their investments. The purple book is the most obvious example; it is produced by the Pension Protection Fund. I know that everybody here will be an avid reader of it; I promise people that it is reasonably widely read, including in the City.

New clause 34 seeks to change the arrangements for reporting defined-benefit pension scheme liabilities in the employer’s accounts. I am impressed by the wish of the hon. Member for Wyre Forest for us to engage in a Brexit from international financial reporting standards, but he will be unsurprised to learn that the Government are not about to do that. These are globally recognised financial reporting frameworks that allow comparability, and we are not in the business of changing them.

New clause 35 would require the Secretary of State to introduce an alternative basis to disclose schemes’ funding deficits. The Pensions Act 2004 put in place the current regime for valuations. Our view is that that approach has taken some time to implement but it is now well understood and well established, so leaving it in place is by far the best thing that we can do, while also considering in more detail the consequences of other things that drive the choices of pension schemes. On that basis, I encourage the hon. Member for Wyre Forest to withdraw the new clause, and I certainly do not expect to see my hon. Friend the Member for Hendon support it.

I am partially reassured by the Minister’s comments, but it really comes down to the kindness of my heart—I would not want the hon. Member for Hendon to be pulled off the Committee and put in an awkward situation. It would be unfortunate to force him to fall out with the Whips so early in his parliamentary career, so I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.