Adam Price (East Carmarthen and Dinefwr)

4.35 pm

I say on behalf of Plaid Cymru and the Scottish National party that we welcome the Government's change of heart on the issue of pensions insurance. There may or may not have been a change of heart on the part of those on the Opposition Front Bench as well, but the Government's position is greatly to be welcomed. It is a major step forward for the Government, and for any Government, to accept such an important principle, however belated that acceptance may be. It is clear that the Bill is the only game in town for anyone who wants to achieve justice for 60,000 workers. On that basis I shall be proud to vote for the Bill on Second Reading so that it can be amended in Committee.

It is important that we approach the debate with a touch of humility. The reason that we are debating the Bill and the reason why we have been lobbied today by 60,000 families whose lives have been devastated is that the House, the Government and previous Governments got pensions policy so badly wrong on so many previous occasions.

The Government refuse to accept complete responsibility, as Governments often do, for the genesis of the crisis. It is said that no one could reasonably have foreseen or forestalled the current crisis. I am not sure that that claim bears scrutiny of the facts. The Government knew that there was a problem as early as June 1998, when they considered the minimum funding requirement. They instituted what was effectively a quick fix in terms of the reduction in MFR liabilities, but they knew that there was a problem. Over the next few years, as we have heard, there has been a rash of Green Papers, reviews and consultations, ending up where we are now, with the Bill.

Four times in four years the Government examined specifically the idea of some form of mutual insurance or discontinuance fund.

A rash of mistakes have been made over a fairly short period, and, specifically on insolvency insurance, the Government explicitly rejected their current approach as an option in what were, effectively, four separate policy pronouncements over four years. It is remarkable, therefore, that such insurance should now be embraced as a core principle of Government policy.

and he said that if the Government's legal argument relies on the fact that in 1995 the Commission gave the UK a clean bill of health, that would be a weak defence. The Commission has written to the UK Government asking for clarification of the way in which the directive has been transposed in UK law, so it obviously has doubts about the matter.

Those difficulties could have been avoided if the directive had been transposed in 1983. Clearly, there were serious problems with Conservative policy, as we have heard, including the Pensions Act 1995, particularly section 73, which does not take account of the age or length of service of a member when determining the priority of his pension rights. A pensioner with three years' service could be paid in full, whereas an active pensioner with 30 years' service could receive little or nothing. That is not right or proper, nor is it fair to treat people aged 64 with pension benefits worth many thousands of pounds, in the same way as people aged 26 with pension benefits worth only a few hundred pounds.

The legislation was therefore seriously flawed. The Secretary of State referred to the Goode committee. I am not sure how good it was, but two proposals for a central discontinuance fund were subsequently presented, including one from the Government Actuary, to the pension law review committee. Unfortunately, the Government did not see fit to act. We should remember that when the Labour party were in opposition they tabled an amendment to the 1995 Act to create a central discontinuance fund. Unfortunately, however, they have not instituted such action until now.

As for non-feasance by the present and previous Governments, we need to consider the issue of retrospection, which has been used as an argument against intervention. When it suits Governments, they act retrospectively. For example, the House had a free vote in 1996 on its own pension fund arrangements. It overturned the recommendation of the Senior Salaries Review Body and backdated a 26 per cent. pay rise for pension purposes to MPs who left the House before the pay rise came into effect. There may have been good and honourable reason why that was done in respect of Members who would retire at the subsequent election, but it was a clear example of retrospection and backdating, and seven current Cabinet Ministers voted in favour of it.If retrospection can apply to our pension fund, surely we should not argue that the principle of non-retrospection prevents us from providing justice for workers at ASW and other companies. It is vital for the reputation of the House and our democracy that we are seen to be scrupulously applying the same standards.

There are other examples. On 11 June last year, when the Government announced the proposal for a pension protection fund, the Secretary of State also announced that to prevent solvent employers from winding up their pension funds and walking away from the schemes, as in the case of Maersk, he would require them to buy out in full. I support that, but the statutory instrument in question, the deficiency on winding up regulations, was not laid before Parliament until 23 February this year,

and it will not come into force until 15 March, yet we read in article 2 of those regulations:

That is an example of legislation in this very area that has nine months' retrospective effect and places a burden retrospectively on employers. I do not disagree with the Government on that, because there is substantial public interest in seeking to ensure that there is no stampede of closures before the regulation takes effect. My point is that the Government accept the need for retroactive measures when they perceive there to be an overriding public interest. In a parliamentary answer on the subject of retrospective legislation, the Solicitor-General stated that the Government's policy was

Clearly, where there is a general public interest, the Government are prepared to act retrospectively. We can all name examples, such as the windfall tax and the infamous bank tax of 1980, I believe. We have heard eloquent speeches from hon. Members in all parts of the House pointing out that there is a general public interest, quite apart from the injustice suffered by 60,000 families. There is the issue of confidence in savings, in pensions provision and even in the guarantee provided by the pension protection fund, as the hon. Member for Cardiff, West (Kevin Brennan) argued.

The Government have been forced by the sheer strength of the public outcry over the pension crisis finally to act, but if the Secretary of State will forgive me—I do not think it is his fault—there may be an accusation that they are trying to do so on the cheap. They need to appear to be doing something, but they are doing nothing to right past wrongs, and they may not be doing enough to prevent recurrence of the problems in the future. As we have heard, the model for the pension protection fund is the Pension Benefit Guaranty Corporation in the United States, which to all intents and purposes is a Government-sponsored enterprise, in the same way as is Fannie Mae—the Federal National Mortgage Association. It is essentially a Government agency. We realise that there are significant problems with the PBGC. In the last financial year, single employer insurance programmes went from a surplus of $7.7 billion to a deficit of $13.6 billion. In 2002, they received more claims than the total amount in their previous 28 years of existence. That is why both Houses of Congress passed a Pension Relief Bill to stave off what is seen as the inevitable bankruptcy of the guarantee corporation. People are asking whether this is going to be another Savings and Loan.
Sir John Butterfill: It is interesting to note that although the figures that the hon. Gentleman gives are correct for single employer schemes, the part of the fund that is reserved for multiple employer, or collective, schemes, whereby employers group together, remains substantially in surplus. Does that send a message to us and to the regulator that in future we should have collective schemes instead of single employer schemes?

Adam Price: I was not aware of that point—it is certainly interesting to consider pooling funds within the overall umbrella of support.

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If the guarantee corporation is to be the model, there are clearly lessons to be learned from its current position. The situation in the United States is not dissimilar to that here. We have experienced what is called in the US a perfect storm—a fall in interest rates at the same time as a fall in equity markets and, on top of that, an economic downturn in certain mature sectors: in our case, manufacturing; in its case, airlines and steel. The doomsday scenario that is being mooted in the US is highly relevant to the pension protection fund. There is a danger that a run on major defaults will put pressure on the fund, which means that levies have to be raised. That in turn creates further pressure that is analogous to a run on a bank. I have been reliably informed that at least one major company with thousands of employees has a £1 billion deficit in its pension fund and is trying to hold off until April 2005 in order to fall within the terms of the provision.

If true, that is worrying. It raises the question whether there should be some form of support for the pension protection fund. Government-backed annuities would be an option, but there are problems with the annuity market, which has only two providers, one of whom is withdrawing from the market. Bond rates are currently unsustainable. Perhaps we should consider employing special Government-backed bonds at a rate of around 9 per cent. to create a sustainable future for the PPF; otherwise, we might find ourselves having the same debate some years down the line following the collapse of the PPF and similar suffering by many people.