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Baroness Seear: As we have heard this evening, many organisations from both sides of the political scene are in favour of the regulator being state financed. The noble Lord said that only a proportion of people would benefit. The idea is that more and more people shall do so. If families are taken into account, a very high and increasing proportion of the population will benefit. As the noble Baroness, Lady Hollis, said, we pay out of public funds for health and safety and a variety of things which protect only a relatively small proportion of the population—in fact, a smaller proportion than will increasingly benefit from pensions.

I thought that the Government wanted to take burdens off business. We have heard that phrase often enough. Yet here they are putting on burdens. They are not consistent in their line of argument. Surely the Government should think again.

The example mentioned by the noble Lord, Lord Tugendhat, is exceptional and quite different from the pension scheme. One can see reasons why the airlines should contribute. They are not like other employers.

Finally, we want the employers to provide these schemes. We do not want to discourage employers from providing them. The Government also want that. Why can they not use the logic of their own arguments and take this burden from them?

Lord Boyd-Carpenter: I am quite sure that the Government are right in the decision that they made in respect of the financing of this regulator. It would be quite wrong to put on the ordinary taxpayer the costs of regulating a very important economic activity which is of direct benefit to those taking part in it and not necessarily of direct benefit to the rest of the community. I hope that my noble friend the Minister will stand quite firm on this issue.

Baroness Hollis of Heigham: I should like to thank all those who took part in this brief debate. Before responding to some of the points raised by the Minister, I should like just to reply to the point made by the noble Lord, Lord Tugendhat, who mentioned the airline regulatory body. Would I be right to believe that airlines which refused to pay would lose their licence? Therefore, there is no comparison between the Bill that we have today and the regulatory authority funded by airlines, because they have to do so in order to continue to operate.

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Lord Tugendhat: Perhaps I may reply to the noble Baroness and say that, first of all, the situation did not arise. I was addressing in part the point made by the noble Lord, Lord Marsh.

Secondly, the Civil Aviation Authority's regulatory activities cover a very wide area. They do not simply give airlines a licence to operate. They do that but they also give pilots licences to operate and regulate the safety of aeroplanes on a continuing basis. They regulate the air traffic control. It is a form of regulation at a grand level but also entering into the interstices of aviation.

I do not want to carry the comparison too far. I wanted to draw attention to the fact that it is possible to have statutory regulation funded by the people who are regulated without the baleful effects to which the noble Baroness and the noble Lord drew attention earlier.

Baroness Hollis of Heigham: I thank the noble Lord for that intervention. However, it remains the case that if airlines fail to do that, they will go out of business. There is a strong commercial incentive for them to do it. That is not the case with the measure that we are discussing today.

The Minister's reply basically made the point that, because funding of the regulator by public funds would not benefit the generality of taxpayers, it was appropriate that funding should be carried out by the industry itself. That was the core of the argument.

Following up the point made by the noble Lord, Lord Marsh, I do not believe that any of us disagree that in relation to a £500 billion industry, the sum of £10 million is a particularly large sum to ensure proper regulation and delivery of the pension promise. The question is whether something which benefits not all taxpayers but a substantial proportion of them—about half—should be properly funded out of public funds.

There are two answers. First, in all walks of life where we deem it appropriate, we already fund, through general taxation, the regulation of the behaviour of a minority—often a smaller minority than half the population—whether we are talking about car drivers, restaurant users, noise pollution or even lost dogs. All those activities associated with regulation and policing are funded by all of us, even though the benefit of that activity is only privately enjoyed by a minority. That is the basis of policing. All policing is made up of a bundle of sectional minority interests. However, as a community we decided that it is in the public interest that that activity be regulated. That is the basis of our law and order contract.

Secondly, the Minister seemed to assume that the rest of us who were not members of occupational pension schemes had no interest in the well-being of occupational pensions and therefore should not contribute through our taxes to its regulation. That is also not true. The point about occupational pensions is that, according to their security, so people opt out of SERPS, which is a direct financial benefit to all of us as taxpayers. Above all, the status of occupational pensions is made attractive by Inland Revenue tax privileges and the forgoing of that income is made up by increased taxes from the rest of us. Not only is it the

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case therefore that all of us contribute to the financing of the policing and regulation of minority groups because it is in public policy interests to do so, but here, more than in many areas of policing, the rest of us who are not members of occupational pension schemes continue to have a direct financial interest in the taxes we pay to ensure the security of those schemes. That is a fact.

Does the Minister want the scheme to work? Does he want to protect the Inland Revenue's investment in occupational pensions? Does he want the co-operation of the industry? Does he want the public to have confidence in the independence of the regulator? Does the Minister seriously wish to encourage employers to remain committed to the occupational pensions industry? Or is he seeking to tip everybody over into personal pension schemes because the employers have withdrawn, faced with the threat of another burden on them? Is £10 million too much to pay for those advantages? I hope that I can invite the Minister to reconsider his position.

5.45 p.m.

Lord Mackay of Ardbrecknish: We have had an interesting debate on this issue. As usual some Members think that the state—that is, the taxpayer; it is nice to call it "the state" or "the Treasury"—should fund it. Quite rightly there are things that the generality of taxpayers are happy to fund. But there are other instances—and my noble friend Lord Tugendhat made a point about the Civil Aviation Authority, which is a major and important regulator—which are extremely valid.

Coming closer to the occupational pensions industry, the costs of looking after the insurance companies by the DTI are paid for by the insurance companies themselves. The regulatory authority of the DTI and any compensation is paid for by a levy on the insurance companies. There is therefore that precedent, as there is the precedent of the Civil Aviation Authority. There are other precedents, perhaps not exactly the same. In answering the noble Lord, Lord Monkswell, if the noble Lord applies for planning permission, he will be expected to pay for it in order to cover some of the costs of the planning authority in coming to conclusions and running its planning system. There is plenty of evidence and there are plenty of situations in which people are asked to pay for what are more general services of a public nature but which are specifically to their benefit, and this is one of them.

Lord Monkswell: I thank the Minister for giving way. In the case of an application for planning approval, there is a direct benefit to me—if I am the applicant—as an individual. Therefore it may be perfectly right that I should pay a fee. But in this situation we are asking individual pension funds to pay a levy from which they may not receive any direct benefit whatever. I just throw into the pot yet another argument for not employing this mechanism for funding the new regulatory body.

Lord Mackay of Ardbrecknish: There is of course a direct benefit for everybody involved in a pension scheme in the introduction of this regulatory authority.

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If there were no direct benefit and no protection given by it, it would not be worth our while spending this afternoon and a few more afternoons discussing it.

It is a direct benefit, every bit as much as, if not more than, a simple planning permission. It involves the security of people's pensions, which we are all agreed are in many cases of even greater value than planning permissions for extensions to people's homes or whatever else it may be. If we are discussing the benefit the regulatory authority may bring and who should pay for it, the case is firmly with me that the costs of the authority should be borne by the people who will ultimately be the beneficiaries of good regulation ensuring that pension schemes are all kept up to the mark.

We have been round this point. We are committed to keeping down the cost of the authority to the minimum compatible with effective regulation. That must be in the interests of the schemes themselves. The schemes know that if they all run their schemes well and the regulator does not need to spend much money doing his work, then the levy will not be as high as it would otherwise be. All the schemes have a direct incentive not only to look after their own scheme well, but also to apply peer pressure to other schemes to ensure that they do likewise.

I believe that if we are setting up this regulatory body, which is statutory, the people who are most directly involved and most likely to benefit should be asked to pay a modest amount—it is a modest amount against the background of the amount of money the pension schemes have. It is right that they should do that. Members of the Committee may ask why, if it is a modest amount, cannot the taxpayer pay it? The trouble is that every day, day after day, pleas are made that the taxpayers' money should be spent in modest sums. The problem for the Government and the taxpayer is that the modest sums quickly accumulate to become large sums. In this case we should relieve the taxpayer of that burden and ask the occupational pension schemes, the employers who benefit from having well regulated schemes, to shoulder this small burden.

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