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Lord Marsh: My anxiety at the moment is that I cannot work out what the Minister's objection, if objection he has, can possibly be based on.

Perhaps I may take issue with the noble Lord, Lord Finsberg, on two points that he raised. First, cost is obviously a factor; but it will be extremely small for this kind of activity. A large company will have an administrative machine well capable of dealing with the situation, and small schemes will not encounter high costs.

On the noble Lord's second point that members of schemes may be third-rate citizens without the skills required, he may well be right—not that the members

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are second-rate citizens but that in many cases they will be people who are not articulate; who are not used to campaigning, setting up a ballot and going against the employer.

A third point made by the noble Lord, Lord Monkswell, is that this is another example where people have to stand up and be counted against their employer. The fewer cases of that, the better. However, I look forward to hearing the Minister say that he had intended to provide something on the lines of the amendment but that this is the first opportunity he has had to put it in.

Lord Mackay of Ardbrecknish: Amendments Nos. 111A, 116B and 158A concern incorporating minimum standards on the face of the Bill and whether that would be prudent. I can assure the Committee that in our proposed statutory consultation procedure members will be left in no doubt about their rights and options. It may be helpful, even though I may need to address the Committee for a few minutes more than I try to at each intervention, for me to set out the statutory consultation procedure that we believe should operate and what our current thinking is on the prescribed rules. I hope that after I have done that the noble Baroness will accept that it is unnecessary to pursue the amendments.

I shall also argue that there could be disadvantages in placing too much detail about the consultation procedure and the prescribed rules on the face of the Bill. The features set out in the amendment may not be appropriate in all circumstances for all time, and incorporating them in the Bill could give rise to unnecessary difficulty in some cases and a loss of flexibility.

To return to the detail of the statutory consultation procedure and prescribed rules, the Committee may find it helpful if I set out in some detail what we propose to incorporate in these important regulations which trigger the whole mechanism for member-nominated trustees. For the statutory consultation procedure we propose to provide that it should incorporate detailed notification requirements. Members must be told clearly what their rights are under Clauses 14 or 15 as appropriate and what is proposed by way of an alternative. They will need to be told about their rights to object to what is proposed, and by when, and be given clear information about how to go about registering that objection.

Our current thinking is that the notification should be in writing and incorporate a tear-off slip for members to use if they wish to register an objection—we dealt with that in passing on Committee day one—but it may be appropriate to allow less formal methods in limited circumstances. The safeguard for the members is that, if there is any suggestion that the employer or trustees have failed to carry out the requirements of Clauses 14 or 15—for example, by ignoring objections—the regulatory authority could be asked to investigate; and the onus would be on the employer or trustees to show that they had acted properly. Given that, I would argue that the appeal role for the regulatory authority envisaged in Amendments Nos. 116B and 158B is unnecessary.

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As to who should be consulted, that is already set out on the face of the Bill. In all cases, all active and pensioner members will need to be consulted and the trustees may determine at their discretion that deferred members should be consulted. That is an important feature of the proposals and it is clearly right that that should be on the face of the Bill. As we have already discussed this afternoon, it gives significant influence over the composition of the trust board to pensioner members of the scheme. What the statutory consultation procedure will not do is to provide for separate consultation arrangements for different classes of member. We believe that the issues should be considered by eligible members collectively and that all should have an equal voice.

That would not of course prevent employers or trustees from proposing, or members from agreeing to, actual arrangements for selecting the trust board which gave different weight to different groups or involved different electoral colleges. We are keen that schemes should be able to maintain or introduce whatever arrangements best suit their particular circumstances, so long as members eligible to be consulted are content. If an appropriate percentage of scheme members register an objection to what is proposed, there would need to be a positive test of opinion. We believe that that is a better way to proceed than holding a ballot in every case, as the three amendments would require.

We come to that view because we want to minimise the cost and procedural hurdles for schemes which want to maintain or introduce arrangements for constituting their trust board which are indeed likely to be acceptable to the scheme members and which may well be within the spirit of the requirement to appoint at least one-third member-nominated trustees. We are mindful of the conclusion of the Pension Law Review Committee that the constitutions of many trust boards, while not based on member election, are likely to be quite acceptable to the members and we are anxious—like the PLRC—not to disturb existing perfectly satisfactory arrangements. If, however, the proposed arrangements were opposed by a percentage of those consulted—we believe it would be right to specify a level of around 10 per cent.—there would need, as I have said, to be a positive test of opinion by way of a ballot.

To complete the picture, we intend that the statutory consultation procedure should indeed be activated within a minimum period after the commencement of the Act. Our current intention is that trustees selected in accordance with approved arrangements under either Clauses 14 or 15 should be in place within six months of the commencement of the Act. There will be substantial notice of this requirement, so it should not prove too onerous; but we intend to consult about its practicality. We believe it would be unhelpful to have an unamendable timetable laid down in primary legislation.

We intend to provide under the statutory consultation procedure that eligible members should be consulted afresh at least every six years. We also believe it would be appropriate to require trustees to consider whether further consultation is appropriate following specific developments such as a merger or bulk transfer; and to

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give them the right to request or conduct a further consultation exercise at any time. Acting in a fiduciary capacity, they would be bound to give consideration to any views on this point expressed by scheme members.

A further consideration is that we feel it is necessary to consult widely about the procedures I have just outlined to ensure that they take account of all the possible variations of circumstances which may be relevant. There may also be a case for limited exceptions or modifications to apply in specific circumstances, and we believe it is right to retain the flexibility to do this by providing for the procedure to be specified in regulations.

The arguments affecting the proposed "prescribed rules" are a little different. The Committee will recall that these rules will be the statutory arrangements for the selection of member-nominated trustees which will apply if it proves impossible to agree "appropriate rules"; that is, rules accepted or approved by eligible scheme members under the statutory consultation procedure.

Thus the prescribed rules can be seen as being something of a default procedure. It would be wrong to view them as some kind of statutory minimum: they are arrangements which might need to be implemented quickly, perhaps following a disagreement. As such they must be relatively straightforward and uncontroversial and deliver the basic policy intention of securing at least some members of the trust board who have a different perspective from that of the employer. Our present intention therefore is that under the prescribed rules active members only should be invited to make nominations and then given the opportunity to vote on those nominations. As I say, this does not represent our view of the ideal arrangement; but it does seem to be one which could be implemented quickly and without fuss. Any attempt to complicate this arrangement could frustrate or delay the achievement of the basic policy objective.

I am sorry that I have spoken at some length but I think it is important at least to put on record for your Lordships to read in Hansard what our intentions are with regard to the regulations. For all these reasons, I hope that Amendments Nos. 116B and 158B will not be pursued. I hope that my explanation helps.

On the specific question of Amendment No. 111A, although I am unable to agree with the noble Baroness, Lady Hollis, I think that she may have identified an important lacuna in that, if an employer had failed to conduct a statutory consultation procedure, the Bill as drafted does not currently provide for the arrangement for constituting that trust board to be invalid. We shall certainly have to consider that point further. That having been said, and with an undertaking to consider the specific point where an employer fails to conduct a statutory procedure, I hope that the noble Baroness will feel able to withdraw her amendment.

5.30 p.m.

Baroness Hollis of Heigham: The Minister addressed himself to subsection (3) without dealing with the substance of subsections (1) and (2). Three basic

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issues have been raised. The Minister has not set aside my concerns on those issues although he may go on to do so later this evening.

The first is the basic general principle that statutory consultation should means what it says. It should include the testing of opinion by ballot and not merely by default. Perhaps I may refer to other areas of which we have had experience. I have in mind housing action trusts or opt-out schemes. In those situations, when local governors, tenants' associations or residents' associations wish to move down that path, there has to be a ballot. There is not a ballot triggered by 10 per cent. who are agreed. The presumption does not go with the governors or with the local housing authority. It must be tested by ballot. The Government have accepted that in almost every sphere of policy. Where people are deciding to opt out of something their opinion must first be tested by a vote. That is reasonable and I believe that we should hold to it.

The Minister's second argument, which was repeated by the noble Lord, Lord Finsberg, is one of cost. The Minister spent a helpful amount of time detailing the consultation procedure to follow. I think I heard him rightly when he said that all the papers will go out, there will be full documentation explaining the issues and there will be a tear-off slip to register an objection. Why not use that tear-off slip as a ballot paper? If 10 per cent. of the members use the tear-off slip to say they want a ballot, far from the employer saving costs the employer will face double costs because he will have sent out all the papers in the first place asking whether members want a ballot and when 10 per cent. say they do he will have to send out a second set of papers for the ballot. If the noble Lord, Lord Finsberg, is concerned about the cost, it is surely sensible to use that slip of paper which apparently is part of the statutory procedure to make it a ballot. What could be simpler? It will save the cost, the time and the energy of going over the whole issue a second time because 10 per cent. of members have indicated that they want a ballot. Why have two pieces of paper when one will do and when at the same time we could uphold the democratic principle? I am baffled.

The Minister explained clearly that there will be a tear-off piece of paper. Why should there be a tear-off piece of paper asking whether members want a ballot when that could be used for the ballot? Employers will have to come out with another piece of paper. That cannot be sensible. It is daft. It is Alice in Wonderland stuff.

A third point was made by my noble friend Lord Monkswell and the noble Lord, Lord Marsh. They are absolutely right. By asking employees to trigger a ballot one is setting up, whether one wishes it or not, a confrontation. Whether one likes it or not the impression will get out that somehow employees are extracting from a grudging employer the democratic right to vote. That is not a sane and healthy way to approach the construction of a trustee board which should represent the fiduciary interests of the entire company and all the parties to it. We are inviting people to see whether they wish to opt out of their legal rights. We believe that that should be done by the affirmative rather than by the negative procedure. We think it is more democratic and that it will save costs. It

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will happen only every six years or so. Above all, it will appear to prevent any notion of sectionalism or of confrontation which otherwise will be set up when the employees have to extract from an employer what I am sure most of us believe is an inherent right. I feel that I should test the opinion of the Committee.

5.35 p.m.

On Question, Whether the said amendment (No. 111A) shall be agreed to?

Their Lordships divided: Contents, 114; Not-Contents, 131.

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