Baroness Noakes (Con)

I want to comment briefly on Amendment 35, tabled by the noble Lord, Lord Davies of Brixton, where he seemed to characterise the need to have members in the room alongside employers and trustees. He seems to forget that trustees’ responsibility is to act for the members. The members are fully part of the negotiation through the trustees. I personally do not agree with his amendment requiring formal consultation, as with some of the existing listed changes to pension schemes. But there was a good reason why the release of surpluses was not included when that legislation was first drafted, and I have seen no reason to change that. My Amendment 42 is rather unlike other amendments in this group, which is why I spoke in the previous group and probably should have asked for my amendment to be grouped there. I reiterate my remarks in that group on the importance of the interests of the sponsoring employers, who have for the most part provided the funding which has now led to the surpluses emerging, which is the subject of these clauses in the Bill. My Amendment 42 simply says that regulations made under new subsection (2A) of Section 37 of the 1995 Act may not replace restrictions on employers once surpluses have been paid to them. The DWP’s post-consultation document on the treatment of surpluses said: “Employers could use this funding to invest in their business, increase productivity, boost wages, or utilise it for enhanced contributions in their Defined Contribution (DC) schemes”. The noble Viscount, Lord Thurso, referred to that being used elsewhere as a justification for these new release powers. I agree that they could use it for those things, but there are also other things that they could use it for. For example, they could use it to fund a reduction of prices in the goods and services they sell to gain a competitive advantage in the marketplace. The thing that concerns me in particular is whether the funds are used to pay dividends or to make a return of capital, because companies have shareholders and that would be a fairly normal use of surplus funds. My key concern is that the Government would use the power in new subsection (2A) to specify that employers could not use the money in the way they chose, and in particular in relation to dividends and share buybacks. I completely understand the Government’s desire to see more investment, but holding money within the company might be the economically illiterate thing to do. Businesses make investments in assets, productivity or people if they think they have a reasonable prospect of making a return. They do not invest because they happen to have some surplus cash lying around. If they cannot be reasonably sure of making a decent return themselves, the right thing to do is to return the money to the shareholders and let the shareholders recycle that into other investment opportunities which make a reasonable return. That is why low-performing companies are often under pressure to return capital to the shareholders. In the context of the whole economy, that is the sensible thing to do, because it gets capital to the right place in the economy. Therefore, I hope the Minister can reassure me that new subsection (2A) will not be used to restrict what companies do with the surpluses extracted from pension schemes. The Minister made some quite helpful remarks in the first group about the Government not telling people what to do with the surpluses, but I hope she can be specific in relation to the use of the power in new subsection (2A) that that would not be used to restrict what companies can do.