My Lords, these amendments offer a good opportunity to explore whether the penalties in the Bill are of the right kind and scale. I hope the
Minister will take this opportunity to set out the thinking behind the decisions that the Government have reached. I read the DWP policy brief for the Bill; it says that, in developing the new sanctions, the main priority had been getting the right balance between increased deterrents and protection for members, minimising any negative impacts on industry, and ensuring that the new sanctions are in line with the wider statute book. So one of the questions is: has it done that?
The first question, raised by the noble Lord, Lord Sharkey, is: are the penalties set at the right place and why are they set at that place? What is the argument —why £50,000 and not £100,000? Why £l million and not £10 million or £50 million? Was this done to mirror provisions elsewhere? If so, which ones? If not, what work—what modelling—was done to lead Ministers to believe that they have landed in the right place?
Interestingly, the policy brief then says that the DWP considered the level when establishing the new penalty of up to £1 million. It says that the level had to be proportionate for local individuals and businesses of different wealth levels and appropriate for a wide range of behaviours, provide a stronger deterrent than the current regime and work alongside the new criminal offences for non-compliance, under which an unlimited fine can be issued. I need the Minister to help me here because this is not my area of expertise: if the maximum fine is £1 million, why does the maximum fine have to take account of a wide range of behaviours and wealth of individuals or businesses? Presumably, the maximum fine applies only to the people at the top of the scale, either those who have the most money or have done the worst thing. How does that balance work in setting a maximum fine? There may be a really good reason—maybe you have to be proportionate; I do not know—but could she explain it to me?
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Secondly, the brief said that in choosing the level the DWP decided that it should be in line with the average penalties issued by the FCA against individuals, whereas I think these fines are going to be issued against individuals and businesses. The policy brief says that, if you exclude one extreme case, the average FCA penalty since 2016-17 was less than £1 million. I assume that the extreme case, whatever it was, was above £1 million. What if there is another extreme case? Even if we ignore the extreme case, if the average of the rest was below £1 million then was any of them above £1 million? After all, if they averaged below £1 million, maybe one of them was higher and others were lower. I just wonder why the Government are so confident that the cases coming up now would not go above that ceiling. Even the ABI, as the noble Baroness, Lady Bowles, said, has said that the proposed cap of just £1 million on fines is unlikely to be an effective deterrent for employers who can easily afford this. It recommended that the fines should reflect the savings made by the sponsor by wilfully acting to the detriment of scheme members.
That brings me to the second question asked by the noble Baroness, Lady Bowles: why a fixed maximum penalty rather than one that relates to the circumstances of the case—that is, the turnover, the deficit or some
other relevant factor? Again, the DWP policy brief explains this. It says that the department followed the FCA in terms of penalty levels but that adopting a similar approach to the Financial Conduct Authority’s approach based on turnover was considered and discounted, and that it was deemed that providing a fixed maximum level for the new penalty provided a better balance of the considerations previously outlined.
That raises an obvious question: why did it decide that? I can see that that is what the department thought it was doing, but that does not explain why it considered and discounted it; the brief simply says that it did. Were the circumstances different enough from those in the case of the FCA to merit sticking with them in terms of levels but moving away from them in terms of the kinds of fines? Could the Minister explain that?
The noble Lord, Lord Sharkey, made an interesting point about regulations and the ability to vary the maximum. I would be interested to know if there is a comparable power for HMT or HMRC to vary that. Is that something else that has been taken from a parallel elsewhere?
The noble Baroness, Lady Bowles, made some interesting points at Second Reading about the effect of repeated offences that appear to be small but which, if done deliberately and repeatedly, could have effects that were actually quite big, yet the penalties on them are limited and quite small. Has the Minister reflected on that at all?
I am interested in how the Government got here. I accept that in reality most of the work is not going to be done by the fines; by the time you get to fining someone, frankly, the damage is done. Most of the work will be done by the supervision and regulatory regime, and we will spend much more time on that. However, the fines play an important symbolic role in signalling how bad we think offences are. I am with the noble Baroness, Lady Bowles, if less colourfully, in thinking that people who put pension schemes at risk are doing very bad things and the Government should discourage them from so doing, so I would be grateful to hear the Minister’s explanation of how they propose to do that.