(10 years, 9 months ago)
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The Deputy Chairman of Committees (Lord Geddes)
My Lords, it is now half-past three. As is usual on these occasions, I have to advise the Grand Committee that if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Viscount Hanworth
Clause 113, which makes provision for the sale of the Government’s pipeline and storage system, is the central clause of an extraneous part of the Bill, which should not exist and which the amendment seeks to remove. The provisions in Part 4 are enabling clauses designed to ensure that the future sale of the asset, were it to occur, would not be subject to any further parliamentary scrutiny but would be entirely at the discretion of the Secretary of State. As such, it is an affront to the rest of us.
We are told that the purpose of the sale would be to raise cash and to avoid the burden on the state of the costs of maintaining and investing in the pipeline system. Parenthetically, this declared intention of burdening the purchaser with the costs is liable to make the asset virtually unsaleable except at a knockdown price unless, of course, the purchaser can expect to extract exorbitant monopoly profits.
I should say briefly what the government pipeline and storage system—the GPSS—consists of. It is a pipeline system run by the Oil and Pipelines Agency in the Ministry of Defence. The network consists of 2,500 kilometres of pipeline and some 46 other facilities and is interconnected with several private networks. The pipeline was originally built before World War 2 and was used to supply oil for the Normandy invasion via Pluto, the pipeline under the ocean. Nowadays, in addition to supplying fuel required for defence purposes, it supplies fuel for civil aviation, which takes as much as 40% of the supplies.
The GPSS is what economists describe as a natural monopoly. It might be helpful if I were to supply a definition of a natural monopoly and provide further examples. A monopoly is a situation in which the majority of sales in a market are attributable to a single firm. A natural monopoly is a circumstance in which the technology of an industry and its associated costs imply that the most efficient form of production is to concentrate it in a single firm or organisation. Examples include the road and rail networks, the postal system, the provision of gas, water and electricity, the nation’s ports and much else besides. It is commonly agreed that in order to ensure the integrity of a natural monopoly and to ensure that it does not generate exorbitant profits, the state should play a leading role either by owning the monopoly or, at the very least, by regulating it closely.
The ideology of free market enterprise and the programme of denationalisation have come into conflict with the realities of the structure of industries, and there have been some absurd outcomes. Through the programme of denationalisation, which began under the Thatcher Administrations and which was intended to engender free market competition, the Government have succeeded, in the main, in creating collusive oligopolies. The electricity industry, for example, which is dominated by six large firms, is nowadays best described as an oligopolistic market. In the most misguided instances of denationalisation, the Government have created monopolies that are in the hands of foreign state-owned enterprises. A case in point is the British nuclear industry, which is in the hands of a French state-owned monopoly.
One of the motives of denationalisation, which I have already touched on, is the desire to remove the capital costs of state-owned industries from the Government’s net borrowing requirement. In Britain, we have been exceedingly inept at what should be a simple exercise of corporate structuring and accountancy. A previous Labour Government proposed to overcome the restrictions on the borrowing requirement by encouraging the formation of public-private partnerships. The outcome has been that in return for providing a share of the investment capital, the private sector partners have reaped exorbitant returns and, in doing so, run rings around public servants.
The successor Government should have endeavoured to find better ways of achieving the desired ends. Instead, they have reverted to an atavistic ideology that impels them eagerly to sell anything that amounts to public property. Governments in other countries have been far more adept than ours in the business of separating the finances of their state-owned industries from the finances of central government. A relevant example in the context of the Energy Bill is provided by the French state-owned electricity industry. The principal electricity companies of France, EDF and AREVA, work in close collaboration. They also work with central government to fulfil their strategic policies, but they have considerable commercial freedom. This freedom is exemplified by the fact that our Government have been relying on EDF to raise the capital from the financial markets for the construction of a new nuclear power plant at Hinkley Point.
I return now to the prospective sale of the GPSS. This should never be allowed to happen. One ought to consider the hazards that could arise from putting the network into private hands. The Bill would do nothing to constrain a private owner from abusing the monopoly position by reaping exorbitant profits, nor does it compel the private owner to undertake the necessary maintenance and investment. The consequences of the system falling into disrepair are obvious. Let us leave aside for the moment the consequences for our national defences to consider how this would affect the civil aviation industry. It would mean that aviation fuels that are presently pumped through the system would have to travel on our roads in tankers, which surely implies a major hazard.
Let us consider the possible private owners of the system. Who would they be? I am sure that we agree that we would not wish the owners to be venture capitalists intent on reaping major short-term rewards. We might prefer them to be enterprises that already have commitments to and experience of such aspects of fuel supply. In that case, the likelihood is that the owner would be a major oil or gas supplier or producer and, most probably, given the state of the ownership of the UK industry, it would be a foreign-owned enterprise. It could be Qatar Petroleum, for example, or the giant Russian Gazprom company. If it were the latter, we can imagine a fanciful scenario: there is a conflict in the eastern Mediterranean or the Middle East and various NATO allies have decided that the only viable intervention is to create a no-fly zone in the area. If we were to participate in this, the GPSS would be called upon to provide large quantities of aviation fuel to our Air Force, which would be a contingent of the international force. The owners of the erstwhile GPSS could then threaten a major embarrassment if we were to proceed with this interventionist military policy. They could threaten to bring our civil aviation to a halt unless we relented.
Such a scenario is not beyond the bounds of possibility and surely we would not wish to expose ourselves to such hazards. Were these hazards to be recognised and understood by the usual electorate of the Conservative Party, I am sure that there would be outrage. For this reason, I would expect that the proposal to sell the GPSS will go into abeyance.
I see the proposal as a throwback to a discredited programme of denationalisation that has been motivated by a combination of opportunism and ideology. On closer examination it seems to make no sense, and I beg to move that Clause 113 should not stand part of the Bill.
Lord O'Neill of Clackmannan
I would not perhaps go quite so far as my noble friend on these matters but it is important that we get from the Minister an indication of the regime under which a privatised gas storage and pipeline system would operate. Given that this will be a natural monopoly, as has been clearly explained, it ought to be under the regulatory scrutiny of Ofgem. If it is to be a natural monopoly, it should be regulated. At the moment, who owns it and for what purposes we leave other people to worry about. However, those of us who attended the talk last week by Peter Atherton might find it difficult to identify a potential purchaser of this system because it seems that it is a kind of secondary purchase, given the dire nature of a number of the obvious potential purchasers. They have far greater strains on their balance sheets than acquiring an asset like this, no matter how profitable it might be.
We may be worrying needlessly that this power will be granted as the Government may not do anything about it. However, were they to do so, it is important that an asset of this nature should not fall into monopoly hands of an unregulated character. Therefore, I certainly want to be given a clear indication from the Minister this afternoon that if this asset is to be privatised it will come under the scrutiny and regulation of Ofgem. I am not certain that such a move would raise sufficient money. It may be just another burden that DECC has to carry at present, and it feels that it would be simpler to transfer it. However, that is not the issue in question here: it is whether the people who buy the asset have unlimited powers to do whatever they wish with it or whether it should be subject to some kind of regulation. It need not necessarily be draconian but, rather, light-touch regulation—the kind which, in some respects, the regulator applies to National Grid and the wires and the pipes it owns and operates.
Lord Howell of Guildford
I am looking forward to the Minister’s reply. I am sure that he will have that sort of balance in mind. I reassure the noble Viscount, Lord Hanworth, that at the time of the fall of the Soviet Union I was approached by a Russian general who asked whether I or anyone I knew would like to purchase a fully integrated Russian military pipeline system throughout the Russian Federation, which he thought would become available and would be sold by the Soviet army. Therefore, the noble Viscount can be reassured that these ideas are not original and that similar ideas have been suggested in the past.
As the noble Viscount would expect, I wish to comment on his points about denationalisation, which is subtly different from privatisation, which was aimed at widening the ownership of the assets and taking them away from the giant nationalised corporations which were killing innovation and screwing the customer. That was the plan. To say that it is discredited seems odd when this plan has been adopted round the world including in China, Russia, the United States and every major economy throughout Europe. A more balanced approach than the one he adopted would help his case.
Lord Jenkin of Roding
My Lords, I would like to add a few words to what my noble friend Lord Howell has said. I congratulate the noble Viscount, Lord Hanworth, on his imagination which allowed him to stray into paths that upset even so stalwart a Labour supporter as his noble friend. The privatisation programme was hugely successful. I was responsible for launching the first one—the privatisation of British Telecom. If you talk to the people who use that company and work for it, they will tell you that the whole picture has been utterly transformed. There have been a number of others, so I do not agree with his general strictures on privatisation.
The other important thing that it is necessary to bear in mind is that a great many industries and bodies have been transferred from the public to the private sector. I cannot think of a single transfer that was at the time supported by the Labour Party or a single one that has been reversed by the Labour Party when in government—not one. Having opposed those transfers, Labour accepted every single one. I suspect that this will not be any different.
There is an interesting note in the House of Lords briefing pack. Incidentally, it is interesting that it still uses the previous numbers of the clauses and has not caught up with the Bill as published in this House. Its report on reactions to the proposed sale, which may well have influenced the wider remarks of the noble Lord, Lord O’Neill, noted that Scotland on Sunday,
“did not perceive this to be especially controversial”.
The pack describes, as the noble Viscount did, what the GPSS originally was; it continues:
“The GPSS has been expanded and restructured over several decades and today includes some 2,500km of cross-country pipelines, storage depots, pumping stations and other facilities”.
It then quotes an energy specialist, Murdo MacLean at Pinsent Masons:
“These measures will be of particular interest to utilities or other investors”.
I agree very strongly with the noble Lord, Lord O’Neill. Of course, it would have to be properly regulated. I have no doubt that Ofgem would be the appropriate regulator, but we are not at that stage yet. If we accept this clause, we simply give the Government the power to go down that path.
In another report—and this may be what stimulated the noble Viscount—the RMT union opposed the sale, saying:
“Bob Crow of the RMT said that plans to increase the capacity of oil storage at Portishead were a ‘classic fattening up exercise’ in advance”.
I do not accuse the noble Viscount of having had a brief from Bob Crow but he certainly reflected what Bob Crow might have said about this clause. We need to take that all with a considerable pinch of salt.
My view is that this is a sensible clause. There is no particular reason why the Government should own this network if it can be sold, if the capital can be raised, and if it is properly regulated. I repeat that I totally agree with the noble Lord, Lord O’Neill, on that. It seems an entirely proper and appropriate thing for the Government to do, and I hope that the clause will stand part of the Bill.
Lord Grantchester
I am grateful to my noble friend Lord Hanworth for probing the case for Clause 113 and the supplementary thoughts of my noble friend Lord O’Neill. The Bill’s Explanatory Notes are not helpful in this regard, merely pointing out that the Secretary of State is being provided with the power to sell, lease or transfer the GPSS,
“or any part of it and transfer any right or liability relating to the system or any part of it, subject to such conditions, if any, as he considers appropriate”.
What more could he ask for? This brings to mind the film “The Firm”, which noble Lords may remember concerned a young lawyer—Tom Cruise—discovering the dark side of providing legal services to clients. At one point, the firm’s team is considering whether there is something suspicious going on. The firm’s adviser replies,
“I get paid to be suspicious when I’ve got nothing to be suspicious about”.
The Opposition are not paid to be suspicious but we are tasked with trying to unlock what there is to worry about when the Government decide to take, upfront, all sorts of powers to transfer assets and to be able to do so however they wish.
This clause was also brought up in Committee in another place, yet the Government have not thought it appropriate to bring forward any constraining amendments to relieve any suspicions, clarify any conditionality on any transfer or explain under what possible scenarios they might wish to undertake any change to the status quo. Furthermore, the Government are not providing any further information, other than that further work is under way.
The Deputy Chairman of Committees (Lord Geddes)
The noble Lord, Lord Grantchester, was in full flow, and perhaps he would now like to resume.
Lord Grantchester
The Government are not providing any further information other than that further work is under way to update the initial value-for-money analysis undertaken last year and that Defence Ministers will be asked to decide whether to invite bids for the GPSS on the basis of that work. I welcome the presence of the Defence Minister to provide clarity to the Committee.
Given that this Bill will have completed its passage through Parliament by that stage, will the Minister tell the Committee today by what means Parliament will be able to assess the analysis and ask for certainties beyond the bland assurances already provided by the Minister of State in the other place, Mr Greg Barker, to my honourable friend Luciana Berger? It is recognised that a sale contract would be a private matter and not wholly for Parliament. No doubt the Public Accounts Committee may also scrutinise any sale. However, nothing in the clause deals with the contractual nature or goes beyond any theoretical possibility. Will the Government explain why they want to sell and whether they may limit the sale or lease to the use of the pipeline and retain the fabric or even vice versa? Any transfer would want to pass over as many liabilities as possible while retaining as many benefits. Is there any comfort in Clause 113 providing that it must be for valuable consideration? I presume that the Minister can qualify this as positive valuable consideration and will exclude negative valuable consideration—that is, someone is paid to take it away or it is part of a larger transaction as an uncosted supplement. Will the Minister also clarify what conditions the Government consider appropriate when asking this Committee to acquiesce to this power?
Finally, the Minister might be tempted to say that the Government do not yet know all the appropriate conditionality pertaining to any transfer. Will the noble Lord look at the suggestion by my noble friend Lord O’Neill and come forward with an amendment to bring regulation to the situation or to introduce any sale or transfer to Parliament when there is clarity around the circumstances which the Minister is happy to explain and promote when the time comes?
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)
My Lords, to date the clauses that are included within this Bill to enable the sale of the Government pipeline and storage system have received relatively little attention. Indeed, they were barely mentioned on Second Reading. This is why I welcome the clause stand part debate tabled by the noble Viscount, Lord Hanworth, as it provides an opportunity for us properly to scrutinise the proposals.
Clause 113 is crucial because it allows for the sale or lease of the GPSS or a part of it. At the current time, the rights to operate and maintain the GPSS and to access land for this purpose are personal to the Secretary of State for Defence. This clause allows the Secretary of State for Defence to transfer these rights, thereby enabling the system to be sold or leased. A decision on sale or lease will be made once further analysis has been undertaken and we have engaged with the market. The clause also allows the transfer of liabilities.
Having explained the intent of this clause, I would like to address a number of concerns that were raised in the other place relating to the sale of the GPSS so that I may demonstrate what progress has been made in these matters.
First, the strategic importance of the GPSS was raised, including the need for it to provide assured fuel supply to certain sites. Through the work conducted to date, we are confident that we will be able to put a contract in place to meet the continuing requirements of the Ministry of Defence and the United States visiting forces, which will offer the appropriate level of protection, including priority access when necessary. Similarly, the potential impact of sale on commercial customers has been raised. The Department of Energy and Climate Change and the Department for Transport have jointly reviewed the implications of a sale of the GPSS on the market, including access and charging, and concluded that while it transports a significant proportion of fuel to the major airports, existing regulatory provisions, particularly the Pipe-Lines Act 1962, are sufficient and no further regulation is required.
On physical security, I reassure noble Lords that we do not believe that the sale will make the GPSS any more vulnerable to terrorist attack than other equivalent infrastructure operated by the private sector, such as the electricity and gas distribution networks, particularly since the pipeline and storage tanks are predominantly built underground to make the system less vulnerable. Officials at the Oil and Pipelines Agency regularly discuss, with appropriate external organisations, measures to best protect the GPSS, including from the risk of cyberattack. We would expect a purchaser to continue these measures post-sale.
Questions were also raised regarding the impact on safety and the environment following the sale of the GPSS. Any owner has an inherent interest in running the system in a safe manner and would need to comply with the same legislation and regulations as the Oil and Pipelines Agency does at present, such as the regulations under the Environmental Protection Act 1990 and the Pipelines Safety Regulations 1996. Therefore, it is not believed that a sale would have any adverse impact in these areas.
Lastly, and quite rightly, the value for money of a sale has been raised. A final decision on sale is dependent on being able to strike the right deal with the private sector, and value for money is a key consideration. Work is ongoing to update the initial value-for-money analysis that was undertaken in 2011 and which underpinned the impact assessment published alongside these clauses. To refine these financial figures, we have appointed external advisers to undertake a forensic examination of the GPSS costs and revenues, including any potential liabilities associated with the ongoing operation of the system. This work will inform a final decision on sale, which we aim to make by the end of this year.
I shall do my best to answer any concerns or questions that were asked. The noble Viscount, Lord Hanworth, and the noble Lord, Lord O’Neill, were concerned that the GPSS would be seen as a monopoly. The GPSS does not supply Heathrow, Gatwick and Manchester directly—this is done via third-party pipelines. The GPSS provides direct to Stansted, and the DECC and DfT have looked at regulation and concluded that none is required. The GPSS has to compete with other privately owned pipelines.
The noble Viscount was concerned at the foreign ownership issue. Any buyer would need to be deemed competent to operate the GPSS in a safe manner and to be a UK-registered company. We are considering what other criteria any purchaser would need to meet, including restrictions on foreign ownership, and the options for posing these restrictions before any onward sale.
The noble Viscount and the noble Lord, Lord O’Neill, asked whether there would be any regulation of the GPSS post-sale to protect customers. The DECC and DfT have reviewed the implications of the GPSS sale on the market, including access and charging, and concluded that, while it transports a significant proportion of fuel to major airports, existing regulatory provisions, particular under the Pipe-Lines Act 1962, are sufficient and no further regulation is required.
The noble Lord, Lord O’Neill, was concerned that the sale might adversely impact on safety and the environment. Any owner has an inherent interest in running the system safely and there is no reason to believe that the sale will adversely impact on safety. Indeed, the OPA already has to comply with a number of safety regimes such as the Health and Safety at Work Act 1974, the Control of Major Accident Hazards Regulations 1999, regulations under the Environmental Protection Act 1990 and the Pipelines Safety Regulations 1996, which are overseen by the Health and Safety Executive and the Environment Agency. This will not change.
Lord O'Neill of Clackmannan
The Minister referred to a number of regulatory bodies on health, safety, the environment and so on. I was actually asking primarily about economic regulation. Can he flesh out rather more the information he has given us on the nature of the other competitors that the pipeline would be matched against to supply the relevant airports? Can he say whether these pipelines are subject to any kind of economic regulation, probably by Ofgem?
Lord Astor of Hever
My Lords, I hope to come back with a suitable answer quickly. In fact, I will write to the noble Lord on this issue.
The noble Lord, Lord Grantchester, was concerned that there are no additional clauses on conditionality. Clause 114 makes provision to modify the application of certain provisions of the Pipe-Lines Act 1962 to the GPSS, so that the GPSS, as far as possible, is treated post-sale as if it were a pipeline to which that Act applied. This is to ensure that it has neither a competitive advantage nor disadvantage to other such pipelines. Any conditions on sale will be contractual.
Finally, the noble Lord, Lord Grantchester, was concerned that there might be a conflict on the value consideration. We expect value to be positive.
I hope that apart from the one issue on which I will write to the noble Lord, Lord O’Neill, I have answered all noble Lords’ questions and concerns. I thank my noble friends Lord Howell and Lord Jenkin for their support.
“( ) Before designating a statement for the purposes of this Part, the Secretary of State must carry out an appraisal of the sustainability of the policy set out in the statement.”
Lord Judd
My Lords, most of us are agreed that the UK simply has to make a significant contribution to addressing climate change. However, most of us are agreed that in the drive to reduce greenhouse emissions by increasing the amount of electricity generated from renewable resources we must avoid an irresponsible and tragic situation whereby we are irreparably damaging the environment by siting infrastructure inappropriately in vulnerable landscapes. I should at this point make it clear that I am honorary president of the Campaign for National Parks and a patron of Friends of the Lake District. As I am sure is the case with many noble Lords, I have frequent correspondence and discussions with organisations such as the CPRE, the WWF and the rest. It is interesting to find the strength of concern about the implications of the Bill.
In preparing for this debate, I have found one brief in particular to be extremely helpful and I hope that other noble Lords have had an opportunity to see it. It was produced by the John Muir Trust and I find it very telling.
Lord Greaves
My Lords, I thank the noble Lord, Lord Judd, for tabling these amendments, which are important and relevant at this stage of the Bill and I was pleased to add my name to them. I approach this part of the Bill with memories of the discussions that we have had in various planning Bills in recent times, particularly the Planning Act 2008. This Bill is clearly mainly about the promotion and regulation of energy, whereas from the planning perspective it was about the relationship of the town and country planning system to energy production. It is right, particularly when we are talking about high-level policy statements, that we should come to how the two systems interact, and I am grateful to the noble Lord for introducing these amendments that allow us to do so.
The strategy and policy statement proposed in this part of the Bill is about the strategic priorities in UK energy policy, the intended policy outcomes and the roles and responsibilities of the people involved in implementing them. There has been a lot of discussion already on the Bill about environmental objectives, and the Bill is crucial, but the main debate is about the high-level environmental objectives of tackling climate change. Indeed, some noble Lords have suggested that the Government’s policy on this is unnecessary, wrong or over the top. The question that the noble Lord’s amendments raise is an important one: how far these high-level climate change environmental objectives should be at the expense of the local environment. This is a tension, it is a clash, and there is no point in running away from it. There will have to be balance and compromise, as there always has been, and it is right to discuss it now.
It is surely nonsense to sacrifice a considerable amount of local ecology and biodiversity in the interests of the global environment, but the further question that the noble Lord raised is how far we have to sacrifice the amenity aspects of the environment, as they might be called, which are far more subjective but, as I think the noble Lord said at the beginning of his speech, vital for people’s well-being—their spiritual health, I think he called it.
We are talking about landscape quality in particular and the value of that quality for scenery, recreation, ecosystems and biodiversity. We are talking specifically, though not entirely, about wild places—what might be called “wilderness”. The degree to which we have any wilderness in this country that compares with other parts of Europe or continents such as North America or Africa is arguable, but we still have places that, when you are there, certainly feel very wild indeed.
I remind the Committee of my registered interests in the British Mountaineering Council, the Friends of the Lake District, the Open Spaces Society and as a member of the John Muir Trust, to which the noble Lord referred.
These amendments raise important questions, including how far these issues of policy on what might be called the local environment—although “local” might encompass large areas—should be entrenched at the highest levels of policy-making, particularly in the strategy and policy statement, the SPS. The noble Lord went through his amendments in detail and I will not repeat what he said. However, I want specifically to refer to Amendment 49, which states that in addition to the statement and the report on the responses to consultation, which the Bill already states must be laid before Parliament, the Government must lay before Parliament,
“a statement setting out how the strategy and policy statement relates to other statements of government policy on energy, such as national policy statements and other strategic national policies including, for example, on transport and communications”.
I refer specifically to national policy statements under the Planning Act 2008, as amended by the Localism Act 2011. Six statements on energy have been approved by both Houses of Parliament. The first, EN-1, is the Overarching National Policy Statement for Energy. That alone is 115 pages long. The five further documents are on fossil fuel electricity generation, renewable energy infrastructure, gas supply infrastructure, including gas and oil pipelines, electricity networks infrastructure and a two-volume, hefty document on nuclear power. My question is: what is the relationship between these national policy statements and the new strategy and policy statement, which will all be agreed by Parliament?
The SPS is clearly intended to bring regulation of the gas and electricity market by Ofgem more closely into line with government energy policy. In November last year, we were provided by the Government with an excellent and extremely useful background note, the Energy Bill Provisions for Ofgem Strategy and Policy Statement. It states that,
“the SPS must contain: the strategic priorities and other main considerations of Government in formulating energy policy; policy outcomes to be achieved … a description of the respective roles and responsibilities of the Authority and the Government (and potentially others)”.
However, the Bill, at Clause 126(1), repeals the existing provisions concerning social and environmental guidance to which Ofgem must have regard when carrying out regulatory functions. The Ofgem review found that this provision was ineffective and we are told that it will be superseded by the SPS. The November 2012 paper states:
“The Statement replaces the previous Social and Environmental Guidance”.
That is okay, as far as it goes. The priorities and outcomes to be included in the SPS, according to the paper on the Energy Bill’s provisions, are to be,
“security of supply, affordability and low carbon”.
No one is arguing with that. It is fairly obvious that they are the basic three. The paper continues:
“As part of this, the Government will need to consider the guidance in the Social and Environmental Guidance that will be repealed by this legislation”.
I do not understand what that means. It is pretty vacuous and confusing. At the very least, a clear statement of what the Government intend as regards social and environmental guidance in the SPS is required before we allow the Bill to leave this House.
On a slightly peripheral issue, I am interested in whether the SPS might be a material consideration in planning applications, alongside all the planning guidance that is issued: the National Planning Policy Framework and the national planning statements on energy. Is it intended that the SPS will have any purchase at all on any other part of policy-making or decision-making apart from the regulatory system through Ofgem? If the answer is no, I would have to take that with a pinch of salt. If documents exist, people will use them and over a period of time they may well come to be found by a planning inquiry, for example, to have some value.
Does it also have any importance as far as licensing procedures and decisions are concerned for the approval of, for example, oil and gas exploration? Will the SPS be of any importance at all in, for example, licences for fracking for shale gas or anything else? I am trying to get at whether it is a very narrow document that is only about regulation through Ofgem, or will the Government accept that it will almost certainly be used in other areas?
Finally, I want to comment briefly on the role of the Secretary of State. I have huge admiration for the present Secretary of State for Energy, who seems to be a man of great competence and energy—if I can use that word—and is somebody I might follow into the jungle. But, the powers to be given to the Secretary of State—whoever that is—under the new system seem rather large. He will be responsible for compiling the statement of policy and strategy. He is already responsible for compiling the planning policy statements. Okay, those come through Parliament but he is still responsible for them. He is responsible for determining applications for development consent for all but the smallest energy-related planning proposals. It seems that he is the legislator, prosecutor, judge and jury, and no doubt when proposals are agreed he will be there urging them on as, I assume, not quite a clerk of works—but who knows?—and chief cook and bottle-washer. That really seems, in planning terms at least, an astonishing concentration of decision-making within one department and one Secretary of State. The checks and balances of good planning, and of good investment decisions, may be there if it all goes okay. If it does not go okay, then there may be problems to come.
Local environmental considerations are already firmly embedded in the national policy statements in the planning system. We may or may not agree with the details but they are firmly embedded there. Surely producers will make decisions—short and longer- term ones—based on regulatory regimes that they are subject to, themselves based on the SPS. Surely these environmental considerations should be embedded in the SPS as well.
Baroness Worthington
My Lords, I thank my noble friend Lord Judd and the noble Lord, Lord Greaves, for tabling these amendments. In terms of their underlying principle and the issues that have been raised, I have a great deal of sympathy with them. I was involved in the campaign to secure the Countryside and Rights of Way Act. I am a strong believer in the need to preserve our biodiversity and natural environment and the amenity of our unique landscapes. Both noble Lords were very eloquent in defending those unique and priceless assets, as they have been described, and raised interesting questions. I look forward to hearing the response from the Minister.
The noble Lord, Lord Greaves, highlighted the fact that we have considerable amounts of information in the public domain which guide where energy projects are located. Those are the national policy statements on planning, which are, as the noble Lord mentioned, considerable in their breadth and depth.
Lord Gardiner of Kimble
My Lords, from the outset I acknowledge the long-standing interest that the noble Lord, Lord Judd, has in the countryside and the impact of energy infrastructure on the landscape. The noble Lord referred to this matter at Second Reading. I know that my noble friend Lord Greaves also has a lasting interest in wild places.
As a countryman who cares about all these things very strongly, I understand where noble Lords are coming from. This is an important issue, and one that the Government recognise, which is why we have already put in place various safeguards within the planning and regulatory system to ensure that visual amenity and other sustainability issues are taken into account before decisions on infrastructure are made. Ofgem has a clear duty to contribute to the achievement of sustainable development; it must have regard to the effect on the environment of activities connected with the conveyance of gas through pipes and the generation, transmission, distribution and supply of electricity. It is also required to carry out impact assessments for important decisions, which would include consideration of sustainability implications, including local environmental impacts.
Amendments 41 and 46 would require the Government to undertake sustainability assessments of the policy set out in the strategy and policy statement before it is either designated or amended. Of course, it is important that the impact of regulatory decisions is assessed, but the intention of the strategy and policy statement is to reflect existing policy; it will not be a vehicle for the introduction of new policy or duties, nor will it contain any regulatory or planning decisions. The more appropriate time for consideration of the potential environmental impact of energy policy proposals is when they are being considered by the planning authorities—and I entirely understand what my noble friend Lord Greaves says about balance. Existing legislation, including in relation to the energy national policy statements, already provides the framework to ensure that this is done.
Amendments 42 and 50 would require Ofgem to show how it has complied with its general environmental duties to some extent in its forward programme work. Of course, I understand the noble Lord’s concern that Ofgem should take full and proper account of all its duties in drawing up its work plans.
The strategy and policy statement does not override Ofgem’s existing duties to contribute to sustainable development and, because of the requirement for Ofgem to set out its strategy for implementing the strategy and policy statement in its forward work programme, we believe that it will increase the accountability of the regulator. That is also reflected in the requirement to report annually on its contribution to meeting the strategy and policy statement’s policy outcomes. Indeed, the noble Lord, Lord Judd, referred to the question of the requirement to demonstrate compliance with Ofgem’s environmental duties. Ofgem will be required to report on how it contributes to meeting the policy outcomes in the statement. Existing duties will still apply and we would expect Ofgem’s report to take account of those and how they impact on relevant regulatory actions. I would also expect both the work plan and the annual report to cover the relationship between the strategy and policy statement, as well as Ofgem’s remit.
Amendment 42A would require Ofgem to have regard to the effect on the environment of activities connected with the conveyance of gas through pipes and with the generation, transmission, distribution and supply of electricity. Under the existing regulatory framework, Ofgem already has duties that require it to have such regard. Again, I refer to the point that the noble Lord, Lord Judd, made. That duty is imposed by the Gas Act and the Electricity Act and will still apply even if the guidance were to be repealed. As I have pointed out, nothing in the strategy and policy statement overrides those duties, which would continue to apply. Indeed, it is a reasonable expectation that the SPS will pick up on important parts of the guidance. In my view, Amendment 42A would therefore not be necessary.
The noble Lord, Lord Greaves, asked whether the statement covers oil and gas exploration. No, it would not. It applies only to Ofgem’s existing regulatory duties. Ofgem does not regulate oil and gas exploration and no changes to that are proposed.
Amendments 43, 44, 45, 47 and 48 would introduce formal requirements for the Government to consult specified interest groups in relation to the SPS. As has been referred to, the Bill already makes provision for wide public consultation as we develop the contents of the SPS. I reassure the noble Lord that we intend to engage fully with all relevant stakeholders, including, where relevant, those who represent an environmental perspective. Furthermore, Ofgem will consult on its forward work plan, which will include its strategy for meeting the SPS policy outcomes. That will provide another opportunity for stakeholders to express their views. In the light of that, we do not consider it necessary to name particular interest groups in the legislation.
Amendment 49 would require that, when the strategy and policy statement is laid before Parliament, it is accompanied by a statement explaining how it relates to other government statements on energy policy. The legislation already requires that the strategy and policy statement sets out the Government’s strategic priorities and other main considerations of its energy policy. It will therefore have to reflect existing policy and explain the context in which it is made.
To refer to a point that my noble friend Lord Greaves made about how the strategy and policy statement relates to national policy statements for energy, the SPS will set out the Government’s strategic priorities and policy statements in relation to issues where the Government consider that Ofgem regulation has a significant role, whereas the national policy statements deal with the development of nationally significant infrastructure in particular sectors—for example, energy and transport. They are the framework for decisions by the Secretary of State on applications for development consent orders for nationally significant infrastructure projects and may be a material consideration for local planning authorities when determining other infrastructure proposals. It is for these reasons that this amendment is unnecessary.
I hope that the reasons I have outlined have reassured noble Lords about why the Government do not think that this amendment, the intention of which is entirely laudable, is necessary. I hope that I have been sufficiently reassuring for the noble Lord to feel able to withdraw his amendment.
Lord Greaves
The noble Lord, Lord Judd, other noble Lords and I will read the Minister’s speech very carefully. There was some helpful stuff in it. I have two questions. First, given that we will have the whole summer before we return for Report, might it be possible to firm up the kind of thing that might be in the SPS referring specifically to social and environmental issues as the replacement, which it says that it is going to be, for the stuff repealed by Clause 126? Secondly, does the Minister accept that, despite the fact that the NPS and SPS have different roles and therefore different purposes, if they were in conflict in any way, even in quite detailed ways, that might cause problems because people would pick up one and quote it against the other? If the SPS is to reflect existing policy, in those areas where it covers the same areas as the NPS on energy—and it clearly will in some areas—does it mean that it will follow the NPS, that the NPS will be the superior document and that the SPS will simply reflect the NPS or is it more complex than that? If it is more complex than that, we might want to come back on this.
Lord Judd
First, I thank the Minister for his very courteous reply. It is very characteristic of him. Secondly, I thank the noble Lord, Lord Greaves, for his support, and I thank my Front Bench for the general good will in this respect. I hope this is not regarded as a point that is to be dismissed because it is seen as partisan. I was formed in the war and immediately afterwards, and I have always been very glad that the post-war Labour Government, whom I hold in high esteem, were pioneers in fighting for a lot of what I have been talking about today: the importance of countryside to people and the well-being of the nation. That flag was immediately and without controversy picked up and warmly endorsed by many in all parts of British politics, and that is Britain at its best. We must be very careful that we do not inadvertently let it erode to the point that what we leave to our grandchildren is not what it could have been.
I listened carefully to the Minister. As is always said, the devil is in the detail, but my concern is the whole thrust. I take second place to nobody in advocating the vital importance of taking on board the issues of climate change. They should be central to all parts of government. From that standpoint, if from no other, I am tired of aspirational politics about doing things and I want to see effective arrangements for achieving results. That is why I strongly associate myself with what was argued from this side of the Committee earlier about the need for targets and all the rest because we need to make effective progress. If we are successful in that, there will be tremendous drive from industry and others to get in on the act and play their part, and all credit to them for that as it is essential. That is terrific.
The Minister said that these things are more appropriately handled at the inquiry stage and at local level. I want to see the evidence that these other balancing factors are strategic to the Government’s position and thinking, and that nobody is in any doubt about where the Government stand on the vital wider issues that I have raised. That is where I have anxieties. This is not a partisan view because I had the same anxieties under the previous Administration. I want to see this issue become a driving force alongside the rest. People in specialist organisations take these issues seriously. I mentioned the John Muir Trust. I hope that noble Lords will get hold of its briefing, which I have used extensively, read it for themselves and meet people such as the personnel and staff of the John Muir Trust and others who argue their case well. Genuine officials and deeply committed public servants are putting their point of view from one angle and highly qualified deeply committed people in other parts of national life are as concerned about this issue as anybody else. I do not think that we take their concerns seriously enough when formulating policy. As an older politician in the House of Lords, I see it as my responsibility to make sure that those concerns are put in front of committees and legislators.
I will think very carefully indeed about what the Minister has said and will, of course—
Lord Greaves
Before the noble Lord withdraws the amendment, will the Minister comment briefly on the two supplementary questions I asked him?
Lord Gardiner of Kimble
My Lords, if the guidance is repealed, an environmental duty in the electricity Acts and the SPS will cover the same ground as is currently the case. However, I will reflect on what the noble Lord has said and will write to him if there is anything more constructive on which I can report.
Lord Judd
My Lords, as I say, I take very seriously indeed what the Minister has said and will consider it carefully before Report and think how to respond appropriately then. At this stage, in the way that we do these things in Committee—what alternative is there?—I beg leave to withdraw the amendment.
Baroness Worthington
“Role of the Authority
(1) The Secretary of State must publish a report on the regulation of the entire energy sector by an independent authority.
(2) A report under this section must be laid before both Houses of Parliament no later than one year following enactment.”
Baroness Worthington
My Lords, this amendment speaks to the setting of the strategy and policy statement required by the Bill. Part 5 is an interesting aspect of the Bill because it moves away from purely electricity and considers all energy matters. It requires that a strategy and policy statement be maintained and formulated for Great Britain’s strategic priorities in relation to energy policy. I stress that because, as we all know, energy policy is far more than simply electricity or gas but encompasses all the primary energy used to supply energy to businesses and consumers for heat, electricity and transportation needs. This may seem academic but it is important to stress this because time and again Governments have been tempted to equate energy with electricity. They often extend that to include gas but it is rare for there to be a holistic view of all energy. The establishment of the Department of Energy and Climate Change created a structure in which I had hoped that a more holistic view of energy could be developed.
However, there are still departments of government with responsibility for energy that sit outside the DECC framework, most notably the Department for Transport, and it is not quite clear how the Department of Energy and Climate Change relates to other departments that have an impact on energy policy. That is true at a departmental level.
At the regulatory level—this part of the Bill also deals with the independent regulator Ofgem and its duties—there is clearly a gap. I am encouraged that the setting of a strategic policy statement will, I hope, create a much clearer framework of who is doing what and who has responsibility for what. We have a regulator for electricity and gas, but it is not an energy regulator. The powers do not extend to the many consumers who are off the gas grid network and rely on unregulated sources of energy. Periodically there are concerns, which often reach the media, about people who have been forced to purchase from other suppliers and be completely dependent on that fuel in the winter months. There is no price regulation there.
Colleagues in another place have raised concerns over how non-domestic consumers are represented by our regulator. We tend to equate the regulation as being on behalf of consumers but that is a broad definition and there is a subset of consumers, the small and medium-sized enterprises, which are facing considerable issues. I hope that Ofgem’s remit will cover them and that we hear more about how they can be protected.
I have tabled my amendment to force the Government to consider the gaps in current regulation. That will become increasingly important, not least because, as we move forward with a low-carbon agenda, the three major energy markets—electricity, heat and transport—are starting to merge and cross over. The noble Lord, Lord Flight, last week tabled an amendment on the interplay between biofuels being used in the heat market and transport markets. These issues are becoming increasingly apparent. It is not just that fuels can be diverted into different markets but a process of electrification of transport and heat is underway. I do not know what all the issues will be as we go down this path but we should certainly have a regulator capable of looking across all the energy markets.
Another aspect to this that we hope the SPS will address is the creeping lack of clarity about the relative roles of the department and the regulator. I give just two examples. At the moment, there is a tendency for Ofgem to be involved in policy. Perhaps the most notable example of that is Project Discovery, Ofgem’s foray into the murky world of security of supply, which takes it well beyond the role of a price and market regulator into a policy arena in which the department should operate. On the other hand, the department is starting to act like a price regulator, with the Prime Minister starting to make policy on tariffs. We are shortly to hear a lot more about those proposals but it is clear that there is an increasing crossover and complete lack of clarity here. I hope that this SPS will help to address that.
My next point relates to how the commodity markets are regulated. This is an important issue because, as we have seen in the press in a number of cases, where there is potential for market abuse there needs to be a clear regulatory framework. In the commodity fuel markets, there is a lack of clarity on the distinction between where the FCA is involved in regulating markets and where Ofgem’s role starts. This will become a very important issue, not least because we are now considering a Bill in which we are placing quite a high degree of emphasis on reference prices against which we will be comparing strike prices. I have raised this in the very helpful briefings we have had in the run-up to the Bill. I was referred to the implementation of REMIT, a Europe-wide move to prevent abuses in the wholesale energy market, but I am not fully reassured by that. I have a number of questions in relation to it. Has it been implemented in the UK? When will it be implemented? The deadline for the introduction of penalties for abuse was 29 June. Have we implemented the penalties? Are we compliant with that European requirement?
REMIT goes only so far. When we are looking at a system that is highly dependent on market-based prices, I am concerned about who is going to ensure that the data that go into that process are comprehensive, holistic and not subject to abuse. In the oil market, we have heard of abuses by oil companies and about rating agencies colluding to provide only a small part of the information, not the full picture. If that is possible, do we not need to look at statutory underpinning for this information? How can we develop robust reference prices if the information provided to rating agencies is done on a voluntary basis and has no statutory underpinning? What are we doing to ensure that we have full and complete transparency in the data that are provided to develop these reference prices?
It will come as no surprise that our party is very critical of Ofgem. I have said that I do not think that the role of Ofgem is broad enough and have talked about the lack of clarity and the confusion about where the FCA’s role starts and where Ofgem’s role starts. The most worrying criticism of the regulator is that it is failing in its current remit. It is not acting to enforce fairness. Its process of reform started in 2008 and was evaluated in 2011. Of the 16 benchmarks set to compare progress against, 12 showed no improvement. That is simply not good enough. From 2008 to 2011 is a long period, and there was no improvement in 12 of those benchmarks. Ofgem is clearly failing in its stated purpose of enforcing fairness in the market.
Ofgem has failed to live up to expectations about transparency in the market. I know that this will come up in later parts of the Bill as we talk about access to markets and liquidity. In 2011, the accountants BDO issued a report, I think at the behest of the Government, looking at what could be done to improve transparency in the market. Eight recommendations were made. Of them, six were quietly dropped; only two were pursued, and they were varied from the original advice. This is a serious issue, and this is the part of the Bill where we talk about the authority and the role of regulation. We have very serious concerns about Ofgem’s remit and its ability to deliver on its current functions. Our policy would be to replace this regulator with a regulator fit for purpose to deliver proper regulation and to protect consumers now and in the future across the whole energy market.
Lord Gardiner of Kimble
My Lords, I am grateful to the noble Baroness for providing the opportunity for us to consider these matters further. My understanding is that Amendment 41A is intended to require the Government to publish a report on the case for introducing new regulatory arrangements for the wider energy sector as well as for gas and electricity within a year of the Bill coming into force.
It is true that matters such as the supply of heating oil or liquid petroleum gas do not fall within the energy regulator’s remit, but there are good reasons for this. A chief component of Ofgem’s remit is to regulate the monopoly companies that run the electricity and gas networks. No equivalent natural or structural monopolies for distribution or supply exist in other energy sectors, so the Government do not consider that there is currently a case for them to be regulated by Ofgem or a new energy regulator. We need to bear in mind that increased regulation would be likely to increase the costs for businesses operating in these sectors, which would probably be passed on to their customers. This of course would be a concern to domestic and non-domestic customers. I entirely agree with the noble Baroness; we must think of non-domestic customers and small and medium-sized businesses, which are so much part of the economic recovery.
Baroness Worthington
Can the Minister just say whether or not we have met the deadline of 29 June?
Lord Gardiner of Kimble
My instructions are that I will need to write to the noble Baroness. I am sorry about that but I have my riding instructions, as the noble Baroness can imagine. The noble Baroness also asked about the regulation of business consumers. Ofgem is taking action on issues affecting business consumers as part of the retail market review—for example, rollover contracts.
For the reasons that I hope I have articulated, I do not believe that it would be in the public interest for us to be undertaking the sort of work that the noble Baroness has suggested. I am well aware of her party’s views on Ofgem and the desire for a different arrangement but that is not the policy of the current Government. For the moment, while I am most grateful for the opportunity provided by the noble Baroness to debate these matters further, I hope that she might feel able to withdraw her amendment at this time.
Baroness Worthington
My Lords, I thank the Minister for his answers and for his offer to write on the specific details in relation to REMIT and the setting of the reference prices, which I believe are central to the Bill and may come up in subsequent debates.
It is rather amusing and ironic for the Minister to be praying in aid uncertainty as a reason for not moving forward on this; we have already had debates about the degree of certainty in the Bill, and this side of the Committee clearly believes that the Bill does not provide anything like enough certainty, which is exactly why we have the current hiatus in investment. I do not believe that sorting out proper regulation would cast a shadow over the markets; most people in the market accept that things need to be changed and fixed. If we have a regulator that has gone native, that is in no one’s interests—certainly not the consumer’s. I do not accept that argument.
On the question of extra cost, obviously all regulation has a trade-off between proper regulation and uncovering cost savings for consumers, against the additional burden of the reporting requirements on industry.
I urge the Government to look closely at the policy on transport fuels. One can dismiss it and say that there is no monopoly, but everyone who knows how that industry works knows that it is an oligopoly and that there is very little variance in pricing. There is also a severe problem of vertical integration in all these large energy companies, going up the chain to exploration and down to retail and the pump.
That is not to say that there is nothing to be looked at here. The opposite is the case. The issue has been overlooked for many decades and the time has come for the energy sector to be under the same degree of scrutiny in order to provide value for money for consumers. I do not buy the argument that this would lead to a net cost. You just have to look at the profits in some of these sectors to see that there is plenty of scope for prices to be brought down, with proper competition. That is what regulation should be about. I urge the Government not to be complacent and sweep this issue aside but to do some further work on it. I am happy to beg leave to withdraw the amendment.
Baroness Worthington
“Annual Energy Statement
(1) The Secretary of State shall publish a statement annually (“the Annual Energy Statement”) setting out inter alia—
(a) progress made on the delivery of the strategic priorities and policy outcomes under the strategy and policy statement;(b) future actions for the delivery of the strategy and policy statement;(c) implementation of other provisions within this Act.(2) The Secretary of State must report to both Houses of Parliament on the contents of that statement.”
Baroness Worthington
I have spoken on this theme before so what I say will come as no surprise. I consider this Bill to have wide enabling powers, with potentially dramatic consequences for the electricity market, but it is not matched with sufficient responsibilities on government to keep us informed of progress. This amendment would require that the reporting of the current annual energy statement, issued as part of a coalition agreement, become a legal requirement. If I am wrong and this Bill has some tough provisions for the Government to report on progress, I apologise and look forward to hearing that reassurance. However, in my reading of it, there are a lot of provisions to set strategy and forward plans, but little in the way of coming back to Parliament and reporting on progress.
The annual energy statement was a welcome document. It is not simply an electricity or gas report, but seeks to cover all energy including infrastructure and fuels, as we have just discussed. I do not see why the producing of such a statement should not be a requirement on government. It is not a lengthy document and I hope that it will not cost us too much argument. It is very important, we take this Bill forward with all the powers that it contains, that there is proper accountability to Parliament and the wider public. An annual energy statement, like the one that we have now had produced, is the bare minimum that we would expect to see in terms of reporting back on progress against the objectives set out in the Bill. I beg to move.
Earl Cathcart
My Lords, I want to say something about policy here. At Second Reading, I had three points. One was on the 4.5 million households in fuel poverty. The Minister has written to us today, saying that the Government will now amend this definition of fuel poverty; instead of having 4.5 million in fuel poverty, we have only 2.5 million, so that is all right then. The second thing was the price of fuel having doubled in the past seven or eight years and the prospects of it doubling again in the near future. The third thing was whether there was going to be a sufficient supply of power and what the Government’s current policy was to ensure that there would be.
Sorry, before I start, I was going to say this to the amendment of the noble Lord, Lord Judd, but I did not want to steal his thunder. I apologise to the noble Baroness, Lady Worthington, for coming in during her amendment.
The Government’s current policy is nuclear and wind, with imported gas as backup. However, why are we importing gas when we have our own shale gas, which we seem reluctant to exploit? Surely this is a gift horse that we must exploit. And why are we persisting with wind power when it is inadequate, intermittent and becoming increasingly expensive as we have to go more and more offshore into more expensive sites to build on them?
On the question of nuclear, we have yet to do a deal with EDF, which is, worryingly, the only player at the table. Even if we do a deal, any plant will take 10 years to build. We are told that energy supplies for Britain will be tight in the year 2016—there are scare stories of rationing and the lights going out. One would think that the Government’s policy would want us to generate ample power until the replacement sources were in place to ensure that rationing did not have to take place. However, what are the Government doing? They are closing down and taxing our coal-fired power stations just when coal is relatively cheap, just when Germany is proposing to build 20 more coal-fired power stations—are the Germans going to tax those out of existence? No—and just when China and India are about to built 800 more coal-fired power stations.
This seems to be a policy of closing down power stations before you have anything nuclear in place or any contract at the table. It is just like being in a job that one hates and wanting to move to another job: you do not give notice to your existing job until you have secured the new one. However, that is exactly what we are doing in Britain; we have given notice to coal before we have any nuclear in place. I just do not see the logic of that, and I hope that the Minister can explain finally what the Government’s logic here is.
Lord Oxburgh
Returning to the amendment, the message here for the Government is that with this Bill they are taking quite extraordinary powers, and those powers are going to have to be exercised to a degree that was probably not anticipated when the Bill was originally drafted, simply because we have run out of time to do things in a more orderly way. Whether or not we need annual reports, the important message for the Government to get is that, given that these extraordinary powers are there and will be required, that also imposes on the Government a requirement for an extraordinary and conscientious degree of reporting over that period.
Lord Roper
My Lords, like the noble Lord, Lord Oxburgh, and indeed the noble Baroness, Lady Worthington, in moving her amendment, it seems to me that, given that we have an annual energy statement, which is a useful document, it is not as if we are inventing a demand for a new document. The argument is always made that there would be costs involved, but on this occasion what is being asked is merely that something which already appears should become a statutory document. I therefore await with interest what the Minister has to say.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I am extremely grateful to the noble Baroness, Lady Worthington, and to all noble Lords who have contributed to this debate. Before I turn to the amendment, I should say to my noble friend Lord Cathcart that while his comments were not related directly to the amendment, I take note of his concerns and hope to respond at relevant junctures in the Bill. I am sure that the noble Earl will be satisfied that I have not sidetracked his concerns but will respond to them as the Bill progresses.
The Government agree that it is of great importance that Parliament is provided with updates on energy and climate change. This is particularly important, given the significant changes that we are making to replace closing infrastructure and to decarbonise the economy affordably. That is why we committed in the coalition agreement to giving an annual energy statement to Parliament to set strategic energy policy and guide investment. We have met this commitment every year since 2010 and we will be making this year’s statement to Parliament in the autumn.
I am not totally convinced that there is currently a great need to create more legislation for such an issue when we are already delivering on our commitment to update Parliament. In addition to this, DECC also reports to Parliament specifically on security with the Statutory Security of Supply Report. Furthermore, on Report in the other place, we introduced a statutory annual update on EMR. Finally, we also report on climate change via the government response to the Committee on Climate Change’s annual report, and on fuel poverty via the annual fuel poverty statistics. It is the annual energy statement that brings all these strands together.
I understand that the commitment made by this coalition Government is not guaranteed to be upheld by any future Government, and I therefore see some merit in ensuring that future Governments make a regular statement for Parliament and investors alike. It will therefore be wise for me to undertake to consider this further, ahead of Report. As part of this year’s annual energy statement we will of course be updating Parliament on the progress that we have made across the entire energy spectrum, including on the Green Deal, smart meters and climate change, as well as on the matters in the Bill. It will therefore include EMR and the strategy and policy statement, to which the noble Baroness has referred.
Ofgem will be required to report to Parliament annually on the extent to which it has contributed towards meeting the policy outcomes set out in the strategy and policy statement. The Bill requires this information to be included in the annual report and it is already a requirement that the report is laid before Parliament. This requirement already provides sufficient accountability and transparency in respect of the strategy and policy statement. I hope that the noble Baroness has found my reassurances and explanation useful and will withdraw her amendment.
Baroness Worthington
I thank the noble Baroness for her response. I am encouraged that that there are reporting requirements of which I was perhaps unaware, particularly the statutory requirement to update on the EMR. I should be grateful for further details on that. The statutory requirement on Ofgem to report does not do what the annual policy statement on energy strategy does because, as we have just discussed, Ofgem merely looks after a subset of the entire energy policy and it is just the department that is across all the issues. In the Annual Energy Statement, you will notice paragraphs on transport fuels, transport infrastructure, electrification, biofuels and the like, over which Ofgem has no oversight. I am encouraged that Ofgem will be reporting—that is great—but it does not do what the amendment does. However, I am happy to withdraw the amendment and look forward to hearing a little more about the EMR report. I am encouraged to hear that the noble Baroness is prepared to consider this amendment, or something like it. I beg leave to withdraw the amendment.
Lord Whitty
“(f) provision for requiring or allowing a licence holder to offer a particular form of tariff designed to—(i) reduce the incidence of fuel poverty;(ii) reduce total energy consumption or increase conservation;(iii) change the time profile of energy consumption.”
Lord Whitty
My Lords, I will also speak to the other amendments in this group. We now come to what is probably, in the outside world, the most important part of the Bill. We had a huge discussion on nuclear regulation and a very substantial discussion on issues relating to carbon targets but the millions of people out there are concerned about—I agree with the early part of the noble Earl’s remarks just now—the very rapid doubling of prices for fuel and the more than doubling, on the old measure at any rate, of the level of fuel poverty. That is what the consumer dimension and the consumer objectives of energy policy, among all the others, need to address.
The original Bill did not include Clause 127. It is a fairly hefty clause, with three clauses after that following it through, but it is nevertheless a pretty thin part of the totality of the approach to energy policy represented by the Bill. It owes its genesis almost entirely to a remark by the Prime Minister in October last year when he effectively promised that everybody would be on the lowest possible tariff. There was some consternation at the time in the noble Baroness’s department and Ofgem about what the Prime Minister actually meant by that. Ofgem rapidly engaged in some internal work, some of which was very welcome. It is now engaged in two consultations on how to put that into effect. Clause 127 gives effect to some of the issues covered and recommended in the Ofgem consultation.
However, the clause does not really deliver the Prime Minister’s objective. It probably delivers some greater transparency and certainly delivers a very welcome requirement on reducing the extraordinarily confusing number of tariffs that consumers face at the moment. But underlying it, it betrays—as my noble friend implied just now—a huge lack of trust in Ofgem to deliver this. Clause 127—probably correctly given Ofgem’s present state and record—is full of subsections allowing the Secretary of State effectively to intervene and tell Ofgem what to do.
There are delicate issues of independent regulation here. There are important issues as to where policy lies in terms of the department as against the regulator and where legislation lies as against secondary legislation and Ofgem’s own rules. It is an odd approach in many ways. However, given the deficiencies of regulation in terms of consumer benefit, it is not one I entirely reject, but if we are to go down that road we need to be clear why we are giving the Secretary of State such powers of intervention. In another context, and in relation to, for example, the statement of policy, the Government wish to step back and give the regulator, in this sector as in others, a general framework to act on for five years. This clause gives the Secretary of State the ability to intervene at all sorts of points on all sorts of issues in all sorts of ways, but does not really explain for what purpose. Subsections (5) and (6) of Clause 127 lay down the way in which the Secretary of State could intervene, but no part of Clause 127 explains for what purpose.
My amendments today are to try to establish that purpose and thereby to achieve what I think was behind the Prime Minister’s intervention, which is that every household should, as far as practicable, know the most appropriate tariff for their circumstances or that there should be an obligation on their supplier to ensure that they know it. Whether that is always the cheapest tariff depends a bit, but it is certainly not delivered by Clause 127 as it stands or by current Ofgem practice.
In a sense, I am taking the Prime Minister’s text and trying to give the Secretary of State basic objectives for intervention which would help to achieve the objectives we seek, in particular, the ability to intervene in order to ensure more economic use of energy in terms of energy conservation, energy efficiency and decarbonisation and to ensure that tariffs are more affordable, at least for domestic consumers—there are also industrial consumers who do not really feature here, even microbusinesses, which also need to be addressed—in terms of affordability in general and fuel poverty in particular.
Obviously, I have not had time to absorb the full impact of the Secretary of State’s intervention on fuel poverty strategy today. As the noble Earl said, redefining a problem does not make it go away. However you redefine fuel poverty, it is always a very big number. At the moment, it is going up seriously. While some of the changes in definition that underlie John Hill’s recommendations, which the Government seem to have adopted, are quite sensible—there is a total income gateway to being defined as fuel poor whereas on the previous formula some very rich people could have been so defined—that is a relatively minor point. The problem about the redefinition, which the Government, Ofgem and all of us who care about fuel poverty will have to address, is that whereas the previous formula was arguably far too sensitive to price movements, the present formula is very insensitive to price movements, yet price movements are what define whether you fall in or out of fuel poverty. With insensitivity to price, it is going to be quite difficult to shift that new total so the aim of reducing fuel poverty will prove more difficult.
I am trying to help the Secretary of State here, at least to have some clarity about what powers of intervention he has on fuel poverty and other issues. Clause 50A allows the Secretary of State to require Ofgem to put a requirement on a supplier licence to require tariffs aimed at reducing fuel poverty, for example, tariffs aimed at low-income households or associated with energy-efficiency measures to reduce the totality of the bill, probably funded via the ECO. My amendment also allows for tariffs aimed at low users or at low-income, high-use households. These tariffs would be options. They would not be mandatory over the whole range of tariffs and therefore they would allow Ofgem to require and the supplier to allocate people to the most appropriate tariff for their circumstances, which must be the aim of this policy.
There are all sorts of ways in which you could require a tariff which encouraged energy efficiency, in aggregate or in timing of energy use. For example, you could have a different range of tariffs where the marginal cost of the next unit of electricity was higher than the average cost. In almost all tariffs now the opposite is true. You could, as the Select Committee on which I sit heard from the Belgian authorities a few months ago, make it so that the opening tranche of initial units was free until you hit a certain minimum usage, and then there would be very high disincentive if you went beyond that level. You could have the whole structure of rising block tariffs, which is one way of doing it. All those methods would encourage behaviour and energy usage that reduced total energy usage and bills.
The Deputy Chairman of Committees (Lord Haskel)
I have to inform your Lordships that in Amendment 50H, which is part of this group, there is a misprint. It should read:
“Page 99, line 41”,
not “line 40”.
Baroness Maddock
My Lords, I am very grateful to the noble Lord, Lord Whitty, for tabling these amendments and have a great deal of sympathy with the points that he made. One of his opening questions was on why we are having to change the system and give the Government more powers, and perhaps change the role of Ofgem. The answer is because competition has not worked in the interests of consumers. That is what we are trying to grapple with to see whether we can do something better. Let us hope that we can.
I am also grateful to the noble Lord because, when these amendments were introduced in the Commons, they were accepted with little or no debate. Therefore, it is important that the Minister here is given more opportunity to tell us how they will work. I wish to ask one or two questions. Interestingly, some of them, and the points that I shall make, arise because I was speaking in Newcastle last Friday morning at a conference of CAN, the Carbon Action Network, which grew out of the HECA organisation that came from the Act of Parliament that I got through.
Some interesting points were raised at the conference. One of them, made by a lady, was that people think that we are asking energy suppliers to offer the cheapest variable rate; but she also made the compelling point that some customers would like the cheapest fixed rate. This lady works with clients trying to help people get a better deal. She said that since last winter, which went on for ever and during which we all burnt more fuel, older people in particular have become even more concerned than before about their bills. She thought that we should have a measure on this point in the Bill. I am not a lawyer and cannot always understand the jargon in the Bill so I am not clear whether it enables that to happen. I hope that the Minister will explain whether it does.
The lady tackling me on these issues on Friday is the energy and affordable warmth officer in Redcar and Cleveland. The other interesting point that she raised was how the change in demand for certain types of tariff will work, particularly the warm homes discount. She spends a lot of time working with clients, many of them in fuel poverty, trying to help them get a better deal. She said that this year there were huge differences in the criteria that the energy suppliers were using to decide whether people would get the warm homes discount. She has found that the big six have all changed their criteria. Some cover low income and others means-tested benefits only, such as income support, jobseeker’s allowance and employment and support allowance. Some look at non-means-tested disability benefits or personal independence payments while others look at things such as eligibility for school meals and maternity and medical exemptions. Again, I would be interested to know how the Minister sees these proposals working with other things that the Government have proposed such as the warm homes allowances under ECO. At the conference there was somebody from E.ON who tried to explain how this worked. I am hoping that either today or at another point the Minister will be able to help us understand exactly how these proposals work with other things.
From what I have managed to look at in the fuel poverty booklet that I picked up today, it may be appropriate to discuss some of these issues when we come to discuss the fuel poverty amendments because some of those issues are mentioned in the booklet. One of the things that the Secretary of State is looking at in proposing to take fuel poverty more seriously is the way that everything interacts together. I did not know before we had this debate today, or in what happened on Friday, that today we would have a whole booklet about fuel poverty so I am quite happy if the Minister does not answer all the points now because there will be an opportunity when we get to the fuel poverty amendments.
Earl Cathcart
My Lords, I think that my noble friend Lord Whitty and I have spoken about fuel poverty on all three Energy Bills produced by this Government. We both feel the same: the Government need to do something to address this. Unfortunately, the Government just put it in the “too difficult” file and nothing has been done about it up to now. If fuel poverty has doubled over the past seven or eight years and the prospect is that it will double again over the next few years, it really is time that we did something to address it. We cannot just leave the increasing number of people in fuel poverty to stew in their own juice. I see that there are amendments on fuel poverty later. I hope that they will help address the situation. Unfortunately, I do not think I will be here for that debate but I will certainly read it with great interest.
Lord O'Neill of Clackmannan
My Lords, I congratulate my noble friend on taking us through this tortuous issue with great clarity. I declare an interest as one of the vice-presidents of National Energy Action, as is, I think, the noble Baroness.
Lord O'Neill of Clackmannan
Given the large sums involved and our positions as members of that body, we must do that. There are various elements involved in fuel poverty: the condition of the house, the circumstances of the individual householder and the nature and size of the energy tariffs that the individual has to pay. Very often, people in fuel poverty are in comprehensively complicated social circumstances and the complexity of the tariff system just adds to their confusion. Quite often, they do not know what they are paying for. Quite often, they do not understand the bills. Invariably, they are unable to make full payment. If they are on the payment meter system—as has already been said—they pay rather more for the privilege of paying as they go but that normally enables them to self-disconnect, in the sense that if they cannot afford to pay they do not use electricity.
One of the statistics that is never given proper examination in arguments about privatisation is that we say there are not the disconnections that there were under public ownership. That is because nowadays people self-disconnect. There was a time when, certainly as a young Member of Parliament, I had a succession of cases where I would intervene with the nationalised industry, the utility, to ensure that the gas or electricity was restored and some kind of proper payment system introduced. In some respects, you might say that for a Member of Parliament that is a chore they no longer need to carry out but it was certainly one that enabled people to come to terms, at least for a period, with the straitened circumstances of fuel poverty. What we have to do here, regardless of the off-the-cuff remark from the Prime Minister, which I am sure he regrets having made—not because he did not believe in it but because of the complexity of the issue; this is a classic case of unintended consequences—is to take advantage of the legislation to make the tariff system for electricity intelligible, simple and, I hope, more affordable. My noble friend has addressed a number of the challenges that that remark presents to us.
We know that in some respects there has been a major shift. There has been the publication of a report, which I confess I have yet to read, and amendments, in which we will all take great interest. It is fair to say that the Hills report was a wee bit of a curate’s egg, but there are always problems with the oversimplistic definition of the 10% rule. Perhaps we can get a change in the definition that enables us to target and prioritise. I know that those are the kind of words that people like to use in these circumstances. In the previous debate, we discussed having an annual report on energy. We will be looking very carefully, maybe not next year but the year after next, when a number of these amendments will have kicked in.
It is important that we have a debate like this and that we get from the Minister a clear picture of the Government’s thinking in relation to tariffs. The remedies for fuel poverty in a broader sense will be debated later, but people know well enough that serious near-criminal activities have been undertaken by the oligopolies. People say that the market works, but it has not worked; it has been abused consistently and methodically by cynical people who at the end of the day pay the fines in the certain knowledge that we as consumers then have to make our contribution to the compensation of the poor shareholders, who have been happy to have these chancers running these businesses. That is where we are coming from on this; a group of cynical manipulators of the tariff system have made the plight of disadvantaged people even more disagreeable. The rest of us can probably say, “It serves us right—we should be looking after ourselves”. However, a lot of vulnerable people have not been given any protection by the market, and we are now looking to the Minister and her response to this debate to tell us how we are going to get tariffs that people can understand and perhaps pay a little more easily than they have been able to in the past.
Baroness Verma
My Lords, I thank the noble Lord, Lord Whitty, for his amendments relating to this very important area in the Bill. Like him and all noble Lords, I share huge concerns that the most vulnerable tend to be the ones who do not benefit from what should be a system in which they are able to easily access information. That is why I am going to start my remarks by responding to the noble Lords, Lord O’Neill and Lord Whitty.
When the noble Lord, Lord Whitty, opened his remarks he said that the Prime Minister threw this upon us. The Prime Minister, this Government and this department are all at one in making sure that we put into place a system that enables consumers to have choice, to be able to make decisions and to understand what they are paying for. The noble Lord cannot have it both ways; we want to have a stronger regulator and the Secretary of State therefore has to have a duty to ensure that the regulator has the powers to enforce. Of course, it is necessary to let the regulator be independent and do the job that it should be doing, but the real issue is that this is not a new issue; it is one that has blighted Administration after Administration. My noble friend Lord Cathcart said that time and time again we have failed. We bring in Energy Bill after Energy Bill or some form of Bill to try to address these issues, and we do not seem to be able to do it.
I hope that through this Bill, the powers that we are taking, the powers that we are giving to the regulator and the legislative framework that we are introducing to redefine fuel poverty, we can start to address some of the root causes of why we cannot get on top of something that I know every noble Lord in this Room is passionate about. Providing statistical backing to the Energy Bill has served to focus minds on avoiding delay in the implementation of the retail market reforms that Ofgem is introducing. Ofgem has committed to reviewing the RMR package of measures by 2017 to ensure that it is working efficiently. In addition, we will be able to check.
I shall speak to the noble Lord’s amendments as they came up, and then I shall answer some of the questions that the noble Lord raised. Amendment 50A would give the Secretary of State power to require licence holders to offer particular tariffs that are designed to reduce fuel poverty and energy consumption and to encourage consumers to use energy at off-peak times. We have a competitive energy market and we are looking to increase competitive pressure through these reforms. I understand the noble Lord’s desire to see the issues set out in Amendment 50A addressed, but I assure him that the Government are doing so, though through means other than mandating suppliers to provide particular tariffs. I shall quickly run through them. We are increasing energy efficiency and conservation though ECO and the Green Deal. We are facilitating consumers to change the time profile of their consumption through the rollout of smart meters. We are already addressing fuel poverty by reducing the bills of vulnerable customers with the warm home discount, and I shall touch on that a little later.
I hope that noble Lords will also welcome the amendments to this Energy Bill that the Government have brought forward specifically to address fuel poverty. We will come to them later in our Committee’s consideration. These are all important areas, and we are addressing all the concerns that noble Lords have raised with me in the Room and outside it. We do not think that mandating particular tariffs in a competitive market is the way to do it because ultimately the market has failed to provide that, as the noble Lord, Lord O’Neill, said. We need to make sure that we place a duty upon suppliers to ensure that consumers are able to generate the competition that suppliers need to be working towards to be able to give consumers the option to switch to a different supplier if they are not being served properly.
Amendment 50B seeks to require that tariffs offered do not discriminate between different methods of payment except where there is a clear reflection of differing costs or differing debt levels. We should guard against suppliers discriminating between customers using different payment methods. That is why standard supply licence condition 27.2A states:
“Any difference in terms and conditions as between payment methods for paying Charges for the Supply of Electricity shall reflect the costs to the supplier of the different payment methods”.
Ofgem’s proposed licence condition changes for the retail market review do not remove or alter this licence condition. We would not intend to alter it were we to use these powers to implement the proposals. The noble Baroness, Lady Maddock, asked whether consumers can be put on the cheapest fixed rate. Yes, they can if they chose to. It would be the cheapest tariff in line with the preferences that they decided on.
Amendment 50D would have the effect of requiring suppliers to include a signpost to the unit cost of each tariff on bills alongside the cheapest tariff message. I fully support the principle behind the noble Lord’s amendment. Improved transparency and information provision are key to helping consumers engage with the market, and that includes providing information about unit costs. However, the improvements that Ofgem is delivering through its retail market review will ensure that consumers have all the information to make those decisions. We are giving legislative backing to these proposals, which require suppliers to summarise these costs in a single figure in order to aid comparison. That figure will appear on bills and other regular supplier communications.
The noble Lord, Lord Whitty, mentioned the TCR, the tariff comparison rate. We think that the TCR is a useful prompt to encourage consumers to engage. Ofgem’s proposals are clear that the TCR will be indicative and based on typical energy consumption. It is intended as a prompt, a call to action. During the course of any sale, suppliers will also be required to give all consumers a personalised quote based on their consumption, which will tell them how much they will actually pay.
The Earl of Caithness
My Lords, my noble friend has given a comprehensive reply, for which we are all grateful. This is an issue that is hugely emotional, among other things, because it affects the poorest in our society. When we talk about all the things that the Government are doing, such as the tariffs and the Green Deal, I hope that the Minister will bear in mind the need for simplicity. I have just received my latest electricity bill—that is all I receive in the north of Scotland; there is no mains gas or anything like that—and it runs to about five pages, which is enough to put anyone off. Luckily I can print it off but, if I were among the poorest, on getting a bill of five pages of complicated jargon, whatever you made the lowest tariff or whichever options the noble Lord, Lord Whitty, wants, with the variations that there could then be on the bill, I would be terrified by that. I hope that my noble friend will realise that what we want is simplicity and clarity so that the bill is not a terrifying bit of paper for people.
Baroness Verma
I am extremely grateful to my noble friend for that intervention. I agree that we have to make this accessible and consumer-friendly, and part of that will be ensuring that suppliers make the information as easily accessible and simple to understand as possible.
Lord Whitty
My Lords, I am grateful to noble Lords who have taken part in this debate, and particularly for the interventions by the noble Baroness, Lady Maddock, my noble friend Lord O’Neill and the noble Earl, Lord Cathcart. I think we all recognise that this is a difficult area. The proposals today, which I have not yet read and which we will no doubt be able to look at on Thursday when we come to the Government’s fuel poverty amendments, have a significant bearing on this area.
This is not just about fuel poverty, although that is an important dimension. It is about consumer confidence and understanding and making what ought to be a competitive market, even though it is run by oligopolies, actually work for consumers—for the average bill as well as the bill of the poorest families. The fact is that neither actually gets the best deal at the moment. The objective of trying to ensure that every household, whatever its income, status or pattern of energy use, can relatively easily understand what the best tariff is for it and that there is an obligation on the supplier to ensure that they do so is an objective that we all share, but it is not an objective that is operating in the market at the moment. That is not an outcome of years of regulation, nor of the I do not know how many energy Bills I have sat through from various Governments, nor of how the supplier companies are actually behaving.
This is a very important clause. It must be a very important part of the Government’s armoury in explaining energy policy to consumers, and we have to get it right. The Minister explained that we do not need the three-year limitation on Secretary of State interventions because this is all going to finish by 2018, by which time we will somehow reach Nirvana whereby the regulator is working and the outcomes that we all wish to see are being delivered. I have to be a bit sceptical and go back to what my noble friend said on an earlier amendment: the record of Ofgem in this area and the relationship between Ofgem and the successive departments has not been good. A radical change is probably needed here that goes beyond this clause, but this clause, if properly interpreted and amended, could take it a little further in the course of this Bill. I do not think we are quite at that point yet.
We need to be clear that some of the interventions that the Secretary of State is going to have to take, at least in the short term, are along the lines of the amendments that I have proposed—for example, an intervention on grounds of encouraging energy efficiency. It is true that there are other measures in the Government’s armoury to deal with energy efficiency. I know that the Minister and I do not entirely agree, but as yet the ECO and Green Deal are not effective. They may be in three year’s time, but they are not effective now. The warm home discount, although highly helpful to lots of fuel-poor families, is effectively an override on bills and tariff structures that are not appropriate for fuel-poor families. That is not necessary in the long term. I hope we keep it for the next two or three years, but in the long term, it is not the most appropriate way of dealing with fuel-poor families. You need different overrides.
On transparency and unit costs, I would have thought that the noble Earl, Lord Caithness, was a fairly canny consumer, but the fact that he finds himself totally incapable of understanding even page 1 of his five-page bill indicates the kinds of problems that most consumers have, middling consumers as well as fuel-poor ones. Something closer to the unit price requirement is important. The Minister needs to look at what the consumer is saying here and to come up with a scheme that is useable by the bulk of consumers, including not only the noble Earl but also those who suffer seriously from fuel poverty but who have the nous to try to make some choices of their own.
It is also important that a bill is accurate. Although there have been some improvements, at the moment most bills are estimated, which means that they are wrong. If you complain about them, it is very difficult to get satisfaction. In the long run, smart meters and everything else may solve this problem, but at the moment, there is serious consumer detriment as a result of the way in which bills are presented and enforced. It is very difficult to argue with the company supplying your electricity. It is therefore important that we can intervene to make everything a lot clearer.
I am not suggesting that the Minister should accept every word of my amendments, but she and the Government should accept that there is a need for more sharpness in the interventions that we are now proposing in order to deliver the objectives of energy policy which, by and large, we all broadly agree. Consumer affordability and tackling fuel poverty are part of that, but so are energy efficiency, energy security and ensuring that all energy users are treated fairly without discrimination. All those things need to be part of a proper regulator’s normal method of operation. They have not been. The market has not delivered them and the regulator has not delivered them. A new start for the regulator and a new context in which it is working perhaps might. Clause 127 needs at least to be strengthened in order to increase the possibility and the probably of that outcome. In the mean time, I commend my amendments to the Minister and beg leave to withdraw Amendment 50A.
Baroness Maddock
Baroness Maddock
My Lords, my amendment uses nice, simple words. As I said earlier, I am not a lawyer and not very good at this. I discovered that in Schedule 14, page 200, line 43, there is a rather more flowery way of putting it:
“publishing the statement in such manner as the Authority considers appropriate for the purpose of bringing the statement to the attention of those consumers”.
I found that after I had made up my simple amendment, which, luckily, was accepted. It is quite interesting that my noble friend Lord Caithness made exactly this point in his intervention in the previous series of amendments.
Like my noble friend, I am interested here simply because of the bills that I, my friends and my 94 year-old mother have had. You look at them. We have sometimes changed our supplier, and when we got a condensing boiler for the first time—we are on to our second as the first one burnt out—I tried to work out how much gas we were saving. That was difficult. I am an A-level mathematician and I still could not work out with ease whether we had saved. I worked it out in the end but it was very complicated. Gas is the most complicated because they use therms and things that make it much more difficult.
It is from that standpoint that I am concerned. If we really want people to get the best tariff, to understand what they are doing and how much energy they are using and to use less energy, we need better bills and better formats. As the noble Earl said, bills can run to five pages. Sometimes I have had four pages. You also sometimes find that you have something on the first page and then on the third page it is something quite different.
The other thing that concerns me is something that I mentioned at Second Reading. As someone who has produced political leaflets for years, I was told by people who had carried out research what to do if you want to get your message across: where it is on the page, what sort of type you use and the colours that do not work. If there is yellow print on top of something, older people cannot read it at all. There are all sorts of things that surprise me about the way in which companies, the big six particularly, produce their bills. I remember British Gas coming to me and showing me a bill saying, “Isn’t this good?”. I said, “Well, actually, no. The thing you want is not in the place where people look first on a page”. This is quite important. It is difficult to prescribe—you cannot prescribe in that much detail to the energy companies—but it is important that we try to ensure that it is simple so that people can understand it and really compare. They, particularly elderly people, must be able to read it.
Quite a lot of us are older now. We cannot read tiny print in the wrong colour. That is why I put down the amendment. It may not be appropriate at this point in the Bill, I do not know, but it seemed to fit in with what was going on. These might not be the right words but I think that everyone will understand the sentiments. It is quite clear that other noble Lords share those sentiments. I hope that the Minister can give a reasonably positive reply to my amendment. I beg to move.
The Lord Bishop of Chester
My Lords, if I may make a brief contribution here, I get electricity to my home, which is also in Scotland but in the southern part, from a Scottish company. I have tracked the way in which the bills have developed over the years, and it is a sad fact of the modern age that the more information you can provide, the less informative the document often is. This is partly a feature of the digital age in which we live; the more e-mails we get, the less we understand about the world around us, and so on.
There is one particular matter on which I would like the Minister to offer some reassurance: the various government obligations that arise out of climate change policies. We may have different views about the importance of those policies, but there really should be clarity in bills about just what the government obligation element is. There is the 5% VAT but there is also another percentage that is going up quite steadily and rapidly, and I think that should be listed.
The company I have mentioned, which I shall not name, used to do that. The bills were shorter but they said, quite simply, “Government obligations”, and gave an amount. Now, for some reason and I do not understand why, the company has hidden that information. You can find it if you dig around, but I hope that these bills, in addition to the unit cost—the actual cost of the energy—and the VAT, list as a discrete amount what we consumers are asked to pay to subsidise wind farms or whatever, in the interests of transparency. As I say, I have seen a particular company, for whatever reason, perhaps inadvertently, move backwards on this issue. I hope that this can be taken on board in the interests of clarity and transparency.
Lord Jenkin of Roding
Is the right reverend Prelate asking that this should be a separate figure in pounds and pence on each consumer’s bill? At the moment, on my bills those figures are all given as percentages of the whole bill. Government environmental obligations come out at 11% of whatever the amount is, and one is able to work out what that is in relation to the bill. I would like to know what he is actually asking for.
The Lord Bishop of Chester
I am all in favour of both. You should be able to put the percentage and say what that percentage is. That is just two parts of one line, isn’t it? The noble Lord has mentioned 11% but the figure that I had in my mind was 7% or 8%. However, I think it will be going up to 15% before long on the track that we have. If we are worried about fuel poverty, and we all are, I would be quite interested to know how many people are put into fuel poverty by these precepts on the energy bills. That is a factor that we have not considered. Still, that is by the by. I just think we need clarity and transparency in an easily understandable way.
Baroness Maddock
On the point about percentages, we need to be careful. Surveys have been done, and the noble Lord, Lord Whitty, probably knows this, which show that the understanding of percentages in the vast majority of the population is not very good. They would probably understand better how much of their bill they were paying rather than a percentage.
Lord Jenkin of Roding
When I first went to the Treasury in 1970, one of the things they said was, “You’ve got to realise that 50% of the population does not understand what 50% means”.
Lord Teverson
Do we know which 50%? That is the question.
My noble friend Lady Maddock is being too modest. When we went through the Green Energy Bill we encountered some really strange language. We asked why it was written in that way, and it turned out it was supposed to be written in plain English—in a way that people would understand. Actually, this amendment is perfect for what it should be. The draftsman has written it in a clear and easily understood format. That is exactly what it should say, and I hope that the Secretary of State, the Minister and the Government will see a way to bring it in.
Lord Whitty
My Lords, I have two issues. First, I support the clarity referred to by the noble Lord, Lord Teverson, that is promoted by the amendment proposed by the noble Baroness, Lady Maddock. Secondly, there are issues relating to the cost of carbon, and so forth, which need to be reflected in energy bills, but I am not sure that I would agree with what the right reverend Prelate says in how we present that. There is a cost to all of us of carbon and to isolate it separately in a crude way would not necessarily improve understanding. The Government would have difficulties in that respect.
On the consumer issue, I would just mention the survey about unit pricing that I referred to under the earlier group of amendments. On the question of percentages, the public do not understand APRs when they take out loans, so they will not understand TCRs in relation to this operation. The Which? survey shows that three out of 10 people using the tariff comparison rate found the cheapest rate whereas more than 80% found the best comparison when they were demonstrated by unit prices. So the use of clear figures but not necessarily percentages will help in that regard, and I support the noble Baroness, Lady Maddock.
The Lord Bishop of Chester
Can I just come back on this point? What I wanted was for the government obligations to be listed. One justification for these green taxes is that it saves money in the long run because of this, that or other theory. However, when the Government themselves impose a financial tax or precept, or whatever you want to call it, we should all surely want a degree of transparency about it. Then there is an argument about whether it is justified because of other long-term savings. The danger is that if you hide these things away you cause the lack of confidence in consumers that the amendments that we have discussed are precisely about.
Baroness Verma
My Lords, noble Lords must forgive me for trying to step in before the noble Lord, Lord Whitty. I am extremely grateful to my noble friends Lady Maddock and Lord Roper for their amendment. This is a follow-on from our previous discussion. My noble friend Lord Caithness rightly then ensured—and continues to ensure—that this debate around simplification and clarity is high on the agenda. The amendment proposed by the noble Baroness tries to lay that out in simple terms, saying that the information provided as part of a message on bills, annual statements and other communications detailing the suppliers’ cheapest tariff must be provided in a clear and easily understandable format.
Ensuring that consumers are provided with clear and simple information regarding their existing tariff and others available to them is one of the key aims of the powers in question and Ofgem’s retail market review. A power to require suppliers to provide consumers with personalised details of the expected cost of a given tariff and information on the supplier’s cheapest tariff for them is one of the means by which this will be achieved. That consumers should receive information about tariffs in a clear and understandable way is something that we have made plain to suppliers as being central to our proposals. Should it become necessary to use these powers, we expect to set this out explicitly within the actual amendments to suppliers’ licence conditions. Indeed, Ofgem’s proposed changes to suppliers’ licence conditions to implement the RMR already include such provisions. Standard licence condition 31E, once amended, will set out specific plain and intelligible language and presentation requirements for information provided to customers. We have always been clear that we expect suppliers to provide information to consumers that is clear and understandable. However, if noble Lords feel that we have not been clear enough then we are happy to consider this matter further and return to it on Report.
In response to the concerns of the right reverend Prelate the Bishop of Chester, I sincerely understand his desire to see clarity on bills, but that is up to suppliers to do. Ofgem can direct, but it is actually for suppliers to do it. Somewhere I have a note on this that I have now conveniently lost. Ofgem is producing factsheets that provide a breakdown of the costs that make up a typical energy bill. We are aware that some suppliers are already providing this, and the right reverend Prelate mentioned that there may be one that he would not mention by name. We do not hold comprehensive data on each individual supplier’s approach. Maybe that is something that Ofgem needs to look at. Given that I am taking this matter away to consider it further, perhaps this is something else that I may reflect on. I hope that my noble friends will find my explanation reassuring and withdraw the amendment.
The Lord Bishop of Chester
May I probe the Minister’s position in this way? Can she give the Committee any reason why there should not be a requirement on energy companies to provide a line that simply says what the Government’s tax or obligations are? I cannot see a reason why that should not be done. As she says, some suppliers do it but some seem to change their policies. Given that the amounts are already significant and will be even more significant before long, the bottom line, as the noble Lord, Lord Whitty, began his speech by saying, is that the most important thing to people outside this Room is how much this costs.
Baroness Verma
As I have said to the right reverend Prelate and to the Committee, suppliers are not obliged. Still, I will take this away and reflect on how we can make bills easier and simpler for consumers to understand.
Lord O'Neill of Clackmannan
Before the Minister sits down, when she says that the companies are “not obliged”, I find it difficult to understand her choice of language. It is as if we are asking them to do something difficult. At best, we could say that we will just aim at the top six, or top seven if we included First Utility. The other side of this is that, such is the stickiness in this market, most people do not switch, so that 60%-odd are receiving their bills from the same company year after year. We have been far too easy on these companies, and the Minister gives me no comfort whatever by using phrases such as “not obliged”. We should dashed well make them do it; we have the powers to do so. The regulator can do these things. It might be uncomfortable for the regulator but the consumer is entitled to know. I hope that she goes away and reflects on whether or not we should make the obligation rather more forceful than it currently is.
Baroness Verma
My Lords, as I said earlier, I am taking the amendment away and shall reflect on what the right reverend Prelate the Bishop of Chester has raised. Like noble Lords, I am very keen that information is available, simple and understandable, but I am also keen to ensure that I can deliver what I am able to. Part of that is by taking this away and giving it further consideration.
Baroness Maddock
I am grateful to the Minister for her explanation. I have to say that the proposal is fairly simple and I cannot see that it would damage the Bill tremendously if it were in there, but I suppose that it is too much to hope for. When I was in the Commons, I once got a Minister to accept an amendment in its entirety and I practically fell off my chair as he said it. At that time I was the only Lib Dem on the Committee. I had a whole raft of amendments and was busy looking at my notes for the next amendment when I suddenly heard what he said. I am disappointed that the Minister today was not able to do that, but never mind.
I thank her for taking this issue seriously, because we all think that it is important. The amendment goes to the heart of what we are trying to do about getting better information about tariffs to enable people to make decisions. It is clear to me, as I commented in the previous amendments, that people working with those who could do with better tariffs are finding it very difficult to do so because it is so complicated. The simpler that we can make things, the more chance we have of achieving the aims that we all have in the section that deals with tariffs. I am pleased and disappointed all at the same time, but I recognise that we are where we are and beg leave to withdraw the amendment.
Lord Roper
“( ) An order under subsection (1) or (10) is subject to annulment in pursuance of a resolution of either House of Parliament.”
Lord Roper
My Lords, Amendment 50G is tabled in my name and that of my noble friend Lord Teverson. This amendment is parallel to some discussions that we had during our previous day in Committee when we were considering a nuclear regulatory organisation and taking up references in the report of your Lordships’ Delegated Powers and Regulatory Reform Committee. Two paragraphs of the report discussed the possibilities of modifying licences under Clause 127(1) and orders about domestic supply contracts in Clause 127(10).
As the noble Lord, Lord Whitty, has made clear, this gives power to the Secretary of State to intervene in an area that until now has been the responsibility of the regulator. The argument put forward by the department in the memorandum that it sent to the Delegated Powers Committee was that there was no need for any form of parliamentary scrutiny because all that we are giving the Secretary of State power to do is something that could already be done by Ofgem. That needs to be examined rather more carefully, which was also the view of the Delegated Powers Committee. This is the single instance in the Bill when the Secretary of State is given power to modify the licences without parliamentary scrutiny; in each of the other six cases, the negative procedure is indicated. We have already seen the discussions. This is an area of considerable public and political interest. Therefore, if the Secretary of State is to intervene and in some sense override the position of the regulator, it appears to the Delegated Powers Committee that he ought to be answerable to Parliament and that, as in other cases under powers conferred elsewhere in the Bill, it should require the draft negative procedure. As on the previous occasion, we have not seen the reply from the department to the Delegated Powers Committee so we would like an assurance from the Minister about how she is going to reply to the report.
Clause 127(10) is a very complicated power to make orders about domestic supply contracts. Similarly, it seems surprising that this order-making power is subject to no parliamentary control. Although paragraph 358 of the memorandum that the department submitted to the Delegated Powers Committee explained why the definitions could not appropriately be included in the Bill, it did not really explain why there is no provision for parliamentary scrutiny. This amendment is put forward by my noble friend and me in order to give the Minister an opportunity to explain what the reaction of the department to the report of the Delegated Powers Committee is likely to be.
I tabled a request for a debate on clause stand part before I had had a chance to see the amendments tabled by the noble Lord, Lord Whitty. In view of the long discussions that we have had on them and on the amendments tabled by my noble friend Lady Maddock and me, I have no intention of pursuing that debate. I beg to move.
Lord Grantchester
My Lords, Amendment 50G would require the Secretary of State to present proposals to Parliament before making any changes to the terms of licence conditions under powers in Clause 127. However, while the Secretary of State is obliged to consult suppliers and Ofgem as well as any other person he thinks relevant, he is not obliged to present the proposals to Parliament for scrutiny. The Delegated Powers and Regulatory Reform Committee questioned the appropriateness of this in its report on the Bill, and drew attention to Clause 127(10). It stated:
“As is candidly acknowledged in paragraph 358 of the memorandum, the distinction between discretionary and principal terms ‘is central to the function of the clause’. It therefore seems to us surprising that the order-making power is subject to no Parliamentary control, and that paragraph 358 -while explaining why full definitions could not appropriately be included in the Bill - does not explain why there is no provision for Parliamentary scrutiny”.
Why do the Government deem it necessary to consult the industry and Ofgem but not Parliament or consumers?
Throughout the Committee’s scrutiny of the Bill, several noble Lords have highlighted the extensive enabling powers given to the Secretary of State. This fifth report of the Delegated Powers and Regulatory Reform Committee is also highly critical, rather uniquely for that committee, in stating that there is little provision in many chapters in the Bill,
“that does not involve the delegation of legislative powers”.
We offer our support to this amendment in order to ensure that any such order is given appropriate scrutiny by Parliament by the negative resolution procedure, as recommended by your Lordships’ Delegated Powers and Regulatory Reform Committee.
Baroness Verma
My Lords, I am extremely grateful to my noble friend Lord Roper for raising the issue in Amendment 50G that would make the use of powers set out in this clause subject to annulment resulting from a resolution of either House. Noble Lords will be aware that the Delegated Powers and Regulatory Reform Committee has recommended that the power of modification conferred by Clause 127(1) and the order-making powers in Clause 127(10) should require the draft negative procedure. We are looking at these recommendations, along with the others made by the committee, and will respond to it in due course. I therefore hope that my noble friend will withdraw the amendment.
Lord Roper
My Lords, I am grateful to the Minister for that reply. We await with interest the full response from the department to the Delegated Powers and Regulatory Reform Committee. I understand that it has already received a substantial response from the department that it will consider at its meeting tomorrow, and that it is possible that when we meet on Thursday we will have the results of its report and the department’s response, which will perhaps be of value to us. I shall withdraw the amendment at this stage, but if we do not have a satisfactory response on Report then it will be necessary to return to it. I beg leave to withdraw the amendment.