Grand Committee
The Deputy Chairman of Committees (Lord Brougham and Vaux)
Good afternoon, my Lords. Welcome to day six of the Energy Bill. There will not be any Divisions so we can have a clear run—apart from perhaps a comfort break.
Energy Bill
Lord Teverson
“(f) to give priority to demand side management and demand reduction measures in preference to increased generating capacity whenever and wherever this is economically appropriate;(g) to progressively increase the energy efficiency of the United Kingdom as measured in terms of quantity of energy used per unit of GDP”
Lord Teverson
My Lords, I shall have to be brief, as we are supposed to finish the Bill today, I think it says, so we will need to set quite a pace. The target for the day: to complete. The easiest way to do that is for the Minister to say yes—perhaps not; I suspect that will not happen.
I tabled Amendment 51N specifically under Part 2, Electricity Market Reform, under Chapter 1 entitled “General Considerations”. This is not just about the capacity payment or all the other bits that make up energy market reform; it is about energy market reform as a whole. Clause 5(2) contains a number of general considerations and it goes through those very carefully. Clause 5(2)(c) refers to,
“ensuring the security of supply to consumers of electricity”.
Clearly that is very important. It also mentions a number of things around cost.
One thing that everybody has agreed, particularly the Secretary of State and Ministers at the Department of Energy and Climate Change, is that as this Bill has been considered in its draft stage and by the informal group of this House, it emerged that it had a bias towards supply. That may have come from old thinking from many years ago and had not caught up with a new way of looking at the overall issue of energy provision within the United Kingdom. I very much welcome the fact that the Secretary of State and the Government have started to take this on board and there are a number of mentions within the Bill of the demand side of the equation, in terms of both demand reduction and demand-side response. Of course, the previous Energy Bill was all about energy reduction in terms of the Green Deal so this is an agenda that is live.
I still think it is really important within this Bill to put down as part of these general considerations the fact that the demand side must be taken into consideration in terms of the exercise of the various functions to do with electricity market reform. That is why I seek to add these two additional paragraphs; first,
“to give priority to demand side management and demand reduction measures”.
I have put very strongly,
“in preference to increased generating capacity”,
but I have made the constraint, which ties in with the whole cost area,
“whenever and wherever this is economically appropriate”.
We need to move our mindset on from being dominated by the supply side to ensuring a much more level playing field in terms of how the Secretary of State and future Secretaries of State have to look at the way in which electricity market reform is implemented. So it is a reminder. It is exactly the thing that needs to be in the Bill to make that clear so that in the future civil servants know that when they are advising Ministers about how this Act is applied, these issues have to be taken into consideration.
We had a long debate on the first day of Committee on decarbonisation targets but we never mentioned energy-efficiency targets. In many ways, this is equally if not more important in terms of the way that we plan our electricity usage and our energy usage within the economy more generally as we move forward.
Clearly, I understand that some of this comes within a European Union context, in that we have the energy efficiency directive, the non-statutory target of 20% energy efficiency for the EU as a whole by 2020—one of the three major targets to be met by that time. It is also important to bring that requirement into this Bill.
The Minister might say that I am absolutely right, and that the United Kingdom is one of the most energy-efficient economies in Europe and indeed the world. Part of the reason is that we have a relatively small but, I hope, rebalancing manufacturing sector. We do not have many energy-intensive industries, but we rely on our service sectors—commercial and retail—which are not energy efficient.
On the other hand, we have a housing stock and a building stock which are still very inefficient: in fact DECC estimated in its energy-efficiency strategy, which came out towards the end of last year, and which I welcomed at the time, that 14 million homes were not insulated to an acceptable standard, from a stock of 27 million. For those of you who can do maths—even if they could not do the equation we dealt with earlier this week—that is just over 50% of total housing stock. In fact around 40% of total housing stock was built before the end of World War II, and a significant proportion of that before the end of World War I. That shows the issues we have around energy efficiency in this country, some of it being dealt with, we hope, as the Green Deal becomes more effective as time goes on.
What I intend to do here is to rebalance this Bill in a key area of electricity market reform, where we set out what we are trying to achieve. We are not removing the supply side; we are adding demand as an equal factor. We are saying that there should be a preference for not spending rather than spending, but only where that makes economic sense. In the cost abatement curves shown in the many multicoloured DECC documents, energy efficiency always comes out on the left-hand side of the graph, which means it is the most cost-effective way to attack our energy needs and to shape how the energy market works in the future. I beg to move.
Lord Davies of Stamford
My Lords, I agree with the second part of the amendment proposed by the noble Lord, Lord Teverson, and the noble Baroness, Lady Parminter. It would be rather strange if nothing at all were said on the face of the Bill about the importance of energy efficiency, as it is quite clearly one of the criteria the Secretary of State must always have regard to in conducting a sensible energy policy.
However, I have a problem with the first half of this amendment, which reads:
“to give priority to demand side management and demand reduction measures in preference to increased generating capacity whenever and wherever this is economically appropriate”.
In improving this Bill we are drafting the law. The law has to be unambiguous. The law places obligations on the citizen; the citizen needs to know precisely what those obligations are if the law is going to be effective, dignified and respected. This provision could not possibly from part of a law in that sense. The phrase “economically appropriate” is so vague that it is almost impossible to know what it might mean and where one would need to decide, using this principle, between an energy-saving investment and an energy-generating investment. I notice that the noble Lord, in introducing this amendment, did not actually refer to “economically appropriate”: he used the term “economically sensible”, which he perhaps feels is a synonym. However, the use of a different word only adds to the vagueness and uncertainty, which should not come to rest in the corpus of the law of the land.
I suppose that what the noble Lord might have had in mind with the phrase “economically appropriate”, or even “economically sensible”, is the solution that has the highest economic return, but even that would be a very vague phrase to place in a Bill in the corpus of law. After all, in choosing between one particular project with a relatively high capital cost and a relatively high return and another with a lower capital cost and a lower return, or between a project with a high capital cost and a long payout period and another with the same capital cost and a different payout period, which one to be chosen would depend on the cost of capital, on which one was discounting the projected cash flows. If you wanted to make this a precise obligation, you would have to specify what the cost of capital would be. It would be and should be, of course, different according to the different risks for different types of energy projects, because they would have different risks. Therefore, I do not see any prospect here of reducing the unambiguous guidance that is necessary in law so that the citizen or, indeed, the Secretary of State would know precisely whether he was observing the law or not.
Lord Roper
My Lords, Amendment 55ZA in this group is in my name and that of the right reverend Prelate the Bishop of London. As has already been mentioned, when the draft Bill was published in May last year, there was a great deal of criticism that there was nothing in it on electricity demand reduction. Indeed, those of us who sat on the informal group with the noble Lord, Lord Oxburgh, drew attention to this in the document that we produced and suggested that it ought to be included. When this Bill was published last November, there was still no reference. Fortunately, at the same time, the department started a consultation into demand reduction, and on 21 May it published its response to that consultation. At the same time, it tabled an amendment, which was then proposed new Clause 12 and is now Clause 37 in this Bill, the clause that I wish to amend.
The interesting point in the response to the consultation is that the department suggested that its preferred route to delivering reductions in electricity demand is via a capacity market—I am talking here not of a demand-supply response but of permanent reductions in electricity demand. I have always had some difficulty in seeing how that could fit in to a capacity market. I therefore grabbed the delivery plan last night to read the section on the capacity market in order to discover how it should occur. I am extremely sorry to have to tell your Lordships that, having read that whole section overnight, I found no reference at all to electricity demand reduction, not even to demand-side response. I sometimes wonder whether there are two DECCs, one writing one thing and one writing another. I hope that I am not misleading the Committee in that view. The important thing is that Clause 37, which was introduced in the other place, suggests that a pilot scheme should be developed to look at it.
In our amendment, the right reverend Prelate and I suggest that we should aim it rather more widely. There ought to be a number of different pilot schemes and, if it is possible to envisage how it could be done, they ought to be included within the capacity market. Alternatively, we could look along other lines, including those discussed in Committee in another place, of finding some sort of premium for this. There are quite a number of problems with the use of the capacity market in dealing with the permanent reduction of electricity demand. There is of course uncertainty as to how big a capacity auction will be. Therefore, people who invest in permanent reductions are unclear from time to time as to what sort of return they will get for that reduction.
Lord Cameron of Dillington
My Lords, I support the theme of these two amendments, particularly the latter one. It is widely recognised that energy demand reduction is one of the cheapest ways to achieve decarbonisation of our economy. I have seen figures—I am not sure whether they came from DECC—which state that energy saving could reduce demand by 26% by 2030. I imagine that that 26% is not from where we are now but from where we would be if we did not have any form of energy demand reduction schemes in place.
It worries me, as the noble Lord, Lord Roper, was saying, that DECC originally said that it would be implementing energy demand reduction via the capacity market. Perhaps I am quite glad that the noble Lord did not find any reference to it in his reading last night because maybe we have got that wrong. To be honest, it makes absolutely no sense. Why wait for the capacity auction next year and implementation in four years’ time before introducing demand reduction schemes? Why wait for a capacity crunch before introducing them? We need these schemes to start now or as soon as possible. As the noble Lord, Lord Teverson, said, we are not talking about energy security or even capacity margins; we are talking about emission reductions across the economy.
I think that I am happy to accept that the Government might want to run pilots here, although the noble Lord, Lord Roper, was absolutely right that we need to put details in those pilots; for example, when the results will be, what will happen afterwards and so on. We have seriously to get on with this.
Lots of opportunities are available. Smart meters are the first that come to mind. A supply company can run machines within a business or a household that are very expensive on electricity—tumble dryers and even dishwashers can wait until the smart meter tells it to turn itself on. Obviously, it should be allowed to be overridden by the householder but the householder must know exactly what cost there will be if he or she overrides the meter. There will be certain times—obviously, when people come home from work and turn on the kettle, or when they get up from watching a film or “Coronation Street”—when the electricity companies know intimately when the peak demand will be. The prices should be allocated accordingly.
I should also say that in future, smart meters could—nay, should—be sensitive to the amount of supply available. If a large proportion of our supply such as photovoltaics or wind turbines is dependent on the weather, a smart meter should know what the weather is to be tonight at 6 pm when the peak demand is coming and therefore what the capacity margin will be. For instance, in Germany last week—and probably this week as well—at certain times, 33% of the national electricity supply came from photovoltaics. Clearly, at those times there was no shortage of power in the country and no need to restrict demand at all by cost.
The noble Lord, Lord Teverson, also said that demand reduction could be encouraged by better energy rating in housing. I could not agree more. Again in Germany, 360,000 homes have been brought down to near zero emissions by lending money to householders at 1%. Perhaps a pilot could be encouraged on those lines; as we all know, the Green Deal has not been very effective as yet.
However, the most important move, because it throws down the gauntlet to the entrepreneurial flair of industrialists, business people and householders themselves, is to pilot and introduce as soon as possible energy efficiency premium payments. Those schemes have worked very well in the USA and, I believe, could work in the UK if bundled together with grants for capital investment. That could, incidentally, include hundreds of household or office-based batteries linked to the smart meter—so electricity is going in and out of those batteries. Obviously, some help would be needed with the capital expenditure in those circumstances.
The main point is that the Government have to drive that agenda, not just sit back and let it happen via the rather clunky capacity mechanism, which was never really designed for electricity demand reduction in the first place.
Viscount Hanworth
My Lords, I, too, express my appreciation of the intentions of the noble Lord, Lord Teverson, and the noble Baroness, Lady Parminter, but I should like to pick holes in the amendment in much the same way as has my colleague, my noble friend Lord Davies. Whereas he considered proposed paragraph (f), I shall concentrate on proposed paragraph (g). It may well be that the amendment is more sophisticated than it seems, because it is possible that the noble Lord, Lord Teverson, is trying to strike a judicious balance between saying something felicitous and saying something that will get past the Minister.
Let me try to deconstruct what is being said in paragraph (g). It is an injunction,
“to progressively increase the energy efficiency of the United Kingdom as measured in terms of quantity of energy used per unit of GDP”.
That is most unlikely to impose a binding constraint. The fact is that the ratio has been decreasing monotonically since 1950, at least, so that in 2010, we used about half the quantity of energy per unit of real GDP as we did in 1950.
I want to make a bigger point than that. I think that we should approach most of what we read in the Bill in a spirit of cynicism and scepticism. I am sorry if that sounds strong, but if we analyse a great many clauses in detail and think of the circumstances in which they would be applied, we realise that they impose non-binding constraints and impose no particular behaviour by the Government that might staunch emissions, improve efficiency, or whatever. I do not fully understand the motives of the noble Lord, Lord Teverson, and they may, as I said, be more sophisticated than they seem but, if I may be forgiven for saying so, his amendment would perpetrate exactly such an ineffective provision. I hope that he will forgive me.
Lord O'Neill of Clackmannan
I follow on from my noble friend’s remark and say that Amendment 51N is pretty vacuous. It is giving us the excuse to have a debate, but it will not come to anything. It is certainly the case that the Government have been reasonably successful in demand reduction because of their economic incompetence over the past three years. We have been in recession, we have seen emissions fall and we have seen the demand for electricity change. That is the first point which has to be made.
Sooner or later, we will come out of this recession—and when we do, we are going to need far more than Amendment 51N would do regarding capacity changes. We are, I hope, going to have an economy growing in a manner which, in its early stages, will probably not be the most attractive for energy efficiency. In some respects, we want to get out of the recession as quickly as possible. Having to chase around for the most energy-efficient way of doing that when we are trying to find economic prosperity for our people would be questionable in the eyes of the public and their sense of priorities. Frankly, the quicker we move on from this amendment the better, because it is a waste of time, although the other amendment has a degree of merit. I am also always dubious about split infinitives in law at the best of times.
Lord Dixon-Smith
My Lords, I do not know whether my noble friend Lord Deben is getting up to speak or walking out. I did not realise that the noble Lord who just spoke would have such a potent effect that he would drive my noble friend nearly out of the Room.
I am bound to say that it is very dangerous to blame the state of the economy in the past three years for what has gone wrong. That is a bit like trying to compare last week’s weather with the global climate. When you look at matters affecting the global climate or, indeed, the national economy in the wider scale, the blame lies rather more out of the three years that we are completing. It has a great deal to do with what went on before, but that is not what I really rose to speak about.
I should perhaps explain that there was a time, quite a number of years ago, when I had the ultimate responsibility for the complete built estate owned by Essex County Council, which is a major operation. Among the things that we had to do, there was the little matter of energy efficiency. There was also the question of the quality of buildings, because there were some truly appalling buildings around in those days. It was a constant balancing act as to what we did. Two factors were vital. In those days interest rates, which fortunately we do not have to consider today, went up and down rather like a yo-yo so that schemes went into and out of our plans depending on those rates. The other factor was of course the price of energy itself. If your Lordships want people to take an interest in economising on energy, the quickest way to do it is to put the price up. That is a brutal reality and we should not forget it. Price will always be an important factor.
When we get into the question of demand management, I have my own view on smart meters. First, they are not very good at demand management; what they do is to move the demand around so that you can reduce the peaks and troughs on the supply side, to a certain degree. However, they do not actually reduce demand in total. We may as well bear that factor in mind. Secondly, we have to bear in mind that the idea that we might somehow reduce demand for electricity is unreal in the present context. We are looking at a period when we have to decarbonise the whole economy, in effect. That means that everything has to go down to zero emissions at the end of this period. In order to do that, we will be obliged to have an electricity generating market which is probably twice as big as it is today, if not even bigger. The idea that we are going to reduce demand for electricity, bearing in mind this evolution, is completely unreal.
My last point is that the same person has to pay, whether it is for energy or for the economy measures. There is only one customer. We do not want to fool ourselves that the Government have a fund of money to do this with. The Government have our money, and one way or another the customer is going to pay. It is a question of balance. I am all for getting all the efficiency that we can into the generating system and into the demand system. However, we should not fool ourselves—whichever way the equation goes, it is still the case that one person is paying. I am slightly pleased about the initial criticism of these amendments, because introducing a phrase such as “where economically possible” into the equation puts a bit of sense into it. If it were not there, you could start taking some very rash decisions which in fact were not economically sensible.
Lord Grantchester
I am grateful to the noble Lord, Lord Teverson, for his introduction to the debate on the demand side of energy. He is quite right to draw attention to this. Although other noble Lords may have been teasing in their remarks, the Second Reading debate highlighted that the Government are coming rather late in their thinking to these subjects, and our later amendments will explore all the different technicalities on the demand-side responses. Therefore, we are happy to support the wider recognition of the importance of demand-side response.
I turn to the proposed new paragraph in his amendment on making the efficiency measures EU-compliant. Again, we note the position that we are in at the moment and that the directive requires member states to set an indicative national energy efficiency target based either on energy consumption or on energy savings, or indeed on energy intensity, as the noble Lord, Lord Teverson, suggests in the amendment. We wonder how that might take account of the decarbonisation challenges that we will be facing. Also, we will be monitoring more than one change at a time to take into account GDP changes. Therefore, we would be very interested in knowing how the Government view this measurement of energy efficiency.
Turning to Amendment 55ZA, which concerns pilots, once again we note that the Government are coming rather late in their thinking to the demand side and that they therefore want to make provision to help their thinking to progress by running a pilot scheme. Clause 37 gives the Government powers to run a pilot scheme for electricity demand reduction. While the clause does not specify that this pilot scheme should take the form of a pilot capacity auction, it is clear from the consultation response that that is what DECC is considering.
However, the capacity market is primarily designed to ensure capacity throughout troughs in supply, and it will therefore reward only demand reduction projects that reduce the amount of generating capacity that is needed at such times and not those that reduce demand at other times. A capacity market therefore rewards energy efficiency only for its security benefits and not its other, much larger benefits in terms of emissions reductions and affordability. Therefore, we are aware that an additional policy is needed to enable small businesses and households, and not just large infrastructure projects, to be rewarded for saving energy.
Such “premium payments” were favoured by the majority of respondents to DECC’s consultation but were then dismissed by the department. A further explanation in this regard would be welcome. Therefore we support the call on Her Majesty’s Government to clarify whether DECC should bring forward multiple pilot schemes to include premium payments, a capacity market and perhaps other forms of incentives. This would demonstrate which scheme or schemes were most effective in delivering permanent demand reduction in practice.
Amendment 55ZA also mentions how these pilots might be financed. Clause 37 states that it will be paid out of government funds rather than through consumer prices. However, following the spending review, a figure of £75 million for investment in innovative energy projects was mentioned. I understand that DECC suggests that only about £25 million of this will be available for the pilot. In any event, those sums are dwarfed by DECC’s own assessment of the cost for full capacity auction. Amendment 55ZA would allow pilot reduction schemes to be funded at least in part from capacity payments either in advance or during a capacity auction period. Will the Minister clarify to the Committee where the Government have got to in their thinking?
Baroness Maddock
My Lords, I support my noble friends in trying to highlight the importance of demand reduction and the fact that this Bill came rather late to it, as has been said by others. I was somewhat confused by some of the earlier comments from those who said that they were in favour of energy efficiency but were not sure about demand reduction. If you increase energy efficiency, you reduce demand. That is fairly logical. I find some of the comments a little curious.
I emphasise the fact that if the Government are having only one pilot that will be only around the capacity market, that will not be good enough, which is why we have tabled these amendments. As regards the amendment in the name of my noble friend Lord Roper, if the Government were to take something like that forward, we could have a demonstration about which scheme or schemes are the most effective in delivering permanent demand reduction. In a sense, that ties in with the amendment of my noble friend Lord Teverson. There was a lot of criticism of my noble friend and talk about the difference between demand management and demand reduction. They are two different things. We have had some strange logic in today’s debate.
Unless we have several pilots, there will be no meaningful comparison and we will not be able to decide which are the most cost-effective and the most effective in reducing demand. I support my noble friends in their efforts to make demand reduction more of a priority in this Bill.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I thank my noble friends for enabling me to lay out further a response to the amendment of my noble friend Lord Teverson, which aims to make energy efficiency a general consideration when carrying out key functions of electricity market reform. I also welcome the cross-party support expressed in this House for electricity demand reduction measures and energy efficiency generally.
While I support the sentiment behind the amendment, we consider energy efficiency to be more than just about the efficient use of electricity, on which the amendment appears to focus. Therefore, the danger of this amendment is that, in focusing on efficiency of electricity use, it risks diverting attention from the wider importance of energy efficiency, on which we are already committed to progressing. When exercising capacity market functions, proposed new paragraph (f) would require the Secretary of State to give priority to demand side management and demand reduction measures over increased electricity generating capacity wherever this was economically appropriate.
The capacity market is being designed to allow demand-side response and permanent electricity demand reduction measures to participate in the capacity market. This is a proven way of delivering electricity demand reduction and is already working successfully in the United States. The auction process is a fundamental pillar of the capacity market and all resources that can contribute to security of supply. Demand-side response, permanent demand reduction and generation are able to compete against each other for support in the long term. This will ensure that demand-side measures that deliver the same level of security of supply benefits as generation at a lower cost will always be rewarded at the expense of generation. Accordingly, I hope that my noble friend will see that proposed new paragraph (f) will not add to the practical effort of what is already envisaged for the capacity market.
Proposed new paragraph (g) of Amendment 51N would require the Government to measure the energy intensity of the UK economy per unit of GDP and to improve this progressively. Again, while I recognise the intention behind this amendment, it would duplicate the existing domestic and European policies, to which my noble friend referred, in the recently adopted EU energy efficiency directive, which is aimed at driving improvements in energy efficiency across the EU and contains, among other measures, two key targets for member states, to which my noble friend also referred. The first is a non-binding national energy efficiency target for 2020, which is equivalent to reducing primary energy consumption by 20% by 2020. The second is a binding target to save 1.5% of additional energy per year, to be achieved between 2014 and 2020, through the deployment of an energy supplier obligation and/or equivalent policy measures.
The UK recently submitted its target to the European Commission under Article 3 of the directive. Under the target, the UK is projected to reduce final energy intensity by 26% between 2007 and 2020, maintaining our position as one of the least energy-intensive economies in Europe. In terms of domestic action, this Government have shown their commitment to supporting every opportunity for energy-efficiency measures. The policies that we have put in place, such as the Green Deal, will help households and businesses reduce demand by installing energy-efficiency improvements, with some or all of the cost paid for from the savings on their energy bills. In addition, the energy efficiency strategy sets out our plans for realising the significant untapped potential that remains in this key sector. Between the measures that we have put in place domestically and the new targets established through the directive, there is already considerable momentum that is contributing to making the UK economy more energy efficient.
Amendment 55ZA in the name of my noble friend Lord Roper, which aims to make an electricity demand reduction pilot compulsory, raises an issue that has come up a number of times at Second Reading: namely, that multiple pilots are necessary in order to test a variety of approaches. While I support my noble friend’s aim of ensuring that we test variations of the key elements associated with demand reduction projects, the Secretary of State already has the ability to design and run a pilot, or pilots, to test different approaches.
Clause 37 is simply a spending power to authorise the spending of money for such a purpose. I appreciate the concern that this amendment demonstrates about ensuring that sufficient funds are available for a demand reduction pilot. However, since it depends on the arrangements for the capacity agreements made in Clauses 22 and 24, funding the pilot in this way would have to wait until the affirmative regulations implementing the capacity market are in place. We considered this option but discounted it because the process would delay considerably the start of a pilot, and, as I have said, the Government are committed to taking forward a pilot with funds that are already available to it.
Before I ask my noble friend to withdraw his amendment, I will refer back to a few points raised during the debate. First, the noble Lord, Lord Cameron, referred to smart meters. I agree with him that increasing developments in new technologies—and the smart meter is one example—will ensure that consumers will have more control over how energy is being used. It is one of a number of measures that we are taking. He also asked why we are not getting on with a pilot. At the moment, there are a number of uncertainties. We are working out how a pilot would lead to a better understanding of the potential benefits of a financial incentive and of the market appetite for such an approach. We are considering detailed elements of how the design of that pilot, its monitoring and its location would work. The noble Lord also mentioned that Germany has 33% of its grid powered by solar. I respond to that by saying that Germany also has much higher energy costs than the UK, of both gas and electricity. We are delivering a low-carbon energy mix, at least cost to the consumer: this is at the heart of what we are trying to achieve through the Bill.
My noble friend Lord Roper asked why DSR and EDR were not in the draft delivery plan. Proposals on demand-side response were detailed in the capacity market framework publication of 27 June. On electricity demand, we are committed to a piloting approach, as I have said already. This commitment—to the pilot—was included on page 15 of the draft delivery plan.
Lord Roper
My Lords, I am most grateful to my noble friend for what she has said, and in particular for drawing attention to page 15 of the plan which was published yesterday. However, it is interesting that the reference there to electricity demand reduction is,
“to enable permanent reductions in demand to form part of the Capacity Market”.
Part of the purpose of my amendment was to suggest that that was not the only way in which one could look at permanent demand reduction.
My noble friend also referred to the situation in the United States. It is interesting that in the United States, as I think I am right in saying, only 3% of capacity payments have gone to energy efficiency. For example, in the state of Massachusetts, which has had one of the most developed of the schemes, only 7% has gone to electricity demand reduction. A good deal more needs to be examined in this area, and I hope—although my amendment will not be considered today—that we may be able to come back to this on Report.
Lord Teverson
My Lords, I thank noble Lords who have contributed to this debate. I am totally unapologetic about putting this amendment forward, because it is fundamental to what we are talking about. The electricity supply industry, over recent years, has operated at an average of 50% efficiency. It only operates 50% of the time. This is before intermittent renewables are significant within the energy mix. That is why there is a problem and why we cannot, or should not, build our way out of this issue entirely.
I entirely agree that we should not table vacuous amendments. However, this is not vacuous, because it concerns one of the general considerations that the Minister has to look at. It concerns a guiding principle.
I would like to follow that up with a lot more specific amendments on energy efficiency. I have not, however, because as my noble friend has said, there are a number of provisions within the European framework although in paragraph (e) there is a reference to the renewables directive, so perhaps we should also have one to the energy efficiency directive and treat the two equally. That is why I tabled the amendment.
I say to my noble friend Lord Dixon-Smith that electricity demand is clearly due to rise very greatly, because the only way that we can decarbonise much of our economy is by moving to electricity. That makes it even more important that we should make sure that the electricity we generate is decarbonised and is produced and dealt with in a balanced way to try to make that demand reduction. That is why those two new paragraphs are there: because there is that need for balance under “General Considerations”.
I have some sympathy with the comments of the noble Lord, Lord Davies of Stamford. I do not think that the phrasing, “economically appropriate”, is exactly how one would like it in the Bill, although as for its fuzziness, paragraph (d) states:
“the likely cost to consumers of electricity”.
That is a similarly fuzzy phrase that is already in the Bill, so the amendment is in sympathy with the way that the rest of the clause is written.
The Minister mentioned my amendment in relation to the capacity payment. I stress again that it is not just about the capacity payment but about electricity market reform generally under “General Considerations”, before we move to the provisions covering capacity. However, I thank my noble friend for going through that and reassuring me in a number of areas about economic efficiency.
Clearly, the economy has got more and more efficient in terms of GDP. I would like us to do what Japan did in the 1980s, which was more or less completely to decouple the high growth rates that it then had from energy consumption. On that basis, I beg leave to withdraw the amendment.
Lord Jenkin of Roding
“(f) the desirability of promoting effective competition between persons engaged in, or in commercial activities connected with, the generation, transmission, distribution or supply of electricity or the provision or use of electricity interconnectors, wherever appropriate.”
Lord Jenkin of Roding
Colleagues may remember that I gave notice on Second Reading, during a passage when I spoke about the need for greater competition in the energy markets, that I would move an amendment to try to reinforce what is in the Bill. I will come to the amendment in a moment, but before I do, I ought just to say that it is perfectly clear that greater competition is at the heart of what the Government are aiming at. I have a letter here written by the former Minister for Energy, my right honourable friend John Hayes, to a company that has been seeking to break into the energy market. It states that,
“a competitive market is key to the Energy Market Reform programme”.
I agree with that, but his were not the only words. On 12 June, when there was the announcement from Ofgem of the opening up of the electricity market to effective competition, the right honourable Edward Davey, Secretary of State, said:
“I want our energy market to be as competitive as possible. An increased role and level playing field for independent suppliers and generators is precisely what will help drive the competition that delivers better value for consumers and businesses”.
That is what we are aiming at here. This is the first of what I suspect will be a number of amendments which have been tabled to open up greater competition in the energy industries.
If one looks back to the Electricity Act 1989—I see that an amendment in the name of those on the Labour Front Bench which has been grouped with mine refers to it—Ofgem is obliged to protect the interests of consumers and promote effective competition. However, there is nothing there or in the Bill which makes it clear that that, too, has to be a duty of the Secretary of State. Ministers have said that they want to promote more competition but there is nothing in the Bill that lays any kind of duty on the Secretary of State to do that.
We are moving to discuss the capacity market now, which, interestingly, used to be called the capacity mechanism. Happily, “market” begins with the same letter, M, so it has been transmuted into the capacity market. Even its name suggests the market has to be a competitive institution. Of course, we now know that there will be auctions rather earlier than had originally been envisaged. The auctions will happen next year but they are seen by many in the industry as a way not only to ensure greater security of supply—and there is no doubt that right at its heart, the capacity mechanism is all about making sure that we have the generating capacity to meet the demand from time to time—but to provide a way in for independent producers to join the market and to compete for contracts under the capacity mechanism.
This is the first amendment that we are dealing with under the general heading “Electricity Market Reform”. If one looks at Clause 5(2), listed there are the matters to which the Secretary of State must have regard when exercising his functions. My noble friend Lord Deben will no doubt be delighted to see that the first is,
“the duties of the Secretary of State under sections 1 and 4(1)(b) of the Climate Change Act”.
Secondly, there is a reference to the “decarbonisation target range”. Thirdly, there is,
“ensuring the security of supply to consumers of electricity”,
which is right at the heart of one of the three main aims of the process. The fourth matter is,
“the likely cost to consumers”,
and the fifth is,
“the target set out in … the renewables directive”,
for the,
“use of energy from renewable sources”.
There it stops, but the amendment in my name and that of my noble friend makes it clear that we need something more. We want an additional paragraph at the end to say,
“the desirability of promoting effective competition between persons engaged in, or in commercial activities connected with, the generation, transmission, distribution or supply of electricity or the provision or use of electricity interconnectors, wherever appropriate”.
The amendment perhaps goes a little wider than I indicated when I gave notice that there would be such an amendment in Committee. It has been the product of much consultation with firms which are anxious to play their part in the new electricity market but so far have found it extremely difficult to break into it. I will not repeat what I said at Second Reading about the wholly predominant role of the big six, all of which operate in one way or another with a vertically integrated operation that goes all the way from generation to supplying the final consumers. Other amendments on the Marshalled List seek to break into that and I shall be interested to hear what the noble Lord, Lord Berkeley, is proposing. He is not in his seat at the moment but he will be back, I am sure. There are other amendments as well, which we will come to later on.
As I have said, Clause 5(2) makes no reference to this matter. It would add a great deal more weight to the obligation on DECC to take into account the needs of independent generators and new entrants if we added a new provision that makes explicit the objective of promoting competition. The capacity mechanism is one of the ways in which the authorities intend to intervene in the market. Indeed, having seen to what extent this is under the control of the Secretary of State—certainly in the initial years—one might say that it is more than intervening; it is, in fact, running it. However, this is one of the ways in which the authorities are intervening, and the amendment has been deliberately phrased in general terms to mirror the requirement under the Electricity Act 1989 that I read out at the beginning.
Lord Roper
My Lords, my name is attached to this amendment but I shall be very brief because my noble friend Lord Jenkin has made the case for this amendment very strongly.
We are considering here electricity market reform, and we are very anxious to ensure that, in spite of fairly substantial interventions both through the contracts for difference and through the capacity mechanism and in other ways, competition will be maintained and increased.
We have had an opportunity over the past few months to talk to the independent generators and independent suppliers. In both cases, they see that there are aspects of the changes in the structure which could in some circumstances be disadvantageous to them and significantly advantageous to the larger players in this field. In that circumstance, it seemed to me—and as my noble friend Lord Jenkin said—imperative that we should make it explicit that it is a duty of the Secretary of State to take these actions to promote effective competition between all those involved in these areas.
Baroness Worthington
My Lords, I thank the noble Lords, Lord Jenkin of Roding and Lord Roper, for tabling their amendment. We have tabled a very similar amendment—great minds must think alike.
Our Amendment 52A seeks to do almost exactly the same as Amendment 52, which is to make it a requirement for the Secretary of State to have the same duties as under the Electricity Act 1989, in which the protection of “existing and future consumers” is enshrined through the advancement of competition. We will discuss this in more detail when we come to the amendment in the name of the noble Lord, Lord Berkeley, who has come up with a much more precise way of tackling this problem.
These amendments seek to ensure that the Secretary of State has a duty to advance competition. Much has been said, very eloquently, about the need for that and how, if we are going to rely on a truly competitive market, that needs to be enshrined in this Bill. So much of this Bill relies on competition to deliver efficiency. There are many complexities in many aspects of this Bill, particularly in Part 2, where you have contracts for difference and capacity mechanisms, the interplay between them and the effect that that has on investment decisions, all of which is very complicated. The more transparent the market is, the less opportunity there is for gaming and the more successful this Bill will be in meeting its objectives. I fully support the amendment tabled by the noble Lords on the other side, and our own amendment seeks to do something similar.
Lord O'Neill of Clackmannan
I remember the birth of the 1989 legislation. At that time, due to what were deemed to be the fundamentals of competition, generation was split from distribution in England and Wales. In Scotland, the companies were vertically integrated. Throughout the 1990s it became a kind of adventure playground for takeovers. We are where we are now in large measure because a number of interested foreign companies, usually American, took over the distribution companies; they subsequently sold them and they were picked up by various people at different times. So we have six players, which by and large are vertically integrated, as well as Centrica.
A lot of wise words are being spoken about competition but I am not sure if these amendments go far enough. As soon as a company becomes big enough to be a threat or to be of interest to the large players, the oligopolists of the present structure, they are gobbled up. We have seen this fairly recently with the takeover of Ecotricity, a very interesting, predominantly Irish company that engages in renewable generation. I am not sure that these amendments are going to make an awful lot of difference.
When we go further and look at the break-up of the vertically integrated companies, there is the likelihood of the two remaining companies being taken over by other foreign players that have money that they wish to expend in the United Kingdom. Therefore, I am very sceptical about how we are going to achieve anything meaningful in the way of competition.
We have at the moment six players—seven if you include First Utility, but that is rather special because it is exclusively in the retail market—and by and large they do the same as each other. They confuse the tariffs, introduce difficult pricing schemes that we do not always understand—
Lord Roper
Does the noble Lord agree that because First Utility is only a supplier, it considers itself at a serious disadvantage against those that are vertically integrated and therefore have some compensation from their activities in the supply and generating fields?
Lord O'Neill of Clackmannan
I could not agree more with the noble Lord. The point that I am trying to make is that, while First Utility has had very dramatic growth—I have spoken to some of its senior executives, who paint a very interesting picture—I am not quite sure what the life expectancy of the organisation would be if the main shareholders were given an offer that they could not refuse by one of the big six. I do not think that there is really anything in the competition legislation of the United Kingdom or within the powers of the Secretary of State to do anything about that. That is why I am a wee bit sceptical about us jumping up and down and waving our arms on this issue because somehow there is something intrinsically attractive in a new form of competition. I am not sure whether it will be any different from what we had post-1989 and defy the laws of economic or financial gravity that have been applying in the intervening period.
While I wish my colleagues well in promoting the amendment, I am not very optimistic. In five years’ time, we might well be debating the same issue and trying to secure a greater degree of competition because of the inexorability of the forces that have been at work. I am not overdramatising it or going into neo-Marxist stuff. I am merely making the point that the six main players, who are big and who are not always as nice as they appear, certainly like competition as it is and do not seem to want anything else, and I am not sure whether many of the ambitions of this Bill will actually change the status quo that much.
There are other options, which are not on the table, and I will not waste the Committee’s time discussing them this afternoon. However, we have to be perhaps a wee bit more realistic than we are. In the light of past experience, even if British companies did not want to take over some of these smaller successful players, I am sure that there would be international players, who would have a bit of financial elbow room. They might even come in to see how a competitive market works, as the Americans did in the 1990s—they thought they were going to have liberalised markets in the United States, as the Germans thought they might have liberalised markets. In fact, what they have is a market with a number of players, but each of them is a regional monopoly. Therefore, when we talk about competition, we have to be quite clear that Britain is the exception as a competitive and liberalised market, not the rule, as far as energy utilities world wide are concerned.
Lord Deben
My Lords, I am driven to get to my feet by the wise words of the noble Lord, Lord O’Neill—he may be embarrassed by this. They lead me to believe that this is a very interesting and important amendment simply because it reminds the Government, at a crucial point, of their responsibility to the marketplace, where we are of necessity intervening in order to give it a sense of time. After all, what we are really saying is that these decisions are made not just for today and tomorrow; they have to be made, given the problems, over a very much longer period. That is why we are intervening in the market-driven mechanism. However, we have to think about some of the fundamentals of the market as well.
I agree with the noble Lord, Lord O’Neill, when he points to the oligopoly in which Britain is. He is right to say that other countries are in a worse position, but that does not mean that we should not try to improve our own position. One of the odd things about oligopolies and, indeed, large businesses in general is their lack of enterprise. The bigger a company becomes, the less likely it is to produce intelligent and quick-footed answers. What worries me is that we also take for granted that bigness is better. I have seen no evidence whatever that that is true; indeed, I see a good deal of evidence that it is the opposite. Bigness is convenient, and that is a wholly different concept. I think that the noble Lord, Lord O’Neill, pointed to that when he showed how, over the years, people have taken on companies which would otherwise, in competition, be embarrassing, inconvenient and difficult, and have forced them to think differently—all the things that one needs to ensure happens in a market.
Lord Berkeley
My Lords, I shall intervene briefly because I do not want to pre-empt what I am going to say in moving Amendment 53.
The noble Lord, Lord Deben, and my noble friend Lord O’Neill both hit the nail on the head when they emphasised the problems that we are facing in the market. However, whatever else we do with other amendments, it is important that we have an amendment such as Amendment 52, which puts a duty on government and regulators to promote competition and look after the interests of consumers. There is similar wording in legislation relating to water and the railways but it is the principle on which all other negotiations and discussions are based. It may be meaningless but it is there. There have been many occasions when I have used the railway principle against a particular Government who seemed to do something stupid or something that I did not like, but it is a very important principle. Whatever we do later as we go into more detail, it is very important that we have this kind of policy right at the top to show where the Government and the regulator should be going.
Viscount Ridley
My Lords, I had not intended to intervene on this amendment and I shall do so extremely briefly, mainly because I have been moved by the words of my noble friend Lord Deben and the noble Lord, Lord O’Neill, to say that I heartily agree with them. As I do not always agree with them on everything, I suspect that that is terrible news to them, but I think that this little outbreak of what one might call “free-market anti-capitalism” is a very good point. The point of competition is to drive co-operation between producers and consumers—to cause producers to do things that help consumers both by innovation and by the lowering of prices. I shall not go on any further; I just wanted to record that fact.
Lord Crickhowell
My Lords, I had not intended to intervene but, while listening to this debate and agreeing with what has been said, particularly during the recent speeches, I was also glancing at the Explanatory Notes to the Bill. It is rather interesting that under Chapter 6 the Government have an essay on access to markets. The notes refer to wholesale market liquidity as,
“an important feature of a competitive market. It provides market participants with a route to market, risk management opportunities and investment and operational signals”.
It goes on to talk about the importance of liquidity and, further down, it says:
“Independent developers have played an important role in delivering new capacity in the renewable and gas generation sectors and could play a key role in meeting the Government’s goals and deliver essential investment in the future, provided market conditions are right”.
Having said all that, surely it is entirely appropriate that, when we get on to electricity market reform and the duties placed on the Secretary of State, the points made by my noble friend in this amendment should indeed be there. If these are the matters that the Government consider important in their introduction to Chapter 6, it must surely be right that this should be one of the factors that the Secretary of State has to take account of. It should therefore be listed in the Bill.
Baroness Verma
My Lords, I thank my noble friend Lord Jenkin and the noble Baroness, Lady Worthington, for their amendments and for the opportunity to debate some of the important issues that they have raised. In relation to Amendment 52, Clause 5 sets out the matters to which the Secretary of State will have regard when carrying out specific EMR functions to meet the objectives of EMR. Effective competition is fundamental to delivering the Government’s energy policy objectives of having energy security, keeping consumers’ bills affordable and decarbonising our energy sector. EMR will deliver the greener energy and reliable supplies that the country needs at the lowest possible cost, which is good news for the consumer, by reducing exposure to volatile and rising fossil fuel prices and securing electricity supply.
Increasing competition in the electricity market drives down prices and promotes innovation—hence competition will be considered in the context of the requirement at Clause 5(2)(d) to consider the likely cost to the consumer. For example, we are designing the capacity market in a way that promotes competition —in particular, between incumbents and the new entrants that my noble friend Lord Jenkin is anxious to see. By providing a steady revenue stream in place of dependence on volatile scarcity prices, the capacity market will help to ensure that we can enable broad participation. Furthermore, we are incentivising new investment in plants by offering longer-term contracts to new plants, which will enable the costs of capital to be spread over longer periods. This will be important in ensuring that new independent entrants can compete with incumbents, as they would be likely to find it difficult to access finance with a short-term contract.
However, it is important to note that independent generators are a broad mix. They are not just medium or small-scale firms. Some are large European or international utilities, such as GDF Suez, which do not currently have a major presence in the UK wholesale or retail market. To ensure that we capture the interests of this broad group, we have been working, and will continue to work, with the independent generators’ group on the design of the capacity market.
The Government are also addressing problems affecting competition within the market. This includes poor liquidity in the wholesale electricity market and tariff complexity in the retail energy market. We are working with Ofgem to tackle these now, and have taken back-stop powers in relation to both areas in this Bill to ensure that reforms can still be driven forward if Ofgem’s proposals are either frustrated or delayed.
We recognise that it is important to help independent generators to secure access to the market. We are aware of their concerns that it is becoming more difficult to secure a power purchase agreement and that terms have declined. We have been working to gain a better understanding of the complex PPA market and the investment issues for independents. Since last year’s call for evidence on access to markets, we have undertaken analysis of the issues and the potential options for addressing them. I hope to provide further information to the Committee on this very shortly.
The ultimate aim of electricity market reform is to allow all forms of electricity generation to compete fairly, and therefore to enable the least-cost mix of generation and demand-side measures necessary to meet our decarbonisation targets, ensure security of electricity supply and keep costs to consumers as low as possible. I hope that noble Lords will be reassured that competition is therefore at the heart of the design of all EMR functions. Consequently, it is the Government’s view that my noble friend’s amendment to Clause 5 is unnecessary.
Turning to Amendment 52A, throughout the development of EMR we have been clear on the objectives of these reforms. They have been set out in our published documents, from the EMR White Paper of July 2011 onwards, and the objectives set out in Clause 5 reflect these. The amendment would add the duties set out in Sections 3A to 3D of the Electricity Act 1989 to these objectives in Clause 5. However, the Electricity Act 1989 relates to the operation and regulation of the market, which is a different purpose from the new mechanisms that we are introducing through EMR. Contracts for difference and the capacity market are designed to complement the existing market structure and have been developed with the specific objective of moving to a secure, low-carbon energy mix at least cost to the consumer.
Furthermore, the amendment would risk causing duplication. For example, Section 3A(2)(a) of the Electricity Act 1989 relates to ensuring that electricity demands are met, and this would duplicate Clause 5(2)(c) of the Bill. We have made clear the importance of considering the cost to consumers at Clause 5(2)(d).
I turn now to Amendments 54 and 55, linking the principal objectives and duties in Clause 33 to the Secretary of State in relation to the capacity market. The purpose of this clause is to align the principal objective and general duties of the authority, in carrying out functions in the capacity market, with its principal objective and duties in the current electricity market. The reason this clause does not apply to the Secretary of State is that Clause 5(2) in Chapter 1 sets out what the Secretary of State must have regard to in relation to making capacity market regulations, as well as other EMR functions.
As I have already indicated, encouraging competition will be central to the way that the Secretary of State makes capacity market regulations. Promoting competition will be an effective way of achieving the aims of having regard to ensuring security of supply to electricity consumers and having regard to the likely cost to electricity consumers. We feel that it is impractical to require the Secretary of State to have regard to two separate lists of matters: those in Clause 5 as well as the principal objective and general duties in the Electricity Act 1989.
I hope that I have been able to reassure my noble friend and the noble Baroness, Lady Worthington, with my explanations and that my noble friend will feel content to withdraw his amendment.
Baroness Worthington
My Lords, perhaps I may ask for clarification before the noble Baroness sits down. I accept her comments about the potential duplication involved in having two lists. However, subsection (2)(d), on the likely cost to consumers of electricity, does not include future consumers of electricity. People involved in the discussion about Ofgem’s duties will know that that innocuous-sounding difference is actually a big difference. Perhaps she will reassure us that she might consider changes to subsection (2)(d) to better reflect the duties in the Electricity Act.
Baroness Verma
I have been informed that it does take into consideration the points that the noble Baroness has just raised.
Lord Jenkin of Roding
My Lords, I am extremely grateful to those who have contributed to this very important debate. As I listened to the noble Lord, Lord O’Neill, voicing his warnings about this, my mind went back to when I instituted the privatisation of British Telecom in 1982. The chairman of BT was Sir George Jefferson, who sadly died earlier this year. He was constantly in and out of my office, very much supporting the privatisation. However, when I had to say very firmly that BT was not going to be allowed to take a majority position in any of the new mobile telephone networks that were coming up, Sir George was extremely angry. He felt that it was a very unfair restriction on BT. I said to him that he had a virtual monopoly of land telephony and perhaps he ought to concentrate on that, and that in the mean time the new mobile telephone industry should develop without BT having a monopoly position in it.
Years later, when I attended a farewell reception for Sir Christopher Gent, the retiring chairman of Vodafone, which by then was worth some £82 billion, somebody asked him, “To what do you attribute the huge success not only of the mobile telephone network but of your company in particular?”. He said, “That is very easy. It was one thing: the decision of the Secretary of State at the time that BT would not be allowed to compete”. I went up to him afterwards and said, “I don’t know if you are aware that it was me who took that decision”. He said, “Oh, that’s very interesting”. I said, “Where’s my dividend?”. Of course, no such dividend was forthcoming.
I do not think I need lectures from the noble Lord, Lord O’Neill, or anybody else about the importance of—
Lord Jenkin of Roding
Perhaps I might finish my sentence before I give way. I wish more people on the “Today” programme would say that to the interviewers. I find it absolutely intolerable that they start asking a second question in the middle of the interviewee’s answer to the first question.
Lord O'Neill of Clackmannan
The point that the noble Lord makes is a good one, but he has chosen the easy one, where there was a technological change that worked in favour of Vodafone and others. If he were to look at the behaviour of BT in relation to the spread of broadband, he would find a very different story. BT’s monopolistic bullying of the broadband industry by one means or another has meant that we have some of the slowest speeds in the industrialised world, and it is all down to the inadequacy of the regulatory system that the noble Lord allowed to be created.
Lord Jenkin of Roding
If I may say so, my regulatory system was RPI minus X. I had an interview with a very senior American economist who was one of the world’s experts on regulation. He said that RPI minus X was the best and simplest regulatory instrument that anybody had ever seen. I took some comfort from that. I have not been responsible for competition in the telecommunications industry since then, so I am not in a position to comment on what the noble Lord has said.
Coming back to this amendment, my noble friend Lord Deben is absolutely right: every capitalist wants to have a monopoly. It is the job of the competition authorities to ensure that competition exists, and in this country we have very well established competition laws through the Office of Fair Trading and so on. I will read my noble friend’s reply to the debate very carefully and consult those who have been advising me on this. What I want to see is a very clear duty on the Secretary of State to promote competition.
My noble friend said, “It is in the Bill already and we do not want to duplicate it”. I can tell her that those who have studied this Bill perhaps even more carefully than I have say that actually it is not. We are going to need to look again. I will look very carefully at what the noble Baroness has said and see whether we can come to some understanding on this between now and Report.
I am quite convinced that Ministers—I will not repeat the quotations; indeed, I have given most of them to Hansard already—want to see a more competitive industry. Ofgem wants to see a more competitive industry. At Second Reading, I quoted from its June press release entitled, Opening Up Electricity Market To Effective Competition. Those with whom I, Ministers and officials have been talking feel that there needs to be a duty on the Secretary of State very clearly to promote competition. That is what we are attempting to achieve. I will study my noble friend’s speech and see whether we need to come back to this on Report. In the mean time, I beg leave to withdraw the amendment.
Lord Whitty
“( ) The Secretary of State and the Authority must ensure that any arrangements made under this section are fully reflected in the future plans of the Electricity Distribution Network Operators.”
Lord Whitty
My Lords, in speaking to Amendment 52B, I shall speak also to the other amendments in this group. They deal with the distribution network operators, which very little of the rest of the Bill explicitly does. In a formal sense, the distribution network operators look very similar to the structure both pre- and post-privatisation but, in a real sense, they have been through exactly the process referred to by the noble Lord, Lord Jenkin, and my noble friend Lord O’Neill. Formally speaking, there are about 13 companies which actually are limited to six, most of which are part of vertically integrated monoliths. I am not sure whether in this context competition is operating effectively. It is also true that DNOs are the part of the structure which has the most direct link with business consumers and household consumers. They are a key part of Ofgem’s universe in terms of its price regulation and have a vital role in delivering what most consumers would regard as security of supply—that their own lights do not go out. They are also an important part of making the whole electricity market system more efficient.
However, DNOs largely are a passive part of the system. They are a conduit for electricity rather than a lever for policy and innovation, and simply pass electricity from, say, the national grid to the ultimate user. Therefore, to a large extent they are a regional monopoly in each case but not entirely. They have hardly been mentioned in this debate and are hardly explicitly referred to in the Bill or in our discussions in Committee. The role of DNOs in the policy objectives, which the reform is intended to deliver, and the other outputs we have sought to achieve in this debate, is vital. They will be vital in terms of moving to smart grids, and in what we have just discussed in relation to electricity demand reduction and in demand response mechanisms. They also are vital in relating the whole of the system to an increased use of decentralised energy, decentralised generation, district heating and other forms of embedded energy. They therefore need to be seen as a key aspect of the capacity system and of the delivery of energy to consumers. Reducing demand and increasing the efficiency of the total distribution system plays its part in the inefficiency referred to by the noble Lord, Lord Teverson. Yet that dimension hardly features here.
In a different part of the jungle, things are going on. Ofgem is conducting a price-related review of the DNO structure. It requires strategic business plans in the context of RIIO, which a year or so ago Ofgem was always using as the term for the brave new world. It uses a slightly different system now but it is part of that approach from Ofgem. In March this year it issued a strategy document for the DNOs—which, incidentally, I think I am right in saying implied a serious move away from the kind of RPI minus X approach, which the noble Lord, Lord Jenkin, was extolling just now—and that process has been going on. Only at the beginning of this month, on 1 July, did it issue a consultation paper about the strategic business plans that were required under that previous strategy. Incidentally, that strategy extends the period of the review from five to eight years and is therefore dealing with the period from 2015 to 2023. In terms of what the Government and the industry are intending to deliver and the changes that we are intending to require, that period is absolutely vital. The consultation was six pages long but it cross-referred to the individual strategic business plans of each of the companies, some of which amounted to 400 or 500 pages, if not more. However, the deadline for the response to that was 2 August—that is, the paper was issued a fortnight ago and a reply is required by tomorrow fortnight.
Meanwhile, we are dealing with the broader aspects of capacity mechanisms and the whole of electricity market reform. Presumably Ofgem, after the close of that consultation, will finalise its view of the DNO structure for a period of eight years. Although all the DNO companies seem to have produced strategic plans, it is somewhat difficult to see how they could have done so for that eight-year period without knowing what was coming out of the process that we are discussing here today and have discussed over the past few sessions, and indeed what is going to come in the statutory instruments and the follow-through after the Bill has passed into legislation.
It is also a bit odd that we should move to an eight-year period when other aspects of electricity market reform may well have different time periods attached to them. The only conclusion from that would be that the department and Ofgem do not expect everything in the Bill, as well as all the intentions and strategies laid out under the Bill, to have much impact on the way that the DNO sector operates. That cannot be right and it cannot be the Government’s intention. In fact, whole new capacity mechanisms, including those that we have debated in connection with energy demand reduction, must have an impact on the DNOs’ operation. This document on the market reform delivery plan ought to have a dimension which is specifically related to the DNOs, but I cannot see it in there—it is 70-odd pages of big print and I did try to flick through it last night. However, it must have serious implications for the DNOs.
I tried to look at one of these business plans. My own company, Western Power Distribution, supplies consumers in the south-west and has a good level of consumer performance, although it has since merged with some other companies. It has produced a plan totalling 704 pages which sets out everything about its investment, its expenditure, its price approach, its customer services—some of it is quite good, although some of it is a bit unambitious; its carbon saving, for example, is only 5% over those eight years, which is slightly less than we are expecting of the system as a whole—its approach to leakages and other environmental considerations, and its social obligations, including a worthy reference to fuel poverty. However, what it does not do is to say anything about its place in the restructuring of the electricity market as a whole. That I find very odd. There is nothing, for example, on the demand reduction side; there is nothing about the effect of smart users at the user end; and there is nothing about the move to smarter grids at the other end.
On present progress, quite apart from the process started by this consultation on the electricity market reform delivery plan, after 2 August Ofgem will presumably be endorsing those business plans or otherwise within the context in which they were set and without fully taking into account what is happening in the rest of the Bill and the rest of the Government’s intentions. So the times are out of joint and these amendments are a modest attempt to try to put them back into a degree of conjunction.
Baroness Maddock
My Lords, I support the noble Lord, Lord Whitty. As I have declared before, I am vice-president of National Energy Action, which has been working with Ofgem on this because there is the potential to reduce prices for vulnerable customers in fuel poverty. As the noble Lord said, it is rather surprising that the distribution network operators have not been specifically mentioned with regard to electricity demand reduction because they have the ability to reduce the cost of network reinforcements, which would reduce prices.
We are always talking about what is going to add to the cost of fuel but this amendment would reduce prices. If we are moving to more people having domestic electric heating, it is particularly important to find ways of reducing the cost. There is quite a lot of work going on here. Indeed, NEA has been working with Ofgem on some of these proposals. I give my strong support to this and I hope that the Minister can indicate that the Government recognise that this is an important part of what we are all trying to achieve.
Baroness Verma
My Lords, I thank the noble Lord, Lord Whitty, and the noble Baroness, Lady Worthington, for tabling these amendments, which highlight the important role that the distribution network operators play in our electricity system, including in supporting electricity demand reduction. Amendment 52B seeks to ensure that distribution network operators take account of government policy as set out in Clause 5. Amendment 55ZZC would insert a requirement in Clause 37 for the Secretary of State to take account of the role of distribution network operators in a pilot scheme to permanently reduce electricity use.
Ofgem regulates through a licensing system and electricity distribution network operators need to obtain licences from Ofgem to participate in the energy market. An important aspect of this system is Ofgem’s power to set regulatory price controls, and its price control framework. This, as the noble Lord pointed out, is known as RIIO, and is well aligned with the Government’s energy policy, including the requirement for network companies to invest efficiently to ensure continued safe and reliable services, to innovate to reduce network costs for current and future consumers, and to play a full role in delivering a low-carbon economy and wider environmental objectives.
As we have previously debated, the Government are providing even greater clarity, as Clauses 119 to 126 will enable the Secretary of State to introduce a new strategy and policy statement for Ofgem to help improve alignment with government policies. In addition, my department works closely with DNOs and the wider industry, through groups such as the Smart Grid Forum, to satisfy ourselves that strategic investment decisions are being made.
On the specific issue of efficiency and reducing demand, DNOs have a licence condition on them to reduce losses, and they have been required to set out in their business plans how they will reduce losses, and to publish annual reports on what loss reductions they planned and what they actually achieved. A discretionary reward of up to £32 million will be made available by Ofgem, over the price control period, for efficient and innovative loss reduction initiatives.
In future price control reviews, when more reliable data may be available through smart meters and smart grid technology on the networks, Ofgem expects to introduce further incentives. Furthermore, Ofgem has recently extended the scope of its Low Carbon Network Fund to enable DNOs to carry out electricity demand reduction projects, which will complement the Government’s larger-scale pilot.
To reiterate the points made in our earlier debate on the electricity demand reduction pilot, while I support the noble Lord’s aim of ensuring that we test variations of the key elements associated with demand reduction projects, the Secretary of State already has the ability to design and run a pilot—or pilots—to test different approaches.
Clause 37, as I said earlier, is simply a spending power; it authorises the spending of money for EDR pilots. Our intention is design the pilot in a way that encourages projects to be delivered by a variety of organisations, including DNOs, provided the projects meet the criteria that we develop.
The noble Lord, Lord Whitty, asked why we cannot deliver eight year-old DNO plans without details under EMR. We have set out clear policy intentions—for instance in the renewables road map published last year, and in our various announcements on EMR—to move to a low-carbon energy mix. This informs the development of the DNO plans.
The noble Lord also asked why we had moved to an eight-year period. This was to encourage DNOs to work more strategically and to invest over a longer term, instead of making short-term investment decisions.
I hope the noble Lord is reassured that I recognise the important role that DNOs are already able to play in helping to realise reductions in electricity use. I hope that on that basis he feels able to withdraw his amendment.
Lord Whitty
My Lords, I am grateful to the Minister and also to the noble Baroness, Lady Maddock, for her support.
It is certainly true that there have been general indications of the Government’s direction. No doubt they are taking into account the DNOs in drawing up their plans. It still strikes me as very odd that we have here a piece of legislation, the capacity mechanism bit of which we are discussing now but the detail of which is not yet known, and it will require considerably more explanation before we finish this Bill and some serious delegated legislation thereafter. If it applies to DNOs—as the Minister rightly says in a sense it will—it must have implications for how DNOs operate. The outcome of the demand reduction must have implications. The way in which the capacity mechanism brings other people into play in the grid, and ultimately down the distribution system, must have implications. Therefore, I still find it very odd, even if they have read all the signals right—and my brief reading of the 700 pages of the Western Power document suggests that they may have missed one or two.
I am not necessarily objecting to the eight-year period, but that period has to relate to something that is operating under the wider electricity market reform. Instead, we are going to have the approval of the DNO strategic plans within the next two or three months before we know how the capacity mechanism is working, before we know how the demand reduction mechanisms are working and before we know a lot of other detail that will emerge from this Bill, which will eventually be encapsulated in the new strategy and policy statement from the Secretary of State. That will be the context in which Ofgem and the industry will have to work.
I am not trying to be awkward with the Government. I just do not think that they have the pieces in the right order or in the right place. Before we complete the consideration of this Bill, we need to be a bit clearer on how the distribution structure will operate in the new system. We should not have Ofgem definitively endorsing the plans, which it will have before it in a couple of weeks. In the mean time, I beg leave to withdraw the amendment.
Lord Berkeley
“Divestment of retail business
(1) Any electricity generator which also supplies electricity to either domestic, commercial or industrial users shall, within two years of this Act coming into force, divest itself of its supplier business so that—
(a) an electricity generator shall have no financial interest in, or exercise any right over, a supplier of electricity or gas;(b) a supplier of electricity or gas shall have no financial interest in, or exercise any right over, an electricity generator;(c) no person may hold a directorship of an electricity generator and a supplier of electricity or gas concurrently,and any contracts entered into between any of the divesting parties shall cease to have effect when this section comes into effect.(2) Generators which have a direct contract to supply the majority of their output to a defined site through a private transmission scheme are exempt from this section.”
Lord Berkeley
My Lords, to some extent, we started discussing the issue of fair competition in the debate on Amendment 52. I certainly welcomed the comments from the Minister in her response, but I think that this issue, which is designed to require the big six generators—those who own both generating and retailing—to separate, is probably separate from all the other discussions about pricing, who gets what, guarantees and everything else. However, unless we achieve the separation, I do not believe that we will get fair competition.
My reason for saying that is that I believe we will have higher costs, a lack of transparency, which one can widen out to cover a lot of things, and added risk for the independents in selling to the retail market. I am sure we have heard it before but when the big six, according to Ofgem, are producing something like 72% of the generating capacity and a percentage in the high-90s of the domestic retail, it is quite a challenge, as my noble friend Lord O’Neill mentioned earlier. He also mentioned that there is a similar experience in Germany, with the three major suppliers inhibiting competition, and the comments that I get from Germany indicate that there are similar high prices and a lack of choice.
I find it very interesting that on the railways—I declare an interest as chairman of the Rail Freight Group and I am on the board of the European Rail Freight Association, which is an association of small, independent operators—we are finding exactly the same problem. At the moment, the European Commission is trying to drive what it calls the “fourth railway package” through Parliament and the Council, and Germany is again opposing any attempt to remove vertical integration, which Germany has at the moment. It has got to the stage where the Commission has accused the German Government of allowing the infrastructure manager to make a profit on its access charges and transfer the profit up to the holding company and down to its own train operating company. In effect, independents who want to run trains on a line are paying an access charge, an element of which—the profits—may well be going to subsidise their competitor. The two parties to it in electricity are different, but I suggest that it is the same problem. It is resulting in a loss of competition because the smaller operators get swallowed up by the bigger ones, which happens in France as well, and it is difficult to know what can be done without insisting upon this total separation.
Lord O’Neill of Clackmannan
I have some questions for my noble friend. What he is suggesting has been tried before. We used to have the separation—I shall not say of powers—but we did not have vertical integration at the time of privatisation. That position prevailed for about 10 years. My noble friend has to show us whether things were better then. Were prices, independent of exterior energy costs, cheaper than now? Certainly the degree of obfuscation of tariffs was not as sophisticated as it is now, but whether that is down to the character of ownership, the nature of the industrial organisation or just the badness of some of the people involved in setting the prices is for others to decide.
The point I am getting at is that this is not new; we have had it already. I am not sure that consumers were any better protected then than they are now, or that prices were that much lower, when we take out the externalities that determine the price. I am not sure that when we take out the impact of the price of oil and gas on the energy market there is that much of a difference.
Let us not forget that one of the first things that the Labour Government did in 1997, which attracted no opposition at all, was to introduce the windfall profits tax because of the way in which a number of the utilities had been screwing the country as a whole. The Select Committee that I chaired thought that we made a sizeable contribution to a better understanding of the abuse of utility power at the time. Indeed, I always worried that such was the universal acclaim for the Labour Government’s windfall profits tax that they had probably got it too low. They probably could have got far more out, because people knew the degree of pain and had prepared themselves for it.
That is not the point that I am trying to get at here. If there are abuses of the kind that my noble friend suggests, would it be better to go through what might be a lengthy and costly process—I can imagine the lawyers salivating at the moment over the prospect of what they would get out of it—or would it not be more appropriate to try to deal with that market abuse by a radical reform of the regulatory process? The selective choice of international examples made by my noble friend is not really relevant, because in the case of France and Germany, we are dealing in the main with regional monopolies. Their markets are not like ours. We have an oligopolistic system where there is fantastic loyalty to the old electricity boards, and people still talk about them in that way. The reluctance of people to switch has been one of the great frustrations of the regulator and the advocates of the market, because people, by and large, like to stay with the devil they know and choose not to move, for whatever reason.
My real point is that I am not sure that the international comparison is that relevant because although the companies are vertically integrated, they are operating in different market structures. While this is an interesting debate to engage in, I am not certain that it will come up with the answers that my noble friend is looking for. In the 1990s, when we had something like this, it did not really work that well and there were an awful lot of other forms of market abuse. Indeed, that is why we had market reforms—the previous Labour Government had two bites at the cherry during their 13 years. I understand where he is coming from but I am not sure whether he would get where he wants to be by the mechanism he suggests, short of having a radical, tough regulator prepared to have a go, unlike the overly cautious regulators that we have been blessed with in the energy markets over the past 20-odd years. The Opposition have said that they would like to change drastically the character of regulation in this area, and that might be a more productive way of going about it.
As I said, I am grateful to my noble friend for raising the issue because it is important that we consider it, although I am not quite convinced that past experience or the evidence that he has adduced are necessarily unduly relevant to the objectives that he is trying to find.
Viscount Hanworth
My Lords, I support the amendment of my noble friend Lord Berkeley. If his amendment were adopted, and indeed if the policies that it prescribes were implemented, I believe that many of the problems that afflict our electricity industry would be overcome—notwithstanding what my noble friend Lord O’Neill has just said, which I shall consider at some length.
The amendment would radically alter the oligopolistic environment in which the big six vertically integrated companies dominate the generation of electricity and its supply to industrial, commercial and domestic consumers. There would then be some chance that a genuine economic competition could ensue. The vision of the free-market fundamentalists, who inspired the radical restructuring of the industry through a privatisation that occurred a quarter of a century ago, would come closer to being realised than ever it has been.
Having said that, I confess that I greatly regret the demise of the state-owned electricity industry. Mine is not a doctrinaire position, as some might imagine, albeit that much could be said to justify a doctrine of state ownership. An attitude in favour of state ownership of the electricity industry needs no further justification than a reference to the example provided by the French electricity industry. Although the dominant French company Électricité de France, or EDF, sometimes adopts a cunning commercial concealment, it is state-owned, excepting a very small proportion that is attributable to shareholdings which are predominantly in the hands of other companies closely allied with the French state.
I am an admirer but not a friend of Électricité de France. A testimony to its success is the fact that, apart from being one of the aforementioned big six companies dominating the English market, this company owns virtually all of Britain’s nuclear generating plant. Over many years, Électricité de France has worked in close collaboration with the French Government to realise the latter’s strategic objectives regarding the provision of the nation’s electrical power. Only recently, with the advent of François Hollande, has there been any significant difference of opinion between the politicians and the management of EDF regarding the investment strategy.
An investment strategy is precisely what the Bill is about. The danger we face is that the industry’s dominant firms will have no interest in providing the investment in the UK that would serve to avert the risk of a serious electricity shortfall. Although the free-market economists might deny this reality, the fact is that these are multinational companies, often with head offices in other countries. This implies that their primary interests and loyalties are not with the UK. When they are seeking profitable investment opportunities, they are liable to look much further afield.
There are some minor players in the UK electricity market that are based predominantly in this country and have few interests abroad. These are the independent electricity generators which are concentrated in the renewables sector. It is perhaps inevitable that the Government should look to these companies to provide a substantial proportion of the new investment in renewable generating capacity. Notwithstanding the fact that they currently account for only a small proportion of the generating capacity, it is hoped that they will provide something between 35% and 50% of the new investment in renewable plant.
The truth of the matter is that these companies are in trouble. They are being squeezed out by the big six, which have an increasing proportion of renewable capacity in their own portfolios and a declining reliance on the independent generators to fulfil their renewables obligation. The eventual suspension of the renewables obligation in 2017 will spell the doom of these companies, unless measures are adopted to safeguard their position. This is what the present amendment and subsequent amendments being spoken to today propose. It may well transpire that the measures proposed in subsequent amendments represent the only viable ways to protect the interests of the small generators and ensure that they continue to have a market into which to sell their produce.
Lord Deben
My Lords, I am very clear in my desire to have maximum competition. I have been fascinated to hear the various versions of history of privatisation, the like that we have now been given. It is rather like listening to the history of the Battle of the Boyne in the north of Ireland. You would not expect to find that people were talking about the same event. Happily, we have not come to blows about it but perhaps I may suggest that there were few industries as incompetent, useless and pathetic as the British electricity industry before it was privatised. This industry hid the cost of nuclear power in a way which was possible only because it was totally and utterly opaque.
I remember having discussions with the head of the Central Electricity Generating Board and it was quite impossible ever to get any information of any kind that anyone would need if they were to make any assessment. I sat in a Cabinet meeting when the noble Lord, Lord Wakeham, had to come in and explain that we could not privatise the nuclear power industry because the finances had been so incompetently run that there was no way whatever that it could be presented in a manner which anyone properly could buy. Do not tell us this story about the electricity industry. On top of that, we have had a pretty miserable time since privatisation. It would be better to do what one should do in the north of Ireland; that is, to say that there are very considerable histories on both sides and that we had better just face that, and not try to fight old battles again.
The issue is that we do not have as good a degree of competition as we would like. We do not forward that by lauding either the failed system of state ownership or the not-very-efficient system which we happen to have now, so would it help to take the amendment of the noble Lord, Lord Berkeley? When reading this amendment last night, I started by thinking it sounded rather good—or perhaps it was this morning; it is out of my memory now. Then I thought, “This is exactly the kind of prescription that does not work”. We need to make sure that every time we make a decision, we do so in a way that ensures the maximum likelihood of competition.
One of the helpful comments made reminded the Government of the end of the ROC scheme in 2017. That is an area where we could look very carefully at ensuring that the move into the new structures encourages competition, and enables the companies that have made real advances in the present structure to transfer to a new structure. Maybe we will have to alter the new structure to make that more likely. If I may say so to my noble friend the Minister, my problem is that I am not sure whether the Government are entirely with it, or moving fast enough and with enough sensitivity, to do their best here.
The noble Lord who has been promoting a concept of bringing expert advice into DECC has graphically illustrated the concerns we all have about constantly changing Ministers and, above all, constantly changing civil servants. One of my worries is that unless we get some better stability in the structure, we will not recognise early enough—or long enough ahead—the changes we have to make to protect what competition we have and to encourage more. Having said that, I must say to the noble Lord, Lord Berkeley, that I am not at all sure that the kind of shake-up he proposes here would be a satisfactory means of delivering it. Indeed, it certainly would be a satisfactory means of delivering total incomprehension and utter difficulty at a point when it is most necessary that we keep the lights on.
Therefore I hope that the Minister will not accept this, and in a robust way—meaning that she will tell us that she will act in a way that is a bit more than merely taking on board the need for competition. I hope, rather, that she will find a whole range of areas where the Government can promote that competition.
Lord Oxburgh
My Lords, I will make two quick points. First, I point out that many Governments would salivate at the thought of having six roughly equipotent competitors or participants in a regulated industry in competition with each other. For my information, I am not clear how you decide when you have enough competition, because six participants is quite a lot. It is popular to bash the big six, probably because they do not handle their consumers very well and they have all been associated with unpopular price rises. However, I would like to hear this aspect explored a little more.
My second point is quite separate, which is to draw attention to the second subsection of the amendment of the noble Lord, Lord Berkeley. Regardless of whether the amendment is accepted by the Government, it is very important that the Government take note of that second subsection. It covers a lot of small businesses—I declare an interest as a director of 2OC, which does this—that use renewable energy on a particular site and deliver it to a particular business or a very small range of customers locally. They generally combine generation and transmission to one or a limited number of customers. The Government should make sure that that is protected in the Bill, whatever the final outcome.
Viscount Hanworth
Perhaps I may make a few more comments, some of them addressed to things that have just been said. A great deal of negative propaganda accompanied the privatisation of the electricity industry in the UK, but many studies indicate that the industry was far more efficient than another national industry with which we should compare it, the American industry. There is no question about that. Yet many people tendentiously denied these realities.
If we are to have a nuclear industry, it will be in the hands of a state-owned foreign monopoly. That is a reality that sits very ill beside the fantasy of perfect competition. If we are to have a competitive environment or, indeed, any competition in this environment, perhaps the competition should come from a British state-owned nuclear industry. We have to think somewhat outside the box and not revert to the paradigms of perfect competition versus state industry, which seems still to dominate people’s thinking in this respect. The only countervailing force that I can imagine that could really survive in the British electricity industry to induce competition is if a fraction of it lay in the hands of the state.
Baroness Worthington
My Lords, like the noble Lord, Lord Deben, when I read this I thought that it was a very elegantly phrased and simple set of provisions that are very easy to understand and could go a long way to sorting things out. Having thought about it a bit more, I am still quite attracted to it, but that is not to say that it is necessarily the only way in which the problem could be solved—or, indeed, the right way. What we really want is an acknowledgement from the Government that, rather than thinking about the past— sadly I do not have the benefit of those many years of pre-privatisation—we should really be thinking about the future and acknowledging that the Bill signifies a massive change of direction. As a result of that, it is appropriate that we think again about our competitiveness regime. It will come as no surprise that, from our side, we believe that we need a new regulator to do that—one with real teeth and independence, and one which is not scared to hear from the incumbent, saying, “You don’t like that? We’ll change it for you”. That is the modus operandi of Ofgem, I am sad to say. There are many ways in which we can address the issue.
In answer to the question from the noble Lord, Lord Oxburgh, about how much competition is competition, six companies might be appropriate if it were not for the fact that the vertical integration of generation and supply gives them an enormous advantage in this market. That is what needs to be looked at—and that is why the noble Lord, Lord Berkeley, can be congratulated on his precise and laser-like vision in getting to the nub of it. It is possible to force the integrated companies to operate in a less integrated way, but it is what they do with the DNOs, as my noble friend pointed out. Many of the big six are owners of DNOs. But there are regulations and laws that mean that they have to have a very firm Chinese wall between those parts of their industry, which is precisely because they are natural monopolies and will gain enormous advantage by knowing what is going on in the other parts of the business. So there is a precedent for keeping the corporate structure the same but having clear delineations between the different parts of the business.
Why is this more important in future? One reason that has been oft-cited for allowing vertical integration to continue is that it keeps the cost of capital low. If you are a vertically integrated company and you have a supply base of millions of customers, you can borrow against it very easily and get nice low-cost capital. That was true until this Bill, which completely removes the risk of new generation and potentially gives companies a many decades-long contract against which they can borrow. So the old arguments for vertical integration are falling away, and we should now be reconsidering the logic of allowing it to continue. There are many examples where vertical integration can act against the interests of consumers and of more plurality, competition and lower costs in the market. I shall choose just two.
Baroness Verma
My Lords, I am grateful to the noble Lord, Lord Berkeley, for his amendment. Amendment 53 is aimed at the abolition of the vertically integrated business model in the energy industry. I have listened carefully to noble Lords and I have some comments to make after I have gone through my speaking notes, which I hope will address some of the issues the noble Lord has raised. I reassure him that the coalition is committed to driving competition and choice in the energy market.
In considering the merits of this amendment, we must be guided by what will most benefit consumers, deliver competition, affordable energy and better customer service, and secure the investment we need for the future. We must acknowledge that the vertically integrated business model delivers a range of benefits for consumers through lower capital costs, efficient risk management and economies of scale. Simple prohibition of certain business models could lead to higher prices for consumers and trigger lower investment in the market.
The Government believe that consumers will get the best deals when suppliers face much tougher competition. Wider competition and more diversity are key to a competitive market and securing investment. We must ensure that the market is open to all business models to provide them with the ability to compete on a fair basis. That is what the Government and the regulator are working to achieve. It is why we have made concessions on the threshold for the small-scale feed-in tariffs and the route to market for independent renewables generators. These will help to open the market to community energy projects and smaller independent renewables developers.
Liquidity in the wholesale market remains a key barrier to entry for independent players and Ofgem has recently announced a package of reforms to address the low levels of liquidity in the wholesale electricity markets. This is a positive step forward and the Government welcome Ofgem’s announcement. We want to see swift and effective implementation of its reform package. However, we are seeking back-stop powers in Clause 43 to address low liquidity should Ofgem’s reforms be delayed or frustrated.
The Government are also looking at other barriers, including independent generators’ ability to secure bankable long-term contracts that will allow them to finance their projects. The Government are taking back-stop powers in Clause 44 to enable them to act quickly to address this issue if necessary. I know that this will be of particular interest to the noble Lord, Lord Berkeley.
Finally, Clauses 127 to 131 will give statutory backing to Ofgem’s retail market review proposals. This will ensure that energy companies place consumers on the cheapest tariff that meets their preferences, thus simplifying the market and enabling consumers to shop around for the best deals. Bringing greater transparency to the retail market will also make it easier for innovative small suppliers to compete with larger established players in the market.
We share the desire of the noble Lord, Lord Berkeley, to ensure that consumers get the best deal in a fair, affordable and competitive energy market. However, requiring the energy companies to divest and reorganise is not the most effective way of delivering the outcomes that I know we both desire. It is likely to create unnecessary disruption at a time when we need significant investment in our energy infrastructure, and we are making real progress in introducing greater competition in the energy markets.
I query also whether this would improve liquidity in wholesale markets, at least to the degree suggested. Poor liquidity relates to a lack of availability of products or buyers for products, and poor transparency of prices. Removing vertical integration will not necessarily address these issues fully, whereas Ofgem’s reforms to the wholesale electricity market are focused on making more power available to buyers while ensuring that generators can sell their electricity, and on increasing price transparency. We therefore believe that reforms by government and Ofgem offer the quickest, most effective and most reliable way to increase competition and boost consumer confidence in the energy markets.
We have a real opportunity through the reforms we are making in the Bill to see the way opened for greater competition, greater transparency and harsher penalties if generators and suppliers do not provide the choice and value for money we all want to see for customers. Decades of missed opportunities cannot be allowed to continue.
Perhaps I may pick up on a couple of the points that the noble Lord, Lord O’Neill, made about the flaws in the amendment of the noble Lord, Lord Berkeley. I refer back to what the noble Lord and the noble Baroness, Lady Worthington, said about Ofgem. When he was Energy Secretary, Ed Miliband said that Ofgem was a regulator fit for purpose. Through supporting Ofgem and strengthening its powers, we are trying to deal with the fears that the noble Lord, Lord Berkeley, and the noble Baroness, Lady Worthington, have. It is not about creating another new body but about ensuring that the body we have has the powers to be able to deliver what a regulator is supposed to be delivering; that is, to be quite tough on energy suppliers. We have seen examples of that. Between April 2011 and March 2012, Ofgem set fines of more than £19 million for licence breaches and anti-competitive behaviour. It imposed fines of more than £500,000 and £4.5 million in redress.
It is not about change but about ensuring that we empower a body. It would be really interesting to know what sort of body the noble Baroness, Lady Worthington, would put into place and what it would do that Ofgem is not doing. It is not clear to me that banning vertical integration would in fact improve liquidity in the wholesale markets, at least not to the degree suggested. A lack of available products and poor transparency is what needs to be addressed and on that basis, I hope that the noble Lord will see that what the Government are doing in the Bill is right, and withdraw his amendment.
Baroness Worthington
In response to the Minister’s direct question, we would have a regulator which, when it is asked, “Why can’t you split vertical integration?” answers, “That is a good idea and we will look at it in more detail”, instead of “Because the industry doesn’t like it”. Quite frankly, as I said earlier, when it did a review into liquidity and competition in the market, eight recommendations were made but I think six of them were dropped and the two that were moved forward were watered down. As soon as Ofgem goes and consults its friends in the industry, it gets told, “That’s too difficult—we couldn’t do that”, so things get watered down. That is what we have to break.
For example, the noble Baroness quoted the suggestions that Ofgem has come up with for solving this problem. The market-maker proposals are frankly ludicrous. They are so complex and so against a normal, natural market that I really cannot believe that that is our solution to this issue—actually, I can believe it since it is Ofgem—when the real solution is staring us in the face: no more vertical integration. However, I will sit down.
Lord Berkeley
I am very grateful to all noble Lords who have spoken in this debate. We have had a very wide-ranging debate with a wide range of opinion. It is really good that we have been able to air it. We have not all agreed but at least we have discussed it. I will not respond to every noble Lord who has spoken—to whom, many thanks—but the noble Lord, Lord Oxburgh, asked particularly how one decides whether six generators are sufficient for competition. There is no number bigger than three where it matters very much, in my experience. The key is that they are all able to act fairly, simply and transparently.
We have six at the moment, and whether they are in a cartel is not for discussion tonight. That is something for the regulators and the Competition Commission, if there is a complaint. However, what motivated me to put down this amendment is the problem of having a complaint from some of the other generators, which do not have retail outlets, that the system is not fair. They have to be convinced that it is fair because otherwise they will not invest. The proof of the pudding will be in the eating, but will the lights have gone out before we see the answer? On competition generally, my belief is that it is much better to have a simple structure than devising all kinds of rules and regulations to make sure that a mixed structure will work.
My noble friend Lady Worthington suggested Chinese walls as an alternative to complete separation. Chinese walls work if they are properly policed, so that may be another answer which we should discuss later on. To me, the key is to have a strong and effective regulator that is not captured by the industry. I am not saying that the present one is captured, but the key will be whether we end up with a system where all the independent and other new generators that do not have retail outlets feel so comfortable that they will continue to invest. I hope that they will also multiply rather than what happens on the other side, when they all get bought up by one or two big ones and there is no actual competition. I shall read the Minister’s response with great interest.
Lord Teverson
I hope that the noble Lord will not mind me intervening. I thought that the noble Lord, Lord O’Neill, asked a very interesting question about the decade when there was effectively this separation. Does the noble Lord, Lord Berkeley, have any thoughts about whether it was better then, or does he have any other answer to that? It is quite an interesting issue that came out of the debate.
Lord Berkeley
I do not think that it was particularly perfect then. We thought that it would get better, but what is probably different between then and now is that the technology has moved on. We are able to trade and the physical network has got a lot better, so I am not sure that the situation is quite the same. However, I am sure that my noble friend will have more to say on that.
Lord O'Neill of Clackmannan
I just want to make the point to my noble friend that, of the six companies that currently exist as vertically integrated companies, two of them started off as vertically integrated companies because of the difference between the jurisdictions in Scotland and England and the desire of the Secretary of State for Scotland to have vertical integration. Therefore, we have always had that vertical integration for two of the companies. The interesting thing is that one of the two is still British-owned, whereas all the other companies are now in the hands of foreign owners. Scottish and Southern Energy is located in Perth; it may have major shareholders across the world but it is still a Scottish company, or a UK company based in Scotland, which is something that we tend to lose sight of.
Lord Berkeley
I am grateful to my noble friend. He is absolutely right. It is good to have Scottish companies. It is also good to have companies that all pay their tax, wherever they are based, although that is probably a slightly separate subject. My concern is whether the companies, whether they are Scottish, English, British or whatever, are behaving fairly with the generators that do not have access to the retail market. As I said, it would be perfectly possible to have a Chinese wall rather than total separation if that could be worked. I am not sure what the disadvantage of that is but it is only one small cog in the whole jigsaw puzzle—I am mixing the metaphors nicely—of making fair competition that works and which is for the good of the consumer. I beg leave to withdraw the amendment.
Lord Davies of Stamford
Lord Davies of Stamford
My Lords, I will deal briefly with the first of my amendments, which would replace “may” with “must”. I think that there is far too much use of the word “may” in this Bill. If Parliament thinks that something is important, it should, in my view, be decisive about it. If we decide that we ought to give an instruction to Ministers, we should give them a clear instruction and not just a vague exhortation, such as is encapsulated in a subjunctive word such as “may”. In fact, as I said earlier in a different context, it is very important that the law generally should be precise and unambiguously comprehensible. If you give someone an instruction which is not an instruction, you are not producing good law. That is the simple reason why I want to change “may” to “must”, and it is a theme that applies to many other instances in the Bill.
I now come to my more substantive second amendment. By way of introduction, when I read the Bill I was quite surprised to see in Clause 21 the capacity market dealt with jointly with the issue of demand reduction. Of course, the whole Bill is really about demand reduction—how you can get the price mechanism generated by concepts such as the decarbonisation principle and contracts for difference and so forth to force people to be more efficient in their use of energy and to bring down our carbon emissions. That is the whole purpose of the Bill.
The capacity market is rather specialised; it concerns how we provide ourselves with a margin of safety over periods of peak demand so that there is not a serious danger of the lights going out. I thought that that would require and deserve separate treatment in a specialised section of this Bill. There is an aspect, of course, of demand reduction that is intimately related to the capacity market. It is intimately related in an inverse sense, in the sense that when you have more of one, you have less of another. That is the issue of demand reduction in the sense of modulation of demand—or what I prefer to call intelligent management of demand so as to reduce the aggregate volatility of demand for energy, particularly for electricity, in the economy—to reduce the peaks, and reduce the peaks that perhaps raise the troughs; to reduce volatility. There are many ways in which modern technology enables one to do that, which was extremely well described by the noble Lord, Lord Cameron, as regards dealing with smart meters and so forth. I do not need to go back over that.
The Minister has already referred to this approach several times and the Government in principle are entirely signed up, which is why it is in the Bill. There is a certain logic in dealing with the capacity market and demand reduction as reciprocals in the same part of the Bill. However, it would be a great mistake if we held up progress on intelligent demand management and demand reduction until we have a capacity market up and running. I should have thought that we should do things the other way around. It will be very difficult to know how much additional capacity we will need—that is, what we need by way of a capacity market and a definition of what the task of a capacity market is—unless we know the potential for demand reduction and specifically for the reduction in the volatility of electricity demand in the economy. Until we have experimented with some of these new systems, and have seen whether people and the market respond to these intelligent meters and so forth, we will not really know how much we need in terms of additional capacity as a safety margin in the electricity market.
It is clear that the general principle is universally acknowledged. My amendment would make sure that we do not neglect smaller businesses and households in all this. From what I can gather, all the discussion up to now has been with big generators or big consumers of electricity. It is extraordinarily important that we do not ignore, on grounds of fairness and economic rationality, smaller businesses or private individuals and families. If the Minister says that the Government are not ignoring them at all and that they are absolutely in the front line of their concerns, the substance of my amendment very largely would be achieved. That is why I am very explicitly putting forward this matter today.
I deliberately mentioned that there are two principles behind my amendment. One is fairness and the other is economic efficiency. The fairness point is that unless small businesses are encouraged to have equal access to these new smart meters and other means of monitoring price in the market so as to make sure that they can modulate their consumption of electricity to maximum advantage from their point of view, there will be a terrible distortion between the smaller people and the larger people. It will be much more difficult for small businesses, which have to cover many issues and risks with limited management, to be up to speed with new technologies of this kind. I suspect that regulations may be required in order to make sure that they get an equal crack of the whip. That is the way in which I want the Government to think about this. Certainly, small businesses should be equally sensitive, or perhaps more sensitive, to the price of energy than big businesses. They need this as much as possible.
There is a clear fairness point in terms of households. I thought that most of us in this country were concerned—although I am not quite sure about this increasingly Thatcherite Government, with the invention of the bedroom tax and so on—about the potential impact of the very necessary decarbonisation targets and increase in energy prices on poorer households in this country. In so far as that is the case, we should want to make absolutely certain that these new technologies of the smart meters and so forth are available to all families and households, but particularly to poorer families. Poorer families will have what I think would be known technically as a very high price elasticity of demand for energy. That is to say, their demand will vary quite a lot depending on the price.
To put it in terms of a graphic, the demand curve will be sloping—everybody requires some electricity for cooking, heating or what have you—but not too steeply. At the other end of the spectrum, I do not suppose that bankers, lawyers, Premier League footballers, movie stars, Russian oligarchs or Arab sheikhs are at all sensitive to price in their consumption of electricity. Their demand curve is almost certainly vertical or as close to vertical as makes no difference. Between those two extremes, there is a vast number of people with different demand curves. Overall, there will be very substantial opportunities for people to save on energy if they are given the opportunity to do so and if it is clear to them where the price advantage of doing so is.
On the grounds of both fairness and efficiency, in maximising this process of intelligent demand and consumption of electricity in the future, we need to ensure that households and small businesses are kept to the fore of the attentions of the Government, the regulator, the big beasts—the big six generators—and all the other players in this market. Without some very specific regulations, I suspect that things will not work out that way. That is the purpose of my amendment and I hope that the Government will be able to assure me that my amendment is unnecessary because they have already embarked on that very necessary course. I beg to move.
Baroness Maddock
My Lords, I do not think it is absolutely true that we have not talked about small businesses and households at Second Reading and in Committee.
Lord Davies of Stamford
I was not suggesting that we had not talked about small businesses. Of course people have talked about small businesses. What I am concerned about is the extent to which the Bill enforces on the Government an obligation to have particular regard to small businesses and households, which are inevitably less sophisticated and need more help in adopting some of these new technologies. That is my point.
Baroness Maddock
I totally agree with the noble Lord, but he gave the impression, I think, that we had not concerned ourselves with this subject. I apologise if that was not what he meant but it was the impression I got. We have done that and the Government have shown that they recognise some of the problems by bringing forward a clause specifically about fuel poverty and a fuel poverty strategy. I agree with the noble Lord that these are important issues but he has slightly distorted how the passage of the Bill has gone, and the Government’s interest. But I support him in trying to ensure that this is at the heart of what we are doing and share his hope that the Minister can reassure him that we do not need the amendment.
I talked about small businesses and domestic customers particularly in the context of demand reduction pilots. I cannot remember whether it was in Committee or at Second Reading but several of us went into that in quite a bit of detail.
The Earl of Caithness
My Lords, I congratulate the noble Lord, Lord Davies of Stamford, on producing an amendment that is probably the most regular identical amendment to come before your Lordships’ House. It is not an amendment that he would have found in the other place but “may” to “must” was something that I defended hugely for 10 years against attacks from the Opposition. As soon as the Opposition got into government and I put down a “may” to “must” amendment, they defended it with exactly the same arguments that I had used. I expect my noble friend the Minister to repeat those arguments of 30 years ago, and we will listen, as we have always listened, and come to the conclusion that “may” is still the right answer.
I hope that my noble friend will dismiss the second amendment. The principle is absolutely right but it is completely otiose. It is already well covered in the Bill. In fact, Clause 21(3) covers the point fairly adequately. It was pointed out to us in Sub-Committee D when we prepared our report on energy that the best way to reduce energy demand is energy efficiency. It is not just for households and small businesses, it is for all businesses. To identify small businesses in the Bill would be quite wrong and give a totally wrong impression.
Lord Whitty
My Lords, I briefly signal the support of our Front Bench for the amendments. Although I am familiar with—and may even have been one of the Ministers who rebutted the noble Earl, Lord Caithness, in—long arguments about “may” and “must”, it is slightly different here because it is not so much about parliamentary counsel’s sensibilities on these matters. “Must” is here a statement of fact. The clauses on the capacity mechanism are wide and vague—understandably, at this stage. The Minister and everyone else have accepted that we will have to translate them into secondary legislation. If we do not do so, we will not have a capacity mechanism. In that sense, there is a stronger argument than there is sometimes for substituting “may” with “must”, because otherwise the whole point of this section of the Bill disappears.
On the second point, although the noble Earl is correct to say that there have been repeated references to the interests of households and small businesses, that is in the context of the demand reduction provisions within the capacity mechanism. It is not obvious from first principles that mechanisms will be involved which benefit the small users of energy, whether they are households or small businesses. I therefore think that it helps to insert that at this point. It will help to guide the drafting of statutory instruments, when we come to that. I hope that the Government will show some sympathy to the amendments.
Baroness Verma
My Lords, I start by thanking the noble Lord, Lord Davies of Stamford, for his amendments. Like my noble friend Lady Maddock, I say from the start that we are putting consumers and fairness to new entrants at the heart of the Bill. It is important to note that the Government confirmed on 27 June our intention to initiate the capacity market, with the first auction taking place in 2014 for delivery from 2018, which would provide an insurance policy against any future blackouts. I reassure the noble Lord that it is the Government’s clear intention to implement the capacity market through regulations as laid out in this chapter. That can be delivered without a statutory requirement in the Bill, so the may/must argument does not need to be fought at the moment.
On Amendment 53ZZB, although the noble Lord’s intention behind the amendment is laudable, we believe that the Bill already makes sufficient provision for driving energy efficiency. The Bill lays out how the capacity market is intended to involve permanent electricity demand reduction in Clauses 29 and 37. The inclusion of electricity demand reduction in the capacity market is of course complex and, as such, its impact needs further examination and assessment. Because of that, we intend that an electricity demand reduction pilot will be carried out to assess the viability of incentivising demand reduction in the capacity market.
Secondly, the Government are already doing a large amount of work to encourage increased electricity efficiency of homes and small businesses—for example, through the Green Deal energy company obligation and smart meters. I urge the noble Lord to consider those measures available to low-income and vulnerable families. I also remind him of how the number of tariffs rose under his Government. When they were in power, it rose to 4,000 tariffs. Fuel poverty nearly doubled during the last five years when they were in power. We are addressing a long-term, deeply embedded problem. Passing the amendment without the result of the pilot being known would risk duplicating existing policies for the promotion of energy efficiency and could lead to contradictory or inefficient regulations.
Although I have been rather brief, I think my explanation should reassure the noble Lord that the Government are doing everything possible through the Bill to answer his concerns, and I hope that he will withdraw his amendment.
Lord Roper
My Lords, with reference to the regulations being referred to here and elsewhere, will my noble friend give the Grand Committee some indication as to how likely we are to have details of them before we come to Report?
Baroness Verma
My Lords, I will not be able to give my noble friend an answer now but, if he will allow it, I will write to him and to the Committee.
Lord Davies of Stamford
My Lords, I am grateful for the contributions to this short debate. On the issue of “may” versus “must”, nothing has been said to persuade me that I was wrong. On the contrary, everybody who has spoken has persuaded me that I am right to make a point about this. If a nonsense is systemic, that is no reason for not combating it and trying to get it right. I shall now feel even more emboldened when the word “may” comes up. I shall feel very sceptical about it; I shall look at it and may very well—not just in this Bill, but in others—put forward amendments of the kind I have today. I hope colleagues who also think that the present system is pretty nonsensical will be emboldened to do the same.
In a free society permissive legislation is otiose. Anything in a free society which is not specifically prohibited is allowed. Therefore, there is no purpose in passing a Bill with a clause saying somebody “may” do something. The issue is whether they must or must not do it. Those are the only things worth including in a legal obligation.
Turning to the more substantive issue, I reiterate that I was in no way suggesting that people had not been talking about the requirements of small businesses or of families and households. I am well aware that the Government have addressed, as the previous Government did, the issue of fuel poverty. We are all conscious of the importance of that, given that energy prices are bound to rise in real terms as a result of our very necessary policies. However, it is extremely important to draw the attention of everyone in this debate to the need to make sure that these new smart methods of monitoring the price of energy through the day, from minute to minute, are available not just to big sophisticated companies and energy users, but to households and small businesses. Only in that way will we get the full benefit of these new technologies, reduce energy demand in the way we need to do, and address the fairness problem and the lack of a distinction between smaller and larger businesses which are substantial consumers of energy.
On the relationship between the capacity market and demand reduction, all I say to the Government is that they had better get on with it. They have got the timing the wrong way around: I repeat, they cannot know what additional capacity they need to meet peak demand, plus a safety margin, until they know how successful the demand reduction efforts are likely to be. The two things are related all the way along: they are reciprocals, as I have said from the beginning. They need to get started with these energy demand methods and pilots very rapidly; they have taken far too long to do it. That is my main message to the Government.
Lord Teverson
I completely agree with the noble Lord over this. However, one thing which happened quite recently was that the National Grid set out to really get moving in this area of demand management in relation to major companies. Smaller ones have, if you like, to be aggregated. That process has started to some degree. The sad thing about it was that the press reported it as being a necessary response to what they saw as a symptom of the crisis in energy supply, rather than as a positive move to get the mental side of supply in line with demand reduction at certain times. That was combined with a number of other government moves at that time. It is not quite as black as that, but the noble Lord is absolutely right to press for even more.
Lord Davies of Stamford
I think that we are all very much agreed. I am grateful to everybody who has contributed. I am grateful to the noble Lord and I am delighted I gave him the opportunity to make that intervention. A very similar message going out from both sides of this Committee about the urgency and importance of these matters is exactly what I wanted.
Baroness Verma
Before the noble Lord withdraws, which I am hoping he will do, I have just been given a note referring to his question about demand and capacity, and when we would publish details of the proposed reliability standard he asked about. It is in the draft delivery plan which was issued yesterday, if the noble Lord would like to refer to it.
I have also been given a note relating to my noble friend Lord Roper’s question about the publishing of the secondary legislation. Detailed proposals will be published from October, along with draft secondary legislation to illustrate our policy intentions. I hope that information is helpful to the Committee.
Lord Davies of Stamford
I am grateful to the noble Baroness. I had not noticed that announcement yesterday, I am afraid, but I am delighted that it has been made. I am sure that the noble Lord, Lord Roper, will be equally pleased with the answer she has given. It is the job of this Committee to keep the pressure on the Government on these matters and I am glad that some measures are now coming through. I beg leave to withdraw my amendment.
Lord Jenkin of Roding
Lord Jenkin of Roding
My Lords, my intention in tabling this amendment was to draw the Committee’s attention to the need to plan for very timely electricity distribution investment to supply the needs of the City of London, and indeed central London generally.
The amendment is backed by a considerable amount of research commissioned by the City of London Corporation on future power supplies for the capital. Some pretty high-level discussions have also taken place in an electricity regulation working party, which includes Westminster City Council, London First, the Greater London Authority, the Mayor of London’s working group, the City Property Association and Westminster Property Association—it is an impressive array of sources. The message that they have all delivered is that long-term strategic planning needs to be enhanced to ensure new electricity connections to key development sites in central London, and that this must be available as projects are completed.
To give that assertion a little context, some office developments in the City have extremely large electricity requirements, which can take the electricity network operator for London, UK Power Networks, up to three years to plan and build. The problem that my amendment is intended to address is that the City of London Corporation has been advised in discussions with Ofgem that the regulatory framework actually prevents strategic investment ahead of need; in other words, when it comes to electricity supply, it is very much a question of providing for what is currently required as opposed to what is going to be required.
It would be quite wrong for me to give the Committee the impression that I think that the need for forward planning is somehow not accepted by the Government; of course it is. There has been a very productive exchange of correspondence, of which I have seen all the copies, between the City’s policy chairman, Mark Boleat, and my noble friend Lord Deighton, Commercial Secretary to the Treasury. The City has a way of going to the top. I entirely accept that we must avoid a situation in which supply need is assessed by reference to purely speculative projects which do not come to fruition. But to have a situation in which forward planning is so legislatively constrained seems to lean too far in the opposite direction.
My Amendment 53ZA proposes that electricity capacity regulations under Clause 21 should include provision that takes account of projected as well as existing needs. It gives 10 years as the forward planning period, which is based on technical advice. It is a halfway point in the 20-year horizon that is generally adopted by the Mayor of London’s London Plan, which deals with planning and development as well as other high-level strategic matters, but it is certainly a timeframe that should enable the necessary electricity distribution facilities to be planned and built.
Lord Deben
My Lords, this is a very important amendment, not least because there are other aspects of planning that should lead one to take this seriously. My noble friend has talked about the commercial and industrial needs of London, but there are also the housing needs. It is estimated that we could build 2 million homes in London with the aim of dealing with our housing shortage. There is no doubt that the sustainable way of development is to use land that has already been used, that we really should try not to build on greenfield sites and that we should do our best to ensure that our cities are increasingly the centres that they ought to be of people living together and of great enterprise. It is very difficult to say whether cities or civilisation came first, but there is no doubt that the two are intimately connected. I believe that there is a real issue about the supply of electricity.
Lord Jenkin of Roding
Perhaps I may interrupt my noble friend for a moment. Somebody is operating a mobile phone, and it makes the induction loop system very difficult for those of us who rely on it to hear what is going on. I do not begin to know who it is, but I recognise the sound. It is not my noble friend but somebody else. I beg pardon.
Lord Deben
I thank my noble friend for explaining what it was that I said that was so damaging.
I would like the Minister to be concerned not merely with the commercial activities, although they are very important, but with what most of us think ought to be the way in which we develop housing in future, rather than across green fields. That means that we have to make it possible to develop on once-used land. One problem that is always brought to me when this comes up is the availability of utilities in general and, of course, electricity in particular.
Secondly, when we decarbonise our electricity system, the availability of electricity becomes even more important, as someone said earlier, because that is what we are trying to shift to. Unless we can put in place what is needed in advance, we will not be able to carry through the whole purpose of decarbonisation. When one looks at the present circumstances, we really are an 11th hour nation. We really do things at the very last moment. I have every sympathy with those who object to the present circumstances, in which nobody does anything until the situation is so disastrous that something has to be done or the whole thing will collapse. That is not a way to plan anywhere. Although no doubt my noble friend will tell me that it will all be dealt with—and here I declare an interest in that the consultancy I chair gives advice on sustainable development—my experience is that is not always like that. It is not always easy to have ready access to electricity supplies, in particular.
I commend my noble friend’s comments, but I hope that they will be taken in a wider sense—this is not just about London, there are other great cities where similar circumstances exist. We do not want people to build, develop and grow in places which are much less suitable simply because the electricity supply is not immediately available. That is a mistake that we have made in the past; I hope that we will not make it again.
Baroness Worthington
My Lords, I shall speak briefly to the amendment moved by the noble Lord, Lord Jenkin, on the future capacity question, because it is the first to address that. This may be a good opportunity for the Minister to provide us with some detail about the capacity mechanism and how it will operate, and to address the important issue raised by the noble Lord of the need to have a long-term view.
Perhaps this is the time to say that this part of the Bill seems to be lacking an awful lot of detail. We have tabled some amendments later which respond to the Delegated Powers and Regulatory Reform Committee’s comments, which were quite damning on this aspect of the Bill. It is lacking a huge amount of detail; a lot of questions still need to be answered.
I will not ask all of them here, but this discussion may be an opportunity for the noble Baroness to talk about how long the review of the capacity market is. The implementation plan is pretty useless when it comes to providing detail on this part, but if anyone is interested, I have discovered that it is all in the June document, Electricity Market Reform: Capacity Market—Design and Implementation Update. If noble Lords want even more detail, I suggest that they read the memorandum submitted to the Delegated Powers and Regulatory Reform Committee, because that has even more detail. Why that is not in the implementation plan I do not know, but we are where we are, we have to gather all this information and try to make the best of it.
It would be helpful if the Minister described the length of time for which the Government consider that the capacity market needs to operate and precisely how it will enable new investment. One of the key challenges is that the capacity market means everything to everyone. If you are an owner of an existing power station, you see it as your opportunity to keep that station open. If you own a mothballed gas plant, it will be the opportunity to get that back on the system. If you want to build new CCGTs, it is your opportunity to get those built. If you are a demand-side response producer, it is your opportunity to get that done. It is not clear how this broad set of measures will manage that conflict between existing owners, owners of mothballed plant, new owners and demand reducers. We as a Committee, representing the wider two Houses, deserve more information. I look forward to the Minister’s response.
Baroness Verma
My Lords, I thank my noble friend Lord Jenkin for his amendment. Amendment 53ZA proposes that providing capacity should take account of projected growth over a 10-year period. I understand that he has proposed it because of concerns about the long-term capacity of electricity networks and the ability of distributive network operators to make strategic, long-term investment decisions. I should make it clear from the outset that the capacity market is not intended to drive investment in network capacity. Rather, it is designed to ensure that there is sufficient longer-term investment in electricity capacity, including generation and other forms of capacity, such as demand-side response.
In March, Ofgem published its strategy decision for electricity distribution network price control. That explained that price control had been designed to encourage distribution network operators to provide a high level of service for connections while maintaining a reliable network and delivering value for money for existing and future customers. The decision also explained that flexibility has been provided for DNOs to submit a case for strategic investment in their business plans on a project-by-project basis. Similarly, the Electricity Act 1989 already provides some flexibility for early investment—for example, the distribution network operator and its customer can make an agreement that allows an upfront user commitment agreement between the DNO and a customer who wants strategic investment. I understand that, in the case of UK Power Networks and its customers in the City of London, this is already happening.
It is vital that investment in our networks continues at a pace that supports our future energy needs. None the less, we must be mindful that there will be a balance to be struck to ensure that consumers do not pick up the costs of unused or underused assets. For this reason, it is right that Ofgem and the network companies continue to consider carefully where investment ahead of need is proposed.
My noble friend also makes an important point about ensuring that decisions on capacity of electricity supply are made with due regard to the long-term outlook. As such, for the capacity market, the Government have committed to publishing a delivery plan every five years and producing annual updates to that plan. These plans will include long-term forecasts of electricity demand and supply, and will inform the amount of capacity contracted through the capacity market.
I hope that my noble friend finds my explanation reassuring. Before I ask him to withdraw his amendment, I shall respond to the noble Baroness, Lady Worthington, on her questions about how the capacity market works and how it is envisaged. A forecast of future peak demand will be made for four and a half years ahead of the delivery year in which it must be available. The amount of capacity needed to ensure security of electricity supply will be acquired through a competitive central auction four years ahead of the delivery year. Generation and non-generation approaches such as demand-side response will be able to participate in the capacity auction. All generation plant, including existing plant, will be eligible to participate in this auction, with some exceptions such as low-carbon plant receiving CFDs.
Providers of capacity successful in the auction will enter into capacity agreements committing to providing electricity when given notice in the delivery year in return for steady capacity payments or will face financial penalties. The costs of the capacity payments will be shared between electricity suppliers in the delivery year. That is a brief outlook of how it will work but I hope that the noble Baroness is reassured that there is plenty of detail. She also referred to the Delegated Powers Committee. As she is aware, we have submitted extra information to the committee and it is now looking at that. We will then look at its recommendations but until that point it would not be right for me to comment on them. With that, I hope that my noble friend will withdraw his amendment.
Lord Jenkin of Roding
I am very grateful to my noble friend for her careful reply to the amendment. It is clear that she understands the nature of the problem but somehow there has to be a greater understanding between those who represent the interests of developers and other business people in the City and elsewhere, and those who are concerned, as she said very properly, not to add additional costs on consumers unnecessarily. I hope the discussions will continue because it seems to me that my noble friend has spelt out the problem very clearly as the Government see it. As I have said, we have had the consultation with my noble friend Lord Deighton. It is also clear from what my noble friend Lord Deben said that this is a wider problem than just the City and the commercial districts. There is something here which needs to be looked at. Those who have been advising me on this will certainly read very carefully, as I will myself, what the noble Baroness has said.
On the wider question asked by the noble Baroness, Lady Worthington, I have had an invitation, as I suspect have others, to a briefing to discuss the document published yesterday, the Consultation on the Draft Electricity Market Reform Delivery Plan. I think this will be on Monday and I am very much looking forward to it. In the mean time, I mentioned that I had not had the full printed copy and, mirabile dictu—sorry, one is not allowed to use Latin—or, amazing to say, it turned up on my desk. I am extremely grateful to the official who made that possible, so I will have some interesting reading over the weekend. Having said that, I am very pleased to withdraw the amendment.
Lord Grantchester
Lord Grantchester
My Lords, we return to the demand-side provisions in the Bill. We spoke earlier today about how this element of the Bill has been quite a late afterthought from the Government. Indeed, it was all initiated by the Government’s response to the consultation this May regarding some of the demand-side initiatives. Amendments have been introduced only on Report in the other House. From this, it is easy to deduce that DECC is developing its thinking on these matters and has perhaps been too dogmatic in trying to insist that the department’s design of the capacity market should be maintained. As evidence of this, I contend that new documents are arriving with ever increasing ferocity on our desks, as the noble Lord, Lord Jenkin, surmised. We on this Committee are endeavouring to keep up with the DECC officials who are trying to keep up with the thinking, and it is a fair challenge. We have put down these probing amendments just to try to understand whether DECC has more to contemplate during its enjoyment of the parliamentary recess.
In DECC’s own document in reply to the criticisms of your Lordships’ Delegated Powers Committee, it reveals on page 11 at paragraph 57, regarding the meaning of “reducing demand for electricity”, that it understands that,
“it includes both temporary actions by electricity consumers to reduce their demands at times of system stress (known as ‘demand side response’ or ‘DSR’) and projects by which electricity consumers permanently reduce their consumption (known as ‘electricity demand reduction’ or ‘EDR’)”.
While its intention is,
“to enable DSR providers to participate in capacity auctions from their inception”,
there is nevertheless some concern that the department has yet to appreciate the full impact of what could be achieved with judicious re-engineering.
It is very important that the Bill is future-proofed and made to be seen to be relevant to future developments and technologies. Many in the DSR market feel that the Government are yet to appreciate the specific needs of their technologies and the relative immaturity of the market. Many would like to see a separate auction of sufficient volume to grow the market until it can compete with supply-side options. Amendment 53A seeks to define demand-side actions to provide capacity services to the market and gives powers to the Secretary of State to ensure that a certain amount of demand-side resource is procured. What does the Minister’s department want to deliver in Clause 21? Providing a reduction in capacity through DSR must have a value put on it.
Amendment 53B would require the prioritising of demand reduction providers in any future capacity market. The principle is that demand reduction over additional supply is clearly in the interests of consumers. It is far more cost-effective and energy-efficient. There is some need for clarity from the Government that demand reduction is not simply an afterthought to a capacity market designed around the provision of supply by large-scale plant but is prioritised in any capacity auction. There is also the question of determining what capacity is required once demand has been reduced. Is there a risk of overprocurement and distortion, as well as overpayment made through the capacity market? Can the Minister clarify how she sees the current plan working in respect of demand reduction?
We have tabled these amendments because there is clear concern within the sector that the capacity market is being designed with no meaningful consideration of the role that the demand side can play as distinct from the role that demand-side reduction and storage could play. DSR is unlikely to participate in the four-year auction because trying to analyse this forward for four years would be beyond its capabilities.
The Minister’s department will take some capacity off the four-year auction and put up it for a one-year auction in which DSR could participate. How will this operate? How will the department avoid inefficiencies? Does her department recognise that the market must be made to work effectively, not merely allow actions to happen?
Currently, Clause 21 defines “providing capacity” as either,
“providing electricity or reducing demand”.
It makes no mention of the demand-side response, or storage. The Government should be looking at how the demand-side response can be deployed in times of system stress to respond to capacity demand. A hospital or business turning down air conditioning or running standby embedded generation in response to a signal from the system can be a highly effective and cost-efficient way of providing additional capacity, rather than investing in keeping more plants on the system than would be needed.
The Minister is indeed correct to identify the role and experience of the demand-side response in the United States. The US experience is important, as the inclusion of DSR in a capacity market for PJM, a major US utility company, is credited with saving consumers $11.8 billon in a single delivery year; that is, approximately $200 per customer. DSR has been proven to be more reliable than traditional generation, delivering a higher percentage of committed capacity over a given period of time.
The transitional arrangements the Government have brought forward are intended to allow the system operator and market participants to gain experience of how DSR will operate in a capacity market and allow for improvement in the market’s design when it is eventually rolled out. However, the CHPA and other DSR providers have said that the proposals put forward by DECC risk losing the UK’s decentralised generation capacity participation in the transitional arrangements of the capacity market. This is because it appears that enduring arrangements are being designed entirely around large-scale power stations and that DSR still risks being a secondary concern.
There is a substantial risk to the trading of small volumes of electricity capacity within the capacity market. Decentralised participants could be locked out. Large plants that trade hundreds of megawatts of power risk excluding those, such as hospitals or universities, which trade 2 megawatts or 3 megawatts. The whole system appears to be based on plants responding to electricity market price signals. However, demand does not operate in the wholesale market and therefore cannot respond to signals it does not see. No clear mechanism has been proposed for ensuring that the demand side can see the market signals.
One or two issues remain unresolved. One of these is proposing the “baselining” of on-site capacity. Current proposals do not consider on-site generation as providing capacity to the system when in operation. This proposal is different from the treatment of power stations, which will be considered as having provided a capacity service if they operate during a period of system stress, irrespective of whether they were operating beforehand.
The hospital making 2 megawatts out of its total 3 megawatt usage is excluded from reward but can avoid penalties only in its baseline. As well as DSR, electricity storage features nowhere in the capacity market clauses. Amendment 53C requires the Secretary of State to provide for additional licence capacity authorising storage of electricity. As our system includes more variable renewable generation, it will become increasingly important to encourage electricity storage.
The Government are currently directing £50 million into grid scale research and demonstrations in electricity storage. However, without a route to market, that money would be wasted. Electricity storage has the potential to provide savings of more than £10 billion per year by 2050—that is £400 per household—but no savings at all if the capacity market takes no account of this contribution. It would be interesting to hear whether the Government support the Electricity Storage Network’s target for an additional 2 gigawatts of storage installed on the system by 2020.
The present licence categories treat electricity storage as generation, which it is not, and the standard licence conditions do not allow for an overlap between the licence categories for generation, transmission, distribution and supply. This inhibits the deployment of electricity storage on our current system, as licence conditions generally restrict activities in more than one segment. Distribution network operators can own electricity storage. However, presently, some operators may infringe their distribution licence conditions, which restrict generation and supply activities, as the DNO needs to buy and sell electricity in order to operate the electricity storage plant.
I will make a comment later in support of the amendment of my noble friend Lord Hanworth but I conclude with a few questions. First, as the Government have said that they consider DSR and storage to be a part of the future capacity market, can the Minister say what level of DSR and electricity storage within the capacity market the Government would deem a success? I remember asking the Minister, when we were welcoming the final provisions on the Green Deal, whether she could perhaps map out to us what success looks like. What I am trying to get at is: can she be more specific than saying that she wants it to happen or that she thinks it will be a success? Perhaps I can challenge her to try to be more specific in mapping out to the stakeholders, who will take note outside, how she views this part of the Government’s operation. A supplementary question to that is: do the Government recognise the need for a separate set of rules for DSR within the capacity market? In recognising that, it is imperative that they undertake a review of the current rules, as there is widespread industry concern that they do not facilitate DSR.
My second question concerns the design of the capacity market and these trial auctions, which do not provide any long-term income stream for new electricity storage to be planned, installed and operated. The Electricity Storage Network and the Liquid Air Energy Network say that their members will not be able to finance projects on the basis of the proposals. How do the Government intend to address these barriers?
I am very grateful to the Committee for indulging me for a moment longer so that I may come to the amendment of my noble friend Lord Hanworth, which follows on from some of the challenges under the amendments in this group. Providing a reduction capacity through DSR must have a value put on it. Explicit recognition is required that DSR has extra value in adding value at certain times of the day, which my noble friend will no doubt address. I beg to move.
Viscount Hanworth
My Lords, this amendment is the result of a representation to us by the Combined Heat and Power Association. It is designed to allay the impression that a demand-side response is simply a matter of staunching demand. It points to the fact that much wasted capacity can be saved by rescheduling the demand for electricity within the days, within the weeks, and even more widely within the year, so as to diminish its variability.
A proper definition of what constitutes a demand-side response is provided by this amendment, whereas as it stands the Bill lacks such a definition. In the course of being alerted to this lacuna, we have also been advised of some of the hazards that might arise. The association fears that in the process of assimilating demand-side responses to the capacity mechanism, there is a risk of creating a mechanism designed around a traditional large-scale generation plant. Such a design risks limiting or even excluding the demand-side response of small-scale embedded generation.
Traditional large-scale generation comprises baseload generation by large power stations running at or near capacity, accompanied by intermittent generation by peaking power plants—“peakers”, as they are known colloquially—which run only when there is high demand. The power that they supply commands a much higher price per kilowatt hour than the baseload power. The peakers are typically run with much lower thermal efficiencies than baseload plants and they often use obsolescent equipment that is close to its retirement.
Small-scale embedded generation, which the Bill is in danger of neglecting, is carried out by small businesses, hospitals, university campuses, et cetera, and not by sophisticated electricity-generating companies. Small organisations have fundamentally different needs from the large-scale generators. If they are to participate in the capacity market, the system must be designed around their requirements. At present there are no proposals to support the trading of small volumes of electricity capacity within the market. The provisions cater to large plants, which typically trade hundreds of megawatts of power, and these provisions risk excluding those who trade, as we have heard, just 2 megawatts or 3 megawatts. We alert the Minister, therefore, to these facts, in the hope that they will be accommodated within the primary or secondary legislation in this Bill.
I will take this opportunity to describe some of the realities of electricity demand. The statistics of electricity usage are readily available. The leading page of the National Grid’s website displays graphically the electricity demand over the preceding 24 hours. It also shows demand over the previous eight days. At the lowest point last week, Monday night, the demand in Great Britain was 56% of the highest demand, which was recorded in the late afternoon or early evening of Wednesday. This kind of variation is greatest in winter. In September the minimum demand, at around 4.30 am, would be a mere 50% of the peak demand, at around 3.30 pm. These figures point to a huge potential for flattening the profile of demand.
Other interesting facts can be garnered from DECC’s literature. The report from the Building Research Establishment on the impact of changing energy use patterns in buildings on peak electricity demand in the UK is particularly revealing. It points to the surprising fact that 50% of our electricity is consumed within buildings for heating and lighting, and by appliances of one sort or another. Apart from being fascinating in their own right, such pieces of evidence convey an important message: if we are to manage our electricity demand in a meaningful way, we must do more than simply assimilate the large-scale generators to the capacity market by means of differential tariffs and incentives. We need to study in detail the components of electricity demand in order to understand the scope for demand reduction, and more particularly for demand smoothing. That is another point we want to emphasise.
Lord Roper
My Lords, I am very sympathetic to the first three amendments and, to a more restricted extent, the fourth because they cover quite a number of the points that I raised earlier with regard to Amendment 55ZA. In moving his amendment, the noble Lord, Lord Grantchester, pointed out the complexity of the range of topics that come under the slightly blurred title of demand-side reduction and electricity demand reduction. For instance, in Amendment 53B, the idea of having a separate auction for the demand side is very interesting. It is easier to involve classic demand-side reduction into the general auction; on the other hand, it is still rather difficult to see how what one might call permanent demand reduction is included in any normal auction. One may need to look at some other market principle to cover that.
Perhaps I may draw attention to one other aspect of energy demand reduction. At a lunch two or three weeks ago, I learnt about the significant contribution of the work of the voltage management and optimisation industry group. It does a rather specific thing in enabling people to reduce their demand permanently by introducing important technologies. That is done in universities and hospitals, and in quite a number of areas of social housing. I hope that when we are thinking about this general area, we do not overlook that important contribution.
Lord Teverson
My Lords, I welcome any amendment that emphasises the demand side of this issue. I particularly like the fact that we have started to bring in the factor of energy storage. Whenever you talk about energy storage, the technologies are always just about going to be there but they never get down to the commercial level by quite a way. But I hope that that will not be the case in the long term. This is an important point that needs to be taken into consideration.
The really important point is around capacity auctions and the ability of the demand side to compete equally with that. I would be interested to hear from the Minister whether she is confident that the demand side will be able to compete or bring forward sensible bids at the early four-year period. While I understand entirely that there is a fallback to the previous year, a lot of the market has already gone. Clearly, the best solution, the nirvana solution, is that all capacity payment is filled with demand-side reduction. That is the best outcome that there could be. I am sure that that will never be the case but it is how we make sure that we do not restrict it. I am interested in the Minister’s views on how the Government feel that the demand side can effectively come forward four years in advance. It would be very useful to understand the Government’s thinking on that.
Baroness Verma
My Lords, I thank the noble Lord, Lord Grantchester, for his detailed explanation of his amendments. The Government have already made it clear that the demand-side response and electricity storage will be eligible to participate in the capacity market. We have announced that these technologies will be supported by transitional arrangements to help develop their capability and enable them to compete on a level playing field against generation. However, while we agree that these are two important aspects of providing capacity, the subsection already allows Secretary of State to make further provision for the meaning of “providing capacity”.
The definition in this subsection is not intended to be exhaustive, nor would it be if these amendments were accepted. There are other existing technologies, such as interconnectors, which may, at some point, play a part in the capacity market, along with other new technologies in the future. This clause seeks to maintain the flexibility to include this full range of technologies, including demand-side reduction and storage in the capacity market, while leaving it open to incorporate novel technologies, should they emerge in the future.
Amendment 53B is intended to ensure that demand-reduction providers are given priority over other providers in the awarding of capacity agreements through capacity auctions. There are a number of reasons why the Government do not see this approach as desirable. First, the capacity market seeks to encourage genuine competition by placing all forms of capacity provision on a level playing field. This is the best way to ensure value for money for consumers, and the reason why no capacity quantity will be ring-fenced for any particular technology type.
None the less, we recognise that certain technologies, such as demand-side response and storage, have different characteristics from generation. That is why we have announced the transitional arrangements. In addition, we have designed the enduring capacity market to ensure that demand reduction and storage can participate effectively by running capacity auctions both four years ahead and one year ahead of when capacity is expected to be required.
As we have already debated, the Government are also proposing an electricity demand-reduction pilot to inform the future entry of EDR into the capacity market. Holding an auction four years out ensures that there is sufficient time to build and commission new generation plants as necessary. However, demand-reduction providers have told us that opting into capacity agreements so far in advance of the delivery year would not be possible for most of their projects. This is why we are giving demand-side response and storage the option of participating either in the auction held four years out or in a further auction held one year ahead of delivery.
It is currently risky for demand-side response providers to predict the amount of demand reduction they will be able to provide four years ahead of a delivery year. This risk is significantly reduced in a one-year auction and we would expect them to be awarded capacity agreements at this stage. This is because we envisage them being able to provide cheaper capacity than generating plants.
In summary, this amendment would not be compatible with a technology-neutral approach. Furthermore, it risks either forcing demand-side response providers into taking on unacceptably large risks to align with the timescales required for building new generating plants or negating the possibility of new plants participating in the capacity market, risking a significant shortfall in electricity supply and the very real possibility of regular blackouts.
Amendment 53C would require the Secretary of State to modify the Electricity Act 1989, adding an additional licence condition authorising a person to store electricity. Storage of electricity is not presently an activity that requires a separate licence, although some storage providers may be generation licence holders. I therefore reassure the noble Lord that electricity storage would be able to participate in the capacity market without this amendment. The Government have already confirmed its eligibility and this is irrespective of its licence status. This is because Clause 22 does not restrict participation in the capacity market only to licence holders. It also allows the Secretary of State to define further who may be a capacity provider in regulations.
The noble Lord, Lord Grantchester, also mentioned electricity storage. We agree that storage technologies are still developing and further innovation is needed to bring down costs and find ways of scaling up. We are supporting two innovation competitions, the first winners of which were announced in May. In the large-scale storage competition, 12 winning projects were given £17 million of funding for the first feasibility phase. Decisions on which projects will proceed to the demonstration phase are expected in September. The component research and feasibility study competition has four projects so far.
The noble Lord, Lord Grantchester, asked about a separate set of rules for DSR within the capacity market. We do not envisage a separate set of rules. We envisage that the rules and regulations will cover all technologies eligible to participate in the capacity market, although the transitional arrangements for DSR will be incorporated. He also asked about baselining for on-site capacity. This will be covered in the detailed capacity market regulations and will be the responsibility of the national system operator.
The noble Lord asked what I visualised as success, given his previous question on the Green Deal. I view success in the long term as a programme that will last many decades. In reference to the Green Deal, I am already witnessing success. We had more than 44,000 assessments up to the end of June and 115,720 installations under ECO. That is what I would call successful.
Turning to Amendment 53AA, tabled by the noble Viscount, Lord Hanworth, which proposes a definition of demand-side response to be added to Clause 21, the Government have already made it clear that demand-side response and electricity storage will be eligible to participate in the capacity market. As I made clear in response to the questions of the noble Lord, Lord Grantchester, we have announced that those technologies will be supported by transitional arrangements to help them to develop their capability and enable them to compete on a level playing field against generation.
I hope that the noble Lord, Lord Grantchester, and the noble Viscount, Lord Hanworth, have found my explanations reassuring, and I hope that the noble Lord will withdraw his amendment.
Lord Grantchester
My Lords, that is excellently timed as the clock strikes six. I thank the noble Baroness for her responses. Needless to say, we will all be looking forward to the recess and studying her words very carefully. I noticed that she said that her department is trying to make its definitions not exhaustive and maintain flexibility to include the participation of novel technologies in future.
It was not my intention that the amendments should not be compatible with a technology-neutral approach. They were merely focused on the different markets that might arise, rather than a different technology approach. I am slightly anxious that the noble Baroness may have misunderstood some of my remarks, so I will study her words carefully but, in the mean time, I beg leave to withdraw the amendment.
House of Lords
War Memorials
Lord James of Blackheath
To ask Her Majesty’s Government whether they will discuss with the Church of England how to commemorate the 304 British soldiers who were executed by the British Government in World War I and who are currently not commemorated in any existing war memorials.
Lord Gardiner of Kimble
My Lords, the Commonwealth War Graves Commission commemorates by headstone or memorial the more than 1.1 million British and Commonwealth men and women who gave their lives in the First World War. This includes those executed for the more serious of what were called military offences. A memorial initiated by the Shot at Dawn association at the National Memorial Arboretum commemorates 306 British and Commonwealth soldiers who were shot for serious military offences during the war. All their names are part of the memorial.
Lord James of Blackheath
My Lords, I thank the Minister for that response. Does he agree that the total dead recorded for the First World War amount to 705,000? I believe that there are at least 10,000 names missing from the war memorials scattered around our country. It is quite disgraceful that the act of annual commemoration is in effect not complete because nothing has been done to restore those names. We should now look to the Government to lead, in line with the church and hopefully the education system, a national campaign to research and restore the names of every missing person. Can we please have some undertaking from the Minister that he will lead the department, with the co-operation of the church, in a national exercise to restore all the missing names by 11 November 2018?
Lord Gardiner of Kimble
My Lords, my understanding is that the Commonwealth War Graves Commission commemorates all names on headstones or, if they are missing, on the memorials. My noble friend’s main point is that new names are emerging. One of the interesting things from the research is that bodies are being discovered and named, and military ceremonies are being held to acknowledge them. A lot of work continues to be done.
The Lord Bishop of Norwich
My Lords, while I am sure the Minister is aware that the Church of England does not have sole responsibility to add names to war memorials but would be glad to work with others on this important issue, is he aware of the work being undertaken by the Church of England, the Imperial War Museum and the War Memorials Trust together to develop educational materials linked to the centenary of World War I to help school children and the wider public to learn more about all the people commemorated and to cherish these memorials and all that they represent?
Lord Gardiner of Kimble
I entirely agree with the right reverend Prelate and I am aware of the very important work being done by the Imperial War Museum, the Commonwealth War Graves Commission and the Heritage Lottery Fund. The important thing is that English Heritage is restoring, as we all see, the national memorial in Whitehall. I commend it for doing that and I hope very much that others will take that lead so that war memorials across the land, in whosever ownership or custodianship, are in very good order for the commemorations.
Lord Grenfell
My Lords, like the noble Lord, Lord James, I would certainly like to see the 306 more widely memorialised around the country, but that is best left to the churches and local communities rather than to the Government. Would the Minister join me in paying tribute to my noble friend Lord Browne of Ladyton, who five years ago next month, against much opposition, as the newly appointed Secretary of Defence, sought and obtained a pardon for the 306? That has brought great comfort to the families. I know that there is a principle of other times and other customs, but this was long overdue. It took great courage to do, and I salute him for it.
Lord Gardiner of Kimble
The noble Lord has out-trumped me, because I was intending to acknowledge what the noble Lord, Lord Browne of Ladyton, did with the Armed Forces Act 2006. It was very important for the families involved, and very important for the nation as well.
Lord Roberts of Llandudno
My Lords, does the Minister not think that the rest of the United Kingdom, as well as England, should be involved in the very proper inclusion of these names? Should not the whole discussion include the churches in Scotland, Wales and Northern Ireland?
Lord Gardiner of Kimble
My Lords, all the commemorations will involve not only all parts of the United Kingdom but all parts of the Commonwealth. They will also very much involve partnerships with all the countries that were allies and on the other side. The noble Lord mentioned local communities. We have war memorials across our land. They are the responsibility and the pride of their local communities. It is there that we should be directing and encouraging, through the Heritage Lottery Fund and the War Memorials Trust, this important work across the United Kingdom.
Lord Browne of Ladyton
My Lords, I am extremely grateful to my noble friend for his recognition and the response of your Lordships’ House to that. I am embarrassed by it, too, because I was merely the last actor in a long campaign. Many others deserve that gratitude. They campaigned in much more difficult circumstances than I had to work in on this challenging issue. Beyond the pardoning of these 306 who were shot at dawn, there is unfinished business. We can only imagine the horrors of serving in the front line of World War I, thank goodness. The Minister is right that all those who were shot at dawn are memorialised. Unfortunately, they are memorialised in the context that they were shot at dawn. On memorials across Commonwealth cemeteries, there is a legend that says that they were executed for the crime that they committed. They did, however, also serve, and it cannot be beyond the wit of man to amend slightly but significantly that beautiful memorial in the National Memorial Arboretum to record the fact that they served as well as the fact that they were executed.
Lord Gardiner of Kimble
The noble Lord presents an interesting scenario. It is one that those involved with the Shot at Dawn association and others would need to consider when deciding how to deal appropriately and best with changing circumstances and views. One of the problems is that 60% of all records across the military were lost in the Second World War blitz, and there are sometimes difficulties in verifying the records because of that. Indeed, the records of the Indian Army have already been destroyed, I believe.
Profumo Inquiry
(11 years, 5 months ago)
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Lord Lexden
To ask Her Majesty’s Government whether they intend to release the records and files of the 1963 inquiry which led to the publication of Lord Denning’s report The Circumstances Leading to the Resignation of the Former Secretary of State for War, Mr J.D. Profumo.
Lord Wallace of Saltaire
My Lords, no decision has yet been taken on the future of the information held by the Cabinet Office on the Denning inquiry.
Lord Lexden
Does my noble friend agree that the records relating to Lord Denning’s inquiry constitute an immensely valuable historical source which, if released, would deepen our knowledge and understanding of one of the most sensational political scandals in British history? Does he also agree that a cloud of suspicion hangs over the Denning report? It has been described as “the raciest and most readable blue book ever published”. It has also been depicted as an endorsement of tainted evidence from journalists and the police used at the trial of one of the principal protagonists in the extraordinary drama, Dr Stephen Ward. That is the view of Mr Richard Davenport-Hines, author of the latest detailed account of the Profumo affair. There was collusion between the police and journalists 50 years ago on a scale that would make Lord Justice Leveson’s hair stand on end. Do we not need to see if we can get to the truth through the release of the Denning records?
Lord Wallace of Saltaire
My Lords, I thank the noble Lord for giving me the opportunity to go into this fascinating case. There has been a series of constructive non-decisions. Had decisions been taken on several occasions, the papers would have been destroyed. Indeed, in a debate in this House in April 1977, Lord Denning announced that the papers had been destroyed. The following day the Lord Chancellor stood up to say that he had not permitted this and that this action had not been taken. Given, however, the assurances Lord Denning gave to all of those he interviewed that these records were entirely confidential and that they would never be published, it seems acceptable that they should not be published while those who were interviewed by Lord Denning are still alive.
Lord Tyler
My Lords, given the suspicions at the time of Soviet espionage and all the excitement of Cabinet members being involved in regular orgies, it is perhaps not surprising that 50 years on we still do not know the truth of the Profumo affair. Will my noble friend tell us by what criteria it is decided how much time has to lapse before such matters are made public? Who takes that decision? When and how are those decisions reviewed and by whom—or are these matters also secret?
Lord Wallace of Saltaire
My Lords, I am conscious that there are several Members of this House who would love to write the next book on the Profumo affair. If I were asked to advise on the decision on this, I would say that we should hold to the principle not that the content should never be published but that it should not be published while those who gave confidential information on the assurance that it would not be published are still alive—and some of those who gave that evidence are still alive. The decision will have to be approved by the Lord Chancellor and the Minister for the Cabinet Office. The Master of the Rolls—as Lord Denning was then—also plays a role in such decisions as chair of the advisory board on public records.
Lord Armstrong of Ilminster
My Lords, I declare an interest as one who formerly had the custodianship of these papers. I can confirm that the evidence was taken by Lord Denning on the specific understanding that it would never be published. I think that one would need to be very bold to go back on that, certainly while people who gave evidence to the Denning inquiry or who were involved in events are still alive, and perhaps during the lifetime of their descendants. Does the Minister agree that it will need something like 100 years before one can consider whether these papers should be published?
Lord Wallace of Saltaire
My Lords, I do not wish to take a decision on that, either.
Lord Stevenson of Balmacara
My Lords, we are in an era where freedom of information and changes to the way in which information circulates mean that many decisions need serious review. Can the Minister confirm that this is a one-off situation? Or is he articulating a new policy whereby inquiries of the type led by Lord Denning will give rise to the curious situation of papers not being held in the Public Record Office in the way that all other papers are held?
Lord Wallace of Saltaire
I can give an assurance that this was a very exceptional circumstance. Officials have looked back at the archive on a number of occasions and have assured others, including myself, that there are still some sensational personal items in here which would be embarrassing if released. Therefore this is very much an exceptional case. The promises given by Lord Denning to those he interviewed were also rather exceptional. Therefore the line which the Government are in effect taking is correct; that is, to not decide at present either to destroy or to release the papers but to review the situation from time to time in the light of how many of those who gave evidence are still with us.
Lord Lloyd-Webber
My Lords, I declare an interest in that my new musical is about Stephen Ward and I am presenting a documentary on him for ITV. Is the Minister aware—this is what concerns me—that the fact that these files will be closed for a staggering 83 years gives rise to an awful lot of unhealthy speculation about who the individuals might be within the files?
Lord Wallace of Saltaire
My Lords, we have not yet decided whether they will remain closed for 83 years. It is fairly clear who all the individuals in the files are: they are those who were interviewed by Lord Denning.
Lord Richard
My Lords, I confess that I am slightly baffled by this. Did Lord Denning have the authority to give those assurances? I thought that the release of public documents was governed by various rules and regulations—there may even be an Act—that there was a 30-year rule and a 50-year rule, and that that was, so to speak, part of the governmental fabric. Is the chairman of an inquiry that has been set up by the Government in those circumstances to inquire into a matter like this entitled to give an assurance which, in effect, eats into or may even destroy the purposes of the various rules and regulations about release?
Lord Wallace of Saltaire
My Lords, this decision has been reviewed several times. As I remarked, the review has considered whether the files should be destroyed, maintained or released. As the noble Lord is well aware, there are a number of cases, particularly those with security and defence issues, where papers are retained for more than 50, 30 or 20 years. That has to have the approval of what is called a Lord Chancellor’s Instrument. It would now be appropriate to consider whether a formal Lord Chancellor’s Instrument needs to be applied to these files. I will add that at the time, Lord Denning refused to allow the head of the security services access to the papers.
House of Lords: Peers’ Entrance
Lord Campbell-Savours
To ask the Chairman of Committees what information has been made available to members regarding the purpose of the visitor QR scanner and all associated equipment installed at Peers’ Entrance to the House of Lords.
The Chairman of Committees (Lord Sewel)
My Lords, the new equipment at Peers’ Entrance is being trialled by the doorkeepers, who are moving from a paper-based system to an electronic one. The Administration and Works Committee has discussed the trial at two of its meetings, and members of the committee have been provided with a briefing note in order to brief other Members in their parties or groups. I also answered a Written Question on this matter on 17 June.
Lord Campbell-Savours
My Lords, I hope that Black Rod will now tell us that the equipment will not require the registration of visitor names and that the use of equipment by Members at this stage is to be voluntary, which will obviously thereby render the system of little benefit in terms of security. If ever it was thought that the use of the equipment should be mandatory, can we have an assurance that the House will be fully consulted and allowed to take the final decision on the introduction of its use?
The Chairman of Committees
The new system is not mandatory; I can give that clarification and assurance completely. I am very conscious that Members often arrange visits at short notice, which prevents them being able to give advance notice to the doorkeepers. Therefore Members will not have to pre-book their guests, who will not be turned away if they are not on the list. If they so wish, Members will still be able to record only the number of guests without the names. Furthermore, I assure the House that the system would not be made mandatory without the House being consulted and the House deciding. However, I encourage Members to book their guests in as it makes the processing of guests coming through that very constricted area much easier; I make that request.
On the issue of security, I partly fall back on the tried and tested formula that it is established policy not to comment publicly on specific matters of security on the parliamentary estate. However, I assure the noble Lord that security was not the primary reason for the introduction of the new system. One of the main reasons was to introduce a slicker, more efficient service for Members and their guests. We are trying to modernise a little and replace the pens and papers with computers. I appreciate that this is one of the challenges that the House faces as it struggles from time to time to come to terms with the technology of the latter half of the 20th century.
Lord Forsyth of Drumlean
My Lords, would my noble friend agree that it might have been better to have consulted Members of the House about the use of this equipment before the expenditure was incurred in getting it?
The Chairman of Committees
I think that all members of the Administration and Works Committee and of the domestic committees realise the importance of having a proper and thorough consultation before making and announcing decisions.
Lord Foulkes of Cumnock
Would the noble Lord the Chairman of Committees care to hazard a guess at what further surprises Black Rod may have up his sleeve for us?
The Chairman of Committees
I am not sure that Black Rod keeps his surprises up his sleeve. In answer to the noble Lord, I have no detailed knowledge—they would not be surprises if I knew them.
Lord Dykes
My Lords, notwithstanding the understandable caveat in the first Answer of my noble friend the Chairman of Committees, has there been any indication from members of staff, including police and custodians, that security issues may arise from the sharp increase in the number of visitors to the House, which is a welcome development but may pose problems like this, partly because many are sent by MPs to visit this House as well?
The Chairman of Committees
The noble Lord makes an important and valid point; it is always a matter of proportionality. We want to encourage people to visit their Parliament—that is absolutely right—but at the same time we have a responsibility regarding security, not only for Members of the House but also for the people who work for and with us.
Lord Cormack
My Lords, should we not record our thanks to those who supervise the Peers’ Entrance for their unfailing courtesy towards and, on occasions, incredible patience with our visitors?
The Chairman of Committees
My Lords, I am always aware of the patience that the staff of the House show towards Members of the House in particular.
Lord Dobbs
My Lords, I am sure that my noble friend the Chairman of Committees would agree that security and safety are of prime importance in this House. Does he agree that it would be of great assistance to those who help us in maintaining that security, including Black Rod, if we played our part by reminding ourselves to wear our identity tags so as to assist them?
The Chairman of Committees
That is a very important point that I am more than happy to endorse. If we all got into the habit of wearing our tags it would make life a lot easier for everybody.
Human Rights: Burma
(11 years, 5 months ago)
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Baroness Kinnock of Holyhead
To ask Her Majesty’s Government which areas of concern relating to human rights were raised with President Thein Sein of Burma by the Prime Minister and the Foreign Secretary on 15 July.
Lord Wallace of Saltaire
My Lords, the full range of human rights issues were raised. Ministers called for the release of all political prisoners and for an end to ethnic conflict. They invited Burma’s support for the preventing sexual violence in conflict initiative. On Rakhine State, Ministers welcomed the abolition of the Nasaka security force, raised concerns about the two-child policy and pressed for citizenship for the Rohingya minority. On anti-Muslim violence, they stressed the need for accountability, welcoming recent arrests.
Baroness Kinnock of Holyhead
Does the Minister agree that history shows that the only language that the Burmese generals understand and respond to is firm, sustained pressure? What steps did the Prime Minister take to set out explicit benchmarks by which progress in Burma will be measured, a specific timeline by which we expect to see progress, and the possible consequences if there is no such progress? The Burmese President is very good at offering the right words and promises when required, but less good at fulfilling them.
Lord Wallace of Saltaire
My Lords, I would agree that history shows that one of the most difficult periods in a country’s history is when it is attempting to move away from a highly authoritarian regime. The question whether it can move from that without a bloody conflict is, of course, always one of the difficult ones. We have taken the choice to encourage the moves currently under way in Burma; things are improving a good deal there but, of course, they have a long way to go. The opposition, including Daw Aung San Suu Kyi, have very much encouraged the move that the British have taken.
Lord Alton of Liverpool
My Lords, is it not crucial that we take our lead from Daw Aung San Suu Kyi, as the noble Lord has just said? I met her just before Easter, when she said that we must engage in dialogue—but also that we must be realistic. During the discussions with Thein Sein, were limits placed on the new military relationship that has been announced by the Prime Minister? In particular, have we raised the Burmese army’s use of child soldiers, forced labour, sexual violence and land mines? Can he confirm that it is not our intention to sell arms to Burma?
Lord Wallace of Saltaire
My Lords, I can confirm that the first thing that Aung San Suu Kyi asked the British Government to do was to appoint a defence attaché to Burma some months ago. We are now offering military training to a number of Burmese officers in this country to help them through the transition. Requests have also been made to assist in retraining the Burmese police. These are all things that we think will help through a transition—not, of course, towards full democracy and a perfect resolution of all these problems, but we see the situation as improving. We are doing our best not only to help it to improve but to monitor how far it goes.
Lord Avebury
When the noble Baroness, Lady Kinnock, raised the Human Rights Watch report on ethnic cleansing and crimes against humanity against Rohingya Muslims in Arakan state, she was told that it clearly needed to be supported by further evidence. What has happened to the independent investigative commission announced by the Burmese Government as long ago as last September? Is it going to be established in the near future? To ensure its credibility, will my noble friend suggest to the Burmese that the UN High Commissioner for Human Rights, Navi Pillay, be asked to nominate the members of that commission?
Lord Wallace of Saltaire
My Lords, I will have to write to the noble Lord with a specific answer to his question, but I can confirm that Alan Duncan, from the Department for International Development, was in Rakhine state in June, that my noble friend Lady Warsi was looking at the refugee camps in Cox’s Bazar shortly before that, and that British officials are very regularly in and out of Rakhine state.
Baroness Nye
Is the Minister aware that the Burmese Government refuse to allow the UN access to military sites so that it can identify and discharge children present in the Burmese army border forces, border guard forces and other armed groups? Following on from the question asked by the noble Lord, Lord Alton, in the issues that the noble Lord said were raised, there was no mention of any representations by the Prime Minister to the Burmese President during his visit about ending the recruitment and use of children, some as young as 11, as soldiers in Burma. Can he give an assurance that the issue was not overlooked during the visit?
Lord Wallace of Saltaire
My Lords, noble Lords will have seen the Written Statement issued yesterday on the visit. It does not specifically mention the issue of child soldiers, but it touches on a very large number of human rights issues. I will check and get back to the noble Baroness on the specific issue of child soldiers. We are monitoring the situation; we recognise, for example, that the Kachin ceasefire has been agreed but not yet fully implemented. The President promised, when he was here, that all remaining political prisoners will be released by the end of this year, and we will of course be watching to make sure that that promise is carried out.
Lord Howell of Guildford
There is a sort of race here. The Chinese are pouring in vast sums of money and investment into Burma, which is potentially a very rich country indeed. While we must obviously maximise our pressure, counselling and support for overcoming human rights abuses, as the noble Lord, Lord Alton, has specified, the right approach must be to embrace as fully as we can that country in its efforts to modernise and move away from military rule, and we should consider supporting it and working with it, perhaps in the context of a future membership of the Commonwealth.
Lord Wallace of Saltaire
My Lords, I congratulate the noble Lord on managing to get the Commonwealth into this discussion. Burma is currently the poorest country in south-east Asia. If it is to pass through this transition successfully, it also needs economic assistance. My noble friend Lord Green has also been in Burma. We are engaged in the question of how far British companies, as well as British technical advice, can assist in the transformation of the Burmese economy.
Lord Wallace of Saltaire
My Lords, I think that I would prefer to stick to “monitoring”. We always have to remember the very complex colonial history. We therefore have to be very careful not to be too authoritative ourselves in dealing with the legacy of authoritarianism. We are however actively working to hold the Government to the promises which they are making, and we are working with all forces in Burmese society.
Baroness Anelay of St Johns
My Lords, I know that my noble friend Lord Alton is a courteous man, and will know that my noble friend Lady Berridge has been trying to get in, and indeed has started her question on four occasions. I am sure that the House might give my noble friend Lady Berridge a chance.
Baroness Berridge
My Lords, the overwhelming improvements are of course welcome, but there is growing concern that Burmese citizens are suffering discrimination on the basis of their religion. Therefore there is a danger that the millions of pounds of UK aid that are now going to Burma will not be distributed equally to all Burmese citizens. What discussions did the Prime Minister have with the President regarding freedom of religion and belief, particularly in regard to the rising intolerance towards Muslims and other non-Buddhists?
Lord Wallace of Saltaire
We welcome the recent arrest for the first time of a number of Buddhists who have taken part in anti-Muslim demonstrations. We have sadly discovered that even Buddhism is a religion that is not entirely under all circumstances used as a religion of peace. This is part of the discussion which is well under way.
Probation Service
Lord Beecham
To ask Her Majesty’s Government why they have halted the triennial review of probation trusts in the face of a House of Lords amendment to the Offender Rehabilitation Bill which would require the approval of both Houses to any changes to the probation service, and which the House of Commons has yet to consider.
Lord Ahmad of Wimbledon
My Lords, the triennial review of probation trusts has been formally closed, because as part of the development of the Transforming Rehabilitation strategy, the Ministry of Justice conducted a detailed options assessment of how we could organise the public sector probation service in the most efficient manner to discharge its new responsibilities as detailed in the strategy. This is in line with the requirement of the triennial review to look at the function and form of a non-departmental public body and to consider the best delivery model.
Lord Beecham
My Lords, yesterday’s Written Ministerial Statement, expressing the Government’s determination to press on with the abolition of probation trusts and make other changes to the probation service, is another example of the Government pre-empting the parliamentary process, recently criticised by your Lordships’ Constitution Committee. Does this not constitute contempt for the expressed opinion of this House and raise the question of why we are here at all?
Lord Ahmad of Wimbledon
I cannot agree with the noble Lord. Your Lordships’ House has discussed a particular Bill, and as he has pointed out, amendments have been made. There will be further parliamentary debate on these issues as the Bill moves through the Commons after the Recess. At the current time, in line with current powers as set out in the Offender Management Act 2007, any ultimate dissolution of probation trusts will be subject to the negative resolution procedure.
Lord Ramsbotham
My Lords, as the Minister knows, during the passage of the Bill many questions were asked about the way in which it was to be processed and how the structures needed to process it would be produced. Many of those questions remain unanswered, particularly as regards the future of the probation service and how individuals joining that service will have a career which is properly structured to enable them to gain the expertise to carry out their tasks. Last week, on the same day that it was announced that G4S and Serco had performed tremendously badly in relation to the tagging contracts, which had been poorly overseen by the Ministry of Justice, I attended a conference at which probation service staff told me how little they knew about the plans being made for them. What this House is deeply concerned about is that a major change to the protection of the public and the community is being proposed at vast speed without us knowing the details. When will we be told exactly what these details are if, indeed, they have been worked out?
Lord Ahmad of Wimbledon
As regards G4S and Serco, I assure your Lordships’ House that that is something which the Government are taking very seriously. An internal audit has been initiated by the Lord Chancellor and Secretary of State, the outcome of which will be with us around the autumn. I can reassure your Lordships that no further contracts will be awarded to either company until we have the findings of that audit and they are satisfactory in terms of awarding future contracts. As regards the probation trusts, the noble Lord comes to this matter with great expertise and is fully aware that the Government are proposing not to abolish the disparate probation trusts up and down the country but to create a new national probation trust and open up the market to the private and voluntary sectors to enable experts to come together to address the issue of probation, which, I am sure all noble Lords agree, costs too much and has been inefficient for far too long.
Baroness Quin
My Lords, does the Minister accept that these changes seem to be very controversial and therefore full discussion of them in Parliament is vital, as my noble friend Lord Beecham pointed out? Does he also accept that there is great fear that, as a result of these changes, the service will become less professional and that therefore public safety will be at risk? It seems that some excellent probation services, such as the one in Northumbria, are going to be reorganised when they are working very successfully.
Lord Ahmad of Wimbledon
On the noble Baroness’s first point, Parliament is sovereign and your Lordships’ House has had a very detailed discussion on this issue. Indeed, various amendments were tabled on the Offender Rehabilitation Bill and were passed to the other place. I cannot agree with the noble Baroness’s second assertion. As I have said in a previous answer, I believe that the proposed reforms are about creating a national probation trust that brings together the best expertise. The expertise of existing staff will be taken up in the new probation service. Indeed, private providers will look to recruit staff from the current probation service. So I do think that there is perhaps an alarmist attitude that is not really necessary.
Baroness Linklater of Butterstone
My Lords, the newly constructed probation service plans to operate at about 20% of current capacity and deal with very specialised groups. Meanwhile, the Government plan to give subsequent support in the community to 50,000 or so short-term prisoners. The only body with the skill and the experience to deal with this kind of thing is the probation service, which dates back 100 years. What is the rationale for destroying a probation service that is greatly admired, loved and respected the length and breadth of the land in favour of completely unknown, inexperienced and unhelpful private sector providers whose reputation is rock bottom?
Lord Ahmad of Wimbledon
While I accept that there are many positives in the existing probation service, I cannot agree with my noble friend that the Government are seeking to destroy it. I reiterate that the initiative will bring together the best of what is available in the public sector, the private sector, the voluntary sector and, indeed, the market as a whole. We need to acknowledge that. Why are we doing it? The MoJ currently spends £3 billion on prisons, of which £800 million is on probation. The reoffending figures show that 57.6% of prisoners sentenced to 12 months or less go on to reoffend on release. That, frankly, is not good enough. We need to address the issues. Of course, we learn from history but we plan for the future.
Lord Laming
Does the Minister agree that we are indebted to members of the probation trusts for all they contribute to the well-being of our society? That being so, what are the Government doing to ensure that, as they embark on a massive change, those who are going to be affected by that change will be engaged in it, will understand it and be helped to come to terms with the change in a way that makes sure that we continue to value their contribution?
Lord Ahmad of Wimbledon
I agree with the noble Lord that the country owes a huge debt to people such as the noble Lord, Lord Ramsbotham, who brings great expertise to the subject. I have fully acknowledged that in debates on the Bill and again today. We need to harness that expertise and ensure that the probation service learns from the lessons of history but is also fit for purpose in the future. We pay tribute to the people who work terrifically hard up and down the country to ensure that the people we are there to help—the prisoners—are helped to become productive citizens when they come out after serving their sentences. I am sure all noble Lords will agree that that should be our ultimate aim.
Lord Judd
My Lords, does the Minister agree that, whatever the Government’s intention, the perception is that there is an ideological commitment to downgrade public service and to refuse to recognise the priceless value of commitment and experience which exists in so many of our public services? The probation service has been exemplary in that respect. As so much of the community is to be involved if the Government’s hare-brained scheme is to succeed, is it not all the more imperative to make sure there is no further impression that, whatever may come, the Government are determined to drive through their ideological objectives?
Lord Ahmad of Wimbledon
It is certainly true that the Government believe in ensuring that in all projects—in this case it is probation—we harness all expertise. If that expertise is in the public sector we will harness it; if it is in the private sector we will also harness that; if it is in the voluntary sector we will harness it. I can assure noble Lords that the proposals will ensure that the number of offenders who go through rehabilitation is increased—as my noble friend Lady Linklater acknowledged, an additional 50,000. They will increase the number of providers that are part of through-the-prison-gate projects which combine the expertise of the public, private and voluntary sectors. Finally, they will create a new, public sector body, the probation service nationally, the ultimate aim of which is to protect the public.
Business of the House
(11 years, 5 months ago)
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Baroness Anelay of St Johns
That the debates on the Motions in the names of Lord Haskel and Baroness Prosser set down for today shall each be limited to two and a half hours.
Economic Prosperity and Employment
(11 years, 5 months ago)
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Lord Haskel
That this House takes note of the role of government in generating economic prosperity and employment.
Baroness Garden of Frognal
My Lords, the timing for the next debate is very tight indeed. Could I encourage all noble Lords to keep within their time limit, in order to enable the noble Lord, Lord Haskel, to have a few minutes to respond at the end of the debate?
Lord Haskel
My Lords, we are all concerned about the future of our economy and we all have a different view as to where the answer lies. However, I think that we all agree on one thing: the relationship between government and business is central to whatever the future may hold. I thank all noble Lords who have come to debate this important issue.
I will start by speaking of my early experience of government and business. Many, many years ago, new, higher standards were introduced for fabric safety, particularly for the flammability of fabrics in aircraft. As a young textile engineer, I had to develop fabrics and processes to meet these standards. I did this with the help of Bolton Tech, now Bolton University. At that time, the big market was the US. I went over there to sell our product but was amazed to find that a similar product was already available. It had been developed by the US military and was offered for sale, not only by large companies, but by smaller ones by virtue of a government assistance scheme.
I am pleased to say that we did rather well because of superior design, which is another lesson. That is how I learnt that, at the same time as preaching tough capitalism, the US Government have been engaged in risky research, on a large scale, in radical new areas from which business has benefited with products like the touch screen, GPS, the internet and nanotechnology: I could go on.
True, there must have been failures that we do not know about. However, over the years, this has illustrated the advantages of business and government consistently working together, not only in research and development but in reducing risk by taking public funding much closer to the market—far closer than EU regulations allow here.
Here in Britain, we have veered between extremes. When I started in business in the 1960s, the state had a role through public ownership and the public interest. It was a sort of command and control. Then we moved into a phase in which markets ruled through liberal capitalism. Private initiative, private enterprise and risk were encouraged. Markets were left largely to self-correct and self-regulate. The year 2008 demonstrated that that system did not really work. Some still see the solution in lower taxes, less red tape and less regulation, but an increasing number of people are calling for an industrial strategy that defines the relationship between the state and business. The problem is that the Government, the CBI, academia, finance and manufacturing all have different ideas as to what that strategy should be, largely because of sectional interests.
I would like to find a way in which government and business can work together, while allowing market forces and private initiative to flourish. Business would be free to experiment with new ways of doing things, with government having an enabling role that supported the public interest, not the factional interest. My noble friend Lord Sainsbury put this together rather well in his recent book, Progressive Capitalism. Unfortunately, he is not able to speak today, but he argues that prosperity is fostered by market-supporting institutions of an enabling state. They should be enabling, not market-directed, and far stronger than the weak institutions of the minimal state. These he calls progressive capitalism. These institutions do not start up and evolve spontaneously but are designed to resolve conflicting interests, and involve a strong measure of social justice. They are institutions with a purpose, not set up as an apology for failure.
Recently I have noticed frequent calls for such institutions. For instance, the Royal Institution of Chartered Surveyors’ Housing Commission recently proposed that such an institution was necessary to address the housing crisis in order to end the,
“short-term and partial policies”,
that created it. During the Second Reading of the Energy Bill, several noble Lords were concerned that its implementation was likely to continue over the lives of two or even three Governments and of many Ministers, and that, if nothing else, we needed an institution to provide continuity. I concede that this may take power away from Ministers, but it would be an enabling and more effective implementation of policy that is seen to be in the public interest and free from unpredictability.
Science and technology is one area in which we are already doing this. When the Labour Government came to power in 1997, one of their first priorities was to increase the funding for science and to prepare a 15-year road map for large research facilities. The then Government supported collaborative and applied research, which was first administered by the DTI but then handed over to the Technology Strategy Board, an executive, non-departmental public body. That gave it the independence necessary for it to be staffed by people with industrial and technological backgrounds and experience. It is to the credit of the coalition Government that they have continued this work. They have made a number of key investments, including a national network of technology and innovation centres, as a means of improving our innovation performance as an essential component for growth.
An evaluation in 2012 of earlier R&D projects showed an average return of £6.71 in additional gross value added per pound spent. So we know that this pays. Perhaps this explains why Germany spends nearly 10 times as much on its equivalent institutions However, there are still doubters. An announcement last week that the Government will match £500 million of industry investment to develop cleaner car engines was greeted by the Institute of Economic Affairs with the comment that if the Government have £500 million to spare, they should cut taxes.
Transferring this work quickly into products and processes is a key to growth. Knowledge transfer is a means of achieving this. I declare an interest as the honorary president of perhaps the largest knowledge transfer network, the Materials Knowledge Transfer Network, funded by the TSB, the Research Councils and some 4,500 business members. I am trying to practise what I preach.
Although we have made progress in science and technology, we have failed in other areas. If we are to raise our game, technology is not enough. We must also raise our game in skills, finance and infrastructure. The latest McKinsey paper on innovation says that research and development is only 25% of what it calls our knowledge capital.
We have rehearsed many times the failures of the financial system. John Kay told us how savers have been let down by the system. The banking commission told us of serious flaws. We have rehearsed hostile takeovers, poor governance, short-termism and the isolation of shareholders many times. To achieve prosperity, we must ask again: what is the purpose of the financial markets and are they performing efficiently? The task is to create enabling institutions with a compelling vision that will change the culture and the narrative, so that the financial sector, rather than serving itself, serves society and the rest of business. I join many in thinking that the proposed banking Bill fails in this by not going far enough.
Some tell us that the economy is improving. Others ask if it is improving in the right direction, and point to the dangerous use of housing and consumption, instead of productivity, to rebuild the economy. A strong enabling institution, rather than a data institution, would recognise and help sort out these priorities.
Another area where we have failed is in the supply of technicians. This failure is there for all to see. There are currently many able young people who are unskilled and unemployed, in a nation that is desperately short of technicians. We are getting it right on technology, which is shaping our markets, economy and society. We are not getting it right on skills. We have millions of people working in jobs that do not earn them a living. Temporary work, zero-hour contracts and low wages characterise a trend that has been made worse by the recession.
Some seek inspiration from Germany. It is the strong trade associations in Germany that set the standards. Taking on apprenticeships is a condition of being in the trade association—and if you are not in the trade association, you are not in business. There are penalties for poaching and for apprentices who leave their courses early. The lesson is not just to copy Germany but to recognise that Germany’s success is associated with strong and long-lasting institutions that ensure that the world of education and training is synchronised with the world of work.
If we are to create strong institutions, Whitehall, too, has to raise its game. Yes, Whitehall does review its capabilities and is well aware of its problems. Its style of employment career planning, which rotates people, ignores building up the very expertise that Whitehall and Ministers need to create our lasting institutions. Even in the time of Harold Wilson, the Fulton Commission drew attention to these matters. So did my noble friend Lord Adonis in his recent review of BIS, as did the Institute for Government in its report today on the way that government outsources public services to the private sector. This was again referred to in the Private Notice Question.
So what about the private sector? There was a time when we had complete faith in private enterprise. Now we are not so sure. G4S, Serco and other companies seem to treat us as a business opportunity—an opportunity where vulnerable people who have no voice can be exploited, and where the private provision of public services is seen to be sometimes incompetent, often unaccountable and sometimes uncaring.
We tried to create institutions to support localism. They did not last long. We abolished the RDAs on an ideological whim, instead of developing them and building on what was there. The LEPs set up to replace them are embryonic and need time. The noble Lord, Lord Heseltine, tried to come to their rescue with a major amount of money. The Government watered this down to £2 billion, and then it transpired that this money was taken from local housebuilding support and the local road-building fund—hitting the political target, maybe, but missing the institutional point.
Many noble Lords will have heard businesspeople say that a major block on investment and business confidence is a lack of continuity, and uncertainty in government policy. A series of initiatives, however clever and generous, dealing with market failure or other problems is seen as short-termist and intermittent. Addressing this has to be shared between government and business. Properly conceived institutions will do this, as has been demonstrated by the TSB. We have to repeat this in other sectors with institutions which are long-term, continuous, in which we can take pride and which will look after the public interest in the battle between the parties. Whatever the future may hold, a crucial part of our competitive advantage must lie in the quality and closeness of the relationship between government and business. We have work to do. I beg to move.
Lord Cope of Berkeley
My Lords, the noble Lord, Lord Haskel, and I served together on the Select Committee on SME exports. We all warmly thank him for instituting this debate and, indeed, for the way in which he has introduced it.
My long-held view is that while economists argue continuously over monetary and fiscal policy, what really matters is whether SMEs flourish in home and overseas markets. That is what will decide whether our children and grandchildren live in prosperous times—I cannot help but mention that a fourth grandchild has just been born to my wife and me, to focus our attention even more on the future—but what the Government do about SMEs is crucial to the future.
Many business men and women when asked what government can do best for them say, “Keep out of the way”. I sympathise, but I do not agree. In 1967, I helped Lord Weatherill to write a pamphlet urging the Wilson Government to get much more involved in SMEs to emulate the small-business administration of America. A couple of years later, that Labour Government, to their credit and particularly to the credit of Harold Lever, took a few minutes off nationalising things and command and control and set up the Bolton committee on small businesses, the first authoritative study.
These days there is general recognition of the importance of SMEs. In support of continuity, to which the noble Lord, Lord Haskel, referred, the Government have taken over from their predecessors, UKTI—UK Trade & Investment—and it has grown in stature and effectiveness under my noble friend Lord Green of Hurstpierpoint. His energy, focus and constant travelling have contributed notably to UKTI’s success, and I am sorry that he is leaving later this year.
Since the debate on our SME report last month, my noble friend Lord Green has told us of two new initiatives: the Future 50 programme, to help 50 selected companies grow to the point of being listed on AIM, and the creation of an alliance of high-tech digital clusters similar to Tech City. These are excellent, but the first reaction of some will be: can the Government or their agencies successfully spot winners? We know that it is difficult to spot winners, not only for the Government but for the investment industry, whose job it is. The oldest mantra in investment, after all, is, “Spread your risk”. The reason is the difficulty of picking winners and avoiding losers. The Government should not be put off by that. If only some of the 50 succeed, it will be worth it.
Part of what SMEs mean when they say, “Keep out of our way”, is “Do not keep changing the rules”. The noble Lord, Lord Haskel, referred to this, too. SMEs understand that it is necessary to collect tax and regulate employment, health and safety, but they hate spending hours mugging up on the latest initiative that has just come to their attention.
The latest example is PAYE. From April 2013, or April 2014 for some small businesses, RTI—real-time information—has been introduced. New PAYE software —not all small businesses use software—triggers automatic direct debit payments for PAYE and national insurance on pay day. This is necessary to the smooth working of universal credit. But for the small business with few employees, some part-time probably, striving to remain legal over the minimum wage expressed in hourly rates and changing every October and/or bumping up against the lower earnings limit for PAYE expressed in weekly rates and changed every April, all this is complex and a complete overhead on top of actually selling things and earning a living for the employer and their staff, which is obviously what they have to do to succeed. It is all desirable, no doubt, and perhaps it will be simpler in the long run. Technology often works that way, but it does not mean that it is easy to grasp in the first instance. Changes for small businesses mean more hours of trying to understand new forms and procedures, simply to stay in line with the latest requirements.
My basic message is always that if SMEs flourish, the economy will flourish. We must nurture our entrepreneurs. Only some of them will succeed, but we need them to do so.
Lord Giddens
My Lords, let me begin by congratulating my noble friend Lord Haskel on having introduced the debate in such an elegant fashion. I also congratulate the noble Lord, Lord Cope, on his expanding family.
It amazes me that some people still seem to think that the economic crisis is cyclical. After all, it is the most profound crisis since the 1920s and 1930s. It is still in play after five years. No country—not the United States, not Germany and not this country—has shown, as yet, a sustained economic recovery. This crisis, to my mind, is clearly structural and demands a fundamental rethinking, much of which has to be done in the academic world. Neoclassical economic theory will have to be replaced by a 21st-century version of political economy. A reappraisal of the role of the state and active government will be central to that process. No one of course, as my noble friend Lord Haskel has said, wants a reversion to the old model of top-down planning, but the economic free-for-all of the past 30 years has collapsed in a most spectacular way, with the state having to pick up the pieces, causing suffering to many of the most vulnerable in our society.
That rethinking is starting, and has begun with what I would describe as a sort of historical retrieval process, a kind of hidden history, of the state’s key involvement in all the major technological transformations of the past 20 or 30 years and in all the surges of economic prosperity associated with them. The idea that the role of the state is to stand aside, reduce red tape and let entrepreneurial instincts flow turns out, through recent research, to be much of a myth. All the major transformations affecting economic development have had heavy public involvement, and it is only now that the research is being done by economic historians to bring that out. My noble friend Lord Haskel referred to several of them. They include the most massive one of our age, the internet. We still do not really understand it, and it has caused an absolute transformation in human history. However, it has its origins, as is very well known, in state involvement, although, it has to be said, that was in part for defence purposes, not for economic prosperity.
These findings are as true of the US as elsewhere. Noble Lords might remember the story that circulated a little while ago—it is probably apocryphal—of a major American leader, who will remain anonymous, who was looking at the difference between the United States and Europe and said, “The trouble with the French is that they do not have a word for entrepreneur”. Well, we do not have a word for entrepreneur either, expect for that one. However, we do have a new book by Mariana Mazzucato, The Entrepreneurial State, which I recommend to noble Lords because it is a detailed study of how the state is essentially a risk taker. In countries that have an active state, the state has taken risks that private capital will not. Whatever private capital breakthroughs have come, they have been the result of the preparation carried out by active government.
Rather than using the examples that Mazzucato offers, I will take the case of shale gas, which has been studied in detail recently by the Breakthrough Institute in the United States. In the US, conventional gas began to decline in the early 1970s, which started a collaboration between the industry and the federal Government under a Republican President, Gerald Ford. Everybody knew that there were large deposits of gas, but the existing techniques of extraction were not up to it. There was an extensive partnership with federal agencies and, incidentally, with universities. National laboratories across the country, such as those in Lawrence Livermore, were crucially involved. A tax credit for unconventional gas was introduced in 1980, which lasted until 2002. The Department of Energy and the federal Government continued the funding of research when no one else at all was interested. The towering figure in the industry, George Mitchell, who I like very much—partly because he is a very good tennis player, and I admire people who can do two things really well—came along and applied the final touch, as it were. He made the final breakthroughs, but this would have been impossible without state involvement.
I am a supporter of shale gas, as long as it is properly regulated and coupled with the closing down of gas-fired power stations, but supporters of shale gas who decry subsidies for renewables should remember the tale that I am telling, because breakthroughs will come there too. The trouble with the UK is that they are likely to come in the United States and China, which are making the most substantial investments. The US might have led in shale gas, but it is also a big leader in renewables.
Baroness Kramer
My Lords, I join in the thanks to the noble Lord, Lord Haskel, for this important debate. Since I have only a few minutes, I am going to follow in the footsteps of the noble Lord, Lord Cope, and focus on small businesses. I think we are all aware that job growth is no longer going to come primarily from large companies opening large factories. Those days are over. Small businesses provide more than half our jobs. Many do not realise that they provide more than half our exports. Some will have heard of the rule of one in three. If one in three small businesses added one additional employee, this would wipe out unemployment. That is pretty much true across the developed world.
All government policy has been very slow to recognise the need to row in behind and provide the necessary support for small businesses. I am incredibly conscious that there is a wide range of programmes, such as EIS and other tax incentives to invest in small businesses, and the removal of stamp duty from AIM so that small businesses can raise public shares. UKTI also has very effective programmes now to provide support for exports, and the Government are reshaping export finance programmes so that they suit small businesses. But most small businesses do not have a clue about what is going on and what is out there and available to them as support.
I want the Government to look at the whole communication channel to this complex world of small businesses. It is certainly worth looking at the German approach, which tells every business that it needs to become a member of its local chamber of commerce—I do not care whether they pay only 50p to do so—so that they are in the system and contact can be made, communication can happen, education can flow through, and exchanges and networks can be built. We have to get serious about communication. If it is done through the structures of LEPs, that is fine with me, but we have to start making sure that there is an effective mechanism to reach out to that wide net of small businesses.
When I ask small businesses what is constraining their growth, the answer is always skills—I suspect that other noble Lords who are better equipped on this subject will talk later—but it still astonishes me that we manage to develop a highly sophisticated educational system at school and university level that delivers people often with extensive qualifications that simply do not match the job demand that is out there. Again, with a mechanism of more locally driven decision-making, local networks can try to counter that, but this surely has to go to the top of any agenda that we deal with.
In the three minutes that remain to me, I would like to focus on funding for small businesses. The major banks have long said that they finance anything—a small business, a large business, whatever else—that is bankable, but to those of us who have talked to so many small business and with various trade bodies it is evident that this is not true. I think that banks are finally facing up to that reality. They give us two reasons. I am interested less in their reasons and more in the actuality. One reason is that to work with really small businesses, highly knowledgeable people with exceptional capabilities are needed, because it is so granular when you work with a small business. The skills that have to be mastered are way too costly, given the structure of our banks. It is just not possible, given the way in which we organise ourselves and where we want our priorities to be.
The second issue is capital requirements. Banks have to be properly capitalised. We cannot give on capital requirements in a general way. Banks tell us that this is highly risky stuff, and that they are required to hold large amounts of capital, which essentially makes it uneconomic for them to offer credit on reasonable terms.
How have other countries that face exactly these problems dealt with them, and what can we learn from them? As I have only a short time, I shall look at the US example only. The US Government made a commitment a long time ago to what they call “the last mile”. How do you get money out to the small people in a community, much as we have the Post Office deliver a letter the last mile? The US Government decided that major US banks were not capable of that activity. You have to set up a different sector to deliver that, and because making sure that that happens is a public good, the US has been willing, through its Community Development Financial Institutions Fund, which sits in Treasury, to put substantial amounts of money into making sure that a sector exists that can deliver that. The US funds it by billions. As partners in that effort, it has drawn in its big banks. It has done it largely through a stick, the Community Reinvestment Act, which most noble Lords will be familiar with, so I shall not go into the details.
The effect of being required to put money into these entities and to provide them with knowledge, support and expertise is that it now seems normal to US banks. I have been talking to those here. They find it astonishing that it is a reflex action of our major banks to say, “This is an area we are not going to serve. It is not right for us”. It is exciting to be able to get in there with relatively small amounts of money and do it. I ask the Government to look at those opportunities.
Lord Monks
My Lords, I, too, thank my noble friend Lord Haskell for initiating this timely debate. The state has many roles. Often it has not sought them, but has had them thrust upon it by the failure of markets in important respects. At the moment, the list of roles tends to grow as the country’s problems are no longer masked by the windfalls of the North Sea and booming financial services; they are not completely over, but they are a lot less significant than they were. The problems are not new—economic historians trace them back to the 1870s—but they seem to be getting worse in some fundamental ways: the shrinkage of manufacturing, a persistent balance of payments deficit and too few companies still thinking for the long term, with a relatively low spend on innovation and training. Investment in new machinery is apparently at a lower level than in Austria, Turkey or Mexico. The low productivity levels that we are experiencing reflect inadequate skills, low capital investment and, sometimes, poor relationships at work.
While we are proud of our open economy, can we really be so relaxed about the continued foreign takeovers of successful British companies? The latest is Penguin Books, which has recently been taken over by a smaller rival, and it seems that Invensys is shortly to go as well. There is no comparable traffic in the opposite direction, nor is there a flowering of new UK companies of the same size and importance. A large part of what could be called the commanding heights of the economy is now held abroad. Too many managements and shareholders are governed by thoughts of value extraction—the price they can get—rather than adding value to what they have. There is not a squeak from Eurosceptics or Europhobes about what this means for national sovereignty. A small proposal from the European Commission sends them into paroxysms of anger but when this fundamental change is going on, nothing is said.
We also have a systemic tendency for rewards to go disproportionately to people at the top and for them to outstrip performance. The inequality statistics are truly frightening. Will the Royal Mail in private hands follow the same depressing path by charging higher prices and contracting out delivery services to lower paid, less securely employed workers? Then will we see the Royal Mail sold off, perhaps overseas, like so many of our privatised utilities? Must we watch helplessly as private equity or other predators move in for quick kills? Why are golden shares so out of fashion in developments of this kind?
The stark truth is that private ownership has not unleashed a fresh burst of investment. Thames Water and BT are seeking government guarantees for major investments in the super sewer and national broadband; there is not much appetite for risk among many of these large privatised companies. Centrica withdrew from the new nuclear power project because its shareholders wanted higher returns over a shorter period. This rather frenzied approach to short-term gains continues to enfeeble UK companies. If you add in the periodic devaluations of sterling, which make UK assets relatively cheap, you can see the vulnerability of our economic model.
Some are using the term “responsible capitalism”. I use it myself sometimes; it is a nice thought. However, there is a risk of many in the citadels of deal-making seeing it as an oxymoron and treating it risibly and not seriously at all. We have good economic models among our neighbours, particularly on the other side of the North Sea. Why do we not learn more from them and build, as others have said in this debate, a stronger training culture, foe example, comparable to their economies? Why do we celebrate so much a deregulated labour market while our northern European neighbours reject easy hire and fire, zero-hour contracts and the trend towards making jobs less secure? They are relaxed, even enthusiastic, about collective bargaining and extensive information and consultation arrangements.
Finally, what about our management cultures in this country? We claim some of the world’s leading business schools. I declare an interest as a visiting professor at Manchester Business School. However, they are often seen as transmission belts to put people into financial services or into the finance function of business—accountants and so on. How can they be transformed to become the staff colleges to make the UK a new, North Sea-style economy? The noble Lord, Lord Heseltine, has sought to address some of these issues and I believe that the Business Secretary recognises the problem, but as yet we are well short of measures to promote an economic model and culture that will be both successful and sustainable.
I end with a remark from a senior Siemens executive. When asked what the key factor in the company’s success was, he replied, “Continuity”. Would many top UK executives say the same? I doubt it. We must change that culture so that in due course they will consider that to be the normal way to describe their business.
Baroness Valentine
I declare that I am chief executive of London First, a business membership organisation, which includes companies involved in infrastructure and development.
I thank the noble Lord, Lord Haskel, for introducing this debate and presenting such a cogent argument. However, I want to gently challenge the title and suggest that the role of government is not to generate economic prosperity and employment but to create the conditions in which that prosperity and employment can flourish. Timely interventions by a Government can do that. However, the most efficient, easiest and least costly interventions are often avoided because they are politically uncomfortable. Where business would act, government prevaricates.
Take our international links. To provide us with much-needed air routes to emerging economies we should have built a new runway in the south-east years ago. While we have been staring at our navels, Frankfurt, Paris and Amsterdam have built four-runway or six-runway hubs. There is an easy solution: the Government could just say yes to any of the privately funded offers to build more runways that are currently on the table.
Back in the real world, while I support the creation of the Davies commission, the business community needs assurance that whoever might be the Government of the day will act on its recommendations. Can the Minister reassure me that the current Government would? Can he also reassure me that, while we wait a decade or more for even one runway to be built, the Government will do everything in their power to enable more flights to emerging economies in the mean time?
On immigration, Paris attracts eight times as many high-spending Chinese tourists as London. Why? Because France is part of the Schengen visa, on which you can visit 26 European countries but, to add the UK to a European tour, visitors need to go through the hassle of applying for a separate visa. I accept that, politically speaking, we are unlikely to join a single visa system, strong as the business case may be. However, if we are to acknowledge that political reality, can we please do whatever we can to take the hassle out of applying for two visas? Let us build on the Government’s recent improvements to our visa process, but recognise that incremental improvements will deliver only incremental increases in visitor numbers. The step change will be achieved by sharing application centres in China with key European partners, once Schengen introduces biometric requirements.
In a similar vein, the practice of treating international students as a balancing number in our net migration target has had the unfortunate consequence of giving countries such as India the impression that their students are unwelcome here. Higher education is our eighth biggest export and we should be cultivating rather than inhibiting that sector.
I turn to an area in which positive government intervention can make a real difference, albeit at a cost: investment in infrastructure. I pay tribute to the Government on their recent spending review. A five-year settlement for Transport for London’s capital investment programme makes much more sense than an annual one. The guarantee for the Northern Line extension has enabled the redevelopment of the iconic Battersea power station, paving the way for up to 26,000 jobs.
We must keep that momentum going, though, and with a sense of urgency, if real progress on vital projects such as the Thames tideway is to be made before the next general election. If creating 9,000 jobs to build this new sewer is not enough of an incentive, then the Government might also consider the benefit of allowing the residents of London’s thousands of new homes to flush their new toilets. I am confident that the Government will do the right thing and give the go-ahead.
Finally, I must mention Europe. The UK is one of the most successful global trading nations. We are the third highest exporter of services and the sixth highest of goods. The global companies that base themselves in London do so as a centre for Europe. They have no interest in or understanding of the UK breaking away. While they certainly struggle with aspects of European regulation, particularly of our financial services post-credit crisis, they understand the need to address failures in regulation and for intensive negotiation to find solutions that balance stability, reputation and growth. I have not met anyone in any of these companies who is looking for an exit. Indeed, for most, talk of a referendum suggests a trigger-happy approach to sensitive diplomatic matters.
There is, though, the need to reassess the relationship between those inside and outside the eurozone, and to do that the Government need to fully engage and negotiate as an equal partner, rather than with one hand on the escape hatch. While there are political realities, therefore, there are also economic realities, and if the Government are serious about prosperity and employment, there are occasions when they need to recognise that government itself is the problem, rather than looking for new, politically easy solutions.
Lord Bates
My Lords, I, too, pay tribute to the noble Lord, Lord Haskel. He has a well deserved reputation for, over many years, seeking to improve the understanding, particularly in the Labour Party, of the role of management of the private sector. Having listened to the speech of the noble Lord, Lord Monks, I suggest that his work is yet undone; he still has much to do in that important area.
The noble Lord, Lord Haskel, sets an important task for us, which is to take,
“note of the role of government in generating economic prosperity and employment”.
That begs the question, “Does it have one?”. Of course, the answer to that is yes. The role of government is to generate economic prosperity through untying the wealth-creation potential of enterprises and allowing them to flourish; to maintain a tight fiscal control on the costs and operations of government, through the avoidance of waste and unnecessary regulation; to construct the tax and benefits system in a way that rewards those who work, cares for those who cannot and incentivises the risk-takers while protecting consumers and upholding fair competition; to provide a stable monetary policy which creates the right balance between borrowers and savers in the economy; to provide the investment in the physical and intellectual infrastructure that we will need for the future; and to maintain and develop strong international trading relationships. In short, the role of government is to prepare the ground and regulate the climate for economic prosperity and employment while recognising that, ultimately, it is enterprises which will actually build and maintain it. That would be my definition of an enabling or entrepreneurial state.
If this is the description, how have the current Government performed? I do not think that many in this House would argue against the proposition that no post-war incoming Government have had a more favourable economic legacy than that which fell into the lap of the Labour Government in 1997; I declare no interest as a Treasury Minister at the time. At the same time, there would not be many who would argue that any incoming Government have had a less favourable economic inheritance from their predecessors than that which befell the current coalition in 2010.
The coalition arrived in office to face a debt that was unsustainable, government spending that was out of control, and a public sector that was too strong, and a private sector too weak, to sustain it. We had grown too dependent on financial services and lost our competitive advantage in manufacturing. We had become obsessed with the old, established markets and trading relationships of Europe, and paid insufficient attention to the rising new markets of Asia and Latin America. We had taken no note of the fact that the tax and benefit system could provide perverse incentives that made not working more attractive than working. Wealth creators and risk takers were insufficiently rewarded. Our education was failing generations of young people through its lack of rigour, and vocational training was not delivering the skills that industry needed.
Three years on, what has been the result? Well, we have seen a reduction in the deficit; it is down by a third. We have seen sustained cuts in corporation tax which will mean that we will have the lowest corporation tax rates in the G20 by 2015. We have seen businesses create 1.3 million new private sector jobs, which is close to three jobs created in the private sector for every one lost in the public sector. This week, we have seen unemployment fall further, by 57,000, and the claimant count fall below the level of May 2010. The reform of the benefits system will ensure that people are always better off in work. Through raising personal tax allowances, people working full time on the minimum wage will have had their income tax bill halved during the time of this Government. We have seen investment in infrastructure. Danny Alexander, the Chief Secretary, announced £100 billion of investment in infrastructure between now and 2020. There were 520,000 apprenticeship starts in the last academic year, up 80% on the last academic year under the previous Government.
We are seeing the evidence for this in increased economic indicators showing, for example, that exports are at records levels according to the British Chamber of Commerce and the purchasing managers’ index. We even see this morning an announcement that retail sales have gone up by 2% in the past year. We see that our exports, particularly to those new, dynamic markets such as Brazil are up 25%, with China up 40% and Russia up 80%. That is extremely welcome.
The culmination of this is that the predictions for a double-dip or triple-dip recession that were so frequently made from the opposition Dispatch Box turn out to have been wrong. There has been a reassessment which shows that we are now into growth, and the IMF has reassessed its forecast to show that it expects this economy to grow strongly. I urge those on the Benches opposite to recognise that it is time for them to reassess the record of this Government and their own policies in the light of that performance.
Lord Bhattacharyya
My Lords, I thank my noble friend Lord Haskel for choosing such an important topic for this debate. He is a passionate believer in manufacturing and technology. I declare an interest as chairman of Warwick Manufacturing Group at the University of Warwick, where we have worked for three decades to deliver growth, both at home and abroad.
It is vital to remember the positive difference the previous Government made to our society and economy. Since 1997 we have seen huge improvements in the infrastructure of the nation in rail, schools, hospitals and science. If we had not made those investments, our public realm would have resembled that of a third-world nation. The Labour Party should be proud of those achievements. There are problems, of course, but real successes too. For example, the importance of the science budget is reflected in the current Government’s decision to protect that funding. Naturally, there is a need to go further. We have already heard about the need for infrastructure spending as a driver for growth and I strongly support projects such as HS2. A single driver such as HS2 will create not only a different mindset among industrialists throughout the world but also employment. I also support innovation policies to create a more broadly balanced economy.
We can learn, too, from fast-growing nations. I often visit China. On a recent trip I saw that when growth faltered, the Chinese Government announced 25 major rail projects. They also announced further investment in innovation, aiming to surpass American R&D spend in the next decade. This approach creates a framework for long-term growth, encouraging business investment and increasing the likelihood that jobs created by these businesses will be sustained over a period of time. Here in Britain similar policies are vital, not least for the many young people who face long-term unemployment if there is little growth. Of course, Britain faces real financial constraints. This means we need a better understanding of the impact of our policies.
The real question is not whether government should contribute to economic growth, but how effectively it makes that contribution. I am reminded that the original title of Lloyd George’s Yellow Book of 1928 was Britain’s Industrial Future. Since then we have had many such mantras, such as national champions, white heat, sunrise industries or industrial activism. All of them have agreed with the fundamental judgment of the Yellow Book on industrial policy, which was:
“There is no question of principle at stake but only one of degree, of expediency, of method”.
A focus on expediency and method should make us sceptical of grand claims for any growth policy. As Karl Polanyi said of the industrial revolution:
“No one had forecast the development of a machine industry; it came as a complete surprise”.
Similarly, no one could have forecast what is happening today with the digital revolution.
Governments can never guarantee, or even predict, disruptive innovation. Instead, they should focus on incremental change, supporting infrastructure and innovation, thus creating a framework in which innovators prosper. This means better understanding of what government does well and where it must do better. In this spirit I propose a practical change to encourage the effectiveness of growth policy. It is simply that we commit to a higher standard of evaluation of public policies to support growth.
The noble Lord, Lord Haskel, rightly proposes enabling institutions to support growth. We also need an evaluating institution. All too often—whether in RDAs, LEPs, research councils or government departments —a policy is announced, a programme is delivered, the impact is evaluated by a consultancy firm, a number is put in a press release and then it is ignored. Frequently, bodies responsible for spending money, whether research councils or the Technology Strategy Board, define their own impact and decide if their objectives have been met. As Professor Henry Overman of the LSE said of RDAs, many of which have created important growth in their regions, you can read thousands of pages but evaluating them is very difficult, unless the current Government come in and get rid of them. The issue is not that projects have performed well or badly but that too often we do not know how they performed at all.
It is time that we had a national impact office with a duty to monitor the effectiveness of all government policies to support growth in the real economy. That happens in other countries. Such a body is crucial, especially if we are to embrace devolution in growth policy, for example with LEPs. As the noble Lord, Lord Heseltine, pointed out, the ability to share best practice and identify where things are going wrong is crucial. How can we do this without a neutral body examining what is best practice?
I have always been a passionate believer in the positive role that the state plays in industrial policy, but all good engineers know that it is only by critically evaluating the strengths and weaknesses of any past design that you gain the knowledge to help you do better in the future. We should be absolutely fearless in assessing which policies deliver growth. That is what we should be evaluating in future.
Lord Bradshaw
I, too, add my thanks to the noble Lord, Lord Haskel. I am going to take a rather different line from some noble Lords. I have worked in industries which employ engineers. Engineers were my colleagues. They were highly respected. Over my career I have seen that respect for engineers go down and down so that now the engineer is lucky if he sits at the top table because it is crowded out with people qualified in finance, human resources and other things, when it is the engineers who actually drive our businesses forward.
Several noble Lords have referred to the list of apprentices and how the number is increasing. I ask you to look very carefully at who these apprentices are. They are not technically trained. There are people with apprenticeships in things like catering, business services and law, but those are not the skills which drive the economy forward in the way that I think we all want. I also want to comment on our professional institutions. The professional engineering institutions went through a period where they insisted on graduate entry, yet many of my colleagues started their careers as premium apprentices, took their higher national certificate, got practical experience and then qualified as professional engineers. Fortunately, that approach appears to be coming back—at the Institution of Mechanical Engineers, for example—because people need to know what they are doing. I want to draw to your Lordships’ attention the paucity of maths and physics teaching in schools. It is awful in many schools and there are so few students actually studying these subjects. Without an understanding of these subjects, we are not going to be able to provide the engine for the growth which all of us desire.
I was struck by the question that the noble Lord, Lord Bhattacharyya, raised about evaluation. Many large infrastructure projects of the sort which are being discussed here are judged on the values of time. This is an old system that was invented to evaluate rival road schemes in the 1970s. It was overseen by an organisation called the Standing Committee on Trunk Road Assessment, and it forms the basis of a lot of Treasury thinking. If you can prove that you can save 10 minutes going to Birmingham or a few minutes by putting an extra lane on the motorway, that will often be the deciding factor. However, if you build an extra lane, say on the M25, and at the end of three years you still have congestion as bad as when you started, I cannot see that that value of time is delivering a measurable quantity. On a visit to city hall this week I was heartened to hear that the Mayor of London is saying to people, “Are we creating jobs and building houses? Are we doing good?”, not focusing on how much time people are saving in whatever they happen to be doing.
We need to have a target for funding registered technicians. We should look very carefully at where the money spent on apprenticeships is going and make sure that enough of it is going towards engineering technicians. We are not going to re-equip our railways, modernise our water system, build new power stations or engage in fracking unless we have the skills here or we import them. The Government have more or less set their face against immigrant labour, so we have an urgent task in encouraging some indigenous labour to do the job. Finally, we really have to recognise the status of the engineer and his value to the community.
Baroness Donaghy
My Lords, I thank my noble friend Lord Haskel for initiating this important debate. I will concentrate on a couple of things that the Government should not be doing and then move on to some large but neglected sectors to which the Government should turn their attentions.
First, the Government should stop messing about on Europe. Of course there is a need to reform its institutions, but the opt-out approach to Europe is counterproductive and isolating. As John Cridland recently wrote,
“we must focus on a positive vision of reform”.
A recent CBI study looked at the relationship between Norway and Switzerland and the EU. Both countries are outside the EU but Norway is part of the single market through the European Economic Area agreement. It pays €600 million a year for the privilege, making it the 10th-highest contributor to the EU, just to be allowed to follow the EU rules as a non-member. A Norwegian conservative, Mr Nikolai Astrup, said:
“If you want to run Europe, you must be in Europe. If you want to be run by Europe, feel free to join Norway in the EEA”.
The Government should also stop trying to kid themselves that they can opt out of the social wage when rights for part-time workers, maternity leave and all the other workers’ rights enshrined in various directives have become part of the fabric of society and the expectation of a new generation of workers. Not just the trade unions will resist the undermining of those rights.
My second “not” is that the Government should not mistake Whitehall reorganisation for progress. Abolishing departments and even non-departmental public bodies is wasteful if the functions have to continue elsewhere. It halts momentum and it is costly. That is not to say that things should never change, but so often the problem is poor interdepartmental co-operation or a Government who want to prove that they are different from the previous one.
The proposal to increase the number of party-political appointees in government departments is another area that will help things grind to a halt. If the proposal is implemented, I doubt that the appointees will be from diverse backgrounds with plenty of management experience—or even engineers, as the noble Lord, Lord Bradshaw, urged us. They are more likely to consolidate the very narrow background of Oxbridge-educated political advisers who have already caused such alienation between the political classes and the population as a whole.
I turn to the areas on which the Government should spend more effort. Two weeks ago the noble Baroness, Lady Shephard of Northwold, initiated a debate on preparing young people for the world of work, and she made a powerful speech about the importance of careers advice in which she said that the Government’s own National Careers Service had estimated that,
“the cost to the economy of young people making wrong choices amounts to some £28 billion”.—[Official Report, 4/7/13; col. 1330.]
In his summary of the debate the Minister acknowledged the importance of careers guidance. However, he preferred to lay emphasis on the role of good schools. Although that is an admirable sentiment for an individual, it does not constitute a national strategy. Without a more systematic reform, it is difficult to see how the reform of vocational qualifications will have the impact that we all desire. The noble Lord, Lord Cormack, and the noble Baroness, Lady Fookes, also took part in that debate and spoke about the “unfortunate attitude” towards those who work with their hands in craft and horticulture. A good vocational system needs to take account of these areas, which have the potential to employ hundreds of thousands of people.
The situation is even worse with engineering, science and technology. The Royal Academy of Engineering has predicted that in the next eight years there will be an average shortfall of 40,000 new graduates in science, engineering and technology every year. In Germany last year, engineering was the most popular choice in higher education, after law. I pay tribute to the university technical colleges, but we need many more of them; we need an initiative on the scale of the Robbins report for HE. As well as meeting the needs of employers, it is clear that an increase in vocational learning leads to lower youth unemployment. Surely there is a clear role for government here.
To conclude, the Government should focus on functions rather than wasteful institutional reform. They should focus on skills, advice and guidance on careers for our young people and do more to promote Cinderella industries, such as tourism, which could lead to quick results on economic growth and youth unemployment.
Lord Skidelsky
My Lords, I am grateful to the noble Lord, Lord Haskel, for introducing this important discussion. He has been rightly impressed by the argument put forward by the noble Lord, Lord Sainsbury, that the state must play a key part in fostering innovation, and I agree with that. However, of course, that does not exhaust the role of the state in creating prosperity. In the last chapter of his General Theory, the economist Keynes pinpointed as,
“The outstanding faults of the … society in which we live … its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes”.
I believe that these are still the outstanding faults of the society in which we live and that the state has a vital role to play in remedying them. Moreover, that is clearly connected to the topic of the noble Lord, Lord Haskel. The worst environment for innovation is rampant economic insecurity and excessive inequality. The private sector will not invest in jobs and skills unless it sees a market. The state has a role to play in sustaining that market in general, as well as in providing support to particular sectors. Once again I apologise for being the only macroeconomist taking part in this debate—I feel very lonely.
Let us consider two arguments. After the Thatcher-Reagan revolution, politicians and economists no longer believed that government policy should aim directly to influence the level of employment. Noble Lords will remember the new doctrine announced by the noble Lord, Lord Lawson: government should concentrate on controlling inflation and leave employment to the market. Let us see how well the market has done. Between 1950 and 1973—the period when economic policy was influenced by the Keynes doctrine—UK unemployment averaged below 3%. Since 1979, when the Lawson doctrine held sway, the average has been almost 8%. Today, Britain’s unemployment rate of 7.8% tells only half the story. The widest indicator of joblessness, which includes unemployment, part-timers seeking full-time work and those who are economically inactive but who nevertheless want a job, is estimated at about 12%, or 6.4 million people. On top of that you have to add the much higher level of youth unemployment. The Prime Minister and the Chancellor constantly tell us that the nation must live within its means and that the Government cannot spend more money than they have. Has it occurred to these great thinkers that our means include those unused resources and that if they were being properly utilised, the Government would have more money to spend?
The second revolution that has been associated with Lady Thatcher was the abandonment of any commitment to equality. The ideology of the 1980s was that undue compression of incomes brought about stagnation: get taxes and welfare benefits down in order to increase the incentives to work and innovate and the result would be a more dynamic economy and one in which wealth would steadily trickle down without any need for obvious redistributionary policies. The trade-off has not happened—growth was slower than it was in the Keynesian period and we are waiting for the trickle-down to happen. In the past 30 years, the share of income captured by the top 1% has more than doubled to 14%, leading to the joke that the new class struggle is between the have-nots and the have-yachts.
The economist Tony Atkinson, the great expert on distribution, writes:
“Moves towards reduced income inequality were dramatically reversed in the 1980s with a sharp rise in inequality”,
a rise which was historically unprecedented. Margaret Thatcher and her successors—we should note this historical fact—dismantled two of the main drivers of equalisation: the system of progressive taxation, and strong trade unions. The old tax system set, in effect, a cap on post-tax incomes and profits. The call for caps on bankers’ remuneration today simply reflects the failure of the current tax system to limit its stratospheric rise. The main achievement of the trade unions was to push up pre-tax earnings in line with productivity. This function has now collapsed.
The triumph of greed over professionalism and restraint has been most obvious in the financial services sector, which, ironically, new Labour decided was to become the powerhouse of the British economy. I understand well the frustration of the noble Lord, Lord Sainsbury of Turville—as a Minister for Science and Innovation under new Labour, he was told that the financial services were a great source of innovation. When he asked for examples he was told that,
“tax avoidance is an art where we are very innovative”.
I have no doubt that we will recover from the present semi-slump; we may even recover sufficiently by 2015 to give the coalition—or the Conservatives at least—another term of office. My great fear is that, having got to something like normal, we will come to believe that we can continue much as before, except for a few watered-down reforms to the banks. I believe, on the contrary, that the system of political economy that has evolved since the 1980s has, for all its benefits, grave flaws that, if allowed to continue uncorrected, will land us in a succession of crashes and crises of differing degrees of severity, which will cumulatively destroy support for the free-market economy. The chief of these flaws in our system are, to repeat Keynes,
“its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes”.
The Government have a big role to play in addressing both. I am grateful to the noble Lord, Lord Haskel, for giving me the chance to set out my ideas on these matters.
Lord Hunt of Chesterton
My Lords, I welcome this debate, which was introduced by my noble friend Lord Haskel, and the remarks made by the noble Lord, Lord Cope, following him, which very much set the tone for the importance of SMEs, which I will touch on. I declare an interest as a director of a small scientific consulting company in Cambridge and former director of the Met Office. I did a quick calculation while listening to the noble Lord, Lord Skidelsky, of what the ratio was of the highest and lowest paid people in those companies and it was somewhere between three and four, which is perhaps a bit less than in the City.
As my noble friends Lord Haskel and Lord Giddens explained, modern economies are partnerships of the public and private sectors. The present Government did not understand this when they came to power. I quote Mr Willetts, who made a speech at the Foundation for Science and Technology, under the watchful eye of the noble Earl, Lord Selborne, the chairman:
“There has been a real shift in thinking”—
that means “our” thinking, Tory thinking—
“over the past few years. Many of us”—
Tories—
“used to think that the only thing Government had to do was to get out of the way. Large numbers of businesses still want that; they simply want lower taxes, easier planning rules, less red tape. Yet an increasing number of businesses and industrial sectors look to Government to play a far more creative role”.
Mr Willetts thinks quickly, of course, and in two years he has learnt what we now all understand. Perhaps the noble Lord, Lord Bates, might have a talk with the new Mr Willetts.
Lessons have, however, been learnt by this fast thinking Government and we now have the Technology Strategy Board, which has survived with some great successes—and I declare an interest as an adviser to the company, Tokamak Solutions, which has benefitted from important input. Nevertheless, many smaller companies, as the noble Lord, Lord Cope, said, find dealing with the TSB and BIS quite difficult, and the general view is that it is often easier for these companies to work through European Commission projects, which are much easier to enter and have been very effective, as I know myself. I also did a recent survey of some companies at the Cambridge Science Park, which also found that working with EC projects was at least as easy, if not easier.
Another important role for the TSB in future might be to assist smaller companies—SMEs—in providing technology to larger companies. In the United States, there is a very strong push by government to ensure that big companies sponsor smaller companies and use their products. The same thing does not happen so widely here in the UK. We need a survey of these developments. I hope that in winding up the Minister will explain these Damascene conversions of the Government, how current regional development assistance compares with the previous RDAs, and whether it meets the ambitions of the noble Lord, Lord Heseltine, for this.
What can the UK learn from the industrial and technology policies of Germany, France, and the USA, which we have been hearing about? One matter that we have not discussed is industrial democracy, which is no longer a very fashionable term. There was a great report by Lord Bullock in the 1970s. One of the important roles of the supervisory board in Germany, as some leading businessmen have told me, is its considerable breaking effect on the business of buying and selling companies. It sometimes seems that companies in Britain are just a higher form of gambling—buying and selling and buying and selling. The Evening Standard gets frightfully excited when there is more buying and selling. For the workers, however, this is not always brilliant, and in Germany there is a clear way of looking at this.
Nevertheless, despite the normal Manchester economic liberalism of the Treasury, it is now looking at the idea that industrial democracy, or employee partnership, might have some advantages. Everybody knows that when companies have strong employee involvement—notably, John Lewis—they tend to use UK suppliers, and they help to support other British companies. If a company is bought by an overseas company, it might put together cars, for example, but a lot of the research is often done abroad. I note the example of my noble friend Lord Bhattacharyya, who has been very successful in getting excellent research by incoming investing companies, but this does not always happen, as we have seen with the utilities and other companies.
Another feature of the question whether business is to provide services for the community or a higher form of gambling is that there is now a tendency to think that high-tech science is also a form of high-tech gambling—you find a company, its shares shoot up, it goes on the stock exchange, you sell it, then poof, off you go. I am afraid to say that we have seen a lot of that in the UK. If, in receiving government money, these companies had to ensure a much clearer relationship with the community and the Government, we might very well stop this gambling. I have friends now living in rather exotic places around the world because their companies went whoosh, and off they went. This is not business, it is not science, and it is not helping the country.
Mr Willetts also learnt through government laboratories, in his fast-thinking mode, that technology is very important. We used to have the world famous Royal Aircraft Establishment and the Royal Radar Establishment. Where are they? We had the National Physical Laboratory, which Sir Keith Joseph went to visit and which does survive. When he saw annual reports of research on the shelves of that laboratory, he said, “Why do you do that?”. Of course, Sir Keith Joseph went to Oxford and did not understand science. There are brilliant scientists at Oxford, but All Souls has a problem.
Nevertheless, despite these trends, we have world-famous laboratories. The Met Office has a world-famous laboratory, and we have others run by the Government. The important thing is to ask where we go from here when we have lost many of our laboratories in electricity, hydraulics, gas and so on. What are we going to do? We need a stronger effort to work in partnership with Europe, which has the world’s greatest laboratories, as we have seen with CERN and the European weather centre—and I helped to set up a thing called Ercoftac, which brings together all the aerospace companies and universities across Europe. This is the kind of networking approach that we need. I hope that some of these suggestions will be useful.
Lord Mitchell
My Lords, first, I congratulate my noble friend Lord Haskel on securing this debate. After his recent illness, it is wonderful to see him back in his place, giving them hell as usual. The noble Lord is my mentor in your Lordships’ House. Whenever I need advice, and often when I do not, he has been there to guide me and give me the benefits of his huge experience and wisdom. I thank him most sincerely.
Noble Lords will recall the atmosphere this time last year as we eagerly awaited the opening of the Olympic Games. When the Hammersmith flyover needed major repairs, a whole group of people could hardly conceal their glee. Noble Lords might remember the people who said that it was going to be too expensive at £9 billion, the transport system would not work and the whole place would collapse. They said that it was going to be a national embarrassment, and many of them decided to get out of the country. They went to France or America or wherever, and was it not good to see that we proved them so wrong? Who today complains about the cost?
One reason why the Games were so special was the extraordinary success of Team GB, but this achievement did not happen by chance. That glorious summer of Olympic success was not achieved by a Government who retreated and let the athletes get on with it, nor was it done through government picking winners. The unpredictability of sport, as with business, would have made that a foolish gamble. Instead, it was sustained by an active government programme that provided practical support and funding to British athletes. We in business can learn a lot from this, too.
Britain needs a proper British investment bank with strong regional presence and a long-term focus. We are the only country in the G8 without a state-backed institution like this. Its absence has made it much harder to correct the collapse in small business finance after the banking crisis in 2008. We need an active industrial strategy that can help to remedy one of the chronic weaknesses in British business—a lack of investment and a lamentable achievement in productivity. From the 1970s onwards, investment has been lower in Britain than in most of its competitors. The fall in investment after the financial crash has been greater and longer lasting than for any comparable recession since 1973 or 1990. Without radical change, there is a danger that any economic recovery will be based upon a consumer take-up, rather than an investment surge. It will leave us extremely vulnerable to future economic shocks.
I have serious concerns about the Government’s progress on infrastructure investment. Of the 576 projects that have been announced by the Government, only seven have been completed; 80% have not even been started. I simply do not understand the Chancellor’s recent statement announcing so many infrastructure projects, all of which will be delayed until after the election. Why wait? Why dither? Just do it, and do it now.
I am particularly concerned that poor planning and implementation have hampered the delivery of super-fast broadband to many areas of the country, particularly rural areas. Despite all this, e-commerce in the UK is thriving. We have a higher share of our GDP in this area than any other developed nation. This is brilliant, but we cannot take our feet off the accelerator. I have been horrified by how many business-led reports I have read recently that seem to totally ignore the digital revolution taking place before our eyes. Sometimes I think that politicians think that they are digitally savvy just because they use Ocado or Amazon. In their mind’s eye, too many still seem to regard the digital revolution as a bit player in the wealth of the nation. As I have said before, if business people are not having sleepless nights over their potential exposure to the digital onslaught, their future will be bleak.
Here is the truth: the digital revolution is Schumpeter’s creative destruction writ large. Just look how traditional channels of distribution have been destroyed by the new media—music, movies, printed news, books and photography—and the companies that have gone to the wall, including Jessops, HMV and Blockbuster. There are many more to come. The sectors just about to fall to the advent of this tsunami of technology include banking, medicine and education. The changes in these sectors are particularly breathtaking. This new digital order represents a flat world where my competitor and the person challenging me for my job may well live halfway around the world, and our thinking needs to reflect it.
I take as an example HS2, which I must say I first enthusiastically supported but which I am now having second thoughts about. I do not think that we have factored in the technological changes that are upon us. I do not understand the logic of spending £40 billion and more just to enable people to get from Birmingham to London 23 minutes earlier or Manchester to London 50 minutes earlier for them then to be stuck in monster traffic jams on the Euston Road. I adore using the TGV in France, and I have been envious of that country’s achievements, but could it just have been a 20th-century phenomenon? Just for once, why do we not try and project what the world will look like in 20 years’ time, when HS2 is scheduled to be completed, and in doing so remember what the world looked like 20 years ago? Which of us could have predicted Skype? Who would have thought it would be possible to speak to one’s children in Australia holding a small device in one’s hand, to receive the transmission in high definition and perfect sound, and for there to be no delay in transmission? Who would have guessed it would also be free of charge?
Now let us project forward. In 2033, can we imagine a technology that could transmit a perfect hologram of a person halfway around the world sitting on a chair in front of us—a hologram where you are hard pushed to tell the reality from the image? If this and thousands of other technologies are bubbling away, who in their right mind would journey to a meeting starting early in the day and getting home late at night, no matter how fast the train will travel? That is why we need to project the technology forward in all these mega-expensive infrastructure decisions.
I was going to talk about my new role, which is no longer on the Front Bench, but I shall leave it because I have hit my time.
Lord Kirkwood of Kirkhope
My Lords, it is a pleasure to follow the noble Lord, Lord Mitchell, in his interesting and powerful speech, with which I entirely agreed. This is an important and timely debate. The thing that I am picking up from the debate—I hope that the Government are picking it up —is that things are really seriously changing, not just economically but technologically, in a way that is often hard to grasp. Governments need to make plans on the basis of a much longer-term perspective to try to accommodate some of these changes. We have heard that from the noble Lord, Lord Monks, with whom I agreed, the noble Lord, Lord Skidelsky, with whom I agreed as well, and the noble Lord, Lord Giddens. All of them made important analytical speeches and all were looking forward and trying to understand the significance of the extent of the change that we have seen. I certainly think that investment banks and digital revolutions are part of that consideration and analysis.
The role of Government is twofold. First, we need to start thinking about managing expectations better in terms of what the future is realistically likely to hold. As part of that discussion, we need to consider how sustainable growth will look and can be provided in the middle to longer-term future. I have real fears that the rather loose assumption that we are going back to the trend levels of growth that we have known in the past is likely to be wrong. The Government need to be brave enough, if they believe that the analysis justifies it, to start discussing these issues in a grown-up way with the public and shaping people’s expectations about wages, growth and living standards over the middle to longer term. That is a very important role for the Government at the moment because of the exponential levels of change that we may be witnessing.
Secondly, the Government need to plan a little more coherently and systematically what the future policy framework is. We had some powerful speeches from colleagues earlier about the need for continuity. Two or three colleagues mentioned the importance to SMEs of continuity. I agree with that. As a foot soldier in the modern coalition Government, I struggle sometimes to understand what the growth policy is. I understand what the austerity policy is because that hits me in the face every time I turn a political corner, but I struggle to understand exactly where the five to 10 year programme is heading. I am a little surprised that the important work of the noble Lord, Lord Heseltine, No Stone Unturned, has not been referred to more often today. I wonder whether the Government are founding their thinking on that. Many of the recommendations of the noble Lord, Lord Heseltine, are correct and should be pursued.
How are all of these major programmes—whether it is No Stone Unturned, the European structural funds, apprenticeships schemes or the Work Programme—melded into a vision that the coalition Government can put forward with confidence at the next election in answer to the middle and long-term challenges? That vision is absent at the moment. It is going to be quite difficult because the election is looming and that makes it harder for any sensible policy-making to be worked through and promoted.
The other thing is that in the spin and the stunts that are used to announce important policies—we had an announcement this week about the pupil premium—the policy gets lost in a lot of noise. The Government should really be much clearer in what they are saying. They need more focus, they need more persistence, and they need to concentrate more on delivery than on making public announcements. They need to separate the signal from the noise. I looked at the Financial Sustainability Report, which was published yesterday. Its long-term views about demographic assumptions, climate change costs and a decline in North Sea oil revenues compound my fear that there are some real problems that we are not yet properly addressing.
Finally, I turn to some issues which are second order but are very important to me. They come into the category of inequality to which the noble Lord, Lord Skidelsky, rightly referred. The Government need seriously to address long-term and youth unemployment. Incidentally, if people are trying to address the housing benefit budget in a meaningful way, we need to have some plans for development of social sector housing units over the next five to 10 years. There is a huge agenda that the Government need to be addressing in the middle to longer term. If we do not do that, in the near future we shall find ourselves during an election with only half a story to tell. That would not be in our interests as a coalition Government and it would not be in the long-term interests of the country.
Lord Ahmad of Wimbledon
Before we continue, I remind noble Lords that this is a time-limited debate. When the clock strikes five, noble Lords should be looking to make their concluding remarks.
Baroness Turner of Camden
My Lords, I thank my noble friend Lord Haskel for introducing this debate and for the way in which he did so. Of course, the Government have a major role in generating prosperity and the employment prosperity should promote. The problem is that, as many of us see it, the present Government appear to believe that it all should be left to market forces, even though experience indicates that this is mistaken. We are told that there are “green shoots” and that things are improving, but I have doubts about that. Living standards are continuing to fall. Vital benefits are being cut or frozen. Housing is in crisis, particularly in London. I have said repeatedly in this House that rents are too high and wages are too low.
It is said that employment opportunities are improving. Only a little, it seems to me, and not for young people—or older. Those over 50 have great difficulty getting other employment if they are made redundant. All this indicates that the Government’s policies are not working, and we have yet to feel the effects of the public service cuts due to come onstream in the autumn.
Meanwhile, the Government are proceeding with their policy of cutting back employment rights. Access to tribunals is being made more difficult and will now be charged for. Changes in the law will make it more difficult, if not impossible, for an injured worker to claim compensation. Whistleblowers intent on drawing attention to dangerous situations are to lose some protection. The ridiculous scheme—defeated in this House but endorsed by the Commons—whereby workers can give up all employment rights in return for shares has nevertheless been introduced by the Government, although I think without much success. The Government seem to believe that all this will increase employment opportunities. I do not think so. The Government should understand that an enthusiastic, committed and well paid workforce is a major asset. SMEs have already benefited from a low-paid workforce, and this has not produced an economic revival: quite the contrary.
The role of the unions should not be underestimated. My own union has recently drawn attention to the work being done in the automotive industry, which is currently very successful. There is an industry committee, on which unions participate. The union has drawn attention to the very successful arrangements in Germany where the workforce is involved through workplace committees. Unions are not enemies, although some newspapers insist that this is so. Their contribution in the field of education and training should be encouraged and respected. The TUC programme, Unionlearn, is well known and successful.
Investment, however, is of course the key. There are many areas of the country which were once thriving but where the factories and workshops which once employed the local population no longer exist. As a result, the local economy is stagnant. There is a need for area development. It is now generally agreed by speakers in this debate this afternoon that our economy needs to be rebalanced; we cannot rely just on financial industries, which we have done in the past. There needs to be an investment bank under government direction so that appropriate investment can be made.
None of this will be easy, but current policies are making things worse, not better. Inequalities are becoming wider—a small minority is rich but others are much poorer. It is time to review current policies.
Lord Stone of Blackheath
My Lords, what I am about to propose in this debate possibly applies more to the following debate on the future of civil society, but I am only going to speak here. Perhaps Hansard can cut and paste my speech into the next debate so that I do not have to speak twice.
Seriously, these two issues are inextricably interlinked. The way in which we generate economic activity affects civil society enormously, and when we use terms such as “businesses”, “the Government”, “society” and “the economy”, we must remember that they comprise unique individuals interacting together as a whole, and that the way in which we conduct ourselves as individuals within government, in generating prosperity, and in civil society is greatly affected by our self-knowledge.
I am pleased to be associated with an organisation called Self Knowledge Global Responsibility. It exists to educate and to raise greater awareness of the connection between individual self-knowledge and sustainable development and civic responsibility; and to encourage people to be better citizens in fields such as social business, sustainable agriculture, ethical investment, low-impact buildings, and education and conflict resolution. Essentially, it is saying that if you are globally responsible you must strive for self-knowledge, and with self-knowledge you must be globally responsible. The founders of SKGR, Aaron Cass and John Hill, know that self-knowledge can be engendered by mindfulness. Mindfulness is the gift of mental functioning that can be engendered with practice and, with it, insights and awareness arise.
Your Lordships may feel that I am straying from the subject and that I am talking like some head in the clouds 1960s “flower child”. I suppose I was that—but I was also the joint managing director of Marks & Spencer when we were generating profits of more than £1 billion a year. David Sainsbury was running Sainsbury’s at that time. When we both entered your Lordships’ House both businesses were profitable and growing because the management and the whole team treated as individuals our customers, our staff, our suppliers, even our competitors, our shareholders, the community in which we traded and the global environment. We sought to manage in a caring, responsible, enabling way, with long-term vision. We understood that the effects of our actions in running these businesses were felt by all people at all times.
Coming back to the role of government, Congressman Tim Ryan of Ohio brought out a book recently entitled, A Mindful Nation, in which he shows that mindfulness is being taught and used effectively in classrooms, hospitals, research labs, military bases and in boardrooms and businesses across his country A brilliant business coach, Manj Weerasekera, says that mindfulness can positively impact productivity in all areas because mindfulness is paying attention on purpose in the present moment and in a non-judgmental way and, through this, insights and awareness arise. By the way, studies also show that mindfulness can lead to happier communities.
Returning to the theme of my noble friend Lord Haskel, we have a duty of care to lead the way to economic prosperity and to look at new options with an open mind, especially as so much of the old has failed. Alongside the suggestions made today by noble Lords about quality institutions, pragmatic regulation and enabling government, we must also consider a mindfulness strategy for Britain. I was delighted when David Cameron, the Prime Minister, introduced a well-being measure into the Office for National Statistics, and said that it was not all about GDP. This is a cross-party issue. Mindfulness is the path leading back to the individuals who comprise our society and handing responsibility back to them. It is an energy model based on self-knowledge that is designed to increase productivity. When people are more self-aware, they become more aware of the contributions they make in business and in society as a whole.
This year, a mindfulness strategy is being designed by my honourable friend Chris Ruane MP and my noble friend Lord Layard and others. It builds upon the work currently being done in this field by universities such as Bangor, Oxford and Exeter. They are working on mindfulness in schools and universities for students and teachers, in the health service for patients and staff, in business for employees and management and in the criminal justice system for offenders and police. By the way, for information, noble Lords may wish to know that a mindfulness course is operating here on the estate, with Members of the other place from all parties and a number of Peers. It is run by Professor Mark Williams and Chris Cullen, using their scientifically proven method of training contained in their book, Mindfulness: A Practical Guide to Finding Peace in a Frantic World. We have a new series starting here in the autumn.
Her Majesty’s Government, in considering our approach to the role of government in addressing the need to invigorate the economy, sustain the environment and create a civil society, may wish to help us develop a strategy for mindfulness across several areas of society where scientific proof of its beneficial effects is already on record. Drawing all this together in a cohesive plan could engender widespread well-being and stimulate the economy at the same time.
Lord Shipley
My Lords, I thank the noble Lord, Lord Haskel, for enabling me to say that I count myself as a progressive capitalist. I understand the importance of profit and the private sector to drive growth and tax revenues and the central role of government to intervene in market failure and to prevent abuses of capitalism when it consumes excessive wealth rather than creating it. It is for the public sector to provide leadership in infrastructure, education and training, public research and particularly leadership in business and innovation, identifying and helping to finance growth areas that will increase our competitiveness.
It is, of course, a fundamental task of government to redistribute wealth to reduce social and regional inequalities, otherwise capitalism cannot be progressive. I therefore support the concept of the enabling state. Are the present Government enabling? We have low interest rates, competitive tax rates, an increasing emphasis on science and technical subjects in education, significant investment in infrastructure and increasing access to finance. The Government have, among other things, supported innovation, seen the creation of 1 million private sector jobs and made major investment in roads and railways. There is the Green Investment Bank, the business bank and improved access to superfast broadband. This is all happening as we pursue the rebalancing of the economy away from an overreliance on London and financial services. In this respect the Regional Growth Fund, which is now worth £3.2 billion, is helping to drive that change, so, yes, I think that the present Government are an enabling Government.
There are three areas to which I wish to draw your Lordships’ attention and to which I hope my noble friend the Minister will respond. The first is skills. Employers in manufacturing, processing and engineering have problems recruiting right across the UK. It is a sad reflection of all the money that successive Governments have put into skills that we still have major skills gaps in our economy. Local growth funds may well provide an answer as they can require skills providers to be locally accountable for failures to meet demand, and much better forward planning should result. The concept of local growth funds is drawn from the report by the noble Lord, Lord Heseltine, No Stone Unturned.
Secondly, the Government are doing well on apprenticeships but we need to do much more. Fifteen per cent of our under-24s are unemployed but only 5% of graduates are unemployed. As the noble Lord, Lord Bradshaw, pointed out, we need more high-quality apprenticeships in the right high-level skills. Rightly, we compare ourselves with Germany, where there is much greater structural coherence between the private and public sectors in creating apprenticeships that turn into sustainable jobs. The Higher Apprenticeship Fund is an important contributor but we need to learn much faster from the German experience than we have done.
The third thing that I would like my noble friend the Minister to respond to relates to public procurement policy in the construction sector. We seem to be developing a procurement system between national and local government that favours big national construction companies at the expense of mid-sized regional ones. This is potentially damaging to regional growth. Building firms working up and down the country have recently bid for a place on a national procurement panel for the Priority School Building Programme. While 12 firms have been selected for the north panel and 12 for the south, nine of the firms selected are on both panels. We talk a lot about a lack of competition in the banking and audit sectors, but are we heading in the same direction in the construction sector with the big nine? It is impossible for medium-sized firms to qualify for a place on these procurement panels. Even as a joint venture with a combined annual turnover of £250 million, they are still ineligible even though they may have done excellent and relevant work in the past. Since all these firms ask for is the right to compete and to tender, it is hard to see what public interest is being served in preventing them doing so. There are serious implications for the prospects of regional firms because they will lose the opportunity to grow bigger and generate more jobs and wealth in their local areas.
Then there is the Scape framework used for procurement by some local authorities, housing associations, some parts of the NHS, some police authorities and universities. This framework requires contractors to have an annual turnover of more than £500 million to be eligible to carry out jobs starting even as low as £2 million. Very few mid-sized regional contractors can meet this turnover requirement but they could carry out the work just as well. There is a requirement to take into account local supply chains and subcontractors because they are supposed to be used by national contractors, but it seems that this is frequently not the case. That is an erosion of job opportunities for local people, often in areas of high unemployment.
Then there is the question of the reinvestment of profits. Ten of the contractors on the northern panel that I referred to are headquartered in the south. Do the surpluses made on the projects undertaken in the north of England get reinvested in the place where the work was done, or do they get siphoned off to spend elsewhere? We need to know. The Government accept the need to boost the regions but I ask the Minister to look very closely at regional procurement so that local people can get jobs, skills can be maintained and enhanced in all regions and cash surpluses can be reinvested locally to train the workforce of the future.
Lord Hoyle
My Lords, this House is at its best in debates like this. Everyone who has taken part has tried to be constructive and point the way for the future. We would not be having this very useful debate if it had not been introduced by my noble and good friend Lord Haskel.
I was very pleased that the noble Lord, Lord Bradshaw, talked about engineers because they are not very often talked about anywhere. I say that because I started my career as an engineer in the railway workshops at Horwich. Although locomotives, particularly steam locos, look extremely glamorous when they are going up and down the track, it is not quite so glamorous when you are working in a smoke-box and doing repairs on them. I followed what he was saying on taking National and Higher National Certificates. If you live in a village they know everything about you, and I remember two people talking about me in my own village. One was saying that I started as an apprentice engineer and then took my National Certificate, then my Higher National Certificate, then my Post-National Certificate. The other one said, “You’ll tell me he’s won the ruddy Grand National as well in a moment”.
I start from the importance of manufacturing industry in those days when it was all about manufacturing. From the 1970s onwards we lost about 30% of our manufacturing industry. It was not fashionable to talk about manufacturing industry then; it was all about the service industry. My noble friend Lady Turner and I know this perfectly well, as service industries were a recruiting ground for our trade union activities. We have to have a balance and do all that we can to help the manufacturing industry to succeed. Manufacturing industry went down from 32% in 1970 to 11% in 2010 but, despite that, 46% of our exports are from manufacturing industry. That is why we need to look at where the growth areas are in those fields. We would all agree that the one great manufacturing industry that remains is the aerospace industry, where our success is quite remarkable. I could mention the defence industry but we have to be very careful, given the press reports on some of the countries that we are exporting to—that is a debate for another day, isn’t it? There is room for growth in the pharmaceutical, micro-electronic and chemical industries.
This has been a very progressive and helpful debate. I agree with almost everything said by my noble friend Lord Mitchell. There is a need for a business investment bank to help to promote industry and small industry in particular—a business investment bank that leads and, as my noble friend rightly said, is backed by regional banks. We need to do all that we can and I hope the Minister will agree that the Government ought at all times to favour British industries in its procurement if they possibly can. In this way, and by going for research and development, we can begin to reverse the decline that has occurred in manufacturing industry. If we do that, we have a great future in this country.
As my noble friend Lord Haskel said, Germany, quite unlike us, has always relied on the manufacturing sector. It is the most successful country in Europe and we can learn a lot from it. As my noble friend Lady Turner also said, we must increase the participation of employees and look at the German model of including employers and trade unions in management. They have benefited from that and there is a lot that we can learn.
I see that my five minutes are nearly up. I hope that the Government, who have a central job to do, take note of a lot that has been said in this debate. There is a big role for the future of a business investment bank, backed by regional banks. If we do that, not only will we benefit, but all of us in the country and the country as a whole will benefit as well.
Lord Davies of Oldham
My Lords, the House owes a debt of gratitude to my noble friend Lord Haskel for introducing a debate that has produced so many varied but constructive speeches about the circumstances in which we find ourselves. My noble friend emphasised the advantages to be derived from business and Government working together, and identified the way in which this co-operation was essential if we are to get out of our present difficulties.
Two speakers also put the present position into a more general perspective. My noble friend Lord Giddens stressed the fact that the crisis is very far from being over. No country has successfully re-established itself from the crisis which obtained in 2007 and 2008. In any case, Britain is well down the list. That helps to explain why there are so many difficulties right across our economy and puts into perspective the anxieties of noble Lords such as noble Lord, Lord Cope, and the noble Baroness, Lady Kramer, about SMEs. The reason why the banks have been reluctant to lend is because they have been at the centre of this devastating crisis. That has presented them with problems so great that the state had to step in for two of the major ones, and huge sums of money are at stake.
The noble Lord, Lord Skidelsky, also indicated that if the Government took no responsibility for restoring demand in our economy then it was likely that we would continue in the present difficulties, which are not to be underestimated. Real wages are lower under this Government and, when they go out of office in 2015, will have fallen by 2.4%. We all know about cuts in benefits, so that section of the community is paying the price. So wage-earners and those on benefits are suffering, and we all recognise that unemployment goes right across the economy and affects a very large number of people.
In its economic survey of the UK economy, the OECD made the nature of the problem quite clear: productivity underperforming in relation to the rest of the OECD countries. We had fallen, at the onset of the recession, by more than other countries in the OECD. The noble Lord, Lord Bates, indicated successes with regard to exports, but we have an increasing balance of payments deficit. Despite a 20% sterling depreciation, Britain is still nowhere near earning its way. That is the depth of the crisis into which we must put the context of what we need to do about policy, particularly in relation to industry.
It has been argued that we are making clear success in some areas, and indeed we are. The noble Lord, Lord Bhattacharyya, speaks with great authority about the relationship between science and research, and the fact that we have high-class universities that help our industry. However, the noble Lord emphasised that we need to identify the results of such investment. That surely must be critical because we can live in a fool’s paradise if we think we are doing the right things but have no measurement of the outcome of policy.
This is crucial in one area that emerged in this debate and was raised by many speakers on both sides of the House; I refer to the skills gap and the skills dimension. Successive Governments have addressed themselves to this and gone in with great intentions to invest. Certainly, the previous Labour Government invested greatly in colleges and the Learning and Skills Council, and addressed the skills deficit. We have not solved the problem; indeed, far from solving it, as many noble Lords have identified, we are well behind other European comparators. It is not easy for the British economy and society to adopt German perspectives on how to run industry and develop skills. The German apprenticeship system is very different from the situation that confronts British industry. However, we certainly need to address our minds to the level of skills, which is palpably too low to serve the needs of the nation.
The other question is what can be done to invest in infrastructure to promote jobs and demand, as the noble Lord, Lord Skidelsky, mentioned. One can only say that the Government are acting late on this. They have so far done nothing of any merit with their programme, and it will still be the case that capital investment will be lower in 2015 than it was in 2010. That is not a recipe for success or for the development of our economy. That applies to schools policy and particularly to housing. After all, there should be investment in the construction industry to give some stimulus to the economy but, of course, the Government have done little about it. It is therefore not surprising that the noble Lord, Lord Cope, and the noble Baroness, Lady Kramer, can identify the difficulties faced by small and medium-sized enterprises in obtaining resources.
On our side, although we have faint hopes on this, we think that the Government ought to do what my noble friend Lord Mitchell first referred to, as did my noble friend Lord Hoyle, and establish a business investment bank. We need a bank with a network of regional banks because if there is one clear casualty of this crisis it is the complete collapse of our regional infrastructure. We all know that the Government dispensed with the RDAs and then discovered that the noble Lord, Lord Heseltine, had some pretty sharp advice for them on the problems and how the RDAs actually produced investment in the regions. At present, precious little is being done.
My noble friend Lord Haskel and other noble Lords—generally those on my side, including my noble friend Lord Monks, who was emphatic—raised the issue of how we tackle short-termism in British business. “Quick results reflected in share value” is the nostrum of how our businesses work, and it is not therefore surprising that if one is faced with potential takeover bids, to which the only defence is to enhance share value, that becomes the issue rather than investment in research, skills and development of a longer-term perspective for industry.
My noble friend Lord Haskel referred to the noble Lord, Lord Sainsbury, whose absence from this debate we greatly regret. He is concerned to see how we can build a business model in which shareholders have greater strength to hold boards to account. If anyone wants an illustration of why boards need to be held to account, just consider the salaries of chief executives, board members and directors over the past 20 to 30 years. The enormous disparity between them and the people who actually do the work in industry and companies is a reflection of the power of the boards, which we do not challenge effectively.
We may have to go some way before we follow what my noble friend Lord Stone suggested in relation to Marks and Spencer or the illustration given by the noble Lord, Lord Hunt, in terms of John Lewis Partnership. It may be a considerable time before we are able to engender a framework within which businesses can be organised on those bases. However, at the very least, surely the other side, having preached for so long that the Government must lay off business and let it pursue its own objective, must recognise that the cost of the short-termism of British business—particularly the absurdity of the short-termism of British banks—is that it has contributed to the crisis that we are all facing, which we desperately need to remedy.
I conclude with some questions. I wish to come off the macro and step down a notch. My noble friends Lord Mitchell and Lord Hoyle mentioned the Department for Business, Innovation and Skills. It is a Treasury Minister who is responding to this debate but if we are to make a change to business structure, the Department for Business has to be reformed also. The department is being reduced in size; its staff are recruited increasingly from the south-east, where it concentrates its resources; and it has very little representation in the regions. It is small wonder, therefore, that we have real anxieties about the capacities of that department.
Lord Newby
My Lords, I join other noble Lords in thanking the noble Lord, Lord Haskel, for introducing this debate, particularly because he gave me advance notice that he was to draw some of his remarks from the recently published book by the noble Lord, Lord Sainsbury, which meant that I spent a happy time reading that book while watching the cricket last weekend. I recommend it to all noble Lords.
One of the challenges for a Minister in my position after such a wide-ranging debate is to try to have a theme running through my concluding remarks. I would like to take as my theme—my text, if you like—two of the three defining beliefs of the noble Lord, Lord Sainsbury, in what he calls progressive capitalism. They are the importance of institutions, which he says need to be market-supporting rather than directed, the need for an active and competent state and the need for fairness. We have been talking very much about the first two today and I shall concentrate on those. I should like to take as my core text one sentence from the book of the noble Lord, Lord Sainsbury, which underpins a lot of what noble Lords have said. It states:
“I can think of few more challenging or socially valuable jobs than building up a high value-added business in today’s knowledge economy”.
If that is the text, I think that we are all progressive capitalists now.
The noble Lord, Lord Haskel, discussed these themes and made the point with which no one would disagree: we need to raise our game in a number of respects. I start with skills, and draw noble Lords’ attention to a press release issued today by Young Enterprise about the skills challenges that employers face, and they are quite interesting. The press release states:
“The five most important skills British employers think young people should have when entering the workforce are: communication and literacy … a positive attitude … self-management … people skills … and team working”.
As we discuss curricula and structures, at least four of those five areas of core skills are very rarely debated. I will not spend much time on them today, other than to say that we need to think about them more. I am very pleased to see that the noble Lord, Lord Stone, agrees.
In terms of raising the game, I agree with the requirement of the noble Lord, Lord Haskel, that Whitehall must raise its game. The noble Lord, Lord Mitchell, also talked of games—the Olympic Games. He commented on how much was achieved by the Government working well with high achievers. There are lessons to be taken from that, and the Government have taken one of them in appointing my noble friend Lord Deighton, who oversaw the Olympics, to bring some of the disciplines that he used there to government, not least in terms of the way in which we manage infrastructure. Everybody agrees that Governments in this country have been poor at delivering infrastructure projects to time and on budget. He is focusing his attention on getting government departments to produce infrastructure capacity plans, use private sector expertise and worry, a lot more than they have sometimes done under past Governments, about delivery.
I agree very much with another comment by the noble Lord, Lord Haskel, about the need to replace short-termism with long-termism. I commend to all noble Lords the LSE Growth Commission, which specifically looks at these issues. I am very pleased to say that members of the commission are in detailed discussions with Infrastructure UK to look at how some of their learnings can be brought to bear in the way that we do things.
The noble Lord, Lord Cope, and the noble Baroness, Lady Kramer, concentrated their remarks on SMEs, which they said were crucial. That is something on which we all agree.
The noble Lord, Lord Cope, talked about UKTI’s shift in focus towards SMEs. This is very welcome and is having a real impact. The other specific initiative taken by the UKTI—one of the most cost-effective initiatives that the Government have undertaken—is its appointment of trade ambassadors from across your Lordships’ House. These are having a material impact on developing trade links with some of the countries that we have traditionally ignored; my noble friend Lord Sharman in Morocco and my noble friend Lord Risby in Algeria, for example. We are finding that there is considerable scope for enhanced UK trade with parts of the world that we have tended to ignore.
The noble Lord, Lord Cope, talked about the challenges of the PAYE system. I agree with him. He may be right in saying that companies will find it simpler in the long run to adopt the latest technology. With regard to national insurance, we have introduced a £2,000 per year allowance for businesses. That will be particularly beneficial for SMEs. That is not a mechanical point but it is a hard cash point.
The noble Baroness, Lady Kramer, talked about funding, particularly the challenges in getting new forms of funding into SMEs. I very much agree with her. One of the leitmotifs of this debate has been people drawing on experience from elsewhere in Europe and North America. We can learn from these countries but it is quite difficult, as the noble Lord, Lord Sainsbury, says in his book, to replicate exactly their institutions. The American community development and investment funds work very well in the States, but it is not easy simply to transpose them here. On the question of new sources of funding for SMEs, one of the key things to have happened is that the PRA has in effect torn up the old methodology of the FSA in terms of getting new banks going. It was virtually impossible to start a new bank in the UK and we clearly need a raft of new banks, not least business banks. I believe that the PRA’s approach to this will prove to be extremely beneficial. In the mean time, the Government have introduced the Funding for Lending scheme, which should help small business funding and is in the process of establishing a business bank.
The noble Lord, Lord Giddens, thinks that we should be academic-led in the way that we look at these issues—I suppose that, as an academic, he would. I hope that we do not need to wait to have a raft of academic literature in front of us before we can start doing a lot of the things that he would like us to do. He talked, for example, of shale gas and whether we could take that opportunity quickly enough. As he will know, when the spending review was announced, we announced that we were taking a series of steps in the very near term to move forward on the development of shale gas here. These include developing technical planning guidance for shale gas exploration and looking at how we can put in place a generous community benefits scheme so that those communities that will be affected will be fairly recompensed. We are also consulting on tax incentives to encourage exploration. Hopefully, we are making a lot of quick progress in an important area that is bound to be controversial.
The noble Lord, Lord Monks, used a phrase that I have not heard for a considerable time, “the commanding heights”. It used to be extremely prevalent in political discussion. One of his main concerns was that too many UK companies have been bought by foreign companies and that foreign owners have different priorities from domestic ones. That is right, sometimes. However, we must have a more nuanced view. One of the most impressive success stories in British industry in recent years is that of Jaguar Land Rover. Does anyone think that there was a company in Britain that could have taken over Jaguar Land Rover and made the success off it that Tata did? I do not. It has been a phenomenal success. The Kay review, looking at short-termism and long-termism, will play a part in trying to redress the balance here, but I do not think that a great constraint on foreign ownership of British companies is a good idea.
The noble Lord spoke of the problem of top salaries and growing income inequality. That has been a very significant development in recent years, driven largely, but not exclusively, by the financial services sector. When I served on the top pay board, we looked at methods of beginning to redress this, not least by shareholder activism, and the Government are implementing a large proportion of those measures. Bank bonuses, without a bank bonus tax, have fallen very significantly—they are down 70% in the case of RBS and 40% in the case of Barclays.
The noble Baroness, Lady Valentine, raised a number of issues. I cannot deal with all of them. On airports, all I will say is that the Government taking quick, decisive action would be extremely easy if there were no such thing as public opinion. In this case, any Government would, quite rightly, take public opinion into account, as well as the narrower, though crucial, economic analysis that would underpin any decision.
The noble Baroness made a point about immigration and visas. As she knows, we are looking at methods of improving the situation in respect of visas, not least for China. We have introduced a VIP visa service for visitors from China. I could not claim that we have this right. It would be easier, in a narrow respect, if we were members of the Schengen agreement, but she knows as well as I do that that simply will not happen. We are looking at other ways of redressing the problem.
She pointed out that London is a centre for businesses that want to trade in Europe and that we need to engage in the EU as an equal partner. I agree with everything that she said on that subject. I also agree with the noble Baroness, Lady Donaghy, who pointed out the costs of adopting a Norwegian posture. To me, that is simply a risible option.
I thank the noble Lord, Lord Bates, for his speech, not least because he has saved me from saying a great deal of what I would otherwise have said about what has been happening.
The noble Lord, Lord Bhattacharyya, referred to protecting the science budget. The Government have done that. Any debate about science, particularly this one, should recognise the seminal role that the noble Lord, Lord Sainsbury, played as the first politician for a very long time to take science seriously. Without his persistence, we would not have had the expenditure on science in the previous Government that this Government have been able to build upon.
I share the support of the noble Lord, Lord Bhattacharyya, for HS2. While I agree with the noble Lord, Lord Mitchell, that the way we do business is changing, I have spent a great deal of time travelling to Birmingham over the past 20 years—once to do with developing Brindleyplace, as it now is, in its early stages and, secondly, working for a charity—and in both cases there is no way I could have done that without being there and engaging people face to face. While I am sure that a hologram of myself in front of Birmingham City Council or a head teacher would have been mightily impressive, I simply do not believe that at any point in the foreseeable future we will be able to do without transport.
We will need more of it. One of the things that has not been mentioned is that the population of the UK is set to increase significantly over the coming decades, which means that all forms of transport will need to be enhanced. That is why the Government have put so much effort into looking for longer-term infrastructure proposals, and why those proposals are included in, and form the basis of, the spending review last week.
I liked the point of the noble Lord, Lord Bhattacharyya, about evaluating the way in which we do things. I shall certainly raise that issue with my colleagues in BIS.
The noble Lord, Lord Bradshaw, referred to the value of engineers and said that there were too many apprentices who were not engineers. What we have got to do is to increase the number of engineering apprentices and not reduce the number of apprentices in a range of other industries. An apprentice in the catering industry is as important to me as an engineering apprentice. There are good examples of leading companies in the UK who have terrific records on apprentices—BAE and Rolls-Royce, for example. The university technology colleges will help to change, to a certain extent, the bias against a vocational approach to careers and I hope that they succeed.
I have referred to the points made by the noble Baroness, Lady Donaghy, but I would like to comment again on the shortfall in engineering graduates. One of the matters that the noble Lord, Lord Sainsbury, mentions—and with which I strongly agree although it is controversial—is that we need to better align the courses that we provide in further and higher education with labour market needs. This is a major challenge, not least because many young people are working very hard to obtain degrees in subjects that they think are quasi-vocational, such as law, and then find that the careers that they had envisaged for themselves simply are not available because of the excessive competition. I agree with the noble Baroness that tourism is a hugely important sector that is sadly overlooked.
The noble Lord, Lord Skidelsky, raised a raft of macroeconomic conjectures. The only part of Keynes that I would like to quote back to him is the importance of animal spirits. It seems to me that animal spirits are now operating in a different direction than they were a year ago. That is one of the key reasons why we are seeing growth, and will see faster growth in the future.
I agree with him completely about looking at the unemployed as a resource. However, I think his analysis is flawed because when you look at the level of unemployment in London—8.6%—who can say that there are not jobs in London for every Londoner who wants one? London has hundreds of thousands, if not millions, of people who come from the rest of the world to take up jobs that could be done by Londoners if they were properly trained. This is not a macroeconomic failure. There is a huge supply-side failure that we have completely failed to grapple with over the years, and we need to do better.
The noble Lord, Lord Hunt of Chesterton, referred to the Damascene conversion of Mr Willetts and asked me to comment on it. I am afraid that I cannot see within the mind even of my own colleagues, far less those of my coalition partners. I am sorry that he did not mention the fact that the Government have confirmed that they are investing in the new high-performance computer for the Met Office, which I am sure he will welcome.
The noble Lord, Lord Kirkwood, talked about long-term unemployment, which is a huge problem. The Work Programme is designed to address that. Although it is doing better it needs to be more flexible, and I hope that it will be.
The noble Baroness, Lady Turner, referred to investment being the key. Indeed it is. The Green Investment Bank has £3 billion of government funding, and so far, of the £633 million it has committed, for every government pound committed private investment has brought in three.
The noble Lord, Lord Stone, raised the question of self-awareness. I hope that he will start with Members of your Lordships’ House.
The noble Lord, Lord Shipley, raised a number of key points, some of which I have dealt with. On public procurement policy, the problem that he raised, which was new to me, seems to be a very real one. I shall take it up with my colleagues and write to him.
The noble Lord, Lord Davies, basically suggested that things were extraordinarily gloomy. The only thing I would say to him is that there was a 1.4% growth in real household disposable income last year; over 1.3 million more people are now working in the private sector; last year employment grew faster than in any G7 country; and the number of women employed is the highest it has ever been.
This has been a fascinating debate. We have discussed fundamental issues relating to the economy and society and I am extremely grateful to the noble Lord, Lord Haskel, for initiating it.
Lord Haskel
My Lords, unfortunately our time is up and I cannot respond to each individual speech. I hope that the Minister on the Woolsack will give me a moment to say that this has been an informed, interesting and lively debate. I thank the Front Benches for their responses, which have been most fulsome. I hope that the rest of the Government are listening with an open mind because an awful lot has been said today that is based on knowledge, experience and an enormous amount of good will, which we can all value.
Civil Society
(11 years, 5 months ago)
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Baroness Prosser
To move that this House takes note of the future of civil society.
Baroness Prosser
My Lords, I am pleased to have been given the opportunity to lead this debate today on the future of civil society.
The impact of organisations that we collectively describe as civil society has for many years been recognised across many walks of life as of importance and value. There is, however, sometimes confusion about the term. That is not surprising, because civil society is made up of many and various people and organisations. We have the truly voluntary, such as the Scouts and the Guides, amateur boxing clubs and golf clubs, the National Federation of Women’s Institutes, church groups and play groups. Then we have umbrella groups such as Community Service Volunteers and the National Council for Voluntary Organisations, which among other activities provide networks of support and advice. In the past, CSV has provided educational training on citizenship as part of the school curriculum.
The third wing, known generally as the voluntary sector or the third sector, provides professional help often including advice and representation. This group includes law centres, CABs and advice centres of many kinds, dealing with issues of race or gender, or helping those who have been trafficked or abused or those without housing. Some services are very specific, for example for children and young people, the elderly or drug addicts.
Where does the government initiative on the big society fit in here? The Conservative Party website states:
“The Big Society is about putting more power in people’s hands—a massive transfer of power from Whitehall to local communities. We want to see people encouraged and enabled to play a more active role in society”.
No one, I am sure, would disagree with the second sentence, but a transfer of power from the state to local communities should be considered more warily.
The TUC’s 2011 report, Civil Society and Public Services, contends that the overall concept of the big society is the outsourcing of public services to providers from civil society and to social enterprises. It says that it must be seen in the context of huge cuts to public spending.
The report quotes from another report, Cutting It: ‘The Big Society’ and the New Austerity, produced by the New Economics Foundation. It argues that there might be merit in the theory of empowering communities, opening up public services and promoting social action, but that these aims cannot at this time be separated from the Government’s programme of deep and rapid spending cuts. As the foundation puts it:
“Unpaid labour and the charitable and voluntary sectors are due to fill the gaps left by public services, providing support to increasing numbers of poor, jobless, insecure and unsupported individuals and families”.
Was it a little harsh? Was it jumping the gun in 2011 when the big society had hardly started? We shall see.
Let us look at where we are now. The Charity Finance Group’s March 2013 report, Managing the New Normal—Adapting to Uncertainty, found that 93% of the charities that it surveyed said that they were experiencing a squeeze on fundraising, while two-thirds said that demand for their services had increased.
CSV declares that individual citizens in small community groups cannot tackle widespread complex and costly social, health and social care problems alone, and that a well resourced independent and responsive sector is needed to get the best fit and to find and support the vulnerable and needy. It also says that voluntary sector organisations that involve volunteers need to be properly resourced in order to effectively and efficiently recruit, support and retain volunteers, and that this is particularly important when volunteers are engaging with vulnerable families and individuals as well as people in difficult circumstances.
While the aim of the big society might be laudable, the funding of small, often isolated groups of individuals cannot and will not make up for the gaps that are being left by the cuts to local authority budgets and the subsequent reduction or loss of vital professional services. According to the NCVO, reporting this year on the June spending review, the further reduction in funding from local authorities, together with the negative impact of many welfare changes, will mean the likelihood of more and more people seeking support while the charities that are geared up to providing that support become more and more financially precarious.
The NCVO goes on to say:
“Given that charities play a major role in preventing social problems and therefore reducing costs, councils looking to balance their budgets will need to have meaningful discussions with the voluntary sector about how they can support their communities”.
I hope that when the Minister replies he does not tell us that these decisions are local and local authorities are free to choose their own priorities. While that might be factually correct, the size of the financial pot that largely determines these priorities is very much a national decision.
I turn now to some brief specifics, such as areas of service and/or need that have been hit particularly hard by the current austerity measures. The availability or lack of civil legal aid was discussed at length in this Chamber during the passage of the recent legislation and in a debate last week, so I will not labour the point. Suffice it to say that problems addressed early on do not often develop into major crises. The Law Society is quoted as believing that one in three law centres will be forced to close because of its reliance on legal aid funding. Most of these centres are in areas of deprivation and most need. With nowhere to go for help, many problems are certain to turn into crises.
The 2012 report, Perfect Storms, by Children England, which is the membership organisation for the children, young people and families voluntary sector, cites an example of a national charity providing advocacy, legal representation and information and advice to vulnerable young people and adults that uses both paid staff and volunteers. Despite the local authority duty to provide such a service, the charity has seen the allocation of core funding reduced on all its contracts, which has meant the loss of 15, or 10%, of paid staff, and 19, or 5%, of volunteers.
According to a survey by the National Children’s Bureau, more than 65% of children and young people’s charities responding said that they are reducing both the level and range of services they deliver due to public spending cuts. The TUC has reported that more than 30% of funding to sexual violence and sexual abuse services for women has been cut. Women’s Aid says that it has been turning away 260 women per day because of its cuts. Yet the Government’s announcement only this month of a £4.3 million boost to big society funds to put communities in control cites among other areas of priority: troubled families, improving maintenance arrangements for children of separated families, and improving social mobility. This is virtually the same client group as those currently losing funding. It seems very strange that we are starving well established and experienced organisations of the funds they need to deliver the services in which they are the experts and then providing more funding to set up something unprofessional and new.
The only conclusion I can reach is to go back to the Conservative Party website, which I remind the House talks about:
“a massive transfer of power from Whitehall to local communities”—
in other words, services on the cheap provided by local people with little or no experience to some of our most vulnerable and needy citizens. It will end in tears and somebody in the future will have to pick up the pieces of a very short-sighted and poor policy.
Finally, lest anyone thinks that I am more in favour of bureaucracy than the development of communities, I can tell the House that this is not the case. I spent many happy years in the 1970s and 1980s working in community development and a community law centre, and I absolutely believe that many communities have hidden strengths and that many people very much enjoy participating in local activities, helping those more in need than themselves. However, those people who are in need of help deserve to know that the assistance given to them comes from professional and experienced advisers. The volunteers working in local centres or agencies also deserve the support of those with professional know-how. I look forward to listening to the contributions of noble Lords.
Lord Hodgson of Astley Abbotts
My Lords, I begin by congratulating the noble Baroness on giving us the chance to discuss this important matter and, indeed, on drawing the attention of the House to the multifaceted nature of civil society.
Before I go into my remarks, I have what the police would call “form” on this matter and need to declare some interests. I chaired a task force for the Government that produced a report, Unshackling Good Neighbours, which sought to look at what stopped people volunteering and giving money and what stopped smaller charity and voluntary groups growing. My reward for that was to be appointed the official reviewer of the Charities Act. I produced a report a year ago and here I have to chide my noble friend on the Front Bench somewhat. The report, which contained 100 recommendations, was deregulatory and generally welcomed by the sector but has yet to receive an official response from the Government. It is 12 months now and I have to say to my noble friend that I do not think that that is quite good enough. The sector is anxious to hear whether any of the ideas which I proposed, after consultation, are going to be proceeded with, and the Government need to hurry up. In producing those two reports, I visited many parts of the country and saw at first hand what wonderful work was being done by men and women, often in small groups and with very limited resources, tackling some of the most deep-seated and intractable problems of our society. They deserve our support and encouragement.
I said that I wanted to congratulate the noble Baroness, Lady Prosser, on introducing this debate. I do so, but she will not be surprised to learn that I do not really agree with her analysis of the situation. I will not go through a point-by-point rebuttal but I will say that she completely failed to mention the appalling economic situation that this Government inherited from the previous Administration. There is no way that the charity and voluntary sector can be insulated from that. Indeed, the Government are to be congratulated in many ways on what they have managed to achieve.
I draw the House’s attention to three important aspects of government policy. The first is the coming into force in January of this year of the Public Services (Social Value) Act, which for the first time imposes a duty on commissioners to consider the social, economic and environmental benefits before commissioning a contract. That is a really important way of getting local input and commitment to projects. The second aspect is the changes in gift aid, which have simplified the whole process considerably through the Small Charitable Donations Act. The fact that no donor declarations are needed for smaller amounts of gift aid is really important and helpful to small charities in boosting their ability to raise money and cutting down the amount of paperwork they have to undertake. Last, and most important, is the development of the social investment market, which recent reports suggest grew by 25% last year. This is a win-win situation: more funding for the voluntary sector and the emergence of the UK as a world leader in this whole area of social investment and in the way in which we can carry it out. Those three aspects are extraordinarily important and the Government are to be congratulated on having pioneered them.
My noble friend would not expect me not to have a shopping list of things that the Government should be going on to execute over the remainder of this Parliament. I offer him two or three that he should get his officials to look at with expedition. The first is the rather technical issue of trustee duties. Our trustee law currently makes no distinction between trustees of an ordinary trust and those of a charitable trust. Preservation of capital is exceptionally important in an ordinary trust—you need the capital preserved in your pension fund in order to pay the pension. However, it is perfectly possible for trustees of a charity to spend some capital in pursuance of their charitable objectives. That is an important difference and I hope that the Government will persuade the Law Commission, which is beginning its review of charity law, to begin to undertake a really serious look at this in order to draw a distinction in law between these two types of trust in the future. It would have substantial practical implications and benefits for charities.
The second issue is volunteer and trustee liability. I discovered that there is a perception of risk out there. It is true that some of it is based on myths and some of it is based on completely counterintuitive outcomes to legal cases, which have been well publicised. However, we live in a litigious age and we need to offer our volunteers, trustees and workers in charities and the civil society sector protection and the understanding that the law is on their side when they are acting sensibly. I hope that the Government will continue to look for ways to provide that reassurance. I am sure it will have a great benefit in terms of the readiness of people to volunteer.
The third issue is commissioning. Commissioners tend to be risk-averse. If we are going to find a way to encourage the voluntary sector, we are going to have to provide commissioners with some air cover so that they are prepared to chance their arm, so to speak. We could establish yardsticks that the Government would help promulgate as best practice. The Government would not have to enforce them, but they could be there as a yardstick. These could relate to, for example, the number of tenders that you call for in relation to the size of the contract. You can have only one winner. If you have six or seven tenders, you have to have five or six losers, and all the work and cost that has gone into preparing those tenders is wasted. You could also have yardsticks about the cost of preparing a tender and the cost of monitoring in relation to the size of the contract. All these things would help the charitable and voluntary sector compete more effectively, as it would not be put under undue or unfair competitive pressure.
The last issue is that we are clearly going to see voluntary groups and charities begin to have to form syndicates. They are going to share services with other charities that are providing different expertise to that syndicate, which, of course, brings in the issue of VAT on shared services. Value added tax regulations are a bourn from which no traveller returns and are exceptionally complicated. The Government could do a great deal to help the development of syndicates and to help consortia of smaller groups compete in the brave new world if the VAT situation could be addressed.
Finally, I should like to address the question of failure. We should be prepared to expect and accept that some charities and voluntary groups will fail. The voluntary sector is tackling some of the most difficult and hardest-to-reach areas of our society and not all plans are going to succeed. My noble friend Lord Cope referred to the high failure rate of commercial enterprises and the charitable and voluntary sector is not exempt from similar ratios. Failure is not the same as fraud, but sometimes in the voluntary sector the two are confused. I hope the House will agree that this is not a matter to be defensive about. Indeed, some might argue that if there were not failures that would show that the sector had lost some of its dynamism and its entrepreneurial instincts.
Lord Rooker
My Lords, I congratulate my noble friend Lady Prosser on introducing the debate and welcome the opportunity to say a few words. Before I set out an example of civil society, I want to do a tiny bit of scene-setting. As we saw this week, the UK is home to three times as many banker millionaires as the whole of the EU put together. The RSPCA has raised the pay for top executives into the £150,000 a year range, despite falling donations, and, in my view, is wasting money on prolific private prosecutions. Under the austerity regime that we are experiencing at the moment, when civil servants have been on an effective pay cut due to the pay freeze and pension cuts, the very top Civil Service levels have continued to receive eye-watering five-figure bonuses. I am as annoyed as Eric Pickles is at CLG at the failure to tackle the runaway local authority chief executive salary trough and the perks that are added to it. The Charity Commission, as it appears from the recent BBC “File on Four” programme, is busy certifying non-charities as charities. Seven out of 10 commissioners on the board are new and only one of them has any significant experience in the sector at all.
That is a bit of scene-setting for talking about civil society. Then I read Peter Oborne’s column in the Telegraph today. He says that the coalition has been brave and ambitious in challenging the official culture,
“dominated by the assumption that controlled, state-directed action held the key to national happiness”.
I have never agreed with that and I do not think that my noble friend has, from what she said earlier on anyway. Peter Oborne goes on to say that the programme of social change and economic reform,
“in its scope and audacity has no precedence in the post-war period, including the Thatcher years”.
The undertone of what is happening is extremely dangerous. I do not disagree entirely with everything that he says, but he then fails to ask who picks up the pieces as the state withdraws. That is the key question. If the policy is to have a shrunken state, which it clearly is—it has nothing to do with austerity in many ways—who picks up the pieces?
The effect of local authority funding being decimated is having a real negative effect on some of the frontline civil society organisations. On the one hand, local authorities are retreating from work by raising the bar of intervention—say in social services—and on the other cutting support to the private and third-sector operators in those areas. A young woman I met recently in one of our large northern cities works for an organisation that helps young people who are either homeless or in danger of becoming homeless. Her case workload left me staggered. It did not compare with what I had experienced during my 27 years in the Commons when qualified social workers carried out the work that she described. Social services have not even contracted out the work. They have simply raised the bar, saying that they do not do this any more, and their intervention comes only at the crisis level and then after lots of chasing up. This young woman had recently taken on supporting a very vulnerable female teenager who had run away from home several times and no one knew where she had gone. She had a drug history and was associating with much older men. For the princely sum of a pay rate that was a few pence above the minimum wage, this young woman worked over and above the call of duty in hours, support and liaison, and at levels which I know from experience qualified social workers did in the past.
This cannot be the way to pick up the pieces. As my noble friend said, it will end in tears. I fully appreciate that agencies at the centre and locally are having to make savings. I do not complain about that. I fully understand it and do not wish to be involved in a party-political dialogue about who is to blame. The fact is that that is the reality. It is obvious that the desire to replace services and shrink the state, which is certainly a central policy, is leaving gaps in areas that are difficult at the best of times. These areas were difficult when there was plenty of money. That is the point. By definition they are labour-intensive—very labour-intensive if one gets into the support of families. They are very challenging and often very sensitive. In short, they are the stuff that makes big headlines and calls for public inquiries when something goes tragically wrong in a specific case. That is the reality that we will be called to account for.
Slow growth and austerity are here for a while. I accept that. It would be ridiculous to work on any other basis. The population is ageing. More families are moving away or being moved away from social networks. These types of case will multiply. We need somehow to find a way properly to support the voluntary organisations. They are the bedrock and I am in favour of their not having as much red tape as local government. We need to do this not only with grants—finance is one area—but also with better routes into and support by the existing, remaining public services that can no longer fill their traditional roles. We have to accept that traditional roles are not being fulfilled by the statutory services, but they remain there with expertise infrastructure. We must find a way of enabling the voluntary sector, which is providing these services, to link in. We do not have that at present. It will end in tears if things simply carry on as they are at the moment. This is not all a call for more money. There has to be a better way of operating in the civil society.
Baroness Barker
I thank the noble Baroness, Lady Prosser, for introducing this debate and I declare an interest. I have a small consultancy that works with charities.
I am not a big fan of the phrase “civil society”. Every time that I come across it, I think that it does a disservice to what it is trying to describe, but I cannot think of anything better. I am not always entirely sure what it is. I listened to the noble Baroness, Lady Prosser, giving her explanation at the beginning. For me, civil society means the point at which the statutory, voluntary and private sectors come together to make a difference to the common good and the lives of citizens.
If we had had this debate about 10 or 15 years ago, I do not think that we would have talked very much, if at all, about the role of the private sector in all of this, but we do now. It is the part of civil society about which we know least. There is a new report by Dr Catherine Walker, published by Directory of Social Change, which looks at corporate giving. There is some very interesting information in it that noble Lords will probably not have heard before.
The report is an analysis of the giving of the top 550 corporate givers. It uncovers that companies play an important part in political and social development, but there is little evidence about what they do. They give approximately £700 million to £800 million, though it is a bit difficult to tell, because some multinational companies do not declare. That represents 2% of all charitable income, and 20% of companies give 90% of the cash that is given to charities. Cash donations to charities make up about 77% of the donations and the balance is gifts in kind. The average donation by a company is about £1.1 million. There are 73 companies that give more than £1 million. As far as we can work out, the total contribution as a proportion of pre-tax profits is 0.3%. Does that not say something?
In England, the biggest beneficiaries of charitable corporate donations are in Greater London, which gets about 33%. The West Midlands gets 1%. As far as we can tell—where it is possible to tell—the giving is totally unrelated to need. Corporations give where their offices are. They give primarily to community and social welfare charities, to education and to children’s charities; more than 50% of all giving goes to them. Causes such as human rights and women’s issues are far less popular. They get less than 10%. Arts and culture are traditionally seen as the domain of corporate givers rather than of individuals.
Despite everything that has happened since 2008, the financial sector is still the top sector for charitable giving. It gives about £245 million in cash. The least charitable sector, with an average spend of just about £300,000, is technology. I am glad that the noble Baroness, Lady Lane-Fox, is now in her place. There are also corporate trusts, and they provide about half a billion pounds in grants, 50% of which goes to three causes: education, community and social welfare, and children. This is the first report of its kind and it has set a benchmark in reporting. I hope that it will be possible to repeat the exercise and grow the statistical basis. We know that we need more transparency in reporting. There are also some limitations. We know practically nothing about the corporate giving of small and medium-sized enterprises.
The report is an important piece of work. Why is it important? It shows that giving varies dramatically across the country and that there is a key role for government in making up the deficits geographically and in terms of sectors, because of the disproportionate benefit to different localities.
I hope the Minister saw the Institute for Government’s report Making Public Service Markets Work because the private sector increasingly plays a huge role in and benefits enormously from the delivery of public services. We know that the big four—G4S, Capita, Serco and Laing—get by far the majority of the billions of pounds of public service expenditure. We also know from last year’s NCVO and CAF survey that local charities are beginning to lose out because of the way in which commissioning and, in particular, procurement is being done. The noble Lord, Lord Hodgson of Astley Abbotts, was absolutely right.
In its submissions to government on government procurement, NCVO said that social value ought to be both the strategy objective and at the forefront of the Government’s policies on procurement and commissioning. The Social Value Act is incredibly important as public services will remain large and significant employers in different localities, particularly in hard-hit areas outside London. It is therefore important that we take all this information into account and that the Government rethink the part they have to play in relation to the private sector’s role in civil society and in enabling all citizens in all parts of the country to get the best from it.
Lord Hastings of Scarisbrick
My Lords, I, too, am grateful to the noble Baroness, Lady Prosser, for initiating this debate. I am also very grateful to the noble Baroness, Lady Barker, for her comments about the private sector. I declare an interest as the vice-chairman of the Global Agenda Council on the Future of Civil Society at the World Economic Forum. I draw to the House’s attention the report published at the World Economic Forum in Davos this January. I retain that position for a further two years. The essence of the report, which contains 80 expert interviews and insights from 200 analysts, including those from the charity, not-for-profit, business and government sectors, is that there is a new and very different paradigm for civil society going forward. It is far too easy to think of civil society as the domain of NGOs, charities and foundations and to miss the point—I am not suggesting that the noble Baroness, Lady Barker, did—that there is a lot beyond corporate giving that the private sector actively, persistently and continuously does. We need to see civil society not in purely cash terms but also in engagement terms.
I will give one or two examples and then try to draw a point. I was pleased to have a short conversation in the Bishops Bar with the noble Lord, Lord Livingston, who was introduced into the House this week. He will be the Government’s trade envoy, although he retains his position of chief executive of BT. For the past nine years, I have sat as a non-executive member of the BT responsible business board. The noble Lord and I spoke about BT’s Net Good ambition, which the noble Lord announced the day before the Prime Minister announced his responsibilities in this House and as trade envoy.
BT’s Net Good commitment is that for every tonne of carbon it consumes as a result of its activities, it will replace that effectively. Instead of putting carbon in the atmosphere, it will remove 3 tonnes from the atmosphere—a 1:3 ratio—by working alongside its stakeholders, suppliers and customers to help them learn about not just energy efficiency but different lifestyle approaches. This is not something BT needs to do. As one of the largest consumers of energy in the country, from a profit base it need only pay its bills, but the opportunity to engage the public in a responsible civil society approach to environmental responsibility goes way beyond merely the corporate saving of carbon or the massive contribution of BT to multitudes of charities and voluntary organisations around the country. That is part of the business/civil society engagement.
Another example is another organisation to which I am connected, as a trustee: the Vodafone Foundation. At a board meeting last Friday, we agreed to continue the active support that Vodafone is giving to the establishment of communication hubs in emergency centres around the world. The latest is being established in Goma in the Congo this very week. It will allow refugees to communicate closely with their families and in doing so not only retain those communications but benefit from the opportunity of a life beyond disaster. Again, this is not something that a mobile phone provider needs to do, nor is it CSR. It is the active collaboration of three sectors: the humanitarian relief sector, which would traditionally be seen as civil society; the responsibility of government; and the opportunity of the private sector.
Let us get a little more grainy. Just over a week and a half ago, I visited Wormwood Scrubs as a trustee of the Vodafone Foundation and in connection with the charity Only Connect. Only Connect was established by the great man Danny Kruger, who has written many speeches for David Cameron. It is a great charity that we all respect. It helps offenders and ex-offenders learn how to bring their lives into coherence by using the arts and by connecting to one another in prison to enable them to work together outside prison. During a meeting with the governor, we heard that one of his express desires was to help prisoners begin to build their own groupings of communication connectivity so that they can establish family networks and not be isolated individuals who return to repeat crime. We approved a grant on Friday to enable Only Connect to create its own LinkedIn-sourced connecting system for prisoners within the British system. That is not something that a mobile phone provider needs to do. It is not in the P&L and it is not CSR. It is the combination of all the factors that civil society now represents: the responsibility of government, the opportunity of the charitable sector and the privilege of profit to serve the interests of the public.
In just a few moments, I shall meet the Prime Minister’s special envoy for development in Afghanistan. He is coming to this House, having served in that role in Iraq and having previously been chief executive of KPMG International. Why would he take on that role? It was because, as Gordon Brown and David Cameron acknowledged, you need that kind of private sector expertise to deliver public goods in an efficient, effective and consummate way.
What is the future for civil society? In the judgment of this report—KPMG authored this report with the World Economic Forum, and I am directly responsible for its content—I firmly believe that the new civil society that we all need to welcome is where we allow the three sectors to stand as equal legs of the same stool and find solutions that are not based just on seeking cash from the private sector. I share some of the deep concerns about public sector cash restraints, but the reality of our new world is that we need to bring the three sectors into common understanding to find solutions that are not based just on more money.
I was proud to serve for 21 years as a trustee of Crime Concern and for 15 years as its chairman. One of the most important things it did before it merged with the Rainer Foundation and created Catch22 was to create in 1989 not just the backbone of Victim Support but the basis of Neighbourhood Watch. We all recognise the power of those realities as civil society truths through which we enjoy our safety and community to this very day. Unless we are prepared to take an open stance to involving the private sector, government, NGOs and common institutions in finding solutions, we will have three sectors fighting one another. There is no need for that in the future, and I hope that our speeches and the Government’s response will acknowledge this new opportunity and embrace it.
The Lord Bishop of Derby
My Lords, I, too, thank the noble Baroness for securing this debate. I shall pursue the definition that the noble Lord, Lord Hastings, began to open up in his speech with the notion of the three legs of the stool and what civil society means. I start from the presupposition that we live in an age of liberalism in the technical sense; that is, we are very concerned for the individual to be free, and to be liberal about all those freedoms. Those freedoms are very good things, but any good often creates a problem.
I want to preface what I am saying with some words from TS Eliot. He said that the danger in liberalism is that it releases energy rather than accumulates it. It releases energy and then it is difficult to gather it together, because everybody is free, to make the building blocks of a civil society. He said that it relaxes rather than fortifies. The more we create rights, the bigger the problem with what we call cohesion. The more we are concerned about individual good, the bigger the problem with the common good. The more people have individual freedom, the more chance there is of becoming isolated, lonely and marginalised. It is very important to debate the civil society at this time when we desperately need energy to be accumulated around people for their well-being and flourishing and not dissipated into people being atomised on their own. The Government want to work with civil society—for the state to co-operate in accumulating energy for good things to happen. The National Council for Voluntary Organisations defines civil society as when,
“people come together to make a positive difference to their lives, and the lives of others”—
accumulating energy, making a positive difference to their lives and the lives of others.
I think, however, that we have to remember the historical context in which we seek to reaccumulate energy for human flourishing and public well-being, and I suggest that there are a couple of layers of civil society. The historic one is the institutions that existed between the individual and the state: the family, where there was a negotiation around gender and generation; the nation, which was a mix of kinship groups and regions; and the church, a spiritual hinterland that people explored and shared. Those three sites of civil society—the family, the nation and the church as a symbol of a spiritual hinterland—were not something that anybody chose; you were just born into them and negotiated your way within those frameworks. You started off with an accumulation of energy, in Eliot’s terms, through the family, through kinship groups and regions, through a spiritual hinterland.
Today, energy has been so liberated that civil society is now an elective exercise: people have to be persuaded to join together to create the energy and the momentum for human flourishing. The traditional bits of civil society—the family, the nation and the church, which gave a big framework—have got very weak. The Government desire a big framework for us to operate in so we are scrabbling about to bind people together for a common energy in something about which it is very difficult to persuade people, certainly beyond the local.
In my own experience in Derby and Derbyshire, where I work, the Government are inviting elective groups in civil society to co-operate with, as we have heard, the provision of services and well-being in the community. National charities are coming into our local area to bid for contracts and do the dealing—because they are organised, like the private sector, in a large way—and local charities are suffering, withdrawing and retracting, and the energy is dissipating. On the private model you need big-scale operations and the large charities are coming in to take the ground. That is very dangerous. The local is where you are in touch with people enough to understand what is going on in their lives, to listen to the stories of the homeless or whoever, and to focus the accumulation of energy appropriately to help people flourish and have the care and support they need.
There is a real danger that in trying to reduce big government we may be setting up big civil society. Civil society needs to be quite local and small-scale in many ways. If we set up a big civil society of big successful groups which can bid and deliver contracts all the local voluntary energy and connection is going to be marginalised and disappear. That would be catastrophic in many local communities. We need to encourage local civil society—small-scale civil society that people can elect to join. We need to remember that that kind of activity is committed to human flourishing, not to the delivery of services. It is a big framework, like the one that the family, the nation and the church stood for. People who get drawn in to civil society through their own choice want to share their values with others. They want to improve life on a big scale; they do not just want to deliver services and get a good return so that they can keep doing it. The Government somehow have to create an atmosphere of encouraging aspiration and idealism as well as instrumentalism in the design and delivery of services.
I want to raise three issues for the Minister to comment on. First, how will the Government endeavour to fortify the foundations of civil society—the traditional ones of the family, a sense of a nation and a sense of a spiritual hinterland? That is a big aspiration that excites people. They want human flourishing for themselves and for others and not just a narrow service delivery. Secondly, how will the Government help to encourage the smaller, more local agents of civil society and not dissolve big government into big civil society? Thirdly, how will the Government help civil society to be about human flourishing—the accumulation of goodness, in Eliot’s terms—and not about a more pragmatic, problem-solving exercise in trying to pick up the problems in society, rather than about raising human spirits in the way that civil society has always done and needs to do if it is to be a proper part of the three-legged stool that we have just heard about?
Baroness Gould of Potternewton
My Lords, I, too, thank my noble friend Lady Prosser for initiating this debate on civil society, for it gives me the opportunity to discuss the important contribution made by the women’s voluntary and community services as part of civil society. That is not only my view; it is a view supported by Theresa May MP. When she was Minister for Women and Equalities she said:
“the women’s sector is a model of the Big Society we wish to build. That is a society in which we all work together to address problems, conscious that government has a role to play but that it does not have all the answers, and recognising the role played by charities, voluntary groups and others”.
Irrespective of women’s organisations seemingly being a perfect example of the big society, within a year of the Minister’s comments the voluntary and community sector faced, and still faces, unprecedented uncertainty.
In concentrating my remarks on the women’s sector, I thank the Women’s Resource Centre, the Fawcett Society and other organisations for sending me information based on their own experience and research. Nearly 1,300 women’s voluntary and community organisations have been established since the early 1970s with the aim of challenging inequality and empowering women to overcome discrimination, building on the many initiatives of the then Labour Government. While the organisations vary in size and income, collectively they are a family of volunteers, providing holistic and integrated services, with a mission to ensure that women and children improve their life chances and lead independent lives. These services meet the needs of a diversity of women, young and old, some with multiple and complex needs, some who have experienced domestic and sexual violence, alcohol or drug misuse, or have mental or physical difficulties. These timely interventions improve mental health and well-being, improve financial inclusion, reduce reoffending, improve independence and social and communication skills and provide a pathway to educational and vocational development. For BME women they reduce social exclusion and introduce community cohesion.
In 2010-11 Brighton Women’s Centre, of which I am patron, provided open access and out-of-hours drop-in services for nearly 12,000 women who needed mental health and emotional support. Some 250 women attended counselling services, a 40% increase on the previous year, and 533 women offenders and women at risk of offending accessed Inspire counselling, which was able to demonstrate to them that support, not crime, could provide lasting solutions to their problems. A social-return-on-investment study of Inspire showed that for every £1 invested, £3.57 is generated in social value for women, children and society. An Inspire client said:
“I had to fall to the bottom, to be forced to stop and take a look at the problems I was hiding from. Thank you so much for helping me not only change but save my life”.
Women’s organisations have, however, traditionally found it challenging to find sustainable long-term funding. That might due to a misconception that equality has somehow arrived and they are not needed any more. Maybe donors are a little bit more sentimental about where they give their money. I have nothing against donkeys, but the Donkey Sanctuary receives more donations than the combined incomes of the largest violence against women and girls organisations in the UK.
For these organisations, the income stream has come from a combination of public donations from charitable trusts and grants by local authorities and health bodies. However, financial restraints to all these bodies have spiralled down to reducing support for the women’s voluntary organisations. Research by the North East Women’s Sector Network showed that half of the women’s organisations have lost funding, with those working on violence against women and girls facing cuts of over 40%—this is replicated across the country—while 70% of them are using or planning to use their reserves, leaving no buffer for the future, which could lead to ultimate closure. All the research shows that this is a reality. I was distressed to hear this week that the Government, in giving evidence to CEDAW, said that there is no evidence that women’s services are being affected by austerity. Perhaps the Minister can tell the House the basis on which such a statement was made.
The limited number of available income sources has severely affected organisations, meaning that more and more of them are chasing the same pots of money. There are also unintended consequences by changes to needs-led grants, by commissioning, by the new structure of health services and by payment by results. As the noble Baroness, Lady Prosser, and the right reverend Prelate said, many of the women’s voluntary organisations are too small. They rely solely on volunteers and cannot compete with larger organisations that can dedicate time and resources to compiling complicated bids in order to raise funding.
Coupled with those changes are the levels of cuts to legal aid and welfare reform. Of women suffering domestic abuse, 54.4% do not now qualify for legal aid under the new eligibility criteria. Their only recourse is to go to the voluntary sector for help, 94% of which has seen an increase in demand, with 77% of referrals coming from statutory bodies. The question is where those women will go. Where are they going to get the help and support they need? In an economic culture of budget deficit reduction, cost-effective services that produce positive outcomes are more essential than ever. There is no question that a small investment can produce an increased value to society, financially and practically.
What is the answer? How are the Government and local authorities going to understand that a little resource could have an enormous benefit? We need to think, perhaps, about how positively we can help and what action is required from both the Government and local authorities, which should give due regard to the crucial role played by voluntary women’s organisations, building an equalities framework into the commissioning process, thereby ensuring that the needs of specific communities can be met. The gender equality duty should be used to monitor the impact of policy and funding decisions—if it still exists after the review. If not, a key requirement to end discrimination will be scrapped, with dire consequences.
Commissioners are now commissioning more generic services, which further exacerbates the problem. Political agendas such as the Troubled Families programme do not include an understanding of the need for women-specific services, as they take a whole-family approach when, historically, the women’s sector has recognised that if we are to support our families and communities, we must start supporting women as the primary care-giver. Equally, it is important that women’s voluntary organisations are recognised as partners in meeting local needs, be it the police and crime commissioner, the clinical commissioning groups or the local authority. None of that can be achieved unless there is a mechanism to hear the voices and views of the women concerned. That, unfortunately, is not happening at present. Further, women must be represented on all key decision-making bodies, nationally as well as locally. Their value will then be understood as a crucial part of civil society.
Baroness Tyler of Enfield
My Lords, I, too, congratulate the noble Baroness, Lady Prosser, on securing this timely debate when the combination of public spending cuts, decreasing charitable donations from the public, and sharply falling trends in corporate giving have pushed the sector into a fragile financial state. I declare an interest as president of the National Children’s Bureau, vice-president of the charity Relate and co-chair of the parliamentary inquiry Growing Giving.
As other noble Lords have already said, civil society does not limit itself to the voluntary and charitable sectors but runs across all aspects of public life. However, it differs in one key respect from other sectors, in that it has a mission statement that is focused on the benefit of society and the collective good. Today I will be focusing my remarks on charities and the voluntary sector, concentrating particularly on three issues: the overall funding situation, the reduction in individual donations and improving the impact that the corporate sector can have.
On funding, a recent Charities Aid Foundation report on UK giving found that there had been a 20% fall in individual public giving, leaving charities £1.7 billion worse off. According to NCVO, 43% of charities’ funding is provided by individual donations—the sole largest contributor—and this has left many charities struggling to find other sources of funding. Indeed, one in six charities said recently that it is likely that their charity may have to close in the next 12 months. Other charities, as we have already heard, are having to make heavy cuts to frontline services at precisely the time when the need for the crucial services they provide is going up, particularly for the most vulnerable. The second biggest funding contributor is the state, providing 37% of charities’ income. This is a dangerous balance at a time when, as we all know, public funding is in short supply and approximately 50% of local authorities are cutting charitable grants disproportionately to the rest of their public services.
So the problem is very clear, but what are the solutions? Many charities are adapting to a new climate, and I know from my own experience that many have been doing this through mergers and collaborations, developing new business models such as social enterprises, and seeking new sources of finance, including the newly emerging social investment market. It is also important to remember that the vast majority of charities—the figure is thought to be 75%—do not receive funding from statutory sources and so look to the general public for money. However, there is a clear need for the Government to assist charities in this major change, and I look forward to hearing from the Minister what the Government are doing and what more they plan to do in this respect.
I turn to individual giving. The cross-party parliamentary inquiry, Growing Giving, chaired so ably by the right honourable David Blunkett and of which I am a co-chair, has highlighted a reliance from charities on support from older people and is looking into new innovative ways of getting younger people involved and excited about giving their time and money to charity, with a particular focus on the importance of charities providing volunteering opportunities and helping young people to get involved as youth ambassadors, young trustees and so on. The inquiry has highlighted the need for charities to be more involved in the current citizenship curriculum in secondary schools in order to highlight the issues that they tackle and to give students as much information as possible.
A key point is finding organisations that young people feel passionately about, but also trying to match that with charities that are in greatest need of support. Perhaps it is unsurprising that charities that affect children in particular were found to be the most popular among children, with some 35% of 9 to 11 year-olds selecting those as the type of charity they would most like to support. It is vital that charities can clearly demonstrate the impact of their work to children and the wider public, and I think that this is easier when their involvement is local. What are the Government doing to encourage schools to develop partnerships with local charities, to enhance not only the immediate prospects of those charities but also the long-term benefit of educating children from a young age about the impact that their money and time can make—something that can then take root and translate into more sustained giving in later life?
What is the role of the corporate sector? A recent report by the Directory of Social Change, referred to by my noble friend Lady Barker, found that companies are keen to encourage giving in the workplace by their employees, including by providing volunteering opportunities through company foundations and associations with charities, as other noble Lords have said. Simple initiatives such as Movember—the competitive growing of moustaches for donations to testicular cancer in November—have proved very popular with employees who enjoy showcasing their charitable efforts. The introduction of payroll giving, which takes place in a relatively small number of companies, has certainly helped in the giving of money to charity by providing an easy way for employees to give money every pay day. It has proved a popular scheme. However, it would seem many companies are missing a trick. A recent Charities Aid Foundation report found that one in three employees would be likely to give through payroll giving if they had a chance. That same report, however, showed that only one in 34 employees in Britain gives regularly through the payroll giving scheme, showing the huge margins by which this scheme could be expanded.
Like my noble friend Lady Barker, I was fascinated by the recent report showing the new data on corporate giving, particularly the fact that big private companies, in terms of reinvesting pre-tax profits, are nowhere near the 1% benchmark set, and that the top 420 companies are giving somewhere in the region of 0.3% in terms of cash, making up some 2% of charities’ income.
So what do I think the solution is? I think one solution would be to encourage companies to match the charitable giving of their employees. This has been suggested as one way of increasing the amount donated by companies. Matching schemes, while having the positive effect of the overall company giving, could also galvanise the workforce, giving employees the feeling that they have more power to make a difference if what they donate will be doubled. Perhaps the Government could look at ways of incentivising corporate giving, perhaps through the tax system.
It is important that we do not forget the roles of smaller businesses in the UK, which are also vital players in civil society, often at a more grass-roots level. The sponsoring of sports teams, giving to local charities and paying greater attention to the environment are all aspects that small businesses have worked on, and due to their greater geographic spread they have managed a much wider reach than some of the big corporations that are largely London-based. I conclude by also quoting from the World Economic Forum, which stated:
“Civil society should be the glue that binds public and private activity together in such a way as to strengthen the common good … based on the core values of trust, service and the collective good”.
Baroness Gibson of Market Rasen
My Lords, I, too, wish to thank my noble friend for instigating this debate. Today I want to concentrate most of my speech on voluntary organisations so it follows on quite well from the speech of the noble Baroness, Lady Tyler. Like my noble friend Lady Prosser, before I came into your Lordships’ House, I was a national official of a trade union. In my case it was the Manufacturing, Science and Finance Union, one of the forerunners of Unite. Like my noble friend Lady Prosser also, at one time I had responsibility for our members who worked in the voluntary sector, both full and part-time, in organisations and charities such as the NSPCC, the RSPCA and the National Children’s Bureau. I stress that these were and are workers, not volunteers, whose pay, pensions and working conditions are paramount to them. I always marvelled at our members’ dedication and commitment to those with and for whom they worked. These were and still are people on whom society relies every day to care for those least able to help themselves, such as children and adults, and especially the elderly and those with disabilities, or to take care of animals others no longer wanted or wanted to care for.
Workers in voluntary organisations often carry out the jobs that others do not want to do. I worked as a national union official in the 1980s and 1990s. Over the years views about the role of voluntary organisations have changed quite significantly, and Governments’ attitudes towards them are certainly very different today. Successive Governments have veered towards the voluntary sector and have wanted to work with it in developing political agendas—for example, in the health service, the education system and even in the criminal justice system.
More involvement with government and business has inevitably meant that the voluntary sector role has expanded and developed. In principle, for Government, business and the voluntary sector to work together sounds fine. As the NCVO has said:
“The voluntary and community sector … is a vital and vibrant part of civil society”.
As the right reverend Prelate the Bishop of Derby said earlier, civil society is where people come together to make a positive difference to their lives and the lives of others for mutual support, to pursue shared interests, to further a cause they care about, or simply for fun and friendship. It is where “me” becomes “we”.
This is both encouraging and to be encouraged. However, it must be remembered that if the new formations in society are to work, voluntary organisations must be funded well enough for them to operate properly, to respond to the new challenges facing them and to ensure that their independence is not compromised. Unfortunately, in many cases this is not happening. Stephen Bubb, of the Association of Chief Executives of Voluntary Organisations, recently expressed his worries about the possible impact of public spending cuts on this sector.
There are reasons for concern. I was recently contacted, as I am sure other noble Lords were, by the Charities Aid Foundation, a charity that works to improve the charitable giving environment to ensure that donations are used as efficiently as possible. Over the past year it has investigated the charitable sector and found some interesting but daunting facts. Donations to charities fell by 20% in real terms in 2011-12, the public having given £1.7 billion less than in the previous year. As the noble Baroness, Lady Tyler, said, 17% of charities believe that they may face closure in the next 12 months, 26% of charities have already cut frontline services and 25% said that they had already made staff cuts. These are just a few of those findings. The effect on the viability of the organisations concerned is obvious.
Of course, these were national statistics, but the effects of cuts on local people and services are also important and are vital to civic society. The best way of finding out about these is to read local papers. I have recently seen two good examples. In my own area, Essex County Council is closing a centre in a little town near Colchester because it wants to sell the property. It has given a month’s notice to the organisations that use the centre, which include a local school of dancing and a youth centre. Needless to say, the local people affected are very worried. In Lincolnshire, where I was born and brought up, the county council wants to cut staffed libraries from 40 to 15, and to cut their opening hours. The small market towns and the villages surrounding them will suffer most if this happens.
In the Charities Aid Foundation paper there are some proposals for government and employers to consider to encourage charitable giving which have proved successful. These include reminding people that money can be left to charity in wills and encouraging employees to give to charity by including in a company appeal a photograph of an employee who already gives to charity. It also suggests encouraging effective ways of giving such as payroll giving, as mentioned by the noble Baroness, Lady Tyler, encouraging businesses to maintain or increase their support for charities and getting the Government to work with charities to modernise and improve fundraising. Do the Government have any plans to encourage employers to guide their employees towards charitable donations and will the Government be taking positive steps to assist charities, such as modernising and promoting payroll giving?
Finally, I turn to another phenomenon brought about by the economic circumstances in which we find ourselves. Last week somebody asked me about food banks and I explained that when those of us who can afford to give to food banks do our weekly shopping, we buy an extra item to place in the food bank boxes, which can now be found in many supermarkets and local shops. That item could be a tin of soup, a packet of biscuits or a box of breakfast cereal—anything that would be useful to a family struggling with its finances. A local food bank then collects the boxes from the shops and families go to the food bank as and when they need to. The food banks are usually established in premises that are convenient to local people, such as a shop that might have closed down on the high street. The person to whom I gave that explanation thought it was an excellent idea as, of course, it appears to be. However, it is a sign of how times have changed and how we as a society assist those who would once have probably been helped by charitable organisations or by the Government. I wonder what the Minister feels about food banks and what they signify for the civil society in which we live.
Lord Janvrin
My Lords, I, too, thank the noble Baroness, Lady Prosser, for introducing this timely debate. I declare my interests as recorded in the register and, in particular, that I chair two charities and am on the boards of three others, including one called Philanthropy Impact, which aims to promote and inspire philanthropy.
I welcome this debate for the obvious reasons that many others have already mentioned. Times are difficult for a great many individuals and families and, at such a time, a strong, active, innovative civil society has a vital role to play in addressing social and economic needs. I agree with those who have said that such a civil society has a real role to play at any time and I associate myself with the remark of the noble Lord, Lord Hastings, that this is a partnership between government, business and civil society. In a world where Governments cannot do everything, charities, social enterprises and NGOs can take risks, innovate and go to places at the cutting edge, where publicly funded bodies may not go. If times are hard for individuals, as others have pointed out, times are also very hard for civil society. Charities and voluntary-sector organisations are struggling to make ends meet and several others have already drawn attention to the remarkable figure that funding for charities fell by 20% in 2011-12. We need to recognise that this is a sector under severe pressure.
Against that background, I will focus on one aspect of encouraging philanthropy in support of civil society—as one report had it, encouraging more people to give and people to give more. When it comes to giving, it is not all doom and gloom. As many commentators have often observed, the British people are extremely charitable and, to quote the Charities Aid Foundation, research suggests that when times are difficult, donations to charity are often less likely to be cut back than other forms of spending. There are, as others have mentioned, signs that young people are very positive about giving time and money, and I associate myself with the remarks of the noble Baroness, Lady Tyler, about how important it is to encourage this.
For many, giving is becoming easier, through social media or online giving sites; as in so many other ways, technology is transforming the ways in which we do things. But my point in speaking today is not only to draw attention to the importance of philanthropy and to give credit to those many people who give generously to all sorts of causes, but to urge that we continue to look for ways in which to encourage more giving at every level, many of them mentioned already, including individual, corporate and governmental.
At the individual level, among other things, we need to support those campaigns that encourage people to give in different ways. I draw attention to the Give More campaign, which encourages people to give a little more this year if they can, and a little more than they did last year—a simple idea and a good campaign. I also suggest that we need to sort out how better to recognise generosity. Some donors do not want it, but others shun it because they fear unwelcome consequences. That is a pity. The honours system is better focused on giving recognition to philanthropy, but I hope that more can be done to recognise those who are generous, particularly in the media and at local level.
Many noble Lords have mentioned issues at corporate level. I particularly endorse the remarks about looking for ways to introduce more matched funding schemes, and I was very interested in the reference from the noble Baroness, Lady Barker, to the report about the level of corporate giving. I certainly agree with those who say that more could be done to encourage payroll giving. Many organisations have effective schemes, but many more could do so. Like much of the business of encouraging more philanthropy, it is a question of making it easier to give; payroll giving undoubtedly does this.
Mention has also been made of corporate social responsibility and community investment programmes undertaken by many enterprises. It is easy to dismiss some of these programmes as just a form of marketing but, having been involved in some of them, I think that this is probably too cynical a view. I believe that many young people are introduced to volunteering and engagement with civil society in this way. It needs to be further encouraged, and I welcome the fact that the Government have recently announced consultation to see how CSR could be made more effective.
I pay tribute to what the Government have done in difficult circumstances for philanthropy. Leaving aside perhaps the 2012 Budget, there has been progress with, for example, Legacy 10, encouraging people to leave more to charity in their wills, and a willingness to look at ways of streamlining Gift Aid. There is also the stated aim to look at tax incentives to encourage social investment, which is undoubtedly an exciting and important area where the UK is a world leader, as others have said.
There is more that the Government can look at. I, too, have a shopping list. I hope that they will continue to consider, when the time is right, further fiscal measures to encourage giving, including the merits of lifetime legacies or charity remainder trusts. I hope that they will encourage payroll giving, as I have said, particularly within the Civil Service. I hope that they will keep under review the level of funding of the Charity Commission, because it is in all our interests to have an effective regulator for the charity sector. Above all, I hope that they will continue to support and encourage more philanthropy and giving at every level, and encourage those who seek to make it more effective. This will have a direct benefit on the health and strength of our civil society, which is in all our interests.
Baroness Smith of Basildon
My Lords, I congratulate my noble friend Lady Prosser on securing today’s debate, which is not just enjoyable and interesting but also important. It is important that we recognise and address the challenges facing civil society. I have three points to make.
The first is about the value of civil society. That is not a term invented by any Government; it has been around for a long time. We all think that we understand it, but we all interpret it differently. A key part of civil society is the voluntary and community sector, but I think it is a much broader, a much wider and a much more inclusive concept. When the current Government replaced the Office of the Third Sector with the Office of Civil Society, they relied on the more traditional definition of being synonymous with the voluntary and community sector. They announced that government policy would concentrate on three issues, all related to the voluntary and community sector. The noble Lord, Lord Taylor of Holbeach, in a parliamentary Answer, stated that the Office for Civil Society,
“will support charities, social enterprises and voluntary organisations … encouraging a big society and addressing disadvantage by making it easier to set up and run such organisations … the office will co-ordinate work across government to implement the big society and establish a number of flagship big society projects”.—[Official Report, 21/7/2010; col. 969.]
We now rarely hear about the big society, but my point is that those government definitions miss the point. It is not about structures. As important as the voluntary and community sector is, I will offer a different definition. Civil society is the glue that unites and connects society: the notion that we are not just individuals, but that by coming together and working together we can improve the lives of others, improve our own lives, improve society and contribute to our communities, however local or global those communities may be. It is not part of state institutions.
My second point concerns the role of civil society. I am coming to regret that the role is too often seen as just third-sector delivery of services. I am certainly not against contracts or third-sector commissioning. I declare an interest since I chair the board of trustees of a not-for-profit organisation, Resolving Chaos, and am involved with a number of charities and voluntary organisations that provide services. Some are commissioned, some funded and some are provided voluntarily. I am slightly disconcerted by the Government’s publication yesterday of the lobbying Bill, which, taken alongside comments made before the last election, could fetter and curtail the activities of such organisations in a way that could work against the benefits that civil society brings.
In the previous Government, I was the Cabinet Office Minister with responsibility for the charitable and third sectors. I made it clear that the Labour Government would continue to be a strong advocate for the campaigning role of civil society organisations. The role of voluntary and community sector campaigners provides a voice for some of the most disenfranchised, disengaged and vulnerable in our communities.
To assert, as Oliver Letwin did in a speech to the NCVO Conference in February 2010, that what he treasured about the sector was not its campaigning role but its “special contribution” to do something to “change things” and solve problems is to misunderstand fundamentally the inextricable link between the two. Those that complain that,
“so much … effort in some parts of the voluntary sector is devoted to campaigning”,
should recognise that such campaigning is an intrinsic part of civil society and wider democratic engagement in the system.
I will go further. I will give a hypothetical example of a charity that supports homeless people. It may have some contracts; it may have some funded services. It will raise funds and have supportive donors. If there is an area of council or government policy that in its professional opinion, at the sharp end of service delivery and support, is exacerbating the problem, surely it has a duty to its supporters, to its donors and to civil society to campaign to try to address that issue. It cannot turn away from its campaigning role and its responsibilities in that regard. It has an obligation to the homeless whom it is seeking to help.
It was Dom Helder Camara, a Brazilian Archbishop, who said:
“When I give food to the poor, they call me a saint. When I ask why the poor have no food, they call me a communist”.
We need to take care that we do not slide into the position that we accept civil society as long as it knows its place, which is to provide direct help and support, but not to tackle or help tackle the causes of the problems and to campaign to address the causes of those problems. That would be plain wrong.
The lobbying Bill refers specifically to third-party organisations’ campaigns at election time. It does not specify which election, so I assume that it refers to all elections. There are issues to be discussed, but we need to ensure that we do not curtail legitimate campaigning activity or provide an opportunity for government or local authorities to issue bad news and unpopular policies just before elections, thus preventing third-party organisations campaigning against those policies.
My third and final point concerns financial issues. We have heard a considerable amount about the impact that cuts are having on organisations that support the community. I have genuine concerns that the future of civil society is being undermined by funding problems. The previous Labour Government had a number of programmes, including one I particularly liked—the Grassroots Grants programme—that directly supported more than 130,000 local groups to make a real difference in the heart of communities.
A report from the NCVO and research by Compact Voice show that the voluntary sector at the heart of civil society is facing an unprecedented level of cuts and further threats to income. Funding is not the only way of supporting civil society, but we need to take care that funding, whether through contracts, subsidies or grants, provides value for money in both financial and social terms, and the impact on civil society must be taken into account. My community is in Essex—as is that of my noble friend Lady Gibson. When Basildon borough council announced a cut in the subsidy to local community centres for pensioners’ hot meals, local residents were shocked and appalled. They understand the social benefit to civil society of the centres. Perhaps what made that cut particularly shocking was the fact that the responsible council cabinet member declared that the meals were not good value for money while her cabinet colleague defended spending £150,000 on consultants to measure grass—that is bizarre but it is true—as being good value for money, so measuring grass was more important than providing hot meals. I am convinced that the public see that as nonsense and understand that value for money is not just a purely economic judgment. They make those same judgments in their own personal spending. They understand value judgments, not just economics. It is about common sense, communities and the value that institutions of government at whatever level place on society.
Too often, it seems that local authorities find it easiest to impose cuts on the voluntary sector. I strongly believe in the power of volunteering for the volunteer and those being supported. As we heard from my noble friend Lady Prosser, some volunteering grows organically but needs structure and support to obtain the best value from it. Like many others, my local volunteer centre in Basildon has now closed. Due to funding cuts, it could no longer sustain its work. I have sincere worries about the impact that will have on civil society.
In conclusion, engagement in civil society adds value and improves quality of life. It is not something we can just pay lip service to here today and say how wonderful it is, then go away and do nothing. It is intrinsic and essential and it needs and deserves our support.
Baroness Uddin
My Lords, I thank my noble friend Lady Prosser for giving us the opportunity to take part in this important discussion. Civil action in civil society has defined a generation of activism and activists who have changed communities and our country and have given us a more equitable society—we stand on the shoulders of giants.
I want to make a few points about a particular aspect of civil society—Muslim organisations. As a Muslim I think that this is the right moment to discuss civil society; it is the ninth day of the fasting month of Ramadan, which focuses on the Islamic understanding of community, civic duties and equity. During this month Muslims are encouraged to fast from dawn to dusk—an 18-hour stint at present—and share, forgive and show solidarity with those less fortunate than themselves. They are also encouraged to give alms—zakat—and to be aware of the needs and rights of those around them regardless of their ethnicity, culture and religion.
Ramadan is the ultimate month to reinvigorate and renew the recommended spirits of good, responsible and proactive citizenship. Muhammad, the Prophet of Islam, upon whom be peace and blessings, said:
“The best amongst you is the one who is the most beneficial to others”.
At its core, Islam is about enjoining good and forbidding evil, to encourage and facilitate virtuous, practical deeds. This month, British Muslims dedicate their energy and money to benefit their communities. A civil society is the backbone of Muslim communities and is the glue that bonds British Muslims’ lives together. It ranges from street-level self-help groups to the delivery of services. It is as diverse as drug rehabilitation programmes, fatherhood circles, supporting families, women fleeing violence, arts projects, sports clubs, community centres, mosques—masjids—Sunday schools and study circles. However, it is an ad hoc development that has taken place in the face of racism and Islamophobia and in spite of weaknesses in strategic planning and a serious shortage of formal financial support.
As a result, the Muslim leaders who are actively heading these organisations within the civil society sector are struggling and under severe strain. The Muslim-led third sector is unable to consolidate, risks being reactionary in nature and continues to work in silos. Sadly, it is not in a strong position to implement and share some of the core teaching of our faith, which is pertinent and much needed in dealing with some of the social ills facing our society and the vulnerable communities of today. We need to learn more about those who are working in organisations within this sector, have a vision to encourage them and courage to invest in their development.
The aim is to build relevant, sustainable social, cultural and economic institutions; to even more closely monitor the huge amount of zakat, or religious duties, and sadaqah, or charity; and to encourage debate and discussion in the way funds are raised in the UK. They should not be used only to support those who are in need abroad but also to strengthen some of the civic organisations within the UK. The long-term benefit of investment and attention from our institutions would and could be a counter to the imbalance in the attention constantly being paid to the so-called Prevent agenda.
It is estimated that nearly £200 million will be collected this Ramadan alone. The potential here is incredible but it is unregulated or, at least, not part of civil society discussions. Muslims in Britain, more than anywhere else, have a unique opportunity to rediscover and share their unparalleled historical precedent in creating civil society institutions. The pragmatism, wisdom and vision that created the Islamic ideal community in Medina during the life of our noble Prophet have many lessons for us all. The community brought together the generous and the persecuted, men and women, nobility and slave, people of faith and those with no faith. All British Muslims within the UK aspire to the ideals of such harmonious communities, especially during Ramadan, and this is a difficult ambition. Perhaps the most important challenge facing Muslims today is how to recreate this civic society after more than two centuries of colonialism, bad governance and social systems, not to mention migration. Civic society is in absolute tatters, shredded by the “me and me” culture—which has been mentioned before—and by greed and despair.
Not much work is being done with these organisations to consolidate their work or give them recognition and bring them into the fold. This is why I am proud to be part of a project called Faith, Khidmah and Citizenship: Connecting Spirituality and Social Action to Build Civil Society, which is bringing in all the organisations that are working in separate silos. It is a joint effort by an organisation called An-Nisa Society and the Radical Middle Way. Both these organisations have previously worked with the Home Office and other areas of government. The analysis of their report has produced an insight into how these long-standing reputable organisations have evolved and how they can contribute to strengthen communities in difficult times. The report also looks at organisations, how they function and contribute to the overall debate on civic society and civic actions, post-9/11 and 7/7. The report also proposes solutions for a durable and effective civil society to emerge in our country.
It has been interesting to hear the debate and what some have said about corporate social responsibility. Much of this corporate social responsibility has created an elite set of leaders of civil society that excludes many aspects of different communities, women being only one of them. Even when women are discussed, there are divisions over their status—who is included and who is not.
On our doorstep in east London are companies that are worth billions, many of which are owned by outside investors. Yet the connection on their doorstep whereby civil society can be empowered has been ignored—at the peril of the well-being of our common good.
Baroness Pitkeathley
My Lords, we are indeed all grateful to my noble friend for giving us the opportunity to have this far-ranging debate on civil society. However, I must say that at this stage of a debate, I feel a bit like the bishop who, when asked to make a speech about sin, stood up, said that he was against it and sat down again. If I am asked about civil society I can say, just as simply, “I am for it”. Similarly, when asked about the future of civil society, I can say, “There is one”. However, we are concerned to examine the current situation, the potential difficulties and the role that we expect civil society to play, although there are many different interpretations of what constitutes civil society, and we have heard them today. The single common factor that we should remember is that it is about participation in decisions about services in your community, in how services in your community are shaped, in delivering those services and, particularly, in decision-making.
We should be clear from this debate that, despite rashly delivered statements about a broken society, civil society is not in decline. Indeed, to the contrary, although membership of political parties, churches and traditional women’s groups may be in decline, membership of new social movements, non-governmental organisations and pressure groups is flourishing. I want to focus on some of the matters that have been reported to me, and I should declare my interest as patron and president of various charities and as chair of the All-Party Parliamentary Group for Civil Society and Volunteering.
The first thing that I want to mention is, inevitably, funding. I keep hearing Ministers say to the voluntary and community sector, “You must do more with less. Don’t expect government at local or national level to support you financially”. Okay, charities understand that; but let us not forget that, as we have heard, a quarter of civil society organisations rely on government for most of their funding, and that it is a drastic change to go from encouraging voluntary organisations to become service deliverers—encouragement which has been given by successive Governments—to finding that the funding is no longer there. As we have heard today, who is it who suffers when that funding is no longer there? It is, of course, the most vulnerable in our society.
Nor should we be tempted into thinking that more government necessarily means less civil society and that less government means more civil society, as the noble Lord, Lord Rooker, reminded us. It has been shown in inner cities in Russia and the United States that when the state retreats, the vacuum may be filled by crime and gangs, as well as by civil society organisations. Many of the nations with the most active civil societies still have very active and involved governments. We must be wary, too—with the greatest respect to the noble Lord, Lord Janvrin—of thinking that philanthropy will ride to the rescue. It is by no means certain that our society is yet at a stage where philanthropy can fill the gaps, as seems to be expected by some in government. Even the best community organisers and the most enterprising social entrepreneurs need support.
The Government seem to have a suspicion of the infrastructure that exists to support the charitable sector, and they are right to point out that that infrastructure may need reform and rationalisation—far be it from me to argue that we should not expect existing mechanisms to change and develop. As a veteran of two mergers I am an active advocate of mergers and collaborative working—and we have seen some very effective ones, such as the recent one between the NCVO and Volunteering England. However, we must not throw babies out with bathwater. Many of these infrastructure bodies are delivering through their local organisations exactly the kind of innovations—such as time banks, community pledge banks, social enterprises and civil action—that the Government and society need. Let us not forget that.
I turn to social investment. I was a member of the original Commission on Unclaimed Assets, which released the money in unclaimed bank accounts into the social investment sector, and am now a trustee of the Big Society Trust, which oversees Big Society Capital. There is no doubt that this field is developing. Social impact bonds are increasingly popular. They are designed to transfer the risk of social programmes from the public sector to the private sector. An interesting one was launched just yesterday. Developed by the Consortium of Voluntary Adoption Agencies and Baker Tilly, this social investment bond has raised £2 million from Bridges Ventures and Big Society Capital. The money is going into a fund called It’s All About Me, which is designed to invert the market so that a child seeks out adoptive parents, not the other way round. It is a very innovative and interesting approach. I recently saw another such social investment project in south Wales. It helps children who are normally very disruptive in class not to be excluded through intensive intervention. These are excellent initiatives and very welcome developments.
However, we must sound a note of caution. There is a long way to go before the concept is proved. Many would-be investors are having trouble finding investment-ready projects. I do not think that these can ever entirely replace the funding lost, about which we have heard so much today, although they certainly can be part of the funding mix. I would be glad to have the Minister’s view of what proportion of voluntary sector funding social investment will eventually provide.
I will say a final word about volunteering. The statistics about volunteering are always absolutely stunning. The proportion of people volunteering at least once a year has increased from 65% of the population a couple of years ago to 71% recently. The Olympic and Paralympic Games, as we know, inspired volunteering on an unprecedented scale—as is always quoted. However, we must remember that that particular type of volunteering was a pretty easy gig. It was fun, you got to see events, there was a nice uniform, a link with people who were volunteering alongside you and so on. However, it bore little relation to the kind of volunteering that goes on throughout civil society: bringing people back from suicidal intentions, driving people to hospital who are pretty difficult and often not grateful, sitting with people with dementia who are doubly incontinent so that their carers can have a break. I am sceptical about what the Olympics can teach us about volunteering, except for the fact that a lot of trouble was taken with recruitment and selection and fitting people into the right slots. There was a lot of emphasis on supporting those volunteers—investment was made in them. I hope that the Minister will reiterate that the Government continue to see that volunteering needs investment. Volunteering is very good value, but it is not cost-free. I think that that is also a pretty good description of civil society.
Baroness Hayter of Kentish Town
My Lords, we are all grateful to my noble friend Lady Prosser for securing this important debate, because civil society matters, in communities, nationally and here in your Lordships’ House, where so many Members draw on their experiences in a range of non-governmental groupings. Such activity, whether in a tenants’ group, trade union, advice bureau, book club, ramblers’ association, parents’ council or faith community, provides the vitality of civil society.
As we heard, my noble friends Lady Gibson and Lady Prosser first earned their spurs by representing fellow workers, while other speakers helped carers, women, consumers, the old, animal lovers, children or families, far away from any governmental structures.
A healthy civil society produces a community that fosters empathy, trust and respect—the most important feature of a good society, according to a survey commissioned by the Webb Memorial Trust, of which I am vice-chair. Civil society is also about citizens having their own space to develop, free from interference by the state and often outside their work environment. It is a good in itself: it should not be part of—in the words of the noble Lord, Lord Rooker—the shrinking of the state. While it can deliver state-funded services, that should be because the Government recognise the importance of community-driven provision, not because they seek to parcel off parts of our National Health Service to the lowest bidder.
As my noble friend Lady Prosser reminds us, the Government have indeed used the words “the big society”, but it is damaging the voluntary, flexible and innovative sector that gives voice to the voiceless and empowers those who are often only at the receiving end of decisions. Governments can support voluntary organisations but they should not see their value simply as an agent for service delivery, particularly as an agent on the cheap.
The cuts in public services and the economic situation are increasing demands on the voluntary organisations, as we have heard, just when their income is falling through a 20% drop in individual donations and half of local authorities disproportionately cutting their voluntary sector funding, despite three-quarters of voters disapproving of such cuts.
The Minister, the noble Lord, Lord Freud, who is not in his place, may believe that people go to food banks only because they are there but, as the right reverend Prelate the Bishop of Truro corrected him a day later, people are driven to go. They do not choose to go—they have to go. He described food banks in the 21st century as a complete scandal.
We also face a problem with they way in which services are commissioned. It might suit government but not the voluntary sector, particularly the small charities that comprise 97% of the sector. They have had nothing but a negative experience of the commissioning process. Indeed, only one-quarter of small charities surveyed by the FSI feel that they can carry on bidding for local authority contracts. The issues have been well described today by the noble Lord, Lord Hodgson of Astley Abbotts. If the commissioners fail to respond to what he says, small charities will be excluded from service delivery.
It is not only small charities that the process fails. I am a patron of the Blenheim Trust, which works with alcohol and drug misusers, and I am now going to report its views on the procurement, tendering and commissioning process. As has already been mentioned, the cost for the bidders and commissioners is estimated at £300,000 per tender. That is money that is not going to beneficiaries. Contracts are often one-sided, allowing cancellation with three or six months’ notice. There are often minimum turnover requirements of £5 million or £10 million. These preclude small and medium charities or force them into not necessarily advisable mergers. Providers are forced to compete on price rather than on quality, with no reference to the skills of advisers.
This impacts detrimentally on services and undermines the morale among committed, experienced staff and volunteers. Significantly, we are seeing the demise of local third sector organisations that are attuned to their communities as they are replaced by either profit-driven or growth-driven organisations, as has been described by the right reverend Prelate the Bishop of Derby.
I rise to the right reverend Prelate’s defence because the noble Lord, Lord Hastings, referred to conversations in the Bishops’ Bar. I make clear to anyone listening that not only have I never seen a Bishop there but that it is a tea room rather than a bar.
The worry about smaller organisations goes beyond this House. Chris White, the Conservative MP, has criticised his own Government for locking out charities and social enterprises from winning government contracts due to the large size of those contracts.
While under any qualified provider voluntary organisers can bid for NHS contracts, private health companies have won nearly half the bids. As today’s report from the IFG, mentioned by the noble Baroness, Lady Barker, shows, private firms are gaming £100 billion of government services for their shareholders at the expense of the taxpayer. The IFG analysis of outsourcing programmes, such as those to help the unemployed back into work, found private firms creaming off easy cases where they could make profits while parking problematic ones. Furthermore, big outsourcing companies are monopolising services, making it harder for smaller companies or charities to compete. The report says:
“a number of large providers now deliver a wide range of services (commissioned by separate departments) in particular areas of the country. This allows these providers … to undercut competitors, making their services attractive to commissioners”.
The Cabinet Office response was that the Government were encouraging the voluntary sector to get involved in delivering services but, it seems to me, with little understanding that smaller, locally-based organizations are even less able to compete against these giants.
Charity leaders are frustrated and demoralized by being sidelined in the provision of services and are watching aghast as the Cabinet Office’s annual funds for the third sector are being cut by 75% since the Labour Government’s last year in office. The leaders know that their energy is going to be devoted to fundraising rather than responding to their users’ growing needs. If charities cannot deliver services, beneficiaries suffer. Sadly, there is a paradox that civil society flourishes best where it is least needed, and is weakest in areas where there are highest rates of poverty, as the noble Baroness, Lady Barker, described. In the north-east, six out of 10 charities have lost funding.
As the voluntary sector increasingly has to deliver public services, its role in the public eye changes. If it is seen as an arm of the state, civil society risks losing its independence and uniqueness; its ability to enrich lives through connections with others; the informal education of citizenship; the encouragement of plurality and diversity; pioneering ways of doing things; representing users of public services; and holding authorities to account. We must not risk losing these roles.
More than 100 years ago, Beatrice and Sidney Webb set out their belief that the state and civil society should play different but complementary roles. According to them, the proper role for government is to take care of basic needs, guarantee rights and security, ensure a minimum standard of life and provide education and preparation for work. The role of civil society is to operate above this basic minimum and to ensure that citizens participate as full members of society. I could not put it better. Civil society contributes to a healthy, vibrant democracy that neither stagnates nor grows arrogant. We need it and we need the Government to foster, not hamper, its future.
Lord Wallace of Saltaire
My Lords, it is a particular pleasure to answer this debate on the future of civil society because with my FCO hat on I spend some time reading telegrams about attacks on civil society in other parts of the world—the tremendous pressure under which all autonomous institutions in Russia are now operating; the problems in Egypt; tremendous problems in Pakistan; resistance to the growth of autonomous bodies in Saudi Arabia and so on.
So we can at least start by welcoming the fact that we have in this country a thriving civil society alongside the state, but not too dependent on the state. It seems that we are moving towards a consensus in the United Kingdom that the state cannot provide everything that we are going to need in the next 10 to 20 to 30 years. We therefore need a strong and diverse of network of civil society institutions alongside the formal institutions of state and government at local and national levels.
When I was active politically in Manchester 30 years ago, and a parliamentary candidate for an inner city seat, I was appalled by the extent to which the local council and its officers treated the inhabitants of the largest single council estate in Manchester as people who had things done to them. The councillors and the council officials knew what was best for them, they would tell me, and were not going to change their minds—even though the large number of people I met and canvassed suggested that they were not happy with what they were doing—because, in the long run, it was best for them. As we all know, that left a lot of alienated people in our cities, who are still there. As I visit the big council estates in Bradford and Leeds, I find just how many alienated people there are, embittered by the fact that the state does not seem to do enough for them. However, they do not know what to do for themselves yet, which is part of the problem that we face.
On the other hand, as the noble Lord, Lord Rooker, warned us, some free-market radicals believe that there is no such thing as society, that we do not really need local government, that the only individual motivation we are talking about is economic and that the search for profit and financial gain is what drives everyone. I would say to him that it is not the aim of this coalition Government to radically shrink the state. There are some free-market radicals around who would love to do so, in the Institute of Economic Affairs and elsewhere, but we all recognise that we cannot shrink the state very far, given the enormous demands that we all face. I think that we all share, across the parties, a basic emerging realisation that, first, the state cannot provide all that our society will need in the coming years, particularly as the number of people over 70 continues to grow, and as the demands on the National Health Service, on social services and on other services will continue to grow exponentially. I remember an article by Polly Toynbee in the Guardian a few years ago, in which she said that the NHS budget would have to rise at a compound 2% above the rise in GNP, otherwise it would fail. That is part of the problem that we are now up against in the NHS and elsewhere.
Secondly, we are discovering that the public will not pay for the state to provide everything that we want. That, again, is a problem which all political parties now have to recognise. We have to persuade the public that these things are worth paying for. I am afraid to say that almost all of us find on the doorstep that the Daily Mail tells people every day that the state should cut taxes and raise benefits, but that is not possible. I think we also agree that financial gain and individual profit is not what drives everyone, and that altruism and community spirit also motivates citizens and provides, as has already been said, the essential glue that holds our society together. We have to find a way of building the strong local institutions—they have to be local institutions as far as possible—alongside the state, which will help provide the services that the state itself cannot entirely provide.
That raises all sorts of questions about regulation, how far organisations should be financially dependent on the state and how far the state should encourage, as a number of noble Lords have said, giving through one means or another, such as tax advantages. There are other forms of support as well, such as the nudge unit suggestion that one puts in the corner of various government things, saying that you should leave money in your will to various charities, which will increase the amount of giving that takes place.
I recognise the tension that has been spelled out in a number of speeches between national voluntary organisations and local civil society organisations. My experience in Yorkshire is certainly that some of the best voluntary organisations are those that are rooted in their communities, but they are very often too small to attract the attention of national commissioning authorities. The Cabinet Office and other sections of government are struggling with the issue of how you get down to discover which are the really useful local bodies.
Of course, part of that has to be that we devolve more decisions and eventually more authority to local government. The City Deals will help us in that respect, as will double devolution, which we have much talked about but not sufficiently carried through, to re-empower local communities. We also recognise that the character of the sector is in some ways difficult to pin down. Many of the most impressive voluntary organisations that I have met exist as they are because they have a small number of charismatic people driving them along. They can be impossible. Indeed, they succeed partly because they are impossible. That is part of what keeps voluntary organisations going and it is difficult to put that into a major institutional framework.
Much of this has to take place at the local level. I am conscious that the loss or the weakness of the church networks, and particularly the nonconformist ones that did so much, is part of what has gone wrong in many of these areas. I am conscious of this in particular because I live in a village, Saltaire, that has a historical society, a festival committee, an arts trail, a Friends of Roberts Park society and two allotment societies, and frankly does not need anything more by way of local civil society. Three or four miles away from us, in Bradford, there are a number of areas that have very little going on and in which the community organisers, who are part of the Government’s big society initiative, are doing their best to teach people how to get together and do things themselves, rather than sitting around being deeply bitter that someone else is not doing something for them.
I am a strong believer in the big society and there are a number of initiatives that are also pushing us in that direction. National Citizen Service is going into its third summer this year. I was entirely converted last summer by taking part in one or two National Citizen Service schemes in Bradford. We helped show teenagers what they could do for themselves and what they could do together for others, thus teaching them the principle of community service, including how to organise things together, raise money and work together. It is a similar case in local schools around the country. Primary schools and others are learning about how you work and help people in the community. This is all extremely desirable.
I am also a great fan of community foundations as a means of diversifying sources of funding for local activity. I would like to see the Community Foundation Network given a great deal more support. I say to the noble Lord, Lord Hastings, that part of the problem with community foundations and other local activity is that it was the local entrepreneurs and companies that provided local charity. As we have moved towards multinational companies, how you get them to think not only about London but about what happens in York, Bradford and Leeds, all of which have lost so much of their local corporate leadership, is a problem with which we all have to struggle. We are doing our best to learn from the process that is going on. I say to my noble friend Lady Barker that this morning I printed out the Institute for Government report on making public service markets work and it is one of the things that I intend to read at the weekend if my wife allows me not to pick all of the soft fruit on the allotment. I am a member of the Saltaire Canalside Allotment Society.
A number of other major points were raised in the debate. The noble Lord, Lord Hodgson, expressed his regret that the Government have not yet published their response to his extremely useful report last year. The Government thought that it might be preferable to wait for the report of the Public Administration Select Committee that came out on 6 June and was in many ways not just a post-legislative scrutiny of the Charities Act but a commentary on Lord Hodgson’s report. I assure him that the full response to both of these will come out shortly.
A number of noble Lords talked about the problems of a large drop in charitable giving. I am told there are different assessments of how severe that drop has been. Different surveys provide different answers, but in a number of ways, including by encouraging payroll giving and encouraging companies, we are doing our best to encourage more people to contribute.
Perhaps I should say at this point that part of what we all have to do in this country is to change the moral atmosphere from that which was around, in a way, in 2010—the corporate pursuit of individual gain and the City culture as such—and to remind everyone, including my neighbours in London who earn so much more than I do, that they are living in a society to which they should pay not only their taxes but their other dues. As we are all part of a national society and, within that, of various local societies, part of our responsibility is to contribute in all sorts of different ways in time and in money to the society around us.
I welcome those who mentioned the utility of the Social Value Act. We very much hope that that will help in shifting the way in which commissioning takes place. I welcome the fact that the Crown Representative for the voluntary community sector is now beginning to look at social enterprises. In my experience of visiting charities and voluntary sector organisations, I have on occasion been horrified to discover large charities that are entirely dependent on state contracting. That is not healthy for the third sector. I like those that do their best to make sure that they earn some of their income from what they do. That is a definition of a social enterprise that is also a voluntary organisation.
The Government have been making a number of efforts—payroll giving, Big Society Capital, the Innovation in Giving Fund, the Social Action Fund—to ease the transition and to encourage more people to bring in money to this very important sector. For example, the Communities First campaign is a £80 million government-funded programme that helps communities come together through different community groups. I am sure that noble Lords will be familiar with community challenge, the community right to buy and various other schemes that the Government are developing.
In answer to other points, we need to consider corporate giving further. I suspect that we will, in time—whether this Government will be able to do it or whether it will have to be post-2015, I do not know—have to consider a change in company law to make sure that a company’s duty is to all stakeholders, not just its shareholders, if we are to create a sea change in the approach to corporate giving.
The noble Baroness, Lady Gould, spoke about the role of women and the extent to which voluntary organisations support them. This is one of the most fascinatingly difficult areas in the evolution of civil society. My mother was a stalwart of civil society, among other reasons because when she married, she had to give up her job and her career. From then on, she poured her enormous energy not entirely into her children—thank goodness—but also into doing good works wherever she was living. We all know now that the transformation of the role of women means that that dimension of civil society has half disappeared as young women attempt to combine careers, children and family. In their place, the fit retired of both sexes have come to be part of what holds our civil society together.
The right reverend Prelate the Bishop of Derby asked how we maintain or revive the traditional pillars of civil society. I am not sure that that is entirely the role of the state. The state can do some of that, but it is certainly something that the churches themselves should be playing a very large part in and reminding us of. I am happy that the most reverend Primate the Archbishop of Canterbury talks about the church providing real moral leadership to the nation.
The noble Baroness, Lady Gould, mentioned confidence-building for vulnerable women. There is a wonderful charity in Yorkshire called Together Women which picks women up as they come out of prison and does its best to give them a sense that they really can do things again. This is an extremely important part of the work that needs to be done. I entirely share her view that it is a tragedy that we still have a society in which dedication to the welfare of animals is very often stronger, both in financial and commitment terms, than dedication to the welfare of human beings of both sexes and all ages.
The noble Baroness, Lady Gibson of Market Rasen, talked about the current challenges to the sector and asked about the Government’s plans to guide companies to encourage payroll giving. We are providing as many incentives as we can to encourage companies to expand payroll giving. Again, that is not merely a matter for the Government. Companies, the CBI and others should also be encouraging it. It is part of our shared corporate responsibility. None of these things is for the state alone. We can provide leadership but the rest of society has to provide it as well.
The noble Baroness, Lady Smith of Basildon, said a number of things about the Lobbying Bill, as published yesterday, which I did not entirely recognise. We are having an all-Peers meeting on this in Committee Room 3 at 4 pm on Monday and I very much hope that she will come along—
Baroness Smith of Basildon
If it helps the noble Lord, I will explain the point I was making. The Lobbying Bill suggests that third-party organisations would not be allowed to be involved in campaigning during a general election. I wanted to ensure there would not be the unintended consequence of stopping them campaigning at all during elections when there might be legitimate reasons for them to do so.
Lord Wallace of Saltaire
I can allay her concerns on this. I was very struck when I was briefed this morning on this by the sheer scale of the funds some organisations have used and targeted. It is that sort of development we are thinking about. I hope I have covered most, if not all, of the points made in the debate.
Baroness Pitkeathley
Can the Minister answer my specific question about social investment and the Government’s view on what proportion of social investment will eventually find its way into the sector?
Lord Wallace of Saltaire
I would prefer to write to the noble Baroness rather than give her a half-informed answer now, if she will permit me. There are a number of social investment schemes under way but I do not have them entirely in order in my head at the moment.
We all share a commitment to a stronger civil society. I hope we all share a commitment to a stronger local civil society. I am very struck by the problems of large communities in some of our cities who feel themselves powerless but do not know what to do about it. As I said to the noble Baroness, Lady Prosser, that is part of what the big society initiative is really concerned with. It will take a long time. For example, in Harehills and Gipton in Leeds the local Methodist, Catholic and Anglican churches used to do an awful lot but almost no one goes to church any longer. Creating alternative social networks and a sense of local empowerment and local confidence is a huge challenge for all of us and the state, society and others have to work together on it.
I hope we are all committed to this. I thank all noble Lords who have taken part in this debate and I recognise that this is a challenge that will face every Government in Britain for the next 20 years and more.
Baroness Hayter of Kentish Town
There were some more questions about the commissioning of services. It would be really useful if the Minister would undertake to ask other departments, beyond the Cabinet Office, to look at the commissioning process to see whether it can be made better. I do not know what his dialogue with the other departments is but it would be really useful if he was able to play a co-ordinating role.
Lord Wallace of Saltaire
There is now a commissioning academy. We are working with other departments. We are learning from experience how to work more effectively with local organisations where we can. The social value Act also helps us in that regard. I must not overrun my time; I give way to the noble Baroness, Lady Prosser.
Baroness Prosser
My Lords, I thank all noble Lords who have participated in this afternoon’s debate, particularly the Minister for his opening comments, which reminded us that our discussion has been focused around the United Kingdom and civil society. His initial comments, however, brought to our attention the breadth, depth and history of civil society across the world. We ought not to forget that when we consider the importance of all of these matters.
I can safely say that the nature of the debate has demonstrated the huge variety of subject matter that comes under the heading of civil society and the huge variety of provision we have seen. Some parts of it we have had for many years; some have been developed more recently; some may be suffering slightly and in need of some assistance; and others that are developing with great speed—demonstrating the changed nature of the society in which we live—and we must face. Those are all big questions that we will all be chewing over for a considerable time to come.
Something that has struck me about this debate is that there is a great need to be clear when talking about civil society and the nature of the solutions that we might wish to propose. There are many different pieces to this jigsaw but in the discussion about solutions I have detected a blurring between solutions which are suitable for service provision and those which are suitable for what I would call community development. The Minister gave as one such example the people on a housing estate in the north, and that was my experience as well when working in community development in the London Borough of Southwark, where precisely the same issues and difficulties arose. In that project our role was to enable the local people to find their voices and to speak up. The Likes of Us, by Michael Collins, is an excellent book based around some housing estates in Southwark which records how the people there had said that they had been done to, but never given the opportunity to put their own point of view. It is an important point to make. The right reverend Prelate described it as “human flourishing”. I would put human flourishing under the community development umbrella.
Before concluding, I say to the noble Lord, Lord Hodgson of Astley Abbotts, that I was rather pleased that he disagreed with me—I would be asking myself questions about my analysis of these issues if he had said that he felt I was right. I am not upset by that—as I say, I am rather chuffed.
People with Learning Disabilities: Health Inequalities
(11 years, 5 months ago)
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Baroness Hollins
To ask Her Majesty’s Government what steps they are taking to address the health inequalities highlighted by the Confidential Inquiry into Premature Deaths of People with Learning Disabilities.
Baroness Hollins
My Lords, this is such a timely and important debate, coming the same week as the Keogh mortality review, the Neuberger report and the latest report from the Health Service Ombudsman. Our focus tonight is on health inequalities for a group that comprises some 3% of the population. Our focus is on the remit and findings of the Confidential Inquiry into Premature Deaths of People with a Learning Disability. The inquiry’s report was published in March and the Government’s response was released last Friday. The House will wish to be reminded that I have worked as a psychiatrist with people with learning disabilities for over 30 years and that my adult son has a learning disability.
The institutional discrimination and health inequalities suffered by people with learning disabilities come as little surprise to many of us. For me it is a throwback to some of my own research from over 20 years ago when I reviewed the age and causes of death of people with learning disabilities in three London boroughs over a 10-year period. I found that adults with a learning disability were 58 times more likely to die before the age of 50 than the general population. Over half died of respiratory disease—which I presumed to be a final common pathway—compared with only 15% of the general population. The problem was that I could not get the results published. The BMJ and other medical journals said that it was not of wide enough interest. It was eventually published in a specialist disability journal. Government began to show leadership, however, with the White Paper, Valuing People, and Chapter 6, which addressed healthcare, accepted my suggestion that a confidential inquiry should be included as a recommendation.
In 2006 a formal investigation was conducted by the Disability Rights Commission and in 2007 Mencap published Death by Indifference. By this stage, although Valuing People had recommended a confidential inquiry, it had still not been set up. Death by Indifference was a landmark report and it told the stories of six people with a learning disability who had died in NHS care. It triggered an independent inquiry which was led by Sir Jonathan Michael—I should mention that I was a member of the inquiry team—and the Parliamentary and Health Service Ombudsman conducted an investigation into the six deaths. The Michael report, Healthcare for All, made a firm recommendation to set up a confidential inquiry and the Government at last agreed.
What is a confidential inquiry? It aims to identify common causes of deaths and to make recommendations to improve clinical practice. There are many in existence, some going back more than 50 years, with varying degrees of effectiveness. They involve the systematic review of cases with the identity of patients and clinicians remaining confidential and only aggregated findings being made public. Several of these inquiries have resulted in long-term monitoring and regular reports and one of these is NCEPOD, the National Confidential Enquiry into Patient Outcome and Death. It started with a pilot study of mortality related to anaesthesia but steadily expanded into a wider inquiry to cover all hospital specialties, now including near misses as well as deaths. NCEPOD distributes reports on very specific mortality concerns and if it feels that important recommendations are not being met, it lobbies at both local and national levels. It is this ongoing monitoring and national oversight of the uptake of recommendations combined with the fact that it has been in existence for decades which makes this inquiry effective.
In the confidential inquiry that we debate today Dr Pauline Heslop and her team have recommended the establishment of a national mortality review—basically a beefed-up confidential inquiry. This would guide detailed local reviews but also include a national overview panel. Its wider remit and role would provide an oversight of core data relating to all deaths of people with a learning disability. It could monitor and direct where more detailed reviews need to take place and, vitally, it would make recommendations for changes in practice. A longer-term commitment to this vulnerable patient group is needed for a real impact to be seen. The United States started similar mortality reviews and over the past 10 years it has seen an increase in life expectancy among people with a learning disability. The confidential inquiry we are discussing today was only established for three years—effectively as a pilot. It looked at the deaths of 233 adults and 14 children across five PCT areas in the south-west. Its focus was to determine whether the deaths of people with learning disabilities were premature. The principal aims were to detect factors which contributed to death as well as gaps in health and care services.
The results expose the gulf that still exists between the care received by people with a learning disability and that received by the rest of the population. It found that 37% of deaths would have been potentially avoidable if good quality healthcare had been provided. It found that on average, men with a learning disability died 13 years earlier and women 20 years earlier than the general population. Mencap says that this means that over 1,200 deaths each year across England could have been avoided with good-quality non-discriminatory healthcare—almost 25 children and adults per week. That is a shocking figure, which equates to the number of people thought to have died needlessly over a four-year period at the Mid Staffordshire hospital.
I am sure that other noble Lords will address some of the findings in more detail, but I will focus on the wider picture for a little longer. While Mid Staffs rightly hit the headlines, as did Sir Bruce Keogh’s report earlier this week, the avoidable deaths of people with a learning disability, some of the most vulnerable people in our society, go largely underreported and consistently fail to feature prominently on the parliamentary agenda.
What are the Government doing about premature mortality? On 5 March 2013, Jeremy Hunt said in the other place:
“Today, I am publishing ‘Living Well for Longer: A call to action to reduce avoidable premature mortality’”.—[Official Report, Commons, 5/3/13; col. 60WS.]
Sadly but perhaps predictably, the document did not even mention people with learning disabilities. That is despite the fact that in the 2011-12 NHS outcomes framework, the Department of Health added a placeholder indicator for measuring premature mortality in people with learning disabilities. This was further specified as the,
“Excess under 60 mortality rate in adults with learning disabilities”—
“under 60” because that reflects the current average age of death for people with learning disabilities. Unfortunately in the latest NOF—national outcomes framework—for 2013-14, this indicator is still in the inactive “development” stage. Will the Minister advise when the Government will give it live status and assure the House that the threshold will be reviewed year on year to bring it closer to the threshold of age 75, as in the general population? That would ensure the collection and publication of some vital data.
However, one of the problems is the difficulty that we still have in the identification of people with learning disabilities in health and care records. This was one of the recommendations of the Michael inquiry and, again, the confidential inquiry notes it as being of critical importance. Dr Heslop explains that concerns would never have been raised about many cases reviewed by the confidential inquiry had their care not been scrutinised. I agree with her that professionals learn more and change their practice more by being reflective and reviewing cases using a root-cause analysis approach. Merely telling a professional to do something rarely works, as is evidenced by the lack of adherence to the Mental Capacity Act and the Equality Act.
This inquiry provides a firm foundation of knowledge upon which the Government could take real and purposeful action—urgent action—to address these startling and persistent inequalities. However, this is not borne out in the Government’s unambitious response which acknowledges the findings that health inequalities exist but contains no set goals or timescales and no ways of measuring improvements. They could instead have followed the structured style of response they made to the Winterbourne View hospital scandal by working with stakeholders, including families and carers—many of whom are listening to the debate today, and whose presence I welcome. Will the Government consider a concordat to take forward the confidential inquiry recommendations and the construction of a clear, timetabled action plan?
The lack of commitment to the inquiry’s central recommendation about a mortality review body is disappointing. Despite the overwhelming evidence that this is the right thing to do, a decision will not be made until March 2014, by which time another 1,000 children and adults will have died prematurely. I urge the Government to bring this to the top of the agenda, not to push it down the priority list yet again.
As for the Francis inquiry, we say yes; but what about the enormity of the challenge that the Government face in achieving equality in access to healthcare and in health outcomes for this group? I ask the Minister to persuade the Secretary of State to include in the remit of all future health reports and inquiries, and in the work of the new Chief Inspector of Hospitals, the question, “Did people with learning disabilities fare better or worse?”. At the moment the answer is probably “worse” in all aspects of healthcare. I know that noble Lords will pick up many of the specific issues that I have not touched on, and I thank them for their support and passion for this debate. I also look forward to the Minister’s response and hope that he will be able to reassure this House that the Government are not indifferent and will act much more persuasively in future.
Baroness Browning
My Lords, I refer the House to my registered interests regarding disability and health and I congratulate the noble Baroness, Lady Hollins, for bringing this very important debate to the Floor of the House.
I begin with the part of the report that deals with annual health checks. Such checks for people with learning disabilities are an excellent way for doctors to pick up early even more serious problems than the patients themselves realise they have or are able to articulate. In some cases, if a person is not medicated, it could be the only time in a year when a GP sits face to face with them.
Linking the health check with health action plans is extremely important. The regular screenings that the rest of the population almost take for granted—because we are reminded that we are due a certain screening and we welcome this preventive and early opportunity to check whether there is a problem—is something that people with learning disabilities may lose out on because, when a letter arrives telling them it is time to phone for an appointment for a particular screening, they may simply throw away the letter and never have the screening. The annual health check therefore provides that opportunity.
The confidential inquiry found that the weakest link in the chain of the care pathway for people with learning disabilities was problems with diagnosis. It is very easy to misinterpret or ignore something from someone who is unable to articulate their symptoms or pain. I believe that it is key that the annual health check is expanded beyond its current very useful functions to ensure that it is used to provide a much more comprehensive look at, and a holistic approach to, that person’s health. The Government have accepted that there is inequality in healthcare investigations. They have detailed how NHS England will address this through working with clinical commissioning groups, and I understand that they will set out the details later in the year. That will be a crucial piece of work, which I hope will include tangible and measurable objectives on improving investigations that lead to diagnosis.
For people with learning disabilities in particular, and—the House will not be surprised to hear me say—for those on the autistic spectrum, many of whom also have learning disabilities, communication is a major issue. It is important for primary care services to understand the patient; if that person needs to attend a GP or nurse appointment accompanied by someone who can interpret their mood, behaviour and articulation, the primary care services must take into account that this can be quite painstaking and time-consuming. If people with a learning disability are to be treated equally, it is very important that the primary care service, and the services in hospitals when investigations often take place, allow for the fact that there may need to be a person in support who will help the clinicians to interpret how the other person is feeling.
I turn now to the part of the report that deals with the Mental Capacity Act. A number of reports, including the Confidential Inquiry into Premature Deaths of People with Learning Disabilities and the Francis report, have identified problems with how the Mental Capacity Act is understood and applied. They identified the lack of compliant practice with the Act as a barrier to effective NHS care. The inquiry found evidence of disagreement about what professionals understood by “serious medical treatment” and thus a lack of consistency about appointing independent mental capacity advocates to support those without family members to represent their views. There has also been evidence of unlawful NHS practice.
Declaring an interest as a mother, I add at this point that it is not just people without relatives to speak up for them who are not always listened to. In that shocking report from Mencap, Death by Indifference, which the noble Baroness mentioned, and reports that have followed on from the original report, we have seen the deaths of young people whose mothers have stood by their bedside and tried to explain the symptoms of their adult children to clinical staff, only to be told, “He’s over 18 and he hasn’t expressed his wishes in that way”. There is no other word for it but wicked.
So what are the Government pledging to do? The Department of Health has apparently agreed that mental capacity advice should be available 24 hours a day. It said:
“There should be staff trained in the MCA available 24 hours a day, and there should be specialist advice available in all care settings”.
It also says:
“Service providers have the primary responsibility for ensuring existing staff have the required knowledge and awareness of the MCA … The responsibility for the content of education and training curricula … lies with”,
Health Education England and,
“the professional regulators and the appropriate Royal Colleges”.
As a member of the Select Committee in this House that is currently looking at the post-legislative scrutiny on the Mental Capacity Act, I was somewhat concerned, when we took evidence at our first session on 18 June, that we were told by Department of Health officials when asked about the ability to assess for mental capacity,
“the assessment revealed an inconsistency in assessing capacity in some trusts to ensure that the Act was fully embedded”.
Claire Crawley, who spoke on behalf of the Department of Health, said:
“In terms of hard evidence, could I sit here and say, ‘I absolutely know that every local authority has appropriate plans and training processes in place’? I could not say that because I have no way of getting that evidence. The regulator of the industry, as it were, the Care Quality Commission, does not monitor local authorities or inspect them any more, so I would not know”.
Very often the local authority appoints the person who has the day-to-day care for the patient, so local authorities are as much involved in this as the NHS. When pressed by the noble Baroness, Lady Andrews, about the position of NHS trusts with regard to assessment of capacity was concerned, Claire Crawley told us:
“That would probably have been the CQC’s process … rather than the department’s process”.
I say to my noble friend that when a department, particularly the Department of Health, puts a piece of legislation such as the Mental Capacity Act on the statute book, it has a duty and responsibility to ensure that it is complied with, particularly for this vulnerable group of people. It is simply not good enough to say, “Not me, guv, it’s somebody else’s responsibility”.
Lord Touhig
My Lords, I refer the House to my interests as a vice-president of the National Autistic Society. I congratulate the noble Baroness, Lady Hollins, on securing this timely debate, coming, as she said, so soon after the publication of the Government’s response to the Confidential Inquiry into Premature Deaths of People with Learning Disabilities and just two days after the publication of this report from the Health Service Ombudsman, which I want to speak about.
I welcome this debate because it affords us the opportunity to debate the wider subject of health inequalities affecting people with a learning disability. The confidential inquiry is a crucial piece of work and shows that 37% of deaths could potentially have been avoided if good-quality healthcare had been provided. It is a terrible indictment of our care support system for the most vulnerable group of our fellow citizens, who are being let down. They and their carers often find it hard to express themselves in a way that might help prevent the tragic happenings that the inquiry has revealed. Like many noble Lords, I am aware that the support groups and those who work with people with learning disabilities have significant concerns about the Government’s response to the inquiry, a point well made by the noble Baroness, Lady Hollins. They feel that it is simply not strong and purposeful enough to really drive the change that we all wish to see.
On a wider point, a report from the Health Service Ombudsman, laid before Parliament on Tuesday this week following an investigation into a complaint against a GP practice, makes some pretty awful reading and should act as a wake-up call. It reveals how a GP service let down a young man with severe learning disabilities and it starkly draws into focus the attitudes that pervade in the system.
The young man is just 23. He has severe learning disabilities and behavioural problems, and he has epilepsy. He has historically been prescribed a series of medicines in liquid or dissolvable form because he becomes very distressed if he has to take tablets. One of the medicines was midazolam, used in emergencies if his epileptic seizures lasted beyond three minutes. In April 2011 his mother asked their GP for a repeat prescription in liquid form to help her son’s epilepsy. The GP refused her request because it was too expensive. He would only prescribe her son suppositories or tablets in future.
The mother advised the GP that her son had been prescribed only liquid medicine from a very young age, as his learning disabilities caused him to become very distressed if he had to swallow tablets. Despite this, the GP said he would no longer prescribe any of the young man's medicines in liquid form for cost reasons and would prescribe only tablets in future. The doctor told the mother to find a GP,
“‘who has bigger budgets’ and who would ‘be happy to prescribe the medications’”.
The mother was clear that the decision not to prescribe her son suitable medication put him at risk, including of death. However, when she subsequently complained to the GP practice about the doctor's decision, the response was far from understanding and helpful. She got a letter informing her that there had been a “total breakdown” in the doctor-patient relationship and advising her to find a new GP within 21 days as she and her son were to be removed from the practice’s list.
I can only ask noble Lords to imagine the significant distress that followed. The General Medical Council guidance is clear: doctors must ensure that prescribing of medicine is appropriate and responsible and in the patient’s best interests. The guidance also states that doctors should, when appropriate,
“establish the patient's priorities, preferences and concerns”,
and
“discuss other treatment options with the patient”.
After investigating the case, the ombudsman found that the GP had not given the young man the medication he needed on the grounds of cost, and had ignored disability discrimination law in the process. The ombudsman was clear in the report that the doctor,
“did not act in line with the Mental Capacity Act, GMC guidance and established good practice.”
The report found that the doctor,
“did not consider his responsibilities under the Mental Capacity Act in reaching his decision”,
about the young man's medication. He did not assess the young man’s,
“capacity to make a decision about his own treatments or medications. Nor did he take any of the required actions that could have led him to reach a ‘best interests’ decision”,
on the young man's medication.
The case shows a lack of understanding of reasonable adjustments and disability rights. Public bodies are required to comply with the Equality Act 2010, which includes the duty to make reasonable adjustments. They should also have regard to the various statutory codes of practice that have been published to assist in the interpretation of the legislation. The ombudsman’s report brings into sharp focus a specific case and uncovers the treatment that people with a learning disability and their families can face within the health service. The ombudsman, Julie Mellor, said:
“This is yet another case where someone with learning disabilities has been failed. When there are failures in the care and treatment of people with learning disabilities, there are consequences in terms of their health and in too many cases, their life expectancy.”
Unless the Government take strong action in this area, cases such as these will continue to occur. That is why I strongly support establishing a national mortality review body, which would allow for the collection of mortality data and, importantly, for investigations of specific cases, a point made by the noble Baroness, Lady Hollins. Critically, it would provide the opportunity to improve the understanding of the causes of premature deaths and enable the National Health Service to improve care for people with a learning disability.
The ombudsman’s report highlights a terrible wrong committed against a vulnerable young person. I hope that this Parliament and this Government will act to stop these awful and discriminatory cases occurring in future.
Baroness Jolly
My Lords, I, too, thank the noble Baroness, Lady Hollins, for bringing to the attention of the House the report that gives us the opportunity to discuss this issue. The report makes for sobering reading. Many noble Lords speaking in this debate have far more expertise in these matters than I have—in fact, looking around the Benches, I think that they all have—but the first NHS trust board that I sat on more than 15 years ago was a community trust with learning disability, mental health and community health responsibility for all of Cornwall, so I come at this with at least some understanding. I commend the work in this area by both the noble Baroness who, during her tenure as president of the BMA, sought to raise the profile of learning disability, and the noble Lord, Lord Rix, a long-time advocate of those with learning disability, and president of Mencap, which I thank for producing an excellent briefing.
In the past, there have been plenty of situations and reports, and we have heard about some of them today, that should have given successive Governments a wake-up call regarding poor provision for people with a learning disability—Budock Hospital and Winterbourne View, to name two, both of which point to the inevitable health inequalities. For many years now we have known that the health commissioning of learning disability services has been poor. Many PCTs wrote a cheque to providers and effectively asked them to get on with it. Indeed, there is a historic similarity with mental health service commissioning. Mental health now has parity of esteem status with physical health, but it does not feel as if the same can be said for learning disabled people.
The history of a lack of communication between health and social care in this area is well known, too. It was as if, after the move to take people out of large establishments and put them into domestic settings, commissioners and providers decided that the job was done, the spotlight went off, attention moved elsewhere and quality was forgotten. I must acknowledge that there are some splendid services, but that standard is not yet universal.
So what are good services? Here I have to thank Professor Jim Mansell of the University of Kent for the list from his 2010 report, Raising Our Sights. Good services should be individualised and person-centred, treat the family and carers as expert, focus on staff relations with the individual, sustain the package of care and be cost-effective. In addition, they should be supportive, use appropriate advocacy and be predictive and well implemented. I do not wish to belittle the work of the professor but none of this list should come as a surprise to the House. The surprise and shame is that this list is not part of universal practice.
That brings us to the Confidential Inquiry into Premature Deaths of People with Learning Disabilities. The report was commissioned by my right honourable friend Paul Burstow following the events at Winterbourne View. It is thorough and contains a detailed and practical set of recommendations. In the time that we have, I am unable to cover all aspects of the report so shall focus on information, staffing and the Mental Capacity Act. The report puts the spotlight back on mortality. As we have already heard, it is particularly appropriate that we are discussing the mortality of people with a learning disability in the week when the Keogh report did just that for the total population served by 14 hospitals. Sir Bruce was able to do that because he had the data. This report is based on a dataset that is not normally collected for people with a learning disability.
The report’s first recommendation is that people with learning disability should be clearly identified on the central NHS registration system and in all healthcare systems. Although outside the scope of the report, this information should be recorded on social care records too. A learning disability flag should be part of a standardised dataset and I would hope that a combined, patient-held record would be a reality in the not too distant future. Not only does this make identification easier, it would aid audit and research, make joint strategic needs assessments far more accurate and easier to produce and make reasonable adjustments easier to flag, thus improving commissioning and contracting. This is not an unreasonable request, it is an issue of equality, and without it people with learning disability cannot be treated equally. I would like the Government to commit to a clear timeline for this work, so would the Minister tell us what that is, or when we might know what it is?
Moving to staffing, the report calls for a named health worker to be allocated to those with complex or multiple health needs, and I welcome the Government’s response and further suggestion of a named worker in acute settings. There is also a need for specialist learning disability liaison staff in community settings. Can the Minister give an indication of when it is intended to roll this out?
These changes bring a need for training. Will the Minister reassure the House that Health Education England can put training programmes for health workers in place, and when they might become available in local training settings? Would he also confirm that training will be mandatory and included in continuous professional development for all health workers?
Finally, I turn to the Mental Capacity Act, which the noble Baroness, Lady Browning, has covered well. As she has said, it is currently under scrutiny in your Lordships’ House and is pivotal to people with a learning disability, as it is to any vulnerable group. Advice under this Act should be available at all times and easily accessible. That will pose challenges in delivery, and I ask the Government not to forget or ignore patient involvement and engagement in this. Members of the sector are very good advocates, but there is a real need for people with learning disability to be consulted and involved in improving access to the Act.
In conclusion, I have outlined the issues around records, data and information, the Mental Capacity Act and staffing. Would the Minister ask his colleague, my honourable friend Norman Lamb, the Minister for Care and Support, to come to the House in the autumn with NHS England’s new lead for learning disability to share with members of the House its thinking on these issues and the action plan that has arisen from this report?
I think that it was Gandhi who said that society could be judged by how it treated its most vulnerable. Reducing health inequalities should be central to that. It is not an issue which will attract the attention of voters; it is something that we do solely because it is the right thing to do. I would hate it if, 10 years on, we were seen to be wanting.
Lord Wigley
My Lords, I declare an interest as patron of Mencap Wales and Autism Cymru. I welcome the opportunity to speak in this most important of debates. As the noble Baroness, Lady Hollins, has set out very clearly, the figures are shocking and should rightly make us very angry indeed. The fact that 37% of deaths investigated by the confidential inquiry could have been prevented with better healthcare should rightly motivate us to do all that we can to tackle the startling health inequalities that people with a learning disability face. I share her concern that the Government have not gone far enough in order to bring about the change we really need to see. It is particularly disappointing in light of the fact that the issue was brought to the attention of the Government before and met with similar inaction.
In 2006, I was a commissioner at the Disability Rights Commission and worked on the formal, 18-month investigation into healthcare given to people with mental health problems and learning disabilities. It was then that I first came across the findings of the work undertaken by the noble Baroness, Lady Hollins, that those under 50 years of age with learning disabilities or mental health issues were 58 times more likely to die from medical conditions not associated with their disability than was the general population of that age group—58 times more likely is a staggering figure.
The DRC’s resulting report, Equal Treatment: Closing the Gap, found that those with learning disabilities or mental health issues regularly get worse treatment than others. The study, carried out in England and Wales, examined several million health records and found that people with learning disabilities and mental health problems were more likely to have a major illness, to develop a serious health condition younger, and to die sooner than the rest of the population. Despite this, the same group of people were less likely to have routine tests and screening to pick up signs of a problem at early stages. For example, people with learning disabilities who have diabetes have fewer measurements of their body mass index, while those who have had a stroke have fewer blood pressure checks. The investigation also identified a problem known as diagnostic overshadowing, whereby symptoms of physical ill health are often seen as part of a patient’s mental health problem or learning disability and are not properly investigated or treated.
One of the aims of the work was to see which areas of the NHS would need to improve in the context of the then recently introduced Disability Discrimination Act, including the duty to make reasonable adjustments for disabled people, something which was in place since 1999. We were clear that GPs needed to make reasonable adjustments in order for people with a learning disability to access healthcare effectively. This included simple things such as making appointments by e-mail, providing treatment information in alternative formats or sending text or phone appointment reminders. Also important in terms of reasonable adjustments was raising awareness and understanding among both GP clinic and hospital staff in terms of learning disability.
This is demonstrated powerfully through the story of Susan. Susan died on 1 February 2011 in St Christopher’s Hospice in Sydenham, having been transferred the previous day from Lewisham Hospital. She was 59 and had cancer. Although Susan had been diagnosed with breast cancer some years previously, she had lived happily with her sister Brenda. Both were actively involved with their local Mencap in Lewisham and Susan often volunteered at events and outings. Susan was admitted to Lewisham Hospital on 15 January 2011 with vomiting and jaundice. Like so many other family members and carers, Brenda visited Susan every day and made herself known to staff as Susan’s main carer. As there was no learning disability specialist nurse available on the ward, Brenda found herself regularly explaining to staff about Susan’s care needs and becoming increasingly frustrated by the general lack of understanding and awareness about learning disability, which seemed to permeate the hospital. At one low point, Brenda was told by the matron that her staff, “don’t encounter people with learning disabilities in hospital that often”. Consequently, no adjustments were made to accommodate Susan’s needs, leaving Brenda fearful and anxious for Susan’s treatment unless she was there on an almost round-the-clock basis. Despite a complaint to the hospital by Brenda about a potential breach of the Equality Act for a failure to make reasonable adjustments to accommodate Susan’s learning disability, progress was slow, and a year after Susan’s death, the hospital had still failed to demonstrated that staff had any more awareness about learning disability and their duty of care and duty to provide equal access to healthcare to patients with a learning disability.
I emphasise the need for reasonable adjustment. Sadly, it seems that things have not changed nearly enough since our investigation. In 2006, we made the point on numerous occasions that reasonable adjustments were not being made as a matter of course. The confidential inquiry builds on this by highlighting that:
“The lack of reasonable adjustments to facilitate healthcare of people with learning disabilities, particularly attendance at clinic appointments and investigations, was a contributory factor in a number of deaths. GP referrals commonly did not mention learning disabilities, and hospital ‘flagging’ systems to identify people with learning disabilities who needed reasonable adjustments were limited”.
Its recommendation therefore seems sensible and measured that reasonable adjustments required by, and provided to, individuals be audited annually and examples of best practice be shared across agencies and organisations.
The Government’s response to this is far from purposeful, saying that they will instruct NHS England to look at the possibility of strengthening provider contracts to include an annual audit. Public authorities have a duty to make reasonable adjustments, and that includes adaptations and accommodations to ensure that people with a learning disability can access healthcare on an equal footing. Back in 2006, we were clear that there was no excuse, the duty having been there since 1999. In order to move this forward, strong leadership is needed by the Government and key agencies if we are to avoid these failures persisting within the healthcare system and thousands of vulnerable people paying the price.
Lord Rix
My Lords, as president of Mencap, I welcome the opportunity to speak in this important debate, having rushed from the other Lord’s in St John’s Wood to support my noble friend Lady Hollins in her battle to achieve health equalities for learning-disabled people.
As someone who has worked in the world of learning disability for more than 60 years, I am of course aware of the persistent health inequalities that exist. The figures from the confidential inquiry are shocking and the report makes sober reading. That over a third of those investigated died due to poor healthcare is nothing short of an outrage and should be front-page news. The fact that, on average, men with a learning disability die 13 years earlier and women with a learning disability die 20 years earlier than the general population should be reported alongside the horrific facts, figures and stories from the Mid Staffordshire scandal. Instead they appeared in only a handful of articles, well tucked away. It is a further disappointment that no Oral Statement was made, either when the inquiry was published in March or last week when the Government published their response. That is why this debate is so important.
As many of your Lordships know, I chair the All-Party Group on Learning Disability together with the right honourable Tom Clarke MP. For many years we have brought in people with a learning disability, their families, advocates and professionals, to create a dialogue with MPs and Peers. On Monday I chaired a well attended meeting on this very subject where we heard from the confidential inquiry team and the learning disability public health observatory together with people with a learning disability, family members, carers and the Minister, Norman Lamb.
The inquiry team is to be commended on an excellent, robust piece of work, exposing the stark health inequalities that people with a learning disability face and providing the Government with 18 excellent recommendations on which to move forward. As my noble friend Lady Hollins stated, it seems that the key recommendation, that a national mortality review body be set up to collate data and investigate and report on deaths, is critical in order to keep momentum going, as well as to start the kind of culture change that we must see within the NHS. It is therefore deeply disappointing that the Government have shied away from this critical recommendation, putting off any sort of decision until March 2014. Like my noble friend, I wonder how many more people will have died unnecessarily by that date.
The most powerful account given at the meeting was that of Christine, a mother who tragically lost her daughter Tina in 2009. Tina lived at home with her parents and her sister. She had learning disabilities, epilepsy, Russell-Silver syndrome—a form of dwarfism—and severe scoliosis of the spine. Tina had generally been physically well but developed a cough and a high temperature. Her parents called the doctor and Tina received a home visit from her GP during which she was prescribed antibiotics and paracetamol. Her condition deteriorated, however, and her parents rang the surgery to request a second home visit. This was refused, as was their first request to the out-of-hours service.
It was not until a second call to the out-of-hours service—which resulted in a home visit and a diagnosis of aspiration pneumonia—that Tina was referred to Basildon hospital. Once in hospital she was diagnosed as suffering from pneumonia and a chest infection. The hospital did not give her the treatment she needed or even meet her basic care needs. She suffered several seizures in hospital and went for four days without food. She died on 30 January 2009.
Tina’s death has had the most profound impact on Christine, of course, and her family. At the meeting she said:
“Our daughter was a human being and we protected her and cared for her all through her life until she became ill. We argued with the Doctors from day one; firstly the GP and then the hospital. They saw a child laying there with a disability and decided her life wasn’t worth saving”.
The Parliamentary and Health Service Ombudsman’s investigation of the case found failures and delays in diagnosing Tina’s condition, a failure to act in line with the Mental Capacity Act 2005, failures in the communication of Tina’s condition to her parents, a failure to implement Tina’s transitional care plan and a failure in meeting Tina’s rights as a disabled person.
Christine is rightly concerned about Vikki, her other daughter, who also has a learning disability. She described at the meeting how she and her family were fearful every time Vikki became ill and when she had either to visit the doctor or go to hospital.
We owe it to Christine and her family, as well as to countless others, to stop these health inequalities leading to death by indifference—the apt title of a report by the Royal Mencap Society.
Baroness Tyler of Enfield
My Lords, I add my congratulations to the noble Baroness, Lady Hollins, on initiating this critically important debate. As the title of the debate states—it bears repeating—we are today discussing the health inequalities of a particularly vulnerable group, highlighted by the confidential inquiry into the premature deaths of people with learning disabilities. I speak today not because of any specialist knowledge but because of my interest in health inequalities, of which this is such a stark example, and I am grateful to the National Development Team for Inclusion for its briefing.
I am sure we can all agree that many of the findings of the report were horrifying. I will not repeat the statistics that many other noble Lords have already given the House. Suffice it to say that nearly three times as many people with learning disabilities die avoidably than die among the general population. Like many noble Lords, I find this shocking. Surely the issue should be treated with the same seriousness and urgency as responses to the appalling events at both Winterbourne View and Mid Staffs. The latter led to the highly influential Francis report and the immediate implementation by government of some of its key recommendations.
I will first make a few points on the factors leading to this vulnerability and these premature deaths. The confidential inquiry found that a fifth of people with learning difficulties experience significant difficulty or delay in diagnosis of their illness and that, as a result, there is often too little proactive care for this group and too many crisis-driven responses. It found a lack of reasonable adjustments to help healthcare, particularly in basic things such as attendance at GP surgeries and clinics; that GP referrals often do not mention learning difficulties; and very limited hospital flagging systems. Additionally it found that poor record keeping is creating problems and that, in some instances, even “do not resuscitate” orders in patients’ records have been found to be inappropriately or poorly documented. As others have said, there was poor adherence to the Mental Capacity Act and, finally, the inquiry identified poor co-ordination of care across and between different disease pathways and service providers, which failed to understand the episodic nature of care provision. That is only a few.
We know a great deal about the problem and we cannot continue to allow one group of people, those with learning disabilities, to experience such drastic healthcare inequality. It is because I know that the Government have such a strong commitment to reducing health inequalities that today I ask the Minister to consider immediate action in the specific areas on which I will focus my contribution. I am encouraged to do so in the knowledge that the Care and Support Minister, my honourable friend Norman Lamb, recently said:
“It is not good enough that people with learning difficulties are at a greater risk of dying earlier due to poor health care. … We are making progress on improving standards of care but we have to go further and keep driving forward our plans”.
I could not agree more.
First, regarding the confidential inquiry’s concern about a lack of adherence both to the Mental Capacity Act and the Equality Act, outlined by other noble Lords today, will the Minister clarify the Government’s plans to address this concern? Secondly, while details about the deaths of people with learning disabilities identified by the inquiry illuminate the severity of the problem, they only provide a snapshot. As anyone who has taken at least a basic course in statistics knows, cross-sectional data—what the confidential inquiry has assembled—cannot tell us as much as longitudinal data.
The confidential inquiry recommended that the Government should create a mortality review body and has offered three different models for doing so in subsequent discussions with the department. This would provide a critical ongoing lens into the mortality of people with learning disabilities. Will the Minister explain the Government’s plans and timetable for creating such a body?
Thirdly, the confidential inquiry also describes the current healthcare situation as one largely driven by crisis, with a lack of evidence of sufficient forward planning. Will the Minister provide his reaction to this assessment and say how forward planning can be improved?
Finally, on the care of those with learning disabilities, the only support currently available to clinical commissioning groups and local authorities is provided through the Learning Disabilities Specialist Public Health Observatory, which is part of Public Health England. This work involves a specific work strand on promoting learning and on sharing that learning with the wider sector and local areas. It is very important that this work continues and, given the number of people with learning disabilities who are supported both through social care and who live with their families, that this work programme includes specific action to support social care, understands the action needed to reduce premature deaths and works alongside action targeted at family carers. Will the Minister say what support the Government intend to put in place to ensure that local areas are able to implement the recommendations of the inquiry?
I finish by suggesting some additional practical actions for the Government to consider to try to improve the current situation. First, they could identify those people with learning difficulties who are afraid of seeking medical assistance and provide them and their carers with support and training now, before the need for urgent medical treatment arises. Secondly, they could offer a named healthcare co-ordinator to all people with learning difficulties with two or more long-term conditions and to those who live unsupported or with minimal support in the community with one or more long-term conditions. This would be akin to the Government’s recent proposals to refresh the NHS mandate, including by providing a co-ordinating clinician for the non-hospital care of another very vulnerable population—the elderly. This is something I very much support.
Thirdly, the Government could require all health and care services to assess and document the reasonable adjustments that individuals with learning disabilities need to access healthcare equitably and to share this information with providers so that people with learning disabilities are properly identified and providers have the duty to ensure that these reasonable adjustments are made. It must be possible to co-locate community learning disability nurses into GP practices to work alongside GPs.
Finally, will the Government consider requiring all acute hospitals to have at least one learning disability liaison nurse in post? These are just practical and specific examples—we have already heard others today and I am sure that we will hear more. I look forward to hearing the Minister’s response to these and other points.
Baroness Emerton
My Lords, I thank my noble friend Lady Hollins for this timely debate and for her contribution over the years on the issue of learning disabilities. I declare an interest as a retired general nurse. Not holding any qualification in mental handicap, as it was then referred to, I have limited experience with learning disabilities, mainly associated with relocating patients from the large hospitals in the 1970s until the late 1980s. However, that experience was one that has stayed with me in terms of demonstrating that people with learning disabilities and their families are a group who require a range of specialties to come together to ensure that their quality of life is the best possible.
Although this debate is asking the Minister what steps the Government are taking to address health inequalities, it is difficult just to debate health, as has already been illustrated today, because so much is dependent on the part played by education, social care and families. The opportunity has now been given to us, with the new Health and Social Care Act and the Care Bill, to develop healthcare pathways further. We should take this opportunity to ensure connection and communication through the education system, social care and specialist mental health care and that learning disability staff are involved in the total well-being of the individual and the family. Otherwise it is likely that there will be gaps which, in turn, may be detrimental to the general health of the individual with the learning disability.
It is now 65 years since the NHS was introduced with the assurance of free care for all at the point of delivery. During those 65 years, we have seen many developments for those suffering a learning disability, which have come step by step and usually following the unfortunate findings of inquiries into poor care, such as in Ely, Farleigh and Whittingham—all large hospitals that were found wanting in the delivery of care. In the 1970s, we abolished long-stay large hospitals and moved patients into the community, which was a big step towards a pathway for each individual that set a programme of care according to their needs. However, even within the 20 years since that move, we have cause for concern about small units that have failed in their delivery of care.
This confidential inquiry into premature death provides the opportunity to address the pathway for learning disabilities and for health and social care professionals, support workers, educationalists and families to contribute to the development of a meaningful, holistic pathway for every individual person with a learning disability. This surely demands a culture change and leadership, as well as offering a learning opportunity for all health and social care professionals and general educationalists to understand the philosophy of caring for those with a learning disability. It requires good communication links between all of those, with each of them understanding the overall philosophy and strategy of an integrated pathway for the individual. It is clear that this would be a large piece of work and would take time to be achieved. It will require all of the disciplines to be involved, as well as the families, who we know have had to fight a long battle to break down the barriers between all the involved agencies. There needs to be shared ownership of that responsibility—everyone has to ensure that the pathway is high quality and leads to people living as normal a life as possible with the appropriate support and with regular physical health checks.
Coming back to the confidential inquiry, I would make four points. The first is about health records, which has already been mentioned in detail by the noble Baroness, Lady Tyler. I am sure that in this day and age it is not beyond the wit of any of us to see that it would be possible to get a health record that can not only integrate the issues relating to the handicap but attach a personal profile to the health action plan that could be implemented and given quickly to the person and to the family.
Secondly, there is advanced healthcare planning. I suggest that the Government need to give further guidance once long-term problems are diagnosed. There should be a trigger for the plans to be instigated and a risk assessment and a crisis-point plan drawn up. These health plans could easily be put together as long as there is communication between all aspects and that the medical side is aware of the way forward.
My noble friend Lord Rix has already mentioned palliative care and the dreadful time that the patient in Lewisham experienced. The confidential inquiry identified some problems with end of life care. It is clear that palliative care teams need to be supported during the time that palliative care is being provided to a learning disability patient. A specialist learning disability nurse should be available to those teams when this is required. At least two patients in every hospital have a learning disability. Of these some may have profound multiple learning disabilities. The role of the registered learning disability nurse is important in giving guidance in hospitals on the specialist support of patients. Can the Government ensure that workforce planning outcomes include a calculation for the roles of nurses qualified in learning disabilities to be available for such teams?
If the noble Earl agrees that this should be the way forward, what steps will the Government take to ensure that that NHS England, Public Health England, local authorities and professional regulators develop the curriculum and standards for health and social care professionals and general educationalists, Healthwatch, well-being boards, and charities such as Mencap to meet the requirements for the best possible pathway for healthy living within the capabilities of the individuals suffering a learning disability and their families? This would include a model to maintain general good health and the reduction of the rate of premature deaths as is suggested by the inquiry.
If the philosophy and strategy are clear for the person suffering from a learning disability, we can then be assured that all aspects of their life will be taken care of, with the support in place where necessary. This in turn will be effective for other members of the family who, over time, as experience tells us, have had to overcome tremendous difficulties through sheer lack of professionals understanding the situation being described or the damage that can occur, including breakdown to the family unit.
Lord Hunt of Kings Heath
My Lords, I declare an interest as president of GS1, chair of a foundation trust and a consultant trainer with Cumberlege Connections.
It is a great pleasure to follow the noble Baroness, Lady Emerton, and to congratulate the noble Baroness, Lady Hollins, on her initiative in securing this debate. I applaud her efforts in again raising in your Lordships’ House the appalling health outcomes of so many people with learning disabilities. I shall not repeat what other noble Lords have said. The statistics are clear and there is a clear consensus that they are accurate, and the outcomes are very disturbing. We must recognise that this is now an issue that has been identified for at least six years; the evidence from Jonathan Michael’s report, Death by Indifference, which found that patients with a learning disability experienced delays in diagnosis and treatment, a lack of basic care and poor communication from health professionals, is now six years old. Clearly, the confidential inquiry findings have endorsed the original findings of the Jonathan Michael inquiry.
The noble Baroness, Lady Hollins, was a member of the inquiry team, which is significant. Sir Jonathan Michael is a very distinguished chief executive of an NHS trust. In some ways, it was even more persuasive coming from that quarter, when he found so many examples of indifferent healthcare for people with learning disabilities.
As noble Lords have said, when one thinks of our recent impassioned debates about health outcomes, the Keogh inquiry and the Mid Staffordshire inquiry, the number of premature deaths of people with learning disabilities is so shocking that it is disappointing that society as a whole, the media and the political world are not taking it as seriously as they ought. These debates are very important in alerting the public and the Government to the need for action to be taken.
The noble Baroness, Lady Browning, made some very good points about the need for annual health checks and screening and the substantial problems of diagnosis and communications. The noble Baroness, Lady Tyler, mentioned “do not resuscitate”, and it made me wonder whether the follow up to the Liverpool care pathway that will be taken forward in the light of the report by the noble Baroness, Lady Neuberger, will be an opportunity to look specifically at the needs of people with learning disabilities to ensure that they are captured within the new approach. I hope it is something that the Minister may be able to take on board.
The noble Baroness, Lady Tyler, spoke about the employment of specialist staff in hospital. My trust has recently employed two people to do that. If one looks at the recent seminar that the noble Baroness, Lady Hollins, chaired under the auspices of the BMA, it is noticeable that many of the recommendations coming from it are about communications; training staff to identify and understand the needs of intellectually disabled and mental health patients; changing the culture of the NHS from unfounded, ill informed judgments about mental health and intellectual disability patients; and ensuring those patients are subject to the same access standards as physical health patients. Given all the problems over the past few years, there is no doubt that specialist staff within hospitals have an important role to play.
Given all this, it is difficult to know why the Government seem to be dithering over establishing a national confidential inquiry. The noble Baroness, Lady Hollins, described the national confidential inquiry into perioperative deaths. Over the decades, it has done outstanding work in indentifying patterns of death that have led to improvements in services. The noble Baroness may recall Mr Brendan Devlin, one of the great pioneers of the ECEPOD, who never achieved the recognition that he ought to have received for his work; I suspect that at the time he was not popular with his colleagues in the profession. I remember talking to him and seeing the results of those inquiries and the reports that were issued. I hope that the Minister will be able to say something a little more positive about the Government’s intentions. The benefit of a permanent confidential inquiry is that year after year, in report after report, evidence will be brought forward and statistics will be made available. I am convinced that it is a very powerful way to drive up standards in future. The great risk is that if we do not have another inquiry, the issue will go away and will be forgotten in the health service. That is why one needs permanent machinery to enable it to be done.
If it is a question of finance—I have to be very cautious about what I say on funding issues—comparisons concerning the cost of a permanent national confidential inquiry into the deaths of people with learning disabilities could only be minimal in terms of the human cost to those people and their families of the premature deaths that are caused by the current problems in services.
When the appalling events at Winterbourne View came to light in the report—it is not so long ago that the Minister made a Statement to your Lordships’ House on this—a great deal of discussion concerned the role of commissioners. In the case of Winterbourne, once the commissioners had placed a person in the home there was virtually no contact. What is being done to enhance the role of commissioners? We have an opportunity to come back to this on Report in the Care Bill, in which there is a provision around the role of the CQC in regulating the commissioners of local authority services. I hope we might come back to debate whether we can give more power and ammunition to the CQC in this regard.
I have two final comments. My noble friend Lord Touhig raised an important issue about the role of general practitioners and some of the failings in our primary care medical services. The Minister knows now that the responsibility for contracting with GPs lies with NHS England. It would appear that NHS England also has a big role to play in ensuring a continuous and permanent confidential inquiry. Is the Minister satisfied that NHS England has the capacity to develop and drive policy in this area? Surely it is in its hands. It has the ability to fund and organise a national confidential inquiry. It also has the ability to ensure that the issues my noble friend raised about access to GP services are dealt with effectively in contracts with general practitioners. I hope there will be further opportunities to debate these important issues in the future and that the Minister might be prepared to take back the pressing question of a permanent confidential inquiry.
The Parliamentary Under-Secretary of State, Department of Health (Earl Howe)
My Lords, I thank all the speakers in this excellent debate for their very powerful contributions, not least the noble Baroness, Lady Hollins. I want to start by paying tribute to Mencap, which has been campaigning vigorously against the preventable deaths of people with learning disabilities. Mencap has revealed fundamental failures in communication between care providers, on the one hand, and parents and carers, on the other, as the main cause. However, it has also concluded that the only other explanation for these preventable deaths is prejudice. The disturbing reality is that this prejudice, although rarely revealed in words, finds its expression in deeds, sins of omission and neglect. Any failure to understand what should be a fundamental tenet of NHS practice is shameful: every life is different, yet every life has the same value.
I want to take this opportunity to make the Government’s position clear. Mencap’s report, Death by Indifference, marked the start of six years of shocking revelations of inhumane and degrading treatment, culminating in the recent publication of the Confidential Inquiry into Premature Deaths of People with a Learning Disability. We established the confidential inquiry in 2010 and funded and supported it for three years. As Sir Jonathan Michael’s report, Healthcare for All, recommended, it was time limited. Its purpose was to provide evidence on the relevant issues and guidance on preventing premature deaths. It has done this very effectively and I thank the confidential inquiry team for its excellent work.
This important report reached the conclusion that people with learning disabilities are continuing to die or experience poor outcomes because they are not getting the right care, and noble Lords have cited some graphic and disturbing examples this afternoon. Although the report makes for sobering reading, it gives us a clear indicator of the areas that need to be tackled, preparing the ground for the Government’s response to the confidential inquiry which was published last Friday. Our response makes clear our determination to eradicate substandard practice and to work in partnership across the health and care system to deliver the improvements that we all want to see.
In our response, we set out a series of specific actions. We will use the information strategy for health and care to improve how we identify and respond to people with learning disabilities and their health and care needs. We will link data about cause of death with other information to better understand and respond to premature mortality among people with learning disabilities. We expect local organisations to use local mortality data to inform joint strategic needs assessments and joint health and well-being strategies. We will support named healthcare coordinators being available to people with learning disabilities. They will coordinate a person’s care, talk to other professionals and be involved in planning the individual’s care.
NHS England will review plans for learning disability annual health checks. We know that appropriate health checks can identify needs which can then be addressed by referral to appropriate services. We will try to strengthen the NHS standard contract to improve the care of people with learning disabilities. We know that the contract is a powerful lever to incentivise good practice. We will monitor, through the mandate, the progress the NHS is making to ensure that people with learning disabilities in vulnerable circumstances receive safe, appropriate, high-quality care all the time.
We will work with partners to review awareness and understanding of the Mental Capacity Act and how it works in practice in making sure that people receive appropriate care at all times, including at the end of life. We will work with partners to review guidance on cardiopulmonary resuscitation. NHS England will appoint a national clinical director for learning disabilities, who will help improve the experience of people with learning disabilities in care. Local areas can set up their own arrangements to review mortality in people with learning disabilities. Some are already doing so, working with the confidential inquiry team. This work will be shared more widely for other areas to develop similar approaches. Building a strong understanding of what is happening in local provision will be critical to making change happen.
Over all that, in the Health and Social Care Act, we have a new specific statutory duty on the Secretary of State, NHS England and clinical commissioning groups, with the aim of focusing on reducing inequalities throughout the health service in both access to services and outcomes achieved. This will be an enormously powerful tool in addressing the health inequalities which people with learning disabilities face.
However, the response to the confidential inquiry is just part of a programme of activity from government and partner organisations designed to deliver system change and a shift in culture and attitudes. Changes in health and social care delivered by the Health and Social Care Act 2012 provide the building blocks for that shift. First, safe, appropriate, high-quality care is a key priority for NHS England. The noble Lord, Lord Hunt, asked about the capacity of NHS England to focus in this area. It is under a specific legal duty to tackle inequalities and advance equality. Priority areas where we expect progress to be made by 2015 include supporting people with multiple long-term physical and mental health conditions and improving their quality of life, and preventing people from dying prematurely.
Secondly, the NHS Outcomes Framework 2013-14 will allow us to measure the quality of services and outcomes for people with learning disabilities. This framework includes an indicator on preventing people with learning disabilities from dying prematurely. Improvements for people with learning disabilities will also be a crucial element of success across the framework as a whole.
Thirdly, Transforming Care, our national response to Winterbourne View hospital, sets out a programme of actions to ensure that people with learning disabilities or autism no longer live inappropriately in hospital, and receive optimum care. A wide range of delivery partners signed up to a programme of action designed to deliver transformed care in the Winterbourne View review concordat. The concordat sets out a number of specific actions for NHS England, including ensuring that all primary care trusts develop registers of people with learning disabilities or autism who have mental health conditions or behaviour that challenges, and making clear to clinical commissioning groups that they are expected to maintain local registers and, with the local authority, review individuals’ care. All reviews will be completed by the end of July. By next April, every area will have a joint plan to ensure high-quality care and support in line with best practice. By next June, everyone will have moved to community-based support where appropriate.
Baroness Hollins
I hope the noble Lord will forgive me. The Winterbourne View concordat does not address the physical health needs that we are talking about in this debate. I asked whether the Government might consider a similar concordat to look at the physical health needs of people with learning disabilities. Would the Minister care to comment?
Earl Howe
My Lords, I would like to deal with some of the points raised in the debate. Can I say, as I always do, that if I fail to cover all the questions raised, I will of course write to noble Lords afterwards? On the issue of a concordat, which was raised also by my noble friend Lady Jolly, our response makes clear that we have already been able to take action in some areas—for example, by asking organisations to review and update guidance. In other areas, progress relies on several issues, such as new and emergent organisations developing their strategic approach, and key individuals being in post. Across all of the actions, there is a broad timescale with a commitment to provide regular updates on progress. The Department of Health will continue to review progress through the Learning Disability Programme Board.
On records, data and information we are working with the Health and Social Care Information Centre, NHS England and the Improving Health and Lives Learning Disability Observatory to address the issues. There are several areas we need to look at. For example, we know that there is already information in GP practice learning disability registers. We want to make better use of this by linking it to other data that is already collected. We will have an update on progress by the end of the year. I will write to supplement those comments because my time is running short.
My noble friend Lady Tyler asked what support the Government will give to local areas to implement the confidential inquiry recommendations. The department is working closely with the public health observatory to make sure that its work to share good practice includes the issues raised by the confidential inquiry. We have already suggested to the inquiry team that we need to work in partnership with NHS England and other stakeholders. To make progress on the actions we need to align with work that the inquiry team is already doing at a local and regional level.
The noble Baroness, Lady Hollins, asked when the outcomes framework indicator on premature deaths will be live. It is live from 2013-14. We are currently collecting data to underpin the indicator and we will have data by November of this year.
The national mortality review body was a subject raised by many noble Lords. The department and the confidential inquiry team organised a meeting in March to discuss the proposal for a mortality review body. I am aware that the noble Baroness, Lady Hollins, and other stakeholders with expert knowledge and interest attended that meeting. Our response confirms that NHS England will consider the proposal to establish a national mortality review body, including looking at the costs and benefits by March next year. Noble Lords expressed their concern about that timeline and I have no doubt that NHS England will take note of the strength of feeling expressed by noble Lords on this issue during today’s debate.
I have a lot more to say about liaison staff, the Mental Capacity Act, reasonable adjustments and other themes, not least those raised by the noble Baroness, Lady Emerton, on care pathways and the role of nurses. I will write on all of those issues. I want to end with a reassurance that people with learning disabilities and family carers remain at the heart of everything we do. The Government must lead by example. That is why the Learning Disability Programme Board includes learning-disability self-advocates and family carers as well as a self-advocate and the chief executive of Mencap. We have a long way to go but change must be effected at scale and pace. There can be no more excuses or procrastination from any part of the system if we are to achieve our collective goal of a society where everyone is valued and has the chance to lead productive and, most importantly, healthy lives.