House of Lords
Introduction: Lord Sherbourne of Didsbury
Introduction: Lord Paddick
Public Services: Private Sector Companies
(11 years ago)
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Lord Haskel
To ask Her Majesty’s Government what assessment they have made of the reliability and value for money of public services provided by private companies.
Lord Wallace of Saltaire (LD)
My Lords, the Government’s overarching principle in procuring public services in the private sector is to secure the best quality and value for money for the taxpayer over the life of the contract. On coming to power in 2010, the Government found that public sector procurement was fragmented, bureaucratic, protracted and expensive, both for bidders and for procurers. The procurement reforms we have introduced since 2010 have made the way we do business more competitive, more transparent, better value and far simpler than before.
Lord Haskel (Lab)
Does the Minister agree with me that blaming the past for our problems in the present does not actually get us very far? Does he also agree with virtually everybody else that we are being ripped off by these companies, not only on energy prices but also in the Work Programme and in health assessments and rail fares? We learnt from the Financial Times only this morning that the Government are concerned that we are being ripped off by the water companies. What steps are the Government taking to rebuild public trust, and hold down the cost of living, by giving social obligations a higher priority and encouraging an attitude of public service?
Lord Wallace of Saltaire
My Lords, I hope you will accept that there is, to some extent, a difference between the relationship that the Government have with water companies and energy suppliers, which have regulators, and the direct contracts that the Government have with particular suppliers such as Serco and G4S. The concerns that we have at present over Serco and G4S are widely known. The Government are conducting a review of contracts with Serco and G4S across the board.
Lord Naseby (Con)
Does my noble friend recall that, prior to 1979, hundreds of local authorities had direct labour departments building council homes and carrying out maintenance at a massive loss of billions of pounds to the local ratepayers and the taxpayer in general? In 1979, very early on, those councils were prevented from doing that and the private sector construction industry was brought in to build those flats. Is that not a better way forward, and has that not been proven over the years?
Lord Wallace of Saltaire
My Lords, I think we have discovered yet again that there is no perfect way of providing goods and services and that each model has its own advantages and disadvantages. The Government are currently doing their best to encourage the development of mutuals. Some weeks ago I went round the mutual housing association operating in Bradford, and it was doing a superb job, in particular in training apprentices. But of course there are good examples and bad examples in almost every sector.
Lord Wills (Lab)
My Lords, does the Minister agree that transparency can only improve the delivery of public services by private sector companies? If he does, can he explain exactly why the Government continue to resist the extension of the Freedom of Information Act to the provision of public services by private sector companies?
Lord Wallace of Saltaire
My Lords, that is a familiar question. There are, of course, problems of commercial confidentiality, as the noble Lord well knows. I will take it back and write to him yet again on the subject.
Baroness Greengross (CB)
In the light of the recent criticisms of past exercises in public procurement, can the Minister give the House an absolute assurance that the Government will in future ensure that in every such procurement the reasons and objectives are clearly laid out so that delivery can be monitored and success assessed; that a realistic and workable alternative is available so that the Government do not in the last hours find themselves negotiating over a barrel; and, lastly, that the Government are clear about which risks they will keep and, when they want to allocate those risks to the operator, how that will be achieved?
Lord Wallace of Saltaire
My Lords, I wish that every potential risk was clear before one ever signed a contract, as that is part of the problem. The Government are aware that part of the problem with public procurement is that it has proved easier to contract with very large-scale providers which then very often subcontract to other suppliers. We are moving towards the target of 25% of contracts going to small and medium-sized suppliers so that there are direct relations with those who are actually on the ground providing the service in the regions and the localities. That is one of the things that we hope will improve the quality.
Lord Sugar (Lab)
My Lords, does the Minister agree that the original concept of hiring commercial enterprise to conduct the business of the Government was meant to gain better efficiency and value for money? Does he agree that this has failed in the sense that most of these private contractors actually spend most of their time enhancing their profit margins instead of looking after the service that they are supposed to be providing? Serco, as he has already mentioned, is the classic example where, I believe, there are allegations of fraudulent activities.
Lord Wallace of Saltaire
My Lords, in the case of Serco, the noble Lord will have seen that a number of senior executives have resigned in recent weeks. We welcome that and see it as a positive first step in the process of corporate renewal. Across the board, however, I am not sure that I would wish to blacken every company providing services for the state in the way that the noble Lord has perhaps suggested.
Lord Blackwell (Con)
My Lords, I declare my interests as set out in the register. Does my noble friend the Minister accept that there are millions of privately employed workers delivering public services who go to work every day completely dedicated to the quality of services that they deliver to the public? Does he recognise that, in tribute to their efforts, we should be clear that you do not have to be a public sector employee in order to be a public sector servant?
Lord Wallace of Saltaire
My Lords, one of the reasons why the Government are attempting to encourage more mutuals in this area is that there is considerable evidence that people who work for mutuals have a much stronger sense of service, job satisfaction and co-operative working.
Baroness Farrington of Ribbleton (Lab)
My Lords, the Minister referred to one of the earlier questions as familiar. Does he accept that questions would become less familiar on the Order Paper if they were answered?
Lord Berkeley (Lab)
My Lords, can the Government explain why, on the recently announced east coast main line franchise, they have allowed the state railways of the Netherlands, Germany and France to bid but not the directly operated railways that are owned by this Government? What is the difference?
Lord Wallace of Saltaire
My Lords, that is a little bit on the edge of this Question. However, as a frequent user of the east coast railway line, I know exactly where the noble Lord is coming from.
National Curriculum: Violence against Women
(11 years ago)
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Baroness Prosser
To ask Her Majesty’s Government what plans they have to review the National Curriculum with the aim of preventing violence against women; and whether any such plans include making sex and relationship education a statutory part of the school curriculum.
The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con)
My Lords, violence against women is unacceptable. We expect schools to teach children not to tolerate violence. Schools may include this topic in personal, social, health and economic education as a non-statutory subject. Maintained secondary schools are already legally required to provide sex and relationship education, and we would expect all academies also to do so. The SRE guidance, which schools must have regard to, states that teachers should support children to avoid all forms of abuse, bullying and violence.
Baroness Prosser (Lab)
I thank the Minister for that reply, but does he agree that with women and girls experiencing higher levels of physical and sexual abuse, the Department for Education should actively support the Home Office’s strategy entitled A Call to End Violence Against Women and Girls? This includes sending schools information about prevention campaigns and overseeing the implementation of such campaigns.
Lord Nash
I pay tribute to the noble Baroness’s work on women’s and girls’ rights and opportunities. We support the principle behind her Question, and the DfE fully supports the Home Office’s excellent strategy in this regard. However, we do not believe that the most effective way of doing this is for the department to try to send messages to all girls. We are looking into how best to get information and messages to them. The This is Abuse campaign run by the Home Office is already doing good work in this regard. Later this year, Ministers from the Department for Education, the Home Office and the Department for International Development are to meet representatives from head teachers’ and teachers’ unions to discuss how best to raise awareness among staff and pupils of risks linked to gender-based violence. I am sure that the noble Baroness will also agree that any messages need to go to boys as well as girls.
Baroness Butler-Sloss (CB)
My Lords, the noble Lord, Lord Northbourne, has been passionate about the importance of parenting being part of citizenship. If the Government took that on board, the very important issue of domestic violence would fit very neatly into it.
Baroness Hamwee (LD)
My Lords, does the Minister agree that behaviour and attitudes tend to get repeated down the generations? This includes the repetition of violence and, among men and women, the acceptance of violence. Therefore, does he think it is important to say that violence is wrong and to give victims the confidence to speak up and say that it is wrong and that they will not put up with it?
Lord Nash
My Lords, I entirely agree with my noble friend’s point. I think she is particularly referring to domestic violence, where we have a lot of work under way, but there are a number of cycles that we need to break through work in schools: worklessness is one; violence is another good example.
Baroness Nye (Lab)
My Lords, the last time the sex and relationship guidelines were updated was at the turn of the century, when the founders of Facebook were still in high school and Twitter was confined to the bird world. Will the Minister explain why the Government are so opposed to updating those guidelines to help teachers help children understand the internet world that they are growing up in now?
Lord Nash
My Lords, as part of the recent PSHE review, we looked at whether or not the SRE guidelines needed to be updated. We concluded that they represent a very sound framework for guidance in this area. We are doing a great deal on internet safety, as the noble Baroness knows, including bringing it into the curriculum for the first time, and a great deal of work with CEOP. We think that the framework is there and that to keep constantly changing it due to changes in technology is counterproductive, as technology is moving so fast.
Baroness Jenkin of Kennington (Con)
My Lords, is my noble friend aware that recent polling shows that one in three girls is groped at school and sexual harassment is routine? May I suggest that where schools do best practice, other schools are encouraged to learn from them?
Baroness McIntosh of Hudnall (Lab)
My Lords, may I take the noble Lord back to the Answer that he gave to my noble friend Lady Prosser? If I heard him right, he said that he thought that the message did not need to go to all girls. Can he tell the House which girls he thinks do not need to hear this message?
Lord McColl of Dulwich (Con)
My Lords, as millions of men are brutalising millions of women and that means that millions of other people know about it and do nothing, can we encourage the public to take some responsibility? For instance, a few weeks ago, two 14 year-old boys heard a woman being beaten up, went and bashed on the door and then informed the police. Can we not encourage the public to become more involved?
Lord Sutherland of Houndwood (CB)
My Lords, the two topics mentioned in the Question clearly refer to abhorrent sides of our society; we all agree on that. However, does the Minister agree that dealing with all those problems by inserting them on a statutory basis into the national curriculum is almost a confession of failure and that there have been many other interesting suggestions made from around the House today?
Lord Nash
I am grateful for the noble Lord’s question and I agree entirely. Pupils will often respond better to dialogues with mentors from outside agencies that are skilled in their work. It is right to help pupils in this way: issues around drug-running in gangs, for instance, are completely different from those relating to forced marriages. Schools should be free to engage with outside agencies as appropriate.
Sudan
(11 years ago)
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Baroness Cox
To ask Her Majesty’s Government what is their response to recent developments in the Republic of Sudan.
The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con)
My Lords, the Sudanese Government’s violent crackdown on recent popular protests was disproportionate and unacceptable. We have called for an independent investigation into the use of force by the security forces. These events have demonstrated once again the need for an opening-up of democratic space in Sudan for real political debate. The Government must engage in a process of reform that addresses the needs of all groups and parts of the country, including those regions currently in conflict.
Baroness Cox (CB)
I thank the Minister for her reply. Is she aware that the suffering inflicted on their people by the Government in Khartoum is escalating, with continuing aerial bombardment of civilians in the Nuba mountains and Blue Nile? Half a million people have been displaced and are dying; I myself have witnessed that. In Khartoum, over 200 legitimate protestors have been killed. Not only that—some of their relatives were forced to sign forged death certificates saying that their deaths were from “natural causes” rather than from live ammunition. The scale of suffering in Sudan is second only to that in Syria. Would the Minister agree that the time is long overdue for really robust measures to be taken to stop the impunity with which Khartoum is continuing to slaughter, terrorise and cause suffering to its own people?
Baroness Warsi
I thank the noble Baroness for keeping this House up-to-date with what is normally the most up-to-date information on Sudan and South Sudan—usually because she has just visited once again. Of course there is immeasurable suffering taking place in Sudan; 3 million people have been displaced or affected by various internal conflicts. It is felt that the way to deal with these matters is through the United Nations Security Council, which regularly addresses this issue: it discussed this matter only last Thursday. We feel that the best responses are, first, through UN peacekeeping; secondly, through humanitarian assistance; and thirdly, through concerted international efforts led by the African Union, all aspects of which are supported by the British Government.
Baroness Kinnock of Holyhead (Lab)
My Lords, what response is likely to be given to the increased violence taking place in Darfur and the planned reduction simultaneously in the number of UNAMID personnel? Will urgent attention be given to the need for a more viable and inclusive process to replace the much discredited Doha process? Can we expect Darfur civil society and local stakeholders to be directly involved?
Baroness Warsi
The noble Baroness makes an important point. Of course, 10 years after the start of the conflict, the situation in Darfur remains serious. We have been pressing the Government of Sudan to honour their commitments. I understand the concerns that the noble Baroness has about the Doha peace agreement, but that is the framework within which we are working at the moment, supporting the efforts of the African Union and the UN joint chief mediator to engage the armed movements and encourage them to end violence and not to obstruct the peace process. We continue to give support, predominantly through humanitarian aid, of which a large chunk goes into Darfur.
Lord Avebury (LD)
My Lords, as I am sure my noble friend knows, the Security Council last Thursday expressed grave concern about the highly volatile situation in Abyei. What information does she have about the proposed referendum to determine the constitutional status of that territory being held among its permanent inhabitants towards the end of this month? What does she know about the increased military activity by the Sudan armed forces, particularly around the capital, Kadugli? Does she think these two events are connected?
Baroness Warsi
We are of course concerned about unilateral actions by either side in Abyei, but we believe that the Ngok community is organising a popular consultation of the community. However, this has not been endorsed by the Government of South Sudan. We understand the frustration that has led to this, but we encourage all parties at this stage to refrain from unilateral action. We are aware of the reports to which my noble friend refers of the build-up of Sudanese forces in South Kordofan. Whether or not that is linked to Abyei or the ongoing conflict in South Kordofan, we are not sure at this stage, and we urge restraint from the Sudanese armed forces. The noble Lord will of course be aware that, during the dry season, there is generally a build-up of armed personnel in the area, but we are keeping a close eye on the situation.
Lord Triesman (Lab)
My Lords, I understand the call on the Sudanese Government to open up greater democratic space, but that is rather like inviting any violent dictator to think about his behaviour and mend his ways—it is unlikely to create the outcome sought. Is not the truth of this, whether we are talking about Abyei or anything else happening in Sudan, that Omar al-Bashir is wanted for war crimes? This Government—indeed, it was the noble Baroness on 17 July speaking about strengthening the International Criminal Court—made the point that impunity was not acceptable. What steps will be taken to bring this man to justice? He travels freely throughout Africa and much of the world. He is not immune.
Baroness Warsi
We regularly remind states party to the Rome statute of their responsibilities under that statute. Only three months ago, we brought this fact to the attention of Nigeria, where President Bashir was travelling.
Universal Credit: National Rollout
(11 years ago)
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Lord McKenzie of Luton
To ask Her Majesty’s Government when they will publish an agreed plan for the national rollout of Universal Credit.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
Our priority is to deliver universal credit safely and securely over a four-year period to 2017. We remain committed to that objective, these timescales and the budget. We have already announced plans to expand universal credit into additional jobcentres from today and to roll out the claimant commitment nationwide by next spring. We have also said that we will provide more details around our implementation plans later in the autumn.
Lord McKenzie of Luton (Lab)
I thank the Minister for that Answer. Any confidence that we may have had in the Government’s ability to deliver universal credit was dramatically shaken by the NAO report last month. It concluded that the DWP was not achieving value for money and that there was,
“weak programme management, over-optimistic timescales, and a lack of openness about progress”.
Alarmingly, it stated that the department does not know to what extent its new IT systems will support national rollout. When will those systems be fit for purpose to support national rollout as well as enable detection of fraudulent claims? I also note that the department has written off £34 million-worth of abortive IT expenditure. How much more will be written off as abortive before the Government get their act together?
Lord Freud
My Lords, first, I take the opportunity to congratulate the noble Lord on taking up a slightly more relaxed lifestyle on the Back Benches with this portfolio. I pay tribute to him for his formidable contribution over many years from the Front Bench. To deal with his latest and just as formidable contribution, I remind noble Lords that the NAO said in its report:
“Spending so far is a small proportion of the total budget … and it is still entirely feasible that [universal credit] goes on to achieve considerable benefits for society”.
Lord German (LD)
Would my noble friend agree that the introduction of universal credit represents one of the largest system changes we have ever seen in the public sector in this country, sitting as it does on a hugely complex IT platform? Given the significance of universal credit in that it will always make work pay more than being on benefits, does my noble friend agree that getting it right is more important than making mistakes as we go along? But, if he will forgive my impatience, when will we see the first families with children being able to receive universal credit?
Lord Freud
My Lords, I entirely agree with the sentiment. When you are introducing a large cultural change like this, it is important to do it in a careful and controlled way, and to make sure that it is safe and secure. That is how we have been introducing our series of changes, such as child maintenance, PIP and benefit cap. I am not in a position, until we announce Howard Shiplee’s plans later this year, to give a timetable of when couples and children are brought into the migration strategy.
Lord Foulkes of Cumnock (Lab)
My Lords, this is really depressing. Why do the Government not pay attention to Sir John Major? Last week in the Press Gallery he advised the Government not to pay attention to the bean counters and cheerleaders, but to the people working with the disabled, the elderly and others who are suffering. John Major also said that this was going to fail, that all these reforms were going to fail, unless Iain Duncan Smith was a genius, and he saw no proof of that. Does the Minister have any proof? Unless he does, is it not about time that for the sake of our disabled people the Government started to think again?
Lord Freud
My Lords, the party opposite is not saying that universal credit is not the right transformation. Although it voted against various aspects, it is actually saying that it is the right way to go. The issue is how to introduce it. We are introducing it safely and securely, and we are doing that exactly for the kind of people to whom the noble Lord was referring. We are making sure that we do not produce shocks by introducing a new system on one day in the way, for instance, that tax credits were introduced and which was a failure. We are doing this slowly and securely.
Lord Cormack (Con)
My Lords, as this is such a profound change, would it not be sensible to have a Joint Committee of both Houses to monitor and supervise its introduction and development?
Lord Freud
My Lords, I can assure noble Lords that there is no shortage of people overseeing this particular programme. I do not really think that there is a need for another layer.
Baroness Royall of Blaisdon (Lab)
My Lords, undoubtedly the Minister is right that there are an awful lot of people overseeing the process, but the suggestion made by the noble Lord, Lord Cormack, is a good one. There may be better people to oversee the process. The noble Lord was generous in his tributes to my noble friend, but he did not answer the Question. My noble friend is still a valued member of the Front Bench and speaks on the Department for Communities and Local Government.
The DWP has estimated that a three-month delay in transferring cases to universal credit would reduce savings by £240 million in the current spending review. Will the Minister please tell the House how this reduction is to be funded?
Lord Freud
My Lords, I am not aware of any such mathematics. We have always said that we will introduce universal credit in a safe way and that we will adjust the timetable in the light of experience. We now have Howard Shiplee on board, and he is immensely experienced. He produced the Olympic Park on time, and he is working to make sure that we have a plan that will introduce this programme effectively.
Baroness Wheatcroft (Con)
My Lords, our welfare system is broken. If it takes a little while longer than we had originally hoped to put it right, surely it is right that we should take the time. Universal credit is a massive step in the right direction. Does the Minister agree that the real tragedy would be if benefits claimants were reduced to such desperate circumstances that they had to superglue themselves to benefit desks?
Lord Freud
My Lords, when you introduce a big programme of change, the important thing is that you test and trial it thoroughly. We have a major programme of testing and trialling, whether it is the intensive-activity programme, the in-work conditioning pilots, the housing demonstration projects or the 12 local authority pilots. I am hoping soon to publish the next issue of the local support service framework that is designed exactly to make sure that there is a support network for people who might otherwise look for the superglue.
Baroness Hollis of Heigham (Lab)
Like others in this House, I support universal credit and I welcome it, but I am deeply worried that it is going to be a paperless system accessible only online. A very large number of people in their 40s and 50s in limited financial circumstances on benefit do not possess computers, smart phones or computer skills. They will not be able to interrogate or correct errors on the system, and even if the Minister successfully delivers the structure, which I hope he is able to do, although I have my doubts, I am profoundly worried that an awful lot of people who should receive their full benefit will not be able to do so because they will not have access to a paper system.
Lord Freud
My Lords, we are designing the system to be digital, which must make sense in the 21st century. It also makes enormous sense to get people into the digital environment, not least because 94% of all jobs now require that kind of capability. However, our plans do not rely on everyone having to interrogate the digital system themselves. We will have back-up systems in a telephone service and a face-to-face service for those who absolutely need it. We will have a system to encourage people into the digital environment.
Inheritance and Trustees’ Powers Bill [HL]
The Chairman of Committees
That, as proposed by the Committee of Selection, the following Lords be appointed to the Special Public Bill Committee on the Inheritance and Trustees’ Powers Bill [HL]:
L Ahmad of Wimbledon, L Beecham, E Courtown, B Hamwee, V Hanworth, L Henley, L Jones, L Lloyd of Berwick (Chairman), L McNally, L Plant of Highfield, L Shaw of Northstead;
That the Committee have power to send for persons, papers and records;
That the evidence taken by the Committee shall, if the Committee so wishes, be published.
Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Bill
(11 years ago)
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Lord Wallace of Saltaire
That it be an instruction to the Committee of the Whole House to which the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Bill has been committed that they consider the bill in the following order:
Clauses 1 and 2, Schedule 1, Clause 3, Schedule 2, Clauses 4 to 26, Schedule 3, Clauses 27 to 32, Schedule 4, Clauses 33 to 44.
Energy Bill
17:57 - Division on Amendment 1 - Ayes: 202 / Noes: 216 - Amendment 1 disagreed.
Lord Oxburgh
“(5) The first decarbonisation order must be made before 1st April 2014 and the year in relation to which the decarbonisation target range is set must be 2030.”
Lord Oxburgh (CB)
My Lords, I begin by declaring an interest as a director of two small companies with interests in energy efficiency and energy from waste, GEO and 2OC, and as honorary president of the Carbon Capture and Storage Association. As indicated in the register of interests, I occasionally advise other bodies on matters relating to energy, water and environment.
Other noble Lords have longer memories than I, but I can recall no other Bill for which the external atmosphere has changed so dramatically during its passage through the House. For that reason, a few introductory remarks that range more widely than normal may be appropriate and may answer questions that could be raised by noble Lords later.
The price rises that are causing so much concern today are, in part, attributable to the increase in the world price of gas. Whether we like it or not, we can expect the 20-year ragged upward trend of fossil fuel prices to continue, driven by steadily increasing world demand and partly because reserves and oil are becoming more expensive to extract. Temporary market gluts apart, we have to expect carbon-based energy systems to become progressively more expensive relative to the other items on which we spend our money.
However, looking at today’s low price of natural gas in the United States, we might ask whether we should not completely rethink our energy strategy in the light of possible US shale gas resource. Shale gas appears to be abundant and carries only half the environmental penalty of coal. I answer in the following way. It is widely recognised within the industry that the current low price of shale gas in the US results from overproduction and cannot be sustained. For the large US shale gas resource to become an economically exploitable reserve, the price will need to be around three times what it is today. The fact is that extracting gas from shale requires more energy and is more expensive than producing gas by conventional means. Either most of the gas in US shale will not be produced or its price will be much higher than today.
These considerations apply to the UK as well, except that the operational conditions here are likely to be tougher than in the US. If the UK shale gas resource is exploited, its main consequence would be a greater degree of resource independence rather than lower prices. That said, in almost any realistic scenario, gas has an important role to play in the UK energy supply for some decades to come, particularly if cost-effective carbon capture and storage technology is developed. The bottom line is that shale gas does not provide a “get out of jail free” energy card for the UK and does not provide a reason for a major rethink of energy policy or for changing the thrust of the Bill.
The original thinking behind the Bill is correct; namely, that it is prudent to spend more in the short term to build a strategic infrastructure that will substantially decarbonise our economy and reduce our exposure to rises in the cost of fossil fuels, which are likely to remain a continuing political concern. For reasons so well known that I will not rehearse them here, we need this Bill urgently so that the first steps in building the new infrastructure can be taken soon and in the right direction. The two defining characteristics of energy infrastructure are the long timescales and the high costs. With sufficient forethought and consistency of policy, both can be reduced. That is what the amendment seeks to achieve. As the Bill stands, important decisions on timing are deferred until at least after the next election, and who knows what other distracting pressures on government time there will be then. This is our opportunity and we should seize it.
The amendment would require the Government to settle next year the outlines of a measured approach to a longer-term UK energy strategy, taking into account the advice of the Committee on Climate Change. Once the bare bones of the strategy and above all its timescale are clear, industry can begin to plan. It is not just major companies that are involved. It is sometimes forgotten that the nominal times taken to extend the grid or build a new power station depend on essential components being available when they are needed. This means having a robust and specialised supply chain, which itself can take a number of years to establish. Without such a supply chain, major components that are urgently needed will probably have to be imported at high cost and with no benefit to the UK economy. More clarity now will help UK jobs and the manufacturing industries.
Major infrastructure investment also needs funds. Investors have the choice of where to put their funds and they will not put their money into a decarbonised energy infrastructure unless they see the Government committed not just by good intentions, but by the wording of the Bill. Investment is about risk; and the lower the perceived risk, the better terms we may expect to obtain. Here I must take the Government to task. At a time when investment in energy utilities in Europe has rarely looked less attractive, the Government appear to have gone out of their way to weaken confidence further. Ministers in departments closely involved with this Bill have on at least five occasions made statements that appear to undermine its main decarbonisation rationale. To make matters worse, the Government now seem to have adopted the language of their critics by describing as “green taxes” those elements of consumer charges that are specifically designated to reduce costs by improving energy efficiency and developing better long-term infrastructure.
Lord Teverson (LD)
My Lords, I commend the noble Lord, Lord Oxburgh, on his amendment. Decarbonisation is fundamental, and is absolutely what the Bill is all about. The 11th word of the Bill is “decarbonisation”. The Long Title refers to,
“reforming the electricity market for purposes of encouraging low carbon electricity generation”.
The entirety of Part 1 of the Bill is about decarbonisation. The methodology there allows the Secretary of State to set a decarbonisation target. The Bill is about nothing if it is not about decarbonisation.
Of course, the majority of the Bill beyond Part 1 is about ensuring, not just through targets but in practice, that we have decarbonisation. There are many chapters about the nuclear industry. Whether one is for or against nuclear, it is a low-carbon technology and it is enabled by the Bill.
The Bill has a whole chapter devoted to the “emissions performance standard”, which is all about decarbonisation. I have a number of issues with it, but the standard is there and it is the practice for ensuring that decarbonisation actually happens. There is a whole chapter on the capacity mechanism, introducing the possibility of electricity and energy demand reduction and management.
Of course, at the core of the Bill, are the contracts for difference, which have taken up a lot of our time in Committee and elsewhere in the House. Contracts for difference would not exist, would not be in the Bill, if there were not a practical and urgent need to get low or zero-carbon technology investment into the generating sector.
There is no point in having this Bill if not for decarbonisation. As we know, this Bill started back in 2010 with a White Paper and has been through many other processes. It is all around one of the four pillars of government at that time—which are still there and which include carbon capture and storage—trying to decarbonise, in this case, fossil fuels, as the noble Lord, Lord Oxburgh, will know better than anybody. The second pillar of this energy strategy was emission performance standards, which are in the Bill. The third pillar was the carbon price floor, which has already been delivered. In terms of green taxes, we are already taxing output of carbon emission from fossil fuels. That is practical decarbonisation. In addition, the Government have introduced energy reduction through the Green Deal and the energy company obligation. As well as all these practical actions, do we need another target? That is what I really want to look at.
As this is a coalition Government, there are differences not just between parties but between departments. We have differences between the Treasury and DECC on occasions, and perhaps BIS as well. There are also different directions in which the two coalition parties look. Nevertheless, what the coalition came together for was to provide a specific programme in terms of government for the five years of this Parliament. A key part of that concerned the economy and debt reduction. Another, which both parties shared, was being a green Government with respect to the environment, part of which is decarbonising. The agreement, willingly entered into by both parties, called for a levy control framework that allows contracts for difference and decarbonisation investment to work, with some £7.6 billion by 2021. We have an agreement that the energy company obligation, which is really important in terms of households’ energy efficiency, stays at its present level until the end of this Parliament. We have electricity demand reduction in the Bill. We have an agreement at EU level that a 50% reduction of carbon emissions by 2030 should be negotiated with our European partners. We already have the carbon tax floor and we have emission performance standards legislated for, we hope, when this Bill finally gets through.
We, as Liberal Democrats, ask whether it is more important to deliver targets at this time, when issues of energy—energy bills and energy security—are so fractious, perhaps between all parties. Is it important to make sure that through this Bill we deliver real, practical, £100 billion-worth of investment decarbonisation, or do we go for just another target? I look back at targets, whether they were for fuel poverty being eradicated by 2010, which failed quite considerably, or whether carbon emissions for 2010 were met—they were not in terms of the original obligations. Do they make a difference for business? Yes, I think that they do—the noble Lord, Lord Oxburgh, is right.
What makes the real difference in terms of investment? It is stability and understanding that there is the right environment for investment in terms of cash flow, in terms of where the market is going and in terms of a determination to deliver a much broader agenda for investing in decarbonisation. That is the area that I feel is of the greatest importance. We should have a decarbonisation target. I am happy to wait until 2016 to deliver real decarbonisation.
Lord O'Neill of Clackmannan (Lab)
My Lords, in proposing Amendment 2A in this group, I will go roughly along the same lines as the noble Lord, Lord Oxburgh. We had to wait six minutes to get any indication of the previous speaker’s attitude towards these amendments.
We have all had approaches from a plethora of organisations; in my years in this House and the other place I can rarely remember such a broad coalition. You normally get the greens and one or two others, but it is quite surprising to get support from across the spectrum of industry, banking and environmental concern for an amendment along the lines that the noble Lord, Lord Oxburgh, and I are proposing. The amendment I have tabled is in some ways slightly different from the amendment in the name of the noble Lord, Lord Oxburgh, in so far as it seeks to define the decarbonisation obligation, which it sees as the level of carbon intensity of electricity generation which may not be exceeded in total kilowatt hours. However, it does not set a target by plucking a figure out of the air. The idea is that it should give the Minister probably longer than the amendment in the name of the noble Lord, Lord Oxburgh, which gives the target of 1 April. Amendment 2A mentions 12 months, which would mean another six months in the process. That is important in itself.
The other fundamental requirement is that having set up a Committee on Climate Change, the Secretary of State should take account of what the committee has to say and what its findings are. It is a very important body, formed of a distinguished group of people from academia and business who take an interest in these matters—and it has a distinguished chairman from this House. However, it is not the only body. We are seeking to establish a consensus that would broadly agree to the figures that would then emerge.
We have international obligations, some of which have been imposed upon us, in so far as we have been forced to troop in and put our hand up in the Council of Ministers. In this instance we seek to fill a gap in the British obligations beyond 2020, a gap that would effectively extend from 2020 and 2030. It is important that any Government can go into Europe with a clear programme so that we are not seen to be chasing an agreement—and equally, so that the target figure we would set ourselves would be arrived at by British agreement and British discussion. A country of 60-plus million people with our diverse industry, economy and geography is that kind of country, the limitations or parameters of operations of which are very similar in many respects to a lot of the member countries of the EU that will be sitting on the Council of Ministers in this area.
Some say, “We mustn’t be allowed to be dragged along by the EU”, but in this instance we would be, in many respects, ahead of the game—not, however, to get our green badge to put on our jacket. Rather, we will have made a rational decision on the basis of sound information and wide discussion, and we would be doing so because it is necessary for us to have a degree of foresight. I will not use the word “planning”, but “foresight”. We have to recognise that the investment requirements of our energy economy are not just only long term. I remember talking here about setting down roads. We know that we have a 2050 target, but frankly, at the moment, after 2020 there is no road map and no signposts or proper targets. We must recognise that we will not have 30 years of doing a bit of this and that, then a mad helter-skelter run between 2040 and 2050 to try to get to where we are supposed to be. This has got to be done on the basis of proper consideration. These amendments give business, the investment community and the people who are engaged in research signals regarding the kind of timescales in which to operate.
Lord Lawson of Blaby (Con)
My Lords, this is such an unbelievably bad Bill that it is difficult to see how it could be made any worse. However, no one should ever underrate the noble Lord, Lord Oxburgh, because he has found a way to make it even worse. I agree with one or two of the things he said. For example, he said that a lot has changed since the Bill was first thought about.
The noble Baroness who is the spokesman for the Labour Opposition probably knows a lot about how the Bill first came into being because I believe that she had a hand in it, but a long time has passed and a lot has changed, including the arrival of what is known as the shale gas revolution, although that includes shale oil. This is of the first importance. I disagree with the comments made by the noble Lord, Lord Oxburgh, but I will reserve judgment on those because your Lordships’ Economic Affairs Select Committee has just embarked on an inquiry into UK shale gas and shale oil and we have only just begun to take evidence. I will reserve my judgment until we come to a conclusion in the light of the evidence, but it is clearly a change of the first importance.
My noble friend Lord Teverson put his finger on the real reason why the Bill is such a bad Bill—that is, it is not an energy Bill at all but a decarbonisation Bill, as he made very clear. As a former Secretary of State for Energy, I take the old-fashioned view that an energy Bill ought to be an energy Bill concerned with how to provide the people of this country—particularly the poorest—and the businesses and industry of this country, with the cheapest possible supply of reliable energy. Energy needs to be supplied cheaply, efficiently and reliably. This Bill, not being an energy Bill, is about how to supply energy expensively, inefficiently and unreliably. This has become a very sensitive issue. Energy prices in general, and electricity prices in particular, have understandably achieved a very high profile as families up and down the land are suffering from the introduction of a policy which the Bill will make even worse.
I do not know whether noble Lords have had the opportunity to read today’s Financial Times which has a very good leading article on this issue. Like the noble Lord, Lord Oxburgh, I think that this group of amendments goes to the heart of what the Bill is about. One needs to put the thing into perspective. The article states that, on the Government’s own figures, by 2030 environmental levies will account for 41% of the cost of electricity. I suspect that is a great underestimate but it is the Government’s own estimate. The article points out:
“If Britain never adequately reckoned with the cost of its carbon commitments, it may also have been too optimistic about the benefits. The country accounts for less than 2 per cent of world emissions. The heroic reductions that are planned will have a negligible effect on global temperatures.
This would be true even if the UK’s moderation were not offset by intemperance elsewhere. In fact, investment in energy-intensive industries is already being drawn to countries such as the US where costs are lower. Britain may end up exporting emissions–and jobs–to countries that have shunned such onerous environmental commitments. The halting progress towards a global carbon pact provides scant vindication for those who thought that where Britain led, others would follow”.
It goes on to say, quite nicely, that:
“Such wilful naivety gives an unintended meaning to Prime Minister David Cameron’s pledge to lead the greenest government ever.”
This policy is so damaging that even the Financial Times says that the commitments we have entered into—because there is absolutely no point in doing it on a unilateral basis—should be either repealed or amended.
However, that is not the only objection to the Bill. As I have pointed out, I have some interest in this as I was Secretary for Energy at the time in question. The Financial Times also says:
“Since privatisation the electricity industry has been run on market principles. Price controls were abolished and politicians placed their faith in competition to keep prices low and the grid adequately supplied. Now, the government is becoming the industry’s Gosplan. It decides what plants are built, sets their prices and guarantees financing for their construction.”
This is a Gosplan Bill: those are not my words, but those of the Financial Times, which concludes that the Bill,
“combines the inefficiency of state planning with the expense of private capital, exacerbated by the fear that politicians will retrospectively change their minds ... Britain cannot afford to hobble itself with overly high energy costs as it embarks on the road to recovery.”
That is the considered view of the Financial Times which knows what it is talking about. That is why the Bill is fundamentally flawed and the amendment proposed by the noble Lord, Lord Oxburgh, seeks to make it even worse and make the flaws go even further. By 2016, nobody in their right mind is going to have the time of day for this policy.
Nobody who knows anything serious about energy policy has a good word to say about the Bill. The Oxford Institute for Energy Studies is probably the most reputable forum for the study of energy in the country. The greatest expert there, Mr Malcolm Keay, described the Bill as entailing,
“a massive and unprecedented degree of centralisation and detailed decision-making by the Government.”
This is quite extraordinary. Prior to the changes we made in 1979, the previous Labour Government’s policy of nationalisation was of the highest parliamentary standards compared with the discriminatory system in this Bill where the Secretary of State has the power to sign contracts—with no effective parliamentary scrutiny whatever—with particular energy suppliers, on a completely arbitrary basis, to decide how much should be supplied, at what price and for how long. This makes old-style nationalisation something one would look back to with nostalgia. It is worse than a return to the past: it is a return to something even worse than the past, which was bad enough. The policies we introduced in the 1980s worked and served the country very well. A final witness for the prosecution, as it were, is Professor Dieter Helm, Professor of Energy Policy at Oxford University, who is widely regarded as the country’s greatest authority on energy policy and who has condemned the Bill with bell, book and candle.
This is quite appalling. Over all the time that I have been in this House, which is a long time now, I have never come across a Bill as bad as this. I therefore support the Government wholeheartedly in opposing the amendment proposed by the noble Lord, Lord Oxburgh. The amendment is certainly within the logic of the Bill but it would just take it further and make it even worse.
Lord Krebs (CB)
My Lords, the noble Lord, Lord Lawson, cites as his authority the Financial Times. I want to address the question of energy prices by turning to the authority of the statutory committee set up by this Parliament, the Committee on Climate Change. I declare an interest as a member of that committee. Through rigorous detailed economic analysis it has uncovered the facts. Between 2004 and 2012 the average household energy bill for a dual-fuel household that uses electricity and gas increased by £520, from £610 to £1,130. How much of that was caused by green, low-carbon measures? The answer is that £30, or 6%, of the energy price increases over that period was due to investment in low-carbon energy generation. Another £45 was due to investment in energy efficiency to help with the affordability of energy for vulnerable consumers, and the rest was largely due to increases in the price of gas.
Turning to the present, 2013-14, the climate change committee has calculated that the increases due to the renewables obligation, the feed-in tariff, the energy company obligation and the carbon-price underpin between them amount to 1% of household energy bills. Let us look forward to 2020. The climate change committee estimates that household energy bills will be 10% higher due to low-carbon investment but—and this is an important but—that 10%, which is small in relation to the overall increase, could easily be offset by investment in energy efficiency such as the installation of new boilers and energy-efficient lighting, appliances, heating and insulation in homes. It is therefore a complete canard to claim that investment in low-carbon energy is the cause, and will be the cause, of increases in energy prices. It is simply not true. What about the commercial sector? The climate change committee estimates that by 2020 1p in every £10 will be added to consumer prices as a result of investment in low-carbon energy.
We should not get confused in this debate by the arguments about energy prices. We should also remind ourselves, as the noble Lord, Lord Oxburgh, has said, that this country is by no means the only one to be taking serious steps to transition to a low-carbon economy. China, Germany, South Korea, Mexico and many others are taking steps, just as we are. We are not leading alone but should be among the leading nations that are setting an example to the rest of the world.
The latest report of the Intergovernmental Panel on Climate Change says that if we take no action we are likely to see global warming of between 3.2 and 5.4 degrees by the end of this century, which could be disastrous for our descendants, and that we should take action now. In that context, I commend the amendment of the noble Lord, Lord Oxburgh, and hope that this House will support it.
Viscount Hanworth (Lab)
My Lords, the description of the Bill by the noble Lord, Lord Lawson, bears no relationship to what I and many others understand to be its nature. It is a curious document that is suffused with the free-market ideology that accompanied the privatisation of Britain’s energy industry in the latter years of the Thatcher Administration. The Bill contains evidence of the dangers of global warming and the effects of carbon emissions associated with fossil fuels, which have been well understood. However, notwithstanding its pieties in that respect, the Bill does very little to promote the cause of climate protection. It poses some ineffective and non-binding constraints on the rates of emission and, in truth, will not help in reaching the targets set out in the Climate Change Act 2008.
The truth is that the Bill is attempting to appease a powerful faction within the Conservative Party that is strongly opposed to any measures that might be taken to staunch the emissions of greenhouse gases. There is solid and highly disturbing scientific evidence that should alert every one of us to the perils that we face through global warming. However, many in the Conservative Party believe that they are as entitled to their own contrary opinions on such matters as any of the scientists are to theirs. The climate change deniers have a powerful ally in the Chancellor of the Exchequer, George Osborne. He envisages a dash for gas based on fuel that might be conjured up by fracturing the ground on which we stand. This vision has strongly influenced the Bill. Such a dash for gas would utterly negate the purposes of the Climate Change Act 2008, which proposed that the emissions of greenhouse gases in 2050 should be 80% lower than those in 1990.
The Labour Party brought the matter to a head in the Commons by tabling a reasoned amendment declining to give the Bill a Second Reading in the absence of a decarbonisation target. In the absence of full support from the Liberal Democrats, the amendment was defeated by 279 votes to 206. Perhaps now we can trust that the Liberal Democrats are not bound by whatever agreement it was that made them adhere to the Government’s position on the amendment, and that they will support the amendment of the noble Lord, Lord Oxburgh, which surely accords with their natural instincts. There is clamorous support from industry for a binding emissions target. A target somewhere between 100 grams and 50 grams of CO2 per kilowatt hour, to be set in 2014, would indicate that the UK Government are genuinely committed to their climate change obligations, and give much needed confidence to investors.
The privatisation of the power industry, according to the nostrums of free-market economics, has given rise not to a competitive market but to a dysfunctional oligopoly consisting of six big companies. On the sidelines are a few small independent companies specialising in renewable power generation. Given adequate protection, the independent companies could be expected to provide a large proportion of the new investment in renewable power generation. At present, there is a danger of their being squeezed out of the market by the big six, who are intent on fulfilling their renewables obligations with their own power plants. The Government and the Department of Energy and Climate Change have paid scant attention to the plight of the independent generators. They need to act with urgency to protect these players.
The Government’s free-market ideology and aversion to government sponsorship and national ownership have severely prejudiced the prospects for nuclear energy in the UK. It is an outstanding irony that in their pursuit of a free-market ideology they have bequeathed our nuclear future to two foreign state-owned monopolists, Électricité de France and the China General Nuclear Power Company. These suppliers are expecting a rate of return in double figures as a consequence of a high price for their electricity that is guaranteed for a period of 35 years. This return is supposedly justified by the risks inherent in the project and the difficulties of raising the necessary finance on the open market.
However, in their attempt to attract firms to undertake nuclear projects, the Government have provided a so-called infrastructure guarantee that guarantees 65% of the necessary funds. Surely under such circumstances, it would have been appropriate for the Government to raise the necessary funds by selling bonds and to commission the building of the nuclear power stations directly, thereby taking them into national ownership. Such a course of action would have given the Government powers to ensure that native suppliers would be fully exploited and that our nuclear industry would stand a good chance of revival. Instead, foreign suppliers will predominate and Britain’s taxpayers will have the burden of supporting a much troubled French nationalised industry.
Lord Jenkin of Roding (Con)
My Lords, the noble Lord, Lord Oxburgh, has posed a fairly simple question to the House. There is widespread agreement that we are aiming for a very substantial reduction—80%—in carbon emissions by 2050. There is also wide agreement, embodied in the Bill, that we should have a considerable measure of decarbonisation by 2030. For the most part, there is no dispute about that. When I have discussed this with some of the companies outside, they all accept that that is what we are heading towards. The question is whether we set the figure for 2030 now or wait until 2016, as the noble Lord, Lord Teverson, suggested at the end of his speech, a bit to my surprise. The argument for 2016 is really quite strong. Under the Climate Change Act, this is all administered by the climate change committee, of which my noble friend Lord Deben is the chairman, and which is engaged in setting a series of five-year ceilings as the measure of decarbonisation, leading to an 80% cut by 2050.
The fifth carbon budget comes up in 2016. It seems to be of the highest importance that the figure agreed for 2030 should be consistent with what the climate change committee comes to in 2016. I think that the effect of the amendment of the noble Lord, Lord Oxburgh, would be to set now what the figure would be—which would seem to make that extremely difficult if not very doubtful. The noble Lord, Lord O’Neill of Clackmannan, said, “Let it be done by regulations and then you can change it”. I am not sure that is not exactly where we are anyway. The climate change committee will be setting a fifth carbon budget in 2016, which will of course be part of the then Government’s policy. The question is whether we do it now or wait until then.
I have attended a number of meetings in the past two or three weeks on this subject but will just mention, in passing, one thing that disturbs me. I read the short report from the Intergovernmental Panel on Climate Change. The report of the Nongovernmental International Panel on Climate Change also came into my possession, which takes the view that the intergovernmental panel is completely wrong. What disturbs me about these two bodies, and I will leave it there, is that they do not argue with each other—they abuse each other. One side calls the other climate change deniers and that side calls the others back a bunch of government stooges. I find that a very tiresome argument. If one is going to have an argument about something, one should have a proper one, not one that just descends into abuse.
One of the most interesting meetings that I attended was the one chaired by my noble friend Lord Deben and also, I think, by the noble Baroness, Lady Worthington. One of the points that my noble friend made was that the climate change committee has always been determinedly technology-neutral. It does not seek to identify how a particular target should be reached. It accepts the international figures and then sets a British target for that. I have found that the people I talk to are worried that this is all very well for this country but that Europe has gone and set a technology target, with a figure for 2020—I cannot remember the exact figure—that has to be covered by renewables. The companies who are having to invest and develop their investment programmes say, “Which are we to believe? Are we free to work towards the 2030 target or do we have to pay attention to this?”. The one thing I agreed with my noble friend Lord Lawson about was when he quoted from that extremely interesting Financial Times article and said that if one thinks there is something wrong—as I think there is with this technology target—the right answer is to renegotiate. One of the questions that I therefore ask my noble friend is: what are the chances of our going to the European Union and saying, “Look, this 2020 target for renewables is really quite inconsistent with the much broader target, which will lead on to our 2050 target”? It seems to me that it is an aberration, and that is unfortunate. We should renegotiate that directive.
Lord May of Oxford (CB)
My Lords, I am a member of the Committee on Climate Change and was a member of the committee of both Houses that helped draft the legislation. I want to inject a fact or two into the discussion. The first thing the Committee on Climate Change did was to ask, “How much carbon, looking to 2050, do we think the world can have put into the atmosphere without exceeding a dangerous level of climate change?”. On that basis, we then divided that total by an estimate of the population of Britain in 2050. I would be the first to admit that that second figure is a little uncertain but that was the basis of the ambition that we set and of the overall target that was given for our goal for the end of 2050. We then put the committee together and asked, “Feasibly, how do we think we can get there?”. It was decided—I think sensibly—that the first thing to do was to decarbonise power. Once you do that, you can begin to do other, more difficult things. When looking at decadal timescales, you can look at the possibility of having surface transport primarily done by electricity and that will be okay if we decarbonise the power supply.
We then set intermediate goals. One of them was to come as close as we can by 2030 to decarbonising the energy source through renewables and other things. It was seen that the trajectory to that from 2010, which was when we were talking, was still going to involve coal and gas—gas more efficiently than coal. One thing that the noble Lord, Lord Lawson, and I agree on is that, given that we have to make that trajectory to 2030 and we will still have to use carbon-producing products to generate the energy, shale gas might be the best intermediate way to get there.
To get there, we also need industry to see that we are committed to getting there, to get it in turn preparing and talking of massive investment, but on the premise that there will be support and continuing commitment to those goals. This is primary legislation and the goals that have been accepted by the Government are legally binding, and I am in the habit of asking, on the Committee on Climate Change and elsewhere, “What does legally binding mean?”. I have not yet had a satisfactory answer. In so far as that phrase means something to some people, we have a legally binding interim target of decarbonising electricity by 2030.
That is why at the draft stage of the Bill the Committee on Climate Change recommended that it include not a vague statement of aspiration but the explicit wording essentially equivalent to that of the amendment moved by the noble Lord, Lord Oxburgh. In some sense, you could say we are legally committed to it but it would make common sense to vote for that amendment, as it is consistent with the history and where the facts lie. There are no two ways about it.
Viscount Ridley (Con)
My Lords, I declare my interests in various forms of energy as listed in the register. I cannot declare the probably seven-figure annual sum that I do not receive because I do not allow wind turbines on my land in a very windy part of Northumberland. I say that not to elicit the House’s sympathy, obviously, but to emphasise the point that the Government would be right to resist this amendment because it would hit the poorer even harder and reward the rich even more, by encouraging enormously expensive renewable energy, particularly the wind industry, particularly offshore wind. Effectively, this amendment would lock in now the wrong technologies, the ones that we know are inefficient in producing decarbonisation and which are immensely expensive.
We have heard a lot already today about the interests and needs of producers of energy. As I said in Committee, it is much more important that we think about the needs and interests of consumers of energy. We do not build power stations for the people who build them or the people who plan them; we build them for the people who use the electricity that comes from them, and thereby provide jobs with that electricity.
We know three things now that we did not know at the start of the summer when the Bill first arrived in this House. The first is that the public are right royally fed up with rising energy bills and are not going to take kindly to further increases, which is what we are talking about. Secondly, wind in particular—as with a lot of renewables—needs even bigger subsidies than we have been led to expect. We were told that the strike price for offshore wind would come down from around £150 per megawatt-hour to about £100. That target has now been abandoned; it is coming down to £135. That is an extremely expensive product—about three times the price of wholesale electricity at the moment. The third thing we have learnt—and I am going to come on to this at the end of my speech—is that climate change is happening more slowly than expected.
If all three of those points are taken together, it would be completely mad to lock in a target now for 2030. It would also be potentially callous because it would encourage an increase in the price of electricity.
Lord May of Oxford
My Lords, what the noble Viscount, Lord Ridley, has just said was factually incorrect. Climate change temperature has fluctuations. The noble Viscount does not understand the statistics properly; it is basically the same problem he had with his thesis. It fluctuates; it goes up; it flattens a bit. But the statement made by the noble Viscount, as if it were a flat generality, was inaccurate.
Viscount Ridley
My Lords, I shall repeat the statement. Later in my remarks I shall come back and justify it. Climate change is happening more slowly than expected. Far from locking in highly expensive energy, as we are doing, we should be reconsidering the huge cost that we are afflicting the most vulnerable with to comfort the most comfortable. Offshore wind costs about four times as much as gas: £270 per megawatt-hour is the total cost, including connections and system costs, for offshore wind compared with about £66 for gas. We are asking hard-working families to pay over the odds for their electricity in order to provide subsidies to generate power and in order to provide subsidies not to generate power. Last year, £30 million was paid to wind companies not to produce power at a time when it was not needed. Furthermore, we are asking them to pay over the odds to pay for the short-term operating reserve, which is the balancing mechanism by which we make up for the fact that wind is unpredictable. That consists largely of fleets of diesel generators, which are being increased in number by the national grid towards 8 gigawatts, combined with open-cycle gas turbines—both of which are higher carbon than combined-cycle and extremely expensive.
Moreover, we are asking hard-working families to pay over the odds to upgrade the grid and the network costs involved in that, specifically for wind. We are asking them to pay for a carbon floor price, the specific purpose of which is to make fossil fuels look less cheap compared with renewables. Finally, we are asking them to pay over the odds to compensate energy-intensive industries for these costs that we are putting on to them. All of these things end up on people’s bills at the end of the day and they are not paid through general taxation, where the richest could pay more of them: they are paid through people’s electricity bills. Green levies have risen by about tenfold in 10 years, but we ain’t seen nothing yet. By 2020, about £13 billion, if you include system costs and VAT, will be spent every year, compared with about £2.9 billion today, on the support for renewable energy, particularly wind. The biggest part of that will be going to offshore wind. People’s bills will go up as a result of green subsidies by 33% by 2020 and 41% by 2030, according to figures from the Department of Energy and Climate Change.
Lord Krebs
My Lords, I invite the noble Viscount, Lord Ridley, to explain to the House why he disagrees with the climate change committee’s calculations to which I alluded earlier.
Viscount Ridley
My Lords, we are taking about the same sorts of numbers. The percentage addition I am talking about is how much of the increase we shall see in future will come from energy subsidies. As I said, I took the figures from the Department of Energy and Climate Change.
Lord Krebs
So does the noble Viscount accept the climate change committee’s calculation that less than 10% of the addition to energy bills for households by 2020 will be attributable to investment in low carbon energy, and that that could easily be offset by greater energy efficiency in the home?
Viscount Ridley
My Lords, why are we to assume that greater energy efficiency in the home will only happen if we invest in renewable energy? We will be able to invest in greater efficiency in the home later anyway. The idea that we will get more efficiency in the home because we invest in renewable energy has never seemed very sensible. As for the cost of renewables towards energy prices, we can agree or disagree about the figures but it depends on your assumptions about what will happen to wholesale gas prices.
What have we achieved with the £2.9 billion we are spending this year on subsidies to renewable energy? We produced about 1% of our total energy from wind and solar this year. If you take total energy—including transport, fuel and everything else—wind provides only about 1% of the energy we use in this country. After accounting for the back-up—wind needs about 80% back-up to make sure that energy is available when it is not blowing—we have cut our carbon emissions through the use of wind and solar by probably less than 0.5%. That is surely a very small return on our investment.
All we are really doing is driving carbon emissions abroad, as has already been mentioned. Professor Dieter Helm, who has also been mentioned, said that carbon production in Britain fell by 15% while consumption rose by 20% between 1990 and 2005. We are consuming the carbon, it is just that somebody else is producing it. As Professor Helm also said, if we follow the leader of the Opposition’s proposal and decarbonise altogether by 2030, “we may actually make global emissions higher than they would otherwise have been” because of this effect. Unilateral decarbonisation is like building a flood bank at the end of your garden when your neighbour does not.
The noble Lord, Lord May, challenged me on the point about climate change. We have heard that the position on climate change has become more certain. Those who have come to that conclusion are obviously reading a different Intergovernmental Panel on Climate Change Summary for Policymakers than I am. The one I saw said that it is now 95% sure that more than half the warming since 1951 is man-made. That is a slightly weaker statement expressed slightly more strongly than six years ago, and a statement about the past not the future.
In what the Intergovernmental Panel on Climate Change says in its latest report about the future, you find more uncertainty than six years ago. Let me give nine separate examples of ways in which the Intergovernmental Panel on Climate Change has retreated to a slightly less alarming and less certain position than six years ago. First, it acknowledges the pause or standstill in temperature for the first time, which has taken place for either 15 or 17 years depending on whether you look at surface or satellite temperatures.
Secondly, it acknowledges for the first time since its report in 1990 that the medieval warm period was at least as warm as today on a global level and therefore that today’s temperatures are not unprecedented in the last thousand years. Thirdly, it acknowledges for the first time that Antarctic sea ice is slowly expanding not retreating, which was not predicted by its models. Fourthly, it acknowledges that 111 of its 114 models overstated warming in the last 15 years.
Fifthly, it acknowledges that the range of equilibrium climate sensitivity is lower than it was six years ago. It says that it cannot now give a central estimate, whereas six years ago it gave a best estimate. Why can it not do that? The average of 16 separate estimates of that quantity made by empirical studies since 2011 is 60% cooler than the ECS that was assumed in the IPCC models. The noble Lord, Lord May, says that it is important to make a calculation of how much carbon we must produce by the middle of the century, but that depends upon your estimate of equilibrium climate sensitivity. If it turns out that it is as low as the range is now suggesting, and as the latest studies suggest, that changes the calculation entirely.
The sixth thing that the IPCC acknowledges is that transient climate response is lower. That is the more immediate policy-relevant number because it tells you how much warming actually happens by a particular point in the future rather than what takes a lot longer later. Seventhly, it acknowledges that sea-level rise, which is definitely happening, is lower than some authorities, such as Professor Rahmstorf, have tried to persuade us that it is. Eighthly, it says, using the words “very unlikely”, which it specifically defines in statistical terms, that a collapse of the Gulf Stream is very unlikely, that a collapse of the west Antarctic or Greenland ice sheet is very unlikely and that an explosion of methane from clathrates on the ocean floor is very unlikely.
Ninthly, it says that it has low confidence in a number of tipping points that were previously thought to be possible concerns: the collapse of tropical forests, of boreal forests and of the monsoon, an explosion of greenhouse gases from the Arctic permafrost and an increase in megadroughts. It says that it has low confidence in these things. These are major retreats. We know that the harm being done by climate change will arrive considerably later in this century. There is the harm being done now by decarbonisation policies: biofuels driving people into poverty, and wind costs driving up people’s energy bills and causing them trouble in heating their homes.
These problems are arising now and we are being dangerously close to callous if with higher energy costs we tighten even more the noose around the necks of needy people in this country. This week the Minister President of North Rhine-Westphalia, Hannelore Kraft of the Social Democratic Party in Germany, has said that she thinks we should slow down this transition to renewables until we are more certain.
Lord May of Oxford
At the risk of being tedious, can I ask for a response to this account of what the IPCC said? This is not printed by some bunch of touchy-feely greenies, but comes from the Economist of a week or so ago. It stated that,
“the upper 75 metres of the oceans have warmed by 0.1°C a decade in the past 40 years and there is no sign of this slowing down. Water expands, and ice melts, as temperatures rise, so sea levels have risen 19cm in the past century and the Arctic sea ice has shrunk by about 500,000 square kilometres a decade since 1979.
These facts matter because the oceans cover seven-tenths of the Earth’s surface and are its primary heat sink (90% of the extra warming over the past 40 years has gone into the oceans). By most measures—though not all—global warming is continuing.
But what about the pause in air temperatures? Isn’t that a fact? Indeed it is. But right now it matters more to climate science than climate policy”—
Lord Gardiner of Kimble (Con)
My Lords, I hope that the noble Lord will understand that we are at Report stage. I am conscious of the rules at this stage and if there are frequent interruptions it gets very difficult. We should try to keep the rules on these matters.
Viscount Ridley
My Lords, I will try to be brief. There has been no increase in sea surface temperatures over the past 10 years or so. The noble Lord, Lord Oxburgh, says that shale gas does not provide an excuse to rethink this target, but the shale gas break-even price has come down dramatically in the United States as a result of increased experience of how to develop shale gas. Fields that were once thought to be break even at $6, $8 or $9 are now breaking even at $3, $4 or $5. Then if you add gas liquids—some fields have gas liquids and they are much higher value—and so on, it is very possible that we will see shale gas have the same effect on prices in this country as we saw in the United States.
I feel we must retain flexibility to research low-carbon technologies, to explore the possibilities of solar, carbon capture and storage and other forms of nuclear and, above all, to see what shale gas can do, but we should not lock in an expensive target now.
Lord Smith of Finsbury (Non-Afl)
My Lords, I support the noble Lord, Lord Oxburgh, and Amendments 1 and 2. At the heart of this debate is the question of why decarbonisation is important. As the noble Lord, Lord Teverson, said, it sits at the heart of the Government’s Bill, and the amendment moved by the noble Lord, Lord Oxburgh, seeks to strengthen the position of decarbonisation at the heart of energy policy. The noble Viscount, Lord Ridley, told us that climate change is happening more slowly than expected. He justified that with some somewhat selective pickings from the fifth report by the Intergovernmental Panel on Climate Change. The reality of that report is that its overwhelming conclusion is that the atmosphere and the oceans have warmed, the amounts of snow and ice have diminished and are continuing to diminish, sea level has risen and each of the past three decades has been successively warmer at the earth’s surface than any preceding decade since 1850.
Climate change is real and is happening. I wish the noble Viscount were right. I wish that it was not happening. I take no pleasure whatever in the fact that it is.
Viscount Ridley
My Lords, did I say that it was not happening? Everything that the noble Lord, Lord Smith, has said about what has happened, I completely accept, but it does not say that it is happening faster than expected.
Lord Smith of Finsbury
It is rather good to have on the record the noble Viscount’s opinion that climate change has been happening, and I have to say to him that it is a process that it is continuing.
I am the chairman of the Environment Agency in England. We are already seeing increasingly erratic and extreme patterns of weather here in the UK. Last year, in 2012, the first three months saw us in near drought. That was followed by 11 serious flooding events during the summer and autumn. In March, the River South Tyne was flowing at 28% of its average flow for that time of year; by June, two months later, it was running at 408% of its average flow for that time of year. I cannot say that the erratic weather patterns that we are now increasingly seeing in the UK are directly attributable to climate change, but I can say that this is precisely the sort of effect that climate science tells us we are going to see an awful lot more of over coming decades unless we do something serious about decarbonisation.
It looks as if we are heading for at least a 2 degree rise in global temperatures, and probably more, and the consequences of that for flooding, water supplies, agriculture, movement of population and human health are incalculable. Therefore, it is important for all of us to do what we can to take carbon out of our activities. Decarbonising energy production over the next 20 years is not just a “nice to have”, a luxury, or something to be thrown aside the first moment that some flak appears; it is essential if we are going to have anything remotely resembling a coherent and sustainable energy policy in the future.
A decarbonisation target is not just important because of climate change; it is essential in order to give confidence and certainty to the burgeoning renewables and energy efficiency industries. Putting clear targets in place will stimulate innovation and enable long-term investment and planning to take place. Energy, perhaps more than any other field of government policy, needs long-term thinking and, if at all possible, cross-party thinking, too. We have to put the parameters in place and make the target clear but achievable, then the ideas, investment, work and economic benefits will flow. The amendment of my noble friend Lord Oxburgh seeks to do precisely these things and I fully support it.
Lord Deben (Con)
My Lords, we should start by recognising that the latest report of the IPCC is very clear. It is the product of the world’s most distinguished scientists and is looked at by the Governments of the world. The report is clearer than it has ever been that climate change is happening and that it is largely being caused by humankind. That is the summation. We could go through it and pick out the bits we want in order to make our particular point, saying that the position is worse or better than it seems. The truth is that the likely increase in temperature will be within a range of between 1.5 and 4 degrees centigrade, which is almost precisely the figure that the very first IPCC report put forward. There is a continuity, and that continuity now seems to be more certain.
These are, of course, carbon equivalents. In addition to that, there are the concerns related to other climate-changing effects—not least the fact that we now know that clouds amplify rather than diminish the effects of climate change, unhappily for those who used to put forward the argument that they were the future. We also know there is a severe likelihood of melting permafrost having a serious effect, in addition to methane. All these are in addition. We do not know by how much, but we do know that they are adding to rather than subtracting from, climate change.
The one thing we have to accept is that most of those skilled in this matter are warning us that climate change is a real danger. That puts those who disagree into difficulty because what they are asking us to do is to bet on them against those skilled in climatology and the like. They are asking that we should accept their interpretation against that of the IPCC. They may be right—I am not for one moment suggesting that they might not be—but it would be the foolish father of a family, a foolish government or a foolish company that bet the future not on the majority view of scientists, but on the relatively small minority of those who disagree. Therefore I am not surprised that more and more governments around the world are taking this view, as the GLOBE report—I declare an interest as its president—by the London School of Economics shows. They recognise that it is not possible to ignore climate change and still maintain their duty of care.
For that reason, I welcome the Government’s Energy Bill. As the Committee on Climate Change will serve any Government to do their job properly, and in speaking as its chairman I speak independently, I remind the House that the Government have already committed £7.6 billion in order to achieve what we need to achieve by 2020. In many ways, what the Government have done has been remarkable. The question is therefore whether the Committee on Climate Change is right in suggesting that a carbon intensity target for 2030 is a sensible way forward. I put it to the House that it is, for several clear reasons.
The first reason is that, having spent that £7.6 billion, if there is a cliff at the end of 2020 so that people do not realise how we intend to deal with things later, we will not get the investment we need and, in particular, we will not get the supply chain investment that is crucial for securing the jobs which should come from a green economy. This is not a climate-change reason at all; it is a business reason. As somebody who comes from the business world, it seems clear to me. The letter in today’s Financial Times, if that is a popular read at the moment, shows a large number of business people who are making that point. It is certainly true that most of those who are concerned with the industries we are talking about see it clearly.
The second reason it is so important is that statements made by prominent people unfortunately appear to have caused some to fear that we will not keep to our direct trajectory. I am not one of those; I am absolutely sure that we will. My noble friend Lady Verma, her team and the entire Government have made it clear that we have a statutory requirement to deliver by 2050 an 80% reduction in emissions, and that we will do that. I am therefore in no way concerned about this, but a lot of businesses are. I had a phone call over the weekend from a distinguished individual to ask whether I was sure that we are still going to do these things. If he as a man of considerable ability and an investor thought that, I can understand perfectly well why so many others do. So the second reason is to ensure that clarity.
The third reason is that we need a non-prescriptive mechanism. I served my noble friend Lord Jenkin for a long time as his parliamentary private secretary; I acknowledge and admire him enormously. He is right to put his finger on whether we need this in these circumstances, first, because of the concern about the European Union renewables target. I admit that when this Government came to power I tried to get them to go back on the decision of the previous Government to sign up to a renewables target, because I thought that it covered far too great an area. That was a mistake. It was a misunderstanding of the difference between energy and electricity and should not have been agreed to. However, we have it, and all the pressures will be to have a bigger renewables target. If I may for one moment lapse into party politics, I do not think that that is a very Conservative way forward. I do not think that you should choose winners in that way. It is one thing that worries me a bit about nuclear energy, because you have to if you are going to have it at all. That is why I am in favour of this non-prescriptive target. It merely gives the level of decarbonisation that we will need in 2030 in order to reach the 2050 target. Of course, those who do not believe in any of this will be opposed to it, and therefore it would be wrong of me to detail each of the differences that I have with those who have spoken. In case anyone should need to know them, I will make sure that the reasons why the interpretations of the documents are not right are available to the whole House, and why the noble Lord, Lord May, is correct.
The fourth reason why it is important to have this target is that it is the only thing that is consonant and consistent with what the Government are seeking to get in Europe. In other words, if we have this target, it is possible for the Government to say, “We prefer this target over a target for renewables”. Surely that is better for Britain, better for science, better for the future, and better for price. Furthermore, at the moment we are negotiating for a level of ambition in Europe that can be met only if we have such a target, so this fits in with the Government’s demands.
I have two further things to say. First, the Government have, as you would expect, put forward arguments against this amendment. I hope my noble friend will not mind me saying that one of them does not actually stand up. It is that, somehow or other, we cannot make this decision until we know what is happening in the European Union. The Committee on Climate Change took this argument very seriously. It spent a great deal of time looking at it and concluded that, whatever possible likely scenario happens in the European Union— unless it goes backwards—this particular proposal fits. Therefore, I do not think that we need to be concerned about that.
I come to my second point. If climate change is dangerous, and all the evidence shows that it is, what is the insurance worth? Everybody in this House has fire insurance costing around £140 or £150 a year. We all know that it is 99% likely that our house will not burn down, but for the 1%, we pay the premium because it is too frightening not to. We have something here that is 95% likely, and the cost we are charging this year is £60. By 2020, it will be £100. If we have the carbon intensity target, to that £100 will be added £20 a year. This is based on the most detailed and precise research. Frankly, the figures that have been quoted elsewhere are not true. They come from bodies like the TaxPayers’ Alliance, who want to have a big figure in order to frighten people. I do not think that that is helpful. You have sensible people on both sides—sensible people who think this is not the right way forward and sensible people who think it is the right way forward. However, let us not try to frighten anyone with figures that are not true.
If we want the jobs here, we need this amendment. If we want to reassure the country and the world that we are serious and that they can place their confidence and their business here, we need this target. If we want to keep ourselves in line in order that we do not end up with an impossible task later on, we need this target. Above all, what is the downside? Actually, the Government know that they have to reach this target. All they are doing is putting into legislation now—and getting so much for it—what they know they have to do. Surely the House should support the amendment on an all-party basis and make sure that this good Bill becomes a better one.
The Earl of Caithness (Con)
My Lords, I take a very different view from my noble friend Lord Deben. I thought that his last comments were quite inaccurate. He said that we will get jobs here because of the amendment but the wind farms that proliferate in Scotland do not bring any jobs here, as they are all made overseas. I have talked to the companies that say that they need this amendment in order to invest here. They are all worried about investment, but not because they are worried about whether this amendment will go through; they are worried about whether Britain will remain part of the EU or not. That is where they will invest. They are not worried about whether they will invest in a tiny little island on the north-west coast of Europe; they will invest in Europe, and if we are not part of Europe we can have as many amendments as your Lordships like, but the investment will not come here. I think that my noble friend Lord Deben was quite wrong and misleading to the House to stress that last point in the way that he did.
It was also confusing—as the noble Lord, Lord Smith of Finsbury, was confusing—to talk about climate change as though it was something new. My ancestors sailed to Newfoundland and the new world long before Columbus got there. They had settlements in Greenland. Between that time and now the Tiber has frozen over, and if the historians are correct, the Nile has frozen over. Climate change has happened. If one wants to talk generally about climate change, yes, we all agree that it is happening, has happened and will happen in the future. The specific argument is about what percentage of that climate change is related to the carbon emissions of the past 200 years or so, which is a different and much more specific argument.
Before I address Amendment 1, I will chide the noble Lord, Lord O’Neill, who, sadly, is no longer in his place. It is very unfair to the House to put down a starred amendment on the first day of Report. It is a bad way to treat the House, and a bad way for the amendment to be treated. None of us is discussing it; none of us has been able to look at it and give it the attention it is due. Considering that the House reassembled at least three weeks ago, it is quite unnecessary to have a starred amendment for the first day of Report.
I turn specifically to the amendment in the name of the noble Lord, Lord Oxburgh. I agree with him that shale gas is not a panacea, for two reasons. As I said in Committee and in earlier debates on energy in this House, the cost of extraction of shale gas will be considerably more than most people realise. In this country it will be very hard to be allowed to extract gas. There are all those who say, “We mustn’t burn coal and gas—but you can’t do anything that will make it better. If shale gas makes it better we’re going to block the roads and stop the development and research”. That will make it increasingly hard to try to develop shale gas to its potential—to what it could do, regardless of the costs of its investment.
The noble Viscount, Lord Hanworth, criticised the Government for putting nuclear energy into the hands of two foreign companies. Who is to blame for that? In the 1950s we were the world leaders in nuclear energy and had a huge advantage. We could have a number of small nuclear reactors all around the country, very low carbon—or, rather, with no carbon emissions at all—and this amendment would not be necessary. We have thrown away the lead we had in nuclear energy, which was a huge mistake. Even in 2003 the Labour White Paper, quite rightly condemned as a disaster by the noble Lord, Lord Rooker, last Thursday, ruled out any option of nuclear. We have shot ourselves in the foot on one of the greatest resources we have, to decarbonise this world.
I disagree, therefore, with my noble friend Lord Deben on this amendment. What we are now talking about is whether the decarbonisation target comes in in 2014 or in 2016 because it will be part of the fifth carbon budget. That is now written into the legislation. What are the consequences if we go ahead by ourselves? Again, I disagree with my noble friend Lord Deben on this. It will affect Europe because there will be continued carbon leakage. There is no doubt, regarding investment, that if people and companies look at this country and see that the rules are tighter here than in the rest of Europe, they will move their resources and production elsewhere.
I think it was my noble friend Lord Ridley who mentioned the amount of leakage there has already been. It is important in Europe that we act as one and that we have the same targets. When Sub-Committee D looked at energy and produced its report No Country is an Energy Island: Securing Investment for the EU’s Future, it was clear that one of the problems in Europe is that each country is doing its own thing. Here is a chance, on the question of energy, to get a more European approach to stop the carbon leakage.
That carbon leakage, on an international scale, is costing the EU dear. It is one of the great drawbacks to getting any growth back into Europe. Businesses in America are thriving. They are taking business that emigrated to the Far East back into the US because of the cheapness of shale gas. There are downsides in going ahead by ourselves. If there is carbon leakage, it is going to affect our international competitiveness. We need every bit of help we can get for our businesses.
When we looked, in Sub-Committee D, at the question of energy, it was quite clear that there is what is termed a trilemma. The trilemma is the green issues—how to decarbonise as quickly and as safely as possible— security of supply, and affordability. Getting that balance right is an almost impossible target, not just for this Government but for any Government.
The evidence to date proves to me that that scenario is out of kilter. There has been too much emphasis on the green issues, not enough on security of supply and affordability. That is another reason why I think we should wait for 2016. I do not see the justification for moving forward now as this can be done in a much more rational and less costly way in two years’ time.
Lord Donoughue (Lab)
I have never spoken against a Labour amendment in my 28 years in this House, but I propose to do so today because I am troubled by this misguided amendment. I should make it clear I am not a climate-change denier—an offensive word, from which I have suffered. I am a questioner. I accept that the globe is warming mildly, 0.8% of 1 degree in 131 years, although the surface stopped warming 17 years ago. I accept that the warming is almost certainly linked to carbon emissions and human activity, and I support curbing those emissions in a measured way. The questions that concern me are how much warming will happen, how damaging it will be, how we react in our policies, and how sensitive the climate is to carbon emissions. I note that this century carbon emissions have rocketed, but there has been no further warming of the surface of the globe.
As regards extreme weather, I say to my noble friend Lord Smith, for whom I have the greatest respect and affection, that I believe the IPCC said it could find no evidence that extreme weather was occurring globally. I am troubled from a Labour position—not a denier position—that reactive policy-making, as is the case with this amendment, is not justified by the evidence, and I am troubled by the consequences of that for ordinary people. These policies hurt the poor, given rocketing energy prices, although there seems to be argument about how much the relevant figure will be. The noble Lord, Lord Turner, tried to set it very low. Last week I received an answer from the Department of Energy and Climate Change that put a figure of 9% on green taxes. However, they will increase significantly by 2020. The increases may not look much to noble Lords but will be painful for ordinary people. Such increases will hurt jobs as high energy costs make industry uncompetitive. Indeed, Grangemouth stated that one of its reasons for being unviable was the high cost of energy. Not much notice has been taken of the fact that its rescue plan contained a proposal to build a terminal to import shale gas from the United States. It is sad that it has to import it from the United States. The greens, of course, oppose shale gas.
I oppose the amendment because it entrenches the rapid switch to inefficient and grossly expensive renewable energy sources. I understand that those of a strong green faith—and we are frequently dealing with faith—support this amendment. As has been made clear, their main priority is the rapid decarbonisation of our planet regardless of the costs. However, as a Labour person, I believe that other priorities should be balanced with that—not against it—such as protecting jobs and protecting the public from fuel poverty. Under recent green energy policies, but not wholly because of them, fuel poverty threatens to rise, affecting more than 6 million people. The figure will rise further if these renewables policies are imposed to the extent intended.
I listened to the noble Lord, Lord Oxburgh, and read the briefing from my Front Bench. I question at least three of its main arguments. The first is that gas prices will remain very high and so renewables will not seem expensive by comparison. However, we simply do not know what energy prices will be. I do not share the certainty of the noble Lord, Lord Oxburgh, in that regard. In 1974, I was in No. 10 when we were hit by a 400% increase in energy prices which no one had forecast. In the 1980s, in the City I managed top energy analysts and they did not know what would happen with energy prices, and, of course, firms such as Shell and Centrica spend billions of pounds hedging because they do not know either.
It is a mistake to do as is proposed in this amendment and further lock in the commitment to the massive use of renewables at high prices with no escape if, for instance, gas prices halve. I do not know what will happen. I do not think that those who have put their name to this amendment know either although they claim to. It is possible that shale development could reduce gas prices, as it has in the United States. I am not convinced by the opening dismissal of that on the basis that shale prices in America might increase in time, because shale supply will increase greatly throughout the world. However, most greens oppose shale, perhaps because if we had shale we would not need the inefficient and expensive windmills which blight our countryside.
Lord Stoddart of Swindon (Ind Lab)
My Lords, like the noble Lord, Lord Donoughue, I shall not be supporting the amendment of the noble Lord, Lord Oxburgh. I am also a Labour person but an independent Labour person, so I shall not be supporting the Labour Party this afternoon. However, I want to say one or two things about the amendment and the debate.
The noble Viscount, Lord Ridley, in a detailed critique, settled many of the arguments that have been made. The noble Lord, Lord Lawson, was absolutely right to say that the Bill is not about energy but decarbonisation. The two things are quite different. I have been asking a lot of questions about energy and decarbonisation, and the latest reply I received from the noble Baroness, Lady Verma, was that the Government are responsible for 14% of the average bill paid by consumers for energy. The companies, for which I hold no brief, are getting between 5% and 6%. They are being demonised for increasing the bills and yet the Government are responsible for three times as much of the bills as the companies are.
When I was in the Labour Party before I was expelled for supporting Labour people instead of Tories—defecting Tories, incidentally—I opposed from the Front Bench the privatisation of the gas and electricity industries and I believe that was the right thing to do. It may very well be that the Labour Party, because it now apparently believes in socialism, will consider whether it wants to renationalise those industries if it gets into power at the next general election. However, that is by the by.
My other point is that like most other sensible people I believe that climate changes but like other noble Lords I believe that it is not necessarily carbon emissions that are causing the climate to change at present—if there is any significant climate change at all. However, the Government, Opposition and virtually everyone else say that climate change is due to carbon dioxide emitted by humans and their activities. That may or may not be true but unfortunately the Government do not deal with the problem. If climate change is due to human activity, why on earth are we not doing something about the predicted increase in the population from the present 7 billion to 9 billion? That really is going to exacerbate the problem. An extra 2 billion people will be emitting more carbon dioxide and their activities will add to the problem. Why do the Government not have a population policy? That would meet the problem without the Bill and without the amendment.
Then, of course, there is the possibility that carbon is not the real problem, that perhaps it is not global warming we ought to fear but global freezing. I am old enough to remember a lot of climate changes in my life and there seems to be some sort of circle. They come around now and again. However, suppose the people in the 1970s who said we are going to have a new ice age are right. Then we would be wrong in trying to reduce. If the warmists and the people who believe in carbon dioxide causing global warming are right, we would need extra carbon dioxide to deal with the ice age rather than less. This is becoming quite an issue. I read in the Daily Express today an article—
Lord Stoddart of Swindon
I am sorry I have gone downmarket a bit. I am quite sure noble Lords will want to take more notice of the Financial Times, which was quoted by the noble Lord, Lord Lawson, rather than me, but I saw this in the Daily Express. It is not the view of the Daily Express; it is the view of Professor Mike Lockwood of Reading University, who said that,
“erratic and extreme weather patterns could be the norm in 20 years. He said the risk of harsh winters and wet miserable summers has gone up to 25 to 30 per cent compared with 10 per cent a few years ago. Weakening sunspot activity is to blame for a ‘major change’ in the UK’s weather he told BBC TV. He said: ‘The sun is ‘quietening’ really rapidly. We think it is actually quietening more rapidly than at any time in the last 10,000 years’”.
We are entitled to take Professor Lockwood’s view into account as well as the views of other people. If he is right then we should be taking a completely different course on climate change. I hope that the Government will take note of what he said. Finally, I hope that they will indeed take some action to ensure that the people of this country—the energy consumers—are not put to further expense by additional green measures. Perhaps there could be a reduction in the cost of those as well.
Lord Dixon-Smith (Con)
My Lords, I hesitate to intervene at a late stage in this debate. I am grateful to the noble Lord, Lord Oxburgh, for tabling the amendment that we are discussing because it has enabled this extremely wide-ranging debate over a whole lot of matters that are not specifically aimed at the wording of the amendment. I am bound to express the view, which the House might agree with, that having had this debate at the start of Report I hope we will not have to repeat it.
The debate reminds me so much of the distinction between climate and weather. This morning, I tried to set out to come here. Every road I attempted to pass down was blocked by a fallen tree for about the first three hours of the day, and it was impossible. Of course I am here—that is noble Lords’ misfortune but that cannot be helped. The fact of the matter is that that is weather, and weather is only a part of the climate. This debate makes me think more and more of weather. However, the conclusions we come to and set in our debate will create the Bill and will set the climate. That is the significance of what we are discussing.
Baroness Worthington (Lab)
My Lords, it is a great pleasure to speak at the end of this debate—a wide-ranging debate, something on which other noble Lords have commented. I am delighted to add my name to the amendment of the noble Lord, Lord Oxburgh, this afternoon. I will not get drawn into the debate that we have had about the climate science, because other noble Lords have done that far better than I could: the noble Lords, Lord Smith of Finsbury, Lord May, Lord Krebs and Lord Deben, have all, very clearly and lucidly, explained the dire situation and the threats that we face with climate change. I am also not going to comment on individual technologies, as it is very clear to me that the debate we should be having today is about the principle of decarbonisation, not about individual technologies. Nothing in any of these amendments dictates that we use renewables, do not use shale gas or use nuclear. They are entirely technologically neutral, which is one of their great assets and benefits. It is fair to say that on this issue we, as a party, and the noble Lord, Lord Oxburgh, are very close to DECC Ministers. We are not here to debate whether or not we should set a decarbonisation target but simply to debate when that target should be set. The Bill has been amended during its passage to state that a target will be set in 2016. The lead amendment is really about timing, and I have a few words to say about why it is right to set that target now.
The main reason is that, without this amendment and without bringing forward the setting of this target, the Bill largely lacks purpose. It is an enabling Bill which includes many measures that enable the Secretary of State to do things at his or her own discretion, but does not require anybody to actually do anything very specific. Therefore, despite the fact that we have been deliberating the Bill for many months—indeed, years now—investors are not celebrating the fact that it is nearly complete and are not yet clear about what the Bill actually delivers. There is still insufficient clarity of purpose, too much doubt about the Government’s commitment to cleaning up and modernising our electricity sector, and too much control now being given to the Government, who, unfortunately, are equivocating about the need for low-carbon investment. The Bill does not enable enough competition to ensure a broader range of projects and investors are delivered by it. The Bill is an enabling Bill and lacks a clear purpose. The amendment of the noble Lord, Lord Oxburgh, is intended to address that failing.
I have no doubt that the Minister will say that it is not targets, in and of themselves, that will drive investment. The noble Lord, Lord Teverson, has already indicated that that is what he believes. That would be true if we could point to detailed elements of the Bill that gave certainty. The mechanisms that the noble Lord, Lord Teverson, alluded to, which I have no doubt the Minister will also allude to, including the contracts for difference, the strike prices and the capacity mechanism, are not being celebrated by industry; in fact, quite the opposite. We are hearing very strongly that, for example, the strike prices being offered for offshore wind do precisely the opposite of enabling investment and actually deter it. The same is true of the capacity mechanism, which we were told would bring forward investment in gas power generation. Again, this part of the Bill is not being celebrated. It is being lamented because it does not appear to give the certainty investors need. We need to see action, not just targets, but unfortunately, without a target, it seems clear that action will not be delivered.
This is a modest and very moderate amendment. The noble Lord, Lord Oxburgh, could, had he wished, have put in place an amendment that dictated a target in the Bill. He has not done that; he has merely asked that the target be set by April next year. One might say, “Well, of course that’s sensible”, but in other parts of the Bill there are numerate and precise numbers which, when the Government see fit to try to encourage gas investment, they seem perfectly happy to put on the face of the Bill. I am alluding to the energy performance standard, which is incredibly prescriptive and detailed. The noble Lord, Lord Oxburgh, has not followed that; he has made a moderate and necessary amendment and I hope that the Members of this House will find support for it.
If we want to get to the real reason why this amendment is potentially going to be blocked by the Minister, it is not because we do not have a fifth carbon budget. It is absolutely clear to me that if the noble Lord, Lord Deben, as the chair of the CCC, can advocate the setting of this target, then there is clearly no link between the need for a carbon budget and the need for a carbon intensity target. The two things do very different jobs, and it is merely a ruse to state that we must wait for it.
It is also wrong to say that we cannot move without Europe. The situation in Europe is that we are being asked to consider a renewables target, as many noble Lords, including the noble Lords, Lord Jenkin and Lord Deben have alluded to. We may not want a renewables target in 2030, but we may be dictated to by Germany to have one, which seems absolutely certain that that is what it wants. If we had a decarbonisation target set early, we could then influence that debate and prevent the setting of a technology-specific target in favour of a decarbonisation target.
It seems clear that these reasons for opposing these moderate amendments are not the real ones. The real reason is that there is a complete lack of cohesion within the Government on whether we want to seriously pursue our climate change targets. One need look no further than Prime Minister’s Question Time just a week ago when a panicked Prime Minister was making up policy on the hoof. Without a real response to Labour’s challenge on how to bring prices down, he has now started blaming green electricity, or indeed social, environmental and energy-efficiency policies for those price rises.
I reassure the noble Lord, Lord Donoughue, that it is absolutely consistent for us to call for a decarbonisation target while wanting to see changes to the way that our electricity market is run. We have a regulator that is not fit for purpose, and an oligopolistic energy market that needs to be broken open so that we can have true competition and transparency and see that we are not overpaying for the electricity that is generated.
The real nub of this debate is: why can we not set the target now? Why are the Government insisting that it be set after the next election? It is purely political expediency because they have been unable to arrive at a sensible position in government. I really hope that Liberal Democrats—who have this as part of their party policy—will stand up and vote for this amendment because it is absolutely clear that, although many things are being attempted with this Bill, the bargain that has been struck is not yet balanced. The levy control framework that has been wrested from the Treasury is only a promissory note. That £7.6 billion that may be spent on clean energy will be spent only if strike prices are agreed at the right level. If all of the control that is being given to government means that the strike prices are continually set at the wrong level, we will see no investment and we will have sacrificed clarity of purpose for a bargain which will not ultimately deliver what I think the Liberal Democrats believe it will.
As I said, I am not going to get involved in the debate on climate science. However, I will say that if we are thinking that this amendment will somehow damage our competitiveness, that somehow Europe and the UK are out on their own tackling climate change, then that is absolutely incorrect. The most dynamic economies—China, Germany, California, South America—all now accept that the only future for energy is clean energy, and that we must act together to globally decarbonise. I am sure that we will see in Paris in 2015 the passing of an international framework that will demonstrate that we are not alone and that the big economic powerhouses of the US and China are behind this too. We will therefore move forward in tandem and it will not be a race to the bottom as some would prefer.
In the other place, this amendment was lost very narrowly; had 12 votes gone the other way, it would have been put into the Bill. That, of course, is in a situation where there is a large government majority. Here, in this House, the balance of power is such that on issues of great importance we can send a strong signal to the Government that they have got something wrong and must institute a rethink. This issue of when we set this target is not a huge issue but it is one of those important issues where we must cause the Government to rethink.
The noble Lord, Lord Oxburgh should be commended for tabling these moderate amendments. I hope that if the opinion of the House should be tested, we will be able to cause the Government to rethink this important issue.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, these amendments have attracted significant debate across the House today and I am extremely grateful for the insights of all noble Lords who have spoken. However, the Government do not agree that the Bill should be amended as proposed and I shall set out the reasons for this.
The provisions in Part 1 set out a logical, measured approach that enables the Government to set the UK’s first sector-specific carbon intensity target in law. Once set, the provisions place a legal duty on the Secretary of State to ensure that the target is achieved. This brings with it important responsibilities. It is not something that should be rushed into. A target would have significant implications for the power sector, consumers and the wider economy. It is therefore vital to understand fully, based on evidence, whether a target represents the best approach to meeting our economy-wide carbon budgets cost-effectively and, if so, what level it should be set at.
The right time to consider this is in 2016, not 2014 as proposed by Amendment 1, as 2016 is when, in line with the requirements of the Climate Change Act, we will be undertaking extensive analysis to set the level of the fifth carbon budget in law, incorporating advice from the Committee on Climate Change. At that point we can consider a decarbonisation target within the broader context of the trajectory of our whole economy towards our 2050 target.
Moreover, in 2016 we will have a better understanding of how low-carbon forms of electricity have developed, the commercial deliverability of carbon capture and storage, the uptake of electric vehicles, and how the market is responding to the reforms included in this Bill. We will also have a clearer idea of a future climate change package both at the global and the EU level. These are important considerations when looking at the UK’s targets for 2030. By contrast, the noble Lord’s proposed approach would mean rushing to set a target in less than six months. As it stands, there are significant uncertainties now as to the energy mix that will best meet our objectives of secure, sustainable and affordable energy. This would make setting a robust target challenging.
In terms of investor certainty, according to the British Chambers of Commerce, the Energy Bill as it stands will,
“provide sufficient incentives to attract investment in low carbon forms of energy”.
This is supported by the point made at Second Reading by my noble friend Lord Browne of Madingley. In his experience as a businessman and an investor:
“The incentive structures contained in the Bill are far more important than targets or aspirations, because they are the mechanism for action”.—[Official Report, 18/6/13; col. 192.]
This is not forgetting that since January 2010 there have been announcements that could see more than £29 billion of investment in renewable energy. This speaks for itself. Clearly, a decarbonisation target is not the only way to encourage investment.
On Amendment 2, I fully agree with noble Lords that there should be a role for the Committee on Climate Change. In line with its responsibilities under the Climate Change Act, it is due to provide advice on the level of the fifth carbon budget. This covers the 2030 period. This analysis is perfectly sufficient to advise on a decarbonisation target range and it is therefore unnecessary to include further provisions in the Bill.
Amendment 2A, tabled by the noble Lord, Lord O’Neill, proposes setting annual carbon intensity limits on electricity suppliers. I do not support this amendment for three key reasons. First, the government reforms in the Bill support market-based mechanisms to incentivise a cost-effective transition to low-carbon power. Introducing an annual carbon limit on suppliers would be contrary to this approach. Secondly, the proposal would introduce confusion around accountability. The Government’s provisions clearly place legal responsibility for meeting the target range on the Secretary of State. This position should be maintained since it is he or she who is responsible for setting UK energy policy and is ultimately accountable to Parliament. Lastly, this is a blunt instrument which could have unintended consequences. We are not convinced that the proposal would not undermine our security of supply objectives. We are also concerned that the amendment may lead to an increase in consumer bills if the costs of compliance are passed on from energy suppliers to consumers.
The Government are not willing to accept these amendments today. However, we considered the amendment tabled by the noble Baroness, Lady Worthington, in Grand Committee. This proposed that the Secretary of State explain the actions to be taken to stay on track to meet the target over time. The Government support the aim of transparent reporting and I therefore commit to the House that, where carbon intensity is reported to have increased year on year for three consecutive years, the Government will explain the reasons why, and, where appropriate, report additional actions to address it within the annual statement of grid carbon intensity.
In conclusion, I hope that noble Lords can see the drawbacks of rushing to set a target next year. We want a much more measured approach. We all want to see decarbonisation continue—and this Bill enables that—but we must all be mindful that any targets set now will impact on consumer bills. Without having the more detailed information that is needed across all sectors, and without looking at our position against our European partners and more widely globally, setting a target would put us in isolation and make us uncompetitive against our partners.
We have to be sensible and see this as an opportunity to debate the subject but to set it in the appropriate context. We do not know which technologies will realistically be able to be deployed in the 2020s. As the EEF has warned,
“should current assumptions about the development of carbon capture technology, the level of investment in nuclear power, the cost of offshore wind or the future price of gas prove wrong the UK could end up committed to an unrealistic and extremely costly target”.
We need to keep these issues very much in mind. Ultimately, what we decide will be borne by the consumer. I hope that the noble Lord will withdraw his amendment.
Lord Oxburgh
My Lords, I thank all those who have participated in this very interesting discussion. I apologise for the fact that what I had intended to be a rather narrow, technical discussion has turned into a debate that has been much more like a Second Reading. Nevertheless, I think it has done a great deal to clear the air. I am extremely sensitive to the question of consumer prices and there is a real debate to be had about to what extent some of the measures that we have been talking about should go on to energy bills and to what extent they should be borne by general taxation. I am not taking a position on that but it is well worth discussing.
I think I found something with which I could agree in almost all the speeches that have been made, from whichever side of the House—even in the case of the noble Lord, Lord Lawson. There are things about this Bill that I do not like but we have to have a Bill and we have to have it urgently. However, I think his cover is blown: on the basis of his comments today, we can be pretty sure that he is moonlighting as a leader writer for the FT. I also agree with those noble Lords who have questioned the overly prescriptive nature of the EU targets. We could well do without them and I would like to see the Government do what they can to renegotiate or indeed disregard them. On the other hand, to believe that what I and my co-proposers have suggested today will have any additional impact on consumer bills beyond that to which we are already committed through existing agreements is a misunderstanding.
On the 2030 target, I have to say that, given the length of time this proposal has been around, the “rushing” argument is a little bit rich. We know precisely the views of the Committee on Climate Change. We have had them from several members of the committee today. We know what the committee expects and what its forward look demands for 2030. Waiting for the next carbon budget is a little bit of a procrastination and I do not think that it is a serious, substantial objection.
If one takes the position taken by the noble Lord, Lord Lawson, that one is unconvinced that human intervention is having a significant effect on long-term climate—
Lord Lawson of Blaby
I never said that. But even if one thinks it does have an effect, the policy prescription does not stand up. That was the point I was making.
Lord Oxburgh
I thank the noble Lord. I was about to go on and say that I think his position is rational in that situation but that he is entirely wrong in his assessment of the science. There is also a political argument to be had over what one subsequently does.
This is something on which I feel it is necessary to test the opinion of the House, so I would like to do that.
Lord Whitty
( ) the strategy and objectives to be set out under section 136 of this Act for addressing fuel poverty;”
Lord Whitty (Lab)
My Lords, I do not think that this issue will take us quite as long as the previous debate. Indeed, it could be disposed of relatively straightforwardly as the Government could quite easily adopt this amendment. Frankly, they would be very wise to do so. If the Minister cannot do that, she can at least indicate that she will bring forward an equivalent but better drafted amendment at Third Reading.
This amendment concerns the issue of fuel poverty and its relativity to electricity market reform. Noble Lords will recall that when the Bill went through the House of Commons and first reached this House there was hardly any direct reference to fuel poverty in it—a glaring omission. The organisations concerned with fuel poverty and the people who suffer from it thought that was a serious omission and quite shocking in many ways. But we have moved on from that: in Clause 136, much later in the Bill, the Government have come up with a provision requiring them to provide a strategy on fuel poverty that will apply to the whole range of energy policies.
There are those who have doubts about the coalition Government’s commitment on this front. There has not been a great track record on fuel poverty so far. The hesitation and delay in bringing fuel poverty into this Bill has been worrying, as has the recent furore within the Government. As far as one can make out from the various statements by the Prime Minister and Secretary of State, there is still an argument going on in the Government. Many in the Conservative Party appear to have in their sights not only green levies in the strict sense of the word but also those levies that provide for resources to improve the energy efficiency of the homes of the fuel poor. I will be generous today and accept that the Government have agreed that a new strategy is to be provided, one which this Bill will give legislative requirement for. We can have a substantive discussion on fuel poverty at that point in the procedure of the Bill, some time next week.
The point today is that the Government have inserted in the clause that we have just dealt with that fuel poverty is one of the matters that Ministers must have in mind when setting decarbonisation targets. In relation to the electricity market reform, there is no such reference. I suggest that reference could be made most appropriately here in Clause 5. Clause 5 stipulates the issues that have to be taken into account in electricity market reform: decarbonisation, referencing the Climate Change Act, prices for consumers both domestic and industrial, and energy security. The environmental and economic dimensions of electricity market reform are there but the social dimension—that of fuel poverty—is omitted.
Baroness Maddock (LD)
My Lords, I have great sympathy for the words spoken by the noble Lord. He and I and one or two others in this House have campaigned on fuel poverty for a number of years, although he will remember that, when as a Minister he wrote his draft fuel poverty strategy, he hoped to eradicate it by 2010. That indicates what a difficult issue this is. I am grateful to the Government for, after cross-party lobbying, putting into the Bill a strategy for fuel poverty. I am very pleased about that.
This is very pertinent at the moment. I do not know if noble Lords noticed that as the storm went through the temperature dropped. I only just made it in on my train today. As I walked across, I could feel the temperature dropping. Elderly people particularly are getting very worried about how they will pay their fuel bills this winter. We know but many do not understand that if you are older and have heart problems, problems with blood circulation and so on, you do not need to get very cold for it to have a serious effect.
I have campaigned on this issue for as many years as I care to think about. In my 20s, I lived in Stockholm in Sweden where pensioners did not die in wintertime because they were too cold. They did not have arthritis. They lived in properly heated houses. Here we are in 2013 and we have still not managed to achieve that. I recognise that it is a very difficult problem but I hope that my noble friend can at least give us some warm words in response to the noble Lord, Lord Whitty. Many noble Lords care passionately about this issue. It is time, as one of the richest nations in the world, that we dealt with it.
Lord O'Neill of Clackmannan
My Lords, I start by declaring an interest: I am a vice-president of National Energy Action and the president of Energy Action Scotland. The Government have made some moves on this issue in the course of the Bill’s passage, but it would help if they would add to the list of objectives they have set themselves the one concerning fuel poverty mentioned in this amendment tonight. That would be a signal that this is not an issue of party conflict, and indeed that the Government have recognised that one of the deficiencies in the Bill is that insufficient attention was initially given to fuel poverty.
Now that we have had recognition, we can probably argue about the niceties when the appropriate time comes. We are all in favour of the earliest possible elimination of fuel poverty. It is not just about prices. It is about handling our grossly inadequate housing stock. Before too long we may well have to look afresh at the Green Deal that at the moment has, as far as I know, attracted something like 57 successful completions—one for every one of Heinz’s varieties; that is perhaps all that one could say about the proposal. People may find the money and find it attractive to accept the Green Deal at the 7.5% interest that is being charged, but I very much doubt it.
More has to be done on this. It would be helpful to have a clear indication that an opportunity is available with this amendment to put in the Bill, as one of the overarching targets of the Government’s energy policy, that we should as a high priority be able to eliminate fuel poverty. If we all agree on it, why is it not there? It is not a particularly controversial amendment. It is one that would enhance the credibility of the Bill and make easier the passage of future elements in it, which I am sure the Minister is looking forward to bringing before this House.
Baroness Verma
My Lords, I thank the noble Lord, Lord Whitty, for his amendment and all noble Lords who have taken part in this short but important debate. It gives me an opportunity to lay out the Government’s objectives for reform throughout the development of the EMR proposals. These objectives have been set out in the published documents, from our White Paper in July 2011 and within Clause 5, to reflect our aims of reform. This does not mean that other aims, such as minimising fuel poverty, are not important. I agree with noble Lords that this area is incredibly important to us all. As outlined in Clause 5(2)(d), the Secretary of State will have regard to the likely cost of electricity to consumers. This means all consumers, including the fuel poor.
Our analysis suggests that, as a result of EMR, household electricity bills will be on average around 9%, or £63, lower per year over the period 2016 to 2030, relative to what they would have been if decarbonisation were achieved through existing policy instruments. The impact of EMR will be to reduce fuel poverty compared to what it would have been without those policies in place.
However, we should not be complacent. With or without EMR, electricity prices are likely to increase over time due to rising fossil fuel prices and the rising cost of carbon. This is why we have in place a strong package of measures to support low-income and vulnerable households with their energy costs. The energy company obligation ensures that help goes to low-income and vulnerable households to enable them to heat their homes more affordably on a long-term basis. Through the affordable warmth and carbon-saving communities obligations, we anticipate that support should reach around 230,000 low-income households each year. In addition, this winter around 2 million households will get help under the warm home discount scheme, including over 1 million of the poorest pensioners, who will receive £135 off their electricity bill.
In the last financial year, winter fuel payments helped over 12.5 million older people in over 9 million households with their fuel bills, providing between £100 and £300 tax-free to help pay for heating bills. During the same period, 5.8 million cold weather payments were made, targeted at those households that are most vulnerable to the cold. This Government are committed to helping the fuel poor, now and in the future. That is why earlier this year I proposed amendments to the Warm Homes and Energy Conservation Act, to put in place a new, rigorous and flexible framework for measuring the Government’s progress in tackling fuel poverty in England. As we move forward with ensuring a safe low-carbon future we must be absolutely sure that we do not leave the fuel poor behind.
The noble Lord, Lord Whitty, mentioned the Prime Minister’s announcements last week on green taxes and the review of their impact on the fuel poor. The Government are looking at how to get people’s energy bills as low as possible to help the very families to which the noble Lord refers. We are already increasing competition by bringing new players into the market to offer consumers real choice. The most vulnerable are getting direct help with their bills this winter. We will continue this work to make sure that consumers get a better deal. No one is talking about changing support for large-scale renewables or feed-in tariffs. We want to make sure that those who need help get help. I hope that the noble Lord, Lord Whitty, finds my explanation reassuring and on that basis will withdraw his amendment.
Baroness Maddock
Before the Minister sits down, can I apologise to the House for not declaring my interest? Like the noble Lord, Lord O’Neill of Clackmannan, I am a vice-president of National Energy Action, which is a charity that works towards eradicating fuel poverty.
Lord Whitty
My Lords, I also omitted to declare an interest. I am chair of a charity that deals with research into fuel poverty.
I am a bit disappointed by the Minister. It is correct that the Government have a number of policies coming on-stream that are directed at dealing with fuel poverty. Unfortunately the start of their period of office saw a substantial reduction in support given to tackling fuel poverty through the abolition of the Warm Front scheme, which was taxpayer-funded. For the first time in 30 years we are without a taxpayer-funded scheme to deal with fuel poverty. In so far as the objection to the ECO and other green tariffs is valid, it is partly because they are made on a poll-tax and not a progressive-taxation basis.
While the Government’s strategy has some commendable features that I hope move it in the right direction, it is not a sufficient answer to the failure of successive Governments to meet the targets that were set—as the noble Baroness, Lady Maddock, said—back in 2000 to eliminate fuel poverty in general. It was actually by 2016 rather than 2010, so we still have two years to do it, but we definitely need a new strategy, which Clause 136 recognises. In view of how the Minister has portrayed the current schemes dealing with fuel poverty as being adequate, I suspect that we will have a few arguments when we come to Clause 136. I am glad that it is there.
I hope that the Minister will go away and think about the point that I am making: electricity is the main form of energy that the fuel poor use. They rely on it disproportionately for their heating. Any electricity market reform part of this Bill should reflect that interest. The way that we deliver electricity, the choices that we make in terms of the source of that electricity and the kind of tariffs and levies that we impose on that electricity make an enormous difference to the way that they impact differentially on the fuel poor. It is correct that we are concerned about the cost to consumers in general—that is already in the Bill—but there is a differential effect depending on the nature and the mix of the policies that fall on the fuel poor. Before we leave electricity market reform, that should be reflected there.
I shall not push this tonight because I am not sure that my amendment fully reflects what I am saying, but I hope that the Minister will think about, at the beginning of the major section of this Bill dealing with electricity market reform, saying that one of the things with which we are concerned is the minimisation of fuel poverty. 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
My Lords, this amendment stands in my name and those of my noble friends whom I shall mention in a moment.
The House will realise that this is an exceedingly complicated Bill. Anyone coming to it for the first time would recognise that. At the heart of it are the Government’s proposals for electricity market reform. The objectives were mentioned in the previous major debate. They are security of supply—the lights must not go out—support for low-carbon generation and affordable prices for consumers. From the outset, Ministers have been determined to say that to achieve these objectives, tougher competition is going to have to come. It is true that the regulator, Ofgem, has had some responsibility for this, but the general perception has been that it has not been as effective as it might have been.
My right honourable friend the Secretary of State, Ed Davey, mentioned a problem on “Newsnight” the other day. He said, “We need more competition … We think the big six have been a real problem”. I have the figures. The big six have no less than 92% of the supply to consumers. The remaining small companies have a mere 8%. Generation is nearly as bad. It is an oligopoly. That is what we are faced with. I do not believe that existing arrangements for dealing with competition are strong enough, so there was a very positive welcome when my right honourable friend the Prime Minister said in the Commons the other day:
“So I can tell the House today that we will be having a proper competition test carried out over the next year to get to the bottom of whether this market can be more competitive. I want more companies, I want better regulation”.—[Official Report, Commons, 23/10/13; col. 293.]
And so say all of us. That is obviously necessary. We await with interest what my right honourable friend the Secretary of State is going to say in his statement later this week, or perhaps even tomorrow. What is this review going to involve? It is already clear that it is likely to take some time and involve not only Ofgem, the regulator, but the Office of Fair Trading and the Competition and Markets Authority. I will return to this towards the end of my remarks.
Three amendments in this group are tabled in the names of my noble friend Lord Roper, the noble Lords, Lord Berkeley and Lord Cameron of Dillington—a very cross-party group—and me. Our purpose is to make the determination to have tougher competition explicit in the legislation and that it should apply, where appropriate—it certainly is to the bit of the Bill I shall be coming to—to the Minister as well as to the regulator.
The part of the Bill with which I am chiefly concerned is Chapter 3 of Part 2, which introduces the capacity market. I briefly describe that as a managed-auction system to give clear incentives to generators to invest in new capacity. This can mean keeping open plant that might otherwise have been closed, bringing into production plants that have been mothballed—there is a good deal of that at the moment—or building new plant. It can also include measures to reduce demand.
The capacity market offers a real opportunity for Parliament to give the industry the opportunity to get more competition. That is what the Prime Minister was talking about when he said he wanted new companies—he was absolutely right—new entrants and smaller independent generators. They struggle to compete with the big six. Unlike the big six, which have strong balance sheets, smaller companies have to raise funds from the market for their investment. Unless they can see a reasonable prospect of a decent profit, they will not be able to do so. Investors will not come forward. That is the purpose of the capacity market; it is to give them the incentive to do that.
One would have thought that if everyone really wants more competition, it would be in the Bill. Yes, it is; there is quite a lot in the Bill. When you look at other clauses in the Bill—in particular Clause 47, dealing with power purchase schemes, Clause 127, dealing with the strategy and policy statement and Clause 132 on the modification of supply licences—they are specifically for the Secretary of State, and in all that, he has to promote competition. But when the Bill comes to the capacity mechanism, for some reason—and I have to confess that I had some difficulty understanding what it is—the competition duty does not apply to his role as the official with responsibility for the capacity market. That is the only instance in the Bill where there is no obligation on a Minister to be responsible for promoting competition. Yet the Secretary of State is in overall charge of the capacity market. Why? What is the difference?
The Government have done very well trying to spell out to the industry the complex details of the structure of electricity market reform: the contracts for difference, the capacity market and all the other features. They are not all quite there yet, but they are nearly there. The object of the exercise is quite clearly to create conditions where investors, particularly smaller and independent investors, can raise money in order to invest in the additional capacity which we certainly need and which will help consumers because it will bring more competition. It is not quite true that they have yet succeeded in doing that. The terms set out for the operation of the community charge—I perhaps do not need to go into detail—have been described to the Minister, who has been very good and met the people concerned, but they are not yet sufficient to enable them to do that. They will have the objective of doing it, but nothing will be achieved. Therefore, there have to be changes.
I have heard it said that the changes will have to be for the regulations, but as the House well knows, if regulations come before the House, they cannot be amended. They can be either rejected or accepted. That is not very satisfactory. Therefore, we must have clear authority imposed upon the Secretary of State to run the regulations in such a way that they generate the competition they want. That will require some changes in what has already been distributed and made clear to the industry. Ministers must be under a clear statutory duty when exercising their responsibilities for the capacity market to do so positively to promote competition. That is the simple purpose of Amendment 4, which adds to Clause 5 a sixth duty to promote effective competition in the several activities set out in the amendment. The other two amendments we have tabled, Amendments 42 and 43, specifically make this duty effective for the purposes of the capacity market set out in Chapter 3 to make it explicit that the duty for promoting competition covers Ministers as well as the regulator, Ofgem. Taken together, these amendments would enable potential investors to insist that the regulations and rules are drafted so they really will enable independent generators and new entrants to raise the funds they will need to invest in the new capacity in competition with the big six. Last week, the Prime Minister said he wanted new companies. This is the way to get them.
I referred a moment ago to the proposed high-level review. The first auction for the capacity market happens next year. For that to go ahead, the regulations have to have been finalised and approved by Parliament, and must be in force. The review we have heard about will be over the next year and it will be too late. I hope that when my noble friend replies to this debate, she will not take refuge in the review as a substitute for what we are asking here; it is not. I suspect that my noble friend, who is very bright on these things, has fully taken that on board.
We need these amendments now. I ask my noble friend to accept the amendments as they are tabled, or undertake to bring forward her own amendments, which have the same impact, when we reach Third Reading. I beg to move.
Lord Broers (CB)
My Lords, I wish to speak in support of this amendment. I recognise that the noble Lord, Lord Jenkin, is applying it mainly to the capacity issue. I wish to address a very specific, simple point with respect to the operation of contracts for difference. In order to attract investment, this Bill allows—almost encourages—electricity suppliers to pass on to consumers the difference between the strike price and the reference price should the strike price exceed the reference price. However, there is nothing in the Bill to ensure that the suppliers return money to consumers should the reference price exceed the strike price. This might well be the case should the price of gas continue to rise, as several noble Lords, including my noble friend Lord Oxburgh, have suggested it may.
The Minister kindly discussed this with me and said it was the Government’s position that intervention was unnecessary as the market should ensure that suppliers reduce their charges in order to remain competitive. I am not fully convinced of this and favour a specific requirement that suppliers should return what might be described as a windfall profit to consumers if the reference price exceeds the strike price. The noble Lord’s amendment at least requires the Secretary of State to have regard to the desirability of promoting effective competition wherever appropriate. In this case, it would surely be appropriate. How else can we protect the consumer?
Lord Deben
My Lords, I very much like the thrust of this amendment and I hope the Government will take it seriously. I would like it to have included the issue of how one generates more competition. Interestingly, at least half of Germany’s renewable energy is generated by municipalities, co-operatives and individuals. That means that there is very widespread support for renewables, leading to some real competition. That is why the big boys are increasingly angry about renewables—they are bringing the price down and they are serious competition.
My concern is that it is difficult to see, as the Government have admitted, the sort of competition among the six that we would expect. I notice that the Opposition are now seeking to make significant changes on this, but one must admit some of the things that have gone wrong are the very changes they made last time. I think there is a certain cross-party understanding that things are not as they ought to be. The Prime Minister, I understand, has said he wants the six to become 60, and I notice that the Minister for Energy wants 600. That is certainly much closer to what I would like because this is a way in which the public as a whole could have a greater say in the way electricity is produced and would be more supportive of a much more competitive market.
Lord Roper (LD)
The noble Lord, Lord Broers, and my noble friend Lord Deben have widened the amendment tabled by my noble friend Lord Jenkin to other, rather important issues on competition in the course of this Bill. Although it may take us a little time to get from six to 60, or even 600, this amendment is important because of the immediate impact upon independent generators when the capacity mechanism comes into operation next year.
As my noble friend Lord Jenkin points out, the Bill and the proposed rules for the capacity market would make it virtually impossible for independent generators to raise project finance and compete with the big six. My noble friends Lords Jenkin and the noble Lords, Lord Cameron of Dillington and Lord Berkeley, have talked to a number of them and they really do not see how they would do it. We have also talked to their bankers and they do not see how this would be possible for independent generators. That is why it is very important that the regulations and other provisions for the capacity market are drawn up in a way that is fair to smaller generators.
As my noble friend Lord Jenkin has said, we would obviously prefer it if the Minister were able to accept these amendments today. However, there may well be technical problems with them, so we hope that if she were not able to accept them today, she would be able to give us some indication that she will bring back something covering this ground at Third Reading.
Lord Cameron of Dillington (CB)
My Lords, as this is my first intervention on Report, I must declare an interest as a farmer with a renewable scheme on my land.
Most of what needs to be said in favour of these amendments concerning competition has already been said and as a co-signatory I very much support them. However, I want to underline the fundamental point involved. It has become obvious to anyone reading newspapers in recent months that the electricity industry needs a huge amount of investment. In Europe it amounts to trillions of euros, and in the UK it is hundreds of billions of pounds. This investment is needed for generation, transmission, distribution and supply. If we do not have that investment, to believe some of our journalistic forecasters, we are likely to get power cuts with all the economic and social tragedies which that might involve. This investment cannot be provided by the government. It has to be provided by the private sector; that is, you and me or, rather, our pension funds in most cases.
The other issue on which anyone reading our newspapers in recent days and weeks will have come to a conclusion is that the oligopoly of the big six is not the political flavour of the month. While being aware that the root of the problem is the rise in the price of gas—I was going to say feedstock—there is something to be said for the fact, which I read in a newspaper, that this oligopoly has some sort of stranglehold. We have a vertically integrated oligopolistic situation within our electricity industry, as the noble Lord, Lord Jenkin, has pointed out. If you wish to deal with this stranglehold, it is crucial that you stick to the golden rule of in no way deterring investment in the panoply of the electricity industry. Investment is crucial. Either freezing electricity prices or putting a windfall tax on the big six does not conform to that rule.
What would conform to that rule, which you have to do, is to increase competition, which ensures that everyone can compete. As the noble Lord, Lord Deben, has said, that could involve very small competitors at every stage and in every sector of the electricity supply chain. Competition is vital to the success of the Bill and to the entirety of electricity market reform. The Bill will be judged on its long-term effects on the security of supply and on the decarbonisation of the electricity and, above all, on how effective it is attracting competitive investment.
Lord Berkeley (Lab)
My Lords, I support Amendment 4 and will speak to my Amendment 5. Both concern competition. We had a good debate in Committee on Amendment 5, and there is a lot of support around the House for requiring the big six to divest themselves of their retail section and keep it completely separate. I found that to be a very good solution in many discussions on the European railway market, which is some way away, but separation seems to bring growth, competition and efficiencies. That is what we have in the UK, whereas looking across the Channel to France, the traffic in the rail freight and passenger sector is falling badly and the quality of the network is pretty bad, too.
I believe in fair competition and transparency in all the dealings. I liked the idea of the noble Lord, Lord Deben, of local generation. I remember visiting Denmark with a Select Committee about 10 years ago, to see how each village has its own little grouping of windmills. Of course, the villagers got a reduction in their electricity price and felt a sense of ownership; that is terribly important. They exported the surplus to the grid and imported it when there was no wind.
I am very pleased that the Prime Minister has announced the review of the regulation. According to the Daily Telegraph, this will cover,
“prices, profits, barriers to new entrants and how easy it is for customers to get the best deal”.
I hope that they will add “fairness and transparency”. It is an excellent review, but my worry is that the big six welcomed it with such open arms. Is something going on which we do not know about? Ofgem probably needs a strong review. It has recently come up with some interesting figures addressing the price rises which we have all seen in the press, showing that the wholesale costs contribute only about an additional £10 to household charges. This means that that element of the average annual bill has gone up from £600 to £610. The regulator therefore estimates that the companies’ average net profit margin has more than doubled. The regulator is therefore doing something right; that is of course why the big six do not like it.
I do not think that competition is working for the smaller generators, as many noble Lords have said. A DECC analysis shows that 98% of the domestic supply market is dominated by the utilities; that is not quite the same figure as that given by the noble Lord, Lord Jenkin, but it is in the 90s which is, at any rate, much too high for any kind of competitive situation. The fact that there are eight small suppliers active in the market is a bit paltry if they each have only 0.25% of the market share.
I have had several meetings with people from the big six. Their response to these arguments is quite interesting. They say that there are many synergies upstream and downstream, with vertical integration. I wonder whether this gives them an unfair advantage in the market, and whether the consumer sees the benefits. They then say that it enables them to engage in wider dialogue. Well, of course, it does; but they have three representatives on each of the Ofgem working groups while the small independents are lucky to be able to field one. Yes, it is engaging a wider dialogue—in aid of their commercial advantage. As several noble Lords have said, the managing of uncertainty and hedging is one of the big problems.
Do the Government want the independents there, or are they happy to see what you would almost call a “cartel” of six as a fully functioning market? How would that market work? I am pleased that the Labour Party and Caroline Flint, MP—our shadow Secretary of State—are now supporting this. I know that the party has changed its view on this over the years but, if we have seen the light, that is very good. Caroline Flint is saying that separating the energy companies into the different parts of the business is a good thing, requiring energy companies to trade their energy in an open market by selling into a pool, with transparency. That is also fundamental. Then there is the introduction of a simple tariff structure so that people can compare prices; back to transparency again.
I expect the Government to welcome these two amendments since they both put the issues of competition into the Bill. They are necessary to ensure that competition is transparent and fair, and the lack of that, I am sure, contributes to rising prices.
Several noble Lords have mentioned the independence of the regulator. There is always a debate about to what degree Ministers should instruct regulators, to what degree regulators should be seen to be independent and to what degree they should act totally independently; we could have a big debate about regulatory capture, which I do not intend to have tonight. It is important for Ministers to be able to give this kind of guidance to the regulators in the next few years. We have the big six involved in these working parties while controlling 98% of the market. Having a duty to promote competition in the Bill seems to be a necessary protection for the smaller independent operators.
I would like to see the split of retail from generation. If the Government want real, transparent and open competition, they will either accept these amendments or possibly come up with their own similar ones at Third Reading.
The Earl of Caithness
My Lords, my noble friend Lord Jenkin has yet again put his finger on a hugely important issue, but it is a little bit of motherhood and apple pie. We all want competition and there is no disagreement about that. Indeed, the Bill is all about competition, and the Government’s policy that has already led to more competition. It is worth remembering that in 2000 there were 14 major energy suppliers, but by 2010, within 10 years, they had shrunk to six. In the past two years, seven more energy suppliers have joined the market. The mere fact of what the Government are doing has already started to improve the position with regard to competition. Therefore, the question is: how do we expand that without in any way damaging the Bill?
This part of the Bill covers the trilemma which I mentioned on the first amendment that we debated. It covers the core matters of decarbonisation, security of supply and least cost. It is a very difficult balance to get right. As such, I think that this part of the Bill was quite well framed. It seems to be the wrong place to bring in something about competition when the whole Bill is about competition. It could also open up opportunities for other amendments such as securing the efficiency of the rural economy by having cheap energy. There are many other things you could add to this list once you start to move away from the core principles.
That leads me back to the question of how we get more competition without damaging the Bill. I would ask my noble friend Lord Jenkin: what is the situation where there is little competition? I am particularly keen on tidal energy. Living beside the Pentland Firth for the part of my life when I am allowed out of this place, I think there is huge potential for energy generation there. However, if I set up an energy company to try to exploit that, and the noble Lord down in Sussex set up a company, would he be able to say that he did not get a fair crack of the whip because there was not enough competition? If that is the case, what happens if he goes to judicial review on the wording of this amendment? That will only delay matters. My real concern is that we might be introducing something here that could delay the much-needed investment about which the noble Lord, Lord Cameron, and I were given a lot of evidence when we sat on the sub-committee together and which he has expanded on tonight. I agree with him totally.
My concern is that this opens up the potential for a legal challenge. What about nuclear? As I said on Amendment 1, we were the world leaders, but now we have to go overseas. Can that be a possibility for a legal challenge? I would say to my noble friends Lord Jenkin and the Minister on the Front Bench that, since we all agree on this, can we somehow get it into the Bill? This is the wrong amendment in the wrong place, but the principle is absolutely right. Can we have a form of wording that gives effect to competition but which does not open loopholes that those who dislike a particular form of energy or want to delay a scheme could exploit to the disadvantage of all?
Lord Teverson
My Lords, I do not want to speak specifically in favour of the spirit of the amendment proposed by the noble Lord, Lord Berkeley, about the vertical integration of this industry. It has seemed to me over the past 12 months in particular that there has been, if I may say, a growing corporate arrogance in the energy industry. Power seems to have gone to the heads of many of those six organisations. They feel that they can do what they like to their own customer base and that they do not have to pay much regard to democratically elected Governments or Parliaments, let alone your Lordships’ Chamber.
I was particularly struck by this one evening when I visited my 94 year-old mother. She had just had a letter from British Gas which said that she would have to pay an increase of 10% on her bills for the year. Then it kindly went through—in very small type, which was not easy for a 94 year-old—all the reasons for the rise. It gave as the top reason, the first on the list of bullet points explaining why energy prices had gone up, not one of the reasons that we know are actually the reasons for the price increase; instead, it blamed the Government. It is a dual fuel tariff, so the charges are affected by the various bits of government legislation. I think that reflects a real arrogance. It is very difficult indeed to fix this competitive area, as noble Lords are trying to do. It is time to think what has previously been the unthinkable and say, although perhaps not tonight, “Yes, it is credible that we split supply from production”. That should be seen as a real way forward.
However, we have another problem, which leads to the arrogance that we are seeing within the industry. The companies know that we know that some £100 billion needs to be invested to keep the power lines going to make sure that we keep the lights on in terms of capacity. That is a dilemma for any Government. Nevertheless, we should start thinking what has previously been the unthinkable: that this arrogance is not acceptable. We expect them to be more responsive, not necessarily to us but certainly to their customer base and to the nation in terms of their pricing strategies. They should know that if we cannot solve the competitive issues, that split could indeed happen.
Baroness Worthington
My Lords, I am grateful to noble Lords for tabling this amendment. It enables us to have a debate about what I believe is an obvious missing element in the entire Bill, which is the need and the desire to promote competition. It is clear that there has been a quickening of pace in the thinking about energy policy since the conference season. That is largely because the Labour Party has called time on the existing system which is operating in our electricity market. We stated clearly that if we win the next election we would make dramatic reforms to introduce greater competition. It is evident that we have an oligopolistic system and that there is an insufficient downward pressure on prices. Otherwise, why would British Gas and other members of the big six opt to spend half a billion pounds on share buy-backs when they could have used that money to keep prices down for their consumers or to stop the price rises they have recently announced? It is absolutely clear that something needs to be done.
The amendments tabled go some way to trying to crowbar this issue into the Bill but, unfortunately, I do not think they go far enough. We certainly support the desire to put the requirement for further competition into the general considerations. We cannot see an argument against that and it seems very sensible.
The noble Earl, Lord Caithness, said that the Bill was all about competition. That could not be further from the truth. What the Bill actually does is deliver a system that will largely be determined by administrative negotiations between the Government and single parties quite often representing the big six. We have seen the first such announcement to emanate from this Bill, the contract awarded to EDF to build Hinkley Point C. Indeed, the noble Lord, Lord Deighton, was responsible for negotiating it. I have no doubt that he would have found it much easier to negotiate a price and length of contract that was better value for consumers if we had had more competition. What we needed was more competition in our choice of vendors of nuclear reactors. We were choosing one from one, which is never a good situation to be in.
I shall put that aside because I have used it as an illustration that the Bill does not introduce or increase competition, but narrows it. Later this evening we will debate—very briefly, I promise—my Amendment 7, which seeks to state that this contract for difference process must very quickly pass to a competitive process. It cannot continue as this bilateral, negotiated discussion behind closed doors with one or two very large companies that already play a dominant role in the market. In the interests of consumers and of competition, we must open up the whole process to competition so that we can keep prices down.
This group also contains the amendment in the name of the noble Lord, Lord Berkeley, which would split the big six. Again, we are very sympathetic. Rather than crowbar it into the Bill, we have already stated that we would use legislative powers on election to do exactly that. The argument in favour of the big six and vertical integration has always been that they need the balance sheet of the supply industry to be able to raise the finance required to invest upstream in generation, but that is not what they have been doing. They have not ploughed their profits back into investment; there has been a hiatus in investment.
The renewables industry, which has grown the most, has not relied on the big six. More than half of the investment that has gone into renewables has come from independent investors: new, independent companies. We should seek to support those companies and see them prosper. However, they report that it is becoming increasingly difficult to get power purchase agreements from the big six because they control the vast share of access to customers. Why is this? It is another clear signal that there is not enough competition in the market. We now have yet more contortions added to the Bill, such as purchasers of last resort and buyers of last resort, provisions that have been put in precisely because the big six are not offering decent contract terms to the independent investors. If that is not a signal that something is wrong, I do not know what is.
I will briefly touch on the reference made by the noble Lord, Lord Deben, to Germany. I fully support the idea that the big six should become the big 60, and ultimately the big 600. We need to democratise our generation of electricity. The signs are that it is already starting, from the man on the street fitting solar panels to communities coming together to find PV for their schools or building wind farms. Real change is happening and we must endeavour to make it happen more quickly and substantially. Only then will the big six or their equivalents be challenged. This is happening already in Germany, where after a relatively short period RWE, the giant of the German electricity industry, is claiming that its business model is broken. The support for decarbonised, community-owned power has broken that industry, which is a good thing, as it has been responsible for a huge amount of carbon emissions over the decades and has shown itself to be incapable of adapting quickly enough to the new, modern needs of electricity.
I will not go on any more. We have covered the main points: the big six system is broken and we absolutely need more competition in this market. The Bill, by introducing contracts for difference, makes it possible and credible for us to make the decisive move to split vertical integration and halt the market power that is gained from having generation and supply in the same companies. We are in principle supportive of this, and we look forward to the Minister’s response. It is a sticking plaster, but nevertheless a very important one.
Baroness Verma
My Lords, I thank my noble friends Lord Jenkin and Lord Roper, and the noble Lords, Lord Cameron and Lord Berkeley, for their amendments. They all relate to competition within EMR and the electricity market. I should like to reassure noble Lords across the Chamber that I fully recognise the importance of effective competition in the market. I also recognise my noble friend’s desire to help independent gas-fired generators in particular. My noble friend tabled Amendment 4 in Committee, and I have considered carefully the points he made. In particular, he said that this amendment would,
“help the Government to achieve their stated desire of having greater market competition”.—[Official Report, 18/7/13; col. GC 339.]
However, I still do not think that it will deliver the competition that he rightly seeks. We will make a difference to competition only if we take action and deliver actual reforms that are designed for that purpose.
The list of matters to which the Secretary of State must have regard in Clause 5(2) is about balancing different objectives: balancing the need to decarbonise against ensuring security of supply, and at the least cost to the customer. However, competition does not fit into such a list. We are not balancing competition against delivering decarbonisation or cost to the consumer. Competition is one of the means of minimising cost to the consumer, and the purpose of EMR is to move us to an electricity market where low-carbon generation can compete fairly on price. Amendment 4 could cause confusion as to the practical effect on the design and implementation of EMR. Noble Lords will recognise that we do not have the luxury of time at the moment, and that to understand the effect of such a change would undermine our efforts to quickly implement EMR and bring forward investment.
Baroness Worthington
I am sorry to interrupt, but I forgot to ask a question in my contribution, particularly on the capacity mechanism, in which I know the noble Lord, Lord Jenkin, is very interested. What representations have the Government had from independent gas generators on the penalty prices? We are being told that because of the way that the capacity market is stretched, they will not be able to raise finance with those punitive penalties within the capacity mechanism.
Baroness Verma
My Lords, while I wait for some inspiration to wing its way down to me, I will continue and respond later to the noble Baroness. I recognise what my noble friend Lord Jenkin and others have said about how liquidity reforms benefit consumers. These reforms make it easier for independent suppliers and new entrants to access the wholesale market. They will increase competitive pressure in the retail market, which will benefit consumers in terms of downward pressure on bills, greater choice, and better service, which is what I know all noble Lords want.
My noble friends Lord Deben and Lord Jenkin, and others, mentioned Ofgem’s liquidity proposal. We want to make the energy market as competitive as possible. An increasingly level playing field for independent suppliers and generators is precisely what will help drive competition, which delivers better value for consumers and business. Ofgem’s proposal to increase transparency in the way electricity is traded will give independent generators a foothold in the UK market and encourage new players to invest.
While I am waiting for inspiration, which has not quite arrived yet, I will touch on the proposals the noble Baroness, Lady Worthington, has mentioned on the price freeze. We cannot see the Labour Party’s proposals solving the problems of competition. What we see is that we will get price hikes before and after the freeze. What we need is to get a better understanding of where the Labour Party is coming from when it says that it wants to reset the energy market, because we do not know whether that is just jingoistic terminology or if there are some proposals in place.
The inspiration I was waiting for has arrived. We are engaging with industry. It said that it was pleased with our proposal for a higher cap in the first auction. I suspect that does not quite answer the noble Baroness’s question, so perhaps I will come back to her on that.
Lord Jenkin of Roding
I am listening with very great care to what my noble friend has said because this is all very important. She says that she has met the representatives of the industry and of their bankers and funders. Is she now saying that she will take account of what they said and of the three points they raised? My noble friend has mentioned the length of the contract; they say it must be not less than 15 years. There is the question of the penalties, which the noble Baroness, Lady Worthington, has mentioned. There is then the question of a cap. All three have to be right or, however much the noble Baroness, Lady Verma, says she wants competition she will not get in the new entrants and the independent generators.
Baroness Verma
My Lords, as I have said, I have taken very seriously what the independent generators and others have said to me, as well as what noble Lords have said. I think, however, that what our proposals are laying out answers many of these fears and the concerns of those generators. We of course agree that there needs to be greater competition. That is what I think this Bill will help to achieve.
I return to the penalties that the noble Baroness and my noble friend have mentioned. We have proposed cutting penalties between 101% to 149% of capacity payments in any year. We are aware of concerns from independent generators at the level of penalties, but it is crucial to balance investability against protection for consumers. The right thing is to focus our efforts on concrete actions that will make a difference by enabling low-carbon generation to compete, by helping gas-fired generators and other reliable capacity providers to remain economic and compete, and to bring reforms to the wholesale and retail markets.
I therefore urge my noble friend to withdraw his amendment. I hope I have demonstrated that the Government are taking clear action to increase competition at the same time as actively reviewing what more can be done.
Lord Jenkin of Roding
My noble friend went very fast, and at my age it is not always easy to hear everything that is being said. The Leader of the House is waiting to make his Statement about the European Council. I have the impression that she has been impressed by the people whom she has met and the discussions that she has had with me and others on this matter. She has given me every impression that she understands that, if these people are going to compete effectively, they have to be able to raise the finance in the market to do it.
The initial terms which the Government pointed out, as originally indicated, would apply to them would have made them say, “Well, we cannot raise it. We only have 10 years? It is impossible”. There are various other things, and we have mentioned the penalties and the cap. I understand that my noble friend has given an undertaking—perhaps she will deny me if that is not right—that she will consider very carefully what those independent generators have said and the terms and conditions that they will have to have if they are going to enter the market. If they do not, whatever my noble friend has said about competition, it will not happen.
Baroness Verma
My Lords, I do not want to leave my noble friend in any grey area. I have listened very carefully to him, as I always do, but I think that the proposals I have laid out will respond to him and to those independent generators. I think the proposals and the Bill and what I am taking forward do answer those concerns.
Lord Jenkin of Roding
My Lords, I am going to take my noble friend’s word as what I think she is intending to mean. She is not giving any guarantees, but she does apparently understand the case that has been made if the competition is going to work through the capacity market in the way in which the Government have said it would. She has been told very firmly that unless she changes the conditions it will not work. She has given me the impression—and, I hope, other noble Lords as well—that she understands that and will continue talking with a view to getting acceptable conditions. If that is the case, it would seem to me to be quite wrong that I should take the opinion of the House. In those circumstances, I beg leave to withdraw the amendment.
EU Council
(11 years ago)
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The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford) (Con)
My Lords, with the leave of the House, I will now repeat a Statement made in another place by my right honourable friend the Prime Minister. The Statement is as follows.
“In the past 24 hours the country has been hit by one of the worst storms for many years. I know that the thoughts of the whole House will be with the families and friends of the four people we know have lost their lives. I am sure the House will join me in paying tribute to our emergency services and to all those who have been working to clear up the debris and get our transport system moving again. All the agencies involved are working as fast as possible to get things back to normal.
Let me turn to last week’s European Council. The key subjects under discussion were business regulation, competitiveness and monetary union. We also discussed migration policy, following the Lampedusa tragedy, and the importance of the EU’s Eastern Partnership, specifically with respect to Ukraine. So the background to this Council was the state of the European economy.
There is no doubt that the outlook is better than it has been, and particularly here in Britain where Friday’s figures showed the fastest growth for three years. My aim at this Council was to do everything possible to enhance the prospects of a sustained, balanced recovery here in the UK. We made good progress on three areas in particular: cutting red tape; promoting trade and the completion of the single market in digital and services; and protecting British interests as the eurozone integrates further.
Let me briefly say a word about each. First, on cutting red tape, Britain’s Business Task Force produced an excellent report which was endorsed by a hundred European businesses. I chaired a meeting bringing members of the Business Task Force together with President Barroso and the leaders of Germany, Sweden, Italy, Poland, Finland, Estonia and the Netherlands. These countries representing all parts of Europe and all political traditions agreed on the need to make more progress in cutting regulation and helping businesses across Europe to create jobs, and the strong language adopted in the communiqué by all EU member states reflects this. It calls for rapid implementation of REFIT, the Commission’s own bureaucracy-cutting initiative, and a proper scorecard to measure exactly how much regulation is being cut. Deregulation is now part of the EU agenda in a way that it simply has not been before.
Secondly, on trade, we welcomed the conclusion of the EU-Canada trade deal. This new deal could be worth £1.3 billion to the British economy, with estimates suggesting British exports to Canada could go up by as much as a fifth. Last week’s agreement also means we can now move the focus on to the EU-US talks which we began at the G8 in Lough Erne. There were some attempts to link this potential US trade deal with concerns over US intelligence, but the Council rejected this idea.
Turning to the digital single market, once again the commitment was made to complete this by 2015, potentially boosting growth by as much as 4% of the EU’s total GDP. As Britain is a world leader in e-commerce, this is very much in our interests. We made good progress at the Council on issues like portability of data, e-identification, e-invoicing and payment services and an EU-wide copyright regime for the digital age, but we also agreed not to rush ahead with the data protection directive on an artificial timetable because the current draft has disproportionate burdens on small business and they need to be removed. In terms of the services directive, we agreed that it was time to look at a new sector-by-sector approach rather than just trying to remove all the outstanding barriers to free trade in services in one go—a process that has stalled in recent years.
Thirdly, on defending Britain’s interests, as I have argued repeatedly, the European Union is changing and the eurozone needs more integration and co-ordination. But Britain is not in the single currency, and we are not going to be, so we should not have to take part in these additional bits of co-ordination, whether they cover economic or social policy. So while members of the eurozone agreed to even more intrusive policy co-ordination, including on social policy, I was clear that Britain will not take part. This is reflected in the communiqué which says that all changes are voluntary for those countries not in the single currency.
On the tragedy at Lampedusa, we agreed the next stages of the work of Frontex, which is responsible for trying to stop people coming to the EU in the first place, but we rejected the idea that there should be additional burden-sharing for so-called ‘front-line states’, not least because, if you look at the figures, Britain, France, Germany, Belgium and Sweden between us received almost 70% of asylum applications recorded in the EU in the past 12 months. What is most important of all is helping to stop the problems at their source. The UK will continue to play a leading role in this: for example, through support for border security in Libya and the focus of our development assistance on helping countries that are at risk of instability. On the Eastern Partnership we agreed that countries which look towards Europe for support, such as Ukraine, should be free to enter into agreement with us while, of course, continuing to insist on proper standards of governance and justice that such a relationship should entail.
Finally, because of the recent controversies there was much discussion about the role of intelligence agencies. We agreed a statement signed as Heads of Government—because there is no EU competence in this area and nor should there be—that said European countries and America should have a relationship based on trust and that damage had been done by recent revelations. The UK has a very strong, long-standing trust-based relationship with the US, not least as part of the Five Eyes partnership together with Canada, Australia and New Zealand. In terms of our own intelligence services, we have a long-standing tradition that we do not comment on intelligence matters. We have parliamentary scrutiny of our intelligence agencies through the Intelligence and Security Committee and we have strengthened that oversight. Our agencies operate under the law and their work is overseen by Intelligence Commissioners. Of course, as technology develops and the threats we face evolve, so we need to make sure that the scrutiny and frameworks in place remain strong and effective. But we have every reason to be proud of our intelligences services and the way in which they are properly constituted in our country.
Since 2000, we have seen serious attempts at major acts of terrorism in Britain typically once or twice a year and, since 9/11, 330 people have been convicted in our courts—here in the UK—of terrorism-related offences. This year alone, there were major trials related to plots, including plans for a 7/7-style attack with rucksack bombs, two plots to kill soldiers and a failed attempt to attack an English Defence League march using an array of lethal weapons. There were guilty pleas in each case and 24 terrorists were convicted and sentenced to more than 260 years in jail. I quote these figures to demonstrate the scale of terrorist threats still facing this country.
Our intelligence has also allowed us to warn our EU allies about terrorist plots aimed at their people, cyberattacks on their businesses and infrastructure and attempts in their own states illegally to traffick drugs, people, arms and money. Our intelligence officers serve our country without any public recognition. Some have given their lives in this service and yet their names are not known and their loved ones must mourn in secret. We owe them, and every intelligence officer in our country, an enormous debt of gratitude. These silent heroes and heroines are keeping our country safe. They deserve our wholehearted support. I commend this Statement to the House”.
My Lords, that concludes the Statement.
Baroness Royall of Blaisdon (Lab)
My Lords, I am grateful to the noble Lord the Leader of the House for repeating the Statement made by the Prime Minister in the other place. I start by sending deepest condolences from these Benches to the families of the people who have died during the storm conditions in the past 24 hours. I also join him in thanking the emergency services for the work that they have done overnight to protect people and the work they are now doing to clear the debris. I would be grateful if the noble Lord could update the House on the 270,000 homes without power in south-west England, East Anglia and the Midlands, and if he could inform the House how long it is expected to take for the power to be restored.
On the European Statement, I join the Leader of the House in his support for the work of our intelligence services. It is vital, it keeps us safe, and by its very nature it goes unrecognised. I also join him in applauding the men and women who work for our services. On these Benches we support the summit’s statement on this issue. We can all understand the deep concerns that recent reports have caused in some European countries, especially Germany, so as well as providing that support for intelligence services it is right to ensure proper oversight of those activities.
I turn to the formal agenda of the summit. First, on trade, we welcome and support the conclusion of the Canada-EU trade deal and agree with the focus on the US-EU trade agreement. At the start of this year, a timetable for December 2014 was set to complete negotiations. Can the Leader set out any further developments on this challenging timetable and its feasibility? Does he agree that the possibility of this agreement is an important reminder, including to his Cabinet colleagues and much of his party, that a prosperous future for Britain lies inside, not outside, the European Union?
Secondly, we all agree that completion of the digital single market could have a significant impact on our prosperity. On numerous occasions the Government have stated their commitment to expand the single market in digital services. Will the Leader please tell us what has been achieved at this summit that was not achieved on previous occasions? Will he explain why the Prime Minister pushed for delay to the data protection directive, which would have enhanced citizens’ privacy across Europe?
On regulation, we will, naturally, look at the proposals of the task force. We agree with the need to restrain unnecessary regulation and welcome any progress on this, but we need to distinguish between good and bad regulation. Cutting bureaucracy and red tape can be welcome, where appropriate, but the Government’s emphasis on cutting red tape for business is in stark contrast to the red tape which they seek to impose on charities, the voluntary sector and unions in the transparency of lobbying Bill.
With regard to the task force’s report, does it really make sense to scrap new rules providing transparency about where the meat we eat has come from, in the light of the horsemeat scandal earlier this year? What about rules on agency work? They play an important role in deterring employers from using low-wage migrant labour to undercut local workers, but the task force says they should be watered down. What reassurance can the noble Lord provide that this will not simply mean cuts in wages and employment conditions—that is to say, a race to the bottom?
In relation to the tragedy at Lampedusa, I agree with the noble Lord that it is of the utmost importance to help stop the problems at their source and that the focus of our development assistance is on helping countries at risk of instability.
On broader economic policy, I note what the Prime Minister said at the end of his European summit press conference: that his priority was now to make sure it is a recovery for all. Does this represent an acknowledgment that, despite the welcome news on growth, millions of people still feel worse off because of the cost of living crisis? The Prime Minister also said after the summit that he wanted to help people “excluded from our economy”. That includes youth unemployment, mentioned in the communiqué. The shameful truth is that nearly one in five unemployed young people in Europe lives in Britain and those who are employed are often vastly overqualified. I am currently seeking a nine-month maternity cover for my PA/office manager and, of the tens of applications I have received, most are from people with a master’s degree and some have doctorates: many of them are working as unpaid interns. Something is wrong. The Government’s youth contract has recently been branded a failure by their own advisers.
What did the Prime Minister say at the summit about the changes needed in Britain when it comes to youth unemployment? For people struggling with their energy bills, seeing their wages falling, and for young people looking for work, is it not true that nothing is different after the summit than it was before? I fear that this European summit will feel like a lost opportunity for the citizens of the European Union, who share a common concern about growth, jobs and the cost of living.
Lord Hill of Oareford
My Lords, I am grateful to the noble Baroness the Leader of the Opposition for her remarks about the efforts being made by the emergency services and various companies to respond to the effects of the storm. I am not able to give her precise figures, but they are working flat out to help people caught out by the storm. I agree very much with what she said about our intelligence services. It is important that there should be rigorous oversight. We have that and it is right that we should do so.
On the subject of timing in relation to trade and Canada, the significant decisions on the deal have been taken so we are not expecting it to take long to resolve the remaining issues. I cannot give a precise timetable for the EU-US talks. The potential benefits of such a deal are, obviously, far greater than the EU-Canada deal. There was some possibility of an attempt to slow down the timetable for the EU-US talks at the European Council. That was resisted and the focus will now switch to trying to make progress on it.
There is a fair bit of detail in the communiqué about what was achieved on digital services. The real impetus of the Council was in terms of the digital single market, on which a number of conclusions were reached. It is very much in our interests that we make progress on that. We have a very active e-commerce sector which we need to capitalise on. There was a restatement of the timetables and an agreement to refocus efforts to make progress.
On the data protection directive, as the noble Baroness said, it is clearly the case that proper concerns about data protection must be addressed. There was no agreement to the earlier timetable which we sought because of concern about the cost which might be inflicted, particularly on small businesses—estimated at up to £300 million—by the over-early implementation of such a directive before the details were thrashed out. The position reached was to work on that—not to resile from it but to try and make sure that, when it is introduced, we do not have an unforeseen effect on small business.
There was significant progress made on regulation, not just here but reflecting a continuing process whereby the UK, working with its allies, is trying to shift the emphasis in a more deregulatory direction. This relates, in a way, to the noble Baroness’s final question about what difference this summit has made. The work of our own business task force contributes to that, as does the work the Commission itself is doing through the REFIT initiative, working in tandem with it.
As the noble Baroness says, there is good regulation which can increase competition, and there is regulation which harms prospects for employment or growth. We all agree that the urgent priority at the moment is to make sure we have economic growth across Europe so that more people can benefit from it, particularly the young. I know that the noble Baroness is concerned about youth unemployment. We all want to see much faster progress but, since the general election, the total number of young unemployed people has fallen by nearly 80,000. Our level is below the EU average and below that of France and of Italy. We have been creating more training opportunities, which are part of the solution. The noble Baroness will know that the number of apprenticeships has grown enormously: we have doubled the number and this is also part of the solution. The 1.4 million private sector jobs created since the general election are also helping. Altogether, the number of NEETs is now the lowest it has been for a decade. There is obviously an awful lot more work to do and ultimately the process starts with what goes on in schools, where we must try and make sure our young people have the skills they need to equip themselves for the growing number of available jobs.
Lord Alderdice (LD)
My Lords, I would like to identify these Benches with the condolences to those who have been bereaved, the sympathy for the injured and the appreciation of the tremendous efforts being made by the emergency services in dealing with results of the storm.
I thank my noble friend for repeating the Statement made in another place by the Prime Minister. Much of it encourages me. I am encouraged to see improvements in our own economy and more widely. Thoughtful and appropriate deregulation is a useful step forward, although we have to be careful. Wider trade deals are bound to be very welcome, and that with Canada, with which we have such a long and friendly relationship, is particularly so, both for itself and for what it may lead to in the rest of North America.
I am also encouraged by developments on the e-commerce front although, as the Statement made clear, we have to be careful as it also opens opportunities for e-crime. I rather suspect that your Lordships’ House will have to face rather complex legislation over the next few years to deal with many aspects of this. It will not be easy because it will be a challenge for all of us to know exactly what we are legislating about in this area and to keep up with the changes.
I am encouraged by the clear statement that the way to deal with immigration problems is not to create a fortress Europe but to address the needs and problems of the countries from which people flee. They do not come because they are happy in their own countries: they come because they do not have a good future there. We have to try to help them improve on that.
Coming from my part of the United Kingdom, I have a particular perspective and a deep appreciation of the work that the intelligence services have done for us over many years in ensuring that our community did not fall apart and that we were able to engage later in a peace process. The intelligence services do important work for us and it is silent work at its best.
However, one part of the Statement gave me a little cause for concern. It was what the Prime Minister said in respect of countries outside the European Union and the eastern partnership. He said that we continue,
“to insist on proper standards of governance and justice that such a relationship should entail”.
Our right honourable friend the Prime Minister is right about that but in one country within the EU, Hungary, those standards of governance and justice simply do not apply any more, and it has been getting worse for a number of years. Sadly, this has been happening under the prime ministership of Viktor Orban. I knew him many years ago when he was, as he still is, the leader of Fidesz—in those days the young liberals. He was, like me, a vice-president of Liberal International and we served together on the officers’ board. I well remember the first thing that he did. Fidesz, because it consisted of young liberals, had a rule whereby when you were over 30 you had to resign and join the Alliance of Free Democrats. What did Viktor do? When he reached 30 he changed the rules, which has been and still represents one of his characteristics. When the rules tend to take away some of his power, he simply changes the rules. I remember well a meeting of the committee of Liberal International when he walked out and said that he was going to join a more conservative group. That is what he did and he has produced a more authoritarian country. My concern is that the Prime Minister entertained him in Downing Street this month before the European Council and friendly photographs are being used by Mr Orban in Hungary to show that this country is supportive of him. I seek a reassurance from my noble friend that the Prime Minister is pressing Mr Orban to address the real problems of authoritarianism, anti-immigration and the destruction of European values in that important part of the European Union.
Lord Hill of Oareford
My Lords, I shall not resist the temptation to say that my noble friend has highlighted some of the dangers of joining the young liberals. I know that he makes a serious point about his concerns.
I am grateful for his support for the Statement more generally. I am sure that many will have heard his remarks about Hungary. As with all EU member states, Hungary is subject to clear obligations and has to adhere fully to the laws and values of the Union. I am sure my noble friend knows that earlier this year the Commission launched a detailed review to ensure that newly introduced legislation in Hungary was brought into line with accepted EU standards. I understand that Hungary has engaged with the Commission on that review and is making changes to its constitution that have addressed many of the concerns. We welcome Hungary’s engagement with the Commission on areas that fall within EU competence.
Lord Davies of Stamford (Lab)
My Lords, the noble Lord, Lord Alderdice, quite rightly was given a lot of scope because what he said about Hungary was well said. The progress on deregulation at the summit and the decision not artificially to hold up the progress of the US-EU trade negotiations are welcome. They will of course take a long time anyway. Is the noble Lord aware of any member state other than the United Kingdom which has made a public statement that on a permanent basis it will not join the banking union that is being put together? Is he aware of the substantial evidence presented to your Lordships’ Sub-Committee A by a series of witnesses and experts to the effect that if we remain outside the banking union our financial services industry will have an increasing handicap competitively over a number of years and we will end up paying a significant economic price for doing that?
Lord Hill of Oareford
I am grateful to the noble Lord for what he said about progress on regulation. We keep chipping away at this and there has been progress. The fact that seven countries joined the UK in lending support to the report produced by the British Business Task Force shows that there has been a shift. The Prime Minister has been working hard in that respect, particularly with Chancellor Merkel. I am also grateful to the noble Lord for what he said about how vital the EU-US talks are. I understand the noble Lord’s views on banking union. Obviously, the Government take a different view and their position has not changed as a result of the recent European Council.
Lord Tugendhat (Con)
My Lords, I, too, associate myself with what has been said about the emergency services and the intelligence services. I was encouraged by what my noble friend said about the deregulation agenda. In particular, I noted that the Prime Minister had chaired a meeting that brought together the leaders of a number of countries with President Barroso. There is of course a big difference between countries agreeing on the need for deregulation in general and agreeing on what precisely should be deregulated. Can my noble friend enlighten the House—if he cannot do so now, perhaps he can in some other way—as to the degree of agreement on the range of regulations and directives that ought to be repealed?
Lord Hill of Oareford
I am not sure that I can enlighten the House on a huge amount of detail but there are two strands to what the Prime Minister and those who agree with him in the EU are seeking to achieve. One is that the Commission has its own process under the REFIT programme that my noble friend will know about, which is coming up with a series of regulations, measures and so on that it thinks could be repealed, not introduced or otherwise revised. That is a Commission-led process. Alongside that, the Prime Minister has been working with British business, and the British Business Task Force has been working with European businesses, to come up with suggestions from a business perspective regarding further changes that could be made. A twin-track process is going on. One track is led by the Commission and, in the other, Britain with its allies is trying to take forward this issue of how one can have the right amount of regulation that will not hold back economic growth, which is our priority, and get that balance right.
Lord Deben (Con)
Does my noble friend agree that the opposition Front Bench was a little curmudgeonly in the second part of its response on youth unemployment, given that this Government have done remarkably well on unemployment during a very difficult time? Was it not also true that his Statement showed just how important it is for Britain to be a full member of the European Union? None of these things would have happened in the way they have and to the degree they have had not the Prime Minister taken an active part. Is it not time that people stopped complaining about the European Union and in fact spent their time improving it in the way in which the Prime Minister is clearly doing?
Lord Hill of Oareford
My Lords, I would never—although perhaps I might occasionally—accuse the noble Baroness, Lady Royall, of being curmudgeonly. My noble friend is quite right about what has been achieved in terms of generating jobs generally and the improving trend of economic figures that we are beginning to see. There is much more to do but there has definitely been progress. He is also right about what has been done to tackle youth unemployment. On his broader point, the Prime Minister has demonstrated that it is possible both to argue strongly for Britain’s national interests and to build alliances with other similar-minded countries in Europe to bring about change for the common good. The issue is sometimes presented as a false dichotomy, whereby if you argue for Britain’s national interests you jeopardise your influence within Europe and you either have to go with the consensus or become an outist. The Prime Minister has set out that one can argue very strongly from within the EU for what is in the interests of the whole of Europe as well as Britain.
Lord Phillips of Sudbury (LD)
My Lords, will my noble friend say a word more about trust in politics as he very wisely referred to it early on in the Statement. It seems to many here today that there is a slow but very worrying creep of disaffection across Europe with democratic politics. There can be no more signal demonstration of the cynicism that exists in some parts of the political establishment at the very highest levels than the bugging of the phone of Angela Merkel. I suspect that tens of millions of people will have noticed that who do not notice much else—good things—about the world they live in.
My question is this—I apologise if it is a question that cannot elicit a direct reply. Is there any consequence to that extraordinary event? It must have been a criminal offence in Germany and in the United States. Is there any accountability for what happened?
Lord Hill of Oareford
My Lords, I will make two points in response. First, my noble friend is right to point to a growing disaffection across Europe with the institutions and processes of the European Union. One of the things that many people are trying to work for is to bring the work of the Union more into contact with the everyday concerns of the citizens of Europe and overcome this growing democratic deficit as people call it. That is something that my right honourable friend the Prime Minister would say he is seeking to pursue by arguing against measures that would affect British businesses, choke off growth and all the rest of it.
Regarding the point about telephones, as my noble friend knows, he will not tempt me to comment in any detail on the work of our intelligence services. The leaders at the Council issued a statement after a great deal of thought in connection with the issue he raised and that has set out a way and a process in which the French and the Germans will talk to the Americans about what may or may not have gone on.
Lord Brooke of Sutton Mandeville (Con)
My Lords, paragraph 10 of the European Council conclusions that accompanied this Statement stated that the EU was in 2011 faced with 300,000 unfilled vacancies in the ICT sector. It added that if this trend was not checked there could be 900,000 unfilled vacancies in the sector by 2015. Could my noble friend contemplate covering a domestic omission in this Statement by putting in the Library a breakdown of the UK’s statistics within these EU-wide figures?
Lord Hill of Oareford
I am afraid, my Lords, I do not know the basis for the calculation made by the EU and whether it was based on data drawn from individual member states. If there are any data I can find I will, of course, let my noble friend have them, but I cannot say with any certainty what the basis of that calculation was.
Lord Flight (Con)
My Lords, I cannot entirely agree with the comment of the noble Lord, Lord Davies, that Sub-Committee A was of the view that the UK would suffer if it did not join the banking union. The point was surely that the body to which the ECB is accountable has a voting structure and if virtually all EU members did end up joining the banking union, theoretically it would then be possible for it to tell the UK what to do. In the negotiations over the banking union this country should ensure that the independence of banking policy is safe.
Lord Hill of Oareford
I completely understand the points that my noble friend makes. Those are very alive in the minds of our Ministers and officials negotiating this because they are keen to safeguard the position that my noble friend sets out very clearly.
Lord Marlesford (Con)
My Lords, I was very glad to see in the Statement the sentence:
“Deregulation is now part of the EU agenda in a way that it simply has not been before”.
I noted the distinguished membership of the meeting chaired by the Prime Minister on the Business Task Force report, including President Barroso and the leading countries in Europe. There was a startling and very prominent absence from that list of countries, which was France. Would I be right in thinking that part of the reason for France’s absence is that it does not share our approach on this matter at all? The biggest single bit of business regulation—and I would argue the most unjustified—that the French go in for is the 35-hour week, which is policed by a mixture of inspection and denunciation, which must be very bad for the business sector in France. Perhaps, in that sense, a bit of schadenfreude might be in order, but I do not express it. I say that it is wrong that the EU, if it means anything on these matters, should have such an example of business regulation.
Lord Hill of Oareford
My noble friend is right that the French approach things differently from us. When he talks of schadenfreude, the point to which I would refer him is the fact the Germans were there at the Prime Minister’s launch. Those who have, like my noble friend, studied the dynamic within Europe over a very long period of time would recognise the relationship between the UK and Germany. The work that my right honourable friend the Prime Minister has put into trying to strengthen that relationship is an important part of helping to counterbalance some of the views held by other member states to which my noble friend refers.
Baroness Royall of Blaisdon
With the permission of the House, perhaps I may ask the noble Lord to comment on the contrast between the search for deregulation in the business sector, which in many ways we welcome, and the imposition of bureaucracy and red tape on charities, trade unions and the voluntary sector in the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Bill?
Lord Hill of Oareford
As the noble Baroness would expect me to say, these are different matters. I refute her point that the proposals on charities in the Bill would be as intrusive and destructive as the kinds of regulatory burdens that are operating in some ways within Europe, which we seek to remove. Like the noble Baroness, what one always wants is a proportionate approach in all areas.
European Public Prosecutor’s Office: EUC Report
(11 years ago)
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Lord Rowlands
That this House takes note of the Report of the European Union Committee on the Commission proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office (COM(2013)534, Council Document 12558/13) (3rd Report, HL Paper 65).
Lord Rowlands (Lab)
My Lords, I beg to move the first Motion on the Order Paper in the name of the noble Lord, Lord Boswell. The noble Lord, Lord Boswell, and the noble Baroness, Lady Corston, present their apologies. Both are attending the COSAC meeting in Vilnius. As a member of Sub-Committee E, which prepared this report, I have the pleasure of inviting the House to agree to its recommendation. That recommendation is that the House issue a formal reasoned opinion that the Commission’s proposal to create a European Public Prosecutor’s Office breaches the principle of subsidiarity.
The principle of subsidiarity enshrined in Article 5 requires that the EU should take legislative action,
“only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States … but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level”.
No one now denies that there are significant problems with European Union fraud. Indeed, it was our committee which sought to highlight this point in its April report when it suggested that European fraud now ran to the tune of about £5 billion a year. We recognise that there are considerable shortcomings in the system for combating such fraud. We are not arguing this evening that one does not need to address these issues seriously but about in what way one should address them.
The Commission has now come up with the proposal that the way to deal with European fraud is to create a new supranational European body, with an independent power to investigate and prosecute EU fraud offences in national courts, called the European Public Prosecutor’s Office, or EPPO. Our report outlines, in detail, the structures and powers of the proposed public prosecutor’s office. I will identify some of the features that concern us most. The European Public Prosecutor’s Office will have a very wide jurisdiction as to what it investigates and prosecutes. Although the definition of European fraud has yet to be firmly fixed, it will be very likely to encompass any act or omission which has the effect of wrongly acquiring or retaining EU funds or assets or which results in the diminution of European Union revenue. It would include, for example, incitement, aiding and abetting such offences, and corporate criminal liability.
The committee was particularly concerned about the proposal for the prosecutor’s office to gain exclusive jurisdiction over any other offence which is inextricably linked to a European fraud offence. That has the considerable capacity to further expand and involve the office in national jurisdictions and expand its own jurisdiction. We should all be concerned at the nature and potential character of that proposal.
The proposed office will also have exclusive power to investigate and prosecute a wide range of offences. It will have a wide range of investigative powers such as the right to search premises and intercept telecommunications, to be exercised in accordance with national law and subject to obtaining a judicial warrant where national investigators would be obliged to obtain one. It can require information and assistance from national authorities. The proposals also suggest that it can operate under its own rules on the admissibility of evidence.
The committee, in considering these proposals, concluded that the proposal fails the subsidiarity test. The report lists nine bullet points at paragraph 14 to justify that opinion. I will briefly underline or summarise a few of them. First, we suggest that there are better alternatives, based on the current framework, which is built on criminal enforcement by member states. More can be done to prevent fraud happening in the first place through good quality legislation and careful administration of resources by the Commission and member states. We should remember that 80% of all European Union funds are administered by member states themselves. That is a vital factor, which should be taken into account. Co-ordinated action needs to be improved, but we do not believe that this particular proposal for this particular kind of office is justifiable.
The EPPO would undermine the effectiveness of existing EU fraud-fighting organisations such as Eurojust and OLAF. Giving the EPPO exclusive competence would create an unnecessary faultline between national and European Union efforts to counter fraud, introduce complication, and risk the moral hazard that member states will feel that they can leave EU fraud to the European Public Prosecutor’s Office. By contrast, it must be a shared responsibility, particularly given that, as I emphasise again, 80% of all European Union funds are administered by the member states themselves. Our committee was concerned that the proposal would interfere disproportionately in the sensitive area of member states’ criminal law systems, by conferring exclusive powers on the public prosecutor’s office and giving it power to dictate how finite national criminal law enforcement resources are deployed and by allowing it to operate according to its own rules on the admissibility of evidence.
Our committee found that the Commission has not made its case adequately. It underestimates the costs and overestimates the benefits of such an office, particularly as at least two member states, the UK and Denmark, will not be participating. The Government have made it clear that the UK is not going to opt into this proposal and, indeed, that a referendum would be required for it to do so. It is nevertheless, in our view, appropriate for this House to issue a reasoned opinion, and it does not absolve the House from coming to a position on the issue of subsidiarity. All national parliaments have a special role to play in monitoring compliance with subsidiarity in accordance with the treaties, and many national parliaments have been very active on this proposal.
Although Article 86 of the Lisbon treaty specifically envisaged the creation of a European Public Prosecutor’s Office, that does not undermine our reasoned opinion. First, the article is permissive. Our opinion is consistent with the treaty—we do not challenge the right of the EU to create such a body, but are saying that this particular set of proposals is far-reaching, intrusive and infringes the principle of subsidiarity. Under the subsidiarity procedures, national parliaments can force European institutions to review a proposal—it requires, as I understand it, 14 parliamentary votes across the union. Fascinatingly, there has been, in the past few weeks, a growing groundswell of parliamentary opinion across the union critical of these proposals. I understand that we have already reached 14 parliamentary votes and five more are in the pipeline including, I hope, in this House tonight. The House should support the report and our reasoned opinion, and put further pressure on the Commission to review these radical and unacceptable proposals.
Lord Hodgson of Astley Abbotts (Con)
My Lords, I rise to support the noble Lord, Lord Rowlands. He has laid out the case as to why this proposal to establish a European public prosecutor’s office does not comply with the principle of subsidiarity with forensic skill, and I will try to avoid repeating what he has said.
I was a member of Sub-Committee E, both at the time of issuing this subsidiary assessment and of the publication of the report, The Fight Against Fraud on the EU’s Finances. That report found that there appeared to be a significant level of fraud within the EU budget, and that official figures appeared, at least to us, to significantly underestimate the volume and value of that fraud. Therefore, at first blush one has some sympathy with a proposal that appears to have as its objective, the sharpening up of the organisational response to these defects. Further to that, our report found significant weaknesses in the work of the European anti-fraud office, known as OLAF, which included tensions between the supervisory committee and the executive arm of the agency; frequent turnover of representation so that consistent policies were not followed through; an absence of classification of fraud offences, which the noble Lord referred to; a reluctance to name and shame countries where it appeared that fraud was taking place; and last but not least, a lack of will among member states to report and follow up suspected cases of fraud.
To be fair to the commission, it has put in place a number of measures to improve OLAF’s operational efficiency, notably the regulations adopted just six weeks ago on 11 September. However, one of the more depressing features of the Brussels bureaucracy—at least to a Euro-agnostic like me—is the tendency, where an organisation is not operating up to par, not to undertake a serious attempt to improve the efficiency, but instead to pile on top of, or in this case alongside, that organisation yet another body to look after it. It is almost certain that an EPPO operating alongside OLAF and Eurojust will surely only serve to undermine OLAF’s work at this time, when the recent changes just introduced, as I mentioned, should give it a new sense of purpose and direction.
I particularly share the view expressed in the report that the anticipated costs of running the EPPO are woefully understated; a net annual cost of just €6.1 million is surely not credible. The reason for the subsidiarity judgment is that the fight against EU fraud needs to be developed from first principles, and they can be done without the introduction of the EPPO. The Commission needs to improve the clarity of its budgeting system; improve its own systems for overseeing that budget; and work more closely, where appropriate, through OLAF and Eurojust with member states so that they investigate and prosecute fraudulent activity with vigour and purpose.
The noble Lord, Lord Rowlands, quite rightly focused on the impact of this proposal on the national criminal law systems of individual member states. He was right to do so and I support him. However, I believe that even if it were possible to overcome these principle objections—and I, for the record, do not believe this would be possible—establishing the EPPO would, on purely practical grounds, likely offend the principle of subsidiarity and undermine the existing organisations of OLAF and Eurojust at the same time.
My concern on this point was underlined by the Written Statement published in Hansard on 15 October, which states:
“Vice President Reding presented her recent proposals for the creation of a European Public Prosecutor’s Office … There was support, in principle, from a large proportion of Member States … but less agreement on issues of substance, including scope; structure; competence; powers; jurisdiction and governance”.—[Official Report, 15/10/13; col. WS 52.]
In effect, the EU member states could not agree how this thing should be proceeded with on any practical level, and that is why I support this reasoned opinion.
Lord Dykes (LD)
Since my noble friend described himself as a Euro-agnostic, I do not think I would offend my friend—not noble friend—on the Labour side if I called him a Euro-realist or sometimes a Euro-hesitator about a number of aspects which he analyses with great precision. I am an unashamed Euro-enthusiast and yet, none the less, I think there is agreement about this particular document and report as was seen in the way in which we couched our recommendations having studied this matter carefully.
The European Union is evolving after the Lisbon treaty in what I hope will be a gradually accelerated fashion. It is inevitably slowed down by the realities of economic austerity and slowed down in the national economies of all the member states, not just the leading ones. That is a reality that we see, as well as the constant difficulty of blending different national cultures in all sorts of areas. Perhaps one of the most difficult areas is the law and the legal sector, because of the noticeable difference of the Anglo-Saxon legal system, mainly in the UK and Ireland, the Roman legal systems of the other member states, mixed with some of the new member states since 2004.
That is just the reality; it is not to be hostile to the evolution of Europe by annunciating those realities that we are facing in all sorts of complicated sectors. This one is particularly complicated, and I think that this is an occasion where the member states expressed a general support for the notion and the concept, but maybe for the future, as the noble Lords, Lord Rowlands and Lord Hodgson, mentioned without going into the details. Subsdiarity must be a real element of the Lisbon treaty in order to provide reassurance to the national publics of each member state, particularly the one in this country, which is particularly fragile in its Euro-hesitation; this disturbs me greatly because I think it is unnecessary, but it is because of the fight between the political parties and the rise of UKIP. It is necessary to balance all those things and not to rule out this concept for the future.
There is every prospect that the EPPO concept itself will gain confidence if it goes slowly forward but the national legal systems demand that the national prosecutorial authorities have the upper hand in the initial stages of that timeframe, which may be quite long, over a number of years, to gain reassurance. We have the co-operative tradition anyway between the forces of law and order in the European cockpit. Europol is proving to be a great success—under a UK executive head, I am glad to say—and is developing apace, and so are the other instruments that were mentioned by the two previous speakers in this debate.
If that is the way to do it, it may be that in future the EPPO will have a pragmatic construct, a special piece of instrumentation by way of a regulation agreed between the Council and the European Parliament that would include the national prosecutorial authorities inside the EPPO system to reassure the public, who will feel that subsdiarity will have therefore been satisfied. Our need for subsidiarity in a number of areas needs to be expressed. People should not be nervous about doing that. This is a classic example. I am very glad to be on the same committee as the noble Lord, Lord Hodgson, and to support enthusiastically this recommendation.
Baroness Smith of Basildon (Lab)
My Lords, I thank my noble friend Lord Rowlands for his explanation of the committee’s report. There seems to be a remarkable degree of agreement between us all this evening. I am pretty sure that the Minister is not going to demur from that.
This is a very detailed technical issue and it is quite clear from the speeches we have heard that not only does it deserve detailed scrutiny, it has received that scrutiny. This is not a new proposal. It has been raised on a number of occasions. The negative response from the Government is not new either.
Even before the 2001 Green Paper from the Commission first proposed a European public prosecutor, the idea had been discussed, particularly in discussions on the Nice treaty, when an outline proposal was put forward but then dropped through lack of member state support. In response to the Green Paper, the European Scrutiny Committee in the other place reported in 2002, saying that it was,
“unnecessary, particularly given the existence of Eurojust”.
At that time, the committee identified a number of concerns. Those concerns remain, for example: the combination of prosecution and investigative functions; the power of the EPPO to commit a person for trial and determine the location of the trial; the creation of differing standards of criminal responsibility for fraud depending on whether or not it related to fraud on the community’s financial interests; the lack of democratic accountability for the prosecution function; and, of course, the breach of the subsidiary principle and dilution of member state responsibility for prosecution of fraud.
Since then, the creation of a specialist EU prosecution authority has been raised again but still has not gained the support it would need to proceed. The 2011 European Scrutiny Committee echoed the concerns of the 2002 committee when, in recommending the 2011 communication for debate in the European Committee, it cautioned against the “inappropriate and unacceptable” use of national criminal justice systems in acting against crimes against EU finances.
However, as my noble friend Lord Rowlands made clear, it is fair to say that this proposal has not been thought up in a vacuum. It seeks to address a genuine problem and we recognise the seriousness of that problem, which is that there needs to be greater protection of the EU’s financial interests and we need to see further improvements in how the EU deals with fraud. The level of suspected fraud against the EU budget is obviously and rightly a source of concern. The report refers to the Commission’s estimate that it stands at around €500 million, or £425 million, in each of the last five years. British taxpayers bear part of the cost of that fraud, which is totally unacceptable. We must seek new and better ways of tackling this fraud, preventing it and bringing those responsible to justice.
The question that the European Union Committee was looking at was: is the EPPO the best way of achieving this? We again concur with the committee’s conclusion that it is not. We made our position clear when in government, and that has not changed. Our position remains, as my noble friend Lord Rowlands outlined very clearly, that the proposal for an EPPO breaches the subsidiarity principle. It is clear that the national-level approach, supported by existing EU mechanisms, is more appropriate.
When we signed the Lisbon treaty, we made it clear that although the treaty could allow for such an office, we were strongly against it, as the noble Lord will recall. We insisted on a “double lock” to ensure that it could not be established. Indeed, your Lordships’ House was, as always, very diligent in its scrutiny of this measure and, following debate, supported the position made very clear by my noble friend Lady Ashton of Upholland in 2008, when she said:
“We have secured legally watertight safeguards in the treaty against any move towards a European public prosecutor or subsequently, and just as important, towards extending that prosecutor’s role. It is what we would call a double lock”.—[Official Report, 9/6/08; col. 454.]
We were not just opting out at that point but securing essential safeguards for the future, which we are able to use today.
That double lock meant that, in order to proceed, the UK would first have to opt in and then, even if a future Government decided that they wanted to opt in, there would still need to be unanimity, and that would be retained for any decision to establish a prosecutor or extend the powers of any such prosecutor. Therefore, we concur with the comments made by the noble Lord, Lord Rowlands, on behalf of the EU committee, that the creation of the EPPO was not the appropriate response to tackling fraud.
The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach) (Con)
My Lords, I thank the noble Lord, Lord Boswell of Aynho, for tabling this debate. He cannot be here this evening because he is exercising his responsibilities as chairman of the European Union Committee. I thank the noble Lord, Lord Rowlands, for moving the Motions of the committee and its reasoned opinion on the European Public Prosecutor’s Office proposal and for presenting the issues so clearly—as does the report that the committee produced.
It is laid out in the EU treaties that the Commission must consider the principle of subsidiarity when drafting all EU legislation. It must also include a detailed subsidiarity statement in the published text. It should be,
“substantiated by qualitative and, wherever possible, quantitative indicators”.
In effect, the Commission should not only say that the principle of subsidiarity has been met but also clearly demonstrate how it has been met and provide well researched and accurate evidence. To assess this, there is a two-limbed subsidiarity test. The Commission should clearly demonstrate in its rationale and impact assessments that the objectives of a proposal cannot be sufficiently achieved at member state level—the first limb of the test—and then that the objectives of a proposal can be better achieved at EU level by reason of their scale and effect, which is the second limb and the so-called EU added-value test.
The EU treaties give this House and Parliament the right to decide whether the proposal meets both limbs of the subsidiarity test. If noble Lords believe that the Commission has failed clearly to demonstrate that EU-level action is necessary and is of added value, it is their right to say so by issuing a reasoned opinion. This is therefore a matter for Parliament and not for the Government. In the case of the European Public Prosecutor’s Office proposal published in July this year, as we know, the European Union Committee considered the two-limbed test and found that the proposal does not comply with the principle of subsidiarity. The reasoned opinion clearly lays out the reasoning. The Government agree with the European Union Committee’s assessment.
In the Government’s Explanatory Memorandum on the proposal, we made it clear that we do not believe that the principle of subsidiarity has been met in this case. We share the view that the Commission has not presented a convincing case. The figures used by the Commission to justify the EPPO are flawed and inflated, while other evidence draws on inappropriate, partial and unsubstantiated information. There are many gaps and blanks, especially in the costs of change and future funding needs. While of course the issue of fraud must be tackled at all levels—including when it involves funds that form part of the EU budget—we do not agree that the establishment of an EPPO is the right approach. The relevant legal base in the treaties—Article 86 of the Treaty on the Functioning of the European Union—says that a European Prosecutor’s Office “may” be established. The treaties do not say that it “shall” be created, yet the Commission presents that as the only solution.
The Commission has not allowed time for current reforms at national level to take effect and make a difference. For example, reforms to the European Anti-Fraud Office—OLAF—are currently being introduced to improve information exchange between OLAF and national authorities and to improve OLAF’s internal quality control. Indeed, a new regulation governing the work of OLAF entered into force only on 1 October. We hope that the improved quality of evidence provided by OLAF to national courts will address many of the conviction issues that the Commission raises in its assessment of the EU fraud problem. These changes need time to be implemented before any action is contemplated. The Commission has not considered adequately other options to strengthen the current system further. For example, it has not considered enhanced incentives or other options for reform at regional or national level in any detail or in a rigorous manner.
In the Government’s view, the best way to tackle EU fraud is through prevention. The UK has a zero-tolerance approach to all fraud, with robust management controls and payment systems in place that seek to prevent incidents of EU fraud. Additionally, we should continue efforts that are already being made to strengthen the current system. The House is also aware of our long-standing position in the coalition agreement not to participate in the establishment of any European Prosecutor’s Office. The details of the proposal serve only to reinforce that position. This proposal is unnecessary, unsubstantiated and unwelcome.
On the principle of subsidiarity, every reasoned opinion sends a political message to the Commission. If a quarter of the votes allocated to EU national parliaments were cast, the so-called yellow card would be triggered. The Commission would then be obliged to review the proposal. I am pleased to say that, as the noble Lord, Lord Rowlands, indicated, the 14-vote threshold has now been achieved in the case of the European Public Prosecutor’s Office. I firmly believe that this House should join that group and send a political signal to the Commission that its proposal does not meet the subsidiarity test.
I thank the noble Lord, Lord Rowlands, for the way in which he has presented the report of the EU Committee, members of that committee and my noble friends Lord Hodgson of Astley Abbotts and Lord Dykes for their contributions to the debate. It has been a thorough report and a good debate. I thank the noble Baroness, Lady Smith of Basildon, for her support on this issue. Time is of the essence. I understand that our votes have to be in by midnight tonight.
To conclude, this Motion is for Parliament. It is not for the Government to act. I can only encourage your Lordships to agree this reasoned opinion and exercise the right given to this House under EU treaties.
Lord Rowlands
Our committee will take great comfort and satisfaction in the nature of this debate and in the unanimity that exists. I will not be tempted to rise to the bait of the noble Lord, Lord Dykes, and describe my Euro-tendencies at this time, except to say that this is one of the rarer moments when he and I agree on European issues. We have not agreed in the past. We certainly can agree on this issue.
I thank all those who have spoken. The noble Lord, Lord Hodgson, rightly emphasised the changes that are occurring within the existing institutions; the door should be left open to carry them through. My noble friend Lady Smith on the Front Bench rightly said that the primary responsibility will lie with national jurisdictions. That is where 80% of the funds are administered. Article 325 of the treaty says that responsibility for dealing with European fraud lies both with the Union and with member states. This proposal is therefore in this context wrong and I am delighted that all of us who have spoken in this debate share that view.
European Public Prosecutor’s Office (Reasoned Opinion)
Lord Rowlands
To resolve that this House considers that the Commission proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office (COM(2013)534, Council Document 12558/13) does not comply with the principle of subsidiarity, for the reasons set out in the 3rd Report of the European Union Committee (HL Paper 65); and, in accordance with article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the Parliaments to forward this reasoned opinion to the Presidents of the European institutions.
Energy Bill
Baroness Verma
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I shall speak also to the other government amendments in this group. These changes provide important clarifications to the implementation of contracts for difference and in addition respond to a number of recommendations made by the Delegated Powers and Regulatory Reform Committee, for which the Government are very grateful. This group also contains a number of minor but essential and consequential amendments.
Amendments 16 and 38 on contracts for difference give the Secretary of State the power to issue and revise standard terms for contracts for difference, subject to consultation and under an explicit duty to consider the matters listed in Clause 5(2), and to publish those standard terms. Amendments 17 and 19 enable provision to be made for how the system operator will notify the CFD counterparty that an eligible generator has been allocated a CFD and, in turn, how the CFD counterparty is to offer a contract to an eligible generator.
Amendment 18 provides for the Secretary of State to set out how the system operator will run the allocation process, in particular through an allocation framework, which will cover such areas as: the process to be used, such as the competitive process in the event of a constraint; the timing of allocation rounds; and any targets, such as minima and maxima, which the system operator will need to consider. The Government are seeking to include this sort of provision in an allocation framework, as opposed to in a statutory instrument, because these are issues that might need to change at short notice in order to manage costs and to ensure value for money along with the smooth functioning of the allocation process. However, it is important to note that the allocation framework will not be free-standing. Provision for an allocation framework will need to be set out through regulations, which will be subject to the affirmative procedure.
Amendment 20 gives the CFD counterparty the power to agree minor and necessary modifications to the standard terms, prior to contract signature. This ensures that the CFD regime is open to the widest possible range of eligible generators, while maintaining a level playing field. Amendments 13, 14 and 15 are consequential amendments, recognising that Clause 10 now refers only to contracts for difference that result from bespoke negotiations with the Secretary of State. This is because powers for contracts for difference that result from allocation by the system operator now have their own clause.
Amendment 21 enables provision to be made in regulations to enable calculations or determinations required by the regulations. Such calculations or determinations are to be made by specified persons—for example, the CFD counterparty. Amendments 6, 10, 26 to 37 and 39 are all consequential to the principal amendments that I have set out.
Amendments 8, 56 and 44 move most secondary legislation relating to contracts for difference, investment contracts and the capacity market to the affirmative resolution procedure, increasing parliamentary oversight in accordance with the recommendations of the Delegated Powers and Regulatory Reform Committee. Amendment 56 also goes beyond the committee’s recommendations by making all secondary legislation in Parts 1 and 3 of Schedule 2 subject to the affirmative procedure. This ensures that the provisions in Schedule 2 are consistent with the equivalent provisions in Chapter 2 on contracts for difference.
Amendment 40 also responds to the committee’s recommendations by preventing the authority—Ofgem—from conferring additional functions on itself when exercising the powers under Clause 28(3) to make capacity market rules, except with the consent of the Secretary of State. However, since tabling this amendment, the DPRRC has provided a further report and makes a recommendation in relation to this, which I will be considering carefully ahead of Third Reading.
Amendments 9, 45 and 57 make explicit provision that regulations made under contracts for difference, the capacity market and investment contract powers will not be treated as hybrid. I have tabled these amendments because the secondary legislation implementing EMR may specify determinations made by Elexon for the purposes of settlement of payments under these powers. As such, the regulations may potentially be considered hybrid and subject to investigation by the Hybrid Instruments Committee. The Government do not think that this is necessary or appropriate, as the existing duty to consult before making regulations will ensure that Elexon’s private interests are fully considered. My department is already working closely with Elexon, which has also confirmed that it has no objections to these amendments. To avoid the risk of delay to the programme and the investment that it will bring forward, I have tabled these amendments to make it clear that no hybridity will arise.
Amendments 11, 12 and 58 are minor drafting amendments with no impact on the substantial legal effect. They have been tabled in order to avoid any perception that we are giving the counterparty new powers to recover moneys owed to it. Amendment 46 is another minor change to make it clear that the duty to consult before making capacity market rules can be satisfied by consultation undertaken before Royal Assent. This aligns Clause 35 with other provisions of the Bill, such as Clause 18(2) and Clause 34(3).
Finally, Amendments 52 to 55 are minor and technical drafting amendments to clarify that an investment contract will continue to be an investment contract even where a party ceases to be an “electricity generator”, and that the definition of an “investment contract” is satisfied if at least one generator is under an obligation to make payments under the contract. I hope that noble Lords find that a helpful explanation of the government amendments and I beg to move.
Lord Roper (LD)
My Lords, I have tabled Amendment 41 in this group to give the Minister an opportunity, to which she has already referred, to respond to the 11th report of the Delegated Powers and Regulatory Reform Committee. The committee felt that the proposal in Amendment 40 was not satisfactory as it would still give the authority power to confer functions on itself without the consent of the Secretary of State, even though the proposed new subsection would allow for such consent to be given generally in relation to the capacity market rules of a particular kind. In its report, the committee did not find that a totally satisfactory response. I ask my noble friend whether she will be able to give some consideration to this point and perhaps bring back at Third Reading an amendment to Amendment 40, which will go some way to respond to the committee’s report.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for introducing this group of amendments. This goes to show that the Government are listening—at least to the Delegated Powers and Regulatory Reform Committee if not, perhaps, to all sides of the House. It has obviously had more success in amending the Bill than some of us in our many days in Committee over the summer. There are a number of amendments here, many of which implement the recommendations.
To strike a serious note, it is important that the Government have listened and accepted the advice of the Delegated Powers Committee. This is quite an extraordinary Bill. It is quite an extraordinary intervention into the market and it carries with it quite considerable enabling powers that give the Secretary of State a huge amount of discretion in how he or she will intervene in the electricity market. It is only right and proper that those powers are subject to the affirmative resolution procedure in as many places as possible, so there can be a degree of parliamentary oversight in what is going to be a hugely significant intervention into the market.
The noble Baroness spoke to some of the amendments which relate to the allocation of contracts for difference under the levy control framework. I seek some form of comfort, and confirmation from the Minister that we will not descend into a system of micromanagement, trying to split up the pot of money into ever smaller, more precise groupings of technologies. We have seen this happen with other DECC policies; with the renewable heat incentive, for example, and the banding of FITs. This temptation to micromanage, to carve up the market and pick winners to make sure that we have control over what comes forward can make for a regrettable situation. It is regressive because it does not allow the market to demonstrate where there is a success. It does not allow the market to find solutions.
I find it quite odd that I am here on the Labour Benches chastising the Conservative Government for not allowing the market to deliver. However, it is clear that this is the current thinking: that we should not allow the market and competition to dictate but somehow try to use the powers in the Bill to organise and plan everything from the top down. That is a recipe for disaster. I am sure that others will agree with me that where we have already seen that in operation, with FITs and RHI, it has been shown to be really sub-optimal. I only say that as an illustration of why it is so important that the many regulations which will flow from the Bill are subject to full and proper parliamentary scrutiny, so that we can try to prevent some of those worst examples being repeated on a much larger scale.
I am grateful to the noble Lord, Lord Roper, for tabling his amendment, which is intended to correct one of the few issues which the Government have not conceded in response to the Delegated Powers and Regulatory Reform Committee. I look forward to the noble Baroness’s response to that, because it is evidently important that it has been raised here.
Baroness Verma
My Lords, I thank my noble friend Lord Roper for Amendment 41, which would remove paragraph (b). I am aware that this is in line with the recommendation of the Delegated Powers and Regulatory Reform Committee.
Before concluding on my noble friend’s amendment, I will respond to the noble Baroness, Lady Worthington, on splitting and micromanagement of the levy control framework. We are not looking to pick winners, but to ensure that costs can be controlled and that new technologies can come to the market. Like the noble Baroness, we want to see greater competition and new entrants. The last thing that we would want to do is to micromanage that and pick winners and losers. However, as with all things, there needs to be some management of ensuring that costs do not overrun or become artificially maintained.
I say to my noble friend Lord Roper and other noble Lords that I will consider carefully the committee’s recommendation and my noble friend’s amendment to the proposed powers in Clause 28 with a view to addressing them at Third Reading.
Baroness Worthington
“(2A) The Secretary of State shall as soon as reasonably practicable, and no later than five years from enactment of this section, by regulations provide that contracts for difference are subject to a competitive tendering process.
(2B) These regulations shall be subject to the affirmative resolution of both Houses of Parliament.”
Baroness Worthington
My Lords, briefly, we had a good and thorough discussion about the need for greater competition in the Bill; I do not intend to fully rehearse all the earlier comments. The amendment is intended to ask the Government when we will move away from an administrated, bilateral negotiation of CFDs to a more competitive tendering process. It seems that the entire Bill is subject to state aid approvals from the EU. I am sure that one of the main tenets of the argument being put to the EU will be that we are treating all technologies equally—that there is element of competition and a proper tendering process. That is not currently the case as the Bill is drafted at the moment. There is no indication in the legislation of a timeline to which the Government are working. There is no hint at when we will be moving to this competitive process. We hear that that is the intention but there is nothing in the Bill that compels it to be the case.
The reason for this amendment is to ask, if this amendment were accepted, that within five years of enactment the process of bilateral negotiation would cease and we would move to a competitive tendering process. Five years is perhaps too long or too short; I am not saying that it is a precise number. The point is that we cannot carry on for very long in this bilaterally negotiated world, where there is really no transparency at the moment and we do not see technologies being treated equally.
These are my two questions. What is the timeline to which the Government are working to get to this more competitive process? Can the Minister comment on any feedback that she has had from the EU on the need to get to this state and to move away from the bilateral negotiations?
Baroness Verma
My Lords, I thank the noble Baroness, Lady Worthington, for this amendment. It offers us another opportunity to debate the important matter of competition within EMR. Amendment 7 relates to the competitive allocation of CFDs. I begin by reassuring the noble Baroness and noble Lords that we have carefully considered competition throughout the design of EMR. Of course, CFDs themselves will enable new low-carbon generation to compete in the market.
We recognise the role that the competitive allocation process, including auctions, can play in ensuring least-cost decarbonisation for consumers. Indeed, the Secretary of State has stated that the reforms in the Energy Bill are specifically designed to,
“blaze a trail towards competition”.
However, we view the competitive allocation of CFDs as a means to ensure low costs to the electricity consumer rather than as an end in itself. Competitive allocation can help drive value for money only when market conditions allow. Key tests of the market conditions include the supply of new low-carbon generation exceeding the amount we need to meet our decarbonisation commitments, and there being enough potential players to ensure sufficient competitive tension.
Moving to competitive allocation before these conditions are met may increase risks to developers and costs to the consumer, without necessarily bringing the benefits of a competitive allocation. Of course, it is possible that the conditions for competitive allocation may be met relatively soon. In respect of most renewable technologies, we have said that we will consider moving immediately to allocation rounds and introducing constraints for certain technologies or groups of technologies, which might have the effect of triggering auctions for those technologies. In respect of nuclear and carbon capture and storage technologies, our officials are already working with stakeholders to explore how competitive tenders could work for those technologies. Where competitive allocation processes are not feasible or effective, I can reassure noble Lords that any final allocation decision will still be subject to strict value-for-money considerations and an assessment of an overall budget constraint.
Therefore, I say to the noble Baroness and to noble Lords who have expressed the concerns behind this amendment that we do care about value for money, but I do not think that a requirement to run competitive allocation processes within five years of enactment of the Bill is the right way to ensure value for money. Instead, we should focus on the action that we are taking to improve underlying conditions for new low-carbon generation and reduce barriers to entry, which may enable a faster move to competitive allocation processes. As I set out in an earlier debate, these include Ofgem’s ambitious package of reforms to improve market liquidity and meet the needs of independent generators, and our amendment to the Energy Bill to allow for the establishment of a power purchase agreement scheme, which will bring greater competition to the PPA and generation market.
The noble Baroness asked for an update about state aid. As she knows, we do not comment on discussions that we have with the Commission on state aid. As noble Lords might expect, it is likely to place importance on competition, as we do. However, I assure the noble Baroness that those conversations on state aid are taking place.
The noble Baroness also asked about the timescale for moving. Throughout my speaking notes I have tried to reassure the noble Baroness that we move as fast as we can. I therefore urge the noble Baroness to withdraw her amendment and be reassured that the Government take her concerns very seriously.
Baroness Worthington
I thank the Minister for her response. I am not fully reassured by her comments, but I am grateful for them. There is a bit of a problem here. The basic premise is to try to get to a point where all technologies can be treated equally. However, as the noble Baroness points out, not all technologies are at the same stage of development, so we find ourselves in quite an odd situation. We cannot allow this to persist. We must apply a discipline and a timetable to ourselves to ensure that when we move to the next decade, we will arrive at a point where we are able to compare apples and pears more adequately. We want to get to a position where, for the sake of the consumer, we fund only technologies that can deliver cost-effectively.
It is very good to hear the Minister mention value for money, as that is at the heart of my concern. At the moment we have strike prices here and there, and different contract lengths. We must seek to simplify this so that the best technologies can come forward. That will obviously take time. I hope that we can move swiftly to a much clearer and more competitive process, and I hope that time will achieve that. I beg leave to withdraw the amendment.
Baroness Verma
“(8) An instrument containing regulations of any of the following kinds may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament (in each case, whether or not the regulations also make other provision)—
(a) the first regulations which make provision falling within each of the following—(i) section (CFD notification: offer to contract on standard terms);(ii) section (Modification of standard terms);(iii) section 13;(iv) section 14;(b) regulations which make provision falling within—(i) section 9;(ii) section 10;(iii) section (CFD notifications);(iv) section (Allocation of CFDs);(v) section 11;(vi) section 12;(vii) section 15;(viii) section 16;(ix) section 17.”
“( ) If, but for this subsection, an instrument containing regulations would be treated for the purposes of the standing orders of either House of Parliament as a hybrid instrument, it is to proceed in that House as if it were not a hybrid instrument.”
Baroness Verma
Baroness Verma
“( ) Any sum which—
(a) an electricity supplier is required by virtue of regulations to pay to a”
(none0) “may be recovered from the electricity supplier by the CFD counterparty as a civil debt due to it.”
Baroness Verma
Baroness Verma
“Standard terms
(1) The Secretary of State may issue standard terms and conditions of CFDs (“standard terms”).
(2) The Secretary of State may from time to time revise standard terms.
(3) Standard terms issued or revised under this section must be in accordance with provision made in regulations.
(4) In issuing or revising standard terms the Secretary of State must have regard to the matters mentioned in section 5(2).
(5) The Secretary of State must publish standard terms as issued or revised under this section.
(6) In publishing standard terms the Secretary of State may designate particular standard terms as terms that may not be modified under section (Modification of standard terms).
(7) Different standard terms may be issued for different categories of CFD.”
“CFD notifications
(1) The national system operator may, in accordance with provision made by regulations, give a notification to a CFD counterparty (a “CFD notification”) specifying—
(a) an eligible generator, and(b) such other information as may be required for the purpose of making an offer under section (CFD notification: offer to contract) to contract with that generator.(2) A CFD notification must not be given if regulations made by virtue of section 17 prevent the giving of the notification.
(3) Regulations may make further provision about CFD notifications and in particular provision about—
(a) the circumstances in which a CFD notification may or must be given;(b) the kinds of information mentioned in subsection (1)(b) that must be specified in a CFD notification;(c) appeals against decisions not to give CFD notifications.(4) A CFD notification may not be given by virtue of regulations under this section in relation to an electricity generating station in Northern Ireland unless the Department of Enterprise, Trade and Investment consent to the CFD notification.
(5) But regulations may, with the consent of that Department, include provision for circumstances in which consent under subsection (4) is not required.
(6) In subsection (4) “Northern Ireland” includes so much of the internal waters and territorial sea of the United Kingdom as are adjacent to Northern Ireland.”
“Allocation of CFDs
(1) Provision that may be included in regulations by virtue of section (CFD notifications) includes in particular provision about how CFDs are to be allocated to eligible generators (and for this purpose a CFD is “allocated” to a generator if the generator is specified in a CFD notification).
(2) Provision made by virtue of subsection (1) may include provision—
(a) conferring power on the Secretary of State to make rules (an “allocation framework”) about how CFDs are to be allocated;(b) for different periods within which CFDs are to be allocated (“allocation rounds”);(c) for different allocation frameworks to apply in respect of different allocation rounds;(d) for the publication of allocation frameworks;(e) about matters in relation to which provision may or must be made in an allocation framework.(3) Provision made by regulations by virtue of subsection (2) may impose requirements on the Secretary of State, including in particular—
(a) requirements as to the giving of notice before an allocation round is commenced;(b) restrictions on the circumstances in which amendments may be made during an allocation round to an allocation framework or to any other matter relevant to an allocation round (including any amount by reference to which a limit on the CFDs allocated during the round is to be determined).(4) An allocation framework may—
(a) confer functions on the national system operator with respect to the allocation of CFDs;(b) specify targets to be met or taken into account by the national system operator in giving CFD notifications by virtue of section (CFD notifications), including targets relating to—(i) the means by which electricity is generated;(ii) the generating capacity of electricity generating stations;(iii) the geographical location of electricity generating stations;(c) make any provision that may be made by regulations by virtue of subsection (3).(5) An allocation framework may include provision for—
(a) the determination of a matter on a competitive basis;(b) calculations or determinations to be made under the framework, including by such persons, in accordance with such procedure and by reference to such matters and to the opinion of such persons, as may be specified in the framework.(6) An allocation framework may—
(a) include incidental, supplementary and consequential provision;(b) make transitory or transitional provision and savings;(c) make different provision for different cases or circumstances or for different purposes;(d) make provision subject to exceptions.(7) Any power conferred by virtue of subsection (2) to make an allocation framework includes a power to amend, add to or remove an allocation framework.
(8) Subsections (4) to (7) are subject to any provision contained in regulations.”
“CFD notification: offer to contract on standard terms
(1) Where a CFD notification is given to a CFD counterparty under section (CFD notifications), the CFD counterparty must, in accordance with provision made by regulations, offer to contract with the eligible generator specified in the notification on—
(a) standard terms, or(b) standard terms as modified in accordance with any modification agreement entered into between the CFD counterparty and the eligible generator for the purposes of the CFD notification (see section (Modification of standard terms)).(2) Regulations may make further provision about an offer to contract made under this section, including provision about—
(a) how a CFD counterparty is to apply or complete standard terms in relation to the offer in accordance with information specified in a CFD notification;(b) the time within which the offer must be made;(c) how the eligible generator to whom it is made may enter into a CFD as a result of the offer;(d) what is to happen if the eligible generator does not enter into a CFD as a result of it.(3) In this section, “standard terms”, in relation to a CFD notification, means standard terms published under section (Standard terms), determined in accordance with regulations as the standard terms that are to apply in relation to the CFD notification.”
“Modification of standard terms
(1) This section applies where a person wishes to be specified as an eligible generator in a CFD notification (“the potential CFD notification”).
(2) A CFD counterparty and the person may, in accordance with provision made by regulations, agree to modify standard terms for the purposes of any offer that would be required under section (CFD notification: offer to contract on standard terms) if the potential CFD notification is given (a “modification agreement”).
(3) A CFD counterparty may enter into a modification agreement providing for the modification of any particular standard term only if—
(a) the CFD counterparty is satisfied that—(i) the effect of the modification is minor, and(ii) the modification is necessary; and(b) the standard term has not been designated under section (Standard terms) as a term that may not be modified under this section.(4) Regulations may make further provision about modification agreements, including—
(a) the circumstances in which a person may make an application for a modification agreement;(b) the time by which an application must be made;(c) the procedure to be followed, and the information to be given, by the person in making an application;(d) how a CFD counterparty is to determine an application (including how it is to determine whether the effect of a modification is minor and whether it is necessary);(e) the time by which determinations must be made;(f) the form of modification agreements.(5) Provision made by virtue of subsection (4)(d) may include provision under which the CFD counterparty may make alternative proposals for modifications in response to an application.
(6) In this section “modify” includes add to, alter or omit, and “modification” is to be read accordingly.”
“Sections (CFD notifications) to (Modification of standard terms): further provision
Provision made by regulations by virtue of any of sections (CFD notifications) to (Modification of standard terms) may include provision for—(a) the determination of a matter on a competitive basis;(b) calculations or determinations to be made under the regulations, including by such persons, in accordance with such procedure and by reference to such matters and to the opinion of such persons, as may be specified in the regulations.”
Baroness Worthington
Baroness Worthington
In moving Amendment 22, I will speak to Amendments 23 and 24 in the same group. I will not detain the House any longer than is needed.
This amendment raises a very important issue that should be at the heart of the Energy Bill, and which the legislation is not sufficiently clear on at the moment—the nature of the contracts for difference. Noble Lords may remember that in a very early draft of the Bill—the one that went into pre-legislative scrutiny—there was a hint that it might be possible to sign a one-way contract for difference. That underscores any potential profit for a contract holder, but completely removes the downside risk. That means that if the contract holder was due to pay money back because the wholesale price was higher than the strike price, they could keep that money. The wording has now been changed sufficiently for that not to be in the current Bill, but there is still a question mark over the degree of latitude that the Secretary of State has over these contracts for difference.
I seek a strong reassurance on behalf of consumers and bill payers that we will not sign contracts in cases where, if the strike price is below the wholesale price, that money will simply end up in the profits of the company that holds the contract. It must flow back to the consumer. For this to be a fair system, we want to see contracts for difference that provide a stable price for the holders, but they should not be completely guaranteed profits over and above that. That is an important concept. I look forward to hearing the noble Baroness reassure me that one-way contracts will not be signed, and that all contracts for difference will be two-way.
Baroness Verma
My Lords, I thank the noble Baroness for her amendments and for prompting the debate on the matter of payments to suppliers. I am pleased to reassure her that the intention of her amendment is already delivered in the Bill. The purpose of Clause 11 is to allow the Secretary of State to make regulations to ensure that the counter party can pass payments from generators under the CFD on to suppliers and, furthermore, that the regulations we are consulting on specify that this must happen.
Amendment 22 provides that the regulations must set out the amounts to be paid to suppliers. I want to be clear why some flexibility is needed here and therefore why there is not already such a duty within the Bill. It is indeed the Government’s intention that surpluses will be returned to suppliers. A duty would, however, fix that this happened by way of a repayment of sums. The Bill as drafted allows us instead to use payments from CFD generators to offset future supplier payments. Offsetting such payments could be more efficient than making payments out to suppliers and then asking for payments back in again. This could provide more value for money for consumers and greater transparency of costs and savings.
Amendment 23 states that sums passing to suppliers must be rated at zero. I want to reassure noble Lords that if it is appropriate for sums to be paid back to suppliers—for instance when, as the noble Baroness has said, under a CFD the reference price is above the strike price—then the counter party is required to do so through draft regulations. However, sometimes the reference price will not be above the strike price and the sums to pay back would be zero. This amendment could lead to unintended consequences where the counter party has to pay suppliers money it does not have. This would then need to be recovered from suppliers, and this uncertainty is likely to be passed through to consumers and ultimately lead to increased consumer bills.
I turn now to Amendment 24. Clause 11(2) allows for regulations to include provision for the counter party to calculate any amounts it might owe to suppliers against specific criteria. It also enables regulations to allow for such calculations to be carried out on behalf of the counter party. Although we expect a settlement agent to carry out such calculations on behalf of the counter party, this amendment would impose a duty which would remove the long-term flexibility to consider how to carry out the calculations, whether in-house or otherwise, in the most cost-effective way. I hope that the noble Baroness has found my explanation reassuring.
Baroness Worthington
I am grateful for the reply. It does obviously reassure me that if something is paid back to suppliers it will be done in a sensible way, and indeed offsetting might be the most sensible way. How will the regulator ensure that the sums paid back are then handed on to consumers? Will there be regulations to that effect?
Baroness Verma
My Lords, as I said earlier, I think there needs to be some flexibility. Where money is returned to suppliers they have a choice between paying it out as dividends and salaries or using it to reduce costs to consumers. We believe that, as we have a competitive market, benefits should be passed on to consumers. It would be in the interests of suppliers to pass the money on to consumers. I suspect that as the market becomes far more competitive it will be in their interest to try to vie for as many consumers as they possibly can. I think we need to be able to allow that flexibility and not constrain it. On that basis, I hope that the noble Baroness will withdraw her amendment.
Baroness Worthington
I am grateful to the noble Baroness for bearing with me in answering my subsequent question and for her response. I am not fully reassured that this whole system is going to be very transparent or beneficial for the consumer. I do not want to rehearse the arguments we had earlier about the lack of competition, but we have seen previous examples of this. If there had been a truly competitive market and proper downward pressure on prices, would we have seen the large big six companies using their capital to buy back shares? I do not think so. Also, we have seen it with the introduction of the EU emissions trading scheme in which generators all opted to take a massive windfall by passing on the full costs of the ETS, even though they were not being incurred because all the allocations were free.
I say this only because these are recent examples of the regulatory system failing consumers and not being sufficiently strong and firm with the big six in ensuring that they make the right decisions. In this day and age, with pressures on the cost of living being so acute, these companies have to avoid a form of corporate overconfidence which does not put the consumer first, as the noble Lord, Lord Teverson, said. I am sure that we will come back to this again, but I am happy to beg leave to withdraw the amendment.
Lord Jenkin of Roding
“(d) conferring on the Secretary of State further powers to require operators of generating stations which use woody biomass fuel to commit to a binding agreement to source no more than a specified amount of woody biomass fuel that is grown in the UK”
Lord Jenkin of Roding
I beg to move the amendment standing in my name and that of my noble friend Lord Roper. My noble friend the Minister will recognise that this is the same amendment which my noble friend Lord Roper moved in my absence in Committee. We have tabled it again to see whether the Minister has had any further thoughts about how she can best protect those wood manufacturers who depend on the same source of wood as that used for biomass by generators. That is what they are frightened of. Indeed, they go so far as to say that if there is no certainty that they will be able to source their raw material in this country, or from the same sources from which they have had it in the past, we will lose the industry. It will no longer invest here because it cannot be sure of getting its raw material. That was the case which my noble friend made in Committee.
I have reread the reply which the Minister gave on that occasion. It is not too strong to say that she dismissed the fear as unreasonable and the measure as one which would cause unnecessary bureaucracy. However, the Scottish authorities have decided that there should be a requirement on those intending to burn biomass as a fuel to make a statement of their sources, quantities and sustainability. I know that there is a voluntary scheme. Indeed, my noble friend made that point in Grand Committee. However, the fact of the matter is that this does not give the wood panel and other wood-using industries the confidence that they need. In those circumstances, have the Government had further thoughts as to whether there might be an advantage in preserving an important industry in this country in terms of the number of people it employs and the fact that it is a UK-based manufacturing industry? Will they give it the confidence to enable it to continue in business? I look forward to hearing my noble friend’s reply. Has there been any change in the Government’s attitude since we debated this in July? I beg to move.
Lord Roper
My Lords, as my noble friend Lord Jenkin has said, I moved a similar amendment in Grand Committee. As he has also said, we felt that the Minister’s reply on that occasion was not as helpful as it could have been. Although the wood panel industry is not large, it has a significant annual turnover and employs both directly and indirectly a significant number of people. If it is possible for appropriate guidelines to be issued in Scotland, it is not totally clear to me why it is not possible to have them here. Obviously, it is a good thing that a voluntary disclosure agreement now exists, but I think that the industry would prefer there to be a requirement regarding disclosure rather than this voluntary agreement. Like my noble friend Lord Jenkin, I shall be interested to hear the Minister’s reply.
Lord Cameron of Dillington (CB)
My Lords, I hesitate to speak to the amendment because I am not against it and I sympathise with the intentions of the noble Lords who are proposing it, particularly if it affected the price of construction timber and made housing more expensive, which would not be good. However, I advocate a bit of caution. I have recently come across a company which is trying to build four medium-sized biomass-powered electricity generating stations using brash, tops, coppice, sawmill offcuts and other non-value timber. They are putting them at different ends of the United Kingdom so they have good local sources for the timber. Each power station will be producing between 12 and 25 megawatts and will cost about £60 million. The material is sustainably sourced and will encourage the use of thinnings. For those noble Lords who do not know, thinnings are quite often not taken out because it costs more to do so than to leave them. If you could take more thinnings out it would create more high-value timber for construction or other uses.
I sympathise with the amendment but if it were applied across the board, with a generalised percentage, it would cripple a highly sustainable, beneficial biomass-generating business before it got off the ground. Before an amendment of this nature is enacted, it either needs to be reworded or we need a statement from DECC guaranteeing a flexible interpretation.
Lord Berkeley (Lab)
I support the amendment in principle, but I am concerned. The noble Lord, Lord Cameron, has made some interesting points. I have been told that the biomass market, as we see it today, probably has a life of about 10 years. Investment is going into ports at both ends for the wood, as well as in shipping lines and transport from the ports. I declare an interest as chair of the Rail Freight Group. A lot of investment is going into new wagons or converting coal wagons to keep this stuff dry, because if it gets wet it is not very nice. The message in the industry is that they have got 10 years and then the nuclear power station at Hinkley point, and perhaps others, will be on stream, after which there is no guarantee of what will happen.
If that is the case and if, in the interim, the furniture industry of which the noble Lord, Lord Jenkin, spoke, is decimated, that will not be very good. We will have had 10 years of biomass but no furniture industry after that. I do not know whether that is the case. There are clearly many millions of tonnes of biomass in other parts of the world, but there are problems certifying where it comes from. Also, I am told that if it comes in pellets you cannot convert it to woodchips and vice versa. I would hate to see an industry like that decimated just for 10 years of using local biomass which then proves to be uneconomic and where the plant closes down.
Viscount Ridley (Con)
My Lords, I wish to speak briefly in support of the amendment. I think I am right in saying that the Secretary of State has expressed a view similar to that of the amendment. Speaking to the BBC on 18 July, he said:
“Making electricity from biomass based on imported wood is not a long-term answer to our energy needs—I am quite clear about that.”
We are in a bit of a bind here, because the Department of Energy and Climate Change has said it expects about 90% of the biomass that will be burned in power stations to be imported. However, the wood panel industry is clear in saying that even if 10% of what is going to be burnt is produced domestically, it will have a devastating effect and could displace a lot of the wood panel industry, which it estimates would increase carbon emissions by about 6 million tonnes, because if you are burning something today instead of incorporating it into a piece of furniture, you are turning it into CO2 much sooner. Making furniture also produces carbon emissions, but considerably less—about one-quarter or one-fifth of the amount.
Perhaps I may also take this opportunity to ask the Minister for clarification on my Written Question earlier this year about carbon dioxide emissions from burning biomass. It is clear that in the short term, biomass is about the highest carbon dioxide-emitting fuel there is. If you recapture that over a period of 35 or 40 years for softwood, and rather longer for hardwood, one can in the long run perhaps make the case that biomass is carbon neutral. However, all the calculations that I have seen show that because of the need to drive off water, and due to its chemical composition—there is a difference between cellulose which has hydrated hydrogen in it as opposed to coal which does not—the use of biomass will increase our carbon emissions over several decades. I thought that that was the period we are most worried about, so I am a little puzzled about the current dash for wood, as I call it.
Baroness Verma
My Lords, I am grateful to my noble friends Lord Jenkin and Lord Roper for tabling the amendment and prompting debate on the issue of using UK-sourced woody biomass for electricity.
The amendment would give the Government powers to set limits on the amount of UK-sourced wood used by each biomass power plant. As I outlined in Committee, one of the aims of the Government’s bioenergy strategy is that any support should consider the consequences of policy interventions on the wider energy system and economy, including non-energy industries. It is the Government’s view that where this and the other aims listed in the UK Bioenergy Strategy are met, bioenergy can make a significant contribution to meeting our renewable energy, energy security and emissions-reduction needs at low cost.
We have taken a number of measures that we believe are sufficient to ensure that the biomass policy meets this aim. The department made an assessment of the amount of woody biomass that may be available to the UK without significant impacts on other sectors. We then made an assessment of the amount of UK woody biomass that is likely to be used by electricity companies, which was well within the forecast availability. We have since then put in place measures to monitor these forecasts and their level of accuracy. We asked large-scale electricity generators using woody biomass to disclose to us on a voluntary basis the amount of UK wood that they estimate they will procure and use over the next five years, and we require this information to be signed off by the company’s board. We are pleased to say that all the operators responded to our request for information on their wood procurement. The department has now aggregated and published this data, and we will undertake to do this annually. The data provided by the operators supports the original forecast of wood use for electricity. Domestic wood supplies will not be their target.
In addition, we have aggregated the results of the sustainability reports that generators are required to provide to Ofgem. We have also now published on the website this aggregated data for the years 2009 to 2012. They also support the original departmental estimates of wood use for electricity and show that wood demand has remained within, rather than risen above, the 1.3 to 1.6 million oven-dried tonnes per annum. As well as these specific measures covering UK wood, the Government have made a number of proposals to limit the amount of biomass power that will be brought forward. We have limited the government support that can be claimed by former coal plants until 2027 under the contracts for difference.
Lord Jenkin of Roding
My Lords, I am very grateful to all the noble Lords who have taken part in this short debate. Clearly this is a subject of some interest around the House. I can cap the story of the noble Lord, Lord Cameron, because I saw some people who build very small generators entirely fired by what is left over in a forest after the useable timber is all taken away. They are apparently making quite a good living out of that. Individual factories and distilleries may be fired in that way so there must be an enormous amount of that sort of thing going on.
There is this bit in the middle where, as other noble Lords have said, there is a competition between the biomass burners and those who hope to have wood for their furniture making and panelling and so on. The noble Baroness has answered my question. There is no change from what she told the Committee in the summer. In these circumstances, there is not much point in pressing the case. I therefore beg leave to withdraw the amendment.
Amendment 25 withdrawn.
Amendment 26
Baroness Verma
“( ) the determination of an application for a modification agreement under section (Modification of standard terms);”
Baroness Verma
Baroness Verma
“( ) Before publishing standard terms under section (Standard terms) the Secretary of State must consult such persons as the Secretary of State considers it appropriate to consult.”
Baroness Verma
“(4A) Provision made by virtue of subsection (3)—
(a) must secure that capacity market rules made by the Authority may not confer functions on the Authority except with the consent of the Secretary of State;(b) may permit any such consent to be given either in relation to particular capacity market rules or generally in relation to capacity market rules of a particular kind.”
Baroness Verma
“(5) Subject to subsection (6), an instrument containing (whether alone or with other provision) regulations under this Chapter may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
“(6) An instrument containing only regulations within subsection (7) is subject to annulment in pursuance of a resolution of either House of Parliament.
(7) The regulations within this subsection are—
(a) electricity capacity regulations which—(i) only make provision within section 27, and(ii) are not the first set of electricity capacity regulations to make such provision;(b) regulations under section 32 which do not make provision amending or repealing a provision of an enactment contained in primary legislation.”
“( ) If, but for this subsection, an instrument containing electricity capacity regulations would be treated for the purposes of the standing orders of either House of Parliament as a hybrid instrument, it is to proceed in that House as if it were not a hybrid instrument.”
Baroness Verma
“( ) Subsection (7) may be satisfied by consultation before, as well as consultation after, the passing of this Act.”
Baroness Verma
“and such arrangements are referred to in this section as “a pilot scheme”.
(2) The Secretary of State must review the operation and effectiveness of any pilot scheme.
(3) The Secretary of State must set out the results and conclusions of the review in a report to Parliament—
(a) by laying a copy of the report before each House of Parliament, or(b) if the Secretary of State determines that the report should be made orally, by making a statement to the House of Parliament of which that Secretary of State is a member.(4) A report under subsection (3) must be made as soon as reasonably practicable after the conclusion of the pilot scheme to which the report relates.”
Baroness Verma
My Lords, In Committee, a desire was shown for more detail on the pilot: when it will happen, how long it will last and when the results will be reported. A demand-side response—short-term load shifting—is already part of our plans for a capacity market. The Government’s preference is that electricity demand reduction—permanent reductions in demand through the efficient use of electricity—can also join the capacity market in the future. However, given the uncertainties around a financial incentive for efficiency and its operation in the capacity market, we intend to pilot this approach before drawing conclusions. This work is a priority and, since Committee, the Secretary of State has announced the availability of at least £20 million for the pilot, which is expected to start in summer 2014 and run for around two years.
There have been calls to provide assurances that information on the outcome of any electricity demand reduction pilot would be provided to Parliament. In line with best practice, it was already the Government’s intention to report the results of the pilot. However, in order to reassure the House, I am moving this amendment so that reporting the results of the pilot to Parliament becomes a statutory requirement. That will be done as soon as practicable after the results of the pilot are available. I beg to move.
Lord Roper
My Lords, the noble Lord, Lord Jenkin, and I have Amendment 48 in this group. The group also includes Amendment 51, tabled by the right reverend Prelate the Bishop of London, which would insert a new clause.
When the draft Energy Bill was published in May 2012, a number of people were concerned that there was not sufficient indication of measures to reduce electricity demand, which is obviously the most satisfactory way of avoiding having to build further power stations. Both in the pre-legislative scrutiny in another place and in the informal committee chaired by the noble Lord, Lord Oxburgh, the question of demand-side measures was discussed. As a result of that, the Government launched a consultation in November last year and suggested a number of options for electricity demand reduction. Interestingly enough, out of the options on offer, a majority of the respondents favoured a system of electricity efficiency premium payments, which would provide electricity users with a payment on top of the savings that result from reduced use of electricity.
However, when DECC published its consultation response in May this year, it suggested that its preferred route to delivering permanent reductions in electricity demand was via a capacity market. That was of course contrary to the majority of the views expressed in the consultation. Similarly, the response dismissed the idea of introducing a premium payment without adequate explanation. None the less, on Report in another place, the Government introduced Clause 37, allowing the Government to run a pilot scheme for electricity demand reduction. The clause does not explicitly limit the Government to a single pilot or specify the mechanism that they might use. However, given what the Government said in their response to the consultation, there is a pretty clear indication that they wish to look at the capacity market only.
There are a number of uncertainties about the appropriateness of the capacity market, particularly for small and even medium-sized consumers. I am not sure what the right reverend Prelate might say about churches which are considering reducing their electricity demand and whether they would be large enough consumers to go into such a capacity market. None the less, there was a discussion in Grand Committee on an amendment that I tabled suggesting that there should be more than one pilot so that various methods could be explored as ways of dealing with this question of electricity demand reduction. Amendment 48, which I and the noble Lord, Lord Jenkin, have tabled, requires the Government to bring forward multiple pilot schemes so that not just the capacity market but premium payments and perhaps some other form of incentive could be considered. That would demonstrate which scheme or schemes might be most effective in delivering permanent demand reductions and scale.
I very much hope that the Government will give serious consideration to this proposal because I believe it will give us rather more information as a result of the pilot in order to make decisions as to what can be done. I should say that I have a good deal of sympathy with the new clause tabled by the right reverend Prelate which calls on the Government to prepare and implement a strategy for delivering further reductions in demand which the Government themselves say is achievable.
Lord Grantchester (Lab)
My Lords, I rise to speak to Amendment 50 in this group. In our Committee proceedings, we looked at the demand side response clauses introduced at the late stage of Report in the other place. We noticed that they were late additions to the Bill, yet they cannot be underestimated as there can be no simpler way to reduce the pressures on the capacity market, increase resilience, improve decarbonisation, and enhance efficiency and security of supply. Reducing energy demand is much cheaper than building new generating capacity. It is also the cheapest way to protect households from rising bills and cut carbon emissions.
Clause 37 introduced a spending power to authorise the spending of money to fund a pilot or pilots, yet concern was expressed about whether sufficient funds were being made available. Anxiety was also expressed that pilot schemes were proposed to take place in the capacity market, as the response to the consultation in May this year made clear that this was the Government’s preferred way forward.
Difficulties were expressed that the capacity market is designed primarily to ensure capacity during potential shortages or troughs in supply. In these circumstances, it will only reward demand reduction projects that reduce the amount of generating capacity needed at such times, and not reward projects that reduce demand more generally. The capacity market, therefore, only rewards energy efficiency for its security benefits and not its much larger benefits such as emissions reductions and affordability, as well as behavioural change policies.
Many submissions that we received wished to see multiple pilot schemes to include premium payments as well as capacity markets and other innovative incentive schemes. This was proposed to enable small businesses and generators to be able to access payments and to press the Government that demand reduction is not simply an afterthought to bolt onto the capacity market, designed around the provision of supply by large-scale plant prioritised through the workings of the capacity auction.
There is also the question of determining what capacity is required once demand has been reduced. These thoughts led us to consider that the Government need to set a coherent strategy about delivering permanent demand reduction and is the purpose of Amendment 50. The amendment adds to the Government’s own Amendment 47 and the amendment in the name of the noble Lord, Lord Jenkin. These only refer to pilot schemes and the Government’s Amendment 47 is eminently sensible. However, my amendment proposes that the Government must think further and more deeply and place demand reduction in a wider strategic context.
I also tabled it as an alternative to Amendment 51, proposed by the right reverend Prelate the Bishop of London, that seeks to place a numerical target for demand reduction. The difficulty here is that I have seen three different figures from three different methodologies. First, in November 2012, the McKinsey final report identified 92 terawatt hours of potential savings not covered by existing policy by 2030. Alternatively, the energy efficiency strategy, also in November 2012, used a different method and identified 69 terawatt hours of savings by 2020, based on existing and future policy. Yet in May this year, the Government used yet another method in response to the electricity demand reduction consultation where the figure of 32 terawatt hours saving was identified.
Will the Minister clarify which method and which figures her department recognise as correct and the most appropriate? My amendment avoids this difficulty being placed on the face of the Bill and seems an eminently sensible concession that the Government should agree to.
The Lord Bishop of London
My Lords, biblical studies teach me that when you have two amendments that look as much alike as my amendment and that of the noble Lord, Lord Grantchester, you must look for an Ur-text. Indeed, there is an Ur-text, as we all know, and the figures in my amendment are simply the latest figures available from the Government. This is intended to be a constructive and supportive amendment, which also reflects the concern mentioned by the noble Lord, Lord Roper, about the sole emphasis on the capacity market not really catching the full subject here.
According to the Secretary of State in his own foreword to the response to the consultation, which was published in May of this year, a 9% reduction in overall demand could save electricity equivalent to the output of four power stations in one year. I do not want to pose as an expert, of which there are many in this House, but I have been trying in my own diocese of London to improve energy efficiency. I have taken a keen personal interest in the various efforts and our churches have actually achieved a 22% saving in energy consumption between 2005 and 2011.
I represent the voice of the consumer—a rather small consumer. Nationally, through the environment campaign of the Church of England, which I chair, we have invested in a mixture of retrofit measures to address the heating and lighting of a stock of buildings that were not originally built with energy efficiency in mind. Renewable technology and behavioural change have helped an institution such as ours, which emits as much carbon as a large supermarket chain, to use energy more efficiently while maintaining open buildings at the heart of the local community countrywide. I am particularly proud of the fact that our new vicarage at St John’s, Wembley, was awarded the highest score ever under the code for sustainable homes at the 2012 awards.
We are not great experts on the general theme but we represent people who are seriously anxious to support the government policy and to operate in the most efficient way possible. We have learnt from colleagues in other European countries. In Sweden, which faces greater climatic challenges, the building code for new constructions has been strengthened; smart meters have been installed in almost all households—I understand that this is proposed for the UK but not yet implemented; public funding for research and innovation has been increased; and a new incentive programme has been launched.
Of course, these and other ideas were set out in the 2012 consultation, and the Green Deal is addressing the fact that in developed western countries the built environment uses half of all energy and generates half of all greenhouse gases, and there is very substantial wastage through walls, et cetera. But even the chief executive of the Green Deal Finance Company, Mark Bayley, has admitted that complexity is one reason why the take-up has been so disappointing. Many of those in fuel poverty, a substantial percentage of whom live in London, pay inflated prices through meters in their homes, and the current position whereby the more energy you use, the more likely it is that the tariff will be reduced, is surely unsustainable as well as unfair. This Bill, which I heartily support in the main, provides an opportunity to reflect on the wider costs of our energy habits and how to make the best use of our resources without penalising the poorest in our society. In the UK 6.5% of households say that they cannot keep their homes warm, as against 1.5% in Sweden. The figures for children living in fuel poverty, at 1.6 million, are especially alarming.
The amendment relies on the Government’s own latest estimates of the potential for demand reduction. It would seem obvious that a strategy setting out cost-effective policy options that go beyond what is currently being proposed by the Government should be published to show how these reductions can be achieved.
Lord Teverson (LD)
My Lords, I will speak briefly on Amendments 50 and 51. My heart is with them completely, and I congratulate the right reverend Prelate on his award. I am sometimes involved in green awards and energy efficiency—an area that has often been left out of these debates—and it is great to have someone who has been a recipient of one of those.
The difficulty with these two amendments is that they target a specific reduction in electricity. Coming back to the decarbonisation debate that we had earlier on today, better decarbonisation can, of course, actually be achieved by having an increase in electricity. One of the big challenges of decarbonisation is moving the transport sector from fossil fuels either into biofuels or, particularly, into electricity, using electric vehicles. We also eventually want to move home heating from gas into electric—non-carbon-generated electricity. It therefore makes it very difficult in these areas to have targets on terawatt-hours or proportions or whatever; you have to take it back to exactly what the right revered Prelate said, which is energy efficiency. I am a great advocate of the green deal, and it certainly has its issues at the moment and I hope it succeeds, though perhaps it needs a number of changes to do that. At the end of the day, however, the real thing we have to do is just to go out there and, perhaps rather brutally—whether it is street by street or village by village—ensure that we upgrade domestic and industrial premises so that they are energy efficient. Going down the route of specific electricity-target reductions could actually work against decarbonisation and the way in which we are trying to reduce carbon emissions in this country. I am absolutely with the intent, but I think the method in this case has great difficulty.
Lord Berkeley
My Lords, the noble Lord, Lord Teverson, has some very good points there. If, as I do quite often, you go around properties in different parts of the continent, you find that the energy usage and consumption and insulation are generally a lot better than many of our buildings here. I have a feeling, having talked to a few people in the building trade, that it is because the standards to which we build our properties actually require less insulation and draught-proofing than those of many other countries. It may be because we think that the temperature is always the same here, so it does not really matter.
Another problem that we have to sort out soon is the greater use of air conditioning in buildings, because in some countries—I do not think it is the case here—the current use of energy for air conditioning is a great deal more than that for heating. It is possible to design buildings which need much less air conditioning. Noble Lords will have seen them in the architectural press at some time. I do not know why we do not encourage more of this in this country; it has been an issue for years.
However, I am still not convinced that the energy suppliers have any incentive to sell less electricity or gas. It is a bit like the water companies: they love having leakages and no meters, because they sell more water and seem to think that is a good idea in places or times where there is a shortage. We are stuck with some perverse incentives. I agree that these are probably not the right amendments to achieve what we want, but it is something that we need to do to get the incentives, insulation and building regulations right, and look at the air conditioning and the design of our buildings so that they are fit for purpose in the time of global warming, as we debated earlier.
Baroness Verma
My Lords, I welcome the continuing interest shown in electricity-demand reduction. My noble friend Lord Roper’s Amendment 48 raises an issue that came up a number of times at both Second Reading and Committee—namely, that multiple pilots are necessary in order to test a variety of approaches. One of the pilot’s key aims is to test the Government’s preferred approach of delivering electricity demand reduction through the capacity market. That said, from a legal viewpoint the amendment is unnecessary as the Secretary of State is already able to design and run a pilot, or pilots, to test different approaches if this is necessary.
Before I move on, I, too, add my congratulations to the right reverend Prelate the Bishop of London on the great energy reductions he has achieved, which just shows that behaviour change towards energy usage can make a huge amount of difference. I commend what the right reverend Prelate has done. He also mentioned the very important Green Deal and smart meters. These measures will help to revolutionise the way we approach energy usage. It is about being able to ensure that consumers understand the usage of energy, which is why I listened very keenly to what the right reverend Prelate said. Where the Green Deal is concerned, 80,000 assessments have been carried out. Under ECO, many tens of thousands of homes have already benefited from the Green Deal. Like my noble friend Lord Teverson, I think the Green Deal is an excellent vehicle for being able to bring greater efficiency towards homes.
My noble friend Lord Roper and the noble Lord, Lord Grantchester, spoke about there being more than one pilot. We would rather start with what we consider the preferred option but we do not rule out there being multiple approaches simultaneously. If we have too many, it will be difficult to evaluate. We want to be sensible and see a range, if that is what is needed, but we have a preferred approach. It would be better for us as a Government to see that preferred approach dealt with first. There is nothing in the Bill to stop us having more than one approach.
I reiterate that Clause 37 is simply a spending power, required to authorise the spending of Government money. I appreciate the concern to ensure sufficient funds are available for piloting. We considered raising funds for the pilot using the capacity market powers but rejected this approach because it would delay the start of the pilot, which we announced is expected to start next summer.
Amendments 50 and 51, from the noble Lord, Lord Grantchester, and the right reverend Prelate the Bishop of London, would require the Secretary of State to publish a strategy to reduce a stated amount of electricity demand by 2020 and 2030. While I welcome the principle behind these proposals, the Government have already published a number of documents, including on how we will meet our existing energy efficiency commitments. That is through the energy efficiency strategy which will be updated later this year, the DECC energy and emissions projections, and the Government’s response to the EDR consultation. These documents already provide a comprehensive view of Government strategy. As the pilot is designed to improve our understanding of the cost-effectiveness of EDR in relation to that of a variety of supply-side and demand-side measures, we do not consider it appropriate to set a specific EDR target.
The noble Lord, Lord Grantchester, asked about the difference in the estimates that the department has given out. The estimate of the untapped potential was revised from 92 terawatt hours to around 32 terawatt hours by 2030 because there is considerable uncertainty as to the exact level of potential for electricity demand reduction. We believe that this figure represents a much more sensible picture of what can be achieved. That analysis has also been subject to external peer review.
In conclusion, we have listened to concerns about reporting the results of the pilot and have introduced an amendment on this. Our existing legal powers already allow us to test other approaches if it becomes necessary. We believe the minimum £20 million allocated to the pilot is sufficient to support a range of projects in different sectors in these difficult times. We already have an energy efficiency strategy, which will be updated shortly. I hope that my noble friend Lord Roper, the noble Lord, Lord Grantchester, and the right reverend Prelate the Bishop of London will agree to withdraw their amendments. I beg to move the amendment that stands in my name.
Lord Oxburgh
“Capacity payments: gas
The Secretary of State shall have the power to make such arrangements as are necessary for capacity payments to be made for the supply of gas if it is deemed likely that this could allow gas to be supplied to consumers at lower prices or more securely than otherwise.”
Lord Oxburgh (CB)
My Lords, this, too, is intended to be a helpful and supportive amendment. During the various clauses that we have debated today, the costs of natural gas to consumers and the effect on their prices have come up time and again. As we go forward into the coming decades, gas from the North Sea will get progressively less, and we shall be more dependent on imported liquefied natural gas, or LNG. The market shows strong seasonal spikes already, with the winter price significantly higher than that in the summer.
This amendment offers the Secretary of State an extra tool in his tool box for controlling gas prices that are paid. It allows the Secretary of State to invite bids from anyone who supplies gas to undertake to make available to the market an agreed amount of gas over an agreed period at not more than a particular price. It is not clear that this will be necessary, but it could be. I beg to move.
Baroness Worthington
My Lords, I support Amendment 49 of the noble Lord, Lord Oxburgh. Throughout the evening and the passage of this Bill we have discussed the need for competition and for keeping downward pressure on price a great deal. It is clear, as the noble Lord, Lord Oxburgh, has pointed out, that the majority of the increases in consumer and business bills in recent years have been down to the increase in gas prices.
It is regrettable that we heard recently from British Gas that it had decided to withdraw a project to enhance and expand its gas storage capabilities. This is another sign that there is insufficient downward pressure on prices. It probably suits British Gas quite well to have prices rising, because that leads to higher profits. It is probably the wrong body to make any kind of economic assessment on whether it makes sense for them to invest in gas storage. There has to be some form of intervention from government to ensure that there is timely investment in gas capacity.
Gas prices fluctuate between the summer, when demand is low, and winter, when it is high. If we can smooth that out and provide a more stable price throughout the year, it makes sense to have a tool in the armoury, as the noble Lord, Lord Oxburgh, has said, to facilitate this. I am sure that the Minister will come back with some thoughts on this. It is quite a new element to introduce to the Bill at this late stage and perhaps an amendment of this kind is not the way to deliver it, but I strongly support the sentiment behind it. As the noble Lord, Lord Oxburgh, has pointed out, we are seeing our North Sea gas reserves diminish and we are moving into a more international situation in which we rely on gas from many different parts of the world. Much of it is being delivered by ship. Ships can change course in the middle of the ocean if they see fit, if offered a better price. Our reliance on gas needs to be underpinned and secured through greater capacity and gas storage.
I hope that the Minister can say something about how the Government intend to bring more of this to ensure that we are not facing a situation where it is in everyone’s interest apart from the consumer to have gas prices rising continually, and that there is some way in which they can intervene to bring investment to this important aspect of energy security and affordability.
Baroness Verma
My Lords, I am grateful to the noble Lord, Lord Oxburgh, for his amendment, which returns to the matter of gas storage that he raised in Committee. My department published analysis and made a Statement in the other place on 4 September on precisely this issue and I am glad to discuss it today.
The amendment is intended to enable the Secretary of State to make arrangements to provide capacity payments in exchange for the supply of gas more securely, or at lower prices, than would otherwise be possible. I should make it clear from the outset that the capacity market is not intended to support the gas market. Rather, the capacity market is an integral part of our electricity market reform programme.
On the face of it, this amendment aims to facilitate a simple and attractive concept: cheaper and more secure gas for consumers. While the Government recognise that rising energy bills are a worry for many households and businesses, this amendment is not the solution. It is difficult to imagine that any supplier of gas would sign a contract to sell gas at a future date at a discount to the prevailing market price. The capacity payment is required to offset the risk to the supplier of being out of pocket and it would need to top up any shortfall to the point where there would be no net benefit to consumers.
Specifically, it has been argued that capacity payments may facilitate the construction of additional gas storage capacity, which offers the potential to buy cheaply in summer and store the gas until it can be sold when prices are higher in winter, as the noble Baroness, Lady Worthington, pointed out. This is a service that the market currently provides. Storage capacity is currently increasing, with two facilities having been completed in the past 18 months and two more facilities under construction. There are 10 more projects with major planning consents in place, which are awaiting the right commercial signals to invest. Where the market is not already providing this signal, supporting a storage project through subsidy, whether by a capacity payment or other means, would just transfer the risk currently faced by the market to the Government. In other words, it would be passed on to consumers and taxpayers.
DECC considered in detail the case for supporting gas storage. Analysis shows that, although there are interventions that could enhance our gas security, under most scenarios they would not do so cost-effectively. All options risk adding disproportionate costs to energy bills and risk distorting a well functioning GB gas market. We will not be taking these interventions forward and do not envisage needing the powers that these amendments propose.
As I explained earlier, we are introducing a capacity market to provide for capacity payments to ensure security of our electricity supplies. This is because the electricity market faces new challenges. These include the planned closure of a large proportion of our existing generating capacity and an increased amount of low-carbon generation. That means that there is an increased need for additional reliable capacity. The capacity market is specifically designed to address this.
These issues do not translate to the gas market. The security of gas supply outlook is robust. There is spare supply capacity: the available capacity of nearly 700 million cubic metres a day is far in excess of even the highest recorded daily demand of 465 million cubic metres. The gas system also has greater flexibility to rectify demand/supply imbalances within the balancing period and, for gas, unlike electricity, there are readily available means for storage which the market is currently expanding. The Government therefore do not consider this amendment to be necessary. I hope that the noble Lord, Lord Oxburgh, has found my explanation reassuring and on that basis will withdraw his amendment.
Lord Oxburgh
My Lords, I have to confess that I did not find the Minister’s reply at all reassuring. The fact that existing capacity meets the maximum plausible demand is not quite the point. The Minister might be aware—or perhaps would remember if she had been in her post a year or two back—that all we need is a major fire at one of our terminals or a catastrophe of some kind and we would be in very severe difficulties. In drafting this amendment, I deliberately did not specify the means—I did not specify gas storage. All I specified was the end. Whether someone is willing to provide gas at a fixed price for a fixed period and how they do it were deliberately not specified. For that reason, some of these arguments are a little wide of the mark.
I am not as convinced as the Minister that the existing gas market works at all well. It is in the interests of the major gas suppliers to hold supply back and then to dribble it in at times of high demand. That is when they make a lot of money. There is no one in the loop at present who protects the interests of the consumer. It is certainly not in the interests of the gas supply companies to do so. I am disappointed that the Government are not taking a more active position on this matter. However, if they are determined to turn their back on this, there is nothing more to be done today and I beg leave to withdraw the amendment.
Baroness Verma
(a) a person who at the time the contract is entered into”
“( ) In the case of a contract entered into with more than one person, the reference in sub-paragraph (1)(c) to the parties is a reference to the Secretary of State and any of those persons who is an electricity generator.”
“(5) An instrument containing regulations of any of the following kinds may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament (in each case, whether or not the regulations also make any other provision)—
(a) the first regulations which make provision falling within paragraph 10,(b) the first regulations which make provision falling within paragraph 11, or(c) regulations which make provision falling within any other paragraph of Parts 1 to 3 of this Schedule.”
“( ) If, but for this sub-paragraph, an instrument containing regulations would be treated for the purposes of the standing orders of either House of Parliament as a hybrid instrument, it is to proceed in that House as if it were not a hybrid instrument.”
“(10) Any sum which—
(a) an electricity supplier is required by virtue of regulations to pay to the Secretary of State, an investment contract counterparty or a CFD counterparty, and(b) has not been paid by the date on which it is required by virtue of regulations to be paid,may be recovered from the electricity supplier by the Secretary of State, the investment contract counterparty or the CFD counterparty (as the case may be) as a civil debt due to that person.”
Baroness Parminter
“Strategy on interconnection
Within 12 months of this Act coming into force, the Secretary of State shall bring forward a strategy for the UK to increase its interconnection links with other European countries, in order to support the continued development of a European internal electricity market.”
Baroness Parminter (LD)
My Lords, this is the same amendment I moved in Committee, where I spoke of the benefits of greater interconnection across Europe. Given the lateness of the hour and the unanimity around the Committee at that time, I do not intend to repeat those arguments, but it is important to remember that if we are to deliver that greater level of interconnection we are going to need more investment in infrastructure. That means that the Government need to make quite clear their commitment to prioritising interconnection in the same way that they have with the capacity market and demand side reduction measures in this Bill.
I was grateful for the warm words from the Minister about the Government’s commitment to interconnection when I moved this amendment in Committee, as I said at the time. Therefore, I hope this evening that over the summer, those warm words have translated into a rather firmer commitment to action.
Lord Teverson
My Lords, I want to reinforce the comments of my noble friend Lady Parminter. One of the great challenges of the electricity supply industry is to de-peak its supply. One of those is demand side, but the other is very much around alternative sources of supply. Energy storage is not really where it needs to be at the minute, but interconnection is a technology that has been around for decades. It works and we should multiply it. I know that the Government have a number of schemes that they are looking at currently. I welcome those and congratulate them on being so proactive in this area. I hope that the Government and the Minister will be able to propel this even faster and further by taking notice of my noble friend’s amendment.
The Earl of Caithness (Con)
My Lords, while I support in principle what my noble friend Lady Parminter is trying to do, I am concerned about her wording. The idea that a Government should prepare a strategy, and then that is it, leaves a lot of questions begging. I suppose the Government would have to implement that strategy, but the amendment does not specify that.
My noble friend Lady Parminter will recall the evidence we heard when we were on Sub-Committee D together. Therefore, perhaps this is a good opportunity to ask my noble friend the Minister a couple of questions regarding what progress has been made with the energy infrastructure regulation, in particular the PCIs, so that that can be implemented. It is no good, we discovered, having one side that was keen to do an interconnection if the other side was not.
That leads me on to the seemingly constant battles between the regulators in each country. We had evidence from the Agency for the Cooperation of Energy Regulators and the European Network of Transmission System Operators for Electricity about that. Has there been any progress between the regulators? If there has, that would make future interconnection much easier.
Lord Cameron of Dillington
My Lords, I support the amendment. I, too, served on Sub-Committee D and this was a major part of the message in our report No Country is an Energy Island—a very apt name.
The joy of a pan-European grid—or even an intercontinental grid, because the geothermal springs of Iceland could bring electricity down to the industrial heartlands of the UK—and interconnection would be to allow intermittent renewables to complement each other. When it is not windy in Germany, for instance, it might be sunny in Italy; when it is windy in Portugal in the middle of the night, that power can go to Poland where they are just waking up, and so on. Such interconnection could bring a whole new justification to the renewables yet to be built. Intermittency could become an issue of the past and our energy security would be greatly enhanced.
Furthermore, if this interconnection were to grow, it would not only help to keep the lights on but should ensure that we could get the cheapest and most economic electricity available for both domestic and industrial uses. It is obviously going to cost a lot of money and will take a lot of planning. There are many regulatory and political obstacles to be overcome, not least the public acceptance of more pylons. However, as with everything else in the electricity industry, we must start planning now—that is where I am at odds with the noble Earl, Lord Caithness—in order to get these long-term gains. That is why I strongly support the amendment.
Lord Whitty (Lab)
My Lords, I register our support on these Benches for the amendment, although the Minister will already have detected that this is a big conspiracy by Sub-Committee D to get its report discussed again at this late stage. I was party to that. However, as the noble Lord, Lord Cameron, has said, there is enormous possibility here.
I will make only two points. First, as long as there is a sniffy attitude towards interconnectors in any of the European energy markets, we are all going to be operating at higher cost than we need, with greater misery for consumers and, eventually, higher cost to the taxpayer. Secondly, this matter is not separate from the rest of the Bill. When asked earlier in the proceedings where their CFDs could apply in relation to supply from French nuclear power stations or Irish wind farms, the Minister said that in certain circumstances they probably could. That is important. It is not tomorrow’s solution, but it could be quite important as long as they were connected with projects here. The same question arises with the capacity market. This is potentially a hugely important way in which we maximise our capacity, and therefore the report to which the noble Baroness, Lady Parminter, refers is important. Whether the Government want to put it in the Bill or not, they really ought to be looking at the strategy for interconnectors as an integral part of overall energy policy.
Baroness Verma
My Lords, I am grateful to my noble friend Lady Parminter for raising the matter of electricity interconnection, which the Government agree is an important area given the range of potential benefits. Through my notes I will also be able to answer my noble friend Lord Caithness’s two questions.
We have previously considered the amendment in Committee. The Government considered the arguments made and, earlier this month, committed to publishing a policy statement on electricity interconnection by the end of 2013, well in advance of the date which my noble friend’s amendment would require. This will set out our support for increased interconnection that is appropriate and economic. My noble friend will be aware that the Government also recently supported a number of interconnection projects to become projects of common interest under the EU regulation on guidelines for trans-European energy infrastructure. The UK Government support that regulation and its intention to accelerate completion of the internal energy market by facilitating cross-border energy infrastructure. Five GB electricity interconnection projects have been selected as projects of common interest under the regulation, including with France, Belgium and Norway. They will enjoy streamlined planning procedures and, where appropriate, a mechanism to agree cross-border cost allocation. They will also be eligible to access financial instruments such as loan finance, grants for feasibility studies and, potentially, grants for work under the Connecting Europe Facility, which has a pot of €5.1 billion over seven years. Four renewable generation projects located in Ireland, with potential to develop into interconnection, were also selected as projects of common interest. This brings the combined capacity of all potential interconnection projects currently in the pipeline to more than 12 gigawatts. My noble friend will also have seen our proposals for how interconnected capacity may be able to participate in the capacity market from 2015. We are currently working proactively on the details of this proposal and we will welcome further engagement with stakeholders to try to make this possible.
I also highlight work being undertaken by Ofgem to develop a supportive approach to interconnection. Ofgem is developing a new cap and floor regulatory approach for interconnection for application to the proposed Project NEMO between GB and Belgium. The Government are confident that this approach, if extended, will promote investment in interconnection. However, as the cap and floor approach looks to consumers potentially to take on some risk, it is important that careful consideration is given to its application. We are working closely with Ofgem as it takes forward its wider Integrated Transmission Planning and Regulation project, considering the need for enhanced planning or strategic evaluation of future interconnection. Ofgem is also working to ensure that GB electricity prices reflect scarcity to a greater extent. As interconnection developers invest on the basis of price differentials on either side of the link, this is likely to make investment more attractive.
I hope noble Lords will appreciate that, following Committee, the Government have made a public commitment that will satisfy the intention behind this amendment, and do so sooner than the amendment itself would require. I therefore hope that my noble friend will be reassured and will feel content to withdraw her amendment.
Baroness Parminter
I thank my noble friend the Minister for that very fulsome reply, for the way in which she has outlined the Government’s commitment to interconnection and, in particular, for the policy statement—which is probably civil servant speak for “strategy”—or as near as we are going to get it. I thank all my colleagues around the House for their support. I think they have done a great job in actually persuading the Government to move a bit on an issue in this Bill. I am grateful to the Minister for having an open-door policy and for having listened to us on this important issue, which will make our approach to the Energy Bill and how we secure energy in the future better. On that basis, I beg leave to withdraw the amendment.