Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Brougham and Vaux) (Con)
My Lords, welcome to the Grand Committee. If there is a Division, the Committee will stand adjourned for 10 minutes.
Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2014
(10 years, 9 months ago)
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Lord Freud
That the Grand Committee do consider the Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud) (Con)
My Lords, in moving that the Grand Committee do report to the House that it has considered the Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2014, I will also speak to the draft Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2014. These two regulations increase the lump sum amounts payable under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 and the mesothelioma scheme set up by the Child Maintenance and Other Payments Act 2008. These new amounts will be paid to those who first satisfy all the conditions of entitlement on or after 1 April 2014.
These two schemes stand apart from the main social security benefits uprating procedure and there is no legislative requirement to review the level of payments each year. None the less, I am happy to increase the amounts payable for 2014 by CPI—that is, by 2.7%, which is the same rate as that applied to some social security disability benefits and the industrial injuries disablement benefit under the main social security uprating provisions which were recently debated in the House.
The Government recognise that people suffering from diseases as a result of exposure to asbestos or one of a number of other listed agents may not be able to bring a successful claim for civil damages in relation to these diseases. That is mainly due to the time lag between exposure and onset of the disease, which could be as long as 40 years. Therefore, we fulfil an important role by providing lump sum compensation payments to people suffering from certain asbestos-related diseases through these two schemes. These government schemes also aim to ensure that sufferers receive compensation while they can still benefit from it, without first having to await the outcome of civil litigation. Improved health and safety procedures have restricted the use of asbestos and provided a safer environment for its handling. However, the historic legacy of the common use of asbestos is still with us. That is why we are ensuring that financial compensation from both these schemes is available to those affected.
I will briefly summarise the specific purpose of each scheme. The Pneumoconiosis etc. (Workers’ Compensation) Act 1979—for simplicity I shall refer to it as the 1979 Act—provides a lump sum compensation payment to those who suffer from one of five dust-related respiratory diseases covered by the scheme and who are unable to claim damages from employers because those employers have gone out of business and who have not brought any action against others for damages. The five diseases covered by the 1979 Act scheme are diffuse mesothelioma, bilateral diffuse pleural thickening, pneumoconiosis, byssinosis, and primary carcinoma of the lung if accompanied by asbestosis or bilateral diffuse pleural thickening.
The 2008 mesothelioma lump sum payments scheme was introduced to provide compensation to people who contracted mesothelioma but were unable to claim compensation for that disease under the 1979 Act, perhaps because their exposure to asbestos was not due to their work. The 2008 scheme means that payments can be made quickly to mesothelioma sufferers at their time of greatest need. Under both schemes, a claim can be made by a dependant if the sufferer has died before being able to make a claim.
Payment levels under the 1979 Act scheme are based mainly on the level of the disablement assessment and the age of the sufferer at the time that the disease is diagnosed. The highest amounts are to those diagnosed at an early age and with the highest level of disablement. All payments for mesothelioma under the 1979 Act scheme are made at the 100% disablement rate—the highest rate of payment. Similarly, all payments under the 2008 scheme are made at the 100% disablement rate and are based on age, with the highest payments going to the youngest sufferers.
I would like to give some detailed figures on claims and moneys paid out under the two schemes before us today. In the last full year, April 2012 to March 2013, over 3,500 payments were made in respect of both schemes, totalling just over £53 million.
I know that the occurrences of mesothelioma are of particular concern to Members, with the number of deaths from mesothelioma in Great Britain continuing to rise. In 1968, 153 people died from mesothelioma. By contrast, over 2,000 deaths occur each year from that disease now. Mesothelioma is a fatal disease caused almost exclusively by exposure to asbestos. Those diagnosed with mesothelioma usually have a short life expectancy—generally between nine and 12 months—with the sufferer becoming severely disabled soon after diagnosis. This rise in the number of deaths reflects the long latency period of the disease, which can take decades to become apparent. Latest available information suggests that mesothelioma deaths will continue to increase to a peak of around 2,500 in 2018, and then start to fall—thus reflecting a reduction in asbestos exposures following its peak use in the 1960s and 1970s. Just under a half—47%—of payments made under the Government’s 1979 scheme are in respect of mesothelioma.
I remind noble Lords that immediately following this debate we will be debating the Diffuse Mesothelioma Payment Scheme Regulations 2014, and I would ask that any questions about that scheme, and how it interacts with these older schemes, be raised in that debate.
These regulations increase the levels of support through the government compensation schemes. I am sure that we will all agree that, while no amount of money can ever compensate individuals and families for the suffering and loss caused by mesothelioma, those who are suffering rightly deserve some form of monetary compensation. The government schemes go some way to ensuring sufferers receive it as soon as possible. It is a requirement that I confirm to the Committee that these provisions are compatible with the European Convention on Human Rights, and I am happy to do so. I commend the increase of the payment scales and ask for approval to implement them. I beg to move.
Lord Wigley (PC)
My Lords, I shall certainly follow the Minister’s suggestion that we leave consideration of the new mesothelioma provisions until the next debate, which makes a lot of sense. I shall want to contribute then, if I may. Perhaps I may ask a couple of questions particularly on the regulations made under the 1979 pneumoconiosis Act. In doing so, I welcome, of course, the upratings that are taking place. They should not lose their value as time goes on.
As the Minister and others may know, I have an interest in the 1979 scheme, particularly from the point of view of slate quarrymen. The issue was not, of course, related only to slate quarrymen; it also affected those working in the kiln and cotton industries, and a number of other conditions came under the purview of that Act. Over the period since 1979 there was initially a surge of applications, which reduced in 1986 to just 95. A decade later, in 1995, this had built up to 900, and was running at a level of 1,000 to 2,000 by 2002-03. I believe that some of the cases leading to that surge arose from coal-mining pneumoconiosis, which had not been covered under the coal-mining scheme—there was originally a tripartite scheme between the NUM, the NCB and the Government, in 1975, for that purpose.
I have been trying to ascertain the breakdown of the figures since 2002-03, and would be grateful if the Minister would give some undertaking on this. My colleagues in the House of Commons have been unable to get from the House of Commons Library the breakdown with regard to industry and to the regional spread of those cases. I imagine that the information must be available in the department because it was available 10 years ago. I hope that it might be possible, by letter or some other way, for this to be disclosed. It would be interesting to see how the pattern has changed from the point of view of the sustainability of the scheme itself, which is an important factor.
The second thing I want to ask the Minister is the breakdown of the figure that he has just given us for 2012-13. He mentioned 3,500 payments and £53 million. That figure covered both the 1979 scheme and the 2008 mesothelioma scheme. Presumably there is again some breakdown between those two at the very least, and perhaps the Minister is in a position to give it today, so we can see where this is going. There will be questions about the interplay of the schemes, but I am content to leave those until the subsequent debate.
Lord Alton of Liverpool (CB)
My Lords, like my noble friend Lord Wigley, I will reserve my remarks about the current 2014 scheme to the later orders. However, perhaps I can ask about the earlier scheme and take the Grand Committee back to remarks that the noble Lord, Lord McKenzie, made in 2010 when he was Minister. It is good to see him in his place. He said that the,
“differential in payments puts pressure on sufferers during already extremely difficult times. For example, many feel that they need to rush through a quick claim to the department in order to maximise compensation for their families. Some are too sick to make a claim before dying and therefore their families are able to claim only the lesser amount after the claimant's death. In addition, because mesothelioma is difficult to diagnose and the disease onset is rapid, some sufferers are not diagnosed until after death”.—[Official Report, 23/3/10; col. GC 355.].
This therefore raises the question of dependency and lump sum payments which, when the noble Lord, Lord McKenzie, was Minister, he said should be the same. He commenced the process of reducing the differential and both his remarks and the action he took then are to be greatly welcomed.
Each year since 2010, Members of both Houses have asked that the differential should be reduced and each year that has been rejected, due to economic circumstances. My question to the Minister is: as the economic situation continues to improve, at what point in the recovery will there be the trigger that will lead to the Government honouring the commitment to reduce the differential and in-life lump sum payments? Until we do that, it leads to three specific anomalies. First, the dependants are paid significantly less than in-life claimants; secondly, dependants’ age is cut off at 67, compared to 77 for in-life claimants; and thirdly, the 2008 scheme dependants do not receive the 10% enhancement.
Over the next 10 years, the Government are expected to receive some £71 million, less £17 million gifted to insurers, in additional recoveries under the terms of the Mesothelioma Act 2014. Could some of those additional funds be used to reduce the differential? As I will argue later, perhaps some of those funds could also be diverted towards research because once we have established what the causes and cures are, then we will not have a need for schemes like this at all.
Lord McKenzie of Luton (Lab)
I am grateful to the noble Lord, Lord Alton, for taking us back to those earlier days and the discussions we had at that time. I have the same question for the Minister: what progress are we planning to make on closing the gap between amounts paid to dependants and to sufferers? From recollection, the first task was to close the gap between the 2008 scheme and the 1979 scheme, but that gap between dependants and sufferers remains open still.
As I recall, the funding for the 2008 scheme was to come from recoveries of civil compensation claims. There was always a bit of a mystery about how you got those claims in what was meant to be a no-fault scheme, but there is no doubt that recoveries were made and that they funded the 2008 scheme. Will the Minister tell us the current recovery level and how it relates to the 2008 scheme expenses?
We have debated extensively the broader issue of the consequences of exposure to asbestos, and I am sure that we will come on to it in the regulations that we are to consider next. Will the Minister confirm that the HSE will switch on its awareness-raising campaign on asbestos? It ran a very effective campaign that was curtailed a couple of years back. My understanding is that it is going to be revived. If the Minister can confirm that, it would be very helpful. In doing so, will he tell us something about the funding for the HSE to make sure that it is not just a nominal effort but a really effective campaign? Asbestos is, sadly, still with us in too many parts of our infrastructure, and we need to keep messages going about all the risks of exposure to it.
Baroness Sherlock (Lab)
My Lords, I thank the Minister for his explanation of these regulations, and I thank all noble Lords for their contributions. Like the noble Lord, Lord Wigley, I recognise that there is no statutory obligation to uprate these amounts, and therefore I, too, welcome the Government’s decision to uprate the pneumoconiosis and mesothelioma lump sum payments under the 1979 and 2008 schemes.
A number of the questions that I wanted to raise have been asked, but I want to return to one point, which was raised by the noble Lord, Lord Alton, and my noble friend Lord McKenzie, about the difference between payments made to applicants in life and those made to dependants under both schemes. The noble Lord, Lord Alton, explained the three points of difference between the two. As he reminded us, in 2010 my noble friend Lord McKenzie reduced the differential in lump sum payments between in-life claimants and claims from dependants, but there has been no further narrowing of the gap between the two. When regulations equivalent to those here today were before the Grand Committee on 7 March last year—with a very similar cast, I notice from Hansard—representations on this very point were made by the noble Lord, Lord Wigley, and the noble Lord, Lord Avebury, who is not in his place. In his reply on that occasion, the noble Earl, Lord Howe, to whom it fell to respond, said:
“Ministers have to balance competing priorities, and because of the current financial situation, it is our duty to ensure that all available resources are well targeted. As around 85% of payments made under these schemes are paid to those who are suffering from the disease, I believe that they are currently rightly targeted on the sufferer to help them and their families to cope while living with the stress that illness inevitably brings”.—[Official Report, 7/3/13; col. GC 314.]
I remind the Committee of the point that the Minister made in his opening remarks, which is, in fact, that people live for a very short time knowing that they have the disease. If people on average live only nine to 12 months after diagnosis, I wonder whether the Minister still feels that that argument for focusing resources holds water.
When the regulations were debated in another place on 7 March last year, the then Minister, Mr Mark Hoban, acknowledged the discrepancy and said:
“It is something that we need to keep under review, and if the resources are available, we will see whether we can introduce measures to do that. The point about the difference between payments made to a sufferer and to their dependants is well made”.—[Official Report, Commons, Delegated Legislation Committee, 7/3/13; col. 9.]
I have three questions for the Minister. First, will he tell the Grand Committee whether the Government have indeed kept this issue under review and, if so, what conclusions they have drawn? Secondly, will he tell the Committee what percentage of payments is currently made to dependants rather than sufferers? Finally, what estimate has the department made of the cost of narrowing further or, indeed, eliminating the differential between the two? I look forward to the Minister’s reply.
Lord Freud
My Lords, as ever, noble Lords have asked a set of sizzling questions, which I shall do my best to address, although they are getting so technical now, because we have gone round this subject so many times, that I think that I shall end up writing quite a bit of it out, if noble Lords will excuse me for doing so.
On the question from the noble Lord, Lord Wigley, on the breakdown of the figures for the latest year, 2012-13, there is a total of 3,180 cases due to the 1979 Act. That represents the bulk of the expenditure, at £43.6 million. The 2008 scheme figures are 500 cases and £9.6 million of expenditure. I think that we have the breakdown figures that the noble Lord requested from 2002-03 onwards, but not to hand; I shall need to write with them. I did not anticipate that particular run of figures. I think that that will tie up with the recovery figures for the noble Lord, Lord McKenzie, and how they relate to the 2008 figures. I think that I will tie that up—I shall aim to do some tables.
On the split between sufferers and dependants, again, I shall use the latest year. Under the 1979 Act, of the total the bulk were the sufferers—2,900 out of the total—and 280 were the dependants. With the 2008 scheme, 450 were sufferers and 50 were dependants. That testifies to the speed with which the money gets out, given the sad mortality expectation that we were discussing. I am in no position today to move much further on making any progress in closing that gap between dependants and sufferers, but it is something that we keep under review. Clearly, we have been looking very closely at this whole area over the past year, and we will keep it under review. That is the best that I can do, speaking today.
I hope that I have covered everything, except for the HSE questions, with the awareness-raising scheme. I will write on the actual cost of what it would be to close that differential on the figures that I have just provided, which will give a baseline on what we are keeping under review. I shall also need to write on the detail of the HSE awareness-raising campaign. I feel somewhat embarrassed that I have resorted quite so much to the written word. If there is anything else at all, I shall include that in the letter. These are two important schemes. I commend the uprating of the payment scales and ask approval to implement them.
Lord Alton of Liverpool
When the Minister comes to write his epistles to the Members of this Grand Committee, I wonder whether he will also be good enough to come back to us about the three anomalies that I specifically raised with him.
Lord Freud
Yes, my Lords. As I understand the questions, they concern, first, dependants being paid less, on which I have already committed; secondly, the age between 67 and 77; and, thirdly, the 10% enhancement. I shall be pleased to deal with those as well. With that, I ask for approval to implement the regulations.
Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2014
(10 years, 9 months ago)
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Lord Freud
That the Grand Committee do consider the Pneumoconiosis etc. (Workers’ Compensation) (Payment of Claims) (Amendment) Regulations 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Diffuse Mesothelioma Payment Scheme Regulations 2014
(10 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Freud
That the Grand Committee do consider the Diffuse Mesothelioma Payment Scheme Regulations 2014.
Relevant document: 21st Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I thank all those who worked so closely with me while the Bill was being considered by the House. We had a series of valuable debates and I am indebted to all those who followed and studied the Mesothelioma Act with such great dedication and focus on the detail. It was a collaborative act to get this legislation on to the statute book. Noble Lords will remember that there were quite a few significant adjustments made as a direct result of those debates. I was pleased to receive those ideas and to apply them in real time. Without the efforts of everyone the Act would be in poorer shape. To the extent that I did not do everything that noble Lords asked, I apologise, but I suspect that they all know how these things work.
As Members of the Committee will know, the problem of untraced employers or insurers in mesothelioma cases has for many years left sufferers and their dependants without recourse to the compensation that should be their due. It is a huge step forward that we now have concrete provision for those people who fall foul of the insurance industry’s market failure to keep proper records. The Act finally guarantees that they will be able to access payments that will support them in a most difficult and distressing time. The Mesothelioma Act represents a huge achievement and I hope that noble Lords will share my pride in that achievement.
We are here today to debate the substance of the regulations that dictate how the scheme will be run. I will briefly outline what the regulations set out but, first, I would like to mention the recent announcement that payments have been increased from 75% to 80% of the average civil damages. On 6 March, the DWP announced that payments would move from 75% to 80% and that this was possible because scheme administration costs were now confirmed to be lower than expected. This means that we can afford to pay people more while keeping to a levy of no more than 3% of employers’ liability gross written premium. I hope that noble Lords will welcome this good news.
This announcement posed a slight problem in timing. The draft regulations had already been laid in Parliament, including a payment tariff of 75%. I give my commitment that as soon as these regulations come into force a negative instrument will be laid to amend that tariff. For the purposes of today’s debate, however, I hope we can continue as normal.
The payment tariff is a schedule of these regulations and has no material impact on the substance of the regulations, which deal with how the scheme operates. To withdraw and relay amended draft regulations at this stage would simply rule out the possibility of having the scheme operational by April of this year. I know that noble Lords are sympathetic to the need to get the scheme running as soon as possible and I hope they are assured that our debates will not be affected by the increase in payments. I will of course share with noble Lords a copy of the revised table that we intend to bring forward with the higher tariff.
I come now to the reason why we are here: the regulations. These regulations deal with the duties of the scheme administrator and with the duties of the applicant. They set out details relating to making an application, how that application will be decided on, and the right to ask for a review and a subsequent appeal. They also deal with slightly more specific issues that may arise during the scheme’s running, such as repayments in the case of misrepresentation of information in an application and imposing certain conditions on a payment—for example, requiring it to be put into a trust fund for a person who cannot manage their own financial affairs. I am sure that we will go into much more detail on the key points during our debate but, before that, I hope to clarify a couple of possible questions and mention three points.
First, noble Lords who have kindly commented on draft versions of the regulations will notice that they no longer deal with the £7,000 contribution towards legal fees. I give an assurance that successful applicants will still receive a fixed contribution of £7,000 included in their payment. Following internal legal checks, we have removed mention of the legal fees payment and will instead include these in the regulations that deal with compensation recovery.
Secondly, I wish to mention the date of commencement. Regulation 2 explains that Regulation 7(2)(c) will not come into force at the same time as the other regulations. This is simply because that regulation refers to another enactment—the third parties Act 2010, which has not yet come into force. This does not affect the rest of the regulations or the commencement of the scheme.
Finally, I should like to give a little more detail relating to the chosen scheme administrator. The commercial process to select the administrator was a topic that occupied much debate in this House last summer. I assure noble Lords that a full and open tender process was conducted—indeed, I distinctly remember giving assurances on a number of occasions that that would be the case. Gallagher Bassett won the contract because, of all the bidders, it scored highest against the published commercial criteria. Gallagher Bassett is a claims-handling company well used to delivering government contracts and it has been carrying out personal injury claims-handling on behalf of the MoD for several years. I am confident that it will deliver the high-quality service that this scheme requires, and I am delighted that, as a result of its appointment, we are able to raise scheme payments.
I hope that I have helped a little here with my introduction, and I will endeavour to answer as many questions as I can as we have this debate. Of course, where I cannot do so from the Dispatch Box, I commit to write with a full account. I commend these regulations to the Committee.
Lord Alton of Liverpool (CB)
My Lords, the Minister has been generous in thanking Members of the Grand Committee for the work they put in when the 2014 Bill was being considered on the Floor of the House. However, it would be churlish at this juncture if Members of the Grand Committee did not pay tribute to the Minister for the work that he did tirelessly throughout. Although we had our differences on details of the Bill, we all committed to seeing it through its stages here and in the other place because we knew that this legislation was long overdue. It sets in place a scheme that will respond compassionately to people who are given a death sentence when they learn that they have mesothelioma. It is also based on justice, and I know through the contact that I have had with the Minister that he is always keen to see that things are dealt with expeditiously. He deserves warm thanks for the personal efforts that he has made. It is not easy to get legislation through Parliament, and he has done that deftly, while also working with the insurance industry. I think that all of us are sufficiently worldly wise to know that balancing all of those things at once is no mean achievement.
The United Kingdom, as we have heard, has the highest rate of mesothelioma in the world, with a further 60,000 people in the UK predicted to die from this disease in the next 30 years—as the Minister said, more than 2,000 people annually. The need is paramount constantly to urge greater attention to how we assist victims and keep focus on the insurance industry as well as how we better fund and pool research in finding causes and cures for this lethal disease. I was struck by a reply that the Minister gave to me in response to Parliamentary Question HL3144, where he said:
“The statistical model suggests an uncertainty range of 55,000 to 65,000 deaths on that estimate. However, the true uncertainty range may be wider as longer-range predictions are reliant on assumptions about asbestos exposures that cannot currently be fully validated”.—[Official Report, 19/11/13; col. WA194.]
We can add to that the trends in many of the developing BRIC countries, which are going through many of the same experiences that we have gone through, although the figures worldwide are not collected; in answer to another Question that I tabled asking for worldwide statistics, I was told that none were available. Given our own experience as the country with the worst rate of mesothelioma in the world, we should be at the cutting edge or, to mix my metaphors, in the driving seat in insisting that there is a collaborative global approach to this horrendous problem.
The Minister will be aware that I have tabled a Private Member’s Bill, the Mesothelioma (Amendment) Bill, on research. Today gives the Minister the opportunity to say whether the Government intend to facilitate the Bill’s progress and accept the principles that underpin it. The Bill mirrors the all-party amendment defeated here on a whipped vote by a mere seven votes, which was tabled again in the House of Commons by the late Paul Goggins and the Conservative Member of Parliament, Tracey Crouch. On 7 November, the Minister in reply to a Parliamentary Question recognised the importance of research, saying:
“As you are aware there is a cross-Government commitment to support more quality research into mesothelioma. The work that the Department of Health are taking forward on this issue is designed to encourage researchers to pursue projects that will hopefully benefit sufferers of this terrible disease”.—[Official Report, 7/11/13; col. WA69.]
Can we be told today how that work is progressing? Inter alia, I commend to the Minister Early Day Motion 995, moved by Tracey Crouch in another place, which has now been signed by more than 60 Members of the House of Commons. It says:
“That this House notes with concern that mesothelioma is an invasive form of lung cancer caused primarily by prior exposure to asbestos”.
It goes on to give the kind of statistics that I have just given and ends by paying tribute to the,
“great work of the former hon. Member for Manchester, Wythenshawe and Sale East, the late Paul Goggins, to raise the profile of the need for long-term investment into mesothelioma research; and calls on the Government to facilitate the establishment of a long-term sustainable mesothelioma research scheme funded by the insurance industry”.
I would simply add to that the point that I made in the previous debate. Given that some £71 million will come into the Government’s coffers in the next 10 years, less the £17 million that will be given to insurers, surely it will be possible to use some of that money to create a pound-for-pound research fund, where we work collaboratively with the insurance industry.
On the Floor of the House, I recently asked the noble Earl, Lord Howe, about a breakthrough in mesothelioma research which has taken place in Canada. In reply, he said:
“Mesothelioma is a devastating disease, and I certainly undertake to look at the material that the noble Lord has sent me”.—[Official Report, 27/2/14; col. 1005.]
This is probably the most hopeful small breakthrough that I have seen over the years that I have been following this and I wonder, having spoken privately, very briefly, to the Minister, whether he is in a position today to tell us what follow-up has been done by the Department of Health in looking at that breakthrough and what the initial conclusions are. Will he say whether his department and the Department of Health are not only collaborating across government in the United Kingdom but working with others to try, not to duplicate work that has already been done or to reinvent the wheel, to bring together the best practice and knowledge that there is worldwide?
Perhaps I may ask about a reply that the noble Lord gave to me to Parliamentary Question 14/5095, which concerned the extensive tables he produced for the House about the occupations of people who die from mesothelioma. In that reply he said:
“The latest available analysis of citizens dying from Mesothelioma in Great Britain is based on deaths between 2002 and 2010 at ages 16-74. Only the last occupation of the deceased is routinely recorded”.
It is not the last occupation that we need but the data on all the occupations that someone has had. If we are going to get any kind of idea about tracking the causes of mesothelioma we need to know where the hot spots are with this disease.
The Minister continued:
“It is important to note that, for those Mesothelioma cases that are caused by occupational exposure, the last occupation of the deceased which is recorded on the death certificate may not reflect the source of exposure due to the long latency of the disease.—[Official Report, 11/2/14; col. WA 122.]
That begs the question of what use are the tables in those circumstances. Would it not be better to acquire data that would help us?
I was about to turn to the Questions from the noble Lord, Lord Wigley, but as he is about to intervene, perhaps he will save me doing so.
Lord Wigley (PC)
I am grateful to the noble Lord for giving way. Given that it is the last employment that is detailed in the Written Answer, of which I have a copy, does that not camouflage any cases that may arise from the armed services? There are indications that the premises in which many members of the armed services live have asbestos. That raises the question of the incidence and whether or not those families are notified of the dangers with which they are living.
Lord Alton of Liverpool
My Lords, I did not have a chance to compare notes earlier with the noble Lord, Lord Wigley. He has a copy of my parliamentary reply and I have a copy of a reply that he was given on 11 February by the Under-Secretary of State for Defence, the noble Lord, Lord Astor of Hever. After a Written Answer from the noble Lord, Lord Astor, on 4 February, the noble Lord, Lord Wigley, asked about the accommodation of families working for the Armed Forces and whether those living in accommodation that is known to contain asbestos are systematically informed of that fact and the outcome of the regular inspections undertaken of such premises. I was struck by the reply:
“However these reports are not automatically made available to occupants”.—[Official Report, 11/2/14; col. WA 122.]
What value are such reports if they are not made available to occupants?
In reply to another Question asked by the noble Lord, Lord Wigley, about the prevalence of asbestos materials in Ministry of Defence buildings and married quarters, he received a reply saying that some are known to contain asbestos and that the ministry keeps a register of all buildings which are regularly inspected. Surely anyone living in such buildings has a right to know these things.
My noble friend Lord West of Spithead said to me recently—he said that it was perfectly proper for me to repeat this remark in public—that 10 of the cohort that were at Dartmouth with him died of mesothelioma. This relates to a Question that I tabled to the Ministry of Defence. I hope that the Minister will pursue this matter, not only with the Department of Health but with the Ministry of Defence. I asked about the number of annual fatalities caused by mesothelioma involving members of the Armed Forces. I asked what data are kept on the cause of death of former servicemen and what research it planned to commission into the incidence of mesothelioma among former servicemen. I received a long reply on 11 February but the first sentence states:
“Data on the number of annual fatalities caused by mesothelioma does not identify those who were former members of the Armed Forces”.—[Official Report, 11/2/14; col. WA 124.]
Again I ask the question: why not? These are people serving in our Armed Forces who are willing to risk their lives on our behalf. Surely we owe a duty to them to ensure that, if they are in any way being placed at risk as a consequence of exposure to asbestos, everything possible is done to avert that.
Lord Wigley
I apologise to the noble Lord, Lord Alton, for intervening when I did. It clearly shows that we have not been comparing notes, because he was coming on to the very point to which I referred.
Perhaps the Committee will indulge me for a moment if I refer to the debate that we had in this Room on 16 January when I referred to a good friend of mine, Peter Wolfe of Cork in Ireland. Within a matter of days of that debate, he died. He had learnt of his mesothelioma only a few weeks before Christmas. That underlines how quickly this insidious disease kills people. I was at his funeral in Cork on 27 January. That casts a shadow over my contribution to debates on these matters.
The fact that the scheme under consideration today has been set up is a very positive development for victims of diffuse mesothelioma who cannot trace their employer’s insurance. I, too, pay tribute to the Minister for his perseverance in responding to the points raised during the passage of the legislation. I was especially glad to discover earlier this month, and to hear the Minister reiterate today, that claimants under this scheme will be able to gain 80% of the value of compensation claims, up from the 75% threshold which the Government seemed determined to stick to during debates at earlier states. I understand that claimants can now expect to receive an average payment of £123,000 before benefits are recovered, together with £7,000 towards their legal fees.
However, in my usual Oliver Twist fashion, I remain to be convinced about why claimants under this scheme should expect any less than 100% of the average compensation award for this type of disease. Those suffering from diffuse mesothelioma will be in debilitating pain, yet the Government insist that they are limiting the amount of compensation that can be claimed in order to ensure that claimants exhaust all other avenues before coming to the scheme. Surely this is grossly unfair. In effect, it penalises victims of the disease for the negligence of their employers. For the purpose of comparison, it is worth noting that the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 scheme was designed to award 100% of the value of compensation claims to claimants and, as we debated a few moments ago, it is reviewed annually. Why victims of diffuse mesothelioma should not have the same recourse available to them is beyond me, but perhaps that is another battle to be won at some stage.
It is also astounding that claimants under this scheme will have 100% of their benefits recouped from the compensation that is awarded, even though they receive only 80% of the damages. Claimants will thus lose out financially even more, and the Government surely must look again at that aspect.
There were other problems aside from the amount of compensation to be awarded, which were likewise highlighted during the debates on the Mesothelioma Act—problems that have yet to be erased. Principally, it is at best short-sighted that the Government have decided to place an arbitrary cut-off date for eligibility under the scheme. A draft of this compensation scheme was published, as we all know, by the previous Government shortly before the 2010 election, and consultation closed in May of that year. The present Government made no announcement on taking the scheme forward until 25 July 2012, which is the date that they have set as the earliest time when a patient can have been diagnosed with diffuse mesothelioma for these purposes. Individuals who had the misfortune of being diagnosed between February 2010 and July 2012 thus fall between two stools through no fault of their own—a matter that we on all sides of this Committee have emphasised, as well as in previous Committees and in the Chamber during the passage of the legislation. Surely the Government must look at this again.
Furthermore, it is disappointing that the scheme is open only to individuals suffering from diffuse mesothelioma, which is only one of a number of asbestos-related conditions that can come about as a result of exposure to this deadly substance. I would welcome any clarity that the Government can give as to the steps that will be taken to protect the interests of those suffering from asbestosis and other asbestos-related lung cancers.
Finally, I know that many individuals will be grateful if the Government can confirm when people will be able to start making applications under this scheme. I am not sure whether the Minister mentioned that in his comments—I did not catch it if he did—but that would be useful.
Lord Howarth of Newport (Lab)
My Lords, I add my thanks to the Minister and congratulate him on achieving this legislation and bringing in these regulations. I thank him for his compassion, for the collaborative way in which he worked with noble Lords on all sides of the House, and for his strong determination to get to where we have now reached. It is a very significant achievement and he deserves our admiration and gratitude. Like other noble Lords, I am grateful to him for raising the level of compensation to 80% of average compensation awards. That is a significant improvement that will make a lot of difference to families when they find themselves in such dire need.
I want to ask the Minister just one question. Will he clarify that it is his intention that the overall value of the scheme should continue to be set at 3% of gross written premiums after the peak year for claims? He has told us that we are to anticipate perhaps 2,500 claims in 2018, after which the numbers may reduce—although the noble Lord, Lord Alton, told the Committee that it is projected that there will be another 60,000 cases over the next 30 years. There will continue to be a significant volume, and I put it to the Minister that it is important that that 3% of gross written premiums is not reduced in the years after 2018. We all hope that after a long period of Labour Government, starting in 2015, the Minister may still have an opportunity to play some part in these affairs. I appreciate that it is difficult for him to bind his successors but it would be helpful if he would say on the record that he, as the architect of this scheme, envisages that the employers’ liability insurers should continue for the whole future life of the diffuse mesothelioma scheme to have to provide 3% of gross written premiums. If that was the case while the numbers of claimants or beneficiaries of the scheme were falling, it would make it possible to move the level of compensation up from 80% towards, or perhaps to reach, 100%. That would be one very important possibility.
There are other good things that it would be possible to do were funds to remain available while the total number of claims fell. It would become possible to backdate the eligibility for the scheme beyond July 2012 to February 2010 or even further. It would also be possible—I tabled an amendment to this effect in Committee on the Bill—provided that the legislation allows it, which of course is questionable, to adapt the regulations to cover family members who themselves contract mesothelioma even if the person who was exposed to asbestos in the workplace did not personally contract the disease. We talked about the case of a member of the family—most likely the wife—who washes the overalls of the person who has been exposed to asbestos fibre in the work-wear and she contracts the disease. As I understand it, the Minister has still not been able to bring those people into eligibility. However, if we had a slightly less tight financial envelope, then, through keeping the 3% of gross written premiums to fund the scheme, it would be possible to help those people.
Of course, it would also be possible to mitigate benefits recovery. I know that the Minister’s department, for theological reasons, will set its face against that, but, as the noble Lord, Lord Wigley, said, it seems very hard and unreasonable to claw back 100% of benefits from people who are receiving only 80% of average compensation. So there would be further latitude there. There would of course be further latitude to provide additional funding for research, the case for which has been so consistently and eloquently made by the noble Lord, Lord Alton. Among the range of options, it would also be possible to extend the benefits of the scheme, or perhaps a newly created parallel scheme, to victims of other long-latency industrial diseases whom we want to help.
I do not know what sorts of permutations might be possible but one could envisage this range of possibilities, and I hope very much that this afternoon the Minister will at least be able to tell us that there will not be a tapering of the overall value of the fund. The industry having treated mesothelioma sufferers so very badly over many decades, it seems to me that it should not be let off the hook. I appreciate that the current generation of employers’ liability insurers are not the worst culprits, and perhaps not the culprits at all in individual cases, of the failure to honour the policies that were written. However, I think that the industry as a whole has to continue to bear its share of responsibility and—I know that this is the spirit in which the Minister has always approached this whole issue—we should do the very best that we can for people who at the moment the scheme is not intended to help but who it would become possible to help if we maintained the value of the fund past 2018.
Lord James of Blackheath (Con)
My Lords, I apologise for not having been present at the beginning of this debate but I should like to make two points, the first arising directly from what the noble Lord, Lord Howarth, has just said. Three per cent of premiums seems to be the wrong way to come to this issue. Three per cent of the total reinsurance value backing asbestosis would be a nice round sum. It is about £6 billion of my money that I put in from Lloyd’s of London, and it is much nicer to get 3% on that. That coming in each year would give a lot of leg-room.
My other point is that I have been keeping in close contact with the Royal British Legion on this. At present, it has 42 cases—although, rather ominously, it has said that it expects that number to fall very quickly to 38—where it is providing care at its own expense and at considerable cost. Will the Minister explain what the crossover would be between this scheme coming in and either taking out or supporting the British Legion? I am concerned that when this comes in, it does not result in a hiatus, out of which the poor sufferers get nothing at all, whereas now they get support from the Royal British Legion. We need to know with some clarity what will happen in that respect. Those are the only two points I would like to make on what I have heard so far.
Lord McKenzie of Luton (Lab)
My Lords, like other noble Lords, I join in praising the Minister for all his efforts on this Bill. Without his leadership, we simply would not have this legislation on which we can debate these regulations.
Lord Howarth of Newport
When I was praising the Minister, I wanted to say that, of course, he built on the foundations created by my noble friend. I hope that he will also accept the gratitude and praise of the Committee and everybody in a much wider community who have been concerned about the predicament of mesothelioma sufferers.
Lord McKenzie of Luton
My noble friend is too kind, but I am conscious of the fact that this Bill has been forged in very difficult economic circumstances, and it is a splendid result that we are where we are. Like others, I also welcome the increase in the level of payout. As I remember it, when we were discussing this during the passage of the Bill, there were two versions of the gross tariff: one from the ABI and one from the DWP. I think the difference between them was based on the projections of the age profile of those who contract mesothelioma. We focused on the higher, DWP, one. Will the Minister confirm that this is still the gross tariff that we are working to and that it will be 80% of that?
A number of noble Lords have raised the 3% of gross written premiums. I am not sure that I heard the Minister actually say that this is where the levy is going to start, and it will be helpful if he could confirm the position. I thought his expression was “within that 3%”, but it would be good to know when we will see the levy regulations and whether the expectation is that it will be fixed, initially, and thereafter, as my noble friend Lord Howarth said, at 3% of gross written premiums. Obviously, this is to the extent to which they did not produce more than a 100% payout.
The Minister confirmed that the legal fees at £7,000 per case would be paid on top of that. I am not quite sure that I followed the reasoning of how that will be dealt with in alternative regulations. I would appreciate it if the Minister reiterated what he said. The noble Lord, Lord Alton, has been steadfast on the issue of research. Will the Minister take the opportunity to tell us where he thinks the insurance industry now stands, and what the prospects are of getting extra funding from it one way or another?
I have a couple of technical questions. Can we have an update on the oversight arrangements? I do not think there is a specific reference in these regulations to the oversight committee and whether there should be any obligation on the administrator. I should say that the Minister has been true to his word in terms of the process of appointing the administrator of the scheme, but I do not think there is anything in these regulations which requires co-operation and engagement with the oversight committee. Perhaps the Minister will say how he sees that working.
There was an issue over Schedule 3 to these arrangements, which deals with the application. This sets out all the information that needs to be provided and includes the names of all the person’s employers and the description of the arrangements under which the person was engaged by each employer. One of the issues that cropped up just at the tail end of the Bill’s consideration in the other place was HMRC policy on work histories and the extent to which a court order is now necessary for HMRC to provide them. I hope that this issue has gone away, but I would appreciate an update from the Minister on that point.
On a smaller point, will the Minister clarify where the administrator can impose conditions on a claimant? I think we understand why that would be but, as I understand it, there seems to be some differentiation. Conditions can be imposed where a dependant is an applicant, but where the applicant is deceased and the payment goes to the personal representative I am not sure that the constraints or conditions on that payment would apply. Maybe that is not necessary because it would be the role of the personal representative to make sure that that was effectively dealt with. Can the Minister confirm that?
Finally, I just ask about the Ministry of Justice procedure for reforming mesothelioma claims. In a sense, the Government backed up what was originally proposed but paragraph 39 of their response to the consultation on these proposals states:
“The stated purpose of the Secure Mesothelioma Claims Gateway was to support the proposed Mesothelioma Pre-Action Protocol. As the Government has declined to take forward the MPAP supported by a fixed recoverable costs regime, the ABI will no doubt want to consider whether and how it would wish to take forward its proposal for funding and hosting a SMCG and how claimants and defendants might voluntarily make use of it”.
Could the Minister give us an update on that and what it means in the current situation?
Baroness Sherlock (Lab)
My Lords, I thank the Minister for his explanation of these regulations and all noble Lords who have spoken. I am reminded of what an effective Committee process we had during the passage of the Bill. The Minister must feel a certain sense of déjà vu that he is back here yet again being interrogated quite so effectively about the detail. I join other Members of the Committee in congratulating the Minister on pioneering this and pushing it through. I also thank my noble friend Lord McKenzie. I am grateful that my noble friend Lord Howarth included him for all his sterling work in getting this show on the road in the first place and helping to steer it through Committee.
It is very good to see the progress made towards the introduction of the scheme. I am very pleased by the decision to raise the level of payment to 80% of average civil compensation. I also place on record a tribute to all those who campaigned for a higher payment, not only Members from all sides of this House, including my noble friend Lord McKenzie and many Members of this Committee today, but also victims’ groups, trade unionists and Members of another place such as my honourable friend Kate Green and other MPs, including the late and still very much missed Paul Goggins, who was such a strong fighter on these issues. Many in this field will be very grateful.
Clearly, as we have heard, the amounts of scheme payments in Schedule 4 do not now represent the levels of payments we expect, but I thank the Minister for explaining that we may expect imminently some negative orders to come into force to affect that. The Minister said that the Government are able to increase payments because of savings in administration costs. We are indebted to my honourable friend Kate Green who suggested that in the Public Bill Committee in another place—something acknowledged by the Minister there—but it would be very helpful if the Minister here could explain to the Committee precisely where those savings were found.
The impact assessment produced last November indicated that an uplift in payments from 75% to 80% would cost an extra £11 million in the first four years of the scheme and an extra £22 million over the first 10 years. With payments set at 75%, it also stated:
“The costs of the scheme are split between a levy of £371m on the insurance industry and £17m in government funding. This covers scheme payments direct to individuals (£261.4m), benefit recovery (£72.2m), applicant legal fees (£24.6m) and admin of £30.0m (including case legal fees of £24.2m, set up of £1.4m and running costs of £4.4m)”.
To focus in on that, that impact assessment showed two sets of legal fees provided for: applicants’ fees at £24.6 million and case legal fees at £24.2 million. There was some debate as to what the case legal fees covered but the Minister in another place assured the Public Bill Committee that they were for the benefit of applicants. Originally, claimants’ legal fees were set at £7,000 a case, when payment was at 70% of average civil damages. During the passage of the Bill through this House, that payment rose to 75% and legal fees were reduced to £2,000 per case.
In the Public Bill Committee in another place, legal fees reverted to £7,000. The Minister there said that he had had discussions with the Association of Personal Injury Lawyers and felt £7,000 to be a reasonable figure after all. Crucially, he also said that if cases could be conducted more cheaply, applicants would none the less receive the full £7,000. We now know that extra moneys have been squeezed out of administration costs to fund this uplift but can the Minister explain where they come from? I presume that they do not come from a further squeezing of legal fees. He also confirmed—and this was very helpful—that £7,000 per head remains the sum allocated to applicants for their legal fees. Can he confirm for the record that, if the legal fees in some cases fall short of this amount, applicants will still receive the difference in cash up to £7,000?
Assuming that there are no changes in respect of the position relating to applicants’ legal fees, can the Minister tell us where the additional £11 million or £22 million to pay for the uplift has been found? On the face of it, it must have come in some combination from other administration costs. Can he also say what he assesses the running costs and set-up costs of the scheme now to be? Can he also tell us how much is now allocated for case legal fees as opposed to applicant legal fees? If those case legal fees have been reduced and, as the Minister in another place explained, they were to be for the benefit of applicants, will the applicants suffer in any way as a result of that? If the extra money is not coming from there, where is it coming from?
Can the Minister also confirm that payment at 80% is to be met within the planned levy of 3% on the industry, including in the first four years of the scheme? I will turn in a moment to the levy and the points raised by various noble Lords, but I want to talk briefly about a few other aspects of the scheme.
Regulation 5(4) requires the scheme administrator to ensure that there are sufficient numbers of suitably qualified persons to determine applications under the scheme. Does the Minister have any more information that he could share with the Committee about the likely professional background and qualifications of those people and, in particular, about their independence and how they will be employed? Will they be employees of the scheme administrator or might they work on a freelance basis? In particular, if they are freelance, is there any possibility that there could be a conflict of interest if they have other roles within the industry at the same time? The crucial question is: if that is the case, how will such conflicts be identified and dealt with so that the public and the applicants can be reassured of the independence of the people making the determinations?
I welcome the provisions in Regulation 9(2)(a) regarding time limits for applications. It makes it clear that applicants would have three years from the date of diagnosis or, if diagnosis is after 25 July 2012 but before the regulations come into force, three years from the date they come into force. However, there are still some concerns about time limits when we look across to Regulation 18. Generally, if a claimant dies before the case is determined, a payment may be made to his or her personal representative if the claimant leaves no dependants, but that still leaves a small group, admittedly, of mesothelioma sufferers without dependants who were diagnosed on or after 25 July 2012 but who died before they could make an application simply because the forms to do so were not yet available. I understand that they will be available from April, and perhaps the Minister could confirm that. In those cases, I understand that payment will not be made to the deceased’s personal representative. Can the Minister clarify that? If that is so, it seems unjust. It has been quite clear that the Government’s firm intention was for claims to be backdated to 25 July 2012 in all circumstances, but I should be interested to hear the Minister’s response.
I welcome Regulation 11, which sets time limits for the provision of additional information—a suggestion from my noble friend Lord Browne of Ladyton. I am sure that he will be very glad to hear it, and I shall make sure that I communicate the information to him. I am very grateful to my noble friend Lord McKenzie for raising the question about HMRC and the fact that it needs a court order to release the employment records of deceased claimants. This is really serious. I understand that a letter from the Minister to my honourable friend Kate Green in the other place suggests that progress was not being made very quickly on this. I look forward to hearing whether this can be resolved before the scheme is launched.
I also welcome the provision in Regulation 18 which provides for the applicant to request a review of a determination. That was another suggestion from my noble friend Lord Browne, about which I predict he will be even more pleased.
Finally, two important commitments made by Ministers do not appear in the regulations before us today. The first concerns the levy, which was raised by my noble friends Lord Howarth and Lord McKenzie and others, and, in particular, the absence of any reference at all to it in the regulations. I confess that I was a bit surprised about that, but I may have misunderstood where it is to be dealt with. Will the Minister explain whether there is a reason why the levy and the rate at which it is to be set are not included in these regulations? It is important that people are reassured that 3% is to be the amount, although if the Minister wants to adopt the formulation offered by the noble Lord, Lord James of Blackheath, I am sure we will all be very keen to hear that today.
Lord Freud
My Lords, I thank noble Lords for a highly informed debate and for the kind words that were addressed to me personally, which I appreciate. I thank the noble Lord, Lord McKenzie. Without the little present that he left me on my arrival, things would perhaps not have been sorted out with quite such alacrity.
A number of noble Lords asked about the timing. The noble Lord, Lord Wigley, was the first. Our intention is that applications will be accepted from April with the first payments in July. These regulations will come into force on 6 April, subject to this process. We intend to lay the negative instrument the next day, 7 April.
I shall now deal with research, on which we spent a lot of time. Noble Lords around the Room are very sympathetic to the point made by the noble Lord, Lord Alton, about improving it. That debate, which I shall not replay because it is a long and complicated situation, as noble Lords know, stimulated a substantial increase in research activity in this country on mesothelioma. I shall go through the four things that we committed to do. First, we set up a partnership to identify the priorities in research. A survey has now begun and is currently open, asking patients, families and healthcare professionals for their unanswered questions about mesothelioma treatment. The partnership will then prioritise the questions, and the end result will be a top 10 list of mesothelioma questions for researchers to answer. It is planned that that list will be ready by the end of this year, when it will be disseminated and work will begin with the National Institute for Health Research to turn the priorities into fundable research questions.
Secondly, the national institute will highlight to the research community in the spring of this year that it wants to encourage research applications in mesothelioma. Thirdly, the national institute’s research design service continues to be available to help prospective applicants to develop competitive research proposals. Finally, the National Cancer Research Institute has made excellent progress in planning a workshop for leading researchers to discuss and develop new proposals for mesothelioma studies. This event will take place on 2 May.
I know that we are not going along with the specific structures suggested by the noble Lord, Lord Alton, but I want him to feel that we are really pursuing this with energy, getting results and getting this focus within the structure of how research is managed in this country. Just because his specific proposals may not have been accepted, he should not feel that we have not taken his point thoroughly on board or that we are not grateful to him for keeping up that pressure.
Lord Alton of Liverpool
I urge the Minister to add a fifth point to his four other points with regard to the remarks that I made earlier about the importance of global collaboration through the World Health Organisation, also looking at best practice and innovations being promoted elsewhere in the world and the need to draw that information together. We may have the highest rate of mesothelioma in the world but many other countries face the same challenges as we do.
Lord Freud
That is a very powerful point from the noble Lord. I have not yet had a chance to talk to my colleagues in the Department of Health but I shall pick up that issue specifically.
On the suggestion as to where to spend the recoveries money, it is the same core point. There is a process for funding research, and it does not work to direct other moneys around in that mechanical way. The money will go into research as the right propositions come up. That is the reason why, fundamentally, we will not be able to provide support for his Private Member’s Bill. It is a difference not in aspiration but in the structures that we can accept. I know that he will be disappointed in that, but he may not be surprised.
The point that the noble Lord raised on the causes of mesothelioma and the last occupation is one that requires reflection, and I shall write to him on that particular set of points. I will also pick up the related point from the noble Lord, Lord Wigley, on the technical issue of the MoD advising tenants. On the noble Lord’s point about widening the coverage of the 2014 Bill, clearly we will continue to operate the 1979 scheme, but I have dealt in enormous detail with why we would not widen this scheme and why we are in no position to make any such commitments now.
Lord McKenzie of Luton
I gather that the noble Lord has moved off the research issue, but will he say whether there is any commitment from the insurance industry, the ABI, to continue contributing, as it has in the past?
Lord Freud
I have been in discussion with the insurance industry. There is currently no commitment to go ahead with its funding, but I do not think that this is the end of the story. We are still talking about various options.
Lord Alton of Liverpool
Before the noble Lord leaves that point, I do not want to return to the arguments that we had on the amendment that I moved in the House, but he will recall that the noble Earl, Lord Howe, in replying to those debates, made a number of substantive remarks about the important role that the industry was playing in supporting research into mesothelioma through financial contributions. If we had been aware at that time that the industry was not going to step up to the plate and provide those resources, I wonder whether some noble Lords might have voted in the way they did having been given those assurances.
I shall not press the Minister further today but I hope that he will return to the intervention from the noble Lord, Lord McKenzie, perhaps by writing to keep us informed about the progress he has made. Certainly, I know from my own meetings with the industry as recently as last week that it would much rather have a scheme where the cost is shared beyond the six companies that previously funded research. Those six companies feel that the whole burden should not just fall upon them.
Lord Freud
We are in danger of rerunning the debate. Clearly, we were not able to help the insurance industry to spread the burden using this mechanism, for complicated reasons which are on the record. Discussions are going on with those companies that have a sense that contributing to research is desirable and we shall see what comes out. On the question raised by the noble Lord, Lord Alton, about the extent of recoveries, over 10 years according to the impact assessment we are expecting £72.2 million.
In response to the leading and very clever question from the noble Lord, Lord Howarth—I would expect nothing less from him—we have committed to keeping the tariff under review and we will carry out a review of it after four years, once the smoothing period has finished.
Lord Howarth of Newport
Allow me to emphasise once again that it is imperative that the Minister, his department and successors maintain the pressure on the industry. We have just heard the noble Lord, Lord Alton, describe how there is no assurance that there will be continuing funding from the industry for research. We have seen the whole history of the neglect of the legitimate interests of mesothelioma sufferers by the employers’ liability insurance industry. Sadly, we cannot take it on trust. I am sorry that the Minister has not written that requirement of 3% of gross written premiums into these regulations—though I can perhaps understand why not. It would be very helpful and really the least that the Minister could do if he expressed this afternoon very strongly on behalf of the Government and mesothelioma sufferers his expectation that we will continue to have the substantial contribution from industry to fund this scheme and that he expects industry to continue to provide not less than 3% of gross written premiums after the moment of peak claims passes in 2018, for all the reasons that noble Lords indicated earlier in this debate.
Lord Freud
My Lords, I am not in a position to bind a future Government over what happens in four years’ time. However, as the noble Lord appreciates, there is now a context for that Government to take a view at the right time on what should happen beyond then. The figure we have at the moment, which is publicly on record, is 3%. In response to the question asked by the noble Lord, Lord McKenzie, that is based on DWP forecasts. Clearly, to that extent, we are committed to a tariff level. If those forecasts are wrong for one reason or another, there could be variation round that 3%. That is the best we can do to set the level today. However, when that process has gone through—we thought the right point for that was after four years because we will have done the smoothing and seen how it actually works and if people change behaviour as a result of the scheme—we will clearly know exactly what is happening. We can then have a much more specific forecast of expectations, once the scheme is in and has been rolling for some time.
Lord McKenzie of Luton
Are we to see some regulations come forward round the mechanics of that levy? There is an absence of a reference to that here, but that does not mean that that is the end of it. Something could come forward to explain how it must all work, who will be levied and on what basis.
Lord Freud
I am sorry but I am confused: Schedule 4 has the levy rates. That was also a question from the noble Baroness, Lady Sherlock, who said that they were not in there. There will be further regulations to come, and there will be negative regulations adjusting these figures.
Lord McKenzie of Luton
Schedule 4 sets down the tariff, which is based on the gross starting point, but presumably there is a separate starting point for the levy on the insurance companies. Is that going to come forth? On the four-year review of the tariff, must we not have regard to the fact that civil compensation claims are likely to rise over a period anyway because of changes in the claims process?
Lord Freud
Yes, that is one of the moving features here. We are moving the tariff up. We have committed to moving it up by CPI in this interim period. That is a sensible enough period after which to take a new look at where civil compensation has moved, if indeed it has, and to reset. However, at that stage other factors could also be looked at. Although the noble Lord, Lord Howarth, is enticing me in his skilful way, that is all I can say on the review. I am deeply impressed.
Lord James of Blackheath (Con)
The noble Lord, Lord Howarth, was enticing the Minister into a quicksand. We need to get this matter clearly understood. There is no such thing as a pot containing the premiums that were originally paid for this cover. All those moneys were taken by the companies who then went bankrupt. It is not there. The only pots that exist are the reinsurance pots. Basically, with our £6 billion liability, we took £3 billion to Zurich Re and £3 billion to Swiss Re, and that is where it stands today. If you go for those and can negotiate that they are allowed to reduce their balance sheet liability by the 3% you get each year, they will be very interested. However, you will not get the 3% and the reduction in their balance.
Lord Freud
My Lords, we are moving now into the arcana of the insurance industry, which the noble Lord, Lord James, knows better than anyone in the Room. When I first had discussions with the insurance industry, they centred around something that would have affected its balance sheets. It was a structure which went to the historic issues. However, for reasons that are too complicated to go into, they ended up with this scheme which, as the noble Lord, Lord Howarth, pointed out, affects the current writers of liability insurance, who may or may not be the villains of the piece. It is not perfect, but it is the best we can do. This is where we are.
To pick up on the point made by the noble Lord, Lord James, much as it would be attractive to go after reinsurers, we simply do not have the information to do so. Even the noble Lord, Lord James, I am sure, could not find that information.
Lord James of Blackheath
Do you want phone numbers, my Lords? They are there. They have the money and, in the case of the Swiss Re, it is backed by the Swiss Government, who have not yet gone bankrupt. They are working on it, but not yet.
Lord Freud
Noble Lords could go on about this, but I cannot.
On the other point made by the noble Lord, Lord James, about the crossover between the schemes supporting the Royal British Legion, I am not aware of the issue he raises, but I shall look into it for him.
On the point made by the noble Lord, Lord McKenzie, on the oversight committee, we are not legislating for that, but we have discussed the matter with the AVSG, the TUC, insurers, personal injury lawyers and accident insurance lawyers. We are agreeing with those groups how the committee could operate. We intend that it will look at various aspects of the running of the scheme, particularly in the early period. We envisage it considering complaints against the scheme, redacted claims and decisions. It will then send a report to the Secretary of State, who will include the issues raised by the committee in his published annual report. It will be quite transparent.
On the point made by the noble Lord, Lord McKenzie, about HMRC, we continue to work with other departments to seek a resolution to this issue. Regrettably, that is still ongoing work. We have encouraged the ABI to continue to engage with the MoJ as they look to improve the process for mesothelioma cases in regard to the portal.
In response to the question asked by the noble Baroness, Lady Sherlock, the reason we can increase the payments to 80% is because the scheme administrators have now been selected and the costs have been finalised. Those costs fall well below projected costs, and this allows us to increase the payments while keeping the levy the same.
In the November impact assessment the net benefit to lawyers was expected to be £2.69 million over 10 years. That has reduced to £1.6 million. The reason for this difference is that the original scheme administration costs used in all previous versions of the impact assessment assumed that some legal administration costs would benefit lawyers working on the scheme. These costs were estimated to be £23 million from successful cases, £1.7 million from unsuccessful cases and £1.2 million from ad hoc legal administration costs. Due to further understanding of the way in which the scheme will be administered, it is now recognised that these legal administration costs are not necessary, meaning that overall it is expected that lawyers will benefit by less. I can confirm that applicants will still receive the difference between the £7,000 and the legal costs, if there is a positive difference.
Baroness Sherlock
Before the noble Lord leaves that point, can he confirm that the figure that was previously £24.2 million has now either disappeared or is in single figures and that there will be no other loss or additional costs for the applicant as a result of those costs being taken out of the scheme altogether?
Lord Freud
Yes, I can confirm that. In the tendering process resulting in the appointment of Gallagher Bassett, the company was required to demonstrate that it had sufficient resources to process the expected volume of claims. We have reviewed its tender to ensure that it is accurate and realistic and have satisfied ourselves that it can deliver as part of our due diligence. The administrators will be employees of the scheme administrator. If the person with mesothelioma dies before an application can be made, their dependant can make the application. If the person dies after making an application but before a payment is made, the payment is made to their personal representative.
Baroness Sherlock
I thank the Minister for clarifying that point. I was talking about people who have died who do not have dependants. It seems that the Minister was saying that the personal representative can receive a payment even in the circumstances that I have described: when people were diagnosed on or after 25 July 2012 but had not made an application because the process was not available to them.
Baroness Sherlock
Can the Minister please explain why? These are people who the scheme is explicitly designed to cover. They simply had the misfortune to die before the Government had been able to put the scheme in place and give them an application form to fill in. Why should they be excluded?
Lord Freud
I think it is because they do not have dependants. However, I will write to justify what that difference is and why we have designed the scheme in that way. Our estimate is that the 80% payment will be within the 3%, but that is clearly based on our figures. As to the final question on the setup and running costs of the scheme, I cannot go into too much detail for reasons of commercial confidentiality. I will write carefully and provide as much information as I safely can.
Lord McKenzie of Luton
On one last point, can the Minister say when we are likely to see the levy rate because, presumably, if people are to start to make payments under the scheme, the cash will have to be obtained from the insurers? That will not necessarily be a straightforward process.
Lord Freud
It will be within the next Session. In the initial period the DWP will be putting in funding, so we do not have a funding issue because we are the underwriters of the scheme and are managing the smoothing process which, I can assure the noble Lord, is more complicated than it might appear to be from outside.
I am confident that these regulations will underpin a robust and fair scheme which all noble Lords agree has been needed for some time. This Government are committed to improving the situation faced by mesothelioma sufferers, and the establishment of the diffuse mesothelioma payment scheme is a huge achievement. I commend these regulations to the Committee.
Tax Credits (Late Appeals) Order 2014
(10 years, 9 months ago)
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Lord Newby
That the Grand Committee do consider the Tax Credits (Late Appeals) Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, I am pleased to introduce the Tax Credits (Late Appeals) Order 2014. It makes a small but important change to Section 38 of the Tax Credits Act 2002 to reinstate HMRC’s ability to accept late tax credit appeals. It inserts provisions to allow HMRC to treat a late appeal as made in time—that is, an appeal made outside the statutory 30-day time limit but within a further 12 months may be accepted in exceptional circumstances.
If a claimant disagrees with a decision made by HMRC—say, on a tax credit award—they can lodge an appeal within 30 days of the date of the decision. Since tax credits were introduced in 2003, it has been the policy intent that claimants can also lodge a late appeal in exceptional circumstances—for example, where a dependant died or they suffered a serious illness—within a period of 12 months after the normal 30-day time limit. Allowing late tax credit appeals where there is good reason to do so is consistent with the policy relating to the treatment of other appeals received by HMRC.
If there are no exceptional circumstances for lateness, HMRC will not accept the appeal. Instead, it will be passed to the tribunal, which will then make a decision as to whether to treat the appeal as made in time. This will be based on the tribunal’s wider view on whether it is fair and just to accept the appeal.
The defect that we are remedying today also carries across to the tribunal rules, meaning that tribunals cannot hear appeals made after the 30-day time limit either. The Tribunal Procedure Committee will similarly be remedying its rules to ensure that the legislation works as intended.
The defective legislation arose from changes made in 2009 to legislation applying to appeals in Great Britain in the light of the establishment of new courts and enforcement tribunals. HMRC and the MoJ introduced changes to their appeals legislation as a consequence of the transfer of the functions of the former special and general tax appeal commissioners to the First-tier Tribunal and Upper Tribunal tax chambers. An unintended consequence of the interaction of these legislative changes led to the legislation allowing HMRC to accept late appeals to lapse.
I should like to reassure the Committee about what has been happening since the lapse was discovered. We did not want claimants to be adversely affected by this lack of legal power, so HMRC has been accepting late appeals through its care and management powers, and judges are still deciding on a case-by-case basis. However, neither can do so indefinitely without this legislative remedy.
I should also explain that there is to be a change to the appeals process from 6 April this year. HMRC is introducing a new stage called mandatory reconsideration. When claimants dispute decisions, they will have to ask HMRC to conduct a mandatory reconsideration of the decisions before they can appeal, which they will then have to do directly to the tribunal. This is called direct lodgement. HMRC is introducing mandatory reconsideration to align the tax credits process to that already introduced by the DWP. As tax credits are to be replaced by universal credit over a period of time, it will help to provide consistency between the two departments around appeals. However, appeals to HMRC against decisions made prior to 6 April 2014 will be dealt with under the current flawed system.
This order remedies the flaw in the current legislation and legally reinstates HMRC’s power to accept late tax credit appeals. I commend the order to the Committee.
Lord Tunnicliffe (Lab)
My Lords, nobody could object to such a wholly rational and reasonable order. I shall just ask a couple of questions. When was the error discovered? I was going to go on and ask the Minister to set out the consequences of it, but I think that he said that there have been no consequences to individuals because the process rolled on and, in fact, the order merely legitimises the administrative process that is taking place. If so, that has obviously been handled in an intelligent way and my question as to when it was discovered is somewhat academic.
Lord Newby
Yes, my Lords, HMRC has been operating, as I said, under its care and management powers to accept late appeals as though there was no problem, as it were. The error was first discovered last May. There has been some discussion as to whether the change in the legislation was necessary, given that the whole system is changing from this April, but it was decided that it was, not least because late appeals in exceptional circumstances can be considered up to a year after the initial decision. So I can absolutely reassure the noble Lord that in the interim, since the problem was discovered, nobody has lost out. HMRC has been accepting late appeals through its care and management powers, and judges have still been deciding cases on that basis.
Guardian’s Allowance Up-rating Order 2014
(10 years, 9 months ago)
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Lord Newby
That the Grand Committee do consider the Guardian’s Allowance Up-rating Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Lord Newby (LD)
My Lords, as I begin, it is a requirement that I confirm that the provision contained in the three orders and regulations before the Committee today is compatible with the European Convention on Human Rights, and I so confirm.
The two orders that we are debating increase by CPI the rate of guardian’s allowance, the payment made to provide support to those who look after a child whose parents are deceased. The regulations increase the maximum rates of the disability elements of tax credits—that is, the disabled child and severely disabled child elements of child tax credit and the disabled worker and severely disabled worker elements of working tax credit—in line with CPI. This decision was taken to protect those benefits that help with the extra cost of disability. The regulations also increase the earnings threshold for those entitled to child tax credit only, after which payments begin to be tapered away.
The regulations and orders before the Committee today protect the most vulnerable by ensuring that the guardian’s allowance and the elements of working tax credits and child tax credits designed to assist with the extra costs of disability keep pace with the change in prices. This Government have ensured that these elements of financial support paid to low-income and vulnerable households have kept pace with inflation and will continue to do so until the end of this Parliament.
Alongside the broader steps that this Government are taking to support hard-working families with the costs of living, these regulations and orders make sure that support for the most vulnerable in the tax credit system is protected, even in the context of tough decisions elsewhere. The Government’s approach is helping to secure the recovery now and for the longer term. I commend these regulations and orders to the Committee.
Lord Tunnicliffe (Lab)
My Lords, I commend the Minister for not making the classic mini-Budget speech before introducing these orders, as has been done on previous anniversaries. I shall also put my mini-Budget speech to one side and save us all a great deal of time. The two orders reveal the difference between us on CPI and RPI and I will not rehearse that. The explanatory memorandum to the final instrument, the Tax Credits Up-rating Regulations 2014, says that they will go up 2.7%. I casually spoke to my computer about this and in Regulation 2, the amendment of the Child Tax Credit Regulations 2002, the figure of £5,735 goes up to £5,850. My computer says that this is 2%. The next figure, of £6,955, goes up to £7,105. Sheer curiosity demands that I ask why this is more like 2% than 2.7%. I am sure that there is a cunning answer.
Lord Newby
My Lords, I am sure that there is a cunning answer. I am equally sure that I do not know what it is, so I am afraid that I will have to write to the noble Lord with my cunning answer.
Guardian’s Allowance Up-rating (Northern Ireland) Order 2014
(10 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Newby
That the Grand Committee do consider the Guardian’s Allowance Up-rating (Northern Ireland) Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Tax Credits Up-rating Regulations 2014
(10 years, 9 months ago)
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Lord Newby
That the Grand Committee do consider the Tax Credits Up-rating Regulations 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
Electricity and Gas (Energy Companies Obligation) (Amendment) Order 2014
Baroness Verma
That the Grand Committee do consider the Electricity and Gas (Energy Companies Obligation) (Amendment) Order 2014.
Relevant document: 22nd Report from the Joint Committee on Statutory Instruments
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
The energy company obligation, commonly referred to as ECO, has a number of important policy objectives. These are designed to reduce the UK’s carbon emissions, which is essential to meeting the UK’s statutory domestic carbon budgets and helping to tackle fuel poverty, by requiring suppliers to install energy efficiency and insulation measures in fuel-poor households.
Energy bills and the cost impacts to customers as a result of ECO have been the subject of great debate in the past few months. As noble Lords are aware, my department launched a consultation on the future delivery of the scheme earlier this month. This included proposals announced by the Secretary of State. The proposed changes to ECO are designed to reduce the cost of the scheme and therefore bill savings to customers.
Before I go on to explain the technical changes, I would like quickly to illustrate the progress of the scheme in its first year. We have seen more than 500,000 households already benefiting from ECO support. In total, we have helped more than 200,000 low-income households through the affordable warmth obligation. We have helped 88,000 households under the carbon saving communities obligation, which focuses on low-income areas. That is more than 335,000 measures in total over ECO’s first year. These numbers are a testament to the success of the scheme in driving home energy efficiency. The scheme’s successful delivery is because of huge effort from a variety of stakeholders—including local authorities, industry and local government elsewhere—who all played a vital role. It is important that that success continues. However, it is also important to recognise that where improvements need to be made, we must make them. The information stakeholders told us that some technical areas need some change. That is the primary reason we consulted last year.
Going on to the range of technical amendments and updates, I will highlight two amendments to noble Lords. First, the provision to ensure that ECO measures can be installed in a period when a property is not occupied, commonly referred to as a void period, will enable ECO measures to be installed in a property when it is empty. We made this change because the existing rules constrained the ability to install more complex measures, such as large-scale retrofits. The amendment will remove the constraints and enable these measures to be installed. Feedback from stakeholders revealed that it is often best to carry out more complex work, such as solid wall insulation and whole-house retrofits, when a property is empty. The order clarifies the position on empty properties.
Secondly, there is provision for certain people in receipt of universal credit to be eligible for support under the affordable warmth obligation. Universal credit is the Government’s new benefit system, and it is important that the policy includes it so that people who should be eligible to receive help are not missed out. The order will allow recipients of universal credit to receive affordable warmth support in circumstances that reflect as closely as practicable the existing affordable warmth group criteria for recipients of other benefits. In addition to the amendments on void periods and the inclusion of universal credit, the order makes some more minor technical amendments, such as amending the scoring rules that apply to glazing measures so that suppliers can be credited with the full carbon savings from the installation of glazing measures.
We are harmonising ECO regulations as they relate to solid wall insulation with the latest requirements of building regulations. The order removes the requirement for solid wall insulation installed under ECO to reduce the U-value of a treated wall to a specified amount. The U-value measures the transmission of heat through the wall. As a result of this amendment, suppliers will simply need to meet standards required under building regulations.
We are making it easier to deliver district heating systems by removing the six-month rule to allow more time. Under the carbon emissions reduction obligation, a connection to a district heating system is eligible only if it is installed at the same property as hard-to-treat cavity wall insulation and solid wall insulation. Under the current rules, it must also be installed within six months of the wall insulation. This order removes that six-month rule for district heating systems. That is in response to concerns that the six-month limit could limit opportunities to deliver large district heating system projects. The change will help to facilitate the delivery of district heating systems.
We have also increased the flexibility for suppliers to receive credit for excess actions. That is because they have already been paid for by suppliers and consumers, and would otherwise be lost investment. With regard to the transfer of excess actions between obligated suppliers, Article 7 of the order inserts new Article 21A into the ECO order, which will allow suppliers to apply to the ECO administrator—that is, Ofgem—to transfer excess actions to another licence holder. The term “excess actions” is used in the legislation to describe work completed under energy efficiency schemes prior to ECO which were not needed to fulfil those schemes’ targets and have since been approved by Ofgem to be carried forward to ECO.
We are making some minor amendments to the definitions relating to parental responsibility to bring them in line with the legislation governing tax and credits. These amendments align the ECO order more closely with legislation governing benefits and tax credits, and will therefore make it easier for suppliers to check whether a person is eligible for affordable warmth support.
In conclusion, I believe that these amendments to the ECO order, while modest overall, will none the less be vital in ensuring that the scheme continues to progress as smoothly as possible, and I am supported in this view by the overwhelming number of positive consultation responses we received. I commend the order to the Committee.
Lord Teverson (LD)
I thank the Minister for that explanation. It is obvious that detailed regulations such as these need to be changed as a result of the experience of contractors and consumers. As the Minister said, when you want to make major changes to houses, it makes complete sense that they should be done during a period when they are unoccupied. It is common sense. If I were in that situation, whether I was the future owner or the contractor, that is exactly what I would want to do.
I also welcome the fact that district heating systems appear in the order. We do not have enough of them in the United Kingdom. We do not have sufficient infrastructure. I welcome anything that makes them easier, even if it is just changing the limits.
On getting distortions out of the market, the Explanatory Memorandum refers to contractors changing window panes instead of whole windows because the regulations state that you can do one and not the other. It is clearly ridiculous. It is the sort of distortion that we need to put right.
I have one question about excess works. I could not understand from the Explanatory Memorandum or from what my noble friend said why, given that this is public money, we want to pay energy suppliers—we might feel they are hard done by generally but, on the whole, we do not—for work that they have not budgeted properly for so there is an excess. I do not understand that. I understand that there may be some effect on the public purse through this, but I would be interested in an explanation of why this is so important. It is up to them to manage their works programme in conjunction with the Government’s programme which, on the whole, is pretty clear.
Baroness Worthington (Lab)
My Lords, I thank the Minister for her introduction to this order. Like the noble Lord, Lord Teverson, we welcome many things here. The order helps to clarify, simplify and tidy up a number of issues about the way the ECO order is currently implemented. I shall say a word about the broader picture, to which the Minister referred. Changes to ECO have been much talked about and were introduced as the Government’s attempt to reduce costs for bill payers.
It strikes me as odd that this is where the Government are choosing to focus. After all, measures to increase the energy efficiency of homes are one of the clearest measures we have for reducing bills. They may add to the incremental unit cost very marginally but, overall, people who have measures undertaken will see their bills fall, yet the Government have chosen to reduce the level of activity under ECO by extending it over a longer period—that is, for measures that do not relate to fuel poverty. We understand that the fuel poverty measures remain in place and are being extended to 2017, which is sensible. However, it seems that overall the effect of the Government’s policy on ECO has been to see a reduction in activity. We have certainly had representations from the insulation industry which is very concerned that the level of activity has dropped off precipitously.
I am sure we have an afternoon ahead of us in which we will discuss many issues, including gas pricing and fracking. All that will relate to this key topic of trying to keep bills affordable and making sure that we are decarbonising at least cost. In that sense, making ECO work more effectively is obviously a good thing.
I have a question on the excess actions credit. Perhaps I was unable to devote enough time to it, but I am not sure whether it is a kind of trading mechanism that enables suppliers to transfer overachievement to another supplier, whether it is a financial action between suppliers or whether it is something involving Ofgem and the Government. Perhaps the Minister can say a few more words about how it will work. I imagine the provision is there because some suppliers were expecting to be required to comply in full, and it was only when the Government rather hastily decided to extend ECO without increasing the level of activity that they perhaps found themselves with an overabundance of credit and are trying to find out what they can do with it. It would be helpful to hear a bit more about that.
On the other measures, I am pleased that the void period is being addressed, which seems entirely sensible. I want some reassurance from the noble Baroness that the provisions on giving credit to glazing and on changes to solid walls will not encourage less activity but that the right activity is being incentivised. I am sure that these orders are sensible.
Baroness Verma
My Lords, I thank my noble friend and the noble Baroness for their warm welcome of these minor changes to the legislation. As to their question about excess actions, perhaps I may first assure my noble friend that it does not involve public money. It is an activity that energy bill payers have already paid for. We do not want them to pay again. This amendment therefore helps to reduce or prevent that risk.
As regards the question around glazing, under current legislation—and I am sorry if I did not make myself clearer—suppliers receive only a partial score when they install a glazing measure. Policy officials received information that suggests that our scoring policy may inadvertently affect people’s choices about the measures that were right for their property. This amendment allows glazing measures to receive the full score for carbon savings. That will ensure that suppliers are encouraged not to deliver replacement panes, which do not fall into the definition, but to put in full replacement double glazing, which is far more effective at saving energy.
As regards the noble Baroness’s point about changing ECO, we had to do so because we, like her, want to ensure that bill payers—those who came back to us saying that they were finding difficulty—have some sort of mechanism to help them to reduce that burden. The Government listened carefully, and that is why we proposed the changes. We have not reduced the measures that we are going to take. In fact, we have extended the period, which enables us to carry out not only those measures but further measures. We must not be cynical about these matters. We listened carefully, we needed to respond, we have responded and all those who have responded have done so favourably. While we, of course, want to make sure that the measures are on track, we need to ensure that we are reducing carbon emissions and putting into place energy efficiency measures. We should see this in the round. The noble Baroness and I have often debated this issue. There has to be value for money in addition to all the other measures that need to be taken into account, otherwise those measures will not be taken up.
I reassure noble Lords that these amendments go a little further in ensuring that the energy efficiency measures that we are all keen on are taken up. I hope that I have reassured noble Lords enough for them to be able to commend the order.
Baroness Worthington
I thank the Minister. I will pick up on the point that everyone is in favour of these eco-changes. Is it the case that nobody from the insulation industry has made representations about the drop-off in the rate of measures being taken up?
Baroness Verma
Of course, there are difficult challenges. We are trying, through all the other measures, to reassure those industries that feared a drop-off that we have taken other measures to counter that drop-off. Whether we have done it in a way which is slightly blunter than we would have wanted, the important thing is that we have now come to part of the process where those business organisations which felt that there would be an impact are beginning to see, in the wider discussion, that they now have greater certainty that those measures will have the same sort of support that other measures were getting.
Renewables Obligation (Amendment) Order 2014
Baroness Verma
That the Grand Committee do consider the Renewables Obligation (Amendment) Order 2014.
Relevant documents: 22nd Report from the Joint Committee on Statutory Instruments, 34th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, the renewables obligation is the Government’s main mechanism for supporting renewables electricity generation in the UK. The obligation has been the subject of previous change, the most significant being the introduction of banding of support for different technologies in 2009.
The changes that I put before the Committee today are less radical. They are about offering renewable electricity generators a choice between support under the renewables obligation and the contract for difference, while protecting consumers by ensuring that no generation can receive support from two schemes at once. They are about strengthening the sustainability reporting requirements for biomass used for electricity generation.
The order introduces changes in two main areas: the transition away from the renewables obligation to the new contract for difference, and the move to greater carbon savings and increased sustainability of the biomass used. As noble Lords will be aware, the Government expect the new contract for difference to open for applications this autumn, subject to parliamentary assent and state aid approval. The renewables obligation will remain open to applications until 31 March 2017 to allow for a period of transition in which eligible new renewable capacity will have a choice between the two support schemes. The renewables obligation will then run for a further 20 years to support the capacity already accredited within it.
The changes within this order set out a straightforward process for applications for the renewables obligation during the transition period, when both the renewables obligation and the contract for difference will be open for applications. Renewable generators will be required to choose which scheme to apply for, and will declare as part of their application that they are not also applying for the alternative scheme. This declaration will be subject to checks through data sharing between Ofgem and the National Grid as the contract for difference delivery body.
Once a generator has applied for a scheme for a particular generating station or generating capacity, they will then not be able to withdraw that application and apply for the other scheme instead. However, if the application fails for any reason, the generator will then be able to apply for the other scheme. This process involves minimal administrative burden on both the generator and the scheme administrators, while giving consumers and the Government assurance that no capacity will be supported through both schemes.
This choice of scheme is open not only to new renewable generating stations but to additional capacity at existing stations where that capacity is more than 5 megawatts. Generators will also be able to apply for a contract for difference for additional capacity of this sort after the renewables obligation closure date.
These provisions ensure that generating stations already within the renewables obligation which have the opportunity to expand are able to do so, making efficient use of existing generating resources. For similar reasons, biomass and offshore wind stations accredited within the renewables obligation will also have the opportunity to enter some capacity into a contract for difference under certain circumstances.
The dual scheme facilities which result, with some capacity supported by the renewables obligation and some by a contract for difference, will be required to meter electricity generation and measure fuel usage separately under each scheme. Again, Ofgem and the contract for difference counterparty will work closely together to ensure that only the generation from capacity within each scheme will receive support under that scheme.
The Government will lay further statutory instruments before noble Lords in coming months to take forward other aspects of transition policy. These include a renewables obligation closure order, which will set the date of closure of the renewables obligation to new capacity and implement grace periods for that closure date. These grace periods have been developed partly in response to concerns raised by noble Lords during Energy Bill debates last year and are key to investor confidence during the transition period.
In addition, the Government intend to lay a consolidated version of the renewables obligation order before the House later on in the year, implementing some final elements of transition policy relating to biomass conversions and to the capacity market.
The Government are committed to achieving sustainable, low-carbon bioenergy deployment. The use of effective sustainability criteria forms a key part of the Government’s approach and is essential for the public acceptability of biomass.
The order strengthens the reporting requirements and introduces audit requirements for solid biomass under the renewables obligation. This will enable generators to familiarise themselves with the sustainability criteria and put appropriate compliance systems in place ahead of the Government’s intended introduction of mandatory sustainability standards in 2015.
Those changes will encourage the use of biomass that delivers genuine greenhouse gas emissions savings compared with fossil fuel use and is sourced from land that is sustainably managed, not from land with a high biodiversity value or carbon stocks. The main changes to the biomass sustainability criteria introduced within the order include reporting against a tighter minimum greenhouse gas emissions savings target for new dedicated biomass generating stations and preventing larger generating stations making use of the various default values for greenhouse gas emissions from solid biomass. In future, stations producing more than 1 megawatt will have to report actual values, and we encourage the use of the greenhouse gas calculation tool made available by Ofgem.
The order also introduces new sustainable forest management criteria for virgin woodfuel based on Defra’s UK timber procurement policy, UK-TPP, for central government. The current land criteria were designed with sustainable agriculture in mind, rather than forests. The UK timber procurement policy draws on established sustainable forest certification schemes that cover a range of environmental and economic issues relating to forests.
The forest management criteria also provide for bespoke evidence to be provided by generators to demonstrate compliance where forests are not certified by a recognised scheme. The land criteria for biomass that is not wood will remain in line with the land criteria set out in the EU renewable energy directive.
The order introduces new reporting requirements to provide greater detail about any non-waste wood that is used and where it has come from. This includes the name of the forest, the species of wood and the forest or land management practices that were used. There are also new reporting requirements on the previous use of land in the case of energy crops and the standardisation of the units that are used to report the volume and mass of the biomass.
The order will bring in a new audit requirement for generating stations over 1 megawatt that use solid biomass or biogas. This is based on the audit requirement that already applies to generating stations using bioliquids. It provides for an independent assessment of these stations’ performances against the sustainability criteria. The audit requirements have been brought more closely in line with similar requirements applying to transport biofuels under the renewable transport fuels obligation to provide greater consistency across schemes.
There are a number of exceptions from the reporting requirements and from the sustainability criteria for biomass fuels such as municipal waste, landfill gas, sewage gas and manure. That reflects their lower sustainability risks. Our intention is that the contracts for difference awarded under the first delivery plan period for bioenergy will follow the same approach as the sustainability standards set under the renewables obligation. Our aim is to ensure that bioenergy offers a genuine reduction in greenhouse gas emissions, that this reduction is cost effective, and that the biomass is produced sustainably and contributes both to our renewables target and to ensuring energy security.
Our sustainability criteria have taken into consideration the European Commission’s recommendations in its 2010 report. However, our approach departs from the Commission’s report in areas where we recognise the need for more robust sustainability criteria to help us to deliver our UK policy priorities of maximising the carbon savings from bioenergy, minimising the environmental risks and making best use of the biomass resource available, both for energy and non-energy purposes. Being robust also means being mindful of the need to develop criteria which are realistic, measurable and deliverable.
I understand that an order has been laid before the Scottish Parliament which introduces similar changes to the renewables obligation in Scotland on both biomass sustainability and transition. I also understand that the Northern Ireland Executive will bring forward an order introducing changes on biomass sustainability later on, as the contracts for difference will not be introduced in Northern Ireland until 2016.
I am sure that all noble Lords will appreciate the value and importance of offering a choice of scheme to the renewables industry during this important period of transition towards the contract for difference, and I therefore commend this order to the House.
Lord Teverson (LD)
My Lords, I will be very brief. In general, I welcome this order and thank the Minister for presenting it to us so well.
I want to delve into the question of the sustainability aspect, and how that ties in with European regulations. I note that on page 7 of the impact assessment, at the bottom of paragraph 4, it says,
“The EU mandated the sustainability criteria to be used for bioliquids and transport biofuels under the Renewable Energy Directive. However, the EU left the introduction of sustainability criteria for solid biomass and biogas used for electricity and heat to the discretion of each member state, subject to compliance with EU Treaty rules, such as the internal market”.
I would be interested to hear from the Minister, in very general terms, what other EU states are doing on sustainability. I would be interested to understand in particular whether, when power stations with biomass want to import biomass from another EU member state, we can insist—under the single market, which is mentioned there—that those products comply with UK standards as opposed to the originating EU state requirement.
Viscount Ridley (Con)
My Lords, I declare an interest in various forms of energy as detailed in the register, including both coal and forestry. I welcome what the Minister said about improvements to the requirements on auditing, sustainability and reporting, but I draw her attention to a report in the Mail on Sunday last weekend on exactly where the fuel for Drax biomass is coming from in the Carolinas. It is clear that whole trees are being logged for that. I draw her attention also to a report that came out last month from the International Council on Clean Transportation, which stated:
“Consistent with earlier studies, we find that pathways based on whole-tree logging in forests offer little or no climate mitigation over 50 years. We also show that reduced impact logging does not deliver GHG savings within 50 years. These bioenergy feedstocks are not good candidates from a climate policy point of view”.
I would just continue the debate with those points.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for introducing these changes to the RO. They cover two issues: the non-duplication of being able to receive funding through both the RO and CFDs, which seems eminently sensible and an important tidying-up. On the sustainability of biomass, this is obviously a complicated issue, but I say in response to the comments made by the noble Viscount, Lord Ridley, that we have to keep a sense of proportion about this. There is a danger that we start to confuse the CO2 emitted from the chimney of a biomass plant with the fossilised CO2 that comes from the burning of fossil fuels. One is a function of the flow of biospheric carbon, meaning that trees absorb carbon while they are growing and then emit it when they are burnt. This has been happening since man crawled out of a cave and is not of the order of magnitude that we see with the fossil-fuel impact, whereby one is taking carbon stored over many millennia and releasing it into the atmosphere. I am glad that the noble Viscount made reference to the article in the Mail on Sunday because there is a real danger that we are slipping into a misunderstanding whereby we equate CO2 from a chimney with adding to the stock in the atmosphere. That would be regrettable, because biomass does not contribute in the same way as fossil fuels.
However, we are of course keen that all biomass should be sustainable and I think that we all agree that its best use is probably not in power generation but in the generation of heat. Therefore, CHP plants and use of biomass in district and smaller-scale heating is probably the most sustainable use. We also face the great challenge of reducing the carbon intensity of our power sector. There are sustainable sources of biomass out there from well managed forestry. We have used forestry to a far greater extent for paper production. While that is decreasing, we are now seeing an increase in use for energy to displace fossil fuels. That cannot be something that we want to stop; it is something that we want to manage, with good, strong reporting. It creates livelihoods; it creates income. Management of forests is a well established form of economic activity and we should not seek to stop it.
It strikes me as slightly odd that the Minister should state that municipal waste has a lower sustainability impact, because much of the calorific content of municipal waste comes from plastics, which are obviously a fossil fuel. I am trying to avoid the singling-out of biomass for special treatment when other forms of energy are not perhaps treated in the same way. It is true that biomass should be under scrutiny because it is a less energy-dense form of material and its upstream emissions can therefore have a disproportionate impact, but it is also true that we do not add on the life-cycle emissions to gas—LNG, for example, has a different carbon intensity if taken on a whole well-to-wheel basis from natural gas or fracked gas. We do not load our normal carbon accounting to those fuels, yet we do with biomass. I am arguing in favour of proportion and trying to get the balance right.
This is especially important in the UK as we consider how we are to meet our targets at 2020. I am sure that the demise of a couple of high-profile biomass projects—the Eggborough project and the REA’s dedicated biomass project—will not have escaped the Minister’s attention, both signalling that they are no longer seeking to pursue renewable options. That raises questions, because it means that we might be more reliant on more expensive forms of renewable power. It would be regrettable if that were the outcome: that an overzealous approach to biomass forces us into ever more expensive options. With offshore wind, we have the added cost of having to make sure that we have security of supply and back-up. Biomass has at least one very strong benefit, and that is its firm power. It can be stored, it is reliable and it will be there when the wind is not blowing and the sun is not shining. As I said at the beginning, we are keen that all biomass is sustainable, so we welcome the proposals. It is all about getting the proportion right and treating biomass fairly, relative to other sources.
I want to raise just one other issue. The noble Baroness referred to the fact that we have further changes to the RO coming forward. I have had representation from the Low Carbon Finance Investment Group that DECC has recently raised the possibility of introducing competition into the RO and that, in line with the desire to move towards competitive auctions in the CFD, it was mooted that we might require some form of competition in the RO. This would be a significant change and not one that would be welcomed, because it would almost certainly be retroactive in its application.
Therefore, I would like some reassurance from the noble Baroness that, although it has been put out that we might seek to do this to the RO, this is not the case. I am sure that it would significantly change the way in which the instrument operates to its detriment. Those are the comments that we see. This is an order that we welcome because it is tidying up, but it raises some concerns and I hope that the Minister will be able to make some reassuring statements.
Viscount Ridley
Before the noble Baroness sits down, I may have misunderstood what she said, but as far as an infrared beam is concerned, is there really a difference between a carbon dioxide molecule that came from burnt gas and one that came from burnt wood?
Baroness Worthington
No, absolutely not. It is about the flow, compared to the stock. I am sure that CO2 values differ throughout the year and a large part of that depends on how much foliage we have. CO2 is not permanently in the atmosphere, it is sucked in and out, depending on the atmosphere and the biosphere and how those interrelate. What we are doing with fossil fuel, as noble Lords will know, is extracting carbon that was once stored and releasing it very rapidly into the atmosphere, which is changing its composition. Concentrations in the atmosphere are now at record levels, touching 400 parts per million, and they have not been at that level for many hundreds of thousands of years.
Baroness Verma
My Lords, I am grateful for the support of all noble Lords—my noble friends and the noble Baroness—for the changes that we are making. A couple of questions have been raised that I will endeavour to answer quickly. My noble friend Lord Teverson asked if other member states were doing similar things, in line with our standards. We are aware that the Netherlands, Denmark and Germany are introducing their own criteria, but imports from the EU would be required to meet our standards here. We propose to notify these standards under the technical standards directive to ensure that we can insist that fuels used under the renewables obligation meet our standards. I think that should reassure my noble friend that we are maintaining our standards.
My noble friend Lord Ridley mentioned the Mail on Sunday article. Unfortunately I did not read it but will take my noble friend’s word about its content and the argument that biomass is dirtier than coal. We need to reflect that in all the debates we are having around bioenergy—biogas and alternative sources of fuel. We need to ensure that we work towards a cleaner availability of fuel. There will be debates either way, and we need to discuss it fully and properly.
It is absolutely right that there are questions still to be answered and which need a proper and thorough debate. I am sure noble Lords are all up for that debate but would say to my noble friend that the argument that biomass is dirtier than coal is only based on the model assumption that all wood removed from the forest, including the high-value, high-quality sawlogs used in energy, does not make it any dirtier. Perhaps that is a debate for another day.
The noble Baroness, Lady Worthington, asked about early RO closure and competition. My notes say that no decisions have been taken on any changes to the RO, and the Government would obviously seek to protect companies that have made significant financial commitments from the impact of any changes. However, we will have consultations on this and will invite comment on whether and how to make any changes that might affect stakeholders. I am sure we will reflect on that and then respond on that basis.
I thank noble Lords for their contributions. I will read Hansard very carefully tomorrow because we go into the extreme of technicality when I discuss anything like this with the noble Baroness, Lady Worthington. If there is anything outstanding, I of course pledge to write to all noble Lords. I think that we are seeing two very important changes today, the first on transition and the second regarding biomass, to encourage a greater delivery of carbon savings. On that note, I commend the order to the Committee.
Energy: Fracking
(10 years, 9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Borwick
To ask Her Majesty’s Government what assessment they have made of the report by the Centre for Policy Studies, Why Every Serious Environmentalist Should Favour Fracking.
Lord Borwick (Con)
My Lords, I declare my interests, recorded in the register, in a land company and as a trustee of the British Lung Foundation.
I have, at my own cost, visited Williamsport, Pennsylvania, in the United States. It is widely known as the heart of “Frackistan”—a place where shale gas extraction is growing apace. What I saw in Williamsport is a new city built to service a new industry, and beautiful countryside that was still beautiful. Behind the trees might be the top of a drilling rig, but when we went to the production site, there were only a couple of acres of stones. Only underneath them could you see the plastic membrane put down to protect the environment from minute spills that rarely happen. Such rainwater as falls on those membranes is prevented from seeping into the ground. Instead, it is gathered and used in the production process. At the natural gas well we saw, there was nothing much higher than five metres. It comprised a Christmas tree, a compressor and a meter hut for measuring the wealth produced in that site and put into the major gas pipelines that eventually flow into homes and factories. I am grateful to Anadarko for letting me see its site, its safety processes and the enormous efforts it pursues to prevent pollution. Those guys are working hard and succeeding to make sure no harm occurs.
When you think about fracking—pumping water, sand and chemicals into shale formations far below the Earth’s surface—perhaps you might think that it would involve a great deal more machinery, equipment and land space. However, it reminded me somewhat of Winter Wonderland, an amusement park that stands in Hyde Park for a couple of months around Christmas. It is put up in one of the most protected and lovely green spaces in the whole country, but the point is that Winter Wonderland is temporary and goes away pretty soon. There is noise, there are lights and there is extra traffic, but they go away and you would not even know the site was there. The same happens with a shale site. Once the initial flurry is over, the actual production phase is pretty benign. The intrusion stops but the wealth carries on.
The air quality in Shanghai today is rated at 155. That means it is classified as “unhealthy” and:
“Everyone may begin to experience health effects”.
In Beijing, air quality has recently reached levels of 551—extremely dangerous. This matters in the environmental debate on shale, because that bad air is largely caused by coal. Extracting shale gas seems to be the perfect way to mitigate global emissions while stimulating global economic growth. As the paper by the Centre for Policy Studies suggests, shale gas technology should be advanced as rapidly as possible and shared widely, to cut emissions and improve air quality.
I have known Professor Muller, one the authors of the CPS paper, for some years. He is a scientist, not a politician. Professor Muller is a physicist of world standing, receiving distinguished teaching awards from Berkeley. He assesses facts and then comes to a conclusion. He does not try to make his work embrace preconceived ideas. Professor Muller co-founded the Berkeley Earth organisation at the University of California in 2010, to examine historical temperature records. He returned to the base data, to check them without the hot air of politics. After much work, he concluded that climate change exists and that the levels of change are quite small. He also concluded that the change was correlated enough with the rise in carbon dioxide to say that it is manmade.
After extensive work, Professor Muller has shown in this CPS paper that shale gas extraction will actually reduce emissions. After all, global warming is a global problem: a tonne of Chinese CO2 is as bad as a tonne of British CO2. It is global warming, not British warming. Crucially, extracting shale gas instead of burning coal will also reduce the amount of harmful particulate matter 2.5 in the air. PM2.5s are tiny dust particles that penetrate deep into human lungs. The presence in the air of PM2.5 causes people to die: 75,000 a year in the US and 400,000 a year in Europe. Its levels still go unregulated in the developing world and it currently kills more people annually than either AIDS, malaria, diabetes or tuberculosis. Shale gas offers an opportunity to cut massively PM2.5’s presence in the air. If extraction expertise were shared, we also could see a big drop off in CO2 emissions in the developing world.
There are many environmental concerns about shale but Professor Muller takes each one in turn and dispels them all. The first is that shale gas production depletes limited supplies of fresh water. However, shale extraction sites have lots of salty water reserves underneath, too. It is becoming standard, and cheaper, for brine to replace fresh water at all sites. Already in the US about half of the water used is brine.
The now famous short film “Gasland” highlighted another potential environmental issue—the “flaming faucets”. In the film the director, Josh Fox, is shown in the home of a landowner near a shale site igniting gas from a tap with a cigarette lighter. He later admitted that the taps were leaking long before shale extraction started.
Noted scientist Yoko Ono also chipped in with a series of adverts warning that,
“fracking makes all water dirty”.
The best way to combat pollution is to apply tight regulations and big penalties if any companies were to contaminate the Earth—much the same as happens now with companies supplying oil or natural gas.
Perhaps the most notorious environmental concern in the UK debate is that of fracking-induced earthquakes. The argument goes that if we start drilling under Blackpool, the whole of Lancashire will be rocking. However, let us not forget that earthquakes are recorded almost every day in the UK, and a brief glance at the list of the most recent events tells us that most of them occur at New Ollerton in north Nottinghamshire. It is a big coal-mining area. There was one there on Friday evening at 9.30 pm with a magnitude of 1.5, and across the UK there have been 38 in the past 30 days. The point is that energy extraction causes very minor tremors. In any case, the Government are ensuring safeguards that immediately stop extraction if tremors of 0.5 or more on the Richter scale are recorded. It may be that that level is too low because that is barely more than the shock felt from 10 Lords a-leaping.
Professor Muller has provided a robust environmental case for proceeding with shale extraction. However, he is not the only one. In 2012, the Royal Society and the Royal Academy of Engineering found that the health, safety and environmental risks of shale extraction can be managed effectively in the UK. We have a track record for extracting a lucrative natural resource with little environmental impact. For instance, people said that we would cause lots of environmental damage when drilling for oil in the North Sea but, with the right research and regulation, we managed it.
Rightly, the Government have promoted the power of localism. People should have the right to have a say on the factors that affect them locally. With drilling for shale, the community will certainly have a say. Those who are afraid should be reminded that the Health and Safety Executive and the Environment Agency can both put a stop to drilling, even if the council gives the all-clear. Throughout the planning industry, though, localism is limited by a duty to co-operate—one area’s localism must not ruin another area’s locality.
With shale, there will be a duty to co-operate within government—that is, among departments. The Treasury, the Department for Business, Innovation and Skills, the Department for Communities and Local Government, the Foreign Office, the Ministry of Defence and the Department for Work and Pensions should all work with the Department of Energy and Climate Change to get it done; they are all affected in some way. Energy security has an impact on the Foreign Office and defence. Europe imports about 30% of its natural gas from Russia, which has frightening implications. As Fraser Nelson remarked in the Telegraph:
“Of all the weapons in America’s arsenal, its new energy power is perhaps what the Kremlin fears most”.
Let us also remember that America’s shale revolution, which produces oil as well as gas, has allowed it to disengage from the Middle East.
The economic benefits could be extraordinary, which should interest the Treasury. There should be a surge in tax revenues and reduced costs in imports. As a deficit-cutting measure, it should be right at the top of the top of the list. For the DWP, shale gas extraction could create around 74,000 jobs, with geologists in Lancashire and mechanics in Sussex. Councils could see a surge in business rate revenue, too.
Shale gas is the sort of subject that this House excels at because it affects so many different government departments. The Select Committee report on ageing was another example of this. Our economics committee has been considering this subject, and I very much look forward to hearing its views. Perhaps there should be a Lords Select Committee study into the cross-departmental benefits of shale gas extraction, to ensure that this industry gets going as soon as possible.
Lord Lawson of Blaby (Con)
My Lords, I congratulate most warmly my noble friend Lord Borwick on securing this debate on a very important subject, and on the contribution that he has just made in opening the debate, which has covered all the ground that needs to be covered.
Although I am a member of the Select Committee on Economic Affairs in this House, and although we are in the process of producing a report on UK shale resources, I cannot speak for the committee; I can give only a personal view. The committee will be producing its report in due course and I hope it will be a useful one. On the whole I think that reports by the Economic Affairs Committee of this House have tended to be useful over the years, and I hope this will be another one. However, I cannot speak today for the committee. I speak personally.
I have been interested in the energy scene for a very long time. I think it is 33 years since I was appointed Secretary of State for Energy, and I have watched how the energy scene has changed and developed throughout those years and I have retained an interest in it. In all that time, I have never known any development that was as exciting, promising, game-changing and beneficial as this technological development, a mixture of horizontal drilling and fracking—the fracturing of the shale rock—which has enabled access to reserves of shale gas, and indeed, increasingly, as my noble friend said, shale oil. Geologists have known these to exist for many decades but it has only just been discovered—remarkably, as a result of small-scale enterprise, not by any of the big oil companies—how they could be accessed economically.
The amounts involved are massive. It used to be said that the world was running out of oil and gas, and that fossil fuels had a finite life. We now see a greater abundance than there has ever been of gas and oil, which produce the energy on which all our economies rely. That is of course in just this development, which is huge—massive. But other people are interested in the development of offshore coal bed methane. On a much larger scale of particular interest is Japan, which is doing a great deal of development on this front, on methane hydrates. That is a further stage for the future, but shale gas is here with us now. As my noble friend said, the recent troubles in Ukraine have pointed out not merely that this is of great economic benefit but that it has important geopolitical consequences. For Europe in particular, to be much less dependent on Russian gas cannot but be a huge geopolitical plus.
We are lucky in this country, because it is quite clear in the surveys done by the Geological Society that we have a particular abundance of shale resources—particularly, as my noble friend pointed out, with the Bowland shale in Lancashire and other parts of the north-west. The Government have said from time to time that they want to rebalance the economy, by which they mean having more activity and success in the north of England rather than simply in the south. That is where the shale gas is. However, we do not know how much of it is economic because virtually no drilling has gone on. My noble friend was absolutely right to point out the fallacies in a lot of the so-called environmental objections to fracking. Nevertheless, virtually nothing is happening, which is of great concern. We really will not know what we have in this country until we can do the exploration. Once we have done that and have an assessment of what we have, there will then be the question of whether to do the production. However, there has to be the exploration so that we can know what we have got.
Perhaps the biggest single problem at the moment is the question of environmental regulation. It is very important that there is a rigorous environmental system of regulation. I do not think that anybody questions that, but the system needs to be not only rigorous but clear and as speedy as is consistent with that rigour. Nobody could say that our system is clear; certainly, nobody could say that it is speedy. The Government and the agencies which are part of the Government—the authorities generally, including the Government—really have to get their act together. The present system is absurd.
As for the environmental objections, not only are they entirely without substance but you have only to go, as my noble friend has, to the United States to see that there is not an environmental problem. There is an environmental problem with windpower, which is despoiling large tracts of the British countryside. I know that beauty is in the eye of the beholder and that there are some who feel that the English countryside has been greatly enhanced by these forests of wind turbines. However, that is not a majority view and it is not a view that I share. It is reckoned that 10 square miles of fracking can produce as much energy as all the wind farms that we have in this country at present, and indeed more. My noble friend pointed out how small its footprint would be within those 10 square miles. I strongly support him in the Motion that he has brought before the Committee today.
Lord Teverson (LD)
My Lords, I, too, thank my noble friend Lord Borwick for introducing the debate, which has all sorts of strong international, let alone national, relevance at present—Ukraine has already been mentioned.
It is not often that I would almost entirely agree with a report from the Centre for Policy Studies. It is not necessarily a body of intellectual stimulation that I look to—I look more to Policy Exchange or even the IPPR—but in this instance, I think the report is on the whole excellent. For a start, it takes the whole issue of global warming to be important in terms of environmental pollution. It also deals with the fact that we have all sorts of pollutants now from the various ways that we create energy that cause real health problems in the short term. I was pleased to read that the most important policy action is to reduce energy demand and increase energy efficiency, so that we do not have to do as much of all this. That is the cheapest and best economic approach to this, although clearly, we know that we will always need energy in a global and national economy.
To me, from a UK perspective, shale is an important resource that should be developed. From the most basic point of view, our North Sea oil and North Sea conventional gas production is falling very rapidly. For our national strategic energy and economic needs, it can be at least a substitute. Not only that, as the noble Lord, Lord Lawson, said, we have one of the best environmental records in the world. We should not be afraid of the environmental aspects and threats of shale gas and oil; we need absolutely to ensure that we enforce the right standards. I have every confidence that that is possible for us to do that from our long and deep experience in that area and our very successful track record. However, we should be aware that we have doubly to make sure to begin with, because if we have a problem at the beginning of this exploration and exploitation, there is a serious reputational risk for the industry.
One of the main themes of the report—this is absolutely right—is that the most important thing that shale gas has done so far and should do for the future is to substitute for coal, which is an absolute no-no fuel in terms of environmental damage. The report is quite kind to the UK about coal. It points out strongly that with Germany now at 50% and the increasing coal capacity in China, despite all the renewables investment and everything else, in the UK over the past 18 months or two years, we have been at 40% in our coal energy production. Of course, most gas in this country is used for heating rather than for providing electricity. If shale gas means that we manage to reduce the wholesale gas price or at least hold it steady, which seems to be critical, that is a great thing for consumers and fuel poverty.
However, in the longer term, we have to remember that carbon is a problem. We cannot keep on pumping it out into the atmosphere at an increasing rate, however bad we are as an international community at solving that problem. So this has to be an intermediate, medium-term strategy, not a long-term strategy, unless the long-promised carbon capture and storage happens. I tend to be slightly sceptical in that area, but I am sure that the Minister will put me right on that, as I know that she has done and continues to do important work in that area, and there has indeed been progress.
It is not necessarily predictable how successful shale gas will be. We all hoped that Poland would push it forward—again for reasons of energy security, Gazprom and Russia—but, as I understand it, Poland has not been that successful in developing that fuel. So there is a risk and hence the need for exploration and pushing the project forward.
In terms of displacement, we found that coal has been substituted very benevolently and positively in the United States, but of course large amounts of that coal have come to our shores and been used as a substitute for conventional gas in electricity generation. That coal is going to go somewhere, even if we displace it from existing economies or where shale gas is strong. We need to have a strategy for that, and obviously I would suggest an international emissions performance standard which we would all need to comply with. However, that is not something which is going to happen too quickly.
On the environmental challenge, the quantity of water needed for the process is a genuine issue which we need to prove can be solved. I am not technically or scientifically competent to talk about the move to using brine, but it sounds promising and certainly something we need to make sure happens. Despite the floods we have had, particularly in my part of the world, I am sure that water shortages will come back to haunt us in due course. I welcome the report. Shale gas is important to this country and globally, but what happens to the coal that it will displace? That is a key issue.
The paper makes some important points about methane leakage, and I would be interested to hear what research the Government are undertaking into the value of methane leakage and what the quantities are.
On the energy security side in the macro area, once again we are in a position where our reactions to the Russian Federation on Ukraine and Crimea must be tempered by the fact that to a certain degree our hands are tied behind our back because of our dependence on Russian gas. It is to be hoped that shale gas might substitute for it in the medium term. The Nabucco pipeline project is seen as pretty much dead, but I would like to understand what Britain and her European partners are doing in terms of reconsidering how we transport conventional gas supplies to eastern and central Europe without going through Russian Federation territory.
The Earl of Caithness (Con)
My Lords, I thank my noble friend Lord Borwick for introducing this important debate. I must say that I was delighted to hear the speech of the noble Lord, Lord Teverson. There is clearly hope on the left wing of the coalition, so I recommend to the noble Lord more Centre for Policy Studies papers for bedtime reading.
I was fortunate enough to serve on EU Sub-Committee D, which published a report in 2012-13 entitled, No Country is an Energy Island: Securing Investment for the EU’s Future. We looked at energy in its widest sense, and it was alarming to realise just how dependent Europe is on imported energy supplies. Evidence to the committee showed that more than 50% of its energy supplies are imported. It is even worse from the UK’s point of view. In 2003 we were a net exporter of gas, but by 2025, a mere 12 years hence, we will be importing 70% of our gas. There has been a dramatic change, and we are slowly waking up to the energy crisis that is about to hit us even harder than the committee anticipated in its report 18 months ago.
We must also bear in mind the trilemma of the problem when considering the energy crisis. Not only do we want to produce low carbon energy, we want security of supply, which I will come back to, and we want to keep our energy cheap. That is a difficult policy for any Government to implement successfully.
We looked at shale gas, and there is no doubt that it is a potential asset in the armoury of a Government who wish to secure wide diversity of supply. I fully support that policy. We should not put all our eggs in one basket, and the supply base should be as broad as possible. However, I still agree with our committee’s report and recommendation: shale gas would not be a panacea for this country. Indeed, the Government in their reply to our report said, in paragraph 57, that,
“it should not be assumed that it will bring impacts comparable to those seen in the US”.
There is a good expectation from shale gas, but we should not think that it will be an instant solution.
The UK has an enormous amount of experience in drilling and wells. More than 2 million wells have been hydraulically fractured—or fracked—worldwide, mostly in the USA. From our point of view, shale gas is much the same as North Sea gas. We have more than 50 years’ experience of getting North Sea gas out of the ground. More than 2,000 wells have been drilled onshore in that time. There is a very good case for Britain taking the lead in developing shale gas in Europe.
As has already been said, what we require is strict regulation. Regulation for shale gas should be exactly the same as for other forms of conventional oil and gas drilling. I was therefore alarmed to read in the papers—of course I am very sceptical of anything I read in the papers and am glad that the Minister had not read the Mail on Sunday article because I would not trust that—that the European Parliament reduced the standards for shale gas in a recent discussion. Could the Minister update us on the situation in Europe? It is important that it is not perceived that shale gas gets any particular benefit.
Another bit of evidence given to us supports what my noble friend Lord Teverson just said: people in Europe expect Britain to take the lead on this. We are the experts. Poland will not fulfil its potential with shale gas until Britain gives the lead. There seems to be a blockage. Given our experience that I have just mentioned, we are the ones Poland is looking at to set the standards, regulations and monitoring so that it can follow. I totally agree with my noble friend Lord Lawson about the Ukraine and Russia. Russia, perversely, might have actually done a benefit to Europe. The EU reacts really well only when there is a crisis. It will now be faced with a massive energy crisis, and that might just shake it enough to get its act together and make progress in a field where it has dragged its heels.
A difficulty with shale gas is, of course, that it does not always appear in unpopulated areas. In fact, there is quite a lot of shale gas where the country is very densely populated. England is the most densely populated nation in Europe, with more than 400 persons per square kilometre. Up in Scotland, at home, we have 40 persons per square kilometre. Texas, where we hear of all this wonderful drilling in the central part of America, has 35 persons per square kilometre. So there will be an inevitable problem, and that has already shown up, particularly in the south of England.
Lord Lawson of Blaby
My noble friend is right about the relative population densities in the United States and United Kingdom, but in fact parts of the United States have a very high population density, and fracking has been allowed there and gone very successfully. High density of population does not matter. Even in the suburbs of Los Angeles it can be done and managed. The point my noble friend made is interesting but in actual fact does not prove anything.
The Earl of Caithness
My noble friend has just completed my paragraph for me. That is exactly what I was going to say. Despite the high density of population, it can be done and has been done very successfully. It is not surprising that when you live in an area where houses are expensive, you do not mind at all that there is industrialisation of the fine Scottish landscape with turbines but you will not have anything on your own doorstep. There has to be a way for the Government to get around that hurdle of environmental intolerance by some people in the south of England.
The noble Lord, Lord Borwick, mentioned air pollution. Paris has got such bad air pollution that cars now are being driven on alternate days.
The Earl of Caithness
Perhaps I may conclude because I allowed for interruptions. There has been a recent report, Are We Fit to Frack?. The reason these so-called wildlife bodies do not like fracking is that there might be cracks in the pipework. That is what regulation is about. Those people drive cars, which are hazardous. There also is lots of light pollution. People will probably object to the very good idea of building a new town at Ebbsfleet because of light pollution.
Viscount Ridley (Con)
My Lords, I declare my interests in various forms of energy as detailed in the register, especially in coal. I congratulate my noble friend Lord Borwick on this extremely timely debate. As he probably knew, today is the 65th birthday of fracking. Through the wonders of Twitter, I found out this afternoon that it was on 17 March 1949 in Archer County, Texas, and Stephens County, Oklahoma, that the first commercial hydraulic fracturing operation happened. During those 65 years, there have been extraordinarily few environmental problems. Ken Salazar, who was Secretary of the Interior in the first Obama term, recently said that,
“there’s not a single case where hydraulic fracking has created an environmental problem for anyone”.
He continued:
“We need to make sure that story is told”.
Obviously, the oil industry and the gas industry cause problems but hydraulic fracturing itself has not produced a single environmental problem.
This is a very good topic for a debate. Professor Muller’s report goes straight to the heart of an issue that is central to the environmental debate and it needs more attention. The issue is harm reduction and choosing the lesser of two evils rather than being frightened by a small risk, thereby allowing a larger risk to happen, or allowing the best to be the enemy of the good, as Voltaire put it. For example, the environmental opponents of genetic modification have, in effect, left us using more pesticides than other countries. That has been the effect of that campaign. The environmental opponents of nuclear power have left us using more coal than other countries, as well as particularly in Germany, Japan and other places.
The question is: what would happen if we do not develop shale gas? What would be the environmental impact of not developing shale gas? I ask the Minister to press her officials to take this approach to some of the questions; namely, to weigh up not just the risks of fracking but the risks of not fracking. In this case, as Professor Muller makes clear in the paper for the Centre for Policy Studies, it would mean both more air pollution, with damaging effects on people’s health, and more carbon dioxide emissions. There is no question about that. We have several years of experience and it is clear that the environmental benefits of shale gas development that were thought about a few years ago have been drastically underestimated, whereas the environmental risks have been greatly exaggerated.
As I have mentioned, the benefits include carbon dioxide reduction. As a result of the shale gas revolution, America’s energy-related carbon dioxide emissions are now back to 1994 levels and, in per capita terms, are back to 1964 levels. That is an extraordinary change, which is much faster than in any other country on the planet. We have mentioned urban air pollution. There is also an enormous opportunity now for natural gas vehicles, which are much cheaper to run, in the United States. Many commercial fleets are turning to natural gas vehicles, which can reduce urban air pollution. Not just the displacement of coal but the displacement of diesel is a great opportunity as well.
However, there is an enormous other potential benefit from shale gas: land-sparing; that is, using less land to produce energy. As we know, renewables, as a way of trying to do without carbon dioxide emissions, need an awful lot of land. To put this in perspective, if we were to use wind power alone to try to not just reduce but prevent an increase in global carbon dioxide emissions, we would have to build a wind farm the size of the British Isles every year. That is an extraordinary number.
It is not just land but the wildlife that goes with that land. There is a recent estimate that 82,000 birds of prey are killed every year by wind turbines in the United States. If you scale that back to the size of the UK wind industry, that means 16,000 birds of prey in this country. I suspect that the number is lower than that because we do not have migration corridors of the kind they have in the USA. There are also 150,000 bats. These are some of the creatures that could survive if we decided to stop building wind turbines and started working on shale gas instead. I mentioned in another debate this afternoon the possibility that we would not have to cut down forests, and all the pollution that goes with that.
As for the environmental risks and problems of fracking, I have found over the past few years that it is like chopping the heads off a hydra: every time you meet one objection, people come up with another. We have heard things like radioactivity might be coming out of fracked wells; that has now been buried. Most people now accept that the earthquakes are extremely small; much smaller, incidentally, than the earthquakes you get from hydropower, for example. As for water contamination, the myth has been well buried now that there has been serious aquifer contamination as a result of hydraulic fracturing, and if you have seen “GasLand”, you should also make a big effort to watch “FrackNation”, the film that answers it and puts it in perspective. The methane leakage question is very interesting. A recent study from the University of Texas puts the number at about 0.4%, which is extremely low. We should remember that coal mines leak more methane than that, so using and transporting coal actually generates a lot more methane and anyway methane levels in the atmosphere are not actually rising very fast; they are rising slower than predicted by the IPCC over the past two decades.
As for the issue of using chemicals in hydraulic fracturing, we put 99.5% water and sand down the hole, with a few kitchen sink chemicals, extremely diluted. This is put into rocks that are absolutely riddled with organic toxic chemicals. That is why we are going there: to get those toxic chemicals out. So it is a bit ridiculous to worry about that aspect of things.
Above all, it is worth bearing in mind that affordable energy is itself good for the environment. As McKinsey pointed out, America has had probably $250 billion of benefit from the shale gas revolution in the past three years. Think what you can spend $250 billion on—think how much environmental benefit you can buy with that.
Baroness Jones of Moulsecoomb (GP)
My Lords, I speak as a politician but also as a scientist, albeit in a slightly more esoteric area of science. I congratulate the noble Lord, Lord Borwick, on securing this debate. It has not done anything for my blood pressure. I am so constrained by time that I cannot answer all the points that have been made but I will cover a few, I hope.
First, on pollution, the European Commission and US research have identified significant pollution risks from leaking wells, including the contamination of drinking water by methane, heavy metals, radioactive elements and carcinogenic chemicals. There is also air pollution and noise pollution. Wildlife loss is a threat, although if we want to save more birds we should ban cats rather than wind farms. PM2.5 is a very nasty component of our air here in London and major cities in Britain. If we want to cut it significantly, we should cut traffic. I would be glad to hear noble Lords’ ideas on that. It is also hard to regulate away human error. It is incredibly difficult to make anything completely safe.
On costs, instead of investing in energy efficiency to reduce our bills, our Government are giving 50% tax giveaways to an industry forecast to have rising prices for decades. The Secretary of State for Energy, Ed Davey, warns that it would be really expensive if we were over reliant on gas. Furthermore, UK fracking is likely to be much more expensive than the US variety. Despite what Ministers claim, the experts at Deutsche Bank, Chatham House and Ofgem all predict that shale gas extraction will not bring down fuel bills, so fracking will not help the 1.5 million children growing up in cold homes in the UK.
There would also be lost opportunities. By undermining investment in offshore wind power, tax giveaways for shale gas will suppress development of clean renewable energy. That is exactly what we do not need. A reckless dash for shale gas could prevent clean electricity being supplied to 7.8 million homes and cost more than 40,000 clean energy jobs. That is really too much to bear.
Finally, on climate incompatibility, shale gas is likely to be burnt in addition to coal. Shale gas drilling and combustion are completely incompatible with UK climate change commitments. Replacing conventional fossil gas with shale gas to generate electricity would increase greenhouse gas emissions by up to 11%. A mixture of methane, a greenhouse gas much more potent than CO2, will further contribute to the dangerous climate change impacts of fracking and, finally, recent research suggests that replacing coal with gas may be worse for climate change in the medium term. So this environmentalist is not convinced.
Baroness Worthington (Lab)
My Lords, what an interesting debate we have had. I start by addressing the question put to us: should every serious environmentalist now favour fracking? I have read the report and found it very interesting, but I was left with an overriding impression that it was an excellent report in arguing against coal but not as persuasive in arguing in favour of fracking. In fact, I take issue with the title because, really, this was about gas, not about fracking and, as anyone who has studied the subject will know, fracking is as much about oil extraction as it is about gas. Certainly in the US it has led to a big increase in oil production. That has had interesting geopolitical consequences—I do not doubt that—but it is not an environmental move forward if you are starting to argue that oil is somehow a benign, low-carbon substance that we should move towards. So it is partial in its coverage of the issue of fracking by omitting to reference the fact that it is as much about oil as it is about gas.
I find myself in an interesting position whereby I support what the noble Earl, Lord Caithness, has said. I am very glad that he made the point that there is no way in which you can present shale gas or fracking as a panacea. You can point to the fact that it could have great benefits but you cannot say that it is the answer to everything. When I hear the noble Lord, Lord Lawson, speak with such passion for this subject—almost as much passion as he has for arguing that climate change is not real and that renewables are not worth it—I always wonder why that is. It must, I suppose, be a personal interest in the technology or an excitement about it. However, it is nice that we are having a debate in which the framing of this is that shale gas is needed to reduce carbon dioxide. Clearly, that is true; gas can have a significant bridging effect in helping us to tackle climate change.
Lord Lawson of Blaby
I am still not quite clear what the position is of the Labour Opposition on the development of resources of shale gas.
Baroness Worthington
If the noble Lord had given me a moment, I was going to come on to that. We have a very clear position: it has a role to play but we need a seasoned, mature and rational debate about that role. There is no point in overhyping it and claiming that it is going to be this great, wondrous change in how we use energy in the UK. We can all look to the US and say what an amazing experience they have had over there. When I was in Washington recently, I read an excellent book called The Frackers—I have been wracking my brain but I cannot remember the author—which I recommend to everyone. It is an inside account of how the fracking industry grew up in the US. I was left feeling admiration for its energy and enthusiasm, the amount of risk it was prepared to take and how many setbacks it went through. That these wildcat prospectors brought about a massive change in the US is absolutely true.
Do I think it could be replicated in the UK or Europe? Absolutely not. I am afraid that the conditions here could not be more different to those that led to the fracking revolution in the US. One can argue that they have helped to develop new technologies, which is absolutely right—horizontal drilling and fracturing are now new tools in the extractive industry’s toolbox—but will they be able to deploy them in the UK at scale and have the kind of impact that they have had in the US? I doubt it. There are very different factors: the way in which the US treats land rights, and it being an isolated market, meant that prices could plunge rapidly there, which they will not in Europe. We are connected to the global gas network and we have prices set for us on the global market in a completely different way to the US. I recommend reading the book, because it brings a dose of realism to the whole debate.
As to whether environmentalists could be persuaded to endorse fracking, it has a potential role to play. The key is for the industry to be upfront about why people are potentially opposed to it. It is often not about the pollution, the water or taps that might catch fire, but more to do with local objections. Again I find it ironic that we have a nation which cares deeply about what happens in its backyard. That is why onshore wind has been held back and why in the past we have seen great opposition to incineration in local communities. There will be the same reaction to fracking, I am afraid, and unless the industry is upfront and honest about that, it will be missing the point.
Perhaps this reference will not work very well in the House of Lords, but I heard recently that Bez from the Happy Mondays is now standing as an anti-fracking candidate. That says something about what popular public opinion thinks about this technology. Whoever was responsible for its PR has done a disastrous job; it is not the Government who are holding it back. The Government have given fracking tax exemptions and changed local planning to try to encourage it, so there will be money flowing. I am not saying it is bribery but it is encouragement. I still think there is going to be a great deal of unhappiness and opposition to this, and we have not even started. We have one or two test wells that have been sunk yet here we are talking about this as if it is a huge contributor of change in the UK. I severely doubt that.
As the noble Earl, Lord Caithness, pointed out, population density is important. In answer to the challenge from the noble Lord, Lord Lawson, in those areas of the US where population density is higher, there is great opposition. In the north-eastern states, where there is a huge reserve, some states have imposed an outright ban; others have taken it very slowly. This is because the population there are capable of standing up and objecting to it. They are largely wealthy, middle-class citizens who do not want to see their local environment disrupted. The noble Lord, Lord Borwick, said something that catches the point of this. Although these rigs may be temporary, an awful lot of them are needed because they are temporary. The fact that the industry has to keep disrupting people and moving on will mean that this will be slow to develop, if it develops at all.
Another thing that quite a lot of people will cite as a reason for their opposition is that the industry has been slow to acknowledge that it is still a fossil fuel, particularly if it is oil based. Even if it is cleaner gas, it is still a fossil fuel. The industry needs to be much more upfront about how this new influx of gas will be compatible with our climate change targets. That will have to be through embracing carbon capture and storage. I would love to see the shale gas industry acknowledge that its future will lie with carbon capture and storage and that all of the engineering expertise we have for extracting things out of the ground can be redeployed to putting it back underground so that we can make it safe. If that were part of the narrative, then we would see much less opposition than at the moment.
We have to be very cautious. This is not going to be fast. It could be 10 or 20 years before we really know. I am sure it is true that the UK could play an important leading role in the EU in establishing rules and regulations, but I hope that that is not the case. I hope that Poland moves ahead with this because, let us face it, Poland needs gas more than we do. I also hope it happens in China because, as the report rightly says, China has a huge demand for coal and we need to do everything we can to wean it off that polluting source of energy, not only in terms of carbon emissions but also in terms of human health.
However, the report fails to point out that China will develop nuclear power in a way that we in Europe can scarcely imagine. There are already 20 nuclear reactors in operation and 28 more are under construction. There will be 150 gigawatts of nuclear power in China by 2030. That is where the revolution will come from and I hope that that will happen alongside all the other things that China is doing.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I thank my noble friend Lord Borwick for the measured and informed way in which he introduced the debate. He made a clear and eloquent case for the importance of shale gas development, including on why those who combat man-made climate change should support it.
Gas is a critical part of our energy mix. Our projections, and those of National Grid and others, show that we are likely to use almost as much gas in 2030 as we do today. Half the gas we use is for domestic heating and cooking and a quarter for industrial and commercial uses. These will be difficult to substitute.
I am glad that there was general acceptance, except by the noble Baroness, Lady Jones, that shale gas will play an important part in the contribution of gas to our energy needs. We all recognise that there is a long way to travel in order to be in receipt of those benefits. However, the debate has once again demonstrated that we need to have these debates. We need informed debates and to bust the myths that keep being generating around this issue. It was my noble friend Lord Ridley who said that you bust one myth and another crops up.
We import half of the gas we consume, and by the middle of the next decade, without shale gas production, it could be more than 80% as conventional gas production declines. The UK has invested in facilities to make sure that gas is easy to import, but we cannot be complacent. There is a compelling energy security case for shale gas development. There are economic benefits, as suggested by my noble friend Lord Borwick. The Institute of Directors published a study last year in which it estimated that a UK shale gas industry could support more than 70,000 jobs at peak production, with £3.7 billion of annual investment and significant tax revenues. The institute forecasts that production levels could reach a level of more than a third of the gas we consume today.
We support exploration activity to see what the actual commercial viability of UK shale is, but we are clear that we will allow only activity that is safe, sustainable and properly regulated. The UK has a strong regulatory system that provides a comprehensive and fit-for-purpose regime for exploratory activities, and we need continuously to improve it, as my noble friend Lord Caithness rightly said. The UK has more than 50 years’ experience of regulating the onshore oil and gas industry to draw on. This is supported by an authoritative review of the scientific and engineering evidence on shale gas extraction conducted by the Royal Academy of Engineering and the Royal Society in 2012. This concluded that,
“the health, safety and environmental risks associated with hydraulic fracturing … as a means to extract shale gas can be managed effectively in the UK as long as operational best practices are implemented and enforced through regulation”.
My department’s Office of Unconventional Gas and Oil will work closely with regulators, such as the Environment Agency in England, the Health and Safety Executive and industry to ensure that regulation is robust enough to safeguard public safety and protect the environment while imposing no unnecessary burdens of operators. We have also put in place appropriate measures to manage seismic risk. Of course, we would not proceed with shale development if it conflicted with our climate objectives.
A recent report by my department’s chief scientific adviser, David MacKay, and Dr Timothy Stone concluded that the carbon footprint of UK-produced shale gas would be likely to be significantly less than coal and lower than imported gas. The report made a number of recommendations further to mitigate any emissions from shale gas operations and the Secretary of State will respond positively to that report shortly.
I appreciate that there may be concerns about the impact on local areas, and it would be helpful briefly to explore them. A site will be smaller than a cricket pitch, and although it might produce shale gas for around 20 years, there will be certain periods when most of the activity takes place—for example, during set-up or in preparation for fracture. These operations should have broadly similar impacts on health, local amenities and traffic movements to those from existing onshore gas and oil extraction methods. Each application’s local impact is carefully considered via the local planning system. The industry has made a commitment to work with local communities to minimise the impact of shale gas and oil operations wherever possible and is researching methods and technologies that will reduce traffic movements to and from the site.
I am sure noble Lords will agree that it is important that local communities benefit from hosting shale gas developments. That is why we welcomed the package of benefits industry has announced. At exploration stage, £100,000 in community benefits will be provided per well site where fracking takes place, and 1% of revenues at production stage will be paid out to communities. Industry estimates that that could be worth between £2.5 million and £10 million for a typical producing pad. Each year, operators will have to publish evidence of how they have met their commitments. The benefits will be reviewed as the industry develops, and operators will consult further with communities. This is a new sector developing. My department is working hard to help people to understand the facts about shale gas, particularly with local communities.
A few questions were raised so I will quickly address them in the time I have left. My noble friend Lord Lawson said that we need to reduce regulation on shale. The Environment Agency has—
Lord Lawson of Blaby
I never said anything of the sort, as my noble friend should recall. I said we need rigorous regulation, but it must be clear and as speedy as the rigour allows.
Baroness Verma
I apologise for misrepresenting what my noble friend said—absolutely. The Environment Agency is developing a single application form for permits. In 2014, the Environment Agency will aim to reduce the time for low-risk activity from 13 weeks to approximately two weeks. I hope that that addresses the point raised by my noble friend. Of course, it is not about reducing regulation; we do not want to see regulation reduced, but we also do not want to see barriers where they do not need to be in place.
My noble friend Lord Teverson mentioned CCS projects. As my noble friend is aware, we were able to go forward with two of them at Peterhead and White Rose—the Drax project. The Government have committed £1 billion to CCS—a commitment from this Government to make sure that we are not lacking in ambition for CCS. My noble friend also mentioned dependency on Russian gas. I reassure him that only a small percentage of our gas comes from Russia. By and large we are better connected, with 50% being our own gas and a larger proportion of what is left coming from Norway.
Lord Teverson
I entirely realise that and was talking about a broader European perspective. Actually, we import a lot of Russian coal.
Baroness Verma
I think my noble friend will agree that that is a different debate.
My noble friend Lord Caithness asked whether shale gas was more leniently regulated at European level. I reassure him that shale gas is regulated in the same way as any other energy sector. A recent proposal in the European Parliament to require environmental impact assessments in all shale projects did not proceed. We welcomed this because we do not want minor impact drilling such as taking core samples impeded.
The noble Baroness, Lady Jones, said that fracking would cause water contamination and that there was evidence to prove it. We have seen no evidence. The Environment Agency is one of the most respected regulators globally, as are many of our regulators, and we would be careful to consider the advice that we were given by our regulators before we proceeded to do anything that would allow any kind of contamination. Hydraulic fracturing will take place more than 1,000 metres below groundwater level, where there are impermeable layers of rock which will stop the gas and fracking fluids escaping into the water.
The noble Baroness also touched on tackling cold homes and fuel poverty. The Government have done a lot to respond to those challenges and measures are in place to address the issues that she has raised. There is much more to be done but this Government have been very proactive about addressing the issues where the people who need help most and quickest are getting that help.
The noble Baroness, Lady Worthington, said that shale gas cannot be seen as a panacea. The Government have never suggested that shale gas is a panacea. We have said that it is important that we explore the possibilities that shale gas will bring because we need energy security. If shale gas is explored and exploited, it will become an important part of the energy mix. We all know that gas and oil will still play a large part in our wider energy mix.
I am not quite sure from the noble Baroness’s remarks that she understood her own party’s position on fracking. However, it would be unhelpful to close down the debate on the real benefits that shale gas can bring. I recommend that we have further informed debates because this debate has explored a number of arguments in this critical policy area. I look forward to those debates, but let us bring them forward as debates on fact, not on ideology. We need to reduce our dependency on external energy sources and ensure that the people of the UK have affordable energy and energy security but understand that the sector is properly regulated, can deliver all those things and can contribute towards our economic growth.
This has been an interesting debate. I am grateful to my noble friend Lord Borwick for raising it. I suspect that we will have many more debates on the issue.