Draft Land Registry Trading Fund (Extension and Amendment) Order 2018
(6 years, 9 months ago)
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The Minister for Universities, Science, Research and Innovation (Mr Sam Gyimah)
I beg to move,
That the Committee has considered the draft Land Registry Trading Fund (Extension and Amendment) Order 2018.
It is a pleasure to serve under your chairmanship, Sir David. Her Majesty’s Land Registry is a trading fund that was established under the Land Registry Trading Fund Order 1993. It plays a critical role in supporting the Government’s housing and infrastructure objectives. As the Committee might know, the trading funds are a means of financing the revenue-generating operations of a Department. They set their charges in accordance with “Managing public money”.
In 2003 the Land Registry Trading Fund Order was extended for the first time to include the consultancy and advisory services included in the Land Registration Act 2002. The Land Registry’s operations were further extended by the Infrastructure Act 2015 to provide for the transfer to it of responsibility for the local land charges register, and to extend its powers in relation to the consultancy or advisory services about land to include other property and services relating to documents or registers. The draft order will ensure that the revenues generated through the extended activities form part of the Land Registry’s trading fund revenues.
I will turn now to the detail of the draft order. As a trading fund, the Land Registry is required to ensure that its income from fees covers its expenditure under normal operating conditions. All Land Registry revenues are part of its funded activities, except for revenues generated through the activities conferred by the Infrastructure Act. Therefore, an extension and amendment to the existing trading fund order is required. The draft order has been agreed with the Treasury.
In conclusion, the Infrastructure Act gave the Land Registry powers to expand its operations. Consequential amendments to the Land Registry Trading Fund Order are therefore required to take account of the additional revenues. Without the draft order, revenue from local land charges and wider activities would not form part of the Land Registry’s activities as a trading fund. I commend the draft order to the Committee.
Bill Esterson (Sefton Central) (Lab)
It is a pleasure to serve under your chairmanship, Sir David. In 2014 and in 2016, the Government brought forward proposals to privatise the Land Registry. They seem to do that every two years, and we are another two years on, so forgive us if we sense another opportunity for the Government to privatise—or to put out for consultation to privatise—the Land Registry. My question to the Minister is therefore this: is the draft order part of fattening the calf for slaughter? Is it a chance for the Government to prepare the Land Registry for another go at privatisation? I will explain why that matters before turning to the detail.
The consultations of 2014 and 2016 revealed wholesale opposition and the Government backed down. The reason for the wholesale opposition was, whether for share trading or for buying or selling the family home, the importance of having a trusted, impartial register that is apparent to everyone—to every individual, to everyone in the legal profession, and to everyone in the property profession and across commerce, with the exception, of course, of those who stood to benefit from taking over the highly successful Land Registry itself. There was great interest from the venture capital sector in doing that. Proof of title—proof of ownership—is vital to everyone, as is having trust in that title, which is why it was so important to so many people that privatisation did not go ahead then, and why it is so important that it does not go ahead now.
I mentioned venture capital. The firms that showed an interest on the previous two occasions were venture capital firms in offshore tax havens. That was a cause of great concern, because their interests may well have lain in asset stripping, rather than in ensuring the integrity of our Land Registry system.
Let us look at just what an attractive proposition the Land Registry was. According to his own figures, the then Secretary of State for Communities and Local Government, the right hon. Member for Bromsgrove (Sajid Javid), thought that the sale would generate £1.2 billion, yet at the time the Land Registry was bringing in a surplus of up to £100 million a year. I will not do the calculation in my head, but that is a return of something like 8% or 9%. In comparison, interest payments on the national debt lie somewhere under 3%—in 2016-17 they were 2.4% gross and 1.8% net—so selling the Land Registry really does not look like a good way of paying down the national debt, because it would mean turning down a long-term income stream to pay down something with a much lower cost of interest. The financials did not add up: going through with the sale would have meant taking an incoherent approach to economics. Happily, the Government backed down. The question is whether they intend to have another go, either now or in the future.
The Library briefing for the Infrastructure Bill, as it was in 2015, showed that the predicted cost of centralising the local search system was £48.5 million against a projected income of £134 million. It would therefore be highly profitable, and it would increase the attractiveness of the Land Registry to the venture capital sector for a potential sale, hence my comment about whether it amounts to fattening the calf for slaughter.
Turning to the proposal to centralise activities connected to local land searches, an amendment was tabled to the Infrastructure Bill in Committee in the Lords, calling on the Government to produce an implementation plan for making those activities central rather than local and to demonstrate the impact on local authorities. That amendment was withdrawn, but perhaps the Minister can tell us, with a little help from his friends, what the Government’s assessment is of how this measure will be implemented and what the impact will be on local authorities.
The same Library briefing suggests that 850 members of staff are engaged in local land charge activities up and down the country. There are often only two or three in each local authority, but what will happen to them? What will happen to the resources that local authorities currently rely on? What will happen to enable the Land Registry to carry out that work? Will 850 staff be transferred, or will the work be carried out by existing staff? Will fees and charges remain the same? Is this measure going to be cost-neutral, or will it generate the surplus suggested by the figures I quoted—£134 million income against £48.5 million costs—which on the face of it is sizeable? Perhaps the Minister can explain some of those points, look at the analysis and see how this is going to work in practice. Also, is it the case that at present the fees cover costs anyway, or will there be a detrimental effect on local authority budgets as a result? All those points were made in the Library briefing on the Infrastructure Bill.
Perhaps the Minister will give us the answers; in order to understand exactly what is going on, an explanation from him of the business case for moving from the local system to a centralised system will help. As he does so, perhaps we will reach our own conclusions, in addition to whatever answer he gives to my initial question, about whether the draft order is part of a longer term plan to move the Land Registry from the public sector to the private sector.
Mr Gyimah
I thank the hon. Gentleman for those questions. Having heard him speak in the House a number of times, I know of his usual scepticism about the private sector. My view, however, is that there are great organisations in both the public sector and the private sector; we need both to run our economy.
On the hon. Gentleman’s specific question about whether the draft order is part of a plan for privatisation, the 2016 autumn statement confirmed that:
“Following consultation the government has decided that HM Land Registry should focus on becoming a more digital data-driven registration business, and to do this will remain in the public sector.”
The Law Society welcomed that announcement. Its then chief executive, Catherine Dixon, said:
“This decision responds to the representations we, and other Land Registry users, made as to the risks of privatisation, and puts the public interests in this important institution first. We look forward to working with the Land Registry to assist it in delivering its ambitious modernisation plans.”
There is therefore no plan for privatisation, but it still makes sense to improve and modernise this fantastic organisation, which is why we need the draft order. As I mentioned in my earlier remarks, the Infrastructure Act gave the Land Registry powers to expand its operations, so consequential amendments to the trading fund are needed to take account of the additional revenues.
The hon. Gentleman asked a number of questions about the local land charges services and about implementation. The 1 March 2018 formal response to the consultation on local land charges rules marked a significant milestone and provides an exciting opportunity to modernise the service. In the first phase, the Land Registry is working with 26 local authorities in England to migrate their local land charges records to the national local land charges digital register service. It is also anticipated that the Land Registry will be able to launch a live service later this year for those 26 local authorities. With regard to how that will be implemented, the Land Registry is building the foundations for a national land charges register, which will happen over the coming year. It will be working with more than 30 local authorities in England to migrate local land charges records to a centralised digital register, which will launch in 2018-19, benefiting up to 125,000 home buyers.
The first phase of migration will establish the foundations for the national local land charges service and help the Land Registry better understand how it can make further migration of more local authorities’ land charges and how to do that more simply and faster, using data more effectively. In the meantime, local authorities are still expected to undertake activity to keep the register up to date.
The hon. Gentleman asked whether any powers have been extended to support the future privatisation of the Land Registry. The answer is simply no. I hope that satisfies him.
Bill Esterson
I asked about the impact on staff numbers. I quoted figures indicating that there are 850 staff across England and Wales. How many staff does the Minister anticipate will be needed in the Land Registry, and what will be the impact on staff in local authorities? Will fees stay the same or change? Does he accept the figures in the Library briefing, which indicates that this measure will cost £48.5 million and generate £134 million of income?
Mr Gyimah
Of course, as I said, the trading fund will have to ensure that its income from fees covers its expenditure under normal operating conditions. The hon. Gentleman asks about the number of staff and what exactly will happen to them. As I wait for inspiration on that point, I will expand on some of the other points that he raised. Local authorities will receive a new burdens payment to assist with this migration so that they are not negatively affected financially, and we are working with new businesses to assess how it will be implemented. [Interruption.] The inspiration seems to have arrived just at the right moment. On average, there will be a reduction in the fee for consumers, and we do not expect this to impact on staff increases at all. I hope he is satisfied—
Bill Esterson
I think I heard the Minister say that there will be an impact on local authority budgets because there will be an interim period during which there will be support. Is he saying that local authorities will have their budgets cut as a result of this move? Also, there are on average two to three affected staff in each local authority. Will they lose their jobs, or will they transfer to the Land Registry? It would be really helpful to know whether the Land Registry will take on additional staff or use existing staff, because 850 people’s livelihoods are at stake.
Mr Gyimah
No, there are no planned budgetary cuts, and we expect local authority staff to remain in local authorities to keep the register up to date. I hope that, at his third time of asking, I have satisfied the hon. Gentleman’s legitimate curiosity about the draft order, and I commend it to the Committee.
Question put and agreed to.
Draft Police Powers of Designated Civilian Staff and Volunteers (Excluded Powers and Duties of Constables) Regulations 2018
(6 years, 9 months ago)
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The Minister for Policing and the Fire Service (Mr Nick Hurd)
I beg to move,
That the Committee has considered the draft Police Powers of Designated Civilian Staff and Volunteers (Excluded Powers and Duties of Constables) Regulations 2018.
It is a great pleasure to serve under your chairmanship, Dame Cheryl. Given the temperature in the room I shall be brisk. The regulations were laid before the House on 7 February. Chapter 1 of part 3 of the Policing and Crime Act 2017 amends section 38 of the Police Reform Act 2002 to enable civilians employed by police forces to be designated as having additional police powers. The reforms also for the first time enable volunteers, under the direction and control of a chief police officer, to be designated as having powers. Part 1 of schedule 3B to the Police Reform Act 2002 sets out a list of powers that are reserved solely for use by constables, and which cannot be used by police staff or volunteers. It includes some of the most intrusive powers available to constables, such as stop and search, and arrest.
When we consulted on the reforms in 2015, the Police Federation proposed the removal of one of the original powers of detention officers that was made available in 2002—that of carrying out an intimate search when a medical professional is not available. While the number of intimate searches conducted by police staff rather than constables is very low—three instances nationally in the past 15 years—it is an intrusive power, and Ministers committed, in Parliament, to restrict its use.
Unfortunately, owing to an oversight in the drafting process, the Act does not restrict the use of the power; so the draft regulations would add the power to undertake an intimate search under section 55(6) of the Police and Criminal Evidence Act 1984 to the list of excluded powers and duties. As with the other powers on the list, they are reserved solely for use by constables, and cannot be used by police staff or volunteers. The addition to the list of the power to conduct an intimate search will ensure that the most intrusive powers remain available only to police officers, thus preserving the office of constable as central to the delivery of policing in England and Wales. The draft regulations deliver the full intent of the measures already approved by Parliament in the previous Session and on that basis I commend them to the Committee.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Dame Cheryl.
I welcome the regulations, which amend section 38 of the Police Reform Act 2002. That section enables civilians employed by police forces, or police volunteers, to be designated as having additional police powers. As we have heard, the regulations insert the power to conduct an intimate search into the list of reserved powers in part 1 of schedule 3B, thus prohibiting chief officers from designating it as a power of staff or volunteers. That is important, as the addition of that power to conduct an intimate search to the list will ensure that the most intrusive powers remain available only to police officers.
Will the Minister explain how the way the power is to be designated will be communicated, so that it is clear? Can he include in his answer the regulations on conducting an intimate search, ensuring that there are appropriate safeguards and keeping appropriate records? The wider principles on supporting designated civilian staff and volunteers can be helpful in particular areas of policing in our communities. That approach provides sustainability and continuity of relationship between police and the community.
For all powers in all circumstances, there must be clear safeguards and clear communication, so that there can be no circumstance where volunteers are put in a difficult, distressing or inappropriate situation, and so that constables are also clear as to their role. It is right that the measure also preserves and makes clear that the office of constable is central to the delivery of policing locally.
Louise Haigh (Sheffield, Heeley) (Lab)
I support what my hon. Friend the Member for Feltham and Heston has said. She raises important questions. It is right that the power should go only to fully warranted police employees, so the Opposition fully support the regulations.
Mr Hurd
I thank the hon. Member for Feltham and Heston for her support for the draft regulations. In answer to her reasonable question about how guidance should be issued to police forces, I can reassure her that although in practice very few intimate searches have been conducted by police staff nationally—three in 15 years, as I said—we agree on the need to ensure that police forces are aware of the changes. The Government do not consider it necessary to issue guidance on the regulations to relevant stakeholders, but we will ensure, through the national policing lead for custody, that the small number of forces that use the power are made aware of the change, which will make any existing designations ineffective. The wider point, which the hon. Member for Sheffield, Heeley, echoed in almost exactly the same language, is that the main thrust of the draft regulations is to preserve the office of constable as central to the delivery of policing in England and Wales.
Question put and agreed to.
Draft Greater Manchester Combined Authority (Amendment) Order 2018
(6 years, 9 months ago)
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The Parliamentary Under-Secretary of State for Housing, Communities and Local Government (Jake Berry)
I beg to move,
That the Committee has considered the draft Greater Manchester Combined Authority (Amendment) Order 2018.
The draft order was laid before the House on 5 February 2018. As some members of the Committee might know, eight orders have already been made in relation to Greater Manchester combined authority. The draft order is simply the next step in bringing to life our devolution deals. Although the order is not substantial, it is important for enabling the day-to-day operations of the Greater Manchester combined authority. Since 2011, the combined authority has enabled Greater Manchester’s local authorities to work together formally on the interconnected issues of transport, economic development and regeneration. In November 2014, the Government and Great Manchester agreed the first groundbreaking devolution deal, subsequently followed by four others, including recently at the autumn Budget.
Since the passing of the Cities and Local Government Devolution Act 2016, seven further orders have been made in relation to the Great Manchester combined authority, delivering the functions and the constitutional changes necessary to deliver the devolution deal. Those orders have provided for the introduction of a Mayor, given the Mayor the function of a police and crime commissioner and given the combined authority powers over housing, planning, transport, public health, fire and rescue, and, of course, education and skills. Some of those powers have been undertaken by the Mayor individually, and others by the combined authority collectively.
Less than a year has passed since Andy Burnham was elected as the first metro Mayor of Greater Manchester. All the metro Mayors elected just last May, including Andy Street, are making a huge positive impact on their city region. The latest devolution deal in relation to Great Manchester was made in autumn 2017. It set out new commitments between the Government and the combined authority to strengthen our approach to joint working. It included a Housing First pilot to support rough sleepers with the most complex needs, a local industrial strategy for Great Manchester and a pretty chunky £243 million of funding from the Government’s transforming cities fund, to improve transport connections within Great Manchester.
The draft order amends the constitutional arrangements of the Great Manchester combined authority in relation to its housing investment fund, the allowances for members of the combined authority’s committees and sub-committees, and setting the precept for the police and crime commissioner component of the mayoral precept. It is to be made under the Local Democracy, Economic Development and Construction Act 2009, as amended by the 2016 Act.
The order will amend the constitution of the combined authority, so that in addition to a simple majority of members, the Mayor must also be on the winning side of any votes relating to the housing investment fund for any decision to be carried. That change to the constitution implements a commitment that we made in the devolution agreement and will increase the democratic accountability of the directly elected Mayor. The housing investment fund was agreed as part of our initial devolution deal with Great Manchester in 2014. It is a loan of some £300 million from the Government, which has enabled the combined authority to lend more than £420 million to local developers to help to fund quicker housing delivery across Great Manchester. The fund has committed to funding and building more than 5,800 homes on 23 sites across Great Manchester.
The combined authority can pay allowances for the travel and subsistence of members of the combined authority, but not for members of its committees and sub-committees. The order amends those arrangements to enable the combined authority to pay travel and subsistence allowances to members of its committees and sub-committees, and to pay other allowances if the committee or sub-committee member is not a member of a council within Greater Manchester. In acknowledgment of that, the combined authority has established an independent remuneration panel that will make recommendations for those allowances. The panel will now be able to make recommendations both to the combined authority and to the constituent local authorities on the remuneration of all members of committees and sub-committees.
The draft order also changes the date within the process for setting the police and crime commissioner component of the mayoral precept for the Greater Manchester Mayor. That change is being made at the request of the combined authority to ensure that the scrutiny process for the police and crime commissioner precept is always complete before the precept is issued.
Two of the consultations undertaken by the combined authority in relation to the devolution deal cover the issues in the order. Those consultations have been the subject of previous orders. As most of the proposals consulted on have already been provided for in legislation, the combined authority provided the Secretary of State with a summary of the responses to its consultations, and the Secretary of State has had due regard to that summary. Before laying the order, the Secretary of State considered the statutory requirements under the 2009 Act, which he believes have been met. Moreover, as the statute requires, the 10 councils and the combined authority have also consented to the order.
The order makes constitutional amendments to the Greater Manchester combined authority that will help to ensure the continuing effective and efficient operation of that combined authority to the benefit of all the peoples of Greater Manchester. The order will help to contribute to the greater prosperity of Greater Manchester. It will also pave the way for a more balanced economy, quicker housing delivery and economic success across the whole of our northern powerhouse. I therefore commend the order to the Committee.
Jim McMahon (Oldham West and Royton) (Lab/Co-op)
It is a pleasure to serve under your chairmanship, Mr Davies.
I attended an event in Manchester on Friday, where the Minister was on a panel debate with the Mayor of Greater Manchester and a number of other Members, and we talked about the impact of High Speed 2 and investment in transport in Greater Manchester. During that debate, I noticed that the balance of power in the relationship between Greater Manchester and Government has changed. On the face of it, perhaps that change is subtle, but it is important.
I think back to when we were negotiating the first devolution deal and the establishment of a combined authority, and the relationship was one of subservience where Greater Manchester would ask Government for powers. It was anyone’s guess as to how certain powers and areas of investment were arrived at, but, by and large, the councils in Greater Manchester waited for Government to tell them what Government were willing to do. On Friday—I give credit where it is due—I noticed that the relationship is one of mutual respect—and also mutual challenge, which is important if devolution is to develop as our great cities need. It is important to recognise how things have moved on.
I found it interesting how different the remuneration discussions were for when the Mayor was brought in, compared to those for councillors. Most people recognise that Mayor of Greater Manchester is a significant role—in my view, it is on par with being a Minister in terms of power, responsibility and accountability to the electorate—and in that context there was a big discussion about how much that person should be paid, which was slightly odd to me, because at that time I was a council leader and Eric Pickles was telling us we were volunteers and boy scouts. The Government need to go back and look at the role of councillors in the new devolved settlement, because, just as Parliament can be disconnected from our towns and cities, I see that within a combined authority the Mayors or the chairs can become very much disconnected from the ward councillors representing their communities at a local level.
There is also an issue about retention and how we attract decent talent to local government to serve as local councillors. The decision to take away councillors’ pensions was a backward step—I acknowledge that the Minister was not in government at that point. That change was very popular with the public as they like taking pensions away from councillors because they are not always quite sure what councillors do.
My view is that councillors play a very important role. Many make sacrifices in respect of their careers and their families, and many give up promotions at work to spend additional time supporting the work of their local authority. Within this new devolved settlement, the requirement on those councillors will increase even further: they will have to contribute to the combined authority and to its sub-groups. Government ought to be proactive and look again at what we view the role of councillors to be in this new settlement. Are they volunteers? Are they there to be appreciated but not really taken too seriously? That was the tone when Sir Eric Pickles was in charge. Is it different now, because we recognise that power is being distributed further down? Will this new settlement reflect that?
On the housing investment fund, clearly any investment in housing is important, but the investment in that fund came at the same time that the housing market renewal scheme was cancelled in Greater Manchester. For those who do not know, the housing market renewal scheme was a programme of demolition, clearance and rebuilding of new, good-quality homes to replace substandard terraced housing that was built during the industrial revolution. In 2010, the housing market renewal scheme was cancelled completely. That meant that money that was due to go into that new housing stock was taken away overnight.
The money going in through the housing investment fund is a shadow of that for the housing market renewal scheme. I mention that in particular because although the housing investment fund has its role to play, we need to reflect the fact that it is about commercially viable sites for developers that are creditworthy and that are charged at a commercial interest rate. If the site is commercially viable, the developer is creditworthy and it will be a commercial interest rate, why does the developer not just go to a bank and borrow the money on the open market in the way that would be expected?
What is the role of Government in this new mix? It ought to be about addressing those sites where there is a commercial viability gap. For towns such as Oldham and many areas and communities in Greater Manchester, there is pressure to build on the green belt, through the Greater Manchester spatial framework, because we need units to be built, but the community wants the brownfield, old industrial sites that do not have value to local communities to be redeveloped. The cost of remediation and taking away contaminated material is so high that for developers it just does not stack up. I urge the Government to look at how they can do more to make sure that funding is provided for bridging the viability gap in those types of scheme.
Jake Berry
To deal with some of the points made, within the scope of the draft order, I acknowledge the shadow Minister’s comments on the new relationship between Government and all our metro Mayors. Across the country, fantastic individuals such as Ben Houchen, Andy Burnham, Steve Rotheram and Andy Street are changing politics across our country. That is a true partnership of people who want to drive forward our economy together and, where that true partnership exists, the Government will always welcome robust discussion with Mayors about what further tools of growth can be given back to local areas.
Across the whole of our northern powerhouse area, just to concentrate on the north of England, we are moving to what we would call northern powerhouse 2.0. The northern powerhouse is a policy that used to be the Government telling the north of England what they thought would work to drive forward the north of England’s economy. Now, we are seeing much more of a partnership of our metro Mayors, Transport for the North and our great civic leaders across the north of England, and Government playing their part.
Councillor allowances ultimately are for the remuneration committee in Manchester to decide, in relation to the draft order, but it is also for local authorities to set those allowances using a remuneration panel. It is quite right that those allowances are determined at a local level and that Government do not set them centrally.
I am sure the shadow Minister welcomes the housing fund in Manchester. He referred to the housing market renewal programme, which he said at one point was about the demolition of houses. In my constituency of Rossendale and Darwen, it never got past the demolition of houses, notwithstanding the fact that millions of pounds were spent. I hope he welcomes the fact that, rather than knocking houses down, the housing investment fund is about building them, and building them more quickly.
It is great to hear an Opposition Front-Bench Member championing the free market. That is a pretty rare occurrence these days—[Interruption.] The hon. Gentleman might be changing his mind now. I hope that, like me, he will continue to support the Mayor of Greater Manchester in championing house building in Manchester, championing the huge success of the free market in driving forward Manchester’s economy, and celebrating those new homes that will be built for the residents of the region.
Question put and agreed to.
Draft Electricity Supplier Payments (Amendment) Regulations 2018
(6 years, 9 months ago)
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The Minister for Energy and Clean Growth (Claire Perry)
I beg to move,
That the Committee has considered the draft Electricity Supplier Payments (Amendment) Regulations 2018.
It is a pleasure to serve under your chairmanship for the first time, Mr Paisley. The draft regulations will amend existing regulations to secure sufficient funding for the Low Carbon Contracts Company and the Electricity Settlements Company to enable the continued smooth operation of the capacity market and the contracts for difference scheme over the next three years. They are based on the consultation that we held in November, the responses to which broadly supported our proposals but asked for levies to be set on a three-year basis.
The LCCC has demonstrated its value through excellent management of CfDs and ongoing operational efficiencies; indeed, its costs per contract over the period are projected to fall significantly, by approximately 30%. The ESC is now managing increased market complexity and a number of participants in the capacity market. We propose that its funding be increased so that it can continue to provide a robust and effective settlement service.
The CfD and capacity market schemes were designed to incentivise the significant investment required in our energy infrastructure, to keep costs affordable for consumers, to drive down the costs of low-carbon technologies and to keep our energy supplies secure. I believe that the schemes are doing all those things. They provide long-term price stabilisation to low-carbon generators, allowing investment to come forward at a lower cost to capital, which in turn reduces costs for consumers. The capacity market is our main policy for maintaining a healthy surplus of electricity capacity at an acceptable cost. Regular payments are made to generators and demand-side response providers in return for making capacity available when needed.
In both schemes, participants bid for support via a competitive auction process, which ensures that costs to consumers are minimised. The success of the policy was demonstrated by the 2017 auction, in which the clearing price of offshore wind was half what it was in the first auction only two years before. The 2017 auction secured 3.3 GW of renewable electricity—enough to power an estimated 3.6 million homes.
Following four successful four-year-ahead auctions, the capacity market is already securing the capacity we need until 2021-22 at a low price. The main auctions have all cleared at between £8.40 and £22.50 per kW per year, which is well below industry estimates and supports our view that the process is highly competitive and delivers value for consumers.
A number of partners work with the Government to make the capacity market and CfDs a success. The LCCC and the ESC are operationally independent GovCos that play an important role in both schemes. The LCCC was established as the counterparty for CfDs; its primary role is to manage CfDs with generators through their lifetimes, managing contracts as well as collecting and making CfD payments. The ESC was established as the capacity market settlement body to oversee all financial transactions that relate to the market, including by making regular payments to capacity providers that have agreed to provide capacity at times of system stress.
The draft regulations will revise the levies on electricity suppliers, which fund the operational costs of the LCCC and the ESC. Historically, the levies have been set annually, but the regulations will set them for each of the three financial years from 2018-19 to 2020-21, as proposed in the consultation responses, to enable both companies to recover their expected operational costs over that period.
The draft regulations will also make a minor amendment to correct an unfortunate grammatical error—something that very rarely happens—in the Electricity Capacity (Supplier Payment etc.) Regulations 2014. [Interruption.] I see that the hon. Member for Southampton, Test wants to know exactly what the error was; perhaps my officials will make a note so that I can answer him.
Given the critical role of the LCCC and the ESC, it is essential that they are funded sufficiently to perform effectively. However, we are focused on delivering low-cost energy to consumers, so we want to ensure that costs are minimised. The budget-setting process aims to strike the right balance. We do of course scrutinise their cost budgets to ensure that they accurately reflect the operational requirements, and they are benchmarked against other similar operations. The budgets were also subject to external scrutiny through consultation, to which there were three responses. As well as consulting on the budgets, as I mentioned, we asked stakeholders for their views on setting the three-year budgets, and it was agreed that it was a sensible approach. Of course, it saves parliamentary time—we do not have to come back and test the patience of Committee Chairs on an annual basis.
I want to mention something important, which is the value-for-money improvements that are being delivered. The operational budgets have been set out to reflect the expected activity required to manage the CfD scheme and the capacity market. The LCCC’s budget will be £16.5 million in 2018-19, increasing by about £500,000 per year for the subsequent two years. The ESC’s budget will be £7.6 million in 2018-19 and will decrease slightly to £7.5 million in 2020-21. The core operating costs for the LCCC are slightly down year on year, but the increase in total costs reflects the inclusion of contingency provision for managing potential contract disputes. We have assumed that additional contracts will be awarded in future allocation rounds, but the budget assumption is that the cost of management per CfD contract is projected to come down a healthy 30% over the contract period.
The ESC is managing a significant increase in the amount of capacity and the number and type of capacity providers covered by the scheme, and there will also be ongoing requirements to refine the operation of the capacity market and deliver more successful auctions. The company has submitted that it requires investment to manage that activity, and to ensure that it continues all financial transactions for the capacity market effectively. The budget changes reflect those requirements.
The regulations revise the levies currently in place to reflect the expected operational cost requirements over the next three years. Subject to the will of the Committee, the levy to fund the ESC’s operational costs is due to come into force on the day after the regulations are made. The operational costs levy for the LCCC will be operational from 1 April. The only other change to the regulations that are being amended is that the words “is responsible” were removed because they were considered superfluous.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve under your chairmanship, Mr Paisley.
The regulations, as the Minister set out in some detail, are about providing for the operational costs of the counterparty body, as far as contracts for difference are concerned, and the Electricity Settlements Company, as far as the capacity market is concerned. They are not concerned with the success of the market or of CfDs, but with the operational costs of the bodies that essentially stand between the people who are supposed to put money into the system, and the people who are supposed to take money out of it. That, at its heart, is the arrangement as to what those two bodies do.
It is worth spending a moment looking at what the operational costs are. The Minister spent a little while stating that they are good value for money and that they are a good representation of what the LCCC and ESC do. It is not easy to find out the total cost of LCCC operational activities, because the amounts presented for 2018 to 2020 are expressed per MWh for any day during that period; they do not represent the total operational cost of the body’s activities.
Claire Perry
I would be happy to share information about the gross cost; I apologise if it has not been made clear, but I will write to the hon. Gentleman—indeed, I may be able to share it with him during this debate. It may reassure him to know that the average cost per household bill of the total budget for these bodies is estimated at 30p per year in 2016 prices, but I am happy to share the gross numbers with him or any other member of the Committee.
Dr Whitehead
I thank the Minister very much for that intervention, which to some extent anticipates what I was going to say. It appears that the cost per MWh has remained reasonably stable for the LCCC since the original regulations were made, but it would be helpful to know the total cost over the period as far as CfDs are concerned. The 30p that the Minister mentions, which I assume represents the total cost of both arrangements to the consumer, is not an enormous amount, but it is not insignificant either. I am therefore slightly surprised that the explanatory note states:
“A full-impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sectors is foreseen.”
Frankly, the impact on customer bills is not insignificant, so I would have hoped for some assessment of it, particularly in comparison with the impact of other measures on bills. I appreciate that it may be a relatively small amount compared with the consequences of other levies on bills, but it is not insignificant. I think it ought to be looked at in that light.
The Electricity Capacity (Supplier Payment etc.) Regulations 2014, which are the original regulations relating to the operational costs of the ESC, give a rather different picture from that of the costs relating to the LCCC. The 2014 regulations specify a total operational cost of £1,374,000, which was subject to annual amendment, as the Minister says. By 2016, the figure had risen to £4,283,000, and by 2017 it stood at £6,241,000, which is the figure that the draft regulations seek to amend. Article 3(1) states:
“in regulation 9(2), for “£6,241,000” substitute”
£7.6 million, £7.5 million and £7.5 million for the years 2018 to 2020. The figure of £6,241,000 comes from the most recent iteration—the Electricity Supplier Payments (Amendment) Regulations 2017—not the original 2014 regulations. It is difficult to tease that out in this statutory instrument, but that appears to be what has happened.
Frankly, we are faced with an inflation of costs from £1,374,000 in 2015 to £6,241,000 in 2017, and then a further increase to £7,629,000 in 2018. That series of costs does not strike me as carefully under control and good value for money. It may be, if the ESC’s work has expanded sevenfold since it was originally given the task of carrying out the administration of capacity markets under the 2014 regulations—other things may also have taken place to increase some of those costs—but I am not entirely convinced that the ESC’s activities have increased over the period by a factor of 700%, justifying those increases in operational costs.
Can the Minister give a satisfactory explanation of why those costs have inflated so much over that period? There may be a good explanation, but perhaps we are not paying sufficient attention to the considerations that go into the operational costs of these organisations. I do not know whether there is a body to oversee how those costs are brought about and what they relate to. On the face of it, they appear to have inflated considerably over the period in which the ESC has been in post, as it were, overseeing the activities of the capacity market and their results.
I do not want to divide the Committee. Clearly, these organisations need to have a period to set out what their organisational costs will be and what the supplier companies will contribute to those costs. However, this afternoon, or by subsequent communication, I would like to hear whether the Minister shares my view about the apparent enormous inflation of the operational costs, as set out by the preceding statutory instruments. In her view, is that enormous cost inflation justified by the sort of activities she has set out?
The Minister will not necessarily have a complete and instantaneous response to all my points. It would be wonderful if she did, but I do not blame her at all if she does not. It is a fairly arcane point, but it is important to raise it as we look at the operational costs of the bodies in this statutory instrument.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is a pleasure to serve under your chairmanship, Mr Paisley
I was on a Public Bill Committee last week where I made a joke about being a man of few words, and I will not say too much tonight. We are interested to hear the Minister’s response on the operational costs. It makes a change to hear the Labour Opposition lecturing a Tory Minister about cost controls. We will see where that goes. The point raised is important: in the big scheme of things, if the impact on people’s bills is 0.1%, as reported, I am certainly supportive of the draft measure getting through.
The Minister reminded us in her opening remarks of how costs for offshore wind have come down to £57.50 per MWh. If we really want to minimise the impact on people’s bills in the future, onshore wind operations need access to future contracts for difference auctions as well.
The Chair
Everybody else seems to be able to contain themselves and to not wish to speak, so I call the Minister.
Claire Perry
I like to please, so I have responses to the questions. It is an outbreak of great consensus in that we are all focused on keeping down costs for consumers and bill payers.
The hon. Member for Kilmarnock and Loudoun is always consistent. My reply to him is that I agree, and that we need to work on a way, within the current CfD auction structures, that ensures that our manifesto commitments are not breached but that we bring on onshore wind where we know we have strong support from local communities.
I will address some of the points from the hon. Member for Southampton, Test. He rightly raised the issue of whether we could see the aggregate numbers. I am told that, buried in the draft explanatory memorandum, at paragraph 8.6, there are the aggregate numbers—he may not have had chance to look at them—and they were, indeed, put out with the original consultation.
The hon. Gentleman raised an important question about impact assessments. An assessment was done when the electricity market reform proposals were made. The cost will amount to less than 0.03% of consumer bills, which is a relatively small amount. Nevertheless, we know that pennies do add up into pounds.
The hon. Gentleman also raised a series of important questions about the rapid ramp up in costs. Those are the right questions to ask, but to reassure him, let us take, in particular, the ESC. It was set up in 2014. It has gone through its set-up period, and we can now see a steady-state operational position. We have seen a phenomenal increase in what we are actually asking the company to do. In 2016-17, we asked it to, essentially, look at 0.6 GW of capacity. That will increase to 55 GW during the course of this year, with the number of providers going up from 46 to 447, which is a great testament to the capacity market delivering what we want: better competition driving down prices.
To reassure the hon. Gentleman, if he looks at the operational costs as part of the whole scheme, he will see they are dropping from 1.6% last year to 0.6% in 2020, so we are actually delivering more value in a wider scheme. He is absolutely right, and he knows that I am always keen to run the calculator over these companies’ calculations. As the Minister ultimately responsible, I will continue to do so. I thank both hon. Gentlemen for their valuable contributions, and I commend the draft regulations to the Committee.
Question put and agreed to.