Energy Bills Support Scheme and Energy Price Guarantee Pass-through Requirement (England and Wales and Scotland) Regulations 2022

Tuesday 22nd November 2022 Grand Committee

Considered in Grand Committee

15:45

Moved by

[Lord Callanan]

That the Grand Committee do consider the Energy Bills Support Scheme and Energy Price Guarantee Pass-through Requirement (England and Wales and Scotland) Regulations 2022.

Relevant document: 18th Report from the Secondary Legislation Scrutiny Committee. Special attention drawn to the instrument.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, in moving that the Grand Committee do consider the Energy Bill Relief Scheme Pass-through Requirement (Heat Suppliers) (England and Wales and Scotland) Regulations 2022, I shall speak also to the Energy Bills Support Scheme and Energy Price Guarantee Pass-through Requirement (England and Wales and Scotland) Regulations 2022, and the Energy Bill Relief Scheme Pass-through Requirement (England and Wales and Scotland) Regulations 2022, all of which were laid before the House on 31 October; and the Energy Bill Relief Scheme and Energy Price Guarantee Pass-through Requirement and Miscellaneous Amendments Regulations 2022; and the Energy Bill Relief Scheme Pass-through Requirement (Heat Suppliers) (Northern Ireland) Regulations 2022, laid before the House on 4 November.

Last Wednesday, I set out the details of the Government’s energy support schemes: the energy price guarantee, the energy bill relief scheme, or the EBRS, and the energy bills support scheme—the EBSS. I am in front of your Lordships today to explain the pass-through requirements in respect of these schemes.

The Government have responded rapidly to the unprecedented rise in energy prices by introducing emergency legislation on energy support. This support will protect homes and non-domestic consumers across the United Kingdom, so that families and consumers will be supported in their cost of living this winter. These pass-through requirements place a legal requirement on intermediaries to pass any benefits received through the various energy schemes to the end-user, thus ensuring that the support is received by the intended beneficiary.

These regulations have been created under the Energy Prices Act, which noble Lords will know received Royal Assent on 25 October 2022. They are essential secondary legislation to implement the energy schemes.

I am, of course, aware that the JCSI is still considering two of the instruments, and we will not move to approve them until that work has concluded. If that committee has any concerns, the Government will respond to them when we ask for approval, including time for debate if that is useful to the House.

I thank the Secondary Legislation Scrutiny Committee for its views on the pass-through requirements regulations. The committee raises three concerns: the definition of “just and reasonable”, inequality of arms, and vulnerable groups.

The committee’s first concern is that the meaning of “just and reasonable” is vague and open to interpretation. The pass-through regulations do not prescribe the exact method of the amount passed on by an intermediary. These requirements take into account the diverse range of contracting structures relating to the supply, resale, provision and charging of energy. We do not want any intermediaries to fall outside of the pass-through requirements by limiting the possible contracting scenarios through these regulations.

The definition of “just and reasonable” is long established in law. It essentially means what is fair and lawful under the circumstances. We believe that this would allow for the many different arrangements between an intermediary and end-user that these regulations are designed to police.

The committee’s second concern is inequality of arms: where a landlord who has multiple properties and receives all the energy schemes, and how they allocate the financial benefits received to their individual tenants. The regulations take this scenario into account. Where an intermediary receives energy support but has multiple end-users, they should determine a just and proportionate method of dividing the benefit among these end-users, and clearly communicate how they have arrived with the amount allocated to those end-users.

The committee’s final concern is the vulnerable groups affected by the pass-through regulations. We are keen to ensure that all end users, including those who are vulnerable, such as older people or people with disabilities, receive the benefits of the schemes where they are entitled to them. We have been delivering and building a communications campaign, which includes engaging with landlords, housing associations and charities, all of which protect those who are most vulnerable. Another statutory instrument will be laid later this month to correct some mistakes in the original heat supplier regulations.

The pass-through regulations ensure that the Government’s energy support reaches families and consumers. Rather than expecting intermediaries to act on their own accord, we are requiring that they pass on the financial benefit to their end users. An intermediary is any individual or organisation that is party to an electricity or gas contract and receives energy price support in relation to that contract, or a pass-through of reductions attributable to that energy price support. The intermediary then passes on the costs of the energy supplied and any reductions attributable to the energy price support to an end user—for example, landlords or property managers of a residential building. This also covers intermediaries supplying a product or service where, contractually, a component of the price relates directly to the use of energy or the supply of heating or hot water: for example, park home managers, heat networks and electric vehicle charging operators. Taken together, the regulations apply to all three energy schemes: the energy price guarantee, the energy bills support scheme and the energy bill relief scheme, including customers who are part of heat networks.

If the intermediary does not pass on the benefit, the end user can pursue recovery of the benefit as a debt through civil proceedings. Should a court rule in the end user’s favour, they will be entitled to the payment due, plus interest. The interest is set at 2% above the Bank of England’s base rate; this will begin to accrue from 60 days after the intermediary first receives the relevant scheme benefit. The enforcement approach is the same across the schemes, with a slight nuance for heat networks under the EBRS. If heat network customers do not receive the pass-through or information from their heat supplier, they will be able to raise a complaint with the energy ombudsman.

We have published guidance on the pass-through regulations to help those affected understand how to comply with these regulations. This government guidance includes advice for landlords on how to meet their pass-through obligations. There are also template letters for tenants, should they wish to raise concerns with their landlords about their energy bills.

These regulations protect those most exposed to high energy costs. The pass-through requirements allow cost savings to reach the people the Government intend to support, such as tenants and other individuals. Importantly, the regulations also provide routes for end users to benefit from the discounts they are entitled to in the scenarios where intermediaries are not meeting their legal obligations. I therefore commend the regulations to the Committee.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, I am grateful to my noble friend for his explanation and for the way he has addressed some of the concerns of the Secondary Legislation Scrutiny Committee, which I chair. The SLSC, a cross-party committee, is of course not concerned with politics. That is for the House, the Government and, in due course, the electorate to decide.

My remarks now are therefore not about the energy policy but about the administration and process by which it is being delivered. We have quite narrow objectives in our terms of reference. The two that I think apply today are, first, that the instruments are

“politically or legally important and give rise to issues of public policy likely to be of interest to the House”;

and secondly, that they may imperfectly achieve their policy objectives. I particularly want to compare the unfavourable treatment of Statutory Instruments Nos. 1102, 1103 and 1125 with the other two in this group, Statutory Instruments Nos. 1101 and 1124. The first lot are about energy and the second lot are about heat.

As my noble friend the Minister has explained, this is about making sure that a fair share of the proceeds are passed on to tenants by landlords. He has gone through the rationale for “fair”, “reasonable” and so on and so forth, but it is worth while us putting ourselves in the position of an elderly widow. Let us say that she is in a block of 50 flats. Let us say that the landlord has two or three blocks of flats; they may have a couple of hundred tenants. The landlord may say, “Here is your rebate”. She may, for one reason or another, decide that it is not right. She must therefore begin proceedings to recover what she believes her fair and reasonable share is. That is what the committee was concerned about: inequality of arms.

We have to think about a single individual, maybe a vulnerable individual. I accept that I am exaggerating slightly to make a point, by taking one particular angle on the people who might be affected, but I am trying to explain to the Committee that this person is somehow going to have to have the courage, conviction, energy and money to take the landlord on and take them to the county court over what may not be a huge sum of money. Although I am sure my noble friend wishes to find ways of ensuring that tenants are informed and helped and that landlords are required to provide proper shares, records and so on, I am not sure that this is going to work in the real world as happily as the Government, I and the SLSC would wish it to. The inequality of arms—above all, in the power to delay and ask for more particulars; as I said, this should be looked at in a lot of detail—is likely to work in favour of landlords, particularly multiple landlords, against tenants, particularly tenants who are vulnerable, elderly or disadvantaged in one way or another.

When we come to the first three SIs, Nos. 1102, 1103 and 1125, there is no further appeal—that is the end—whereas when we get to Nos. 1101 and 1124, there is an appeal to the Energy Ombudsman and the General Consumer Council for Northern Ireland, in respect of activities in the Province. So, although I quite understand what the Government are doing and wish to do well, they will need to keep a very close eye on what is going on under these regulations to ensure that fairness is not only being sought but being achieved and that, in cases where people are less well equipped to fight their corner, they are properly protected and looked after.

[Lord Teverson (LD)]

My Lords, I would very much like to follow up on a number of the points that the noble Lord, Lord Hodgson, made so clearly. First, I welcome these regulations. Clearly, they are important pieces of secondary legislation. They are really important in terms of making sure that energy contributions, subsidies and public payments reach the people they need to reach. The questions I am going to ask are not a prosecution, if you like; I want to understand how some of this is going to work. I recognise fully the difficulty that the Government might have in finding a way to make this work.

First, what is the size of this problem? Does the Minister have any indication of the number of households that, in effect, have their landlords pay their electricity and energy bills? I do not know whether he has any idea what that is.

16:00

The next question that tested my knowledge when I read through the instruments is how the domestic electricity retailer that feeds the landlord knows how many subtenancies or households there are to which that payment needs to be distributed. The gap in my knowledge came by taking the example of a mobile home park. I have done some casework in this sector; there are some not very good landlords in it. Those home parks are often not on direct supply; it goes through the landlord. So how does the electricity supplier, which is an intermediary for the Government, know how many units there are and what the payment to the landlord should be? I do not know how we have that information or who would have it. Surely the scheme should make sure that each of those home park owners receives the full amount of money. Many of those parks have 50 to 60 homes; are we going to divide £400 or whatever it is between 60 people? That is what I am trying to understand.

Thirdly—the Minister answered this to a degree—I found the instructions on how the payments are to be allocated or made impossible to understand, if I am honest. I understood the Minister to say that there would be straightforward communication with landlords. I do not know who knows who are landlords and who are not. That would be interesting to understand but I presume that there will be an easy, straightforward explanation of how this disbursement scheme should work.

Coming back to the area where the noble Lord, Lord Hodgson, started, how do we make sure that final consumers know that this scheme exists and that they are entitled to it? You have this asymmetric relationship between tenants, whether industrial or domestic, and landlords.

My final question comes down to how we are going to make sure that this is practically enforced. I come back to the mobile home park; in a certain part of that sector, landlords are very reluctant to pass anything on to their tenants. The history of that sector is not good for a number of landlord owners, some of which are national organisations. It is important that final consumers understand what they are entitled to. I would be interested to learn more about that communication system.

Again, coming back to what the noble Lord, Lord Hodgson, said, the fact is that, if they do not receive this—I read about a six-month time limit somewhere—they have to go through a debt procedure. Even if they win that, there is an interest rate of 2%, which is nothing really. To me, it ought to be a criminal offence if landlords wilfully avoid passing these payments on to their tenants. It is a form of fraud and I have no doubt whatever that there will be many examples of it. I understand the Government’s difficulty in delivering this but there needs to be a concentrated effort to make sure that people are aware of their rights and that it is clear how the system works.

[Lord Lennie (Lab)]

My Lords, first, I apologise for being slightly late in attending. I hope you will allow me to make the comments that I want to, in following up those from the noble Lords, Lord Hodgson and Lord Teverson.

I thank the Minister for his introduction to the SIs. They are regulations that seek to put right a substantial loophole in the arrangements set out under the energy price assistance scheme. As we have heard, this concerns customers who do not pay their energy directly but where, for instance, it is paid by an intermediary. These categories of consumer are at risk of not receiving the relief that should be guaranteed under the energy price support or for businesses under energy relief schemes. It is right that we should correct this, and quickly, so our support for these instruments is not in doubt.

The design of the SI to deal with all the problems is, however, somewhat at risk. Generally, the SIs require the intermediary to provide a fair and reasonable pass-through of what has been received for bills in the first instance—not necessarily the full amount but a fair and reasonable amount. This has the potential to give rise to complications. What is a fair and reasonable difference between what an intermediary receives and what it passes through? Perhaps the Minister, in his response, could explain what can be taken into account in establishing what is seen to be a fair and reasonable payment.

I understand that there is no sanction on any intermediary if it fails to pass on what it is supposed to pass on. As we heard from the noble Lord, Lord Hodgson, a customer’s redress is through the civil courts, and some draft letters have been provided for that to happen. But in the light of the comments by the noble Lord, Lord Hodgson, about the inequality of arms and so on, does the Minister believe there is any likelihood of a customer taking a landlord to court over a failure to pass through part or all of the payments they should have received? The Secondary Legislation Scrutiny Committee talks about the “inequality of arms”, and there is a massive gap in power between landlords and vulnerable tenants.

In the limited cases of district heating schemes, as we have heard, if the pass-through is not sufficient there is a recourse to the Energy Ombudsman, but this is not available in the majority of cases. Why is the ombudsman not available to all customers who do not receive the pass-through from their landlords?

Finally, given that these SIs seem unlikely to resolve all pass-through problems, will the Government commit to monitoring this and establishing exactly what the facts are on the ground—as the noble Lord, Lord Teverson, said, we are not entirely sure how many people will be in this situation? Will they, if necessary, review these SIs quickly thereafter to make them fit for all circumstances and pass-through payments?

[Lord Callanan (Con)]

I thank all three noble Lords who have contributed to the debate for their questions. These regulations are essential to the successful implementation of all the energy support schemes. They will help to ensure that the support reaches the intended beneficiaries. We are all agreed on that.

To continue to empower all energy consumers, we have provided more information via our online guidance, especially to some of the most vulnerable energy end-users, such as older people and those with disabilities. The Government will continue to engage with all relevant stakeholders in this sector, including the energy regulators, energy companies and civil society, on the delivery of the schemes—for example, SSE, Electric Ireland, Ofgem, the Utility Regulator of Northern Ireland, MoneySavingExpert and the Consumer Council. We will also continue to monitor the schemes to ensure that this support is provided to the people and businesses it is designed to help.

In addition—this responds to some of the questions raised—we are committed to reviewing the energy price guarantee and energy bill relief schemes by the end of the year, and of course we will work with stakeholders to ensure that their feedback is taken into account. We will use these reviews to consider how best to offer further support to the customers most at risk from energy price increases beyond April 2023. Looking ahead, the Government are working to deliver the energy bills support scheme alternative fund payments and the increased alternative fuel payment of £200.

My noble friend Lord Hodgson asked a question relating to the so-called inequality of arms—I completely understand the point he is making—and in particular the support for vulnerable people. The noble Lord, Lord Teverson, asked a related question on ensuring that end-users are aware of what they are entitled to. The regulations take this scenario into account. Where an intermediary receives energy support but has multiple end-users, the regulations say that it should determine a just and proportional method of dividing the benefit among those end-users, and clearly communicate how it has arrived at the amount allocated to the end-users.

Of course, we are keen to ensure that all end-users, including those who are vulnerable, receive the benefits of the schemes to which they are entitled. As such, we have been delivering and building a communications campaign. In addition, we have of course engaged with landlords, housing associations and charities that protect those who are most vulnerable.

For example, in developing the energy bills support scheme, we regularly engage with consumer groups and charities precisely to ensure that the scheme reaches the groups most in need and that we reach vulnerable consumers across the UK via a broad suite of communication channels. As well as working with charity and consumer groups, we work with stakeholders including local authorities, faith groups, the rural network and food banks to help disseminate information about the scheme and how it works.

We also recognise that many vulnerable consumers are on traditional prepayment meters. We have a communications campaign outlining the actions that these people need to take to receive their discount. For example, we have made details available via social media posts, radio broadcasts and posters translated into several languages.

In response to the question from my noble friend Lord Hodgson about compliance, the EBSS has a robust compliance and monitoring framework. Data has now been published showing that, in the first month, 97% of payments were successfully delivered to eligible households in England, Scotland and Wales. Where a supplier appears to be falling behind expectations, we will engage directly with them and ensure compliance. We will publish monthly updates until the end of this scheme. The EPG and the EBRS also have robust monitoring and evaluation in place to ensure that the schemes are operating effectively. As I said, they will be subject to review by the end of the year.

The noble Lord, Lord Teverson, asked about how we divide the scheme benefit between end-users. For the EBRS, the obligation is on the intermediary to pass on the benefits of the scheme, not the energy retailers themselves. The noble Lord will recall that the EBRS is a discount that is applied to the unit price of gas and electricity; it is not a direct payment to the suppliers. The energy suppliers will provide the appropriate EBRS price reduction to their customers, some of whom will be intermediaries, based on their contract type. Intermediaries will then be expected to pass on to their end-users a just and reasonable amount. That would be the case in the majority of park homes, where the site owner is on a commercial tariff.

The noble Lord, Lord Teverson, also asked me how park home residents will receive the payment. As I said, the majority of those households receive their energy bill support scheme payment automatically via their domestic energy supply contract. However, a small number of households do not have a domestic energy supply contract and, as such, will receive the £400 in funding through alternative funding mechanisms; it will not be delivered through electricity suppliers. We are currently working with delivery partners to make sure that the £400 support is provided to households at their primary residence. This includes those who do not have their own direct domestic electricity meter or a direct relationship with an energy supplier, including park home residents.

In response to the noble Lord, Lord Lennie, who asked what a “just and reasonable” amount might be, the regulations go further than simply setting out the just and reasonable test: they have been drafted to give examples of what is just and reasonable. Intermediaries are obliged to provide details to end-users setting out why they consider what they have done to be just and reasonable. The guidance published alongside the regulations gives further colour to the concept.

Intermediaries must pass on the discount irrespective of how the end-user pays for their energy use. They can adjust the amount that they pass on based on their charges to end-users; crucially, they have to demonstrate to end-users that this amount is just and reasonable. Intermediaries can take into account the extent to which they have increased their charges to end-users as a result of the energy crisis. For example, if the intermediary has shielded their end-users from the impact of increased energy prices, in those circumstances, it may be just and reasonable for them to retain some or all of the scheme benefit. The circumstances will be very individual.

16:15

The noble Lord, Lord Lennie, also asked how enforcement would work in practice. Ofgem and the Energy Ombudsman regulate energy suppliers. Unfortunately, most intermediaries are not energy suppliers. Therefore, it would not be appropriate for Ofgem to regulate private landlords, for example.

Ultimately, I am afraid that a court hearing is the best option for enforcement, except in the case of heat networks, where a regulator is in place. That would be the last resort for an end-user pursuing redress. The regulations and the associated guidance clearly set out that the parties must engage formally in writing with each other prior to any claim being considered in court. We are, of course, hopeful that this would resolve most issues. In the case that that is not enough and the court process is initiated, there would be a mediation stage, and so a further opportunity for parties to reach an agreement, we hope without a trial. There is also an option for end-users to make an online claim, which is a simplified and shortened process.

In response to the question from the noble Lord, Lord Lennie, about calculating what amount of benefit would be just and reasonable to pass through, the intermediaries should consider several points. First, if there is equipment which automatically charges a tariff for usage, such as electric vehicle charge points, the tariff must be amended to reflect the full scheme benefit. Secondly, if at the time the scheme benefit was provided to the intermediary it was charging its end-users based on usage or on some other division of the energy, heating or hot water costs, the intermediary must again pass on the scheme benefit in the same proportions. In all other cases where the above considerations do not apply, the intermediary must use the best available information to calculate the amount to pass through.

Finally, in response to the noble Lord’s question about debt procedures, as I said, they can go through the county court. The cost and speed of claims through the county court process vary across the UK. On costs, the fee ranges from £35 to £455 in England and Wales; from £19 to £108 in Scotland; and from £39 to £130 in Northern Ireland. That fee is based on the amount that is claimed plus any interest. If the exact amount of the claim is not known, the claimant must estimate the amount they are claiming and pay the fee for that particular amount. The defendant may pay the debt and the claim can be withdrawn. If the claim is disputed, the court may offer mediation. If both sides agree to mediation, the mediator will speak to each party to attempt to negotiate a settlement. In terms of time, a claim to a county court can currently take between six months and a year.

I hope I have answered all the questions.

[Lord Hodgson of Astley Abbotts (Con)]

I am grateful to my noble friend for his very thorough answers. I might have misheard, but I do not think he said why there is an appeal procedure in respect of heat in Statutory Instruments Nos. 1101 and 1124 and not in respect of energy. Clearly, one of the things that answers the inequality of arms is an ombudsman who is there to step in if things go badly wrong. I was not quite clear why it was in one group and not the other.

[Lord Callanan (Con)]

The answer to my noble friend’s question is that there is already a regulator in place for heat networks, so it is appropriate to use the regulator. Unfortunately, for most of the other circumstances there is no regulator in place, which is why we have had to default to the court process. I totally accept his point about the inequality of arms. I am not unrealistic about the difficulties that many tenants and others will face in trying to enforce their rights under this, but all we can do is put the regulations in place, publicise them and make sure that people know their rights. We will keep the scheme under constant review. We will ensure that the payments are passed through and that people receive the benefit to which they are entitled. We will not hesitate to act further if there is widescale avoidance of this responsibility.

[Lord Lennie (Lab)]

Following up the point from the noble Lord, Lord Hodgson, is there then a possibility in the review that an ombudsman for the energy sector —not Ofgem—could be established or that the heat regulator could cover energy? I am not saying that that is going to happen, but it is a possibility. Secondly, the Minister kept saying that landlords “must pass on”, but if they fail to do so there is no sanction in the legislation; they just do not pass it on and they get away with it. Should there not be some sort of sanction for landlords if they fail to pass on just and reasonable costs to consumers?

[Lord Callanan (Con)]

The sanction is that the person who does not receive the benefit can take the matter to court. That is the point I am making. I am not pretending that this situation is ideal, but many landlords, charities and others involved in the sector are, by their very nature, not subject to energy regulators. Of course, if they are energy supply companies, such as heat networks, they are regulated by Ofgem, which is the energy regulator. All these intermediaries encompass a range of operators, from park home operators to landlords of houses in multiple occupation. It is difficult to see how we could establish an overall regulator for all these different circumstances, particularly as the whole thing is only temporary, for as long as the support scheme lasts.

We have attempted to address the situation as well as we can, by providing the appropriate guidance and by making sure people have access to enforcing their rights. I do not pretend to disagree with noble Lords that the situation is not ideal, but we have addressed it as best we can. I commend the regulations to the Committee.

Motion agreed.