Draft Electricity Supplier Obligations (Green Excluded Electricity) (Amendment) Regulations 2023
(1 year, 8 months ago)
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The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
I beg to move,
That the Committee has considered the draft Electricity Supplier Obligations (Green Excluded Electricity) (Amendment) Regulations 2023.
It is a pleasure to serve under your chairmanship this evening, Sir Edward. The regulations were laid before the House on 8 February 2023. The draft instrument makes an amendment to the Contracts for Difference (Electricity Supplier Obligations) Regulations 2014 and the Electricity Supplier Obligations (Amendment & Excluded Electricity) Regulations 2015.
The amendment removes a condition on the contracts for difference scheme that derives from the European Union’s state aid approval of the scheme. It will remove the availability to electricity suppliers in Great Britain of a partial contracts for difference scheme cost exemption, which currently allows for an electricity supplier’s cost obligations to be disproportionate to the supplier’s market share. The contracts for difference scheme is the Government’s flagship renewable electricity support scheme. It has been hugely successful in driving the substantial deployment of renewables at scale in Great Britain while rapidly reducing costs to electricity customers.
Payments to electricity generators supported by the contracts for difference scheme are funded through a compulsory levy on electricity suppliers in Great Britain, known as the supplier obligation. Individual companies contribute to the cost of these schemes in proportion to their share of the GB electricity sales market. Electricity suppliers can seek a partial exemption from these costs for renewable electricity generated in an EU member state and supplied to customers in GB.
Our aim in making the change is to address the distortion created by the exemption, and to remove the incentive for GB suppliers to import renewable electricity generated by EU member states. The exemption will continue to apply to electricity supplied up to and including 31 March 2023. The green excluded electricity exemptions were introduced as a condition of the state aid approvals granted by the European Commission to the CfD scheme.
The UK having left the EU, the Government believed it was appropriate to undertake a review of the exemptions, so that the UK could continue to ensure equal opportunity for all potential trading partners. This change is a result of that review, and it will ensure that all suppliers subject to the supplier obligation levy pay an amount that is more proportional to their market share.
The Government, in consultation with industry, see a clear rationale for the removal of the green excluded electricity exemption from the CfD scheme. The change will bring about closer alignment between a GB electricity supplier’s market share and its proportion of the CfD scheme cost. Subject to the will of Parliament, the arrangements will come into force on 1 April 2023. By removing the exemptions, we are delivering on one of the Government’s priorities, which is to address the legislative legacy of our EU membership. I commend the regulations to the Committee.
Dr Alan Whitehead (Southampton, Test) (Lab)
This statutory instrument is, in principle, pretty straightforward. It removes something that, as the Minister said, was a consequence of state aid discussions, which took place when the CfD first became a major instrument of renewable development in the UK. It deals with the CfD that was in place in the UK, and a potential loophole in state aid regulations. Suppliers importing electricity from Europe should not have that supplier obligation applied to them and the electricity they are bringing in from European sources.
So far, so good. I agree that since we do not now have responsibilities as far as state aid is concerned, it is really no longer relevant to continue with an arrangement that was dependent on a state aid loophole. However, that has a consequence, which the Minister alluded to: pretty much all the energy that comes in from Europe has to come in through an interconnector. In the past, suppliers on this side of an interconnector, having contracted for something to come through that interconnector to the UK, had to produce evidence of the extent to which whatever came through the interconnector would otherwise have been eligible for a payment into the Low Carbon Contracts Company. There was a supplier obligation to pay out the generators, which were getting money from the low carbon contract in respect of the strike price that they had set up for the CfD. They had to provide evidence of the power coming in to claim that there was no money to pay, as it were, for that supply coming in.
Now the opposite is the case. It appears that suppliers will have to provide evidence of what is coming in, as a renewable source, via the interconnector from Europe, to ensure that they do pay. I presume that they will be paying into the Low Carbon Contracts Company in the same way as other people who are eligible in the UK, as far as CfDs are concerned.
My first question is this: why would any company that now has to do the reverse of what it did previously—produce evidence of a green import through an interconnector in order not to pay—willingly give evidence to pay? Would the company not simply say, “We don’t know where our power comes from. It comes through the interconnector, so it might be renewable or it might not”? If the company did have to pay, rather than being exempted, the likelihood of it ensuring that it did not put any evidence in that anything had come in from a renewable source would be quite high. Nothing in these regulations suggests that the Government would require that evidence to make people pay, and there is nothing about any penalties or enforcement against bodies that did not supply that information for the purposes of paying in future. Do the Government have any view on that development possibly taking place?
The second issue, as I am sure the Minister will be aware, is that we do not have an inversion in place as far as the relationship between CfD strike prices and reference prices is concerned. That means that, instead of the normal procedure as far as CfD holdings in this country are concerned, the supplier does not get a payment out of Government in respect of the strike price. As the reference price is consistently above the strike price, or it is at the moment, the supplier has to pay back into the Low Carbon Contracts Company. The company then has a reasonable obligation to pay that money back to suppliers.
Are suppliers newly obligated to pay money into the LCC for CfDs, which were previously exempted, but also to get money from the LCCC when the general strike price is inverted against the reference price? Is that an indication that those companies might have to report what they are bringing into the country, and register that renewables have come in and that, therefore, they might be eligible to get money back, as far as their contribution to CfDs are concerned? If the Minister can enlighten us on those two points, I would be grateful, but we have no intention of opposing the instrument.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is a pleasure to serve under your chairmanship, Sir Edward. The regulations are straightforward, and I will try to keep my remarks to around 15 minutes, so that we can get to the Chamber for the statement. The Minister said that the regulations would help counteract the disincentive, or would incentivise some suppliers to import renewable energy from the continent, instead of generating it in Great Britain. I wonder how much work has been done to assess that, because I note that no impact assessment has been undertaken for the effects of this statutory instrument. I would like to know how the Government think that it will disincentivise that operation.
If we are looking at disincentivising the importing of electricity, we really need to look at the grid charging regime and not have the north of Scotland having the highest grid charges in Europe, because imports of electricity do not pay any grid charges. That is a glaring error that needs to be tackled.
I agree with the Minister that CfD has been a success story; I am quite happy to put that on the record, and to commend it, but as we move to allocation round 5, he is, I hope, aware that there are real costs and inflationary pressures, and there will be real issues with the strike rates that have been talked about for AR5. That needs to be reviewed. I will just make a plug for tidal stream energy: it should have a much bigger ringfenced pot.
Andrew Bowie
I thank hon. Members for their contributions. The hon. Member for Southampton, Test, made some good and sensible points on the SI and the policy. It is only right and proper that companies provide evidence that they are importing electricity. This SI was brought forward following extensive consultation with industry, and we expect companies to do the right thing. In terms of sustaining extra costs, those suppliers who have used the exemption will pay the scheme a cost in closer proportion to their market share. There are more suppliers who will benefit from this change than not. The change is considered to be very minor. The extra cost that the companies will pay will be minor, and we do not suspect that it will be in any way a disincentive for them to declare that they are importing energy.
I welcome the fact that the hon. Member for Kilmarnock and Loudoun put on record that he considers CfD to be a success. I agree: it certainly has been a success. Indeed, we have only to look at my constituency and the number of wind turbines springing up off the coast of Aberdeenshire. On grid connections and the cost for electricity generation in Scotland, he knows that there is a trade-off, and that consumers in Scotland pay less as a result of the higher charges being placed on electricity generation. That is not to say that there are not issues that need to be addressed. I agree that there are, and we should look at them. I hear loud and clear his comments on tidal stream energy. In fact, I have been to see the exciting developments in Orkney, and I look forward to doing more on this.
Dr Whitehead
I am grateful to the Minister for giving way. He passed over my point about whether the suppliers will get a payout from the LCCC when the difference between the strike price and reference price is inverted from its normal position. If they will, how much will that come to?
Andrew Bowie
I am terribly sorry: I will have to write to the hon. Member on that point, but I will get an answer to him in the next couple of days, because it is important that it is answered.
I hope that I have given hon. Members the necessary assurances to approve the statutory instrument. As I said, the changes in these regulations will mean that a supplier in GB will pay a proportion of the CfD scheme cost that is closer to its market share; will remove the condition imposed on the British scheme by the European Commission; and will remove the incentive for GB suppliers to import EU-generated renewable electricity. They must be made now, ahead of the end of the scheme’s reporting period on 31 March, so that electricity suppliers and the scheme administrators can plan accordingly.
Question put and agreed to.
Draft Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2023
(1 year, 8 months ago)
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The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Lee Rowley)
I beg to move,
That the Committee has considered the draft Non-Domestic Rating (Rates Retention: Miscellaneous Amendments) Regulations 2023.
It is a pleasure to serve under your chairmanship, Mr Hosie. I realise that this is the big issue before Parliament today, so I shall focus on it.
Business rates are governed by a raft of secondary legislation that needs to be updated more or less annually to ensure that it reflects changes made to the rates retention scheme and to the structure of local government. The miscellaneous amendments in the draft regulations will ensure that for the forthcoming financial year, the retention scheme operates as intended and everyone receives the funding they expect.
The draft regulations make changes to four of the seven principal sets of regulations that govern the operation of the rates retention scheme. First, the Non-Domestic Rating (Transitional Protection Payments) Regulations 2013 provide for authorities to receive compensation where their business rates income is lower than it otherwise would be as a result of transitional measures put in place by Government. The draft regulations make a small change for 2023 and future years to ensure that the calculation ignores the newly introduced public lavatories relief, so that compensation is calculated and paid on the true cost of the transitional arrangements put in place following the revaluation.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I have a tiny point to make. Do the draft regulations cover the whole of the UK, just England, or England with Wales?
Lee Rowley
I had to check, but it is England.
Secondly, the Non-Domestic Rating (Rates Retention) Regulations 2013 provide for the day-to-day administration of the rates retention scheme. As part of those arrangements, the City of London is allowed to retain a small amount of business rates income outside the scheme in recognition of its low resident population and its limited ability to raise council tax income. The amount that the City is allowed to retain normally changes each year in line with the change to the business rates multiplier. In 2023, that multiplier is not changing, so the change before the Committee isolates the inflationary uplift and ensures that it is applied to the City offset. Without the change, the City would see no increase in the coming financial year.
Thirdly, the draft regulations make changes to the Non-Domestic Rating (Levy and Safety Net) Regulations 2013. Under the rates retention scheme, authorities may receive financial help if their business rates income declines. The cost of making the safety net payments is met in part by a levy on those authorities whose income is growing. The levy and safety net regulations set out in detail how such payments are to be calculated and make adjustments accordingly.
Mr Sheerman
The Minister is being very good at giving way, and being fast and getting through the business as we all want to, but as a newly appointed freeman of the City of London, may I press him? I hope the measure does not mean that the City of London gets special privileges, does it?
Lee Rowley
It is an accommodation within the existing regulations, as I understand it, given that the City of London is incredibly atypical in having large service requirements but a very low residential population. There has to be an accommodation somewhere in the processes for the realities in the City of London to ensure that it can still support the services it needs to provide for those visiting, living and working within the City.
Nick Smith (Blaenau Gwent) (Lab)
Does the Minister have an estimate of the benefit to the City of London of the particular opt-out that it enjoys?
Lee Rowley
I do not have an estimate, but I am happy to write to the hon. Gentleman with it. The principle behind the change has been in place for a number of years. As a result of freezing the multiplier, we are simply seeking to ensure the continuation of the situation that would otherwise occur had we changed the multiplier.
The regulations make changes to the non-domestic rating regulations on the basis of distribution of the levy account. I said a moment ago that safety net payments made to authorities whose business rates income has declined are paid for in part by a levy on those who have experienced growth. All levy and safety net payments are made to or from a levy account. Any surplus on that account can at year end be repaid to local government or carried forward against future deficits. If it is repaid, it is distributed to authorities as set out in the basis of distribution regulations. The changes we are making to those regulations pick up the changes to the structure of local government. They also ensure that those authorities will receive a share of the £100 million surplus held in the levy account that the Government announced in the local government finance settlement that it would be redistributing back to local authorities this year.
Although the changes are relatively technical in intent, they make a number of critical changes to the administration of the business rates retention scheme. Without them, authorities would find themselves without the income from the rates retention scheme that they anticipate and according to which they have budgeted. I commend the regulations to the Committee.
Sarah Owen (Luton North) (Lab)
It is a pleasure to see you in the chair, Mr Hosie. Since we last addressed the topics outlined today, it seems little has changed to clarify how the policy will support local communities in the long run, particularly small and medium-sized businesses in our constituencies. High streets have been hit hard and are increasingly run-down, with hardworking business owners having to accept defeat in the face of impossible financial difficulties and short-sighted decisions made by this Government as they lurch from crisis to crisis.
While Labour has a clear plan to scrap business rates and bring in wide-reaching reforms to even out the playing field, we are still not clear what the Government are proposing. The threshold for rates relief for small businesses is still too low, at just £15,000, and online giants are still not paying their fair share of taxes, with a digital service tax not high on the agenda. How can we say to our communities that high street shops such as Marks & Spencer—known, valued local businesses—are paying more in tax than online giants such as Amazon? That is not levelling the playing field. It is ripping the guts and hearts out of our communities.
Will the Minister share any progress on implementing fair taxes for major online businesses? Will they finally be made to pay a proportionate amount back to this country in the way that our home-grown small and medium-sized enterprises do? The Minister knows well the pressures that local authorities are under. It is something we have both discussed and, at some points, locked horns on. They are working on shoestring budgets and with staffing shortages. The last thing councils need now is the administrative challenge of processing new rates without the extra resources to cope. Will the Minister confirm whether local authorities will receive extra resources to deal with the administrative burden?
In our last meeting on business rates, I made those concerns clear to the Minister. He responded by pledging to carry out new burdens assessments ahead of implementation. Can he advise me on whether the assessments have taken place? If so, would he be willing to share with the Committee and myself their findings?
Off the back of the question from my hon. Friend the Member for Blaenau Gwent, will the Minister please share the value of the opt-out for the City of London? The Minister also said that, if it was decided, additional support that might be needed would be provided to councils. Has any support been allocated since we last discussed the issue? As we stated in the last such session, we will not oppose the regulations, but this time we want assurances that appropriate assessments are being carried out to ensure that the strain on councils does not grow even greater and that those that need the support will get it.
Lee Rowley
I thank the hon. Lady for her questions, which I will try to answer in a number of buckets.
I accept that the Government and the Opposition have a different views about how to approach business rates, and I recognise that we will not resolve that this evening, but we are trying to ensure that there are regular revaluations. We committed to that, and the Prime Minister—the former Chancellor and Minister for Local Government—has highlighted in his various guises the importance of regular revaluation. I think that is genuinely welcome, and it is important that we do that.
As a result of the changes that have been made, a multi-billion pound support package is coming that will provide significant support to businesses across the country—in particular for businesses such as pubs. It is important to highlight that we need to continue the business rate system. Labour Members talk extensively about how it does not work, but less about what they would replace it with, beyond the high level. We must ensure that the system is updated, that it has a significant amount of support within it, and that it works for the long run.
The hon. Lady talked about online businesses. That is obviously a challenging issue to get right, but I gently note that as part of the revaluation, there will be a significant uplift in business rate costs for some manifestations of online businesses—warehouses and the like—so I hope that the Opposition will welcome that.
On resources, it is important to note that part of one of the four changes in the thing we are actually voting on—we obviously talk about broader issues relating to business rates regularly—a significant amount of money is being redistributed to local authorities. I am grateful to the hon. Lady for confirming that she will not press these regulations to a vote. Where money is in the system—in the levy account—and is not needed because we think we can accommodate the coming year and beyond without having to retain it, we are giving it back to local authorities, which understand better what to do with it.
On new burdens funding and the City of London, I am happy to write to the hon. Lady and the hon. Member for Blaenau Gwent with more information after the Committee. I am grateful for the Opposition’s confirmation that they will not oppose the regulations and I commend them to the Committee.
Question put and agreed to.