Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Geddes) (Con)
My Lords, it is now 3.45 pm. If there is a Division in the Chamber while we are sitting—which I am advised is singularly unlikely—the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Strikes (Minimum Service Levels: Fire and Rescue Services) (England) Regulations 2024
(9 months ago)
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Lord Sharpe of Epsom
That the Grand Committee do consider the Strikes (Minimum Service Levels: Fire and Rescue Services) (England) Regulations 2024.
Relevant document: 15th Report from the Secondary Legislation Scrutiny Committee
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, these regulations were laid before Parliament on 8 February, following publication of the department’s response to its consultation on implementing minimum service levels for fire and rescue services. Before we get into the detail, I would like to take a moment to pay tribute to all those who work in fire and rescue services: for all that they do, I am extremely grateful.
The services provided by fire and rescue authorities are critical to the safety of the public and the protection of property and the environment. It is therefore crucial that the public remain able to access fire and rescue services when they need them. The overarching aim of these regulations is to help ensure that this happens on strike days. Using powers introduced by the Strikes (Minimum Service Levels) Act 2023, the regulations will allow fire and rescue authorities to issue work notices to ensure that there is sufficient cover to answer all emergency calls and respond to fire-related emergencies as if strike action was not taking place.
The minimum service level for fire and rescue services includes three core aspects. These are control rooms, emergency incident response and fire safety services. Broadly speaking, the responses to the Government’s consultation, including those from the majority of fire and rescue services, were in favour of a nationally set minimum service level, but with a degree of local flexibility. This is reflected in the provisions set out in the regulations.
For control rooms, the minimum service level makes sure that emergency calls are answered and assessed, and resources dispatched to emergency incidents, as if it were a non-strike day. Decisions on the number of staff required to fulfil these functions will be for individual fire and rescue authorities to take.
For firefighters, we have set the minimum service level at 73% of the appliances—by which I mean fire engines and other fire and rescue service vehicles—that would be available if strike action were not taking place at that time. Individual fire and rescue authorities will be able to determine the number of staff required to safely crew and oversee these appliances.
The decision to set this aspect of the minimum service level at 73% is based on detailed modelling, summarised in our consultation response. The modelling calculates the proportion of days over the past five years on which demand exceeded the number of appliances required to meet a minimum service level set at different thresholds. The model identified 73% as the threshold at which every fire and rescue service would have enough appliances available to meet emergency demand on more than 97% of days. In the interests of public safety, we therefore consider 73% the most appropriate point at which to set this aspect of the minimum service level.
Many fire and rescue services also host national resilience assets, which would form an important part of any response to major and significant incidents, such as a major building collapse or a wildfire. It is of the utmost importance that fire and rescue services can maintain these capabilities and keep the public safe. This is why the minimum service level for national resilience assets is set so that they are capable of being deployed as if the strike were not taking place. Like other provisions in the regulations, fire and rescue authorities will consult trade unions and determine the number of staff required to meet this minimum service level.
The third key element of the minimum service level is to provide cover for urgent fire safety issues. Under the regulations, fire and rescue services will be expected to have staff available to rectify any emerging issues that pose an imminent risk to life and so would normally require a same-day response. This could include any significant fire safety issues uncovered at residential or public premises. Individual fire and rescue authorities will be able to determine how much cover will be required for these activities, although we anticipate that the number of urgent fire safety issues emerging on a strike day is likely to be relatively small.
The minimum service level set out in these regulations is designed to balance the ability of workers to take strike action and the need of the public to access essential services. In summary, this is a proportionate step to ensure that public safety is protected on strike days. I beg to move.
Lord Hendy (Lab)
My Lords, in the debate on the strikes/minimum service legislation and the regulations made under it, the rationale for the right to strike sometimes gets overlooked. I will cite for your Lordships three very short passages, not from Marx and Engels or Sidney and Beatrice Webb but from the highest courts in the United Kingdom and Canada.
First, I cite a case of the Judicial Committee of the House of Lords from 1942, Crofter Hand Woven Harris Tweed v Veitch, in which Lord Wright said:
“Where the rights of labour are concerned the rights of the employer are conditioned by the rights of men to give or withhold their services. The right of workmen to strike is an essential element in the principle of collective bargaining”.
The second authority that I want to put before your Lordships is a case in the Supreme Court of Canada from 2015, Saskatchewan Federation of Labour v Saskatchewan. In it, the Chief Justice cited an earlier case in the Ontario High Court, with approval, in which it was said that
“freedom of association contains a sanction that can convince an employer to recognize the workers’ representatives and bargain effectively with them. That sanction is the freedom to strike. By the exercise of that freedom the workers, through their union, have the power to convince an employer to recognize the union and to bargain with it … If that sanction is removed the freedom is valueless because there is no effective means to force an employer to recognize the workers’ representatives and bargain with them. When that happens the raison d’être for workers to organize themselves into a union is gone. Thus I think that the removal of the freedom to strike renders the freedom to organize a hollow thing”.
Finally, in a later passage, the Chief Justice said:
“The right to strike is essential to realizing these values and objectives through a collective bargaining process because it permits workers to withdraw their labour in concert when collective bargaining reaches an impasse. Through a strike, workers come together to participate directly in the process of determining their wages, working conditions and the rules that will govern their working lives … The ability to strike thereby allows workers, through collective action, to refuse to work under imposed terms and conditions. This collective action at the moment of impasse is an affirmation of the dignity and autonomy of employees in their working lives”.
As your Lordships well know, collective bargaining operates successfully in the fire service, including in relation to incidents that may occur when strikes are called. Those issues are negotiated, as are terms and conditions and—most recently, of course—pay, but the effect of these regulations will be to remove the right to strike for a large proportion of the staff of the fire and rescue service. For example, as the Minister pointed out, 73% of appliances and crew must be available, as on a non-strike day. In my local fire station, there are three appliances, so the application of the 73% rule means that all three must be present, available and fully crewed on any strike day.
In addition to that, 100% of control room staff must be available, as must 100% of the staff whose job it is to work national resilience assets such as high-volume pumps and, I think, aerial ladder platforms. The effect of these regulations will be to diminish the bargaining power of the fire and rescue service’s workers and union, which will result in worsening terms and conditions and will lead to difficulty in retention and recruitment.
The United Kingdom has ratified ILO Conventions 87 and 98, which protect the right to organise and to bargain collectively. They are two of the five fundamental conventions of the ILO, the importance of which the UK recently reasserted in the trade and co-operation agreement it reached with the European Union when leaving. Under Article 387(2) of that agreement, the obligation on the EU and the UK is as follows:
“A Party shall not weaken or reduce, in a manner affecting trade or investment between the Parties, its labour and social levels of protection below the levels in place at the end of the transition period, including by failing to effectively enforce its law and standards”.
The words
“labour and social levels of protection”
are defined in Article 386 as including the fundamental ILO conventions. Under Article 399(2),
“each Party commits to respecting, promoting and effectively implementing the internationally recognised core labour standards, as defined in the fundamental ILO Conventions”,
which it then summarises.
It is clear that these regulations will lead the United Kingdom to be in breach of its international legal obligations. It is true that the ILO jurisprudence permits a state to adopt minimum service legislation, but that is on one condition, which has a number of aspects. First, the minimum service level must be the subject of negotiation between the social partners; secondly, the fulfilment of that minimum level of service in any particular firm or enterprise must be the subject of negotiations between the unions and the particular employer; and thirdly, in the event of disagreement, there must be an established method of resort to either judicial or arbitral resolution of the failure to agree. That applies in all the countries in western Europe.
There is a fourth element to it. Where workers are deprived of the right to strike, such as, in our case, control-room staff, compensatory measures must be adopted by the state which bars the right to strike. The compensatory measures are that the ability to seek arbitration must be speedy, binding, independent and impartial. None of those conditions is available under these regulations or indeed under the Act itself, so I ask the Minister, how can the UK be said to uphold the rule of law in the face of what is a clear breach? How will the Government explain this discrepancy to the European Union?
Baroness Twycross (Lab)
My Lords, I declare an interest as London’s deputy mayor for fire and resilience. However, I am speaking in my capacity as a Member of your Lordships’ House.
I have had the privilege and pleasure of over a decade’s involvement in the fire service. Until last summer, this has included being involved with the collective bargaining referred to by my noble friend Lord Hendy, as a member of the national pay negotiating body for fire, the National Joint Council—NJC—which is made up of employers and employees, including the FBU. The NJC is a negotiating body that successfully negotiated a two-year agreement on pay last year, in stark contrast to the Government’s many failures in negotiations in other parts of the public sector. The Government’s failure to negotiate successfully is not a good enough reason to introduce unreasonably restrictive legislation. On these Benches, we are committed to repealing these measures.
Lord Goddard of Stockport (LD)
My Lords, I speak on this minimum service level agreement from a unique position: I spent 25 years working for British Gas and was a GMB union negotiator for 35,000 gas workers. Roll on to when I was in local government; I was on the Greater Manchester Fire and Rescue Service for 15 years and on the NJC that dealt with the FBU on national pay negotiations. In both those exercises, as poacher and gamekeeper, even in the bitterest disputes, one thing was certain: public safety was the primary concern of the gas industry and the Fire Brigades Union.
Introducing minimum strike levels is a sign of desperation from the Government. I have seen minimum strike levels—I think they are in the railways now, are they not? The difference between railwaymen and fire- fighters is that firefighters, as has been said, are vocational; they do this from the heart, as well as doing it as a job. I have been at Euston station, where there are supposed to be minimum service levels for trains and train drivers, and seen hundreds of people trying to get home to Cardiff, Manchester and Glasgow while there are picket lines outside. With the FBU, whenever there is a fire, the fire brigade turns out and puts it out whether it be Grenfell, the Woolworth fire or Kings Cross.
As a party, the Liberal Democrats take the view that fire safety is extremely serious. We continually emphasise the ongoing importance of the victims of disasters and want to ensure the safety of the public against the risk of fire. However, the main threat to the fire and rescue service comes not from this agreement but from central government’s cuts to the fire service. It is being expected to do more and more with less and less. Having had 20% cuts in real terms since 2013 means that all fire authorities are struggling to meet their budgets. If you talk to people from Greater Manchester, Merseyside, South Tyneside, Yorkshire and the West Midlands, along with London, Cleveland and Humberside, they will all say that they will receive slightly more this year but that inflation has removed all the benefits. So fire brigades are trying to do more with less, and the Government want more from that.
The Minister—he is the messenger in this place so this is nothing personal—would do well to go back to the other place and say to the Minister there, “Instead of looking at minimum strike levels, why don’t you look at rethinking some of your recent decisions like changing the legislation that says that all new schools will have sprinkler systems installed, which you have now reversed?” Think of the damage that could do when schools begin to burn down, whether people are on strike or not. What about revisiting the issue around tower blocks and the need for second staircases to ensure that people who live in those properties can get in and out safely?
Why do the Government not reconsider those sorts of legislative things, which will really save lives? No, they take the big sledgehammer to crack a small nut. That is all the Government are trying to do here. I know Matt Wrack and the unions. I have found that they always say, “At the end of the day, if we’re needed, we will turn out”. Sometimes, the Government have to step up, acknowledge that, stop messing about with these minimum levels and go to the heart of the problem with a number of industries in this country: the funding for and protection of firefighters.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank the Minister for introducing this statutory instrument and join him in paying tribute to all those who work in this area.
As the Minister said, on 8 February this year, the Government published their minimum service levels for fire and rescue services in England. These new laws will restrict the ability of firefighters and emergency control staff to take lawful strike action. We believe that the new laws are unnecessary. The FBU has always negotiated a major incidents agreement with fire employers before national strikes. Last year, collective bargaining between the FBU and fire employers meant that there were no fire strikes. An acceptable pay agreement was reached and endorsed by the firefighters.
The minimum service level regulations state that fire and rescue control rooms must function during industrial action as if it were a non-strike day. All calls have to be answered, assessed and a response mobilised. Requiring the same standards as a non-strike day is in effect a ban on control staff taking industrial action, despite repeated assurances that it is not a strike ban.
The regulations for minimum service levels of firefighting functions dictate that 73% of appliances usually deployable on a non-strike day must be deployable on days when industrial action is taking place. My noble friend Lord Hendy gave the example of his local fire station, which has three appliances, so it is in effect a strike ban on that station. How many firefighters will be forced to work if a work notice is issued? What is to stop chief fire officers abusing the work notice and forcing all firefighters to work? Ministers have failed to explain how work notices will affect retained firefighters since retained firefighters cannot be compelled to work on strike days; I would be grateful if the Minister could comment on that.
The minimum service level regulations state that national resilience assets, such as high-volume pumps, must be capable of being deployed as if the strike were not taking place that day. This is in effect a strike ban for firefighters deployed on national resilience assets. I would be grateful if the Minister could comment on that.
Ministers claim that these laws are needed because the Army no longer provides cover. The last time the Army was deployed during fire strikes was in 2003. After the coalition Government attacked firefighters’ pensions between 2010 and 2015, the FBU organised 50 separate firefighter strikes in England. The FBU has always signed a major incident agreement with fire employers before national strikes, with provisions to recall firefighters in the event of a major emergency.
Government guidance makes it clear that the liability for work notices lies with fire authorities. Fire employers in England are rightly unhappy with these regulations. Many will not impose work notices because of the impact on industrial relations. Fire Ministers in Scotland and Northern Ireland have refused to implement these laws. It is unclear how these regulations can or will be applied in operation. It is a risk, both legal and reputational, on fire service employers who choose to issue work notices.
The guidance is clear that it is not statutory and that, ultimately, the courts will interpret the law. This places a risk on employers that is compounded by the additional difficulties that are unique to the fire and rescue service. Failure to comply with these unworkable measures exposes individual firefighters to the risk of the sack, while the FBU could also face financial penalties.
The regulations before us today are an example of the Government’s failed approach to industrial relations. No one wishes to see the public disrupted by industrial action. We all wish to see minimum standards of service in our public services but these regulations will not achieve what the Government want them to. They will poison relations when what is needed is a constructive working agreement between management and unions. The Labour Party opposes attacks on working people’s freedoms. That is why we would repeal the 2023 Act and why we oppose the regulations before us today.
Lord Sharpe of Epsom (Con)
My Lords, I am grateful for all the contributions to this relatively short debate. As I outlined in my opening remarks, the Government believe that these regulations are vital to ensure that there is sufficient cover to respond to fire and rescue-related emergencies on strike days. They will help protect the public and provide people who call 999 with reassurance that firefighters will be able to respond quickly to reduce the risk to life and property. Fires can spread quickly and present a serious threat to life and limb; it is vital that such services are available to the public during strike action. Demand for fire and rescue services fluctuates depending on the season, weather patterns and the time of day. As we saw in the tragic fire at Grenfell, without warning, fire can quickly spread, develop into a major incident and cause an unspeakable tragedy that will devastate a community.
I want to be clear that fire and rescue services perform a critical role in our society. It is only right that they respond to incidents that could pose an immediate risk to the public. I say to all noble Lords that we of course recognise the importance of the ability to strike, which is protected by law. We are striving to maintain a balance between the ability of workers to strike and the rights of the public to access the emergency services when they need them.
The noble Lords, Lord Hendy and Lord Ponsonby, and the noble Baroness, Lady Twycross, emphasised that we are challenging the right to strike. I stress again that we are not banning the ability to strike. These regulations focus on maintaining fire and rescue services’ capacity to respond to emergency incidents that posed an immediate risk to the public. Fire and rescue services will be able temporarily to suspend more routine duties that they would normally carry out if such action were not taking place.
Single Source Contract (Amendment) Regulations 2024
(9 months ago)
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The Earl of Minto
That the Grand Committee do consider the Single Source Contract (Amendment) Regulations 2024.
The Minister of State, Ministry of Defence (The Earl of Minto) (Con)
My Lords, since their introduction through the Defence Reform Act 2014, the Single Source Contract Regulations have generally worked well and helped ensure that the prices paid for single source contracts both are reasonable and reflect good value for taxpayers’ money.
There are now some 575 contracts under the regime, with a total value of more than £90 billion. However, any set of regulations needs to adapt as the environment changes. In this case, we have found that the rules continue to work well for traditional defence procurement —for ships, submarines, aircraft and so on—but less well for sectors such as software. Moreover, the imperative to procure things more quickly means that we sometimes need to buy “off the shelf” items without running a competition, either because we need compatibility with existing systems or because we simply do not have any time.
To address this, we completed a detailed statutory review of the regime in 2022. It proposed a series of reforms in a Command Paper, Defence and Security Industrial Strategy: Reforms to the Single Source Contract Regulations, which was published for consultation in April 2022. The changes made by these amendment regulations are the next stage of implementing those reforms. They will deliver improvements to the regime in three key ways.
First, they will increase flexibility around where the regime can be used to ensure that more defence contracts can be single sourced without compromising assurance on value for money and fair prices. The amendment regulations introduce a number of alternative ways of pricing a single source defence contract, most significantly by allowing prices to be set with reference to market rates rather than always having to use the bottom-up default pricing formula. Another example is where existing UK or overseas laws constrain the way prices are set in a way that is inconsistent with the single source regime. In such circumstance, the amendments will allow the disapplication of the pricing formula to the minimum extent necessary to comply with the other law.
There are also cases where it would be useful to disapply the pricing formula to part of a contract, particularly where a contract comes under the regulations significantly after it was signed. This will avoid the need to re-open the pricing of work that may have been completed and paid for years in the past, and will increase suppliers’ willingness to bring long-running contracts under the regime. The amendments will allow the pricing formula to be applied only to new elements of the contract.
Secondly, the reforms will speed up and simplify the way the regulations work in practice. The legislation currently states that, for contracts that fall under the regulations, a single profit rate needs to be applied to the entirety of the contract when it is signed. For some larger single source contracts, it makes commercial sense to use different pricing types for different elements of the contract, meaning that a single profit rate might be too high or too low for some elements.
These amendment regulations will explicitly allow contracts to be split into different components where it makes sense to do so. They will also simplify the determination of an appropriate profit rate for a contract by reducing the number of steps in the profit rate calculation from six to four. The Single Source Regulations Office funding adjustment will be abolished, and the adjustment made to ensure that profit is earned on a contract only once will be moved from a profit calculation and be considered as part of the assessment of allowable costs for contracts.
Baroness Smith of Newnham (LD)
My Lords, I am grateful to the Minister for introducing this statutory instrument and explaining very clearly the purposes of the regulations being proposed.
Unlike so many of the statutory instruments linked to defence, this is quite a weighty document. Some of the amendments are relatively straightforward, although one wonders why nobody scrutinising the 2014 Act spotted the difference between percentages and percentage points. The Minister and I can be exonerated because I joined your Lordships’ House only in October 2014 so I was not party to any scrutiny at that point. I suspect that the Minister was not in the House at that time either and I am sure that the noble Lord, Lord Tunnicliffe, bears no responsibility. However, we clearly always find things that have been omitted. We have already heard that another slight error was found even when these regulations were being laid; that makes it clear how important it is that we scrutinise things properly.
First, what sort of reporting is envisaged for the single source procurements that are being talked about? The Explanatory Memorandum makes reference to
“reports to the Secretary of State”
but is there any scope for parliamentary scrutiny of the procurements that will be in place?
A second major item that I want to ask about is the substitution of Regulation 3, on the meaning of “defence purposes”, with Regulation 4, on the meaning of “defence purposes” and “substantially for defence purposes”. Something that puzzles and worries me somewhat is this statement:
“‘Defence purposes’ means the purposes of defence (whether or not of the United Kingdom), or related purposes”.
Can the Minister explain to the Committee how extensive that can be? Does it relate to the procurement of defence capabilities that we would then export as part of our defence industrial strategy and defence exports? Should we be concerned about aspects of this that could be linked to the export of arms to regimes about which Parliament might have some reservations, for example? Some clarity on that would be most welcome.
The general points that the Minister outlined on flexibility, speed and clarification in the light of the users of single source contracts are sensible, but I wonder whether we could hear more about the extent of the changes; they are to bring in not just “defence purposes” but “substantially for defence purposes”, which can mean 30% or more of a contract. What is that likely to mean for the number of contracts that might be brought within the purview of these regulations and the scale of the value that we would be looking at? Will a significant change arise from the Procurement Act?
On primary contracts and subcontractors, the changes to profitability and moving things to the cost line make a lot of sense, but could we understand a bit more about how the decisions on what should be dealt with at market rate are determined? If we look at market rates and the defence supply chain, where is the competition? Are we looking internationally? Are we looking to comparators—for example, if we buy a widget, are we looking at what it costs in Germany, the United States and South Korea—or are we looking at a wider civilian market? All these things, almost by definition, are not outlined in the regulations but it would be useful for the Grand Committee to have sight of them.
Lord Tunnicliffe (Lab)
I rise with a heavy burden because I was the party spokesman in 2014 when this document was created. If you think that this document is a problem, you should compare it to the Yellow Book that preceded it. I thank the Minister for presenting this instrument, but I must confess that I am not going to say anything terribly new. He has touched on the issues already; in a sense, all I am going to do is ask for a few comments on the converse of the goodness, where we are raising problems. I am also responsible because I was a founding director of DE&S, which managed this. It is an old friend; it requires old glasses as well.
The Government recently made a Statement in which, at long last, they admitted to a number of problems in defence procurement and set out some rather vague ambitions to fix them. Although these regulations are not relevant to the whole of defence procurement—just those contracts that are awarded to a single supplier without competition—there are, as the Minister said, 575 single sources adding up to a total spend of around £90 billion. These are sizeable chunks, and it is important that they are taken in the wider context. We know that there are times when single source contracts work well, particularly for more traditional procurements such as ships, aircraft carriers and submarines. However, for less traditional contracts, such as in the digital sphere, they are less effective; in this case, I expect that the respective difficulties in establishing precise timeframes, specifications and knock-on effects are a big reason for that, but I would welcome the Minister’s further thoughts.
I will not spend too long reflecting on last week’s Statement but, as the noble Lord, Lord Coaker, said in his response, it is important that we get defence procurement right not just for the sake of being careful with taxpayers’ money—although that is of course important—but because of the message that it sends to the world in terms of our sovereignty, economy and obligations to our allies. This may sound slightly ridiculous in the context of a single statutory instrument but it is an important principle.
I turn to the specific details of these regulations. As the Minister explained, they amend the Defence Reform Act 2014 and the Single Source Contract Regulations from the same year, which, in combination, provide the rules for these single source contracts to ensure a fair agreement between the taxpayer and the supplier. This instrument intends to increase the flexibility of these contracts so that more can be done without compromising that fair agreement. So far, so good.
The regulations achieve this in three ways. The first relates to pricing. Currently, there is a bottom-up formula. Reasonably simply, you determine the costs, add a profit margin and there is your price. These regulations allow for a contract to be priced in relation to market rates instead. This is where things get a bit more complicated, with seven new pricing mechanisms. This will certainly bring additional flexibility, but it is hard to see a situation where it does not come by trading off the simplicity of the previous system.
I ask the Minister: how exactly will the Government quantify this trade-off, when there is a loss of simplicity, which is in itself a rather abstract concept? How can the Government be sure that it is beneficial? This was raised during the consultation, to which the Government’s answer was that additional clarity and further explanation of how this will work in practice will follow in guidance. That is not ideal either for the suppliers that are responding to the consultation or for those of us contributing to this debate and attempting to scrutinise this instrument. What is the Government’s plan if, in practice, these new mechanisms do not work as intended? I understand that this dilemma has been shared with the industry and will be published in a few weeks, but perhaps the Minister will take this opportunity to set out a bit more detail and even share any feedback received from those with whom it has been shared.
I have fewer concerns about the other two ways in which flexibility is increased. Allowing contracts to be split up into different components so that they can benefit from different profit rates may again reduce simplicity, but it certainly seems to make sense. Have the Government made any assessment of the negative impact of not allowing this in the past 10 years? Would this apply only to bottom-up pricing or to the new mechanisms too? Could different components be priced entirely differently? Can the Minister assure the Committee that the pricing is the full extent of how components are split? I ask these questions on a similar basis to my previous concerns that every layer of additional complexity could undermine the benefits of additional flexibility. To check against this, what steps are the Government taking to ensure that, in practice, the mechanisms work as they hoped?
The third key change is widening the definition to qualify under the 2014 Act. As I see it, this has the potential of making quite substantial differences to the significance of this instrument. Even a reasonably small adjustment in the number of contracts could be worth many millions. Given the variability of how well single sourcing contracts work, which this instrument may improve through additional flexibility, our biggest concern, which the instrument does not necessarily address, is that widening this scope could draw in contracts that have no benefit being processed in this way. Have the Government considered this? Have they made any assessment of the qualitative widening in this way and, if they accept it, are other steps being taken to prevent it, or is it also an accepted trade-off?
Finally, and more generally, it is not long at all until these regulations come into effect on 1 April. When they were considered in the other place just under two weeks ago, the Minister for Defence Procurement said that the guidance will be published in four weeks. I put it to the Minister that that is after the implementation date. Whether that is correct or otherwise, if a movement on the contract needed to be made, nothing has been taken away from the old regime, so I am sure that this would not be a critical issue, but it raises a wider question. Consultations on these changes began in 2019 and a lot has happened since then. After all that time and all that has happened, it is not exactly reassuring for things to be pushed so close to the wire. Will the Minister comment on that and perhaps reassure us that this SI will work as planned?
From what I hear, the regime that we are talking about has been a great success. It is a vast improvement on what happened before 2014, and therefore my comments are not meant to be unsupportive. To be even more supportive, I shall be entirely content with a longish letter.
The Earl of Minto (Con)
My Lords, I thank noble Lords for their contributions to this debate and say to the noble Lord, Lord Tunnicliffe, in particular that this is a very complicated set of contracts and it took me some time and quite a bit of reading to understand them. But I do understand them and, with great respect, they are very effective indeed.
I think it is worth reiterating that the MoD’s preferred approach to procurement remains through open competition in the domestic and global market. But we are often limited to a single supplier to provide the capability that our Armed Forces need, particularly when we have to produce equipment quickly, as I said earlier, in the face of rapidly evolving threats.
The single source contract regulations are a fundamental part of defence procurement and are key to ensuring value for money. The statutory framework, which has been running for eight years now, sets out clear rules on pricing single source defence contracts that place the onus on suppliers to demonstrate that their costs are appropriate, attributable and reasonable, and defines the level of profit that can be applied. It is only right that we ensure that this framework continues to function effectively for all parties and adapts to changes in what we buy and how we buy it.
As mentioned at the opening of this debate, and by other noble Lords, these reforms are necessary. Adjustments to pricing methods, simplification of processes, correcting profit calculations and ensuring competitiveness with taxpayers’ money are all good reasons why we are here today.
We also need to preserve key industrial and technological capabilities within the UK for strategic reasons. The combination of these factors means that single source procurement amounts to around 50% of defence procurement spent on equipment and services—or some £13 billion per annum. Where there is a lack of competitive pressure, the MoD needs alternative ways of assuring value for money for the taxpayer, while ensuring that our suppliers are paid the fair returns required to preserve their long-term viability.
These amendment regulations, as the noble Baroness pointed out, which are primarily about pricing, will clearly require changes to reporting requirements. Those changes are in this statutory instrument. They should not be conflated with the broader changes to reporting requirements that will be made in the second set of amendment regulations in the autumn. Where it is not appropriate to set out the requirements in legislation, the SSRO is providing two sets of guidance. The first, which covers how suppliers in the MoD should meet the new pricing requirements, was made available to industry on 12 February—pretty recently. The second covers the changes to reporting contained in the statutory instrument, which includes detailed provisions on how contracts that use the new flexibilities must be reported on—including to Parliament.
I reassure noble Lords that we have consulted extensively with our suppliers on the policy underpinning these amendments—a point raised by the noble Lord, Lord Tunnicliffe. I thank them for their contributions, which have led to some useful improvements. Overall, the amendments are designed to make the regulations easier and quicker to apply in practice—which must be the right thing to do.
To ease the initial implementation of the amendments, we will be flexible in the way we apply the reforms, particularly for the first contracts that will use them. For example, we are waiving many of the reporting requirements on componentised contracts—contracts that are cut up into different pieces—before the beginning of 2025. We will continue to work with those in industry to address their specific concerns.
The regulations currently apply only to single source defence contracts over £5 million, so their impact on SMEs is already limited. The Government are very keen not to impose unnecessary burdens on SMEs and, to this end, committed to reviewing that threshold in our response to the consultation on these amendment regulations, with a particular view to the impact on SMEs. We expect to put further regulations before Parliament in the next year.
On the question of pricing disputes, where there is a dispute about the price, either party can make a referral on the matter to the impartial Single Source Regulations Office for a legally binding decision.
On the question of whether we are trading value for money for pace, I reassure noble Lords that this is absolutely not the case. One of the key intents of these reforms is to provide the full weight of the regulatory protections under all circumstances. For example, allowing use of alternative pricing methods, such as commercial pricing, will support rapid procurement and provide protection on value for money.
If I have not answered any questions, I will write following this Committee. I thank noble Lords for their interest in the matter and I hope that the Committee will welcome these important and necessary amendment regulations. I beg to move.
Tertiary Education and Research (Wales) Act 2022 (Consequential Amendments) Order 2024
Lord Harlech
That the Grand Committee do consider the Tertiary Education and Research (Wales) Act 2022 (Consequential Amendments) Order 2024.
Lord Harlech (Con)
My Lords, I declare my business interests in Wales as set out in the register. The draft order we are considering will make changes to UK legislation arising from the establishment of the Commission for Tertiary Education and Research in Wales under powers in the Senedd’s Tertiary Education and Research (Wales) Act 2022. The 2022 Act provided for the establishment of the new Commission for Tertiary Education and Research, which I will hereafter refer to as the commission. The commission will be the regulatory body responsible for the funding, oversight and regulation of tertiary education and research in Wales. The 2022 Act also provides for the dissolution of the Higher Education Funding Council for Wales, which is the existing regulatory body for higher education funding in Wales. I will hereafter refer to this body as HEFCW.
The Welsh Government have announced that the commission will become operational in August 2024, and that HEFCW will be dissolved at the same time. The amendments to various pieces of UK legislation in this order, many of which replace reference to HEFCW with “the commission”, are therefore needed in advance of this change taking effect. Article 2 of the draft order amends the House of Commons Disqualification Act 1975 so that members of the commission in receipt of remuneration will be disqualified from membership of the House of Commons in the same way that members of HEFCW are currently.
Article 3 replaces references to HEFCW and the Welsh Ministers with the commission in Section 82 of the Further and Higher Education Act 1992. This section makes provision about the assessment of maintaining academic standards in higher education institutions in Scotland and Wales.
Article 4 amends Schedule 1 to the Freedom of Information Act 2000, which lists public authorities for the purposes of that Act. Once it comes into force, the 2022 Senedd Act will repeal Section 62 of the Further and Higher Education Act 1992. Section 62 is referred to in Schedule 1 to the Freedom of Information Act 2000 in order to define institutions in the Welsh higher education sector within scope of the 2000 Act. Given the repeal, Article 4 replaces this cross-reference with an equivalent definition, ensuring that there is no material change to the institutions in the Welsh higher education sector subject to the 2000 Act.
Article 4 of the draft Order also amends Part 6 of Schedule 1 to the Freedom of Information Act 2000 by adding the commission to the list of public authorities for the purposes of that Act and removing the reference to HEFCW from the list.
Article 5 amends Section 32 of the Counter-Terrorism and Security Act 2015, which makes provision about monitoring the performance of further and higher education bodies in discharging their duty to prevent people being drawn into terrorism. In line with Section 32 of the 2015 Act, the Home Secretary has delegated this monitoring function to HEFCW in relation to higher and further education in Wales. Our amendment will allow this function to be delegated to the commission in the same way once HEFCW is dissolved. The Home Office and Welsh Government are working closely together to ensure that the function is delegated to the commission from the date on which it becomes operational.
Finally, Article 6 updates the Higher Education and Research Act 2017, ensuring that the commission is able to enter into joint working arrangements with education and research bodies across the UK, including UKRI and the Office for Students, as HEFCW can currently.
I welcome the establishment of the commission and hope that it will have a positive impact on the tertiary education and research sector in Wales. I am pleased in particular that this draft Order will support collaboration and joint working between the commission and its counterparts in other UK nations, supporting the continuous improvement of the education and research sectors in Wales and more widely across the UK. I commend this draft Order to the Committee and I beg to move.
Baroness Humphreys (LD)
My Lords, the Order is consequential on the Welsh Government’s Tertiary Education and Research (Wales) Act 2022 which changed the way post-16 education and training is to be funded and regulated in Wales. The Act itself dissolves the Higher Education Funding Council for Wales, or HEFCW, and creates the Commission for Tertiary Education and Research, the CTER—I wish we could find a little name for that—which becomes fully operational in August this year.
Currently, HEFCW has responsibility only for higher education, and the Welsh Government are responsible for the remaining areas within the sector. Under CTER, or the commission, higher education will join further education, LA-maintained school sixth forms, apprenticeships, adult community learning and research and innovation to form a new commission. It will have a budget of around £800 million, which will be one of the highest allocated budgets to an arm’s length body in Wales. The new commission will therefore be responsible for the whole of the tertiary research sector and for the funding, oversight and regulation of all post-l6 education and training.
Having worked in both the secondary and lifelong learning sectors, I am fully in favour of the Act and its intention of bringing all parts of the sector together. For too long it seems that HEFCW was required to operate at arm’s length from the rest of the sector. Its inclusion in the commission will bring the benefit of its knowledge and expertise, which will be invaluable. I understood that the commission would be operational by April this year, but it now appears that it is unlikely to be so until August. Could the noble Lord explain the delay? Perhaps it is unfair to ask that question, because it is not his responsibility, and it would be more appropriately aimed at a Welsh Minister, but perhaps he could hazard an answer.
Baroness Wilcox of Newport (Lab)
My Lords, this statutory instrument is laid because of the passage of the Tertiary Education and Research (Wales) Act 2022 in the Senedd. It will replace references in reserved UK legislation to the Higher Education Funding Council for Wales with the new Commission for Tertiary Education and Research and make technical amendments in relation to provisions that are being repealed as a consequence of the Act. It forms part of the delivery of Welsh Labour’s manifesto commitment on tertiary education and renews the 30 year-old system, which predates devolution, under which tertiary education is currently organised and funded.
As noted by the Minister, the commission becomes operational on 1 August 2024 and will, for the first time, take a coherent and system-wide view of tertiary education, bringing together under one area of responsibility the funding, oversight, quality and regulation of higher and further education, local authority-maintained school sixth forms, apprenticeships, adult community learning and responsibility for research and innovation.
The Welsh Government are implementing the main recommendations of the independent Hazelkorn review, which noted the confusion and complexity of the sector in Wales, and the lack of a system-wide strategic view and collaboration, as well as incoherent learner pathways. I am pleased to confirm that the architect of much of the marketised reforms to tertiary education in England, the noble Lord, Lord Johnson of Marylebone, when Minister for Universities, similarly backed this idea. He called it a
“joined-up system of regulation and funding for all post-16 education”
for England, deriding what he called a
“bewildering array of regulatory and funding bodies”.—[Official Report, 15/6/21; col. 1813.]
Where Welsh Labour leads, one hopes that Government Ministers will follow.
The Welsh Government have introduced the young person’s guarantee of education, training or work for all 16 to 24 year-olds. This new system will create the conditions for a highly skilled society, with equality of opportunity and a civic mission at its heart. Its strategic duties will also include contributing to a sustainable and innovative economy, crucial for a UK Labour Government to deliver their plan to make Wales a green energy superpower, investing in the industries and jobs of the future.
As it makes only minor and technical legislative amendments, we are content to support this SI. I would, however, ask the Minister to check with his officials whether the department has notified Welsh Government officials that this order has been laid.
In conclusion, I take this opportunity to record my immense thanks to our outgoing First Minister of Wales, the right honourable Mark Drakeford MS, who will submit his resignation to His Majesty the King this evening. He led Wales with distinction though some of the most difficult times in its history, and brought a calm and intelligent response to the Covid crisis that consumed so much of public life, alongside dealing with many other major and significant matters. Diolch am bopeth, Mark.
I also congratulate the incoming First Minister, Vaughan Gething MS, on winning the leadership contest, and wish him the very best for his new responsibilities. I look forward to working closely with him as the shadow spokesperson for Wales in the House of Lords in the times ahead.
Lord Harlech (Con)
My Lords, I thank both noble Baronesses for their valuable contributions to this short and very interesting debate this afternoon. As has been explained, this order provides for a number of consequential changes to UK law necessary ahead of the Commission for Tertiary Education and Research becoming operational in August.
I will respond to some of the points raised. The noble Baroness, Lady Wilcox, asked whether the Welsh Government had been informed and consulted. Absolutely, yes—Wales Office officials notified their counterparts in the Welsh Government shortly after the order was laid. Wales Office and Welsh Government officials, as well as colleagues from other UK departments, have worked closely together throughout the preparation of this order.
The noble Baroness, Lady Humphreys, talked about the remit that the commission will have and how spending will be allocated. As she hinted, that would be a decision for the Welsh Government on how they spend their money—but it gives me an opportunity to say that a record block grant of £18 billion has been provided to the Welsh Government, and through the block grant the Welsh Government are receiving £120 of Barnett-based funding for every £100 per person of equivalent UK spending in England. The Welsh Government budget for 2024-25 for those areas in which the commission will be responsible is around £900 million, with the commission receiving the appropriate proportion of this funding in line with it becoming operational part-way through the funding year. This will ensure that the Welsh Government are well funded to improve tertiary education. However, as I said, it is for the Welsh Government to decide how to spend this funding in devolved areas, in line with their own priorities.
The noble Baroness, Lady Humphreys, talked about the timing of this SI. The Act was passed in the Senedd in 2022 but the provisions in it, under which the commission will become operational and HEFCW will be dissolved, do not come into force until August 2024. That is why this SI is being laid now; the key principle underlining it was to avoid as much disruption as possible in the transition from HEFCW to the commission, minimising disruption to the sector and, most importantly, to learners. August is the end of the academic year, with the new academic year starting in September, so I hope this will allay that concern.
I think I have answered the questions on funding, consultation with the Welsh Government and timing but, if I have omitted anything, I ask noble Lords to please let me know. On that basis, I commend this SI to the Committee.
Russia (Sanctions) (EU Exit) (Amendment) Regulations 2024
(9 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Ahmad of Wimbledon
That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) Regulations 2024.
The Minister of State, Foreign, Commonwealth and Development Office (Lord Ahmad of Wimbledon) (Con)
My Lords, this instrument contains measures to deter Russia from continuing its illegal invasion of Ukraine. Specifically, it targets the key sources of revenue that Mr Putin uses to execute the invasion. It was laid on 28 February 2024 under powers provided by the Sanctions and Anti-Money Laundering Act 2018 and entered into force on 1 March 2024. The instrument has been considered and not reported by the Joint Committee on Statutory Instruments. The instrument contains trade measures developed in close co-ordination with our G7 allies. The regulations ratchet up the pressure on Russia’s war machine and economy as part of the most severe package of economic sanctions that country has ever faced.
In 2022, Russia earned an estimated $3.5 billion from the export of diamonds. The UK was among the first to address this income stream by sanctioning Alrosa, the largest state-owned Russian diamond producer—estimated to hold a 30% share in the global diamond market—and its then CEO, Sergey Ivanov. Following this, we placed an additional tariff of 35 percentage points on imports of Russian diamonds in April 2022. On 1 January this year, we acted to reduce this income stream to the Russian regime by completely banning the import of diamonds into the UK from Russia. On 24 February, among a package of 50 new sanctions to mark the second year of the invasion, we sanctioned two further Russian diamond companies and five individuals, including Pavel Alekseevich Marinychev, the new CEO of Alrosa.
Today, we go even further. As announced in December, the G7 is acting together to curtail the flow of Russian diamonds into the world’s largest consumer market of diamonds. This legislation, prepared in close co-ordination with our G7 partners, bans the import of Russian diamonds processed in third countries. Previously, a rough Russian stone could be processed elsewhere, in effect transforming the stone’s origin. It will now remain banned regardless of any intermediate destination.
This will first apply to stones equal to or larger than 1 carat or equivalent to 0.2 grams or larger from 1 March 2024. From 1 September this year, it will drop to stones equal to or larger than 0.5 carats or equivalent to 0.1 grams or larger. The legislation will also ban providing technical assistance, brokering and financial services in connection with the import of third-country processed Russian diamonds.
Baroness Smith of Newnham (LD)
My Lords, obviously, from these Benches—or this Bench; it is just me—we welcome any extension of sanctions. As the noble Lord pointed out, since the illegal invasion of Ukraine, it has been necessary and appropriate to implement a wide range of sanctions, against both individuals and companies.
However, the Minister has already alluded to the fact that there is a degree of complexity with these particular sanctions. I therefore have a range of questions that are about not just sanctions with our G7 partners but looking more broadly at our European neighbours and Commonwealth countries, as well as at the impact on British companies in terms of how they deal with importing diamonds. Clearly, a sanction that says, “We’re not importing diamonds directly from Russia” is straightforward, but when diamonds have been processed in third countries, as the Minister has already suggested, it will not always be clear where they have originated from.
There is a very clear point in the regulations that says, under “Technical assistance”:
“A person who contravenes a prohibition … commits an offence, but it is a defence for a person charged with an offence of contravening paragraph (1) to show that the person did not know and had no reasonable cause to suspect that the technical assistance related to an import described in that paragraph”,
and the same is replicated for financial services and brokering services. How do His Majesty’s Government think they will be able to monitor this in practice? To what extent have the G7 countries, in proposing such sanctions, also talked to third countries that might be processing diamonds? For third countries processing Russian diamonds, which Russia is trying to export as a way of circumventing the existing sanctions, it is clearly essential that it should be incumbent on businesses processing diamonds to give clarity and reassurance about where the source diamonds have come from. I am not sufficiently expert in the diamond industry to know where else they might go; I assume that Russian diamonds are not going to South Africa, for example, to be processed, but that is obviously another country that will be exporting diamonds.
What conversations have His Majesty’s Government had with countries that might need support in order that such sanctions will be effective? What conversations have they had with the jewellers’ sector? Clearly, there will be new onuses on businesses which, while understandable, could prove prohibitive. None of this is to say that we disagree with the regulations, but I ask for some clarity about how they can be implemented in practice.
Finally, the Minister mentioned a couple of times that these sanctions are in conjunction with our G7 partners. Do the EU 27 have similar proposals? What opportunities are there to work with large countries, such as China and India, which are neither G7 nor EU countries but could circumvent sanctions, rather as is done with unrefined oil?
Lord Collins of Highbury (Lab)
My Lords, I want to pick up a number of points made in the other place, to which Anne-Marie Trevelyan responded, starting with the point about oil raised by my honourable friend Catherine West. I know that we have discussed before the reimportation and exportation of Russian-sourced oil. Anne-Marie Trevelyan described
“the challenges around the shadow and dark fleets of oil that we now see moving around the world”.
She said the Government were
“working with colleagues and allies across the G7 and more widely to continue to try to get ahead of the issue”
and to encourage our allies
“not to find themselves participating in shadow fleet activity”.—[Official Report, Commons, Delegated Legislation Committee, 14/3/24; col. 6.]
Can the Minister give us a little more detail about how we are working? There have been suggestions about where this oil is going and where it is being reimported. We have talked about Commonwealth countries—the noble Baroness mentioned this—and it is really important that we get some idea of the specific discussions. Oil is the biggest element of funding Russia’s war machine, so it is really important that we get ahead of this issue and better understand what is going on.
I also have a small point to make about diamonds. Catherine West challenged the fact that we are starting with 1 carat and that the threshold will not drop until September, and Anne-Marie Trevelyan said that this was to ensure that it did not impact detrimentally on business. We have to get a better idea about the effectiveness of that and the timeframes. Again, the method of circumvention seems to be to hide this through a third country, which can then take ownership of these things, oil or diamonds, export them and raise funds that way. Anne-Marie Trevelyan was more concerned about non-Russian producer nations. Of course, we understand that, but the diamond trade is not huge in terms of the number of countries involved in it, so it would be good to have a better understanding about the timeframes.
The issue I really want to focus on—as the noble Lord knows, I have raised this before—is that it is one thing having sanctions, but it is their enforcement and the monitoring of their effectiveness that will deliver for us. Anne-Marie Trevelyan spoke about the additional funding going through, particularly in terms of the sanctions directorate in the FCDO, which produces the sanctions. Of course, we then have the Treasury with its enforcement arm and now we have the Department for Business, with the Office of Trade Sanctions Implementation, to ensure that the policy sets out clear guidance on this.
The last time we discussed sanctions, I asked the Minister how quickly the Office of Trade Sanctions Implementation would be set up, what the timeframe would be and when we would be satisfied—because this stems from reports we have had of the number of breaches to sanctions. I would appreciate a much clearer update on that, because it is a vital issue.
On Russian diamonds, the SI also bans the provision of technical assistance, brokering and financial services in connection with the import of third country-processed Russian diamonds. Perhaps I could ask the Minister, on monitoring and enforcement, whether he is satisfied that officials will have the resources and technical knowledge needed to identify breaches in relation to the service side of this issue.
The Explanatory Memorandum also notes that the SI builds on the commitments made by the G7 leaders in May and December: the noble Lord referred to that. Another theme that he regularly repeats is that sanctions are effective only if we work in concert with others, including and especially our allies. The important thing for us is to better understand how these are being implemented by all our allies. Does the Minister have an update about the implementation of the measures by other G7 nations? Where do we rank in terms of speed of implementation? I do not wish to be critical, but it is good to have a better understanding. I am aware that the US and Canada always seem to be ahead of us in announcing sanctions; I am not so confident about their ability to monitor them or to enforce them. It would be good to have an idea of where the Minister thinks we are.
Another issue that I picked up from Sky News, but which has appeared on other channels, is something I raised in terms of how people are circumventing sanctions, in particular by moving oil through third countries. There was a report on Sky News that car exports to Azerbaijan over the past few years have gone through the roof: there has been a dramatic increase. I understand that the Society of Motor Manufacturers and Traders has said that there is no connection to Russia here and that the country is a flourishing market in its own right. It would be good to hear from the Minister whether there has been any sort of checking. Are the Government satisfied with those claims? It does seem rather odd that it coincides with the implementation of sanctions.
I did mention that, when I was last in Georgia, people raised the issue with me of the number of luxury cars that were being exported from Georgia to Russia. So, again, if these things are happening, we should be aware of them and we should be challenging them and working with allies to stop this circumvention.
Lord Ahmad of Wimbledon (Con)
My Lords, I thank the noble Baroness and the noble Lord for their support of the sanctions we have announced. As I said in my opening remarks, the Government recognise the importance of consistency— notwithstanding the right to debate and challenge the Government—and, equally, the message about the importance of alignment on this is always going out.
These measures are the latest we have added to our package of sanctions. The noble Lord, Lord Collins, and the noble Baroness, Lady Smith, asked about effectiveness. In my opening remarks, I articulated what has happened with exports and imports overall for the UK. The noble Lord, Lord Collins, mentioned luxury cars; data indicates that we have seen some real impacts on the specific countries he mentioned. I will write to him in more specific terms.
The noble Baroness, Lady Smith, talked about acting in conjunction with G7 partners and asked whether that was inclusive of the EU. My answer is yes, we are working very closely with the EU, and of course the EU also attends the G7 meetings.
Overall, we are funding new activity across the Government to improve the enforcement of sanctions. The noble Lord, Lord Collins, rightly mentioned oil, which I will come on to later. First of all, though, we have the economic deterrence initiative, which is a cross-government drive to strengthen the UK’s existing sanction regime, making it more robust and reaffirming the UK’s status as a world leader.
The EDI is providing £50 million of additional funding to bolster the UK’s sanctions framework, ensuring that we can go further to tackle circumvention and non-compliance issues, as the noble Lord, Lord Collins, raised. The objective of the EDI is to improve implementation and enforcement, and prepare for future scenarios. The EDI will fund activity across government to identify, anticipate and prepare our response to future threats. As I have said before from the Dispatch Box, we recognise that as we impose sanctions, there will be attempts to further circumvent them.
However, as the noble Lord, Lord Collins, will be aware, we have the establishment of the new Office of Trade Sanctions Implementation and the reinforcement of the Office of Financial Sanctions Implementation, which is up and running. It has an enhanced capability to improve novel financial sanctions, including the oil price cap. We have also given additional support to HMRC to investigate and prosecute the most serious sanction breaches.
As the circumvention evolves, we have provided increased specialist capability within the Joint Maritime Security Centre and the National Crime Agency, increasing the UK’s ability to detect and respond to breaches of maritime and transport-related sanctions. Work is also under way to expand the range of penalties that can be imposed for breaches of sanctions measures, to give our sanctions additional teeth. We will discuss that in your Lordships’ House as they come on board.
Major investment is taking place in building lasting sanctions capability across government. There is also investment in our ability to manage sanctions litigation. We are expanding the network of sanctions specialists in UK diplomatic missions. There is a programme of targeted technical assistance for third countries; both the noble Lord and the noble Baroness mentioned how we work with other countries. That is also being co-ordinated with EU and US partners.
The noble Lord, Lord Collins, talked about effectiveness compared to other countries. In terms of the total number of sanctions across three key jurisdictions on Russia since 2022, the UK stands at 2,001, the EU at 2,144 and the US at 4,053. Over that period of time, that is the sum of individuals and entities sanctioned. Of course, we work in conjunction with them but there are processes that we go through that are different to those in the EU and the US. At the same time, in certain sectors we have taken the lead, whereas the EU may have led on others—certainly the US has done so. This has included, specifically, more than 130 oligarchs in the UK, with a net worth of £147 billion; 78 oligarchs in the EU; and 95 oligarchs in the US. That gives a flavour of how the sanctions are being worked through.
I turn to the specific issue of diamonds. The noble Baroness, Lady Smith, said that she is not an expert on diamonds—neither am I. I have purchased diamonds on two occasions: once when I proposed and, the second time, on our 10th anniversary. For the sake of transparency, Lady Ahmad was the beneficiary of both; I am sure that she can comment on the quality of both the rings and the diamonds contained within.
The net impact that we estimate for the cost to business, which has been raised, is below £10 million per year. On the issue that the noble Lord, Lord Collins, raised, referring to the debate in the House of Lords, the revenue gained by Russia from diamonds smaller than 0.5 carats is much reduced compared with larger stones. Those diamond sizes are key for other non-Russian manufacturers in the supply chain. The value of smaller stones is added at the processing stage of the diamond’s life cycle. There is a market for diamonds smaller than 0.5 carats but the measures in this instrument need to balance the needs of non-Russian producer nations and the industry, which the noble Baroness flagged, with causing the maximum possible disruption to Russian revenue and with the capacity of the relevant traceability systems, which I shall come on to.
The staggered commencement dates will also allow the industry and producer and manufacturing nations to adapt. As I said in my opening remarks, diamond supply chains are complex and involve actors of many sizes, from miners and processors to global mining companies. The sunrise period will allow for adjustment to take place in this time so that there are no unintended consequences. The diamond industry itself is regulated, with various codes for sorted diamonds; they are categorised appropriately.
The G7 import restrictions extend to processed diamonds. There is also the existing Kimberley process, which applies only to rough diamonds. These two will run in a complementary fashion. We expect that the G7 implementation systems will complement the Kimberley process certification—the first line of clarification of the diamond country of origin—and be an additional layer that is placed over the Kimberley process for G7 markets specifically.
In terms of producing nations, which the noble Baroness mentioned, we are targeting only diamonds produced in Russia. In fact, our objective is to remove Russian diamonds from the world’s largest market for diamonds. Russia’s presence in the market is affecting the whole industry by eroding the reputation of diamonds. This initiative that we are undertaking with partners will help to mitigate this.
On the issue of enforcement on diamonds, we have released detailed guidance to help importers and traders demonstrate compliance with the sanctions. Traders should also be prepared to provide specific documentation to demonstrate evidence of a good supply chain, which must be consistent with the prohibitions under the regulations. Further detail has been made available to the sector, as I have said already, but it is also available on GOV.UK. Traders need to confirm that the diamond does not originate from Russia.
This is something that we are looking at with our G7 partners: there is a further strengthening of the implementation of the sanctions, in that we will look to improve the traceability of the supply chain. We are currently working with G7 partners on a mechanism that will ensure the integrity of the diamond supply chain. The G7 is developing what is termed a certification mechanism, which is being trialled from March and will work by using and expanding on the existing tracing technologies and controls.
On the question of oil, the noble Lord, Lord Collins, mentioned circumvention. The import ban on Russian oil and oil products in our markets has substantially reduced the size of the global market for Russian oil. The current oil price cap operates globally by prohibiting UK and coalition firms from providing services such as shipping, of which the UK is a major provider, insurance and finance to facilitate the maritime transport of Russian oil and oil products to countries worldwide, unless the oil was purchased from Russia at or below the price cap.
The noble Lord also referred to the impact. As he mentioned, oil remains Russia’s single largest revenue stream, accounting for roughly a quarter of the Russian budget in 2023. Taking measures to reduce this revenue stream is therefore critical to undermining Mr Putin’s ability to fund the illegal war. The OPC is designed to constrain Putin’s ability to fund this war by restricting the revenues flowing to the regime while, at the same time, ensuring as much market stability as possible, including that of third countries, so that there is affordable energy. In restricting Russian revenues in an OPC context we have effectively required Russia to either sell its oil at a discounted price through the OPC or spend time and money that would otherwise be spent on the battlefield.
The issue of circumvention is still very much a live subject. The coalition has recently acted jointly to tighten price cap compliance rules by placing more robust, regular and detailed requirements regarding the provision of price information on actors involved in facilitating the shipping of Russian oil. We of course reserve the right to take further action alongside our international partners to ensure its effectiveness, if needed. The Office of Financial Sanctions Implementation is also undertaking a number of investigations into suspected breaches of the OPC, using the powers under our SAMLA legislation.
I will end my comments there but will review the questions raised by both the noble Baroness and the noble Lord to ensure that we have answers to any questions that I have not answered. I assure noble Lords, as I have done repeatedly, that we will continue to work on a cross-party basis to ensure that there is full information. It is right that we debate these sanctions regimes. The questions raised by the noble Baroness and the noble Lord serve a key purpose in ensuring that we are robust in our actions and that we send a strong signal to Russia that, when the United Kingdom talks of sanctions, it is not just talk; there is real structure and focus behind it. I assure both the noble Lord and the noble Baroness that we will continue to work in concert with our EU, US and other allies to have a maximum impact on Russia’s strategic and economic interests, including on the issue of diamonds. As the traceability mechanism comes into being I will certainly share it with noble Lords at the appropriate time.
I am sure that I speak for all in this Committee and beyond when I say that we stand firmly and resolutely with the people of Ukraine. We will continue to support them until they prevail. With that, I commend these regulations to the Committee.