Draft Carbon Capture Revenue Support (Directions, Eligibility and Counterparty) Regulations 2024
Draft Carbon Dioxide Transport and Storage Revenue Support (Directions and Counterparty) Regulations 2024
(7 months, 1 week 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 Carbon Capture Revenue Support (Directions, Eligibility and Counterparty) Regulations 2024.
The Chair
With this it will be convenient to discuss the draft Carbon Dioxide Transport and Storage Revenue Support (Directions and Counterparty) Regulations 2024.
Andrew Bowie
It is a pleasure to serve under your chairmanship this afternoon, Mr Hollobone. The regulations were laid before the House on 15 April 2024 under the affirmative process. I will refer to the two sets of regulations as the carbon dioxide transport and storage regulations and the carbon capture regulations. They are part of a series of pieces of secondary legislation made under powers in the Energy Act 2023, which is a landmark piece of legislation that I and the Opposition spokesperson, the hon. Member for Southampton, Test, debated at length, and which received Royal Assent on 26 October 2023.
I will first provide some important background on the UK’s carbon capture landscape, before turning to the rationale and detail of the regulations. Carbon capture, usage and storage—CCUS—supports the UK’s legally binding commitment to reduce greenhouse gas emissions to net zero by 2050. In 2021, the HyNet and East Coast clusters were announced as the UK’s first CCUS clusters, where CO2 will be captured from a range of sources to support the low carbon economic transformation of our industrial regions. The CO2 transport and storage—T&S—network is essential for building CCUS capability, and it is the enabling infrastructure for captured CO2 to be transported to permanent offshore storage.
To facilitate the development of the T&S infrastructure, the Energy Act makes provision for revenue support to be available to any transport and storage company. Revenue support is part of the broader T&S regulatory investment model, or TRI model. Under the TRI model, an allowed revenue will be determined for T&S companies, and exposure to revenue gaps—instances in which annual revenue from user charges is less than a T&S company’s allowed revenue—will be mitigated. For example, where a revenue gap arises beyond a T&S company’s control, such as where a network user is late in joining the network, a shortfall in the allowed revenue may arise. In such instances, T&S companies can increase charges across the user base, up to a cap. We propose that, should the increase in charges across the user base up to the cap be insufficient, the T&S companies will be entitled to revenue support as a last resort mechanism, funded by His Majesty’s Government. That will enable T&S companies to recover shortfalls through a revenue support agreement, or RSA. Without that, there would remain a significant barrier to investment in the T&S infrastructure in the early stages of the CCUS sector’s development.
Let me turn to the detail of the transport and storage regulations. RSAs will be offered as a contract between a T&S company and a counterparty, under the direction of the Secretary of State, in accordance with section 60(1) of the Energy Act. To maintain the integrity of RSA allocation, the regulations place requirements on the Secretary of State’s directions, and sets out circumstances in which a direction ceases to have effect, including where the Secretary of State revokes a direction before a T&S company accepts a contract in writing. The counterparty will be responsible for publishing each RSA contract, as well as for establishing and maintaining a public register of key project information. Ensuring the transparency of the contracts is essential for encouraging greater understanding of the level of support for, and confidence in, this critical but nascent sector.
To be clear, the regulations allow the Secretary of State to redact sensitive information, ensuring that sensitive commercial information, information that constitutes trade secrets and personal data are removed before the documents are made public. The regulations also require the counterparty to promptly notify the Secretary of State if it is unable to perform its duties.
Let me turn to the carbon capture regulations, and set out the context of industrial carbon capture. ICC is critical to decarbonising industries with hard-to-abate emissions and to achieving net zero by 2050. The Government’s ambition is to capture and store 6 megatonnes of CO2 from industrial emissions annually by 2030, increasing to 9 megatonnes of CO2 by 2035. The ICC business models are designed to incentivise deployment of carbon capture technology by industrial and waste users, who often have no viable alternative to achieve deep decarbonisation.
Let me turn to the carbon capture regulations and their role in facilitating the business models. These regulations broadly mirror those that I have detailed on transport and storage in respect of the Secretary of State’s directions to a counterparty for offering to contract with an eligible carbon capture entity, including where directions cease to have effect or may be revoked. The reporting requirements for a counterparty also remain. This includes a duty to publish contracts entered into, to establish a public register and to promptly notify the Secretary of State if it is, or considers that it is likely to be, unable to carry out its functions.
However, these regulations also satisfy the duty in section 68(4) of the Energy Act by determining the meaning of “eligible” in relation to a carbon capture entity, specifically one where the CO2 to be captured and stored is produced by commercial or industrial activities, as set out in the Act. In short, the regulations set out who can be eligible for support. The transport and storage regulations do not include a definition of eligibility, as an eligible T&S company is defined under section 60(2) of the Act as a person who holds an economic licence, or has been notified in writing by the appropriate parties that an economic licence is to be granted.
The ICC business models have been developed to support decarbonisation of the industrial sector, including the waste management sector. We do not consider it appropriate for the ICC business models to support carbon capture deployment for certain parts of the power sector. Therefore, the regulations set out that an entity will be ineligible if it is capturing CO2 produced by the generation of electricity and is connected to the transmission and/or distribution system in respect of all the electricity that the generation station produces. However, capture from combined heat and power plants and energy recovery generating stations will be eligible regardless of how or whether they are connected to the transmission and distribution systems. It should be noted that the regulations form only one part of the assessment for whether projects would be awarded an ICC or waste ICC contract. Further eligibility criteria are expected to be set for individual allocation rounds in allocation guidance.
In conclusion, in implementing transport and storage infrastructure and the industrial carbon capture business models, the regulations represent an essential step towards achieving our 2030 deployment ambitions and net zero. I commend the regulations to the Committee.
Dr Alan Whitehead (Southampton, Test) (Lab)
I ought to start by saying that we not only have no objections to these regulations but certainly plan to support them, inasmuch as they are a reasonably timely response to the Energy Act, which, as the Minister says, went through the House last autumn. One day, when the BBC gets round to broadcasting the episode of “The Reunion” about the Energy Act, the Minister and I will probably be hauled up to give our amusing anecdotes about the Bill’s riotous—and lengthy—passage through the House. But until then we will have to keep those secrets to ourselves.
These two statutory instruments stem from, as I have said, a pretty timely next stage in the business arrangements for carbon capture and storage and stem primarily from sections 59 and 60 of the Energy Act. I will not draw the Committee’s attention to what exactly is in the regulations, because the Minister has already set it out in a very straightforward and comprehensive way. I will just say that they establish the relationship of the contract-giving process to the counterparty, the circumstances under which those eligible for revenue support under those arrangements can or cannot receive it, and who is and is not an eligible transporter and storer. That is all very good and very straightforward.
By way of clarification, I have two brief questions, which are about the process rather than the validity or otherwise of the measures. Hon. Members will have noticed two things about the SIs. The first is that they talk about “a” counterparty; indeed, the consultation a little while ago indicated that the Government would probably designate the Low Carbon Contracts Company as the counterparty for these processes. The explanatory memorandum to the directions, eligibility and counterparty regulations sets out why the LCCC is a good fit as the counterparty, and noted that its costs will be no more than £350,000 a year, making it a good fit for the amount of work it is supposed to do.
What I cannot find anywhere is whether the Government actually have designated the LCCC as the counterparty. Section 59 of the Act states:
“The Secretary of State may by notice given to a person designate the person to be a counterparty for carbon dioxide transport and storage revenue support contracts”,
which are the subject of the carbon dioxide transport and storage revenue support regulations. Is that a secretly given notice that we do not know about, or is it a public action that we should know about? Is it an action that has not yet been taken but that may be taken in the not-too-distant future, or are there considerations still outstanding as to whether the LCCC should be designated?
That is not a completely academic point, because the SIs talk as if the LCCC has already been designated, but there appears to be at least a technical possibility that it has not been and that another person might be so designated, if the designation has not already, by notice, been finalised. It would be helpful if the Minister said whether that notice of designation has been given and I have missed it, or whether it is still to be given and there are issues outstanding in the issuing of it.
The second thing hon. Members may have noticed is the extent of the carbon dioxide transport and storage revenue support regulations. The explanatory memorandum states:
“The extent of this instrument (that is, the jurisdiction(s) which the instrument forms part of the law of) is England and Wales, Scotland and Northern Ireland...The territorial application of this instrument (that is, where the instrument produces a practical effect) is the United Kingdom. The activities of a carbon dioxide transport and storage company may take place in the United Kingdom, above or below the territorial sea adjacent to the United Kingdom, and waters in a Gas Importation and Storage Zone”—
and we have discussed gas importation and storage zones previously. The point is that it is not immediately apparent that all the activities of a carbon capture and storage transportation company will land within the UK’s territorial waters, inasmuch as it is widely anticipated that captured carbon will, at a fairly early stage in the development of CCS arrangements, be barged in from jurisdictions outside the UK for storage in UK territorial waters. Indeed, one ambition of a number of the hub-based storage arrangements is that they will attract custom from other European jurisdictions, outside the UK. The position of the hubs in the North sea makes that an enticing proposition for countries whose storage facilities are not as developed as those we are likely to have in the UK.
In those circumstances, the question for the Minister is: how do the draft regulations apply? When things come into the UK’s jurisdiction—things that do not originate from within the UK, but which still fall within the purposes of carbon capture and storage in general —what part of that is covered by the revenue support arrangements, or is it all covered? If there are problems with what part is in or what part is out, is it the Minister’s view that in general they should be outside the regulations? Or, does he intend to produce arrangements whereby what he sees as actions within UK territorial waters can be revenue supported as part of the whole process?
Those are a couple of minor questions to keep the Minister on his toes. Other than that, we have no objections to the arrangements.
Andrew Bowie
I thank the hon. Gentleman for his contribution; as ever, it was thoughtful and thought provoking. The two draft instruments we are discussing are broadly administrative in nature, as I am sure everyone will have judged, but they outline the vital operational procedures for enabling Government’s proposed business models for carbon capture, transportation and storage.
To respond to the hon. Gentleman’s first point, I, too, look forward to that episode of “The Reunion” on Radio 4. Indeed, to extend his analogy, if hon. Members were ever on “Desert Island Discs”, I am sure they would find the Hansard of our proceedings and discussions on the Energy Act an essential tool to take with them to the desert island. I would suggest that an audio version might be useful in getting some sleep on said desert island.
On the hon. Gentleman’s questions about a counterparty, as he said, the Low Carbon Contracts Company is expected to be the counterparty to the RSA. On his specific point about whether it has already been appointed, the LCCC is the existing counterparty for the contracts for difference for low-carbon electricity. It is the resource-efficient and cost-effective option to act as the RSA counterparty, and stakeholders can therefore be confident in the LCCC’s ability to carry out the counterparty functions.
Andrew Bowie
As I just said, it has already been designated as the existing counterparty for contracts for difference, and there is an assumption that it will be designated for the transportation and storage moving forward.
Andrew Bowie
As yet, it has not been designated, but the assumption is that it will be; it already is for CfD.
On the territorial application, of course we can only legislate for domestic legislation here in this House. The draft regulations will apply to transportation and storage within the United Kingdom and to any imported carbon that we would be looking to store here in the UK when it reaches our territorial waters or UK land. However, I am in discussions already with partners in Europe and beyond about how we can work together to ensure the safe delivery of carbon capture, utilisation and storage, which will benefit this country, this continent and the entire world moving forward. The discussions are indeed ongoing, he will be pleased to hear. I hope that the Department, the Government and I have provided the necessary assurances to approve the draft statutory instrument before us.
The carbon dioxide transport and storage regulations will enable the effective delivery of the RSA, which is essential to build a functioning T&S network. This is one part of the TRI model that has been designed to overcome barriers to private investment that exist when building first-of-a-kind infrastructure to support the nation’s carbon capture, utilisation and storage sector to thrive. The deployment of transport and storage infrastructure is key to our ambition to capture and store 20 million to 30 million tonnes of carbon dioxide by 2030. We are well placed to lead the world in CCS technology, with an estimated potential 78 gigatonnes of CO2 storage capacity on the UK continental shelf.
We have selected three industrial carbon capture projects and two waste industrial carbon projects to progress to negotiations and to help to form the first two carbon storage clusters, the HyNet and East Coast clusters. We expect to award the first contracts to projects later this year. I therefore commend the regulations to the Committee.
Question put and agreed to.
DRAFT CARBON DIOXIDE TRANSPORT AND STORAGE REVENUE SUPPORT (DIRECTIONS AND COUNTERPARTY) REGULATIONS 2024
Resolved,
That the Committee has considered the draft Carbon Dioxide Transport and Storage Revenue Support (Directions and Counterparty) Regulations 2024.—(Andrew Bowie.)
Draft Product Safety and Metrology etc. (Amendment) Regulations 2024
(7 months, 1 week ago)
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The Minister of State, Department for Business and Trade (Kevin Hollinrake)
I beg to move,
That the Committee has considered the draft Product Safety and Metrology etc. (Amendment) Regulations 2024.
It is a pleasure to serve with you in the Chair, Ms Rees. To place many manufactured goods on the market in Great Britain, ranging from toys to machinery, manufacturers must ensure that products comply with the requirements of product regulations. Following EU exit, many EU product regulations were integrated into UK law and we introduced the UK conformity assessed regime, or UKCA, as our domestic product regulation approach in Great Britain. Since 1 January 2021, the UKCA has been in use alongside recognition of the EU’s CE and reversed epsilon markings.
That recognition of the EU’s CE and reversed epsilon markings is due to end on 31 December 2024. Many manufacturers with products in the scope of this draft statutory instrument would therefore have no choice but to meet UKCA requirements to legally sell their products in Great Britain. The Government know that businesses are facing increasing burdens, with cost of living pressures and global supply chain challenges. As part of our smarter regulation programme, we are minimising regulatory burdens where feasible, to reduce business costs and to help grow the economy. That is why we are introducing this instrument to continue the recognition of the EU requirements, using powers under the Retained EU Law (Revocation and Reform) Act 2023.
Last year, the Government held a series of roundtables to hear views from industry, including representatives from about 200 domestic and 50 international businesses. Industry in the UK and businesses that supply Great Britain from abroad indicated that ending CE recognition and mandating UKCA would cause issues for their businesses. It could increase costs and require duplicative processes, leading to higher prices and less choice for consumers in Great Britain. Some overseas suppliers also reported that they might reduce or stop sales to Great Britain entirely. This draft instrument will continue recognition of EU requirements, including the CE and reversed epsilon markings, providing businesses with the choice to use either EU markings or UKCA to place products on the market in Great Britain.
Furthermore, the draft instrument will introduce a fast-track UKCA measure, which will provide manufacturers with more flexibility when using the UKCA marking to place products on the market in Great Britain without compromising on the legal requirements. This instrument will apply to 21 product regulations managed by the Department for Business and Trade, the Department for Energy Security and Net Zero, the Department for Environment, Food and Rural Affairs, and the Health and Safety Executive under the Department for Work and Pensions. The Government are taking a tailored approach to ensure that regulation works for sectors and consumers covered by different regulations, including those outside the scope of the draft instrument. We have listened to feedback from the industry, and this draft instrument is designed to remove costs and burdens for businesses and to provide certainty on our approach to product regulation.
Nigel Mills (Amber Valley) (Con)
Will the Minister expand a bit further? Is he in discussion with any other regulatory regimes around the world that we think might have a sufficiently robust regime? We could just recognise those regimes for certain product lines and so reduce costs, not just for EU manufacturers. Are any such discussions about that being reciprocal, so that they recognise our quality standards as well?
Kevin Hollinrake
That is an interesting point. We are always keen to look at best practice internationally. Conversations are going on with other international regimes, including the USA, in particular in other areas not covered by this draft statutory instrument—for example, in the medical products sector. Although we are keen to strike mutual recognition agreements with different jurisdictions, I think it is fair to say that the EU is less keen to strike one. We should bear in mind some of the history and the proximity of the UK to EU markets. That is something that we are definitely keen to engage with, in particular under the auspices of our trade and co-operation agreement, which is the overriding mechanism for easing those barriers at the borders.
We estimate the draft instrument will save UK businesses £558 million over the next 10 years. It will also help ensure that goods in scope can be sold throughout the UK without needing different product markings and the associated conformity assessments required for each. We recognise that the instrument may reduce demand for the UK’s conformity assessment market. My officials continue to work with the UK Accreditation Service—UKAS—and industry to monitor the capacity of the conformity assessment body market, ensuring there is sufficient capacity to support a domestic route to market for relevant UKCA products.
Technology and manufacturing will continue to evolve. Therefore, in future the UK or the EU might need to make changes to product regulations. The Government remain able to mandate different rules in Great Britain, where we have relevant powers and it is in the interests of UK businesses and consumers. The product safety review is looking at the regulatory framework as a whole to ensure it is fit for the digital age and takes advantage of the UK’s regulatory autonomy to deliver a regime suited to the needs of UK businesses and consumers. Officials will continue to monitor ongoing EU product regulation reviews and updates.
Where EU regulations change, we will consider whether to continue recognition of EU rules on a case-by-case basis, taking into account the views of industry and consumer safety. The Government will introduce legislation later this year for additional measures to support businesses, including introducing permanent labelling flexibility and voluntary digital labelling as an alternative means of product labelling. I will share information with the House in due course. In the meantime, I trust Members will support this important instrument.
Rushanara Ali (Bethnal Green and Bow) (Lab)
It is a pleasure to serve under your chairmanship, Ms Rees. The statutory instrument will extend the validity of EU product standards, known as CE or European conformity, in the UK indefinitely. When the UK left the European Union, the Government intended to replace, as the Minister pointed out, the CE standard with the UK’s own UKCA. Like so many of the Government’s Brexit promises, it has fallen by the wayside when meeting the cold reality of what it actually means.
Under current law, all firms would have to begin using the new UKCA mark by 1 January 2025, because recognition of the EU’s CE regime is due to expire by the end of this year. The Government have already postponed the deadline twice, but, as we have heard, the statutory instrument will remove the expiry date altogether, meaning that the CE scheme will now be valid indefinitely. The move has been welcomed by industry, with many businesses and trade associations speaking in favour of the Government’s change in direction due to the need to avoid a dual testing and standards regime for businesses that operate and trade in Europe.
It is good that the Minister is taking pragmatic action. It is a shame his predecessors had not done it sooner because that would have saved businesses a great deal of work in setting up a parallel system and wasting much-needed resources that they could have invested elsewhere. The British Chambers of Commerce described the Government’s move as a “welcome change in direction”, and techUK stated that the move was a
“positive step that will make it easier and cheaper to place products on the GB market.”
The Labour party welcomes the changes as they will make it easier for firms to trade with our European neighbours, reduce operating costs for business by mitigating the need to comply with two regulatory regimes, and help protect prices for consumers. The instrument’s impact assessment lays out a fairly compelling, as the Minister pointed out, justification for the intervention. The Government predict that the benefit to business of maintaining the validity of the CE regime will be £558 million, but that gives rise to the question why, before the announcement of this U-turn, the Government had pursued the removal of the CE’s validity with such persistence, despite the obvious problems it would present for businesses, trade and consumers. I hope the Minister can address that. I appreciate he was not in place at the time, but perhaps he can address the points because they are relevant to his Government.
The ongoing uncertainty has been disruptive to businesses as they have had to prepare for this ever-moving cliff edge —in some cases re-designing and re-manufacturing products to replace the CE mark with a UKCA one. Many firms will understandably feel as though they have wasted money, while other firms will likely have held off investments because of the policy uncertainty and the fact that they have had to spend money complying with this parallel system. What has changed? Why did the Government continue to insist for so long that businesses work to this superficial cliff edge, which created needless hassle, only now to pull the plug on the whole plan? What assessment have the Minister and his Department made of the overall cost to business of preparing for the parallel UKCA process, as opposed to sticking to the CE process that we are now reverting back to?
As welcome as this move is for businesses, it is far from ending the uncertainty for firms. Two critical questions remain. First, will the Minister confirm that this statutory instrument’s removal of any expiry date for the CE regime’s validity means that there will be no subsequent attempts to reinstate an expiry date? Secondly, do the Government intend to modify or water down the existing UKCA regulation, thus effectively creating a two-tiered regulatory system for firms and consumers to operate in?
I speak regularly to businesses, their representatives and intermediary organisations, and many have deep concerns about the state of the business environment, particularly in recent years, the lack of consistency and clarity in policy, and the constant chopping and changing. That is set out very clearly in proposals and changes resulting from Brexit uncertainties, and this is yet another example of that. Although this particular decision is welcome, the fact is that this should never have happened. It would have been far better if the Government had stuck to the CE regime that they are now reverting back to, rather than letting businesses waste so much time, energy, money and effort in addition to the burden they already faced.
The Government’s dogmatic, ideological approach has been really damaging for businesses, and they are fed up with it. It is good that the Minister has responded and we will support this SI, but I very much hope that he will look at other provisions containing needless disruptions. We need a pragmatic approach to support businesses rather than an ideological one that damages them and their ability to generate growth and power our economy.
Stella Creasy (Walthamstow) (Lab/Co-op)
It is a pleasure to serve under you in the Chair, Ms Rees, and to be in this room. My hon. Friend the Member for Bethnal Green and Bow on the Front Bench was incredibly polite, whereas I shall not be. What a mess! What an absolute mess this is for British business, and what a symbol of the failures of Brexit.
Over the past year, while serving on bodies such as the Retained EU Law (Revocation and Reform) Bill Committee, I had the pleasure, shall we call it, of looking at the great powers and freedoms that Brexit offered us to set our own standards on toy safety. But what today tells us is that it is through collaboration that we keep our children safe and our standards high. This mess, this uncertainty and all the money that businesses have had to spend over the past couple of years amount to an honest admission—and this is what I hope the Minister will give us later—that trying to set our own regulatory regime in an international global economy when our businesses want to compete and to sell across the world is completely counterproductive to the British interest and to British businesses. A smarter regulatory regime? We all knew that Brexit ultimately was just about more paperwork.
George Eustice (Camborne and Redruth) (Con)
Of course, the European Union does not represent the entire world and not every country in the world is a member of the European Union, so is the hon. Lady saying that the European Union should also forgo its right to set its regulations and should perhaps accept Codex as a standard to abide by?
Stella Creasy
I am not quite sure why the right hon. Member came up with that analysis. I am trying to make the point that we as a country, having left—[Interruption.] I would love to answer his question. I know that he has to chunter from a sedentary position because today is an embarrassment for him as somebody who also promoted the idea that, somehow, if we left the regulatory regime of the European Union, our country’s businesses would benefit. They have not, and this instrument today proves why, because it is about how people can trade together and how regulatory regimes interact with each other. The point about CE marking is one that any business could have told him before we left the European Union. This is not an argument for us to rejoin; it is an argument for some honesty about why having common frameworks and common standards matters.
The right hon. Member would do well to look at the explanatory memorandum and what it means when it says on page 4:
“This EU recognition is implemented in GB legislation”.
What it is actually saying is that our standards are lower than the standards that the EU has set, because through this statutory instrument the Minister is admitting that GB standards will already be being met if EU standards are met. The tail is not wagging the dog; the dog is fully in the doghouse, because the reality is that it is better for British business to have one set of regulations to comply with. There is less paperwork, not more.
The paperwork that came from Brexit shows the fallacy of the idea—the fantasy—that somehow we, a country of 70 million consumers, could set a separate regulatory regime and tell British businesses that they could still trade across the world without incurring additional costs or facing additional barriers, including additional non-tariff barriers, and friction. That is the reality of this SI. My hon. Friend the Member for Bethnal Green and Bow was being kind about it. It is an admission of failure when it comes to the freedoms that British businesses were promised.
In that sense, I have a number of questions for the Minister, because I think British business deserves some honesty about the lessons that can be learned from the mess created over the charter mark in the last couple of years. Will he be honest? Given that the explanatory memorandum says that if EU standards are met, GB standards will have been judged to be met automatically, is that dynamic alignment? Are we saying that if, for example, new toy standards are set by the European Union, we will expect British business to follow them in order to meet the standards set out in this SI? Are we dynamically aligning? If we are not, the Minister needs to tell British business what will happen if British businesses do not meet those standards. Is there a cut-off point? At what point do these standards fall away?
Will the Minister be honest? We have talked about a figure of £583 million in terms of the cost. Of course, that is the cost of not implementing a British standards charter, so this is not actually some great benefit to British businesses. This is an admission that all the time, effort and energy that went into trying to make the Brexit fallacy work in relation to British paperwork has cost them money, so actually, if we do not do this, we can save them money by not implementing the Brexit standards. But the impact assessment says that the total net impact for British business is actually £1.6 billion. Can the Minister clarify what the other £1 billion-worth of impact might be? Is it all that extra paperwork, the time, the cost and the business lost from trying to come up with two different charter marks to meet two different standards?
At what point did the Government recognise that this was in the British interest? How many stakeholder meetings were there? How loud did British business have to shout about the impossibility of trying to run two regulatory regimes at the same time? Why have we not learned the lesson from Northern Ireland on this? The Retained EU Law (Revocation and Reform) Act was about a bonfire of 4,000 regulations. To date, only a handful have been deleted. There is a good reason why that is the case. That is why it is important that we support this SI today. It is better for British businesses to have stability and to have less paperwork if they want to sell both in the UK and to Europe. It is better to be part of a standards regime that, through this SI, we are saying is a high-standards regime, because we are saying that we want to meet those standards.
What else will the Minister admit we have learned? The retained EU law Act gives his Department multiple pieces of legislation to review. Right now, across Parliament, in rooms like this, there are people looking at retained EU law legislation and whether we should have variation, and finding, oddly enough, when we look at it, that we should not. As my hon. Friend the Member for Bethnal Green and Bow says, it falls apart on hard contact with reality. It is better for British business to be able to share one set of regulatory regimes. What lessons have the Government learned from that experience, from all those stakeholder meetings and from all the money, effort and time that has been spent trying to come up with our own set of standards, when it was better for British business, toy safety and British consumers to share EU standards and be part of the CE mark? What will happen if those standards are not met?
The Minister will suggest that I am making an argument for remain, but this is not an argument for remain; it is an argument for sanity. That is what the British people deserve, given the damage being done by the hard Tory Brexit that is now being implemented in this country, and it is what this meeting needs.
Kevin Hollinrake
I thank hon. Members for their contributions, I will deal with the key points raised. The shadow Minister, the hon. Member for Bethnal Green and Bow, talked about a dogmatic, ideological approach and about the Government persisting in travelling in the same direction, but admitted in the same breath that we have twice changed the deadline on the CE marking, and we have now changed it again to make it indefinite. As will always be the case with the Conservative party, we are for business because we are from business; we listen to businesses and we are pragmatic. As I said earlier, we have had 46 roundtables and engaged with 200 domestic and 50 international businesses. As the facts change, we change our mind, and it is important that we reflect the needs of businesses.
The hon. Lady talked about wasted money, but this money has not been wasted, in that the UKCA regime still applies and is still available to businesses that want to place goods just in the GB market. We have not legislated permanently never to reintroduce the UKCA marking; we are very much taking a case-by-case approach to sectors and products that we feel will benefit from a UKCA marking rather than a CE marking.
The point I would put back to the hon. Lady is that, as is often the case with the Opposition, we hear lots of criticism from people standing on the sidelines, but they do not have any definite plans themselves. Is she saying that she would not have a UKCA marking? Is she saying that she would permanently adopt a CE marking, which would mean she would have to settle for dynamic alignment? I am interested to know what her approach would be, so perhaps she could set it out when she addresses these points in future. [Interruption.] Does she want to intervene?
Rushanara Ali
Yes, I would be happy to. If the hon. Gentleman wants to get the Prime Minister to call a general election, I would be very happy to set out what the Labour party would do if we were in government, but he is the Minister. I have acknowledged the positive role he personally has played, but his predecessors were moved around—week after week, in some cases—and businesses unfortunately had to deal with industrial-scale uncertainty. As he will have heard, that was extremely damaging for confidence and made it hard for businesses to operate. I have separated out his role from those of his predecessors and previous Prime Ministers, and I hope he can acknowledge that I have been fair in the way I have reflected on it versus what happened before, but I call on him to call a general election so that the Labour party can get going and deliver for business.
Kevin Hollinrake
That is slightly above my pay grade, but I acknowledge what the hon. Lady said about my role. I have been here 18 months, and I am pleased to have been in the job, but I also have great respect for my predecessors.
The hon. Member for Walthamstow described what has happened as an unmitigated disaster for businesses. I would point out that the UK is now fifth in the global league table for trade; it was sixth, but we have just gone past France. We are the fourth largest exporter in the world; we were seventh, and we have again gone past France. We are third in terms of GDP growth, whether we look at the period since 2010, since the pandemic or indeed since Brexit. We are the second largest exporter in the world of financial services. We have the largest number of unicorns in Europe—businesses that have gone from start-up to a $1 billion valuation—and twice as many as France and Germany combined. So there are many, many positive things that the hon. Lady might reflect on rather than looking at the difficulties she describes for businesses.
I think the hon. Lady said that we should dynamically align with everything the European Union does and that that would be helpful for business. Let me point out some of the things that she would forgo if she took that approach: the move to digital labelling on a voluntary basis, which businesses greatly welcome; the changes we have made to things such as the working time directive, holiday pay and GDPR, and to the product safety regulations, which will make it easier for businesses to comply with those regulations; the Digital Markets, Competition and Consumers Bill, which will hold big tech companies to account to help small and medium-sized enterprises, in a completely different and we think much better way than the EU; free trade agreements with 73 countries, including Australia and New Zealand; and accession to the comprehensive and progressive agreement for trans-Pacific partnership and thus one of the largest growing markets in the world. None of those things would have been possible had we stuck in the European Union, as the hon. Lady wanted, or continued with dynamic alignment with European Union rules. She asked whether we will continue to dynamically align. We will take that on a case-by-case basis. The UKCA mark is still there where we decide to diverge from the European Union.
I did not get the hon. Lady’s point about the net benefit. The net benefit is set out quite clearly in the impact assessment: £64.8 million in the first year and £558 million over a 10-year period. I am happy to write to her if she wants to write to me—
Stella Creasy
I thank the Minister. I am merely pointing out that the reason why those net benefits exist is about the option of keeping the existing CE mark, as opposed to moving wholly to the UKCE mark that the Government originally put out. The Minister’s own impact assessment suggests that for British business to have done that would have cost them £1.6 billion. That is why this is a fantasy, and that is why the question what happens if businesses diverge from these requirements comes into play. I hope the Minister will answer that, because it would be helpful to understand what the Government think will happen if businesses do, after all that, still want to follow his UKCE mark and pay that cost.
Kevin Hollinrake
I thank the hon. Lady for her intervention. It is the UKCA mark, by the way. The reality is that we will take this on a case-by-case basis. Where there are good reasons to diverge for a product or sector, we could use the UKCA mark and diverge from the European Union. We are not going to diverge right across the piece; we can have the best of both worlds. We can make it easier for businesses that want to trade across borders in the European Union and the UK, but we can diverge where necessary using the UKCA mark.
Before I conclude, I will give way to my right hon. Friend.
George Eustice
I am grateful to the Minister for giving way so late. I assure him that I am not going to be difficult; I support what he is trying to do. Paragraphs 44 and 45 of the impact assessment make it clear that, under the Product Safety and Metrology (Amendment and Transitional Provisions) Regulations 2022, the Government intended for there to be a very strong dose of mutual recognition. Those regulations provided that if somebody had a CE mark, that could be recognised and used and they would not have to go through additional tests, and that that would stand until 2027 or for the life of the certificate. What consideration did the Government give to just extending that 2027 deadline so that we retained control while having very sensible easements in place and recognising the CE mark for as long as it is valid enough to be recognised?
Let me make a second point about spreading this approach to other areas. I encourage the Minister to resist that. I looked at it very closely on issues such as chemicals and pesticides when I was in DEFRA, and there were serious doubts about whether the European Union would have the technical expertise to do some of these things correctly once British officials had been withdrawn from working groups. We cannot rely on the European Union to make adequate assessments of these products in the long term.
Kevin Hollinrake
I am very happy to take up my right hon. Friend’s first point in more detail offline. The thing that we are dealing with here is the expiry of CE certification by the end of this year. On UKCA certification, he is right to say that the deadline is 2027, but that tackles a separate problem. The problem we are trying to solve here is making sure that businesses have the consistency and continuity of being able to use the CE marking. On other sectors, such as chemicals, my right hon. Friend is a much greater expert than I am, and I am sure he will be making approaches to the relevant Ministers about those areas. I certainly urge him to do so and to use his experience in that regard.
Without this legislation, from 1 January 2025 businesses that do not comply with UKCA requirements will not legally be able to place their products on the Great British market. Industry identified that that could increase costs, leading to higher prices and less choice for UK consumers—indeed, as I said, there will be a saving of £558 million to businesses over 10 years. Our officials will of course continue to engage with industry. The Government are committed to high levels of protection for UK consumers and continue to take a pragmatic approach to improving regulation to benefit businesses and consumers. I urge the Committee to approve the regulations.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Product Safety and Metrology etc. (Amendment) Regulations 2024.
Draft International Monetary Fund (Increase in Subscription) Order 2024
(7 months, 1 week ago)
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The Economic Secretary to the Treasury (Bim Afolami)
I beg to move,
That the Committee has considered the draft International Monetary Fund (Increase in Subscription) Order 2024.
It is a pleasure to serve under your chairmanship, Sir Graham. The International Monetary Fund marks its 80th anniversary this year, and the UK is a founding member. It plays a key role in what is known as the global financial safety net, ensuring global economic stability, facilitating long-term economic growth and prosperity, and supporting poverty reduction around the world.
The IMF operates as a global lender of last resort, providing crucial financial assistance to countries in crisis and supporting their return to a stable economic footing. This helps to prevent economic instability overseas from spilling over into the British economy. The IMF’s wider role in providing regular economic and financial monitoring, macroeconomic policy advice and capacity development on critical issues facing the global economy, such as the green transition, digitalisation and artificial intelligence, is welcomed by its many members.
As a major open economy, the UK gets significant value from the IMF’s independent assessment and policy advice. That does not mean that we always agree, but open discussions and an exchange of views on the state of the UK economy are vital for both sides. Indeed, the Government look forward to the IMF’s managing director visiting London next week as part of the fund’s latest fact-finding mission.
It is critical to the IMF’s ability to act as the world’s lender of last resort that it remains adequately resourced. In December, as part of our efforts to reinforce the role of the IMF at the centre of the global financial safety net, the IMF board of governors, on which the Chancellor of the Exchequer is the UK governor, agreed to reduce the fund’s reliance on borrowed resources and restore the primary role of quotas in its lending capacity.
I will explain how this works. The money that the IMF loans to its members comes from member countries through their payment of quotas and borrowed resources. A member’s quota reflects its size and relative position in the world economy, and borrowed resources are bilateral agreements between individual members and the fund.
Under the agreement by the board of governors, IMF resources will be maintained at current levels by increasing quotas by 50% while decreasing borrowed resources—formally called new arrangements to borrow and bilateral borrowing agreements—by the same amount. The UK has a responsibility to implement this agreement alongside the other IMF members by 15 November 2024 at the latest.
The UK’s subscription to the IMF is denominated in the IMF’s unit of account, known as special drawing rights. This draft order will increase the UK’s current quota subscription to the IMF by SDR 10 billion, ensuring that we deliver on our share of the overall quota increase. Once in effect, the proposed quota increase will replace the bilateral borrowing agreements.
The overall net increase in the UK’s commitment to the IMF will be SDR 3 billion, given the UK’s proportionately higher quota share compared with the borrowed resource that the UK currently extends to the IMF. In recent years, the IMF has been at the centre of the international response to many crises with a significant economic impact, such as Russia’s illegal war in Ukraine and the covid pandemic. Demands for financial assistance from the IMF remain at record levels, with more than 32 active IMF programmes.
The UK’s maximum commitment and legislative ceiling to IMF quota stands at SDR 20.155 billion, which is approximately £21.94 billion at today’s exchange rate. The draft order will raise the UK’s ceiling for lending to the IMF to SDR 30.2 billion, equivalent to £31.64 billion. I want to make it clear—it is crucial that all hon. Members understand this aspect—that an increase in the UK’s quota subscription to the IMF does not represent an up-front financing commitment; rather, it simply increases the potential amount of financing from the UK that the IMF can call on via quota subscriptions.
The increase in quota has no direct impact on public borrowing or debt, because quotas are loans and can be refunded at short notice if needed. A loan to the IMF is a loan to the most creditworthy institution in the world, because the IMF holds preferred creditor status. In essence, that means that the IMF will be repaid by those it has made loans to even if every other creditor is not. When the IMF calls for financing from the UK, we swap some of our assets for a claim on the IMF. That amounts, in effect, to exchanging one class of safe asset for another. Lending to the IMF therefore does not —I repeat, does not—represent public spending and such loans do not detract from money that is needed in the UK.
It is essential that the UK plays its part and fulfils its responsibility to strengthen the multilateral system in a more crisis-prone world by increasing its ceiling for lending to the IMF via quota. In so doing, we are implementing our international agreements. I hope that hon. Members will join me in supporting the draft order, which I commend to the Committee.
Tulip Siddiq (Hampstead and Kilburn) (Lab)
It is a pleasure to serve under your chairmanship, Sir Graham.
We welcome this draft statutory instrument. The changes are part of the IMF’s worldwide resolution to change its funding model to reduce the level of IMF temporary loan facilities, and will increase the funding provided through the quota system to the same extent, as the Minister explained. We believe that the changes serve to make the IMF stronger and more legitimate, and are key to ensuring economic stability.
The official Opposition are completely committed to such stability, which is underpinned by strong fiscal rules, robust independent institutions—the Treasury, the Bank of England and the Office for Budget Responsibility— and international economic institutions such as the IMF, which promote financial literacy, stability and monetary co-operation. We therefore fully support the proposals and for once, I do not have a host of questions for the Minister.
Question put and agreed to.