House of Lords
Introduction: Baroness Laing of Elderslie
Introduction: Baroness Cass
House of Lords: Behaviour and Courtesy
(2 months ago)
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Lord Campbell-Savours
To ask the Leader of the House what plans she has to promote awareness among members of the rules and conventions relating to behaviour and courtesy in the Chamber.
The Lord Speaker (Lord McFall of Alcluith)
My Lords, the first Oral Question is from the noble Lord, Lord Campbell-Savours, who is participating remotely.
The Lord Privy Seal (Baroness Smith of Basildon) (Lab)
My Lords, the Chief Whip and I, with the Front Bench and the usual channels, are committed to promoting the rules and conventions of the House on an ongoing basis. This includes advising on individual items of business and general communications about points of procedure. The Chief Whip, with the usual channels, recently wrote to all Members reminding us of the normal courtesies of the House and expected standards of behaviour. This is to support noble Lords in understanding the rules and conventions. In a self-regulating Chamber, it is crucial that we all maintain high-quality debate, respect for the conventions and respect for each other.
Lord Campbell-Savours (Lab) [V]
My Lords, having participated remotely in proceedings over three years, I have been able to observe from afar the conduct of Members. Do Members not realise how appalling the House appears to a worldwide audience when Peers, who include some of the brightest people in the land, openly argue, protest, shout across the Chamber and demand who should be called, in an attempt to control contributions? We cannot go on like this; it looks awful. Why not establish a committee of the House to consider whether we would be better served by giving the Speaker greater powers to intervene? The current arrangements demean our reputation. We have a problem and it needs sorting.
Baroness Smith of Basildon (Lab)
My Lords, on the first part of the noble Lord’s question, I am impressed if today we have a worldwide audience. I hope that is the case. Nothing is more undignified and disrespectful to colleagues than when others shout so that those with the loudest voices get heard. I have to say, I do not think it happens that often. I am not really encouraged to set up a new committee. The House itself makes its views known and my noble friend Lord Kennedy, the Chief Whip, has been quite encouraging—let us say—of Members to abide by the conventions and behaviours of the House. I know that for some Members it does seem strange from time to time, but I urge all Members that if we all behave with dignity and respect for others, this should not be a problem.
Lord Geddes (Con)
My Lords, I am told I have a certain reputation in the context of this Question. I ask the Lord Privy Seal two things: first, to emphasise that Questions should not be read; and, secondly, to confirm that, for reasons unknown to myself, there is no such person as a “noble Minister”. There is a “noble Lord the Minister”, but the office is, for some curious reason, not deemed noble.
Baroness Smith of Basildon (Lab)
My Lords, Questions should not be read. They should be concise and questions rather than speeches. My noble friend Lord Kennedy of Southwark has pointed this out on many occasions and will continue to do so. On the noble Lord’s second point, many noble Lords—including me, on occasion —have felt chastised when they have slipped up and referred to someone as a “noble Minister”. He is absolutely right: it is the “noble Lord the Minister” or the “noble Baroness the Minister”. This makes the point: we have to abide by the rules and conventions of the House in order to conduct our business appropriately.
Lord Newby (LD)
My Lords, having been in your Lordships’ House a long time, I do not think that the degree of shouting at Questions has become significantly worse than when I started. For me, in the current environment, it is more important than ever that everybody in public life is tolerant and shows respect to everyone. Does the noble Baroness the Leader agree that Members of your Lordships’ House have a particular responsibility not to say anything in this Chamber which might lead to greater divisions in society than the ones with which we are already struggling?
Baroness Smith of Basildon (Lab)
My Lords, your Lordships will have heard the response from the whole House, and I think that is definitely the case. All of us, particularly those in positions of responsibility—or when there is a worldwide audience—should choose our words with care, because they have an impact. We have a duty and responsibility to behave appropriately.
The Lord Bishop of Sheffield
My Lords, it is surely a very good thing that the dealings of this Chamber are broadcast live, but it does mean that our interactions with one another are witnessed far beyond this place. Can the noble Baroness tell the House whether any attempt is made to monitor or record comments from the public in reaction to the broadcasts and, if so, what use is made of that feedback?
Baroness Smith of Basildon (Lab)
My Lords, from time to time we see reports in the press or polls are undertaken in response. One that struck me most recently said how little people understood the work we do in this House. That is incumbent on us all, not just in our behaviour but in our explanation about what we do. Perhaps we ought to think a little more, particularly when we have debates on some of our very specialised reports or the detail of legislation, about how we can broadcast that more widely, so that people understand what goes on in this Chamber.
Lord Grocott (Lab)
My Lords, as this Question is in essence about the powers of the Lord Speaker, it is worth putting that into a bit of context. When the Lord Speaker’s position was introduced, it was in the context of great hostility to us having a Lord Speaker at all. The Speaker was allowed only to sit in the Chamber and was forbidden from speaking under any circumstances; the Lord Speaker was the only person who could not speak.
Since then, a number of small but significant changes have been made, all of which have enhanced the role of the Lord Speaker. In the context of every one of those changes—the Speaker taking over from the clerk in introducing the next Question, and many similar things, such as explaining the business as it comes along—no one suggests now that we should revert to the system that existed without the Lord Speaker. The direction of travel is very much in the direction of the case argued by the noble Lord, Lord Campbell-Savours.
Baroness Smith of Basildon (Lab)
My Lords, the noble Lord is absolutely right. I remember the controversy when the first Lord Speaker—the noble Baroness, Lady Hayman, who is in her place—was introduced. Every Lord Speaker has done this House proud. Of course, their role is not just one in the Chamber but a wider one of advocacy for the House of Lords. The noble Lord is right that each of those changes—I was the advocate for the last one of announcing next business when we move from Bills to Statements—has been made with the agreement of the House. I always think that is the best way to proceed on these issues.
Lord True (Con)
My Lords, if there is a Question that is really about the role of the Lord Speaker, it might be helpful to noble Lords if that were made clear when the Question is tabled. I agree with both what the noble Baroness the Leader of the House and the Leader of the Liberal Democrat Peers said. This House is a courteous House and I do not recognise that deterioration; I think it remains a courteous House and it is exemplified, if I may say so, by the noble Baroness the Leader herself. I support what has been said from the opposite Front Bench about behaviour, including remarks about brevity. Perhaps, after the recent intervention by the Captain of the Gentlemen-at-Arms, we should circulate the Oxford English Dictionary to Members.
Baroness Smith of Basildon (Lab)
I hesitate to intrude on that one. The noble Lord is right but, having said that, there have been moments when I think all of us have been embarrassed when noble Lords do not give way to each other, so I understand the point that has been made. It comes back to respect and courtesy. With the powerful advocacy of the usual channels, we can maintain that. It is always open to noble Lords who wish to change procedure to ask the Procedure Committee to consider any such change.
Baroness Jones of Moulsecoomb (GP)
My Lords, there is something I find quite puzzling sometimes, and that is that we have to give way to our right reverend friends the Bishops. I do not understand why that happens. Could the Leader explain that? They always make a very good contribution, but they do have loud voices and can speak up just as we can. The most reverend Primate of England—and the world—the Archbishop of Canterbury actually gave way to me once, for which I was very grateful.
Baroness Smith of Basildon (Lab)
I think the noble Baroness made the point; Bishops have given way to her. There is no rule that says that you must give way to a Bishop; it is through courtesy, and we would expect to hear from the Bishops, as we hear from other sections of the House.
Lord Dubs (Lab)
Given that there is an element of politeness—quite properly—I wonder whether underneath that, when trying to get in on a supplementary, there is an element that people who are meek and mild, such as myself, find ourselves fairly easily bullied by those who are less meek and mild. There are some people who are reluctant to get in at Questions because they feel intimidated. That is the other side of this Question. That is why I agree with the noble Lord, Lord Campbell-Savours.
Baroness Smith of Basildon (Lab)
My Lords, I have never considered the noble Lord, Lord Dubs, to be meek or mild but he is always courteous. When I first came into your Lordships’ House, a long-standing Member said to me that previously, on his area of expertise, he wanted to speak but did so rarely that people would give way because they wanted to hear his views on that area. I think it is less about courtesy and more about loudness of voices. If I can just inject something else here, quite often noble Lords have much louder voices than our female Members of the House. It might be a bit thoughtful sometimes if noble Lords would give way to those who do not have such loud voices.
Food and Drink Industry: Processed Sugar
(2 months ago)
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Lord Brooke of Alverthorpe
To ask His Majesty’s Government what steps they are taking to engage the food and drink industry in reformulating their products to reduce processed sugar in favour of healthier natural alternatives.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
My Lords, last month, as part of our health mission shift to prevention, we published the Government’s response to the consultation on banning junk-food advertising to children, putting the legislation on track and encouraging industry to reformulate and reduce sugar levels in products. There is continued engagement with industry to support action and understand the challenges that are faced in order to make the necessary changes and we continue to review the balance between mandatory and voluntary incentives to reduce sugar in everyday food and drink.
Lord Brooke of Alverthorpe (Lab)
My Lords, I am grateful to the Minister for her reply. I noted the reports about the shift; I wonder whether I can persuade her to shift the Government a little further. I endeavoured to persuade the previous Government that we should engage in further discussions in a round-table way with the food and drink industry to try to reduce the amount of processed sugar. I seek to persuade the Minister to convene a round-table meeting of those in the private sector interested in trying to effect reformulation in food and drink and to let us see something positive actually happening.
Baroness Merron (Lab)
We certainly want to reduce sugar intake, and I commend my noble friend for his campaigning on this issue. I know he will continue, rightly, to press me on this. We want to ensure that we learn from experts and will welcome further research in this area. We already have regular meetings with industry and monitor the progress being made. The ultimate prize is not just about looking at reducing sugar and replacing it with sweeteners but finding that our palates are encouraged to adapt to a rather less sweet taste, and that will be the best way forward.
Lord McColl of Dulwich (Con)
My Lords, does the Minister agree that there are far too many fake rumours going around that the obesity epidemic is inevitable and genetic, whereas the facts are that there is only one cause of the obesity epidemic and that is eating too much and it does not matter what your genetics are? Would the Minister agree that one way of helping the situation would be if the 40 million obese people in this country were to save themselves from a premature death and save the NHS billions of pounds every year by simply reducing the amount that they eat according to the recommendations?
Baroness Merron (Lab)
Taking on board the noble Lord’s point, I feel that it is important that we support people to make healthier choices. The noble Lord will be aware of—and I hope will welcome—the Government’s focus on moving from ill health to prevention. We want to make sure that people live well for longer. It is not only about making informed and heathier choices but about having the means to do so. That is why I particularly want to commend the fact that we will be introducing the restrictions on junk-food advertising to children on TV and online. That will make a major contribution.
Baroness Brinton (LD)
My Lords, the Food Foundation review in January this year noted that 41% of multibuys were still high in salt, sugar and fat, with only 3% on fruit, veg and staples. The Minister referred to working with the supermarkets and major manufacturers. Is this issue being raised with them as well? Particularly with the cost of living crisis, it would be extremely helpful if more multibuys were for foods that were good for people, such as fruit and veg, as well as basic staples and carbohydrates.
Baroness Merron (Lab)
I thank the noble Baroness for that point. It is one of a number of things that is discussed with industry. It is important to draw on the fact that the location restrictions—in other words, where things are located—that came into force in October 2022 have actually turned out to be extremely impactful. There is a whole range of measures that we need to look at, and we will continue to work with industry. As I said in response to my noble friend, we will look at the balance between what is mandatory and what is voluntary, because that will be our best way forward.
Lord Kamall (Con)
My Lords, I pay tribute to the noble Lord, Lord Brooke, for his persistence on this issue. As a Minister, I received many similar Questions. The noble Lord asked about natural sweeteners, but can I ask the Minister about artificial sweeteners? The world-renowned Mayo Clinic suggests that artificial sweeteners, while reducing sugar intake, might also have negative side-effects, and that food labelled as having no sugar or being low in sugar may give the impression of being healthy but actually contain high levels of saturated fat, trans-fat, sodium and other cholesterol-raising ingredients. Can the Minister tell the House, first, whether the Government are aware of any negative side-effects of natural sweeteners and, secondly, what the current thinking is on informing consumers on how reformulating food with less sugar does not necessarily make it healthy?
Baroness Merron (Lab)
The noble Lord makes some very good points. I can give the assurance that all sweeteners have undergone a rigorous safety assessment before being authorised for use. It is also worth drawing the attention of your Lordships’ House to the fact that the Scientific Advisory Committee on Nutrition is currently considering the recent World Health Organization guideline, Use of Non-sugar Sweeteners, which has particularly suggested that achieving weight control may not necessarily be about replacing sugar with sweeteners. It is about acknowledging that sweeteners are more difficult—to use a non-technical term—to use in the reformulation of food than they are in drinks. There has been success in drinks, which has not been exactly mirrored in food, but there are technical and practical reasons for that.
Baroness Boycott (CB)
My Lords, we all welcome the Government’s introduction of free breakfasts. However, at the moment, about 26% of kids are going into school obese and 46% are leaving school obese, so the question of what they eat in school is critical. At the moment, there seem to be no standards. Many of the breakfasts given are bagels and sugary cereals; they do not have fruit, porridge or vegetables. When is there going to be a standard, and what is it going to be?
Baroness Merron (Lab)
It is right that what children are given to eat in schools is absolutely crucial. The school food standards are in place, and they are meant to regulate and restrict food and drink that is provided in schools. It is important, and will be part of our move, following on from the Darzi review, towards the 10-year plan, to look at the quality of free school meals and ensure that they meet the requirements to support children and young people to eat healthily, not just for the immediate future but for forming good habits for the future.
Baroness Jenkin of Kennington (Con)
My Lords, the House’s special-inquiry Committee on Food, Diet and Obesity is due to report by the end of the month. The Government do not traditionally have a very good reputation for responding to many of the recommendations made by these committees, but may I urge the Minister to look very carefully at our recommendations? We spent a year on the report, I think it will be hard-hitting and I hope it will be helpful.
Baroness Merron (Lab)
I certainly expect that it will be hard-hitting and helpful. The committee was of course appointed to consider the role of foods, including ultra-processed foods—something which has been of great interest to noble Lords—foods that are high in fat, salt and sugar, and their impact on a healthy diet and tackling obesity. I certainly look forward to the recommendations of the report, and I hope that we can surprise the noble Baroness in a good way with our response.
Lord Rooker (Lab)
Can I remind my noble friend that, in 2010, when the World Health Organization held a major conference on reducing sugar, it held it in London for the very reason that the Food Standards Agency, on a voluntary basis with industry, had reduced the consumption of sugar by 50%? It was at that very time, of course, that the coalition Government removed nutrition from the Food Standards Agency and took it back behind closed doors into the Department of Health. It is time to go back to the attitude of openness and transparency on this.
Baroness Merron (Lab)
I certainly agree with my noble friend that openness and transparency will take us a long way, not only in this regard but in many others.
Independent Pornography Review
(2 months ago)
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Baroness Benjamin
To ask His Majesty’s Government what stage the Independent Pornography Review has reached and what are its findings to date.
The Parliamentary Under-Secretary of State, Department for Science, Innovation and Technology (Baroness Jones of Whitchurch) (Lab)
My Lords, the work of the independent pornography review is an important area of interest to this Government. The review, commissioned in December 2023, will assess the effectiveness of current pornography legislation, regulation and enforcement. I met with the leader of the review, the noble Baroness, Lady Bertin, to express our support for this work to tackle issues that I know are important to everybody in this Chamber, particularly that of tackling violence against women. The Government are looking forward to seeing the review’s final report later this year. Given its independence, I am unable to share the review’s findings so far.
Baroness Benjamin (LD)
I thank the noble Baroness for that positive response. The rules on how pornographic content is regulated are different online compared with offline. Because of the impact this harmful and violent content is having on women and children, I, along with other noble Lords, called during the passage of the Online Safety Act for it to be regulated online the same as it is offline. Does the Minister agree that regulating online pornography would aid the Government’s mission to dramatically reduce violence against women and girls within the next decade? What plans do they have to ensure that online pornography is regulated the same way as offline?
Baroness Jones of Whitchurch (Lab)
My Lords, the review is looking at this important area of work within its terms of reference, and obviously, we are very interested in its recommendations. I say to the noble Baroness, though, that alignment between the online and offline world is not as straightforward as it might seem, given the volume and spread of content online. Nevertheless, it is an important aspiration and we look forward to hearing what the review will say in guiding us forward on this issue.
Baroness Ritchie of Downpatrick (Lab)
My Lords, I thank the Minister for her response so far. In a previous debate on this issue, I raised the need for robustness from Ofcom. Therefore, will she outline what action the Government will take to ensure that Ofcom acts in a more robust form and, if it does not, what action the Government will then take?
Baroness Jones of Whitchurch (Lab)
I thank my noble friend for her question. We are absolutely determined to keep children safe online and to use the Online Safety Act to provide protection across all the categories under its jurisdiction. Ofcom’s draft guidance lays out which technologies could constitute, for example, highly effective age assurance to protect children, and it will have a full range of enforcement powers to take action against companies that do not follow the duties, including substantial fines. I absolutely agree with my noble friend that robustness is key here. I think some people are frustrated that some of the duties in the Online Safety Act are taking time to be rolled out, but it was a feature of the Act that it would be done on that basis. We are very keen, as everybody in the House is, to see it enacted in full as soon as it can be.
Baroness Owen of Alderley Edge (Con)
My Lords, the Revenge Porn Helpline has a removal rate of 90% of non-consensually shared intimate content, including deepfake. However, in 10% of cases, the host site will not comply with its removal, even where there has been a successful conviction. These sites are often hosted in Russia and Latin America, and are unlikely to come under Ofcom’s scope, even with the changes that make sharing a priority offence. Can the Minister inform the House what action the Government are taking to address non-compliance, and does she agree that it would be better adopt a rapid and wide-ranging approach—favoured by victims—to deem NCII content illegal, thus giving internet service providers the power to block it?
Baroness Jones of Whitchurch (Lab)
I thank the noble Baroness for her continuing interest in this issue and her campaigning work. The Government have already put forward secondary legislation to ensure that the new intimate image abuse offence is made a priority under the Online Safety Act, and all other acts of deepfake portrayal will come under the Act if they are illegal. Going back to the earlier question about robustness, we absolutely expect Ofcom to implement those protections in a robust way.
Lord Laming (CB)
My Lords, does the Minister agree that every effort must be made to protect children who feature in pornography? It is just dreadful.
Baroness Jones of Whitchurch (Lab)
The noble Lord is absolutely right. The scale of violent images featuring women and girls in our country is intolerable, and this Government will treat it as the national emergency it is. The noble Lord will be pleased to hear that the Government have set out an unprecedented mission to halve violence against women and girls within a decade. We are using every government tool we have to target the perpetrators and address the root cause of violence. That involves many legislative and non-legislative measures, as the noble Lord will appreciate, including tackling the education issue. However, ultimately, we have to make sure that the legislation is robust and that we take action, which we intend to do.
Lord Clement-Jones (LD)
My Lords, as the Minister and others have mentioned, there is considerable and increasing concern about deepfake pornographic material, particularly the so-called nudification apps, which can be easily accessed by users of any age. What action will the Government be taking against this unacceptable technology, and will an offence be included in the forthcoming crime and policing Bill?
Baroness Jones of Whitchurch (Lab)
The noble Lord raises an important point. Where nudification apps and other material do not come under the remit of the Online Safety Act, we will look at other legislative tools to make sure that all new forms of technology—including AI and its implications for online images —are included in robust legislation, in whatever form it takes. Our priority is to implement the Online Safety Act, but we are also looking at what other tools might be necessary going forward. As the Secretary of State has said, this is an iterative process; the Online Safety Act is not the end of the game. We are looking at what further steps we need to take, and I hope the noble Lord will bear with us.
Viscount Camrose (Con)
What is the Government’s assessment of the technical difficulties behind requiring pornography sites and others to implement age-verification services?
Baroness Jones of Whitchurch (Lab)
We are working with Ofcom on the requirement to introduce age-appropriate protections. A number of businesses are already beginning to do that, as I am sure the noble Lord knows. Our task is not to find the technology, which I believe is already out there; it is to make sure we have a standardised system that runs across all businesses and social media sites, so that people can be assured the same rules are being applied across the piece, rather than individual companies introducing their own age-assurance and age-protection requirements. I would like to think that it is not a technological bar we are confronting.
Lord Russell of Liverpool (CB)
My Lords, as the Minister will be aware, a great deal of the efforts of those of us involved in the passage of the Online Safety Act were focused on safeguarding children. Given that primary school children onwards can easily access the internet and online pornography, and given that research shows that one in eight pieces of pornography is actively violent, and eight and nine year-olds are seeing that, will the Government please recognise this issue and take action? I do not want to be asking this question again in a year’s time.
Baroness Jones of Whitchurch (Lab)
The noble Lord is quite right about that. However, I reassure him that Ofcom has robust enforcement powers that will be available to use against companies that do not fulfil their duties to take action against these sites. The frustration is, in part, because not all aspects of the Online Safety Act have been introduced yet; some are not coming onstream until next year. But I like to think that once all the elements of the Act are introduced, we will have a robust system. As I have said, if gaps appear we will take action to try to fill them. It is not our intention to have an incomplete range of legislative tools to tackle what, as the noble Lord says, is a very important threat to our country.
Gaza Crisis
(2 months ago)
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The Parliamentary Under-Secretary of State, Foreign, Commonwealth and Development Office (Lord Collins of Highbury) (Lab)
My Lords, resolving this conflict has been this Government’s priority since day one. It is now in PM Netanyahu’s and Hamas leader Sinwar’s hands to accept the deal on the table and agree urgently to a ceasefire in the long-term interests of Israelis and Palestinians. We are working alongside allies and partners to push for an immediate ceasefire, the release of all hostages, the upholding of international law, the protection of civilians—including the rapid increase of aid into Gaza—and a pathway to a two-state solution.
Lord Hain (Lab)
My Lords, I agree with my noble friend the Minister, but does he also agree that this terrible crisis will not be resolved militarily? Netanyahu will not succeed in destroying Hamas as he has promised, not even by destroying Gaza, nor will he destroy Hezbollah, not even by damaging and destabilising Lebanon, and neither they nor Iran will succeed in destroying Israel. Unless Israel is to remain for ever under a state of permanent warfare siege, it is vital there is a negotiated settlement to end the horror. My fear is that that will not happen until this conflict escalates—as recent events seemingly make inevitable —to an all-out regional, maybe even global, war.
Lord Collins of Highbury (Lab)
My Lords, we condemn Iran’s attacks against Israel and recognise Israel’s right to defend itself against Iranian aggression. At this moment, when tensions are at their peak, we call on Iran to step back from the brink. A regional war is in absolutely no one’s interest. We are deeply concerned about the escalation of conflict in the region that threatens to destroy many innocent lives. That is why we are working tirelessly with partners, including allies in the region, to establish immediate ceasefires, both in Gaza and along the blue line. In Gaza, a ceasefire must be the first step on the path to long-term peace and stability, with a two-state solution—a safe and secure Israel alongside a viable and sovereign Palestinian state—at its heart.
Lord Howard of Lympne (Con)
My Lords, I ask the Minister now to take the opportunity to correct the misleading Answer given to your Lordships’ House on 3 September by his noble friend the noble Baroness, Lady Chapman, when she told your Lordships’ House that the Government were
“required to suspend certain export licences”—[Official Report, 3/9/24; col. 1065.]
to Israel. Is it not clear that what she said was in complete contradiction to what the Foreign Secretary told the other place on 2 September, when, in justifying the decision not to impose a ban on equipment for the F35, he made it plain that the Government had discretion on whether to ban or not?
Lord Collins of Highbury (Lab)
The simple fact of the matter is that we have responded to the arms embargo based on an assessment of Israel’s compliance with international humanitarian law. In that assessment, we have made decisions on suspending export licences that we assess do not risk facilitating military operations. They include 60 military items—for example, trainer aircraft and other naval equipment—and other non-military items, such as food-testing chemicals, and telecoms and data equipment. On exports, the F35 programme covered in principle by this suspension is for parts that can be identified as going directly to Israel. However, this is an international programme where we cannot be absolutely certain where those parts are going. That is why we have covered it in relation to the F35. The noble Lord can be assured that we will be determined to comply with international humanitarian law and will take the necessary steps where appropriate.
Lord Singh of Wimbledon (CB)
My Lords, recorded history states that Palestinians were forcibly removed from the homes that they had lived in for centuries, by the Stern Gang, Irgun Zvai Leumi and others whom we then called terrorists, to create the State of Israel in 1948. Does the Minister agree that it is shameful and beyond belief that, in the 70 years that have passed, instead of helping displaced Palestinians to build a new life, the West has been selling arms to Israel to bomb schools, hospitals and even UN refugee centres in Gaza and the West Bank, killing tens of thousands of innocent men, women and children in atrocities condemned by the UN and all human rights organisations?
Lord Collins of Highbury (Lab)
My Lords, the noble Lord mentioned 1948. The State of Israel exists and was approved of legally under international law. There is a duty on us all to defend its right to exist. However, that is no excuse for any breaches by any party to international humanitarian law. I reassure the noble Lord that we as a Government will be determined to uphold international law and condemn whichever side commits offences against it. What we obviously need to do, as we have done since 1948, is to defend Israel’s right to exist and promote a two-state solution, whereby a Palestinian state can live in harmony with its neighbours. That is the vital next step, and I am sure that it will achieve peace and security for all.
Lord West of Spithead (Lab)
My Lords, the IRGC controls and co-ordinates Hezbollah, Hamas and the Houthis in fighting Israel. Will we proscribe this organisation that causes such damage?
Lord Collins of Highbury (Lab)
The noble Lord has participated in many debates where I have called for something similar when I was in opposition. This is a matter for the Home Office, and my Foreign Office colleagues are in consultation with it. What we must do is ensure that all actions that are terrorist in nature—and certainly those that attack British citizens on British soil—are properly addressed. I assure the noble Lord that we take these issues very seriously.
Lord Purvis of Tweed (LD)
My Lords, the evacuation orders by the IDF in north Gaza for 400,000 people are the equivalent of relocating the city of Manchester to an area where there is no shelter, no security, scarce food supplies and no medicine. In particular, three-quarters of all water and sanitary health facilities have been destroyed. If the UK has no active role in bringing about an overall peace agreement, can it use its good offices to ensure that there is some kind of agreement that water and sanitary health provision, which directly affects girls and young women more than anybody else, cannot be a victim of this conflict?
Lord Collins of Highbury (Lab)
The noble Lord knows of my concern about this issue and our absolute determination. The Prime Minister and the Foreign Secretary have made it clear that we want the fullest access for humanitarian aid into Gaza. That is vital. We remain concerned that over 85% of the Gaza Strip is now under evacuation orders, including new orders in the north that are causing serious distress to civilians and impacting on those humanitarian operations. We will make sure that all sides know of our concern and that we have the access to deliver the sort of support that the noble Lord has highlighted.
Lord Callanan (Con)
My Lords, in July, the new Government resumed funding for the United Nations Relief and Works Agency, which had been suspended by the last Conservative Government. In August, the UN then admitted that some of its staff may have been involved in the 7 October Hamas massacre and fired nine of them. What is the Minister doing to ensure that UNRWA properly vets its staff? Does he agree that it is completely unacceptable that UK taxpayers’ cash may have been used to finance those Hamas atrocities?
Lord Collins of Highbury (Lab)
I think the noble Lord knows that this Government, and the last Government, recognise the essential role of UNRWA in distributing aid into Gaza. However, that does not take away the concern about those who may have participated in the horrific events of 7 October. We have supported the Colonna review and will be ensuring that UNRWA and the United Nations take actions to ensure that that report is fully implemented. We are working with the Secretary-General and have resumed funding based on those assurances. It is appalling that nine members of UNRWA were involved in those atrocities, and we welcome UNRWA’s decisive action and support its decision to terminate the contracts of those individuals. This Government are absolutely committed, as were the previous Government, to ensuring that we can get aid into Gaza where it is most needed, and UNRWA is the vehicle to do that.
Still-Birth (Definition) Bill [HL]
Monday 14th October 2024
(2 months ago)
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Crown Estate Bill [HL]
Monday 14th October 2024
(2 months ago)
Lords ChamberRead Full debate Crown Estate Bill [HL] 2024-26 View all Crown Estate Bill [HL] 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-I(a) Amendments for Committee (Supplementary to the Marshalled List) - (11 Oct 2024)
Lord Wigley
“(4B) The functions of the Crown Estate in Wales may not be exercised without the consent of the Welsh Government.”Member's explanatory statement
This amendment would require that the Crown Estate must receive the consent of the Welsh Government before exercising its powers in Wales.
Lord Wigley (PC)
My Lords, I will move Amendment 1 and speak to Amendment 23, both of which are in my name. I am grateful to the noble Baroness, Lady Humphreys, for adding her name to the amendment, and of course to my noble friend Lady Smith of Llanfaes, who no doubt will wish to address Amendment 21 in her name, which I support. I also support Amendment 26 in the name of the noble Baroness, Lady Humphreys, which we will come to later.
At Second Reading, I outlined the case for the Crown Estate in Wales to be devolved as it is in Scotland. That is the subject of a Private Member’s Bill that I have awaiting a Second Reading debate. Although many of these amendments overlap with that fundamental approach, there are other amendments not going quite as far as full devolution proposals which, none the less, could help meet Welsh grievances regarding how it is widely seen that the Crown Estate, as currently administered, does not address Welsh needs or concerns, and, indeed, sucks valuable resources out of Wales.
This issue has boiled up further since Second Reading, with a number of local authorities in Wales that are really strapped for cash, as indeed local authorities are in England, protesting at the bill demands which the Crown Estate makes of them. Let us take as an example the position of my own local authority, Gwynedd Council. This year it is being asked to pay a staggering bill of £160,000 to the Crown Estate to permit access to and full use of its own land and facilities within its own territory. The council has to pay the Crown Estate an annual rent for access to the beach in Bangor, Barmouth and Llanaber and a staggering £144,000 a year in rent relating to the marina in Pwllheli. Access to beaches touches a raw nerve in Wales; when private citizens have tried to close a footpath access, they have triggered massive protest and have had to back down. Yet the Crown is allowed to tell us that we have to pay for use of our own land and our own coast in our own country and can charge for the use of that privilege with impunity.
Gwynedd Council now faces cutting back on other services to pay the Crown Estate. A motion was moved by councillor Dewi Llewelyn in full council meeting on 3 October, and the council resolved to refuse to pay this charge. The motion also called for the control of Crown Estate land and profits in Wales to be devolved to the Welsh Government. We await developments, but other councils in Wales are also now considering similar steps. No one can say that there has not been adequate warning that the Crown Estate issue in Wales is flaring up in the direction of taking the form of a Boston Tea Party.
Conservative Governments over the past 10 years have known that this issue has been festering, but while they accepted the need to make adjustments in Scotland, which led to the devolving of the Crown Estate through the Scotland Act 2016, the situation in Wales was left to fester. This situation has been strenuously criticised by the Labour Government in the Senedd. I will not repeat the lengthy quotation which I presented to the House at Second Reading, when I drew attention to the words of the then Labour Climate Change Minister, Julie James, who, in a nutshell, said that the Crown Estate in Wales should be devolved, as in Scotland, and that the current situation is “outrageous”. Both the former First Minister, Mark Drakeford, and our erstwhile colleague, the current First Minister, the noble Baroness, Lady Morgan of Ely, have also called for the Crown Estate to be devolved in Wales.
In moving the first amendment, we are offering the Committee, and indeed the new Labour Government, an opportunity to take a small step towards redressing the balance. This does not provide for the full devolution of the Crown Estate in Wales, but it gives the Welsh Government a veto grip over the Crown Estate by way of the words which appear in the amendment:
“The functions of the Crown Estate in Wales may not be exercised without the consent of the Welsh Government”.
The mechanisms for granting that consent—indeed, for pinpointing the issues that would need to be addressed to secure that consent—can be open to negotiation between the Welsh Government and the Crown Estate. What this does is to establish beyond doubt that our Government in Wales will have the final word on such matters.
I will briefly mention Amendment 23, standing in my name and supported by the noble Baronesses, Lady Smith of Llanfaes and Lady Humphreys, and by the noble and learned Lord, Lord Thomas of Cwmgiedd. It also provides a mechanism, short of devolving the full Crown Estate to Wales, to require the Crown Estate to pass to the Welsh Government all the net profit that it has generated from Wales; and thereby to enable the Welsh Government to pass an appropriate part of such funds to the local authorities that I mentioned to ensure that they are not out of pocket from the bills that they have to pay to the Crown Estate.
The Labour Government at Westminster should be delighted to facilitate developments provided by the amendment, which I have highlighted. If they are not, they will need to make a very persuasive case because, if these modest proposals are not acceptable, the only answer might be for the devolution—lock, stock and barrel—of the Crown Estate in Wales to Wales, as has been the case in Scotland. I welcome support for these proposals from all quarters of the Committee and I await the Minister’s response with fascination. I beg to move.
Lord Hain (Lab)
My Lords, I support Amendment 21 in the name of the noble Baroness, Lady Smith. I do so as a former Labour Secretary of State for Wales who was responsible for the 2006 devolution Act. Before that, as a Welsh Minister, I, alongside the noble Lord, Lord Wigley, and others, was closely involved in winning the 1997 referendum, which brought in the 1998 devolution Act to establish the Welsh Assembly, now Senedd. I have also lived in Wales for 34 years now.
Welsh Labour’s programme for government in the Senedd includes a commitment to pursue the devolution of powers needed to help reach net zero, including management of the Crown Estate in Wales. The Crown Estate is devolved in Scotland; surely there is no reason why the same powers should not be devolved to Wales, especially by a new Westminster Labour Government committed to partnership rather than confrontation with the devolved Administrations. That was the essence of the Prime Minister’s message to the special summit of the nations and regions last Friday, and in visiting Scotland, Wales and Northern Ireland in July within days of moving into Downing Street.
The Independent Commission on the Constitutional Future of Wales recommended that the Crown Estate be devolved, and Welsh Labour is committed to working with UK Labour in government to implement the recommendations from that commission.
Taking control of the management of Crown Estate assets in Wales would allow the Welsh Government greater autonomy over the speed and direction of the development of Welsh-sited Crown Estate property. The Welsh Government would have the opportunity to better align the management of Crown assets in Wales with the needs of Welsh citizens. The management of Crown assets also generates significant revenue to the UK Exchequer. Devolution of the Crown Estate would better align revenues from Wales with the income available for the Welsh Government to deliver on their priorities for Welsh citizens.
Marine planning is a holistic, statutory process for managing the UK’s seas including the seabed. Aligning Welsh marine planning with seabed leasing rounds for new developments, such as renewable energy, would help to ensure joined-up and plan-led decision-making.
Currently, there are stand-alone leasing rounds for certain types of activity, such as offshore wind or marine aggregates extraction. These leasing rounds, which occur from time to time, take account of relevant government policy, but devolution of the Crown Estate to Scotland has allowed a reshaping of the process, whereby the marine planning process sets the overall policy direction with leasing rounds only progressed after it has set national strategic policy. This ensures that marine management is better joined up and delivered. Taking control of the management of the seabed would allow Welsh Government Ministers both to better implement their policy decisions and priorities for the marine area and to ensure that all relevant interests can be reflected in a way that is simply not as possible with a top-heavy, centralised and London-centric agenda.
Baroness Smith of Llanfaes (PC)
My Lords, my Amendment 21 is included in this group. I endorse the contribution made by my noble friend Lord Wigley in making the case for the other amendments in this group, and thank him for supporting my amendment. I will now speak to Amendment 21.
I spoke at Second Reading outlining why the Bill, as drafted, does not deliver fairness for Wales. Therefore, I will not repeat my case today. However, I will highlight that at Second Reading there appeared to be a sense of agreement from around the House that Wales was not being treated fairly when it comes to powers over the Crown Estate—in particular, the stark contrast between the powers given to Scotland but not to Wales.
Amendment 21 simply aims to resolve this unfairness and would transfer the management of the Crown Estate in Wales to the Welsh Government within two years of commencement of this Act. Devolving these powers would also support the Welsh Government in the delivery of policies in the areas already in their control, such as energy and the environment. This lever would open up more opportunities to deliver for the people of Wales. I am grateful to the noble Lord, Lord Hain, for his support of this amendment and for his contribution, and to the noble and learned Lord, Lord Thomas of Cwmgiedd, for adding his name to it.
A move to devolve this power is supported by many in Wales, including senior colleagues in Wales of the new Labour Government here. Additionally, the Independent Commission on the Constitutional Future of Wales also recommends that the devolution of the Crown Estate is progressed, as the noble Lord, Lord Hain, outlined. Campaigning for this change has heated up across all parts of Wales in recent months. In addition to Cyngor Gwynedd’s motion, which my noble friend Lord Wigley raised, we have seen similar motions passed by Swansea Council, and I expect momentum to build across Wales if no progress continues to be made. This amendment offers this Committee and the new Labour Government an opportunity to make that progress, right this wrong and deliver fairness to Wales.
This amendment goes hand in hand with Amendment 23 in this group, which I support, as Wales must also receive the profits that result from the use of the land in Wales. These profits should be invested directly into the communities of Wales. I welcome support for this group of amendments from all corners of this Chamber, and I look forward to hearing the Government’s response.
Lord Macpherson of Earl’s Court (CB)
My Lords, unusually, as a former Treasury official, I am generally in favour of greater devolution—the more so when the likes of the noble Lords, Lord Hain and Lord Wigley, and my noble and learned friend Lord Thomas support a proposal. But on this occasion I fear I should advocate a degree of caution.
I speak having been in the Treasury when the Crown Estate in Scotland was devolved. With hindsight, I think that was a mistake, particularly because there is considerable benefit in looking at offshore wind policy at a UK level. Indeed, the then Government missed a trick. They should have followed the example of I think the Wilson Government in the 1960s, who hived off oil sea exploration from the Crown Estate. The then coalition Government should have hived off offshore wind from the Crown Estate, not least because it gives the Royal Family, who no doubt are a deserving cause, a massive windfall, as my noble friend Lord Turnbull pointed out at Second Reading.
Although I very much understand the case that noble Lords have made on both sides of the House, I think this is something that should not be rushed. There may be a case for devolving further powers to Wales, not least because there is a case for giving Wales similar treatment to Scotland. But if the Government are sympathetic to this amendment, I encourage them to spend a bit more time working through whether there are unintended consequences and, in particular, looking through the financial implications. One thing I would not want to see happen is Wales being disadvantaged financially by devolution. This might be the right thing to do for the longer term, but I encourage the Minister to think twice before agreeing to it today.
Baroness Humphreys (LD)
My Lords, I apologise to your Lordships for not having taken part in the Second Reading debate. I also draw your Lordships’ attention to my registered interests and my membership of the board of Community and Voluntary Support Conwy, CVSC.
I rise to speak to Amendment 26 in my name and Amendments 1, 21 and 23 in the names of the noble Lord, Lord Wigley, and the noble Baroness, Lady Smith of Llanfaes. My Amendment 26 calls for the devolution of the Crown Estate’s powers to Wales and would require the Treasury to devolve Welsh functions of the Crown Estate commissioners to Welsh Ministers or a person nominated by Welsh Ministers.
There are increasing calls within Wales for the devolution of these powers. It is a policy of my party, the Welsh Liberal Democrats, having been debated and agreed in our Welsh conference in 2023. It would ensure that the profit from offshore energy lease agreements stays in Wales.
In July 2023, Senedd Members voted by a majority of 35 to 13 in favour of a Plaid Cymru debate calling for the devolution of the Crown Estate to the Welsh Government. As we have heard, there are similar calls at local government level. Last week, as the noble Lord, Lord Wigley, detailed, councillors in Gwynedd Council debated a motion asking their chief executive to open negotiations with the Crown Estate over “access fees”. The council paid its annual fee of £161,000 to the Crown Estate in 2023 to allow public access to beaches in Gwynedd, of which £144,000 was paid to allow access to Hafan Pwllheli marina. Councillors also believed that responsibility for the Crown Estate should be devolved to the Welsh Government, with their motion stating:
“Any profits generated by the Crown Estate, here on Welsh lands and waters, should remain in Wales, for the benefit of our residents and communities”.
In addition to all this, social media videos provide information about the Crown Estate and explain why the promoters want change, leading to greater awareness of the issue among the public.
The Crown Estate owns land estimated to be worth more than £600 million in Wales. This includes 65% of the coast of Wales and 300,000 acres of land, including any gold and silver on it. Profits on these numbers are unclear, however.
Let me be clear: there is no criticism of the Crown Estate commissioners implicit in this amendment. The commissioners operate within a system that was established 63 years ago but with a history going back to 1760, and they cannot diverge from the status quo without an Act of Parliament similar to that which devolved similar powers to Scotland in 2017. So, while the commissioners operate the system from the 1960s, history for us in Wales has moved on. Devolution has opened the eyes of the people in Wales to the opportunities and responsibilities that the new order has brought.
Lord Thomas of Cwmgiedd (CB)
My Lords, I rise briefly to support the amendments in the names of the noble Lord, Lord Wigley, and the noble Baroness, Lady Smith Llanfaes, respectively. I do so, following what has been said by a number of others on some detailed points, because there is an important constitutional issue and an interesting constitutional test for this Government.
It seems clear to me that in our union, it is accepted as things stand that the Crown Estate is not a union function. That is shown by the fact that it has been devolved to Scotland and therefore is quite unlike monetary policy, defence or other matters that are union functions. I see the powerful argument, advanced by the noble Lord, Lord Macpherson, that our constitution should be slightly different—that this should be seen as an energy issue and reserved to the central Government—but this is not the current position and we must address things as they are. Therefore, it is very clear that when the Government look at this question, they must do so from the point of the constitution. This is a power capable of devolution and the question therefore arises, if it can be devolved to Scotland, why is it not devolved to Wales?
It is also important that we stand at a turning point in devolution. I had hoped, and still hope, that the advent of this new Government means that we think for the first time in a long time about the structure of our union—that we look on it as something that should be based on principle and good co-operation between the nations. The latter is extremely important in this policy area, bearing in mind the current constitutional structure. I keep on using the word “constitutional” because we sometimes forget that what is critical to our country is good governance based on a sound constitution.
It is said by the Scottish authority that runs the Crown Estate that they
“invest in property, natural resources and people to generate lasting value for Scotland”.
Why cannot that be given to Wales? It has been said in the past that the Welsh are not up to it, or that London knows better. I am delighted that those arguments are not being run, and I hope they are consigned to the dustbin of history. However, the Minister said the following on Second Reading:
“devolving … would significantly risk fragmenting the energy market, undermining international investor confidence and delaying the progress towards net zero by … 10 to 20 years, to the detriment of the whole nation”.—[Official Report, 2/9/24; col. 1021.]
That is similar to what the noble Lord, Lord Hain, quoted in relation to the position of the last Government. So much, possibly, for new thinking.
It is important to analyse those phrases; there is no evidence to support any of them. I hope it is not unkind to say that the use of the phrase “undermining investor confidence” is often the resort of a politician in distress. Even if there was anything in any of these points, their argument does not touch on the issue of principle: that the management of the Crown property in Wales, historically acquired by the English Crown from the Welsh people, should be for the people of Wales and the money obtained should be transparently accounted for as a distinct amount and used for their benefit, in a way decided by the Government of Wales.
Those are two key points of the devolution of the Crown Estate: management and money. If it is good enough for the Scots, why is it not right for the Welsh? It will be interesting to see how the Minister argues that specific point of constitutional principle.
The Minister knows, from his own considerable experience, that it is of course possible to run things in co-operation. What is promised by this new Government is a new approach to the union: co-operation between the Governments in Edinburgh, Cardiff, Belfast and London. If there are benefits from matters such as gearing up together to deal with the energy market then that is possible through joint ventures or other arrangements, but it in no way detracts, it seems to me, from the issues of principle—that the management of property in Wales should be for the Welsh Government and the money should go back to Wales.
In relation to that, as someone who comes from the industrial area of Wales, I know it is important to recall what happened in the last century and the century before last. Wales possessed enormous mineral wealth that drove the supplies of energy which powered our industrial revolution. Let us hope that now that there are alternative means of generating the power that is driving our present economy, the people of Wales will not be short-changed as they have been in the past.
Baroness Ritchie of Downpatrick (Lab)
My Lords, as a follow-on to what the noble and learned Lord, Lord Thomas, said in relation to Wales, if the Crown Estate is devolved to Scotland, why should it not be devolved to Northern Ireland? The Crown Estate plays a critical role in the stewardship of our seas and terrestrial environment. As well as large landholdings, the estate manages the seabed around England, Wales and Northern Ireland, along with 50% of our coastline, and it will support the tripling of the electricity sector’s capacity, with the deployment of 125 gigawatts of offshore wind by 2050.
During Second Reading, I pointed out that, in the Northern Ireland context, the electricity industry is managed on an all-island basis, north-south, through the all-Ireland electricity market. I received a very helpful response from the Minister, my noble friend Lord Livermore, in relation to this issue. Could he give some thought to the devolution of the Crown Estate to Northern Ireland, in the context of the electricity market and how the electricity supply is managed? Can he say whether there will be a connection and co-operation with the Irish Government on the Great British energy market and the all-Ireland energy market and the Irish Sea?
Lord Berkeley (Lab)
My Lords, briefly, I support these amendments. I get involved, along with many other noble Lords, in offshore energy issues, particularly in Cornwall. I can see a time coming when there will be enormous pressure on central government as to where these great big tanks—the floating windmills or whatever you want to call them—are manufactured, where they are located, from where they are serviced and, probably most important of all, where the power lines come ashore. There has already been lots of talk about Port Talbot as the only possible place for their manufacture for the south-west. There is lots of flat land there and it is probably very good, but, living in Cornwall, I would like to make sure that some benefits come to the ports in Cornwall from some of those issues.
It would seem, from what many noble Lords have said, that there is a strong argument for drawing a line down the Bristol Channel out to the medium and sticking to it, then using that line for any kind of debate or discussion that takes place on offshore oil or offshore wind, or anything else like that. If not, we are going to have this kind of debate every time: “How much does Wales get?”, “How much does Cornwall get?”, “How much does Devon get?”. It would be much better if it was agreed—I am not sure by whom, but there has to be someone in this Government—where this line was and everything that leads from there.
While I am on my feet, I would like to ask my noble friend the Minister where the Duchy of Cornwall and its offshore or beach interests come into this, if at all. The Duchy of Cornwall has the right to treasure trove if treasure is found in Cornwall, and that goes into the coffers of the Duke of Cornwall—as opposed to in the rest of the country, where it would go into the coffers of the Government. Again, it would be nice to know where the boundaries are. It would be much easier to have a good debate about them if we knew where the start and finish were.
Baroness Kramer (LD)
My Lords, my noble friend Lady Humphreys spoke not just for the Welsh Liberal Democrats but for all of us on these Benches. At Second Reading I, among others, raised the significance of devolution to Wales and asked that this should come as rapidly as possible, for a variety of reasons which have been discussed today. I do not want to repeat arguments but there are a couple of points I will pick up.
First, I say to the noble Lord, Lord Macpherson, that this nonsense that the money for the monarchy is then translated into a percentage of the profits that come from the Crown Estate is idiosyncratic and should stop right now. These are two entirely different sets of decisions, and we should separate them. I hope the Government will at some point in the process of the Bill deal with that particular nonsense—if not, if they could deal with it in the Budget that would be extremely helpful.
Secondly, the Crown Estate of the past is not the Crown Estate of the future. In the past we have had a body that has been focused on property management, very gradually getting into economic growth, levelling up and sustainability; now, the borrowing powers envisaged make for a complete step-change in that area. Not having the proper authority resting with the Welsh Government that devolution would provide therefore becomes far more egregious than it has been historically. The time has definitely come to recognise that, with this Bill, we are changing in many ways the character of the Crown Estate and its level of activity. It is time, therefore, to make the appropriate step and ensure that Wales and the Welsh voice are properly reflected through the Welsh Government’s control of the Crown Estate in Wales.
Thirdly, my last point is one that was reflected in the speech of the noble Lord, Lord Hain, and somewhat in the speech of the noble and learned Lord, Lord Thomas. The argument has always been put that, if we split off the Crown Estate in Wales, we are building in an inefficiency, particularly within the energy sector: we would have another player; it would be more complicated; and the management would be somewhat split.
It made me interested to take a look at the Crown Estate in Scotland. The Committee will be aware from various speeches that the assets controlled by the Crown Estate in both England and Wales are in the arena of £15 billion—it is a huge asset bloc. In Scotland, the bloc is far smaller. I looked at the last annual report and found that it is about £650 million in assets. I would guess that Wales is not that much smaller. In other words, we know that Scotland is functioning well—I hear no complaints from voices in Scotland about the way that the Crown Estate is working under the auspices of the Scottish Government—and so I see no reason why there would be necessary inefficiencies by splitting off a similarly sized set of assets to be governed by the Welsh Government.
Building collaboration is obviously the answer. To pick up the point the noble and learned Lord, Lord Thomas, made, collaboration and co-operation is the language that this Government are continually using and the approach that my party supports. It underpins a sense of democracy and fair dealing, which is very important in modern-day politics. I hope that the Government will look again at this and, if they cannot make changes in this specific Bill, promise that those changes are coming, and coming soon.
Baroness Vere of Norbiton (Con)
My Lords, I am enormously grateful to all noble Lords who have spoken before me in this debate today. Predominantly, this is obviously around the devolution of powers over the Crown Estate in Wales to the Welsh Government. On these Benches, we have thought long and hard about this, and I hear the concerns of some noble Lords about how the devolved powers differ between Wales and Scotland and, indeed, Northern Ireland. But this is not a unique situation and I have concluded that I would encourage the Minister to resist any change at this time.
A number of noble Lords have raised certain challenges as to why this might be a good or a bad idea, and I look at this in a purely practical sense. If I look at the documents that have been provided and are available not only for the Crown Estate but also the Crown Estate’s relationship with GB Energy—the enormous commitment that the Crown Estate has made in terms of the amount of seabed licences it wishes to grant to enable energy generation by 2030—I agree with the noble Baroness, Lady Kramer, that change is coming and coming very significantly for the Crown Estate. In 10 years’ time, it is not going to look the same as it does now. Therefore, I think that we would introduce risk into what is already a very ambitious target set down by the Government to develop offshore wind should we be sidetracked by the desire to devolve limited powers over the Crown Estate at this time.
It is also worth bearing in mind that the Crown Estate is very clear in its documents—and I think the Committee will discuss this a bit more later—that it is an independent business and competes against the private sector. Splitting it at this time and taking out a chunk of the assets and going through all the procedures as to how you recognise those assets—as pointed out by the noble Lord, Lord Berkeley—and how you think about which revenue streams go where would be a sideshow.
I note the point made by the noble and learned Lord, Lord Thomas, but I am going to run with it slightly. At the moment, the Labour-run Welsh Government do not have the best record of governance. Of course, that might improve in the future and progress may well be made, so I conclude by saying that we encourage the Minister to resist these amendments and we believe that they would be unwise at this time.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I am very grateful to all noble Lords who have spoken in this debate in response to the amendments from the noble Lords, Lord Wigley and Lord Hain, and the noble Baronesses, Lady Smith and Lady Humphreys. I hope to be able to explain the Government’s rationale for retaining the existing structure of the Crown Estate.
First, let me set out how the Crown Estate currently operates and why the Government believe this remains the best approach. The Crown Estate Act 1961 requires the Crown Estate commissioners to manage the Crown Estate as a commercial enterprise to enhance long-term value and generate profit and to do so with due regard to the requirements of good management. A key purpose of the 1961 Act was to repeal various detailed statutory provisions that had built up over 150 years previously which were hampering the effective management of the estate. By focusing the commissioners’ duties on enhancing the estate’s value and the returns generated, the commissioners have a clear objective for which they can be held to account.
While the Crown Estate has goals which under its own strategy align with wider national policy objectives, the 1961 Act provides the Crown Estate with independence and autonomy to set and achieve its goals. The Government believe that the Crown Estate should continue to operate in this way, as a commercial business independent from government, because it has shown itself to be a trusted and successful organisation, with a proven track record in effective management.
The Crown Estate is multibillion-pound public corporation, which is required to pay its profits into the UK Consolidated Fund each year, worth more than £4 billion over the past decade. Those revenues are then allocated to public service priorities by the Government, subject to the usual parliamentary controls. That is a valuable outcome, which we need to be careful not to undermine.
I turn to the amendments that deal with devolving the Crown Estate in Wales. I fully recognise that there are now two Labour Governments in the UK. While I believe that there is greater benefit for the people of Wales and the wider United Kingdom in retaining the Crown Estate’s current form, I shall of course continue to discuss these issues with the First Minister and the Secretary of State for Wales to ensure that Wales sees the full benefits of the Crown Estate and other forms of investment.
In response to the arguments made by noble Lords during this debate, I make a number of points. First, devolving the Crown Estate to Wales would most likely require the creation of a new entity to take on the role of the Crown Estate in Wales. This by definition would not benefit from the Crown Estate’s current substantial capability, capital and systems abilities. As my noble friend Lord Hain and the noble and learned Lord, Lord Thomas, referred to, this would indeed further fragment the UK energy market by adding an additional entity and, as a consequence, it would risk damaging international investor confidence in UK renewables and disrupting the National Energy System Operator’s grid connectivity reform, which is taking a whole-systems approach to the planning of generation and network infrastructure. That reform aims to create a more efficient system and reduce the waiting times for generation projects to connect to the grid. The cumulative impact of these effects would likely delay the pathway to net zero by decades.
Furthermore, the Crown Estate’s marine investments are currently made on a portfolio-wide basis across England and Wales. To devolve to Wales would disrupt these existing investments, since they would need to be restructured to accommodate a Welsh-specific entity. Let me give two examples. The first is the Crown Estate’s £50 million supply chain accelerator, which will match-fund early stage projects related to offshore wind leasing round 5, and the £50 million investment in the offshore wind evidence and change programme, which brings together government bodies, the industry and key stakeholders from across the UK to better understand environmental impacts of offshore wind.
Lord Wigley (PC)
The Minister has explained the need for a restructure. As Scotland has devolution of this dimension already, clearly it is not impossible for people to come together after devolution for Wales, too.
Lord Livermore (Lab)
I shall go on to address some of those points further in my speech.
To devolve the Crown Estate at this time would also risk jeopardising the existing pipeline of offshore wind development in the Celtic Sea planned into the 2030s. The Crown Estate’s offshore wind leasing round 5 is spread across the English and Welsh administrative boundaries in the Celtic Sea. It was launched in February this year and is expected to contribute 4.5 gigawatts of total energy capacity, or enough to power 4 million homes. In addition to energy, the extensive jobs and supply-chain requirements of round 5 will also likely deliver significant benefits for Wales and the wider UK. Lumen, an advisory firm to the Crown Estate, has estimated that manufacturing, transporting and assembling the wind farms could potentially create around 5,300 jobs and create a £1.4 billion boost for the UK economy.
As I have said, devolution would also delay UK-wide grid connectivity reform. The Crown Estate is using its data and expertise as managers of the seabed to feed into the National Energy System Operator’s new strategic spatial energy plan. For Wales, the Crown Estate is working in partnership with the energy system operator to ensure that its current pipeline of Welsh projects, the biggest of which is the round 5 offshore wind opportunity in the Celtic Sea, can benefit from this co-ordinated approach to grid connectivity up front. Introducing a new entity, which would have control of assets only within Wales, into this complex operating environment, where partnerships have already been formed, would not make commercial sense.
Secondly, the Crown Estate’s assets and interests in Wales, as compared to its assets in England, are of a fundamentally smaller magnitude, which would very likely not be commercially viable if the costs were unsupported by the wider Crown Estate portfolio. The Crown Estate, in its present form, has the ability to take a longer-term approach to its investments and spread the costs of those investments across its entire portfolio. A self-contained, single entity in Wales would not have the same ability, nor would it benefit from the expertise that the Crown Estate has developed over decades in delivering offshore wind at scale. A devolved entity would be starting from scratch, midway through a multimillion-pound commercial tendering process, at a time when the Crown Estate is undertaking critical investment in the UK’s path towards net zero.
Lord Hain (Lab)
My Lords, before my noble friend sits down, I want to ask him specifically about what he said in relation to Welsh Government Ministers. I pressed him hard to talk to Welsh Government Ministers and consult on this matter. Nobody expects this to be done overnight or, indeed, relatively soon, given everything else and what he has said, but that seems to me the crucial thing which would release me from an obligation at least to press this on Report.
Lord Livermore (Lab)
I am very happy to reiterate what I said: I will, of course, discuss these issues with the First Minister and the Secretary of State for Wales to ensure that Wales sees the full benefits of the Crown Estate and other forms of investment.
Lord Wigley (PC)
I am sure that the noble Lord, Lord Hain, listened to that response, as I did, with some amusement. If the line that the Minister is going to take in discussion with Welsh Ministers, who have very strong opinions on this matter, is the line that he has taken in responding to this debate, there is quite clearly not going to be a meeting of minds. We are talking about a Labour Government in Cardiff and a Labour Government in London, and this is going to be the backdrop to the politics that are running through the next few years, including the run-up to the 2026 election. I beseech the Minister to think more carefully about the way he is handling this.
The way in which the Crown Estate has been devolved in Scotland has not caused immense difficulties. They have been able to disaggregate the things that need to be disaggregated. It has been possible for the Scottish Government to get the benefits they need. The most important thing that I regard as coming from this sort of structural change is to give the Welsh Government the levers and powers—and the encouragement—to take initiatives themselves, to maximise the economic return that they can get in Wales and thereby to generate the income we need to run our government services. We do not want to be for ever and a day coming with cap in hand to the Treasury in Whitehall, begging for money.
On that point, perhaps it was the same noble Lord, Lord Macpherson, who was at the Treasury in 2010-11, when the Welsh Government had aggregated £400 million from money they had not spent on a revenue basis, in order to have a capital fund to build hospitals and schools, and the Treasury took back the whole £400 million. Being careful how they spent money at year end was a policy that the Labour Government in Wales could be proud of, but that is what the Treasury did to us. The Treasury is still, with the same game, trying to stop us taking initiatives on our own behalf to sort out our own problems.
I was grateful to the noble Lord, Lord Hain, who made a persuasive argument, and I hope we return to these matters on Report. I was naturally grateful to my noble friend Baroness Smith of Llanfaes—she will possibly come in on other debates on these matters. I realise where the noble Lord, Lord Macpherson, comes from on these issues. I too had a financial background; I was a financial controller in manufacturing industry and I know the responsibilities that go with finance. I also know the need to have the incentive and inducement to create the money that can then be used for the social services and all the other responsibilities of government —that is what we want to trigger and encourage in Wales.
I was grateful to the noble Baroness, Lady Humphreys, for her substantial speech, which laid out her party’s view. I am glad to see that the Labour Party in the Senedd Cymru, the Liberal Democrats and Plaid Cymru stand together on this, and, indeed, a number of Conservatives there do too, which perhaps Conservative colleagues could bear in mind.
The noble and learned Lord, Lord Thomas of Cwmgiedd, excellently summed up the whole thing. The problem that we have had down the years when it has come to wanting to take responsibility for doing things for ourselves rather than always going cap in hand to others to bail us out is that we are told we cannot do it, or that it will cut across the unity or the way the commercial sector sees it, et cetera. We have got to be able to stand on our own two feet, whether it is in the context of the structures of government we have now or different ones. As in the case of Scotland, we want to stand on our two feet and be able to pay our way in the world, and at least take responsibility on our own shoulders for doing that.
I take the point about Northern Ireland made by the noble Baroness, Lady Ritchie of Downpatrick, and, indeed, Northern Ireland is mentioned in some of these amendments. There is, of course, a need for a co-ordinated approach, but that does not mean that we have all to be lumped together under one overarching structure. The whole point of devolution is to give power and responsibility to those who are best placed to make the most of it, and, in this context, to develop and use our own resources. The noble Lord, Lord Berkeley, mentioned the situation in Cornwall, where there are resources that can be used and maximised for, I hope, the benefit of the people of Cornwall rather than for profits to be syphoned off elsewhere. The noble and learned Lord, Lord Thomas, mentioned our experience with coal, where we were left with the coal tips, industrial disease and all the environmental problems to clear up at our own cost, but when we try to do something about it, we are told we are not capable of doing so. Quite frankly, that is not acceptable.
I thank the noble Baroness, Lady Kramer, for painting her party’s viewpoint on a UK basis so clearly. Obviously, the response from the noble Baroness, Lady Vere, is not one I identify with; I am not entirely surprised as we have had such responses from Conservative Governments for many years. I am, however, surprised at the response from the Labour Front Bench, where we would have hoped for more.
There is currently a shortfall in the Welsh budget of some £250 million a year, which the Government are going to have to find. There is also an increasing dynamic to that figure: it will reach some £750 million by 2028. We want to be able to do something about it ourselves, so why do they not give us the tools we need to do the job when we are willing to take the responsibility to do it? I beseech the Labour Government to look at this again between now and Report. As the noble Lord, Lord Hain, suggested, they should speak to colleagues in Cardiff and try to get a solution that enables us to do more to help ourselves, rather than telling us for ever and a day to come with a begging bowl and hope that somebody will bail us out. I beg leave to withdraw my amendment.
Earl Russell
Member’s explanatory statement
This amendment would place a cap on the amount the Commissioners may borrow.
Earl Russell (LD)
My Lords, in moving Amendment 2 I will speak also to Amendment 5. Together, they seek to place a cap of £150 million on the amount of money that Crown Estate commissioners may borrow. To be clear, we broadly welcome and support the measures proposed in the Bill. My amendments do not change the purpose of the Bill; they are simply about the need for parliamentary oversight and scrutiny over the new borrowing powers and how they will be exercised in practice.
As the Bill stands, there is no cap on the amount the Crown Estate may borrow, subject only to Treasury approval and being within the fiscal rules. To quote the Minister at Second Reading,
“any borrowing by the Crown Estate will be at commercial rates, for subsidy control reasons, and be subject to Treasury consent. Values will be based on the total gross audited asset value of the enterprise, as reported in the annual report and accounts”.—[Official Report, 2/9/24; col. 1024.]
I struggle to think of any other examples of this kind of arrangement, where Parliament gives permanent rights for borrowing subject only to Treasury approval. If the Bill passes as it stands, there will be no further parliamentary oversight or review of these powers. There are, in effect, no limits on the amount that can be borrowed in either cash terms or as a percentage of holdings.
While employing different methods, my amendments and the others in this group all have a similar purpose: balancing the competing objectives with applying some overall financial oversight, while not being so restrictive as to be burdensome to the work of the Crown Estate and our common objective of reaching net zero.
Since borrowing powers lie at the heart of the Bill, it would be remiss of us not to examine fully their purpose, extent, impact and further oversight. We welcome the key partnership with Great British Energy, which was announced at the same time that GB Energy was launched. We welcome the plan to gain greater investment and make better use of the Crown Estate’s lands to generate new sustainable energy projects. We support the aims of updating the Crown Estate Act 1961 so that the Crown Estate can make best use of its cash reserves, subject to Treasury approval. Much has changed since the original Act was passed, and it makes sense to update the borrowing provisions in it.
The Crown Estate is a commercial business set up by the 1961 Act. It is independent of government and managed by commissioners who operate to secure profits that are returned to the Treasury for the benefit of the nation. To grow and to help it play a more useful role in our path to achieving net zero, the Crown Estate should have broader powers to borrow and to invest, so that it is best able to prosper, to compete in a commercial marketplace and to make best use of the assets under its control. The restrictions under the 1961 Act have created an unhelpful situation, where the Crown Estate, in the past, has been forced to sell our national assets to generate capital for investment. This is not a situation we wish to see continue.
Lord Macpherson of Earl’s Court (CB)
My Lords, this is an interesting and important amendment that goes to the heart of Treasury control. Historically, it is fair to say that, when it came to nationalised industries, the Treasury set external finance limits that were not subject to constraints ex ante from Parliament. The proposal to borrow is definitely the right one. I recall having to jump through extraordinary hoops to enable the Crown Estate to invest in creating special purpose vehicles, usually with foreign sovereign wealth funds, to support the financing of investment. So moving to give the Crown Estate borrowing powers is the right approach.
The question then is: to what extent do those need to be constrained by Parliament? There are precedents. For example, Scotland is constrained in the quantity of its borrowing. However, the Crown Estate has more in common with nationalised industries. I hope that the Minister will confirm that in each Budget and spending review, the Treasury will publish three-year to five-year plans for the external financing limit of the Crown Estate. This will allow Parliament to scrutinise those proposals along with the rest of the Budget but should not require overarching constraint in legislation, which would effectively constrain the Treasury’s decisions on who should borrow across government and how best to allocate borrowing resources.
Lord Howard of Rising (Con)
My Lords, I rise to speak to Amendment 8. There should be a limit on the level of borrowings that the Crown Estate can have. It would be irresponsible to issue a blank cheque that risks, even encourages, abuse by the political system. At Second Reading, I suggested that a limit could be set as a percentage of capital reserves, and I proposed 10% as an appropriate amount. When added to the Crown Estate’s cash position, 10% would retain a generous amount of flexibility while guarding against the risk of abuse and overborrowing. Amendment 8 does just this. I thank the Minister for seeing me to discuss my amendment, but regret that he did not agree with the principle that a limit on borrowing is necessary. He believes that the approval needed by His Majesty’s Treasury would act as a sufficient safeguard. There are two important reasons why I believe that this is not the case.
First, relying on the good intentions of His Majesty’s Treasury to provide the necessary safeguards is simply insufficient. The First Lord of the Treasury is the Prime Minister. There is also the Chancellor of the Exchequer, who could, if the political ambition was sufficient, persuade His Majesty’s Treasury that a loan to the Crown Estate was desirable. The Minister said at Second Reading that he did not envisage the Crown Estate borrowing in the near future. However, there may be a less responsible Government in the future who may make use of this possible sleight of hand to encourage profligate or political spending.
Secondly, if a current or future Government wished to disguise spending, it is possible for the Crown Estate commissioners to carry out the desired spending for the Government with funds provided by the Treasury. Loans to the Crown Estate would be classed as an asset, meaning that the spending would be seen not as an expense but as a capital asset. Without restrictions on borrowing, there is an incentive for future less responsible Governments to increase lending to very high levels. A limit on the Crown Estate’s borrowing would go some way towards safeguarding against this. However, I also welcome Amendment 10, in the name of my noble friend Lady Vere of Norbiton, which provides another safeguard against this happening by ensuring that loans made to the Crown Estate are included in the Government’s assessment of the national debt.
I remain concerned about the lack of safeguarding against excessive borrowing, which poses a significant and unnecessary risk that the Crown Estate does not need to continue operating successfully. As we have heard, I am not the only member of this House who has concerns about permitting the Crown Estate limitless borrowings from His Majesty’s Treasury. Amendments 2 and 5, tabled by the noble Earl, Lord Russell, and Amendments 3, 4, 6 and 7, tabled by my noble friend Baroness Vere of Norbiton, all propose alternative limits to borrowing which would be quite acceptable. Should the Minister find these amendments too restrictive, Amendment 8 provides him with a generous alternative.
Finally, as the Minister has been made aware, I would like to degroup Amendment 9; as such, I will save my comments on it for the next group. I apologise for any inconvenience this may cause the House, but having reflected on the matter, I feel it important to deal with that amendment separately.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to follow my noble friend and agree with many of his comments, and to give more than a nod to the amendments in the name of my noble friend Baroness Vere of Norbiton.
I rise to speak to Amendment 20 in my name. The Crown Estate has a unique position in our society, our economy, across many of our communities and right around our shoreline. This position will only be increased and enhanced through many of the measures set out in this Bill, not least the yet to be discovered tie-up with GB Energy. To this end, my Amendment 20 seeks to put in statute the principle of additionality for all spending decisions of the Crown Estate. It seems sound that, given the potential not least of offshore wind, the activities of the Crown Estate cannot at any point be seen to be crowding out other private funds. An additionality principle which seeks to apply measures on crowding out and ensure crowding in, and a report to that effect, would be not just a principle of additionality but a good addition to this Bill. I look forward to the Minister’s comments.
Baroness Kramer (LD)
My Lords, I want to pick up the point made by the noble Lord, Lord Holmes. That would be an attractive proposition if we were dealing with a “have regard”, but asking the Crown Estate to go through an extensive exercise to find out what every competitor wants to invest in would be far too challenging. However, as an underlying principle, through a “have regard”, that might be a workable way to address that issue.
I want to come back to the body of the amendments. I was fairly hopeful that we would not have to come forward with these amendments because we would have seen the language, or at least the essence of the language, that was going to be in the new framework agreement. The Minister fully accepts that the existing framework agreement completely misses the point and is unfit for purpose when it comes to adding new borrowing powers. For those who have not made the effort to look the current framework, it says that the Crown Estate may not borrow money “on security or otherwise”. There are some small exceptions for day-to-day running and working capital-type things, but that is about it. Then, the framework says that the Crown Estate’s exposure to indirect borrowing through joint ventures—this is the way the Crown Estate, in effect, has borrowed: by creating joint ventures that then go out into the market—will be no more than 40% in one vehicle, and in aggregate should not exceed 10% of the Crown Estate’s net asset value. Something along those lines strikes me as extremely appropriate and would, I think, seem appropriate to most of this House.
I raised ahead of Second Reading, and on Second Reading with the Minister, that we have never seen a business case that argues why additional borrowing or additional funds are necessary. This is an entity that is sitting on some £2 billion in cash—why is this necessary? I do not think we are opposed to this, but if we are going to approve it, it makes sense to see the thought process behind it. The Minister was quite hopeful: he said that he was happy now to commit to publishing a version of the business plan, approved by the last Government, which removes any commercially sensitive information. That was a really satisfactory step, but we have not seen it. I suppose I am slightly surprised that it is been so difficult to just black out the commercially sensitive bits, and I wonder when we are going to see it.
Baroness Vere of Norbiton (Con)
My Lords, this group of amendments on the investment and borrowing powers in the Bill for the most part seeks to put in place limits on borrowing by the Crown Estate. I am grateful to the noble Earl, Lord Russell, who introduced the group, and I agree with him that there should be a limit on the borrowing powers that the Government intend to extend to the Crown Estate commissioners.
I also associate myself with the comments made by both the noble Earl, Lord Russell, and the noble Baroness, Lady Kramer, about the absence of the business case and the draft framework agreement. This is not the first Treasury Bill where accompanying documents have not appeared, but this is a new Government.
I am also grateful to my noble friend Lord Howard of Rising for his Amendment 8—I understand that the Committee will come back to his Amendment 9 separately—which seeks to probe the Government’s intention on borrowing. My noble friend made his points clearly: it is not just about this current Government, or the subsequent Government, but any future Government under whom there may need to be checks and balances in place to prevent the overleveraging of a very important group of national assets run by an independent company or organisation.
Extending the borrowing powers was planned by the previous Conservative Government, and we absolutely support the principle of the Bill. As I said on the previous group, the Crown Estate will be a very different organisation in 10 years and so has to do a lot of things very quickly. It is going to need money and there is an opportunity here. However, I am struggling to figure out how its relationships with GB Energy, on which I still lack clarity, and—one step removed—the national wealth fund, which I understand does not have as much money as was originally planned, will all fit together. Therefore, to protect the integrity of the Crown Estate it is important that a borrowing limit is put in place.
Previously, the Crown Estate commissioners were constrained by the 1961 Act, but we support other noble Lords who have spoken today on considering what the mechanism might be. Different noble Lords have proposed different mechanisms. I appreciate that the noble Earl, Lord Russell, picked a number, and I accept that that might be an outcome, but of course it is not really inflation-proofed; it would be in the Bill and therefore it might not be helpful in due course. I went away and thought about having 2% of total assets as the limit. If one looks at the portfolio as it stands for 2022-23—£15.5 billion—one sees that a 2% cap would represent a cash limit of around £310 million. That would be a more generous cap than that proposed by the noble Earl, Lord Russell, but it is broadly equivalent to the “hundreds of millions”—I think that was the phrase—envisaged by the Minister. We are just trying to be helpful here, by putting a statutory footing underneath the Minister’s intention in any event.
Another thought I had was not only doing this as a percentage of total assets but giving Parliament some sort of say over a five-year horizon. I think this was the point that the noble Lord, Lord Macpherson, was making, but in a separate way. I was not actually aware that borrowing forecasts appear in documents relating to the Crown Estate—maybe they do, and in any event it would be worthwhile to have a look at them. There is a significant loss of parliamentary oversight in this Bill. There is very little parliamentary oversight at all of the Crown Estate anyway, despite it holding some of our national assets, but the Bill takes even more of that parliamentary oversight away, which I will come to in a subsequent group.
I believe that there is an opportunity to add some oversight, and therefore I came up with the idea that Parliament should be required to pass regulations that set out, by year, a five-year borrowing cap. Parliament could do that every year quite simply. That would obviously give flexibility, and it would enable debates to happen about the Crown Estate and whether it was heading in the right direction. The Treasury could be challenged about its involvement—apparently there is a transparent relationship between the Treasury and the Crown Estate, although I have found no notes relating to that which would indicate such transparency. That was my other idea.
There are many ways that the House might decide on Report to put a limit on borrowings. I am happy to hear the views of the Minister; I very much hope that he will appreciate that many noble Lords are trying to help.
Briefly, my Amendment 10 picks up the point made by my noble friend Lord Howard about the situation where the Treasury is going to be lending to the Crown Estate, and that will be down as an asset, and then that money could circulate back and go into day-to-day government spending. To me, that seems slightly odd. It would be good to get some sort of commitment to ensure that that sort of mechanism is somehow broken.
I am grateful to all noble Lords, especially my noble friend Lord Holmes of Richmond. I might come to his element about additionality when we come on to the reporting of the investment strategy of the Crown Estate in a later group.
Lord Livermore (Lab)
My Lords, I am grateful for the contributions from all noble Lords on this group of amendments. I recognise that the issue of controls on borrowing is an important consideration, and I hope to offer some reassurance. I agree with very many of the points raised during this debate, in particular that controls on borrowing by the Crown Estate must be in place. I assure noble Lords that such controls will be set out in the memorandum of understanding that will be in place between the Crown Estate and the Treasury, and will be set at a loan to value ratio not to exceed 25%.
Baroness Kramer (LD)
Is the Minister saying that it will be an MoU rather than a framework agreement, or are they the same thing by another name?
Lord Livermore (Lab)
They are the same thing by another name.
By way of background, as the noble Baroness, Lady Vere of Norbiton, said, the Bill we are considering was conceived under the previous Government, and it was continued by this Government as we share the same objective to increase the Crown Estate’s ability to compete and to invest. The default starting position I inherited was that the memorandum of understanding between the Crown Estate and the Treasury could contain commercially sensitive information and would therefore not be published.
I listened carefully to views expressed by many noble Lords at Second Reading that it should in fact be published. The noble Baroness, Lady Kramer, spoke particularly persuasively on this issue, and I gave her the commitment at Second Reading that it would be published in draft before November. I can confirm to noble Lords that it will, as a result, definitely be published before Report. In hindsight, though, I recognise that I could have reversed the position I inherited sooner and that this would have been more helpful to noble Lords considering this group of amendments. I am also grateful for the conversation I had last week with the noble Lord, Lord Howard, which I found informative and persuasive. I thank him for his time. I believe the question is not whether such controls on borrowing should exist but what those controls are and whether they should be set out in statute or in the memorandum of understanding.
I will briefly recap the purpose of this legislation. The Crown Estate is a commercial business, independent from government, that operates for profit and competes in the marketplace for investment opportunities, but to compete effectively, and to invest in order to maximise its returns to the Exchequer, it needs the ability to borrow, as its competitors currently can. That is the purpose of this legislation, and we should consider the controls we wish to place on its ability to borrow in the context of not undermining that objective. It is important to note that any borrowing by the Crown Estate will be for investment in activities that will drive increases in revenues, therefore increasing the returns it provides to the Government.
The Government’s strong intention is for the Crown Estate to borrow at levels that are proportionate to the nature of the business. I must emphasise that the powers proposed by the Bill are both targeted and measured. The Crown Estate will not be permitted to borrow without the consent of the Treasury. This is a strong safeguard and ensures that borrowing by the Crown Estate will not be uncontrolled. Furthermore, as I set out at the beginning of my comments, the memorandum of understanding will set a loan-to-value ratio not to exceed 25%. It will also set out other operating parameters in regard to the Crown Estate’s borrowing ability.
I turn to Amendments 2, 3, 4 and 8 tabled by the noble Baroness, Lady Vere of Norbiton, the noble Lord, Lord Howard, and the noble Earl, Lord Russell. These amendments each seek to cap the level of borrowing out of the National Loans Fund by the Crown Estate in specific ways. Amendment 3 tabled by the noble Baroness, Lady Vere, would restrict borrowing out of the National Loans Fund to no more than 2% of the value of total assets of the Crown Estate. Measuring 2% against Crown Estate assets would currently equate to £354 million. Amendment 2 from the noble Earl, Lord Russell, would limit Crown Estate borrowing out of the National Loans Fund to no more than £150 million, while similarly Amendment 8 tabled by the noble Lord, Lord Howard, would restrict borrowing out of the National Loans Fund to no more than 10% of capital and reserves, which on current figures equates to approximately £1.5 billion. So there is a wide range of views on the specific size of the limit. Based on current asset values, the proposed 25% loan-to-value parameter would equate to approximately £3 billion.
The principal issue here is whether a specific cap should be set out in the Bill. The Government’s considered view is that such a limit should not exist in statute. The purpose of the Bill is to afford the Crown Estate greater flexibility so that it can continue to deliver on its success, support wider national policy objectives and generate maximum returns for the Exchequer. As such, the measures proposed in the Bill are intended to endure without further amendment for many decades to come. For this reason, the Government’s view is that controls on borrowing are best set outside primary legislation, as is the case for some other public bodies with borrowing powers.
The controls on borrowing for the Crown Estate will instead be set out in the underpinning memorandum of understanding agreed with the Treasury, which I have referred to previously. I remind noble Lords that the fundamental duties of the Crown Estate commissioners, and their general duty, will remain to maintain and enhance the value of the estate and the return obtained from it, with due regard to the requirements of good management. Excessive borrowing would not be consistent with this duty.
We should also be mindful of what an appropriate maximum level of debt for an organisation such as the Crown Estate may be. It has an asset base in excess of £15 billion, overwhelmingly in the form of land and property. Included in the Crown Estate’s original business case, which I have also committed to publish before Report, is information on the loan-to-value ratio of the Crown Estate’s peers in the UK real estate sector. At the most conservative end of this scale is the Duchy of Cornwall, with a loan-to-value ratio of 14%. By contrast, a £150 million limit on Crown Estate borrowing would equate to a loan-to-value ratio of less than 1%.
Earl Russell (LD)
My Lords, I thank everybody who has spoken on this group of amendments. It has been a useful and helpful discussion from us all. There was a feeling from all parties across the Committee that there was a need for some movement on these issues, and I thank the Minister for listening to the will of the Committee and responding so positively. I thank the noble Lord, Lord Macpherson. It is an interesting idea to review the borrowing limits, which could be published. I also thank the noble Lord, Lord Howard of Rising, for his amendment proposing that borrowing should not exceed 10%, and the noble Baroness, Lady Vere, for her amendments.
The Minister has really listened. The important thing we have here is a commitment from the Minister to publish the memorandum of understanding and the business case before Report. That information will be helpful to Members from all parties in making decisions about what they want to do, so I thank him greatly for that. He also said very clearly that his understanding is that the loan-to-value rate should not be more than 25%, which would be a sum equivalent to £3 billion of the total £15 billion of value within the Crown Estate. We have some things to go away and think about.
I heard what the Minister said about the Government’s position. His view is that there should not be a value that exists in statute. That is something that we probably all need to go away and think about to move it forward, but I thank him for the concessions that he has made. Providing that information will help Members of this House to make their decisions, so I thank him very much.
Lord Howard of Rising
“(c) borrowing by the Commissioners must not exceed an amount equal to 200% of capital and reserves of the Crown Estate.”
Lord Howard of Rising (Con)
My Lords, I thank the Minister for accepting the principle that there should be a limit on lending; 25% is probably more than I would have liked to go for, but nevertheless I am grateful that the principle has been accepted. That would probably be better in statute than in a memorandum of understanding, but perhaps I could reflect on that. Really, the Minister has taken the wind out of the sails of my Amendment 9, so I beg leave to withdraw it.
The Deputy Chairman of Committees (Lord Geddes) (Con)
As the noble Lord has spoken to the amendment, the Government may reply if they so wish.
Baroness Vere of Norbiton
“5A The Chair of Commissioners and each Commissioner may not be appointed until the appointment has been scrutinised by the Treasury Committee of the House of Commons, or any successor committee.”Member's explanatory statement
This amendment would require the appointment of the Chair of Commissioners of The Crown Estate to be subject to scrutiny by the Treasury Select Committee.
Baroness Vere of Norbiton
My Lords, my Amendments 12 and 36 focus broadly on the governance and management of the Crown Estate. Amendment 12 in my name seeks to introduce a process by which Parliament can scrutinise the appointment of new Crown Estate commissioners. If passed, the Bill will increase the number of commissioners from eight to 12. The Government have not given a clear reason for this change, arguing merely that the new number will bring the number of commissioners in line with best practice for modern corporate governance. Further information and thoughts on that from the Minister would be welcome. It would be interesting to hear what problems this change will solve, what particular skills he feels the Crown Estate is missing and why those additional four commissioners will deliver the change needed.
As many noble Lords have remarked already in Committee today, the Crown Estate bears the most enormous responsibility as the custodian of many of the nation’s important assets. That responsibility is significant, yet the level of parliamentary oversight—over not only the activity of the commissioners but their stewardship of these billions of pounds’ worth of incredibly important assets—is weak and has been further weakened by the Bill.
My Amendment 12 would give Parliament a role in scrutinising commissioner appointments to ensure that candidates were qualified for the role that they are anticipated to play. That would include the new commissioners who will be introduced after the Bill becomes law, as well as the chair of commissioners, for which I believe a recruitment process is currently under way. The chair of the commissioners will be an incredibly important role. Again, I believe it would be beneficial and reassuring to all parliamentarians if a committee—for example, the Treasury Select Committee—had the opportunity to question the candidate for that role before they took up the reins.
The amendment in the name of my noble friend Lord Young of Cookham identifies a specific issue when it comes to oversight. Commitments are made on behalf of the Crown Estate but there is no mechanism to ensure that those commitments are implemented. Therefore, I hope that the Minister will listen carefully to what my noble friend has to say, and will agree that the amendment in my noble friend’s name would improve the Bill.
Amendment 36 also seeks to improve parliamentary scrutiny of the governance of the Crown Estate, by ensuring that the disposal of assets owned by the Crown Estate is reported to the Treasury and then to Parliament. The Minister will know that I was concerned about this, as I asked in a meeting what restrictions there were over sale of assets. I did not receive a satisfactory response at all. Again, I note that the Crown Estate owns some of our most important landmarks. These are valuable pieces of land, buildings or indeed seabed, but they are not just valuable; they are iconic.
There is limited transparency to the decisions of the Crown Estate beyond the annual report. This measure is simply designed to ensure that Parliament has some visibility in the decision to dispose of assets. In this case, I picked an amount of £10 million, but it could be higher than that. This seeks to discourage the commissioners from taking inappropriate short-term decisions about the ownership of national landmarks, and indeed the natural environment, for short-term gain.
I am grateful to my noble friend Lord Holmes of Richmond for his amendments in this group about creating public good, and I will listen with great interest to the response from the Minister. The spirit of my noble friend’s Amendment 19 aligns closely with my Amendments 37A, 37B and 37C in a later group, and will touch on that there.
Finally, I was interested to note the proposal from the noble Earl, Lord Russell, to grant the Crown Estate commissioners the power to grant leases in exchange for full or part ownership of any project. Again, that is something the Minister may wish to consider.
I hope the Minister will look carefully at these constructive amendments, and specifically confirm to the Committee whether he agrees that Parliament should have a greater role—or indeed, in my view, any role at all at this stage—in scrutinising the work of the Crown Estate. I beg to move.
Lord Young of Cookham (Con)
My Lords, Amendment 13 in my name is a follow-up to an issue I raised at Second Reading, where I spoke about a case where the Crown Estates were not honouring an undertaking that they gave to your Lordships’ House earlier this year: that they would adhere to the terms of the various Leasehold Reform Acts on the statute book. By appointing a commissioner, as my noble friend has just mentioned, with the specific responsibility of ensuring that such undertakings are honoured, we could reduce the risk of this happening.
To recap, briefly, Parliament has given certain rights to leaseholders. Included in those rights is the right to buy out the freehold or to extend the lease on specified terms. The Crown is, as a general rule, exempt from legislation but it agrees to abide by its terms. The relevant undertaking to so abide was given by me in 1983, when I took what is now the Leasehold Reform, Housing and Urban Development Act through the other place. The undertaking was repeated by my noble friend Lady Anelay, then the Government Chief Whip, on 24 May this year as the then Leasehold Reform Bill got its Third Reading; it can be found in Hansard for that day and says that
“The Crown … agrees to the enfranchisement or extension of … leases”—[Official Report, 24/5/24; col. 1368.]
as set out in the various Acts.
How does the Crown acquire new freeholds? When a freeholder disappears or goes bankrupt, the Crown Estate takes possession under a process known as escheat. At that point, leaseholders appear to lose the rights that Parliament has given them. In the case that I cited, leaseholders applied to buy the freehold but were told by agents acting for the Crown Estate that it was not obliged to dispose of the freehold under the relevant formula in the legislation, but offered to sell it at a far higher price—over four times as high.
Solicitors acting for the Crown Estate conceded that, until this issue is resolved:
“Where a block of flats is subject to escheat lessees will generally be unable to sell”,
and that is indeed the case. We have a stalemate, as described at Second Reading, with longer-terms risks to the fabric of a building. I referred then to the framework document, which sets out the terms of agreement between the Treasury and the Crown Estate, in particular the sentence which says the Treasury shall
“inform The Crown Estate of relevant government policy in a timely manner”.
I suggested that the Minister told the Crown Estate that policy on enfranchisement has been clear for many years and that the Crown Estate should respect it.
Lord Berkeley (Lab)
My Lords, I rise to add a little extra interest to the statements made by the noble Lord, Lord Young of Cookham. We discussed this at Second Reading and my Amendment 42, which will come at the end of tomorrow night if we ever get that far, is about the same issue. I go back to the statement made by the Chief Whip of the previous Government, who basically said that the Crown will comply with the legislation if it chooses to; that is a summary. The way it chooses to do it will be published at some time, which is relevant to my amendment.
The reason I am speaking now is because the comments made by the noble Lord, Lord Young, beg the question: who is in charge? Is it the Government or the Crown Estate or, in my case, the Duchy of Cornwall? Each one blames the other and says that they are not in charge, but they actually probably are. They then refuse to have correspondence. I am pleased that the noble Lord, Lord Young, got a letter.
I have a good friend, Dr John Kirkhope, who advises on many issues around the Duchy of Cornwall, which is not much different to the Crown Estate. He tried to get a freedom of information decision on whether he could seek copies of correspondence between the Duchy and the Government—I think that includes the Crown Estate, the Duchy and the Government—on matters of policy. The answer was no. He went back and said, “Here you have an unelected body apparently advising government on matters of policy and that does not seem very right to me”.
Paragraph 16 of the eight-page response from the Information Commissioner’s Office on whether any information should be disclosed says:
“The Commissioner considers that the following factors will be key indicators of the formulation or the development of government policy”.
There are then three bullet points.
“the final decision will be made either by the Cabinet or the relevant minister; … the government intends to achieve a particular outcome or change in the real world; and … the consequences of the decision will be wide-ranging”.
The Crown Estate therefore
“advised that it considered direct correspondence as well as correspondence where the Crown Estate and the Duchy of Cornwall had been copied into”
and decided that it is reasonable to withhold information.
It looks as if the Crown Estate and the Duchy of Cornwall—we never mention the Duchy of Lancaster, but I think it is rather less difficult—seem to be a Government of their own. This is back to the feudal system, where Ministers, whom we elect and appoint, are unable to effect any legislation regarding the Crown Estate or the Duchy because they are not so important. It is back to the feudal system, and I shall come back to this on Amendment 42.
I hope my noble friend will give the noble Lord, Lord Young, a pretty strong response, because this is something that will go on and on—whether it is escheat or something else. The people affected are getting pretty fed up with the Duchy and Crown Estate playing them and not coming back with a decent response.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in this group of amendments, not least to give full-throated support to my noble friend Lord Young of Cookham, who gave us an excellent lesson in escheat and how it is being applied by the Crown Estate. He took us on a whirlwind journey, from “Monty Python” to “Yes, Minister”, without needing at any point to go near Mornington Crescent. He also added greatly to the work of land law scholars across the country with the new common-law concept of the resting parrot freehold. I hope the Minister will respond in the only way possible to such a clear and erudite presentation from my noble friend—with a clear, unequivocal agreement to every last word.
Earl Russell (LD)
My Lords, I will speak to my Amendment 31. I apologise in advance that I have no “Monty Python” sketch references, but I support the amendments from the noble Lord, Lord Young, and the other amendments already spoken to.
Amendment 31 seeks to give an explicit power to Crown Estate commissioners to lease parts of their holding in exchange for either part or full ownership of any project or development, as the commissioners see fit. For the sake of clarity, the full wording of the proposed new Section 3(1)(a) of the Crown Estate Act 1961 is:
“The Commissioners may waive lease fees in exchange for full or part ownership of any project or development”.
I say this only as the Member’s explanatory statement used the word “land”. My amendment is intended to—and does, as far as I am concerned—cover all the Crown Estate’s holdings. That is particularly important because, as we all know, most of its money comes from the leases of the seabed. This amendment is designed to help the Government and the partnership with GB Energy. It is designed to help the Crown Estate itself. I want to see a transition to net-zero power by 2030. I welcome that commitment from this Government.
But I also want to see us grow and develop as an economy and as a country. I want the energy transition, which is arguably one of the greatest transitions in our use of energy since the Industrial Revolution, to be of benefit to ordinary people. I want the UK to be able to own at least parts of our new energy infrastructure—the energy infrastructure of the future. That is my thinking in my amendment. I want the UK to receive long-term benefits above and beyond just the green and environmental benefits that come with these things.
The Crown Estate generates its income primarily from the lease of seabed plots for offshore wind and floating offshore wind developments. The Crown Estate reported record profits for 2023-24 of £1.1 billion, boosted by round 4 sales. Round 5 of the offshore wind auction was not as successful but we have just had a successful round 6, which I welcome, which generated some 4.9 gigawatts of capacity but at somewhat lower prices than in round 4. Labour has plans to generate 20 to 30 gigawatts of offshore wind capacity by 2030. For context, that is enough to power 20 million homes.
We still have quite a long way to go with this offshore wind and floating offshore wind transition in particular. The hope is that £8.3 billion of investment by the Government will help to leverage some £60 billion of private investment. It is interesting that we are talking about this today, the day on which the Labour Government are holding their investment summit. I wish them well with that because the UK economy needs to grow and we need inward investment to do that.
We welcome, obviously, the plans for GB Energy and this partnership and tie-up with the Crown Estate. But although I very much welcome Labour’s ambition to decarbonise our power generation by 2030, it is worth noting that GB Energy will not be an energy supplier or own any energy generation assets. To my mind, that is a missed opportunity and I think we could do better.
To quote the Labour Energy Forum document title, Who Owns the Wind, Owns the Future. The Floating Offshore Wind Task Force has predicted that floating offshore wind could be the UK’s biggest industrial success by 2030, worth £47 billion to the UK economy and employing some 10,000 people. We should never lose sight of the fact that the UK is well placed and is estimated to be the third-best country in the world for the generation of wind energy. We are extremely lucky in that regard.
Other significant parts of the Bill seek to make rights that were implicit in the 1961 Act explicit. From my reading of the original Act, I can see no reason why the Crown Estate could not waive lease fees in exchange for part-ownership of offshore or floating offshore energy wind projects—but, at the same time, I can find no implicit right in the original Act. Frankly, I think there should be an implicit right.
As far as I can tell, the Crown Estate does not own or part-own any offshore wind installations now. It has a helpful page on its website that shows who owns all the offshore wind under its control. In many cases it is foreign Governments, hedge funds and other nations and their capital which own it. In 2022, for example, nearly half the UK’s offshore wind capacity was owned by state-owned or majority state-owned foreign companies. They are getting the long-term benefit of the investment in our third-best wind energy in the world and are using it to support their economies.
I want our wind energy to generate and support our economy. While leasing plots brings in revenues, part-ownership of the infrastructure itself could bring in much-needed longer-term and consistent revenue streams to the Crown Estate. I believe there is greater long-term financial gain from part-ownership of energy infrastructure than from simply leasing the seabed.
This would be good for the Crown Estate. As we have heard today, the Crown Estate is in a period of transition and allowing it the ability to explore this, if it wants to, would be useful at the start of the partnership. I also believe that allowing this to happen could be useful for the generation of small-scale community energy projects. This is something that I believe in strongly and would like to see the Government do a lot more of, and this amendment would be useful in helping that to happen. It could be the basis of a new model for the way the Crown Estate works, generating much smaller, local community benefit projects.
This would be good for energy transition, good for the Crown Estate, good for the UK economy and good for jobs and growth. I welcome your Lordships’ responses and look forward to hearing from the Minister. I hope that this amendment finds approval.
Baroness Smith of Llanfaes (PC)
My Lords, I will speak briefly to Amendment 22 in my name, which is included in this group of amendments. I also add my support to Amendment 18 from the noble Lord, Lord Holmes of Richmond, on inclusion in governance and Amendment 24—my noble friend Lord Wigley will follow with further commentary—on the transparency of financial reporting.
One of the aims of bringing forward the Crown Estate Bill was to increase the number of commissioners on the board. Increasing the size of the board is a good opportunity to reflect on its composition, and I share the curiosity of the noble Baroness, Lady Vere, in relation to what the Government hope the additional commissioners will add, specifically, to the committee.
At present there is no representation from our national Parliaments on the board, which makes investment and borrowing decisions across England, Wales and Northern Ireland. Having representation from our national Parliaments on the board will improve the Crown Estate’s alignment with the public policy aims of our national Parliament, in particular on crossovers with policy on devolved areas such as energy and the environment. My amendment would give each of our national Parliaments where the Crown Estate has activities the opportunity to nominate a representative to the board.
This amendment provides a meaningful mechanism for our democratically elected Parliaments to have a say on decisions made by the Crown Estate. I welcome support for this amendment from all corners of the Chamber and look forward to hearing the Government’s position too.
Lord Lansley (Con)
My Lords, I briefly intervene on this group of amendments, not least to support my noble friend Lord Young of Cookham in the point he made. I think it raised—as did Amendment 31 from the noble Earl, Lord Russell—the question of the interpretation and interaction of the powers in the 1961 Act and how they are being used. I want particularly to raise one issue with the Minister. I should also say that in the register of interests noble Lords will see that I chair the Cambridgeshire Development Forum, and the Crown Estate is a member of that, although I do not think any of its activities or that interest impinge on this Bill in any way.
My noble friend Lord Young of Cookham referred to the way in which the Crown Estate interprets its statutory duty in Section 3(1) of the 1961 Act, which says that it must secure
“the best consideration in money or money’s worth”
in
“all the circumstances of the case”.
That is indeed what the statute says, but I have had the benefit of looking at the Crown Estate Act and talking with officials. I am grateful for their time, not least because it seems to me that there is an inherent restriction on the function of the commissioners which, as the Minister earlier made clear, is in Section 1(3) and sets out that they should “maintain and enhance” the value and return obtained from the estate with
“regard to the requirements of good management”.
As far as I understand it, the view of the Government and the Crown Estate is that, over 60 years or thereabouts, the requirements to obtain best consideration in money or money’s worth have effectively been trumped where necessary by the function of the commissioners, particularly as regards securing the requirements of good management. My first question to the Minister is: in the light of what the noble Lord, Lord Young of Cookham, was saying, does he agree that the requirements of good management in that instance mean that the Crown Estate would live by the practice of other public authorities, or those with public responsibilities, in relation to the interests of the leaseholders?
Lord Wigley (PC)
Before I pursue the subject of the amendment, I am glad to follow the noble Lord, Lord Lansley, on that subject. I suggest that, if the Crown Estate has the powers, it also has the responsibilities that go with it. The noble Lord, Lord Young of Cookham, has highlighted some important responsibilities, and I suspect that it will need a lot more attention in coming months and years.
I shall speak primarily once again on issues relating to the devolved dimension. It is to better understand the financial dealings of the Crown Estate in Wales that Amendment 24 in my name and that of the noble Baronesses, Lady Smith and Lady Humphreys, is on the Marshalled List. It asks for the disaggregation of the annual reporting of capital and revenue items to provide transparency in regard to the Crown Estate finances relating to Wales, England and Northern Ireland respectively. We have gone through some of the general arguments in this sphere, so I am not going to repeat them, but I stress that this is a modest proposal that surely cannot be rejected by any Government who have some sympathy with the position of the devolved Government.
Baroness Humphreys (LD)
I shall make a short contribution in agreement with Amendment 22 in the name of the noble Baroness, Lady Smith of Llanfaes, and Amendment 24 in the name of the noble Lord, Lord Wigley.
When I was preparing for this debate, I looked at some figures, but they are very difficult to find. On the first group in Committee, I referred to the fact that we know that the Crown Estate has land worth more than £600 million in Wales, that it owns 65% of the coast and that it has 300,000 acres of land in Wales, but we do not know exactly how much money that raises in Wales. We know that, across England, Wales and Northern Ireland, profits have more than doubled in the past year, growing from £443 million in 2022-23 to £1.1 billion in 2023-24, but there is very little clarity about the contribution of each individual nation to the total. In the interests of transparency, I certainly support Amendment 24. On Amendment 22, I cannot understand why none of the Parliaments of the UK sends a representative to sit on the board of the commission. I support those two amendments.
Baroness Kramer (LD)
My Lords, I very much endorse the comments of my noble friend Lady Humphreys. I too believe that this is another opportunity to make sure that there is a far stronger voice for Wales, so let us seize it and use that as a template for how the Crown Estate goes forward.
I wanted to focus more on a couple of other issues. In a sense, I see a linkage between the comments made by my noble friend Lord Russell suggesting that, by forgoing receiving lease income and instead taking an ownership tranche in a whole series of new energy projects, the long-term income to the Crown Estate and to England and Wales would be significantly larger than the much shallower and shorter-term benefit of charging lease rent. That relates to the same kind of issue raised by the noble Lord, Lord Young of Cookham. Please could the Minister sort that problem out? This really is an unfair situation, and it will just take a Minister to absolutely slap his hand on the table and get it done.
In both cases there is a tendency, which I noticed at Second Reading, for Members of this House to think of the Crown Estate as some sort of cuddly organisation. It may be very generous, and if you read its annual report you can see that it does wonderful things for local communities and talks incredibly sympathetically about disadvantaged people, but when it operates as a commercial entity, my goodness, it is one of the most aggressive commercial entities that anyone could run into—and when you say that within the property sector, you are really saying something. It is infected by the same position adopted by many other property companies, which is to go for very short-term profit and to forget about the long term.
Everything that we hear from the Government is about patient capital—and, if you are going to look for the long term, surely you follow the pattern proposed by my noble friend Lord Russell, which says that, over the long term, you will do much better if you take some serious equity positions and perhaps make an in-kind contribution to a project, rather than charging rent over a relatively short-term period. If it acts in the same way as a commercial entity, surely in its commercial activities the Crown Estate should be treated as a commercial entity and therefore have to live up to the law that applies to other commercial entities operating in that same sector, and not to have an out because of its peculiar status, sitting somewhere between public and private. If that were done, the noble Lord, Lord Young, would not be asking why on earth it was not living up to the terms of the law for other commercial entities in dealing with leaseholders and freehold. It has to be recognised for what it is, and there are changes, consequently, that the Government may wish to make—first to create long-term thinking but also to make sure that, when it operates on a commercial basis, it is subject to the same regulations and requirements as other similar commercial properties.
I want to address very briefly the issues raised by the noble Baroness, Lady Vere. It is wonderful the change that comes when a body moves into opposition —the road to Damascus. The number of times I have asked a Conservative Government: when we have appointments, could we please have pre-appointment scrutiny by a committee of this House? In fact, I may even have requested them of the noble Baroness, Lady Vere, concerning various appointments at the Treasury—I cannot quite remember, there have been so many over the years. I am so glad of this Damascene conversion. We now have a Conservative party that is also supporting pre-appointment scrutiny. I do believe that pre-appointment scrutiny was often the Labour Party position. The noble Lord, Lord Livermore, is shaking his head but I think I may have a longer memory. I have certainly heard it from other Members, both on the Treasury Select Committee when I was in the other House, and on the Economic Affairs Committee. Pre-appointment scrutiny does make sense as a general underlying principle, and it would seem to make sense for the four new commissioners that are to be added to the existing eight.
Like others, I am really curious to know: going from eight to 12, they say, is good practice, but why? What will they do? Where will they come from? I can perfectly well see that this is a great opportunity for regional representation, and the noble Lord, Lord Holmes, touched on a very important point: we now look at most boards and want to see clearly that they understand that the ethics and attitudes of today require inclusivity; that it is not just some token item somewhere in an ethics statement by the company, but that someone is actually taking responsibility, based on knowledge, at a very senior level within the decision-making structure, and implementing that role. Here is an opportunity to seize that, and I hope very much that the Government will do so.
Lord Livermore (Lab)
My Lords, I thank the noble Baronesses, Lady Vere and Lady Smith, the noble Lords, Lord Young, Lord Holmes and Lord Wigley, and the noble Earl, Lord Russell, for raising these very important issues concerning the governance and management of the Crown Estate. I should emphasise again that the intention of the Bill is to afford the Crown Estate greater flexibility to ensure that it can successfully compete in commercial markets to deliver maximum benefits for the nation.
The noble Baronesses, Lady Vere, Lady Smith and Lady Kramer, asked about the number of commissioners. This change reflects the growing diversity of the Crown Estate’s business and will ensure that the Crown Estate can meet best practice standards for modern corporate governance. This will help to broaden the diversity of the board and provide more breadth of expertise and capacity to enable the commissioners to operate more effectively in the constantly evolving business environment. The Bill provides for a maximum number of 12 commissioners, up from eight at present. However, within this limit, the exact number of commissioners serving at any one time will be in the light of advice from the Crown Estate’s board on where it considers additional board-level expertise would be beneficial to the business.
I will start by addressing the issue of the appointment of commissioners to the Crown Estate’s board, reflecting on Amendments 12 and 22, tabled by the noble Baronesses, Lady Vere and Lady Smith. Amendment 12, tabled by the noble Baroness, Lady Vere, would require scrutiny by the Treasury Select Committee or any successor committee of all future proposed commissioner appointments, including the chair, before any appointment can be made. Let me first emphasise that all Crown Estate commissioner appointments are governed by the Governance Code on Public Appointments. The code is clear that commissioners must be selected based on expertise and experience.
As I have previously set out, the Crown Estate operates independently of the King and of government. Affording Parliament the opportunity to scrutinise potential appointments before they are made would significantly alter the appointments process, in a way that would change the relationship between the Crown Estate, government and Parliament. The Cabinet Office’s existing guidance on pre-appointment scrutiny is clear that it should apply only where posts play a key role in the regulation of actions by the Government, protecting and safeguarding the public’s rights and interests in relation to decisions and actions of the Government, or roles where organisations have a direct major impact on public life. It is the Government’s view, as it was of the previous Government, that the Crown Estate’s commissioner posts do not fit these criteria and that it would therefore be inappropriate to require pre-appointment scrutiny.
It should also be noted that pre-appointment scrutiny of roles elsewhere in public life is limited largely to the role of chairs. Therefore, even if the Cabinet Office’s criteria were satisfied, it would be disproportionate and unusual for all commissioner appointments to be subject to such scrutiny. In addition, requiring pre-appointment scrutiny for non-executive commissioner posts, which are not high profile or public facing, may deter some candidates from applying. As I have set out, this would be inconsistent with existing pre-scrutiny arrangements, which are generally restricted to chair positions. Consequently, this might put at risk securing candidates of the necessary quality and calibre to the board and present a more fundamental risk to the overall management of the Crown Estate.
Lord Young of Cookham (Con)
Before the Minister sits down, I am grateful for what he said. Can he confirm that he has not ruled out amending the draft memorandum of understanding in the way that I proposed?
Lord Livermore (Lab)
I would like to be helpful to the noble Lord. I am told that the memorandum of understanding deals exclusively with borrowing powers, so it may not be the most appropriate vehicle to insert that into.
Lord Berkeley (Lab)
Before the Minister sits down, I have a very simple question to ask him. We have had a very interesting debate, and I have understood much of it, but who does the Crown Estate—and therefore the Duchy of Cornwall—report to? Is it the Government or Parliament? Who controls them, or are they a law unto themselves? In spite of the amendment tabled by the noble Baroness, Lady Smith, I do not think the King comes into it.
Lord Livermore (Lab)
It is a very good question, and I shall endeavour to find the answer and write to my noble friend.
Baroness Vere of Norbiton (Con)
I am grateful to all noble Lords. That was an excellent debate and a lot of ground was covered. My favourite line of the debate came from the noble Baroness, Lady Kramer. She put her finger on it when she said that the Crown Estate was not a “cuddly organisation”. It does not need to be—it does not report to anybody, apart from its commissioners, and that is at the heart of the issue that I think many noble Lords are grappling with. The noble Baroness, Lady Kramer, was pleased with my recent conversion to pre-appointment scrutiny. I cannot guarantee that that will continue. I understand a new leader is in the offing in my party, so who knows what will happen?
The amendment that I put down was a useful way of probing some thinking around why the number of commissioners had to go from eight to 12. The response from the Minister was the sort of management jargon I used to learn at business school about 25 years ago. I am not much the wiser, but I will go back to Hansard and study his words carefully. Pre-appointment scrutiny, for the chair in particular, would be a very small but important change, particularly as we are dealing not with a cuddly organisation but with one which happens to own and manage some very important and valuable national assets. Therein lies the tension, and that is my concern.
Turning to the points raised by my noble friend Lord Young, it was a forensic analysis. I am sure many noble Lords learned much from it, not least how to structure a really good argument, which has stumped the Minister. I am pleased that he is stumped because I am sure that he will go away and look at it—indeed, I implore him to do so, such that we do not have to return to this, at length, on Report.
I hope that my noble friend Lord Holmes feels satisfied by the Minister’s response to his amendments. On the point raised by the noble Earl, Lord Russell, I presume that both he and I are pleased that the Crown Estate can already do what he wants it to do. I agree with him that it sounds completely obvious.
I am afraid that I am not happy with the Minister’s response on the question of disposals; in fact, I am probably more concerned by his response than I was beforehand. I am not sure that the nation would expect the complexion of the assets held by the Crown Estate to significantly change, so we may well come back to that. In the meantime, I beg leave to withdraw the amendment.
Lord Holmes of Richmond
“Duty: protection of the seabed(1) The Crown Estate Commissioners must take steps to protect the seabed which forms part of the Crown Estate.(2) Protection under subsection (1) includes prohibiting all activities, business practices, leisure pursuits and other actions which damage permanently or temporarily the seabed.”
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to begin the next group of amendments. I shall move Amendment 14 and speak to Amendments 15 and 17 in my name. In doing so, I draw attention to my technology interests as set out in the register. I also had a Private Member’s Bill, the Artificial Intelligence (Regulation) Bill, in the last Session.
We have already covered a wide range of incredibly important issues pertaining to the activities and operations of the Crown Estate. I gently and delicately suggest that Amendment 14 goes to perhaps the most significant issue that we could consider: the protection of the seabed around the United Kingdom. It is not an asset, nor a funding decision or a piece of plant or machinery, but the very bedrock of the ocean—one of the most important parts of our planet. There are currently practices, business and otherwise, carried on daily that temporarily and permanently damage the seabed. If such activities were taking place on the Crown Estate’s lands—for example, stripping away all the topsoil or taking away all the foundations of the buildings—it would of course not be permitted and be swiftly stopped, so why can the seabed which comes under the custody of the Crown Estate be so abused? Again, it is not an asset or a property, or a piece of land, but Poseidon’s pastures, and we must take this opportunity to protect them.
Baroness Hayman (CB)
My Lords, I declare my interest as co-chair of Peers for the Planet—oh, I am not co-chair, I am chair now! I am sorry, I must have an old version of my speech.
I will speak to Amendment 25 in my name in this group. I am grateful for the support of the noble Baroness, Lady Young of Old Scone, and the noble Lords, Lord Teverson and Lord Young of Cookham. I am very glad to follow the noble Lord, Lord Holmes of Richmond, in his widening of the debate about the role of the Crown Estate into some of the huge challenges that we face as a nation and as a society.
This group of amendments takes up the themes suggested by the noble Lord, Lord Lansley, and the questions raised by the noble Lord, Lord Young of Cookham, which challenge us to answer the question of how the core responsibilities of the Crown Estate —the financial responsibilities and the objectives of creating an income stream for the Treasury—fit in and interact with other major responsibilities and other pieces of legislation. The noble Lord, Lord Young, was talking about this in relation to tenancy questions, while the noble Lord, Lord Lansley, was asking whether the Crown Estate is constrained in some of the things it wants to do—the environmental and climate change issues that I am interested in, for example—by the 1961 Act, and whether it is unable to recognise other responsibilities and objectives that the Government have put into legislation since that Act.
My amendment tries to ensure that the Crown Estate does what it can as an important part of our national wealth to contribute to combating the nature and climate crises. It would equip the Crown Estate to play its role and future-proof that commitment against a future change of government. It does so by ensuring the Crown Estate has a statutory duty to contribute to national efforts to meet our climate and nature targets, as set out in the Climate Change Act and the Environment Act. In relation to the seabed, about which the noble Lord, Lord Holmes, spoke so eloquently, the amendment would also safeguard the Crown Estate’s ability to fulfil its stated mission to,
“take a leading role in stewarding the UK’s natural environment”,
by requiring seabed leaseholders to meet a new conservation condition.
The amendment would enable the Crown Estate to continue to fulfil its role of creating wealth for His Majesty’s Treasury while recognising that, as it moves away from being solely an asset owner and takes on new borrowing and investment powers, it should also be accompanied by obligations to deliver for nature and the climate. The last significant modernisation of the Crown Estate was over 60 years ago, when the issues relating to climate change and the threats to the natural environment were far less understood and far lower down the national and global agenda. Today, however, the impacts of climate change are undeniable. Only last week, a new report on the state of the world’s climate led by international scientists concluded that:
“Much of the very fabric of life on Earth is imperilled. We are stepping into a critical and unpredictable new phase of the climate crisis”.
The report highlights that we are still moving in the wrong direction, with emissions and their often catastrophic effects, which we have seen so recently, still rising.
At Second Reading, the Government did not seek to deny the threat or the urgency of the climate and nature crises, nor the need for the Crown Estate to play its part in combatting them. Rather, they suggested that a statutory duty was not necessary because:
“the Crown Estate has existing governance structures in place to ensure that environmental impacts are a central consideration of its investment decisions”.—[Official Report, 2/9/24; col. 1021.]
But there is an important difference between considering environmental impacts in investment decisions and making sure that those decisions actually contribute to our nature and climate targets.
My amendment supports the Crown Estate not just to think about minimising the impacts on the environment but to look at the contribution it can make that will bring us closer to our climate and nature goals. I welcome the important progress that the Crown Estate is making through its new nature goals and the initiatives it has taken, including the Marine Delivery Routemap, but our amendment seeks to embed such initiatives in legislative form. It is constructive work that is already being done, but—I go back to it not being a cuddly organisation—we need to embed it and to future-proof it, and we can do that only by changing the Bill.
The need for a legislative base to underpin environmental responsibilities was, in fact, recognised in the Scottish Crown Estate Act. I believe that my amendment reflects a similar, and indeed even stronger, objective by linking the contribution to our legally binding targets. I know that there is concern about the possibility of these provisions in some way encroaching on the commercial independence of the Crown Estate, but my amendment does not seek to constrain that commercial independence. It simply commits the organisation only to
“take all reasonable steps to contribute to … the achievement of”
our nature and climate targets, in line with the legally binding targets the Government have already committed to.
There is a growing recognition that we have to integrate nature and climate responsibilities across our national and local bodies and across all organisations that discharge public duties. As the Minister will recall, there have been a number of Bills affecting regulators and public bodies on which we have brought forward amendments similar to this and often succeeded in integrating nature and climate responsibilities into legislation—but we are doing it piecemeal at the moment. The noble Lord, Lord Krebs, has a Private Member’s Bill before the House this week that gives us the opportunity to take a more coherent and comprehensive approach. I support that—I hope we will have coherent and comprehensive support—but today, and as we go through this Bill, we have the opportunity to make a very specific contribution through the work of the Crown Estate. I hope that the Minister will be sympathetic to amending the Bill in the ways that I suggest.
Baroness Young of Old Scone (Lab)
My Lords, I add my support to Amendment 25, to which I have put my name, alongside the noble Baroness, Lady Hayman, and the noble Lords, Lord Teverson and Lord Young of Cookham.
I think that we have all agreed that the Crown Estate is not cuddly, but it is also big and hugely important. It is the third-biggest landowner in this country and it is a major owner of the seabed, covering an area twice the landmass of England, Wales and Northern Ireland, so it is absolutely crucial that it does the right thing. The decisions it makes about land and sea are important not just for energy and climate change but for biodiversity, food resilience, flood risk, water management, and the quality and quantity of water—a whole plethora of things. That is why I bang on about the need for a land use framework, but you could almost say that the Crown Estate could have a mini land use framework and a mini sea use framework all of its own, because it is sufficiently large a player.
As the noble Baroness, Lady Hayman, said, we have national targets set in statute for net zero and biodiversity recovery. It is absolutely clear that the Government will simply not be able to make these targets without the Crown Estate playing a full role, as it is one of the big boys on the block. For example, the offshore wind partnerships that we have heard about in collaboration with Great British Energy will leverage £60 billion of private investment and provide energy to nearly 2 million homes.
The Crown Estate is also fundamental to economic and environmental issues, including flood risks, owning as it does great tracts of the coast. Carbon capture, use and storage, if you believe in it, is a big part of the net zero strategy—I have my doubts that it will actually play that role—but it depends hugely on the Crown Estate playing its role, otherwise it simply will not be able to happen. We have to recognise that the Crown Estate is a massive player, including in coastal habitats which are uniquely important in UK terms. We are a major staging post for marine and bird migration as a result of our globally important coastal habitats. The Crown Estate is big in all of those things.
Lord Teverson (LD)
My Lords, I declare my interest as chair of the Cornwall & Isles of Scilly Local Nature Partnership. I will be over in the Isles of Scilly on Wednesday and I hope that I can bring good news from this debate, but we will see when the Minister responds.
My noble friend Lady Kramer is absolutely right, as other Members have said, that the Crown Estate is an organisation very focused on its financial returns and helping the Treasury out with raising cash on behalf of taxpayers. That is all very noble—in fact, it acts very much as if it is looking at its fiduciary duty as we would see in a financial organisation or corporate structure.
I congratulate the Crown Estate, first, on its Marine Delivery Routemap. It is an excellent document that came out last month and shows great intention—although I would be interested to hear from the Minister how it will co-ordinate that route map with the Marine Management Organisation and its marine plans. How do the two work together? How do we make sure they are not in conflict? Secondly, I very much welcome its High-Integrity Marine Natural Capital Markets in the UK—another road map for action—that was launched earlier this year, here in Parliament.
The third thing that I welcome, although with some incredulity that we did not do it decades ago, is the detailed mapping of the seabed around our islands. One would think it essential not only that we do that but that we have understood it for some considerable time, given the importance to us of that national asset.
Also, I congratulate the previous Government on declaring a ban on bottom trawling and similar measures—dredging—in 13 marine protected areas, moving forward in that way in March this year. When I looked at the maps, it was not all those MPAs, and others are not covered, but congratulations on that. I understood that it was the previous Government’s intention that the remaining marine protected areas should be protected in a similar way by the end of this year. I would be very interested to hear from the Government whether they wish to implement that as well. I certainly hope so.
One of the things that particularly came out to me, when I read that Marine Delivery Routemap, began on page 6, where it starts to write its own objectives. Let me read out the first sentence of that and those first two objectives. This is the Crown Estate’s purpose and strategy, in its own document. It says that:
“At the heart of everything we do lie four core objectives”.
I will read out just two, but remember that these are the first two, not the last two. The first is:
“Be a leader in supporting the UK towards a net zero carbon and energy-secure future”.
That is excellent. The second is:
“Take a leading role in stewarding the UK’s natural environment and biodiversity”.
That is excellent as well. I suggest to the Government that we just paste those objectives into this Bill. The Crown Estate clearly would welcome that, and we would have a solution near to what the noble Baroness, Lady Hayman, and other noble Lords who signed up to the amendment require. It is there to be accepted.
I also have Amendment 28, which is around the seabed. I very much welcome Amendment 14 tabled by the noble Lord, Lord Holmes, as well; we are trying to achieve the same thing here. Importantly, the seabed is not just a source of huge biodiversity for us as a nation but a huge carbon store. It is estimated that the first 10 centimetres and the flora and vegetation on the seabed accounts for something like a quarter of a billion tonnes of CO2—which can be disturbed strongly by fishing methods. It is an important carbon sink but one where we have an important well of biodiversity.
It is incredulous to me that the owner of that seabed, an owner of property, allows it to be despoiled in the way very well described by the noble Lord, Lord Holmes. Surely we need to move beyond those MPAs, to stop those destructive forms of exploitation. If we change the objectives of the Crown Estate to reflect its own intentions, it could indeed take those measures to protect that biodiversity and to grow that carbon sink—sea-grass and marl and the areas of salt marshes and kelp. Those are important areas of carbon reduction and carbon sink as well as of biodiversity. It is absolutely clear. The Government should take up the amendment tabled by the noble Baroness, Lady Hayman, which is very much in line with the Crown Estate’s own objective.
One thing has not been mentioned on why this is important. One of the Government’s objectives, which I am fully behind, is to do a lot of the pre-environmental and technical work before licences are given out to offshore wind operators. That will speed up the process. It makes it a lot more holistic and makes a lot of sense. However, given that role with the Crown Estate, there is a conflict of interest that potentially arises between trying to get income from those leases while protecting the environment. At the moment, the emphasis is on the financial side and making money out of the leases. Only by putting these objectives as statutory into the Crown Estate can we be sure that there is not that conflict of interest, and that those objectives are balanced when those leases are put out.
We have boasted of a 30 by 30 objective internationally, nationally and in a number of areas regionally in Cornwall and the Isles of Scilly. There are only five and a quarter years until we get to 1 January 2030. Clearly, in marine—and in terrestrial as well—it is essential that the objectives of the Crown Estate reflect that objective and make it achievable in some way, otherwise there is a huge risk that we will not reach those government objectives.
Lord Berkeley (Lab)
My Lords, it is a great pleasure to follow the noble Lord, Lord Teverson. I congratulate him on the work that he is doing in Cornwall and the Isles of Scilly.
I support these amendments for two reasons. First, earlier this year the noble Baroness, Lady Willis, and I discovered that Defra’s JNCC had produced a report advising the Government not to drill for oil in MPAs. We had a debate about it and the noble Lord, Lord Callanan, basically said, “Drilling for oil is more important than protecting the environment”. I do not know what has happened to that. Perhaps my noble friend the Minister could come back to me at some point and say, but that was a very low point. The reports were very good, and I do not think that the oil demand for this country needed to have particular oil wells. I might be wrong, but I think it was in the 33rd oil and gas licensing round. We must be pretty careful about this. As the noble Lord, Lord Teverson, said, there is a balance to be drawn.
I do not know whether the noble Lord, Lord Teverson, has talked to the fishermen’s association in Cornwall. I have been talking to it, at its request, and it is concerned. It is a reasonable concern, because he is quite right about some of the methods used in fishing at the moment, which are pretty unacceptable. On the other hand, those fishermen are frightened that, when we get these wonderful floating windmills in the south-west or anywhere else, they will be told that they cannot finish within several miles of the installation. I do not know whether that applies to the supply cables and everything else like that, but there needs to be a proper consultation about who needs what, how big these areas of protection are and, if necessary, where the fishermen can fish instead.
I am told that there is a report from Defra that was commissioned a year ago, entitled “Working on the Marine Special Protection Project”. I do not know whether the Minister knows about this. It has not been published but it would be a very good contribution to the debate if it could be and discussed with the fishing industry and the other people involved in offshore, and maybe a proper conclusion—
Lord Teverson (LD)
As we are in Committee, I would just like to answer one of those questions. I do speak to the Cornish Fish Producers’ Organisation and absolutely commend Chris Ranford, who operates it, for his great work in that area. The noble Lord is right. One thing that needs to come out of these planning areas is the fishing industry having the right spaces to fulfil what it wants to do in economic growth and the good things that happen to the local and coastal economies. This is important and I am thankful to him for mentioning it.
Lord Berkeley (Lab)
I am grateful to the noble Lord. We both need to have another discussion with Chris and his colleagues, as does the Minister, to make sure we can come up with something that works for everyone. I end by congratulating the noble Lord on his appointment; I look forward to working with him.
Earl Russell (LD)
My Lords, I rise to speak to my Amendments 29 and 30 in this group. I thank the noble Lord, Lord Teverson, for the powerful points he has made, particularly around our 2030 commitment, and I have co-signed his Amendment 28. I also thank the noble Baronesses, Lady Hayman and Lady Young of Old Scone; I very much support Amendment 25 and nearly all the amendments in this group. Adding environmental protections to the Bill is a key element of our work.
My Amendment 29 would require the commissioners to carry out their duties under subsection (3) with regard to sustainable development, economic development, regeneration, social well-being and environmental well-being. We welcome the plans to update the borrowing and investment powers of the Crown Estate, but we strongly feel that new and greater roles should come with updated responsibilities. The Crown Estate sits in a unique space and position. The land assets are owned by the Crown and managed by the Crown Estate and its commissioners, and they are mandated by Parliament to deliver a profit for the Treasury. The Crown Estate, in effect, floats in a unique position: it manages its land holding and assets, which really belong to the nation, but it is managed as a sub-department of the Treasury, away from much parliamentary scrutiny.
The year 1961 was a long time ago; we lived in a very different world then, as has been said. Our understanding of the environment and the need for nature protection was far less developed, as was any sense of facing an acute environmental and nature crisis. The Bill, as the Government have drafted it, is far too narrow; that is why all these amendments have been tabled. I understand the need for expediency and for the Government to put in the two clauses to amend the borrowing powers so that we can get on with GB Energy. That is all fine, but you cannot revisit a 1961 Act and expect to solely put in two clauses without updating all the other aspects of life and the world that have developed since.
My Amendment 29 shamelessly and purposely copies the text from the Scottish Crown Estate Act 2019, as I believe that these provisions are a useful precedent in our deliberation of these matters here today. When the Scottish Parliament considered many of the exact same matters that we are looking at, its conclusion was that these updated powers were useful, necessary and a helpful update to the powers contained in the original Crown Estate Act 1961. Further, they were agreed and enacted by that Parliament, and have been in force for over five years now. Unless the Minister wants to contradict me, my understanding is that, since they were passed, these new powers have not had any undue impacts on the ability of the Scottish Crown Estate to conduct its business free of undue regulation or burden. The devolution question has already been discussed, but my thinking in tabling this amendment was that I felt, in updating responsibilities, that there was value in seeking to ensure the same duties and responsibilities applied to all the devolved aspects of the Crown Estate’s land in Great Britain, and I felt that this was useful for the Crown Estate’s ability to operate and not be burdensome.
My Amendment 30 places a nature recovery duty on the Crown Estate. The amendment defines a nature recovery duty as including
“taking steps to … embed nature into spatial planning and seabed leasing … allocate space for nature recovery in all projects, and … invest in clean energy projects”.
I thank the Wildlife and Countryside Link for its briefing on the Bill, and its recommendation that this amendment should be included. I recognise and support the critical role that the Crown Estate has in the delivery of offshore wind generation and the role that the Bill has to enhance this going forward, but we really need to decarbonise our power generation, fight climate change and protect nature. However, in updating the 1961 Act, the Bill represents a missed opportunity to ensure that the Crown Estate also has a requirement to support the Government’s obligations towards achieving the nature targets under the Environment Act 2021.
All public bodies in the UK are presently not required to consider the environmental costs and benefits of their decisions and investments, as there is no statutory requirement for them to do so. I support the Private Member’s Bill from the noble Lord, Lord Krebs, and will speak when we debate it on Friday; if it is passed, we will not have to amend every Bill one at a time as there will be a cross-cutting duty, so I encourage the Government to look at that Private Member’s Bill and support it.
This duty is particularly important to the Crown Estate due to the very large area of its land and sea holdings and the fact that many of its sites are extremely ecologically sensitive. It is worth reiterating that the Crown Estate has 200,000 acres of land, 12,000 kilometres of coastline and a total seabed area bigger than the combined landmass of England, Wales and Northern Ireland. The Crown Estate owns more land than the entire landmass of Luxembourg and is the third-largest landowner in the UK. The land under the Crown Estate is vast, diverse and of high ecological importance.
The marine land, and the seabed in particular, are important as blue carbon stores, as we heard from the noble Lord, Lord Teverson. Equally important are the foreshore, coastline and many other precious ecological sites. I want to publicly recognise that the Crown Estate has existing governance structures and strong policy objectives in place to try to ensure that environmental impacts are a central consideration in its investment decisions. I also note that the Crown Estate has recently committed to embed nature throughout its policy-making process. It has begun consultation on the specific nature recovery strategy, but I understand that this final document is yet to be released. My amendment is not a criticism of its stewardship role; it is an attempt to support the existing duty but place it on a statutory footing. My amendment supports and builds on the work that the Crown Estate is already doing, which proves to me that the preparatory work is already being done to ensure that this amendment would work in practice.
I feel it is essential that this work is given a statutory basis, and that is exactly what my amendment seeks to do. It is essential that the Crown Estate makes an active contribution to meeting environmental nature recovery targets and contributes to climate mitigation and adaption targets. For this to happen, my belief is that a binding target is required.
Baroness Kramer (LD)
My Lords, I will just make two very quick comments. First, there has been a clear message to the Minister that, in one way or another, this Committee feels strongly that we should have in statute an expression of the climate change, environmental and nature issues. That should not be seen as a criticism of the Crown Estate as it is today but simply says that this is so important that the Crown Estate should not be given the freedom to change its mind on those issues without the intervention of Parliament.
I do not want to put the Minister on the spot, but my second brief issue concerns a previous answer, when there may have been some confusion between the memorandum of understanding and the framework agreement. I do not ask him to do this now, but could he go back and look at those two rather different things, as we need to approach them both differently? That would be exceedingly helpful, but I do not want to put him on the spot at this moment.
Baroness Vere of Norbiton (Con)
My Lords, I will speak briefly to this group on the objectives and duties of the Crown Estate. Many of the amendments relate to climate change and nature, and many noble Lords have spoken who are much more knowledgeable about these topics than I am, so I do not propose to add further to those points. As set out in today’s list, one must follow the rules, but I look forward to hearing the thoughts of the Minister on that.
My Amendments 37A to 37C look at another important aspect of potential disruption caused by investments by the Crown Estate, which is to local economies and national economies when it comes to shipping. I am looking to the Minister to reassure me and your Lordships’ House that very important local and national economic activities are considered appropriately by the Crown Estate, and that it does not look at what it does in a narrow and short-term way but thinks about making the cake bigger for everybody over the longer term.
The noble Lord, Lord Berkeley, made several points about the impact on commercial fishing: it should be quantified, consulted on and mitigated where possible, and I say the same for commercial shipping. Some 90% of our goods arrive by sea, and ports are often quite specialised in the goods they handle. Sadly, you cannot move a port, so you have to be quite careful not to obstruct well-established shipping lanes and ensure that the proximity of offshore developments does not cause excessive risk to vessels, particular larger vessels, were they ever to get into trouble. Comments on that would be greatly appreciated.
I did not put down an amendment on this, but it is strongly related. Where ports want to expand and they are surrounded by Crown Estate land, the balance of power is sometimes a little one sided. I would like some reassurance that the Crown Estate will act not only in its self-interest for short-term gain but will think about the longer term and growing the pie for the whole economy and the Crown Estate within that. I do not propose to add anything further at this point, and I look forward to hearing the views of the Minister.
Lord Livermore (Lab)
I thank all noble Lords for their powerful arguments made during this debate. I will address the amendments tabled by the noble Lords, Lord Holmes, Lord Teverson and Lord Young, the noble Baronesses, Lady Hayman, Lady Young and Lady Vere, and the noble Earl, Lord Russell, which all seek to make changes to the Crown Estate’s objectives and duties.
Before I move on, I will address two specific questions from the noble Lord, Lord Teverson, which I may not pick up in my subsequent remarks. He asked about conflicts of interest with leasing rounds. Under UK habitats regulations, the Crown Estate is deemed to be a competent authority for offshore wind leasing rounds. As such, it has a legal obligation to carry out a plan-level habitats regulation assessment for planned activities such as an offshore wind leasing round. It could be challenged through legal action if it fails to do this in line with the prescribed requirements.
The noble Lord also asked about the marine delivery route map’s interaction with the offshore wind report. The marine delivery route map gives the holistic context across sectors and sea users to support and inform individual sector delivery planning, while the offshore wind report offers technical insights and data, with both working in concert to ensure that offshore land development is efficient, sustainable and aligned with national and environmental goals.
The noble Baroness, Lady Kramer, also asked about a point of clarification. I will go away and check the questions she raises. Obviously, I apologise if I have inadvertently confused the two things she mentioned.
Amendments 14 and 28, tabled by the noble Lords, Lord Holmes and Lord Teverson, and the noble Earl, Lord Russell, seek to introduce new duties for the Crown Estate to protect the condition of the seabed. Amendment 14 would require the Crown Estate commissioners to take steps to protect the seabed, which forms part of the Crown Estate, and would include a prohibition on all activities, business practices, leisure pursuits and other actions that permanently or temporarily cause damage to the seabed.
Lord Teverson (LD)
I make this comment as a former board member of the Marine Management Organisation. The 2010 regulations, in particular, which have come through Europe, have been very ineffective, as has much on the Minister’s list. Hence, I believe it important that we put the responsibility down to the owner, rather than to some high-level legislation and regulations that departments have not paid a lot of attention to in the past.
Lord Livermore (Lab)
I am sure the noble Lord is much more expert in those things than I am. I take what he says seriously.
The decision to grant leases is informed by advice from the relevant statutory nature conservation body, either via the statutory consent process or, where appropriate, direct engagement. It can include enhancement requirements. Statutory nature conservation bodies are responsible for providing advice to government and regulators on the management, monitoring and assessment of marine protected areas. For those activities that are deemed exempt from statutory consents, the Crown Estate requires applicants to demonstrate that advice has been sought from relevant environmental bodies to inform their decision on leasing.
More broad protections, which would prohibit even temporary damage anywhere on the UK territorial seabed owned by the Crown Estate, would also cause major disruption to many critical marine sectors. These include, for example, offshore renewable energy, which requires the burial of power cables in the seabed to transport energy to shore; the laying of subsea and telecom cables, which carry 99% of all intercontinental data traffic for the UK; the UK’s ports, harbours, marinas and shipping channels within UK waters that require dredging for the creation and maintenance of navigable depths; and the manufacturing industry, which relies on marine aggregates, which are used, for instance, on major construction projects, beach replenishment and coastal protection schemes across the UK. The Government therefore consider these amendments to be unnecessary given the existing statutory protections and the Crown Estate’s existing practices.
I turn next to Amendments 37A, 37B and 37C, tabled by the noble Baroness, Lady Vere, which would all place new duties in respect of granting licences to access the seabed. Amendments 37A and 37B would prohibit the Crown Estate from granting new licences to access the seabed unless it has considered the impact of those licences on commercial fishing and commercial shipping. While the Government support the spirit behind these amendments, the Bill will not directly impact how much commercial fishing or shipping takes place in areas managed by the Crown Estate, nor is the Crown Estate responsible for the regulation of these sectors.
The Crown Estate collaborates extensively with industry stakeholders, statutory nature conservation bodies, environmental non-governmental organisations and marine licensing bodies to ensure activities on the seabed are conducted responsibly and enable a restored and thriving marine environment. A recent blog post from the National Federation of Fishermen’s Organisations, for example, noted on engagement with the Crown Estate ahead of the offshore wind leasing round 5 in the Celtic Sea that the
“process succeeded in identifying and avoiding the places where it would be most harmful to the fishing industry to see turbines installed. The cooperation between the Crown Estate and fishermen was unprecedented and the outcome was a positive one”.
The Crown Estate has also invested £50 million in the offshore wind evidence and change programme, which includes several initiatives to consider and support the fishing industry. I will give two examples. The first is the fisheries sensitivity mapping and displacement modelling project, which identifies areas of offshore wind development that present risks to the fishing industry to try to reduce the likelihood of conflicts between the two sectors. The second example is the ecological effects of floating offshore wind research programme, which focuses on understanding how marine ecosystems will react to the planned large-scale expansion of floating offshore wind in UK waters over the next decade. The goal of this programme is to change the way the Crown Estate deploys floating offshore wind on a large scale, ensuring nature recovery and enabling co-existence with other sea users, including fisheries.
Amendment 37C would prohibit the Crown Estate from granting new licences to access the seabed unless it has considered the impact of those licences on coastal communities. Coastal communities are already a primary consideration of any investment decision by the Crown Estate. For example, it has specifically designed the leasing process for its offshore wind leasing round 5 opportunity in the Celtic Sea in such a way that developers have to make commitments to deliver social and environmental value as part of the development of their new wind farms. Tender bidders are required to think innovatively and constructively about how their developments can create a legacy of healthier, more resilient, fairer, more vibrant and more prosperous communities which stretch beyond the lifetime of the wind farm leases for the benefit of generations to come. Commitments made during the tender process will be monitored, reported on and enforced throughout the lifetime of the relevant round 5 developments.
We could of course make this an explicit duty for the Crown Estate in legislation, but if we did that then there are many other points we have debated today that could also be added as statutory duties. As I said earlier, a key purpose of the 1961 Act was to repeal various detailed statutory provisions that had built up over 150 years previously, to avoid the Crown Estate having to work through a maze of requirements for each investment decision.
I turn next to Amendments 15, 17 and 29, tabled by the noble Lord, Lord Holmes, and the noble Earl, Lord Russell. These amendments seek to create new objectives for, or impose new duties on, the Crown Estate. Specifically, Amendment 15 would require the Crown Estate to seek to prioritise the objectives of UK food security and to support the development and promotion of new technologies, including artificial intelligence, in the managing and turning to account of Crown Estate land.
Amendment 17 would require the commissioners to publish a review assessing how Crown Estate assets can be deployed to support nature prescribing. The amendment would also require the commissioners to work with NHS England and devolved counterparts to enable the Crown Estate’s nature assets to form part of a major UK-wide nature prescribing scheme.
Amendment 29 would require the commissioners, when exercising their duty in Section 1(3) of the 1961 Act, to act in a way best calculated to further the achievement of sustainable development and to seek to manage assets in a way likely to contribute to the promotion or improvement of economic development, regeneration, and social and environmental well-being.
Before I speak to these amendments it is worth reiterating that the Crown Estate is a commercial business, independent from government, that operates for profit and competes in the marketplace for investment opportunities, yet it is currently restricted in its ability to do so. As I have already set out, the Government believe that it is right that the Crown Estate continues to operate as a commercial enterprise. A key purpose of the 1961 Act, as I have noted, was to repeal various detailed statutory provisions that had built up over 150 years previously, which were hampering the effective management of the estate. Since then, the Crown Estate has shown itself to be a trusted and successful organisation with a proven track record in effective management. That is a valuable outcome, which I stress we need to be careful not to undermine.
This track record includes its commitment to enable the development of new net-zero technologies and to invest in artificial intelligence to enhance its habitat and environmental monitoring system. The Crown Estate has also made it clear that it is prioritising food security alongside nature recovery and enabling the diversification of income for its tenant farmers. The investment and borrowing powers proposed in this Bill will allow for even greater investment in these areas by the Crown Estate.
The Government believe that the Crown Estate’s existing duties give it a clear focus, leading to a consistently significant return to the Exchequer to support the funding of public services. At the same time, the Crown Estate is already able to, and does, focus on activities which also closely align with wider national needs, including energy security and sustainable economic growth. As a public body, the Crown Estate seeks to work with the grain of prevailing government policy.
I turn next to Amendments 25 and 30, tabled by the noble Earl, Lord Russell, and the noble Baroness, Lady Hayman. Amendment 25 would create a new duty for the Crown Estate commissioners in the exercise of their functions to take all reasonable steps to contribute to the achievement of targets under Part 1 of the Climate Change Act 2008; the achievement of biodiversity targets under Sections 1 to 3 of the Environment Act 2021; and to adapt to any current or predicted impacts of climate change as identified in the most recent report under Section 56 of the Climate Change Act 2008. This amendment would also require the Crown Estate to include conditions in all seabed leases for the leaseholder to contribute to the conservation and enhancement of the natural environment.
Amendment 30 would create a new nature recovery duty. This would require the Crown Estate to take steps to embed nature into spatial planning and seabed leasing, allocate space for nature recovery in all projects and invest in clean energy projects.
Before I explain the Government’s position, let me express strong support for the intention behind these amendments. It is right that the public and private sectors make every contribution they can to help achieve our climate change targets, and the Crown Estate should continue to be a national trailblazer in this regard. The Crown Estate has committed to becoming a net-zero carbon business by 2030, aligning with the 1.5 degrees trajectory, and will prioritise activities which help enable a reduction in national carbon emissions, such as building net-zero homes, transitioning its holdings to sustainable agricultural practices and working in partnership with government to meet the national renewable energy targets.
On the biodiversity targets in the Environment Act, the Crown Estate is committed to delivering a measurable increase in biodiversity by 2030. It will publish its delivery plan to meet this goal next year, which will include commitments to restore habitats in line with targets in the Environment Act. As I have already noted, all leases granted by the Crown Estate for development that affects the seabed already require the leaseholder to have the necessary statutory consents in place before development can begin.
The Crown Estate also published its approach on nature recovery last week, where it has committed to delivering increased biodiversity, to protect and restore freshwater, marine and coastal systems, and to increase social well-being benefits from nature. However, as I have already set out, the reforms being introduced in this Bill are not intended to alter the fundamental statutory basis of the Crown Estate as a commercial business independent from government.
The commissioners operate under a clear commercial objective, as set out in the 1961 Act, to maintain and enhance the value of the estate. I know that some noble Lords take a different view as to how the Crown Estate should operate, but it is the Government’s view that the existing statutory commercial focus, coupled with adherence to environmental and other nature requirements as set out in other legislation, as well as the need in the 1961 Act for the commissioners to have due regard to the requirements of good management, remains the best approach. One of the functions of the Crown Estate is to return its profits to the Exchequer each year, and it has returned a combined total of more than £4 billion in the last decade. This is used to fund the priorities of the Government of the day, which currently include spending on policy that helps achieve our climate change goals.
The more the Crown Estate’s core purpose in legislation is expanded, particularly with additional duties or objectives that may unnecessarily complicate, conflict with or risk compromising the achievement of that core commercial objective, the harder—
Baroness Young of Old Scone (Lab)
I know the Minister is anxious to get on to the dinner break business, but I think he misunderstands exactly what we are saying by asking for biodiversity and climate change target achievement to be included. The reality is that we want the Crown Estate commissioners to be able to walk, talk and chew gum. They have to be able to be smart enough to deliver on the commercial and economic imperatives that the Minister has been absolutely clear about—he has repeated them several times—and do the biodiversity and net zero delivery at the same time. That is doable but not if, as the Minister has just done, he continues to say and reinforce for the Crown Estate commissioners that their primary purpose is a commercial one, because that will always take precedence.
Lord Livermore (Lab)
I thank my noble friend for that intervention. With the greatest respect, it is not a lack of understanding; it is just a slight difference of opinion. As I said, I have great sympathy with the motives underlying this amendment, but the Government would seek to achieve them in a slightly different way from my noble friend.
Lord Teverson (LD)
I am very grateful to the noble Lord for giving way; I will make one final intervention. I welcome very much what he said about biodiversity and the wish to do that, but he has not mentioned biodiversity net gain. It is a government policy to introduce marine biodiversity net gain. Will that apply? As one of the co-developers to the Crown Estate, will they be responsible for that when they implement that policy?
Lord Livermore (Lab)
I will be completely honest and say I do not know the answer to that question. I will find out and let the noble Lord know.
I hope these explanations have been helpful and that the noble Lords, Lord Holmes, Lord Teverson and Lord Young, the noble Earl, Lord Russell, and the noble Baronesses, Lady Hayman and Lady Young, will feel able not to press their amendments as a result.
Lord Holmes of Richmond (Con)
My Lords, I thank everybody who has taken part in this incredibly important debate, and the Minister for his thorough answer. All I would gently suggest is that if all those provisions, policies and words are having impact, how come the scarring, scraping, defacing and destruction of the seabed continues? Not being one to shy away from sporting analogies, I hazard a guess that the issues raised in this group of amendments could well bring the Government to their first game of ping-pong in this new Session; but for now, until Report, I beg leave to withdraw the amendment.
External Auditing of Companies: Deficiencies
(2 months ago)
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Lord Sikka
To ask His Majesty’s Government what plans they have to address any external auditing deficiencies highlighted by the collapse of BHS, Carillion, Patisserie Valerie, and London Capital and Finance.
Lord Sikka (Lab)
My Lords, I am honoured to open this debate and flag some of the issues, which I hope the Government will address. Ever since the collapse of BHS in 2016 and Carillion in 2018, the previous Government promised a Bill, but none materialised. This year, the King’s Speech promised an audit reform and corporate governance Bill. Naturally, I look forward to it. I have a particular interest in that Bill, not only as an accountant with 56 years’ experience but as an adviser to the Work and Pensions Committee for its investigation into the collapse of BHS and Carillion.
I understand that much of the Government’s attention is focused on transformation of the Financial Reporting Council into a statutory audit, reporting and governance authority, or ARGA—a very awkward name. This was recommended in Sir John Kingman’s 2018 report. Those reforms are welcome but they will not be sufficient.
In addition to ARGA, the audit industry will have four other regulators: the accountancy trade associations. None has the required independence from its members and all are outside the remit of freedom of information laws. A fragmented system would inevitably result in waste, duplication and obfuscation. Will the Minister ensure that accountancy trade associations are not allowed to act as regulators, for the reasons I specified?
The Kingman report was concerned about independence, but ARGA will remain dominated by large corporations and big accounting firms, which fund accounting and auditing standard setting and provide key personnel to the bodies. Despite Brexit, the UK has abandoned its powers to set accounting and auditing standards relevant to the local environment. Instead, it adopts international accounting and auditing standards. These are primarily crafted by big corporations and accounting firms at both international and UK level. This makes for poor financial reports, audits and public accountability. Good luck to anyone trying to figure out the UK profits of Google, Microsoft, Starbucks, Apple or other global corporations. Water companies routinely inflate investment and distributable reserves by capitalising interest and repair and maintenance payments. It is all permitted by the accounting rules and no auditor has ever objected to it. Profit shifting is a major tool for avoiding tax, but group accounts provide zero information about intragroup transactions, so it is hard to see how the Chancellor will clamp down on tax abuse by companies. I look forward to hearing from the Minister how the Government will address regulatory capture and reform accounting practices.
I will raise questions about the conduct of audits, because major firms are unable or unwilling to deliver robust and honest audits. While penalties for negligent directors need to be strengthened, that should not deflect attention away from the failures of auditors. Annual audit quality reports from the FRC show that many firms do not even meet the feather duster auditing standards applied in the UK.
There are fundamental fault lines. In contemporary society, we come across numerous types of audits on a daily basis. For example, at airports, our passports are audited by immigration officers acting as auditors. In no case is the auditee allowed to hire, remunerate or fire the immigration officer or appoint him or her as an adviser, yet that is the starting point for company financial audits. Will the Minister explain why that situation persists?
Some may argue that audit committees consisting of non-executive directors should have a greater role in liaising with external auditors, but audit committees at BHS and Carillion were not effective. I saw that at first hand. Almost all major corporations mired in scandals had audit committees and non-executive directors. None rocked the boat.
It is hard to think of any financial scandal highlighted by auditors. At BHS, PricewaterhouseCoopers’s audit partner backdated the audit report to appease Philip Green and other directors. At Carillion, KPMG never objected to imprudent accounting policies relating to accounting for good will. The company also capitalised interest payments to inflate its balance sheet. At Patisserie Valerie, auditors did not even check the bank reconciliation; they just continued to dish out the usual clean audit bill of health. Naturally, they were not going to bite the hand that feeds them.
Research by Professor Adam Leaver at Sheffield University looked at 250 listed companies that collapsed between 2010 and 2022. Despite publicly available evidence, only about 25% carried a “going concern” audit qualification. The Nelsonian auditors were rewarded handsomely.
Does the Minister agree that the appointment and remuneration of auditors at large companies by an independent body will give them some backbone? Will he insist that the auditors must act exclusively as auditors, meaning that no other business must be done by audit firms?
There is an urgent need for transparency about the delivery of audits. This would enable stakeholders to make assessments of the quality of audit and ask focused, timely questions. Currently, we get a glimpse of audit problems only after scandals; if by hook or crook a company survives, poor auditing practices remain buried.
At BHS, a PwC audit partner was budgeted by the firm to spend just two hours on the audit, and 31 hours on consultancy. For all practical purposes, the audit team was led by a person with only one year’s post-qualification experience. Unsurprisingly, the audits were shambolic.
The auditor appointment usually begins with a kind of beauty parade. Firms submit a tender and then make presentations to companies. I have sat through some of those. The most common phrase in these tenders is something like, “We have a reputation for constructive accounting solutions, and will help you to present your financial statements in the best possible way”. I wonder how many banks that crashed were told that. Auditors remained silent at those companies.
Audit tenders are not made publicly available because the firms say they are secret, even though their senior personnel know all about the contents. The same people migrate to other firms and take the knowledge with them; so rivals know what the firm’s policies are, but the stakeholders are denied that information. Audit tenders must be made publicly available.
Section 493 of the Companies Act 2006, requires disclosure of the “terms of audit appointment”, but Governments have failed to enact that section. I hope that the Minister will tell us when this section will be enacted.
To prevent firms assigning inadequate time budgets and audit teams to audits, there must be disclosure of the composition of the audit team, grade of staff and time used. Such disclosures are already made by insolvency practitioners, so it is hard to see what objections auditors could have. The disclosures would have prevented PwC from assigning just two hours to a partner to conduct the audit of BHS.
There need to be disclosures of the key questions that auditors ask and the replies received from directors. Such information is included in what are called management representations. All this information should be publicly available and can be filed at Companies House when the annual accounts are filed.
For far too long, audits and audit firms have escaped transparency. That silences stakeholders and leads to poor audits and accountability. I hope that the Government will address these failures.
Lord Shipley (LD)
My Lords, I thank the noble Lord, Lord Sikka, for enabling us to have this debate, which is timely. I thank him also for the forensic examination he has presented of some of the failures in the audit system. I have noted his concerns about the powers and responsibilities of accounting bodies and audit firms and their public responsibilities. We will need to debate many of his points when we consider the draft audit reform and corporate governance Bill.
In the debate on the King’s Speech in November last year, I questioned the absence of an audit Bill in that Session. I am pleased that this year’s King’s Speech has rectified that. Anything the Minister can say on the content and timing of the draft audit reform and corporate governance Bill would be useful to hear.
I have several times expressed concerns in this House about the state of audit and risk management in the public sector. The absence of proper and timely audits following the abolition of the Audit Commission has proved an increasing problem. I have concluded that it will require firm leadership from the Government to deliver improved standards.
The problems with audit in the private sector are equally well established. We simply must strengthen private sector audit and corporate governance. As the noble Lord, Lord Sikka, said, it is of great concern that, according to the Audit Reform Lab, three out of four of the largest 250 publicly traded companies in the UK that failed between 2010 and 2022 did not have an audit warning of that possible failure.
This means that the commitment in the King’s Speech to replace the Financial Reporting Council with the proposed audit, reporting and governance authority must be fulfilled. This will enhance enforcement powers both in investigations and in applying proper sanctions for the serious failures in both financial reporting and audit work.
In 2011, I was privileged to be a member of the Economic Affairs Committee when it reported on auditors and the concentration of the audit market on a very small number of audit companies. The report is worth revisiting by the present Government. It made many proposals, but the following brief extract is relevant:
“The Committee’s concerns about the Big Four’s oligopoly of large firm audit were intensified by their failure to give warning of trouble in the run-up to the financial crash. Clearly bank auditors cannot express concerns openly about banks’ finances without undermining confidence and risking a run. But the Committee was highly critical of the fact that, as our evidence revealed, confidential dialogue between auditors and bank regulators had fallen away before the financial crisis so that there was no pooling of information or concerns which might have given warning or allowed some action to mitigate the worst effects. This failure to maintain dialogue seems to the Committee a dereliction of duty”.
That was 2011, but much in the audit world has stayed the same. As the noble Lord, Lord Sikka, said, we need to separate audit services from other services provided to companies to avoid conflicts of interest.
We should note that over three-quarters of the revenue for audit companies comes from non-audit services, and there are clear risks to the audit process of firms generating most of their income from these other non-audit services.
This QSD is about restoring public confidence in corporate governance to ensure that investors and consumers can have confidence in the financial robustness of UK companies. When companies collapse, people lose their jobs, and the public purse can be called on to cover the costs.
Auditors exist to assess the financial health of companies and to report on risks. At present, the regulator has insufficient power to rectify failures. There is huge support for reform from the Institute of Directors, the Chartered Institute of Internal Auditors and the Institute of Chartered Accountants in England and Wales, among others.
I hope that the new regulator will have the enforcement powers it needs. I hope that it will be required to report annually to Parliament. I hope that auditors will be trained to exercise due scepticism as well as due diligence. I hope that directors of companies will be required to declare annually on capital maintenance decisions and on the legality of distributions and the effectiveness of resilience planning, as part of an annual report, in addition to a report on the formal accounts.
These are all core functions of an audit process. In creating a regulator with teeth, international investors, as well as domestic investors, will be able to have confidence that the UK is a safe home for their investments.
Baroness Ford (CB)
My Lords, I too thank the noble Lord, Lord Sikka, for securing this important and timely debate—important because trust in public information is essential to the proper functioning of our capital and equity markets, and timely because we all expect the long-awaited audit reform and corporate governance Bill later in this Session. I draw noble Lords’ attention to my current and previous interests in the register, particularly to my position as chair of the Centre for Public Interest Audit, a recently created research body focused solely on improving quality in UK audits and supported by the entire range of firms involved in this activity in the UK.
I have worked in the equity and capital markets for almost 40 years and have chaired a number of public companies and large privately owned enterprises, so I absolutely understand the requirement for accurate, truthful and timely public information that has been fully audited and assured. More pertinently to this short debate, I have also worked in a number of corporate restructuring and refinancing situations, so I can genuinely say that I have seen some of the best of corporate behaviour but also examples of some of the very worst.
It would be fair to say that, in those situations, the reason for failure or near failure lay squarely with the directors of the company and the decisions that they took. Companies do not generally fail because of audit failings; they tend to fail because of poor decisions taken by directors. Although the sanctions regime is clear and appropriately punitive as it relates to failings by auditors, there is no equivalent regime for holding directors to account. This asymmetry simply cannot be right, and we should look to the forthcoming legislation to see how we might deal with that.
However, it would be naive to imagine that the auditors do not have a role to play. The public and all those invested in companies, not just financial investors—we think of employees and suppliers—are entitled to be completely baffled when a disorderly period occurs a short period of time after a clean audit opinion is signed. When that failure is as high profile as some of those signalled in this debate today, questioning the role of the auditor has even more resonance.
That question has been the subject of serious and intelligent analysis over the last six years. Things have certainly changed. Specifically, as set out in the CMA report, Sir John Kingman’s review of the FRC and Sir Donald Brydon’s comprehensive analysis, virtually no stone has been left unturned in analysing the environment in which auditing takes place in the UK. We are not short of recommendations on how to improve matters, but we have had no opportunity until now to enshrine some of those important recommendations in legislation. That is why I imagine we all welcome the forthcoming Bill and the Government’s decision to prioritise this important issue.
Because of the time it has taken to get to this point, we have taken some important steps in the right direction without legislation. The CMA’s recommendation on operational separation has been given effect by the four largest audit firms, which have done so entirely voluntarily under the FRC’s close supervision. I hope I can reassure the noble Lord, Lord Shipley, that it is no longer permitted to sell audit services to the same client for which you are the statutory auditor. That has been the case since the standard was changed and it just does not happen anymore. We should all welcome that.
The four largest firms now have to formally demonstrate, to the FRC’s satisfaction, that they are formally separated from the advisory practices and that no persistent subsidy exists between the advisory business and the audit practice. More pertinently, they need to be able to show that their primary focus is on delivering high-quality audit in the public interest. The separated businesses also have to show that partner promotion and renumeration is related above all to audit quality indicators, not to income that is brought into the businesses. All those processes are now overseen by an independent board comprised of non-executives who have a direct line back to the FRC. That is not a trivial development, and it goes quite a long way to satisfying the CMA’s objectives. All the accompanying revisions to the Audit Firm Governance Code in the last few years are also welcome and pretty clear.
On Kingman, the FRC has already taken steps to change the way it works. The focus on audit quality inspection has toughened up considerably, and the very public nature of the AQR framework and scores delivers an unprecedented level of transparency to users and the public. Maybe this is an area on which the noble Lord, Lord Sikka, and I would take issue: the enforcement function has shown serious teeth in the light of the failures that we have been discussing today—although of course it would be better if it did not have to enforce at all.
Just as importantly, the FRC’s revisions to the 2024 Corporate Governance Code, relating particularly to director responsibilities on reporting material controls, are a welcome development. They tread a very fine line between a full-blown SOX regime and ensuring essential accountability for directors, and they are massively overdue.
However, there are numerous other areas in the Kingman and Brydon reviews that absolutely require legislation. I look forward to working closely with noble Lords to make sure we get this right. Time is short today, so I will finish with the hope that, when we receive the Bill in your Lordships’ House later this Session, we do not lose sight of the wider reforms to corporate governance that were outlined in both those reviews.
We have waited a long time for this opportunity. The 1992 McFarlane report contained many of the questions and recommendations rehearsed again by Donald Brydon, and the irony was not lost on him. We have a generational opportunity to get this right, and this time we need to seize it.
Baroness Warwick of Undercliffe (Lab)
My Lords, I thank my noble friend Lord Sikka for securing this debate. He has great expertise in this area, and has reminded us today of the terrible fallout, not least in terms of human misery, from such high-profile corporate failures. The scandalous collapse of Carillion in 2018, and in fact all the cases that he mentioned, highlighted poor auditing practice and inadequate supervision and accountability in the operation of those companies. The various reviews that followed all said the same thing: as the Audit Reform Lab puts it, the auditing industry is plagued by conflicts of interest, poor standards and weak regulation.
I am grateful for the various briefings for today’s debate, which have set out the systemic nature and extent of the problem. In 2022, Deloitte, KPMG, PwC and EY—the big four—earned 96% of FTSE 350 audit fees. Alongside that, a huge percentage of revenue of the big four firms comes from non-audit services. If the vast majority of your revenue comes from offering consultancy services to the same companies that you audit, there is surely a real risk of conflicts of interest.
I also learned that fines by the Financial Reporting Council for audit failures reached a record high in 2022 of over £33 million, yet, as the Audit Reform Lab highlights:
“From 2015 to 2022, regulatory fines for poor audits were on average just 0.16% of revenue and 0.85% of profits for Big Four firms”—
as the briefing says—
“too small to materially affect partner pay or change behaviour”.
From 2020 to 2022 the average pay for partners at the big four firms rose by 31%, while average pay for Deloitte partners reached over £1 million. Directors at these firms are being rewarded for failure.
Almost seven years on from the collapse of Carillion, businesses, regulators and auditors all agree that we need a corporate regulatory framework that is fit for purpose. Audit serves the public interest by underpinning transparency and integrity in business, while trust in our major companies is essential if we are to have long-term investment in the UK economy. Financial transparency and accountability are essential parts of economic stability. Failures such as BHS, Patisserie Valerie and London Capital and Finance undermine that stability.
Like all other speakers in the debate, I warmly welcome the Government’s intention to publish a draft audit and corporate governance Bill, which will replace the Financial Reporting Council with a new regulator—the audit, reporting and governance authority. It is clear that the Government have inherited a completely inadequate audit system. The UK needs a regulator with the teeth to tackle bad financial reporting and to ensure robust and rigorous scrutiny of company accounts. The inclusion of the draft Bill in the King’s Speech was a welcome indication of this Government’s determination to bring about reform. Given the crowded legislative timetable—40 separate Bills were included in the King’s Speech—can the Minister give us any idea whether this one will be a priority in the current parliamentary Session? When can we expect the ARGA to be functioning?
It is important that our Government push forward on audit reform because, in very simple terms, by doing so they are acting in the interests of working people, who are always the victims of business failure on this scale. In the cases noted by my noble friend, failures in the audit process cost working people their jobs and pensions and hurt suppliers and investors. I am thinking of the 11,000 jobs lost and a pension deficit of £571 million when BHS collapsed. At Carillion, companies went into insolvency, leaving huge debts, thousands of unpaid subcontractors, and delays to school and hospital building projects. Yet those responsible for the financial chaos that follows corporate failure are not the ones who pay the price.
I understand that directors of a company making incorrect financial statements can be held accountable by the regulator only if they are members of an accountancy body. Can the Minister assure us that the Bill will seek to ensure that all directors in the UK’s most significant companies face consequences if they neglect their duties regarding financial reporting?
Lord Livingston of Parkhead (Non-Afl)
My Lords, I join others in thanking the noble Lord, Lord Sikka, for tabling this important debate.
I am not a renowned academic in this area. My contribution is as somebody who has been a practitioner: I have been the CFO of two FTSE 100 companies and on the audit committee—or chair of an audit committee —in five different companies, in both the UK and the US. The four corporate failures are very important, but there is a danger with all of this that we are looking in the rearview mirror, because they are quite old and a lot of things have changed since then. I will talk later in this debate about that.
I have to say that a number of the contributions describe an audit process I do not recognise. The role of independent directors and audit committees is now very important and strong. On the issue of auditors doing consultancy work for businesses, I am sorry but it does not happen now. In fact, if you wish to do consultancy work for a major corporation, do not be its auditor. Yes, auditors do consultancy work, but they do it for other people. There are some ancillary services, such as valuations, that have to be done—working capital reports, for example, are a non-audit service, but have to be done by the auditors. We are describing, perhaps, a situation that was definitely true 10 or 20 years ago.
This is a debate about auditors, but it should be remembered that the primary responsibility for a company’s accounts and its reporting is with management. It is the executives and non-executive directors who are responsible for the first, second and third lines of events, as it is termed. But there have been failures in the fourth line, among auditors.
The firms and partners involved in these failures have received significant sanctions, and rightly so. There has rightly been a response by the Government, regulators and the profession. We have waited too long for statutory changes, but there have been many other things. So despite the delay in legislation, we have seen many improvements. For example, there is now a much better viability report, which usually stretches to five years and which the auditors report on, that every company has to prepare. That viability report tests various downside scenarios that might happen.
Audit reports themselves, when I first started as an accountant, were two paragraphs and talked about a true and fair view. Today, they run to 10 or 11 pages and cover issues such as the approach to the audit, the going-concern review, key audit matters and how they are dealt with, exceptions, et cetera. The FRC’s role regarding audit quality has been strengthened considerably. This is taken extremely seriously, by not just audit firms but audit committees. I know that committees challenge when their particular firm has had a poor result. Although even among the big four the results are not perfect, a lot of the exceptions have been based on documentation rather than the accounts being wrong.
These changes will be taken forward, we assume, by ARGA, and I welcome that. We expect to see, more explicitly, that all directors should be held to account—and they should be; it should not be about whether you are a member of the accountancy profession. There will be a requirement to report on the adequacy of internal controls. That will cover a wider range of controls than is even covered by the famous Sarbanes-Oxley legislation in the US. For many companies, particularly those that are not US quoted, it will represent a great challenge regarding documentation and testing.
However, more regulation is not necessarily better regulation. The UK governance process has gone from being admired as a good balance of regulation and pragmatism, as encompassed by the “comply or explain” doctrine, to “comply, explain and document at length”. Annual reports can now run up to 300 pages in length, and they are not read by even the most diligent investors. I wonder how many noble Lords have read, cover to cover, an annual report at any time in the last year or two. I obviously defer to academic experts on that, but I suspect not many other people.
We have heard some other suggested proposals, including the mandatory use of second-tier firms, either for whole audits or shared audits. It is worth noting that the FRC’s reviews have seen the big four’s results improve regarding the quality of audit. Regretfully, a number of firms outside the big four not only have lower results but are going backwards. There is a real concern among many companies that shared audits will lead to higher costs and lower quality.
On the mandatory allocation of audits, I will give a practical example. I was involved in a company that wanted to bring in one of the non-big-four on the audit tender. Every single one that was approached said, “We are not able to do this. We do not have capabilities, we do not want the exposure, we do not have the insurance and we do not have international coverage”. The practicalities are more difficult. I agree that there is a problem with there being only four major audit firms, but that cannot be solved by this proposal.
You can never guarantee that a business will not fail, nor in a market economy should we seek that, but we have seen good improvements in reporting, and boards and shareholders do not want another massive rewrite. We understand what is on the table. Today, there is a major investment conference at which the Prime Minister has warned against the negative impact of overregulation. If the Minister and his party are truly committed to growth, my message is that we should continue on a path of evolution and continued improvement, rather than revolution and yet more legislation.
Lord Davies of Brixton (Lab)
My Lords, this debate is about the manifest deficiencies in external auditing. That has been clear from the catastrophic collapses of major companies, including those mentioned in the Question: BHS, Carillion, Patisserie Valerie, and London Capital and Finance. I have heard the remarks from the noble Baroness, Lady Ford, and the noble Lord, Lord Livingston of Parkhead, who tell us things have improved. The problem with these cases, which are not all that historic, is that they indicate an attitude within the auditing profession. It is the tell that is there. We have to respect that, and no doubt will debate it at length when we consider the Bill. It is still worth going through these specific cases because they have shaken public confidence and they call into question the robustness of the auditing profession.
Let us start with BHS. When it collapsed in 2016, it left 11,000 employees out of work and a £571 million pension deficit. Despite these glaring financial issues, BHS’s auditors, PricewaterhouseCoopers, had signed off its accounts without raising any red flags. The issue here lies in the auditor’s failure to adequately assess BHS’s ability to continue as a going concern, and a failure to highlight potential risks to investors and employees.
When Carillion, a construction and facilities management company, collapsed there was £7 billion in liabilities and just £29 million in cash. This collapse shook the whole UK construction industry and led to widespread job losses. KPMG had signed off on Carillion’s accounts for 19 years without challenging its aggressive accounting practices. Carillion overstated its revenue and delayed recognising losses, which created an illusion of financial stability. What we have here is that the audit failed properly to address the company’s rising debts and overreliance on short-term contracts. This failure highlighted a systemic issue: the auditors’ unwillingness or inability to challenge management effectively.
Patisserie Valerie’s collapse in 2019 was perhaps even more shocking, due to the outright fraud that had occurred and with Grant Thornton, as my noble friend mentioned, even failing to adequately check the company’s bank accounts. This indicates the auditors’ seeming lack of curiosity and investigative rigour, and that behaviour went unnoticed for years.
Finally, London Capital & Finance adds another dimension to these auditing failures although, in this case, the collapse stemmed from regulatory shortcomings as well. It sold risky and often misrepresented financial products to ordinary investors, many of whom lost their life savings when the firm went into administration.
These auditing companies are still there and still doing the work. We need more assurances from the auditing profession that things have improved. We want to see systemic changes that will avoid these problems arising in future. The auditors failed adequately to assess the financial viability of the companies they were auditing; the provision of more information and longer reports does not really address that issue.
Clearly, the role of external auditors is crucial to the functioning of our financial markets. They are needed to provide an independent assessment of a company’s financial statements and offer a degree of protection to investors, employees and the broader public. The solution to this, as my noble friend Lord Sikka identified, is much greater openness about the auditing process. That is really what the auditing profession is failing to provide to us. I hope that we are going to have a very interesting Bill and interesting discussions on it. These issues will need to be addressed and I urge my noble friend the Minister to give us some assurance that they will be taken on board.
In my final few seconds, since I have the Minister’s attention, I will just mention the actuarial profession, which is being swept into the Bill—I declare an interest as a fellow of the Institute and Faculty of Actuaries—in a way that seems to show a lack of understanding on the part of the department of the work that needs to be done in this area. If the actuarial profession is to be regulated, there needs to be much more work on exactly how that is to be done than appears to have been done so far.
The Earl of Effingham (Con)
My Lords, during this debate we have heard references to the big four, which, as many in the House will recall, used to be the big five until 2002, when Arthur Andersen itself was dissolved as a result of accounting and auditing irregularities at Enron. We have heard about Carillion, BHS, Patisserie Valerie, London Capital & Finance and more. It is indeed an alarming statistic that of the 250 largest companies listed on the London Stock Exchange which defaulted between 2010 and 2022, only 25% had a going concern warning included by their auditors in what transpired to be their final set of accounts. However, what we must be crystal clear on is that if this was easy, we would not be having this debate. No one audit company caused any one collapse. What happened is that they did not see the dangers and either did not understand or underestimated the risks embedded in the firms they were auditing.
The noble Lord, Lord Sikka, and many others in your Lordships’ House will be well aware that these matters are extremely complex. Indeed, in 2013 the regulator itself—the FRC—approved the quality of KPMG’s audit of the Co-operative Bank during an annual review, shortly before it was discovered that there was a £1.5 billion capital shortfall at the lender. The FRC also approved the quality of an audit of Patisserie Valerie’s accounts six months before the company revealed the £40 million fraud and maintained that its
“routine monitoring of audits is designed to ensure the audit was conducted in a satisfactory manner and not to identify aspects such as fraud”,
which further illustrates the potentially challenging nature of audits.
The FRC did flag textbook failures in KPMG’s audit of Carillion, citing that:
“Many of the breaches involve failing to adhere to the most basic and fundamental audit concepts such as to act with professional scepticism and to obtain sufficient appropriate audit evidence”.
Independent judgment appeared in some cases to have been woefully absent. Conflicts of interest are apparent: Carillion was a very important and long-standing client for KPMG, generating £29 million in audit fees. This created a risk to objectivity, and on several occasions
“the audit team failed to adopt a rigorous and robust approach”
and agreed to
“the presentation of financial information that suited Carillion’s management”.
In the ensuing aftermath and investigation of the collapse, newspaper reports told of a 2016 extensive internal survey of staff and partners which suggested a lack of accountability or consequences for poor behaviour and a hierarchical culture that did not encourage junior employees to challenge their seniors. It is critical that we address the issue of external audit deficiencies in this country. Their failures cause immense pain to employees, society and shareholders. But it is also essential that we do it the right way.
We want the UK to be one of the best places in the world to do business. For that to happen, we must have clarity of intention. We must cut red tape for our amazing companies and not create it. We therefore seek answers from the Minister for the purposes of transparency and further debate, as some of the potential reforms require deep scrutiny.
Will the Government dictate the content of financial reports? Will they oblige FTSE 350 firms to appoint two audit companies? What will the legal and enforcement powers of the new audit, reporting and governance authority be? Will the Government force large UK-listed and private companies to produce an annual resilience statement, distributable profits figure, material fraud statements and triennial audit and assurance policy statements?
On company culture, how will the Government ensure that a culture of professional scepticism is built into the audit industry and guarantee training on forensic accounting, fraud awareness and the use and abuse of accounting rules in real-world situations? As we have heard about this from other noble Lords, what will the Government do to ensure that all companies of a certain size, not just auditors, focus on strong controls, sound corporate governance and accurate and reliable financial reporting to avoid future catastrophes?
The right package of reforms will increase investment in the UK economy. It will fuel the growth needed to make us the envy of the G7 nations.
Lord Leong (Lab)
My Lords, I am pleased to respond to this Question for Short Debate. I thank my noble friend Lord Sikka for introducing it. I commend my noble friend for his commitment to and tireless campaign for more effective auditing. I thank all noble Lords for their valued contributions.
When companies fail suddenly, jobs and lives across the UK are affected. Many noble Lords mentioned that 11,000 jobs were lost when BHS collapsed. Carillion’s failure left approximately £4.9 billion of debt, affecting around 7,000 first-tier suppliers and contractors and displacing 19,000 UK jobs.
The Government therefore want to address the financial reporting issues that have been factors in some recent corporate failures. This is part of our mission for growth. Confidence in the audit regime is vital to ensure that our leading companies command the confidence of financial markets and the investment community. Through fair and reasonable regulations, we will boost investment and create sustainable long-term growth for the country.
We are looking at changes in three broad areas: a new powered-up regulator; new accountability for companies, directors and finance professionals; and new measures to help the audit market work better. First, we intend to transition the current audit regulator, the Financial Reporting Council, or FRC, into a new statutory body. The audit, reporting and governance authority, ARGA, will have new responsibilities and enhanced powers to tackle bad corporate reporting.
The second core area is to look at new and better systems to hold companies, directors and finance professionals to account. We are therefore looking to extend public interest entity status to the largest private companies, making sure their audits are of high quality and their reporting is within ARGA scrutiny. We will also seek to ensure proper accountability for company directors. We will therefore look to give ARGA powers to investigate and sanction company directors for serious failures in meeting their existing duties and responsibilities relating to accounts, corporate reporting and audit.
Regulatory oversight can help build and maintain trust in the profession. We want to ensure that professional bodies are properly accountable for their roles in regulating their members, with ARGA able to step in to tackle serious breaches of standards. We are also looking to improve the UK’s insolvency regime, including significant reforms to the regulation of insolvency practitioners.
Thirdly, we want to help the audit market work better. We want to address the lack of choice and resilience in the audit sector. Many noble Lords have mentioned the big four firms, PwC, KPMG, Deloitte and EY. They audit almost all the UK’s largest listed companies. We will look to find a balance in the PIE market between choice, resilience and quality. There are complex choices involved and we expect extensive engagement on these issues.
The Government set out in the King’s Speech their intention to publish a draft Bill on audit and corporate governance in this parliamentary Session. I look forward to this House’s expert scrutiny of our proposals in due course. I will of course update noble Lords on progress on the Bill, as the Government carry out their mission to go for growth at every opportunity.
I now turn to some specific points raised during the debate. My noble friend Lord Sikka asked about standards. Global standards make it easy to compare information across different regions, thereby facilitating the international movement of capital. These standards are assessed for their suitability and adoption in the UK. The UK has been a leading proponent of the use of IFRS. The UK also supports the development of international standards covering sustainability issues by the International Sustainability Standards Board. We will assess these standards for their suitability for adoption in the UK and consider how this affects non-financial reporting.
My noble friend Lord Sikka asked about audit competition—I mentioned the big four earlier. We are analysing all potential regulatory barriers to competition in the market before deciding how to proceed. Decisions on whether to remove any regulatory requirements that might be a barrier to competition will need to take account of any risk to other objectives such as higher audit quality and auditor independence.
My noble friend Lord Sikka and the noble Lord, Lord Livingston, asked about audit committees. The Government intend to give ARGA the power to set minimum requirements for audit committees in the appointment and oversight of auditors. These requirements will be enforceable. My noble friend Lord Sikka asked about the oversight of various other accountancy bodies. This is part of the Kingman review and there are still three outstanding recommendations that are yet to be adopted, on the oversight of the accountancy profession and the independent auditor’s report. Work is under way to address them.
The noble Lord, Lord Shipley, asked about local audits of public bodies. The backlog of publication of audited accounts of local bodies and public sector bodies in England has grown to an unacceptable level. The number of outstanding opinions peaked in September 2023 at 918. As of 31 December 2023, the backlog of outstanding opinions stood at 771. The local audit system is broken. This is evidenced by only 1% of local bodies having published audited accounts on time for the financial year 2022-23. The Government will update Parliament in the autumn.
I thank the noble Baroness, Lady Ford, for her work on corporate governance and congratulate her on her appointment as chair of the Centre for Public Interest Audit. We look forward to the findings of the PIA audit research later in the year.
My noble friend Lady Warwick asked about the timeframe and whether we are going to give priority to this draft legislation. As she noted, this Government announced an ambitious plan for legislation in the King’s Speech. As she knows, we have announced our intention to publish this Bill in draft and for it to be subject to pre-legislative scrutiny. I would therefore like to reassure her and the House that we fully expect to publish our draft legislation in line with the intentions announced in the King’s Speech.
My noble friend also asked whether we can ensure that all directors in the UK will face consequences if they neglect their duties. I can assure her that, as announced in the King’s Speech, the Government intend to provide the regulator with powers to investigate and sanction companies for serious failures in relation to their reporting and audit responsibilities. There are consequences for putting forward dodgy accounts.
My noble friend Lord Davies of Brixton asked about actuaries. The FRC has statutory duties and responsibilities for audit, delegating some of those functions to professional bodies while overseeing the accountancy and actuarial professions on a largely non-statutory basis. The Government will set out their approach to the regulation of actuaries in due course.
The noble Lord, Lord Livingston, asked about FTSE companies and I think the noble Earl, Lord Effingham, asked about sharing auditors. We are considering carefully the possible impact of shared audits for any companies, especially listed ones, and changes to the operating structures of audit companies, as part of our policy development on competition, choice and reliance in the market.
The noble Earl, Lord Effingham, asked about the legal and enforcement powers of ARGA. As I said earlier, we will look to give ARGA appropriate enforcement powers, including the power to investigate and sanction company directors for serious failures in meeting their existing duties and responsibilities relating to accounts, corporate reporting and audit.
The noble Earl also asked whether the Government would force large UK-listed companies to provide an annual resilience statement. Our overall aim is to make corporate reporting simpler, proportionate, useful and effective, but we may consider new reporting measures if they contribute to this aim. On company culture, ARGA will have appropriate powers to scrutinise the audit industry. I fully agree that a culture of professional scepticism should be built in.
The noble Earl asked whether the Government would commit to meeting senior representatives of the big four and other stakeholders. We will listen carefully to stakeholders on the substance and language of the planned draft Bill. We may consult formally on some related issues and will update the House in due course on any plans to do so.
I was asked what the Government would do to ensure that all companies of a certain size, not just auditors, focus on strong controls and corporate governance. We intend all companies above a certain size to have the extra scrutiny and accountability of public interest entities.
I thank all noble Lords once again for their contributions to today’s debate, and I look forward to keeping the House updated as we work towards the publication of our draft Bill.
Crown Estate Bill [HL]
Monday 14th October 2024
(2 months ago)
Lords ChamberRead Full debate Crown Estate Bill [HL] 2024-26 View all Crown Estate Bill [HL] 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 5-I(a) Amendments for Committee (Supplementary to the Marshalled List) - (11 Oct 2024)
Lord Holmes of Richmond
“Report: energy generation on the Crown Estate(1) Within 12 months of the passing of this Act, the Crown Estate Commissioners must publish a report on the potential for energy generation on the Crown Estate, including consideration of offshore wind turbines and onshore wind turbines.(2) The report under subsection (1) must also assess the potential impact of wind turbines on the Crown Estate on grid capacity and energy pricing.(3) The report under subsection (1) must be submitted to the Secretary of State and laid before Parliament.”
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to introduce this group of amendments. In moving Amendment 16, I will give a nod to the other amendments in the group.
This amendment is incredibly straightforward; it simply seeks to assert that generation must match grid capacity and that we should always consider, when moving to these new modes of generation, who pays and when. I say that generation should match grid capacity, but perhaps that should be put the other way around to make the point that grid capacity must be in place before generation, particularly from offshore wind, comes on stream. I would welcome the Minister’s response as to what is currently set out in the Bill to guarantee that grid capacity will be in place and that we will not have a situation whereby there will be surplus generation that is unable to be taken up by the grid and is still paid for and unused—and that pay comes from the energy customers themselves.
How will it be ensured, as we move to this right green transition for energy production, that where the costs fall does not have catastrophic consequences? Presently, it seems unclear in the current structure of the Bill how this grid connectivity and capacity will come online to match the potential race for supply, particularly from offshore.
Amendment 16, in simple terms, would ensure that grid capacity exists before generation can come onshore and, in that, would ensure that payment is spread fairly across the bill payers—and that those at the sharpest end do not feel the most extreme cost as a result of this transition, as often happens. I beg to move.
Lord Teverson (LD)
My Lords, I shall be brief. I actually want to say something quite positive about the Government’s approach to this at the moment. I understand the issue completely: offshore wind is a complete waste of time if you cannot connect it to the consumers. That is obvious, and it has not been managed well. I very much welcome the Government’s commitment to achieve that in future, but we had on 1 October the foundation of the National Energy Systems Operator, whose whole role is to make sure that this works. When we passed the Energy Bill that set this up, we did not really give it enough power. It would be very good to hear from the Minister that that will be in progress and will actually happen.
Secondly, there is so much at risk for offshore developers. Yes, they can get their contract, their lease and their contract for difference in terms of the price for the low-carbon company. But at the end of the day, if developers do not believe that there is going to be a grid connection, they will not carry out their investment, so it is absolutely in everybody’s interest that we do this. A really good point has been made to the Minister, and I look forward to his assuring us that NESO— the new organisation from 1 October—will have some clout in government decision-making and will co-ordinate this effectively. It needs to have the power and influence to do so, rather than simply being an advisory organisation whose recommendations are ignored because of other private or public finance investment reasons.
Baroness Vere of Norbiton (Con)
My Lords, I am very grateful to my noble friend Lord Holmes of Richmond for introducing his amendment, which leads this group, which is fundamentally concerned with the generation of energy on assets owned by the Crown Estate. This is even more important now that there is a formal relationship with GB Energy, which has been announced, although I accept that details of the relationship are quite thin on the ground. I entirely support the intention of my noble friend Lord Holmes of Richmond to require the publication of a report on the potential for energy generation on the Crown Estate, and I draw attention to my Amendment 35, which would ensure that no new electricity generation licences are granted without confirmation that a corresponding grid connection exists.
The problem of grid capacity, connection and storage is real and important. In May of this year, a House of Commons Environmental Audit Committee report found that in order to achieve net zero targets,
“the transmission and distribution network must develop and expand alongside the growth in supply and demand”.
It concluded that renewable energy generation may be stunted by “slow grid connections” and “limited grid capacity”. That is the issue I am trying to fix, and that all noble Lords are very much focused on. The Government must continue to look at it urgently if they are to build on the previous Conservative Government’s progress toward our clean energy targets. However, it is not an easy task. Even Green Party parliamentarians have been known to be vociferously opposed to measures to boost national grid capacity. I hear a Liberal Democrat laughing, and I am not entirely sure that that is appropriate. However, in the face of that kind of opposition, I ask the Minister to reassure the House that the Government have a plan to get on with increasing our national grid capacity.
At this point, I think it worth pushing the Minister, although we will come back to this on a later group, on the partnership with Great British Energy, which was announced to great fanfare a few months ago. I am still at a loss to explain how the new partnership between the two organisations, the Crown Estate and Great British Energy, will work and what difference it will make; indeed, this is the point of my amendment.
When the previous Conservative Government announced in the 2023 Autumn Statement plans to work with the Crown Estate to increase offshore wind capacity, that was predicted to unlock a further 20 to 30 gigawatts of new offshore wind seabed rights by 2030—great; that seems very fair. The Government have claimed that this new partnership will
“cut the time it takes to get offshore wind projects operating and delivering power to homes by up to half”.
Okay, but their press release of 25 July 2024 stated:
“The Crown Estate estimates this partnership will lead to up to 20-30GW of new offshore wind developments reaching seabed lease stage by 2030”.
To coin a phrase, nothing has changed. What difference does the partnership with GB Energy actually make, or did the Crown Estate get it wrong when it was working with the previous Government? Noble Lords can see the issue I have here: I do not understand how the tie-up with GB Energy is going to benefit that organisation, the Crown Estate and, indeed, the nation.
That, among other reasons, is why I tabled Amendment 34, which also requires a report on the energy generation supported by the Crown Estate. Its scope is wider than Amendment 16 and it facilitates greater oversight via reporting. It requires the Crown Estate commissioners to report annually on not only the expected impact of the relationship between the Crown Estate and GB Energy, but the actual impact. It would also include the investment strategy for capital investment in the infrastructure, including port infrastructure. This is where I am confused, because when I speak to the port sector, it tells me that finances are not particularly an issue. In a report published last month, the British Ports Association recognised that the sheer scale and speed of the investment needed to meet the ports’ offshore energy ambitions is significant. However, it called for a carefully managed investment in ports that fills gaps in ports’ supply chains that cannot be met by the private sector. These gaps can be filled by, for example, the national wealth fund, the Crown Estate or Great British Energy. Can the Minister explain who is managing, and which organisation will be investing how much in what, and when? I, for one, am confused. It is right to get some insight into this now, and to monitor progress in the future.
The Financial Secretary to the Treasury (Lord Livermore) (Lab)
My Lords, I will address the amendments tabled by the noble Lord, Lord Holmes, and the noble Baroness, Lady Vere, both of which touch on the topic of energy. I will start by addressing Amendment 16, tabled by the noble Lord.
This amendment would require the Crown Estate to publish a report within 12 months on the potential for energy generation on the Crown Estate, covering onshore and offshore wind grid capacity and energy pricing. While the Government are not in principle opposed to the Crown Estate producing specific reports on energy generation on its own estate, it is not within its remit or ability to report on grid capacity or pricing. As I have set out previously, the national grid and relevant transmission and distribution network operators are responsible for the UK-wide strategy on grid connectivity, and the new National Energy Systems Operator will be responsible for creating a strategic spatial energy plan, which will provide future clarity on grid connectivity.
The Crown Estate has already published, in September, a 53-page report entitled Future of Offshore Wind: Considerations for Development and Leasing to 2030 and Beyond, which looks at, among other things, the prime areas of opportunity for new wind farms. It has also recently published a Marine Delivery Routemap, which sets out its vision for the seabed and coastline.
Amendment 34, tabled by the noble Baroness, Lady Vere, would require the Government to publish a report on the scope, nature and expected impact of the relationship between the Crown Estate and Great British Energy within six months of the passing of the Act, and thereafter publish an annual report. The Government have no principled objection to such a report, but the timing might be more usefully linked to the passing of the Great British Energy Bill, currently in the other place, rather than the Bill we are discussing today.
Lord Holmes of Richmond (Con)
My Lords, I thank the noble Lords who have taken part in this debate, and I thank the Minister for his response and for the helpful clarification between the framework document and the MoU. With that, I beg leave to withdraw the amendment.
Lord Teverson
“Offshore wind developments: regional wealth funds(1) The Commissioners must ensure that a percentage of the Crown Estate’s license fee for leases of Crown Estate land for offshore wind power development is given to a regional wealth fund. (2) The Commissioners must agree regional boundaries of the regional wealth fund in consultation with local government.(3) Funds from the Crown Estate’s license fee for such leases must be distributed to the nearest regional wealth fund to the offshore wind power development.(4) The Secretary of State must by regulations set the percentage of the license fee which must be given to a regional wealth fund under subsection (1).(5) A statutory instrument containing regulations under subsection (4) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member's explanatory statement
This amendment would require the Crown Estate to ensure all leases for offshore wind power developments contain an agreed percentage that is contributed to a regional wealth fund. The money from this fund would be distributed to local communities.
Lord Teverson (LD)
My Lords, I make it clear that this is very much a probing amendment. I am trying to find out the Government’s attitude to how regions benefit from the development of offshore wind power.
We have a number of precedents here. We now have onshore wind development, which I very much welcome and which the Government are effectively permitting. Under the previous rules, it was almost impossible in England for onshore wind developments to take place. But it was made clear in very strong guidance that there had to be community benefit from onshore wind. It is very obvious that this is possible and not very difficult to do. A wind turbine or farm is planted in a particular location terrestrially in England, so it is quite obvious which communities are affected: the parishes around it. There is an onshore wind turbine just down the road from me, and two parishes benefit annually from part of that revenue stream. That works out really well; it is important and valuable, and, to a degree, it makes that generation part of the community’s effort towards the local economy. For those who do not particularly like wind turbines—there are not many of them in my local area—this is, if you like, a compensation and a way in which the local authority is rewarded.
Outside England, up in the most northerly parts of the British Isles, we have Shetland, which has its own wealth funds that came from the oil exploration. A very good deal was done by the local authority back in the 1970s, which I think ran out in 2000; it is not so good at the moment. Its wealth funds are related to a local authority, based on the oil development from around the Shetland waters. Again, it is fairly obvious geographically where those benefits should go. There is that precedent—and that system, with some warts, has worked relatively well.
Clearly, the major development of wind technology in future and at present is on the waves. Some of that is going out, such as the Celtic Sea floating offshore wind development. Those developments will be very large. However, even if they are beyond the horizon, which some of the floating offshore wind developments are, those regional communities are still affected by those developments because, as was pointed out on the last group of amendments, we need grid connections that land somewhere on the UK’s shore.
My proposition is that, given the consistency of policy here, there is an imperative and social justice in rewarding regions that have offshore wind coming into them because of developments away in their marine area. To be equitable both for regional communities and of easing the legitimacy of those offshore wind installations, there needs to be payback to those regional communities.
In this amendment, I have put some very general ways in which that would work. Clearly I have no expectation that the Government will copy and paste that into this Bill in future, even if the Minister thought that it was a brilliant idea—which I am sure he does. What I would like to understand from the Government is whether this is a way forward that they see as possible. How should that happen? Would the Government, the Minister and his officials work with us from these Benches to see how such a system could work? I beg to move.
Lord Bellingham (Con)
My Lords, I want to add a couple of very quick points. The noble Lord moved that amendment with great clarity and put a strong argument. The angle which I am coming from is the county where I live and which contains the constituency that I once represented, North West Norfolk. Norfolk is host to a number of onshore installations related to the offshore wind industry. Indeed, off the Norfolk and Lincolnshire coasts a number of arrays generate a huge amount of offshore electricity. However, Norfolk is seeing the construction of a very large substation, another having already been completed. As a result of that substation, there will be the need to connect to the grid. That will entail the need for transmission. At the moment, it is going to be along pylons. There is a big debate about the possibility of putting it underground but, in any event, there will be a major infrastructure project.
The idea of these regional wealth funds makes huge sense. The community is obviously the recipient of renewable energy infrastructure that can have great benefits to local communities in terms of electricity and can also have an impact on the local environment. I am thinking particularly of the substations and pylons. Could there be a way to link what the noble Lord has suggested with the original fund to some amelioration of the impact on those communities? Perhaps the Minister can comment on that.
Earl Russell (LD)
My Lords, I will speak to my Amendment 33 and in favour of Amendment 27 tabled by my noble friend Lord Teverson.
My noble friend laid out Amendment 27 very well. A good positive communication strategy is missing entirely from this Government’s conversation on the energy transition. It is extremely important not only that we meet our climate targets but that we take the public with us and that they see the benefits of that transition. As I said earlier, in energy terms it is the biggest transition since the Industrial Revolution. It will impact bill payers and people’s lives. If they see the environment as something not related to them and see the consequences of the energy transition only as something that costs them money and inconvenience, it will be difficult to bring them with us on this journey that we need to do together.
The Liberal Democrats have always believed in community and community benefit. It is extremely important that the Government work very hard to bring down cost to bill payers as early as possible in the transition. That is why I was so worried about the withdrawal of the winter fuel payment. On a separate note, I say that it sent entirely the wrong message at the start of this Government and this process of taking people with them. I encourage the Government to reconsider that.
On the subject of community energy and community benefit, my noble friend Lord Teverson raises a really interesting point about offshore wind. This is obviously a probing amendment. We know that there are links with onshore wind, but I would be really interested to hear from the Minister whether there is scope and whether the Government are listening and are aware and prepared to look at these things in the round over time. They are really important. This is about showing that we are in this together, that the energy transition is for everybody, and that the energy transition brings benefits to local communities—particularly those impacted by overhead pylons, substations, offshore cables coming to shore or because they are near to offshore wind facilities. I encourage the Minister to consider all those points. I hope that he will give us a favourable answer and look at them over time.
My Amendment 33 is also, in a similar vein, a probing amendment, so I will not speak for long on it. It seeks to require the Crown Estate commissioners to direct a percentage of the Crown Estate’s profits, to be agreed by the Secretary of State, to a skills training fund. The fund would work to
“provide persons residing or employed on the boundaries of or on the land of the Crown Estate with skills training”.
The commissioners must
“consult with appropriate national and regional organisations and industry to agree the type of training that the fund will provide”.
Baroness Kramer (LD)
My Lords, I will be very brief. I want to thank the Minister for the clarifications he gave on the difference between the framework agreement and the memorandum of understanding—it was really helpful of him to provide that today rather than wait for the next Committee date. While I am on my feet, I will use this opportunity to reinforce the probing amendments of my noble friends Lord Teverson and Lord Russell.
We are in an era of substantial change and I am sure the Minister is very aware of that. The greatest resistance to change comes from a measure of distrust and cynicism; people usually feel that change is not an opportunity, but will be something where they lose and others win. There is also very little trust of very big organisations and of organisations that are controlled at a physical distance from the area that people live in and know. With the proposals for a regional wealth fund and a focus on creating skills within the immediate community, the areas that have visible detriment can now also identify the possibility of benefit in a very real way. That makes change happen more rapidly.
I also come from a party that has great confidence in regional decision-making. Sometimes people use the words “postcode lottery”, but it is not that: it is that people within an area, knowing their local communities and people much more intimately, can target the programmes they put in place to benefit the lives of local people far more effectively than a distant decision-making entity can. I hope the Minister will look at this because, although we are talking about this Bill, we are in a much broader period of change. Creating a strategy such as regional wealth funds, used in this and possibly other instances, will give people the confidence that their community—their people, themselves and their families—will see some direct benefit, rather than being left in a situation where they cynically believe that they are carrying the detriment and that other people will benefit.
Lord Livermore (Lab)
My Lords, I will respond to the amendments tabled by the noble Lord, Lord Teverson, and the noble Earl, Lord Russell, both of which touch on the topic of local and community benefits.
Amendment 27, moved by the noble Lord, Lord Teverson, would require that a percentage of the Crown Estate’s licence fee for leases for offshore wind developments is distributed to a regional wealth fund. The Government are committed to working closely with the Crown Estate to support our target of clean power by 2030, by working collaboratively to accelerate and derisk the sustainable delivery of technologies such as offshore wind.
Local communities already benefit from onshore and offshore developments in the form of the economic benefits that such developments bring, including job creation and increased business for local suppliers. Individual developers also contribute to local initiatives. Over the longer term, local communities will also benefit as we accelerate our transition away from volatile fossil fuel markets to clean, home-grown power to boost Britain’s energy independence and security.
The Crown Estate has also specifically designed the leasing process for its offshore wind leasing round 5 opportunity in the Celtic Sea in such a way that developers have to make commitments to deliver social and environmental value as part of the development of their new wind farms. Tender bidders are required to think innovatively and constructively about how their developments can create a legacy of healthier, more resilient, fairer, vibrant and more prosperous communities, which stretch beyond the lifetime of the wind-farm leases for the benefit of generations to come. Commitments made during the tender process will be monitored, reported on and enforced throughout the lifetime of the relevant round 5 developments.
I recognise that this amendment would go even further, requiring a direct financial contribution from the Crown Estate to local communities. In essence, this is a very similar proposal to that put forward in Amendment 23, requiring a transfer of profits to the Welsh Government, as debated earlier. The concerns I set out there also apply here. Again, agreeing an appropriate level of payment would not be straightforward, because the relevant revenues and costs cannot be easily disentangled from the Crown Estate’s overall financial flows. Any arrangement of this nature would reduce the profits that the Crown Estate pays into the UK Consolidated Fund, reducing the revenues that can be allocated by the Government to the needs and priorities of the day, across all the UK.
Amendment 33, tabled by the noble Earl, Lord Russell, would require the Crown Estate to pay a percentage of its profits into a skills training fund. It would also require that this fund works to provide skills training to persons residing on or employed by the Crown Estate to equip them to perform jobs in the green economy and that the training is agreed with industry in advance.
The Government are, of course, very supportive of the spirit behind this amendment, and I agree with much of what the noble Earl said about skills. We are committed to clean energy by 2030, accelerating to net zero and promoting biodiversity. To meet these ambitions, we need to make sure our workforce has the knowledge and skills to succeed in the green economy, both now and in the future. As part of this effort the Department for Education has set up Skills England, a new body that will tackle skills shortages and support sustained economic growth. The Government also introduced the Institute for Apprenticeships and Technical Education (Transfer of Functions etc) Bill in this House last week, which will, among other things, help support the establishment of Skills England.
The Crown Estate is dedicated to supporting skills and training. As a UK company with a payroll of over £3 million, the Crown Estate pays the apprenticeship levy—0.5% of its payroll over £3 million—and hires apprentices into its business. It also runs various targeted initiatives. For example, it has an existing partnership with the Department for Work and Pensions to address recruitment barriers and is training a pool of 60 job coaches in the east of England, with plans to expand. It is also developing a skills pipeline among the 14 to 16 age group, and has already seed-funded a pilot GCSE qualification in engineering skills for offshore wind, developed by Cornwall College. The Crown Estate also works closely with Pembrokeshire College on the Destination Renewables pilot course, which equips students with skills for careers in renewable energy. In Grimsby, the Crown Estate partners with Projekt Renewable, which aims to spark local community interest in offshore wind activities and encourage careers in that sector.
The Crown Estate consults extensively with communities, charities, businesses and the Government to ensure that its skills initiatives are sensitive to market demands and emerging technologies, to keep them relevant and effective. The Government consider it important that the Crown Estate retains this flexibility in how its skills initiatives are funded and delivered, to ensure it can contribute to skills training in the best possible way.
I hope that these explanations have been helpful and that I have provided some clarity on the points raised. I hope that the noble Lord, Lord Teverson, and the noble Earl, Lord Russell, feel able to withdraw and not press their amendments as a result.
Lord Teverson (LD)
My Lords, strangely enough, I am going to withdraw my amendment, to the shock of the Minister. However, I am seriously disappointed with the response.
I get absolutely all the supply chain arguments about development and maintaining offshore windfarms after the event, once they are operating. However, as the Minister knows himself, although some of the beneficiaries of those supply chains are local, some of them are international and are certainly not anchored to the region and those communities. The great thing about the Shetland example was that while the oil industry did very well—suppliers and lots of people came in—there were whole areas of the population of the Shetland Islands that did not benefit directly from those developments. Yet they did in the end, because of community wealth schemes—two of them, I think—that happened in Shetland. The same is true regionally.
When it comes to the argument that the Crown Estate would lose out on money or whatever from this, I would put the opposite view. A community or regional wealth fund would actually accelerate the ability to deliver these projects, because there would not be the opposition that there might be otherwise. I absolutely agree with the noble Lord, Lord Bellingham, and thank him for his contribution. It was good, as always, and emphasised the effect of coming onshore and all the facilities that are required, such as pylons and all the rest of it.
What it comes down to is a matter that I think everybody normally agrees with: a just transition. A regional wealth fund allows a just transition. I was going to quote back the Labour Party manifesto on just transitions, but strangely enough it does not mention that the transition should be just. That is a shame, but I genuinely believe that this will allow this important programme, which the Government are rightly pushing forward, to accelerate, be successful and have local and regional acceptance. At this point, I beg leave to withdraw my amendment.