Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Scott of Needham Market) (LD)
My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026
(1 day, 12 hours ago)
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Lord Whitehead
That the Grand Committee do consider the Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026.
Relevant document: 54th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, these draft regulations were laid before the House on 23 February and consist of an extremely short SI—six lines altogether—and a very slight amendment of a date from 25 April 2026 to 25 October 2026. I am sure noble Lords will be eager to know why that change of date is being undertaken. On 1 April, typical household energy bills reduced by more than £100, thanks to action this Government took following the Budget. Energy bills are lower than they were in March because of the choices made by the Chancellor last year. They will remain capped at this level until July.
I want to be clear what lies behind the reduction in energy bills from 1 April. First, we have taken the considered decision to bring the energy company obligation scheme to a close, removing its costs from bills and instead funding future energy efficiency home upgrades via public investment in the warm homes plan. Secondly, we are moving 75% of the cost of the renewables obligation scheme attributable to domestic energy supply to the Exchequer. These principled reforms shift the balance from levies on bills to public spending. These regulations support that reduction in energy bills by ensuring that the Government retain the necessary power for the renewables obligation cost transfer.
The renewables obligation scheme exists to incentivise UK renewable energy generation through a system of tradeable certificates. The scheme closed to new applications in 2017, but existing sites can continue to receive support until the scheme ends in 2037. The scheme has been instrumental in taking a nascent renewable energy sector to where it is today, with the scheme supporting around 30% of total UK electricity generation. The core of the renewables obligation scheme is a process in which electricity suppliers purchase certificates from renewable generators. This process continues unchanged.
However, previously, suppliers ultimately recovered the cost of complying with their renewable obligations from customers via energy bills. Ofgem considered these costs when setting the quarterly price cap for domestic consumers in Great Britain. From 1 April, the Government are instead providing grant funding to electricity suppliers to cover 75% of the cost of these obligations attributable to domestic energy supply in GB. We have given a legal direction to electricity suppliers, requiring them to pass these savings on to domestic consumers. Ofgem has also reflected the reduced cost in the lower price cap from 1 April. At the Budget, we committed to keep these costs off bills until 31 March 2029.
I hope noble Lords will agree that these are good things to do concerning energy price costs and the reduction of customers’ bills. But, of course, there must be a legislative basis for those changes. The legislative basis for the grant funding that enables the energy bill reductions I have mentioned is currently set to expire on 25 April this year. These regulations, as I have mentioned, extend this time limit to ensure that the removal of costs from electricity bills can continue. We can extend the time limit on the legislation—the Energy Prices Act 2022—by only six months at a time. The extension in these regulations is until 25 October, when the Bill is in effect re-sunsetted.
I therefore expect to return to the House in October to seek a further extension on that sunset clause, but I assure noble Lords that the department is working on primary legislation to provide a more permanent solution, which will be taken forward when parliamentary time allows.
The position is slightly different in Northern Ireland, where energy costs are a transferred matter for the Executive, and the Northern Ireland renewables obligation forms a smaller cost on electricity bills. The department has been supporting colleagues in Northern Ireland as they develop an offer comparable to the policy in Great Britain. Following a request from the Minister for the Economy in Northern Ireland, we laid separate regulations in March to support their delivery, which I hope to bring before your Lordships shortly.
In concluding, I thank the Secondary Legislation Scrutiny Committee for noting these regulations as of interest in the context of events in the Middle East, which the department continues to closely monitor.
Energy company obligation costs and 75% of renewables obligation costs have been removed from average domestic energy bills and will stay off bills for at least the next three years. Whatever challenges lie ahead, the Government will prioritise supporting working people with the cost of living. These regulations are ultimately a simple time-limit extension to underpin the removal of these renewables obligation costs from bills. I beg to move.
Lord Ashcombe (Con)
My Lords, the Energy Prices Act 2022 was brought forward in circumstances that were, by any measure, extraordinary. It was a moment of acute global volatility, when Governments across Europe were forced to act at speed to shield households and businesses from unprecedented shocks. Those conditions justified exceptional paths but, as we move further away from that crisis moment, it is right to ask whether repeated extensions of emergency measures remain the most appropriate long-term course.
Energy security today is defined not only by the balance of supply and demand over the year but by the system’s resilience at moments of stress. The Government’s own modelling makes clear that peak day gas demand remains high, even as overall annual consumption gradually declines. It is those peaks, on the coldest days, typically when the wind does not blow and the sun does not shine, and the tightest margins that test the system most severely.
In 2024, gas provided 36% of the UK’s energy needs. It is used not only in generating electricity but, importantly, in domestic and industrial heating. Domestic gas production remains a critical component of the UK energy system. In 2024, the UK continental shelf provided 43% of the UK supply, imports of liquid natural gas provided 14% and the balance was imported from Norway. It is more reliable than imported alternatives, which can always be diverted elsewhere—even the Norwegian imports—as Europe becomes ever hungrier for the same molecules. Domestic gas goes into the extensive UK network at significantly lower carbon-emissions intensity—some three times lower—than liquid natural gas, which predominantly comes from the United States, and it is far less exposed to geopolitical risk or global bidding cycles. LNG will remain an important source of flexibility, but it cannot substitute for domestic supply, particularly given the UK’s very limited gas storage capacity.
Maintaining a stable level of domestic production also sustains the essential infrastructure on which the whole system depends: the pipelines, terminals and onshore hubs that provide flexibility, resilience, affordability and, critically at this current time, jobs. Once the infrastructure and experience are lost, they will not easily be rebuilt.
More broadly, there is a strong case for moving from crisis area interventions towards stable, rule-based arrangements. Such an approach would continue to protect consumers when prices spike, while giving investors the confidence needed to support the system in more normal times. That balance between consumer protection and long-term stability is essential if we are to secure an orderly transition and a resilient energy system for the years ahead.
With these points in mind, I would like to pose four questions to the Minister. First, can he outline a clear pathway from the continued use of emergency powers under the Energy Prices Act towards a permanent, price-responsive framework that supports investment and resilience? Secondly, how do the Government intend to ensure that critical gas infrastructure remains viable if domestic production continues to decline? Thirdly, what assessment has been made of the risks associated with greater reliance on LNG imports, particularly in light of the UK’s limited gas storage and exposure to global market volatility? Finally, have the Government considered the carbon implications of increased LNG reliance, given its significantly higher life-cycle emissions compared with UK gas produced here?
Earl Russell (LD)
My Lords, I will respond to the Energy Prices Act 2022 (Extension of Time Limit) Regulations 2026 and the related Utilities Act 2000 (Amendment of Section 105) Order 2026, which has already come into force as a companion SI. I thank the Minister for his introduction.
These instruments are technical and minor, but important. They enable the Government to continue to deliver support through the RO to Exchequer scheme, under which 75% of the domestic cost of the renewables obligation is funded by the Exchequer, rather than passed through to household bills. This matters because households remain under intense pressure from high energy costs at a time of renewed global energy insecurity. The renewables obligation is a legacy scheme that was closed to new generators in 2017 but will continue for existing participants until 2037. The Government’s decision, announced in the November 2025 Budget, to shift 75% of the domestic cost to the Exchequer was therefore welcome. This continuation is expected to reduce average household bills by over £100 a year. This alone will not resolve the wider cost of living challenge, but it is a sensible and pragmatic intervention.
The purpose of this statutory instrument is relatively straightforward. It extends by six months, from 25 April to 25 October 2026, the time limit under the Energy Prices Act 2022, allowing the Government to keep using these powers while legislative changes are prepared. In the absence of primary legislation, this is the only way to avoid a gap in this financial support. We therefore support the Government’s intention to maintain assistance under the scheme.
Support to reduce consumer energy bills is needed now more than ever. However, the possible need for repeated short-term extension does raise some broader concerns about timetabling and certainty. Households should not risk losing support simply because the powers needed to deliver it are temporary and expire before replacement legislation is ready. I understand that the Government expect that further instruments will be needed—the Minister confirmed this in his speech—to extend this period again. Without primary legislation in place by October, another SI will need to be brought forward. I understand that the department is working on permanent legislation, which we welcome, but this SI is in effect a short-term bridge, not a long-term permission to proceed indefinitely. It buys the Government time either to legislate or, failing that, to bring forward a further SI.
I will therefore ask the Minister a couple of questions. First, when does he intend to bring forward the proposed primary legislation? What legislative vehicle might be used: will it be the energy independence Bill? How will the department ensure that there are no gaps when temporary powers are replaced?
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I thank the Minister for bringing forward this statutory instrument, which introduces a minor amendment to the Energy Prices Act 2022 by extending the Secretary of State’s power to grant renewables obligation certificate funding by six months.
His Majesty’s Opposition do not oppose this instrument in principle. It is right that the Government’s efforts should be focused on the controllable—namely, policy costs. Indeed, it is welcome that the renewables obligation to Exchequer policy demonstrates the Government’s understanding that their choices have a direct impact on people’s bills; that is why the scheme is being advertised as proof of the £150 that the Government promised to take off energy bills.
However, reducing energy bills by shifting the costs from household bills on to general taxation is a rather disingenuous way of achieving government policy. Whether it is the Government or energy suppliers who pay the upfront fee to Ofgem, the cost of ROCs will still be borne by the public and the cost of renewables will continue to apply. Every time the sun shines, solar farms will receive one or two ROCs per megawatt hour, earning them up to double the wholesale price. Every time the wind blows, offshore wind farms will get almost three times the wholesale price, or £240 per megawatt hour. When these farms are forced to turn off due to insufficient grid capacity, they are in receipt of high-constraint payments of more than £200 per megawatt hour.
The renewables obligation deal will last for another 11 years. These costs are going nowhere, and nobody but the British public is going to fund them. The only result of the RO is to Exchequer policy, and this instrument will mean that the public are made less conscious of what they are funding. Absorbing costs into general government spending may make the cost of the renewables programme more discrete, but it will not save the public purse any money.
The upshot of this is that the renewable transition must be underpinned by a cheaper and more reliable source of energy. The immediate way of achieving this is through oil and gas, which we already manage by importing LNG from Norway and the Middle East. I completely agree with the substance and sentiment of my noble friend Lord Ashcombe’s contribution to this short debate. I am aware that this is not the topic of today’s debate, so I will brief, but the intermittent nature of renewables and our current capacity issues mean that we still need to rely on oil and gas. Even during the current war and the subsequent international spike in oil and gas prices, those prices are still cheaper than subsidised renewables. We have the opportunity to divorce ourselves from the vicissitudes of international affairs by exploiting our North Sea reserves, yet the Secretary of State remains as dogmatic as ever. He seemed to toy with the idea of domestic production over the Easter break but, as we sit here today, production at Jackdaw is still yet to commence.
This is in the Government’s control. If they really are committed to reducing energy bills, then, along with subsidising renewables in the long term, they should allow us to produce our own oil and gas in the short term. I hope that the Minister will at least agree with that sentiment; I look forward to his response, in particular to the four intelligent questions posed by my noble friend Lord Ashcombe.
Lord Whitehead (Lab)
My Lords, I thank noble Lords for their valuable contributions to this debate. I will try to respond to their concerns—including those of the noble Lord, Lord Ashcombe, who went a bit beyond this particular SI but nevertheless made important points and asked questions that deserve a response.
The noble Lord’s first concern was about whether I can outline a pathway towards permanent legislation here. I agree with him that permanent legislation is always better than re-sunsetting an original sunset clause from previous legislation, as he mentioned. Of course, the Energy Prices Act 2022 was put in place at a time of high crisis as far as energy bills were concerned—not completely dissimilar issues to the ones we face today, but rather more concerned with gas than with oil and fuel generally. Nevertheless, it is a piece of legislation that was designed at least in part to be sunsetted. In essence, what we are doing in this present crisis is re-sunsetting an Act that was originally intended to be sunsetted in the first place. It is quite right that we should bring that sunset request back to the House when we are making it.
Nevertheless, it is a much better idea to have legislation that properly fits the bill in the long term, which is the Government’s intention right now. I mentioned that we will probably want to come back one more time with a sunset extension, in order to make sure that these changes work properly in the long term, but, after that, there should be legislation in place to make a permanent arrangement that is properly workable for the future. Of course, the phrase “when legislative time permits” has a variety of interpretations attached to it, but it is basically a question of finding out to which bit of legislation you can attach this permanent version of a sunset clause. It might be the EIB, but there may be other legislation—we will have to see as we go forward. However, I can give an absolute commitment that we are dedicated to making sure that this happens in the not-too-distant future in order to regularise the circumstances over the longer term.
The noble Lord asked what we are doing to make sure that critical gas infrastructure remains viable. This is a subset of the understanding that, although the use of gas is declining substantially in Great Britain and will continue to do so, the overhead costs and infrastructure issues will remain. It is essential, therefore, that we make sure that the infrastructure is as viable as it can be in the long term and that the whole system does not fall down because we have a lower amount of gas going into and out of it. The Government are actively involved in undertaking that.
By the way, I might add that the increasing amount of biomethane and biogas going into the system—at present, it is about 7% of the total system—will go some way towards assisting the viability of long-term infrastructure. It is certainly this Government’s intention to increase, where possible, the amount of biomethane and biogas going into the system. That gives some indication of where we are on LNG imports, which, as the noble Lord mentioned, have a higher carbon footprint than natural gas, which in turn has a much higher footprint than biogas. At the moment, about 14% of our gas supplies are coming in via LNG. One of the advantages of an increased amount of biogas in the system is that it directly removes the need for LNG to come into the system. All other things considered, something like a 2% increase in biomethane going into the system would be the equivalent of turning around six LNG tankers and them not coming to UK shores at all.
On energy imports in general, the UK has a diverse supply. The noble Lord mentioned the substantial element of supply played by the Norwegian gas fields, some of which are landable only in the UK and not in Norway itself. There is also the continuing supply from the North Sea. I have mentioned LNG, which comes from diverse sources; at the moment, only 1% comes from sources in the Middle East, so that issue will not overturn the security of the gas system in the near future. I hope that I have given fair thought to the noble Lord’s valuable contribution.
I turn to the supportive and helpful contribution of the noble Earl, Lord Russell. He is right to add that this is the right thing to do right now, bearing in mind that we very much want to make sure that, in a time of such volatility, domestic and commercial bills are pressed downwards as far as is possible. The two measures I have mentioned rearrange the ways in which bills are charged to some extent, but they nevertheless have the real effect of bringing those bills down considerably. He is quite right to seek an assurance that that is not just a temporary fix for the time being but will be put on a more permanent basis; we are looking to secure legislation to make sure that that happens.
The noble Earl rightly mentioned information sharing on these measures and other measures that are likely coming forward to push down bills. He should be aware of the Utilities Act 2000 (Amendment of Section 105) Order, which has enabled the sharing of more detailed data than DESNZ currently holds between the department and Ofgem. The aim of that order is to ensure that more detailed data is properly safeguarded and is used for the intended purposes, not others. I hope that the noble Earl can be reassured on that basis.
I turn to the valuable contribution of the noble Baroness, Lady Bloomfield. It is true that these measures shift the burden of the legislation from particular consumers to more general taxation purposes. That is a fair thing to do, in terms of generally sharing the burden of increased electricity prices, but I accept that the Government are very much involved in making sure that, by changing the way the electricity market works, prices are much lower over a longer period of time.
National Employment Savings Trust (Amendment) Order 2026
(1 day, 12 hours ago)
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Baroness Sherlock
That the Grand Committee do consider the National Employment Savings Trust (Amendment) Order 2026.
Relevant document: 54th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)
My Lords, this statutory instrument was laid before the House on 26 February. Automatic enrolment has been widely recognised as a major policy success, significantly increasing participation in workplace pension saving. The National Employment Savings Trust—Nest—has been central to that achievement and will continue to play a key role in supporting the system. Nest now serves nearly 14 million members, around one-third of the working-age population, providing a low-cost, accessible pension scheme for employers and workers across the UK.
Subject to parliamentary approval, this instrument will amend the Nest order 2010, which provides the legislative framework under which Nest operates. The instrument will enable Nest to extend its suite of retirement options to include flexi-access drawdown, a retirement income option that allows individuals with a defined contribution, or DC, pension to withdraw any amount from their pension pot while keeping the remaining funds invested. The instrument will also enable Nest to offer a scheme pension—an income payable to a member either directly by the scheme administrator or through an insurance company appointed by the administrator. This provision allows Nest the flexibility to offer the same range of benefits which can be provided by other comparable pension schemes.
In addition, the instrument will provide Nest with the authority, in the event of a member’s death, to enable the trustee to offer either a dependants’ scheme pension or a drawdown pension to eligible individuals including dependants, nominees or successors. This provision will ensure flexibility in benefit options after death and again aligns Nest with broader industry practice and capabilities.
Overall, this amendment will allow Nest to expand the retirement offer for its members, aligning it to the same range of benefits that other pensions schemes can offer and supporting it to comply with the guided retirement requirements recently debated during the passage of the Pension Schemes Bill.
We know that retirement today is not a linear experience and that circumstances change over retirement. Life events—including decisions to work part-time, health conditions and bereavement—all factor in and have an impact on household incomes. Gathering insight and feedback from members is crucial to designing well-structured and flexible pension plans. These changes reflect the needs and preferences of Nest members. This instrument will support the important role Nest plays in the pensions market by enabling it to provide appropriate retirement solutions for Nest members.
Automatic enrolment has encouraged more people to save for their retirement and has made saving normal for most people in work. But getting people saving is just the start and, as we know, people need support when they come to use their savings to provide an income in retirement. Currently, Nest members can use their pension savings to buy an annuity, make use of the uncrystallised funds pensions lump sum facility, take the savings as cash or transfer out to another scheme. However, since Nest’s inception, retirement options have expanded across the pensions market, particularly following the introduction of the pension freedoms in 2015. These flexibilities are not fully available to Nest, which remains constrained by the terms of its original order.
As noble Lords will know, the Pension Schemes Bill contains specific measures around guided retirement. A consultation document, Helping Savers Understand Their Pension Choices: Supporting Individuals at the Point of Access, was published in July 2023 under the previous Government. This asked a specific question about whether Nest should provide default pensions to its members. There was broad support from the 46 industry and member groups that responded, recognising Nest’s unique role and the importance of ensuring fair treatment in line with other schemes, while being clear that Nest should not gain any commercial advantage.
Since that consultation, the Government have continued to engage extensively with Nest and the pensions industry to ensure that that principle of fairness, both to Nest members and to the wider market, has been upheld. Industry players have been active in developing solutions ahead of the guided retirement requirements. For example, in June 2022, the PLSA, now Pensions UK, published Retirement Choices: the Evolution of Products and Support, which set out its framework to support complex decision-making.
Without this change, Nest, the largest master trust, will not be able to offer flexi-access drawdown, nor will it be able to meet fully the expectations of guided retirement—to provide savers with the option of a simple, dependable default income in later life—and Nest savers would therefore miss out on a secure default pension option. With cost of living pressures rising, I am sure the Committee can agree that having a dependable retirement choice is more important than ever. I commend this statutory instrument to the Committee.
Lord Davies of Brixton (Lab)
I welcome the Government’s decision to bring in this draft order. As my noble friend the Minister has made clear, it builds on the clear success of automatic enrolment and Nest as the public service vehicle for automatic enrolment contributions. It is a crucial element in achieving the Government’s aim, set out in the pensions road map, of ensuring that people get as much out of their savings as possible. In other words, structure is as important as adequacy. Enabling Nest to offer flexi-access drawdown and a scheme pension to its members is an important step, and it brings Nest in line with what other occupational defined contribution schemes have been able to offer.
I want to explore what the order does not necessarily make clear and ask the Minister whether the Government have considered whether more might be done. I will focus on the potential role for Nest in providing collective defined contribution pension schemes. Put simply, as noble Lords know, CDC arrangements pool the risks involved in providing pensions rather than leaving each individual to manage that risk alone. The issue I wish to raise is whether Nest, under the powers conferred by this order, would be legally enabled to offer CDC-type benefits as part of its retirement income proposition.
The order amends Article 32 of the National Employment Savings Trust Order 2010, so that in addition to lump sums and lifetime annuities, the trustee may pay drawdown pensions and scheme pensions. The term “Scheme pension” is defined by reference to paragraph 2 of Schedule 28 to the Finance Act 2004. That definition is broad. It encompasses a pension payable by the scheme administrator directly, without the interposition of an insurance company. That is significant. A CDC scheme under which the trustee pays a pension directly to members from a pooled fund, applying mortality credits as members of the pool die and their share is redistributed to survivors, would appear to fall within the concept of a scheme pension as defined in the regulations and the Act. I ask the Minister to confirm that interpretation.
This is not a fanciful proposition; Nest contemplated precisely such an arrangement in its 2015 blueprint document, The Future of Retirement. That document set out a three-phase retirement income strategy. The third phase, for members aged 85 and beyond, was to be funded through what the document called a
“later life protected income building block”.
Crucially, the document explicitly considered the operation of this building block through a collective uninsured mortality pool—members pooling their longevity risk with the trustee distributing income proportional to the premiums paid in, supported by mortality credits as the cohort reduces. This is, in effect, a collective defined contribution scheme for decumulation. In other words, Nest was ahead of the curve in 2015. The question is whether this order now places the legal architecture beneath those ambitions.
Concurrent with these regulations, Nest is undertaking a consultation of the changes to its rules it will be able to make in line with the order. That consultation focuses principally on the mechanics of flexi-access drawdown, the drawdown account and the relationship between the pension account and drawdown account, the transfer provisions and the death benefit arrangements. That is all necessary and commendable work, but the consultation is candid on the fact that there are no immediate plans to offer a scheme pension. The relevant rule amendment provides only that
“if and to the extent that the Trustee determines to provide the option”,
a scheme pension may be made available.
Viscount Younger of Leckie (Con)
My Lords, the Opposition broadly welcome this order. I thank the Minister for her clear outlining of the measures and the detail that she put forward.
This seems a straightforward and genuinely important modernisation of Nest; we are glad to see it being brought forward. Allowing Nest members to access drawdown pensions and scheme pensions—as well as extending broader and more flexible death benefit options to their dependants, nominees and successors—has to be a good thing. However, it also marks a significant shift in responsibility from the system to the individual, which makes the questions of guidance and support all the more important.
At the heart of this change is a principle that we support: people should have genuine control over how they access and use their own money. The pension freedoms introduced in 2015 were built on exactly that principle. Members should not be forced into products that do not suit their circumstances. They should be able to keep their funds invested, draw income at a pace that works for them and pass on what remains to those whom they love. Nest members deserve no less than that, so this order rightly brings them into line with the wider market—so far, so good. However, regardless of that, we have some questions for the Minister; she has touched on some of them.
It is clear to me that greater choice is genuinely valuable only if people are equipped to exercise it wisely. Drawdown is more complex as a product than annuity. It requires members to make judgments on investment risk, longevity and income sustainability—judgments that are not straightforward and which have real, lasting consequences if they go wrong. The introduction of these options for Nest members brings with it, therefore, a serious obligation on the part of the Government.
First, on financial education and support, Nest serves a membership that is, by design, composed largely of lower and moderate earners—people who were auto-enrolled, often for the first time, and who may have had little prior engagement with pension saving. These, in the main, are not members who have financial advisers; the Minister will know that, of course. They are precisely the people for whom the difference between a well-informed and a poorly informed decision at retirement is the most consequential. The Minister covered a number of my queries in her opening remarks, but can she tell us what specific steps the Government are taking to ensure that Nest members are properly supported in understanding these new options? That is more a question of communication. What guidance will Nest itself be required to provide? How will Pension Wise and MoneyHelper be resourced and promoted to reach this membership? What assessment have the Government made of the adequacy of the current financial guidance provision for those who are approaching retirement through auto-enrolment schemes?
Secondly, I know that the Minister spent some time on dependants in her opening remarks, but I want to say this: although the extension of drawdown and flexible death benefit options to dependants, nominees and successors is welcome, it creates its own complexities. A surviving spouse or dependant who suddenly becomes responsible for managing an inherited drawdown pot is in a very different position to someone who has spent years building up their own retirement savings. They may be grieving; they may have little or no experience of investment decisions. Can the Minister give some further information on what support will be available to those who inherit benefits under Nest in these circumstances? What obligations will Nest have to contact, inform and guide beneficiaries at the point when they come into an inherited pension? As the Minister will know, this is not a small matter; for many families, this will represent one of the most significant financial decisions that they have ever had to make.
Thirdly—I make no apology for raising this—this order does not exist in isolation. It has been made against the backdrop of the Pension Schemes Bill currently before the House and the two must therefore be read together. The principle that runs through this order is one of member choice and autonomy. People should be able to access their money in the way that best suits them. We agree with that principle unreservedly, but it is directly and fundamentally in conflict with the mandation provisions that the Government are seeking to introduce in the Pension Schemes Bill. We have made this point in Committee and on Report, and we make it again today.
You cannot, on one hand, expand member choice through instruments such as this and, on the other hand, propose to compel members through mandation into investment in particular outcomes or products not of their own choosing. The two positions are inconsistent. If the Government genuinely believe, as this order suggests, that members should be empowered to make decisions about their own retirement savings, they must abandon the mandation provisions in the Pension Schemes Bill. We will continue to press that case.
I close by raising a point that was highlighted by the Secondary Legislation Scrutiny Committee in respect of this order, which is that a call for evidence was announced in 2022 around these measures. However, they have only just been laid before Parliament. Can the Minister please confirm that she is confident that the evidence submitted is still relevant to the instrument that we are discussing today? Has any additional evidence been sought on this particular question since?
It is right that Nest members have the same freedoms that others in the market have long enjoyed. We are glad to see that that parity is being extended. However, the value of that freedom depends entirely on the quality of support and guidance that surrounds it and on the Government applying the same principle of member autonomy consistently across their wider pensions policy.
We look forward to the Minister’s response on all the points that I have raised. I have also noted all the points that the noble Lord, Lord Davies, raised on CDCs, which were interesting. We will be watching the progress of the Pension Schemes Bill with close attention, with Commons consideration of Lords amendments on Wednesday; I know that the noble Baroness herself will be doing the same.
Baroness Sherlock (Lab)
My Lords, I am grateful to all noble Lords for their questions and I will try to answer most of them if I can. I will respond first to my noble friend Lord Davies and thank him for his support for this order and its aims. In relation to CDC, this order is obviously focused on certain benefits that Nest will be able to offer; principally, that is flexi-access drawdown. However, the Government are exploring how retirement CDC schemes could broaden options available to trustees and managers of pension schemes when developing default pension plans. It would be the responsibility of Nest trustees, like other schemes, to consider the needs of their members and to provide appropriate default plans. For Nest to offer CDC, the scheme would of course need to meet the relevant authorisation.
More broadly, we have been clear that CDC or retirement CDC could be used by schemes to meet their guided retirement duties but, again, it would be for the scheme trustees to consider the needs of their membership to determine appropriate retirement solutions, including the option of CDC. I may come back to my noble friend if anything else occurs to me.
The noble Viscount, Lord Younger, asked an important question about the particular composition of the Nest saver population. Many of these are low-income savers who would not otherwise have previously been involved in saving. Of course, one great advantage of these changes is that Nest is able to offer a wider range of choice and, crucially, through that, to meet its requirements under guided retirement. As he knows from our debates on the Pension Schemes Bill, guided retirement is the means by which the Government can make sure that schemes offer a default option to people, without them having to make complex decisions, which has an income element into retirement. That is the greatest source of the protection there.
It is also a protection against people simply making the choice to take cash, which may not be the right thing for them to do. Nest set out its blueprint about what its default option would look like, which was in different sections. There were the options of different pots: a drawdown pot, a cash pot and an income in later life. That is therefore the direction in which one would expect them to move. I do not think that there is anything else I can say at this stage, but I will go through Hansard and, if there is anything specific that I have not responded to, I would be very happy to do so.
The amendment that this instrument makes to the Nest order is crucial to the Government’s wider ambition to strengthen and modernise the pensions system, making it simpler and more attuned to the needs of today’s workforce. Obviously, I completely reject the case made by the noble Viscount, Lord Younger, that anything the Government are doing here contradicts anything in the Pension Schemes Bill, but since we have had many conversations about that subject and many more joyfully beckon to us, I may leave that for another day if he will permit me to do so.
Before I wind up entirely, another thought occurs to me. I was asked whether the Government have engaged with Nest. The Government hold regular meetings with Nest in relation to guided retirement and CDC provision. As with other workplace trust-based schemes, in terms of offering CDC it would be for the trustees to determine suitable retirement options for members, consistent with guided retirement. As I said, the Government are exploring how retirement CDC schemes can broaden the options available to trustees. If I have anything further on the timing of the regulations that would be needed in that direction for deaccumulation-only CDC schemes, I will come back to my noble friend.
By delivering this instrument, the Government are ensuring that 14 million people, many of them lower-income workers, can access an enhanced range of products to support them in retirement, giving them greater confidence and a clearer pathway towards financial security in later life. I commend this instrument to the Committee and I beg to move.
Conservation of Habitats and Species (Offshore Wind) (Amendment etc.) Regulations 2026
(1 day, 12 hours ago)
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Baroness Hayman of Ullock
That the Grand Committee do consider the Conservation of Habitats and Species (Offshore Wind) (Amendment etc.) Regulations 2026.
Relevant document: 55th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Baroness Hayman of Ullock) (Lab)
My Lords, these regulations were laid before the House on 26 February.
This Government are committed to delivering the clean power mission, which is central to strengthening the UK’s energy security, lowering household energy bills and driving long term economic growth. Crucially, clean power is one of the most important tools we have to tackle climate change. This statutory instrument represents an important milestone in the Government’s delivery of the clean power mission. It is not only about accelerating offshore wind; it is also a real opportunity to deliver meaningful, lasting gains for nature. This SI reflects this Government’s belief that climate action and nature recovery must go hand in hand and that, with the right approach, they absolutely can.
I will begin by setting out the issue that this SI will address. When compensating for impacts to protected sites, developers must follow the mitigation hierarchy; that means they must first avoid, and then minimise and mitigate, impacts on protected sites. Once those steps have been taken, developers are required to compensate for unavoidable impacts, normally with measures that benefit the impacted feature affected. As our offshore wind capacity grows, securing compensatory measures that benefit the impacted features is becoming increasingly difficult. This challenge has become one of the main reasons for delays in consenting decisions.
This statutory instrument tackles that issue by widening the range of suitable compensatory measures for offshore wind developments. Where measures that benefit the impacted feature are not available to compensate for the impacts of offshore wind, developers will be able to use wider compensatory measures. These will benefit ecologically similar features or the UK marine protected area network more widely. In doing so, this statutory instrument will not only remove one of the main obstacles to timely consenting but open up new opportunities to enhance and invest in nature.
So, rather than limiting compensatory measures to a single feature, developers could support broader initiatives, such as programmes to strengthen sea-bird populations. Through innovative approaches such as these, the statutory instrument demonstrates this Government’s commitment to ensuring that nature and economic growth can be achieved in unison.
Defra’s offshore wind environmental improvement package has been designed to strike exactly that balance. It brings forward measures that simplify the consenting process, supporting faster, more efficient decision-making, while continuing to protect our marine environment and meet the UK’s domestic and international commitments. This package is already delivering a more strategic, co-ordinated and scalable approach to environmental compensation for offshore wind. This has been demonstrated through the establishment of a library of strategic compensatory measures and the launch of the marine recovery fund.
This statutory instrument is another essential part of that package. Building on its existing successes, it will increase flexibility to further accelerate the deployment of offshore wind, while continuing to protect and enhance our marine environment. Today, by approving this statutory instrument, I believe we have the opportunity to deliver an approach for environmental compensatory measures for offshore wind that facilitates our transition to clean power and delivers for nature.
Before I turn to the details of the legislation, I thank the Secondary Legislation Scrutiny Committee for its thorough examination of this statutory instrument. The committee’s report raised concerns regarding the laying of the statutory instrument without publishing the accompanying draft guidance. I would like to reassure noble Lords that the policy intent has been set out transparently through the material already provided. I was pleased that the committee welcomed the publication of a policy note alongside this instrument, providing helpful context and information.
This statutory instrument has been laid ahead of the accompanying guidance, to ensure that parliamentary scrutiny can proceed without delay, while we take the necessary time to finalise the guidance to the highest standard. The guidance will support implementation once it is published on 21 May. This date will coincide with the statutory instrument coming into force, ensuring that all stakeholders have clear, comprehensive guidance in place from the first day.
The guidance will provide technical and practical support to developers and relevant public bodies, including consenting authorities. We have shared the draft widely with stakeholders and the devolved Governments to ensure that it is robust, aligned across the UK and, importantly, fully fit for purpose when published. I believe that the published policy note and the Government’s response to the consultation provide Parliament with a strong basis for effective scrutiny.
I now turn to the details of the legislation. This statutory instrument will enable offshore wind projects to deliver a wider range of practical environmental compensatory measures, as I said in my introduction. Without action to expand the compensatory measures that are currently available, the UK’s ability to unlock its offshore wind potential will be constrained.
The territorial application of this statutory instrument is the UK. It has effect in relation to offshore wind developments in UK offshore waters and English inshore waters, and for certain offshore wind functions in Welsh and Northern Ireland inshore waters.
We are amending the existing regulations to introduce a new bespoke compensation duty for offshore wind. This will enable wider compensatory measures and require that all compensatory measures must benefit the UK marine protected area network.
Environmental safeguards sit at the heart of our new approach. The environmental safeguards will ensure that the most effective compensatory measures are identified, selected and implemented to deliver the strongest possible outcomes for nature. As part of this, the SI introduces a requirement for the Secretary of State to publish a compensation hierarchy. This requires developers to select compensatory measures in line with the hierarchy and to prioritise those that benefit the impacted feature, subject to certain circumstances. This hierarchy is a central pillar of the environmental safeguards underpinning these reforms.
Another key safeguard is the role of statutory nature conservation bodies, which will continue to play an important role in advising on environmental compensatory measures. Ministers will consider this expert advice alongside the environmental principles when approving wider compensatory measures.
As part of these reforms, we are exploring the development of a new public compensatory register. Our ambition is that this will bring together information on all compensatory measures delivered across the UK marine protected area network, improving transparency and helping us identify where future compensatory measures could have the greatest impact: for example, by targeting actions that contribute directly to improving the ecological resilience and long-term health of multiple marine protected areas.
All this work will feed into a wider review that assesses the impact of our statutory instrument on offshore wind developments and the environment. This review will be published by April 2031, with further reports following at intervals of no more than five years.
I recognise that there may be concerns about the reforms amending the current regulatory approach, so I want to be absolutely clear that this Government are firmly committed to delivering on our climate and nature ambitions. This statutory instrument implements necessary and timely change to the environmental compensation requirements for the offshore wind sector. We are confident that its provisions will uphold strong environmental protections, enable substantial and sustainable growth in offshore wind and ensure that nature and clean energy continue to progress side by side. I beg to move.
Baroness Grender (LD)
My Lords, I thank the Minister for setting out the statutory instrument. There is no doubt that climate change is an existential threat that demands urgent and transformative action. The soaring temperatures, floods and rising sea levels that we see are not distant warnings but present realities affecting millions.
We, the Liberal Democrats, have long championed recognition of the climate emergency and the need for a fair deal for our environment, central to which is a clean energy revolution. We are committed to an industrial strategy with tackling climate change at its core, and to a goal of generating 90% of the UK’s electricity from renewables by 2030. Offshore wind is vital to achieving that, and removing unnecessary barriers is overdue. We also recognise the Government’s ambition of reaching 43 to 50 gigawatts of offshore wind capacity by 2030, which is essential for our net-zero goals and energy security.
But this transition must go hand in hand with the protection of our precious wildlife. We cannot solve the climate crisis by exacerbating the nature crisis. Our view is clear: we must double the size of the protected area network and the abundance of species by 2050. Britain’s seas currently face serious strains. Recent sea-bird statistics show continuing declines and, tragically, 10 of the UK’s breeding sea-bird species are now red-listed. Without effective compensation, the expansion of offshore wind risks pushing vulnerable species even closer to the edge.
We support the aim of the pragmatic tier system for environmental compensation in this statutory instrument. However, we share the concerns of organisations such as the Wildlife Trusts about the inclusion of tier 3 and strongly suggest that this is revisited and perhaps revised. I thank the Wildlife Trusts for their briefing on this matter.
Under these regulations, tier 1 and tier 2 measures provide direct or closely related ecological benefits to the affected species or habitat. We are concerned that tier 3 is different. It would allow measures that give broader benefits across a wider marine protected area network without a direct link to the species or site damaged. I look forward to being corrected on this by the Minister if I have got it wrong. That risks weakening the principle of ecological coherence. For example—I would be very happy to hear a response to this specific example—harm to a kittiwake colony should not be compensated through unrelated education projects that do nothing to restore the lost birds.
Baroness Redfern (Con)
My Lords, I thank the Minister for her introduction to these regulations. I will speak very briefly to one or two concerns. The wording in the proposed regulations appears somewhat unclear, with insufficient information to gauge the instrument’s policy objective and intended implementation. Importantly, no meaning is given for the term “reasonably proportionate”. Replacing the widely understood and legally tested concept of overall coherence with that vague concept could lead to a failure to maintain or improve the status of the marine protected area network. How will this definition maintain existing levels of environmental protection?
The compensation to be delivered through wider compensatory measures reads as extremely broad in the explanatory material, the only condition being that it must benefit the wider MPA network. This could undermine environmental protections. Again, more clarity is required to ensure that environmental protections under the habitat regulations are not severely reduced, as our habitats are so valuable. I look forward to the Minister’s response.
Lord Roborough (Con)
My Lords, I also thank the Minister for introducing the draft conservation of habitats and species regulations today and I share many of the concerns laid out by the noble Baroness, Lady Grender. Before I begin, I draw the Grand Committee’s attention to my register of interests as an owner and developer of onshore wind energy infrastructure.
We on these Benches recognise the challenging situation that offshore wind developers face and the need to simplify the process to make schemes deliverable. Equally, we recognise the environmental issues. This month’s updated assessment and good environmental status of the UK marine strategy shows that cetaceans, birds, fish, benthic habitats, food webs, contaminants and marine litter have not met good environmental status. Another six categories have been partially met or are uncertain; only two categories have seen GES met. The update highlights the mixed picture for marine ecosystems, with high pressure on our seas, which are getting warmer, more acidic and oxygen depleted. This is not an encouraging picture and highlights why legislation, such as that we are considering today, needs to be given detailed scrutiny.
These regulations seek to shift how compensation for the environmental impact of these developments is determined and delivered. The compensation, rather than necessarily focusing on the features directly affected, could target similar features, potentially elsewhere in the UK’s MPA network. My first concern with the SI, which, as others have mentioned, has already been highlighted by the Secondary Legislation Scrutiny Committee, is that it leaves much of the crucial detail to future guidance. The Government have conceded that they are taking a novel approach, but this is no justification for asking the House to approve a framework without being clear how it will operate in practice. The Government conducted a six-week public consultation ahead of these reforms, and it simply is not clear why the draft guidance could not have been published to coincide with this legislative process. Instead, the guidance will be published only once the SI has come into force on 21 May. This is not good practice.
My second concern is that this approach allows for a similar approach to that taken under the Planning and Infrastructure Act, which the House spent so much time on earlier this year, which allows environmental damage through development with the conscience salved by payment to a general fund, although, at least in this case, I am grateful that the compensation hierarchy is protected from the outset. Like the noble Baroness, Lady Grender, I am also grateful to the Wildlife Trusts for their briefing on this. It is the third tier of compensation where the main issue lies, potentially allowing for irreparable damage to key threatened species and habitats without any requirement for that species or habitat to obtain compensating benefit. Can the Minister reassure us that tier 3 would not be permitted in these circumstances and that it would not be allowed to become the default setting as a simple way of bypassing the compensation hierarchy? It would also be helpful to receive reassurance that the compensation funds raised through this legislation would be applied only to damage being caused by the offshore wind industry rather than becoming a general pot that could be used in other industries.
It has been left to the future guidance to set out the hierarchy of compensation measures, determining which are the most beneficial to the MPA network. How will the condition of this network be better monitored in order to understand which measures are the most beneficial? As has been pointed out by Wildlife and Countryside Link, many assessments are over six years old, and many features are not assessed at all. Further, any agreements reached with developers must be deliverable and viable so as not to deter investment.
Building on the recommendation of RenewableUK, how will the forthcoming guidance balance the timing requirements involved in implementing compensation measures with the project’s construction schedules, for example? Can the Minister confirm that the guidance will be kept under review to respond to concerns as they arise, while giving certainty in what is already a complex policy environment? Is it likely that the guidance will address the concerns I have raised? Which agency will be responsible for implementing this legislation and who will cover its costs?
It is hoped that the establishment of marine recovery funds will enable developers to compensate for environmental impacts for multiple projects, yet MRFs are not mentioned in the Explanatory Memorandum. It is also important to note that MRFs are voluntary schemes. Can the Minister explain what the Government anticipate the take-up of MRFs will be and how significant a role they will play in environmental compensation?
Our concerns about this SI are focused on how the changes will operate in practice. The devil is always in the detail. To be clear, we on these Benches support the development of affordable, home-grown energy sources; that is why we oppose the Government’s ongoing ban on new oil and gas licences in the North Sea. Indeed, amid a web of subsidies, environmental schemes and regulations such as these, it is crucial that we do not lose sight of the big picture. We need to prioritise our energy security in cost-effective ways in order to lower the overall cost to the taxpayer, while being responsible and honest custodians of our ecosystems in order to benefit future generations. As the Minister laid out earlier, I know that she shares these aims.
I look forward to hearing the Minister’s response. I am conscious that I have asked quite a few questions so, if she feels the need to write, that is of course welcome.
Baroness Hayman of Ullock (Lab)
I thank the noble Lords who have taken part in this debate. I will try to be brief because we have some votes coming up fairly soon. I will write to noble Lords on anything I have not covered; I thank noble Lords for their thoughtful contributions and comments.
We are trying to strike the right balance in establishing a new approach to environmental compensatory requirements for offshore wind. We need to accelerate our shift towards renewable energy, but we also need to ensure that we still have positive outcomes for the environment—in particular, the marine environment. What has come across today is that both Ministers and noble Lords understand the importance of getting that balance right.
We have covered a lot of ground so I will do my best to cover some bits quite quickly. On the publishing of the guidance, as I mentioned in my opening speech, I recognise the concerns expressed by the Secondary Legislation Scrutiny Committee on our approach of laying the guidance in draft for the moment then laying it in full after we have debated it. It is critical that we deliver this statutory instrument. We have been fully transparent about the policy intent that underpins both the SI and the guidance. As I said, the response to the consultation and the published policy clearly set out what the guidance is going to cover. We have tested the draft guidance with users and held constructive discussions with key stakeholders to discuss the guidance content; we have also collaborated closely with the Scottish Government to ensure that we have proper alignment.
As I said, the guidance will apply in English waters to Wales and Northern Ireland waters, which is why the work that we have done with the devolved Administrations has been so important. The guidance will outline the wider compensatory measures and will explain how a developer could demonstrate that any proposed compensatory measures would provide ecological benefits to the UK’s marine protected area network. It will also explain that this will be achieved in different ways for each tier of the compensation hierarchy, which will give more information on that. The guidance will also cover the requirement for all wider compensatory measures to be taken from the library of strategic measures, and it will lay out an expectation for wider compensatory measures to be delivered through the marine recovery fund, because that is the best way to have a proper, co-ordinated approach.
I come to the point about ensuring that the compensatory measures do not lead to a deterioration. The Division is on so I will have to come back—I am very sorry.
Baroness Hayman of Ullock (Lab)
My Lords, I was just finishing talking about questions on guidance. On the last point on that, whether the guidance would be reviewed, I can confirm that it will be reviewed and updated as part of the review process, and that is included in the statutory instrument.
I was asked as well how we were going to ensure that the wider compensatory measures introduced by the SI do not lead to the deterioration of specific species, populations and habitat types. The noble Baroness, Lady Grender, referred in particular to sea-birds. We have carefully considered how to avoid this, because the last thing we want to see is deterioration in affected species and habitats. All the wider compensatory measures will be evaluated on a case-by-case basis and will use expert advice and the best available scientific evidence to ensure that they are ecologically robust. That approach aims to mitigate declines in specific habitats or particular populations.
In addition, the proposed public compensation register, as well as the review that I just mentioned, will help to ensure that we can monitor the environmental impacts of the wider compensatory measures on specific habitats and species. We will keep a really close eye, because there is no point bringing something in if it is not going to do what we want it to do. I reassure noble Lords that we will ensure that the new approach to offshore wind is implemented in a way that continues to abide by our domestic and international commitments.
I was also asked about the timing of compensatory measures. On timing, the guidance will cover that compensatory measures should be in place and functional by the time damage to a protected site begins. The guidance will also outline the circumstances in which the adverse effect may occur before the measure is in place and functional—but the whole point is to have it in place when that starts, so that it is up and running.
A number of other environmental safeguards accompany the statutory instrument, and I shall put them on record too. In England and Wales, wider compensatory measures will need to be drawn from the library of strategic compensation measures, which contains measures approved by the Defra Secretary of State or by Welsh Ministers for some projects. In Scotland, the measures do not need to be taken from the library. We are also in discussion with the Northern Ireland Executive as to whether they wish to approve the measures in the library.
Statutory nature conservation bodies will, of course, continue to advise on the ecological effectiveness, feasibility and viability of any proposed compensatory measures, and all compensatory measures, as I have just said, will be monitored to ensure that they deliver their expected outcomes. If we think that they are not going to function as expected, adaptive management will usually be required to adjust or replace the measure.
The SI also includes a requirement for the review. The point of the review is to assess the statutory instrument as a whole and assess the compensation hierarchy and guidance against any objectives. That will include assessing the impact on the environment and on offshore wind consenting. The mandatory review will ensure continued scrutiny and accountability. As I say, we will be keeping a close eye on it.
We are also exploring the development of a public compensation register. The idea around that is that it will collate information on environmental compensatory measures right across the UK marine protected area network, in order to improve transparency and highlight any further opportunities that could be brought in.
I was also asked about the use of funds and the uptake of the marine recovery fund, which is critical, as the noble Lord, Lord Roborough, said. It is already established and has received applications, and we are pretty confident that developers will use it. As I mentioned earlier, we have done a lot of work with stakeholders to ensure that what we bring in will be fit for purpose. I clarify that the funding comes from developers and can be used only for offshore wind compensation.
The noble Baroness, Lady Redfern, asked what is meant by “reasonably proportionate” and whether the definition will keep the existing levels of environmental protections. The guidance will set out the considerations for determining whether the benefit of a compensatory measure or the package of measures is reasonably proportionate to the adverse impacts. In broad terms, what we are saying is that delivering compensatory measures with benefits that are reasonably proportionate to the impacts of the protected site will require a consideration of the magnitude of the impact of the plan or project in comparison with the quality and anticipated ecological benefit of the compensatory measure. I hope that helps to clarify.
The compensatory measure would not need to exactly match the impact, but there would need to be a credible evidence-based assessment of the level of ecological benefit to be provided in order to compensate for any impact. Consenting authorities will be required to assess what is reasonably proportionate on a case-by-case basis. They will rely on expert advice, including the advice of statutory nature conservation bodies, which will continue to provide advice on all the different compensatory measures.
The noble Baroness, Lady Grender, mentioned tiers. Developers will have to demonstrate through a robust evidence-based case that no other feasible ecologically effective tier 1 measure is available or that any wider measures would deliver a greater ecological benefit. The consenting authority, having considered advice from the statutory nature conservation bodies, will make the final decision. In making that final decision, it must be absolutely satisfied that any justification for moving through the hierarchy is absolutely sound. These safeguards will ensure that the compensatory measure cannot be bypassed if it is available and remains the most ecologically beneficial option.
I hope that I have covered everything—I will check Hansard and, if not, I will come back to noble Lords; having had two votes in the middle of this, I am starting to lose track. Turning back to the statutory instrument, the legislation is to provide a more flexible, pragmatic approach to securing environmental compensatory measures for offshore wind and to unlock these new strategic opportunities to drive nature recovery.
It is important that we are prepared to make bold and carefully considered changes because we need to make sure that our marine protected areas and the wider marine environment can recover and thrive alongside any expansion of clean energy infrastructure. As I am sure noble Lords are aware, we seem to be in an increasingly unstable world, so it is important that we have secure, sustainable, renewable energy that is homegrown. This statutory instrument is a critical component on the UK’s path to becoming a clean energy superpower, while at the same time ensuring that we protect our marine environment, which is absolutely integral to our approach. I beg to move.