EU Law
Baroness Gustafsson Excerpts(2 days, 8 hours ago)
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Lord Howard of Rising
To ask His Majesty’s Government whether they have further plans regarding the status of retained EU law.
The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)
My Lords, the Retained EU Law (Revocation and Reform) Act 2023 largely removed the special status of REUL at the end of 31 December 2023, and REUL that had not yet been revoked became assimilated law. The third Assimilated Law Parliamentary Report was published on 23 January 2025. It sets out the plans for future use of the REUL Act powers within the context of the Government’s national missions and a commitment to reset relations with the EU.
Lord Howard of Rising (Con)
Does the Minister agree that, while there are arguments for and against being part of the EU, there is no case whatsoever for giving up any benefits of remaining without the benefits of leaving—in particular, freedom from the jurisdiction of the European Court of Justice?
Baroness Gustafsson (Lab)
We are resetting the relationship with our European friends to strengthen ties, secure a broad-based security pact and tackle barriers to trade. We are working with the EU to identify areas where we can strengthen co-operation for mutual benefit, such as the economy, energy security and resilience. There will be issues that are difficult to resolve as well as areas that we will stand firm on, and we have been clear that there will be no return to freedom of movement, to the customs union or to the single market. We will work together and with respect to international law and shared institutions.
Lord Fox (LD)
My Lords, I am glad the Minister mentioned the reset. Have the Government responded formally to the offer by the EU’s chief trade negotiator that the EU is interested in discussing with the UK the prospect of the UK joining the pan-Euro-Mediterranean convention?
Baroness Gustafsson (Lab)
I thank the noble Lord for that question. That is something that we are willing to discuss.
Lord Forsyth of Drumlean (Con)
My Lords, given the welcome statement by the Chancellor on financial regulation, and given that the European regulations, which were subject to some democratic control before, are now being placed in the hands of the regulators, what plans do the Government have to give direction to the regulators as to how they might be made accountable for the implementation of these as part of the Government’s growth agenda?
Baroness Gustafsson (Lab)
I thank the noble Lord for the question. The Government are committed to driving economic growth and working hand in hand with the regulators to make sure that that growth can be achieved in a sustainable way that is fair to all markets and ultimately beneficiary to consumers. The Government are committed to maintaining the independence of those regulators, but we work with them to provide an overall strategic steer on the directions and priorities they should be working towards so that they can work hand in hand with us and our priorities around growth.
Baroness McIntosh of Pickering (Con)
My Lords, I welcome the noble Baroness to her position. Have she and her department made an assessment of the cost to the UK chemical industry of having to match both a UK REACH programme and an EU REACH programme? Is this part of the reset that the Government will look at in our relations with the European Union?
Baroness Gustafsson (Lab)
I thank the noble Baroness for the warm welcome. With regard to REACH, we held a consultation on an alternative transitional registration model for the UK REACH chemicals regime to reduce the cost to industry while ensuring high levels of human health and environmental protection. We will publish a government response in 2025.
Lord Bellingham (Con)
My Lords, can the Minister explain the difference between retained EU law and assimilated EU law?
Baroness Gustafsson (Lab)
The retained EU law Act 2023 largely ended the special status of retained EU law. It did this by removing the majority of EU-derived interpretative effects. From 1 January 2024, retained EU law which had not been revoked became assimilated law.
Baroness O'Grady of Upper Holloway (Lab)
My Lords, does my noble friend the Minister agree that, when we were members of the EU, it only ever set minimum standards and the UK was always free to do better than those minimum standards? When it comes to labour law and the Employment Rights Bill, this will help reset the relationship with the EU because we will be trailblazing better employment rights and conditions for workers.
Baroness Gustafsson (Lab)
We will continue to co-operate with European partners on regulatory matters wherever possible and we have held constructive discussions with the EU areas of mutual benefit. But one of the Government’s priorities is supporting our own growth and our own ambitious goals and making sure we have the regulatory and legislative framework to support us. It is an opportunity that is within our direct control.
Lord Sharpe of Epsom (Con)
My Lords, following on from the question from my noble friend Lord Forsyth, at the Davos 2025 conference the head of Meta’s global business remarked that the overregulation within the EU is stifling business, making the region significantly less competitive on the global stage. Therefore, does the Minister agree that the UK should prioritise aligning our regulatory framework to the most competitive global standards and avoid aligning with the EU, particularly as part of any reset, if we are truly serious about economic growth?
Baroness Gustafsson (Lab)
The Government’s priorities are around driving economic growth within the UK, and I firmly believe that regulation has an important role to make sure that that growth is not short-term but long-term and sustainable. We have many trading opportunities within Europe, which is one of our largest trading partners, and there is an opportunity to make sure that we work to remove any barriers that get in the way of supporting that trade while making sure that we still support our own ambitions within the UK to drive that sustainable economic growth.
Lord Watts (Lab)
My Lords, I congratulate the Government on trying to reset the relationship between ourselves and Europe that was ruined by the previous Government. Can I urge the Minister to put growth and our trade relationship at the forefront of our policy and to take no notice of those people who live in the past and have no idea how to attain the growth that we need?
Baroness Gustafsson (Lab)
I thank my noble friend for that question. We completely agree that economic growth within the UK is our number one priority. A great way to achieve that is by freshening the relationships we have with our key trading partners both within Europe and beyond.
Lord Newby (LD)
My Lords, given that economic growth is the number one priority of His Majesty’s Government, does the noble Baroness agree that one way of promoting economic growth would be strengthening the labour force in the UK by reintroducing the youth mobility scheme with the EU?
Baroness Gustafsson (Lab)
I would stand by our position that economic growth is an important factor. Understanding the skills required to accomplish that growth is something this Government take very seriously. Making sure we are respecting the rights of our workers has come under a lot of scrutiny and review as part of the Employment Rights Bill, and that will continue to be a priority of this Government. We are making sure we have the right aspirations and ambitions regarding growth and the right skills and talent within the UK to support that growth.
Lord Hannan of Kingsclere (Con)
My Lords, can the Minister tell the House which aspects of the reset will impact directly on our pursuit of a free trade agreement with the United States—a goal to which the Government remain laudably committed?
Baroness Gustafsson (Lab)
I cannot comment on the specifics of the exact regulation that may or may not be coming. With regard to the trading relationship and making sure we have trade agreements in place, the Government are constantly and doggedly pursuing that to make sure we have a clear trade relationship that is free from barriers that get in the way and impede trade.
Baroness Bennett of Manor Castle (GP)
My Lords, before the previous general election, the Royal Society of Chemistry was calling for a national chemicals agency to overhaul our
“broken chemicals regulation and management system”.
Since Brexit, the EU has stepped ahead in addressing many chemicals that are a threat to public health and environmental health. We are now getting further and further behind almost every day. Are the Government going to follow the recommendation of the Royal Society of Chemistry?
Baroness Gustafsson (Lab)
On the possibility of a chemicals agreement, as we have said, we will work to improve the UK’s trade and investment relationship with the EU across a wide range of areas, including this one. But it is too early to discuss scope or specific areas in greater detail.
Competition and Markets Authority Chairman
Baroness Gustafsson Excerpts(3 days, 8 hours ago)
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Lord Sharpe of Epsom (Con)
My Lords, the Chartered Institute of Personnel and Development has called on the Government to conduct a meaningful consultation with businesses. Instead, the Government convened the regulators to seek advice on how to drive growth. Is the Minister aware that the union-authored Employment Rights Bill will create another raft of regulations which will further weaken an already damaged employment landscape? As a business founder and employer, does she believe that that Bill, which is due in your Lordships’ House soon, will really drive the growth agenda?
The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson)
My Lords, commenting to the regulators about supporting the Government on their number one ambition of growth is entirely appropriate. Effective regulation is essential to delivering growth. The Prime Minister has been clear that regulators have a vital role to play, and that includes the CMA. I do not believe that working on things like the workers’ rights Bill is at contradiction with the terms of both powering economic growth and making sure that our workers are protected.
Lord Clement-Jones (LD)
My Lords, I welcome the Minister to Questions. The Chancellor has said that every regulator, no matter in what sector, has a part to play by tearing down the regulatory barriers that hold back growth. Given the Minister’s background, she will understand the benefits of strong and healthy competition in the digital economy, particularly for SMEs. What assurance can she give the House that the sacking of the chair of the CMA and the appointment of Doug Gurr, a former country head of Amazon, which itself is subject to current and recent CMA investigations, will not lead to weaker competition and consumer protection enforcement? Are the Government still committed to the new digital markets regime that we have all taken several years to install? Are they now going soft on US big tech in a whole range of digital services—operating systems, app stores, browsers, search engines, digital advertising and cloud services—or are we meant now to include our UK SMEs among the so-called blockers?
Baroness Gustafsson (Lab)
I thank the noble Lord for his question, which I have broken down into four points that I hope to address. First, I thank him for his welcome; it is very much appreciated, and it is a pleasure to be here answering questions in front of noble Lords. Secondly, I do not accept the characterisation of us sacking the chair of the CMA; Marcus Bokkerink resigned as chair and the Government are committed to the operational independence of the CMA. Thirdly, on whether the CMA is going soft, especially regarding digital markets, the CMA has new powers under the Digital Markets, Competition and Consumers Act and is already using them fervently for investigations into Google and Apple. The Government are committed to the independence of the CMA and making sure that we create an industry that is open to free and fair competition.
Lord Lansley (Con)
My Lords, the newspapers all seemed to think it was relevant to cite the decision of the CMA in relation to Microsoft and Activision in the Government encouraging the chairman to step down. Does the Minister agree that, in standing up to Microsoft over Activision and the cloud gaming market, the CMA was doing what it ought to do, which is promoting and maintaining effective competition in cloud gaming services?
Baroness Gustafsson (Lab)
I agree that the role of the CMA is to make sure that it is providing fair, open and transparent competition within all industries. While I will not comment on the specifics of any individual case, I think the CMA in that example is doing its best to represent that competition. The Government will continue to stand by that; supporting the CMA’s operational independence, so that it can carry on doing that role as effectively as it can, is something that this Government prioritise.
Baroness Wheatcroft (CB)
How does the Minister expect the CMA to balance the desperate search for short-term growth with the long-term needs of consumers? Is there not a risk of a repeat of what light-touch regulation in financial services produced, leading to the 2008 financial crash?
Baroness Gustafsson (Lab)
I do not think this is about short-term growth. This Government are committed to prioritising long-term sustainable growth, and I think that goal unifies us all. The regulators have a part to play in that, which is making sure that they are reviewing the regulations through the lens of growth and understanding whether they are still fit for purpose. This is not about tearing down regulation for regulation’s sake; it is about viewing it through the lens of our goal as a Government and making sure it is aligned to that.
Lord Watts (Lab)
My Lords, many of us think it is about time that we had accountability for regulators. The regulators appointed by the previous Government failed to protect the public or boost the economy. Do we not need proper regulation to be applied and to make sure that the regulators are on the side of the public?
Baroness Gustafsson (Lab)
I thank my noble friend for that question. He is right; regulation and growth need not be mutually exclusive. This is about creating sustainable long-term growth that protects not only consumers but businesses, so that they have a fair, competitive and open ground on which to compete.
Lord Fox (LD)
My Lords, whether you characterise the change in chairmanship of the CMA as a sacking or not, all the government statements are clearly designed to create a change in behaviour within the CMA. If this change of behaviour had been applied for the past two years, say, could the Minister tell us which decisions the CMA made would have been different? How much more growth would we have had over those two years, had the CMA been applying the Government’s new strictures?
Baroness Gustafsson (Lab)
I come back to a prior answer; this is not about how we look at independent tactical decisions on a case-by-case basis and reflect on what would or could have been. This is about no longer accepting dormant growth within the economy, viewing our regulators through the lens of how we create long-term sustainable growth and making sure that we are aligned with that. To that end, we are consulting on a new strategic steer regarding the CMA, which is expected soon.
Baroness Stowell of Beeston (Con)
My Lords, I welcome the CMA’s recent commitment to review its approach to mergers and acquisitions and would welcome any further moves in that direction. Can the Minister tell the House what, in the implementation of the digital markets and competition regime, she has asked the new chairman to prioritise in support of UK businesses and economic growth?
Baroness Gustafsson (Lab)
As has been referred to, the CMA has new powers under the Digital Markets, Competition and Consumers Act. There has been no change regarding that specific policy. We have a consultation open around the strategic steer for the CMA as a whole. That is something we are expecting soon, but is more around the ongoing direction of the CMA.
Lord Bridges of Headley (Con)
My Lords, last weekend at Davos, the Chancellor said that growth trumps net zero. If that is the case, will the Government review and revise regulators’ remits to reflect that?
Baroness Gustafsson (Lab)
I thank the noble Lord for his question. As I reflect on my experience in driving investment, I do not think the two need to be mutually exclusive. When I reflect on our successes with driving investment, the green energy sector is a region in which we have seen considerable successes. This does not need to be a choice between one or the other. Executed correctly, there is an opportunity for us to drive growth while supporting sustainable energy initiatives.
Lord Berkeley (Lab)
My Lords, a large number of SMEs supplying Amazon have been complaining about its attitude, saying how very unfair it is and how anti-competitive some of Amazon’s policies are. Given that the new chair comes from Amazon, can the noble Baroness say that he will not bring those bad tendencies from Amazon into our wider competition environment?
Baroness Gustafsson (Lab)
I can hopefully provide some reassurance to my noble friend. There have already been instances where we are investigating Amazon regarding the supply of knives. There is no indication that we have any intention to go soft on these big technology companies. The new chairman’s role and experience within this industry, as well as other experiences such as the directorship of the Alan Turing Institute, will provide a wide raft of experience, which can only be advantageous and beneficial to the role.
Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024
Baroness Gustafsson Excerpts(2 weeks, 3 days ago)
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Baroness Gustafsson
That the Grand Committee do consider the Reporting on Payment Practices and Performance (Amendment) (No. 2) Regulations 2024.
The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab)
My Lords, these regulations amend the Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 to introduce requirements for in-scope businesses to publish certain information twice per financial year about their retention practices, policies and performance where retention clauses are included in construction contracts.
Tackling late payments is critical for the UK economy’s growth and productivity. Fifty-six million hours are wasted each year by businesses chasing late payments, imposing a considerable and unfair burden on small businesses. Long payment terms and late payments are a causal factor in an estimated 50,000 UK business closures each year.
This Government are committed to addressing the issue of late payments. In September, we announced a package of measures to improve payment practices and help small firms. This included the launch of a new Fair Payment Code and announcing our intention to bring forward legislation to make it a requirement for large businesses to include payment reporting in their annual reports. We will also be launching a public consultation which will consider additional legislative measures to hold large businesses to account on their payment performance and to support small businesses and the self-employed. We have also prioritised this statutory instrument, originally proposed by the previous Government, which was withdrawn due to the general election and which we have now reintroduced.
Prompt and fair payment has long been an issue in the construction sector, and particularly affects small businesses in the supply chain. This includes the practice of cash retentions, or firms deducting a percentage of the value of a payment being made to a supplier. Holding retention money is a long-established practice in construction contracts. While originally introduced as a form of insurance against contractor insolvency and defective work, it is controversial and can often lead to smaller contractors losing money. Construction contracts do not offer any protection against the loss of retention if the employer becomes insolvent. Furthermore, sums, which are often deducted at each tier of the supply chain, may be subject to late or partial return or even non-payment.
These regulations seek to increase transparency in relation to retention practices, payment and performance under construction contracts, thereby incentivising larger businesses to improve retention payment practices. This will provide small business suppliers with better information so that they can make informed decisions about who to trade with, negotiate fairer terms and challenge late retention payments.
Before I outline key elements of the statutory instrument, it may be helpful to explain the legal context. The Reporting on Payment Practices and Performance Regulations 2017 and the Limited Liability Partnerships (Reporting on Payment Practices and Performance) Regulations 2017 were introduced to bring transparency around the payment practices of large businesses. These regulations require businesses above certain size, turnover and balance sheet thresholds to publish information twice yearly on certain statistics, including their average payment times and the percentage of payments not made within the payment period, and information on their standard payment terms. The increased transparency has helped small businesses to make informed decisions before entering contracts with their large suppliers, while the extra scrutiny has helped to reduce payment times.
Build UK, a representative organisation for the construction industry, has benchmarked construction businesses on their payment performance since 2018. For its tier 1 contractors, improvements show the average time to pay an invoice has reduced from 45 days to 30 days; invoices paid within agreed terms have increased from 63% to 85%; and invoices paid within 60 days have increased from 82% to 96%.
Last April, the 2017 regulations were extended for a further seven years to 6 April 2031. Two new reporting metrics on the value of the invoices paid during the reporting period and the percentage of disputed invoices were also introduced to provide even more clarity regarding the payment performance of large businesses. Specific reporting on retentions held under construction contracts is not currently required. These regulations intend to rectify this omission.
This measure has been developed following extensive consultation with firms at all tiers of the supply chain, as well as with construction clients. A clear majority of the firms which responded to the public consultation in 2023—around three-quarters of the 120 respondents—favoured the introduction of a reporting requirement on retentions. Firms within the supply chain have told us they face challenges in understanding policies on the withholding of retentions and what the mechanisms are to secure their release. Many feel that they cannot ask for this information, in case it jeopardises their commercial relationships. This measure will bring greater transparency to the retention policies, practices and performance of larger businesses that are party to construction contracts.
I will now outline the key elements of this statutory instrument. It amends the 2017 regulations and introduces requirements for in-scope businesses to publish certain information twice per financial year about their retention practices, policies and performance, where retention clauses are included in construction contracts. The measure will apply only to large companies and limited liability partnerships which already have a duty to report on their payment practices and performance and which use construction contracts.
In the first instance, reporting will require a statement on whether the company’s payment practices and policies include or do not include retention clauses. Where a company makes a statement that retention clauses are included in its construction contracts, further information must be submitted. Details will be required on: whether retention clauses are included in all its construction contracts; whether its standard payment terms include retention clauses or whether they are used only in specific circumstances, which it would need to describe; whether there is a contract value under which no retention clause is included, and that value; whether a standard rate of retentions is applied, and that rate; whether there is a practice of using retention clauses no more onerous than those which it is subject to; and a description of the process for the release of retentions withheld.
Two metrics will also be required: the percentage ratio of the amount of retention withheld from the company by its clients as against which the company holds on its suppliers; and the percentage ratio of the amount of retention the company withheld from gross payments made to suppliers as against the gross amount paid to suppliers during the reporting period. These metrics will help provide smaller firms with better information about a large business’s retention payment practices. It will help illustrate the company’s approach to fair payment and a sustainable supply chain and incentivise larger businesses to improve retention payment practices.
In conclusion, this measure both addresses a clear request made by the industry and has been developed in conjunction with the industry. It is robust and proportionate and will provide small firms in the construction supply chain with useful information that will enable them to take decisions about entering into contracts and to understand how to ensure that retentions owed to them are paid. It will also create a clear incentive for firms to improve their payment performance in relation to retentions. I hope the Committee can see the benefits that these regulations provide and agrees with the introduction of this affirmative statutory instrument. I beg to move.
Lord Sharpe of Epsom (Con)
My Lords, I join other noble Lords in welcoming the Minister to her place. The construction sector in the UK is not only one of the largest but one of the most vital industries underpinning our economy, as both noble Lords noted. In 2022, the sector achieved a turnover of £487 billion and employed over 3 million individuals, representing about 8% of the UK workforce. Its contributions are therefore fundamental in driving economic growth, fostering innovation and advancing development throughout the nation.
However, the sector is also characterised by considerable fragmentation. There are over 444,000 businesses engaged in a broad spectrum of work, ranging from contracting and product supply to associated professional services. The fragmentation is compounded by complex, multi-tiered supply chains, as major projects often involve 50 or more firms working collaboratively.
This brings us to the topic of retention sums, which are a long-standing practice in the construction sector. Retention—as it is still called for now—sums serve as a financial safeguard and ensure that work meets the required standards. Typically, half of the retention is released upon project completion while the remaining portion is withheld until the expiration of the defect’s liability period, proving additional assurance that all specifications are met. That, at least, is the dictionary definition of retention.
Given the current practices within the sector, we need to focus on the amendment introduced by these regulations. They all come into force on 1 March 2025 and apply to the financial year starting on or after 1 April 2025. The changes impose specific reporting requirements for qualifying companies and limited liability partnerships operating within the sector. The amendment extends existing reporting regulations and requires qualifying companies to disclose detailed information about their payment practices, policies and performance in relation to retention clauses in construction contracts.
Companies will be required to report on whether retention clauses are included in their contracts, the percentage of retention withheld and the procedures followed for releasing these sums. Additionally, businesses will be asked to disclose the contract value thresholds under which no retention clause applies and outline the standard rate of retention typically applied in their agreements. By 1 March 2025, qualifying businesses will be obliged to publicly report on their payment practices, specifically concerning retention clauses in construction contracts.
It is important that this amendment acknowledges the significant challenges caused by fragmentation within the construction sector, which of course affects businesses of all sizes. We understand that the aim of these regulations, as the Minister noted, is to enhance transparency by requiring businesses to report not only the inclusion of retention clauses but whether their retention practices align with industry standards or are more onerous than typical practices. Furthermore, companies will be required to provide clear descriptions of the processes that they follow to release retention sums, which is intended to ensure greater clarity and fairness for all parties involved. However, there are several important points on which further clarification is needed.
These amendments are said to provide increased transparency, fairness and clarity within the construction sector, but can the Government explain the mechanisms by which the regulations themselves will be enforced? How will compliance be monitored and what penalties will be applied to businesses found to be in breach of the new requirements? Additionally, while the new regulations seek to promote fairer payment practices, can the Government elaborate on how they plan to ensure that large companies are not able to exploit their market position, despite the new transparency measures? Will there be any safeguards in place to prevent larger firms imposing even more burdensome retention clauses on SMEs?
The regulations are presented as a solution to the ongoing issue of delayed payments, which have long caused a financial strain on SMEs, yet how will the Government measure the effectiveness of these changes? What evidence is there to suggest that requiring businesses to disclose their retention practices will have a significant impact on the cash-flow issues faced by smaller companies? As an aside, the noble Lord, Lord Fox, has raised an important point about how we will judge these companies in future, based on these particular metrics. These are not, of course, the only things by which one should judge a company or its potential to complete a project successfully and efficiently, so will there be some way of measuring that as well? If that has not been considered, it is something that should be.
While these measures are presented as steps towards promoting better cash-flow management and financial security for smaller businesses, we would urge the Government to further clarify how the regulations will be implemented and monitored to ensure that they achieve their intended outcomes. Will there be a review process to assess whether these regulations are having the desired effect on industry practices and the broader economy?
Baroness Gustafsson (Lab)
My Lords, I am grateful for the support for these regulations from across the Committee. I thank the noble Lords and noble Baronesses present for their constructive comments on this measure. Allow me to try to address each of the questions that they asked in order.
First, we heard from the noble Lord, Lord Aberdare. He asked a number of questions, the first of which was: have the previous regulations come into effect yet? The answer is yes; they came into effect and required a report as of 1 January 2025.
The noble Lord’s second question was about how the regulations will be enforced and how the accuracy of the data will be monitored. For that, the Department for Business and Trade will implement a more visible compliance and enforcement approach with non-compliant businesses going forward. Businesses that do not take action to meet their reporting obligations will be prosecuted.
We had a question, supported by the noble Baroness, Lady Neville-Rolfe, about why we would not just abolish retention payments altogether—that is, why are we taking this measure forward and not abolishing it in its entirety? The Government are aware of the impact that retentions have on the supply chain. We are very committed to going further to tackle poor payment practices: in September 2024, we announced our plans to consult on new legislative measures. Now, as part of that consultation, we intend to consult on measures that will address poor payment practices.
Moving on, I refer to the questions asked by the noble Lord, Lord Fox: does defining retention create a potential loophole for companies? Will they suddenly be redefined as completion bonuses? This is one of the arguments in favour of taking this sort of measured, proportionate approach, because we will be able to identify any unintended consequences of some of this legislation, but a key aspect of addressing the naming convention is that it is very clearly defined in a schedule not by what it is called but by the behaviours that it exhibits. Of course, we will monitor this and make sure that, if it requires an update, we will do so accordingly.
The noble Lord, Lord Sharpe, asked what the penalties are for failure to comply. The penalty for a breach of the 2017 regulations is an unlimited fine where a company fails to report or makes a false report.
Lastly, the noble Lord, Lord Fox, asked about sanctions, whistleblowing and the imbalance of power in the supply chain. I say in response that the imbalance of power in the construction supply chain is an ongoing challenge; that is widely understood and acknowledged. However, through the introduction of payment reporting measures for retentions and the enforcement of them, we will be able to create an incentive for firms to improve their payment practices in relation to retentions, as has happened following the introduction of the payment reporting regulations. As I talked about in my introduction to this instrument, we have seen the number of businesses paying within 60 days improve from 82% to 96%, so we should be encouraged that we are supporting correct behaviours with regard to policy.
This Government are committed to making sure that we tackle late and long payments. We want the UK to be the best place in the world for both large and small businesses to thrive. This work on retention payments aligns closely with the department’s wider policy on late payments and will strengthen the existing payment reporting regulations. It will provide for enhanced transparency in relation to the practice of withholding retentions—a practice that, as we have heard, is all too often unfair to small businesses and can, of course, be subject to abuse. It will also provide information to small firms and the construction supply chain about the policies and performance of firms that they are considering working for, enabling them to make better-informed decisions and to secure the payment of moneys due.
Lord Fox (LD)
Before the Minister sits down, I asked a very specific question around public procurement. I ask it again: if I am a public procurer and two bidders are more or less the same—or exactly the same—in their bid, but one of them has late payment, am I legally allowed to use late payment as the reason for not accepting that bid? Secondly, developing that question, if the late payer has the cheapest bid, can I also use late payment and retention payments as a reason for not awarding to that bid?
Baroness Gustafsson (Lab)
I apologise for not addressing that specifically. My understanding is that this information will help support a party in a commercial negotiation and will, ultimately, form part of its decision-making. As regards the technicality of whether one could legally use that as a way in or out of a contract, I will make sure that we write to the noble Lord on the specifics of that.
Lord Fox (LD)
It is really important because we are seeing, not necessarily under the Procurement Act but under the NHS, major legal tussles over the misapplication of the assumed rules of contract awards—not least in clinical waste disposal, where another six or seven health authorities are being taken to court. This is expensive; it will cost the public and the Exchequer. So it is important that we and public procurers understand from the outset whether this is window dressing or material to the procurement process.
Baroness Gustafsson (Lab)
I acknowledge that. I agree wholeheartedly with the noble Lord about the importance of getting that clarification; we will be sure to write to him in that regard.
Long-duration Energy Storage (Science and Technology Committee Report)
Baroness Gustafsson Excerpts(3 weeks ago)
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The Minister of State, Department for Business and Trade and Treasury (Baroness Gustafsson) (Lab) (Maiden Speech)
My Lords, I am very grateful to the noble Baroness, Lady Brown, for initiating this debate, and I thank both her and the members of the Science and Technology Committee for their work. It is a privilege to respond on behalf of the Government in my maiden speech to the House. Before I address the points raised, allow me a few moments to introduce myself and share the passion that drives me in this role, along with the profound sense of responsibility that I feel in undertaking it. Noble Lords can watch me as I tackle the butterflies that the noble Baroness, Lady Lane-Fox, referred to earlier.
I come to this Chamber via a route that probably differs from that of a typical Government Minister—and I am not just talking about the fact that I keep getting lost in the long winding corridors of this very beautiful building. My career to date has been spent at the sharp end of innovation, which, as I have learned, is both a gift and a challenge. It is a duality that is particularly clear in the world of cybersecurity, where attackers and defenders are fighting for dominance in ever-shifting digital landscapes.
I began my career as a mathematician, drawn to the precision and clarity of numbers. Mathematics offers a comforting world of absolutes: zeroes and ones, truths and proofs, which are the binary building blocks of certainty. But life is rarely so straightforward. Just as mathematics moves from neat formulas to complex algorithms, life reveals shades and uncertainties. My path led me from the abstract elegance of equations through training in accountancy and working in venture capital to the dynamic and unpredictable world of technology. As the co-founder and former CEO of Darktrace, I had the privilege of witnessing first hand the daily progress that technology can make.
Working in innovation is exhilarating and, at times, exhausting. It is a constant project—innovate, or be out-innovated. It is like running along a beautiful mountain path: around the next corner could be the most beautiful view that takes your breath away, but the next runner could be right behind you. Stop for even a moment, and you might just find yourself caught. It is ambition and a quiet confidence that keep us running and protect us from complacency.
This Government are not short of ambition. The UK’s goal to become a green energy superpower by 2030 is what drew me to this role, and there is no better place to build an ambitious company than the United Kingdom. We have the lowest corporation tax in the G7; some of the most competitive R&D tax incentives in the world; world-class universities; and forward-thinking policies. We must celebrate what we do well. The UK is a global leader in technology and innovation, with a tech ecosystem worth over $1 trillion. We are rightly proud of the companies that have been built here and of the talent that continues to drive our success.
As I turn my focus to energy, I am inspired by that same sense of ambition. Energy is the lifeblood of progress, and the challenges that we face—achieving net zero, securing supply and driving innovation—demand bold thinking and confidence in our ability to lead, innovate and turn challenges into opportunities. Just as innovation must balance opportunity with risk, so too must our energy policies balance sustainability with security, and ambition with pragmatism. I look forward to contributing to these debates with the same spirit that has defined my career: one of ambition, collaboration and an unshakeable belief in the potential of this country.
I extend my thanks to colleagues across the House who have welcomed me so warmly and shared their thoughts and insights into parliamentary and ministerial life, particularly to my two supporters, the noble Lord, Lord Vallance, and the noble Baroness, Lady Lane-Fox, and to my two predecessors as Minister for Investment, the noble Lords, Lord Grimstone and Lord Johnson. I also thank the staff of the House, Black Rod and her staff, the doorkeepers and clerks, and those who have kindly pointed me in the right direction when I have been going the wrong way down those winding corridors. I thank noble Lords for this opportunity to serve, and I look forward to working with them to achieve great things.
Today, noble Lords have offered their thoughts on this and the report from the Science and Technology Committee. I want to reflect on these contributions now and respond to as many of the points as I can. First, on progress made on hydrogen, the noble Baroness, Lady Brown, and the noble Viscount, Lord Stansgate, asked what progress the UK has made on long-duration storage since the publication of the report by the Science and Technology Committee back in May. The answer is: a great deal. In the Government’s procurement of hydrogen infrastructure, we have published an early market engagement notice. What does that mean? Well, it allows developers to register their interest early and start planning ahead. We recognise that these projects will be vital, and we are going to need colossal amounts of hydrogen storage. That is why we have already started engaging with a range of potential suppliers in the hydrogen storage market, which is the right approach to take. In addition, government recognises the value of strategic energy reserves as a source of energy resilience and security of supply, balancing system flexibility, particularly during periods of energy supply shortage—Dunkelflaute periods, as the noble Baroness and other noble Lords have noted. Government will continue to explore options around the role that storage can play, including providing strategic energy reserves in supporting future energy system resilience in a changing energy landscape.
I move on to progress made on electricity, which the noble Lords, Lord Lilley and Lord Moynihan, asked about. Of course, in the committee’s report and today’s debate, we have seen a lot of discussion about long-duration electricity storage specifically. Here again, I believe the Government are making real progress. In October last year, we announced the long-duration electricity storage support scheme, which will be delivered by Ofgem. The next steps are as follows: a technical decision document will be published next month with the final design details of the scheme. Applications will then open in the second quarter of this year. After that, we expect the first agreements under the cap and floor scheme to be agreed early next year.
It is important to stress that this scheme is tech neutral. What does that mean? It means, basically, that any technology that meets the definition of long-duration storage with electricity in and electricity out can be part of an application. These applications have to show that the technology would not be built without the cap and floor scheme, which is the additionality principle. For example, longer-duration lithium-ion batteries and closed-loop hydrogen-to-power systems may be eligible, as would traditional technology such as pumped storage hydro, liquid and compressed air, and flow batteries, but to get approved, all applications need to prove that they represent the best deal for consumers.
Some noble Lords raised the subject of costs to consumers. This scheme works on an insurance-type model, unlocking investment in these assets without upfront subsidy. A very similar approach has been used for electricity interconnectors; these have delivered about 10 gigawatts of capacity without a single penny of taxpayer subsidy. That is enough to power about 750,000 homes, and revenue was actually returned to consumers via the cap, so this really can be a model for success. However, I am keen to stress to noble Lords that neither the Government nor industry are waiting for the cap and floor scheme to be rolled out before making headway in this area. There is already significant development under way in anticipation of the cap and floor scheme. SSE, for example, has completed its exploratory tunnelling on the Coire Glas pumped storage hydro project in northern Scotland, ensuring that it is ready to seize the potential for future growth. Meanwhile, Highview Power has reached a £300 million final investment decision on a brand new liquid air energy storage site near Carrington; it is a major step forward in both the company’s and our country’s journey to net zero.
To specifically address curtailment costs, raised by the noble Baroness, Lady Brown, beyond storage, a key priority for the Government is to accelerate the building of electricity network infrastructure to increase capacity on the network and reduce constraints. This will also ensure new sources of low-cost, homegrown and clean generation that can connect to the grid. We are working with Ofgem, the National Energy System Operator and the transmission owners to break down the barriers to this. The work includes reforms to the planning system, unlocking supply chains and mobilising the investment required via the upcoming transmission price controls.
A number of noble Lords, particularly the noble Baronesses, Lady Neville-Jones and Lady Lane-Fox, and the noble Lords, Lord Drayson and Lord Wei, spoke about electrolyser supply chains and wider support for green energy. We are building on the momentum we have already generated, ensuring that the right financial tools and support are there for those businesses that are leading the UK’s charge towards becoming a clean energy superpower. Our new national wealth fund and the creation of Great British Energy ensure that tens of billions of pounds of investment are there to support clean energy supply chains. This builds on the achievements we have already seen in the industry.
Take green hydrogen equipment suppliers: they doubled the number of electrolysers produced in 2023 compared with 2022, which is extraordinary growth in this part of the market. ITM Power’s gigafactory in Sheffield boasts one of the largest electrolyser factories in the world, with massive levels of capacity, and certainly enough to produce low-carbon hydrogen for use across the economy. It is fair to say that UK hydrogen companies have some of the best fuel cell, hydrogen production and material technologies going. I want them to retain that competitive advantage.
As noble Lords know, we have identified clean energy as one of the key growth-driving sectors in our industrial strategy. We want to channel investment into these sectors so that the UK remains ahead of the pack when it comes to the development and deployment of green energy. We have already taken action to inject some much-needed agility into our planning system. Our planning and infrastructure Bill is set to speed up the process for the delivery of major infrastructure projects. At the same time, the Department for Energy Security and Net Zero is running a pilot hydrogen planning unit programme. It has been charged with upskilling planners working in councils on hydrogen. We want them to feel confident in taking decisions on hydrogen planning applications, and, with support from central government, they will be.
DESNZ is also in the process of drafting planning guidance for industry to support projects going through the planning process. That is because we know that clear regulatory guidance will be a game-changer in helping get novel hydrogen projects off the ground. It will help build even more confidence and investment into UK hydrogen development.
Let me turn my attention to progress with the National Energy System Operator and the strategic spatial energy plan, which my noble friend Lady Young, among others, asked about. One of the report’s recommendations, which we have already discussed today, is the establishment of the National Energy System Operator. As noble Lords will know, this was formerly known as the future system operator. The Government’s position is this: we believe that the National Energy System Operator is perfectly placed to help different parts of our energy system work in harmony. It can act as that whole energy system planner.
We formally launched NESO in October last year. Working alongside the Scottish and Welsh Governments, we commissioned it to develop a strategic spatial energy plan. This is really exciting. It is the first ever spatial energy plan for Great Britain. It means a hands-on, planned approach to energy infrastructure across land and sea. It builds on the independent advice provided by NESO on how to deliver clean power by 2030. This plan will cover energy and hydrogen. It will identify super cost-effective locations for hydrogen production, transport and storage, working in tandem with electricity network development. The committee’s LDES report called for more details on how the National Energy System Operator will produce this plan. We are now consulting on the methodology and will provide further details shortly.
My friends, the noble Baroness, Lady Brown, and the noble Lord, Lord Whitty, asked about government ambitions for hydrogen energy storage development and what the future holds. The point raised by noble Lords in this debate was about the Government’s long-term commitment to hydrogen transport and storage, alongside the setting of capacity targets. Our position is clear: we will design business models for hydrogen transport and storage. We are delivering on that commitment, ensuring that the support is there for both, while maintaining a rigorous and fair assessment process.
As noble Lords will be aware, we want to see this next generation of infrastructure being delivered by 2030. As further evidence on hydrogen production and demand emerges, we will have more details about how our needs for infrastructure will guide business models in the future.
The noble Baroness, Lady Neuberger, and the noble Viscount, Lord Stansgate, raised questions about the public perception of the health and safety of some of these ideas. I want to touch on another issue that the Science and Technology Committee has acknowledged, which is the public perception. Although there is no evidence that hydrogen is unsafe, I am aware that the committee has challenged the Government to up our game in building public support for the technology. Here we are taking a common-sense approach. Safety obviously has to be our number one priority. We have a proud record on the safe production, transportation, storage and use of hydrogen. Projects developed by UK firms such as Bramble Energy, Ceres Power and ITM Power have helped establish us at the forefront of the global shift to hydrogen.
We want to maintain that reputation, and we recognise that health and safety regulation will be key to that. On this point, the Department for Energy Security and Net Zero is working in tandem with the Health and Safety Executive. The HSE in turn is making sure that the right regulations are there to help, rather than hinder, the safe adoption of net-zero technologies, including hydrogen. It is taking into account all the potential risks for those who build, operate and maintain hydrogen facilities.
Allow me to comment further on carbon capture and storage. The noble Baroness, Lady Neuberger, in particular, addressed this. This relates to some of the points also made by the noble Baroness, Lady Brown, on ensuring that we have sufficient transport and storage infrastructure for carbon capture, usage and storage, and our planned use of gas post 2030. Last year the Government reached commercial agreement with the private sector and announced up to £21.7 billion of available funding over 25 years to launch the UK’s new carbon capture, usage and storage industry.
In December, contracts were signed with Net Zero Teesside, the world’s first at-scale gas power plant with carbon capture, supplying up to 1 million homes with low-carbon secure power from 2028. Combined with the Northern Endurance Partnership, the supporting CO2 transport and storage project, the East Coast Cluster will capture and store carbon emissions from the region.
In addition to the East Coast Cluster and the HyNet cluster, the UK has an exciting pipeline of further CCUS clusters at a mature stage of development. These include Acorn in north-east Scotland and Viking in the Humber, which contain power CCUS projects at the heart of their plans. The gas system will continue to play an important role as we decarbonise, but the amount of gas that we use must decline, and the way we use gas must change in order to reduce our reliance on fossil fuels and achieve clean power by 2030, accelerating to net zero by 2050. As we do so, we are working across government and industry to better understand the future of the gas system through various credible scenarios, identifying key challenges and opportunities along the way.
I am conscious that there are some points I have not yet addressed, particularly those raised by the noble Viscount, Lord Stansgate, and I will make sure we write to him in detail on all the points raised. I will endeavour to include the word “Dunkelflaute”, which is clearly the word of the debate.
Let me turn to the phrase of the debate—“Get on with it”—and, in that spirit, allow me quickly to conclude. A huge amount of work has been under way to support long-term energy storage, whether that is investment, skills, health and safety, or the cap and floor scheme that we generated with Ofgem. The continued support and scrutiny of the Science and Technology Committee are vital in holding the Government’s feet to the fire for the scale and pace of our delivery. But the Government are not doing it alone. We are working with industry across the clean energy sector to ensure that the UK remains a world leader in this space. We are taking action to push forward long-duration energy storage in the UK as part of our pursuit of net zero and our ambition to become a clean energy superpower by 2030.
The Government are looking forward to working with noble Lords in delivering on that pledge, and I am looking forward to working with them too. Together, we will realise a cleaner, greener future.