Procurement Bill [HL]

Baroness Worthington Excerpts

Report stage
Monday 28th November 2022 Lords Chamber

[Baroness Hayman of Ullock (Lab)]

My Lords, I have a number of amendments in this group. First, Amendment 33 refers back to the principles that we debated at length in Committee; they were originally in the Government’s Green Paper and were consulted on. Our concern is that those principles were then left out of the Bill even though the objectives were included, so my amendment

“would require contracting authorities to pursue a series of principles when carrying out procurements.”

Amendments 35 and 36 in my name look to

“require social and public value to be considered in the procurement objectives.”

We believe that social and public value are important requirements for any contracting authority to consider, so I have asked for that to be put through to the procurement objectives. This would encourage anyone contracting, for example, to work with local suppliers; to encourage contractors to reduce their CO₂ emissions; to encourage the hiring of more apprentices; and to encourage greater diversity. If you are going to deliver the levelling up that the Government are so keen on and achieve net zero, it is important to include these principles.

We know that social value is included in the national procurement policy statement but it is not referred to in the Bill itself. We also know that public benefit is mentioned in the Bill, but that is a pretty vague concept. It is not clear to us how social value would sit within that framework.

I also have Amendment 46. We debated at length in Committee the national procurement policy statement. Many concerns were raised about the Government expecting Members to take at face value the fact that certain things can be included in the NPPS, but, of course, we have absolutely no guarantees other than that the Government are saying that they will be. Clearly, once the Bill becomes an Act, we will need to see a new NPPS, so we believe that the Bill should include the set of principles that need to be within that NPPS so we can have confidence that it will deliver what it needs to do.

My Amendment 48 aims to subject the NPPS statement and amendments to the affirmative procedure so that the existing one will remain in force if, for any reason, a new statement is rejected. We think this is an important fallback position.

Finally, my Amendment 96 creates a process to ensure contracting authorities safeguard the public interest when considering whether to outsource or recontract services. This is something that has been raised with us by a number of different contracting authorities that want that flexibility.

There are a number of other amendments in this group which we support, and I will just draw attention to a few. My noble friend Lord Hunt has an amendment on adding accessibility to the objectives. The noble Baroness, Lady Worthington, has an important amendment on defining public benefit. We know how strongly she feels about the environment and, again, we have debated that at length. It is really important that we do not lose that in the further discussions. The noble Lord, Lord Lansley, has a number of amendments that we support, and we look forward to hearing his introduction to them.

Finally, it is really important there is clarity around principles and objectives as this Bill goes through the process of becoming an Act. Good sentiment from the Government and the Minister are not sufficient to ensure that we actually have good procurement at the end of the day. That is what we want to see. I beg to move.

[Baroness Worthington (CB)]

My Lords, I will speak to Amendment 42 in my name in this group and in support of Amendments 46 and 47. I will keep my comments brief. We had a very good debate in Committee about what should go into the Bill in relation to the principles that will guide procurement. In my amendment, I sought to be as precise as possible and selected two specific issues relating to climate change and biodiversity loss. The reason for that is that it has been pointed out to me that society’s priorities shift over time and primary legislation should be regarded as very serious: you therefore should not put a long shopping list of things into it. However, on these two issues, I cannot imagine a time henceforth when we will not be concerned about the impacts of climate change or biodiversity loss. The Government have a huge lever for change to drive investments into solutions. It would be a great shame if we were not to make it very clear in the Bill that this lever is something that we are willing and want to use.

The more the public purse can create markets and drive investment, the more we can rely on the private sector to come forward with innovation. It will bring down the cost over time. If we do not use public procurement, we will be expecting more from our private sector, and it will debatable whether it will be able to enter into markets that are highly mature and overcapitalised. We are not talking about a level playing field here. If you want private solutions to come in, you have to support them either through government policy, through taxation or through procurement. This Bill is a huge lever that I hope we will pull.

Although I would be delighted to test the will of the House of Amendment 42, it is actually more important that we put these principles in on the operational aspects of this Bill, in which case Amendments 46 and 47, which relate to national policy planning guidance, are hugely important, and I support both of those amendments. I look forward to hearing those who speak to them and to the Government’s response.

[Lord Lansley (Con)]

My Lords, I am glad to follow the noble Baroness, Lady Worthington. I signed her Amendment 42 and I thoroughly agree with it. Indeed, I agree with all the points she made, including—I am grateful to her for saying it—the importance of focusing on the national procurement policy statement. In a sense, while it would be helpful for Clause 11 on procurement objectives to clarify what is meant by “public benefit”, there is always a risk that we either have a broad-ranging—no disrespect to it—but perfectly understandable series of statements, as in Amendment 33 moved by the noble Baroness opposite, or, as with Amendment 42, by narrowing it down, we somehow make people imagine that we have excluded these other terribly important objectives. My noble friend would doubtless say that the more we put into the procurement objectives, the more difficult it will be for contracting authorities to comply with competing considerations and so on. There is a lack of flexibility in that.

I thoroughly agree, therefore, with the proposition that we need to focus on the national procurement policy statement. The Government will publish that. As we know from other contexts, that is what the contracting authorities are going to look at. We know that the NPPS will include the Government’s strategic priorities, but we do not know what those are. The question then immediately emerges: is it proper for Parliament to have a view about that, or should we just say, “When the time comes, the Government will say what their strategic priorities are, and that’s good enough for us”?

Amendment 47 is limited in precisely the way the noble Baroness who signed the amendment said. It does not tell the Government to have a long list of strategic priorities. They may have their own strategic priorities but, during the Committee debates, noble Lords who were there will recall that there were some clear strategic priorities which the Committee wanted to see reflected in the Government’s statement. They included, perhaps most prominently, the environmental issues. One way of doing it which should cause the Government the least possible vexation is to do it by specific reference to the existing statutory targets set out in the Climate Change Act and the Environment Act—that is, to make it clear that they must ask contracting authorities to do the things that they are statutorily obliged to do in any case. They might say that that is unnecessary: actually it is not, because we all know that when these are reflected properly in the strategic priorities of the NPPS, the authorities will do it. If they are not reflected in the strategic priorities in the NPPS, they might be on statute but the authorities may well not do it. We have to make sure that they do it.

Turning to the second strategic priority in Amendment 47—requirements set out in the Public Services (Social Value) Act—I am glad that my noble friend Lord Maude of Horsham is in his place, because he will know that reflecting the strategic priority on that social value legislation is precisely one of the mechanisms for ensuring that social enterprises are given the priority they deserve. For example—I hesitate, in speaking to my noble friend, to cite this—but the European Commission document Buying for Social Impact, published in 2018, had a range of examples from across Europe, one of which was from Scotland. The Scottish example said that one of the implications of buying for social impact has been the use of not-for-profit and social enterprises in respect of public procurement. It is therefore a very effective way of bringing that to the forefront.

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Is that it? What about the role of hidden barriers to entry in contract specification? What about the impact of contract terms on different types of supplier, such as SMEs? It is very hard to be a legal draftsman in opposition, and indeed on the Back Benches. However, excessive specification is one certain route to legislative uncertainty, which your Lordships’ House must surely want to avoid. I hope noble Lords will reflect on these points in deciding whether it is necessary to test the opinion of the House.

[Baroness Worthington (CB)]

My Lords, I must make this point. Had we taken climate change and biodiversity loss seriously 30 years ago, we would not be in the situation we are in today. We are not seeing the investments we need into clean alternatives; nor have we developed the technologies from which other countries could benefit, and which would benefit our companies through their exportation around the world in order to solve this problem.

Climate change is not going anywhere: we will be debating it for the rest of this century. It seems absolutely incredible that we will not be considering it in 30 years’ time. It will be far more urgent then than it is now. We are already 30 years too late.

[Baroness Parminter (LD)]

My Lords, I add my support to the noble Baroness, Lady Worthington. There is disunity in Horsham tonight: I disagree strongly with the noble Lord, Lord Maude of Horsham. I went to school in Horsham and was on the council there. However, I take a different view from the noble Lord about the role of procurement.

He talks about procurement’s sole purpose being good value. He went on to say that it is “motherhood and apple pie” to have value-driven public procurement policy, but I argue that it is not. That is the point of procurement: to marry good value with being value-led. Why be in government if you are not using all the levers at your disposal—regulation, fiscal incentives and disincentives, and procurement, with its massive spend—to deliver the values your Government want to deliver?

Procurement Bill [HL]

Baroness Worthington Excerpts

Committee stage
Wednesday 13th July 2022 Grand Committee

[Baroness Worthington (CB)]

My Lords, I apologise for my late arrival. I will be brief. Amendment 65 in my name and the consequential Amendment 546 seek to put more detail in the Bill in relation to the national procurement policy statement. I shall not rehearse all the arguments that have been made but simply say that the issues highlighted by Amendment 65 are enduring and long-term goals of government. There is a need to see that they are continuously integrated into government policy-making, as the noble Lord who spoke before me just highlighted. We need to have clarity if we are going to make transitions happen in our economy that make it fit for the future. It is entirely appropriate that the Bill should set out specific guidance for the policy statement on these long-term, transitional issues. All procuring parties need to have clarity of purpose set out for them with no doubt. I agree that the continued resistance to this signals something that we should be very concerned about, because it indicates a degree of deviation from accepted policy in other parts of the Government and across all parties. We would like to see something in the Bill and would very much welcome discussions with the Minister on this topic as there is a strong degree of consensus on this issue.

I also strongly support the amendment in the name of the noble Lord, Lord Lansley, which would make it a requirement that the statement be published rather than there being merely a power. It seems entirely correct that that should be changed to make it a duty. I am also in favour of Amendment 66 in the name of the noble Baroness, Lady Boycott. Part of the reason I was late is that I was at a meeting discussing a response to the Government’s food strategy. There are some very important things in that strategy. We need levers with which they can be delivered. You cannot simply make policy statements and expect things to happen. If the Government are seeking greater reliance on British-grown, healthy, nutritious food, the procurement process is the way to do that, and we must see more clarity on that in the Bill. I fully support that amendment.

I also support the amendments in the name of the noble Baroness, Lady Parminter. We as a Parliament should be more included in the process through which the policy statement is derived, and I fully support her amendment that seek to improve the process by which we scrutinise and agree the statement.

[Lord Wigley (PC)]

My Lords, I have waited until the latter stages of this debate before intervening, for the simple reason that my Amendment 78A deals with totally different subjects from everything else that has been debated. I overwhelmingly agree with the comments made in the general debate, but I will not follow them through at this point.

I will speak briefly to my Amendment 78A, which is included in this rather diverse group. It relates to what I might call the “Welsh clause”—Clause 13. I was glad to hear the comments of the noble Earl a moment ago on the way that policy is being unfolded in Wales. That point has arisen on a number of occasions, in various debates.

We have already heard from the Minister that there has been close co-operation between the Welsh and UK Governments in reaching an agreed approach and wording, reflected in this Bill. That being so, it is surely of fundamental importance that this clause is not distorted or undermined by later legislative steps taken by this or any future UK Government. This amendment, if passed, would require agreement by Senedd Cymru to any proposed changes to this section. That is not an unreasonable proposition, given that the clause relates solely to Wales and is itself predicated on an approach of good will and co-operation. All that is needed by this amendment is a straight majority of Senedd Members present and voting.

In the spirit of co-operation in which Senedd Cymru, the Labour Government and Plaid Cymru have approached this matter, I invite the Minister to accept this amendment.

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[Lord Hunt of Kings Heath (Lab)]

The Government have put some objectives into legislation, such as the climate change targets. What we are saying is, for goodness’ sake, where that happens, link this Bill to the other pieces of legislation. Surely it all fits together then.

[Baroness Worthington (CB)]

I remember well when we were debating the then Climate Change Bill how important it was to include a list of conditions that needed to be taken into account when setting the climate change budgets, including economic competitiveness and all sorts of other things. All we are asking for here is to have a reciprocating set of policies to ensure that the same things happen the other way around. I do not mean to be provocative, but there is a purpose for having a Government, and it sometimes feels as if the people in government do not really want to be there. If you are in government, you have levers, so use them.

[Lord Davies of Brixton (Lab)]

On a serious note, I add the example of pension schemes. The Government have laid a series of responsibilities on pension schemes to have regard to matters such as climate targets. The Government have accepted the principle of doing it this way and the Minister seems to be ignoring that.

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[Baroness Noakes (Con)]

My Lords, my noble friend Lord Lansley has three amendments in this rather diverse group. The first is Amendment 118, which adds another requirement for tender notices under Clause 20. It would require the tender notice to provide a period during which potential suppliers can ask questions and get answers, which would then be shared with all potential suppliers. This procedure is often used in practice and it has advantages for both contracting authorities and potential tenderers, in clearing up any misunderstandings. For potential suppliers, it can clarify whether it is worth the time and effort of tendering. It allows suppliers that are not already familiar with a contracting authority to get up to speed. This would be particularly helpful for SMEs, as it would provide a relatively low-cost way to establish whether bidding for a contract is right for their business.

I have a slight concern that the amendment’s requirement to share answers with “all potential suppliers” might be onerous, but this is a probing amendment and I hope that the Minister responds positively to the idea behind it.

My noble friend’s second amendment is Amendment 123, which amends the provisions of award criteria in Clause 22. Under this amendment, the award criteria must enable innovative solutions to be offered in meeting the purposes of the tender. This returns us to one of my noble friend’s themes for this Bill—namely, that public procurement must foster innovation. It is much easier for a public procurement to specify the detail of what is to be delivered than the objectives or purpose of a contract, but good procurement would positively encourage innovative solutions, because innovation is the key to unlocking value for money for the public sector. I hope the Minister agrees with the aims of this amendment, as well.

Lastly, my noble friend Lord Lansley’s Amendment 149 seeks to amend Clause 26 by creating another reason for excluding suppliers, where no good reason is offered for a low tender price. The “most advantageous tender” rule in Clause 18 does not require the acceptance of the lowest-priced tender, but that will often be the outcome. This amendment is designed to provide encouragement to contracting authorities to understand why a tender price is abnormally low and to eliminate those that are lowballing on the basis that they gain a contract and then, later, find some way to negotiate up the price. This unfortunately happens in real life, sometimes.

[Baroness Worthington (CB)]

My Lords, I rise to speak to two amendments in my name. I am grateful for the support of the noble Baronesses, Lady Verma, Lady Boycott and Lady Parminter. At this stage in Committee, we have had the debate about why we feel this Bill is lacking specificity, does not provide sufficient guidance and is a missed opportunity, so I do not propose to rehearse those arguments. I think that, if the Bill were different, we would not be seeking to amend Clause 22 on award criteria in this way. It is evident that we are trying to convey our concern that we need more guidance on these important long-term targets that need to be embedded in the procurement process.

I ask the Minister whether, under his interpretation of

“the subject-matter of the contract”

in Clause 22(2)(a), a contracting authority can set criteria that specifically relate to the public good that derives from environmental benefits that relate to the things we have put into our amendment. If that is the case, we have a workable solution. If it is not, we need something else in the Bill. To be clear, my question is: in setting award criteria under Clause 22, can a contracting authority put in specific, measurable criteria that relate to the wider public, environmental and social good?

[Lord Wigley (PC)]

My Lords, I will speak to Amendment 124A, which stands in the name of the noble Baroness, Lady McIntosh, who is involved in other parliamentary duties at this point. She asked whether I would speak to it on her behalf, and I am pleased to do so.

The amendment specifically relates to the need for all contracting authorities to be required to ensure that the award criteria include environmental impact considerations. This, of course, is a provision which stands in its own right in the general context but also specifically relating to Scotland. It is worth noting that the genesis of this amendment comes from the Law Society of Scotland and, as such, we should take very good note of it. The society emphasises that for Scotland, procurement legislation is devolved, as we know, and that the regulations applicable to Scotland—those which have been transferred into Scots law from EU directives—include the Public Contracts (Scotland) Regulations 2015, the Utilities Contracts (Scotland) Regulations 2016 and the Concessions Contracts (Scotland) Regulations 2016.

In fact, the Scottish devolution settlement specifies that all procurement matters that are not specifically reserved under Schedule 5 to the Scotland Act 1998 are devolved unless, as always, the UK Parliament tries to modify them, subject to the Sewel convention. As we all know, use of the Sewel powers can be extremely controversial at times. The Scottish Government have flagged up their opposition to such intervention by the UK Government in the context of the Bill.

As noble Lords will be aware, the Green Party is a partner in the Scottish Government, procurement regulations in Scotland have a number of environmental considerations built into them and the EU principles largely remain in force. It is not the case that UK contracting authorities with reserved functions will be subject to UK rules. For example, the Defence and Security Public Contracts Regulations 2011 are UK-wide, as I understand it, and that has a significance in this context.

This amendment seeks to make it a statutory responsibility for contracting authorities, in setting award criteria, to

“take account of the environmental impact of the award”.

This would place a parallel emphasis on environmental impact in the context of English or UK contracts, as is the case in Scotland. As the Law Society of Scotland has stated:

“It is important that the Bill does not lead to confusion in the UK for parties, given that different rules will apply in the UK market”.


Inevitably, given the devolution settlement, there will be occasions when legislation in Scotland and England differs for a variety of reasons relating to different values, circumstances or aspirations, but where there is largely agreement on public policy, as there surely is on the environmental impacts to be taken into account, common sense would dictate that words along the lines of Amendment 124A should be built into the Bill.

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[Lord Wallace of Saltaire (LD)]

Perhaps he would care to consider whether paragraph (c) should be reduced in length, because if my suggestion would be too specific, then paragraph (c) is already much too specific, and we had better cut it down.

[Baroness Worthington (CB)]

Sorry to interrupt, but just to clarify, it seems to me that the reference to “maximising public benefit” in the Bill is completely and utterly superfluous and has no meaning. The Minister’s response has further confirmed that the only criteria that can really be taken into account are value for money and cost. We will need to return to this at Report, because it now seems very clear that this is not an accident or some kind of desire for flexibility; it is really saying that there is only one thing that counts, and that is cost—and in the short term.

[Lord True (Con)]

I respectfully disagree with the noble Baroness. It is acknowledged from the other side that value for money is an extremely important criterion. It is one of the things in Clause 11. We have discussed mechanisms and we have had discussions about the national procurement policy statement, wherein, in the draft on the table, lie large numbers of things which the noble Baroness is seeking. It is frankly not the case to say that there is nothing in here other than value for money—that is not the Government’s submission to your Lordships. The Bill takes forward the change from the use of the term “most economically advantageous tender”, MEAT, to “most advantageous tender”, MAT. That is to reinforce the precise message that procurers can take a broader view of value for money than simply lowest price. We believe that the amendment tabled by the noble Baroness is not necessary.

Amendment 129A, in the name of the noble Lord, Lord Aberdare, would make it explicit in the Bill that contracting authorities must always include an objective mechanism for determining price or cost after contract award where and to the extent that value for money, but not price or cost, is evaluated when assessing which tender is the most advantageous. We believe that commercial practice and other provisions in the Bill mean that this amendment is unnecessary. It would be highly unusual for contracting authorities not to include an evaluation of price or cost when assessing value for money in their procurements. This is good commercial sense.

Further, contracting authorities are not free to act unbounded. The procurement objectives, including those in Clause 11, will apply. I do not think it is necessary to expressly legislate for it. We will, however, publish guidance to contracting authorities on evaluation. The noble Lord may well ask me when the guidance is to be published. He also asked how we can be sure that that guidance will bite further. It may be that I can come forward with further information after Committee.

I am sorry, I have been given a long speech—

Procurement Bill [HL]

Baroness Worthington Excerpts

Committee stage
Monday 11th July 2022 Grand Committee

[Lord Hunt of Kings Heath (Lab)]

I could get into trouble quoting the noble and learned Lord, Lord Judge, to himself on constitutional issues in the Schools Bill, but surely I can quote the noble Lord, Lord True, to himself. He interpreted my noble friend’s words of wisdom as a dangerous attempt by my party—the Labour Party—to constrain individual private companies that sought to provide public services to conform to the will of whatever its wishes in power might be. If only.

I think my noble friend was really saying—no doubt he will come back if he thinks I have got it wrong—that this Bill presents us with a unique opportunity to influence a huge public spend in the direction of policies that we wish to see implemented. In today’s environment, climate change and sustainability are essential. One way or another, this Bill will leave this House with some form of words on that in it, and I doubt very much whether the Government will be able to take them out, bearing in mind that this is a Lords starter.

[Baroness Worthington (CB)]

My Lords, I rise to speak to Amendments 49 and 58 in this group referring to Clause 11 on procurement objectives. I am very grateful for the support of the noble Baronesses, Lady Verma, Lady Young of Old Scone and Lady Parminter, on these amendments.

We have just had a very interesting debate about the need to support small and medium-sized businesses as a more explicit goal within the Bill. I am here on this group of amendments to make the case for more explicit support for future generations. We have a climate crisis on our hands. We are potentially facing temperatures of 43 degrees this weekend. This is not a pleasant situation to be in; it is going to cause people to die. This is not something we should turn away from, and we must future-proof every single piece of legislation that passes through the House during our watch. This Bill offers an opportunity for us to do just that. The Government have not introduced anything in the Bill that goes beyond guidance other than simply the words “public benefit”. This needs to be given much more clarity, and my amendments seek to do that.

It was stated at Second Reading, and I apologise for being unable to attend it, that we need to improve the existing drafting. Therefore, I am looking forward to hearing from the Minister and, I hope, to meeting the Minister as I have to echo the words of the noble Lord, Lord Hunt. It feels that there is a huge amount of cross-party support for being clearer in this Bill about our intentions and that somehow or other we need to see something more explicit in the Bill, so a meeting on this topic would be most welcome.

Amendment 49 seeks to add more specific targets and a list of matters that the contracting authority must have to regard to including the importance of contributing to targets on our carbon budgets, the natural environment, air quality and other matters. I do not think anybody here is wedded to precise wording, and a number of noble Lords have come forward with different wordings in this group. Obviously, this is not an amendment I would seek to make final, but there must be a form of wording we could all agree on.

We have talked at length about the opportunity the £300 billion per year spent on government procurement offers in terms of driving forward the agenda we wish to see and increasing Britain’s productivity, innovation and the diversity of the companies able to engage in the transition we need to see. Business as usual is no longer tenable. We need to drive change, and we know that procurement is a hugely important lever for doing that.

I asked some questions about precisely how much procurement is responsible for driving global carbon emissions, but I am told that that information cannot be given, so we have no way of knowing how well aligned government policy is to the achievement of these broader goal, which is regrettable. We want to see more clarity in the Bill so that we can, over time, know whether procurement is delivering on these multiple goals.

I am sure there will be responses from the Minister that call into question the sense of these amendments and suggest that somehow it would distort the hierarchy. I reassure the Minister that that is not what we are seeking to do. We are not trying to tie the hands but are simply trying to provide the clarity and direction for such an important lever. I am sure we will be told that the next clause on the national procurement policy statement should be relied upon to deliver this clarity. Yet—and we will debate this—there is not a requirement on the Government to produce a statement; it is simply a “may”. Also, there is no fixed timetable I can see about when that will be produced so, really, we have nothing. There are no reassurances at all that this very poorly defined concept of public benefit will be given more flesh and more detail.

There is a precedent for putting something in the Bill. I highlight Section 9 of the Health and Care Act 2022, on which this amendment is modelled, which amended the National Health Service Act 2006 to give similar duties to the NHS to have regard to climate change including in relation to procurement, so it is not incoherent or without precedent to put this in the Bill. It would be more consistent to have it in legislation. If we do not do it, people will say that it was done in the NHS Act and ask why it was not done in the broader framework Bill that came subsequently. There is well-established similar terminology in the Financial Services Act 2001 and the Skills and Post-16 Education Act 2022, so we must be consistent about the future-proofing of Bills to ensure that we are sending the right signals and bringing about this transition.

I hope I have explained why I think this approach should be taken. I highlight that public benefit being undefined is a problem, which brings me to Amendment 58. Of course it is legitimate for a Government not to seek to define every word in legislation, and some legislation can be unambiguously understood when the words have the ordinary meaning that you would find in a dictionary. The trouble with not defining a term that needs to be understood by all and for that meaning to be as consistently understood as it can be is that it will introduce a level of subjectivity and a lack of clarity. In a search through existing legislation, I have found no use or definition of public benefit, except in relation to charities law, but that cannot easily be read across into procurement decisions. Amendment 58 seeks to remedy that and to define it more clearly. It would include local priority outcomes as well as national ones.

I am sure the Minister will say that the understanding of public benefit will evolve over time and therefore a degree of a flexibility is required, but that is why we have selected only the issues which are enduring and which will be playing out of the long term. We have chosen three national and local priorities. Of course, that does not limit other priorities, but these will be enduring outcomes that will be with us for the long haul and will not change. The need to address the issues that we have highlighted here will get only greater. I think this amendment should be supported; I am not particularly wedded to this way of doing it, but there needs to be something in the Bill to provide the clarity that enables us to future-proof it. We need to take the current crisis and the responsibility we carry for future generations seriously in all legislation we consider, and I therefore look forward to the Minister’s response.

[Baroness Noakes (Con)]

My Lords, this group includes my noble friend Lord Lansley’s Amendment 53. Like some of the other amendments in this group, it is defines “public benefit” in Clause 11, which the noble Baroness, Lady Worthington, has just covered in her speech. My noble friend Lord Lansley regards it as important that there is a definition in the Bill. Public benefit is a very elastic term, which is good in some ways because it allows us to future-proof the use of the language for changes in circumstances, but there should be more guidance in the Bill on the kinds of things that are intended to be encompassed by it.

Clause 11 should be the guiding star for procurement professionals and we owe it to them to make it as clear as possible what is expected from them in applying Clause 11 in their work. I think most people would understand that public benefit includes economic and environment benefits and social value, which is included in my noble friend’s definition, but my noble friend is concerned that innovation and levelling up, which he also includes in his definition, should be mentioned explicitly. They are important topics and central to government policy, and they might not be obvious to procurement officials as coming within the term public benefit. Omitting them from the Bill raises questions about how important the Government think they are. The Minister may well say it will all turn up in the national procurement policy statement, but that is not the same thing. If something is important, it can easily bear repetition.

Other amendments in this group—Amendments 58, to which the noble Baroness, Lady Worthington, has spoken, and 59—also seek to define public benefit. They reference innovation but both contain rather long lists. One problem with rather long lists is that they tend to raise questions about what is not included in them, which is why drafting a long list is often a dangerous approach to trying to explain what something means in statute.

Procurement Bill [HL]

Baroness Worthington Excerpts

Committee stage
Wednesday 6th July 2022 Grand Committee

[Lord Aberdare (CB)]

My Lords, I have added my name to Amendment 82, in the name of the noble Lord, Lord Hunt of Kings Heath. As at Second Reading, my contributions in Committee will mainly reflect the interests of small businesses, including in the construction sector, and other smaller providers such as charities and social enterprises; of course, one of the Bill’s aims is to increase access to public contracts for such smaller organisations. I am grateful for the briefings that I have received from the engineering services alliance Actuate UK, from the NCVO and from the Lloyds Bank Foundation.

I will try not to repeat the arguments so strongly made by the noble Lord, Lord Hunt, but small businesses and charities often struggle to compete effectively in competitive tendering processes. They do not have teams with specific bid-writing expertise, so it is often chief executives or managers within the businesses who have to prepare proposals on top of their existing full-time and front-line roles. The process of completing pre-qualification questionnaires and invitations to tender is often onerous and complex, requiring considerable time and resources. Tenders are often launched with little or no warning and with tight timescales. Greater lead-in times and awareness of when tenders will be published would better help small businesses and charities to prepare and subsequently compete for relevant contracts.

The existing wording in Clause 14(1) allows for better practice, confirming that contracting authorities are able to publish a planned procurement notice. But your Lordships will know that being able to do something within legislation does not mean that it actually happens. Amendment 82 seeks to beef up the wording by replacing “may publish” with “must consider publishing” to place a greater onus on contracting authorities to publish a planned procurement notice. I feel that even this requirement is rather a low bar, as well as being extremely difficult to monitor or enforce. My preference might be simply to replace “may publish” with “must publish”.

The amendment also states that a planned procurement notice must be considered whenever “no significant barriers exist” and

“no detriment to service recipients would occur”.

Again, I might have preferred a more positive criterion spelling out that such a notice specifically should be published when this would enable a diversity of suppliers, including of course small businesses and charities, to participate in the contract. I hope the Minister will be able to tell us how the Government plan to ensure that small businesses and charities will receive proper notice of tenders that might be suitable for them, preferably through a requirement for planned procurement notices to be published in most circumstances.

This is just one aspect of ensuring that smaller contractors are involved early enough in the process, not just to be aware of and prepared for tenders for which they might be able and suitable to bid, but also when appropriate to bring their own skills and innovation abilities to influence the shape of the overall bid. Early contractor involvement is something I may come back to later. I welcome the amendments from the noble Lord, Lord Lansley, which also seem to point in this direction. Meanwhile, I am happy to support the noble Lord, Lord Hunt, in his Amendment 82.

[Baroness Worthington (CB)]

My Lords, I declare my interest as co-chair of Peers for the Planet and will speak to Amendments 85 and 87 in my name in this group. I also apologise as this is the first time I have spoken on this Bill, having not been present at Second Reading, but I read the debate with great interest.

I have tabled amendments to this Bill with three goals in mind: first, to try to embed a consideration of the climate change crisis facing us and the environmental goals we must meet into primary legislation. It is important that this appears on the face of the Bill rather than in a yet to be approved policy statement to show the long-term leadership and clarity around tackling these issues, given that public procurement is such a huge lever on both these issues. Secondly, I am seeking to put climate and nature-positive procurement processes in from the very outset of preliminary market engagement and embed it throughout the award criteria setting process to appointment. Thirdly, I want to bring greater transparency to the process and visibility so that all can see how this important lever is being deployed.

The Climate Change Committee highlighted in its recent progress report to Parliament the importance of ensuring that all procurement decisions by all government departments are aligned with our net-zero goals. My amendments seek to address this recommendation. I look forward to hearing the Minister’s thoughts and ask if he would agree to meet myself and other supportive Peers to discuss whether these amendments might be supported.

Amendments 85 and 87 relate to Part 3 of the Bill, under Clause 15, “Preliminary market engagement”. They aim to bring in an ambition to the new procurement regime to positively reward and incentivise those suppliers who are innovating and providing climate-positive and nature-positive sustainable products and services. I am very grateful for the interventions of the noble Lord, Lord Lansley, who I think is seeking to achieve a similar goal: to open this market to new entrants and providers. We cannot stay with the status quo; we must see a transition of our economy towards a more sustainable future. This offers government at every level a very important lever. I hope that it would bring economic benefits for business and wider society if we were to do this.

I am very grateful for the cross-party support of the noble Baronesses, Lady Verma, Lady Boycott and Lady Parminter, on these two amendments.

--- Later in debate ---

[Lord True (Con)]

My Lords, I think the noble Lord makes a slightly different point. It is a point of concern, and we discussed it on the earlier group. I understand that how much is in secondary legislation and so on is a concern to noble Lords. When I talk about flexibility, I am talking about a structure that is simple and clear, and does not say, “Before you apply to procurement, you have to do a, b, c, d, e, f, g, h…”. We could probably use up the whole alphabet with the aspirations that we will hear in this Committee before anyone can get past the starting gate that we are discussing now. One needs to bear in mind the need for that sort of flexibility. That is the relative simplicity I am thinking about. However, time is late and I need to respond, not to the debate launched by the noble Lord opposite, but to the amendments.

My noble friend Lady Noakes came forward with a very thoughtful amendment, as always. There has been an outstanding debate, and I will want to study it in Hansard and reflect on everybody’s contributions. My noble friend had a very specific point in relation to estimation of cost and how services should be aggregated. Her probing amendment seeks to establish where the Government are coming from.

The proposed methodology in the Bill for estimating the value of contracts, which allows some flexibility, is very similar to the long-standing valuation rules in existing regulations and will therefore be helpful to procurers. Paragraph 4 of Schedule 3 contains an “anti-avoidance” provision that is designed to ensure that contracting authorities do not artificially subdivide procurements in order to evade the rules. This mirrors an analogous concept in the long-standing regulatory scheme but we think that it is presented in a simpler and more user-friendly way. It involves a general rule that contracting authorities should, where possible, seek to aggregate for the purposes of valuation but, as my noble friend said, it also permits exceptions where there are good reasons. Without the “good reasons” exception, the provision becomes something of a blunt instrument.

My noble friend asked for some examples so I will give one: an authority buying its printers from a particular supplier does not necessarily mean that it should buy all its toner, paper and servicing from the same supplier if it believes that it can get a better deal elsewhere. We believe that contracting authorities need to continue to have discretion not to aggregate where they have good reasons not to do so. I will look carefully at my noble friend’s point about the overall estimation of costs but we do not believe that it would be desirable to set out in legislation what constitutes a good reason because this will depend on the circumstances of each case. I request that this amendment be withdrawn.

Amendment 81, tabled by the noble Lord, Lord Wallace, seeks to add elements from the Government’s Sourcing Playbook as a new clause before Clause 14 to require contracting authorities to conduct a “delivery model assessment” when introducing “significant change” in their business model, helping to inform strategic decisions on insourcing and outsourcing. I agree with the noble Lord that rigorous assessment of contracting authorities’ plans is essential for good delivery. However, again, we have continuously sought throughout the development of the Bill to ensure that it remains flexible and does not unnecessarily stipulate blanket requirements, which tie contracting authorities down to a single process that adds unnecessary burdens or will not necessarily work in all cases. For example, “make or buy” decisions, which the noble Lord asked about, need to be considered carefully—indeed, our commercial guidance in playbooks includes comprehensive guidance on this—but, in our submission, it is not necessary for this to be mandated in legislation. Furthermore, large outsourcing contracts will obviously be scrutinised by departmental, Cabinet Office and Treasury controls to ensure value for money and successful delivery.

So we believe that these things should not be mandated by legislation and that this is already achieved through the development and implementation of the sourcing playbooks, which the noble Lord kindly drew our attention to and actually complimented very much with his desire to put them into primary legislation. I am grateful for his endorsement of those principles.

I turn to Amendment 82, tabled by the noble Lords, Lord Hunt of Kings Heath and Lord Aberdare. Some of the underlying arguments on this clause obviously touched on extremely important issues. The amendment proposes to amend Clause 14 to create a presumption that contracting authorities should publish a “planned procurement notice” unless there is good reason not to. Again, I agree that it is vital that the market—particularly certain aspects of it to which the noble Lord and others referred—is given sufficiently early warning of what contracting authorities intend to buy so that suppliers can gear up to deliver. This is particularly important for SMEs and charities, which were referred to by the noble Lord and others.

The Bill makes additional provision to this effect in Part 8. Contracting authorities with an annual procurement spend of more than £100 million will already be required to publish a “pipeline notice”, which will contain information about upcoming procurement with an estimated value of more than £2 million that the contracting authority plans to undertake in the reporting period. This will allow suppliers to see higher-value upcoming procurements and make a decision on whether they wish to bid.

However, contracting authorities should be left to determine where planned procurement notices are useful for lower-value contracts, owing to the potential burden. I will come back to charities. Contracting authorities are incentivised to make use of these notices through a reduction in the tendering period in circumstances in which they are properly issued. They will not necessarily be useful in all circumstances; as such, the Government are currently not of the view that it would be helpful to mandate their use, but I will reflect on what the noble Lord said.

Amendment 84, tabled and interestingly spoken to by my noble friend Lord Lansley, seeks to add to the purposes of “preliminary market engagement” in Clause 15(1). This includes,

“ascertaining how the tender notice may be expressed in terms of outcomes and”

KPIs

“for the purpose of minimising … processes”.

Focusing on the outcomes of the contract, as opposed to being too prescriptive on how these are achieved, is indeed a sensible reason for conducting preliminary engagement—I agree with my noble friend on that. Contracting authorities are encouraged to consider KPIs in their preliminary market engagement. For example, Clause 15(1)(c) includes

“preparing the tender notice and associated tender documents”.

I will look at the Bill against what my noble friend has said, but, as I have said, in some respects the Bill already provides for this and encourages the purpose that he has asked for in terms of Clause 15(1)(c) giving the purpose of preparing the tender notice and documents.

Amendments 85 and 87, tabled by the noble Baroness, Lady Worthington, and others, are important. They provide that, when undertaking “preliminary market engagement”, contracting authorities may engage with suppliers in relation to designing a procurement process that will maximise certain public goods and encourage innovation. I very much hear what noble Lords across the Committee have said about innovation, and I will certainly take that thought away. I think there would be a lot of understanding and support in government for that aspiration; innovative new entrant suppliers should be actively sought out.

We wish to promote and encourage contracting authorities to conduct preliminary market engagement. However, this engagement needs to be appropriate and related to the subsequent procurement. Imposing such an obligation on contracting authorities could have the counterproductive effect of disincentivising preliminary market engagement which, I am sure we all agree, would not be desirable.

[Baroness Worthington (CB)]

Just to clarify, Amendment 85 would not make a mandatory requirement; it simply places it under the “may” condition of Clause 15. Therefore, it does not materially change Clause 15 but just explicitly states that we are seeking this process to draw out innovation.

[Lord True (Con)]

I take the noble Baroness’s point and understand what she is saying. This takes me back to the opening remarks. We have doubts about the appropriateness of including wider policy objectives, such as those suggested in the noble Baroness’s amendment, in this piece of primary legislation. Each procurement is different, and what is appropriate, for example, for a large-scale infrastructure project, may not be appropriate for a smaller, price-driven transactional arrangement. The strategic priorities that a Government require contracting authorities to have regard to when carrying out their procurement functions are, therefore, better detailed in the national procurement policy statement—which we will debate later in Committee—than in primary legislation.

Amendment 88, tabled by my noble friend Lord Lansley, seeks to require contracting authorities to take into

“account … the size or experience of”

suppliers when determining whether the supplier’s involvement in preliminary market engagement has placed them at an unfair advantage and, therefore, whether they should be excluded from any subsequent procurement. Like other noble Lords who have spoken, my noble friend put forward a thought-provoking point. As I said earlier, I agree with the importance of building capacity among SMEs. We have seen an increase in spending on SMEs in recent years. Figures published last month show that government spending with small businesses rose to a record £19.3 billion in 2020-21—the highest since records began. We hope that the new procurement regime will make it simpler, quicker and cheaper for suppliers, including SMEs, charities and social enterprises, to bid for public sector contracts, and with lower barriers to entry to the market.

Bank of England and Financial Services Bill [HL]

Baroness Worthington Excerpts

Tuesday 15th December 2015 Lords Chamber

Moved by

[Baroness Worthington]

16: Before Clause 18, insert the following new Clause—
“ReportingFinancial sustainability report
(1) Within twelve months of the coming into force of this Act, the Treasury must prepare and publish a report containing the matters specified in subsections (2) and (3).
(2) The report must contain an assessment of how the following aspects of financial regulation contribute to or hinder the United Kingdom’s long-term sustainable economic growth—
(a) rules governing the admission of securities to recognised growth markets,(b) rules governing the admission of securities to the Official List, and(c) the time horizon of the Bank of England’s financial stability monitoring activities.(3) The report must make recommendations for the development, via the regulation of financial services, of uniform, consistent and clear standards for the disclosure of climate-related financial risk, in order to provide information to lenders, insurers, investors and other financial intermediaries.
(4) In this section—
“long-term sustainable economic growth” means economic growth that is resilient to risks arising from long-term fundamental change, such as climate change, technological change and demographic change;“recognised growth market” has the meaning under section 99A of the Finance Act 1986;“Official List” has the meaning under section 74(1) of the Financial Services Markets Act 2000;“the Bank of England’s financial stability monitoring activities” means activities undertaken by the Bank of England in order to meet the objectives set out in section 2A of the Bank of England Act 1998.”

[Baroness Worthington (Lab)]

My Lords, in Committee we considered three issues relating to the wider sustainability of financial services in the UK and the way they are regulated and overseen partly by the Bank of England, and by other bodies. In tabling this amendment at Report, I have endeavoured to capture the three topics that we discussed previously in one overarching obligation or requirement on the Treasury to report back to the House on these important issues.

Since Committee, two very important events have served to illustrate the importance of wider sustainability, and climate change in particular, in relation to our financial services. The first is the appalling flooding throughout the North of England and the impact that has had on our businesses, homes and financial services. The second is the signing into law of the climate change agreement in Paris, which clearly sets the world on a path towards rapid decarbonisation in order that we can stay within the new goal of a limit of well below 2 degrees centigrade, aiming for 1.5 degrees. This has been virtually universally accepted as an historic moment which will have significant ramifications.

On financial services and our economy, it is clear that we will need to adapt to oversee an orderly transition from a relatively carbon-intensive system to one in which we are no longer adding anthropogenic carbon dioxide emissions to the atmosphere. The Treasury and the bodies which report to it can have a significant role in helping to bring about that orderly transition.

I will briefly mention the three issues the amendment touches on, the first of which is that we should consider the way we list various entities on our growth markets. It is clear that the Government intend to encourage investment in growth markets—they have indeed introduced a host of tax benefits to the companies listed in our growth markets—but these are relatively unregulated. The nature of those markets is that they can attract companies with a relatively short outlook—a desire to raise capital in London without thinking more broadly or in the longer term. A number of companies listed in our growth markets, including the AIM market, are in the extractive fossil fuel industries, which I would be hard pressed to classify as growth industries that the Government should be seeking to encourage investment in. We have asked that a report should look at these aspects and consider whether there is more that needs to be done to oversee the way in which these growth markets are attracting capital and rewarding investment.

The other important issue that we would like to be reported on is disclosure. I am grateful to my noble friend Lord McFall and the noble Lord, Lord Deben, who is not in his place, who spoke on this so eloquently in Committee. This topic is gaining in prominence. Indeed, in Paris, the Governor of the Bank of England, Mark Carney, announced that Michael Bloomberg will assist him in the FSB in looking into the whole issue of disclosure at an international level. I have spoken directly with the Minister about this, and I know that the Treasury view is that this should be conducted at an international level. I do not disagree with that, but in the spirit of leadership, which we showed so clearly in Paris, it is appropriate that the UK should lead at home on these issues and not simply rely on international, multilateral processes. We are, of course, one of the largest financial centres in the world; we have a number of extractive and energy industries listed here, raising capital here and operating from here, and it is incumbent on us to work out what more can be done to ensure that we speed this orderly transition to a cleaner economy.

--- Later in debate ---

[Lord Bridges of Headley]

My Lords, I am sympathetic to the intent of the amendment, and it is important that the Government consider how they can ensure that economic growth is resilient to risks arising from long-term fundamental changes. As the noble Lord, Lord Teverson, said, it is not just about climate change; there are technological and demographic changes, all of which could have significant implications for the global financial system. It is also important for the Government to understand and adopt best practices for the disclosure of climate-related financial risk. I agree with the noble Baroness, Lady Worthington, and she is right to raise this issue. However, as I hope I shall explain, the amendment is unnecessary and I hope noble Lords will agree with me.

The current legislation already provides for the statutory framework for the Financial Policy Committee to consider long-term systemic risks such as those listed in the amendment. Indeed, at its meeting of March 2015, the FPC discussed precisely one of those risks—to financial stability. This is evidence that the FPC considers risks across the breadth of time horizons and will continue to identify long-term as well as more immediate risks. The Bank is also taking action on longer- term systemic risks through other channels. The issue of climate change, for instance, has been added to the Bank’s One Bank Research Agenda. Requiring the Treasury to produce an additional report on sustainability would mean unnecessary duplication of work.

On the topic of admission of securities to growth markets, the UK’s financial markets are obviously crucial to the efficient allocation of capital that supports jobs and growth, including to unquoted companies where the Government allow certain tax exemptions to improve access to the finance necessary for companies to expand. AIM, as the biggest SME growth market in the UK, plays an important role in providing funding opportunities beyond bank finance for unquoted SMEs which cannot fulfil the requirements of the main market at this stage of their life cycle.

Turning to the specific issue of disclosing climate-related financial risks, at the Paris climate change conference the Governor of the Bank, in his capacity as chair of the Financial Stability Board, announced that the FSB is establishing a task force on climate-related financial disclosures—the point the noble Baroness mentioned. This announcement follows the “Breaking the Tragedy of the Horizon” speech given by Governor Carney at Lloyd’s of London earlier this year. The newly established task force, under the chairmanship of Michael Bloomberg, will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders.

It is our firm belief that climate change as a global phenomenon can be tackled most effectively through co-ordinated international action. As the noble Baroness mentioned, to date a lack of co-ordination on the topic of disclosure initiatives has resulted in an estimated 400 different climate-related disclosure schemes. There is a real risk that this inconsistency makes it challenging for investors and other stakeholders to judge climate-related risks effectively.

The Financial Stability Board, as the authoritative forum for considering potential financial stability risks, provides the ideal international setting in which climate-related financial risk disclosures should be discussed, standards agreed and recommendations made. This Government are therefore fully supportive of the work of the FSB task force and have instructed government officials to engage fully in this international debate to ensure that the long-term financial risks associated with climate change are given full consideration.

This amendment requires the reporting of recommendations on standards for the disclosure of climate-related financial risk within 12 months of the coming into force of the Act. Considering that the task force is scheduled to complete its work within a year, this suggested timetable risks pre-empting the work of the task force already under way.

This is not to say, however, that domestic action does not have a role to play in improving climate-related risk disclosure. In fact, regulations made under the Companies Act 2006 already require all quoted companies to report on their greenhouse gas emissions. I submit that between our considerable spending commitments, our stance in international negotiations and our leadership in mobilising the financial system to help combat climate change, the Government are at the very forefront of efforts to understand and address the full range of financial risks that long-term fundamental change, such as climate change, could pose. I therefore, with respect, ask the noble Baroness to withdraw her amendment.

[Baroness Worthington]

My Lords, I am grateful to the Minister for his response. I am not entirely satisfied that this issue has been looked at in sufficient detail by the Treasury. I am grateful to the Minister for his answer in response to the FSB, but in London now we have some of the brightest and best minds in the financial services sector and we can begin to address this problem ahead of our international efforts.

In particular, I am interested in how we are regulating unlisted companies. The Minister is correct to point to the disclosure requirements on listed companies, but we are giving substantial tax incentives to a fairly unregulated part of the financial sector upon which a large part of our economy relies, and more scrutiny is needed on that sector in particular.

However, at this stage, I am happy to withdraw the amendment, and I hope that this debate and this topic of conversation will continue in this House and in the other place. I beg leave to withdraw the amendment.

Amendment 16 withdrawn.

Bank of England and Financial Services Bill [HL]

Baroness Worthington Excerpts

Monday 9th November 2015 Lords Chamber

Moved by

[Baroness Worthington]

8: After Clause 6, insert the following new Clause—
“Long-term systemic risk
After section 9C(3)(c) of the Bank of England Act 1998 (objectives of the Financial Policy Committee) insert—“(d) systemic risks to the long-term stability of the UK financial system attributable to long-term fundamental change, such as climate change, demographic change, and technological change.””

[Baroness Worthington (Lab)]

My Lords, today we are discussing a Bill that should have the long-term sustainability of the financial system at its heart. To that end, we are discussing provisions that would open up the Bank to further scrutiny, maintain existing scrutiny and guard against the possible repetition of groupthink. Amendment 8 would change the list of risks, as set out in the Bank of England Act 1988, that the Financial Policy Committee must consider in order to include long-term systemic risks to our financial stability.

These risks may arise from fundamental structural changes that have important implications for our financial system and therefore our long-term sustainable economic growth. There are some risks to longer-term financial stability that do not emerge within the typical time horizons of financial markets or the monitoring of the Bank. The time horizon of the Financial Policy Committee’s stability activities is not set in statute but according to the governor; it typically extends a little further than that of the Monetary Policy Committee, which is one to three years, but certainly no further than the outer boundaries of the credit cycle—around five to seven years. The danger is that, by the time fundamental structural changes that have been developing in the background are acknowledged by markets and regulators as an important issue for financial stability, it may be already too late. Unsustainable investments may have become embedded in institutions’ balance sheets, with capital locked into enterprises and business models that may have been rendered uneconomic as a result of long-term changes.

I will touch on three areas where risks are apparent over longer-term time horizons. The rise of new technology, which has already radically and permanently reshaped both the real economy and the financial industry, and future innovations such as machine learning, artificial intelligence and the rise of digital currencies, will have important implications for the wider economy and the robustness of our financial sector. Demographic change around the world is also reshaping economies, and with them their financial services industries. The increasingly ageing populations in developed economies will have implications for the pensions and the insurance industries. An IMF report found that if people live just three years longer than expected, in line with past underestimations, such an increase in longevity would add 9% to pension liabilities for private pension plans in the United States. These demographic changes have important implications and we must not be caught in just short-term thinking.

Lastly, we face the profound challenge of long-term changes in our natural environment, including the overarching risk of global climate change. This challenge has two elements: the implications of physical changes in the environment for the real economy, and the responses to that change from governments and other key actors as impacts become more apparent and policies are introduced. The financial services industry, like every other industry, will have to respond and adapt to climate change. The risk it presents, though relatively long term, should be integrated into prudential regulation now.

In recognition of these risks, Defra invited the Bank of England in 2013 to take part in an adaptation reporting cycle under the Climate Change Act. The Bank took part on a voluntary basis, and that is welcome. However, it was the PRA that undertook to respond to Defra’s request. The Financial Policy Committee’s response to the invitation was recorded in its minutes of the meeting of March this year:

“The committee’s central expectation was that the risks to financial stability were likely to be beyond the FPC’s typical policy horizon”.

That is precisely the problem that governor Mark Carney highlighted when he referred to the “tragedy of the horizon”. It is the problem I wish to raise by moving this amendment.

Of course, it is to be welcomed that the Bank is looking into the implications for the insurance industry, but as I said, this goes far beyond just insurance. Researchers from Oxford and Cambridge universities estimate that between 5% and 20% of the average diversified equity investment portfolio is at risk of re-evaluation as a result of climate change. The UK, although home to only 0.2% of the world’s coal, oil and gas reserves according to Carbon Tracker in 2013, listed in London alone reserves equivalent to 18.7% of the remaining global carbon budget. The over-representation of fossil fuels in our markets is a subject that I hope we can return to on Wednesday, as I have tabled another amendment on this theme.

To sustain economic development regulators must take into account long-term trends and changes that markets may fail to see. That means allowing time horizons to be determined not by the credit cycle, market behaviour or the Bank’s price stability objectives, but by the unknown future risks our financial stability regulators must be equipped to guard against. As global leaders will meet less than a month from now in Paris to discuss the long-term sustainability of the planet and climate change, it is right that, across all areas of policy, we ask what the implications are of this historic meeting. Making our financial sector more attuned to the risks of climate change and other long-term threats is something the UK can and should show global leadership on. Our current governor is already making the case. The Government can and should do more. I look forward to hearing the Minister’s response. I beg to move.

[Baroness Kramer]

My Lords, I added my name to this amendment because this is a crucial discussion and an important opportunity to draw the Government’s attention to these issues. This Government, like many others and almost every speaker on financial issues in this House, have expressed their frustration with the short-termism that dominates the British financial services industry: a search for short-term profits rather than understanding the longer term perspective. Indeed, the Chancellor has often voiced frustration at the fact that UK pension funds are very unlikely to invest in the kind of long-term infrastructure projects he sees as essential for our country. Canadian pension funds will gladly invest, but not UK ones. We suffer from this ongoing blight. Of course, the ultimate frustration is that many of those who put their money into such pension funds would be absolutely delighted to see it invested in infrastructure, renewable energy and sustainable projects, because they are often looking for a 30 to 40-year horizon regarding the return on the money they invest. However, that is not the way the system works.

When the Bank of England was given responsibility for financial stability, there was an assumption that part of the thinking would then extend into that long-term arena, and that the Bank would be freed from the narrow and short-term issues of stability. In fact, I think the Chancellor talked about avoiding the stability of the graveyard and looking at the much longer term horizon. So far, the Bank has not used its wide range of powers or its influence to enter into that territory. Whether it is sustainability as defined by projects such as renewable energy, rail infrastructure or broadband, a wide range of projects need a response from the UK’s financial services. That surely requires the Bank to take some role, and to take cognisance of this issue. I hope that debates such as this will persuade the Treasury and Government to engage much more extensively in those conversations with the Bank in its various and many parts, and to consider whether the relevant committees should at least have regard to those priorities, and potentially see them as obligations and duties, given the important role that long-term investment plays in the future of the UK.

--- Later in debate ---

[Lord Bridges of Headley]

My Lords, I begin by thanking the noble Baroness, Lady Worthington, for sparing the time to meet me to discuss this amendment before today and repeat my offer that, should she wish to have further meetings with me or the Bank of England I am sure that I can happily facilitate it. I thank the noble Baroness, Lady Kramer, for once again making a very eloquent contribution to this debate.

I am sympathetic to the motives behind this amendment. Climate change, demographic change and technological change are important structural issues, as the noble Lord has just said, which could indeed have a very significant impact on financial stability. It is right that the macroprudential authority should be alert to these, and other, long-term systemic risks. However, as I hope other noble Lords will agree, in the light of what I am about to say, the amendment is unnecessary, so I do not feel able to accept it.

I start by stressing one point. The current legislation places no limit on the time horizon of the systemic risks that the FPC must consider in its assessment of the risks to the resilience of the UK financial sector. Therefore, the current legislation already provides for the consideration of long-term systemic risks such as those listed in the amendment. Indeed, at its meeting of March 2015, the FPC discussed precisely one of those risks: the risks to financial stability from climate change. This is evidence that the FPC has previously considered longer-term systemic risks, and may do so again in future, should it see fit. Although the FPC concluded that the risks from climate change would not materialise within its typical policy horizon, the Bank is also taking action on longer-term systemic risks through other channels, given the importance of these issues. I shall draw noble Lords’ attention to just three, although I am happy to meet to discuss the issue further.

First, the issue of climate change has been added to the Bank’s One Bank Research Agenda. I would be very happy to arrange for the noble Baronesses, Lady Worthington and Lady Kramer, to meet with Bank officials to discuss this issue in more detail. Secondly, the governor of the Bank is using his chairmanship of the Financial Stability Board to consider the risks that climate change poses for financial stability and the steps that could be taken to mitigate them, including through improved disclosure. I remind your Lordships of what the governor said in the speech to which the noble Lord referred. He said:

“With better information as a foundation, we can build a virtuous circle of better understanding of tomorrow’s risks, better pricing for investors, better decisions by policymakers, and a smoother transition to a lower-carbon economy”.

He set out in quite a lot of detail what he considered the most effective disclosures are—they are,

“consistent, comparable, reliable and clear”,

and “efficient”.

Thirdly, the Bank’s open forum will host a public discussion of some of the types of risks raised in this amendment, such as how financial innovation and technology can support the economy and how financial markets can regain their social licence. Those are just three of the steps that I would like to highlight. I would be more than happy to meet the noble Baroness again. I hope that what I have said addresses some of her points and that she will withdraw her amendment.

[Baroness Worthington]

My Lords, I am genuinely grateful for how the Minister has responded to this amendment. It was intended to stimulate debate and elicit a reassuring response and, indeed, the Minister’s words have been reassuring. It is clear that the stakes are very high when it comes to climate change, and every aspect of government policy needs to think through the implications so that we do what we can in the time that we have to avert and limit the risk. It has been a significant new intervention from the governor to make this part of the Bank’s One Bank Research Agenda, and we hope that that will bear fruit.

I know that the governor is pursuing initiatives with the FSB that are international in nature. My point was to try to stress the fact that the UK sits at the global table when it comes to financial services, and the City of London makes such a valuable contribution, not only to our economy but globally, that we can show leadership here. We should not simply say that this can be sorted out by an international process. There are things that we can do as the UK Government and as we sit here now, with the legislation in front of us, to send a strong signal. But as I say, I am reassured.

On the issue of disclosure, more can be done now for us to start to think through what those standardised reporting requirements might be. I have tabled an amendment today that will enable us to have a further, more detailed discussion on that point.

Although there is no limit on the time horizons considered by the committee, I hope that over time the culture of the Bank will change through as many efforts as we can make and that in future, if there is a need for legal change, we might revisit this. Changing culture is a difficult thing. As the Minister said, every needle makes a difference, and I hope this needle will hit the mark and cause this debate to continue because this needs to be thought through now because it is incumbent upon us to act. I beg leave to withdraw the amendment.

Amendment 8 withdrawn.

Bank of England and Financial Services Bill [HL]

Baroness Worthington Excerpts

Monday 26th October 2015 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, the hour is late and I am sorry to detain the House longer than might have been expected. I wish to make a short contribution on a specific theme relating to the role of the Bank of England in helping deliver the Government’s economic policy for strong, sustainable and balanced growth. I wish to focus on the word “sustainable”. As we debate the Bill in this House, I hope we will think about the wider sustainability of our financial sector. In particular, I have questions I would like to put to the Minister. These relate to the role of the financial sector’s regulatory frameworks in helping to ensure that we are not susceptible to future shocks or crises born of growing global environmental risks.

At the start of the financial crisis, investors went from believing they knew the value of products containing sub-prime mortgages to realising they knew little about what they were worth, and that was a very disorderly transition. The lesson for the challenges we face from climate change is that we should not underestimate risks we know exist because we lack a sufficiently clear framework to understand their implications. I believe our financial regulators must have a role in ensuring that climate risks are properly appreciated and that the transition is as orderly as possible. The City of London has a particular exposure to climate risk: close to one-fifth of FTSE 100 companies are engaged in upstream fossil fuels and, according to the Bank of England, 30% of equity and fixed-income products are exposed to climate risk.

I would therefore like to touch briefly on three areas. The first is disclosure. In its response to the consultation on the Bill, the Treasury referenced the governor’s recent speech which talked of the need for more and better disclosure about climate risk. Does the Minister agree that there is currently an information gap and that better disclosure of information is needed? Are we, for example, monitoring the extent of the exposure to fossil-fuel-based risk that the UK-listed company market is carrying and how this risk is changing over time?

My second point concerns time horizons. Typically, monetary policy has a future time horizon of only one to three years, and other financial regulatory horizons, including credit rating agencies’ modelling, are typically also short term. How can longer-term risks be better incorporated into the Bank’s thinking without overloading it with impractical burdens? Both the Committee on Climate Change and DECC regularly use decadal-long timescales in advising on and setting policy. One answer could therefore be to require more joined-up thinking between different parts of the UK governance framework through, for example, a closer working relationship between the Committee on Climate Change and the Bank of England, both of which are independent bodies of experts reporting to Parliament.

Finally, is there more that can be done to enable stress testing of economic policy and investment decisions, through the use of carbon pricing scenarios? What role can the Treasury, the City of London and the Bank play in helping to ensure that comprehensive carbon-pricing policy is introduced and works effectively? We know that well-regulated capital markets can be incredibly efficient and drive strong and sustainable and balanced growth, but they do need to be well regulated.

We know that multiple risks lie ahead in relation to climate change and that London is a city well placed to think through its implications in advance of its becoming a crisis. We also know, in advance of the international climate talks in Paris, that the UK rightly wishes to be seen as a thought leader on climate change and our response to it. We must ensure that our economic regulatory framework protects us against the non-linear risks associated with the impacts of climate change and that it also helps to deliver an orderly transition to a world with a safe climate. I hope in Committee to progress this line of argument, and I thank noble Lords for their patience this evening.

Energy: Fracking

Baroness Worthington Excerpts

Monday 17th March 2014 Grand Committee

[Baroness Worthington (Lab)]

My Lords, what an interesting debate we have had. I start by addressing the question put to us: should every serious environmentalist now favour fracking? I have read the report and found it very interesting, but I was left with an overriding impression that it was an excellent report in arguing against coal but not as persuasive in arguing in favour of fracking. In fact, I take issue with the title because, really, this was about gas, not about fracking and, as anyone who has studied the subject will know, fracking is as much about oil extraction as it is about gas. Certainly in the US it has led to a big increase in oil production. That has had interesting geopolitical consequences—I do not doubt that—but it is not an environmental move forward if you are starting to argue that oil is somehow a benign, low-carbon substance that we should move towards. So it is partial in its coverage of the issue of fracking by omitting to reference the fact that it is as much about oil as it is about gas.

I find myself in an interesting position whereby I support what the noble Earl, Lord Caithness, has said. I am very glad that he made the point that there is no way in which you can present shale gas or fracking as a panacea. You can point to the fact that it could have great benefits but you cannot say that it is the answer to everything. When I hear the noble Lord, Lord Lawson, speak with such passion for this subject—almost as much passion as he has for arguing that climate change is not real and that renewables are not worth it—I always wonder why that is. It must, I suppose, be a personal interest in the technology or an excitement about it. However, it is nice that we are having a debate in which the framing of this is that shale gas is needed to reduce carbon dioxide. Clearly, that is true; gas can have a significant bridging effect in helping us to tackle climate change.

[Lord Lawson of Blaby]

I am still not quite clear what the position is of the Labour Opposition on the development of resources of shale gas.

[Baroness Worthington]

If the noble Lord had given me a moment, I was going to come on to that. We have a very clear position: it has a role to play but we need a seasoned, mature and rational debate about that role. There is no point in overhyping it and claiming that it is going to be this great, wondrous change in how we use energy in the UK. We can all look to the US and say what an amazing experience they have had over there. When I was in Washington recently, I read an excellent book called The Frackers—I have been wracking my brain but I cannot remember the author—which I recommend to everyone. It is an inside account of how the fracking industry grew up in the US. I was left feeling admiration for its energy and enthusiasm, the amount of risk it was prepared to take and how many setbacks it went through. That these wildcat prospectors brought about a massive change in the US is absolutely true.

Do I think it could be replicated in the UK or Europe? Absolutely not. I am afraid that the conditions here could not be more different to those that led to the fracking revolution in the US. One can argue that they have helped to develop new technologies, which is absolutely right—horizontal drilling and fracturing are now new tools in the extractive industry’s toolbox—but will they be able to deploy them in the UK at scale and have the kind of impact that they have had in the US? I doubt it. There are very different factors: the way in which the US treats land rights, and it being an isolated market, meant that prices could plunge rapidly there, which they will not in Europe. We are connected to the global gas network and we have prices set for us on the global market in a completely different way to the US. I recommend reading the book, because it brings a dose of realism to the whole debate.

As to whether environmentalists could be persuaded to endorse fracking, it has a potential role to play. The key is for the industry to be upfront about why people are potentially opposed to it. It is often not about the pollution, the water or taps that might catch fire, but more to do with local objections. Again I find it ironic that we have a nation which cares deeply about what happens in its backyard. That is why onshore wind has been held back and why in the past we have seen great opposition to incineration in local communities. There will be the same reaction to fracking, I am afraid, and unless the industry is upfront and honest about that, it will be missing the point.

Perhaps this reference will not work very well in the House of Lords, but I heard recently that Bez from the Happy Mondays is now standing as an anti-fracking candidate. That says something about what popular public opinion thinks about this technology. Whoever was responsible for its PR has done a disastrous job; it is not the Government who are holding it back. The Government have given fracking tax exemptions and changed local planning to try to encourage it, so there will be money flowing. I am not saying it is bribery but it is encouragement. I still think there is going to be a great deal of unhappiness and opposition to this, and we have not even started. We have one or two test wells that have been sunk yet here we are talking about this as if it is a huge contributor of change in the UK. I severely doubt that.

As the noble Earl, Lord Caithness, pointed out, population density is important. In answer to the challenge from the noble Lord, Lord Lawson, in those areas of the US where population density is higher, there is great opposition. In the north-eastern states, where there is a huge reserve, some states have imposed an outright ban; others have taken it very slowly. This is because the population there are capable of standing up and objecting to it. They are largely wealthy, middle-class citizens who do not want to see their local environment disrupted. The noble Lord, Lord Borwick, said something that catches the point of this. Although these rigs may be temporary, an awful lot of them are needed because they are temporary. The fact that the industry has to keep disrupting people and moving on will mean that this will be slow to develop, if it develops at all.

Another thing that quite a lot of people will cite as a reason for their opposition is that the industry has been slow to acknowledge that it is still a fossil fuel, particularly if it is oil based. Even if it is cleaner gas, it is still a fossil fuel. The industry needs to be much more upfront about how this new influx of gas will be compatible with our climate change targets. That will have to be through embracing carbon capture and storage. I would love to see the shale gas industry acknowledge that its future will lie with carbon capture and storage and that all of the engineering expertise we have for extracting things out of the ground can be redeployed to putting it back underground so that we can make it safe. If that were part of the narrative, then we would see much less opposition than at the moment.

We have to be very cautious. This is not going to be fast. It could be 10 or 20 years before we really know. I am sure it is true that the UK could play an important leading role in the EU in establishing rules and regulations, but I hope that that is not the case. I hope that Poland moves ahead with this because, let us face it, Poland needs gas more than we do. I also hope it happens in China because, as the report rightly says, China has a huge demand for coal and we need to do everything we can to wean it off that polluting source of energy, not only in terms of carbon emissions but also in terms of human health.

However, the report fails to point out that China will develop nuclear power in a way that we in Europe can scarcely imagine. There are already 20 nuclear reactors in operation and 28 more are under construction. There will be 150 gigawatts of nuclear power in China by 2030. That is where the revolution will come from and I hope that that will happen alongside all the other things that China is doing.

Public Services: Economic and Climatic Challenges

Baroness Worthington Excerpts

Thursday 23rd January 2014 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, I also congratulate my noble friend Lord Rooker on enabling such a broad debate to take place on this most interesting of topics. I also extend my thanks to the right reverend Prelate the Bishop of Ripon and Leeds for his contribution. I am sad that it is his final contribution, but I am sure that everyone will congratulate him on making such an important contribution to this debate. As was alluded to by the noble Viscount, Lord Ridley, today I will adopt a fairly upbeat approach to this topic. There is much that the UK can feel very happy and proud about in relation to its resilience in adapting to the changes that are coming.

We have a predominantly knowledge and service-based economy. This means that we are at the cutting edge of new ideas and can adapt quickly to changing circumstances. As a number of noble Lords have mentioned, the pace of that change appears to be quickening, and that can make our ability to plan incredibly difficult. However, given some of the assets that we have and the nature of our economy, I think that we are well placed to be able to do that. It is a diverse economy.

Much concern is expressed in the media and elsewhere about our potential overreliance on financial services and the financial sector. However, official statistics show that the contribution to the economy of that sector, in terms of its gross value added, is in the range of 5% to 10%. It employs only 4% of the workforce and contributes about 6% to 7% of tax receipts. I am not saying that that is not a big contribution—it is—but clearly upwards of 90% of our economic output is generated by a diverse range of other sectors. The service sector, as I mentioned, dominates, with professional, scientific and technical services accounting for the largest part—almost 13%—of the non-financial sector GVA. Other important sectors include entertainment and media, which make a strong and growing contribution to the economy, as do the green technologies and services. These sectors have been able to show growth when other sectors of the economy have been in decline.

One fundamental reason for this resilience and strength in our economy is our academic record and our academic institutions. Given the size of our country, it is quite astounding that the UK is home to four of the top 20 universities in the world and that 15 are in the top 100. This gives us a fantastic foundation on which to build, educating not just our own young people but people around the world. We are able to disseminate into the wider world the principles and ideas that we hold dear using our academic institutions, which themselves are now opening campuses in other parts of the world. Based on that sound academic and research base, we also now have a globally competitive lead in key sectors such as biopharmaceuticals, aerospace and the digital economy.

We also have—the noble Viscount, Lord Ridley, spoke very eloquently about this—a very clear history of innovation. This is an essential component of a modern economy. We do not need to talk about the Industrial Revolution but I mention briefly a recent innovation in the invention of graphene, which is being dubbed the world’s most important new material. It was discovered by two Russian scientists at Manchester University in 2004. The excitement around this material is very great. However, the question remains: will the UK be able to go from research and the fundamental principles of discovery into commercialisation and help to build a business around it? It is clear that graphene can be put to use in a number of different ways—from condoms to super-efficient solar power cells. Therefore, there is much to be optimistic about.

However, there are of course challenges—not least challenges to the public purse, on which my noble friend Lord Rooker cleverly instigated a debate within the topic of his speech. Perhaps primary among those are the demographic changes that we will experience. Average life expectancy is growing. We have reduced infant mortality, and medical advances and higher living standards now mean that we are living longer, as the noble Lord, Lord Kirkwood, alluded to. These are good things that we should celebrate. They are a mark of how much we have improved our lot in a relatively short period. We have seen diseases eradicated, and a number of medical interventions and innovations have helped to prolong life.

However, a top-heavy demographic will create pressures on public spending, increase our pension liability and potentially lead to higher care and health costs, with the added problem of fewer working-age people paying into the pot in taxes. Of course, immigration can help to address this, and a number of noble Lords have alluded to the fact that interconnectedness can help to strengthen us and make us more resilient. Far from bowing to the scepticism and scaremongering about immigration, we must celebrate and praise the resilience that it has given our economy.

Healthcare is going to be a crucial issue. I think we will find that health and social care are incredibly difficult topics. Of course, one method of helping to alleviate the burden on the public purse is to spend more on prevention. More needs to be done in looking at some of the commonplace diseases that perhaps do not grab the headlines as much, such as diabetes, heart disease and obesity. People with these chronic illnesses and diseases can be helped through better education and early intervention. A refocusing on prevention in our national healthcare system would be money well spent.

I should also like to mention the need to clean our air. It seems to me crazy that in the 21st century we still have a problem with air quality. Poor air quality contributes to chronic diseases such as asthma and other respiratory diseases, and it should be a priority for any modern economy to eradicate it. The technology now exists to make our streets and our air far cleaner. There is no excuse for some parts of London currently having triple the legal limits of NOx pollution.

The other great challenge for government—I pay tribute to my noble friend Lord Harris for describing it—is the need to keep a balance in our economy and not to allow inequality. We cannot have an innovation and growth economy that represents only the few and not the many. The whole of our population must be brought forward together. Inequality is a real problem but the answer, as my noble friend Lord Rooker said, is not water cannons. There must be a much more sophisticated response than that. We must address the fact that poverty is now found among those in work as well as those out of work. I believe that the statistics show that poverty levels are now higher among those in employment than those not in employment.

Looking slightly more closely at how we raise finance for public spending, there are a few trends which I think this Government and all Governments need to think about. One, in particular, is that we rely quite heavily on income based on fossil fuel taxation. Fuel levies make up 5% of the revenue but the consumption of fuels is falling as vehicles become more efficient, and North Sea revenues are also falling as production declines. The question is: what will replace that as a source of income? The noble Viscount, Lord Ridley, mentioned shale gas, the impact that it has had in the US and how it has created a challenge for Europe as a whole. I do not dispute that but it is not yet clear that shale gas can deliver the same kind of revolution here as the US has experienced or on what scale. There is also a great need to ensure that we have robust regulation to protect water resources and drinking water when we eventually exploit it.

I would prefer a balanced approach: shale gas if it can be extracted safely and affordably and carbon capture and storage, a technology which could add value to and reinvestment in the North Sea infrastructure, extending the economic lifetime of that investment and enabling us to return to using our own coal-based assets. It would definitely help energy resilience if a higher proportion of our energy came from home production rather than imported fuels. CCS is underexploited and given too low a priority by this Government. I wish we could see as much enthusiasm about CCS as we do about shale gas from our Ministers and leaders. Canada is currently leading the world on this. We had an opportunity to be world leaders and we must catch up.

I am feeling in an optimistic mood: we are currently experiencing an economic recovery and that is certainly welcome. However, it has to be a sustainable recovery: one based merely on increased consumption or housing price rises will not be sustainable in the long run and we cannot risk a repeat of the boom-and-bust cycle that led to this recession in the first place.

The answer lies in innovation at every level. As noble Lords have alluded to, there are now technologies which are revolutionising everything. From education to transport to you name it, a coming technology will change how we do things currently. For example, smart homes: there are now devices that you can put on your mobile phone which communicate with your house so that when you are approaching your home it tells the central heating to switch on and get it nice and warm ready for your arrival. You do not need to do anything: it is simply based on reading where you are using your mobile phone. With LED lighting, huge efficiencies over the current lighting systems are possible. Every local authority in the country should be investing in it, not only to reduce their electricity bills but to improve the quality of services that they offer. Smart LED lighting can adjust to the levels needed automatically and can spread the provision of lighting to help increase security. A great deal of new technology is coming through which will help to improve our lives.

A number of noble Lords have alluded to the fact that we must have a long-term plan if we are going to do this efficiently and well. We cannot allow the short-term thinking which is rife in the private sector, governed as it is by the quarterly cycle of reporting and the desire to meet shareholder demands: we need a longer-term view.

We must also have a longer-term view than the election cycle, where there is always a temptation to worry about the immediate priority of winning an election at the expense of longer-term thinking. The noble Lord, Lord Kirkwood, pointed out that in the desire to cut spending in ways that will not be noticed, investment in the future and in capital is often one of the first things to go. That is regrettable.

That brings me on to perhaps the most negative part of my contribution today—that is, the Government’s plans on flooding defence. It is clear that there has been a little confusion, to be generous, about how much money is going in. It is clear that less government money is going in than has previously been the case and it appears that government plans for the future are a little short-sighted. I am informed that the Government’s Flood Re proposals do not include the likely increased need for flood defence as a result of climate change. We can debate climate change and where we are at the moment, but it is clear that reduced ice in the Arctic means more evaporation, more precipitation and sea-level rise. Many factors will contribute to flooding for which we need to plan; we cannot simply wish them away.

I am concerned about the Flood Re proposals. I have received information today that there are large exemptions to the kinds of property that can have access to this insurance. A group of organisations, including the British Property Federation and the Council of Mortgage Lenders, have said that millions of homes could be left without access to insurance unless that policy is changed.

I am told that I have one minute left and I will end, as I said, on a positive note. The pace of change is quite extraordinary. I am sure that I am not the first person to have said that and that future generations will say it too. It is a matter of perception. With the benefit of hindsight, it always seems as if things used to be more clear and certain. We must resist the temptation to feel that there are many new risks or risks that are unique to our time. It is human nature to perceive, be aware of and try to plan for risk. It is what has made us a successful species. I shall end with a quote from Sir Winston Churchill:

“The future is unknowable, but the past should give us hope”.

That is why I am feeling cheerful today. The UK has great assets and a great ability to respond to these challenges, and I am sure that it will do so.

--- Later in debate ---

[Lord Wallace of Saltaire]

I merely said that it is a risk. It is a risk that we have seen over the past 20 or 30 years. On the whole, we have managed the diversity of British society extremely well, but it is not something—I say this again from my experience in West Yorkshire—that can be entirely ignored. It is one that we all have to be aware of. My noble friend Lady Eaton, a former leader of Bradford council, is actively engaged in Near Neighbours, which works across West Yorkshire in bringing those different communities together. We have to work on these things.

Animal disease was mentioned. Defra and the veterinary agency are dealing with scanning surveillance capability on the threat of animal disease. I assure the noble Viscount, Lord Ridley, that a large number of scientists in universities, in government laboratories and in the private sector are working together on this.

The noble Baroness, Lady Worthington, and others spoke about spending on flood defences. The noble Baroness was absolutely right: spending overall is going up, which is partly because, under partnership arrangements, private providers are increasing their contribution as the Government have squeezed the rate of their contribution. Those who say that there has been a reduction and those who say that there has been an increase are therefore both right depending on whose figures you take. We are all conscious that flood defences are a highly emotive issue. I would contradict those noble Lords who suggested that the Government are not thinking about the future of peatlands and tree-planting in the uplands. We had a Question on peatlands from my noble friend Lord Greaves the other day. These are matters where the Government, local authorities and water companies are working together.

I am conscious that time is running out. I have mentioned the flood mitigation measures which are already under way; clearly, more needs to be done. I was looking up what an earth bund was this morning— perhaps the noble Lord, Lord Rooker, already knows what that is—but experiments are under way to prevent heavy rainwater on saturated land going immediately downstream by holding it in artificially created water meadows. The Government are experimenting as far as they can in all this.

[Baroness Worthington]

Would the Minister care to comment on my questions about the Flood Re provisions and the number of households which it is feared may not be able to apply for flood insurance under that scheme?

[Lord Wallace of Saltaire]

I have some notes on this which I have not had time fully to absorb. Perhaps I may write to the noble Baroness. I am conscious that the Government are engaged in active discussions on that. I know that it is matter of great concern to householders who live on flood plains. I think that about a quarter of the population of Wandsworth lives in houses built on the Thames flood plain. That is part of the reason why we need the Thames barrier. Their houses were built 100 years ago or more. This is not a new problem.

Many other issues were raised in this debate. They included the need for innovation; the advantages of greater globalisation—referred to by the noble Viscount, Lord Ridley—and the risks of globalisation in terms of undue energy dependence or undue food dependence. I always think that I am contributing a great deal to Britain’s energy security by the amount of food that we produce on our allotment. We have just finished our last courgettes from last summer and there are still apples in the basement, so we are doing our small bit for British energy security.

Perhaps I may end by saying that government can never anticipate all risks. When the great fire at Buncefield went up some years ago, my wife reminded me of a conversation that we had had with the head of the international energy programme at Chatham House when we both worked there in the mid-1980s. He had said, “I’m not terribly worried about civil nuclear problems; what I’m really worried about is what would happen if one of those oil distribution depots went up”. We had not a clue what he meant by it at the time, and probably very few people even in government were thinking about the potential for that. That was the largest fire in Europe since the Second World War, and a major national emergency that I suspect that we had not entirely prepared for. One of the problems that government faces is how much you insure against risks which would be severe but which are not terribly likely, and how far you insure against smaller risks which are more likely but less severe.

I thank the noble Lord, Lord Rooker, for his, as always, wonderful and extremely wide-ranging speech. I look forward to many more interventions from him in the future.