Energy Prices Bill

Lord Callanan Excerpts

Committee stage
Monday 24th October 2022 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank all noble Lords who spoke on this group. I understand many of the points that they made.

Let me first respond to the interesting points the noble Lord, Lord Rooker, made. I honestly do not think there has been any radical change from when he was a Minister. When he was speaking, I was racking my brains trying to remember. I have been responsible for bringing a lot of Bills to this House, taking them through, developing them in three different departments, and I honestly cannot remember ever having a direct meeting with OPC to give it the so-called instructions the noble Lord referred to. Clearly in PBL meetings, which he will be familiar with, they attend and report to PBL. However, I suspect my experience has been very similar to his experience as a Minister, in that Ministers are involved in discussing policy intent with the department, officials and department lawyers. The instructions to parliamentary counsel are given by department lawyers, obviously acting on ministerial direction and steers about what we want to achieve through certain policies. I can only speak for myself, but I think the noble Lord is saying “a conspiracy too far” here. I genuinely do not think things have changed rapidly since his time.

I will respond briefly to the noble Baroness, Lady Jones of Moulsecoomb, who posed me two questions. She asked, “Will this Bill will help people with their bills?” Absolutely, that is the whole purpose of it. It is to provide a subsidy to people for their bills, albeit indirectly via the suppliers, because otherwise they would be incredibly high, as the noble Baroness knows. Secondly, let me address her further conspiracy theories about this somehow being a hidden subsidy to the oil and gas companies. The noble Baroness is completely wrong. The oil and gas companies are not in scope of this Bill at all and there are no subsidies involved.

[Baroness Jones of Moulsecoomb (GP)]

I am so sorry to interrupt, but I would like the Minister to withdraw the word “conspiracy”. I have legitimate and reasonable fears. It is not a conspiracy; it is actual fact.

[Lord Callanan (Con)]

It is not a fact. The noble Baroness is absolutely wrong. Anyway, I am happy to take her reassurance on that. She was posing the question and I am giving her a direct answer. There are no subsidies involved for oil and gas companies in this Bill. They are not even in scope of the Bill. To answer her question directly, it is about direct support for people to help them with their electricity and gas bills.

Group 1 speaks to delegated powers in the Bill, including procedure, sun-setting use and scrutiny. I thank all those who spoke, those who tabled their thoughtful, well-intentioned amendments and the noble Lords, Lord Cunningham and Lord Rooker, who spoke on them. I also pay tribute, as the noble Lord, Lord Rooker, did, to the work of the DPRRC for its report on the Bill published last week. I have carefully considered and responded to it.

The first set of amendments would make certain regulations in the Bill subject to the affirmative procedure. I will go through all of them in turn. Amendments 1, 2, 3 and 4 relate to the energy price guarantee schemes in Great Britain and Northern Ireland. The Committee will be aware that the schemes have been operational from the first of this month. I am happy to tell the Committee that the regulations in the Bill to designate the schemes will be extremely brief and will simply identify scheme documents. They will therefore be technical in nature and I deem them perfectly appropriate to be subject to the negative procedure.

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[Lord Callanan (Con)]

I accept what the noble Lord says about it being astonishingly wide but, if he will have a little patience, I will quote some examples to him shortly, and he will see that they are not the biggest items that he can think of.

The powers in Clauses 21 and 22 have been included in the Bill to provide government with the ability to react at pace to unforeseen delivery barriers. Making them subject to the affirmative procedure could delay the provision of support to consumers this winter and put at risk the point when energy suppliers have certainty over the final delivery requirements.

The approach that the Bill takes to parliamentary procedure is not unprecedented: for example, a direction under the Electricity Act 1989 has already been used to deliver the energy bills support scheme in Britain. Furthermore, the powers in Clauses 21 and 22 may be used only “in response to” the current energy crisis,

“or in connection with the Act”

or with regulations or schemes made under it. They are therefore time-constrained in that respect. Amendment 39 would reduce the sunsetting provision for powers under the cost plus revenue limit from five years to three and a half years. We consider the five-year sunset appropriate for the Government to respond to the immediate effects of the energy crisis, while ensuring ongoing protection for consumers if gas prices remain abnormally high for a prolonged period. The upcoming consultation will allow the Government to further define the intended use of this power.

Amendments 40, 41 and 42 seek to sunset the powers under Clauses 21 and 22 to two years, with an extension permissible by affirmative regulations. The Bill already makes clear that Clauses 21 and 22 must be used only “in response to” the current energy crisis, or “in connection with” the Bill or with regulations or schemes made under it. Generally, those other provisions in the Bill are already subject to sunsetting. A crisis is, by its nature, something extraordinary and temporary. I submit that the circumstances and timing in which the Government can use this power are therefore already appropriately constrained by the Bill.

Three amendments have also been tabled that relate to requirements to consult. Amendment 19

“would require the Secretary of State to consult before utilising … powers”

on the temporary cost plus revenue limit. It is the Government’s clear commitment to consult as soon as possible; therefore, we do not believe that this amendment is necessary.

Amendment 21 would require the Secretary of State to consult on pass-through requirements on intermediaries. As the schemes are being stood up at pace, this requirement could delay much-needed support being passed through to consumers this winter, and therefore could be positively harmful.

Amendment 23 would require modifications to licences under Clause 21 to be subject to consultation with the relevant bodies. As I mentioned, this clause ensures the Government’s ability to react at pace to unforeseen barriers to delivering the schemes. A requirement to consult would, again, simply delay our ability to deliver the schemes effectively and quickly, and therefore would be counterproductive.

Finally, a set of amendments have also been tabled which would remove certain powers from the Bill, including the opposition of the noble Lord, Lord Rooker, to Clause 22 standing part of the Bill. Clause 22 and its powers enable the Government to issue directions to energy licence holders and the Northern Ireland regulator in connection with schemes under the Bill and in response to the energy crises. The ability to issue directions of a general character is necessary to deliver support under the Bill and to tackle barriers to their implementation. Amendment 26 would limit the Secretary of State’s powers to issue directions of a “general character” to those only of a “specific” character. Amendment 28 would remove Clause 22, which provides that, when a direction to a person conflicts with existing requirements in an “enactment or instrument”, such requirements should be “disregarded”. Currently, we envision limited circumstances in which these circumstances will arise.

I will now give the example asked for by the noble Lord, Lord Kerr: the Government may need to issue a direction to the Utility Regulator in Northern Ireland to ensure that the timing of electricity regulated tariff reviews is aligned with similar reviews in Great Britain. This may be necessary to ensure effective administration of the energy price guarantee in Great Britain and Northern Ireland. In doing so, it may be necessary to rely on Clause 22 to resolve any potential conflict between the terms of the direction and the statutory requirements of independence applying to the energy regulators in Great Britain and Northern Ireland, and any existing requirements as to timing in the supplier’s licences, to enable all parties to comply with the direction for tariff review alignment. Without this, licence holders or the Northern Ireland regulator may be uncertain about their legal position, and this could have the effect of households and businesses missing out on appropriate and timely support. This plays to the noble Lord’s points. I realise that there is a suspicion that there is some malign intent behind these clauses, but they are, essentially, designed to deliver support at pace in a fast-moving environment and to provide the Secretary of the State with the powers to ensure that this happens in a legally correct manner. I reassure the noble Lord that there is no hidden agenda here.

[Lord Kerr of Kinlochard (CB)]

I plead innocent to any imputation of malign intent, but it is an astonishingly wide power. The Minister’s explanation related it solely to Northern Ireland. It is not limited as the Bill is drafted to Northern Ireland, but it would be relatively easy by combining subsections (3) and (5) so to limit it. That would cause me to worry much less about this apparently extraordinarily wide-ranging power to overrule the law of the land or all existing regulation without making a new regulation.

[Lord Callanan (Con)]

The noble Lord asked me for an example. I have provided him with an example of one means that we envisage may be necessary. There could be other licensed modifications that we have not envisaged yet. As I said, this legislation has been drawn up at pace, using the excellent resources of lawyers and parliamentary counsel. It has been enacted very quickly. This is a clause that we think is necessary in order to, if you like, cover something that we have not thought of and that we have missed out in the Bill, but it is limited to use in the specific circumstances that the Bill requires.

[Lord Rooker (Lab)]

Just for the record, Amendment 28 refers to subsection (5). Does the Minister think, and is it his advice, that subsection (5) is a Henry VIII clause or not?

[Lord Callanan (Con)]

It is a power to give directions. Whether it qualifies as a Henry VIII power, I suppose depends on your definition of a Henry VIII power. Perhaps I may consult the lawyers and give the noble Lord a more detailed answer.

Additionally, there may be other circumstances—as I just said to the noble Lord—not yet known in which Clause 22(5) will be necessary to enable directions and the schemes that they are giving effect to to be implemented effectively with legal certainty and without undue delay. As I said, it is not unprecedented. A similar measure was included in the 1989 electricity regulations which we have just used to help implement this provision, and there has not been widespread abuse by a number of Secretaries of State from both parties who have been in office with that existing power since then. I understand noble Lords’ concerns, but history demonstrates that this is not unprecedented and noble Lords’ concerns are unwarranted.

Regarding Amendments 31 to 35, it is not uncommon for highly technical schemes to use tertiary legislation to provide for the detail of schemes, or for secondary legislation to enable directions to be made or provide that functions may be exercisable by persons named within them. These powers are crucial so that payments can be made for the energy bill relief scheme as quickly as possible—as I said, we are acting at pace, and I am grateful for the support of noble Lords to get this legislation through at pace—and to enable us to make any necessary changes to the technical nature and detail of the scheme as it becomes operational.

It is always the Government’s intention that delegated powers are appropriately limited and justified. Many powers in this Bill are already subject to the affirmative procedure and are expressly time limited. Other powers are subject to the requirement to use them in relation to the energy crises or in connection with other time-limited provisions in the Bill.

I return to the question from the noble Lord, Lord Rooker. I am told that it is not a Henry VIII power, but it has the same effect.

[Noble Lords]

Oh!

[Lord Callanan (Con)]

I knew it was a mistake to ask the lawyers for an answer, but there we go. Whenever I do these Bills, I always understand why I went into engineering and not the law when I did my degree.

However, I also emphasise the urgency of this Bill, which I believe the whole House understands, and I am grateful for Members’ support. Families and businesses up and down the country are hugely exposed to the energy crisis. It is crucial that the schemes—and I think all noble Lords share this aim—are rolled out and delivered in the way they are intended as quickly as possible and without delay. I would contend that provisions in the Bill, including the breadth of certain powers, enable to us to do just that.

I hope that I have been able to provide the House with sufficient assurances about how the Government will use the powers that we seek to take and hope that the noble Lord will be able to withdraw his amendment.

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[Lord Callanan (Con)]

The noble Lord makes a good point. As he correctly observes, it is difficult to implement in practice because by their very nature, those households do not have a relationship with their energy supplier. We are urgently looking at a delivery mechanism, with all the appropriate protections against fraud et cetera. Delivery is likely to be through local authorities, but we are still working on a precise mechanism and as soon as we have more details, we will update the House.

[Lord Teverson (LD)]

I thank the Minister for that. If you cannot do it directly through Ministers, then through local authorities is probably the right way to do it. I know that Cornwall council is already starting to make some preparations in that area. I beg leave to withdraw Amendment 5.

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[Lord Callanan (Con)]

My Lords, I thank the noble Lords for their interventions. This group includes amendments relating to energy efficiency and energy savings which would help to reduce energy costs and, of course, ensure energy supply for vulnerable consumers, which I will come on to shortly. I completely agree with noble Lords that improving the energy performance of domestic and non-domestic properties is vital in the context of affordability, energy security and fuel poverty.

Amendment 8, tabled by the noble Lords, Lord Teverson, Lord Foster and Lord McNicol, would require the Secretary of State to produce a report on the effectiveness of energy efficiency programmes in reducing energy costs. The Government already evaluate the impact of their energy efficiency programmes and publish extensive energy statistics and evaluation reports as a matter of course. There really is no shortage of published materials on these matters, and I believe that they sufficiently cover the intention of this amendment. Bedtime reading for noble Lords interested in this matter includes the Annual Fuel Poverty Statistics Report: 2021, the Household Energy Efficiency Statistics, and the English Housing Survey, commissioned annually, on housing circumstances, condition and energy efficiency in England. Therefore, I am not sure there is any more information we could provide noble Lords with, and we believe this amendment to be unnecessary.

The noble Lord, Lord Teverson, also asked about a government public campaign on energy demand reduction. As I have mentioned in this House before, I have been working with officials and we have just launched our new website on GOV.UK—we have migrated the SEA site over to the government website and updated it. We now provide home owners with a kind of home energy MOT that gives impartial recommendations and could help them save hundreds of pounds a year. It is linked to the EPC database, so it provides personalised information on people’s property. Of course, we will be rolling that out further and linking it to several other sources of advice from energy companies, charities and others, to make sure that people have the information they need to make energy efficiency savings.

Amendment 9, tabled by the noble Lord, Lord Teverson, would require the Secretary of State to formally assess the merits of introducing social energy tariffs. I would never accuse the noble Lord of wanting to go back in time or of being stuck in the past, but in 2011 the Government of which his party was a part replaced social tariffs in the energy sector with the warm home discount scheme. The warm home discount is a better scheme than the then social tariff scheme; it provides a consistent level of support, standardised across all the participating energy suppliers. It has been an improvement on the previous arrangement of voluntary social tariffs—not all companies took part in them—where the level of benefits and eligibility varied between energy suppliers.

I hope the noble Lord is not suggesting that we should go back to that time. The warm home discount was introduced as an improvement to the old social tariff system. Any new social tariff would be almost identical to the warm home discount in its design and operation. It is already a mandated, targeted mechanism to reduce the cost of energy for those in vulnerable circumstances, on benefits et cetera. If the noble Lord thinks about it, he will accept that this is a better way of doing essentially the same thing, but I do not disagree at all with the objective. In short, this proposal simply seeks to provide benefits to vulnerable energy consumers that are already provided by the existing warm home discount model, and it would add a further level of complexity to the support system. Certainly, to judge by my postbag from Members of Parliament, it is already quite a complex system with complex eligibility requirements, and I do not think we would be well served by adding to that complexity.

Before I turn to Amendments 10 and 11 from the noble Lord, Lord Foster, let me answer the questions he asked me. He compared ECO4, the current iteration of the energy company obligation, and the forthcoming ECO+, and highlighted that there could be different levels of bill savings in each one. The reason for that is that the energy company obligation is an obligation based on suppliers; it used to be bill funded and is now funded by the Exchequer. One of the elements of the mini-Budget that remains—the last time I looked—is the ECO+ announcement that I worked hard to get in there, and we will shortly be consulting on the way it works. We project lesser bill savings because we want to do more under that scheme. The latest iteration of ECO4 looks at whole-house retrofits, so it is obviously much more expensive and treats fewer whole-house property refits. We have to consult on the details of ECO+, but the idea is that it would provide a smaller number of targeted measures, possibly only two or three, such as loft insulation, cavity wall insulation and heating controls.

Even though they are both called “ECO”, they will be targeted at different parts of the market; indeed I hope ECO+ will be targeted more at the able-to-pay market—those who are not necessarily on benefits and slightly above benefit level but who are still suffering and could take advantage of some support. The noble Lord will not have long to wait. We are working on policy design now and we will consult shortly on how that will work. The House will have an opportunity to debate the regulations and it is my intention to have this up and running as early as possible next year.

The noble Lord also asked me about the PRS regulations. As he correctly said, we consulted on them; we are currently looking at the recommendations and working on a government response. If I am honest with the noble Lord, it is about getting the balance right between wanting to see improvements and operating in the private rented sector and not doing so at the expense of less rented properties being available where there are already shortages in many areas. It is about trying to get the balance right between, on the one hand, obliging landlords to improve their property and, on the other, not wanting to provide them with incentives to leave the market.

Amendment 10 would zero-rate VAT for battery storage when used to store energy generated by solar panels, and measures to reduce energy demand in domestic properties. The installation of central heating system controls and insulation draught stripping already qualify for the zero rate for energy saving materials. The noble Lord will, of course, know that changes to tax policy are considered as part of the Budget process. If he has ever had interactions with the Treasury, he will know that this is important and will be jealously guarded. Tax policy decisions are taken in the context of the Government’s wider fiscal position. It permits sufficient time to consider the impact of any changes on government finances and individual taxpayers. The Treasury would wish him to know that that it keeps all taxes under review and welcomes representations to help inform future decisions on tax policy. I am sure that the noble Lord will want to feed in his views to Treasury, as we all do.

Amendment 11 would make it a legal requirement, as of 31 December 2022, for all fuel-poor households to be upgraded to band C by 2030 and all other households by 2035, with specified exemptions. The Government already have a statutory requirement to upgrade as many fuel-poor homes to band C as is reasonably practicable by 2030, and we have set out in the 2021 fuel poverty strategy how we intend to do so. The Warm Homes and Energy Conservation Act 2000 placed an obligation on the Secretary of State to make regulations that have as their objective the improvement of households in fuel poverty by a target date. Such regulations have been made for each of the devolved nations. The Governments of Scotland, Wales and Northern Ireland have set out their own approaches. This amendment seeks to replicate that requirement. I therefore submit that it is unnecessary.

We remain committed to our aspiration of improving as many homes as possible to EPC C by 2035, where that is cost effective, affordable and practical. However, we need to retain flexibility to choose the best approach, including how and when to introduce reforms, rather than being restricted by a statutory longstop date. This will ensure that we set policy that reflects best practice in the industry and that homeowners will not be required to make upgrades that are sometimes inappropriate for their property.

We move on to the important issues raised by the noble Baronesses, Lady Brinton and Lady Thomas, in Amendment 12, which would require a

“strategic plan for the supply of energy for those who are disabled or seriously ill”.

I know that this is an important issue and one to which the noble Baronesses are deeply committed.

As I think the noble Baroness said, electricity distribution network operators are obliged to maintain priority services registers to ensure that support is given to the most vulnerable customers during power disruption, including those customers who are disabled and rely on electricity-powered devices. Furthermore, as the noble Baroness also said, under the Civil Contingencies Act 2004, network operators are required to liaise with local authorities, strategic co-ordinating groups and third parties such as local resilience forums and partnerships to share information about vulnerable customers and work together to provide welfare support.

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[Baroness Brinton (LD)]

I asked the Minister whether he would meet me, the noble Baroness, Lady Thomas, and representatives of disabled peoples’ organisations. I think I heard him say that this was more appropriately handled by the Cabinet Office. Would he help me to ensure that this same group, including myself, could meet the relevant Minister in the Cabinet Office on this issue?

[Lord Callanan (Con)]

I will certainly reply, although of course I cannot speak for Cabinet Office Ministers. I checked and they do have responsibility for ensuring that the Civil Contingencies Act is followed and implemented. I will certainly do my best to facilitate what the noble Baroness wants.

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[Lord Lennie (Lab)]

My Lords, the whole question of the energy market is complicated and beset by a series of legislative procedures which can cause confusion. That said, the new clause proposed by Amendment 14 would simply require the Secretary of State to produce a report assessing the impact of removing the investment allowance from oil and gas companies, as set out in the Energy (Oil and Gas) Profits Levy Act, and, in particular, to assess the impact on domestic and non-domestic users. Currently, oil and gas companies receive an 80% rebate on every pound invested but that is not available to renewables or other zero-carbon technology. This appears to tilt the market away from investments in cheaper domestic clean power sources towards oil, gas and fracking.

The proposed new clause would require the Government to assess the revenue and profits of electricity generators and oil and gas producers every six months, to see what the effects would be. Amendment 20 would require the Secretary of State to disaggregate the cost of production of natural gas from the cost of production of other energy sources to reduce the cost of electricity to domestic and commercial consumers. This dates back to when gas was the only game in town for energy companies; now, renewables account for 43% of the generation mix.

Gas prices have increased fourfold since the beginning of 2011, which means that consumers are paying much more for electricity than the average cost of generation across the market. Splitting the market is a likely consequence, by creating a separate pool for cheaper, intermittent, renewable generation and a second for traditional fossil fuel, which in turn could lead to consumers determining when to use cheaper electricity for things such as car charging by timing their usage accordingly. Electricity prices would be determined competitively by companies considering their own boundaries rather than working through gas. I give notice of our attention to move Amendment 14 to a vote.

[Lord Callanan (Con)]

I thank all noble Lords who have tabled amendments in this area, on the energy profits levy, including an amendment that seeks to reduce the costs of electricity to consumers.

I start with Amendment 13, tabled by the noble Lord, Lord Teverson, which would require the Secretary of State to publish a report on the additional revenue that could be raised from expanding the energy profits levy. I shall say something very similar to what I said to the noble Lord, Lord Foster, that all taxes are kept under review, and any changes in tax policy should be considered and announced by the Chancellor, in line with the usual Budget processes. The Treasury view, therefore, is that this amendment is not appropriate for this Bill.

The energy profits levy has been designed with a bespoke tax base, appropriate to respond to the extraordinary global context of high oil and gas prices. The levy is expected to raise substantial revenue while providing companies with a new incentive for investment. It is right that we continue to encourage investment in North Sea oil and gas to strengthen the UK’s vital offshore oil and gas sector and bolster our future energy security. The amendment would also require the Government to produce an estimate of upstream profits expected in the next two years. Such estimates will be highly sensitive to commodity price fluctuations. Given the volatility in prices since last year and that most companies’ out-turn profits are publicly available, it is not clear that producing such an estimate would be a beneficial use of public resources.

I turn to Amendment 14, tabled by the noble Lords, Lord Lennie and Lord McNicol. This amendment requires the Secretary of State to publish a report on the impact of removing the investment allowance in the energy profits levy. The Treasury has made clear its view that it is not for this House to discuss the matters raised by this amendment in relation to this Bill, on the basis that fiscal issues are a matter for the House of Commons. Tax policy changes are an area for the Treasury, which believes that the Chancellor should consider and announce any changes in line with the usual Budget process. Taxation on the profits of oil and gas producers is not in scope of this Bill. The energy profits levy, introduced under the Energy (Oil and Gas) Profits Levy Act 2022, has been in place since May. It is not standard for the Government to publish assessments of the economic impacts of measures that they are not introducing. The Government already monitor the UK oil and gas sector; data on upstream production is published regularly on GOV.UK. It is not clear how a report on the impact of a hypothetical change would be a beneficial use of public resources.

I turn to Amendment 15, also tabled by the noble Lords, Lord Lennie and Lord McNicol, which would require the Secretary of State to publish an assessment of the revenue and profits of electricity generators and oil and gas producers every six months. The profits of oil and gas producers are not in scope of these measures but are subject to the energy profits levy, which has been in place since May. The out-turn revenue and profits of most electricity generators are already in the public domain, so I do not believe this amendment is necessary. The objective of the Energy Prices Bill is to protect consumers from very high energy prices. We recognise that we must strike a balance that is fair to generators, achieves value for money for consumers and maintains investor confidence. That is why it is appropriate that the House gets the chance to debate fully the first set of regulations made under the temporary cost-plus revenue limit.