Postmasters with Overturned Convictions: Settlement Funds

Lord Callanan Excerpts

Wednesday 15th December 2021 Lords Chamber

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

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my honourable friend the Parliamentary Under-Secretary of State for Small Business, Consumers and Labour Markets. The Statement is as follows:

“Mr Speaker, with permission, I will make a Statement on the latest steps that the Government are taking to ensure that swift and fair compensation is made available to postmasters whose Horizon-related convictions are quashed.

The House is very well aware of the terrible impact felt by the many postmasters affected by issues with the Post Office’s Horizon IT system. These distressing consequences have been widely documented in the courts, in the 2019 GLO judgments and the more recent Court of Appeal judgments, as well as in the media. I have met postmasters personally to hear how their lives and the lives of their families have been affected by these events. No one who has heard these stories could fail to be moved by the impact that these events have had on individual postmasters’ lives and their fight for justice over a number of years. I also pay tribute to colleagues on both sides of the House who have supported postmasters in their efforts to expose the truth and see justice done.

I would today like to take the opportunity to update the House on the latest steps the Government are taking to ensure that fair compensation is paid to postmasters with convictions that have been quashed due to Horizon evidence being essential to their prosecution. In the first instance, we worked with the Post Office to deliver interim payments of up to £100,000 for each eligible postmaster. I informed the House of the Government’s decision to provide funding for these interim payments last July. Government funding was necessary because the Post Office does not have the necessary funds to deliver the appropriate compensation. That is why it turned to BEIS, as its 100% shareholder, for funding for these interim payments.

I am pleased to report to the House that the interim payments are progressing well. The Post Office has received 66 applications for interim payments. Of these, 62 offers have been made, and of those, 50 have been accepted and payments made. Payments made to date have all been for the maximum interim amount of £100,000. I am pleased that these interim payments have helped to deliver an early down payment on the compensation due to affected postmasters in advance of full and final compensation packages being agreed. But that is only the first step. It is right that the focus now shifts to the agreement of full and final settlements. That is why the Government have been working with the Post Office to agree funding to facilitate the Post Office making final compensation payments to postmasters. As I announced in a Written Ministerial Statement to the House yesterday, the Government have now agreed to provide funding for that purpose. We are working with the Post Office to enable the final settlement negotiations to begin as soon as possible.

To be clear, the Post Office is not proposing a new compensation scheme to deliver full and final settlements. The Post Office is instead proposing to follow a process of alternative dispute resolution in which it will aim to agree an appropriate level of compensation with each postmaster, recognising the individual circumstances of each case. The Government support the Post Office in its aim of reaching fair settlements with postmasters via alternative dispute resolution, as we believe that this will lead to speedier delivery of compensation to postmasters.

I am not in a position to give significant detail today about this process, as the final detailed approach to these negotiations will need to be discussed and agreed between Post Office Ltd and individual postmasters and their representatives. I am sure that colleagues will agree with me that it is important that the Post Office listens to postmasters’ views and that these are taken into account in how these negotiations proceed. While it will be for the Post Office to negotiate settlements directly with claimants and their representatives, the Government will work closely with the Post Office to ensure that fair compensation is delivered. Given the impacts on so many individual lives, it is right that the Government stand behind the Post Office and provide this funding to ensure that fair compensation can be made to individuals who were wrongly prosecuted and convicted on the basis of unreliable Horizon evidence. While compensation cannot change what is past, it can provide a degree of recompense for past wrongs.

In addition to providing compensation, it is important that we learn lessons so that something similar can never happen again. That is why the Government have set up the Post Office Horizon IT Inquiry and put it on a statutory footing to ensure that it has all the powers it needs to investigate what happened, establish the facts and make recommendations for the future. The inquiry has recently set out the full list of issues that it is investigating, and core participants have started to share key documents with the chair, Sir Wyn Williams, and his team. We will co-operate fully with the inquiry to ensure that the facts of what happened are established and lessons learned. I commend this Statement to the House.”

My Lords, that concludes the Statement.

--- Later in debate ---

[Baroness Randerson (LD)]

My Lords, until 2011, I was an elected Member of the Welsh Assembly. I dealt at that time with the cases of a number of sub-postmasters from Cardiff and the surrounding area. It struck me immediately when they got in touch with me as a group, that it was highly unlikely that so many sub-postmasters were crooks. Here were a group of people who were upright, respected citizens at the hub of their communities. It seemed ludicrous from the start, and it is a scandal that this has been allowed to go on so long in the face of mounting evidence of a problem with the whole thing.

Some 736 sub-postmasters and postmistresses—an average of one a week—were prosecuted. There was really bad faith on the part of the Post Office, in that it pretended to the individuals that they were alone. It hid from them the fact that there were hundreds of others. It took a long time for many of them to discover that they were in the company of a very large number of colleagues. Some of them went to prison, following convictions for false accounting and theft. Many were financially ruined and were shunned by their communities. Some went bankrupt as they tried to make up the shortfall in order to avoid prosecution. Some committed suicide, and many have died since, some of them worn out by the fight that they had to undertake.

It is quite clear that the original process for postmasters to gain recompense was flawed. Some 555 of them who joined in a group action were forced to settle because they ran out of money to continue with their action. They were paid far less in compensation than they had paid to the Post Office to balance their accounts. Does this Statement here today mean that those people will now have their cases reviewed and receive proper fairness in their compensation?

Can the Minister give us a timeframe for when those affected by the scandal will have their cases dealt with? Will it be 2022 when we see the end of this terrible process, or is it, in his estimation, going to take longer? Will the Government undertake to compensate victims for consequential loss as well as financial loss as part of the commitment today? Many of them suffered emotionally so badly, and their families suffered too.

There is a doubt about the extent of what the Government are promising. The Statement refers to postmasters with convictions. Many were accused and were not convicted but nevertheless suffered. Many of them personally made up the moneys supposedly owed by them to the Post Office, and they have evidence of that. Will those people receive just compensation?

[Lord Callanan (Con)]

I thank the noble Lord, Lord McNicol, and the noble Baroness, Lady Randerson, for their points. Almost uniquely in my time on the Front Bench, I agree with virtually everything that both noble Lords have said. The noble Lord, Lord McNicol, said the situation was an absolute disgrace; the noble Baroness, Lady Randerson, referred to it as a scandal. If anything, these are almost understatements when one considers the extent of the total travesty that has occurred. There is no party-political difference in these matters. This is not a recent scandal: it has gone on for decades under previous Labour Governments, the coalition Government and this Government. Obviously, we cannot go back and right the wrong of the clear, manifest injustice of the past, but we can provide adequate levels of compensation, and we are doing that.

I also want to join the noble Lord, Lord McNicol, in paying tribute to the parliamentarians on all sides who drew attention to this scandal. Hopefully, my noble friend Lord Arbuthnot will intervene shortly; he played a crucial role both in the other place and in here, as did a number of MPs on both sides, along with—to be fair—some campaigning journalists. Nick Wallis from the BBC played a major role in bringing it to account. Of course, there is a full inquiry going on now with statutory powers, which will hopefully get to the bottom of exactly what went wrong and who is responsible. My friend in the other place, Paul Scully, said that if there are any allegations against Ministers—either serving or previous—we will hold our hands up and acknowledge that mistakes have been made, which is only correct.

On the question of compensation, the funding we announced yesterday is for compensation for postmasters with convictions that have been quashed due to Horizon evidence being essential to their prosecution. There is a separate scheme—the historical shortfall scheme—that more than 2,500 people applied to for compensation, and the Post Office is working through those applications. The Government are ensuring that it is being pushed forward as quickly as possible. On the 555 who took the first court cases about Horizon against the Post Office, the settlement reached in 2019 was full and final. However, as the Minister for Postal Affairs said this afternoon in another place, it is important to acknowledge the work they have done in bringing the facts to light. The Minister for Postal Affairs has committed to continue to work with them to see what we can do.

On the question asked by the noble Lord, Lord McNicol, on whether the compensation will affect the Post Office’s core funding, the core funding to support its network is a totally separate matter from the funding for compensation that we are discussing today. That will proceed separately.

There is a limit to what I can say on the noble Lord’s point about whether those involved have been rewarded with senior jobs elsewhere, given that the inquiry is ongoing. However, he can refer to past comments I have made on that in this House. I certainly stand by my views on that point.

The noble Baroness, Lady Randerson, asked about timescales for delivery of compensation. The Post Office proposes to follow a process of alternative dispute resolution to reach full and final settlements with postmasters. The details of that approach will need to be discussed and agreed between Post Office Ltd and individual postmasters and their representatives. There is therefore a limit to what I can say about that because I simply do not know the answer to that question. However, the need to get swift payments is why we have agreed the interim settlements, and we are going down the ADR process to try to get settlements as quickly as possible. I think those were the questions that I was asked.

[Lord Arbuthnot of Edrom (Con)]

My Lords, I acknowledge that this is very good news and I am grateful to my noble friend for the work that he is doing and has done behind the scenes on it. Can I press him on the question asked by the noble Baroness, Lady Randerson, about why this Statement is limited to sub-postmasters who have had convictions overturned? Surely the same moral principles apply not just to those who have been wrongly convicted but to those who were acquitted, to those who were wrongly sued, and to those, such as Lee Castleton, who were bankrupted and have not come out of that, including the 555 in the group litigation. In another place this afternoon the Minister hinted that he was softening the Government’s line on full and final settlement. Can my noble friend confirm that this is the case?

[Lord Callanan (Con)]

Before I answer the noble Lord’s question, I again pay tribute to the work that he has done over many years on this scandal to make sure that the world knows the truth about what took place. He makes a valid comment about the similarity of moral principles between the various cases. I can go no further than to confirm what the Minister said in another place. I will quote it to him in full:

“the 555 sub-postmasters who were part of the High Court case performed a massive public service by exposing the wrongdoings within the Post Office, and I recognise the deep frustration at the fact that because they agreed that the settlement with the Post Office would be a full and final one, they do not qualify for these compensation schemes. I have met some of those people and, as I said, I will continue to work on what more we can do.”

[Lord Falconer of Thoroton (Lab)]

I, like everyone else, pay tribute to the noble Lord, Lord Arbuthnot, for the work he has done. I also acknowledge, as he has done, that this is significant, because it means that central government will fund all the compensation.

I welcome what the noble Lord, Lord Callanan, said in answer to one of the questions from the Front Benches. To paraphrase, he said, “We know there was a terrible scandal. What we’ve got to do now is provide adequate compensation for those who were affected.” We all understand what the scandal was; Mr Justice Fraser in the High Court has laid it out. It involved the Post Office, despite senior management knowing that there were problems with the IT, which was probably identifying wrong shortfalls, nevertheless allowing sub-postmasters to be charged in millions of pounds for those shortfalls, in some cases allowing them to be prosecuted and in others allowing those who were prosecuted to be sent to jail. With all the people who suffered in this way, the Post Office, knowing that the IT system was unreliable—that is what Mr Justice Fraser said—nevertheless allowed them to be prosecuted or sued and in some cases bankrupted. They are all entitled to compensation.

There are three categories. First, there are those who went to prison or were convicted; some of them may not have gone to prison. They must be compensated —there is no doubt about that. Secondly, there are those not covered by the settlement—that is, people other than the 555. Can the noble Lord, Lord Callanan, confirm that they will be compensated? There is no other basis—no possible distinction that can be drawn with them—and there is no full and final settlement argument in respect of them. Thirdly, there is the group of people who were party to the settlement. Because he is well informed on this, the noble Lord will know that £56 million was recovered in the settlement and £46 million of that went on costs—he is nodding because he is clever and knows everything. That left £11 million for 550 sub-postmasters, whose average loss was £700,000. They were given £20,000—that is all they got. Surely, if we are keen that they be fairly compensated, that third category should also be compensated. Can the noble Lord deal with each of the three categories I have identified?

[Lord Callanan (Con)]

I agree substantively with many of the points that the noble and learned Lord made. He is tempting me to comment on the lawyers of his profession who took part in funding the case of the 555 members and the amount that went on legal fees, which perhaps I should not do in this House. I sympathise greatly with many of the points he made. Perhaps I would go even further and say that even when the Post Office knew about many of these problems, it appears it then attempted to cover it up. However, these facts will emerge in the inquiry that is taking place. The judge who is leading it is doing extremely well and is progressing with exposing that injustice.

Those outside of the 555 settlement are able to secure compensation through the historical shortfall scheme, which is the other one I mentioned in my response to the noble Lord, Lord McNicol. On the third category, Paul Scully in the other place—I quoted his words earlier—certainly went further than the Government have gone before on those points, and he has promised to work with those who were affected.

[Baroness Ludford (LD)]

My Lords, I absolutely join with others in welcoming this Statement and join in the tributes paid by the noble Lord, Lord McNicol, to the noble Lord, Lord Arbuthnot. I also welcome the Minister’s praise for the journalist Nick Wallis, which is the main route by which I heard about this.

My noble friend Lady Randerson talked about the way that individuals were picked off and given to understand that they were the only ones in trouble. There is a certain uncomfortable echo of that in the way that all these different categories are being treated differently and put in silos. We have these 66 people covered by this new scheme—those who have been acquitted. Then we have the 555 civil litigants who settled, and then I think the noble Lord said that there are around 2,500 applicants to the historical shortfall scheme, and there may be others. So there are thousands of other people who are all being treated differently. It seems that we need some kind of holistic approach, because they are all in the same moral boat. They are all the victims of the most appalling scandal. It is not a political scandal but a public scandal.

My honourable friend Alistair Carmichael in the other House had a debate in Westminster Hall in which he referred to the ongoing problems in the attitude of the Post Office—the arrogance. Can we cut through that arrogance? Will the Government cut through it and treat all these thousands of victims of the Post Office in a similar way and not divide and rule, which is unfortunately the echo that is coming to me?

[Lord Callanan (Con)]

That is not an entirely fair comment. We as a ministerial team and a Government inherited this scandal. We are making endeavours within the powers and legal procedures that we have. We cannot ignore the fact that a civil court case has taken place and there was a full and final settlement. We have to negotiate within government for additional funding to be made available. I can assure the noble Baroness that the Minister for Postal Affairs is attempting to do so and is trying to work with the parties to bring this to a resolution. There is clearly moral equivalence between the different categories, even if there is not necessarily a legal equivalent at this stage. I am not a lawyer but, to be fair, there are differences in the cases. It would be right for the Government to try to compensate them all to the greatest degree possible within existing legal procedures, and my honourable friend is attempting to do that.

The noble Baroness referred to the culture of the Post Office. Again, her comment was a little unfair. The Post Office is under new leadership and it has committed to changing its ways. I can assure her that Ministers regularly discuss this matter with the Post Office. It has a programme of change, including the appointment of two recent postmaster non-executive directors to try to get some say in the senior leadership team from those working on the ground. I know that the new chief executive is committed to doing his best to overcome this scandal, right the wrongs and put the business on a sound footing in the future.

[Baroness Neville-Rolfe (Con)]

My Lords, having had previous responsibility for the Post Office, I am very well aware that Ministers are advised to stand firm on seemingly solid grounds, only for it to become clear in the long term that that is not defensible. This issue was probably the most disturbing thing that I had to deal with. Will the Minister take a deep breath and accept that the litigation involving 555 former postmasters who, as he said, performed a massive public service, was not conducted on a fair basis, and act accordingly?

[Lord Callanan (Con)]

I can certainly confirm what my noble friend has said in terms of briefings that I have given to Ministers. Indeed, similar briefings were given to me when I first started in the department. I went back and started to ask more questions. Paul Scully was new in his job at the time and I discussed the issue with him. We both agreed that we needed to do more. Since then, although it was not purely due to our actions, lots more information has come about, there have been various court cases and so on. It is certainly true that the culture of government is always to put up a firewall and try to stand firm. However, there are occasions when we just need to accept that things have gone terribly wrong and do what one can to put them right, which is what we are doing. I cannot go any further than the answers that I have already given in terms of compensation to the 555, but I have great faith in the Minister for Postal Affairs, who is responsible for this matter, and he will do whatever he can within the system.

[Viscount Stansgate (Lab)]

My Lords, I know that the Minister has said that there is an inquiry, but are the Government confident, given what they already know, that such a scandal can never happen again?

[Lord Callanan (Con)]

I hesitate to give the noble Viscount an unequivocal assurance because no one can do that. I can certainly say from the current ministerial team that we are absolutely determined to learn whatever lessons we are told to learn by the inquiry, take on board its recommendations and put in place whatever measures are required to make sure that it never happens again.

[Baroness Stowell of Beeston (Con)]

My Lords, we are clearly united in agreeing that this is a scandal, and in our regard and respect for my noble friend Lord Arbuthnot. I refer to the 555 sub-postmasters who settled without knowing that more evidence was to emerge. As we understand it, the Post Office knew at the time that it was still in the wrong and had not disclosed information that later came to light.

It seems to me that the 555 have been let down by people in authority every step of the way and, if we are not careful, we are going to let them down again when they are clearly being dealt an injustice at this time. I am grateful for what my noble friend the Minister has said already, but I hope he can agree and acknowledge just how strong the feeling is that this matter is dealt with. Furthermore, is Fujitsu going to be liable for any of the funding that will be necessary to pay this compensation?

[Lord Callanan (Con)]

I think the answer to my noble friend is that these matters will be considered by the inquiry. I may even be right in saying that court proceedings are ongoing involving Fujitsu, so I had better be careful what I say. Again, I cannot go any further than what I have already been said about the 555. It goes back to the answer that I gave to the noble and learned Lord, Lord Falconer, earlier. One reason why the legal fees incurred in that case were so high is because the Post Office fought every step of the way and put in place the maximum legal barriers to those poor individuals receiving the compensation that they deserved. That is one of the matters that I hope will be inquired into properly and that appropriate conclusions will be drawn.

[Lord Cormack (Con)]

My Lords, like others I pay tribute to my noble friend Lord Arbuthnot for what he has done, and to my noble friend the Minister, who has made his own personal discomfort and sense of collective guilt very plain whenever he has appeared at the Dispatch Box. However, I am always a bit suspicious when words like “as soon as possible” are used. Can we not have a deadline and a realistic date, such as 30 June 2022, when this can be fully settled? People’s futures are in suspense, and people are dying now. We really need proper justice, which must mean that they must have a date by which they will know that this thing has been settled once and for all.

--- Later in debate ---

[Lord Callanan (Con)]

I thank my noble friend for his comments, but ministerial discomfort is nothing, and massively insignificant, compared to the injustices and discomfort that has occurred to all these poor sub-postmasters. I cannot give him a date, for reasons that I set out earlier. We are going down the alternative dispute resolution procedure route because we think that it will bring about a faster resolution for the claimants. We have put in place interim payments so that some compensation is paid quickly and immediately, and I set out in my Statement how that has been paid. I can go no further than to say that we want it done as quickly as possible, which is why we have gone with the ADR procedure. Although I would like to, I cannot give him a final date.

[Lord Fairfax of Cameron (Con)]

I endorse and adopt almost everything that was said by the noble Lord, Lord McNicol, and the noble Baroness, Lady Randerson. I have one theoretical question. If the Wyn Williams inquiry is to find culpability on the part of individuals within the management and senior management of the Post Office, will the Government, as principal shareholders in the Post Office, consider bringing recourse actions against those individuals?

[Lord Callanan (Con)]

This is a complex issue, stretching back over many years and perhaps even decades, with decisions taken at various levels of the Post Office—and, of course, before that, when it was Royal Mail. We are totally committed to seeing these long-standing issues resolved, learning what went wrong through the inquiry and making sure that it cannot happen again. Whether the directors active at the time should be the subject of disqualification proceedings, again that is a legal procedure set out and managed by the Insolvency Service in accordance with the appropriate legislation, and I am certain that it will do that if necessary.

Construction Sector: Roadmap to Zero Retentions

Lord Callanan Excerpts

Wednesday 15th December 2021 Lords Chamber

[Lord Aberdare]

To ask Her Majesty’s Government what steps they plan to take to support the implementation of Build UK’s Roadmap to Zero Retentions, seeking to eliminate cash retentions in the construction sector by 2025, further to its endorsement by the Construction Leadership Council on 9 December 2019.

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

My Lords, the Government are working in conjunction with the Construction Leadership Council to support the implementation of the Roadmap to Zero Retentions. Work is being undertaken by the business model workstream of the council. This includes building on the work of the Get It Right Initiative, to drive improvements in quality and reduce the need for retentions through the construction industry and exploring alternatives to cash retentions.

[Lord Aberdare (CB)]

My Lords, the Build UK roadmap and its endorsement by the Construction Leadership Council demonstrate a welcome degree of consensus across the sector that action is urgently needed to eliminate the pernicious practice of retentions, as well as outlining a route to doing so. The Minister’s response indicated a sort of waiting game that retentions might die out of their own accord. There is a general feeling that legislation is needed to bring an end to retentions, so I ask him: what is the plan to reach the 2025 target date, and when will legislation be introduced to achieve it?

[Lord Callanan (Con)]

I understand that the noble Lord has strong feelings on this issue; indeed, we met to discuss this a few months ago and he has previously asked Questions on it, so I know his passion on the subject. The problem is that there is no general feeling that legislation is required. Some people passionately believe in the need for primary legislation, but obviously there is some opposition as well. We continue to believe that the best way forward is for an approach that all sides can agree on to be taken forward by the Construction Leadership Council.

[Lord Stunell (LD)]

I thank the Minister for the way in which he has engaged with noble Lords who have taken an interest in this subject. I recall that he told us of the guidelines that have been issued to departments on taking out construction contracts. I ask him to spend a bit of time in the remainder of this financial year chasing up those government departments that are not yet implementing the guidelines, so that in the coming financial year every contract that is signed by a government department has this retentions clause removed.

[Lord Callanan (Con)]

The noble Lord makes a very good point. The vast majority of government departments no longer use retention clauses. The main exception to that is the Department for Education, and I continue to urge it to follow the lead of other departments in this regard.

[Lord Lennie (Lab)]

My Lords, in April, eight months ago, the Government stated:

“The Government, in conjunction with the Construction Leadership Council, is working to identify a sustainable strategy on retentions for the whole construction sector.”


Will the Minister update the House on where the strategy is? There may not be legislation, but is the strategy coming out?

[Lord Callanan (Con)]

There are a lot of different factors to take into consideration. This is a complicated area with widely differing views across the sector. In considering the abolition of this contractual practice, there would need to be the development of alternative surety products for the whole industry. That could mean the adaption of existing products, such as performance bonds, or the introduction of new products. It may also involve a range of different products. It is a complicated area, but we continue to take forward work with the Construction Leadership Council.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I regret that I was not able to come to the briefing that the Minister gave. It strikes me that this distorts all the figures that come out of the building industry, because even smaller and very trustworthy builders start to pack their quotes in case of retentions. When you look at this as part of the economy, the practice of retentions distorts the whole picture. Getting rid of retentions would allow the numbers to be better and clearer.

[Lord Callanan (Con)]

I agree with the noble Baroness that if we could achieve that, it would be a great result. One of the workstreams that the Construction Leadership Council is taking forward, as I mentioned in my Answer, is based on the Get It Right Initiative, which would see firms with a demonstrable trade record of good performance and quality products not having retentions levied on them. In my view, that is a hopeful development.

[Lord West of Spithead (Lab)]

Does this issue have any impact on the shipbuilding industry at all?

[Lord Callanan (Con)]

I am delighted to see that the noble Lord has turned up well dressed to ask such a noble question—he puts the rest of us to shame. My understanding is that the Ministry of Defence is one of the central government departments that has done much to abolish the use of retentions in its contracts.

[Lord Lennie (Lab)]

I will try again: could the Minister say whether he agrees or disagrees that retentions in the construction industry are an appropriate or proportionate mechanism for ensuring quality and fair payment?

[Lord Callanan (Con)]

I can answer that question by saying what we have done in central government in my department: we have substantially abolished them. Most government departments have now got rid of them and only the Department for Education is a laggard. We would be better to do without them, but that is not the same as moving towards a statutory ban.

[Baroness Neville-Rolfe (Con)]

My Lords, as somebody who initiated a review of retentions when on the Front Bench over five years ago, I have one simple question: does the Minister accept that the delay in dealing with retentions in the construction industry is injurious to the industry and hence to the national interest? Will it be possible to now have more rapid action?

[Lord Callanan (Con)]

As I said in response to a previous question, I agree with my noble friend that we need to try to drive some action in this area. But a statutory ban is a very blunt instrument, and it would be difficult without some alternative form of surety being put in place, so we are working with the industry to try to develop those models. My noble friend will know the issue very well from the work that she did.

[Lord Aberdare (CB)]

My Lords, the Minister mentioned the lack of consensus in this area. There is never going to be a complete consensus between one party which is withholding funds and the other party which is having them withheld. This is why action is needed by government to address the issue. I accept that the complete banning of retentions is a major step but that is why action is needed now to devise a path towards that eventual goal.

[Lord Callanan (Con)]

The noble Lord is partly right and there will always be some who will oppose it, but the Build UK Roadmap to Zero Retentions has been developed and is supported by its many clients. The construction firms and trade associations within the membership of Build UK, the Construction Products Association and the Civil Engineering Contractors Association, are supporting this initiative. There are some hopeful signs of consensus going forward.

Advanced Research and Invention Agency Bill

Lord Callanan Excerpts

Report stage
Tuesday 14th December 2021 Lords Chamber

[Baroness Chapman of Darlington (Lab)]

My Lords, I find myself listening to some excellent speeches and frantically scratching sections from my own contribution as I do not see the point in repeating the points that have already been made. I put on record my thanks to my noble friend Lord Browne, in particular, for his generosity with his expertise and time in working so collaboratively on this issue, which has support on all sides. The principle is very simple: the state is taking a big risk by granting funds to speculative research projects. In cases where that risk pays off—we hope that is not an infrequent event, but we understand that this is about high-risk ventures—ARIA should have the ability to protect the potentially significant benefits that will arise from initial taxpayer support. It seems equally appropriate that ARIA has a say in potential takeovers or transfers of intellectual property. We know that there is a big market for speculative purchases of new technology. While ARIA may decide that there is no public interest in preventing certain events from taking place, there might be other investments that should be safeguarded.

It is clear from the debates that we have had in Committee and this evening that there is a shared desire on all sides—including, to be fair, from the Minister—to deal with this issue. He has correctly observed previously that the problem we are trying to fix is not limited to ARIA; that is understood and agreed with. However, while the amendment by the noble Lord, Lord Browne, does not fix everything, that does not mean we should not try to fix the thing that is in front of us now. It moves us in the right direction and is appropriate given the specific activity of ARIA; the Opposition are solidly in support of Amendment 1.

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

I thank noble Lords for what has been an excellent and very well thought-through debate. While the noble Baroness, Lady Chapman, was lucky enough to be scratching bits from her contribution, I found that I was adding lots more to mine to take account of some of the excellent contributions. The debate showed the House at its finest, even if I do not necessarily agree with all the points raised, as I will outline.

Amendment 1, introduced by the noble Lord, Lord Browne, imposes a number of conditions on ARIA’s financial support. He made his case well, raising a number of important issues regarding the UK’s approach to capturing value from public investment in R&D, the role of public IP retention within that, the Government’s powers to intervene in acquisitions and our approach in so doing. I have listened carefully to all the contributions made by noble Lords on this matter, and I think that there is some measure of common agreement. We are all agreed that public investment in R&D should indeed drive long-term socioeconomic benefit and ultimately drive value to UK taxpayers who are funding it. We are clear across this House that exploitation of IP will play an integral role in creating these benefits, and that our paramount concern should therefore be generating the maximum public value from that exploitation; I will return to that specific issue shortly.

The debate that we have had today on the benefits derived from public investment in R&D speaks to a much wider issue, which extends beyond intellectual property, ARIA and this piece of legislation. I respectfully say that I do not think that Report on the Bill is the most effective forum for setting precedents to this very expansive and wide-ranging area of government policy. While I will do my best to address the range of points raised this evening, the Government’s approach to foreign investment and how IP rights are treated within the public funding disbursed across the entirety of our considerable R&D system are indeed extensive areas of policy.

I recognise that there is some common ground, as the noble Lord, Lord Browne, has set out—although perhaps not as much as he might have indicated. As he said, I offered to facilitate a meeting with the Minister for Science, Research and Innovation, who came along to our all-Peers meetings to discuss these issues in the round. I still believe that this is the correct forum to discuss this issue in sufficient breadth—something that I do not think could be provided through this amendment to the proposed arrangements for ARIA alone. I suspect that the noble Lord will not be satisfied with my offer but nevertheless I repeat it here.

I have welcomed the insightful contributions of noble Lords in the scrutiny of the Bill so far, and I recognise the importance of Amendment 1 in providing a vehicle for this debate, but I hope that the noble Lord, Lord Browne, will recognise that this represents an unusual and strong restriction and we would have serious concerns as to its proposed workability.

To respond directly to the noble Lord’s amendment, let me set out the Government’s current position. The UK is a premier destination for foreign direct investment. I recognise the concerns the noble Lord has expressed about the current context and the issue of leveraged loans highlighted by the Bank of England, but, in general, I think we all have to recognise that this investment brings tangible economic benefits and the Government are rightly cautious about introducing wider powers to act on the grounds of public or economic interest, as such an approach could destabilise investment into the UK, reduce economic growth and ultimately, therefore, risk jobs and prosperity.

--- Later in debate ---

[Baroness Chapman of Darlington (Lab)]

My Lords, I am grateful to the noble Lord, Lord Ravensdale, for bringing back his amendment on these important issues. It has been a real pleasure working with him and hearing from him throughout the debates on this Bill. In Grand Committee, Labour proposed making addressing climate change a core purpose for the first two years of ARIA’s existence. It is, after all, one of the greatest challenges, if not the greatest, that we face, and it is science and technology that we look to for new tools and solutions. We were disappointed by the Minister’s response to that suggestion and to the proposals put forward by other noble Lords. We feel this is of critical importance, so we would be prepared to support Amendment 4—depending, of course, on what the Minister has to say.

The noble Baroness, Lady Bennett of Manor Castle, has tabled Amendment 5, which seeks to promote three of the UN sustainable development goals, which Labour supports. My noble friend Lord Collins of Highbury looks for any opportunity to press the Government to secure progress on them, domestically and overseas. Without wanting to soften the Minister’s cough—as I think we say where we are both from—I am sure he will say that the Bill is not the correct vehicle. However, whether or not there is a vote, the Government should understand that amendments such as this, which embed climate as a golden thread in legislation, will be put forward by noble Lords and Members in the other place at every opportunity.

[Lord Callanan (Con)]

My Lords, I thank the noble Lord, Lord Ravensdale, for his productive engagement on the amendments in his name, as well as others for contributing to this important debate. Clearly, this issue matters to us all. I will start by exploring the intention behind the amendment. If it is to signal the importance of climate action, of course there is no disagreement between us on that. It is clearly an issue of the utmost strategic importance to this country, and that is reflected in the Climate Change Act, which marks the UK as the first major economy to pass laws to end our contribution to global warming by 2050. Our statutory obligations and ambition on this issue could not be clearer, and they do not need to be marked elsewhere. I do not believe that we should add to this legislation to signal our general intent. It is not appropriate for any provision to be added to a Bill unless it has an actual effect.

The alternative is a statutory duty that seeks to influence—and therefore constrain—ARIA’s activity in some way and, as drafted, the amendment would do so in a very sharp sense. I am grateful to the noble Lord, Lord Ravensdale, for his willingness to engage with the concerns that I put to him and explore alternative ways to achieve his objectives. I have raised these points with him directly, so for the benefit of others I will outline my position—with apologies to the noble Lord, who has heard all this before.

There are well-rehearsed arguments that I have put forward against a defined climate mission. I remind noble Lords that UKRI, through which the overwhelming majority of our public R&D funding is delivered, funds a full portfolio of projects focused on tackling climate change. Where there are specific research and innovation needs to support the Government’s strategic priorities in this area, UKRI delivers across: adaptation and resilience; clean energy; and sustainable industry, agriculture and transport. I think we are all aligned behind the idea that ARIA should complement, not duplicate, our existing capabilities. That is why this amendment is rightly presented now as a more general obligation. The excitement and support that ARIA has generated within the research community has been based on its different model of funding, with agility and risk appetite absolutely central to all the recommendations of how and why ARIA should be created.

ARIA should not be focusing on the scale-up and exploitation of known technologies, for climate change or indeed any other government priorities; noble Lords with expertise in this area will know well that the extent of its funding, at £800 million over five years, makes it completely unsuitable to play such a role. ARIA will contribute by focusing its programmes on the most ambitious objectives, and funding high-risk research and innovation to achieve them. When ARIA finds solutions to these hard problems or gathers learnings along the way, they will be adapted and applied to other fields in different contexts: that is where the benefits to our climate ambitions are likely to be felt.

Breakthroughs in materials science led to huge progress in what is possible in terms of battery storage or fusion. Those technologies are now critical to the energy transition, but much of the original research was not done with that goal in mind. Being prescriptive limits the scope to take completely novel approaches, as we hope and expect ARIA will do. Placing this obligation on ARIA requires us to answer the question: who will assess whether the radical breakthrough targeted by an ARIA programme might—in future, in some way—contribute to our climate goals?

The National Audit Office will assess the regularity of ARIA’s spending each year, which would include this addition to its funding. Is it well placed to make this assessment? That is not intended as any slight at all on the NAO—I am sure the noble Lord, Lord Morse, will be glad to hear that. However, I submit that even the researchers and innovators steeped in a technology cannot predict how it might evolve or be applied in the years to come. That is the nature of innovation and high-risk research. Essentially, it is unknowable. Adding this provision to the Bill asks us to make that essential assessment not only knowable but justiciable. Whoever performed the assessment of whether ARIA’s activities fell within the scope of this obligation would have their judgment subject to judicial review.

I strongly suggest that the actual effect of this amendment would be to push ARIA towards objectives where the assessment would be clear cut. It would disincentivise risk-taking, new approaches or exploring the application of technologies in unusual or unprecedented contexts. I submit that it would work against the grain of everything we are seeking to achieve with this organisation—

[Lord Lea of Crondall (Non-Afl)]

Is it not a fact that, although the Minister believes that we cannot make concrete commitments on method, we now have some very concrete commitments on outcomes? Glasgow is the best example of medium-term commitments. Unless we monitor those against the metric—the Minister will know that he used that word some months ago—how do we get around the following dilemma? We have concrete commitments on outcomes in a lot of areas but are now putting quite serious dilemmas—I am not saying it is nit-picking—before ourselves as to how we can make sure that we are on track to go where we are trying to get to.

[Lord Callanan (Con)]

I thank the noble Lord for his contribution. I am not 100% sure of the point that he is making. I agree with him that we have concrete commitments, but we have a well-defined track of a number of strategies heading towards those commitments. In the Bill we are talking about funnelling one small part of our R&D funding into a separate agency, while seeking to take novel, innovative approaches to research and development.

I have cautioned against placing this obligation in the Bill but that does not mean that it is unimportant for ARIA to have an awareness of these issues, as the noble Lord, Lord Ravensdale, articulated so forcefully. I am pleased that many noble Lords attended the briefing we held where my colleague George Freeman, the Minister for Science, Research and Innovation, discussed this. It is not plausible that any appropriate CEO candidate for ARIA would be ignorant of the opportunities connected to net zero within research and innovation. There is a similar situation with regard to Amendment 5 and the sustainable development goals, raised by the noble Baroness, Lady Bennett of Manor Castle.

As a result of the ongoing discussions that we have had on this issue during the passage of the Bill, I am able to commit now that, as an alternative, ARIA will evaluate itself against the pillar of the 2021-25 greening government commitments most relevant to this amendment on mitigating climate change by working towards achieving our net-zero environmental goal. This would be included within the framework document; ARIA would therefore be required to consider this objective from its very first cycle of reporting and evaluation.

I also agree that it is through its projects, and its funding, that ARIA’s greatest contribution to our net-zero objectives will be made. I can therefore also commit that ARIA would have regard to its projects contributing to our climate change targets and environmental goals. This is distinct from the sustainability reporting framework and should sit alongside it as a broader obligation, rather than being part of that evaluation process. That consideration would again be included in ARIA’s framework document. In my view, that is the appropriate place for such requirements, which relate to the effective governance of the organisation and its alignment to wider public sector objectives, as it can be more readily updated to reflect changing circumstances or priorities.

--- Later in debate ---

[Baroness Bennett of Manor Castle (GP)]

I apologise; the procedure is a little different and more complicated because I put down an amendment to an amendment. It is not my intention to respond substantively to the Minister’s response to Amendment 4. The noble Lord, Lord Ravensdale, has consistently championed Amendment 4 and variations of it, so it is most appropriate that he responds on that one. I should just say that I failed to declare earlier that I am a member of the committee for Peers for the Planet. On Amendment 5 and my side of this, I do not think the Minister responded to my question about defining quality of life. I realise this may be a legally complicated matter, so will he commit to write to me about this and lay a copy of the correspondence in the Library?

[Lord Callanan (Con)]

Regarding the noble Baroness’s question on the definition of the quality of life—we are getting into a very esoteric debate for this time of night—I do not think there is a technical definition specific to her suggestions that I can point towards. It is not in such common usage but, if I can find an appropriate definition, I will of course send it to her.

[Baroness Bennett of Manor Castle (GP)]

I thank the Minister for his answer. I want to make one other point very quickly. He talked a lot about the hard sciences. It is interesting that, when we had a private discussion with a number of his colleagues, there was also a lot of focus on what might be described as the softer biological sciences and issues such as plant health and the human microbiome. I hope those will be considered within ARIA’s remit. I beg leave to withdraw my amendment.

--- Later in debate ---

We remain concerned about the issues with the Public Contracts Regulations. The Minister knows we are not happy about his approach to that, but our priority on this group is the issue of FoI, and we will support that amendment if it is put to a vote.

[Lord Callanan (Con)]

I thank noble Lords who have contributed on this group of amendments. Turning to Amendment 6 in the names of the noble Lords, Lord Clement-Jones and Lord Fox, the noble Baroness, Lady Chapman, and the noble Viscount, Lord Stansgate, I start by thanking my noble friends Lady Noakes and Lord Patten for their supportive statements in general as the Bill has progressed through this House.

ARIA will be a lean, streamlined agency which we expect to employ people in the tens. It will recruit a small team of exceptional individuals with both technical expertise and scientific vision. I contend that it is appropriate that we consider how their time, focus and energy is best applied.

We have designed this new, unique agency to operate and behave in a way we do not usually see in the public sector—with leanness, agility and efficiency being core to its function. We have also tasked it with embracing risk and failure. As noted by my noble friend Lady Noakes during consideration in Grand Committee and again this evening, these exceptional scientists should not be fearful of or driven to risk-aversion by the prospect of FoI disclosures, nor should they be distracted or bogged down by the bureaucracy of fulfilling such requests.

The issue of the volume of FoI requests we expect ARIA to be subject to has been raised throughout the passage of this Bill, and comparisons have been drawn between the number of requests received by smaller public bodies such as parish councils, and other research organisations such as UKRI. Pursuing this exemption reflects our expectation that, given ARIA’s profile, its focus on high-risk research and the speculation on its activity so far, it would indeed be subject to a disproportionately high number of FoI requests. It is not accurate to suggest that ARIA would get the same number as a single UKRI research council or other small organisations. It is already clear that its activities will generate a much higher degree of interest and, therefore, corresponding requests.

The noble Lord, Lord Clement-Jones, made a comparison to the number of FoI requests to DARPA. Let me remind the noble Lord that when making an FoI request in the US, requesters are required to consider paying applicable fees up to $25. If requests are expected to exceed this cost, the requester is notified to agree additional payment. While fee waivers or reductions can be granted in certain circumstances, it is not a like-for-like comparison to the FoI process in the UK. Therefore, in my view it is not right to assume that ARIA will receive a similar number of FoI requests to DARPA.

I also reassure noble Lords that our reasons for placing ARIA outside FoI legislation are specific and do not extend to other new public bodies, which will not have the same requirement for flexibility and agility and therefore will not require the same exemption.

However, to suggest that the agency will therefore be operating under a veil of secrecy is, in my view, not accurate. We expect ARIA to be an outward-facing and transparent body, which will proactively provide information about its activities to encourage collaboration around its programme goals, increase public understanding of its work and build public trust. Alongside this, it will be held to account by robust transparency arrangements. Let me remind noble Lords about them. It will publish its annual report and a statement of accounts, which will be laid before Parliament. It will be subject to annual audits by the National Audit Office. It will appear before and be accountable to Parliament through its chief executive officer and it will remain, of course, an arm’s-length body of my department in BEIS.

That said, I have also taken into account the opinions of noble Lords on this matter. To reflect the considered debate in Grand Committee on the balance of ARIA’s transparency and accountability arrangements with this unique freedom, I am happy to provide further assurances to noble Lords on ARIA’s reporting requirements. Annually, ARIA will proactively publish information on its regional funding and will make information publicly available on all delivery partners supported through the full range of its funding mechanisms. Taken alongside and together with ARIA’s annual report and accounts, these are significant and robust transparency arrangements which will ensure Parliament and the general public are informed of ARIA’s activities, the projects it funds and where it funds them.

I hope that, given these reassurances, noble Lords are satisfied that the FoI exemption serves an important function for ARIA and that we have struck the right balance here. I thank them for their input.

[Lord Browne of Ladyton (Lab)]

Before the Minister moves on to the next amendment and off the FoI amendment, has he read the Department of Defense information handout? That makes it clear that the vast majority of those who request information from DARPA would not have to pay any fee at all. Can the Minister share—either now or at some point—with noble Lords the genesis of his belief, which he has now repeated a number of times, that everyone who asks for information from DARPA has to pay a fee in the United States? If that is not true, then the comparison that we all make is a relevant comparison and is the only data; the only other thing we have is the Minister’s animus against freedom of information requests. And is he aware of the provisions of Section 19 of the Freedom of Information Act?

[Lord Callanan (Con)]

I think the noble Lord will find, if he looks at my remarks, that I did not say that every applicant will pay fees but that there is a general expectation that a fee of $25 will be charged, or even more in some cases if more information is required. However, there are exemptions to that, which can be exercised. If the noble Lord looks back at Hansard, he will see that I did not say that everyone would be charged a fee. In most cases, a fee would be applicable, but there are certain exemptions.

I turn to Amendment 7, in the names of the noble Lords, Lord Clement-Jones and Lord Fox, and the noble Baroness, Lady Chapman, which relates to procurement regulations. I note that the noble Lords did not address this, but it is worth while setting out the Government’s position on that amendment. I believe there are clear reasons why this exemption is beneficial to ARIA and why it will be integral to the agency’s effective operation. First, unlike other R&D funders, ARIA will be commissioning and contracting others to do research for it in pursuit of its own technological visions or research goals. The process of contracting and commissioning means ARIA will be operating in fundamentally different ways from traditional R&D grant making, where procurement rules already do not apply. Placing ARIA outside the existing public procurement rules will mean that the agency can freely procure expert investment and consultancy advice, which will be important given the highly varied and technical nature of the agency’s work.

While we imagine that the bulk of ARIA’s research activities will be carried out by its partners and funders, it remains possible that ARIA may wish to procure and own a piece of research equipment to crowd-in interest from other research partners, or to accelerate the progress of a project. Freedom from traditional procurement rules will facilitate ARIA making those investments quickly and with ease. In my view, it is appropriate for ARIA to have greater flexibility than the R&D exemption would afford it so that it can design and tailor its contractual arrangements to precisely suit its research endeavour.

Secondly, in designing ARIA, we have put a premium on the agency investing and acting quickly. In our view, this agility would be incompatible with the public tendering process mandated in the Public Contracts Regulations 2015, which can require contracting authorities to put contracts out to open tender for up to two to three months. Such a delay could prevent critical investments being made with sufficient speed or, indeed, at all. In choosing to exempt ARIA from standard procurement rules, we have learnt from the successful approach taken by DARPA, which benefits from “other transactions” authority, giving the agency the flexibility to operate outside traditional US government contracting standards. It is our belief that ARIA should benefit from similar flexibilities.

I also dispute the notion that taking ARIA outside traditional procurement rules will leave the agency vulnerable to cronyism. I think this was a point made by the noble Baroness, Lady Chapman, in Committee. This exemption will ensure ARIA’s leadership and programme managers—who have been recruited for their technical expertise and scientific vision—can take decisions on ARIA’s procurement with autonomy, as they will have the freedom to procure at arm’s length from government and Ministers.

As I have already detailed, ARIA has clear lines of accountability, transparency and scrutiny in the preparation of its an annual report, scrutiny by the NAO and an annual independent audit to report on its procurement activities. As I have already alluded to, to reflect the constructive and considered debate in Grand Committee, ARIA will publish information on its delivery partners, and this expectation will be detailed in ARIA’s framework document. I thank the noble Baroness, Lady Chapman of Darlington, for tabling an amendment to that effect previously. I hope she and other noble Lords welcome this principled commitment to transparency, which would extend to delivery partners supported through the full range of ARIA’s funding mechanism.

In conclusion, I hope noble Lords have been assured that exempting ARIA from traditional procurement rules will be integral to the agency’s effective operation. The package of accountability, conflict of interest procedures and governance provisions that sit within this Bill are an appropriate counterbalance to that. Taken in the round, this represents an essential, proportionate and balanced freedom, placed in the hands of ARIA’s incoming leadership and programme managers. Taken together, I hope that the assurances and explanations I have been able to provide for noble Lords will allow the noble Lord to withdraw his amendment.

[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for his response and thank noble Lords who have taken part in this debate. There is clearly an argument to be had on our Amendment 7 and the whole procurement regime. The one argument that the Minister has is that DARPA is not subject to procurement rules.

However, the position is quite other on Amendment 6, as the noble Baroness, Lady Chapman, has said. This is a matter of principle. The Minister keeps coming up with some quite colourful phrases. This evening he said that scientists should not have to be fearful at the prospect of FoI disclosure. That is quite an interesting phrase—those scientists quivering in their labs, waiting for freedom of information disclosure. I must say it is quite a colourful way of looking at the situation, but, clearly, we have a matter of principle to decide on here, and I would like to test the opinion of the House.

--- Later in debate ---

[Baroness Chapman of Darlington (Lab)]

My Lords, I recognise the expertise of noble Baroness, Lady Noakes, on issues of corporate governance and, like my noble friend Lord Browne, I have enjoyed listening to her in Committee and again today. I will be interested to hear what assurances the Minister is able to give as a consequence of her amendments. I have learned a lot from her through this process and I look forward to learning more in the future.

I welcome Amendment 17 from the noble Lord, Lord Morse, whose case is no doubt bolstered by his experience over many years. It is a real joy to me that we have come to this House at more or less the same time. This is our first Bill together, and I am very pleased to add my name to his amendment.

There have long been concerns about “revolving doors” in politics—it is not something that started with this Government—but my noble friend Lord Browne was correct to observe that concern about issues such as those dealt with by Amendment 17 is growing, and frankly the Government have brought it on themselves. There is deep concern in the public mind about these issues and we shall see on Thursday what the people of North Shropshire make of it all.

I am struck by the fact that the Minister has taken the amendment from the noble Lord, Lord Morse—a very good amendment which we support—and has directed us to look at paragraph 11 of Schedule 1, which states:

“The Secretary of State may by regulations make provision about the procedures to be adopted for dealing with conflicts of interest.”


They may, but “may” is doing a lot of lifting there, and obviously they may not as well, so there is nothing to give us any assurance that the danger of which the noble Lord, Lord Morse, is correct to warn us could be averted by that provision. We are just not buying it. Although the Minister has, for illustrative purposes, provided a suggestion of how the regulations might look, that does not provide us any assurance whatever.

Given the Minister’s reluctance to accept any of the suggestions that we have made—none of the suggestions, from FoI to reporting, have been taken up by the Government—he is somewhat leaving ARIA exposed, in the way that the noble Lord, Lord Morse, explained so well. We want this organisation to succeed, but because of the Government’s rigidity on these issues, the fear is that we are setting it up with a weakness: this lack of transparency and ability to challenge.

The Minister is kidding himself if he thinks that these issues will not be scrutinised and that some of the problems that may emerge will not somehow get out. I am sure that the Public Accounts Committee will enjoy crawling all over this when it gets the opportunity to do so. We want this to work, but I am afraid that the Government’s approach is not doing ARIA any favours.

I want to hear what the Minister has to say and whether something can be done to provide us with the assurance we are looking for that ARIA will not be characterised—or mischaracterised, I hope—as some sort of secret agency. That would only cause this fascination and determination to probe into its activities to grow.

[Lord Callanan (Con)]

Before I start, I will deal directly with the comments of the noble Baroness, Lady Chapman, which I thought were a little unfair. We have responded to a number of the points she has made, and we have adopted some of her suggestions on transparency, delivery partners and regional funding. We obviously have not gone as far as she would like in some respects, but it is slightly unfair to say that we have not listened at all to many of the reasonable suggestions that have been put forward from all sides. I will come on to another suggestion that we will adopt shortly.

I start by responding to the amendments put forward my noble friend Lady Noakes. I thank her once again for her considered contributions, which, together, aim to ensure that ARIA is a well-governed and effective agency. I certainly echo the comments of the noble Baroness, Lady Chapman, about her great knowledge of corporate governance. My noble friend’s Amendment 16 would remove the Secretary of State’s power to determine a pension or gratuity for non-executive members. As I said in Committee, it is in fact not our intention to offer these for ARIA’s non-executive members. In consequence of the helpful suggestions and debates we had on that occasion, I have reflected further on the functions of ARIA and the duties and responsibilities we expect of its non-executive members, and I am pleased to be able to confirm to my noble friend that we do not see circumstances in which this power will be required. I am therefore able to say that the Government will support this amendment, and I thank my noble friend again for bringing it forward.

I turn to Amendment 15, also tabled by my noble friend Lady Noakes, who spoke about reducing the maximum possible number of executive members from five to four. The chair of the agency will have responsibility for appointing ARIA’s executive members. Following government guidance for corporate governance, we will set out the responsibilities for ARIA’s chair to review the performance of ARIA’s board and its members in the framework document. This will include evaluating the composition of the board and considering its size, diversity and balance of experience and skills. We expect that, in the initial phases of ARIA, this will tend towards a small board structure. However, I believe that it is important to retain at least some flexibility in the legislation to account for ARIA’s future needs as appropriate, and to allow for a slightly larger board if necessary.

As ARIA will be working across the public and private sectors, using a range of funding mechanisms and funding research at various stages of technological development, I do not think we should rule out a slightly larger arrangement so that ARIA can bring knowledge from a range of backgrounds and ensure that this is represented at board level. I thank my noble friend for her thoughtful remarks on groupthink; it is this diversity of thought and experience that would be the best antidote to such an outcome.

--- Later in debate ---

[Lord Callanan (Con)]

Once again, I thank my noble friend Lady Noakes for her thoughtful and constructive contributions throughout the progress of the Bill so far. However, she will be disappointed to know, I am sure, that on the substance of her Amendment 20, I am not convinced that adding a legislative requirement for the Secretary of State to approve how these supplementary powers are exercised would be beneficial to ARIA’s effective function or enhance its accountability measures that are already in place.

On ARIA’s ability to borrow money, I recognise that this has been consistently raised throughout the passage of the Bill by my noble friend. I thank her for her previous probing amendments on this matter, which prompted an important conversation on the balance between ARIA’s activities and the appropriate government oversight. As I outlined in correspondence with my noble friend, any borrowing would be contingent on ARIA complying with the rules of Managing Public Money and subject to approval by Her Majesty’s Treasury.

ARIA’s allocation and delegation letters, which the CEO of ARIA will be duty-bound to adhere to, will confirm that ARIA will be subject to, and comply with, all Managing Public Money rules that relate to borrowing. Managing Public Money sets robust conditions on borrowing, and states:

“Public sector organisations may borrow from private sector sources only if the transaction delivers better value for money for the Exchequer as a whole.”


Ensuring that ARIA’s expenditure is made in accordance with Managing Public Money guidance, except for in certain agreed circumstances, will be a condition of the budget ARIA receives from BEIS in its allocation and delegation letters from the BEIS Permanent Secretary to ARIA’s CEO.

There is an expectation of a level of faith between the Government and their arm’s-length bodies. This understanding of trust, and all of ARIA’s freedoms and powers, will be balanced with a number of core accountability principles. The CEO will be ARIA’s delegated accounting officer and will be personally accountable to Parliament for the stewardship of ARIA’s resources, decision-making and financial management. This includes the Public Accounts Select Committee, which will, I am sure, take an interest in such matters. The BEIS Permanent Secretary, as principal accounting officer, will retain an important oversight role, and has the power to make arrangements to ensure they are satisfied that ARIA’s systems are adequate and its finances soundly managed. The Permanent Secretary may intervene if ARIA is significantly off track, and in the unlikely scenario that serious concerns are raised, or there is financial mismanagement, the CEO’s delegated accounting officer authority can be revoked. I hope my noble friend is reassured that the mechanisms here are well established and robust and that they will be enforced.

Moving on to ARIA’s ability to form partnerships, I believe that adding a Secretary of State approval to ARIA’s activities in this area would significantly hinder its effective operations. In designing ARIA, we have put emphasis on the agency operating with significant autonomy from government, and with freedom from standard bureaucracy. Forming partnerships, such as providing grant funding to a project with a university or a business, will be an essential part of ARIA’s daily operations. We expect the agency to contract with, commission and collaborate with a range of different actors for each of its research projects—indeed, that will be one of its core functions.

We have designed this agency to be led and run by experts with technological vision. It is vital that these individuals are free from arduous processes so that they can act quickly, decisively, with autonomy and with clear authority. We should trust ARIA to have discretion over how it forms those partnerships, and I believe that requiring it to engage in a central government approval process for each partnership sits squarely contrary to its aims and purpose.

Moving to ARIA’s ability to form companies and to form and participate in joint ventures, my department is currently in negotiations with Her Majesty’s Treasury about the exact clearance processes ARIA will undertake for each of these transactions. The detail will be set out in ARIA’s allocation and delegation letters, the conditions of which the CEO, as accounting officer, will be duty-bound to comply with. However, I assure my noble friend that all iterations of this delegation letter will include sufficient assurances that ARIA’s internal assessment processes and capability are sufficiently robust. Given that these arrangements may need to evolve in the future, it would not be appropriate for this to be mandated at this stage in the Bill.

On ARIA’s ability to accept gifts, there are already stringent conditions on this in Her Majesty’s Treasury’s Managing Public Money that ARIA would need to comply with. ARIA would consult BEIS about gifts, and HMT’s approval is explicitly required for any gift over £300,000. Gifts made would be recorded in ARIA’s accounts and gifts received would be recorded in a register. These rules will also be confirmed in ARIA’s allocations and delegations letter from the BEIS Permanent Secretary.

ARIA’s power to acquire and sell land would be exercised only in compliance with the Managing Public Money guidance, which sets controls on the below-market sale of land, will compel ARIA to take professional advice when disposing of land and property assets, and will mandate ARIA to include land in its asset register.

Furthermore, introducing a blanket statutory requirement for Secretary of State approval would leave ARIA with less freedom than comparable arm’s-length bodies such as UKRI, which is able to exercise supplementary powers related to accepting gifts and the buying and selling of land without a legislated approval from the Secretary of State.

I appreciate that my noble friend has significant expertise and interest in the areas of financial management and propriety, and we welcome that. However, adding a statutory requirement here would not add value or challenge beyond what is already well established and enforced through Managing Public Money. Furthermore, as I have set out, adding the requirement to the forming of partnerships would, I believe, be genuinely detrimental to ARIA’s agile, autonomous operations, which I know my noble friend is keen not to prejudice.

Before I conclude on this final group of amendments, I once again thank all noble Lords who have taken an interest in this Bill for their excellent and constructive contributions throughout our scrutiny. ARIA provides us with enormous opportunities. I have been delighted to take the Bill through this House and engage with colleagues on all sides, who have focused on the task of providing appropriate scrutiny with enthusiasm, ability and great skill.

[Baroness Noakes (Con)]

My Lords, I start by thanking again the noble Baroness, Lady Chapman of Darlington, for her support for my amendment. What the Minister has said in setting out in more detail how the various mechanisms work in the public sector to achieve de facto control over public bodies has been very useful. I hope he is right that this will work well in practice, and I completely accept his point that there has to be an element of trust and faith between BEIS and its public sector bodies. At the end of the day, this is a risk management decision on whether the balance has been set in the right place, given the particular circumstances of the public body.

I say to the Minister that I hope I shall never have to say, “I told you so”—I warn him that I have an elephantine memory. With that, it is late and time to withdraw my amendment.

Drax Wood Pellets

Lord Callanan Excerpts

Monday 13th December 2021 Lords Chamber

[Baroness Boycott]

To ask Her Majesty’s Government what assessment they have made of (1) the sustainability, and (2) the impact on biodiversity, of the wood pellets used by Drax for electricity generation in the United Kingdom.

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

My Lords, in 2020 plant-based biomass power generation made up approximately 9% of the total renewable electricity generation in the UK; this includes generation from wood pellets. The biomass that powers such generation meets strict sustainability criteria that the Government set out in legislation. The sustainability criteria include requirements for sustainable sourcing, covering a range of social, economic and environmental issues, including protecting biodiversity. The UK supports only biomass that complies with these strict sustainability criteria.

[Baroness Boycott (CB)]

I thank the Minister for his Answer, but I beg to differ. Some of the forests being logged for biomass are among the most ecologically rich and diverse in the world. The North American coastal plain, where most UK biomass imports—particularly Drax—come from, is a global biodiversity hot spot. Clear-cutting for biomass is occurring even in reserves that are designated protected forests. We are paying Drax £832 million a year in subsidies, and at the moment it is the fifth most polluting power station in Europe. I again ask the Minister my Question on the Order Paper. The impact on biodiversity, rather than non-existent as he said, is in fact very severe. When will the Government step up to the plate and do something about this?

[Lord Callanan (Con)]

I am afraid that I and the noble Baroness will have to disagree on this. Biodiversity is one of the criteria we take into account. We have sent officials out to southern USA, where most of this biomass comes from. This is residue, by-product from the forestry process, so it is not unsustainable. I think the noble Baroness is wrong.

[Baroness McIntosh of Pickering (Con)]

Would it not be more sustainable if my noble friend could source all the wood from fast-growing wood coppice or miscanthus from farmers in North Yorkshire and across Yorkshire? It is closer to Drax and would reduce the carbon footprint, as well as helping local farmers with their growing capacity.

[Lord Callanan (Con)]

Indeed it would, and we already source some small quantities from the UK, but the noble Baroness needs to look at the size of the forests in southern USA, which are, I think I am right in saying, about the size of the landmass of western Europe. Great and sustainable though North Yorkshire wood is, I suspect we would struggle to meet the quantity required.

[Lord Grantchester (Lab)]

Drax claims that burning wood pellets is carbon-neutral because trees absorb as much carbon dioxide when they grow as they emit when they are burned. Is the Minister able to justify that claim from a thorough analysis that includes all supply-chain emissions and with effective CCUS? Would that also have to include hydrogen production?

--- Later in debate ---

[Lord Callanan (Con)]

No. In a sustainably managed forest, which all our biomass comes from, there will be stands of trees of different ages, which will be harvested in gradual sequence and then replaced as they reach maturity. The market price for biomass is far lower than it is for timber and board manufacture, which are far more valuable. These are by-products from the forestry process.

[Baroness Sheehan (LD)]

My Lords, part of the problem of how we got here is that the Government took at face value the assurances from biomass energy producers that their products were sustainable. Will the Government now commit to implementing a due diligence exercise in future, so that producers have to prove where they have sourced their product from?

[Lord Callanan (Con)]

They already say where their product has come from; this evidence is independently audited. Generators must report against the criteria on a monthly basis and Ofgem performs checks to ensure that the criteria are met and deductions in certificate issuance or payments are applied proportionately for the energy produced. We are already doing the checks that the noble Baroness suggests.

[Lord Randall of Uxbridge (Con)]

My Lords, I declare my conservation interest as in the register. Will my noble friend the Minister be able to put in the public domain these independent assessments of biodiversity loss—or no loss, as he has it? As far as I am concerned, and from what I hear, this is having a severe impact on biodiversity and, in primary forest that has been cut down, on species such as the cerulean warbler, the prothonotary warbler and many others. Is he aware that some of the most deprived communities in the areas of these wood-processing plants are suffering great health problems? Is it right that the Government are subsidising this?

[Lord Callanan (Con)]

Where the evidence is published, I will certainly make sure that the noble Lord receives a copy of it, but I think he is wrong on this. As I said, these are not primary trees but trees that are being harvested anyway; these are branches and other offcuts from the forestry process. It is sustainably managed and the criteria are checked, including for biodiversity.

[Baroness Jones of Moulsecoomb (GP)]

Do the Government understand that Drax has been taken to court twice this year for air pollution offences and reported to the OECD for misleading and, frankly, untrue statements about its environmental impacts? Does the Minister think the Government are being a bit naive in not doing due diligence with somebody who actually knows what they are talking about from the green point of view?

[Lord Callanan (Con)]

I would challenge the noble Baroness’s statement that some of the green groups know what they are talking about, but we make sure that the process is independently audited and all of the biomass is—I repeat—sustainably produced.

[Baroness Redfern (Con)]

My Lords, in relation to transforming the UK’s most carbon-intensive industrial cluster into the world’s first carbon-neutral industrial cluster by 2040, can the Minister tell us not only about safeguarding existing jobs but how many new green skilled jobs this is predicted to bring to my area of Yorkshire and the Humber?

[Lord Callanan (Con)]

I am afraid the noble Baroness will have to write to me with details of which scheme she is referring to.

[Lord West of Spithead (Lab)]

My Lords, does the Minister think there might be merit in closing Drax and building a new nuclear power station?

[Lord Callanan (Con)]

There will certainly be merit in producing new nuclear power stations. I share the noble Lord’s enthusiasm for nuclear power. It was a shame that the Labour Government of which he was a part stopped building nuclear power stations; that was a retrograde step. We are committed to future nuclear, but we can do that alongside sustainable biofuels.

[Baroness Bakewell of Hardington Mandeville (LD)]

My Lords, the burning of woody biomass produces more carbon emissions per unit of final energy than burning coal. The Drax power station is not decarbonising the energy sector—quite the opposite—and is the UK’s largest single source of carbon emissions. The wood pellets burned by Drax come from whole trees clear-cut logged in natural forests worldwide, not from trees grown for the purpose or from waste by-products as the Minister said. Is it time the Government thought again about the £2.1 million daily subsidy that Drax receives?

[Lord Callanan (Con)]

At the risk of repeating myself, I think that the noble Baroness is wrong on the points that she makes. The process is independently audited and checked, and we have sent officials out to southern USA to ascertain that the claims are correct, and all the material burned in Drax is sustainably produced.

[Lord Geddes (Con)]

Since the noble Lord, Lord West, has led us slightly wider on the Question, can I ask why there is not more emphasis on tidal power?

[Lord Callanan (Con)]

The noble Lord gives me a great cue to talk about the contracts for difference scheme that we launched just this morning, which for the first time allows tidal power to bid. I completely agree with the noble Lord, and we are doing it.

[Baroness Hayman (CB)]

The Minister mentioned the contracts for difference, which include onshore wind. As he knows from the Bill that we discussed two Fridays ago, there are still planning issues with onshore wind development, particularly with replacement of current onshore wind. Will the Government look a little more sympathetically at supporting my Bill?

--- Later in debate ---

[Lord Callanan (Con)]

We had an extensive and informative discussion with the noble Baroness on her Bill, and onshore wind, as I reminded her at the time, is included in the contracts for difference round that we launched this morning.

Net-zero Emissions

Lord Callanan Excerpts

Tuesday 7th December 2021 Lords Chamber

[Lord Ravensdale (CB)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and in so doing declare my interest as a director of Peers for the Planet.

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

My Lords, to meet net zero, virtually all heat in buildings will need to be decarbonised. The net-zero strategy outlines that we expect that emissions could fall by between 25% and 37% by 2030 and 47% to 62% by 2035 compared with 2019 levels, based on an indicative heat and buildings pathway. The heat and buildings strategy shows our robust plans to do so.

[Lord Mackenzie of Framwellgate (Non-Afl)]

My Lords—

[Lord Ravensdale (CB)]

I thank the Minister for that response. Although I welcome the heat and buildings strategy, including the clear focus on heat pumps, it was silent on embodied carbon, which forms a large proportion of emissions from the built environment— 50 million tonnes in CO₂ equivalents a year, equivalent to aviation and shipping combined—so there is a strong case to report and regulate. Can the Minister say what plans the Government have towards mandatory reporting of carbon emissions in the built environment, along with regulating to limit carbon emissions in construction projects?

[Lord Callanan (Con)]

The noble Lord makes a very good point. We need to look at embodied carbon much more closely. Indeed, I attended and launched a session on exactly that at the COP climate change talks. We will work with industry practitioners to see what more we can do in this important area.

[Lord Mackenzie of Framwellgate (Non-Afl)]

My Lords, I apologise for my premature intervention. Are all domestic new builds taking place since the Glasgow COP meeting last month being built to the new specifications required by the Heat and Buildings Strategy? If not, why not?

[Lord Callanan (Con)]

The new building regulations for net-zero homes will take effect from 2025, but of course we are not waiting that long to take action. The new Part Z of the building regulations will kick in from next year.

[Lord Lilley (Con)]

My Lords, does my noble friend agree that living standards generally can rise only if we produce more output per head? Conversely, living standards will fall if we need more workers to produce our existing level of output of energy or heating. Yet this strategy says that upgrading our homes and buildings to warm them without using fossil fuels will require 240,000 more workers than at present, who will no longer be able to produce other goods and services. Does my noble friend think that reducing the average living standards of the country is what people voted for?

[Lord Callanan (Con)]

I am sure people did not vote to have their living standards reduced. Indeed, we have an excellent record of both decarbonising and growing the GDP per head of population. We have a very successful record of doing that so far, and I hope we will continue to be able to do so. I remind my noble friend that whatever our individual views on this, we now have a legal obligation to meet net zero.

[Lord Broers (CB)]

My Lords, while complimenting the Minister and the Government on getting on with the SMR programme, I ask him whether sites are being sought for these reactors where the heat they produce can be used in district heating systems for buildings, industry and horticulture.

[Lord Callanan (Con)]

The noble Lord links together two important facets of this work: the importance of getting on with building new nuclear capacity, which I think is widely recognised, and the importance of developing heat networks. We do not have such a tradition of heat networks in this country, but they are rapidly expanding and we are investing hundreds of millions of pounds in future heat networks.

[Lord Whitty (Lab)]

My Lords, can the Minister confirm that after the publication of this strategy, he indicated that the decision on hydrogen-based heating for homes would not be taken until 2025? If so, what advice does he give now to householders whose boilers are running out of time? Should they buy a heat pump or a hydrogen-ready boiler, or wait until the price of air pumps comes down and a decision is taken in at least four years?

[Lord Callanan (Con)]

The noble Lord is correct about the timescale for taking a decision on hydrogen. It is not yet a mature technology in terms of whether it would be available in sufficient quantities on a wide enough scale to be used for home heating. We are funding a large series of trials, moving towards a hydrogen neighbourhood, a hydrogen village and then a hydrogen town-level trial before we can advise people to take that forward. In the meantime, we have set our ambition to phase out the sale of gas boilers by 2035.

[Lord Oates (LD)]

My Lords, is the Minister aware of the concern expressed by the Climate Change Committee over the lack of an integrated offer on home retrofit for home owners who want to upgrade the energy efficiency of their homes? What do the Government intend to do to work with industry to correct this clear market failure?

[Lord Callanan (Con)]

We are working closely with industry to work up the offers we have to householders, as well as the myriad government schemes targeting mainly low-income families: the £800 million social housing decarbonisation fund, the £950 million home upgrade grants, et cetera. Then, of course, we have the £450 million boiler upgrade scheme launching in April next year to subsidise the installation of heat pumps.

[Lord Hamilton of Epsom (Con)]

My Lords, to follow the question from the noble Lord, Lord Whitty, now that the debate on net zero is maturing and we are talking about the costs of reaching net zero, should we not have a cost-benefit analysis from the Government on how all this is working out?

[Lord Callanan (Con)]

The legislation has, of course, already been passed by this House to make net zero legally binding, but extensive impact and cost-benefit analyses were done at the time.

[Lord Grantchester (Lab)]

Decarbonising heat is still a massive challenge, which, as has been mentioned, can be made less so through energy efficiency measures. Given that there are 19 million homes below EPC band C standard, and given the collapse of the green homes grants scheme, can the Minister clarify how many of these homes will be helped by the energy efficiency announcements in this strategy, and by what date?

[Lord Callanan (Con)]

The noble Lord is correct that energy efficiency is extremely important. It is very much a “no regrets” approach; we should always take a fabric-first approach to upgrading properties. As I mentioned, we have a substantial series of financial commitments: the social housing decarbonisation fund, the home upgrade grant, the boiler upgrade scheme, et cetera, to contribute towards the cost of these. The other things we need to look at, of course, are the green finance offers, which will enable people to upgrade their homes in a cost-effective manner.

[Lord Birt (CB)]

My Lords, heat pumps appear currently to be the only proven and viable off-the-shelf option for decarbonising home heating, yet, as we all know, electricity is prohibitively expensive and the cost of the necessary insulation exorbitant. How does the Minister think the Government’s target of 600,000 heat pump installations within six years can be achieved?

[Lord Callanan (Con)]

The noble Lord is correct about the target that we have set. I mentioned the boiler upgrade scheme starting next year. We also have changes to the building regulations, as referred to in earlier questions, which will kick in in 2025, making it virtually impossible to install fossil-fuel heating systems. That will produce a large increase in heat pump installations, as will the other schemes that we have talked about; low-carbon heating can be installed under all of them.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, the campaign group Insulate Britain, which has annoyed people so badly, was asking for a national programme to ensure that homes are insulated to be low energy by 2030. The Government are nowhere near on track to do that, but it is a sensible request; it would ensure that not only would millions of people use less energy, they would be able to pay for what they use. Why not do it?

[Lord Callanan (Con)]

I certainly agree with the noble Baroness that Insulate Britain has managed to annoy everybody. I cannot remember a campaign in this country that has been less effective at mobilising public support behind an important issue. We need to take people with us on this; irritating them, disturbing their daily lives and stopping them going about their lawful business is really not the way to do it. I hope that the noble Baroness will not continue to support these ridiculous, irresponsible campaigns. Having said that, we are spending £3.9 billion over the next few years to insulate homes, upgrade their performance and install low-carbon heating systems. We are getting on with the job quietly and successfully.

--- Later in debate ---

[Lord Jones of Cheltenham (LD) [V]]

My Lords, it is estimated that 50,200 heat pump installers will be needed to install a million heat pumps by 2030. Currently, there are only 1,100 MCS-registered installers and the necessary training courses are expensive. What are the Government planning to do to train another 49,000 of them?

[Lord Callanan (Con)]

We are working very closely with the industry to do precisely that. The Heat Pump Association has recently launched an excellent conversion course for existing heating engineers to convert their skills. I have visited a couple of the training workshops being launched by some of the big heat pump manufacturers in this country. Of course, we are also working very closely with the DfE, which has responsibility for the skills to make sure that there is an appropriately qualified workforce to take this important work forward.

Small Business Commissioner: Late Payments

Lord Callanan Excerpts

Tuesday 7th December 2021 Lords Chamber

[Viscount Colville of Culross]

To ask Her Majesty’s Government what plans they have to extend the powers of the Small Business Commissioner to deal with late payments for small businesses and freelancers by (1) allowing the Commissioner to deal with complaints against companies with fewer than 50 employees, and (2) requiring the chief executive officers and chairs of offending companies to respond to the Commissioner.

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

My Lords, we have consulted on extending the scope and powers of the Small Business Commissioner, including extending their scope to deal with complaints against a small business by a small business, and the power for the commissioner to compel information from a business in relation to a complaint. We are working through the impact of any changes with the new commissioner to better understand the resourcing implications of each option and the likely impact on businesses.

[Viscount Colville of Culross (CB)]

My Lords, three-quarters of self-employed people suffer from late payments; many of them do not get paid at all and the situation is getting worse. It adversely affects their business and a lot of their valuable time is taken up with chasing unpaid invoices. Why, on such an urgent issue, when the consultation finished last December, have the Government still not come forward with proposals? When will proposals be forthcoming?

[Lord Callanan (Con)]

The noble Lord makes a good point, and I very much sympathise with his concern. However, we received a lot of replies to the consultation and are currently working through the options. He will be aware that any proposals in this area will require primary legislation and have resourcing implications for the Small Business Commissioner, so we are currently working through all the options.

[Lord Flight (Con)]

My Lords, the tidying up of late payment problems without hurting trade still needs to be addressed by both larger and smaller companies. What does the noble Viscount envisage the Small Business Commissioner needing to help to deal with the problem of requiring senior company officers to explain their position to them? How does he envisage that those arrangements will improve the situation?

--- Later in debate ---

[Lord Callanan (Con)]

I apologise to my noble friend, but I did not quite catch all of his question. This is a serious problem. The Small Business Commissioner is newly appointed, and she is still getting to grips with her role. To be fair to the previous commissioner, since December 2017, the commissioner has recovered more than £7.8 million owed to small businesses. A lot is happening in this area, but I totally accept that we need to do more.

[Lord Palmer of Childs Hill (LD)]

My Lords, will the Minister please say whether, in the trade agreements on which the Government are embarked, there will be some provision so that overseas companies pay their UK customers promptly?

[Lord Callanan (Con)]

These things are all extremely important. I do not know whether there are any specific provisions in trade agreements on prompt payment, but I shall certainly have a look and write to the noble Lord about it.

[The Earl of Clancarty (CB)]

My Lords, does the Minister agree that the key problem for many freelancers, including creative professionals, is that they are caught between what sometimes feels like an ingrained culture of late payment and not being able to challenge for fear of losing work? Ultimately, we need a system that automatically penalises late payers without the aggrieved party having to raise its hand.

[Lord Callanan (Con)]

The noble Earl makes a good point. I remind him that UK legislation already establishes a 60-day maximum payment term for contracts for the supply of goods and services between businesses, although those terms can be varied if they are not grossly unfair to the supplier. We also have the prompt payment code. We have received more than 50,000 reports from businesses that they are abiding by the prompt payment code, but there is always more to do on this.

[Lord Cunningham of Felling (Lab)]

My Lords, I have been in Parliament for a long time—perhaps people would say for too long. For all that time, late payment has been a problem under Governments of both major parties and the coalition Government. Why is it such an elusive problem? Why is it so difficult to find a solution to what is damaging to small and medium-sized businesses?

[Lord Callanan (Con)]

I would never say that the noble Lord has been in Parliament too long. We need more representatives from the north-east in Parliament, for as long as possible—says he in a self-congratulatory way. The noble Lord is right. It is a difficult and complicated problem which Governments of all persuasions have grappled with. It is different in different industries, with different suppliers for small businesses and large businesses, but there was a commitment in the Conservative manifesto to crack down on late payment. That is why we launched the consultation. We are currently working through the responses. We will need primary legislation to implement it. The noble Lord will know, from his time in government, how tricky it is to work through those problems.

[Lord Sherbourne of Didsbury (Con)]

Can my noble friend ask his department to look at what happens in other countries, to see which countries do better than we do and what lessons we can learn?

[Lord Callanan (Con)]

That is a very good suggestion. I certainly will do that.

[Lord Aberdare (CB)]

My Lords, the Small Business Commissioner’s role is limited in relation to construction companies. For example, she can deal with complaints from small construction firms about payment disputes only with larger firms which are signatories to the prompt payment code. Why then can she not deal with the same complaints when the bigger firm is not a code signatory? Will the Minister look at extending the commissioner’s role to provide full support to small construction businesses?

[Lord Callanan (Con)]

I have had this discussion with the noble Lord before. The construction industry is different; there are adjudication processes already set up for it and we are also looking at the issue of payment retention, as the noble Lord knows well. It is a complicated issue. The legislation already precludes the application to the construction industry, because there is an adjudication code process already there.

[Lord Bassam of Brighton (Lab)]

My Lords, I appreciate the Minister’s candour in this but remind him that, earlier in the year, he said:

“Late payments damage the cashflow of small businesses, which can hold back investment or job creation and, in the worst cases, lead to job losses and business closures. Action to stop the damaging practice of late payments remains a key priority for Government.”


But is it, given that it has taken the Government over a year to consider the consultation and we are yet to see any response? Will the Government now commit to providing SMEs with greater protections from insolvencies, including by giving statutory powers to the Small Business Commissioner to chase late payments? This is a very urgent issue.

[Lord Callanan (Con)]

This is a priority for the Government —there are lots of priorities for the Government at the moment. The new powers that we consulted on include compelling the disclosure of information, including in relation to payment terms and practices, and imposing financial penalties or binding payment terms on businesses. These are important issues that need to be considered properly. We need to go through the consultation responses properly, and we will respond as soon as we can.

[Lord Fox (LD)]

My Lords, there is a danger that the Minister’s response might be interpreted as kicking the can down the road and waiting some time for legislation to possibly come in the future. In the meantime, small businesses of the type described by your Lordships are suffering. Will the Minister recognise that the current situation is not as it should be and use current powers and levers to improve it?

[Lord Callanan (Con)]

We have a newly appointed Small Business Commissioner who is cracking on with the job. She is currently in discussion with my department about the resourcing that she requires. As I said, so far almost £8 million-worth of debts have been recovered for small businesses, so there is a lot of good work going on, but I totally accept that we need to do more.

[Lord Cormack (Con)]

My Lords, it is two years since the election manifesto, and a year since the review. Can we not inject some urgency into this? Can my noble friend perhaps define his own interpretation of the word “urgency”?

[Lord Callanan (Con)]

My noble friend is tempting me to get into dictionary definitions and semantics. As he well knows, I cannot give a precise timescale for the processes of government, but we are working on the issues and we will respond as soon as we can.

[Lord Watts (Lab)]

My Lords, it seems that, if the Government do not want to do something, they set up a review body and then forget about it for a year or two. Would it not be a good idea to set a timescale for any review, so that we can have some accountability in this House?

[Lord Callanan (Con)]

We do not just set up a review body; we have a consultation, as we are obliged to for all legislative proposals. It is important to get responses from all concerned. I have had many debates in this House where people have criticised us for lack of, or inappropriate lengths of, consultation, so I make no apologies for going through the consultation process. It is important to gain a range of views on this subject. We need to take the time to respond to it properly and correctly, and we will do so.

[Lord Lexden (Con)]

Are the Government setting a fine example by settling their own payments promptly?

[Lord Callanan (Con)]

The answer is yes. We have already established a formal payment period for contracts for public authorities.

[Baroness McIntosh of Hudnall (Lab)]

My Lords, in an earlier response, the Minister suggested that the Government had many priorities, and I am sure they do, but can he say where he thinks this matter sits in the list of government priorities?

[Lord Callanan (Con)]

It is at the top of our broad range of priorities.

Regulatory Enforcement and Sanctions Act 2008 (Amendment to Schedule 3) (England) Order 2021

Lord Callanan Excerpts

Monday 6th December 2021 Lords Chamber

Moved by

[Lord Callanan]

That the draft Order and Regulations laid before the House on 28 October and 1 November be approved. Considered in Grand Committee on 30 November.

Relevant document: 19th Report from the Secondary Legislation Scrutiny Committee.

Motion agreed.

Newport Wafer Fab

Lord Callanan Excerpts

Monday 6th December 2021 Lords Chamber

[Lord Alton of Liverpool]

To ask Her Majesty’s Government what assessment they have made of the strategic importance to the United Kingdom of Newport Wafer Fab prior to its takeover by a Chinese-owned company.

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

My Lords, we welcome trade and investment where it supports UK growth and jobs and meets our legal and regulatory requirements while not compromising national security. Where we believe there are concerns, we raise them, and where we need to intervene, we will. As the Prime Minister said at the Liaison Committee in July 2021, the National Security Adviser is reviewing this takeover and it would therefore be inappropriate to comment until his review has concluded.

[Lord Alton of Liverpool (CB)]

I thank the Minister for that reply, and I understand that he cannot say a great deal more about the review. Nevertheless, can he say something about the clarity of the Chinese Communist Party’s position in comparison with that of the UK, in that it has a clear strategy of undermining resilience and security; promoting dependency; acquiring intellectual property and data; and destroying competitiveness through slave labour in everything from green energy through to surveillance equipment made in places like Xinjiang, which the Foreign Secretary has called a slave state practising genocide? In letting it acquire the UK’s largest-selling silicon chip factory, what account has been taken of these things; the National Security and Investment Act, which will come into effect in January; the integrated review; and the Competition and Mergers Authority’s position?

--- Later in debate ---

[Lord Callanan (Con)]

I totally share the noble Lord’s concerns about the actions of the Chinese Communist Party in Xinjiang, Tibet and various other areas where they commit appalling human rights abuses. However, as he will be aware, I cannot comment further on this particular takeover. The National Security Adviser is reviewing it and he will do so on national security grounds.

[Lord Robathan (Con)]

On Chinese takeovers, does my noble friend share the concerns of a great many of us regarding the way that the Chinese are extending their influence—buying their influence—and taking over the Commonwealth, be it in Barbados, Sri Lanka or sub-Saharan Africa? There have been newspaper reports about this. It is a deliberate thing. They are trying to supplant British or western influence and plant their influence in the Commonwealth and elsewhere.

[Lord Callanan (Con)]

I share the concerns of my noble friend. This Question is getting more into foreign affairs than it is into business affairs, but I understand what he is saying. I have seen the reports and I share his concern.

[Lord West of Spithead (Lab)]

My Lords, I am disappointed by the response from the Minister. The Chinese have made a huge effort to gain intellectual property over a number of years. I had to go and warn them about this way back at the end of the 90s—they paid no attention then and they are doing it now, more and more. Here is a company with a large chunk of intellectual property, working in the area of chips—something the Chinese are not good at because the Americans have now stopped giving them to them, as they were in the past—and it seems as though we are not really focusing on this. Do we have a real strategy for constraining China’s aims in this area? It is extremely worrying.

[Lord Callanan (Con)]

Nexperia is not new to this particular company; it already owned 15% of it before the latest takeover. As I said, I cannot comment any further on that particular transaction, but we will look carefully at all the facts of the case. Our powers are being strengthened with the National Security and Investment Act coming into force on 4 January next year. We have retrospective powers under that Act and we will not hesitate to act if we need to.

[Lord Fox (LD)]

My Lords, hardly a week goes by without the semiconductor shortage impacting some of our businesses in this country. It is not just about security; it is about manufacturing. Meanwhile, there is an investigation into Newport Wafer Fab and a separate one going on into Arm. Would it not make more sense if there was a holistic view of the semiconductor business in this country and a task force put together, so that we can secure indigenous supplies of these absolutely vital components?

[Lord Callanan (Con)]

The noble Lord is of course aware that we have announced action in both of those cases: both the instances he mentioned are currently being reviewed. As I said, if we need to take action, we will. On his broader question about semiconductors, we already offer a lot of support to industry through the research councils and the catapults and will continue to do so. It is an area that the Government are acutely aware of.

[Lord Stirrup (CB)]

My Lords, this is part of much wider picture, of course. Can the Minister assure the House that, in their forthcoming national resilience strategy, the Government will deal with such industrial issues in a sufficiently agile way that will be able to cope with a rapidly evolving corporate and technological landscape?

[Lord Callanan (Con)]

The noble and gallant Lord makes a good point, which is why we have strengthened our powers under the National Security and Investment Act, recently passed in this House. We look forward to implementing that legislation on 4 January. It will require notifications in 17 key areas of the economy. On top of that, the Secretary of State has additional call-in powers.

[Lord Flight (Con)]

My Lords, does the Minister agree that it would be a disaster if the last remaining large semi-fab business fell permanently into the hands of the Chinese?

[Lord Callanan (Con)]

As I said in response to an earlier question, Nexperia, the company concerned, already had 15% of this company anyway, and already owns other semiconductor manufacturing plants in the UK. The noble Lord can read its statement as to what it intends to pursue for this business, if he wishes to do so.

[The Lord Privy Seal (Baroness Evans of Bowes Park) (Con)]

My Lords, the noble Lord, Lord Campbell-Savours, wishes to speak virtually. I think this is a convenient point for me to call him.

[Lord Campbell-Savours (Lab) [V]]

Is not the real issue whether Newport Wafer Fab, now employing around 450, would have survived without positive Chinese intervention offering long-term viability? If there is real concern over the survival of UK strategic hi-tech, why not revisit lessons learned in the 1970s from Labour’s NEB, the Conservatives’ NEDC and BTG, and the role that Inmos played in the early development of chips? Without a national initiative, we are conceding all to Taiwan, Japan, Korea and China, and a whinging United States of America, and losing markets.

[Lord Callanan (Con)]

Of course, I cannot comment further on these transactions, as the noble Lord knows, but semiconductors are an important aspect of our industrial future. We have some excellent manufacturing companies in the UK, and we want that to continue.

[Lord Sarfraz (Con)]

My Lords, one of the stated objectives of a project awarded by Innovate UK to Newport Wafer Fab is to provide the UK with a novel sovereign gallium nitride capability. Can my noble friend tell the House how that capability can possibly remain novel, or indeed sovereign, following acquisition by a foreign state-backed entity?

--- Later in debate ---

[Lord Callanan (Con)]

The noble Lord tempts me but I cannot go any further than I have already stated. This takeover is being reviewed by the National Security Adviser, and we hope to reach a decision shortly.

[Lord Lennie (Lab)]

My Lords, while there can be no doubting the strategic importance to our national security of the part played by Newport Wafer Fab, can the Minister explain why the Government did not intervene in a takeover earlier this year? Could he tell the House what tools the National Security Adviser will have at his disposal that could be applied when the ongoing review is completed?

[Lord Callanan (Con)]

I am not sure to which takeover the noble Lord refers that we did not intervene in—perhaps we should have a separate conversation about that. But it is clear that the Government as a whole have substantial power. As I said, the new NSI Act comes in on 4 January, when it will be commenced, but we have retrospective powers that can go back to November 2020 under that Act.

[Lord Crisp (CB)]

My Lords, I go back to the question asked by the noble Lord, Lord Fox, about a strategic overview. How many other firms in the semiconductor supply chain are foreign owned?

[Lord Callanan (Con)]

I do not have that information to hand. It would depend on what firms the noble Lord refers to and what form of suppliers they were. There are many hundreds of companies that serve some of these large manufacturing plants. As I said in response to an earlier question, we understand the importance of semiconductor manufacturers. We support this by the Engineering and Physical Sciences Research Council and we support the commercialisation of projects under the Compound Catapult, and we will continue to do so.

[Lord German (LD)]

My Lords, the suspicion locally is that the security part of the review is over, and the hunt is on to buy up shares for Nexperia to create a Chinese-UK company. Given the importance of this to electric vehicle manufacturing, of which there is a massive need at present, and to jobs to be created locally, does the Minister agree that this should be the Government’s prime initiative, and that we need a speedy solution so that investment can take place?

[Lord Callanan (Con)]

I know the concerns locally about the investment. I have spoken to Newport’s MP about this, and she expressed her views on the takeover. As I have said, we have taken all those factors into consideration, particularly that of national security, which the National Security Adviser is currently considering this takeover on, and we will reach a decision on that shortly.

Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021

Lord Callanan Excerpts

Monday 6th December 2021 Lords Chamber

Moved by

[Lord Callanan]

That the draft Order and Regulations laid before the House on 28 October and 1 November be approved. Considered in Grand Committee on 30 November.

Relevant document: 19th Report from the Secondary Legislation Scrutiny Committee.

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

My Lords, I beg to move the two Motions standing in my name on the Order Paper.

[Lord Foulkes of Cumnock (Lab Co-op)]

I object.

--- Later in debate ---

[Lord Grocott (Lab)]

My Lords, I strongly agree with my noble friend. This is not directly the subject of the noble Lord, Lord Callanan, and I do not expect a comprehensive and detailed reply. But I urge him to talk to his ministerial colleagues, particularly to the Leader of the House, and make the point that—as my noble friend has said—a substantial statement was made that nobody could have known about: there is nothing whatever on today’s House of Lords Order of Business to tell us that the Leader of the House would be making a substantial statement. The essence of a sensibly functioning Houses of Parliament is proceedings that are intelligible. How on earth can someone in the Gallery know what is going on when someone gets up from the Bench, and they have not got the faintest idea who she is—I mean no disrespect to the Leader of the House—and makes an important statement, and the House continues as if nothing has happened? That is an unacceptable state of affairs.

I have, over the years, made a very small advance in this respect, if I may bring it up: there never used to be an announcement of the results of a hereditary Peers by-election. After much consideration of this revolutionary proposal, eventually it went up on the monitor and it appeared on the Order Paper that such an announcement would be made. This is probably the easiest question in the Minister’s long experience on the Front Bench, but will he talk to the Leader, so that, perhaps through the usual channels, we can get some intelligibility introduced into these important matters? That is all I have to say.

[Lord Callanan (Con)]

I thank both noble Lords for their esteemed interest in the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2021. I must have missed their references to this important statutory instrument during their speeches, but I entirely understand the point they are making and, of course, I will convey their views to my noble friend the Leader of the House.

Motion agreed.

Oil and Gas Authority: Remit

Lord Callanan Excerpts

Thursday 2nd December 2021 Lords Chamber

[Baroness Sheehan]

To ask Her Majesty’s Government what plans they have to align the remit of the Oil and Gas Authority from seeking the “maximum economic recovery” of North Sea oil and gas, to meeting the United Kingdom’s net-zero emissions commitments.

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

My Lords, even though renewable electricity capacity has grown five-fold since 2010, oil and gas are still essential for our energy needs and are vital to the production of many everyday essentials such as medicines, plastics, cosmetics and household appliances. They will remain so in declining amounts, even in a net-zero world. It is therefore essential that we have a managed transition away from fossil fuels, as set out in our landmark North Sea Transition Deal.

[Baroness Sheehan (LD)]

My Lords, the concentration of carbon dioxide in the global atmosphere stands at an unprecedented 417 parts per million. At the very least, we have to stop exploration for new fields. The truth is that the UK is the most profitable country in the world for large offshore oil and gas projects thanks to our MER policy. Companies can offset all spending on exploration against tax, as well as receiving millions of pounds in direct grants. What plans do the Government have to phase out such inefficient subsidies, as required by the Glasgow climate pact?

[Lord Callanan (Con)]

As the noble Baroness knows, we have some of the most ambitious climate targets of any major economy in the western world and we are committed to net zero; indeed, it is a legal obligation. However, we will still need declining amounts of oil and gas, and the choice we face is whether we wish to use that produced domestically or to import it. In every scenario set out by the reductions, we will still have a requirement for petroleum products.

[Baroness Altmann (Con)]

I congratulate the Government on their ambitious climate targets, but can my noble friend tell the House what proportion of the oil that will be extracted from the Cambo development is likely to be exported under current scenarios, as there seems to be little domestic demand for the heavy crude oil that Cambo and other future oilfields will produce? This seems more about exporting than about domestic energy security, and, in that context, some extra taxation on production would anticipate some of the future taxpayer costs that might arise if these oilfields end up being unable to export in a future scenario of other countries having to reduce their oil imports.

[Lord Callanan (Con)]

No decision has yet been made regarding the proposed Cambo field. The export market for oil and gas produced from Cambo is purely a commercial matter dictated by the market, the quality of oil and the different refinery capabilities. But, as I said, even with continued development, we expect the UK to remain a net importer of both oil and gas throughout the transition period when following the Climate Change Committee’s balanced net-zero pathway.

[Baroness Boycott (CB)]

My Lords, HMRC estimates that decommissioning will cost the taxpayer £18.3 billion over the next few decades. Oil and gas companies can claim tax back on all decommissioning as well as R&D, as the noble Baroness, Lady Sheehan, pointed out. We also have one of the lowest tax burdens for oil and gas in the world. Shell paid $1.8 billion in tax to Norway last year, but the UK gave it $99.1 million towards decommissioning costs. What has happened to the polluter pays principle? After all, the oil companies have made a lot of money and trashed our planet, and now we are going to help them continue to make money in order to transition to a better future.

[Lord Callanan (Con)]

It remains the case that the petroleum sector is a net payer of taxes to the UK Exchequer. I frankly do not understand the argument that we should stop all production in the North Sea and instead import those materials that we will continue to need in every scenario. We would be declining to give ourselves the revenue and spending extra to import those same products.

[Baroness Blackstone (Ind Lab)]

My Lords, a global poll of energy workers showed that more than half want to leave the fossil fuel industry. What are the Government doing to support these workers in the UK to ensure that there is a fair and just transition both for them and for their communities?

[Lord Callanan (Con)]

That is a very good question, and this is why we have our world-leading oil and gas sector transition deal, the North Sea Transition Deal. We are committed to it, with the support of all the oil and gas companies, to precisely bring about that happy state of affairs so that workers can transition to working in the clean economy.

[Lord Fox (LD)]

My Lords, speaking last month, Tim Eggar, the chairman of the Oil and Gas Authority, was bullish when referencing future offshore licensing rounds in the UK. He said:

“Let’s be clear, there is no current ban on exploration and licensing”—


and, of course, he is right. On the other hand, the International Energy Agency—the global expert on energy stats—is equally unequivocal that the development of any new gas or oil field is incompatible with net zero by 2050. Perhaps the Minister could help us here and confirm what his department’s objectives will be with regard to future licensing. Will it adhere to IEA advice, aim for net zero and end future exploration, or will it go along with the oil industry and keep on drilling?

[Lord Callanan (Con)]

We will go along with our net-zero commitment. I do not know how many times I have to repeat this for the benefit of the Liberal Democrats, but under all of the climate change scenarios, including that towards net zero, we will remain a net importer of oil and gas during that period. The choice that faces us is whether we wish to import them or produce them domestically and gain the tax revenues from that. I really cannot see why this is such a difficult concept for the Liberal Democrats to grasp.

[Lord Berkeley (Lab)]

My Lords, the Minister surely must know that the target of net zero means reduced consumption; whether it is produced in this country or imported, it is still our consumption. How is that compatible with the Oil and Gas Authority’s target of “maximum economic recovery” of oil from the North Sea? Bearing in mind that it takes so long to commission and decommission North Sea oil and gas plants, is it not about time that the Oil and Gas Authority changed its target now to give it time to achieve net-zero carbon when it is due?

[Lord Callanan (Con)]

I actually agree with the first part of the noble Lord’s question that production from the North Sea is on a declining pathway. Our usage is, of course, on a declining pathway as we transition to net zero.

[Lord Howell of Guildford (Con)]

My Lords, I declare an interest as set out in the register. Would it not be helpful to explain even more clearly to the public that none of the needed energy decarbonisation or transition is going to happen smoothly without a proper back-up of swing suppliers and fuel sources? Unless there is a prudent level of continued investment in fossil fuel sources, we will see many more of the violent fuel and energy price spikes we have now, which cause considerable stress and hardship for millions of households experiencing this every day and threaten our national security.

[Lord Callanan (Con)]

I know my noble friend speaks with great authority on this as a former Energy Minister himself, and I agree with him. Of course, the ultimate solution to the problem of high gas prices is to use less of it. Indeed, we are doing that, and we are continuing to develop our renewable sources. We have one of the largest productions of renewable sources in the western world. However, fossil fuel generation, such as unabated gas-fired generation, currently plays an important role in keeping Britain’s electricity system secure and stable. The development of clean energy technologies means that it will be used less frequently in future, but it will still be required.

[Lord Oates (LD)]

My Lords, I declare my interests as set out in the register. I think it is the Minister, rather than the Liberal Democrats, who may be failing to grasp the implications of the Government’s own policy. But is the Minister aware that if warming is kept to well below 2 degrees in line with the Paris Agreement, new oilfields such as Cambo will become stranded assets? In the light of that, will the Government ensure that the risks that such stranded assets pose to financial stability are properly reflected in increased capital adequacy requirements for those institutions that continue to finance them?

[Lord Callanan (Con)]

We have a role in the licensing of future developments, but whether to proceed with them is, of course, a commercial decision for the operators concerned. I am sure they will bear the noble Lord’s comments in mind. I am sure many of the big companies would not wish to end up with stranded assets either.

[Baroness Blake of Leeds (Lab)]

I am sure the Minister will say that it is right that we await the Oil and Gas Authority’s scrutiny report looking into the proposed Cambo oil and gas field. But surely it never made sense for the Government to consider progressing with the plans, especially in the run-up to COP 26 and now post COP. I reiterate: will the Government listen to the science and, starting with Cambo, help workers and industry wind down production of oil and gas in the North Sea?

[Lord Callanan (Con)]

The noble Baroness answers her own question—indeed, I would say, “Let’s wait for the decision of OPRED before we make any final observations about this.” But, as I mentioned to her colleague earlier, at the same time we are proceeding with our ground-breaking North Sea Transition Deal to ensure exactly what she asks: to help workers to transition away from these industries in the future.

[The Lord Speaker (Lord McFall of Alcluith)]

My Lords, the time allowed for this Question has elapsed.