Contracts for Difference (Allocation) and Electricity Market Reform (General) (Amendment) Regulations 2022

Lord Callanan Excerpts

Wednesday 15th June 2022 Lords Chamber

Moved by

[Lord Callanan]

That the draft Regulations laid before the House on 11 May be approved. Considered in Grand Committee on 13 June.

Motion agreed.

Fire and Rehire

Lord Callanan Excerpts

Wednesday 15th June 2022 Lords Chamber

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

My Lords, the Government asked ACAS to investigate fire and rehire, and it published guidance in November. The Government have announced their intention to publish a statutory code on fire and rehire in March, and the draft is due to be published for consultation this summer. The code will set out good practice, helping parties to reach a negotiated agreement. In cases of dispute, the code will be admissible in relevant legal proceedings and may result in increased compensation.

[Lord Woodley (Lab)]

My Lords, I welcome the Minister’s response. Codes and consultations are helpful but, with respect, they do not go far enough. Ministers, including the Prime Minister, are paying lip service to condemning fire and rehire as an unacceptable practice. However, talk is cheap; we need legislation to stop the many abuses by numerous big-name companies and others. Today I will introduce a Bill banning fire and rehire, except in the most extreme circumstances—the same Bill that the Government so cynically squashed in another place. Therefore, my question to the Minister is simple: will he do the right thing and back my Bill —yes or no?

[Lord Callanan (Con)]

My Lords, we always do the right thing. I realise that it is an easy soundbite for the noble Lord to say “ban fire and rehire”, but even he would accept that you cannot ban redundancies, for instance if a company is going bust. You would end up banning the rehiring part of the equation.

[Lord Whitty (Lab)]

My Lords, legislation is useful, and I hope the Minister pursues that course, but in the meantime will the Government look very carefully at giving any new contracts to a firm which engages in such atrocious behaviour?

[Lord Callanan (Con)]

We want to see all companies engaging in responsible employment practice. The UK has an employment record to be proud of. We have one of the lowest unemployment rates in the western world, one of our lowest post-war records—down again yesterday. If you contrast that to many countries in the EU or on the continent, with much less flexible labour markets, the best employment right of all is a job.

[The Lord Speaker]

My Lords, the noble Lord, Lord Jones of Cheltenham, is making a virtual contribution.

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

My Lords, I draw attention to my registered interests. Sometimes employment contracts need updating to reflect new legislation. Under current law, if agreement cannot be reached between employer and employee, notice can be given and new contracts offered. Then employees can opt for a tribunal claiming unfair dismissal, but tribunals are taking up to 18 months to determine. What are the Government doing to speed up tribunals?

[Lord Callanan (Con)]

There has been a delay from the pandemic, as in many parts of the public service, but we are doing all we can to make sure that cases are expedited as quickly as possible.

[Lord Brooke of Alverthorpe (Lab)]

The Government promised in their manifesto that there would be an employment Bill. When is it coming?

[Lord Callanan (Con)]

We have said that we will deliver when parliamentary time allows, but there are many other ways of delivering what were manifesto commitments than a formal government employment Bill.

[Lord Hamilton of Epsom (Con)]

My noble friend has pointed out that unemployment levels are at an all-time low, but is he not worried about the rising number of those who are not seeking work?

[Lord Callanan (Con)]

That will depend on the individual circumstances of many people. The pandemic resulted in a number of people reassessing their life choices and if they have decided not to go back into the labour market, I am not sure that is something we can implicitly control. But as I said, we have 600,000 more people in work than before the pandemic and one of the lowest unemployment rates in the western world.

[Lord Monks (Lab)]

My Lords, the Government were right in their condemnation of the disreputable behaviour of P&O Ferries recently, but I also read a lot in the papers about the Government considering introducing a Bill which will make it lawful to replace striking workers with agency workers. I am puzzled about what the difference is between what P&O has done and the kind of thoughts that are obviously alive in Government at present. What is the difference?

[Lord Callanan (Con)]

The difference is very clear. What P&O did is potentially illegal. Investigations into both criminal and civil wrongdoings are ongoing, so I cannot comment on those particular investigations, but if trade unions are considering holding the travelling public to ransom, as many of them are, then it is right that we should look at all available options, and we will do so.

[Lord Lennie (Lab)]

My Lords, British Airways, Accenture, and the DP World-owned P&O Ferries—significant players in the UK economy—have all used fire and rehire to replace their workforce. They have faced down government criticism and the public’s disdain. For this to change, legislation is required to outlaw this practice. Will the Government take a lead by bringing forward a definitive code of practice that bans fire and rehire? Further, will the Government commit now to ensuring that companies found to have been using fire and rehire will neither be awarded contracts for any public body nor be allowed to take over provision of public services?

[Lord Callanan (Con)]

I said that we are committed to bringing forward a code and we will consult on it shortly, but as I said in response to the noble Lord, Lord Woodley, it is a complicated area of industrial relations and employment law. I assume that even the Labour Party would accept that we cannot ban redundancy if a company is going bankrupt. Therefore, by banning fire and rehire we would end up banning the rehiring part of it, which I am sure nobody wants to see.

[Lord Hendy (Lab)]

My Lords, I take the point that banning fire and rehire would be extremely difficult, but what is the objection to regulating it by law?

[Lord Callanan (Con)]

I am grateful to the noble Lord for accepting the point that I am making: it is a complicated area and an outright ban would not be appropriate. Therefore, I assume that he will not support the Bill from his noble friend. However, we are prepared to regulate in this sector, which is why we are talking about introducing a code. That code will have a positive effect and will be able to be taken into account in any industrial tribunal proceedings, potentially resulting in an increase in compensation awarded.

[Lord Watts (Lab)]

My Lords, the Government take credit for the high employment in the UK and compare it with our neighbours in Europe, but if we compare poverty wages in the UK with the EU we find a different situation. Are the Government going to do anything about the poverty wages that exist in this country but are not allowed in other countries in Europe?

[Lord Callanan (Con)]

I am absolutely taking credit, on behalf of the Government, for the record low levels of unemployment. I assume the noble Lord would be arguing something different if the opposite were the case. The minimum wage in the UK was increased by 6.6% to £9.50 an hour earlier this year. We also now have one of the highest minimum wages in western Europe, something else I thought the Labour Party would recognise.

[Lord McLoughlin (Con)]

My Lords, I draw attention to my interest in the register as chairman of Transport for the North. Will the Government, in ensuring that employees get a fair deal, also look at the position of the travelling public getting a fair deal when they are being held to ransom by strikes that are deliberately protracted over a week, which will therefore bring disruption to the travelling network for more than a week, in spite of the fact that the strike days will be only three days and no more?

[Lord Callanan (Con)]

My noble friend makes a very important point. He has long experience of industrial relations. It is almost as if these strikes were specifically designed to make life as inconvenient as possible at some of the worst times of the year for the travelling public. That is unacceptable. They should think again, and I hope the Labour Party will join us in urging the trade unions to think again.

[Baroness Blower (Lab)]

My Lords, clearly the strikes are designed to make sure that those workers who worked extremely hard during the pandemic, and work very hard all the time, achieve decent wages and conditions, but does the Minister agree that, by failing to outlaw fire and rehire as a negotiating tactic, the Government are giving the green light to bad bosses to exploit workers?

--- Later in debate ---

[Lord Callanan (Con)]

I am sorry the noble Baroness does not want to join us in condemning the potential strike action on the railways and elsewhere. As I said, we want to see good labour relations and employer-employee relations conducted in a meaningful and contented spirit, which is why we will try to introduce a code that will regulate these matters.

[Lord Wigley (PC)]

My Lords, does the Minister recall an action 20 years ago in the Friction Dynamics factory in Caernarvon—the former Ferodo factory—where the employer had locked out the employees and hired a new workforce? It was taken to an industrial tribunal. The employees and the union won, but they were unable to get any compensation whatever. Can he assure the House that any forthcoming legislation will safeguard against such circumstances?

[Lord Callanan (Con)]

I am not familiar with that particular case; I will certainly look at it. I would be interested to know why they were unable to enforce the order that was made. Perhaps it was because the company went bankrupt, but I do not know; I would have to look at the particular case.

Carers: Unpaid Leave

Lord Callanan Excerpts

Tuesday 14th June 2022 Lords Chamber

[Baroness Pitkeathley]

To ask Her Majesty’s Government when they intend to introduce a right to one week’s unpaid leave for those with caring responsibilities.

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

My Lords, we recognise the important contribution of carers across the country who give their time to look after others. The Government are determined to do all they can to support those balancing work and caring. Legislation to deliver our commitment to introduce one week of unpaid leave for unpaid carers will be brought forward when parliamentary time allows.

[Baroness Pitkeathley (Lab)]

I thank the Minister for his response, but he will not be surprised to know that I am somewhat disappointed. It is now almost three years since the Conservative Party manifesto pledged to give carers five days’ unpaid leave per year—a modest enough request, I think your Lordships will agree. It was seen as a very important component of helping carers deliver social care while staying in paid work. It is very much supported by employers, who see it as helping their bottom line because it helps with recruitment and retention, and 90% of the public think it is a good idea. Here is a policy that costs nothing, supports social care and is hugely popular. Why are the Government delaying?

[Lord Callanan (Con)]

Well, I said that we are committed to this, and we will of course act when parliamentary time allows. To be fair, if employers are supportive, they can do it anyway; they do not need legislation. I give the noble Baroness an assurance that we will work with parliamentarians to see whether there is an alternative vehicle that could deliver this legislation.

[Baroness Finlay of Llandaff (CB)]

My Lords, do the Government recognise that it is a good investment to allow people unpaid leave when they are under enormous pressure? Without doing that, you end up having people with mental health disorders and an ongoing cost to society in the future through sick leave and so on. I hope that the Government will recognise that and, when it comes to those eligible for SR1 benefits, make it one month of unpaid leave.

[Lord Callanan (Con)]

We certainly recognise the value of carers, and indeed they have a substantial package of support. As I said, we are committed to this policy and to legislating on it.

[Baroness Tyler of Enfield (LD)]

My Lords, research has shown that the average person has a 50/50 chance of caring by the age of 50—that is, a long time before they reach retirement age. However, on average women can expect to take on caring responsibilities more than a decade earlier than men. What assessment have the Government made of the impact of not legislating to introduce carers’ leave on women in particular, and what plans do they have to publish that assessment?

[Lord Callanan (Con)]

The noble Baroness is certainly right. We know that many carers experience considerable challenges in balancing work with their caring responsibilities, which is why we consulted on the policy in the first place.

[Baroness McIntosh of Hudnall (Lab)]

My Lords, how much parliamentary time would the Minister estimate—

[Baroness Altmann (Con)]

Would my noble friend recognise that there is a significant labour shortage? Part of the problem has been with the Great Retirement or Great Resignation. A number of older workers have withdrawn from the labour market during the pandemic, partly because of the problems experienced in care homes. With an ageing population and increasing numbers of people who are going to need to look after older relatives, would the Government consider leave along the lines of maternity leave for those in later life who need to organise some care for loved ones, so they do not leave the workforce and never return?

[Lord Callanan (Con)]

Of course, we want to see people supported in the workforce as much as possible, which is why we introduced a right to request flexible working, and many employers have been able to work with their employees to grant that—but my noble friend makes an important point.

[Baroness McIntosh of Hudnall (Lab)]

My Lords, I think that the Minister probably knows what I am going to ask him, but I shall have another go. How much parliamentary time does he estimate that it would take to put this very modest measure through? Is parliamentary time in such short supply that it cannot be found?

--- Later in debate ---

[Lord Callanan (Con)]

Well, I suppose the answer to the noble Baroness’s question is that it depends on how much time Parliament chooses to spend on particular legislation. Obviously, we were committed to an employment Bill. The Queen’s Speech set out a packed and ambitious legislative programme, with a comprehensive set of Bills that will enable us to deliver on priorities such as growing the economy, and so on—and I am sure that noble Lords will spend a large amount of time on studying those Bills. We are committed to that legislation, as I said to the noble Baroness, Lady Pitkeathley, and we will look for alternative vehicles and work with parliamentarians to try to deliver what is a manifesto commitment.

[Baroness Watkins of Tavistock (CB)]

My Lords, can the Minister explain whether the Government have considered how many carers might be able to return to work if this provision were available to them, and whether secondary legislation could be used to introduce this simple measure?

[Lord Callanan (Con)]

My understanding is that it would need primary legislation.

[Baroness Chapman of Darlington (Lab)]

My Lords, it would not take very much parliamentary time—it could be done as a handout Bill to a keen Back-Bencher in the other place—so I do not think that the Government need to worry too much about that. However, when it is introduced, will the Minister make sure that measures in it include people caring for those who are suffering from a terminal illness?

[Lord Callanan (Con)]

The noble Baroness makes an important point. As I said, we will look for alternative vehicles to deliver this policy. For the details, we will of course look at any proposals in potential legislation.

[Lord Jones (Lab)]

My Lords, further to the deeply committed remarks of the noble Baroness, Lady Pitkeathley, how can we, as a nation, more generously and more widely acknowledge the magnificent contribution of carers—perhaps more than 1.5 million of them in Britain? Is it not a great army that is low paid and yet works so hard every day? Is not caring in a home very demanding of skill and application? Why not institute some form of national awards, perhaps decided by the centre, to encourage and help carers to give even more for those who need?

[Lord Callanan (Con)]

The noble Lord is absolutely right. Certainly, that is a good suggestion, and I shall take it back for the department to have a closer look at. It would seem like a good idea. I remind the House that we have a substantial programme of support in place—as we saw only recently in the crisis—for carers and others. Low-income households benefit from a means-tested benefit cost of living payment of £650. Those living in the same household as a disabled person for whom they care get £150. Families with a pensioner in the household benefit from a pensioner cost of living payment of £300—and that is just in the latest package of support offered by the Chancellor. So of course there are always other things that we can look at, but we are fulfilling our responsibilities to the caring community.

[Lord Forsyth of Drumlean (Con)]

My Lords, if we can spend a whole day on 5 July discussing our sitting hours, could we not spend that day bringing forward a Bill that could complete all its stages instead?

[Lord Callanan (Con)]

The business managers would point out that it probably takes a lot more than a day to deliver important legislation such as this, which includes going through the proper and appropriate scrutiny and procedures. My noble friend has been critical of me in the past when we have brought forward emergency legislation without the appropriate scrutiny.

[Baroness Garden of Frognal (LD)]

My Lords, if parliamentary time is really the problem, I suggest to the Minister that we scrap the rest of the Schools Bill —which is being trashed from all sides, not least from his own Benches—to give us at least another two and half days in which to debate this important measure.

[Lord Callanan (Con)]

The noble Baroness is asking me questions that are way above my pay grade.

[Lord Hunt of Kings Heath (Lab)]

My Lords, there is also a Northern Ireland Bill which the Government might reconsider, but I want to ask a serious question. It is well known and researched that carers, in general, suffer from worse mental health issues than a comparative population. Will the Minister’s department discuss with the Department of Health and Social Care more programmes to support carers on mental health issues? This will have a positive impact on the world of work as well.

[Lord Callanan (Con)]

On the noble Lord’s first comment, I am sure that the Opposition have a long list of Government Bills they would rather drop in favour of this one; let us take it as read that we can agree on that. The noble Lord makes a sensible suggestion, and I will certainly take it back.

[Baroness Butler-Sloss (CB)]

My Lords, will the Minister take this back to the department and say how strongly the House of Lords feels about it?

[Lord Callanan (Con)]

Yes, of course.

[Lord Young of Cookham (Con)]

My Lords, in response to an earlier question, my noble friend the Minister said that employers were free to grant one week’s unpaid leave already. Is it the case that government departments do this?

[Lord Callanan (Con)]

That is a good question to which I do not know the answer; I will get back to my noble friend on that.

[Lord Hendy (Lab)]

I invite the Minister to consider, within his department, whether this change could not be brought about by a tweaking of the Working Time Regulations, which are secondary legislation?

[Lord Callanan (Con)]

No, as I said in response to an earlier question, my understanding is that this needs primary legislation. I will certainly check that, but I do not think the noble Lord is correct.

Construction Contracts (England) Exclusion Order 2022

Lord Callanan Excerpts

Monday 13th June 2022 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Construction Contracts (England) Exclusion Order 2022.

[Lord Callanan]

My Lords, I beg to move that the draft Construction Contracts (England) Exclusion Order 2022, which was laid before the House on 11 May 2022, be approved.

These regulations exclude two specific types of construction contract from the provisions of Part 2 of the Housing Grants, Construction and Regeneration Act 1996, often referred to as the construction Act. Both contract types form part of a new procurement delivery model developed by Ofwat, known as direct procurement for customers or DPC, for the finance, design, building, operation and maintenance of high-value water and sewerage infrastructure. Before I set out the details of this exclusion order, it might perhaps be helpful to touch on the legal context for construction contracts.

Specific construction payment and dispute resolution legislation has now been in place for more than 25 years. Part 2 of the Housing Grants, Construction and Regeneration Act 1996 creates a framework for fair and prompt payment through the construction supply chain and a resolution procedure for disputes. The aim is to improve cash flow and provide the right to the quick resolution of disputes through adjudication.

--- Later in debate ---

[Lord McNicol of West Kilbride (Lab)]

Oh!

[Lord Callanan (Con)]

Yes—very good. There is a pipeline of potential projects that could adopt this model, and the Government believe that its use will deliver benefits to consumers. Through increasing competition in the delivery of strategic infrastructure, it will ensure that the cost of this infrastructure is market tested and therefore fair for water and sewerage customers. I apologise for the complicated nature of the explanation and I commend this instrument to the House.

[Baroness McIntosh of Pickering (Con)]

I am sure that we are all very grateful to my noble friend for presenting this document. I am sure that he will be aware of the vexed issue of sustainable drainage systems—SUDS—in relation to the provision of water and sewerage services. So I ask very specifically whether the implementation of SUDS will be affected and enhanced by the exclusion in this regulation.

Paragraph 7.3 of the Explanatory Memorandum says:

“The instrument is limited to a specific procurement model for high value infrastructure assets in the regulated water and sewerage sector ... There are two projects under active development and a further 18 strategic water resource schemes are being progressed ... across the next 2-3 price review periods”—


so we are looking at a period of 15 years. As we are told that the significance and the business impact of this is estimated at £54,000, how will this enhance the ability to introduce SUDS and other larger water infrastructure projects if it is such small beer? That is the only issue that I will raise; otherwise, obviously I approve this instrument.

--- Later in debate ---

[Lord Callanan (Con)]

I thank noble Lords for their valuable contributions to the debate. Let me start by emphasising, as I did initially, that this exclusion order is very narrow in scope. It is well defined to ensure that it is used only for the intended and very specific contracts that I referred to. These are the two specific construction contracts that are used to deliver the direct procurement for customers model for high-value infrastructure assets in the regulated water and sewerage sector.

Let me also emphasise that the creation of an exclusion under this Act is very much an exception and not the rule. DPC is a competitive delivery model focused on accelerating the delivery of strategic infrastructure in this particular sector. The current absence of an exclusion for these specific contracts threatens the viability of DPC and the very great benefits it could bring to consumers. That position has been confirmed through consultations with appropriate stakeholders. That is the reason the Government have chosen to use the powers conferred on them to make exclusions from the provisions of the construction Act in this particular, limited, isolated case.

I shall now deal with the questions I was asked. First, to my noble friend Lady McIntosh: SUDS are not currently associated with the schemes being developed but may be, in the future, if they are of sufficient size to be required.

The noble Lord, Lord Berkeley, asked for details of the projects. The first project is United Utilities Water’s Haweswater aqueduct resilience programme, which I am sure the noble Lord is very familiar with. It is to replace the existing Haweswater aqueduct, which is at risk of failing, which currently transfers water from the Lake District to north-west England, especially Manchester. The second English project is sponsored by Southern Water, and it is to deliver water to the south-east of England. United Utilities Water’s Haweswater aqueduct resilience programme, a very large project, will replace parts of the Haweswater aqueduct, which brings water to Cumbria and Lancashire. Southern Water’s Hampshire water transfer and water recycling project is required to ensure supplies to the Hampshire region. It is able to meet, apparently, one-in-500-year droughts. That is the second scheme I referred to.

In response to the question asked by the noble Lord, Lord Fox, as I emphasised again, the exclusion order is narrow in scope, and it is well defined to ensure that it is used for these particular, intended contracts only—the two specific construction contracts that are used to deliver the DPC procurement model for high-value infrastructure assets. Those entering into the procurement mechanism will, of course, have full knowledge of the terms including that payments during the construction phase will be made at specified intervals and that payments made through the unitary charge will commence only once the asset is capable of operating. Importantly, alternative dispute resolution mechanisms will also be included within the CAP contracts. All remaining construction contracts through the supply chain of the DPC projects—and, let me emphasise, in particular those appertaining to SMEs—would, of course, remain subject to all the relevant provisions within the construction Act.

In response to the question from the noble Lord, Lord McNicol, this instrument is limited—

[Lord Berkeley (Lab)]

I am grateful to the Minister, but before he moves on, could he explain why the regulator, or the Government, thinks these very large contracts should be treated separately and differently, rather than having several smaller ones, as it may be, where the risk of things going wrong might be lower?

[Lord Callanan (Con)]

As I said, these are specific to a unique procurement model which is being trialled and which we think will be appropriate in the water and sewerage sector. We therefore think it appropriate to exempt these particular, very large contracts to enable the model which effectively, as far as the companies are concerned, delivers the construction, management, maintenance, et cetera of very large construction projects. It is a unique procurement mechanism which we think has the potential to benefit customers in the future, so in this very limited case it was deemed appropriate by the Secretary of State to exempt them from the regulations.

[Lord Fox (LD)]

I shall further demonstrate my confusion on this statutory instrument. I think I heard the Minister say that payment to the tier-one supplier could be delayed until the point at which the service has been delivered, but that payments to those lower down the supply chain would not be delayed. If that is the case, there is a significant cash flow issue for the tier-one suppliers who are not necessarily robust in cash, as we have seen in other projects. Has the department carried out an impact assessment in cash terms on the tier-one suppliers who would potentially be taking a knock here?

[Lord Callanan (Con)]

In essence, the noble Lord is right. The regulation exemption will apply to the main, overall contract, but the separate contracts that will exist lower down the supply chain with SMEs will still be subject to the provisions of the construction Act. I suppose the answer to the noble Lord’s question is ultimately it is for the main supplier to price in the risk. Of course, if it wants to be paid, it needs to deliver on the contract and on the service that it is being contracted to provide. As in all these things, it is about providing the right incentives and fair value for the taxpayer or, in this case, the water bill payer, and for the main contractor to deliver the project as efficiently as possible. Ultimately contracts between the lower-tier levels and smaller SMEs are still subject to the provisions and they will need to be paid in any case.

In response to the question asked by the noble Lord, Lord McNicol, this instrument is limited to a specific procurement model that Ofwat wants to use in the regulated water and sewerage sector. He referred to the consultation. That was held through individual and group meetings with the relevant construction industry and with water sector stakeholders and was undertaken over a two-month period.

I was asked a question on pay when paid.

[Lord McNicol of West Kilbride (Lab)]

I understand when the consultation took place. The bit I could not find when I was reading the statutory instrument was the response to the consultation and whether that has been published on the website or shared at all, because I could not find any information on the consultation. I knew exactly when it was and what happened.

[Lord Callanan (Con)]

It was not published, but I would be happy to send the noble Lord a letter with the details of the consultation in question.

I was asked a question on pay when paid. Again, it is quite technical. DPC first-tier subcontracts are not excluded from Section 113 of the Housing Grants, Construction and Regeneration Act 1996 under this statutory instrument. This means that pay-when-paid clauses are not permitted. Instead, payments will be made according to an agreed schedule for the delivery of the project.

The basis of DPC is to provide better value for money for customers, ultimately, and bills are expected to be lower than they would have been if the schemes were delivered by regulated water companies via the traditional business-as-usual model by which companies’ prices are set. The first-tier contractors are expected to be part of the highest-level CAP and they are responsible for funding the delivery of the schemes under those contracts.

I hope that I have been able to satisfy the Committee on the questions that were asked—obviously not.

[Lord Fox (LD)]

I apologise for labouring this point. First, an observation on the Minister’s answer to my last question is that, if I were a tier 1 contractor factoring in the risk to my cash flow, it would increase rather than decrease my price, because I would be taking some sort of insurance or loan to finance the flow of cash through my business. So I do not quite get the idea that competitiveness would work in the way the Minister is depicting.

I am struggling with why, and why now. Are there historic issues with delivery that have caused the department and the Government to want to push this model through this statutory instrument? We cannot simply point to the construction Act being there; the construction Act is there, but projects have been going on. What specifically has caused this to happen now? I still do not get that.

[Lord Callanan (Con)]

While Ofwat’s regulatory regime has been successful at challenging the performance and efficiency of what are ultimately monopoly companies, in some areas, such as the delivery of major infrastructure projects, we believe that competition can deliver greater benefits for consumers. That is why, with advice from the regulator and the appropriate consultations, we think that these procurement models will deliver better value with a greater competition benefit for consumers—which is why we are introducing them. I hope I have satisfied the noble Lord’s question and I therefore commend these draft—

[Noble Lords]

Oh!

[Lord Callanan (Con)]

Ultimately, of course, previous contracts have delivered and been successful, but we think that a different model, involving more competition, could deliver better value for consumers, which is why we have produced these regulations. I therefore commend them to the Committee.

[Lord Berkeley (Lab)]

I am grateful to the noble Lord again. Following his last comment—

[Lord Berkeley (Lab)]

The noble Lord mentioned Southern Water as an example of the need for competition, and I am sure he is right about the need for competition—but who is competing? Is Southern Water competing against somebody else or are two contractors that are reporting to Southern Water, as the principal, competing? How does it work?

[Lord Callanan (Con)]

I will write to the noble Lord if my answer is not correct, but my understanding is that Southern Water is the procurer and will be regulated by Ofwat within the overall monopoly structure of the water industry. This is why strict regulation and price controls are imposed on water companies. The idea is that a company will be able to involve competition in selecting contractors for the delivery of particular projects. So the company will be the procurer, albeit under the overall model regulated by Ofwat.

Motion agreed.

Contracts for Difference (Allocation) and Electricity Market Reform (General) (Amendment) Regulations 2022

Lord Callanan Excerpts

Monday 13th June 2022 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Contracts for Difference (Allocation) and Electricity Market Reform (General) (Amendment) Regulations 2022.

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

My Lords, these regulations were laid before the House on 11 May 2022. The contracts for difference scheme is the Government’s flagship renewable energy support scheme. It is designed to offer long-term price stabilisation to low-carbon generators, bringing investment forward at a lower cost of capital and therefore at a lower cost to consumers. The scheme has been very successful in driving substantial deployment of renewables at scale in Great Britain and has made it cheaper to deliver low-carbon generation.

CfD applicants with a capacity of 300 megawatts or more are currently required to present a supply chain statement to the Electricity Market Reform Delivery Body as part of their application. A statement is provided if a developer can demonstrate to the Secretary of State’s satisfaction that the project is likely to make a material contribution to the development of relevant supply chains. The aim of the policy is to increase productivity, competitiveness and capacity in supply chains, promoting innovation and skills in the low-carbon electricity generating sector.

The current policy approach to CfD delivery and supply chain plans needs to be strengthened. This will also support the move to annual CfD allocation rounds, which the Government announced in February. This will ensure that the scheme continues to operate effectively, encourage low-carbon generation and provide confidence to investors and supply chain companies. It will support the delivery of those renewable technologies identified in the Net Zero Strategy and the British Energy Security Strategy that are key to decarbonising the power sector, such as offshore wind, onshore wind and solar.

I will take a moment to talk through what these regulations will do. They will make several amendments to the Contracts for Difference (Allocation) Regulations 2014 and the Electricity Market Reform (General) Regulations 2014. The amendments include changes to contracts for difference delivery and supply chain policy in preparation for the fifth allocation round. These amendments will help to bolster supply chain development in preparation for the next CfD allocation round, planned to open in March 2023, delivering on the ambitions set out in the Net Zero Strategy and the British Energy Security Strategy.

These regulations amend the current non-delivery disincentive exclusion period that applies if a developer fails to sign a CfD contract or the contract is terminated, so that an application cannot be made for the subsequent two applicable allocation rounds. This strengthens the current policy of excluding a site from only one subsequent allocation round. This change will ensure that the NDD exclusion period is aligned with the decision to hold allocation rounds on an annual basis from 2023, ensuring that the NDD remains an adequate incentive to deliver projects.

These regulations also bring alignment with a change introduced to the valuation formula in the CfD allocation framework for allocation round 4. For allocation round 4, the Government introduced changes to the valuation formula to reduce the complexity of the auction and to ensure that the earliest possible date of CfD payments is considered when calculating the impact on the budget. These regulations introduce this technical change, amending the corresponding contracts for difference allocation regulations to reflect the amended formula.

The regulations amend the validity period of a supply chain plan statement so that it is valid for nine, rather than 12, months. This ensures that, in practice, developers continue to submit individual supply chain plans for each CfD allocation round in light of the move to annual auctions. They also amend the requirement to provide a supply chain plan statement so that it applies to all floating offshore wind projects. This allows the Government to support the development of supply chains for the floating offshore wind industry as it approaches significant commercialisation and deployment. We seek to make these amendments now to give certainty to businesses that might be planning to take part in the next CfD scheme, which will open in March 2023.

We are proposing these legislative amendments following a public consultation, which ran from 4 February to 15 March and gave stakeholders the opportunity to scrutinise and test the policy proposals. The consultation generated 41 responses from a range of developers of renewable generating stations, trade associations and bodies, suppliers and public investment bodies. At the same time, officials engaged wider audiences through an online event.

Overall, the policy proposals received wide support. The consultation led to one policy change to the supply chain policy proposals in response to the feedback received. A minor adjustment was made to the proposal to introduce floating offshore wind projects into the supply chain plan process whereby a bespoke, less burdensome process will be required to account for the smaller size of their projects.

In conclusion, the Government have set out a clear vision for how we will transform the production and use of energy, in a decisive shift away from expensive fossil fuels. These regulations, together with annual CfD allocation rounds, will help support an increase in the pace of deployment of the new renewable electricity generation needed to achieve our ambitions while continuing to consider the likely cost to consumers, energy security, et cetera. Subject to the will of Parliament, we intend that these arrangements will come into force on the day after the regulations are made. I beg to move.

[Lord Lilley (Con)]

My Lords, I will ask some questions, because I do not fully understand all this and these SI debates are often a good opportunity to expand one’s knowledge.

First, I would be grateful if the Minister can explain how a shorter life validity of the supply chain plan acts as an incentive, and what it incentivises. What happens after the plan lapses? None of that is obvious to me from the not very helpful Explanatory Memorandum. Are these supply plans published? Can we all see them or are they private documents between the Government and the supplier? Overall, do they help us to estimate what percent of the value added in supply chains is generated within the UK? If so, I would be grateful to know what it is.

Can the Minister also confirm that although the newest offshore fields won the bidding process with low prices, they have not yet activated their contracts so they are able to sell their electricity at the very high prices now prevailing, making what most people might call a windfall profit? That is the sort of thing Governments love to tax but they seem to have got off scot free. I would be grateful to know whether that is the case and to what proportion of wind generation that applies.

I would also like to know what proportion of wind generation comes from the early contracts, which, if I have correctly understood it—that may well not be the case—got a variable price plus a bonus and therefore are getting not merely the current high price but the current high price plus something extra: jolly good for them, but not so good for the consumer. Again, that is something that Governments might like to tax but they do not seem to have done so in this case. I would like to know what proportion of the renewables supply that is. By deduction, that should tell us what proportion of the renewables supply is under CfDs and therefore is not going up with the gas price. It would be very helpful if the Minister could answer that.

If those questions identify an intrinsic problem in the present system, why does this measure not deal with it—unless it does and I have not been able to find it in the not very helpful Explanatory Memorandum? I will be grateful for the Minister’s replies.

--- Later in debate ---

[Lord McNicol of West Kilbride (Lab)]

My Lords, I thank the Minister for his introduction. I similarly had only three questions arising from this SI—two of which the noble Lord, Lord Lilley, asked and the final one has also just been asked. This is a very technical SI, which we support, and I will just pick up on a couple of points.

The instrument will amend the validity period of the supply chain plan statement—one point that the noble Lord, Lord Lilley, raised—so that it is valid for nine months, not 12 months, from the date of notice given by the Secretary of State. However, it goes on to say:

“The Secretary of State will … be able to determine a longer period if in their opinion there is a compelling reason for the period to be longer”.


Can the Minister share what he would consider to be “compelling reasons” for why it would be extended past nine months, if we are moving it back from 12 months? The noble Lord, Lord Lilley, touched on the second point about the qualifying of the impact under the new commitments; I will leave the Minister to answer that question.

On the supply chain, Regulation 2(3) amends the requirement to provide a supply chain plan statement so that it applies to all floating offshore wind projects. This was the point just made: the current 300-megawatt threshold generating capacity will continue to apply to all other eligible projects that are not floating offshore wind projects. Have the Government given any consideration to removing this threshold for other projects to encourage SCPs?

Finally, I understand that the consultation on the new supply chain plan questionnaire—the condensed version—closes tomorrow. Do any of the changes that would come under that affect this SI and does closing the consultation after the Grand Committee agrees this SI have any consequences?

[Lord Callanan (Con)]

I thank all the three noble Lords for their contributions. They were raising wider concerns about how the process works; I do not think anybody objected to the SI itself, so I thank Members for their support. The points that were raised demonstrate the need for these regulations—they are technical changes—and the support for introducing them.

As I said at the start of the debate, these changes are essential to ensure that the next CfD allocation round, which will be the first annual one, can best support something we all want to see: an increase in the pace of renewable development and the deployment needed to help us achieve our net-zero ambitions and get the price of electricity down in the longer term. At the same time, they help to achieve our legal net-zero commitments.

My noble friend Lord Lilley was right to point out the need to consider the likely cost to consumers, the impacts on energy security, et cetera. These regulations must be made now, ahead of the next CfD allocation round, which is planned for March next year, as I said, so that the developers have certainty as to the legislative framework for the next round.

Dealing with some of the questions raised, my noble friend Lord Lilley asked me to explain how a shorter validity acts as an incentive and what happens after the supply chain lapses. He also asked whether supply chain plans are published. The answer is that they are. They set out how they will improve the capacity of the supply chain. The noble Lord, Lord Teverson, touched on the reason and I need to be slightly careful here. We are endeavouring to ensure that—how should I put this?—as much of the supply chain as possible is located in the United Kingdom, without breaching our legal obligations, which nobody would want to see us do. We are subject to legal action from the European Commission in the WTO, at the moment.

My noble friend Lord Lilley also asked what the Government are doing to stop CfD generators delaying their start dates so they can benefit from high energy prices. First, the vast majority of operational CfD projects are, happily, paying back into the system, due to the current high energy prices. I set out those figures in a letter to the noble Lord, Lord Teverson. Subject to his agreement, I would be happy to send a copy to my noble friend.

In essence, in April this year, the Low Carbon Contracts Company, which is responsible for administering this system, returned £108.3 million to GB suppliers in respect of payments made by generators since last autumn. However, my noble friend is correct, and the Government are aware of a small number of projects that have delayed their contract start dates to try to benefit from current high wholesale prices. Legally, CfDs are private law contracts between the Low Carbon Contracts Company, the CfD counterparty and generators. The Government are not legally a counterparty to those contracts. However, we have raised the matter with the industry and made it clear that, in our view, this practice is not within the spirit of the scheme, which is intended to deliver benefits to both consumers and developers. While operating on commercial terms, these developers will not receive CfD payments. We are examining possible changes to the scheme to prevent future CfD projects acting in this way. While this practice is regrettable, it is important to remember that CfDs have played a significant role in massively bringing down the cost of offshore wind in recent years.

My noble friend also asked about capacity. The CfD scheme currently supports 16 gigawatts of new capacity, of which 13 gigawatts is offshore wind. Only two projects, totalling 1.4 gigawatts, have delayed their contract start dates in order to sell their electricity on the open market.

Turning to the slightly problematic area which concerns the noble Lord, Lord Teverson, reflecting the concern of the EU that we are breaching WTO rules, my legalistic response to this is that in the supply chain plans we do not require developers to use UK content. The supply chain plans are there to encourage them to invest in creating competitive, capable and efficient supply chains which are, of course, necessary for us to deliver net zero, taking into account our national obligations.

[Lord Teverson (LD)]

May I say to the noble Lord that that is highly commendable?

[Lord Callanan (Con)]

I thank the noble Lord for his comments. The noble Lord also asked why there is discrimination against floating offshore wind in terms of the 300-megawatt capacity. The answer is that this technology is at a key juncture in terms of its deployment, and we think that certain emerging technologies—such as floating offshore wind—have the potential to play an important role in the future in helping us to meet net zero. Bringing them into the supply chain process now will allow BEIS to support the development of the associated supply chain at an early stage by encouraging the industry to invest in competitive supply chains and—as has happened with offshore wind—to accelerate the cost reduction, by which we are now all benefitting.

There were also a number of technical questions raised by the noble Lord, Lord McNicol. This SI is not affected by the detailed questionnaire that was issued. On his other questions, it may be better if I reply to him in writing, if he will allow me to do so. With that, I commend this draft instrument to the House.

Motion agreed.

Fuel Poverty

Lord Callanan Excerpts

Monday 13th June 2022 Lords Chamber

[Baroness McIntosh of Pickering (Con)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper, and I refer to my interest in the register as president of National Energy Action.

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

My Lords, in our latest official projection, there would be an estimated 3.03 million households in England in fuel poverty in 2022, according to the low-income, low-energy efficiency definition. The Sustainable Warmth strategy, published in February 2021, details our approach to tackling fuel poverty in England. Energy efficiency remains the best way to tackle fuel poverty in the long term, reducing the amount of energy required to heat a home and contributing to lower energy bills and of course, carbon emissions.

[Baroness McIntosh of Pickering (Con)]

I thank my noble friend for that Answer. The figure used by the NEA is 6.5 million households in fuel poverty. Of course, that figure would have been substantially higher had it not been for the generous measures given by the Government in late May of this year. Does my noble friend recognise that there is now another type of fuel poverty, and that is the fact that it is costing £100 to fill the tank of an average family car? In those circumstances, does he accept it is causing real hardship in rural areas, and particularly for carers travelling between their clients? Will the Government, as a matter of urgency, reduce the VAT of 20% on fuel and the 57% fuel duty and make sure that is passed on to the forecourts?

[Lord Callanan (Con)]

I totally understand the points that my noble friend is making, and the Chancellor has, of course, already reduced fuel duty. Domestic fuels, such as gas and electricity, are already subject to the reduced rate of 5% VAT. Going further, I would not guarantee that prices would fall, given that most of the price rises are driven by a number of factors that can be seen worldwide. The other problem is that cutting VAT would also be a tax cut for everyone, including wealthier people in society.

[Lord Teverson (LD)]

My Lords, among the most vulnerable groups are park home owners—some 85,000 of them—whose energy supply is often controlled by landlords. These are often, I regret to say, rogue landlords. How will the Minister guarantee that those park home residents will be able to take advantage of the Government’s rebate schemes and the various other things to alleviate energy prices over the next few months?

[Lord Callanan (Con)]

The noble Lord makes a very good point, and that is one of the aspects we are looking at—indirect suppliers through the consultations that we are holding on the various support schemes. I also point out that park home owners are already benefiting from a number of our energy-efficiency improvements, and there have some excellent examples of retrofitting park homes that have been carried out under schemes such as the local authority delivery energy efficiency scheme.

[Lord Winston (Lab)]

My Lords, does the Minister think it rather peculiar that old people like myself get 200 quid a year for fuel, which is really not needed? Should there be a way of means testing the amount of money that is given to people like me?

[Lord Callanan (Con)]

It is very generous of the noble Lord to offer to give it up, but of course the point he makes is valid. It is a combination of the expense and bureaucracy of means-testing schemes as against the universality principle, but the vast majority of support schemes, of course, are means tested and focused on those in receipt of benefits and on the lowest incomes, and that also applies to all our energy efficiency schemes.

[Lord Howell of Guildford (Con)]

My Lords, I declare energy interests as in the register. Does my noble friend accept that by far the largest driver behind these hideous energy and fuel prices, with more apparently to come, which are really damaging and frightening millions of households, would be tackled if there could be far more oil and gas pumped into short-term world markets to bring down the price of oil, petrol, gas and electricity very quickly indeed? Some of us would really like to see evidence of more co-ordinated vigour and diplomacy in international markets in driving down these prices. Something can be done. Could we see more effort in that direction, please?

[Lord Callanan (Con)]

My noble friend makes a very good point. There is a lot of diplomatic action going on with organisations such as OPEC, precisely in the terms that he alludes to. We are also, of course, attempting to produce as much oil and gas as we can from our existing British North Sea fields as well.

[Baroness Warwick of Undercliffe (Lab)]

My Lords, I declare an interest as chair of the National Housing Federation. Some 150,000 housing association residents currently have their heating and hot water delivered via communal or district heat networks. Can the Minister confirm that the Government will make the £400 energy grant available to residents on heat networks, who have seen some of the largest fuel price increases in the country?

[Lord Callanan (Con)]

The noble Baroness makes a very good point. Heat networks are another of the difficult areas we need to address as part of the consultation we are doing. I also point out that we are, of course, taking powers to regulate heat networks, which are currently unregulated, in the forthcoming energy Bill, because it is an area that we need to expand in this country and there is no protection for those residents currently on heat networks, either in housing associations or in the private sector.

[Lord Fox (LD)]

My Lords, the Minister knows that, in fact, as he stated, very little of our gas, for example, comes from the world market, yet it is the world market price for gas that is driving up the cost of fuel and energy, in terms of electricity, for our citizens. Is there not a case for reviewing how the basket of electricity is costed, so that it actually reflects the cost of generation more effectively in this country, rather than it being driven by the highest marginal cost of gas?

[Lord Callanan (Con)]

The noble Lord is partially right. Of course, 40% of our gas supplies come from our own domestic production. We get quite a bit from the world market through Norway and quite a bit from LNG as well, so we are, of course, subject to world market fluctuations. But there is a lot of validity in the points that he has made.

[Lord Lennie (Lab)]

My Lords, the government figures are out of date. The chairman of NEA is right: 6.2 million households is nearer the figure than the 3.2 million that the Minister referred to. The pressures of doubling fuel prices on top of this trend will continue to worry householders across the country. In 2015, the Government estimated it would take until 2030—another eight years from now—to end fuel poverty, but on current figures it will take more than 60 years. What new measures are the Government proposing to ensure they get back on track to meet their original deadline of zero fuel poverty by 2030?

[Lord Callanan (Con)]

The figures that the noble Lord quotes are, of course, using different metrics. There is a big debate about which is the appropriate metric to use, but we can all accept, whatever metric we use, that this a very difficult time and people are suffering. The best route to end fuel poverty is through energy-efficiency measures, and that is why we are spending £6.6 billion this year in precisely targeting energy-efficiency measures—home improvements, retrofits—towards those in society on the lowest incomes, but of course we will need to do more.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, the Government’s windfall tax was clearly very good, because it helped householders pay their bills, but at the same time that money went into profits for the oil and gas companies. The Minister talks about sustainable homes, retrofit and so on, but actually the Government are not putting enough into this, and I wonder whether government policy is influenced by the fact that the Conservative Party gets donations from the oil and gas sector.

[Lord Callanan (Con)]

The windfall tax is taking profits off the oil and gas industry, as the noble Baroness refers to, but as I just mentioned in a previous answer—

[Baroness Jones of Moulsecoomb (GP)]

It is not enough.

[Lord Callanan (Con)]

The noble Baroness says that this is not enough, but of course, we also need many of those companies to continue to invest both in North Sea production and in renewable production. If we are going to move to the totally renewable power system that I am sure the noble Baroness wants to see, as I do, we need tens of billions of pounds of investment, often from the same companies; you cannot spend the same pot of money twice. We are spending £6.6 billon this year on home efficiency measures, and there is a huge amount of work going on behind the scenes on retrofitting and home insulation measures, and through ECO, the local authority delivery scheme and the home upgrade grant. So, a lot of work is going on in this space.

[Lord Sikka (Lab)]

My Lords, the cost of producing oil and gas has not changed substantially, but the selling price has. The refiners’ profits from petrol are up by 366%, and from diesel by 648%. May I urge the Minister to commission an inquiry into profiteering, and to introduce price controls to protect people from it?

--- Later in debate ---

[Lord Callanan (Con)]

The noble Lord needs to look at our past experience of price controls to see how ineffective they are. I am sure the Chancellor will want to bear in mind any examples of profiteering the noble Lord refers to. All tax matters are of course kept under close review.

[Baroness Fookes (Con)]

My Lords, is there any universally accepted definition of fuel poverty and if so, what is it?

[Lord Callanan (Con)]

My noble friend makes a good point, and actually, no, there is not. There is a definition that I refer to, and definitions are used concerning the percentage of someone’s disposable income that is spent on fuel. There was a big debate about the different metrics to use, but whatever metric we do use, nobody can disagree with the fact that it is a difficult time for everyone at the moment, and the Government need to do all they can to help.

Pollution Prevention and Control (Fees) (Miscellaneous Amendments) Regulations 2022

Lord Callanan Excerpts

Thursday 26th May 2022 Lords Chamber

Moved by

[Lord Callanan]

That the draft Regulations laid before the House on 28 April be approved.

Considered in Grand Committee on 23 May.

Motion agreed.

Costs of Living

Lord Callanan Excerpts

Wednesday 25th May 2022 Lords Chamber

[Lord Allen of Kensington]

To ask Her Majesty’s Government what plans they have to help consumers with rising energy bills and the increased costs of living.

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

My Lords, the Government understand the pressures people are facing with the increased costs of living caused by high global energy and goods prices. To help with energy, the Government are providing a £9.1 billion package, worth up to £350 each, for over 28 million households. The energy price cap ensures that prices fairly reflect the underlying cost of supply. The vulnerable continue to receive support through the warm home discount, the winter fuel payment and the cold weather payment.

[Lord Allen of Kensington (Lab)]

I thank the Minister for his reply. He will be aware that the UK inflation rate is now at a 40-year high and expected to rise further, that energy prices are at an all-time high and expected to rise further—in fact, today we are paying £1.70 per litre for fuel—and that interest rates are at their highest for more than a decade and expected to rise further. But rather than giving families a helping hand, our Chancellor has dipped his hand into their pockets, with the biggest cut in out-of-work benefits in 50 years, the biggest cut in pensions in 50 years, and the biggest tax burden in 70 years. Can the Minister say what the Government will do to reverse this situation—where more than 4 million people say they have gone without food, more than 6 million people say they have gone without heating, water or electricity, and more than one in five adults say they are worried about being able to pay their bills?

[Lord Callanan (Con)]

I do not doubt that it is an incredibly difficult time, and the Government are fully aware of the pressures facing many households. I can tell the noble Lord that we are monitoring the situation very closely, and the Chancellor and the rest of the Government stand ready to take any further steps, if they are needed, to support households.

[Lord Teverson (LD)]

My Lords, the Government are going to make a windfall gain—because of the electricity price contracts for difference, the price of the market will move above the strike price. How many billions extra will the Treasury get over the next year, and will that be fed back to hard-pressed consumers?

--- Later in debate ---

[Lord Callanan (Con)]

Of course, those payments do not go back to the Treasury. They are all contained within the electricity price system, so, ultimately, they go into either subsidising further renewable energy or providing additional policies that are paid for through levies on bills.

[Lord Cormack (Con)]

My Lords, as the expression “Conservative ideology” is an oxymoron, why is it being called in evidence by those who are arguing against putting a windfall tax on fuel?

[Lord Callanan (Con)]

This is a complicated issue, and there are clearly a variety of views. I think everybody across the House wants to see huge amounts of extra investment going into our renewable energy system in particular, and it is important to bear in mind that that will, of course, be provided by those same companies.

[Baroness Greengross (CB)]

My Lords, the Institute for Fiscal Studies has pointed out that, since council tax is still based on 1991 property values, the recent £150 support for people in council tax bands A to D in England will mean that some people are missing out on the support that neighbours in similarly valued properties receive, just because their home is worth more than their neighbours’ were 30 years ago. How will the Government address this issue to ensure that support is targeted where it is really needed?

[Lord Callanan (Con)]

The noble Baroness makes a very good point. This is caused by the fact that council tax bands have not been revalued for a considerable time. That is why the Government are providing £144 million of discretionary funding for local authorities to support households that need support, regardless of the council tax band they are in—precisely the kind of people to whom the noble Baroness refers.

[The Lord Bishop of Oxford]

My Lords, the Minister and other noble Lords will be aware of the paradox that it is often the very poorest people in society who pay a higher tariff for their electricity through pre-payment meters and the like. They may not have bank accounts or the ability to pay on any kind of credit. Are the Government proposing to do anything to help and support those who are locked into these higher energy prices when they can least afford then?

[Lord Callanan (Con)]

I understand the point that the right reverend Prelate is making, but, of course, those households are also subject to a price cap. The slightly higher price for prepayment meters reflects the fact that they cost energy suppliers more to serve.

[Baroness Jones of Moulsecoomb (GP)]

My Lords, can the Minister explain to me very simply why energy prices are going up when renewable energy prices are as cheap as they have ever been, and falling? Does that mean that the Government did not invest enough in renewable energy when, for example, the Greens started telling them that they should?

--- Later in debate ---

[Lord Callanan (Con)]

As the noble Baroness knows—and we have debated this extensively—we have the largest offshore renewable sector in Europe, so we have been investing considerable sums in renewable energy. In fact, in the energy Statement a couple of weeks ago, we announced an even further ramping up of what has been a very successful sector.

[Baroness Hayman of Ullock (Lab)]

My Lords, I have been listening very carefully to the Minister’s responses about everything that the Government are doing, but more families are falling into poverty. We need more than the monitoring he talked about: we need steps, and we need them now. I genuinely do not understand his response to the noble Lord about the windfall tax. Why will the Government not bring that in now?

[Lord Callanan (Con)]

I know that the Opposition like to use these easy soundbites, as if there were an enormous pot of free money that we can somehow access, but, of course, money that is taken off those companies is also money that does not go to shareholders, many of which are pension funds that pay the pensions of people up and down this country. They are not greedy plutocrats who can just absorb the money. We are, of course, keeping all options under review, but it is not a cost-free option: it would result in lower investment in the renewable energies, which everybody keeps telling me they want to see in the future.

[Lord Howell of Guildford (Con)]

My Lords, since China has stopped demanding extra gas because its rate of growth has come to a halt, and as there is now plenty of gas available on the high seas, for both contract and spot prices, why can we not get some benefit from that for our consumers? Why do we have to assume that gas prices remain five or six times as high as last year, when there is plentiful gas—LNG in particular—around?

[Lord Callanan (Con)]

The noble Lord makes a good point, but, as a result of the price cap, most energy companies are hedging their supplies, based on current prices. There are plentiful supplies of LNG, but, of course, capacity able to be injected into the system is limited, due to our number of offshore loading points. We actually have a good number in the UK, but they are being fully utilised.

[Lord Rooker (Lab)]

What is the technical difficulty of changing benefits mid-year? Surely the big advantage of universal credit, bearing in mind that probably 60% of those who are really badly affected are in work, is that there is no distinction between being in or out of work. I do not understand the technical problem that has been raised. Universal credit is the quickest, easiest, most targeted thing for the Government to do. They do not need to wait, so why are they waiting?

[Lord Callanan (Con)]

As I said, the Chancellor is considering a range of options to mitigate the expected further energy price cap rise in October, and we keep that and all other matters under constant review.

[Lord Lancaster of Kimbolton (Con)]

My Lords, supply is a key factor when it comes to price, so, given the conflict in Ukraine, can my noble friend outline what the Government are doing to ensure that we have security of energy supply?

[Lord Callanan (Con)]

My noble friend makes an important point. The best thing we can do to ensure security of supply is to generate more of our supply here in the UK. For that, we need to keep producing as much oil and gas as we can from the North Sea during the transition period, and to ramp up the amount of homegrown renewables and nuclear, which we are also doing.

[Baroness Watkins of Tavistock (CB)]

My Lords, some of the Government’s current plans to improve the situation—I recognise that that is what they are trying to do—will not necessarily benefit those who are on disability benefits. We must accept that people who cannot move easily in order to stay warm demand greater help with the resource of fuel. Will the Minister please comment on that?

[Lord Callanan (Con)]

The noble Baroness is referring to the warm home discount. We are increasing the amount of money generated for the warm home discount and it is going to a wider cohort of people, but we are trying to concentrate those payments on those who need them most.

Pollution Prevention and Control (Fees) (Miscellaneous Amendments) Regulations 2022

Lord Callanan Excerpts

Monday 23rd May 2022 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Pollution Prevention and Control (Fees) (Miscellaneous Amendments) Regulations 2022.

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

My Lords, the Pollution Prevention and Control (Fees) (Miscellaneous Amendments) Regulations 2022 were laid before the House on 25 April 2022. I will refer to these regulations as the fees regulations.

As the environmental regulator of the offshore oil and gas sector, which I shall refer to as the offshore hydrocarbons sector, BEIS’s Offshore Petroleum Regulator for Environment and Decommissioning, which I shall refer to as OPRED, recoups the cost of its regulatory functions from the offshore hydrocarbons sector rather than the taxpayer footing the bill. OPRED minimises the impact of the offshore hydrocarbons sector on the environment by, for example, controlling air emissions and discharges to sea and minimising disturbance over the life cycle of operations, from seismic surveys to post-decommissioning monitoring.

Regulatory activities for which OPRED can recover costs are covered in two ways: within a suite of regulations that are covered by the fees regulations, and by five fees schemes which are not, as they do not require legislative change and will be amended administratively. OPRED’s annual fees income is on average £6.2 million, which is recovered from around 120 companies, which are billed quarterly. OPRED recovers its costs via fees based on hourly rates.

The fees regulations will revise the hourly rates used to calculate fees payable by the offshore hydrocarbons sector. The fees relate to the provision of regulatory functions in relation to the environmental management of offshore operations. Currently, the fees that OPRED charges for providing regulatory services are based on hourly rates of £197 for environmental specialists and £108 for non-specialists. Environmental specialists are qualified technical staff who carry out the legislative functions of the Secretary of State, and non-specialists are administrative staff who support them.

The current hourly rates have been in force since June 2021. OPRED reviewed the cost base and concluded that the existing hourly rates need revising to reflect the present costs to OPRED of providing specific regulatory services. The fees regulations will therefore amend the charging provisions by increasing the existing hourly rate for environmental specialists to £201 and decreasing the current hourly rate for non-specialists to £104. As the changes relate to cost recovery, they do not represent monetary changes linked to inflation.

OPRED’s fees are determined by adding together the recorded number of hours worked by environmental specialists and non-specialists on cost-recoverable activities, multiplied by the hourly rates. The new hourly rates were approved by Her Majesty’s Treasury in March 2022 and were calculated in line with the Treasury’s Managing Public Money guidance. They cover the expenditure on all resources used by OPRED to support cost-recoverable activities—for example, staff salaries, accommodation, IT and office services, and corporate services such as human resources, senior management, legal, finance and learning and development.

Guidance on OPRED’s fee-charging regimes is published and clearly explains the scope of the cost-recoverable functions undertaken by OPRED and how the costs are to be calculated and recovered. The cost-recoverable functions undertaken by OPRED include, for example: the evaluation of applications and issuing of consents for seismic surveys, and the conducting of appropriate assessments of the likely significant environmental effects of proposed projects; assessing and approving operators’ oil pollution emergency plans; and compliance monitoring activities, including offshore environmental inspections.

The fees to be paid will be revised by a small amount, sufficient only to allow OPRED to recover its eligible costs. OPRED’s guidance on its fee-charging regime will be revised to reflect the new hourly rates. Those who OPRED charge are aware that the hourly rates are reviewed annually. Although there was no statutory requirement to consult on the fees regulations, in April 2022 OPRED informed the offshore hydrocarbons sector of the planned revisions to the hourly rates, and no representations were received.

Therefore, I conclude by emphasising the importance of the revisions to the hourly rates being introduced by the fees regulations. The revisions will enable OPRED to recover the costs of providing regulatory services from those who benefit from them, instead of these costs being passed on to the taxpayer. The fees regulations will be debated by the House of Commons tomorrow, 24 May. I therefore commend the draft fees regulations to the House.

[Baroness McIntosh of Pickering (Con)]

My Lords, I congratulate my noble friend on bringing forward these regulations, which seem perfectly reasonable. I thank the environmental specialists and non-specialists for the crucial work they do in this sector.

I have just one small question to ask my noble friend, if I may. If you look at the same regulations from last year, we seem to be reversing the rate that was agreed for the non-specialist workforce. I think the rate was increased from £101 to £108 last year, so I would like to understand why the Government have decided to cut that back to £104.

My noble friend has just told us that there were no responses to the consultation, so one has to accept that no alarm was expressed by the non-specialist sector. For my greater understanding, can he explain what proportion of the workforce are environmental specialists, as opposed to non-specialists? Paragraph 7.3 of the Explanatory Memorandum states that

“the total amount to be recovered by OPRED in FY 2022/2023 will be broadly similar to the average received in previous years”.

On what assumption is that based? Is the increase in environmental specialists being covered by the reduction in the non-specialist sector in order to keep it within that envelope?

With those few remarks, I welcome the regulations before us.

--- Later in debate ---

[Lord Lennie (Lab)]

I thank the Minister for putting forward these proposals, which are, as we have heard, rather inconsequential and unremarkable. There is nothing I want to add by way of commentary, but I have a few questions.

First, as the noble Baroness, Lady McIntosh, asked, can the Minister explain why the fee for specialists has risen at the same time as the fee for non-specialists has fallen? If it is to do with numbers, can he explain the reason for this change in the balance between specialists and non-specialists?

Secondly, the fees received have remained the same as the previous average, £6.2 million. In the Government’s assessment, is this is likely to remain the case for the foreseeable future, bearing in mind what the noble Lord has said?

Thirdly, while I understand that no formal representations were made by the industry regarding OPRED’s plans, can the Minister say whether any informal opinions were given and whether the industry as a whole is satisfied by the proposals? I look forward to his response.

[Lord Callanan (Con)]

I thank noble Lords for their brief contributions to this debate, which reflect the relatively uncontroversial nature of the regulations. As I said in my introduction, the regulations will enable OPRED to recover its costs for the provision of regulatory services under the offshore oil and gas environmental legislative regime, as opposed to the alternative—those costs being borne by the taxpayer.

The annual fees income is, on average, £6.2 million, which represents around 65% of the cost of running OPRED’s environmental operations unit. The total running cost of around £10 million per year includes the cost of the office in Aberdeen and corporate support provided from London.

In terms of chargeable activities, OPRED considers the environmental implications of all offshore oil and gas operations before issuing permits and consents covering areas as diverse as seismic surveys, marine licences, oil pollution emergency plans, chemical permits, oil discharge permits and consents to locate permissions for offshore installations. OPRED reviews around 3,000 applications for permits and consents annually. In addition, there is a regular programme of monitoring and inspections to ensure compliance with environmental regulations.

As I said in my introduction, in line with the Treasury’s Managing Public Money guidance, OPRED does not charge for policy work—for example, the enacting of new or revisions to existing offshore environmental legislation—and nor is OPRED able to charge for enforcement activity, such as prosecutions. OPRED is proposing the fees regulations pursuant to a power that requires an affirmative procedure. This is because the changes allowing OPRED to recoup the costs for the provision of regulatory services are not alterations to reflect changes in the value of money.

Questions were asked by both my noble friend Lady McIntosh and the noble Lord, Lord Lennie, about what proportion of the workforce are specialists, compared with non-specialists. Both also asked for an explanation of the fee rise for specialists and the reasons for the change. The revisions to the hourly rates reflect changes to OPRED’s staffing levels and associated costs, plus corporate costs such as IT, accommodation, human resources and finance, which are allocated on a per-head basis. There are 53 staff who work in the offshore environmental unit, of whom 40 are environmental specialists and 13 are non-specialists. The reduction for non-specialists is largely due to a reduction in London corporate costs; the increase for specialists relates to an increase in the cost for advice from statutory nature conservation bodies.

The question from the noble Lord, Lord Redesdale, was nothing to do with these regulations, but I am happy to take it back to the department and send the noble Lord a reply in writing. As I said in my introduction, about 45% of the cost of running OPRED is currently recovered from the offshore hydrocarbons sector through these fees.

With the exception of the noble Lord, Lord Redesdale, to whom I will write, I hope I have answered the questions raised by noble Lords—the noble Lord, Lord Lennie, and my noble friend Lady McIntosh. Therefore, I commend the draft fees regulations to the Committee.

Motion agreed.

Catapults (Science and Technology Committee Report)

Lord Callanan Excerpts

Thursday 19th May 2022 Lords Chamber

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

My Lords, I express my gratitude to the noble Lord, Lord Mair, for so brilliantly introducing this debate, and to all the members of the Lords Science and Technology Committee for their careful consideration of this vital national asset, the Catapult Network, which led to the development of the report in question. I also thank all noble Lords for their excellent contributions, which once again demonstrated the wide range of expertise on this important subject in this House. I congratulate my noble friend Lord Willetts on his new role as chair of the UK Space Agency—an excellent appointment.

As was pointed out, the first catapult was established in 2011. If we fast forward to this year, we now have a network of nine catapults, spanning 40 centres, across all parts of the United Kingdom. Indeed, the Offshore Renewable Energy Catapult, which the noble Baroness, Lady Blake, just referred to, has a centre in Blyth, very close to my own stomping ground in Newcastle. In that time, the catapults have made their mark on the UK’s innovation landscape. They have been responsible for directing more than £2.5 billion of private and public sector investment into some very innovative industrial research, building the UK’s leading capacity in global markets. They enable organisations to access technologies, facilities, knowledge, expertise and collaboration that would otherwise be hard to reach. They have established more than 5,000 academic collaborations and 14,750 industry collaborations, and have supported more than 8,000 small and medium-sized enterprises.

Of course, as the report pointed out, there is always more that could be achieved, which is why we have welcomed the report and recognised the themes of funding our innovation ambitions, ensuring that governance and measurement drive performance, and maximising commercialisation opportunities.

We followed this report, soon after, with the Government’s own review of how the UK’s catapults can strengthen research and development capacity, published in April 2021. This set out a number of recommendations to ensure that the Catapult Network continues to deliver its vital support to UK innovation, sectors and industry and gives them space, without further reviews, to do so.

I turn to the report’s encouragement for funding to better reflect ambition and encourage industry participation in innovation. The 2021 spending review settlement announced an increase in core Innovate UK budgets to around £1 billion per annum by 2024-25, over £300 million more per annum than we spent in 2021-22. We will set out further detail on catapults funding in due course. Its R&D settlement provides a firm foundation for the Government to meet their ambition to increase public R&D spending to £22 billion by 2026-27 and drive economy-wide R&D investment up to 2.4% of GDP in 2027.

As my noble friend Lord Holmes and the noble Baroness, Lady Blake, highlighted, the catapults are integral to achieving our goal of increasing our investment in R&D to 2.4% of GDP by 2027. To meet the target, we are engaging the whole ecosystem of businesses, government, R&D-performing organisations, academia, finance providers, funders, international partners and others to come together. As has been pointed out, catapults are a key vehicle to convening industry and helping us to deliver this.

Following the publication of the R&D road map, my department has prioritised the publication of strategies on significant R&D commitments, including innovation and people and culture. Further improvements to the R&D system are also being driven by the commission of independently led reviews of bureaucracy, UK Research and Innovation, and the RDI organisational landscape.

I am pleased to say that we continue to make progress with the establishment of ARIA. My noble friend Lord Holmes and the noble Baroness, Lady Walmsley, both queried ARIA’s future leadership. I can tell them that we are in the process of recruiting the new CEO and chairman, and I will endeavour to update both Houses once those appointments have been confirmed.

In July last year, the Government set out their vision to make the UK a global hub for innovation by 2035 in the new innovation strategy, which sets out a clear plan of action for creating the right conditions for all businesses to innovate and giving them the confidence to do so. It aims to boost private sector investment across the whole UK. The noble Lord, Lord Patel, rightly noted the important role that this strategy plays in the Government’s R&D agenda.

Both the noble Lord, Lord Patel, and my noble friend Lord Willetts highlighted the report’s concern that overreviewing the catapults, and some perhaps restrictive KPIs, could hamper their potential. Over the last year, Innovate UK and BEIS have worked with catapults to agree new impact evaluation frameworks. While these retain a core set of common principles and metrics, they do not impose a one-size-fits-all approach. They allow for KPIs tailored to the unique sectors and contexts that the catapults work in. The Government are keen to see catapults demonstrating compelling value for money, with clear evidence of their impact and additionality. We are working with IUK and the catapults to ensure that they can demonstrate this clearly and efficiently.

The noble Lords, Lord Mair and Lord Kakkar, and the noble Baronesses, Lady Walmsley and Lady Blake, all asked for an update on allowing more flexibility in the funding rules for catapults. I am pleased to inform noble Lords that UK Research and Innovation has reviewed its eligibility rules for research council funding and, from 1 June 2022, catapults will be eligible to apply for opportunities on the same basis as independent research organisations and public sector research establishments.

IUK CR&D funding is oversubscribed, of course, and it is a highly competitive process, but it is important that funding allocation and distribution decisions do not crowd out other types of project and reduce overall investment in R&D. There has always been scope for individual competitions to make a case for up to 50% where there is evidence that more significant research organisation participation is necessary to deliver the best outcomes with that funding.

BEIS has already set out how its £39.8 billion R&D budget will be allocated between partner organisations over the next three years. As I said, further detail, including funding for catapults, will be set out in due course.

In his excellent introductory speech, the noble Lord, Lord Mair, asked how our approach to catapults can contribute to the levelling-up agenda, without undermining their innovation objectives, and be involved in the Strength in Places Fund. As confirmed by the noble Baroness, Lady Blake, the levelling-up White Paper sets out our commitment that domestic public investment in R&D outside the greater south-east will increase by at least 40% by 2030. This additional government funding will seek to leverage at least twice as much private sector investment over the longer term to stimulate innovation and productivity growth. In support of this mission, I am pleased to confirm that my department is aiming for the regions outside the greater south-east to receive at least 55% of its R&D budget by 2024-25. We are giving UKRI a new organisational objective to support levelling up and increase consideration of local growth criteria and impact in the funding of R&D.

The report rightly highlighted the important contributions that catapults could make to the levelling-up agenda, as the noble Lord, Lord Patel, and the noble Baroness, Lady Walmsley, recognised. At their heart, catapults are UK innovation assets created to support specific sectors or technologies and businesses throughout the UK—this remains their primary purpose. Of course, catapults have always worked across the UK, with their 40 sites now spanning all UK nations and regions. The centres have a track record of accelerating growth in clusters of innovative business, facilitating connections to local research bases and driving skills development in their local economies. For this reason, the new catapults funding agreement for 2023 to 2028 will include a focus on local economic impact alongside their primary objective of national economic impact.

As the noble Baroness, Lady Walmsley, noted, catapults have been at the centre of several of the successful UKRI Strength in Places proposals, including the £43 million investment in the compound semiconductor catapult and the £64 million Smart Nano-Manufacturing Corridor in Northern Ireland. Some £200 million will be invested in 12 projects across the UK over the next three years, through the ongoing Strength in Places Fund programme. Innovate UK is working with local partners to deliver the three innovation accelerators announced in the levelling-up White Paper, in Glasgow, Greater Manchester and the West Midlands. It is considering opportunities for catapults to be involved.

The noble Lord, Lord Kakkar, recognised that catapults are instrumental in growing businesses and clusters in the UK. He quoted the example of the Cell and Gene Therapy Catapult, which has supported the creation of the second largest cell and gene therapy cluster in the world, a development that we should all be very proud of. Through the seven technology family priorities, the Government give clear signals to industry about the opportunity to co-invest in the strength of UK tech. This is supported by the recent confirmation of a record R&D funding settlement and the prominence of the seven technology families in UKRI’s 2022 to 2027 strategy, published in March this year.

My noble friend Lord Willetts asked how catapults could play a role in developing and implementing the technology families. The Catapult Network is well positioned to play a role in delivering these, both in specific technologies—through the High Value Manufacturing Catapult’s expertise in advanced materials and manufacturing, for example—and in cross-technology, multidisciplinary approaches that realise their strengths across the network. Supporting this, catapults will continue to nurture strong collaborations with the research community, industry, government and early-stage, high-growth innovator companies.

The noble Lord, Lord Mair, questioned the steps being taken to facilitate the mobility of researchers between universities and catapults. My noble friend Lord Willetts noted the importance of collaborations with academia. I am proud to say that there is a strong track record of catapults working closely with universities. Innovate UK is providing additional targeted funding to enable catapults to directly engage with institutes, research and technology organisations and public sector research establishments. UKRI awarded £4.8 million of funding to a consortium led by the University of Sheffield that will form a network to encourage engagement between academics and the catapult centres and administer 59 researcher-in-residence awards of between £50,000 and £100,000 each year over its four-year lifetime to enable individual academics to conduct secondments, working in catapult centres, generally over a period of one to three years. Innovate UK is also increasing investment in knowledge transfer partnerships, which are collaborative, three-way partnerships that bring university expertise together with innovating businesses, creating positive impact and driving innovation.

During his speech, the noble Lord, Lord Kakkar, asked about the future of Horizon Europe, a subject we have debated many times in this House. As the noble Lord will no doubt be aware, we are funding full association with Euratom and Horizon Europe. In the event that the EU does not proceed with allowing the UK to associate with Horizon Europe, as I remind the House it committed to do, the UK will of course fund all these programmes ourselves. All the researchers who are funded are guaranteed their funding, including those supporting new international partnerships.

Given the regrettable delays to our association that come from the EU side, we are working at pace to develop a coherent, compelling and high-quality alternative programme to Horizon Europe that will provide the fellowships, collaborations and industry engagement that is so valued in Horizon. We have always been clear that our priority is to support the UK’s research and development sector, and we will continue to do this in all future scenarios.

My noble friends Lord Willetts and Lord Holmes asked how catapults can contribute to skills and developing the workforce. I am pleased to tell both my noble friends that the BEIS Catapult Network Review recommended that all catapults should take a more active role in recognising and responding to the skills needed in their sectors. Those catapults are working with the Gatsby Foundation and others to develop their capability and respond to this important challenge. Catapults have already had a significant impact in this, through their own apprenticeship centres and schemes, by working with providers to shape programmes that work for learners and industry and by collaborating with schools to inspire the workforce of the future.

I was of course pleased to learn of the enthusiasm of the noble Lord, Lord Bilimoria, for the Help to Grow management programme. I hope he will spread his enthusiasm to the Help to Grow digital programme, which is one of my ministerial responsibilities. I would be delighted to work with him and his organisation on both these fantastic schemes. On his questions on funding, the network received £1.2 billion of direct public funding for the current five-year funding period, which runs to 1 March 2023. Core funding for the network in 2020-21 was £239 million, and it generated £155 million from commercial income and £119 million from collaborative research and development. While the Government increase public investment in R&D to £22 billion a year, we are reforming R&D tax relief to support greater private sector investment in R&D as well.

The noble Lords, Lord Mair and Lord Patel, and the noble Baroness, Lady Walmsley, all asked how we will make the best possible use of the Catapult Network in the coming years and what role we see catapults playing in implementing policy for the innovation strategy. I have already set out several excellent initiatives where catapults will make a positive impact in driving our innovation strategy objectives, clearly demonstrating how the Government see catapults playing a key role in its delivery. But, as my noble friend Lord Holmes and the noble Baroness, Lady Walmsley, pointed out, the ambition remains to expand the network when it is appropriate to do so and, of course, when funding is available.

We see the catapults playing a pivotal role in delivering on our ambitions in innovation. That is why my colleague, Minister Freeman—the Minister responsible—and Indro Mukerjee, the CEO of Innovation UK, agreed a new deal with the catapults in March this year. This sets out a clear plan to maximise the impact, activity, promotion and private sector investment delivered through the Catapult Network. Innovate UK will continue to work with the catapults to identify and proactively facilitate opportunities for greater cross-catapult and cross-ecosystem collaboration. It has also committed to remove arbitrary eligibility constraints so that catapults can participate in collaborative programmes throughout the spectrum of research and innovation.

It is clear from today’s robust discussion that the Catapult Network has made a huge impact across the R&D ecosystem and that the catapults’ value is quite rightly recognised across the House and the parties. The Government will continue to work with them and with IUK to build on their successes and facilitate even greater potential. As we look to the future, R&D will be critical to economic recovery, and catapults are and will remain a valuable part of the UK’s innovation ecosystem, as we seek to build back better. I once again thank the Lords committee for this excellent report. The Government look forward to working with it as we take this programme forward.