Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

Lord Callanan Excerpts

Monday 6th September 2021 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021

Relevant document: 8th Report from the Secondary Legislation Scrutiny Committee.

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

My Lords, I beg to move that this Committee approve the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) (No. 2) Regulations 2021, which were laid before the House on 21 June 2021.

The emergence of the Covid-19 virus has posed the greatest threat to our way of life in a generation, and the past 18 months have been a challenge for us all, both as a nation and as individuals. The essential restrictions placed on our day-to-day activity have saved lives and limited the spread of the virus, but they have of course placed unprecedented pressures on many businesses. I am sure all noble Lords will share my optimism that the early signs of a strong recovery signal a return to normality. However, many businesses are not out of the woods just yet.

The four-step road map offered a road back to normal life while our world-class vaccination programme was successfully rolled out. Each step of the road map was implemented to safely reintroduce social contact for businesses, schools, activities and events based on the contemporaneous data. Step 4 was successfully launched on 19 July and led to the removal of all legal limits on social contact and the reopening of many premises. I am delighted to report that as of today, 6 September, more than 60% of the UK population are now fully vaccinated, and 71% have received their first dose.

Since the start of the pandemic, the Government have put in place an economic support package totalling £352 billion through the furlough scheme and the Self-employment Income Support Scheme, support for businesses through grants and loans, and business rates and VAT relief. In March, during the Budget speech, the Chancellor announced a generous extension of economic support for businesses and individuals, with many schemes continuing well beyond the end of the road map to help businesses to bounce back. The Government continue to support businesses by once again extending this key protection to prevent companies being forced into liquidation where their debts are due to the effects of the virus.

It has been widely reported that although many businesses are now open and trading they have continued to feel the effects of the periods of shut-down and limited trading over many months, and it will take some time for them to get back to normal financial health. This instrument will help companies while they get back to more normal activity by extending to 30 September 2021 a measure first introduced by the Corporate Insolvency and Governance Act 2020: specifically, the temporary suspension on issuing statutory demands and the restrictions on company winding-up petitions.

This measure has been extended several times by regulations, most recently from the end of March to 30 June, and this instrument seeks to extend it a further time, giving businesses the chance to trade free from creditor action to liquidate them for debts that arose because of the unique situation that many businesses have been in. This extension will allow them to sort out any financial difficulties that have arisen during the enforced restrictions over the last year or so, while the economy gets back to normal.

Since its introduction in June last year, the measure has protected many viable companies from aggressive creditor enforcement action during really difficult trading times. The temporary restriction on company winding-up petitions means that anyone who wishes to wind up a company that has not paid its debts must satisfy a court that those debts are not Covid-19 related. This extension aims to give many companies much-needed time to get back on their feet as the economy begins to return to normal: time for them to generate income, take advice, reach out to their creditors and, where appropriate, time to restructure.

The Government have helped companies while they had to stay shut, and, now that they are able to open, it is crucial that we do not withdraw that help prematurely before they are given the chance to trade back to financial health. Although this measure is intended to help companies that may be subject to aggressive creditor enforcement, the Government have always been clear that it is not to be seen as a payment holiday. Where companies can pay their debts, they should do so.

I know that many businesses and their business representatives will welcome the continued support that these regulations offer, but of course I also acknowledge that this measure will mean a further period of uncertainty for creditors where their rights to enforce recovery of their debts are temporarily restricted. We do not take this action lightly, and we are very aware of the impact on creditors. However, as I have said, the measure is intended to help those in financial difficulty as a result of the pandemic and must not be used as an excuse to avoid payment. So where a company can pay its debts, of course it is right that it should do so.

We will continue to monitor the situation carefully, consulting with stakeholders and the business community to determine what further action may be necessary when these regulations expire at the end of this month. I commend these regulations to the Committee.

[Lord Leigh of Hurley (Con)]

My Lords, I declare an interest. Since we last debated this subject, I have become a non-executive director and chairman-designate of Manolete Partners plc, an AIM-listed company involved in insolvency litigation. Therefore, I have a vested interest in addition to my other business interests.

I again congratulate the Government on the swift and decisive action taken with the introduction of this legislation in responding to the economic crisis. We did not agree on every aspect of the legislation, particularly some details of the moratorium, but we did agree on the direction of travel and the effect that all this has had. This debate is of course in respect of regulations which, as I understand it, expire at the end of this month, so although necessary, because of the way the regulations are drafted, it is probably the shortest-term effect of any regulation that has gone through this House.

More important is to know and understand what will happen after the end of this month. A number of us would argue that the time has come to relax these regulations and to rely on the market in which this Government have such faith. The market will determine which companies should have more capital allocated to them, which companies are zombie companies and which companies do not have a future. That will be decided partly by creditors and partly by people choosing whether to invest in companies that need such cash to face creditors.

It is interesting to look at the situation regarding creditors’ voluntary liquidation. Creditors’ voluntary liquidation is essentially when directors decide to throw in the towel because the business cannot carry on of its own volition. The figures published by the excellent Insolvency Service just the other day show that the level has returned to pre-pandemic levels, about 2,800 companies in the last quarter, which is roughly where it was pre-pandemic and is constant. So the market is returning to normal where it can. I very much hope that the Minister can give us an indication soon of the Government’s thinking on this extremely important issue.

--- Later in debate ---

[Lord Bassam of Brighton (Lab)]

My Lords, we are back again debating measures to extend the restrictions on the use of statutory demands and winding-up petitions. I think this is the third time we have debated them, and every time we welcome, as we would from our Benches, the Government extending the safety net for businesses in distress because of the pandemic.

Just as we supported the emergency legislation last year, we welcome any measures to support the businesses that closed to keep us safe. As the Minister knows well by now, we argued then that the protections in the Act should be extended over a long period. As the Government extend them again, we reiterate the point, as we have before, that these short extensions cause real uncertainty and worry for businesses in the run-up to each expiry date, concerned as those businesses are with the cliff edge.

As the economy opens and restrictions end, it is right that these measures are kept under review, but we must also remember how many people are still affected by insolvency. The Government’s recent statistics, from July 2021, showed that there were 1,094 registered insolvencies. This was 13% higher than the number registered in the same month in 2020. Does the Minister expect this yearly increase to continue for the rest of 2021? Before he gets into the stream of consciousness response which the noble Lord, Lord Hodgson, so eagerly anticipated, perhaps he could answer a few other questions as well.

Will this be the last extension of these measures, or will we be back in a couple of weeks, or a month or so, since the current extension is only to the end of September? What has changed since the last SI is that some support was not extended beyond the end of June. This includes the small supplier exemptions from the termination clause provisions and the suspension of viability for wrongful trading provisions. The Government have said that these measures were allowed to lapse to enable a gradual return of the insolvency framework to its normal operation. Can the Minister explain how this decision was made? What evidence was it based on? What impact has it had on businesses since June?

As we return fresh from recess, can we hear from the Minister about any new plans the Government have for wider reform of our insolvency laws, including providing some greater protection and support for key industries and their key workers? As Covid support continues to be pulled away, we must ensure that we do not see a whole wave of insolvencies during the latter end of this year, provoking rises in unemployment and making businesses less certain of the environment in which they will work. We need to get the right support to thrive in the post-pandemic period, whenever we feel that comes.

Having listened to noble Lords around the Committee, I think we are all in need of some reassurance. Some colleagues here want to see market forces let rip, but I do not think that doing so is necessarily the best option here, although of course we all want to return to normal. I look forward to the noble Lord’s reassurances and some answers to those key questions, as well as to those raised by the noble Lord, Lord Hodgson of Astley Abbotts.

[Lord Callanan (Con)]

First, I thank all noble Lords for their interesting and, as always, valuable contributions to this debate.

It is worth reiterating that, since the emergence of Covid-19, businesses have received billions in loans, tax deferrals, business rate relief and grants to support them and, vitally, to help them to preserve jobs. The Government’s road map for the staged lifting of restrictions has in my view been a success in protecting the UK from the spread of Covid-19 while the vaccine programme was rolled out, and we can all begin slowly to return to normality.

However, we must recognise that many businesses and others have suffered from the impact of the pandemic for over a year now, and in many cases it will take time to return to full pre-Covid financial health. The Government will continue to do what it takes to support businesses through this period of economic recovery.

The points raised have highlighted the importance of the measure being extended by these regulations and the necessity of extending it once more so that businesses can continue to benefit from it. These regulations will provide the much-needed continued support for businesses to concentrate their best efforts on continuing to trade, preserve jobs and build the foundations for our economic recovery. I sincerely hope that companies and their creditors will come together in good faith to maintain their future trading relationships and secure the benefits for both themselves and the economy as a whole.

I will answer some of the points that were quite fairly put to me in the debate. The noble Lord, Lord Sikka, and my noble friend Lord Leigh asked a very pertinent and relevant question about what will happen when these measures come to an end in a little over three weeks’ time. The Government recognise that there is potential for what I think both noble Lords referred to as a cliff-edge scenario involving the accumulation of unpaid debts becoming due when these restrictions and government fiscal support expire. I can tell noble Lords that work is ongoing with businesses and key stakeholders to develop solutions to enable a viable exit from these measures. All options are being considered, and I hope to make an announcement on this very shortly.

The noble Lord, Lord Sikka, asked what the Government are doing to support creditors who are unable to recover their debts and who are putting their own businesses at risk. To reiterate, this is a temporary measure that is intended to help struggling businesses during the continuation of the pandemic. It does not, as I said initially, permanently prevent the possibility of a creditor serving a statutory demand and/or presenting a winding-up petition. When the legislation expires, a creditor will be able to pursue their debt. We expect this to encourage businesses to continue, wherever possible, to meet their ongoing liabilities as far as they are able to do so.

There is a range of other legal options available to creditors seeking to recover debts which are unaffected by the changes being made here. If is, for example, possible to bring a civil claim to recover a debt. Also, where a company’s inability to pay is not related to Covid-19, it will still be possible to present a petition for winding it up, notwithstanding the points correctly raised by my noble friend Lord Hodgson. There is evidence to suggest that winding-up petitions are still being presented in appropriate cases.

Net Zero Test

Lord Callanan Excerpts

Thursday 22nd July 2021 Lords Chamber

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

My Lords, over the last three decades the UK has achieved record clean growth. Between 1990 and 2019, our economy has grown by 78%, while our emissions have reduced by 44%—the fastest reduction in the G7. The Government recently set out the UK’s sixth carbon budget, which would reduce 2035 emissions by 78% compared to 1990. We have strong governance around net zero; this includes two Cabinet Committees, one of which, the Climate Action Strategy Committee, is chaired by the Prime Minister. We will respond officially to the CCC report in due course.

[Baroness Hayman (CB)]

My Lords, I am grateful to the Minister for that response and I declare my interests as set out in the register. I was privileged to be present to hear the speech of Special Presidential Envoy John Kerry, in London this week. He spoke passionately of the scale of the challenges the world faces and the urgency and breadth of the action needed to avert catastrophic climate change. Do the Government accept the need highlighted in the recent report of the Climate Change Committee to put a climate lens on all government legislation and all policy choices? Will they show global leadership on this issue, in the run-up to COP 26 in Glasgow, by committing to a net zero test in their imminent, I hope, net zero strategy?

[Lord Callanan (Con)]

Well, as I told the noble Baroness in my Answer, we have really strong governance around climate change. There are two Cabinet committees, one established and chaired by the Prime Minister and the second chaired by the COP 26 president designate. Of course, we look at all policies and their impact on climate change.

[The Lord Speaker (Lord McFall of Alcluith)]

I call the noble Lord, Lord McColl of Dulwich. No? I think we will go on to the next supplementary question. I call the noble Lord, Lord Curry of Kirkharle.

[Lord Curry of Kirkharle (CB) [V]]

Can the Minister confirm that, as stated in their response to the Climate Change Committee recommendations, government policy that flows from the Agriculture Act and the Environment Bill that impacts on agriculture will take a holistic approach and take into account the significant benefits that agriculture does and will deliver, such as carbon sequestration in soils, crops and plants?

[Lord Callanan (Con)]

I agree with the noble Lord on the important contribution that agriculture makes and will need to make in the fight against climate change. Defra is looking at ways to reduce agricultural emissions and is progressing its environmental and land management schemes. It is also looking at other options to reduce agricultural emissions, including some very innovative solutions on the use of, for instance, methane-inhibiting food additives.

[Viscount Hanworth (Lab)]

In Monday’s debate on transport decarbonisation the Minister said:

“The more we can set out … what our expectations are, the more we expect that development to increase.”—[Official Report, 19/7/21; col. 26.]


The Government’s wish list is unsupported by effective plans for action. A yet to be published report of the Science and Technology Committee that deals with the means of transport decarbonisation has stated that the Government’s actions do not align with their ambitions to achieve net-zero emissions. What is required is an independent office for climate responsibility, which can assess the extent to which the Government’s actions correspond with their stated objectives. Do the Government recognise this need?

[Lord Callanan (Con)]

I understand the point the noble Lord is making, but I would refer him to the independent Committee on Climate Change, which does many of the things he is suggesting. It was established by the Climate Change Act 2008 and provides expert advice to the Government on climate change mitigation and adaptation. As he will have seen in its written reports, it is not afraid to point out what it sees as any deficiencies.

[Lord Teverson (LD) [V]]

My Lords, could the Minister explain how the Government’s proposed planning Bill will help lead towards his department’s goal of net zero?

[Lord Callanan (Con)]

Planning of course is extremely important, particularly in terms of delivering net-zero buildings. The noble Lord will be aware of the proposals we have to modify building regulations to reduce the impact of new buildings.

[Lord Grantchester (Lab) [V]]

This is the decisive decade for action and achievements, yet behind the Government’s scatter-gun rhetoric there is only dither and delay to key strategic coherency: the net-zero strategy, the hydrogen strategy, the Treasury’s finance road map, and others. Can the Minister confirm reports that another key strategy document, the heat and buildings strategy, is further delayed? According to Sky,

“Whitehall negotiations are stuck over how best to incentivise the public to change to low-carbon alternatives”.

How will the different strategies combine to support the UK’s climate change goals on both net zero and adaptation, along with wider environment-related goals?

[Lord Callanan (Con)]

The heat and buildings strategy will be published in due course. I do not agree with the noble Lord that we are not doing anything. I refer him to action we have taken recently: the energy White Paper, the revised emissions trading system, all of the announcements and investment to do with offshore wind, the pledge to phase out new petrol and diesel vehicles, the transport decarbonisation plan, and so on. Of course, there is always more to do, but I do not accept the noble Lord’s premise.

[Baroness Altmann (Con)]

My Lords, I would like to congratulate the Government on their achievements so far, with the fastest reduction in the G7. We have two Ministers—one in the Lords and one in the Commons, my noble and honourable friends—who are determined to help reduce our emissions and achieve success for the environment. I agree with the noble Viscount, Lord Hanworth, that an independent assessment of the net-zero impact of policy is important and I commend the work of the Climate Change Committee. However, I hope the Government will continue to focus, for example, on direct action, by encouraging institutional and pension fund investors to invest in climate change mitigation, and promoting a net-zero approach to investment portfolios rather than asking officials to continue with a net-zero test in a way that the family test has been more of a tick-box exercise.

[Lord Callanan (Con)]

I thank my noble friend for her comments and certainly agree with her. As she is well aware, the trustees of occupational pension schemes are independent of government; they are not bound by the commitments we have signed up to. However, given the significance of the financial risks posed by climate change, we expect all investment decisions made by pension scheme trustees to take climate change into account. As of 2019, trustees of pension schemes with 100 or more members have been required to set out in their statement of investment principles policies on stewardship on an ESG, including climate change.

[Baroness Boycott (CB)]

My Lords, if this test was brought in, would it not help government departments by giving them a very clear direction of travel? It would cover the sorts of decisions we are still wrestling with—Cambo in the North Sea and the Cumbrian mine—which have somehow slipped through despite government ambitions to reach carbon neutrality. This test could save future Ministers’ blushes. Can the Minister say what discussions have been had about this proposal and whether he will advocate it to his ministerial colleagues?

[Lord Callanan (Con)]

We have not had any discussions about implementing this proposal yet. We will respond to the Climate Change Committee’s recommendations in due course. But we are looking at the impact of climate change across all our policies. As I said, we have a couple of senior Cabinet-level committees, one chaired by the Prime Minister, which take all of these things into account.

[Lord Browne of Ladyton (Lab) [V]]

My Lords, the Climate Change Committee sees local authorities as having a critical part to play in achieving net zero. On 16 July, the NAO revealed

“serious weaknesses in central government’s approach to working with local authorities on decarbonisation, stemming from a lack of clarity over local authorities’ overall roles, piecemeal funding, and diffuse accountabilities”.

Does the Minister agree with its assessment that there is

“great urgency to the development of a more coherent approach”

and can he explain how the MHCLG, BEIS and other departments are responding to this challenge?

[Lord Callanan (Con)]

I do not agree with the noble Lord. Of course, local authorities are critical in terms of delivering this agenda and I have many meetings with them to discuss a number of the grand schemes for which I am responsible. We have spent something like £1.2 billion in dedicated funds given to local authorities through the local authority delivery scheme and the public sector decarbonisation scheme to help them in this job.

[Baroness Sheehan (LD)]

My Lords, the Government’s remit to the Oil and Gas Authority is MER, maximising economic recovery—also known as “drill every last drop”. The Government’s continued support for this policy leaves them open to applications such as the Cambo oilfield, which one trusts they will turn down. May I ask the Minister how the MER policy is compatible with our net-zero targets, given that existing oilfields already in production will take us over our agreed NDC?

[Lord Callanan (Con)]

The independent Committee on Climate Change recognises that there is an ongoing role for oil and gas, and we are working hard to drive down demand and emissions. The updated Oil and Gas Authority strategy includes a requirement for industry to “take appropriate steps” to support the delivery of the net-zero target—and, of course, we have put forward the ambitious decarbonisation plan for the North Sea. With regard to the Cambo field, Shell and Siccar Point have put forward a development proposal seeking consent, with an intention to commence production in 2025. This is not a new project; it was licensed in 2001 and 2004 and is going through the normal regulatory approval process.

[The Lord Speaker (Lord McFall of Alcluith)]

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

Electricity Capacity (Amendment) Regulations 2021

Lord Callanan Excerpts

Thursday 22nd July 2021 Lords Chamber

Moved by

[Lord Callanan]

That the draft Regulations laid before the House on 21 June be approved.

Considered in Grand Committee on 21 July.

Motion agreed.

Future UK-EU Relationship on Professional and Business Services (EU Committee Report)

Lord Callanan Excerpts

Thursday 22nd July 2021 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 Baroness, Lady Donaghy, for securing this important debate, which I thought was characterised by some excellent contributions, from her and many other Members. I am also grateful to my ministerial colleague and noble friend Lord Grimstone, who has offered evidence to the EU Services Sub-Committee on several occasions over this past year, including on this report, and who continues to engage with the sector’s leaders as co-chair of the PBS and investment councils.

As a number of noble Lords have pointed out, professional business services are one of our largest and most successful sectors. My noble friend Lord Grimstone’s open letter to the sector in May this year highlighted that, from 2000 to 2019, growth in PBS outperformed that of the UK economy as a whole. The sector generated 12% of the UK’s total gross value added in 2020 and represents one in seven jobs across the country, with two-thirds of those jobs outside London and the south-east. Internationally, the sector has also excelled. Since 2000, exports of PBS have grown from £28 billion to roughly £111 billion in 2019. The UK is now second only to the US as the greatest exporter of professional business services in the world. This is something that the UK excels at and that we should be proud of. Our task now, of course, is not only to maintain but to develop the sector’s reputation for excellence.

The noble Baroness, Lady Donaghy, pointed out, and the Government recognise, the challenges that the UK’s new relationship with the EU and the Covid-19 pandemic present for the sector. Naturally, many noble Lords focused their contributions today on these challenges. I will address many of those comments and questions later, but I think that it is also worth reminding ourselves briefly of what the UK-EU free trade agreement and the Covid relief programme offer our businesses.

The agreement grants UK firms access to EU markets in a way that matches, and in some areas improves on, the EU’s best agreements to date with countries such as Japan and Canada. In practice, this means that most PBS businesses can continue to access EU markets and that they will not be subject to discriminatory barriers to trade while doing so, except where either side has expressly reserved the right to do so. The agreement means that business travellers can move easily between the EU and the UK for short-term visits —for example, by eliminating nationality requirements for some roles and guaranteeing how long temporary business visitors from the UK can stay in the EU. It is also future proof, which means that our businesses get the most liberal market access that either party grants to any future trading partner as well.

Notably, the agreement includes a number of important wins for the UK and PBS businesses. On legal services, we negotiated unprecedented provisions that will help ensure that UK law remains popular and competitive as the governing law of choice for commercial contracts worldwide. We also secured one of the most liberalising and modern digital trade chapters anywhere in the world. Among other things, it makes the cross-border flow of data easier by prohibiting requirements to store or process data in a specific location and thereby avoids costly requirements for British businesses.

Our exit from the EU represents an unparalleled opportunity for the UK to do things differently and better. Our priority is to help the sector adapt to these changes. To that end, we have been operating export helplines, running webinars with experts and offering businesses support via our network of 300 international trade advisers. We have also published extensive guidance on GOV.UK, including sector-specific landing pages to help individual sectors navigate the guidance available online, enhanced guidance on visa and work permit routes in EU member states and an interactive tool that can be used to find which reservations are most relevant to UK businesses selling services to customers in the EU. These are bespoke resources whose detailed guidance is unmatched by other trading partners worldwide.

The sector has overcome adversity in the past, but none has proved as great as the Covid-19 pandemic. At its worst point, economic activity in the sector as a whole fell by 20% in 2020. While the sector has suffered, 2021 has so far proven a positive year for PBS. As of May 2021, PBS output was just 3% below what it was pre Covid, in January 2020, tracking the strong recovery of the UK economy overall. With the help of the Government’s furlough scheme and plan for jobs, many businesses have adapted to new and innovative ways of delivering their services to support their clients through this adversity.

One of the ways we are ensuring the continued recovery and growth of the sector is through the PBS council and its working groups. The council has already made great progress this year by jointly publishing the Skills for Future Success report with the Financial Services Skills Commission. This report explores how to deliver recovery and growth right across the UK and complements the work of the socioeconomic diversity task force, which will provide much-needed evidence on what we can do to progress and retain talent across all backgrounds.

The council’s trade working group is exploring the possibilities that lie further afield—feeding the sector’s views into new potential FTAs as well as the global opportunities through COP 26 and an increased focus on environmental services. I completely agreed with my noble friend Lady Bottomley, as I so often do, that the PBS sector will be key to supporting a sustainable economic recovery and making the UK a world leader for green technology and finance, including in areas such as reporting of climate-related financial information and facilitating the use of the Government’s sovereign green gilt and green savings bonds. My department is working with DIT’s trade promotion unit and the four major new trade hubs across the UK to showcase the international expertise and excellence of our PBS sector, helping make businesses more sustainable and achieving our net-zero objectives in the process.

I will now turn to some of the specific points raised by noble Lords in the debate. My noble friends Lord Trenchard and Lady Neville-Rolfe raised the knotty issue of touring musicians, which I know has exercised a number of others in this House. Officials have now spoken to every member state about the importance of touring. DCMS Ministers have also raised touring with their counterparts in a number of member states, including Portugal and Austria. Through this engagement, we have established that the picture is better than previously thought, and that some touring activities may be possible in at least 18 member states without visas or work permits. This includes many of the most economically important countries, such as France, Germany, Austria, Belgium, the Netherlands and Italy. DCMS, via our embassies, is engaging with those member states that do not have any visa or permit-free touring, such as Spain, calling on them to more closely align their arrangements with the UK’s generous domestic regime. DCMS Ministers are personally involved in the engagement with these priority countries. I hope that reassures my noble friends.

The noble and learned Lord, Lord Thomas of Cwmgiedd, raised a number of points, including the important subject of financial services. Our new chapter for financial services is already under way. Building on his Statement to the House of Commons in November 2020, at the Mansion House in July the Chancellor introduced four key themes of the Government’s vision for financial services. These are to be: an open and global financial hub; the sector at the forefront of technology and innovation; a world leader in green finance; and a competitive marketplace promoting effective use of capital. The Chancellor was clear that the UK had an abiding interest in a prosperous and productive Europe. Leaving the EU means that we have a unique opportunity to take an approach that better suits our markets while maintaining our high regulatory standards. We are using our new freedoms to build on our historic strength as a global financial centre and to develop our relationships with jurisdictions all around the world, attracting investment and increased opportunities for cross-border trade.

A number of noble Lords raised the recognition of professional qualifications on which the PBS sector often relies to practise overseas. Mutual recognition agreements generally smooth this process. In the TCA negotiations, the Government worked hard to agree a framework for MRAs across all EU member states. This framework improves on the one which Canada negotiated with the EU by streamlining certain aspects of the application process. I hope that I can reassure the noble and learned Lord, Lord Hope of Craighead, and the noble Lord, Lord Davies of Brixton, that we have been working hard to provide a suite of support for regulators and for professional bodies wanting to agree these arrangements. We have established a new recognition arrangements team, published technical guidance and launched a pilot grant funding programme for the PBS sector, specifically to help regulators navigate this important area.

The noble Lord, Lord Liddle, raised the important issue of mobility. As a result of the TCA, business travellers do not require a work permit to carry out certain short-term business travel activities, such as attending meetings and conferences or providing after-sales services or translation and market research services. Some EU member states allow additional activities without the need for a visa or work permit. For those undertaking longer-term stays or stays involving work, or providing a service under contract, a visa and/or work permit may be required. I can tell the noble Baroness, Lady Donaghy and my noble friend Lady Neville-Rolfe that we have published guidance on visa and work permit routes in 27 out of 30 EU member states. We continue to engage regularly with our embassies in order to better understand the requirements in each country and to support UK nationals when they travel abroad. We have also secured a review clause on the list of permitted activities for short-term business visitors which will allow both parties to update their commitments further down the line.

At the moment, it is too early to say to what extent reservations will affect UK firms’ decisions on whether to operate from a particular place or how to structure their businesses. Reservations that apply to niche sectors are likely to have less of an impact—in particular, I was struck by the one on reindeer herdsmen in Lapland, should the noble Baroness, Lady Donaghy, wish an alternative career. Those which apply across the EU as a whole or which cover highly regulated professions, for example, lawyers, accountants and architects—which may be of a little more interest to the noble Baroness—are likely to mean that businesses must adapt. Many businesses which use the reservations tool that I mentioned earlier will likely only need to engage with a handful of member states—for example, Germany, France, the Netherlands, Ireland and Spain. These made up approximately 62% of our services trade with the EU in 2019.

I am pleased to reassure the noble Baroness that investment into the UK remains robust. Figures from the Department for International Trade show that during the 2020-21 financial year, new inward investment from the EU created over 21,000 new jobs in the UK.

As the noble and learned Lord, Lord Thomas of Cwmgiedd, rightly observed—as did the noble Baroness, Lady Hayter—data flows and the digital economy are crucial to supporting cross-border trade in services, not only with the EU but with all our trading partners. We have welcomed the EU’s recent adoption of adequacy decisions for the UK. Some estimates suggest that this has saved UK businesses as much as £1.6 billion on data transfer compliance costs—such as setting up standard contractual clauses—and it allows for the ongoing free flow of personal data from the EEA to the UK in the safe and secure way it has always been in the past.

Our most recent deals with Japan, Australia, the EEA/EFTA countries and the EU contain some of the most advanced digital trade provisions seen in any modern trade agreement and we are now looking to strike additional arrangements—both for data and digital —with other like-minded partners.

My noble friend Lord Trenchard raised the issue of the IPO. The UK’s IP regime achieves an effective balance between rewarding creators and innovation and reflecting wider public interests, such as ensuring access to and use of IP on reasonable terms. We will ensure that the terms of our accession to the CPTPP are consistent with the UK’s IP interests, including not doing anything that increases reactive costs for our IP service providers.

My noble friend Lady McIntosh of Pickering asked for information about support to small businesses. Innovate UK, the United Kingdom’s innovation agency, offers several support mechanisms that are available to SMEs and other businesses, such as: the innovation loans pilot programme; smart grants; the Small Business Research Initiative; and catapults, which are all there to provide support to small businesses in navigating this important area.

The noble and learned Lord, Lord Thomas of Cwmgiedd, and other noble Lords, talked about the Professional Qualifications Bill, which we will seek to progress as much as possible. It revokes the UK’s interim system for the recognition of professional qualifications which currently often gives preferential treatment to holders of EEA and Swiss qualifications, and it will help aspiring professionals to understand how to access the UK’s professions. The Government have reflected carefully on the points that were made during the Bill’s passage to date and will be continuing conversations and engagement with noble Lords and stakeholders over the summer to try to address their key concerns.

The noble Baroness, Lady Hayter, asked about the Lugano Convention. We continue to maintain that we meet the criteria for accession to the Lugano Convention, both because it is open to countries outside the EU and because all non-EU members already support the UK’s membership. Supporting UK accession is the sensible and pragmatic solution for all citizens. The Government are aware of the European Commission’s notification that it is not in a position to give its consent to UK accession to the Lugano Convention. However, we understand that member states have not yet been given an opportunity to vote formally on that position.

I am running out of time so I will move my remarks to closure. I assure noble Lords that helping PBS businesses both to adjust to our new relationship with the EU and to recover from the pandemic remain some of the Government’s highest priorities. We will continue to feed the sector’s views into future trade negotiations with other countries and develop the sector’s reputation for excellence both at home and abroad. Through trade promotion, we will support the sector to take advantage of opportunities in existing and emerging markets, maintaining and growing its global competitiveness.

Electricity Capacity (Amendment) Regulations 2021

Lord Callanan Excerpts

Wednesday 21st July 2021 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Electricity Capacity (Amendment) Regulations 2021.

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

My Lords, before outlining the provisions made by this draft instrument, I will provide the Committee with a brief reminder of what the capacity market is and does. The market is at the heart of the Government’s strategy for maintaining security of electricity supplies in Great Britain. It secures the capacity needed to meet future peak electricity demand under a range of scenarios through competitive, technology-neutral auctions, normally held four years and one year ahead of the relevant delivery year. Those who win capacity agreements, known as capacity providers, commit to providing capacity during periods of system stress in exchange for receiving capacity payments. Capacity payments are funded by electricity suppliers, which recover this cost from electricity consumers.

Since its introduction in 2014, the capacity market has succeeded in ensuring secure electricity supplies at a low cost to consumers. Furthermore, it has a proven track record of facilitating investment in new-build capacity. To date, the capacity market has supported investment in over 13 gigawatts of new capacity, including smart technologies such as battery storage and demand-side response.

The most recent auctions, which took place in March this year, were successful in securing all the capacity needed to meet peak demand through to 2024-25. This year, for the first time, as a result of the carbon emissions limit introduced to the capacity market in 2019, coal-fired plant did not participate in the four-year-ahead capacity market auction, nor will it be able to participate in any future four-year-ahead auctions. This is just one of the steps that we are taking to help to align the capacity market with our broader decarbonisation objectives on the road to net zero emissions by 2050.

In 2019 we published our five-year review of the capacity market. In it, we found that the capacity market was fundamentally meeting its objectives. However, we identified a number of areas that could be improved through incremental change, many of which have since been implemented through subsequent amendments. That has ensured that the capacity market remains the best way to ensure security of supply at the lowest cost to the consumer. Most years, we also make adjustments to the legislation based on our day-to-day experiences of operating the capacity market in order to ensure that it continues to function effectively.

In that context, the draft instrument before us today makes three technical improvements that will address issues in the functioning of the capacity market that we have encountered over the past year. Specifically, a number of capacity providers had agreements terminated last year but were unable to transfer their obligations to other providers through the capacity market’s secondary trading market. To reduce risks to security of supply, the draft instrument aims to remove the barriers restricting the trade of obligations following termination. This will improve the flexibility of the secondary trading regime and make it easier to replace capacity that closes prematurely and at short notice.

The past year also saw a large number of appeals by prospective capacity providers whose applications to participate in the capacity market had been rejected, often for minor administrative errors. The draft instrument aims to make clearer that the capacity market delivery body—the organisation that delivers the capacity market—can accept information that corrects such errors when determining these appeals. That will help to reduce the risk of applicants being rejected due to minor or administrative errors that could otherwise have a detrimental impact on the level of competition in the auction.

Finally, the draft instrument aims to allow capacity providers who have had the duration of their agreements reduced as a sanction for non-compliance with certain requirements the option to appeal a decision to the Secretary of State. We acknowledge that a reduction in agreement length could have significant impacts on the viability of projects, and we therefore believe that it is right that capacity providers in such a situation should be given the right to appeal.

To complement this draft instrument, we have put forward an amendment to the capacity market rules, which was laid before the House on 5 July 2021. The amendment rules make a number of additional technical improvements. Notably, they update the carbon emissions limits to introduce new formulae that allow for a better reflection of the actual carbon emissions of certain generators, such as those equipped with post-combustion carbon-capture technology.

The rules amendments also extend some of the coronavirus easements which were introduced and debated in this House last year, in recognition that coronavirus has impacted the ability of capacity providers to meet some of their obligations under the capacity market. The extension of some of these arrangements will help providers in coping with the continuing impacts of the pandemic.

In conclusion, this draft instrument introduces a number of technical provisions which are intended to address issues that we have identified over the past year through our experience of managing the annual delivery cycle of the capacity market. Therefore, these technical provisions are necessary to enable the continued efficient operation of the capacity market in delivering on its objectives. I therefore commend this draft instrument to the House.

[The Deputy Chairman of Committees (Baroness Finlay of Llandaff) (CB)]

I call the noble Lord, Lord Bradshaw. Lord Bradshaw? We seem to have lost the noble Lord. We will therefore move to the next speaker and then return to the noble Lord, Lord Bradshaw. I call the noble Lord, Lord Bhatia.

--- Later in debate ---

[Lord Callanan (Con)]

Perhaps I could say to the noble Lord, Lord Bradshaw, who has obviously had a problem coming in, that, if he has any specific questions about these regulations and wants to write to me directly, I will be happy to provide him with answers to any concerns he might have. I thank other noble Lords for their valuable contributions to this debate.

The Government continue to believe that the capacity market is the right mechanism for delivering security of supply at the lowest cost to consumers, and we continue to take steps to ensure its ongoing efficient and effective operation. The capacity market is tried and tested. The fact that it has supported investment in over 13 gigawatts of new-build generation and interconnectors since its introduction demonstrates that it can bring forward the capacity needed to meet future peak demand and replace older capacity as it retires.

Furthermore, the introduction of carbon emissions limits and the fact that coal-fired generation was unable to participate in the recent four-year-ahead auction shows that we are taking steps to ensure that the market is in alignment with our decarbonisation objectives. We acknowledge that further work will be required to ensure that the capacity market is aligned with our net-zero target and we intend to issue a call for evidence that will engage the industry on potential actions for delivering this objective. The Government are committed to ensuring that the right policy tools are in place for delivering a secure and affordable electricity system as we transition to net zero. This includes regularly assessing the performance of the capacity market.

In line with our statutory obligations under the electricity capacity regulations 2014, we have recently begun work on the next five-year review of the capacity market, which will be published in 2024. This in-depth review will scrutinise the objectives and design of the capacity market. It will take account of how the energy landscape has changed since the market was first introduced, in particular our net-zero ambition and changes to wider energy policy. We will also identify and implement changes to the design of the market to ensure that it remains able to deliver security of supply.

Returning to the draft instrument before the Committee today, the changes respond to three technical issues that we have encountered over the past year and will increase flexibility for both market participants and the capacity market delivery body. Ultimately, it will help ensure that the capacity market continues to deliver on its objective of guaranteeing secure electricity supplies at the lowest possible cost to consumers.

In response to the noble Lord, Lord Bhatia, and his brief intervention asking whether the market would create more CO₂ emissions, I can tell the noble Lord that the capacity market helps to maintain public support for net zero by ensuring secure electricity supplies as we decarbonise the power sector. Furthermore, as I said earlier, we have introduced emissions limits to the capacity market to help align it with broader decarbonisation objectives.

The noble Baroness, Lady Bowles, was concerned about the low number of responses to the consultation. We held a series of stakeholder workshops during the consultation to gather additional views, including an open invite session which had around 100 different attendees. The noble Baroness also asked what the rationale was for secondary trading. This has been an important part of the capacity market since it was implemented in 2014. It supports the security of electricity supplies by enabling the transfer of agreements which cannot be fulfilled. In addition, the noble Baroness wanted assurances that secondary-trading agreements do not give the transferee a free pass on obligations and safeguards. They do not; capacity providers are subject to the same obligations whether or not they secured their agreements through secondary trading.

The noble Lord, Lord Grantchester, asked whether the market was simply providing payments for capacity which is already there. Existing plants can be the most cost-effective and efficient way of delivering reliable capacity. Including existing capacity in the capacity market auction drives competition and thus reduces the total cost of the scheme for consumers. The noble Lord went on to ask whether alternatives to the capacity market would be considered in the 10-year review. The answer is yes; the review will consider the case for government intervention in terms of security of supply, which scheme is best for this and what the objectives of such a scheme should be.

I think that deals with all the questions I was asked during the debate. So, with that, I commend these draft regulations to the Committee.

Motion agreed.

Human Rights Due Diligence

Lord Callanan Excerpts

Tuesday 20th July 2021 Lords Chamber

[Baroness Sheehan]

To ask Her Majesty’s Government what plans they have to make human rights due diligence mandatory for businesses, in particular those engaged in forest risk commodities.

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

My Lords, the Government expect businesses to target their human rights due diligence approaches according to the UN Guiding Principles on Business and Human Rights. We currently have no plans to make this mandatory because there is existing legislation which holds businesses to account on human rights. All UK quoted companies are required to report on relevant human rights issues in their annual reports, and large businesses must publish supply chain transparency statements on steps they take to prevent modern slavery.

[Baroness Sheehan (LD) [V]]

My Lords, I thank the Minister for his reply. The European Commission plans to publish its sustainable corporate governance proposal this autumn, and UK companies operating in the single market would fall into its scope. I hear what the Minister says about the Government having no plans, but what consideration are they giving to keeping pace with the European Commission? Does he really believe that the current law is satisfactory to enable business practices to ensure that all commodities and services are subject to human rights and environmental due diligence processes?

[Lord Callanan (Con)]

Of course, we will keep these matters under review, but we believe that mandating compliance presents some practical challenges in definition, enforcement and so on. However, we will of course keep it under review.

[The Lord Bishop of Southwark]

My Lords, I draw the Minister’s attention to the policy of the National Investing Bodies of the Church of England on extractive industries, which has an explicit commitment drawn from the UN Declaration on the Rights of Indigenous Peoples to the

“free, prior and informed consent”

of indigenous communities on major projects. Indeed, the Church Commissioners and other Church of England investment bodies engage with investment partners across a range of industries, including where forest clearance is involved. Will Her Majesty’s Government consider the principle of the free, prior and informed consent of indigenous communities as a legislative requirement for companies incorporated in the United Kingdom but operating overseas?

[Lord Callanan (Con)]

I thank the right reverend Prelate for sharing that research. The UK is committed to supporting indigenous peoples and local communities, who play a vital role in protecting forests. Our proposals in the Environment Bill will require UK companies to conduct due diligence based on the laws of producer countries, in particular those laws that relate to land use and land ownership.

[Lord Moynihan (Con)]

I declare my interests as set out in the register. Does my noble friend the Minister agree that human rights due diligence should not be mandatory for businesses given the modern slavery and supply chain requirements, the welcome shareholder demands for ESG transparency, and the widespread adherence in this country to the UN Guiding Principles on Business and Human Rights?

[Lord Callanan (Con)]

As I said in my initial Answer, I agree with my noble friend. Human rights abuses are a wide and varied issue, which is why the UK Government prefer the approach of encouraging businesses to follow the voluntary framework of the UN Guiding Principles on Business and Human Rights.

[The Earl of Sandwich (CB) [V]]

My Lords, the rainforest needs urgent protection—we all know that, as does the Minister. The Government have already made good progress with the Environment Bill, but how will they enforce compliance; for example, on companies which are not in the Retail Soy Group or which do not intend to convert to sustainable products? Does the Minister agree that any UK financial services which clearly support the production or trading of forest risk commodities would be acting illegally and should be caught by Schedule 16 to the Bill?

[Lord Callanan (Con)]

The noble Earl is perhaps getting a bit ahead of himself, as we are still considering the Environment Bill—it is not in law yet. When it is, as I hope it will be, details on the enforcement regime will be subject to further consultation and regulations will be subject to the affirmative procedure so that the House can debate them fully.

[Baroness Goudie (Lab) [V]]

Given the complexity of supply chains and the way business with indigenous populations is conducted, will the Government give an undertaking that human rights should be written into the contracts of the small companies that then sell to larger companies, as well as the need for satisfactory equal pay and the gender lens? This is a complex situation and we need to get a grip of it and have it written into contracts.

[Lord Callanan (Con)]

The noble Baroness is right; this is indeed a complicated subject with a lot of different areas for consideration. We need to be careful not to impose undue burdens, particularly on small businesses.

[Lord Oates (LD) [V]]

My Lords, I hope the Minister will agree that Governments as well as businesses have a moral duty of due diligence on human rights. Can he therefore tell the House what due diligence the Government conducted prior to chartering a flight to deport Zimbabwe nationals tomorrow to a country where human rights are consistently violated? Will the Government now halt that flight and place a moratorium on further deportations until the Zimbabwean Government can demonstrate that they respect the human rights of their citizens and the rule of law?

[Lord Callanan (Con)]

I admire the noble Lord’s ingenuity in getting a question on deportation flights into one considering forest communities. I do not have the information about that particular flight—I was not aware of it—so I will write to him.

[Baroness Sugg (Con)]

My Lords, local indigenous communities are the best custodians of the forest, yet they are often not considered, consulted or listened to. Looking ahead to COP 26, how will the Government ensure that the voices of indigenous groups are heard?

[Lord Callanan (Con)]

My noble friend makes a very good point. The UK is working closely with the International Indigenous Peoples’ Forum on Climate Change and the UNFCCC Local Communities and Indigenous Peoples Platform to champion engagement and participation by indigenous groups in COP 26.

[Lord Bassam of Brighton (Lab) [V]]

A recent G7 communiqué said that the G7 was

“concerned by the use of all forms of forced labour in global supply chains”,

and G7 Ministers have been tasked

“to identify areas for strengthened cooperation and collective efforts towards eradicating the use of all forms of forced labour in global supply chains”.

Can the Minister clearly outline how this engagement will work ahead of the G7 ministerial meeting in October, and what do the Government want to achieve through this process?

[Lord Callanan (Con)]

The UK was the first state to produce a national action plan to respond to the guiding principles. We have continued to develop our approach, particularly with the Modern Slavery Act. We are working across the UK Government on this, and involving the devolved Governments in proper enforcement of the provisions.

[Lord Sarfraz (Con)]

My Lords, Eid Mubarak to all those celebrating. While we are very efficient in detailing the human rights abuses in overseas supply chains that we source from, we do not demonstrate the same enthusiasm when we export our trash to those same countries. What about the environmental and human rights abuses that happen in the global waste trade in which we participate? Can my noble friend see how this sends mixed messages internationally?

[Lord Callanan (Con)]

Businesses involved in the export of waste are required to take all necessary steps to ensure that the waste they ship is managed in an environmentally sound manner, throughout its shipment and during its recycling. Current penalties for breaching the legislation are a two-year jail term and an unlimited fine. My noble friend will be aware that the Environment Bill will introduce even tougher controls on illegal waste exports, including powers to make it harder for criminals to obtain and export waste illegally.

[Lord McNicol of West Kilbride (Lab)]

My Lords, I am supporting a project with Rewired.Earth, which aims to deliver full and proper ESG audits, including through the supply chains. If achieved, this would provide a huge step forward in delivering environmental, social and governance oversight, going a long way to answer the Question of the noble Baroness, Lady Sheehan.

With $110 trillion of worldwide investment already being directed through ethical investing, this would be a great opportunity for the UK. Do Her Majesty’s Government support the premise of ESG audits as a way for the UK financial sector to lead the way across the globe, both in financial investing and by creating a vehicle that can help save the planet?

[Lord Callanan (Con)]

As the noble Lord will be aware, we have just finished a consultation on the audit reform proposals, which include extending audit to some non-financial matters such as climate change. Of course, we will be very happy to consider all other proposals.

[Lord Sikka (Lab) [V]]

My Lords, in an earlier reply, the Minister said that he is considering enforcement issues. Given that the UK has no central enforcer of company law or regulator of corporations, and that auditors, just mentioned by him, have absolutely no expertise in human rights, how will the Government monitor compliance with and enforcement of any proposed legislation?

[Lord Callanan (Con)]

We are considering the issue of enforcement in the audit reform consultation that I mentioned in my previous answer. We are extending the powers of the FRC, creating a new audit reform regulator in ARGA and we will be issuing our response to the audit reform consultation later in the year.

[The Lord Speaker (Lord McFall of Alcluith)]

My Lords, all supplementary questions have been asked and we now move to the third Oral Question.

Hydrogen Economy

Lord Callanan Excerpts

Monday 19th July 2021 Lords Chamber

[Baroness Ritchie of Downpatrick]

To ask Her Majesty’s Government what plans they have to create an office of the hydrogen economy in the Department for Business, Energy and Industrial Strategy.

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

My Lords, there are no plans to create an office for the hydrogen economy. We have a governance framework that supports close working across BEIS, other government departments and with external stakeholders as we develop a hydrogen policy. This includes the Hydrogen Advisory Council, chaired by my Secretary of State. The forthcoming hydrogen strategy will set out what is required to build a hydrogen economy fit for 2030, for carbon budget 6 and beyond while maximising the economic benefits.

[Baroness Ritchie of Downpatrick (Non-Afl) [V]]

My Lords, can the Minister confirm that it is the Government’s view that green hydrogen is preferred to blue hydrogen? Does he agree that there needs to be clear messaging and policy confidence and coherence in the sector, hence the need for a dedicated hydrogen office in BEIS; and will he further state when the strategy will be published?

[Lord Callanan (Con)]

I can certainly tell the noble Baroness that the strategy will be published in due course. We need to develop both blue and green hydrogen if we are to meet the ambitious targets that we have set out.

[Baroness Blackwood of North Oxford (Con)]

My Lords, in our current Science and Technology Select Committee inquiry, we have heard evidence that fuel cells are under-invested compared with battery technologies. Not only do fuel cells have the potential to play an important role in the hydrogen strategy for heating, power and heavy transport, we have a number of excellent UK fuel cell researchers and companies. Without the right level of investment at this relatively early stage, however, those technologies will not scale in time to play the necessary role in our energy mix. Will the Minister say whether this imbalance in investment is a strategic decision; and, if not, what steps he intends to redress it?

--- Later in debate ---

[Lord Callanan (Con)]

My noble friend is right to highlight that we have a number of world-leading UK companies in this field. I can tell her that the DfT is working with Innovate UK to invest up to £20 million in feasibility work for possible future hydrogen fuel cell truck demonstration as part of the zero-emission road freight trials. This will support UK industry to design and develop trials of cost-effective, zero-emission heavy goods vehicles, including hydrogen fuel technology.

[Lord Patel (CB) [V]]

My Lords, I agree with the noble Baroness, Lady Blackwood, regarding more research and innovation related to hydrogen and fuel cells. Does the Minister agree that for the UK to be competitive globally in the hydrogen economy, the challenges that need to be addressed are: regulatory uncertainty, including public safety; lack of coherent common technical standards; a skills gap in the workforce; and a lack of developed supply chains? How and when do the Government intend to address those issues?

[Lord Callanan (Con)]

The noble Lord is quite right: it will be a considerable challenge. Meeting our 2030 ambition for 5 gigawatts of low-carbon hydrogen production will indeed require rapid and significant ramp-up. The forthcoming hydrogen strategy will ensure that the necessary regulation, policies and incentive mechanisms are put in place across the 2020s to lay the foundation for the economy that he highlights.

[Lord Whitty (Lab) [V]]

My Lords, in the absence of a hydrogen office or the proposed heat and buildings strategy, and given that so-called hydrogen-ready replacement boilers are already being marketed, is it the Government’s current view that for the majority of host households currently dependent on gas for heating, some form of hydrogen-based gas heating will be the most likely longer-term future; or will other constraints on the production of green hydrogen mean that priority is given to heavy industry and transport, so that hydrogen for heating will probably be available only in the close vicinity of hydrogen-using industrial hubs?

[Lord Callanan (Con)]

The noble Lord makes some good points, but the reality is that we do not yet know what the best make-up for heating will be further into the coming decades. It will likely be a mix of fuel pumps, hydrogen heating and heat networks.

[Lord Oates (LD) [V]]

My Lords, the Minister has told us that the Government are pursuing a twin-track approach between green and blue hydrogen, but they have allocated nearly £200 million to five blue hydrogen projects and none for green, despite the fact that the Government do not anticipate blue hydrogen projects coming onstream until the mid-2020s. What immediate steps do the Government intend to take to develop our green hydrogen industry and ensure we do not squander the competitive edge we currently hold in green hydrogen technology?

[Lord Callanan (Con)]

My Lords, the reality is that we need to develop both. The UK has expertise and assets to support both electrolytic and CCUS-enabled hydrogen production, and by enabling multiple low-carbon production routes, we can drive cost-effective supply volumes through the 2020s—in line with the 2030 strategy that I mentioned earlier of 5 gigawatts of hydrogen to be produced.

[Baroness Bottomley of Nettlestone (Con)]

The Prime Minister said that in our decarbonised future, we will cook breakfast using hydrogen power before getting into our electric car—although perhaps a hydrogen fuel cell bus or train would be preferable. Can my noble friend update us on how soon the Prime Minister’s ambition may be realised of cooking breakfast using hydrogen power? What progress can he report on the first houses to be built with hydrogen boilers and hobs?

[Lord Callanan (Con)]

My noble friend asks her question at an excellent time, because I visited a demonstration hydrogen home last Thursday and, despite some scepticism from the Opposition Benches, I was able to cook an egg using a hydrogen hob, and I confirm that the person who ate it has so far survived satisfactorily.

[Lord Grantchester (Lab) [V]]

Can the Minister confirm whether the promised hydrogen strategy will include support for the steel sector to enable a long-term shared vision to develop between industry and government on the pathway to net zero?

[Lord Callanan (Con)]

The noble Lord makes a good point, in that low-carbon steel production will be one of the areas that we will need to look at. Hydrogen is one of the fuels that could offer us an option in that area, alongside others. All of those matters will be addressed in the hydrogen strategy.

[Lord Birt (CB) [V]]

It is clear that hydrogen is a possible option for decarbonising maritime travel, heavy vehicles and the heating of buildings, but the likely cost of clean hydrogen as a fuel and the scale of investment needed to convert national gas infrastructure and home and building heating systems for hydrogen is not at all clear. Will the Government consider publishing an early assessment on the feasibility and cost of the hydrogen option, to ensure that the lobbying does not run ahead of the reality?

[Lord Callanan (Con)]

I can understand the noble Lord’s scepticism, and he is right: we need to take a hard-headed, practical, cost-effective look at hydrogen production. The costs of producing it are, of course, highly uncertain. They will depend on a variety of factors, which will evolve over time as it is deployed, but in the forthcoming strategy, we will indeed take a detailed look at the cost of producing hydrogen at the moment.

[Lord Hannan of Kingsclere (Con)]

My Lords, I refer to my declaration in the register, specifically as an adviser to JCB. Batteries have their place, but they also have their limits. They cannot power planes, trains, ships or HGVs, and 73% of them are produced by China, which controls the rare earths. We have huge advantages as the leading country in hydrogen technology. Will my noble friend commit to an expeditious publication of a national hydrogen strategy to ensure that we retain our global dominance?

[Lord Callanan (Con)]

My noble friend makes extremely good points. We have a number of world-leading companies in these fields. Indeed, I was able to visit JCB a few weeks ago, and drive a hydrogen digger—also without apparent accident, which is quite amazing. A number of other companies are also developing excellent, innovative products in this field. We have some world-leading companies but, as I said in a previous answer, our hydrogen strategy will indeed be published in due course.

[Baroness Sheehan (LD)]

My Lords, the energy White Paper pledges to establish the UK as a world leader in the deployment of carbon capture and storage and clean hydrogen. This clean hydrogen is, in fact, blue hydrogen, which is a by-product of the fossil fuel industry. Does the Minister believe that CCS, the process that is supposed to render blue hydrogen clean, is proven at scale and, if so, can he name just one example?

[Lord Callanan (Con)]

There are a number of demonstration projects around the world on CCS, but we need to demonstrate it at scale and, as the noble Baroness will be aware, we will shortly be announcing our first CCUS clusters in the UK.

[Lord Ravensdale (CB)]

My Lords, I declare my interests, as in the register. Many industry responses to the recent consultation on the renewable transport fuels obligation suggested that green fuels, such as hydrogen, produced using nuclear energy should be eligible for this scheme to help the UK meet its targets. Can the Minister confirm what further engagements the Government will hold with industry to make a decision on the role of nuclear energy in the RTFO, and when they will make a final decision?

[Lord Callanan (Con)]

We believe that nuclear will have a role in low-carbon hydrogen production in future. The details of the hydrogen business model will be set out in the forthcoming strategy. At this stage, our aim is to remain technology-neutral. As the noble Lord indicated, under the existing RTFO, the hydrogen must be produced from renewable energy to be eligible. Changing that would require primary legislation.

[The Lord Speaker (Lord McFall of Alcluith)]

My Lords, all supplementary questions have been asked. We now come to the fourth Oral Question.

Market Surveillance (Northern Ireland) Regulations 2021

Lord Callanan Excerpts

Wednesday 14th July 2021 Lords Chamber

Moved by

[Lord Callanan]

That the draft Regulations laid before the House on 10 June be approved.

Relevant document: 6th Report from the Secondary Legislation Scrutiny Committee. Considered in Grand Committee on 8 July.

Motion agreed.

Steel Sector

Lord Callanan Excerpts

Monday 12th July 2021 Lords Chamber

[Lord Allen of Kensington]

To ask Her Majesty’s Government what is their industrial strategy for the steel sector.

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

My Lords, the noble Lord will know that we recognise the importance of the steel sector to the UK economy and in supporting other domestic industries and local communities. Our broad action, led by the steel council, to create a competitive, sustainable and low-carbon future for the sector supports our plan for growth, which succeeded the industrial strategy published more than four years ago.

[Lord Allen of Kensington (Lab) [V]]

I thank the Minister for that reply. I welcome the Government overturning the decision of the Trade Remedies Authority on the removal of safeguard tariffs. I fear that, if they had not done this, the consequences for the industry would have been severe. Another severe problem for our steel sector is that the energy costs applied to steel production in the UK are far higher than those of our foreign competitors. Will the Government look urgently at what we can do to reduce this competitive imbalance?

[Lord Callanan (Con)]

The noble Lord makes a very good point about the high energy costs. We have provided more than £550 million in relief to the steel sector since 2013 to make electricity costs more competitive. Of course, we continue to keep the matter under review and to have discussions with the sector.

[Viscount Hanworth (Lab)]

If Britain is to have an industrial future, it needs a domestic steel industry. It needs a low-carbon industry to replace one that is a large emitter of carbon dioxide—as are the foreign industries from which we have been importing increasing quantities of steel. To create a low-carbon industry which employs electric arc furnaces and uses hydrogen as a reducing agent requires considerable investment. It also requires protection from foreign competition by a stringent carbon tax. Are the Government prepared to overcome their usual reluctance by providing funds for this investment? Are they prepared to impose such a carbon tax on imported steel?

[Lord Callanan (Con)]

We have supported the steel sector extensively over the years and I outlined some of the money that we have spent. The noble Viscount will know that decisions on taxes are of course a matter for the Chancellor. I am sure that if there are any actions, he will hear of them directly from the Chancellor.

[Baroness Redfern (Con) [V]]

My Lords, among the Government’s aims to level up and on the net-zero agenda for the British economy, there is a true agenda for steel. The Government have also expressed a desire to improve public procurement of steel. Will there be further proposals so that the tendering process for steelworks contractors includes requirements to provide supply chain plans, advertise steel supply opportunities, report on the origin of steel ultimately used and, finally, justify why they have not used UK-made steel?

[Lord Callanan (Con)]

We are working hard to make sure that UK producers of steel have the best possible chances of competing for and winning contracts across all government procurement efforts. The joint industry-BEIS Steel Procurement Taskforce, launched on 12 March, shows our willingness to support the sector and aims to work with it to promote the unique selling points of UK steel.

[Lord Grantchester (Lab) [V]]

The Government’s recent U-turn to bring forward emergency legislation to extend steel safeguard tariffs is good news, but this goes back to 2017, when the House first debated the Trade Bill. It is a mess of the Government’s own making. Can the Minister explain how the Trade Remedies Authority will be urgently reformed to prevent more anguish and uncertainty for the steel sector as well as for other businesses and industries?

[Lord Callanan (Con)]

I am pleased that the noble Lord welcomed the decision that was taken with regard to the recommendations of the Trade Remedies Authority. Of course, we keep all these matters under constant review but, as I said, we will continue to work with the sector to see what new opportunities there are and how we can help it in future.

[Lord Oates (LD)]

Can the Minister tell the House what plans the Government have to exploit the UK’s lead in the manufacture of the electrolysers used for green hydrogen production—manufacturing which is based in the great steel city of Sheffield—in order to make the UK the global hub for green steel production?

[Lord Callanan (Con)]

The noble Lord is quite right that hydrogen-based steel making is one of the many technological approaches we are looking at for the sector’s future. We announced the £250 million clean steel fund to support the UK steel sector to transition to low-carbon production, and we plan to establish the net-zero hydrogen fund with £240 million of capital co-investment to 2024.

[Lord Udny-Lister (Con)]

My Lords, the steel industry is badly undercapitalised and needs investment, both in labour and capital, so that it can modernise. This has already been asked but, first, will my noble friend agree to look again at energy costs? Even with the government subsidy, they are still way above those of our European—and certainly Far Eastern—competitors. Secondly, will he look seriously at putting a tax on scrap metal, which would ensure that it stayed in this country and was used in the newer electric arc furnaces, thereby making them viable?

[Lord Callanan (Con)]

My noble friend is right to point to the problems for the sector. I mentioned in an earlier answer that we have provided more than £550 million in relief to the steel sector for its electricity costs but, of course, we keep these matters under constant review. We are aware of the problems that high electricity prices cause for the sector. On his question on scrap, we want to ensure that the metals recycling market continues to work effectively for all stakeholders, whether that is for metals recycled by steel producers or the cast metal sector.

[Baroness Wheatcroft (CB)]

My Lords, the UK steel industry has shrunk drastically over the last quarter of a century. In 2019, we produced just 7 million tonnes, which put us eighth in the league of EU producers. Does the Minister have in mind a figure for what the UK steel industry should be able to produce in order to fulfil the plan for growth? Will he also say whether in providing subsidies for automobile manufacturers in the UK, there is a stipulation that they should buy their steel in the UK?

[Lord Callanan (Con)]

I understand the points that the noble Baroness makes. My noble friend Lord Grimstone is looking forward to considering the outputs of the procurement task force. However, we should recognise the importance of continuing to treat suppliers equally and fairly through open competition. Keeping our procurement market open to international competition ensures better value for taxpayers and for UK industry.

[Lord Bradshaw (LD) [V]]

Can the Minister tell the House what proportion of the steel being used now in HS2 construction is British steel, and whether any effort is being made to ensure that more British steel is used there?

[Lord Callanan (Con)]

For HS2, our 2021 steel procurement pipeline estimates that 1.95 million metric tonnes of steel are required in phases 1 and 2. So far, all reported structural steel used has been UK-produced.

[Baroness Jones of Moulsecoomb (GP)]

In view of the climate emergency that we are all facing, the Swedish Government have pushed forward on their aims to be fossil fuel-free by 2024, using the hydrogen technology that somebody has just mentioned. How many years behind are the British Government?

[Lord Callanan (Con)]

I know that the noble Baroness feels passionately about these matters, and we share her enthusiasm for decarbonising the industrial sectors as quickly as possible. She will know that decarbonising UK industry is a core part of the Government’s plan for a green industrial revolution, which I am sure she will support. The industrial decarbonisation strategy commits the Government to work with the steel council on the implications of the Climate Change Committee’s recommendation for UK-based steel makers to be carbon neutral by 2035.

[Lord Razzall (LD)]

My Lords, the Minister will obviously be aware of the significant role of GFG in our steel industry. Have the Government permanently ruled out the provision of finance to GFG and its plants? If this is only temporary, are the Government investigating GFG and, if so, which departments are doing so and is the Minister confident that a conclusion will be reached shortly?

[Lord Callanan (Con)]

Ultimately, it is of course for the company to manage its commercial decisions for the future and to find a successful buyer, but we hope this company succeeds with its plans to refinance. With regard to investigations, the noble Lord will know that I cannot comment.

[Lord McConnell of Glenscorrodale (Lab)]

My Lords, I declare my membership of the Community trade union, which represents steel-workers, and my former role as Member of the Scottish Parliament for Motherwell and Wishaw—a proud steel-making constituency, where the number of jobs today is a fraction of what it was in the past but where real quality steel is still made at the Dalzell works. Therefore, I ask the Minister to confirm today, on behalf of the Government, that they will work closely with the Scottish Government, who have a role in both procurement and decarbonisation. We need all levels of government in the UK to work together to ensure a strong future for the UK steel industry, in Scotland as well as the rest of the UK.

[Lord Callanan (Con)]

I can certainly give the noble Lord the assurances that he is looking for: we will work with all partners, domestic and international, in order to ensure that the UK steel sector has a viable future. Of course, we all know the challenges that it faces, but we are committed to doing what we can to help it. I mentioned the steel council, which was reformed, with government, the industry and the trade unions working together to produce a viable future for the industry. It has met twice already and will meet again further this month, chaired by my right honourable friend the Secretary of State.

[The Lord Speaker (Lord McFall of Alcluith)]

My Lords, all supplementary questions have now been asked, and we now come to the fourth Oral Question.

Market Surveillance (Northern Ireland) Regulations 2021

Lord Callanan Excerpts

Thursday 8th July 2021 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Market Surveillance (Northern Ireland) Regulations 2021.

Relevant document: 6th Report from the Secondary Legislation Scrutiny Committee

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

My Lords, I beg to move that these regulations, which were laid before the House on 10 June 2021, be approved.

The Regulation on Accreditation and Market Surveillance, 765/2008, known as RAMS, is the current market surveillance legislation for the UK and is included under the Northern Ireland protocol. It is worth noting that RAMS continues to apply in Great Britain, as it now forms part of our domestic law. The EU Market Surveillance and Compliance of Products Regulation, EU 2019/1020, which I will refer to as MSC, will replace RAMS and therefore, under the protocol obligation, MSC will apply in Northern Ireland. However, the enforcement system for both regulations will be similar, with both based on risk and proportionality.

The SI we are here to debate sets out to implement a uniform set of regulatory powers to avoid gaps and inconsistencies when the RAMS provisions are repealed in Northern Ireland on 16 July. These powers will be available to market surveillance authorities that operate within Northern Ireland. It results in some minor operational changes and a number of new traceability requirements for businesses placing products on the Northern Ireland market. The SI will ensure that consumers in Northern Ireland continue to be protected from potentially unsafe and non-compliant products, whether that is gas appliances, radio equipment, lifts or PPE, via the UK’s robust product safety framework.

Within the UK, market surveillance authorities have the vital role of ensuring that products are safe and compliant. They can also take action as needed when unsafe and non-compliant products are discovered. This reduces the risk to consumers. Noble Lords will agree that the protection of UK consumers is a vital role for government. This SI applies to Northern Ireland. It will provide market surveillance authorities with the necessary regulatory powers to carry out this invaluable work. It will also provide effective, appropriate and proportionate sanctions for breaches of the regulations. Market surveillance authorities will continue to monitor and, where appropriate, enforce in Northern Ireland all the requirements of product safety law outlined in this SI. I will now consider areas covered by the SI in more detail.

A key objective of the SI is to provide a consistent set of regulatory powers to market surveillance authorities with respect to Northern Ireland. Although most of these powers already exist across the current suite of product legislation, they are not consistent. This is not in the interests of the consumer, so we need to take action. Therefore, we will introduce a uniform set of regulatory powers. These will consolidate the powers already available to market surveillance authorities. The SI will make these powers expressly available in respect of a range of products to the extent they are needed. We have set out powers in this SI which are drawn from existing goods legislation such as the Health and Safety at Work (Northern Ireland) Order, the Consumer Rights Act and the Consumer Protection Act. Market surveillance authorities will therefore have consistent access to the regulatory tools they are familiar with in other goods legislation. These tools include compliance, recall and withdrawal notices.

Turning now to offences, the inclusion of criminal offences within this legislation is again consistent with the existing UK-wide sanctions regime for products, and therefore illustrates that market surveillance sanctions are not new. I confirm that the penalties for such offences within this SI are at the lower end of the range of penalties within the existing regime, and that this SI ensures that offences remain available to market surveillance authorities. It contains offences in respect of withdrawal and recall notices, offences relating to obstructing an investigation and offences for breaches of MSC. The offences under this statutory instrument will give rise to a maximum fine of up to level 5, which is currently £5,000, or up to level 3, which is currently £1,000, on the standard scale, depending on the offence. These will not have provision for imprisonment and will be heard in a magistrates’ court. The offences are expected to be prosecuted only in rare circumstances and when necessary, primarily to protect consumers from unsafe products and to address deliberate or persistent non-compliance.

There is a new requirement in MSC: Article 4, which requires a business supplying certain goods to have a responsible person based in the EU or Northern Ireland. This can be a manufacturer, importer, authorised representative or a fulfilment service, and they must undertake certain compliance responsibilities to be able to place certain goods on the EU or Northern Ireland market. The requirement in Article 4 is directly applicable, and this SI provides for enforcement mechanisms for a breach of that requirement. Many businesses supplying customers in Northern Ireland or the EU already have the necessary arrangements in place.

On 11 June, my department published Article 4 guidance for businesses and market surveillance authorities, answering many of the questions that businesses may have. We have actively engaged with a wide range of organisations to ensure that businesses engage with the guidance. We have a comprehensive plan to work further with trade associations and businesses to ensure that they understand the requirements and support available. My officials will continue assisting business organisations to ensure that MSC does not place a disproportionate burden on trade into Northern Ireland for businesses that do not already have a person responsible for compliance, while ensuring that the product safety framework itself remains robust and effective. Additionally, my department is offering MSC-specific training to all market surveillance authorities to support consistent understanding of its application across the regulatory landscape.

This SI is required under the withdrawal agreement, which is given effect in domestic law by the European Union (Withdrawal) Act 2018 and the subsequent protocol. MSC itself is directly applicable, as an EU regulation, meaning that no action is needed on the part of EU member states, and as such, it applies in Northern Ireland under the protocol. It is important to emphasise that while MSC requires businesses in some product sectors to have a person responsible for compliance, established in the EU or Northern Ireland, it does not create new burdens on the movement of goods from Great Britain to Northern Ireland.

As set out following the last withdrawal agreement Joint Committee in June 2021, the UK has taken extensive steps already to operate the protocol, both by the UK Government and the Northern Ireland Executive, and by businesses across the United Kingdom. This reflects that we will continue to operate the protocol in a pragmatic and proportionate way, focused at all times on minimising its impact on day-to-day lives in Northern Ireland. I must emphasise that the MSC regulation and our implementation of it will not create checks on goods from Great Britain.

In summary, this SI ensures that Northern Ireland consumers remain protected from potentially unsafe and non-compliant products and will implement the legislative requirement of the protocol, which will bring a new aspect to market surveillance and ensure that there are no regulatory gaps within the area of product safety. This will result in the maintenance across the UK of a cohesive and effective regulatory regime for manufactured products which will protect all UK consumers, including those in Northern Ireland. The Government will of course ensure that they monitor the implementation of the new regulation and that they continue to work with businesses and market surveillance authorities to help them adapt, providing the necessary guidance and support where needed.

I therefore commend this statutory instrument to the House.

--- Later in debate ---

[Lord Callanan (Con)]

I thank both noble Lords for their valuable contributions to this short debate. For reasons that I will summarise, it is vital for the product safety regime that this SI comes into force in Northern Ireland on 16 July 2021.

First, the SI will provide continued robust protection for consumers. It will ensure that safe and compliant products can be placed on the market in Northern Ireland as part of a cohesive and modern product safety framework across the whole United Kingdom. The SI builds on the powers set out in the existing product safety regime in a way that regulators and businesses will be familiar with.

To achieve this, the SI provides a uniform set of powers for regulators, designed to fit with the existing products legislation across the United Kingdom. This includes powers in respect of criminal offences that can be used by market surveillance authorities on the occasions where they are required, which we expect to be rare. The Regulators’ Code will continue to apply across the United Kingdom. It provides powers that can be relied on if needed by all market surveillance authorities, irrespective of product. It also protects consumers from potentially unsafe products sold online by setting out a mechanism that market surveillance authorities can use to request co-operation from an online service provider. Without this SI, there would be gaps in the enforcement of product safety within Northern Ireland when the existing market surveillance chapter of the prior regulation is repealed. The powers in RAMS would otherwise fall away, risking disruption and confusion for businesses and enforcement authorities.

The Government have been engaging closely with businesses and regulators on the introduction of these new market surveillance regulations; we have published guidance for both and will continue to provide support to them in the coming months.

In response to the questions raised by the noble Lord, Lord Stevenson, there are a range of administrative and civil sanctions—for example, compliance, recall and withdrawal notices—available in MSC which can be used by market surveillance authorities. These enforcement tools are backed by criminal offences, which are in line with other legislation in the goods sphere. While civil penalties such as fines are not included, the Government are reviewing the product safety framework for the whole United Kingdom to ensure that it is fit for purpose, protects consumers and supports businesses to innovate and grow.

The call for evidence has concluded, closing on 17 June, and a government response on its findings will be published in due course. In terms of any changes that might be seen in activities on the ground, neither MSC nor our implementation of it will increase checks on goods. In Northern Ireland, as in Great Britain, market surveillance checks will follow an intelligence-led and risk-based approach.

The noble Lord also asked why there is no enforcement provision or penalty for online services. While services are not included in the protocol, the primary aim of these provisions is not to create an enforcement power to regulate online service providers; instead, it creates a power for the MSA to request co-operation from an online service provider to assist it in mitigating the risks presented by unsafe products, in order to protect consumers in Northern Ireland.

The noble Lord, Lord Bassam, raised concerns about how the implementation of the regulation will impact on British businesses, particularly those that sell online. As I pointed out to the noble Lord, Lord Stevenson, GB businesses will need economic operators, for compliance, to sell within Northern Ireland and the EU single market. My department will continue with a targeted, sector-specific engagement approach up to and beyond the date the regulation comes into force, 16 July, so that they are aware that the legal obligations remain unchanged in terms of the controls and targeted, risk-based approach to goods entering the market.

Consumers in Northern Ireland who are concerned that a product is unsafe or believe it may not comply with UK regulations can contact their district council environmental health service trading standards, which is responsible for enforcement of product safety legislation in Northern Ireland, or they can contact Consumerline. The relevant enforcement body will then decide whether an investigation should take place and what action should be taken regarding instances of compliance. Unsafe products, by presenting a serious risk, are notified to the product safety database. Unsafe product reports are publicly available to consumers.

In response to the noble Lord’s concerns about whether our approach is proportionate, risk-based and intelligence-led, enforcement of this regulation has been agreed with the EU. Market surveillance activity under the MSC regulation is risk-based and targeted. This is set out in legislation. We explained our approach to the EU last year; we have always been open with the EU that we have never envisaged many checks taking place at points of entry.

As I noted in my opening speech, my officials will of course continue to assist business organisations to ensure that MSC does not place a disproportionate burden on trade in Northern Ireland. We will continue to update the guidance. I hope I have dealt with the queries raised by both noble Lords. I therefore commend these draft regulations to the Committee.

Motion agreed.