Space Policy

Lord Henley Excerpts

Wednesday 18th July 2018 Lords Chamber

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

My Lords, with the leave of the House, I shall repeat a Statement made in another place by my honourable friend the Minister of State for Universities, Science, Research and Innovation. The Statement is as follows:

“With permission, Mr Speaker, I will make a Statement today on a key development in United Kingdom space policy. As a result of announcements made this week the UK will for the first time ever be able to launch satellites from its own soil. This is a development the whole House should welcome and celebrate.

The space sector is changing globally and at a pace never seen since the race to the moon. It is allowing us to answer questions about ourselves and the universe that curious minds have debated for centuries, but it has also seen the development of technologies that are transforming our day-to-day life on earth. For example, the technology that was developed to provide clean air on the international space station is now being used to control the spread of superbugs in hospitals across the world.

The UK is well placed to be at the forefront of developments in space, and this Government are determined that we take advantage of the vast opportunity available to us as a country. That is why today I met the new NASA administrator, Jim Bridenstine, to discuss UK-US collaboration. We all know that NASA is the biggest space agency in the world, with budgets in excess of $10 billion per year. We discussed how to extend and deepen the opportunities for our two countries to collaborate, especially around the hugely ambitious vision for exploration set out by President Trump.

It has been nearly 50 years since man landed on the moon, and since then we have been no further. Questions remain as to whether or not we are alone in the universe. The UK has been at the forefront of robotic exploration to address this question. Indeed, our space industry built the Mars rover, which will launch in 2020, and I am very excited that later this week I will be able to announce a competition related to this mission.

We want to continue to be at the forefront of the next human exploration missions, working alongside NASA and the European Space Agency. But space is also a fundamental part of our economic future. The UK space sector is growing: it is worth around £13 billion to the economy at current estimates and employs more than 38,000 people right across the country. As set out in the Government’s industrial strategy, we are working with industry to grow the UK’s share of the global space market from 6.5% to 10% by 2030. The sector has grown at an average of over 8% every year over the last decade and three times faster than the average sector over the last five years.

Space is a growth sector not only in its own right but also as part of our critical national infrastructure, underpinning all other key industrial sectors such as agritech, automotive, aerospace, maritime and energy. Our space sector is one of the most innovative in the world. It is a world leader in small satellite technology, telecommunications, robotics and earth observation. For example, we build 25% of the world’s telecommunication satellites, and our universities are some of the best in the world for space science.

This week the UK has seized an opportunity to capture a share of the emerging global market for small satellite launch. The Government are working to create the capability and conditions for commercial spaceflight to thrive in the UK. The Government’s industrial strategy includes support for a £50 million programme to kick-start small satellite launch and suborbital flight from UK spaceports. Funding will be used to support the first launches from the UK and deliver a programme of work to realise benefits across the country.

We have made announcements this week which underpin our commitment to the sector. A £2.5 million grant has been announced for a vertical spaceport site in Sutherland, on the north coast of Scotland. That the first-ever satellite launch from the UK could be from Scottish soil highlights our commitment to the union. With the support of £29 million of industrial strategy funding, Lockheed Martin and Orbex will be the first companies to set up operations in Sutherland delivering capable, commercial and globally competitive small satellite launch services. Not only does the UK have the technical skills and capability but we also have the geography. We are seeing the biggest growth in the sector in small satellites, which are typically launched into polar orbits. This makes the position of the UK a very favourable launch site.

It is not just about vertical launch capability. The Secretary of State for Business, Energy and Industrial Strategy also announced a £2 million fund to help horizontal spaceports to progress their plans from our £50 million industrial strategy-funded UK spaceflight programme. Separately, Newquay airport, Cornwall and Virgin Orbit have signed a memorandum of understanding this week, which is an important and positive milestone towards establishing a leading horizontal commercial launch provider at a UK spaceport.

We cannot underestimate the scale of the opportunity here, from entering new markets such as space tourism, to transforming our intercontinental travel. The Government are not only providing support through funding but putting in place the right regulatory framework to enable commercial success. I am pleased that the Government are not alone in recognising this opportunity. Up and down the country, ambitious local authorities and private investors are coming together to help build our space capability. The rapid growth at the Goonhilly site in Cornwall is further evidence of the excitement in the sector.

As technology evolves and reduces the cost of access to space, there is an exciting opportunity for the UK to thrive in the commercial space age. A sector deal for space aims to build on our global leadership in satellites and applications using space data to create a hub in the UK for new commercial space services. Following the sector’s publication of its prosperity from space proposal in May, we intend to work with the sector to explore how a sector deal can drive forward the Government’s industrial strategy. We are also developing world-class facilities, including the National Space Propulsion Facility in Westcott and the National Satellite Test Facility in Harwell, as well as business incubators in more than 20 locations to support British start-ups hoping to grow into successful space companies.

The whole of government recognises the strategic importance of space and the immense economic opportunities it can bring. In a week where the focus of this House has been on the process of withdrawal from the EU, it is important to recognise that space is an area where we are leading new international partnerships. This is nowhere better evidenced than in our international partnerships programme delivering tele-education and telemedicine, which provides the backbone of future economic growth. One programme alone reached 17,000 students in Kenya, with a 95% improvement in learning outcomes. This Government are determined that UK companies are at the forefront of this space revolution and that our economy and the people of this country all benefit. I commend this Statement to the House”.

My Lords, that concludes the Statement.

--- Later in debate ---

[Baroness Randerson (LD)]

My Lords, these announcements are good news for Sutherland and Cornwall—if we have in future a space industry to use them. I am a member of the EU Sub-Committee on the Internal Market. We recently visited Harwell, which is mentioned in this Statement. The scientists working in the industry there are very concerned, rather than very excited, because they are already being squeezed out of aspects of the Galileo programme. They reported that companies and highly skilled individuals in the industry are already moving abroad and companies are planning to move abroad in the future.

There is something very Alice in Wonderland about this Statement, in that it avoids mentioning the Galileo programme. Also, of course, it avoids mentioning Horizon. There is also something rather Alice in Wonderland about the naive enthusiasm for President Trump’s promises for trade, because they have already proved a rather uncertain basis on which to predict the future. My first question to the Minister is: have the Government now received assurances from the EU that we will be able to continue in Galileo? By that—this is a key point—I mean: will we be able to be awarded contracts under the Galileo programme as well as to undertake research as part of the scheme? The scheme involves paying in and getting out as part of the research programme. As I understand it, the problem that has been raised in relation to Galileo would have an impact on our right to receive commercial contracts.

Secondly, the amounts of money in the Statement are welcome—of course they are—but this is a very expensive industry. As the noble Lord has just said, the Government have promised relatively small amounts of money here in comparison with the overall figures previously mentioned in terms of investment in the industry. So I should like to press the Minister for more detail about planned future government investment in the industry. How does that £2 billion pan out over the next few years?

Lastly, I live in Wales, and I should have liked to see Wales included in this. North Wales offered a potential site for a spaceport. That was supported by the Welsh Government and could have been a very useful partnership. Once again, the people of Wales are in a position where we have put forward a plan for large-scale investment but it has been rejected. First, it was electrification across south Wales, then it was the tidal lagoon in Swansea and now it is the spaceport. A pattern is developing here, and it is a very depressing one if you come from Wales. Why was Wales not awarded this? Was it considered as a serious contender and, if not, why was that information not given out earlier so that expectations in Wales were not raised?

[Lord Henley]

My Lords, I thank the noble Lord, Lord Stevenson, for his generally positive response to the Statement. I hope I can answer most of his points, but I hope he will understand if I offer to write to him in greater detail on further points. I have to say that this is not exactly my specialist subject or one with which I am totally familiar, but I will do the best I can.

Starting with the Space Industry Act 2018, work is ongoing on the secondary legislation that comes out of that. We hope to be in a position to consult in 2019 and get it in force by 2020, so work is taking place.

On the sector deal, obviously there was a little about that in the Statement itself. I hope we can continue to work with the industry on developing it. As the noble Lord knows, sector deals should be a matter for the industry and others and the Government to work together on to see how they can co-operate in doing things. As I made clear in the Statement, we have already had the Prosperity from Space proposal from the sector; we want to build on that and on the areas where we have leadership. As I mentioned in the Statement, we are already pretty good at small satellites. I recently gave the example of a small satellite factory that I visited belonging to an American company, which decided that the place where it wanted to build its small satellites was Glasgow because that area had the right people, the right expertise and all the other things. It is a testament to Scotland and Glasgow that that is why the company wanted to go there. A sector deal should look at our strengths and what we can do.

The noble Lord also asked about the site of the spaceport. In answering him, I hope I can address the concerns of the noble Baroness, Lady Randerson. There was interest from a number of areas for vertical sites, just as there was for horizontal sites, and obviously a number of areas will be disappointed because we picked the site in Sutherland. As the noble Lord implied, equatorial sites further south are used for the very heavy lift that is needed for geostationary sites, but the growth in this area seems to be in small satellites. Small satellites at lower orbits typically require polar orbits and I understand that the further north you go the better it is, but scientists will no doubt be able to explain that in terms that the noble Lord will find easier to understand than my brief explanation. As he knows, Sutherland is further north than Wales, and that is one reason why we took that view.

The noble Baroness, Lady Randerson, addressed the issue of Galileo. That has come up in this House on several occasions, and I can only repeat how disappointed we are by the attitude of the European Commission, whose policy on this can only be described—I think by a Member of this House—as “shooting itself in the foot”. It is losing UK money and expertise in an area where we are doing very well indeed; attempting to exclude us from that is a mistake. We have made it clear that we still wish to be part of it. We wish to continue to engage on that basis but unfortunately the Commission’s proposals do not appear to meet our objectives. We have set out our red lines for participation in Galileo; they include full industrial access to all other parts of the programme.

If we are excluded, it is open to the United Kingdom to develop options for a domestic alternative to Galileo. We have a new satellite launch programme to bring launch capabilities into the UK and we have announced the first grants from this programme. The noble Baroness, in what I have to say was not the most positive of responses to the Statement, also queried whether sufficient money was being put into this area. I make it clear to the noble Baroness that there is some £50 million for the spaceflight programme, another £100 million or so invested in the satellite testing facility at Harwell, and £300 million a year through the European Space Agency. There is also the sector deal, which we will be announcing in due course; I hope there will be more positive news in that.

As I said, I shall write if there are other points I need to pick up on in response to the noble Lord and the noble Baroness, but I hope I have answered most of their questions.

[Lord Birt (CB)]

My Lords, I declare an interest as vice-chairman of Eutelsat, which owns satellites rather than launchers. As the Minister says, there is a great deal of capability in the UK in satellite manufacture. There will also be huge growth in small satellites. However, it is not at all clear that those satellites will be launched on small launchers. The economics are very unlikely to allow it; they are more likely to be launched on large launchers, which will be much cheaper. Increasingly, small satellites can be positioned in the sky through electrical propulsion so it is not clear to me why it makes sense for the UK to invest in small launchers. Will the Government publish their business case for the spaceport?

[Lord Henley]

I shall look into what it is possible for me to release to the noble Lord in response to his question on publishing the business case. I certainly feel that we would want to be as open as possible about why we chose the site in the north of Scotland and what we consider its advantages to be. I will write to him in due course.

[Lord Winston (Lab)]

In the Statement, Britain’s universities were praised for being at the top of the tree, but there is a significant problem here. I focused at Question Time on the paucity of qualified science teachers in primary schools. This runs right through our system; if we are to be competitive in the space industry, we need better physics, better mathematics in particular and, of course, as much engineering as possible. There are quite insignificant numbers of A-level physics teachers; far more are needed. As the Institute of Physics and the Royal Academy of Engineers point out, far more of these posts remain empty. What can the Government do to ensure we have more teaching, particularly of physics and mathematics, at A-level?

[Lord Henley]

My Lords, I am grateful to the noble Lord for his intervention; I am sure the Government as a whole are grateful for the intervention he made earlier at Question Time. I was in the Chamber to hear it; if I remember correctly, I now know, as I did not at the time—and the noble Lord, Lord Campbell-Savours, is with me on this—that nitrogen is the commonest gas. But the noble Lord, Lord Winston, makes a more important point. We have a very strong university sector. We have enormous strengths in science in the university sector and we want to make sure we maintain them. It would not be right for me, in responding to this Statement, to go through all the Government wish to do to improve the teaching of science in our schools. However, I shall certainly make the comments of the noble Lord available to my colleagues in the Department for Education.

[Lord Campbell of Pittenweem (LD)]

My Lords, I hope I will not surprise the Minister too much if I say that I share his disappointment at the attitude being taken by the Commission towards the Galileo project. It is, to put it mildly, short-sighted, but it does lead me to a rather broader question: what military intelligence and security implications arise out of the Statement he has just repeated?

[Lord Henley]

My Lords, I think that I would prefer to write to the noble Lord on that issue.

[Lord Hope of Craighead (CB)]

My Lords, there is a great deal in this Statement to be welcomed, but there are two practical issues that I wonder whether the Minister can say something about. First, who owns the land on which the proposed site in Sutherland is to be developed? Is the land already in the ownership of the consortium which is proposing to develop the site, or will it have to be acquired from another owner, either voluntarily or compulsorily?

The other question relates to the environmental consequences of what is being proposed. Is it accepted that there will have to be a full environmental impact study? I mention this because it is all very well to think of remote areas as having nothing much in them, but in fact, they often contain very sensitive birdlife, flowers and so on, and great care needs to be taken to see that the construction carried out is compatible with the nature of the environment.

[Lord Henley]

I am afraid that I cannot help the noble and learned Lord as to the ownership of that land. On the second issue, he is right to point to the environmental impact of such a Statement. I am not fully au fait with the planning processes in Scotland—which local authority deals with which issue, and what the involvement of the Scottish Government is—but obviously, this will have to go through a full planning process and in that process, an environmental impact statement will have to be produced to ensure that we know what the effect is going to be. Coming back to England, we only have to look at what happened recently on Saddleworth Moor to know that when one is dealing with highly inflammable objects in remote areas, such things obviously have to be taken into account.

[Lord Craig of Radley (CB)]

My Lords, I very much welcome the Statement, which is forward-looking and much more proactive than is sometimes the case in this field. Will this site be used entirely for civilian activity or will there be room for Ministry of Defence activity as well, if its northerly latitude does not prevent the launching of MoD-type satellites, which normally go up from nearer the equator?

[Lord Henley]

I think that would have to be a question for the Ministry of Defence and the operators of the site, in terms of whatever satellites the MoD wanted to put up, the needs of those satellites and whether it wanted to do it from a civilian base or from elsewhere. That would be more properly addressed once it knows what satellites it hopes to launch.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Henley Excerpts

Wednesday 18th July 2018 Lords Chamber

Moved by

[Lord Henley]

That this House do not insist on its Amendment 1 and do agree with the Commons in their Amendment 1A in lieu.

1A: After Clause 8, insert the following new Clause—
“Protection for domestic customers after termination of tariff cap conditions
(1) Before the tariff cap conditions have ceased to have effect as provided by section 8, and afterwards at such intervals as the Authority considers appropriate, the Authority must carry out a review into—
(a) the pricing practices of holders of supply licences for the supply of gas and electricity under domestic supply contracts, and
(b) whether there are categories of domestic customers paying, or who may in the future pay, standard variable and default rates for whom protection against excessive charges should be provided.
(2) Such a review must, among other things, consider—
(a) whether there are domestic customers who the Authority considers will suffer an excessive tariff differential where on the termination of fixed rates the customers move to standard variable or default rates, and
(b) whether customers who appear to the Authority to be vulnerable by reason of their financial or other circumstances are in need of protection.
(3) If the review concludes that protection should be provided, the Authority must take such steps as it considers appropriate by the exercise of its functions under the Gas Act 1986 and the Electricity Act 1989.

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

My Lords, I spoke against Amendment 1 on Report, so I will not repeat my detailed arguments. However, I remind the House that the amendment would insert provisions for an indefinite relative price cap. The Government cannot accept a permanent price control being put in place. Members in another place have returned the Bill, having removed this House’s amendment, but with an amendment in lieu, which was agreed without a Division. I will now speak to that amendment in lieu, and I hope that the House will agree with me that it is a sound and sensible amendment.

Amendment 1A will ensure that Ofgem must conduct a review before the removal of the price cap into the pricing practices of suppliers and where there are categories of consumers who are currently paying, or may in future pay, excessive charges for SVT and default tariffs. In reviewing the practices of suppliers, and where the consumers are paying excessive charges, the regulator must consider whether there are consumers who will be excessively negatively affected when they move from fixed rates to SVTs and default rates, and whether vulnerable consumers require protection. If the regulator’s review concludes that protections are indeed required, they must take necessary steps to provide those protections, using their existing powers under the Gas Act 1986 and the Electricity Act 1989. The amendment rightly provides the regulator with the discretion to consider the form that any protections may take so that Parliament does not prescribe a solution today for what may well be a distinctly different concern in the future. The Government view Amendment 1A as striking the most appropriate response to the concerns that were articulated by noble Lords in this House during the Bill’s preceding stages.

I thank noble Lords across all Benches for their interest in the Bill and for their constructive engagement in its development, both in the Chamber and outside. I believe that the Bill is now in the best shape it could be, which is due in no small part to the work put in by this House. I hope that we may swiftly agree with the amendment made in another place so that the Bill may proceed and the price cap can be in place by the end of the year. I beg to move.

[Lord Stoneham of Droxford (LD)]

My Lords, I am speaking on behalf of our Front Bench spokeswoman, my noble friend Lady Featherstone, who unfortunately cannot be here tonight.

We too do not believe that the retail energy market currently operates to the advantage of customers. This Bill is a very blunt instrument, and one that is intentionally temporary—a sticking plaster while the Government desperately search out for a long-term solution. In coalition, we were proud to stimulate switching to a level way beyond what had happened before. But while successful, it is not sufficient. We still believe that a part of the solution lies in a relative price cap mechanism. That is why we supported the original Lords amendment, although we would have preferred it to have been stronger.

The fundamental issue is one of the “tease and squeeze” sales tactics used by energy suppliers, which would be far better tackled by a relative cap. However, we acknowledge the Government’s Commons amendment in lieu has recognised some of these concerns. We also recognise that, however imperfect this Bill might be, it is important to get it on to the statute book in good time before the winter weather and the escalation of consumer energy consumption. It is for these reasons that these Benches do not intend to call a Division this evening.

[Lord Grantchester (Lab)]

My Lords, I am grateful to the Minister and I very much welcome this amendment in lieu of the amendment passed in your Lordships’ House on Report.

This is necessarily a Labour-inspired amendment. It addresses our concerns over the domestic energy market at the termination of tariff-capped conditions. On Report, the House supported the contention that there should be ongoing monitoring through the implementation of a relative tariff differential. The incoming chairman of Ofgem, Martin Cave, whose appointment is very much welcomed, has expressed scepticism before the BEIS Select Committee that a fully competitive market will have returned by the end of 2023, when tariff-capped conditions will ultimately end. He has expressed doubt that vulnerable customers will be able to access competitive deals within this timeframe.

Furthermore, the amendment on Report was explicitly designed to deal with the exploitative behaviour of suppliers, known as “tease and squeeze”, whereby customers are moved over time from a competitive deal on to a much higher rate. This behaviour operates now and could continue even if the market be deemed later to be operating under competitive conditions. There is the twin effect that vulnerable customers could continue to be at risk post 2023 and that this particular behaviour of “tease and squeeze” across the market will not be dealt with.

I am very grateful to the noble Lord the Minister, and to the Minister for Energy and Clean Growth in the other place, Claire Perry, for considering this most carefully and engaging with our team so constructively. I thank them for considering that Ofgem must continue to monitor the market and to take appropriate action, should pricing practices of suppliers continue to put customers under disadvantage through excessive charges. Too often in the past, Ofgem has not used the powers it has in order to combat anti-competitive behaviour and excessive pricing.

The temporary nature of the Bill is to correct a clear existing fault in the present operation of the market. But the action to be taken through this Bill must take account of all anti-competitive behaviour, including “tease and squeeze”, and once concluded under the terms of the Bill on or before 2023, to continue to make sure all customers will be protected, including special measures for vulnerable customers.

Most people admit that they find the monitoring and switching of tariffs cumbersome and confusing. The debate over energy market intervention has run for several years, and certainly for too long. I am very pleased that, last year, the Conservative Government finally conceded that action is urgently needed to tackle unfair practices and excessive charges. Customers have been paying up to £300 per annum more than they might have done under a more competitive market.

Both the Conservative Government and the Labour Opposition are committed to have this legislation on the statute book to bring real benefits to consumers this winter. Ofgem must fulfil its functions and be seen to take appropriate action. The industry must realise that unfair behaviour will not be tolerated. Consumers will be protected.

I would like to pay tribute at this stage to all the staff who have worked so hard at both ends of Parliament, and especially the Bill team at the department. I would like to thank my Front Bench colleagues, my noble friends Lord Stevenson of Balmacara and Lord Lennie, for their support and attention, especially at the early stages of the Bill when I was absent due to ill-health. I am very grateful to my noble friend Lady Crawley, who spoke so passionately about the need to tackle the “tease and squeeze” tactics so prevalent in the energy market, and on the Liberal Democrat Benches to the noble Baroness, Lady Featherstone, and the noble Lord, Lord Teverson, for championing vulnerable customers, where we are very much aligned. I certainly do not want to forget or underplay the crucial legislative support of our opposition adviser, Rhian Jones.

I very much support the amendment and the Bill and look forward to the benefits it will bring.

[Lord Henley]

My Lords, I thank the noble Lord, Lord Grantchester, for his intervention, in which he welcomed the amendment and acknowledged that a great deal of work has been done by me, my right honourable friend Claire Perry, the noble Lord and his colleagues, and others, both in the Chamber and outside it. I think we have reached a satisfactory conclusion that provides Ofgem—I am grateful for his welcome of the new chairman of Ofgem—with the appropriate powers to deal with these matters. I thank him also for acknowledging the importance of speed in this matter. That is why, as we said right back at Second Reading, it is important that we get the Bill on the statute book before we rise for the summer—the Chief Whip is sitting next to me, and I know we still have a few days to go. I hope that the noble Lord will not be ill during any further Bills and will not have to leave certain bits to his colleagues.

I welcome the intervention from the noble Lord, Lord Stoneham, in place of his friend the noble Baroness, Lady Featherstone. I am grateful for his confirmation that Liberal party policy is in favour of a relative price cap. I was rather confused at earlier stages as to what its policy was, but it is now on the record. I do not think it is necessarily the right way forward, but it is Liberal party policy and I am grateful for that explanation.

That leaves me with only one final duty: I ask the House to support the Motion.

Motion agreed.

Helicopters: UK Design and Manufacture

Lord Henley Excerpts

Tuesday 10th July 2018 Lords Chamber

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

My Lords, I thank the noble Lord, Lord Ashdown, for securing this debate and for allowing us a chance to move on, as the noble Lord, Lord Stevenson, put it, from bees to helicopters; I do not know whether that is a more or less important subject, but each to their own, and I am sure that the noble Lord is equally at home talking about bees and helicopters.

I also give an assurance that, although a similar debate to this was answered in the other place by a defence spokesman—and certainly on another occasion a question on these matters was answered by my noble friend Lord Howe, the Minister for Defence—and I am now answering as a Minister for BEIS, all of us as Ministers are answering on behalf of Her Majesty’s Government. It is a matter of equal importance to both departments, just as it is a matter of importance to the people of Yeovil and to the Department for International Trade. I hope to make it quite clear that all departments have an interest in these matters and that all of us could answer on it.

It is also right that the noble Lord, Lord Ashdown, was keen to stress that proud tradition we have in Yeovil and other parts of the country of both designing and manufacturing helicopters. Much of that domestic capability is delivered down in Yeovil by Leonardo helicopters in the noble Lord’s former constituency.

[Lord Ashdown of Norton-sub-Hamdon]

I am sorry to intervene so early. The noble Lord said that “Yeovil and other parts of the country” are committed to the design and manufacture of helicopters. What other parts of the country apart from Yeovil can design and manufacture helicopters?

[Lord Henley]

No other parts of the country, as I will make clear, can do everything. However, there are other interests in this, and in other parts of the south-west, as the noble Lord well knows, the supply chain benefits from all that work in Yeovil.

I will again mention Yeovil, the noble Lord’s former constituency, because he quite rightly praised his successor but one, Marcus Fysh, for all he has done to raise the profile of this matter. I can assure to the noble Lord that my honourable friend Marcus Fysh, the current Member for Yeovil, has been engaged in discussions with Ministers in the Ministry of Defence, including the Minister for Defence Procurement and my right honourable friend the Secretary of State, and with colleagues in BEIS, including my right honourable friend the Secretary of State and others. Again, officials from the department will also continue to be actively involved with Leonardo. I was grateful for what the noble Lord said about the history of what has been going on in Yeovil, and on this day, when we mark the 100th anniversary of the RAF—although the RAF is one of just three services that use helicopters—we are reminded of just how long we have been reliant on helicopters and of the important role they play, not only for the Armed Forces but in other areas.

Last year alone, the Ministry of Defence spent £18.5 billion with United Kingdom industry and commerce, directly supporting hundreds of thousands of jobs in every nation and region of the United Kingdom. We are rightly proud of the leading achievement of our defence sector. It has a turnover of some £23 billion and had exports of almost £6 billion, supporting 142,000 direct defence sector jobs.

Over recent years the Government have spent considerable sums investing in our helicopter capabilities, and over the next 10 years we have a planned spend of £10.6 billion. Much of this investment has obviously been focused on Leonardo, with more than £1 billon spent on the development and manufacture of 62 Wildcat helicopters, some £800 million spent delivering 30 Merlin Mk2 into service and around £330 million spent developing the Merlin Mk4 upgrades across a 25-aircraft fleet, the first of which was delivered to Commando Helicopter Force in May. That investment is vital in ensuring that we have the helicopter capability that we need in the world of defence for decades to come.

As I have just said to the noble Lord, Lord Ashdown, we recognise that Leonardo is now the only helicopter manufacturer in the UK offering end-to-end capability—from research and design through to production, service support and upgrades. The ability to innovate and develop the next generation of rotary wing technologies allows Leonardo to lead the world in blade design and to compete internationally with game-changing designs for the unmanned air systems of the future. That work is supported by my department, BEIS, via the Aerospace Growth Partnership and through programmes delivered by the BEIS-funded Aerospace Technology Institute.

This is not just about military investment. As the noble Lord will be well aware, Leonardo is working to diversify into oil and gas, search and rescue and VIP transport. Again, BEIS has supported Leonardo via innovation programmes and regional growth funding and, most recently, by supporting the new iAero innovation centre at Yeovil—another plus for the town.

The noble Lord, Lord Stevenson, talked about the industrial strategy and the need to develop local clusters. He could have gone on to say how much we emphasise the importance of place in the industrial strategy and the need to work with both local authorities and LEPS. We look forward to seeing what they might come up with in their local plans in due course. We recognise just how important the UK helicopter capability will be to Yeovil and the wider south-west economy. The Government are working to enable support locally, including, as I said earlier, through Local Growth Fund projects that benefit Yeovil, and they are engaging with Leonardo Helicopters and the other organisations that I mentioned, such as the LEP and the county council, to ensure that that support is co-ordinated.

Last year the MoD’s highest spend per person in the UK was in the south-west, where £920 was spent for each member of the population, totalling around £5 billion. Defence spending in the region also supported one in every 60 jobs there—the highest proportion of jobs support by MoD expenditure in the UK, totalling some 33,500.

We fully recognise the capabilities of the UK aerospace industry and its role in ensuring that the UK joint force enjoys strategic and operational advantage. How we deliver future rotary capability for the Armed Forces will be considered in the modernising defence programme as part of the MoD’s work on the industrial strategy and will be informed by our recently refreshed policy. As the noble Lord, Lord Ashdown, put it, the threat is growing and changing and the MoD will reflect on current and future threats as part of the modernising defence programme.

The best way we can help sustain high-quality defence industry jobs is through a competitive, innovative and export-focused industry. Helping industry to grow and compete successfully in the global market is therefore the core objective of the defence industrial policy launched last year. That refreshed policy outlines further steps to help UK industry grow and compete while reaffirming its commitment to the principle of open competition and a free, fair and responsible defence trade.

[Lord Ashdown of Norton-sub-Hamdon]

I am sorry to take more of the Minister’s time. I notice he has three minutes left. He has been brilliant at identifying that this is not only a community asset for Yeovil but a national asset that is replaceable nowhere else, and has described very well the importance of the high technology there. Perhaps I may ask a direct question. The Government have a strategy to preserve our capability to produce fast jets and ships. This has an impact on procurement. If it is that important as a national asset, will they offer the same opportunity to preserve this unique capacity by making sure that British procurement now prefers Britain to elsewhere as the place where the new generation of aircraft will be produced?

[Lord Henley]

The noble Lord is eternally optimistic if he expects to get a commitment from me today. He is a realist and will have to listen to my speech—with the permission of the House I will go a little beyond 12 minutes—when I set out what we can and cannot say at this stage. He will know that there are reviews afoot and announcements to be made.

The noble Lord will be aware that my right honourable friend the Secretary of State for Defence has invited Philip Dunne to conduct a review of defence contribution to prosperity, which will be published before the summer Recess. He will also be aware that he is not going to get an answer out of me this afternoon and he will just have to live with that.

As stated in this House as recently as 14 June, we have established a long-term close relationship with Leonardo Helicopters through the strategic partnership arrangement. I appreciate that the noble Lord, Lord Ashdown, would like us to go further but he agrees that that has its merits. It is a unique 10-year arrangement from 2016 which allows us to maintain a continuing dialogue with the company to ensure that we are speaking the same language on capabilities, needs and requirements.

However, the Government also recognise that budgetary pressures mean that we are unlikely to be able to maintain national industrial capability in every single area of our defence requirements. The Government will consider maintaining industrial capability where that is in the national interest but, in general, they will continue to operate a policy of competition to ensure best value for money, capability and innovation.

The noble Baroness, Lady Smith, wished to take us on to the wider helicopter market in the United Kingdom, and I hope that the noble Lord will allow me briefly to move away from Yeovil. We are proud to have manufacturing capability in other parts of the country. Airbus provides the majority of police and emergency services helicopters and has the largest share of the UK’s civil and military market. Its main base is in Oxford where it modifies and customises helicopters, although the design and manufacture functions are based in France. We are in contact with and have regular discussions with the company. We are also engaging with the aerospace industry in the United Kingdom across both the civil and defence sector interests. The Aerospace Growth Partnership and the Defence Growth Partnership enable government and industry to engage on a formal basis to tackle barriers and unlock market opportunities across these sectors of the economy. As I made clear earlier in my remarks, that engagement is co-ordinated across my own department, BEIS, the MoD and the Department for International Trade.

Lastly, given that the noble Baroness, Lady Smith, mentioned Brexit, I cannot leave the debate without making a brief mention of it. We understand that the negotiations on our future arrangements are leading to a level of uncertainty for all industries. That obviously applies to aerospace as much as to any other. We are working closely with the aerospace industry and we understand the implications and the opportunities that are presented by the departure of the United Kingdom from the European Union. Through our future partnership with the European Union, we want to explore just how our industries can continue to work together to deliver the capabilities that we need.

House adjourned at 6.01 pm.

Companies (Miscellaneous Reporting) Regulations 2018

Lord Henley Excerpts

Monday 9th July 2018 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 11 June be approved.

Relevant document: 34th Report from the Secondary Legislation Scrutiny Committee

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

My Lords, I beg to move that the draft Companies (Miscellaneous Reporting) Regulations 2018, which were laid before the House on 11 June, be approved.

The United Kingdom has an international reputation for the strength of its corporate governance framework. It is an important factor in making the United Kingdom an attractive place in which to invest and do business. One of the reasons we have maintained this reputation is that we have kept our corporate governance framework up to date.

In this spirit, the Government published a Green Paper on corporate governance reform in November 2016. The Green Paper focused on ways of improving shareholder scrutiny of executive pay and strengthening boardroom engagement with employees and other stakeholders. It also looked at the case for strengthening corporate governance in large, privately held businesses.

The backdrop to the Green Paper was public disquiet about high levels of executive pay and continuing concern about a disconnect between remuneration and performance. There were also concerns about boardrooms being remote, unrepresentative and disconnected from their employees. There was heightened interest, too, in standards of corporate governance in large private companies in the wake of the failure of BHS and some other large private companies.

The Government received 375 written responses to the Green Paper from a wide cross-section of business, professional and trade bodies, and wider society. They also had the benefit of the BEIS Committee’s report on corporate governance. The Government’s response, announced last August, set out a package of reforms combining new statutory reporting requirements, changes to the UK corporate governance code and industry-led measures.

The draft regulations being debated today will implement the new company reporting elements of the reform package. First, all large companies will be required to explain in their annual reports how their directors have complied with the requirements of Section 172 of the Companies Act, including the need to have regard to employee interests and relationships with customers and suppliers. This new information will make it easier for shareholders to hold companies to account and encourage directors to think more carefully about how they are taking account of these matters.

Secondly, very large private companies will need to make a statement about their corporate governance arrangements, including whether they follow a corporate governance code and if so, how. Thirdly, quoted companies with more than 250 UK employees will be required to publish pay ratios comparing the CEO’s remuneration to median employee pay and employee pay at the 25th and 75th quartiles. The ratios will need to be accompanied by an explanation, including the reasons for any change to the ratio from year to year and whether the median pay ratio is consistent with the pay, reward and progression policies for UK employees as a whole. This information will give shareholders new information to assess whether pay at the top is justified and consistent with pay and incentive arrangements in the rest of the workforce.

Finally, quoted companies will be required to illustrate for shareholders the impact of future share price growth on the value of share-based incentive plans. This will give shareholders a better understanding of how significant share price growth over a performance period can increase executive pay. It will also encourage remuneration committees to avoid mechanistic pay outcomes linked to share price growth. None of these reporting requirements will apply to small businesses. The measures are aimed at quoted, large and very large companies. The total costs for business arising from the new reporting requirements are expected to be £16.7 million in year one, and £9.8 million annually thereafter.

The reporting obligations complement and reinforce other elements of the corporate governance reform package. For example, the new requirement for large private companies to make a statement about their corporate governance arrangements is linked to work being undertaken by James Wates and a business and wider society coalition group to develop voluntary corporate governance principles for use by large private companies. These principles are currently being consulted on with a view to finalising them by the end of the year. Other links are with the Financial Reporting Council’s UK Corporate Governance Code. The new requirement on companies to state how they have had regard to the employee and other wider stakeholder issues in Section 172 of the Companies Act will help to underpin revisions to the code.

These changes include a new provision requiring boards, on a comply or explain basis, to establish at least one of three robust methods for gathering the views of the workforce: a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director. The FRC has been consulting on these changes and expects to publish the final revised code this month. In addition, the Investment Association, at the Government’s request, has launched a public register of companies encountering significant shareholder dissent of 20% or more to executive pay packages and other resolutions. This is shining a light on companies which are not listening to their shareholders, and in particular on companies that face significant opposition in successive years.

I refer briefly to the final part of the regulations, which relates to reporting by community interest companies. The Companies (Audit, Investigations and Community Enterprise) Act 2004 requires CICs to produce a community interest company report annually, including information about directors’ remuneration. The obligation covering small CICs was inadvertently removed when associated provisions regarding small companies were repealed in the course of implementing the accounting directive in 2015. This was not part of the corporate governance reform package, but these regulations represent a good opportunity to correct the earlier error. It is uncontroversial and does not involve any change in policy. Indeed, small CICs have continued to file the information. I commend these regulations to the House.

[Lord Haskel (Lab)]

My Lords, I welcome any attempt to raise the reputation of business and to increase the trust and confidence in business in the eyes of the public, so I very much welcome these regulations, but I wonder how effective they will be.

These regulations require public companies and large private companies to publish pay ratios and other data to show that the directors are taking into account the broader interest of customers, employees and communities, as the Minister has explained. These data are useful to provide more information to enable shareholders to question the directors and, if necessary, to vote at shareholder meetings. But who are the shareholders? Many shares are held by institutions, which are reluctant to act as long as the financial returns are as expected. Frequently they have a limited and sometimes short-term interest in the company. Also, much share trading is carried out by algorithms—and who knows on what formula they base their decisions? There are still many day traders active, and their trading, again, is based purely on numbers. As I understand it, this is the way the majority of shares now change hands.

I ask the Minister: even if the published data leads to naming and shaming, how effective will these regulations be in changing behaviour? I know there is a lot of concern about misleading comparisons between companies, but perhaps we should ask for other data to be published, such as benchmarking data on productivity so that shareholders can compare how well their company is doing in comparison with competitors.

Surely, there must also be concern about the reliability of the numbers. The big four accountancy firms almost exclusively audit for the large companies that are the subject of these regulations; they are also their financial advisers. In their role as financial advisers to these companies, I am sure that they will have lots of schemes to make the ratios look a lot more attractive. This joint relationship has come in for a lot of criticism recently. Is there any sign of any change so that these regulations will become more effective?

I welcome the rules applying to large privately held businesses. Most respondents in the consultation wanted to see more data about these companies and I hope that these regulations will produce it. Generally, I welcome these regulations, but would like to see them widened and made more effective.

--- Later in debate ---

[Lord Stevenson of Balmacara (Lab)]

My Lords, I am conscious that the House wants to move on but it would be wrong to pass over these regulations, because there are rather important points within them. My noble friend Lord Haskel raised a number of points about the overall shape of the Government’s response to company powers. He talked about the need to think again about the way that shareholders are always given priority and the missed opportunity to stress the importance of productivity. My noble friend Lady Drake raised a number of points about how the figures can be used in a positive way, and I want to come back to that, although I will not go through all the points in detail. In fact, a lot of them were covered by the noble Baroness, Lady Bowles, although I am afraid that she lost the House during her speech. It may be worth reading again what she said, because a lot of it was very relevant to what our future agenda needs to be.

First, I congratulate the team behind these regulations. The Explanatory Memorandum that accompanies them runs to 55 pages and is one of the best that I have seen, but I bet that very few people here have read it. They should do so because, even if they are not up to speed with the latest arithmetical terms, it will tell them about averages and means in a way that will bring home any questions that they might have had about why people use one term or another. If I may say so, it has chosen the wrong term, but has done so in a way that has allowed it to at least shine a spotlight on the difficulty of comparing, for instance, the pay of the top person in a company with the median or average or whatever other term you want to use. It points out more difficulties than it solves so it is worth reading.

Secondly, on the date of application of the regulations, some Members of the House will be aware that I have concerns about the fact that we are observing in its absence the common commencement dates for when new regulations are placed on companies and businesses. These regulations come in 21 days after they are passed and not on the common commencement dates, which are 6 April and 1 October. I am keeping a score of the Minister’s efforts in this matter. He will be delighted to know that, of the 13 regulations he has brought forward recently, his score is now 11:2, and even those two were almost cheating because one of them was done by exception and another was done a year late. Nevertheless, I appeal to him to try to up his game.

The key point is: why are the Government not doing more on Section 172(1) of the Companies Act 2006? This section requires directors to act in a way that they consider in good faith promotes the success of their company as a whole and to have regard to, among other things, the long-term consequences of their decisions and the interests of their employees. This needs to be looked at very seriously and rewritten for the 21st century. As part of that, the review should look at the issues that should be in place for all directors, whether in private or public companies, and should include matters such as late payment of suppliers, productivity and the use of powers to try to ensure that stakeholders of the company benefit from it.

Thirdly, the point has already been made that the threshold of 250 UK employees mirrors existing thresholds, but it does not make any sense for it to be limited to UK citizens only. The Government should make it clear that the intention of the legislation is for companies to report on their whole workforce. My noble friend Lady Drake asked why we are not including “workers” as well as “employees”. All employees are workers but not all workers are employees, and it is time that this was updated to reflect that. I think the Minister has already accepted that, in time, they will do that.

My final point is that, without some central registry of reports, this requirement will not be satisfactory. I hope that the Minister will take account of what I have said and perhaps write to us on the key points, in order that we might make progress today.

[Lord Henley]

My Lords, like the noble Lord, Lord Stevenson, I would like to make progress, and I suspect that the House would also—I am sure the Chamber is not as full as it is purely to listen to me wind up on this order.

I start by dealing with the noble Lord’s comments about common commencement dates; I know this is a matter of great concern to him, and I always try to comply. Wherever practical we like to follow them but, because we are proposing to introduce these significant new regulations designed to coincide with the start of the company reporting year, we felt that 1 January might be more suitable. I will allow him to continue to keep his scorecard and on those rare occasions that we diverge from the common commencement dates—although they are perhaps less rare than they might be—I will make it clear why we are doing so.

My noble friend Lady Neville-Rolfe asked whether we could have a review of some of the arrangements in five years, particularly in the light of her comments on pages 41 to 51 of the impact assessment. I give an assurance that we will do that. The success criteria include company executives focusing more on long- term performance, and the new Section 172 reporting requirement must include reporting on the impact of directors’ decision-making in the long term.

I appreciate that although the noble Lord, Lord Haskel, welcomed the regulations, he felt that they possibly should go further. He expressed concern about the reluctance, particularly of some institutional shareholders, to intervene. It is important to remember that increasing knowledge is always a benefit to any shareholders. I think that he recognised this and that shareholders were increasingly becoming more assertive in holding companies to account. They have, for example, strongly backed pay ratios and other rules introduced today. The Investment Association’s new public register of shareholder dissent, to which I referred in my opening remarks, is putting significant and welcome new pressure on companies to listen to their concerns.

The noble Baroness, Lady Drake, asked about the definitions of “employee” and whether they should also cover other workers. The regulations we are using are made under the Companies Act and, therefore, we will follow the definitions of “employee” in that Act—that is, someone employed under a contract of service with the company. Having said that, I recognise her more general concerns about the definitions of “employee”—we have discussed these matters on other occasions—given the changing nature of the workforce. The Taylor review has addressed this issue and the Government will need to respond further in the light of that and recent court decisions. However, for the moment, for these regulations it is necessary that we stick to the Companies Act definition.

As the noble Lord, Lord Stevenson, suggested, it would be right for me to write in greater detail on some of the questions put to me in the course of the debate. However, I have heard a general welcome for these regulations.

Motion agreed.

Renewables Obligation (Amendment) Order 2018

Lord Henley Excerpts

Monday 9th July 2018 Lords Chamber

Moved by

[Lord Henley]

That the draft Order laid before the House on 4 June be approved.

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

My Lords, this draft instrument seeks to amend the Renewables Obligation Order 2015, which provides the framework for the operation of the renewables obligation scheme in England and Wales. The purpose of this draft instrument is to control the costs to consumers of supporting new large-scale generation from two types of generating station: biomass conversion stations and co-firing stations. Biomass conversion stations are former coal plants converted to run wholly on biomass. Co-firing stations run on a mixture of coal and biomass.

The renewables obligation scheme has been the main financial mechanism to incentivise large-scale renewable electricity generation in the UK. It is now closed to new biomass co-firing and conversion projects, but existing projects will continue to receive support up to 2027. The scheme does not provide direct cash payments to renewable generators. Instead, it operates through a system of tradable renewables obligation certificates. Ofgem issues renewables obligation certificates to generators in relation to the renewable electricity they generate. Generators sell these certificates as tradable commodities.

An annual obligation is placed on electricity suppliers to present a certain number of these certificates to Ofgem, the scheme’s administrator, in respect of each megawatt hour of electricity they supply to consumers. It is assumed that the cost to suppliers of complying is passed on to consumers through their energy bills. The renewables obligation scheme has been highly successful, with over 25,000 stations across the UK, and generation equivalent to 22% of the UK electricity supply market. However, the Government are committed to keeping energy bills as low as possible for consumers.

Biomass co-firing and conversion generating stations have an important transitional role in decarbonising the electricity grid and can generate at high levels more or less continuously. However, stations accredited under the renewables obligation scheme can increase the amount of biomass they use quickly, and without any prior notification. This could significantly increase support costs. The Government acted in 2014 to discourage deployment of new generating capacity by removing grandfathering for certain co-firing and biomass conversion generating stations. Grandfathering gives guarantees of support, but despite these changes, evidence in 2017 suggested that significant unforecast generation was still likely. Without intervention, we estimate that the additional spend under the renewables obligation would increase average household bills by up to £2 a year. Business users with low electricity consumption would see increases of up to £140 a year, and the bills of energy-intensive industrial users would increase by up to £53,000 a year.

To control these costs, this draft instrument applies annual caps on the number of renewables obligation certificates that certain stations or units can receive. Capped stations are not protected by grandfathering policy. The number of certificates these stations can receive in each obligation year will be capped at 125,000 certificates for each combustion unit of which the station is comprised. Mixed generating stations combine capped units and exempt units which continue to benefit from grandfathered support. The total cap for the station will be an estimate of the number of certificates likely to be issued for generation by the exempt units during the obligation year, plus an allowance of 125,000 certificates for each of the station’s capped units.

The instrument also makes technical changes unconnected to biomass conversions and co-firing. First, it brings certain combined heat and power stations into line with an existing requirement to provide a declaration that subsidy will not be claimed under another support scheme. Secondly, it clarifies that existing greenhouse gas trajectories in the 2015 order apply equally to electricity-only dedicated biomass stations and to those with combined heat and power. Lastly, it corrects some minor typographical errors.

In conclusion, the Government are committed to keeping energy bills as low as possible for consumers, while cutting greenhouse gas emissions and supporting economic growth. The flexible-cap mechanism implemented through this order balances the interests of generators and consumers. Stations will be able to optimise generation across their units. If generators decide to maximise output at their exempt, grandfathered units, there will be no restriction on the number of certificates for those units, provided the capped units remain within their allowance. This flexibility will allow units to generate more when electricity demand is highest. The cap protects consumers by limiting the number of certificates that will be issued. The size of the obligation for electricity suppliers is set each year, based on the number of certificates expected to be issued. The obligation for this year takes account of expected generation under the caps. Future obligations will do the same. The caps will not cause a shortage of certificates, nor a rise in their value. I commend this order to the House.

--- Later in debate ---

[Lord Grantchester (Lab)]

I thank the Minister for his explanation of this order, which seeks to control the costs of supporting two forms of renewable energy generation under the renewables obligation scheme: in former fossil-fuel generating stations using as fuel biomass, or a mixture of biomass and fossil fuels—called co-firing. It also requires a declaration to be provided by certain stations when claiming support for combined heat and power generation, and clarifies the greenhouse gas emissions trajectories with which certain CHP stations must comply.

It must be said at the outset that although this RO scheme has not yet come to an end, it is now closed to new applicants and has been superseded with a contracts for difference scheme. It also needs to be said that, in 2011, the Government introduced the levy control framework to govern the budget for low-carbon electricity schemes, including the RO scheme, which are paid for through consumer bills.

The operation of the LCF has come in for considerable criticism for being opaque and disingenuous, such that in the Autumn Budget 2017, the Conservative Government announced the control of low-carbon levies to limit new levies until the LCF can be seen to be falling. The scheme here is set to achieve a further constraint on expenditure by setting a limit on the number of ROCs that can be applied for. It is fair to say that in the other place there was a long debate on whether this order would achieve the intention, as the amount of expenditure can vary according to the price of ROCs in the market.

The accompanying documentation to the order appears to confuse the process of creating a ROC, which is done by the generating station producing a certain amount of power and hence creating a ROC, and accounting for the value attached to that ROC, which is created and varies according to the demand for ROCs by suppliers which are obligated to purchase them from generators to meet their renewables obligation quotas. However, it does not follow that the reduction in the number of ROCs issued translates directly into savings in overall amounts paid for ROCs, and hence savings on customers’ bills—an amount set against the LCF—because ROC prices vary with supply and demand against the obligation level. The reduction in supply may send the value of a ROC up because more people are bidding for fewer ROCs to meet a fixed obligation level. The calculations attached to the SI do not appear to take this factor into account, but instead treat the estimated range of income as a fixed range determined by the number of ROCs.

As part of the consultation, several comments reflected that this could lead to discouraging biomass in a co-firing plant. This order could have a perverse effect and the proposals could potentially place more coal back on to the system, and do not properly account for the mechanisms behind ROCs. We therefore have great reluctance in passing the SI and suggest that the Government should take the measure away and recast it. It is a complex jigsaw that seeks to use the number of ROCs as a way of constraining expenditure, when the price of ROCs is not set but can vary. There are serious misgivings that the scheme will not do what it claims. However, as a scheme that is now replaced by the CfD scheme, the situation may be contained over time. With that, I can reluctantly approve the order.

[Lord Henley]

My Lords, I am grateful to the noble Lord, Lord Grantchester, for his comments. He started off by saying that he had some doubts about the order, as to whether it would lead to lower costs, but as I made clear, we have made this intervention because we wish to see lower costs for consumers. That is why I made it clear that, on average, without this order, we would see additional costs to the consumer of about £2 per household and higher figures for business users and considerably higher figures for some of the more energy-intensive users. I think it is right that we should make such an intervention in the way that we are to achieve those ends. I am therefore grateful that the noble Lord ended by at least agreeing to support the order in full today.

The noble Lord was also worried that there would be an impact on the ROC market. We believe that the mechanism is compatible with the operation of the renewables obligation and will not lead to the market shortage that he was worried about nor inflate the price. The annual obligation set by BEIS fixes the cost of the renewables obligation and provides for the demand of ROCs. The obligation level is calculated by estimating the number of ROCs likely to be issued during the obligation year and then inflated by a 10% headroom to ensure that there is still demand for ROCs, even if the actual number of ROCs issued turns out to be higher than estimated—for example, if it is windier or sunnier than forecast when we set the obligation. The impact of the caps on generation are factored into the annual obligation calculation, so it will be lower. All else being equal, demand will not outstrip supply. However, I am more than happy to write to the noble Lord in greater detail about how we feel that the market works.

As regards the questions from the noble Lord, Lord Redesdale, on how the long-term strategy will affect combined heat and power, the purpose of the instrument is to control the unexpected costs from biomass, biomass co-firing and conversions, and to protect consumers. It certainly does not affect support for renewable heat. Remembering both the noble Lord’s and my interest in anaerobic digestion from my time in Defra, I can also give an assurance that this affects only biomass co-firing and biomass conversion and has no effect on anaerobic digestion. I hope that, with those comments, noble Lords will agree to the order. I beg to move.

Motion agreed.

Contracts for Difference (Miscellaneous Amendments) Regulations 2018

Lord Henley Excerpts

Monday 9th July 2018 Lords Chamber

Moved by

[Lord Henley]

That the draft Regulations laid before the House on 6 June be approved.

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

My Lords, the draft instrument makes three separate changes to existing CfD regulations. First, it amends the Contracts for Difference (Allocation) Regulations 2014 to establish remote island wind projects as a category of technology eligible to take part in the CfD scheme and compete alongside other less established technologies. In doing so, it delivers on manifesto and Clean Growth Strategy commitments.

Secondly, the SI removes from the Contracts for Difference (Definition of Eligible Generator) Regulations 2014 the requirement for certain generators to intend to accredit their project under the combined heat and power quality assurance standard. This minor amendment will facilitate the delivery of future CfD allocation rounds and is not otherwise expected to impact upon the operation of the CfD scheme.

Thirdly, the regulations update the definition of “waste” in the Contracts for Difference (Definition of Eligible Generator) Regulations 2014. This ensures that generators are not incentivised to intentionally modify or contaminate biofuels to avoid the application of sustainability criteria which would otherwise apply. We are proposing these legislative schemes following a 12-week public consultation earlier this year, during which our proposals received broad support.

The CfD scheme is designed to offer long-term price stabilisation to new low-carbon generators, allowing investment to come forward at a lower cost of capital, and therefore at a lower cost to consumers. The scheme typically sees support contracts awarded in a competitive auction process, which ensures costs to consumers are kept to a minimum. The technologies which are eligible to take part in the CfD scheme are categorised into two distinct groups, or pots. Pot 1 contains the more mature technologies, such as solar PV, which typically require less support. Pot 2 contains the less mature technologies, such as offshore wind, which typically require more. The scheme has been very successful, bringing forward significant new investment in large-scale renewable generation. The two previous CfD auctions should deliver over 5 gigawatts of renewable electricity capacity by the early 2020s, helping to meet our decarbonisation targets. We plan to open the next one in spring next year and are laying these amendments today to give certainty to businesses in advance.

I will briefly describe each of the three amendments in turn. The first amendment is to make remote island wind projects eligible for pot 2 auctions. The Government confirmed in the Clean Growth Strategy that it was our intention that wind projects on remote islands, where they are expected to directly benefit local communities, would be eligible for the next pot 2 auction. These projects have certain unique characteristics which set them apart from wind projects elsewhere in the UK, including higher costs. It is therefore appropriate for remote island wind projects to be recognised as a distinct technology within the CfD scheme, one subject to its own administrative, maximum strike price and eligible to take part in pot 2 auctions alongside other, less established technologies.

These regulations set out the criteria that projects must satisfy to constitute a remote island wind project for the purposes of the CfD scheme. These criteria have been carefully selected to ensure that remote island wind projects are sufficiently remote to be subject to more challenging operating conditions, as well as increased network-related costs. Allowing remote island wind projects to compete alongside other less established technologies in pot 2 will allow developers to build on the falling cost of onshore wind and provide a further boost for the supply chain. More than 750 megawatts of wind projects in the Western Isles, Orkney and Shetland could be eligible for the next auction. If successful, these could deliver long-term benefits to the UK.

The second amendment is to remove the requirement for certain generators to intend to accredit their project under the combined heat and power quality assurance standard. The CfD scheme currently supports only two types of project, namely dedicated biomass and energy from waste, if they are built with combined heat and power. The Contracts for Difference (Definition of Eligible Generator) Regulations 2014 currently require developers to those projects who want to be eligible to apply for a CfD to intend to accredit their project under issue 6 of the combined heat and power quality assurance standard, usually referred to as CHPQA. The department recently launched and responded to a consultation on options to replace issue 6 of the CHPQA standard. The incoming, replacement issue of the CHPQA standard will include increased efficiency reference values, against which future CfD-supported CHP projects will be assessed.

These regulations will remove the requirement to intend to accredit from legislation. Developers will still have to accredit their projects under the CHPQA standard to receive CfD support, but this will instead be specified in the contract terms that developers have to agree to, and comply with, to receive CfD support. This amendment will not have a practical impact on the operation of the CfD scheme because, in practice, a developer’s intention to comply with the CHPQA’s requirements is not something which is capable of being meaningfully tested at this early stage in the CfD application process, long before a plant is actually built.

The third, and final, amendment that we propose concerns a minor change to the definition of “waste” in the definition of eligible generator regulations. This amendment is relevant only to technologies that may use waste as a fuel to generate electricity. It simply makes clear that substances will not constitute waste where they have been deliberately modified, or contaminated, to bring them within the definition of waste. This will make sure that we do not inadvertently encourage generators to modify or contaminate biofuels to avoid the application of sustainability criteria which would otherwise apply.

These legislative changes need to be made ahead of the next CfD allocation round, which is planned for spring 2019, so that developers have certainty as to who will be eligible to take part, and on what basis. Subject to the will of Parliament, these arrangements will come into force on the day after the regulations are made. I commend these regulations to the House.

[Lord Redesdale (LD)]

My Lords, although we support these minor amendments, I have two questions for the Minister. First, there is talk of making sure that there is no contaminated feedstock for combustion. Is this as a result of a particular action, or is it looking forward to a potential breach of the rules? Secondly, CfDs have had one benefit, although they have often skewed the marketplace rather badly: they have shown, through the auction prices, that offshore wind is one of the most economic ways of generating, and that onshore wind is even better at generating power at the lowest cost to consumers. In the light of that, will the Government reconsider their position on onshore wind?

[Lord Grantchester (Lab)]

My Lords, once again I thank the Minister for his explanation of these regulations, which in general we support. I understand that the Government are beginning to be congratulated on allowing onshore wind, in some shape or form, to finally compete in the marketplace for renewable generation. We note that the Conservative Party manifesto introduced a ban on onshore wind and are pleased to be able to welcome this small element of it coming on to the market, albeit in a highly constrained way. These remote islands must, by definition, be 10 kilometres off shore; over 50 kilometres of cabling must be used, of which 20 kilometres must be under sea. I was wondering how important it was that these so-called onshore wind turbines must not be seen and whether I would be able to see them if I went to the top of Blackpool Tower. I am teasing the Minister, but this seems to be a risible attempt to allow some kind of offshoring of onshore wind. I am sure we could all enjoy some of the programmes which could be made around these regulations.

To be more serious, because of these definitions, we feel that we are looking at a more expensive offshoring of onshore wind being favoured over the less expensive contribution of near-to-onshore wind. Regrettably, the costs to the consumer will therefore be more than if the Conservative Party had been able to allow onshore wind to compete openly and genuinely in the marketplace. With that, I approve the regulations.

[Lord Henley]

My Lords, I am grateful to the noble Lords, Lord Grantchester and Lord Redesdale, for their comments and general welcome to the SI. I am also grateful to the noble Lord, Lord Grantchester, for reminding the House of the figures which I did not give. The remote islands in question are at least 10 kilometres off the mainland and connected to it by at least 50 kilometres of cabling, of which 20 kilometres are under water. He then referred to ascending Blackpool Tower. That is something which I have not done for over 50 years because—sadly—neither we nor the party opposite still go to Blackpool for our party conference. Perhaps that might change, but I do not have any current plans to ascend the tower. When I do next get an opportunity to do so, I will see what I can see from there, particularly in relation to offshore wind.

I am also grateful to the noble Lord, Lord Redesdale, for reminding the House how effective and useful wind, particularly offshore wind, can be and—as I made clear in my Statement on Swansea the other day—how its cost has come down well below nuclear. However, we have no plans to reconsider our position on onshore, other than in relation to the remote islands referred to in these regulations which are suffering from particular problems. These are places which are over 10 kilometres and 50 kilometres of cabling away from the mainland. The wind there can be very good but the costs can be greater and some help is therefore needed. The noble Lord, Lord Redesdale, also asked whether we were aware at the moment of problems with contaminated feedstock and biofuels. We are not aware of anyone currently doing this, but there is obviously a potential for it. We therefore considered it necessary to take action; I am sure he would agree.

I think I have dealt with the questions raised by both noble Lords and commend these regulations to the House.

Motion agreed.

Parental Bereavement (Leave and Pay) Bill

Lord Henley Excerpts

2nd reading (Hansard): House of Lords
Friday 29th June 2018 Lords Chamber

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

My Lords, may I respond to that last point by picking up a point made by the noble Lord, Lord Stevenson? He described the Bill as addressing just a lacuna and said that it was not the complete answer. If only the Bill could be a complete answer—if only any government Bill or Private Member’s Bill could ever be a complete answer to whatever issue it addressed, that would be a great thing. This, however, is a small step to respond to the campaign mentioned by the noble Baroness, Lady Brinton, and the noble Lord, Lord Knight of Weymouth, which has been running for some time, led by Lucy Herd and other campaigners and taken up by colleagues of the noble Lord, Lord Knight, in the Commons. After the election it was taken up by my honourable friend Kevin Hollinrake as a Private Member’s Bill and now, having proceeded through the Commons, it has been taken up by the noble Lord, Lord Knight of Weymouth, to whom I am very grateful. For once, there is government support and I hope we can proceed to the statute book in due course to meet the manifesto commitment that we made on the Bill. I do not think it is necessary for me to repeat that.

Obviously, it is right that I and possibly other Ministers—I cannot give any guarantee on that but I offer myself—should offer ourselves up between now and Committee for meetings with the noble Lord and the noble Baroness, Lady Brinton, if she is happy to come along, so that we can discuss it. I think that would be useful. The noble Lord, Lord Stevenson, might want to come as well. We want to make sure that we pass the Bill, which deals with what the noble Baroness described as, thankfully, a rarity. We have to go back only 150 years to remember a time when more than half of all funerals were those of small children. We are beyond that, dealing with a rarity, and we want to make sure that we get this right and get something on the statute book that will be useful.

There is always an element of fragility in the parliamentary process for any Private Member’s Bill. So far we have got through another place and I hope that, given the consensus we have, we will be able to get it right here and address the lacuna in existing pay and leave rights that the noble Lord, Lord Stevenson, addressed. We are dealing with something—the death of a child—that should not be treated in the same way as we manage to treat the birth of a child; instinctively, that does not seem right to me. Obviously, the loss of anyone can be very difficult to deal with. Indeed, any bereavement can affect a number of the workforce but the loss of a child before they reach adulthood can be a far greater tragedy because it is against the natural order of things.

It is right that we should all support the Bill. I do not think the noble Lords, Lord Knight and Lord Stevenson, should worry about the relative emptiness of the Benches on all sides of the House. That is the nature of a hot Friday at the end of June. But we are dealing with an important point and we will get it right, I hope, in Committee. I hope we will not need to amend the Bill but at least that will be a moment when we can respond to the consultation referred to.

May I briefly set out the Government’s position on the Bill? The noble Lord, Lord Knight, set out what the Bill does: it gives employees who have lost a child below the age of 18 the right to at least two weeks away from work as a day-one right. It is the Government’s intention that parental bereavement pay will be paid at the statutory rate referred to, which is currently £145.18 per week, or at 90% of the employee’s average weekly earnings where that is lower, subject to the 26-week qualifying period.

I make it clear again that that is the bare minimum which an employee should expect from their employer once this provision is put in place. Appropriate advice should be offered to employers so that they can act with compassion and consideration for their staff to offer a provision over and above the statutory minimum. We want this to be a catalyst for a change in the mindset and approach to bereavement. We want people to be able to speak in the workplace about their bereavement, including in the event that they suffer the bereavement of a child, and certainly not to be fearful of suffering a detriment in respect of that bereavement.

On the detail of the provisions, we noted that the lack of detail on some key aspects of the entitlement has been pressed in another place, and rightly so. I do not think this should be a cause of concern and I hope that the following reassurances will suffice on the issue. As the noble Lord mentioned and as the House will be aware, we launched a consultation in March to consider how best to deliver the detail of the provisions through regulations. That consultation has now closed and I am pleased to be able to tell the House that it received over 1,400 responses, mainly from individuals. We also received responses from key business groups and relevant charities. Those responses have been helpful in shaping the detail of the policy and making sure that the final product works for both employers and employees. That has obviously been our ambition from the start.

The Long Title of the Bill focuses on parents only. However, since the question of who counts as a parent is a complex one to answer, the consultation welcomed views on the different groups of people who have a parental relationship with the child and thus may be included. There was a strong sense among the responses to the consultation that entitlement to parental bereavement leave and pay should not rely solely upon biological parentage but should depend on the presence of a parental relationship, whether that is biological, legal or informal. I am grateful for the nods that I see from the noble Baroness, Lady Brinton, who asked for a degree of flexibility on that. The consultation also asked about flexibility on when the leave can be taken.

As drafted, the Bill provides for parents to take a minimum of two weeks’ parental bereavement leave within a period of at least 56 days. The Government sought views on the optimum length of this window in which to take the leave, as well as how the leave and pay can be taken: for example, in a single block of two weeks or in separate one-week blocks, or even more flexibly still. Responses overwhelmingly supported the extension of the window beyond 56 days to provide flexibility to bereaved parents. A majority of respondents also wanted to see flexibility in the way that leave and pay can be taken. Many favoured being able to split the leave into separate weeks. In respect of both these issues, the consultation responses have shown us that this provision must cater for the unpredictable and very personal nature of grief.

Lastly, the Government asked for views on notice and evidence requirements. We asked whether it is reasonable for there to be a requirement to give notice; if so, what form that notice might take; and whether evidence requirements for parental bereavement leave and pay should mirror those in existing provisions. The majority of responses said that the Government should seek to make these requirements as reasonable as possible and not place undue burdens on either the employee or the employer. The department is currently working on the Government’s response to the consultation and we will publish that in due course. I reassure the House that it is my hope and intention to have the response to this consultation published before Committee stage on the Bill. I think that the date we have for Committee—I am sure the noble Lord will be aware of this—is sometime before we rise for the summer. In that document, we will set out our policy in respect of the key issues raised and considered in the consultation. Expediting publication in this way will, I hope, convey our continued commitment to this Bill and our desire to see it pass into law and will assist with noble Lords’ consideration of the Bill’s delegated powers.

This House frequently adds much value and challenge through asking the right questions about the need for delegated powers and their intended use—I have certainly been asked about that on a number of occasions on a great many Bills—so I am pleased to echo the noble Lord, Lord Knight, in quoting the 29th report from the Delegated Powers and Regulatory Reform Committee. I really like this:

“There is nothing in this Bill which we would wish to draw to the attention of the House”.


That is not something I always hear on Bills with which I am involved. I hope it is ample reassurance for the House.

In support of the Bill, once the regulations are in place we will once again work with ACAS—I think that addresses some of the points the noble Baroness, Lady Brinton, made—to update its guidance to reflect this new provision because it is important to get to as many employers as possible to get the message over. It is almost as if the Bill would be unnecessary if employers acted in an appropriate manner. The guidance will be key for employers and employees in understanding the new provision and setting the tone for the approach to bereavement going forward, which I think we can all agree needs to change on certain issues. The approach now needs to reflect a more modern and understanding approach to bereavement and all the various issues which surround it. I thank the noble Lord, Lord Knight of Weymouth, and say that the Government fully support the Bill. I look forward to discussions and I hope that we can have them between now and Committee to make sure that we can have a productive and useful Committee stage that allows the Bill to go through in the manner that the noble Lord wishes.

Nuclear Sector Deal

Lord Henley Excerpts

Thursday 28th June 2018 Lords Chamber

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

My Lords, with the leave of the House, I should like to repeat an Answer to an Urgent Question given in another place by my honourable friend the Minister for Universities and Science. The Answer is as follows:

“The Business Secretary is in north Wales in Trawsfynydd at this moment launching the nuclear sector deal. The industrial strategy sets out how long-term partnerships between the Government and industry can create significant opportunities to boost productivity, employment, innovation and skills. We committed to agree sector deals with industries that put forward ambitious proposals to boost productivity and earning power in their sector. The Government are today launching the nuclear sector deal, the fifth in a series of deals as part of our industrial strategy.

I should like to take the opportunity to praise the long-standing support and work of the predecessor of the right honourable gentleman, the noble Lord, Lord Hutton of Furness, who has helped facilitate the deal today from industry’s side.

The nuclear sector in the UK is an economic powerhouse currently equivalent in scale to the aerospace industry. It provides highly skilled, long-term employment for 87,500 people and is a driver of regional growth. Nuclear generation currently provides more than 20% of the UK’s electricity supply and its low-carbon reliable baseload power complements the growing renewable portfolio that is enabling the UK to reduce CO₂ emissions in line with our commitments.

The nuclear sector deal announces a package of measures to support the sector as we develop low-carbon nuclear power and continue to clean up our nuclear legacy. This deal is about government and industry working in partnership to drive competitiveness across the nuclear sector. We will use this set of initial actions as a platform for future collaboration and investment in the sector.

The Government have notified Parliament of today’s deal by means of a Written Ministerial Statement, and have deposited a copy of the sector deal in the Libraries of both Houses. This is a good day for the nuclear industry and a good day for Wales, where we are focusing on small modular reactors that can help Wales become a world leader in the sector”.

[Lord Grantchester (Lab)]

I welcome the announcement and this nuclear sector deal, as it will become an important part of the Government’s industrial strategy. It is excellent news for the nuclear industry. Britain was the world leader in nuclear technology, and this has the potential to put Britain back into a more competitive position against other nuclear nations. I stress to the Government that they must deliver on their commitment, announced today, to achieve these aspirations. Huge sums are being invested by the US and China. Will the Government work with these very large programmes overseas?

It is good news for R&D and the international fusion programme at Culham, and for the development of SMRs. That there is a launch event with the Minister, Richard Harrington, in Trawsfynydd underlines the industry’s importance in the north Wales-Cheshire economy, where there is no hard border. Being in the north-west, I know this will be very safe. I ask the Minister whether Trawsfynydd will be the site for a G4 reactor. It is good news that emphasis will be given to innovation. If the UK is to be on the leading edge, the Government must commit the sums necessary.

I ask the minister that his department commit that the Government will look at all technologies in developing better ways for decommissioning and all technologies available for SMR, even established technologies, such as pebble-bed or HTR, which the Chinese will soon be commissioning as the first in the world. Can the Government give these assurances? How deep is the Government’s commitment? Could the UK become a centre for manufacturing?

[Lord Henley]

My Lords, I welcome the welcome of this deal by the noble Lord, Lord Grantchester, and I am pleased to be able to say how happy I am that he is happy that this is good for north Wales and Chester, his part of the world. I cannot give precise confirmation in answer to his question about Trawsfynydd, but I can confirm that there is new money coming in—money for advanced manufacturing and construction programmes from the Government, and money to invest in the national supply chain.

We also expect to see a 30% reduction over the years in the cost of new-build projects and also—very important for my part of the world, west Cumberland—reductions in the cost of decommissioning of some 20% over the years. This is a good deal not just for north Wales but for the whole country.

[Lord Fox (LD)]

My Lords, we generally welcome this announcement, with some reservations. In the Minister’s introduction, not much emphasis was given to decommissioning and waste disposal, which take up a large proportion of our nuclear industry at the moment. Perhaps the Minister can explain how this sector deal will reflect on that.

The Minister also mentioned the number of people employed in the industry, but there is likely to be a shortfall in skills if the expansion, as envisaged by the Government, goes ahead. The need for developing more skills in this industry, as well as many others, is clear. Perhaps the Minister could reflect on that.

Finally, there is a terrible irony in this announcement’s being made in Wales. I feel another Peer twitching behind me because just this week the Swansea Bay tidal lagoon was scrapped by the Government. This was an excellent example of a renewable programme. Does this sector deal reflect on the Government’s cooling even further on renewables?

[Lord Henley]

My Lords, I was wondering when the noble Lord would get on to Swansea Bay. We dealt with that in a Question only the other day. I think there was recognition from all parts of the House, other than on the Liberal Benches, that it would not be wise to go ahead with a project that would cost the consumers of electricity—remember, it is the consumers who pay for that electricity—three times as much as Hinkley Point, which is not a good deal for the people of Swansea or those around it.

As for decommissioning, yes, that is very important. We will continue our work on decommissioning and, as the sector deal makes clear, we are looking, over the next 20 years, or by 2030, for reductions in the cost of decommissioning of some 20%. That is important.

The noble Lord also mentioned the number of jobs in this area and the importance of making sure that we both generate people with the right skills and attract people with the right skills to this country. That is something that we are aware of. Currently, the industry provides long-term employment for some 87,500 people. The deal will potentially support 100,000 highly skilled jobs, in locations from Cumbria to Somerset. We will make sure we have people with the right skills to perform those jobs.

[Lord Cunningham of Felling (Lab)]

My Lords, I welcome the Minister’s Statement. It is the first positive Statement on civil nuclear power we have had for some time. It is a sad reflection that Britain was a world leader in this field and squandered that position, disastrously for future energy policy. Will our existing knowledge and future development of small modular reactors enable Britain once again to be a world leader in future nuclear technology? If so, the Statement is even more welcome.

[Lord Henley]

My Lords, I am grateful to the noble Lord for his welcome for the Statement. Like him, I can remember an occasion when we were world leaders; we both know that, in Cumbria, we still are world leaders in what it has to offer. The noble Lord is right to call attention to the importance of looking at developments in modular reactors. I can reassure him that, as part of this deal, we are providing £56 million to support the development of advanced modular reactors.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, I welcome the Statement and, in particular, its focus on SMRs and Wales. I acknowledge the warmth of the statement made, too, by the noble Lord, Lord Grantchester. I declare my interest as an adviser to a nuclear technology company. Can my noble friend the Minister confirm that the Trawsfynydd site is suitable for trialling more than one technology and that the focus on Generation III light water technology does not preclude exploring Generation IV molten salt reactors, which offer potential benefits in proliferation resistance, greatly increased efficiency and the ability to use plutonium waste as fuel, and are already in the licensing process in the United States?

[Lord Henley]

My Lords, I believe my noble friend is correct, but she will appreciate that I was informed about repeating this Answer only some 15 minutes before the House met. I cannot give precise details about the Trawsfynydd site at this stage, but I will write to her with further details. As I said, I think she is correct.

[Lord Wigley (PC)]

My Lords, as one who worked on the construction of Trawsfynydd in 1963, I welcome the Statement but perhaps I may ask the Minister for some further clarity. First, on the SMR programme, does the fact that the announcement is being made in Trawsfynydd today indicate that the location of an SMR reactor is likely to be Trawsfynydd? Secondly, can he confirm that the lessons experienced over a prolonged period with the decommissioning at Trawsfynydd could be the basis for a study of decommissioning in future? Finally, can he give an assurance that additional money will be available for training and education, particularly for institutions such as Bangor University, to ensure that local people have the skills and take up the jobs?

[Lord Henley]

My Lords, if the noble Lord was working on the site in 1963, it is unlikely that he will be offering himself to work there in any future programme.

[Noble Lords]

Oh!

[Lord Henley]

It seems the House would like the noble Lord to be working there; whether he wants to is a matter for him and his family.

As I said in response to my noble friend’s question about the same site, I am not fully up to scratch on this and it would probably be better if I wrote to the noble Lord with further details. As I said in the Statement, my right honourable friend the Secretary of State is there, as is my colleague, Richard Harrington.

[Lord Berkeley (Lab)]

My Lords, the Minister welcomed the various technologies being proposed for future nuclear, but is he aware that the technology being used at Hinkley Point is a French one that is not approved, for safety reasons, in the power stations they are building in France or in Finland? He mentioned the cost of electricity in relation to Swansea Bay, but the cost to the consumer of Hinkley Point will, I believe, be one of the highest of any production we have in this country. Can he make sure that the technology for all these proposed future nuclear stations is proven before massive amounts of money are spent?

[Lord Henley]

My Lords, we have started on Hinkley—that is going ahead and I am satisfied, as is the department, that it is safe. The strike price there was on the high side, but the cost of other proposals being recommended by the Liberal Party—for example, Swansea Bay—are considerably higher and it is right that we look at something of lower cost. We are looking—I cannot speculate on what figures we will get to—to get lower prices for the site at Wylfa in Anglesey. We will continue to do this and that is why we want to go on seeing that 30% reduction in new-build costs between now and 2030. That is what the sector deal is all about.

Domestic Gas and Electricity (Tariff Cap) Bill

Lord Henley Excerpts

Report stage (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

[Lord Mackay of Clashfern]

My Lords—

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

I think my noble and learned friend would like me at least to respond before he seeks to withdraw his amendment. I echo his congratulations to the noble Lord, Lord Carlile, on his last appearance in the courts after many years. I hope that as a result we will see him in this House—but perhaps speaking to amendments where he might want to support the Government.

I hope that I can set out the Government’s arguments in responding to my noble and learned friend and that in doing so it will be useful to the House to get our views on the record. As we discussed in Committee, Amendment 3 would insert a right of appeal regarding the price cap to the Competition and Markets Authority. As I said in Committee, we believe—as did the BEIS Select Committee when it looked at this, and others—that judicial review provides a sufficient means of challenge to ensure the provision of a fair and public hearing within a reasonable time by an independent and impartial body established by law. As I understand it, the belief is that the decision of Ofgem when it puts the cap in place should be reviewed by another body of experts—specifically the CMA—because Ofgem could get something wrong.

As my noble and learned friend made clear, in Committee I undertook to write to the CMA to seek its views on his amendment. I felt that it would be prudent to see what the CMA had to say about creating what would be a new right of appeal to that body relating to a decision taken in exercise of Ofgem’s powers under the Bill.

The CMA’s chief executive has been kind enough to respond with a letter, which I have already shared with some noble Lords, and I would be more than happy to make it available to your Lordships more widely if necessary. The letter makes three things clear. First, the CMA shares the Government’s view that judicial review is an appropriate means of holding Ofgem to account and providing parties with a right to challenge. Secondly, the CMA shares the Government’s view that judicial review is the appropriate means of holding Ofgem to account and providing parties with a right to challenge. Thirdly, the CMA makes it clear that it does not consider itself best placed to conduct such a review and questions whether doing so would benefit consumers.

--- Later in debate ---

[Lord Teverson (LD)]

My Lords, it seems to me that the noble Lord, Lord Hunt of Wirral, should have voted against the Bill at Second Reading because he clearly does not believe in it. I have my own reservations about how this absolute price cap will work, but the relative price cap proposed in the amendment is a much better way of doing things. Ofgem will not have to set a cap under that regime; the companies themselves will set the cap by their entry rate. That is why this system works.

The only reason I disagree with the amendment, although I support it because it would make the Bill much better than it would be otherwise, is because we should have a relative cap immediately and not worry so much about the absolute cap. In fact, we could have both at the same time. At least the amendment would introduce a relative cap. As the noble Baroness, Lady Kennedy, has said, it would remove the “tease and squeeze” factor, which is one of the worst aspects of the energy market and price comparison sites. We would achieve our long-term aim of having rates that reflect market conditions, leading to competition on an even playing field that people can understand. It seems to me that the relative price cap is hugely superior to the absolute price cap that Ofgem is being asked to implement.

I support this amendment. I just wish that the relative price cap could be brought forward to now rather than after the present price cap ends, but this is a way for the future and the right approach. All Ofgem has to decide is what the maximum differential should be, and then the energy companies would decide their own cap. What could be better? I cannot understand any argument against a relative price cap. It just makes so much sense.

[Lord Henley]

My Lords, the noble Lord, Lord Grantchester, has put forward his amendment and it is quite obvious that he is in favour of it. I have to warn him that if he is intending to press this amendment to a vote, it would possibly create further delay and uncertainty and, whatever anyone’s views on the Bill, we on these Benches and noble Lords opposite feel that it is important to get it on the statute book as quickly as possible so that those whose duty is to do so can get on with finding the appropriate cap and get it in place before the cold weather arrives. It might be that in this wonderful spell the noble Lord has forgotten what cold weather is, and I will remind him of that come November. We want Ofgem and others to be able to get on with their work, and any delay which this amendment might create would be unfortunate.

I am grateful to hear from various elements on the Liberal Democrat Back Benches. I do not know what the official view of the Liberal Party is, but I am grateful to the noble Lord, Lord Redesdale, who gave very concise and encouraging reasons why this amendment ought to be opposed and emphasised that the situation is changing and we are facing a time when wholesale prices might rise. We also had an intervention from the noble Lord, Lord Teverson. I normally find the noble Lord a breath of clarity, but if I wrote his remarks down correctly, I think he said that he disagrees with the amendment but supports it and went on to say that he agrees with it—anyway, I was confused by his lines.

[Baroness Featherstone]

For the avoidance of doubt, the party’s position is to support the amendment.

[Lord Henley]

I am grateful to the noble Baroness, Lady Featherstone, for giving that clear and concise explanation of why the Liberal Democrats will support the amendment. I am also grateful that the noble Lord, Lord Redesdale, is prepared to stand up against the might of his party whips and explain why he thinks it is not such a good idea. I am also grateful to the noble Baroness, Lady Kennedy of Cradley, for her remarks. I agree.

[Lord Redesdale]

I am grateful to my noble kinsman— I always like saying that; it is so rare to be able to say that in this House now. For the avoidance of doubt, I do not support this Bill in any shape or form. I think it is a very bad piece of legislation. However, I think this amendment might make a very bad piece of legislation somewhat unworkable.

[Lord Henley]

I thank my noble kinsman for that explanation, and make it quite clear that I am sure the reason for his support is nothing to do with the fact that we happen to be related, but he does bring a breath of fresh air to his Benches.

Turning to the remarks of the noble Baroness, Lady Kennedy of Cradley, I will come on to “tease and squeeze” later, but I agree with her that that is a problem, and we think there are ways to deal with that. She made it clear that she would like certain experts from the industry to talk to Ministers, and if she gets back to me I will certainly make sure that that is possible. I would be more than happy to talk to them as the Bill continues its passage—but we are near the end of it—about life post the Bill and under the new arrangements.

The noble Lord, Lord Grantchester, is seeking to place a duty on Ofgem to develop a relative price cap that would come into effect on the termination of the tariff cap conditions which are set out in this Bill. The noble Lord is nodding in assent, so I think that I have got it right. That would cap each supplier’s most expensive advertised standard variable and default-rate tariffs as a proportion of its cheapest fixed-term deal, and again, Ofgem would set the differential. The new clause would be inserted by the amendment and its effect would be to introduce an indefinite relative price cap. It remains the Government’s position that this amendment is not necessary, and I hope to set out why we believe that that is the case.

It is not the intention of this Bill or the Government to put in place a permanent market-wide cap, as I have explained on earlier occasions, and I would pass that on to my noble kinsman Lord Redesdale. I know that the intention of the amendment is to stop the practice of “tease and squeeze”, whereby customers are lured in with a cheap fixed rate and then fall into an expensive default rate at the end of the fixed term. However, as with any relative cap, there is a risk that under this proposed amendment suppliers would raise their least expensive tariffs rather than decrease their most expensive standard variable rates. That is the Government’s fundamental concern about any kind of relative price cap.

The Government and others, which includes the detailed work done by the BEIS Select Committee during its pre-legislative scrutiny of the Bill, believe that a relative price cap would not work. Indeed, a relative cap as a permanent feature of the market risks undoing the work of the temporary absolute cap, because it would remove the incentive for the market to innovate and reform. I would emphasise in particular those points to the noble Baroness, Lady Kennedy of Cradley, who I think possibly did not understand how markets work. It also puts in place a solution to a problem that is anticipated some years hence. We believe that it is better for Ofgem to consider what measures may be needed once the price cap is lifted rather than prejudge the situation now and tie Ofgem’s hands in a way that might damage consumers or be ineffective.

The key way of ending the practice of “tease and squeeze” will be the detailed work that Ofgem is undertaking to develop better ways of securing customer engagement. The work was emphasised by the noble Lord, Lord Grantchester, when he talked about smart meters. It will make switching quicker and more reliable, so smart meters and other programmes will help to make the market work better.

I recognise the concerns of noble Lords opposite in this area and the need for action to protect consumers following the removal of the price cap, should that be necessary. In acknowledging this, I can confirm a triple commitment by the regulator on this issue. I can confirm that Ofgem has committed to assessing whether ongoing protection will be needed for vulnerable consumers beyond the end of the price cap. I can confirm that Ofgem considers that it can implement price protection for selected consumers should that be appropriate. I can also confirm that, ahead of the price cap ending, Ofgem has committed to producing a report on what additional protection might be needed, who needs that protection—we are thinking of vulnerable consumers—and what form that protection should take. Following the production of that report, Ofgem will act accordingly. I repeat: Ofgem will act accordingly having produced a report on what additional protection might be needed, who needs the protection and what form that protection should take.

The House might also have seen Dermot Nolan, the chief executive officer of Ofgem, giving evidence to the BEIS Select Committee during its pre-legislative scrutiny of the Bill. He was asked whether a price cap or other protection might be needed for vulnerable consumers upon the removal of a market-wide price cap. Mr Nolan responded:

“In my view, yes. … I would envisage a very possible situation in which if a full, marketwide price cap was removed, Ofgem would continue with the price cap for vulnerable customers”.


I hope that those commitments from the regulator, alongside the comments of its chief executive officer, would go some way to reassuring noble Lords, including the noble Lord, Lord Grantchester, of Ofgem’s capabilities and stance towards protecting consumers beyond the life of the Bill. I hope that my explanations have been helpful and that the noble Lord will therefore see fit to withdraw his amendment.

Hinkley Point C

Lord Henley Excerpts

Tuesday 26th June 2018 Lords Chamber

[Baroness Featherstone]

To ask Her Majesty’s Government, further to the Written Statement by the Secretary of State for Energy and Climate Change on 17 July 2013 (HC Deb, col 106WS), how the package of benefits for communities in the areas around Hinkley Point C has been implemented so far; and how much the benefits provided to date have been worth.

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

My Lords, as stated in 2013, community benefit would not begin paying out until the plant is operational, which for Hinkley Point C is anticipated to be in 2025. However, communities are already seeing significant local economic benefits from the project, through investment in wider infrastructure, new employment opportunities and benefits for the local supply chain.

[Baroness Featherstone (LD)]

I thank the noble Lord for that Answer, but I think the local community were expecting something a little sooner, from business rates, which would have come in the local government finance Bill, but that was not in the Queen’s Speech. I take into account what the Minister said, but, given that Hinkley is already under construction, the local council there does not feel that the community is feeling the benefit. It was promised £128 million. What alternative arrangements are the Government making to deliver that? The community needs clarity.

[Lord Henley]

My Lords, there is absolute clarity, and there was absolute clarity in the original Written Ministerial Statement made by my honourable friend—I shall just double-check which one it was—my honourable friend Mr Fallon, back in July 2013. That is all of five years ago, and he made it absolutely clear that these particular benefits would not come into play until Hinkley Point was operating. That will, as I said, be in 2025. So there is clarity there. Other benefits are obviously coming through the work of construction, and improvements to local infrastructure are already happening; I think that EDF has already spent £45 million to date on assisting the local community with accommodation, economic development, education and skills, transport, environment and more. Obviously there is a certain amount of disruption; that is a matter for the original planning consent. Economic benefits are on their way and are coming—but what the noble Baroness asked about will not come into play until 2025.

[Lord Grantchester (Lab)]

I support the Question asked by the noble Baroness. I thought that there were to be two phases to the benefits. There was to be an initial first phase, to which I think the noble Baroness was referring, which will be company supported. My question is about the fact that, when we consider the technicalities of these community arrangements, it looks as if the taxpayer is funding more of the benefits than the company. My interpretation of the Written Ministerial Statement made all those years ago was that there would be a two-year gap between the end of phase 1 benefits and the start of phase 2 benefits, so can the Government look at whether the company can bridge that gap and make further contributions during this period?

[Lord Henley]

My Lords, again, there is no lack of clarity on this. The Statement made five years ago—“all those years ago”, as the noble Lord put it—made it absolutely clear that the approximately £128 million which was likely to come through business rate retention would come after the plant became operational. Meanwhile, there will be the benefits that I enunciated, which will come through the company building this project. On top of what I already mentioned, there is the spend it is making down the supply chain in the west of England—£450 million so far. So considerable benefits are already on their way, but business rate retention does not come into play until later.

[Lord King of Bridgwater (Con)]

My noble friend will be aware that this is taking place in my former constituency. It is one of the largest construction projects in Europe. People there are already facing fantastic lorry traffic: a figure I saw recently was 750 lorries a day going along not entirely ideal road routes. The local community is already making a substantial contribution by tolerating this terrific volume of construction traffic and all the work involved in it. My concern—the noble Baroness, Lady Featherstone, made this point—is that I understand that the real community benefit does not kick in until 2025. Actually, the community is making its contribution now. A lot of people do not have jobs there and will not be working there—some will, but only a relatively small number. We ought to find some way to ensure that the community benefit takes place at the time when the community is really suffering as a result of the present commotion and activity.

[Lord Henley]

My noble friend, with his local knowledge as the former Member for that area, knows exactly what his former constituents are going through, and he is right to address those points. All sites of this sort go through a rigorous planning process. In that process, it is possible for the planning authorities to grant planning permission through a Section 106 agreement, looking to get benefits from the developers in that area. That has been dealt with by the local authority in that process.

On top of that, as I made clear in earlier answers, there are also the advantages to the area through spend in the area—I mentioned the spend directly on the site, on the roads and on other things, the contribution that EDF is making, as well as the spend on the supply chain in the entire south-west region.

[Lord Teverson (LD)]

My Lords, we are often told that one Parliament cannot bind the actions of the next, and we are in another Parliament now. Clearly, as the noble Lord, Lord King, said, the disruption to the local community is now. So why do the Government not think that it would be better to bring these payments forward? The district authority, Sedgemoor, has proposed that ridding the district of fuel poverty would be an excellent way to use some of the money—appropriate and something that could start now. Surely the Government could do that.

[Lord Henley]

My Lords, we have a process, we announced what that process was and that process is to bring in benefit to the area when the plant becomes operational. Meanwhile, there are other ways in which EDF can help, which I have gone through—the Section 106 agreement and other things, and the spend it is making in the area which, again, is of benefit to the area. I could go on listing—

[Noble Lords]

No.

[Lord Henley]

Obviously the House does not want me to, but I was going to quote from EDF’s paper, Realising the Socio-economic Benefits, which sets out just what it is doing on jobs, apprentices, local roads, communities and education. I shall leave it there.