Long-duration Energy Storage (Science and Technology Committee Report)
Lord Leong Excerpts(1 week, 6 days ago)
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Viscount Hanworth (Lab)
My Lords, at this late stage of the debate, I am bound to be repeating much of what has already been said. I beg your Lordships’ indulgence for this. My speech may therefore be regarded as a summary as much as a commentary.
Today, we depend largely on renewable sources of energy for generating our electricity. Wind power is the largest component in the mixture of renewable power, and its highest share was achieved on 19 November 2023—between, I believe, 4.30 am and 5 am—when it reached 69%. Such widely proclaimed facts tend to divert our attention from the unreliability and intermittency of renewable sources of power. They are in short supply in periods when the wind does not blow and the sun does not shine.
In such circumstances, our present recourse is to rely on gas-fired power stations to fill the gap in the supply of electricity. These stations are a legacy of a previous era of electricity supply, when North Sea gas was plentiful and cheap. The gas-fired power stations rapidly replaced the coal-fired power stations. However, gas is not cheap and, moreover, burning it releases carbon dioxide, which is the principal agent of global warming. If we are to continue to rely on these power stations, the carbon dioxide that they release must be captured and sequestered underground.
In the absence of gas-powered electricity generation, additional sources of power must be found. Also, a means of storing energy must be found that is available for generating electricity at times when the renewable energy is in short supply. Two leading questions arise. The first concerns the urgency with which these recourses should be pursued, and the second concerns the proportions in which the storage and the additional power should be provided.
The report of the Science and Technology Committee that is the subject of today’s debate emphasises the urgency with which long-term energy storage must be provided, and makes it abundantly clear that the necessary actions to avert an energy crisis are not being taken in good time. To substantiate this aspersion, one needs only to read the recent documents published by NESO—the National Energy System Operator—which is the agency responsible for advising the Government. A simple way of assessing its outlook is to search for “storage” throughout its documents. One will discover that it is to be found mainly within the phrases “carbon capture and storage” and “storage heaters”. There are few instances of the phrase “long-term energy storage”, nor is there any assessment of the available capacity for such storage.
A truth that is revealed by the report of the Science and Technology Committee is that there is only a limited capacity in the UK for storing gas. The current capacity is devoted to storing natural gas. We are told that the UK stores 10 terawatt hours of natural gas, compared with 217 terawatt hours in Germany, 122 in France and 162 in Italy. This startling disparity is explained by our tendency in the past to treat natural gas from the North Sea as if it were on tap. It is no longer readily available to us in this manner.
We must envisage a greatly enlarged future demand for gas storage in underground locations. It will have three aspects. In the short term, there will be a continued and, indeed, increased demand for the storage of natural gas. An enlarged store should partly protect the UK from the volatility of gas prices. There would also be a requirement for the underground storage of captured carbon dioxide, which would permanently pre-empt some of the storage capacity. There should also be a requirement for storing the hydrogen that would be required to alleviate the intermittent scarcity of renewable energy.
The committee report tells of a lack of concern on the part of officials in the face of these circumstances. They are unable accurately to assess what the future requirements for gas storage might be. In the absence of certainty, they are disinclined to take action. The report suggests that action must be taken immediately despite this uncertainty.
The report also suggests that long-duration storage facilities can take seven to 10 years to build and require considerable upfront investment. The problem in providing this gas storage is due in part to the difficulty in devising appropriate incentives to encourage the private sector to undertake the task. A so-called strategic reserve of gas, to be called upon in the rare event of a prolonged dearth of renewable energy, does not offer an attractive investment prospect for private enterprise. This has been demonstrated by the partial closure by Centrica of the Rough offshore gas storage facility on the grounds that it was uneconomic to maintain it. I would suggest that the appropriate word here should be “unprofitable” rather than “uneconomic”.
Neoclassical economic doctrines have come to dominate the thinking of politicians and civil servants, which has made it difficult for them to accept that there is no viable market solution to this conundrum. They hesitate to accept that such a strategic reserve should be in public ownership.
The next matter concerns the sources of our energy. A report from the Royal Society proposes that we should rely almost exclusively on renewable sources of energy—on the wind and the sun. It is proposed that surpluses of electricity from these sources should be used to generate hydrogen by the electrolysis of water. Then, in times of a dearth of renewable energy, the hydrogen should power turbines and reciprocating engines, driving electricity generators. The proposal would involve a major investment in energy infrastructure. Facilities for generating hydrogen and using it to generate electricity are also required. Additionally, a network for piped hydrogen would be required. The electricity network would need to be updated to transfer the power from the remote places where it is generated to places where it might be used. Alternative recommendations involve various amounts of electricity generated by nuclear power.
Viscount Hanworth (Lab)
I shall be fairly brief. One recommendation, which I strongly support, proposes that small advanced modular reactors should be deployed to provide heat and power for both domestic and industrial users. The inherent safety of fourth-generation nuclear technologies will allow the reactors to be located near the industrial users, thereby reducing demands.
Viscount Hanworth (Lab)
Please let me encapsulate this final point. The time is advisory, not mandatory. I have a major point to make.
The small size of the reactors would be an advantage in this connection in comparison to the so-called small modular reactors which typically have a power output of 300 megawatts, which is more than an industrial user might require. Batteries of advanced modular reactors could be used to create large electricity-generating power stations. A sad fact to which I must testify is that Britain is losing its projects for developing such reactors—they are closing though lack of funds or finding sponsors in other countries.
King’s Speech
Lord Leong Excerpts(1 year, 2 months ago)
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Lord Leong (Lab)
My Lords, it is a pleasure to follow the noble Duke, the Duke of Wellington. I take this opportunity to congratulate the noble Lord, Lord Gascoigne, and the right reverend Prelate the Bishop of Norwich, on their excellent speeches. I look forward to their contributions in the years ahead.
This time last year, I was introduced in your Lordships’ House, so it was a great honour, exactly one year later, to be in the Chamber to listen to His Majesty the King’s gracious Speech. Apart from my first anniversary, however, there was very little to celebrate. Indeed, on the crucial subject of the economy, there was very little in the Speech. It does not take a political mastermind to work out why: interest rates are at their highest since the 2008 global financial crisis; and inflation is at more than three times the Bank of England’s target rate, with underlying indicators suggesting that further falls will be sluggish. The British people are paying the price of this failing Government, through 25 Tory tax rises and much higher mortgages. Does the Minister agree that there is really nothing to crow about?
At the start of this year, the Prime Minister and Chancellor promised to get the economy growing. Last week’s GDP figures show that growth is flatlining, yet this is met with a mixture of relief and tepid celebration on the Government Benches. The Chancellor put it down to high inflation. Does the Minister believe that if inflation comes down to the Prime Minister’s personal target of half what it was in January, we will see growth rise significantly, or is just avoiding recession now the limit of this tired Government’s ambition? According to the IMF’s World Economic Outlook report, the UK is forecast to record the weakest growth of all the G7 economies next year, while our national debt is at historically high levels. Will the Minister inform your Lordships’ House what the UK’s current national debt is, and how many millions servicing debt interest will cost us over the coming years?
Looking at the few economy-related Bills in the King’s Speech, I welcome the reintroduction of the Digital Markets, Competition and Consumers Bill, carried over from the previous Session. The additional protections for consumers in the rapidly evolving online marketplace are broadly agreed cross-party and in both Chambers. Sadly, the digital divide in the UK is increasing, just as connectivity becomes ever more important for people’s access to fundamental services, information and financial transactions. The inequity of access to online learning for the poorest households was evident during the pandemic and risks becoming entrenched for the next generation, yet there is no indication that the Government have a plan to address this, or even any answers on the scale of the problem. Can the Minister confirm how many households do not have, first, broadband, and, secondly, mobile internet access, and indicate what the Government plan to do to reduce those numbers?
Labour is a proud pro-business, pro-trade party and we welcome any deal which increases the export potential for British businesses and improves choice for British consumers. However, unless and until we fundamentally address our long-standing and widely acknowledged low productivity problem, joining a trade organisation containing
“some of the world’s most dynamic economies”
will not transform our economy. It reeks of desperation—a bit like the nerdy kid in a school hanging round the cool kids, hoping that some of their success might rub off. I fear the Government’s claims for the CPTPP trade Bill are optimistic, to say the least. Parliament must have the chance to properly scrutinise this deal. Can the Minister ensure that it will deliver for British people, workers, businesses and consumers and will not diminish their hard-won rights and environmental protections?
Our great country deserves so much better than this fag-end Government and their uninspiring set of Bills which fail to address the fundamental issues facing the British economy. Labour has a radical vision for an economy that works for the whole world. Regrettably, the gracious Speech is another missed opportunity from this Government, a half-hearted final throw of the dice by a Prime Minister with his back to the wall in the last chance saloon of a one-horse town at the end of the road to nowhere.
UK Economy: Growth, Inflation and Productivity
Lord Leong Excerpts(1 year, 6 months ago)
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Lord Leong (Lab)
My Lords, I thank my noble friend Lord Eatwell and congratulate him on securing this debate.
Many of us will remember the phrase “broken Britain” being used frequently by the Conservatives in the 2010 election campaign. Few of us welcome the fact that 13 years later, it is one of the very few Tory slogans which we can say they have actually delivered.
Last week’s inflation figures showed that not only is CPI falling less quickly than was hoped but core inflation has risen to 6.5%, as several noble Lords have already mentioned. Economic forecasts for the medium term are being revised down, as interest rates are going up. Growth remains anaemic: almost two years after the pandemic lockdown ended, our national economy is virtually flatlining, and the spectre of recession still looms.
My noble friend Lord Wood of Anfield has already mentioned investment. The UK’s level of investment as a proportion of GDP fell below the median G7 level in 1990 and has been declining in real terms since then. A recent IPPR report, which I recommend noble Lords read, noted that:
“The UK fell to the bottom of the”
G7
“ranking in 2019, but other countries increased their levels of investment after the pandemic faster than the UK, further widening the gap. In 2021, the UK ranked 27th on business investment among the 30 OECD countries”.
These most recent figures show that the only developed countries with proportionately less private investment were Luxembourg, Poland and Greece. We absolutely must address this.
However, no matter how difficult the situation, I do not intend to advocate despair. My noble friend Lord Eatwell so clearly set out the dire set of figures. Therefore, having honestly assessed where we are, let us consider what we need to do to get where we want to be. We want to see a country where all regions and communities have access to the same opportunities and can benefit from economic growth. Part of the problem in the United Kingdom is the dominance of certain sectors, such as financial and professional services, which has led to a disproportionate concentration in London and the south-east.
With targeted investment and research and development support, coupled with policies that encourage investment, innovation and entrepreneurship, we can create a more diversified and resilient economy. We can unleash innovation and growth in industries such as manufacturing, clean energy, technology and the creative sectors by encouraging economic clusters of interconnected businesses in various geographic locations outside London.
Our devolved nations and metro mayors are bursting with ideas. They have a deep local understanding of the industries and skills in which their areas excel. By fostering collaborative regional partnerships, improving local infrastructure, attracting private investment to emerging centres of excellence and international excellence, we could transform the economy.
Alongside this, we must develop our skills agenda, especially in STEM subjects, which have to be embedded in the school curriculum and extended into lifelong learning. To face the fast changes of the 21st century, workers will need to think about skills for life, rather than jobs for life, to remain resilient and adaptable throughout their working lives in a climate of increasing technological disruption. We need a targeted plan of investment which supports people to return to and remain part of the workforce, which enables them to learn and develop skills leading to well-paid jobs and which reinforces local and regional networks, which deliver the much-needed sustainable long-term growth that we all want.
The people of this country are, and have always been, our greatest asset. Let us invest in them, unleash their potential and hear the British lion roar again.
Financial Services and Markets Bill
Lord Leong ExcerptsTuesday 21st March 2023
(1 year, 10 months ago)
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Lord Leong
“Regulation of factoring companies
(1) Within one year of the passing of this Act, the Secretary of State must by regulations make provision for factoring companies to be regulated by the FCA.(2) Regulations under this section are subject to the affirmative procedure.”Member’s explanatory statement
This new clause would bring factoring companies, those which provide, arrange or facilitate invoice discounting or factoring, into FCA regulation.
Lord Leong (Lab)
My Lords, I rise to speak to Amendment 241E in my name. Start-up and scale-up businesses, especially small and medium-sized business, occasionally face the issue of managing their cashflow, especially when expanding. Traditional funding through banks has diminished since the 2008 financial crisis and often, in looking for a more flexible, less onerous solution, businesses look to factoring or invoice-discounting companies. I used many factoring companies when I started my businesses and when we ran into a bit of a cashflow situation.
The model for this is straightforward: the factoring or discounting company pays the client typically 80% to 90% of the value of invoices they have raised for goods or services supplied and then either assumes responsibility for the debt itself or bills the client for the amount given, plus a percentage fee, when the invoice is settled by the customer. This enables the client company to operate and expand with limited capital. It effectively does not have to wait for the normal 30, 45 or, in some cases, 60 to 90 days settlement period, which is typical for larger companies and many public sector organisations. This model is typically used in sectors with long payment cycles that require the purchase of goods or raw materials to create products and in international transactions.
However, there has been considerable growth in this sector in recent years due to the uncertainties and disruptions caused by the pandemic, Brexit and the war in Ukraine. Like any well-run financial services, when times are good, such arrangements are mutually beneficial, but if the financial crisis of 2008 has taught us anything—and I hope it has—it is that the money ultimately must come from somewhere, and problems with financial instruments often become apparent only when things go wrong.
Factoring as a concept has existed for a very long time, but its use has grown rapidly in recent years. UK Finance, the collective voice for the banking and finance industry, maintains an independent standards framework setting out and enforcing standards for its members that clients can expect from providers of invoice finance or asset-based lending. However, companies do not have to become members to operate in this sector. This is why I have tabled Amendment 241E as a probing amendment. There are concerns that factoring and invoice discounting risk becoming a scandal for small businesses equivalent to the payday loans rip-off for consumers. Unscrupulous companies can obfuscate fees, and interest rate charges of 2% to 4% for a period of 45 to 60 days seem low but equate to 18% to 24% per annum, which is a relatively expensive way to finance a business in the medium to long term.
Many companies offer their service “with recourse”, which asserts the lender’s right to be paid their fee even if the customer defaults on their invoice. This means that small companies could become liable for fees and interest charges on invoices that they have never been paid if, for example, their customer goes bankrupt. This is a rising concern, as there has been a sharp rise in insolvencies in the past 18 months and we are approaching levels not seen since the 7,000 insolvencies per quarter at the peak of the 2008 financial crisis, with almost 5,995 declarations of insolvency in the quarter ending January this year.
Dependency on the factoring model can develop; debts which have been purchased by a factoring company cannot be counted in the company’s balance sheet when applying for other financial products such as a bank loan. There is a danger that a company may find it difficult to move on to cheaper and long-term finance. There are a lot of companies operating in this space and, while many are entirely credible and reputable, we must recognise that, without FCA regulation, small businesses particularly are at risk of being exploited or taking on excessive fees or risks in their eagerness to survive and grow.
Of course, we cannot mitigate against all risks. As the very well-known fellow book publisher and former Member of this House observed, “Events, dear boy, events.” We know from recent history that clear, strong and effective regulation, such as that which can be provided and enforced by the FCA, can prevent excess and exploitation, and help us build a stronger economy in turn, with the passion, flexibility and innovation of SMEs at its heart. I beg to move.
Lord Harlech (Con)
My Lords, I thank the noble Lord, Lord Leong, and others noble Lords for their contributions on this amendment headed “Regulation of factoring companies”.
As noble Lords know, invoice factoring is a type of invoice finance where suppliers effectively sell their invoices at a discount to a finance provider in exchange for an advance. This means that suppliers can receive payments sooner, helping them to manage cash flow. Invoice factoring is an important product for British businesses, helping them to grow sustainably when they might otherwise struggle to do so. It is a relatively standardised product designed to help businesses manage their cash flow and support growth.
Businesses benefit from a diverse finance market made up of high street banks, smaller banks and a range of non-banks to ensure that they can continue to access suitable finance. This is particularly important to ensure that UK SMEs are accessing finance to support their goals and contribute to the UK’s growth agenda. We have discussed the approach to regulating small businesses in an earlier debate but, as noble Lords know, invoice factoring is not considered credit, because it is an advance on invoices already generated; therefore, any small businesses using these products do not benefit from protections such as those under the Consumer Credit Act, which apply to the smallest businesses taking out loans.
However, invoice factoring is generally used by larger SMEs that would not benefit from protections under the Consumer Credit Act in any case. UK Finance estimates that its members advanced invoice finance and asset-based lending facilities to just 35,000 firms in 2022, representing less than 1% of all UK businesses; in comparison, according to the SME Finance Monitor, 36% of SMEs—nearly 2 million of them—were using external finance in 2022.
However, the Government believe that businesses using invoice finance are well protected in other ways. The banking and finance industry has recognised that businesses should be able to use invoice factoring with confidence, so has taken steps to ensure that businesses have adequate protections. UK Finance members, representing between 90% and 95% of invoice factoring by volume, are subject to a standards framework and code, which set the standards that firms should meet when supplying invoice factoring facilities. They include an independent complaints process focusing on the requirements of those smaller businesses using invoice factoring, which might otherwise be reluctant to raise concerns about their treatment. For invoice factoring among larger firms, these businesses will have the financial and legal resource available to take action through the courts.
Bringing invoice factoring into regulation would likely increase costs for businesses. This would negatively impact the ability of these businesses to manage their cash flow in a flexible, cost-effective way at a time when it is important that they have the confidence to invest and expand. There is a fine balance between the costs and benefits when bringing activities into the regulatory perimeter. It requires careful consideration to ensure that there is an appropriate balance between several factors, including ensuring that consumer protection is in place and that businesses are allowed to innovate.
Overall, the Government believe that the current approach—enforcing standards through industry bodies and voluntary codes while facilitating innovation and competition—is more likely than new regulation to drive positive outcomes for businesses that rely on invoice factoring. I therefore ask the noble Lord, Lord Leong, to withdraw his amendment.
Lord Leong (Lab)
I thank all noble Lords who have kindly supported this amendment. Access to finance is vital to start-ups and small companies; it is one way in which they can easily get money without any security. The number of small companies that have to resort to factoring invoice discounting is on the rise because banks are becoming more and more demanding as far as security is concerned. As I said in my speech earlier, my amendment is a probing one. I want to take this opportunity to ask the Minister this: can we do some more work to see how many companies access this form of finance and how many companies go bust because they cannot afford to pay some of the rates that are being asked by these companies?
On that basis, I beg leave to withdraw my amendment.