Contracts for Difference (Allocation) (Amendment) Regulations 2016
Baroness Neville-Rolfe Excerpts(9 years, 3 months ago)
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Baroness Neville-Rolfe
That the draft Regulations laid before the House on 6 September be approved.
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
My Lords, the proposed regulations amend a statutory instrument made under the Energy Act 2013. The instrument being debated today makes a simple amendment to the current regulations in order extend the contracts for difference scheme. Under the current regulations, the Government have the power to run an allocation round and allocate budget for renewables projects commissioning up to 2020. The proposed amendment extends the date for projects commissioning to 2026.
As noble Lords will see, the regulations are short but sweet. They are uncontroversial and are not of themselves trail-blazing. They passed through the Joint Committee on Statutory Instruments and Secondary Legislation Scrutiny Committee without note, and were welcomed yesterday in the other place. Members of the House with a keen eye for matters such as a common commencement date will note that the regulations do not come into force on one of the set dates for common commencement. That is because they fall outside that scheme, as the impact of these specific regulations on business, charities and voluntary bodies is negligible. However, it is right that attention is drawn to the costs to consumers and businesses of the broader operation of the contracts for difference scheme, which is why the draft Explanatory Memorandum includes the impact assessment for the scheme as a whole.
It is timely that we are debating this today, given that the National Audit Office published its report on its inquiry into the levy control framework last week. Clearly, a lot of that report focuses on the past. One of the things that it recognises is that we now have a much more robust process in place. In fact, the NAO says that it is a model we should apply more widely, and we will look into doing so. However, there is always room for further improvement and we are considering the NAO’s recommendations carefully. The Public Accounts Committee will discuss the report with officials from my department at the end of November.
There are two points that I would like to touch on. On the first, investor confidence, Bloomberg New Energy Finance rated the UK fourth globally for new investment in renewables for 2015, and there is a healthy pipeline of projects, suggesting that investors see the UK as a good place to invest. At Budget 2016 we gave investors the longer-term certainty they need by announcing £290 million of annual support for the next contract for difference allocation round for projects commissioning from 2021-22 onwards. The instrument being debated today enables us to deliver on that and enables future allocation rounds to take place. This demonstrates our continued commitment to contracts for difference and the renewables sector.
On value for money, the early investment contracts examined in previous NAO reports proved to be more expensive than the projects which came along later as part of a competitive process. Here we are focusing on contracts for difference for renewables which drive competitive tension, resulting in a reduced price and better value for money for household bill payers. They also give eligible generators increased price certainty through a long-term contract. Investment should therefore come forward at a lower cost of capital and at a lower cost to consumers.
The contracts for difference scheme is designed to incentivise the significant investment required in our electricity infrastructure in order to keep our energy supply secure, keep costs affordable for consumers and help meet our climate change targets, playing our part in working towards the 2050 targets on climate change agreed in Paris and reinforced at the G20.
We plan to run the next allocation round soon. As noble Lords will be aware, the first CfD allocation round was held in October 2014, leading to contracts being signed with 25 large-scale renewable generation projects, at significantly lower cost than those projects would have cost under the renewables obligation scheme—a total of £105 million less.
I am glad to say that, in June 2016, Charity Farm solar park in Shropshire was connected to the grid, becoming the first project under contracts for difference to begin generating power. The 12 megawatt project will provide enough power for more than 4,000 homes, and a further 360 megawatts of capacity is on track to commission by spring 2017 from three other projects.
I commend these important draft regulations to the House.
Baroness Neville-Rolfe
I thank the noble Lord for his helpful remarks and for the welcome he has given the order this evening. As I said earlier, the regulations that the Government seek to amend through this instrument affect the contracts for difference scheme designed to incentivise the significant investment required in our electricity infrastructure to keep our energy supply secure and the costs affordable for consumers, and to help meet our climate change targets. The instrument being debated today enables us to continue to deliver on that by allowing future allocation rounds in order to deliver new renewable generation capacity into the 2020s and to give confidence to investors for the future, which the noble Lord rightly emphasised.
The noble Lord was kind enough to mention his concerns about the dates in the Explanatory Memorandum. In particular, he asked why there is an apparent gap—from 2020 to 2021—in paragraph 7.2. The levy control framework presently runs until 2021. He is right to note that there are different periods, and that is in fact intentional. The regulations relate to the legal power to open up delivery years. We have already ensured investor confidence by announcing at Budget 2016 £730 million of support for projects commissioning —that is, delivering—between 2021 and 2026. We have made a conscious decision not to have a CfD round for less-established technology projects that start to generate electricity before 31 March 2021 because of the potential overspend in the current LCF period, which runs until March 2021. We are of course committed to delivering our decarbonisation objectives but not at any cost. Therefore, we are not planning to offer more CfDs for deployment within the current LCF period.
Paragraph 10.2 of the Explanatory Memorandum covers the administrative costs of running the scheme, not the subsidy being provided to developers through CfD auctions.
Turning to the levy control framework, we are within the headroom permitted under the LCF and, as the noble Lord knows, we have already taken action to reduce spend by around £520 million up to 2020. The levy control framework covers the renewables obligation and the feed-in tariff, as well as CfDs. Our focus on supporting new renewables is through the contracts for difference scheme using competitive tendering, as I said in my introduction, to drive down prices and therefore the costs to consumers. The Treasury announcement focused on that CfD scheme, which is giving investors the confidence they need going forward. It did not mention clawback. We have not taken a decision on the future of the levy control framework beyond 2021. The National Audit Office has recommended the extension of that framework beyond 2020. In response to the noble Lord’s question, we are considering that and the NAO’s other recommendations, and we will respond in due course.
Finally, the noble Lord mentioned the requirement to report after five years. There is a duty to report after five years on a wide range of matters, including CfDs, and I will certainly make sure that I personally look at that in the light of the points that he has raised this evening.
This is a non-controversial and important proposal. The time is late and I commend the regulations to the House.
Fuel Poverty
Baroness Neville-Rolfe Excerpts(9 years, 3 months ago)
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Baroness Donaghy
To ask Her Majesty’s Government what is their estimate of the number of households currently in fuel poverty; and what action they intend to take to reduce that number.
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
My Lords, the latest official statistics show that there are 2.38 million households living in fuel poverty in England. We are reforming the energy company obligation to improve the energy efficiency of the households that most need support. Combined with the support from the warm home discount, almost £1 billion a year will be spent on tackling fuel poverty from 2018. We also propose to raise the standards of energy efficiency in the private rented sector.
Baroness Donaghy (Lab)
I thank the Minister for her reply. She will know that the Prime Minister said:
“It’s just not right that two-thirds of energy customers are stuck on the most expensive tariffs”.
The Minister will also know that the figures she gave the House are a conservative estimate, because they do not include those who are in need of extra warmth because of old age or ill health. Could she elaborate on the Government’s intentions to achieve this improvement?
Baroness Neville-Rolfe
As the noble Baroness said, the Government are very focused on this issue. We are trying to improve the various schemes to focus them more on low-income and vulnerable people. We have a report from the Competition and Markets Authority looking at price, and at the key issue of pre-payment meters, which are extremely important for the poor and vulnerable—and which Lord Ezra, who used to ask questions on this subject, did so much to bring to everyone’s attention.
Baroness Gardner of Parkes (Con)
Does the Minister agree that it is not only the price of fuel and heating that are important, but how you use them? In my days as a member of the London Electricity Board, we encouraged a programme to be sent, particularly to elderly and vulnerable people, telling them how they could intensify the use of one particular room at times when they would be at serious risk of ill health if they did more. At least we sent out information that could be useful to people to protect them. Are the authorities that produce fuel still doing that? If not, can it be sent out by a health department or someone of that type?
Baroness Neville-Rolfe
The noble Baroness makes an important point about the need to get the information to the consumer, which I very much agree with. Public Health England recently estimated that cold homes cost the NHS £850 million a year—so we need to get the regimes right, and we also need to communicate that well, both through the energy providers and more generally.
Lord Palmer (CB)
My Lords, in this day and age, is it not an absolute disgrace that any household should live in fuel poverty?
Baroness Neville-Rolfe
It is certainly a problem, and it has been a problem for successive Administrations. We are trying to move forward: as has been said, the Prime Minister has commented on this area. We need to reach right across the piece: recently I met Christians Against Poverty and discussed its work to help the most vulnerable in society. As with so many issues, this is quite complex. We need to move forward in the competition area, and with meters, and we need to make sure that the schemes for improving energy efficiency—a long-term way of reducing energy bills—are focused on those who really need them.
Lord Wallace of Tankerness (LD)
My Lords, the most recent increase in inflation was attributed in part to increased fuel prices. What assessment have the Government made of the additional number of households which will have dropped into fuel poverty because of even further increases as a result of the Brexit-induced decline in sterling? In these circumstances, will the Government consider unfreezing the freeze they put on working-age benefits and tax credits so that the first consequences of Brexit do not fall disproportionately on the poorest and most vulnerable households?
Baroness Neville-Rolfe
The noble and learned Lord makes some interesting comments. It will be difficult for me to say yes today. However, I can say that we are continuing the winter fuel payments, which are very important to the 12 million pensioners who benefited from them last winter. We are also taking steps to make sure that this market works well so that affordable fuel is available. We are seeking an energy policy which is secure, clean and affordable for people.
The Lord Bishop of St Albans
My Lords, there is a particular problem with fuel poverty in rural areas, particularly remote rural areas. What steps are Her Majesty’s Government taking to promote the use of renewable forms of heating, especially in off-grid areas in the countryside?
Baroness Neville-Rolfe
The right reverend Prelate is entirely right to say that there are special problems in rural areas. There has been a succession of schemes promoting renewables, some of which are particularly important in rural areas. I would like to talk to him further about the issues that he has encountered in this area so that we can make sure that, going forward, we focus on those as well.
Lord Grantchester (Lab)
My Lords, the UK energy system needs to digitise, just like TV and mobile phones. The building blocks for this revolution are smart meters, which create better opportunities for demand-side response measures to have a significant impact on fuel poverty. Will the Minister update the House on the introduction of the better markets Bill that could provide an effective start, such as a protective tariff for pre-payment customers? Are these measures a priority for the Government?
Baroness Neville-Rolfe
The rollout of smart meters and their proper use is very much a priority for us. Indeed, some of the changes that we will need for digitisation are already contained in the Digital Economy Bill, which is in the other place and will come here in due course.
Sharing Economy
Baroness Neville-Rolfe Excerpts(9 years, 3 months ago)
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Lord Holmes of Richmond
To ask Her Majesty’s Government what action they are taking to ensure that the United Kingdom becomes a global centre for innovation and growth in the sharing economy.
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
The Government commissioned an independent review on how to unblock the value of the sharing economy. Debbie Wosskow reported in 2014 and we have implemented many of her recommendations. The Government will consider whether further steps can be taken to support innovation in this area in their industrial strategy.
Lord Holmes of Richmond (Con)
My Lords, growth in key areas of the sharing economy, not least transport and housing, is to rise from 5% in 2014 to over 50% in 2025. Could my noble friend write to all relevant departments to ask what plans they have to make sure that we capture all the benefits of the sharing economy? In addition, how are things going with the two proposed hubs in this area which were announced in the 2015 Budget?
Baroness Neville-Rolfe
Part of the process of developing the industrial strategy is of course to bring in information from other departments on how major changes in the economy are affecting them. One of the things that we ensure when consulting business is that we always include the sharing economy element in those discussions. I will write to my noble friend about the hubs.
Lord Clark of Windermere (Lab)
My Lords, it is 60 years ago today that Britain became a world pioneer when Her Majesty the Queen opened the nuclear power station at Calder Hall. Nuclear power has plugged our energy gap for the past 60 years. When will the Government try to have some extra innovation and look at wave power so that we can plug the gap in the energy demands of the future?
Baroness Neville-Rolfe
As the new Energy Minister, I have been struck by the range of opportunities in energy. On nuclear, we have made the decision to go ahead with Hinkley and a potential whole new generation of nuclear power stations. We are looking at all these other areas and we have innovation expenditure. We will be sharing our thoughts further in due course—for example, in the context of the contract for difference decisions that are due in the coming weeks.
Baroness Burt of Solihull (LD)
In her Answer, the Minister claimed that the Government are protecting our global position as a world leader in innovation and growth. Could she then explain why, in the race for Brexit, they are shutting the door on the very global talent that we need—particularly for tech start-ups—to come to this country from Europe and the rest of the world?
Baroness Neville-Rolfe
The noble Baroness is right that skills—especially digital skills—are important to our economy. We are extremely aware of that, including in the context of the Brexit discussions. I am sure she knows about all that we have done to ensure that we can get diverse digital skills from abroad, where that is appropriate, and to develop digital skills here in the UK, both through lifelong learning education and, more importantly, in schools, with computing now being part of the curriculum from five to 16.
Lord Stevenson of Balmacara (Lab)
My Lords, in the last Administration the noble Baroness was a Minister not just in BIS but in DCMS—a post that she has now had to give up, although I in no sense cast any aspersions on her very successful successor. Since that Administration, the creative economy has been moved back to DCMS and higher education has been carved out and sent back to DfE. Given that she talked about the industrial strategy that is coming, and that we are all looking forward to, what arrangements are going to be made to ensure that the work on that will not be restricted to BIS?
Baroness Neville-Rolfe
I can give the noble Lord that assurance. Obviously an industrial strategy has to be wide-ranging and, as I have said, key things such as the development of the digital economy and skills have to be at the heart of that. There is a Cabinet committee under the Prime Minister looking at the development of the industrial strategy, and that is bringing together the strands of work across Whitehall. There have been departmental changes; we have gathered energy—a major and important area—and I am trying to get to grips with its important challenges.
Lord Ashdown of Norton-sub-Hamdon (LD)
My Lords, on the subject of the industrial strategy, I draw noble Lords’ attention to the situation in Yeovil, which is the last integrated site capable of designing, manufacturing and assembling helicopters. As a result of the Government’s short-sighted decision to grant the order for the Apache to the United States without any tendering whatever, the Italian owner, Leonardo, has now concluded that we do not seem interested in producing helicopters on a stand-alone site and is now shipping all the work on assembly back to Italy. What is needed now is the Government’s clear statement that they wish to see helicopters made in Britain, of British manufacture, for our Armed Forces, as they have been for nearly 50 years now. Does the Minister realise what will happen if that should vanish or be in doubt as the Government’s intention?
Baroness Neville-Rolfe
Helicopters are some way from the sharing economy, which is the subject of this Question. We are looking at the procurement rules on the sharing economy and in other areas to make sure that we get the best deal for Britain. We will be looking at all the issues regarding the industrial strategy. Coming from the West Country, I look forward to talking to the noble Lord further on the subject of Yeovil.
Lord Geddes (Con)
My Lords, reverting to the subject of wave power, I opened my account in your Lordships’ House 40 years ago on the subject of marine power. Will my noble friend concentrate rather more on tidal power than wave power, because I do not think any manufacturer has yet produced a machine that could withstand the forces of waves—but tidal power is another story altogether?
Baroness Neville-Rolfe
My noble friend is right: some innovative demonstration work is going on in Scotland and we are awaiting a report from Mr Hendry on a possible tidal lagoon in Swansea—and elsewhere.
Lord Haskel (Lab)
As the Minister knows, much of the investment and work in the sharing economy is intangible. What progress are the Government making on measuring that work, as recommended in the Bean report?
Baroness Neville-Rolfe
I think that the noble Lord is talking about the work by the ONS on a subject we have talked about before: how you measure the sharing economy. He will be glad to know that on 12 October the ONS produced a progress report on how we advance measurement, how we sample and how we collect data. It is difficult because a lot of sharing economy transactions are non-financial and do not always involve business. The answer is that the good questions that he has previously asked have now been reflected in the work of the ONS. I look forward to seeing the results—I hope in higher growth figures for the UK economy.
Hinkley Point C
Baroness Neville-Rolfe Excerpts(9 years, 5 months ago)
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The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Business, Energy and Industrial Strategy. The Statement is as follows:
“As the House knows, on 28 July, following a decision by the board of EDF to approve the final investment decision of the £18 billion project to build a new nuclear power plant in Somerset, I announced that the Government would carefully consider all elements of the project before announcing whether the Government would enter into a contract with EDF, and that we would make a decision by the early autumn. I can announce today that the Government have decided to proceed with the first new nuclear power station for a generation. However, this decision is made with two important changes.
On the Hinkley project itself, the Government will now be able to prevent the sale of EDF’s controlling stake prior to the completion of construction. This agreement will be confirmed in an exchange of letters between the Government and EDF. Existing legal powers, and the new legal framework, will mean that the Government are able to intervene in the sale of EDF’s stake once Hinkley is operational. Furthermore, and even more importantly, we will reform the wider legal framework for future foreign investment in British critical infrastructure.
These reforms will have three elements. First, after Hinkley, the British Government will take a special share in all future nuclear new-build projects. This will ensure that significant stakes cannot be sold without the Government’s knowledge or consent. Secondly, the Office for Nuclear Regulation will be directed to require notice from developers or operators of nuclear sites of any change of ownership or part-ownership. This will allow the Government to advise or direct the ONR to take action to protect national security as a result of a change in ownership. Thirdly, the Government will significantly reform their approach to the ownership and control of critical infrastructure to ensure that the full implications of foreign ownership are scrutinised for the purposes of national security. This will include a review of the public interest regime in the Enterprise Act 2002 and the introduction of a cross-cutting national security requirement for continuing government approval of the ownership and control of critical infrastructure.
These changes will bring Britain’s policy framework for the ownership and control of critical infrastructure into line with other major economies. This will allow the UK Government to take a fair and consistent approach to the national security implications of all significant investments in critical infrastructure, including nuclear energy, in the future. The changes mean that, while the UK will remain one of the most open economies in the world, the public can be confident that foreign direct investment works in the country’s best interests.
The £18 billion investment in Britain provides an upgrade in our supply of clean energy. When it begins producing electricity in the middle of the next decade, it will provide 7% of the UK’s electricity needs, giving secure energy to 6 million homes for 60 years. Furthermore, it must be stressed that the contract negotiated places all the construction risk on the investors alone. Consumers will not pay a penny unless and until the plant generates electricity.
The proposed strike price of £92.50, reducing to £89.50 if Sizewell C is built, contains important elements of insurance against any cost overrun in construction and future high gas prices, which have historically been volatile. It compares broadly with the costs of other clean energy, whether offshore wind with additional costs of intermittency, or gas with carbon capture and storage.
Hinkley unleashes a long-overdue new wave of investment in nuclear engineering in the UK, creating 26,000 jobs and apprenticeships and providing a huge boost to the economy, not only in the south-west but in every part of the country through the supply chain of firms, big and small, that will benefit from the investment. EDF has also confirmed that UK businesses are set to secure 64% of the value of the £18 billion investment being made—the biggest single capital project in the UK today. But as it is the first of a wave of new nuclear plants, we expect the experience of rebooting the nuclear industry to mean that the cost should reduce for future new nuclear power stations, of which another five are proposed.
In any consideration of nuclear power, safety will always be the number one consideration. The construction of Hinkley Point C will be under the close scrutiny of the Office for Nuclear Regulation, which is independent of the industry and of Ministers. The Office for Nuclear Regulation has the power necessary to halt construction or require amendments to any part of the plant if at any point it is not completely satisfied with the safety of any part of the reactor and its associated construction. Unlike in the past, the long-term decommissioning costs for the plant will be provided for explicitly as part of the funded decommissioning programme, at a level that has been assessed independently as prudent and conservative.
Any investment that provides significant electricity supplies for the next two generations of British people and businesses requires serious consideration. It was right that the new Government should have taken the time to consider all components of the project. Having reviewed the project, the Government are satisfied that the improved deal and the other changes announced today will, for the first time, remedy the weaknesses of the regime for foreign ownership of critical infrastructure.
It is important to get the right balance between welcoming foreign investment and ensuring that it serves the national interest. That is exactly what these changes will achieve. The investment will secure 7% of the UK’s electricity needs for 60 years, helping replace existing nuclear capacity, which is due to be decommissioned in the decade ahead. The electricity generated will be reliable and low carbon, and so completely compatible with our climate change obligations.
Hinkley Point C will inaugurate a new era of UK nuclear power, with UK-based businesses benefiting from almost two-thirds of the £18 billion value of the project, and 26,000 jobs and apprenticeships will be created. All of these developments are good for Britain. It is now right that we support this major upgrade, the first of many, to the infrastructure on which our future depends”.
Lord Teverson (LD)
My Lords, I, too, thank the Minister, but I have a different take on the pricing side. Some time ago, we had the resignation of the finance director of EDF. I have looked at the share price since the announcement was made, and it is going down. Does the Minister expect EDF to be solvent by the time this project is due to be delivered? That is a real risk, given the other problems at Flamanville and—I am not brave enough to pronounce the town in Finland—the Finnish nuclear station. Will EDF survive this? What are the contingency plans?
This decision was originally made some three years ago, and we have had this soap opera ever since, but time and technology have moved on. Given the assessments on smart grids, energy storage and the Government’s brave and correct interconnector plan, is this nuclear power station—and fleet of nuclear power stations—necessary? I for one am not against nuclear technology as such, but is this the right technology to go forward? The previous Minister in the House of Commons, the Secretary of State for DECC, Amber Rudd, was very keen on small nuclear reactors. I would be interested to know whether the Minister is still pursuing that area.
I accept and welcome the various measures put in place to protect taxpayers and the public sector against the future costs of decommissioning, but I am concerned about the nuclear waste issue. I cannot see that there has been any movement by the Government in terms of their nuclear waste strategy or where we are going to put even old nuclear waste, let alone new nuclear waste. How can we be sure that the funding that will be put in place for decommissioning will reflect such an undefined nuclear waste strategy for the future?
Now that we have got through this period of constipation on energy decision-making, when can we expect a decision on the Swansea tidal lagoon?
I want to take up another major element in the Statement that is really interesting and that I have debated with the Minister on previous occasions. The Government are saying that they will take a golden share in future nuclear and other critical energy projects. The Minister will not be surprised if I ask her whether the Government have consulted with the Office for National Statistics about this strategy. She is quite right to be sensitive about the issue and wanting to make sure that, in having even slight government control over a company or a project, it does not become part of the public sector and go on to the public sector balance sheet. However, this seems quite incautious in comparison with previous government policy, and it is quite likely that at some point this project, which is worth £18 billion, will be put on to the public balance sheet. If that is the case, surely we should have put our own public money into it, at a more or less zero long-term interest rate, rather than bother with Chinese and French investment because it is going to be on the public sector balance sheet anyway.
I shall leave my questions at that. Again, I thank the Minister for repeating the Statement.
Baroness Neville-Rolfe
I thank the noble Lord, Lord Grantchester, for his support. I agree that we do not want any further delays, although I take comfort from the fact that the costs are borne by the developer. Under the contract for difference, if the plant is not generating by 2029, the period in which the developer has increased price security will decrease and the Government have an option to cancel if it is not generating in good time.
I shall try to answer some of the noble Lord’s testing questions on the legalities. He asked about the legal basis of letters. Clearly, letters are not legally binding in the same way as the contract for difference, but they provide a clear political reassurance that we trust EDF will stick to. We have a mutual interest in this important project.
Perhaps I might go through the protections and thus respond both to the questions of the noble Lord, Lord Grantchester, and to those of the noble Lord, Lord Teverson. We will have a special share which would allow the special shareholder to intervene in any transaction where there were national grounds for doing so. That will not apply to Hinkley, which is being dealt with by an exchange of letters, but it will apply to future reactors. We have the Office for Nuclear Regulation which is a world-class, independent regulator that has a range of existing powers to intervene in developments. Under our proposals, we will require notice from developers or operators of any change of ownership or part-ownership. Most significantly, we will make proposals to establish a legal regime that allows us to consider the national security implications of all significant investment into our critical infrastructure, including nuclear. That will be the subject of widespread consultation on the details and will require legislation, so there will be opportunities to consider the proposals as we go forward.
For the Hinkley arrangement, we have tried to reach an agreement with EDF which—subject to its agreement to the project going forward—puts us in an improved position compared with where we were in July. That is what the Government have now decided, in part also because of the benefits in terms of security and reliability of supply. With a nuclear baseload—this will provide 7% of the UK’s energy needs—the advantage is that the energy continues to be produced whether the sun is shining or the wind is blowing.
As has been said, 26,000 jobs is a lot. The £30 billion figure that was mentioned is an NAO construction which used a different discount rate of 0.7%, which is much lower than our own 3.5% and is equivalent to the top end of our projections, which of course I covered in the Statement.
The noble Lord, Lord Grantchester, compared this proposal to the French situation. Perhaps he would like to know that the French figure is a regulated price for electricity generated by all the power stations; there is a mix of both new and old in the French nuclear fleet, so it is not just Flamanville. The British price is a CFD for a specific new-build project, and furthermore it reflects the fact that the construction risks in Hinkley are borne by the developer alone and not the British consumer. I very much agree that the ONR is well respected and we are lucky to have that body.
The noble Lord also asked why the Statement is being made today. I thought that noble Lords would welcome the fact that, having said that we would make an announcement in the early autumn and then that we would do so in September, we have been able to get to the line today, so that it is possible for us to have a short debate on this ahead of the Conference Recess.
The noble Lord, Lord Teverson, in his inimitable way, made a lot of interesting points. I can confirm that we are looking at the small nuclear reactors he mentioned. He will recall that we are looking at an innovation competition in that area, with funding having been earmarked.
The noble Lord was right to say that the decommissioning of nuclear waste is an important issue, but he is wrong in that we do have a good system in this country. One of my earliest visits was to Sellafield, and I was impressed by the progress that is being made there. We are making a large public commitment—£2 billion at Sellafield alone—and of course we have built decommissioning into Hinkley, and we will do the same with the new nuclear fleet so that we do not get landed with a large legacy of decommissioning for which the public sector has to pick up the tab. However, a lot of good work is going on at Sellafield on nuclear waste from 30, 40 and 50 years ago, including defence waste as well as civil waste.
Lord Lawson of Blaby (Con)
My Lords, my noble friend—for whom I have the highest regard, as she knows—will also know that I am in no way anti-nuclear. The Statement refers to the fact that this is the first new nuclear power station for a generation. The last one was Sizewell B, for which I authorised the public inquiry when I was the Secretary of State for Energy in 1982. Is she not also aware that every single independent energy expert of whatever stripe has said that this is a thoroughly lousy deal, for reasons which will not be affected in the slightest by the changes she announced in the Statement?
It is charming, in this post-Brexit era, to throw out a lifeline to EDF, which as the noble Lord, Lord Teverson, pointed out, is on the verge of bankruptcy and has never built a power station of this kind. As he rightly pointed out, the company has two power stations under construction—one in France and the other in Finland—and both of them are hopelessly behind schedule and in deep, deep trouble. Can my noble friend give an assurance that, if this power station appears to be getting behind schedule and suffering the same sort of problems that are affecting Flamanville and the project in Finland, the Government will have no hesitation in ending this contract, whatever penalties there may be? I ask that because it is a lousy contract, and the sooner it is ended, the better.
Baroness Neville-Rolfe
While I agree with my noble friend about Sizewell B, which I had the pleasure of visiting during its construction phase all those years ago, I cannot agree with him on the general approach. For reasons that I have already explained, nuclear is a central part of our future and I have explained what would happen if the Hinkley power station is badly delayed. I do not believe it will be. We have learned from Flamanville and from the troubles in Finland. Our own chief scientist has given us reassurance on that. I have visited CGN myself. It is producing a nuclear power station in Taishan on similar technology, which is nearly ready for operation. We cannot afford to wait, because the existing fleet is coming offline. By 2030, except for Sizewell B—my noble friend’s legacy—we will not have any nuclear power stations, unless we invest now in a new nuclear fleet. This proposal is on the table and we have decided, having looked at all aspects, that it is right to proceed.
Lord Berkeley (Lab)
My Lords, I am not against nuclear at all, but the Minister has tried to say that this technology is proven and works, yet nothing I have heard in the Statement or in other noble Lords’ comments this afternoon indicates that that is the case. The Finland scheme is years out of date and is not finished. The last thing I read about the one at Cape Flamanville was that the French nuclear regulator had said it could not generate more than 60% of its planned output because the basic design of the welding inside the core, surrounded by concrete, was faulty. It looks as if that means the whole thing has to be broken apart and started again, if that is possible.
It is fine saying that we have learned from their mistakes, but how many more mistakes have yet to be uncovered? It seems to me pretty irresponsible for the Government to commit maybe in the end £16 billion of taxpayers’ money to a technology that is not proven when there are so many other technologies for generating electricity that are. I cannot think of any precedent—maybe the Minister can give me an example—of such profligacy with government funding apart from, of course, in the MoD. I leave them to one side.
Baroness Neville-Rolfe
I cannot agree with the noble Lord. In business you learn from mistakes and—I remember this well—from other people’s mistakes. As I have explained, EDF has learned from Flamanville and Finland, and CGN is already producing a reactor of this kind. The consortium is taking the construction risk. That is one reason why we believe this is a good approach.
Lord Hennessy of Nympsfield (CB)
My Lords, there is a curse on our country when we talk about civil nuclear power. I am old enough to have read the Eagle comic in 1954 and cut out a picture of Calder Hall, which was to provide the first civil electricity in the world. Indeed it did: we had a world lead. The story is tragic ever since. I hope we will not make a mistake of that magnitude this time.
I congratulate the Government on boosting the national security element in future civil nuclear procurement but, alluding to the contribution of the noble Lord, Lord Teverson, I ask the Minister that the submissions her department receives on the small modular reactors be placed in the Library for the illumination of your Lordships. Before we go in for these huge concrete and steel water reactors, maybe the future lies in smaller, safer and cheaper.
Baroness Neville-Rolfe
I will certainly look at what we can do about transparency relating to small nuclear reactors. It is something that, as a new energy team, we are in the process of looking at, as I have already said. The noble Lord, as always, makes a good point about the need for testing this idea.
I did not answer the point from the noble Lord, Lord Teverson, on tidal lagoons. We will take a decision on the future role of tidal lagoons in the UK’s energy mix following the conclusions of an independent review being undertaken by Mr Hendry, the former MP.
Lord Howell of Guildford (Con)
Would my noble friend accept that this was an incredibly difficult decision and that there were huge risks whichever way the decision might have gone? Would she agree that the main risks of going ahead—although, as I said, there were huge risks in not going ahead—are not so much the Chinese security issue, which has received a lot of press, as the rocky financial state of EDF, which the noble Lord, Lord Teverson, rightly raised, and of its supplier, Areva; the untried design, which still has not been proven and still is not working; the possibility of further cost inflation in the construction; and the enormous delay? Having visited Flamanville, I have seen how extensive that is: it is six years behind time and three times over budget.
Of course, as the noble Lord, Lord Teverson, again said, there are the new technology possibilities coming along by the time this produces electric current, as well as the possibility of falling renewable costs and the present possibility of very low oil and gas prices for years ahead. When I launched a programme in 1979 of nine new reactors—only one, Sizewell B, was ever built —it was the weak oil price that completely undermined the economics of the situation. That is the problem we face again today. Would my noble friend accept that it might have been wiser, faced with this Hobson’s choice, to at least have gone at it more sequentially and built just one reactor the same size as Flamanville to start with, and then see how matters developed from there, working with the Chinese and the French, not involving huge compensation and delay? One at a time might just have been a wiser course.
Finally, can we have a careful examination of how this decision ever came about and how my noble friends in the Government were confronted with it, so we are not caught out a second time?
Baroness Neville-Rolfe
I very much agree with my noble friend that we should learn from our experiences. That is something I always try to ensure we do in any area I am involved with. That obviously includes this. The honest truth is that this has been a difficult decision. That is one of the reasons why it was delayed, although we ended up with a decision in September, which was the most recent scheduled date.
My noble friend asks why there will be two reactors instead of one. There are two answers there. There are economies of scale. We have the skills and capability. The second point is that the consortium, led by EDF, came forward with a proposal for two reactors allowing for all of that and bringing many benefits that were weighed against the difficulties. We have made some changes, particularly relating to security protections, but we believe this project represents value for money for 7% of supplies of electricity over 60 years, of a sort that is a secure and reliable baseload, as they call it in the industry.
Lord King of Bridgwater (Con)
My Lords, can I cheer up my noble friend by welcoming this Statement on behalf of the people of Bridgwater, who have helped to ensure that Hinkley A and B have both provided loyal and continuous service over very many years to the nation? If there was to be a new nuclear power station, Hinkley is precisely the right place to put it. It is also a bit of a relief to everybody. My noble friend may know, and other noble Lords who have seen the pictures on television will know, that half the groundworks have already been done in anticipation of what they thought would be a favourable decision. It is a great relief that this has been decided.
I take seriously the points made by the two former Secretaries of State for Energy and by others. There are concerns about the experiences of the two power stations under construction. I hope that the advantage of coming third is that those lessons have all been learned. I hope the Government are fully satisfied in that respect. I do not think it is sufficient to say, “Well, it won’t be our cost if they’re not”, because the problems that would flow from it would be very substantial.
Something that is also very important indeed and is quite different from Hinkley A and B is that we never had cyberwarfare in the times of Hinkley A and B. That will become an ever-growing threat to critical national infrastructure. The need to ensure we protect the critical national infrastructure is enormously important.
As it is, I say to my noble friend that what is now happening is the relaunch of British involvement in the nuclear industry. I welcome the fact there is to be a nuclear college in Bridgwater for the training of nuclear engineers and apprenticeships. Now at last we will see a real chance to rebuild the position we used to have in the nuclear world and which, sadly, we have seriously lost.
I have only one other criticism. When we go back into the nuclear business, one comment in the Statement was that it will put out electricity for 60 years. That will certainly be a great improvement on the length of time that Hinkley Point A and Hinkley Point B managed. Is that a realistic assessment?
Baroness Neville-Rolfe
I am grateful to my noble friend for his support. I completely agree: this is a good deal for Britain and especially for our nuclear industry, which used to be world-leading and could be again. It is also excellent news for the south-west. I talked this morning to the local MPs and the local council. They are very pleased. They had the sword of Damocles of a loss of a very important project to that area hanging over them and are delighted by the news today.
I agree with my noble friend about the college. It is extremely good that, with the help of EDF, we were able to set up a facility for training in the nuclear industry. That can be of merit right across the UK.
Cyberwarfare is a new reality. It was obviously one thing we took into account in looking at all the different components of this deal. We strengthened the security protections and of course we have a civil nuclear police, who I am looking forward to meeting and talking to shortly in my capacity as the new Energy Minister.
Lord Crickhowell (Con)
My Lords, I am strongly in favour of the development of nuclear power but the Statement says that the changes made will allow the UK Government to take a fair and consistent approach to the national security implications of all significant investments in critical infrastructure, including nuclear energy, in the future. How far have the critical issues been addressed as far as this project is concerned? My noble friend gave assurances about the future; we are interested about whether the Government are absolutely satisfied about the security implications here.
On the point raised by so many about the construction risks, it may be true that consumers will not pay a penny unless and until the plant generates electricity but, if the plant is not constructed, the losses incurred because we do not have a working nuclear plant will be just as important as the financial ones.
Baroness Neville-Rolfe
As I explained in the Statement, on the Hinkley project we will, following the changes to the deal, have a veto over change of ownership. The project will also be subject to what everybody agrees is the world-class oversight of the Office for Nuclear Regulation, which can intervene in development, construction and operations, and amend site licences, among other things. That is a very important control. Then we will consult on proposals to establish a legal regime that allows us to consider national security implications in all significant investments in critical infrastructure. Once that becomes law it will apply to major infrastructure in the UK.
Lord Forsyth of Drumlean (Con)
My Lords, does my noble friend not think that there is a certain irony that after the nation voted to take more control of its own affairs we are asking two foreign Governments to take control of 7% of our future energy requirements? In particular, what actual transfer of risk is happening here, which presumably justifies the very high price that consumers will have to pay for this energy? Is there really a transfer of risk given that this technology is untried? No one has been able to make it work. What is plan B if it turns out that this thing does not work, to maintain energy security for our country? Finally, I very much welcome the emphasis placed on the importance of security and so on, but does the Statement not rather reek of closing the stable door after the horse has bolted?
Baroness Neville-Rolfe
As I explained, the risk of construction falls on the consortium. We have a deal at a pre-agreed strike price which will produce a supply of electricity over an estimated 60 years. Everyone in this House this afternoon seems to take too gloomy a view of the prospects of building this facility. We looked at this very carefully over a number of months. Our Chief Scientific Adviser gave us reassurances that learnings have been taken from other nuclear facilities. However, the consumer does not pay a penny until Hinkley generates electricity. The risks are borne by the developer.
National Minimum Wage (Amendment) (No. 2) Regulations 2016
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Baroness Neville-Rolfe
That the draft Regulations laid before the House on 4 July be approved.
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
My Lords, the purpose of these regulations is to increase the hourly rate of the national minimum wage and increase the maximum amount for living accommodation that counts towards minimum wage pay to ensure the provision of higher-quality accommodation by employers, in line with the recommendations from the Low Pay Commission.
The national minimum wage is designed to protect low-income workers and provides an incentive to work by ensuring that all workers receive at least the hourly minimum rates set. It helps to deter unscrupulous employers from competing on very low pay.
Following advice from the Low Pay Commission, the Government are uprating the minimum wage from 1 October, so that the main rate for 21 to 24 year-olds will be £6.95 per hour. This represents an increase of 3.7%, despite CPI inflation currently being 0.6%.
Younger people aged between 18 and 20 years-old will be entitled to a minimum of £5.55, a 4.7% increase on the rate currently in force, and those between 16 and 17 years old will have a minimum wage rate of £4 an hour. For apprentices aged under 19, or those aged 19 and over in the first year of their apprenticeship, we are increasing the minimum wage by 3% to £3.40. This follows the 57% increase to the apprenticeship minimum wage last year, the largest increase to date.
For 21 to 24 year-olds, this is the largest increase in the main rate of the national minimum wage since 2008. It will mean that someone working full time on the national minimum wage will see their earnings increase by around £450 per year. The new main rate of the national minimum wage is expected to be at its highest level ever when accounting for the general increases in prices, surpassing its pre-recession peak. In all, we estimate that around 500,000 workers are expected to benefit from the national minimum wage increases being debated today.
The accommodation offset was introduced in 1999. It limits the amount that employers can recoup through accommodation charges. This year we followed advice from the Low Pay Commission and increased it significantly by 12% to £6 a day from October 2016. This is intended to ensure the provision of higher-quality accommodation by employers.
Since its introduction in 1999, the national minimum wage has been a success in supporting the lowest-paid UK workers. Over that period it has increased faster than average wages and inflation without an adverse effect on employment. It has continued to rise each year during the worst recession in living memory and the new main rate is expected to be at its highest-ever real value.
These increases to minimum wage rates are of course in addition to the national living wage for those aged 25 and over, which we implemented in April. It is the Government’s ambition for the national living wage to reach 60% of median earnings by 2020. In addition, the national minimum wage cycle will be aligned with the national living wage cycle from April 2017. This will reduce the burden on businesses that have to update their workforce’s pay more than once a year and will mean that the statutory pay floor for all ages is uprated simultaneously.
I note the findings of the recent research conducted by the Federation of Small Businesses and understand that some concerns have been raised about the impact on businesses’ profitability. Let me address this point specifically. The Government are committed to ensuring that the new rates work for businesses of all sizes and we continue to work closely with the LPC to consider the wider economic and business impact when recommending and setting national minimum wage rates. We have already introduced measures to mitigate the cost to business of our ambition to move to a higher-wage economy, including increasing the employment allowance from £2,000 to £3,000 this year. This measure will benefit up to 500,000 employers and take 90,000 employers out of NIC payments altogether.
For smaller businesses we have extended the doubling of the small business rate relief for a further year until April 2017. Around 600,000 small businesses benefit from the small business rate relief and about 405,000 businesses will pay no rates at all as a result of the extension.
The most recent employment statistics show that the employment rate is at a record high, with almost 32 million people in work and the unemployment rate at its lowest level in more than 10 years, with fewer than 1.7 million people unemployed and wages up 2.4% on a year earlier, while inflation has, of course, remained low. While the referendum result may have introduced uncertainty over forecasts and assessments made before June, we should remember that the UK labour market was remarkably resilient during the worst recession in living memory.
The new rates are recommended by the independent Low Pay Commission, which consulted extensively with stakeholders representing both business and workers, as well as conducting comprehensive research and analysis. Crucially, the Low Pay Commission has proven that a rising minimum wage can go hand in hand with rising employment. The carefully considered independent advice from the Low Pay Commission is central to maintaining this balance. In particular, its remit is clear that, when considering the pace of increased minimum wage rates, the state of the economy should be taken into account. The LPC has stated that the labour market has continued to perform well, with robust employment growth in low-paying sectors.
Lord Fox (LD)
My Lords, the Minister is right to suggest that we have high or record high employment levels. We are also at record levels of zero-hour contracts. The minimum wage is not actually a wage; it is a minimum hourly rate and people fight to get sufficient hours to get that minimum wage. Can the Minister comment on the way in which the Government will approach the zero-hour part, which is diminishing the minimum wage for many people across the country?
Baroness Neville-Rolfe
We have debated zero-hours contracts in this House a number of times. I continue to believe that they have a part to play in the modern flexible market. There were some abuses to those contracts, which we discussed last year, and we have banned the use of exclusivity clauses so that people have the freedom to look for and take other work opportunities and have more control over their work hours and income. However, I believe that a strong minimum wage framework with good enforcement, which I am going to talk about, is the right way forward. The effectiveness of this system—I think that this is true in every regulatory area that I deal with—relies on proper enforcement.
We are clear that anyone entitled to be paid the national minimum wage or the national living wage should receive it, whether they are on a zero-hours contract or not. The enforcement of a minimum wage is therefore essential to its success and we are committed to cracking down on employers who break the minimum wage law. That is across all sectors of the economy. That is why we have increased the enforcement budget for HMRC, which enforces the minimum wage on behalf of our department. That is £20 million in 2016-17, up from £13 million last year. That bolsters its resources and ensures that it can respond to every worker complaint. We will continue to take a tough approach to employers who break minimum wage law. As of April this year, the Government have also doubled the national minimum wage penalty paid by employers, so it is up from 100% to 200% of the arrears owed to the worker, up to a maximum of £20,000 per worker—penalties that really hit those who do not comply with the law. Finally, HMRC will continue to refer the most serious cases of wilful non-compliance for criminal investigation.
The Government believe that the rates set out in the regulations before the House today will increase the wages of the lowest paid while being affordable for business. I commend the regulations to the House.
Lord Stevenson of Balmacara (Lab)
My Lords, first, I express my apologies to the House for not being present at the start of the discussions. I looked at the Annunciator and thought that I had about 10 minutes to spare, because the last speaker in the debate had only just started, but apparently he cut his speech very short. I was entranced by a debate going on in the Moses Room on access arrangements for going into secondary education, which was so good that I have completely lost my place. I am sorry that I was late.
However, I have heard the Minister speak on many of these issues before. Indeed, we debated them as recently as the end of last term. I am fairly aware of the issues and I will certainly read what she said carefully, in case I have missed anything. I have no objections at all in principle to the proposal that is being brought forward. For all the arguments made by the Minister, this process is now well-entrenched. The increases are very modest, but they are done in accordance with the procedure set out. I have absolutely no doubt that it is appropriate and good that wages will be lifted, which will benefit a large number of people on lower pay. Women in particular will see these benefits in their pay packets.
I have four small points that I want to raise and to which I would be happy to hear the Minister respond, but if there are complications I am happy to receive a letter in due course. The first is a technical one, which was that the paper supplied by the Printed Paper Office includes an impact assessment. It is extremely well-written and I compliment officials on that. I enjoyed reading it and I felt that it dealt with all the issues well. However, it said that the RPC opinion was awaiting scrutiny and I have not been sent that. I would be grateful if it could be provided. I am sure that there is no difficulty around it, but it would be nice to have a complete set of papers when we are considering these issues. On technical issues, I again congratulate the Minister on living the life that she promised, which was to bring these things in on the common commencement date of 1 October. She will have expected me to say that.
Secondly, the evidence base for many issues, but particularly for non-compliance and to some extent apprenticeships, depends on a rather oddly named survey called ASHE—a survey of employees completed by employers, which can be used to identify jobs paid below the national minimum wage. Clearly non-compliance is important here. Two points arise from it: is that the best we can do, and does the department have any plans to improve it? A survey of employees completed by employers aimed at establishing whether the national minimum wage is being paid at the correct rate may not be the most appropriate and independent way of checking whether it is happening in practice. Having said that, we note that some 209,000 employees’ jobs were paid less than the national minimum wage in April 2015. That is a significant number and ought to be of some concern, even though the individual amounts are small. It is the methodology that I pick up on. I would be interested to know whether the Minister has plans to improve it, because, as she said, it is important to ensure that the national minimum wage and, as we get to it, the national living wage are paid. If we do not have an adequate means of checking, I do not see how we will do so.
My third small point raises a similar issue. Quite an important part of some people’s pay packets is the accommodation offset rate. Accommodation is the only benefit in kind that can be offset against minimum wage pay. It is only up to the limit. I suspect that it is therefore quite an important element for quite a large number of the people involved, but the trouble is that we do not know how many that is, since apparently no statistics are available that give any details around it. The increase this year is 12%. It is a substantial amount of additional money, which goes up to £6 per week, but because of the uncertainty in knowing how many employees in scope of the national minimum wage offset rate receive it, it is not counted in analysing what the benefits, costs and disbenefits would be of any increase. I do not wish to delay consideration but, in the need to improve the quality of the public administration, surely we could do a bit more to survey and get accurate information. If it does not lie in BEIS, perhaps it lies in DWP—I am sure that the noble Lord, Lord Freud, is taking note of the points that I make, because I am sure it is relevant to what he will say.
Finally, in a week where we have been given a lot of information about the activities of a particular sportswear manufacturing and delivering firm, it seemed a little ironic to read about the enforcement regime and the relatively small number of firms that have been reported on and investigated. Sports Direct—it may as well be named—clearly has a large problem on its plate in what it has been paying, or not paying, its employees. The situation with Sports Direct arose from a private investigation by a newspaper, not from the additional money available to HMRC. Has that taught the department any lessons about how this is to be taken forward? Might it wish to investigate other firms as a result? Its approach seems to be one of responding to complaints. That might miss some of the most obvious cases where not enough action is taking place.
What sort of approach would be better? Is there not a suggestion to be made of a tougher approach to large employers employing large numbers of people on zero-hours contracts, where it is clear that the combination of that arrangement, particularly in companies controlled perhaps by an original owner, might suggest that there will be some difficulty in ensuring that these things happen? Will the Minister confirm that in the case of Sports Direct, since it is fairly clear that there has been failure to comply with the arrangements, the doubled penalties to which we agreed in the then Enterprise Bill and the additional more difficult approach—not in numbers of employees, but in the amount per employee—will be applied in full in this case?
Baroness Neville-Rolfe
I am most grateful to the noble Lord for his courteous comments about his lateness—I am sorry to have dragged him away from such an important debate—and for his support for the regulations. The minimum wage came in under the Labour Government and we have had a lot of cross-party support for the system that they set up, including the Low Pay Commission. We agree on that. I am also grateful for his comment about common commencement dates, because we have a joint campaign to ensure that they are respected. It is not always possible, but when they are we should celebrate it. The points that he raised are technical and testing. I will start with the impact assessment. I think that the noble Lord was saying that he had not seen a copy.
Lord Stevenson of Balmacara
I am sorry to interrupt. On the front page of the impact assessment, which is attached to the explanatory memorandum—it is what I was given when I asked in the Printed Paper Office—there is usually a note in the top right-hand corner on what the RPC opinion is. That is obviously useful, because it is a traffic-light system as to whether it thinks that the assessment has been properly done. I fully expect it to have been properly done, but its opinion is not recorded there.
Baroness Neville-Rolfe
Perhaps the noble Lord remembers that the RPC had an issue with our impact assessment on the October 2015 uprating of the apprentice national minimum wage. It has, however, indicated that it is content with our new approach with respect to the assessment of the impacts of the 2016 upratings. Indeed, the assessment now looks at costs over two years, rather than one year, in response to RPC feedback. I hope that that clarifies the RPC position.
On the non-compliance estimates, we are working to improve them. I note what the noble Lord says about enforcement—he was saying, in a way, that we should look at higher-risk employers, and was talking about size and zero-hours contracts. I will take a look at the noble Lord’s comments and write to him about that whole area. I think that my spirit is the same as his.
With regard to Sports Direct, that is clearly a concerning matter. I have to be careful about commenting on specific employers, as noble Lords know. The double penalties have come in and, in relation to offences since the adoption of the regulation, they would of course apply. We are very much committed to ensuring that workers receive the money that they are owed and that unscrupulous employers face tough penalties. I like the combination of civil penalties, which have led to quite large amounts of income being recovered for people, and the occasional criminal penalty, where there is an egregious case and we can take totemic action. That is the way that we try to do things.
Employment: Remuneration
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The Lord Bishop of St Albans
To ask Her Majesty’s Government how they intend to address the gap between the remuneration of senior executives and their employees.
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
We intend to publish a consultation document later this year which will set out a range of options for improving corporate governance, including measures to strengthen the way executive pay is set and reported. This follows on, and is in line with, the Prime Minister’s statements on this important subject.
The Lord Bishop of St Albans
I thank the Minister for her reply. I wonder whether she has read the report published last week by the High Pay Centre written by Chris Philp, the Conservative Member for Croydon South, which makes a number of recommendations, including requiring firms to create a shareholder committee with the power to ratify pay packages comprised of shareholders with longer-term holdings in the company. Will these proposals be part of the consultation that will be published?
Baroness Neville-Rolfe
I have not yet read the report, although I know that it was discussed in the House and I think it makes a very useful contribution. As I see it, that idea is in the mix of what we will consult on. The underlying objective is to make shareholders exercise much better oversight over company decision-making. The changes that we will be looking at, and indeed prior reforms, have been directed at this objective—some with more success than others.
Lord Forsyth of Drumlean (Con)
My Lords, does my noble friend know that many of the big institutions contract out their voting to other organisations at company AGMs? Is not the key to ensuring that remuneration is brought under proper control that those institutional shareholders exercise their rights and that the Government change the rules so that votes on executive pay at shareholder meetings are binding on boards?
Baroness Neville-Rolfe
My noble friend makes a very good point about voting. I am glad to say that one of the options we will be looking at is binding votes, for the reasons that he says.
Baroness Burt of Solihull (LD)
My Lords, it seems to me that the problem is that companies benchmark their executive pay against other companies in the marketplace. Does the Minister agree that a more diverse range of company models in the marketplace, such as mutuals where workers are also shareholders, would bring a greater sense of proportion to executive pay and have a stabilising effect on pay in the marketplace generally?
Baroness Neville-Rolfe
The noble Baroness is right that there is a place for comparisons, although, as somebody who sat on a number of boards, I actually think that one needs to look at the overall position and in relation to the wider workforce. That is something that we will certainly look at as part of the consultation that we will publish, because some of this stuff is complicated and we need to make sure that we talk to people on the detail.
Lord Hodgson of Astley Abbotts (Con)
My Lords, my noble friend referred to the importance of increasing shareholder power. Is she aware that individual shareholders in particular are increasingly under pressure to hold their shares through nominees? The nominee holder is not required to send on information to the individual shareholder about the company in which he or she has a holding. They are therefore disenfranchised. Would it not be a good idea to make a simple legal change which would require nominee companies to enfranchise and inform the people who actually hold the shares?
Baroness Neville-Rolfe
My noble friend, as always, brings unusual insights to the debate. It sounds as though this is a point that he and I should discuss further, because clearly we want to make sure that shareholders are exercising the oversight that we all want.
Lord Stevenson of Balmacara (Lab)
My Lords, there is an irony in this Question being answered today, in that later today we will consider a statutory instrument which makes a welcome increase to the national minimum wage by the order of 25p per hour. An earlier report by the High Pay Centre, which is a cross-party initiative, reported that FTSE 100 CEOs had just enjoyed a 10% pay increase to over £5.1 million per annum on average in the last year. Can I press the Minister a little further on what will be in the consultation? She mentioned a number of things, but the Prime Minister’s comments, to which I think the noble Baroness referred, are that she would like to see not just consumers represented on company boards but employees as well, and she wants to see more transparency on pay, including making shareholder votes on corporate pay not just advisory but binding. Will the noble Baroness confirm that?
Baroness Neville-Rolfe
We are looking at the precise wording of the consultation document, but the idea is to explore the various ideas that the Prime Minister set out so eloquently in this area. That would include binding votes, employee representation, which I am aware of because I used to sit on a German board—it has pluses and minuses—and, of course, full disclosure of bonus arrangements.
Lord Tebbit (Con)
Does my noble friend agree that it might help to bring a different dimension to these discussions if, occasionally, we referred not to the “shareholders” but to the “owners” of businesses and not to the “executives” but to the “hirelings” who operate on behalf of the owners?
Baroness Neville-Rolfe
I thank my noble friend for his interesting and provocative remark.
The Earl of Erroll (CB)
Is there not also a deeper problem, which is that many of these remuneration packages of senior executives are geared towards profit targets in various ways? The quickest and easiest way of doing this is to axe the visionary research and development programmes in order to increase the bottom line temporarily to get their rewards. As a result, some of our larger companies are suffering from, I would say, a lack of vision, expansion and innovation.
Baroness Neville-Rolfe
The noble Earl knows that I share his passion for innovation and R&D. I believe we need a governance framework that ensures a good sense of strategy and long-term planning, and that helps to encourage innovation and R&D.
Lord Haskel (Lab)
Some companies publish a ratio between the top salaries and the bottom salaries. As part of the Government’s consultation, are they going to seek some kind of standard—some kind of ideal ratio—for this sort of thing?
Baroness Neville-Rolfe
As the noble Lord will know, the devil is in the detail in these matters. Certainly however, requiring the publication of the ratio between the CEO’s pay and the relevant average is something we will be looking at. That is coming in in the United States in 2017, as he will know. We need to learn from that experience and, as I have said, try through our consultation to come to the right changes in this important area.
Climate Change: Fracking
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Baroness McIntosh of Pickering
To ask Her Majesty’s Government whether they plan to ensure that the three tests set out by the Committee on Climate Change with regard to shale gas exploitation by fracking are met before any fracking work proceeds, and if so, how.
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
My Lords, shale could promote the opportunity of a new, domestic source of gas which adds to our energy security. Since 2000, UK gas production has decreased and import dependency has increased. This Government have been clear that shale development must be safe and environmentally sound. As our response to the Committee on Climate Change report states, we believe that each of the three tests for shale gas development will be met.
Baroness McIntosh of Pickering (Con)
I am most grateful to the Minister for that Answer. Will she explain to the House how the Government intend to meet those tests and, in particular, satisfy the Committee on Climate Change regarding greenhouse gas emissions, which would increase in intensity with the extraction of such a fossil fuel on a large, significant scale? Also, how do we intend to meet our carbon reporting targets in those circumstances?
Baroness Neville-Rolfe
We have made it clear that we will take steps to meet our carbon targets, particularly by 2050, and we agreed on the fifth carbon budget before the Summer Recess. In relation to the tests, the first test is met by our regulatory system; tests 2 and 3 will be met by the commitments we will be making in the carbon budgets.
Lord Wigley (PC)
My Lords, does the Minister accept that one of the main considerations with regard to fracking is the geological stability of the land, particularly in those areas where there has been coal mining and the seepage of water can go many miles? Does she accept that, in these circumstances, any decision on fracking should be taken as locally as possible so that local opinions are taken into account?
Baroness Neville-Rolfe
I agree with the noble Lord that we need to be careful. I also agree that the permission should be dealt with by the relevant local planning authority. However, we are fortunate in having strong regulators. The Environment Agency focuses particularly on water and, of course, the Oil and Gas Authority has operated for many years and has very strong regulations in relation to seismic activity.
Baroness Featherstone (LD)
My Lords, gas is a fossil fuel wherever it comes from. Given that the Government are going to miss our legally binding targets on reductions in carbon emissions, would it not be better altogether if the Government simply banned fracking and got on with delivering reductions in emissions rather than increases?
Baroness Neville-Rolfe
I cannot agree with the noble Baroness. I believe that shale has the potential to make a strong contribution to the transition from a heavily coal-fired carbon-inducing energy mix to the vision that I think we all share for 2050.
Baroness Royall of Blaisdon (Lab)
My Lords, in the Forest of Dean, to my sorrow, licences have been granted despite the opposition of all members of the community. There is great concern that the complex hydrology, local subsidence and faulting issues, as well as the shallowness of the carboniferous shales and coal-bed which the licence holder intends to explore, will be particularly prone to ground-water contamination through fugitive methane emissions and the chemicals used in the fracking and drilling process. Given that methane is 80 times more significant as a greenhouse gas than carbon dioxide, what level of fugitive emissions —that is to say, leakage—would the Government define as an acceptable level?
Baroness Neville-Rolfe
The noble Baroness is right to draw attention to methane. That is, of course, one of the key focuses of the Environment Agency, which has control over the permitting process and environmental emissions.
Baroness Jones of Moulsecoomb (GP)
My Lords, in fact there is mounting evidence that the methane leaks associated with fracking are far dirtier than those associated with energy derived from coal. Therefore, I do not see how it is possible for us to have clean energy and fulfil all our commitments if we carry on fracking. Is it not time that we followed the devolved countries of Scotland and Wales and abandoned fracking in England?
Baroness Neville-Rolfe
I think the key thing is to have a proper regulatory system of controls. We have learned from US experience in setting up our system. We are also focused on all the Kyoto basket of gases, which includes methane. I assure the noble Baroness that that is an important part of our thinking. But I return to my first point, which is that we need a mix of energy in the transition to 2050.
Lord Foulkes of Cumnock (Lab)
My Lords, will the noble Baroness try again to answer the question of my noble friend Lady Royall: what amount of leakage is acceptable?
Baroness Neville-Rolfe
I think this is a matter for the experts concerned in the particular circumstances. Our regulatory system is site specific. You go to the particular site and work it out. Clearly, you want to minimise the emissions of all six of the Kyoto basket of gases. I think that would be an agreed objective.
Lord Harris of Haringey (Lab)
My Lords, is that why the Government do not have a view on what is an acceptable degree of leakage, or are they perhaps consulting the experts? If so, will the Minister share with us what advice has been received on what would be an acceptable level of leakage?
Baroness Neville-Rolfe
I can certainly write to noble Lords about what advice we have received, if that would be helpful. I return to my point that we have a strong regulatory system right across the board in this area and we should look to this as an opportunity.
Baroness Farrington of Ribbleton (Lab)
My Lords, I declare an interest as a Lancashire resident. Would the Minister be prepared to inform the House, in writing if necessary, how many of the controls, considerations, regulations and judgments will be made by those external to the industry concerned and how many will be made by those involved in gaining profit, however low they choose to set the safety targets? My recollection is that the Government did not want all the regulation to be external, and that they wanted the industry itself to tackle this. Some of us are concerned about that.
Baroness Neville-Rolfe
I am the new Energy Minister, but I have been struck by the variety of independent outside agencies that are involved in this site-specific process. There can also be benefit to the community, both through the community benefit package, which involves an industry contribution, as the noble Baroness is suggesting, and from the shale wealth fund, on which we are consulting, which will allow some of the tax revenues to be shared with individual members of the community.
Warm Home Discount (Miscellaneous Amendments) Regulations 2016
Baroness Neville-Rolfe Excerpts(9 years, 6 months ago)
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Baroness Neville-Rolfe
That the draft Regulations laid before the House on 4 July be approved.
Relevant document: 6th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
My Lords, I am pleased to open the debate on the regulations, in my first week in this post. In her first speech, the new Prime Minister recognised the hardships faced by poor households in Britain, families who,
“can just about manage but worry about the costs of living”.
As part of that, this Government are committed to tackling the problem of fuel poverty, and that is why I am moving this Motion today.
Before going into the detail of the changes proposed in the regulations, I shall respond to the amendment tabled yesterday by the noble Baroness, Lady Jones of Whitchurch. This has been a highly unusual period for both Government and Parliament and, yes, it means that getting these regulations before the House has taken longer than we would have liked. However, if we approve the regulations today then we expect payments to the core group of recipients to begin in mid-October, with 1.2 million rebates reaching customers this winter before the end of January, during the coldest period. This represents over half the intended recipients. We expect the remaining 800,000 recipients to receive their rebates by the end of February, although some may receive them as early as the autumn. I recognise that this is a little later than in previous years but, if we do not pass the regulations today and instead wait until after the Recess, we estimate that payments will begin in mid-December and not finish until March.
I turn to the regulations. I shall give some background on fuel poverty and the warm home discount scheme to put them in context. The warm home discount is one of a range of policies to address the factors contributing to fuel poverty. It is a bill rebate, or discount, of £140 from energy suppliers directly to customers. Other policies, such as the energy company obligation, are focused instead on providing energy efficiency measures. However, this rebate reaches over 2 million households each year, giving them immediate support to heat their homes when they need it most.
The warm home discount scheme is currently made up of three parts. First, there are eligible pensioners, described in the regulations as the “core group customers”, who automatically receive a bill rebate of £140 from their supplier. Secondly, there are other low-income and vulnerable customers, such as low-income families and those with long-term disabilities, who are described as “broader group customers”. These customers can apply for rebates through their supplier. The amount is the same, £140. Thirdly, there is the industry initiatives element of the scheme, whereby suppliers provide a range of support measures that include debt assistance, benefit entitlement checks and energy advice to domestic customers in or at risk of fuel poverty.
Over the next five years, we want to simplify the way the scheme is delivered, targeting it more accurately at those households which need it most. To enable this we are reliant on new primary legislation. Data-sharing powers in the Digital Economy Bill, if implemented, could see more of the warm home discount provided automatically. This will reduce the administrative costs for suppliers to participate in the scheme and, importantly, will allow us to provide more accurate targeting. Because we are reliant on this new primary legislation, to implement these changes we propose that these regulations cover two winters—until 2017-18. If we secure the powers, we will consult on our proposals, giving noble Lords another opportunity to comment.
For these amending regulations, the Government consulted on their proposed extension of the scheme in April, proposing some relatively small changes to improve effectiveness and make the regulations simpler and more accessible. Respondents to the consultation were supportive of extending the scheme, and the government response was published at the end of June.
There are four main changes to the warm home discount scheme. The first is that local authorities or charities will be able to submit proposals under the industry initiatives element of the scheme; for example, schemes that offer support to people with specific health conditions linked to living in a cold home. The second proposed change is to place a limit on the total amount that suppliers are able to spend on debt write-off. While we understand the help that debt write-off can provide—suppliers would still be able to use half of this allocation for write-off—we would like to encourage greater diversity of approaches. Thirdly, we are providing the option to pay the rebate on the gas bill rather than the electricity bill, if requested by the customer, and finally, we will require energy suppliers to report exactly how many pre-payment meter vouchers have been redeemed, encouraging them to maximise take-up among the poorest customers. I commend the regulations to the House.
Amendment to the Motion
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, Lady Jones of Whitchurch. As she says, there is some agreement across the House on the importance of tackling fuel poverty. Like her, I look forward to further debates on this issue in the months, and even years, ahead.
As I have stated, these regulations were prepared in difficult circumstances. I very much regret that they have come before this House so late. Although some households will receive their rebates later than in previous years, the majority will reach customers during the coldest months of the year. As I stated in my opening remarks, payments will start in mid-October and not in December, as I think the noble Baroness, Lady Jones, feared.
To respond to another of her points, we are in touch with suppliers and have put in place steps to ensure that they can begin to credit customers’ accounts by mid-October, helping those customers to keep warmer. We will also closely monitor delivery during the scheme, especially given the delay. However, I say to the noble Lord, Lord Berkeley, that I cannot perform a miracle. I can reassure him that I have tried to be completely transparent about what the new timetable is as a result of the delay, which I think we all regret.
I hope that the unusual circumstances of this year will not be repeated next time round. As the new Minister, I take note of what has been said about the importance of avoiding delays in the future and the wish of noble Lords to be able to engage.
As it happens, the Digital Economy Bill, which has been introduced in the other place, will provide the powers to be able to combine data on benefits and the housing stock, helping us to identify more households in fuel poverty. The Government accept that the targeting of this scheme could be improved and, therefore, we are seeking to take steps to improve it. The new powers will provide the Government with the opportunity they need, and also opportunity for debate. We will, of course, be consulting, as we try to do on these sorts of schemes, on the way that we will go about using the new information-sharing powers that we hope to obtain.
The noble Baroness, Lady Miller of Chilthorne Domer, rightly pointed out, and I can confirm, that we have committed to extending the warm home discount to 2020-21. That discount continues to help a large number of poorer households with their energy costs, right across the country, at a time when they are most in need. We will work with stakeholders to deliver these changes efficiently and will continue to provide help where and when it is needed in the most effective way. This obviously complements other proposals that either exist or are being consulted on, such as the energy company obligation and improvements to homes in the private rented sector, which have some of the worst energy efficiency ratings.
The noble Baroness also mentioned measures stemming from the CMA report, which is one thing that I plan to read this weekend. If I have anything further to say, I will certainly come back to her. I look forward to learning from her in this new brief.
I hope that noble Lords will agree that these regulations are important and forgive us for the delay. I hope that the noble Baroness will feel able to withdraw her amendment.
Baroness Jones of Whitchurch
My Lords, I am grateful to the Minister for the regret that she expressed about the timetable and the late registration of the regulations before the House. Obviously, that goes some way to addressing our concerns.
We could argue about the five months. I do not think that the unusual circumstances—or however we want to describe them—go back to November of last year. Still at the heart of this issue is a fundamental problem about cross-departmental working and cross-departmental policy discussion, which seemingly remains unresolved. We were looking for the opportunity to hear from the noble Baroness that the Government understand that, are taking it seriously and are addressing it.
Baroness Neville-Rolfe
I did say that I take the point about interdepartmental co-operation. It was quite an unusual period in the run-up to the referendum lasting several months: it felt like that to me. However, I am a newcomer to this subject and all I can do is to learn going forward. Cross-departmental agreement in these sorts of areas, particularly between DWP, the Treasury and others is obviously extremely important.
Baroness Jones of Whitchurch
I thank the Minister for that intervention. I have one other point. The timetable that is set out assumes that the data matching will go to plan—the timetable with the DWP is 10 weeks. A lot of those IT projects tend to have optimistic timetables in my experience, so we are relying on that data-matching being done within 10 weeks. Otherwise, there will be a further delay which everyone would find very regrettable. There is clearly more work to be done on targeting and how we can get the rebates and the payments to those in greatest need. I understand that this cannot necessarily be resolved within this particular set of regulations, but there is more room for dialogue on that issue in the months to come.
Having heard what the Minister has to say, I will not detain the House any longer. I do not intend at this stage to press this amendment to a vote. It is the Lord Speaker’s last day in post barring disasters over the summer, so it is only fair to give her a gentle ending to her distinguished service. On that basis, I beg leave to withdraw the amendment.
Amendment withdrawn.
Motion agreed.
Pubs Code etc. Regulations 2016
Baroness Neville-Rolfe Excerpts(9 years, 6 months ago)
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Baroness Neville-Rolfe
That the draft Regulations laid before the House on 13 June be approved.
Relevant document: 4th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 12 July
Pubs Code (Fees, Costs and Financial Penalties) Regulations 2016
Baroness Neville-Rolfe Excerpts(9 years, 6 months ago)
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Baroness Neville-Rolfe
That the draft Regulations laid before the House on 13 June be approved. Considered in Grand Committee on 13 July.