Draft Offshore Environmental Civil Sanctions Regulations 2018
Claire Perry Excerpts(5 years, 12 months ago)
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The Minister for Energy and Clean Growth (Claire Perry)
I beg to move,
That the Committee has considered the draft Offshore Environmental Civil Sanctions Regulations 2018.
It is a pleasure to serve under your chairmanship, Ms McDonagh. The regulations will allow the Department for Business, Energy and Industrial Strategy’s Offshore Petroleum Regulator for Environment and Decommissioning to impose financial civil sanctions for contraventions of offshore environmental legislation, which we believe provides a more appropriate and proportionate enforcement option and will further encourage operators to do the right thing in ensuring that those limits are not breached.
The regulations will, moreover, bring OPRED in line with the onshore environmental regulators, which already have such powers. The regulations will provide the offshore regulator with the ability to impose financial penalties on operators that are breaching environmental legislation.
I have visited OPRED and want to pay tribute to the civil servants working so hard in the fair city of Aberdeen who are doing a marvellous job to ensure that our offshore industry adheres to among the highest environmental standards in the world. One problem they have, unlike onshore regulators, is that they do not have the power to impose fines when they uncover a breach. The regulations will allow that gap in their current enforcement options to be filled.
Ms Angela Eagle (Wallasey) (Lab)
I do not think that there is anything anyone could object to about having a civil penalty as well as a criminal one, but the Minister implies that there have been some breaches that her inspectorate has not considered to be serious enough to bring criminal proceedings against. Therefore, the companies perpetrating them have been allowed to get away with it. What kinds of breaches does the Minister think the new civil penalties will enable her inspectorate to get a handle on? Such breaches have, by implication, gone by the board because of the inflexibility of the current arrangements.
Claire Perry
I welcome that intervention. I will say a little more the sort of breach that will attract the new civil penalty. To reassure the hon. Lady, a series of enforcement actions are already taken and they will have the effect of removing any breaches as quickly as possible. Those include serving an enforcement or prohibition notice, revocation of a permit, and referral for consideration of prosecution.
The majority of contraventions tend to be quite minor and the only enforcement option available is a criminal prosecution, which is costly and time-consuming for all parties. Of course, OPRED does not determine whether those matters should be prosecuted; that is rightly for the judicial system to decide. Giving OPRED these powers, which are in line with those enjoyed by the onshore regulator, would allow it effectively to make that decision and impose a financial civil sanction. That would allow for a more timely and cost-effective response, and it would not lead to the criminalisation of operators that have committed only a minor breach that they are anxious to put right but for which there is currently no sufficient penalty regime.
Ms Eagle
I am just trying to find out how large this issue is, in terms of companies that have been in breach but whose actions the prosecuting authorities did not think serious enough to bring criminal charges against them. By implication, there has been a series of breaches that are not serious enough to merit criminal charges but which would fall under the Minister’s proposed civil prosecution structure. Will she give us an idea of how great an issue this is and what has been allowed to pass because we did not have flexibility for a civil rather than a criminal process?
Claire Perry
I will give the hon. Lady numbers, because she and I both like facts rather than opinions. Since 2016, there have been 4,178 total breaches of environmental regulation. That sounds a lot but many are very minor. Of those, 78 have been subject to investigation. The assessment of my officials is that 10% of those 78 would have reached the required standard of proof for receiving a civil sanction. OPRED’s view is that that number will not change dramatically. We are talking about tens rather than hundreds. Of course, the measure is almost a threat; it is unlikely to be the outcome. As the Minister responsible for oil and gas, I believe that we have, by and large, very compliant companies that are anxious to maintain the reputation of the North sea basin as the most environmentally well-regulated. I hope those data satisfy the hon. Lady, who asked an excellent question.
Returning to my opening remarks, the measure is the ultimate penalty. It allows the regulator to have more arrows in its quiver when it gets out there and ensures that enforcement notices are taken seriously. In addition to the civil sanction, the ultimate threat is the revocation of a permit, which means that an operator can no longer operate. It is felt that those and the prosecution option are perhaps too severe for some of the sanctions being investigated. I have mentioned the numbers. Although criminal prosecutions can carry substantial penalties, they are used relatively infrequently, because they are so resource-intensive to carry out.
The sanctions will be applied instead of, not in addition to, criminal prosecution for cases where the required criminal standard of proof is met. The fixed and variable civil sanctions that OPRED will have the ability to impose range from £500 to £50,000. Those recommendations follow a consultation that finished on 15 February, seeking views from the public, the hydrocarbon sector and other relevant stakeholders, such as nature conservation bodies and environmental non-governmental organisations. There were only 13 replies, the majority of which responded positively to the regulations. No additional substantive changes to the regulations were needed as a result of the consultation.
Concerns were raised about the potential overuse of powers, the burden of proof and, fundamentally, the legislation to which the civil sanctions would apply. My team published a response on 16 April that detailed all those points, should people be interested. Many of the issues raised are relevant to OPRED’s enforcement policy and civil sanctions guidance document, which is being produced alongside the regulations, rather than to the regulations themselves. Both the guidance document and the enforcement policy will be subject to consultation and published in final form before any civil sanctions are issued.
In summary, the objective of the regulations is to create an equivalent environment for onshore and offshore operators, which in many cases are the same company; maintain the UK’s position as having excellent environmental standards for hydrocarbon extraction; give OPRED additional powers to impose financial civil sanctions for contravention of specified environmental legislation; and provide an element of proportionality for a breach that is deemed sufficiently serious to invite a potential criminal process but without actually taking the operator to court, although that option is retained for the most serious breaches.
Our intention is a proportionate and measured approach that will ensure greater compliance by offshore operators and allow enforcement action to be taken swiftly. If agreed by the Committee, the regulations will enter into force alongside the supporting documents on the next common commencement date of 1 October 2018. I recommend the regulations to the Committee.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve under your chairmanship, Ms McDonagh. I have read the proposals carefully. My understanding is that, as the Minister set out, the plan in essence is not to create a further series of offences—indeed, the statutory instrument does not create any new offences—but to attach a series of civil penalties to the existing penalties so that there is a range of civil remedies available to OPRED in addition to the criminal remedies available to it under existing legislation.
There are two kinds of civil penalties for offshore breaches of environmental regulations: fixed penalties, ranging from £250 to £5,000, and variable penalties, ranging from £500 to £50,000. The distinction between those ranges is considerable, but the fixed penalties clearly would be very minor for companies found guilty of a breach.
Claire Perry
Will the hon. Gentleman accept a clarifying intervention? My officials have provided me with a helpful table, which sets out the offences to which the civil sanctions will apply—the underlying regulation, the offence and the proposed level of sanction. I am happy to share that with him and with other Committee members who are interested, if that would help.
Dr Whitehead
I thank the Minister for that helpful intervention. I was attempting to establish the range of penalties that will be available under the new regime. It would be helpful to have that additional information, but the penalties basically fall into the two categories I mentioned—one with a minor range and the other with a rather more major range. Nevertheless, the top of the range of variable penalties is £50,000.
In addition to what the Minister has told us, the explanatory memorandum published alongside the SI deals with why it is claimed those penalties are needed. It states:
“The need for the instrument has arisen due to a number of contraventions of environmental Regulations going unpunished as a result of OPRED’s lack of a proportionate enforcement response. The introduction of instrument will provide a more flexible, timely and proportionate enforcement tool by conferring on OPRED the power to impose civil sanctions on operators who are found to have breached existing environmental Regulations.”
It also states, as the Minister mentioned, that prosecutions
“are costly and time consuming and ultimately, the decision whether to bring criminal proceedings lies with external prosecuting authorities, not OPRED.”
That gives the impression—my hon. Friend the Member for Wallasey pressed the Minister on this—that a number of contraventions are going unpunished. It appears that they are happening but, because OPRED either is too busy—it is snowed under with other work—or does not have a proportionate enforcement response, they are not being prosecuted. It would be helpful, either now or for future reference, to hear a little more about exactly what those unprosecuted contraventions consist of. My hon. Friend made an excellent effort to pin that down, but I do not think we got very far with that question.
That is a puzzling question in the context of a number of oddities with the proposed procedure. As far as I understand it, the procedure is not supposed to substitute offences and civil penalties of a different order for those that are in place at the moment. It specifically does not do that. The idea that a number of offences go unpunished because they are below the radar of criminal prosecution therefore appears to be gainsaid by the structure of the new arrangements.
The explanatory memorandum states:
“The instrument does nothing to change the burden or standard of proof in relation to the offences, so civil sanctions will only be imposed where OPRED is satisfied that a prosecution could have been pursued.”
In other words, the civil sanctions will be the punishment for an offence that could have been subject to prosecution and the present criminal sanctions available to OPRED, and it would be OPRED’s choice to impose those civil sanctions. The new regime will not be able to spot and punish a series of under-the-radar offences; rather, the existing criminal sanctions regime will continue, but with a series of new penalties on top. That is one oddity of the proposals.
One could conclude that this approach is being taken in the belief that a fixed penalty regime enables us to, as it were, stick notices on the windscreens of offshore operating companies, thereby making life easier all round, and that some of the offences that have been scooped up under the existing regime are not really as bad as all that, so a small fixed penalty of a few hundred pounds should do the trick. I am sure that that is an unfair characterisation, but it is an interpretation of some of the consequences of the new regime.
It also sounds like the particular issue of environmental offences committed in the North sea and elsewhere is not that great, so a new regime will cope better with an overall downsizing of what we think we are doing in enforcing regulations on companies. Moreover, OPRED is extremely busy and does not have a proportionate enforcement response; prosecutions are costly and time-consuming; and the measure fills a gap in a very busy schedule.
OPRED already has enforcement notices under its belt. The Minister mentioned a number of OPRED enforcement notices over the past year or so, but what, on a broader canvas, has OPRED been doing recently regarding those offences? She helpfully set out for us the number of prosecutions that could have been considered for possible breaches, but I have here the actual notices and prosecutions carried out by OPRED over the year prior to May 2017. It issued five enforcement notices under the Offshore Petroleum Activities (Oil Pollution Prevention and Control) Regulations 2005; two under the Fluorinated Greenhouse Gases Regulations 2015; and a further improvement notice. That is eight notices all together, with one prosecution completed and three further cases referred to the relevant prosecuting authorities.
OPRED did not, therefore, have a massive burden of prosecutions and enforcement notices under its belt during that particular year. I hope the Minister will explain whether she believes that that level of activity amounts to the crippling burden suggested by the explanatory memorandum, which has been used to justify the new regulations.
It is also interesting that OPRED already has a range of civil penalties available to it for environmental pollution and breaches of regulations related to environmental stewardship. Surprisingly, they are not mentioned in the notes accompanying the SI, but OPRED has been active on notices under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, which provide for substantial civil penalties for breaches such as failure to comply with a condition of a permit; failure to pay a penalty for exceeding an emissions target for an excluded installation; under-reporting of emissions from an excluded installation; failure to comply with a condition of an emissions plan, a direction relating to an operating ban, an enforcement notice or an information notice; and providing false or misleading information.
Those are civil penalties for breaches that in many cases mirror the sorts of things listed in the SI under discussion. OPRED has been quite active in pursuing penalties under the 2012 regulations: hon. Members will be interested to know that in 2016-17 no fewer than six civil penalties were issued, and fines of more than £900,000 were collected as a result. That suggests that OPRED is already quite active in pursuing civil penalties for breaches of regulations under legislation that is inexplicably completely absent from our discussions this afternoon.
I hope that the Minister will clearly tell the Committee that she considers there is no danger that the introduction of new penalties will lead to the downgrading of enforcement, particularly environmental standards enforcement. Also, I hope she will indicate that in future we will be able at the end of each year to see in full the working of the breaches that have occurred and how they have been dealt with, as a matter of regular record. Then we can see on a continuing basis that such downgrading is not happening.
Perhaps the Minister will also inform us what is to happen to the existing civil penalty regime under the Greenhouse Gas Emissions Trading Scheme Regulations 2012, as a result of the introduction of the new penalties, particularly given that, at first sight, we see that a number of penalties provided for in the new regime mirror those already available under existing legislation. What would be the preferred option for OPRED? Will it stop applying the higher-penalty civil remedies available under the legislation I have mentioned, and begin to operate the lower-penalty arrangements available to it under the new regime, or has the Department issued no guidance on that? If not, will such guidance be available in the guidance document that we are promised will be available in November?
We do not intend to divide the Committee, but as I think you can appreciate, Ms McDonagh, a number of aspects of the proposals look frankly a little odd, and further consideration is needed of how they will sit within the existing criminal and civil penalty regimes. Clarity from the Minister to diminish that feeling of oddness would be an admirable way to conclude our proceedings.
Claire Perry
I thank the hon. Members for Southampton, Test and for Wallasey for their good, probing questions, to which I will respond in three blocks.
The hon. Gentleman suggested in his tone that OPRED was making up the fact that it was really busy. He will know—the hon. Lady will, too; I am sure she has done the dunk test and been out to see the various rigs—that we now have 299 oil and gas installations. We have 20 inspectors, who are required to go out and inspect in the most awful conditions, and it is absolutely right that we give them the tools that they have asked for to do their job most effectively. Let me again put on the record my gratitude and admiration for what they do.
The hon. Gentleman made a good point, as he often does—he always does, actually—which helped clarify something in my mind. He is right to flag that we already have a civil penalties regime for breaches under carbon emissions legislation, which is dealt with by an entirely separate set of regulations. The draft regulations will bring the same suite of tools—enforcement notices, civil penalties and, for the worst cases, prosecution—to bear on non-CO2-related breaches: in effect, in this case, oil and chemical spills. It was helpful for him to make those points, because that helped me to ensure that I was clear about what we are doing. In a way, the numbers that he pointed out show that this will be an effective way of dealing with lesser breaches, just as it is under CO2 legislation, which requires civil sanctions and/or prosecutions for the most serious cases.
I defer to the hon. Lady’s long knowledge of this area. She is right to point out that the North sea, although it is probably past peak production, is in a period of real renaissance. That is partly because of what the Government have done in listening to the oil and gas industry—
Claire Perry
The hon. Lady shakes her head, but she will know that this Government proposed the transferrable tax history, which my hon. Friends north of the border campaigned for very strongly and the industry had been asking for. Along with investment in the Oil and Gas Authority, which is the oil and gas regulator, and the wonderful Oil and Gas Technology Centre in Aberdeen, which is co-funded by the Westminster Government and the Scottish Government, that has stimulated a whole wealth of new investment and interest, and asset transfers from the big boys—she was correct to call them that: they are mostly boys—to smaller, more nimble companies that are better able to exploit those assets. We should all be very proud of that.
I want to push back a bit on the idea that the regime is being weakened. There are some serious large breaches—in effect, oil and chemical spills—that are absolutely worthy of prosecution. Then there are a whole suite of lesser offences for which enforcement notices can be issued and, most importantly, remediation action can be taken, both in clean-ups and ensuring that it does not happen again. However, other than through an exchange of letters and conversations, there is no way to make it clear to that operator that that is totally unacceptable behaviour which must not happen again.
I argue that having a civil sanctions regime enables that message to be sent even more strongly. For operators who—knowingly or unknowingly—are effectively allowing smaller breaches to happen, a suite of sanctions that did not exist will exist and be in force thanks to the regulations. I say unequivocally to the hon. Lady that this feels like a tightening of the regulatory regime. She is right that we have an offshore sector that is capable of generating hydrocarbons into the future. Ultimately, we will get to a hydrocarbon-free world, but, in the case of gas, if we invest in carbon capture and storage technology as we want to do, we can keep that gas being burnt cleanly in the system for a long period of time. It is economically vital to this country that we do that, and we need a regulatory regime that enables good operators to do what they do.
The hon. Lady said there might be some rogue operators creeping in. I am not suggesting that—there is no evidence of that—but we do have to bear that in mind, and these are the sorts of regulations that will send a strong message. Sanctions can be applied and penalties, which can be reinvested in the industry, can be collected to ensure that that message is sent loud and clear.
Dr Whitehead
The Minister has been making remarks in the important context of the burden of proof in circumstances where there are civil penalties. Should not the burden of proof for the new penalties be the civil burden rather than the criminal burden when they are in place? That would really underline how the regulations are an extension of powers rather than a contraction.
Claire Perry
The burden of proof is already mandated by legislation. I am not an expert in this—I am sure the hon. Gentleman has done more research on it—but there will be a threshold above which criminal prosecution is deemed to be the right way to go, not because people are trying to save money by not having such a prosecution but because the chances of succeeding are much less. I do not know the specifics of that, but as always I will be happy to write to him with that information.
In summary, these are proportionate and sensible regulations. It is good to hear that the Opposition do not wish to divide the Committee. The regulations will allow our excellent OPRED inspection team to continue to do their job, so I commend them to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Offshore Environmental Civil Sanctions Regulations 2018.
Business, Energy and Industrial Strategy
Claire Perry Excerpts(6 years ago)
Ministerial CorrectionsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Claire Perry
We want the men and women of the Dagenham plants and plants around the country to have the investment and skills to lead the manufacturing of a new generation of cars. Of course, we already make one in five electric vehicles sold in Europe. [Official Report, 27 April 2018, Vol. 639, c. 1228.]
Letter of correction from Claire Perry:
An error has been identified in my response to the Adjournment debate on Dagenham diesel engine production on Friday 27 April 2018.
The correct information should have been:
Claire Perry
We want the men and women of the Dagenham plants and plants around the country to have the investment and skills to lead the manufacturing of a new generation of cars. Of course, we already make one in eight electric vehicles sold in Europe.
Sainsbury and Asda Merger
The following is an extract from the response to the Urgent Question on the Sainsbury and Asda merger on Monday 30 April 2018.
Andrew Griffiths
Today the Secretary of State and I have spoken to Sainsbury’s chief executive officer Mike Coupe, and Asda CEO Sean Clarke, so that we can better understand their plans. [Official Report, 30 April 2018, Vol. 640, c. 23.]
Letter of correction from Andrew Griffiths:
An error has been identified in my response to the Urgent Question on the Sainsbury and Asda merger on Monday 30 April 2018.
The correct information should have been:
Oral Answers to Questions
Claire Perry Excerpts(6 years ago)
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Claire Perry
There are already 14,000 people working in well-paid jobs across our coastal communities in support of this vital sector. My hon. Friend will be pleased to know that we are leaders in both the quantity of offshore wind installed and innovation, and it was great that GE announced last week that the world’s biggest offshore wind turbine will be tested in the UK.
Sir Henry Bellingham
The Minister will be aware that an offshore wind revolution is taking place along the Norfolk coast and, as she mentioned, there is scope for the creation of many jobs. Will she join my campaign to set up an offshore wind energy academy at the Construction Industry Training Board’s Bircham Newton site in west Norfolk to further enhance such skills and to create a centre of excellence?
Claire Perry
Joining the skills that we already have in one sector with those in another is an excellent suggestion, and I will be delighted to meet my hon. Friend to discuss it.
Barry Gardiner (Brent North) (Lab)
Offshore wind is an integral part of the clean growth strategy, which the Government have submitted to the United Nations as their official mid-century decarbonisation plan. However, the independent Committee on Climate Change says that the strategy will fail to meet even our existing targets for 2030. Will the Minister tell us when “mid-century” shifted forward 20 years? Why do the Government think a plan that fails even to deliver a 57% reduction in emissions by 2030 is appropriate to meet the much tougher reduction of a more than 80% reduction by 2050?
Claire Perry
Once again, I am amazed at the hon. Gentleman’s ability to turn one of the great success stories of this country—in fact, he wrote an article about this last week that was so poor that he did not even retweet it. The point is that we have—[Interruption.] If he stopped chuntering, perhaps he might learn something. He is most impolite. We have led the world in decarbonising our economy. As the hon. Gentleman knows, we were the first country to set up statutory carbon budgets, and we are on track to meet the first three, as well as to get close to the budgets, based on current policies and proposals, in 10 and 15 years’ time. He will also know that we are the first developed nation to have said that we want to understand how we will get to a zero-carbon economy in 2050, and my request to the committee—[Interruption.] He is doing it again, Mr Speaker; his mother would be horrified by this level of discourtesy. We were the first country in the world to ask how we will get to a decarbonised economy in 2050, and I would hope that we could enjoy cross-party support for something so vital.
Mr Speaker
I do not want to quibble with the Minister, but I do not think that the hon. Member for Brent North (Barry Gardiner) ever indulges in anything quite so vulgar as sedentary chuntering. He is occasionally given to facial expressions, which are not prohibited by the Standing Orders of the House, and he has a penchant for what might be described as the feline purr.
Claire Perry
Indeed I will. Not only are we leaders in offshore wind servicing, but there are huge opportunities to work with our world-leading oil and gas industries. We are good at installing, maintaining and servicing complex offshore installations.
Mr Speaker
And now no chuntering or purring, but simply Gardiner oratory. I call Mr Barry Gardiner. [Interruption.] I thought the hon. Gentleman was coming in a second time. The House is deprived, but I am afraid that it will have to rest content with that situation.
Angela Smith (Penistone and Stocksbridge) (Lab)
The Minister for Energy and Clean Growth (Claire Perry)
Helping businesses create high-quality, well-paid jobs across the country is integral to this Government’s industrial strategy. On the Swansea tidal lagoon, taking into account that job creation capability, as well as the decarbonisation potential and the cost to UK taxpayers, is an integral part of that analysis.
Angela Smith
It is understood that major infrastructure projects give rise to opportunities for companies throughout the UK supply chain. The proposed Swansea lagoon project certainly falls into that category, and it could provide companies throughout my constituency and South Yorkshire with opportunities to supply products and processes to the project. Will the Minister therefore assure me that a holistic approach that places a value on jobs and investment throughout the country is being used to assess the viability of this project?
Claire Perry
The hon. Lady, as always, speaks up powerfully for her constituency. I assure her that exactly those assessments are being made, both by ourselves and by the Welsh Government, to whom there have been very specific requests from the developer. It is right that we are having a cordial, open-book conversation about what commitments are actually being asked for, because this all comes back to UK consumers and/or UK taxpayers.
Dr Alan Whitehead (Southampton, Test) (Lab)
The Minister mentions that the Welsh Government have committed, in January, to provide substantial equity and loan investment to get the Swansea tidal lagoon project off the ground. Indeed, they are anxious to explore with the UK Government how this might be incorporated into an overall support package for the lagoon. Over and above contacts between officials of the two Governments, what meetings has she or other Ministers in the Department held with Ministers in the Welsh Government to examine and progress this offer?
Claire Perry
The hon. Gentleman is right to say that these conversations have to happen jointly. There have been numerous meetings between my officials and officials in the Welsh Government, and I have met the Welsh Environment Secretary and her special advisers to discuss this and many other issues.
Eleanor Smith (Wolverhampton South West) (Lab)
Matthew Pennycook (Greenwich and Woolwich) (Lab)
The Minister for Energy and Clean Growth (Claire Perry)
A formal assessment has not yet been made, but the hon. Gentleman and I have exchanged correspondence on this important issue. It is vital that we create a market framework that works to deliver the benefits of energy cost reduction and carbon reduction from these networks but that protects consumers. I know he has a passionate interest in this, given the eight networks already operating in his constituency.
Matthew Pennycook
Not a month goes by in which I do not receive scores of emails from desperate constituents who are paying over the odds and are ill served by district heating networks. They are not getting a fair deal and cannot afford to wait for the Competition and Markets Authority’s partial market study to report. For their sake, I urge the Minister to give serious consideration to introducing statutory regulation now. Will she meet me to discuss the issue?
Claire Perry
I am always happy to meet the hon. Gentleman, as he knows. It is interesting, because on average consumers are paying less and have the same level of satisfaction as they have with other heating options. Well designed and well regulated frameworks can really deliver a benefit for consumers, which is why we are investing more than £300 million, but the hon. Gentleman and I should get together to discuss his constituents’ particular concerns.
Sir Edward Davey (Kingston and Surbiton) (LD)
Will the Minister tell us why it has taken so long to disburse some of the £320 million fund for district heating schemes? So many local authorities and other bodies want to apply for funding, but the Government are being slow in disbursing the money.
Claire Perry
I am not sure I agree with that, partly because we have to get this right and make sure that there is a competitive market and that consumers do not feel that these things are being imposed on them. We should celebrate the fact that we have £300 million to take these pilots forward. Pilot projects are under way in Manchester, Sheffield and Barking, and I look forward to funding many more.
John Grogan (Keighley) (Lab)
Geraint Davies (Swansea West) (Lab/Co-op)
The Minister for Energy and Clean Growth (Claire Perry)
The hon. Gentleman will know that investment in renewable energy is vital so that we can get towards our interim targets, as well as the 1.5° C target. With a combination of the binding statutory budgets, the investments we have made and some good policy design, we are cranking ahead with renewables. More than 30% of our energy came from renewables last year, and I am sure we will all celebrate the fact that just in the past month we went for 77 hours without coal contributing to our grid.
Geraint Davies
Satellite data shows that 5% of the methane produced by fracking is leaked through fugitive emissions. Given that methane is 86 times more powerful than carbon dioxide in global warming terms, that makes fracking twice as bad for climate change as coal. Will the Minister commit not to proceed with fracking and to proceed with the Swansea bay tidal lagoon project to deliver on climate change?
Claire Perry
I think the hon. Gentleman has seen some of the same slides that I have seen, which show a hypothetical model put forward by some scientists. We are of course always concerned about fugitive methane emissions, and we will bear that in mind going forward.
Sammy Wilson (East Antrim) (DUP)
Germany, France, India and China are building coal-fired power stations by the hundreds while we are relying on more and more expensive sources of energy. Does the Minister not recognise the damage done to our economy by pursuing means of expensive energy while turning her back on cheap energy? Does she really believe that erecting a few windmills will affect the world’s climate, which is determined by the sun and by natural forces beyond the control of man?
Claire Perry
It is always good to listen to the right hon. Gentleman on this point. We could debate the science, but the truth is that we and 57 other countries, states and cities around the world have committed to phase out coal, because it is the most polluting fossil fuel. We do not need it, because we have a big investment in renewables and we have clean gas as part of our energy mix, which we must maintain going forward.
Mr Speaker
We are running late, but I am very keen to hear the voices of Harlow and of Washington and Sunderland West. We will begin with Harlow—I call Mr Robert Halfon.
Rosie Cooper (West Lancashire) (Lab)
The Minister for Energy and Clean Growth (Claire Perry)
I will be happy to discuss the matter further with the hon. Lady. She has raised a hugely important point about how we include in a mortgage mix or a financing mix the value of companies and households installing measures to reduce their energy bills. The green finance taskforce, which has just reported to us, had some suggestions, and I would be delighted to discuss them further with the hon. Lady.
Antoinette Sandbach (Eddisbury) (Con)
Claire Perry
My hon. Friend will be pleased to know that the current support for existing coal to biomass conversion will end by 2027. I am aware of many of the concerns about biomass, and we are looking at the issue carefully. However, sustainable, low-carbon bioenergy can help us on this transition, particularly away from coal burning.
Matt Western (Warwick and Leamington) (Lab)
Stephen Kerr (Stirling) (Con)
Claire Perry
My hon. Friend is right to highlight a concerning issue. My officials are meeting representatives of the wood panel industry today, but I would be delighted to follow up with a personal meeting with him and his constituents.
Kevin Brennan (Cardiff West) (Lab)
Domestic Gas and Electricity (Tariff Cap) Bill
Claire Perry ExcerptsMonday 30th April 2018
(6 years ago)
Commons ChamberRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 30 April 2018 - (30 Apr 2018)
Rebecca Pow
Thank you.
I am delighted to speak in support of this Bill. It focuses on a temporary managing of the energy market, which has not been managed well enough, which is why we are talking about the whole concept of this Bill. I will speak briefly, and only to amendments 7 and 9. I do not disagree with the sentiment of, and intention behind, these amendments, and above all it is, of course, vitally important that we look after the vulnerable in society, in particular in terms of energy, and especially when the market is deemed not to be functioning properly.
It is crucial that people can keep warm and cook the right food and that they are comfortable and well, but this Bill already addresses that. It places a new set of duties and powers on Ofgem to protect consumers on variable and default tariffs, and Ofgem already has a duty under the electricity and gas Acts to have regard to the need to protect vulnerable customers. We should also remember that in 2016 the Competition and Markets Authority made an order, following its energy market review, to put in place a safeguard tariff for customers on prepayment meters, and about 4 million people have benefited from that. Last year, Ofgem took the decision under its principal duties in the electricity and gas Acts to extend the safeguard tariff to customers in receipt of the warm home discount.
Ofgem must have regard to the need to protect vulnerable customers when exercising its functions under these Acts, and I would argue that that is already being done. However, I agree with my hon. Friend the Member for Stirling (Stephen Kerr) that it is crucial that Ofgem uses its powers and uses them well and that its feet are held to the fire in this respect—to use an energy term. It also introduced an enforceable vulnerability principle into the domestic standards of conduct, making it clear that suppliers must do more to treat vulnerable customers fairly, and this must be done.
Realistically, therefore, these amendments seem to be overkill, placing new obligations on Ofgem that are not necessary; however, it must use the powers it has. Also, as many Members have said, the powers in this Bill are only temporary: the price cap operated by Ofgem is not intended to last beyond 2023, and I fully support that. By contrast, Ofgem’s powers to protect vulnerable customers under the electricity and gas Acts are not limited.
It is necessary to bring in the fairness that this Bill has right at its heart. Its main aim is to place a new set of duties and powers on Ofgem to protect customers on standard variable tariffs. That is what this is really all about; far too many people have been taken for a ride. In 2016, about 11 million people were paying a total of £2 billion over the odds for their energy; that is simply not right. Individuals are said to be paying about £300 too much. Many people falling into this category are the elderly, and I am speaking on this Bill in part because Somerset has a particularly ageing population, and they have been taken advantage of, as indeed have many young people who are in rental accommodation because they are tied to one form or another of payment.
We must not mess about any further with this Bill. We must be able to see the wood for the trees; we do not want to bring in another lot of suggestions and regulations that delay the Bill, because it is more important than ever that its measures come into operation this winter. It is essential that we protect the vulnerable, but it is not necessary to legislate further on vulnerability, as suggested by amendments 7 and 9. I hope that on this basis the amendments will be withdrawn.
The Minister for Energy and Clean Growth (Claire Perry)
I thank all colleagues here this afternoon for their intelligent and sensible contributions to a debate that has run for several years. We are now within striking distance of bringing this Bill to a conclusion and sending it off in good order to the other place. I particularly thank my relatively close—geographically speaking—party colleague, my hon. Friend the Member for Weston-super-Mare (John Penrose), whose dogged and intelligent scrutiny, along with that of his colleagues, has made this a much better Bill, and I pay the same compliment to the hon. Member for Leeds West (Rachel Reeves) and her Select Committee. This shows that when we work together we can deliver good legislation. I will respond to the amendments discussed today and my hope is that in doing so no Member feels obliged to press their amendments to a vote.
New clause 1, which we discussed at length in Committee and again today, seeks to introduce an ongoing, almost perpetual, relative price cap once the absolute price cap is removed. Like the Member speaking for the Scottish National party, the hon. Member for Kilmarnock and Loudoun (Alan Brown), I am a little perplexed by this amendment, as I said in Committee. The hon. Member for Southampton, Test (Dr Whitehead) has spoken so powerfully on many occasions against a relative cap and in favour of an absolute cap, and yet this new clause suggests bringing in the opposite: a relative cap on a perpetual basis. I will talk more about the issues we have with relative caps, but this is a little counterintuitive. It would also mean—this will be anathema to many colleagues who have spoken passionately today in support of a relative cap—effectively perpetual Government intervention in the energy market. There is strong agreement across the House in favour of competitive markets delivering the best for consumers. When those markets are broken, or regulation slips out of date, it is right to improve the powers of regulators, but perpetual Government intervention, particularly in setting prices, is not the way to deliver the best outcomes. Therefore, the new clause is not necessary.
Moving on to the comments on relative caps, Ofgem said in its evidence, which others strongly supported, that a relative cap will be gamed by the largest suppliers. If we introduce this hypothesis, it will be gamed. As my hon. Friend the Member for Eddisbury (Antoinette Sandbach) also pointed out, we also heard in Select Committee evidence sessions that there was overwhelming support for an absolute cap—now and then.
John Penrose
I hesitate to pray the Labour Front Benchers in aid of my argument, but the Minister has just quoted Ofgem in favour of hers, so perhaps it will make sense. Does she not agree that it would be commercial suicide for a supplier to raise its tariffs in the competitive market, to protect its position, were a relative cap to be introduced? I think the shadow Minister said earlier that it would be commercially suicidal or a kamikaze move.
Claire Perry
I am afraid that I have to disagree with my hon. Friend and reject that point. That is what has been happening for many years to the most vulnerable customers, who have seen price rises recently and who are not switching for a variety of reasons. We are trying to deal with that customer group today. I hope that the hon. Member for Southampton, Test will withdraw the new clause on the basis that it is not rational and not needed.
Amendment 5 proposes that a set period of five months be placed in the Bill. We debated that at length in Committee, and I believe that we are all seized of the need to bring the Bill into force in good order as quickly as possible—we do not want to wait any longer. We want the Bill to be in place by the time we rise for the summer recess, and obviously it has to go through the other place first. We want the caps to be transparent and to be applied in time for this winter, 2018, so that people can start to benefit and make savings on their energy bills immediately.
We heard from Back Benchers why they felt the five months provision would be difficult, and I will add my concern that if Ofgem were to go over such a legal limit, even by a couple of days, it could inhibit its ability legally to bring forward the cap. We must do nothing to reduce Ofgem’s ability to consult on the cap and put it in place. It is worth emphasising again—I am sure the regulators and others are listening—that we want and expect the cap to be in place by the end of the year. I do not think the proposal in amendment 5 is either legally permissible or necessary.
Amendments 2, 3 and 4 were tabled by my hon. Friend the Member for Weston-super-Mare and supported by many Members who have thought carefully about this issue. We have refined the Bill through the course of our discussions and made it into a better piece of legislation, and I am grateful for that. We have heard again today many of the arguments that we have heard during the Bill’s passage. We are talking about a theoretical position in talking about a relative cap, because the only cap we currently have is the safeguard tariff, which is an absolute cap and which appears to be working to save customers money.
Our concern is that with a relative cap, we could see suppliers lifting their skirts on their cheaper tariffs, and that there could be an inhibiting effect on some of the innovations that my hon. Friend the Member for Wells (James Heappey) mentioned, with companies charging extremely low prices for time of use tariffs. We heard overwhelming evidence during the evidence sessions chaired by the hon. Member for Leeds West, and also in the Public Bill Committee, that absolute caps were considered a much better way of bringing forward the protections that we all want. That is the view of Ofgem, the Select Committee, Citizens Advice, moneysupermarket.com and some of the new energy companies, and I am persuaded that those organisations have the interests of the customers we are trying to help at heart.
I am also concerned that if we had relative caps, there could be a lot of gaming going on and a lot less transparency. We have talked about what would happen if suppliers lifted their prices. We know that the trouble we have is with a group of customers we refer to as disengaged. They are not digitally enabled; they tend to be older, on lower incomes and more vulnerable; and they are not as susceptible or sensitive to the price elasticity that would perhaps persuade others to switch. The aim of this price cap Bill is to protect those customers, so I do not believe that it is necessary to accept those amendments.
John Penrose
I just want to point out that the criticism that the relative cap can result in an increase in switching rates and tariffs has equally been applied to the absolute cap. There has been criticism of both kinds of cap, not just of the relative cap.
Claire Perry
There has been a lot of criticism of both kinds of cap, but if we look at the one sort of cap that we have—the prepayment meter cap that is extended to vulnerable customers—we see that those customers have saved between £60 and £120 on the basis of that cap. It has actually worked to reduce their prices. I am pleased that my hon. Friend is not intending to press his amendment to a vote.
Amendment 6 seeks to ensure that we have a stated amount of the savings that might accrue. I think that is perhaps slightly mischievous, and it does not really reflect the consensual spirit that we have had throughout the passage of the Bill. I can imagine that the people coming up with these numbers were looking at the savings that we have discussed in relation to the prepayment cap, or indeed the £300 average difference between the most expensive and the cheapest tariffs in the market. However, as my right hon. Friend the Member for Wokingham (John Redwood) said, we need to calculate volume as well as price to estimate the service, and we do not yet know what cap Ofgem will set. We also do not want to constrain Ofgem’s ability to set the cap or to create targets for the big six to work towards as the maximum saving. I hope that, on the basis of that explanation, the hon. Member for Southampton, Test will be content not to press his amendment.
Claire Perry
There has been a huge amount of scrutiny, and I am hoping that we can get the legislation through to the other place, but my door is open. We want a well-functioning energy market that works for everybody and provides competitively priced energy.
I was asked an important question about the statutory instrument, which is also going through the House, that enables data sharing between the DWP and others. It has completed its pre-legislative scrutiny and will be introduced during the passage of this Bill. It is a vital and necessary part of ensuring that the powers in the Bill work.
Dr Whitehead
Will the Minister be clear with us tonight that the safeguard tariff and the absolute cap do not contradict each other and that they can be introduced together, so that the protections can continue? Is she convinced that that is the way forward?
Claire Perry
There is nothing in the Bill that interferes with Ofgem’s ability to extend the safeguard tariff, which is part of an existing separate set of powers. By having this discussion, we are sending a clear message that we expect Ofgem to retain adequate protections for the most vulnerable consumers once the Bill is passed. I thank colleagues for putting that matter forward for debate today, because it is an absolutely vital point that we must get across. However, on the basis of my responses, I hope that the hon. Member for Leeds West will not feel the need to press amendment 9.
Amendment 8 essentially sets out the conditions that would determine success when we consider whether the price cap should be removed. As we discussed in Committee, it is not the job of Ministers to prejudge the regulator’s work on what a good market will look like in two years’ time. This country has seen some of the most rapid evolution in energy innovation, and in the future there may well be factors that are no longer considered relevant in establishing competition or factors that do not best address consumers’ needs. I do not want to put anything into the Bill that would give energy companies something to target. The Bill is supposed to be about giving the regulator broad powers to ensure that companies deliver a better price for consumers, not try to engineer a particular outcome. I hope that the hon. Member for Southampton, Test considers that a sufficient explanation and will not press amendment 8.
It has been great to have so much cross-party conversation and discussion on this important piece of legislation. I forgot to mention the vital point made by the right hon. Member for Don Valley (Caroline Flint) about green tariffs, but the process of setting such tariffs will be scrutinised as never before and we will have better, more transparent tariffs as a result. I hope that all Members are satisfied with the explanations I have provided and that we will not need to trouble the Lobby Clerks this evening.
Dr Whitehead
On the basis of the explanations that have been put forward, we will be happy not to press our amendments, but we will wish to press new clause 1, which has not been properly understood or responded to this evening.
Question put, That the clause be read a Second time.
Dagenham Diesel Engine Production
Claire Perry Excerpts(6 years ago)
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The Minister for Energy and Clean Growth (Claire Perry)
May I start by congratulating the hon. Member for Dagenham and Rainham (Jon Cruddas) on securing a really important debate, the subject of which is very much front and centre of the discussions that we are having with industry and with colleagues across the parties? We are all trying to deal with the conundrum of how we move to a lower-emission, cleaner-air future without causing harm to an industry that, as we know, has been hugely successful.
I share in and amplify the tribute that the hon. Gentleman paid to the men and women of the Dagenham plant. The industry employs 170,000 people, who have delivered a highly productive sector and good industrial relations. Its exports in 2016 were the highest we have ever seen, and of course we absolutely want that to continue. As the hon. Gentleman said, Ford has been a good partner to the UK through times of peace and war, and remains an absolute cornerstone of our automotive landscape.
I also pay tribute to my hon. Friend the Member for Solihull (Julian Knight), who spoke up for his constituency, my hon. Friend the Member for South Suffolk (James Cartlidge), with whom I have discussed this issue many times, and my hon. Friend the Member for Daventry (Chris Heaton-Harris) who cannot speak here, yet speaks up so eloquently for his constituents in Daventry. A really important group of people have come together today.
I want to provide some reassurances and a sense of where we are going in the future. This is a concerning time. Auto companies right across the country ask us, “What does this future transition look like?” Of course, the engines made at the plant in the constituency of the hon. Member for Dagenham and Rainham are almost all destined for export; they go into Transits that I believe are assembled in Turkey. There is a Europe-wide question about the future.
It is right that we are working really closely with the industry through the Automotive Council and the company. The Secretary of State and the Prime Minister have met senior management regularly to understand the future strategic direction that the company sees itself taking in the UK. We want to reassure the company that, as well as the technical transition that I will discuss later, the Government are really working with the industry in a way we have never seen before, through the industry strategy. We are co-investing with industry through, for example, the Faraday challenge to ensure that we take a leadership position in new technology. We are also working out what more we can do on a research and development basis to go forward together.
Ford has demonstrated time and again its commitment to manufacturing in Britain by regularly upgrading its investment. It is quite right that we use opportunities such as this debate to reassure the company and the hon. Gentleman’s constituents that we understand this transition and that we are not trying to demonise diesel. I will explain that a little more later.
We have set out our aspirations in the clean growth strategy for a lower-carbon future and in the clean air proposals that the Secretary of State for Environment, Food and Rural Affairs is bringing forward, because it is clear that we have to tackle this problem in a sensible way. The dash for diesel that the hon. Gentleman mentioned was encouraged by the scientific evidence at the time, but it has resulted in some consequences, particularly in the least well-off parts of the country, where there are unacceptable air quality issues in playgrounds and gardens and on balconies. It is absolutely right that we work out how to create cleaner air for our families and children, and the hon. Gentleman mentioned work that is being led locally on that.
It is right that the Government continue to be on the front foot in their support for ultra-low emissions vehicles. The hon. Gentleman mentioned the Budget, in which the Chancellor announced the plug-in car grant, investments in electric vehicle charging infrastructure and the £246 million that the Government are making available over four years to co-invest with industry so that we can own and create the best manufacturing base for where the world is going, which is towards having a fleet of ultra-low emissions vehicles. This country does not want to be making the last diesel engine ever sold in Europe. We want the men and women of the Dagenham plants and plants around the country to have the investment and skills to lead the manufacturing of a new generation of cars. Of course, we already make one in five electric vehicles sold in Europe.[Official Report, 2 May 2018, Vol. 640, c. 3MC.]
The 2040 target—to have no new vehicles on the roads that are not ultra-low emissions vehicles—was carefully discussed and delivered with the industry to give it sufficient time to adapt and to make the transition calmly. We have committed substantial funds to future technology, but we are equally committing funds to the current technology. For example, we have committed more than £1 billion to the Advanced Propulsion Centre over 10 years. As the hon. Gentleman says—he may be a right hon. Gentleman, so I hope he will forgive me if I have got that wrong—this is about how we adapt to the diesel engines of today. [Interruption.] Well, perhaps he will be a right hon. Gentleman one day.
This is about how we invest, within the guidelines that the EU has rightly brought forward, to create the next generation of much cleaner diesel. The point was made that this needs to be tested in a real-world environment. My concern is that consumers have lost confidence in diesel because they sometimes feel that the companies have not been straight with them about emissions. It is right that we have a medium-term investment strategy to create the lowest possible emissions from diesel engines, but we must also work with the industry to migrate these engines in the future.
Since we put in place the 2040 target and made it clear what we think the direction of travel is, we have had a whole series of positive announcements from auto companies in the UK that are reaffirming their commitment to manufacture here. PSA-Vauxhall said two weeks ago that it is going to reinvest in the Luton plant to build the Vivaro from 2019. Toyota announced in February that it is going to build the next-generation Auris at the Burniston plant. Nissan says that it is going to spend half a billion pounds in Sunderland to secure the future of the factory there. BMW has chosen Oxford as the place where it is going to manufacture its electric Mini.
We have seen a very big and ongoing increase in automotive investment. From working with the industry and representatives of the Automotive Council, it is clear that these companies understand, both in Europe and globally, that the world is going towards a much more low-emissions future, as is absolutely right. I would submit that we are probably one of the most front-footed Governments in working with industry to drive this transition. Again, I refer to the investments we have made through the Faraday challenge and in the Advanced Propulsion Centre.
To give the hon. Gentleman some reassurance, there is no demonising of diesel. There is a calm reflection that ultimately we have to phase out polluting fossil fuels over several decades, giving companies time to plan their models and invest in their production lines. He is right to pay tribute to the workforce—the men and women who work so hard in these factories and have delivered a superb success for British manufacturing —and I join him in doing so. People who say we do not make things here should go and visit the auto plants in his constituency, or the plants in Swindon near mine, to see what the workforce has delivered. We want those jobs to be maintained. We want this investment to continue. Ultimately, we all want that to result in cleaner air for our children and our grandchildren in future.
Question put and agreed to.
Dieter Helm Energy Review
Claire Perry Excerpts(6 years ago)
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The Minister for Energy and Clean Growth (Claire Perry)
It is a pleasure, as always, to serve under your chairmanship, Mr McCabe.
I understand about axolotls and chrysalises, but I did not know what a hospital pass was. I assumed that it was something people put in their windscreen when at Great Western Hospital. It made me very grateful that we unveiled the statue of Millicent Fawcett today— 11 blokes and now one woman in Parliament Square. Perhaps we can have some terms everyone understands in the future.
I thank the hon. Member for Blackley and Broughton (Graham Stringer) for securing the debate. We could discuss the issues of science and climate change, but that is not why we are here. The points he made were very good ones. The challenge of how to make policy in a way that keeps the lights on and the costs down, does not burden future generations with unnecessary costs and achieves carbon emissions reduction targets, involves important questions for debate, so I am grateful.
Before I get on to some Helm comments, I will set out a couple of ground-preparation points. We are at a tipping point. When we used to talk about low carbon, it was axiomatic to think about high cost. As we heard very eloquently from my hon. Friend the Member for Wells (James Heappey), those trade-offs increasingly are going away. I accept that renewable energy without the necessary level of battery, solid state or liquid storage will not keep the lights on and give us the hot showers we want, which is why I am such a proponent of gas, particularly clean gas, in the system in future.
Tackling our climate change issue and delivering on our carbon commitments, which are world leading in their scope, does not mean that we are looking forward to a high-cost, low-economic productivity future—quite the opposite. As we have set out in the clean growth strategy and continue to debate, we are employing more than 400,000 people in the low-carbon economy, which is bigger than aerospace in the UK. That economy is growing very rapidly, creating great export opportunities, and is doing so in the knowledge that we have decarbonised more and grown our economy more than any other G7 country. That is something of which successive Governments should be very proud.
I want to reassure the hon. Member for Blackley and Broughton that when we think about technological investments in the future, we are trying to apply a triple test. First, what happens to the carbon emissions? Can we see emissions actually coming out—can we count them? Secondly, can we see a cost-effective pathway to deployment? Can we deliver technology that will reduce costs rapidly? Thirdly, does this give us a competitive advantage based on what we are doing well in the UK, which we can export? It is not just us on this low-carbon journey; the world is pivoting to a low-carbon economy. Trillions of dollars are being spent on low-energy production and transport.
The hon. Gentleman talked rightly about coal; as a founding member of the Powering Past Coal Alliance, I wish we could persuade all countries that it is the fuel of the past. Equally, it is not right for us to dictate to some of the emerging economies their energy mix. We have to encourage and support them. India has said that it wants its entire car fleet to be electric by 2030. That will have a material impact on the price of that technology around the world. All that creates a reinforcing, positive spiral. If we can demonstrate leadership in technologies and other countries do, too, the price will drop, as has been seen with solar panels. That means that more countries can adapt and we get ourselves to a better place.
The focus on low carbon is not a win-lose situation; it is a win-win situation. The emphasis on innovation cannot be made strongly enough, which is why we have committed £2.5 billion over this Parliament just for this area of low-carbon innovation, which is part of the biggest increase ever in public spending on UK science research and innovation.
We can debate strategies, and we will, but we need to focus on costs now. Reducing costs both for consumers and for businesses is the heart of what we want to do. We have seen and heard what has happened to the input cost going into the system; I accept the point about onshore wind—the hon. Member for Kilmarnock and Loudoun (Alan Brown) and I have debated that. We have a manifesto commitment that we do not believe large onshore wind is right for England, but I am aware of other parts of the country and we are working to see what we can do.
We have seen a dramatic fall in the cost of low-carbon energy. Indeed, we have just celebrated our second period of coal-free power generation—a record of 57 hours not using coal to power our electricity in the UK. There are some other more subtle points, too. Network costs, which make up a quarter of dual fuel bills, have fallen 17% since privatisation, and the pressure is downwards on those. We have seen a dramatic increase in the level of competition in the retail energy market—there are now more than 65 suppliers. Switching levels are hitting record highs.
As hon. Members will know, I will bring back to the Floor of the House the Report stage of the Domestic Gas and Electricity (Tariff Cap) Bill next week. It sounds as if we will have strong support from all Members present. We believe that we need to do more to help that market move towards a more price-competitive place, and we want that cap to be in place for this winter.
On household energy bills, it has not just been about consumers and taxpayers investing in the future of energy generation and low carbon. Much of that investment has been offset by improvements in fuel efficiency in homes, which I believe the hon. Member for North Ayrshire and Arran (Patricia Gibson) alluded to, often directly through measures such as the energy company obligation. In fact, although prices have gone up as a result of the investment in future forms of technology, the average bill in homes has dropped by £14 since 2012, because we have become much more efficient.
Stephen Kerr
The Minister has not mentioned smart meters in her list. When does she feel she might be in a position to tell us where we are going with the SMETS2 meters and the connection with the Data Communications Company?
Claire Perry
My hon. Friend has anticipated my speech; I was also going to mention the very dramatic, large roll-out of smart meters. We know we need to move to SMETS2 and make sure that that is done as seamlessly as possible for consumers who already have a SMETS1 meter—I am happy to take that offline.
Alan Brown
On the point I made, does the Minister agree that there is also scope for direct Government investment in energy efficiency, rather than relying on the likes of ECO, which still makes the consumers pay for it in their bills?
Claire Perry
I do; things such as the warm home discount are part of the long-term commitment that we have made to ensuring that there is better energy efficiency. We are working hard to take out costs wherever possible.
The hon. Member for Blackley and Broughton represents a manufacturing and industrial constituency; we have reduced the policy impact of energy bills on our most energy-intensive industrial consumers by up to 80%. He mentioned the relative costs of energy in Europe, where we tend to do very well in terms of gas costs and not so well in terms of energy. That is often because of political choices that countries make about where they will allocate their network costs. That is exactly why we commissioned the Helm report, to understand what it is we need to do better to ensure that our cost of energy for both households and businesses is as low as it can be.
I heard a lot of conversations about not wanting Government meddling in the design of the energy system, but somehow the terms of reference were too broad and Government should have been involved in setting them, and that the report was too short. Professor Helm is one of the world-leading experts on energy markets and design. It is fantastic that he has come out with some incredibly far-reaching recommendations; it is a no-holds-barred look at how we deliver more affordable energy, keep the lights on, decarbonise, create innovation and build relationships between the market and the public sector. I will not even answer the criticisms about his remuneration; he did a great report and it was good value for money.
We have had a very vibrant debate about the report; we will not rush to respond to it. This is an opportunity when we are at a tipping point on how we generate and deliver our energy. We need to take a very sensible, sober look at what we want to do. Much of that was covered in the report—questions about the importance of energy to our economic success, the disruptors that are going along, the move from passive to active demand, zero marginal low-cost clean generation, and the need to access lower cost, effective storage technologies. The market is changing, regardless of what the Government do. All the analyses of the report benefit strongly from hindsight, which is a wonderful thing, but the hon. Gentleman’s point about complexity, and Government layering intervention on intervention, are really well made. We need a response that is sober and sensible, that sets out an energy policy or strategy for the future that can survive successive political cycles and can respond quickly to what I have no doubt will be enormous technological changes.
The job of Government is to set ambition. We are among the most ambitious Governments in the world—we are the first developed country to ask for advice on what a zero-emissions economy would look like in 2050. It is great to see other countries joining us. We are also responsible for setting a balanced budget, so that all our decisions can be made secure in the knowledge that we will have a stable financial framework. Our job is not to respond to customers who lobby loudest, but to look to work with companies that create value for consumers, so we have frameworks and stability that will stand the test of time. If we get that right, this trilemma that we always talk about of cost, carbon and security, would be solved, at least for electricity.
I thank all the Members who have spoken; it is always a pleasure to talk about this very important subject. I look forward to repeating the debate when we bring forward the response to the Helm review, but I am extremely grateful to Professor Helm for his report and for challenging us to think about these vital issues for the future.
Draft Renewable Heat Incentive Scheme Regulations 2018
Draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018
Claire Perry Excerpts(6 years ago)
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The Minister for Energy and Clean Growth (Claire Perry)
I beg to move,
That the Committee has considered the draft Renewable Heat Incentive Scheme Regulations 2018.
The Chair
With this it will be convenient to consider the draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018.
Claire Perry
It is a pleasure as always to serve under your chairmanship, Mr Hanson. If I may add one moment of levity, I congratulate two members of the Committee on their fine performance in the London marathon yesterday—I am sure they were cursing renewable heat at the time. I am sure my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk and the hon. Member for Blaenau Gwent are enjoying the chance to sit down; hopefully it will not be for too long. Congratulations to them.
The purpose of the draft orders is to implement reforms to the renewable heat incentive. The reforms will deliver changes that will strengthen the focus on long-term decarbonisation, offer better value for money for taxpayers, increase protection for consumers and further support supply chain growth in the renewable heat sector.
Heat for our homes, businesses and industries accounts for around half of the UK’s energy use and around one third of total carbon emissions. Increasing the share of heat derived from renewable sources is a critical challenge, both to meet our renewable energy targets and to deliver the Government’s long-term carbon goals. Renewable heat can also make a valuable contribution to our fuel poverty ambition, and it is my intention to use this scheme and the energy company obligation scheme to deliver on our manifesto commitment.
Building a vibrant renewable heat sector is a key objective of the clean growth strategy and the industrial strategy, and the RHI is the main programme to deliver those goals over the spending period. The non-domestic RHI scheme was launched in 2011, and there are now more than 18,000 installations with a total capacity of 4,000 MW. The scheme produces enough renewable heat for more than 1 million homes. The domestic RHI was launched in 2014, and more than 60,000 homes are now using it to make the transition to low-carbon heating. Before the RHI started, only 1% of our heat came from renewable energy sources. That figure is now around 7% of total heat.
This type of tariff-based support for renewable heat installations is the first scheme of its kind in the world. Inevitably when pioneering something, there are lessons to be learned, and these reforms are a response to some of the lessons from the early years. We consulted extensively on this package of reforms in 2016. The draft regulations will complete the delivery of those changes, as well as implementing elements from two smaller consultations in 2017.
The National Audit Office published a review of the RHI in February this year, which we were very pleased to receive. However, many of the comments related to the draft regulations that are now before us and which we now have the opportunity to discuss. I hope they will go some way towards addressing some of the issues covered in the NAO’s report.
The draft orders will deliver 12 important changes in total. Those will deliver a series of important reforms that will ultimately help us to deliver a more strategic mix of technologies and improved value for money over the next three years. I will highlight a couple of the main ones.
We will increase the tariffs available for biogas and biomethane technologies while introducing new restrictions on the feedstock that those plants use, which was one of the requests that we received from many campaigners in the sector. That will encourage the increased use of food and agricultural waste and will reduce the use of energy crops, making better use of farmland for food production. We will also revise the tariffs for heat pumps and biomass that were introduced through negative regulations last year, which will rebalance the deployment away from biomass and in favour of heat pumps, biogas and biomethane, which will all play a much stronger role in the scheme over the long term.
Another important change is that we will bring in tariff guarantees that cap the amount of heat covered to 250 GW per year. That will allow RHI applicants to secure their place on the scheme in advance of construction, and will support investments in larger plants, but not mega-plants, with long lead times that deliver better value for money.
In the domestic scheme, take-up to date has been dominated by owners of larger homes. To promote wider uptake, which is an important objective for me, we will introduce the facility for an assignment of rights. That will allow third parties, particularly those in lower-income housing, to finance renewable technology and be repaid directly from the RHI. Crucially, that will open up access to the scheme for those without the up-front capital to pay for a new heating system, and will avoid some of the allegations of dead weight that have been directed at the scheme.
Alan Brown (Kilmarnock and Loudoun) (SNP)
The Minister mentioned biomass and the 250 GW cap. In the oil and gas debate on Thursday, I raised the issue of the Grangemouth renewable project, which is in the pipeline and possibly due for commission. Will the cap affect that project, if it proceeds?
Claire Perry
If I may, I will make some progress and ask my trusty officials to scribble a note to me. If we cannot answer the hon. Gentleman during the debate, I will be happy to write to him.
Following last year’s consultation, we will also limit the eligibility of certain heat uses. One of the concerning criticisms of the scheme was that it was being used to dry wood for fuel and that it was being used for waste processing and drying, which were strongly felt to be inappropriate for the scheme. The regulations will change that and improve the value for money of the various projects. We will also remove the use of heat-drying digestate and anaerobic digestion facilities as eligible heat uses, because we consider them to be poor value for money. Those technologies would not exist without RHI support.
In addition, we will remove support for heating swimming pools on the non-domestic scheme, unless the pool is for commercial or municipal use. That brings us into line with existing regulations on the domestic scheme.
We are also introducing changes to allow more than one heat pump to use a common or shared ground loop, which should facilitate greater deployment of that important technology. The introduction of electricity metering for heat pumps across both schemes will allow participants to better monitor the efficiency of their plant and will build confidence in the technology.
Following the consultation, another change will increase the power efficiency threshold for combined heat and power technology from 10% to 20% to reduce the risk of over-compensation and to encourage plants to run more efficiently. There is also a whole series of mainly administrative changes to tighten cost control, reduce the risk of gaming and improve Ofgem’s delivery of both schemes, including by tightening its enforcement powers. The Renewable Heat Incentive Scheme Regulations 2018 also consolidate all previous revisions to the original regulations, as recommended by the Joint Committee on Statutory Instruments.
The RHI plays a central role in the Government’s programme to decarbonise heating, but it is not perfect. As Committee members will know, the scheme is scheduled to end in March 2021 in terms of access for new entrants—it will continue for many years thereafter in terms of financial support. However, until that time, we want to make the scheme as good as it can possibly be. These regulations are an important step in refining the scheme, so I recommend them to the Committee.
Claire Perry
I sincerely thank all hon. Members for their contributions. As always, we improve legislation by scrutiny. I will try to respond to as many of those points as I can and will offer letters of assurance where I do not have the details.
First, the hon. Member for Kilmarnock and Loudoun raises an important point. My understanding is that, while the tariff cap is 250 GWh, bigger schemes can go forward. Effectively, part of the generation would be under a capped tariff and other parts would not. I appreciate the urgency in the commercial world. We might take months to make decisions, and sometimes developers do not have that. I will ask my team to write to him immediately and set out exactly what we know as it relates to Grangemouth. Hopefully that will give him assurance and he will not feel the need to divide the Committee.
As always, we like to work in the spirit of trying to do the best we can. It was important to set the threshold, because we have seen runaway budgets that have forced us effectively to curtail other schemes. The scheme will cost taxpayers £23 billion over its lifetime, even at the revised level, so it is a substantial investment of taxpayers’ money in driving us forward to a lower-carbon future.
Alan Brown
I appreciate that the Minister is looking to provide a full update and give assurances or otherwise, but my concern is about what happens if the letter comes back to me stating, “Your concerns are right. It is a 250 GWh cap. The scheme is way above that, so unfortunately the project falls.” The letter may not help. Things will be left in the air until we get an answer, by which point it may be too late.
Claire Perry
Obviously we consulted on the cap last year. Given the current scope, the scheme will be affected. Part of its output will have a guaranteed tariff, but perhaps the development team can come in to speak to officials and have a conversation. The hon. Gentleman mentioned that the scheme was bidding into CfD regulations as well. There are other routes and opportunities. Hopefully the people of Grangemouth whom he represents will be pleased that there is so much incentive. We want developers to bring forward the schemes to take us to a lower-carbon future. If a meeting would be helpful, I would be glad to arrange it.
I praise the hon. Member for Southampton, Test, who is almost my hon. Friend these days. He has brought his typically detailed level of scrutiny, and I will try to cover as many points as possible. On the question of the cliff edge, we are undertaking a lot of work. We published a call for evidence on 19 March. We are keen to develop cost-effective policies for the 2020s through to the 2030s and beyond, but we have a unique situation in this country. We have a centralised gas distribution network to which 85% of houses are attached, and 15% of us, including many in my constituency, live off the gas grid. It is about trying to work out cost-effective ways of delivering those low-carbon, cost-effective solutions on which we all agree. We have published a number of studies. Only last month, we published one showing initial findings on the options available for long-term heat decarbonisation, which are typically hydrogen, bioenergy and electrification. As promised, we will publish a full report of evidence in 2018. I look forward to discussing that with the hon. Gentleman.
The hon. Gentleman raised a challenge about reducing ambitions. It is important to recognise the size of the scheme—£23 billion of taxpayers’ money is committed over its lifetime, which is a substantial investment. Its goals were ambitious, but it is important that we have responded to some of the concerns.
Dr Whitehead
I think we need to be clear that the £23 billion is over the lifetime of all the projects that would have got anything from the scheme up to its closure, which could be a period of up to 35 years. The £23 billion should be looked at in that context, rather than as something being funded by the scheme now. Indeed, the £23 billion should be compared with the estimated lifetime undertaking on the same basis with the original RHI, which I think the NAO put forward as £70 billion or so.
Claire Perry
I am not going to detain the Committee debating Her Majesty’s Treasury policy, but effectively this is an on-balance-sheet commitment to a liability for either current or future taxpayers that is part of the Government’s spending commitment in perpetuity, and I think £23 billion is a fairly substantial sum. The hon. Gentleman will be pleased to hear that we were keen to understand whether we were rolling this out in the right direction. The Select Committee on Energy and Climate Change made the point that mass roll-out was not the right way forward. That is partly because—this relates to some of the other comments raised—as with all elements of decarbonisation, we need to cut carbon, find cost-effective deployment pathways and create strategic ways to invest where we can grow a manufacturing base and deliver. This is what the reforms are about—trying to reform the scheme for technologies that are more likely to be strategically important in the long run, for example heat pumps. It is less about the fewer, larger installations that use technology that we all know about. I think that is really important for driving through our UK plc investment profile.
The hon. Gentleman raised a question about CHP and why we were bringing in the 20% efficiency point. Again, we do not believe that offering a full CHP tariff to plants with lower electrical efficiency represents good value for taxpayers. We have talked about the strategic elements of this. If I have not answered any of his questions, I will write to him. I did want to discuss an area where we both have a great interest: geothermal. That can be part of the scheme. I am particularly interested in geothermal energy from abandoned mine workings, which is possibly a great untapped source of heat. That would bid in as a heat pump scheme, as opposed to any other scheme. There are really good opportunities for us to look at where we can bring forward some heat from the work that has already been done.
My hon. Friend the Member for Stafford raised an important point, showing that he has read all his documents. I am very impressed. Let that be a lesson to the Committee. He and I always like to debate the numbers. I will write to him with the absolute detail, but essentially there was a revaluation of the air quality and decarbonisation benefits. We may not necessarily agree with them, but if it is sufficient, I will write to him to give him more detail on the calculations. I would like to put it on the record again that as much as we all love being bound by our Treasury guidelines, which are important for delivering value for money, sometimes others make the case that they do not always capture the benefits, particularly these early-mover schemes. They do not yet capture the benefits of any investment in UK manufacturing or service expertise that we might be developing as a result of these, effectively, very big Government procurement programmes.
My hon. Friend the Member for South Thanet offered a very nice invitation, which I would be delighted to accept, and raised a really important and telling point about assignment of rights. I do not know the answer and I will write to him, but it is a tribute to his background that he is thinking hard about avoiding any form of payment protection insurance scandal or any sort of mis-selling. We want to assign these rights to ensure that people in potentially lower-income households are able to get that third-party capital investment into these schemes, but not in a way that causes problems. I am told that the Financial Conduct Authority will look at contracts to ensure compliance with the Consumer Credit Act 1974, if needed, but it would be reassuring to him and me to put that in a letter. I would be happy to send that to him.
Jeremy Lefroy
I apologise for detaining my right hon. Friend on this, but does she also agree that the kind of investment that is being made by UK manufacturers and service companies is incredibly important as we seek to boost our exports? I am the Prime Minister’s trade envoy to Ethiopia, which wants to have, effectively, a waste-to-energy RHI and an electrical generation plant for each of its major cities. The UK is in a very good position to assist with this. Based on what we do in the UK, the opportunities are out there, and multiplied many times over, to provide on a commercial basis assistance around the world in renewable energy and heat.
Claire Perry
I commend my hon. Friend for his international knowledge. This is exactly the point. As part of the clean growth challenge and the industrial strategy, we have realised that as we are global leaders in decarbonising our economy, while at the same time driving growth—only two countries are considered to be doing enough to meet a 2°C warming of the climate, namely ourselves and China—we can create enormous prosperity in the UK from exporting those services and technologies. If he feels that my Department or the Department for International Trade need to do anything to support his ambassadorial ambitions, I hope he will let me know. It is an important area.
In conclusion, we have had a good thrash through the regulations. Hopefully we all agree that the reforms are needed. They are essential to improve on the experience of the first years of the scheme, to ensure that it is better value for money and that it continues to play its part in the transition towards a lower carbon-emitting economy. As I said, we will offer further proposals and suggestions as to how to move forward once the scheme has ended. I hope the Committee will support both sets of regulations, which I commend to it.
Question put.
UK Oil and Gas Industry
Claire Perry Excerpts(6 years ago)
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Colin Clark
I thank my hon. Friend for that point. I am a member of the Environmental Audit Committee, which took evidence from Lord Turner, the former chairman of the Committee on Climate Change. I asked him for how long he saw oil and gas being a major source of energy, heat and power, and he said at least into the next century, which is well over 80 years. He went on to say that in terms of an industrial raw material, we just do not know—we could be looking at hundreds of years. It is important that we realise that we probably cannot bring all the hydrocarbons we have to the surface, but that we certainly have to use them better and in a much cleaner way. I know that is a big consideration, particularly in the City of London.
The Minister for Energy and Clean Growth (Claire Perry)
I want to reassure my hon. Friend that I, the Government and many industry commentators absolutely see a role for oil and gas in the mix going forward, with a shift towards gas. Technologies such as carbon capture and storage, which I have had the great pleasure of debating with the hon. Member for Stockton North (Alex Cunningham), my hon. Friend the Member for Waveney (Peter Aldous) and others in this House, are part of the way to extend the industry’s life even further. The Government are committed to gas—it is not just me; it is other international parties as well—but finding ways that can help us take carbon out to keep the energy supply flowing is also part of that mix.
Colin Clark
I thank the Minister for that intervention. It is very important that we are careful that this industry is not demonised and is not seen as something of the past. It is a constructive industry and it is important that we do not suggest it is a stopgap until we move on to something else. We have to recognise its importance. How we use hydrocarbons responsibly is something we have to get right for generations to come, while reflecting on how we have got it wrong in the past.
Claire Perry
I wanted to do two things, briefly: first, I remind everyone of the wonderful page 218 of the industrial strategy, which shows the productivity gains that the industry has delivered to the north-east—productivity gains driven by a UK Government-wide fiscal policy that supported the industry through the 1970s and ’80s. Secondly, I remind hon. Members that the carboniferous formation that has delivered the offshore extraction has also allowed us to explore, in a sensible, environmentally safe and robust way, onshore extraction of such incredibly valuable resources. The formation runs underneath us as well.
Colin Clark
I thank Members for that plethora of interventions—it is good that everyone is so interested on such a hot day.
As I was saying, this is an enormously important industry, which has been the bedrock of the manufacturing industry of the United Kingdom. That is why Her Majesty’s Government have invested in it and made this country one of the best places fiscally to produce oil and gas. With the transferable tax history, the UK Government have delivered a massive incentive to invest—other Members campaigned for that for some time. However, it is important that the companies now investing in the industry understand their future responsibilities and that the companies that invested in the past, which have already had the tax benefit, realise that they still have a responsibility.
Fiscal policy makes the UK continental shelf one of the best places to produce oil and gas, and the low corporation tax of the United Kingdom means that the bigger part of the industry, the service sector, is well compensated when operating in the UK. To produce more revenue and grow the whole economy is what we are trying to do. For “business sector” read “jobs”, because employment in the oil and gas industry is picking up, and there is a huge spin-off from the industry. It has been reported that more than half of the companies surveyed expect employee numbers to rise this year. That is a big change.
The north-east of Scotland and the rest of the country involved in oil and gas have seen numbers heavily depleted. As we discussed in a Westminster Hall debate on social mobility a few weeks ago, some businesses are reporting difficulties in recruiting people with certain skills and competencies. That is a worry; perhaps our technical colleges and universities are not producing enough. I had not realised that that could be the case—I expected that Robert Gordon University in Aberdeen or Aberdeen University would be completely focused on the oil and gas industry, but there is already concern about skills shortages.
The oil and gas industry reminds me of the space programme in the US in the 1960s: when oil was $120 a barrel, the industry could not spend money fast enough—probably throughout the entire world, but particularly in the UK continental shelf. Since the oil price has dipped, the industry has obviously pulled back from training, which is probably the reason for our skills shortage. We saw a massive dip in training, although it is beginning to pick up again. Government should do everything possible to encourage training and investment in training, because the industry will continue to be important.
In the north-east we have the highest concentration of technicians and engineers in the United Kingdom—in both north-easts—and all sides can recognise that that is hugely valuable all over the UK. It is also important at the Oil and Gas Technology Centre that STEM—science, technology, engineering and maths—learning is an important part of what the oil industry offers.
Recently, the Aberdeen and Grampian chamber of commerce carried out an industry survey including employment and attitudes. I shall give a few of the numbers because it is important for us to understand where the industry is. The picture is a mixed one, but 80% of firms believe the industry has hit the bottom of the cycle and is now starting to go back up. That means we will start to see investment again—and we are. Fifty-four per cent. of the companies expected to be growing, which is very important, because we are clearly coming out of what was a major recession.
Companies also predicted that they will grow new opportunities, as came up in an earlier intervention by the hon. Member for Stockton North. I visited Sparrows, which builds complex cranes. It had a £10 million order for cranes to put on turbine platforms, to lift parts on and off: 105 of those automated cranes at between £50,000 and £100,000 each. That is a huge investment, and there is the industry diversifying out. More than 80% of companies expected to be involved in decommissioning, where the spend will probably be about £40 billion—that is not to be sniffed at and will sustain an engineering industry for a long time. Many sectors in the United Kingdom would like a £40 billion investment.
On Brexit specifically, the survey covered the issue of recruiting talent in future. The figures are worth mentioning: 47% of the companies surveyed believe that there will be no effect; and 33% were worried. I accept absolutely that we have to get immigration right because this industry employs such highly skilled people.
The Oil and Gas Technology Centre, funded by the city region deal to the tune of £180 million, combines academic research, including that of Aberdeen and Robert Gordon Universities, and industry to create value: to unlock the potential of the UK continental shelf, to anchor the supply chain in the north-east—predominantly the north-east of Scotland, in this case—and to create a culture of innovation that attracts industry and academia. The centre is trying to bring all that together.
For a long time, the oil and gas industry operated in silos, with independent commercial organisations. Sir Ian Wood, with one organisation, has been brilliant at encouraging companies to come together. I have to say—I am sure that all Members involved would agree—that the basing of the Oil and Gas Authority in Aberdeen has been an enormous success. I would be delighted were other Ministries to consider basing anything related to oil and gas in Aberdeen as well.
Colin Clark
The hon. Gentleman must have read my speech—ah, there is a camera behind me! Yes, there should also be a sector deal focused on transformational technology, underwater engineering and decommissioning that drives technology with spin-outs to the wider economy. That is so important with regard to STEM subjects alone. It worries me that young people—students and kids who are still at school—say, “Has the oil and gas industry got any future?” One young man said to me that he was going to work in the car industry, building cars with steering wheels. I said, “Nobody will be driving them in 10 years’ time, but we’ll still need oil and gas, so I would stick to the oil and gas sector.”
My third ask of the Department is to support the high-tech and highly productive supply chain, which has the potential to double its share of the global services market. I ask Departments more broadly to ensure that the UK continental shelf remains fiscally competitive and that we have UK frameworks that strengthen the UK internal market, which is essential to oil and gas.
BEIS has long supported the industry, and we appreciate that one of the Minister’s first visits in her current post was to Aberdeen.
Kirsty Blackman
I certainly worry that the city deal that was signed was looked at on a different basis from some other city deals. The Scottish Government have put in significant additional funding to the city deal, particularly recognising the issues with infrastructure. I was pleased to hear the hon. Gentleman talk about looking at additional infrastructure projects and so on. The Aberdeen western peripheral route will make incredibly positive changes. No one can wait for it to come—I think we are expecting it in the autumn. It will be hugely positive and will make a big difference, and I think that it will help encourage people to come to the north-east.
Let me turn to where we are now. Companies are working together like never before. I was at the forefront of calling for changes to transferable tax history, but other parties supported them; the Conservative party was behind the call, too. I very much appreciated the Chancellor making those changes in last year’s Budget. I would have preferred them to happen more quickly, but we cannot have everything. We are looking forward to their implementation later this year. I could not be clearer about how important they are, and I am sure the Government recognise that.
Just for a bit of information, if a big company owns a number of rigs and one of them is nearing the end of its life, the company has a choice: it could put a lot of work, capacity and people into that installation to try to get the maximum recovery from it, or it could say, “Look, this is not a priority for us. We are focusing on other things.” That is completely understandable, but the transferable tax history allows a new company—a new player in the market—to take over that asset to ensure that the maximum recovery is made from it. That is really positive, and I am pleased that it has happened. That is a helpful measure in terms of maximum economic recovery, which we are fully behind.
Where are we going? I was pleased to hear the hon. Member for Gordon mention Vision 2035, because it is incredibly important and people do not talk about it enough. It is the vision for the future of the Oil and Gas Authority, which so far seems to be doing a good job. It focuses in particular on the north-east of Scotland, but also on the wider industry across the whole of the United Kingdom. Vision 2035 is about ensuring that we get maximum economic recovery, extract oil and gas from the small pools and have a supply chain that is anchored—particularly in the north-east of Scotland—so that once we get to the stage when no oil and gas is coming out of the North sea, everyone will know that the very best supply-chain companies for oil and gas are in the north-east of Scotland and parts of the wider United Kingdom. Then, rather than seeing those companies lifted and based in the US or other countries, they could continue to sell their expertise, with a tax take continuing to come in and be spent here—preferably in Scotland.
We must anchor the supply chain now for the future, and there are a few ways to do that. In relation to small businesses, all too often such businesses in oil and gas come up with a great concept, start working on it, grow the business to a point and then they are sold. I get that that is a way forward for some, but both the Scottish and UK Governments are beginning to ensure that if such companies have the potential to grow, they do not get sold and their concept lost within a bigger international company but can access the finance they need to anchor themselves and have that next step of growth, whether that is through beginning to export or ensuring that their intellectual property is turned into something real that can be sold. That is really important for the supply chain, rather than seeing companies sold on to somebody else who may not pay as much tax here because they are not a wholly owned United Kingdom company.
On maximising economic recovery and exploration, even though we have a super-mature basin we should still be doing exploration; there is more that we can do. I think someone from Statoil said to me, “You’re most likely to find oil and gas somewhere you have already found oil and gas.” We should do exploration in those areas. We have better ways of surveying now than ever before, and of trawling through and understanding the data from that surveying, which will be important going forward. Anything the UK Government can do to ensure that exploration continues, even in a super-mature basin, would be welcome.
Claire Perry
I am really enjoying hearing another perspective from the hon. Lady’s fine city. Could I put on record that I am a little mystified about the Scottish Government’s decision to refuse to allow exploration for gas onshore when we know it is there because it is a geologically identical strata? Ultimately, the same operators would be looking to extract it. We can do it safely and in an environmentally secure manner, because that is what we do in Britain, as we have done demonstrably in the North sea basin. I find that an ideological rather than a practical decision.
Kirsty Blackman
What Governments do in any decision is look for best value—the good things and bad things that would come out of it. The Scottish Government and Scottish Parliament decided that fracking will not happen onshore in Scotland, and it is within that Parliament’s rights to take that decision.
Mr Virendra Sharma (in the Chair)
Order. The Minister will get a chance to respond to the debate, and I would appreciate it if she would—
The Minister for Energy and Clean Growth (Claire Perry)
Thank you for your chairmanship, Mr Sharma. I also thank the members of the Backbench Business Committee and its Clerks, who have provided us with an opportunity for an excellent debate. I agree that this was a quality debate, not a quantity one, and perhaps if we had more of those we should all be the better for it. I heartily congratulate my hon. Friend the Member for Gordon (Colin Clark)—and he is a friend—on securing the debate, and on an exemplary speech. It was thoughtful, detailed, clear and extremely well informed. Clearly he and other hon. Members in the Chamber have a strong constituency interest, and we debate the issue frequently because we are all passionate about the oil and gas industry and agree about the great value that it brings to the local and national economies.
I asked for and was able to keep the oil and gas brief when I became the Minister for Energy and Clean Growth because I think it is an integral part of the transition to a lower-carbon economy, as well as an enormous provider of productive employment and benefits to the economy, historically and in the future. It was striking to hear the comments of my hon. Friend the Member for Waveney (Peter Aldous), who perfectly combines those two interests, given his chairmanship of the all-party parliamentary group for renewable and sustainable energy and his frequent strong support for the industry.
We also heard excellent speeches from the hon. Member for Aberdeen North (Kirsty Blackman), who cares passionately about the issue and speaks up for it frequently; from my hon. Friend the Member for Banff and Buchan (David Duguid), who I was delighted to hear, because it is always wonderful to hear from somebody who actually knows what they are talking about—we all know what we are talking about, but some of us know more than others—from the hon. Member for Kilmarnock and Loudoun (Alan Brown), who gave a typically doughty defence of Scottish independence and managed to slip in some telling points that I will respond to; and from the hon. Member for Southampton, Test (Dr Whitehead), who I seem to spend a lot of time debating such matters with.
I will not detain hon. Members too long, because it is a lovely sunny afternoon, but I will make a couple of important points. I and the Government fully recognise the importance of the industry to the UK, historically, currently and in the future. It has been an enormous provider of revenue to the Treasury, of centres of excellence in terms of innovation, and of hundreds of thousands of jobs.
It is striking that in the past few years, we have stopped talking about the industry as a declining force, and started to talk again about the opportunities for it in the North sea and other areas. We have now realised that we can integrate those fuels into a lower-carbon economy. There are also incredible opportunities, such as decommissioning, which we in the UK can own as the world faces the same questions about the future of the industry.
There are encouraging estimates of what is left. Vision 2035 has led industry to say that there are between 10 billion and 20 billion barrels of oil equivalent left in the continental shelf, which could be worth up to £1 trillion. If we continue to responsibly explore and extract those hydrocarbons, use them in the most economically effective and responsible way, and work on decarbonisation, there is a great opportunity for north-east Scotland and the whole of the United Kingdom.
The challenge of the security of supply has been interesting in the past few months. The beast from the east, the changes to storage facilities in the UK and the discussions about diplomatic relations with other major gas-producing nations have led to conversations about the security of supply that we have not heard in the past few years.
In fact, indigenous gas production meets 46% of our gas demand and contributes to the balance of trade. We are clear that we have robust gas security for the future, but we may be able to increase the effective extraction of gas from the UK. I do not want to make the debate about hydraulic extraction, but I am convinced that we must soberly test the science, as we are doing through the exploratory phrase, to understand the size of the opportunity and whether it can be extracted, not in a wild west, Texan sense—that is not how we do business in the North sea base or anywhere else—but in the most environmentally responsible manner in the world. We want to test that. We have to be clear that that makes an important contribution to our energy security and our future economic prosperity.
As has been mentioned, I jumped on a plane as soon as I could and went straight up to Aberdeen—I did not drive up the motorway network, because it was not there, and it would have been a long way from Devizes even if it was. Aberdeen is a wonderful city and an amazing place to visit. Looking at the productivity map of the UK, the contribution that fishing, originally, and now this extraction have delivered is clear.
It was heartening to sit down with people from the Oil and Gas Technology Centre at the Oil and Gas Authority and talk to them about what they have been through. It has been a very tough time. They would say that they perhaps took decisions a little hastily—unfortunately, there have been job losses in the local economy—but as a result of going through that trial, the industry is in a better place than ever. It has the resilience to face any future changes in oil prices and an understanding of what it needs to do to build a more sustainable supply chain, and the co-investment that is coming together around the technology institute is very exciting.
It was also heartening to talk to the people from the OGTC about operational decisions, such as how they pulled together through the Forties pipeline interruption to deliver that back on stream more quickly. Of course they will always be competing, but the recognition of what co-working can mean is incredibly impressive.
The OGA has been a driving force for that. I pay tribute to its work, and to that of the offshore petroleum regulator for environment and decommissioning, which never gets enough credit. It is a superb operation with lots of civil servants from the Department for Business, Energy and Industrial Strategy working extremely hard and doing a very good job of regulating and ensuring the safety of the industry. We are aware of the painful losses that have been suffered and we are determined to work together to make the industry more resilient.
Hon. Members have spoken about the uptick in mergers and acquisitions activity, some of which predated the transferable tax history. I am told by industry that that has been such an important part of getting assets out of the hands of those for whom it might not be economically effective to extract, because they have global interests, and putting them into the hands of smaller operators.
Related to that, there has been an interesting surge in technological investment in things such as reusable tiebacks that enable companies to extract reserves in a more nimble way. That innovation and technology is really exciting. It is excellent that those lobbied-for tax changes, which were passed by a Conservative Government, are delivering. As the hon. Member for Aberdeen North said, there is renewed investment in innovation and drilling—people are getting out there and exploring.
Some of those changes will unfortunately lead to further restructuring and there may be job losses. We all want to build up a healthy ecosystem for the industry that will extend to a broader region and offer additional employment opportunities, particularly in new technology.
The Wood review, which we commissioned, suggested that we should establish a strong independent regulator. That is working well. We are committed to the driving investment principles that have underpinned that success, and we now have a globally competitive tax regime, which places the UKCS in the top quartile globally in terms of post-tax returns.
In total, the Government have provided £2.3 billion of fiscal support to the sector so far. We also committed another £40 million for new seismic acquisition, which has been managed by the OGA, and we co-funded the Oil and Gas Technology Centre through the Aberdeen city deal. I echo the point that the hon. Member for Aberdeen North made about that; it was a brilliant example of co-working. When we put aside our national, local and political boundaries, it is incredible what we can deliver in local areas. That has been a real success.
In response to the debate, I will announce three further things. First, I understand the comments about an ultra-deep water port, which we talked about in our manifesto. We are immediately commissioning a UK-wide scoping study, which will work closely with my Scottish Government counterparts, because they have kicked off a piece of work in Scotland and we want to ensure that we incorporate it. It is important that we look across the UK. If we can get an ultra-deep water port that is economically effective, it could have a material impact on our ability to attract decommissioning business.
Secondly, not for the first time, I listened with concern to the issues about helicopter safety. I understand that it is the only way for people to commute to work, as my hon. Friend the Member for Gordon said. I will write to the Civil Aviation Authority to ask it for reassurance that the measures it introduced on helicopter safety are working, and for what further assurances it can give.
Thirdly, on the issue that the hon. Member for Aberdeen North and others raised about customs treatment, I will instruct my officials to seek clarity immediately from their Treasury colleagues and to write to the industry and to all hon. Members present by the end of the month, so there can be no lack of clarity about what is required.
We have talked a lot about the industrial strategy. Trevor Garlick has done a fantastic job in getting the sector together and pulling together a series of interesting proposals. As I have said before, we must not define a Government’s willingness to work with an industry on the basis of there being a big-bang sector deal landing on people’s desks. Much of the financial and fiscal support that we have given to the sector is part of a broader sector partnership that we are committed to taking forward. However, there are some very interesting specific proposals in that deal. One that strikes me is for the decommissioning opportunity, which I am very keen to explore quickly and to bring forward. The House has my commitment that we will do that.
I believe we all share the view that environmentally rigorous extraction of oil and more particularly gas, and the use of that fuel, absolutely has a place in our low-carbon transitions. Our current assumptions are that we will continue to use gas. I understand the question of carbon capture and storage; we have debated it before and I will not run through the debate again. I will only say that we now have private sector partners with very deep pockets who are prepared collectively to invest in that technology through the oil and gas climate initiative; we did not have such partners before.
We also understand that we not only need to decarbonise generation; we also have to put that work within a cluster, so that dealing with industrial emissions can be put into the same infrastructure and framework. There are only five places in the world where CCS plants associated with generation are running purely on subsidy alone, which is effectively what we have been asking for. The other 16 places rely on enhanced oil recovery as a revenue source. Even the Norwegians, who have the sovereign wealth fund that we have talked about, find it very difficult to get pure subsidy for CCS through their Parliament. That is why I have set up the carbon capture council, which is headed by the best brains, including some of our friends from north of the border, to try to work out how we improve the technology in a cost-effective way. What is the irreducible core of cost and risk that Government have to take in order to move this technology forward?
The CCS cost reduction task force is specifically looking at cost reduction proposals and also committed £100 million for innovation, because without that technology we will not decarbonise either generation or industrial emissions, and I want us to lead on CCS.
In conclusion, this is a vital—
Alan Brown
I thank the Minister for giving way, especially when she is just winding up. I raised the Grangemouth renewable energy project and the possible application of a retrospective cap on the amount of renewable heat incentive money that the project can claim. Is that something that she can reconsider? We do not want to put this project in jeopardy.
Claire Perry
I would be very grateful if the hon. Gentleman wrote to me about that, so that I can consider that question and give him a more detailed reply. By the way, if I have missed out any points that were raised during the debate, Members should please feel free to raise them with me and I will try to respond to them.
It has been wonderful to have this debate on such a sunny day. It is 18°C in Aberdeen—I have just checked—so it is a slightly more balmy place than usual for people to head home to. This has been a really fantastic opportunity to reiterate all of our collective support for this industry, which has delivered so much, not only to the north-east of Scotland but to the United Kingdom. I want people to be in no doubt that we are committed to making sure that, yes, we do the economic extraction—I think that I have described it as being down to the last drop—but that we also think carefully about how we use this fuel in a low-carbon economy, and make the appropriate investments in the future. And once again, I commend my hon. Friend the Member for Gordon for raising this matter in the House.
Draft Electricity Supplier Payments (Amendment) Regulations 2018
Claire Perry Excerpts(6 years, 1 month ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Minister for Energy and Clean Growth (Claire Perry)
I beg to move,
That the Committee has considered the draft Electricity Supplier Payments (Amendment) Regulations 2018.
It is a pleasure to serve under your chairmanship for the first time, Mr Paisley. The draft regulations will amend existing regulations to secure sufficient funding for the Low Carbon Contracts Company and the Electricity Settlements Company to enable the continued smooth operation of the capacity market and the contracts for difference scheme over the next three years. They are based on the consultation that we held in November, the responses to which broadly supported our proposals but asked for levies to be set on a three-year basis.
The LCCC has demonstrated its value through excellent management of CfDs and ongoing operational efficiencies; indeed, its costs per contract over the period are projected to fall significantly, by approximately 30%. The ESC is now managing increased market complexity and a number of participants in the capacity market. We propose that its funding be increased so that it can continue to provide a robust and effective settlement service.
The CfD and capacity market schemes were designed to incentivise the significant investment required in our energy infrastructure, to keep costs affordable for consumers, to drive down the costs of low-carbon technologies and to keep our energy supplies secure. I believe that the schemes are doing all those things. They provide long-term price stabilisation to low-carbon generators, allowing investment to come forward at a lower cost to capital, which in turn reduces costs for consumers. The capacity market is our main policy for maintaining a healthy surplus of electricity capacity at an acceptable cost. Regular payments are made to generators and demand-side response providers in return for making capacity available when needed.
In both schemes, participants bid for support via a competitive auction process, which ensures that costs to consumers are minimised. The success of the policy was demonstrated by the 2017 auction, in which the clearing price of offshore wind was half what it was in the first auction only two years before. The 2017 auction secured 3.3 GW of renewable electricity—enough to power an estimated 3.6 million homes.
Following four successful four-year-ahead auctions, the capacity market is already securing the capacity we need until 2021-22 at a low price. The main auctions have all cleared at between £8.40 and £22.50 per kW per year, which is well below industry estimates and supports our view that the process is highly competitive and delivers value for consumers.
A number of partners work with the Government to make the capacity market and CfDs a success. The LCCC and the ESC are operationally independent GovCos that play an important role in both schemes. The LCCC was established as the counterparty for CfDs; its primary role is to manage CfDs with generators through their lifetimes, managing contracts as well as collecting and making CfD payments. The ESC was established as the capacity market settlement body to oversee all financial transactions that relate to the market, including by making regular payments to capacity providers that have agreed to provide capacity at times of system stress.
The draft regulations will revise the levies on electricity suppliers, which fund the operational costs of the LCCC and the ESC. Historically, the levies have been set annually, but the regulations will set them for each of the three financial years from 2018-19 to 2020-21, as proposed in the consultation responses, to enable both companies to recover their expected operational costs over that period.
The draft regulations will also make a minor amendment to correct an unfortunate grammatical error—something that very rarely happens—in the Electricity Capacity (Supplier Payment etc.) Regulations 2014. [Interruption.] I see that the hon. Member for Southampton, Test wants to know exactly what the error was; perhaps my officials will make a note so that I can answer him.
Given the critical role of the LCCC and the ESC, it is essential that they are funded sufficiently to perform effectively. However, we are focused on delivering low-cost energy to consumers, so we want to ensure that costs are minimised. The budget-setting process aims to strike the right balance. We do of course scrutinise their cost budgets to ensure that they accurately reflect the operational requirements, and they are benchmarked against other similar operations. The budgets were also subject to external scrutiny through consultation, to which there were three responses. As well as consulting on the budgets, as I mentioned, we asked stakeholders for their views on setting the three-year budgets, and it was agreed that it was a sensible approach. Of course, it saves parliamentary time—we do not have to come back and test the patience of Committee Chairs on an annual basis.
I want to mention something important, which is the value-for-money improvements that are being delivered. The operational budgets have been set out to reflect the expected activity required to manage the CfD scheme and the capacity market. The LCCC’s budget will be £16.5 million in 2018-19, increasing by about £500,000 per year for the subsequent two years. The ESC’s budget will be £7.6 million in 2018-19 and will decrease slightly to £7.5 million in 2020-21. The core operating costs for the LCCC are slightly down year on year, but the increase in total costs reflects the inclusion of contingency provision for managing potential contract disputes. We have assumed that additional contracts will be awarded in future allocation rounds, but the budget assumption is that the cost of management per CfD contract is projected to come down a healthy 30% over the contract period.
The ESC is managing a significant increase in the amount of capacity and the number and type of capacity providers covered by the scheme, and there will also be ongoing requirements to refine the operation of the capacity market and deliver more successful auctions. The company has submitted that it requires investment to manage that activity, and to ensure that it continues all financial transactions for the capacity market effectively. The budget changes reflect those requirements.
The regulations revise the levies currently in place to reflect the expected operational cost requirements over the next three years. Subject to the will of the Committee, the levy to fund the ESC’s operational costs is due to come into force on the day after the regulations are made. The operational costs levy for the LCCC will be operational from 1 April. The only other change to the regulations that are being amended is that the words “is responsible” were removed because they were considered superfluous.
Dr Alan Whitehead (Southampton, Test) (Lab)
It is a pleasure to serve under your chairmanship, Mr Paisley.
The regulations, as the Minister set out in some detail, are about providing for the operational costs of the counterparty body, as far as contracts for difference are concerned, and the Electricity Settlements Company, as far as the capacity market is concerned. They are not concerned with the success of the market or of CfDs, but with the operational costs of the bodies that essentially stand between the people who are supposed to put money into the system, and the people who are supposed to take money out of it. That, at its heart, is the arrangement as to what those two bodies do.
It is worth spending a moment looking at what the operational costs are. The Minister spent a little while stating that they are good value for money and that they are a good representation of what the LCCC and ESC do. It is not easy to find out the total cost of LCCC operational activities, because the amounts presented for 2018 to 2020 are expressed per MWh for any day during that period; they do not represent the total operational cost of the body’s activities.
Claire Perry
I would be happy to share information about the gross cost; I apologise if it has not been made clear, but I will write to the hon. Gentleman—indeed, I may be able to share it with him during this debate. It may reassure him to know that the average cost per household bill of the total budget for these bodies is estimated at 30p per year in 2016 prices, but I am happy to share the gross numbers with him or any other member of the Committee.
Dr Whitehead
I thank the Minister very much for that intervention, which to some extent anticipates what I was going to say. It appears that the cost per MWh has remained reasonably stable for the LCCC since the original regulations were made, but it would be helpful to know the total cost over the period as far as CfDs are concerned. The 30p that the Minister mentions, which I assume represents the total cost of both arrangements to the consumer, is not an enormous amount, but it is not insignificant either. I am therefore slightly surprised that the explanatory note states:
“A full-impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sectors is foreseen.”
Frankly, the impact on customer bills is not insignificant, so I would have hoped for some assessment of it, particularly in comparison with the impact of other measures on bills. I appreciate that it may be a relatively small amount compared with the consequences of other levies on bills, but it is not insignificant. I think it ought to be looked at in that light.
The Electricity Capacity (Supplier Payment etc.) Regulations 2014, which are the original regulations relating to the operational costs of the ESC, give a rather different picture from that of the costs relating to the LCCC. The 2014 regulations specify a total operational cost of £1,374,000, which was subject to annual amendment, as the Minister says. By 2016, the figure had risen to £4,283,000, and by 2017 it stood at £6,241,000, which is the figure that the draft regulations seek to amend. Article 3(1) states:
“in regulation 9(2), for “£6,241,000” substitute”
£7.6 million, £7.5 million and £7.5 million for the years 2018 to 2020. The figure of £6,241,000 comes from the most recent iteration—the Electricity Supplier Payments (Amendment) Regulations 2017—not the original 2014 regulations. It is difficult to tease that out in this statutory instrument, but that appears to be what has happened.
Frankly, we are faced with an inflation of costs from £1,374,000 in 2015 to £6,241,000 in 2017, and then a further increase to £7,629,000 in 2018. That series of costs does not strike me as carefully under control and good value for money. It may be, if the ESC’s work has expanded sevenfold since it was originally given the task of carrying out the administration of capacity markets under the 2014 regulations—other things may also have taken place to increase some of those costs—but I am not entirely convinced that the ESC’s activities have increased over the period by a factor of 700%, justifying those increases in operational costs.
Can the Minister give a satisfactory explanation of why those costs have inflated so much over that period? There may be a good explanation, but perhaps we are not paying sufficient attention to the considerations that go into the operational costs of these organisations. I do not know whether there is a body to oversee how those costs are brought about and what they relate to. On the face of it, they appear to have inflated considerably over the period in which the ESC has been in post, as it were, overseeing the activities of the capacity market and their results.
I do not want to divide the Committee. Clearly, these organisations need to have a period to set out what their organisational costs will be and what the supplier companies will contribute to those costs. However, this afternoon, or by subsequent communication, I would like to hear whether the Minister shares my view about the apparent enormous inflation of the operational costs, as set out by the preceding statutory instruments. In her view, is that enormous cost inflation justified by the sort of activities she has set out?
The Minister will not necessarily have a complete and instantaneous response to all my points. It would be wonderful if she did, but I do not blame her at all if she does not. It is a fairly arcane point, but it is important to raise it as we look at the operational costs of the bodies in this statutory instrument.
Claire Perry
I like to please, so I have responses to the questions. It is an outbreak of great consensus in that we are all focused on keeping down costs for consumers and bill payers.
The hon. Member for Kilmarnock and Loudoun is always consistent. My reply to him is that I agree, and that we need to work on a way, within the current CfD auction structures, that ensures that our manifesto commitments are not breached but that we bring on onshore wind where we know we have strong support from local communities.
I will address some of the points from the hon. Member for Southampton, Test. He rightly raised the issue of whether we could see the aggregate numbers. I am told that, buried in the draft explanatory memorandum, at paragraph 8.6, there are the aggregate numbers—he may not have had chance to look at them—and they were, indeed, put out with the original consultation.
The hon. Gentleman raised an important question about impact assessments. An assessment was done when the electricity market reform proposals were made. The cost will amount to less than 0.03% of consumer bills, which is a relatively small amount. Nevertheless, we know that pennies do add up into pounds.
The hon. Gentleman also raised a series of important questions about the rapid ramp up in costs. Those are the right questions to ask, but to reassure him, let us take, in particular, the ESC. It was set up in 2014. It has gone through its set-up period, and we can now see a steady-state operational position. We have seen a phenomenal increase in what we are actually asking the company to do. In 2016-17, we asked it to, essentially, look at 0.6 GW of capacity. That will increase to 55 GW during the course of this year, with the number of providers going up from 46 to 447, which is a great testament to the capacity market delivering what we want: better competition driving down prices.
To reassure the hon. Gentleman, if he looks at the operational costs as part of the whole scheme, he will see they are dropping from 1.6% last year to 0.6% in 2020, so we are actually delivering more value in a wider scheme. He is absolutely right, and he knows that I am always keen to run the calculator over these companies’ calculations. As the Minister ultimately responsible, I will continue to do so. I thank both hon. Gentlemen for their valuable contributions, and I commend the draft regulations to the Committee.
Question put and agreed to.
Domestic Gas and Electricity (Tariff Cap) Bill (Third sitting)
Claire Perry ExcerptsThursday 15th March 2018
(6 years, 1 month ago)
Public Bill CommitteesRead Full debate Domestic Gas and Electricity (Tariff Cap) Act 2018 View all Domestic Gas and Electricity (Tariff Cap) Act 2018 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 March 2018 - (15 Mar 2018)
Alan Brown (Kilmarnock and Loudoun) (SNP)
I beg to move amendment 2, in clause 8, page 5, line 36, at end insert—
“(3A) In the case that the tariff cap is extended to have effect for the year 2023, the Secretary of State must publish a statement before the end of that calendar year outlining whether the Secretary of State considers it appropriate to introduce further legislation to introduce a new tariff cap to have effect beyond the date outlined in this Act.”
This amendment would require, in the event that the tariff is extended until 2023, the Secretary of State to publish a statement outlining whether he or she considers it appropriate to bring forward further legislation to introduce a new tariff cap to have effect beyond 2023.
It is a pleasure to serve under your chairmanship, Sir Edward. At our last sitting I made a joke about being brief in my comments, but I will be super-brief this time.
The whole reason for the Bill is the admission that the retail energy market is not working in terms of providing effective competition for consumers and allowing them to access the best-priced tariffs. I recognise that the Government have made it clear that the proposed cap mechanism is temporary for that reason and is to allow the market to remedy itself. Because this is a temporary cap, clause 8 is the sunset clause, which in effect states that the cap must end by the end of 2023.
I have tabled my simple amendment because, as we know, the market is not working, but there is no guarantee that it will remedy itself in the time proposed, although we hope it will. There is a risk that there will still be no effective competition in 2023, so the amendment suggests that if we get to that final year of the temporary cap, the Government should make a statement outlining whether they believe it appropriate to introduce further legislation for a new tariff cap with effect beyond 2023.
The amendment is to ensure that the Government update Parliament about where matters are at, and imposes that duty on the Secretary of State. It is a very simple amendment, so my comments have been super-brief. I look forward to hearing what the Minister has to say.
The Minister for Energy and Clean Growth (Claire Perry)
Good morning, Sir Edward. It is a pleasure, as always, to serve under your august chairmanship, and I am impressed with your X-ray eyes seeing the coffee cup. It is, once again, a pleasure to welcome fellow travellers on our Committee.
I was of course interested in what the hon. Member for Kilmarnock and Loudoun said—in essence getting back to that long-term question that we have all been discussing as to what “good” looks like. In 2023 how will we know whether the cap can be removed? Interestingly, the hon. Gentleman is in a way seeking to bind the hands of a future Government with his amendment, by putting in place, when the cap is finally removed—I think we all agree with the sunset clause—the need to opine as to whether further legislation should be introduced.
My hope is to persuade the hon. Gentleman to withdraw the amendment, so I shall set out a couple of reasons why he should, although I think we all agree that we support the cap. We want the cap to be in place for the period it takes to restore effective competition in the market. We also agree that we do not want permanent caps to run in the market, because we want it to move towards a more competitive position. The Bill is an intelligent intervention to speed up that journey.
Frankly, the Government have no wish for a price cap to be a permanent feature of our energy market. We debated that point briefly last week. I think there is strong consensus in the Committee—if I have not misjudged it—that the cap should have a sunset clause. In order for a sunset clause to be effective, there should be an end date to the legislation. Of course, as we discussed last week, that does not simply mean we will pass the Bill quickly through both Houses—as I hope we will—and have the cap in place by the end of the year, as Ofgem has assured us is possible; we will also all be working alongside Ofgem to ensure that the conditions for effective competition are in place by the 2023 deadline. I think we would all want to see those conditions in place well before that date.
Ultimately, we want a fully working and competitive market that is transparent, innovative and adaptive, that promotes competition as the best driver of value and service to customers, and that has a regulator with the powers and appetite to regulate actively should a situation arise, as it has done, where we do not believe some groups of customers get that value and service.
We discussed last week the roll-out of smart meters—where we have seen good progress but we need to go further and faster—and moving to faster and more reliable switching. I am very interested in Ofgem’s midata proposals, which will make switching an almost seamless process. Indeed, my hon. Friend the Member for Weston-super-Mare (John Penrose), who was so instrumental in creating the Bill, told me about his latest app, Flipper, which enables someone’s supplies of various services to be transferred almost seamlessly, with their consent, to the best value tariff, based on what tariff they are looking for.
There are plenty of opportunities for consumers to benefit from that improved competition, but we have discussed the fact that, although some of us are active switchers and are aware of those opportunities, some of us are too time-poor to do that. Worryingly, there is a large group of customers who are on bad-value tariffs and either do not know it or are sufficiently disengaged from the market not to do anything about it. That is why we brought forward the Bill and why it is extremely important to test the initiatives that the Competition and Markets Authority proposed to improve engagement with so-called disengaged customers.
We have discussed incredibly exciting technological changes, such as the move to distributed energy, the increase in renewable energy and people’s ability almost to create their own energy network, which includes them, local businesses and other local energy consumers. New business models will also come into the sector. I was interested to hear the evidence of some of the more innovative new entrants about where they want to go with the market. They mentioned half-hourly settlement and payments to people who do not consume energy at certain times. There is an enormous range of adaptations, and of course smart metering will unlock even more.
We are all determined to have a fully competitive and fair energy market, but I think we are all of a mind that the cap should be a temporary measure. I pay tribute once again to my hon. Friend the Member for Stirling, who serves with great effect on the Business, Energy and Industrial Strategy Committee, to which we all owe a great debt of gratitude. The Committee said that there is a risk that if the price cap became a longer- term fixture it
“would put the Government unduly in charge of setting energy prices for the foreseeable future.”
Caroline Flint
I thank the right hon. Lady for giving way and congratulate her on receiving Privy Counsellor status—she joins a merry band of us. I accept the argument for a temporary price cap, but does she accept that we should look closely during this period at whether any other structural reform of the energy market is needed to ensure that there is even wider competition and hunger for customers, rather than complacency?
Claire Perry
I could not agree more. I thank the right hon. Lady for her kind congratulations. I feel it is an undeserved honour, but it is amazing. She is absolutely right. One of the reasons we were minded to bring forward the Bill was that we have a competitive energy market, with more than 60 companies that would like to sell us energy—either combined heat and power or, in some cases, just power—but we gifted incumbency to a large number of companies when we took what I thought were sensible steps to privatise the energy system. That brought in more than £60 billion of new capital and caused prices to fall and power cuts to halve, but the companies that were gifted incumbency have not had to work for customers. It was interesting to hear from new entrants about how they are determined to shake up that complacency.
I think the right hon. Lady also alluded to practices further up the energy system—or further down; I am not sure whether it starts at the top or the bottom—and particularly profits in the distribution sector and overall network costs, which have come down but arguably could come down further. Work has been done in that area, but I am determined that the whole sector, from generation right to the customer’s meter, should be highly efficient, that efficiency and customer service should be rewarded, and that we ensure we have not created a shield of incumbency that allows companies to persist with bad customer practices. This is the start. We may not need legislation to get there, so we may not have the pleasure of—
Vicky Ford
I thank my right hon. Friend for giving way and wish her many congratulations from the Government side of the Committee, too. On incumbency and the investment that she mentioned, is it not extremely important that the price cap is set at a level that continues to encourage investment the whole way through the energy chain and into the new infrastructure we need? That is one of the reasons it is so important to signal that this is not a permanent cap; it is an incentive to increase competition and to ensure that the market continues to be dynamic and that infrastructure continues to be invested in.
Claire Perry
My hon. Friend brings her great knowledge of these markets on a broader European scale to make a telling and vital point. The need to maintain investment in the industry, which we must have as we go through what is possibly the most exciting revolution in our energy markets for decades, is included in the Bill for exactly that reason. Clause 1(6)(d) speaks to exactly that point: we must ensure that we still have the financial investment in the industry that we so desperately need.
Having talked about the need to keep on improving efficiency, and having accepted the view of the Select Committee that the price cap should be only a temporary measure—reflecting a cross-party view that the Government should not be unduly involved in setting energy prices— I hope that I have persuaded the hon. Member for Kilmarnock and Loudoun that his amendment is unnecessary and provides an obligation on a future Secretary of State to impose another price cap. A future Government may decide to do that—who am I to suggest what legislation a future Government might introduce? However, I do not feel that the amendment is appropriate; it creates disincentives and uncertainty in a market where we have to have certainty to generate investment. On that basis, I hope he might be persuaded to withdraw his amendment.
Alan Brown
The Minister finished as she started, by talking about binding future Governments. I suggest that most legislation, in one form or another, binds future Governments. It is for future Governments to make changes to the legislation if it does not suit their policy at the time. Binding future Governments is not a reason not to table an amendment or to withdraw an amendment.
Again, the amendment is not about making the cap permanent. It acknowledges that the cap is temporary, but if, for whatever reason, we get to 2023 and we still do not think that there is effective competition in the marketplace, it puts a duty on the Secretary of State to explain what the Government will do to address that, including possibly introducing new legislation.
On what “good” looks like in the future, if the Government had accepted an amendment setting out the criteria for what effective competition will look like—such as the Labour amendment that suggested a whole list of criteria that should be considered to determine and measure that—we would know what “good” looks like in the future. That might also help to generate the effective competition that we are discussing.
That said, to go back to my original point, I am not trying to say that the cap should not be temporary. Following my comments to the Minister, I do not see any point in pressing the amendment to a vote, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Dr Alan Whitehead (Southampton, Test) (Lab)
I beg to move amendment 11, in clause 8, page 5, line 36, at end insert—
“(3A) In the case that the tariff cap is extended to have effect for the year 2023, the Secretary of State must publish a report before the end of that calendar year on further measures that can be taken to ensure that conditions are in place for effective competition for domestic supply contracts.
(3B) The report under subsection (3A) must include, but is not limited to—
(a) the merits of establishing pooled trading arrangements which matches energy sellers and buyers on the day-ahead and near-term markets; and
(b) the potential impact of such an arrangement on competition for domestic supply contracts.”
It is a pleasure to serve under your chairmanship, Sir Edward. Before I proceed, I ought to say two things. First, I congratulate the right hon. Member for Devizes on her elevation to the Privy Council. In terms of nomenclature, I am not entirely clear whether I should refer to her as the Minister or the right hon. Minister in the future.
Dr Whitehead
I think I will just continue with “the Minister”—or Claire, depending on the circumstances under which we meet.
Secondly, the hon. Member for Kilmarnock and Loudoun mentioned that he is a man of few words. I may well be a man of even fewer words today, because I am suffering somewhat, and my voice may not last for the whole proceedings. That could be a great boon for the Committee.
Dr Whitehead
I will make two points in response. I hope that the hon. Gentleman will be enthused by the merits of the pool when he looks into it—knowing, as I do, how deeply he does look into these matters on a regular basis. Although it is true that a number of companies are dividing themselves in different ways from the model that there used to be, it is by no means clear that in the complete vertical integration of those companies those divisions all face in one direction. In some instances, such as the recent merger of SSE and Innogy, retail has been put together in one company. In other instances, companies are breaking themselves up into what might be called a good company and a bad company, in terms of the different forms of generation, without distinguishing between vertical integration and generation. Indeed, there are further moves abroad. For example, E.ON in Germany has effectively taken over elements of Innogy, which may have effects back on SSE and Innogy in the UK. A variety of things are happening in the market, some of which point towards different forms of vertical integration and some of which, as the hon. Gentleman says, point in the direction of demerger.
That is not necessarily the central point about how a pool operates. Even if there are circumstances under which there is rather less vertical integration, the fact that the pool is bringing complete transparency on all trades to the table means that everybody in the market is absolutely on the same level as far as both those trades and the retail element, whereby people are bidding in, are concerned. As the hon. Gentleman knows, a number of newer companies will largely be bidding into the day-ahead market. They may be considerably disadvantaged in not knowing what has happened with trades down the curve when bidding into that market. Having that transparency right across the piece is, in principle, a very powerful lever to ensure that the market works well regarding retail trading.
Secondly, the pool system is not a fanciful notion that some people might think is a good idea but that has never worked in practice. Probably the most successful trading arrangement in Europe at the moment is Nord Pool, which does precisely this across the whole of Scandinavia. It does not have the negative effects that the hon. Member for Wells suggests it might in terms of cost of capital and investment, but stabilises that market across the whole of Scandinavia and produces transparency across borders.
In any event, a pool system is something that this we ought to look at for this country. What this amendment does is rather less than that. It asks whether the Minister thinks that, under circumstances in which it has not been possible to frank the market for returning to competitive purposes by 2023, other instruments should be introduced to get us beyond the end of the temporary pool and out of that temporary price cap, which is what we all want. That will be on the basis that we between us will have not just done a good job of running a cap but changed how the market works, so that the cap does not have to be in place subsequently and we do not need to return to the idea of one in the future.
That is what the amendment intends to do. I think it is a relatively modest ask of the Minister. I am sure that, if she is not promoted, she will be in her post in 2023—if there is a Conservative Government. At that point, she would simply have to produce a small report setting out how the pool system might work. Then we will look to see whether we can take that forward at that point as a key measure, to ensure that competition returns to the markets after the end of the temporary price cap.
Claire Perry
I have listened with interest to the hon. Gentleman and done a bit of research.
The first part of the amendment asks that an additional report is published setting out additional measures for competition. We had a fruitful discussion of this issue on Tuesday, and talked about the fact that there will be a comprehensive report. There is a duty on the Secretary of State to make this transparent, so it will be obvious that the conditions for competition that have been recommended by Ofgem at that point are clear. We discussed at length whether we need to specify, and the will of the Committee was that that was not the case. So the first part of the amendment is not needed, because we will have a transparent report, we will be able to see what “good” looks like—a phrase many of us have used—and we should be able to satisfy ourselves of that.
The second part of the amendment relates to pooled trading. I understand that the hon. Gentleman is a bit of an expert on that, so I felt that I should go away and look at such things. His argument is that having pooled trading arrangements could be an option that should be included in the assessment of competition, and that the report should cover that. He will know that pooled trading arrangements were in place historically. Indeed, I believe it was the first Blair Government that removed those conditions.
Claire Perry
The hon. Gentleman is going to correct me on that. Good—I like a bit of correction on history.
Dr Whitehead
The Minister is absolutely right that there was a pooled system in place, but it was a one-way pool, not a two-way pool. Furthermore, there were only two generating companies at that time, so the circumstances were very different, and it was not a full pool in any event.
Claire Perry
I accept that helpful piece of information. But when it was cancelled and replaced with alternative arrangements, the real issue was that prices did not fall as far as they should. The rocket and feathers effect was in full cry. I have not been able to find a pub called “The Rocket and Feathers” anywhere in the country, so we cannot go out and celebrate the successful passage of the Bill with a drink in an aptly named pub. However, the new arrangements were put in place back in 2001 and extended in 2005.
The CMA, in its very comprehensive review of market competition, compared the principle of bilateral trading relationships, which the hon. Gentleman has eloquently expounded, with a pool approach. Its view was that the evidence did not support a move to such a pooling system, primarily because there is sufficient liquidity in the market—Ofgem reviews the liquidity arrangements—and there is price transparency for all the pool participants already. The CMA’s conclusion was that if we all accept that we need to move to a more competitive market, the evidence does not suggest a move to bilateral pooled trading relationships.
I have set out that Ofgem has wide powers to say what “good” looks like, on the basis of which it will make its recommendation to the Secretary of State about whether the cap should be lifted. I think that covers the first part of the amendment. I am persuaded by the CMA’s report that, given that the arrangements are working, there is insufficient merit in examining the merits of the pooled market, and there would not be sufficient gain from introducing that system. It should not be a specific requirement, as detailed by the clause.
There may be other opportunities to debate this structural point. On the point made by the right hon. Member for Don Valley when discussing the previous amendment, I hope that there will be opportunities over the next few years to talk in depth about what other arrangements need to be made in the market to improve the efficiency of the entire supply chain. However, hopefully in this case the hon. Member for Southampton, Test will consider withdrawing his amendment, as it is not needed in the Bill at this time.
Dr Whitehead
I am not persuaded that this notion is not needed in the Bill in the eventuality of the cap going to 2023. However, I am reasonably persuaded that it would not be a good idea to press the amendment to a Division this morning, because the purpose of the amendment was essentially to allow us to debate the question of the possibility of a pool. I have not persuaded the Minister this morning that it would be a good idea for future trading arrangements. However, given the assiduous work that she has already done in looking at how a pool might work, I hope that she will continue with her studies, and will perhaps be persuaded in the fullness of time that it is actually a rather good idea for the long term, and ought to be pursued—if not by this Government, then by the next. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 ordered to stand part of the Bill.
Clause 9
Consequential modification of standard supply licence conditions
Question proposed, That the clause stand part of the Bill.
Claire Perry
I am not going to delay the Committee on non-controversial clauses, but I feel it is important to state briefly the purpose of each clause, so that we are all clear in supporting them. Clause 9 gives Ofgem the power to modify the standard supply licence conditions after the tariff cap ceases to have effect under clause 8. On the point made by hon. Member for Kilmarnock and Loudoun, we are giving the regulator powers, as it sees fit, beyond the extension of the price cap, to modify the licence as it has already. The effect is that Ofgem can continue to modify the standard supply licence conditions as it deems appropriate, following the removal of the tariff cap, but of course those modifications must be published and it must state their potential impacts.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10
Amendments of the Utilities Act 2000
Question proposed, That the clause stand part of the Bill.
Claire Perry
This is simply a clause containing a whole load of technical gubbins. I commend it to the Committee.
The Chair
It is a pity we cannot have that sort of debate on every clause.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Interpretation
Question proposed, That the clause stand part of the Bill.
Claire Perry
This clause is a lot of definitional gubbins. It is extremely important—I do not wish in any way to reduce the hard work of the Bill drafting committee—but it does not require a long speech.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 12
Extent and commencement
Question proposed, That the clause stand part of the Bill.
Claire Perry
This clause confirms the geographical extent of the Bill. It will come into force in England, Wales and Scotland, but not Northern Ireland. I am sure the Committee knows that there are separate arrangements for energy supply in Northern Ireland, including existing price controls on incumbent suppliers. We have made reference to that cap in our debates. The Act will come into force on the day it is passed, to make sure that we achieve the crucial momentum in the implementation period.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clause 13 ordered to stand part of the Bill.
New Clause 2
Duty to consider the needs of customers in rural areas
“(1) When exercising its duties under section 1, the Authority must have regard to the need to protect customers in rural areas.
(2) When exercising their duties under sections 7 and 8, the Authority and the Secretary of State must have regard to—
(a) whether effective competition exists for customers in rural areas, and
(b) additional protection in place for customers in rural areas.”.—(Alan Brown.)
This new clause requires the Secretary of State and the Authority to have regard for customers in rural areas when exercising their powers in setting, reviewing and terminating the cap.
Brought up, and read the First time.
Alan Brown
I beg to move, That the clause be read a Second time.
We know that part of the problem with existing tariffs is that certain groups of people are more likely to be adversely affected. New clause 2 would make the duty to consider the needs of customers in rural areas absolutely explicit. To recap what I think we are all aware of, people who reside in rural areas are more likely to have lower incomes; they are more likely to be off the gas grid, which leads to overall higher energy costs; and, particularly in Scotland, they are more likely to have properties that are much more difficult to make energy-efficient, thereby increasing their ongoing energy costs.
Digital connectivity is an issue predominantly in rural issues, which means that is difficult to undertake regular switching. Rural areas also still suffer from notspots for mobile coverage, which is an impediment to getting a smart meter. If we really believe that smart meters will help revolutionise the market and help people get lower tariffs, we need to eliminate the notspots. The Scottish Government have just announced a £25 million fund to provide more coverage in rural areas, but that is perhaps not something they should need to step up to the plate on. Challenger companies are also less likely to tackle the rural issue, so the incumbents—the big six—often have almost a monopoly in some rural areas. That is another barrier to competition.
To cap it all in terms of the disadvantages for rural customers, people in the Scottish highlands and islands have to pay 4p a unit more for electricity usage. Rubbing salt into their wounds, anything generated in more rural areas has higher transmission charges placed on the generation companies, and customers in those areas pay a higher distribution levy. That is a real injustice for those in rural areas. And, of course, the Government have removed contract for difference auction capabilities for onshore wind in rural areas, which compounds the whole feeling of injustice.
The new clause would therefore require the Secretary of State and the regulator to have regard to customers in rural areas in exercising their powers when setting, reviewing and terminating the cap. The clause itself is self-explanatory. Again, I am interested to hear what the Minister has to say.
Claire Perry
The new clause seeks to add a clause to the Bill to create duties on Ofgem and the Secretary of State to consider the needs of customers in rural areas and to consider additional protections for them.
The hon. Gentleman spoke about this on Second Reading, and many of us who represent very rural constituencies understand exactly what he is saying. I have been really pleased to learn that, in the north of Scotland, the Government have confirmed their commitment to the hydro benefit replacement scheme, which is worth an average of £41 annually per household in the region.
The hon. Gentleman will be aware that costs are in some cases the function of geography—there is this unfortunate thing that it costs more to get electricity down to certain parts of the country. In my own region, the south-west, the peninsular effect creates some unfortunate energy price increases for those living at the end of the grid, as it were. That is something we have long had to live with. I am not saying that that is acceptable, but to date it has been a function of the pricing of energy distribution.
The other issue for many of those representing rural areas, including mine, is that people rely on heating oil or liquefied petroleum gas deliveries, because we are off the grid. Not only can that be a costly proposition, given the spike in heating oil prices, but it is a problem in terms of carbon emissions. As the hon. Gentleman knows from the clean growth strategy, I am determined to phase out fossil fuel heating—not in a way that penalises existing customers—starting with new builds from 2025, and really trying to come up with cost-effective alternatives in future.
When we have the consultation on the energy company obligation, which will be happening shortly, I am minded to review how much we direct towards customers in rural areas. As the hon. Gentleman knows, and as I know only too well from my constituency, fuel poverty is not an urban phenomenon. Many of our constituents live in old homes, which are not suitable for more modern forms of energy efficiency—[Interruption.] My hon. Friend the Member for Hitchin and Harpenden is putting up his hand to say that his house is like that. These homes are a problem, particularly for those on low incomes; in my constituency the average income is well below the national average, and many of our homes are simply very old. That is why, what I would like to do with ECO, to be forthcoming, is to see how we can deliver more help to rural households and how we can focus that help more on innovation so that we can create more of a route to market for important new technologies that could help.
We have an open market in the supply of heating oil—it has been looked at, and the conclusion was that it is competitive and working. LPG customers have the LPG orders introduced by the CMA, which set a maximum contract length. Under the fuel poor network extension scheme, Ofgem sets a target for gas distribution companies to connect an additional 91,000 low-income homes to the gas grid by 2021. So there is work afoot to reduce some of the disbenefits of living in some of the most beautiful parts of the world, such as the constituency of the hon. Member for Kilmarnock and Loudoun.
I have mentioned additional help, but I suppose the question is whether we should specify in the Bill that more should be done. My argument is that the new clause is not necessary, because the Bill already explicitly requires Ofgem to protect all existing and future standard variable and default customers, including consumers in rural areas. Furthermore, Ofgem’s role as the regulator under the existing gas and electricity Acts confirms that it has a duty to protect the interests of all existing and future customers. It should specifically have regard to the interests of individuals living in rural areas, among other things.
There are already protections at various levels of the law and in the Ofgem regulations for those customers for whom the hon. Gentleman so rightly speaks. I therefore do not believe that the new clause is necessary, but I remain apprised of the issue he raised, which many of us face: how we help people who live in rural areas, who do not have the same options as those who live in urban areas, whether in terms of heating, lighting or broadband. I hope that he is content with that explanation and is minded to withdraw his new clause.
Dr Whitehead
I beg to move, That the clause be read a Second time.
This is a simple and brief new clause that would require the Secretary of State, immediately after the passage of the Bill, to lay a report before both Houses assessing the merits of extending the tariff cap to small business customers. I do not think I need to emphasise that the Bill’s title gives the game away about what the tariff cap will cover: the Domestic Gas and Electricity (Tariff Cap) Bill applies to domestic customers and to no one else. That rather gainsays the idea that, in many instances, small businesses have far more similarities with domestic customers than with large companies, which may have wholly different arrangements for dealing with their electricity supply—they may engage in private wires or bilateral long-term contracts, or have their own generating plant—from small businesses, which in effect hug pretty closely to the principles for domestic customers.
It seems a little invidious that the cut-off point for the price cap is the end of the domestic customer level. I am sure no hon. Member present is in this position, but it is quite possible for a very large house with multiple activities going on in it to consume a lot more electricity than a high street retailer or a small business. A number of small businesses will find that their electricity bills are not capped even though, to all intents and purposes, they are indistinguishable from domestic customers as far as their patterns of use, means of purchase and so on are concerned.
The new clause would require the Secretary of State, shortly after the Bill’s passage, to think about whether it might be appropriate to bring small businesses under the cap as it progresses, with a proper definition of which small businesses are in and which small businesses—those at the larger end—are out, so that the cap’s benefits can be extended to that particularly hard-pressed sector of the UK economy, and so that a proper relationship can be established between who is doing what so far as their energy purchases are concerned and who should benefit from a cap as a result of doing those things.
This is a simple, straightforward amendment, which I hope the Minister will consider carefully.
Claire Perry
I am extremely interested in new clause 3. I will not delay the Committee too much, but the hon. Gentleman is absolutely right to have observed the issue faced by many small businesses. Indeed, it was observed by the last Conservative Government when they commissioned the CMA report. That report also looked at what was happening in the small business sector. It was a really important question.
As the hon. Gentleman mentioned, there is a huge variety of SMEs. They consume energy in entirely different ways and have different supply contracts. Many of them are on a domestic tariff. A question I have asked—I am not sure I know the answer—is what triggers the move from a domestic to a business tariff. If I do not have the answer by the end of this speech, I will happily write to the hon. Gentleman. It is an important question. [Interruption.] My civil servants are scribbling furiously. Of course, those businesses will be protected by the tariff.
As the hon. Gentleman mentioned, companies that are not supplied via a domestic tariff generally have fixed-term, fixed-price contracts that they negotiate through a broker, and those contracts are based on a range of different factors. In my constituency, I am aware—this has come up in the question around energy efficiency, which is a particular problem we need to try to crack with the small business sector—that many small businesses, particularly service companies, occupy premises where energy is just part of the price they pay. There are real disincentives for those landlords to shop around for a more competitive energy price, because it might reduce some of the benefit they get from selling those services as a bundle. It is an interesting question.
The CMA reviewed the small business market and found that a combination of features lead to a weak customer response. My argument on that—I have discussed this with small businesses—is that if someone is making payroll every month, looking to export to new markets and thinking about what they might have to do with the changes to our technical relationship with the EU, they do not necessarily always default to looking at energy costs, even though that might be economically rational, as electricity or power prices might be 5% of an overall cost base. According to the CMA, that weak customer response provides energy suppliers with unilateral market power over inactive customers—those words always make me feel very uncomfortable when we are talking about a supposedly competitive market.
The CMA has already recommended remedies, and those are being implemented. We have ended auto-rollover contracts with restrictions, including termination fees. That was implemented by the Energy Market Investigation (Microbusinesses) Order 2016. We are making prices more transparent, and we are having a price comparison website, which has already been implemented by the CMA through an order in June 2017. Early reports suggest that that has not been fully taken up by suppliers.
We are establishing a programme of prompts with information for consumers to engage, which is similar to the remedy for domestic customers in terms of the least engaged groups. That is ready for implementation, but no date has been set. In a similar way to what we are doing on domestic remedies, we are establishing a database of inactive customers that will be made available to rival suppliers and switching sites. Ofgem has not yet implemented that recommendation.
There has been some progress on transparency and auto-rollover contracts. The recent welcome action Ofgem announced to end back-billing beyond 12 months will also benefit small businesses and should help significantly with the cash-flow drain that a large backdated bill could cause.
Ofgem has a business consumer survey under way that we expect to get sight of this summer. It should give us more insight into the experience of business consumers. Ofgem plans to review consumer protections in the small business market.
While I invite the hon. Gentleman to withdraw the new clause on the basis that the Bill focuses on domestic customers, where we already have more information, I am extremely interested in the problem of how we might provide better customer service and pricing availability to small business customers. I am perfectly happy to commit to looking at the problem very seriously and to have a proper and open discussion, as the hon. Gentleman and I tend to do, about what more might be done. I would send a very strong signal that, if at some future point a price cap mechanism might help small businesses, that is not something I would turn away lightly.
The hon. Gentleman has re-identified an excellent problem, if you like, in the energy markets. As I said to the right hon. Member for Don Valley earlier, the Bill is part of the intention to make a competitive market work well for all consumers. I will continue to engage closely with this problem, and I hope the hon. Gentleman will be content to withdraw the new clause on that basis.
Dr Whitehead
I thank the Minister for that positive response to the overall suggestion. I appreciate that the Bill sticks fairly closely to domestic tariffs, and that is perhaps how we should leave it for present purposes, but I hope that the principle that has been raised, about that almost imperceptible gap, on occasion, between where domestic tariffs finish—
Claire Perry
I can inspire the entire Committee with the assiduousness with which my brilliant team is able to answer my questions. A company chooses the business rate. Those in commercial and retail premises have to choose a business tariff, but, of course, a home business, of which there are millions and millions, can be on a domestic tariff. In a way, there is a sort of self-selection mechanism, but if the business moves into commercial premises, it does have to default on to a business tariff. I hope that clarifies the confusion I raised.
Dr Whitehead
I thank the Minister for that clarification, but it emphasises the fact that a small business may be in circumstances where it is renting part of a building or is part of a business park, the negotiation of the energy supply is out of its hands and it is paying a set amount for that electricity, but that is not done on domestic rates, even though the extent of the business means the electricity may be well within what is normally paid for by a domestic consumer.
The Minister is absolutely right to identify the issue for small businesses, and I hope that will underline the seriousness with which she will take the issue forward. She indicated that she does want to give it further thought and to look at circumstances where the point of departure may be less abrupt in the future. On that basis, with the trust that she will assiduously pursue this, I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 4
Ongoing relative tariff differential
“(1) The Secretary of State shall, during the term of the tariff cap conditions being in place, develop, ready for implementation, a relative tariff differential.
(2) A relative tariff differential is a requirement on supply licence holders that the difference between the cheapest advertised rate and the most expensive standard variable or default rate shall be no more than a specified proportion of the cheapest advertised rate.
(3) The Authority will be responsible for setting the proportion referred to in subsection (2).
(4) The relative tariff differential shall take effect on the termination of the tariff cap conditions.”—(Dr Whitehead.)
Brought up, and read the First time.
Claire Perry
I agree with the right hon. Member for Don Valley that it is absolutely right to think about what might happen when the cap goes off into the sunset, as we have done extensively. I am always interested to listen to the hon. Member for Southampton, Test but I slightly feel—unless I have misjudged this—that we are going over territory that we have covered extensively, in particular on Second Reading. We have heard many arguments about the absolute versus the relative tariff and, in effect, he is proposing a perpetual relative tariff—[Interruption.] Perpetual or ongoing, perhaps we are dancing on the head of a pin—
Claire Perry
Okay, but there is a relative tariff or a relative cap that is ready to go. The hon. Gentleman said on Second Reading:
“It should be clear that we want this price cap to come in. We believe it should be an absolute and not a relative price cap”.—[Official Report, 6 March 2018; Vol. 637, c. 271.]
I agree with him, as does Ofgem and as does the Select Committee, which made it very clear that it felt that a relative cap would simply be gamed.
As the right hon. Member for Don Valley mentioned, there is also the problem that companies will simply lift up their skirts and raise their whole tariff. The hon. Member for Southampton, Test may say that companies would then lose their customers, but we come back to the question of whether people will actually move. Yes, companies may lose those hyper-price-sensitive switchers who are very engaged, but they may not lose the customers we are really here to help today—those who are more vulnerable and not as savvy.
The hon. Gentleman is right to say that Centrica lost more than 800,000 customers, but 650,000 of them were due to a collective switch—one big deal. So only 150,000 of a very substantial customer base, the majority of whom are still on SVTs, actually shifted, despite the price rise. The numbers are therefore not quite as unequivocal as he suggests.
He is also right to raise the issue of ongoing protection for vulnerable consumers. We will all be pleased that, regardless of the price cap, Ofgem has already introduced a safeguarding tariff for those on prepayment meters, an additional 1 million customers. Those customers have saved about £120 to date relative to what they would have paid. The tariffs that they are paying have come down relative to the uncapped SVTs on the market. That absolute cap mechanism, therefore, is working. Even when the safeguarding tariff put in place by the CMA or the price cap in the Bill comes to an end, Ofgem will continue to have the powers to take further steps to protect vulnerable customers as it sees fit.
We are all here because we want the market to be in a competitive place on the expiration of the tariff cap under the sunset clause. The hon. Member for Southampton, Test may say that that is a triumph of optimism over practicality but, in essence, if we believe the market will be more competitive and we do not believe that the relative price cap is the way to address any remaining issues of uncompetitiveness, I find it difficult to see why we should put his new clause into the Bill, running all the risks we talked about on Second Reading—which have been explained eloquently by others—of the variable tariff cap not being an effective way to establish competition. We will have had a temporary absolute cap in place. We will have sent the very clear signal. That will have operated. I can see a situation where a relative cap could undo some of that good work and we would suddenly see prices zooming upwards because there was the opportunity to do so.
I appreciate the hon. Gentleman thinking hard, as always, about what “good” will look like, and I share his desire to continue to work together on ensuring that this cap delivers, but I hope he will withdraw the new clause on the basis that it is not necessary and could have bad unintended consequences.
Dr Whitehead
I simply do not accept what the Minister says about bad unintended consequences. I do not think that is realistic. Conversely, having something like this in place would be a positive driver of a return to not only good market conditions but proper protections for those operating tariff arrangements under those otherwise good market conditions. It is important that, in the ending of the absolute cap, we get both sides right. It is not just a question of the market working well. It is a question of people in that market who have disadvantageous circumstances being protected properly as it goes forward.
Claire Perry
Would the hon. Gentleman accept that those arguments could be made today about whether we are introducing an absolute or relative cap? We have all agreed quite strongly that an absolute cap provides those protections. If he were proposing that Ofgem has an absolute cap ready to go, we could raise some of the questions we discussed earlier about future uncertainty in the market. I felt that until today we had all considered carefully, but rejected, the structure of a relative cap as a hypothesis—as opposed to an actual absolute cap, which we have—that would not deliver the results we want: vital protections for vulnerable customers.
Dr Whitehead
Yes, indeed. That is why I have been pains to say that this is not a relative cap. It was not a relative cap when it was proposed, although it was branded as one, but can actually be a pillar of an instrument for market return. I do not want to pursue the new clause today; but, for reasons that the Minister and I perhaps need to talk about, it would be a good idea to bring something like it back on Report. I think we probably will. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill to the House.
Claire Perry
May I thank you for your wise chairmanship, Sir Edward? I also thank Ms McDonagh, who chaired the Committee on Tuesday; the Clerks of the Committee, who have kept us assiduously on the straight and the narrow; and the House staff and Hansard reporters, who always do such an amazing job.
I extend fervent thanks to all members of the Committee. We have had an extremely constructive and helpful debate and have probed many aspects of the Bill. I also thank the witnesses who gave evidence and from whose wisdom we have benefited. I think that covers it, apart from thanking my excellent civil servants for their help in drafting the Bill and their excellent answers to questions. We will continue to draw deeply from that well, but at this stage I thank everybody for taking the Bill—hopefully successfully—through Committee.
Dr Whitehead
Like the Minister, I thank everyone who has taken part in this stage of the Bill’s passage. We have had a genuinely constructive debate, in which we have all been facing in the right direction. I particularly thank the Clerks for their assiduous work and for their help with tabling Opposition amendments; unfortunately we do not have an entire civil service on our side, so we must seek other help, but we have not been failed.
I hope that the Bill will now progress to its remaining stages with consensus that the tariff will be an absolute cap, and with good support from all sides of the House for the result that we all want.