Economic Crime and Corporate Transparency Bill

Jonathan Djanogly Excerpts

Report stage
Tuesday 24th January 2023 Commons Chamber

[Seema Malhotra]

My right hon. Friend is absolutely right. We should be ambitious for the registrar and for Companies House in tackling economic crime and being a beacon around the world for how a nation should do that. She makes an important point about where the new clause goes further than the Government’s proposal. Along with the report and the data in it, importantly, there would be recommendations about whether further legislation should be brought forward in response to that report and the information in it. That is extremely important, because that is where Parliament will have to make choices about whether it chooses to take further action.

Issues of concern that the report may draw attention to, and which we could encourage the registrar to look at, could include investigations of unusual patterns of directorships and companies registered at one address. All of that would also enable Parliament to hold Companies House to account for its performance. We are willing to work with the Minister to strengthen the Government’s new clause so that it becomes more purposeful and effective—and, in doing so, collectively achieve the outcomes that we intend for the Bill.

I turn to further amendments tabled by Labour Front-Bench Members. New clause 22 seeks to disqualify any individual convicted of a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay the national minimum wage, from serving as a company director in future. In Committee, the Minister stated that it was

“right to identify the scale and nature of the problem before we legislate”.––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 3 November 2022; c. 240.]

He said that he was “keen to do so.” He also said:

“There have been 16 people convicted under the National Minimum Wage Act 1998. I want to do some further research on that to see what has happened to those people and their director qualification or disqualification. That might inform debate more clearly.”–[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 3 November 2022; c. 233.]

Since then, we have not heard a satisfactory answer to the central question: should an individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay the national minimum wage, be prevented from serving as a company director?

[Mr Jonathan Djanogly (Huntingdon) (Con)]

Is not the point that if someone is convicted of a criminal offence, the court automatically has the power to disqualify them, and that by not being prescriptive in legislation, we ensure that the judge in a particular case has more leeway than perhaps the hon. Lady would give him?

[Seema Malhotra]

I thank the hon. Member for his intervention. Perhaps he is missing some of our argument around the central question, because it does not happen in all cases. We have not received any further information on the work and research that the Minister started during Committee on what happens with those directors, which he committed to follow up.

In our view, new clause 22 would strengthen the Bill. We are talking about people whom we hope to have trust in to undertake their responsibilities as a director. The Bill introduces a substantial amount of regulation about who can and cannot serve as a company director as a result of criminal or potentially criminal practices, so this feels like the right place for consideration of such a measure. I would be grateful for the Minister’s response. I am happy to give him forewarning that, subject to his response, we may well press the new clause to a vote.

New clause 24 calls for a creditor or liquidator to be able to apply to restore a company to the register administratively. Currently, if creditors, former creditors or liquidators wish to apply to restore a company, that is done through the court in what is often a complex and costly procedure that may well take 12 to 18 months or longer. In Committee, the Minister said that there ought to be a basis for a “less cumbersome” process for creditors and particularly for liquidators. We agree. Currently, when companies are struck off the register—that happens on average to about 400,000 companies a year—little is done to check whether fraud has occurred. As a side issue, the Minister may helpfully confirm whether directors of companies that have been struck off will also be subject to verification checks so that we do not have a period through which they may escape ID verification as Companies House looks to undergo those checks with existing directors.

The key issue is that unscrupulous directors can misappropriate the strike-off process to avoid scrutiny and rack up debts or sell company assets ahead of the company dissolution, absconding with the proceeds. The Minister said he appreciated the case for widening access to the less cumbersome process of administrative restoration, and he undertook to consider the matter further. If he does not agree to our new clause 24, I would be grateful if he would commit to bringing forward proposals during the passage of the Bill. This is a window of opportunity that we should not miss.

On new clause 34, the processes set out in the Bill rely on effective ID verification of company directors. There has been a debate as to whether that should be done in-house. The Government have chosen to use a model whereby authorised corporate service providers are trusted to undertake ID verification on behalf of Companies House and effectively certify that through a confirmation statement. The debate is ongoing on how that introduces risk into the process. Indeed, if the registrar can do only part of the verification and we need to use authorised corporate service providers, that only works if the ACSPs are known, trusted and effectively regulated.

New clause 34 seeks transparency reporting on the involvement of foreign corporate service providers in the two main routes by which they may be authorised to conduct ID checks and to incorporate a company in the UK that is registered with Companies House. Such a company being registered could have an office address in the UK; a postal address in the UK, with all the risks we debated in Committee; or an address abroad as an overseas company. The directors of the company registered in Companies House by the foreign corporate service provider may be living abroad and may never come to the UK. New clause 34 seeks to create an obligation for the Secretary of State to publish a report, first, into the number of authorised corporate service providers with a head office based outside the UK, by which we mean where the authorised UK subsidiary supervised by His Majesty’s Revenue and Customs is beneficially owned by a company that is outside the UK; and secondly, on the number of foreign corporate service providers authorised by regulations set out in proposed new section 1098I(1) of the Companies Act 2006, which is amended by clause 63.

Clause 63 enables the Secretary of State, by regulations, to authorise a person abroad to become a foreign authorised corporate service provider

“even if the person is not a relevant person as defined by regulation 8(1) of the Money Laundering Regulations”.

For example, they could be a lawyer or an art dealer. They would therefore not be supervised. Proposed new section 1098I(2) specifies that a

“‘relevant regulatory regime’ means a regime that, in the opinion”—

I stress, in the opinion—

“of the Secretary of State, has similar objectives to the regulatory regime under the Money Laundering Regulations”.

However, it does not specify any transparency on how that conclusion is reached. Clause 63 is a risk for a backdoor route to the authorisation of foreign corporate service providers—

--- Later in debate ---

[Harriett Baldwin]

The right hon. Lady makes some excellent points. Once the Minister does this work, it may well turn out that £100 is a good starting point. Other things are budgeted for, and I understand the budget for the work that is under way is £20 million for the financial year just ended. A further £63 million is expected to be needed up to 2024-25 and was allocated in the last spending review.

Forgive me if I am cynical about the budgets for public sector computer procurement projects, as they sometimes come in somewhat over budget. I urge the Minister in his response to new clause 20 to make sure that he can move swiftly to change the amount that it costs to set up a business, while making sure that it remains competitive in terms of economic parameters. It is not every day that Back Benchers say to Ministers, “Here’s some more money for you. We think this is going make the UK much safer and a centre that is less vulnerable to economic crime.” That is the purpose behind our support for this new clause.

[Mr Djanogly]

Is the point not also that if we raise the fees, rather than their falling to the general taxpayer, those who use the service would actually be paying?

[Harriett Baldwin]

That is my point—my hon. Friend has made it much better than I was. This is an offer to the Minister for a significant increase in the budget of one of the agencies for which he is responsible, Companies House, and it would be feasible without putting any further burden on the hard-pressed taxpayer. That is why I support the new clause and why I am looking forward to the Minister accepting the principle of it. I acknowledge that we may be talking about plus or minus a few quid around that £100, but that is a good starting point.

--- Later in debate ---

The Minister has campaigned on this issue for so long, and all of us salute him for that work, but he has now signed up to fight this inferno as a Minister, asking to be armed only with water pistols. That is not brave or heroic. That is an approach that is doomed to failure. Even at this late stage, we urge the Minister to change course, because policing on a shoestring is policing that is hamstrung. It is no good having Ministers who are clear-sighted about the risk but half-hearted about the response. When police are too weak, it generally means that criminals are too strong, and the economic criminals who exploit this country have been too strong for too long.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

This is a first-rate piece of legislation, which is both timely and important in the ongoing fight against economic crime. I join many others in the House in saying that it is good to see presenting the Bill a Minister who has long engaged with these issues. There have been many excellent and important contributions during the debate.

Much of the Bill, particularly part 1, develops themes that were debated during the Companies Act 2006. That Act itself was formulated on the basis of many years of consultation. It was the right hon. Member for Barking (Dame Margaret Hodge) who took the Bill through the House. I think it was the longest Bill ever—it may still be the longest Act ever. I had the pleasure of being the shadow Department of Trade and Industry Minister at the time. We proceeded on the Bill mainly in a spirit of co-operation, as I recall, so, it is very appropriate that today, some 17 years later, we are not only co-signing amendments to develop this workstream further, but talking almost one after the other, just like old times. Today, once again, the right hon. Lady made a very important contribution. I say “workstream” because this is an area, like so many, where development of the law is required because of changes that have taken place through technology and practice, both of criminals and regulatory gaps or inaction.

For instance, in 2006, paper registers maintained by companies were the norm, particularly for small companies. People simply did not think of identification verification in the way that is now commonly accepted. Therefore, moves in the Bill, for instance to require directors and those delivering documents to have their IDs verified and to provide for registers to be held centrally, are not only better to stop fraud, but more transparent and accessible and, frankly, are now the contemporary norm.

The general mood at the time of the 2006 Act was, I would say, broadly deregulatory, which is fundamentally why the then Conservative Opposition were able to work very well with the then Labour Government on that Act. It must be said that that was well before 42% of all UK crime was fraud related, as it is now. Of course, there will always be a trade-off between absolute ease of doing business and upping levels of regulatory checks, but for the most part this Bill has got it right in improving protections against fraud while measuring the mood of business.

Corporate Transparency and Economic Crime

Jonathan Djanogly Excerpts

Monday 28th February 2022 Commons Chamber

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. I was very generous with Dame Margaret Hodge, for obvious reasons, but I shall be less generous now in respect of the length of questions. You are all warned.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

I welcome the statement. While I fully support efforts to have the means to investigate criminality and sanctions-busting schemes at Companies House—and I hope that that will be properly funded, because it will be expensive to carry out—I also hope that the process of registration will not be burdened to the extent that we lose competitive advantage and throw the baby out with the bathwater.

[Kwasi Kwarteng]

I think my hon. Friend is right. There is always a balance to be struck in legislation of this sort, but I think that, as he takes the temperature of the House, there is a real feeling that we need to expedite it. I feel confident that it strikes the right balance between fairness and transparency, and will not be overburdening people with bureaucracy.

Corporate Insolvency and Governance Bill

Jonathan Djanogly Excerpts

2nd reading & 2nd reading: House of Commons
Wednesday 3rd June 2020 Commons Chamber

[Alok Sharma]

My hon. Friend raises an incredibly important point. I championed this issue—support for small businesses—when I was on the Back Benches. As he will know, the Government’s payment terms are favourable in setting a very time-limited period within which payments must be made to Government suppliers, and of course the Government also require that if a large organisation is being paid by the Government under a contract, they need to pass on that speed of payment to smaller subcontractors. He will also know that in the manifesto on which he and I stood we committed to looking further at the role of the small business commissioner and how it might be strengthened. We will bring forward a consultation on that in due course.

I move now to the temporary measures in the Bill. The first set provides for a suspension of the serving of statutory demands and a restriction on winding-up petitions. These measures will be retrospective from 1 March and 27 April respectively and will last until one month after Royal Assent, although they can be extended if that is deemed necessary. The Coronavirus Act 2020 temporarily suspended the right of commercial landlords to forfeit the tenancies of retail businesses in order to protect tenants unable to trade because of covid-19. While this temporary suspension has been in place, the majority of landlords and tenants have been working well together to reach agreements on debt obligations, but a small number of landlords have been using aggressive debt recovery tactics to put pressure on tenants, including through the use of statutory demands and threats of winding up. For this reason, the measures in the Bill to limit the use of statutory demands and winding-up petitions have been welcomed by many, especially in the hospitality sector.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

The Government have repeatedly spoken about this clause in the context of landlords, but can the Secretary of State confirm that it actually applies to all creditors?

[Alok Sharma]

It is intended to apply to all suppliers—I am sure I will be corrected if I am wrong on that. As my hon. Friend has also been keen to point out, although this measure is not restricted to commercial landlords, some landlords will have particular concerns, and I can reassure him that the Government will monitor the impact of the measure and are asking lenders and investors to consider how debt obligations can be met in a way that does not put unnecessary pressure on landlords.

--- Later in debate ---

[Mr Jonathan Djanogly (Huntingdon) (Con)]

I declare any interest I may have arising from my entry in the Register of Members’ Financial Interests. The Bill initiates the most significant changes in insolvency rules for at least the past 20 years, and it has two broad directions. The first introduces new requirements for moratoriums and company reconstructions, which have been consulted on in outline over the past two years. They were expected and are generally welcomed by practitioners and by business. However, when one looks at practitioners’ commentary, nearly all of them note that the devil is in the detail and they look forward to debates on the Bill. Of course, that is not going to happen to any extent, given that 170 pages of the Bill are allocated to two complicated proposals that were published a day before recess only two weeks ago. To allocate one day for all stages of the Bill is inadequate.

The foundation of our insolvency system is the Companies Act 1985 and the Insolvency Act 1986, both significant measures forged by a Conservative Government that have stood the test of time through the rebuilding of our economy after deindustrialisation, the dotcom crash and then the banking crash. Yes, we face another crisis, but rushing these changes through will not, in my view, produce the best law. For instance, if we take the moratorium, the key change is to introduce the concept of a monitor to review companies’ affairs. What will that involve? How will the role work, and will the monitor be able to charge for staff placed on site and so on? The purpose of the Bill is to present oven-ready processes that can be used to help businesses in the crisis, but I am not sure how that will work if practitioners, civil servants and possibly courts have to spend a long time working out what the law means.

The remaining provisions of the Bill have not even been consulted on despite their raising many serious issues of principle—above all prioritising the survival of businesses over the interests of creditors and consumers. We need to appreciate that the Government support schemes for businesses and employees, which have been popular and which I absolutely support, are often a blunt instrument. For instance, some businesses have taken state support, then gone on to renegotiate their leases, effectively leveraging their crisis support to undermine the market. The proposal to prevent winding-up petitions could accentuate that. Usually if companies are becoming insolvent, deals will be done and rents will fall, but banning winding-up petitions could undermine the market.

Why concentrate on big landlords? What about small companies sub-letting to cover part of their rent? They, too, will lose protection. As I asked the Minister, why are the Government talking just about rents when that applies to all debt and all sectors? Has the Minister considered that preventing winding-up petitions and the new wrongful trading termination provisions could reduce the willingness of banks and private lenders to issue credit? It could increase lenders’ risk aversion. It could increase demands for cash on delivery, prepayments and deposit increases. It could require more bonds and personal guarantees. That state meddling in the marketplace could have serious negative implications for credit and business, and I am interested to hear the Minister address those issues.

Some of the provisions are retrospective which, again, will undermine confidence in our economy. Why are the provisions being effected only for one month, as the hon. Member for North Antrim (Ian Paisley) and others have mentioned, which is simply unrealistic and points to extensions effected by ministerial order rather than by Commons debate?

Let us be quite clear: the provisions that will temporarily prevent winding-up petitions are being made on the basis of statutory demands not just from now but including those demands made between 1 March and 30 June. This suspension applies to all statutory demands, irrespective of whether the financial difficulties being experienced by the debtor have anything to do with covid, and of course they apply to all creditors. So a blanket ban is being introduced on a retrospective basis, with no reference to covid or the circumstances of the company. If I were to believe, as I do, that these provisions might merit the justification of proper scrutiny, a practitioners’ review and then feedback, I do not think that I would be asking for anything out of the ordinary.

On winding-up petitions being suspended, this is based on cash flow insolvency in circumstances where covid has had a financial effect on the relevant debtor, which has given rise to the proceedings in the first place. In such a situation, the creditor requesting the winding up must show the court that the company’s inability to pay its debts was not caused by the covid crisis. One wonders how, in the current health climate, the creditor will be able to show that this test has been met. Could the Minister enlighten us? Will there be a series of tests to be met, or will this all have to be fleshed out by the judiciary and the courts, which is presumably not the intention? Again, this provision is to be retrospective, so we could have a number of void petitions out there at the moment. Can the Minister advise us how many we are likely to be talking about?

The Bill goes even further, because it says that the court can make orders to restore a company where a petition was brought under the existing law but the requirement was not met. I believe that this would all be at the cost of the petitioner. Could the Minister confirm that? It looks like if creditor A has a petition in against company X, who owes A money, not only will creditor A be forced to withdraw his petition for winding up and be unable to collect his debt, but he might have to pay more money to company X to put X in the same position as if A had not tried to get his money back. We do live in strange times. Moreover, what about creditor A? How many mouths might creditor A have to feed from the money that should have come from X? What if X had been taking every loan and support going, but A had taken nothing from the state? I have met a lot of small businessmen who have not wanted to take anything during this crisis. There will clearly be knock-ons from this, and I am frankly unsure whether the legislation will help or hinder in certain respects.

Could the Minister explain why the winding-up provisions should be needed if the Government have confidence in their own new moratorium proposals, which will allow courts, following assessment, to stop winding ups? Will directors get any benefit from the wrongful trading proposals, knowing that they could be in breach of other directors’ duties and that these proposals are only temporary, so they could well need to justify their decision to trade on at a later date in any event?

The wrongful trading provisions have served us very well, and let us remember that they were brought in to reassure creditors and consumers who were disgusted at companies being used to trade in situations where they were clearly going to the wall. The reform of termination clauses in supply contracts had been suggested some time ago; I appreciate that. The problem is that if we stop people freely negotiating contracts in one direction, businesses will look for other ways of limiting their exposure. Ultimately, we can all understand that if I, as a supplier, am not paid for the previous consignment, I might not want to supply any more until I have been paid, because I might not get paid if the customer were to go insolvent. So we will head to cash on delivery, reduced credit, shorter payment terms and possibly contract terms. This will not help our economy.

[Mark Pawsey]

Does my hon. Friend agree that part of the problem is the 30-day, 60-day, 90-day culture that has arisen in trading between companies? It is much easier now for companies to get an earlier payment, because so many payments are by electronic transfer, and the notion that the cheque has to be there when the guy delivers the goods no longer applies. If this measure moves trading in that direction, does he agree that that would not necessarily be a bad thing?

[Mr Djanogly]

Not necessarily. These are the sorts of things that I would like to have heard debated, frankly.

The provisions have a limited time exclusion of, I think, one month for small companies. I am not sure of the worth of that. If a large company entered into a very large contract and failed to be paid yet was still forced to supply, that could be just as devastating as a scenario in which a small company had to do likewise on a smaller order. In my experience, not only are these clauses often negotiated, but there are standard gives and takes to be had. For instance, a hard termination clause for any type of insolvency event may be narrowed down to exclude deals with creditors or waived if the debt is repaid, say after a month, despite an insolvency event having occurred.

Removing the ability for negotiation in the way the Bill does may have a minimal impact at the cost of damaging our reputation as a place for free contracting. I can see that there are safeguards for suppliers to go to court on the grounds of hardship to the supplier, but going to the court in that way will not be a cheap process, and it will run the risk of throwing good money, which the supplier may not have, after the existing debt.

I agree with the proposals to enable AGMs to be held flexibly, but why mess about with the filing deadlines? If companies have filing problems, the current system allows for that to be quietly considered by the Department. Why publicly undermine our corporate governance and national economic credibility, especially on the filing of accounts?

My concern is that the Bill, although well meant, may not properly work for lack of scrutiny, or may provide dubious short-term benefit at the cost of longer-term distrust in our economic system. In market economies, weaker businesses will sometimes fail, particularly in a downturn. I suggest that the Government’s role is to ensure confidence in the marketplace rather than in companies themselves.

One thing that has been missing from the debate so far is the question of corporate governance in the wider sense. I notice—the shadow Minister, the hon. Member for Manchester Central (Lucy Powell), nods—that the Opposition have tabled new clause 3, which addresses that. As it happens, I do not agree with all the things in that new clause. However, I do recognise, and it is important to say, that a lot of companies have been conducting excellent corporate governance. A lot of directors have forgone salaries. A lot of companies have not paid dividends and are doing the right thing. A lot of good work has been going on, and I would like to see more recognition of that; let us recognise the good.

Although corporate governance is mentioned on the front of the Bill, it is about how we will suspend corporate governance. That may be for good reasons, but we should use the opportunity of the Bill, and particularly its Second Reading, to discuss how we are going to move corporate governance forward too. I would like to hear a little about that from the Minister when he winds up the debate.

Draft Electricity Capacity (No. 2) Regulations 2019

Jonathan Djanogly Excerpts

Monday 1st July 2019 General Committees

[The Minister for Energy and Clean Growth (Chris Skidmore)]

I beg to move,

That the Committee has considered the draft Electricity Capacity (No. 2) Regulations 2019.

It is a pleasure to serve under your chairmanship, Mr Hanson. The draft regulations were laid before the House on 12 June 2019.

The capacity market is a key element of the Government’s strategy to maintain security of electricity supplies in Great Britain. This statutory instrument will help to maintain a strong security-of-supply position into the future. The capacity market ensures that there will be sufficient electricity capacity in Great Britain during periods of peak electricity demand, securing the capacity required through competitive technology-neutral auctions, normally held four years and one year ahead of delivery, ingeniously known as T-4 and T-1 auctions. Those who win capacity agreements, known as “capacity providers”, commit to providing capacity during periods of system stress in exchange for receiving capacity payments.

The draft regulations will help to maintain the effectiveness of the capacity market by allowing a one-off, three-years-ahead or—no prizes for guessing—a T-3 auction to be held in early 2020, to replace the T-4 auction that was postponed from early 2019 following the European Court of Justice judgment that annulled state aid approval for the capacity market. The regulations will also support the participation of certain unsubsidised renewable technologies in future auctions, and make minor changes to the existing credit cover requirements for upcoming capacity auctions likely to be scheduled for early 2020.

Before I explain those changes, I will first set out the context in which they are being introduced. On 15 November 2018, the general court of the Court of Justice of the European Union annulled the European Commission’s state aid approval for Great Britain’s capacity market, and introduced a standstill period until the scheme can be reapproved. The judgment means that the UK Government are not able to award capacity agreements, or to make capacity payments, unless and until state aid approval is obtained following the European Commission’s current investigation. We are working with it to ensure that it has everything necessary to reapprove the scheme as quickly as possible.

We discussed those issues and took steps, through the first instrument in this series—the Electricity Capacity (No. 1) Regulations 2019—and associated changes to the capacity market rules to maintain the operation of the capacity market, to the extent possible, while state aid approval is obtained. The steps we have taken to put in place those interim arrangements are subject to judicial review proceedings, which we are robustly defending.

The House of Lords Secondary Legislation Scrutiny Committee has highlighted the continuing uncertainty resulting from those judicial review proceedings and the Commission’s state aid investigation. This draft instrument therefore focuses on future auctions that are needed and will not proceed unless and until the capacity market has the state aid approval. The instrument is therefore unlikely to be impacted by the judicial review.

My Department carried out a public consultation from 7 March 2019 to 4 April on the changes that will be implemented under the draft regulations. That consultation received 42 responses from a range of stakeholders. The majority broadly supported holding that T-3 auction in early 2020. Respondents also supported allowing additional types of renewable technology to participate in the capacity market. The instrument also addresses concerns that running the T-3 auction in parallel with the usual T-4 auction in early 2020 could result in unduly burdensome credit cover requirements for some participants.

I will now expand briefly on the main provisions of the draft instrument, first on that T-3 auction. The instrument makes changes to enable the T-4 auction for the 2022-23 delivery year, which was postponed following the state aid judgment, to be replaced by the one-off T-3 auction. If held, that auction will be scheduled for early 2020. It will only be held if state aid approval has been received.

[Mr Jonathan Djanogly (Huntingdon) (Con)]

In the event of a no-deal Brexit, does this all fall away in so far as the judgment could not be enforced?

[Chris Skidmore]

In the event of a no-deal Brexit, there will be many issues of state aid requirements to which we are no longer subject. While we continue to be a member of the European Union, as we are, we must continue to legislate according to the principles of our membership. The state aid judgment issue is one that, having worked with the Commission closely, we believe will be resolved. We will ensure that we will be a law-abiding country.

The Commission is in the process of investigating and we anticipate that it will have concluded that investigation, and decided whether to approve the capacity market, by 31 October. On the effect of a no-deal Brexit, if the UK leaves the EU without state aid approval from the Commission or an implementation period, approval under the UK’s domestic state aid regime would still be required, and responsibility for investigating state aid cases would transfer to the Competition and Markets Authority. Therefore, the issue of state aid will not go away; it is a question of whether it will be under EU state aid requirements or UK requirements in the future.

Secondly, the regulations make changes to remove or reduce what might otherwise be unnecessary burdens on business in relation to credit cover. Applicants currently seeking to enter certain types of capacity market units—such as new technologies that are unproven or those not yet constructed—into capacity auctions, must provide and maintain credit cover. The regulations adjust the requirements for CMUs entered into both of the upcoming T-3 and T-4 auctions, to enable the credit cover obligations for both auctions to be satisfied jointly rather than separately. That will help to reduce bureaucracy.

The regulations extend the existing suspension of credit cover obligations provided for by the Electricity Capacity (No. 1) Regulations 2019 to the three capacity auctions likely to take place in 2020. They make changes to ensure that when the suspension of credit cover is lifted, following state aid re-approval, existing exceptions to credit cover requirements will still operate as intended.

Finally, the regulations make changes to support the participation of certain unsubsidised renewable technologies in future auctions. Some types of renewable technology, such as biomass, have always been able to participate in the capacity market provided they are not receiving other specified low carbon subsidies. Although the capacity market was always intended to include all unsubsidised technologies, when it was conceived wind and solar required subsidy and so were not included in the technical rules. With such unsubsidised renewables now a prospect, the capacity market rules were recently amended to allow wind and solar to participate for the first time.

The regulations support that change by requiring state support for new build renewable CMUs declared under the rules to be deducted or repaid from capacity payments, which enables renewable technologies in receipt of subsidies, other than those which exclude them from the scheme entirely, to participate without cumulation of state aid received through the capacity market and other schemes. Alongside the regulations, we have laid complementary amendments to the capacity market rules, which govern the technical and administrative procedures relating to capacity market operation.

The regulations are necessary to ensure the smooth running of the capacity market in the period after state aid approval is received, and to broaden the participation of renewable technologies. That is important the week after we committed to net zero emissions by 2050. I commend them to the Committee.