Energy Bill [ Lords ] (Twelfth sitting)

Kerry McCarthy Excerpts

Committee stage
Tuesday 20th June 2023 Public Bill Committees

[Dr Whitehead]

I thank the Minister for that intervention. Following the assurances he has given on that basis, among others, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 260 to 263 ordered to stand part of the Bill.

Clause 264

Civil nuclear industry: amendment of relevant nuclear pension schemes

[Kerry McCarthy (Bristol East) (Lab)]

I beg to move amendment 103, in clause 264, page 234, line 31, at end insert

“, or on benefits in deferment or pensions in payment;”

This amendment means that the Secretary of State may not put a cap on revaluation of benefits in deferment or pensions in payment.

[The Chair]

With this it will be convenient to discuss the following:

Clause stand part.

Clauses 265 to 269 stand part.

[Kerry McCarthy]

It is a pleasure to see you in the Chair, Dr Huq. These clauses relate to nuclear pension schemes, and the amendment would provide certainty that Nuclear Decommissioning Authority pensions would not be capped. There is some ambiguity in the drafting of the Bill, and the door has been left open for the introduction of regulations to cap pension increases when that is not part of what has been agreed in the past among Government, unions and nuclear workers.

I say the door has been left open for such regulations because subsection (3) (c ) of the clause specifies that only increases for revaluation—that is, active deferred members—cannot be capped. It does not mention pensions in payment. The wording is

“not involving imposing a cap on any revaluation or revaluation rate”.

The amendment would mean that the Secretary of State could not put a cap on revaluation of benefits in deferment or pensions in payment, as well as the other schemes I have mentioned.

The provision as it stands is contrary to the heads of terms agreement between BEIS and the NDA, which explicitly states that pension increases will be in line with inflation, as measured by the consumer prices index, with no reference to any cap. It is also important to note that, although members of recognised trade unions in the NDA group voted in favour of the reforms that these measures facilitate, I am told that there was by no means an overwhelming endorsement. Many voted in such a way because they feared the Government would impose even worse reforms, which had been threatened, if they did not agree to what is now on the table. They felt that that was the best deal they could get, but they feel that the promises made to them have been broken and they are not happy. Given that, it is even more important that we ensure that the Bill reflects the compromise agreement that was reached.

It is also wrong to say that these reforms would bring pension provision across the NDA group into line with wider public sector pensions, which I think is what the Minister in the Lords said. Those pension schemes underwent much more radical reform long before Lord Hutton’s review of public sector pensions, and they have been closed to new entrants for many years. Lord Hutton recommended that public sector pension accrual remain on a defined-benefit basis, but pension provision across the NDA group is mostly on a defined-contribution basis. I have been approached by representatives of trade unions who are eager to meet the Minister to ensure that reforms are fully consistent with Lord Hutton’s review. I do not know whether the Minister can offer today to meet those representatives, so I can take that back to them.

An amendment is necessary to remove any doubt about the status of nuclear workers’ pensions. I am sure we all agree that the effectiveness of the Civil Nuclear Constabulary is essential to maintain the UK’s nuclear security, and that the work of everyone at the NDA is really important, as we have already heard this morning. Those people are integral to keeping the public safe, and that should be recognised when legislation is being determined.

I hope the Minister accepts that the amendment has been tabled in a constructive spirit. It is designed to remove any uncertainty, and I hope he will accept it.

[Andrew Bowie]

I am searching in vain for a second Minister to take some of this Bill. Unfortunately, they do not seem to be available. I thank the hon. Member for Bristol East for moving her amendment and allowing us to debate an important issue, especially for employees of the Nuclear Decommissioning Authority. I recently had a constructive meeting with trade unions representing workers from the NDA and was happy to discuss the issues they are concerned about in depth and specifically the one we are debating today.

The Nuclear Decommissioning Authority agreed with unions as part of negotiations that the consumer price index should be used for revaluations and that it should not be capped. Both the reference to the CPI and that revaluations should not be capped are referenced in the clause. As the clause sets out, revaluations include pensionable earnings, benefits in deferment and pensions in payment. Pensionable earnings relate to the pension payments contributed by employee and employer while they are working. Benefits in deferment are those benefits that have been built up by an employee who has left the pension scheme but has not yet accessed it. Pensions in payment relate to those receiving their pension.

The Government are content, therefore, that the legislation as drafted does not exclude benefits in deferment and pension in payment from the non-capping of the revaluation of earning by CPI. It is therefore in line with the agreed scheme. However, I am happy to put on record that in the new scheme, both benefits in deferment and pensions in payment will be uprated by CPI and will not be capped. While I appreciate the hon. Member for Bristol East raising the issue and the importance of ensuring that those with benefits in deferment and pensions in payment do not have their revaluations capped, I do not think the amendment is necessary.

[Kerry McCarthy]

Can the Minister confirm that when he discussed this with the trade union representatives, they were happy to accept his assurances that that is what the Bill says? Certainly, they have not communicated that to us. As far as I am concerned, they still believe that getting our amendment into the Bill is still important.

[Andrew Bowie]

That specific element was not discussed or brought up in the meeting, but I am happy to meet trade unions again to continue the discussion on the matter.

[Kerry McCarthy]

If there is some ambiguity, is there a reason why he feels that putting a clarification in the Bill to spell it out and give those reassurances would not be acceptable? The amendment does not seek to change his position as I understand it; it just seeks to make sure that that is clear.

[Andrew Bowie]

I understand why some Members, including the hon. Lady and trade unions, would find that helpful. We do not believe it is necessary because I have stressed today on the record—it will be in Hansard—that it is the Government’s position that those benefits in deferment and pensions in payment do not have revaluations capped and that they will be uprated by CPI. We do not think it is necessary because that is already the Government’s position. It is on the record and I am happy to stand by that.

Turning to clause 264, the 2011 report by Lord Hutton of Furness started the Government on the road to the reform of public sector pensions. While the Public Service Pensions Act 2013 made a large number of reforms, it did not cover all public sector bodies, including those within the NDA group. The NDA is the statutory body responsible for the decommissioning and safe handling of the UK’s nuclear legacy, with 17 sites across the United Kingdom, including Sellafield. Even though the NDA was created in 2005 via the Energy Act 2004, many of its sites have been operating since the middle of the 20th century. That lengthy history has led to a complicated set of pension arrangements, which include two pension schemes that, while closed to new entrants since 2008, provide for final salary pensions and are in scope for reform. They are the combined nuclear pension plan and the site licence company section of the Magnox Electric Group of the electricity supply pension scheme. 

In 2017, the Government and the NDA engaged with trade unions to agree a reformed pension scheme that was tailored to the characteristics of the affected NDA employees. That resulted in a proposed bespoke career average revalued earnings scheme which, following statutory consultation with affected NDA employees and a ballot of union members, was formally accepted by the trade unions. Subsequently, a formal Government consultation was launched in 2018, with the Government publishing a response in December of that year confirming the proposed change.

The reformed scheme still offers excellent benefits to its members. Notably—and unusually compared with other reformed schemes—it still includes provision for members to retire at their current retirement age. For nearly everybody, that will be 60 years old. However, the complicated nature of the pension schemes, in the context of the statutory framework that applies to pension benefits across the NDA estate, means that specific legislation is needed to implement the new scheme.

Clause 264 provides the Secretary of State with the power to make secondary legislation designating a person who will be required to amend the provisions of a nuclear pension scheme. That is necessary, as at the current time the scheme rules limit the NDA’s ability to make changes to pension scheme arrangements. Clause 264 uses the phrase “relevant nuclear pension scheme” to describe the types of schemes that a designated person could be required to amend by virtue of that amendment. Clause 265 explains what is meant by that phrase. Clause 265 also clarifies the UK Atomic Energy Authority pension schemes and pension schemes that benefit persons specified in the Public Service Pensions Act 2013 are not relevant pension schemes.

Clause 266 relates to the provision of information. In order to implement the proposed pension reforms, the NDA—and, in the case of the MEG-ESPS, Magnox Limited—will need information from others. Clause 266 gives a person who has been required to amend a relevant nuclear pension scheme the power to require persons holding any information they might reasonably require to provide that information. That could include the number of members in a pension scheme, and the salaries and ages of those members.

Data protection legislation may still prevent the information from being shared. The clause specifies, however, that in making that assessment, the requirement to disclose imposed by the clause must be taken into account. The clause also provides that disclosure does not constitute a breach of confidence or breach of any other restriction on the disclosure of information.

Clause 267 sets out definitions relevant to the clauses about amendments of relevant nuclear pension schemes. Clause 268 relates to the protection that is in place that would currently block any change of pension. Although the reformed pension to be provided to affected NDA workers is still excellent, it has always been clear that the reforms to public sector pensions would result in lower levels of benefits to members than is currently the case. Although that is the acknowledged effect of Government policy in this area, it does bring it into conflict with existing legislation. Both schedule 8 of the Energy Act 2004 and regulations made under schedules 14 and 15 of the Electricity Act 1989 effectively mean that any change to NDA pensions must be “no less favourable”.

Clause 268 effectively expands a power made under an earlier clause, providing the ability for regulations made by the Secretary of State to amend or disapply schedule 8 of the Energy Act 2004 and regulations made under schedules 14 and 15 of the Electricity Act 1989. Given that this is not a hybrid Bill, we believe it is more appropriate for those powers to be exercised via regulation rather than primary legislation.

Clause 269 relates to the procedure for the regulations under this chapter. The Government believe it is right and proper for regulations under this chapter to be subject to the affirmative procedure. We also believe that these regulations should not be subject to the hybrid instrument procedure. There has been considerable consultation with those affected, and the policy is in line with pension reform across the public sector.

[Kerry McCarthy]

I welcome the Minister’s assurances and his offer to meet the unions to discuss this point. I have spent a lot time looking at the wording. Although I agree that it could be interpreted in the way the Minister says, that is arguable. I still feel it would be best to have clarity in the Bill and, therefore, would like to press the amendment to a vote.

Question put, That the amendment be made.

--- Later in debate ---

[Andrew Bowie]

That is demonstrated by the clause, and that is why I believe that now is not the right time to make the changes suggested by the Labour party. We will oppose the clause.

Finally, I will address clauses 272 and 273 on community energy, which I also oppose. I recognise that several Members spoke in support of these clauses on Second Reading. However, the Government continue to believe that this is a commercial matter that should be left to suppliers, and further work is needed before considering whether primary legislation is needed.

In evidence submitted to the Committee and published on 13 June, Energy UK set out its in-principle support, much like the Government, for community energy, and recognised the role that it will play in our energy system. However, it asks that

“these measures be removed to give the Government, the regulator, and the industry time to fully consider the best approach to integrating community energy effectively, protecting consumers and preventing additional costs being added to all consumers’ energy bills on behalf of a currently small portion of the population.”

[Kerry McCarthy]

Does the Minister accept that the wording inserted in the Bill by the Lords reflects the exact same wording of a private Member’s Bill—I think it is the Local Electricity Bill—that more than 120 Conservative MPs previously pledged to support? I checked to see whether any members of the Committee supported that Bill, and apparently the hon. Members for Hyndburn and for West Aberdeenshire and Kincardine were among those 120 MPs. I think the rest of the Committee gets off the hook on that. Would the Minister like to explain why he has changed his mind?

[Andrew Bowie]

The hon. Lady is hearing me explain at great length why the position of the Government is what it is.

Clause 272 seeks a minimum export guarantee scheme. Community energy projects can already access power purchase agreements, which are arrangements for the continuous purchase of power over a given period with market-reflective prices. For example, Younity, a joint venture between Octopus and Midcounties Co-operative, already purchases electricity from more than 200 community groups of all sizes. It has PPAs of varying contract lengths, from six months to five years. Renewable Exchange has also enabled more than 100 community projects to sell electricity via PPAs since 2018.

When we introduced the smart export guarantee, we consciously moved from a consumer-funded subsidy model to a competitive market-based system with cost-reflective pricing. That was in line with the vision to meet our net zero commitments at the lowest net cost to UK taxpayers, consumers and businesses. Introducing a fixed price would be a step backwards, as it requires all energy consumers to pay more than the market price for electricity to subside local communities that benefit from community energy projects. An electricity export guarantee indexed to the wholesale price is inconsistent with the Government’s aim to decouple renewable generation from a wholesale price linked to the marginal cost, usually fossil fuel generation or gas. A static export price could also dampen price signals needed in the system, for example, in the use of intraday batteries.

History suggests that such a support scheme would have only a minimal impact on deployment. For example, deployment of community energy projects over the final five years of the much more generous feed-in tariff subsidy scheme was still very low. These projects are also typically more expensive than larger utility-scale renewable projects, with small solar and onshore wind projects between 50% and 70% more expensive. The proposal would be mandatory for suppliers with more than 150,000 consumers, and would therefore introduce a huge new administrative burden. Suppliers would face the additional one-off costs of putting in place process and IT infrastructure, as well as ongoing costs of managing the scheme, which would be passed on to consumers in higher bills. It is likely that it will disproportionately impact smaller suppliers, sitting just above the 150,000 customer threshold.

Similarly, on clause 273 it is the Government’s view that a local tariff is unlikely to result in a better price for consumers. Suppliers would incur potentially significant costs in setting up and delivering the scheme. They would also have to recoup the additional costs, which we anticipate would be via the service fee and would therefore be recoverable only from local consumers. A small-scale low-carbon generator is also unlikely to guarantee a supply of electricity to local consumers at all times. Suppliers would have to buy additional wholesale energy to cover all local consumer demand, while continuing to charge for all other supply costs incurred. The local tariff would also need to reflect the export price paid to the generator. Presumably that is intended to ensure that local consumers benefit from cheaper export prices, but it would create an unintended outcome whereby higher export prices benefit the generator and increase the tariff price.

I hope that I have explained at length why I, as the Member for West Aberdeenshire and Kincardine, am espousing this position. I reassure the Committee that I am working with my officials to explore what other credible options are available to support the community energy sector. Indeed, work continues as we speak. We are taking these issues seriously, but for the reasons that I have provided I will oppose the clauses.