Energy Prices Bill

Lord Callanan Excerpts

2nd reading
Wednesday 19th October 2022 Lords Chamber

Moved by

[Lord Callanan]

That the Bill be read a second time.

14th Report from the Delegated Powers Committee, 4th Report from the Constitution Committee

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, Russia’s illegal invasion of Ukraine and its impact on global energy markets have affected families and businesses up and down this country. As we approach winter, this Government have made bold decisions so that homes are kept warm and businesses are kept open. On 8 September, the Prime Minister set out a comprehensive package to tackle rising energy prices. As part of this, she announced that we would bring forward emergency legislation, which is before noble Lords today.

I thank the Opposition and the whole House for their constructive engagement to expedite the Bill. Providing support to those who need it is a shared value across all parties, as seen in Monday’s proceedings in the other place. I also thank the DPRRC for its report on the Bill, published this morning. I welcome its constructive comments on ensuring that the powers in the Bill are appropriately drafted and justified. We will of course be responding to the committee shortly; however, it is important that we remember the context of the Bill and ensure that consumers are able to benefit from the Bill as intended and as I will set out.

The Energy Prices Bill means that consumers will pay a fairer price for their electricity and that no one is left behind. First, the Bill provides the legislative footing for the energy price guarantee, which will protect UK households from soaring energy prices. By reducing the unit cost of electricity and gas, the typical household will have the equivalent of an annual bill of £2,500. Effective from 1 October this year to the end of March next year, the energy price guarantee will provide domestic consumers in Great Britain and Northern Ireland with crucial support in the winter months.

To ensure that support is available up and down the country, an alternative fuel payment will provide a one-off £100 payment to UK households that use alternative fuels for heating. Heat network consumers will also receive a one-off £100 payment. We are exploring delivery routes for the alternative fuel payments in Northern Ireland as well.

The energy bills support scheme was announced earlier this year to provide £400 to support households. I confirm that, through this Bill, households in Northern Ireland will be able to receive equivalent support to those in Great Britain.

The Bill also provides support for non-domestic consumers, such as businesses, charities, schools and hospitals. The energy bill relief scheme will enable the Government to provide financial assistance to all eligible non-domestic organisations in Great Britain and Northern Ireland over the coming winter period. Bills will be reduced by a new government-supported price, which is less than half the wholesale prices anticipated this winter. Discounts apply from 1 October 2022, with an initial period of six months.

In three months, the Government will publish a review to consider how to continue support for non-domestic users, particularly those most vulnerable to energy price rises. The Bill provides that the scheme may be extended to those deemed eligible for up to four consecutive six-month periods. For non-domestic consumers who use heating oil or alternative fuels instead of gas, the Bill will also introduce a non-domestic alternative fuels payment. This support will likely take the form of a flat-rate payment delivered via electricity bills.

This legislation strengthens previous action by requiring, rather than expecting, landlords and other intermediaries to pass on the energy price support they receive to end-users, such as tenants, as appropriate. This applies to the energy price guarantee, to the energy bills support scheme and to the energy bill relief scheme. The Bill will also ensure that heat networks benefiting from the energy bill relief scheme pass through cost savings to their consumers. The Bill will provide for the appointment of an alternative dispute resolution body to handle complaints raised by consumers against their heat network if it has not complied with those pass-through requirements.

Finally, we must protect consumers from paying excessive amounts for this low-cost electricity, while ensuring that no firms are unduly profiting from Russia’s illegal invasion of Ukraine. Wholesale electricity prices are currently set by gas-fired generation, which is the most expensive form of generation. This means that consumers are having to pay over the odds for cheap low-carbon generation. The powers in the Bill will allow us to introduce a temporary cost-plus revenue limit for low-carbon generators that are not currently covered by a contract for difference. This will allow generators to cover their costs and receive an appropriate revenue that reflects their investment commitment and risk profile. The precise mechanisms will be subject to a consultation to be launched shortly, ahead of it coming into force from the start of 2023.

I stress that this is not a windfall tax; this is a targeted intervention to deal with a specific problem that has occurred in the wholesale electricity market. It will help to break the link between abnormally high gas prices and the cost to consumers of low-carbon electricity. We are also legislating for powers that will allow us to offer a contract for difference to existing generators not currently covered by the Government’s existing contracts for difference scheme.

[Lord Liddle (Lab)]

I raised this point about a windfall tax last week, so I thought I would be justified in intervening today. There is an argument that a windfall tax, which is predictable because the suppliers of electricity know what bills they are going to have to pay, is better in terms of promoting long-term investment in renewables, which we desperately need, than this cost-plus arrangement, which is also variable, as I understand it, by ministerial order. That provides no certainty for potential investment.

[Lord Callanan (Con)]

I am not sure the noble Lord is correct. The reason we have selected this mechanism is that it is a complicated picture; of course, many suppliers would no doubt argue that they have sold ahead their production to energy retailers, et cetera, and therefore the precise circumstances of every individual supplier will determine the arrangements that will be appropriate for them. It is not a windfall tax because a windfall tax would be levied on profits and would go to the Exchequer. This money clearly does not go near the Exchequer; it will go directly to consumers in the form of lower bills.

I mentioned that we will also introduce a contract for difference to existing generators that are not currently covered by the Government’s existing contracts for difference scheme. We hope that many of these suppliers will move voluntarily to contracts for difference payments, which will provide them with secure long-term revenue, and therefore there will be no need to impose this cost-plus mechanism.

The voluntary contract would grant existing generators longer-term revenue certainty and safeguard consumers from future price rises. This Bill is part of the swift, decisive action we are taking to deliver affordable and secure energy in the UK. There are no cost-free actions, but I think the whole House agrees that it would be wrong to do nothing. This Government will always act decisively to support households and help businesses grow. The consequences of not acting now would mean worse economic outcomes going forward; this Bill will provide certainty, reduce inflation and support economic growth. I would welcome the support of noble Lords in ensuring the Bill becomes law and therefore commend it to the House.

--- Later in debate ---

[Lord Callanan (Con)]

I thank all noble Lords for their contributions to this important debate today. I will respond to as many as possible of the issues that were raised in the time that is available to me.

I start by briefly reminding noble Lords of the importance of the Bill. Russia’s illegal war in Ukraine has led to a global energy crisis, and the Government are taking urgent action now to support households and businesses across the UK which would otherwise face significant financial difficulties this winter. I know that many speakers in the debate recognised that. This legislation will ensure that households, businesses and other bodies such as charities and public organisations—and indeed churches—receive the financial support that they need by providing the framework to deliver the Government’s energy support package. In so doing, the Bill will help drive down inflation and support economic growth.

I turn to points raised by noble Lords in their contributions. First, I thank the noble Lord, Lord Lennie, and the noble Baroness, Lady Blake, for their letter that I received this morning on the Energy Security Bill. I will respond to them in writing shortly, but I assure the House that the government remain committed to the important measures in that Bill to deliver change in the energy system over the longer term. We have to deal with the short-term crisis but we are not forgetting the longer-term context, and many of the measures in that Bill are to ensure that changes are made in the regulations that will benefit us all in the long term.

In the meantime, we are facing a global energy crisis, and we must ensure that we prioritise delivering the measures in this Bill to provide that much-needed support to consumers. I will say a few words about why it is so important to get this legislation passed soon. I thank the noble Baroness, Lady Worthington, and the right reverend Prelate the Bishop of Manchester for raising the important issue of the speed of this legislation; I readily accept that we are going through it extremely rapidly.

Households and businesses face rising energy prices, and it is essential that this legislation and subsequent secondary legislation that will be laid under it is in place by the end of this month. This is to allow for urgent financial assistance for householders, businesses and other organisations across the UK ahead of the winter, and particularly from the start of November.

Building on the DPRRC’s report, the noble Lords, Lord Lennie, Lord Teverson, Lord Foster and Lord Grantchester, and the noble Baronesses, Lady Worthington and Lady Young, raised concerns about the delegated powers in the Bill. Again, I pay tribute to the work of the DPRRC and thank the committee for its report, which I will also respond to shortly. The Bill takes a relatively limited number of powers but I readily accept that they are broad ones. They are essential for ensuring that these crucial support schemes can be stood up at pace. The House will appreciate the speed at which this measure has been drafted. I pay tribute to the exemplary work of the officials involved in delivering it; it has involved lots of late nights and weekend working for them, for which I thank them. It is essential that these measures are delivered as intended. To be frank with noble Lords, these powers will allow us to do this with the appropriate scrutiny.

As I said in my introduction, the vast majority of the powers in the Bill are effectively time-limited through either direct sunsetting—normally, noble Lords are calling on me to sunset powers—their link to other powers in the Bill, or indeed the duration of this energy crisis. The ability to extend time limits ensures that we have sufficient scope if we need to change them over time. I assure the House that noble Lords will of course have an opportunity for further scrutiny on the details of those schemes via the secondary legislation route, much of which is subject to the affirmative procedure.

A number of noble Lords raised concerns about the powers in Clauses 21 and 22, specifically powers to modify licences and give direction; those concerns were also reflected in the DPRRC’s report. In my view, these powers are necessary to facilitate the delivery of a number of support schemes, including the Northern Ireland energy bills support scheme and the alternative fuel payment for domestic and, potentially, non-domestic customers as well. Let me make it clear to the House that, under the terms of the Bill, Clauses 21 and 22 must be used in response to the current energy crisis. Using the powers in either clause in relation to action under any of the other powers in the Bill is in effect time- limited, as these powers are themselves time-limited.

As expected, and as always happens in these debates, many noble Lords raised the important issue of energy efficiency. A crisis gives even greater urgency for action to make homes more energy efficient in order to reduce energy bills and, crucially, to tackle fuel poverty. That is why the Government are investing £12 billion in our Help to Heat scheme, including £1.5 billion to upgrade around 130,000 social housing and low-income properties in England. I was able to launch an additional £800 million of that scheme in discussions with housing associations and local authorities only last week.

The Government have also announced further support on energy efficiency through the ECO Plus measures. This scheme was announced in the mini-Budget—it is one of the few measures from the mini-Budget to have survived so far. It will help hundreds of thousands of households to reduce their energy bills by targeting that support to the most vulnerable. Of course, as it is an obligation, we will consult on the detailed policy design of ECO Plus shortly; I am sure that noble Lords who take an interest in these matters will want to contribute. We hope to have the scheme up and running by April next year.

In addition, our energy security strategy sets out further commitments to support property owners, including facilitating low-cost finance from retail lenders to help consumers upgrade their properties at low cost. This includes zero-rating VAT on the installation of insulation and low-carbon heating for the next five years. That will potentially save up to £2,000 on the cost of an air source heat pump—should the noble Baroness, Lady Young of Old Scone, want to move in that direction.

The noble Lord, Lord Lennie, and the noble Baroness, Lady Young, raised the cost-plus revenue limit. The Government recognise the importance of dispatchable and baseload generation for security of supply. The low-carbon technologies that can deliver these types of power, such as biomass and nuclear, tend to have higher input costs. This is being considered as part of the detailed policy design for the cost-plus revenue limit. We intend the limit to last only for as long as it is strictly necessary. A number of noble Lords referred to the five-year sunset provision. That would allow the Government to respond to the immediate effects of high wholesale prices on consumers while ensuring their ongoing protection if gas prices remain abnormally high for a prolonged period beyond current expectations.

[Lord Teverson (LD)]

Can the Minister clarify that renewables on the cost-plus, whether hydro, solar, wind, AD or whatever, will be assessed separately within those different sectors, rather than it being an across-the-board average?

[Lord Callanan (Con)]

That goes back to the point I made in my introduction. There are many different circumstances facing different providers. Some of them have pointed out quite loudly that they have sold their power in long-term contracts, et cetera, so it varies from provider to provider. However, the noble Lord gives me the opportunity to say that the precise mechanics of the temporary cost-plus revenue limit will of course be subject to a full consultation, which we will launch shortly.

The noble Baroness, Lady Worthington, raised important issues on who should bear the cost of the measures. The energy profits levy on oil and gas and the cost-plus revenue limit that have been announced for low-carbon generators will help to fund these schemes. The scale of the crisis means that the sums involved are beyond those two mechanisms so higher borrowing will be necessary to pay for this temporary support, and it is right that we use all the available tools to support businesses through this crisis and to spread the costs over time.

The right reverend Prelate the Bishop of Manchester, the noble Baroness, Lady Young—

[Baroness Worthington (CB)]

I am sorry to interrupt when the Minister is trying to finish, but on a point of clarification, with the profits levy, up to 85% of that tax can be defrayed by the Government investing in North Sea oil and gas, keeping us hooked on a volatile and unpredictable source of fossil fuels, whereas this cost-plus recovery has no provision for generators to invest in cleaner power. Why is there not equal treatment?

[Lord Callanan (Con)]

There are separate provisions allowing generators to invest in clean power. The aforementioned contracts for difference scheme is doing exactly that, providing the incentive for them to invest in clean power. We have increased the number of CfD rounds that we have launched. As the noble Lord, Lord Teverson, said, this has proved to be an immensely successful scheme. I pay tribute to the officials who designed it. It has been so successful that most of the rest of Europe is proposing to adopt a very similar scheme for their own wind generation. It is precisely because that mechanism exists and provides guaranteed revenue for their investments that those incentives that the noble Baroness refers to already exist.

The right reverend Prelate the Bishop of Manchester, the noble Baroness, Lady Young, and the noble Lord, Lord Grantchester, all raised important points regarding the default tariff cap. The energy price guarantee will now determine the prices that households pay for their energy. However, we are retaining the price cap to help deliver this energy price guarantee. Clause 20 will ensure that Ofgem continues to calculate the cap level to determine what it costs an efficient energy supplier to provide a household with gas and/or electricity. Of course, this will not determine the prices that householders pay, but it will enable the Government to identify what level of support is needed to deliver the prices in this energy price guarantee. The price cap is a mechanism that has been proven to prevent excessive charging and to reflect the real costs of supplying energy. Retaining it will ensure that suppliers price in line with the energy price guarantee and that public funds are used efficiently.

The noble Lord, Lord Foster, gave his view that the Bill treats renewables less favourably than oil and gas. No energy firms, however they produce, should be profiting unduly from Russia’s war in Ukraine, whether they generate low-carbon or fossil-fuel energy. Current price levels in electricity markets are far higher than any energy firm could possibly have envisaged or forecast, or would have predicted they would need, to continue investing in renewables.

Low-carbon electricity generation from renewables and nuclear will be key to securing more low-cost homegrown energy, which is why we continue to support investments in the sector. I remind noble Lords of the point I have made continuously: the schemes have been extremely successful. We have the highest proportion of offshore wind energy in Europe, by far. We have the second-highest proportion in the world, and we have extremely ambitious plans to continue investing and producing more of it, precisely because the scheme has proven so successful and is delivering much cheaper power. It is our flagship scheme and it has worked a treat, as I said—so successfully that other countries are now adopting it. In 2023, the scheme will move to annual auctions, helping to further accelerate the deployment of clean low-cost generation, which is something that I know all contributors will welcome.

The energy price guarantee and the energy bill relief scheme support millions of householders and businesses with rising energy costs. The Chancellor made clear that they will continue to do so from now until next April. Looking beyond that, I am sure noble Lords would be interested to know that the Prime Minister and Chancellor have agreed that it would be irresponsible for the Government to continue exposing the public finances to unlimited volatility of international gas prices. Therefore, it is the Government’s intention that, after this winter, support is better focused on the most vulnerable households and those least able to pay, with greater incentives to improve energy efficiency.

The noble Lord, Lord Foster, raised issues on the essential importance of encouraging solar energy use in households. I completely agree with the noble Lord. We are committed to solar power, which not only is good for the environment but at the moment represents the cheapest way to generate electricity in the UK, albeit intermittently. The British Energy Security Strategy sets out an expectation of 70 gigawatts installed solar capacity in the UK by 2035. To achieve that and meet this increased ambition, we will need a significant increase in both ground-mounted and rooftop solar in the 2020s and beyond. The noble Lord will be pleased to know that there is a healthy pipeline of ground-mounted projects, currently amounting to around 19 gigawatts across Great Britain, which either are in scoping or have already submitted planning applications.

The noble Baroness, Lady Worthington, asked me yesterday and again today about our negotiations with Norway.

[Lord Foster of Bath (LD)]

I apologise; I thought the Minister was going to continue points about solar. Before he finishes, could he respond to the question I asked on the Environment Secretary’s plans to stop further solar farms? Could he update us on that situation?

[Lord Callanan (Con)]

I have referred to the pipeline of solar for which planning permission has already been granted or that is in scope. I think the noble Lord can see that there is a considerable pipeline of solar plants that are already coming on stream and that our target remains in place.

[Baroness Young of Old Scone (Lab)]

Would the Minister give way on that point? I hope we can depend on him to make the point to the Secretary of State for the Environment that, if he had a proper land use strategy, he would not have a conflict between wind farms, solar farms and agricultural land. We would have a proper planned process to use our land wisely.

[Lord Callanan (Con)]

I thank the noble Baroness for that point. It is now on the record, and I will ensure that it is drawn to the attention of the Secretary of State for the Environment. In answer to the point made by the noble Baroness, Lady Worthington, about our negotiations with Norway, following the successful vaccine task force, we have created a new energy supply task force under the leadership of the excellent lady Maddie McTernan. She had such success with vaccines that we have now given her an even tougher challenge to solve. She and her team are already negotiating new long-term energy contracts with domestic and international gas suppliers to bring down the cost of the intervention immediately. The Government are opening negotiations with domestic and international gas suppliers on the prospects of longer term, lower cost gas contracts.

The right reverend Prelate the Bishop of Manchester was wrong to question whether the Bill should include suspension of green levies. In fact, we have not suspended the green levies in Great Britain; £150 of the savings will be delivered by temporarily suspending environmental and social costs being passed on to consumers. They were levied on bills, but they will now be directly funded by the Exchequer under the energy price guarantee. The Whip is telling me that I am running out of time, so apologies if I do not manage to get all the remaining points in. Those costs will be transferred to the Exchequer, so they are not borne by consumers, but they are present and still funded to help us benefit from low-carbon electricity generation.

The noble Baroness, Lady Bennett, asked about community-owned energy schemes, and we recognise the role community and locally owned renewable energy schemes can and do play in supporting the UK’s national net zero targets. These projects help encourage innovation and investment as well as community engagement with the energy challenge.

The noble Baroness, Lady Young, asked about the £100 alternative fuel payment, as did the noble Lord, Lord Rogan. This is designed by reference to past increases in the cost of heating oil in the year to October 2022. We will be monitoring the price of heating oil and other alternative fuels closely in the months ahead to see whether further payments are required at a future point in time. The noble Baroness also asked about the off-grid gas consultation. As I said to her in our conversation, we consulted last year on plans to phase out the use of fossil fuel heating on the gas grid. We have not made any decisions yet on how to move forward. The noble Baroness will be the first to know when those decisions are made and announced.

If the House will permit me just a little bit of time to say something on the important subject of Northern Ireland, I would like to touch on our equivalent support for Northern Ireland, in response to the noble Lord, Lord Rogan. In the absence of an Executive, the UK Government are taking steps to ensure that households and businesses across the whole of the UK are able to access support to manage their energy bills. In doing so we are ensuring that households and non-domestic consumers in Northern Ireland receive an equivalent level of support to those in Great Britain. I am sure that will reassure the noble Lord.

To conclude, I am encouraged by the support for the Bill, and I thank, in particular, noble Lords in the Opposition for that. I realise, of course, that on all the various subjects noble Lords have many other points that they wish to make and to put forward, but I think there is general support across the House for the Bill. As always, I look forward to continuing constructive engagement as the Bill progresses through your Lordships’ House.

Bill read a second time and committed to a Committee of the Whole House.

Energy Prices Bill

Lord Callanan Excerpts

Committee stage
Monday 24th October 2022 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

I thank all noble Lords who spoke on this group. I understand many of the points that they made.

Let me first respond to the interesting points the noble Lord, Lord Rooker, made. I honestly do not think there has been any radical change from when he was a Minister. When he was speaking, I was racking my brains trying to remember. I have been responsible for bringing a lot of Bills to this House, taking them through, developing them in three different departments, and I honestly cannot remember ever having a direct meeting with OPC to give it the so-called instructions the noble Lord referred to. Clearly in PBL meetings, which he will be familiar with, they attend and report to PBL. However, I suspect my experience has been very similar to his experience as a Minister, in that Ministers are involved in discussing policy intent with the department, officials and department lawyers. The instructions to parliamentary counsel are given by department lawyers, obviously acting on ministerial direction and steers about what we want to achieve through certain policies. I can only speak for myself, but I think the noble Lord is saying “a conspiracy too far” here. I genuinely do not think things have changed rapidly since his time.

I will respond briefly to the noble Baroness, Lady Jones of Moulsecoomb, who posed me two questions. She asked, “Will this Bill will help people with their bills?” Absolutely, that is the whole purpose of it. It is to provide a subsidy to people for their bills, albeit indirectly via the suppliers, because otherwise they would be incredibly high, as the noble Baroness knows. Secondly, let me address her further conspiracy theories about this somehow being a hidden subsidy to the oil and gas companies. The noble Baroness is completely wrong. The oil and gas companies are not in scope of this Bill at all and there are no subsidies involved.

[Baroness Jones of Moulsecoomb (GP)]

I am so sorry to interrupt, but I would like the Minister to withdraw the word “conspiracy”. I have legitimate and reasonable fears. It is not a conspiracy; it is actual fact.

[Lord Callanan (Con)]

It is not a fact. The noble Baroness is absolutely wrong. Anyway, I am happy to take her reassurance on that. She was posing the question and I am giving her a direct answer. There are no subsidies involved for oil and gas companies in this Bill. They are not even in scope of the Bill. To answer her question directly, it is about direct support for people to help them with their electricity and gas bills.

Group 1 speaks to delegated powers in the Bill, including procedure, sun-setting use and scrutiny. I thank all those who spoke, those who tabled their thoughtful, well-intentioned amendments and the noble Lords, Lord Cunningham and Lord Rooker, who spoke on them. I also pay tribute, as the noble Lord, Lord Rooker, did, to the work of the DPRRC for its report on the Bill published last week. I have carefully considered and responded to it.

The first set of amendments would make certain regulations in the Bill subject to the affirmative procedure. I will go through all of them in turn. Amendments 1, 2, 3 and 4 relate to the energy price guarantee schemes in Great Britain and Northern Ireland. The Committee will be aware that the schemes have been operational from the first of this month. I am happy to tell the Committee that the regulations in the Bill to designate the schemes will be extremely brief and will simply identify scheme documents. They will therefore be technical in nature and I deem them perfectly appropriate to be subject to the negative procedure.

--- Later in debate ---

[Lord Callanan (Con)]

I accept what the noble Lord says about it being astonishingly wide but, if he will have a little patience, I will quote some examples to him shortly, and he will see that they are not the biggest items that he can think of.

The powers in Clauses 21 and 22 have been included in the Bill to provide government with the ability to react at pace to unforeseen delivery barriers. Making them subject to the affirmative procedure could delay the provision of support to consumers this winter and put at risk the point when energy suppliers have certainty over the final delivery requirements.

The approach that the Bill takes to parliamentary procedure is not unprecedented: for example, a direction under the Electricity Act 1989 has already been used to deliver the energy bills support scheme in Britain. Furthermore, the powers in Clauses 21 and 22 may be used only “in response to” the current energy crisis,

“or in connection with the Act”

or with regulations or schemes made under it. They are therefore time-constrained in that respect. Amendment 39 would reduce the sunsetting provision for powers under the cost plus revenue limit from five years to three and a half years. We consider the five-year sunset appropriate for the Government to respond to the immediate effects of the energy crisis, while ensuring ongoing protection for consumers if gas prices remain abnormally high for a prolonged period. The upcoming consultation will allow the Government to further define the intended use of this power.

Amendments 40, 41 and 42 seek to sunset the powers under Clauses 21 and 22 to two years, with an extension permissible by affirmative regulations. The Bill already makes clear that Clauses 21 and 22 must be used only “in response to” the current energy crisis, or “in connection with” the Bill or with regulations or schemes made under it. Generally, those other provisions in the Bill are already subject to sunsetting. A crisis is, by its nature, something extraordinary and temporary. I submit that the circumstances and timing in which the Government can use this power are therefore already appropriately constrained by the Bill.

Three amendments have also been tabled that relate to requirements to consult. Amendment 19

“would require the Secretary of State to consult before utilising … powers”

on the temporary cost plus revenue limit. It is the Government’s clear commitment to consult as soon as possible; therefore, we do not believe that this amendment is necessary.

Amendment 21 would require the Secretary of State to consult on pass-through requirements on intermediaries. As the schemes are being stood up at pace, this requirement could delay much-needed support being passed through to consumers this winter, and therefore could be positively harmful.

Amendment 23 would require modifications to licences under Clause 21 to be subject to consultation with the relevant bodies. As I mentioned, this clause ensures the Government’s ability to react at pace to unforeseen barriers to delivering the schemes. A requirement to consult would, again, simply delay our ability to deliver the schemes effectively and quickly, and therefore would be counterproductive.

Finally, a set of amendments have also been tabled which would remove certain powers from the Bill, including the opposition of the noble Lord, Lord Rooker, to Clause 22 standing part of the Bill. Clause 22 and its powers enable the Government to issue directions to energy licence holders and the Northern Ireland regulator in connection with schemes under the Bill and in response to the energy crises. The ability to issue directions of a general character is necessary to deliver support under the Bill and to tackle barriers to their implementation. Amendment 26 would limit the Secretary of State’s powers to issue directions of a “general character” to those only of a “specific” character. Amendment 28 would remove Clause 22, which provides that, when a direction to a person conflicts with existing requirements in an “enactment or instrument”, such requirements should be “disregarded”. Currently, we envision limited circumstances in which these circumstances will arise.

I will now give the example asked for by the noble Lord, Lord Kerr: the Government may need to issue a direction to the Utility Regulator in Northern Ireland to ensure that the timing of electricity regulated tariff reviews is aligned with similar reviews in Great Britain. This may be necessary to ensure effective administration of the energy price guarantee in Great Britain and Northern Ireland. In doing so, it may be necessary to rely on Clause 22 to resolve any potential conflict between the terms of the direction and the statutory requirements of independence applying to the energy regulators in Great Britain and Northern Ireland, and any existing requirements as to timing in the supplier’s licences, to enable all parties to comply with the direction for tariff review alignment. Without this, licence holders or the Northern Ireland regulator may be uncertain about their legal position, and this could have the effect of households and businesses missing out on appropriate and timely support. This plays to the noble Lord’s points. I realise that there is a suspicion that there is some malign intent behind these clauses, but they are, essentially, designed to deliver support at pace in a fast-moving environment and to provide the Secretary of the State with the powers to ensure that this happens in a legally correct manner. I reassure the noble Lord that there is no hidden agenda here.

[Lord Kerr of Kinlochard (CB)]

I plead innocent to any imputation of malign intent, but it is an astonishingly wide power. The Minister’s explanation related it solely to Northern Ireland. It is not limited as the Bill is drafted to Northern Ireland, but it would be relatively easy by combining subsections (3) and (5) so to limit it. That would cause me to worry much less about this apparently extraordinarily wide-ranging power to overrule the law of the land or all existing regulation without making a new regulation.

[Lord Callanan (Con)]

The noble Lord asked me for an example. I have provided him with an example of one means that we envisage may be necessary. There could be other licensed modifications that we have not envisaged yet. As I said, this legislation has been drawn up at pace, using the excellent resources of lawyers and parliamentary counsel. It has been enacted very quickly. This is a clause that we think is necessary in order to, if you like, cover something that we have not thought of and that we have missed out in the Bill, but it is limited to use in the specific circumstances that the Bill requires.

[Lord Rooker (Lab)]

Just for the record, Amendment 28 refers to subsection (5). Does the Minister think, and is it his advice, that subsection (5) is a Henry VIII clause or not?

[Lord Callanan (Con)]

It is a power to give directions. Whether it qualifies as a Henry VIII power, I suppose depends on your definition of a Henry VIII power. Perhaps I may consult the lawyers and give the noble Lord a more detailed answer.

Additionally, there may be other circumstances—as I just said to the noble Lord—not yet known in which Clause 22(5) will be necessary to enable directions and the schemes that they are giving effect to to be implemented effectively with legal certainty and without undue delay. As I said, it is not unprecedented. A similar measure was included in the 1989 electricity regulations which we have just used to help implement this provision, and there has not been widespread abuse by a number of Secretaries of State from both parties who have been in office with that existing power since then. I understand noble Lords’ concerns, but history demonstrates that this is not unprecedented and noble Lords’ concerns are unwarranted.

Regarding Amendments 31 to 35, it is not uncommon for highly technical schemes to use tertiary legislation to provide for the detail of schemes, or for secondary legislation to enable directions to be made or provide that functions may be exercisable by persons named within them. These powers are crucial so that payments can be made for the energy bill relief scheme as quickly as possible—as I said, we are acting at pace, and I am grateful for the support of noble Lords to get this legislation through at pace—and to enable us to make any necessary changes to the technical nature and detail of the scheme as it becomes operational.

It is always the Government’s intention that delegated powers are appropriately limited and justified. Many powers in this Bill are already subject to the affirmative procedure and are expressly time limited. Other powers are subject to the requirement to use them in relation to the energy crises or in connection with other time-limited provisions in the Bill.

I return to the question from the noble Lord, Lord Rooker. I am told that it is not a Henry VIII power, but it has the same effect.

[Noble Lords]

Oh!

[Lord Callanan (Con)]

I knew it was a mistake to ask the lawyers for an answer, but there we go. Whenever I do these Bills, I always understand why I went into engineering and not the law when I did my degree.

However, I also emphasise the urgency of this Bill, which I believe the whole House understands, and I am grateful for Members’ support. Families and businesses up and down the country are hugely exposed to the energy crisis. It is crucial that the schemes—and I think all noble Lords share this aim—are rolled out and delivered in the way they are intended as quickly as possible and without delay. I would contend that provisions in the Bill, including the breadth of certain powers, enable to us to do just that.

I hope that I have been able to provide the House with sufficient assurances about how the Government will use the powers that we seek to take and hope that the noble Lord will be able to withdraw his amendment.

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[Lord Callanan (Con)]

The noble Lord makes a good point. As he correctly observes, it is difficult to implement in practice because by their very nature, those households do not have a relationship with their energy supplier. We are urgently looking at a delivery mechanism, with all the appropriate protections against fraud et cetera. Delivery is likely to be through local authorities, but we are still working on a precise mechanism and as soon as we have more details, we will update the House.

[Lord Teverson (LD)]

I thank the Minister for that. If you cannot do it directly through Ministers, then through local authorities is probably the right way to do it. I know that Cornwall council is already starting to make some preparations in that area. I beg leave to withdraw Amendment 5.

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[Lord Callanan (Con)]

My Lords, I thank the noble Lords for their interventions. This group includes amendments relating to energy efficiency and energy savings which would help to reduce energy costs and, of course, ensure energy supply for vulnerable consumers, which I will come on to shortly. I completely agree with noble Lords that improving the energy performance of domestic and non-domestic properties is vital in the context of affordability, energy security and fuel poverty.

Amendment 8, tabled by the noble Lords, Lord Teverson, Lord Foster and Lord McNicol, would require the Secretary of State to produce a report on the effectiveness of energy efficiency programmes in reducing energy costs. The Government already evaluate the impact of their energy efficiency programmes and publish extensive energy statistics and evaluation reports as a matter of course. There really is no shortage of published materials on these matters, and I believe that they sufficiently cover the intention of this amendment. Bedtime reading for noble Lords interested in this matter includes the Annual Fuel Poverty Statistics Report: 2021, the Household Energy Efficiency Statistics, and the English Housing Survey, commissioned annually, on housing circumstances, condition and energy efficiency in England. Therefore, I am not sure there is any more information we could provide noble Lords with, and we believe this amendment to be unnecessary.

The noble Lord, Lord Teverson, also asked about a government public campaign on energy demand reduction. As I have mentioned in this House before, I have been working with officials and we have just launched our new website on GOV.UK—we have migrated the SEA site over to the government website and updated it. We now provide home owners with a kind of home energy MOT that gives impartial recommendations and could help them save hundreds of pounds a year. It is linked to the EPC database, so it provides personalised information on people’s property. Of course, we will be rolling that out further and linking it to several other sources of advice from energy companies, charities and others, to make sure that people have the information they need to make energy efficiency savings.

Amendment 9, tabled by the noble Lord, Lord Teverson, would require the Secretary of State to formally assess the merits of introducing social energy tariffs. I would never accuse the noble Lord of wanting to go back in time or of being stuck in the past, but in 2011 the Government of which his party was a part replaced social tariffs in the energy sector with the warm home discount scheme. The warm home discount is a better scheme than the then social tariff scheme; it provides a consistent level of support, standardised across all the participating energy suppliers. It has been an improvement on the previous arrangement of voluntary social tariffs—not all companies took part in them—where the level of benefits and eligibility varied between energy suppliers.

I hope the noble Lord is not suggesting that we should go back to that time. The warm home discount was introduced as an improvement to the old social tariff system. Any new social tariff would be almost identical to the warm home discount in its design and operation. It is already a mandated, targeted mechanism to reduce the cost of energy for those in vulnerable circumstances, on benefits et cetera. If the noble Lord thinks about it, he will accept that this is a better way of doing essentially the same thing, but I do not disagree at all with the objective. In short, this proposal simply seeks to provide benefits to vulnerable energy consumers that are already provided by the existing warm home discount model, and it would add a further level of complexity to the support system. Certainly, to judge by my postbag from Members of Parliament, it is already quite a complex system with complex eligibility requirements, and I do not think we would be well served by adding to that complexity.

Before I turn to Amendments 10 and 11 from the noble Lord, Lord Foster, let me answer the questions he asked me. He compared ECO4, the current iteration of the energy company obligation, and the forthcoming ECO+, and highlighted that there could be different levels of bill savings in each one. The reason for that is that the energy company obligation is an obligation based on suppliers; it used to be bill funded and is now funded by the Exchequer. One of the elements of the mini-Budget that remains—the last time I looked—is the ECO+ announcement that I worked hard to get in there, and we will shortly be consulting on the way it works. We project lesser bill savings because we want to do more under that scheme. The latest iteration of ECO4 looks at whole-house retrofits, so it is obviously much more expensive and treats fewer whole-house property refits. We have to consult on the details of ECO+, but the idea is that it would provide a smaller number of targeted measures, possibly only two or three, such as loft insulation, cavity wall insulation and heating controls.

Even though they are both called “ECO”, they will be targeted at different parts of the market; indeed I hope ECO+ will be targeted more at the able-to-pay market—those who are not necessarily on benefits and slightly above benefit level but who are still suffering and could take advantage of some support. The noble Lord will not have long to wait. We are working on policy design now and we will consult shortly on how that will work. The House will have an opportunity to debate the regulations and it is my intention to have this up and running as early as possible next year.

The noble Lord also asked me about the PRS regulations. As he correctly said, we consulted on them; we are currently looking at the recommendations and working on a government response. If I am honest with the noble Lord, it is about getting the balance right between wanting to see improvements and operating in the private rented sector and not doing so at the expense of less rented properties being available where there are already shortages in many areas. It is about trying to get the balance right between, on the one hand, obliging landlords to improve their property and, on the other, not wanting to provide them with incentives to leave the market.

Amendment 10 would zero-rate VAT for battery storage when used to store energy generated by solar panels, and measures to reduce energy demand in domestic properties. The installation of central heating system controls and insulation draught stripping already qualify for the zero rate for energy saving materials. The noble Lord will, of course, know that changes to tax policy are considered as part of the Budget process. If he has ever had interactions with the Treasury, he will know that this is important and will be jealously guarded. Tax policy decisions are taken in the context of the Government’s wider fiscal position. It permits sufficient time to consider the impact of any changes on government finances and individual taxpayers. The Treasury would wish him to know that that it keeps all taxes under review and welcomes representations to help inform future decisions on tax policy. I am sure that the noble Lord will want to feed in his views to Treasury, as we all do.

Amendment 11 would make it a legal requirement, as of 31 December 2022, for all fuel-poor households to be upgraded to band C by 2030 and all other households by 2035, with specified exemptions. The Government already have a statutory requirement to upgrade as many fuel-poor homes to band C as is reasonably practicable by 2030, and we have set out in the 2021 fuel poverty strategy how we intend to do so. The Warm Homes and Energy Conservation Act 2000 placed an obligation on the Secretary of State to make regulations that have as their objective the improvement of households in fuel poverty by a target date. Such regulations have been made for each of the devolved nations. The Governments of Scotland, Wales and Northern Ireland have set out their own approaches. This amendment seeks to replicate that requirement. I therefore submit that it is unnecessary.

We remain committed to our aspiration of improving as many homes as possible to EPC C by 2035, where that is cost effective, affordable and practical. However, we need to retain flexibility to choose the best approach, including how and when to introduce reforms, rather than being restricted by a statutory longstop date. This will ensure that we set policy that reflects best practice in the industry and that homeowners will not be required to make upgrades that are sometimes inappropriate for their property.

We move on to the important issues raised by the noble Baronesses, Lady Brinton and Lady Thomas, in Amendment 12, which would require a

“strategic plan for the supply of energy for those who are disabled or seriously ill”.

I know that this is an important issue and one to which the noble Baronesses are deeply committed.

As I think the noble Baroness said, electricity distribution network operators are obliged to maintain priority services registers to ensure that support is given to the most vulnerable customers during power disruption, including those customers who are disabled and rely on electricity-powered devices. Furthermore, as the noble Baroness also said, under the Civil Contingencies Act 2004, network operators are required to liaise with local authorities, strategic co-ordinating groups and third parties such as local resilience forums and partnerships to share information about vulnerable customers and work together to provide welfare support.

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[Baroness Brinton (LD)]

I asked the Minister whether he would meet me, the noble Baroness, Lady Thomas, and representatives of disabled peoples’ organisations. I think I heard him say that this was more appropriately handled by the Cabinet Office. Would he help me to ensure that this same group, including myself, could meet the relevant Minister in the Cabinet Office on this issue?

[Lord Callanan (Con)]

I will certainly reply, although of course I cannot speak for Cabinet Office Ministers. I checked and they do have responsibility for ensuring that the Civil Contingencies Act is followed and implemented. I will certainly do my best to facilitate what the noble Baroness wants.

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[Lord Lennie (Lab)]

My Lords, the whole question of the energy market is complicated and beset by a series of legislative procedures which can cause confusion. That said, the new clause proposed by Amendment 14 would simply require the Secretary of State to produce a report assessing the impact of removing the investment allowance from oil and gas companies, as set out in the Energy (Oil and Gas) Profits Levy Act, and, in particular, to assess the impact on domestic and non-domestic users. Currently, oil and gas companies receive an 80% rebate on every pound invested but that is not available to renewables or other zero-carbon technology. This appears to tilt the market away from investments in cheaper domestic clean power sources towards oil, gas and fracking.

The proposed new clause would require the Government to assess the revenue and profits of electricity generators and oil and gas producers every six months, to see what the effects would be. Amendment 20 would require the Secretary of State to disaggregate the cost of production of natural gas from the cost of production of other energy sources to reduce the cost of electricity to domestic and commercial consumers. This dates back to when gas was the only game in town for energy companies; now, renewables account for 43% of the generation mix.

Gas prices have increased fourfold since the beginning of 2011, which means that consumers are paying much more for electricity than the average cost of generation across the market. Splitting the market is a likely consequence, by creating a separate pool for cheaper, intermittent, renewable generation and a second for traditional fossil fuel, which in turn could lead to consumers determining when to use cheaper electricity for things such as car charging by timing their usage accordingly. Electricity prices would be determined competitively by companies considering their own boundaries rather than working through gas. I give notice of our attention to move Amendment 14 to a vote.

[Lord Callanan (Con)]

I thank all noble Lords who have tabled amendments in this area, on the energy profits levy, including an amendment that seeks to reduce the costs of electricity to consumers.

I start with Amendment 13, tabled by the noble Lord, Lord Teverson, which would require the Secretary of State to publish a report on the additional revenue that could be raised from expanding the energy profits levy. I shall say something very similar to what I said to the noble Lord, Lord Foster, that all taxes are kept under review, and any changes in tax policy should be considered and announced by the Chancellor, in line with the usual Budget processes. The Treasury view, therefore, is that this amendment is not appropriate for this Bill.

The energy profits levy has been designed with a bespoke tax base, appropriate to respond to the extraordinary global context of high oil and gas prices. The levy is expected to raise substantial revenue while providing companies with a new incentive for investment. It is right that we continue to encourage investment in North Sea oil and gas to strengthen the UK’s vital offshore oil and gas sector and bolster our future energy security. The amendment would also require the Government to produce an estimate of upstream profits expected in the next two years. Such estimates will be highly sensitive to commodity price fluctuations. Given the volatility in prices since last year and that most companies’ out-turn profits are publicly available, it is not clear that producing such an estimate would be a beneficial use of public resources.

I turn to Amendment 14, tabled by the noble Lords, Lord Lennie and Lord McNicol. This amendment requires the Secretary of State to publish a report on the impact of removing the investment allowance in the energy profits levy. The Treasury has made clear its view that it is not for this House to discuss the matters raised by this amendment in relation to this Bill, on the basis that fiscal issues are a matter for the House of Commons. Tax policy changes are an area for the Treasury, which believes that the Chancellor should consider and announce any changes in line with the usual Budget process. Taxation on the profits of oil and gas producers is not in scope of this Bill. The energy profits levy, introduced under the Energy (Oil and Gas) Profits Levy Act 2022, has been in place since May. It is not standard for the Government to publish assessments of the economic impacts of measures that they are not introducing. The Government already monitor the UK oil and gas sector; data on upstream production is published regularly on GOV.UK. It is not clear how a report on the impact of a hypothetical change would be a beneficial use of public resources.

I turn to Amendment 15, also tabled by the noble Lords, Lord Lennie and Lord McNicol, which would require the Secretary of State to publish an assessment of the revenue and profits of electricity generators and oil and gas producers every six months. The profits of oil and gas producers are not in scope of these measures but are subject to the energy profits levy, which has been in place since May. The out-turn revenue and profits of most electricity generators are already in the public domain, so I do not believe this amendment is necessary. The objective of the Energy Prices Bill is to protect consumers from very high energy prices. We recognise that we must strike a balance that is fair to generators, achieves value for money for consumers and maintains investor confidence. That is why it is appropriate that the House gets the chance to debate fully the first set of regulations made under the temporary cost-plus revenue limit.

Energy Prices Bill

Lord Callanan Excerpts

3rd reading
Tuesday 25th October 2022 Lords Chamber

Moved by

[Lord Callanan]

That the Bill be now read a third time.

[The Lord Privy Seal (Lord True) (Con)]

My Lords, I have it in command from His Majesty the King to acquaint the House that His Majesty, having been informed of the purport of the Energy Prices Bill, has consented to place his interest, so far as it is affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

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Moved by

[Lord Callanan]

That the Bill do now pass.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, it is my great pleasure to thank all those who have supported the progress of the Bill so far. Let me first thank the Opposition—the noble Lords, Lord Lennie and Lord McNicol, and all their colleagues—for their co-operation in progressing this expedited Bill. I am extremely conscious of the fact—and the House should be aware—that we could not be doing this legislation as fast as we are without the consent of opposition parties. I am grateful to them for that. I also pay tribute to the noble Lord, Lord Teverson, for his invaluable work and contributions, and thank all other Members who contributed to our debates, helping ensure that the Bill is of most benefit to our nation.

I thank the Welsh and Scottish Governments for their support for the Bill. I very much welcome the Senedd’s and Scottish Parliament’s decision to provide legislative consent for the elements of the Bill that impact on devolved competence. We got very late notice of the Scottish Parliament granting it, so I am grateful for that.

I thank the Northern Ireland Executive’s Department for the Economy and Department of Finance for their constructive engagement during the drafting of the Bill. In the absence of an Executive, a legislative consent Motion cannot be secured from the Northern Ireland Assembly. Given the urgent need for this Bill to give financial support to the people and businesses of Northern Ireland, the UK Government are legislating on behalf of the Northern Ireland Assembly. Ministers in Northern Ireland have been made aware of this, and my department will continue to engage with the Northern Ireland Executive on devolved matters as the Bill is implemented.

Let me also thank the House of Lords Public Bill Office, the House clerks, and the Office of the Parliamentary Counsel for their extremely hard work in drafting the Bill at pace and ensuring that it could be expedited through this House. As always, Ayeesha Bhutta, the principal private secretary to the Leader and Chief Whip, has been a total star in keeping us all right on the procedure of the Bill.

My thanks go to all the policy, analytical and legal officials in BEIS for their expert advice, resilience and, above all, sheer hard work. Many of them worked round the clock and at weekends to deliver this package of support for our nation. They are a credit to the Civil Service, and I thank them for their work.

I would like to thank my private secretary, Matthew Sachak, and the senior responsible officer for the Bill, Jeremy Allen. I must also thank the Bill team: Jessica Lee, Safia Miyanji, Kirsten Horton, Nicholas Vail, Salisa Kaur, Abi Gambel, Luke Rawcliffe, James Banfield, Matthew Pugh, Laura Jackson, Phaedra Hartley and Nicholas Benjamin. I cannot forget the BEIS lawyers, who do their level best to keep me apprised of legal matters —and sometimes even succeed: Wei Lynn, Alex Bentley, Charles Grant, Stephanie Bisset, Matthew Orme, Genna King, Alex Ivett, Susie Squire, Giovanna Amodeo and Sylvia Campigotto.

Russia’s illegal invasion of Ukraine has affected families and businesses up and down this country. This is the moment to be bold. The Government have acted immediately and dealt with the crisis hands on, ensuring people can keep their homes warm and businesses are kept open during the winter months.

The Bill includes powers to stop volatile and high gas prices dictating the cost of electricity produced by much cheaper renewables, which will be to the benefit of bill payers. The Bill puts energy bills support for people, businesses, charities and the public sector across the nation on a secure legislative footing. It is a vital step in delivering an unprecedented package of assistance for the whole of the UK. I thank noble Lords for their patience and commend this Bill to the House.

[Lord Lennie (Lab)]

My Lords, briefly, I thank the Minister and his Whip, the noble Baroness, Lady Bloomfield, for their co-operation and hard work during the speedy passage of the Bill. I also thank both the noble Lord, Lord Teverson, on the Liberal Democrat Benches for his knowledge of these matters, and especially my noble friend Lord McNicol, who, while not in his place today, came in at the last minute to support me in the absence of my noble friend Lady Blake. Finally, I thank Milton Brown from the legislative team in the Labour office for keeping us up to date and on message throughout the process. The Bill will now be referred to the other place, and we wish it well in its speedy implementation.

[Lord Whitty (Lab)]

My Lords, while I have no wish to dissent from this unanimity, I think that we are owed an indication from the Minister as to where this fits in with the overall energy policy. We had an Energy Bill before us which is now in limbo and which in part overlaps with the Bill. From the new Secretary of State for BEIS—and indeed from the Minister himself, with the assumption, we hope, that he is still here—we need an early statement on the totality of energy policy, on which this is dealing only with the immediate emergency—profound though it is—facing so many families and businesses. We need to know the totality of the position from the new Administration, so can we have some indication from the Minister as to when we are likely to see that?

[Lord Callanan (Con)]

I am sure that the new BEIS Secretary of State, when he or she is appointed, will wish to convey at the earliest possible opportunity the future of the Energy Bill to the noble Lord.

Bill passed.