Non-Domestic Alternative Fuel Payment Application Scheme Pass-through Requirement Regulations 2023

Lord Callanan Excerpts

Tuesday 16th May 2023 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Non-Domestic Alternative Fuel Payment Application Scheme Pass-through Requirement Regulations 2023.

Relevant documents: 37th Report from the Secondary Legislation Scrutiny Committee and 36th Report from the Joint Committee on Statutory Instruments (special attention drawn to the instrument)

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, this instrument was laid on 17 April 2023 and debated yesterday in the other place. Its purpose is to ensure that the financial benefits from applications to the non-domestic alternative fuel payment scheme are passed through to end consumers. I thank the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee for their consideration of and comments on the regulations.

In response to the unprecedented rise in energy prices resulting from the Ukraine war, we have delivered critical support to households, businesses and other non-domestic consumers. Moving at considerable pace, the Government brought forward emergency legislation on energy support last year, paving the way for financial support to be delivered rapidly across the entire United Kingdom. The non-domestic alternative fuel payment scheme serves a crucial purpose in ensuring that businesses and organisations which are not on the gas grid and instead rely on alternative fuels for heating are not left behind and receive comparable support to users which are on the gas grid. Businesses, organisations and other non-domestic customers that use alternative fuel are receiving £150. These payments were disbursed through electricity suppliers, in most cases as a credit into the electricity supply accounts registered at qualifying properties. The vast majority of customers entitled to a payment will have already seen this credited to their bills.

We are providing the additional top-up payment to businesses and organisations consuming a very high volume of kerosene heating oil. An application service was opened on 20 March so that eligible non-domestic customers could claim this additional payment. We also provided an application process for businesses and organisations to apply for the basic £150 payment in the limited circumstances where this would not have already been received through electricity suppliers—for example, for alternative fuel users who do not have an electricity supplier and therefore did not receive a payment through this route.

This instrument plays an important role in making sure that support reaches those who need it. We have already brought forward regulations with respect to the main part of the scheme: the £150 payments delivered through electricity suppliers. This instrument complements those earlier regulations and extends that principle of pass-through to payments made in relation to the application process that commenced on 20 March.

I appreciate that some noble Lords are already familiar with the purpose of pass-through requirements, as we have brought forward several similar instruments before, not least the previous instrument in relation to this scheme. For those who may not be so familiar, let me explain what they do.

This instrument makes it mandatory for intermediaries to pass the financial benefit of the scheme on to end- users. It takes the same approach as the previous instrument and those relating to other price support mechanisms such as the energy bills support scheme and the energy bill relief scheme. That is needed because some payments will necessarily be made to intermediaries such as commercial landlords rather than the end-users, who ultimately bear the brunt of inflated energy bills. Where support is provided to an intermediary, we need to make sure that it can be appropriately passed on to the end-user.

Perhaps it would be appropriate to clarify what we mean by “end-user”. In the case of the non-domestic alternative fuel payment, an end-user is an individual, business or organisation which consumes energy or energy products and pays for that consumption indirectly through an intermediary. An example would be a tenant business paying for its energy usage through a service charge or all-inclusive rent.

As with the other energy schemes, this instrument requires support to be passed on in a just and reasonable way. The Secondary Legislation Scrutiny Committee has previously asked about the term “just and reasonable”, so let me clarify what these regulations are working to achieve. The regulations have been drafted in this way to account for the many kinds of relationships between an intermediary and an end-user. If the Government took a narrow definition of “just and reasonable”, there is the risk of inadvertently excluding some intermediaries from the pass-through requirements. This also accommodates scenarios where intermediaries have multiple end-users to pass the support on to. The regulations also make it clear when and how intermediaries should communicate with end-users, regarding the benefit being passed on.

I now turn to enforcement. The approach in this instrument is consistent with other energy schemes. If an intermediary does not pass on the benefit to an end-user who is entitled to it, that end-user will be able to pursue recovery of the benefit debt through civil proceedings. Should a court rule in the end-user’s favour, they would be entitled to the payment plus interest. The interest is set at 2% above the Bank of England’s base rate.

The regulations also require intermediaries to provide information to end-users. For example, intermediaries must inform end-users of the amount of scheme benefit that has been received, the amount that will be passed on and the remedies available to the end-user. I thank the Joint Committee on Statutory Instruments for its comments on the enforcement of this requirement. Again, our approach is consistent with that taken in the earlier pass-through regulations for this scheme and across the other energy schemes.

With respect to that requirement to pass on information, it is important to reiterate that, in our view, there would be insufficient incentive for end-users to make use of an enforcement mechanism given the time and administrative burden involved in doing so. For that reason, the regulations do not provide a specific enforcement mechanism in relation to the obligation on intermediaries to provide information to end-users. Nevertheless, we consider that there remains value in retaining this requirement in the instrument, on the basis that we expect the vast majority of intermediaries to comply. This is aided by the Government’s publication of guidance on the GOV.UK website to ensure that requirements are clear to all parties. The guidance includes template letters to support end-users, such as tenants, that they can use to contact their landlords, should they be concerned about the application of pass-through requirements.

In conclusion, this instrument is vital to ensure that support reaches the people that it is designed to help. It is essential to the effectiveness of the non-domestic alternative fuel payment across the UK. It will ensure that intermediaries pass on the support to those who really need it, and that businesses and organisations paying for energy indirectly as tenants are properly supported at this time of high energy costs. It is with all these important reasons in mind that I commend these regulations to the Committee.

[Baroness McIntosh of Pickering (Con)]

My Lords, I thank my noble friend and the department for bringing this measure forward—it is deeply appreciated among businesses. Do we know what the duration of the support will be in this regard?

I take this opportunity to thank the department for bringing forward the impact assessment as part of this, because we are very quick to criticise departments when they do not include such assessments. On this occasion, however, it is very thorough and greatly appreciated. I have learned a new term—counterfactual. I am not quite sure what it means, but we are told that the option of this support is being considered against a “counterfactual of doing nothing”. I do not know whether this is yet another Americanism that has crept into the English language.

I shall just press my noble friend on one point. He has been quite clear about how the intermediaries are responsible for identifying the end-user, yet on page 4 of the 36th report, printed on 10 May by the Joint Committee on Statutory Instruments, it is clearly stated that the committee wishes to report defective drafting in Regulation 5. This refers to the fact, stated in paragraph 3.2 of the report, that there is

“no mechanism in the Regulations for enforcing these requirements. This reflects an approach adopted in previous instruments dealing with the pass-through of scheme benefits by intermediaries”.

How does my noble friend and the department respond to that charge against them?

That is the only question that I have. I wholeheartedly welcome the regulations before us this afternoon. It is extremely important that the support is given, particularly in areas such as rural areas which are off grid.

I know I said that that was the only comment that I had, but I have one last question. On the £150 going to the smaller users, does that mean that the civil action can be pursued through the small claims court, which obviously would not significantly add to their costs, if they had to bring such a claim to which my noble friend referred? I thank my noble friend and the department for bringing forward the statutory instrument before us today.

--- Later in debate ---

[Lord Lennie (Lab)]

My Lords, I thank the noble Baroness, Lady McIntosh, and the noble Lord, Lord Teverson, for their repeated comments from previous similar discussions.

This instrument provides for pass-through requirements on intermediaries in respect of non-domestic alternative fuel payments in Great Britain and Northern Ireland. The Energy Prices Act enables energy support schemes to help households and businesses with energy costs for winter 2022 and future periods. As we have heard, this scheme will provide a single £150 payment to non-domestic users of alternative fuels in Great Britain and Northern Ireland. In Great Britain, payments are made to non-domestic premises in an off-grid postcode. In Northern Ireland, payments are enabled to on and off-grid postcodes.

Intermediaries are individuals in receipt of a scheme payment who, under these regulations, should pass on the payment in a “just and reasonable” way to end users. If this is less than the full amount, the intermediaries must justify the reduction to end users. This must be made in writing within 30 days of the scheme’s benefit being provided and payment made as soon as reasonably practicable. That is all well and good so far.

However, as we have asked of previous pass-through schemes, what is the remedy if this plan is not followed? How can an end user challenge the reduction in a payment or a delay in receiving either the full or reduced payment? There is no mechanism to enforce these regulations, as the noble Lord, Lord Teverson, and the noble Baroness, Lady McIntosh, said. Of course, most intermediaries will comply with the requirements built into the scheme but that does not achieve the policy objective that requires all intermediaries to do so.

We do not oppose these regulations but they fall down because no one actually has to do anything about them to ensure full compliance. There is a theoretical remedy through the civil courts, as the noble Lord, Lord Teverson, said, but how does an end user who has not been notified that they are due a payment mount a claim for such a payment to be made? Just because the Government have made corresponding regulations for other comparable schemes does not justify doing so again here. Labour and other opposition parties have previously raised this concern about effective enforcement and the Government have batted it away—and no doubt will do so again here today. But a scheme that relies upon people acting in a just and reasonable way without the means to ensure that they will do so is not a foolproof scheme but a best-endeavours scheme. Its success cannot be measured by less than 100% effectiveness. What does the Minister say on that?

[Lord Callanan (Con)]

I thank my noble friend Lady McIntosh, and the noble Lords, Lord Teverson and Lord Lennie, for their comments.

This instrument is necessary to ensure the proper delivery of the non-domestic alternative fuel payment scheme by allowing support to reach those who need it. The scheme is already in place and delivering much-needed support to non-domestic consumers across the UK. The scheme supports a wide range of businesses and other non-domestic consumers that are not connected to the gas grid. As I said, it is delivering a payment of £150, thereby helping businesses and organisations that rely on alternative fuels to meet their eligible costs. Most eligible customers should have already received their £150 payment by the end of March as a credit from their electricity suppliers. Where these payments were received by an intermediary, the pass-through regulations that we previously made ensure that they passed it on to the end users in a just and reasonable way. Although a relatively small proportion of businesses and organisations are entitled to a top-up payment, these payments are also important in ensuring that those consumers are not left behind and receive support comparable to those received by consumers on the gas grid and who have benefited from other schemes.

We opened an application service for the top-up payment on 20 March, and we are processing payments as quickly as possible. In addition to the top-up payment, we provided a route for customers to apply for the basic £150 payment in the limited circumstances where it was not possible for them to receive it through an electricity supplier. These regulations ensure that in all these circumstances, where a payment is made following an application, end-users benefit from the requirement that intermediaries pass on that support in a just and reasonable way. It is a case of extending the safeguards already in place for the earlier part of the scheme to payments made following an application.

On the specific points made in the debate, the noble Baroness, Lady McIntosh, asked about the duration of the support and the latest report from the JCSI. We are providing one-off payments to eligible businesses and organisations to ensure comparable support to that received by on-grid customers who have benefited from the energy bill relief scheme, and we are in the process of issuing payments to applicants. In response to the noble Baroness’s point about the JCSI’s comments on enforcement, also raised by the noble Lord, Lord Teverson, our view remains, as the noble Lord, Lord Lennie, correctly predicted, that there is little value in establishing a formal enforcement mechanism. However, we believe that it is important to include a provision on pass-through of information, as most intermediaries will comply with this.

The noble Lord, Lord Teverson, asked how successful the existing pass-through arrangements have been. We are not aware of any significant issues in the delivery of this scheme or the pass-through arrangements. Nevertheless, the scheme remains in progress, and we will continue to keep it under review and respond to any issues as they arise. As the scheme is still in progress, we are not yet in a position to say precisely how many businesses will benefit, but we believe that around 400,000 end-users will receive some level of payment under the scheme. That is a considerable amount of support.

[Lord Teverson (LD)]

I am grateful to the Minister for that. To clarify, is that the number of businesses that will benefit from this pass-through, as opposed to the scheme altogether?

[Lord Callanan (Con)]

No; that is the scheme altogether.

[Lord Lennie (Lab)]

Is that the payment to intermediaries, who are expected to pass it on, or is it the payment received by end-users?

[Lord Callanan (Con)]

It would be the end-users, irrespective of whether they received it directly or via an intermediary.

As I said, we have published extensive guidance for both the intermediary and the end-user to ensure that they know their obligations and entitlements. Although we are mindful of the comments that we have received regarding these and previous pass-through regulations, in our view it is important that the non-domestic alternative fuel payment is delivered consistently as one coherent scheme. As these regulations cover only a small part of a much wider scheme that is already in place, it is right that we maintain essentially the same approach followed in the previous regulations for other parts of the scheme. Nevertheless, we will continue to update and publicise the guidance on GOV.UK to ensure that end-users and intermediaries understand their rights and obligations. I therefore commend these regulations to the Committee.

Motion agreed.