Prompt Payment Code

Lord Stevenson of Balmacara Excerpts

Thursday 10th May 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I was never in the boy scouts so I lost that last metaphor, but I understand where it comes from. We owe a great debt of thanks to the noble Baroness, Lady Burt, for raising this issue again—it has been discussed before—and doing so in contemporary terms by bringing us up to date with some of the issues of recent years. We have had some very good speeches. We have lost the noble Lord, Lord Cope: in that respect we have lost the little group of aficionados that was here for the Enterprise Bill in 2016 and covered this and related topics a number of times. It was very good to hear some of those tropes repeated today.

The general theme of those noble Lords who have spoken today is that while there have been welcome improvements in what the Government have been doing to help the problem of late payments, the current approach is not going to work. The central thrust is to change the culture and to believe that that will lead to a significant and speedy change in what has become current business practice. Using a code is not really the way forward—it is not even statutory and is not operated by the Government but through a franchise by a non-statutory body.

We supported the measures in the Enterprise Act 2016 that required large unlisted companies to publish information about payment performance and practices—strengthening the Prompt Payment Code in that respect—but we do not think that the situation today is satisfactory and we want big changes. The model that we had in mind for the Small Business Commissioner was the system used in Australia, where that post can operate in a way that causes things to happen, including fines. We do not understand why the Government do not want to take that forward.

Is funding a major problem? We have heard from many speakers that there are significant problems. I am not sure of the figures but we reckon that between £50 billion and £60 billion is tied up by the way companies have to deal with late payments.

On top of that there are two problems. The code itself is pretty good in terms of what it says, but the behaviour by companies, whether or not they are signed up to the code, has been egregious. We have had examples in recent debates about Diageo, the owner of Guinness and Johnnie Walker, which simply informed its suppliers that it was extending its payment terms from 60 to 90 days. AB InBev, owner of Budweiser, Stella and Boddingtons, has extended its terms of payment to 120 days. Heinz has doubled its payment terms from 45 to 97 days. The list goes on: it includes Monsoon, GlaxoSmithKline and Debenhams, to name just a few. It is a common theme. It is of course a perfectly logical response to difficulties within the marketplace. These companies put a squeeze on their suppliers to accumulate as much cash as they can. They also do it because they can and, in some sense, that is bullying.

All this comes out in the wash when we look at Carillion. The Carillion crisis has exposed how absolutely toothless the Prompt Payment Code really is. Despite being a signatory to the PPC since 2013 Carillion, as we have heard, was notorious for being a late payer. According to the FSB, it regularly required its suppliers to wait 120 days to be paid. I do not think there is any doubt that there is a problem.

The question is: is the code robust enough in itself? First, it is not very extensively used. We may get warm words about the numbers of signatories—I think it is nearly 2,000, which sounds a lot—but we are talking about a totality of companies and organisations vastly in excess of that: 32,000 mid-sized companies and 200,000 smaller companies. If we add micro-businesses, which are also eligible to come under the code, we are probably talking about 5 million or 6 million companies. Out of that number—perhaps 6 million or 7 million companies—we have 1,700 signatures. The code is not a successful or effective way of trying to change the culture. Secondly, the objective of the code is to ensure that there is a gold standard for how people should behave but if it is just a gold standard to aspire to, it obviously means that others will not meet that standard and therefore be excluded, so the culture will not be transformed in the way we are talking about.

We do not have what is required in the marketplace, so what are the proposals? I would like to add a couple to those we have heard of today. First, the Prompt Payment Code should be put on a statutory basis and it should not be franchised out but operated by the department concerned. Secondly, we need to look again at the link between the Prompt Payment Code and the Public Contracts Regulations, which have been mentioned by other speakers, and make sure that it actually works. Since the regulations are quite appropriate in requiring payment within 30 days and enforcing that throughout the value chain of the contracts concerned, there are real penalties which follow from non-conformance with it. It should not be possible for people to be reappointed to government contracts if they are clearly not fulfilling the requirements under the Public Contracts Regulations.

Thirdly, the retention scheme has been mentioned. The noble Baroness, Lady Burt, suggested a model for setting up escrow accounts or public bank accounts to prevent the problem that happened with Carillion; money which should have been passed over ages ago to small contractors and others involved gets lost in a bankruptcy. This is already happening in Scotland, Wales and Northern Ireland—it is England that is behind. Surely the Government must now take action on this matter. We have heard about the consultation and the reporting cycle has now finished. Where is the action that will follow from that?

Fourthly, the sorts of powers we are thinking about for the Prompt Payment Code are already to be found in other areas of government activity. For instance, the groceries code gives powers to the Groceries Code Adjudicator to fine companies which are in breach of that code 1% of their turnover. Why is that power not given to the Small Business Commissioner, who I am sure would jump at the chance to level what he finds on the ground from the information flowing to him with the action that he needs to take? If we are not getting progress there, why are we not outlawing discounts by companies which attempt to take a cut when they make a payment within the normal rules? If there is a continuing problem, why does an automatic interest rate penalty not kick in at the Bank of England rate plus, say, 10%? I am sure that for any financier who is involved in trying to work out how to pay their bills, the prospect of having that bill increased by 10% if it is not paid within a certain time would focus their attention.

Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018

Lord Stevenson of Balmacara Excerpts

Wednesday 9th May 2018 Grand Committee

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

My Lords, the draft Renewable Heat Incentive Scheme Regulations 2018 were laid before the House on 23 March 2018, and the draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018 were laid before the House on 7 February 2018. Just to save the noble Lord, Lord Stevenson, some trouble, I can let him know that the common commencement date rules do not apply to this type of regulation as they have no impact on business, so he need not raise that.

[Lord Stevenson of Balmacara (Lab)]

I am grateful to the Minister for raising the point before I had time to do so, but I just point out to him that that puts the score at 8-1 against.

[Lord Henley]

I am grateful to the noble Lord. As I said earlier on, I will endeavour to improve; I know that the noble Lord will keep a record on these matters.

The purpose of the draft orders is to implement reforms to the renewable heat incentive, or RHI. The reforms will deliver changes that will strengthen the focus on long-term decarbonisation, offer better value for money for taxpayers, increase protection for consumers and further support supply chain growth in the renewable heat sector. Heat accounts for around half of the UK’s energy use and one-third of total carbon emissions. Increasing the share of heat derived from renewable sources is a critical challenge, both to meet our renewable energy targets and to deliver the Government’s long-term carbon goals. Building a vibrant renewable heat sector is a key objective of my department’s clean growth strategy and the industrial strategy. The RHI is the main programme to deliver those goals over this spending period. Before the RHI started, only 1% of our heat came from renewable energy sources; that figure is now around 7% of total heat.

This type of tariff-based support for renewable heat is the first scheme of its kind in the world. Inevitably, there are lessons to be learned, and these reforms are a response to some of the lessons from the early years. The National Audit Office published a review of the RHI in February this year, which we were pleased to receive. Many of its comments related to issues covered by the draft regulations, which I hope will go some way towards addressing some of the issues raised by the NAO, which were also noted by the Secondary Legislation Scrutiny Committee. The draft orders will deliver a series of important reforms that will help us to deliver a more strategic mix of technologies and improve value for money over the next three years until the scheme closes in March 2021. I will highlight the main ones.

We will increase the tariffs available for biogas and biomethane technologies while introducing new restrictions on the feedstock that those plants use. That will encourage the increased use of food and agricultural waste and will reduce the use of energy crops, making better use of farmland for food production. Alongside changes already made last year, this will rebalance deployment away from biomass in favour of heat pumps, biogas and biomethane, which will all play a much stronger role in the scheme over the long term.

Another important change is that we will bring in tariff guarantees that will allow RHI applicants to secure their place on the scheme in advance of construction. This will support investments in larger plants that deliver better value for money. We will cap the amount of heat covered to 250 gigawatt hours per year to protect the scheme budget.

In the domestic scheme, take-up to date has been dominated by owners of larger homes. To promote wider uptake, we will introduce the assignment of rights. This will allow third parties to finance renewable technology and to be repaid directly from the RHI. Crucially, that will open up access to the scheme for those without up-front capital to pay for a new heating system.

Following consultation last year, we will limit the eligibility of certain heat uses. These provisions will remove most instances of wood-fuel drying and waste processing or drying. In addition, we will remove the use of heat for drying digestate in anaerobic digestion facilities as an eligible heat use. We consider that these processes are poor value for money and that many would not exist without RHI support. We will also remove support for heating swimming pools on the non-domestic scheme, unless the pool is for commercial or municipal use.

We are also introducing changes to allow more than one heat pump to use a common or shared ground loop. This should facilitate greater deployment of that important technology. The introduction of electricity metering for heat pumps across both schemes will allow participants to better monitor the efficiency of their plant and build confidence in the technology.

Following consultation, another change will be to increase the power efficiency threshold of combined heat and power technology from 10% to 20% to reduce the risk of overcompensation and to encourage plants to run more efficiently. There is also a whole series of mainly administrative changes to tighten cost control, reduce the risk of gaming and improve Ofgem’s delivery of both schemes, including by tightening its enforcement powers.

The Renewable Heat Incentive Scheme Regulations 2018 also consolidate all previous revisions to the original regulations, as recommended by the Joint Committee on Statutory Instruments. The RHI plays a central role in the Government’s programme to decarbonise heating. These regulations are an important step in refining the scheme and I commend them to the Committee. I beg to move.

--- Later in debate ---

[Lord Stevenson of Balmacara]

My Lords, I thank the Minister for his excellent introduction to these regulations and other speakers who have contributed. It is a truism to say that these regulations are an important part of decarbonising the economy and reducing greenhouse gas emissions in line with our international commitments and targets. The key question has to be whether these regulations before us will help us in our drive to achieve the Government’s stated aims, which include a,

“focus on long-term decarbonisation, promotion of technologies with a credible role to play in that transition, and offering better value for money for taxpayers”.

I couple that observation with a question to the Minister: does he agree that the evidence before us—which, as has just been said, is not complete by any means—seems to show that we have been less successful in reducing carbon from heat in this country than we have been in decarbonising electricity generation? It may be that that is a lesson that we need to learn and expand upon during this process.

The noble Baroness, Lady Featherstone, has just said that we are approaching a cliff-edge. Not only is this scheme time limited, but we have had very little information on how the Government are going to drive this policy through to 2030 and beyond and, indeed, on whether they are focusing sufficiently on decarbonisation or are falling into the trap of choosing some current technologies over others, which experience tells us is not the way to go. We need to go single-mindedly for the higher carbon-generating technologies and stick with that before we start playing around with too many other options that may well not be as efficient in getting us to the target.

Turning to the regulations, we do not disagree with the proposed changes. There have already been delays that have been far too long, revisions and seemingly endless consultations. The most important thing is to get on with delivering progress in renewable heat generation. However, we have to bear in mind, as the NAO report, which has already been mentioned, has brought into clear focus, that this reset of where we currently are translates into a very severe overall reduction in ambition. Can the Minister give us some indication of the longer-term plan that the Government have for renewable heat, and of what exactly the plan will consist? The ambition, which I thought all parties shared, of a substantial decarbonisation of heat cannot be achieved on the RHI alone. Indeed, as has been mentioned, these regulations are going to end, and will be closed to new entrants in March 2021. This is very short-term target and few, if any, new projects can be expected to be devised, tested and financed, or even introduced, in that timeframe. So, while we welcome what is being done, the Government need to answer some key questions: what is going to happen next and when will it happen? Where is the research on different heat-demand scenarios? What is the future for hydrogen, which recent reports have talked up? What changes will be needed in the grid, for example, if there is a large- scale uptake of heat pumps, and who will pay for that? What is the proper role of bioenergy, given its sometimes adverse impact on the natural environment? All we know is that the Government intend to publish a full report on the evidence by summer 2018, which is not, frankly, enough, and is, of course, already too late.

We have, as the Minister said, the benefit of a NAO report, which was picked up by the Secondary Legislation Scrutiny Committee. The key point that emerges from that is that the amount of renewable heating funded by the RHI will have reduced to 65% by 2020, and the lifetime carbon emission reductions achieved by the RHI, in terms of the current ambition compared with the original starting ambition, is a reduction of 44%. This is a substantial downgrading, which is very disappointing. As a country, we surely deserve better.

I have some specific questions for the Minister, some of which have been raised already. On the assignment of rights, which we agree is important, surely it is important for both domestic and non-domestic RHI, but the regulations restrict it to domestic. Can we have an explanation of why that is the case? On tariff guarantees, the regulations are sending the wrong signals; people need certainty, and making these TGs subject to closure if the guarantee amount is exceeded in any particular period is obviously helpful in capping the costs, but will be disastrous because they leave investors and operators uncertain about the likely financial return they will obtain from their investment. We welcome the geothermal element in the non-domestic scheme, but the funding identified seems very ineffective and insufficient. Can this be looked at again? Finally, I am surprised at the outturn position of 20% adopted on the CHP efficiency threshold, as 71% of the consultation responses disagreed that the level should be returned to 20%. The argument goes that CHP, because of its variable outputs, does not work on the basis of a known level of electricity certainty. By setting the level at 20% as if it were achievable across the board without exception, the scheme potentially undermines the viability of good CHP schemes that cannot operate entirely on that basis. I would be grateful for a comment from the Minister on that.

I look forward to the response from the Minister, but I echo what has just been said by the noble Baroness, Lady Featherstone: if he wants to add to his letter-writing, I am sure that we can wait for that.

[Lord Henley]

My Lords, as always, I make the offer of a letter to all noble Lords who took part in the debate, because obviously I will not be able to pick up all the points. I am grateful for noble Lords’ general welcome for the regulations and our response to the NAO report.

The noble Lord, Lord Teverson, talked about this being a drop in the ocean given the large sums of money that are involved—we all know that a billion here and a billion there soon adds up to quite a large sum. Take, for example, AD, which was mentioned by the noble Lord, Lord Teverson, and the noble Baroness, Lady Featherstone. We know that AD will never solve all our problems, but it can deal with a certain amount of waste. As was pointed out by the noble Lord, Lord Teverson, the important thing with any AD plant is to make sure that you have adequate waste as feedstock for the future. We do not want people producing waste for the sake of waste just to go into a plant. We want to use only genuine waste or, on occasion, to top it up with a certain amount of crops that are grown for that purpose. Principally, however, plants would be designed to deal with waste.

In my former life as a Defra Minister, I saw quite a number of AD plants taking in waste from very different sources. Where they were attached to a supermarket, one would see bucket loads of old yogurts or whatever else had gone past its sell-by date being tipped in. That was a good way of using it, and we want to devise schemes that will, as the noble Baroness rightly said, prevent that waste going to landfill. I saw excellent small schemes also. I remember one used by a salad producer, which took the waste from its own products—the stalks from tomatoes are actually rather difficult to break down—and used it to produce both heat and power to grow more tomatoes in due course, and used the digestate that comes out in the end to fertilise those tomatoes. It was, wonderfully, almost a closed loop. There are terrific advantages to AD, but, as we all know, it will not solve all the problems.

RHI will be an important step in helping to reduce carbon emissions and—I say this to the noble Lord, Lord Teverson—make progress towards the legally binding renewable energy targets that we have. As I made clear, we will certainly look very carefully at ensuring that there is suitable waste feedstock and that the scheme ensures current and future supplies to anaerobic digestion. If the noble Lord has a local problem in the south-west, it is important that he, and those in that world, brings it to the attention of the department when it is reviewing this matter. I assure the noble Baroness, Lady Featherstone, that my right honourable friend Claire Perry and the department will look constantly at these matters to make sure that there can be further tinkering to get it right.

The noble Lord, Lord Teverson, asked about solar thermal. My understanding is that it is eligible for both schemes, so it is already supported by RHI. If he wants to look at that for his own domestic arrangements, he is welcome to do so.

As I said, I very much welcome what the noble Baroness, Lady Featherstone, had to say. I made it clear that we will keep these matters under review. I cannot give a precise date for when and how my right honourable friend will respond. I will certainly respond to some of the noble Baroness’s more detailed questions, particularly those relating to electrolysis and other matters, most of which I shall make a complete hash of if I try to respond to them now. I think all those taking part in this debate would be far more grateful for a written response.

The noble Baroness is right to raise the whole question of detecting abuses and gaming—something touched on by other noble Lords and which the NAO was wary of. As she pointed out, with any changes that we make, there are always potential unintended consequences, and we keep that under review. It is a large and varied scheme, and the non-domestic scheme in particular has huge variation in size, heat and use and the technology used between projects.

Despite all those challenges raised by the NAO, the department—the former Department for Energy and Climate Change, which noble Lords on the Liberal Democrat Benches will know well because it was one of their great Secretaries of State who sat in that department, which is now within BEIS—is working with Ofgem and, I think, developing a better approach to identifying gaming. We will certainly respond to the NAO in due course.

The noble Lord, Lord Stevenson, also welcomed the changes, and I am again grateful. He particularly welcomed the assignment of rights, but was concerned that it might lead to a lack of access to loans or other finance for a number of businesses and that that could be a barrier for them. I can only say that we have no plans to widen the assignment of rights beyond the household sector at the moment, but we would always want to keep all matters under review.

Product Safety: Freezers and Refrigerators

Lord Stevenson of Balmacara Excerpts

Tuesday 8th May 2018 Lords Chamber

[Lord Henley]

My Lords, I totally and utterly reject that accusation. We are doing a great deal on this front. However, I agree that my noble friend has done a great deal on this—and not just since she left government. She led the charge on this as far back as November 2014, when she announced the original review of the UK product safety system.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I think one should share some of the credit. The Minister’s noble friend did a great deal of work, but the Opposition were also involved in trying to get the new Office for Product Safety and Standards set up. The Government are saying that we lead the world in terms of our standards, but, if these standards are linked to roughly 60 fires a week in the UK, how many deaths is it going to take to get them to change their mind on this? We have a new body, the Office for Product Safety and Standards. It has a wonderful website with a list of things it can do. When is it going to do something, and does it have the power to change the way people manufacture these dangerous machines today?

Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2018

Lord Stevenson of Balmacara Excerpts

Tuesday 1st May 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords I am grateful to the Minister for his introduction to this SI. I shall start with a very obvious point that I am surprised he did not reach for as his first line, which is why it has not been brought in on a common commencement date. The noble Lord will have heard me speak about this before and I am sure that the department is tired by my questions about this. Such regulations will have a huge impact on certain sectors of the economy. Common commencement dates were meant to give people good warning about when regulations would come in. They are 6 April and 1 October: it would surely not have been impossible to arrange for them to come in, if the 6 April date could not be met, on 1 October. That would have given people plenty of time and knowledge that it was happening.

The Minister has been very good in responding to this and seems to get the point, but of course no action seems to be flowing from the decision. I have decided to keep a tally of his scores: we have had six statutory instruments so far, only one of which has landed on a common commencement date, and I had to rule that one out because it missed the common commencement date that was available to it and went for one further down the track, so it really does not count. So it is really 6-0. I really think that this is not a good standard and I am going to bring this up every time we have a chance to debate these issues until he is finally goaded into doing something about it.

More seriously—although I think that this is a serious point—I agree with a lot of what the noble Baroness, Lady Burt, said about the general approach taken here, particularly the very hostile response that was given to the consultation, which must have given somebody in the department some concern. Like her, we agree with the broad thrust of what has been happening here. There is a concern for the national interest if there are not sufficient regulations set up around hostile takeovers—or, indeed, takeovers that have been done with consent—if they threaten our national interest.

My worry, which I think is shared by the noble Baroness, is that while it is relatively straightforward to see what is meant by the national security interest in relation to military technologies, where the regulations will bite, as soon as there is an introduction of dual use a grey area opens up. It is true that most of the material will be listed as part of the UK’s export control regime, and there is some consolation in that, but I worry a bit about material that could be judged by BEIS to have dual-use technologies, even if the original intention was never for that to be the case. It would mean that the company involved in making it might well get caught by this.

The problems get worse in relation to computing hardware and, in particular, in relation to quantum technology, for which definitions are so obscure, or so general, that it is a very hard to see that those who are working in this area will know whether they are or are not in scope of this regulation. Computing hardware is, as the regulation says, ubiquitous. It is very difficult now to see any technology that does not involve some form of computing, whether it is at the simple level or whether it is more complex, in terms of writing instructions and making things happen in a way that could be carried out to be hostile or difficult. I think that the noble Baroness, Lady Burt, and I are saying the same thing here; that this is getting to the point where it is either such a broad list that it is going to include every company involved in technology and manufacturing in this country, or so wide that it will be useless, because it will be taking the Government’s control, through the merger process, into every sector of the economy, and I am sure that is not what is intended.

If it is bad in computer hardware, it is even worse in quantum technology, which is a phrase that is not well defined. As far as I can see, it certainly did not appear in any legislative document that we have seen in this House for some time. Of course, quantum could be restricted to mean very fast computing. Obviously, that is the sense in which the national interest is more likely to be at risk. But, again, in a short period of time it could include virtually every sector of our economy, and if it does not, it means that our economy will not be competitive across the world. The question underlying this is: is it not better for the Government to fess up and say that they will investigate every merger? In effect, every merger could be used as a way of breaching our national security. If that is the case, perhaps the Government ought to think again about the road being taken here.

My second point is about the change that is coming forward in the negative instrument, which is helpfully attached to the documents that have been circulated for this debate, which is to reduce the value of the target companies for the share of supply test from £70 million turnover per annum to £1 million. Again, it is a question of scale. Does that not suggest that virtually every company in the country will be subject to the share of supply test? If that is the case, how on earth will it reassure those who are carrying on a business which does not threaten the public interest to feel that any discussion or merger they may wish to do with their business—and many of them will be private companies—will be subject to call-in by the competition authorities? I wonder again if the Government are on the right track here.

It may be that the £70 million turnover provides a difficulty in relation to the companies the Government have concerns about, although it is true that according to the impact assessment that is attached to the regulation, we are talking about a very small number of companies—between nought and five. If it is the case that we are going for virtually every SME in the country—those with a turnover of more than £1 million—that probably excludes microbusinesses, but is that not another problem? Quite a lot of the innovative material that will be of concern to our national security may be being developed by two or three people with a very small turnover. If microbusinesses are excluded, the competition issues will not come to bear. I may be making too much of this, but I worry about the direction in which this is going.

My final point for the Government to respond to is that this was said by the Minister to be part of a longer-term project. This is the first stage: two statutory instruments, one of which we have to approve this evening and one of which is a negative and we will have to consider whether to pray against it. According to the Explanatory Memorandum, the second stage is:

“In the longer term, the Government will bring forward primary legislation to make more substantive changes to how it scrutinises national security implications of foreign investment”.


The noble Baroness, Lady Burt, made a number of points about how there may be other considerations here. Will this be restricted to national security or are we finally going to see some sense of the public interest test—which clearly the Secretary of State wished he had powers to address when he was looking at the GKN merger a few weeks ago—which would deal with questions about how research, employment and sensitive activities across the country will be looked at when there is an aggressive overseas takeover that is not particularly welcomed or wanted or which is subject to concerns for which there is currently no adequate remedy in our companies legislation? The Stock Exchange can make recommendations, but these are not statutory. What we need is a government commitment to go forward on this basis which will look at undertakings that will have to be given by the acquiring company for which there will be statutory redress should it be recalled. Is this what is referred to in paragraph 7.4 of the Explanatory Memorandum, and if it is not, can we know when that is going to happen?

[Lord Henley]

My Lords, I start with an apology to the noble Lord, Lord Stevenson, as I have done before, particularly about the common commencement date. I know that he considers this matter of considerable importance and I promised I would take it on board. I hope the message is getting through to the department. It has now also got through to my Whip, my noble friend Lady Vere, who is sitting next to me. She will kick me hard when it next happens. The noble Lord first gave me one out of six, but by his second count had reduced that to 6-0. We will see if we can do better in the future. I hope that I can deal with some of his concerns. I certainly hope we can get back to that point and, where it is important, stick to that common commencement date because I see the importance of what the noble Lord has said.

I forgot about this until I sat down in the Chamber; I then did a few quick sums and saw that the order had been laid on 15 March and comes into effect not 28 days after it is laid but 28 days after it is made. I imagine that it is made on the date when it goes through either this House or another place—I think it goes through another place tomorrow—and that is well off 5 April. I briefly thought, “Gosh, if it means laid then if I add this to that, I would only be a week out”, but I do not think I am as lucky as that.

Perhaps I may deal quickly with some of the points that the noble Baroness, Lady Burt, and the noble Lord, Lord Stevenson, raised. Some of them go wider than the order itself; no doubt someone will discuss some of them in due course if and when there is the primary legislation that I referred to in my opening remarks. The noble Baroness said that a number of legal firms felt, in the consultation, that these reforms were disproportionate or inappropriate. We considered the legality of the reforms carefully and they have gone through significant legal scrutiny by internal and external legal advisers. The reforms have of course been looked at by the JCSI, which we take very seriously. The JCSI certainly said that it believed that the reforms are within the powers granted under Sections 28 and 123 of the 2002 Act.

The noble Baroness, Lady Burt, also asked why the special public interest intervention regime is not enough. That regime is limited to mergers involving relevant government contractors. This statutory instrument takes us a little further and will enable the Government to scrutinise mergers involving an acquirer with no share of supply of the relevant good or service, in the case before a transition, in those three key areas of the economy that I mentioned. She asked why it was those three sectors and not others. Again, the Green Paper set out just how hostile actors’ takeover of certain businesses could raise risks to our national security. We will obviously keep our powers under review but we are acting only under the powers in the 2002 Act. We will not hesitate to take further steps, if necessary, to protect our national security.

The noble Baroness, Lady Burt, then took us wider. Perhaps I may link my response with that to some of the questions raised by the noble Lord, Lord Stevenson. He was looking at the long-term project and how we manage to address it. I can really only take them both back to what I said: we had a Green Paper earlier this year and we are now in the process of looking at a White Paper. Following that, we will need to bring forward primary legislation, which will certainly give the noble Baroness the chance for any amount of parliamentary scrutiny that she wishes. Failing that, I can give an assurance that either my right honourable friend or a Minister here at the Dispatch Box will report to the House if and when it is necessary. As I said, we will want to bring forward primary legislation at some stage to make more substantive changes to how we scrutinise the national security implications of foreign investment. Whether we would want to go wider and look at further grounds for intervention—I noted what the noble Baroness had to say about research and innovation—is a matter that should be left for that occasion.

Finally, the noble Lord, Lord Stevenson, asked about how respondents reacted to the changes to the share of supply test proposed in the consultation. Some respondents raised concerns that the test is subjective and that the threshold is complex and therefore involves complex assessments and would lead to disproportionately high costs for smaller businesses. Some businesses recognised that the proposed changes are necessary to prevent hostile states taking over smaller companies working in sensitive areas of the economy without due diligence being provided. Therefore we are clear that the amendments that the two orders make to the share of supply test are necessary to safeguard national security, as they ensure that our powers to intervene will cover deals involving a buyer with no footprint in specific markets.

I hope I have answered most of the questions put to me by the noble Baroness and the noble Lord. I again apologise to the noble Lord for failing to meet his requirements on the common commencement date. That point is getting through to me, and I have taken it on board. Other than those questions, I think there was a broad welcome for the limited measures proposed in this order and the associated negative instrument.

Swansea Tidal Lagoon: Hendry Review

Lord Stevenson of Balmacara Excerpts

Tuesday 1st May 2018 Lords Chamber

[Lord Henley]

I do not think that I can take this much further but I note what the noble Baroness has to say.

[Lord Stevenson of Balmacara (Lab)]

Let me try the question the other way round. Is this project still open? Is it possible that we might get a positive response to all these requests? I draw the Minister’s attention to a letter sent to Mr Carwyn Jones by the Secretary of State in January, which described the tidal lagoon as,

“an untried technology with high capital costs and significant uncertainties”.

Is that not just the end?

[Lord Henley]

I think that the noble Lord is trying to put the wrong interpretation on that. As my right honourable friend made clear in responses earlier today in another place, she is still open on this matter, no decisions have been made and she still wants to continue those cordial relations with colleagues in the Welsh Government. I have not got a transcript of what she said but no doubt the noble Lord can look at Hansard tomorrow.

Smart Meters Bill

Lord Stevenson of Balmacara Excerpts

Committee: 1st sitting (Hansard): House of Lords
Tuesday 24th April 2018 Grand Committee

[Lord Skelmersdale (Con)]

My Lords, is there not actually a rather bigger problem than the one the noble Lord has just explained? At the moment smart meters are offered to consumers. They do not actually have to have them. This whole scenario falls absolutely flat unless there is an imposition on the energy companies, whether gas or electricity, to install smart meters in their customers’ premises.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I support my noble friend Lord Grantchester in his Amendment 4 and reiterate his important suggestion. He accepts that his amendment is not necessarily the definitive way forward and is inviting the Government to engage with him and others to try to find a form of words, process and activity that would enable a national plan to come forward that we could all get behind. I hope that when the Minister responds he might signal that this is something he will consider.

Like the noble Baroness, Lady Featherstone, I have come to this relatively late. Those who have not been living the ups and downs of this over the past few years are completely and utterly shocked that it could have got to this stage without some very serious consequences. At a superficial level—I know it is more complicated than this—the initial programme has had to be restarted and reset but is now about to stop, and people are being laid off and made redundant because there is no guarantee that the SMETS 1 meters will be continued after October 2018. A completely new, untested and uncertain scheme involving SMETS 2 will be brought in on top of that and will therefore go back over ground already covered in a way that is as yet unforeseen.

At the same time, the whole costs of this are hidden and difficult to ascertain. The process under which levers can be exercised on people is not clear and the role of Ofgem, the regulator, is very passive in relation to the capacity it has now. It all smacks of being a complete and utter train crash of enormous proportions, and the only solution appears to be to keep ploughing on. British pluck is all very well but it has not always been the most successful way forward, particularly in matters involving technology.

I urge the Minister, when he comes to respond, to think very carefully about the way in which the Opposition are proposing this and about the support we have received from others. If we do not come out of this with a clear and approachable process—whether it is this national plan or not—the real danger is that consumers will literally be switched off in the sense that they will not wish to be involved in this. As a result, the huge upside of this, the benefits of bringing in a new technology, opening up innovation and bringing in new thinking about how we manage our energy supply—which was the point made by the noble Lord, Lord Teverson—will be lost if consumers are not prepared to walk along. This is not about individual customers having a better time; it is about how we as a country can cope with the energy demands that we will face, and minimising them while strengthening our approach as we go through. This is a terrific chance to get this right in a proper and positive way.

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

My Lords, the noble Lord, Lord Teverson, used the examples of the length of a number of wars. I will not follow him down that track because I think one could come up with some longer wars as examples. He mentioned that this had started under a Labour Government, continued under a coalition Government and was now being dealt with by a Conservative Government. I have been a member of two of those—obviously I was not a member of the Labour Government. It has been going some time but we want to get it right.

When things have been going some time I am always faintly surprised when Oppositions put forward amendments to suggest that we should take even longer. I suppose that is why the noble Lord, Lord Grantchester, prefaced his remarks with, “Unusual as it may seem”. I take note of that. I will not rise to his bait to make any comments about the likely outcome of the next election. Quite rightly, he wants whoever is in government at the time, whomsoever that may be, to be helpful, possibly referring to the remarks on the word “helpful” made by the noble and learned Lord, Lord Goldsmith, in yesterday evening’s debates. We will try to avoid “helpful” in the future.

To continue on the helpful theme, I would obviously like to be helpful. The noble Lord asked whether we could have further meetings. I will make myself available when the noble Lord, the noble Lord’s colleagues and the noble Baroness, Lady Featherstone, and others want to have meetings between now and Report if we feel that we can discuss things further and take things forward.

In the meantime, I will respond in a little detail to the specific amendments—Amendments 1, 2 and 4 in the first group. As I said, the first amendment proposes to extend certain powers that the Secretary of State has to develop, amend and oversee regulations relating to smart meters until November 2026, although in this Bill we have sought only the powers that we think are justified, which extend to 2023. Extending the powers to 2023 would allow the Government to continue to oversee the programme, while suppliers meet the obligation on them to take all reasonable steps to install smart meters in homes and businesses by the end of 2020.

The noble Lord referred to my letter where I talked about them offering rather than installing—we are trying to make sure that they have at least offered something to everyone. Obviously no Government can guarantee that one can be installed in every home because it is quite possible that a number of individuals will refuse to have a meter for whatever reason. It also allows the Government to undertake a post-rollout review once the programme has been operating in a steady state and then implement any of the recommendations that emerge. We hope this will help to ensure that the smart metering programme is fit for purpose—whether SMETS 1 or SMETS 2—for decades to come.

[Lord Stevenson of Balmacara]

I am sorry to interrupt, but on the narrow point, what specification are the Government adhering to? Is it the obligation on energy suppliers to take all reasonable steps to install smart meters or not?

[Lord Henley]

We hope that they will offer—and if they do, obviously they must then install. There is no point offering to install one unless they do so. So we hope that all of them will have offered and installed by that date.

[Lord Stevenson of Balmacara]

It is important that we get this right, because there is a world of difference between making an offer to install and having an installation completed. My noble friend Lord Grantchester, in making his proposal, would give an additional three years because the understanding we had from the first paragraph of the Minister’s letter was that it was about the completion of that process. If the noble Lord is saying that the licence obligation placed as a condition of licence on energy suppliers is only to offer, does he not accept that that completely changes the process?

[Lord Henley]

No. I wanted to make clear that there is no obligation to have got to a 100% rate of installation because we know we can never get to that target. What we are looking for is that they must make the offer and then make the installation—that is the undertaking—by the appropriate date. We do not think that extending the time is necessary. Does the noble Lord follow me?

[Lord Stevenson of Balmacara]

I will try one more time and then I will stop. The obligation placed statutorily on companies operating as energy suppliers is, as I understand it, to have made an offer to take all reasonable steps to install smart meters in homes covered by the mandate by the end of 2020. That will be considered to have been completed if they have written to and received information back from all those who would be eligible to receive these things, and, where there has been an acceptance, have completed the installation. Obviously, as the Minister said, you cannot install a meter if somebody says that they do not want one, so those people are taken out of it—but must everyone else, if they say that they want a meter, have had one installed by 2020? That seems extraordinary.

[Lord Henley]

It is not simply a matter of writing a letter to the individuals concerned. One letter would not be enough. The energy suppliers must show that they have made reasonable efforts with all their customers while allowing a degree of flexibility in certain circumstances. The rollout obligation puts that onus on them. Ofgem has made it publicly clear in an open letter that it will need to adapt its approaches to consumer engagement, using other approaches where necessary. It is not merely a letter, but it must make a genuine attempt—merely making a solitary offer is not sufficient—to get hold of those people to make an installation.

--- Later in debate ---

[Baroness Featherstone]

I shall speak to Amendment 7, which is in my name and that of my noble friend Lady Maddock. Much was and is made about the upside of the benefits, or the hoped-for benefits, to the consumer of the rollout of smart meters. In the other place, the Secretary of State Greg Clarke said:

“About a third of the savings come from the possible reductions in the use of energy. Just over 40% comes from the supplier’s cost savings, which is a result of not having to read meters … We expect those savings to be passed onto consumers as savings in their bill”.—[Official Report, Commons, 24/10/17; col. 238.]


We want a new clause that makes that expectation of the Secretary of State into a reality by putting it into the Bill, and we do that by amending the Energy Act 2008 to put in a provision,

“requiring the holder of a supply licence to pass on any savings made by the holder as a result of the Smart Metering Implementation Programme to the consumer”.

I do not really feel that I need to labour the point—I think that it is clear. A promise has been made, and this is the methodology for making sure that that promise is delivered.

[Lord Stevenson of Balmacara]

My Lords, this is a wide-ranging group of amendments and it is a bit hard to find the right balancing point to address it, so I am going to give up at the beginning and just go through them one by one—in a slightly different order, just to confuse everyone.

Amendment 5 is right on the money in trying to make us focus again on why we are doing this and what it is about. It will not be worth doing unless there is an impact on energy efficiency. As we were reminded in the first group by the noble Lord, Lord Teverson, the problem we face and the one that the Government have to open themselves to be honest about is whether this will be worth having in the sense that it will actually change people’s behaviour and therefore save us some of the costs that we have from our expensive use of energy. If that is not part of what we are thinking, we need to make it part of the process and, indeed, the plan, if we go that way.

I was listening hard to what the Minister was saying, but I was expecting him to say a lot about the industrial strategy, since it is seated in his department and it seems to me that this is part of the industrial strategy. Our energy efficiency should have a material effect on our ability as a nation to continue to operate as a net importer of energy and as we gradually try to be more effective and efficient in what energy we can produce and how we use it. Those things seem crucially the bedrock on which any industrial strategy, and therefore any chance of this country surviving in the long term, is placed. I would have thought that it would be important to the Government to put this at the heart of what they were saying about the future stages of this process, because that will be helpful in convincing consumers, both those in fuel poverty and others who are just interested in the overall economics and efficiency of the country. So the requirement to lay a report that focuses on that might help us to win the battle of hearts and minds to get people more to accept it, and we support the amendment.

Amendment 7 is a bit more on the money in real terms, because it says that, if there are economic and other efficiencies in the process, the consumer should benefit from them. Again, we would support that. You do not have to be a conspiracy theorist—well, probably you do, but you do not have to be a genuine conspiracy theorist—to sense that there is something a bit odd going here. In a curious sort of way, the noble Lord, Lord Teverson, said it. Here we have an £11 billion programme. It is not being financed out of general taxation; there is a money tree, and that money tree is consumers who are being asked to pay for this without actually knowing what they are paying for. This is being loaded on to their bills and recouped by the companies. It is not being passed on to those who are benefiting from efficiencies. Nor is it being used for useful purposes for trying to help those who are suffering fuel poverty. Have I got this wrong? If I am right in this, we ought to confess that this is what we are doing and think much more carefully about the £11 billion price tag. The noble Lord, Lord Teverson, put his finger on it in saying that we ought to be certain about the benefits that will flow from this before we push the button, and his amendment, which we are coming on to, focuses on that.

The noble Baroness, Lady Featherstone, talked about real benefits to individuals. If we were interested in the consumer approach and in consumers buying this programme, getting behind it and saying that everybody should have one of these things because not only do they give you pretty pictures about what energy you are using but you get money out of it because it shows you how to reduce your costs and that benefit comes back to you, that would be an advantage to the Government, who might otherwise be struggling to get people behind this.

Amendments 12 and 13—effectively, Amendment 13 —take us back to our discussions on the first group of amendments and Amendment 4, which is tabled in my name and that of my noble friend Lord Grantchester. Amendment 13 sets as a condition of minimum confidence 500,000 SMETS 2 meters—still a very small number—which are so far really untested in operation. Going back to what I said earlier about the need to operate in the wider context of opening up for innovation and bringing in new ideas, new ways of saving money and new ways that consumers could try to do things differently in their home in their use of equipment and the internet of things, we know all these other things are there and should be part of this process and package, but they cannot be until this project goes well. This amendment might look like a simple delaying tactic, but it sets an important pausing point at which everybody who is concerned in this, whether there is a proper plan or not, can say that they have confidence to go ahead with this project because they know it works and that at least at the level of the first 500,000 of these SMETS 2 meters it is a going concern, it is terrific, we can talk it up and we can all get behind it. There is a lot to commend this amendment to the Minister and I look forward to hearing him respond to it.

The Government have a rather uncomfortable choice. It would be very sensible for them to accept either this amendment or Amendment 4 because without some sort of overall bringing together of the consumer interest, the supplier interest, the regulator interest, Parliament, which needs to have a role in this, and the Government we will not get this working properly. That will be suboptimal for the country and for everyone in the long term.

[Lord Teverson]

My Lords, may I correct something I said about Hinkley Point C? EDF’s latest estimate is actually £19 billion to £20 billion. Preventing that sort of capital expenditure on energy generation is what this programme should be about. I apologise to the Committee that it is a rather larger sum than even I thought.

--- Later in debate ---

[Lord Stevenson of Balmacara]

I suggest that the test has already been passed and we are doing SMETS 2 come what may.

[Lord Henley]

We are going ahead to SMETS 2. The noble Lord is right there. We will see benefits from that, just as we have seen benefits from SMETS 1. That process will continue. I am suggesting to noble Lords and the rest of the Committee that we will provide appropriate reports back as to how that goes in due course, but I cannot provide any figures on exactly how fast that is likely to go, particularly in the initial stage this year.

[Lord Henley]

My Lords, I do not believe in crossing bridges until we get to them. When we get to that stage, if there is a problem, I will come back to the noble Lord.

[Lord Stevenson of Balmacara]

Let us put the noble Lord, Lord Teverson, to bed happily. There is no further testing. The Government have accepted this, on the basis of what we understand to be the evidence of 300 SMETS meters placed into the homes of employees of the companies commissioning them. The network is said to be working, and may or may not be, at two different levels in the north—I am not quite sure where—and the south because there are two different arrangements, with an imperfect but satisfactory, to all intents and purposes, gas approach based on the idea that the SMETS 2 meters that go on to the gas equipment have to be shut down for most of the time that they are there because otherwise they will use up the batteries, which they are restricted to using because you cannot use electricity near gas since it might blow up. Therefore, they are battery-driven and the batteries cannot last forever. It would be ridiculous to have a situation where you had to have teams of people coming in right across the country replacing the batteries all the time because that is what we are trying to stop them doing when they have to read all the meters. The Government are going ahead with this—this is the point I still do not quite get—on the basis of very imperfect testing on a scale of £8 billion to be spent over the next few years, which is effectively a voluntary tax paid by people who did not know that they were being asked to pay it. It is bonkers.

[Lord Henley]

I am afraid I do not recognise what the noble Lord has offered. I suggest that we continue discussions on this. What the noble Lord is putting to me is not what has been put in front of me in other places. As I said, we will continue to monitor matters and to provide information. That will be sufficient to deal with the amendments. If the noble Lord would like to continue to make these strange allegations about what is happening, we can continue to do that in the discussions that I offered when dealing with the first amendment.

--- Later in debate ---

[Baroness Featherstone]

Clause 3 seeks to protect the consumer from any costs that might ensue following a failure of the DCC. How could the DCC fail? It is a new service and there is a change in the top management at this critical point. No aspersion is intended but it is a change right at the top, and of course there are questions about the financial security of the DCC, should the parent company, Capita, run into problems. That is a timely point to make, given that my right honourable friend Vince Cable has secured an Urgent Question which is being debated right now. This afternoon Capita has revealed losses of £500 million last year, it has launched a £700 million fundraising effort to reduce its vast debt pile and its share price has plunged by 47.5%. At Second Reading it was mentioned by noble Lords across the House that Capita had issued a profit warning. They were right to do so.

We are all nervous since the collapse of Carillion. Is Capita too big to fail? What will we do if it does? Clause 3 is about insuring against the unknown, because the costs of any failure should not be a liability for the consumer. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, in this group we have Amendment 10, which I think takes the debate a little further forward. The noble Baroness, Lady Featherstone, made the case very well about the immediacy of the problem that now faces the Government and how they make progress with a company which has given a profits warning and has had to raise funding. Although it says that it might have access to many billions of pounds in borrowings and other things, it obviously raises questions of an order similar to those in the Carillion episode of a few months ago. I look forward to the Minister’s response on that, which I hope will cover the question of whether the Crown’s official involved in checking out companies that have major contracts with the Government has considered its longer-term prospects, making sure that any contracts placed with that company are satisfactorily secured in terms of delivery.

Our amendment fits in very neatly with this, at least in the sense that the reality of an administration is that it is a failure not only of the operations but of the possible costs. Like the noble Baroness, Lady Featherstone, and the noble Lord, Lord Teverson, we do not wish to see those costs passed on to the consumer. However, it also raises wider questions about what is going on here. In a sense, this is relatively familiar territory in that the Government are achieving a social objective using private sector activities. As was said in the other place only this afternoon, this is not new to Governments; Governments of all shapes have for the last 20 years or so increasingly used the private sector. Indeed, it is a long and distinguished history: Governments do not do very much on the ground in terms of buildings or roads. They may well carry responsibility for them and pay for them but the physical work is done by others. Outsourcing can deliver benefits. However, at a time when margins are being decreased and there is a bit more concern about whether these companies will be able to survive, we have to be very careful in what we do.

The thinking behind Amendment 10 concerns not just the mechanics of what happens in a default but whether the Government can think a bit more widely about how the company operates. Obviously, the new company, the DCC, is crucial to the delivery of the SMETS 2 programme. It is wholly owned by Capita; it has a ring-fenced arrangement with Capita but is nevertheless entirely under the control of that company. Although there are independents on the board, and everything else, do the Government really feel that that is sufficient at a time when so much is riding on it? We are talking about £8 billion worth of investment and work going forward, and everything that we have said this afternoon in relation to the future of our energy policies and initiatives and to consumer interests is certainly part of the whole operation.

When we were considering the green bank—I am waiting for the head of the noble Lord, Lord Teverson, to snap up at this point—we came across a similar problem, which was trying to make sure that the body that was being set up in the private sector, which we knew at that time was to be sold, had imposed within its structures a set of conditions under which the Government retained a golden share, to make sure that its original purposes, and green purposes in particular, were not polluted or changed by subsequent changes in the operational management of the company when it was set up or in its eventual sale. It turned out to be a very complicated issue, and I pay due credit to the noble Lord, Lord Teverson, for pursuing it to the point where we found a solution, which was not one that the Government ever thought we would come up with. But it was possible to come up with something that met the requirements that the Treasury set, unrealistic though they were, that the arrangements should not leave the Government in a direct power relationship to the company, because that would require any costs and everything else to go on to the balance sheet, but still retained the ability of the company to operate so that the green objectives were retained and operated. I am simplifying to make the point.

Does not this arise also with DCC? Is there not a worry here that we are talking about an organisation, a structure, a delivery function and an operation which suggests that we really ought to be thinking harder about the overall structure here? If the narrow question about what happens in an insolvency is insufficient to probe it, should not the wider concerns about all the companies that are going through difficulties with their delivery of public service obligations? The newspapers will be full of questions about what is happening to recruitment to the Army, because Capita is not performing very well on that, and what happens to other areas of activity. We may find that, £3 billion into the programme, the main structural body responsible for organising the network for our safety and data and all the operations that will lead to customer buy-in to this is unable to fulfil its objectives because of other financial constraints, and we do not have the right regulatory structures in place to ensure that it carries on the way it does. This amendment gives the Government at least some incentive to look at that, and I hope that they will respond positively to it.

[Lord Teverson]

My Lords, I support the amendment moved by my noble friend Lady Featherstone. Indeed, I agreed with many of the points that the noble Lord, Lord Stevenson, mentioned. The structure of the company in terms of green shares or golden shares is an interesting point that may be well worth pursuing.

Perhaps I should know this, as it is a factual question, but how long is the contract with Capita for DCC? What are the arrangements at the end of that contract? However long the smart metering programme goes on for—and one hopes that smart meters will be there for many decades before the next technology comes along—what are the arrangements for selecting the next incumbent? Does the DCC remain, or does it transfer to the new contractor, or is there a new corporate structure at that time? I am just trying to understand the length of commitment that we have with DCC at the moment. I am sure that, if I had done that research, I would already know, but perhaps the Minister could enlighten me.

Companies (Disclosure of Address) (Amendment) Regulations 2018

Lord Stevenson of Balmacara Excerpts

Monday 16th April 2018 Lords Chamber

[Lord Campbell-Savours (Lab)]

My Lords, I have just a couple of questions. In the regulations under the title, “Effect of a section 1088 application”, paragraph 13(4) states:

“In any other case the registrar must make the specified address unavailable for public inspection by removing all elements of that address, except—(a) for a United Kingdom address— (i) the outward code from the postcode”.


The Minister referred to “leaving the first part of the postcode”. What is the relevance of keeping that first part? Why any part of the postcode?

My second question relates to the Explanatory Memorandum, which states:

“Amendments have also been made to the 2009 Regulations by regulation 3 to ensure that one of the grounds on which an individual is able to make an application under section 243 of the Companies Act 2006 (to prevent disclosure of their address by the registrar to credit reference agencies) is that they are or have been a constable”—


that is, a policeman. Why is a special category of persons defined here in the legislation? Why do constables have this exemption?

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the Minister for introducing this statutory instrument. He expressed a view on the last one that we were at the dawn of a new era of understanding and mutual support across the Chamber. I am afraid it has lasted only 10 minutes because this is not a particularly easy SI to support. I have one or two comments that will not fit into that category, for which I apologise in advance. Also, like the noble Lord, Lord Fox, I declare an interest as a former director of a former live company, so I will be caught by at least part of the regulations.

I wonder whether this instrument should be looked at carefully in terms of its standards. I have a number of comments to make, but it seems to be based on virtually no evidence at all. There has been no consultation and there is no impact statement, so we are looking at something that has been brought forward with little prior preparation and little detail around it. That reflects badly on the department in that this is an important area, and one that may receive more attention in the future, particularly because of the growth of the internet and so on, so we have to get it right. The regulations also seem—I would be grateful if the Minister could confirm this—to have been devised outside the ambit of the Data Protection Bill. The Bill is still in the other place but it will shortly become law. It covers a large number of areas that would otherwise have been picked up in this statutory instrument; indeed, in one respect it may be otiose.

Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) (No. 2) Order 2018

Lord Stevenson of Balmacara Excerpts

Monday 16th April 2018 Lords Chamber

[Lord Anderson of Swansea (Lab)]

My Lords, to ensure that the provisions of this welcome order are fully complied with, have the Government considered the case for having some form of uniform payslip?

[Lord Stevenson of Balmacara (Lab)]

My Lords, I join other noble Lords in congratulating the Government on bringing forward these two SIs for consideration today. This one is affirmative and the other will go through on a negative basis. At a time when the gig economy and zero-hours contracts are growing, it is right to raise the issue of treating workers differently from employees—and what can be more important than pay? I thank the Minister for his contribution to this debate, and for opening up the issues in the round. I also thank his department for its work on the impact statement.

I have noticed that a considerable amount of work has been put into recent SIs. Those who have looked at this will not be surprised that it is of the high standard that we now expect. Not only does it run to over 20 pages but it includes, for the first time, Venn diagrams and flow charts. However, I reiterate a point I have made before: it is quite hard to read them if they are not in colour. Can we at last invest in a machine that would allow noble Lords on these Benches, who see them in mere black and white, to read them in the same glorious technicolour as Ministers? Maybe that is just the status of being in opposition.

Noble Lords who have listened to me talking before about statutory instruments from the department for business, enterprise and training will know that I have a fixation about the dates on which regulations come into effect. It has been agreed by all parties that we should work to common commencement dates, and I have been punctilious in picking up every one of the orders coming forward that does not comply with that—and there are rather a lot of them. Last time we debated this, only a month ago, the Minister was gracious enough to say that he agreed with me that we should think harder about the impact that regulations made in this House have on people and businesses who have to implement them, and that he would do his best to ensure that the department paid more attention to that in future. There are occasions when it is necessary to do things in a different way, but this is not one of them. My point is not that they have selected a common commencement date—they have—but 6 April 2019 is almost a year away, for something which is clearly beneficial to a lot of people. I am surprised that the department did not wish to use the other common commencement date of 1 October, and I would be grateful for the Minister’s comments.

I will make two points in passing. The first is on the way the Explanatory Memorandum is set out. It takes a line which is primarily about the advantages that will flow to the policing of the implementation of the national living wage—or, in this case, the national minimum wage, as it is defined. However, the Minister in his introduction took a much stronger line, which is that there is a principle of equity here: people who receive a payment should understand the basis on which that payment is made. The Minister made that clear. We are talking about transparency, and this simple change here will make a huge difference to a lot of people who have difficulty in following that through. It should be welcomed on that ground alone.

It may be—and I am sure will be—effective as regards policing the national minimum wage and rooting out the very small number of employers now who do not pay the national minimum wage as they should do. Of course it will help, and I am not against that, but the important thing here is the question of transparency and helping all workers to understand the benefits that flow from the employment and what is part of it.

However, it seems that the Government’s decision to move on this issue at this time, welcome though it is—and perhaps necessary as it is because of the changes in the economy, such as gig jobs and zero-hour contracts—raises wider questions about why we continue to differentiate between workers and employees. As the Government themselves say on their website, everybody is a worker—if they take out a certain number of issues that are tested in what they do—but not everybody is an employee. Employment rights, normally delivered under contract, are significantly better than workers’ rights. Can the Minister comment on whether further consideration might be given to that in future work on the good work agenda?

It is bad enough that we still have difficulty in trying to work out what a person’s employment status is in relation to taxation, and it is bad that we retain that in these regulations and that no attempt has been made to move that forward. It is very difficult; the onus is on the employer to ensure that the taxation arrangements are applied properly and correctly. However, the guidance given on the GOV.UK site is vague almost to the point of obscurity. It does not clarify—rather, it confuses. You are warned as you read it, as a possible employer, that you have to go through a checklist of nearly 15 bullet points which you test, and the answer to the question of whether an employee should be taxed as a self-employed or an employed person is the probability that most of the statements you are checking are true. That is not right for a modern economy that is looking to try to get people into work and to work productively and well. We should be better at it than that. Perhaps that might be part of the agenda.

To go back to my earlier point—which the noble Lord, Lord Fox, made as well—if we are to see a growth in workers as opposed to employees, we also need to think a bit harder about what we are saying to those in the worker category, which is the lesser of the two categories, as regards statutory sick pay, maternity pay, minimum notice periods, protections against unfair dismissal, the right to request flexible working and time off for emergencies. At the moment something like 290,000 people in the economy are workers and not employees, and it seems odd that in this world we still discriminate against them. I do not have an easy solution, but perhaps the Minister might respond to it and take it forward in the agenda and in the department that is moving it forward. However, we support this statutory instrument.

[Lord Henley]

My Lords, I am grateful to the noble Lord, Lord Monks, and to all other noble Lords for the very constructive approach they have taken to this order. I trust that this constructive approach will be noticed by the House and will be continued throughout the week on all business that comes before us.

I hope to deal with some of the questions that have been raised by noble Lords. However, I start off by correcting some of my earlier words to save myself making a Personal Statement tomorrow. In my opening remarks I said that some 30,000 workers did not receive a payslip. The paragraph I read out stated: “Although a significant number of employers already provide their workers with a payslip, up to 30,000 workers do not receive one”. I should have said that, “up to 300,000 do not receive one”. They will now receive one. I just want the House to be aware: for “30,000”, please read “300,000”.

Perhaps I may deal briefly with some of the questions put by noble Lords. First, the noble Lord, Lord Anderson of Swansea, asked whether it might be appropriate to have uniform payslips. That sounds very attractive, but this order is designed to ensure convergence with best practice, and I think that it would be right to leave employers with a degree of flexibility in how they continue to provide that. However, I note what he said.

I also noted what the noble Lord, Lord Stevenson, had to say about common commencement dates. He has criticised me in the past, so I was grateful that he spotted that on this occasion we have observed the rules on having a common commencement date, although he regretted that it would not be until April 2019. We could have gone for the other common convergence date in 2018, but that would have given employers considerably less time to prepare for this matter, and we therefore decided that 2019 would be better.

The noble Lord, Lord Fox, asked whether hourly rates could be included in payslips. We listened to arguments for including even greater detail on payslips, which is what this would amount to. I accept that he makes a perfectly valid point and we notice that UNISON provided input on this to the Government. However, we tested the idea of requiring employers to include a full disaggregation of hours, including those on employees’ payslips, but the costs of doing so for employers would be high and, we reckoned, disproportionate. However, again, I note the arguments put forward by the noble Lord.

The noble Lords, Lord Fox and Lord Stevenson, made a number of comments about the difficulties faced by independent contractors involving the definitions of “employee” and “worker”. We all know the difficulties of managing the distinction between “employee” and “self-employed”—a matter that has only recently gone to the Supreme Court and one that we have discussed in this House. This goes slightly beyond what we are discussing today. I accept that these are very difficult matters and obviously they will be taken into account in continuing to deal with the Taylor review. I certainly remember from my Bar exams some 40 years ago the difficulties around the definitions of “self-employed” and “employee”. The fact that it is going to the Supreme Court indicates that it is a very difficult matter. We also know that, as the noble Lord, Lord Fox, said when talking about the gig economy, times are changing. Again, these are difficult issues—but we have the Taylor review, which we will continue to consider.

I am grateful for all the remarks that have been made about this order and its relevance, and I think that I have had a degree of support from around the House. As I said, long may that continue. I commend the order to the House.

GKN/Melrose Takeover: Update

Lord Stevenson of Balmacara Excerpts

Tuesday 27th March 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the Minister for repeating the Statement made in another place by his right honourable friend the Secretary of State. I think that many Members of your Lordships’ House will think that it is rather troubling and a bit confused towards the end. I shall ask a number of questions in hoping to elucidate that.

GKN is a UK engineering firm, founded in south Wales in 1759, which is now a global engineering business which designs, manufactures and services systems and components for most of the world’s leading aircraft, vehicle and machinery manufacturers. GKN has various defence contracts in Luton, the Isle of Wight and in King’s Norton, including making components for the F35, A400MM, P8, Typhoon, V22, C130, and F22 vehicles. Approximately 58,000 people work in GKN companies and joint ventures in more than 30 countries, including 6,000 here in the UK. It has global sales of £9.4 billion and spends £85 million on R&D in the UK alone. As a percentage of sales, GKN spends about 4% on training, and we are hoping that that will continue.

The motto of the bidder, Melrose, is, “Buy, improve and sell”—in other words, to dismantle a business and then quickly sell each part off. On 8 January, the board of GKN received an unsolicited proposal from Melrose to purchase it; the board of GKN unanimously rejected it, on the grounds that the bid was,

“entirely opportunistic and that the terms fundamentally undervalue the company and its prospects”.

A formal offer from Melrose and various defence documents have been issued since then, and the deal closes this Thursday, 29 March. But despite growing concern it was not until yesterday, Monday 26 March, that the Secretary of State wrote to Melrose to seek the commitments referred to in the Statement and relevant undertakings on a number of key areas. So my first question is: why on earth did it take the Government so long to get involved, and why on earth leave it all so late?

I accept that there are currently strict and limited grounds for ministerial intervention in proposed mergers, in essence where one or more of national security, media plurality and financial stability are engaged. However, the Enterprise Act 2002 powers allow reference on those grounds to the Competition and Markets Authority for four months after the completion of a transaction. Better late than never, perhaps.

In the Statement the Secretary of State said that he would make such an assessment,

“following receipt of advice from the Ministry of Defence and other agencies on the final terms of a bid were it to be successful”.

So my second question is: can the Minister set out the likely timescale for this process, and how it will operate in practice? Will he guarantee to keep the House informed?

The Statement seems to suggest that the reason why the Secretary of State kept a low profile was that he did not want to jeopardise his quasi-judicial role in this takeover battle. If that really is the case, does it not prompt another question? If the Secretary of State for Business is debarred from taking an active interest—and we have to wonder whether that is a sensible position for him to adopt—who in government has the responsibility for looking after our industrial assets, including strategic and defence interests, in this and similar takeovers? I look forward to hearing from the Minister on that subject.

The Secretary of State rightly pointed out in the Statement that in the past some takeovers have had “deleterious” consequences. Presumably that is a reference to the Kraft/Cadbury debacle. He went on to say:

“In my view, this establishes the principle that we expect interests broader than pure shareholder value to be taken into account by directors and”—


this is quite important—

“in the attitude of the Government”.

He lists these as:

“a requirement for directors to have regard to … the interests of the company employees, its business relationship with suppliers, customers and others; and the impact on the community and the environment”.

That is quite wide-ranging, and all very sensible.

All those issues are directly engaged in this proposed takeover. So my fourth question to the Minster is: can he point out how and where these new principles will actually bite? How will they impact in Luton, the Isle of Wight and Norfolk? Will they ensure that the R&D spend continues, that the pensions are secure, and that the training opportunities GKN currently offers will be continued?

Finally, the Statement contains the view of the Secretary of State, as expressed in his letter yesterday to Melrose, that Melrose should set out more clearly its intentions towards wider stakeholders. He specifically requests it to make commitments in a legally binding form. I have to say that if the commitments specified by the Secretary of State were put in legally binding form, that would go a long way towards allowing us to support the Government in this matter. So my fifth question to the Minister is to ask him to confirm that the Government will refer the proposed takeover to the CMA if they have not received, by close of play on Thursday 29 March when the deal closes, legally enforceable commitments from Melrose on the issues that he has adumbrated already.

I repeat that those issues are: maintaining the business headquartered and listed in the UK; maintaining a UK workforce and respecting its employment rights as well as engaging closely with its representatives; continuing to pay tax as a UK taxpayer; continuing to invest in R&D programmes at current levels; investing in the training; treating suppliers well, including prompt payment of suppliers; making arrangements for current and future pensioners that are satisfactory both to trustees and to the Pensions Regulator; greater continuity of ownership of the defence-related businesses; and a commitment relating to the management of any defence contracts. At present only two of these “asks” will be covered by the legally enforceable commitments offered by Melrose to the Takeover Panel, and one of those only partially. The rest are not. I would be grateful if the Minister would reflect on that.

In conclusion, I have to say to the Minister that there cannot be many people in this country who think that the Government have got a grip on this issue. Voluntary agreements will not work, as we know from recent experience. Today’s weak, late and unenforceable assurances from Melrose are insufficient. There should be statutory provisions, not voluntary aspirations. In truth, without them, there is nothing there to assure the workers, the pensioners or the local communities. Nor will voluntary agreements assuage the concerns about the devastating impact that this opportunistic dawn raid will have on our industrial strategy and our national security. Both in this case and in future cases, we surely deserve better.

[Baroness Kramer (LD)]

My Lords, I want to press the Government a little more on one or two of the issues raised by the noble Lord, Lord Stevenson. One of those is the timing of the letter. The Minister will be very much aware that, presumably, it was meant to elicit information and to express some government concerns to be taken into consideration by the shareholders of GKN before they exercise their votes. However, as he will know, many of the shareholders have already declared —and I think he will confirm that a declaration once made cannot be retracted. In addition, the remaining shareholders have largely had all their internal meetings to come to their final decisions, and cannot pull those meetings back together to reconsider in the very brief timeframe of the next 48 hours. Therefore, if this is something other than public relations, will he explain to me how it is meant to inform shareholders, because I do not understand that? Will he especially, in that case, confirm that he still takes the view that the Secretary of State can call in this transaction, in whatever form it goes through, if concerns remain following the vote?

I scanned through the Melrose response very quickly but there seems to be no mention of the 6,000 workers. There are various assurances on other points but I saw no mention of them. Will the Minister comment on that? I am also concerned that all the various declarations seem to have a timeframe of five years. Considering the length of time needed to plan measures such as the industrial strategy and the sustainable relationships that need to be developed in the aerospace, defence and other fields, five years seems an infinitesimal period. Will the Minister explain why that short timeframe apparently reassures him, because I am not sure that it does me?

Does the public interest definition need to be looked at again as it does not mention workers’ rights or pensioners and does not refer to the industrial strategy, which is supposed to have a much more important role now? Airbus, for example, has expressed concerns about a potential new owner, which could undermine the direction in which the Government are trying to take industry in this country.

My last point concerns an issue I do not fully understand. However, the Minister may be able to help me. I understand that many of the shares are held by arbitration houses, and that rather than buying them and paying stamp duty they have them on loan and are exercising them in that format. Is that really appropriate and is it something else we should look at?

Criminal Justice and Police Act 2001 (Powers of Seizure) Order 2018

Lord Stevenson of Balmacara Excerpts

Thursday 15th March 2018 Grand Committee

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

My Lords, I congratulate the noble Lord, Lord Stevenson, who is still with us for the third item of business. I am grateful for the feedback from the Secondary Legislation Scrutiny Committee regarding the explanatory material accompanying this draft order. We always strive to provide sufficient information for noble Lords to gain a clear understanding of an instrument’s policy objective and intended implementation. Furthermore, my department will take account of the comments of noble Lords made in this Committee when preparing explanatory memoranda for future instruments.

Insider trading and price manipulation in the wholesale energy markets is a crime and ultimately consumers and businesses pay the price for such behaviour in the form of higher bills. It is therefore important that the energy regulator in Great Britain, Ofgem, has sufficient powers to investigate and punish those behaving in such a way and that that acts as a deterrent. Insider trading and market manipulation in the wholesale energy markets are prohibited by the wholesale energy market integrity and transparency regulation—REMIT —which has been in force since December 2011.

In June 2013, the Government made civil enforcement regulations for REMIT—the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013—which give Ofgem powers to impose unlimited financial penalties, access to information and the power to enter the premises of a regulated person under a warrant. In March 2015 the Government strengthened that regime by making further regulations to create criminal offences of intentionally or recklessly breaching the prohibitions on insider trading and market manipulation.

The 2013 regulations give the regulator the power, under warrant, to enter premises to search for, and seize, information and documents that appear to be relevant. However, there are cases where Ofgem may have difficulty exercising this power of seizure. Investigating officers may be presented with a large volume of documents. Identifying documents relating to suspicious transactions among many documents of a similar nature can be akin to finding a needle in a haystack. Ofgem currently has no power to take away an entire body of documents to sift them for relevance off premises. In some cases, this may mean that vital evidence is missed.

Section 50 of the Criminal Justice and Police Act 2001 addresses this problem. It enables a person exercising a power of seizure to remove material from the premises being searched to determine whether it is something which the person is entitled to seize if it would not be reasonably practicable to determine that on the premises. The power in Section 50 applies where a person is exercising a power of seizure listed in Schedule 1 to the Criminal Justice and Police Act. More than 60 such powers are already listed in the schedule. The effect of this order is to extend this power to Ofgem when it is searching premises to investigate breaches of REMIT. The Government believe this would be a measured and sensible extension of Ofgem’s powers, which will help to ensure it can take effective enforcement action.

The Government sought views in December 2015 through consultation on whether Ofgem’s powers should be strengthened to bring them into line with this provision. Industry stakeholders, perhaps not surprisingly, believed that the additional powers offered to Ofgem were disproportionate. Others, including consumer groups, were neutral or in favour of the provision. The Government believe that effective regulation in this area is essential and that sufficient safeguards will be in place to meet stakeholder concerns. The Government do not believe that costs will be unreasonable.

The power will apply only where a court has granted Ofgem a warrant to search premises. When Ofgem exercises this power it will be under a statutory duty to sift information as soon as reasonably practicable after seizing it and return anything which it was not entitled by the warrant to seize. Additionally, a person who is the owner of a document can apply to the court for the return of such material.

We believe that this additional power will aid Ofgem in its investigation of market abuse and that the safeguards should ensure that it is not used unnecessarily. I commend the order to the Committee. I beg to move.

[Lord Stevenson of Balmacara (Lab)]

My Lords, I thank the Minister for his full introduction to this order. Again, we have no significant concerns about the order itself because it is an appropriate way forward. Indeed, it seems to be needed, based on the description we have had.

As the Minister has said, the Secondary Legislation Scrutiny Committee reported on the order in order to draw it to the attention of the House on the grounds of a policy likely to be of interest. The committee’s main concern seems to be about the rather extended time taken to go from the initial idea booted around in the consultation paper in December 2015 to the final decision to move forward on a part of what was consulted on—only a part—as late as earlier this year. The Minister said that the issues raised will be taken back with everything else, but he did not give us an explanation about that issue. The letter from the department that covered it is also rather vague. It is mainly to do with the fact that internal government processes got in the way of the smooth running of the overall proposal and that the decision was taken quite late simply to go ahead with these REMIT proposals. More information about that would be of interest.

My concern is slightly different. The consultation that was carried out was broader than the REMIT, but the Explanatory Memorandum focuses on those issues. I take it that the references in Article 8 of the Explanatory Memorandum are around that. It says in paragraph (8.2):

“Some energy companies expressed support for the initially proposed “seize and sift” powers, but the majority of companies and representative groups”—


so it is not quite as the noble Lord mentioned—

“argued that these were disproportionate, unnecessary or gave Ofgem too much leeway on which information to remove”.

In other words, they were about the powers. It seems to me that the majority of companies did not agree with the proposal. They felt that the existing powers would be sufficient and that seeing papers on sight, sifting through them there and taking information away in that form would be sufficient for their processes. In paragraph (8.3) however, the department’s response states:

“Having taken account of the consultation responses, BEIS considers that the aim of the policy … justifies the additional burdens identified by industry”.


They were complaining not about the burdens, but the powers. The Explanatory Memorandum is completely silent on whether these powers are appropriate. It seems that the Government have decided to ignore the consultation and go ahead. Will the Minister comment on that? He is not wrong in the sense that the ends may justify the means, but the process would have left a number of companies a bit bruised, given the very short time available and the lack of any individual consultation. They would be entitled to feel that they have not been taken account of properly.

Finally, I have to come back to the matter of the implementation date. This is a new group of civil servants and I can expand on my worries. Other noble Lords will realise that I have raised this matter before. This order may be cited from, and comes into force on, the “twenty-first day after the day on which it is made”. It will have a considerable impact on a small number of companies operating in the electricity and gas field. It is therefore not inappropriate to think that the order should start from the common commencement date: 6 April. If you do the maths, 21 days takes you just beyond 6 April. It would be not inappropriate if the Minister decided to suggest, even with the regulation in this form, that 6 April would have been a better date, and I appeal to his better judgment to make the necessary changes if he can.

[Lord Bradshaw]

In considering this order we should consider the enormous public dissatisfaction with some of the regulated industries that we have seen for a long time. I think I am correct that the regulators have often been caught out saying that prices should be allowed to rise by a certain amount, and immediately after the announcement, companies’ share prices have risen. To me, this means that the regulator has misjudged the situation. Bodies such as Ofgem are extremely powerful, and from the point of view of the consumer and the general public it is important that a very close watch is kept on their activities. I am happy to support what is in this paper because the balance of advantage between consumer and supplier is tilted very much one way, and this will tilt it back the other way.

[Lord Henley]

My Lords, I think that I am grateful to the noble Lord, Lord Bradshaw, for his comments. It is always difficult to get the balance right in these matters, which is what we are trying to do in a number of other pieces of legislation—as the noble Lord will be aware—that are before another place at the moment.

It is important that we ensure that Ofgem has the appropriate powers to look after the consumer interest. Obviously, we take very seriously the idea of any extension of powers that we might grant to Ofgem or any other body, and that is why, under the Police-and-whatever-it-is Act 2001, we have to make an order if we want to do that. They are affirmative orders and we have to come to the House to argue the case for them. That is what I am doing.

The noble Lord, Lord Stevenson, was slightly worried about the consultation and whether we listened to the consultees. What I said in my opening remarks was that the industry and stakeholders, perhaps not surprisingly, believed the additional powers were disproportionate, but I added that others, including consumer groups—this is the point that the noble Lord, Lord Bradshaw, picked up—were neutral or in favour of the provision. The Government have to consider these matters very carefully.

[Lord Stevenson of Balmacara]

Just to be clear, paragraph 8.2 of the Explanatory Memorandum does not say what the Minister just said. It may just be that the expression needs to be changed, but it states,

“the majority of companies and representative groups”.

I think “representative groups” includes consumer groups. The Minister said there were others, but we do not have the detail. They,

“argued that these were disproportionate, unnecessary or gave Ofgem too much leeway”.

[Lord Henley]

It does not just include consumer groups. The point I was making was that consumer groups in particular were neutral or in favour. Having listened to the consultation, the Government came to their conclusions and decided what was necessary. We considered that the powers were very important and we considered bringing them in with appropriate safeguards. I think that is what we have done.

The noble Lord was concerned about the timing of the order. I am glad that it was not just me listening to him. As he said, there is a collection of officials listening behind me, and I hope this will suffuse through the department so that all of us—Ministers as well as officials—can be aware of his concern that as far as possible we stick to the appropriate dates. Obviously, there will be other occasions when we cannot. I have no power to make amendments now. The noble Lord probably guessed that, since he made the suggestion. Since I have general agreement that this order should go through, I repeat that the department could possibly do better in future. I will keep my beady eye on these matters and see to it that we do as well as possible. As I said at the beginning, we will continue to take the Committee’s views into account in future.

[Lord Stevenson of Balmacara]

I go back to my original point and ask the Minister, for my comfort and satisfaction, to write with a bit more explanation about the make-up of the responses that were received. May I also welcome the Minister to the small band of people who believe in common commencement dates?

[Lord Henley]

The noble Lord will get a reputation for having a bee in his bonnet about common commencement dates and will, no doubt, be teased by his colleagues as “Lord Common Commencement Dates” for ever. I will certainly write to him in greater detail on the other matter. I am grateful for the support from both noble Lords.