British Steel: EU Emissions Trading Compliance

Oliver Letwin Excerpts

Wednesday 1st May 2019 Commons Chamber

[Greg Clark]

The hon. Gentleman started out welcoming the action we have taken and ended up, it seems, withdrawing that support. I will take the first half of his statement at face value and recognise that we have taken action to deal with an unusual and urgent problem, and have done so in a way that I think has displayed some agility. Advice has been taken, which will be fully disclosed to the Committees of the House, on the terms of the agreement and how it can be commercially benchmarked. Clearly, borrowing against allowances with a short period of time before the deadline—it is in the company’s gift and the company’s obligation to comply—requires moving quickly. The judgment we took was that we wanted to make sure we could secure against the possibility of the fine, and do so in a way that was commercially benchmarked. We have done that and it can be scrutinised. The deadline was last night. The fact that I have come immediately to this House to make a statement and publish the accounting officer’s advice I hope illustrates the transparency with which we have proceeded.

On the contingency that this arrangement has had and whether a deal has been approved, I put it as a matter of fact that the reason we had to make this transaction was that we have not, as a House of Commons, agreed a Brexit deal. We have not ratified a Brexit agreement. I said to my opposite number that I welcome the constructive discussions that are taking place. I hope that in the days and weeks ahead, the hon. Gentleman’s party might approach them in the same spirit and try to come to an agreement so that not just the steel industry but every industry in the country can have confidence in the terms of our relationship with Europe in the years to come.

[Sir Oliver Letwin (West Dorset) (Con)]

I congratulate the Secretary of State. My experience in government was that the most important things that Secretaries of State do are those least noticed. They are the crises that do not happen. He has, with supreme competence, dealt with what could have been an extraordinarily tricky situation, as all those involved in maintaining British Steel in this country know.

Is the Department taking steps to ensure that when we leave, as I hope, in an orderly way in the relatively near future with an agreement with the EU, there is a proper substitute for the ETS on a domestic basis that will complement the measures that the Secretary of State for Environment, Food and Rural Affairs is taking in a whole realm of cognate spheres?

[Greg Clark]

I am grateful for the endorsement of my right hon. Friend, not least because in the previous Government he played the role he has ascribed to me with some deftness and success on many different occasions. He is absolutely right that agreeing to a withdrawal agreement would allow our continued participation until at least December 2020, giving us the time to put in place different arrangements, which would be in our gift. One reason we felt that it was important that British Steel should comply is that the institutions that drive compliance with emissions reductions targets should be respected. We want to send a clear signal that we expect the targets to be respected and implemented. That will take place while we are a member of the European Union and, as my right hon. Friend indicates, afterwards too.

Net Zero Carbon Emissions: UK’s Progress

Oliver Letwin Excerpts

Thursday 28th February 2019 Commons Chamber

[Richard Benyon]

I do—and I speak as one who knows a bit about this subject. I have been trying to embrace techniques in what I have been doing through the less than perfect mechanism of the common agricultural policy and I am excited about the potential for agriculture to play its part. The NFU is right to be leading on that.

[Sir Oliver Letwin (West Dorset) (Con)]

Before my right hon. Friend moves off the security relationship, does he agree that, almost certainly, other than North Korea and the dispute over the India-Pakistan border, the single biggest risk to international security today—much too little discussed—is the question of the climate fence around Bangladesh and the possibility of rising waters forcing tens of millions of people up towards the border with Calcutta?

[Richard Benyon]

My right hon. Friend is right. Looking out of an aeroplane window at that delta, one can think about the implications of even a 1 metre rise. It would have a devastating, catastrophic and tragic impact on those who live there. That impact would be multiplied by an enormous magnitude because of the knock-on effect it would have on the surrounding area. It is absolutely vivid.

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[Mary Creagh (Wakefield) (Lab)]

It is a pleasure to follow the right hon. Member for Newbury (Richard Benyon). I advise him to keep his mobile phone switched on, given the news that the Fisheries Minister, the hon. Member for Camborne and Redruth (George Eustice), has just resigned. The Government may be looking for a new Fisheries Minister, and it may be the right hon. Gentleman’s lucky day yet again. In the great tradition of reusing and recycling Ministers, I can think of no finer replacement.

[Sir Oliver Letwin]

I really cannot allow the hon. Lady to get away with that. If she thinks it is a privilege or a delight to be a Fisheries Minister at present, she must be dreaming in ways of which I know she is not capable.

[Mary Creagh]

I wonder whether the hon. Member for Camborne and Redruth has resigned so that he does not have to answer the letter that my Committee has just drafted, which asks him about our progress towards becoming a so-called independent coastal state and how the negotiations with various regional fisheries organisations are going.

Let me now turn to the subject of the debate. Securing a sustainable future for the planet and our children is a responsibility that we simply cannot ignore. I welcome the chance to discuss this issue, because we have spent far too long discussing Brexit in the Chamber and not enough time discussing the thumping alarm that is being sounded all around us on our planet.

To achieve net zero, we must reduce our emissions rapidly and at scale in every area of our economy and in every area of our lives. Our Committee has talked about some of the personal changes that we can make, whether that means turning our backs on single-use plastics or considering how we can achieve, for example, a net-zero fashion industry. The report that we published last week took climate change into areas where it may not previously have gone.

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[Mary Creagh]

I totally and passionately agree. We on the Environmental Audit Committee are privileged to have global thought leaders appearing before us and giving us the best available science. It is sometimes rather chilling, however; for example, Professor Jim Skea from the IPCC told us that our assumptions about how quickly we can decarbonise are perhaps over-optimistic and based on new technologies that have not yet been invented, so perhaps the discount rate for future technologies needs to be lower than at present. There are some truly profound moments in our Committee, and I am sure my hon. Friend would be very welcome to join it; we also have a couple of spaces for Conservative Members, so I hope we can get some volunteers following today’s discussion.

We have been leaders in this, and people still look to the UK for both thought leadership and policy action leadership. We provided that under the last Labour Government with the Climate Change Act 2008. A weakness in that Act has become apparent, however: there was no review process. We set up the Committee on Climate Change, which advises the Government—all well and good—but then it is up to the Government to heed that advice or to ignore it, which is less good, and there is no review process, so now if we do need to set this zero net emissions target, we will need to re-legislate, and I will be interested to hear from the Minister about the necessary policy mechanisms.

We have signed up to the 2015 Paris agreement and to the UN sustainable development goals to create a more equitable, sustainable world. Our Government will subject us to a voluntary national review at the UN this year, and I urge all Members of this House to participate in that process. It is about how we end poverty, violence and hunger in every aspect of our communities. Our Committee has looked at the hunger aspect, and I welcome the fact that the Department for Work and Pensions and the Office for National Statistics will now start to measure hunger in our country. Real sustainability comes not just with social justice, but with climate justice as well.

I want to talk about why net zero emissions matter. In October 2018, the UN’s leading scientists—some of whom were British—showed what could happen if we do not get to net zero. Extreme weather is already happening; the warming is already with us, as we are seeing with the tragic events on Saddleworth Moor, the heatwaves in the Artic last year and the fact that we have had the hottest February day on record. The Arctic is warming twice as quickly as the rest of the planet, and in February 2018 temperatures at the North Pole rose above freezing during the polar nights, which is when the sun has not even started to come up; it was 30° higher than normal. When we talk about an average of 1.5°, that means a 7° rise at the North Pole. That is catastrophic for the melting of the sea ice.

We had a deadly summer last year, and we also had the highest number of excess deaths last year because of the beast from the east; we had 40,000 excess winter deaths in this country. So when we talk about climate, we are also talking about ourselves; we are talking about the fact that we are conducting a vast experiment on the only system on which our life depends. We do not know what we are doing; we do know how to stop it, but there is a kind of collective passivity around the action needed. When we see cities such as Cape Town in South Africa running out of water, and when we see power stations in Australia unable to work because it is too hot, we have to ask ourselves what a 1.5° or even a 2° warmed world will look like.

The IPCC also showed us what the difference is between 1.5° and 2°. At 2° sea levels will be 10 cm higher. That means 10 million more people will be affected by flooding and coastal erosion. That is what the difference between 1.5° and 2° means. At 2°, all coral reefs die. Our children will never see a coral reef at 2°. If we keep the increase to 1.5°, one third of reefs might survive. We have cold water reefs on our shores that we do not know about. We do not value what is beneath the ocean.

Our species are becoming extinct at a rate that has not been seen since the last global mass extinction. We have just been hearing about the insect Armageddon. Our planetary health inquiry found that rates of extinction are between 100 and 1,000 times higher than what is considered to be natural diversity loss. This affects our food systems, because if pollinator populations are devastated, we will have to pollinate our fruit trees by hand, as is already being done in parts of China.

Soil is the only carbon sequestration system that is known to work at scale and for free, yet we keep treating our soil like dirt. [Laughter.] That was my little joke. Soil is the Cinderella ecosystem. We like clean air and clean water, but what we should really like is dirty dirt. The more dirt that is in our soil—I do not mean bad dirt; I mean organic content—the better it is. In Paris, we signed up to increase our soil carbon content by four parts per 1,000, but I have not yet seen any policy to support that, either in the public goods debate around farming or from the Minister. I would be grateful if we heard something about how we will incentivise farmers to achieve that and to incentivise urban guerrilla gardeners such as myself to achieve it in our own homes. If I knew how to do it, believe me I would.

[Sir Oliver Letwin]

This is actually a serious interjection, unlike the previous one. I completely agree with the hon. Lady that we have neglected the soil, even though it was clearly identified in the national ecosystem services review, but does she not agree that the move to payment for ecosystem services should enable successive Governments to engage farmers in precisely that kind of activity?

[Mary Creagh]

Indeed it should, but there has to be a baseline measurement, and somebody has to pay for the measurement and the monitoring. The tragedy is that, if we leave the EU, this type of global thought leadership that we are now getting to will be lost and will no longer be able to be transmitted to our friends and colleagues in the EU.

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[Zac Goldsmith]

I will address exactly that point shortly.

Let me conclude my remarks on the IPCC report. If one looks at the trends, one sees that currently we are not heading for that apocalyptic 2°C rise; we are heading towards something that looks more like 3°C, the consequences of which we cannot possibly estimate. In that light, the idea that children missing a few hours of geometry or physical education to ring the alarm bells and wake up our political system is somehow a wasted opportunity or the wrong thing to do just seems churlish. It seems absurd and mean-minded.

[Sir Oliver Letwin]

My hon. Friend is on the central issue, but of course he is referring to a global problem and it has only a global solution, because we are talking about 2.6 billion people in China and India for the first time in 250 years returning to the historic norm of their occupying half of global GDP, with massive consequences for energy consumption and other things. Does my hon. Friend agree that we therefore need to talk not just about our own activities and those of the west, but about the question of how we restructure the international order, which is probably the biggest challenge facing the western world and the eastern world at present?

[Zac Goldsmith]

I could not agree more with my right hon. Friend. My final remarks will relate partially to the point that he just made, and he is right. It would be madness for those countries that have not yet developed in the sense that we have to develop in such a way that required them to become addicted to the same system that is causing this problem. They have an opportunity to leapfrog into a much cleaner, leaner and more efficient future. The technology is there.

As my right hon. Friend the Member for Newbury pointed out earlier, there are still doubters. Of course we can quibble with the predictions, because climate systems are complex. There is not a computer model on Earth that is capable of fully taking on board the complexity of the natural world and the realities of the positive and negative feedbacks that impact on climate. Nevertheless, we are faced with a pretty simple calculation: what happens if we ignore that overwhelming scientific consensus, listen instead to the sceptics, and are then wrong? The IPCC predictions have told us that we would be risking life on Earth as we know it. We would be risking civilisation.

What happens if instead we listen to that consensus, take action and are wrong? Well, by accident we would end up with a cleaner and eventually cheaper energy system. We would end up protecting more of the world’s forests and ecosystems. We would end up with an economic system that was more circular and less wasteful. It really is not a difficult calculation to make—and that is even more true given that almost everything we need to do to tackle climate change is something that we need to do irrespective of climate change.

The challenge is gigantic and no one doubts that—we are told that if we are to meet that 1.5°C total global emissions target, we need to reach net zero by 2050 at the latest—but we can do it. In fairness to the Government, it is worth highlighting that we are already making progress—not enough, but progress all the same. We have already heard about the world-leading Climate Change Act, on which I am not going to dwell, but since 2010 the UK has reduced emissions by 23%. We have reduced emissions faster than any other G7 nation. I am delighted to acknowledge that the Government have instructed the Committee on Climate Change to look into how we can go further and move to a net zero emissions target. It also needs to be said, though, that at the current rate of progress, despite our having met the early targets and being on course to meet the next one, we are not on course to meet the fourth and fifth carbon budgets, so we do have a long way to go.

Clearly, we will have to change much of what we do not just in terms of how we generate electricity, but in terms of how we use it, how we manage the land, and how we organise our transport, food and industry. There has long been a belief, a fear, that there must be a direct correlation between emissions and economic growth. That has been true. For much of the industrial revolution, there has been a direct link: emissions go up, growth goes up. However, it is not so clear now. Since 1990, we have cut emissions in this country by 42%, even while our economy has grown by two thirds. As we enter this gigantic economic transition, there will, of course, be losers—the polluters—but there will also be winners. Last year saw a record amount of power generated from renewable sources—more than 30% is now coming from renewables.

A much quicker transition to electric vehicles—something on which we really need to push—will mean more jobs and more investment. Supporting new, clean technologies means both jobs and investments. That transition will happen whether we like it or not. It is the old story of the whale oil. In 1850, every home in America was lit by whale oil. Nine years later, Edwin Drake struck oil, and we had the oil rush. Almost immediately, the whale oil sector simply evaporated. There is a cutting in a diary of the biggest whale oil trader at the time who said that he was astonished that he had run out of customers before he had run out of whales. That is what will happen. Old industries and old technologies will give way to new ones, and it is in our interests as a country to lead the charge.

Hon. Members have covered lots of areas on which we need to get going, but I want to focus on just one last point that has been neglected in almost all of the debates that we have had on climate change, and that is forests. Apart from transport, deforestation is the single largest source of emissions. It accounts for around 20%—a fifth—of all carbon emissions. Forests are one of the world’s largest carbon sinks, absorbing around 2.5 billion tonnes of carbon a year and storing many billions more, yet we are losing 18.7 million acres of forests every year, the equivalent of 27 football pitches every single minute. It is self-evident madness that that is happening—not just because of climate change. Forests provide us with clean air, water and soils. We do not fully understand their influence on world weather patterns, but we know that it is defining. They are home to 80% of terrestrial biodiversity. More than 1.5 billion people depend directly on forests for their livelihoods, many of whom are the world’s poorest people, so we need to protect them. That needs to be a priority.

The UK can be proud that we are the only nation in the G7, and indeed in the G20, to hit the UN’s target on overseas aid the year before last—we were the only country to do so. Only a tiny fraction of that aid—as little as 0.4%—goes towards nature, and we can do much more than that. The very existence of DFID is to tackle poverty, but the surest way to plunge people into desperate poverty is by removing the environments, the ecosystems and the free services that nature provides. Those are the things on which people depend. Of course, the world’s poorest people depend much more directly on nature than we do here in this House, but, ultimately, we all depend on the natural world.

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[Sir Oliver Letwin]

Before the hon. Gentleman moves off that point, would he agree that one of the more encouraging signs is that technology is being developed for carbon reuse, which does not necessarily mean putting it back in the ground, but at least recycles it?

[Dr Whitehead]

Yes, the right hon. Gentleman is absolutely correct about that; using carbon cycles so that they are as long as possible and in the end the carbon is sequestered is a good way of ensuring that we make our economy as circular as possible, in addition to sequestering the carbon arising from it.

We have been given the Government’s clean growth plan. It was set out in response to the fifth carbon budget requirements, which, among other things, require us to get our carbon emissions down by 57% from 1990 levels by the end of the fifth carbon budget. I have to say to the House that the clean growth plan fails to do what it says it is going to do about the fifth carbon budget. Indeed, it suggests that we may be as much as 9.7% over the targets for the fifth carbon budget in terms of the things that the Government are setting out to do. So absolutely the first thing we need to do in considering our progress towards zero carbon is to fundamentally make over, that clean growth plan so that it actually works. Not only must it achieve the terms of the fifth carbon budget, but it must go beyond that so that we are ready and setting ourselves up for the advice we are going to get from the Committee on Climate Change as to how we get to zero carbon. I invite the Government to start work today on getting that clean growth plan reorganised so that it can meet the terms of net zero when they come to us. Were the Government to embark on that strategy, they would have the full support of the Opposition in making that work and making sure that we are ready for net zero, and not running along behind, as we have for so many years in this House since the climate emergency started to come upon us.

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[Claire Perry]

I entirely agree. Many groups out there will be waiting to see what we say today, including those young people who took to the streets with great energy and verve. It was an absolutely amazing thing to see. I note that in applying for this debate the hon. Member for Oxford West and Abingdon said she was

“very supportive of them but as a teacher”

a little concerned

“because it would really have annoyed me in my physics classes”.

I am afraid she probably would have been cross with me had she been my teacher, because I fear I would have been out there with them at their age—although, of course, I was studying geography and meteorology, not physics.

I wish to address a few points: first, where we are; secondly, why we need to do more; and thirdly, why this is so incredibly important. By the way, I welcome the really collegiate cross-party tone of the debate. There were some political digs, but I am not going to get into political point scoring, because unless we pull together on this, we will not make progress. This has to be a cross-Government, cross-party, global initiative, and we need a lot more consensus than we have had.

Following the previous debate, let me say happy St David’s Day for tomorrow to the very many Welsh Members. As Members representing all four nations in this great group, we can take pride in the UK’s record on tackling climate change. We were among the first to recognise the problem. Indeed, Mrs Thatcher spoke about the impact of human activity on the climate at the UN in 1989; Sir Nicholas Stern’s incredible work in 2006 laid a pathway for how we had to think about the problem; and we used cross-party strength in this place to pass the world’s first Climate Change Act 10 years ago.

I am one of probably a tiny number of Ministers who has statutorily binding carbon budgets, given to us by the CCC and upon which we have to agree, and who has then to defend those budgets and the record on them to the House of Commons. It is worth noting, as others have, that we are on target to drop our carbon emissions by 57% by 2032. Of course, we need to get to 80% by 2050. Some will say that we have not yet set out exactly how we are going to reach those targets. We published the clean growth strategy—the most comprehensive document I have ever seen from a Government—setting out policies and proposals to decarbonise right across our economy. I am happy to say that we have delivered almost all the action points and commitments that we have made so far. We know that we have to do more and we will do more. We have to go further than those budgets, which is the point of the debate.

[Sir Oliver Letwin]

My right hon. Friend and I have often discussed this question, but I hope she will acknowledge that the provision of the basic charging infrastructure on the trunk road network now proposed by Next Green Car would be a huge step forward. If we can cure range anxiety for electric vehicles, we might see a tipping point, which would have a big effect, even on the things mentioned by the former Energy Secretary, the right hon. Member for Kingston and Surbiton (Sir Edward Davey).

[Claire Perry]

My right hon. Friend makes the point well about some of the things that the Government can actually do. So much of this is about a combination of the public and the private sector working together, but there are absolutely parts of the equation on which the Government can and must lead, such as through legislation and incentives. I entirely agree with my right hon. Friend.

Higher Education and Research Act 2017 (Cooperation and Information Sharing) Regulations 2018

Oliver Letwin Excerpts

Monday 2nd July 2018 General Committees

[Sir Oliver Letwin (West Dorset) (Con)]

On a point of order, Mr Gray. May we take our jackets off, please?

[The Chair]

Contrary to my normal practice—I am a small “c” conservative about this—I will reluctantly allow gentlemen to remove their jackets, if they wish.

Domestic Gas and Electricity (Tariff Cap) Bill

Oliver Letwin Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Monday 30th April 2018 Commons Chamber

[Dr Whitehead]

On reflection, I can join the hon. Gentleman in being slightly perturbed that I am quoting The Sun in this context. I assure him that although I quoted The Sun, a range of authorities from the Daily Mail —getting better?—up to the BBC’s website suggested that the Prime Minister did actually say that people would save £100. If the hon. Gentleman thinks that quoting The Sun was not entirely appropriate under all the other circumstances, I can do nothing other than agree with him.

Amendment 7 would ensure that vulnerable customers, including those already protected by a tariff cap, do not lose that protection as a result of the overall cap being introduced.

[Sir Oliver Letwin (West Dorset) (Con)]

If we put together the hon. Gentleman’s remarks about amendments 5 and 6—the general gist of which I have no quarrel with—and if Ofgem were subject to legal challenge as a result of trying to impose a cap of this size on that timetable, what does he suggest would be the effect of his amendments if they had entered law? How would Ofgem deal with the conflict between the courts and an Act of Parliament?

[Dr Whitehead]

My understanding is that the question of a timeframe for implementation of the cap would be strengthened considerably regarding a potential legal challenge by providing for a maximum period for the introduction of the cap, rather than a specified date. I think that we accept the principle that there should be some indication in the Bill of when the cap is to arise; certainly, in previous discussions of the Bill, there has been a real concern about the body responsible for implementing a cap after the legislation has been passed through the House taking any or no specified period to prepare the cap for its actual execution. The preparation of the cap will also be part of the process by which it is strengthened against legal challenge. That therefore needs to be done carefully and properly so that it is implemented it in a way that is proofed against such legal challenges. Ofgem indicated in its evidence to the Committee the period that it thought reasonable for it to be required to take forward the implementation of the cap. Placing that period in the Bill therefore seems, at least to the Opposition, to be adding to the proof against legal action rather than detracting from it.

[Sir Oliver Letwin]

I completely accept that it is advantageous to give Ofgem a push to do this on the timescale that the hon. Gentleman is describing. However, clause 1(1) says that

“the Authority…must modify the standard supply licence conditions”,

and under his amendments, it would have to have done that by a given date, yet the court may be preventing it from doing so. I still do not understand how he deals with that legal conflict.

[Dr Whitehead]

The Bill says that what needs to be done to modify licences to bring the cap about, among other things, has to be done by Ofgem as part of its implementation process. The question of legal challenge to Ofgem concerns, at its heart, what Ofgem does over whatever period may be specified to ensure that the implementation of the cap does not deviate from what is set out in legislation. That is the clear basis on which the cap should be undertaken, and that is the responsibility of Ofgem.

The second issue is the time within which Ofgem considers that it can introduce that cap in the way that the right hon. Gentleman has described, given its workload and capacity to do so. Indeed, Ofgem is on the public record, through the evidence that it gave to the Committee—he will know that that has some weight through being a public statement in Hansard—as saying that it felt that it could do it within five months. The amendment merely tries to tidy up the process by putting that timeframe into the Bill, while not in any way detracting from the strength or otherwise of what Ofgem is required to do in acting to implement the cap in a way that is both effective and legally watertight.

I am not sure that I can go too much further with the right hon. Gentleman’s point. I am happy to take it up with him separately if he wishes. However, I have explained where we are in seeking a combination of watertightness in the Bill and clarity that the wishes of this House can be undertaken in through the price cap coming in during the period when it is supposed to come in.

Amendment 7 relates to the point made by my hon. Friend the Member for Harrow West (Gareth Thomas) about vulnerable customers and people who are not in a position to take advantage of all the devices that other, less vulnerable customers would be able to take advantage of—that is, customers protected by the existing tariff cap in particular. In our view, it is important that those who are protected by the tariff cap do not lose that protection as a result of the overall cap being introduced. It would be helpful if the Minister, even if she is not minded to accept the amendment, put it beyond doubt that that is the Government’s intention and that they will not seek to lose the current safeguard tariff as the overall tariff cap comes in.

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[Dr Whitehead]

Amendment 6, as I recall, would simply place the Prime Minister’s words into legislation. It was estimated that a saving of at least £100 would result from the measures, and one aim of the legislation was to bring that saving about. It does not mean that the amount would be exactly £100—indeed, had the Prime Minister not reported that to The Sun, we might have got a rather more complex version of that price promise. We are merely reflecting what was heard on that occasion, and I hope the right hon. Gentleman will take the amendment in the spirit in which it is intended.

[Sir Oliver Letwin]

I just want to be clear, because I have got very confused about these propositions on a relative cap. On the face of it, the words of new clause 1 are strikingly similar to those of amendment 2. Is the hon. Gentleman proposing that after the absolute cap, there should be a relative cap?

[Dr Whitehead]

It can be interpreted in that way. We are fully in accord with the Government’s idea of an absolute cap, as opposed to the relative cap proposed in the amendments. We suggest that what has been characterised as a relative price cap plays an entirely different function, which is to narrow the gap between tariffs after an absolute price cap has been in place so that companies cannot game the market by switching tariffs in the way I have described. That is nothing to do, at that point, with a price cap; it is about tariff stability over a period and, indeed, an assurance for customers that they are not going to be ripped off as a result of entering on a particular tariff and subsequently being placed on a very high tariff once that initial tariff has come to an end.

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[John Penrose (Weston-super-Mare) (Con)]

I rise to speak to amendments 2 to 4, which stand in my name and those of a variety of Conservative colleagues, including two members of the Business, Energy and Industrial Strategy Committee as well as former Ministers and Cabinet Ministers.

I should pause to say that I am not arguing against the Bill overall—I spoke and voted in favour of it in principle on Second Reading—and I hope that everyone involved in the campaign I have headed in this area for the past year and a half appreciates that I believe an energy price cap is much needed. I pay tribute to the 214 cross-party MPs who signed up to the idea, plus the Prime Minister and the Minister, who have all been vital in getting us to this point today.

My concern is about not the principles but the detail—the type of price cap envisaged under the Bill—because, to put it bluntly, a fair number of free market Tories are pretty concerned that we are choosing the most anti-competitive, complicated, bureaucratic and inflexible cap on offer. It is inflexible because the Bill specifies an absolute cap that will be set by an all-knowing committee of Ofgem regulators every few months. However, the international price of energy moves around every day, and it is impossible to know what the price will be in the next six minutes, let alone six months, so the cap price will be out of date in moments and will stay out of date until it is reset again months later. That means it will not protect customers in the way we all want and, because it will be officially blessed by Ofgem, it will embed and legitimise high prices. It is not just me who is worried. Which? says it is

“not certain that customers on a capped default tariff will benefit as market conditions change in future”.

The proposed cap is also complicated—hideously complicated. Why? The assiduous folk at Ofgem have already started publishing details of how they might go ahead and they are warming to their task. It would not be just a single cap, they say; it would be 42 different ones to cover gas and electricity, different meter types and different parts of the country. There would be more than 42 different caps, however, because each one may be split into several different versions depending on whether people pay by direct debit or in some other way, and each will have a fixed standing charge and a variable element—oh, and there is headroom, too. Each of those three items can be calculated in a marvellously technical and complicated variety of ways. For example, the variable element could use a basket of market tariffs, an updated competitive reference price, or a bottom-up cost assessment. Those things might be calculated using a periodical review of realised costs, or third-party data with pre-specified allowances for certain cost items, and so on and—turgidly, complicatedly—on.

[Sir Oliver Letwin]

My hon. Friend and I have had an engaging conversation about this for many months, but given all the things he reports Ofgem as planning, surely that means we will have not a single point tariff that rapidly becomes outdated, but rather a tariff that will respond—for example, to input costs?

[John Penrose]

As my right hon. Friend says, he and I have had many conversations about this over many months. I can only say to him that if his argument is that Ofgem might come up with a version of an absolute cap that is a bit less absolute and a bit closer to what I am proposing—in effect, one that caps the gap: a relative cap—I would agree with him that that is a good thing, but if that is the case, as a source of advantage for the cap, why would it not be even better to go the whole hog and have a relative cap in the first place?

Domestic Gas and Electricity (Tariff Cap) Bill

Oliver Letwin Excerpts

2nd reading: House of Commons
Tuesday 6th March 2018 Commons Chamber

[John Penrose]

I agree that there is a difference between a freeze and a cap, but there are a couple of things that, none the less, make it an extremely risky and dangerous proposition to go down that road. For example, what if Ofgem picks a number and the international price of energy falls the very next day? What then? Switching customers in the ultra-competitive part of the market would find their prices drop quickly as energy firms react to the news, but Ofgem’s capped prices for loyal, non-switching customers on default tariffs—that is the example my hon. Friend talks about—would not move at all for another six months, when the cap can be reset according to the terms of the Bill. In that situation, the cap would be ineffective at protecting the customers it is designed to help and, because it is officially blessed by Ofgem, it would embed and legitimise high prices. Things would get worse rather than better.

It is not just me who is worried about that. Which? says it is

“not certain that customers on a capped default tariff will benefit as market conditions change in future”.

[Sir Oliver Letwin (West Dorset) (Con)]

As my hon. Friend knows, I have some sympathy with his arguments. Does he recognise that, as drafted, the Bill enables Ofgem to set the cap by formula, which could be related to wholesale prices and have the flexibility required to overcome the problem he describes?

[John Penrose]

I wish I shared my right hon. Friend’s confidence in Ofgem. All the discussion of the Bill so far from Ministers, from comments on the Bill and from people inside Ofgem is not what he describes. They are talking about an absolute cap in which people sit in a room and come up with a number, which stays that way until it is reset after six months—that is the way the Bill is drafted.

If the Bill can be amended in a way that allows it to be far more flexible—that is one of the things I hope to encourage both Members here present and Ministers at later stages to consider—we might be able to iron out some of these issues, but I do not share my right hon. Friend’s optimism in that regard.

[Sir Oliver Letwin]

Looking at clause 2(1)(b), as drafted, it seems perfectly clear to me that Ofgem will have to set out how the cap is to be calculated, which positively points in the direction of a formulaic rather than an absolute position.

[John Penrose]

But as my right hon. Friend will know, it is also stated elsewhere, particularly in the guidance and in many of the other documents on this, that we are looking at an absolute cap. The word “absolute” is used repeatedly, and it has been used repeatedly to me in conversations with Ministers. If we can remove those other points as well, so that they are not going to push us in the direction I worry about, many people here would be a great deal more reassured. We will have to come back to this on Report—

[Sir Oliver Letwin]

rose—

[John Penrose]

I will give way one more time and then I will have to make some progress, because Madam Deputy Speaker is catching my eye.

[Sir Oliver Letwin]

I certainly will not press the point beyond this. Does my hon. Friend not need to distinguish between absolute, which means not relative—to offer tariffs—and formulaic and flexible, which the drafting certainly does allow, as opposed to a point that is set by a Committee for six months?

[John Penrose]

We will need to come back to this matter, but it would be tremendously helpful if Ofgem came up with some clarifications on it, because that might reassure me and others. So far I have had nothing to reassure me in that direction—in fact, quite the opposite.

As I was saying, it is not just me who is worried about this: both Which? and uSwitch worry it will mean cheaper fixed deals will be withdrawn from the market; and leading challenger energy firms such as Octopus Energy, Utilita Energy, Utility Warehouse, Ebico and Good Energy are all worried that Ofgem’s price-fixing efforts will inevitably get it wrong. The lawyers and lobbyists for the big six are licking their lips at the prospect of all those fat fees from legal challenges and persuasive lunches. It is no coincidence that they are already demanding the Bill should allow expensive and time-consuming appeals to the Competition and Markets Authority whenever Ofgem’s committee sets a price.

If all these people think the Bill’s details create problems, what is the alternative? What needs to change? The thing to remember is that default tariff prices are just a symptom of a much deeper problem. The moral flaw at the heart of this market—the thing that sticks in the throat —is the mark-up loyal customers are charged compared with competitive switching deals. I am talking about the enormous, unjustified, sneaky price hike the big six hit people with, without their consent, just because they are loyal or simply too busy to switch. That is the unfairness, the burning injustice and the thing that drives customers—our constituents—to write to each and every one of us demanding, “This must change”.

If the problem is the mark-up as between the competitive deals and the default tariffs, why does the Bill only address half the problem—the price of the default tariffs—rather than the gap between the two? If we are really serious about solving the problem, why not cap the gap instead? A cap that creates a maximum mark-up would deal directly with this moral underlying problem—the cause of the rip-off—rather than only half of it. It would mean default tariffs would have to move in tandem with the ultra-competitive, consumer-friendly part of the market. People who took the trouble to switch would still get the best deals, but customers who forgot or did not want to switch would get protection, too.

Capping the gap is future-proof as well. If the international price of energy fell suddenly, as we were discussing earlier, it would not just be the competitive switching deals that would get cheaper; the price of capped tariffs would fall, too, and people would not have to wait for six months for Ofgem’s all-knowing committee to meet and change it. Capping the gap would not dilute or derail the all-important underlying market changes which are going to make energy feel competitive and normal either. Customers would still have plenty of incentives to start switching. That is why this Bill and its introduction make this a great day— I meant it when I said it. This Bill is important, even though it is only temporary. It will save millions of customers hundreds of pounds on an essential product. Although it is not perfect and it could be better, it is a very important step. So for the moment, for the principle of the thing, for the Second Reading debate today, let us just celebrate the fact that it is here at all and support it.

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[Sir Oliver Letwin (West Dorset) (Con)]

In the interests of brevity, I want to make one point about the rationale for the cap that I do not think has yet been stated in this debate, and two points to reassure my hon. Friends about issues that have arisen.

On the rationale, it is true that Ramsey pricing—the gouging of so-called loyal or, in other words, inertial customers—is a major issue, but predatory pricing on the other side of the balance sheet is equally important. As the hon. Member for Leeds West (Rachel Reeves) said, large suppliers are making uncovenanted surpluses out of the default tariffs, which they are using to cross-subsidise their competitive tariffs to exclude entrants from the market to the greatest possible extent. Once they are deprived of the ability to generate oligopolistic returns from the default tariffs, as my hon. Friend the Member for Weston-super-Mare (John Penrose) mentioned, they will have to do what they are very reluctant to do —namely, recognise more closely the true cost of their own inefficiencies in their more competitive tariffs, thereby allowing much greater penetration of the market by small challengers.

That is why I celebrate the fact that the Government have made the cap a temporary one with reviews. The shadow Secretary of State, when she was engaging in what sounded on this side of the Chamber suspiciously like scraping the barrel to find things to object to, asked the question: how will we know that the time is ripe for the cap to be removed? The answer is when the challengers have actually been able to move into the market in great numbers, because the cross-subsidy in the predatory pricing model has faded away and we therefore have a proper energy supply market.

Of my two crumbs of comfort, I want to offer one directly to my hon. Friend the Member for Weston-super-Mare. We all owe him a great debt of gratitude for banging on about this for a very long time and thinking about it deeply. I assure him that the Bill, whatever anybody may have said about it, clearly allows for a cap that, far from being a freeze, will never be a freeze, as he recognises, and will also not be an absolute point tariff either—or need not be an absolute point tariff. It is entirely in Ofgem’s gift to decide how the cap varies or does not vary depending on circumstances in the external supply markets for energy.

Knowing the current personnel in Ofgem, and having talked to them about this—I am grateful to the Minister for Energy and Clean Growth for facilitating some of those discussions—I am absolutely convinced that they will in fact make this a calculated, formulaic cap that properly reflects the changes in external international circumstances. It will therefore be miles away from the lunacies, although they were politically attractive lunacies at the time, of the Labour party’s original proposal for an absolute price freeze, which, incidentally, would have crippled customers at a time when energy prices were falling.

The second point I want to make to my hon. Friends is that this is the right kind of structure.

[John Penrose]

I seek a little further reassurance from my right hon. Friend. He seems to be coming up with an elegant mechanism for redefining an absolute cap to encompass relative caps, but just relative to the wholesale market rather than relative to other tariffs. If so, that would be incredibly elegant. Does he believe that that would allow repricing within the six-month period before the Ofgem committee sat again?

[Sir Oliver Letwin]

Who knows? The point I was just about to make is that the Bill will hand the whole thing over to Ofgem. This is basically an “Ofgem—you get to decide it” Bill, so we will only know when we see what it produces. However, I would bet my bottom dollar—not that I have very many bottom dollars—that Ofgem will actually produce a formula, not a number, so the cap will vary continuously, or pretty much continuously. Ofgem is pretty sophisticated economically and it knows perfectly well what happens in the wholesale markets. I do not think it will lock itself in to an unvarying cap.

My main point is structural: the Bill will hand the issue to Ofgem. The good news is that that is not nationalising the pricing of the energy markets. It is not taking it into the hands of the Government. What my right hon. Friend the Secretary of State said is true—one of the great achievements of the last 30 or 40 years of the evolution of our utilities markets as a whole is that we have reinvented what the Victorians once had, which we lost in the early and middle part of the 20th century, which was the whole idea of the Government establishing a set of technocrats who are not politically motivated or driven by electoral dynamics, and so are not inclined to do things that are stupid in the long run but look good because they win votes in the short term. Instead, they try to get economically rational results.

Ofgem is such a case. It is not perfect—no regulator is—but it will be a hell of a lot better than politicians at setting prices over time. The Bill therefore has the right structure. It is not a Marxist takeover, a price freeze or a recipe for point tariffs. It is a recipe for allowing a regulator to set an economically rational means of preventing a combination of Ramsey pricing and predatory pricing, and as such those of us who believe in the purities of markets can perfectly well subscribe to it.

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[Caroline Flint]

Absolutely, and I am going to come on to renewables. Ministers should beware of any proposal to exempt green tariffs or low-carbon tariffs from the price cap, and let me be clear why. In 75% of days in 2017, wind power supplied more energy than coal power in the UK. Nuclear and renewables are central to our power output in the UK energy market and the generators are well rewarded for that. The notion that any energy provider should charge a premium for so-called green tariffs does not stand up to scrutiny. Consumer support for 100% green energy is welcome, but the idea that they should pay the most expensive tariff cannot be justified. I therefore hope that the Secretary of State will rule that out and deliver a comprehensive cap.

[Sir Oliver Letwin]

I am listening with increasing admiration to the right hon. Lady’s speech, which reminds me of why there was once a Labour party with which I had a great deal more sympathy than I do at present. I strongly agree with what she says about green tariffs. We want to promote green energy, but to do so on a basis that is economically rational.

[Caroline Flint]

I welcome the cross-party support that continues to blossom on this issue.

I urge Ministers to ensure that Ofgem is equipped with all the powers it needs to act as a consumer champion, and to deliver both a price cap and penalties for corporate misbehaviour. I have not been uncritical of Ofgem. For too long the regulator did not hold the big six to account for poor customer service. Where fines were issued, companies were allowed to strike a deal to use the so-called fine to subsidise tariffs for new customers—there was nothing for their loyal customers stuck on default tariffs. Thankfully that has changed.

We saw last week the CMA having to rule on a challenge by SSE and EDF against Ofgem when they tried to modify industry rules. Ofgem determined that those modifications would have led to consumers paying a £120 million rebate to generators and said no. Ofgem was immediately challenged. In this instance, the CMA backed Ofgem and the consumer interest was protected, but let us be under no illusion: there is a constant veiled threat that the energy giants will contest its decisions. We need to be certain that Ofgem has the powers and remedies it needs under the Bill so that it can do the job this House expects and does not become a scapegoat for failure.

Finally, may I urge Ministers to use the period of the cap to review the structure of the energy market? Good regulation, fairness and innovation from existing and new players must all be part of a reshaped energy market of the future. Let us get on with it. The Bill has my support; let us give Ofgem the power to act and cap unfair energy bills.

Energy Price Cap

Oliver Letwin Excerpts

Monday 3rd July 2017 Commons Chamber

[Sir Oliver Letwin (West Dorset) (Con)]

I have been listening carefully to my right hon. Friend’s answers. Am I right to understand that he would not be satisfied with a final solution from Ofgem that continued to cross-subsidise some customers out of a kind of loyalty premium paid by those who, even if not vulnerable, did not switch?

[Greg Clark]

This is a wake-up call for the industry. A model in which consumers who are known not to switch can be milked to pay a subsidy for other consumers in an unfair way—the CMA identified “unilateral market power”, which enables firms to exploit their position—has to come to an end.

Magnox: Early Contract Terminations

Oliver Letwin Excerpts

Monday 27th March 2017 Commons Chamber

[Greg Clark]

A little humility might be appropriate here, because the Scottish Government provided oversight of this procurement as part of the NDA competition programme board. I am sure that the lessons to be learned from 2012 to 2014 also apply to the Government in Scotland. I am sure that, whatever the view on future new nuclear power, the people of Scotland, as well as those of the whole of the United Kingdom, would want the existing nuclear power stations to be decommissioned safely and to have arrangements in place to ensure that that can be done reliably. On the independent review, which I hope the hon. Lady welcomes, I have asked Mr Holliday to give some interim findings by October, so that they can inform the further decisions about the re-letting of the contract.

[Sir Oliver Letwin (West Dorset) (Con)]

I am sure that my right hon. Friend will pay no attention whatsoever to the bizarre asseverations of the Scottish National party spokesman. In asking Steve Holliday, in whom we have considerable confidence, to do this review, I hope that my right hon. Friend will seek to bring the review to a final conclusion reasonably soon after the interim report in October so that we can get to the bottom of this matter and ensure that it does not repeat itself in future years.

[Greg Clark]

I agree with my right hon. Friend: it is important quickly to learn the lessons and to apply them. This is very important work. The work is being carried out to a high standard, but those lessons must be learned and applied.

Draft Claims in Respect of Loss or Damage arising from Competition infringements (Competition act 1998 and other enactments (amendment)) regulations 2017

Oliver Letwin Excerpts

Wednesday 22nd February 2017 General Committees

[Margot James]

I cannot comment on changes that may or may not take place in the European Union in years to come, but I can answer the question that the hon. Gentleman originally asked about what would happen to the regulations. They will be transposed into UK law, and there will not be any change to them thereafter. There may be improvements to UK competition law, but that will no longer be determined by the EU after we have left.

[Sir Oliver Letwin (West Dorset) (Con)]

Does my hon. Friend agree that the regulations are a matter of UK law anyway? They do not need to be transposed and they will persist. If one inspects the regulations, one finds a rather interesting example of a general phenomenon, as it is only in proposed new sections 3(1)(d) and 3(2) that any change in reference is required. One simply needs to eliminate reference to the EU competition authorities. The rest of the measure is built round the CMA and UK law, and presents a rather interesting example of the relative simplicity of the great repeal Bill manoeuvre in many cases, although not all. It is probably worth noting that and using it as an example in future.

[Margot James]

I thank my right hon. Friend for adding value to the debate and for his observations.

Turning to the question of why it may take some time to bring the regulations into effect, I should like to underline the fact that the bulk of protection against cartels is dealt with in case law and UK courts, and that will continue to give redress to SMEs and consumers. On the specific question of the parts of the directive that we have introduced in UK law, the timing will depend on the nature of the competition infringement, and it may take 10 or 15 years for a cartel to be uncovered and prosecuted. Until then, the current UK regime will, as I have said, provide effective protection.

The hon. Member for Sefton Central made the point that the additional protection that the new framework will give to SMEs is welcome. I remind hon. Members that SMEs are more often victims of cartels than participants. He asked about the Groceries Code Adjudicator and whether the regulations would have any effect on that office. They do not affect the operation of the GCA, because it deals with different aspects of protection for supply chains. Any supply chain that is affected by a cartel issue will have access to protection under the regime that we are discussing. Any other aspect of abuse in the grocery supply chain will go to the GCA, as happens at present.

Finally, the hon. Gentleman asked about the energy market and whether we expect more use of this regulatory framework in dealing with abuses, particularly price rises. The CMA report last summer provided a framework for strong objections to some of those price rises. Ofgem has pronounced that, in its view, the recent price rises to which he alluded are not justifiable.

I do not really see any connection with the idea of a cartel. The issues that the hon. Gentleman mentioned are real, and I share his concern at some of the price rises, as does Ofgem, but they are not the product of a cartel. If they were, we would see them across the board. Of course, the big six, to which he referred, account for just 81% of the market, whereas 13 years ago they accounted for 99%. There is a lot more competition in the energy market now, with up to 40 companies operating, and the share of the market held by other companies is increasing with speed, so I do not think the issues to which he alluded have anything to do with a cartel.

I am grateful to the Committee for its consideration of the regulations. I believe that I have set out an approach to the implementation of the damages directive that achieves full implementation in a way that works in the best long-term interests of UK consumers and businesses.

Question put and agreed to.

Statutory Pubs Code and Pubs Code Adjudicator

Oliver Letwin Excerpts

Thursday 26th January 2017 Commons Chamber

[Sir Oliver Letwin (West Dorset) (Con)]

Does the hon. Gentleman agree that it is no surprise that the pubcos are doing their utmost to thwart the market rent only provisions—that is to be expected—but it is a surprise that the adjudicator appears to have conceived of his position as being that of a kind of private arbitrator and not what we in this House set him up as—a judge who enforces the law?

[Greg Mulholland]

I warmly welcome the right hon. Gentleman and thank him for his intervention. He has looked at this issue with great thoroughness and intellect, and he is absolutely correct in his assessment.

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[Mr Iain Wright (Hartlepool) (Lab)]

May I begin by saying how grateful I am to the Backbench Business Committee for allowing this important debate to take place? I thank the hon. Member for Leeds North West (Greg Mulholland), and the hon. Member for Tewkesbury (Mr Robertson), who has just spoken. I bow to their superior knowledge and awareness of the pubs code and how it should operate. I also pay tribute to the hon. Members for Warwick and Leamington (Chris White) and for Cannock Chase (Amanda Milling), who are in their places, and are fantastic and assiduous members of the Select Committee on Business, Enterprise and Industrial Strategy, which I am privileged to chair. All who have spoken so far have worked hard on pubs and the pub industry.

The industry has been characterised for many years by an imbalance in power between large pub companies and the tenants of pubs tied to those companies. The market has not worked in a fair and equitable way, and tenants have had unfair conditions imposed upon the manner in which a variety of things happen: how they sell beer and, particularly, the rent that they pay and the lease under which they operate.

The pubs code sets out how pubcos should deal with their tenants in a much fairer way. I am pleased that my hon. Friend the Member for West Bromwich West (Mr Bailey), my predecessor on the Select Committee, who worked hard on pushing the matter and ensuring that the Government’s feet were held to the fire, is in his place. I pay tribute to him, his Select Committee and my hon. Friend the Member for Chesterfield (Toby Perkins), who was on the Labour Front Bench at the time and did some great work on the subject. I am pleased to see him in his place. Those hon. Members have worked incredibly hard to try to rebalance the power relationship between pubcos and tenants.

A key part of addressing the imbalance is the Pubs Code Adjudicator. The adjudicator provides guidance on complying with the code and judges transactions to make things fairer. As we have heard, Mr Newby is the first adjudicator. In many respects, by being the first appointment, Mr Newby will shape the nature, style and tone of the job and the way in which matters will be dealt with by his successors. His judgments will set precedents, which could have ramifications for the pub trade and the pub property business for decades.

Dave Mountford of the Pubs Advisory Service and a landlord himself said to the Select Committee when we were taking evidence:

“The Pubs Code Adjudicator needs to be fair and impartial, and the decisions that he makes need to be based on our common law of justice and fairness such that they can then be applied to similar cases, so the precedent is set.”

I do not think that anybody would disagree with that. It is therefore essential that this first appointment of someone to a key role commands universal respect immediately and is not subject to any criticism or accusations of conflicts of interest, whether actual or perceived. Perception is important in such matters.

[Sir Oliver Letwin]

Does the hon. Gentleman agree that the imbalance of which he rightly speaks means that the adjudicator’s proper role is not solely to maintain an impartial view, but specifically to consider cases of abuse by the pubcos? They are asymmetrical cases of abuse: the tenants are not abusing the pub code, the pubcos are allegedly abusing it. The adjudicator’s role should therefore be to enforce on the pubcos obedience to the code. At the moment, we see examples of his looking as if he is just an arbitrator between the two parties.

Draft Trade Union Act 2016 (Political Funds) (Transition Period) Regulations 2017

Oliver Letwin Excerpts

Wednesday 25th January 2017 General Committees

[Sir Oliver Letwin (West Dorset) (Con)]

I was not going to contribute to this debate, but this is a rare occurrence in the more than 20 years that I have been in Parliament. I have seldom been persuaded by comments made in the Chamber or in Committee. I shall vote for these regulations, on the grounds that the Government have to have something in place, and on the grounds that, unlike Opposition Members, I am an extremely strong supporter of the idea that people should have to make a positive decision to contribute to a political fund. I was therefore a strong supporter of the legislation. I have to say, however, that Opposition Members have made serious practical points about the timing of conferences and the dates. Speaking as one who supports the underlying legislation, it would be a mistake to organise things in such a way as to create unnecessary practical difficulties.

I therefore urge the Minister to go back to the Department when the measure is, I hope, agreed to, and reconsider whether a further, revising statutory instrument to extend the period slightly—I stress “slightly”—would make sense. That should not become an excuse for an indefinite or prolonged delay, as I am sure that the entire Government and the entire Conservative party support the measure. It should be made real and be brought in during 2018, but it is worth considering whether the game is worth the candle, given that we are talking about three to five months’ delay, and given what is being said about the timing of the conferences.