Delegated Legislation Committee
Draft Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022
The Committee consisted of the following Members:
Chair: Mrs Sheryll Murray
Barker, Paula (Liverpool, Wavertree) (Lab)
† Beresford, Sir Paul (Mole Valley) (Con)
Berry, Jake (Rossendale and Darwen) (Con)
† Bradley, Ben (Mansfield) (Con)
† Clarkson, Chris (Heywood and Middleton) (Con)
† Cruddas, Jon (Dagenham and Rainham) (Lab)
† Fletcher, Colleen (Coventry North East) (Lab)
† Gibson, Peter (Darlington) (Con)
† Green, Kate (Stretford and Urmston) (Lab)
† Johnson, Gareth (Dartford) (Con)
Johnson, Kim (Liverpool, Riverside) (Lab)
† Jones, Mr Marcus (Minister of State, Department for Levelling Up, Housing and Communities)
† Lewer, Andrew (Northampton South) (Con)
† Mackrory, Cherilyn (Truro and Falmouth) (Con)
† Nichols, Charlotte (Warrington North) (Lab)
† Pennycook, Matthew (Greenwich and Woolwich) (Lab)
† Simmonds, David (Ruislip, Northwood and Pinner) (Con)
Seb Newman, Anna Kennedy-O’Brien, Committee Clerks
† attended the Committee
First Delegated Legislation Committee
Monday 18 July 2022
[Mrs Sheryll Murray in the Chair]
Draft Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022
Before we begin, I would like to say that, in view of the heat, hon. Members may wish to remove their jackets.
I beg to move,
That the Committee has considered the draft Building Safety (Leaseholder Protections) (Information etc.) (England) Regulations 2022.
It is, as ever, a pleasure to serve under your chairship, Mrs Murray. Laid before Parliament on 7 June, the regulations are part of the implementation of the leaseholder protection provisions in the Building Safety Act 2022, using powers in part 5 of and schedule 8 to the Act. I will start, if I may, by providing some context and background to these important regulations. As hon. Members will know, before the Government introduced the leaseholder protections via the Building Safety Act, many leaseholders found themselves liable for unlimited costs for remedying historical safety defects in their buildings—costs that they could not afford for problems that were not their fault. But since the provisions came into force at the end of last month, most leaseholders in England are no longer liable to meet those costs.
To be specific, leaseholders in buildings that are 11 metres or more than five storeys high, where the building owner or landlord is the developer or is connected to the developer, are now fully protected from paying for historical safety remediation. However, where that is not the case, qualifying leaseholders will still be protected from all cladding remediation costs and any costs for non-cladding remediation or interim measures, including waking watches; those costs will be firmly capped. In some cases, qualifying leaseholders will also be protected from all historical remediation costs and those protections will pass on to subsequent buyers.
Without the provision made by these regulations, leaseholders would not be able to demonstrate that their lease qualified for the protections; nor would building owners be able to apportion liability for remediation costs between themselves and other landlords. The regulations set out the essential detail needed to implement the Building Safety Act’s provisions and make sure that leaseholders are protected under law. They do not do anything to weaken the leaseholder protections that Parliament agreed in April.
These regulations can be considered in three parts. First, the regulations set out the information that leaseholders must provide to benefit from the protections: their qualifying lease status, their property’s last sale price and their shared ownership status. In line with schedule 8 to the 2022 Act, the regulations provide a form of certificate, which the leaseholder must complete—once per flat. The certificate and evidence requirements are intended to be as simple as possible for leaseholders, while also being robust enough to prevent fraud and assure landlords and lenders of the lease’s qualifying status.
There are two trigger points at which the landlord must notify the leaseholder of the need to complete the certificate: when a defect is found, or the leasehold property is being sold. But leaseholders can submit a completed certificate voluntarily as soon as they have collected the information required. These provisions enable leaseholders to demonstrate that they qualify for protections under the Act and therefore to understand what their maximum cap should be. We will be making available, on the gov.uk website, both guidance and an easy-to-use online tool to help leaseholders and landlords to understand how the system works.
Secondly, the regulations make provision to enable the landlord to identify who is liable to pay for remediation of historical safety defects and how much they will be liable for, and to recover those amounts. The regulations set out formulas that the landlord must use to apportion liability where more than one landlord is connected to the developer, or where full remediation costs are not recoverable from leaseholders. The effect is that in such cases the landlord may recover some costs from other landlords, enabling them to spread the cost of remediating historical safety defects fairly and equitably between those with an interest in the building.
Finally, the regulations set out further detail on the first tier tribunal process in respect of remediation orders. As the Committee will know, the tribunal settles leaseholder disputes in the private rented sector. A remediation order will be an order of the tribunal that requires a landlord to remedy particular defects in a building by a specified time. The regulations make clear the information that a person needs to provide as part of the application to the first tier tribunal for a remediation order. Applicants—who can be anyone connected with the building—along with enforcement bodies, such as the new Building Safety Regulator or a fire and rescue authority, will need to state under which provision the application is made, as well as the building, its landlord and the relevant defect. The first tier tribunal will then be able to determine whether to make an order to require the landlord to remediate the building.
The regulations are a key step towards delivering the leaseholder protections set out in the Building Safety Act. They serve a very specific purpose in providing the detail needed to give full effect to the leaseholder protection provisions in that Act. That in turn will enable buildings to be remediated without requiring leaseholders to pay large amounts of money, so that they benefit fully from the protections that Parliament agreed and that came into force at the end of last month. I hope that hon. Members will join me in supporting the draft regulations, which I commend to the Committee.
I am grateful to the Minister for his introduction of the regulations. I hope that the Committee will allow me to ask a few questions on behalf of constituents of mine who are directly affected by the provisions in the Building Safety Act. Although I welcome those provisions—they represent a big step forward in protecting my constituents—I have real concerns about the detail of their implementation. I hope that the Minister will be able to reassure my constituents.
First, I have spoken on a number of occasions about landlords who are linked to the original developer. A network of companies can exist with common directors and shareholders, and such companies can move in and out of liquidation, passing freeholds among themselves in a sort of merry-go-round of ownership. There is no doubt in my mind of the connection between those landlords—some of which have, of course, gone into liquidation and no longer exist—and the original developer, so it would be useful if the Minister explained what he means by “linked”. If a link between landlords and the original developer is clearly there but cannot be shown, how might the costs be apportioned between them?
Secondly, in the case of landlords that have gone into liquidation and disappeared, the directors and shareholders of which are still known because they have moved into other companies that are now the landlords, how effective will it be to apportion the costs among anyone who has ever had a hand in owning or developing substandard buildings?
In cases in which the landlord is the director of, a shareholder in, or is connected to a company that is also a leaseholder, or indeed owns a number of leases in the block—as is the case for Aura Court in my constituency—will that landlord who is also a leaseholder be able to benefit in any way from the regulations? It would be absolutely invidious if a landlord’s costs could be capped simply by virtue of owning some leases in the building, when in fact that landlord directly or indirectly bears responsibility for the condition of the building.
Thirdly, may I ask about management companies? Again, those may be controlled—I fear that, in the building I am thinking of in my constituency, it will be controlled by one of the individuals who is, in my opinion, linked to the original developer and to other landlords.
Finally, I would like to raise the concerns of constituents who feel they have waited many months to see any remediation at all, and still have no real idea of when works might start so that they can get out of this terrible position of having properties that they feel are not safe and which they cannot sell. My constituents would welcome any update from the Minister on what progress is being made on carrying out remediation work.
It is a pleasure, as ever, to serve with you in the Chair, Mrs Murray.
As the Minister has outlined, sections 116 to 125 of, and schedule 8 to, the Building Safety Act make provision in relation to remediation of certain defects in buildings and, importantly, include protections from liability for leaseholders in specific circumstances. The Minister knows that the Opposition argued trenchantly throughout the passage of the Bill for all blameless leaseholders facing potential costs to fix historical cladding and non-cladding defects to be fully protected irrespective of circumstance. We still firmly believe that that is the only just response to the building safety crisis.
Although they fall short of what we had hoped to secure, the leaseholder protections in the Act are none the less significant. The regulations before us detail how leaseholders will secure those protections. It is therefore essential that they are approved today, and we have no intention of opposing this statutory instrument. However, I must put five questions to the Minister about the regulations, and I hope he will respond in detail—if not in Committee, then in writing to me over the coming days.
The first is a procedural question relating to the date that the Building Safety Act came into force. The Minister will be aware that the main statutory provisions in the regulations came into force with the Act itself on 28 June 2022. However, in practice, those provisions cannot operate until the regulations before us are approved. My question is therefore: why was the Act brought into force on 28 June before the regulations were ready? That is a procedural question, but it is important none the less because this has caused significant confusion among leaseholders living in buildings with extensive historical non-cladding defects, including a great many in my own constituency, who look to the Act as their only means of escaping financial ruin, but who have spent recent weeks in a state of agitation because the leaseholder protection provisions were unusable.
My second question relates to enfranchised buildings. As the Minister knows, during consideration of Lords amendments we pressed the Government to amend the Bill to ensure that the service charge protections set out in schedule 8 applied clearly to enfranchised buildings and buildings where the right to manage has been exercised. The Government refused to accept the amendments, but the former Minister, the right hon. Member for Pudsey (Stuart Andrew), did commit the Government to a consultation to explore
“how best leaseholders in collectively enfranchised and commonhold buildings and other special cases can be protected from the costs associated with historical building safety defects.”—[Official Report, 20 April 2022; Vol. 712, c. 186.]
My question is simple: where is the promised consultation, and how much longer will leaseholders in such buildings have to wait to learn whether the Government believe that further measures are appropriate to address their plight?
My third question relates to the point in time at which the leaseholder protections that these regulations provide for kick in. It is clear from the guidance that the Department has published that it takes the view that the protections are retrospective and that, as a consequence, any service charge demand for the purpose of paying for the remediation of historical non-cladding defects made but not paid before 28 June is now invalid. However, that is far from the most obvious reading of the Act itself.
The relevant Cabinet Office guidance makes it clear that we cannot implement retrospective law unless the Attorney General and Solicitor General have both approved it. So my question is whether the Department secured the appropriate memoranda from the Law Officers providing for such approval. If not, why is the Department so confident that qualifying leaseholders issued with a service charge demand before 28 June are protected?
My fourth question relates to what advice the Government are giving to leaseholders who face demands for payment right now. The Government are advising leaseholders not to pay invoices relating to relevant historical remediation costs until building owners have fulfilled a series of transparency and financial reporting requirements. Specifically, the guidance issued by the Department makes it clear that landlords can charge qualifying leaseholders only for the cost of fixing historical non-cladding defects if, first, they have sent all leaseholders in the building a formal legal certificate to that effect and, secondly, that they can demonstrate that the costs do not relate to works covered by the Act. Yet as we know—I have live cases of this in my own constituency—landlords and managing agents are making demands for payment without having issued such legal certificates or demonstrated as much.
The guidance implies that any landlord or agent who seeks to enforce a wrongly issued invoice could be committing a criminal offence, but what steps will the Government take to ensure that leaseholders can enforce these rights? In practice, will it be left entirely to leaseholders to challenge the payability of such invoices at the first tier tribunal, with all the barriers that that involves? Or will the Government task the recovery strategy unit with taking up such cases, and if so, how do leaseholders or hon. Members refer individual cases to that unit?
Lastly, I have a question about the robustness of the regulations before us. The Minister will know that the Joint Committee on Statutory Instruments in its recent ninth report of this 2022-23 Session drew the special attention of both Houses to these regulations on the grounds that
“they are defectively drafted in four respects and that there is doubt as to whether they are intra vires in one respect.”
What assurances can the Minister provide that the regulations, which we will shortly approve, are sufficiently watertight to protect leaseholders as the Act intends?
I thank the hon. Member for Greenwich and Woolwich and other members of the Committee, who in many ways seem content to allow the regulations to pass. I will start by answering some of the questions raised by the hon. Member and the hon. Member for Stretford and Urmston. The hon. Lady mentioned landlords linked to the developer and the apportionment of costs. The regulations clearly set out a formula for how those costs will be apportioned. In cases where landlords or developers are no longer trading, as I am sure the hon. Member knows, there is a levy scheme where developers pay into that levy, so we can support those people who end up—through no fault of their own—in a situation where the people responsible are not likely to pay for the remediation.
The hon. Lady asked a question about enfranchised buildings and leaseholders, which I will come to when I respond to the hon. Member for Greenwich and Woolwich. The hon. Lady also mentioned management companies. The type of arrangements she was thinking about were those with non-resident owned management companies that are subject to tripartite leases and arrangements with the landlord and leaseholders. It is important and urgent to prepare these two sets of regulations in the way that we have, so that they enable the protections to take place. We are confident that the way the regulations have been drafted will be effective in ensuring that the qualifying leaseholders gets the right outcome for the type of arrangements the hon. Member has mentioned. We are absolutely clear that all types of management company should be covered by the regulations, and we will closely monitor the progress of cases. If it becomes apparent that changes are necessary, we will come back to Parliament with further proposals.
Perhaps I could write to the Minister to set out the specific circumstances that pertain to my constituency. The regulations were helpfully accompanied by some worked-through examples, so perhaps I could add another one that is being faced by my constituents at the moment and the Minister could respond in detail as to how they would be affected?
I would very much welcome that correspondence. I would be more than happy to receive the example that the hon. Lady is talking about and to come back to her with a response.
The hon. Member for Greenwich and Woolwich mentioned that the protections came into force on 28 June, which was two months after the Act received Royal Assent. The regulations, along with the Building Safety (Leaseholder Protections) (England) Regulations 2022, which were laid on 28 June, will provide the detail to operationalise the new leaseholder protection regime. Landlords are now only able to pass on costs where the Building Safety Act permits them to do so, and that includes pursuing unpaid bills for historical safety remediation issued prior to commencement. As of 28 June, landlords must not pursue bills for historical safety remediation that are not in accordance with the Act. As the hon. Gentleman said, doing so would be illegal and I will come back to him on his point about the operation of that.
Leaseholders should seek to complete the leaseholder deed of certificate that is outlined in the regulations as soon as possible, so they can demonstrate to their landlord whether they qualify for the protections.
In an enfranchised building, the freehold is owned by some or all of the leaseholders. Capping leaseholder liability in a fully enfranchised or commonhold building would not have the effect of reducing or limiting leaseholders’ liability as leaseholders are the freeholder. The other complication is that often not all the leaseholders own part of the freehold, which is why my right hon. Friend the Member for Pudsey (Stuart Andrew) committed to bringing forward a consultation and a call for evidence on this important issue, which will be released shortly. It is important that we try to help clarify matters for people in that position.
On the report by the Joint Committee on Statutory Instruments, the Committee will know that the underlying statutory provisions for leaseholder protections were added to what is now the Building Safety Act 2022 about half way through its passage through Parliament, in recognition of the unfair and intolerable position that many leaseholders were in. They faced bills, as has been acknowledged across the House, running into thousands of pounds to fix problems that they had no part in creating. In many senses, as the hon. Member for Greenwich and Woolwich said, those people were put into significant financial distress as a result.
The leaseholder sections were devised and drafted at pace, drawing on expertise in a number of fields, including proposals put forward by Members of both Houses. I record my thanks for their time and engagement on that. The Act received Royal Assent at the end of April and the protections came into force two months later. It was therefore both important and urgent to prepare the two sets of regulations that will enable the protections to take practical effect. The urgency meant that we were not in a position to share the regulations in draft with the Committee, as is the usual practice. That meant, however, that the Committee and its staff had limited time to get to grips with both the regulations and the underlying primary legislation in what is in many ways a groundbreaking piece of law.
None the less, we engaged in two rounds of correspondence with the Joint Committee, culminating in the memorandum and response set out in Appendix 1 to the Committee’s report. Some Members will have read that report in full—I am sure the hon. Gentleman will have—and we have seen the detail of the Committee’s concern and the Government’s response.
To summarise, the Joint Committee raised a number of technical and legal issues with the draft instrument in respect of its drafting and of its vires. The Government have considered those issues carefully, including by working closely with the first tier tribunal about the way in which it will deal with appeals. The Government are satisfied that, notwithstanding the Committee’s concerns, there are no issues with the regulations that will prevent the process from operating successfully.
As I have described, the Government consider it imperative that the regulations come into force before the summer recess to alleviate the issues facing leaseholders in defective blocks. We will of course monitor closely the progress of cases. If it becomes apparent that changes are necessary, we will come back to Parliament with proposals. Therefore, as I said before, I ask colleagues to show some forbearance. I am glad that that seems to be the case, but that hon. Members will still feed in their particular cases.
On the final point made by the hon. Member for Greenwich and Woolwich on the memorandum from the Law Officers about confirmation of the retrospection on the 28th due date, if he will forgive me, I will take that away and come back to him with a fuller response. On that basis, and given that we have considered the draft regulations, I hope that the Committee will approve them.
Question put and agreed to.
Draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022
The Committee consisted of the following Members:
Chair: Rushanara Ali
† Argar, Edward (Charnwood) (Con)
Bradshaw, Mr Ben (Exeter) (Lab)
† Byrne, Liam (Birmingham, Hodge Hill) (Lab)
Foy, Mary Kelly (City of Durham) (Lab)
† French, Mr Louie (Old Bexley and Sidcup) (Con)
† Fuller, Richard (Economic Secretary to the Treasury)
† Fysh, Mr Marcus (Yeovil) (Con)
† Howell, Paul (Sedgefield) (Con)
† Latham, Mrs Pauline (Mid Derbyshire) (Con)
† Lopresti, Jack (Filton and Bradley Stoke) (Con)
† Mc Nally, John (Falkirk) (SNP)
Matheson, Christian (City of Chester) (Lab)
† Richards, Nicola (West Bromwich East) (Con)
† Seely, Bob (Isle of Wight) (Con)
† Siddiq, Tulip (Hampstead and Kilburn) (Lab)
† Twist, Liz (Blaydon) (Lab)
† Whittaker, Craig (Lord Commissioner of Her Majesty's Treasury)
Jonathan Finlay, Committee Clerk
† attended the Committee
Second Delegated Legislation Committee
Monday 18 July 2022
[Rushanara Ali in the Chair]
Draft Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022
I beg to move,
That the Committee has considered the draft Money Laundering and Terrorist Financing (Amendment) (No.2) Regulations 2022.
It is a particular pleasure to serve under your chairmanship, Ms Ali. This Government recognise the threat posed to the United Kingdom by economic crime and are determined to do whatever it takes to combat money laundering and terrorist financing. Money laundering can undermine the integrity and stability of our financial markets and institutions. It is a global problem and represents a significant threat to the United Kingdom’s national security. It is a key enabler of serious and organised crime, which costs the UK at least £37 billion every year. Global leadership is vital and must be underpinned by strong action here at home. While our domestic action must be strong, it must also be proportionate in order to minimise the burden on legitimate customers and businesses. Striking that balance is the reason why the Government continue to review and amend the money laundering regulations.
In January 2020, the Government transposed the European Union’s fifth money laundering directive, which provided for the addition of art market participants, letting agents and cryptoasset businesses into the regulated sector, and set out discrepancy reporting requirements to improve the accuracy of the UK’s beneficial ownership registers. Since leaving the European Union, we have had the opportunity to ensure that the money laundering regulations go further in protecting the United Kingdom’s reputation as a safe place to conduct business. We made several changes to the money laundering regulations earlier this year in relation to high-risk countries and trusts, which allowed us to respond to the latest economic crime risks and protect the United Kingdom from overseas illicit finance flows. However, as we all know, there is more work to be done, which is why the Government are making further necessary updates to the money laundering regulations through today’s secondary legislation.
Anti-money laundering regulation must keep pace with the rate of technological change so that no part of our financial system is open to exploitation by criminals. This instrument therefore extends the Financial Action Task Force’s recommendation 16, known as the travel rule, to cryptoasset firms. It will require information on the identity of the originator and beneficiary of a transfer of funds or assets to be sent and recorded by the firms making that transfer. This supports the detection and investigation of money laundering and terrorist financing, as the transfers of cryptoassets will become subject to the same rigorous anti-money laundering requirements as bank transfers. We are also closing a gap in the regulations by requiring proposed acquirers of already registered cryptoasset firms to notify the Financial Conduct Authority ahead of such acquisitions. That will allow the FCA to object to such changes in control before they take place, enabling it to make sure unregistered firms cannot gain access to the United Kingdom.
The instrument also makes several other discrete, targeted changes that are intended to ensure that the regulations are appropriately aligned with updated risk assessments and new international standards. For example, it will ensure that we are aligned with the FATF standards on proliferation financing by introducing a requirement for supervised persons and the private sector to identify and assess risks of potential breaches, non-implementation or evasion of the targeted financial sanctions related to proliferation financing.
The instrument will go further by strengthening and clarifying how the anti-money laundering regime operates and by ensuring that the United Kingdom’s anti-money laundering supervisors have the right powers available to them to respond to new and emerging threats. For example, the instrument will expand the requirements in the regulations to report discrepancies between the information gathered by regulated firms and that held at Companies House, both in the course of ongoing business relationships and for entities in scope of the new register of overseas entities.
To support the objectives of upcoming limited partnership reform and to improve the transparency and integrity of the companies register, the instrument amends the definition of a trust and company service provider—TCSP—to cover the formation of all business arrangements, not just companies, that are required to register at Companies House and to ensure that customer due diligence is conducted for customers of TCSPs.
The instrument makes several technical and clarificatory changes to the regulations to ensure that they are up to date and continue to work in the best way possible. I hope that I have shed light on the main element of this instrument, and I thank hon. Members in advance for their examination of the issues. I hope they will join me in supporting the instrument, and I commend it to the Committee.
It is a pleasure to serve with you in the Chair, Ms Ali.
The Opposition are committed to supporting the global effort to combat money laundering and the financing of terrorism. The Minister will be pleased to hear that we are broadly supportive of the draft regulations and will vote in favour of them. We welcome, in particular, the new travel rule for cryptoassets and the duty on regulated firms to carry out continuous anti-money laundering checks. I am sure the Minister will agree that many of the measures could have been introduced months ago. We are still waiting for the long overdue second economic crime Bill, so perhaps the Minister will be able to update me on the Government’s progress on that.
I have a number of questions about the draft regulations. As before, I am happy for the Minister to write to me if he does not have the answers to hand. First, on the regulations on cryptoasset firms, I welcome regulation 5, which requires cryptoasset firms to record information on the sender and receiver of cryptoasset transfers. That will introduce much-needed transparency to the sector, but it will not come into effect until September 2023. The Minister will be aware that kleptocrats linked to Russia are rushing to convert their assets into cryptocurrencies to avoid the sanctions put in place in response to Russia’s invasion of Ukraine. What assessment has the Minister made of the risk that the delay in implementing the regulations will allow Kremlin-linked individuals to avoid sanctions?
I also have a question about regulation 10, which removes the obligation to build a bank account portal. Transparency International has warned that that will leave the UK’s anti-money laundering regimes significantly weaker than the EU’s. Spotlight on Corruption believes that a portal would have allowed law enforcement and anti-money laundering supervisors to access information on the identity of holders and beneficial owners of banking payment accounts and safe deposit boxes, therefore supporting criminal investigations and the recovery of the proceeds of crime. Why did the Minister arrive at a different conclusion from the anti-corruption experts, despite the Government not even publicly consulting on regulation 10?
The Minister said that the Government decided not to build a bank account portal because of the potential cost to the public and private sector. Could he set out the estimated costs to the public and private sectors of building the portal? Again, if he does not have the information to hand, I am happy to have it later. Could he explain the method used to determine that the cost outweighs the potential benefits of a portal to our economy and society as a result of increasing the capacity of enforcement agencies to investigate and recover the proceeds of crime?
Let me turn now to the consequences of the draft regulations not applying to the UK’s Crown dependencies —the Channel Islands and the Isle of Man. The Secondary Legislation Scrutiny Committee in the other place highlighted that this is a potential cause of concern because it risks bad actors in the UK financial services sector moving to the Crown dependencies to avoid anti-money laundering checks. Could the Minister confirm whether he will work with his equivalents in the Crown dependencies to ensure that the changes introduced today are reflected in their regulatory regimes?
Finally, I want to ask the Minister about the relationship of the draft regulations to the Economic Crime (Transparency and Enforcement) Act 2022 and its long overdue second part. The statutory instrument makes minor changes to the 2022 Act to ensure that discrepancies in company records are reported in a timely manner. That seems sensible enough, but does the Minister accept that it will have little impact if the Government continue to delay the second economic crime Bill and a reform of Companies House? We have been promised the Bill for months, but it is yet to materialise. Can the Minister update us on the timetable for the Bill?
The Minister will be happy to know that the Opposition support the draft regulations, but I hope he can address some of the concerns I have outlined.
I thank the hon. Lady for her wise words about the import of the instrument we are considering and for the Opposition’s overall support for it. She asked a series of questions, and I will reply to them directly. If I miss any, she may want to come back on them.
The hon. Lady asked about the timetable and particularly about cryptoasset firm regulations. One reason why that is coming later is that firms require a technological solution, and in order to get robust solutions, we felt it was appropriate to give time. She also asked specifically about a risk from Russian kleptocrats, but I will write back to her on that point because it covers issues beyond the one I have just made. I will also get back to her on regulation 10.
On the bank account portal, the issue is that the UK has several pre-existing capabilities, such as customer information orders. However, the hon. Lady asked a specific question about the assessment of the costs. I will get back to her on that, but I think the issue has to be seen in the context of what is already in place, rather than an assumption that we have to build something from scratch. The hon. Lady also asked about working with our equivalents in the Crown dependencies and about a potential way around the regulations. That is an important point, and I will continue the normal dialogues with my equivalents in the Crown dependencies.
The hon. Lady asked about the issues around the timetable for the economic crime Bill. I am afraid I am not in a position to advise her any further on that today, but I am sure I will be able to as the Bill comes forward. I think I have answered most of the questions. If I missed any, the hon. Lady can advise me subsequently. On those that I have not answered today, we will respond in writing in due course.
It is a pleasure, as always, to serve under your chairmanship, Ms Ali. The Minister has probably already answered most of my questions; they have been whittled down to one—much like what is happening in the Tory party at the moment, as it selects a Prime Minister.
I have a brief question to the Minister. As he knows, Parliament was promised a full Companies House reform. There is no doubt that there is a clear need for a full reform of the failing anti-money laundering law. That reform is due to feature in the full economic crime Bill. Like others, that Bill has been delayed and delayed for far too many years. The organisation Spotlight on Corruption works to end corruption in the UK and, importantly, wherever the UK has influence. It has been clear on the need to enable more effective criminal prosecutions of sanctions breaches. It has also noted that there has not been any criminal sanctions enforcement for 12 years. Does the Minister think that statement is accurate? Spotlight on Corruption is also calling for the introduction of an offence either for the failure to prevent sanctions evasion or for conspiracy to commit sanctions evasion. Both are worthy of consideration. Like the Opposition spokesperson, the hon. Member for Hampstead and Kilburn, and many others, I would like to know the timetable for introducing this Bill.
The SNP spokesperson makes interesting points, some of which echo those made by the Opposition spokesperson. On the timetable, I will get back to him. He asked about the merits of two additional offences—failure to prevent sanctions evasion and conspiracy to commit sanctions evasion. I have no comment on that, but I would be interested in anything the hon. Gentleman has to send to me to look at.
The hon. Gentleman asked about a full Companies House reform, and he expressed some of the frustration that hon. Members on both sides of the House have expressed. He will be aware that the Treasury has provided Companies House with £60 million, I think, to begin those reforms, but he is right to draw the Committee’s attention to the issue and to hope that further reforms will be forthcoming. Some of those reforms feature in these regulations—for example, the further tightening of some of the restrictions, particularly around TCSPs.
Question put and agreed to.
Draft Airports Slot Allocation (Alleviation of Usage Requirements) (No. 2) Regulations 2022
The Committee consisted of the following Members:
Chair: James Gray
† Courts, Robert (Parliamentary Under-Secretary of State for Transport)
Cryer, John (Leyton and Wanstead) (Lab)
† Davies, Dr James (Vale of Clwyd) (Con)
† Fletcher, Colleen (Coventry North East) (Lab)
† French, Mr Louie (Old Bexley and Sidcup) (Con)
Gardiner, Barry (Brent North) (Lab)
† Gibson, Peter (Darlington) (Con)
Gullis, Jonathan (Stoke-on-Trent North) (Con)
† Holden, Mr Richard (North West Durham) (Con)
† Holloway, Adam (Gravesham) (Con)
† Kane, Mike (Wythenshawe and Sale East) (Lab)
† Logan, Mark (Bolton North East) (Con)
† Morris, Grahame (Easington) (Lab)
† Newlands, Gavin (Paisley and Renfrewshire North) (SNP)
† Randall, Tom (Gedling) (Con)
† Robinson, Mary (Cheadle) (Con)
† Winter, Beth (Cynon Valley) (Lab)
Stella-Maria Gabriel, Committee Clerk
† attended the Committee
Fourth Delegated Legislation Committee
Monday 18 July 2022
[James Gray in the Chair]
Draft Airports Slot Allocation (Alleviation of Usage Requirements) (No.2) Regulations 2022
I beg to move,
That the Committee has considered the draft Airports Slot Allocation (Alleviation of Usage Requirements) (No.2) Regulations 2022.
The regulations, if the Committee approves them, will be made under the powers conferred by the Air Traffic Management and Unmanned Aircraft Act 2021. They take the opportunity of our departure from the European Union to create a more flexible set of powers that will be available to Ministers when implementing slot alleviation measures. We are now able to take the approach that is best able to support our own circumstances.
To explain the circumstances behind the regulations, we have all seen the disruption that holidaymakers and other passengers have faced at some of the UK’s airports, particularly over the recent Easter and half-term breaks. There have been unacceptable queues, delays, and short-notice cancellations of flights. The persistent impact of the covid-19 pandemic has presented challenges for the aviation sector as it recovers, and that sector has faced difficulties in ramping up operations to meet the high levels of demand.
Airlines, airports, and the myriad businesses that support aviation operations have struggled to recruit and train enough staff. Many other airports around the world have struggled in a similar way with similar challenges, and those challenges—combined with air traffic control restrictions in place over Europe, with airspace closures and strike action in European air traffic control—have resulted in short-notice cancellations of flights and considerable disruption for passengers.
The Government are doing everything in their power to support the aviation industry and ensure that passengers can fly with confidence over the summer. For example, on 30 June the Government set out a 22-point plan to support the aviation industry in avoiding further disruption over the summer peak period. One of the key elements of that package is the slot amnesty, which offers carriers more flexibility to plan and deliver reliable schedules. The slot amnesty introduces a one-off change to slots policy for the remainder of the summer 2022 season.
Critical to that amnesty will be the sector itself ensuring that it can develop robust schedules that it is confident it can deliver. Ordinarily, airlines must operate slots 80% of the time in order to retain the right to the same slots the following year at slot-constrained airports—the 80:20 rule or, as it is often called, the “use it or lose it” rule. When the pandemic initially struck, that 80:20 rule was fully waived to avoid environmentally damaging ghost flights and financially costly flights with few or no passengers. Following the UK’s departure from the EU, the Government introduced new temporary powers through the ATMUA Act to provide a more tailored alleviation of slots rules in response to the ongoing impact of the pandemic on demand.
For summer 2022, the Government’s focus was on encouraging recovery following the success of the vaccine roll-out, the removal of travel restrictions, and the positive demand outlook. After consulting with industry and considering the evidence, the Government determined that 70:30—a reduction from 80:20—was an appropriate usage requirement, with an extended, justified non-use provision that exempts carriers from the rules if they are operating in markets where restrictions are still in place. However, in light of the recent severe disruption at UK airports caused by the persistent impact of covid, we consider that further alleviation measures are justified for the summer 2022 season, which runs until 29 October 2022. As required by the ATMUA Act, we have also determined that there is a continued reduction in demand, which is likely to persist.
Therefore, on 21 June, we published today’s statutory instrument, which sets out our plan to offer carriers a two-week window during which they can hand back up to 30% of their remaining slots for summer 2022. The measure is critical, because it enables airlines to take stock of what they expect to be realistically deliverable over the summer and plan accordingly without having to worry about losing their historical rights to their slots. In other words, they can look at their schedule and understand what they have the capacity and resource to fly, and if they do not have that capacity or resource, we have given them the ability to hand back slots without worrying about what will happen to them in the following year, because those slots are valuable commodities. The proposal was developed following a short consultation with airports and airlines, and consideration of their responses. There was strong support for the proposal, with the great majority of airlines and airports supporting it.
The draft instrument applies to England, Scotland and Wales. Aerodromes are a devolved matter in Northern Ireland and, as there are currently no slot-constrained airports in Northern Ireland, the Executive agreed that it was not necessary for the powers in the Act to extend or apply to Northern Ireland.
On the content of the draft SI, the regulations aim to minimise disruption at airports, to give more certainty for airline operations and to improve outcomes for passengers. By offering carriers the opportunity to return slots that they cannot operate, the aviation sector should be better able to plan ahead and to deliver a realistic summer schedule that minimises disruption at airports.
We have allowed carriers to return up to a maximum of 30% of the slots they hold for the rest of the season, from 9 July to 29 October. That applies only to slots that would be flown at least 14 days after they have been handed back, to protect consumers from short-notice cancellations and to give them time to make alternative plans.
I am grateful to the Minister for explaining the rationale, but will he clarify why the Government rejected the recommendations of the Transport Committee in our aviation report in respect of the reallocation of slots? Is it because of recent events—the queues and so on—at the airports?
If I have understood the hon. Gentleman’s point correctly and I am correctly remembering the recommendation in the report—I am happy to take another intervention if I have misunderstood—he referred to “reallocation”. However, it is of course the case that the allocation of slots is a matter for Airport Co-ordination Ltd, the independent slots co-ordinator. That is not something that Government get involved in. The Government set the overall slot policy and we have ability under the ATMUA Act to amend the ratio in the “use it or lose it” rule, but we do not have the ability to allocate slots to particular airlines; that is a matter for ACL, which is independent of Government. I hope I understood his point correctly.
The draft measure applies to slots allocated to the summer 2022 scheduling period, which the air carrier also had the right to use during the summer 2021 scheduling period—in other words, the previous period—including leased or remedy slots awarded following competition law complaints in the past. It does not apply to slots that were newly allocated to a carrier for the summer 2022 season. It will also not apply to those slots held by carriers that have publicly announced on or after 25 June that they have permanently ceased operations at an airport, or will cease to do so before the start of the next season—for self-evident reasons. Slots that are not handed back will continue to be subject to the previous summer 2022 regulations and the requirement to fly at least 70% of those slots.
In summary, the measure is a one-off amnesty. It covers slots held for the summer 2022 season to prevent the disruption that we have recently seen at airports continuing into the summer peak. Now the window has closed, the aviation sector has a responsibility to deliver its schedules and to keep last-minute cancellations and delays to an absolute minimum. For the future, we are currently considering alleviation for winter 2022, and we plan to announce our policy for that season shortly.
The draft instrument provides necessary relief for the aviation sector for summer 2022 to reduce further disruption in the sector’s busiest period and to give passengers certainty around their holiday plans. In essence, we expect airlines, if they are offering tickets for sale, to be able to operate them. We expect them to be able to plan realistically for the summer season. The SI gives them the ability to return slots for next year so that they can plan ahead without having to have the concern in their mind about next year’s slots. This is a major step by the Government to reduce disruption, and I commend the instrument to the Committee.
As ever, it is a pleasure to serve under your chairmanship, Mr Gray, particularly today, because it is the 150th anniversary of the Ballot Act 1872 which, apropos of nothing, allowed the right to cast one’s vote in secret. To poke a little fun at the Conservative Members, praise the Lord for that today!
Order. That is just a little wide of scope perhaps.
Just a little, but it is interesting all the same.
Here we are discussing slot allocations once again. The Air Traffic Management and Unmanned Aircraft Act 2021 was supposed to capitalise on a Brexit dividend and enable us to be more flexible to support the aviation industry. The Minister said that its aims were to minimise disruption at airports during their busiest period, but as shadow Minister for maritime as well as for aviation, I can tell the Minister that that ship has sailed for most of our travelling public in the light of the chaos that we have seen.
The aviation industry was more affected than any other by the covid-19 pandemic, and it was right that we reviewed the allocation of slots, which the Labour party supported, to prevent environmentally damaging ghost flights. Despite the pandemic being over two years old, however, the Government are still tinkering around the edges well into the summer season. This summer season can be described only as chaotic for travellers and workers alike. The shame of the situation is that it was entirely predictable and, had the Government heeded our repeated calls for a sector-specific deal, it could have been avoided or minimised.
On 30 June, the Government published a 22-point plan, as the Minister said. Its stated aims were to enable the aviation industry to avoid further disruption so that travellers could get away over the summer period. The slot amnesty—whereby operators could hand back 30% of their allocated slots to stop last-minute cancellations and customer delays—is one component of the package, although I note that the deadline for the amnesty closed nine days ago, on 9 July.
We are already well into the summer of 2022—most schools have already broken up. The plan has not been a resounding success so far, to put it mildly. Had there been a specific package, the industry could have planned for the numbers it needed and the flights it had sold. Instead, Heathrow has had to restrict the number of flights, Gatwick has had to restrict the number of movements on its apron, and airlines are cancelling tens of thousands of flights this summer.
Previous industry consultations on this matter determined that the 70:30 ratio was an appropriate usage requirement for the summer period, and it has now been extended until 29 October, as the Minister said, but I must ask: how did we get to the point where families at the departure gate are being told by police officers that their long-awaited holiday has been cancelled? How can that happen in a country that was once internationally renowned for our great aviation sector?
I welcome the two-week clause in the SI that means that airlines can hand back only a slot that is more than 14 days in the future. I hope that that will mean that last-minute cancellations are avoided. I am sure that all members of the Committee agree that families going through security and waiting at the gate only to suffer last-minute cancellations is completely unacceptable, whatever the reason. However, detail is light on what will happen to people who are booked on a flight that is cancelled. What compensation will be available to them? One might argue that the measures are too little, too late. For many people who have to reschedule their holiday having looked forward to it, a two-week cancellation notice might be a bitter pill to swallow.
The chief executive of Menzies Aviation, which provides services such as check-in and baggage handling, has laid the blame for the chaos firmly at the door of the Secretary of State for Transport, who is—as I have said before—missing in action. I would like to think he has been dealing with the issue, but in every aspect of transport—buses, rail, the road system and so on— [Interruption.] I know that I am straying slightly, Mr Gray.
You are indeed.
I will get back to the points that the Minister raised. The plan that was published on 30 June contains eight points relating to staff recruitment. We are past the mid-point of July. Surely anything contained within that plan—which is, as always, light on detail—is already too late for our summer season—[Interruption.] I am referring to the 22-point plan that the Minister mentioned, Mr Gray.
Just stick to the SI.
As we are already into the summer season, airlines’ ability to fill vacant slots has likely passed. That capacity might have had a real impact on our regions—on the tourist trade up and down this great land—for the summer season. We do not oppose the statutory instrument, but I urge the Government to be more strategic in their operations and actions in order to address the ongoing chaos in this sector.
As always, Mr Gray, it is a pleasure to hear your Glaswegian tones from the Chair. I state at the outset that the Scottish National party will also not be opposing the SI—the Government have been left with very little choice over introducing it. I agree with probably every word the Labour spokesman, the hon. Member for Wythenshawe and Sale East, said and I will not repeat them—partly due to the heat in this room—but I do have a couple of points to make and a couple of questions for the Minister.
If my experience in recent weeks is anything to go by, I am not sure how many ghost flights there are at the moment in the UK, so packed and chaotic are some flights. However, ghost flights are obviously an absurd waste of money and emit completely unnecessary carbon and greenhouse gases. There were 500 such flights between October and December last year, but Lufthansa has had to fly 15,000 ghost flights despite the threshold for slot alleviation in Europe being cut to 50%—it has now been put back up to 64%.
As the Minister himself alluded to, however, the reason we are discussing this issue again is jobs. The sector is struggling to recruit and retain staff. Obviously, if the Government had supported the industry as promised, the problem would not be anywhere near as acute, but we have had that argument before. Today, we are providing relief to a sector that is struggling to get staff and therefore, crucially, capacity back into its operations.
I am grateful to the Minister for his response this morning to a letter I sent regarding various aviation issues, including jobs. I am not going to stray too far, but—
Don’t stray at all.
Order. I am trying to be as flexible as I can, and I was flexible with the Opposition spokesman, but I am afraid that the Minister’s reply to an earlier letter has nothing to do with this statutory instrument. Perhaps the hon. Gentleman would return to the instrument.
Order. You will not have two sentences, or even one sentence, or one word. As I have said, you will not return to that matter; you will return to the statutory instrument we are discussing. The other thing you will not do is argue with the Chair.
That is all right.
I will ask the Minister about the issue afterwards.
I have spoken before about the European Geostationary Navigation Overlay Service. In terms of slot alleviation, clearly cancellations are happening, and for one airline more than most—Loganair, because of some of the airports it flies into. Are cancellations that are happening as a result of our lack of membership of EGNOS part of the current review, or are they left out?
Also, given that the recruitment issues are likely to be medium to long term—perhaps up to 18 months or longer—does the Minister envision extending relief again when we come to the winter? I think he said he was going to publish something on that issue. I have heard from the Airport Operators Association and others that forward bookings for the winter are not looking particularly promising right now.
At the moment, European carriers are not getting the same relief from the UK at the other end of routes, so what discussions is the Minister having with his European partners to make sure ghost flights do not take place? I accept that he is not responsible for legislation in other European countries, but what conversations are happening on that topic?
Finally, there has at times been inflexibility in this area. What do the rules say, or what does the Minister think, about very specific covid outbreaks that affect airlines in certain situations, rather than national outbreaks, where the Government can obviously ask the aviation sector to change?
I thank the hon. Members for Wythenshawe and Sale East and for Paisley and Renfrewshire North for the detailed and thoughtful consideration that they have given the matter.
I will deal first with the matters raised by the hon. Member for Wythenshawe and Sale East. I stress that the most important thing about the whole SI, which is pertinent to the points that he and others have raised, is that the aviation sector is privately owned, privately operated and privately run. It is for the aviation sector to ascertain whether it has the people and resources in place to operate the schedule that it is offering for sale. The Government can support it, but we cannot do those things for it—those are a matter for the aviation sector, and it alone. That is the most important thing to remember when we consider summer resilience and many of the hon. Gentleman’s points.
It is also important to remember that this problem is not unique to the UK. We are seeing the same problems at Schiphol in Holland for the same reasons—a shortage of staff in the relevant locations. We are also seeing similar scenes in Ireland, France, Germany and the United States. Across the whole of Europe, the European Union and countries elsewhere, there are similar problems, which are fundamentally caused by the dislocation that we have seen because of covid. It is critical to remember that whatever approach a Government took to the pandemic, similar problems are being seen. We should not fall into the myopic trap of thinking that it is a purely UK problem; it is not.
The hon. Gentleman talked about sector-specific support, and he and I have had this debate many times before. I remind the Committee that the Government gave the sector approximately £8 billion of support, particularly for furlough, which is a significant amount of money. We also had the airport and ground operations support scheme, which was a specific grant, and the aviation skills retention platform, which is directly relevant to the purpose that we are discussing—people.
Order. I was rude to both other hon. Members, so I will be fair and instruct the Minister to stick to the SI.
I am justly chastised for straying in my attempt to be diligent. I will go back to the context of the SI.
The hon. Member for Wythenshawe and Sale East made a number of points about cancellations, with which I entirely agree. Last-minute cancellations are distressing for families and for people who have been waiting to reunite with friends, and we should do everything possible to avoid them, as the Government are doing through the 22-point plan. A number of cancellations have recently been reported in the papers, some of which are in response to the sector being realistic. We have to be fair to the sector about that; when we say, “Look at your schedules and be realistic. Are you able to operate the schedules that you are offering for sale?”, and it realises it cannot, it will obviously have to take steps. No cancellation is good news—I do not want there to be any cancellations; I want everybody to fly as swiftly and easily as possible—but if there is a cancellation, I do not want it to be at the last moment. If it happens earlier, it is regrettable, but it gives people a chance to make alternative plans. We are encouraging the sector to be responsible, to look at what it can operate and to take steps accordingly.
The hon. Gentleman also spoke about compensation. We published a charter at the weekend so that consumers can clearly see all their rights in one place. I think I have dealt with all his points, but I firmly reject any suggestion that the Government or the Transport Secretary are missing in action on this. We have taken enormous steps, through a detailed programme of very regulator engagement with the industry, to understand exactly how we may best be of assistance. What hon. Members are seeing here is the fruits of that engagement, which is precisely why we are debating this issue today.
The hon. Member for Paisley and Renfrewshire North raised a couple of points. He asked about the impact of EGNOS. We continue to gather evidence on that and to look at the impact it is having. He asked whether any flights that are cancelled because of an EGNOS-related factor are taken into account in these regulations. That would obviously depend on whether the cancellation was at a slot-constrained airport, so he will be referring to whether that is at this end. Without getting into wider points about slots, it will depend on this statutory instrument, which is all about handing back slots in the two-week window. An EGNOS-related problem would occur on the day, so one would not expect an EGNOS-related cancellation to be covered, at least not sticking strictly to the confines of this statutory instrument. However, under normal circumstances the ratio is 70:30 or 80:20, so there is a percentage there to allow for slots not being flown for another reason, whatever that might be, and that might include EGNOS.
The hon. Gentleman asked about the position we are taking for winter. We have consulted on the wider slots policy and we are considering our position, and it is likely that our policy will be announced shortly. I cannot go into that any further at the moment. If the hon. Gentleman is referring to this specific relief, it is a one-off measure taken in response to the scenes we have seen in relation to resilience as we come up to the summer peak period and in relation to constrained demand because of the covid pandemic.
If I understood him correctly, the hon. Gentleman also asked about conversations we are having with European partners and whether there are covid restrictions in other countries.
Essentially, alleviation at the moment is 64%, but our European partners look at the rules perhaps slightly differently. The reasons for the flight not taking place are allowed at the UK end but not recognised at the European end. Therefore, the flight has to take place because the Europeans have slightly different regulations.
The hon. Gentleman makes a very good point. Of course, a slot at one end may be alleviated but that does not mean that there is an alleviation at the other end. This is an operational matter that has to be negotiated between airlines and their partners on the other side. What he said earlier is quite right, in that the Government do not have any control over the steps that others take. However, we have an ongoing relationship with other countries through officials, and Ministers where appropriate, to discuss these matters with partners abroad and with our airline sector. This is one of the issues that I would expect to be covered.
I thank the hon. Members for Wythenshawe and Sale East and for Paisley and Renfrewshire North for their points, which I think I have covered. In essence, these regulations seek to minimise the issues around capacity and short-notice cancellation. The Government are taking a strong and bold step to assist the industry in making sure we have a realistic schedule, and I commend the regulations to the Committee.
Question put and agreed to.
Draft Electricity and Gas (Energy Company Obligation) Order 2022
The Committee consisted of the following Members:
Chair: Mr Virendra Sharma
† Brown, Alan (Kilmarnock and Loudoun) (SNP)
† Butler, Rob (Aylesbury) (Con)
† Eastwood, Mark (Dewsbury) (Con)
† Evennett, Sir David (Bexleyheath and Crayford) (Con)
† Fletcher, Katherine (South Ribble) (Con)
† Hands, Greg (Minister for Energy, Clean Growth and Climate Change)
† Johnston, David (Wantage) (Con)
† Jupp, Simon (East Devon) (Con)
† Morden, Jessica (Newport East) (Lab)
† Russell-Moyle, Lloyd (Brighton, Kemptown) (Lab/Co-op)
† Stevenson, Jane (Wolverhampton North East) (Con)
† Sultana, Zarah (Coventry South) (Lab)
† Syms, Sir Robert (Poole) (Con)
† Twigg, Derek (Halton) (Lab)
† Whitehead, Dr Alan (Southampton, Test) (Lab)
† Whitley, Mick (Birkenhead) (Lab)
† Wright, Sir Jeremy (Kenilworth and Southam) (Con)
Abi Samuels, Committee Clerk
† attended the Committee
Third Delegated Legislation Committee
Monday 18 July 2022
[Mr Virendra Sharma in the Chair]
Draft Electricity and Gas (Energy Company Obligation) Order 2022
Before we start, in view of the weather, Members are advised that they can take their jackets and ties off if they wish.
I beg to move,
That the Committee has considered the draft Electricity and Gas (Energy Company Obligation) Order 2022.
It is a pleasure to serve under your chairmanship, Mr Sharma. This year, we have witnessed an extraordinary and global increase in the cost of energy. The Government recognise that millions of households across the UK need further support with the cost of living this year, which is why we announced additional support worth over £37 billion, including targeted help for those on the lowest incomes.
In that context, the energy company obligation, or ECO, scheme remains key to tackling fuel poverty and helping low-income households with their energy bills. In the sustainable warmth strategy 2021, the Government committed to extending, expanding and reforming the scheme in line with our statutory fuel poverty target. Since 2013, the ECO scheme has ensured much-needed support for low-income households to improve the energy efficiency of their homes. Over the last decade, since it began, it has delivered over 3.5 million energy efficiency and heating measures to around 2.4 million households.
The draft order provides for that expanded and reformed energy company obligation scheme in Great Britain until March 2026, and therefore succeeds the previous energy company obligation order in Great Britain. Its main provisions are, first, the scheme’s extension by four years, to 2026, and expansion from around £640 million to around £1 billion per annum. Secondly, there is an increased focus on support for low income and vulnerable households in the least efficient homes. Thirdly, mandatory minimum energy efficiency improvements will be required. Under the scheme, those in energy performance certificate bands F and G—the least energy efficient homes—will be improved to a minimum band D. B and D and E homes, in turn, will be improved to a minimum band C.
Fourthly, the introduction of a new minimum requirement will see at least 150,000 energy performance certificate band E, F and G private-tenure homes upgraded. Fifthly, the solid wall minimum requirement will ensure that solid wall insulation is installed in at least 90,000 homes. The draft order introduces minimum insulation requirements for all homes receiving any heating measure, subject to certain exceptions, to encourage a fabric-first approach. Broken boiler replacements will continue to be limited but available under the scheme, capped at 20,000 homes, to encourage the transition to renewable heating and align with the Government’s long-term plan for reaching net zero.
I understand what the Minister says about capping the number of gas boiler replacements, which will transition us away from reliance on fossil fuels, but what happens if that cap is reached? How will costs and alternative solutions be managed for other customers who have broken-down gas boiler systems?
If I understood the hon. Gentleman’s question correctly, it is about dealing with people who have no choice but to have a new gas boiler, and what the cost of that might be. We recognise that some homes will not be suitable to be upgraded to something like a heat pump. That is one of the reasons that we are putting these measures in place: to ensure that funds are available to help those who need a boiler upgrade. However, we are saying that ensuring that that is available is not the priority of the Government going forward. The priority is to align with our net zero requirements and make sure that people can be upgraded to heat pumps wherever possible.
What is to prevent companies taking the easy option of the gas boiler replacement to get up to the 20,000 threshold? I am trying to see what checks and measures are in place to make sure that gas boilers are installed only when they are really required and other options have been exhausted.
It would be a matter for the supplier to make sure that the energy efficiency upgrade is carried out in accordance with the scheme and Government policy. It will ultimately be a matter for the supplier under the ECO4 regulations. The Government will of course speak with suppliers to ensure that they are delivering according to the Government requirements. What we are saying is that we are not encouraging gas boiler upgrades, but that if there is no other available source of heat and a consumer is vulnerable, there should be the possibility of upgrading the gas boiler.
The scheme’s eligibility criteria are reformed, placing greater focus on households on the lowest incomes. Households in receipt of means-tested benefits will continue to be eligible. The proportion of a supplier’s obligation that can be delivered under the flexible eligibility element of the scheme will increase to 50%. Under that, multiple options are introduced to encourage improved targeting of low-income and vulnerable households that may not be in receipt of benefits. Those flexible eligibility provisions will enable local authorities, energy suppliers, Citizens Advice and the NHS to work together to identify households vulnerable to the effects of living in a cold home.
A new scoring framework will apply to incentivise multiple measure delivery, along with a series of score uplifts to steer measures and delivery where they are needed most. Installation quality will be governed under the Government-endorsed TrustMark compliance and certification framework. As part of that, the quality of installations, alongside a whole assessment of the property, will continue to rely on independent industry standards, the publicly available specifications PAS 2030 and PAS 2035.
The impacts will be as follows. Thanks to the reforms, we estimate that some 800,000 measures will be installed in around 450,000 homes. Of those 450,000 homes, around 360,000 will be upgraded to EPC bands B and C, removing those households from fuel poverty. We will continue the Government’s excellent record of improving the energy efficiency of people’s homes. The percentage of homes in Great Britain in energy efficiency bands A to C has risen under this Government from 10% to 46% of the total housing stock. That is a quadrupling of the number of homes in the most energy-efficient categories.
Those measures are expected to save £300 on average over the lifetime of the measures and up to £1,600 for those living in the least energy-efficient homes. However, those savings could average around £600 next winter, given future prices—or prices according to the futures market, I should say. That will provide crucial, long-term help when it is needed most this coming winter. To help deal with what might seem to be a gap between the ECO schemes—between the end of the ECO3 at the end of March this year and the start of the ECO4—the order permits measures installed since 1 April to count toward the suppliers’ obligation target.
Those measures are split into two elements. First, there is interim delivery for measures installed between 1 April and 30 June—so over the last three months—to slightly amended ECO3 rules. Secondly, there is early delivery for measures installed to the new rules. Nearly 33,000 measures have already been installed since 1 April. The fact that there might appear to be an interregnum between the ECO3 and ECO4 schemes is no cause for concern. The 33,000 measures have been introduced in those three months will be accounted for either in the ECO3 scheme for the interim delivery or early delivery under ECO4 in that seamless process.
The Government held a consultation on the reforms last summer and published a response in April. The majority of consultation responses supported extending and expanding the scheme as well as the proposals for reform. Government are proceeding with the main proposals, with some key changes in the light of the response received and the final impact assessment. One change is that we have increased the minimum requirement for bands E, F and G from 100,000 to 150,000 private tenure homes.
More of the least energy-efficient properties must be upgraded, focusing more help on those with the highest energy bills. We are providing extra incentives for the installation of measures in rural off gas grid areas in Scotland and Wales, which will be of particular interest to Members representing rural parts of Scotland and Wales. Wales has the largest percentage of homes off the gas grid, and that is the subject of frequent questions to the Department for Business, Energy and Industrial Strategy from my hon. Friends the Members for Brecon and Radnorshire (Fay Jones) and for Montgomeryshire (Craig Williams). They are specific measures in place to help rural homes that are off the gas grid in Scotland and Wales.
England has the separate home upgrade grant, so is covered by an existing scheme. That will account for the extra costs of delivery.
I welcome the uplift and the recognition that Scotland and Wales have more homes off the gas grid. How does that impact on the overall budget allocated to Scotland and Wales? By their very nature, they have a greater need, which is recognised. Has the overall budget envelope increased for Scotland and Wales, or is it still done on a per capita basis?
The scheme is Great Britain-wide. One of the key responses from the consultation was to ensure that, wherever possible, the rules across Great Britain are made the same. Exceptionally, Northern Ireland has its own electricity market. On the extra incentives for the installation of measures in rural areas off the gas grid, I will find out for the hon. Gentleman if there is a specific budget allocation—[Interruption.] There is no specific budget allocation set per nation. He will see that the policy is designed to help. We recognise that rural Scotland and Wales are off the gas grid and not eligible for the home upgrade grant—there ought to be devolved equivalents in Scotland and Wales for that. That is why we have taken the action that we have.
The repair of efficient or inefficient oil and liquefied petroleum gas heating systems will be allowed as a last resort in homes that are off gas grid and where it is not possible to install low-carbon heating measures. That will help to ensure that people are not left without a functioning heating system.
The energy company obligation scheme remains important to support low income and vulnerable households to improve the energy efficiency of their homes and help reduce the energy bills of an estimated 450,000 households. The Government can take great pride that we are providing real help and energy efficiency measures for low-income and vulnerable households, as we have for the last nine years and will for the next four. The order extends and expands the scheme, focusing on the lowest-income households living in the least energy efficient homes. The scheme remains a key contributor to meeting our fuel poverty and carbon reduction goals and is consistent with the heat and buildings strategy and the transition to net zero. I commend the draft order to the Committee.
It is a pleasure to serve under your chairmanship, Mr Sharma. The first thing to say in response to the Minister’s excellent setting out of the provisions of ECO4 is that it is a good scheme. We welcome a number of elements of it, which expand and in many instances are different from ECO3. Above all, we welcome the fact that it is finally on the table today. I see that the order will apply from tomorrow, so it will finally be in place, and I will come back to that problem in a moment.
We certainly welcome the fact that ECO4 sets out increased collaboration with local authorities and other social housing providers, and the increased flex to 50%, which is a slow but sure move towards recognising that local authorities can play a central role in energy efficiency, retrofit and upgrade in properties. That will enable a lot more collaboration on the private sector between local authorities, social housing providers and ECO providers.
We certainly welcome the proposal to ensure that the most poorly rated homes—those in E, F and G—are now among the priorities for treatment, and we welcome the fact that putting them up two bands is on the table in ECO4. We welcome the increased budget from £640 million for ECO3 to £1 billion for ECO4. I have to say, however, that as welcome as that increase is, two aspects ought at least to give Members pause. The main one is that the budget increase will effectively be borne by bill payers, as we see clearly from the impact assessment. If I read it in its entirety, it sounds a bit strange. It says:
“The impacts of the policy shown above are not expected to be shared equally across society, with obligated suppliers expected to incur most of the costs presented in Error! Reference source not found.Error! Reference source not found.”
I do not know what that refers to. It goes on:
“ECO4 has a spend envelope of £1 billion per year, rising with inflation, until March 2026. Suppliers are in turn assumed to recoup the costs they incur from meeting their obligation from their gas and electricity customers.”
It is clear that the money for the increased budget will come from energy bill payers. What is not in the impact assessment, however, unlike some other impact assessments, is what that represents in terms of bills; my calculation is that it roughly represents a £4 increase on bills over the period. I would welcome the Minister’s view on whether I have that about right, or whether that is more or less than it should be. That fact is that it will go to bill payers. We ought to think about whether that is an appropriate way to do such things, particularly as we have such sky-high bills at the moment, and will have for probably the whole period during which ECO4 will exist.
Our view is that an ECO4 scheme should have been substantially better funded than even the £1 billion, given the work that is ahead of us, and also that the difference between what there was in ECO3 and what there will be in ECO4 ought to be taxpayer-funded, not funded by bill payers in general. We also ought to be clear that, welcome though a number of the measures are, they will in fact be only a pinprick on the overall problem in this country with energy efficiency, energy uprates and retrofitted properties. One example of that is the—albeit welcome—carved-out slice in ECO4; that is, the 10% set aside for solid-wall housing, with 90,000 treatments to be undertaken over the course of ECO4. In the country as a whole, we have 7.8 million solid-wall homes, virtually all of which need to be substantially uprated in terms of energy efficiency and as a priority, because they are, by and large, in the lowest energy efficiency categories in the country.
I have many such properties in my constituency. It looks like beautiful Regency grandeur from the outside, but it is poor-quality housing on the inside, which is cold, damp and miserable for many of the tenants, who do not even have direct electricity or gas suppliers, but rather have secondary energy suppliers via their landlords. Does my hon. Friend agree that these measures are far too small in their application and that the Government need to adopt a street-by-street strategy, whereby they assess every house along every street, and develop an individual plan for energy efficiency for each of those houses? Without that, these measures will just deliver nice things and not the ambition that we need.
My hon. Friend is absolutely right. Indeed, I was going to finish talking about what we would like to see by saying something along more or less precisely those lines. In the long term, we need to adopt a wholesale, locally organised and locally run, street-by-street and house-by-house arrangement, rather than what has happened with the ECO schemes in the past and still now, whereby individual houses are picked out by individual suppliers and are treated. That wholesale treatment, which my hon. Friend has rightly described, is still nowhere in view for these schemes.
My hon. Friend will know from his experience of solid-wall homes in his constituency that they are expensive to treat and need whole-house treatment. Indeed, that is reflected in the estimates for this ECO scheme. He will also be concerned to know that, in general terms, if the 90,000 treatments are discharged according to the calculations in the scheme, then we will reduce the number of homes that are outstanding for treatment by the huge proportion of 1.8%. That is to say that 97% of solid-wall homes across the country have not been treated, so 95% will still remain untreated at the end of the ECO4 period. This is a good scheme in its own lights, but it woefully falls short of what we need over the next period for serious retrofit in this country.
But my question, and what I take issue with, is this. Why are we sitting here on 18 July, passing into law—as I hope we will—the rules for a scheme that started on 1 April? Anybody with any experience of these sorts of things will know that it is a rather good idea to have the rules in place before a scheme starts. In this instance—despite what the Minister said about some of the “shutting the stable door” measures retrospectively undertaken in the interim, when ECO4 was not in place—suppliers and contractors have not known what they would be remunerated for, what they would not be remunerated for, or what risks their companies were taking in undertaking actions.
A lot of suppliers, particularly smaller contractors, have simply downed tools on measures to be carried out under ECO3 or ECO4, with an estimated 50,000 measures that could otherwise have been undertaken being lost over the period. For small contractors and suppliers, having to do all that work at their own risk, without knowing what the rules would be, or whether or when they would get their money back, was not something that they could stand.
That question was put to me by a number of suppliers some while ago, when ECO4 was still in development. As a result, I asked the Government a number of written questions about what would happen. Would there be a smooth transition and would the rules for the scheme be out in time? I must say, the answers I got were systematically evasive—and, as it turns out, systematically wrong. In answer to a question that I tabled on 25 November, the Government said:
“The current scheme ends in March 2022, followed by a successor scheme (ECO4). The publication of the government response to the ECO4 consultation is planned before the current scheme ends”.
That was wrong; it came out after the scheme ended.
I asked the Minister whether he would ensure that there was no gap between ECO3 and the start of ECO4 in April 2022. The Government’s response was that
“the Government consulted on extending the Energy Company Obligation…Scheme from 2022-26. The Government will issue a response in due course. ECO4 will commence once the Government has sought parliamentary approval. The Government will endeavour to ensure that there is a smooth transition between the end of ECO3 and the start of ECO4.”
Getting rather desperate, in May 2022—two months after the scheme was supposed to have started—I asked when the Government would lay the rules for the scheme to work. The answer was:
“The Government is working quickly to lay regulations.”
We now know that “quickly” means two months, because that is where we are now.
Of course, the Government were unfortunately rather clear with me about what would happen to suppliers who had undertaken work between the end of ECO3 and the start of ECO4 in the hope that they might get some sort of recompense for it. The answer was:
“The Government does not fund or reimburse suppliers to meet their obligations under the Energy Company Obligation. ECO is a supplier obligation, and it is up to suppliers how they dispense their obligation and recoup costs from energy bills.”
It is up to suppliers, when they do not even know the rules on whether they can get that recompense in the first place.
Finally, very late in the day, on 15 June, I asked why the Government had still not published the rules to implement the energy company obligation. The final answer was:
“The Government expects to lay regulations for ECO4 this month”,
meaning in June. Here we are, on 18 July, looking at those regulations.
Right down the line, the Government have got it wrong on what they said the progress on this was, and got it fundamentally wrong on the elementary task of ensuring that rules are in place before a scheme starts. That has made a real difference to retrofitting in this country, and it is a real difference that I fundamentally deplore.
It should have been within the competence of the Government to organise these rules in such a way that the scheme could progress reasonably fairly and seamlessly, and if they could not do so, it should have been within their competence to tell people why it was not happening and what the reasons were for it. None of those things has happened.
We have heard, I am afraid, a rather Panglossian version of these events from the Minister this afternoon, who says that, yes, people can get recompense now for work they have undertaken; it will score. However, they did not know that at the time because the rules were not there.
It has been a shambles. I hope the Minister will be able to say this afternoon that he is sorry for this shambles, and perhaps also explain—because I have been unable to get an explanation so far—why it has been such a shambles, why the rules are so late and why, as a result, the scheme was hampered in the way that it was. Finally, perhaps he could solemnly promise that this will never happen again in any schemes that he is involved with in future.
It is a pleasure to serve under your chairmanship, Mr Sharma. Like the shadow Minister, the hon. Member for Southampton, Test, I broadly welcome ECO4. With that welcome however, and as is my wont, I do have a few “buts”. Picking up on the shadow Minister’s theme, what has been the reason for the delay in the Government in bringing this forward? They knew years in advance that ECO3 was going to finish. The design of the ECO4 scheme was welcomed by industry, so why was it not brought forward quicker?
Paragraph 3.1 of the explanatory memorandum confirms how critical the timeframe now is: the instrument comes into force the day after it is made. That shows that it is a good job that there are not going to be any votes forced that could cause further delay. However, what discussions did the Minister have with retail energy companies about the impact on supply chains of the delay of ECO4 and paired regulations coming forward? It was absolutely critical that legislation come in pre-recess—that is now being done—but my understanding is that supply chains and the ability of companies to place orders were starting to be impacted. Hopefully the Minister can address that.
Looking ahead at the ECO4 period, what are the Government doing to ensure that companies fulfil their renewable obligation payments? At a previous Business, Energy and Industrial Strategy Committee evidence session about retail energy companies starting to collapse, the Secretary of State said that it is known that some companies go bust when their renewable obligations levies were due to be paid. Since that tacit admission that the Government accepted that some companies would default in their RO payments, what has been done to ensure that that does not happen and that the payments are protected, and will the Minister respond to calls for the payments to be more regular so that the money comes forward?
Can the Minister advise what the value of the RO defaults for ECO3 was, and how many homes missed out as a consequence? On that basis, have the Government made any allowances for defaults in ECO4, and how will that be managed if companies go bust owing to the renewable obligations? What discussions has he had with the Treasury about match funding the welcome £1 billion commitment from ECO4? Industry and charities have been saying that now is the time for greater investment. If the Treasury match funded the £1 billion, think how much more could be done over the next period. Has the Minister considered that, or had any discussions with the Treasury on that basis?
The impact assessment gives a net present social value of £810 million. For business net present value, there is a huge negative figure of minus £3.8 billion. Can the Minister explain how that negative NPV came about? If it is to do with the benefits from the scheme, that would justify further investing more money. Paragraph 36 of the impact assessment states that 1.2 million “eligible private tenure homes” that are rated E, F or G in their energy performance certification will be eligible for the scheme. Given that paragraph 7.6, as the Minister confirmed, committed to 150,000 homes to be upgraded, what is the plan for the remaining 1 million-plus homes that will be left with an E, F or G rating in their energy performance certification?
The Government’s overall target is for all homes to be EPC band C by 2030, yet homes can be exempted where it is not practical, cost-effective or affordable. What does that exemption mean in real terms? That was something else the Secretary of State could not justify to me. How that exemption is assessed and monitored is critical to how many homes are ultimately upgraded to EPC band C.
Paragraph 3.2 of the explanatory notes confirms that energy suppliers have until March 2026 to deliver the outcomes, so obviously this is a four-year programme. What steps will be taken to ensure and assess that the programmes are on track right through that period? What steps will be taken to ensure that companies are not allowed to back end and therefore risk missing the 2026 deadlines for delivery?
Paragraph 7.2 of the explanatory notes states that:
“Market failures…are known to reduce the take up of cost-effective energy efficiency measures.”
I have to say, it is not market failure that has had an impact, but the Government’s failed policies. We had the failure of the green deal scheme, which included the Home Energy and Lifestyle Management Systems mis-selling scandal. When will the Department for Business, Energy and Industrial Strategy resolve the appeals backlog for the HELMS green deal mis-selling scandal? Why are more green deal plans not being cancelled outright? In recent times, we have had the failure of the green homes improvement voucher scheme. While we welcome ECO4, there need to be more rounded, coherent Government policies to go along with that. The UK Government should treat energy efficiency as a national infrastructure project, in the way the Scottish Government do.
While we welcome the increase in the budget to £1 billion, paragraph 7.4 of the explanatory memorandum confirms that that is based on 2021 prices. What recent assessment has been made of the impact of current inflation on that? We know that it is more difficult to get materials; the costs of materials have increased as well as labour costs. What assessment has been made of the validity of the £1 billion now and the impact that inflation is having on that?
I would like to put on the record that I welcome the confirmation in paragraph 7.5 about disability benefits eligibility and the fact that households in receipt of such benefits will still be eligible for upgrades in ECO4.
Paragraph 7.13 rules out biofuels. Can the Minister clarify why we would rule out biofuels? They could provide a useful transition between outright fossil fuel and getting to complete renewable energies. I cannot really get my head around that, so hopefully the Minister can explain it.
As I said in my intervention, I welcome the uplift for off-gas grid homes in Scotland and Wales. However, again, I would press the Minister on the fact that that needs to feed through in budgets and considerations in the wider spending envelope. Paragraph 7.24 also sets out an innovation uplift, which again is welcome. What measures will be put in place to assess the long-term performance of any measures installed that are deemed to be innovative? By virtue of the very term “innovation”, that will refer to technology that does not have a long, proven track record. What will be done to ensure that those new measures installed under the innovation uplift actually do what is required in the long term?
Paragraph 7.24 also highlights building fabric issues such as dampness, cracks and different faults that can be remedied and repaired. What will be done to ensure that it is not an easy uplift measure for companies to take advantage of? What will be done to ensure that it does not let private and social landlords off the hook in their responsibilities regarding the upkeep of the fabric of the buildings?
Paragraph 7.26 talks about incentivising delivery on time, but what does that look like? Does “on time” mean for the entire programme, for a sub-programme or for individual measures that are installed?
Turning back to the impact assessment, paragraph 49 states that the modelling is based on the English housing survey. What has been done to get a more representative understanding of the housing stock right across the UK, instead of trying just to extrapolate from an English survey of houses?
The shadow Minister asked about the impact on bills. From reading paragraph 94 of the impact assessment, it seems to me that the impact will be £37 per annum on duel fuel customers to pay for ECO4. Is that correct? How sustainable is it for bill payers to pay £37 with bills continuing to increase without putting more people into fuel poverty?
On the measures to address solid walls, I say to the Minister that we need to work with industry to find a solution for solid-wall homes, tenements and flats in the likes of Glasgow and Edinburgh, because they are particularly difficult to upgrade. That really needs a whole-building approach, or, as was suggested in an earlier intervention, a street by street approach. We really need to look at that and look to the future to be able to address these.
It is getting more difficult now to upgrade houses cost-effectively because the low-hanging fruit, as it were, has already been picked. What work has been done to identify the overall cost of upgrading the remaining stock? What work has been done to have a real forward look-ahead to meet the 2030 target?
I am sure everybody will be delighted that I am now going to sit down—and wipe the sweat from my face as well.
This has been a good-natured and well-informed debate. I did not hear any opposition to the scheme, so I welcome the support of the Opposition parties for what the Government are doing. I will try to answer as many questions as I can. The hon. Member for Southampton, Test asked why the obligation is set low, but I disagree that it is set low. A £640 million scheme increased to a £1 billion scheme is a 56% increase—quite an ambitious increase.
The hon. Member for Kilmarnock and Loudoun tried to pick holes and asked about inflation. Well, I have news for him: inflation is not anywhere close to 56%. I remember back in the 1970s that it did get into the high teens and to 20%, but we are not anywhere close to that, thankfully. He asked whether the scheme should be more ambitious. I remind him that ECO is only part of the help available. We have other Government schemes designed to improve the energy efficiency of homes, which is why this Government have such an excellent record on that.
I have to correct what I said earlier. I said that, in 2010, 10% of homes were rated A to C on energy efficiency. I checked my own notes, and it is not 10%, but 14%, so I may have been doing the last Labour Government a slight disservice. It is not, I am afraid to say, a quadrupling of the number of homes well rated under energy efficiency; it is in fact only a tripling, so I apologise. Perhaps I have been giving too much praise for the Government, but I none the less think that a tripling in the last 12 years is a record to be proud of.
The hon. Member for Kilmarnock and Loudoun is right that ECO adds to bills, but those who benefit will of course get reduced bills for many decades, which it is important to understand. It is not a simple redistribution from non-vulnerable bill payers to other bill payers. It assists vulnerable bill payers in energy-inefficient homes to get their homes to be energy-efficient, thereby saving them a considerable amount of resources over many years. We are also providing direct help with the £400 energy bills support scheme and other measures introduced by the Treasury this year.
I am glad the hon. Member for Southampton, Test praised the co-operation with the private sector, housing associations, the NHS and local authorities. It is a whole-of-Government effort to improve the energy efficiency of our homes. He said there was an estimated £4 on bills a month, but the hon. Member for Kilmarnock and Loudoun was correct: the estimate is £37 per annum—about £3 a month. I have said that it is not the only scheme available. We have £6.6 billion deployed over the course of this Parliament on energy efficiency schemes, including the £450 million boiler upgrade scheme, the social housing decarbonisation fund, the home upgrade grant, which I have already mentioned, and the public sector decarbonisation scheme, as well as the VAT reductions announced by the previous Chancellor earlier this year.
Is not part of the problem the myriad schemes that the Minister has outlined? For the normal person in the street, who lives in a shared house where part of it is owned by a person in poverty, another part is owned by someone else and another part is rented, it becomes so difficult for people to match these schemes up and get them in line at the right time, particularly when the Government do not issue guidelines on how the money should be spent for months on end. Is it not better for the Minister to go away and think of a universal scheme to start to tackle those problems, rather than this piecemeal effect?
The hon. Member raises an important point, but an energy consumer does not have to have an encyclopaedic knowledge of the available schemes. The important thing is that the Government provide that assistance, in some cases via energy suppliers, local authorities or social housing providers. If he wants to write to me to suggest which schemes he might seek to abolish in favour of putting it all in one scheme, I would happily receive such a representation.
The hon. Member for Southampton, Test said the solid wall insulation minimal requirement should be higher. ECO4 will focus on the least energy-efficient properties and, as I mentioned earlier, we have introduced a requirement for a minimum of 150,000 band E, F and G private tenure homes to be treated. Most of those will be solid-walled homes and we estimate that around 75% of total scheme spending will go towards improving them to band D or better. We believe the current solid wall minimum strikes the right balance between giving certainty to the supply chain and giving them the flexibility to treat homes in the most important way. The hon. Member for Brighton, Kemptown sought a street-by-street approach—an area-based scheme. We expect area-based schemes to happen as installers involved in ECO also deliver under the home upgrade grant, the social housing decarbonisation fund and the local authority delivery scheme. We already know of installers planning to work in that way.
The hon. Member for Southampton, Test asked why the scheme was delayed. It is worth stating that ECO4 is the most significant reform since the scheme began nine years ago. We have had to ensure that it is fit for purpose until March 2026—it is important to get that right. This has presented new challenges in policy design, modelling and legal drafting. As I have already mentioned, however, nearly 33,000 measures have been installed since 1 April and registered with TrustMark. We expect that number to rise by several thousand because, obviously, there is a time lag between installation and registration. That is not a bad rate. This is a scheme of 450,000 households over four years, so that is roughly 110,000 per annum, so the fact that in three months, 33,000 measures have been installed shows there has been no discernible impact on delivery from the change from ECO3 to ECO4.
The hon. Member read us a long chronology of parliamentary questions and the different points he has made. I will never forget in my first year in Parliament when I asked a point of order to the Speaker. I read out a long chronology relating to a then Labour Minister, who had failed to provide an answer. The then Speaker—the glorious late Michael Martin—replied to me with just one word, “Persevere.” That was all he said to me. I will not urge the hon. Member to persevere. I say to him that at the end of that long chronology, he was not actually able to demonstrate that there had been any deficiency, that anybody had been damaged or that any measures had not been delivered as a result of ECO4 coming in three months after the scheduled end of ECO3. We covered it due to the extension of ECO3 and the bringing forward of measures in ECO4. That has been solved, and the hon. Member should join us in celebrating those 33,000 measures that have been installed just in the last three months.
Moreover, by allowing suppliers to overdeliver against their ECO3 targets—referred to as carryover—at least 40,000 extra measures were delivered earlier than they otherwise would have been. We have engaged with energy suppliers, and the hon. Member for Kilmarnock and Loudoun asked about the supply chain.
If the Minister thought all along that because of all the various issues and complexities of this particular scheme, it would take longer than originally anticipated and there would be a gap in schemes, why did he not say so at the time? Why did he give me a series of replies to my questions, which said anything but that being the case?
Sometimes, when we are making a reform, it is not always obvious where that reform process will lead. Let us bear in mind that there was a big consultation and we wanted to hear from suppliers and consumer groups, so we obviously wanted to look closely at the responses to the consultation. I have already mentioned the consultation in response to the point of the hon. Member for Kilmarnock and Loudoun; we want a GB-wide scheme. It was right and proper to wait for the responses to the consultation before laying out our reform measures.
I promise to be brief. Part of the technical consultation that the Minister has alluded to for solid walls is really important. Is there a major gain in preventing the latent heat of evaporation by putting a PVA coating on the outside of walls? Do we have to lose space from inside homes that may already be small to provide initial internal insulation? Does he agree that it was important to take time to ensure that the industry and different providers could work out how to get the most bang for their buck to move it forward?
I am not sure whether the hon. Gentleman is making an intervention on my hon. Friend’s intervention, but my hon. Friend makes a good point about the strong measures that we are taking on solid wall insulation, which are important to get right—the most important thing. I do not think that anybody could point to any damage that has been caused by this; we have continued to deliver a huge number of measures in those three months. We should look at the new scheme and welcome the additional measures that we are taking to help vulnerable households.
The hon. Member for Kilmarnock and Loudoun asked about the solar process; it is a matter for Ofgem to ensure that ECO is protected in that. Obligations are calculated annually and suppliers must fulfil their obligation. Any supplier that went bust would lose the obligation. So far, only very small—or relatively small—suppliers have gone bust. The larger suppliers have continued to fulfil their obligation under ECO3.
The hon. Gentleman also asked about discussions with the Treasury. As you will know, Mr Sharma, it is always difficult to disclose matters relating to a discussion with the Treasury, so I will pass on that.
The hon. Gentleman asked about the negative NPV of £3.8 million; I will have to write to him on the exact details of that. On the 1 million homes that would be left in bands E, F and G after these schemes, we recognise that this scheme will not improve every home in the country. To help with that effort, we have additional schemes in place that I have already mentioned. Of course, some homes will not be able to be upgraded to band C or above, or it would not be cost-efficient to do so, but hopefully that will be a very small number.
The Minister spoke about solar and how the renewables obligation will be protected. Does he know how the renewables obligation will work for Bulb Energy, which is obviously in a special administration regime but still supplying a large number of customers? Will it be eligible to pay RO and will that just be an additional burden that is picked up with the administration costs?
Of course, there are separate administrators for different parts of the company. I am happy to write to the hon. Member for Kilmarnock and Loudoun about how the administrators might approach that issue in relation to ECO4.
The hon. Gentleman asks about the back end and risk delivery, which has not happened before with ECO1, 2 and 3. Obviously, however, Ofgem monitors that closely to make sure that there is no risk of suppliers back-ending their obligations. To the best of my knowledge, we have not had that problem in the previous three schemes.
On a budget by nations, I think I am right in saying that Scotland, along with the north of England, has benefited the most of the nations or regions of the United Kingdom from the previous ECO1, 2 and 3 schemes. It has very much been, to date, a scheme where disproportionately Scotland and the north of England have benefited. I know that the hon. Member likes to create grievances here on behalf of Scotland. He is even having a pre-emptive grievance. The scheme has not even started and he is already ratcheting up the grievance policy. I have to say that from my experience of the previous ECO1, 2 and 3 schemes, Scotland has been very well served, as has the north of England. I think we should continue to celebrate that. The hon. Member asked about a biofuels exclusion. There is competition for biofuels, and they may be better used elsewhere, but we also do not want to maintain low-income homes on volatile fuels wherever possible.
The Government recognise that millions of households across the UK may need further support with the cost of living and the extraordinary increase in the cost of energy, which we have witnessed this year. That is why the Government have announced additional support this year worth over £37 billion, including targeted support for those on the lowest incomes. The Government remain committed to helping low-income, vulnerable households to reduce their fuel bills and heat their homes. Improving the energy efficiency of our homes is the best long-term solution to achieve this. Tackling fuel poverty is an essential for our transition to net zero. That is why we are spending £6.6 billion over the course of this Parliament and expanding the previous ECO3 system into a much larger ECO4 scheme, targeted particularly at the more vulnerable and those living in the least energy-efficient homes.
The Government have an excellent record in improving the energy efficiency of homes in this country—from 14%, the level we inherited from the last Government, to 46% today. That still means that 54% of homes in the United Kingdom are rated below band C for energy efficiency. That does not give any cause for complacency. I think we can see with the action taken by this Government that we have improved the energy efficiency of homes gradually and considerably over the last 12 years, and we will continue to do so with ECO4. Therefore, I commend this draft order to the Committee.
Question put and agreed to.
That the Committee has considered the Draft Electricity and Gas (Energy Company Obligation) Order 2022.