House of Lords
Tuesday, 28 October 2008.
The House met at half-past two: the LORD SPEAKER on the Woolsack.
Prayers—Read by the Lord Bishop of Southwell and Nottingham.
My Lords, the Government do not underestimate the challenges facing the industry. VisitBritain is leading a strategic review of tourism support and we are confident that this will improve VisitBritain’s ability to market Britain internationally and England at home. VisitBritain’s grant-in-aid for 2008-09 is set at £47.9 million for 2007-08. DCMS is also contributing £5.4 million in 2006-09 to support the tourism responsibilities of the regional development agencies.
My Lords, in the light of falling inbound tourism and the 2012 Olympics, it seems extraordinary that over the next three years the Government are cutting the budget of VisitBritain by 20 per cent. That is on top of deep cuts in previous years. Ninety per cent of the sector is made up of small and medium-sized enterprises. The Government now claim to be the champion of SMEs. Will they now make sure that VisitBritain has the budget that it so badly needs to do the job of promoting tourism?
My Lords, the issues surrounding VisitBritain are not just a question of resources but about the priorities that it adopts and the way in which it works. The strategic review which I mentioned in my Answer is designed to identify how VisitBritain can fulfil its role more effectively in the light of the opportunities which will develop in the run-up to the 2012 Olympics, as the noble Lord suggested in his question.
My Lords, given the important contribution that heritage churches and cathedrals make to our tourism industry, does the Minister agree that they deserve sympathetic encouragement in both financial and promotional terms?
My Lords, I do not have the slightest doubt that ecclesiastical buildings—the cathedrals and churches—are a very important part of the attractions of Britain. I am used to seeing France boast about its cathedrals, but there is a great deal of co-operation between French cathedrals and British ones on occasions when it comes to promotion. I recall when Canterbury linked up with Rouen and another French cathedral in a joint project. That is all to be welcomed.
My Lords, what signal do the Government think they are sending our sixth largest industry when they see the chairmanship of VisitBritain as a six-days-a-month job and advertise the chairmanship of VisitEngland as a one-day-a-week job? The fact that the present chairman of VisitBritain was a former chief executive of the Bradford & Bingley building society does not mean that he should be punished or taken advantage of in this way.
My Lords, I will ignore that last point. On the more general issue, I am sure the noble Lord will appreciate, as all Members of this House do, that leadership of an organisation may not require a huge amount of time. We have many very important and hugely successful quangos, which are run on the basis of the chief executive being full-time but the chairman serving for one or two days a month or a little more frequently. It depends on the quality of leadership.
My Lords, does the Minister agree that one thing that would help to encourage visitors to come to Britain would be to reduce the rate of VAT on hotels? It is perhaps not always recognised that Britain is one of only three countries in Europe that charge the full rate of VAT on hotels, thus disadvantaging us competitively against other European destinations.
My Lords, my noble friend will recognise that VAT across Europe is an ever thorny issue. He will also know of the substantial investment in accommodation in Britain in recent years. Recognition is due of the enhanced quality of much provision. I do not think that the slightly higher rate of VAT necessarily has the detrimental effect that he suggests.
My Lords, does the Minister recognise that, in the current extremely grave economic situation, when many manufacturing industries may find it difficult to take advantage of the more advantageous exchange rate, tourism and all the businesses involved in it are particularly well placed? The UK was getting a reputation for being too expensive. Now, suddenly, one of the few bright spots in the present dramatic situation could be if the Government and all the organisations concerned put real effort behind this. This is one way in which we could see a real improvement, and quickly, in the economic situation.
My Lords, I agree with the noble Lord, who has expressed fluently and at length the pithy comments of the noble Lord, Lord Pearson, on this issue. There is no doubt that tourism in this country should benefit from the position of the exchange rate. It has quite a significant impact on British prices, which is obviously key when people are choosing whether to come here or not.
My Lords, there is no doubt that Heathrow needs improvements, although it will be appreciated on all sides of the House that after the calamitous start to terminal 5, which produced such a furore in the nation last year, we get relatively few complaints about the operation of that terminal at the present time.
My Lords, following the observations of the noble Lord, Lord King, does my noble friend agree that, among the industries that have been most successful in attracting tourism into the country, the arts and culture are very high on the list? Following an excellent settlement in the most recent Comprehensive Spending Review, will my noble friend ensure that the Government’s support is sustained in the years to come?
My Lords, I am glad that my noble friend has paid tribute to the arts. There is no doubt that there are many hugely successful institutions. It may be invidious to identify one, but no one can ignore the enormous success of the British Museum in recent years, which has acted as a lodestar for improvements right across that sector. Britain is famous for its arts provision, which will be an important part of the cultural Olympiad leading up to the 2012 Olympics.
Police: Ethnic Minorities
My Lords, the Government have introduced initiatives, including targeted advertising, mentoring, familiarisation days and specific training to support candidates who may need assistance with language skills. In addition, the Green Paper on policing proposes the introduction of local targets to enable local representation within forces and will feature in the 2010 HMIC inspection. An assessment of the recruitment, retention and progression of minority ethnic staff has just been completed and is now with the Home Secretary.
My Lords, I thank the Minister for that reply. I have encouraged and will continue to encourage the recruitment of ethnic minorities to the police force. I therefore totally disagree with the recruitment boycott proposed by the Metropolitan Black Police Association. Following the Stephen Lawrence inquiry, the Government set each police force a target for BME recruitment based on the make-up of the local population. Have those targets been achieved? If not, what measures are being taken to ensure that the police forces achieve their targets and how best can we monitor their progress?
My Lords, I thank the noble Lord for his comment on the statement about not recruiting into the Metropolitan Police; that was an outrageous and damaging thing to say and I thank him for his support. I am afraid that we are not making the targets. The NPIA is being enlisted to assess the police forces that are not making them. It is clear that we must do better in this area. We have done a huge amount, but we are not doing as well as we should. However, we are absolutely intent, as are the police, to ensure that we get a correct representation of BMEs in our police forces. It is essential that we do that.
My Lords, I cannot agree with the noble Lord’s final statement. However, these are very difficult issues. It is interesting that I was asked last time we debated this question about the percentage of superintendents who are of BME background; the figure was, I think, about eight out of 300, which is about 2 per cent. But it takes about 20 to 22 years to grow a superintendent and, about 20 or 22 years ago, less than 2 per cent of the police were BME. These things take a considerable time. We have done a great deal and have put a lot of things in place. Everyone is struggling to make it happen. When people make outrageous statements, as some have, that does not help at all.
My Lords, is it not the case that for at least 40 years, under-recruitment from ethnic minorities to the police has bedevilled successive Administrations? Since the success over that period was so meagre, will the Government undertake a robust and imaginative programme, as soon as is humanly possible, which concentrates on the fertile areas of schools and universities?
My Lords, we already do that. We go to special recruitment fairs at schools and universities. A great deal has been done not just by this Government but also by other Governments. Post the Macpherson report we have had the breaking through action plan, the Winning the Race report and the Positive Action Events Toolkit document; SEARCH has been established for recruitment; and we have had the Home Secretary’s race, equality, employment targets bulletin and the From the Neighbourhood to the National: Policing our Communities Together Green Paper. A whole raft of those things have been put in place and people looking at them and trying to do things.
It is very exciting that a large number of BMEs are going in as PCSOs; the figure is, 11.5 per cent, which is very good. A number of those PCSOs become officers, which is good. In a funny way, that neighbourhood policing initiative and the use of PCSOs is probably a better lever in some ways than some of the other mechanisms.
My Lords, while the MPA’s boycott might be unhelpful, does the Minister agree that when every one of the six most senior non-white officers in the Met has brought a discrimination case against their employer, something extremely serious is afoot, perhaps not in recruitment but in retention? Will the Minister consider leadership counselling and career development for senior levels, and when does he expect the Coaker report to be released by the Home Secretary?
My Lords, the specifics referred to by the noble Baroness are a cause for concern—absolutely—but what they reflect is difficult to know and will take some assessment. I do not believe that it is up to central Government to tell the MPS and the MPA what they have got to do. As she knows, the Mayor of London has put in hand a review—it may take some time because the terms of reference will not be ready until 27 November—which is the correct approach to tackling these issues. The assessment for the Home Secretary—it is not really a report—stems from the fact that there were concerns about what lies behind this. The assessment is with the Home Secretary now, but I do not yet know exactly how it will move forward,. As soon as I do, I shall let the House know.
My Lords, would my noble friend care to comment, first, on yesterday’s press reports that the Mayor of London intends to reduce recruitment targets for the police force in London? Secondly, if it happens, what does he believe will be the consequences for the recruitment of people from ethnic minorities in the London area?
My Lords, I am afraid that I do not know the answer to my noble friend’s question; I have to say that I am unsighted on that. Over the past 10 years or so we have increased the number of police in this country overall, and I hope that if there is any adjustment, it would not have any effect on the number of BME officers coming in. Within London, one in four of the new recruits is BME, and I think a rate of 25 per cent is rather good. However, we have to remember that about a third of the population in London now comes from a BME background, and therefore that is the proportion we should be looking at. Interestingly, in New York some 45 per cent of the police come from that background because that is the split there. Clearly, the police should reflect the society they represent; that is why the PCSO initiative is so good. When I was in the military, we always expected our forces to represent the nation they were defending. I think that the same is true of our police.
Education Maintenance Allowance
My Lords, EMA is targeted on young people from lower income households, so not all learners receive it. It has been shown to have a positive impact on both participation and attainment. Applications are ongoing throughout the year. However, there have been some regrettable delays, which the Learning and Skills Council is seeking to resolve with its contractor.
My Lords, I thank my noble friend for that reply. The Government should be congratulated on this wonderful scheme, whose introduction a few months ago was welcomed on all sides of the House. Betwixt the LSC and the private company operating the scheme, something has gone sadly amiss, which has caused considerable financial difficulties for colleges, and particularly for students. Will my noble friend assure the House that the Government will ensure that the LSC fully compensates colleges for any outlay they have made on behalf of their students?
My Lords, I thank my noble friend for that question. I can reassure him that colleges have additional funds from the Discretionary Learner Support Fund which, at their discretion, they can make available to students in hardship. They are using the fund to provide interim payments to students in real need who are waiting for their education maintenance allowance. While the expectation is that learners will repay the fund once they receive their backdated EMA, this cannot be guaranteed. My department has therefore agreed with the LSC that if colleges or councils have concerns about this, or if they have insufficient funds to provide the support necessary to cover the needs of learners in hardship, they should contact the LSC immediately to access sufficient funds.
My Lords, will the Minister explain why students, teachers and parents should have confidence in the delivery of EMAs when Liberata, the company awarded the contract, has such a poor track record and was recently described by the FSA as reckless?
My Lords, I encourage parents and learners to have confidence in the EMA because we know that it delivers results. It is extremely regrettable that there have been delays in payments. I fully recognise that. However, in tackling the delays, the number of outstanding payments has in some weeks fallen from 200,000 to 40,516. I can assure the noble Baroness that the LSC is working hard to tackle the concerns that she has raised and that learners are receiving their payments as quickly as possible.
My Lords, given that at one point 250,000 students were waiting for payments, how is compensation being given in the schools where sixth formers are as entitled to EMA as those in further education colleges? As the Minister pointed out, further education colleges have hardship funds, which have been highly stretched, but what happens in the schools?
My Lords, EMA is paid to about 500,000 students every year and so, at the beginning of the academic year, all students were waiting to receive their notification of eligibility. We know that 429,622 notifications of entitlement have been sent out and, as I have said, more than 40,000 are still waiting to be processed. Of course schools need to support their students who are waiting for EMA, but they will get their backdated payments. That is very important for learners to know.
My Lords, notwithstanding the problems of the contracting organisation, am I right in thinking that the education maintenance allowance has made it possible for many children from low-income families to continue in further education? Is it not true that the more we say to encourage that happening the more likely it is to make it possible for those kids to get employment in what is likely to be a difficult time employment-wise? Should we not be shouting about the success of the allowance in order to get the message over to young people from poor families to access it?
My Lords, I agree wholeheartedly with my noble friend. Because of the importance of the EMA in promoting increased participation, and because we have seen results, the Government have extended the role of the EMA in creating the kind of confidence in participation to which my noble friend referred. Subject to parliamentary approval, students who have received EMA from this September will be entitled to the top rate of higher education maintenance grant should they go on to higher education. That is an important continuation of that participation encouragement.
My Lords, perhaps I may press the Minister a little more about the situation of EMA recipients who are attending schools. Schools, unlike colleges, do not have hardship funds, so it is then for the local authority to support young people who are suffering hardship because they have not yet received the grant. Are the Government doing enough to ensure that local authorities are being sufficiently proactive in identifying such young people and giving them support?
My Lords, the Government are clear that no learner should lose out as a result of these delays. I would never be complacent enough to stand here and say that we were doing enough; we never feel that we are doing enough. I will take back the concerns of this House to the department, and we will continue to work as hard as we can to make sure that these young people are getting what they deserve.
Schools: Personal, Social and Health Education
My Lords, the importance of good quality personal, social, health and economic education has never been greater. The Government therefore intend to make PSHE a statutory subject. We recognise that issues such as pressure on the curriculum need to be resolved, so we have launched an independent review led by head teacher Sir Alasdair Macdonald. He will report in April 2009 with recommendations on a practicable way forward.
My Lords, I thank my noble friend for that full response. Does she agree that making PSHE compulsory in the curriculum is a great step forward for education, and one that has been supported by Members of this House and those outside for many years? What steps will be taken to ensure that teachers are properly trained to deliver it and that the materials for teaching will be available?
My Lords, I am delighted to agree with my noble friend that this is an important step forward and to pay tribute to the work of many Members of your Lordships’ House who have raised this issue tirelessly. I also congratulate the working group on sex and relationship education, which has involved a wide range of participants who came to a consensus on the need to go forward. She is right to highlight that we need to invest further in the skills and confidence of the workforce. We will be further encouraging the teacher development agency to look at a specialist route for initial teacher training for PSHE, and we will ensure that we make maximum use of our £2 million investment in teacher training.
My Lords, I congratulate the Minister on making this decision, and I have two questions. First, how will schools be encouraged, helped and perhaps monitored in the extent to which they consult parents when they are developing a curriculum about these sensitive matters that is suitable for the needs of their own young people? Secondly, does the Minister agree that good quality PSHE has a major contribution to make to child safeguarding by giving young people more self-confidence and knowledge about, for example, what is appropriate and inappropriate touching?
My Lords, once PSHE becomes statutory and we have heard from the review looking at this delicate but important subject, the status of the subject will be raised. We have a great facility with Ofsted and the work that it does in reviewing the delivery of the national curriculum and statutory education, and that will continue to be an important tool. We know from that work that there are some schools that deliver very high quality PSHE, and that involves discussing exactly the kind of things that the noble Baroness is talking about. PSHE is not all about sex, though; it is, as the noble Baroness often reminds us, about relationships as well. It is a broad topic, but we need to create a subject that is taught in the whole and in the round by expert, well trained and confident teachers.
My Lords, does my noble friend accept that the dangers arising from sexually transmitted diseases are such that what children should be taught about sex and relationships cannot be regarded simply as a matter of private family responsibility? Will she assure the House that in the future no school will be allowed to shirk its responsibility to provide sex and relationship education, and that no parents will be able to opt their children out of that education in school?
My Lords, to pick up on the first part of the question raised by the noble Baroness, Lady Walmsley, parents have a vital role to play in talking to their children about healthy, loving relationships. Can the Minister assure us that working with parents will be central to any changes in sex and relationship education?
My Lords, in welcoming this, I wonder if the noble Baroness will accept that it is broadly in the home and the family context that children and young people most grow and develop in these matters. What can the Government do to support and help those with parental responsibilities and to enable schools engaging in this education to work in a collaborative mode with the home?
My Lords, following the point made by the noble Baroness, Lady Morris, it is vital that parents are brought into the centre of the schools’ thinking about developing PSHE. The working group stressed that strongly and I expect that the independent review will want to look at it. The Government have been absolutely clear, particularly in the Children’s Plan, that it is parents, not the Government, who bring up children.
My Lords, will the Minister expand a little on what role she expects school governors to play? Does she, for example, expect that at least one of them should take a special interest in the development of this very important new curriculum subject and perhaps report back to the wider school councils on how the scheme is progressing?
My Lords, I hope that the independent review will give us some very important advice on this. Governors have a key role to play in any successful school, and I am sure that that will form part of the review’s advice to us on developing the subject.
My Lords, I beg to move that the Bill be now further considered on Report.
Moved accordingly, and, on Question, Motion agreed to.
[Amendment No. 12 not moved.]
Clause 80 [Energy reports]:
13: Clause 80, page 73, line 13, leave out from “(1)” to end of line 15 and insert “for “in each calendar year, beginning with 2004,” substitute “, for each reporting period,”
The noble Lord said: My Lords, I was rather caught short by that. This clause has sparked considerable debate and concern during the passage of the Bill in your Lordships’ House and the other place. We have listened carefully to the arguments put forward, particularly by the noble Baroness, Lady Wilcox, and my noble friend Lord Whitty, on having a defined reporting period and a date by which the report must be published. We promised in Committee to bring forward amendments to address these two issues.
These amendments reinstate a requirement for the sustainable energy report to cover a reporting period. We propose that this period should run from January to December, rather than retain the current 12-month reporting period ending with 23 February, which was arbitrarily based on the publication date of the energy White Paper in 2003. This will still enable our report to align with the carbon budget reporting cycle which will be established through the Climate Change Bill.
To ensure a smooth transition from the existing regime, we have provided that the first reporting period will be slightly shorter than subsequent years, lasting from 24 February 2008 until 31 December 2008. Subsequent reporting years will run on a calendar year, as I have already described. In addition, we were also persuaded that it would be helpful to retain a specific period during which the report would need to be published. The current requirement is that a report be published any time between 24 February and 31 December following the end of the reporting period. However, the change of reporting period to a calendar year necessitates a change in publication date also. There are benefits in providing that the report for a particular calendar year be published no later than October the following year. This would commit the Government to report by a certain time in the year, but still enable the appropriate analysis to be completed shortly after all the latest data became available, which is generally between April and July.
Finally, in response to a persuasive argument put forward by the noble Lord, Lord Jenkin, we are reinstating the requirement in Section 172 of the Energy Act 2004 for the Secretary of State to report to Parliament on security of energy supplies. The government amendments also cover a number of other, smaller consequential changes to other related legislation to reflect the reinstatement of a reporting period. I hope that this provides reassurance to noble Lords that, following proper reflection on the concerns raised, we have produced amendments that address the issues discussed in your Lordships' House and the other place. I beg to move.
My Lords, since Amendment No. 14 stands in my name, I am very happy that the Minister has produced a formulation which meets the points that were behind my tabling amendments in Committee and now. It was not, however, my eloquence which persuaded the Government; in fact, the noble Baroness, Lady Wilcox, had to make reference to my amendments in my absence in Committee. Nevertheless, I am sure that the Minister and his advisers have seen that we need to retain and be explicit about the reporting periods. I was particularly anxious that the reporting requirements remained for the Climate Change and Sustainable Energy Act, in which I have a certain paternal interest since I piloted it through this House as a Private Member’s Bill. I am grateful to the Government for having moved on this; the amendment meets my main points. The only aspects that they have not reinstated are references to particular technologies, which I am sure will be covered in the reporting system in any case, otherwise the Minister may be faced with certain interest groups pursuing him on that. My main point is covered. I therefore thank the Government and look forward to other of my amendments being adopted similarly.
My Lords, the Government have been as good as their word and met the point that I made. We shall watch for the first reports on energy security with great interest. This is a matter of increasing public concern, not least following the interruption of supplies some months ago when two very large power stations happened to go offline at the same time. The reports that one gets from the national grid are sometimes overreassuring about the margins of supply which we enjoy. There is a general perception among those responsible in this area that we are beginning to run up against margins that are too low for comfort. I do not go the whole way with Professor Ian Fells, who has prophesied in a book doom and gloom by the middle of the next decade. I do not believe that that will happen, but the margins are tight. A regular report from the department on security of supply will greatly help the public to understand the position. I am most grateful to the Minister.
My Lords, there is no need for me to respond in detail other than to say to my noble friend that he should not push his luck in relation to his other amendments today. I thank the noble Lord, Lord Jenkin, for his kind remarks. We debated security of energy supply in an Oral Question last week. It is clear that it is a critical issue. I certainly do not believe that it is a position of doom and gloom, but I agree with him that it is a matter on which we have to be ever watchful. I am sure that the regular reports will be helpful to Parliament and others in ensuring that appropriate scrutiny is maintained.
On Question, amendment agreed to.
[Amendment No. 14 not moved.]
15: Clause 80, page 73, line 15, at end insert—
“( ) in subsection (1) after paragraph (d) insert—“(e) investigating how much energy could be saved through the adoption of a daylight saving scheme.””
The noble Viscount said: My Lords, this Bill is undoubtedly a very important measure, covering different aspects of power generation, but it makes no mention of energy saving, which is equally important.
Many of our energy requirements in this country depend on imported supplies, which impinge on the balance of payments. That is why in World War II we had GMT plus one hour in winter and GMT plus two hours in summer. We have just put the clocks back and very shortly it will be dark outside. There are also road traffic accident reduction advantages and numerous economic reasons why the Government should consider this seriously. Indeed, many attempts have been made over many years by Back-Bench Members in both Houses to adopt daylight saving, so far without success. Clearly, it cannot be achieved in this Bill, which needs a quite separate measure. However, the Government will now be considering the Queen’s Speech, and this is an opportunity to include something along these lines, which would be a useful and popular measure. In the mean time, all that the amendment seeks is that the Government should record the amount of energy that could be saved and that the energy should be given the serious consideration that it surely deserves. I beg to move.
My Lords, I take the opportunity to speak for the first time from the Cross Benches to say that I support fully what the noble Viscount, Lord Montgomery, has said.
For many years at the CBI, businesspeople got increasingly frustrated with so many billions of pounds being put into the infrastructure of the nation, both in airports and the Channel Tunnel, to enable the productivity of the economy to integrate fully and increase by full integration with that of our European rivals and markets, only to find that they had to get over to Paris, Frankfurt and Brussels on the night before meetings, for one reason only—because we have to put our watches forward by one hour before we can start work over there. That increases inefficiency and costs enormously and means that so much of the benefit that would come from investment in our infrastructure is not realised in the economy.
At the same time, we have the appalling statistic that 420 people die every year on our roads purely because it is dark, which would be to a great extent avoided if we adopted Central European Time. Furthermore, right now, the British economy needs all the help it can get. We have to work even harder and government has to adopt as many measures as possible to increase our efficiency and success to pull our nation out of recession as quickly as possible. This is not the Bill in which to do that, but, if Her Majesty's Government could include some measures in the Queen’s Speech at last to get this nation on to a level playing field with Europe as regards time, that would be so much the better.
I declare one interest—and a reason why I should be arguing against the amendment. Today is my birthday.
My Lords, once every five years my birthday falls on the very day when the clocks go back. For all of 53 years I have enjoyed a 25-hour birthday every five years. Therefore, in speaking against myself in the interests of a prolonged celebration every five years, I sincerely hope that we can see the adoption of Central European Time as quickly as possible.
My Lords, this is a straightforward and simple request. We are asking for a scientific paper to review the potential effect of introducing a daylight saving scheme. The Minister, we hope, will acknowledge that there could be merit in linking waking hours to daylight hours in a quest for energy saving. If he does so, he will follow his two predecessors at the Dispatch Box who made it perfectly plain that they saw the strength of the argument. However, they both demonstrated that they were instructed to resist any movement for change.
It is inexplicable—in fact, inexcusable—that the Government, of whom I am a wholehearted supporter, should shy away from this project. It is a project that brings so many benefits to the people we seek to serve. We are shackled with the past, with dubious evidence constantly quoted in order to stifle the debate. The last experiment took place some 40 years ago. It was abandoned for political reasons, backed by overhasty and flawed examination. Some of the evidence was indeed misleading. Tim Yeo, in the other place, spoke powerfully on his Private Member’s Bill. He said:
“The decision to abandon that experiment was a seriously wrong judgment. In any event, we must now judge the issue on the basis of what it does in today's conditions”.—[Official Report, Commons, 26/01/07; col. 1679.]
That is the crucial point of today's debate. Forty years on, the argument for daylight saving is so powerful and overwhelmingly obvious.
To resist this helpful, positive amendment would appear to most of us to be unreasonable. Other speakers will lay out further evidence. But against the background of the global crisis in economies and the fragile nature of our energy supply, surely any saving should be grasped. If we add to that the pressing issues of climate change, obesity, inactive lifestyles, personal happiness and, most poignantly, the avoidable loss of young lives in accidents on the roads, plus the potential for benefit such as links with continental Europe and tourism, there is an imperative. I can think of few measures that would be more beneficial to more people at so little cost.
I fear that the Minister, my noble friend, will try to persuade us otherwise and that both sides will feel uneasy as a result. Government is nothing if it fails to change policy when it is necessary. Our request today is for an assurance that our proposal will be thoroughly scrutinised with today's facts before us. Let us seek scientific evidence and opinion from all parts of the United Kingdom, from all groups who will be affected by change, so that a rational debate can ensue. It is a straightforward request: we hope for a positive response on this amendment, which is solely based on the notion of the greater good.
My Lords, the writer of Ecclesiastes assures us that there is nothing new under the sun, that there is,
“a time to be silent and a time to speak”.
This being October, those of us who have literally seen the light of the benefits of daylight saving have the opportunity to impress again on the Chamber the merits of our case.
Daylight saving measures were first debated by Parliament over 100 years ago, and, from what I can see, the essence of the argument has remained similar ever since, albeit that argument against has weakened considerably as the size of the farming lobby from the north of Britain has contracted. Noble Lords will be glad to hear that this is not a debate about feeding time for livestock in north Antrim or Aberdeenshire. It is, though, a serious point about how we manage two scarce resources which are intimately related, namely daylight hours and energy.
Those of a more cynical disposition may believe that this amendment to the Energy Bill is nothing but another excuse for the proponents of daylight saving to wheel out their favourite hobby-horse for its regular canter in the field of parliamentary discourse. That is to miss the point entirely, as one of the strongest arguments for daylight saving has always been that it will save energy. Indeed, Britain’s first adoption of daylight saving came in 1916 with the express purpose of saving coal and energy during the First World War, and a variation was similarly applied during the Second World War for much the same reason.
Today we face a similar crisis of confidence in the security of our energy supply: an energy crunch the effects of which may be every bit as serious as those of the credit crunch. We also have the added knowledge that energy consumption pollutes and distorts the world around us, and as a nation we are committed to dramatically reducing the environmental effects of energy use. For that purpose we are prepared to accept and devise any number of astronomically expensive technologies and offsetting schemes but, for some reason, we fail to grasp the blindingly simple yet brilliant concept of just recasting our days in winter to make more use of the daylight available to us. Winston Churchill was an early advocate of daylight saving, suggesting that its opponents were driven by the,
“sluggish inertia of their minds”.
I will not be so bold as to level that accusation this afternoon, but I wonder if it is a collective comfort with the status quo which condemns the nation to its needlessly long and expensive dalliance with darkness.
There is much evidence to suggest that daylight saving can deliver energy savings. Academic research has indicated that the move would reduce United Kingdom carbon emissions by 170,000 tonnes per annum, while the American experience suggests that energy use during its daylight saving days has fallen by 1 per cent. Combined with the well known benefits that daylight saving would provide for commerce, tourism and an increasingly obese population, who would have the opportunity to spend more time outdoors, I ask noble Lords to support the amendment.
This is one of those rare political occasions when we have the opportunity to make a practical yet cost-free improvement to the life of the nation. I hope that we will not pass up this opportunity yet again.
My Lords, this is an unusual topic for me to intervene on, but I support all the arguments already put by noble Lords on all sides of the House. I want to address the objection often raised that, if we were to follow the advice underlying the proposal to establish SDST—single/double summer time—so well advocated by the noble Lord a moment ago, it would hugely inconvenience a massive proportion of our population: those with certain professions, mainly in Scotland. Somehow, it is argued, we must retain this huge shift away from the time zone adopted by all our neighbours in continental Europe to care for those people’s eccentricities and difficulties.
I do not suggest that there would be no problem in adjusting to this proposal, but it must be put into proportion. I do so by referring to two examples. Central European Time—SDST—is followed by no fewer than 27 countries, covering two complete time zones. All the people in those countries are able to adjust their life pattern to the way in which the sun rises and falls, within the single time framework they have. If they get on Eurostar, travelling north-south or east-west, they enjoy the benefit of not having to work out when they will arrive in the other country.
That is only a modest example. The People’s Republic of China manages to have one time zone covering four time zones, stretching from Vladivostok on the Pacific corner in the east across to the capital of Xinjiang in the north-west, Ürümqi, which is still 500 miles short of the ultimate western frontier of China. That is 2,500 miles, stretching from Vladivostok to a place just about in line with New Delhi and Calcutta, and Novosibirsk in the north. If people can adjust their normal patterns of behaviour over that spread of 2,500 miles, it seems to me absurd to cling on to what we have, which cannot be proven to have any inherent advantage, for the reasons that have blocked us for so long.
I went to China for the first time in 1978 with my noble kinsman and my noble friend Lord Brittan of Spennithorne. We found ourselves at Ürümqi, way up in the north-west. At the end of the day, emerging from a most important cinema show between midnight and one o’clock, we came out into daylight. That did not disturb or alarm us; more to the point, it did not disturb or alarm all the people who lived around us. Two days later we were in Shanghai with a completely different pattern of behaviour of the sun. However, one and a half billion people manage to live without discomfort within this four-hour time zone. I suggest that the time has now surely arrived to accept this often-debated proposition, which has never been refuted by any rational argument, save the need to be sensitive to the consequences of change, which are modest. Therefore, it gives me great pleasure—intervening for the first time in an energy debate, which is wholly beyond my normal capacity—to support the proposal made by the noble Viscount, Lord Montgomery.
My Lords, I do not think there is anything wrong with this amendment. It is a perfectly good idea to have wide consultation and a report on this matter, and I think that opinion is changing. It is interesting that, when the subject of daylight saving is let loose in your Lordships’ House, it is like letting a cat out among the pigeons. We all feel very strongly about it. I am bound to say that I do not look forward to it being dark until 10 am where I live, and nearly 11 am in the north of Scotland. However, there is the tail-wagging-the-dog argument and there is the argument that the noble Lord, Lord Jones of Birmingham, promulgated about people increasingly travelling backwards and forwards to Europe. We all understand that. It is wonderful that he had all those long birthdays and I am sorry if we stop that, but it is an argument worth making.
The noble Baroness, Lady Billingham, put her finger on it when she said that all parts of the United Kingdom must be consulted on this. That is important because this is a cultural matter. I do not understand the argument about so much energy being saved. In the war the measure was introduced mainly because the bombers did not come until it got dark, as I recollect; therefore, it was better for it to get dark later, although there was the energy point as well, of course. I do not oppose the amendment but there is a lot of consulting to do, otherwise a lot of annoyance and misery will be caused. It is always people who live in the south or the west of the United Kingdom who are so keen on this. People who live in the north and the north-east are rightly more doubtful about it. However, as I say, I am not against the amendment.
My Lords, I support the amendment and many of the arguments made. It is a privilege to follow the maiden speech of the noble Lord, Lord Jones, from the Cross Benches. I look forward to following his progress with interest. By my calculations, by about autumn 2009 he will have made it to our Benches, where he will be extremely welcome, but I am not sure whether he will touch the Tory Benches en route.
The arguments in favour of double summer time, which is really what the argument is about, are overwhelming. We have the road safety argument, the energy saving argument, which we are discussing today, and the fact that elderly people regard the dark evenings almost as a curfew on their lives. Double summer time would be beneficial in reducing crime as well. The NFU is neutral on this issue.
I particularly wish to draw attention to the benefits of double summer time for tourism. I declare an interest as chairman of ALVA, the Association of Leading Visitor Attractions. We have 42 members, all of which have more than a million visitors a year. No single measure would be more beneficial to our important tourist industry, our sixth largest industry, than a move to double summer time. As many noble Lords will know, the noble Lord, Lord Jones, was for a number of years the chairman—the first chairman—of the Tourism Alliance. Once again, he is very supportive on this issue from the business and tourism points of view.
The arguments are overwhelming. We have heard from all sides of the House that there is a feeling in favour of double summer time, and I would like to see some progress and some interest from the Government.
My Lords, as another Scottish Member of this House, I support entirely and wholeheartedly the amendment standing in the name of the noble Viscount. For far too long, the interests of a small number of people who live in the north of Scotland, whether they are farmers, crofters or whatever, have taken precedence over the overwhelming interests of the United Kingdom as a whole. If the Scots feel disadvantaged by the change envisaged by the amendment, they should look across the North Sea to Scandinavia. They will find that the people of Sweden, Norway and Finland have learned how to adapt to long winter nights and short winter days. The time has come for the Minister to go to the Government and say that the overwhelming strength of opinion in this House, including Scottish Members, is in favour of this change. Perhaps the Minister in his reply to this short debate will remind us of the position under the devolution legislation, the Scotland Act, in relation to changing British Summer Time.
My Lords, I support the amendment and I am delighted to see my noble friend Lord Davies of Oldham in his place—although he is moving—because he is of course a former president of the Royal Society for the Prevention of Accidents. I am the current president of RoSPA, which noble Lords will recognise as a responsible organisation. It has fought for a long time in the campaign for the clocks not to be put back and for lighter evenings in the UK.
RoSPA has collected statistics, as would be expected, which show firmly that such a change could prevent approximately 450 road deaths and serious injuries each year. The statistics also show that casualty rates increase with the arrival of darker evenings. By not changing the clocks, more protection could be given to the most vulnerable road users, including pedestrians, cyclists, children and the elderly. There are more accidents in the afternoon rush hour than in the morning. Motorists are more tired after a day’s work, therefore their concentration is lower. Children tend to go straight to school in the morning, but often many digress on their way home and are thus more vulnerable to accidents and injuries.
There are other benefits. An extra hour of daylight would increase opportunities for outdoor activities of all kinds. It would encourage fitness and health. Surely that is part of the Government’s programme. The change would help the campaign to reduce childhood obesity—another part of the Government’s programme. As the noble Lord, Lord Jones, said, it would help UK companies working and competing in Europe to use the working day fully. It would extend the tourist season, as lighter evenings appeal to tourists all over the world.
The proposal could be introduced on a trial basis for two or three years. RoSPA has pressed for this over the years; surely it is worthy of consideration. That is the background against which I support the amendment, which proposes investigating a saving of energy through the adoption of a daylight saving scheme. It could be one more positive aspect of not changing the clocks, and I urge my noble friend to consider this sensible proposal.
My Lords, I congratulate my noble friend on his excellent maiden speech. I share with him a declared interest: I have to go to Germany on Thursday and I should like to go there and back in a day but it will take two days. I declare another interest in that for 45 years I have been a hill and upland farmer in south-west Scotland.
I want to mention an aspect of this matter referred to by the noble Baroness, Lady Billingham—that is, the debate on 2 December 1970 in the other place that created the status quo that we have today. I am disappointed that the noble Lord, Lord Tebbit, is not in his seat because I think that he is the only person in this House who attended that debate. I shall refer to him later. In the debate, the Home Secretary, Mr Maudling, said:
“Either we pass this Motion and, if it is … passed … British Standard Time will be made permanent or, if it is [not], there will be a reversion to Greenwich Mean Time on 31st October, 1971”.—[Official Report, Commons, 2/12/70; col. 1331.]
This was the critical debate which gave us what I believe to be the wrong status quo. It was based in part on wrong or out-of-date information, as was mentioned by the noble Baroness, Lady Billingham. Apparently, in that debate statistics did not count.
The noble Lord, Lord Tebbit, always refers to daylight saving as “Berlin time” in reference to the war, and later I shall quote his intervention in that debate. However, the main argument put forward came from the many Scottish farming elements—in particular, from the late Duke of Buccleuch, or the Earl of Dalkeith, as he was then. He argued that the long dark mornings would increase the suicide rate in Scotland. However, that is statistically incorrect, as the suicide rate went down during the experimental period. He reminded Members that,
“light has definite effects on the animal, whether human or otherwise. Let me quote what happens to sheep. It may not be generally known that the ewe reaches the stage when she desires the tup due to the effect of the number of hours of daylight and the changing length of day, which causes this process to take place. This is a photoelectrical process”.
It is nothing of the sort. A photoelectric or photoemissive effect is when light strikes a surface either large or small. I understand that one of the twin foundations of the quantum theory was subject to Einstein’s photoelectric law of 1905, which involved Planck’s constant and other factors way beyond my own scientific knowledge. It has nothing whatever to do with the amount of light falling on sheep or humans during the act of procreation. The noble Lord, Lord Tebbit— Mr Tebbit, as he was then—leapt to his feet and interrupted the Earl of Dalkeith because he was worried that human beings were similarly affected. He asked:
“What do Eskimos do in the winter?”.
That was the level at which the debate was conducted. The Earl of Dalkeith was not deterred at all and carried straight on. He said:
“I went through all the statistics that I could find last night”.
The fact is that no one knew what the Earl of Dalkeith was talking about with regard to photoelectrics. I do not want to be crude but I think that it is a question of whether the light is on or the light is off. I feel that that is the problem. No one dares say it but Mr Tebbit, as he was then, did. The Earl of Dalkeith went on:
“One thing which struck me was that the birth rate has been failing in the last two years”.—[Official Report, Commons, 2/12/70; cols. 1403-04.],
referring to the experiment taking place in Scotland. I take that to mean that the Earl of Dalkeith was a “lights off” man because he voted against a change.
The debate went on to cover the building and construction industry and postmen. The unions for these workers have entered the debate, saying that postal workers get up in the dark early in the morning, but today how many letters are delivered before sunrise? What age is the postal workers’ union—and people such as Peter Hain MP, who represents it—living in? It is another age. This debate took place in another century. We are now in 2008 and a lot of things have moved on. The noble Lord, Lord Howie of Troon, is not here either. He has talked about apprentices in the construction industry being frozen to ladders. Under health and safety legislation, ladders are not allowed to be used even by window cleaners, yet these arguments are still used today on the issue of daylight saving. As we all know, building work takes place under enclosed plastic sheeting and in controlled conditions. So, where are the facts?
Another depressing fact is that the issue is not on the agenda of the Energy Saving Trust. I asked about that, and the trust said that it was not allowed to include it. Why is it not on the agenda of the climate change committee? We are trying to save energy and lives on the roads, so daylight saving should be put on the agenda and debated; and it should be proven whether it will assist the nation in the severe crisis that we are facing today.
None of that is happening. The Minister will make some noise about the amendment, but it will sink without trace and be lost in the great confines of the filing systems of his department. I forgot to congratulate him on his appointment. I hope that he will last longer than some. The shelf life of these Ministers is not long—there have been nine in the past nine years. I hope that we will have the benefit of his wisdom and direction and that he will consider my noble friend’s amendment seriously and do something about it. Nothing has happened for 45 years.
My Lords, I am not going to talk about the sexual activities of animals or Eskimos or even follow the perambulations of the noble Lord, Lord Jones, except to say that I welcome him back to his place.
This is a very modest amendment about energy. Perhaps I may ask my noble friend to look at the Centre for Technology Management, Cambridge University, study of 2007, which showed that by going into line with European time we would save 2 per cent in electricity alone. That is quite a saving in itself. The study gives other examples but another one, done in California, would also be useful to look at. I will not delay the House because most of the points have already been made, especially those on road safety, which is very important, and on tourism and the need to be sensible in relation to Europe, where 50 per cent of our trade is done. It would make sense to come into line and I can see many benefits in the proposal. However, as this is about energy, I simply ask my noble friend to look specifically at those studies.
My Lords, I must first apologise for my delayed arrival. I hope that noble Lords will realise as the day proceeds why I was rushing round trying to get agreement with someone on another Front Bench. I also take this opportunity to wish the noble Lord, Lord Jones of Birmingham, a happy birthday, and to say how pleased we are at his safe return after his recent illness—an illness that seems to have included a Damascene road conversion, as we now welcome him to the Cross Benches. How sad it must be for the government Back Benches to have lost him so soon after his arrival in this House.
The amendment raises an issue that recurs frequently in this House, not least because of the assiduousness of the noble Lords who have added their names to it. A similar amendment was tabled to the Climate Change Bill which my noble friend Lord Taylor of Holbeach, our spokesman on the Bill, did not welcome at the time. I do not intend to be as forceful as he was in opposition to the amendment—but he is, of course, noted for his early starts in the morning. I take the point that the amendment is purely to investigate the effect of a daylight saving scheme, and I will be interested to hear from the Minister about recent studies on the matter. His colleague the noble Lord, Lord Rooker, threw a rather effective bucket of cold water on the subject in January with the information that the Building Research Establishment concluded in 2005 that a daylight saving scheme would increase emissions rather than lower them.
My Lords, before the noble Baroness sits down, perhaps I may ask whether she agrees that yesterday her colleague, the noble Baroness, Lady Noakes, said:
“Noble Lords on these Benches find it difficult to support amendments that involve public expenditure”.—[Official Report, 27/10/08; col. 1396.]
I am sure that most noble Lords would agree that that is a very wise sentiment. Does the noble Baroness, Lady Wilcox, agree that this amendment would involve unnecessary public expenditure, since no legislation ever devised can persuade the Almighty to conjure up more hours of daylight than are appropriate for the season?
My Lords, I welcome this amendment because, as the noble Viscount, Lord Montgomery of Alamein, said, it is about energy saving, a subject which is completely absent from the Bill. We were very critical in Committee about the omission but I think that there is no more progress to be made on the issue now. However, it needs to be noted that although the Government’s energy White Paper said that the,
“starting point for our energy policy is to save energy”,
a great opportunity to implement that policy has been missed in this Bill. That is why I particularly welcome this amendment, not so much for its addressing daylight saving time itself but for its proposing a proper factual investigation so that we can see what the issues are. If such a report came out positively in favour of daylight saving time, I suspect, given that it would put us in line with European time, that the Government would apply five economic tests and then probably promise a referendum. That is the real barrier, and I do not think that we would get much further.
My Lords, it is a great pleasure to respond to such a lively debate. I am sure that we are all jolly grateful to the noble Viscount, Lord Montgomery, for allowing us to discuss this at some length this afternoon. I also welcome my noble friend Lord Jones of Birmingham, and am very proud to call him my noble friend. He must be enormously relieved not to have the burdens of office and no doubt feels free to speak on many important matters from the Cross Benches. We look forward to that. I pay tribute to him for the outstanding work he did for the Government as an ambassador for the UK and for the great and wonderful city of Birmingham.
I say to the noble Lord, Lord Rogan, that I think this is a perfectly appropriate use of parliamentary procedures. I admire the ingenuity of the amendment’s supporters for the way in which they brought their case to your Lordships’ attention. I suspect that if I survive even a year—which, as the noble Lord suggested, seems to be the average length of stay—I will have many more opportunities to debate this matter in the months ahead.
The noble Lord, Lord Rogan, talked about Churchill’s reference to the “sluggish inertia” of the minds of those who opposed this proposal. I recognise that. What Eskimos do in the winter was mentioned, which enlivened all of us, although, thinking about the relationship between Eskimos and climate change, I suspect that there is a salutatory point to be made about the huge impact that climate change will have on our society and on many other societies in the years ahead. That brings us back to the importance not just of this Bill but of the Climate Change Bill. It shows how this discussion is an important part of a general debate about where we are going with energy use. I fully accept that this has been a serious debate.
My noble friend Lady Billingham pointed out that the UK experiment with daylight saving in 1968 to 1971 is now some 40 years ago. She is right, but I do not think that we can just ignore what happened then. It is worth making the point that an experiment was conducted over three years, after which Parliament voted decisively—by 366 votes to 81—to return to the current arrangements. I appreciate that time has moved on and that the focus on energy saving and climate change has shifted, so the matter is understandably being raised again and should be given the attention and consideration it deserves.
I say to the noble Lord, Lord Rogan, and my noble friend Lord Hoyle that I am aware of the Cambridge University report, which concluded that if time in the UK were set at GMT plus one, there would be a reduction of 2 per cent in UK electricity consumption, which is of course significant. However, the Cambridge study does not cover other forms of energy such as heat and transport. The study therefore covers only part of the picture. I say to my noble friend Lord Hoyle that we will of course continue to look at relevant studies. If other research comes forward that suggests that there is persuasive evidence in this area, of course, my department and the Government will consider it.
Other noble Lords mentioned the Building Research Establishment work for my other department, Defra, in 2005, which indicated that putting clocks forward an additional hour in winter and summer would lead to increased energy consumption in UK buildings for lighting, space heating and cooling, with consequent increases in carbon emissions. All I say on that is that a number of factors must be considered in relation to research before one can come to a definitive view. I am advised that numerous other studies have failed to show with any authoritative statistical evidence that any energy savings in the practical experiments undertaken in other countries would be likely to translate into carbon savings as a result from a change in time zone. I should have thought that, on such a significant issue, the evidence must be overwhelming.
The noble Baroness, Lady Carnegy, said that there was nothing wrong with the amendment, although clearly she has some doubts about whether we should move to daylight saving. The noble Lord, Lord Monson, put his finger on it: the amendment requires in primary legislation that the Government report on the matter annually. One ought to point out that, in the main, your Lordships' House is cautious about putting more responsibilities on government, especially in issuing reports on matters on which there is no guarantee that any action is to be taken. Although on the face of it this is a mild amendment that simply asks the Government to make a regular report, one needs to be very careful before one commits us to do that.
European time zones have been amply covered. As the noble Lord, Lord Monson, says, due to its very happy expansion, which this country has championed for a number of years, the European Union now covers three different time zones, so unity of time is no longer possible in it.
There is an argument about road safety. It is a great pleasure to hear my noble friend Lady Gibson speak on behalf of RoSPA, an organisation for which I have considerable admiration, not least as its headquarters are in Birmingham. As Health and Safety Minister in the Department for Work and Pensions, I had a great deal to do with RoSPA and greatly appreciate all the work that it does. If it were shown that the number of deaths and serious injuries on roads could be reduced, that would be taken seriously. However, although light may be a factor, I understand that research models do not take account of other factors such as traffic volume and weather conditions. When comparing casualty rates at different times of the day and year in 2006, apparently there was surprisingly little difference in data between the summer and winter months. I am happy for further information to be shared between the Government and RoSPA on this important matter, and I hope my noble friend will accept that this is a genuine offer of a discussion.
The noble and learned Lord, Lord Howe of Aberavon, made very entertaining remarks about daylight saving and his experience in the cinemas of Russia and central Asia.
Surely it is one of the great strengths of the Union that we consider the interests of Scottish farmers and the people who live in the north of Scotland. We should not shy away from that. It is part of the cultural integrity of the United Kingdom that we consider them. I am proud of that; we should not run away from it.
In any consideration of daylight saving, one has to consider the points of view expressed by postal workers and the potential increase in the risk of accidents, caused by the darker mornings, involving a wide range of people who are active during those hours.
This matter has been discussed on a number of occasions in the past 30 years, but in no sense could it be said that there is an emerging consensus. These matters should be kept under review, and the Government will continue to keep them under review, but I hesitate to recommend to your Lordships that they should support an amendment that requires an annual report to Parliament. On that basis, I invite the noble Viscount not to press his amendment to a vote.
My Lords, I thank my noble friend Lord Jones of Birmingham for his important maiden speech from the Cross Benches, and I congratulate him on his birthday. He seems to be everyone’s noble friend, in view of what the Minister said, which is even more encouraging. We certainly have a man for all seasons, which is to be welcomed.
We have had remarkable and overwhelming consensus in favour of doing something about this, so the Minister’s reaction was customary and disappointing. Interestingly, he mentioned the farmers in the north of Scotland, but surely there must be a limit to the extent to which the tail wags the dog. A small minority of people live right in the north of Scotland. To what extent do we always have to kowtow to them and not consider the overwhelming wishes of a vast majority of people in England, Wales and, as we have heard, Northern Ireland? This is a rather strange attitude to take. The statistics have been proved by noble Lords who have spoken in this debate. They are too numerous to mention and I thank them all. We have had powerful support. I am sorry that the Minister disparaged what the noble and learned Lord, Lord Howe, said. It seemed a very valuable and cogent contribution.
My Lords, I do not think that I did disparage what the noble and learned Lord said. I paid tribute to him for his admirable speech. As I have said, of course the Government will continue to look at research evidence that becomes available, but I did not think that this Bill was the way to tackle the matter, particularly because it commits the Government to making an annual report on matters which really relate to energy.
My Lords, I accept that wholeheartedly. But I was rather disappointed that the Minister also said that he looked forward to debating this on many other occasions. We all wish that he will stay for a long time in the job because he has been a very efficient Minister. I have had arguments with him previously on other subjects and he is a very reasonable man, but that does not mean to say that this matter should not move forward to action. If action cannot be taken under this Bill, we need a new Bill and we need the Government to introduce it. We have had Back-Bench Bills from both Houses over a long period.
The noble Lord referred to the experiment, which, as he said, was 40 years ago. Since then, things have moved on a great deal in all senses, not only in this country but in continental Europe. Surely the time has come for this matter to be given serious consideration. It should not be pooh-poohed, pushed aside and put into more debates. We need from this Government, or any Government who may succeed them, action. We want action in the next Session of Parliament. If we do not have that, we must have it thereafter. I hope that that will happen. I am not very optimistic, but one has to try to be optimistic. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
17: Clause 80, page 73, line 17, leave out from “(c),” to end of line 19
18: Clause 80, page 73, line 20, leave out “to (3), and” and insert “and (1C),
( ) for subsections (2) and (3) substitute—“(2) “Reporting period”, for the purposes of subsections (1) to (1AA), means—(a) the period beginning with 24th February 2008 and ending with 31st December 2008, and(b) each successive calendar year.(3) A sustainable energy report must be published during the period beginning with 1st January and ending with 31st October following the reporting period to which it relates (“the publication period”).”, and”
19: Clause 80, page 73, line 29, leave out sub-paragraph (ii)
20: Clause 80, page 73, leave out lines 32 to 38
On Question, amendments agreed to.
21: After Clause 80, insert the following new Clause—
“Electricity distribution“Charges relating to connections
(1) Section 16A of the Electricity Act 1989 (c. 29) (procedure for requiring a connection) is amended as follows.
(2) For subsection (3), substitute—
“(3) The person requiring a connection shall also—
(a) give the distributor such other information in relation to the required connection as the distributor may reasonably request; and(b) in relation to charges attributable to the costs of giving a notice under subsection (5), pay to the distributor amounts of such description, to such extent, and in such circumstances as may be prescribed by the Authority with the consent of the Secretary of State.”(3) In subsection (5) for “any information” substitute “anything”.”
The noble Lord said: My Lords, I must begin with an apology to the House that this amendment will not be as entertaining as the previous one. I am tempted to tell one story, but I shall resist the temptation and get straight ahead with my amendment, which deals with an important issue of concern to those who operate electricity networks. If the amendment is accepted—I hope that the Government may feel able to accept it—it would change Section 16A of the Electricity Act 1989 to regularise a current industry practice that has been recognised by Ofgem, the regulator, as reasonable and efficient.
The amendment aims to put what are known throughout the industry as assessment and design charges—I shall refer to them as A and D charges—on a proper legal footing. A and D charges are levied up front by distribution network operations—which I shall refer to as DNOs, if the House will forgive me—when managing certain connection requests. The charges cover the costs involved in assessing the impact of a connection request on the distributor’s network and the costs involved in designing the network connection. These costs can run into many thousands of pounds. It is only fair that they should be paid by those seeking connection to the network rather than spread out among all network users.
However, there have been a number of complaints. Earlier this year a number of DNOs sought legal advice and were told that the practice of recovering assessment and design costs up front was not permitted under the relevant legislation—most notably, Section 16A of the Electricity Act, which I referred to a moment ago, does not allow for it. The practice was therefore considered to be in breach of the law. The regulator, who had previously approved of up-front A and D charging as a sensible cost-reflective measure, has therefore felt unable to continue to do so. The practice was endorsed in the connection methodology statements of the DNOs which have to be approved by Ofgem under the standard conditions of the electricity distribution licence, but because of this recent legal advice on the issue, Ofgem has now required the DNOs to cease the practice of up-front A and D charging despite the obvious economic justification for it.
The industry has come to the conclusion that the only way to put this right is by a legislative provision, and this Bill obviously provides the right place to do that. An amendment to Section 16A of the Electricity Act would simply take us back to the previous position, one which everyone thought existed at the time. Ofgem itself has recommended that the Act should be amended in order to permit the practice,
“when a suitable legislative vehicle becomes available”.
The inability the recover up-front A and D charges under the existing statutory scheme for network connections has urgent and material commercial implications for DNOs.
We have before us the Energy Bill and I have brought forward this amendment which I hope will put the situation right. All it does is to re-enact paragraph (a) of existing subsection (3) of Section 16A and split it into two paragraphs. Paragraph (a) would simply repeat the substance of existing subsection (3) while paragraph (b) is new and would enable distributors in future to recover A and D charges up front,
“to such extent, and in such circumstances”,
as set out in any regulations made by Ofgem with the Secretary of State’s consent. This approach would enable Ofgem to regularise the practice promptly and effectively—and of course there have been and will be further wide public consultations—while at the same time ensuring that consumer interests are protected and that there are no detrimental consequences for the current competitive market in connections work.
This is a minor matter, but to those who operate these systems, it is of considerable importance. I beg to move.
My Lords, I am delighted that the noble Lord, Lord Jenkin, and I are able to resume our constructive relationship regarding this Bill. When we considered the Bill on Report on the previous occasion, we made some progress on the amendments he tabled, and today he has again identified a significant issue which affects this group of operators. In order to give the noble Lord a constructive response to his amendment, while not fully accepting it, I need to embellish one or two points he made—although in deploying his case he did accurately identify the issue. This is a technical matter and therefore the House will recognise that I am obliged to indulge in some technicalities.
Requests for network connections most commonly arise in the context of new developments—for example, a new housing or commercial development or industrial site. They can also be required by smaller users such as people building their own homes on sites that are not already connected to the grid. It is a statutory obligation for a distribution network operator to provide a connection offer. On considering an application with a view to making an offer for connection, DNOs incur assessment and design costs. As the noble Lord made clear, these costs can be significant. They relate to expenses on the design carried out by the distributor for the connection between the customer’s premises and the network and the costs of assessing the most appropriate point on its distribution system for the connection, including whether upstream reinforcement is required.
These costs can be incurred by the DNOs even if an offer for a network connection is not accepted and a network connection not provided. There are several reasons why the costs might still obtain even if the connection is not effected. First, connection requests can be of a speculative nature, especially those related to new build housing developments and retail parks. Developers often request a formal connection offer when assessing the viability of certain projects to ensure that the required capacity can be delivered and to obtain certainty over connection costs. Such requests, which often involve a number of large schemes, can be more expensive to address in terms of complexity and time spent on detailed technical study, which is the burden of one of the noble Lord’s points.
Another reason stems from arrangements put in place by Ofgem in 2000 to allow other players to compete with DNOs to provide network connections. Competition has led to the emergence of independent connection providers, many of whom are also independent distribution network operators. These have been allowed to compete to provide connections and Ofgem regarded this competition to be healthy and in the consumers’ interests. Competition for certain elements of the network connection means that there may be several ICPs bidding for a connection, but only one—or perhaps none—will secure the contract.
But the DNO, because of its statutory obligation, has nevertheless to carry out the assessment and design work for each bid and, of course, incur the costs involved in that exercise. Until recently, with Ofgem approval, the DNOs charged an up-front payment of assessment and design costs from connection applications. This practice was set out in their charging methodologies and allowed the DNOs to charge in the event that an applicant decided not to proceed with a network connection, thereby, of course, limiting the number of otherwise speculative applications. Earlier this year—the noble Lord reflected on this point—an independent distribution network operator filed a complaint about this charging methodology on the basis that it was anti-competitive and unlawful. Since the case was brought forward, legal advice has confirmed that up-front charging for assessment and design fees is not supported in statute through Section 16A of the Electricity Act 1989 and is, therefore, unlawful. Following a letter from Ofgem in August, the DNOs have stopped charging up front for assessment and design fees.
Of course the Government and Ofgem have sympathy with the position in which the DNOs now find themselves. The practice of up-front charging has been a feature of how the market has operated in recent years. We concur that the practice is a reasonable and efficient way of recompensing the DNOs for the work that they do while at the same time providing protection against the abuse of a DNO’s obligation to provide an offer to connect on request from a wildly speculative initiative.
However, Ofgem acknowledges the need to do further work to establish the degree of merit in the complaint from the DNO about the practice of up-front charging being anti-competitive. So, while Ofgem is willing to support a mechanism whereby DNOs could charge for work that they carry out for assessment and design of network connections in certain circumstances, it wants to ensure that there is a proper and appropriate balance to be struck between compensating the DNOs, protecting consumers and facilitating competition. Although we appreciate that DNOs have not previously charged for small domestic connections, we need to be careful and to guard against allowing for up-front charges to be levied for such connections as a result of any change in primary legislation.
In sum, we agree with the intention of the noble Lord’s amendments, and he will draw solace from that. I hope I can satisfy him by saying that, although I am not prepared to accept this amendment today, I accept the concept of it. We will table an amendment at Third Reading to return to this issue. There are aspects of the amendment that he has tabled which we would not be content to accept as it is drafted, and we will look to bring something back that better reflects legal precedent while allowing the Secretary of State and Ofgem the right level of control over charging through regulations.
I hope the noble Lord will accept that, yet again, I have tried to be constructive in response to his very constructive point on this issue. We want to think further about it and we will come back at Third Reading with a carefully drafted amendment, if he will withdraw his today.
My Lords, I am grateful for that. It would be a miracle if something drafted by anyone other than parliamentary counsel actually met the Government’s requirements. Occasionally it happens, but I well understand that on most occasions it does not. We will have to look at the amendment that is brought forward at Third Reading. I hope, as with others, that we may see it a day or two in advance so that we have an opportunity to consult and perhaps, if necessary, table amendments to it.
I do not think this is the last occasion today on which we shall discuss the question of connections to the grid; I suspect they may come up in future debates. On this one, however, I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
22: After Clause 80, insert the following new Clause—
“Energy Assistance Packages
(1) The Secretary of State may make regulation prescribing that domestic gas or electricity suppliers (“the suppliers”) or both or each gas and electricity supplier of a specified description, shall make available energy assistance packages to such gas and electricity customers as are prescribed by the Secretary of State.
(2) The regulations shall—
(a) set out group or groups of gas and electricity customers who are eligible for energy assistance packages; and(b) Supply gas or electricity or both at a reduced rate lower than any other rate available to other customers of that supplier until such time as their home has been brought up to the energy efficiency standard of Sap 81 or such other standard that the Secretary of State may reasonably consider will significantly protect vulnerable consumers from fuel poverty.”
The noble Lord said: My Lords, I have been informed by the House authorities that this amendment may well not be in order in terms of the Long Title of the Bill. I shall therefore not move it, and I will make my remarks very short.
I accept that ruling, but I do not understand it. Furthermore, I do not think that the outside world will understand why, with energy prices and fuel poverty being what they are, an amendment which attempts to combine the improvement of energy efficiency in our housing stock with the rate at which the fuel poor are charged for that energy is not included in an energy Bill. I give notice that if the Government themselves do not find a way of squeezing this kind of amendment into the Bill in time for Third Reading, I will propose a Private Member’s Bill in the next Session of Parliament and seek support for it in another place, something that I suspect will have widespread support from all parties in this House. I regret that we cannot debate this today, but I accept the ruling.
[Amendment No. 22 not moved.]
Clause 81 [Power to amend licence conditions etc: smart meters]:
23: Clause 81, page 74, line 26, after “including” insert “financial and other”
The noble Lord said: My Lords, in speaking to this amendment, I shall speak also to Amendments Nos. 24 and 28. I declare an interest: I am chair of the appeal panel of the Association of Energy Suppliers, although that has no direct bearing on my amendments here.
I am an enthusiast for smart meters. I learnt about them some time ago. They would make a significant difference to the consumption and cost of energy for ordinary domestic consumers. They would enable people to use their own energy more efficiently, both gas and electricity, and to use it at the time of day when it was less costly. It is believed that there would therefore be a significant saving to domestic consumers if smart meters were installed.
The Government accept that proposition and are keen for smart meters to be proceeded with. There are one or two difficulties, though, and I want to indicate why my amendment will make the transition to smart metering somewhat easier. I have had to learn some technical terms here. In the world of energy metering, the word “stranding” is the term given to the cost of replacing a meter before the end of its useful economic life. That is to say, if a meter is taken out and replaced by another meter, that meter will have a value unless it is totally used up, which would not be the case in a transition to smart meters.
Currently, when a meter is removed prematurely, it will be returned to its owner, whichever company owns it, and is likely to be reinstalled elsewhere. But if we are moving towards smart meters, these old meters will no longer have a use, which would result in a significant cost in terms of disposing of an asset that would no longer have a value. If we are moving towards smart metering, the timescale would be liable to require an early replacement of a large number of the meters that we now have in our homes, and those meters would have no further value and no further use.
There is likely to be a need within the industry to compensate participants for the potential stranding costs that they will face if there is a decision to implement an accelerated rollout of smart metering to domestic premises on a national basis. I hope that such a decision will be made soon; therefore, my amendments are relevant.
The understanding is that the existing provisions of the legislation covering electricity are adequate, but there are doubts whether those covering gas are sufficient, and one of the amendments deals with that point. Amendment No. 23 clarifies that the Secretary of State’s powers to modify licences include the power to make provision for appropriate financial arrangements in relation to the problem of the stranded meters to which I have referred.
Amendment No. 28 corrects an anomaly in the gas legislation regarding the power of gas transporters to raise a levy through their network user charges. Most of the issues are concerned with transporters which provide the gas straight to our homes. As drafted, Section 7B(5)(b)(ii) of the Gas Act 1986 would provide for compensation for stranding via any such levy to be payable only to gas suppliers or shippers and not to gas transporters, which are the industry parties most likely to be affected by stranding. Accordingly, Amendment No. 28 would remove the relevant restriction from the paragraph in question and put this gas provision on all fours with its counterpart in electricity legislation. It is an anomaly that gas and electricity have not been dealt with equally up to now, and this amendment seeks to deal with that anomaly.
Finally, it is unclear whether the Bill as drafted is strong enough to support a rollout of domestic smart metering on a regional franchise basis, should that be the delivery option finally chosen by the Government following assessment and consultations. I appreciate that these decisions have not yet been made and consultations are taking place, but it is a fair bet that one serious option is that domestic smart metering would be rolled out on a regional franchise basis. There is, then, the difficulty of competition law. Amendment No. 24 is intended to ensure that if it were decided to use a regional franchise model, there would be no risk of a challenge for infringement of competition law.
The three amendments make the position somewhat clearer and would facilitate the transition to smart meters. I hope that the Government will find them helpful regarding the aim that we all share in moving clearly, and not too slowly, towards installing smart meters in our domestic households. I beg to move.
My Lords, I suspect that we will be talking a little more about smart metering as the afternoon progresses. Stranding is a very important issue that needs to be resolved in moving the smart meter agenda forward. Therefore, I welcome the amendments.
If we look at this from a business point of view, the problem of the stranding of assets is one of the balance sheet, and having to take a book loss, rather than of cash, as the cash has already been expended. The book loss on the company is real in terms of its accounting, but might not be such a problem if there were a real cash movement at the time. However, the cash investment has to be made for the smart meters.
I shall be interested in the Minister’s reply, because that factor needs to be borne in mind. Another factor is that smart meters, once installed, should reduce the running costs of power companies through much easier billing and automatic feedback of readings, avoiding inspection costs. All companies have to deal with the problem of technical obsolescence before the end of the book life of an asset. One could say that that is their problem for having depreciated these assets over 20 years. Where else in the world does one do that these days outside buildings? I will be interested to hear the Minister’s view on the responsibility that the various organisations concerned should take for past decisions.
My Lords, Amendment No. 24 is entirely permissive, allowing the Government to consider the use of regional franchises when rolling out smart meters. It seems to have merit. It would be interesting to hear the Minister’s views on the likelihood of this method being used to roll them out. I assume that they are considering them as part of their cost-benefit analysis.
My Lords, I am grateful to my noble friend Lord Dubs for these amendments and for the way in which he has deployed his case. As we discussed in Committee, a rollout of smart meters to domestic customers would be a major technical and logistical challenge. It would require a visit to every house in Great Britain and the replacement of some 47 million electricity and gas meters. We are therefore talking about a major and inevitably costly undertaking, and someone has to bear the costs.
Various proposals have been put forward for the practical delivery of a project of this scale so that any rollout of smart meters is both efficient and cost effective. Uniquely, Britain has a competitive market for metering. When one considers a large-scale rollout of smart meters, one sees that this presents some advantages but, as my noble friend recognised, some challenges, too. For example, unlike some countries where the metering operator has a monopoly, we have a wide range of players in our metering market. This poses challenges to delivering a well organised and managed rollout. Competition can deliver greater innovation and help minimise costs to the consumer, from which we reap the benefits.
The context, which my noble friend established and which I have sought to reinforce, is therefore one of a major undertaking. I turn first to Amendments Nos. 23 and 28, which I shall ask him not to press, while being grateful to him for raising such important and complex matters. The stranding of existing meter assets will occur in any smart-meter rollout which is taken forward faster than on a new-and-replacement basis. Stranding would arise because existing non-smart meters would be removed before the end of their usual life cycle. This early removal of meters would result in costs to suppliers or meter providers, depending on the type of contractual or other arrangements in place. I reiterate the fact that we are talking about 47 million households.
On the other hand, an accelerated rollout would mean that some of the benefits of smart metering for both consumers and business could be realised more quickly; I know that my noble friend has that point at heart. The Government have undertaken work to examine these issues and understand which timeframe for a rollout would deliver the benefits of smart metering as cost effectively as possible.
Our analysis to date suggests that the issue of stranded assets is a complex one. I shall outline some of the complexities so that the House is fully aware of the difficulties with which we need to wrestle. For example, it is not possible at this stage to place a specific value on stranded meters. This value will depend on a wide range of factors, particularly the speed of any potential rollout, because that would determine how fast meters become unusable, and the value attendant upon meters that may have been installed quite recently. But of course there is also the issue of the market model deployed. Some early central estimates suggest that the cost of stranded assets by this process could be between £1.5 billion and £2 billion for a 10-year rollout, but these figures would change significantly, depending on the factors that I described.
Amendment No. 23 makes it explicit that, in exercising his power in relation to smart meters, the Secretary of State can make financial provisions in relation to the replacement of existing meters. Amendment No. 28 is an amendment to existing levy-raising powers in the Gas Act to make clear that amounts raised by a levy can be paid out to all gas licensees. I believe that it is my noble friend’s intention, as he covered it in his opening remarks—it is certainly the view of some industry stakeholders—that these amendments would enable the Government to establish a mechanism to ensure that the impact of stranded assets was not borne significantly more by some market players than by others. In other words, the concept of fairness needs to obtain. Some stakeholders are also arguing for this mechanism to compensate for all the stranded metering assets created as a result of any accelerated rollout of smart meters—and therefore, in effect, for 100 per cent of these costs to be passed through to consumers. The end payer would be the consumer.
I recognise the issue of stranded assets as one with potentially significant costs for smart metering. We all see the potential benefits of smart metering, but we are talking about a huge exercise and very significant costs. The Government need to wrestle with the fairness of the distribution of the costs, which are bound to be part of the Government’s considerations in deciding how to move forward, particularly as the costs may ultimately be borne by the consumer. While it is right and proper that the Government consider these costs as part of our analysis, I do not share the view of those who argue that there should be automatic 100 per cent compensation in the event that the Government impose an accelerated timetable for smart metering. I am grateful to the noble Lord, Lord Teverson, who has demonstrated his understanding of this issue. We have to be cautious about the precedent that this could set. Any automatic 100 per cent compensation cost-recovery mechanism would mean that those costs would be passed straight through to consumers. Putting a levy on consumers at any time is a fraught exercise, but particularly at this time of high energy prices, and we would need a high level of proof and quantification to justify such an impost on such a large number of our people.
I am sure the House would agree that it is for companies to factor in and subsequently bear the risk of their commercial decisions. Generally speaking, changes of law do not and should not result in a right to automatic compensation. Our interest in stranding at this stage is therefore in understanding the market impacts and subsequent impacts on consumers and considering whether these impacts are sufficient to justify government intervention in the market. We have to balance what is in the best interests of consumers, including in the long term, and what is in the best interests of those delivering smart meters.
Ofgem has, at our request, already undertaken an initial analysis of the levels of stranding and how this stranding cost is spread across the industry. We have looked carefully at that work and considered industry analysis. While that has revealed the complexity of the issue, it has not suggested a clear-cut need for a compensation mechanism of the type proposed by the amendments, which would be mandatory on the Government irrespective of the timescale adopted for the rollout of smart meters.
Therefore, it is only right that before taking the significant step of legal powers of compensation in this context, we need to fully understand how much of an issue that is and the implications for the energy market, for consumers and for the progress of smart metering. The Government have decided that it would not be right to take powers at this stage to address stranded assets, but we recognise the significance of the issue and we have asked Ofgem to continue its work to conduct a detailed analysis, looking particularly at market impacts. As with any policy area, if the evidence changes or becomes clearer and more compelling as a result of this further work, the Government can reconsider whether any new legal powers are needed.
I am grateful to my noble friend for raising a fundamental issue of the greatest interest to the House, but I hope that he will recognise that a great deal of further work needs to be done, and it would be premature for the Government to be legislating at this stage for automatic compensation. I hope that he will recognise that I have difficulty with Amendments Nos. 23 and 28 and that he will not press them.
However, I have rather better news for my noble friend about Amendment No. 24. There are a number of different market models for rollout of smart meters. At one end of the spectrum is an entirely centrally planned rollout by a series of regional monopolies, through models with an element of co-operation between suppliers and ending at the opposite extreme with a rollout delivered entirely through the existing competitive metering market. Examining the case for changes to the existing competitive metering market is a complex issue and an important element of our ongoing work to assess the costs and benefits of a rollout.
The Government are working with a range of stakeholders to define and evaluate various market models, and we expect to be in a position to reach final conclusions in due course as part of our broader work looking at the possible implementation of a domestic rollout. At this stage, therefore, our objective has been to ensure that we have appropriate legal powers to underpin a wide range of market model options. Ensuring that all market model options remain open is the objective behind my noble friend’s amendment, as he said. The amendment is broadly similar to the existing wording at Clause 81(3)(k). This paragraph enables the Secretary of State, as part of exercising this power to mandate the rolling out of smart meters, to modify suppliers' licences to require suppliers to enter into certain types of agreements.
The amendment would expand the wording of this paragraph to make it clear that the Secretary of State could also require licence holders,
“to enter (or refrain from entering) into”,
agreements solely or collectively. It also adds that these agreements could be,
“in relation to a specified area”.
It is the Government’s intention—we share the sentiments of my noble friend in tabling Amendment No. 24—for all market model options to be possible. Our own analysis suggests that there may be a case for amending the Bill further to ensure this, but we are unsure that Amendment No. 24 quite does so. We accept my noble friend’s objective, and intend to deliver against it. We will bring forward an amendment at Third Reading to resolve the matter, and I hope that he will recognise our intentions. He has been extremely constructive this afternoon on Amendment No. 24, and if he withdraws it we intend to consider the matter. I hope that he will be kind enough not to press the other two amendments.
My Lords, the Minister said that additional studies will be carried out into models, and that the Government hope to report in due course. Can we take it that this is in addition to what was promised at Second Reading, when we discussed this? Will it mean that an announcement on this will be later than anticipated?
My Lords, I am not arguing for delay. We intend to bring back an amendment at Third Reading that, I hope, will satisfy my noble friend Lord Dubs. I ask him to withdraw his amendment with the intent of meeting the objective behind it. My noble friend Lord O’Neill is as well versed as anyone in the House on the great complexities of this issue.
We certainly have a great deal of work to do, going well beyond the time at which we expect this legislation to be on the statute book. I reassure every noble Lord in the House that, from the Government’s point of view, it is essential that we have the correct framework in legislation through which we can meet our objectives, which we hope noble Lords will endorse. My noble friend Lord Dubs has identified one area on which we must think beyond what we have in the Bill.
I said that we had considered this matter but not as fully as my noble friend has sought. We agree with him, and will come back with an amendment to amplify that.
My Lords, something that has concerned me a little, and which the Minister did not address, is the possible process of replacing meters that have been written down, taking them out of the system first. That could be a model.
If that is in the Government’s mind, I would point out that it is clear from the debate that all these meters effectively have only scrap value. We must not end up with either the Government or the public paying for a strange replacement system that meets accounting needs but does not reflect reality.
My Lords, I certainly agree. One dimension of the complexity is that we do not want the unfortunate consumer to be billed for a meter that has no value because of the transition. However, the speed of the roll-out could, in the most extreme cases, take out meters which had only just been installed. They might have advanced features but not quite the technical ability of the smart meters that we are putting in. There must be an assessment of that. All the Government seek is a basis in the legislation upon which that can be fairly evaluated.
My Lords, I am grateful to noble Lords for supporting these amendments and to my noble friend for what he said. A one-in-three success rate is not bad these days.
I appreciate that putting a new type of meter into every household in the country is a costly and difficult exercise. On the other hand, I do not think that all the costs should be borne by domestic consumers. Companies would make a saving as they would no longer have to send people round to read meters, which is a cumbersome and difficult activity resulting in estimated costs and so on, all of which pose difficulties for the companies. Providing an easier way to read meters would be enormously beneficial to companies. All the evidence from countries where smart meters have been introduced suggests that consumers would probably benefit from a 15 per cent reduction in costs. The percentage reduction might even be higher because, when we can see how much energy we use at different times of the day, we tend to change our habits. Certainly, when we had a water meter installed at our London address, we immediately changed our water consumption habits. We turn taps off when previously we did not. I believe that the same would apply to other consumers if they could see how much energy they were using. If we could see how much energy we used when we switch on a kettle to boil water to fill a teapot, we would no longer overfill our kettles. There are all sorts of ways in which we can all save energy, and I believe that smart meters would be enormously beneficial in that regard. As I say, I do not believe that all the costs should be borne by consumers. Companies would benefit from this measure and consumers would gain offsetting savings. Having said that, I am grateful to my noble friend for the very detailed way in which he dealt with the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 24 not moved.]
25: After Clause 81, insert the following new Clause—
“Display of information relating to tariffs
(1) In exercising the powers contained in—
(a) section 81(1) (power to amend licence conditions), and(b) section 81(3)(g) (power to require the holder of a licence to make arrangements in relation to the protection of consumers), the Secretary of State shall have regard to the desirability of establishing technical specifications for meters (under the provisions of section 81(3)(a)) which include specifications for the display on those meters of information to the consumer about tariffs for electricity and gas, and shall consult representatives of the gas and electricity supply industries prior to the establishment of such specifications.
(2) Such specifications shall have regard to the desirability of displaying information about variable tariffs, in particular “rising block tariffs” as defined in subsection (3).
(3) A “rising block tariff” is one in which there is a basic threshold price for electricity or gas and an additional percentage price premium applicable to each block of units about that threshold.
(4) In exercising the powers contained in section 81(3)(g), the Secretary of State shall report to Parliament within 12 months of the coming into force of this section on the desirability of a national standard for such tariffs, covering the matters specified in subsection (5), in order to facilitate the development of a common technical specification for meters.
(5) A national standard for rising block tariffs shall cover the following matters—
(a) the number of units of gas or electricity to be provided by the supplier at the basic threshold price annually,(b) the number of units comprised in each subsequent block of units,(c) the additional price premium payable per unit, applicable to each block,(d) the calculation for the purposes of setting the minimum number of units to be supplied at the basic threshold price quarterly,(e) arrangements for the setting of standing charges.(6) Nothing in this Act permits the Secretary of State to determine the basic threshold price of electricity where a rising block tariff is in force.”
The noble Lord said: My Lords, this is a transparency-driven amendment. It has been trailed in the national press and has support in the European Parliament, where a committee is recommending that a similar arrangement be adopted throughout the European Union. It has a lot of support in the House of Commons. Indeed, an Early Day Motion was tabled there today by David Anderson, which refers specifically to the amendment.
The principle behind the amendment was referred to by Ed Miliband MP in an article in the Guardian last week. It states:
“He said he was also looking at the structure of tariffs so that people might no longer have to pay the highest price for the first tranche of gas and electricity they use”.
This amendment was tabled in July, before the current energy crisis, and followed by work I carried out in the recess to devise a workable tariff system. The public simply do not understand the current system of energy pricing on their bills. The conversion factor on gas bills to kilowatt hours is gobbledygook. The discounting of bills for high users seems perverse. The injustice of prepayment meters and the levying of high standing charges make it impossible for mere mortals to compare energy prices due to a policy of inconsistency in unit volume charges across providers. The system needs surgery and the public need the protection of greater regulation.
My amendment has been the subject of extensive consultation during the recess. Due to difficulties over the Long Title of the Bill, I have had to graft the rising block tariff, which I shall refer to as the RBT, on to the back of a smart meter amendment, so it would be silly to vote on it. It is a probing amendment. The rising block tariff applies to domestic suppliers of gas and electricity. If we examine our gas or electricity bills, we will note that the initial units of electricity and gas are charged at a higher rate than subsequent units. Low-use consumers are penalised by the pricing structure, not only because of the early-units penalty, but the levying of standing charges. The present system is regressive in its financial impact by penalising poorer sections of society. The system also lacks any incentive to conserve energy. If we are serious about energy conservation, we should use the pricing structure for units of energy to influence investment in conservation measures.
The problem is that, while a relatively free market in domestic energy prices can influence conservation investment as prices increase, the effect is limited due to a lack of real incentives. We need a penalty built into cost to the domestic consumer, whereby the higher the consumption of units, the higher their price—in other words, a reversal of the present arrangement. Furthermore, introducing such incentives would provide an opportunity to affect the position of people on low incomes without necessarily drawing them into means testing. It is worth mentioning that many Labour Members remain as opposed to means testing as we were in the 1980s, when it was repeatedly condemned from the opposition Dispatch Box in the House of Commons.
Why cannot domestic energy prices be set at a discount for the first block of units, with subsequent blocks priced at increasing rates? It would be perfectly possible for the first block, what we might call block A, to be set at a discount from block B, a standard tariff, which itself could be less than block C, the premium tariff: discounted tariff over standard tariff over premium tariff. The block A tariff would be universally available to all consumers and set at a level that maximised the benefit to low-income households. In blocks A and B fixed allocations of units would be available to all domestic hereditaments. The Government would set the number of units in each of those blocks and the percentage difference in cost per unit between blocks A, B and C. However, it is critical that the block A price, the discounted tariff, would be set in the free market by the energy suppliers. The Government would play no part in setting the block A unit prices. That would leave suppliers free to set their prices, which would need to be at a rate to ensure that their block B and block C prices were viable, competitive and affordable for consumers.
What are the advantages? The system would induce investment in conservation and there would be more careful management of energy use by householders as consumers sought to avoid moving into higher blocks, particularly into block C. There would be an element of redistribution. It would reduce the growing shift towards means testing. It would reduce CO2 emissions and suppliers would retain control of the price by being responsible, crucially, for setting the block A price.
What are the problems? It will be difficult to set the volume of units to be applied to each block, particularly block A. It will be necessary to calculate and agree to a reasonable number of units for allocating to block A for the basic usage of electricity and gas. Some useful work has been done by the Centre for Sustainable Energy in its report for WWF UK, Waste Not, Want Not. The statistical tables that it used on modelling are not altogether applicable to the proposals in my amendment, but they indicate the modelling process required in the establishment of a rising block-tariff structure.
Some households are single fuel and would lose out when compared with dual-fuel households, which would have the benefit of a universally supplied gas and electricity block-discounted tariff. The answer is to provide every domestic hereditament with two entitlements, one for gas and the other for electricity. Single-fuel households would be entitled to two electricity entitlements. The need to provide two entitlements for single-fuel households stems from problems with heating requirements. Dual-fuel households would have had the benefit of discounted gas entitlements denied to single-fuel households. Provision for those with disabilities and pensioners needs particular consideration.
In some households, heating requirements are much greater, due to disability. The RBT available to all should be set at a level that provides for basic energy needs. It could be calculated on the basis of an agreed square-footage-space energy requirement. Pensioner household space requirements would need to be fully considered, but the likelihood is that most pensioners would move into block B areas of consumption, certainly in heating fuel requirements. The RBT system does not do away with state support for low-income pensioner households, but it would reduce dependency on the state for heating support and transfer responsibility for that support to heavy users in a process of redistribution.
The situation is more problematic in relation to the disabled. One option would be to allow RBT to apply to that group as it does to everyone else and let the benefit system take up the additional costs. Alternatively, it would be possible to have a separate RBT system for disabled groups with greater heating requirements, which for the purposes of this discussion I will describe as the special rising block tariff system. Block volumes under this system could be assessed on a different basis. The SRBT could be applied to groups that met some form of disability criterion. It might be possible to have either fewer blocks with greater spreads in terms of volume of units or a greater number of blocks with narrower spreads. A mechanism would need to be in place for registering SRBT entitlements and monitoring against abuse. It would also be necessary to protect against suppliers refusing to supply disability groups with greater heating requirements.
Problems could arise over seasonal peak period uses of energy. Householders invariably consume more energy in the winter months, when there are greater heating requirements. It would be necessary to ensure the transfer-on of units between quarters at the end of each quarter, as is currently the position with some mobile phone free-minute allocations.
Differentials in regional temperature are not fully considered under present domestic energy pricing arrangements. It has been argued that a national pooling arrangement should be in place to compensate consumers in colder regions for their higher energy costs. It has also been argued that the pooling arrangement should be the responsibility of suppliers. Privatisation of the industry and competition in the marketplace have made this difficult to introduce. Under the RBT, any such pooling arrangements, if required, would need to be based on block A volumes of units allocated and not on price. More work also needs to be done on the whole question of Economy 5 off-peak electricity suppliers.
There are obvious problems for the Government in deciding on the RBT allocation of units, which identifies the number of units that comprise each block. There are also problems in setting the percentage increase between each block. For industry, there is the obvious problem of setting the price of block B units—that is, the standard tariff, to which I have already referred.
A number of problems arise over the timing of the introduction of RBT. It could be constrained by limited public understanding of the value of investing in conservation measures. There are also problems over the availability of conservation materials and skills—a problem which I suspect the Government will have in relation to the detail of the implementation of the announcement made in August on conservation measures. There are problems over the impact of block C tariffs on heavy consumers, and there are also problems over smart meter technology, when finally rolled out to deal with the introduction of RBT.
The answer is to introduce RBT over an extended period—perhaps as long as 10 years. Such a period would enable power suppliers, consumers and the energy conservation industry to adjust. In particular, it would enable suppliers of energy to refocus their efforts on further developing and refining their conservation packages, which would be of special interest to domestic energy users.
This amendment provides an early canter round the course. I understand that it is one of the first references that has been made in the Palace to this way of pricing energy, and I hope that the Government give it very serious consideration. That is certainly the expectation in the House of Commons and I should like to think that it is equally the position in the House of Lords. I beg to move.
My Lords, the amendment raises an interesting issue and I am glad to have had the opportunity to hear the noble Lord and to listen to the Minister’s views in a moment. There is no question that energy tariffs are unbelievably complicated, varied and appear to be entirely arbitrary. To improve consumer awareness of how much they are spending by leaving the television on standby is one of the primary reasons for installing smart meters.
However, I am concerned about the detail of the amendment. First, it involves a great deal of government intervention. To have the Secretary of State setting the detail in proposed new subsection (5) suggests a level of micromanagement that I do not believe would be helpful. The setting of an acceptable amount of energy that each household can use before being subject to premium pricing would also be fraught with difficulty. Many householders—perhaps those with the largest families—would find it unavoidable to fall into the higher blocks and would possibly end up subsidising the energy costs of a smaller household.
I fully sympathise with the desire of the noble Lord, Lord Campbell-Savours, to encourage prudent energy usage through the pricing structure, but I am hopeful that the next group of amendments will ensure that consumers will soon be better informed about the cost of their energy usage and will be able to act accordingly.
My Lords, this is an interesting proposal. I was feeling positively enthusiastic and crusading—I cannot say that; it is the wrong word, as is missionary, so I shall stop there before I get into even bigger trouble. I thought that it was exciting but then we got into the detail of what needs to be done, and I suddenly realised that it will go right into the long grass and be really difficult to achieve. However, I hope that the noble Lord will continue to pursue this.
The scheme needs to be simple although I understand entirely the difficulty suggested by the noble Baroness, Lady Wilcox, about the possible distributions between large and small families. I remember when the noble Lord, Lord Jones, introduced the Bill on Second Reading and I questioned him on the idea of trying to make energy companies become organisations that would sell energy conservation. That is great in theory but I cannot see it working. This is a pricing mechanism that would work in consumers’ minds, which is its power. It starts to get difficult when it gets into the endless detail trying to make it equitable for everybody. There has to be a big trade-off to make it work, but it is a model that I much prefer to trying to pretend that all the energy distributors will move into organisations that are trying to sell less of their product rather than more.
My Lords, the noble Lord, Lord Teverson, has poured a little more cold water on the idea than I will do from the Dispatch Box. That makes me feel a little happier about my response, although I do not even have to say that I hope my noble friend will withdraw his amendment because he has already said that it is a probing amendment. What a successful probing amendment it is. Any noble Lord wanting information on what my noble friend Lord Campbell-Savours intended has only to read the press—particularly the specialised press on energy matters—to be fully aware of the campaign in which he has played such a significant part. I pay due tribute to him and I hope that he will not therefore think that I am doing what the noble Lord, Lord Teverson, did. I will express a few doubts as I agree with the noble Lord that nothing is easy in this area, but we see considerable merits in the proposals, which need examination. Any step that could help reduce this country’s consumption of energy and, as a result, help to provide lower fuel bills for consumers is to be welcomed and must be considered seriously. The Government set energy efficiency at the heart of our strategy in the 2007 energy White Paper. Many of the emissions savings in the measures in that White Paper derive from the concept of energy efficiency policies.
The first part of my noble friend’s amendment relates to smart meters and, in particular, to the benefits of setting technical specifications for those meters in the Bill. We had a short but intensive debate on smart meters, and I know that my noble friend will have noted my response on behalf of the Government. He wants smart meters to display information regarding tariffs—in particular, rising block tariffs—which are the concept behind this amendment. I am not sure that rising block tariffs are sufficiently in public parlance to be referred to as RBTs, but I have no doubt that the assiduous way in which my noble friend goes about his business will make the concept of RBTs part of the energy debate in the not-too-distant future.
Rising block tariffs, the main purpose behind my noble friend’s amendment, are an interesting and challenging concept. Decisions on the technical functionality of any smart meter will be made in the context of the wider design of any future roll-out, as I explained in response to the amendment moved earlier by another of my noble friends. I am beginning to fall back on the old statement: I may be able to cope with the Opposition, but the Good Lord protect me from my noble friends. My noble friend Lord Dubs put me on the spot regarding smart meters, and now I have my noble friend Lord Campbell-Savours raising rising block tariffs. He will have noted from my response to my noble friend Lord Dubs that we are some way off decisions on the functions of the smart meter. We know that when we have the chance to be smart, there are a lot of smart people about telling us in which direction we need to be smart, and the issues can become inordinately complex. We can see that there is enormous progress to be made, which is why the Government are indicating that we need the Bill to enable examination of the roll-out of smart meters, but we are bound to have reservations about having one function, however important, in the Bill.
The rising block tariff is the real thrust of my noble friend’s amendment. His case is significant. He explained that as a consumer passes its threshold, the unit price of energy would increase by a percentage designated by the Government. That would differ from current billing arrangements, in which the first units of electricity are charged at the higher rate and subsequent units at a lower rate. As my noble friend demonstrated, there are significant reasons why we need to recast the way we have charged for electricity for many years.
I recognise that at face value there are potential benefits from the rising block tariff model. Such a pricing structure would help to reduce fuel bills for users who consume small amounts of energy and increase bills for those consuming large amounts, which would provide further financial incentives for consumers to reduce their energy use and would make us all increasingly energy conscious.
However, we have some concerns—as my noble friend said, what would be the point of a probing amendment if it did not reveal where the Government's concerns lay? I need to enumerate them. One concern is obvious. There is a risk that some fuel-poor customers, such as the elderly and the disabled, who spend more time at home than is average for people in our community, or consumers in less energy-efficient dwellings, could see higher fuel bills as a result. We know that the elderly can be high consumers of electricity by dint of the fact that the rest of us—no one in this House qualifies as elderly—have other warm places to which we can go, not least this Chamber; whereas a lot of people for all sorts of reasons spend a great deal of time in their homes. Their homes may not be energy-efficient and, in any case, they need to consume a great deal of energy during the course of the day.
Such a tariff may reduce the incentive for energy companies to help consumers to become more energy efficient. The problem with the rising block tariff is that a greater percentage of energy company income would come from high energy users and a lower percentage from low energy users. That might have a perverse effect on how companies operate. There is a practical problem as well. Implementing a rising block tariff would also constitute a significant intervention in our competitive energy market, which brings us benefits, and would bring with it uncertainty for investors and additional technical requirements for new entrants. So potential costs are involved in the concept.
My noble friend, who is always fair when presenting the case, was good enough to identify some of the difficulties. He suggested that identifying the right thresholds and the right percentage increase between each would be a complex process likely to require regular adjustment. My noble friend does not need lessons from me on this, but regular adjustment of the concept on which a fuel bill is constructed might lead to the consumer—able through the smart meter to know exactly what was going on—being extremely irritated by frequent changes to the model. People need to take account of their energy costs; it is an important part of household income. My noble friend recognised that the complexity of the changes would not be an unalloyed joy for the householder, even if the meter reads things out accurately and clearly and reflects that complexity.
The Government seek a better understanding of the pros and cons of a rising block tariff; we intend to do that. Therefore, I do not believe that, as the amendment proposes, it is necessary to put that into law. My noble friend did not rate his chances at this stage highly; he was concerned to get the concept in the public mind and on the record; and to get the Government response on the record, which he will deploy effectively in future. However, I have to tell him that, if he were pushing the amendment, I would be pretty robust in saying that the complexities of the concept are such that we could not accept any such amendment at this stage. We do not believe that it should be in the Bill.
However, we are persuaded that it is necessary to investigate the potential of the rising block tariff concept as a possible route to greater energy efficiency—a major objective that we share with my noble friend. I am pleased to inform the House that Ofgem has already started work on this, and that it will among other things provide a more detailed understanding of this potential tariff model. My noble friend may have identified an area that will prove fruitful in the future, and I am grateful that he has already announced that he does not intend to press me any further today.
My Lords, the Minister did not mention the unfairness implicit in the amendment between people who live in cold areas of the United Kingdom and those who live in warm ones. There is an enormous difference in the electricity consumption that is forced on people by differences in temperature. Yesterday morning when I left my home, the cars were all encrusted with frost. When I got to London, it was comparatively mild. This is very often the case. Under the amendment, the price would rise far more steeply in colder areas.
Moreover, as someone mentioned, many people are forced to use much more electricity. If you have twins, plus a child of two and perhaps one of four, you have a far greater washing bill. You have to use a tumble dryer and all these expensive things, which you cannot avoid. You would go into the higher tariff quite quickly. Surely these are major considerations, too. I quite see the splendid objective behind the amendment, but great unfairness would be built into this. Am I right?
My Lords, of course the noble Baroness is right. I merely sought to produce one illustration of the complexities of the concept and the potential attendant disadvantages. I mentioned the elderly, who spend a great deal of time at home. She gave another illustration: the different geographical parts of the country. One does not have to go that far north of London to get geographically cold parts. The north-east of Scotland is often portrayed as a difficult weather area—it can be quite cold—but people in other parts of the country know about frost on car windows in the winter. Of course she is right that there are many illustrations of some people being obliged to be heavy energy users. That is why I indicated how complex this issue is. I hope she will recognise that Ofgem is pretty well versed in these considerations.
My Lords, is the Minister aware that in eastern Australia this rising block tariff is used on domestic water? It is set at a very high level so that it does not have the undesirable consequences that have been discussed, but it does stop people leaving the tap running all the time. One could think of the Government using a level of VAT for a very high level of usage, if they chose.
My Lords, we are certainly concerned about the waste of energy. The noble Lord identified one form of that. I am slightly hesitant about sounding too enthusiastic about his illustration of what we could learn from eastern Australia, lest I lose half the civil servants in the Box to a trip to Australia to examine how the model is working.
My Lords, I am indebted to my noble friend because once again he did something that characterises many of his responses to the amendments; he always throws in that little nugget at the end. Today’s nugget was the reference to Ofgem and its work.
When you explain to the public that the first units are cheaper than the later ones, they often respond with disbelief. People never study their bills because they feel that they can never comprehend them.
I am grateful to the noble Lord, Lord Teverson, whose speech was helpful and not critical in the sense that my noble friend suggested. His comment on the need for a simple system is correct. When I started my work, I produced a very complicated scheme. Slowly, I have narrowed it down to a simple system based on block tariff principles. My reference to difficulties in the text of what I had to say arises from my view that when you argue a new idea it is always best to make it clear that you have already considered all the problems, otherwise people do not think that you have thought the principle through.
The noble Baroness, Lady Wilcox, referred to overregulation. If she, or someone in her office, studies tomorrow the text of the amendment, she will find that it is remarkably free of regulation; namely, that block A tariffs are set by the energy distributors, which will effectively have control.
My noble friend referred to the elderly needing support, which I dealt with when I referred to the problems. However, that is where we should target our conservation measures. In the event that we introduce the system, they should be the priority areas. The concerns to which my noble friend referred will be considered by us all. When I further amend the paper that I wrote on this matter, I will make sure that his comments and concerns are specifically referred to so as to take the debate forward. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
26: After Clause 83, insert the following new Clause—
“Smart meters: installation
(1) The Secretary of State shall make regulations requiring the installation of smart meters for the supply of gas and electricity in all domestic hereditaments subject to the following provisions—
(a) that within 18 months of the coming into force of this Act, the Secretary of State shall lay before Parliament a timetable for the introduction of smart meters;(b) that within 18 months of the coming into force of this Act, the Secretary of State shall lay before Parliament a draft of the proposals for regulations for the introduction of smart meters.(2) In this section, a “smart meter” means a gas or electricity meter with two way communication capabilities including a communication capability to display—
(a) household usage on a daily basis;(b) total cost within a billing period of units concerned; and(c) the cost per unit.”
The noble Lord said: My Lords, the debate on Amendment No. 26 will be much briefer than that on the previous amendment because most of it has taken place. Essentially, this is a rehash of the transparency amendment moved in Committee. It seeks to test the resolve of the Government to bring in smart meters at the earliest opportunity. It follows on from the speech of Malcolm Wicks, the then Minister, who, on 30 April in Committee in the Commons, at col. 333 of Hansard, set out the Government’s compromise on smart meters with their own amendment.
It is obvious that the Government are hesitant about giving undertakings on domestic smart meters. I accept that the prospect of undertaking the replacement of 47 million electricity and gas meters is daunting, as is the potential cost involved if we accept the estimate of £8 billion to £14 billion over 20 years. I suspect that in the end it will cost far less than that.
My amendment requires only a minor shift in the Government’s position. In Committee, I said that I had consulted widely with Members of the Committee in the other place on what was deemed a feasible timetable. There seemed to be universal support for 18 months. I can only repeat the Prime Minister’s statement in November 2007. He said:
“For every household over the next decade there will be the offer of a smart meter that will allow two-way communication between the supplier and customer, giving more accurate bills of course and making it easier for people to generate their own energy through micro generation and sell it on to the grid”.
The Energy Retail Association’s advice is:
“If the ambition to have all homes in Britain fitted with smart meters is to be achieved, the process of planning needs to begin sooner rather than later. In order to achieve the Government’s stated expectation that smart meters will be rolled out to every British home within 10 years, the industry needs a mandate. It must commit now to a clear timetable”.
In Committee, my noble friend said that there may be some movement by the end of this year on a timetable. He did not guarantee it, but it was clear that the amendment I moved then was pretty close to the Government’s general thinking on the need for an early decision.
My noble friend will recall that in Committee I asked for some work to be carried out in the recess on the costs of smart meters in Italy and Australia, the sources of manufacture and the potential for manufacture in the United Kingdom. Some of that work has been done, and in August we received a letter setting out the nature of the Government’s initial position on these matters. A further letter was sent in September, but I have not seen it yet. However, I and other noble Lords still await a comprehensive report on the position internationally, particularly on the sources and cost of manufacture of smart meters. I hope that the Minister has something hopeful to report today. I beg to move.
26A: After Clause 83, line 8, at end insert “including interim targets for implementation”
The noble Baroness said: My Lords, I thank the noble Lord, Lord Campbell-Savours, for introducing his amendment. My Amendment No. 26A would set interim targets for implementation. I shall also speak to Amendment No. 27, tabled by the noble Lord, Lord Teverson, to which I have added my name and which reflects the policy of both our parties.
The noble Lord, Lord Campbell-Savours, is right to say that the roll-out to domestic households is absolutely necessary. Many of the measures that we need to implement to address climate change will work only as part of a comprehensive strategy. Smart meters are critical not only to energy savings at home, but will soon be inextricably linked to the feed-in tariff, just as CHP is inextricably linked to micro-generation and so on. To look at each policy as if it were a stand-alone issue independent of every other initiative is to ignore the wood for the trees. The Government appear only recently to have come round to this. With enormous reluctance and only in the face of concerted opposition by so many, they have finally made some movement on feed-in tariffs. I hope most sincerely that there will be a similar acceptance of the inevitable on this issue.
This Government’s policy on smart meters has been particularly lacklustre. So far they have resisted the idea that smart meters must be extended to domestic households and have certainly opposed any suggestion that there should be a clear timetable for doing so. They are still talking about “if” and “maybe” when the questions that need to be answered are “when” and “how”. That is why I and the noble Lord, Lord Teverson, have tabled our amendments to that moved by the noble Lord, Lord Campbell-Savours. Can the Minister really conceive of an effective climate change policy that does not include smart meters in people’s homes? The Government’s ambivalence over such a crucial part of a coherent energy policy makes the clear statement of an implementation target with interim targets so that progress can be monitored an absolute necessity.
The implementation target has become critical because of how long it has taken us to get the Government even to look at the issue properly. Ofgem not only recommended that a working group look at the advantages of the new “smarter” meters as far back as 2001, but expressed concern about the strangling effects of regulation on their uptake. How can the Government complain of not having had enough time? Indeed, in the energy White Paper published in 2007, the Government were thinking in terms of a five-year implementation for businesses and a 10-year plan for households. We are doing nothing more with these amendments than hold the Government to their own promises. There is simply no more time for delay. I beg to move.
My Lords, I welcome the amendments moved by the noble Lord, Lord Campbell-Savours, and the noble Baroness, Lady Wilcox. This is an area in which we can enable individual households to manage their energy costs to a much greater degree, solve a lot of the other issues that come with prepayment meters, and address other technologies that create difficulties for many. Smart meters would allow people to control carbon emissions as well. That is why we all welcome the Government’s intention to move forward with this. Now is the time to say, “Let’s get on with it. Nail the flag to the mast. Put the provision in the Bill because it is clearly the right thing to do”. I do not know whether the Minister or his predecessor had a chance to look at page 286 of the 2007 energy White Paper, which I suggested they read after the Committee. It states clearly on the graph showing the marginal abatement cost curve that real-time displays in households—I presume that that is gobbledegook for smart meters—demonstrate one of the biggest positive returns in terms of expenditure and investment versus carbon emissions saved. That comes from the Government’s own statistics in their White Paper.
We have to get on with this, so my amendment provides that the provision should be rolled out over the modest period of 10 years. The Government are saying that, whether it is greenhouse gas emissions or anything else, we need to get on. Ten years is a modest timescale. I understand that some 47 million meters need to be changed, but the industry is confident that it can meet the timetable, so it is important that we specify the timescale within which we will do this and, as a result, reap the benefits as quickly as possible. It will also make a major contribution to the fight by individuals and households to combat fuel poverty and control fuel budgets, which, I am sure, will be important not just for the coming year but for many years to come.
My Lords, I pay tribute to my noble friend Lord Campbell-Savours, the noble Baroness, Lady Wilcox, and the noble Lord, Lord Teverson, for the discussions I have been able to have with them over the past few days and indeed hours. The noble Lord and the noble Baroness, and to an extent my noble friend, have taken me to task for what they feel has been the slowness of the Government in reaching a decision, but I want to assure them that the time being taken is not due to a lack of understanding of the potential for smart meters—the speeches have clearly illustrated their potential, a point reflected earlier by my noble friend Lord Dubs—but to some of the practical matters that need to be addressed.
What are the benefits? Consumers would be given better information on how to manage their energy use, they would be provided with accurate bills and gain potentially easier access to a wider range of tariffs. It is a bit of a no-brainer when one thinks about it. For suppliers, too, the benefits include reduced costs through remote meter reading, better customer service through more accurate billing, and the potential to switch consumers between tariffs. For that reason, the energy White Paper made clear our ambition to see smart meters rolled out. There is no question about our desire to make progress in this area, but as other noble Lords have said, 47 million meters is a big number on any count. The scale and complexity of that operation have made the Government cautious about making final decisions on the detail of any mandate, taking into account both the benefits and the costs.
My noble friend Lord Campbell-Savours referred to the question of what we can learn from international comparisons. It has been suggested that we look to eastern Australia as one example but, alas, I often find it is never easy to make direct comparisons on first reading. The problem with direct comparisons is that roll-outs in other countries have been on different scales within different metering markets—some markets, for instance, may have a monopoly supplier—and have had different objectives. That makes it difficult to make direct comparisons on the costs and benefits of any roll-out, but we are keen to examine other case studies and will continue to do so. I am sorry that my noble friend has not received a copy of a letter sent to other noble Lords. I shall, of course, put that right after today’s debate.
Before moving on to the general principle of a timetable, I shall deal with my noble friend’s amendment, which seeks to fix detailed matters in primary legislation. My reservation is that, if we accepted it, we would have to return to primary legislation to change the specification of smart meters every time the Government wanted to reflect technological development or innovation. However, I believe my noble friend’s amendment is more about chivvying the Government to come to a substantive view on the general point.
This brings me to the broad thrust of the other amendments. In coming to a conclusion on these matters we have always faced the question of the benefits, the costs and the speed with which meters are to be delivered to customers. The speed of any future smart meter roll-out is a central issue and certainty about it is important for businesses and consumers. However, there are implications in fixing in legislation a timetable for such a complex project without also considering in the round other issues such as EU single market regulations relating to specification of meters or the underpinning of market structures for the roll-out. Setting the number of years in primary legislation could give rise to the problem that if we had subsequently to restrict the more sophisticated functions of future meters in order to maintain a reasonable overall balance in the cost to consumers we would not be able to do so because flexibility on timetable had been removed by an amendment to the Bill.
We will have to consult industry and the regulator on the full detailed proposals and licence modifications and then lay them before Parliament, with opportunity for debates in both Houses. We will continue with a wide-ranging and detailed programme of work to look at the overall case for smart metering for domestic customers. My right honourable friend the Secretary of State for Energy and Climate Change is keen to make rapid progress in this area.
The Government indisputably share noble Lords’ belief in the potential of smart metering and their wish to see progress in this area. Therefore, in response to the debate, I am pleased to announce that the Government have taken the decision to mandate smart meters for all households. This is a major step forward; no other country in the world has moved to an electricity and gas smart meter roll-out on this scale. The existing powers in the Energy Bill will enable the Government to proceed with a domestic roll-out.
As I have said, there are significant issues to be resolved, which have been touched upon in our debate, and I remain of the view that it is not sensible to fix a timetable in legislation. I also recognise that, in order to have a well run roll-out, a timetable is very important. I shall therefore set out today an indicative timetable. Given the scale of these issues, it is our view—and, I understand, the view of industry—that we require a sensible period of preparation. We anticipate a period of around two years to resolve the issues and to design the full detail of a domestic roll-out. Our aim is then to ensure that the subsequent roll-out happens over a period of 10 years. This would see delivery of smart meters by the end of 2020 to align with our renewables targets.
We clearly need to get smart meters into homes as efficiently as we can, with minimum disruption and maximum customer engagement. So, before we take our final decision on the detail of a mandate, including meter functionality, we need to complete our impact assessment analysis, which I understand will be ready by the end of the year, when I hope we will have more up-to-date figures in relation to the costs and benefits to which my noble friend referred. I reiterate that, once the details of a roll-out are drafted into licensed modifications, we must lay them before Parliament so that the complete design of the roll-out can be scrutinised in the round.
My announcement today is a significant step forward, particularly as I have also outlined our expected timetable. This is the right way forward. It is a response to the informed debates that we have had on this matter in your Lordships’ House. I hope my noble friend and other noble Lords will accept that it is a positive response to the legitimate issues raised in this debate.
My Lords, I am pleased to accept the Minister’s concession. It is an indication of both the importance of what we were seeking and noble Lords’ persuasiveness, and a reward for all those long days in the dark of the Moses Room, with no chance of a Division and only the power of our arguments. Many voluntary and NGO groups and companies ardently lobbied us and convinced us that a roll-out of smart meters to domestic consumers should be gained within the Bill.
The Minister is to be congratulated on his new brief, which he has seized with apostolic zeal. He has personally struggled to bring this about, I know, and we are delighted. Smart meters are not only critical for energy savings at home but will soon be inextricably linked with the feed-in tariff. The Government are as alert as we are to the fact that we in this country are very late in protecting our energy supply and energy usage, but this concession by them is a great step forward and I am happy to withdraw my amendment.
Amendment No. 26A, as an amendment to Amendment No. 26, by leave, withdrawn.
27: After Clause 83, line 17, at end insert—
“( ) The installation prescribed in subsection (1) must be implemented within 10 years of the passing of this Act.”
The noble Lord said: My Lords, the Minister’s statement shows that the new department means business. Although it is not part of the process with feed-in tariffs, it gives the Bill and the process real teeth. I therefore welcome this statement, as will the industry and consumers, because it gives a certainty that we have not had for some time. I therefore shall not move my amendment.
[Amendment No. 27 as an amendment to Amendment No. 26, not moved.]
My Lords, I thank my noble friend for his interesting response, which will be greatly welcomed in the House of Commons, as it will be here. It has been a pleasure to work in part with the noble Baroness, Lady Wilcox, and the noble Lord, Lord Teverson, along with the Minister on this issue; there seems to be unanimity on the need to proceed. On that basis, I beg leave to withdraw the amendment.
Amendment No. 26, by leave, withdrawn.
[Amendment No. 28 not moved.]
29: After Clause 89, insert the following new Clause—
“Power to amend licence conditions etc: carbon dioxide emission targets and fuel poverty
(1) The Secretary of State may modify—
(a) a condition of a particular electricity supply licence under section 6(1)(d) of the Electricity Act 1989 (c. 29);(b) the standard conditions incorporated in licences under those provisions by virtue of section 8A of that Act;(c) a condition of a particular gas supply licence under section 7A of the Gas Act 1986 (c. 44);(d) the standard conditions incorporated in licences under those provisions by virtue of section 8 of that Act;(e) a document maintained in accordance with the conditions of licences under section 6(1) of the Electricity Act 1989 or section 7 or 7A of the Gas Act 1986, or an agreement that gives effect to a document so maintained.(2) The Secretary of State may exercise the power in subsection (1) for the purpose of requiring the holder of a licence to promote measures, in respect of the group of customers defined in subsection (4), pursuant to any order made under Part 1 of the Gas Act or Part 1 of the Electricity Act 1989 that imposes an obligation on suppliers to achieve carbon dioxide emission reduction targets.
(3) Modifications made by virtue of subsection (1) may include—
(a) provision about the protection of consumers;(b) provision requiring the holder of the licence to enter (or refrain from entering) into an agreement of a specified kind, or with a specified person;(c) provision specifying, or enabling the determination of, a date from which a modification is to take effect.(4) In subsection (2) “the group of customers” means customers who are—
(a) in receipt of income or disability benefits,(b) in receipt of tax or pension credits, or(c) aged 70 or over.(5) The Secretary of State shall, within 6 months of this Act receiving Royal Assent, lay before Parliament regulations making provision for the provision of information to licence holders enabling them to identify those of their customers who fall within the group defined in subsection (4), and provision about the use, sharing and protection of that information.
(6) Regulations under subsection (5) shall make provision in relation to matters including, but not limited to—
(a) disclosure to licence holders of specified information,(b) conditions relating to the security of information disclosed,(c) conditions relating to the use and sharing of such information.(7) Regulations under subsection (5) shall be made by statutory instrument and shall be subject to affirmative resolution of each House of Parliament.”
The noble Lord said: My Lords, noble Lords who took part in the Grand Committee stage of the Bill will recognise that this amendment, which deals with issues such as fuel poverty, the carbon emissions reduction targets and the problem of data sharing, is in exactly the same terms as the amendment I tabled in Grand Committee. The reason for that is that it proved quite difficult to find an amendment to the Bill that was within its Long Title and so could be tabled and debated. I have previously expressed my gratitude to the officials in the Public Bill Office for their help in enabling this to be done. However, it would have been a little difficult to ask them to do it again for a different amendment, when all I am asking here is for the Government to come forward with more information about what is going to happen under the programme that they have announced.
Quite a lot has happened since we debated that amendment last July; not least, the Government’s latest concordat with the industry. We had the amendment to the Pensions Bill, debated on 17 July, which dealt with the small number of the neediest pensioners who are entitled to pension credit. There was some sort of undertaking about data sharing. Then there was the letter following that from the noble Lord, Lord McKenzie of Luton, to the noble Lord, Lord Mogg, on 30 July, which sought to explain how this was going to be approached. We then had the full and important statements of the Government’s policy in their response to the Business and Enterprise Select Committee in another place earlier this month. Finally, we have had the report of the Ofgem probe into gas and electricity prices, which was issued a few days ago. I therefore make no excuse for coming back to the matter.
The House will be relieved to know, however, that I do not intend to rehearse the details of all these many developments, otherwise we might be here later than we would wish. My case—and this has been my argument since the House debated the carbon emissions reduction targets order last January—has centred on the problem of identifying the households that are in fuel poverty, particularly those that are in the priority group specified in that CERT order. We were told in the Explanatory Note to the order that there were now 11 million people in that priority group, and noble Lords will remember that the supplier industries had to supply 40 per cent of their target reductions from that group.
I understand from our debate in Grand Committee that there are some formidable obstacles to the question of identifying and targeting the households that deserve the special help. First and foremost there is the data protection legislation that prevents unauthorised disclosure. There is the issue of proportionality regarding whether the benefit from allowing disclosure is sufficient to justify the fact of disclosure. There is the issue of security of data, if data are to be transferred to other bodies—for instance, the energy supplier industries. And over it all, there are the imperatives of the human rights legislation. I would add, and I attach importance to this, the need to avoid stigmatising people by telling them to their faces that they are so poor that they need help. That is an important point that one needs to recognise.
Yet the Government continue to insist that they want to help the industry suppliers to,
“identify those who are mostly in need of help”.
Those are the words that were used in the Government’s response to the Select Committee. So far, however, they have entirely failed to explain how.
I turn to the letter on 30 July from the noble Lord, Lord McKenzie of Luton, to the noble Lord, Lord Mogg, whom I am delighted to see in his place today. It says:
“Both Ofgem and the Government share a commitment to ensure that those vulnerable to fuel poverty receive appropriately targeted help”.
I come back to the word “targeted”. In the same paragraph, the letter continues;
“the Government is committed to exploring how data held by DWP may be best used to ensure that appropriate help is targeted on all vulnerable groups”.
The noble Lord was there referring to the amendment to the Pensions Bill, but that is merely an amendment to give the Government power to make regulations. It is difficult to have a debate on this issue without knowing what the structure of the arrangements for the sharing of data is going to be, because we have not yet seen the regulations.
A few weeks ago I submitted a Written Question to the Government:
“How soon after the Pensions Bill receives Royal Assent they intend to make regulations under Clause 136 of the Bill as amended in Committee of the Whole House (HL Bill 79) about energy consumers who are in receipt of state pension credit; and whether they will publish draft regulations in advance of the Bill receiving Royal Assent”.
Even that would help—but no. The noble Lord, Lord McKenzie, replied:
“Clause 136 of the Pensions Bill enables the Secretary of State to set out in regulations details of how state pension credit data are to be shared with energy suppliers. We are working closely with energy suppliers, the Department for Energy and Climate Change, Defra and Ofgem to agree how the data-sharing process will work. We will lay the draft regulations as soon as possible after Royal Assent; they will be affirmative and therefore subject to full parliamentary scrutiny”.—[Official Report, 10/10/08; col. WA 24.]
We are no wiser at all. They are not prepared to help in any way so that we can see how this will all work.
Ofgem, which has been leading the fight for targeting, had a summit last April that was headed “Targeting the Help”. I therefore approached that body and asked what was its latest information on this. The answer I had from the official there was:
“I don’t know at present if the Government has plans for further legislation in this regard”.
Not only does Ofgem not know what is going to happen but it does not even know how the Government are going to do it.
It seems to me that we are in some difficulties on this. The purpose of my amendment is simply to ask for more explanations of how Ministers intend to deal with the crucial issue of targeting. I acknowledge and indeed applaud the several organisations that have been making heroic efforts, such as EAGA, and the many voluntary groups which have offered their help, to fill the gap between the householders who need help and the energy industries that are in a position to give it. I recognise, too, the strenuous efforts that are being made by the supplying companies to fulfil their commitments. Indeed, under the CERT legislation, it is their obligation; they are under a statutory legal obligation to get their savings from the 40 per cent of the priority group, and they are liable, as the noble Lord, Lord Rooker, told us in the debate in the House, to severe penalties if they do not achieve it. But they are not told which households they have to get their savings from, so that the solution to the core problem of targeting still remains hopelessly unclear. When I argued this case last January, it was the noble Lord, Lord Rooker, then the Defra Minister, who struggled to convince noble Lords that the policy was capable of being implemented. Anybody who was in the House for that debate will recall that there was a Minister under very considerable pressure.
In Grand Committee, the task fell to the noble Lord, Lord Bach, and he was rather more reassuring. Indeed, he began by congratulating me on having got my amendment on to the Marshalled List at all. The House of Commons—the other place—was not allowed to discuss this issue at all; it was not allowed to discuss fuel poverty when debating the Energy Bill. It fell to this place, with the help of officials, to get it on to our Marshalled List.
The noble Lord, Lord Bach, told us that there had to be,
“a joined-up approach within and across government departments, suppliers and other agencies involved”.
Then he went on to say:
“However, I have to tell the noble Lord that the precise details of the future arrangements are still being considered and discussed with supplier companies”.—[Official Report, 1/7/08; cols. GC 43-44.]
Yet the government response to the Select Committee report in another place, which we got earlier this month, provides absolutely nothing on targeting. You can read it in full and secure no information whatever—it simply does not refer to it. There is a great deal about how much money is going to be spent by the industry and the Government, but nothing—nothing, my Lords—about helping companies to identify who should get that help.
The noble Lord, Lord Hunt of Kings Heath, is here representing both departments—the Department of Energy and Climate Change, as it now is, and the department formerly represented by the noble Lord, Lord Rooker. So he has assumed the mantle of both the noble Lord, Lord Rooker, and the noble Lord, Lord Bach. We look to him now to give us some enlightenment as to how this will all be achieved. I beg to move.
My Lords, I may be hidden, but I would like to make a short intervention. I speak as the chairman of Ofgem, an organisation whose name seems to pepper every intervention, usually to pass on work, which I note with some anxiety.
The noble Lord, Lord Jenkin, makes my contribution short and very easy. He explained, precisely and elaborately, the background to his amendment. I congratulate him on his persistence and ingenuity in convincing the House authorities to include it for debate.
Fuel poverty is a fundamental concern. At the fuel poverty summit held in April this year, there were five Ministers, chief executive-level representatives of the energy supply companies, and most of the representatives of those agencies which were actively involved in this process. The outcome was the constructive development of new policies, principally focused around the intention of targeting fuel poverty. I pay tribute to the Minister, Mike O’Brien, for putting forward in the Pensions Bill, at a fairly late stage, an amendment which allowed a focused targeting of the constituents covered by that legislation. Narrow though it was, it was still a contribution and the first, in my experience, to try to deal with the targeting of these measures.
The fuel poverty summit has been followed up with a fuel poverty action programme. I am sorry that we are fairly uninspired in our entitlements. That, too, has demonstrated a real wish to make this approach more general. As the noble Lord said, I was particularly grateful for the letter from the noble Lord, Lord McKenzie, which identified a willingness to review the situation more generally. I do not need to quote it as the noble Lord, Lord Jenkin, has done so in extenso.
I fully support the motivation behind the comments of the noble Lord, Lord Jenkin, but I am particularly anxious that we make progress in identifying with a little more precision, and perhaps with a little more timetabling—in the same way as the noble Lord, Lord Hunt, has been given some very interesting information on metering which is of considerable interest to my authority—whether the Government see any opportunities, if not in this Bill then in others, to have a more broadly based approach to targeting fuel poverty while safeguarding the privacy concerns that are so necessary. We in Ofgem fully recognise data privacy concerns. Single mothers with children, the disabled and the chronically sick will not be covered by the pension fund amendment, which I believe has every chance of success. I hope that the Government will be able to give, perhaps even at the end of this debate, some indication of the timetabling.
My Lords, I am grateful to both noble Lords who have spoken in this debate—the noble Lord, Lord Jenkin, who tabled the amendment, and the noble Lord, Lord Mogg, for identifying areas in which constructive action has been taken against the objective which the noble Lord, Lord Jenkin, identified. As he rightly said, we debated this in Committee in July, and a great deal has been done subsequently. I do not want to repeat the debates of July, and neither does the noble Lord, Lord Jenkin. However, we both recognise that the sharing of personal data between government and energy suppliers to identify vulnerable households raises a number of complex issues of privacy and human rights, and that we need to proceed with care on sensitive information. We are looking at the way in which we can achieve the outcomes we all seek in tackling fuel poverty, while having the appropriate safeguards in place to ensure that both data protection and human rights legislation are complied with.
Of course the Government want consumers to receive the help for which they are eligible. That means that we will need to share some sensitive and private information, which raises very difficult issues with regard to legislation. The noble Lord, Lord Jenkin, identified the progress that has been made on the Pensions Bill, which is a significant step forward. He bemoaned the fact that we had not yet produced the draft regulations, but we do not expect Royal Assent for the Bill until November. We intend to publish draft regulations shortly after that. There will certainly be draft regulations in the New Year. As the noble Lord will know, demands are often made of Governments to produce draft regulations before Royal Assent is obtained, but regulations more often follow the passing of the legislation. But we recognise the urgency of the position and will produce the regulations early. I hope that he will recognise our earnest and good intent by that undertaking.
As the noble Lord recognised, and as the noble Lord, Lord Mogg, identified with great clarity, a great deal is being done in the mean time. We have made amendments to the secondary legislation underpinning energy performance certificates to allow a form of data sharing. All homes now require an energy assessment when they are sold or rented, and that involves production of an energy performance certificate which includes a home energy rating on an A to G scale. In the first instance, the new powers will be used to pass the data in an energy performance certificate to the Energy Saving Trust so that support can be targeted at those homes with the worst energy performance; that is, those receiving an F or G rating. The Energy Saving Trust will then be able to advise householders on the most appropriate energy efficiency measures and direct them towards the best sources of help and resources.
The Government have also launched a major information and marketing campaign as part of the £1 billion Home Energy Saving Programme announced by the Prime Minister on 11 September. The Government will spend considerable sums during the autumn on promoting the benefits of home energy efficiency and directing members of the public to schemes through which they can be helped to improve their homes. That includes the carbon emissions reduction target, which was the focus of the amendment that the noble Lord, Lord Jenkin, promoted so ably.
As part of the programme, energy suppliers will send a letter and brochure to all their customers highlighting the range of actions that they can take to help reduce fuel bills and make their homes more comfortable. The letters, signed by both energy suppliers and the Government, will set out a range of useful energy-saving measures and signpost the additional help available to those over 70 or on qualifying benefits. I am pleased to say that, in part because of this campaign, energy suppliers have confirmed to the Government that they are having little trouble finding consumers to target with energy-saving measures. That includes vulnerable households in the CERT priority group of low-income and elderly households which proved particularly challenging in earlier phases of the energy supplier obligation. In fact, the problem has rather reversed, such that demand for insulation measures currently outstrips supply.
We are, as the noble Lord, Lord Mogg, indicated in his valuable contribution, working closely with energy suppliers and the insulation industry to increase the resources available and raise the capacity of the insulation installation industry. Between these additional awareness-raising measures and the inclusion of the over-70s in CERT for the first time, energy suppliers are already finding it easier to find priority-group households than they are the larger group of “able to pay” households.
We are therefore making considerable progress. The Prime Minister’s announcement on the Home Energy Saving Programme included a proposal for a new community energy saving programme, established through the Climate Change Bill, which will include a new obligation on energy companies, including for the first time the electricity generators, to promote energy-saving measures to low-income communities across Great Britain. It is clear that it will be essential for energy companies to be able easily to identify the communities and households on which they are expected to focus their activities. We are working closely with them to design that scheme and will pay particular attention to the identification of target communities.
The noble Lord, Lord Jenkin, upbraided the Government for what he regarded as limited progress. I think that considerable progress has been made in the Pensions Bill and in what we, Ofgem and the energy suppliers have been able to do in identifying vulnerable groups and providing the help that they need. Governments can always be enjoined to act more quickly but, on this occasion, I do not think that the noble Lord, Lord Jenkin, can upbraid us for lack of intent. It is clear that we have taken on board the important issue of how we identify the households most in need of these measures. Legislative problems are involved in identification and securing the information, but I assure the House that, within this framework, the Government are taking constructive steps. I thank the noble Lord, Lord Jenkin, for giving me the opportunity to identify a number of them, and I hope that he will feel able to withdraw his amendment.
My Lords, I can certainly assure the Minister that I have never doubted for a second the Government’s “intent” to try to solve the problem. My difficulty is that they keep talking about identifying and targeting, but it seems still to be a comparatively difficult task. The information that I have from the industry may be a little different from the Minister’s. I am told that it still finds it difficult to find households—for instance, in the poorest areas—which have not already benefited from the Warm Front programme. They send their agents round only for them to find that the households concerned have their insulation already, which does not count towards the 40 per cent target because it happened earlier.
I am waiting to see how the clause in the Pensions Bill will be carried into effect through the regulations. The noble Lord, Lord Mogg, may know more about what will be in them—he shakes his head, so he does not. What mechanism will be used to fulfil Ministers’ intentions, spelt out by the noble Lord, Lord McKenzie of Luton, and emphasised again by the noble Lord, Lord Davies of Oldham, today, to target that particularly vulnerable group of pension credit recipients? I shall wait to see what happens. This is an issue on which we need to keep up the pressure. I recognise and have no doubt, as the Minister said, that great efforts are being made, but how effective are they? One should recollect that the cost of the CERT programme to every single householder in the country—I apologise to the noble Lord, Lord Mogg, because this is another Ofgem figure—is just short of £40 a year. It is the consumers who are paying, not the Government, and it goes on to bills, as do ROCs and other things. How many consumers know that? It goes on to the bills not only of consumers who can pay them but of everyone, including those of the fuel-poor households.
I would not say at this stage that it is a flawed programme, but I have considerable doubts whether it will achieve the targets. The Prime Minister has again heaped another great obligation on the industry and received a lot of publicity for it. We will wait to see what happens. I shall not let the matter go, but I shall for the moment beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
29A: After Clause 91, insert the following new Clause—
“Electricity and Gas Acts: interests of consumers
(1) The Electricity Act 1989 is amended as follows.
(2) In section 3A (principal objective and general duties of Secretary of State and Authority), after each occurrence of the words “consumer” or “consumers” insert “, existing or future,”.
(3) The Gas Act 1986 is amended as follows.
(4) In section 4AA (principal objective and general duties of Secretary of State and Authority), after each occurrence of the words “consumer” or “consumers” insert “, existing or future,”.”
The noble Lord said: My Lords, I declare an interest as a director of Falck Renewables. The purpose of this amendment is to achieve the same objectives as the amendment that I introduced in Committee, but to do so more elegantly. It is motivated by our national failure both to move early enough to replace existing infrastructure that is approaching the end of its useful life and to build in a timely way new infrastructure that is needed to meet the need of climate change. By giving prominence to the interests of future as well as existing consumers, the amendment raises to the level of a primary objective of Ofgem a duty to give high priority to sustainability and security of supply.
Of particular concern today is the capacity and shape of our grid for the transmission of electricity. There is no point in building new power stations or wind farms if the electricity cannot be transmitted to where it is needed. The present grid was designed and built nearly half a century ago to distribute electricity radially, from a limited number of large power stations. Today not only is much of it due for replacement and upgrading but it also needs urgently to be reconfigured and extended to accommodate changing patterns of electricity generation that arise from the increased use of wind generation power to meet our 2020 target.
Progress in exploiting all renewables has been painfully slow, for two reasons. The first is delay in obtaining planning decisions. In one case, an important overhead power line took 14 years to obtain consent. This problem is being addressed by the Planning Bill that is at present before this House. Today’s amendment relates to a second delay—namely, in connecting new generating capacity to the grid. The grid has to be reinforced and reconfigured because most of the remaining attractive sites for renewable generation are either in the far north of the UK, or offshore, or both, while the main demands for power are in the midlands and the south. At present, there is effectively no way of getting power from one to the other. This is leading to a chicken and egg situation. Generating companies are unwilling to commit to building new capacity—for example, off north-east Scotland—unless it is clear that what they build can be rapidly connected. The capital that they invest brings no return until the wind farm or wave machine can supply power to the grid. On the other hand, the regulator is seen as having been reluctant to allow a rate of return sufficiently attractive to encourage transmission companies to build new transmission capacity ahead of demonstrated need.
Clearly, building either transmission or generating capacity ahead of need means that there is a risk of one or the other being stranded—that is, being inactive indefinitely or at least until the complementary facility is built. Risk has a price tag and in the present urgent situation the regulator must find means of de-risking this process to acceptable commercial levels. If this does not happen, it may be necessary for Ministers to intervene, simply because otherwise essential infrastructure will not be built in time. In all fairness it has to be said that Ofgem has finally begun to respond to these pressures and more than £4 billion of grid expenditure has been authorised up to 2012. The purpose of this amendment is to ensure that that progress is not just maintained but accelerated. If the Government accept this amendment, as I hope they will, the message will not be lost on either Ofgem or those whom it regulates.
The infrastructure developments that I have been discussing will take years to implement. There are, however, measures that could be taken modestly to improve the situation in the short term. The transmission access review that was recently undertaken by the Department for Business, Enterprise and Regulatory Reform and Ofgem has shown that the existing transmission capacity is not always used to full capacity. This is because the present arrangements for sharing are on a voluntary commercial basis. In some cases, they are not fully effective and leave capacity unused that could be used by others. In our present situation, it would be worth while giving consideration to whether Ministers need powers to ensure that, when commercial processes fail, spare capacity is made available to those who could use it.
The present arrangements for prioritising grid access for new generating plants have also been subject to criticism. Under the present first come, first served arrangements, an incomplete project may retain its precedence over others that are ready to go. It is widely believed that insufficient priority has been given to transmission needs of renewable energy sources.
Although beyond 2020 other renewable technologies are likely to play an increased role, for the present our main source of renewable energy will be wind. It is an unfortunate fact that, even in the most attractive locations, wind turbines are unlikely to generate electricity for more than 30 per cent, or at best 40 per cent, of the time. The expectation is that at any one time, somewhere in the country, the wind will be blowing and intermittent generation will be staggered round the grid. Unfortunately, this cannot be guaranteed and the country may occasionally be affected by a nearly general calm—and so backup is needed. Countries that generate a high proportion of their electricity from wind, such as Denmark, at about 20 per cent, avoid short-term electricity shortages by having high-capacity connectors to neighbouring countries through which they import or export power in response to wind conditions.
On present plans, the UK will approach the Danish proportion around 2020 and the case for reinforcing our interconnectors with the mainland European and/or Scandinavian grids should be considered. There is a financial and carbon balance to be struck between providing back-up from domestic fossil fuel plant and importing electricity from abroad. In the interests of energy security and energy costs, we probably need both. There is some question whether such international interconnectors are likely to be promoted by existing commercial interests. Energy security clearly has a value to the country as a whole, but it does not necessarily have a short-term value to the market, and Ministers might like to consider whether they need powers to ensure that appropriate interconnectors that may be needed can be built.
Finally, I shall say a word on costs. Depending on the design details, the costs of refurbishing and extending the grid are likely to run between £10 billion and £20 billion between now and 2020. The good news is that, even if a major expansion and development of the grid were agreed today, we would be looking at a 10-year time span for its completion, with the heavier expenditure in the latter half of the period. This means that the present financial crisis should not be taken as a reason to procrastinate. For the immediate future, all that is needed is public commitment and careful planning and design work. I suspect that Ofgem might well argue that it is already moving in the direction that I suggest. That may be so—but it is not fast enough, and I believe that its corporate feet must be held to the fire.
I am conscious that on three occasions today I have raised the question of ministerial intervention. I have done this with reluctance but, in our present situation, if the market does not respond rapidly enough, intervention is the only alternative. The message is urgency; to have any chance of building the infrastructure in place, in time, it is essential that preparations are made now and progress ought to be limited not by bureaucracy, by regulatory failure, or by market failure, but only by our physical ability to build fast enough. I beg to move.
My Lords, my Amendment No. 30 has been linked with the amendment moved by the noble Lord, Lord Oxburgh, and I congratulate him on erecting a fascinating superstructure of argument and anxiety on the somewhat slender foundations of his own amendment. The noble Lord has freely acknowledged to me in private that he realises that by adding “existing or future” to “consumers” he is not actually adding anything to the legislation at all. I moved an amendment to what became the Utilities Act 2000, so that it now states:
“In this Part—‘consumers’ includes both existing consumers and future consumers”.
Exactly the same definition is also found in Section 4AA of the Gas Act 1986. That has been the remit for Ofgem since then.
My Lords, I totally agree with what the noble Lord, Lord Jenkin, said, but the effect of my amendment is to change priorities. The Electricity Act and the Gas Act both have a series of primary, secondary and subsequent objectives. My amendment would change the priorities.
My Lords, I do not want in any sense to criticise the noble Lord, Lord Oxburgh, because not only is he is extremely knowledgeable about these matters but he is pursuing an issue of transcendent importance to the future energy of this country. I just question whether, as a matter of interpretation—it will be interesting to know what advice parliamentary counsel has given to the Minister on this—the words that he is seeking to include in the Bill add anything to what is in the Utilities Act 2000. Although I will not read it all out, I have here the section of the Electricity Act amended by the 2000 Act. The definition in the clause says,
“‘consumers’ includes both existing and future consumers”.
With the greatest respect to the noble Lord, I would have hoped that, given the urgency of the case that he has argued—he and I were both interviewed by the author of an article in the Times last Monday—he would have included something a little more specific.
The noble Lord’s amendment somehow infers that the priority will be raised. I am not at all clear—no doubt the Minister who has had long discussions with the noble Lord, Lord Oxburgh, on this will be able to explain—how this inference of raising the priority of the future will be achieved. I will be interested to hear the Minister's response to that.
The point is clear to me that both in another place and in Grand Committee in this House there was much concern about the way that the role and functions of Ofgem—the regulator in the energy industry—are being discharged at present in the context of the huge challenges faced by the industry, which the noble Lord, Lord Oxburgh, outlined in stark detail, and of the huge investments that are necessary to develop and secure our energy infrastructure for both existing and future consumers. One has to say that there could hardly be a more important subject for this House to debate.
Among the things discussed in the earlier proceedings were amendments to the Gas and Electricity Acts that sought to make Ofgem's remit, as the proponent said, more fit for purpose. The amendments sought to align Ofgem’s statutory role and duties more closely with the new energy policy objectives of carbon reduction and security of supply. Quite apart from the views of Ofgem on that—of which I am well aware because I discussed the matter with the noble Lord, Lord Mogg, and members of his staff at Ofgem—I am also aware that the industry has mixed views on what was proposed about the desirability of changing Ofgem's remit at the present time. As I understand it, the industry believes that while some such change may well be inevitable and right, it should take place only under some future legislative arrangement following wide public and political debate and consultation. The concern is that introducing amendments under this Energy Bill without that wide consultation would undermine—and I will return to this issue—the regulatory stability that is essential to support the innovation and investment needed to deliver national carbon emission and supply security goals.
I understand that there is a great deal of force in the contention that regulatory certainty is a precondition for investor confidence. Almost every clause in the Bill is designed in one way or another to facilitate and support long-term UK investment in a wide range of energy infrastructure. We should therefore be slow to do anything in this House that could impair that purpose. However, as the ongoing crisis in the financial markets has demonstrated, it is the job of government to see that the regulators are ahead of the curve, not behind it. Accordingly, the new clauses introduced by Amendments Nos. 30 and 31 standing in my name would ensure that the Government—any Government—are able to do that job properly in relation to the future regulation of the energy industry. If agreed to, the amendments would enable the Government to be more likely to ensure what they are currently unable to ensure, namely that electricity and gas regulation is carried on in a way that conforms more closely to national energy policy objectives.
At present, under the relevant gas and electricity legislation, the Government are able to issue guidance to Ofgem about the “making by” Ofgem,
“of a contribution towards the attainment of any social or environmental policies set out … in the guidance”.
That is in the 2000 Act. The idea of that is to enable Ministers to put Ofgem in a position to consider and give due weight to all the various social and environmental policies that may be relevant to the performance of its statutory functions.
I have heard Ministers, and indeed leaders in Ofgem itself, argue that the best way of ensuring that energy regulation is carried on with a view to delivering longer-term energy policy objectives is for the Government to provide more explicit guidance to Ofgem on such social and environmental issues; indeed, earlier this year, as the noble Lord, Lord Hunt of Kings Heath, will be aware, what is now the Department of Energy and Climate Change published draft guidance for public consultation that was expressly designed for that purpose. The consultation period has recently ended, and I will expect the Minister, when he replies to the debate, to tell the House when he expects to publish the responses to the consultation, and when we may expect the fruits of that exercise to be announced.
Before I turn to the substance of the new clauses in Amendments Nos. 30 and 31, I want to make it clear that I will abandon Amendment No. 32, which I do not intend to press. That provision would have empowered Ministers to give “directions” to Ofgem, in certain circumstances, on how to fulfil its functions. On reflection, it is clear that that would have a number of serious objections—not least because it would give Ministers altogether too much power to intervene in the day-to-day work of Ofgem, and also because it would undermine the independence of the regulator, to which we all attach great importance. Both those reasons seem to me to have a great deal of weight.
So what is left? Amendment No. 30 would require Ministers to give guidance—I emphasise that word—to Ofgem on the exercise of its regulatory functions under the relevant statutes. The key point is that the guidance is to be given with a view to ensuring that Ofgem carries out those functions in a way that is most likely to contribute to the dual objective of a system of energy supply that is both secure and sustainable—I take the words of the opening speech of the noble Lord, Lord Oxburgh, himself. Without express provision for this, there is a risk that Ofgem could lead the energy industry in a direction that is not consistent with these overriding national policy objectives.
The approach in my amendments builds on the existing legislation, which, as I have said, requires the Government to give guidance to Ofgem on social and environmental policies, but does so by spelling out a more explicit set of priorities for the guidance. If I have a criticism of the amendment of the noble Lord, Lord Oxburgh, it is that it is not specific enough. It rests entirely upon the inference that this guidance will somehow be the result of adding the words that he wants. At the same time, in my amendment, the guidance can include any general or specific proposals that the Government themselves consider relevant to the national objectives, as well as giving an indicative timetable for achieving them. All this is entirely consistent with the constitutional principle that the Government, not the regulator, should have the major role in setting the priorities and, ultimately, the decisive role in setting this country's energy policy.
The proposed new clause in Amendment No. 31 simply mirrors the parliamentary, procedural, and consultative requirements that at the moment apply to the existing guidance—but with the sensible addition that it now includes the Scottish and Welsh Ministers and the new Committee on Climate Change in the list of the statutory consultees whose views must be sought before the guidance is issued. Importantly, as in the existing legislation, if either House of Parliament resolves against the guidance, it cannot be issued.
The proposed new clause in Amendment No. 30 is the substantive one, and starts from the premise shared by just about everyone that regulatory stability is critical to long-term investor confidence. However, it aims also to take account of two other very important realities. First, the Government now have long-range energy policy objectives, including fighting climate change, that go well beyond the normal regulatory timeframe. Secondly, some mechanism is needed to ensure that energy regulation takes full and proper account of those objectives while still preserving the essential operational independence that a regulator such as Ofgem is entitled to expect. However, it does not leave these objectives to be inferred or implied, which was the burden of the speech of the noble Lord, Lord Oxburgh, but it indicates quite clearly what the objectives are that the guidance must embrace.
Short of primary legislation, the Government have no means of delivering national energy policy objectives without Ofgem's full and continuing co-operation. These proposed new clauses aim to underpin the ability of government to secure, and indeed to rely upon, such co-operation. I emphasise that, as a matter of law, any new guidance issued under these clauses would not override the primary objectives of Ofgem, which must always remain to promote competition, encourage investment and safeguard the interests of consumers both existing and future; that has always been its primary objective and must remain so. That takes us back full circle to where my comments began.
I hope that noble Lords will feel able, on reflection, to support these proposed new clauses as being able to achieve what the noble Lord, Lord Oxburgh, has so graphically spelt out to the House that he wants to see, but to do so in a more specific and targeted manner.
My Lords, I do not know enough about how Ofgem works to know whether my noble friend Lord Jenkin is right that what the noble Lord, Lord Oxburgh, has said is not precise enough. However, I thought that the speech of the noble Lord, Lord Oxburgh, was brilliantly illuminating, and summed up what I see on the ground as the main problem of how wind energy developments are going.
As I understood it, the noble Lord would leave Ofgem to operate as it wanted, but is attempting to alter its priorities. It would be interesting to know whether the chairman of Ofgem feels that that would be helpful. The truth is that the cart is being put before the horse all over the country; I see it across Scotland. Wind farms are being created without real reference to how what they produce will get into the grid, which is frankly terrifying. We do not even know whether the interconnector between Scotland and England will be sufficient to get energy to England should Scotland have the wit to produce more than it needs, which is what we want.
It is also interesting that Denmark has to interconnect with neighbouring countries in case there is too much still weather there. We often get big areas being still over a number of weeks, and only other forms of generation can top up when wind fails. We are talking about big wind farm developments far out at sea, but not about the interconnector there. The cart is before the horse, and we must reverse it. I hope that the Minister can tell us—and I am sure that my noble friend Lord Jenkin will be interested to hear—whether this alteration of priorities from “consumers” to “future consumers” does the trick. If it does, it is extremely subtle and simple.
The problem exists. Whether we need the more complicated, and perhaps unfortunate, vastly increased regulation of Ofgem I do not know. The problem that the noble Lord, Lord Oxburgh, outlined exists before our very eyes, and must be addressed extremely quickly.
My Lords, I found the contribution of the noble Lord, Lord Oxburgh, excellent. It is almost a textbook explanation of future challenges in this area; certainly one that I will refer to on many occasions.
The key things are the two principles. First, Ofgem’s operation must reflect both the climate change and energy security agendas as well as its current prime tasks. That is more easily said than done, but adjustment is important. As to how that is achieved, I listened carefully to the noble Lord, Lord Jenkin, on whether this would be better done in his more explicit and detailed way. I am rather persuaded by him, although the elegance of the amendment of the noble Lord, Lord Oxburgh, is excellent. It puts the whole issue in exactly the right context, in that our decisions in this area today must last into future generations. Nowhere in energy security and climate change is this more the case.
I hope that the Minister will indicate a way to ensure that Ofgem’s responsibilities and how it operates are modified, and how that modification might be brought about without the curse of unfocused responsibilities, which can be equally difficult.
My Lords, we have today and at earlier stages of the Bill gone into the whole area of what constitutes the job of Ofgem. Distinguishing between where government policy stands and where Ofgem’s responsibilities lie is a very difficult problem. Since Ofgem was established, and reinforced by various subsequent Acts over the past eight to 10 years, its basic primary duty has not changed. Wearing my hat as chair of Consumer Focus, I cannot credibly argue that the needs of consumers should not be the primary duty, but there has to be greater subtlety and nuancing with regard to the way in which consumer needs are met within that primary duty. It needs to be made explicit that future consumers are included in that as well as current consumers. The way to protect current and future consumers and advance their interests is not necessarily solely through maximising competition in the way in which it has been defined hitherto. I say immediately that for consumers it is generally better to have more competition than less, but there is also a trade-off between competition now and competition in the future. Given the overriding importance of climate change, there will also be trade-offs between environmental objectives and social objectives, which relate to different types of consumer. I complained earlier that we had not had time to discuss fuel poverty in depth. You would expect the combination of government policy and the regulator’s responsibilities and priorities to address fuel poverty more explicitly and more clearly.
I do not think that either of the relevant two amendments, extraordinarily fluently spoken to though they were—I found them convincing before I started to think further about the matter—achieves this. That is partly due to the history of the matter. I am sure that the noble Lord, Lord Mogg, may query this, but I think that the directions and guidance adopted by successive Secretaries of State in relation to Ofgem and its predecessors have tended not to have the effect that was claimed for them when the various Secretaries of State introduced them. That is partly because of the primacy of the primary objective and partly because of Ofgem’s strength in focusing on what it sees as its primary objective, and using all its multitudinous resources—it probably provides more information on the energy markets than is provided by any other institution in the land—to pursue that primary objective. I cannot think of any directions or guidance issued in relation to an environmental agenda that have significantly altered Ofgem’s focus. That is even more true as regards the social agenda. I might have had slightly more sympathy with the amendments of the noble Lord, Lord Jenkin, had he included a third element on reducing fuel poverty.
For the reasons I have given, I do not think that the present combination of powers of the Secretary of State and primary duty of Ofgem works, but neither do I think that intervening at a rather late stage in the Bill to propose new definitions on what guidance and directions to Ofgem should achieve will resolve the situation. We need a broader discussion on what we expect the regulator to achieve, the boundaries of his responsibilities and the appropriate interfaces between government policy and the regulator in a new era in which climate change, fuel prices and social deprivation are more important in some ways than delivering the lowest average price to today’s consumer. Because these are such huge issues we ought not to try to bolt them on to this Bill at this point. Given that the newly established department takes in the economic dimensions of the energy industry, the security issue, the social issue of fuel poverty and, probably most importantly, the climate change issue, I appeal to the Minister to consider that now is the time for new thinking. Although I do not think that we shall get this right in the two or three weeks that remain of this parliamentary Session, it needs to be pretty high on the agenda of the new Secretary of State and his able colleague, the Minister. I would rather consider these amendments in that context than vote for or against them now.
My Lords, the noble Lord said that we cannot put this right in the last two days’ consideration of the Bill. Given that he has taken a full part in this matter, he will recognise that this issue has figured at every stage of the Bill’s consideration in both Houses. I moved an amendment on this matter in Committee. However, at each stage the relevant amendments were found wanting; they were not what was required. The practice in Parliament, very properly, is that one has another go. The noble Lord may be right that the Government’s consultation on this, to which I referred, indicates the right way ahead. All the relevant information has been returned to the Government and we are now waiting for their response. However, that will come after this Bill becomes law. As I say, the consultation may show the right way ahead. However, I believe—I hope that the Minister agrees with me—that the debates we have had on this throughout the Bill’s passage have helped to illuminate the problem.
My Lords, I absolutely agree with that. I was not criticising anybody for having another go and getting it right. I was merely saying that this is a difficult problem and a very urgent one that we need to address outside the consideration of this Bill. However, we need to do that very urgently.
My Lords, I feel there is an inevitability about this intervention in that I feel a job description has been created before my very eyes. I acknowledge the excellent contribution of the noble Lord, Lord Oxburgh. I agree with noble Lords opposite that it comprised a splendid description of the challenges that we face. I also acknowledge the kind remarks made on all sides of the House that the amendments do not constitute a criticism of the actions that Ofgem has taken as an organisation, but rather, as the noble Lord, Lord Redesdale, commented when moving an earlier amendment, that any concerns relate to the terms of reference within which the authority has to work. That is an important point in respect to my remarks, which are not defensive. That point was later reinforced by the noble Lord, Lord Jenkin, with his customary elegance of descriptive language, when he compared concerns about Ofgem’s duties to a Christmas tree, topped by a clear bright fairy, with all sorts of baubles of different and often disjointed legislation. He explained that the purpose of his proposals was to stop the Christmas tree collapsing under its over-decorated weight.
As chairman of the authority, I should make it clear that I am not the clear bright fairy at the top of the tree. I underline that it is both the authority’s and my own view that it is for Parliament and the Government to establish the statutory duties under which we operate; hence the debate is very interesting and one in which I want to take part. However, I shall not vote on the measure because I feel that my function today is to explain how I view the matter and to respond to the questions that have been asked.
The amendment of the noble Lord, Lord Oxburgh, seeks to amend the Electricity and Gas Acts to include references to “existing or future” consumers. This emphasises the importance of thinking not only of the present but of the future. I greatly admire the noble Lord, Lord Jenkin, but unfortunately I have more problems with his amendments. I value the fact that he will not move the last of his amendments, which would fundamentally undermine through direction the independence of the regulator.
However, his earlier amendment, Amendment No. 30, has echoes of that and problems remain.
We share a sense of urgency; indeed, the intervention of the noble Lord, Lord Whitty, disappointed me, because he will be well aware of some of the efforts that have been made in the past few years to raise climate change and fuel poverty up the agenda. That is consistent with our obligation and economic duty to consumers. We can discuss that at another time and in another place. Amendment No. 31, as the noble Lord, Lord Jenkin, said, involves a procedural issue which, if Amendment No. 30 were accepted, there would be merit in pursuing.
I must examine Amendment No. 30 to underline, in answer to earlier questions, why I have concerns. Subsection (1) places the Secretary of State under an obligation to issue guidance to the authority in the exercise of its functions under legislation. The nature of the guidance is set out in subsection (3), which has interesting wording that goes to the heart of the issue. The guidance,
“must, in particular, be given with a view to the desirability of ensuring that the functions of the Gas and Electricity Markets Authority are exercised in a manner most likely to contribute to”,
security of supply and—these are interesting words—
“the mitigation of or adaptation to the consequences of climate change”.
There is a risk of introducing uncertainty about how the Secretary of State will issue that guidance and how it will fit in with the principal duty to consumers. In the words,
“desirability of ensuring that the functions … in a manner most likely to contribute to”,
there is no consideration of the cost to consumers and no indication that this needs to be achieved efficiently. These are particular concerns to an economic regulator for which, as earlier debates have shown, there is a clear wish to maintain its economic duty.
My Lords, I am sorry to interrupt the noble Lord, but these are hugely important issues. He will be aware that the existing guidance under Section 3B of the Electricity Act 1989, as amended, states that the Secretary of State,
“shall from time to time issue guidance”.
Perhaps I should have used “shall” in my amendment, rather than “must”. It would not have made any difference to the meaning; it is the same.
My Lords, I have no difficulties with the obligation on the Secretary of State; what follows in the nature of the guidance needs to be addressed. Perhaps parliamentary counsel might have encouraged the use of “shall”, but I am happy to continue with “must”.
The nature of the guidance is wide and has a potential for being prescriptive. That would be even more the case had the noble Lord, Lord Jenkin, decided to press his amendment on the ability for direction. However, that indicates the thinking behind the amendments. Subsection (4)(a) of Amendment No. 30 mentions,
“any proposals from the Secretary of State”,
and “any … timetable”. It is very broad. I am sure that present Ministers would not do this, but future Ministers could set out prescriptive terms as to what we should do and how we should do it in short order. The circle is completed by the response that the authority “must have regard” to the guidelines. The shift from an economic regulator acting independently and making judgments about highly complex issues, as the noble Lord, Lord Oxburgh, indicated, would be severely restricted. The whole tenor of these amendments, whatever is intended, is in principle to indicate control, limitation and management of the authority. It would represent a radical departure from the present independence of the regulator. The effect of the new powers would be significant, whether they were used or not.
I shall address the concerns about uncertainty. Noble Lords’ debates during the passage of the Bill have centred upon the risks to the changes that a principal duty would make and the introduction of uncertainty. Perhaps I may quote my noble friend Lord Smith of Kelvin, who is chair of Scottish and Southern Energy. He wrote to me and agreed that I should refer to his letter to explain what a major British energy company considers. This is relevant, because it relates not only to the perception of the regulator regarding investment, but the need for certainty, which is particularly important. He states:
“We are aware that … people have raised concerns about the remit of Ofgem … it is vital that the legislative framework should not compromise Ofgem’s independence, or objectivity. This is a major issue, with huge consequences, and there are serious concerns from the energy industry over whether this sort of decision should be taken at Report Stage of the Energy Bill—without due consideration or consultation”.
I have omitted large chunks of the letter, which goes on to say that,
“the presence of an independent regulator with the requisite powers has led to a highly competitive energy market that has delivered a stable investment climate”.
It is of fundamental importance—most of all at the present time, given the challenges regarding renewables and climate change generally—that we have that certainty. Changing it, or even implying some sort of change, which Amendment No. 30 does, would produce a shiver of apprehension and possibly discourage investment within the UK.
Finally, I underline how much importance we attach to the issues to which noble Lords has drawn attention—climate change and the like. They have not been neglected. The noble Lord, Lord Whitty, was not present at an earlier discussion on an earlier amendment of the noble Lord, Lord Jenkin. He was gracious in complimenting Ofgem for its activity in social policy, fuel poverty and the need for action in those areas. Similarly, we have made major changes on sustainable development, with huge levels of investment into the system. It is possible, with the present guidance and the amendment of the noble Lord, Lord Oxburgh, to envisage that we will continue to operate within government prescription with regard to climate change and the like.
I conclude by paying a tribute to the many compliments that have been paid to Ofgem. I am not entirely sure that I have been able to repay them in the same way by complimenting the level of debate that I have seen all the way through the passage of the Bill.
My Lords, it may be an understatement to say that this issue has attracted a great deal of attention from expert voices during the passage of the Bill, and today has been no exception. The question of where the line should be drawn, as the noble Lord, Lord Whitty, said, between protecting energy consumers and not freezing out the development of a healthy renewable energy sector, which would be to the long-term benefit of consumers, is tricky. It is unsurprising that we have returned to this issue at this stage. I am sure that it will come up again. Finding a workable and effective solution is further complicated by the need to protect the independence of the regulator. Like the noble Lord, Lord Mogg, I am glad that my noble friend Lord Jenkin has acknowledged this and has decided not to press Amendment No. 32, which we felt went too far down the route of political interference. However, it is becoming ever clearer that something needs to be done, and I, like all noble Lords, look forward to the Minister’s response.
My Lords, this has been an extremely important debate. We have discussed access to transmission systems, security of energy supply and the whole balance of the relationship between the Government and Ofgem. I say right at the start that the Government will want to reflect on this debate as they take forward future energy policy. The noble Lord, Lord De Mauley, was correct to say at the conclusion of the debate that there is an extraordinary balance to be struck between ensuring certainty for industry in terms of future investment and, as the noble Lord, Lord Jenkin, described it, regulatory certainty in relation to long-term investment. However, as my noble friend Lord Whitty suggested, we are in changing circumstances and we have to ensure at all times that the regulatory system is as effective as possible. All these matters need to be taken into account.
In a sense, this has been a debate about the roles of government and Ofgem and about how effective Ofgem has been within the criteria laid down by the Act and guidance. I pay tribute to the work of the noble Lord, Lord Mogg, and that of Ofgem. However much debate there may be about whether there should be changes, adjustments and different emphasis within Ofgem’s duties, I am sure that we all pay tribute to the noble Lord and the staff of Ofgem for the work that they do.
I want, first, to pick up the issue of timely and efficient access to the existing electricity transmission system, which is very important, and the need for a step-change in the approach to new investment in the grid infrastructure—in particular, the whole question of investment ahead of need or, as it has been described, “strategic investment”. The noble Baroness made a very telling point in that regard and about the whole question of encouraging development in Scotland in relation to renewable energy access to the grid infrastructure. The noble Lord, Lord Oxburgh, also spoke eloquently about that.
There can be no question but that the Government believe that dealing with grid access and strategic investment is vital. The day after the proposed Ofgem amendments were discussed in Grand Committee, my department, together with Ofgem, published the Transmission Access Review, which focused on exactly those issues. The report recommended both short and long-term solutions to the problems that had been raised.
For example, on strategic investment, as a result of the Transmission Access Review, the national grid and Scottish transmission companies are conducting detailed transmission studies, which will set out the new investment that we need in the transmission network for 2020 and beyond, as well as prioritising within that investments which are essential, those which are likely to be needed and those which may be needed. This process is intended to break what some have described as the problem of the current “chicken and egg scenario”, whereby infrastructure cannot be built until generators invest, and generators do not want to invest until they know where the infrastructure will be. It is clear that in our long-term interest, we have to break out of that position.
These studies are helping to create a virtuous circle by giving generators a clear signal as to where and when network capacity will be available so that they can plan and invest in their projects accordingly. One has then to read across to the Planning Bill, which I hope will also give much greater certainty in relation to the planning system as it affects those major infrastructure projects.
As well as considering the building of new infrastructure, the Transmission Access Review looked at the importance of using the available infrastructure more efficiently—for example, by sharing access between generators. As part of this, industry needs to update the current industry framework to ensure enduring grid access arrangements that will allow faster connection for new generation projects. Industry is currently negotiating the rules that govern grid access and is due to report back on progress at the end of this year. However, due to the importance of reaching a conclusion, we have stated that if industry and Ofgem do not make sufficient progress by the end of the year, the Government will consider options for wider reform, including legislation, to bring about the necessary changes in the context of their renewable energy strategy and wider energy policy goals. That must be the right approach. We must allow the discussions with industry to take place and we must hope that they reach a satisfactory conclusion, but we must also reserve the right to take action if that does not occur. I think that that is the right balance and the right role for government in this area.
The noble Lord, Lord Oxburgh, has suggested that Ministers should look into taking legislative action now to allow them to intervene where necessary, and I think that I have answered that point: we think it best to take the latter approach if necessary.
I was also very interested in the comments of the noble Lord, Lord Jenkin. He is right with regard to the strict letter of the law in terms of existing and future customers. Notwithstanding that, I think his point is that the amendment would be a signal from Parliament that Ofgem has to take account of the needs of tomorrow’s consumers when making decisions today. I know that we tend to have debates across the Floor about whether a signal is the right way to use legislation. Sometimes it is, so we look sympathetically on the noble Lord’s amendment, and I undertake to give it further consideration between now and Third Reading. That is not a total commitment but a commitment to look at it as sympathetically as possible. I hope that noble Lords understand what that means.
We had much debate at previous stages of the Bill on the importance of Ofgem’s duties. My right honourable friend the Secretary of State has echoed the importance of sustainability and the urgent need to tackle climate change. Like a number of noble Lords who have spoken on this subject, he also believes that the growing importance of sustainability should be properly reflected in Ofgem’s duties. We are considering how we can make the existing sustainability duty more prominent within Ofgem’s structure of duties, while maintaining Ofgem’s primary focus of consumer protection. Again, I shall hope to give further information on that at Third Reading.
I now turn to the first two amendments that the noble Lord, Lord Jenkin, has pursued in the debate. The existing statutory social and environmental guidance currently sets out guidance for Ofgem on how it might make an appropriate contribution to the achievement of government policies on issues of wider public interest, such as social and environmental matters. Although the guidance sets out what the Government expect, it does not direct Ofgem on how we expect it to achieve this. That is because of the nature of the relationship between government and the independent regulator. I think that in general noble Lords feel that that is right, although there are clearly issues around the overall statutory structure that affect the specific duties laid on Ofgem. Ofgem’s current social and environmental guidance has not been updated since 2004. As the noble Lord, Lord Jenkin, suggested, we have had a consultation this summer and that has now closed. We expect to issue a response to the consultation by the end of this year and hope to have guidance formally in place early in 2009.
The noble Lord, Lord Jenkin, has heard that there are some specific issues relating to the wording of his amendments, as was mentioned by the noble Lord, Lord Mogg. I do not intend to go over that but, in his later interjection with my noble friend Lord Whitty, I think he accepted that the question of the regulator’s future duties and responsibilities is very important. We will not come to a conclusion on the issue over the next few days. They are matters to which the new department and my right honourable friend the Secretary of State clearly need to give attention.
Equally, we have to have regulatory certainty, as the noble Lord, Lord Jenkin, said, to secure long-term investment. Holding that together and ensuring that that certainty is maintained through changing circumstances is a considerable challenge. It is clearly one that the Government need to address. We have paid serious attention to the debates that have taken place today. I hope that the noble Lord, Lord Jenkin, will not pursue his amendments and that he will accept that we strongly believe that the matters he raised are critical to this nation.
32A: After Clause 91, insert the following new Clause—
“Energy public interest considerations
(1) After subsection (2C) of section 58 of the Enterprise Act 2002 (considerations specified as public interest considerations for the purpose of the main merger regime) insert—
“(2D) The following are specified in this section—
(a) the need, in relation to energy supplies, for there to be a plurality of persons with control of the energy enterprises providing those supplies;(b) the need for security of energy supply.”(2) After section 58A of that Act insert—
“58B Construction of consideration specified in section 58(2D)
(1) For the purposes of section 58 and this section, an enterprise is an energy enterprise if it is involved in the production or supply of electricity or gas.
(2) For the purposes of section 58, where two or more energy enterprises—
(a) would fall to be treated as under common ownership or common control for the purposes of section 26, or(b) are otherwise in the same ownership or under the same control,they shall be treated as all under the control of only one person.
(3) The power under subsection (3) of section 58 to modify that section includes power to modify this section.””
The noble Lord said: My Lords, listening to that marvellous debate on the previous group of amendments, I was reminded that a number of years ago I spoke at a dinner immediately after Sir Peter Ustinov. It was a mixed blessing because as much as I enjoyed his speech, with every gale of laughter I knew that I was dead in the water. I had exactly the same feeling this evening.
I first moved a version of Amendment No. 32A as long ago as five months on the notion of a public interest test to be applied to mergers, acquisitions and takeovers in the energy sector. I was pretty easily swatted away by the Front Bench with references to light-touch regulation and the sanctity of the marketplace. I doubt whether we will hear much about light-touch regulation this evening, but it is possible. In Committee on 1 July, I raised the issue again, and said briefly that many countries are,
“moving towards a point where they can look through deals and ownerships to see the real owners and the real purpose behind deals. We have been laggards on this”.
I went on to say:
“The world is changing rapidly, and it is time for us to look more closely at whether we are semi-consciously drifting into the type of economy that the United States became in the late 19th and early 20th century, from which it eventually had to jolt itself”.—[Official Report, 1/7/08; col. GC 58.]
I could not have imagined how rapid that jolt would be and how prescient I might have been.
I still believe that there is an issue. If we believe that the Government are right—and I do—to move quickly with the banking bail-out, I do not think anyone in your Lordships’ House would argue that should an energy company fail, any responsible Government would move equally quickly to bail that energy company out. That is all the more reason why the rights and interests of citizens and consumers should be protected when such an energy company makes its original purchase.
Why are my fears not entirely fanciful? Let me offer two possible examples—one from the water sector and one from infrastructure. On 26 September 2000, RWE, according to the Independent newspaper, swallowed Thames whole. It paid £4.3 billion for the privilege and took on £3.5 billion in debt. Over the next six years, it drew out the maximum dividends that it could and made the minimum investment in the infrastructure, until it sold the business for £8 billion six years after buying it. The newspaper reported:
“A Thames spokesman said the refinancing was simply designed to replace debt guaranteed by RWE with debt issued against Thames as a free-standing company”.
What does that mean? It means that a price tag that became £8 billion had been pinned to a business by RWE compared with the £4.3 billion it had paid originally, but that a bond had been used to take on the cost of the original loan. I am not an accountant— there is an eminent one opposite who can probably add a lot to this. Six years after being purchased, the Daily Telegraph reported:
“Thames Water is planning to shed 1,200 jobs, or 20 per cent of the workforce, as … its … parent company which also controls National Power, pushes ahead with plans to sell the business”.
The most important thing at the time was that the analysts felt that British management had been put under more pressure from Germany to slash costs to improve the balance sheet. That business could not be held to have been bought, run and sold in the interests of the taxpayers of this country.
Another example, one over which I agonise every week as I fly into Heathrow, is the purchase by Ferrovial of BAA. I do not think that anyone could claim that such a heavily leveraged purchase allowed Ferrovial to put anything like the capital investment into our infrastructure that we desperately needed to have access to the rest of the world, and indeed for the rest of the world to reach us. These are not small issues, and it was for those reasons that I raised them in the first place.
We are also moving into a very different regulatory environment, and it will be interesting to hear from the noble Lord, Lord Mogg. In an interview with the Guardian last week about his new job at the FSA, the noble Lord, Lord Turner, warned that a new cadre of higher-paid regulators would ask tougher questions about the health of financial institutions in the wake of the credit crisis. He also said:
“There will be more people asking more questions and getting more information than we were getting before. There is no doubt that the touch will be heavier. We have to make sure it is intelligent and focused on where the risks really are”.
The purpose of my amendment, which I shall not press—as the Government know—is to ensure that the noble Lord, Lord Mogg, his successors and the team that surrounds them have the powers to push before the curve. The noble Lord, Lord Jenkin, interestingly and accurately said that the key is regulators having the power to act ahead of the curve, not behind it. They should not have to clear up the mess that has been made, but should be able to ask the right questions and be tough enough before the event so that we do not end up with limp and lame companies that we as taxpayers have to bail out.
That is the purpose of my amendment. I have no intention of pressing it. I have had a lot of very good discussions with the Front Bench and with the Bill team. I think that we have begun to get somewhere, and I hope that my noble friend will confirm that. I think that it is somewhere important. I picked up something in the New York Times last Sunday that I had forgotten. It was a quote from The Great Gatsby in which Nick Carraway assesses the brutal world of Tom and Daisy Buchanan. He says,
“They smashed up things and creatures and then retreated back into their money or their vast carelessness … and let other people clean up the mess they made”.
I do not want to live in a country where the regulator spends his life only clearing up the mess that others have made. I want the regulator to have the powers to ensure that the mess cannot be made in the first place. I beg to move.
My Lords, it is a great pleasure to respond to my noble friend. He and I were introduced into your Lordships’ House almost 11 years ago to the day. We have always had a fellowship of spirit. I have learnt that my noble friend is very persistent. He has made this point in a number of Bills and has proved to be pretty successful. Although he will not press the point today, I assure noble Lords that I am listening carefully. It is essential that we have robust powers at our disposal to intervene in energy sector mergers on competition grounds or when we have genuine concerns about security of energy supply.
In the past two weeks, in addition to our debates today, two Oral Questions have focused on the security of supply and the proposed takeover by EDF of British Energy, which have brought to the fore some of the issues to which my noble friend referred, and which, I suspect, the noble Lord will soon return us to.
There is no question that our energy market is changing. There are greater levels of foreign investment; we are becoming more reliant on important energy; and we have all been feeling the effect of global energy prices. Many of those factors have benefits for our energy market, particularly in terms of foreign investment, but we have to face up to other serious issues to ensure that we have a long-term, sustainable energy policy and security of supply.
I can offer my noble friend reassurance that the Enterprise Act enables the Government to intervene in any merger where such intervention can be demonstrated to be a proportionate and necessary measure to protect a legitimate public interest. Three public interests have now been specified in UK law as legitimate considerations. The first is national security, which incorporates the concept of public security provided for in European law. The second is ensuring plurality, quality and standards in the media, and recently we added the stability of the UK financial system.
Energy and energy security are, of course, matters of legitimate public interest and are directly relevant to national security. I understand that there is widespread support for this view among other European states and case law supports this view. Our understanding is that under the existing public interest consideration of national security, if the Secretary of State had any security of supply concerns related to an energy merger, he could intervene. Having examined the matter carefully, we do not believe it is necessary to introduce a further public interest consideration relating specifically to energy.
Some perverse incentives might come about if we were to specify energy in the way the amendment suggests. I return to the debate we had last week in Oral Questions because we strongly support the liberalisation of Europe’s energy markets and firm action by the European Commission to tackle protectionist behaviour by member states. I think we have the support of the whole House in pursuing that. For the UK to propose identifying the energy sector as a special case when considering mergers might be taken to indicate a shift away from the firmly held position of the UK.
There is also the point, which is often made by Ministers when lists are proposed for specification in a Bill, that if we specify in legislation particular sectors that may be deemed to raise issues affecting the public interest, it can create uncertainty about what may be considered to fall within the concept of national security and potentially reduce our scope to apply it in mergers in sectors not listed.
On the second element of my noble friend’s amendment and the desire to ensure plurality of ownership, we believe that there are sufficient existing provisions designed to prevent excessive concentration of ownership. In response to my noble friend’s third point, I know from the discussions that he has had with my officials that one of his major aims is to increase transparency and accountability in the intervention process. I am pleased to confirm to the House and my noble friend that in response to these discussions the Office of Fair Trading has agreed to amend its guidance to make it explicit that in the event of an energy merger it would consult Ofgem and that Ofgem’s response would then be sent to the Secretary of State in full and made public.
I hope that in the context of this debate and my noble friend’s amendment I have assured him that his proposal is already covered and that the OFT’s amendment of its guidance will add to the transparency that he seeks. My noble friend said that he will not press his amendment, but I hope that he will consider that the Government have responded in a sympathetic but proportionate way to the issues he raised.
My Lords, I thank the Minister. I not only accept what he said, but I wish to add that his department has been extraordinarily courteous and has gone to a lot of trouble in reaching the point that we have managed to agree. I am grateful for that. My dearest hope is that I will never have to stand up and say, “I told you so”. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
32B: After Clause 91, insert the following new Clause—
“Nuclear power generation: report on operation of market
(1) The Secretary of State shall, no later than two years following the commencement of this section, and every two years thereafter, report to Parliament on the operation of the market in nuclear power generation.
(2) Reports under subsection (1) shall include an assessment of the extent to which any one nuclear power generator has a dominant market position.”
The noble Lord said: My Lords, I am conscious that dinner time is approaching, and I shall be as brief as possible. The amendment follows on very well from the one moved by the noble Lord, Lord Puttnam, and the Minister’s remark that he would support—I hope I quote him correctly—the liberalisation of the European energy market. The difficult question is how that liberalisation will be made to happen. I go back to the exchange that we had in the House during Oral Questions on 21 October. I expressed a fear of overdominance by Electricité de France or its English subsidiary, known as EDF, once it had acquired British Energy and was building four new nuclear reactors, as it proposes to do. This is against a background whereby EDF already points out with pleasure that it has 6 million customers in the United Kingdom and that over a quarter of the UK population depends, in its own words, on EDF for their electricity. I suggested to the Minister that it would be wise for the Government to take a substantial minority stake in EDF Energy. This point was taken up by the noble Baroness, Lady Symons, who asked:
“Do the Government have any intention of having a golden share in our nuclear industry in order to protect what will be a vital British national interest? Some of us feel a little uncomfortable about there not being equal access to markets in France”.—[Official Report, 21/10/08; col. 1046.]
That was a very gentle way of putting it, but both those suggestions were turned down by the Minister, who politely dismissed them saying that the Government intend to take the government share in British Energy in cash, which would be used to decommission old nuclear stations.
At the moment, we have a split attitude to EDF. There is a twofold problem. On the one hand, the Government welcome EDF buying out British Energy and being ready to go ahead with building new nuclear power stations in this country. On the other hand, EDF already has 6 million customers. I declare an interest; I am one, and from my experience, 6 million customers are already too many. On 22 September, I wrote a letter to the managing director of customer relationships pointing out that I have two different tariffs for my warmwise electricity. That was five weeks ago, but I have not had an answer. Equally, I received a very pleasant piece of paper inviting me, like many others, to claim my four free, energy-efficient light bulbs. I and others in my family claimed them, but none of us has received them.
My Lords, my noble friend did better than I did because I have not. From a customer point of view, that is at the heart of what we have to consider in future relationships with EDF. In July, EDF’s gas price increased by 22 per cent and its electricity price increased by 17 per cent. It was announced one day and came into force the next, so we cannot expect EDF to be frightfully popular with individual customers at the moment. The bigger question is the big scale. EDF is an experienced generator of nuclear power. It operates 58 nuclear stations in France and is building a new facility at Flamanville.
At that same Question Time, the noble Lord, Lord Tomlinson, said that he considered that there was a moral obligation on the French Government to open up their domestic energy market to free competition. The noble Lord, Lord Hunt, as today, urged liberalisation of the market in Europe. The fact is that that will not happen. You cannot see President Sarkozy allowing it to happen in France. In that context, I ask the Minister to look at our position vis-à-vis EDF. It is worth remembering that, even two years ago, other electricity generating companies complained about EDF’s abuse of dominance in the industry.
Against that background I have tabled the modest proposal in the new clause, which would require the Secretary of State every two years to report to Parliament on the operation of the market in nuclear power generation, including an assessment of the extent to which any nuclear power generator has a dominant market position. That is not asking for very much at this stage, and I hope that the Minister will be able to accept my suggestion.
After all, this is the beginning of an important new stage in power generation in Britain. It is better to establish now how to make certain that we are getting information and protecting our interests rather than to wish in five years’ time that we had done it when this was all beginning. It is therefore a small step in the right direction that I suggest: regular reporting to Parliament. I very much hope that the Government will be able to accept it. On that basis, I beg to move.
My Lords, I was very interested to hear the noble Lord, Lord Renton, moving his amendment, but the other area of market dominance where we have a problem is that of size. I suppose that that is a production market position. It concerns not just the British Energy sites but those of the Nuclear Decommissioning Authority. That is of equal importance in terms of future monopoly.
My Lords, let me start by commenting on EDF. I have nothing to add to what I said in the House last week when we debated this. The European Commission will investigate the EDF takeover of British Energy. That investigation will take account of the impact of the transaction on the UK market, including many of the points raised today. The EC will also consult Ofgem and the Office of Fair Trading as part of its investigation.
The Government have agreed with EDF that the company will sell land to other potential nuclear operators at some specific sites in certain circumstances. We hope to accelerate development of new nuclear power stations in the UK by making desirable sites available to at least one further potential operator. I understand from my officials that there is considerable interest among other potential operators in those sites and that opportunity.
The Government have been extremely active in urging liberalisation within the EU. It is fair to say that the third package of internal market legislation will bring about a real improvement in the way that energy markets operate across the EU. It will make EU energy markets more transparent and competitive and create opportunities for UK companies to invest and compete in those markets. We are making some progress in that area, which I believe is fundamental to ensuring security of supply. Equally, we should welcome foreign investment in the UK. If a company is prepared to invest huge sums of money in the UK, surely that is a mark of confidence in the UK that we should welcome.
We do not need the amendment. We already have robust, independent authorities able to investigate and inquire into competition in energy markets. I said in response to my noble friend Lord Puttnam that we have the intervention powers that we require under the Enterprise Act. I have made clear that, in the interests of transparency, the OFT guidance will be amended to ensure that Ofgem’s views are considered and made available. We expect Ofgem, the Office of Fair Trading and industry to contribute to any competition scrutiny. We expect them to take an objective view of the implications of the proposal for competition in any affected markets in future.
We have the right structure to enable the competition authorities to intervene and take a view. We have the intervention powers of the Secretary of State under the Enterprise Act. On nuclear power, I have said that we have the opportunity to make sites available to other companies.
I end with the conclusion that the very fact that this country is attractive to foreign investors is a mark of confidence in the UK and in the stability of our arrangements, which I am confident will play an important role in ensuring the long-term energy supply which all noble Lords want.
My Lords, no one would object to or disagree with the noble Lord's final sentence. I am disappointed that he does not feel able to accept my amendment. It would be very helpful to Parliament to have such a regular report every two years, but there it is. I only hope that he will not in five years’ time regret his refusal tonight. That said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 94 [Parliamentary control of subordinate legislation]:
33: Clause 94, page 83, line 16, after “contains” insert “or regulations which contain”
The noble Lord said: My Lords, I hope not to detain the House too long on this important matter. This is a minor, technical amendment. Clause 94 provides that Orders in Council, orders and regulations under the Bill are generally subject to the negative resolution procedure. Subsection (2) sets out the exceptions to this. Our amendment clarifies that the regulation-making as well as the order-making powers set out in subsection (2)(a) are subject to the affirmative resolution procedure. I beg to move.
On Question, amendment agreed to.
Schedule 5 [Repeals]:
34: Schedule 5, page 139, leave out lines 35 to 44 and insert “—
(a) subsection (1A)(a), (b) and (c), and (b) subsections (1B) and (1C).”
(a) subsection (1A)(a), (b) and (c), and
(b) subsections (1B) and (1C).”
35: Schedule 5, page 140, leave out line 6
36: Schedule 5, page 140, leave out lines 10 and 11
37: Schedule 5, page 140, leave out lines 13 to 16
On Question, amendments agreed to.
Landsbanki Freezing Order 2008
rose to move, That the order laid before the House on 8 October be approved.
The noble Lord said: My Lords, before I turn to the two instruments that we are considering this evening, I should like to say a few words of a personal nature.
It is a very great honour for me to stand before your Lordships for the first time in this House. I want to begin by thanking the whole House for the warm welcome that I have received from all sides since my introduction last week and to extend my grateful thanks to the staff of the House, who have been similarly welcoming and supportive. We are truly fortunate to be so well served.
I have always—until right now, at a safe distance—held the House in the highest respect both for the quality of its debates and for the depth and breadth of its expertise, which allow it to frame national debate and hold the Government to account so rigorously. I come from a business background, so it will take me time to familiarise myself with being “the Government”. I beg your Lordships’ indulgence while I find my feet.
I think I am right in saying that I am only the second life Peer to be a Treasury Minister, but I tread with caution in the company in which I now find myself. The House has, at the last count, four former Chancellors of the Exchequer, two former Governors of the Bank of England and three former permanent secretaries in the Treasury. There is also a host of other noble Lords with strong backgrounds in banking, accounting, finance and economics. I hope to benefit from all your Lordships’ wisdom in the exchanges ahead.
I have taken the title Baron Myners, of Truro in the County of Cornwall. I was fostered, and then adopted, by a Cornish family. I think it would be described as blue-collar. I had the benefit of a fine education, courtesy of Cornwall County Council. I was, to plagiarise the words of Senator Biden, the first in my family for a thousand years to go to university. Cornwall is a very special place to me, and to this day represents one of my two great passions in life; the other is contemporary art. My father was a fisherman and a small shopkeeper, and it was at his side that I learnt the basics of small business.
It took me some time before I realised that business was to be my metier. First, I embarked on a career as a schoolteacher in inner London. Then I was a financial journalist: ironically, 30 years ago, writing about the secondary banking crisis for the Daily Telegraph. After that, I entered the world of business and finance. I am fortunate that this career has led me to sitting on the boards of a number of major companies and financial institutions, including being a member of the Court of the Bank of England and a director of a major sovereign wealth fund. I have also, in recent years, developed an increasing interest in wider public policy and institutional matters, and my work in this respect has included chairing the Low Pay Commission and the Personal Accounts Delivery Authority and acting as a trustee of Tate.
It is clear that a competitive business environment has a vital role to play in delivering economic efficiency, but that it is also required to act with integrity and responsibility. In my business career, I have actively promoted the benefits of good governance and effective regulation, and I will continue to do so in my ministerial post. My business career has taught me the importance of a strong banking system that inspires confidence and plays a critical role in supporting a strong economy, to the benefit of all.
In recent months, the Icelandic economy has experienced increasing difficulties. In July, the IMF’s mission to Iceland concluded that the Icelandic banking sector faced significant risks. On 29 September, the Icelandic Government acquired a 75 per cent stake in Glitnir, nationalising Iceland’s third largest bank. This was immediately followed by further rating agency downgrades for all Icelandic banks and their subsidiaries. On 7 October, the Icelandic Government passed emergency legislation in an attempt to stabilise the financial system in Iceland.
The new powers are wide-ranging and had immediate effect. The Icelandic authorities were able to take various steps, including appointing receivers to take control of the bank Landsbanki Islands and to deal with its assets. Despite repeated efforts to seek reassurances at official and ministerial level, the UK Government could not gain satisfactory clarification from Iceland of the position of UK creditors in the administration of Landsbanki. This was of serious concern, as certain statements made by the Icelandic Prime Minister indicated that while Icelandic depositors would be protected, the rights of other creditors, including those in the UK, could be prejudiced—a breach of the EEA treaty. It was also unclear whether the Icelandic Government were prepared to honour the obligations to depositors in Landsbanki’s UK branch—a requirement under the EU deposit guarantee scheme directive. Under the terms of the directive, Iceland’s share of compensation to Icesave depositors was in the region of £2.2 billion.
I turn to what brings us here today: the Landsbanki Freezing Order 2008 and the Landsbanki Freezing (Amendment) Order 2008. The first order was made on 8 October 2008, because the Icelandic Government, their authorities and Landsbanki appeared to be on the brink of action that would be to the detriment of the UK economy, including the detrimental treatment of UK depositors and consequential burdens on the banking sector. At a time when saver confidence was fragile, it was necessary to take action to help to safeguard the position of UK customers and depositors and to prevent economic damage to the UK. It was also necessary to take such action to stem the risk of any contagion in the UK financial sector as a result of Landsbanki’s financial difficulties. The order has ensured that assets that belong to Landsbanki and are controlled through its London branch remain in the UK until the freeze is lifted.
The second order simply makes a few minor, technical changes to clarify the order. It does not change its substance. The order freezes only funds relating to Landsbanki. Furthermore, as envisaged by the 2001 Act, the order gives the Treasury the power to license exceptions to the freeze. Granting licences is an integral part of the Treasury’s ongoing role in relation to the freezing order, particularly in minimising potential harmful consequences while providing the necessary safeguards. The Treasury’s approach has been to publish general licences and guidance to deal with industry concerns. It granted a general licence the day after the order was made. This dealt with the concern to allow the London branch to continue its commercial finance operations, on which a number of UK businesses depended for their cash flow. This licence also confirmed a broad range of transactions that were permitted, including allowing third parties to set off and net out arrangements where Landsbanki was the counterparty. A further licence was granted on 13 October to reassure a wide range of market participants who might otherwise deal with frozen funds. The Treasury has also published extensive guidance to assist people who may be affected by the order or licences, and it will continue to grant licences and offer guidance as appropriate.
The principles behind the licence granted by the Treasury are that the London branch is not to repatriate funds back to its head office in Iceland or elsewhere in its banking group, but the core commercial financing business is allowed to continue. Business customers can continue to deal with the funds in their accounts, and other financial institutions and third parties are given protection under the licence for a wide variety of dealings with frozen funds.
Since the order was made, the Government have continued to negotiate with the Icelandic authorities to agree a mechanism whereby the Icelandic Government can honour their obligations to UK depositors and ensure the fair treatment of UK creditors. In particular, the Bank of England has provided a short-term facility of up to £100 million for the London branch of Landsbanki. This was made available on 13 October to help to ensure an orderly wind-down for Landsbanki that will maximise the return to UK creditors.
The freezing order was made under a power in the Anti-terrorism, Crime and Security Act 2001. This Act includes a broad range of provisions and is not only about countering terrorism. The power enables the Treasury to make a freezing order where the Treasury reasonably believes that action to the detriment of the UK economy, or part of it, has been or is likely to be taken by a foreign Government or a resident of a foreign country or territory. I emphasise that the UK’s action was not taken on the basis of anti-terrorism provisions in the Act. The action was deemed necessary because the Icelandic Government could not clarify the position of UK creditors in the administration process and there was therefore a threat to UK economic interests. Their actions also appeared to be in breach of Iceland’s obligations under the EEA treaty, so we also alerted the European Commission to our concerns and our decisions.
On 9 October 2008, the administrators of Landsbanki transferred its domestic assets to a new entity, New Landsbanki. The London branch of Landsbanki Islands was left in old Landsbanki. This action appeared to support previous concerns about Iceland intending to favour its own creditors.
The Government believe the order to be a necessary and proportionate measure to protect the assets of UK customers of Landsbanki and to safeguard vital UK economic interests. The Treasury considers that the freezing order should remain in place until the Government have successfully agreed with the Icelandic authorities a mechanism whereby the Icelandic Government can honour their obligations to UK depositors and ensure the fair treatment of UK creditors. As such, I commend the order to the House. I beg to move.
Moved, That the order laid before the House on 8 October be approved. 28th report from the Joint Committee on Statutory Instruments, 29th report from the Merits Committee.—(Lord Myners.)
My Lords, it is my privilege to follow the maiden speech of the noble Lord, Lord Myners. A maiden speech is an important rite of passage in your Lordships’ House. The noble Lord has nicely demonstrated the qualities that he will bring to our deliberations. As he told us, he started out as a teacher and a journalist. I am sure he will find that the dual skills of dealing with an unruly class and a way with words will stand him in good stead.
The noble Lord is principally known for his outstanding career in the City, including being chief executive of the fund manager Gartmore and, more recently, as a mainstay of many FTSE boards. He is perhaps best known to Members of your Lordships’ House as the author of reports for the Treasury on equity investment and, more recently, as chairman of the Personal Accounts Delivery Authority, which the noble Lord will find is still the subject of the Pensions Bill, which is keeping us busy even this week. He and I share a common history in membership of the Court of the Bank of England. I look forward to putting that shared knowledge to good purpose with him when the Banking Bill is scrutinised here in the next Session.
As well as welcoming the noble Lord to this House for the qualities that he will bring as an individual, we welcome him as a Treasury Minister. It is an important role, and it has been nearly 20 years since we had a full-time Treasury Minister in your Lordships’ House. I know that the whole House will join me in welcoming the noble Lord in both his personal and his ministerial capacities.
Maiden speeches are not times for controversy, but when a Minister makes a maiden speech on government business it is difficult to avoid that entirely. So I must now turn to the orders, which the Minister has introduced so comprehensively. I am afraid that we are now on to business as usual. Let me say at the outset that we support the Government in taking action to protect the interests of UK depositors in Landsbanki. If both the initial order and the amending order, which was tabled last week, are what are needed to achieve protection, they have our complete support.
Questions have been raised about whether the Government were over-hasty. On 8 October, on the radio, the Chancellor of the Exchequer said that the Icelandic Government had “no intention of honouring” their UK obligations. But the Icelandic Government have released the text of the telephone conversation between the Chancellor and the Icelandic Finance Minister which shows that this did not appear to be quite the truth. Will the Minister clarify on what basis the Chancellor made his statement? If the Icelandic Government were still seeking a way to honour their obligations, was the initial order appropriate?
Last Saturday, it was reported in the Times that a potential IMF rescue package will go ahead without any special provisions being made for UK claims. Only a few days earlier, the Treasury was briefing that the IMF deal was dependent on sorting out UK claims. There was also talk of the Government possibly lending the Icelandic Government up to £3 billion in order to help them to repay UK savers. Has that now gone away? What is the current status of the IMF negotiations? Will the Minister say whether and to what extent the UK’s position is being protected in those negotiations?
What are the financial implications for UK taxpayers? The freezing order will, I assume, have to be lifted at some stage, which will mean that the assets will pass to the administrator or liquidator of Landsbanki. What will happen then? The Government will have bankrolled the repayment of deposits to UK retail depositors, not all of whom are the liability of the Financial Services Compensation Scheme. If Landsbanki’s assets are insufficient to pay all its creditors, we will not get all our money back. How much taxpayer money is thought to be at risk? What sequence of events is now expected to bring this to a conclusion? How long will it take to sort out?
The Minister will be aware that the Icelandic Government and the citizens of Iceland are deeply offended by the use of anti-terrorism legislation to freeze their assets, as well as some of the Government’s language that has been used around this. Iceland has repeatedly said that it should not be tarred with a terrorism brush. When the Anti-Terrorism, Crime and Security Act 2001, one of the many pieces of rushed legislation to which we have become accustomed in the past 10 years, was considered in your Lordships’ House, we sought to confine those powers to terrorism. But that was rejected by the Government. Eventually the Government conceded a review of the legislation, which was led by my noble friend Lord Newton of Braintree. He recommended that the non-terrorism powers clearly in the anti-terrorism Act should be in mainstream legislation so that anti-terrorism powers could be clearly marked as such. The Government refused to do that.
The result is that, in order to achieve the protection of UK depositors, the Government have used legislation which carried the stigma of terrorism. On reflection, do the Government not think that it would be better if a more neutral legislative home for these powers was sought? Earlier this year, the Government took sweeping powers to deal with failing banks in the Banking (Special Provisions) Act, but clearly those powers did not equip them to handle the activities of all foreign banks operating in the UK.
As I mentioned, we will shortly have the pleasure of scrutinising the Banking Bill which is currently in Committee in another place. Will the provisions of that legislation be adequate to deal with situations such as Landsbanki in future? Or do the Government intend to continue to rely on the provisions of anti-terrorism legislation? I hope that the Government will not bypass this legislative opportunity to secure direct powers to deal with all potential threats to our financial system.
I think that the best that can be said of the freezing order procedure is that it has been an inelegant one. Others have passed harsher judgments. Early on the morning of 8 October, the Government issued one order, but the detailed text was not available until much later in the day, which was not helpful. The following morning they issued a general licence which corrected some of the defects of the original order. Four days later, on 13 October, they issued a second general licence which revoked the first licence but reinstated much of its contents. It has been put to us that the second licence is,
“in such incomprehensible language that it remains unclear to the market generally what activities are permitted”.
That was followed by a “clarification” issued on 17 October which purported to deal with what is and is not “frozen funds”, but I am told that these assertions are difficult to reconcile with the wording of the order itself.
Lastly, on 20 October, the Treasury issued another order which, according to the Explanatory Memorandum, makes,
“minor changes to assist clarity”.
If that description of “minor” is correct, I fail to see why the Treasury felt that it should disapply the usual 21-day rule for laying such instruments.
The impression which this has left in the financial community is of a poorly thought out sequence of events and lack of preparation. More importantly, the first order brought the markets in repos, swaps and derivatives involving Landsbanki to a halt, and this has challenged the credibility of the use of English law as the governing law in these global transactions. That in turn may well have long-term implications for the UK’s pre-eminence in the global financial services industry.
Can the Minister say whether the Government now believe that, two orders, two general licences and one clarification later, all the angles have been covered? Is the Treasury planning to review the effectiveness of its actions so that it learns lessons in case we are unlucky enough to find ourselves in this position again? Will the Minister reflect on the accountability of the Executive to Parliament and whether it is adequate? Before either House of Parliament had considered the first order, a second order varying it was laid, and in the mean time it had been considerably varied by two general licences for which there is no parliamentary scrutiny. There has also been a document of clarification which, according to some, clarifies nothing and certainly has no parliamentary scrutiny. The Treasury website sets out all this information, but the Minister can see that the sequence of events poses challenges to parliamentary accountability.
I am sorry to burden the Minister with so many questions on his first outing at the Dispatch Box, but these are important issues and I look forward very much to hearing his response.
My Lords, I join the noble Baroness in welcoming the Minister both to this House and to his new job. We are particularly pleased to have a proper Treasury Minister in our midst—not that the noble Lord, Lord Davies, was in any sense improper, but at times I felt that he was dealing with our questions with one hand tied behind his back because he was not of the Treasury, as it were. We are glad that the noble Lord, Lord Myners, will be able to take our concerns back to the Treasury with even greater speed than was possible with the noble Lord, Lord Davies.
I will not repeat the long list of achievements of the noble Lord in the City, but just two or three stood out for me. I note that he makes much of his Cornish upbringing. I can only assume that he has imbibed some of the liberal principles with which we associate that county and brings them to all his work in Parliament. He also mentioned contemporary art, and I see that he was chair of the trustees of the Tate Gallery. It says he that he “is” a trustee of Glyndebourne. I do not know whether he has been allowed to keep that on or has had to give it up as well, but I hope that the noble Baroness and I are not so assiduous that we keep him from both those enjoyments of life.
I turn to the legislation. As the noble Baroness has said, a number of questions have been raised, not least by my colleagues last week in debates on the Counter-Terrorism Bill about whether it was appropriate for this action to be taken using a piece of legislation called the Anti-Terrorism, Crime and Security Act. To most people, that sounds as though it relates to anti-terrorism, crime and security, but this action does not. I accept entirely that there are powers in the Act that can justify it, but at the very least it has given the impression that the Government have pushed the boundaries of what the legislation was intended to cover. Whether or not that is the case, it has obviously created difficulties in our relations with Iceland and caused confusion more generally. I have not heard it put in quite the way the noble Baroness did; her proposal was that the section of the Act used to justify these orders would be better placed outside the anti-terrorism Act and put into a separate piece of legislation. Indeed, the provisions look as though they were parachuted into the Act from somewhere else, or added using scissors and paste. The Act does not flow, as it were, and Section 4, which was used to justify these orders, looks completely out of place.
I have a more general question about the legislative route taken. At the same time as the Government were instituting these orders, they were taking powers under the Banking (Special Provisions) Act for Kaupthing. In that case, they arranged for the retail deposits of Kaupthing to be shifted across to ING Direct while putting the bank into administration. Can the Minister explain why that route was chosen with Kaupthing and its retail depositors, but a similar procedure was not adopted for Landsbanki and the Icesave depositors? The great advantage for retail depositors with the Kaupthing route is that they have had access to their accounts all the way through. Equally, why was the remainder of the Kaupthing bank put into administration under the Banking (Special Provisions) Act rather than its assets being frozen? I am not suggesting that there is anything to hide here, but they are completely different routes and it would be useful to be given an explanation for it because I have not seen any so far.
The Minister spoke at some length about the licensing provision and the noble Baroness voiced perfectly understandable criticisms about the way that was brought about. I have just one question on that: have representations been made by any sector of Landsbanki account holders saying that they should have been beneficiaries of a licensing provision, but have still found their assets frozen when they feel that they should legitimately have access to them at this stage?
The noble Lord said a little about the timetable and the process going forward. I accept that we are at a point where things are progressing quickly and it is difficult to be totally precise. However, can he confirm that the Government have made a commitment that individual retail depositors will get all their money back and not just £50,000? I have read a number of suggestions to that effect. On the other bodies with deposits in Landsbanki—the local authorities, charities and businesses about whom there has been much discussion—can the Minister give us any sense of the likelihood of them getting a significant proportion or the majority of their deposits back? I realise that it may be impossible at this stage, but if he were able to say something, it would reassure many people.
We are not discussing the Kaupthing situation because the legislation under which the orders were made meant that they were passed using the negative resolution procedure, but as the Minister will be aware, the situation in respect of Kaupthing depositors, particularly in the Isle of Man, is causing considerable concern, not least because many of those involved were ignorant about the fact that their deposits were actually Isle of Man deposits. I shall come back to that point in a second.
Other problems have also been brought to my attention. Some people transferred their money out of the Isle of Man into Kaupthing in the UK several days before the order took effect and their money—their entire life savings—has, in effect, disappeared into a black hole. I would be grateful if the Minister could signpost them and other people who are worried about their deposits in the Isle of Man to whichever body he thinks is best able to give advice at this stage. As he will be aware, there is very considerable concern about this.
We shall have to return on another occasion to the whole sorry story about the collapse of the Icelandic banks because it raises broader issues. First, the relationships between the UK and Icelandic Governments were far from satisfactory; there are huge disputes about who said what to who and a childish spat has developed between the Chancellor and his opposite number in Iceland over what they were talking about. The whole thing looks an amateurish mess.
It raises big issues about how depositors in banks other than domestic banks get their information and how they decide on risk when the deposits are outside the UK. Many people—not least, local authorities—have found that their money is in jeopardy yet, as the noble Lord mentioned, the IMF was issuing clear warnings about the state of the Icelandic banks before the summer. In the Times on 5 July, Patrick Hosking, in his article “How safe is cash in a bank beyond UK regulation?”, described the depositor protection scheme in Iceland as being,
“a bit like relying on a pocket handkerchief as a safety net for an elephant”.
How right he was. Yet sophisticated treasurers and relatively sophisticated investors either do not read the Times or choose to ignore this kind of advice and then, when something goes wrong, they look to the Government to sort out all their problems. This is an unsatisfactory situation. Although protecting people from their folly is something the Government will never completely achieve, we need to look at this in the context of the Icelandic banking collapse and banking collapses elsewhere and the advice and advisory structures available to enable people to be more aware of what is happening.
This applies not only to the local authorities, who clearly should know better, but, as we have seen from our postbags, there is a major problem with people who took out accounts in Kaupthing, particularly in the Isle of Man, who were completely ignorant of the differences in the regulatory frameworks of the Isle of Man and the UK. No doubt people in Guernsey and Jersey who find that they have no depositor protection are learning for the first time what some of the differences between the jurisdictions are.
The simplistic part of me thinks that sending a gunboat to these places and sorting out their financial arrangements to bring them into line with the UK might have a lot to recommend it. I suspect, however, that that approach will not commend itself to the Government. The large number of distraught people who, to a greater or lesser extent, either were misled or allowed themselves to suspend disbelief is a problem with which we need to grapple in the months ahead.
However, the Government have acted decisively in a way that they believed protected people. It has protected people and we therefore support the orders.
My Lords, I, too, tender my warmest congratulations to the Minister and wish him every fulfilment and success in his new role.
I take up the point raised by the noble Baroness, Lady Noakes, which was to some extent echoed by the noble Lord, Lord Newby, with regard to the powers under which these orders are tendered. There is no reference to terrorism in Part 2 of the 2001 Act. Therefore, there can be no question as to, first, the efficacy and, secondly, the essential validity of an order made under Sections 4 and 14 of the 2001 Act. Even had there been a reference to terrorism, the golden rule of statutory interpretation would have applied, which is that, where the grammatical language of a provision is clear enough, even though Parliament may have had some different intention at the time, the ordinary grammatical words of the provision should apply. That applies to documents, including wills, and is of many centuries’ standing. Therefore, there does not seem to be any real question about using these powers in the way that they are used now.
My Lords, if the noble Lord studies what I said in Hansard, he will find that I did not suggest for one moment that the laws were not capable of being used. The burden of my argument was that they were perceived as being related to anti-terrorism; indeed, I also referred to the review carried out under the auspices of my noble friend Lord Newton, which recommended that the non-terrorism aspects of the Act should be removed to mainstream legislation.
My Lords, I take the noble Baroness’s point, but it would be a luxury to redraft the Act in order to give Parliament powers that it clearly already has and is entitled to use.
It is not only entirely lawful for these powers to be used in this way but entirely just. The Icelandic Government—so far as I understand, this is still their position—have totally guaranteed the deposits made in Icelandic branches but have not extended that guarantee to any deposits made outside Iceland. That must breach the European Union rule in this regard, in that it unlawfully discriminates against those who are outside that country’s shores.
Many questions remain to be answered. The Statement made by the Chancellor of the Exchequer on 8 October was to the effect that these freezing orders would be made for the purpose of safeguarding the position in Britain of funds belonging to Landsbanki until such time as the position with regard to United Kingdom creditors was made clearer—I think that those were the exact words. What happens then? If the Icelandic Government say, “The guarantee that we have given to our own people will be extended to everyone”, then fair enough; there will be no problem. If they do not give that guarantee, what then happens to these funds? Will they be sequestered? If so, will they be there for division among United Kingdom charities and local authorities? I am conscious that my own county, Cardiganshire, has £5.5 million deposited in this way. What sort of dividend can be expected?
On 13 October, the Chancellor of the Exchequer announced that £100 million would be made available to Landsbanki in order to assist it in its difficulties. Were any counterundertakings given by Landsbanki in that regard and, if so, what were they? There must be something in the nature of a contract here.
Local authorities, such as my own county council in Cardiganshire, were exhorted time and again by the Treasury to try to gain the highest possible interest from their deposits; indeed, from time to time there was some element of threat. The Treasury may or may not be liable for negligent statements in that connection, although the fact of a crash would not make it negligent. Who could have foreseen a year ago exactly what was going to happen? Beyond that, the Treasury does not seem to have given a clear picture of any fine-toothed-comb examination of the condition of Icelandic banks, balancing assets against liabilities and all sorts of eventual possibilities.
The question remains: is there any possibility of a legal responsibility—or, if not that, a moral responsibility—regarding the Treasury’s relationship with charities and local authorities? It is clear that, some months before the crash occurred, there were signals. Did the Treasury then communicate with those on whom it had lent earlier to say, “Look, the situation has now changed. You are now sailing into danger”? I would welcome a reply to those questions.
My Lords, I congratulate my noble friend Lord Myners on his appointment to the Government’s Front Bench and on his informed contribution to our debate. His reputation comes before him and he arrives at a time when the Government need his considerable financial sector experience in the House. We all look forward to his many contributions to our debates in the future.
I want to say a few words about the impact on Iceland of what is happening. Before doing so, I declare an interest: my wife is an Icelander. She retains her Icelandic nationality, although she is a citizen of the United Kingdom, and we do not have any deposits in any Icelandic banks. I have visited Iceland many times over the years, and there is constant, almost daily, contact between my family, my wife and her family in Iceland.
Our family in Iceland tells us that everyone is profoundly affected by the current crisis. People in Iceland believe that there is a real risk to their savings, despite government assurances to the contrary. They believe, in particular, that there is a risk to the savings of the elderly, who were advised to invest in products that are believed to be at risk. There is already public debate over a proposed reduction in pensions, which is frightening generations of people. Some Icelanders have foreign currency mortgages and are particularly vulnerable to the loss of their homes. There is fear of massive inflation if the currency is to be refloated. Prices are already beginning to rise, some by 50 per cent. Many people are worried about a possible exodus of parts of the working population unless an early solution is found.
There is worry over students abroad being called home. The banks in Iceland are seeking to be flexible on necessary expenditure, although that obviously does not deal with the effects of currency devaluation. For many Icelanders, the opportunity to travel abroad may well now be frozen. As my sister-in-law has said to me on the phone, “I am a prisoner in my own country”.
There is a strong feeling that action taken in the case of Kaupthing was premature. There is concern that discussions with the Russians over financial support should have been interpreted as an invitation for Russian domination, a suggestion made in the British press. The proposition is regarded in Iceland as ludicrous. There is also concern that the actions of a few Icelandic oligarchs, as I would almost describe them, should be blamed on the whole population of Iceland. The population of Iceland is not to blame for what has happened. Finally, there is deep-seated resentment over the use of counterterrorism legislation.
My view is that there is a complete failure of Icelanders to understand that alleged statements by David Oddsson on central bank deposits, which triggered a sovereign debt downgrade, placed the UK Government in an impossible position. That statement, with reported suggestions that attempts might be made to move Icelandic assets out of the United Kingdom, meant that, if the Government had not acted, they would have been accused of dithering. That was not going to happen.
Our mistake has been not to separate out the issue of economic well-being and damage into self-standing legislation. I understand that there were some calls for that in recent years—the noble Baroness, Lady Noakes, referred to this—but that we simply did not have the legislative peg and opportunity to do so. We really need to get this message over to the Icelandic people, because they do not understand the pressures that the British Government were under.
The transcripts of conversations between the two Governments, and statements by the ministerial team in Iceland and by David Oddsson, should be made available in their entirety. The fullest possible explanation of all Icelandic and British actions and discussions should be made available, otherwise the issue will fester like an open wound. I cannot exaggerate the impact of the Government’s action on the attitude of the people of Iceland towards the people of Britain and the resentment that it has generated. Far more information needs to be placed in the public domain so that we fully understand the position in which we have been placed.
I am concerned also about the artificial pegging of the krona by the Icelandic authorities at a rate of just over 200 krona to the pound, which cannot be sustained long term. The narrow spread between buy and sell in conditions where Icelanders are finding it almost impossible to buy sterling for foreign visits—they can buy, but only in very special circumstances—and for expenses incurred abroad will leave British visitors to Iceland feeling short-changed, yet Iceland has no alternative if it is to protect its economy and avoid massive, immediate inflation and an explosion in wages.
I am concerned also about the failure of the rating agencies within the United Kingdom to recognise the potential for difficulties. There have been references to reports in the British media, but why did alarm bells not ring when, earlier in the year and prior to the period of currency uncertainty in recent weeks, the currency fell 20 per cent against sterling, which itself was in difficulty, and when the Icelandic banks were paying 16 per cent on deposits?
What is the solution? Iceland must no longer be allowed to climb out of its only-too-frequent economic crises by way of devaluation, as has happened over the years. The banks need stability. Iceland needs to rebuild its financial system on currency stability and it needs the euro. Politicians in Iceland must grasp the nettle. People on the streets of Iceland say that they need the stability of the euro, yet many politicians there are locked into an anti-euro position, perhaps in part because of their concerns about having to make concessions in fisheries policy. The voice on the street in Iceland says: “Join the euro and stop the nonsense”. I hope that Iceland does so and that the British Government will play every part possible in trying to help Iceland through its current difficulties.
We have to understand the difficulties for the Icelandic population. If Iceland decides to proceed down the euro route, we must give it every possible support, because we will have its people on our side. If Iceland ultimately joins the euro, I hope that it will do so without having to concede anything on the fisheries front. Western European nations may demand greater access to Icelandic fisheries, but many of us would firmly oppose that. There is no alternative to the euro. I hope that my noble friend is able to take that position this evening.
My Lords, I, too, welcome the noble Lord, Lord Myners, to his new responsibilities. We are fortunate to have in the House the benefit of his tremendous commercial and financial experience. I trust that this debate will have given him some taste of the breadth of the area over which your Lordships’ House roves. On a single order, we have had discussions about the euro, cod fishing, security and banking regulation. The Minister’s task is formidable.
I wish to make only one point. I support the remarks of my noble friend Lady Noakes about the inadvisability of mixing anti-terrorism legislation with banking or financial regulation legislation. When legislation is introduced under the overriding banner threat of terrorism, it is not appropriate for it to be used for general financial regulation, any more than it is appropriate for it to be used for ejecting octogenarians from Labour Party conferences or for householders to be placed under surveillance for not recycling their waste properly. The House gives tremendous authority to the Government when they bring in such wide-ranging anti-terrorism powers, which should be as narrowly drawn and as narrowly used as possible. The consequence if that does not happen is that assurances given by Ministers are later called into question and it becomes more difficult for the Government to win support for future national security legislation.
I quite understand that Section 4 in Part 2 of the 2001 Act makes specific provision to allow this type of order to be made. I do not think that the House takes issue with that. The question is whether that legislative settlement is really appropriate. One has only to look at the questions and concerns that were raised at the time of the making of the order, including in Iceland. I have much sympathy with the points made by the noble Lord, Lord Campbell-Savours. For another friendly Government to be brought under the auspices of this legislation and for action to be taken against them under an Act that deals with anti-terrorism, crime and security cannot be right, when what we are dealing with here is the regulation of banking institutions.
I strongly support my noble friend’s common-sense argument that these powers need to sit in a dedicated banking Act and not within an anti-terrorism Act. If that happened, the noble Lord would no longer have to come to the House and defend this complex and inappropriate legislative settlement.
My Lords, I, too, welcome the noble Lord, Lord Myners, to the House. As it is his first day, all he has to do is agree with me.
In the 90 years since Iceland achieved political independence, this is the third time that the United Kingdom and Iceland have been in difficulties. The first time was, obviously, the military occupation in 1940; the second time was the cod wars; and now this. All are different issues, but I can well understand why the Icelanders feel unhappy about the way in which their neighbour, the United Kingdom, has treated them during the past 90 years.
I want to talk about the comparison made by the Prime Minister and the Chancellor between Iceland and Scotland. I understand the need for the unionist jig to be danced, generally for the people of Scotland and particularly for the people of Glenrothes, but I hope that the Minister will agree with me that Scotland and Iceland are not good comparisons, whereas, if it comes to it, Iceland, Jersey, Guernsey or the Isle of Man would be quite good comparisons. That is all I have to say. I am just concerned about the use of the crisis in which Iceland has found itself being used against the people of Scotland.
My Lords, I, too, congratulate my noble friend on his excellent maiden speech. I make just two points. First, the Act that we are concerned about is not just an anti-terrorism Act; it is the Anti-terrorism, Crime and Security Act. I agree that it is unfortunate that all those things were combined, but the title of the Act certainly entitles the Government to do what they have had to do.
I also think that the Government were right to take quick and effective action because, in any receivership, as we all know, the money goes to those with the loudest voices and the heaviest hands. The action of the Government has at least ensured that this matter will be cleared up in an orderly way.
My Lords, I join in the welcome to the noble Lord, Lord Myners. I speak as a member of the Merits Committee. We considered the first order on 15 October, reported on it and then considered the second order immediately after it was laid. We reported:
“By means of this Order, the UK Government are taking action to ensure that Landsbanki assets are not transferred from the UK until the position of UK creditors becomes more clear”.
At the same time, a Statement was made in the House by the Chancellor of the Exchequer, which stated:
“I am taking steps today to freeze assets of Landsbanki in the UK until the position becomes clearer”—[Official Report, Commons, 8/10/08, col. 279.]
When we reported to the House, we felt that we were not in a position to give any detailed advice. I had personally hoped that by today—three weeks after the first order was laid—the position would have become somewhat clearer. Although I welcome the opening explanation of why the orders were laid, whatever we may think of the rights and wrongs of that, I regret that so far we have not been brought adequately up to date with what has happened.
I do not want to repeat a lot of the things that other noble Lords have said, but the gearing between the United Kingdom and Iceland should not be forgotten. There are 60 million people in the United Kingdom and 300,000 in Iceland. Her Majesty's Government, in dealing with this matter, should remember that. As it happens, Iceland has the highest rate of literacy probably in the developed world—higher than we have here. Also, up until now, it has had a per capita income about the same as the United Kingdom.
However, the resentment notably referred to by the noble Lord, Lord Campbell-Savours, has amounted to a diplomatic problem that should be solved. I wish to interpolate here that I do not have any issue about the use of the Anti-terrorism, Crime and Security Act 2001. It was looked at and it is entirely correct that that Act can be used. However, 10 per cent of the population of Iceland presented a signed petition to the Icelandic Government, which stated:
“Gordon Brown unjustifiably used the Anti-terrorism, Crime and Security Act of 2001 against the people of Iceland for his own short-term political gain. This has turned a grave situation into a national disaster ... Hour by hour ... the actions of the British government are indiscriminately obliterating Icelandic interests”.