Report (3rd Day) (Continued)
Clause 135: Consumer redress orders
104B: Clause 135, page 104, line 5, at end insert—
“( ) Within six months of the coming into force of this section, the Secretary of State shall, following consultation, propose regulations that provide for collective redress by consumers of gas or electricity.”
My Lords, this amendment relates to the redress element of Part 6. I approve of the increase in protection for consumers in the redress provisions in the Bill and have supported them throughout. However, there is a dimension that is not there, and there is one that has been discussed with successive Governments but has never been fully put into operation. The present Government, in their consultation through BIS on consumer rights and protection in general, mentioned the possibility of moving to a system of collective redress.
In the energy situation, the whole structure of the market and the whole history of the scandals in relation to consumers underline the need to have some collective resolution of these matters. If you look, company by company, at most of the mis-selling and misrepresentation, the overcharging, the failure in billing and the wrong billing, right up until the very recent case where Ofgem fined ScottishPower, you will see that thousands, and in some cases tens of thousands, of consumers have effectively suffered from exactly the same mistake-cum-misdemeanour by the relevant energy companies.
At the moment, complaints against energy companies are running at an all-time high—you have only to look at the ombudsman’s figures and facts. The need for redress systems is very important, but if every individual consumer has to take that case either through the ombudsman or through the courts, the ombudsman’s agenda is going to get cluttered up and the courts are going to lead to individual decisions, which may be different in different parts of the country. A form of collective redress for everybody who has suffered from what the regulator will have found to be a mistake, or an error, or a breach of the licence or other regulations, affecting tens of thousands of consumers, needs to be treated in a somewhat different way.
I am not stipulating here precisely what way. There have been a number of formulations for collective redress in different sectors. The best of these was never put into legislation, but was dropped during the wash-up at the end of the last Parliament, because the Treasury was proposing very effective collective redress systems within the financial services sector.
The Government, in their draft Consumer Rights Bill, which is now being considered in pre-legislative procedures, have not followed up on what was in their consultation paper, which had a different formulation. In relation to gas and electricity, the degree to which there are large numbers of people suffering from the same act of a company, the fact that there are licence conditions attached to that and the fact that there is a whole structure of regulatory ombudsmen in that area, make it a relatively easy sector, in principle, for which to produce a system of collective redress.
My amendment requires the Secretary of State to come forward with regulations to that effect within six months of the passage of this Bill, so I am leaving the Minister and her colleagues a bit of time to do this, but I think the principle will be recognised. This would be pretty much well supported by, I think, all the consumer groups and many of those who have dealt with individual cases of consumer detriment which have arisen within this sector. I hope that the Government will consider this and, at least, give me some encouragement, if not tonight then in the future, that they will be looking in this direction. The way in which this industry has treated its consumers; the degree of mistrust among them and the level of redress that individual consumers have achieved in this sector show the need for something more systematic. I hope that the Minister and her colleagues will use this amendment to have another look at the issue. I beg to move.
My Lords, I thank the noble Lord, Lord Whitty, for this amendment. Amendment 104B would require the Secretary of State to consult on and then bring forward regulations to allow collective redress for energy consumers. I agree with the noble Lord that consumers need to get the redress that they are due by the most straightforward means available. I fear, however, that the introduction of collective redress in the energy sector would not achieve these aims. My concerns centre mainly on the time and cost of bringing such cases.
The noble Lord has said previously that collective redress offered a quicker and cheaper solution for cases than if cases were pursued by individuals either through the ombudsman, Ofgem or the courts. This presupposes that action through the courts is the only option available where an issue affects more than one consumer. That is not the case. One of the reasons we have introduced the consumer redress order powers in this Bill is to provide consumers with the means of redress without the need to initiate individual complaints.
Consumer redress order powers offer an alternative to lengthy and expensive litigation in that investigations are initiated by Ofgem to benefit all affected consumers, with no legal fees to pay. These powers benefit consumers without the need for consideration of the relative merits of an opt-in or opt-out, as orders can be made on behalf of all affected consumers, whether they come forward or not, including many who may not have been aware that they have suffered a loss. The powers are proportionate, and build on the redress available to consumers through the ombudsman and the power to impose penalties on energy companies when things go wrong.
Collective redress, on the other hand, cuts across the role of the ombudsman as the most cost-effective and simplest form of agreeing redress when things go wrong. Collective redress opens the prospect of court action becoming the first route to redress. I ask: what is wrong with that as an approach? It is true that some would be happy if this were the case, as collective redress inevitably requires third parties or intermediaries to take action on the consumers’ behalf. In the event that a case is successful, these parties will seek to recover their costs from either the pay-outs due to individuals or from the energy companies. The problem with this approach is therefore that it introduces an entirely new cost that these companies will pass on to consumers. Permitting private collective redress would not just encourage advocates intent on righting things when consumers are harmed; it could also encourage litigation on the finer points of law. The cost of litigation is not cheap and this would again be passed on to consumers as a whole.
As has been referred to in previous debates, the draft Consumer Rights Bill puts forward proposals to amend the existing collective redress regime for cases where competition law has been broken. These proposals, together with the consumer redress order powers in this Bill, represent a far more streamlined and cost-effective means by which consumers can be compensated. I hope that the noble Lord is reassured by my explanation and, on that basis, will withdraw his amendment.
My Lords, I am disappointed by that reply because I do not think that the Minister is right in the description of consumer law. You could write the regulations so that you would have to go to the ombudsman before going to such a system. The cost to consumers of starting a process in the court is prohibitive but, were it a collective provision and the ombudsman had found in a certain way, that cost would fall on no one.
If you take the equivalent of the PPI scandal in the financial sector, there is not a collective redress but there is a collective problem. If anything, the banks probably have paid out more money than they otherwise would have done had they offered a collective form of redress right at the beginning of the process. They have been obliged to try to find all sorts of people who may or may not have been aware that they had been mischarged.
However, it is clear that the Government are not prepared to pursue this issue in that context, which is disappointing. I also think that the briefing that the Minister has is not entirely in parallel with what is being discussed in BIS and in the consultation on consumer protection in other arenas. This is an area where common problems arise much more frequently than in the normal buying and selling and contractual arrangements throughout the economy. That is because everyone has similar Bills and similar charges whereas in other places there are differentiations to be made. Therefore, this is a prime potential sector for collective redress. However, for tonight, I accept the Minister’s rebuff and I will say no more. I beg leave to withdraw the amendment.
Amendment 104B withdrawn.
Clause 136: Fuel poverty
104C: Clause 136, page 104, line 14, leave out “a target date for achieving the objective” and insert “targets for 2020 and 2030 for achieving energy efficiency improvement of dwellings of low income households and for the reduction of total numbers of the fuel poor, leading to the eradication of fuel poverty.
“(2A) The Secretary of State shall set further targets beyond 2030 in line with the 2008 Climate Change Act to reduce greenhouse gas emissions by 80 per cent by 2050.”
My Lords, perhaps I may interrupt the noble Lord. If he is proposing to speak to this amendment, he should move it first.
My Lords, I am referring to Amendment 104C, which was debated earlier. I am not going to move it. I am just registering with the Minister that, had it fallen differently, this amendment would have been the most important one in the first group and I would have called a vote. I therefore hope that the Minister and her colleagues will have another look at it.
Amendment 104C not moved.
Amendments 104D to 104G not moved.
104H: Clause 136, page 105, line 3, at end insert—
“( ) For the purposes of allowing a comparative assessment of progress in addressing fuel poverty, assessments under this section must include, until at least 2018, the extent of fuel poverty as measured according to the definition set pursuant to the Warm Homes and Energy Conservation Act 2000.
( ) Reports under subsection (5) shall also include an assessment by the Secretary of State of the impact and projected impact of implementation of the strategy on—
(a) the mortality rates and health needs of persons living in fuel poverty;(b) the cost of cold-related illness to the National Health Service and wider economy;(c) the level of debt as a result of energy bills, and the number of unpaid bills;(d) any change in the number of jobs created and supported as a result of implementing the strategy; and(e) emissions of carbon dioxide and other greenhouse gases from fuel poor households.”
My Lords, these amendments relate to the strategy which will be required under Clause 136. As I indicated earlier, the clause itself should be beefed up. At the moment the Government clearly think it can all be done by secondary legislation. But whatever the substantive content of the strategy, and whatever definition of fuel poverty is adopted, careful and regular reporting and monitoring of progress on improving the energy efficiency of the houses in which low-income households live, and on reducing the total numbers of the fuel poor in our economy, are important to hold the Government and the supply companies to account. This reporting would also ensure that the policies the Government intend are pursued, whether they are the current ones via the ECO or, to some extent, the Green Deal, or whether they are new policies that the Government come up with at a later stage.
Noble Lords earlier argued for it to be a taxpayer-resourced intervention in improving energy efficiency. As my noble friend Lord O’Neill said earlier, we need to measure the success of that policy in terms of the energy efficiency of buildings, and to look year by year—and in particular to set target years—at how the energy efficiency of our dwellings is improving, as other noble Lords have acknowledged. Even now, after nearly 20 years of activity in trying to improve the quality of our buildings, we fall far short of the northern European standard in terms of insulation and warmth retention. We are therefore far more afflicted by the resultant fuel poverty than other equivalent countries.
One problem is consistency of reporting. We need to report on the achievement of the objectives: on energy efficiency, and on reductions of the number of the fuel poor; but we also need to report on the effects of fuel poverty, and how we are managing to reduce those. Some of those are set out in the amendment. There are references to mortality rates due to fuel poverty; to the cost of fuel poverty-related diseases to the NHS; to debt; and to emissions of carbon dioxide, because this is an energy efficiency and carbon reduction policy as well as a fuel poverty and social policy. These should all be monitored and reported on, and checked against the milestone targets which I hope the Minister will eventually come up with in the strategy.
The other point is consistency with past data. There is a problem here because there is some cynicism that a change of definition of fuel poverty has statistically got rid of nearly 2 million homes without anybody actually being any better off. Some people should have been excluded from the total, but most people would regard that the majority of those are still fuel poor, and the run of statistics we have had from the year 2000 or even earlier onwards would be discontinued if the change of definition also led to an end of those historic statistics. We also have the complication that in Scotland, Northern Ireland and, I think, Wales, the old definition is to be retained. Therefore, when we look at UK numbers for the fuel poor, there will be an inconsistency between the adoption of Professor Hills’s definition and the government monitoring and tracking that, and what is happening in the devolved Administrations, which would mean that we could not have an overall UK figure.
That may change over time, but all I am suggesting is that for a few years we mandate that the old series should continue so that the old definition—as I say, we already have a 15-year run with it—should be extended at least to 2018 and be reviewed at that point. For the first few years of the strategy, the two criteria could be judged. There would be the new definition, which will have a starting point in, say, 2014 or 2015 and is the Government’s preferred definition—for the moment I accept that—and a comparison with the old, historic trend. We would then be able to see whether the change in definition led to a change in outcome statistically and whether that change actually meant something real on the ground. In some ways, the two might diverge significantly, because while the criticism of the old definition was that it was too price sensitive, the criticism against the new definition is that it is not quite sensitive enough. In the end, the judgment of poverty is that someone cannot afford something because the price is too high. I fear that the Government will find that even if they have a relatively successful policy on energy efficiency, if prices continue to go up, that will not show in the figures. It is my subjective judgment that that will be a problem.
All I am saying tonight is that the Government should accept, for a limited period, that we should run the two series together to see if they diverge and whether there are any policy or future monitoring conclusions to be drawn from that. I hope that the Government can accept that, and that there should be systematic reporting of the level of fuel poverty, the success of energy efficiency activity, and of its outcomes and impacts in the terms of these provisions. I beg to move.
My Lords, the noble Lord, Lord Whitty, has made a sophisticated case for his amendment. When I read it, my first reaction was to say, “We have all agreed that the Hills proposed definition is likely to be more effective in dealing with real fuel poverty than the existing one that was suggested under the Warm Homes and Energy Conservation Act”. Indeed, as I said earlier today, having reread the debate on this subject that we had in Committee, I had the impression that there was very little disagreement that the new would be a good deal more effective than the old.
The noble Lord has now given two reasons for running on. One is to be able to have a continuous process whereby the old one goes on while the new one is being introduced so that there is no gap, and with that I have some sympathy. But if he is saying that the second reason for running the two in parallel is so that you can compare one with the other, I would find that more difficult. I am not sure how the officials would manage to do that. If the old definition has been established by Professor Hills’s report as really not being an effective measurement of fuel poverty and therefore providing the basis for annual reports, it would seem that the less one relies on it the better, and the quicker one can go on to the new one the better. However, it may be that I have misunderstood the noble Lord. I do not think it can be used to compare; the only possible reason should be for continuity, which I am sure could be achieved in other ways.
My Lords, I would like to thank the noble Lord, Lord Whitty, for his amendment. It sets out the issues that must be contained within the strategy that will set out how we are going to meet the target. As I mentioned earlier, we will publish the strategy for consultation next year and intend to use this opportunity to set out our plans for how we will tackle fuel poverty. I agree with noble Lords that there are clear links between fuel poverty and health, and a clear health benefit to the NHS by acting in this area. That is why we already include excess winter death rates as part of the annual statistics we publish on fuel poverty. We are working to better understand the costs and benefits to the NHS and we will be building on this within the strategy.
The proposed amendment also suggests that the strategy covers a number of other issues such as debt, the depth of fuel poverty and the number of children who are living in fuel-poor households. These are all very important concerns. It is for this reason that we already report widely within the annual fuel poverty statistics and these issues are included. In reference to the noble Lord’s query about the old and the new definitions, I confirm that we will continue to include fuel poverty numbers under the 10% definition. This is something to which we are already committed, and it will continue to appear in the annual fuel poverty statistics. I hope that the noble Lord, Lord Whitty, is reassured that the fuel poverty strategy will be a comprehensive one and that it is not necessary or appropriate to set out the issues that it will cover within the primary legislation. I trust that he will feel reassured enough to withdraw his amendment.
I am very grateful to the Minister. If she is saying that the method of reporting and the issues which we cover in those reports will continue, I certainly welcome that. On the issue of the measurement, I should say to the noble Lord, Lord Jenkin, and to the House that I do not think Professor Hills’s definition is necessarily a better one. I agree that there are defects in the old one but I think there are also defects in the new one. Professor Hills’s proposal of measuring the depth of fuel poverty as well as the absolute numbers of fuel poverty is a very useful tool and I strongly support it, but time will tell as to whether or not his definition is better than the old one.
I am gratified that the Minister is saying that the series will be continued, at least for some time. By implication she may have meant for longer than is provided for in this amendment. That will give continuity and time for the new series to build up because the new definition will start from next year. We will not have much of a series for very long. That will greatly help those who have campaigned long on the basis of the 10% definition to understand how the policies are impacting that, and to see whether or not the new definition is robust. I am reasonably assured by the Minister, rather more than I expected to be, and so I beg leave to withdraw the amendment.
Amendment 104H withdrawn.
Amendments 104J and 104K not moved.
105: After Clause 137, insert the following new Clause—
“Rising block tariff energy supply scheme
(1) The Secretary of State shall have regard to the desirability of establishing specifications for the introduction of a rising block tariff scheme governing electricity and gas prices and shall consult representatives of the gas and electricity supply industries prior to the establishment of such regulations.
(2) A rising block tariff system of energy pricing is one in which there is a basic threshold price for electricity and gas and an additional percentage price premium applicable to each block of units above that threshold.
(3) 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 of 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 applied at the basic threshold price quarterly;(e) the arrangements for the setting of standing charges.(4) 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.
(5) The Secretary of State shall report to Parliament on the operation of the scheme within 12 months of the coming into force of this section.”
My Lords, I apologise for my non-attendance in Committee. This was due to a clash with sittings of a number of domestic committees which I needed to attend.
This is a subject I have raised on a number of occasions over the years both at Question Time and in the form of amendments to previous legislation. Since last raising it in 2008 I have had the opportunity to further refine and simplify the scheme. RBT— rising block tariff—arises from what appears to the public to be an anomaly in energy pricing which defies all logic. The rising block tariff applies to domestic suppliers of gas and electricity.
If we examine our gas or electricity bills, we will note that 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 by 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.
The problem is that, although 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 the 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.
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, the standard tariff, which itself could be priced at less than block C, the premium tariff: discount 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. A fixed allocation of units would be available to all domestic customers. The Government would set the number of units in each of those blocks and the percentage difference in cost per unit in between blocks A, B and C.
However, it is critical that the block A price, the discounted tariff, is set in the free market by the energy suppliers. The Government would play no part in setting the block A discounted tariff unit price, but would leave suppliers free to set their prices, which would need to be at a rate to ensure that their block B and C prices were viable, competitive and affordable for consumers.
What would be 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. Suppliers would retain control of the price by, crucially, being responsible for setting the block A discount price.
I recognise that it would be difficult to set the volume of units to be applied to each block—in particular, block A. It would be necessary to calculate and agree a reasonable number of units to be allocated to block A for a core usage of electricity—I call that the CUE. The CUE would be set taking into account multiple occupancy, disability and basic energy requirements per household. As I said, the RBT would be available to all, but set at a level that provided for basic energy needs. It could be calculated on the basis of an agreed square footage space energy requirement. In particular, pensioner households’ space requirements would need to be fully considered, but it is likely that many pensioners would move into block B areas of consumption; certainly in heating fuel requirements. The RPT does not do away with state support for low-income pensioner households but, as I said, it would reduce dependency on the state for heating support and transfer responsibility for that support to “heavy users” in the process of redistribution.
Some households are single fuel, and would lose out compared with dual-fuel households. The answer is to provide every domestic hereditament with two energy 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. It may seem complicated as I put it to the House, but when you analyse it, the system I am advocating is quite simple.
It might be possible to have a separate RBT for certain separately defined disability groups with prescribed greater heating requirements. They could be assessed on a different basis. In their case, it might be possible to have either fewer blocks with greater spread in terms of volume of units, or a greater number of blocks with a narrower spread. Regarding seasonal temperature differentials, 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 done with free minute allocations for some mobile phones.
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. Privatisation of the industry and competition in the market place have made this difficult to introduce. Under RBT, any such pooling arrangements, if required, would need to be based on block A volumes of units allocated, rather than on price.
A problem could 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. The answer is to introduce a rising block tariff system 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 will be of greatest interest to domestic energy users.
In October 2008 in an article in the Guardian, Ed Miliband referred to the principle behind the amendment when he said he was,
“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 used”.
Unfortunately my party has not been exactly sympathetic to following up the original idea, primarily put off by large family energy requirements, which I have now set out to address through the core usage of electricity, the CUE. The larger the CUE, the steeper the subsequent block increases.
There is much support for the idea in Europe as countries increasingly find themselves struggling with higher energy prices. Arguments over climate change and the more efficient use of resources will inevitably take us down this route. The noble Lord, Lord Oxburgh, came to my rescue during the closing moments of the debate in 2008, when he advised the House that,
“in eastern Australia this rising block tariff is used on domestic water”,—[Official Report, 28/10/08; col. 1510.]
to help conserve water supplies. I also understand that Ofgem was supposed to have had a look at my and other proposals for RBT during a recent review of energy prices. Perhaps the Minister might give an update on what happened to the Ofgem inquiry.
This system, or one based on the same principles, is utterly inevitable. The public understand what this discussion is about. Just as everybody understands the arguments put by the noble Lord, Lord Forsyth, in his amendment, this equally is an argument that the public understand. The public are interested as to why the energy companies insist on charging the highest prices for the lowest volume consumers. Perhaps the Minister will explain whether she thinks there is a way out of this conundrum. I beg to move.
My Lords, this is a very noble cause. I myself tried to introduce a similar amendment to the first of this Government’s energy Bills. I first came across the real problem with it when I tried to draft an amendment that would make block tariffs work. They are incredibly difficult, and I congratulate the noble Lord, Lord Campbell-Savours, on having got as far as he has. I must admit, though, that at the end of the day this was one of the few instances where I was actually persuaded by DECC officials that the idea was not possible and would not work—much to my regret. One of the reasons was the fact that my noble friend Lord Ridley mentioned: namely, that poor people are the ones who use a lot of electricity for their heating. It is an irony that people in fuel poverty have to use electricity for heating, so block tariffs are very difficult to use in order to get the outcomes that we want. I look forward to hearing the Minister’s arguments about this amendment, because I suspect that they will be exactly the ones that persuaded me that this scheme was not practically possible.
My Lords, I am grateful to my noble friend for tabling this amendment and for his pursuit of this issue in other fora. It is correct that the way that electricity is priced at the moment is illogical: the more we consume as a whole, the higher the cost of producing the electricity. Once our demand rises, we have to bring on marginal plant, which is less efficient and more costly, pushing up the wholesale price for everyone. The people who consume the most therefore cause us to carry a cost that we should not have to bear.
It should therefore be logical that we disincentivise the bringing on of marginal plant by tariff pricing and tariff structures. However, although the idea has been raised on many occasions, the moment has never been found to make it a reality. I hope—and I think that this will be the case—that once smart metering comes into play, this will become an absolute no-brainer. At that point, when we have detailed information about each individual household’s demand across a given period of time, this will become enabled. At present, though, it is a very difficult thing to bring into practice.
Noble Lords have touched on some of the issues. One of them is the question of the variance in demand between households. It can be perfectly true that you have two identical semi-detached houses with very different energy bills, because of different socioeconomic circumstances. Someone who is at home all day will have the heating on and that will increase their bills. If you have a high occupancy rate—if you have children, for example—your energy bills will go up. It is quite difficult to identify the right point at which to say, “This is a fair use of electricity and after this we are going to increase the price”.
That said, though, it is not impossible. It should not be the case that electricity companies incentivise greater usage and reduce the rate of tariffs after a certain point of consumption. If we are not yet able to get to a fully comprehensive rising block tariff system, then at least the Government could perhaps make it clear that tariffs should not have such a regressive effect that the highest price would be for the first units of consumption and then there would be a reduction in the unit price—that should be ruled out. The Prime Minister has indicated that he has a desire to make tariffs simpler. The simplest thing would be to have one unit price for everyone and for everything. Let us start there, and if we can establish that principle and stop the incentivisation of greater consumption, that will be a step in the right direction.
I still think that there is something in this idea. We need to look at it, although it is possibly true that now is not the time. I am sure that that will disappoint my noble friend; one can always say, “Now is not the time”. However, with the advent of better technology such as smart meters and a greater understanding of demand with better data, we will be able to get there. The way that the system is currently structured is illogical, and I am sure that something like this will be introduced within the next decade. I congratulate my noble friend on being so prescient and ahead of the curve.
I, too, thank the noble Lord, Lord Campbell-Savours, for his amendment. The noble Lord has a long-standing interest in this matter and I understand his desire to encourage more energy efficiency and to reduce the energy bills of low-income households. We considered in the past the case for rising block tariffs. When the issue was debated during the passage of the Energy Bill 2011 we were concerned, as we are now, that they would have an adverse impact on fuel-poor households with high energy consumption. I followed very carefully the noble Lord’s argument that this would not happen, but I believe that many consumers would see their bills rise under a rising block tariff.
The Committee on Climate Change has also examined the case for rising block tariffs and concluded that they,
“should not be introduced until fuel poverty has been addressed through targeted energy efficiency improvement and other fuel poverty policy measures”.
We are addressing fuel poverty through the Warm Home Discount. This year more than 1.1 million households will receive an automatic rebate on their electricity bill of £135 and more than 2 million households will receive assistance from the scheme as a whole. As the noble Lord rightly points out, we are also tackling the poor energy efficiency of our homes through the Energy Companies Obligation and the Green Deal. Some 230,000 vulnerable and low-income households will be warmer this year because of the measures installed in their homes under ECO.
Clauses 130 to 133 are intended to enable the Secretary of State to simplify the tariff market, to increase competition in the retail domestic energy market through greater consumer engagement and to get consumers on to the best tariff for them. We have introduced these clauses to give statutory backing to Ofgem’s reforms of the retail energy market. These reforms have been developed to ensure that customers are on the cheapest tariff that is in line with their preferences with their current supplier. They will introduce a simpler, clearer tariff framework so that consumers can compare tariffs across the market more easily.
The noble Baroness mentioned smart meters. I agree with her. When people have smart meters installed, that will help them recognise the amount of energy that they are paying for at the time of use, and will inform them of when to use energy at different times of the year to get the best value out of it during the day. However, we are just rolling out smart meters now. They are not yet part of a mass rollout. So a key measure is to give consumers the ability to compare tariffs, banning complex multi-tier tariffs and requiring suppliers to structure all tariffs as a standing charge and single unit rate.
Introducing a framework for rising block tariffs would cut across Ofgem’s reforms to deliver a fairer, more transparent and competitive market. We are backing its proposals, not instructing it how to regulate the market. Ofgem is an independent regulator and is best placed to assess the regulatory changes needed. Although I suspect that he will not, I hope that the noble Lord will find my explanation reassuring, and that he will withdraw his amendment.
My Lords, the Minister said that she thought that it would be easier for consumers to compare tariffs. The reality is that, if she had supported the amendment moved by the noble Lord, Lord Forsyth, that would have been the case. In reality, there will be very little difference in the way that billing is presented, and certainly in the ability of the public to comprehend billing.
I latched on to the statement made by my noble friend on the Front Bench when she referred to smart meters. Although I was engaged, as was the noble Lord, Lord Teverson, in the smart meter debate in 2008—we had those critical meetings at the end before we managed to win, as he will remember—I did not realise the significance of this until my noble friend referred to it just now. It is possible that smart meters will give us some of the information that I need to further reinforce my argument when, no doubt, in a few years’ time, I once again table the same amendment in the hope that one day someone will pick it up and we will transform the energy consumption arrangements for the average household in the United Kingdom. I beg leave to withdraw the amendment.
Amendment 105 withdrawn.
106: After Clause 141, insert the following new Clause—
“Amendment of Electricity Act 1989: generating station and overhead line development by non licence-holders
In Schedule 9 to Electricity Act 1989 (preservation of amenity and fisheries), after paragraph 4 insert—“4A (1) Sub-paragraph (2) applies where a person who is neither a licence holder nor authorised by exemption to generate, distribute, supply or participate in the transmission of electricity applies for the consent of the Secretary of State under section 36 or 37 of this Act.
(2) Paragraphs 1 and 3 above apply to the making and consideration of the application as they apply to the making and consideration of relevant proposals made by a person who is a licence holder or so authorised by exemption.””
My Lords, this amendment and the next concern the Electricity Act 1989. I have not yet read it all but I have not once come across the word “decarbonisation” in it. It shows how we have moved forwards—or backwards, depending on how one looks at it—over the years.
Amendment 106 relates to a decision made only a few weeks ago concerning Viking Energy, which was looking to obtain a consent under Section 36 of the 1989 Act for a wind farm in Shetland. There was a judicial review of that decision, which was upheld by the Outer House of the Court of Session. That has done something that this Energy Bill is trying to prevent —that is, it has increased uncertainty for investors—and changed completely the view within Scotland of what is needed to obtain a Section 36 consent for a major power project over 50 megawatts. The judgment laid down that the people who were applying needed a generating licence before they could obtain that consent. That is not always the case and I suggest that it should not necessarily be the case.
These schemes tend to be joint ventures involving generating companies that already have licences—in this case, Scottish and Southern Energy was one of the major shareholders of Viking—and which try to obtain their Section 36 permission for the generating station to go ahead; it could be wind power or any form of power. But clearly there has to be a licence to operate before the project can go ahead and generate electricity, so there is no question about the organisation that gets the consent being competent and being able to move forward. Indeed, given the amount of investment that is required for these projects over 50 megawatts—in this case, one-third of a gigawatt—clearly there would be no financial backing if the organisations were not seen as competent.
The decision north of the border has introduced a great deal of uncertainty into the system and made the progress towards investment in power generation far more difficult. It has also put into question those Section 36 consents that perhaps were granted when the operators did not have a licence. I would be very interested to hear how my noble friend the Minister sees the status of those past consents now that this court ruling has taken place.
I understand that the Scottish Government have appealed against that decision to the Inner House of the Court of Session, and that the appeal will take place in February and March. Once again, that causes a hiatus in investment. It means that there is great uncertainty over future investment in power in what is a particularly important part of the UK for renewables. Therefore, I have tabled this amendment in order to bring clarity and ensure that the way in which this system was always thought to operate is reinstated. I should add that within England and Wales this is not an issue, as I understand it, because there has been consequent legislation, either primary or secondary, since the Electricity Act 1989. South of the border, the position is quite clear. I beg to move.
My Lords, I am very disappointed that my noble friend Lord Stephen is not here tonight. This issue first came to my attention because of some very unfortunate publicity in the Daily Telegraph, where he was accused of promoting his business interests through this amendment. Quite rightly, he withdrew his name and made it clear that his name had been added to the amendment in error.
Whatever one’s views on wind farms—I confess I am not an enthusiast for them—it is absolutely essential that the process by which permissions are given and projects are undertaken are seen to be fair and take account of all objections and environmental and other interests. This example is about a particular wind farm development in some respects, but it is also about the rule of law and our attitudes to the rule of law.
The fact of the matter is that this whole saga arose because of the Viking project in Shetland, with over 100 turbines, where there was considerable local opposition. The project is being promoted by the Shetland Islands trust, which has got the oil money—and a large number of the trustees are councillors in Shetland—together with Scottish and Southern Energy. They are the people who are promoting this project. There was very considerable local opposition to this project, but the council decided that it was not conflicted, even though the Shetland trust was a party to the development. As a result, there was no public inquiry. The Scottish Ministers in the Scottish Government gave the project the go-ahead. Some local opposition sought judicial review of that decision, which went to the Court of Session, which is the equivalent of the High Court in England.
Former law officer, Lynda Clark, after three months of deliberation and a well argued and clearly very considered opinion, which I have read and is freely available, concluded that this proposal was unlawful because it did not meet, as my noble friend has said, the requirements of Schedule 9 to the Electricity Act 1989, which makes it clear that anyone who is planning on producing a power plant which includes a wind farm should have a licence from Ofgem before planning approval can be granted. When the judge asked the parties to the development who had the necessary consent, none of them had, and the project had to go back to square one.
When I was a Secretary of State—and for as long as I have known—the principle has been that when a judge reaches a conclusion as to the state of the law, that is the law until such time as it is subject to an appeal. What happened next is an absolute scandal. The Scottish Government then decided that they disagreed with the judge in her opinion and that they would go ahead anyway. In a letter signed by Catherine Cacace to John Campbell QC, the Energy Consents and Deployment Unit said:
“Scottish Ministers note that the Court has found that an application for consent under section 36 of the Electricity Act 1989 can only be made (and so granted) where the applicant at the time of making the application either holds a licence to generate electricity or is exempt from that requirement”.
It goes on—wait for it:
“Scottish Ministers’ position is that they disagree with, and have appealed, the decision … The decision on the legislative interpretation runs contrary to the established practice relating to the handling of applications for consent which has been in place both north and south of the border for many years … Our intention is therefore to continue to operate in accordance with the practice … and to deal with current applications on that basis”.
In other words, “We will ignore the law”. It goes on to say:
“Scottish Ministers consider that the balance of public and national interest is in favour of continuing with the current approach until the appeal has been determined, in particular because of the need to continue to support the economy and our renewable energy ambitions”.
So their renewable energy ambitions trounce the law of the land. That is very undesirable and unprecedented —as far as I know; I see a noble Lord sitting on the Front Bench who is familiar with both the law and Shetland. I can think of no other case. The normal practice would be to stay any development until such time as an appeal had been considered. What I very strongly object to about the amendment is that it would take away the legal position that has been established for many years, and which has been confirmed by the court, in a retrospective manner. It would create a situation in which any Tom, Dick or Harry could apply for permission to establish a wind farm—or, I guess, any other form of generation. Those tests about their ability to meet environmental and other requirements under the legislation would then be applied to them.
This is an undesirable development, by both the Scottish Government and my noble friends. The proper procedure here would be to at least wait for the appeal. It is certainly quite wrong for the Scottish Government to continue in this way. If you look at it from the point of view of the objectors, they have gone to a judicial review, won their case—and everyone knows how difficult it is to win a case on judicial review—and the Scottish Government are just saying that they are going to ignore that. Should this House to seek to overturn the effect of that judgment, when people are talking in terms of the need to support “our renewable energy ambitions”? Our renewable energy ambitions must carry public consent. This is no way in which to proceed. I have strong objections to the amendment, and I hope that my noble friend will reject it.
My Lords, earlier this evening, I found myself in agreement with the noble Lord, Lord Forsyth, about transparency. I feel even more strongly about this issue. It seems that we are challenging the rule of law. I know that a lot of people in this country feel that their ability to object to something is often overruled by big business and large amounts of money, and that they do not really have a voice. The Government promoted a Localism Act which is often in conflict with what they wish to see for energy generation.
The noble Lord, Lord Teverson, mentioned an argument which planners are always throwing back at objectors: “Well, they wouldn’t do it if it didn’t make sense and they didn’t know what they were doing”. I repeat: Mammon has a role to play here. The objectors must be allowed to put their point of view. If you are now going to insult them by saying, “We are even going to take judicial review and the law away from you”, where does that leave them?
My Lords, it is some little time since I did applications for power stations in Scotland; the last one was about 35 years ago. However, I have some understanding of the way in which these matters were approached.
As your Lordships know, in order to generate, transmit or supply electricity you must have a licence and there is a pretty good reason for that. Section 36, which my noble friend mentioned, provides for an application for consent to construct or operate a power station. Of course, a wind farm is a generation system which amounts to a power station. In order to operate that you must have a licence, or have an exemption from a licence, usually because the power station you want to operate is very small. It does not seem very strange to require that as a condition for applying for a station. It would seem a little odd that the relevant authorities could grant consent for a station if you were not authorised to operate it. It could happen, I suppose, but it seems a little unlikely. Therefore it is not at all surprising that it is assumed in the definition of the conditions for consent that that would be so.
Schedule 9 to the Electricity Act 1989 is a set of requirements for the protection of the environment, basically, which a person—it is described in the amendment of the noble Lord, Lord Teverson—who is either a licence holder or exempt for a licence must take account of in his proposals. It is pretty obvious that the proposals are for the construction of a generating station and that you would therefore be a person who would have a licence to operate the generating station if, in fact, it is agreed and consented to by the relevant authority.
The judgment of the noble and learned Baroness, Lady Clark, which is well reasoned and a little longer than my speech so far, is just to that effect. Schedule 9 starts with the condition that you are either a licence holder or exempt and then you have to ensure that your proposals, in effect, do not damage the amenity, or the environment. That is the crux of this and I find her reasoning rather convincing. In fact, it is what I always understood. As I say, it is a long time since I understood it, but it was my understanding at the time. The last application I made, as it happens, was for Torness power station, which was the last nuclear power station to be built in Scotland and is now coming near its decommissioning. I was under the instruction of the noble Lord, Lord Tombs, who was at that time the chairman of the South of Scotland Electricity Board, whose station it was. Anyway, so far as I have an interest in this matter it is a very aged interest and it has nothing to do with finance or anything of that sort.
In my submission, it seems that what the noble and learned Baroness, Lady Clark, who was a law officer in the previous Government, has decided is right. However, it is, of course, subject to appeal and as the noble Lord, Lord Teverson, said, the appeal is to be a reclaiming motion, strictly speaking, in the Scottish terminology, and to be heard by the Inner House of the Court of Session in February. The rule in relation to sub judice does not apply when we are discussing legislation, so we are free to discuss this matter, but I think that the judgment of the noble and learned Baroness, Lady Clark, is extremely cogent and I will look forward to hearing what happens on appeal. In the mean time, that is the highest assertion of what the law of Scotland is, and, indeed, for that matter, anywhere else where the same rules apply. In the law of Scotland the Supreme Court of Scotland, the Court of Session, has decided that to be the fact. Therefore it is highly undesirable for this House to alter that position at this moment. It seems pretty sensible that before you get consent to erect a power station you should be qualified to operate it. As I said, that is the crux of the decision. I therefore hope that the Government will not accept this amendment, which is not very well placed from the point of view of logicality.
I have made known my view about what the judgment says and my noble friend Lord Forsyth has made his view known about how the Scottish Government approach these matters. I do not particularly wish to comment on what they have done so far as I do not know fully enough the facts about these other applications. However, certainly in so far as the application from Shetland is concerned, there is no doubt that the decision of the Court of Session until reversed will set that consent aside. There is no question at all of going ahead to erect the station in Shetland at present. That would be completely without sanction, because the judge has set aside the consent as being unlawful. The rule of law will certainly be applied in Shetland, so far as that is concerned; the noble Lord has said whether the Shetland law applies more generally, and I will leave it with what he said.
My Lords, I had not intended to speak in this debate; I know that the hour is late, so I will be brief. However, when I saw that my noble friend Lord Forsyth had tabled an amendment that seemed to be almost in diametric opposition to the preceding amendment—we have not yet reached my noble friend’s amendment—it seemed that there was probably something of interest to be debated. Having heard what has been said, I am glad that I was here to hear it, and I am appalled at what I have heard. However, I am greatly reassured by the views of my noble and learned friend Lord Mackay.
My own views on windmills, which I first made clear in this House some 12 years ago, is of strong opposition to them. They are an appalling waste of time and money; they ruin the environment and damage wildlife; they do not deliver power when the wind is too strong or when there is no wind at all; and when they do deliver power, there is so little of it that it is completely worthless and has to be backed up by other forms of energy. I will not repeat all those views again to the House tonight.
What is at issue is not a matter of energy generation but of the rule of law. I am aghast to hear that the Scottish Government are now cheerfully setting aside a judgment in the High Court in anticipation of an appeal, which may or may not go in their favour. My noble friend referred to his time in the Scottish Office, and my noble and learned friend Lord Mackay referred to his experience many years back. I was present at the opening of the Torness power station, although I had no hand in its design or in the legalities behind it. However, I served in the Scottish Office for nine years, ahead of my noble friend, so between us we did about 12 years.
At no time, then or before, when I was the Scottish Whip for five years, do I ever recall any contemplation of defying the will of the courts. That is the fundamental issue that we are addressing underneath these two amendments. The issue of the licence is fundamental, and this amendment seems to set aside one of the few controls that are in place to try to impose some kind of discipline and proper judgment on the relevant importance of windmills in Scotland. We read every day of how the country is being covered with them like a rash, ruining the environment and all attraction to tourism, with no regard to the future or to the value of these excrescences. Therefore, setting aside my strong views on windmills, this rule of law issue has to be addressed very seriously indeed.
My Lords, I thank my noble friends Lord Teverson and Lord Roper for tabling this amendment and my other noble friends for their contributions, especially my noble and learned friend Lord Mackay of Clashfern, as he laid out very clearly the position of the law without referring to windmills or any other type of energy source. The judgment referring to planning consent under Section 36 of the Electricity Act 1989 can be made only when the applicant, at the time of making the application, holds a licence to generate electricity under the Act or holds an exemption from this requirement, as my noble friend Lord Teverson pointed out. This judgment is being appealed and we are monitoring the position carefully. Given that the appeal is under way it would be premature, and indeed inappropriate, at this stage to adopt a legislative amendment without knowing what the outcomes were. Any legislative change would need to be considered in the full light of the outcomes of this case and it would be a mistake to assume that the judgment of the Outer House, if upheld, would be decided upon in exactly the same terms in the Inner House.
If we legislate now, we may find that the amendment does not deal with the final interpretation of the legislation, taking into account the arguments that are being developed as part of the judicial review hearings. In the event that this decision is upheld in terms equivalent to the original opinion of the noble and learned Baroness, Lady Clark of Calton, we will of course work with the Scottish Government to review the situation. For those reasons, I ask my noble friend Lord Teverson to withdraw his amendment.
Does my noble friend agree with the position of Scottish Ministers that they should continue with their current approach until the appeal has been determined, or does she take the view that there should be a stay on these matters until the law is clarified?
My Lords, this was tabled as rather a probing amendment, given the situation that has arisen, and I am grateful to noble Lords for their contributions. I do not wish to detain the House on this for too long but I will say that this has nothing to do with retrospection; I absolutely disagree that someone who develops a wind farm or any other energy-generating station over 50 megawatts is necessarily going to be the operator. It is a fact in industry in Britain and worldwide that the developer is often not the operator, in whatever industry we may talk about—they are two entirely separate processes. If you took the view that they had to be the same legal person then you would probably have to go back to 17th-century economics, let alone 21st-century ones. It does not work that way any more. It would also bring the practicalities back into line with the English and Welsh situation. In no way does this amendment make any judgment about whether people should be able to judicially review such decisions; clearly they should be able to do so. I would hope that such actions would not be vexatious, and I am sure that this one was not. Indeed, there was a judgment parallel to the licensing one concerning the wildlife directives, on which I make no judgment at all. It might have been completely valid in terms of their application.
With this amendment I was simply trying to bring the situation back to some certainty and to the situation that was understood prior to this judgment. That is not in itself retrospective. However, I am persuaded by the Minister that perhaps the right course is for this to go through the appeal process—I certainly do not think that it is a good idea for Parliament to interfere with that—and then the situation should be looked at. I am highly persuaded by the argument put forward by my noble friend Lord Forsyth about the reaction of the Scottish Government, in that clearly the rule of law is the rule of law wherever we are within the United Kingdom, and I would never wish to pull the carpet from under that important principle in how we live our public life. I beg leave to withdraw the amendment.
Amendment 106 withdrawn.
Amendment 106A not moved.
Clause 145: Extent
Amendments 107 and 108
107: Clause 145, page 113, line 1, leave out sub-paragraph (iv) and insert—
“( ) section 49 (transition to certificate purchase scheme);”
108: Clause 145, page 113, line 6, at end insert—
“( ) Section (Closure of support under the renewables obligation)(4) extends to Northern Ireland only.”
Amendments 107 and 108 agreed.
Clause 146: Commencement
Amendments 109 and 110
109: Clause 146, page 113, line 32, leave out paragraph (c) and insert—
“( ) section 49 (transition to certificate purchase scheme);”
110: Clause 146, page 114, line 7, at end insert—
“( ) section (Closure of support under the renewables obligation) (closure of support under the renewables obligation);”
Amendments 109 and 110 agreed.
House adjourned at 10.10 pm.