Tuesday 5 July 2016
Contracts for Difference (Miscellaneous Amendments) Regulations 2016
Motion to Consider
My Lords, before turning to the detail of these regulations I would like to make clear that this Government’s commitment to delivering the secure, affordable and low-carbon energy supply that this country needs, and which the Secretary of State set out in her reset speech in November of last year, remains constant. The vote to leave the European Union does not change this Government’s approach to these challenges, and we remain fully committed to delivering on our priorities, including encouraging the development of offshore wind where we see great potential—and where good progress is already being made—to get costs down and to deploy at scale. In fact, I met with representatives of the offshore wind industry this morning to discuss the opportunities that exist. The ability to provide good-quality jobs and apprenticeships and to support industrialisation of the whole supply chain, including United Kingdom companies, is just one of the elements that makes the industry attractive. We are proceeding with plans to hold a competitive allocation round for “less established” technologies later this year and hope to announce the details of this as soon as practicable.
The regulations that are the subject of this debate will amend regulations concerning the contracts for difference scheme. The contracts for difference scheme is designed to incentivise the significant investment required in our electricity infrastructure, to keep our energy supply secure, to keep costs affordable for consumers and to help meet our decarbonisation targets. Contracts for difference, or CFDs, give eligible generators increased price certainty through a long-term contract of 15 years. This allows investment to come forward at a lower cost of capital and therefore at a lower cost to consumers. Participants in the scheme bid for support via a competitive allocation, which ensures costs to consumers are minimised. We plan to run the next allocation round in late 2016—details, although not yet published, will be brought forward shortly.
As noble Lords will be aware, the first CFD allocation round was held in October 2014, leading to contracts being signed with 25 large-scale renewable generation projects, at significantly lower cost than those projects would have cost under the renewables obligation scheme. While this scheme is operating successfully, the Government are looking to make a number of minor amendments: first, to ensure that an application for a CFD cannot be made where there is a pending application for a capacity agreement in respect of the same unit, which would potentially distort the allocation for both processes; and, secondly, to improve the efficacy of the allocation process, including by making available non-price bid information to enable evaluation of the allocation rounds—information that would be held by National Grid and would be made available to the Secretary of State.
In order to implement our proposed amendments, four sets of regulations will need to be amended by this instrument: the Contracts for Difference (Definition of Eligible Generator) Regulations 2014; the Contracts for Difference (Allocation) Regulations 2014; the Contracts for Difference (Standard Terms) Regulations 2014; and the Electricity Market Reform (General) Regulations 2014. The instrument under consideration—that is, the Contracts for Difference (Miscellaneous Amendments) Regulations 2016—makes a number of minor and technical amendments to the current regulations. I will aim to run through these technical amendments briefly.
The amendments are designed to improve the effectiveness of the CFD scheme. The most significant of these amendments are: first, to ensure that an application for a CFD cannot be made where there is a pending application for a capacity agreement in respect of the same unit. This will ensure that an applicant cannot apply to participate in the CFD and capacity market auction at the same time and then make a choice of scheme, potentially distorting the allocation for both processes.
Secondly, the regulations set out the connection requirements applicable to generators who connect to the national transmission or distribution system, or to a private network, to align with the allocation framework. These are key qualification requirements for applicants who connect to the grid in this way, and having the detail in regulations will provide greater certainty to generators in advance of a future allocation round.
Thirdly, the regulations refine the procedures that apply when there is a need to delay or rerun the auction or allocation round, leading to greater clarity for investors.
Fourthly, they make a distinction between confidential price information and non-price information in a sealed-bid submission, which will ensure that the Secretary of State is able to obtain information relating to non-price sealed-bid data to evaluate the efficacy of the allocation round—non-price information could, for example, include the ratio of successful to unsuccessful projects or the number of bids in each delivery year.
Fifthly, they enable unincorporated joint ventures to participate in the CFD regime.
Sixthly, they ensure that only those bank holidays observed in England and Wales are considered within the definition of a “working day”. The proposal to focus on a single jurisdiction to define a “working day” allows for consistency of time periods and deadlines throughout the CFD regime.
Finally—seventhly—they allow for the Secretary of State to issue a direction to the CFD counterparty to amend signed CFD contracts where the sustainability criteria have been altered in subsequently published versions of the CFD.
All of the proposals being implemented by this instrument were publicly consulted on and received a largely favourable response. Some concern was expressed about the proposal to split non-price data from confidential price information in a sealed-bid submission. We are confident that the non-price data can be effectively disaggregated from confidential price information and anonymised in such a way that individual projects cannot be identified. This will enable us to evaluate the efficacy of the allocation round.
As a final point, I would like to take the opportunity to assure noble Lords that the Government will continue to evaluate and monitor the reforms following implementation, making sure that the measures put in place remain effective and continue to represent value for money to the consumer. I beg to move.
My Lords, I am grateful to the Minister for his explanation this afternoon. We accept that most of these changes appear to tidy up minor issues which have cropped up after the initial allocation rounds. Arguably, some of those problems might have been anticipated, but I will not make an issue of that this afternoon.
The most important amendment is to Regulation 14, seeking to extend the exclusion from possible conflict between CFDs and capacity agreements to cases where an application has been made for a capacity agreement but has not been determined. Therefore, as the noble Lord said, the new rules would stop duplicate applications to both allocations at the same time. I understand that this type of gaming is not desirable, although I also understand that the Minister in the other place admitted this had not ever happened in practice. In the meantime, can I clarify whether, under the new regulations, this prohibition works equally for both schemes, so that you cannot apply for either one while the other application is being processed?
Also, while we understand that the Government would not want to reward one company applying under both schemes, is there not some scope for companies to make some sort of initial application, on the basis that the applications take time to go through the several stages and be considered, before that company works out for itself which is the most right and appropriate application to pursue? I just wonder whether we are being rather too stringent on this and whether there ought to be some more flexibility for an initial application to be made before the final application is followed through. I think companies may find that that process makes it easier for them to decide what is in their best interests in the longer term.
Perhaps the noble Lord could give some clarification on these points, but I would make it clear that, in principle, we support the amended regulations.
My Lords, I thank the noble Baroness, Lady Jones, for her contribution and her general support for this instrument. As she rightly said, and as was stated in another place, there have not been any overlapping applications for CFDs and capacity market agreements so far. This is therefore a pre-emptory move to ensure that such overlaps do not happen. She is right to suggest that the prohibition would work equally for both schemes and in both directions.
On the noble Baroness’s point about flexibility being desirable, so that a company might choose, it is our view that the details of the schemes are available and, obviously if they do not overlap, it is possible to apply for one and subsequently for another if the first application was unsuccessful. However, it appears to us—although we will keep it under review—that it is absolutely right that people make that choice. After all, the CFD and the capacity market are for different purposes. We believe that this is the right approach, but I assure the noble Baroness that we will keep her point under review and thank her for raising it.
With that, I commend the regulations to the Committee.
Electricity Capacity (Amendment) Regulations 2016
Motion to Consider
That the Grand Committee do consider the Electricity Capacity (Amendment) Regulations 2016.
Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee
My Lords, this draft instrument seeks to amend the main secondary legislation package for the capacity market scheme, which was part of the electricity market reform programme in 2013. The powers to make this implementing secondary legislation are found in the Energy Act 2013 which, following scrutiny in this House and the other place, received Royal Assent in December 2013 with cross-party support.
I remind noble Lords that the capacity market will address our electricity needs and ensure that there is a sufficient electricity supply towards the end of the decade and beyond. In brief, the capacity market will achieve this by making a regular “capacity payment” to providers who are successful in capacity auctions. In return for this payment, providers must meet their obligations to provide supply, or reduce demand, when the system is tight, ensuring that enough capacity is in place to maintain security of supply.
Ensuring that hard-working families and businesses across the country have secure, affordable energy supplies they can rely on is our top priority as a Government. That is why we already have firm mechanisms in place, working closely with National Grid and Ofgem, to maintain comfortable margins on the system in the coming winter.
Beyond that, it is essential that generators have confidence that they will receive the revenues they need to maintain, upgrade and refurbish their existing plant, and can finance and build new plant to come on stream as and when existing assets retire. Equally, we want to make sure that those who are able to shift demand for electricity away from periods of greatest scarcity—without detriment to themselves and the wider economy—are incentivised to do so.
That is why we have the capacity market. The first two capacity market auctions took place in 2014 and 2015 and the first of two separate auctions, focusing on demand-side response, took place at the beginning of 2016. These resulted in a good outcome for consumers, as fierce competition between providers meant that we obtained the capacity we will need at prices below the levels many had expected. That translates to lower costs on consumer bills.
To ensure that the capacity market remains fit for purpose, my department has reviewed the capacity market mechanism in light of experience gained in these auctions. The clear message from industry and investors is that the mechanism retains their confidence and is the best available approach for ensuring our long-term security of supply. They also stressed that regulatory stability is crucial.
At the same time, we heard concerns that we must do more to protect against delivery risks, that we need to tighten the incentives on those who have been awarded agreements to honour those agreements, and that we must avoid the risk of under-buying, or buying too late. United Kingdom electricity market conditions have also changed considerably since 2014, when the capacity market was established. The huge reduction in global commodities prices has lowered consumers’ energy costs but has pushed many generators into loss-making territory. As a result, several plant closures have been announced earlier than was anticipated, in 2014, and other generating plant may be at risk.
In order to address these points, this instrument will provide for: first, a new supplementary capacity auction for delivery of capacity in 2017-18—that is a one-off capacity option—with, secondly, minor reforms to help the capacity market deliver its objectives. I will set out the most significant amendments in turn.
First, these regulations make provision for a supplementary capacity auction to be held this coming winter for delivery in 2017-18. Running this auction mitigates the emerging increased risk to security of supply in 2017-18 by ensuring that enough capacity is available for that year. This acts as an insurance policy against a material risk of plant closures, which we believe is real. Our analysis shows that this approach is expected to be up to £8.4 billion cheaper than an alternative scenario in which further plant closures would have occurred.
These regulations also make provision for a number of amendments in light of my department’s review of the operation of the capacity market. Our public consultation exercise outlined the need for a robust system of checks—both on new-build projects to ensure that they are on track to deliver and on existing plant to ensure that they honour their agreements or that their operators do so. At the same time, it recognised the importance of ensuring that the system is not so punitive that legitimate projects are dissuaded from participating in the first place.
We have evidence that, despite the termination fee regime already in place, there have been instances where capacity providers have viewed their obligations as relatively low-cost options and have contemplated reneging on their commitments. I am therefore proposing measures to help ensure that new-build capacity that wins a capacity agreement has the appropriate incentives, and is exposed to a robust assurance regime, to deliver against their agreement. These measures include increases in credit cover for projects which cannot demonstrate sufficient progress against the required milestones, and limited but material increases to the termination fees which all those with an agreement must pay if they renege on their commitments. Through the supporting Capacity Market Rules, I am also proposing a prohibition on failed projects from participating in future auctions, and increased monitoring and reporting milestones.
These regulations also include measures to ensure that a secondary trading market can develop that supports investment in capacity market units. These changes would improve the current regulatory framework by dealing with the interaction between transfers of agreements and the penalty regime.
Finally, the transitional arrangements auctions—which is what these are—are aimed specifically at the demand-side response sector in recognition that it is a relatively small and immature sector. We are keen to ensure that funding provided through the next transitional arrangements auction is targeted to those types of resource that need it most, and these regulations therefore refine the eligibility criteria for the second transitional arrangements auction so that it focuses on genuine demand-shifting, turn-down DSR, rather than the small-scale generation, including diesel, that won many of the agreements in the first auction. So, that is a second type of auction: we have the supplementary capacity mechanism, and these transitional arrangements apply specifically to the demand-side response sector.
My department consulted on these changes across two consultations, in October 2015 and in March of this year. In total we received more than 200 responses to the two consultations. There was significant support for the majority of the Government’s proposals, particularly the supplementary capacity auction, refinements to the eligibility criteria for the second demand-side response transitional arrangements auction and the core proposals relating to delivery incentives. These regulations implement these proposals. I look forward to hearing what noble Lords have to say on these proposed changes. I beg to move.
My Lords, I am grateful to the Minister for setting out the intentions behind the amended regulations today. I have to say at the outset that the strategy for maintaining energy supply consistency does not seem to be working out quite as well as the Minister would have had us believe in his comments earlier and just now. We seem to be moving to a place where what was once a vibrant independent energy market is increasingly making investment decisions based on the government subsidy that is available. The more that the Government intervene, the more their interventions skew the overall energy capacity available.
Of course these latest proposals have to be seen against the backdrop of government policy shifts that have created huge uncertainty and risks for investors, deterred investment and put up costs. The Minister will have debated with my colleagues on numerous occasions the negative investment impact that has arisen from pulling the plug on schemes such as feed-in tariffs and the renewables obligation. I do not expect him to agree with me but we would contend that some of the problems with which he is now trying to grapple are essentially of the Government’s own making.
The original intention of the capacity market scheme was to attract new investment, encouraging gas-fired power stations in particular, but it seems to have completely failed in that objective. Instead, the subsidies seem increasingly to be used to reward existing profitable suppliers, including nuclear power stations. For example, nuclear power plants have so far received payments amounting to £153 million for 2018 and £136 million for 2019, despite the fact that they were almost certain to remain open during those years without receiving those subsidies.
Incidentally, I could use this opportunity to raise again with the Minister the question marks over Hinkley Point, given the outcome of the referendum, which has fuelled further concerns about the commitment of the French Government to that investment, but I realise that he will feel obliged to repeat the mantra that all is well in that investment until eventually there is overwhelming evidence that that is not the case and the deal finally falls through. So I understand that he is limited in what he can say on that.
There is also a question mark over whether the capacity market interventions will run counter to the Government’s other binding commitments to reduce pollution, given that some of the beneficiaries are coal and diesel generators. Indeed, my colleague in the other place, Lisa Nandy, made a telling point that there is a danger that consumers will be paying twice for policies pulling in opposite directions: they will pay once to drive coal out of the system via the carbon price floor, and once to keep it in the system via the capacity market. We are now reaping the effects of ill- thought-through market interventions, with consumers bearing the ultimate cost.
The Minister may be aware of the recent report from the IPPR think tank into the workings of the capacity market. It underlines the argument that these measures work against decarbonisation. They have provided a lifeline for several old coal-fired power stations, which received a total of £373 million from the first auctions. They have also heavily incentivised the proliferation of new diesel generators, which are even more polluting than coal. The report also makes the point that the capacity market is designed around the requirements of large power stations rather than smart energy technologies, such as demand response and electricity storage.
Has any consideration been given to introducing an emissions performance standard, which could be applied to all those in receipt of the capacity payments? Is the department giving any thought to how the capacity payments could be used to incentivise gas power plants using carbon capture and storage if they are to stay open in the longer term? Is the department prepared to consider variable subsidies so that the new technologies, which could provide a longer-term solution, do not have to compete with traditional power station generators for support?
Having said all that, the specific proposals in the amended regulations to increase the penalty for non-performance clearly make sense. It cannot be right for suppliers to accept subsidies and then walk away from the contract anyway. It is also right that there should be a robust system of checks on new-build and existing plant to ensure that agreements are honoured.
Finally, does the Minister feel that the financial assessment of the cost benefits of the new auctions, in what is clearly a volatile market, can be relied on, and is there a mechanism for revising such calculations in the light of changing market responses? Does he feel that enough stress-testing has been done to interrogate the market effects of introducing one-year auctions when we are trying to encourage longer-term planning and investment? I look forward to his response.
My Lords, I thank the noble Baroness, Lady Jones of Whitchurch, for her qualified support—I think she gave some support to the basic thrust of what we are seeking to do—and I will endeavour to respond to the points she has raised.
It is ironic that the Official Opposition have put forward a more market-based approach than the Government on this occasion. I feel that intervention is necessary, and the regulations have been brought forward on that basis. As I have said, the No. 1 priority for this Government, as I would think for any Government—I have yet to hear otherwise—is to ensure that we have security of supply and that the lights are kept on. In the broader sense, we need to ensure that our hospitals can carry out operations in a timely way; at the most basic level, we can see why that is so important.
Such interventions are necessary. As I have said, the changes that have occurred in the market since 2014, with the massive drop in commodity prices, have made many of the regulations necessary. Some power stations have closed. The noble Baroness will know that the Government are totally committed to the closure of coal-fired stations. That is something that only this Government have brought forward. We have said that unabated coal-fired power stations will end by 2025—that will be put out for consultation—subject to ensuring we have security of supply. We are the first developed country in the world to indicate that we will do so, ahead of all our European colleagues, the US and so on. As a country, we can be proud of that, and I hope that the Official Opposition support it.
The noble Baroness talked about the importance of underpinning renewables. That is certainly true, but we cannot rely totally on renewables. We need baseload to support renewables, which is what the regulations are about. She said she would refrain from mentioning Hinkley Point C, and then she did so. Having heard her dismal litany, I am obliged to say that the mantra she expected in response is indeed what we believe to be the case. Last week, I discussed this with a Chinese Minister, who is fully committed to the project, and we understand that the French Government are as well. It remains central to our energy policy, and I hope we can avoid talking down this area of activity, because the supply of nuclear is essential for us.
The noble Baroness mentioned diesel generators. I share some of her concerns, so I can understand where she is coming from on this point. As she will appreciate, this area cuts across government departments. Some of it rests with Defra, which we expect will announce consultation proposals in the autumn, ahead of both the next round of auctions and, indeed, the supplementary capacity auction that we are dealing with. We therefore expect bidders to be aware of likely future restrictions on their generation, and their bidding behaviour will adjust accordingly. We cannot anticipate precisely how that will go, but the consultation is being held with a view to ensuring that we can restrict diesel. I share the concerns she has expressed on that point, so I hope that that offers her some comfort.
In general, the noble Baroness will know that the auctions operate in relation not just to providing additional capacity but to the demand-side response of reducing capacity. That is central: we are looking not just to build in more generation but to restrict existing generation and to shift it. I hope that that will again provide some comfort to her. I should also say with regard to diesel that Ofgem will consult on proposals to tackle embedded benefits in due course, so action is going on elsewhere in government to deal with the diesel generation issue, which I recognise; I previously indicated in the House that we would look at it, as indeed we are.
Once again, I thank the noble Baroness for the qualified enthusiasm for the regulations she was clearly demonstrating, although she managed largely to restrain herself, and I commend the statutory instrument to the Committee.
Lest the Official Opposition, as he describes me, are totally misrepresented, I would say on intervention and regulation that our position is that when you do it, it should be smart intervention. There is always a danger in any regulation that you encourage perverse outcomes if you do not think through its consequences. I was just warning against some of those perverse outcomes which can occur, particularly when you deal with large sums of money, as we are here. However, I do not want to go back over the Minister’s clarification of other points but simply wished to say that on that basis we are happy to support the regulations.
Water and Sewerage Undertakers (Exit from Non-household Retail Market) Regulations 2016
Motion to Consider
My Lords, these regulations will enable the implementation of important reforms from the Water Act 2014 to extend competition in the market for water services. The development of these regulations has been a very thorough exercise. We have consulted widely, as there are intricate elements. We are confident that we have taken the time to secure regulations that are fit for purpose to meet the objectives of the Water Act 2014.
From April 2017, all 1.2 million non-household customers such as businesses, charities and public sector organisations will be able to switch to a new provider of retail services for their water and wastewater. It is estimated that this will deliver a net benefit of around £200 million to the UK. These new “retailers” will be responsible for all customer-facing services such as billing, meter reading, call and complaint handling and the provision of all water efficiency advice. These customers will get the same water from the same pipes and have their wastewater taken away as they do now, but they will be able to choose their retailer in the same way as they can choose their energy or telecom providers. Non-household customers are keen to have this choice, and the Government’s decision to expand retail competition was made in response to clear demand from business customers. Our reforms will mean that they are free to negotiate for the package that best suits the needs of their business.
Currently, the law requires water and sewerage companies to provide both wholesale and retail services to all the premises in their area of appointment. During the passage of the Water Bill through Parliament, the Government brought forward amendments designed to enable such companies to decide they want to stop offering retail services to their non-household customers once the new market opens. The amendments to enable retail exit reflected a strong cross-party consensus that competition would deliver better results for customers if, as well as new retail businesses being able to enter the retail market, existing water companies were able to withdraw. Providing choice is a key driver for our retail competition reforms. Just as customers will be able to benefit from increased choice over their retailer, so, too, will water companies benefit from being able to choose whether they wish to compete in the new market. Enabling exit will allow water companies to make informed choices about their retail strategies. The Government are not seeking to require companies to exit, nor are they seeking to shape the market in any particular way. The purpose is to put in place a framework that will allow the competitive market to evolve as effectively as possible.
The Water Act 2014 includes a power for the Secretary of State to make regulations allowing water companies to apply for permission to exit voluntarily the non-household retail market. Today we are considering the regulations that make retail exit possible. The Water Act 2014 enables the extension of retail competition to non-household customers only. The Government have more recently committed to review the costs and benefits of extending competition to household customers. The regulations before your Lordships today, however, have no implications for householders.
I should also point out that the powers in the Water Act 2014 allow only those water companies that operate wholly or mainly in England to exit. That includes Severn Trent Water, which operates mainly in England but also partly in Wales, and its customers subsequently will be able to switch their water and wastewater provider. These regulations do not allow companies that operate wholly or mainly in Wales to exit, although the current market arrangements already allow their non-household customers who use 50 megalitres of water a year to switch to a new water supplier, and this will not change.
As I said, the draft regulations have been through a very thorough process of consultation. We are confident that there is clear support for these regulations from across the water industry, consumer groups and Ofwat, and that they are fit for purpose. A first consultation informed the development of the policy on exits and built consensus around our approach; a second focused on the detail of the draft regulations themselves. A draft of the regulations was provided to the House of Commons Select Committee on the Environment, Food and Rural Affairs to ensure that its members had an opportunity to comment on our intentions. Indeed, earlier this year I also wrote to eight noble Lords who I knew had taken an interest in retail exits policy at the time the Water Bill was being debated, again to ensure that all those who wanted to comment on the draft regulations had every opportunity to do so.
These regulations have two main objectives. First, they set out the process those companies wishing to exit the market for non-household retail services must follow. This process, which we are committed to making as light-touch as possible, provides for companies to apply to the Secretary of State for permission to exit the non-household retail market in their area of appointment. On approval, the company would transfer its non-household retail business to one or more alternative retailers. The Government have produced a simple application form, along with guidance, to help companies with their applications to the Secretary of State. This has been consulted on and a draft is available to help water companies plan ahead of the application process that is set to open on 3 October 2016.
Secondly, the regulations provide a lasting regulatory framework for customers and companies following an exit. Safeguarding customers is a key concern. We expect competition to deliver higher levels of service, keener prices and greater innovation in the provision of retail services. The Government also want to ensure that customers retain access to the same standards of protection, whatever their water company chooses to do. These regulations will ensure that no customers should be worse off because their company decides to exit. This principle of equivalence, therefore, underpins a number of safeguards within these draft regulations. They ensure that all customers will have access to good contractual terms, be protected by Ofwat and be assured of access to a retail service even if something were to happen to their new retailer.
Customers who are transferred as part of an exit and do not have formal contracts in place will be subject to a deemed contract with the new retailer. The terms and conditions of those contracts must comply with a code produced by Ofwat. All retail businesses accepting a transfer of customers will be water supply and sewerage licensees. Ofwat is responsible for the licensing process, which opened in April this year. It closely examines the business plans, management resources and financial viability of all applicants before any licences are issued.
Before applying to the Secretary of State for permission to exit the market, a water company will need to reach agreement with a licensee willing to take on its non-household customers and fulfil the requirements of the exit regulations. Of course, in the new competitive market customers will have the ultimate protection of choice. Should any retailer fail to meet their expectations of customer service, they will be able to take their business elsewhere. Customers will be informed of their company’s intention to exit well in advance, and will be free to switch to the supplier of their choosing.
It is important that we deal with these regulations now to enable them to come into force in time to allow any water companies that wish to exit this market to do so when it opens in April 2017. The regulations will need to come into force by 3 October this year to allow us to open the exit application process six months before the market is due to open. This will provide certainty to those water companies wishing to exit and enable them to make the necessary preparations and communicate with their customers, as required by the regulations.
I express my department’s thanks to all those who have contributed to the development of the draft regulations, including noble Lords here today. I and the department are most grateful. The regulations are the result of detailed work with the water industry, prospective entrants and customer groups. They give choice to the industry, protect customers and put in place a framework that will allow the competitive market to evolve effectively. For those reasons, I commend the regulations to your Lordships and beg to move.
My Lords, I commend the Minister for his opening speech. The draft statutory instrument before us reflects many hours of debate in your Lordships’ House. His words were not exactly in sync with the Minister at the Dispatch Box when we began this journey, and I note with interest that he mentioned that the pressure for these changes came from business customers. It would be fair to say that on the question of timing there was pressure from noble Lords from all sides of the House, who together recognised the importance of these measures for customers. Without that concerted effort, I do not believe that we would have met the timetable that the Minister has set out today. I echo his thanks to other noble Lords from all sides of the House who worked so diligently to ensure that retail exit was in the then Water Bill.
One key point that my noble friend has raised is the issue of timing. I am grateful to him for keeping us informed—he referred to a letter that he had written to a number of noble Lords—and for ensuring that we had every opportunity to contribute to the debate and the deliberations on this issue. In his letter of 23 March he mentioned that there was only one final step to take: the finalisation by lawyers of the then regulations. We have moved a significant time forward since 23 March, and I am very concerned and interested to hear from him that we will meet the April 2017 deadline. This is a complex issue, as my noble friend has mentioned; it is a thorough exercise. Meeting the April 2017 deadline is vital.
In that context, exemplary work has been done by Ofwat, by Cathryn Ross and her team, to achieve the objectives that the Government have set out and that deadline. There is no doubt that we have a first-rate regulator who is keen to ensure that everyone involved—those companies that choose to implement the changes, while others are putting in place deemed contracts and the changes necessary to ensure that the market works—has the full attention of Ofwat to ensure that that process takes place.
It was not an easy start to the year in that context. There was the abandonment of the decision to appoint WICS, led by Alan Sutherland, then we moved on to the election of Market Operator Services Limited—MOSL—the delivery body to keep the programme on track and create a non-domestic water market ready for April 2017 implementation. Alan Sutherland deserves thanks from all sides of this House. There is no doubt that his experience and input were significant at the time, and that has subsequently been shown to be the case. Can the Minister absolutely confirm that in his view the market is ready for the April 2017 deadline? Can he let us know what action will be taken against those who are unable to make that deadline, and who is mandated to take such action?
The Minister also mentioned the restriction of this initiative to non-domestic customers. There was no interest during the passage of the Act to extend these measures—in other words, retail competition—further than major industrial, non-domestic customers. At the time Defra gave an explanation of this approach in one of its briefings, stating:
“The Government does not intend to extend retail competition to householders at this stage. There is no evidence to suggest it would provide enough direct benefits for householders, given the low margins involved in water pricing. The circumstances in which business customers are most likely to benefit from retail competition are not relevant to householders (unlike multi-site business customers, for example, who would benefit from one national bill).”
Then, even to the surprise of those of us who follow the water industry closely, the Government announced in November last year that they intended to begin a transition to extending retail competition to domestic customers before the end of this Parliament. This formed part of the wider Treasury plan to look for new ways to promote open and competitive markets, as set out in its report A Better Deal: Boosting Competition to Bring down Bills for Families and Firms. This meant that while domestic water customers will not have the opportunity to switch their water supplier as early as the non-household sector in 2017, the Government intend to extend retail competition to domestic customers in due course. I would be grateful if the Minister could comment today, with a little more clarity than was in the Treasury document, on the timing and approach necessary to achieve that objective within what will be a tight timetable if legislation is to be passed by both Houses within this Parliament. What work is moving forward on that front, not least on the consultation exercise that will be necessary?
I conclude my opening remarks by welcoming the decision by the industry to take action in the context of the measures before the Committee today. It was good to see Portsmouth Water’s announcement in January, and only last month Southern Water was the second water company to announce its plans to exit. The deal it struck with Business Stream was of sufficient magnitude to create the third-biggest company in the UK non-domestic water market, with a combined market share of more than 10%. It set out in its statement, which I will not repeat today, many of the virtues and the benefits which the Minister rightly outlined in his opening remarks. It is important to recognise that other companies are ready and willing to move in the same direction—Southern Water will certainly not be the last.
Again, I emphasise in closing the vital importance of keeping this as an absolute priority for the department and the Minister, making sure that we do not lose any time. I hope that the companies and everybody involved will not focus on starting work on 3 October 2016, when this comes into force, but that if they have not already started detailed work they make sure they do so now. The support of all sides of the House, which I hope will continue on this subject, and the statutory instrument before the Committee today give them the opportunity to get going now, to see the detail and to make sure that the implementation of a wide range of important measures is prioritised in their planning and boardrooms.
With those remarks, I again thank my noble friend the Minister and his officials, who worked exceptionally hard to face a significant addition to their workload at the end of the Bill’s process through this House a couple of years ago. I was not their favourite Member of the House of Lords at the time for being so proactive on this, but I respect them and place on record my thanks to them for the enormous amount of hard work that they have done so far. I ask that the Minister and his officials make sure that both the impetus and priority for this legislation continue right the way through to the market’s successful opening—as I believe it will be—in April 2017.
My Lords, I too thank the Minister for the thoroughness with which he introduced these regulations and for the way that he has opened up consultation to Members of this House and elsewhere on this matter. That was in stark contrast to the way that this initiative was introduced during the passage of the Water Bill, which has been somewhat glossed over this afternoon—at the time, my noble friend Lord Marks of Henley-on-Thames referred to it as being introduced not at the 11th hour but at one minute to midnight. It was poorly done, but it is encouraging that since that time both the department and outside stakeholders have worked hard to ensure that the consultation and parliamentary scrutiny that I and others insisted on have happened. I thank the Minister and the department for that.
While I accept the comments of the noble Lord opposite that there was cross-party support for the proposal, it was not unalloyed support. Although my party was not against the proposal in principle, we were concerned about the complexities, the way in which the proposal was introduced and the need to protect the rights of customers—and I want to touch a bit on that. The Minister said that these regulations will have no implications for householders, but we must be concerned not only with those in the non-household market who will be affected but those households who will remain with incumbent providers that cannot divest themselves of their household customers. Such people could be stranded, and therefore these regulations will have implications for household customers.
Secondly, although at the time we in the Liberal Democrats welcomed the potential to innovate in retail services, which these regulations should provide, we were very concerned about ensuring that we should not lose the water-saving initiatives, which up until then had been delivered by water providers working together with their retail arm. The potential for such water-saving initiatives must not be lost, given the very severe water shortages that we face in certain parts of the country. For those two reasons—the need to protect all customers, both household and non-household, and to ensure that water-saving initiatives would not be lost—we asked for the fullest parliamentary scrutiny. I am pleased that the department has delivered on that.
I have just two questions for the Minister. Under “Monitoring & Review”, which I think is a fairly standard exercise for all such regulations, the Explanatory Memorandum talks about monitoring whether the regulations have “met their intended objectives”. However, the intended objectives make no reference either to the need to protect those household customers who will in effect be stranded or to the need to ensure that there is no diminishment in the opportunities for water-saving initiatives. That concerns me, so I ask the Minister to give us a reassurance that a full review of these regulations will be undertaken before any decisions are taken to extend their effect to the household market.
My second question is, given that the Government have now asked Ofwat to look at the cost-benefit analysis of extending the provisions to the household market—which suggests they are increasing the priority they are giving to this area—can the Government confirm that, in terms of new legislation and issues for the future, water abstraction regime reform is the top priority for this department, given that it will have significant constraints on its time over the forthcoming months and years because of the impacts of the Brexit decision? Given the fact that CAP accounts for 40% of the budget, there will have to be an awful lot of changes in the department. Can the Minister reassure us that water abstraction remains the priority, not extending to the household market provisions that are still unclear and untested and over which a number of us have serious concerns? Will that happen before the initiative to split the retail arm from the wholesale arm is extended to the retail market?
My Lords, I thank the Minister for introducing the regulations today. I very much endorse the thanks that he and others who have been involved in this—the noble Lord, Lord Moynihan, and the noble Baroness, Lady Parminter—have extended this afternoon.
As has been said, we support in principle the extension of competition into the retail market for non-household water and sewage service so that charities, businesses and public sector organisations can switch their supplier. We accept the corollary of this new flexibility, which is that providers should also be able to exit the market, provided that the public interest test is met. For the scheme to work well, though, a number of practical guarantees have to be in place. I therefore have a few questions that I hope the Minister can answer.
First, in the submissions to the consultation there was a bit of a running theme about the incomplete asset location records making it difficult to accurately specify which undertaker is currently providing which service. Is the Minister confident that the proposed measures address that issue effectively? In other words, will there be, if you like, a land and business register that we can all have confidence in regarding who is supplying to which address and what that supply is? Is it intended that those records will be kept on a national IT system? Does the Minister have confidence that that system will be comprehensive and robust enough to store all those data properly?
Secondly, although actually I think the Minister has answered this, is he proposing that domestic business users will have a guarantee that an alternative provider will always be available, and is he saying that that will be underpinned by the public interest test that will always guarantee that? Thirdly, what requirements will be placed on companies to ensure that their customers are always made aware of their plans to exit, and that those customers are given sufficient time to find an alternative provider?
Lastly, I want to tease out what the Minister said about no company being worse off. I am thinking of isolated communities, particularly isolated businesses, that might have been on a longer-term promise that they would have expensive upgrades of water and sewerage provision in future, such as the laying of new pipes or whatever. You could imagine that an existing supplier might think in retrospect that they would rather not have that rather expensive outlay on their books. Is a guarantee built into the scheme that those expensive businesses, which a lot of suppliers might not consider economically viable, will nevertheless maintain a supplier? In other words, is there a guarantee that they will not just find that they are dumped on another supplier who is not prepared to make that longer-term investment and provide the upgrades that they might have been expecting from their original supplier? If the Minister could confirm that that longer-term investment would be guaranteed, as well as the initial supply of water and sewerage services, that would be reassuring.
Apart from that, both the noble Lord, Lord Moynihan, and the noble Baroness, Lady Parminter, raised important questions and I look forward to the Minister’s response on those matters.
My Lords, I thank your Lordships for what I think is a broad range of support for the regulations that the Government have brought forward.
I am conscious of the many hours of debate to which my noble friend Lord Moynihan referred. If I was not sufficiently fulsome, may I be even more fulsome in recognising the assistance of your Lordships—particularly some of those here, but also some who are not present—in making a significant contribution to where we are now? As a supporter of your Lordships’ House, it would be fair to say that this is precisely the reason why I try to persuade people, when I am out and about, that this place can get down into all the detailed, hand-to-hand fighting. I hope that we will come to a result that is undoubtedly in the public interest. If I may, I will put on the record even more fulsome praise of Members of your Lordships’ House. It is also entirely appropriate, and we do not do this often enough, to thank the officials who have to implement what we have all wrestled with and decided on. I am delighted to add those points, which pick up what my noble friend said.
I want to deal with some of the points that your Lordships raised, particularly my noble friend Lord Moynihan’s point about teasing out the household customer situation. Let me set out our stall: we want to have good evidence on the potential for household competition and the benefits that it could bring for customers. We have asked Ofwat, as the independent economic regulator, for an analysis of the potential costs and benefits for household customers, and we believe it will be due in September. Obviously the introduction of household competition would require amendments to be made to primary legislation and, indeed, changes to Ofwat’s price review process. There would also need to be an agreed practical timetable for delivery. We are moving in the direction of understanding more about this but, as we have done for non-household customers, the whole purpose is to ensure that the customer has the best choice and the best outcome. All I can say is that we will look at that very carefully, and I am confident that noble Lords will assist us in that when we come to do so. That work is in hand.
My noble friend mentioned the timetable and asked whether we would meet the April 2017 deadline. There is a clear plan for working towards market opening. Exit applications open on 3 October—companies will have exit decisions to make—and we are on track to open the market in April 2017. My understanding of all that is going through and of the work being undertaken is that we are on track to achieve what we hope to by the April 2017 date. As to what action we will take against companies that are not ready for next April, Ofwat is putting in place a licence condition requiring water companies to make all necessary preparations for market opening in April 2017.
The noble Baroness, Lady Parminter, asked about stranded household customers. It is obviously important that all customers are looked after. Household customers will remain with the incumbent water company and will continue to be protected through five-yearly retail price controls, which will ensure that bills remain fair and affordable. Information relating to costs and efficiencies obtained by Ofwat from the competitive market will help to inform its decisions on setting appropriate price limits for the household market. There will also be crossover benefits for household customers as innovative services are developed for the non-household market and adopted by household customers. Clearly, the whole purpose is to ensure that the customer is well protected. I am mindful of what the noble Baroness said, and it is something that we should always have uppermost in our considerations.
The noble Baroness asked about legislative priorities and review. I hope that all noble Lords will understand that I am really not in a position to comment on the future legislative timetable—it is fair to say that that is way above my pay grade—but obviously I understand what she is saying.
There will be a review of the exit regulations, which is all part of a normal process. We are committed, as we were during the passage of the Water Bill, to report to the House on progress towards abstraction reform before 2019. I am well aware that although, with our weather, most of us farmers do not see water shortage as a problem—I can tell the Committee that there is no haymaking at the moment—I can say that this is obviously something that we need to have in place. The supply of water for households, industry and non-household customers is imperative.
I turn to some of the points raised by the noble Baroness, Lady Jones of Whitchurch. The database is being developed by MOSL, with the intention of being fit for purpose. It is currently being tested by market participants, ready for the next phase beginning in September. The noble Baroness asked whether there was a guarantee that all customers would have a supplier. Yes, because the exit regulations secure that all non-household customers will continue to have access to a supplier for retail services.
I am just looking to see whether other points were raised by your Lordships that I have not covered. I shall look at Hansard to see whether there are detailed points that would be more helpful. I am mindful that sometimes when matters begin here, they need some digesting. I sense, because I was not here at the beginning, that what has happened has been a success story of people who know a lot about this industry contributing to this process. As my noble friend said, it may involve considerable work for officials and others, but in the end this is what we are here for. We want to get the right solutions, particularly when we have intricate regulations such as these.
We want to get it right. After all, we are dealing with customers who want to be protected, and indeed we want to inform and enable companies to do their best for the customer. That is the whole essence. While I was not involved in the Water Bill proceedings, I think your Lordships offered up to the Government that this was about competition, and we were looking to provide encouragement for customers. That is why, after this lengthy work—I hope noble Lords will understand that I have made my best endeavours to ensure that they have been kept in the loop of what we are trying to do, and have given them the opportunity to comment—I feel confident that we are in the best position we could be. That is why I commend these regulations to your Lordships again.
Electoral Registration Pilot Scheme (England) Order 2016
Motion to Consider
My Lords, the instrument before the Committee establishes a pilot scheme under Sections 7 and 9 of the Electoral Registration and Administration Act 2013. New Section 9D(3) of the Representation of the People Act 1983, inserted by the 2013 Act, requires the annual canvass to be conducted in the manner set out in the Representation of the People (England and Wales) Regulations 2001. However, this draft order disapplies that requirement for electoral registration officers—EROs—in Birmingham, Ryedale and South Lakeland; instead it requires EROs in the specified areas to attempt to make contact with a person at each residential address in the area for which they act at least once between the date when the order comes into force and 2 February 2017. The manner in which they do so, however, and whether they take further steps where no information is received in respect of a particular address, will be at the ERO’s discretion. This will enable EROs to test new and innovative approaches to canvassing. The Electoral Commission will report on the pilot scheme and provide a copy of its evaluation to the Chancellor of the Duchy of Lancaster and the EROs by 30 June 2017. The order ceases to have effect on 7 July 2017.
As some of those in the Room may already be aware, the process for the household canvass is prescribed in the Representation of the People (England and Wales) Regulations 2001 and requires electoral registration officers to send an annual canvass form—that is, a household enquiry form, or HEF—to every property in their area. The HEF asks residents to set out whether there have been any changes in the composition of the household since the previous year’s canvass and enables electoral registration officers to identify whether any residents should be added or removed from the register. Where no response is received, as is more often than not the case, EROs are required to issue up to two further forms and to carry out at least one visit.
While the fundamental objective of the annual canvass—namely, the maintenance of a complete and accurate register through regular data collection—is and will continue to be a government priority, informal consultation with EROs over an extended period has indicated that the annual canvass in its current form is not a sustainable way to achieve that aim.
Many EROs, who are on the front line of canvass activity, have told the Cabinet Office that electors find the canvass procedure frustrating and confusing. When electors might know themselves to be registered, perhaps from having recently participated in an election, they do not understand why they have none the less received three letters and a visit from their local ERO.
This year, for example, many citizens will have voted in the local, devolved or police and crime commissioner elections in May, the EU referendum in June and perhaps even a by-election, yet, when the annual canvass takes place between July and December this year, they will receive fresh inquiries about their registration status. The reality is that household churn is only around 20% per annum, thus the majority of canvass activity is redundant. Some 80% of households will be a “no change” on the electoral register.
This tremendously bureaucratic process is no less frustrating for administrators. Having to follow steps prescribed in statute stifles their capacity to innovate and adopt new and more digital approaches to canvassing. From knowing their local area, or from having access to other local council data, EROs may well be aware of the registration status of households in their area. However, the system currently in place does not allow them to draw on their own expertise or on other information held by the local authority. This is not an example of smart working.
The solution that is therefore being proposed, the impetus for which has come from EROs themselves, is to enable local authorities to test alternative methods for conducting the annual canvass, which have the potential to be more cost effective while still securing the same or higher levels of information on population churn—and subsequent potential additions, deletions and other changes to the register—compared with the current annual canvass process. The pilots will take place in Birmingham, Ryedale and South Lakeland. In each area, the EROs will be operating control groups and pilot groups so that the results of these approaches can be rigorously evaluated.
In Ryedale, which can be characterised as a predominantly rural area with a largely static population, pilot groups will receive household notification letters—HNLs—rather than the usual household enquiry form. The HNL, sent by post, will list the details of everyone registered to vote in that household and advise residents to take action only where the details held are no longer up to date. They will be able to do this by informing the ERO of changes over the internet or phone. New residents will be asked to register online or invited to register by their ERO. The issuing of HNLs will be supported by awareness-raising activities in the media, on the council website and on social media.
In Birmingham and South Lakeland, electors’ registration details will be compared against local data sources. Where details are found to match, households will be sent an HNL, to which electors will be required to respond only if changes are needed. Households not matching local data sources will be sent a customised HEF—by email where possible —encouraging residents to identify any new electors or other changes. Any non-responders will then receive a second HEF, followed by a visit to the property.
The Government have, of course, consulted with the Electoral Commission on the pilot proposals. The EC has been very supportive of these plans and has been involved from the early stages of their development. Consultation has also taken place with bodies such as the Association of Electoral Administrators, the AEA, and the Society of Local Authority Chief Executives, SOLACE. This is in addition to the work the Government have been doing with interested councils directly, which have helped breathe life into these pilots.
As we have discussed with the Electoral Commission, subject to the outcomes of the pilots, the Government’s intention is to make permanent, legislative changes to the annual canvass. It is likely that we will look to launch a second round of canvass pilots in 2017 to maximise our evidence base, building on the learning from these pilots.
While the purpose of these pilots is to give EROs the space to innovate and test alternative, more effective approaches in relation to the annual canvass, I would like to underline that the integrity of the register will be maintained throughout the pilots. EROs have a duty, under the Representation of the People Act 1983, to maintain their registers and nothing in this order changes that.
With this in mind, the Government believe that the instrument before the Committee today is a crucial step towards improving the annual canvass and wider registration process. I commend it to the Committee.
My Lords, I come to this order with a slightly different approach and a different range of concerns from those on which I expect my noble friend will concentrate. We are now in a situation where, whatever happens to the process as outlined by the noble Baroness, the constituency boundaries at the next general election will—contrary to the recommendation of the Electoral Commission—be based on the register as it stood in December 2015. Of course, that does not mean that anyone registering since that date will not have a vote, but it means that the constituency boundaries will not necessarily reflect the, I hope, improved system of registration. Let me give an illustration of the potential differences. In my own city of Newcastle, the number on the electoral register as of last December was 183,961, and it is now 190,770, which is an increase of 6,809 or, by my calculation, an increase of 3.7% on the figure that will be the basis on which the new constituency boundaries are drawn.
The Government have introduced other significant changes, using their majority in another place, to change the whole system. I say that because local authority boundaries will become irrelevant under the new dispensation. I am wondering whether the Minister has—I do not blame her if she has not—seen the report by Lewis Baston, who is an expert in these matters. He recently produced a report for the Constitution Society in which, among other things, he states:
“As it currently stands under IER, the electoral register is too incomplete and unstable to provide a suitable basis for allocating parliamentary representation”.
“There have been noticeable levels of under-representation, which has varied with social and demographic characteristics”.
He also says:
“The use of the December 2015 purged register has also had a regional effect. London has three seats fewer than it should. Nationally, it has mainly affected urban areas, with the big core cities in particular had poor net completeness in electorate registration”.
However much that is corrected, partly as a result of the order we are discussing, it will not affect the boundaries that will apply in the next Parliament.
Lewis Baston also says:
“If the register numbers in December 2015 are inaccurate”—
they clearly were—
“the boundary review will contaminate the entire basis of the electoral system”.
He points out in relation to the discussions and debates before the boundary review was implemented that the,
“warnings made in 2014, of damage to the representation of London and the metropolitan areas, have come true and the map drawn in the 2016-18 boundary review will under-represent these areas”.
It is of course entirely coincidental that those are the areas in which the Labour Party is currently most strongly represented.
Lewis Baston goes on:
“The dramatic variations in total electorate that have taken place … between December 2012 and December 2015 undermine the idea that at any stage the electoral register is a reasonable estimate of the total local population entitled to vote”.
He cites examples demonstrating that in some places, such as Liverpool, the estimated net completeness of the register as at December 2015 is as low as 81%. By definition, it is therefore about 20% short of what the figure should really be. I repeat that that does not stop voters being registered, but it means the boundary situation has in effect been corrupted. One of the problems, as he concludes, is that there is,
“simply nothing that can be done under the current rules to rectify the problem that student constituencies are likely to be oversized (in terms of registered electors) when the election takes place”.
That is one facet of an issue which is generally of much wider application.
I am not sure whether the Minister will be able to respond to this today, but in my submission there is a very strong case for the Government to review and, indeed, to alter their decision to require the next general election, or at least any general election taking place after 2017, to be held on the basis of the boundaries as currently drawn. There is a need for a proper review of constituency boundaries to reflect the increase in the electoral register and other changes, which, I repeat, the order will help to facilitate. If the Government do not do so, they will have taken such a decision because they perceive a political advantage for the Conservative Party. That is no way in which a democratic process should be regulated, and I hope that the Government will reconsider their position. I repeat that they will return to the recommendations made by the Electoral Commission, who should be consulted in the light of the developing circumstances as we now see them.
My Lords, before I come to the specifics of the order before us, I want to refer to two extremely important issues about the context in which we are discussing it. In the first place, both the Law Commission and the Electoral Commission have given recent advice to government and Parliament that the time is long since past when it was necessary to bring together a lot of the electoral legislation. We have an extraordinary situation now, and it is repeated again this afternoon, where we are referring right back to the 1983 Act. The good ship “RPA” has been covered with so many barnacles over the years that it is hardly recognisable as being a ship at all. The Law Commission has made it clear that it is urgently necessary, in this Parliament, to bring together the legislation that refers to electoral matters. This is for clarity for the parties, for individual electors and, frankly, for us parliamentarians.
For over 11 years, I have been in this Room when we have been amending and referring back to the 1983 Act; on one occasion, I think we even referred back to the 1883 Act. It is not acceptable for the Government to keep putting off this issue. Paragraph 4.1 of the Explanatory Memorandum that accompanies the order—and just that one paragraph, about how all these things fit together, is so complex—makes a very cogent case for a degree of co-ordination and consolidation. In paragraph 8.3, there is the added dimension of ensuring that all parts of the UK march in step. The register is something of such basic importance to our representative democracy that we cannot accept differences taking place on such a scale as has been happening in recent years between the devolved nations of the UK.
In paragraph 7.6, ironically, there is the wonderful statement:
“Consolidation does not apply to this Order”.
You can say that again; there is absolutely no consolidation in this, and it is time that there was. I know that in this particular context that is a technical term, but it makes the point very strongly. We cannot go on with these piecemeal additions, subtractions and amendments to electoral legislation. That is not acceptable, and the Law Commission and the Electoral Commission have been unanimous in making that recommendation to us in Parliament as well as to the Government.
I turn to the issue of the accuracy and completeness of the register, and its integrity. As the noble Lord, Lord Beecham, has quite rightly said, this is a matter of wide concern. The Minister herself said in her introduction that the integrity of the register was the solid basis for our confidence in the way in which our elections happen. As was so clear from the brief exchanges that she and I had last Thursday, the Government simply have not taken on board the fact that we lost some 2 million people off the register last December, and some 2 million people—not necessarily the same people, of course—reappeared to vote on 23 June. In the closing months of last year, we were constantly told by Ministers—I absolve the Minister herself from this; it was not her line of argument—that those who were coming off the register were “ghost voters”. The fact that many of them had voted in the general election some months before was ignored. We now know that there are 2 million-plus more people who voted on 23 June, who were accepted at the polling stations as being eligible to vote and did so, than there were in December. The people who turned up in those many polling stations throughout the country 10 days ago were not ghosts; I hope that the Government will now accept that they were perfectly valid people who were undertaking their democratic right. It is completely ridiculous that we should now be going back to the 1 December 2015 basis for any acceptance of the register as a complete and accurate reflection of those who are eligible to vote in elections in this country.
I know that the Minister had some difficulty last Thursday in getting appropriate briefing for it, because at that stage she was finding some difficulty—she was very honest to say so—in getting abreast of this. However, apparently she was given the brief that, if we were to make any change, this would mean that the register would be more out of date. That is ridiculous—of course it would not be. Simply by making sure that we were using the register of 23 June rather than the December register, it would be much more up to date rather than less.
It may be said that it is impossible at this stage to make a major change to the statutory basis on which the boundary commissions will now work, but a comparatively modest change to the law by extending the 5% variation either side of the mean electoral figure that is given for constituencies to, say, 8%— which was analysed by the House of Commons Select Committee in the last Parliament as being much less destructive—would also enable the boundary commissions to take account of the variations that have taken place since December without having a dramatic and very difficult situation to face, and it would not mean a major delay in the application of those figures in time for the 2018 completion of the review process. I hope that this afternoon she will again acknowledge that, because it was not confirmed on Thursday.
Of course, if we have an early general election this year or next year, it will be under the existing boundaries, so there is no question of there being any difference there, and there will be no change in the size of the House of Commons—no reduction from 650 to 600 MPs.
The context of the order we have before us this afternoon in those two respects is extremely important. It is controversial, and as has already been said, this is an opportunity for the Government to think very carefully about ensuring that the register, for which we all have a responsibility, is as complete and accurate as possible and therefore carries the integrity that the Minister referred to in her opening remarks.
On the order in more detail, I and my colleagues—I think this is common around the House—accept that there is a substantial, sensible rationale for these pilot exercises. There is no problem about that. We all recognise that the annual canvass has become a rather rusty instrument for seeking to get the maximum amount of information in an effective and economical way, and the current proposal that there should be greater flexibility for a number of authorities to approach this issue, and that that should then feed into a wider consideration for the future is of course very sensible. We do not spend enough time establishing a good evidence base for changes of this nature. It is certainly true that the IER transition has been and should be an opportunity to review this process, and I and others will certainly support these pilots.
There was some concern among electoral registration officers that major social and other changes were taking place which also prevented the annual canvass being as effective as possible. I heard Ministers say, “Oh, the great increase in the number of gated communities made it necessary to find different ways of obtaining the necessary information”. There are only a small number of gated communities—I think 1% of the total population of the United Kingdom lives in a gated community. I found my way into one with no difficulty at all on 23 June, polling day, just by getting a little local information from tradesmen and postmen. They know how to get in, and surely representatives of the local authority will always be able to find out how. I do not think that that has been the conclusive reason.
It is much more that there are elusive groups in the community that are difficult to track down with the annual canvass. The one group of which we are all very aware is students. It is noticeable that some of the authorities that lost most from the register in December were cities and towns with a major student population. The highest figure of all was in Cambridge where 16%—12,890 people—were excluded from the register. I will come back to the point about students because there are some examples, but that is an obvious target. If, by reallocating resources, electoral registration officers can make a specific target of the student community—and incidentally ensure that, if elections are likely to take place during periods when the academic year is not in full flow, their postal and proxy votes are drawn to the attention of those concerned—it would be a far better use of scarce resources than simply pursuing the old annual canvass series of approaches.
So in Cambridge the figure was 16%, but it was not common. I know, for example, that in the city of Sheffield there were two quite different circumstances. Sheffield University went to great lengths to ensure that students were enrolled at the beginning of the academic year, and the enrolment for the electoral register was put before the individuals as they came into the university, while Sheffield Hallam, just down the road, did not undertake that responsibility. The difference was really dramatic between those two areas. Looking through the numbers for other university cities, I see that that is also true. I hope that the Minister and the Government would accept that in due course they should release electoral registration officers from the expensive and perhaps rather less effective requirements of the annual canvass, and they should be given every encouragement and resource to concentrate on that particular group.
The other group that tends to be elusive is young and urban—primarily males, rather than females. It was during the previous Government that we persuaded Ministers to include data matching from DVLA to enable the electoral registration process to take better account of people reaching the appropriate age, which tended also to be the moment when they had to try to find some form of transport. It is noticeable that a number of the areas—again, on the list of those that lost out in December—tended to be where there is a very considerable mobile, young population. I see that Hackney lost 13%, and some other areas also lost out.
In redirecting the priority of the ERA, I hope that the Minister and the Cabinet Office will do everything they can, obviously in co-operation with the Electoral Commission, to identify those particular elusive groups to whom special attention should be targeted. Was the choice of the three specified areas in the order in any way informed by the number of people who might be in those rather difficult-to-access groups? Birmingham lost 5%, which may be because there is a considerable young, mobile and student community there. I would have thought that Ryedale probably did not lose, but maybe that is a good marker—a corrective, as it were—and a comparison. In South Lakeland, which I happen to know quite well as one of my parliamentary colleagues represents that area, the figure was minus only 1%. So there seem to be two markers to check on against the bigger area of Birmingham. It would perhaps have been interesting to have included Cambridge and Hackney, which, as I have said, have considerable numbers to include.
Otherwise, it may well be that the pilot proposals are both practical and reasonable. I listened with interest to the way in which the noble Baroness described them. My concern, though, is about how quickly we will be able to learn from them, particularly since, as she said, we may well want to have a second tranche. It seems to be a pretty extensive period—nearly a year away, at 30 June 2017—before we will get any report back on the pilots. I mean, the whole purpose of a pilot is to learn and move on, and to see whether it gives us useful lessons for other areas.
I must put one other little query to the Minister that is also relevant. Article 1(2) of the order says, very firmly and with complete authority, that:
“This Order extends to England and Wales”,
but paragraph 3.2 of the Explanatory Memorandum says:
“This entire instrument applies only to England”.
Maybe I have missed something here, but it seems a bit curious that those statements are so firmly in opposite directions. In the era of EVEL, everything has to be looked at in relation to whether it applies to one part of the UK or another, and whether English MPs uniquely have a role to play on their own or whether English and Welsh MPs have a particular responsibility and interest. As I said earlier, given the need to make sure that the whole of the UK is marching as one, it would be helpful if the Minister could explain exactly what the application of the order is.
My Lords, I have a few comments to make in respect of the order. As we have heard, the order establishes a number of pilot schemes, all of which are in England—which may cause a discrepancy in relation to what the noble Lord, Lord Tyler, said. The pilot schemes all actually refer to councils in England, although the order itself certainly covers England and Wales. I do not have any objection to pilot schemes in principle: they enable us to see how other methods of collecting data and electorate details work and, if they prove to be more effective, they can be rolled out further to a wider area, which is very good.
My concern with these regulations is that we could get to the point at which the system that we end up with is not as effective as what we have in place now. I am a little worried about the references to cost in the notes. I want an absolute assurance from the noble Baroness that this is not just about driving down costs at the expense of having a robust system in place to make sure that we have a complete and accurate register.
I see the point—as we saw in the guidance note—about how the two-stage process could cause some confusion, but I still think that it is important that we have a robust process in place. Therefore, can the noble Baroness give a guarantee to the Grand Committee that nobody will be removed from the register due to a funding exercise to reduce costs? That would be a terrible place to find ourselves in.
One of the problems the Government have got themselves into, of course, is that they have not sought a wider range of partners to get people to register to vote. I have spoken in the Chamber many times about registration—as have the noble Lord, Lord Tyler, and the noble Baroness, Lady Chisholm. It is important that we look at how we can use other organs of the state to get people to register to vote. Obviously local authorities have a major role, but we also talked about how we want universities to make a habit of getting young people to register to vote, as well as the Post Office and other organs, such as the DWP, where people go to pay their rent and things. How can we use those organs to get people to register to vote? There are other private organisations, delivering public services that we could also involve. I remember many years ago, when I was in New York, people would register to vote at the counters in the post offices. That was quite common. It was about 15 years ago and there was nothing unusual about it at all. In that state at least, they were using other organs to get people on to the register. It was actually part of the service: “Are you registered to vote? We have the forms here, and if you fill them out, we’ll do that”. We need to look at that along with the other organs of state and not just restrict ourselves to people having to respond to a canvass or fill in a form online themselves and submit it.
We have heard about the 2 million people who were removed from the register in December 2015 and the 2 million who have now come on to the register. Maybe they are the same people; if so, they were not ghosts after all. We need a system to enable people to check that they are on the register. We may find that the millions who applied to vote in the referendum were actually on the register but did not know it, so reapplied. That is great but, of course, it clogs up the system with unnecessary applications. We need to have a situation where people can check whether they are registered to vote. We must not forget the people who are most likely not to be registered: as we have heard, that is young people, students, black people and people living in rented accommodation.
I agree very much with the comments of the noble Lord, Lord Tyler. He is an undoubted expert in these matters, and the Grand Committee would be very wise to listen to the points he makes. He is right to say that the legislation governing elections needs urgent consolidation, review and reform. The complexities now cause everyone great problems at all levels, and they need to be dealt with. That matter is in the hands of the Government. It is time for them to respond to the views of the Law Commission and the Electoral Commission and sort this matter out, and to find government time in this Parliament to consolidate all electoral law in this area. That would benefit everyone concerned.
My noble friend Lord Beecham is right to raise the issue of the basis of the boundary review being based on the register as of December 2015. Let us not forget that the recommendation from the Electoral Commission was that it should be based on the registration as of December 2016. It was the Government who completely ignored that advice and took a year away. In my own borough of Lewisham, our register has grown by 20%—the biggest growth in the whole country. At the moment Lewisham has two and half MPs, with two MPs in the borough and one shared with the London Borough of Bromley. All three are Labour Members of Parliament. Years ago we used to have four MPs in the borough, and then more recently we had three. We now run the risk of going down to two MPs. I contend that as our number of voters has grown by 20% in a year we should at least retain our two and a half MPs, and maybe, in fact, we should go back to having three. One-fifth of our electorate is coming back on, and that should be a matter of great concern for the Government. If we end up with this review going through and there is great disparity regarding who represents people and the size of the seats they cover, that would be completely wrong.
I agree with my noble friend: I believe the Government very cynically brought the date forward by one year for party political advantage, and for no other reason at all. They completely ignored all the independent advice, stood there at the Dispatch Box and brought the review forward by one year. Why did they do that? It is purely because they thought it would be better for them in a future general election, and that is a terrible place for us to be. All legislation regarding elections should be done on the basis of consensus and agreement because our democracy is worth much more than party political advantage.
I have no further points to raise on the order itself as I have no great problems with it, but I look forward to hearing the Minister’s response.
My Lords, that was certainly an interesting debate. Indeed I feel I am in the presence of great experts, with the noble Lords, Lord Kennedy and Lord Tyler, so I start from a position of great humility. However, I certainly intend to answer most of their questions.
The noble Lords, Lord Beecham, Lord Tyler and Lord Kennedy of Southwark, all mentioned the boundary reviews and the change in the register following the take-up during the referendum. I covered this pretty well last Thursday, but unless we have a defined date and a set of registers to assess, it is impossible to run a review. The registers used for a boundary review are necessarily a snapshot, and registers always continue to change while a review is taking place. As all noble Lords know, without the implementation of the boundary reviews, MPs will continue to represent constituencies drawn up on the basis of data that will be over 20 years old at the next election. That would be to disregard significant changes in the population in relation to the principle of equal-sized constituencies, which were endorsed by the Committee on Standards in Public Life. The reforms have already been delayed once, and it is vital that we do not delay them any further so that the 2020 general election is not fought on boundaries that will by then be nearly—
I am grateful to the noble Baroness, but I have not yet heard any explanation—I fear none is coming—of why we should not use the absolutely solid evidence of the electoral register that was, as it were, tested to destruction on 23 June 2016. What is the objection to using that register for the basis of this discussion? I cannot understand that.
May I, too, come back to that point, rather than interrupt again later? I agree entirely with the Minister’s point about the need to have a defined date. It is absolutely right that we have to fix the date—I have no problem about that—and draw the boundaries on the basis of the figures at that date. It is absolutely spot on to say that we cannot move the date around. The problem the Government have to contend with is that we had a fixed, defined date, which was 1 December 2016, but they chose to scrap it and bring it forward by a year. The problem is that that was going to be the date, so all these people would have been on the register and would have been counted. I do not think the Minister was involved, but somebody in government sat around the table and decided to bring this forward by a year. We have never had an explanation of that. We have talked about ghost voters and other problems and this and that, but it was the Government’s decision. The December 2016 date clearly guaranteed the commission plenty of time over the next couple of years to have a review. The review would have come to both Houses some time in 2018, been approved by both Houses and been in place for the election in 2020. However, somebody in government took a decision to bring it forward by a year, and I suspect that decision was made purely for party political advantage. If that is the case, it is absolutely disgraceful.
Obviously, that was before my time. The reason why the date cannot be changed now is that doing so would involve primary legislation. If such legislation was brought in to change the whole system, it would mean that we would definitely not get the boundaries reviews done in time for 2018.
I do not know whether that would have to be done through primary legislation, but I guarantee the Minister—I am sure the noble Lord, Lord Tyler, would do so as well—that the Government would get the full co-operation of both opposition parties and would get it through in a day or two. That would be absolutely no problem whatever. They could get it through next week if they needed to do so. I would provide complete co-operation on that, so there would be no problem about delaying things.
The problem is that the boundary review has already commenced and the Boundary Commission is expected to report later this year, so that would all go down the drain. There would definitely have to be primary legislation, and there is quite a lot going on at the moment, so would there be time for it? We would need to get it through so that we could do the boundary reviews by 2018, ready for the general election in 2020, so there really is not the time. The review has already started—I ought to move on, otherwise we will move round and round in circles—but that is the reason.
The noble Lord, Lord Tyler, wanted to know how the pilots were chosen. They have been chosen through the EROs, who came forward with ideas and proposals and expressed the wish to participate. He also talked about the Law Commission. The Government are currently considering the commission’s recent interim report on electoral law. This comprehensive and wide-ranging report makes a number of recommendations, including in relation to electoral registration, and it is important that the Government give the report due consideration before making a formal response. I hope he will understand that I cannot pre-empt the Government’s response at this stage. I look forward to continuing the work to improve electoral registration.
The noble Lord asked why the Government do not change the registration on which the boundary review is concluded. I think I have already covered that. As I said, it would need primary legislation, which is not possible at this time. The noble Lord also mentioned the extent of application. I think he was talking about England, Wales and Scotland, and how that worked. The legal jurisdiction is England and Wales, and that is its extent. The order applies only to England because the authorities concerned are all in England.
The noble Lord, Lord Kennedy, talked about looking at postal databases to boost registration levels. The use of data to improve electoral registration is an important tool, and indeed Birmingham and South Lakeland will look to harness the information from multiple local data sources to help target their activity at households. As the noble Lord, Lord Tyler, mentioned, there is indeed a terrible problem with take-up from certain representations in the country, particularly BMEs. We are looking at that, and it really has to be sorted out. It is a problem that seems to keep going on and on. The Cabinet Office is putting this at the top of its list.
Students are a difficult problem as they tend to move house every year. Part of the problem is that the actual academic year starts in September and October but the registration is done in the December the year before. Again, that is being looked into. We are hoping that civil organisations such as Bite The Ballot are having some impact in getting students to register. It was interesting that it seems that a lot of students registered to vote in the EU referendum but did not actually vote when the day came. We are looking into why that was the case. It cannot be that they all slept in from 7 am until 10 pm.
I think the answer is that not all of them were given the opportunity, or saw that there was an opportunity, to register for a postal vote. When the period for registration was extended—when, as the Minister will recall, the system collapsed—we did not extend the deadline for postal votes. There was a whole 24 or 36 hours when they could register but could not then get a postal vote. Obviously, many of them would have found that they would not be in the place where they had anticipated registering because it was the end of the academic year.
I take the noble Lord’s point. Interestingly, all chancellors at universities were written to at the start of the referendum to say, “Please encourage students to register”. At that time the students would have been able to get a postal vote, but I certainly take the noble Lord’s point. I have probably covered all the questions. Is there anything I have left out?
The Minister has covered the points and we are very grateful for that. However, I think generally that the Government have to do more in this area. I am sure that they wrote letters to the vice-chancellors, which is great, but this should be included as part of the normal work of the university; they should have to get people to register to vote. With all the thousands of young people turning up at universities every year, part of their induction should be getting them to register to vote. Registration is often seen as going on in the corner over there with the door shut, and few other people get involved. It must be much more of a responsibility when public servants in a variety of roles meet members of the public. That is what we need to do to make it work.
I agree with the noble Lord. Of course students can register at home as well. However, we are very fortunate today to have a Minister for higher education here, so I am sure she is taking note of everything that everyone has said and will go back and make sure that we concentrate on this one. It is a very important point and the Cabinet Office is well aware of it. We need to make sure that we do more.
Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975 (Amendment) (England and Wales) Order 2016
Motion to Consider
My Lords, as the Committee will be aware, the Rehabilitation of Offenders Act 1974 seeks to support the reintegration into society of offenders who have demonstrated that they have put their criminal past behind them. After a specified period of time, therefore, the Act provides for cautions and most convictions to become spent. When individuals apply for most jobs or seek insurance, they do not need to disclose spent cautions and convictions, nor can they be taken into account by employers and others. Research has consistently shown that obtaining employment lowers the risk of offending. That is the general position under the primary legislation.
There are, however, certain types of employment and other activities that give rise to particular risks to the public. The Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975 therefore creates exceptions to the Act so that in some circumstances certain spent, as well as unspent, convictions and cautions must be disclosed and may be taken into account when assessing a person’s suitability for certain positions.
Those areas of activity included in the exceptions order require a high degree of trust, often involving vulnerable persons. It is therefore appropriate that an employer should know a person’s fuller criminal history before an offer of employment is made, and consideration can be given to any necessary protections to be put in place. The three amendments in the order are part of the Government’s ongoing commitment to keep safeguarding measures in step with developments elsewhere. The first provision is designed to align the order with the Police Act 1997 (Criminal Records) Regulations 2002 in relation to certain regulated activity with children; the second covers certain roles within the Independent Police Complaints Commission; and the third relates to judicial appointments, which are already covered by the exceptions order, to allow for the fullest disclosure of criminal conviction information.
There is an anomaly between the exceptions order and the related Police Act 1997 (Criminal Records) Regulations 2002 that needs to be addressed. The Police Act regulations cover both regulated activity concerning children that is unsupervised and carried out on a frequent basis—for example, teaching—and activity that would be regulated activity relating to children if it were done frequently. Examples might be the provision of health and palliative care to children who are sick or disabled, or childminding on a one-off basis during the school holidays. At the moment, however, only such activity that is carried out frequently is covered by the exceptions order. The purpose of the amendment is therefore to align the order with the Police Act regulations so that roles involving unsupervised work with children on an infrequent basis are eligible for enhanced criminal records checks.
The Independent Police Complaints Commission was established by the Police Reform Act 2002 and became operational in April 2004. The IPCC’s fundamental statutory purpose is to secure and maintain public confidence in the police complaints system in England and Wales. It does so by making decisions independently of the police, government and interest groups. It is tasked with investigating the most serious complaints and incidents involving the police across England and Wales, and it also handles certain appeals from people who are not satisfied with the way the police have dealt with their complaint.
By the end of 2017, following a three-year programme of reform and expansion, the IPCC will independently investigate all serious and sensitive cases. The expansion has increased the number of cases and range of matters being investigated. Most notably, this includes an increased number of child sexual abuse and exploitation cases, and allegations concerning the abuse of vulnerable adults.
It is clearly important that commissioners and staff within the IPCC who have contact with vulnerable people or access to sensitive information are thoroughly vetted. The amendment to the exceptions order will permit the IPCC to ask for, and take into account, the unprotected spent convictions and cautions of staff and commissioners whose work involves this type of contact or access. Contact with children by commissioners and other IPCC staff is already covered by other provisions in the exceptions order relating to regulated activity, but contact with other vulnerable people is not covered. The IPCC will be able to ask for the disclosure of this information when recruiting to these positions.
The Constitutional Reform Act 2005 established the independent Judicial Appointments Commission—the JAC—to select candidates of good character for judicial office in courts and tribunals in England and Wales. Prior to the Act, appointments were made by the Lord Chancellor. Magistrates are appointed by the senior presiding judge, rather than the JAC, but are assessed for suitability in the same way as other judicial appointees. As noble Lords would expect, judicial appointments are already covered by the exceptions order, given the nature and responsibilities of such roles. This means that the JAC is currently entitled to ask candidates for details of their unspent convictions and certain spent cautions and convictions that are not protected from disclosure, and can take that information into account.
As I have referred to protected spent cautions and convictions, I will briefly explain what they are. I am sure noble Lords will remember that where an occupation or activity is listed in the exceptions order, full disclosure of all spent cautions and convictions was formerly allowed. In May 2013, however, following a Court of Appeal judgment, which was upheld by the Supreme Court, the Government amended the disclosure policy under the exceptions order to provide that certain old and minor spent cautions and convictions are protected from routine disclosure in criminal records certificates. In other words, they are filtered out of certificates and do not have to be disclosed by individuals, nor can they be taken into account by employers.
Since May 2013, the JAC has not therefore seen an applicant’s full criminal record. The Lord Chief Justice has expressed concern about this position, particularly in relation to dishonesty offences, which may go towards assessing an applicant’s good character. He has therefore supported the commission in requesting this amendment to allow the disclosure of all spent cautions and convictions. The commission is clear that the disclosure of old and minor spent cautions and convictions is required to mitigate the risk to the integrity of the judiciary should details of an appointee’s previous caution or conviction subsequently emerge. The significance of a caution or conviction is considered much greater because of the unique position of the judiciary, including the magistracy. It is a requirement that judges be of good character, and if they did not possess such good character, the confidence of the public in their constitutional function might be damaged.
I hope noble Lords will support the Lord Chief Justice’s view that the integrity of the judiciary needs to be upheld. However, before the Government agreed to support this change, we asked the commission to confirm that it would adopt a clear and transparent recruitment policy on how old and minor cautions and convictions would be treated to make sure that all applications are treated objectively and fairly. I can reassure noble Lords that proper and balanced consideration will be given to any old and minor spent convictions when disclosed; they will not automatically preclude an applicant taking up a judicial appointment. The JAC’s Good Character Guidance has been provisionally amended and will be available to candidates if Parliament approves this amendment and once the order comes into force.
I am sure noble Lords will agree that this statutory instrument is necessary for public protection purposes. It needs to be amended regularly to make sure it is up to date and keeps pace with developments elsewhere. There is always a balance to be achieved in the disclosure of criminal conviction information between the rehabilitation of offenders and public protection. These amendments to the exceptions order are limited in scope, but are necessary for the purposes of safeguarding vulnerable people and maintaining the integrity of the judiciary. I beg to move.
My Lords, I can confirm that the Opposition—entirely embodied by me on this occasion—welcome the order. I am grateful to the noble Baroness for elucidating some of its detail. I intended to ask whether the magistracy is included in the reference to judicial appointments, and she has confirmed that it is, which I think is desirable. However, I am not yet clear about the position of police commissioners as opposed to officers and whether they are included.
Given that police commissioners have an overriding responsibility in relation to disciplinary matters and the like, I wonder whether—I do not expect the noble Baroness to answer now—the Government might wish to consider the position of police commissioners in relation to this. One thinks in a different context of the activities of police forces; for example, in South Yorkshire, where there have been great problems, which are not, I hope, related to this. On the other hand, of course, the police were involved in child abuse investigations and so on, and it might be thought desirable for the police commissioner with overall responsibility for that to also have a clear position on this. I am not asking the noble Baroness to answer now or to make any policy decisions now, but she may wish to take this back to others for a view. All I ask for is that it be considered. I am not saying that it should be definitively acted on but, in my submission, it ought to be considered. With that comment, I am certainly happy to endorse the order.
I thank the noble Lord for his support. As regards the facts I can say, police and crime commissioners are vetted for their suitability—police officers are already covered, and full disclosure is required—but I will take back the comments he made. With that, I thank him again for his support and comments, and I commend the draft order to the Committee.
Committee adjourned at 5.42 pm.