Tuesday 21 March 2017
Greater Manchester Combined Authority (Fire and Rescue Functions) Order 2017
Motion to Consider
That the Grand Committee do consider the Greater Manchester Combined Authority (Fire and Rescue Functions) Order 2017.
My Lords, I shall speak also to the Greater Manchester Combined Authority (Transfer of Police and Crime Commissioner Functions to the Mayor) Order 2017. These orders give effect to the policing and fire elements of the devolution agreements between the Government and the Greater Manchester Combined Authority.
With the Committee’s permission, I will turn first to the Greater Manchester Combined Authority (Transfer of Police and Crime Commissioner Functions to the Mayor) Order 2017. The purpose of this order is to make detailed provision in relation to the transfer of responsibility for police and crime commissioner functions in Greater Manchester from the Greater Manchester police and crime commissioner to the directly elected mayor of Greater Manchester.
The transfer of these functions to the elected mayor will preserve the democratic accountability already established under the police and crime commissioner model. It will also join up oversight of a range of local services, including fire and rescue, opening up opportunities for broader collaboration. This is a chance to build on the strengths of the PCC model. The order requires that the elected mayor must personally exercise the core strategic functions of setting the police and crime plan, take decisions on chief constable appointments and set the policing component of the combined authority precept.
To provide additional leadership capacity, the order enables the elected mayor to appoint a deputy mayor for policing and crime, to whom certain police and crime commissioner responsibilities may be delegated. The order also requires that a new police and crime panel be set up. This panel will scrutinise the decisions of the mayor in respect of the exercise of their PCC functions in much the same way as the current panel does in relation to the police and crime commissioner. This order has been developed in consultation with the Greater Manchester Combined Authority and the Greater Manchester police and crime commissioner, and the combined authority and its constituent councils have given their consent.
I will now turn to the Greater Manchester Combined Authority (Fire and Rescue Functions) Order 2017. The purpose of this order is to transfer the responsibility for oversight of fire and rescue functions from the Greater Manchester Fire and Rescue Authority to the Greater Manchester Combined Authority, with these functions to be exercised by the directly elected mayor. Transferring oversight of fire and rescue functions to the mayor will provide direct electoral accountability for the provision of this key public service. It should also facilitate closer working with other local partners, including the police. This is obviously consistent with our desire to encourage greater collaboration between the emergency services.
The order permits the mayor to delegate certain responsibilities to a fire committee, to be formed of members from the constituent councils of the Greater Manchester Combined Authority. The committee is intended to assist the mayor in carrying out their fire and rescue functions. At the same time, the order identifies a number of fire and rescue functions as strategic to the delivery of fire and rescue. These functions must be personally exercised by the mayor and shall not be delegated. These strategic functions include approving the local risk plan and fire and rescue declaration in accordance with the fire and rescue national framework, and approving contingency plans under the Civil Contingencies Act 2004. The elected mayor will also remain personally responsible for decisions relating to the appointment of the chief fire officer. Scrutiny of the mayor’s exercise of fire and rescue functions will be undertaken in line with the arrangements for non-PCC functions.
The changes to be made by this order have been endorsed by the people of Greater Manchester in a public consultation conducted by the combined authority. The order was developed in close consultation with the Greater Manchester Combined Authority and has been formally consented to by the combined authority and its constituent councils. I commend these orders to the Committee.
First, I thank the Minister for her introduction to these orders. I agree with her that there has been wide consultation and that it is appropriate for this Committee to bear that in mind when reaching its decision in what I hope will be only a few minutes’ time. I should declare a residency qualification, in that I live in Greater Manchester and for 18 years I was an MP for one of the 27 constituencies. For eight years, I was a member of one of the 10 constituent borough councils—and, to complete the full set, I was a Minister in the Department for Communities and Local Government when the combined authority order was set up in 2011. I know that the city deal that flowed from that was widely welcomed across Greater Manchester, along with the steps that have been taken since to ensure that additional resources—funding what has traditionally been central government, Whitehall-directed services—will be put into the hands of the combined authority from the start of the new regime in May.
The progress made so far has been much envied and imitated around England, where a steady stream of visitors from other cities and for that matter rural and shire areas have been received by the combined authority, asking it how the model has been developed and how it can be copied. All that is positive and very much a direction of travel that my parliamentary colleagues and I believe is right, with more decision-making and discretion over the delivery of public services in a given area in the hands of those who live there and are elected from there.
I have a concern about the mayoral model, but that particular ship has left port. A loss in cross-authority representation and accountability flows from that, but these orders do something to combat or respond to that. Certainly, to replace the police and crime commissioner —somebody who, for all his qualities, was elected on a 14% turnout across Greater Manchester—with somebody elected to be mayor of the combined authority, and with a much more significant and wider role in the delivery of public services, is almost bound to increase the visibility and accountability of the person carrying out that role. I welcome that, as do the constituent authorities.
The police and crime panel, to which the Minister referred, is seen as a way of maintaining or improving the police service’s accountability. There is a way to go in that regard; it is to be hoped that a more visible mayor’s being in charge of the police service may lead to the panel having more visibility and capacity to keep control, or a proper oversight of that service. Nevertheless, it is a good thing to see that incorporated in the proposals.
As for the Greater Manchester Fire and Rescue Authority, there is no equivalent commissioner but rather control by representatives of the 10 local authorities, and there is no doubt that the new arrangements will give more visibility to the leadership of that service. In the longer term, bringing the police and fire services under common management must be a better way to provide a coherent and integrated service. Indeed, my one question to the Minister relates to that. Today, the Care Quality Commission has produced a report on independent ambulance services. The ambulance service in Greater Manchester is provided by an independent body based in Blackpool. Bearing in mind that these orders bring together two of the blue light services in Greater Manchester—and particularly in view of the critical nature of that report, but more generally in any case—have the Government looked at ways the blue light services in Greater Manchester could be brought together? Again, I remind the Minister that the combined authority in Greater Manchester will be taking over a significant amount of NHS commissioning for future years—a step that I very much favour.
With that sole question to the Minister—I dare say she is not equipped to answer it off the top of her head; perhaps she would like to write to us about bringing together the three blue light services—I am certainly happy to support these orders.
My Lords, I declare my interest not merely as a member of the combined authority and leader of Wigan Council; I am in a position to answer the question asked by the noble Lord, Lord Stunell, on ambulance services because I chair the Greater Manchester health partnership board. The orders are very interesting. I have yet to see in the manifestos of either of the two main mayoral candidates what their policies are on the docking of working dogs’ tails. That obviously is an important consideration.
I not only thank the Minister for introducing the orders, but welcome the fact that the Government have put them together. To add to the points she raised, it is not just about bringing together the blue light services, which is important. We need to see police and fire as part of general public service reform. Many of the issues the services face are related to the fact that people have problems across their lives. We need to get the police and fire services engaged in the work we are doing in Greater Manchester across a wider range of public services, not just in blue light services.
The answer to the question asked by the noble Lord, Lord Stunell, is that the arrangements are currently handled through Blackpool but they are coming back to Greater Manchester. We asked for ambulance service commissioning to come back to Greater Manchester because, as we are now a devolved health area, we need to do this rather than working through CCGs in Blackpool, for example.
There are actually two panels that look after the PCC in Greater Manchester: the scrutiny panel, made up of members of the authorities, and the combined authority itself. We will need to find a mechanism to continue that work, because it is important that the work of the police and crime commissioner, whether exercised by the mayor or anybody else, has consent across the whole of Greater Manchester on major issues.
It may be my ignorance, but the documentation does not make clear the deputy’s role. I would hope that the mayor would appoint a deputy. He or she will have a lot to do generally and we need to supervise what is going on in the police service. A day-to-day role in running the police service would be too much for anybody, and the same is true for the fire service. I hope we will set up the committee to run that, but we need to understand the role of the deputy and how answerable they will be to various public bodies.
As the Minister is probably aware, I regret that the PCC can implement the Greater Manchester precept without really consulting the 10 authorities. That needs to be changed. Unfortunately these orders do not do that; they roll it on. It is also not clear in the fire order whether the fire precept will need to go to the combined authority for approval, or the mayor will simply make a recommendation and we will not have any control over it. There has been a little dispute this year about how much the fire precept should go up by. With the representative of Trafford, I was on the losing side of that argument but we need to do that.
As the Minister said, we consulted on this across Greater Manchester. We welcome the changes. It will be an interesting challenge to have a mayor with the combined authority but I am sure we can all make it work to ensure proper devolution across Greater Manchester.
My Lords, I am sure the mayoral system will be interesting—possibly in the Chinese sense—but if it is likely to work anywhere, it will undoubtedly be Manchester. I want to raise a couple of issues with the Minister.
First, of course the Government would like to see combined police and fire authorities. There are places where that might be suitable. But I take it that where there is a different view locally—as there would be in the north-east, for example, where we have different boundaries for the different services—there will not be any compulsion on authorities to go in that direction.
I am sorry to say that, having been spending my time on the next statutory instrument, I have forgotten what my second point was. Perhaps I will approach the Minister afterwards.
My Lords, first, I make my usual declaration of interests as in the register; specifically that I am a local councillor and a vice-president of the Local Government Association. The two orders before us I have no issue with, and my comments will be correspondingly brief. The Minister, the noble Lord, Lord Stunell, and my noble friend Lord Smith of Leigh, who is a member of the authority, are the experts here.
As we have heard, the orders transfer fire and rescue functions and police and crime commissioner functions to the mayor for Greater Manchester. I am pleased that we are having an election for this position on the first Thursday in May. These functions will then be transferred to this new elected person to be accountable for the delivery of these very important services to people living in the Greater Manchester area. At the same time, the office of police and crime commissioner and the Greater Manchester Fire and Rescue Authority will both be abolished.
I record my thanks to Tony Lloyd, who has been the PCC for Greater Manchester since 2012. Before that he was a Member of the other place for 29 years, for both Stretford and Manchester Central. In that time, he also served as the chair of the Parliamentary Labour Party, which is an interesting job to hold down, and he managed to hold it for six years until he left this place to become the PCC.
Escaped, yes. Anyway, it is important to put that on record. For both policing and fire and rescue services, specific functions can be exercised only by the mayor, although they will be able to appoint a deputy mayor for policing and crime.
The issue I have with these devolution deals in general—not this one specifically—is that I sometimes feel they are a little unclear and you get a sort of patchwork. I accept the point that areas can work with what they think they can cope with. Certainly, in this area, the Greater Manchester mayor will have considerable powers, in many respects similar to those of the Mayor of London. They will also have powers in respect of the health service.
I am sure the three noble Lords present today fully understand all the functions the mayor will take over, but I am not convinced that every Member of your Lordships’ House is fully aware, or members of the general public living in Greater Manchester and other places. We need to have a much wider discussion about where we are going with local government and all these functions. It is time for the Government to consider producing a Green Paper to enable proper debate about these functions in England. I have approved a number of these orders in recent weeks in this Room and the Chamber. They are all different and sometimes you cannot work out why. We need a discussion about where we are going with local government. All these positions are important, and it is important to have democratic control. Let us not forget that the individuals involved will be spending huge sums of council tax payers’ and taxpayers’ money. We must be clear who is there, why they are doing it and how we engage with them. But that is a discussion for another time.
As I said, I support the orders and I certainly wish the new Manchester mayor—whoever it is, although I hope, of course, that the Labour candidate gets elected—the very best in their new role.
My Lords, I have overcome my senior moment. I wanted to ask whether any consideration had been given to ambulance trusts, which are fairly unaccountable bodies but are, of course, part of the emergency services. Has there been any discussion with either trusts or local authorities about a different relationship—keeping that phrase fairly neutral—as regards the future of that service?
I thank all noble Lords who have taken part in this debate. I too must declare an interest as a former councillor and resident of Greater Manchester. I pay tribute to Tony Lloyd who has held the fort very well over the last couple of years in his role as interim mayor, and in all the roles he has held previously in government and local government. We have here three people who will be voting in the mayoral elections in May, so that is very good. The noble Lord, Lord Stunell, mentioned turnout. I recall an experience I had in Greater Manchester of probably the worst turnout in history: the Benchill by-election back in November or December 2001, where turnout was 8%. That was a depressing low. Looking forward to the mayoral elections, I was quite sceptical about the Mayor of London, but that is not a position for which any political party is scraping round for candidates. It is very sought-after and has gained a profile over the years, and I fully expect that will happen in Greater Manchester and elsewhere. As it does, visibility will grow and accountability will become a lot more obvious.
The noble Lord, Lord Smith—I was going to call him my noble friend, but he is really—talked about blue light services being brought back down to GM. The noble Lord, Lord Beecham, asked about ambulance trusts. It is within the gift of whichever combined authority to request collaboration in that regard, or that those matters be part of the devolved model. There are no limits to what the model may look at. That brings in the point made by the noble Lord, Lord Kennedy: that the different devolution deals are a bit of a patchwork. This is necessarily a patchwork because every area is different. For example, rural areas look very different from urban areas; they have different needs and different proposals. The noble Lord, Lord Kennedy, is smiling at me slightly but I said that on the then devolution Bill, and I firmly believe it. I say to the noble Lord, Lord Stunell, that the Liberal Democrats grilled me on accountability and scrutiny during the passage of that Bill. We have very rigorous structures in place, certainly in Greater Manchester and, I hope, elsewhere.
The noble Lord, Lord Beecham, asked about the compulsion to combine police and fire authority areas, particularly where they are not contiguous. There is absolutely no compulsion to do that. If they are not contiguous, such a move would require structural change anyway.
I think I have answered all the questions, but if not I will certainly come back to noble Lords.
I accept entirely that different areas have different needs and may want to tackle this issue in different ways. The point I was making is that the Government have not made it clear where we are going. That is not to say that different areas cannot tackle this issue in different ways; of course they can; they have different needs. However, the Government have never set out clearly in a document where they are going with this, which is why the situation is confusing. The West Midlands is a similar conurbation to others, with similar problems and similar areas, but the deal that was arrived at and the powers that were transferred are vastly different from those in other similar areas. Why? That information is missing. There is no difficulty with having different arrangements, but we need to know how the Government have arrived at the present position.
As the noble Lord, Lord Smith, mentioned, we left it up to local areas to say what their version of public service reform looked like—what did public service efficiency look like going forward and what was their plan for growth? Therefore, that might look slightly different in different areas, which is why I explained it in the way I did. However, there will be similarities: transport is a huge issue in Greater Manchester and the solution to that will be huge in terms of growth, as it will be for other areas.
Greater Manchester Combined Authority (Transfer of Police and Crime Commissioner Functions to the Mayor) Order 2017
Motion to Consider
That the Grand Committee do consider the Greater Manchester Combined Authority (Transfer of Police and Crime Commissioner Functions to the Mayor) Order 2017.
Electricity Supplier Payments (Amendment) Regulations 2017
Motion to Consider
That the Grand Committee do consider the Electricity Supplier Payments (Amendment) Regulations 2017.
My Lords, I beg to move that the Committee approves the draft Electricity Supplier Payments (Amendments) Regulations 2017. This instrument amends regulations concerning the contracts for difference scheme and the capacity market. Before diving into the specifics of the amendments we are discussing today, I will briefly explain these two schemes.
Contracts for difference, or CFDs, provide long-term price stabilisation to low-carbon generators, allowing investment to come forward at a lower cost of capital and therefore at a lower cost to consumers. The scheme ensures greater certainty and stability of revenues to electricity generators by reducing their exposure to volatile wholesale prices, while protecting consumers from paying higher support costs when electricity prices are high. The capacity market provides regular payments to reliable forms of generation in return for such capacity being available when needed, thus ensuring that enough capacity is always in place to maintain security of supply. A fundamental aspect of both schemes is the competitive auction process for awarding contracts, which drives down costs to consumers.
The next CFD auction, with a budget of £290 million for less established renewables technologies, is on track to open in April. This will result in enough renewable electricity to power 1 million homes and reduce carbon emissions by around 2.5 million tonnes per year from 2021-22 onwards. It will also allow developers of innovative renewable technologies to deliver the best deal for bill payers. Three main capacity market auctions have been held each December from 2014 to 2016 to secure capacity four years ahead from 2018-19 to 2020-21. The latest of these secured 52.4 gigawatts of capacity at a price of £22.50 per kilowatt per year. In January 2017, an early capacity auction was also held to secure capacity for winter 2017-18. The auction secured 54.4 gigawatts of capacity at a clearing price of £6.95 per kilowatt per year.
The regulations we are considering today will implement a second tranche of minor and technical amendments to improve the efficiency and transparency of the CFD supplier obligation, the levy on suppliers that pays for the costs of CFDs. They build on a first tranche of changes approved by Parliament last year, which became law in April 2016. These further changes are being implemented later to allow time for necessary changes to be made to the settlement system, which determines the way that CFD payments are calculated and paid. Both the changes under consideration today, and those implemented last year, were the subject of a public consultation and received a largely favourable response. These regulations also amend the levies that fund the companies established to deliver the CFD and capacity market schemes.
I will now summarise how the supplier obligation works and describe the amendments that are being made. The supplier obligation is a compulsory levy on all GB electricity suppliers to meet the costs of clean electricity generation under contracts for difference. The levy is collected by a private company, the Low Carbon Contracts Company, of which the Government are the sole shareholder. The levied funds are paid to CFD generators for the electricity that they produce. The levy rates are set on a quarterly basis and consist of two payments.
The first is paid daily, based on every unit of supply, and the second is a quarterly reserve amount that ensures that the Low Carbon Contracts Company faces as little risk as possible in covering payments to generators. Both rates are set based on forecasts of payments to the CFD generators, and levied on suppliers based on their market share. At the end of each quarter, the supplier payments are reconciled with actual payments to generators.
The changes being made through these regulations will further improve the efficiency of the supplier obligation mechanism. The most significant of the changes will speed up reconciliation payments to allow overcollected funds to be returned more quickly after the end of a quarter so that suppliers face less cash-flow risk. Secondly, they will allow the Low Carbon Contracts Company to reduce the reserve amount without notice when it has been overestimated, to ensure that suppliers do not overpay unnecessarily for renewable generation. This reduces their cash-flow risk. Thirdly, they will enable the Low Carbon Contracts Company to recover funds from suppliers when a compensation payment to generators is due in respect of generation that happened more than 10 quarters ago. Finally, they will prevent double counting of the green import exemption and the energy intensive industry exemption to avoid suppliers demonstrating a negative market share and thereby avoiding payment of levies.
Taking these changes together with those introduced last year, we estimate that the cost of CFDs to consumers will be reduced by £38 million over five years—a small reduction of some 40p to 60p in consumer bills. This set of changes alone was estimated to reduce bills by £22 million over the same period.
The second objective to be delivered through this instrument is to set a revised operational cost levy for the Low Carbon Contracts Company and a revised settlement costs levy for the Electricity Settlements Company, the company responsible for collecting and making payments to capacity providers under the capacity market. The companies play a critical role in delivering the contracts for difference and capacity market schemes and it is essential that they are sufficiently funded to perform their roles effectively. The Government scrutinise their operational cost budgets closely to ensure that they reflect the operational requirements and objectives of the companies and deliver value for money.
The companies have performed well and the cost of their core activities is slightly down from 2016-17. The increase in both budgets is due to the cost of upgrading settlement system software. The software upgrades are necessary to reflect a number of policy changes that simplify and improve the overall effectiveness of the capacity market and the CFD scheme. For example, the changes to the supplier obligation being discussed today will need to be reflected in the settlement system.
The software upgrades are being treated as operational costs rather than funded via capital. This means that they will be charged in full to the levy in 2017-18, rather than being recovered over the lifetime of the asset through depreciation charges on the levy. Overall there is no difference in costs to suppliers. The operational costs were subject to consultation, giving stakeholders the opportunity to comment, and remain unchanged following the consultation. The regulations revise the levies currently in place to reflect the operational cost requirements in 2017-18. Subject to the will of Parliament, the settlement costs levy for the Electricity Settlements Company is due to come into force by 28 March 2017, the operational cost levy for the Low Carbon Contracts Company by 1 April and the changes to the CFD supplier obligation later this year.
As a final point, I assure noble Lords that the Government will continue to evaluate and monitor the reforms following implementation to ensure that the measures put in place remain effective and continue to represent value for money for the consumer.
I shall intervene for just a short moment. Whenever we talk about these things there is always a kind of reticence—a fear somehow or other that the customer will be charged in an unsatisfactory way for Britain to move to the low-carbon economy that we all seek. I remind the Committee of my interest as chairman of the Climate Change Committee.
I will say three quick things. First, this is inevitably a complex matter. Inevitably, anyone listening to the Minister describing what was changing might have some difficulty in following, were they not absolutely up to date with what it was changing from. That is one of our problems: when we deal with these matters it is difficult to get them right and to get them simple. The Committee must accept that the Minister did a great job in explaining what is to happen. The regulations’ purpose is to do what I imagine we will go on doing almost every year to make sure that we learn from the lessons of the past and discover mechanisms whereby we can make the system work as cost effectively as possible. I emphasise that all of us wish to support that process. Whereas we want some stability in the overall system, we will be concerned if the basics are changed more than is absolutely necessary. We are perfectly happy if on each occasion we seek to tighten some things and loosen others to make the system manifestly more effective.
Secondly, however, I hope the Minister, in all the times that he speaks on these matters, will refer people to the work recently done by the Climate Change Committee, which shows that the overall effect of our low-carbon policy has been to reduce bills, not increase them. Roughly speaking it costs us about £9 a month more to pay for the costs of moving towards a low- carbon economy, but the bills are £20 a month less than they would have been because of the effects of those policies. As people exchange old white goods and other electrical goods for new ones, because of our policies, the latter are much more efficient. We have pressed the technology.
I remember going to buy a freezer at the beginning of the European Union process of warning people about the amount of energy used by new products—when the little notices came in for the first time. The freezers on offer ranged from those with an A rating to those with a G rating. As a matter of fact, I did not buy a freezer in that sale. I waited a year for the next January sales. I went around again and discovered that all the freezers were now between an A++ rating and a B rating. In one year we had changed: people were told about the value of low-carbon, low-emission products at a time when they could do something about it. They were not just generally told about it, but told at the moment when they could save so much a year by making that choice. Manufacturers discovered that they would not sell their products unless they made those technological changes.
I raise these issues because the constant talk in the press is very trying—not just for those of us who are concerned with them daily but for the Government and Opposition too—as if all this has made bills heavier, when it has not. Had we not done this, bills would be £20 a month more. That is not an imaginary figure, but shows how the reduction in domestic use of electricity affects the bills of the majority of people—some 85% of the population—who use both gas and electricity. In those circumstances, we have to go on talking about this, otherwise we lead people astray into thinking they are paying £9 a month extra, instead of saving some £11 a month in total. If they take a personal decision to improve their energy efficiency, they can make even more savings, but we never take that into account, of course, because it is a personal decision. However, the other two factors are a result of government policy playing back into how people pay their bills.
I want the Government constantly to quote this fact, because we have spent a lot of time on it, and it is very objective indeed. I know how objective it is, because our opponents have attacked it and said that it is outrageous, but have been unable to find a single item that they can show to be outrageous, being unable to find a single fact with which they can argue. It is outrageous to them, of course, because it undermines their whole attitude and the campaigning they have done—I am afraid—through a number of our popular newspapers. I hope that the Government will in future speeches include this simple matter to remind people, so that they always know.
My third point is that we hear from the press that the Government are very keen on keeping down energy bills and will make significant investigations and possibly take draconian measures to do so. I point out to the Minister that the report we have just produced shows that business electricity bills in this country are significantly higher than in the rest of Europe. It is not true of domestic bills, as a matter of fact; we sometimes forget that. It is more or less the same position with gas—the cost is somewhere in the middle of bills in the whole of Europe, which suggests that we may find there is not much we can do about it.
I have already spoken about the fact that bills are not greater, but less, because of our green measures, but I want to point to something in the report that is of considerable relevance to our discussion today: that electricity bills to business are higher in this country than in the rest of Europe. It is quite clear why: partly because we charge a higher distribution cost, whether or not it is a real cost, but also because our wholesale market is higher than in the rest of Europe. There is a real problem here. When as a committee we sought to find out why that was, nobody could tell us. Of course, the industry was unwilling to explain it—and one could understand why—and the Government admit that they do not have a ready answer. The Minister has said that the amendments address the cost of the necessary adjustment in how the market works and operating, as far as possible, a free market as we move towards a zero-carbon electricity supply. In that context, I hope he will spend a good deal of time concentrating on the two factors that are independently assessed as the reason for higher prices in the business sector. Otherwise, I am afraid that he may be led down the line that it is all about green taxes, when the opposite is true.
Therefore, the big issue here is the welcome way the Minister has introduced these changes, which suggests that we should do the same in all the other things we do. In other words, given the reality of the costs, we should find where money can genuinely be saved by the mechanisms provided. If we can do that, we shall show that this united effort of government and opposition—this issue is not party political—can lead the world and show other people how to do it.
My Lords, it is always a pleasure to follow the noble Lord, Lord Deben, on these issues. I agree with much of what he has said. I had not intended to speak, but he reminded me, as did the Minister in his opening comments, of how complicated the Bill that put all of this into place was. To this day, some of us still find it quite difficult to get to grips with. I thank the Minister for trying to explain it as well as he did. I miss Lord Jenkin who saw us through that Bill. I was saying to my noble friend Lady Featherstone, who was not here at the time, that Lord Jenkin was the man who really understood what was going on and helped us all through a difficult Bill. I put that on the record.
I thank the Minister for explaining the amendments to these regulations. They seem eminently sensible, drawn from the experiences of operating the regulations, which are vital to reforming the electricity market and encouraging low-carbon electricity generation to ensure the UK’s security of supply. I also express my gratitude to the noble Lord, Lord Deben, for his helpful remarks as background to the regulations, and for underlining the importance of the progress we have made.
The amendments to the regulations should increase the cost-effectiveness of the two main measures, the CFD scheme and the capacity market, since they reduce the heavy-handedness of the belt-and-braces approach of the CFD counterparty, the Low Carbon Contracts Company, and that of the Electricity Settlements Company for the capacity market. The Minister’s introduction eloquently explained the improvements. These companies exist only to make payments for low- carbon generation or demand-side responses, and to collect these payments from suppliers. The companies must also cover their costs. The regulations set up the system to do this in as transparent, equitable and cost-effective a way as possible, allowing for a sensible amount of reserves as some guarantee. One would hope and expect these payments to balance out through the reconciliation process.
Much of the debate on these regulations in the other place focused on the probability of error. I could join in and tease the Minister by asking him about 20 scenarios, any one of which could be the one occurrence that could not be reconciled. However, that would be facetious. The modelling looks robust, indicating that the companies have the ability to raise the funding necessary in a modern, technologically efficient manner and make the payments required.
The regulations merely deal with the process of funding. The bigger question is the accuracy of the strike price, which is relevant to the setting up of this compulsory regime. Noble Lords will know that that is contained in the contracts agreements and is not part of these regulations. The two most controversial applications relate to nuclear power and the Hinkley Point C plant, and onshore wind.
The Government have shown how quickly they can alter their assessments and mechanisms for adjustment through Part 2 of the Energy Act 2016 in relation to onshore wind and the compensation payments in the FIT regime. On the prevention of double-counting of exemptions in the measure, exemptions from payments are available to suppliers which import renewable electricity from EU member states. This green excluded electricity—GEE—will not count towards electricity suppliers’ market share for calculating their CFD liabilities. This raises questions about security of supply; whether government policy is blind, whether British-based or not; the relative pricing of renewable energy in the UK and in the EU; and whether security-of-supply policy should seek to encourage import substitution. It also begs questions relating to Brexit; I could ask the Minister various hypothetical questions about the internal energy market and any likely scenarios of tariff applications. I imagine he would say that further amendments can be made as circumstances change.
I am grateful for the clarity provided regarding the operational budgets of the two companies and the professional fees increase, brought about by the inquiries of your Lordships’ Secondary Legislation Scrutiny Committee. I very much agree with the Government’s financial policy to expense rather than capitalise software upgrade costs.
I have a few questions about the regulations. First, on the amendment to allow CFD reconciliation determination after the 10th quarter to be classified as non-generation payments, is a longstop provision of time envisaged, or is that included in the general retrospective provisions? Could this be one of those 20 unknown unknowns? Secondly, following the onshore wind provisions in last year’s Energy Act and given that onshore wind is now so much cheaper, are the Government any closer to allowing onshore wind to participate in future CFD auctions now that the threat of UKIP has receded? Can the Minister update the Committee on the position following the consultation on onshore wind in November 2016? Thirdly and lastly, I understand that the net savings to be passed on to electricity consumers are not a cash item and cannot therefore be shown or guaranteed in some way. However, the memorandum states that the operational costs budget of the two companies will increase, resulting in an increase, albeit minimal, in household electricity bills. Will these two features balance out and the net effect on consumers be neutral?
Having said that, I am content to approve the regulations.
My Lords, I begin by echoing the comments of the noble Baroness, Lady Maddock, about Lord Jenkin. I was reminded of the Schleswig-Holstein question, to which the Duke of Wellington said that only three people knew the answer—and one was dead, one had gone insane and the other one had forgotten it. Fortunately, my noble friend Lord Deben has not forgotten it and spoke very eloquently about broader issues than those raised by the statutory instrument before us.
It was interesting to hear my noble friend’s story about how shopping for a freezer had changed in the space of a year—from being able to buy one rated from A to G, to one now rated A++ to B. That is just one small illustration of how technology has helped hugely in reducing the use of electricity. He is absolutely right that technology has significantly reduced bills.
I am sorry but it is not just that the technology has changed; we have now shown people that it is not worth selling bad products. You have to use the technology and it is we politicians who have made that technology actually go into the marketplace, because it has been worth while. The Government should take credit for what they have done.
That is true. The incentives need to be there, but the fact is that technology is remarkable. Technology is going to do it. If we are going to solve the problem of carbon emissions, technology and incentives to use new technology—which is what the CFD programme is all about, as I understand it —are crucial.
My noble friend also spoke about the cost of electricity for business. It is an issue I take a particular interest in, given that it affects very energy-intensive industries, such as the steel industry, the glass and ceramics industries and other industries, including the potteries in places such as Stoke. It is difficult to know why our costs are higher. It is partly because of distribution and transmission, we are told, and partly because of the wholesale market, but I do not think we have a full answer to that. I have not read my noble friend’s report on this. It may suggest an answer. I will read it with interest. It is certainly a question that we need to answer. It is always very easy to blame the green lobby for the extra costs falling on high-energy consumers. My noble friend raises a question that needs to be answered.
I thank the noble Lord, Lord Grantchester, for supporting these regulations. He asked three questions. I shall write to him on them. I have been given the answer, but I cannot absorb it and give it to the noble Lord at the same time without just reading it out without thinking about it. He raised the more general issue of the impact of Brexit on the internal energy market and what tariffs there might be. I will have to give him the rather dull and predictable but honest answer that we will have to wait to see how the negotiations turn out.
The regulations the Government are seeking to amend through this instrument affect the CFD scheme through making some fairly minor technical amendments to improve the efficiency of the CFD supplier obligation and to amend the operational costs levies of the Low Carbon Contracts Company and the Electricity Settlements Company. As I read this, I do realise that this is quite complex, arcane stuff. These companies play a crucial role in delivering the CFD scheme and the capacity market scheme, and they must be sufficiently funded to perform their roles effectively. I have been struck by how the cost of offshore wind has come down in the last auction and how the capacity auction has driven prices down. The market is very powerful. I thank the noble Lord for his support for this measure?
Electricity and Gas (Energy Company Obligation) (Amendment) Order 2017
Motion to Consider
That the Grand Committee do consider the Electricity and Gas (Energy Company Obligation) (Amendment) Order 2017.
My Lords, I am pleased to open the debate on this draft order. The ECO order exercises powers set out in the Gas Act 1986 and the Electricity Act 1989 which allow obligations to be placed on energy suppliers in Great Britain.
In the Prime Minister’s first speech of her term in office, she recognised the hardships faced by poorer households in Britain—hard-working families, who,
“can just about manage but … worry about the cost of living”.
As part of the response to that dilemma, the Government are committed to helping households in fuel poverty or on lower incomes living in homes which are expensive to heat. That is why this order is before the Committee today. It will also make an important contribution to the Government’s clean growth plan and to reducing carbon emissions.
We are making amendments to the existing ECO order, which covers the period from 1 April 2015 to 31 March 2017. The amendments extend the current scheme from 1 April 2017 to 30 September 2018 to enable reforms to be introduced, while also allowing industry time before further improvements are made through a new longer-term scheme from 2018 to 2022. Planning ahead to 2022, beyond the life of this Parliament, reflects announcements on funding made in the 2015 spending review. This longer-term confirmation of funding is designed to give greater certainty to energy suppliers, installers, local authorities and other energy stakeholders.
This Government are facing up to the enormous energy challenges our country faces over the coming years. With the overhaul of the electricity market and continued investment in renewable technologies, we are well on the way to making sure that the UK’s energy is secure, low carbon and affordable. Improving the energy efficiency of the UK’s homes is central to this challenge and to addressing fuel poverty.
The energy company obligation scheme helps occupants keep warm, reduce their energy bills and protect their health and well-being. It does this by obligating energy suppliers to reduce carbon emissions and energy costs through installing energy-efficiency measures in households across Great Britain. The supply chains involved in this endeavour also provide economic benefits across the country. Since the introduction of the ECO in 2013, the scheme has proved remarkably reliable and cost-effective in upgrading our housing stock. Altogether, more than 2 million energy-efficiency measures had been installed in more than 1.6 million homes by the end of December 2016, with around 1.2 million of those measures going to 900,000 low-income and vulnerable households or households in deprived areas. This is a significant investment in addressing energy efficiency and fuel poverty. Thanks to the amendment order we are introducing today, we forecast that over half a million more insulation measures and around 45,000 more heating measures will be delivered through the ECO by 2018.
The changes implemented by the order before the Committee were consulted on in the summer of 2016. The consultation received 236 formal responses, which were broadly supportive of the proposals. The government response was published at the end of January 2017. The order will reduce the overall spend of the scheme from £860 million per annum currently to £640 million per annum. This is done to constrain the impact of government policies on all consumer bills. Although the ECO provides the recipients of energy-efficiency measures with long-term bill savings, it is important to recognise that the upfront costs of the measures installed are spread across all bill payers. As such, it is right that we have sought to ensure that the ECO support is focused more on those most in need, while reducing the overall cost from around £34 per bill currently to £25 per bill from April onwards. At the same time, it will still allow around 545,000 homes to be improved across the 18 months of the extension.
We have increased the period of the obligation extension from 12 months in the consultation to 18 months. This is in response to the views of stakeholders and is designed to make the transition as smooth as possible. It will avoid costs associated with industry implementing changes within constrained timelines, and will allow lessons from the operation of the extended period to be fed into the design of the longer-term scheme from 2018.
The separate carbon-saving community obligation element of the ECO, part of which currently delivers energy-efficiency improvements in rural areas, will be brought to an end for reasons of simplification, but there will be a safeguard guaranteeing a minimum level of rural delivery under the remaining carbon reduction obligation.
The affordable warmth element of the scheme, which places the greatest focus on targeting low-income and fuel-poor households, is increased from 34% to 70% of the overall estimated spend. This means that the carbon emissions reduction obligation element, which allows delivery to any home for carbon-saving purposes, will be decreased to approximately 30% of the overall spend. Changes are also being introduced to better target the affordable warmth obligation towards low-income and fuel-poor households.
First, income thresholds will be used to determine eligibility under affordable warmth. The process will be simple, while recognising differences in household size. Secondly, eligibility for the affordable warmth element has also been extended to allow the installation of particular measures to social housing occupants in the least efficient homes—those with an EPC band of E, F or G. Thirdly, a new voluntary provision will allow local authorities to use their local knowledge to determine eligible fuel-poor or vulnerable households for up to 10% of a supplier’s affordable warmth obligation. In particular, they will have opportunities to help people with health problems living in cold homes.
Fourthly, mains gas boiler replacements delivered under affordable warmth have been limited to the equivalent of approximately 25,000 per year. Our analysis suggests that other measures, such as insulation and first-time central heating, are more beneficial and cost effective. We will also require a minimum delivery of the more expensive solid wall insulation, equivalent to 21,000 homes a year, to protect the development of that sector and improve some of the least efficient homes. A key focus of the changes made by this order has been simplification to reduce the administrative burdens and complexities associated with the scheme. This may allow more measures to be delivered under a given amount of supplier spend.
These are important changes to the existing ECO order but they will continue to drive large-scale investment in energy efficiency across the country. Support will be targeted more at those who need it most: those living in fuel poverty or on lower incomes and struggling with bills. The order will promote measures that bring reductions to energy bills, simplify scheme delivery, and better target energy-efficiency funding to vulnerable and low-income households. I commend this draft order to the Committee.
My Lords, this order is something of a curate’s egg. There are a number of aspects that one would be quite happy with were it not for the fact that one player in this whole scheme is absent: the Government. They are changing some of the regulations and arrangements but they are providing no money themselves, unlike the Administrations in Belfast, Cardiff or Edinburgh. Therefore, we have to say in the first instance, on the objective of moving the starting time by six months, from 12 to 18 months, if we are to get a better scheme, that might be very well. However, it is a delay, in fact from 2015, when the opportunity to introduce an improved scheme first arose.
It begs the question: why is there a delay? If it is because the Government are wrestling with the complexity of it, I submit that they have had plenty of time to do that. I know from the briefing I received from National Energy Action—of which I happen to be the honorary president, and therefore declare a limited, non-pecuniary interest—that this estimable charity has somewhat mixed feelings, which reflect my own. The Government seem to be doing a little bit with one hand, and then taking it away with the other. When we see the reduction in boiler replacement, it is not because the job is nearly ending—that we have completed the replacement of inefficient boilers—but simply because the Government take the view that it costs too much.
There is also the fact that if you want to make households more conscious of the benefits of energy efficiency, a dramatic change such as the replacement or introduction of a boiler is of critical significance in this change of thought process. We know that in many respects the households that are most disadvantaged are those which have so many problems that trying to be energy efficient is very much a kind of finger-in-the-dyke operation, and they need assistance. Very often, when we are able to secure the replacement boilers, we get a change of step and a greater willingness to help.
It is also fair to say that we have insufficient sums to meet even the most modest of home improvements. We are told by a number of bodies—including, for example, the Committee on Fuel Poverty, the Committee on Climate Change, and Policy Exchange—that even to meet the very modest target of getting households to EPC E level by 2020 will require £1.9 billion. To get households to EPC D level by 2025 will cost £5.6 billion. To get all households up to EPC C level by 2030 will require £12.3 billion. These are large sums. However, what the Minister is talking about seems to be nowhere near what is required to reach these households. Indeed, it has been suggested that a baby born today into inadequate housing would probably be about 75 before their home was properly heated.
A number of the changes are sensible and not unwelcome. However, the Government cannot get away with the platitudinous nonsense the Minister spoke at the beginning of his speech when he quoted the Prime Minister. If the Prime Minister really wants to help hard-working families and do something about this kind of household, the Government will have to use central taxation as a mechanism to do it. It is not enough just to express pious hopes and, on occasion, go for cheaper options. That seems to be at least part of the thinking behind a number of the changes in this measure.
Therefore, as I say, this is a curate’s egg. This Committee does not have the opportunity to overturn or amend it. I know that it has been the subject of fairly wide consultation but I do not think that all the organisations that were consulted would necessarily embrace everything in the order. Therefore, as I say, my welcome of it is highly qualified and I am somewhat disappointed. An opportunity has been missed here—and not because the Government have rushed into this. They have had since 2015 to get something done and the best that they can come up with is this rather feeble list of changes and a further six-month delay in bringing about many measures that would be regarded as improvements. We cannot take any consolation as some of the less desirable aspects of this measure will continue for some time.
As I say, I think that this is a missed opportunity for the Minister. He and I are old friends from Select Committee days in the Commons. I am trying to chastise him as gently as I can as I know that he is new to the job and I expect that his influence over the drafting of this order was probably minimal. However, I would like to think that in the months and years that he may still be in the job he will be able to come up with something better before too long.
My Lords, something is better than nothing. We on these Benches, at least, welcome this measure, although there are many “buts”. There is no doubt that improving the quality of existing homes can play a very important part in increasing warmth and comfort and help to make fuel bills far more affordable, particularly for vulnerable occupants. However—I think the Minister recognises this—it is also a highly cost-effective way of reducing carbon emissions and saving energy. In addition, ambitious energy efficiency savings programmes can capture substantial macroeconomic benefits.
I remember taking through the House of Commons a Private Member’s Bill that became the Home Energy Conservation Act 1995, and saying that the job creation potential in making homes energy efficient was enormous. I regret that some 20-plus years later, we are still grappling with this issue and people are still living in fuel poverty. As the noble Lord said, people born into fuel poverty today will probably still be in fuel poverty at the end of their lives. That is very sad.
Like the noble Lord, Lord O’Neill, I am a vice-president of National Energy Action, a fuel poverty charity that has been campaigning on this issue for a long time. I have been associated with it for my whole time in Parliament, so it has been campaigning for probably 25 years now. In all that time, the mission—we are still trying to do it—has been to ensure that fuel poverty is eradicated and that nobody lives in a cold home. We have never managed to target that effectively. The poor targeting of existing schemes and the lack of investment in energy-efficiency programmes mean that we are still in a bad position today. The noble Lord, Lord O’Neill, gave us some of the figures.
The UK Government have in many ways been slow to respond to the scale of this challenge, but during the coalition years, when my then right honourable friend Ed Davey was the Minister, we managed to get a fuel poverty strategy in an energy Bill. I and others pushed very hard to get it—I think the noble Lord, Lord O’Neill, backed us—against the Conservative elements in the Government who were not very interested in having it. That is why we have this order today, which we welcome. I know that my colleagues at National Energy Action welcome it and are trying to work with the Minister and his department to see that we make a success of it, and perhaps get something even better in future.
At the moment, this mechanism is the only deliverer of energy efficiency nationally. The noble Lord, Lord O’Neill, touched on this. The scheme will be shifted away from all citizens and focused on those at risk of fuel poverty. As the noble Lord said, other parts of the British Isles have additional schemes to help ensure that more homes are better insulated. As the Minister said, one of the good things about this measure is that it will increase by 70% the number of places that will get affordable warmth, but it will take longer. We have heard of the change from 12 months to 18 months, which, I am advised, means a shortfall in activity of around £1 billion in lifetime savings for the poorest households with the highest energy costs.
It is important to point out—as did the noble Lord, Lord O’Neill—that there are clearly limits to the extent to which levy-funded polices and those delivered by energy suppliers can exclusively be relied upon. As he said—I apologise for repeating myself—in the rest of the British Isles there are other schemes, as well as ECO, to deal with energy efficiency in homes. It is very disappointing that we cannot find more money from the Government to do that. Various reports have pointed that out, and what it means for those living in fuel poverty.
I end where I began: I am disappointed that here I am, 20-odd years in Parliament later, in one of the richest countries in the world and we are talking about fuel poverty. We can find lots of money for all sorts of things, but somehow we seem to find it impossible to find the money to help those who live in cold homes.
I thank the Minister for his comprehensive introduction and explanation of the order. The ECO is now the only government instrument to increase overall carbon emissions reductions targets for households and overall home heating cost reduction targets by a statutory obligation on the largest energy suppliers to install energy-efficiency measures for households in Great Britain. I approve of the order today and support the measures, as far as they go, to promote energy efficiency and the reduction of fuel poverty. Improving the quality of the housing stock is a highly cost-effective way in which to reduce carbon emissions, save energy, improve the lives of the fuel poor and capture substantial national economic benefits. However, I cannot disguise the widespread disappointment in the Government for their inability to meet their legal target to end fuel poverty by 2017. Comments around the Committee today have reflected that view.
The Government are now extending the ECO scheme in this intermediary fashion for a further 18 months, to September 2018, before introducing further measures to end fuel poverty by the end of the scheme in 2022. The increasing focus on fuel poverty is to be encouraged, but reducing the annual spend by 25% from £860 million to £640 million reveals a lack of political will and the required proper funding. The Committee on Fuel Poverty has estimated an investment requirement of £20 billion to improve fuel-poor homes in England to at least EPC rating C by 2030. The Committee on Climate Change considers that the current funding is less than half that which is required to meet these now delayed commitments.
The Green Deal has been a failure, improving only 15,000 homes. Last year, the Conservative Government scrapped the 2016 zero-carbon homes policy. The UK ranks bottom, 16 out of 16, in western Europe for the proportion of people who cannot afford to heat their homes adequately. While welcoming the change on balance towards better funding of energy efficiency measures, the cap on the installation of mains gas qualifying boiler replacements under the affordable warmth arrangements leaves a big gap in the provision needed to replace or repair existing gas boilers.
A big factor for being in fuel poverty is living in a home off the gas grid. The worst properties are located off the grid and are more likely to be located in rural areas. Over the last Parliament, the number of major energy-efficiency measures installed in homes fell by 76% as total investment fell by 53% between 2010 and 2015. The implications have been particularly crucial to the NHS. Of the 43,900 excess winter deaths calculated for 2014-15, at least 14,000 deaths can be attributable to the cold homes crisis.
Are the Government confident that electricity companies can access the necessary data to target expenditure effectively? The data-sharing powers need critical assessment. Hospitals need to join up outpatient care with fuel poverty initiatives for patients at risk of recurrent visits. Local authorities must act on their duties to enforce and monitor housing standards, and basic energy-efficiency standards should form a critical part of existing licensing requirements. Additional national energy-efficiency programmes are urgently needed to support the upgrading of lower rated properties, notably for the installation of first-time central heating. My noble friend Lord O’Neill and the noble Baroness, Lady Maddock, have highlighted how the Government are alone among UK Administrations in not providing additional funding towards this important policy. The National Infrastructure Commission and the Government must respond and act on the strong case for domestic energy efficiency to be regarded as a nationally important infrastructure policy.
I shall ask only one or two important questions on this order. These amendments are an extension to the present scheme and delays to meeting targets have been recognised. Will the Minister make clear how the statutory fuel poverty commitment will be met, with milestones along the way? Lastly, what additional energy-efficiency programmes are under consideration by the Government? What is the timing of any policy plan development between April 2017 and the end of this intermediary period in September 2018? In approving the order, I urge the Government to recognise their shortfall in ambition in tackling fuel poverty and the energy efficiency of homes.
My Lords, I accept that noble Lords who have spoken regard this order as a curate’s egg and that it does not go as far as they would like. I will try to address the more general questions raised by all three noble Lords. The Government feel that the supplier obligations have proven to be remarkably successful, but we have probably pushed them as far as they can go. That is why we have decided to cap the supplier obligation at £640 million. The noble Baroness, Lady Maddock, and the noble Lord, Lord O’Neill, think that we should go further. If I might slightly oversimplify it, I think I am right that the noble Lord, Lord O’Neill, feels that we should consider raising taxation more generally to solve this issue, whereas the noble Baroness, Lady Maddock, thinks that we could take money from other areas that we are spending money on to put more money into this area.
To start with the noble Lord’s point, our response is not to increase central taxation. He mentioned a figure of £12 billion, and the noble Lord, Lord Grantchester, came up with a figure of £20 billion to 2030. That level of increased taxation is simply not an option—at least not for our Government. Our response to the issues that the Prime Minister has focused on is not to raise general taxation, but to try to address the issue by improving the productivity of the country, which is why we have an industrial strategy. Frankly, to load a lot more general taxation on to our economy cannot be a way to improve productivity. I do not know whether that view will be shared by the leader of the Opposition—who knows these days?—But it is certainly not an option for us to raise central taxation. The noble Baroness, Lady Maddock, said that there must be other areas that we could take money from.
For example, we know that people who live in cold or damp homes, particularly elderly people, cost us a huge amount in the health service. Over the years, NEA has run various schemes and has looked carefully at this. That is one area where we could look to see whether we could get some money because it will save money in the long run.
I understand that argument, but it would take five minutes to have a whole list of other parts of the population, whether it is people who have mental health problems or learning difficulties or old people who are lonely. There are lots of people we would like to do more for and from whom there will be knock-on benefits to the NHS, social services and the like. As the noble Baroness will know well, the trouble with politics is that choices have to be made. It is very easy to say that we should take more money from this group and give it to that, but if only life was so simple.
I am almost reluctant to make this point because it is a wee bit unkind and it is not the Minister’s fault. We know that the Government have problems with raising taxes. We have seen that in the past two weeks in the context of national insurance contributions. There was a willingness to raise taxes, but they discovered that they were raising the wrong ones as far as their supporters were concerned. Perhaps between now and next November the Minister can look afresh at what sources of revenue could be secured to help the fuel poor and to meet the Prime Minister’s pious words about helping hard-working families who are unfortunate enough to be living in hard-to-heat homes.
I understand where the noble Lord is coming from. I repeat, our approach is diametrically opposite to his. We do not want to raise taxes from any group of citizens in this country when the alternative is to try to improve productivity. He will know from the time when he was chairing the Trade and Industry Select Committee in the other place that productivity has been, and is still, a huge issue for this country. I do not think that he seriously thinks that we are going to improve productivity by taxing hard-working British people. That is a choice that we have to make. His party, during those long-off, rosy days when Tony Blair was Prime Minister, had in a sense got the message that there is a direct relationship between high taxes and successful economic growth. Raising taxation along the lines that he described is simply not an option for this Government at this time.
As I said at the start of this debate, the ECO scheme has already helped to deliver more than 2 million energy- saving measures to more than 1.6 million households, including 1.2 million measures to 900,000 low-income and vulnerable consumers. It would be wrong to characterise the efforts that we have made, which were supported by the coalition Government, as having made no progress. Clearly our progress is not as much as some noble Lords would like, but we have made significant progress. At a time of rising energy bills, it is right that support is targeted at those most in need. At the same time, the amendments we are making to the existing order should reduce the cost of the scheme to bill payers to around £25 each year from £34 currently. With this amendment order ECO is expected to provide 545,000 households with more energy-saving measures. With this order, we will give a balance of improvements and continuity to consumers and to the energy-efficiency industry for 18 months before further change is made through a new longer-term scheme from 2018 to 2022
I therefore commend this draft order to the Committee.
Collection of Fines etc. (Northern Ireland Consequential Amendments) Order 2017
Motion to Consider
That the Grand Committee do consider the Collection of Fines etc. (Northern Ireland Consequential Amendments) Order 2017.
My Lords, the draft order, which was laid before the House on 6 February and which was approved in the other place on 14 March, is made under Section 84(2) of the Northern Ireland Act 1998. The Northern Ireland Act allows changes to be made to legislation that are necessary because of an Act of the Northern Ireland Assembly. This order is made in consequence of the Justice Act (Northern Ireland) 2016, which was passed by the Northern Ireland Assembly on 14 March 2016 and received Her Majesty’s Assent on 12 May 2016.
Part 1 of the 2016 Act fundamentally reforms arrangements for the collection and enforcement of fines in Northern Ireland by creating a new regime that provides additional ways for offenders to pay their fines. It includes powers for collection officers to secure payment through an attachment of earnings order, which is a court order made in Northern Ireland that requires a debtor’s employer to deduct specified amounts from wages and pay them to the court to discharge the outstanding amount.
The order will amend Schedule 5 to the Courts Act 2003 to enable fine collection officers and courts in Northern Ireland to obtain or verify certain information from HM Revenue & Customs, including the name and address of any employer the individual may have and details of any earnings or other income that the individual receives. This information will allow fine collection officers in Northern Ireland to determine whether an attachment of earnings order is an appropriate enforcement option to be pursued in respect of the debtor.
Schedule 5 to the 2003 Act already enables Her Majesty’s Revenue & Customs to make such disclosures in England and Wales, and the amendments made under the order will allow it to do so in Northern Ireland as well. Such amendments could not be made by the Department of Justice in Northern Ireland through the 2016 Act because Section 18 of the Commissioners for Revenue and Customs Act 2005 stipulates that conferring such powers on HMRC cannot be carried in Northern Ireland legislation and can be done only through Westminster. However, Section 84(2) of the 1998 Act allows for such amendments to be made by an Order in Council, such as this order, if “necessary or expedient” and I consider that the proposed amendments are necessary to facilitate the effective operation of the attachment of earnings provisions of the 2016 Act.
I am happy to confirm to noble Lords that Ministers and officials of the United Kingdom Government and the Northern Ireland Department of Justice have worked closely together on this draft order, which I commend to the Committee.
My Lords, I thank the noble and learned Lord for his very comprehensive explanation of the order, and I very much welcome the order, which will provide the courts in Northern Ireland with additional sentencing, collecting and enforcement options. It will go a long way in helping to reduce the number of people—I believe 2,000—who are jailed each year for non-payment of fines by increasing the availability of community-based options in place of custody, by deducting money from their benefits each week. I believe that the vehicles of habitual offenders can be seized.
Can the Minister say how much money in unpaid fines is owed to the Stormont Government, going back over the last number of years, and how much money in police time is spent in enforcing fines? Is the Minister confident that there are enough safeguards with regard to the policy of possible seizure of vehicles? However, these amendments will go a long way and will prove effective in saving money.
My Lords, this order—one of five we are discussing today—is the only one so far to have been taken in the Commons. In that place a very brief explanation was given by the Minister—the noble and learned Lord has given a rather fuller explanation than was given then—and my honourable friend David Anderson replied with a sentence only. I do not propose to add to that except to say that the noble Lord who has just spoken has raised some salient points and I was interested to hear what he said. We certainly have no objection to the order.
I am obliged to noble Lords. I will address the points raised by the noble Lord, Lord Browne of Belmont. I do not have precise figures for outstanding fines, but if those figures can be collated I undertake to write to the noble Lord, although I am not sure that they can be collated in the manner he indicated. However, perhaps at a higher level of generality, I can say that at present we are dealing with about 20,000 cases a year where there is a financial imposition. Of those, more than 16,000 currently result in a default hearing, and the default hearing itself is an extremely time-consuming exercise, taking up manpower and, in particular, police time. It is anticipated that with these measures we will be able to reduce the number of default hearings to something of the order of 4,000 cases. That in itself will bring about a significant saving in time and money. I hope that goes some way to satisfy the points raised by the noble Lord. With that, I invite agreement to the order.
Public Guardian (Fees, etc.) (Amendment) Regulations 2017
Motion to Consider
That the Grand Committee do consider the Public Guardian (Fees, etc.) (Amendment) Regulations 2017.
My Lords, these regulations apply to England and Wales and reduce the fee for registering enduring and lasting powers of attorney. The current fee of £110 will be reduced to £82. The resubmission fee, paid when an application has to be resubmitted because of an error with the original application, will be reduced to £41 from £55. If Parliament agrees, we intend these changes to take effect on 1 April this year.
The new fee will be an enhanced fee, allowing us to cover the full cost of registering a power of attorney as well as to ensure the efficient and effective discharge of the public guardian’s functions. The power to charge an enhanced fee is contained in Section 180 of the Anti-social Behaviour, Crime and Policing Act 2014.
There are currently more than 2 million powers of attorney registered. These comprise lasting powers of attorney and their predecessor enduring powers of attorney, which remain valid and may still be registered. In October 2017, we will celebrate 10 years since lasting powers of attorney were introduced. In that time, the Office of the Public Guardian, the body responsible for maintaining a register of powers of attorney, has registered nearly 2.5 million powers.
The high uptake of lasting powers of attorney is an indication of the success of the Mental Capacity Act. They allow individuals to plan ahead for a time when they may lack capacity to make decisions for themselves and to appoint someone they trust to make those decisions for them. It is, of course, positive that so many more people are now making powers of attorney, but it has led to a position where the income we receive from fees charged is exceeding the cost of delivering the service. A detailed review of power of attorney fees, together with an improved forecasting model for volumes of applications, taking into account the ageing demographic and the rise in dementia, has enabled us to take decisive action to reduce fees and bring them closer to the cost of providing the service.
As many more people have been registering LPAs in recent years, increased volumes coupled with greater efficiencies in processing applications have resulted in fees being charged above the operational cost of delivering the service without our having exercised the power provided by legislation to allow us to do this. Clearly this situation must be remedied, which is what these draft regulations seek to do. Furthermore, alongside the reduction in fee, we will also introduce a scheme for refunding a portion of the fee to customers who may have paid more than they should. Full details of the scheme will be announced in due course. We will take such steps as are necessary to make sure that people are made aware of, and receive, the refunds to which they are entitled.
The Government’s aim is to ensure that the public guardian’s functions are properly resourced. We consider that an enhanced fee will go towards funding vital wider functions carried out by the Office of the Public Guardian. The enhanced fee will allow the public guardian to ensure that those who cannot afford to pay still have access to the key services offered by the Office of the Public Guardian; there is a remission scheme in that regard. The fee will also contribute to costs of the public guardian’s safeguarding activities, including the annual costs of supervising deputies appointed by the court to manage the affairs of people who have lost capacity to do so for themselves. I therefore commend these draft regulations to the Committee, and I beg to move.
My Lords, I am not sure whether I need to declare an interest in this matter as having registered an enduring power of attorney myself, which might entitle me, I suppose, to a rebate. It is pretty unlikely, I suspect, but it is a possibility and I shall have my old firm explore it.
Obviously, therefore, I welcome the main thrust of the order, which is to reduce the fees from their current level. The Government have acted perfectly properly in that respect. However, it is interesting that the Explanatory Memorandum confirms what the Minister has described as the Government’s policy—namely, that they have decided,
“in view of the financial circumstances and given the reductions in public spending, that a fee above full cost is necessary in order to ensure that the Public Guardian is adequately funded and that safeguarding the vulnerable is protected in the long term”.
That does not seem to be a logical explanation for retaining, albeit now reduced, a fee that is above the full cost. It is a philosophy which I hope will not be applied elsewhere in public services—namely, that you contribute not just to the cost but to an excess of the cost. Have the Government made any estimate of how much they will benefit by this device over time? How do they justify charging more than it actually costs to provide the service? They have been doing so, as it were, unconsciously for some time; now they will do so consciously. That strikes me as a very odd way of proceeding.
The fees charged in respect of a power of attorney in 2007, when the scheme came in, were £150. They have reduced steadily since then, although they increased between 2009 and 2011, while transitional measures were being taken to upgrade IT for the Office of the Public Guardian. When they were reviewed in 2013, they were brought down. Subsequently, audit has indicated that they are still above a necessary and appropriate level.
However, with regard to the question about the enhanced fee, that allows for the fact that over and above the actual cost of dealing with a power of attorney, the Office of the Public Guardian also has to deal with other costs and demands—namely, those involving the application of parties who get a fee exemption and therefore the cost of their application has to be covered, as well as the cost of appointing deputy supervisors by the court. I did not use the correct term. It is not deputy supervisors but supervising deputies.
Not that it matters.
I am sure it does—to somebody. Therefore, the limits in Section 180 of the 2014 Act are there to ensure that although we can recover more than the actual costs of the operation itself, it is for the purposes of funding the wider demands on the Ministry of Justice.
Is there any report of how that actually works in practice? I do not expect the Minister to have the answer today but what is the amount that has been raised in that way and where has it been spent?
So far as the additional funding is concerned, I should have made it clear that it is funding for the Office of the Public Guardian and not wider than that. As to the precise sum, no, I do not have the figure to hand.
I am sure the Minister will write to me in due course.
I will do that.
I am obliged.
Judicial Pensions (Additional Voluntary Contributions) Regulations 2017
Motion to Consider
That the Grand Committee do consider the Judicial Pensions (Additional Voluntary Contributions) Regulations 2017.
My Lords, I will set out the purpose of the draft regulations in turn.
First, the fee-paid regulations are required to establish a pension scheme for eligible fee-paid judges, to mirror the existing pension scheme for salaried judges established by the Judicial Pensions and Retirement Act 1993. This is required following the court’s decision in the case of O’Brien v Ministry of Justice. These regulations make provision for a pension scheme for the benefit of those people who have held eligible fee-paid judicial office between 7 April 2000 and 31 March 2015. They also establish the Fee-Paid Judicial Added Voluntary Contributions Scheme, the Fee-Paid Added Years Scheme and the Fee-Paid Judicial Added Surviving Adult Pension Scheme to enable members of the principal scheme to pay voluntary contributions towards the costs of additional benefits under one of more of these additional schemes.
Following the case of O’Brien v Ministry of Justice and subsequent decisions it is now established law that a lack of a pension and other specified benefits amounted to less favourable treatment than some fee-paid judicial office holders in comparison to salaried judges doing the same or broadly similar work, contrary to the part-time work directive. The Ministry of Justice made a commitment to implement a pension scheme for these fee-paid judges. This commitment was honoured for future service, subject to transitional protection, by the Judicial Pensions Regulations 2015. However, a new scheme is required as the remedy in respect of reckonable fee-paid service from 7 April 2000—the date when the part-time work directive ought to have been transposed into UK law. The power to create such a scheme was created by Section 78 of the Pensions Schemes Act 2015, which inserted a new Section 18A into the Judicial Pensions and Retirement Act 1993.
The draft fee-paid regulations have been the subject of a detailed public consultation and were modified as part of that consultation process, taking account of responses and as part of our own review of the draft. A response to the consultation was published on 27 February alongside the final draft regulations.
The amendment regulations amend the Judicial Pensions Regulations 2015 to take account of the creation of the fee-paid judicial pension scheme and ensure parity of treatment between individuals with entitlement in the existing Judicial Pensions and Retirement Act 1993 scheme and those with entitlements under the fee-paid scheme in respect of their pension entitlements under the 2015 regulations. In addition, we are taking the opportunity to amend the 2015 regulations to make a number of other changes: to amend a drafting error in Regulation 1 of the 2015 regulations; to enable the Lord Chancellor to determine the eligibility of particular Scottish fee-paid judicial officeholders to join the pension scheme created by the 2015 regulations; to remove negligence as a basis for forfeiture or set-off; to make a correction to the definition of index adjustment for revaluation purposes; and to apply full and tapering protection for those judges who were in fee-paid office on 31 March 2012 but who have subsequently been appointed to salaried office.
The 2015 regulations were made under the Public Service Pensions Act 2013 to create a career average pension scheme for judicial officeholders as part of the Government’s wider reform of public service pensions. This is the first time the 2015 regulations have been amended.
Thirdly, I turn to the additional voluntary contributions regulations, the purpose of which is to make provision to establish a judicial additional voluntary contributions scheme. This is a money purchase scheme that enables scheme members to make contributions within a range of investment options. This is in addition to their contributions to the 2015 scheme. The AVC scheme is to be managed by the Lord Chancellor and the Judicial Pensions Board will oversee the governance. The 2015 judicial pension scheme was established on 1 April 2015 in response to the Public Service Pensions Act 2013. The 2015 scheme applies to fee-paid and salaried judicial officeholders.
The existing judicial pension schemes provided a facility to contribute to a money purchase pension scheme and the same facility is provided for members of the 2015 scheme through these AVC regulations. This includes the pension flexibilities contained in the Taxation of Pensions Act 2014 and the Pension Schemes Act 2015. Amendments to the additional voluntary contribution scheme established under the older judicial pension scheme, made by the Judicial Pensions and Retirement Act 1993, are being made in separate instruments containing similar regulations, which also give effect to the pension flexibilities.
To summarise, the fee-paid regulations are necessary as the remedy to provide eligible fee-paid judges with pension benefits that are equivalent to their salaried comparators. The amendment regulations are necessary as they introduce a range of amendments required to the 2015 judicial pension scheme. The additional voluntary contributions regulations are necessary to honour the department’s commitment to provide such a facility to members of the 2015 judicial pensions scheme. I hope that noble Lords will welcome these three sets of regulations as necessary to make important provision for judicial pensions. This is in terms of the Government’s legal obligations and to meet outstanding commitments, and to ensure that all the necessary arrangements are in place for a consistent approach relating to the relevant provisions across the judicial pension schemes. I therefore commend these draft regulations to the Committee.
My Lords, I must declare a paternal interest since my daughter is a part-time, fee-paid district judge. The noble and learned Lord will, no doubt, be particularly pleased with the Judicial Pensions (Amendment) Regulations 2017 inasmuch as they contain a rather rare provision for the Scottish Government to request permission to join a national UK scheme, which is a remarkable volte face from the present Administration in Edinburgh. No doubt the noble and learned Lord will make that point on his next return to that city, and I wish him well in such an approach.
The three regulations dealing with judicial pensions are, of course, welcome so far as they go, but they come at a time when we face a shortage of judges and apparent difficulty in finding sufficient numbers of suitable applicants to fill a rising number of retirements. The Lord Chief Justice’s report of 2016 referred to,
“serious concerns about recruitment to the judiciary, in particular the ability to attract well-qualified candidates for positions in the higher levels”.
He pointed out that this created an impact both on the administration of justice and the position of the UK as a forum for international business litigation, where we are already facing growing competition from other jurisdictions.
The degree of unhappiness with the situation is reflected by results of a recent survey which shows that nearly half of High Court judges plan to retire early. Respondents to that survey alluded to resentment over loss of earnings, deteriorating working conditions and even fear for their personal safety in court. The latter will not have been helped by the scurrilous campaign against the judges by sections of the media and the further reaches of the Conservative Party and of UKIP, which were roundly denounced by the Minister, much to his credit.
A survey of judicial attitudes last year showed that 42% of all judges would leave if they had a viable option, nearly double the number of the previous survey in 2014. A more recent survey suggests that 47% of High Court judges and 36% of all judges indicated they would consider early retirement from the Bench over the next five years. Their attitude is partly coloured by the large number—78%—who suffered a loss of net earnings over the past two years and the 62% who were affected by pension changes. The Lord Chief Justice warned in 2016 that a new High Court judge would have a pension less than that of a District Judge, which is hardly conducive, one might think, to retention or recruitment to the High Court. He also felt that the situation was likely to have a considerable inhibiting effect on promoting gender and ethnic diversity, which the survey disclosed. Significantly 43% of judges felt unappreciated by the public but, tellingly, only 3% felt they were esteemed by the media, and, shockingly, only 2% felt they were esteemed by the public.
If this were not bad enough, one-third complained of the quality of court buildings and two-thirds referred to the low morale of court staff. Just over half the judges expressed concerns for their safety in court, partly due to the number of unrepresented litigants, especially in somewhat fraught cases in the family side of the courts’ work. The same proportion said that out-of-hours work was affecting them—a rise from 29% in 2014.
Currently there is a shortage of 25 High Court judges and between 120 and 140 circuit judges. Lord Justice Burnett, who is vice-chairman of the Judicial Appointment Commission, has complained that suitable applicants for the High Court have been insufficient in the past two years, while the demands on the judiciary continue to grow across the whole system. It would appear that only 55 applications were made last year for 25 vacancies and only eight were filled.
This is also exemplified by the shortages in the tribunal system. In 2012 there were 347 fee-paid and 132 salaried judges in the First-tier Immigration Tribunal. Last year the numbers had fallen to 242 fee-paid and only 77 salaried, while in the Upper Tribunal numbers had fallen from 40 fee-paid to 35. Unsurprisingly, this has led to an increase in outstanding cases of 20% to just under 63,000, with a nearly 50%, or 15 week, increase in the time for disposal of a case to a total of 48 weeks.
There are clearly serious difficulties in attracting and retaining sufficient judges at most levels of our judicial system. The Lord Chancellor recently stated that she appreciated,
“concerns raised around pay and pension”,
and acknowledged that:
“Having a fair and effective remuneration scheme in place is critical to the continued attraction and retention of high-calibre judges”.
She went on to affirm that she was,
“working with the Lord Chief Justice and senior judiciary to address wider judicial concerns by providing judges with greater support in the courtroom, opportunities for development and progression, and improving the environment in which they operate”.
These are welcome words, but they are at odds with the current position, even after these regulations take effect.
The noble Lord, Lord Kakkar, the recently appointed chair of the Judicial Appointments Commission—who is, ironically in the circumstances, a distinguished surgeon not a lawyer—has warned that there,
“could be a serious shortfall”,
in the pending appointments of 25 High Court judges. He went on to say that there is a serious issue here, that these trends “are very worrying” and that,
“it is becoming more difficult to appoint to the judiciary”.
What steps will the Government take, and when, to fulfil the Lord Chancellor’s pledge? Today’s regulations are unlikely to make a significant contribution to the growing crisis in our courts. The noble and learned Lord is unlikely to be able to give us a clear indication of what the Government have in mind, but he could at least give us a timescale as to when conclusions will be reached. What is happening so far is not making any significant impression on a serious backlog and a serious prospect for the future.
I thank the noble Lord for his observations. I appreciate that these regulations may be only a small step in trying to ensure that we are in a position to maintain what is still a world-class judiciary that is respected around the globe, not just in this country.
Recruitment to the Bench has often been an issue in circumstances where we seek to appoint only the best. There are competing issues when it comes to appointment to the High Court Bench. It is not simply a matter of salary, nor of pension, although I readily acknowledge that these matters have to be addressed. That is not what drives people towards the higher ranks of the judiciary at a later point in their career. Rather, I would suggest it is the desire to put something back into a system of which they have been a part for many years. We are succeeding there.
The noble Lord referred to the chair of the Judicial Appointments Commission, the noble Lord, Lord Kakkar, who is taking steps to broaden the pool of talent that can be attracted to the upper reaches of the judiciary, including to the solicitor branch of the profession, which has often been, if not ignored, perhaps overlooked to a greater or lesser extent when it comes to judicial appointment. They also address direct appointment to try to ensure that people do not feel that they have to go into a judicial career part time for many years before they can find themselves eligible for appointment to the High Court Bench. Steps are therefore being taken.
I infer from the noble Lord’s comments that he will welcome the Prison and Courts Bill that we recently introduced in the other place and the developments that that will bring about in court reform, in particular digitisation of the court process. That will ensure that a greater degree of judicial time can be made over to matters that should truly engage the requirements for our higher judiciary. I look forward to his assisting with that Bill as it progresses through our House. I am obliged to the noble Lord.
Judicial Pensions (Fee-Paid Judges) Regulations 2017
Motion to Consider
That the Grand Committee do consider the Judicial Pensions (Fee-Paid Judges) Regulations 2017.
Judicial Pensions (Amendment) Regulations 2017
Motion to Consider
That the Grand Committee do consider the Judicial Pensions (Amendment) Regulations 2017.
Industrial Training Levy (Engineering Construction Industry Training Board) Order 2017
Motion to Consider
That the Grand Committee do consider the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2017.
My Lords, I start by setting the scene. The Government are committed to delivering a bold, long-term industry strategy. We start from a position of strength, as the fifth biggest economy in the world with an employment rate that has never been higher and world-leading industries, from car manufacturing and satellite engineering to financial services and the creative arts. Engineering construction is at the forefront of that industrial strategy. To support delivery of this industrial strategy we are building a high-quality technical education system to improve basic skills, address shortages in STEM skills and ensure that people have the skills that employers are looking for, now and in the future. It is integral that through this system we provide opportunities for lifelong technical education learning.
There are several ways in which we are doing this. The first is through the establishment of 48 university technical colleges, with a further six in the pipeline to provide high-quality technical education to 14 to 19 year-olds. Secondly, there is the implementation of the Sainsbury panel’s 15 new technical routes and wide-reaching reforms to improve the apprenticeship offer. We are committed to raising the prestige of further education and apprenticeships. Thirdly, the Engineering Construction Industry Training Board plays a key role in helping delivery of this programme. The engineering construction industry encompasses much of the nation’s key national infrastructure work. We must ensure that skills exist in the engineering construction workforce to deliver such critical new infrastructure projects as Hinkley Point C and HS2. Much like mainstream construction, engineering construction is characterised by significant levels of project working, where demand can be unpredictable. Workers in the sector are often highly skilled, and in high demand both domestically and internationally.
The Engineering Construction Industry Training Board works to help retain these vital skills within the UK economy and to drive innovative working practices within the industry, such as the development of drone technology. The order enables the ECITB to raise and collect a levy on employers in the engineering construction industry. The board has been providing vital industry support since its creation in 1991. Established under the Industrial Training Act, its core activity is to invest money that it receives by way of the levy in skills training for the engineering construction workforce. The board develops the skills of the existing workforce and new entrants into the industry through providing training grants and puts in place strategic initiatives that will benefit industry over the long term and secure a sustainable pipeline of skills. The ECITB is led by industry and has a central role in training the workforce in the engineering construction industry. It provides a wide range of services including setting occupational standards, developing vocational qualifications and offering direct grants to employers who carry out training. In doing all this, the Government look to the board to minimise bureaucracy and to ensure that support to employers is relevant and accessible.
The ECITB also has a key role in encouraging greater diversity across the engineering construction industry. Currently, only 7% of the engineering construction workforce are women. This lack of diversity needs addressing. The board is running extensive careers programmes in schools and promoting female engineering role models and will continue to support the department in its continued drive to increase the number of woman undertaking STEM qualifications. The Department for Education is also investing £20 million in business mentors, which will help disadvantaged and vulnerable young people to access the right information about a fulfilling education or training route that is right for them.
Industry support is fundamental to the success of the ECITB. The vast majority of employers in the engineering construction industry continue to support a statutory framework for training and the ECITB levy. The order will enable these statutory levy arrangements to continue.
I move on to how the levy is calculated. The Industrial Training Act allows an industrial training board to submit a proposal to the Secretary of State for raising and collecting a levy on employers to ensure the effective provision of skills in the industries that they serve. This order will give effect to a proposal submitted to us for a levy to be raised by the ECITB for levy periods ending 31 December 2017, 31 December 2018 and 31 December 2019.
Given the history of this levy and our wider reforms, the Committee may ask how the order interacts with the apprenticeship levy. Let me explain. After the introduction of the apprenticeship levy, the ECITB reviewed its levy arrangements and made the decision to reduce its rates as follows. The levy rate attributed to site employees will be reduced to 1.2% of total emoluments—and by emoluments I mean all salaries, fees, wages and any other earnings of an employee—plus net expenditure on subcontract labour. This is down from 1.5% of total emoluments in the 2015 order. The rate in respect of off-site employees, often referred to as head office employees, will be reduced to 0.14% of total emoluments, plus net expenditure on subcontract labour. This is down from 0.18% of total emoluments in the 2015 order.
The Industrial Training Act requires the ECITB to take reasonable steps to ascertain the views of persons who are likely to be liable to pay the levy as a consequence of the proposals. This involves ascertaining the views of the majority of employers who together are likely to pay the majority of the levy. The proposal for the levy obtained the support of the majority of employers in their respective industries. The three major employer federations in the industry, the ECIA, the OCA and BCECA, supported the levy. All levy-paying members of the employer associations, 84 in total, were deemed to be supportive. Of the 149 employers not represented by these federations, 41 did not respond and only 10 declined to provide their support. On that basis, 78% of levy-paying employers were supportive of ECITB’s proposal, and such employers are likely to pay 87% of the value of the levy.
The Industrial Training Act also requires that the board includes within its proposal a proposal for exempting small employers from the levy. This order therefore provides that small firms are exempt from the levy if their total emoluments are below a threshold that the industry considers to be appropriate. If the total gross emoluments and total gross payments are less than £275,000, no training levy will be payable in respect of site-based workers. If the total gross emoluments and total gross payments are less than £1 million, no training levy will be payable in respect of off-site based workers. Those employers who are exempt from paying the levy can and do continue to benefit from support from the board, including grants. The ECITB determines that 375 establishments are considered to be in the scope of the levy. Of that, 120 establishments are exempted due to their size, which means that 32% of establishments are exempted. This order is therefore expected to raise around £78 million for the ECITB in levy income over three years.
To conclude my opening remarks, this order will enable the ECITB to continue to carry out its vital training responsibilities alongside the introduction of the apprenticeship levy and, aligned to our wider skills reform programme, it will help the Government meet their industrial strategy goals. Accordingly, I commend it to the Committee. I beg to move.
My Lords, I thank the Minister for his introduction to this order, which I think it fair to say is not particularly controversial and need not detain us for too long.
Preparing for this took me back some time. In a previous guise, I was the full-time official of a trade union in the engineering sector, and I well remember dealing with many industry training boards on a number of different issues. When the Department for Business, Innovation and Skills published its final report in December 2015 on the combined triennial review of the industry training boards, it mentioned the background to the industrial training levy itself, which was introduced as part of the Industrial Training Act 1964. That is of course where the industry training boards can be traced back to as well.
It is to be regretted that there are now only three industry training boards left. I certainly remember that there were more than 20 in the 1980s, and they were significantly reduced by the Industrial Training Act 1982. Apart from the film sector, only the Construction Industry Training Board and the Engineering Construction Industry Training Board are still in place today, both of which are of course accountable to Parliament. They raise most of their funds through training levies and various commercial activities. In 2016, the ECITB raised £32 million in levy and returned £28 million to the industry. It is interesting that the ECITB itself made the proposal to reduce the industrial training levy rate for employers, which appears to be a direct result of the impending introduction of the apprenticeship levy. That is reasonable and I understand the thinking behind it.
I made notes but if I read them out I would largely repeat what the noble Viscount said in his introduction, and I see little purpose in doing that. However, the listed exemptions seem reasonable and are set at reasonable levels with regard to the overall pay bill of establishments. I was interested to hear the noble Viscount say that a total of 275 establishments would qualify for the levy, with 120 exemptions. I will not mention the details of the exemptions, but they meet the needs of the industry. It is instructive that the consultation carried out by the ECITB found that 78% of levy payers were in favour of the proposals, and together they will pay a total of 87% of the value of the forecast levy. There is fairly broad support, therefore; I certainly have not been made aware of any opposition.
As the noble Viscount himself pointed out, and I thank him for doing so, less than 10% of the engineering workforce is female. Again, going back to my days as a trade union negotiator, I remember the attempts that were made to get more women into the union, particularly the predominantly engineering-based union that I looked after. It was very difficult, and I pay tribute to WISE—Women into Science and Engineering, which is backed by my union, Unite. We want as many women as possible to come forward and fill jobs in the manufacturing sector, particularly in engineering.
This issue goes back to the requirement for qualifications, particularly STEM qualifications, and will impact on what I am going to say about the next set of regulations for consideration. The pressure on schools to find enough teachers to make sure they can deliver teaching in these subjects cannot be ignored. A lot more work has to be done on that, because they provide the building blocks to get the initial qualifications to get women into university, or through the technical routes into engineering. It is important that the Minister highlighted that, and it is to be welcomed.
The order is not controversial and is to be welcomed. It has been welcomed in the industry, and on that basis I can only hope it will achieve what it sets out to achieve and assists the development of the industry.
My Lords, I thank the noble Lord, Lord Watson, for his comments and for his contribution today. I was particularly interested to hear of his background, which I did not know about. I appreciate his general support for the order.
Before I make some very brief concluding remarks, I shall pick up on his very important point about the need to encourage more females into engineering. I am delighted that my noble friend Lord Nash is in Committee today because I am sure he agrees with me that this is a very important part of what the Department for Education is doing. It is starting from the very early years to encourage more women to study STEM subjects and then, through proper career guidance, to encourage them to take roles in science and engineering. It is one of the major priorities and major thrusts—the noble Lord is right about that.
Noble Lords will be aware from previous debates that the ECITB exists because of the support it receives from employers and employer interest groups in the sector. There is a firm belief that without this levy, there would be a serious deterioration in the quality and quantity of training in the engineering construction industry, leading to a deficiency in skill levels. It continues to be the collective view of employers in the engineering construction industry that training should be funded through the statutory levy system in order to secure a sufficient pool of skilled labour. I commend this order to the Committee.
Immigration Skills Charge Regulations 2017
Motion to Consider
That the Grand Committee do consider the Immigration Skills Charge Regulations 2017.
My Lords, this Government are committed to a strong skills system that can drive increases in productivity and improvements in social mobility and help make a success of Brexit. We need to do more to support people into high-quality jobs and help them gain world-class skills that meet employers’ needs. Lack of investment in skills is damaging our productivity and our economy. Employer investment in training has been declining for 20 years. On average, UK workers undertake 20% less continuing vocational training than those in the EU. According to the latest available international comparison, the UK spends 55% less than Germany and just over 70% less than France per employee on vocational training. We are forecast to fall from 24th to 28th out of 33 OECD countries for intermediate skills by 2020. We need urgently to address this underinvestment, and the immigration skills charge is one way we are doing so.
The charge was first announced in May 2015. The Immigration Act 2014, as amended last year, provides the Secretary of State with the power to require certain employers who recruit skilled workers from outside the European Economic Area to pay an immigration skills charge. These regulations provide for the amount and obligation to pay the charge. Through the charge we want to incentivise employers to think differently about their recruitment and skills decisions and the balance between investing in UK skills and overseas recruitment.
There is no doubt that skilled migration has brought economic benefit to the UK. It has boosted our ability to compete in global markets and helped make us world leaders in many sectors. There are many examples of good practice, but it seems that some employers would prefer to recruit skilled workers from overseas rather than invest in training UK workers. Use of the tier 2 visa route grew by 37% between 2010 and 2016. Our aim is to see UK workers with the right skills fill these roles.
When we first announced this policy, we commissioned the independent Migration Advisory Committee to advise on applying a skills charge to employers recruiting workers from outside the European Economic Area as part of its wider review of tier 2. As the Secondary Legislation Scrutiny Committee acknowledged, most respondents to the MAC’s consultation were not in favour of a charge. It is not surprising that those who will have to pay the charge did not welcome it. Based on the SLSC’s comments, we revised and re-laid the Explanatory Memorandum accompanying the regulations to reflect more of the evidence we considered. The MAC, which is made up of independent experts in the fields of economics and migration policy, supported it. The committee analysed different levels of charge and took into account views from more than 250 written submissions and from meetings with more than 200 public and private sector employers. It considered that a flat charge of £1,000 per worker per year would be large enough to have an impact on employer behaviour and that this would be the right level to incentivise employers to reduce their reliance on migrant workers.
Where the Government took a different line from the MAC was to protect the UK’s position as a centre of excellence for education and research and to support smaller employers. We announced the rate, scope, exemptions and introduction date for the charge in March last year. The draft regulations implement the decisions taken last year. We believe that this has given employers enough time to prepare for its introduction on 6 April, subject to parliamentary consideration. In deciding the scope and rate of the charge, we took into account the MAC’s recommendations, but we also responded to concerns raised in Parliament during the passage of the Immigration Bill and from employers to announce a number of exemptions and a lower rate for charities and smaller employers. For that reason, Regulation 3 introduces a reduced rate of £364 per individual per year for small and charitable sponsors.
Regulation 4 provides for the exemptions. As the MAC recommended, sponsors of tier 2 intra-company transfer graduate trainees are exempt from paying the charge. The Government have also exempted specified PhD-level occupations, including higher education lecturers and researchers. In addition, those switching from a tier 4 student visa to a tier 2 general visa to take up a graduate-level position in the UK are exempt. This was welcomed by the British Medical Association as it will benefit doctors completing their foundation training. These exemptions are designed to protect employers’ ability to recruit the brightest and the best. For out-of-country applications for entry clearance, the regulations provide that the charge does not apply for leave of less than six months.
Regulation 5 provides that the sponsor must pay the charge up front. This is for a minimum of 12 months and then in six-monthly increments, rounded up. It will be calculated according to the length of employment the sponsor enters on the certificate of sponsorship. Employers will pay the charge as part of the existing sponsorship process, administered by the Home Office.
Regulation 6 provides that part or all of the charge may be refunded or waived. Regulation 7 means that the charge will not be retrospective. Employers of individuals who are already in the UK on a tier 2 visa or have been assigned a tier 2 certificate of sponsorship at the time the regulations come into force will not have to pay the charge. This is also the case where these individuals apply to extend their stay or change job or employer.
I turn to how the funding raised will be used. Based on Home Office analysis of the use of the tier 2 route, it is estimated that the charge could raise £100 million in the first year. The Home Office will collect the charge and transfer it to the Consolidated Fund, less an amount to cover the costs of collection. The population percentages underlying the Barnett formula will be used by the Treasury to determine the split of funding between the Department for Education and each of the devolved Administrations.
The income raised from the charge will be used to address skills gaps in the workforce. It will make a contribution to the department’s skills budget, ensuring that we can continue to make a significant investment in developing the skills the country needs. The charge will raise income but it is also designed to change employer behaviour, and that applies across all sectors.
I recognise the concerns about the impact of the charge on health and education in particular. The MAC was clear in its recommendation that the public sector should not be exempt. As an employer like any other, it should be incentivised to consider the UK labour market first. This is in line with government policy. It is not sustainable to rely on recruiting overseas staff. We are committed to building homegrown skills, to recruit from the domestic labour market and to invest in training.
We recognise that immigration has a role to play in the supply of workers where there are genuine skills shortages, but that should not come at the expense of investment in skills in our country. The immigration skills charge is designed to incentivise employers to invest in training and upskilling the resident workforce. It will also raise funding to support ongoing investment by the Government in their skills programmes. I hope that the Committee will support these regulations. I beg to move.
My Lords, I welcome these regulations. They are well targeted, have a good concept, good execution, with a sensible set of exemptions and remission for small businesses. I am disappointed that they do not extend to hospitality and construction, both areas where we have a substantial tendency for employers to bring in people from overseas rather than concentrate on training our own people. However, I entirely understand, given that most of that migration is from the EU, why we do not wish to complicate our Brexit negotiations by trying this on the continent just yet. However, when you talk to hospitality employers, they say, “We have to employ these overseas people because the Brits just don’t know how to treat customers”. I say let us bring back the British Airways charm school, which is what I grew up with. We can do this; we just need to train people properly. I do not think that we should accept the excuses of our hospitality industry. We should apply this principle to it to get it to bring our own people up to speed.
However, within the industries this measure is aimed at, it is an excellent idea. It is largely, I think, aimed in practice at IT and industries round that. I would be very grateful if the Minister or his colleagues would agree to meet me and representatives of the tech industry to discuss how to craft training which will meet the needs of employers who are hit by this levy so that the incentive which is provided by it can be directed at the provision of training which will ensure that the objectives of the levy are realised.
We are all being so polite. Perhaps we have learned from the charm school with which the noble Lord, Lord Lucas, grew up. We, of course, support investment in skills and training but it is appropriate to put these proposals in the context of the very tight brief which the MAC, as always, was given. It was required to advise on,
“significantly reducing the level of economic migration from outside the EU”,
taking into account the impact on the economy, including on productivity and competitiveness, and was asked to consider five issues, of which a skills levy was one. As the Minister said, at the time of the review the Government had already signalled an intent to introduce the charge. It is fair to acknowledge the MAC endorsement of the proposal. It said in its review:
“We consider that the imposition of an ISC will serve to incentivise employers to reduce their reliance on employing migrant workers and to invest in training and upskilling UK workers”.
But I also observe that, certainly in the health sector, that gives the term “incentivise” a rather new meaning. The Explanatory Memorandum refers to a collapse in training. Will the Minister tell the Committee whether the Government have analysed why that has been the case?
The letter from the Minister, Robert Halfon, to the Secondary Legislation Scrutiny Committee confirms that this is a tax. We know that the Treasury hates hypothecation, but given its rationale it seems to us that those who are paying it must be able to see how it is used and, more than that, be involved in decisions about the application of the funds, because they know what normally works best in their own sectors. There must be a lot of sector-specific experience which should be tapped, as well as this being in the interest of transparency.
The Institute of Directors recognised that “penalising employers” who need to look to the “global talent pool” is,
“not the answer to gaining more home-grown talent”.
To balance that, PwC said:
“The levy will not impact the way that companies recruit as they require the skills they require”.
It raised the spectre of, in the long term,
“parts of businesses moving overseas, if mounting costs become prohibitive and companies risk damaging their brands by providing substandard products or services”.
I recall that during the passage of the Bill an argument used against this, partly in the higher education sector, was that some industries will pay the charge but would not see any benefits because their sectors are not apprenticeship-appropriate. That applied in particular to the health sector. I will leave it to my noble friend Lady Walmsley to deal in detail with the health sector. I know that I will support everything that she says.
During the passage of the Bill we also expressed concern about the costs of the bureaucracy of this exercise. Given the investment that the sectors in question already make in training, there seemed to be a danger of a charge being levied, having administration costs deducted and the balance then returned to them. I have been assured that the deduction will be small because the Home Office visa system will be used, but there will be a deduction. We can add to that the unquantified cost of the loading on to the Home Office, which is overloaded. It probably feels that the light at the end of the tunnel is that ever-present oncoming train.
The MAC also said that,
“it is impossible to conclude, ex ante, whether the benefit arising to employers … will outweigh the costs imposed on Tier 2 sponsors”,
because the Government have not yet determined how the revenue will be reinvested. That is clearly a significant point. It is clear that the health sector has come to a conclusion, and it is not the positive conclusion that the Government want to see. Robert Halfon, in his letter to the Secondary Legislation Scrutiny Committee, said:
“The cost to the healthcare sector and to the NHS in particular has not been estimated”.
That is quite an astonishing statement.
One other area is that of intercompany transfers. The Minister has referred to the exemption in the regulations, but the exemption is limited to trainees. Why is it so limited? Is it simply because they are trainees? That fits in with the thrust of the proposals. I ask that question and make the implied point because we need to do all that we can to attract, retain and not deter international companies basing themselves in the UK. I do not think that I need to fill in the gaps between the lines there.
There are steps that the Government can take after taking through these regulations, particularly by way of exemptions and by working with different sectors, which would make them more palatable to those who find them unpalatable, and more effective, and might help to avoid unintended consequences, as these charges are clearly going to be significant for some sectors.
My Lords, as my noble friend Lady Hamwee said, I would like to say a few words about health and social care. Report after report shows the dire financial straits in which NHS employers find themselves, with 75% of hospitals already in deficit and A&E departments struggling to meet the four-hour target for attending to patients. There is a shortage of nurses, and retention is terrible. Doctors’ rosters are not filled, resulting in cancelled patient treatments, which puts a greater burden on existing staff, who are acting as the shock absorber for the system. GP practices cannot fill vacancies. Care homes providers are handing back local authority contracts because they cannot provide a decent service within the amount of fees that they are paid. The number of care beds is falling while demand is rising, and 1.2 million elderly and disabled people are not receiving the care that they need.
It is in this climate that the Government have decided to tax health and care employers for every worker from outside the EEA who is on a tier 2 visa. You could not make it up. On top of this, they choose to do it at a time when they have removed the nurse training bursary and have no idea of the effect that it will have on the number of nurses in training. It is no wonder that the BMA and the RCN have written to the Home Secretary, laying out the damaging effects of the charge on health and care. The Government may not have calculated how much it is going to cost them, but they have—it is £7.2 million per year, which will deter cash-strapped employers from filling rosters with essential staff, thereby putting patients at risk. I ask myself why the Government could not make those calculations. Perhaps it is because it is so politically embarrassing.
It is little wonder that the Secondary Legislation Scrutiny Committee had serious concerns about the measure, with particular regard to the fact that the memorandum laid with the instrument said nothing about the opposition to the measure voiced by those who were consulted. It was also provided with no information about the impact of the measure, particularly on health and care employers, who are the sector fourth-most affected by the charge. It is no wonder that it was not provided with that information since, in reply to its questions, as my noble friend has just said, Robert Halfon MP confessed that the cost of the charge to the NHS has not been estimated because it is classified as a tax. His letter also shows complete ignorance of the nature of the modern nursing workforce, saying:
“There is no direct impact on employers of care workers as they do not qualify for entry to the UK under the Tier 2 route. Tier 2 has been reserved for graduate occupations since 2011”.
Yes, nursing has been a graduate occupation for a similar length of time. Does the Minister think that care employers do not employ graduate nurses any longer?
The ISC was intended to deter employers recruiting from abroad, but health and care employers have no option, and they have no need for this. As the BMA letter says:
“Checks and balances are already in place to ensure posts are first offered to UK and EU nationals through the resident labour market test”.
Although we are going to introduce apprentice nurses later this year, doctors undergo long and rigorous training, and it is impossible to upskill UK citizens overnight.
Where is the money going? I understand that it will go into the Consolidated Fund, as the Minister said, and some will then be sent out to the Department for Education and the devolved Administrations to help fill the skills gap. Will the amount raised from health and care employers be added up and go to Health Education England to ensure it is used to train more UK doctors and nurses? According to the BMA, the Government have suggested that some of it will be reinvested in the health workforce but, as I understand it, there is no guarantee, nor, as far as I can see, any mechanism to ensure that it goes to training health professionals.
The only solution to this mess is to add health and care workers to the list of exemptions in Regulation 4(a). I was interested to see the jobs which are included in the exemptions. Is it really true that we have a critical shortage of social scientists and research and development managers? They will not be saving lives in our hospitals and nursing in care homes at any time soon, will they?
Thousands of doctors and nurses come to the UK every year to work in the NHS and care services, which would be utterly devastated without them. The Government are being immensely short-sighted by imposing this tax. The NHS is not a business that can absorb extra taxes by reducing profits. I call on the Government to introduce exemptions from this charge for health and care workers. If they do not do so, they will be adding to the already unsustainable funding situation of our health and care services and to the £20 billion black hole in the health budget and the £6 billion black hole in the care budget by 2020.
My Lords, the Labour Force Survey showed that by 2014 the number of workers participating in training courses away from their own workplace has collapsed since 1992. I will not repeat the figures that the Minister gave, but this feeds into a pattern. In general, UK employers underinvest in training relative to comparable countries. It is therefore understandable that the Government should decide to incentivise employers to invest in training so as to maximise the number of jobs available to the domestic workforce. In that aim, we support what the Government are attempting to achieve through these regulations.
However, the Secondary Legislation Scrutiny Committee was critical of the fact that the Explanatory Memorandum laid with the instrument said nothing about the opposition to the proposals voiced by most of those consulted by the Migration Advisory Committee. The Secondary Legislation Scrutiny Committee was also critical of the fact that the Explanatory Memorandum provided little or no detail about the impact of the charge on those employers likely to be affected. That led the committee to conclude that the process of policy formulation for the proposals was not complete and that the Government were not in a position to supply Parliament with sufficient information about the implementation and impact of the proposed charge. If that is not the source of some embarrassment to the Minister and his officials, then it ought to be.
As far back as May 2015, the then Prime Minister announced the intention to introduce the charge, and in March 2016 the scope of the charge was set out. Why then was the DfE not ready when the regulations came to be submitted? Given the array of staff in the department, there is surely no excuse for this. I hope that the Minister will apologise and give an assurance that in future his officials will be better prepared.
Since the charge was first proposed almost two years ago, we can discount any suggestion that it had its roots in what I regret to say is the increasingly anti-immigrant rhetoric that since last year’s referendum has characterised some government policy. The Government’s generally hostile approach towards migration—and the definition of it, as evidenced by their attitude on the Higher Education and Research Bill in relation to international students—risks further fuelling discrimination and social tension.
Changes to migration policies should be developed through consultation with employers and trade unions and, once agreed, should be introduced with adequate lead-in time to allow employers and employees to plan accordingly. That allows short-term gaps in the labour market to be filled while other measures are taken to address long-term training needs in the domestic labour market. It is to be hoped that that is what this charge will achieve.
Last week, during the briefing session on the charge, the Minister for Skills, Mr Halfon, explained that it will be used to address skills gaps in the workforce. In terms of the resources available to do so, and to some extent reflecting what the noble Baroness, Lady Walmsley, has said, the Minister said he anticipated an annual surplus of around £100 million once the Home Office had deducted the costs involved in collecting the charge.
Identifying those skills gaps is at the heart of these regulations. The UK Commission for Employment and Skills’ Employer Skills Survey 2015 shows that, while overall employer investment in training, in kind and cash, increased between 2011 and 2015, per employee expenditure flatlined at £1,600, despite a period of economic recovery and business growth. That was the last survey to be published, and I regret to say that it will remain the last survey to be published because earlier this year the Government closed the UK Commission for Employment and Skills. We no longer have a national overview. Perhaps the Minister will explain the rationale behind what appears to be an extraordinary step. What will replace it?
The Employer Skills Survey 2015 highlighted what it termed skill-shortage vacancies by sector and listed 13. The top five were: construction; manufacturing; electricity, gas and water; transport and communications; and agriculture. Interestingly, health and social work were only in seventh place, despite the regular reports of difficulty in filling vacancies. The noble Baroness, Lady Walmsley, has stolen a bit of my thunder here, so I will not repeat the thrust of her argument. Certainly, the proportion of NHS staff who are not UK nationals is high, although already in decline following last year’s referendum. It seems questionable, at the very least, that the list of exempted occupations listed in the regulations does not include doctors or nurses at a time when the NHS is under real pressure in filling posts in these areas. I acknowledge that the noble Baroness, Lady Walmsley, said that it goes wider than doctors and nurses. Enforcing the levy would effectively penalise the NHS for recruiting workers from outside the EEA to fill gaps in an already stretched workforce in an essential public service. I accept that to some extent the NHS has over the years gone for the easier option of hiring from outwith the UK, but the pressures currently being experienced there will be as nothing two years hence. I urge the Minister to consider what the noble Baroness, Lady Walmsley, said and what the pressures on the NHS will be if the charge is applied across the board for that sector.
Science, technology, engineering and mathematics are also areas where there are skills gaps, not least in schools, where recruitment also remains a problem. I shall not repeat the comments I made in respect of the Engineering Construction Industry Training Board in a previous debate. Few teachers will earn above the £30,000 cut-off for the charge, and so non-EEA nationals will be unable to be used to help fill these gaps. From memory, Mr Halfon—or perhaps it was officials—said that there are only about 150 non-EEA nationals in that bracket. I accept that that is not a big number, but none the less these gaps need to be filled. With maths and ICT demonstrating digital skills shortages for the jobs of tomorrow, there could have been a case for relaxing the charge in these areas.
One suggestion I shall make concerns the follow-through on the charge, which we all hope will meet its aims. Could employers not be eligible for some sort of rebate on the charge for employing a non-EEA worker? There is an element of double-charging. If an employer has identified a gap for a group of employees, so that he or she has to take on workers from outwith the UK and, I assume in this case, from outwith the EEA, while doing that, the employer is meeting the aims of this charge by bringing through young, or perhaps not so young, people to train them up to the necessary level. So he is paying the charge for them to be employed and to be trained, and he is also paying a surcharge for those outwith the EEA who he is using temporarily. So in a sense he is training people for the long-term good of the business and of the UK economy, and there does seem to be an element of double-charging, particularly when the £1,000 rises over the years to a maximum of £5,000—leaving aside the charitable sector—when the employer is in fact doing what the Government want him or her to do: training employees.
My other question for the Minister is: when will the charge be reviewed? I do not know whether there is any significance in the fact that the assumption in the regulations is that it covers only non-EEA employees for up to five years. I am not clear whether that is to be a maximum. But there may be a case for, in effect, a sunset clause so that after five years the regulations could be reviewed and some assessment made of the charge’s success. As I said earlier, all of us in this debate, whatever our views and however critical we have been, want to see the outcome that the Government intend. I would be interested in the Minister’s views on that point. I do not expect him to respond just now. I do not expect his officials to give him a response just now. If it is more convenient, I am more than happy to receive something in writing.
Overall, I certainly want to see this charge introduced effectively and fairly, leading to a situation where there are more UK workers able to fill the gaps that are evident now and likely to be even more evident in the post-EU years ahead of us. To that extent, I do not do this often but I wish the Government well because I think their intentions are good, but there are certainly some rough edges in this charge which could perhaps be smoothed down to make it more palatable and perhaps even more effective.
My Lords, I thank all noble Lords for a really interesting debate. We welcome this feedback. I come back to my opening remarks: the investment in skills is crucial to a productive, strong UK economy—an economy which gives people from all backgrounds the opportunity to fill today’s skilled roles as well as those in the future. Migration has a role to play in supporting the development and supply of expertise and skills and we want to continue to attract the brightest and the best, but through the immigration skills charge we want to incentivise employers to invest in training. I am grateful for the support that has been expressed today for our desire to upskill our workforce. I am afraid that I will not cover all the points that have been raised but I will write to all noble Lords present today.
The noble Baronesses, Lady Walmsley and Lady Hamwee, asked why this impacts particularly on the health service. The MAC was clear in its view that the charge should apply to the public sector. It is not sustainable to rely on recruiting overseas staff and the Government are committed to building home-grown skills. All employers need to look at how they meet their longer-term skills needs, and the long-term strategy must be to train and retain our own nurses and doctors in the UK. Steps are being taken to address the shortage of nurses, including continued investment in training, retention strategies, and a return to practice campaign. We are introducing a new nursing degree apprenticeship. Health Education England has increased nurse training places by 50% over the past two years and is forecasting that more than 40,000 additional nurses will be available by 2020. Similarly, Health Education England is forecasting that more than 11,000 additional doctors will be available by 2020. The noble Baroness, Lady Walmsley, asked about the number of nurses impacted by the charge: 2,600 certificates of sponsorship were used for nurses in the year ending August 2015.
The noble Lord, Lord Watson, asked about the delay in publishing the impact assessment. As the charge is classified as a tax, we have not been required to carry out a formal impact assessment. It is also difficult to do so because it is difficult to anticipate how employers will respond to the charge and to wider changes to tier 2. In addition, the charge does not sit as an isolated measure—it is part of a wider skills programme to develop a strong, productive economy. On the noble Lord’s point about how we will assess and evaluate the impact of the policy and whether the charge will be reviewed, we will monitor the operation of the charge and will undertake a review of the policy after one year, as covered in the Explanatory Memorandum.
To clarify some of the exempted occupations: intra-company transfer graduate trainees are exempt as they sit with the investment by employers in skills. Other exemptions which apply to the tier 2 general category also apply to ICTs: PhD-level jobs, visas for less than six months and transfer responses before 6 April this year.
The noble Baroness, Lady Walmsley, asked whether the income would specifically go to NHS training. There have been discussions with the Department of Health about how health education and training can benefit from the Government’s wider skills reforms such as apprenticeships. The amount of funding generated by the charge will depend on the use of the tier 2 skilled workforce route. The income raised from the charge will be used to address the skills gap in the workforce. The immigration skills charge is making a contribution to the department’s budgets and is helping to sustain our investment in skills.
I was very grateful to my noble friend Lord Lucas for his comments in support of these regulations. I will be very happy to meet him and representatives of the IT industry to discuss how we can ensure the appropriate training in that sector.
There has been broad agreement about the need to invest and give people from all backgrounds the opportunity to develop and learn and be part of a highly skilled, competitive and successful economy. That is why we are introducing this charge. I will write to noble Lords to cover other points.
Before the Minister finishes, I mentioned the UK Commission for Employment and Skills, and that apparently it has been disbanded. Perhaps the Minister can give me a commitment that he will also write to me about that. I am happy to leave it at that just now.
I will certainly cover that.
Before the Minister concludes his remarks, I will make one point. Of course I agree with what he said about the need for employers to make a contribution to the training of the workforce from whom they will eventually benefit. However, is he aware of the very high level of commitment to training that all health and care employers already make? It takes them a lot of time and costs them a lot of money. Every ward has training nurses on it; every clinical team has trainee doctors on it; most GP practices have GP trainees; most care homes also have trainee co-workers. An enormous contribution is made already. The noble Lord, Lord Watson, talked about double charging—that is what we have here.
I have listened to what the noble Baroness and the noble Lord have said but I cannot add any more at this stage. I commend the regulations to the Committee.
Committee adjourned at 6.33 pm.