Tuesday 18 May 2021
The Grand Committee met in a hybrid proceeding.
Arrangement of Business
My Lords, the hybrid Grand Committee will now begin. Some Members are here in person, others are participating remotely, but all Members will be treated equally. I ask Members in the Room to respect social distancing. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee.
Trade and Official Controls (Transitional Arrangements for Prior Notifications) (Amendment) Regulations 2021
Considered in Grand Committee
My Lords, there are two instruments in the group before you, both of which address requirements for the movement of goods subject to UK sanitary and phytosanitary controls. I will speak to each in turn.
The first is the Trade and Official Controls (Transitional Arrangements for Prior Notifications) (Amendment) Regulations 2021. This instrument delays the introduction of control measures for specific plant and animal product commodities. The EU exit regulations amended by this instrument addressed official controls on imports to Great Britain of animals and animal products, and plants and plant products, including food and other imports relevant to the agri-food chain, collectively known as sanitary and phytosanitary or SPS controls. Those regulations allowed retained EU law to remain operable in UK legislation after the end of the transition period following our exit from the European Union. For example, they removed references in legislation to the Commission and replaced them with references to the appropriate UK authority.
Having exited the European Union, we are implementing measures to bring EU imports into the same risk-based controls regime that we apply to imports from the rest of the world. A key element of the EU exit regulations is to set out a transitional period for the introduction of these controls on EU SPS imports into Great Britain. This is a temporary pragmatic step, made necessary due to the impact of Covid-19 on all businesses delivering import, control and infrastructure services. The phased introduction of controls prioritises flow at the border and gives business and industry the necessary time to prepare for the full controls regime. It supports international trade and mitigates border disruption. Those regulations, made and brought into force in late 2020, set out phasing provisions in a number of separate instruments governing official controls, trade in animals and related products, and plant health, including provisions to introduce a first tranche of border controls for some specific plants and animal product commodities from 1 April 2021.
On 11 March 2021, the EU Exit Operations Cabinet Committee agreed that the dates for the introduction of these phased SPS border control checks should be extended while businesses are still dealing with the ongoing impacts of the coronavirus pandemic, which have significantly outlasted the estimates made in the third quarter of 2020, when the instruments in question were being drafted. We are therefore now amending the original regulations to revise the planned dates for the ongoing introduction of phased controls. We must ensure that these transitional provisions are reasonable and operable during and after the protracted period in which businesses and border operations continue to be adversely affected by the coronavirus pandemic. This phasing adjustment will enable businesses to familiarise themselves with the new SPS requirements and migrate to new IT systems. It will ensure that necessary infrastructure and processes are in place at border control points, further minimising the risk of any disruption. We will, in due course, introduce a further instrument to reset the later phases of import controls.
As a whole, these regulations will ensure that we continue to deliver robust, effective controls and checks on all food, animal and plant imports. This instrument does not introduce any policy changes, and the devolved Administrations have given their consent for these regulations to apply to the whole of Great Britain. We remain fully committed to the World Trade Organization and to our international trade obligations.
I now turn to the second instrument. The Plant Health etc. (Miscellaneous Fees) (Amendment) (England) Regulations 2021 provides a fee exemption for phytosanitary certificates for exporting or re-exporting goods from England to Northern Ireland by amending certain fee regulations. These regulations set fees for delivery of plant health services in England by the Forestry Commission and Defra respectively. This includes fees for pre-export and export certification services required to comply with EU third-country entry requirements relating to plant health controlled material. All businesses that use these services are charged a fee to recover the cost of delivery.
The protocol on Ireland and Northern Ireland means that Northern Ireland remains in the EU plant health regime. Therefore, all movements of regulated plants between GB and Northern Ireland must meet EU third-country requirements, including being accompanied by a phytosanitary certificate. If pre-exit fees related to production of phytosanitary certificates were not amended, they would apply in full to trade in regulated plants, plant products and other objects between England and Northern Ireland. This would create additional costs to businesses when carrying out trade within the UK internal market.
Amendments are being made by this instrument to provide an exemption from the payment of fees for pre-export and export certification services where goods are moving from England to a business or private individual in Northern Ireland. The exemption also applies to movements of goods by private individuals in their passenger baggage. This SI applies to England only. Scotland has made parallel legislation and Wales plans to do so. This instrument will ensure that trade between England and Northern Ireland is not subject to additional plant health costs following the end of the transition period. The exempt costs will cover the application, examination, production and amendment of phytosanitary certificates and any associated inspections and testing that may be required in order to meet EU entry requirements.
The amendments introduced by this instrument do not include any policy changes. The instrument simply ensures that the current policy for intra-UK trade is maintained; that services for pre-export and export certification to third countries should not be an additional financial burden to businesses when moving goods within the UK internal market. These instruments ensure that we continue to deliver an effective imports system that guarantees our high standards of plant health and food and animal safety, while ensuring frictionless trading and movements. I beg to move.
My Lords, I am grateful to have the opportunity of speaking to these statutory instruments and to the Minister for his explanation of the regulations. I am also grateful for the easement of fees, as they were looking fairly formidable. There was a great deal of anxiety about the fees likely to be payable, particularly in a business like ours. I must declare an interest, as my family business is very much involved in the supply of flower bulbs to Northern Ireland for distribution throughout the United Kingdom, the Republic of Ireland and elsewhere. In particular, the regulated arrangements made a great deal of difference to the position of a company such as Taylors. I am sorry to speak from personal experience, but I hope that, in a way, it makes my comments more relevant—although my interest in the business is now as an elder statesman. I am not responsible for day-to-day management anymore, but I know the concern that it has cost.
These statutory instruments all change dates. The first changes the date to 31 July. I notice that it also extends the regulations on plant health until December. I wonder what the position is after that. The second statutory instrument expires on 31 December so the concession on fees, as I read it, expires on 31 December, and from then on it looks as if those fees will in fact be charged. I hope that some accommodation can be made regarding the prohibitive cost of small parcels and mail order and, in our case, after-sales service after the principal order has been delivered. I read the reports of the First Delegated Legislation Committee of the House of Commons, which met yesterday. They make for interesting reading. They certainly give a strong line on the importance of horticulture and the importance of the Northern Ireland market to British horticulture. I think noble Lords will agree that it is important that the United Kingdom has freedom of trade across all four nations. I know that this is a matter of negotiation; these concessions certainly help.
If I may, I will give an illustration of what happens to a flower bulb grown in Holland. It gets a field inspection in Holland. It gets a dry bulb inspection in Holland prior to export. It then gets a receipt dry bulb inspection in GB. Then, if it goes to Northern Ireland, it gets an export dry bulb inspection and must have a receipt dry bulb inspection in Northern Ireland. That is five inspections for one bulb. They are duplications of the same thing. A bulb is a dormant object. It is not a developing disease. It is not growing. It is being repacked in Great Britain for the purposes of distribution to retail outlets. The plant health certificate that is issued on its arrival in the UK lasts only 14 days; the packing process may take a month or two while consignments are gathered together.
It seems unnecessary bureaucracy to have to do all this. Even with some concessions as to how frequently the consignments will be inspected, it is still a considerable burden. I ask the Minister to bear that in mind and to seek ways of trying to negotiate arrangements whereby the industry does not have to have all this delay and difficulty for the genuine export of a product when previously it was sufficient for it to be sent on the basis of commercial trust from one producer to another and with a plant passport issued in the Netherlands. There is no difference to the bulbs and no difference to the care but an awful lot of increased delay and expense is involved.
Added to which, I know that the whole Northern Ireland trade business is a matter of considerable concern to the Government. I support them in their concern in this area. For example, we supply a large number of seed potatoes to Northern Ireland. At the moment, we are forbidden from sending seed potatoes from Scotland. These certified seed potatoes are inspected in Scotland and freely distributed throughout Great Britain but they are banned from Northern Ireland at the moment. I hope that it will be possible to get this matter resolved.
Only today, we had a Private Notice Question in the Chamber from my noble friend Lord Moylan concerning a cancer drug that is, as I am sure all noble Lords know, freely available in Great Britain but not available in Northern Ireland. This is a real cause for concern. If the United Kingdom is to mean anything, products that are available in one part of the United Kingdom should be available in another.
I support the regulations and am grateful for the concessions that they deliver. I would like to know whether there are time limits on those concessions. I hope that my general remarks have made it clear that there is a long way to go before we have anything like normal trading relations with our customers in Northern Ireland.
My Lords, I thank the Minister for his explanation of and introduction to these two sets of regulations.
The first set relate to trade and official controls. I note that they are intended to protect biosecurity and support trade by ensuring that within Britain, and between Britain and the EU, effective official border controls continue to operate following the end of the transition period, governing imports to Britain of animals and animal products and plants and plant products, including food and other imports to the agri-food chains—collectively known as the sanitary and phytosanitary checks. This represents a failure properly to prepare for the new arrangements over all of last year and raises more questions that require detailed answers.
The important questions are these. Why are the IT systems not ready? Is the infrastructure in place at the border ports of Portsmouth et cetera? Has more construction of infrastructure to take place? Have staff been trained to undertake the new responsibilities? What discussions have taken place with the agri-food sector and the National Farmers’ Union regarding the delays? What will be the estimated costs of the damage that these delays could cause to our agri-food sector?
In actual fact, this statutory instrument postpones the date from which prior notification requirements will apply to the import of products of animal origin and prescribed types of plant and plant products from the EU into GB from 1 April to 31 July. The instrument also extends the transitional period so that phytosanitary certificates will not be required for the import of plant and plant products from the EU into GB until 31 December 2021—apparently to allow businesses more time to familiarise themselves with new information technology arrangements.
Can the Minister explain the reason for both delays? Is it due to the implementation of the IT arrangements? If this is the case, why is that? Was no preparatory work undertaken on this issue last year in advance of the TAC agreements at the end of December? Was any equality impact assessment undertaken? If so, what were the results? If no assessment was undertaken, why was that the case? Will there not be an impact on the agri-food sector? Why the lack of preparedness on the part of the Government and Defra?
I note the concerns of the House of Lords Secondary Legislation Committee, which has written to Defra about the delays in the implementation of the IT systems. The committee was advised that there would be a phased transition to the new live systems, starting in summer 2021. Can the Minister indicate how long this phased transition period will be and whether there is an estimated date for completion?
There is also, it has been suggested, a delay in getting the BCP infrastructure ready for the new BCP checks, which Defra states should be ready in October 2021, January 2022 and March 2022. What will be the financial costs of this work and has it been budgeted for within the budget timeline for this financial year?
While recognising that these regulations are required for the operation of the trade and co-operation agreement, I fail to understand the inexplicable reasons for the delays. I fully recognise that Northern Ireland will continue to operate within the EU single market under the Northern Ireland protocol. Can the Minister confirm that there will be no detrimental impact on agriculture and the agri-food sector in Northern Ireland and its relationship with GB as a result of the delay in implementing the IT and digital requirements?
A number of weeks ago we discussed the plant health fees amendment regulations, to which the noble Lord, Lord Gardiner, responded. I am pleased to say that there have been some easements. I have been contacted by the AgriSupply Coalition which stated that because of our references in that debate to its problems, there has been greater engagement by Defra with it. Defra recognised that more clarity was needed on the terms used, such as “not intended for final user”, and put out much more information. It now means seed being sown to produce a crop that will be marketed, such as a crop of OSR. This step by Defra is welcome in removing the higher fee from seed for trials in response to industry concerns.
Notwithstanding that, the industry remains vigilant about any potential divergence between all parts of the UK on the matter of seeds and plant health. Many companies located in or involved in sales around all parts of the UK remain nervous about this. This is very relevant to the implementation of the Northern Ireland protocol, so I would welcome assurances from the Minister that the area of divergence is being managed, and managed in the interests of those in the agri-food sector and the AgriSupply Coalition, which helps to supply and keep fuelled our local agricultural industry throughout the UK.
I support these statutory instruments and their two specifications. I look forward to the Minister’s response.
I am delighted to follow the noble Baroness, Lady Ritchie of Downpatrick, and I echo many of the remarks made by my noble friend Lord Taylor of Holbeach, who speaks with such authority on these issues. I am grateful to the Minister for setting out so clearly the content of the two instruments before us. I would like to put a number of questions to him, if I may.
In regard to the plant health miscellaneous fees regulations before us, the point was made that an exemption from the payment of fees is being made but, as we understand it, this is only for a period of time. However, my noble friend Lord Goldsmith said that these regulations apply only to England and that there will be separate regulations for Scotland and Wales. It would obviously be good to know that they will be applied in the same way, and that there will not be two different regimes operating. Confirmation of that would be very helpful.
I note the importance of the industry. The horticultural trade is worth more than £24 billion in GDP. It supports more than 568,000 jobs and contributes £5 billion in tax per annum, which is considerable. The agricultural supply industry, as represented by the Agricultural Industries Confederation, represents a farmgate value of more than £8 billion. This is a significant industry and a significant trade.
Particularly in the context of the second instrument before us—the Trade and Official Controls (Transitional Arrangements for Prior Notifications) (Amendment) Regulations—it would be helpful to know whether the Minister can update us on where we are in the negotiations on the recognition of the sanitary and phytosanitary provisions. I have great difficulty in understanding why we cannot introduce a system more akin to that in New Zealand, particularly when we live so physically close to our erstwhile European Union partners. It would be helpful to know what stage we are at.
Likewise, in case any issues arise, can the Minister confirm that parliamentary committees and other specialist committees are being established at this time under the EU–UK Trade and Cooperation Agreement? Many of these issues will raise concerns on both sides, and it is important that they can be identified at the earliest possible stage.
As was noted in the discussions in the House of Commons, it is a matter of concern and something to be remarked on that the Minister was completely silent on the question of the expected financial impact and the cost of applying these two sets of regulations. Given the significance and contribution of this sector to the UK economy, it is extremely important that we understand the impact at the earliest possible stage.
As my noble friend Lord Taylor of Holbeach said, these are new fees that did not exist in the past. Given the new arrangements that we find ourselves in post Brexit, this is the first time that a producer or exporter will have to pay them—from 1 January 2022, as I understand it. It would be helpful if, in summing up this short debate, the Minister could tell us what impact he and the department expect the fees to have when they apply. Also, it seems slightly odd that, if that is the case, the same fees will apply per consignment regardless of size. That seems nonsensical and it would be helpful to have an explanation.
Extraordinarily, when we last debated these regulations, there had been no discussion or formal consultation with the agricultural supply sector. The Agricultural Industries Confederation was not contacted before the initial regulations were drafted. It is good to recognise that there is now greater engagement. I understand that there is a dialogue between Defra and the AIC, as well as with other parts of the industry, on this subject. That is obviously welcome.
However, Defra must provide more clarity, particularly on some of the terms being used. One example is the phrase “not intended for final user”. Can more information be put out at the earliest possible stage, particularly in view of the fact that we have time now before these fees come into effect on 1 January next year? What does that phrase mean? If the seed is being used to produce a crop that will be marketed, it will be important to understand that from the industry’s point of view. I understand that Defra is removing the higher fee from seed for trials in response to the concerns that have been expressed by industry. Perhaps the Minister can confirm whether that is the case. I would welcome that very much indeed.
As I mentioned earlier, there is ongoing concern that if these regulations are to be implemented differently with three pieces of legislation—one for England, one for Scotland and one for Wales—there should be no divergence in their interpretation and operation between the nations of the UK on the matter of seeds and plant health. I entirely support the strong and appropriate comments made by my noble friend Lord Taylor of Holbeach about the fact that we find ourselves in this incredible position of not being able to export seed potatoes from Scotland and the rest of Great Britain to Northern Ireland. That is regrettable. If there is to be a review of the Seed Marketing Regulations 2011 next year—or even this year—it would be extremely helpful to us to have the earliest possible notification of what the implications will be.
Although I do not oppose these regulations, I obviously welcome the fact that there is now at least a dialogue between the department and the industry. I hope that the Minister will be able to take this opportunity to answer some of the concerns I have addressed this afternoon.
My Lords, I thank the Minister for his introduction to these two short statutory instruments, which are closely interrelated. The first is a short SI concerned with sanitary and phytosanitary checks to ensure efficient pest and disease control, which is extremely important. Previous speakers have spoken knowledgably and from experience on this subject.
This is all about border control, yet the EM makes no mention of Northern Ireland, but deals with England, Scotland, and Wales. Given that this is extremely important, I am surprised that we are debating this only today, on 18 May. The SI came into force on 1 April, as the previous regulations ceased on 31 March. This is all very retrospective and unsatisfactory.
I am concerned that paragraph 7.5 of the Explanatory Memorandum states that although businesses could
“attempt to comply with control requirements”,
the Government do not think this is necessary and they will not be enforced. Is this safe? Are the Government, in their anxiety to assist businesses, not opening a loophole which could see the importation of diseased material?
The SI on plant health deals with the payment of fees from England to Northern Ireland. Can the Minister say whether there is a similar arrangement from Northern Ireland to the UK or whether this a one-way arrangement only?
This is a fairly straightforward SI on the face of it, and appears to be solely about the waiving of fees for pre-export and export certification services. However, I have one concern about the wording at paragraph 2.4 of the Explanatory Memorandum, which states:
“The exemption also applies to movements of goods by private individuals in their passenger baggage.”
This Minister referred to this in his opening remarks. I am by no means a frequent global traveller, but one thing I have experienced is that, if you fly out of GB to another country, taking plants and plant products, even for your private consumption on the flight, is not permitted. Given the rise in pests and pest-borne diseases, and the decimation they can bring to our plant life, it seems odd to be allowing individual travellers to carry plant products in their luggage without an exemption certificate, and likely to be a recipe for disaster. Perhaps I have misunderstood the meaning of this paragraph, and I would be grateful if the Minister can provide some clarification.
I have two other comments on this SI. First, new paragraph 2(d), which is inserted by Regulation 2, refers to
“introduction into, and movement within and out of Northern Ireland”.
There is, however, no mention of the destination after leaving Northern Ireland. Is it to be assumed that it is always going to be England, Scotland, or Wales? I am extremely grateful to the noble Lord, Lord Taylor of Holbeach, for sharing his experience with us. It has been most helpful.
Secondly, new paragraph (4B), which is inserted by Regulation 3(2)(b), states that new paragraph (4A)
“ceases to have effect at the end of 31st December 2022.”
What is proposed to happen then? Presumably fees will be introduced, as the noble Lord, Lord Taylor, suggested. What is the likely scale of these fees? Will this be a burden for businesses which will have benefited from a fee holiday? The noble Lord, Lord Taylor, referred to a possible increase in fees.
I am generally content with these two SIs, but there are some worrying aspects to this, and I look forward to the Minister’s concluding remarks.
My Lords, I thank the Minister for his introduction to these SIs. While they are broadly technical in nature, I have a number of questions on which I would like clarification.
Dealing first with the trade and official controls SI, I accept that this debate is taking place after the SI came into effect on 31 March, but nevertheless it raises some concerns. We have dealt with a number of SIs on similar themes over the past year. Each time, we ask whether businesses will be ready to operate the new processes and whether the IT systems will be in place. On each occasion, we receive reassurances from the responding Minister, only to find that further delays in implementing the new regime are necessary.
In December, when we were dealing with an earlier SI which introduced delays, the noble Lord, Lord Gardiner, reassured us that a shift in introducing the new processes from 1 January to 1 April would
“allow us to maintain the highly effective sanitary and phytosanitary regime, while allowing businesses time to prepare for our new import requirements”.—[Official Report, 2/12/20; col. GC 179.]
He specifically argued that introducing the new import controls on a phased basis would give businesses—many of which had been impacted by Covid—time to adjust.
We now have a new set of deadlines before us today, and the reason given in the Explanatory Memorandum is:
“This extension will allow businesses affected by the pandemic to familiarise themselves with the new SPS compliance requirements and IT systems, and enable workable migration from current systems.”
Does the Minister accept that, despite previous reassurances, businesses were clearly being put under unreasonable pressure to set up the new compliance systems? Does he accept that trying to rush it through risked jeopardising the viability of import companies which were struggling then to understand the complexities of the administrative system set up by Defra? Can he clarify what the industry response has been to the new deadlines?
The Explanatory Memorandum states that stakeholders had not been formally consulted but it was expected that these amendments would be received positively. Since the amendments represent a further delay, this was clearly to be expected, but has anyone asked them whether they are confident they can have the new processes up and running by 31 July and 31 December respectively? Otherwise, is there not a danger that we will be back here again, with another SI making further changes to the timetable?
While on this subject, can the Minister also update us on the development of the IPAFFS IT system? This issue was raised by the noble Baroness, Lady Ritchie. In a letter to the Secondary Legislation Scrutiny Committee, the department said that, from 1 January 2021, the system was being used for live animal and high-risk food products, and that its functionality was now being extended to include plants and plant products. Can the Minister clarify whether the new IT system now covers all animal and plant products, or is there more work still to be done? Can he also update the Committee on the development of the border control posts infrastructure? By the new deadlines contained in this SI, will there be the comprehensive biosecurity checks that should be required at all border posts? Is the Minister confident that enough staff will have been recruited and trained to staff the posts? Can he update us as to whether sufficient veterinary staff with appropriate qualifications will be in place to ensure that proper checks can take place?
We are not in a position today to oppose this SI, and we have every sympathy with businesses adversely affected by the huge bureaucratic maze that the Government seem to have created. But, as my colleague Daniel Zeichner made clear in the Commons when it considered this SI, it is also vital that we put in place robust biosecurity measures equal to those that we previously enjoyed in the EU. I hope the Minister can explain when we are likely to receive the same protections on food safety and security that we previously took for granted when we were in the EU.
Turning briefly to the second SI—on plant health miscellaneous fees—we accept that these proposals are necessary to ensure that our colleagues in Northern Ireland are not penalised by changes to export certification costs on plant and wood products. This is one small measure that highlights the difficulties that Northern Ireland businesses are having to tolerate to carry on trading, as was well illustrated by the example from the noble Lord, Lord Taylor, of dry flower bulbs needing five inspection certificates. Can the Minister explain why this problem was not picked up earlier and clarify whether a comprehensive review of fees charged when goods are moving from England to Northern Ireland is now taking place? Can we expect further SIs covering different aspects of trade costs to ensure that Northern Ireland is not further disadvantaged by the new trade arrangements?
Also, paragraph 7.3 of the Explanatory Memorandum notes:
“Scotland and Wales plan to make parallel legislation, which will have the same effect”.
As it has been some time since this SI was laid, can the Minister provide an update on the status of the devolved legislation? As several noble Lords have said, it would be helpful if there was no divergence in application by the devolved nations, either in the timescale or the content of the provisions they are making. I look forward to his response.
I thank the noble Lords who have contributed to this debate.
As I outlined in my opening remarks, the first instrument reflects the Government’s assessment of the protracted impacts of the ongoing pandemic and our need to be pragmatic about phasing in controls on EU imports in a manner and on a timescale that can be reasonably met by trade. The second instrument ensures that the current policy for intra-UK trade is maintained without additional plant health costs for moving goods between England and Northern Ireland following the end of the transition period.
I assure the noble Lords who raised concerns about delaying checks and the new timetable that we are acting in the best interests of UK businesses in taking the decision to delay the introduction of import controls. This will give traders time to focus on getting back on their feet as the economy opens up in the summer.
When the regulations were drafted in the autumn of 2020, we were unaware how disruptive the pandemic would continue to be. These proposals are contingent on the UK proceeding with the relaxation of coronavirus measures in accordance with the broad timetable set out by the Prime Minister. If the UK faces a different scenario, we will monitor the impact very carefully. I assure the noble Baroness, Lady Bakewell, in particular that we are confident that there are no biosecurity risks from these delays. Current EU biosecurity standards are essentially the same as our own, and where this is not the case—for example, for certain plants—we have already delivered more robust controls, which remain in place.
The instrument before your Lordships was made under the urgency provision so that it could be laid and brought into force by 31 March, following the Cabinet committee decision of 11 March. We did not want the risk that EU import businesses would have felt obliged to comply with the control requirements originally due to come into force in April. As with many of the SPS instruments giving effect to the withdrawal Act 2018, this SI does not apply to Northern Ireland.
The noble Baronesses, Lady Ritchie and Lady Jones, asked about the readiness of IT infrastructure. Delivery remains on track for the new import and export IT systems. Since 1 January 2021, the IPAFF system has been successfully introduced for imports of live animals, animal products and high-risk food and feed not of animal origin into GB. We are now extending that system to imports of plants and plant products from EU and non-EU countries. Our new exports IT system is also on track, currently in beta. The next stage is phased transition to the new live systems throughout summer 2021. These timetables will allow the import and export sectors, including businesses affected by Covid, the time they need to familiarise themselves with the new services and commodity groups.
On wider infrastructure readiness, in response to the noble Baroness, Lady Jones, as of April 2021, Defra has received 41 applications for new border control points in England and Wales; 37 of them are live and we are aware of 16 applications for Scotland. The revised phasing has taken into account the concerns from ports and port authorities on preparations for checks. As we validate the plans for January 2022, we will identify any ports or authorities where there are residual concerns and ensure that a response is pragmatic, tested and can be operationalised effectively. Delaying these requirements does not reflect a change in policy; therefore, in answer to a number of noble Lords, an impact assessment or formal consultation with stakeholders was not deemed necessary.
The delay in import controls introduced by this instrument has already been communicated to the trade via meetings, newsletters and a webinar. In answer to the noble Baroness, Lady Jones, these amendments have been positively received by the trade as they enable businesses to save documentary costs and goods to flow easily across the border. Also in response to the noble Baroness, to support readiness for the delivery of the new import controls on animals and animal products, Defra has provided £40 million of funding to local authorities in England to assist port health authorities with the recruitment and training of more than 500 new staff, including official veterinarians.
The delay in import controls for low-risk plants and plant goods introduced by this instrument will give EU businesses more time to prepare for these changes. EU businesses have welcomed this additional time. EU member states are aware of our new requirements and are getting ready for these changes. Ultimately, they will be responsible for preparing EU businesses to meet ongoing demand from customers in Great Britain.
Noble Lords asked questions about the challenges facing those that export regulated goods to the EU or move them to Northern Ireland. We fully acknowledge the difficulties facing those businesses, and continue to press the strong technical case for the remaining prohibitions and restrictions to be removed from GB plants and plant products.
The noble Lord, Lord Taylor, raised concerns about charges and the need to simplify the process of sending dormant flower bulbs to Northern Ireland. The UK Government and the Northern Ireland Executive have developed practical arrangements to simplify checks and controls between GB and Northern Ireland. The requirements for moving bulbs and other plant material to Northern Ireland are set in EU plant health regulations, and we continue to discuss issues around the application of these requirements, in the context of the protocol, with the Commission.
The Movement Assistance Scheme has been developed by the Government to make it easier for traders to continue to move agri-food goods, including bulbs, from Great Britain to Northern Ireland. We will continue to monitor and review the scheme to determine how best to provide ongoing support to traders. Also in answer to the noble Lord, Lord Taylor, the UK Government have engaged and continue to engage with businesses and stakeholders on support measures; they also continue to collect feedback on what further assistance could be beneficial.
Defra continues to press the strong technical case for the remaining prohibitions and restrictions to be lifted to enable exports of the full range of GB plants and plant products to the EU and their movement to Northern Ireland. Following this process will lead to an outcome that endures over the long term. Working with industry bodies, we are seeking to ensure that this process is expedited.
The noble Baroness, Lady Bakewell, was concerned that there is a contamination risk where private individuals can bring plant and plant matter into and out of Northern Ireland with certification. The new requirements on goods moving from Great Britain to Northern Ireland are consistent with the Northern Ireland protocol, and certificate requirements are the same for personal or commercial movements of plants and plant products. The Government have guaranteed unfettered access for Northern Ireland’s businesses to the rest of the UK internal market, ensuring that they can continue to trade as they did before the end of the transition period. Plants will continue to move from Northern Ireland to GB under the same plant passporting system that now governs plant movements within GB. For private individuals travelling from Northern Ireland, or indeed from anywhere, our advice remains to act responsibly.
My noble friend Lady McIntosh asked whether the SI covers all the devolved Administrations. The answer is no. The territorial application of this instrument is England. Scotland has laid two Scottish statutory instruments to cover the equivalent measures for goods moving from Scotland to Northern Ireland, and Wales intends to lay equivalent legislation, which will enter into force later this year. The Scottish and Welsh Governments continue to commit to not diverging in ways that would cut across future frameworks where it has been agreed that they are necessary or where discussions continue.
My noble friend also asked why we do not have an SPS regime such as that in New Zealand. The sanitary and phytosanitary chapter of the trade and co-operation agreement put in place a framework, including an SPS specialised committee, that allows the UK and the EU to take informed decisions to reduce their respective SPS controls, with a commitment to avoid unnecessary barriers to trade. It is in both parties’ interest to use this framework to reduce the rate of SPS checks required, and the TCA is the starting point for our future relationship with the EU. We are open to discussions with the EU on additional steps that we can take further to reduce trade friction, but they cannot be on the basis of future alignment with EU rules, as that would compromise UK sovereignty over our own rules.
Finally, on the issue of cost, which was raised by a number of noble Lords, the actual costs to businesses will vary depending on how they organise their imports and the type of material being imported. The schedules to the statutory instrument set out the fees for individual categories of commodities. The fees methodology was agreed through consultation with the trade in 2017.
To those noble Lords who raised questions about the fees applying to moving material from GB to Northern Ireland, I can reassure them that there will be no associated fees. This is in line with the principles of unfettered market access. There is no requirement for export phytosanitary certificates to accompany qualifying Northern Ireland goods moving from Northern Ireland to GB. There will also be no import checks on QNIGs entering GB, and no additional costs to trade as a result of plant health service delivery by APHA.
I hope that noble Lords appreciate the need for these trade-supporting regulations. These two statutory instruments are critical components in our ongoing legislative process, which will together ensure that we are able to maintain a functional and effective imports regime now that the transition period has ended. I would like to thank again noble Lords for the important points raised here today. I trust the responses have been useful. I am confident that these regulations are fit for purpose and represent another marker in the Government’s commitment to providing support for business.
Plant Health etc. (Miscellaneous Fees) (Amendment) (England) Regulations 2021
Considered in Grand Committee
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. Some Members are here in person, others are participating remotely, but all Members will be treated equally. I ask Members in the Room to respect social distancing. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
Corporate Insolvency and Governance Act 2020 (Coronavirus) (Extension of the Relevant Period) Regulations 2021
Considered in Grand Committee
My Lords, these regulations were laid before the House on 24 March this year. It is now over a year since the emergence of Covid-19, and the Government have consistently taken the swift action needed to save lives, limit the spread of the disease, protect the NHS and mitigate damage to the economy. The Government’s successful rollout of the vaccine programme and the implementation of their four-step road map out of lockdown are both reasons for cautious optimism that we will soon enjoy a return to normality. To date, in excess of 35 million people have had their first vaccination and more than 18 million have had their second dose—including me, yesterday. The British public have also risen to the challenge of suppressing the spread of the virus by sticking to the rules: staying at home; getting tested when appropriate; isolating when required; and following the “hands, face, space” and “letting fresh air in” guidance.
However, we are not out of the woods just yet, and the emergence of new strains of the virus mean that now is not the time to become complacent. The continuation of social distancing measures, introduced to limit the spread of the virus and help save lives, is crucial while we wait for everyone to be vaccinated, but this of course continues to have an effect on business. The Government recognise that, while most businesses have been able to reopen and many have received significant financial support, social distancing measures remain and some businesses continue to face uncertainty and financial difficulties, as they are still unable to open or are not yet able to trade at full capacity.
It is therefore crucial that the Government continue to support businesses by giving them every chance to survive, fully reopen and get through this period of uncertainty. This statutory instrument will do that by extending the temporary measures first introduced by the Corporate Insolvency and Governance Act 2020—which were due to expire variously at the end of March or April—by a further three-month period until the end of June 2021. The temporary measures being extended until 30 June 2021 are: first, the suspension on serving statutory demands and the restrictions on filing petitions to wind-up companies; secondly, the small supplier exemption from termination clause provisions; and, thirdly, the suspension of the wrongful trading provisions. In addition, modifications to the moratorium provisions and the temporary moratorium rules are extended until 30 September 2021.
The temporary suspension on serving statutory demands and restrictions on winding-up petitions continue to help many viable companies during these difficult trading conditions by removing the threat of aggressive creditor action at a time when many businesses remain closed or are unable to operate at full capacity, particularly in the retail, hospitality and events sectors. Extending these measures further will give businesses the confidence and support they need while they are doing their best to reopen safely and return to as normal trading as they can in these unprecedented times.
Noble Lords will know that the Government have already extended the temporary suspension on the ability of commercial landlords to forfeit business tenancies. This will give further protection to tenants who have only recently been able to restart trading after the restrictions introduced because of the most recent lockdown.
Although these measures are intended to help companies that may be subject to aggressive creditor enforcement, the Government have been clear that they are not to be seen as a payment holiday. Where companies can pay their debts, they should of course do so. It is important to note that these measures aim to encourage forbearance and do not extinguish any existing creditor rights or interests. In addition to the protection that these measures give, they are also intended to give those companies with unavoidable accrued arrears caused by the pandemic time to take advice from restructuring professionals and to negotiate and reach agreements with their creditors wherever possible.
I know that many businesses and their business representatives will welcome the continued support that these regulations will give them during this extremely uncertain time. However, I also recognise that these measures will mean a further period of uncertainty for creditors where some of their rights to enforce the recovery of their debts are temporarily restricted. Although we believe that the extension of the statutory demand and winding-up provisions will be particularly welcomed by commercial tenants, it applies to all business sectors of the economy.
Noble Lords will be aware that wrongful trading proceedings are an action that may be taken by an insolvency office-holder against directors, which can lead to a director being held personally liable for losses to a company’s creditors where they allowed the company to continue to trade beyond the point at which it became inevitable that the company would enter formal insolvency proceedings. A successful action may lead to losses being recovered for the benefit of creditors but, more importantly, wrongful trading has a vital role in preventing reckless insolvent trading. The threat of personal liability is a strong deterrent against directors causing companies to continue to trade at the risk of creditors.
The suspension of liability for wrongful trading until 30 June 2021 will allow directors to take steps to save companies that would otherwise be viable but for the impact of the pandemic without the threat that they may be personally penalised for losses incurred during a period of great economic uncertainty if things did not improve and the company later had to enter insolvency proceedings. I should stress that suspending wrongful trading does not give a free pass to directors or allow them to act irresponsibly. Other vital protections for creditors when a company is facing insolvency remain in place, such as the directors’ duties set out in the Companies Act, fraudulent trading or misfeasance actions under the Insolvency Act, and disqualification from acting as a company director.
Finally, the new company moratorium introduced by the Act gives financially distressed companies protection from creditor enforcement while they seek a rescue. In normal economic conditions, the moratorium is intended to work with certain entry criteria that must be met before a company can enter into one. These criteria protect the integrity of the moratorium, which should be used only for those companies with a realistic prospect of rescue. Noble Lords will recall that it was recognised during the debates on the Corporate Insolvency and Governance Act that it would help fundamentally viable companies impacted by the pandemic to make use of the moratorium if these criteria were temporarily relaxed.
These regulations will extend some of those temporary relaxations to 30 September 2021. They include: allowing a company subject to a winding-up petition to access a moratorium simply by filing the relevant documents at court, rather than having to make an application to the court; and, secondly, disapplying the rule that prevents a company entering a moratorium if it has been subject to a company voluntary arrangement, been in administration or been in a previous moratorium within the last 12 months. These regulations will also extend the temporary administrative rules for the moratorium contained in Schedule 4 to the Corporate Insolvency and Governance Act, which enable it to operate.
The important package of temporary measures, first introduced by the Corporate Insolvency and Governance Act last year and by subsequent extensions, continues to be widely welcomed by businesses. We are told by business that these measures, alongside the availability of new permanent tools, have been essential in supporting continued trading, seeking a rescue or restructuring, and allowing many companies to trade without the threat of creditor action being taken against them.
In conclusion, the Government recognise that these measures represent a significant incursion into the normal operation of insolvency legislation, in particular to the rights of creditors, and as such it is right that they are not extended for longer than is absolutely necessary. These temporary measures will, therefore, continue to be kept under constant review. I beg to move.
My Lords, I thank my noble friend for setting out so clearly the effect of these extension regulations. I support these extensions, as I have done previously—this is not the first time we have been here, of course—but I have some questions for my noble friend.
The Corporate Insolvency and Governance Act 2020 introduced the new stand-alone moratorium procedure for companies. This had been proposed earlier and was, of course, very much a pre-pandemic proposal. Most of the other legislative changes in that Act were driven by the pandemic, and quite rightly so. Given that the moratorium procedure is central to some of the context of these regulations, I wonder whether my noble friend can update the Committee on the number of moratoriums that have been applied for, although I appreciate that that statistic might be difficult, the number granted, which should be more straightforward, and the number that are live today.
Few would argue—and I do not do so—that those businesses impacted by the Covid pandemic and which find themselves in financial difficulties, unable to pay their debts because of the pandemic, should be granted a breathing space, which is what these regulations seek to do. I support that. What I do not understand, and it is not apparent from listening to my noble friend, is why the length of the breathing space varies according to different areas of activity under the regulations.
Protection of companies from creditor action on statutory demands and winding-up petitions lasts only to 30 June 2021—I note in passing that that is not far away, and I suspect we will be back here again, probably after the event, to extend this period, which I do not necessarily disagree with. On the other hand, protection for the operation of the company moratorium goes on to 30 September 2021. Protection for directors and shadow directors from the wrongful trading provisions lasts only to 30 June 2021. There is no explanation in the regulations for the different end dates, other than the somewhat cavalier statement in the Explanatory Memorandum that
“the extension for each measure has been determined having regard to the nature of the measure in question.”
This seems somewhat circular to me. What is it inherent in the nature of the statutory demand versus the moratorium that requires a different end date, particularly, as I say, given that I would be surprised if we are not asked to extend these dates again? I believe I raised this issue on our last outing.
As I have said, I support these provisions, but we need to recognise—to be fair, the Minister made this point too—that, notwithstanding the small business carve-out exemption, these measures are an interference with the normal rules of insolvency, and indeed the normal rules of trading. However, a year into these restrictions—my noble friend referred to them as temporary, and I think we are going to have to revisit that word before too long in this context—there has been no consultation on them. The Explanatory Memorandum does however state that the
“Government has engaged informally with a range of stakeholders”.
The Minister in passing made reference to a welcome, I think, from business. The Explanatory Memorandum also refers to engagement with
“business representative organisations and investor groups on these matters.”
Can my noble friend tell the Committee what groups these were, what the nature of the engagement was and what the groups said? That would be important for us in these proceedings.
Lastly, I turn to the position regarding wrongful trading. I note what my noble friend said about the suspension of liability for wrongful trading for directors and shadow directors, and I wonder why this part of directors’ liability has been seized upon. My noble friend noted, I think with approval, that other liabilities in relation to directors’ duties, disqualification and so on are unchanged. Why, then, have the Government singled out wrongful trading as a particular area to suspend during this period? It is not clear to me. There may be some reason, and I would be grateful if my noble friend could enlighten us on that.
Subject to these caveats and concerns, I support these regulations.
My Lords, clearly we are at a critical time for UK businesses. It is widely recognised that businesses face enormous liquidity issues when an economy comes out of a downturn as much as when the downturn starts. I draw noble Lords’ attention to my interests as set out in the register, which include investments in all sorts of companies—I think they are all solvent, but one never knows.
As of now, as my noble friend eloquently explained, the effects of the downturn have been cushioned by the somewhat heroic efforts of the Chancellor, and the teams at the Treasury and BEIS, in providing a cushion for so many businesses in different ways, from loans to grants, rates relief and furlough, and, as my noble friend explained just now, measures that were set out in the Corporate Insolvency and Governance Act, which we debated in this House a short while ago. It was a great achievement and showed the Government being fleet of foot at their best.
There is no question that we are coming through the difficult times to some sort of normality, and even possibly a mini boom, so the question is whether we need all the measures in the Act to be extended. I plan to ask my noble friend broadly the same question as my noble friend Lord Bourne of Aberystwyth asked: why are the measures not coterminous? Perhaps he can explain what has happened in the interregnum for those measures which expired on 31 March.
I have been studying some commentary and research from the turnaround specialist group R3. When the previous extension was under consideration it said:
“The Chancellor’s decision to temporarily extend his COVID insolvency measures, coupled with the other aspects of the support package announced today, will be welcome news to many businesses across the country … The insolvency and restructuring profession will also welcome the extension of the temporary relaxation of entry requirements for the new moratorium procedure. This measure could enable more businesses to access this important tool over the coming months, and help to facilitate the rescue of otherwise-viable businesses.”
“However, while the Chancellor’s announcement will make a real difference in the coming months, these measures can’t be prolonged indefinitely, and the Government will face a number of questions when this extension ends.”
It is important to avoid a cliff edge, but the longer temporary measures are in place, the harder the recovery will be. On early intervention, a smart and staged plan is needed for businesses to be in turnaround, ideally, rather than insolvency.
The main issue that businesses will face will be working capital and skills shortages. On the former, the reintroduction of Crown preference has reduced the amount of headroom in inventory finance to the point where there may not be any facility on which to draw. As a key creditor in most corporate insolvencies, along with landlords and banks, the Government have a direct role to play in supporting viable restructuring and business rescue proposals. HMRC, in particular, has not always taken a constructive approach to these proposals although, I understand from briefings, it is being as lenient as it possibly can be to companies that have been sensible taxpayers. However, every step should be taken to encourage HMRC to be as helpful as possible. This is now very important because, as I have noted, HMRC has Crown preference, which is a huge change from the former arrangements. Perhaps the Minister will advise us of whether the Government have any plans to review this preference.
As part of the excellent build back better policy, there is an inevitable need to reallocate resources, improve productivity and, therefore, grow sustainable jobs for businesses that can truly thrive in post-pandemic global Britain—as in post-Brexit Britain, my noble friend will note. There will be a painful but necessary process to get Britain back to fighting fit. There will be casualties; we have to accept that. The enormous challenge we have is to devise ways for fundamentally sound businesses to get through the next year or so, but not to prolong the agony for those that will just use up more and more resource before, sadly, they reach their inevitable end. I understand that the current rate of insolvencies is, roughly, one-third below the normal level, so there is a build-up of companies and businesses facing insolvency.
I will use this debate to make some related points to this SI. First, what will the Government’s approach be to the mounting level of corporate debt in the economy? What further flexibility will HMRC provide to Covid-hit businesses that need extra time to pay their debts? The Government need to make the most of the time they have bought for businesses, industry and the economy, not least by the Act, to consider how they will answer these questions. In particular, are there any further plans for some sort of equity fund, which was being discussed about a year ago, possibly through the British Business Bank or the Business Growth Fund, which celebrated its 10th anniversary last week? This needs to be reconsidered, as so many businesses just need a modest injection of equity—say £2 million or £3 million. I say “modest” in the nature of the world because £2 million or £3 million is below the amount that traditional private equity arranges and is not necessarily within the scope of EIS or SEIS. Of course, this is an opportunity for us to look again at the EIS rules, now that we are out of the EU. This is the famous equity gap that was first raised by Harold Wilson, when he was Prime Minister.
I turn to a subject that my noble friend and I have discussed at length, the moratorium. In answer to the question from my noble friend Lord Bourne, I think that there have been only four moratoria between June and December. There is an argument that initial take-up was low because of other reliefs, such as statutory demands, winding-up petitions, furlough payments, et cetera, which are protecting companies that might otherwise need the procedure. The extension is to the relaxation of the eligibility criteria for a moratorium to make it more accessible. I understand that the moratorium is intended to be a permanently available procedure and that permanent rules will be introduced in due course. Can the Minister comment on that and on whether the changes to the moratorium that we debated are under review?
By taking a more active and engaged stance as a creditor and legislator, I am sure that the Government could help to save more potentially viable businesses, thereby safeguarding thousands of jobs, securing future tax income and giving companies a chance to deal with the liabilities resulting from this pandemic. However, there must soon be a time when we allow businesses to find out if they are viable without further support, and thereby protect creditors from prolonging and deepening the problem.
My Lords, the regulations before us extend the life of temporary measures to 30 June this year, but the Government have failed to provide any road map to show how businesses can negotiable the cliff edge that is inevitable whenever the regulations end. The past 15 months should have been used to develop such a strategy, but none is in sight at the moment.
Covid-related loans have been welcomed by many businesses and have enabled them to manage and survive the crisis. Such support has been welcomed by big and small businesses, including easyJet, British Airways and many others. Of course, some loans will never be repaid. However, this loan-centric policy is also storing up more problems for the future. In time, the loans and interest thereupon will need to be repaid. The repayments will deplete business cash flows and dampen business recovery, employment and investment in productive assets.
A better policy option would have been to take an equity stake in businesses wherever possible. This would mean that business cash flows would not be depressed and would instead be available for investment in productive assets. In time, the Government could sell their equity stake to recoup their investment if they so wished. Of course, the equity stake would need to be written off if the business in question did not survive. However, that risk is no different from a situation where the business has been supported by government loans. Even now, there is nothing to prevent the Government converting their loans to an equity stake wherever possible. I hope that the Minister will agree with this proposal and the Government can therefore avoid the problems that will surely arise and affect many businesses.
In previous debates, I have asked the Government to help unsecured creditors. Under insolvency law as it stands now, unsecured creditors recover little of the debts owed to them. This in turn affects their survival, jobs, investment and local prosperity. There is no economic or moral reason for enabling secured creditors —mostly banks and other financial institutions—to walk away with most of the proceeds from the sale of a bankrupt business’s assets. This leaves little for unsecured creditors and hits micro-businesses and SMEs particularly hard. Their prospects of survival are strangled by inequitable insolvency laws.
The current insolvency laws do not provide equitable risk-sharing and the biggest burden is borne by those least able to carry it, namely micro-businesses and SMEs. Such entities are not diversified and therefore cannot absorb the risk arising from the collapse of a major customer. In contrast, banks hold diversified portfolios and are in a position to absorb risks arising from the default of loans. Insolvency law needs to be changed. At least 40% of the proceeds from the sale of bankrupt businesses’ assets must be ring-fenced for distribution to unsecured creditors to give them a chance of survival. If the Minister does not agree, I hope he will explain why SMEs are being penalised by the current insolvency laws.
There is no legislation in place to prevent insolvency practitioners enriching themselves by prolonging insolvencies and charging exorbitant fees. In some cases, partners are charging more than £1,500 an hour for their services; I have seen the invoices. Government statistics show that around 14,328 insolvencies were not finalised, even after 15 years. This is a licence to loot and no regulator has done anything to check it. It is no good saying that a creditors’ committee can act because many insolvencies do not require the prior approval of creditors. In any case, small businesses are too busy looking for replacement business and do not have the time to attend such meetings. Even if they did, the votes cast by banks and private equity would override their concerns. The cost of administration and the liquidation fees are directly borne by unsecured creditors. In other words, higher fees for insolvency practitioners reduce the amounts that can be recovered by unsecured creditors. I hope the Minister can explain why secured creditors do not bear the cost of insolvency —the insolvency practitioners’ fees, in other words.
I urge the Government to provide an insolvency road map so that more businesses can survive the coming crisis, which will not end soon but will roll on for quite a few years yet. We need a strategy in place now.
My Lords, I support this measure. It is right that the Government should take action to protect corporates from insolvency in the current pandemic emergency situation. The Explanatory Memorandum makes it clear that the measures are designed to help UK companies and “other similar entities”, so I hope I will be forgiven for pointing out that the measures have no effect and give no relief for those running businesses as self-employed persons from the equivalent of corporate insolvency in their case, which is of course personal bankruptcy. This also applies to the directors of small companies who have been required to give personal guarantees to their creditors and landlords.
I take as an example for the benefit of the Committee a bespoke tailor of my acquaintance. Effectively, his business and the skills he has learned so hard over the years have been criminalised during the past year; it is impossible in practice to do an inside leg measurement without breaching Covid regulations. His past earnings—now very much in the past—exceed the limit for help under the self-employed income scheme that the Chancellor has made available. Of course, trading as he does from shop premises, he is protected from eviction and has had business rate relief, but he is not immune to personal bankruptcy proceedings brought by his landlord. Bankruptcy, even more than corporate insolvency, threatens one’s home, one’s family and one’s reputation in a terrible way. It is a terrible threat to live under. My example is only emblematic, of course; it applies to the self-employed as a class, especially those trading from business premises and, as I said, to directors of companies.
Short of legislation, because legislation is not the essential answer to everything, there are things that the Government could do. For example, they could prevent such claims coming before the courts for a period to come—certainly while the pandemic lasts and for a period beyond—in the same way as they have prevented actions for eviction being brought before the courts. They could even use the force of moral suasion—the bully pulpit, if you like—against unscrupulous and unforgiving landlords. There may be other things that they can do to get landlords and tenants working better and more effectively together. I hope that my noble friend will be able to offer some words of support to those in this very difficult position.
The noble Viscount, Lord Trenchard, has withdrawn so I call the next speaker, the noble Lord, Lord Bhatia.
My Lords, as the Explanatory Memorandum states, this SI
“has been prepared by the Department for Business, Energy and Industrial Strategy”.
It goes on:
“This instrument makes provision to further extend the duration of some of the temporary measures introduced by the Corporate Insolvency and Governance Act 2020 … beyond their current expiration dates, namely: restrictions on the use of statutory demands and winding up petitions from their current expiry date on 31 March 2021 to 30 June 2021; the modifications to moratorium provisions and temporary moratorium rules from their current expiry date of 30 March 2021 to 30 September 2021; and the small supplier exemption from termination clause provisions from its current expiry date of 30 March 2021 to 30 June 2021. This instrument also extends provisions suspending liability for wrongful trading in the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 … made under the CIG Act, from the current expiry date of 30 April 2021 to 30 June 2021.”
The EM also states:
“The instrument is made using the powers given by section 20 and section 41 of the CIG Act to make regulations which amend or modify corporate insolvency or governance legislation, and to extend temporary provision in the CIG Act respectively and is subject to the made affirmative procedure … the Secretary of State must have considered the effect of the regulations on those likely to be affected by them. The Secretary of State must also be satisfied that the need for regulations is urgent, the regulations are proportionate, and that the same result cannot be achieved either without legislation or by using a different power. The Secretary of State must also keep the need for the regulations under review and revoke or amend them if appropriate. This power is being used to amend secondary legislation … The territorial extent of this instrument is England, Wales and Scotland.”
My Lords, like other noble Lords who have spoken in this debate, I have a strong sense of déjà vu. We are back debating the extension of measures in the Corporate Insolvency and Governance Act 2020. As we have heard, these measures include extending the
“restrictions on the use of statutory demands and winding up petitions”
from March to June. The modifications to moratorium provisions and temporary moratorium rules are extended from March to September; the small supplier exemption from termination clause provisions are extended from March to June; and the provisions suspending liability for wrongful trading are extended from April to June.
We welcome the Government extending the safety net for businesses in distress because of this pandemic. Just as we supported the emergency legislation last year, we welcome any measures to support the businesses that closed to keep us safe. As the Minister knows, we argued then that the protections in the Act should be extended over a longer period. Now, as we extend them again, I stress that this causes real uncertainty and worry for businesses in the run-up to each previous expiry date.
As the economy reopens and restrictions ease, it is right that these measures are kept under review but we must remember how many people are still being affected by insolvency. According to the most recent government statistics, there were 29,140 total individual insolvencies in the first quarter of this year—2021—with one in 424 adults having become insolvent in the last 12 months.
Throughout this crisis, we have called on Ministers to ensure that economic support matches the public health measures in place. While we have seen welcome support for workers through the furlough, there have still been gaps in support that the Government have repeatedly failed to address. In particular, we are concerned about the levels of debt facing businesses, whether through the loans they have taken, the VAT they have had deferred or the rent holidays they have had but will soon have to start repaying. These measures are welcome in staving off creditors but they just kick the can down the road. They do little to change the fundamentals facing so many firms of large Covid debt and low or no takings while the fight against Covid continues.
After the Queen’s Speech, it is also clear that the Government continue to dodge the need for wider reform of our insolvency laws, particularly in providing greater protection and support for key industries and their workers. Currently, there is no safe place to refinance or protect such a company’s assets until it might be too late, all the while leaving the company searching for refinancing while trying to retain the confidence of suppliers and customers, who risk the most should it fail.
Even if these changes do not come forward, Ministers should not be bystanders. They should intervene early—before liquidation if necessary. This would mean that workers would not lose their accrued service benefits, and would protect the supply chain. We support today’s measures but call for wider reform tomorrow.
First, I thank all noble Lords who have contributed to what I thought was a very interesting and informative debate. The points raised have highlighted the importance of the measures being extended by these regulations and the necessity of extending them so that many businesses can continue to benefit from them. Over the past year, businesses have faced an exceptionally challenging time, with many unable to trade or having had their ability to trade at full capacity restricted due to social distancing measures.
My noble friend Lord Bourne asked how many moratoria there have been to date. The answer is four. This relatively low number is a direct result of the decisive government action to support the economy through the worst of Covid-19’s economic impact, which has helped many businesses and saved jobs. These measures have meant that there has been somewhat suppressed demand to date for the moratorium. It should be noted that there have also been far fewer corporate insolvencies in this period; for example, government statistics show that corporate company insolvencies in March 2021 were 86% down on the same month last year—as I say that, there is a clap of thunder; I hope that is not a sign of impending doom.
As the economy begins to emerge from the pandemic, it is of course sad to report that we expect the moratorium to be used more frequently. It will be subject to review to ensure that it works as intended no more than three years from Royal Assent of the Act.
On the different end dates my noble friend asked about, the Government recognise that these measures have a significant impact on the normal working of insolvency legislation and the rights of creditors; it is therefore right that they are not extended for longer than needed. The temporary provisions for moratoria in Schedule 4 are extended to 30 September because the consent of the Scottish Government may be required to implement replacement permanent rules for Scotland, as some aspects of corporate insolvency are devolved. Users have told us that when rules in both England and Wales and Scotland change, they prefer the rules to come into force in both jurisdictions at the same time. An extension of six months will therefore aid this process.
My noble friend also asked whom we consulted. We have engaged with major trade representatives including the Institute of Directors, R3, major restructuring firms and insolvency practitioners. There are too many to list now but I can write to my noble friend if he wishes to have a list.
My noble friend Lord Bourne also asked why we have singled out wrongful trading for these measures. Representatives have made it clear that wrongful trading is a strong deterrent to continued trading, and many responsible directors will cause companies to cease trading rather than risk the threat of future personal liability, with the impact that this could have on the lives of directors and their families and all it entails. As with all these measures, we will keep the need for them under constant review and act swiftly if evidence demonstrates a need to extend them further or turn them off.
My noble friend Lord Leigh asked about the Government’s approach to mounting levels of corporate debt in the economy. While many firms have been hit hard by the pandemic, government support has ensured that the corporate sector has remained resilient, with the increase in indebtedness matched by an increase in net deposits over and above the level of lending. Firms look likely to have used lending to increase cash buffers, both to cover deferred liabilities such as VAT and rent and to prepare for any further shocks. Firms in certain sectors such as hospitality, which has been hit hardest by the pandemic, have received additional government support in grants of up to £9,000 per premises. Support continues to be available to firms as restrictions are eased and economic activity rebounds.
Further temporary insolvency legislation and business support provided by the Government since the crisis began have resulted in fewer insolvencies than would normally be expected. Her Majesty’s Treasury is monitoring the impact that insolvencies will have on lenders’ balance sheets, which to date have remained largely resilient—backed of course by government action —and on their ability and willingness to lend to support economic recovery.
The noble Lord, Lord Sikka, raised some concerns about insolvency practitioner fees. In our view, it is right that insolvency practitioners are paid a fair rate for the work they do. The remuneration and expenses of insolvency office-holders are subject to the approval of creditors in each case and, of course, subject to the overall control of the court. Regulators have a statutory duty to encourage an independent and competitive insolvency profession that provides high-quality services at a fair and reasonable cost to the profession. Complaints about high levels of fees charged by an insolvency practitioner can be made through the Insolvency Service’s complaints gateway.
I was particularly grateful to my noble friend Lord Moylan for highlighting the many ways in which the Government have consistently supported business throughout the pandemic; he also made a number of very important points. He asked what the Government are doing to protect sole trader tenants and/or directors who have given personal guarantees against being made personally bankrupt by aggressive landlords; that is indeed a good point. As my noble friend will be aware, although the restrictions on insolvency proceedings were targeted at companies, the Government have put in place an unprecedented package of support to help the self-employed with their finances during the coronavirus pandemic; this includes the job retention scheme and the recovery loan scheme as well as a number of business support schemes operated by local authorities.
The Government recognise that many people are struggling financially due to the coronavirus. We have worked with mortgage lenders, credit providers and the Financial Conduct Authority to ensure that people can get and access the support that they need. We are also committed to helping people to access the necessary support to get their finances back on track. An extra £37.8 million has been made available to debt advice providers to support people in financial difficulty. I would always encourage businesses that have not been able to access support, or are not sure of the support available, to contact their nearest business growth hub. The Government have established a network of 38 of these hubs, with one in each local enterprise partnership area in England. Expert advisers can offer businesses of all sizes free, tailored, one-to-one guidance on areas such as business plans, building resilience and potential funding streams.
My noble friend asked why these temporary measures are not being extended for longer. The temporary measures can be extended by statutory instrument only for a maximum period, which was set down in the original primary legislation; for the insolvency measures, that is a maximum of six months. However, recognising that these measures involve a significant intervention into the normal working of the insolvency regime, including affecting the rights of creditors, it is right that these measures are put in place only for as long as is necessary and that we keep them regularly under review. The Government will keep this matter under review in the light of ongoing developments during the pandemic, and we will move swiftly to extend them further if that proves necessary.
Turning to my noble friend’s questions about the measures that expired at the end of March, this was solely due to a relaxation of the requirement to hold annual general meetings physically. The provision was effective for a limited period and it was not possible to extend it beyond 5 April 2021. Where there remain concerns in the business community that holding general and annual general meetings post March 2021 would be problematic given continued uncertainty around coronavirus restrictions, officials are working closely with stakeholders as a matter of urgency to explore non-statutory approaches to address the challenges that might arise upon the expiration of the temporary provisions.
Turning to the question of how we avoid a so-called cliff edge when these measures expire, the Government recognise the risks of such a scenario involving the accumulation of unpaid debts becoming due when restrictions and government fiscal support expire. Work is ongoing to develop possible solutions to enable a viable exit from these measures; that continues to support business during the recovery phase.
Finally, I turn to the question of the Government’s approach to the mounting level of corporate debt in the economy. While many firms have been hit hard by the pandemic, HMG support has ensured that the corporate sector remained resilient, with the increase in indebtedness matched by an increase in net deposits. As I said earlier, firms in certain sectors, such as hospitality, have also received additional support through grants of £9,000 per premises.
Further temporary insolvency legislation and business support, provided by the Government since the Covid-19 crisis began, has resulted in far fewer insolvencies than would normally be expected; I outlined the figures earlier to my noble friend Lord Bourne. We continue to monitor the impact of insolvencies on lenders’ balance sheets; backed by government action, these have been largely resilient to date, as have lenders’ ability and willingness to lend to support economic recovery.
The noble Lord, Lord Lennie, asked about the scope for wider insolvency reform. I can tell him that the Government always keep the insolvency regime under review and, if any change is needed, we will not hesitate to bring forward the necessary legislation. These regulations will provide much-needed continued support for businesses as we continue with the Government’s four-step road map out of lockdown, allowing them to concentrate their best efforts on reopening or continuing to trade, and building on the foundations for our economic recovery in the United Kingdom. Careful consideration has been given to extending these temporary measures, and the Government will continue to monitor the situation extremely closely.
Once again, I thank all noble Lords who have contributed to this debate.
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. I ask Members in the Room to respect social distancing. If the capacity of the Committee Room is exceeded or other safety requirements are breached, I will immediately adjourn the Committee. If there is a Division in the House, the Committee will adjourn for five minutes.
Warm Home Discount (Miscellaneous Amendments) Regulations 2021
Considered in Grand Committee
My Lords, the House may be aware that in October 2020 the Government consulted on the proposed one-year extension of the warm home discount scheme. The changes proposed were broadly welcomed and it is the regulations implementing those changes that we are debating.
The Government are committed to alleviating fuel poverty. In the sustainable warmth strategy, published in February, the Government restated our commitment to our statutory target to upgrade as many fuel-poor homes as is reasonably practicable to an energy efficiency rating of at least band C by the end of 2030. The best long-term solution is to improve the energy efficiency of a home, bringing down the cost of heating it, but this takes time, and some, especially those that are harder to treat, may be left behind. As well as reaching millions of people each year, energy bill rebates are simple to deliver and consumer-friendly. The warm home discount is therefore a key policy in our policy mix to help alleviate fuel poverty.
Since 2011, the warm home discount has helped more than 2 million low-income and vulnerable households each year by reducing their energy bills at the time of year when it is most needed. Under the current scheme, around 1 million low-income pensioners in receipt of pension credit guarantee credit receive the £140 warm home discount as an automatic rebate on their energy bills and more than 1.2 million low-income and vulnerable households receive the rebate following an application to their participating energy supplier. Building on the success of the scheme, the energy White Paper committed to extending the scheme to at least 2025-26, expanding the overall spending envelope to £475 million per year from 2022, and consulting on reforms to improve the fuel poverty targeting rate. We intend to consult on the future scheme later this year.
Reforming the scheme has long lead-in times, however, and this winter we want to prioritise the safe and timely delivery of rebates to ensure that those in need continue to receive this vital support, particularly given the continuing impacts of Covid-19. It is therefore important that minimal changes are made to the scheme for next winter. This will mean that the scheme will be worth £354 million and that eligible pensioners on pension credit guarantee credit, as well as eligible vulnerable households supported through the broader group, can continue to receive a £140 reduction on their energy bills.
We will also not be amending the current energy supplier participation thresholds, as any change now, with such limited time for implementation, could cause significant, and potentially damaging, administrative and financial challenges for smaller energy suppliers. We intend to review this for the future reform. We are, however, making some improvements to the industry initiatives part of the scheme. This includes lifting the restriction on providing financial assistance under industry initiatives to those eligible for a rebate, which will create greater flexibility and help more people during the Covid-19 pandemic. We will keep the current overall cap of £6 million for the energy debt write-off mechanism, but we will also introduce a new individual cap of £2,000, enabling support to reach a greater number of households in need.
We will also be making changes so that proposed industry initiatives and specified activities will ensure—so far as reasonably practicable—that advice on the benefits of smart meters is provided to households benefiting from the industry initiative or specified activity. During the Covid-19 pandemic, smart meters have been invaluable for energy consumers, allowing prepayment customers to top up remotely from home, while also enabling suppliers to offer timely support to vulnerable consumers. We are also introducing greater consumer protections for boiler and central heating system installations and repairs carried out under the scheme.
Finally, we are proposing to make some further operational changes this year. This includes introducing a requirement for the Gas and Electricity Markets Authority to inform the Secretary of State if an electricity supplier which becomes a supplier of last resort notifies the authority of its intention to meet all or part of a failed supplier’s non-core spending obligation. This additionally includes making changes to clarify the full extent of a smaller supplier’s scheme obligations when it passes the relevant threshold and becomes newly subject to the non-core spending obligation.
In conclusion, the regulations extend the warm home discount until March 2022, which will help more than 2.2 million households next winter. These regulations will provide vital support for low-income and vulnerable customers to keep warm, in advance of consulting on wider scheme reform from 2022. I commend these regulations to the Committee.
My Lords, I am delighted to speak in support of the regulations before us and thank my noble friend for setting them out so clearly. I have a number of technical questions and, as I have not been able to give advance notice, if my noble friend cannot reply in full, I would very much welcome a written response, if that is in order.
I particularly welcome the Government’s commitment to ending fuel poverty and declare my interest as president of National Energy Action. I pay tribute to NEA, which works across England, Wales and Northern Ireland to ensure that everyone in the UK can afford to live in a warm, safe home. NEA both promotes the warm home discount rebate scheme to its clients, ensuring that those who are most in need can access it, and delivers broader support as part of the industry initiative portion of the warm home discount. My noble friend has accurately set out why this scheme is so important, and I echo that NEA strongly supports passing these regulations exactly as they are set out before us.
I will take this opportunity to look at some of the detail beyond the welcome single-year extension. NEA hopes that the regulations will take effect as soon as possible—the scheme effectively came into force on 1 April 2021; I think my noble friend will confirm this—and I echo its concern that the new regulations are urgently required to give immediate clarity to vulnerable energy consumers and industry participants on the shape of this scheme year.
I also welcome the commitments made in the energy White Paper, which has pledged to extend and expand the warm home discount scheme, after the one-year extension, from April 2022 to the end of March 2026 with an expanded scheme envelope. I hope that this debate enables us to look at the opportunities that these future developments will provide, and I take this opportunity to seek early clarity on the longer-term scheme.
It is particularly welcome that, while the White Paper does not set out too much detail, it makes a number of commitments that are to be noted and welcomed. These are a significant increase in the scheme envelope to £475 million a year from the current £350 million a year, and an increase in the rebate from £140 to £150. I also welcome consulting on reforms to improve fuel poverty targeting; for example, using government data to provide automatic rebates to most recipients.
There are some concerns expressed by NEA about the detail, which I hope can be resolved at the earliest opportunity, certainly before the end of this one-year extension and forthcoming consultation. The only clarity over the future of the industry initiative portion of the scheme was a commitment from the Minister in the corresponding debate to today when these regulations were raised in the Commons:
“The reform consultations later this year will include industry initiatives.”—[Official Report, Commons, 27/4/21; col. 315.]
Industry initiatives are particularly important to deliver significant value for the most vulnerable households. It is argued that they must be retained for the current level of energy advice, income advice and fuel vouchers to be preserved. Therefore, I hope that, as part of this debate, my noble friend is able to confirm and agree that the industry initiative scheme is of significant value and that, as far as the Government are concerned, this vital element will continue or be further expanded.
I want to raise on behalf of National Energy Action its concern about the intention to improve fuel poverty targeting. In the impact assessment for the recent consultation on the one-year extension of the scheme before us today, BEIS set out the fuel poverty hit rate for the current core group and the broader group based on the England-only fuel poverty “low income high costs” definition, which has been recently adjusted. While it is important that the poorest fuel-poor households can access future warm home discount rebates, this analysis implies the possibility of withdrawing support from the current core group and the broader group recipients. If that is the case, it could prove detrimental to households that currently receive the rebate, in particular current core group pensioner recipients or low-income-household recipients who require support with their energy bills via the broader group but who do not fall within the new fuel poverty metric for England: those with income less than 60% of the median living in poverty with an EPC of D, E, F or G.
Taking rebates away from the core group would remove support from the poorest pensioners, which I am sure is not the Government’s intention. Whether captured within the England-only fuel poverty metric or not, poorer recipients within the broader group could also face significant health risks when living in cold homes. The current discount doubtless helps mitigate such risks. I therefore request on behalf of NEA that the Minister share with us how these potential risks will be mitigated and how the department expects to do so.
While it is important that we value the contribution that the warm home discount scheme makes in supporting the Government’s wider fuel poverty commitments, the NEA specifically does not support one-off energy rebates counting towards progress to meet statutory energy-efficient fuel poverty targets. The current approach considers whether a household receives the warm home discount and, if so, treats the rebate as an energy-saving measure. This means that the energy-efficient fuel poverty target can be reached in part through giving rebates to households. As rebates do not necessarily deliver the same lasting benefits as energy-efficiency improvements, NEA believes it important that the warm home discount scheme does not potentially mask a lack of progress in increasing levels of domestic energy efficiency in fuel-poor homes.
While we accept and welcome the safe passage of a one-year extension, which will be secured through the regulations before us today, these issues should be addressed to ensure the future of the scheme. I welcome the regulations. I congratulate the Government on their ambitions, and hope that my concerns will be heard.
My Lords, I thank the Minister for her introduction to the regulations. It is always a pleasure to follow the noble Baroness, Lady McIntosh of Pickering, who raised a number of very important questions. If the Minister is unable to answer them immediately, I hope that any answers in writing will be copied to the Committee, in particular in relation to the rebate being covered as an energy-saving measure, which is clearly a counterproductive approach.
I wonder if the Minister could tell us a little, first, about the way in which this statutory instrument has been dealt with. My understanding is that these measures have come into force already; I think they did so on 31 March. It is obviously slightly concerning that we are debating issues which are already in operation. Secondly, in her response can she explain to me, in a way that I did not quite gather from the Explanatory Memorandum, what happens where the supplier of last resort does not take on the obligations? I understand that part of the purpose of these regulations is to try to encourage that, but what happens in those circumstances?
As noble Lords will know, the warm homes discount was introduced in 2011, during the coalition Government, to help tackle fuel poverty by placing obligations on energy suppliers. But in the 10 years since then, significant costs have been placed on bills because the cost of power sector decarbonisation has been funded pretty much entirely through them. This is obviously a highly regressive way of addressing the problems of climate change—an issue that is, after all, critical to us all and to which the wealthiest, in fact, contribute the most in emissions. The fact that those on low incomes are having to pay a disproportionate share of that burden seems the wrong starting point.
Not only that, but the impact assessment states that the cost of the warm homes discount is met by energy suppliers. Of course, that is not really correct: it is met by energy consumers, because those costs are passed on by the suppliers to the consumers. This means that it is, again, an extremely regressive—and in my view inappropriate—way of paying to tackle fuel poverty if it burdens costs in a disproportionate way on others who may find them difficult to pay. We have to look again at the whole way in which we share fairly the burden of decarbonisation and how we support those in fuel poverty out of it.
The most sustainable way of addressing fuel poverty—the noble Baroness, Lady McIntosh, touched on this—is to ensure that everybody lives in the most energy-efficient buildings. We are otherwise literally letting our money go up in smoke, which is why it is particularly unfortunate if the rebate is treated as an energy-saving measure. Again, the impact assessment gives an indication of the increased emissions as a result of these measures.
Can the Minister give us in her response, or else put it in writing, a breakdown of the EPC rating of all the homes where households are in receipt of the warm homes discount? She reminded us that the Government have committed to improving the homes of those in fuel poverty to EPC band C by 2030, while the Explanatory Memorandum reminds us that the Energy White Paper committed to all homes reaching band C by 2035. That is an incredibly unambitious target. The Liberal Democrats have set out a target that we should reach that point by 2025, but we should note also that even the unambitious target set by the Government is caveated by the words
“where practical, cost-effective and affordable”.
At some point, the Government will have to recognise that there is no point setting the highly ambitious targets that they have—a 68% reduction in emissions of greenhouse gases on 1990 levels by 2030, or the 78% reduction by 2035, or achieving net zero by 2050— if they will not match those targets with ambitious actions. The Minister knows that the one cannot be achieved without the other. She also knows that these targets of 68%, 78% and net zero are absolute targets and commitments; they are not caveated in the way that the Energy White Paper caveated the energy efficiency ambition.
I ask the Minister in her reply to confirm specifically that those targets are not subject to those sorts of caveats but absolute targets, and to recognise that if we are to have any hope of meeting them, our actions have to be much more ambitious. That has got to start with the energy efficiency of fuel-poor homes. We have to make much more rapid progress on that. All the time we fail to do that, we—the consumers—are having to pay out costs to support those in fuel poverty who continue to burn excess amounts of fuel in homes that are not properly insulated.
We have to recognise that the world has 79 months at the current rate, at the current burn level, before we have used up the carbon budget to keep us within the 1.5 degrees aim of the Paris agreement. We do not have the luxury of time. Much will rely on future technologies, but on the things that we know how to do we must act much more swiftly and ambitiously. As I say, our actions must be as ambitious as our targets.
Having said that, obviously we support the alleviation of fuel poverty and, in the absence of a more progressive scheme, welcome the renewal of the warm home discount and the increases in rebates. However, I urge the Minister and the Government to really get on to the issue of the energy efficiency of our buildings. We simply cannot proceed on the current timetable.
I thank the Minister for a clear explanation of the regulations before the Committee. From these Benches we are happy to approve the instrument, as it extends the warm home discount for another year. As it has been a successful scheme, what is there that we could not welcome in the extension for at least a further year, with a government commitment to continuing the scheme until 2026, albeit that new arrangements, with details and provisions as yet unknown, are envisaged to come into place from that point?
The scheme, now in its 11th year, will continue to provide a guaranteed £140 for to help those in fuel poverty and in vulnerable circumstances with their fuel bills. Before I challenge any assumptions or possible intentions of the Government in shaping the future scheme, let us recognise that these regulations maintain existing benefits with minor improvements in some respects. They maintain the overriding approach agreed by participants in the consultation: to allow as many eligible consumers as possible to receive support within the funding envelope. That this funding envelope has been increased to £354 million—the noble Baroness, Lady McIntosh, has a higher figure—in line with the rises in inflation is another important benefit. The regulations maintain the current £6 billion total debt write-off cap provision, while introducing a £2,000 cap for individual debt write-off—although how far that is used to write off historic bad debt from previous versions of the scheme with unfortunate outcomes is one for specific case-by-case analysis.
Nevertheless, I have some questions around this individual cap. How many individual cases of bad debt have been eliminated and from what total? Was there evidence of disparity in higher bands of debt across any analysis of banding debts with the number of individual cases? It would be interesting to understand whether the element of previous and new bad debts was being eliminated, with the stress for many vulnerable customers recognised and dealt with realistically. Further recognition can be given to the improvements in these regulations, removing restrictions on energy suppliers that prevented them providing additional financial assistance through industry initiatives to domestic consumers eligible in the core and broader groups—with rebates, advice and specified activities, including benefits for smart meters and consumer protection requirements for boiler installations to be provided under the TrustMark scheme.
It is also encouraging that the regulations include provisions such that when a voluntary or compulsory smaller electricity supplier grows to pass the relevant supplier threshold and becomes a larger energy supplier its core group rebates, undelivered previously, are utilised consistently with the fully obligated suppliers and that all funds for rebates are used to help those in need. However, some benefits and improvements, unfortunately, still need consideration and further development.
For example, when a supplier fails and its licence is revoked, the scheme’s obligations on that licence also fall, meaning that there is no obligation on whoever steps in as a supplier of last resort—or SoLR. If I understand the regulations correctly, if they had included provision that whoever this might be could deduct such a technical overspend from future scheme years, they could incentivise any supplier of last resort to take on the spending obligations of failed suppliers voluntarily. The provision would bring greater consistency with that regarding suppliers whose growth is allowed for, as I have mentioned. The scheme would be further improved. Can the Minister say whether I have this correct and see whether it could be addressed in future years?
It was also unfortunate that a consultation proved negative towards the proposal that supplier participation thresholds should be changed. While respecting the view that, given the pandemic and the disruptions it has caused throughout 2020, the main elements of the scheme should remain consistent in this one-year extension, it causes competitive issues and distortions. Some smaller energy suppliers can offer lower tariffs as they do not have to take part in a scheme. There are also consumer issues; a consumer may switch to a smaller supplier on price and then lose the benefit that he or she could be entitled to and receive with a larger supplier. Does the Minister have any figures or evidence on this latent cost?
The consultation also adjudges as unimplementable the proposal to require failing suppliers to provide data on unpaid rebates and industry initiative spending to TrustMark, to integrate it with its framework operating requirements. This can be extremely frustrating for participating consumers who miss out through no fault of their own. While we understand the practicality of the measures and the direction of travel for future regulations, will the Minister take the issue back to the department and can further consideration be given for future developments?
Many operability improvements also included in the measure could well be mentioned. All these measures will come with compliance costs and administrative burdens, which impacted businesses can recover under the scheme through charges to domestic consumers. The impact on the public sector is also discussed as very small—around £2 million for scheme year 11, in a total estimated cost of £10 million. However, the impact assessment fails to examine the added cost that will be passed on to consumers by energy suppliers. Can the Minister provide any details on the measure’s effect on consumer pricing? What is the status quo cost of the discount scheme on pricing and what may be the added cost specific to this extension?
I would like the Minister to address some other serious issues. The Energy White Paper of 2020 sets out the commitment to make and keep energy bills affordable, and to ensure that households in fuel poverty are not left behind in upgrading energy efficiency ratings on their homes, with the long-term reductions in energy costs this would bring.
One feature of the regulations is that they categorise one-off energy rebates to many vulnerable households as improvements in energy efficiency and progress towards reaching statutory energy efficiency targets. However, as has been stated by other contributors to this debate, rebates are not necessarily delivering lasting benefits in the same way as would be provided by energy efficiency improvements. The sustainable warmth part of the warm home scheme can mask a lack of progress on increasing levels of domestic energy efficiency in fuel-poor homes. The future design of the scheme must correct this interpretation. It is regretted that the green homes grant was such a dismal failure and had to be scrapped merely six months after its launch.
How will the Government align the warm home discount scheme with their legal commitment to net zero? What plans do they have to address the urgent problem of below EPC standard band C homes, especially those of the fuel poor with generally less available income? What is the Government’s view of Scotland’s wider interpretation of the 10% indicator in assessing fuel poverty? What are their plans and what thoughts do they have on reassessing and redesigning the scheme?
The Minister said in her introductory remarks that 1.2 million households received the £140 rebate. How many do the Government expect to receive the rebate in the next year? What will success look like to the Government in addressing the route to eliminating fuel poverty by 2035? What measures will the Government put in place to ensure that net zero is delivered fairly to those living in fuel poverty? When will the promised consultation start and when will the Government lay out their proposals?
Already there are concerns when the Government talk of refining the scheme towards better targeting of the fuel poor when the budget was already constrained from providing better financial assistance to more households that already miss out on their entitlements. This inevitably means that there will be some losers and that some households will receive less help than they currently do. Can the Minister confirm that industry initiatives will remain a key part of the current and future schemes? Will the department look at how the budget could be expanded for this element that seeks to help consumers understand and utilise their entitlements? It would provide a welcome boost of confidence to the industry to develop these initiatives.
There is much here for further consideration in my approval of the continuation of the warm home discount scheme.
My Lords, I thank all noble Lords for their valuable contributions to this debate, particularly coming from people whom, I know, have long been interested in this subject and have a greater degree of knowledge than often happens in these short debates.
The points made show the importance of extending the warm home discount scheme for a further year. The financial pressures that Covid-19 has imposed on households across the country has been challenging, particularly for low-income and vulnerable households. Extending the warm home discount will provide much-needed support for households in or at risk of fuel poverty, particularly during the pandemic. I am therefore pleased that there is agreement across this Committee that low-income and vulnerable households should continue to receive the valuable support provided by the warm home discount at the time when they need it most.
Over the 10 years of the discount scheme, more than £3 billion in direct assistance has been provided to low-income and vulnerable households. These regulations will enable the continuation of this support for another winter. This means that more than 1 million of the poorest pensioners and a further 1.2 million households in or at risk of fuel poverty will continue to receive £140 off their energy bills.
The regulations also allow for the continuation of a wide range of industry initiatives, including debt write-off, financial assistance and energy efficiency measures. These initiatives will be enhanced by the changes I have outlined, ensuring that we can better support households in need.
As outlined in the energy White Paper, we are committed to extending the scheme beyond this extension, from 2022 until at least 2025-26, expanding the spending envelope to £475 million to enable us to reach a further 750,000 households. We are also consulting on reform of the scheme to target fuel poverty better. This may be where the difference in numbers came from—the scheme has expanded from next year. We intend to consult later this year on the future scheme beyond 2022.
I pay tribute to the long-standing commitment of my noble friend Lady McIntosh of Pickering to this whole area of alleviating fuel poverty. I am very grateful for her support. She asked for confirmation of the industry initiatives—they are of significant value—and whether they will be continued or expanded under the reformed scheme. We recognise the value of industry initiatives, which is why we have expanded their potential use over time. We will consult on reforms later this year; that will include proposals on industry initiatives.
In response to my noble friend’s question about the future for vulnerable customers in relation to the new fuel poverty metric, we intend to reform the scheme to target those most likely to be in fuel poverty while continuing to protect the most vulnerable current recipients. Our proposals, which we are still finalising, will include options to mitigate the impact on households that may be disadvantaged by those reforms. My noble friend also asked about the rebate contributing to the Government’s fuel poverty and energy efficiency targets. We are increasing energy efficiency support for fuel-poor homes through the future expansion of the energy company obligation, as well as through recently introduced funding through local authority delivery.
We recognise that energy efficiency is the best long-term method of tackling fuel poverty, which is why in the past year we have increased government investment to make homes more energy efficient and committed to extending and expanding the energy company obligation. We should also recognise, however, that reducing bills through the warm home discount will continue to be a crucial tool in reducing fuel poverty until all homes reach the required energy efficiency standard. I know that this point was of particular concern to the noble Lord, Lord Oates. In response to his question on the timing of the regulations, they have not come into force; the rebates will be paid only from autumn this year, as is always the case. We have said that, if and when these regulations come into force, any industry initiatives that have already been funded from 1 April 2021 and are subsequently approved will count towards suppliers’ obligations.
On the noble Lord’s question on the supplier of last resort process, the Office of Gas and Electricity Markets already has in place a process that ensures that customers have continuity of energy supply when an energy supplier fails. The competitive process is run by Ofgem and allows for the orderly transfer of the failing energy supplier’s customers to a different energy supplier. Warm home discount obligations are placed on the electricity supply licence and, when a supplier fails, it does not transfer to the new supplier. However, the warm home discount is taken into consideration when Ofgem appoints a supplier of last resort. In previous scheme years, suppliers of last resort who were themselves warm home discount participants have chosen voluntarily to honour the obligations to pay rebates of the failing energy supplier. This information requirement is intended to facilitate the potential to permit any notifying suppliers of last resort to deduct extra non-core overspend from their non-core spending obligation in future scheme years, which in turn would incentivise suppliers of last resort to take on the non-core spending obligations of failed suppliers voluntarily.
The noble Lord also asked about the funding of the scheme. Suppliers reducing their customers’ bills directly is a more effective way of tackling fuel poverty than increasing incomes because consumers are more likely to use the money to pay their energy bills. The same amount of money reduces energy bills by a greater proportion than it increases income. We also believe that it is more likely to result in households using more energy to keep warm in winter and reduces the risk of them rationing how much they heat their homes or self-disconnecting entirely.
In response to the noble Lord’s question on the EPC ratings of homes that have received the warm home discount, I am afraid that we do not have the data he requires. He also spoke in general terms about the Government’s ambitions on increasing the efficiency of homes and their heating. On this point, I should say that the heat and building strategy will be published imminently, setting out how we intend to meet our commitments and setting us on a path to decarbonising homes and buildings by 2050. When I say “imminently”, I know it is disappointing that we have not got it out already, but it is due to be published soon.
I suggest that I write to the noble Lord, Lord Grantchester, on the details of writing off bad debt as I do not have that data in my briefing pack or to hand. In response to his question on the supplier of last resort process, the obligation is tied to the supplier’s licence but, thus far, the new suppliers have voluntarily taken on these obligations.
In response to the noble Lord’s question on TrustMark, we are introducing new requirements for the installation and repair of boilers and central heating under industry initiatives. They are to be delivered by TrustMark-registered installers and lodged in TrustMark’s data warehouse. This will provide greater consumer protection for households. The cost for a company to register under TrustMark is minimal. TrustMark also has a fee for installers to lodge measures in their data warehouse. As with other government schemes, the fee is £30, which covers the costs associated with providing technical monitoring and quality assurance. Requiring TrustMark registration will ensure that boilers and central heating systems installed under the scheme are delivered to a high standard, providing households with security and a longer-term solution. The introduction of these standards is particularly beneficial for those who are particularly vulnerable to cold, such as individuals with a health condition.
On the noble Lord’s question about consumer costs, the expansion from 2022 is expected to add £5 to the average annual dual fuel bill, taking the total to £19 per annum.
The noble Lord asked about the definition of fuel poverty in Scotland. Fuel poverty is devolved and it is up to Scottish Ministers to set their definition of fuel poverty and targets. We believe that our definition is best suited to measuring the problem and progress against it in England. In the next scheme year, we expect around 2.2 million rebates to be provided.
The noble Lord also asked about the contribution of measures to eliminating fuel poverty by 2035. Our target is to improve as many fuel-poor homes as is reasonably practical to an energy efficiency rating of Band C by 2030. I can also confirm that we will publish our consultation on the future of the scheme soon. We will consult on the future of industry initiatives as part of this but, as I have already said, we value industry initiatives.
I think I missed out the green homes grant and local authority delivery. Last summer, the Chancellor announced an investment of up to £3 billion in decarbonising buildings, including investments towards the £9.2 billion of funding set out in our manifesto. We have made excellent progress across much of this investment, with substantial sums being invested in social housing, schools and hospitals as well as in homes through the green homes grant voucher scheme, particularly in partnership with local authorities and supporting local green jobs. I think the noble Lord, Lord Oates, asked about this.
I think that that completes the debate. I commend the regulations to the Committee.
Arrangement of Business
My Lords, the hybrid Grand Committee will now resume. I ask Members in the Room to respect social distancing. The time limit for debate on the following statutory instrument is one hour.
Electricity Trading (Development of Technical Procedures) (Day-Ahead Market Timeframe) Regulations 2021
Considered in Grand Committee
My Lords, the regulations were laid before the House on 22 March. This instrument is brought forward using powers under the European Union (Future Relationship) Act 2020.
The trade and co-operation agreement that we have secured with the European Union provides for co-operation on a range of energy matters to support and strengthen the UK’s and EU’s shared energy objectives. The agreement requires that new, efficient cross-border electricity trading arrangements be developed between connected UK and EU markets. The UK and the EU are committed to co-operating closely on efficient trading developed in accordance with the process and timeline set out in the agreement.
These new arrangements were a key objective for the UK during the negotiations on the agreement. Efficient cross-border trade can lower bills for UK consumers, as well as support our decarbonisation and security-of-supply objectives. The new arrangements will be based on the concept of multi-region loose volume coupling, where cross-border transmission capacity on an interconnector and electricity are auctioned together. This will ensure that Great Britain can import energy from areas of lower price or export energy to areas of higher price more readily than under current interim arrangements. This will be achieved while the energy market in Great Britain maintains independence from EU regulations.
While the agreement sets out the principles for the design of the new trading arrangements, the detailed technical procedures still need to be developed by transmission system operators. These are, collectively, the companies that own and operate electricity interconnectors that connect the UK to neighbouring markets, and the electricity system operator that runs our onshore electricity network. The development of these new arrangements will need to take place in co-operation with relevant electricity market operators, which are organisations that operate marketplaces for the buying and selling of electricity.
The agreement details the timeframes for transmission system operators to develop technical procedures for the new arrangements, noting that new arrangements should be made operational by April 2022. It is therefore important that development of the new arrangements takes place quickly and efficiently. To support this development, this instrument imposes duties on electricity transmission system operators in Great Britain, with co-operation from relevant electricity market operators, to develop the new cross-border electricity trading arrangements for the day-ahead market period.
The instrument also grants Ofgem the ability to regulate transmission system operators and relevant electricity market operators in their development of the new trading arrangements to ensure that they meet their obligations under the regulations. The instrument further enables Ofgem to make decisions on the allocation and recovery of costs incurred in the development of the new arrangements. It is estimated that these new, efficient trading arrangements could bring significant economic benefits to UK consumers. Any delay in implementation will come at a cost to them. Therefore, it is important that this instrument is approved to ensure that transmission system operators develop the new arrangements within the timeframes set by the agreement and that the benefits can be realised as early as possible.
The new arrangements will also be used for trade between Great Britain and the single electricity market on the island of Ireland. While energy is largely a devolved matter in Northern Ireland, my department has developed this instrument in close collaboration with officials in the Northern Ireland Department for the Economy and the Northern Ireland Authority for Utility Regulation. Input from our colleagues in Northern Ireland has ensured that this instrument supports a UK-wide approach to the development of the new arrangements. The process continues to be underpinned by extensive engagement with UK industry and stakeholders, including Ofgem and the Northern Ireland Utility Regulator, to ensure they can prepare for the development and implementation of new arrangements. My department has regular conversations with the transmission system operators and is pleased with the progress they are making.
The instrument is one part of a programme of work to deliver the new arrangements. On 3 February, the Secretary of State for Business, Energy and Industrial Strategy provided guidance to those organisations to encourage early action to support implementation of the agreement while the regulations were being prepared. This instrument follows on from this guidance, providing a regulatory underpinning for the initial development of the new cross-border electricity trading arrangements. If required, the Government will prepare further legislation for the operation of the new trading arrangements once they are developed. I assure Members of the Committee that this legislation will be laid before Parliament to ensure that it can be appropriately scrutinised.
Since this instrument was laid in both Houses, the numbering of the provisions within the trade and co-operation agreement has been updated following the final legal revision process. Therefore, a correction slip has been laid in respect of the draft instrument to update the cross-references to the agreement.
In conclusion, this instrument is an appropriate use of the powers of the European Union (Future Relationship) Act and will ensure compliance with an international treaty and that an enforcement mechanism is in place to prevent delays in developing technical procedures for cross-border electricity trade. These new trading arrangements will provide for greater efficiency and consumer benefits than the alternative arrangements currently in place without the UK being a member of the EU’s internal energy market and subject to the EU regulations that that entails. I commend the regulations to the Committee.
My Lords, I am honoured to be in such a select group of noble Lords debating these regulations. I thank the Minister for his explanation of them.
If I did not already deeply regret the UK’s exit from the European Union, then having to get my head around this statutory instrument would surely have converted even the most ardent Brexiteer to the most ardent remainer. We are confronted by such tortuous statements as:
“cross-border electricity trading arrangements at the day-ahead market timeframe that will replace previous market coupling … will be based on the concept of ‘multi-region loose volume coupling’, where cross-border transmission … on an interconnector and electricity are auctioned together and the energy market in Great Britain maintains independence.”
That is not even from the SI; it is from the Explanatory Memorandum.
Can the Minister help us out a little here, on what is obviously a fairly technical measure? Can he tell us whether the proposed
“multi-region loose following coupling”
is preferable to the previous market coupling? Is this change between the two types of coupling taking place simply between the UK and the single energy market—is it happening because we are no longer part of the European Union and as part of the arrangements under the trade and co-operation agreement—or is it part of a broader change within the European single energy market?
I think the Minister confirmed in his opening remarks that Northern Ireland is not within the scope of the regulations. That certainly seems to be the case from what I have read. Northern Ireland will therefore continue to be governed by the single energy market rules. He has told us how he has consulted the Northern Ireland Executive on these regulations, but how are the Northern Ireland Executive and Assembly involved and able to make representations on the single European energy market, under which, if I have understood this properly, they are still governed? How will they be consulted as we develop these proposals and what practical impact will they have on them anyway, if they are part of the single European energy market? Can he also indicate how long it will take to put the new arrangements in place, given that they will obviously involve some fairly complex technical discussions between a range of stakeholders, domestically and within the European Union?
Paragraph 7.16 of the Explanatory Memorandum tells us that
“Placing obligations on relevant persons is not sufficient by itself to ensure that technical procedures are developed without delay”
and that “An appropriate enforcement mechanism” is therefore
“necessary to act against non-performance. The instrument applies Section 25 of the Electricity Act 1989”
in this respect. I have looked at Section 25 of the Electricity Act 1989 and it did not enlighten me particularly. Can the Minister explain to us what the enforcement procedures under Section 25 of that Act are and what the sanctions are? Section 25 refers to the notices that may be issued to relevant persons but says nothing about the sanctions if they are not complied with. I am happy for him to write to me on any of this because it is obviously a technical error.
The final question I have for the Minister is this. Throughout the documentation, there are references to the trade and co-operation agreement—the Minister has explained that the references have been amended because of the changes in the final version of the TCA. Paragraph 8 of the Explanatory Memorandum tells us:
“This instrument does not relate to withdrawal from the European Union.”
I am slightly at a loss as to that. Can the Minister explain how it does not relate to our withdrawal, when it seems so bound up with the fact that we are no longer part of the single energy market? That refers back to my first question: would this be happening anyway if we were within the European Union?
I thank the Minister for his comprehensive explanation of the regulations. I also thank his colleague, the noble Baroness, Lady Bloomfield, for providing answers on interconnectors earlier during Questions.
This statutory instrument may not be contentious and is largely technical. However, it is not entirely uncontroversial, as we have discovered this afternoon. It implements provisions relating to the efficient use of electricity interconnectors and requirements to develop technical procedures in respect of the day-ahead market timeframe in its operability in accordance with the EU-UK Trade and Cooperation Agreement that was initiated at short notice on 1 January this year.
The instrument makes reference to many aspects that need to be delivered as a consequence of the agreement. If the Minister could outline how fast and how quickly he envisages these things being implemented, it would be useful. The instrument makes reference to two agencies, the specialised committee on energy and the Agency for the Cooperation of Energy Regulators, necessary to implement and co-ordinate powers and regulations with what used to be the internal energy market across the EU, which at the time included the UK. Can the Minister give any more details about these structures, as they will have considerable powers to ensure that transmission system operators develop arrangements that run efficiently across both the UK and the EU through interconnectors? Does the reference to the Agency for the Cooperation of Energy Regulators relate merely to dialogue with the EU after any adjudication and consideration by Ofgem, as the authority and overall independent regulator within the UK, in connection with its operation of interconnectors? Will the SCE be suitably independent in this structure? What is its authority in relation to the TSOs?
Since 1 January, the arrangements have been necessarily ad hoc, while respecting the independence of the UK from the previous internal energy market. What is the specific timeframe within which transmission system operators must develop arrangements setting out the technical procedures? How will the Secretary of State determine this timeframe? Since 1 January, have any specific problems arisen, and will the powers of Ofgem be sufficient to implement all the provisions necessitated since ending the transitional arrangements? What assessment have the Government made of the efficiency of multi-region loose volume coupling compared to the internal energy market’s existing trading mechanisms? What material impact has there been on energy pricing since 1 January? What assessment have the Government made of the impact on consumer prices of the new arrangements envisaged under the trade and co-operation agreement for new, cross-border electricity trading at day-ahead timeframes, such that they are deemed more efficient and allow appropriate trading to benefit from greater transparency?
There are notable benefits from interconnectors. That more are envisaged can only be further insurance that energy continues to be supplied effectively while the huge transition to net zero, through reforms to the energy market, continues.
First, I thank our two hardy contributors who have stayed the course for this afternoon’s debate on the fascinating subject of the technical operation of electricity markets. I thank both noble Lords for their valuable contributions.
Both noble Lords, Lord Oates and Lord Grantchester, raised questions about multi-regional loose volume coupling and whether that is preferable to the previous market coupling. This model provides for greater efficiency than the current alternative arrangements without being a member of the EU internal energy market and subject to EU regulation. The UK and the EU are moving to a new relationship and a continuation of previous arrangements was not an option for either party. There are new internal EU arrangements as a consequence of the TCA.
On the questions regarding Northern Ireland, the department has engaged extensively with the Northern Ireland Department for the Economy and the Northern Ireland electricity regulator on this instrument which obliges parties to consult Northern Ireland counterparts as required under specific stages of development. To ensure that opinions reflect views that are specific to Northern Ireland, the instrument states that Ofgem must provide the Northern Ireland Utility Regulator with relevant information and opportunities to make appropriate representations. Ofgem must have regard to those representations and ensure that they are taken into account as appropriate.
On how long the new arrangements will take to put into place, the anticipated deadline for implementation is April 2022. All stakeholders are taking relevant steps to ensure that this deadline is met. In the meantime, alternative electricity trading arrangements are in place which will endure until a new agreed solution is implemented.
On the enforcement methods available under Section 25, I will write to the noble Lord.
The noble Lord, Lord Grantchester, asked about the SCE and ACER, the European regulator. I can tell the noble Lord that ACER will have no formal role but, of course, there are co-ordination arrangements in the TCA that will require co-ordination between UK regulators and ACER. The specialised committee on energy plays a key role in the development of the EU/UK electricity trading arrangements, and following ratification of the trade and co-operation agreement by the EU we are now working with the EU formally to set up the specialised committee on energy and all associated working groups. In particular,
“The Specialised Committee on Energy shall review the draft technical procedures”
submitted by November 2021 and
“shall take decisions and make recommendations”
as required by the agreement.
The noble Lord, Lord Grantchester, asked about the impact on consumer prices. The cost-benefit analysis shows that there are significant potential benefits in moving to more efficient electricity trading arrangements. The cost-benefit analysis quantifies the potential social-economic welfare benefits, as well as the carbon dioxide emissions savings. We welcome the CBA and outline proposals that the transmission system operators have jointly produced, and are assessing these materials together with the European Commission. We expect to provide feedback to the transmission system operators to support their development of the technical procedures that are required to be submitted to the specialised committee on energy by November this year. Alternative electricity trading arrangements across all Great Britain’s interconnectors have already been developed, which will endure until they can be replaced by the new agreed solution.
I therefore hope that I have been able to provide the necessary assurances to approve this instrument before us. The Government are committed to co-operating closely with the EU on efficient energy trading, energy markets and access to networks, with a deal based on friendly co-operation between sovereign equals. There is no precedent for an agreement on energy trading of this nature between the EU and a third country.
The UK and EU are moving to a new relationship. As of 1 January this year, trading between Great Britain and the internal energy market on the day-ahead market ceased. Until new arrangements are operational, trading will continue using what we feel are less efficient explicit auctions. The UK and EU are committed to developing and implementing a robust and efficient solution that will facilitate efficient electricity trade across interconnectors. As said earlier, these will be based on the concept of the famous multi-region loose volume coupling, allowing transmission system capacity on an interconnector and electricity to be auctioned together and the energy market in Great Britain to maintain independence.
The regulations that the Government are seeking to introduce will oblige transmission system operators to develop new efficient cross-border electricity trading arrangements under the TCA with the EU. They will also enable Ofgem to take the necessary decisions on the allocation and recovery of costs incurred in the development and implementation of the procedures. I am pleased with the progress that the transmission system operators have already made in developing these new efficient trading arrangements and assure the Committee that we will continue to take steps to facilitate their implementation.
As I said earlier, we will continue to work extensively with the Northern Ireland Department for the Economy, Ofgem, the Northern Ireland Utility Regulator and the UK industry to ensure that we see the benefits of the new arrangements as quickly and effectively as possible. The agreement notes that new arrangements should be operational by April 2022. This is a challenging deadline, but adherence to it will enable us to realise the benefits to consumers from the arrangements as quickly as possible. I commend this draft instrument to the Committee.
That completes the business before the Grand Committee this afternoon. I remind Members to sanitise their desks and chairs before leaving the Room.
Committee adjourned at 5.37 pm.