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Grand Committee

Volume 820: debated on Monday 4 April 2022

Grand Committee

Monday 4 April 2022

Arrangement of Business

Announcement

My Lords, I am required to say that Members are encouraged to leave some distance between themselves and others. We are expecting Divisions in the Chamber while we are sitting and, when that happens, the Committee will adjourn as soon as the Division Bells are rung and resume as soon as we can thereafter—there is no specified timetable for that.

Legislative Reform (Renewal of National Radio Multiplex Licences) Order 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Legislative Reform (Renewal of National Radio Multiplex Licences) Order 2022.

Relevant document: 21st Report from the Regulatory Reform Committee

My Lords, I am pleased to introduce a statutory instrument which was laid before your Lordships’ House on 31 January 2022: the draft Legislative Reform (Renewal of National Radio Multiplex Licences) Order 2022.

This is a short but important order that will bring clarity and certainty to the UK’s commercial radio sector. In particular, it will allow the holders of the two national commercial radio multiplex licences, Digital One and Sound Digital, to renew these licences for a further period—12 years and 7 years respectively—to 2035. This provision will have the most immediate effect for the Digital One licence, which is due to expire in November 2023. The measure meets the tests set out in the Legislative and Regulatory Reform Act 2006 and has been approved by the Delegated Powers and Regulatory Reform Committee of your Lordships’ House and the Business, Energy and Industrial Strategy Committee in another place as being appropriate for a legislative reform order with the affirmative procedure.

Since the launch of the Digital Radio Action Plan in 2010, the Government have supported the listener-led transition of radio from analogue to digital, through measures including the expansion of the digital transmission networks to substantially match FM coverage. There has been significant progress in the past decade. Digital radio now accounts for two-thirds of all radio listening, having been less than 30% 10 years ago.

Digital radio differs from analogue broadcasting, where a single encoded signal is broadcast on an analogue frequency, such as AM or FM. A digital radio multiplex or network compresses and bundles a number of radio services into one frequency and transmits it digitally to a certain geographic area. The signal is then decoded by a digital radio receiver used by listeners either in-home or in-vehicle. Digitisation allows radio broadcasters to use spectrum more efficiently, giving listeners more choice when listening to digital radio.

The UK’s independent broadcasting regulator, Ofcom, is responsible for the licensing of commercial digital radio multiplex services under Part 2 of the Broadcasting Act 1996. Radio multiplex services are licensed by Ofcom in terms of national, local and small-scale coverage.

Currently, there are two UK-wide national commercial digital radio multiplexes with around 20 digital radio stations broadcasting on each network. The licence holders are Digital One Ltd and Sound Digital Ltd. These two national digital radio multiplexes are an essential means of distributing national commercial radio stations to audiences across the UK. They have been successful in opening the national airwaves to more commercial radio services and in allowing commercial radio to compete with the BBC, which operates its own national multiplex.

The licence for the Digital One national radio multiplex was first issued in November 1999 and was granted with a right for one further renewal of 12 years. The licence was renewed by Ofcom in 2011 and runs to November 2023. The second licence is held by Sound Digital Ltd and was issued in March 2016. This multiplex licence will expire in March 2028 and currently has no renewal option.

Under the Broadcasting Act 1996, Ofcom does not at present have power to renew these national multiplex licences beyond the current expiry dates. Therefore, with the existing Digital One licence due to reach its final expiry date in November next year, and with Ofcom having no authority under the existing legislation to extend these further, the Government believed it was important to give the commercial radio operators who use these networks clarity and certainty about the future of the platform.

In July 2021, we issued a consultation to explore the options for reform: a do-nothing option, which would involve allowing the licences to be readvertised, or to legislate to allow the further renewal of the two licences for a further period, to either December 2030 or December 2035. Having carefully considered the feedback from the consultation, our conclusion was to legislate to allow for an automatic renewal of the two national radio multiplex licences. This was supported by the majority of respondents.

We believe that allowing the licences to be renewed will give national commercial radio broadcasters the long-term certainty and stability for their businesses and the confidence to continue to invest in digital radio services. It will also avoid a complex, disruptive and time-consuming relicensing process at a time when commercial radio is still recovering from the impacts of the Covid-19 pandemic on advertising revenues.

While some respondents were in favour of opening up the national radio multiplex licences to new competition, in our view a competitive bidding process for relicensing the licences would be disruptive and would have administrative, cost and management time burdens not just for the existing multiplex operators in rebidding for the licences but, more importantly, for the commercial radio stations carried on the networks. There would also be an administrative burden for Ofcom in running a competitive process for the licences.

Noble Lords may be concerned that the measure restricts competition. However, there has been little interest in operating a national radio multiplex, in part due to the high barriers to entry. There have been no market, technical or regulatory changes in recent years that would in our view make it more attractive for an external party to operate a national radio multiplex; indeed, digital radio is now an increasingly mature platform. The Business, Energy and Industrial Strategy Committee in another place considered this issue in detail and was satisfied that the competition concerns were fully considered by Her Majesty’s Government.

In setting the length of renewals, we reflected carefully on the feedback received from respondents, which was strongly supportive of a longer renewal for both licences. The provisions in this order will therefore update the legislation to allow Ofcom to grant a renewal of the national commercial radio multiplex licences for an additional 12 years in the case of the Digital One multiplex and seven years for the Sound Digital multiplex, with both licences to end on 31 December 2035.

In our view, the order will support the next phase of the radio industry’s transition towards digital transmission. It will provide national commercial radio operators much-needed certainty and the confidence to continue to invest in their digital services. I should make clear, however, that the Government, while supportive of the transition to digital transmission, have made no firm commitments about a future radio switchover. The joint industry and government Digital Radio and Audio Review, published in October last year, examined future trends and concluded that, while digital’s share of listening will continue to grow, FM will be needed until at least 2030—a view the Government support, given the important role that FM listening still plays for many radio listeners.

In summary, the order will allow for the renewal of the national multiplex licences. It will provide stability and certainty to the commercial radio industry during this tough time, while supporting the progress of UK radio and audio towards a digital future. I beg to move.

My Lords, I cannot believe that this is going to be a mass event. I thank the Minister for his introduction to the LRO and welcome the commitment to digital radio represented by this LRO. However, as we noted during recent Oral Questions, we are all looking forward to the government response to the Digital Radio and Audio Review of last October, which has not yet been published. Perhaps the Minister would reveal a little more than he did about when we can expect it to be forthcoming—“spring” or “summer” would do; “shortly” is a word he might wish to deploy as well.

There are some questions to be answered, which I hope will appear in the response and which are relevant to today’s LRO. I recognise that the BEIS Select Committee asked some of these, but I want to go a little further. Clearly, IP radio is coming in in force, especially with smart speakers and voice assistants now beginning to replace dedicated radio sets. I for one will be interested in what the Government have to say about prominence and algorithmic curation of playlists, station selection and content, and how this will fit with the new statutory competition framework for the Digital Markets Unit.

Last week, representatives from news media and publishing, including radio, highlighted the need for the Government to introduce statutory powers for the DMU to help tackle the threat of tech platforms, but over the weekend there were reports that this may be dropped from the Queen’s Speech. Does the Minister recognise the urgency of putting in place such powers in regulating online gatekeepers such as smart speakers and voice assistants? What proposals will there be in the next parliamentary Session to address the significant current risk to media plurality and broadcasters’ business models from the digital platforms linked to these devices?

In June 2021, the then Secretary of State for DCMS announced plans for a broadcasting White Paper, which would address a range of issues, including regulation of commercial radio and prominence of UK radio services online and on smart speakers. When is this White Paper expected and will it address these issues?

However, surely key in all this is that spectrum for the multiplexes is a scarce commodity, and demand for it will depend on how much commercial radio DAB is replaced by IP broadcasting. Should not any renewal of the DAB multiplex licences have been set in context with the response to the review on this, particularly in terms of the competition issues associated with any renewal and the pressures on the two multiplexes? In addition, is not the potential change to mandatory licence conditions to include the necessity to include DAB+ relevant in terms of the pressure on the two systems, as well as the ability to satisfy demand for space on the multiplexes?

Similarly, I note the commitment mentioned by the Minister not to switch off FM services before 2030, despite digital reaching 66% of listening. Is not the future of FM relevant to the renewal of the multiplex licences? Will this be covered by the response to the review?

There seems little price competition in the grant of licences. In other areas, such as mobile telephony spectrum, we have seen a bidding system—why not in this area now that digital radio technology is well established?

The general impression is that the Government might have jumped the gun in this area, but in other areas relating to commercial radio they are dragging their heels. What can the Government say in response to all these concerns, many of which are shared by the commercial radio industry?

My Lords, we too welcome the order, which secures the future of popular radio stations including Absolute Radio, Classic FM and Times Radio, and will ensure that, as a product of the renewal of the UK national digital radio multiplex licences, we have stability and certainty for the next decade, as the Minister said.

As I understand matters, the Government are giving Ofcom the power to renew the two commercial radio multiplex licences, Digital One Ltd and Sound Digital Ltd, which, as the Minister explained, are due to expire in 2023 and 2028 respectively. This move will mean that audiences across the UK can enjoy uninterrupted access to the huge range of radio content available from the country’s national commercial broadcasters through their digital devices on a free-to-air basis. Well-known stations on the Digital One Ltd multiplex include Absolute Radio, Capital and Smooth. Listeners can find the likes of Jazz FM and talkRADIO on the Sound Digital Ltd multiplex. That is all to the good.

As I understand it, the first of the two licences is due to expire in November next year. Rather than going continually through the bidding process every five years, the Government seem to have decided to spare both sides the time and cost of doing so. That too is welcome.

As has been said, the Commons BEIS Committee has published its report on the order. This confirms that it meets all the relevant tests that would be expected. We welcome the fact that those have been properly gone through, and we consider the policy to be proportionate. It has been subject to appropriate consultation, and that too is to be welcomed.

We support the change and recognise the enduring value of radio in general terms. Who does not love “The Archers”, “Desert Island Discs”, Jazz FM, BBC 6 Music—I could go on? All these bring great pleasure to us.

As the Minister usually talks about broadcast media, I wondered—rather like the noble Lord, Lord Clement-Jones—whether the Minister would not mind giving us a wider update. As the noble Lord, Lord Clement-Jones, noted, in the Oral Question on 14 March several noble Lords highlighted the fact that we await the Government’s response to both the Digital Radio and Audio Review, which reported as far back as October last year, and a broader review into public service broadcasting. Could we have a progress report on that? Can the Minister offer more than the usual comments about it being “in due course”, because I think that we need to be kept up to date on this. Will these reviews end up as a feature in part of the upcoming media Bill? When can we expect that Bill? Like the noble Lord, Lord Clement-Jones, I too am interested in the prominence issue, the online gatekeeper role, the risks to plurality that confront us, and the timetable for the broadcasting White Paper. Clearly, this is an important moment in the history of broadcast, and we need to have a plan for its ever-broadening and ever-widening future.

There is a lot to view and to contemplate, and I hope that we can soon get some meaningful legislation so that we do not have to go through processes for orders such as this in the future and so that we can have a more streamlined approach to covering changes and advances in media technology. However, overall we very much welcome the order.

My Lords, I am grateful to both noble Lords for their comments and their support for the order. As ever, with a brisk debate such as this, it can be difficult to scribble down all the questions, so if I have missed anything I will of course write to noble Lords with points that I have not been able to address.

The noble Lord, Lord Bassam of Brighton, is right to name some of the much-loved stations that are covered by the order—that is the importance of this for radio listeners across the country, and it is right to have them in mind.

Both noble Lords took the opportunity, not unreasonably, to ask about other legislative vehicles. They will understand that, this close to the gracious Speech, I am limited in what I can say, but the Government certainly agree that the current commercial radio licensing framework requires simplification. In particular, we need a regulatory structure for commercial radio that supports investment by broadcasters in content and the long-term sustainability of the sector. We feel that the current structure falls short, and we will be introducing the relevant legislation as soon as parliamentary time allows. On other legislative vehicles, I am afraid that noble Lords will have to wait for the gracious Speech and the details contained therein.

On the legislative background and technical details, as I set out in my opening speech the Government have decided to allow the two national commercial radio multiplex licences on the digital terrestrial radio platform, which are due to expire, to be renewed for a further period. The two national multiplexes, which carry 44 national commercial radio stations, in total facilitate coverage to around 91% of homes across the UK at the moment.

The noble Lord, Lord Clement-Jones, asked about our support for this technology into the 2030s. We know that the terrestrial DAB platform is popular with UK audiences and plays an important role in supporting public service broadcasting by providing a universal, reliable, secure and free-to-air distribution channel. Audience figures from Radio Joint Audience Research show that DAB is the single largest platform, with a 42.5% share of all radio listening in the fourth quarter of last year. By contrast, analogue radio via FM or AM services continues to fall and accounts for 35.6% of all listening. Research for the joint government and industry Digital Radio and Audio Review indicates that the terrestrial DAB platform will continue to be the most important means by which listeners access radio content into the mid to late-2030s.

The noble Lord, Lord Clement-Jones, asked about the Digital Radio and Audio Review, which looked at the issue of smart speakers that we touched on in the Oral Question a few days ago. As I said then, we agree that good arguments have been made for taking action to protect radio’s long-term position, in the context of the rapid growth in usage of connected audio devices, and to ensure the continuation of the huge public value which radio provides. But, as we noted in the exchange on that Question, this will not be straightforward: any significant intervention in this area will need to be considered in the wider context of other work that we are carrying out, particularly in relation to digital markets and data protection reform. Both noble Lords asked when our response to the Digital Radio and Audio Review will be published; we expect to publish this response in the coming weeks.

We believe that the provisions in the order before us will allow national commercial radio operators to focus their efforts at this difficult time on continuing to deliver the vital news and entertainment that listeners value most, while supporting the ongoing transition towards a digital future for the radio sector. I commend this order to the Committee.

Before the Minister sits down, one question that he has not really answered is why this LRO is taking place before the response to the review is available. The particular question that I asked in relation to that response was about the place of IP radio, for instance. This is all about what different kinds of radio broadcasting are taking place. Of course, if one wishes to renew these multiplexes, it is all about how much multiplex space is required relative to IP and FM. I talked about jumping the gun, but I do not quite understand why the LRO is taking place now, before the response, when if it were actually set in context we would have a much better idea when that response comes out.

My Lords, as I outlined at the beginning, this is the result of significant consultation, which agreed very much with the Government’s approach. We want to provide national commercial radio operators with the certainty and confidence that they need to continue to invest in their digital services, which is why we are doing it now. However, I will certainly write to the noble Lord with further detail on the point about IP radio, which we continue to look at. As we noted on the Question a few days ago, that area is changing rapidly. The landscape continues to evolve, but this order is being made so that the industry has the confidence and certainty that it needs to invest to support the transition to the digital future, which I think all noble Lords have agreed with today.

Motion agreed.

Boiler Upgrade Scheme (England and Wales) Regulations 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Boiler Upgrade Scheme (England and Wales) Regulations 2022.

Relevant document: 32nd Report by the Secondary Legislation Scrutiny Committee. Special attention drawn to the instrument.

My Lords, these draft regulations were laid before the House on 25 February 2022, and the SLSC considered the regulations in its 32nd report.

The UK is the first major economy in the world to set a legally binding target to achieve net-zero greenhouse gas emissions by 2050. Between 1990 and 2019, our emissions decreased by 44%. We are continuing to advance sustainability through the Government’s Ten Point Plan for a Green Industrial Revolution, the Net Zero Strategy and, most relevant in this case, the Heat and Buildings Strategy.

Currently, the heating of our homes, buildings and industry is responsible for 21% of the UK’s greenhouse gas emissions. Decarbonisation of heat is recognised as one of the biggest challenges in meeting our climate targets, requiring virtually all heat and buildings to be decarbonised. The Government’s ambition is to phase out the installation of new natural gas boilers beyond 2035. Heat pumps are a proven, scalable option for decarbonising heat and will play a substantial role in any net-zero scenario.

A UK market with the capacity and capability to deploy at least 600,000 heat pumps per year by 2028 can keep us on track to get to net zero and set us up for further growth if required. However, the current UK market for low-carbon heat is relatively small; due to this, these technologies are largely unable to compete on a capital-cost basis with conventional heating options. Although the new-build market for low-carbon heat is expected to grow as a result of regulatory signals, such as the future homes standard, existing buildings face a specific set of challenges. Subsidy is required to mobilise this section of the market, bridge the cost gap between a fossil fuel system and low-carbon alternatives, and build the appropriate supply chains.

The low-carbon heat market has previously been supported by the domestic renewable heat incentive, which closed to new applicants on 31 March this year. The boiler upgrade scheme will follow on from this support, providing capital grants to support the installation of heat pumps and, in limited circumstances, biomass boilers in homes and small non-domestic buildings in England and Wales. The scheme has a budget of £450 million over three years, as confirmed at the 2021 spending review. Grants of £5,000 will be provided towards the installation and capital costs of air source heat pumps and biomass boilers, with grants of £6,000 for ground source heat pumps. Biomass boilers will be eligible only in rural properties not connected to the gas grid to minimise any impacts on air quality, in line with the Government’s clean air strategy. The grant model will provide an upfront discount to costs paid by the consumer, closing the gap between the cost of low-carbon heating and conventional boilers. In setting the grant levels, we have considered evidence on consumer willingness to pay, the current upfront capital cost of each technology and social research on domestic renewable heat incentive applications.

The application process will be led by the installer and comprise of two stages: applying for, and then redeeming, a voucher. This will allow for a simple consumer journey while maintaining certainty for installers as to availability of budget. This model is suited to ensuring market growth and enabling industry to deliver through the grant model at scale. To ensure consumer protection through the scheme, consent will be sought from the consumer ahead of any application being made on their behalf. All installers participating in the scheme must be certified by the microgeneration certification scheme or an equivalent, and must confirm membership of a consumer code. This ensures that consumers are covered by protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer.

The scheme will provide financial support for up to 30,000 installations in year 1, contributing 2.6 megatonnes of CO2 equivalent of carbon savings and supporting 2,100 direct full-time equivalent and 1,800 indirect full-time equivalent jobs per year over its lifetime. This supports the Government’s ambitions for levelling up, as we expect supply chains to be built and jobs to be supported in regions with higher demand outside London. With the growth in demand encouraged under the scheme and wider market developments, we expect to see cost reductions in the technologies over the three years. This instrument therefore sets out a provision to allow the Secretary of State to review grant levels and maintain the right to adjust them in response to any appropriate market changes. Eligible low-carbon heating systems that are commissioned on or after 1 April this year will be entitled to support under the scheme. From 11 April, installers will be able to open an account for the scheme with Ofgem. We expect these regulations to come into force and grant applications to open by 23 May.

In conclusion, the scheme established by this statutory instrument will increase the deployment of low-carbon heating technologies, making crucial progress towards our climate targets. We already have a strong homegrown renewable energy sector, but investing further in heat pumps will reduce our exposure to volatile prices and help to protect British consumers. In supporting this investment, we expect to grow the market for retrofit installations, put downward pressure on costs and continue to build the supply chain in preparation for the introduction of regulations and market-based approaches later in the decade. I commend these regulations to the Committee.

My Lords, so much detail, so much complexity. I thank the Minister for his introduction to these historic regulations. They presage building operations in pretty well every conventional house in Britain. Perhaps there will have been nothing like it since the immediate post-World War II years, when we addressed the consequences of Göring’s Luftwaffe and Adolf Hitler’s rocketry on our homes and factories.

I served in three Administrations as a young man, and I recognise the nature of these regulations. They are the product of a dedicated department and a concerned Government, and they could have been presented by any concerned previous Government of yesteryear, but now is a unique challenge. The vocabulary and phrasing is reassuring in its familiarity, with the prosaic title and then the vocabulary which we know well: standards, eligibility, budgets, grant values, investigation, offsetting, a code, vouchers and regulation. It is the whole panoply of the reassuring, everyday Civil Service vocabulary that, in fact, describes a quite revolutionary proposition, and one so soon to impinge on the private, ordered, domestic life of pretty well everyone. It is startling that, almost in successive years, our fellow citizens have willingly signed up to lockdown—a kind of partial, self-imposed house arrest—and now to inviting plumbers, heating engineers and inspectors into virtually every one of their traditional houses.

Like many others in your Lordships’ House, I am fully signed up to green, and one cannot argue with the statistics: they are very daunting. Understandably, the Government must do their duty here and take the nation with them, whatever the difficulties. The regulations will go forward. The nation—the planet—faces mighty consequences if the Government do not present regulations such as these. However, in the context of this debate, one can ask: are they appropriate as they stand? I found the regulations’ executive summary and Explanatory Memorandum helpful amid the plethora of challenging small print, but summations raise further questions. The Secondary Legislation Scrutiny Committee report, the 32nd of 2019-21, has drawn special attention to these regulations: namely, that they are politically and legally important. Are the Government confident that there will be customer protection adequate to prevent mis-selling? What plans and what detail have the Government prepared to protect the unsuspecting household consumer? Are the regulations overambitious in their targeting?

The scrutiny committee raises doubts aplenty. Is not the 10-point plan flawed? None of this has been done before, and it is a massive challenge to government and every citizen, whose home will be invaded, necessarily, by the regulations. To install 600,000 heat pumps per year is hugely ambitious. This is a project totally new to government, to the trade and, most importantly, to the citizen. Our people are already under huge pressure from inflation and are soon to be impacted by colossal increases in their heating bills. Is not 600,000 heat pumps a year in six years overambitious?

The committee raised the question: where shall the tradesmen, the crafts women and men, the jobbing builder, electrician and plumber come from? There are no such assurances in the regulations. Is it not the case that we already find it hard to gain the prompt services of trades men and women? At paragraph 36, the Secondary Legislation Scrutiny Committee, in heavy type, draws special attention to this challenge. Reading between the lines, the committee is not at all assured by what the Government plan.

These regulations nowhere refer to the hugely inconvenient domestic consequences for the millions of families who will endure great inconvenience—literally dust, noise and disturbances of every kind. They do not consider the certain, unwelcome impact on the poor, the elderly, the sick and the disabled—indeed, the ordinary and the house-proud. There are to be costs for the citizen so inconvenienced. Surely, since the regulations bear down on virtually every householder, they should have been presented by the Government to the Chamber of the House itself. These issues require full and lengthy examination. Why have they not been taken on the Floor? Perhaps the Minister will respond. The House is not questioning the Minister; this Committee is—and it is rather a naked Committee, if I may say so.

In another place, where I was for 31 years, one’s duties frequently took the elected Member to the older decaying council estates, now referred to as social housing. Successive Governments granted welcome moneys for their modernisation. Often, tenants remained in their homes while all around them work men and women hacked and altered. They lived amid noise, dirt and dust, and their possessions were locked away in distant containers. It was unpleasant, to say the least. The fear is that many tens of thousands receiving heat pumps shall endure the same. What shall the Government do to ameliorate these inevitable problems?

Lastly, the Government are fortunate to have the noble Lord, Lord Callanan, to present these challenging regulations. After all, he negotiated the pitfalls of the Brexit legislation with considerable aplomb. He would have been a marvellous member of the “Test Match Special” team of quite some years ago, alongside Messrs Johnston, Trueman, Bailey and the “Alderman”. The latter described clever defence against good bowling as “nurdling away”. The noble Lord, Lord Callanan, nurdles away so matter-of-factly and skilfully when he takes to the Dispatch Box to present these detailed, complicated regulations.

My Lords, I thank the Minister for his clear explanation of how the scheme will work. However, like the noble Lord, Lord Jones, I await the Minister’s response to the Secondary Legislation Scrutiny Committee’s specific comments relating to how the scheme will work in making progress towards the Government’s ambitious target of 600,000 installations by 2028 and on how realistic the Government’s current projections and targets are, given the six-year timetable.

I also want to know from the Minister why there is a seven-week delay in the introduction of the scheme. This causes severe problems for both manufacturers and installers who have geared up for the scheme’s introduction on 1 April. Will the RHI scheme be extended to cover this gap? Can the Minister also confirm that this scheme will run its full course, unlike the green homes grant, and tell us what will happen if the take-up goes beyond 30,000 installations per year? Is funding contemplated for that?

I am also interested in the Minister’s response to the part that other measures and technologies can play in achieving the same ends. Can he provide confirmation that they will receive similar financial support and incentives? Although the financial support that the boiler upgrade scheme will provide is welcome and necessary, it is important to recognise that heat pumps and biomass boilers are just two of a range of technologies that will help us to reach net zero. We need to take into account the diverse nature of the United Kingdom’s stock of domestic and non-domestic properties. This requires us to be flexible in the choices we make regarding the low-carbon solutions that are employed.

For instance, heat pumps are not appropriate or effective in a vast number of properties. Given this, the Government should adopt a technology-neutral approach to the decarbonisation of home heating, ensuring that the most appropriate and suitable solutions are used on a case-by-case basis. BEIS’s figures indicate that, in the off-grid space, roughly 1.7 million homes use fuel oil for heating, while another 220,000 use LPG. For many of these properties, which are often older, uninsulated and listed and where insulating is either unfeasible or extremely challenging, installing a retrofitted heat pump could cost £30,000 or more. Even with the maximum amount of government support, home owners in these instances would be left with a bill for £24,000 or more.

One interesting option for such properties is renewable liquefied gas, a fuel source with almost zero carbon emissions that is made from a range of sustainable feedstocks including food waste. Renewable liquefied gas can effectively utilise existing infrastructure to deliver affordable decarbonisation solutions for both domestic and non-domestic properties. Keeping costs down for the consumer is particularly important in ensuring an equitable transition. Giving too much weight to any one technology, such as heat pumps, risks leaving people behind on the journey to a greener future. I urge the Government to remain open-minded and give due consideration to those homes that are the hardest to decarbonise, where a one-size-fits-all approach is not appropriate.

My Lords, discussions on heat pumps are always interesting. Everyone seems to have a view, although few have any experience of actually running the things; I find that this is particularly the case with those who are the most enthusiastic about them. I would love to know how many noble Lords who have spoken today have installed a heat pump—indeed, whether the Minister or any other member of the Government has done so. For the record, I have; I have two heat pumps, in fact, so I do speak a little from experience.

I welcome the scheme even if, from a personal point of view, I regret that it has come a bit late for me —although I do benefit from the RHI scheme, which over its life is slightly more generous. We need to bring down the costs of heat pumps if we are to encourage their uptake. This scheme is simple and up front, so I think it is likely to be more successful than the RHI scheme, which is complex and, frankly, rather tedious with having to measure everything and send in the forms every three months.

I want to raise a couple of points of caution, based both on my own experience with heat pumps and on publicly available information, including an Answer from the Minister to a Written Question I submitted to him about a year ago. Heat pumps are often stated as being able to generate heat equivalent to three to four times the electrical energy that is put in; I have seen claims of up to five times. There has been quite a lot of press coverage over the weekend suggesting that, with these grants and based on that kind of efficiency claim, heat pumps could now be cheaper than gas. There is plenty of coverage saying it; it is not right, but it says it. Advertising in brochures for heat pumps often talks about those sorts of efficiency multiples. My own pumps claim they should achieve 3.2 times efficiency; they are less efficient high-temperature pumps, which is why it is a slightly lower number.

High expectations of these things are being set, but, sadly, the efficiency claims and performance are rarely, if ever, achieved—and only in absolutely ideal situations. When you read the small print in the brochures or whatever, you find that the claims tend to be made when the outside temperature is 15 degrees centigrade or higher and the output hot water set at 35 degrees, which is somewhat lower than normal domestic hot water temperatures of 50 to 60 degrees. Efficiency drops really quite dramatically as the outside temperature drops. Efficiency at zero degrees outside temperature can be less than half what it is at 15 degrees. The same happens as you push the output hot water temperature up.

My own experience has been a peak coefficient of performance of about 2.5 times and an average close to 2.1 times. The Minister’s Answer to the Written Question I mentioned suggested a seasonal average of around 2.4 times. These are all substantially lower than the public claims we all read about in the press, on green websites and, in particular, in manufacturers’ advertising. With electricity prices being what they are, the reality is that heat pumps are very unlikely to save money against gas.

This also does not take into account the little secret that no one tells you when you install an air source heat pump: the defrost cycle. As the outside temperature drops, the pump has to work harder. As well as becoming less efficient, it starts to collect ice around the coil, especially when the air is humid; a typical cold, damp UK winter day is about as bad as it gets. It then has to defrost, which it does by taking heat back out of your hot water tank, so just when you need heat the most, the heat pump is producing the least heat and at times actually taking heat out of the system.

The difference between a coefficient of performance of a claimed 3.5 times and an actual 2.4 times makes an incredibly substantial impact on the running costs. In many houses, other than those with perfect insulation, you may well need a secondary heat source during cold snaps to make up for the lower output and defrost problems I have just described. In my case, an additional electric boiler and a wood-burning stove have made the system workable when the outside temperature drops below about 2 degrees centigrade.

I am not trying to undermine the scheme. Heat pumps are an excellent solution in the right circumstances and will be an important part of our move to net zero, but I am really concerned that we may see a VW dieselgate-style mis-selling scandal if we are not careful and people buy heat pumps based on the unrealistic claims made to them and then find them very much more expensive to run than expected and producing less heat when it is really needed, compared with their existing boiler. If people feel misled, uptake will fall away quickly and the scheme will fail.

Can the Minister confirm that manufacturers and installers will be required to state clearly in their advertising and installation literature the real-world expectations of efficiency and running costs and realistic heat output in a typical UK winter, rather than the unrealistic claims that are currently made? This real-life information should also be included in the MCS database, rather than just the perfect information in there at the moment. As I have said, heat pumps are an excellent solution in the right circumstances, but people need to know what they should realistically expect before they buy.

I have a small second point. I was rather surprised to discover that installing a heat pump can actually have a negative impact on energy performance certificates. That means that, for a landlord looking to achieve the required EPC, there is a disincentive to install a heat pump. I have this problem as a landlord, albeit in Scotland—so it is devolved—but I think the same is true in England. That cannot make sense, so if the Minister could look at that I would be most grateful.

My Lords, I too thank the Minister for his comprehensive explanation and for having spared the time last week, with his officials, to explain some of this stuff to me. It is welcome that we have a simpler scheme and that the Government are trying to understand that big schemes that cannot be met with the skills required, et cetera, do not bring any benefit. These are the key things that arise from the scheme.

The noble Lord, Lord Jones, raised the issue of skills, which are fundamental to everything in this area, not just in terms of heat pumps. As we green our economy, we have to ensure that we build our skills base. I know that the Minister talked about a lot of money having been spent on training under the previous green homes grant scheme and the money being spent by manufacturers. But we need to ensure that the Government, working with local authorities, skills providers and industry, are really looking across the piece about greening the economy and how we ensure that the skills are there to do it.

As I understand it, the grant scheme is to be installer led. That is obviously beneficial because the installers will, I hope, get used to that process, which will make it a bit less daunting for consumers. It is also encouraging that proper quality assurance is being required although, again, that clearly also constrains the ability to meet demand.

It is very important that all those installers will be required clearly to advise home owners on the appropriateness or otherwise of installing a heat pump in their property. As we have heard from the noble Lords, Lord Carrington, Lord Jones, and Lord Vaux of Harrowden, properties vary immensely. The performance of these pumps also varies and public confidence in the scheme should not be lost—as the noble Lord, Lord Vaux, said, it could really disappear overnight. If people feel that it has been oversold and they have been provided with replacements for their heating systems which do not achieve the heat and hot water that they are used to, or have been promised, we will have a real problem. I hope that the Minister will be able to reply to those important points that the noble Lord raised.

I do not have a heat pump in my own property. I sought to get one installed under the green homes grant scheme; unfortunately, that scheme came to an end, but my property was also said not to be suitable. It is clear that not every property is suitable and that we will really have to think about those which are not. Although a lot of rural properties may well have the space for a ground source heat pump, many of them may be old and poorly insulated and it may also be difficult for heat pumps to operate effectively there. I notice that, for off-grid properties, biomass boilers are to be allowed. In response to the question of the noble Lord, Lord Carrington, I would be interested to know whether liquefied natural gas made from the organic materials that he talked about would be counted as biomass.

We have also heard about two gaps in particular, one of which is the seven-week gap in this scheme, which is obviously an important concern for manufacturers. But we also heard about the gap raised by the Secondary Legislation Scrutiny Committee between the Government’s ambition of 600,000 heat pumps being installed per year by 2028 and the 30,000 each year over the next three years under the grant scheme and the 200,000-plus heat pumps it is estimated will be installed in new builds when the new future homes standard come in. There is still a big gap there, and I am not entirely convinced that the Government have thought through how they can match their ambition with delivery.

If we are to decarbonise domestic home heating in this country, we cannot rely simply on grant schemes. I know that lots of different schemes are running, which sometimes overcomplicates things for consumers, but we really need to have fiscal incentives in place as well to encourage home owners to take various measures that can help not only to decarbonise the heating system but reduce demand, because reducing the amount of energy that we waste must be one of the central things we do. We cannot have systems in place that disincentivise the installation of heat pumps via the impact that the noble Lord, Lord Vaux of Harrowden, explained on the energy performance certificates. It would be interesting to hear the Minister’s response on that as well.

Finally, we on the Liberal Democrat Benches commend the Government on their ambition in this area and on having learned some of the lessons of the green homes grant scheme. There is obviously an issue about how we meet this 600,000 target. I am not sure that all the detail is there, but we hope to hear more about it in the coming months.

My Lords, in debates such as this, from listening to the excellent contributions from my noble friend Lord Jones, and the noble Lords, Lord Carrington, Lord Vaux of Harrowden and Lord Oates, more questions come up as we go along. I look forward to the Minister’s response on some of the technical details.

I go along with the general response in welcoming the purpose behind the scheme. The ambition is clear. Obviously, the context is the imperative to decarbonise for our net-zero targets and energy security is absolutely at the forefront of everything we are discussing at the moment, but perhaps we have not dwelt enough on the link with the cost of living crisis and the real concerns we have about people being able to afford to heat their homes, as well as all the other challenges for people bringing up families, in particular, and older people, who are also making terrible decisions about heating or eating. There is a very complex background to this, as we have heard.

The main question we have running through this is whether the amount of funding available—I thank the Minister for the detail on the background to the upgrade scheme—realistically has a chance of delivering the number of conversions laid out in the proposals.

I go to personal experience. I have talked to people over the past few days who have been considering upgrading their boiler and heard clearly the reasons why, at this moment, they have decided not to go down that route. Of course, the fundamental one is cost, but efficiency is also a major concern. Noble Lords know my background in local government; I know that the Minister visited Leeds to look at a scheme for retrofitting housing. The biggest challenge we have is retrofitting and suitability for purpose.

Another area of work I am involved in is trying to establish specific apprenticeships to deliver training for green skills. It is incredibly difficult—it does not exist at the moment. Apprentices learn the different elements from across the board; no one is coming up with a bespoke scheme to make sure that the skills will be in place. From my experience of the complexity of retrofitting generally and then from working on this upgrading scheme, I worry whether we will have the capacity to deliver the ambition.

My questions to the Minister are, first, that we know the trajectory that is being proposed, but what further steps will be taken if it is not met, and how and when will it be evaluated? Will the upgrade scheme continue for three years afterwards if successful, or is three years of pump-priming expected to be enough? Is there a next phase, and when will the Government make a decision on that? If we look at the number of properties we are planning to upgrade, we are left with 500,000 to deliver over three years. Is that realistic and achievable? I question that.

My other concern is with new buildings. Of course, we have the introduction of the future homes standard to bring in heat pumps, et cetera, but that involves around 200,000 homes a year. How many new builds are being built at the moment with traditional gas boilers that will need to be replaced within just a few years? The question concerns deliverability, capacity and recognising the gap.

Will the Government commit to a regular review of grant levels, based on the experience of rolling out the programme: whether there is adequate take-up or whether the concerns with the programme are just too high for people to take on the risk? Is there a technology price trigger point at which grant levels will be reviewed, or will that be only at the end of the three-year period, if the scheme is to be extended?

In fairness to the Government, they recognise the risks of the scheme, which I presume is the reason why it has now changed to an installer-led two-stage voucher system. I was very struck by the comments of my noble friend Lord Jones about protection for the consumer. That is an area where I hope the Minister will be able to give us further background.

Also, can we have some clarity on the scheme itself? How will the grants be distributed? Will it simply be on a first come, first served basis for installers? Will larger installers with greater capacity for additional paperwork be at an advantage? What if demand outweighs the funding available? Will there be time-linked limits in place for the number of vouchers to be issued?

I sincerely hope that the scheme will be successful, as part of a wider toolkit, but the issue of flexibility, which was stressed by the noble Lord, Lord Carrington, is something that we need to focus on. I am certainly interested in being involved in the attempt to explore the possibility of hydrogen in future. I hope that, given the systems that people have in their properties, an alternative source of fuel could present a significant step in how we move this incredibly challenging agenda forward in a relatively short period of time.

I thank everybody who contributed to this short but excellent debate. There were some great contributions; I hope that I will be able to answer all the questions that were asked.

I start by re-emphasising what I said in my introduction: the decarbonisation of heat is a crucial challenge in meeting our climate targets, as heating our homes, businesses and industry is responsible for about a third of the UK’s greenhouse gas emissions. Although we have made progress—emissions from buildings fell by 20% between 1990 and 2017—we must go much further and faster to meet the net-zero target. Ultimately, net zero will mean gradually but completely moving away from burning fossil fuels for heating.

To address the point made by the noble Lord, Lord Carrington, we are clear that achieving net zero will require a range of technologies and solutions for buildings. There is no silver bullet, I am sorry to say. It is not a case of choosing whether electrification, hydrogen or heat networks are the answer. It will be a little bit of everything, possibly including some technologies that we are not even aware of yet. We should be flexible and adapt our approach depending on what our scientists deliver for us.

However, there is no question but that, whatever range of solutions is offered, heat pumps will play a substantial role in any net-zero scenario. It is therefore important that we build the market for them in the UK now. They are used quite substantially in other countries in Europe and across the world. Given the large quantities of gas that we have traditionally had, we have not concentrated as much on this technology in the UK, but it is important that we get the market moving.

This scheme is all about targeted support to grow the low-carbon heat supply chain to enable the introduction in the mid-2020s of regulatory and market-based measures that will further drive the transition to low-carbon heat in our homes and businesses. We have set an ambition to work with industry to reduce the cost of heat pumps, we hope by at least 25% to 50%, by 2025. This is ambitious but we have certainly seen some good signs from businesses in this area that we will be able to achieve it. Ideally, we want parity with current gas boilers by 2030; realistically, if we are to get mass market take-up, we must ensure that that is the case. This scheme is an important step in supporting those consumers who choose to make the switch earlier, as the noble Lord, Lord Vaux, has done. Investment in this element of the net-zero campaign will not only contribute to our carbon reduction targets but help to create high-quality jobs of the kind that the noble Baroness, Lady Blake, talked about. It will also boost our economic recovery in levelling up across the country and ensuring that we build back better.

I will take some of the points that noble Lords made. The noble Lords, Lord Jones and Lord Oates, rightly raised concerns about consumer protection and quality assurance under the scheme. This is something that we have carefully considered. To ensure that installations under the scheme are of a high quality, as I mentioned, all installers have to be certified by the MCS and members of a consumer code that ensures customers are protected by a Trading Standards Institute-approved code of practice. This ensures that property owners are covered by consumer protection schemes governing the products and their performance, as well as the quality of the installation and the service they receive from the installer. There is a proper insurance-backed warranty on top of that if any faults are identified or in the rare cases where installers go out of business.

The noble Lords, Lord Jones and Lord Oates, and the noble Baroness, Lady Blake, made some good points about the ability of the supply chain to deliver the scale of change required. There are currently more than 1,200 MCS-certified air source heat pump installation businesses, covering every region in the UK. Record numbers have been installed over the past year. We have had extensive discussions with businesses and industry, which have informed us that they are confident they have the capacity to comfortably meet demand for heat pump upskilling over the course of the scheme and in line with our targets.

The noble Lord, Lord Oates, prompted me on this issue. In September 2020, we launched the £6 million skills competition under the green homes grant scheme to provide training opportunities for energy efficiency and low-carbon heating supply chains. I am pleased to say that a number of the heat pump manufacturers offer their own training schemes; I have visited a couple of their training workshops. MCS itself has a conversion course and some of the big installers, whose names I do not need to mention for further advertising, are rapidly upskilling their workforces. They are often boiler engineers anyway; they just need conversion courses to be able to install heat pumps. There is a lot of work going on in skills and training, and we are working closely with the DfE to make sure that we take this forward.

The noble Lord, Lord Jones, asked what the Government are doing to support vulnerable and fuel-poor households. That is not part of this SI, obviously, but we are giving a lot of financial support through a range of schemes: £950 million in additional funding for the home upgrade grant in England; £394 million invested through the Welsh Government’s warm homes programme; £800 million to the social housing decarbonisation fund; and a £6.7 billion extension until 2026 for the energy company obligation and warm home discount schemes. All of them are helping to insulate, upgrade and retrofit the homes of those on low incomes throughout the United Kingdom.

The noble Lords, Lord Carrington and Lord Oates, and the noble Baroness, Lady Blake, rightly raised the scheme’s role in meeting the 600,000 heat pump installation target. Obviously, a bit of simple mathematics will demonstrate that this scheme will not meet the 600,000 installation target on its own. It is part of a wider package of policies that we are introducing to scale up heat pump deployment and support industry. I mentioned some of the other upgrade schemes that we have; of course, many of them are already supporting heat pump installations as well. Indeed, I visited Leeds to see some of the excellent work going on up there.

As costs come down, we expect other policies to kick in as well. The noble Lord, Lord Oates, mentioned this point: by 2026, we expect around 200,000 heat pumps a year to be going into new-build buildings following the introduction of the future homes standard. In that standard, we are specifying not that the installation has to be a heat pump—we are technology neutral—just that the overall design of the new property has to be low carbon. It could use alternative sources of low-carbon heating. That will come with the future homes standard.

Along with our consultation on wider heating policies, which will also contribute to the target, new regulations are proposed on buildings off the gas grid. We have also consulted on a market mechanism for gas boiler manufacturers; we are just about to respond to that consultation. Taking all these measures together—this scheme, the social housing decarbonisation fund, the home upgrade grant, the new future homes standard, et cetera—we are confident that we can get up to our 600,000 installations a year. However, I emphasise once again that I do not expect this scheme alone to deliver 600,000 installations a year. That would be mathematically impossible with the amount of money we have available.

The noble Lords, Lord Carrington and Lord Oates, mentioned the timescale for the launch. We have taken a staggered approach to launch but the scheme is valid now and has been from 1 April. Any installations happening under the domestic renewable heat incentive that do not manage to get commissioned in time can switch to support from this scheme as well, so all installations from 1 April will be eligible. We have taken a staggered approach precisely to ensure that we do not experience the same problems as the much-maligned green homes grant. We want to ensure that all the back-office systems and processes in Ofgem are in place to ensure that payments to installers are made on time and that all those systems are robust and reliable.

As I mentioned, the scheme has been valid from 1 April. Installers will be able to register their details on the Ofgem website from 11 April, and it will start processing grant payments from 23 May. I and the chief executive of Ofgem have met with all the associations and many of the companies responsible. We briefed them on the timescales that we propose for this launch. The whole idea is to make the scheme much simpler and easier. Effectively, only three technologies are supported, so we think it should be simpler and more straightforward than the green homes grant. It is being targeted through installers rather than consumers directly, although consumers do have to give their consent to the installation. Ofgem is in regular contact with the federations representing many of the installers and we are already testing the approach with installers. I am pleased to say that the feedback has been very positive so far.

The noble Lord, Lord Carrington, asked whether the scheme should adopt a technology-agnostic approach. It does not because it is a heat pump approach, but generally we are technology agnostic. Yes, we support heat pumps, but we also support the development of low-carbon hydrogen through a scheme that is similar to the contracts for difference; we will announce the details of that shortly. Some hydrogen trials are already going on. In particular, in my area of the north-east, there are two hydrogen houses, which I have visited.

Realistically, as a technology, hydrogen is still in its early infancy in terms of our ability to produce large quantities of it at a realistic cost. However, science and technology might be our friends here. As the industry gets used to producing it and new techniques come on board, it could very well play a role in domestic heating, although the evidence at the moment suggests that it is more likely to play a role in industrial processes, heavy goods vehicles, et cetera. However, it is possible to blend up to 20% hydrogen, even into the current gas main. It will operate perfectly satisfactorily with existing boilers, fires, et cetera—indeed, trials are going on to do that at the moment.

Current evidence suggests that heat pumps are technically suitable for most buildings. Between 80% and 90% have sufficient energy efficiency and internal electrical connection capacity to accommodate a heat pump system. I think it was the noble Lord, Lord Carrington, who made the point about biofuels, such as bioLPG and hydrotreated vegetable oil. Biodiesel may also play a role in future off gas grid decarbonisation, although it is important to add that these fuels are not completely carbon free. They are potentially suitable for properties that are not suitable for a heat pump.

I have been receiving lots of correspondence on this subject, but we think further evidence is needed to consider what role, if any, biofuels could play and whether it would be more appropriate to use available biofuel stocks for transport road fuels, et cetera. There is a debate to be had about what we do with the relatively limited quantities of biofuel feedstock that would be available, so it is important to consider that in terms of the wider policy framework. We will, of course, always keep the list of eligible technologies under review.

The noble Lord, Lord Vaux, also made some excellent points. I agree with much of what he had to say about the efficiency of heat pumps and how important it is to be up front and honest with consumers about the running costs of these systems. He is absolutely correct that the impact on a household’s bill of installing a heat pump will depend on a lot of household-specific factors: the efficiency of the heat pump and how much insulation they have installed, et cetera. It is very important that we provide appropriate information. Of course, I am not responsible for what installers themselves will say or for what much of the media will say, but government publications will certainly be up front and straightforward with people about what the costs are.

Currently, installers are required to provide customers with an estimate of the annual energy performance of the system before the point at which the contract is awarded, so that they make a properly informed decision about the installation. I hope the noble Lord’s installer provided him with an appropriate estimate.

The noble Lord, Lord Oates, raised an important point, which I think was also mentioned by the noble Lord, Lord Vaux, about the role of energy efficiency and EPCs under the scheme. There is of course a trade-off: the original purpose of an EPC was to provide information about the running costs of a system, rather than necessarily the carbon efficiency. Clearly, given the imbalance of costs between electricity and gas at the moment, there is the potential—not in every case—that installing a heat pump would give you a worse EPC. Ultimately, we will need to address that in rebalancing the costs of electricity and gas, but the noble Lord is quite right. Again, I get lots of letters about this, but the purpose of EPCs is to provide a consumer who is buying or renting a property with information about the running costs and how much they will spend. The carbon impact is important but we have to balance it against the information provided on running costs, which is where the corollary comes in. Ultimately, the solution is to rebalance electricity and gas prices.

The noble Baroness, Lady Blake, asked when and how grant values will be reviewed. As I mentioned in my introduction, we have a power to keep them under review. The Secretary of State can change the grant amount and, clearly, we will monitor the take-up of the grants and the market closely. We will keep them under constant review throughout the duration of the scheme; we have the flexibility to amend them if we need to. A lot of external factors are influencing the market at the moment: a shortage of components, with difficulties in the importation of such parts; scheme demand; and a number of wider market changes. Vouchers will operate on a first-come, first-served basis and it is important that we are able to keep the budget under constant review. We have an amount of money available for this spending review period. I cannot predict what might happen in future spending reviews but we have £450 million available for the first three years of its operation, which I hope will be sufficient funding to satisfy demand. Obviously, I cannot give any promises about what future spending reviews will do or what funding will be available.

I think I have answered all the points. I am sure that somebody will remind me if I have not. Let me underline once more that these regulations are a vital part of reaching our legally binding greenhouse gas emissions target. I thank all those who have contributed to the debate and commend these draft regulations to the Committee.

Motion agreed.

Judicial Pensions Regulations 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Judicial Pensions Regulations 2022.

Relevant document: 35th Report from the Secondary Legislation Scrutiny Committee

My Lords, this statutory instrument establishes the judicial pension scheme 2022 and forms part of the Government’s commitment to delivering a long-term solution to attract and retain high-calibre judges. In turn, this guarantees the proper functioning of our justice system. The international reputation of our legal system is something that I think we are all proud of and is necessarily sustained by the continued recruitment of the finest candidates to judicial office.

The recent Public Service Pensions and Judicial Offices Act closed all existing judicial pension arrangements to future accrual. The purpose of this SI, therefore, is to establish regulations for the new judicial pension scheme 2022—a scheme that is both fair to the taxpayer and attractive to the judiciary. It will be the only pension scheme open to judges for accrual for service from 1 April this year; I will come back a little later to the slight backdating to the end of last week.

The judiciary has an essential role in upholding the rule of law. Every day, judges up and down the country take decisions on important issues that have a real impact on people’s lives, from delivering justice for victims through to deciding care arrangements for vulnerable children. The exceptional work of judges and others who work in the justice system to ensure that our courts and tribunals kept on functioning despite the ravages of the pandemic served as a reminder of the pivotal role that they play in the administration of justice.

However, over the last number of years, we have experienced unprecedented recruitment and retention issues across the judiciary. A lack of judges has significant and damaging operational impacts. Cases take longer, with serious consequences across all jurisdictions. Delays in the family courts and county courts have a significant impact on children and other vulnerable people, who may have to rely on a judge being available for emergency orders and injunctions.

Of course, the importance and influence of our judges reach beyond our shores. Their reputation for integrity and impartiality plays an important role in attracting international business to the UK, contributing to a legal services industry worth around £29 billion a year to our economy. Quite simply, if we do not have enough judges, that undermines our ability to compete internationally for legal services, which are important to our economy.

A two-year comprehensive review by the Senior Salaries Review Body linked the root cause of the recruitment and retention problems in the judiciary to the 2015 pension reforms. In particular, as the 2015 scheme was tax registered, judges were caught by annual and lifetime tax limits. The Government thereafter made a commitment to introduce a long-term solution through pension scheme changes for the entire judiciary.

It is fair to say that the changes made in 2015 were consistent with those made to other public sector roles, but they did not sufficiently take into account the judiciary’s constitutional role and, importantly, its unique career path. Judges, especially full-time ones, often become judges towards the end of their careers; the value of their pensions is therefore of particular significance. They have many years of training, and often successful private practice, behind them. Many will have taken a pay cut to join the Bench but will also have set up other pension arrangements.

It is against that background that it is important that the pension scheme can attract and retain the highest calibre candidates to judicial office. For this reason, the scheme will be tax unregistered, meaning that the benefits accrued will not be subject to annual or lifetime tax allowances. That returns the judiciary to the position before the 2015 reforms. Several of the features of the scheme, such as the member contribution rate, flow from that tax-unregistered status. There will also be no cap on the number of years for which a judge can accrue benefits, and there is an option for judges to give up part of their pension for a lump-sum payment.

However, at the same time it is important that the scheme is fair to the taxpayer. Therefore, it has been designed to be consistent, so far as possible, with the core principles of the wider 2015 public service pension reforms. Those reforms were based on the Independent Public Service Pensions Commission’s review of public service pension provision, chaired by the noble Lord, Lord Hutton of Furness. In line with the recommendations of that commission, the judicial pension scheme 2022 will have its benefits calculated on career average rather than final salary, will have a normal pension age linked to the state pension age, and will have a cost control mechanism.

We have consulted widely with the judiciary throughout the development of the scheme design. In particular, they were invited to provide comments through two formal consultations. The first, in summer 2020, looked at the overall scheme design; the second, in summer 2021, included a draft copy of the regulations.

In consultations, we proposed a uniform contribution rate for the scheme. Although pension benefits are improved, combining the uniform rate with the change to a tax-unregistered status means that some judges might see a reduction in their take-home pay when they transition to the new scheme. We have therefore introduced a temporary option within the regulations. That allows eligible judicial officeholders to reduce their contributions to the scheme for three years in return for a corresponding reduction in the accrual rate.

However, it is fair to say that responses received to the consultations were positive, provided support for the scheme and reaffirmed our view that it will help to achieve our main objective of addressing the serious recruitment and retention issues identified by the Senior Salaries Review Body, while, as I said, being both fair to the taxpayer and affordable and sustainable in the long term.

The SI therefore establishes a pension scheme for the judiciary which is sufficiently attractive to recruit and retain high-calibre candidates to the Bench, while upholding the core principles of the 2015 public service pension reforms, thus ensuring value for the taxpayer. For those reasons, I commend the SI to the Committee.

My Lords, I welcome the regulations: I am in favour of good pension schemes for our public servants, and this certainly counts as a good scheme. I thank the Minister for his clear and detailed explanation of the regulations and the reasons for the specific characteristics of the proposals compared with other public sector pension schemes.

As has been explained, the fact that the scheme is good is because of the particular characteristics of the workforce, as it were, and a strong case has been made. I would just express a word of caution here. It is difficult to constrain unique circumstances. There are always other circumstances that might be argued to be similar. There will obviously be room for debate about how similar the circumstances need to be to trigger the special circumstances. A strong case has been made for this being a good scheme, but similar problems of recruitment and retention, at least potentially, might arise—for example, with persuading senior medical surgeons to remain in the workforce. There is a clear suggestion that surgeons are leaving because of the impact of the normal rules on pensions. I have heard the same problem raised in relation to senior figures in the military. In some way I welcome the fact that it is possible to argue that other people are entitled to similar advantages.

The beneficial deal that the judges are receiving here does not consist just of the scale of the benefits, although they are undoubtedly good. There is also this special issue of the tax treatment; it is a slightly separate issue. The Minister needs to bear in mind that his colleague the Chancellor of the Exchequer has frozen the limits on the lifetime allowance and the annual allowance for prolonged periods, and this is having an increasing impact on people’s pensions. It is now reaching well beyond those who might be characterised as high earners. It is reaching down and becoming a problem, not for people with average earnings but certainly for those well below the rate at which the upper-tier tax rate comes into effect.

There is an issue here that the Government will need to confront. I understand that this is not in the Minister’s remit, but I am just flagging it up. It cannot be said that this problem applies only to the judiciary. It is a general issue and will become increasingly difficult for the workforce, given that the limits are currently being frozen for prolonged periods. One suspects that what the Chancellor has in mind here is increasing public revenues, but there is inevitably a cost to be paid in its impact on people’s pay.

We touched on these issues when the Bill—now Act—was going through, but I think our focus was on other issues; I mentioned these points in passing. Given the regulations, I emphasise that I do not think these issues are quite as self-contained as the Government suggest.

The temporary reduction is an interesting development. It is very scheme specific, but it is an issue raised by a number of the public sector schemes. Given that we have now passed the deadline, do we have any idea at this stage how many members have opted for the lower-rate contributions? The difference in what they are being asked to pay is not all that substantial, but one understands the sensitivity of take-home pay, even for judges. It would be interesting to know whether any figures are available. We are now into the new scheme, so presumably people must by now have opted for the lower or the higher rate, and it would be interesting to know what impact that option has had.

As a final point, I just wish that the terminology was slightly different. This has been referred to—I raised this point when we were discussing what is now the Act—but I struggle with the concept of tax being unregistered. To me, a “tax unregistered” scheme is a scheme where people and their employers are not entitled to any tax relief at all. However, in this case, they clearly are entitled to tax relief so the term “tax unregistered” does not make a lot of sense in practice. Given more time, a more judicious term—I am not making a pun—could have been used for these circumstances.

My Lords, I do not know whether the noble Lord has come to the end of his remarks; it appears that he has. There is a Division in the Chamber. The Committee will adjourn for as long as it takes for noble Lords to vote—perhaps not less than five minutes and not more than 10—but we will go with the flow.

Sitting suspended for a Division in the House.

My Lords, on one level, I do not object to this legislation. In 2015, I think, the Finance Act made yet another round of changes to the various pension rules in our usual, chaotic way because we do not have properly consolidated legislation. Nobody recognised the unintended consequences that would flow from that for a wide range of taxpayers.

I am entirely with the noble Lord, Lord Davies of Brixton, on this: it was not just judges who found themselves in an unacceptable position that made it difficult to recruit and retain. We have had the same thing with senior medics, as he said, and senior people in the military. After ignoring the problem for months—people were constantly trying to raise the issue with them, for perhaps more than a year—the Government finally recognised that something had to be done. They have made different changes in different situations. I suspect that the temporary fixes that were put in place for the medics, military and senior civil servants will now run into serious trouble, given the inflationary pressures that will push up wages and the freezing of various thresholds.

I must say that judges clearly have the ear of those in power in a way that other professions do not. They have done an absolutely brilliant job of managing to carve out a solution that protects them entirely from the impact of those thresholds, which essentially meant that every additional penny people earned required them to pay a huge number of pounds in additional tax—talk about badly drafted legislation that was not thought through. I was particularly involved with some members of the military. We now have almost no three-star colonels as a result of people leaving that profession, and we had so many consultants, even during Covid, going out and working over weekends but knowing that it would have an awful impact on their take-home pay because of tax consequences which were probably never originally intended. I do not have a problem with that, but here is my problem.

The Government say that they have put in place the new scheme to deal with the threshold problem, and that it will cost an initial £20 million a year. That is not that much; what I object to are the other measures that the Government have taken to offset the full cost of the scheme. One change which flows from it is to raise the retirement age of judges from 70 to 75. I am afraid I was involved only in the early stages of the Bill but was then trying to juggle too much legislation and relieved of duties on it.

The Minister said that we must have a scheme that encourages recruiting and retaining the highest calibre of judges. Unfortunately, over many years—this country is like many others on this—we apparently looked at those who were women or people of colour and decided that they did not meet that high calibre, on the grounds of either their gender or race. We have embedded discrimination that has affected the shape of our whole legal system. In this day and age, we find that unacceptable and are attempting to change it fundamentally but it has been a very slow process.

The Government produced a judicial diversity statistics report in 2021. The higher courts in this country in no way reflect our population among their judges—not by a wide margin. That flows out in all kinds of ways. When judges are appointed, an eligible pool is first identified and then there are recommendations for appointment. I read from the Government’s report:

“From the eligible pool, recommendation rates for Asian, Black and Other ethnic minorities candidate groups were an estimated 36%”—

that is for Asians—

“lower respectively compared to White candidates.”

For black candidates, they were 73% lower respectively compared to white candidates and for “Other ethnic”, which I think includes mixed-race people, 44% lower. The report noted:

“All of these estimates were statistically significant.”

It goes on:

“The proportion of Asian and Mixed ethnicity individuals in the judiciary has increased since 2014, while the proportion of Black individuals has stayed the same in that time.”

The number is shocking:

“As at 1 April 2021, 5% of judges were from Asian backgrounds, 1% were from Black backgrounds, 2% were from Mixed ethnic backgrounds and 1% were from Other … The proportion of ethnic minorities is lower for senior court appointments (4% for High Court and above) compared to others”—

that is for the entire cluster. The Minister will know that I could go on and on with similar statistics showing the lack of diversity in our more senior courts.

When the core legislation that sits behind this SI first came to the House, the noble and learned Lord, Lord Judge, gave an estimate that the Government have not challenged: that by extending the retirement age from 70 to 75, producing sets of judges on our courts who reflect the population was put back by 13 years. It is huge, and the report on diversity helps us understand why. It says:

“It is worth bearing in mind that changes in representation will always be gradual due to the relatively low numbers of joiners to and leavers from the judiciary each year”.

The number of leavers from, and therefore joiners to, has been dramatically slowed by that increase in the retirement age.

I understand the concern of many people who become judges. They step away from very lucrative practices and cannot take side business to enhance their income. They are concerned about the impact on their pensions for the rest of their lives, and therefore they are keen to keep working longer. I notice that we have Members of this House, often with friends whose calibre they admire and whose skills they regard very highly—I have no question about that calibre and those skills—who are very supportive of allowing people to extend their working life from 70 to 75. But no one has been able to give me any satisfactory answer on the issue of diversity and courts where the judges reflect the make-up of our population.

I know there are various programmes to get more and more people from different backgrounds into the legal profession, but that is at the beginning of the pipeline. At the end of the pipeline, in effect, a major block has now been put on that progress. The consequence of trying to save them money has driven the impact of this statutory instrument, so I would like to know why the Government did not simply decide to bear the additional cost—I am not sure what that number would have been, but I doubt it is huge—and allow diversity to come into our courts in the way it would have with the retirement age of 70. We need to understand how the Government set their priorities and how much they thought was too much to spend on avoiding 13 years of delay in getting senior courts that reflect our nation, which I think is fundamental in any democracy. There will be a number, and I am sure the Minister is able to give it to us.

My Lords, I thank the Minister for introducing this statutory instrument. The parent Act to it, if I can call it that, is the Public Service Pensions and Judicial Offices Act 2022 and the Explanatory Memorandum states:

“These regulations establish the Judicial Pension Scheme 2022 … a scheme for the payment of pensions and other benefits to, or in respect of, eligible members of the judiciary … The JPS 2022 will be the only judicial pension scheme in which eligible judicial office holders can accrue a pension for service from 1 April 2022, on which date all other judicial pension schemes will be closed to future accrual”.

The scheme is made by the statutory instrument which we are dealing with today.

In his introduction, the Minister rightly said that the objective is to attract and retain excellent judges and to diversify the cohort of judges who apply to the court. The noble Baroness, Lady Kramer, majored on that issue and I will come back to it later in my comments. It is right that the noble Lord pointed out the substantial contribution that the legal services industry makes to the national Exchequer. He mentioned the figure of £29 billion a year and it is clearly right that we should support that. He also gave examples of judges being caught by lifetime tax limits on the amount that they can put into their pension schemes and reiterated the point about getting the best people to apply.

My noble friend Lord Davies made a substantial contribution to the Public Service Pensions and Judicial Offices Bill when we dealt with it relatively recently, for which I was personally grateful. He made a very fair point: it is difficult to constrain unique circumstances. He used those exact words, and it was an interesting challenge for the Minister. I agree that judges are special people in the way that we run our society, but there are other special people as well, as both noble Lords who spoke before me have said. Everybody, including humble citizens who just have an ordinary pension scheme, is suffering from the freezing of the overall pension pot and of the amount of money that one can put in regularly.

Turning to the contribution of the noble Baroness, Lady Kramer, perhaps I might give a brief anecdote. One of my magistrate colleagues has recently been appointed as a judge. His career profile is interesting: he qualified as a barrister and then, when he was in his early 20s, decided to become an airline pilot. He worked as a pilot for nearly 20 years, at the same time as sitting as a criminal and family magistrate. He has just resigned from the magistracy and is sitting as a criminal recorder—in south Wales, as it happens. That is a good example of widening the cohort, which is to be welcomed. But the noble Baroness raised a much more substantial problem about the lack of diversity among judges, particularly senior judges, and gave some stark statistics of which I suspect the Minister is well aware.

The noble Baroness also made the point about the delaying effect of the extension of the retirement age from 70 to 75. I know that she made that point at Second Reading of the Public Service Pensions and Judicial Offices Bill, because I was there. I was very sorry that she could not follow that up in later stages of the Bill because I moved an amendment to make the retirement age 72 rather than 75, partly to mitigate the effects that she talked about. Unfortunately, that amendment was not won. Nevertheless, the substantive point remains: there is a very long way to go to diversify the judiciary, particularly the senior judiciary. I will be interested to hear the Minister’s answer as I know that he is very much aware of that issue.

However, we on the Opposition Benches support this statutory instrument. I suspect that this is not the last we will hear of it, as it seems to be an iterative process to amend public sector pensions and judicial pensions, but we support the instrument.

My Lords, I am grateful to all those who have contributed this afternoon. I will try to respond to the points that have been made because I apprehend that there was general support for the overall aims of the scheme. Therefore, I will not reiterate the points I made in opening.

One point I said I was going to come back to, but then remembered I had not, was on timing. I want to explain why we are using the “made affirmative” procedure. That is simply because it was considered—with hindsight, correctly—that it might be the case that we could not get this before the Committee until after 1 April. That would leave two alternatives. The first would be to have a gap in the scheme. Even I, who is pretty untutored in pensions—I am conscious that we have the noble Lord, Lord Davies of Brixton, here—know that that would not be a good thing. Alternatively, we could try to start the new scheme not on 1 April, but we were told that would not be a good thing either and would lead to complexity. That is why we are using this procedure. I therefore hope that the Committee is aware of that.

I will respond to the substantive points. The central point that the noble Lord, Lord Davies of Brixton, made was that judges might be in a special circumstance but it is not just them—other people can be as well. Indeed, it is fair to say that the noble Baroness, Lady Kramer, and the noble Lord, Lord Ponsonby of Shulbrede, made a similar point. As a Justice Minister, I should underline that judges are in a special position when it comes to their constitutional role, but that is not the basis on which the special treatment, so to speak, applies here. It certainly has nothing to do with denigrating the work of any other public servants, whether they be medical professionals, in the military or the police, nurses or anybody else.

The issue with judges is this: unlike in many other countries, we do not have a career judiciary. We have a system where people generally practise as lawyers—sometimes as aircraft pilots as well—and then become a judge. That means two things: first, that people become judges later in their career; and, secondly, that they are likely to have built up other pension provision because, when they were in their 20s, 30s or perhaps 40s, they did not know and certainly could not guarantee that they were going to become a judge.

The proof of the pudding was in the eating. In 2015, when we moved away from tax unregistered—I will call it that but I hear where the noble Lord, Lord Davies, was coming from—the feedback was that that was a real disincentive to recruitment and retention. Indeed, we had a number of competitions where we were not filling as many judicial posts as we wanted. Therefore, although I certainly do not want this to be seen as in any way denigrating anybody else, whether in the medical sector or the military, judges have a particular background before they become judges that sets them apart from other public sector workers.

The noble Lord, Lord Davies, also made a point about the Chancellor freezing lifetime limits. He then offered me a way out by saying that he noted this issue is not within my particular remit. I gratefully grasp that rope. I hear the point that is being made but this is obviously not the place to debate pensions policy generally. I am sure the noble Lord will pick this up with my Treasury colleagues in due course.

The noble Lord asked a specific question as to the number who have taken up the option I mentioned. The position is that the option is open until 30 June so I do not have a figure but, in any event, it would not be meaningful. I do not know whether that figure will be made public. I respectfully suggest that the noble Lord waits until after 30 June and then finds me, either formally or informally, and I will see what I can do.

The noble Baroness, Lady Kramer, made a few points. Obviously, she referred to the point about other professionals; I hope that I have dealt with that already.

I think the noble Baroness made two other linked points in some detail. The first was the retirement age changing from 70 to 75, and the second was diversity. She is certainly right that diversity remains an issue in the judiciary, particularly the higher judiciary. I would say, however, that diversity remains an issue in the legal profession generally. It is quite good at the lower end, among people going in, but there is a real problem with diversity among senior solicitors and senior barristers. That is not an excuse, but it is relevant to judicial diversity. If that is the pool you are fishing in for the more senior roles, it necessarily remains an un-diverse role.

Unfortunately, I handed my notes to Hansard, but I think that if the Minister looks at the diversity report he will discover that yes, there are fewer people in the pool but those who are recommended from within the pool have a relatively low appointment rate—in fact, dramatically lower—than white male candidates, so it is not just a pool problem but what happens as people are selected, or put themselves forward, from that pool.

I am very happy to accept that. I was not putting forward the point I just made as the only reason; there are a number of factors here. I know that the department and the Judicial Appointments Commission have been encouraging people to apply. Too few people apply, and of those who apply, the acceptance rate is also lower.

I do not want to throw statistics around, but there has been some improvement. For example, women now make up 50% of tribunal judges and, since 2014, the proportion of women judges in all courts has improved by nine percentage points to 34%. When it comes to minority ethnic background, however, there is still a long way to go. Black, Asian and minority ethnic judges are 9% of court judges. That is a three percentage point increase since 2014 but, as the noble Baroness pointed out, one problem in this and other areas of lumping together black, Asian and other minority ethnic is that particular problems for particular groups within that cohort can be overlooked. I heard what the noble Baroness said when she drilled down into the statistics. We are very conscious of that; there is more to be done, but it is an issue to which we are very alive.

However, I say respectfully that to link that too closely to the increase in retirement age is unwarranted. There was quite a lot of debate on this when the Bill went through. I do not have all the statistics at my fingertips, but I recall that the difference in diversity impact between, for example, 72 and 75 was, we estimated, pretty marginal. It is not really an either/or: it is not a question of saying that we can either have better diversity or increase the retirement age. The increase in the retirement age from 70 to 75 is expected to retain about 400 judges and tribunal members, in addition to about 2,000 magistrates, annually. That is very significant because, as I have said in other fora, the real issue we face at the moment, certainly when it comes to the criminal justice system, is judicial capacity—a lack of judges. We are very concerned to make sure that we have enough judges, and increasing the retirement age from 70 to 75 will, we hope, have a very significant impact in that regard.

The noble Lord, Lord Ponsonby of Shulbrede, also made the point that judges are a special case and reiterated the points on diversity I have just addressed. I am conscious that he put down that halfway house amendment suggesting 72. One issue that has an effect on this House—the noble Baroness, Lady Kramer, mentioned that we are fortunate to have a number of judges here—is that if we are to continue the position of not appointing sitting judges here, increasing the age to 75 will have an effect on the judicial input of the House. That is perhaps something we need to think about as well. As a Minister, I find their input extremely useful—I did not say helpful—informative and interesting.

I hope I have responded to the main points raised. I am conscious that each of them could be a debate in themselves, so I hope it is not taken amiss if I do not deal with them in any more detail. For the reasons I have set out, I commend this instrument to the Committee.

Motion agreed.

Committee adjourned at 5.56 pm.