Tuesday 12 July 2022
Arrangement of Business
My Lords, if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
United Kingdom Internal Market Act 2020 (Exclusions from Market Access Principles: Single-Use Plastics) Regulations 2022
Considered in Grand Committee
That the Grand Committee do consider the United Kingdom Internal Market Act 2020 (Exclusions from Market Access Principles: Single-Use Plastics) Regulations 2022.
Relevant document: 5th Report from the Secondary Legislation Scrutiny Committee
My Lords, this instrument was laid in draft before this House on 9 June. It makes an exclusion from the market access principles of the UK Internal Market Act, or UKIM Act, for legislation so far as it prohibits the sale of single-use plastic straws, stemmed cotton buds, drinks stirrers, plates, cutlery or chopsticks, balloon sticks, food containers, drinks containers or cups made wholly or partly from expanded or extruded polystyrene. I will cover both the reasons for and the impact of this instrument, starting with the former.
This instrument is being brought forward following an agreement under the provisional Resources and Waste Common Framework. The exclusion made in the instrument is necessary because all four nations share an ambition to tackle plastic pollution. This instrument furthers that ambition while recognising the need to protect the integrity of the UK internal market against future barriers to intra-UK trade.
Legislation banning the sale of the single-use plastic items covered by this exclusion has been introduced, will be introduced or has been consulted on being introduced in all four nations. However, there is a difference in the timing of these bans, which means the UKIM Act has an impact on the ability to implement such legislation.
The UKIM Act contains two market access principles: mutual recognition and non-discrimination. The principle of mutual recognition introduced by the Act means that a good that can be lawfully sold in the part of the UK in which it has been produced, or into which it has been imported, may be sold in any other part of the UK without needing to comply with any relevant requirements applying to the sale in that other part of the UK. The principle of non-discrimination means that the sale of goods in one part of the UK should not be affected by directly or indirectly discriminatory relevant requirements towards goods that have a relevant connection with another part of the UK.
I will now briefly outline the impact of this statutory instrument. The exclusion from the market access principles created by it means that the principles will not apply to legislation so far as it prohibits the sale of single-use plastic straws, stemmed cotton buds, drinks stirrers, plates, cutlery or chopsticks, balloon sticks, food containers, drinks containers or cups made wholly or partly from expanded or extruded polystyrene. For example, from 1 June 2022 it has been illegal to sell a single-use plastic plate in Scotland. The exclusion introduced by this instrument will mean that single-use plastic plates produced in or imported into other parts of the UK cannot be sold in Scotland, regardless of whether there is an equivalent ban in place in other parts of the UK.
The requirement in Section 10(7) of the UKIM Act for the Secretary of State to have regard to the importance of facilitating the access to the market within GB of qualifying Northern Ireland goods has been considered. The supply of the items covered by this exclusion is banned in Scotland and the Welsh and UK Governments have consulted on banning the supply of these items where it is not already banned. The relevant EU directive—article 5 of the single-use plastics directive—under annexe 2 of the Northern Ireland protocol, once implemented, will have equivalent effect to the proposed and existing legislation in Scotland, England and Wales, with the exception that legislation in Scotland, England and Wales will not encompass items made from oxodegradable plastic. As such, it is not thought that there is a need to make additional or separate provision to maintain access to the market within Great Britain for these single-use plastic items.
A full impact assessment has not been prepared for this instrument because it does not impose any new requirements. This instrument will affect the application of the Environmental Protection (Single-use Plastic Products) (Scotland) Regulations 2021 and any forthcoming regulations in England and Wales that ban the supply of the items covered by the exclusion. Any impacts on those regulations have been considered in the case of the Scottish regulations and will be considered in the case of any forthcoming regulations in England and Wales. Ministers from the Welsh and Scottish Governments have consented to the making of these regulations.
The Secretary of State will publish a statement in accordance with Section 10(11) of the UKIM Act explaining why these regulations will be made without consent from the Department for the Economy in Northern Ireland. To summarise, as this legislation is of a cross-cutting nature, it would normally require referral to the Northern Ireland Executive as per Northern Ireland’s Ministerial Code. This has obviously not been possible due to the ongoing absence of a First and Deputy First Minister in Northern Ireland, meaning the Executive cannot meet. My officials have however continued to engage at official level with the relevant Northern Ireland departments in the development of this legislation and there has been engagement with the Minister for Agriculture, Environment and Rural Affairs, Edwin Poots MLA, and the Minister for the Economy, Minister Lyons MLA, who have not raised any objections to the proposal.
The exclusion introduced by this instrument recognises our shared ambition across the UK to tackle plastic pollution while recognising the need to protect the integrity of the UK internal market against future barriers to intra-UK trade. I believe this shows that the process for considering UK Internal Market Act exclusions in common framework areas is working as intended. I commend these regulations to the Committee and I beg to move.
I welcome, for the most part, the instrument which is before us this afternoon. I have a number of questions to put to my noble friend.
First, there seems to be an obvious exclusion from the list that has been given: wet wipes. I am sure my noble friend will agree that wet wipes, although they are sold in a pack, are causing huge damage, and it is something that we have looked at in other statutory instruments. I am looking at a report called Bricks and Mortar 3 about how to prevent flooding, and one of the issues that causes flooding, as we remember from debate on what became the Environment Act, is wet wipes mixing with fats, oils and grease in the water courses, causing flooding and a blockage in the system. I know we discussed cotton buds as well—I do not know whether they are here—but I would ask why cotton buds and wet wipes are not included since they do enormous damage.
I commend Scotland, which I see has already banned the sale of single-use plastic plates, and I wonder whether we are going to follow suit. My noble friend has said on a number of occasions that we are going to ban single-use plastics, and I was rather expecting a whole raft of statutory instruments in this regard. I know the noble Baroness, Lady Jones of Whitchurch, has held the Government’s feet to the fire over this, and has never missed an opportunity to do so, but we have not seen any of those statutory instruments.
A report published today shows that 96.5 billion items of plastic are thrown away by UK households every year, and only 12% of that plastic is recycled. As to why there is such a low percentage, could my noble friend tell us what is happening while these items remain in circulation, in whichever part of the internal market of the United Kingdom we are talking about? When are we going to have clear advice to each household, irrespective of where in the country you live, as to how to dispose of single-use plastic? For example, if you had a single-use plastic plate at a picnic and it has tomato sauce or oil all over it, if you put that in a recycling bin, is it not the case that you are contaminating the whole content of the bin? So where are we today on ensuring that the best advice is being given across the piece, so that there is uniform advice, even if it is just in England—although I would prefer it to be across the whole of the internal market of the United Kingdom—to prevent cross-contamination leading to less plastic going to recycling than would otherwise be the case?
I understand that no exemption has been extended to the ban on the supply of single-use plastic items in the UK. If I am correct in my assumption that we are allowed to use these on board aircraft, that seems bizarre. Could my noble friend explain why that has been extended?
In so far as this seems to relate to non-discrimination and having the same rules of circulation apply, I welcome what is in the statutory instrument. I just regret that it does not go nearly as far as I would have hoped, and when might we get the other statutory instruments which we were promised under the Environment Act? I would welcome answers to my questions from my noble friend.
My Lords, I thank the Minister for his efficient explanation. I too read the report to which the noble Baroness, Lady McIntosh, referred. I saw it in the Times and the Daily Mail.
In the helpful Explanatory Memorandum, reference is made in paragraph 13.1 to regulating small business. Has the Federation of Small Businesses been consulted? At this point it seems to be central, although I should say that I hold no personal brief for the FSB in any way.
Paragraphs 12.1 and 12.2 refer to impact. It is early days, but have Scotland and Wales yet set out their impact assessments? It is also clear that in all of this Scotland has been ahead of the game since June. Is there any intelligence yet as to how things are moving in Scotland? How was Scotland consulted? Was it simply by Zoom or was it between officials? Was it done personally by Ministers or was it done by phone? “Consultation” can mean many things.
Similarly, at paragraph 7.1, how was Wales consulted? To whom did the Minister talk? Did he talk to the Cabinet Minister for agriculture in the Senedd? If I may set him and his excellent officials in the department a challenge, can he tell me the name of the Welsh Minister for agriculture sitting in the Cabinet?
My Lords, I rise wearily to my feet on this issue of single-use plastics. I agree almost completely with my noble opponent, the noble Baroness, Lady McIntosh. She is absolutely right that this does not go far enough—of course it does not, we have been talking about this for decades. This statutory instrument is on the right path but is still nowhere near enough.
Where I disagree with the noble Baroness is on the fact that it is not only households but councils that need to know. As we have said lots of times before, we need one system across the whole of Britain. I was watching an episode of “The Outlaws”, a comedy drama with Stephen Merchant, and in it a very large, angry drug dealer told off his lieutenant for putting a tomatoey pizza box in the recycling. I thought that that was probably much more effective than government education. Even so, the Government have a role in educating. Still people still do not see—perhaps the Government themselves do not see—that most of the 8 billion tonnes of plastic produced since the 1950s is still in existence: in our drinking water, our soils, our animals, our fish and our air, and even, apparently, in our beer and, I suspect, our wine.
Every time we get a promise from government, it is inching towards what we need, which is a total ban on plastic. It seems that every time we get a small bit of progress, the Government pat themselves on the back and then take ages to get to the next bit of progress. For example, we used to have bottle deposit schemes. It is not as though we do not have the knowledge of how to implement these things. We can do it. We did it with an awful lot less technology 70 years ago, so why not do it now?
Of course, with a ban on all single-use plastic, we would get to the point where unnecessary items were not made at all. If you think that 40% of the plastic produced goes into single-use packaging, that is fairly shocking, even before you consider that the world total is more than 300 million tonnes each year.
It is exhausting to keep coming back to this issue. I am sure the Minister does his best, but I cannot say the same for the Government. I understand that they are struggling a bit at the moment to be coherent but, even so, I plead with them to do better—I am sure they could. We need to educate everybody in plastics pollution, including all the contenders for the leadership of the Tory Party, none of whom has mentioned the climate crisis or the environment. I suspect, therefore, that none of them will be interested in plastic pollution. So, I welcome this in a very limited and specific way.
My Lords, I very much welcome these regulations. I should explain that I am a member of the Common Frameworks Scrutiny Committee and it is in the light of my experience on that committee that I extend this welcome. I am delighted to see the noble Baroness, Lady Randerson, here with us, because she too is a member of that committee and will understand the points that I am about to make, although I have not discussed them with her.
The Explanatory Memorandum explains the position clearly. In his introduction, the Minister touched on these points. It is important to understand that these regulations have a specific and—unfortunately, from the point of view of the noble Baroness, Lady Jones of Moulsecoomb—rather limited purpose. As described in paragraph 7.1 of the memorandum, their purpose is to give effect to the
“agreement reached under the provisional Resources and Waste Common Framework … that has been developed by the Department for Environment, Food and Rural Affairs, the Scottish Government, the Welsh Government”—
I think I am right in saying that this is the first time that an agreement reached under a common framework has found its way through to a regulation, which is why this is a significant moment, particularly for people who believe, as I do, in the value of common frameworks.
The Minister may understand that the frameworks were devised by the Joint Ministerial Committee on EU Negotiations to find a means of reaching agreement among the various components of the United Kingdom to create an internal market for the UK in place of the EU market we were leaving. The point was to put in place structures that would focus on areas formerly governed by the EU under EU regulations to enable the UK internal market to function. The important point in the communiqué that was delivered in October 2017 was that policy divergence among the various parts of the UK would be encouraged and permissible.
The memorandum explains well that the internal market principles in themselves would not enable the Scottish regulations being discussed to receive their effect in Scotland, because the principles would allow people who did not comply with the rules under the Scottish regulations to trade in a way that was inconsistent with them—they would have a right to do so under the internal market principles. As the memorandum goes on to explain, the effect of an amendment to what became Section 10 of the United Kingdom Internal Market Act, which is the basis for the Minister’s regulations today, enables these regulations to be made, which provide the effectiveness that the Scottish regulations need so that they are enforceable in Scotland. That is what the regulations are designed to do and that is why I very much welcome them. They are the first step in what I hope will be a fairly well-understood method of dealing with these things.
As the noble Lord, Lord Jones, said, the Scottish Government are leading the way on the control of single-use plastics. The Welsh had done so already, before the internal market came into effect, and their regulations are preserved by the United Kingdom Internal Market Act, because they preceded it. The Scottish regulations need the protection that these regulations are providing them so that they will receive the same effect in Scotland as they do in Wales. This is just one example—there could be others—of the way in which these devolved Administrations with rather simpler single-Chamber systems are able to forge ahead and produce results that benefit the environment. I quite understand the frustration expressed by the noble Baroness, Lady Jones of Moulsecoomb, at the way in which England is still to catch up, but that is not the problem for today. The solution achieved today is to protect the Scottish system.
I am not going to say very much more, because it is so well explained in the memorandum, but I have a particular point for the Minister, which he might like to reflect on. I had great difficulty when the internal market Bill passed through the House in the late summer of 2019 in trying to persuade the Government to recognise that common frameworks had a part to play at all in the creation of the internal market. I must say that I owe a great debt to the opposition parties, the Labour Party and the Liberal Democrats, for the support that they gave to me over a series of amendments, which eventually had the effect of persuading the Government to introduce a subsection into what is now Section 10 to enable common frameworks that were the subject of agreement to be recognised. That is exactly what we have here.
The point that I really want the Minister to recognise is that we can now see how the system can be made to work in practice and the benefits that come from supporting agreed initiatives by the devolved Administrations such as this one to receive effect. I hope that there will now be a more relaxed and co-operative approach that will enable us to move forward in similar cases in future. I think that I am right in saying that, in Wales, the case of plastic bags is an example of what might happen in future—but there will be others. There may be other things to come, as paragraph 6 of the Explanatory Memorandum explains to us. I hope, therefore, that the Minister recognises the value of what we are doing today and the way in which it could be a way forward to support initiatives that have been taken in various parts of the UK for the benefit of us all, and indeed for the benefit of the environment.
My Lords, perhaps I could just take up a theme from the noble Baroness, Lady Jones of Moulsecoomb, around the leadership campaign that is going on at the moment at the other end of the Palace, and to thank the Minister for intervening in that debate and reminding people, along with his right honourable friend Chris Skidmore, that climate change is a pretty important subject. If it is junked by those candidates, that is bound to have a severe effect not just on our planet and country but probably on the party as well. I hope that he has luck in that mission, but I am doubtful to a degree, unfortunately—and I say that with great gravity.
I intervened only to a certain degree during the passage of the United Kingdom Internal Market Bill, which was fairly fraught, during the lockdown and the Covid crisis. I seem to remember all sorts of confusion between mutual recognition and non-discrimination and the two being mixed up by a number of the speakers who maybe should have known better. The question that I got involved on was exactly this one, around how we make sure that environmental protections that are part of devolved authorities’ programmes are not overridden by those principles, so they can be enforced within those national boundaries. Therefore, I am pleased by and welcome this SI in making that possible in part, so that environmental protections in the devolved authorities and nations can be enforced and not overridden by imports from other parts of the UK. I very much welcome that.
As noble Lords have said, the reason why this is an issue practically at the moment is that in England, the most populous part of the United Kingdom, we are very much behind the times. Scotland, Wales and even Northern Ireland are ahead of us in terms of these restrictions on single-use plastics. I understand that, after going through this consultation, the earliest we in England will be implementing similar regulations is April 2023. Although nearer than it was, this is still some time away. Perhaps the Minister can find a way of making that quicker. I would be interested to hear his views on that.
I also understand that there is this strange issue of plastic straws in pubs, which you will continue to be able to use—not that I would, obviously—even when they are banned from retail. I would be interested to understand whether that has been resolved yet.
To me, the bigger issue on single-use plastics is still export. There were a number of areas in the 2019 Conservative manifesto around levies on single-use plastics, particularly around export to non-OECD countries. I have certainly become more and more of the opinion that that should be much tighter—maybe we should even export only to EU or G7 countries. I would be very interested to understand from the Minister where we are on that and the various provisions made in the Environment Act. I remind Members that last year we exported some 770,000 tonnes of plastic waste abroad. Those are staggering figures and reflect some of the figures from the noble Baroness, Lady McIntosh.
This is an area where clearly we need urgent action. We should be a leader, not just nationally but internationally, and I look forward to the Minister’s response on where we are on this much broader agenda as well.
My Lords, I thank the Minister for his introduction and the Secondary Legislation Scrutiny Committee for drawing this SI to our attention. I add my support to the point made by the noble Lord, Lord Teverson, about the Minister, and thank him for addressing the candidates to be the next Prime Minister and keeping their feet to the fire on the environment. Although we have had our occasional disagreements in the past, nobody doubts his passion and commitment on this issue. I hope he keeps fighting that battle.
Like other noble Lords, I accept that this SI is becoming necessary following the agreement with the devolved Governments in the Resources and Waste Common Framework. I was grateful to the noble and learned Lord, Lord Hope; I did not realise we were making history in the way he suggested and that this was the first time an agreement on common frameworks was finding its way into regulation and statute. Obviously, that is something we should celebrate. I thank him for drawing that to our attention.
I will raise one practical thing, which is that the Resources and Waste Common Framework is still referred to as “provisional”. Perhaps the Minister can clarify when that will be a final agreement. I do not have a problem enacting it, but if it is only provisional presumably there is a final sign-off to take place at some point. I would be grateful if he could advise what the process is for that to happen.
As noble Lords have said, it is obviously welcome that all sections of the UK are now taking co-ordinated action to ban the use of certain single-use plastics, as set out in the SI. As I said, I do not have any objections to the SI, but I have a couple of questions about the implications for further actions on plastics. Are the UK Government planning to ban further categories of single-use plastics? We know that it is only a very limited list at the moment. If further single-use plastics were now being considered, would a separate SI be necessary to address the internal market implications of a ban on each occasion as it came on stream?
Secondly, as a number of noble Lords have said, over the last years the relatively slow pace of progress in England has been frustrating. We have heard again today that Wales and Scotland seem to be leading the way on this. Although we understand that it is necessary to consult before taking action, it is frustrating that Defra is doing this in a piecemeal manner and taking so long about it. I hope the Minister can give us some good news on that before we leave today.
Does the existence of the provisional Resources and Waste Common Framework mean that all four Governments will co-ordinate the passage of legislation and/or the date of application for further action on plastic and other polluting items? In other words, will they all carry on doing their own thing, or is there any hope that all four nations will move together at the same time on this? What might happen if, for example, a deposit return scheme, which we talked about earlier and which we know would put a value on returned plastic bottles, was introduced at different times in different nations across the UK? Would that have any implications for the internal market rules? If not, could there be broader undesirable consequences, such as huge quantities of plastic waste bottles being moved across the internal borders for financial gain? We are all trying to understand the full implications of this common framework and how that will apply in the broader sense.
Finally, what are the implications of the Government’s proposed legislation to repeal the Northern Ireland protocol? Although this instrument does not directly relate to the implementation of the protocol, would the passage of that controversial Bill impact on the controls on relevant goods in Northern Ireland? What would happen if the EU-derived ban on these products fell away? Is there other legislative underpinning for such bans, or would new legislation be required? I hope the Minister could enlighten us a little more on the implications of the desire of some of the candidates in the prime ministerial elections to rip up the Northern Ireland protocol and what that would mean for us. I look forward to his response.
I thank noble Lords for their contributions to this debate. Although the instrument that we are discussing is fairly narrow, the topics covered have been very broad, and rightly so. Pollution does not recognise borders, and co-operation between the four nations is key.
There was some criticism that the SI does not go far enough. I would make the point that it is specifically focused on the Scottish regulations; that is its purpose. A broader, very valid question was raised about whether the policy package on plastic itself goes far enough. I do not think that is directly relevant to this SI, which does a particular job. I think most people have agreed in their speeches that the job is necessary and that this needs to happen.
Before I come to that broader question, I will try to address a few specifics. The noble and learned Lord, Lord Hope, made the point that Scotland is in many ways leading the way on plastic pollution. Although I do not think it goes nearly far enough, it is leading the way among the four nations and it can be proud of the trail that it is blazing. However, we work incredibly closely across the four nations on these issues. Maybe every now and again there is a bit of competition, but that is a good thing as long as the competition is upwards, not downwards, which is always a risk in politics, as we have seen today in some of the interventions that have been made by potential leaders of the Conservative Party. I will come to that point too in a few moments.
I will rise to the challenge from the noble Lord, Lord Jones, who asked me the Minister’s name, which is, of course, Lesley Griffiths. However, we have our own Welsh Minister in the environment department, Victoria Prentis. I think she is Welsh.
Very good, thank you. She works very closely on the issue we are discussing. I am merely her mouthpiece in this Room, because the domestic part of this is not directly part of my remit.
The noble Baroness, Lady McIntosh, asked about wet wipes, and she could have named any number of other products that have come under the spotlight. This goes to the broader question from the noble Lord, Lord Teverson, and the noble Baroness, Lady Jones, about whether the policy goes far enough. I can tell the noble Baroness, Lady McIntosh, that there was a call for evidence in relation to wet wipes and we are analysing its results. It seems inconceivable to me that at the end of this process we would not take the view that the noble Baroness and pretty much everyone who has spoken has taken on the issue of plastic waste over the few years that I have been here debating these issues. We recognise that this is a very serious environmental problem that needs to be resolved and can be resolved only as a consequence of government intervention. That is true in relation to a lot of other single-use plastic items.
The frustration that I have felt many times in exchanges with the noble Baroness, Lady Jones, on the piecemeal approach is one that a number of my colleagues share. It is necessary for us to go through a certain process; you cannot just, at the stroke of a pen, destroy a particular business model by banning something that is key to it. However, we do need to get to a point where we are simply not using, and where it is not permissible to use, single-use plastics when alternatives are there. There will be medical exemptions and certain other uses where single-use plastics are unavoidable, but as a rule it should be our intention to move as quickly as possible to the wholesale removal of avoidable single-use plastics. There are countries around the world—including Rwanda, which has been in the news a lot recently—which are ahead of us in relation to adopting a more comprehensive approach to tackling single-use plastics. The UK has done a lot of the running on this internationally, but we have a long way to go.
In answer to the noble Baroness’s specific question, yes, we would need separate SIs for additional bans that come after the bans that have already been announced, but I hope that we would be able to cluster as much as possible to avoid endless debates about specific things and, instead, to get on and really take a bite out of this problem in the limited time we have in Parliament. I very much share her concern about that, but this is not a consequence of reluctance on the part of Defra. I hope she understands that.
At both ministerial and official level, this is something that we are very keen to do, not least because getting our own house in order allows us to have a bigger voice internationally, as UK negotiators. I would like to take the credit as a Minister, but it is UK negotiators, who are always nameless in these things, who are responsible, more than those of any other country, for negotiating an agreement at UNEA for a global treaty on plastic pollution. They worked 24 hours a day. I spoke to the negotiators from many other countries who made a point of thanking me for the UK’s contribution. I cannot name them—you are not meant to do that; it breaks protocol—but it was UK negotiators who did that and we are now part of the process of pushing for the highest possible ambition.
If noble Lords do not mind, I shall branch out a little to address the questions on leadership, because this matters so much. The noble Lord, Lord Teverson, the noble Baroness, Lady Jones, and others expressed concerns about where we are going. I share those concerns and have expressed them, probably a little too noisily, in recent days. My appeal to anyone who might happen to be listening to this debate and to friends at the other end of the building is that we should not be focusing just on net zero.
There is so much focus on whether candidates are saying the right stuff on net zero, but it is a bit of a red herring. That is not because climate change is not an issue—clearly, that is not my view—but because we are already seeing the wheels spinning in terms of market action driving us towards a low-carbon future. We know that more money is flowing into clean energy today than into fossil fuels; that has been true for about six years. We know that the market has made that decision and that it is miles ahead of the politics. The United States under Donald Trump poured billions into trying to keep coal use going, but it fell faster on his watch than under President Obama, who was very keen to see the back of coal.
It is almost irrelevant what the next leader does in relation to net zero over the next 18 months. We have a law. Parliament is not going to delegislate net zero; we all know that. It is simply not going to happen. It will remain our law until the next election. Were a party to enter that election promising to scrap the net-zero laws, that party would not and should not be elected. I do not think anyone would argue with that. The risks around net zero have been massively exaggerated by commentators. The real risk—it is huge—relates to the natural environment. There is no momentum behind protecting the natural environment. There is no market driving the reparation, restoration and protection of nature. That will happen only if Governments intervene; there is no other dynamic there. Yes, communities around the world are fighting to protect their environments, often against evil forces, but the pressure is one way and it is not the right way. Unless Governments write the rules and intervene, we will see absolute devastation.
To those who are tempted to see these as peripheral issues—as I know that some people in politics, perhaps including even some who are standing to be leader of the Conservative Party, do—I say that that is an absurd proposition. I have just come back from the Congo Basin. Science does not really know the value of the Congo Basin. We know some of the value—we know about its biodiversity, its carbon storage and all that kind of stuff—but we also know that it provides rainfall for most of the continent of Africa. We do not know exactly how much but we know it is pretty blooming important in terms of rainfall. Wipe out the Congo Basin—this peripheral thing, according to some of my colleagues—and you lose rainfall across the entire continent of Africa, or at least a very large proportion of it; you have hunger on a scale never seen before; you have a humanitarian crisis that we simply could not deal with in Europe. Look at the problems we have with a few regional areas sending their refugees our way—this would be on a scale the likes of which we have never seen before.
Look at the ocean: 250 million families depend on fish for their survival. What happens if we continue to deplete the world’s oceans in the way that we will if we do not see Governments intervening? We will have 250 million destitute families; we will have 1 billion people losing the fish on which they depend for their sustenance. These are really not peripheral issues. They are absolutely central.
I thank the Minister for his speech, because most of us would absolutely agree with it. I would have made the same speech during the passage of the UK Infrastructure Bank Bill, when the Government rejected including natural capital and biodiversity in the objectives of the UK Infrastructure Bank. That was a great shame, because that would have given equality to climate change, just as he is demanding.
The truth is that this fairly crude speech that I am delivering, which the noble Lord could deliver more eloquently, could apply to most of the topics that we debate, and that is the whole point. Nature is the source of everything, and it is astonishing to me sometimes that we have to make that argument.
Perhaps where I will part company with one or two people in the Room is in saying that over the last few years the UK has been a global leader on these issues. I would say it has been the global leader on many of these issues. It was the UK that created the coalition of 100 countries calling for 30% protection of land and sea by the end of the decade. It is the UK that is doing all the running in creating a coalition on illegal fishing. It was the UK negotiators, as I said, who helped get countries over the line in relation to the plastics treaty. There is no country in the world pushing harder for high ambition at the CBD Convention that is being held in Montreal. It was the UK that delivered the biggest-ever package of commitments around deforestation at COP 26. Subsequently, it is the UK that is leading the global dialogue to break the link between commodities and deforestation.
I really could go on and on with areas where it is the UK that is corralling the world into action and ambition on these issues. That is why the anxiety that has been expressed in this Room today about the leadership election has been expressed by leaders all around the world. I do not know who else they are talking to, but in my dealings as an Environment Minister negotiating a lot of these points, I have a lot of them on WhatsApp and I have had messages from countries big and small —from G7 countries to tiny little dots on the map in the Pacific—terrified about the prospect that the UK is going to crawl away from its international leadership position and go back in on itself and ignore and abandon the concerns I have been talking about today and which I know are shared around this Room.
I am sorry, I know the Whip is saying that we need to move on. I will just say quickly that I do not doubt the work that the Minister has been doing on an international level. I pay tribute to that. But back here, we have increasing frustrations about the implementation of the Environment Act and other domestic legislation that we have all worked very hard to craft. There are a lot of things that just are not happening at a domestic level. Coming back and driving that same agenda here in the UK—that is what we really need.
I do not doubt what the noble Baroness has said. There are lots of things internationally we could be doing. We should be taking a stronger position, in my view, on deep sea mining. None of the big countries is taking this seriously, but it is a threat to the seabed that is probably unmatched. There are lots of areas where I would like to see us toughen our position and take a more proactive approach.
There are domestic problems. We debated for hours the effects of sewage in our waters. It is not true to say that we have gone backwards. The laws today are stronger than they were when Boris Johnson became Prime Minister. That is an objective fact. You could argue that they have not gone far enough, but we have not gone backwards—and likewise on a whole range of the issues we are talking about today. I am not pretending that this Government are a paragon when it comes to the environment; no Government in the world are. I am saying merely that our Government have earned a global reputation for leadership on the environment which is, I think, unmatched around the world, and it is precious.
By the way, it is translated into soft power when it comes to dealing with things such as Ukraine. Talk to any of our ambassadors and they will tell you, as they have told me, and as they have told the Foreign Office in their dip tels, that our diplomacy on climate and nature has translated into votes on issues such as Ukraine. It really matters for some of those little islands. For some of these candidates, weather is something you hide from under an umbrella, or you might get bitten by a mosquito—that is nature, or nature is something you put in a plastic bag and sell. But for the countries around the world that depend directly on nature, in a way that we do not depend so directly here, this is existential, and our leadership has mattered.
My hope is—and I will do everything I can in the week or two that I have left in this office—to try very hard to shine a light on these issues, and encourage the candidates who eventually make it to the top to recognise that if they walk away from these issues, they not only will be punished by the electorate, they must be punished by the electorate. It is your duty, and our duty, and everyone else’s duty, to punish any leader of any credible party who does not take these issues seriously, because they do not merit the privilege of government if they do not.
This is completely irrelevant to the topic we are discussing today, but I could not miss the opportunity to share with you my rant and frustrations. I am going to stop there. Thank you.
Legislative Reform (Provision of Information etc. Relating to Disabilities) Order 2022
Considered in Grand Committee
My Lords, this is a short but important order that amends Section 94 of the Road Traffic Act 1988. It will allow a wider group of healthcare professionals to provide the important medical information that the Driver and Vehicle Licensing Agency needs to assess whether someone can meet the appropriate health standards for driving. This will reduce a burden that currently rests only with doctors.
This change will directly support the Department of Health and Social Care’s agenda to reduce bureaucracy in general practice. The Government recognise that we should be using the skills and expertise of other healthcare professionals, where appropriate. This in turn frees up time for doctors to focus on patient care.
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 the other place, as being appropriate for a legislative reform order with the affirmative procedure.
I will give a bit of background. The DVLA is responsible for deciding whether a driving licence holder or applicant meets the appropriate health standards for driving in Great Britain. The DVLA does this by assessing information about the individual’s health against medical criteria. This order does not change the DVLA’s responsibility for making driver licensing decisions.
All drivers and licence applicants have a legal obligation to notify the DVLA of a medical condition that may affect safe driving. In some cases, the DVLA can make a decision with the information provided by the driver. However, in many cases, additional information is required. By far the largest source of medical information is gathered from questionnaires that are completed by doctors from information held on the driver’s medical records. This service is provided outside NHS contracts; it is private work for which the DVLA pays doctors a standard fee.
Currently, the Road Traffic Act requires a driver to authorise a doctor who has previously given medical advice to them to provide information to the DVLA. In practical terms, this means that the DVLA can accept medical questionnaires only from a doctor. This is an unnecessary burden in this day and age, because not only doctors but many other qualified healthcare professionals are able to provide this information. Between 2016 and 2021, an average of 267,080 questionnaires were completed each year by doctors. It is estimated that each questionnaire takes 20 minutes, so I am sure noble Lords can appreciate that a substantial amount of time is taken up by those tasks.
I turn to the content of the order before your Lordships today. The current law was made in 1988 and does not really reflect current clinical practices. Often healthcare professionals other than a doctor may be primarily responsible for managing certain medical conditions. The term “registered healthcare professional” is used to describe a range of clinicians, including doctors and nurses. Changing the wording of the legislation from “registered medical practitioner” to “registered healthcare professional” will ensure that information can be provided directly by the most appropriate person.
The DVLA will take a phased approach and will initially ask for details of the driver’s doctor. The DVLA will write to the driver’s doctor, who will be able to pass the questionnaire to another healthcare professional for completion if they wish to do so. However, this change means that longer term, when a driver knows that their care is provided mainly by another healthcare professional, the driver will be able to authorise that healthcare professional to provide the information required by the DVLA. This will allow questionnaires to be sent directly to other healthcare professionals and will remove the need to include a doctor in the administration of the questionnaire. Before the DVLA begins to send questionnaires directly to other healthcare professionals, the department will write to the BEIS Committee with a review of the new process. This will provide reassurance to the committee that there are sufficient safeguards in place.
We have heard some concerns that healthcare professionals other than doctors may not have the knowledge to complete the DVLA’s medical questionnaires, but we are content that that is not the case. The DVLA recognises that a person’s medical history can be complex, but in many cases healthcare professionals other than doctors will be more than capable of providing the information needed. It is important to recognise that in this day and age many healthcare professionals are specialist practitioners—for example, diabetes nurse practitioners. Although some may feel that the GP’s overview of health is important, it should be noted that the DVLA’s questionnaire is about a specific medical condition and not about the person’s general health. It is about one condition and whether that may affect their driving. If that person has several conditions, there will be several questionnaires that will investigate whether that person is able to continue driving. The request is for the information, and then the DVLA makes that decision.
The order also removes the necessity for the person authorised to have personally given medical advice to the driver. This will address situations where the named doctor no longer has access to the information required, because the advice and attention was from many years ago, or the doctor has retired or moved to a different practice. We will amend the law to remove that requirement.
The DVLA consulted on this proposal. There were 411 responses to the consultation from the public, medical and healthcare professionals, and road safety groups. Almost 82% of those 411 people or groups who responded agreed with the proposal.
The aim of this measure is to update an outdated piece of legislation that does not reflect the way modern healthcare works today. We also see that it relieves a burden on doctors, which is why we have been able to use the legislative reform order route. Those doctors will be able to spend more time on patient care.
As I have noted, the measure will allow the most appropriate healthcare professional to provide the information, but I reiterate that it remains up to the DVLA and its doctors and medical experts, who will review that information, to make a decision about a driving licence application. I beg to move.
I thank the Minister for her very clear explanation. This seems a sensible streamlining of the legislation in accordance with the modernisation of clinical practice. It is welcome, because there are stories of drivers having to wait for excessively long periods for GPs to give their signature and hence their permission. That delay is undoubtedly largely because of the grave and worsening shortage of GPs in Britain. It is therefore really important that we use them in the most effective way.
I was pleased to see that the widespread response to the public consultation was overwhelmingly positive, and that the Secondary Legislation Scrutiny Committee agreed that the appropriate processes had been followed. However, I have two short questions for the Minister. First, what checks are there to ensure there are no abuses of this system? What will be done to review it? Whenever you introduce a new system, you need to look at it in the light of experience in case there is a weakness. Some respondents were concerned not just about abuse of the system but about the level of qualification of some of those healthcare professionals. That might be totally unjustified, but it is important that the review takes place.
Secondly, the DLVA is UK-wide, but healthcare is devolved. There are different approaches to the use of certain healthcare professionals across the nations of Britain. There are some areas where GPs are relied on more than in others, and the breadth of healthcare professionals used is greater in some nations. What consultation was there with the devolved Administrations about this to ensure that the legislation matches their approach to the use of a broader spectrum of healthcare professionals in the system?
My Lords, we will not oppose this instrument, which will allow a wide range of medical professionals to provide fitness to drive information to the DVLA. However, I hope the Minister can clarify five small points.
First, can the Minister explain why, according to the de minimis assessment, the net cost to business per year is £600,000? Secondly, has the department engaged with health workers’ representatives on this issue? Thirdly, the Explanatory Document notes that concerns have been raised that those other medical professionals might lack the required skills and knowledge. What monitoring will take place to ensure that this is not the case? Fourthly, the Explanatory Document refers to “professional indemnity”, which I could not fully understand. Could the Minister outline what the position will be when the instrument is approved?
Finally, the explanatory document, which is a significant step forward from what we have seen recently, tells me to contact one of the department’s civil servants, but sadly does not provide a telephone number. I know the Minister may find this trivial, but in the past— I have been doing these wretched EDs for decades—I have found that when you have a small point, it is most useful to pick up the phone to someone who is familiar with the document, and probably there will not even be five questions as a result.
I am grateful to both the noble Baroness, Lady Randerson, and the noble Lord, Lord Tunnicliffe, for their brief consideration of today’s order. Again, I apologise to the noble Lord, Lord Tunnicliffe, about the lack of a telephone number. My officials behind me have heard that, and I reassure him, and any noble Lord, that if ever they have any question about any legislation that I am doing, my door is always open and I will find an official who can answer their questions, big or small. However, obviously, it is not ideal not to have a telephone number in there, and we will do it in future.
The noble Baroness, Lady Randerson, talked about speed. Part of what we are trying to do here is to increase the amount of capacity within the healthcare system to allow the reports to come back more quickly. That will allow for quicker decisions for people who are waiting and hoping to get their driving licence back. Also, when a decision is made that, unfortunately, a driving licence needs to be revoked, that will also be done more quickly—so there is a road safety benefit element as well.
The noble Baroness picked up on the fact that this will be a phased introduction. In the first phase, things will still always go through the doctor before they go to any other healthcare professional. We will then ensure that we are not seeing any abuses and that the system is working well, and we will of course speak to doctors’ representatives—the British Medical Association and the Royal College of General Practitioners, the RCGP—to see how they feel it is going. We are not in a huge rush to move through the first phase, because the doctor is probably able to deal quite quickly with the decision, “Should I pass it on or do it myself?” So we will still be saving time, but I agree that we must make sure that this is working and that there are no gaps whatever in the system. When we are content that that is the case, we will write to the BEIS Committee, and I will be happy to share that with noble Lords so that they see the results of the review and the rationale behind us moving to a further phase—if indeed that is what we decide to do at that point.
The noble Baroness also mentioned that this statutory instrument is UK-wide—it is actually GB-wide, because Northern Ireland has a different licensing system—and that healthcare is devolved. I absolutely agree, and to a certain extent, this order links to however healthcare is organised in the devolved Administrations, because they can decide for themselves how they get the information back to the DVLA. Of course, we consulted with the devolved Administrations before we finalised the policy and there was broad support from them for the aim of removing a burden on the doctors by amending this law. We informed the devolved Administrations about the full public consultation, and we received supportive responses from officials, so I do not see any concern at this time that the devolved Administrations will find this difficult in any way.
There was a de minimis impact assessment, because it has very little impact on business per se. The businesses that it impacts are GPs’ surgeries, but they can choose whether they decide to put this into place. We think that a little familiarisation will need to be undertaken within GPs’ surgeries, but then it is up to them as to how they organise their business internally. The fees remain the same, so they will judge—certainly it remains a de minimis impact.
On engagement and consultation, we had some quite significant conversations with the British Medical Association and the Royal College of General Practitioners to put their minds at rest that in no way were we trying to force doctors to do anything at all. This is an optional proposal for them. They fully understood that we would never turn round and say, “No; we don’t want information from doctors any more”. We absolutely do—we want information from the right person, and that is absolutely behind what we are seeing here. DVLA officials have met with representatives from the BMA and the RCGP, and we will continue to have discussions with them as this rolls out.
Some people have raised a lack of skills and training. As I said in my opening remarks, we are content that the sorts of people who will be doing this are very skilled—in many circumstances we trust them with our lives, or at the very least with our health. There will be a definition of “healthcare professional”; so not just anybody who happens to work in a GP’s office will be able to do this. Anybody who does it will have to be, for example, a member of the General Optical Council, the General Osteopathic Council, or the Health and Care Professions Council; so they have to have professional membership. The other thing that the DVLA is very willing to do with regard to improving their skills and knowledge of this is to help develop the training. Often the training is provided by these professional organisations; the DVLA already works with some professional organisations to develop training, and although I do not believe that it would be particularly substantial, the DVLA stands ready to support them as they develop that.
I believe that I have answered all the questions, and if not, I will very happily write. No, I have not—I have just found the professional indemnity question from the noble Lord, Lord Tunnicliffe. This is a matter for the individual professional to discuss with the organisation that they work for, such as the GP practice or the NHS trust or board—or they may wish to seek advice from their professional organisation, for example the Nursing and Midwifery Council, for guidance on matters of indemnity cover. There is probably no one size fits all, therefore there will be lots of different ways to cover the professional indemnity. However, I point out, as I did in my opening remarks, that the DVLA remains responsible for the actual decision; the person is purely providing the information and the DVLA has its own panels of doctors and medical experts who then decide whether a licence should be revoked.
Electricity and Gas (Energy Company Obligation) Order 2022
Considered in Grand Committee
My Lords, I beg to move that the draft order be approved.
Since 2013, the energy company obligation scheme has ensured much-needed support to low-income households to improve the energy efficiency of their homes. Since it began, it has delivered around 3.5 million energy efficiency and heating measures to around 2.4 million households. The Government committed in the sustainable warmth strategy 2021 to extend, expand and reform the scheme, to accelerate our efforts to improve the worst-quality homes in line with our fuel poverty strategy and target. This order provides for this expanded and reformed ECO scheme in Great Britain until March 2026.
The order succeeds the previous ECO order in Great Britain. Its main provisions are the scheme’s extension by four years to 2026 and its expansion from around £640 million to around £1 billion per year. There is an increased focus on support for low-income and vulnerable households in the least efficient homes. There will be mandatory minimum energy efficiency improvements required for energy performance certificate bands F and G homes; they have to be improved under the scheme to a minimum band D, and bands D and E homes have to be improved to a minimum band C. The introduction of a new minimum requirement will see at least 150,000 EPC bands E, F and G private tenure homes upgraded.
The solid wall minimum requirement will ensure that solid wall insulation is installed in at least 90,000 homes. This order introduces minimum insulation requirements for all homes receiving any heating measure, subject to certain exceptions, to encourage a fabric-first approach. Broken boiler replacements will continue to be limited under the scheme, with upgrades capped at 20,000 homes to encourage the transition to renewable heating and align with the Government’s long-term plan for reaching net zero. The scheme’s eligibility criteria are reformed, placing greater focus on households on the lowest incomes. Households in receipt of means-tested benefits will continue to be eligible.
The proportion of a supplier’s obligation that can be delivered under the flexible eligibility element of the scheme will increase to 50%. Under this, multiple options are introduced to encourage improved targeting of low-income and vulnerable households that may not be in receipt of benefits. These flexible eligibility provisions will enable local authorities, energy suppliers, Citizens Advice and the NHS to work together to identify households that are vulnerable to the effects of living in a cold home. A new scoring framework will apply to incentivise multiple-measure delivery, along with a series of score uplifts to steer measures and delivery where it is needed the most.
Installation quality will continue to be governed under TrustMark’s compliance and certification framework. As part of this, the quality of installs alongside a whole assessment of the property will continue to rely on independent industry standards, PAS—publicly available specification—2030 and 2035. Thanks to these reforms, we estimate that around 800,000 measures will be installed in around 450,000 homes. Of those, around 360,000 homes will be upgraded to EPC bands B and C, removing those households from fuel poverty. This is expected to save around £300 on average over the lifetime of the measures and up to £1,600 for those living in the least energy-efficient homes. However, those savings could average around £600 next winter, providing crucial long-term help where it is most needed.
To help deal with the gap between ECO schemes, the order permits measures installed since 1 April to count towards the suppliers’ obligation target. These are split into two elements: first, interim delivery, for measures installed between 1 April and 30 June to slightly amended ECO3 rules; and, secondly, early delivery, for measures installed to the new rules. Nearly 33,000 measures have already been installed since 1 April as a result of those provisions.
The Government held a consultation on these reforms last summer and published the government response in April. The majority of consultation responses supported extending and expanding the scheme as well as the proposals for reform. The Government are proceeding with the main proposals, with some key changes in light of the responses received and the final impact assessment. We have increased the EFG minimum requirement from 100,000 to 150,000 private tenure homes, focusing more help to those with the highest energy bills. We are providing extra incentives for the installation of measures in rural off-gas-grid areas in Scotland and Wales to account for the extra costs of delivery. The repair of efficient or inefficient oil and liquefied petroleum gas heating systems will be allowed as a last resort in homes that are off the gas grid and where it is not possible to instal low-carbon heating measures. This will help to ensure that people are not left without a functioning heating system.
In conclusion, the energy company obligation scheme remains important in supporting low-income and vulnerable households to improve the energy efficiency of their homes and to help reduce the energy bills of an estimated 450,000 households. The scheme remains a key contributor to meeting our fuel poverty and carbon reduction goals and is consistent with the heat and buildings strategy and, of course, our transition to net zero. I commend this order to the Committee.
My Lords, I thank my noble friend for bringing forward the order. I understand that there has been quite a delay, as the legislation was due to have legal effect on 1 April. I wonder why there was a delay, but I am delighted to see the order before us this afternoon. I remind the Committee of my interest as president of National Energy Action, which briefed me in advance.
First, I welcome the fact that the spending envelope is going to be much greater than previously. I understand that it has been increased from £660 million to £1 billion a year, which is quite a sizeable increase and makes the scheme much more ambitious. As my noble friend said, it is a fabric-first, multi-measure approach to upgrading homes. The scheme is better targeted and allows local authority suppliers and others to qualify households into it. I regret that, as I understand it, during the delay from 1 April until when this finally comes into effect—my noble friend can tell us when exactly—25,000 households could have benefited, so it is important that we get the statute adopted as soon as possible.
I would like to raise a couple of concerns. The practice of allowing households to make financial contributions towards the measures continues but, if a household is in extreme fuel poverty, how is it expected to find the resources to contribute, given that we are soon to be living in the worst fuel poverty that I can remember? I pay tribute to Martin Lewis, who I think has done consumers and households a great service generally in guiding people towards the schemes and explaining how all of us can save money as October approaches. Perhaps this is not the best day to be discussing this, given the temperatures today.
I would like to clarify why the scheme does not set an adequate minimum of solid wall properties to be treated. I wonder if there was a particular reason for this. The figures that I have are that over 90% homes with solid walls still need to be insulated to meet fuel poverty commitments, at the same time as delivering net zero. We are probably talking about a million fuel- poor households living in solid wall properties with no insulation—some of the worst-insulated houses not just in Britain but probably in the northern hemisphere.
There is a gap in the provision of energy advice that perhaps has not been met by the scheme. How does my noble friend expect to reach the fuel poverty targets at the same time as delivering net zero if we do not have a more comprehensive network of advice provision? While the proposed defined roles of retrofit adviser, retrofit assessor and retrofit co-ordinator will ensure that households are advised initially of the options, we need to ensure that homes are assessed properly and that there is a proper plan for improvement and evaluation. Is there a case that the advice should go further and include information on other available energy schemes and support?
At the moment, it is not entirely clear whether advice is accessible. I seek assurances from my noble friend that any information comes in multiple formats, because not everyone has access to the internet, not everyone has English as a first language, and there are obviously a variety of disabilities to deal with.
With those few concerns, which I hope my noble friend will address, I give a warm welcome to the instrument before us.
My Lords, the noble Baroness, Lady McIntosh, has anticipated me, which is completely understandable since I am a vice-president of the same organisation, but I would like to put this in a slightly broader context.
The other day, when we were having an exchange at Questions, the Minister admonished me for apparently disparaging the ECO scheme. My point is not that the scheme is not desirable. It is a means of delivery that has proved its worth in certain respects. Certainly, the energy companies have now developed systems that identify where they could intervene with their own customers. However, inevitably, by relying entirely on the ECO scheme to deliver energy efficiency provisions, people get missed out. I have always argued that putting the responsibility on the companies as the main means of delivery means that there will always be gaps, because the companies will prioritise in relation to their own consumers. What we really need, have needed for some time and, in the current circumstances, need even more is a scheme that helps absolutely everybody who is fuel poor or likely to be made fuel poor, of which there are now more because of the current energy crisis.
Energy efficiency measures meet a lot of the Government’s and the country’s objectives of saving energy, moving away from fossil fuels, working towards net-zero targets, and off-setting the energy dimension of the cost of living crisis. We therefore need to strengthen them. I assure the Minister that I approve of the direction in which these regulations move, because they broaden the way you can bring people in. They increase the schemes and the comprehensiveness by looking at multi-measures in a way that past interventions frequently have not. This means that schemes can be addressed that do not rely on mini-interventions but look at the total fabric of the house and the systems by which it is currently heated. The detailed measures on the upgrading of the ratings are also important, and the broadening of the people who can refer into the scheme, particularly via the health service dimension, is also much to be welcomed.
As the noble Baroness said, there are some gaps. The biggest, which is not a gap but an inadequacy, is the failure to set a really strong target for solid wall insulation. The danger is that we do not have the companies and contractors to do that, because the regulations do not imply sufficient jobs and there is not the training for installers that is needed to deliver the aspirations. In terms of where we are on home energy efficiency, that is probably the biggest single inadequacy of delivery so far and it needs to be addressed.
I echo the noble Baroness’s point about advice, because a lot of the fuel poor, or those who are increasingly in danger of becoming fuel poor, do not have adequate advice in this area. The kind of advice they need overlaps with the advice needed by people in the hitherto so-called “able to pay” category. The failure of the successive schemes to deliver effective support for the “able to pay” sector really underlines the need to upgrade the whole of the advice in this area. The information is still inadequate and difficult to access for both the fuel poor and those who perhaps can still make a contribution themselves, and in some cases pay for the whole lot themselves.
In general, I think this order is in the right direction for the delivery of the ECO scheme but needs to be put into a broader context. That broader context becomes more difficult, because in the next few years we are about to decide what the main form of home heating in this country will be. Individual householders and landlords have to face decisions on insultation, whatever the form of heating. It is not yet clear whether we will still have something approaching the gas network or whether gas will be replaced by a hydrogen blend or by hydrogen. The number of properties is not clear. Many properties do not qualify or are not appropriate for heat pumps in their present form. There will be some difficult decisions on how they address that. Most households would prefer to know what the totality of their movement is, whether they are fuel poor or in the “able to pay” sector. They would like to know that they can perhaps insulate up front and then change to a different form of heating, or at least that they will not have to change everything in their house twice and that, whether they go under the ECO or a scheme where they pay themselves, they will not then have to adapt all their appliances and network again in two, three, four or five years because we have changed the form of heating.
We need a more strategic approach to this, but I assure the Minister that, as far as it goes, I am in favour of what he is proposing to us today.
I thank the Minister for introducing this order and for writing to draw my attention to it, especially to how it is lowering consumer bills. The ECO scheme has been among the favourites for Conservative Governments to target. It is certainly to be encouraged that they focus on energy efficiency measures to upgrade homes and on targeted support, thus reducing heating costs for low-income and vulnerable households and those at risk of fuel poverty across Great Britain, but not Northern Ireland.
Although it is true that the number of homes with a band C EPC increased to 46% in 2021, it cannot be claimed that that was all due to the ECO scheme. Nevertheless, it is part of a flurry of measures, this one supporting 450,000 homes to be able to save on average £290 a year.
In his letter, the Minister wrote that savings in the least energy-efficient homes could average £600 this winter, which would be wonderful. Can he explain this figure? How many households would be in this number, and how many would reach that magical threshold of band C? Would this alarm many households, in that they might now become liable to higher bands of council tax?
One of the intricacies of ECO3 was that households switching from larger to smaller suppliers to save on their bills could take themselves to companies below the threshold and thus be outwith the obligation for improvement measures. Many of these customers have now found themselves with bankrupt companies. Under SoLR, on which I have questioned the Minister previously, they will have been redistributed to larger suppliers within the obligation. Can the Minister explain the effect of ECO4 on this? Will the threshold be a cliff edge or a reducing threshold while maintaining worthwhile energy efficiency measures?
One of the consequences of reducing thresholds was that energy companies found it cheaper to pay a resulting fine than to offer ECO schemes. Could any increased penalty be liable to push a vulnerable company into bankruptcy and all the consequences of SoLR? With the scheme continuing with household contributions, will energy companies target only those who can make a contribution and ignore those with the lowest incomes?
The Secondary Legislation Scrutiny Committee in its seventh report of this Session explains that the measure increases expenditure from £640 million under ECO3 to £1 billion per year in 2021 prices, increasing the cost on consumer bills by around £37 per household per year, even though those benefiting will save around £290 on their bills, as I have stated. At a time when we are in a severe cost-of-living crisis across all households, should this not be the time to consider the switch to support via general taxation? This may be a difficult question for those in the leadership race coming forward with unfunded tax cuts. However, the more serious question arises as targeting benefits to specific improvement programmes has resulted in a plethora of schemes—a jigsaw of bitty measures that are hard to navigate. As previous speakers have said, this scattergun effect of government measures produces a fractured position rather than a strategic approach to housing and energy efficiency, brought forward by previous Labour Governments. My noble friend Lord Whitty focused his remarks on the Government’s approach in that regard.
It has become unclear how the ECO4 remit will be delivered with the exclusions now to the ECO3 scheme, such as disability and fuel poverty reduction targets being excluded. Can the Minister clarify why under ECO4 there is no provision for advice? Will that money be found from another scheme being directed towards this help? It is vital that households understand the complexities between these several schemes.
Under ECO3, the scheme had a target of reaching 50% of all households. Can the Minister outline whether this was achieved and expand on how rural households are to be supported under ECO4? Generally speaking, energy companies prefer to implement energy efficiency measures rather than talk about whole-household improvements, which tend to be the better way to approach improvement in rural areas. I welcome the Minister’s remarks that the role of local authorities will continue and they will be able to co-author which properties energy companies could benefit. This has tended to be the most successful element of the green homes grant scheme that contributed towards improvements for social housing and vulnerable households. Can the Minister outline how much he considers ECO4 will raise households to band C, which I referred to earlier? The excellent Explanatory Memorandum explains that the new EFG minimum requirements, covering 150,000 homes across bands E, F and G, will raise bands. Why the omission of band D? How material will funding be in terms of the contribution to fund homes under band D under ECO4?
Within this scheme, it looks as if a gap could easily be created from gas boiler replacements being capped at 5,000. Has the Minister’s department set that limit from some market intelligence? What happens when, in an emergency, households will require replacements, where heat pumps, which are probably already oversold as a solution, could leave households without heating for a long period. Where does the Minister envisage the hydrogen industry to be by March 2026?
Finally, can the Minister outline how this order will contribute towards the UK’s net-zero target and the necessary carbon reduction targets outlined by the Climate Change Committee? In the clean energy White Paper, the Government have admitted that they are dubious that they will be able to meet the fourth carbon budget, yet these targeted support schemes could well be one of those that can achieve the necessary carbon reductions in relatively timely actions. This measure will run until March 2026, whereby benefit outcomes could materialise into 2027 and the fifth carbon budget.
In conclusion, I welcome ECO4 as an improvement in so far as it will bring more money for retrofitting homes but, unfortunately, not in the significant numbers required, nor in a broader strategic retrofit context.
My Lords, there have been a few changes in the Government over the past week and it is excellent to see the Minister still here. I took the opportunity to look up his responsibilities, because there has been a bit of a shuffle in BEIS and I was even more delighted to see that he has responsibility specifically for energy efficiency—I think he had it before; the climate change side has moved slightly. I am delighted that energy efficiency remains with the ministerial purview of this House.
I also welcome the fact that the Government tabled an amendment on Report to the UK Infrastructure Bank Bill to include energy efficiency specifically as part of the bank’s remit in terms of its investment. I think the whole House very much welcomed that change. They could have done one or two other things, but at least we had that.
On ECO and the prior schemes, I read a report by the Energy & Climate Intelligence Unit—ECIU. I am on its advisory board and it is one of the better of these think tanks. It was interesting that the report reckoned that between 2009 and 2019 some 6 million homes had been improved to band C in energy performance. It estimated that that amounted to a 20% cut in their gas demand, which meant that on an annual basis now those households were saving £1.2 billion. Clearly, that is significant.
Those figures are from 2009 to 2019 and the ECO scheme came in in 2013, but the number of applications dived hugely over the past eight years and only now has started to tick upwards again. It was interesting to read in the Explanatory Memorandum that some 2.4 million homes had made applications to the ECO scheme, but in 2020 we still had 3.5 million homes in energy poverty. Think about that. There were applications for 2.4 million homes but at the end of that process there were still 3.5 million homes in fuel poverty—and that was before the huge price rises in energy that we are now seeing.
The Minister mentioned 450,000 applications and taking them out of fuel poverty. There is no chance of taking homes out of fuel poverty at the moment. We are going to add to that because of the energy prices that there are.
I know this from my own experience. At the beginning of this year I paid a monthly standing order to Octopus Energy of £212. This month I paid £355. That is not my only energy cost, but I admit that, for me, it is not a crisis. But, my goodness, for people outside that is an horrific increase in their energy bills.
I suppose I just want to make the same old argument again that there is so much to be gained from these programmes, as that statistic from the ECIU suggested, but at the moment they are only a pinprick—a drop in the ocean—in terms of what we actually need. Of course, it is easy to say that if we were not starting from where we are now but from before George Osborne as Chancellor of the Exchequer massacred the various energy efficiency schemes’ futures in terms of new homes and those sorts of applications, my goodness we would be in a better position than we are now. We are in a position where the Government are spending £37 billion, I think it is, on putting right the cost of living crisis, much of which is driven by energy costs, yet all of that is just to stand still, and I am not the first person to say that. If only we were managing to put that money into these sorts of schemes, my goodness those fuel poverty numbers would start to come down rather than inevitably skyrocketing, as they will. That is my comment on this. As the noble Lord, Lord Whitty, said, how can one argue that this is an improvement? As I said, it is a drop in the ocean, given what we need to do.
My question follows on from what the noble Lord, Lord Grantchester, said. One of the lessons from the disaster of the green homes grant was that the bit that involved local authorities actually worked. I am interested to understand how our local authorities, which are so much better at understanding their local communities and the issue of fuel poverty, will be tied in to the way the ECO4 scheme is delivered.
My Lords, like many others, I thank the Minister for his explanation of what this order achieves: introducing the latest energy company obligation, ECO4, replacing ECO3, which came to an end in March. I start by echoing what the noble Baroness, Lady McIntosh of Pickering, said, about the effects of the delay. Has any assessment or estimate been made of the effects of the delay between 1 April and the new regulations coming in?
As we heard, the order will place a cost-reduction obligation on gas and electricity suppliers that exceed domestic supply thresholds, requiring them to promote the installation of energy efficiency and heating measures to reduce the cost to low-income and vulnerable households. Unlike ECO1 and ECO2, which were centrally funded, I understand that this obligation to fund and finance again falls on the energy companies using their own resources, as was the case with ECO3.
If this understanding is correct, can the Minister confirm what assessment was made of the difference in impact between these two approaches, given that we now have examples of both? Given that energy suppliers will incur these costs, which will need to be recouped, we can expect them to be passed on directly to customers through energy bills. As others have asked, is this really the best approach at this time, given the energy crisis? Will any steps be taken to encourage or even obligate energy companies not to pass costs on to customers who can ill afford them at this time? In reality, if they are passed on, it will be the consumers and customers who will be paying for the upgrades of their own homes.
As the Minister outlined, the objectives of this order are to help alleviate fuel poverty, accelerate progress to meet fuel poverty targets, contribute to carbon reduction, reduce the costs of meeting the renewable energy target and encourage innovation. All of these are welcome, as is the targeting of vulnerable and low-income households. If the target we have heard about of annual bill savings of £224 million is reached, this will make a real difference.
I understand that the new EFG minimum requirements will lead to a minimum of 150,000 homes being upgraded, and the retained solid-wall insulation requirements could have an impact on 90,000 homes. Do the Government have any estimate as to how many households will actually be affected? I have a similar question to those of the noble Lords, Lord Grantchester and Lord Whitty, and the noble Baroness, Lady McIntosh: specifically, what will the average household savings be?
This instrument does raise questions in relation to the Energy Bill. If the Government are willing to argue the benefits of energy efficiency for the millions of families facing the catastrophe of soaring energy bills, why does it not extend to the Government’s Energy Bill, which has its Second Reading next week? I believe this is another missed opportunity, although the fabric-first approach is right. Making sure that our buildings and houses are as energy efficient as possible is the right approach, as is reducing energy bills. But with the cost of living crisis I believe that more could, and should, be done.
It is right that low-income households and vulnerable households, and households on benefits, are the priority, but there are many other households out there that do not currently fall into these categories but are in households that are E, F or G-rated. What are the Government doing, or looking to do, to benefit all households to increase energy efficiency? With that, we support the instrument.
I thank all noble Lords for their contributions to this debate. There is a certain irony in standing here on one of the hottest days of the year, when we are all sweating like billy-o, debating what will happen next winter as people insulate homes, but I am sure we all realise that it is important to get started on this work as soon as possible, and we have done so, as I will set out shortly.
This is all done in the context of what has been an extraordinary increase in the cost of energy, and let me say from the start that the Government recognise that millions of households across the UK may need further support with the cost of living. That is why the Government have announced additional supports this year worth over £37 billion, including a considerable amount of targeted support for those of our fellow citizens who are on the lowest incomes. All domestic electricity customers in Great Britain will receive £400 off their bills from October through the energy bills support scheme. Meanwhile, over 8 million households across the UK in receipt of means-tested benefits will receive £650 as a cost of living payment, and further payments will be made to pensioners and disabled people.
The Government remain committed to helping low-income and vulnerable households to reduce their fuel bills and to heat their homes efficiently. The energy company obligation, or ECO scheme, will be a crucial element of that help this winter and for many years to come. It is not the only element, as I will outline later to the noble Lord, Lord Whitty, and others.
In response to some of the questions that were asked, let me start with my noble friend Baroness McIntosh, who rightly commented on the delays to the scheme. It is worth saying that ECO4, the latest iteration, is the most significant reform since the scheme began, and we have had to make sure that it is fit for purpose right through to March 2026. It is fair to say that this has presented some challenges in policy design, modelling and drafting.
It is important to point out that, while there has been a gap between ECO3 and ECO4, delivery has not stopped, due to the mitigations that we put in place. As I mentioned in my introductory remarks, nearly 33,000 measures have been installed since 1 April and registered with TrustMark, and we expect that number to go up by several thousand, as there is a time lag between the actual installation taking place and it being registered with the registration provider, TrustMark. Moreover, by allowing suppliers, as we did, to overdeliver against their ECO3 targets—referred to in the trade as the “carry-over”—at least 40,000 extra measures were delivered earlier than they would have been otherwise. I accept that these regulations were delayed and are later than I would ideally have liked; nevertheless, delivery has not stopped in the interregnum.
On my noble friend’s point about household contributions, the most recent evaluation of ECO showed that 18% of households made some sort of contribution to the installation of measures. With regard to insulation, that figure was only 12%. Moreover, we have designed ECO4 to fully fund upgrades, so actually we would expect the contribution figure to be even lower than that in ECO4. It is worth saying that banning contributions completely would add some considerable complexity to scheme compliance, and would also remove an essential element of flexibility for customers and for the supply chain. However, I give my noble friend an assurance that we will continue to monitor and keep the matter under review.
On my noble friend’s question on the solid wall insulation minimum, ECO4 will focus on the least energy-efficient properties. As I mentioned, we have introduced a requirement for a minimum of 150,000 E, F and G private tenure homes to be treated, and most of those will be solid-walled homes. We estimate that around 75% of total scheme spending will go to improving them to band D or better. We believe that the current solid wall minimum strikes the right balance between giving on the one hand certainty to those in the supply chain while also giving them the essential flexibility to treat homes in a more appropriate way.
My noble friend also made a good point about energy advice. I can reassure her that we are providing tailored advice and support to homeowners on what they can do to improve their homes. Our simple energy advice service has already had more than 1.7 million users, providing homeowners with personal tailored advice for improving and decarbonising their homes and links to local accredited and trusted installers. Homeowners can also find out about various government schemes, which I shall talk about shortly and for which they may be eligible. We intend shortly to enhance this digitally led service this year, and we are considering a number of options to support tailored retrofit advice in local areas. Our ultimate aim is to create a Government-led, multi-platform, home energy advice journey, supported by tailored local advice. We hope that it will provide a much-improved user experience for all households.
I will pick up on the point made by the noble Lord, Lord Whitty, about some people who may be missing out under ECO. Let me make the point yet again that ECO is not the only energy efficiency scheme. It is one element to it—the element funded by supplier bills. As I am often reminding the House, we have a number of other complementary schemes in England and Wales, funded by the Exchequer to the value of about £6.6 billion over this spending review period, including the social housing decarbonisation fund, on which we are about to go out in the next month or two for further bids for another £800 million of spending. There is the home upgrade grant, which specifically targets the poorest performing homes in off-gas-grid areas. Those schemes alone will also upgrade tens of thousands of homes, before we go on to the green homes grant local authority delivery scheme. These are complementary policies. I make the point again to the noble Lord, Lord Whitty, that ECO is not the only scheme; we have a number of different complementary programmes providing energy efficiency improvement in a range of homes in different tenures and areas.
I have mentioned the solid wall insulation minimum that both the noble Baroness, Lady McIntosh, and the noble Lord, Lord Whitty, raised. To add to that point, the additional schemes I have mentioned will also provide solid wall insulation. Again, ECO is not the only mechanism to incentivise what is an essential change for many solid wall homes. Those with cavity walls have often already had cavity wall insulation under the various iterations of the scheme. Solid wall homes are the next challenge we will receive.
There are actually some really exciting developments in solid wall treatments, if noble Lords want to research them. I viewed some external wall insulation in Holbeck, a poor part of Leeds—the area of the noble Baroness, Lady Blake—and saw the difference it made to both the performance of the homes and their external appearance. It really improved the whole look of the street. The finish is so good that it looks identical to either a brick or stone finish and, unless you go up and tap on it, you really cannot tell that it is external wall insulation, so it has that additional benefit. I saw it in County Durham as well. It improves the visual appearance of the street and the homes, as well as providing excellent levels of insulation. The more we can roll out these schemes in the UK and bring their cost down, the more we can make a serious difference to both the appearance of communities and the energy performance of homes.
I agree with the noble Lord, Lord Whitty, about the challenge of decarbonising domestic heating systems. As the noble Lord knows, we set out our approach in the heat and buildings strategy. Notwithstanding the eventual heating system we go for from the various options—it will almost certainly be a combination—we always have a fabric-first approach, which is the ultimate no-regrets option. Whatever heating system you have, if you have more insulation, you will benefit. All homes can be insulated to a level which will make them suitable for whatever heating technology we ultimately opt for. In addition, we also estimate that around 60,000 heat pumps will be installed under ECO4, following the appropriate insulation measures. That complements the heat pumps being installed under the boiler upgrade scheme and the other schemes I have mentioned.
I respectfully disagree with the noble Lord when he says that we do not have a strategic approach. We set it out in the heat and buildings strategy. It is true that ECO alone cannot meet our fuel poverty and net-zero targets. However, as I mentioned, it has been designed in tandem with other schemes so that they can all be delivered together to serve the cross-section of low income and vulnerable households that exist across a multiplicity of different tenures in both cities and rural areas and on and off the gas grid.
Moving on to the questions from the noble Lord, Lord Grantchester, who queried the saving figures cited, the £290 is what we expect the savings to be on average over the lifetime of the measures, which could be up to 42 years. The £600 is how much we expect households to save on average with the coming winter’s energy prices.
On the point the noble Lord raised about obligation thresholds, the Government have committed to significantly reduce thresholds where this can be done without introducing disproportionate costs for the very smallest suppliers. Under the previous scheme, the thresholds were lowered from 250,000 to 150,000 customer accounts and we will also consult on an appropriate buyout mechanism to bring about further reductions in the scheme thresholds in later phases. As I mentioned, the scheme will go through to 2026. The Committee will be pleased to know that we are seeking the primary powers necessary to do this within the upcoming Energy Bill. No doubt we will have further discussions about this when we debate that, starting next week.
Households in receipt of means-tested and disability benefits will of course continue to be eligible under ECO4. The Government are satisfied that those on the lowest incomes and with disabilities which make them vulnerable to cold will still be supported through the ECO4 Flex elements of the scheme.
The gas boiler replacement cap is for only the replacement of efficient boiler and electric storage heaters and is set at 20,000 homes across the scheme. Again, we think the caps are proportional to the ECO3 caps when compared with the number of homes that are expected to be treated under ECO4 and the reforms being made to eligible heating measures. We are of course not capping their replacement with renewable heating systems or district heating connections; nor are we capping inefficient heating system replacements.
The noble Lord, Lord Teverson, spoke about the numbers of people in fuel poverty. Of course, I agree with the noble Lord that this is a tremendous challenge but, based on the measure for England, which is based on the energy-efficiency rating of homes, we estimate that ECO4 will improve 360,000 homes to bands B and C, taking them out of fuel poverty, at least statistically. In addition, in the short term, as the noble Lord pointed out, this year we have provided £37 billion of direct extra help with the cost of living. Personally, I entirely accept the noble Lord’s point that if we had spent some of this money on insulation schemes in previous years, that might have been a more efficient use of it. I will be sure to make these points to the Treasury in further discussions that we will no doubt be having. Every time I say that, the noble Lord laughs.
I agree with the noble Lord, Lord Teverson, that local authorities have a large role to play in ECO4. In fact, I met a group of LGA local government leaders only this morning to discuss the role that local authorities play. We have increased to 50% the proportion of the obligation which can be delivered through upgrading households, through local authorities’ ECO Flex mechanism. Indeed, all the schemes I mentioned earlier—the home upgrade grant, the SHDF—by their very nature are all delivered primarily through the mechanism of local authorities. I entirely agree that central government does not know the individual housing circumstances. Local authorities and councils are best placed to do this themselves. I might add that there are some interesting postcode lottery statistics on the number of authorities that choose not to bid into any of our schemes. These are authorities across the political spectrum, oddly enough, but perhaps that is a separate debate.
I am happy to reassure the noble Lord, Lord McNicol, that the delays to ECO4 have had no impact on households. As I said, 33,000 measures have been delivered in the interregnum. Furthermore, suppliers were able to overdeliver on their previous obligation and fulfil the delivery of 40,000 measures. The noble Lord asked about the numbers reached. We estimate that around 450,000 homes will be upgraded. As I mentioned, we think they will save £600 on average this winter; of course, depending on individual circumstances, some households will save more. We already know of an example of a home improved under ECO4 from a band G to a band B. That particular household, of course, will save thousands this year and is already near zero carbon.
The noble Lord, Lord McNicol, asked about making all homes energy efficient—of course, a laudable aim—and it is right, given limited resources, that ECO is designed to focus support on low-income households as part of a fair transition. I would be surprised if the Labour Party was offering anything different, but we recognise that we need to upgrade most homes. We are making slow but steady progress. Some 46% of homes are now in EPC bands A to C, which is an improvement of around 12% on 2010. Of course, we could always do more, but let us not beat ourselves up about it: we are making progress.
The Government are committed to further supporting households in reducing carbon in homes, as we set out in the energy security strategy. We will bring capital spending on building decarbonisation—again, as I mentioned earlier—over the lifetime of this Parliament to £6.6 billion.
I cannot remember who asked me about carbon impacts. ECO4 is estimated to save around 15.08 megatons of carbon dioxide equivalent over the lifetime of the measures, contributing around 1.8 megatons to carbon budget five and 1.7 megatons to carbon budget six. I hope noble Lords are taking a careful note of these figures.
I hope that I have answered all the questions put to me and I commend this order to the Committee.
Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022
Considered in Grand Committee
My Lords, I beg to move that the draft Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022, which were laid before the House on 22 June 2022, be approved. These regulations are a particular delight for me because I promised the House that we would have them before the summer holidays, so I thank all those officials who worked so hard to deliver them. It shows what you get if you make rash promises—officials will work overtime to get them delivered for you.
These regulations form part of an essential tranche of secondary legislation needed to implement the Register of Overseas Entities, which I will refer to for ease as “the register”. It will be created—as noble Lords opposite me who took part in the debates will know—under Part 1 of the Economic Crime (Transparency and Enforcement) Act, which gained Royal Assent earlier this year. I thank the House, and the Opposition in particular, for helping us to expedite that legislation.
The register will help to crack down on dirty Russian money, and any other kind of dirty money, in the UK, and other foreign corrupt elites abusing our open economy. The register will require overseas entities owning or buying property in the UK to give information about their beneficial owners and/or managing officers to Companies House. It will provide more information for law enforcement to help them to track down those using UK property as a money-laundering vehicle.
During the Act’s passage through Parliament, I undertook to deliver the register as soon as practicable. Subject to the approval of Parliament of this and two other instruments, the register will begin operating over the summer. The three UK land registries, together with Companies House, have been working at pace—I think “at pace” is probably an understatement—to build the systems and processes to ensure that we can get the register up and running as quickly as possible and that it works as intended.
The two other instruments I have just mentioned were laid before the House on 30 June and are subject to the negative resolution procedure. The subject of today’s debate is the only instrument subject to the affirmative resolution procedure. These regulations together will ensure that the register is ready to come into operation. It is worth saying that some further instruments necessary to underpin the register’s steady-state operation—and again this is subject to the hard work of officials over the summer—will be made in the autumn.
Overseas entities in scope that currently hold land in England, Scotland and Wales will have six months from the date that the register goes live to register their beneficial owners. We think the six-month transition period—and noble Lords will remember the debate we had—strikes a balance in allowing for the free enjoyment of property and helping to maintain the UK’s reputation as a stable investment environment while ensuring that property owners register their beneficial owners. It is worth saying that, if an overseas entity does not comply with these new obligations or submits false filings, the overseas entity and every officer in default can face tough criminal or civil penalties, and ultimately it will not be possible to sell the property in question.
These regulations being debated today must be in force when Part 1 of the Act is commenced in order for the register to operate effectively.
I turn to the details of these regulations, which are laid under the powers in the Act and two powers in the Companies Act 2006. They deal with three main elements. First, they require certain documents to be delivered to Companies House by electronic means. Secondly, they will set up a protection regime, which will allow individuals to apply to have their information made unavailable for public inspection. To apply, individuals must provide evidence that they are at serious risk of violence or intimidation if their link to the overseas entity is publicly disclosed. This mirrors an existing provision for the person of significant control of UK companies. Thirdly, they set out that legal entities governed by the law of a country or territory outside the United Kingdom that provide trust services regulated by a supervisory authority, and which are subject to their own disclosure requirements, are classed as “registrable beneficial owners”.
On the first of these measures, Part 2 of the instrument sets out that certain documents are to be delivered to Companies House by electronic means. Regulation 3 specifically sets out a duty on overseas entities to deliver certain information to the registrar by electronic means. These regulations state that the following information must be delivered to the registrar: an application for registration; the statements, information and anything required for the updating duty; an application for removal; the replacement of or additional documents delivered to the registrar for the purpose of resolving inconsistencies in the register; and an application to rectify the register. Regulation 4 sets out an exception to this duty to deliver documents by electronic means.
Mandating electronic delivery for certain documents enables the registration process to be streamlined and efficient, and is intended to avoid delays in processing valuable property transactions. Therefore, it is important that electronic delivery to the registrar can be mandated in most cases through these regulations.
The duty to deliver a document by electronic means will not apply where the document relates to an application which contains information about individuals who have applied for their details to be protected. The aim of this limited exception is to provide for those who may be at risk of serious harm to apply for protection from having their details publicly available on the register. Their details would need be handled in a sensitive manner. As such, electronic communication might not be appropriate in those cases.
On the second measure, Part 3 sets out details of the protection regime. This allows beneficial owners and managing officers, or the relevant overseas entities, to apply to have their details protected from disclosure and from inclusion in the public register, if they or someone who lives with them are at serious risk of violence or intimidation because of their link to the overseas entity. Evidence must be provided to the registrar to support the application. As I said, this approach is very similar to the one currently applied in the equivalent regime for people with significant control—PSC—of UK companies.
It is also important to note that an application for information to be protected from public disclosure will not exempt an overseas entity from the requirements of the Act in general. The required information must still be supplied to Companies House and will be available to law enforcement agencies if required.
As for the measure on corporate trustees, Part 4 provides a description of legal entities subject to their own disclosure requirements. Schedule 2 to the Act provides that beneficial owners who are legal entities must be subject to their own reporting requirements in order to be registrable beneficial owners. The aim of this measure is to ensure that corporate trustees fall within the definition of a registrable beneficial owner. If this definition is satisfied, overseas entities must take reasonable steps to obtain and provide to the registrar the required information about those trusts. This reflects the requirements already imposed where trustees are individuals. This will provide greater transparency about the true owners and beneficiaries of the land.
I thank the House’s Secondary Legislation Scrutiny Committee for examining this instrument and note that it was included as an instrument of interest in its recent report. I confirm that UK Crown dependencies and overseas territories that own property in the UK will be required to register details of their beneficial owners with Companies House in the same way that all others do.
In conclusion, I emphasise that the measures in these regulations are crucial for the effective operation of the register of overseas entities. I was grateful for the opportunity to demonstrate the operation of the register to a number of noble Lords last week. I hope that aided understanding of the measures and the objectives. Therefore, I commend the draft regulations to the Committee.
My Lords, I start by thanking the Minister for arranging the recent meetings to which he just referred to show us the progress that has been made in creating the register of overseas entities and demonstrating the prototype. I was rather impressed by the progress and, in particular, the verification process that has been included.
The verification goes some way—further than I had expected—towards the suggestion that I and others raised in the debates on the Act, which was to have a regulated person sign off publicly that they have verified the information. We could still go a little further, by ensuring that the name of that person is shown up front and central in the publicly available database. I know it can be found, but I would like to see it in the key information on people involved in the entity, right alongside the beneficiaries, officers and directors. A search function that allows the database to be searched by verifier would also be a very useful tool. It would allow users to see whether any trends emerge and would soon highlight any enablers who are not taking the verification process seriously. The more publicly visible the verification is, the more likely it is to be taken seriously by those doing it.
I hope that the Government will look at strengthening that a bit but, more importantly, that the identities of those doing the verification will be rigorously checked, that the statistics will be closely monitored to identify any trends that emerge, and that action will be taken if it becomes clear, for example, that a small number of persons are verifying a disproportionate number of entities, especially entities registered in less than transparent locations.
I realise that that all relates to the SIs tabled under the negative procedure, but it is relevant to the instrument in front of us today, which mostly covers the rules that will allow the details of an entity to be kept private. Of course, there may be perfectly innocent reasons for that—for example, a celebrity who is worried about stalking, or things of that nature—but privacy must be the exception. These sorts of rules, if not rigorously applied, can creep to become the norm if we are not careful.
Can the Minister explain how the application of these rules for keeping details private will be monitored, and at what stage the Government would step in if there was evidence that the use of the rules was becoming more common than we would expect? What statistics will be available to the public about the use of these privacy rules? How will they be reported, and how regularly?
I am not completely clear which information will be private and which will be public if someone gets a dispensation. I spoke earlier about the verification process and the making public of the identity of the regulated person who carries out the verification being an important disincentive to casual, or even false, verification. If the details of the entity are private, will that also be private? If so, why? The identity of a regulated person is not likely to be sensitive. The regulations are to protect the privacy of people on an exceptional basis; they must not become a back-door way for enablers to avoid the disinfectant of publicity. The identity of the verifier should always be public. The Minister mentioned in his opening words the penalties for false filing that will apply to the directors and officers of the entity. Can he let us know what the penalties would be for a verifier who fails to verify appropriately?
My Lords, first, I thank the Minister for his introduction and give apologies from my noble friend Lord Fox, who is unavoidably detained up a mountain. He would never normally miss an SI debate for the whole world. It is very good to see the noble Lord, Lord Vaux, in his place, as he played such a prominent role during the Bill’s Committee stage. Like him, I thank the Minister for arranging an extremely interesting and instructive hybrid demonstration of the digital application process, the way that it is put on the register and the way that the register will be maintained.
I want to speak to all three SIs, linked as they are, even if only one needs specific approval today. I welcome the speed at which the register is being brought into effect and echo the Minister’s praises for those who have been responsible for doing so. It goes quite some way to justify the rather cursory nature of the passage of the Act itself.
Of course, we still have unfinished business on the economic crime front and I hope very much that it is actively in the pipeline, to ensure that there are no kleptocrats or oligarchs out there who are unexposed. I hope that part 2 will consolidate the UK’s fragmented and ineffective anti-money laundering supervisory regime and reform corporate criminal liability law to ensure that it includes enablers. Enablers were very much the subject of our discussion in Committee. I hope that it combats the use of strategic litigation against public participation, which stifles public interest criticism of these characters, and empowers and resources Companies House to effectively monitor, verify and investigate suspicious companies. I hope that it will significantly increase resource for law enforcement agencies fighting economic crime and support whistleblowers to play an effective role in tackling economic crime. Could the Minister give us a little indication of when we might expect those goodies in the part 2 Bill?
On Regulation 7, I hope that the provisions regarding not putting information on the public register are rigorously applied. But I think there are questions when one looks through the regulation. Will certain elements of the enforcement and crime prevention authorities be consulted when an application under Regulation 7 takes place? What checks of the evidence provided by the applicant will be carried out? That is going to be an extremely important element to maintain that rigour.
As I said, we have had much discussion about enablers. It seems that those who do not comply with the requirements or make false returns on behalf of clients will be subject only to sanctions by their professional body or regulator. Have I got that right? I believe that that is what the Minister said when we had our demonstration. If that is correct, are there plans in part 2 to have sanctions on those professionals who give false verification under Section 16 of the Act, other than via professional bodies? Otherwise, it seems a very tame way of making sure that those who provide that verification do it honestly and with integrity.
It is notable that in this SI process the Act has actually been improved along the lines suggested in Committee by myself and my noble friend Lord Fox for overseas corporate trusts and nominee companies. I used the example of a Panamanian nominee company with multiple properties to point out the flaws in the original Bill. I believe—and I hope that the Minister can confirm—that that avenue is now completely closed, and that a Panamanian nominee trust company would have to disclose the beneficial ownership of every property in its portfolio.
I see that there is no impact statement. In fact, there is a statement in each SI that there is no impact from any of the SIs. That seems very strange. Is it a technicality? In other words, does the main impact come from the passing of the primary legislation? Or is it the case that this set of SIs and maintaining the register will have no impact? It seems extraordinary to put that statement into these SIs, when what they actually do is put into effect the really important part of part 1 of the economic crime legislation. I hope that the Minister can clarify where the Government believe that the impact is.
I have a little technical teaser for the SI team. I noticed that these regulations are made partly under Section 25(3) but not under Section 25(3)(e) and (g). Given that they are being made under paragraphs (a) to (d) and (f), that seems rather odd. Paragraph (e) is
“recording of restrictions in the register”
and paragraph (g) is
“the charging of fees by the registrar for disclosing information where the regulations permit disclosure, by way of exception, in specified circumstances.”
Since the SI specifically mentions the bits of the Act which are prayed in aid to make the regulation, it would be useful to know why these two paragraphs have been excluded.
We have three SIs here. Are any other SIs needed to bring the register into effect or is that it? Can we say it is done and dusted, all that needs to happen now is that Companies House gets on with it and the register will be open as soon as possible?
Finally, it would be useful to know from the Minister by when he expects the Crown dependencies and overseas territories to introduce public company ownership registers. I believe it was meant to be by the end of the year; are they still on track for that? In the meantime, will the Government ensure that the authorities in those dependencies and overseas territories will proactively share information with UK authorities to enable comprehensive sanctions designations?
My Lords, I thank the Minister for explaining this instrument. As we know, it implements aspects of the new register of overseas entities, which will finally require owners of UK property to reveal their true identities and crack down on foreign criminals using UK property to launder money. I apologise for not attending the digital presentation, which sounded fascinating. Maybe I can look into that for the future.
As the Minister said, in order to do this, this instrument will require certain documents to be electronically delivered to the Registrar of Companies. It will also set up a protection regime which will allow owners and managing officers of overseas entities to apply to have their information made unavailable for public inspection, where there is evidence that they or someone in their household are at serious risk of violence or intimidation, and will set out that legal entities governed by the law of another country are subject to their own disclosure requirements.
These are all positive steps which we support. However, I think the noble Lords, Lord Vaux and Lord Clement-Jones, and I are looking for a bit more of an explanation so that these protections are not abused. If the Minister could share some of the detail of the protections that will be put in place to stop the overuse or abuse of these protections, I am sure your Lordships’ Committee would be appreciative.
There is a lot to be said here, but of course it has all been said before on many occasions, not least during the passage of the Economic Crime Act through this House in March. As such, I will not keep your Lordships for too long, repeating what has already been said. However, I have some points to make, primarily around the timetabling. The noble Lord, Lord Clement-Jones, picked up a few of those, but I would like to add to them.
There should be nothing controversial about knowing who really owns property in the UK in a healthy, transparent economy and making that information publicly available. Transparency in this area is essential. This is a matter not simply of targeting individuals or entities through sanctions but of fixing a broken system that has helped sustain Putin in his invasion of Ukraine. However, it is not just because of oligarchs and their position in Putin’s regime that this has finally being expedited. Like others, I congratulate the Bill team and the civil servants on their speed in pushing this through. It also deals with money launderers and tax evaders.
We have needed transparency in this area for years, but the Government have historically dragged their feet when we have called for these measures time and again. These steps were first promised in 2016, some time ago. In fact, when we have our next Prime Minister it will be four Prime Ministers ago. Since then, £1.5 billion- worth of property has been bought by Russians accused of corruption or links to the Kremlin.
While the Government fulfilled their commitment to update on progress within eight weeks of the Act receiving Royal Assent, this update was lacking in substance. While the update is of course a positive step, it is four months later and these are only the first of several regulations to be implemented with regard to the register.
With the Summer Recess coming very shortly, the next steps will take even longer, so I have some key questions for the Minister. When can we expect the full implementation to take place? From when will ownership of UK properties have to be logged? When will it finally become public? With that, we support these regulations.
I thank noble Lords for their support and their valuable contributions. I think the measure has a wide measure of support. I too pay tribute to the officials who have worked long and hard to bring this into operation.
Before I talk about this, I will answer the point from the noble Lord, Lord Clement-Jones, about economic crime 2, as we are not in fact referring to it; we are not allowed to call it that, for some strange reason, but it is the next tranche of economic crime legislation that we expect to introduce to Parliament shortly after the Summer Recess. The measure is being worked on now. I am afraid I cannot promise him that all the measures he outlined at length will be contained in it—I am sure we will have some debate about that—but we intend to take action on some or many of the things he mentioned, particularly reforms to Companies House.
The Government are committed to ensuring that this register strikes the right balance between improving transparency and minimising the burdens on legitimate commercial activity. The measures contained in this instrument will play a key part in the effectiveness of the register from its launch. To pick up on the point from the noble Lord, Lord McNicol, I hope we can bring the register live on 1 August. That is the intention.
These regulations are essential for the register of overseas entities to operate effectively from the outset. To answer the point from the noble Lord, Lord Clement-Jones, they will enable it to operate. I am afraid they are not the end of the regulations—we will need some additional ones to further clarify the operation, et cetera—but they will enable it to commence and the six-month countdown period to start. All existing entities, including those that have made transactions since 28 February, will have to register in that period. That was a discussion we had during the passage of the Act.
Four affirmative and six negative, I am informed by the experts. So we will be back, yes. We will return, as they say.
These regulations are essential for the register to operate, so we can commence it and get the six-month countdown period started. There has been some debate about whether we might expect a large rush of applications as soon as the register goes live. I reiterate that the vast majority of these overseas entities are legitimately owning property. They are corporations and others that legitimately own land, commercial properties, et cetera, in the UK. They will want to ensure that they are in compliance from the outset.
Mandating digital delivery for certain documents ensures that the registrar is able to receive and process information in a timely manner. An effective protection regime will protect those at real risk of serious harm because of their link with the overseas entity from the public disclosure of their details. I say again that this information must still be provided and will still be available to law enforcement. I will say a few more words about that shortly.
The measure on trustees allows for a consistent approach to dealing with corporate and individual trustees. It is a complicated area, but I assure noble Lords that we are attempting to close every possible potential loophole. We will also have some further measures in the economic crime Bill to tackle this issue of trustees, which, as the noble Lord, Lord Vaux, is always reminding me, is extremely complicated. But we are determined, and we will not hesitate, to return to this if any inadvertent loopholes are discovered. But we want to make it harder for corporate structures to be altered to avoid reporting requirements.
The main point raised—predictably—by noble Lords was the issue of protections. To try to alleviate concerns, I will give some of the statistics for the existing regime. There are something like 4.9 million companies registered on the UK companies register. Since 2016 there have been 436 applications for protections from that register, of which 163 have been granted—163 out of 4.9 million. Bearing that in mind, there are about 35,000 overseas entities; it is possible, given their nature, that a slightly greater proportion of the persons with significant control of overseas entities will want to be exempted, but I hope I can reassure noble Lords that the system is not being abused and that, given the proportions, tiny numbers of applications are being granted. Of course, I will make sure that this is closely monitored and that there is no excessive use of this provision. It will be only for those who have a very real need for that protection. But I think we can see from the use of it—it is pretty much an identical regime for the persons with significant control—that it is a tiny proportion, and an even smaller proportion of applications are granted. As I said, only 163 of 436 applications were granted.
This will be a public register. All information will be displayed, aside from, as I mentioned, protected information, such as date of birth and residential address information. Of course, again, that will be available to law enforcement and other public bodies. Companies House does have experience of determining these applications for protections since the PSC regime was introduced in 2016. We will ensure that the mechanism is robust and we will require applicants to provide evidence as to why they think there is a serious risk of violence or intimidation. If necessary, we will refer cases to the appropriate law enforcement agency. I reiterate that the protection does not exempt the person from disclosing this information to Companies House and all protected information is still available to law enforcement. So there is no place to hide.
I will give the figures once again. There were 436 applications under the previous regime, and 163 of them were granted.
The noble Lord, Lord Vaux, asked about verification. Agents who will provide the verification will be UK anti-money laundering supervised professionals—
Before the Minister moves on to verification, I just wanted to probe a little further on the Regulation 7 points he was talking about. It is reassuring that it will be a limited number, but my question was about Regulation 7(3):
“The grounds on which an application may be made are that the applicant reasonably believes that if that protected information is available for public inspection or disclosed by the registrar … the activities of that overseas entity; or … one or more characteristics or personal attributes of the relevant individual when associated with that overseas entity, will put the relevant individual or a person living with the relevant individual at serious risk of being subjected to violence or intimidation.”
How is Companies House going to assess that? Is it going to consult other crime prevention authorities? Is there an evidence-checking process?
The answer to that question is: absolutely. It is kept deliberately—not vague; that is the wrong word. There is a wide scope here, because different individuals will be affected in different ways. They might be foreign diplomats, to take one example. There could be a number of different opportunities depending on their personal circumstances, but the Act is very clear: they will have to provide evidence. That evidence will be checked and verified, and if necessary the head of Companies House, the registrar, will consult the law enforcement agencies.
Noble Lords can see that 163 out of the 436 applications made were granted under the previous regime, so it is clearly a rigorous process and they will have to provide the appropriate evidence. We will monitor it and make sure that the system is not abused. I reiterate that the information is still available to law enforcement; it is just not on the public register. It is also worth saying that there is considerable interest in this from transparency organisations, who I am sure, once the register goes live, will—correctly—crawl all over it and point out any obvious errors or omissions, or anybody who is attempting to avoid the provisions.
I move on to the verification of agents. They will be UK anti-money laundering supervised professionals, and most of those individuals already carry out due diligence when completing property transactions. Those who seek to circumvent the requirements of the Act, including any who provide misleading, false or deceptive information, are liable to criminal or civil sanctions. The identity of the person carrying out the verification will be made public and appear on the face of the register, and if necessary there will be future enhancements for making that information more accessible. We are determined that there is no place to hide for either those seeking to acquire property maliciously or the professionals who enable them to do so.
Companies House will engage with the verifier’s supervisory body, but ultimately the enhanced false filing offence may be used in this circumstance, if necessary. Some of the feedback we have had from professional organisations—I shall not mention them—think that these provisions are too draconian; they are unwilling to put their name to some of them. I did say that there was unlikely to be much sympathy in the House for that position.
The noble Lord, Lord Clement-Jones, questioned the impact assessment. The secondary legislation does not make any significant changes that were not anticipated in the primary legislation impact assessment, and for this reason, in line with the better regulation framework, for which I am also responsible, we did not think another impact assessment was necessary and one has not been produced.
The noble Lord also rightly raised the point of tackling the enablers of economic crime. As I said, the information about agents and verifiers will be published on the register. We believe the supervisory regime we have in the UK is comprehensive. We regulate and supervise all businesses most at risk of facilitating money laundering, including accountants, estate and letting agents, high-value dealers, trust or company service providers, the art market, et cetera.
HMRC’s civil and criminal enforcement powers and capabilities are an integral part of government work to collect and protect revenue and build a trusted, modern tax and customs department. Our enforcement powers allow us already to tackle a minority who attempt to cheat the system and whose actions cause wider harms. HMRC uses a range of supervisory enforcement powers robustly, to address money laundering and terrorist financing risks caused by non-compliant businesses. The aim of this register is to help them in that task.
As always, of course, the Government keep the law under regular review to ensure that there is a robust legislative framework. Following concerns that parts of the criminal law may not be fit for purpose and calls for legislative certainty around the prosecution of corporate bodies for economic crime, the Government sought to establish whether there was a case for change. In 2020 the Government commissioned the Law Commission to undertake a detailed review of how the legislative framework could be improved to appropriately capture and punish criminal offences committed by corporations, with a particular focus on economic crime. That paper was published on 10 June this year. We are carefully assessing the options presented and are committed to working quickly to reform corporate criminal liability.
The noble Lord, Lord Clement-Jones, raised SLAPPs, which are an abuse of the legal system involving the use of legal threats and litigation to silence journalists, campaigners and public bodies who investigate wrongdoing in the public interest. The invasion of Ukraine has heightened concerns about oligarchs abusing laws and seeking to shut down reporting on their corruption or economic crime. The MoJ has published targeted proposals against SLAPPs, including legislative changes such as establishing a definition for SLAPP cases and early strikeouts of claims that meet that threshold, strengthening defamation defences and cost capping. The MoJ recently held a call for evidence on these proposals to gather a robust basis on which to introduce targeted reforms swiftly. It also held a series of round-table events with key stakeholders—campaigning journalists, claimant and defendant lawyers, media groups and civil society organisations. The MoJ is currently analysing the evidence gathered and will publish its response in due course.
I am also happy to confirm to the noble Lord, Lord Clement-Jones, that the combination of this year’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of approximately £400 million over the next three years for law enforcement to combat economic crime. This includes the £63 million for Companies House reform to help it to carry out the necessary transformations for delivery of the new powers and the updated register.
This SI does not make provision for the charging of fees, so we do not need to rely on Section 25(3)(g). Companies House will not charge specified public authorities to access protected information. The equivalent regulation was not necessary, removing a potential barrier.
I respectfully disagree with the noble Lord, Lord McNicol, on the timing of the Economic Crime (Transparency and Enforcement) Act and these regulations. The Government are at the forefront of tackling illicit finance, including that linked to Russia. Combating the illicit finance threat from source to destination has never been more important. Serious criminals, corrupt elites and individuals who seek to engage in this activity know that they are now under our targets. They also know that the full weight of law enforcement and the tools that accompany it will bear down on those who threaten the security of the UK and our allies. With the legislation we have introduced in recent years, we have shown that we take the threat of illicit finance, including from Russia, extremely seriously. This register is a key part of this and will help to combat illicit finance.
I think I have answered all the questions that were put to me. I once again thank all noble Lords who have taken an interest in this. As I said, this will be complementary to the additional provisions that will be introduced in the further economic crime Bill coming in the autumn. In the meantime, these SIs enable the register to be up and live in the early part of the summer. Therefore, I commend the regulations to the Committee.
Occupational Pension Schemes (Governance and Registration) (Amendment) Regulations 2022
Considered in Grand Committee
My Lords, I am pleased to introduce this instrument, which brings into pension law various duties of trustees of defined benefit and defined contribution occupational pension schemes relating to the appointment of fiduciary managers and the use and performance review of investment consultants. These duties will replace those currently set out in an order made by the Competition and Markets Authority, the CMA, in 2019 following an investigation into competition in the relevant markets. Compliance with these duties will now be overseen by the Pensions Regulator instead of the CMA.
These regulations contribute to the Government’s objective of improving pension schemes’ administration and governance standards, transparency and decision-making, which will in turn drive better outcomes for the millions of hard-working savers in occupational pension schemes now and for years to come. I am satisfied that the regulations are compatible with the European Convention on Human Rights.
These regulations bring into pension legislation the obligations on trustees of occupational trust-based pension schemes contained in the CMA’s order in relation to the provision of investment consultancy and fiduciary management services. Before setting out more about what the regulations do, it is worth explaining the background to how they have come about.
In simple terms, investment consultancy is the provision of advice to trustees on investment strategy and related matters. Fiduciary management involves the delegation of some investment decisions by trustees to advisers alongside providing advice on investment-related matters. The use of these services has grown over the last decade. The complexity of investments, lack of investment knowledge and challenge of managing defined benefit scheme liabilities has led to an increased dependence on both services. Good investment is a key element in any well-run pension scheme. Trustees are responsible for investment governance and are accountable for any investment decisions taken. They also have a duty to consider proper advice and act in the best financial interests of beneficiaries.
In December 2018, the CMA, following a referral by the Financial Conduct Authority, published its report on its market investigation into the supply and acquisition of investment consultancy and fiduciary management services to and by various investors and employers. The CMA found that among pension schemes there was a low level of engagement by trustees and a lack of clear and comparable information on which to assess value for money.
Sitting suspended for a Division in the House.
The CMA found among pension schemes that there was a low level of engagement by trustees and a lack of clear and comparable information on which to assess value for money. Trustees were being steered by consultants towards their own higher-cost fiduciary management services, giving them an incumbency advantage. Ultimately, trustees were more likely to pay higher prices for these services than they should. Overall, the CMA found that this was having an adverse effect on competition for these services and likely bringing financial detriment for employer sponsors of defined benefit pension schemes and savers in defined contribution pension schemes.
It is important to note that both services were said to influence decisions affecting pension scheme assets worth over £1.6 trillion and the retirement incomes of millions of people. Any negative impact on scheme outcomes will be significant, and will accumulate and compound over the long term in which pension assets are invested. The CMA’s report proposed recommendations and remedies to encourage better trustee engagement when buying services, and better disclosure of fees and performance. The CMA made it clear that some of these remedies would be implemented by an order. That order was made in June 2019 and came into effect later that year.
The CMA also recommended that the Department for Work and Pensions take forward legislation to bring into pensions legislation the provisions of the order for two specific remedies: first, the requirement to carry out a competitive tender in certain circumstances before appointing, or continuing to use, a fiduciary manager; and secondly, the requirement to set objectives for, and review the performance of, investment consultants appointed by the trustees.
The CMA also recommended that legislation should provide for the Pensions Regulator to oversee these new duties on trustees, rather than leave long-term enforcement action against occupational pension scheme trustees to the CMA. The DWP, on behalf of the Government, committed to do this in early 2019 and consulted on its proposed legislation in summer 2019. However, because of necessary reprioritisation brought on by the Covid-19 pandemic, work on this was delayed until this year.
The regulations before the Committee fulfil the commitment the Government made in 2019 to accept the CMA’s recommendation and to integrate the requirements in the CMA’s order that apply to trustees of occupational pension schemes into pensions legislation. Subject to approval, this instrument will require trustees of occupational pension schemes to set objectives for persons who provide them with investment consultancy services, to review those objectives at intervals of no more than three years, and to annually review the performance of those providers against those objectives. This setting of objectives will enable trustees to monitor the performance of their advisers.
The regulations also require trustees to carry out a qualifying tender process when continuing to use existing fiduciary management providers, or appointing new ones, if the scheme meets the asset management threshold. The threshold is met when fiduciary managers covered by the regulations manage 20% or more of in-scope assets. The regulations also set out what the qualifying tender process is and when it must be carried out. Additionally, through the regulations the Government have defined “investment consultancy provider”, “investment consultancy services”, “fiduciary management provider” and “fiduciary management services” for the first time in pensions legislation.
The Government believe that these duties will encourage trustees to become more engaged with the way services are bought, monitored and evaluated, or to consider more efficient consolidation options. In turn, this will lead to better outcomes for scheme members and employer sponsors of schemes.
For the most part, the regulations replicate the effect of the relevant provisions in the CMA’s order. However, there are some small differences that reflect government policy. One such difference is about the type of schemes that are exempt from the requirement to set objectives. The CMA excluded trustees of schemes that are sponsored or funded by providers of investment consultancy and fiduciary management services from setting objectives for their investment consultant and from tendering for fiduciary management. The regulations bring these schemes back into scope of the requirement for trustees of such schemes to set objectives for their investment consultant. It is government policy that members of such schemes should still benefit from a well-governed, high-performing investment consultant, despite the trustees and the investment consultant being part of the same organisation.
The regulations also do not make any provision about local government pension schemes. This is a matter for the Department for Levelling Up, Housing and Communities and the devolved Administrations in Scotland and Northern Ireland to bring forward their own legislation. As such, for local government pension schemes, the CMA’s order, to the extent that it imposes requirements relating to investment consultants, will continue to remain applicable for the time being.
Finally, this instrument does not create any exceptions from the requirement to tender for fiduciary management services in cases where parties are connected only because they are participating in a joint venture. This is to avoid the risk that, where a scheme sponsor and a fiduciary manager had a joint venture, they would not be required to run, or bid for, a tender. The CMA order contains a limited exception for joint ventures. This change has been made to disincentivise firms from creating joint ventures to circumvent this duty.
As stated earlier, the regulations bring the monitoring and enforcement of these trustee duties into the regulatory remit of the Pensions Regulator. Trustees will be required to provide certain information about the use of investment consultancy and fiduciary management providers in the scheme return which they must complete each year and return to the Pensions Regulator. The information enables the Pensions Regulator to monitor compliance with the duties set out in the regulations. The regulator has said it will update its published guidance to reflect the final regulations ahead of them coming into force.
In conclusion, these trustee duties concerning the way investment consultancy and fiduciary management services are bought and evaluated will facilitate good governance, which will ultimately mean services that are better value for money, benefiting members and the employer sponsors of pension schemes. Of significant importance is that the regulations bring compliance, monitoring and enforcement of the duties under the remit of the Pensions Regulator. I therefore commend this instrument to the Grand Committee and beg to move.
My Lords, I thank the Minister for her presentation and explanation of why the Government are introducing this statutory instrument. The Explanatory Memorandum states that it
“will encourage better trustee engagement, transparency and governance when buying investment consultancy and fiduciary management services. It will require trustees of occupational pension schemes … to set objectives for their investment consultant and carry out a tender exercise in certain circumstances before appointing a fiduciary manager. It will also enable The Pensions Regulator … to oversee the remedies which apply to such trustees and ensure compliance.”
The problem that the regulations are designed to address is focused mainly on smaller occupational pension schemes which need to take advice on their investment strategy. The investigation by the CMA of advice to pension schemes found that there was a low level of engagement with trustees, a lack of information for assessment of value for money, and that customers were steered by consultants towards their own higher cost fiduciary management services giving them incumbent advantage.
The remedies proposed by the CMA are to become part of the new regulations, with TPR ensuring compliance. We are broadly supportive of the measures in the SI but have a few issues for the Minister to address. First, can she reassure us that the new process is not onerously bureaucratic and time-consuming for small schemes? Certainly, the introduction of competitive tendering has in some cases led to a very time-consuming process, so I would like her assurances on that.
What about the cost to smaller pension schemes? The impact assessment has detailed calculations but, probably because it is very long and detailed, I did not find a great deal on the need to empower and train trustees and managers to introduce the new system.
Also, the DWP has a strong view that bigger is better as far as pension schemes are concerned. These regulations are needed to improve the quality of advice to smaller schemes with less experienced trustees. Will the Minister say how the consolidation of DB and DC schemes is going? The Minister urges consolidation and the Government are starting to put in place a “comply or explain” duty on small pension schemes to show that they are providing value for money for members or, if not, to merge into something bigger. Has this been successful? How has it been evaluated? Can she say something about what the Government are doing about the barriers to consolidation? For example, what is the cost of legal advice and consultation with members to wind up a scheme and merge into something bigger? In small schemes, costs could be high relative to the gains from consolidation, so what are the Government doing about that?
We support the proposals and look forward to best-quality advice and higher transparency for members of the scheme. I look forward to the Minister’s response to the points that I have raised.
My Lords, I declare my interest as a pension scheme trustee, as set out in the register. I thank the Minister for her helpful and clear explanation of the intent of these regulations. I support them, because they integrate into pensions legislation an order produced by the Competition and Markets Authority to address the weaknesses it found in the investment consultancy and fiduciary management markets.
This instrument integrates two of the CMA’s seven proposed remedies for addressing the weaknesses in those markets by placing duties on the trustees of relevant occupational pension schemes: remedy 1 is the mandatory competitive tendering requirement for pension schemes to follow when it comes to fiduciary management services; and remedy 7 places a duty on trustees to set their investment consultants clear strategic objectives. These regulations also put the regulatory responsibility for the oversight of those trustee duties within the remit of the Pensions Regulator.
The case for the order being integrated into pensions regulation was set out very clearly by the CMA in its report on these markets:
“we find there are weaknesses in the demand side based on a low level of engagement by some pension scheme trustees. In addition to this, for those who engage with the market, the information that trustees need to assess the value for money (by which we mean both fee levels and quality) of these services is difficult to access. These two factors reduce the competitive pressure on investment consultants and fiduciary managers.”
Sadly, the CMA’s report and recommendations, which followed a referral from the FCA, which also identified problems, provide yet another example of a necessary intervention to address instances of poor competitiveness in the pension industry market. Poor practices on the supply side by providers and demand-side weaknesses driven by the well-known drivers of asymmetry of knowledge and understanding, customer inertia and low levels of active engagement lead to customer detriment.
In this instance, the demand-side weakness is the low level of engagement by some pension trustees, most likely in smaller and DC schemes. On a read-through of the detail in the CMA report, its very real concern about how these markets are operating becomes apparent. Lack of information and transparency on fees and performance, incumbency advantage and barriers to switching fiduciary manager rank high among those concerns. It is very depressing that we are still seeing examples of those behaviours in the pensions market.
Investment consultants and fiduciary managers have a very influential role through the advice they give and in the exercising of delegated authority to manage investments on behalf of the trustee—I say, as a trustee, that this is why this is so important. If their performance or value is poor, the result is detriment to the pension savers. The nature of the investment advice and fiduciary management markets means that any negative impact on scheme outcomes because of their performance or value is significant and will accumulate and compound because of the long time horizon over which pension assets are invested.
Addressing market weaknesses is not without its challenge. A very perceptive observation in the Secondary Legislation Scrutiny Committee’s 6th Report of Session 2022–23 in reference to these regulations provides me with an opportunity to articulate something that has been worrying me but which the committee has been very perceptive in identifying. It welcomes the additional protections, but adds:
“This is the thirteenth SI relating to the governance of occupational pensions that we have seen in the last 12 months and the Government need to be mindful of the cumulative impact of the costs and administrative burdens on both pension schemes and trustees.”
It is not only in the last 12 months. Over the last few years, there have been several pension scheme Bills and a plethora of regulations. I completely recognise that some of those regulations are very necessary to address weaknesses in the private pensions market, which are well documented in numerous FCA and CMA reports and other reputable sources of data. But in other instances, regulations are needed to correct the impact of public policy decisions and their implementation in the first instance. Suboptimal policy, or suboptimal implementation of policy, is itself now beginning to generate excessive regulations and is increasing that volume.
There are many more examples, but I will take just a few. The Government failed to anticipate the exponential growth in scammer activity that followed the introduction of pension freedoms. It was pretty obvious to most people in this field that, once you tell people that they can take all of their money very easily out of all their pension savings, scammer activity would grow exponentially. Even with the new regulations to address the scam problem, there is ambiguity between the intention of the primary legislation, the regulations and regulatory guidance.
The supposition of active engagement by savers and the requirement to take advice in certain circumstances has not provided the sufficiency of protection for pension savers. As the FCA reported, a significant amount of the advice given was not fit for purpose. It culminated in the steelworkers’ problems. The FCA confirms that consumers often take the line of least resistance in choosing draw-down products. Lack of transparency, complexity and consumer inertia all lead to poor decisions. We then have markets that did not respond with the degree of product innovation that was forecast. The introduction of value for member assessments, although conceptually the right thing to do, did not make for easy comparison between schemes.
All these issues and others have increased or will increase the volume of regulation. They add complexity and less efficiency in consumer and public policy outcomes. This is genuinely worrying me a great deal. Regulatory overloads that miss the primary target take us back to that very perceptive comment by the Secondary Legislation Scrutiny Committee. If the fundamental issue is not correctly analysed, the policy appropriate and the implementation right it will just lead to layer on layer of regulation to try to correct some of these problems in this market, which will never be a very efficient and functioning competitive market for all the reasons we know.
I wanted to take advantage of the comment in the Secondary Legislation Scrutiny Committee’s report, because I suddenly felt not alone. Here was a group of people who probably know nothing about pensions at all but asked, “How many of these things can you lay on people before you create a greater problem than the one you are trying to fix?”
To end on a more positive note—it is not that I do not think that there are positives—I recognise the work of the Minister and officials in increasing the number of eligible poor pensioners applying for pension credit. I understand that the results are very significant, so my compliments on that, having given a list of things that I am unhappy about. I look forward to seeing the figures.
My Lords, I thank the Minister for her introduction to the regulations. I always prefer to speak after my noble friend Lady Drake and to say that I agree strongly. It can leave the impression that I might have made the same points as forcibly, so I get the credit without any of the hard work that has been put in.
However, on this occasion, I will reinforce this issue of regulations. Just read the regulations as presented to us: this is not a sensible way to tell people how to run their pension schemes. However, it is too late; we have adopted this pattern and we just have to pile regulations upon regulations. We have the report from the committee, and I hope its views will be borne in mind. There is so much to do, and to do it with regulations requires this continual production of additional regulations, but who really understands them? We require the guidance from the Pensions Regulator, so in fact we have two sets: you can look at the regulations and at the guidance. I wish we had not gone down this road of setting out how pension funds should run.
I can claim some experience here because I was a pensions regulator. I was a member of the Occupational Pensions Board, and we introduced contracting out—you can tell it was a long time ago. We made a much better job of telling people what they could, should and should not do. We introduced this extremely complicated process of contracting out over a relatively short period and we did it through issuing guidance. The guidance was what ruled. Clearly, we had very strong enforcement powers, because if people did not follow our guidance they did not get their certificate, so they had to follow our guidance—I suspect it is not quite the same here. In that sense it was a much simpler task. I really feel that some deep thought needs to be given as to how the requirements on schemes should be set out. Doing it by regulations is manifestly not the way to do it but it is the way we have adopted. We are there now, and it would be very difficult to pull back. However, this has some impact on how the regulations are drafted, presented and handled.
Of course, one problem is that the industry will always be one step ahead, so it is not as if we will ever reach a final steady state of regulations—there will be continued processes. All I am asking for, in support of my noble friend, is that an overall view is taken of the way regulations are introduced and incorporated in the structure of pensions law. There is a much better way of doing it. Thirteen SIs in one year strikes one as absurd.
I conclude with a trivial point. I have always been fascinated by this—I have seen these things for many years, not only since becoming a Member of this noble House. What is the strict distinction between Explanatory Notes and Explanatory Memoranda? I told your Lordships that this is extremely trivial, but I note that “the Pensions Regulator” gets a small “t” in the Explanatory Note and a capital “T” in the Explanatory Memorandum.
My Lords, for those watching at home, I have just managed to pour water all over my speech, so I hope that noble Lords will bear with me if at points it ceases to make any sense.
I thank the Minister for her introduction to these regulations and all noble Lords who have spoken. Like my noble friend Lord Davies, I am delighted to speak after my noble friend Lady Drake—we all are. We all learn something from every time she contributes, and I thank her for her expertise and hard work on this.
In its report on the investigation into the investment consultant markets, published in December 2018, the CMA made a series of recommendations for action by the DWP, the Pensions Regulator, the Treasury and the FCA. In June 2019, the CMA laid its order, which implemented remedies to address weak competition found within the investment consultancy and fiduciary management markets. As we have heard, this instrument integrates into pensions legislation the relevant provisions of that order and brings them within the scope of TPR. The key effect is that trustees of relevant occupational pension schemes will be required to undertake competitive tendering for fiduciary management services for pension schemes if they have not done that before, and to set strategic objectives for their investment consultants.
The noble Baroness, Lady Janke, noted that the stated aim of the policy is to improve trustee engagement, transparency and governance when buying investment consultancy and fiduciary management services. My noble friend Lady Drake was absolutely right to remind the Committee of the crucial role played by investment consultants and fiduciary managers in advising trustees and exercising delegated authority on investments, which gives them real influence over investment outcomes. That makes it really important that trustees are able to access good-quality services and advice and can monitor the performance of their advisers and the value of services delivered.
Trustees also play a vital role as the first line of defence for millions of scheme members. Driving up standards of scheme governance has, understandably, been a priority for TPR. It is notable that the CMA identified instances in which trustees did not meet TPR’s standards of trustee knowledge and understanding. My noble friend Lord Davies spoke about the importance of clarity in regulation and good communication. Given that the Government have chosen this way to go, are they considering any further initiatives to help trustees to improve their knowledge base, but in a way that does not undermine a diverse population of trustees being represented on trustee boards?
The CMA remedies proposed to address the market weaknesses that it identified were extensive. As well as the regulatory responsibilities placed on TPR and the duties on trustees, the remedies included a requirement on investment consultants to separate marketing of their fiduciary management service from their investment advice and to inform customers of their duty to tender in most cases before buying fiduciary management; requirements on fiduciary management firms to provide better and more comparable information on fees and performance for prospective customers and on fees for existing customers; and a requirement on investment consultancy and fiduciary management providers to report performance of any recommended asset management products or funds using basic minimum standards.
One hopes that these regulations will help to address the failings in the investment consultant and fiduciary management markets, improve trustee governance and get better outcomes for pension savers, but the Committee should be clear about the scale of the challenge. My noble friend Lady Drake and the Minister mentioned some of the concerns in the CMA report about how these markets are functioning. I think it is worth getting that detail down for the record.
The CMA found that features of the investment consultancy market restricted or distorted competition in the supply and acquisition of investment consultancy services by pension schemes. These included low levels of engagement by some trustees, with some lacking the capability to scrutinise properly the investment advice they receive and therefore being less likely to switch, tender or formally review their investment consultancy services—a problem most prominent among small schemes and DC schemes. There was a lack of clear information and standards needed to assess the quality of their investment consultant and a lack of clear and comparable information for customers to assess the value for money of alternative investment consultants.
The CMA had even greater concerns about features of the fiduciary management market, including firms steering customers towards their own fiduciary management service, as we have heard; low levels of customer engagement in testing the market prior to moving into fiduciary management; a lack of clear and comparable information to assess the value for money of alternative fiduciary managers; a lack of clear information for customers to assess the value for money of their existing fiduciary manager; many customers not receiving clear fee information, limiting their ability to assess the competitiveness of the fiduciary management and the underlying funds invested in on their behalf; investment performance being reported on a gross-of-fees basis, which does not reflect the real outcome for the scheme; and barriers to switching fiduciary manager, such as requiring substantial time and incurring high costs. Other than that, it is going swimmingly.
My noble friend Lady Drake is surely right that the nature of these markets means that any negative impact on scheme outcomes could not just be significant but compound across the long timescales to which pension funds operate.
Regulation 4 places a duty on the Secretary of State to review the provisions of Part 6 of the 1996 regulations, as inserted by these regulations, to set out the conclusions of the review in a report and to publish the report. The Secretary of State must publish the first report under this regulation by 31 December 2028, and subsequent reviews must be carried out at intervals of no more than five years. But 2028 will be 10 years after the publication of the CMA report; that is a long time to wait for a report on whether the weaknesses in the investment consultancy and fiduciary management markets have been significantly addressed, given their importance to member value and outcomes and the potential contribution to member detriment if they go wrong. How will Parliament be informed as to the progress, or lack of it, in addressing the weaknesses in these markets before the publication of the Secretary of State’s report in 2028?
I cannot finish without coming back to the comments about the Secondary Legislation Scrutiny Committee, to which my noble friend Lady Drake drew our attention in some detail. As my noble friend Lord Davies said, this is the 13th SI the committee has had in the last 12 months. That is very striking. I have lost track of how much primary and secondary legislation on pensions I have had to do, as I am sure the Minister has. My noble friend Lady Drake gave a very insightful and important assessment of the background and consequences of this barrage of legislation. What assessment has the Minister’s department made of the actual impact on trustees, especially in smaller schemes, of this barrage of changes? I do not just mean the impact assessment on this particular set. What are they looking at across the piece—the impact of the successive wave of legislation on trustees?
Secondly, what will her department do differently in response to the criticism by the SLSC that some of these regulations have been needed to correct the impact of public policy decisions and their implementation in the first instance? My noble friend Lady Drake gave the good example of scams following on from pension freedoms.
Finally, has the Minister’s department worked with the Treasury to consider at a higher level whether their whole approach to this market is working? If you keep legislating, and you keep amending your legislation at ever-diminishing intervals, is it possible that this approach is not delivering for consumers?
Action to address the weaknesses of investment consultancy and fiduciary management markets is welcome, but I will be interested to hear the answers to the many very good questions asked of the Minister by noble Lords today.
I thank all noble Lords for their contributions. While some of the participants in today’s debate stand in awe of the brain power on pensions of some of the people in this room, they are not alone. Many of the points raised by noble Lords go much wider than these regulations, and there are many things on which we will have to write to noble Lords to ensure we can answer these important questions. We will do so and put a copy in the Library.
The noble Baroness, Lady Janke, raised consolidation and what plans the Government have to accelerate the pace of consolidation in the DC market. The DWP continues to champion the benefits that consolidation can bring in improved governance, lower cost and enabling schemes to reach the scale needed to access a broader range of investments. Last year, regulations were introduced requiring all DC schemes with less than £100 million in assets to undergo a rigorous value-for-money examination each year, the intention being that schemes that cannot prove value will put members first, make improvements or wind up. Data from the Pensions Regulator shows that consolidation is happening at a healthy rate, but we will continue to keep this area under review to ensure that savers are not left in small, poorly governed, underperforming schemes. In the meantime, we are working with the Pensions Regulator and the Financial Conduct Authority to create their value-for-money framework and metrics that will enable genuine comparisons to be made and encourage competition across the DC market.
The noble Baroness, Lady Janke, asked a question about processes being onerous and bureaucratic for small schemes, and the cost to smaller schemes in terms of charges, et cetera. Trustees of schemes of all sizes have been complying with the CMA’s order since December 2019. They have reported compliance without further issues raised. The CMA investigation found that
“the potential benefits of our remedies package are likely to substantially outweigh the potential costs … even small improvements in quality of these services or reductions in price will produce substantial benefits which will likely increase over time. In comparison, the likely cost of our remedies is small.”
The noble Baroness, Lady Drake, asked what we are doing to improve transparency of pension charges and choices for members. The Government consulted last year on a proposal to move to a single universal charging structure across all providers of qualifying defined contribution pension schemes used for automatic enrolment. Responses to that consultation and other evidence are being considered to determine our next steps. Additionally, as part of the Government’s commitment to protect individuals in automatically enrolled schemes from higher and unfair charges, secondary legislation is being enacted to implement a de minimis threshold of £100 on the value of members’ rights, below which the flat fee element of the combination charge cannot be charged.
I thank the noble Baroness, Lady Drake, for the points that she raised about pension credit uptake. There has been a great effort to promote it to the pensioners who need it. There was a great campaign, resulting in Len Goodman doing a video, which has gone down very well with people and has had a massive effect. He gave the campaign a 10. Having got a 10 from Len, I am hoping that we can get a 10 from your Lordships, and particularly the noble Baroness.
The noble Baroness also raised consolidations on scheme. There are one-off costs within consolidation but, in our view, the long-term benefits of moving to bigger, better-run schemes with a more diverse investment strategy are in savers’ best interests.
I thank the noble Lord, Lord Davies, for his contributions. We will take note of what he said on the regulations, and I apologise for the mistake in the Explanatory Memorandum.
The noble Baroness, Lady Sherlock, asked how Parliament will be informed as to the progress—or lack thereof—addressing the weakness in these markets prior to the publication of the Secretary of State’s report in 2028. The report referred to is the post-implementation review of the legislation. In the interim, the duties that these regulations place on trustees will be monitored by the Pensions Regulator. Reviews between the Pensions Regulator and the DWP will take place on a regular basis.
The noble Baroness also raised an issue regarding trustees. The Secretary of State has announced her intention to make 2023 the year of the trustee. Although final proposals are still being developed, the department is keen to explore what additional support can be given to trustees, and how diversity on trustee boards could be improved.
The noble Baroness, Lady Sherlock, also asked about cost estimates for setting objectives in the CMA final report, similar to the DWP impact assessment. DWP cost estimates for setting objectives are based on information gathered by the CMA as part of its investigation into the investment consultancy markets. The DWP, the CMA and the Pensions Regulator have continued to share analysis throughout the construction of the impact assessment to ensure consistency.
The noble Baroness asked whether the legislation could reduce benefits to members as additional costs will be passed on. Replicating the CMA order places a direct cost to pension schemes, but it is anticipated that schemes will benefit from lower fees, increased quality, greater choice of services and accelerated innovation benefits, which may be passed to members. As highlighted in the CMA report,
“the potential benefits of our remedies package are likely to substantially outweigh the potential costs”.
Since DWP legislation largely replicates the CMA order, it is anticipated that benefits will continue to outweigh costs. However, potential benefits are hard to quantify, which is why they could not be monetised in the impact assessment.
We have a duty to ensure that those who have engaged in pension saving in their occupational pension scheme can rest assured that their scheme is on course to deliver the best possible outcome for them, bringing into pensions law requirements which help to tackle inconsistent levels of governance and encourage better engagement by trustees, with the procurement, evaluation and monitoring of investment consultancy and fiduciary management services a necessary step.
Transferring the regulatory responsibility to the Pensions Regulator will remove the burden of dual compliance processes for the trustees of the relevant trust schemes who have already been complying with the CMA’s order over two years. The CMA will make provision so that the parts of its order that are covered by these regulations will cease to have effect once the regulations come into force.
The noble Baroness, Lady Sherlock, raised a point about the regulations and the interface with HMT. We continue to work closely with HMT and regulators to ensure the pensions sector is working effectively and in its members’ best interests. I commend the instrument to the Committee.
Committee adjourned at 7.31pm.