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General Committees

Debated on Monday 23 April 2018

Delegated Legislation Committee

Draft Combined Authorities (Borrowing) Regulations 2018

The Committee consisted of the following Members:

Chair: Joan Ryan

† Berry, Jake (Parliamentary Under-Secretary of State for Housing, Communities and Local Government)

† Clarke, Mr Simon (Middlesbrough South and East Cleveland) (Con)

Cooper, Rosie (West Lancashire) (Lab)

† Costa, Alberto (South Leicestershire) (Con)

† Elmore, Chris (Ogmore) (Lab)

† Fabricant, Michael (Lichfield) (Con)

† Fovargue, Yvonne (Makerfield) (Lab)

† Grant, Bill (Ayr, Carrick and Cumnock) (Con)

† Huq, Dr Rupa (Ealing Central and Acton) (Lab)

† Jenkyns, Andrea (Morley and Outwood) (Con)

† McFadden, Mr Pat (Wolverhampton South East) (Lab)

† Morgan, Stephen (Portsmouth South) (Lab)

Nandy, Lisa (Wigan) (Lab)

† Sheerman, Mr Barry (Huddersfield) (Lab/Co-op)

† Shelbrooke, Alec (Elmet and Rothwell) (Con)

† Skidmore, Chris (Kingswood) (Con)

† Tolhurst, Kelly (Rochester and Strood) (Con)

Nina Foster, Committee Clerk

† attended the Committee

Fourth Delegated Legislation Committee

Monday 23 April 2018

[Joan Ryan in the Chair]

Draft Combined Authorities (Borrowing) Regulations 2018

I beg to move,

That the Committee has considered the draft Combined Authorities (Borrowing) Regulations 2018.

It is a pleasure to serve under your chairmanship, Ms Ryan—I believe for the first time—and to learn just before this sitting that you were the northern powerhouse before it was even invented.

The regulations, which were laid before the House on 12 March 2018, will implement a commitment, made by my right hon. Friend the Chancellor of the Exchequer, to extend the borrowing powers of mayoral combined authorities that have agreed debt caps with Her Majesty’s Treasury. The extension of borrowing powers is an essential further step for mayoral combined authorities in England, which wish to be able to invest in economically productive infrastructure, giving local government the tools necessary to stimulate local economic growth and, crucially, productivity.

At present, primary legislation provides that mayoral combined authorities can borrow only for transport functions, with the exception of Greater Manchester, which inherited its predecessor organisations’ borrowing powers in relation to its fire, police and waste functions. In comparison, a local authority may borrow for any purpose relevant to its functions or for prudent management of its financial affairs.

The Chancellor announced in the 2016 autumn statement that he would extend mayoral combined authorities’ borrowing powers. That followed commitments made in the devolution deals with each mayoral combined authority, which consider that their limited borrowing powers could weaken their ability to drive and deliver growth for the people they have the privilege of representing.

The draft regulations confer additional borrowing powers on the six mayoral combined authorities to allow them to borrow in relation to all their existing functions. The six mayoral combined authorities include: Cambridgeshire and Peterborough, under the leadership of its Mayor, James Palmer; Greater Manchester, under the leadership of Andy Burnham; Liverpool City Region, under the leadership of Steve Rotheram; Tees Valley, under the leadership of Ben Houchen; the West of England, under the leadership of Tim Bowles; and the West Midlands, under the leadership of Andy Street.

The Minister and I both hope that there will be more elected Mayors in future, and certainly there will be one in Sheffield, and possibly others in Yorkshire. Will we have to come back here again, or will these regulations also cover the new authorities?

I have a bottle of fizzy water on ice, ready for the outcome of the election of the Mayor in South Yorkshire—I hope it is a Conservative. If by some chance a Labour Mayor is elected, he will not be affected by these regulations. These regulations, if approved today, are the secondary step that Parliament will take to agree the additional borrowing powers if—and only if—they agree the debt cap with the Treasury.

The Minister rightly mentioned Andy Street, the Mayor of the West Midlands, who I know will welcome these powers. I have no background in local government whatsoever, so I would like to know this: how will the interest rates for the borrowing be determined, and from whom will the combined authorities borrow? Will they borrow from the Treasury or from commercial organisations? What supervision will there be on the rates of interest?

I was beginning to worry about my hon. Friend, because he did not jump up to intervene the moment I mentioned Andy Street. The Mayors are free to borrow the money, if it is under the borrowing cap, from anyone they choose. My guess is that they are most likely to borrow from the Public Loan Works Board, which at the moment has an interest rate of 1.91% for a five-year loan. My hon. Friend will understand that the rate changes over time—the Bank of England is rightly independent of Government and will set future rates. The borrowing powers are subject to an overall borrowing cap, to be agreed with the Treasury, for either two or three years, or perhaps for longer in future, and they are covered in the same way as every local authority is now by the prudential borrowing regulations. Not only will they have to remain within their borrowing cap, but they will have to comply with the prudential borrowing regime, if the Committee accepts these regulations.

Any proposed borrowing is subject to the unanimous consent of all the constituent councils. If there is complete deadlock, is there any mechanism to allow an impartial person to step in and resolve any disagreement?

These borrowing powers are intended to give effect to the desires and hopes that the Mayor will have set out in his manifesto, so it is up to the local authorities to agree and back their Mayor. There are currently no proposals on how to break a deadlock, although we would look to Mayors to provide local leadership. For example, Andy Burnham, who is the nearest Mayor to my constituency, covers both Conservative and Labour authorities, but he has been able—with some political skill, I think—to persuade them all, including Conservative-controlled Trafford Council, to back his plans to drive forward the economy of Greater Manchester. I fundamentally believe in democracy. I believe that Mayors have a huge mandate from the population they represent, and I think that local authorities should back that mandate. Of course, local authorities have their own democratic mandate, to ensure that the Mayor is not wasting money and is considering all parts of the combined authority when he makes decisions—I keep saying “he” because currently all of them are men, but I hope that will change shortly.

Each mayoral combined authority has a bespoke set of powers, depending on the devolution deal agreed with the Government and subsequently legislated for by Parliament. The regulations allow different borrowing powers for each mayoral combined authority, reflecting the fact that each of them has slightly different powers. Each has agreed a debt cap with the Treasury, and therefore we have the necessary assurance that the proposed borrowing powers will be used appropriately.

Under the Local Government Act 2003, local authority borrowing is regulated by the prudential borrowing regime, which stipulates that a local authority can borrow lawfully only if it can demonstrate that servicing and repaying the debt is affordable. As my hon. Friend the Member for Lichfield suggested, we must be absolutely sure that any money borrowed is affordable, and the prudential borrowing regime will ensure that it is. As mayoral combined authorities are currently defined as local authorities for the purposes of legislation, they will be subject to the same rules, providing all necessary safeguards. The 2003 Act also provides that combined authorities have a power to borrow for transport purposes. The Cities and Local Government Devolution Act 2016 amended the 2003 Act to provide for the Secretary of State to make regulations extending a combined authority’s power to borrow for other specified functions in addition to transport.

In conclusion, these regulations extend borrowing powers to enable the six mayoral combined authorities to borrow in relation to all of their existing functions, as agreed in their devolution deals and announced in the 2016 autumn statement. The combined authorities have each agreed debt caps with the Treasury and are subject to the same prudential borrowing regime as all councils. We are therefore seeking parliamentary approval to make the regulations. As we approach the first anniversary of the election of the six Mayors for the combined authorities, I think this is a crucial next step towards ensuring that each Mayor has the powers they need to drive forward economic growth in their area. I therefore commend the draft regulations to the Committee.

We obviously welcome the regulations, because they introduce the borrowing powers that will support the combined authorities to better deal with businesses and communities. Despite the positive progress made by the combined authorities in the first year, only two devolution deals have been announced in the past two years, and the longer it takes to get the deals, the longer other parts of the country will have to wait to benefit from these opportunities.

Therefore, when will the Government engage in an honest debate about the best form of governance to enable thriving local economies across the country, including the non-metropolitan areas, ensuring that the inclusive growth is not lost? That would be aided by further detail on the proposals for a common devolution framework. Will that be coming before the House shortly?

I thank the hon. Lady for her comments. With regard to the two devolution deals that we have agreed, I am hugely excited that the South Yorkshire devolution deal will proceed. It means £1 billion of new money going to the people of South Yorkshire. Having spent three years of my life living in Sheffield, I know that the area will benefit hugely from that new Government investment. I am pleased that it has now been agreed, despite the local authorities being deadlocked for an extended period of time. It seems that agreement has now broken out.

I am also pleased that we are going to have a North of Tyne devolution deal, subject to all relevant legislation being passing in due course. That is a real opportunity for the north-east. I think that devolution represents a new golden age for the north-east of England, and a new golden age of relations and respect between Government and the region. As we look ahead towards Brexit, the north-east, which is the only net exporting area of England, carries a lot of hope for our country. I hope that businesses such as Nissan and the fantastic manufacturers in the north-east will play their part in creating a global Britain that can trade with the world.

With regard to further devolution deals, it is a Conservative manifesto commitment to bring forward a devolution framework for the rest of England. We continue to work on that, because determining what devolution should look like outside our metropolitan areas is extremely complicated. But I want to make it absolutely clear that we stand by our commitment that areas that are largely rural will be under no obligation to have a Mayor. That has often been the sticking point with other devolution deals that the Government have sought to negotiate, such as the one in Lincolnshire, where there was no common agreement. I hope that the change in Government policy, as set out in our manifesto, will enable us to unlock devolution in other areas.

Finally, I am very proud to be part of a Government who, for the first time ever, have taken significant power, influence and, yes, money from London and the centre here in Westminster and returned it to the people of our regions. We remain one of the most over-centralised countries in Europe. I hope that through this devolution agenda, and through the regulations we are discussing today, we can seek to reverse that trend. Over 60% of my constituents in Rossendale and Darwen voted for Brexit, and they did so because they believe that too much power is concentrated not only in Brussels, but here in Westminster. My own view is that the golden thread of Brexit is about people in Lancashire, Yorkshire and the north-east, and everywhere else in the country, taking back control of their lives. As we bring powers back from Brussels, they should not necessary stop here in Westminster.

I think that I gave the Minister some leeway, after he wandered off-piste.

Question put and agreed to.

Committee rose.

Draft Licensing Of Houses In Multiple Occupation (Mandatory Conditions Of Licences) (England) Regulations 2018

The Committee consisted of the following Members:

Chair: Mrs Madeleine Moon

† Aldous, Peter (Waveney) (Con)

† Djanogly, Mr Jonathan (Huntingdon) (Con)

† Elmore, Chris (Ogmore) (Lab)

Flint, Caroline (Don Valley) (Lab)

† Henderson, Gordon (Sittingbourne and Sheppey) (Con)

† Jenkyns, Andrea (Morley and Outwood) (Con)

† Jones, Sarah (Croydon Central) (Lab)

† Onn, Melanie (Great Grimsby) (Lab)

† Percy, Andrew (Brigg and Goole) (Con)

† Prisk, Mr Mark (Hertford and Stortford) (Con)

Reeves, Ellie (Lewisham West and Penge) (Lab)

† Smith, Henry (Crawley) (Con)

† Snell, Gareth (Stoke-on-Trent Central) (Lab/Co-op)

† Thomas, Gareth (Harrow West) (Lab/Co-op)

† Tolhurst, Kelly (Rochester and Strood) (Con)

† Wheeler, Mrs Heather (Parliamentary Under-Secretary of State for Housing, Communities and Local Government)

Zeichner, Daniel (Cambridge) (Lab)

Peter Stam, Committee Clerk

† attended the Committee

The following also attended (Standing Order No. 118(2)):

Pound, Stephen (Ealing North) (Lab)

First Delegated Legislation Committee

Monday 23 April 2018

[Madeleine Moon in the Chair]

Draft Licensing of Houses in Multiple Occupation (Mandatory Conditions of Licences) (England) Regulations 2018

I beg to move,

That the Committee has considered the draft Licensing of Houses in Multiple Occupation (Mandatory Conditions of Licences) (England) Regulations 2018.

It is a pleasure to serve under your chairmanship for the first time, Mrs Moon. I will be brief, because these regulations are excellent, and many people are in favour of them.

The private rented sector is an important part of our housing market that houses 4.5 million households in England. Houses in multiple occupation—HMOs—form a vital part of the sector and often provide cheaper accommodation for people whose housing options are limited. However, HMOs sometimes pose greater management challenges than single household occupation accommodation, and some occupiers of HMOs are the most vulnerable people in our society, which is why mandatory licensing of HMOs was introduced in 2004 for properties with three or more storeys that are occupied by five or more people.

Since its introduction more than a decade ago, mandatory licensing has successfully raised standards and enabled local authorities to tackle overcrowded conditions and poor management practices. However, the private rented sector has doubled in size in the past 10 years, which has led to increasingly small single household properties being used as HMOs.

As smaller HMOs were not subject to mandatory licensing, some rogue landlords have been able to avoid local authority detection and enforcement by letting HMOs with fewer than three storeys. Failures by those landlords have led to negative and harmful impacts on some local communities because of an accumulation of rubbish and waste and because of noisy and antisocial behaviour outside HMOs.

To address those problems, we have extended mandatory licensing to properties of fewer than three storeys. We laid the Licensing of Houses in Multiple Occupation (Prescribed Description) (England) Order 2018 before the House on 23 February, and it will come into force in October.

To address other common problems with such properties, the Government are creating two new mandatory HMO licence conditions: national minimum sizes for rooms used as sleeping accommodation and a requirement to comply with council refuse schemes. Those new mandatory conditions are the subject of the Committee’s debate, and I will outline each one in turn.

First, I will set out the proposed requirements for minimum room sizes for sleeping accommodation. By amending schedule 4 of the Housing Act 2004, the regulations require local authorities to include new conditions with licences,

“to ensure that the floor area of any room in the HMO used as sleeping accommodation by one person aged over 10 years is not less than 6.51 square metres”.

The minimum room size is just that—a minimum. It is a standard below which a room cannot be used as sleeping accommodation. It is not intended to be the optimal room size or the lowest common denominator.

Let me be clear that local authorities will still be able to set minimum sleeping room sizes that reflect the layout, space and amenities in the HMO in question, which can be greater than 6.51 square metres when used by one person over 10 years old. That is important because local housing authorities will need the discretion to set a room size that reflects the condition of housing stock in their areas.

The introduction of a clear minimum room size in HMOs is important because it will ensure that a consistent minimum size is applied nationally across the different types of HMO in the sector, and it will clarify the standard with which we already expect landlords to comply. The regulations clarify minimum sizes for rooms used as sleeping accommodation by children under 10 years old and by two persons over 10 years old.

Non-compliance with the minimum room size is a serious matter. If a landlord knowingly breaches the condition, they will be liable on conviction of a criminal offence, which could result in an unlimited fine or a civil penalty of up to £30,000.

We have introduced transition arrangements to give landlords time to comply with the new requirement and to rectify overcrowding. Local authorities must allow up to 18 months before they consider prosecuting the landlord for breach of licence conditions. HMOs that are already licensed will have to comply with the condition only when their current licence expires and at the first renewal after 1 October this year.

The second new mandatory condition created by the regulations relates to household waste disposal facilities. A new mandatory condition will need to be included in HMO licensing to require landlords to comply with their local authority’s refuse storage and disposal schemes. The purpose of the condition needs some explanation. People living in separate households in HMOs tend to generate more rubbish than is seen in a single household property. While tenants should be responsible for properly disposing of their rubbish, they need adequate and accessible receptacles to do so. This mandatory condition of licensing will mean that local authorities will have to proactively require landlords to provide waste disposal facilities where there is a scheme. It will also provide local authorities with the necessary enforcement powers if landlords are not complying with waste disposal schemes.

We anticipate that the vast majority of landlords will already be in compliance with the conditions—we are simply clarifying existing space standards under section 326 of the Housing Act 1985. In 2015 and 2016, we consulted extensively on the introduction of minimum room sizes for sleeping accommodation, along with the requirement to comply with council refuse schemes. The legislation should therefore come as no surprise to local housing authorities and landlords alike. For those landlords not in compliance, there is the 18-month transition period I mentioned.

I am grateful for your tolerance, Mrs Moon, in allowing me to ask a question when I am not a member of this Committee. The Minister replied to my debate in Westminster Hall on 21 March, and I am grateful for her comments then and her comments today. The regulations mainly tidy things up, but they have not addressed the main issue with HMOs, which is their cumulative impact—the total change of a community in a residential district. Has she thought about extending the excellent work she has started today by finally coming to terms with the awful consequences of the cumulative impact of multiple HMO applications?

As the hon. Gentleman said, he is not a member of this Committee, but he has great interest in this matter. We are very keen to see licensing arrangements organised by local authorities kicking on and taking shape and power. They have the power to alter the licensing for their areas. There are four criteria that they have to comply with. As long as one or two of those strong criteria are well evidenced, our Department is keen to sign off on those arrangements, but the power lies with the local authority.

It is a pleasure to serve under your chairmanship, Mrs Moon, and to discuss these important HMO regulations. I will hazard a guess that I am one of the very rare parliamentarians to have lived in an HMO as a young homeless person and later as a between-homes, slightly older young person. I know how it feels to live in a property that was originally built for a single family, but that has been carved up in weird and wonderful ways to accommodate as many people as possible to maximise rental and housing benefit income. With the charity and housing association I was placed with, I was in the fortunate position of not having to suffer sharing a room or a house with multiple families, but that is the situation that many people across the country find themselves in. It is for them that we should not hesitate in improving the standards of the accommodation available.

The Government have made welcome steps in improving the deal for those living in HMOs, as the Minister outlined in her opening remarks. Labour has long argued for stronger rights and protections for renters, and the regulations will go some way to improving the rights of many of the most poor and vulnerable tenants, who are often the ones occupying such overcrowded houses. I take this opportunity to echo the sentiments of my hon. Friend the Member for Ealing North about the impact of HMOs on local communities. The number of HMOs impacts not only on immediate neighbours, but the whole community. With more people residing in individual rooms, people become less and less connected with their local community.

I have the great privilege of being the neighbour of my hon. Friend the Member for Ealing North. The situation in his constituency that he so ably describes also affects mine. Does my hon. Friend the Member for Great Grimsby believe that the Minister’s reply to my hon. Friend the Member for Ealing North would have been improved had she said that her Department was willing to support local authorities that want to go down the path of addressing that with additional resources? That would certainly speed up the introduction of such schemes.

Would that we were all so lucky to have my hon. Friend the Member for Ealing North as a neighbour. I am sure the Minister listened intently to the comments of my hon. Friend the Member for Harrow West and hopefully will take them on board. I am sure they are offered with a generous and genuine sentiment.

I am pleased the Government are bringing forward the regulations and supporting the Bill of my colleague, my hon. Friend the Member for Westminster North (Ms Buck), to ensure that all rental properties are fit for human habitation. Nearly 170 years after the industrial revolution, and a generation on from slum clearances and rife Rachmanism, it is none too soon that we have in one place clear definitions of what is acceptable as a minimum space for a human being to sleep.

However, it would be welcome if the Minister expands on the details of the regulations, of which we are broadly supportive. One concern is the impact of setting a small national minimum room size. I raise that in full recognition of the consultations, but remind the Minister that, in HMOs, the room allocated to someone is not just a bedroom. There are ordinarily shared bathroom and kitchen facilities. Individual rooms provide not only a sleeping location, but everything else—study, hobby, exercise and leisure, and all of that person’s belongings, are within that space. It is not simply a case of considering that there should be enough space for a bed and a chest of drawers. There may be no other space to store, for example, a bicycle by which people might transport themselves, or space for shelving for books, or space for a chair on which to sit rather sitting than on the edge of a bed, or a table at which to study or to eat.

The Minister must take those things into consideration when concluding that the proposed minimum standard for a single occupier should be 6.51 square metres or 10.22 square metres for two people. Those sizes will be further compromised if young children requiring a cot share the space. Would the Minister be happy to live in such a restrictive space?

Local authorities are well aware of the conditions in which some of their residents live and may seek to provide alternative room sizes in their licensing schemes. I note that the regulations do not seek to limit local authorities from setting more generous room size allowances than the national minimum, as the Minister said in her opening remarks, but can she confirm whether she believes that local authorities are protected from legal challenge in the residential property tribunal by landlords who wish to test specific local circumstances? Will she confirm that she has taken steps to allow local authorities to set room sizes freely without fear of a residential property tribunal?

The Minister mentioned fines for anybody letting out rooms that are smaller than the minimum size in the regulations. That requires enforcement and goes to comments made in interventions. Will any additional resources be made available for local authorities? There is no point in having these regulations unless we can properly enforce them and check that they are being adhered to. Local authorities will struggle to do that without resources—officers should be available to go and check on properties.

If the Government are prepared to intervene to set minimum room sizes in private rental HMOs, will they consider doing the same for new build private properties? On a recent visit to a development in Doncaster with Keepmoat Homes, which is working in partnership with the local Labour council, I was shown new builds, some of which will be handed to the council for social housing. They are being built with a 30% greater footprint to avoid the problems that have so often been experienced by people buying new houses—that the rooms are too small for regular furniture and do not have any storage space for things such as cleaning materials.

A number of issues arise when living space is unsuitably small. That applies to all properties, whether they are privately owned or rented HMOs. First, in HMOs there is the obvious danger that overcrowding and over-cluttered space could create a much greater fire risk. Usually there is only one way out, and residents should not be hindered in getting to the exit easily because of insufficient space. Secondly, one of the biggest issues connected with limited space, especially in HMOs, is the impact on mental health. Once someone is in the room, it is usually locked. There is often limited socialising between tenants, and a lack of shared social space can lead to isolation. If children are living in and sharing such a room, the ability to play, develop, be creative and learn is hampered. The likelihood of serious decline in mental health is all too real.

Of course that all fits into the wider problem of a housing market in crisis. It is fair to say that part of the reason for such shocking standards of accommodation is that many of those affected simply have no other option. There is a serious lack of council and social homes, and private rents for sole occupiers are too often unaffordable.

I hope my hon. Friend will not think me churlish when I say that, if we are talking about becoming neighbours, I should prefer it if she moved to Ealing—although I am happy to move to Grimsby should that be required.

My hon. Friend makes a powerful case and is speaking up for those whose voices are seldom heard—those who occupy houses in multiple occupation. Does she agree that in such cases we should consider a community infrastructure levy or some other sort of payment because of the impact on local facilities? I do not just mean community centres—I mean places such as libraries. HMOs put an extraordinary strain on the community in terms not only of social cohesion but of demand for facilities, for precisely the reasons she has so eloquently explained.

Order. May I remind the hon. Gentleman that we are not discussing libraries?

Thank you for your guidance, Mrs Moon. I shall not talk about libraries, but I thank my hon. Friend for his intervention, which relates to the point made earlier about the impact of HMOs on communities and the resources that local authorities require to meet the needs of all their residents properly.

Many of the vulnerable people who live in HMOs have to wait far too long to be provided with the council homes that they desperately need. The Housing and Planning Act 2016 offered little respite for many of those people, who are facing the sharp end of the crisis. Unfortunately, rather than providing enough council houses for the many who are on waiting lists, the Government decided to continue a sell-off of what council house stock we have left.

The regulations before the Committee show that the Government are aware of some of the problems facing the housing sector today, so will they back some of the steps that will help solve the crisis? Will they back a moratorium on the right to buy, under which more than 80,000 council houses have been sold since 2012?

Order. I again remind the hon. Lady to stay within the scope of the regulations. The purchasing of council housing is not in the provisions that we are here to look at.

Thank you, Mrs Moon.

I shall move on to an issue that is dealt with in the regulations—landlords’ responsibility for waste, and the additional waste generated in HMOs. The Government are right to require HMO landlords to take more responsibility for waste and its disposal. Often residence in HMO properties is transient, and the provisions should hold no fear for good, responsible landlords who take an interest in their property and tenants and the wider community.

A number of issues have been raised in the debate, and I hope the Minister will take as many steps as possible to answer those queries, but on the whole we believe that this statutory instrument represents a clear step forward for many poor and vulnerable people who have ended up in terrible conditions due to overcrowding of room space, and the Opposition are happy to support it.

I apologise to the Committee for detaining it further—I know how irritating it can be when a Back Bencher gets up in these sorts of debates, but I would be doing a disservice to my constituents if I did not say something, given how important this is to the people of Brigg and Goole.

First, I say to the hon. Member for Ealing North that we will not have him in the Humber if he tries to come—we are very discerning—and we are not prepared to lose the hon. Member for Great Grimsby either, so they will never become neighbours in any shape or form.

Maybe spiritually and emotionally, but certainly not physically.

Multiple occupation is a huge issue in my constituency. A three-bedroom terraced house in Goole can be bought for between £70,000 and £80,000. Many have been purchased and turned into homes in multiple occupation, often four-bedroom properties. We have a number of three-storey properties as well, which have similarly been turned into HMOs. That has become a big issue for my constituents. Hon. Members have rightly said that people living in those properties are often very vulnerable, and it is an important part of the housing market for those people, particularly those who are transitioning between different periods of their life. Members of my family have lived in similar accommodation. However, it puts a huge pressure on communities.

I welcome the changes, particularly on minimum room sizes—I note they are about 70 square feet to 110 square feet in proper measurements, which is a good start, but I hope local authorities go further than that. I welcome the regulations, but I want to raise one or two other matters that sometimes fall out of the discussion. In Goole, where this has been a big issue and where we have seen huge amounts of eastern European immigration since the early 2000s, it has put pressure on our housing market. Many of those people who have come have worked incredibly hard in our community, but it is no good pretending that it has not had a big impact on the housing supply.

I welcome the changes, particularly on refuse, which has been one of the big bugbears in Goole. East Riding of Yorkshire Council has finally started to get to grips with the issue of HMOs—it was slow on the uptake, but I give it credit for what it has done. Refuse has been a major complaint, as have some of the other matters that are often raised, such as parking. When lots of extra people are put into terraced streets where there is no off-street parking and no front gardens to be turned into off-street parking, which I understand happens in other places, there is not a great deal we can do. We need to look at that.

I agree entirely with the hon. Member for Ealing North on the cumulative impact element, which we need to take much more seriously. The proliferation of HMOs changes the nature of communities. It has certainly done so in parts of my town. I urge the Government to keep that under review.

There are also, sadly, elements of antisocial behaviour that come along with that. That antisocial behaviour is not people misbehaving, but if a terrace house is suddenly turned into four or five separate residences, it creates four or five times the normal noise. In a terraced house, that noise goes in both directions, whether it is people slamming doors, playing music or doing all the things we do ordinarily in life. Suddenly someone’s upstairs bedroom is next to what is effectively someone else’s living room, where they live for the whole of their time in that property. I am not suggesting for a moment that people, when they are being antisocial, are deliberately trying to cause problems for other people, but they have an impact, particularly with regard to noise.

I welcome the changes, and pay tribute to the Minister, who I know is trying to get to grips with this. I suppose the purpose of my intervention is to urge the Government not to stop here, but to continue to keep this policy under review and look at the other elements that can come from the proliferation of HMOs, especially in the areas of antisocial behaviour, parking and of course the cumulative impact that the hon. Member for Ealing North referenced.

I thank all hon. Members for their contributions. I will try to answer some of the questions if I can.

I should reiterate that the new minimum sleeping size is just that—a minimum. It will create a consistent standard that must be met across all HMOs. To be clear, in the example the hon. Member for Great Grimsby gave of two adults and a baby in the room, the minimum size for two adults is 10.22 square metres, which is reasonably large. Local housing authorities will still have discretion to set larger room sizes to reflect their conditions—I am sure local authorities will set standards to local conditions.

The mandatory conditions are necessary to enable local housing authorities to tackle overcrowded conditions and poor management practices in HMOs. On financing, local housing authorities have been aware of the changes for some time. We have consulted extensively. Some local authorities have been preparing in readiness to extend the scope of HMO licensing. HMO licensing is self-funding, and local housing authorities are able to recoup the cost of administering the scheme through licensing fees. I hope the hon. Member for Ealing North is pleased about that.

Poor housing conditions put the health, safety and welfare of tenants at risk and the Government are determined to tackle that. We want landlords in the sector to improve the standard of housing that they rent out, or to leave the sector entirely. We are being strong about that. I therefore recommend these regulations to the Committee.

Question put and agreed to.

Committee rose.

Draft Renewable Heat Incentive Scheme Regulations 2018 Draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018

The Committee consisted of the following Members:

Chair: David Hanson

† Brown, Alan (Kilmarnock and Loudoun) (SNP)

† Charalambous, Bambos (Enfield, Southgate) (Lab)

Cryer, John (Leyton and Wanstead) (Lab)

† Davies, Chris (Brecon and Radnorshire) (Con)

Farrelly, Paul (Newcastle-under-Lyme) (Lab)

† Greening, Justine (Putney) (Con)

† Harris, Rebecca (Lord Commissioner of Her Majesty's Treasury)

Jones, Susan Elan (Clwyd South) (Lab)

† Lamont, John (Berwickshire, Roxburgh and Selkirk) (Con)

† Lefroy, Jeremy (Stafford) (Con)

† Mackinlay, Craig (South Thanet) (Con)

† Offord, Dr Matthew (Hendon) (Con)

† Perry, Claire (Minister for Energy and Clean Growth)

† Robinson, Mary (Cheadle) (Con)

† Smith, Nick (Blaenau Gwent) (Lab)

Umunna, Chuka (Streatham) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

Kenneth Fox, Committee Clerk

† attended the Committee

Second Delegated Legislation Committee

Monday 23 April 2018

[Mr David Hanson in the Chair]

Draft Renewable Heat Incentive Scheme Regulations 2018

With this it will be convenient to consider the draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018.

It is a pleasure as always to serve under your chairmanship, Mr Hanson. If I may add one moment of levity, I congratulate two members of the Committee on their fine performance in the London marathon yesterday—I am sure they were cursing renewable heat at the time. I am sure my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk and the hon. Member for Blaenau Gwent are enjoying the chance to sit down; hopefully it will not be for too long. Congratulations to them.

The purpose of the draft orders is to implement reforms to the renewable heat incentive. The reforms will deliver changes that will strengthen the focus on long-term decarbonisation, offer better value for money for taxpayers, increase protection for consumers and further support supply chain growth in the renewable heat sector.

Heat for our homes, businesses and industries accounts for around half of the UK’s energy use and around one third of total carbon emissions. Increasing the share of heat derived from renewable sources is a critical challenge, both to meet our renewable energy targets and to deliver the Government’s long-term carbon goals. Renewable heat can also make a valuable contribution to our fuel poverty ambition, and it is my intention to use this scheme and the energy company obligation scheme to deliver on our manifesto commitment.

Building a vibrant renewable heat sector is a key objective of the clean growth strategy and the industrial strategy, and the RHI is the main programme to deliver those goals over the spending period. The non-domestic RHI scheme was launched in 2011, and there are now more than 18,000 installations with a total capacity of 4,000 MW. The scheme produces enough renewable heat for more than 1 million homes. The domestic RHI was launched in 2014, and more than 60,000 homes are now using it to make the transition to low-carbon heating. Before the RHI started, only 1% of our heat came from renewable energy sources. That figure is now around 7% of total heat.

This type of tariff-based support for renewable heat installations is the first scheme of its kind in the world. Inevitably when pioneering something, there are lessons to be learned, and these reforms are a response to some of the lessons from the early years. We consulted extensively on this package of reforms in 2016. The draft regulations will complete the delivery of those changes, as well as implementing elements from two smaller consultations in 2017.

The National Audit Office published a review of the RHI in February this year, which we were very pleased to receive. However, many of the comments related to the draft regulations that are now before us and which we now have the opportunity to discuss. I hope they will go some way towards addressing some of the issues covered in the NAO’s report.

The draft orders will deliver 12 important changes in total. Those will deliver a series of important reforms that will ultimately help us to deliver a more strategic mix of technologies and improved value for money over the next three years. I will highlight a couple of the main ones.

We will increase the tariffs available for biogas and biomethane technologies while introducing new restrictions on the feedstock that those plants use, which was one of the requests that we received from many campaigners in the sector. That will encourage the increased use of food and agricultural waste and will reduce the use of energy crops, making better use of farmland for food production. We will also revise the tariffs for heat pumps and biomass that were introduced through negative regulations last year, which will rebalance the deployment away from biomass and in favour of heat pumps, biogas and biomethane, which will all play a much stronger role in the scheme over the long term.

Another important change is that we will bring in tariff guarantees that cap the amount of heat covered to 250 GW per year. That will allow RHI applicants to secure their place on the scheme in advance of construction, and will support investments in larger plants, but not mega-plants, with long lead times that deliver better value for money.

In the domestic scheme, take-up to date has been dominated by owners of larger homes. To promote wider uptake, which is an important objective for me, we will introduce the facility for an assignment of rights. That will allow third parties, particularly those in lower-income housing, to finance renewable technology and be repaid directly from the RHI. Crucially, that will open up access to the scheme for those without the up-front capital to pay for a new heating system, and will avoid some of the allegations of dead weight that have been directed at the scheme.

The Minister mentioned biomass and the 250 GW cap. In the oil and gas debate on Thursday, I raised the issue of the Grangemouth renewable project, which is in the pipeline and possibly due for commission. Will the cap affect that project, if it proceeds?

If I may, I will make some progress and ask my trusty officials to scribble a note to me. If we cannot answer the hon. Gentleman during the debate, I will be happy to write to him.

Following last year’s consultation, we will also limit the eligibility of certain heat uses. One of the concerning criticisms of the scheme was that it was being used to dry wood for fuel and that it was being used for waste processing and drying, which were strongly felt to be inappropriate for the scheme. The regulations will change that and improve the value for money of the various projects. We will also remove the use of heat-drying digestate and anaerobic digestion facilities as eligible heat uses, because we consider them to be poor value for money. Those technologies would not exist without RHI support.

In addition, we will remove support for heating swimming pools on the non-domestic scheme, unless the pool is for commercial or municipal use. That brings us into line with existing regulations on the domestic scheme.

We are also introducing changes to allow more than one heat pump to use a common or shared ground loop, which should facilitate greater deployment of that important technology. The introduction of electricity metering for heat pumps across both schemes will allow participants to better monitor the efficiency of their plant and will build confidence in the technology.

Following the consultation, another change will increase the power efficiency threshold for combined heat and power technology from 10% to 20% to reduce the risk of over-compensation and to encourage plants to run more efficiently. There is also a whole series of mainly administrative changes to tighten cost control, reduce the risk of gaming and improve Ofgem’s delivery of both schemes, including by tightening its enforcement powers. The Renewable Heat Incentive Scheme Regulations 2018 also consolidate all previous revisions to the original regulations, as recommended by the Joint Committee on Statutory Instruments.

The RHI plays a central role in the Government’s programme to decarbonise heating, but it is not perfect. As Committee members will know, the scheme is scheduled to end in March 2021 in terms of access for new entrants—it will continue for many years thereafter in terms of financial support. However, until that time, we want to make the scheme as good as it can possibly be. These regulations are an important step in refining the scheme, so I recommend them to the Committee.

It is a pleasure to serve under your chairmanship, Mr Hanson. I ought to state from the outset that we want these regulations in place as soon as possible.

The delays in moving from the revision of the RHI White Paper, through the consultation, to the production of the original draft regulations, and finally to the regulations that we are considering, have been considerable—indeed, they have been the subject of a number of inquiries over the past months asking when the regulations are coming in. Bodies involved in non-domestic RHI have said, “We have schemes ready to go. We are not sure what is happening. Can we please have the regulations so we have clarity for our forward development processes?”

The draft regulations have appeared today, and certainly not before time. I see that they will come into force the day after they have been agreed, which will not be a day too soon. Hopefully a number of the concerns that have been expressed can at last be laid to rest and people can get on with the process of delivering the renewable heat that I think we all want to progress. The Opposition will not oppose the draft regulations, but as the Minister should expect, we do not want them to go through without proper examination, one or two questions being answered and, ideally, some indication of what the longer term route for renewable heat is envisaged to be.

I have to say that I welcome many of the changes that will take place in terms of the scope and focus of the draft regulations—particularly, as the Minister mentioned, the concentration on biomethane and heat pumps, and the injection of biomethane into the grid. Those technologies are seen as increasingly relevant to the attack on the decarbonisation of heat, as it were. The different ambitions the renewable heat incentive will have as a result of these changes reflect a lot better where we actually are in terms of the development of those technologies going forward.

However, this is a change in ambition in that it is an overall reduction in ambition. We need to be clear about that. Not only is the renewable heat incentive, as it stands at the moment, not remotely enough for the ambitions that we have and should have on the decarbonisation of heat in terms of being a vehicle to bring that decarbonisation forward, but it is, as the Minister mentioned, very much a time-limited device, which will expire for new entrants in March 2021. In terms of the measures put forward in the clean growth strategy as some of the building blocks for serious clean growth and meeting climate targets, this is actually one of the most short term.

Indeed, in so far as investors and businesses are concerned, that time limit represents, in many ways, a cliff edge as to what will happen in the longer term future. As hon. Members will be aware, the period between where we are now—allegedly spring 2018—and March 2021 is barely time to get projects from conception, to proof, to development, to financing, to realisation. The cycle that is now in place with the renewable heat incentive is barely sufficient to support a lot of the schemes that will be needed—with all the care and detail that will be needed in their development—over the next few years, in so far as a major attack on the decarbonisation of heat is concerned.

A central question that we need to address in looking at the draft regulations is: what next? What will happen at the point at which this particular scheme, as presently rostered, comes to an end? In the clean growth strategy, the Government said that they have

“commissioned research into different heat demand scenarios, the use of hydrogen, what changes might be needed to the electricity grid in response to large scale uptake of heat pumps, the role that bioenergy might play in decarbonising heat and international activity.”

They then state that they

“plan to publish initial findings from a number of studies later this year, and a full report on our review of the evidence by summer 2018.”

Assuming that we have a summer, that Government report will then be in front of us. I imagine that that will be the occasion to look at the future of the RHI, in conjunction with the review that we are told is forthcoming, and to look at what imperative there is for a longer range renewable heat incentive, or a similar scheme, to take us perhaps to 2030 and give us the certainty we need for that period. I am interested to understand whether that is the view of the Government in their report due in the summer of 2018 on heat and heat demand, and whether possible commitments to the longer term basis of the RHI can be within the scope of that review of evidence.

There is one other alarming point we need to bear in mind. While the ambition of the RHI regarding what technologies it is focusing on has come into a more satisfactory trajectory, the National Audit Office and others recorded—as the Minister mentioned—that the new RHI has reduced its ambition substantially, as opposed to the original starting ambition of the RHI overall. For example, the NAO states that renewable heating that is not eligible for the RHI by 2020 has increased by 270%. Renewable heating funded by the RHI in 2020 has gone down by 65%. The total of renewable heating estimated by 2020 has gone down by 18%, from 71 terawatt hours to 58 terawatt hours. The lifetime carbon emission reductions funded by the RHI, in terms of the projections of the starting ambition compared with the current ambition, have gone down by no less than 44%.

This is a relatively modest scheme on the back of what was a relatively modest scheme in the first place. We should be under no illusion: these changes downgrade our climate change and heat decarbonisation ambitions quite substantially. To that extent, we cannot register anything other than considerable disappointment at that particular reduction. It makes it all the more essential that, in the summer of 2018, we get a grip on understanding what role the RHI or a similar incentive can and should play in heat decarbonisation, and how much further we need to go than the scheme presented to us today.

That is the framework in which I would be grateful to hear the Minister’s reflections on how the RHI as a whole may work for the future. I want to touch on one or two elements in these regulations. By the way, we have perhaps not fully reflected on the fact that these regulations reflect on both the domestic RHI and the industrial and commercial RHI, both of which started at different times and have slightly different objectives, but are brought considerably closer together by these changes, so I will talk about them interchangeably. However, there are issues where elements in one set of regulations do not appear to be read across fully in the other set. The Minister may have thoughts about some of those read-acrosses, if such a word exists. That would assure us that the overall coherence of the draft regulations for the two schemes, and how they come together, has been looked at properly.

My first specific point is about the assignment of rights, which is a welcome change in the new RHI. It enables a much better relationship between the people who fund an RHI project, the people who actually use it and the people who get the RHI funding for it, and it clarifies what happens if circumstances change. The draft regulations bring in full assignment of rights and a clear path for funding to be continued on the basis that there is proper documentation for a change to the assignment of rights, but just for the domestic RHI. I would have thought that it was just as important to make that arrangement for the assignment of rights in both sections of the RHI. Is there a clear and pressing reason why that has been done just for the domestic RHI, rather than across the board?

Secondly, the Minister mentioned the arrival of tariff guarantees in the new RHI. I wholly endorse the idea that there should be tariff guarantees. I mentioned investors; tariff guarantees will mean that, once their project is in the system, they are guaranteed a tariff, and it is not subject to the vicissitudes of subsequent degression or stops and starts in the scheme, so they can get on with the project with much more certainty. That is a sensible step forward.

Unfortunately, it is apparent from the explanatory memorandum that the tariff guarantees are not really the guarantees we think they are. They are subject to closure if it is considered that the guarantee amount has been exceeded in any particular period. There is an overall cap as a proportion of the total funding of the scheme in particular periods. The tariff guarantees will also come to an end before the RHI itself comes to an end in its present form—the beginning of 2021, as opposed to March 2021.

Therefore, people who thought they could safely move forward as far as tariff guarantees for their projects were concerned will have a rather rude awakening, because those guarantees are not guarantees. They are guarantees only inasmuch as Ofgem considers, given what else is happening in the scheme overall at any particular stage, that tariff guarantees can be offered. I am sure that the Minister understands that that is not exactly the cast-iron guarantee that one might have hoped investors would be able to get for RHI projects.

Thirdly, I welcome the geothermal element in the non-domestic scheme. The Minister will be aware that such projects are dear to my heart—I have invited her to see the geothermal project in Southampton. However, they are long-term projects that take a lot of funding up front and have long development periods. Although geothermal is in the allowed scheme for non-domestic RHI, it is probably sufficient for only a couple of schemes over the period. A geothermal developer is unlikely to be interested in geothermal projects where they think that the resource available to assist such projects—the short-term resource available in the RHI and across the board—is not enough to support the number of projects that they would need to make what they were doing stack up. That is a theoretical rather than a practical presence for the future of RHI.

Finally—I am sure the Committee will be glad to hear that word—I will talk briefly about the Minister’s comments on combined heat and power and power efficiency. In the regulations, the change the Government made a while ago and then withdrew has become a firm part of the RHI infrastructure.

CHP will not be eligible in full for its outputs if its electricity output is less than 20% efficient. The Minister will be aware that the same proposal was put forward several years ago and then withdrawn. The threshold was reduced to 10% after a review and consultation as to whether the 20% was justified. As part of the wider recent consultation, a special consultation was undertaken into the CHP proposals. Although the vast majority of those consulted agreed that there should be an efficiency level, 71% disagreed that the level should be 20%.

The reasons for that disagreement are fairly evident. CHP does not work on the basis of a known level of electricity efficiency that can be built in scheme by scheme and that could make it possible to decide whether one scheme was electricity efficient and, if it were deemed not to be electricity efficient below a certain point, to say without fear of contradiction that the scheme was not efficient and should not get the money for its activity.

Although I accept that a scheme that is less than 20% efficient will get a proportion of the RHI, schemes that cannot get to that 20% energy efficiency level will be substantially penalised, even though they are efficient schemes in their own right.

CHP schemes will be put in place in a lot of different circumstances. Some will have a relatively high electricity output, and some will have a relatively high heat output. The two are essentially interchangeable in terms of how CHP works, because the activities that produce heat can be diverted to produce steam for electricity production. A number of schemes have to have an emphasis on a slave heat load. That does not mean they are inefficient, but they will not be able to reach that 20% level under all circumstances. By setting that 20% level as if it were something achievable across the board without exception, the scheme potentially penalises and undermines the viability of several perfectly good CHP schemes that do not and cannot operate entirely on that basis.

As I have mentioned, I do not wish any of those concerns to be taken to mean that we do not support the regulations overall, but they need some looking at by the Government. I would welcome it if the Minister considers that at least some of the requests I have raised should be subject to further consideration, and if there is a wider review of RHI in future. I look forward to the Minister’s thoughts.

I will be very brief—I have only one question for my right hon. Friend the Minister. The current impact assessment, which replaces that of December 2016, shows a substantial fall in the net present value of the RHI deployment from £1.3 billion to £30 million. That is a huge reduction. Clearly the scope of the scheme is a little bit less, but nothing like that order of magnitude.

I very much support these proposals, but will the Minister give her view on whether that throws into question some of the various technologies included, and on whether they have a much smaller rate of return than had been originally expected? Page 26 of the impact assessment looks at the returns in terms of the value of traded and non-traded CO2 and the air quality benefits. It refers to non-monetised costs and benefits below that, but the positive impact of new technologies that support the growing UK industrial and technology base in this area has perhaps been under-calculated in coming to the NPV. I wonder whether that could be taken into account.

Given the huge discrepancy between 2016 and now, only 15 to 16 months later, I would appreciate the Minister’s comments on how that has arisen and whether she believes it is a game-changer or simply a smaller factor to be taken into account.

It is a pleasure to serve under your chairmanship, Mr Hanson. I apologise for being slightly late.

I support the RHI scheme and welcome anything that will help to enable low-carbon technologies and decarbonise heat. I do have a big “but”, however, which I raised in my intervention on the Minister. I also have other comments to make.

One of the briefing notes I got from Energy UK suggests that, alongside the measures and the continuation of the RHI scheme, there should be a comprehensive educational piece on options available for consumers and organisations. I would certainly support such a scheme, which would hopefully not only increase uptake, but alert people to the associated risks. A constituent purchased a biomass boiler and understood that it was eligible for RHI. An application was made and they started receiving RHI payments. It turned out that the boiler was not correctly installed and was not the correct boiler—the original installer was able to walk away with his accreditation, and after a legal fight my constituents now have a new boiler. However, Ofgem says that since it is a replacement boiler it therefore no longer qualifies for RHI and, even worse, that they must repay the RHI they have received.

That puts people at a huge financial risk and disadvantage. If other people heard about that, it might further put them off such a purchase. I have another example. A constituent had a boiler installed and the boiler went on fire. Hon. Members can imagine the distress that caused and the risks of a boiler going on fire. The constituent got a replacement boiler—they clearly needed to replace the boiler—and lo and behold they are no longer eligible for RHI. That is a fundamental failing of the scheme. I am speaking about only a few people, but there must be other examples. We need to find a way to ensure that people are not penalised for trying to do what the Government want them to do.

The NAO report highlighted that the original target was 513,000 by 2020, but by December 2017 only 78,000 were installed. We will be lucky to hit 20% of the 2020 target. Again, in terms of education and promotion, we need to make sure that there is sufficient uptake.

I appreciate that the Government have revised their uptake projection, but the NAO report highlighted that the Government have not back-filled the potential drop in RHI uptake with increased targets in other low-carbon technologies. The Government need to look at that. There is also an issue of cost-effectiveness. The NAO said that RHI is not delivering the value for money that the Government expected, which needs to be reviewed.

I will return to the big “but” that I highlighted. The Grangemouth renewable energy project has been in the pipeline for a number of years. It is a possible biomass and combined heat and power scheme that will replace the existing gas turbines at the Grangemouth refinery. The current owners of the refinery will have to make a procurement decision in a few weeks’ time on whether to go for the renewable energy project or to commission new gas turbines. The current renewable energy project is innovative and world leading and will reduce carbon dioxide emissions by 342,000 tonnes a year, and will need a £400 million investment.

The leader of Falkirk Council wrote to a BEIS Minister on 29 March. I understand that a response is still outstanding. The owners of the project also made representations to the Department and, as I said earlier, I raised it in the oil and gas debate on Thursday. Regulations 35(10)(a), 56(b)(iii)(aa) and 63(10)(a) of the draft Renewable Heat Incentive Scheme Regulations 2018 all to refer to the 250GWh cap. If that cap applied to this project—if it is procured in a few weeks’ time—the financial model would fall apart. The project qualified for a contract for difference in the last round of auctions, but we need to know the outcome of the RHI changes.

This is imminent, and my understanding is that it will put the project at risk. If I cannot get a straight answer, I will need to plough a lone furrow and put the draft orders to a Division, because too much is at stake for that project. I am obviously happy to hear from the Minister.

It is a pleasure to serve under your chairmanship, Mr Hanson. I just have a couple of points for my right hon. Friend. She will probably be aware that South Thanet is unique in having offshore wind, solar parks and biogas, and from this September we will have a £160 million, 27 MW biomass scheme that burns sweet chestnut. That is an interesting project on the old Pfizer site, which is an enterprise zone. We are pleased about that, and I certainly hope my right hon. Friend will cut the ribbon when it opens.

On the assignment of rights, I see within the guidance that third parties that offer the financing for householders will need to be registered with Ofgem, the Chartered Trading Standards Institute and the Consumer Codes Approval Scheme. Can she offer any help as to what registering with Ofgem means? My concern is that the less-than-sophisticated householder could be caught in a financing trap that they would not go into with proper assessment and guidance.

What will Ofgem do in terms of registering those third parties? If it is quasi-financing, which it obviously is, I imagine that the Financial Conduct Authority might be interested in those third parties. It might be that, in practice, it will be traditional financiers that are already FCA-registered, and not new, vanilla schemes. That is just a query that comes into my mind to assist the unsophisticated householder.

I sincerely thank all hon. Members for their contributions. As always, we improve legislation by scrutiny. I will try to respond to as many of those points as I can and will offer letters of assurance where I do not have the details.

First, the hon. Member for Kilmarnock and Loudoun raises an important point. My understanding is that, while the tariff cap is 250 GWh, bigger schemes can go forward. Effectively, part of the generation would be under a capped tariff and other parts would not. I appreciate the urgency in the commercial world. We might take months to make decisions, and sometimes developers do not have that. I will ask my team to write to him immediately and set out exactly what we know as it relates to Grangemouth. Hopefully that will give him assurance and he will not feel the need to divide the Committee.

As always, we like to work in the spirit of trying to do the best we can. It was important to set the threshold, because we have seen runaway budgets that have forced us effectively to curtail other schemes. The scheme will cost taxpayers £23 billion over its lifetime, even at the revised level, so it is a substantial investment of taxpayers’ money in driving us forward to a lower-carbon future.

I appreciate that the Minister is looking to provide a full update and give assurances or otherwise, but my concern is about what happens if the letter comes back to me stating, “Your concerns are right. It is a 250 GWh cap. The scheme is way above that, so unfortunately the project falls.” The letter may not help. Things will be left in the air until we get an answer, by which point it may be too late.

Obviously we consulted on the cap last year. Given the current scope, the scheme will be affected. Part of its output will have a guaranteed tariff, but perhaps the development team can come in to speak to officials and have a conversation. The hon. Gentleman mentioned that the scheme was bidding into CfD regulations as well. There are other routes and opportunities. Hopefully the people of Grangemouth whom he represents will be pleased that there is so much incentive. We want developers to bring forward the schemes to take us to a lower-carbon future. If a meeting would be helpful, I would be glad to arrange it.

I praise the hon. Member for Southampton, Test, who is almost my hon. Friend these days. He has brought his typically detailed level of scrutiny, and I will try to cover as many points as possible. On the question of the cliff edge, we are undertaking a lot of work. We published a call for evidence on 19 March. We are keen to develop cost-effective policies for the 2020s through to the 2030s and beyond, but we have a unique situation in this country. We have a centralised gas distribution network to which 85% of houses are attached, and 15% of us, including many in my constituency, live off the gas grid. It is about trying to work out cost-effective ways of delivering those low-carbon, cost-effective solutions on which we all agree. We have published a number of studies. Only last month, we published one showing initial findings on the options available for long-term heat decarbonisation, which are typically hydrogen, bioenergy and electrification. As promised, we will publish a full report of evidence in 2018. I look forward to discussing that with the hon. Gentleman.

The hon. Gentleman raised a challenge about reducing ambitions. It is important to recognise the size of the scheme—£23 billion of taxpayers’ money is committed over its lifetime, which is a substantial investment. Its goals were ambitious, but it is important that we have responded to some of the concerns.

I think we need to be clear that the £23 billion is over the lifetime of all the projects that would have got anything from the scheme up to its closure, which could be a period of up to 35 years. The £23 billion should be looked at in that context, rather than as something being funded by the scheme now. Indeed, the £23 billion should be compared with the estimated lifetime undertaking on the same basis with the original RHI, which I think the NAO put forward as £70 billion or so.

I am not going to detain the Committee debating Her Majesty’s Treasury policy, but effectively this is an on-balance-sheet commitment to a liability for either current or future taxpayers that is part of the Government’s spending commitment in perpetuity, and I think £23 billion is a fairly substantial sum. The hon. Gentleman will be pleased to hear that we were keen to understand whether we were rolling this out in the right direction. The Select Committee on Energy and Climate Change made the point that mass roll-out was not the right way forward. That is partly because—this relates to some of the other comments raised—as with all elements of decarbonisation, we need to cut carbon, find cost-effective deployment pathways and create strategic ways to invest where we can grow a manufacturing base and deliver. This is what the reforms are about—trying to reform the scheme for technologies that are more likely to be strategically important in the long run, for example heat pumps. It is less about the fewer, larger installations that use technology that we all know about. I think that is really important for driving through our UK plc investment profile.

The hon. Gentleman raised a question about CHP and why we were bringing in the 20% efficiency point. Again, we do not believe that offering a full CHP tariff to plants with lower electrical efficiency represents good value for taxpayers. We have talked about the strategic elements of this. If I have not answered any of his questions, I will write to him. I did want to discuss an area where we both have a great interest: geothermal. That can be part of the scheme. I am particularly interested in geothermal energy from abandoned mine workings, which is possibly a great untapped source of heat. That would bid in as a heat pump scheme, as opposed to any other scheme. There are really good opportunities for us to look at where we can bring forward some heat from the work that has already been done.

My hon. Friend the Member for Stafford raised an important point, showing that he has read all his documents. I am very impressed. Let that be a lesson to the Committee. He and I always like to debate the numbers. I will write to him with the absolute detail, but essentially there was a revaluation of the air quality and decarbonisation benefits. We may not necessarily agree with them, but if it is sufficient, I will write to him to give him more detail on the calculations. I would like to put it on the record again that as much as we all love being bound by our Treasury guidelines, which are important for delivering value for money, sometimes others make the case that they do not always capture the benefits, particularly these early-mover schemes. They do not yet capture the benefits of any investment in UK manufacturing or service expertise that we might be developing as a result of these, effectively, very big Government procurement programmes.

My hon. Friend the Member for South Thanet offered a very nice invitation, which I would be delighted to accept, and raised a really important and telling point about assignment of rights. I do not know the answer and I will write to him, but it is a tribute to his background that he is thinking hard about avoiding any form of payment protection insurance scandal or any sort of mis-selling. We want to assign these rights to ensure that people in potentially lower-income households are able to get that third-party capital investment into these schemes, but not in a way that causes problems. I am told that the Financial Conduct Authority will look at contracts to ensure compliance with the Consumer Credit Act 1974, if needed, but it would be reassuring to him and me to put that in a letter. I would be happy to send that to him.

I apologise for detaining my right hon. Friend on this, but does she also agree that the kind of investment that is being made by UK manufacturers and service companies is incredibly important as we seek to boost our exports? I am the Prime Minister’s trade envoy to Ethiopia, which wants to have, effectively, a waste-to-energy RHI and an electrical generation plant for each of its major cities. The UK is in a very good position to assist with this. Based on what we do in the UK, the opportunities are out there, and multiplied many times over, to provide on a commercial basis assistance around the world in renewable energy and heat.

I commend my hon. Friend for his international knowledge. This is exactly the point. As part of the clean growth challenge and the industrial strategy, we have realised that as we are global leaders in decarbonising our economy, while at the same time driving growth—only two countries are considered to be doing enough to meet a 2°C warming of the climate, namely ourselves and China—we can create enormous prosperity in the UK from exporting those services and technologies. If he feels that my Department or the Department for International Trade need to do anything to support his ambassadorial ambitions, I hope he will let me know. It is an important area.

In conclusion, we have had a good thrash through the regulations. Hopefully we all agree that the reforms are needed. They are essential to improve on the experience of the first years of the scheme, to ensure that it is better value for money and that it continues to play its part in the transition towards a lower carbon-emitting economy. As I said, we will offer further proposals and suggestions as to how to move forward once the scheme has ended. I hope the Committee will support both sets of regulations, which I commend to it.

Question put.


That the Committee has considered the draft Renewable Heat Incentive Scheme Regulations 2018.

Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018

Motion made, and Question put,

That the Committee has considered the draft Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2018.—(Claire Perry.)

Committee rose.

Draft Welsh Ministers (Transfer Of Functions) (Railways) Order 2018

The Committee consisted of the following Members:

Chair: Philip Davies

† Burghart, Alex (Brentwood and Ongar) (Con)

† Churchill, Jo (Bury St Edmunds) (Con)

† Davies, Glyn (Montgomeryshire) (Con)

† Edwards, Jonathan (Carmarthen East and Dinefwr) (PC)

Flynn, Paul (Newport West) (Lab)

† Ford, Vicky (Chelmsford) (Con)

† Foxcroft, Vicky (Lewisham, Deptford) (Lab)

† George, Ruth (High Peak) (Lab)

† Hair, Kirstene (Angus) (Con)

† Heappey, James (Wells) (Con)

† Johnson, Joseph (Minister of State, Department for Transport)

† Maskell, Rachael (York Central) (Lab/Co-op)

† Penrose, John (Weston-super-Mare) (Con)

† Rimmer, Ms Marie (St Helens South and Whiston) (Lab)

Smith, Angela (Penistone and Stocksbridge) (Lab)

† Swire, Sir Hugo (East Devon) (Con)

† Yasin, Mohammad (Bedford) (Lab)

Sarah Rees, Committee Clerk

† attended the Committee

The following also attended (Standing Order No. 118(2)):

Rees, Christina (Neath) (Lab/Co-op)

Third Delegated Legislation Committee

Monday 23 April 2018

[Philip Davies in the Chair]

Draft Welsh Ministers (Transfer of Functions) (Railways) Order 2018

I beg to move,

That the Committee has considered the draft Welsh Ministers (Transfer of Functions) (Railways) Order 2018.

The draft order, laid before the House on 28 February, will transfer certain railway functions of the Secretary of State in relation to the Wales and Borders franchise to Welsh Ministers. The devolution of these powers takes forward one of the Silk commission’s recommendations and is an important part of our commitments in the St David’s Day Command Paper on a lasting devolution settlement for Wales. This debate is the culmination of the parliamentary phase for the draft order, but it will not surprise hon. Members to learn that a lot of hard work has brought us to this day, and I would like to recognise the efforts of both the Welsh and the UK Governments in that.

We have agreed with the Welsh Government that the order will transfer franchising functions to Welsh Ministers only in so far as they relate to Wales and Borders services and stations wholly within Wales, and to certain ancillary and related matters. Welsh Ministers’ statutory powers within Wales are to be supplemented by agency powers exercised on behalf of the Secretary of State for services in England up to the first station in Wales.

These proposed arrangements will enable Welsh Ministers to procure and manage a replacement franchise that, like the current franchise, includes important cross-border services to and from English towns and cities, as well as some services entirely within England, while providing appropriate accountability for the Secretary of State for rail services within England.

Both Governments intend, over the next couple of months, to conclude a suite of devolution agreements that will supplement the order. A series of agency agreements will set out conditions on the specification and management of the English part of the franchise. That will include a requirement for the Wales and Borders franchisee to set up a separate borders business unit to manage services and stations within England and act as a focal point for liaison with relevant local authorities, sub-national transport bodies and user groups. Further agreements will set out arrangements for partnership working in respect of the management of the new franchise, the relevant funding and outputs to be provided and the terms under which Welsh Ministers will, for the time being, subcontract to the Secretary of State the exercise of the operator-of-last-resort responsibilities transferred to them by the draft order.

Following careful consideration of the representations from hon. Members, I can guarantee that English residents and those who use the parts of the Wales and Borders franchise that are solely within England will continue to have a mechanism to make their views known to their elected representatives following devolution.

I wish to restate my Department’s commitment to the spirit and the terms of the devolution agreement secured with the Welsh Government in 2014. We have agreed in principle that the present franchise funding levels and arrangements between the Department and the Welsh Government are to continue.

Much positive and practical work has been done by both Governments in readiness for Welsh Ministers taking on greater responsibilities. Transport for Wales has been established by the Welsh Government to help to deliver the next Wales and Borders franchise and the South Wales Metro project, and my Department has provided extensive support to help to progress their franchising and metro proposals.

The procurement process for the next franchise is already well under way. Both Governments have worked together to deliver successfully a series of procurement milestones—most recently, the invitation to tender in September.

We have worked closely with the Welsh Government to ensure that the interests of passengers in England and Wales are protected following devolution. This approach will deliver appropriate accountability for both the UK and the Welsh Governments for rail services solely in their territories, while ensuring that the experience of passengers in terms of connectivity and quality of services will be maintained and improved. The Welsh Ministers have formally approved the draft order. I ask the Committee also to give its support.

It is a pleasure to serve under your chairmanship, Mr Davies. Today’s statutory instrument is an important step in the devolution plan for our railways, as we see powers and responsibilities shift from Westminster to Wales. The Welsh Labour Government are already undertaking plans to design and let the new Wales and Borders rail franchise from this October, as well as to develop ambitious plans for the metro. Although devolution will feature heavily in Labour’s future plans for our rail service, we are absolutely clear that we will also bring rail operations back under public ownership and integrate them with wider infrastructure, improving efficiencies and the effectiveness of our major transport network. We will ensure that rail is run co-operatively and collaboratively alongside devolution, to enable the best of localism, while ensuring a consistent approach across the rail network, and that all revenue returns to the state, not the bank accounts of shareholders.

This statutory instrument, therefore, paves the way for the Welsh Government to build a world-class transport system in Wales for the people of Wales—one that is focused on regrowing the Welsh economy and serving Welsh communities. With 32 million journeys undertaken currently, growth until 2030 is forecast to be 74%, so this next phase highlights how important it is that rail policy is designed in a fully integrated way, with spatial and economic planning, and is fully integrated into the wider transport system in Wales.

Wales will embed the values and ethos of public service in the next iteration of its rail system. It will ensure that high standards improve services to passengers, and it will focus on reinvestment into the service rather than private profit. However, there are issues that we want the Minister to address. It is of huge frustration that he, in Whitehall, will not provide the real powers that Wales has called for, but instead has hidden behind the Railways Act 1993 to disallow Wales from having a public sector provider to run its rail service and to restrict it to tendering the service to private operators.

Whitehall’s continual grip on decisions of this nature does not demonstrate a Government wanting to support the ambitions of the people of Wales, nor does it enable the Welsh Government to run their rail service in the most efficient and effective way. It binds them to the failed philosophy that results in private companies continuing to derive profit out of passengers, while passengers pay more for their services.

The Welsh Labour Government have lobbied the UK Government for greater devolution of transport powers—for instance, to deliver a change to legislation to allow public sector bodies to act as franchisees and to place us on a similar footing to Scotland. The UK Government have continued to oppose that and other legal restrictions, meaning that the Welsh Government cannot bar for-profit operators from coming forward to run some elements, at a time when Labour Wales wants to show more ambition for the people it represents.

The restraints are not stopping the Welsh Labour Government acting creatively. Transport for Wales has been created as a not-for-profit company initially tasked with supporting the Welsh Government to design and let the next franchise and metro. Once the franchise has been let, it is expected that Transport for Wales will oversee the management and joining up of services, including items such as marketing and integrated ticketing.

One of the questions I am hoping to ask the Minister is whether he is confident that having only two franchise bidders will mean that there will be a competitive process. As the Member representing the Labour party in this Committee, is the hon. Lady confident that the Welsh Government can proceed with this franchise bidding process with only two bidders?

The hon. Gentleman is right to be sceptical about the process. Not only has it been limited to the private sector to bid for these franchises, but, as he has highlighted, only two companies are in place. This Government have directly awarded so many contracts of late, and we are concerned about the way the market is continuing to fail the people who use the service.

What is to say that the Labour party in Wales will not run the railways as badly as it currently runs the NHS?

The point is irrelevant; not only is the NHS performing incredibly well in Wales—of course, it was founded by Bevan, who was from Wales, and we are incredibly proud of that—but the Welsh Government want to realise the ambition of the people of Wales and to have the opportunity to move the railway system forward as an integrated form of transport. We really look forward to the progress that a Labour Government will make—if this Government do not provide the powers necessary to do so.

I will return to the main issue. Labour would ensure that Transport for Wales is at the heart of rail operations, not just to lead in Wales but to secure its voice at the table when it comes to integration of the rest of the rail network across the UK.

The Welsh Government have already made it clear that those services that can be run directly through a not-for-profit model will be run that way, with many more services, such as ticketing, marketing, station management and car parking, operating in new and innovative ways under that new approach.

Labour has been planning to increase capacity, improve efficiency, upgrade rolling stock and integrate rail with other public transport modes, as well as to change the culture, improve access for disabled people, consider how rail can further the wider economy and invest in the workforce, not least in the area of skills.

In November 2016, bidders for the new franchise submitted their outline solutions, in accordance with criteria set by the Welsh Government. Since January 2017, detailed work has been undertaken with the two bidders to deliver for passengers, and that process continues.

In November 2014, agreement was reached between the Welsh and UK Governments to devolve executive franchising functions to Welsh Ministers, so that they could lead the procurement of the next Wales and Borders franchise, which is due to commence on 14 October 2018. Today’s order will achieve this, and through the affirmative resolution procedure in both Houses, it will result in changes to the Railways Act 1993 and the Railways Act 2005.

While mainly in line with those powers devolved to Scottish Ministers, there are some differences in the scope of cross-border rail operations into England and in the fact that responsibilities in respect of the rail network are not being devolved to Wales. Today’s statutory instrument will enable Welsh Ministers to be the sole designating and franchising authority in respect of Wales-only services, and enable Welsh Ministers to designate and franchise the Welsh component of Welsh services—those parts of cross-border services to and from England within Wales—that are contained within the same franchise as Wales-only services. This scope has been agreed in recognition of the extensive nature of cross-border services, and services wholly within England, provided by the Wales and Borders franchise, and the need for appropriate accountability for rail operators on each side of the border.

Since all the relevant references to the “National Assembly of Wales” are replaced by references to “Welsh Ministers”, on the basis of agency arrangements established under section 83 of the Government of Wales Act 2006, it is possible for Welsh Ministers to act as the agent of the Secretary of State. Thus, they can procure and manage the entirety of the Wales and Borders franchise, which includes services that continue to and from, and that operate within, England.

Given that this order makes it possible for the Welsh Government to lead the procurement and management of cross-border services, in the light of the Great Western, West Coast and Cross Country franchise processes, will the UK Government work with the Welsh Government to consider how they can lead the delivery of more cross-border services, so that they can work for the economy and people of Wales? I look forward to hearing the Minister’s response.

The Welsh Government’s ability to operate additional services to destinations already served by the Wales and Borders franchise, and to additional destinations in England, is being heavily constrained under these arrangements. These restrictions will suppress both the rail service offer and the financial potential of the franchise in Wales, not least by the allocation of rail paths. Will the UK Government work with the Welsh Government to address that issue?

The agency agreement setting out the arrangements under which Welsh Ministers can operate services in England is very restrictive. Scottish Ministers are able to operate services into England without such restrictions. Will the Minister therefore agree to review these arrangements, with a view to relaxing them, so that Welsh Ministers can act more freely as a franchising authority, not least in enabling rail operations to move into public hands?

We have been informed that a co-operation and collaboration agreement with Welsh Ministers is being developed. The agreement will need to set out arrangements for how Welsh Ministers will be actively involved in the procurement and management of the cross-border services that continue to be included in the Secretary of State’s franchise. Will the Minister provide an assurance that Welsh Ministers will be significantly and meaningfully involved?

The Commission on Devolution in Wales recommended devolution of funding for Network Rail, but in the four years that have passed since the publication of the part 2 report, the UK Government have not been prepared to open discussions with the Welsh Government. Will the Minister commit to open discussions, not least in the light of the Government’s ambition to join rail operations with infrastructure, as set out in “Connecting people: a strategic vision for rail”, which was published in November? Not to do so seems contrary to that paper.

Network Rail’s annual reports and accounts illustrate that, since its Wales route was established in 2011, just over 1% of spending on enhancement schemes across England and Wales has been directed to the area, yet the Wales route contains 11% of England and Wales’ rail network. A firm commitment to provide a fair level of investment is urgently needed to improve access to employment opportunities and to enable Wales to compete as a location for inward investment in a post-HS2 era. Will the Minister give a commitment to ensure that the options provided for by a new Crewe hub allow for full and unimpaired access to the north Wales main line?

I thank the hon. Lady for making that important point, but she seems to be announcing a change in Labour party policy. She is right to say that the Silk commission noted that those powers should be devolved to Wales, but my recollection of events during the St David’s Day process—the hon. Member for Montgomeryshire might have something to say on this point—was that the then Secretary of State for Wales, the right hon. Member for Preseli Pembrokeshire (Stephen Crabb), and the then shadow Secretary of State for Wales, the hon. Member for Pontypridd (Owen Smith), made an agreement to take those provisions from the Silk commission out of the Wales Bill.

Labour is absolutely clear that we will do nothing to impede the Welsh economy from growing. That is the focus of our vision and that of Welsh Ministers in the Welsh Assembly and of those in this place.

The recent decision to cancel electrification to Swansea, especially in the light of the revelations in the National Audit Office report, highlights that the Secretary of State knew that bi-mode trains would not provide equivalence to electrification. In fact, no such trains exist that could deliver to the timetable. The Secretary of State acted against the advice that he was given on the matter. That has resulted in the poor execution of Network Rail’s electrification works in south Wales, and the Secretary of State has failed to apologise to the House in the light of those revelations. Perhaps the Minister will offer an apology today, which would be a start.

The decision has caused great disappointment and disruption across the region. Will the Minister commit to long-term investment in the south Wales main line and reinforce the importance of achieving all the remaining electrification ambition through to Cardiff, including on the relief lines? When can we expect to hear an update on that, not least about how electrification will be extended to Swansea?

In the Secretary of State’s written statement of 20 July 2017, which cancelled electrification to Swansea, it was proposed that a new pipeline process be established for rail enhancement schemes. However, further detail about that process, as well as the mechanisms for developing and delivering those schemes, is yet to emerge and no Welsh scheme has yet entered the pipeline. Given the recent cancellation of major investments in Wales, will the Government outline what they are doing to ensure that Welsh rail projects are given the priority and funding they need through the new process?

The Minister will be aware of the importance of the trans-European transport network in Wales. Under regulations, the routes to Milford Haven and to Holyhead need to be upgraded by 2030, which includes full electrification. Does the Minister agree that as we leave the EU, those arterial routes become more important, not least since important examples of TEN-T routes run through non-EU countries such as Switzerland? Will the Government publish a plan for how the upgrade to the TEN-T requirements will be delivered in that time framework?

In conclusion, Labour does not believe that the draft order goes anywhere near the ambition needed to enable Wales to take control of its own destiny. It is becoming increasingly clear to everyone that only a Labour Government can deliver the necessary controls to provide not only the rail service that the people of Wales demand, but the vital infrastructure needed to deliver an economy that works for everyone. Labour will not block the regulations before us, because we want to ensure that Welsh Ministers can increase their role in the running of the rail service at the earliest opportunity. However, we put on the record our concerns that the Government have seriously limited the opportunities for the Welsh Government and the people of Wales.

Diolch yn fawr iawn, Mr Davies. It is a pleasure to serve under your chairmanship and to take part in the final stage of what has been a tortuous and long process of devolving these powers to Wales. Under the original timetable, we should probably have been meeting in Committee at the beginning of 2017, or even in 2016. According to major reports, the delay has incurred significant costs to Welsh taxpayers—about £3.5 million was the latest figure, I understand—so I ask the Minister: what is the latest calculation of the costs incurred as a result of the delay, and who will be footing the bill?

My second question to the Minister is based on the intervention I made earlier on the Labour party representative, the hon. Member for York Central. We know that the process has been a long one, and a number of bidders have fallen out of it. We are down to two franchise bidders, which is one fewer than provided for by the Department for Transport guidelines for a competitive tender, as I understand them. Is the Minister satisfied that two operators bidding for this franchise—important to the commissioning of rail services in Wales—is sufficient?

Thirdly, a letter sent in August 2017 by the Secretary of State for Transport to his counterpart in the Welsh Government outlined the reasons why he was refusing to pass the order at that time. The letter covered a raft of issues, including a row about £1 billion of funding derived from track access charges. We have received no update as to how that and the other issues listed in the letter have been resolved. I will be very grateful if the Minister can outline what agreements were made between the Governments on those unresolved issues that have enabled the draft order to be brought forward at this stage.

Fourthly, I touch on an issue raised by the hon. Member for York Central. The draft order represents only a limited devolution of powers over the railway infrastructure. The legislation covers only the valleys lines in my country. We know that Wales is desperately underfunded in infrastructure investment—in Wales, we have about 11% of the Wales and England rail network, but we receive only about 1.5% of the money invested by the British Government in rail infrastructure. If the Westminster Government are not willing to invest in our network, as we have seen historically in that terribly bad level of investment over the years, or to devolve powers over the infrastructure, which would enable the Barnett consequentials to kick in, will the Minister use this opportunity to explain how he expects the Welsh network to develop into one fit for the people of Wales in this new century?

Lastly, on the transfer of functions, we are talking only about a situation whereby the Secretary of State will retain a veto over the franchise and the powers being devolved—it is not even devolution, but only part devolution. Will the Minister explain his reasoning behind that? The powers have been devolved fully in Northern Ireland and Scotland. Why should Wales be treated as a second-class nation?

I thank all hon. Members for the points made. I will try to address as many of them as I can. I will happily write to Committee members afterwards about those I do not address now.

The Government are delivering on our commitment to give the Welsh Government greater control over Wales and Borders services. The devolution of these rail powers is an example of effective co-operation between the UK and Welsh Governments. An example of that effective co-operation is the cross-border working that is now under way. The UK and Welsh Governments are finalising a co-operation and collaboration agreement that will set out arrangements for partnership working in respect of the management of the next Wales and Borders franchise and the operation and procurement of passenger rail services operating in Wales by other franchises. That will include an enhanced consultation role for Welsh Ministers.

A number of questions were asked about the bidding process and the state of bids for the next franchise. The withdrawal of Arriva and Abellio from the bidding process is a matter for the Welsh Government, as they are now responsible for it. It is not uncommon for bidders for major projects to withdraw during tender processes. With final tenders due later this year, two bids remain in the running—MTR and KeolisAmey—which is sufficient to have a competitive process. The shadow Minister asked about the nature of the bidders allowed to participate in the process. The Railways Acts that she referred to do not prevent not-for-profit organisations from bidding for rail franchises. The Welsh Government were able to encourage bids from not-for-profit organisations for the current Wales and Borders franchise procurement.

The hon. Member for Carmarthen East and Dinefwr asked a number of questions about the devolution settlement and rail. The Government believe that it would be undesirable to reopen discussions on Silk recommendations on which there has not been a clear consensus. We do not intend to revisit the question of devolving Network Rail funding given the discussions on the issue during the St David’s Day process. The Department for Transport continues to liaise closely with the Welsh Government on the specification and funding of Network Rail’s operations in England and Wales for each five-year railway control period to ensure that Welsh requirements for increased capacity on the network are reflected. As part of Network Rail’s devolution arrangements, the Welsh Government will be represented on the Wales route supervisory board within Network Rail, and the board will work in partnership to drive improvements for customers in the Wales and Borders area and to hold industry to account.

The hon. Gentleman also asked about delays to the devolution process and the amount of time it has taken to get us to this place. The delay in transferring rail powers to Welsh Ministers has not adversely affected the procurement process for the next franchise. The formal transfer of powers has required the resolution of a number of detailed policy and practical considerations on cross-border services that has taken longer than anticipated. However, as I hope we have illustrated, we have been working closely with the Welsh Government throughout to ensure that they can proceed in a timely manner with the franchise procurement. The ongoing procurement of the next franchise, as I said in my opening remarks, is being facilitated through agency agreements enabling Welsh Ministers to exercise the Secretary of State’s relevant functions in advance of the draft order being made.

Members also asked about Government spending on the railways in Wales overall. The Department for Transport continues to liaise closely with the Welsh Government on the specification and funding of Network Rail’s operations in England and Wales for each five-year railway control period to ensure that requirements in Wales for increased capacity on that bit of the network are reflected. We are investing a record amount in Wales’s rail infrastructure. Network Rail’s proposed budget for control period 6, which runs from 2019 to 2024, is more than £1.3 billion. As Members know, we do not allocate transport funding in England and Wales on a per-head-of-population basis, and the Wales route is not being short-changed. Our spending goes where it is most needed and where it delivers the greatest value for money. We make decisions based on rigorous and fair appraisal processes that ensure just that.

The hon. Member for York Central asked about electrification and Cardiff and Swansea in particular. We remain committed to delivering the right outcomes for rail transport in Wales. As Ministers have said before, however, we will only commit to electrifying lines where it will genuinely provide a real benefit to passengers. A recent reappraisal of electrification between Cardiff and Swansea found it to be poor value for money, with a benefit-to-cost ratio of just 0.3. The introduction of the bi-mode intercity express trains means that we no longer need to electrify the Great Western route between Cardiff and Swansea. We are improving journeys for passengers in south Wales sooner than expected, without the need to carry out disruptive electrification works along the Great Western route between Cardiff and Swansea.

I will not be drawn on the procurement decisions for HS2 at this point. The point I wanted to make, and made, was that the bi-mode trains on this stretch of the network will deliver substantially the same benefits for passengers that electrification would, at considerably better value for money.

I am grateful to the Minister for that answer, but does he agree that it will not provide equivalence to electrification on that part of the network?

Clearly it will not be the same as electrification, because it will not require the disruptive works overhead, the gantries and so on, which would have affected passenger journeys. The introduction of the new bi-mode trains will, however, deliver substantially the same passenger benefits and, as I said in response to the hon. Member for Carmarthen East and Dinefwr, at considerably better value for taxpayers.

I travel on that line every week to come down to London. The busiest section both ways in terms of passenger numbers is the journey between Swansea and Cardiff, the two major cities in Wales. The journey time now with the new trains is longer than it was with the old trains, because the new trains are far larger and take more time to slow down when entering stations such as Port Talbot and Bridgend before they enter Cardiff.

There is no escaping the fact that the benefit-to-cost ratio on electrification between Cardiff and Swansea was just 0.3. No Government can reasonably be expected to finance a project with that kind of value for money for taxpayers. It would be irresponsible to do so.

Can I reassure the Minister that, for those of us whose constituencies are on branch lines going south from Bristol, which could have been severely disrupted by a half-and-half fleet of fully electric and bi-mode trains—because whenever anything broke down it would not be possible to substitute one for the other—the advent of a completely bi-mode fleet is substantially better, in terms of resilience of service, for everybody surrounding Bristol?

My hon. Friend is exactly right. Once the whole of the new fleet is introduced and electrification to Cardiff is complete, passengers will benefit from a 40% increase in the number of seats in the morning peak and significantly better journey times between Swansea, London and other stations along the route, which will be about 15 minutes shorter than they currently are.

TEN-T was mentioned. It recognises strategic transport routes in the EU. It is not clear at this point how TEN-T will be treated post Brexit, but that will become clearer in coming weeks. As I said, the devolution of these rail powers is an example of close and effective co-operation between the UK and Welsh Governments.

I am grateful to the Minister for giving way one more time. Will he acknowledge that the devolution deal in place here is less than the deal with Scotland? Can he explain why it is that the Welsh Government will not have full power over the future of its economy as well as serving the passengers of Wales?

We are committed to devolution, and to the devolution process, but we do not want to go, in one small bit of secondary legislation, beyond the consensus that was agreed during the St David’s Day process. That needs to be considered as part of a coherent look at devolution settlements in the future.

Like hon. Members, I want to see improved rail services for passengers in England and Wales. I hope that hon. Members will agree that the devolution approach we have chosen recognises the inherently joint nature of a significant proportion of the Wales and Borders franchise, and ensures that the current extensive cross-border links can be maintained and developed for the benefit of passengers and the Welsh and English border economies. We will continue to support the Welsh Government to enable them to achieve the successful procurement of the next franchise. I commend the draft order to the Committee.

Question put and agreed to.


That the Committee has considered the draft Welsh Ministers (Transfer of Functions) (Railways) Order 2018.

Committee rose.