Monday 13 June 2022
Smoke and Carbon Monoxide Alarm (Amendment) Regulations 2022
Considered in Grand Committee
My Lords, this statutory instrument was laid before the House on Wednesday 11 May 2022 under Section 150(9) of the Energy Act 2013 and Section 250(6)(f) of the Housing Act 2004, for approval by resolution of each House of Parliament.
In the social housing White Paper, we committed to ensuring that all homes are safe to live in. We are determined to ensure that the reforms set out in the White Paper will drive up standards, making sure people up and down the country have a safe and decent home to live in. The Government are committed to ensuring residents are protected from the risks of fire and carbon monoxide in their homes. After Grenfell, the social housing Green Paper asked whether there should be parity between the private and social rented sectors on safety standards, and an overwhelming majority were in favour.
At the moment, social tenants have less protection than private tenants. That is why, subject to parliamentary approval, we are amending the regulations to bring requirements for social homes in line with private rented homes. Currently, the Smoke and Carbon Monoxide Alarm (England) Regulations 2015 make it mandatory for private landlords to install smoke alarms on every storey of every home they let, and carbon monoxide alarms in every room with a solid-fuel burning appliance, such as a log-burning stove or coal fire. There are no such requirements for social landlords.
The Home Office estimates you are around eight times more likely to die in a fire if you do not have a working smoke alarm in your home, and there are on average 20 recorded deaths from accidental carbon monoxide poisoning each year in England and Wales. Smoke alarms and carbon monoxide alarms save lives and provide reassurance for residents that their homes are safe.
These changes will mean that, for the first time, all social rented homes in England will be required by law to have smoke alarms installed. They will also mean that millions more households are protected from the risks of carbon monoxide, which is undetectable and can cause serious illness or death. The Government’s ongoing reforms regarding social housing quality aim to make sure everyone’s home is a place of safety, and these changes will give thousands of families and households reassurance that they are receiving the best possible protection.
In November 2020, alongside the White Paper, we launched our consultation on requiring smoke alarms in social housing and introducing new expectations for all landlords for carbon monoxide alarms. The proposals in the consultation to make the legislative changes I am bringing to noble Lords today were supported by a clear majority of respondents to the consultation.
Through this statutory instrument, we will amend the Smoke and Carbon Monoxide Alarm (England) Regulations 2015 to replicate the private rented sector provisions to require social landlords to ensure at least one smoke alarm is installed on each storey of their homes where there is a room used as living accommodation. We will amend the regulations to make it mandatory for all landlords, regardless of tenure, to install a carbon monoxide alarm in any room of their properties used as living accommodation where a fixed combustion appliance of any fuel type is present. This does not include gas cookers, which are responsible for fewer incidents of carbon monoxide poisoning than gas boilers.
We will also require all landlords to repair or replace, as soon as they reasonably and practically can, any alarm which is found to be faulty during the period of a tenancy. We will update government guidance documents to make clear requirements on the placement of smoke and carbon monoxide alarms, and the types of alarms landlords will need to install to meet relevant standards.
The instrument will also make changes to the enforcement process by restructuring the process for making and considering representations from landlords when a local housing authority serves a remedial notice. A lengthy delay between regulations being made and taking effect could put lives at risk, and that is why we have decided that 1 October 2022 is an appropriate date for regulations to come into force: landlords have had, and continue to have, time to prepare, and bringing regulations into force in October means tenants can benefit from the security of the changes as soon as possible.
To conclude, these regulations will save lives and make sure everyone’s home can be a place of safety, and these changes will give thousands of households reassurance that they are receiving the best possible protection from the risks of fire and carbon monoxide in their home. We are determined to ensure that the reforms set out in the social housing White Paper, like these changes, will drive up standards, making sure people up and down the country have a safe and decent home to live in. I hope noble Lords will join me in supporting the draft regulations and I commend them to the Committee.
My Lords, I thank the Government for bringing these regulations forward—they are absolutely crucial. As the Minister said, most—57%—of the exposure to carbon monoxide occurs in the home. We know that one in eight homes in London has levels of carbon monoxide that exceed the WHO limits, and we know that one in five has at least one faulty gas appliance. With financial stringencies, this will probably get worse because people will not have their appliances serviced. Some 54% of homes in England do not have a carbon monoxide alarm. With that background, and welcoming these regulations, I have a few questions for the Minister—I hope that he will be able to answer them satisfactorily.
First, why are gas cookers excluded? The issue here is the coroner’s report that followed 18 deaths that were linked to the Beko cooker scandal, where carbon monoxide was pouring into homes due to a fault with the cookers. The 2017 report Understanding Carbon Monoxide Risk in Households Vulnerable to Fuel Poverty found that, while 59% of homes had a gas cooker, only 25% had that cooker serviced annually. In homes in poverty in particular, the gas from the cooker is often incompletely burned. Some ethnic minority groups in our population cook by putting tin foil over the surface of the burners, which promotes incomplete burning.
One of the problems is that children’s heads are at the level of the cooker itself, so children standing near a mother who is cooking are probably inhaling higher levels of carbon monoxide than the mother. It may not be enough for them to fall on the floor unconscious, but they may be exposed to chronic low levels of carbon monoxide poisoning. As the Minister rightly said, sub-lethal doses cause pathologies including brain damage, sensory impairment, heart disease, Parkinsonism and low birth-weight babies, which becomes particularly important when the woman is pregnant. They also cause cognitive developmental delays in infants born to mothers exposed during pregnancy, as well as respiratory difficulties. That was my question on gas cookers.
Secondly, why are homeowners generally not protected by the regulations until a new appliance is installed? How will people become alert to the fact that an alarm is faulty? Whose responsibility will it be to chase this up, and what is the prosecution process for a landlord who is negligent in this?
Thirdly, why is the alarm type not mandated? This seems to be a lost opportunity, because rogue landlords will inevitably go for the cheapest alarm available. In Scotland, the type of alarm was determined and it was one that had sealed batteries in it. From experience over the years, we know that, in households where batteries can be removed from alarms, people remove them to use them in their television remote, or wherever. The alarm then fails because the batteries have been taken out and people are not aware of the problem.
Lastly, will the alarms be mandatory for bedrooms? There have been several cases where children have died because carbon monoxide has leaked through the brickwork into the bedroom where they were sleeping—their parents then found them dead from carbon monoxide poisoning. The problem is that, when you are asleep, carbon monoxide just makes you more sleepy, so you certainly would not be woken up by it. Of all the rooms in a house, it is bedrooms where people spend the most time all in one go; they do not go out and move around to get the air circulating. In modern housing, particularly in the winter, people sleep with the bedroom windows closed, so there is even less air circulation. So I hope that the Minister will be able to assure me that bedrooms count as living accommodation and, therefore, that alarms must be also in the bedrooms.
Having said that, I hope the Government will have a good public education campaign to roll out the importance of acting when the alarm goes off, of understanding what the alarm does and what people should do if a tenant feels that their landlord is in breach of the regulations. Understanding the health implications of carbon monoxide poisoning is also important, because, unfortunately, across the healthcare sector generally, until fairly recently—and I think even now—some people are somewhat ignorant of the effects of carbon monoxide poisoning and how the non-specific symptoms can present, suggesting sub-lethal exposure in an ongoing way.
So, with those questions and caveats, I welcome these regulations and would not intend to take any action to stop this proceeding–but I do hope that I will have satisfactory answers that will be on the record to all my questions.
My Lords, I will start by reminding everyone that I have a registered interest as a member of Kirklees council, which manages social housing that will be affected by these regulations. Much of what the noble Baroness, Lady Finlay, has said is also in my notes—but there are one or two differences.
Broadly, this is an important step forward in making rental homes in both the private and social housing sector safer for tenants. It is a great surprise to me that social housing was omitted from the 2015 regulations, so I am pleased that these regulations are going to put that right. The Office for National Statistics, when I had a look this morning, records that over 100 lives are lost each year from carbon monoxide poisoning. It did not differentiate between domestic and non-domestic deaths; nevertheless, 100 lives are lost from a silent killer, as the noble Baroness, Lady Finlay, has explained. So, requiring the installation and, importantly, the maintenance of alarms will undoubtedly help to save lives.
It is also good to see that the regulations include a requirement for landlords in both rental sectors—private and social housing—to ensure maintenance and respond in a reasonably practicable time. I hate that phrase, because it means something and nothing. I wonder whether the Minister would be able to give us a broad definition of what “reasonably practicable” would look like. No doubt landlords who have a positive relationship with their tenant will respond promptly, but not all landlords are in that category.
Those are all positives, but I have some questions. The first one is about the type of smoke alarm. I am surprised that there is not more being said about the type of alarm that is going to fulfil the regulations. Nine-volt battery alarms, which are the cheapest and therefore most likely to be the ones that some landlords will use to fulfil their obligations, need a battery change every six months—I think it is the National Fire Protection Association that recommends that. There are lots of reasons why that will not happen.
Some homes will think that they are secure but are not. I find it surprising that that has not been more fully explored. The sealed lithium battery models last 10 years; that is a good length of time. I wonder whether there is anything the Minister can do to give us some comfort that the Government will be recommending or pushing for those to be used.
The other thing is that some landlords will say to the tenant, “Here are your smoke alarm and your carbon monoxide alarm”—although you can get the two together—and give them the box, and that is it. I tell you, if they are in a box and that is it, they will go in a cupboard and that will be it. I have some experience of this. As part of the Kirklees warm zone scheme, there was free insulation—which I have mentioned several times—and we also gave to everybody who needed one a free smoke alarm and a free carbon monoxide alarm. From questioning not long afterwards, we discovered that a lot of them were never used—they were put in a cupboard or a drawer in the kitchen and that was it. So the Minister should perhaps think about a requirement that the landlord has to see that they are properly installed; that would be helpful.
I had the same question as the noble Baroness, Lady Finlay, about gas cookers and why they were excluded. But it has been asked and I hope that the Minister will be able to answer it.
Then there is the question of getting access to properties. As with nearly all fire safety issues—gas checks, electrical appliance tests and now this—if a tenant refuses, it is difficult to get access. If you do not get access, you have faulty appliances and faulty fire and smoke alarms and all the good of this regulation is undone. So, again, it would be good to hear from the Minister how that may be overcome.
In 2008, a 10 year-old boy in Huddersfield died as a result of carbon monoxide poisoning. The deadly gas was not in his home—it was seeping through the walls from the terraced house next door. He was asleep and, when his mum went to get him up in the morning, he was dead. There was a faulty boiler in the next-door house, which was a private property. The question that was asked was, “Why are not all properties—especially terraced or semi-detached—required to have alarms?” Failures in one house can affect those living in the adjacent property.
Finally, I have not checked the regulations, but can the Minister tell us whether all new builds are required to have both carbon monoxide and smoke alarms wired in? If not, we are missing a trick.
With those questions, I must say that I totally support the progress that is being made and I look forward to the questions being answered.
My Lords, like other noble Lords who have already spoken, we very much welcome these regulations to make smoke and carbon monoxide alarms mandatory in social housing from 1 October this year. As we near the fifth anniversary of the Grenfell Tower tragedy, we believe that any measures that help resolve the building safety crisis are very welcome.
But we also think that this instrument should form only a small part of a much wider package of measures that we hope to see coming forward from the Government. I will come to the exact provisions of these regulations in a moment—although noble Lords who have already spoken have covered a lot of the points that we had concerns about. But I would like to first ask the Minister: following the publication of the Social Housing (Regulation) Bill, is he able to provide further information about the timetable of this Bill and when the Government are likely to be aiming for Royal Assent, so that those regulations come into force and we can discuss wider provisions to make social housing safer?
Turning to the specific regulations before us today, one of the things that will result will be a new responsibility to install alarms on each floor of a premise, which is really important. The Government are right to include this. It specifically helps larger properties. There is a lot more development of warehouse-type apartments, within which there is an increasing use of mezzanine floors—so I am not sure what constitutes a floor within this regulation. Would it include mezzanines, for example? Would they require an alarm? It would be helpful if the Minister could confirm what the guidance on that would be. I would be interested to hear his response to the noble Baroness, Lady Finlay, about whether it will be compulsory to have alarms in bedrooms, because that is also a very important part of ensuring safety, particularly at night.
I would like to take a quick look at penalties for non-compliance. The regulations allow for a charge of up to £5,000 per breach. I would like to ask the Minister about the fact that, under the Housing Act 2004, civil penalties for landlords go up to £30,000 for breaches. So how did the Government choose an upper limit of £5,000, despite the fact that an absence of these alarms, as we have heard, could lead to somebody dying. In fact, the Minister mentioned in his introduction that these alarms do save lives, so it would be interesting to understand the Government’s thinking and how that top level of fine came about. The noble Baroness, Lady Finlay, also asked about the prosecution of rogue landlords, and it would be interesting to know a bit more about that side of things—prosecution, fines, how they will operate and how the Government got to their decisions on that.
I would also like to look very briefly at the process of repairs and replacements of the alarms. This has been raised by other noble Baronesses. In particular, the noble Baroness, Lady Pinnock, referred to the fact that the regulations state that the landlord must act as soon as is “reasonably practicable” when notified that an alarm is not in working order. She said it would be incredibly helpful to know what the definition of “reasonably practicable” is. We know that, in other legislation requiring swift action by landlords, this has not always happened. So what will be that definition and how will it be enforced? Will the Government be offering guidance alongside this to landlords on exactly what the timeframes are? Will there be any circumstances that can excuse meeting those deadlines? What is going to be the structure of managing repairs and doing replacements in good time?
The noble Baroness, Lady Pinnock, also asked some very important questions about batteries and about ensuring alarms are properly installed. This is really good, important legislation, but it has to be practical, and it has to work and operate in the way that it is being laid out. If the issues that the noble Baroness, Lady Finlay, raised are not covered, we could find that good intentions are not always being met.
To conclude: these regulations are very much welcomed. I am looking forward to working with the Minister on the Social Housing (Regulation) Bill, which is, hopefully, going to be with us shortly, in order that we can consider other measures to make social housing safer for all occupants. I look forward to the Minister’s response to the questions today and to working with him in the future on further safety measures.
My Lords, I thank noble Lords for their contributions to this important debate on the draft regulations. I join the noble Baroness, Lady Hayman, in saying that every single measure that can ensure that a tragedy such as Grenfell—the largest structural fire since Piper Alpha and the largest loss of life in a residential fire since the Second World War—never happens again must be welcomed. I thank noble Lords for their support.
I will turn to some of the points raised by noble Baronesses in this debate. The noble Baroness, Lady Finlay, wanted to know whether alarms are mandatory for bedrooms. Yes, there must be a smoke alarm on each storey. Also, I am happy to clarify that the definition of “living accommodation” includes bedrooms.
Sorry—perhaps I may intervene briefly. I should have declared my interest as chair of CORT, the Carbon Monoxide Research Trust, and of the All-Party Parliamentary Carbon Monoxide Group. I was asking about carbon monoxide alarms; the Minister has addressed smoke alarms. We were seeking clarification on whether carbon monoxide alarms are also mandatory in bedrooms.
I will clarify when it is smoke alarms and when it is carbon monoxide alarms; as I understand it, effectively, there has to be a gas boiler present, which would rule out many bedrooms. However, I will write to the noble Baroness on that point.
The noble Baroness, Lady Hayman, following the lead of the noble Baroness, Lady Pinnock, wanted to know what “reasonably practicable” looks like. My answer is that, essentially, we will recommend that landlords carry out repairs as soon as they are able to. This will depend on such factors as access to the property, which will be set out in guidance.
In response to the noble Baroness, Lady Finlay, on her question about mandation of carbon monoxide alarms in rooms with gas cookers, data shows that gas cookers are responsible for fewer incidents of carbon monoxide poisoning than gas boilers. This may be because domestic gas cookers do not tend to be used continuously for long periods, unlike boilers. For this reason, the Government believe it would not be proportionate to require alarms in rooms with gas cookers as well as rooms with gas boilers.
On the point about public information, we are developing communication to target tenants to make sure that they understand the regulations and the importance of protection from carbon monoxide poisoning. There is some movement on the call for a public information campaign.
The noble Baroness, Lady Pinnock, wanted to know how we reached the implementation period for these new requirements. This relates to the fact that the majority of respondents to the consultation agreed that we should not delay the introduction of new requirements once the regulations are made. A significant delay between the regulations being made and taking effect would put lives at risk. It is a question of getting the right balance between the two. That is why we alighted on 1 October 2022 as the most achievable date.
Both the noble Baronesses, Lady Finlay and Lady Pinnock, wanted to know why we were not specifying the type of alarm. The draft regulations do not stipulate the type of alarm—such as hardwired or battery powered—to be installed. In the case of smoke alarms, we advise landlords to choose ones that are compliant with British Standards, and I am sure that there must be British Standards that have to be complied with for carbon monoxide alarms. We encourage landlords to make an informed decision and choose the best alarms for their properties and tenants, with due regard for their residents’ circumstances.
The noble Baroness, Lady Finlay, wanted to know why we are not mandating for owner occupiers as we are now covering the private rented sector. The intention of extending the regulations is to protect residents in rented homes. Changes to building regulations will extend alarm requirements upon the installation of new and replacement combustion appliances of all fuel types, and this will apply to all tenures, including owner occupiers. It is in the best interests of any owner occupier to keep themselves safe from fire and carbon monoxide poisoning, and we would strongly advise them to install smoke alarms and carbon monoxide alarms. It is important for people to recognise that point.
The noble Baroness, Lady Hayman, raised the issue of how we set the penalty level. That was not a matter for this regulation. The penalty level for non-compliance was set as part of the private rented sector regulations that were passed in 2015, and we consider this limit proportionate and appropriate to match the PRS requirements for parity of standards. So it goes back to the 2015 regulations, if you like.
The noble Baroness, Lady Pinnock, raised the issue of how landlords can gain access to their properties. The regulations are clear that landlords must take all reasonable steps to access properties, including attempting access on multiple occasions. It is not proportionate to mandate that landlords take legal action for access, as alarms have a long life span of six or seven to 10 years.
Unfortunately, that last bit is not accurate. If the landlord provides a nine-volt battery smoke alarm, that will last only six months. That is at the heart of what I am asking. Some landlords will not make lots of attempts to get in to make sure that the smoke alarms are there and will not see that they are properly fitted, so all this will unravel. If we are having regulations, and I am glad we are, surely there has to be something about a long-lasting solution.
The noble Baroness is of course right that that would make sense—I should declare my interest as a private landlord, although these regulations affect social housing. It would make sense to put into guidance something that would enable the quality threshold to be met so that we would not have that eventuality of smoke alarms with a very short battery shelf life becoming the de facto norm when you could come up with solutions such as alarms that are either hardwired or have a long battery life. That point has now been made by several noble Baronesses and I will take it away for my officials who will be drafting these regulations to take on board.
With that, I have done my best to answer noble Lords’ questions—and if I have not, I will follow up in writing, as I have already undertaken to do.
Police, Crime, Sentencing and Courts Act 2022 (Consequential Provision) Regulations 2022
Considered in Grand Committee
My Lords, these regulations were laid before the House on 11 May. Following the terrorist attack at Fishmongers’ Hall—I take this opportunity to remember again the victims of that atrocity—in November 2019, the Home Secretary commissioned the Independent Reviewer of Terrorism Legislation, Jonathan Hall QC, to review the Multi Agency Public Protection Arrangements—MAPPA—used to supervise terrorists and terrorism-risk offenders on licence in the community. The Police, Crime, Sentencing and Courts Act 2022, which I shall hereafter refer to as the 2022 Act, established three new powers for counterterrorism policing: a personal search power, a premises search power and an urgent power of arrest. These powers were taken in response to recommendations made by Mr Jonathan Hall QC following his review of MAPPA.
These regulations relate to the new power of personal search, the creation of which was also recommended by the Fishmongers’ Hall Inquests—Prevention of Future Deaths report. The personal search power has been inserted into the Terrorism Act 2000 as new Section 43C of that Act by the 2022 Act. The new search power commences later this month on 28 June. As set out by the Government during the passage of the 2022 Act, the new search power will apply across the UK, enabling the police to stop and search terrorist and terrorism-connected offenders released on licence who are required to submit to the search by their licence conditions. The officer conducting the stop and search must be satisfied that it is necessary to exercise the power for purposes connected with protecting members of the public from a risk of terrorism.
The Government are clear that sensitive powers of stop and search should be subject to the code of practice setting out the basic principles for their use. Section 47AA of the Terrorism Act 2000 imposes a requirement on the Secretary of State to prepare a code of practice containing guidance about the exercise of search powers that are conferred by that Act. These regulations amend Section 47AA so that it extends to cover the new search power inserted into the Terrorism Act 2000 by the 2022 Act. Subject to Parliament’s approval, this consequential amendment will create a requirement for the Secretary of State to prepare a revised code of practice that includes guidance on the exercise of the power conferred by new Section 43C.
In anticipation of Section 47AA being amended, I can confirm that we are already in the process of engaging relevant stakeholders and updating the code of practice to reflect new Section 43C stop and search power. We plan to lay an order this summer alongside the draft revised code of practice for Parliament’s consideration and approval. As such, Parliament will have the opportunity to review and debate the revised code and its contents in due course. The regulations being considered today simply relate to the technical and consequential matter of whether to amend Section 47AA of the Terrorism Act 2000 to enable the Government to update the relevant code of practice in the manner that I have outlined. I think it is something the Committee will very much support. I beg to move.
My Lords, I thank the Minister for introducing these regulations and I associate myself with her remarks in relation to those affected by the Fishmongers’ Hall incident. One of the most important roles of the state is to protect its citizens from terrorism and we support every provision that can be shown to work in practice in helping to prevent and detect terrorism.
This is yet another stop and search power exercisable by the police. Generally, we are against any expansion of police stop and search powers, on the basis that existing powers are sufficient, because an increased use of stop and search does not generally lead to a reduction in crime and because of the negative impact of stop and search on visible minorities. For example, where the police are required to show suspicion, black people are seven times more likely to be stopped and searched; and where no suspicion is required, black people are 18 times more likely to be stopped and searched than white people. In addition, Home Office research shows that, above moderate levels, increasing stop and search has little or no impact in reducing crime.
However, this power—enabling the police to stop and search an offender released on licence for purposes connected with protecting the public from a risk of terrorism—appears, on the face of things, to be reasonable and proportionate. We have seen from tragic instances in the recent past, such as the terrorist attack at Fishmongers’ Hall in November 2019, that assessing the threat posed by those convicted of terrorism offences is very difficult to determine, and even those who are assessed as no longer a threat to the public and suitable for release under licence can, in reality, pose a threat to the public.
It will mainly be for the Parole Board to determine whether someone should be subject to the new powers as a condition of their licence, but the Explanatory Memorandum, at paragraph 7.2 says, “In most cases” the Parole Board will decide whether somebody should be subject to the new power. Can the Minister explain in what other circumstances someone could be made subject to these stop and search provisions, if that is not made a condition of their licence by the Parole Board?
As the noble Baroness explained, the regulations are not about the power itself—created by the Police, Crime Sentencing and Courts Act 2022 inserting new Section 43C in the Terrorism Act 2000—but are to ensure the requirement on the Secretary of State in Section 47AA of the 2000 Act to prepare a code of practice containing guidance about the exercise of stop and search powers conferred by that Act. That also applies to the new stop and search provision. It seems a bit cart before horse to make the requirement through these regulations and only then to prepare amendments to the code of practice, which will then be laid before Parliament for approval later this year, as the noble Baroness just explained.
All in all, while we support these regulations, in so far as they place a requirement on the Secretary of State to include the new power in the code of practice required by Section 47AA of the Terrorism Act 2000, it seems to be much ado about nothing until we see the revised codes of practice.
My Lords, I thank the noble Lord, Lord Paddick, and I thank the Minister for her clear and precise introduction to these new regulations. I associate myself with her remarks about remembering the victims of the Fishmongers’ Hall attack.
We also welcome these recommendations and are grateful to the Independent Reviewer of Terrorism Legislation, Jonathan Hall QC, for the review he conducted following the attack. We support these powers, which were added to the PCSC Act. As the noble Baroness knows, we will work with the Government on issues of national security, because there is no difference between any of us in wanting to ensure that our country is safe. So we support this SI which, as the Minister pointed out, is technical and simply ensures that the Secretary of State is required to prepare a code of practice to govern the new stop and search power.
As the noble Lord, Lord Paddick, said, stop and search is an important tool, but is a serious use of the state’s power and so it is vital that it is used proportionately and effectively. We welcome that this power is targeted at terrorist offenders who are out on licence; it will be part of their licence conditions. In other words, we are allowing a released terrorist offender, out on licence, to have their person searched, which Mr Hall said was needed. We support that change.
Can the Minister tell us when the code of practice will be published? I think she did, but can she reiterate, for the benefit of the Committee, exactly when the code will be published and laid before Parliament? Is it the case that the power we are debating cannot be used until that code of practice is laid before Parliament and agreed?
Will the code outline the sorts of circumstances under which the power might be used? In other words, what is the precise purpose of such a search conducted under these powers? As the noble Lord, Lord Paddick, raised, what difference is there between the vast majority of offenders who will have their licence agreed to by the Parole Board and some others? It is not clear what is meant by “others” and who will decide who they are.
The independent reviewer, Mr Hall, pointed out something else—I think this point will benefit the Committee. Section 185 of the Police, Crime, Sentencing and Courts Act provides that this stop and search power may be used
“for purposes connected with protecting members of the public from a risk of terrorism.”
Mr Hall pointed out that the purpose of similar stop and search powers in comparable legislation is defined as being
“for the purpose of ascertaining whether the individual is in possession of anything that could be used to threaten or harm any person”.
So the Minister will understand that, as Mr Hall has pointed out, there is a clear difference between the language that the Government have used in Section 185 and what they have used in comparable legislation. It would be helpful to the Committee if the Minister could explain whether the code will explain why there is this wider drafting and the difference that it is expected to make to the use of this power. There is an important distinction in the wording of this power compared with previous stop and search powers. It would be helpful for us to understand this.
With those brief comments, I reiterate our support for the Government on this SI and for all those fighting terrorism.
I thank both noble Lords for their basically supportive and succinct points. On the necessity for the new power, it was recommended by Jonathan Hall QC, as I said, and the Fishmongers’ Hall inquest report on the prevention of future deaths also recommended that a new power of personal search be created.
On when the new power will apply if licence conditions are not set by the Parole Board and on who will determine whether to impose them, as with any other licence condition, the decision to impose the licencing condition will be made by the appropriate releasing authority—either the Parole Board or the prison governor—on behalf of the Secretary of State.
The risk management plan will include licence conditions to manage specific identified risks, which will then inform the recommendation of necessary and proportionate licence conditions for the Parole Board or the releasing prison. But, in both circumstances, the process for recommending licence conditions is the same. The community offender manager will undertake a full risk assessment, taking into account all the relevant information, including from the police, prison and other agencies. This detailed assessment will form the basis of a risk-management plan that will be agreed by the relevant agencies under MAPPA.
The noble Lord, Lord Paddick, is nothing if not absolutely consistent on the disproportionality of the power. We are committed to tackling terrorism in all its forms and the power to conduct a search will apply to any terrorist offender who is subject to the relevant licence condition, regardless of their ethnicity. The legislation is quite clear that such a search cannot be conducted unless a police officer is satisfied that it is necessary for purposes connected with protecting members of the public from a risk of terrorism.
The Home Office published an overarching impact assessment and an equality statement for the Home Office measures in the 2022 Act, setting out that the proposals within the Act are not unlawfully discriminatory within the meaning of the Equality Act 2010, either directly or indirectly.
On when the code of practice will be laid, the Government will lay the revised code of practice before Parliament for its consideration at the earliest opportunity; as I said in my opening speech, it is currently envisaged that this will take place next month. The revised code of practice will make clear the distinct circumstances in which the new stop and search power will be available for use compared to existing stop and search powers.
As regards the breadth compared to other comparable pieces of legislation, the personal search will provide the means for the police to conduct assurance checks. It is envisaged that in the majority of cases this will be to check whether a relevant terrorist offender is in possession of something which could be used to threaten or harm a person: for example, a weapon or a fake suicide belt.
We recognise that there may be limited other scenarios in which a personal search may be necessary for purposes connected with protecting members of the public from a risk of terrorism when the offender may be carrying something which is, on the face of it, far more innocuous. An example of this might be the necessity to conduct a personal search to check whether the offender is in possession of a mobile phone in violation of their licence conditions. This provides a better means of monitoring risk because a contraband phone such as this would be unlikely to meet any definition of something that “could be used to threaten or harm” but, depending on the offender’s background, it might be used to contact terrorist networks, enable access to materials useful to preparing an act of terrorism, provide a route for them to radicalise others, or be used to remotely detonate an explosive device.
I hope I have answered the Committee’s questions. I emphasise again that the regulations being considered today will not amend the content of the relevant code of practice, and our draft revised code will be laid before Parliament and obviously will be subject to its approval in due course. I commend the regulations to the Committee.
Terrorism Act 2000 (Code of Practice for Examining Officers and Review Officers) Order 2022
Considered in Grand Committee
My Lords, this instrument would give effect to the draft code of practice which covers the exercise of counterterrorism port examination powers under Schedule 7 to the Terrorism Act 2000. These powers were amended by the Nationality and Borders Act and outline what the code of practice is and its significance to the operation of these powers.
Counterterrorism officers who currently use Schedule 7 port examination powers must do so in accordance with the relevant code of practice. While the code largely reflects the primary legislation, it also includes further procedural guidance for those exercising the powers and additional safeguards for those subject to them.
In passing the Nationality and Borders Act 2022, this House approved amendments to the powers under Schedule 7 which allow officers to examine individuals away from port areas in the following circumstances. First, an individual must either be detained or in custody under relevant provisions of the Immigration Acts. Secondly, the individual must have arrived in the UK by sea and have been apprehended within 24 hours of their arrival. Thirdly, a period of five days, beginning on the day after apprehension, must not have expired.
This will allow officers to examine those who, following their irregular arrival in the UK, have been moved from a port location or have been encountered inland. In short, those who have arrived irregularly by sea will now be subject to the same powers as if they had arrived through conventional means, adding a further protective layer to our existing precautions.
The draft code before us includes changes to cover the exercise of this amended power as well as several other minor changes to clarify language around existing safeguards. The code was subject to public consultation earlier this year and, in response to feedback received, we have clarified officers’ responsibility to inform those being examined that the purpose of the examination is not to gather evidence or information on any potential immigration offences. I hope that the Committee will consider the draft code favourably.
The UK and its citizens continue to face the threat of terrorism from those who are intent on harming and dividing us. These provisions within this statutory instrument will support the police in their tireless efforts to keep us safe from these threats. I beg to move.
My Lords, I again thank the Minister for explaining this order. Schedule 7, in particular, and Schedule 8 to the Terrorism Act 2000 are controversial in providing powers to the police and other agencies to stop, question, search and if necessary detain anyone who is travelling across the UK border, without reasonable suspicion, to require them to answer questions and be subjected to a search, in order to establish whether or not they appear to be a person who is, or has been, involved in the commission, preparation or instigation of acts of terrorism. The exercise of the power remains controversial, with many being detained and missing flights as a result, for example, with the guidance saying:
“Although the selection of a person for examination is not conditional upon the examining officer having grounds to suspect that person of being engaged in terrorism, the decision to select a person for examination must not be arbitrary.”
Despite the guidance giving examples, it remains unclear where the line is between “reasonable suspicion” and “not arbitrary”.
However, we debated these powers extensively at the time. While we remain of the view that there needs to be reasonable suspicion, we accept that these regulations are not about either the original power or the new power provided for by the Nationality and Borders Act 2022, but about revising the codes of practice in relation to Schedules 7 and 8 to the Terrorism Act 2000. A change in the use of the powers under Schedules 7 and 8 has been brought about by Nationality and Borders Act 2022 to enable those crossing the English Channel in small boats, who may initially evade detection, to be questioned and detained under Schedules 7 and 8 to the Terrorism Act 2000 away from the border, as the noble Baroness has explained.
As she has also explained, there are safeguards in place. The powers can be exercised only by specially trained and accredited officers; the subject must have been apprehended within 24 hours of arrival on land in the UK, and no longer than five days must have passed since the day of their detention; and they are detained under a provision of the Immigration Acts. The Explanatory Memorandum, at paragraph 7.5, talks about persons detained under paragraph 17(1) of Schedule 2 to the Immigration Act 1972. I could not find an Immigration Act 1972. Do the Government mean paragraph 17(1) of Schedule 2 to the Immigration Act 1971, which refers to a person found on premises where a warrant has been issued to search for people thought to be liable to examination or removal from the UK? Perhaps the Minister can clarify. There is also a safeguard to tell the person detained that the questions put under Schedule 7 about terrorism—as the Minister has explained—are not for the purpose of obtaining evidence or information on immigration offences.
We welcome the other additional safeguard, unrelated to the Nationality and Borders Act, that clarifies that no procedure exists under Schedule 7 for examining officers to seek or receive authorisation to ask questions which, when answered, may disclose or confirm confidential information in relation to journalistic sources or information subject to legal privilege. I do not think the Minister mentioned that additional safeguard, which we welcome.
We remain of the view the Schedule 7 and Schedule 8 powers are necessary, but we still have concerns that they are being used disproportionately against innocent minorities, particularly Muslims, and that the widening of the use of the powers to areas other than ports and the Northern Ireland border area may add to this disproportionality. Having said that, we understand the purpose behind these regulations and are generally supportive of the fact that they are necessary.
My Lords, we, too, support this statutory instrument. As the Minister said, it gives effect to the draft code of practice. We understand that these changes are being made in response to a recommendation by the Independent Reviewer of Terrorism Legislation, Jonathan Hall. We believe it is important that the proper safeguards are in place, support the order and thank Jonathan Hall for his work.
When speaking to the introduction of these powers during the passage of the Nationality and Borders Bill, the Minister, Lord Sharp, said that
“this is by no means an attempt to treat all migrants arriving in this manner as terrorists, or to stop and examine large numbers of people away from ports and borders. Schedule 7 is not designed and cannot be used as a universal screening mechanism”.—[Official Report, 10/2/22; col. 1939.]
What safeguards will be put in place to ensure that there is no slide into using these powers more extensively and frequently?
Furthermore, can the Minister clarify whether information given by someone in answer to a Schedule 7 examination, which is strictly counterterrorism powers, will be used for other purposes, for example by an immigration officer? I think the Minister answered that point, but I repeat the question. I also make the point that our staff got in touch with the department to ask this question and others, using the contact details given in the Explanatory Note, and did not receive a response. Usually there is a named civil servant at the bottom of an Explanatory Memorandum, but, in this case, there was a general email to contact. Our staff sent the email at 2.15 pm on Thursday and there was no response.
Although this order relates only to examinations under existing counterterrorism powers, new immigration offences under the Nationality and Borders Act have given rise to an issue about what questions it is appropriate for a person to be asked as part of these examinations. The nature of the questions was looked at as part of the Government’s consultation.
As far as those new offences are concerned, I repeat the general point we made during the passage of the Nationality and Borders Bill that we on this side of the Committee are opposed to the Government creating a broad offence of arrival that makes it illegal for people to travel to the UK to seek asylum, regardless of whether they are fleeing a war zone or there is a risk to their life. During the passage of the Nationality and Borders Bill we asked the Government instead to create an offence which captured the actual criminal behaviour that they want to target, such as arriving in breach of a deportation order, rather than an overly broad offence. We believe it is crucial that the Schedule 7 counterterrorism powers are used properly and proportionately to target terrorism concerns and not as a universal screening mechanism for people to be captured by broad, unrelated measures.
In conclusion, we must not let our fear of terror prevent us responding compassionately to those who need our help. Indeed, many of those arriving on our shores in an irregular manner are fleeing the same terror and violence that these measures are trying to protect our own citizens from. Terrorist organisations that would do us harm are ruthless and opportunistic; they look to utilise situations such as the refugee crisis for their own gain if given the chance. Therefore, we believe it is right that we ensure that our national security legislation is up to date and takes this into account, so that we can minimise the risk posed by irregular crossings of the channel.
My Lords, I again thank both noble Lords for their very constructive points and in general. I will not repeat some of our debates on the Nationality and Borders Act—it keeps coming up and I think we will be talking about it for some years to come. The noble Lord, Lord Paddick, is absolutely right that it is the Immigration Act 1971, not 1972.
Preventing extension of scope is a very good point. Criteria for exercising the powers away from port have been drawn tightly to ensure that they catch those who have evaded conventional border controls by their irregular arrival; they do not extend more widely. The change reflects the practical consideration arising from the number of people embarking on illegal channel crossings, and it will ensure that those who enter the UK by such means are subject to the same scrutiny and powers as if they had entered the UK by conventional means. I think that avoids the conflation of some of the worries that noble Lords have.
The noble Lord, Lord Paddick, asked about confidential material; absolutely, yes, nothing has changed there. On the safeguards that the noble Lord, Lord Ponsonby, asked about, we are an open democracy, subject to scrutiny on a regular basis. On extension of scope, we will certainly keep an eye on ensuring that the legislation does what it is supposed to do and nothing further.
On the conflation of terrorism and immigration, it is worth reiterating my noble friend Lord Sharpe’s point that this is not a back-door method to treat all those who arrive in the UK irregularly as if they were terrorists—I think that reinforces the point I just made to the noble Lord, Lord Paddick.
Motor Vehicles (International Circulation) (Amendment) Order 2022
Considered in Grand Committee
My Lords, these regulations will provide an exemption from paying vehicle excise duty to a specific group of specialist events hauliers in Great Britain. Specialist events hauliers are a small but important subsector of hauliers that transport equipment for touring cultural events. This includes concert tours, art exhibitions and sporting events. They typically undertake a significant number of internal movements, or tour stops, in the UK and the EU. Prior to the end of the EU transition period, UK hauliers operating in the EU were able to undertake unrestricted cross-trade movements—that is, the movement of goods between two other countries—and up to three cabotage movements: the movement of goods within a single country.
Under the EU-UK Trade and Cooperation Agreement, UK hauliers are now restricted to one cabotage and one cross-trade or two cross-trade movements within the EU. As such, specialist event hauliers’ business models have been significantly affected. That is why the Government are taking action to support this part of the haulage sector in adapting to the changes via a dual registration measure. Specialist events hauliers which are able to establish an international base in the EU or beyond while maintaining their UK base will be able temporarily to transfer their EU-registered vehicles to their GB operator licence while they operate in GB without the need for paying UK vehicle excise duty.
Dual registration will allow operators that wish to operate in the EU to function as an EU operator, benefiting from single market access rights, and to operate in the UK as GB operators, benefiting from their status as a domestic GB operator, all of this without the need to swap their specialist vehicles in the middle of a tour. Overseas haulage companies that set up a base in GB can also benefit from this approach. The main function of this SI is to provide an exemption from VED for hauliers which wish to utilise the dual registration arrangements. Without this VED exemption, this approach would not be viable.
This change will provide an efficient process when operators switch the vehicles from their EU operator’s licence to their GB operator’s licence. To utilise the dual registration a number of criteria will need to be met, which are set out fully in the draft statutory instrument. The haulier must be operating under a hire or reward model; the haulier must also establish and maintain an operating base in Great Britain as well as another base abroad, as I mentioned; the vehicle being used must be specifically designed or substantially modified in order to carry the goods needed for cultural tours; the specific goods that the haulier may carry are property, equipment or animals being transported to specific venues or events; and the goods being carried from place to place during a tour should remain unaltered. In line with existing rules on the temporary import of vehicles, the vehicle may be registered in Great Britain for up to a maximum of six months in any given 12-month period.
Unfortunately, there are unavoidable limitations on what is possible here. This is a complex issue for which there are no simple solutions that will meet the needs of all parts of a fairly diverse sector. The proposed dual registration measure will go some way to meet the challenges that the sector is facing, but we acknowledge that some specialist event hauliers will be unable to utilise these proposals for a number of reasons. For example, smaller specialist haulage firms or own-account operators may not have the resources needed to set up overseas. Also, an own-account operator’s business model would need to change to hire or reward, and in certain circumstances that is not going to be viable.
However, this instrument is of vital importance to a large number of companies operating as specialist events hauliers, and therefore I beg to move.
My Lords, I thank the Minister for explaining so clearly how this will work. The Government launched this SI with much fanfare early last month—fanfare and the obligatory swipe at the unacceptable nature of EU bureaucracy that necessitated the SI. That is called Brexit, and those of us who opposed Brexit pointed out that if you do not belong to the club, you cannot benefit from the rules and, unfortunately, that lesson is becoming all too clear. Hence, we have this measure, which is one of a long line of complex, awkward fixes that we have discussed here in this Committee, over the months and years, to try to defray the damage that we are suffering from as a result of no longer being a member of the EU.
Of course, this order is very welcome as far as it goes, but it has taken a long time to get to this point. Since we left the EU, our specialist hauliers have been limited to, I think, three EU stops per tour, and many of them have already established bases in the EU to overcome this, with a resulting loss to the UK economy. It is not as if the firms in this sector did not warn us that this would happen. I was a member of the EU Internal Market Sub-Committee, and back in 2018, we took evidence from an organiser of major exhibitions who predicted exactly these problems.
One of the phrases the Government like to use frequently is “world-beating”. Often, it is a sad exaggeration, but in relation to the cultural sector it is very accurate. I would prefer to say “world-leading”, but the point is that our soft power through the cultural sector has been immense and is sadly diminished as a result of the constraints on touring in Europe. I have a number of questions for the Minister. It is 18 months since we left the EU. Can she perhaps explain why it has taken this long to get to this important measure? Ideally, it should have come in smoothly and immediately after we left the EU.
Paragraph 7.6 of the Explanatory Memorandum refers to a maximum period of transfer for a vehicle to a British operator licence as being
“six months in a twelve month period.”
I understand the concept of “temporary”, but why is six months the definition of “temporary”? Why not eight months or any other number of months within 12 months? Is there a legal basis, or is this something that was just added on?
Paragraph 7.4 says:
“This Instrument does not permit transportation of any item of goods for the intention of being sold on (such as merchandise).”
That is actually a very prescriptive limitation. I was part of a music group many years ago touring in Europe, and we took CDs with us. There would not be CDs now, but we also took t-shirts and souvenir programmes to be sold. It would appear that we would not be allowed to do that now. Such items are, very often, marginal. They are just part of giving that little extra edge to the operator. They are an important part of spreading our soft power, getting the name of the group known abroad.
So why is it that they are excluded? It seems it could incur considerable or disproportionate expense to carry them separately—a whole separate vehicle or separate haulage charges in some other way. It does not, to my mind, seem necessary. Was any consideration given to allowing goods of that type to a certain limited amount—maybe limited in total value or limited as a proportion of the total?
The net result of this SI is that some foreign-registered vehicles will be operating in the UK on British operator licences. This in itself presents enforcement challenges, which I am sure the Minister will have gone through, but could she give us some idea of the numbers expected to be affected by this? Is it hundreds, tens or thousands? What estimate has been given? There is a lack of impact assessment once again. The words used are that there is no significant impact on business. I had hoped that there will be a significant impact on business and therefore I am surprised that an assessment was not made.
Of course, I welcome this hope it does the trick, although the Minister has reminded us that it might not work for everyone. Sadly, we have heard of a number of artists who have stopped touring already and, unfortunately, they will not all return as a result of this. We have lost stature as a result of this situation.
My Lords, I was expecting a very dry debate on this relatively straightforward SI, but one of the joys of this place is that you are allowed to discover fellow Members meeting by meeting. The idea of the noble Baroness, Lady Randerson, leading a life previously as a groupie—though I hope not quite at that level—adds a little excitement to this debate, which it perhaps needs.
I welcome the introduction of this instrument to support British touring overseas. The House is aware that, since the UK left the European Union, companies which tour Europe have faced new obstacles in continuing their work and we all hope that this order will help them overcome this. The Government are right to bring forward these new provisions to allow certain hauliers to operate both in the UK and EU without having to pay vehicle excise duty—in effect, benefitting from the single market access rights.
I will not detain the Committee for long but there are three issues on which I would appreciate clarification. First, can the Minister explain why the measures are coming into force in August rather than earlier, especially given that the industry is particularly busy during the summer season? Secondly, the department has estimated that up to 50 specialist events hauliers, which in total have 1,000 vehicles, may decide to use this measure. How was this figure calculated and what proportion of specialist events hauliers does it represent? Finally, what steps will the Minister take to make the industry aware of these changes and to monitor their effectiveness? I hope the Minister can provide clarification on these points.
My Lords, that was relatively brief and moderately pain-free, but I will certainly answer as many questions as I can—and will write, as I can spot at least two I am feeling a little bit dubious about.
I think it is worth scooping up comments made by the noble Baroness, Lady Randerson, and the noble Lord, Lord Tunnicliffe, about what the timelines for this look like, how we ended up where we are now, why it was not done earlier, et cetera. Eighteen months ago, when we finally left the EU, there were all sorts of other things going on. There were not that many tours going on at the time, but we were aware that there was this potential issue with specialist events hauliers. As noble Lords may be aware, we explicitly requested bespoke arrangements for this sector when we were discussing the TCA, but the EU rejected those proposals so we have had to develop from there. It is the case that we went back and 100% checked with the EU whether it was absolutely sure that it could not think of some way for it to proceed. DfT officials raised that matter at the specialised committee on road transport in November 2021, noting that this sector had been disproportionately affected by the TCA and that this would have knock-on effects on artists affecting future cultural exchange for both sides.
We did not get far on that—I am not going to lie—and therefore realised that we would have to speak to the sector, as we would normally do in these circumstances, to understand exactly how we could help it. We did the consultation in February 2022. I cannot remember exactly how many people responded; I think it was something like 28. It was not a huge number, reflecting the relative size of the sector, which is not massive. After the consultation closed, we had to analyse the responses and shape the final policy position because, as I noted in my opening remarks, this does not help everybody and we wanted to make sure that we could help as quickly as possible. That is a very long-winded way of saying—the noble Lord, Lord Tunnicliffe, looked at his watch there—that the earliest we can get this into force is in August 2022.
However, I have positive news because we have done an interim measure. It is an exceptional administrative process which basically allows what we are proposing in the statutory instrument to happen now. That means that we have managed to safeguard the process over this summer. If differs from dual registration in that no legislative changes are required and it is instead implemented through an administrative arrangement with the Office of the Traffic Commissioner, but we recognise that that is quite temporary and we do not want to continue that arrangement without a firm legal footing. That is where we are with that.
The noble Baroness, Lady Randerson, asked why six months, and I am afraid I do not have the answer. I think there is a broader issue about vehicles coming into the UK in general, in that they can come in for six months before something has to happen. I will write to the noble Baroness because I do not think that is a good enough answer.
The noble Baroness raised an important point about merchandise, which I thought was very interesting. However, the goal of what we are trying to do today is to focus on certain specialised vehicles. The reason we have this problem is that you load your cultural objects or your things relating to your event into your truck, which itself is specialised for transporting specialised equipment. That is why we are very clear that that equipment must not be amended, altered or sold, otherwise it becomes something entirely different. When it comes to merchandise, you do not need a specialist truck to transport CDs, brochures or whatever; they can be transported by any good courier company. I shall see whether I can find anything more about that. The whole point of this order is to focus on these trucks, which are simply not available to meet the needs of the artist or whoever across the EU, and you would not want to change them.
I am grateful to the Minister for giving way. My point is that if you are transporting an orchestra, you have specially adapted pantechnicons full of specialised equipment and instruments—you shove a few boxes of programmes and merchandise in the bottom as you go. Because they would have to send them separately, orchestras will print their programmes in Europe rather than printing them in the UK and taking them, and they will print their t-shirts in Europe rather than in the UK. We are losing business that way. I am making what I think is a simple point: something that is clearly ancillary to the main purpose of the truck should be allowed.
I think the noble Baroness summed it up very well in that last comment: if it is “clearly ancillary” to the main purpose of the truck, other arrangements could well be found. I will write if I can find out anything slightly more positive to ease her mind. Otherwise, I am fairly sure that orchestras will be shoving boxes of brochures under violins anyway, but let us not worry about that right now.
On the impact assessment question from the noble Lord, Lord Tunnicliffe, this SI does not amend or impose requirements on business practice, excluding a tax measure; this is really a tax measure rather than a change in regulation per se. A tax information and impact note has therefore been published by HMRC, as this proposal includes tax policy changes.
The noble Lord, Lord Tunnicliffe, also asked how many people would make use of this. The information we have comes from the industry; we think that there are up to 50 specialist events haulage firms that operate, but we of course do not know quite how many will then go on to make use of this. We do know that three possibly larger specialist haulier firms have already set up within the EU and that more have plans to do so once this regulation is in place. I am afraid that I have no more information than that because we simply do not collect data on that sector specifically.
We will publish the guidance associated with these regulations by 15 July on GOV.UK. My officials are in contact with the sector and also working alongside the DCMS, which is also very interested in this area. Between the DfT and DCMS, we will be engaging with the industry to make sure that key stakeholders are aware of the implementation date and their options. I will write to the noble Baroness on the number of foreign-registered overseas trucks that we expect in relation to the specialist events sector. I am afraid I can probably tell her now that we will not know that number. In terms of enforcement challenges, I see no difference from other foreign trucks we have in the UK and the enforcement challenges that the DVSA has for those. I beg to move.
Contracts for Difference (Allocation) and Electricity Market Reform (General) (Amendment) Regulations 2022
Considered in Grand Committee
My Lords, these regulations were laid before the House on 11 May 2022. The contracts for difference scheme is the Government’s flagship renewable energy support scheme. It is designed to offer long-term price stabilisation to low-carbon generators, bringing investment forward at a lower cost of capital and therefore at a lower cost to consumers. The scheme has been very successful in driving substantial deployment of renewables at scale in Great Britain and has made it cheaper to deliver low-carbon generation.
CfD applicants with a capacity of 300 megawatts or more are currently required to present a supply chain statement to the Electricity Market Reform Delivery Body as part of their application. A statement is provided if a developer can demonstrate to the Secretary of State’s satisfaction that the project is likely to make a material contribution to the development of relevant supply chains. The aim of the policy is to increase productivity, competitiveness and capacity in supply chains, promoting innovation and skills in the low-carbon electricity generating sector.
The current policy approach to CfD delivery and supply chain plans needs to be strengthened. This will also support the move to annual CfD allocation rounds, which the Government announced in February. This will ensure that the scheme continues to operate effectively, encourage low-carbon generation and provide confidence to investors and supply chain companies. It will support the delivery of those renewable technologies identified in the Net Zero Strategy and the British Energy Security Strategy that are key to decarbonising the power sector, such as offshore wind, onshore wind and solar.
I will take a moment to talk through what these regulations will do. They will make several amendments to the Contracts for Difference (Allocation) Regulations 2014 and the Electricity Market Reform (General) Regulations 2014. The amendments include changes to contracts for difference delivery and supply chain policy in preparation for the fifth allocation round. These amendments will help to bolster supply chain development in preparation for the next CfD allocation round, planned to open in March 2023, delivering on the ambitions set out in the Net Zero Strategy and the British Energy Security Strategy.
These regulations amend the current non-delivery disincentive exclusion period that applies if a developer fails to sign a CfD contract or the contract is terminated, so that an application cannot be made for the subsequent two applicable allocation rounds. This strengthens the current policy of excluding a site from only one subsequent allocation round. This change will ensure that the NDD exclusion period is aligned with the decision to hold allocation rounds on an annual basis from 2023, ensuring that the NDD remains an adequate incentive to deliver projects.
These regulations also bring alignment with a change introduced to the valuation formula in the CfD allocation framework for allocation round 4. For allocation round 4, the Government introduced changes to the valuation formula to reduce the complexity of the auction and to ensure that the earliest possible date of CfD payments is considered when calculating the impact on the budget. These regulations introduce this technical change, amending the corresponding contracts for difference allocation regulations to reflect the amended formula.
The regulations amend the validity period of a supply chain plan statement so that it is valid for nine, rather than 12, months. This ensures that, in practice, developers continue to submit individual supply chain plans for each CfD allocation round in light of the move to annual auctions. They also amend the requirement to provide a supply chain plan statement so that it applies to all floating offshore wind projects. This allows the Government to support the development of supply chains for the floating offshore wind industry as it approaches significant commercialisation and deployment. We seek to make these amendments now to give certainty to businesses that might be planning to take part in the next CfD scheme, which will open in March 2023.
We are proposing these legislative amendments following a public consultation, which ran from 4 February to 15 March and gave stakeholders the opportunity to scrutinise and test the policy proposals. The consultation generated 41 responses from a range of developers of renewable generating stations, trade associations and bodies, suppliers and public investment bodies. At the same time, officials engaged wider audiences through an online event.
Overall, the policy proposals received wide support. The consultation led to one policy change to the supply chain policy proposals in response to the feedback received. A minor adjustment was made to the proposal to introduce floating offshore wind projects into the supply chain plan process whereby a bespoke, less burdensome process will be required to account for the smaller size of their projects.
In conclusion, the Government have set out a clear vision for how we will transform the production and use of energy, in a decisive shift away from expensive fossil fuels. These regulations, together with annual CfD allocation rounds, will help support an increase in the pace of deployment of the new renewable electricity generation needed to achieve our ambitions while continuing to consider the likely cost to consumers, energy security, et cetera. Subject to the will of Parliament, we intend that these arrangements will come into force on the day after the regulations are made. I beg to move.
My Lords, I will ask some questions, because I do not fully understand all this and these SI debates are often a good opportunity to expand one’s knowledge.
First, I would be grateful if the Minister can explain how a shorter life validity of the supply chain plan acts as an incentive, and what it incentivises. What happens after the plan lapses? None of that is obvious to me from the not very helpful Explanatory Memorandum. Are these supply plans published? Can we all see them or are they private documents between the Government and the supplier? Overall, do they help us to estimate what percent of the value added in supply chains is generated within the UK? If so, I would be grateful to know what it is.
Can the Minister also confirm that although the newest offshore fields won the bidding process with low prices, they have not yet activated their contracts so they are able to sell their electricity at the very high prices now prevailing, making what most people might call a windfall profit? That is the sort of thing Governments love to tax but they seem to have got off scot free. I would be grateful to know whether that is the case and to what proportion of wind generation that applies.
I would also like to know what proportion of wind generation comes from the early contracts, which, if I have correctly understood it—that may well not be the case—got a variable price plus a bonus and therefore are getting not merely the current high price but the current high price plus something extra: jolly good for them, but not so good for the consumer. Again, that is something that Governments might like to tax but they do not seem to have done so in this case. I would like to know what proportion of the renewables supply that is. By deduction, that should tell us what proportion of the renewables supply is under CfDs and therefore is not going up with the gas price. It would be very helpful if the Minister could answer that.
If those questions identify an intrinsic problem in the present system, why does this measure not deal with it—unless it does and I have not been able to find it in the not very helpful Explanatory Memorandum? I will be grateful for the Minister’s replies.
My Lords, I start—partly related to what the noble Lord, Lord Lilley, said—by thanking the Minister profoundly. The last time we had a debate around CfDs, I asked a number of questions about the Low Carbon Contracts Company, which is wholly owned by the Government, and how much money it was making because of the energy price in relation to the strike price on CfDs. The Minister provided a comprehensive reply. Unfortunately, I do not have the numbers from it with me, but I thought it was extremely useful and I thank him for that. There is significant money coming back into the Low Carbon Contracts Company and, therefore, the public sector. Of course, the area that does not is the old ROCs regime, where I presume good profits are being made by those renewable companies that still operate under that system—although those presumably are starting to die out fairly quickly.
The area I really want to ask about—again, similar to the noble Lord, Lord Lilley—is supply chains. When I first read the Explanatory Memorandum, I assumed that the concern about supply chains was that those that bid can actually deliver and, therefore, need to have a credible supply chain; I assumed the Government were, quite rightly, looking to make sure that, when a contract for renewable energy was awarded, it could be fulfilled. However, when I read it, it did not say it in that way. Nor did the Minister, who seemed to describe the development of the supply chain. I assume that that is about trying to enhance the UK content of the supply chain; I would be interested to understand whether that is the case. I understand that the European Union is not too happy about that—for reasons which I sort of understand. Clearly, there is an important national interest here in terms of our long-term future. I am interested to understand where the Government have got, under the TCA, with the Commission on that discussion and whether they are actually in the processes that exist to discuss that.
I absolutely agree with the proposal to be more punitive if schemes cannot be delivered. Development timescales are still long—we all want to make them shorter while not prejudicing the environmental concerns and so on—but it seems absolutely vital that, once companies are awarded contracts, they deliver on time and we get that energy into the system.
One slightly more general question is around the state of the national grid and its ability to absorb these extra inputs into renewable energy. Certainly in the south-west, where I come from—talking about the solar side and battery storage, in which I have an interest in a company called Aldustria Ltd—there seems to be quite a queue at the moment, and a blockage in terms of access to DNO systems and the national grid. I would be interested to understand what happens there.
My last question is: why is there a discrimination against floating offshore wind regarding the 300 megawatts? Do the Government intend to remove that flaw for ordinary offshore generation as well and, if not, why the difference?
My Lords, I thank the Minister for his introduction. I similarly had only three questions arising from this SI—two of which the noble Lord, Lord Lilley, asked and the final one has also just been asked. This is a very technical SI, which we support, and I will just pick up on a couple of points.
The instrument will amend the validity period of the supply chain plan statement—one point that the noble Lord, Lord Lilley, raised—so that it is valid for nine months, not 12 months, from the date of notice given by the Secretary of State. However, it goes on to say:
“The Secretary of State will … be able to determine a longer period if in their opinion there is a compelling reason for the period to be longer”.
Can the Minister share what he would consider to be “compelling reasons” for why it would be extended past nine months, if we are moving it back from 12 months? The noble Lord, Lord Lilley, touched on the second point about the qualifying of the impact under the new commitments; I will leave the Minister to answer that question.
On the supply chain, Regulation 2(3) amends the requirement to provide a supply chain plan statement so that it applies to all floating offshore wind projects. This was the point just made: the current 300-megawatt threshold generating capacity will continue to apply to all other eligible projects that are not floating offshore wind projects. Have the Government given any consideration to removing this threshold for other projects to encourage SCPs?
Finally, I understand that the consultation on the new supply chain plan questionnaire—the condensed version—closes tomorrow. Do any of the changes that would come under that affect this SI and does closing the consultation after the Grand Committee agrees this SI have any consequences?
I thank all the three noble Lords for their contributions. They were raising wider concerns about how the process works; I do not think anybody objected to the SI itself, so I thank Members for their support. The points that were raised demonstrate the need for these regulations—they are technical changes—and the support for introducing them.
As I said at the start of the debate, these changes are essential to ensure that the next CfD allocation round, which will be the first annual one, can best support something we all want to see: an increase in the pace of renewable development and the deployment needed to help us achieve our net-zero ambitions and get the price of electricity down in the longer term. At the same time, they help to achieve our legal net-zero commitments.
My noble friend Lord Lilley was right to point out the need to consider the likely cost to consumers, the impacts on energy security, et cetera. These regulations must be made now, ahead of the next CfD allocation round, which is planned for March next year, as I said, so that the developers have certainty as to the legislative framework for the next round.
Dealing with some of the questions raised, my noble friend Lord Lilley asked me to explain how a shorter validity acts as an incentive and what happens after the supply chain lapses. He also asked whether supply chain plans are published. The answer is that they are. They set out how they will improve the capacity of the supply chain. The noble Lord, Lord Teverson, touched on the reason and I need to be slightly careful here. We are endeavouring to ensure that—how should I put this?—as much of the supply chain as possible is located in the United Kingdom, without breaching our legal obligations, which nobody would want to see us do. We are subject to legal action from the European Commission in the WTO, at the moment.
My noble friend Lord Lilley also asked what the Government are doing to stop CfD generators delaying their start dates so they can benefit from high energy prices. First, the vast majority of operational CfD projects are, happily, paying back into the system, due to the current high energy prices. I set out those figures in a letter to the noble Lord, Lord Teverson. Subject to his agreement, I would be happy to send a copy to my noble friend.
In essence, in April this year, the Low Carbon Contracts Company, which is responsible for administering this system, returned £108.3 million to GB suppliers in respect of payments made by generators since last autumn. However, my noble friend is correct, and the Government are aware of a small number of projects that have delayed their contract start dates to try to benefit from current high wholesale prices. Legally, CfDs are private law contracts between the Low Carbon Contracts Company, the CfD counterparty and generators. The Government are not legally a counterparty to those contracts. However, we have raised the matter with the industry and made it clear that, in our view, this practice is not within the spirit of the scheme, which is intended to deliver benefits to both consumers and developers. While operating on commercial terms, these developers will not receive CfD payments. We are examining possible changes to the scheme to prevent future CfD projects acting in this way. While this practice is regrettable, it is important to remember that CfDs have played a significant role in massively bringing down the cost of offshore wind in recent years.
My noble friend also asked about capacity. The CfD scheme currently supports 16 gigawatts of new capacity, of which 13 gigawatts is offshore wind. Only two projects, totalling 1.4 gigawatts, have delayed their contract start dates in order to sell their electricity on the open market.
Turning to the slightly problematic area which concerns the noble Lord, Lord Teverson, reflecting the concern of the EU that we are breaching WTO rules, my legalistic response to this is that in the supply chain plans we do not require developers to use UK content. The supply chain plans are there to encourage them to invest in creating competitive, capable and efficient supply chains which are, of course, necessary for us to deliver net zero, taking into account our national obligations.
I thank the noble Lord for his comments. The noble Lord also asked why there is discrimination against floating offshore wind in terms of the 300-megawatt capacity. The answer is that this technology is at a key juncture in terms of its deployment, and we think that certain emerging technologies—such as floating offshore wind—have the potential to play an important role in the future in helping us to meet net zero. Bringing them into the supply chain process now will allow BEIS to support the development of the associated supply chain at an early stage by encouraging the industry to invest in competitive supply chains and—as has happened with offshore wind—to accelerate the cost reduction, by which we are now all benefitting.
There were also a number of technical questions raised by the noble Lord, Lord McNicol. This SI is not affected by the detailed questionnaire that was issued. On his other questions, it may be better if I reply to him in writing, if he will allow me to do so. With that, I commend this draft instrument to the House.
Construction Contracts (England) Exclusion Order 2022
Considered in Grand Committee
My Lords, I beg to move that the draft Construction Contracts (England) Exclusion Order 2022, which was laid before the House on 11 May 2022, be approved.
These regulations exclude two specific types of construction contract from the provisions of Part 2 of the Housing Grants, Construction and Regeneration Act 1996, often referred to as the construction Act. Both contract types form part of a new procurement delivery model developed by Ofwat, known as direct procurement for customers or DPC, for the finance, design, building, operation and maintenance of high-value water and sewerage infrastructure. Before I set out the details of this exclusion order, it might perhaps be helpful to touch on the legal context for construction contracts.
Specific construction payment and dispute resolution legislation has now been in place for more than 25 years. Part 2 of the Housing Grants, Construction and Regeneration Act 1996 creates a framework for fair and prompt payment through the construction supply chain and a resolution procedure for disputes. The aim is to improve cash flow and provide the right to the quick resolution of disputes through adjudication.
Generally, the Construction Act requires the legal framework to be implemented through the construction contract. Where a construction contract omits to deal with an issue, or does so in a way that does not meet the requirements of the Act, a fallback provision is required. This is provided for by the scheme for construction contracts—“the scheme”—which is implied in the contract. The Construction Act has always prevented pay-when-paid clauses, which were often used as a way to delay payments to the supply chain. They are clauses whereby party B will not pay party C unless party B itself has been paid by party A.
In addition, a loophole was closed by the Local Democracy, Economic Development and Construction Act 2009 which introduced new Section 110(1A) into the 1996 Act. This provision prevents any term in a contract which makes payment conditional on the performance of an obligation under another contract or a decision by any person as to whether obligations under another contract have been performed. This legal framework has played an important role in improving payment practices in the construction industry.
However, the Construction Act also confers powers on the Secretary of State to disapply the provisions of the Act in limited circumstances. These powers have been used only twice before, for construction contract exclusion orders in 1998 and 2011. In both cases the orders excluded contracts under the private finance initiative. This was due to the unique nature of the contractual design and financing arrangements of the PFI contracts.
It is for the same reason—the distinctive financing arrangements and design of contracts—that this exclusion is sought for two specific contract types under the new infrastructure procurement model known as direct procurement for customers. Direct procurement for customers is based on a regulated water and sewerage provider competitively tendering for a third party—a competitively appointed private sector provider, or CAP—to finance, design, build, operate and maintain an infrastructure asset that would otherwise have been delivered by the incumbent utility provider. The CAP will be likely to be a special purpose vehicle, commonly including a construction company, a funder and a service provider.
The CAP will enter into a series of subcontracts for the design, construction and maintenance of the relevant assets. These contracts are typically drafted to be co-extensive with the main CAP contract, in particular relying on performance of obligations under the contract between the utility provider and the CAP to determine payment to the tier 1 subcontractor. Payment to the CAP by the incumbent water provider is via a unitary charge, which commences only when the asset or part of the asset is capable of operating.
However, the CAP agreement and first-tier subcontracts fall under the definition of a construction contract. Such a classification means that the contracts must include Act-compliant payment processes and adjudication arrangements. If not, the scheme for construction contracts is deemed to apply to the agreement, which would then take precedence. This would adversely affect the structure and operation of these DPC project contracts and would threaten the whole viability of the procurement model.
This draft instrument is limited to the specific DPC procurement model and excludes only two types of construction contract from the provisions of the Construction Act: first, DPC competitively appointed provider—CAP—contracts are excluded from all requirements of Part 2 of the 1996 Act; and, secondly, DPC first-tier subcontracts are excluded from Section 110(1A) of the 1996 Act. This will allow payments to first-tier DPC subcontracts to be conditional on obligations being performed in other contracts. All remaining construction contracts through the supply chain of the DPC project, in particular for SMEs, will remain subject to all the provisions of the Construction Act.
Application of this instrument is within England only, as construction is a devolved matter.
Of course, we consulted on this: as part of the development of the statutory instrument we carried out a targeted consultation with relevant construction industry and water sector stakeholders. It was confirmed that the specific contracts would be disproportionately affected by the provisions of Part 2 of the Construction Act. The majority of respondents were in favour of the exclusion, although some concerns were expressed regarding the impact on first-tier contractors.
However, the tier 1 construction subcontractor or its parent company will typically be part of the main CAP. This provides good knowledge of the funding structure, contract terms and risk allocation of this particular procurement model. This means that the contractor is in a good position to assess and price the risk, in contrast to the general position with more traditional construction projects.
So DPC is a competitive delivery model focused on increasing and accelerating investment in improving water and sewerage infrastructure. There is a pipeline of potential projects—
Yes—very good. There is a pipeline of potential projects that could adopt this model, and the Government believe that its use will deliver benefits to consumers. Through increasing competition in the delivery of strategic infrastructure, it will ensure that the cost of this infrastructure is market tested and therefore fair for water and sewerage customers. I apologise for the complicated nature of the explanation and I commend this instrument to the House.
I am sure that we are all very grateful to my noble friend for presenting this document. I am sure that he will be aware of the vexed issue of sustainable drainage systems—SUDS—in relation to the provision of water and sewerage services. So I ask very specifically whether the implementation of SUDS will be affected and enhanced by the exclusion in this regulation.
Paragraph 7.3 of the Explanatory Memorandum says:
“The instrument is limited to a specific procurement model for high value infrastructure assets in the regulated water and sewerage sector ... There are two projects under active development and a further 18 strategic water resource schemes are being progressed ... across the next 2-3 price review periods”—
so we are looking at a period of 15 years. As we are told that the significance and the business impact of this is estimated at £54,000, how will this enhance the ability to introduce SUDS and other larger water infrastructure projects if it is such small beer? That is the only issue that I will raise; otherwise, obviously I approve this instrument.
My Lords, I too am grateful to the Minister for his explanation—I tried to understand most of it. I too am interested in paragraph 7.3, to which the noble Baroness referred, because it comes back to the question of the best way of achieving fair competition when there is going to be a massive new project to provide better services in the water sector. One has to look perhaps at the example of the Thames Tideway tunnel—that probably comes under the category of being large. Whether it will deliver what Thames Water thinks that it will at a price that customers can afford remains to be seen. I do not quite see why these two large projects should be dealt with separately. Could the Minister name them and give us some idea of what they are about and what the risks might be? I will not go into them now, because they could be anything.
The regulator is apparently in charge of all of this and will vet contracts that it seems to me will be to design, construct and operate—why can these not be done by competitive tendering, with the usual construction industry fallbacks if things go wrong? It would be interesting if the Minister could give us more information about not only the two big ones but the 18 strategic water resources ones. How will anyone be able to tell or believe—we hope that we will be able to believe—that the regulator has delivered for the customer as well as for shareholders?
As the Minister knows, I am no lawyer—perhaps I should have taken a law degree before attempting this statutory instrument. I note that it is not just the European Union that can amass red tape; we seem to be doing it very well on our own, so I am not sure it can refer us to the WTO for competition.
This is a very complex model. I was caught by the idea that we appear to have been progressing without it for a while. In a sense, is this closing a loophole that has been spotted, or does this reflect a trend in how the market is going about delivering these projects? What drove the decision to table this statutory instrument now? In other words, what has caused this to happen now when it clearly could have happened some time before or in future?
In passing, the Minister mentioned benefits to consumers. I think he outlined that there would be some sort of competitive tendering process, and therefore the price of a particular project would go down in cost. I am interested in the very sharp end of the consumer experience—the connection and that kind of thing. I assume that this applies to that as well as to the larger projects. If it does not, how will a new consumer attempting to join the system experience it? As I understand it, at the moment they are given a “take it or leave it” price by the water supplier. Does that continue to be the case? Will there be an opportunity for consumers to drive down the cost to them of an individual connection or is this focusing only on much larger projects?
The other point is how this flows through the supply chain. The Minister mentioned that the tier 1 contractors are potentially liable to be most affected. However, this marks a change right down through the chain to tiers 2, 3 and others. I would be interested to know how low down their tier structure the department intends to bring suppliers up to speed on how they address their role in this change in the supply chain. Other than that, I think I welcome this and certainly look forward to the Minister’s answers.
My Lords, I again thank the Minister for his introduction to another very technical SI. Until his introduction, the only real question I had was around the consultation. He touched on it at the end of his introduction, but I could not find any of the details of the responses to it online. That is probably me, but could he say a little more about the feedback received as part of the consultation?
Following on from the themes of the general public and who will benefit from this SI, the Minister said there were some concerns and worries from the first-tier subcontractors. I think we all agree that the removal of “pay when paid” was good. I worry a little, if we are bringing back special circumstances which in reality are “pay when paid”—although under slightly different processes in terms of certificates and completions—whether we are opening it up. Is the Minister worried about this at all or is the SI tight enough to prevent “pay when paid” returning to the construction sector?
The final point has been touched on by the noble Lords, Lord Berkeley and Lord Fox, and is about fair competition and the general public. Does the Minister believe there will be any increase in price or unitary charge for the general public in this SI? With that, I will leave my questions.
I thank noble Lords for their valuable contributions to the debate. Let me start by emphasising, as I did initially, that this exclusion order is very narrow in scope. It is well defined to ensure that it is used only for the intended and very specific contracts that I referred to. These are the two specific construction contracts that are used to deliver the direct procurement for customers model for high-value infrastructure assets in the regulated water and sewerage sector.
Let me also emphasise that the creation of an exclusion under this Act is very much an exception and not the rule. DPC is a competitive delivery model focused on accelerating the delivery of strategic infrastructure in this particular sector. The current absence of an exclusion for these specific contracts threatens the viability of DPC and the very great benefits it could bring to consumers. That position has been confirmed through consultations with appropriate stakeholders. That is the reason the Government have chosen to use the powers conferred on them to make exclusions from the provisions of the construction Act in this particular, limited, isolated case.
I shall now deal with the questions I was asked. First, to my noble friend Lady McIntosh: SUDS are not currently associated with the schemes being developed but may be, in the future, if they are of sufficient size to be required.
The noble Lord, Lord Berkeley, asked for details of the projects. The first project is United Utilities Water’s Haweswater aqueduct resilience programme, which I am sure the noble Lord is very familiar with. It is to replace the existing Haweswater aqueduct, which is at risk of failing, which currently transfers water from the Lake District to north-west England, especially Manchester. The second English project is sponsored by Southern Water, and it is to deliver water to the south-east of England. United Utilities Water’s Haweswater aqueduct resilience programme, a very large project, will replace parts of the Haweswater aqueduct, which brings water to Cumbria and Lancashire. Southern Water’s Hampshire water transfer and water recycling project is required to ensure supplies to the Hampshire region. It is able to meet, apparently, one-in-500-year droughts. That is the second scheme I referred to.
In response to the question asked by the noble Lord, Lord Fox, as I emphasised again, the exclusion order is narrow in scope, and it is well defined to ensure that it is used for these particular, intended contracts only—the two specific construction contracts that are used to deliver the DPC procurement model for high-value infrastructure assets. Those entering into the procurement mechanism will, of course, have full knowledge of the terms including that payments during the construction phase will be made at specified intervals and that payments made through the unitary charge will commence only once the asset is capable of operating. Importantly, alternative dispute resolution mechanisms will also be included within the CAP contracts. All remaining construction contracts through the supply chain of the DPC projects—and, let me emphasise, in particular those appertaining to SMEs—would, of course, remain subject to all the relevant provisions within the construction Act.
In response to the question from the noble Lord, Lord McNicol, this instrument is limited—
I am grateful to the Minister, but before he moves on, could he explain why the regulator, or the Government, thinks these very large contracts should be treated separately and differently, rather than having several smaller ones, as it may be, where the risk of things going wrong might be lower?
As I said, these are specific to a unique procurement model which is being trialled and which we think will be appropriate in the water and sewerage sector. We therefore think it appropriate to exempt these particular, very large contracts to enable the model which effectively, as far as the companies are concerned, delivers the construction, management, maintenance, et cetera of very large construction projects. It is a unique procurement mechanism which we think has the potential to benefit customers in the future, so in this very limited case it was deemed appropriate by the Secretary of State to exempt them from the regulations.
I shall further demonstrate my confusion on this statutory instrument. I think I heard the Minister say that payment to the tier-one supplier could be delayed until the point at which the service has been delivered, but that payments to those lower down the supply chain would not be delayed. If that is the case, there is a significant cash flow issue for the tier-one suppliers who are not necessarily robust in cash, as we have seen in other projects. Has the department carried out an impact assessment in cash terms on the tier-one suppliers who would potentially be taking a knock here?
In essence, the noble Lord is right. The regulation exemption will apply to the main, overall contract, but the separate contracts that will exist lower down the supply chain with SMEs will still be subject to the provisions of the construction Act. I suppose the answer to the noble Lord’s question is ultimately it is for the main supplier to price in the risk. Of course, if it wants to be paid, it needs to deliver on the contract and on the service that it is being contracted to provide. As in all these things, it is about providing the right incentives and fair value for the taxpayer or, in this case, the water bill payer, and for the main contractor to deliver the project as efficiently as possible. Ultimately contracts between the lower-tier levels and smaller SMEs are still subject to the provisions and they will need to be paid in any case.
In response to the question asked by the noble Lord, Lord McNicol, this instrument is limited to a specific procurement model that Ofwat wants to use in the regulated water and sewerage sector. He referred to the consultation. That was held through individual and group meetings with the relevant construction industry and with water sector stakeholders and was undertaken over a two-month period.
I was asked a question on pay when paid.
I understand when the consultation took place. The bit I could not find when I was reading the statutory instrument was the response to the consultation and whether that has been published on the website or shared at all, because I could not find any information on the consultation. I knew exactly when it was and what happened.
It was not published, but I would be happy to send the noble Lord a letter with the details of the consultation in question.
I was asked a question on pay when paid. Again, it is quite technical. DPC first-tier subcontracts are not excluded from Section 113 of the Housing Grants, Construction and Regeneration Act 1996 under this statutory instrument. This means that pay-when-paid clauses are not permitted. Instead, payments will be made according to an agreed schedule for the delivery of the project.
The basis of DPC is to provide better value for money for customers, ultimately, and bills are expected to be lower than they would have been if the schemes were delivered by regulated water companies via the traditional business-as-usual model by which companies’ prices are set. The first-tier contractors are expected to be part of the highest-level CAP and they are responsible for funding the delivery of the schemes under those contracts.
I hope that I have been able to satisfy the Committee on the questions that were asked—obviously not.
I apologise for labouring this point. First, an observation on the Minister’s answer to my last question is that, if I were a tier 1 contractor factoring in the risk to my cash flow, it would increase rather than decrease my price, because I would be taking some sort of insurance or loan to finance the flow of cash through my business. So I do not quite get the idea that competitiveness would work in the way the Minister is depicting.
I am struggling with why, and why now. Are there historic issues with delivery that have caused the department and the Government to want to push this model through this statutory instrument? We cannot simply point to the construction Act being there; the construction Act is there, but projects have been going on. What specifically has caused this to happen now? I still do not get that.
While Ofwat’s regulatory regime has been successful at challenging the performance and efficiency of what are ultimately monopoly companies, in some areas, such as the delivery of major infrastructure projects, we believe that competition can deliver greater benefits for consumers. That is why, with advice from the regulator and the appropriate consultations, we think that these procurement models will deliver better value with a greater competition benefit for consumers—which is why we are introducing them. I hope I have satisfied the noble Lord’s question and I therefore commend these draft—
Ultimately, of course, previous contracts have delivered and been successful, but we think that a different model, involving more competition, could deliver better value for consumers, which is why we have produced these regulations. I therefore commend them to the Committee.
The noble Lord mentioned Southern Water as an example of the need for competition, and I am sure he is right about the need for competition—but who is competing? Is Southern Water competing against somebody else or are two contractors that are reporting to Southern Water, as the principal, competing? How does it work?
I will write to the noble Lord if my answer is not correct, but my understanding is that Southern Water is the procurer and will be regulated by Ofwat within the overall monopoly structure of the water industry. This is why strict regulation and price controls are imposed on water companies. The idea is that a company will be able to involve competition in selecting contractors for the delivery of particular projects. So the company will be the procurer, albeit under the overall model regulated by Ofwat.
Committee adjourned at 6.13 pm.