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Grand Committee

Volume 831: debated on Wednesday 5 July 2023

Grand Committee

Wednesday 5 July 2023

Arrangement of Business

Announcement

My Lords, you know the drill: if there is vote I will let you know and we will adjourn proceedings. I suspect that there will be a vote shortly, but we will hear the bells ringing. Let us kick off.

Healthcare (International Arrangements) (EU Exit) Regulations 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Healthcare (International Arrangements) (EU Exit) Regulations 2023.

My Lords, reciprocal healthcare arrangements enable UK residents to access healthcare when they live, study, work or travel abroad. They not only provide an added safeguard for our residents when they travel but support those with long-term pre-existing conditions to avoid them facing expensive insurance premia or funding private treatment. This is why the UK Government are proud to have concluded healthcare arrangements that provide our residents with greater access to healthcare in countries across the world, such as with the European Union, Switzerland and our overseas territories.

Last year, we amended our primary legislation that enabled the implementation of comprehensive reciprocal healthcare arrangements in the European Economic Area and Switzerland. Thanks to the Health and Care Act, which noble Lords played a crucial role in scrutinising, the UK can now implement comprehensive healthcare arrangements with countries around the world—not just in Europe—where it will be to the benefit of the UK. This means that we can implement arrangements that include the reimbursement of costs and exchange of data, such as the one we have with the European Union, across a wider geographical area where it is in the interest of the UK to do so. Overall, extending arrangements offers potential benefit for all UK residents, providing them with greater reassurance when travelling and deepening diplomatic ties with our international partners.

Following the amendments to our primary legislation, secondary legislation is now necessary to continue implementing our existing reciprocal healthcare arrangements, as well as future ones. I am pleased to introduce the regulations to the Committee. They will replace implementation regulations made under our former primary legislation, the geographical scope of which was limited to the European Economic Area and Switzerland.

While these regulations remain substantively similar to the regulations they replace, they also provide the necessary legal framework to implement any future arrangements with countries around the world. They work by conferring functions on the NHS Business Services Authority and local health boards across the UK to give effect to our existing healthcare arrangements. For example, they enable the NHS Business Services Authority to make payments, process applications and provide information to the public, including issuing the global health insurance card.

The regulations also confer functions on Welsh and Scottish local health boards so that they can deliver planned treatment provisions within our arrangements, which is an area of devolved competence. Until a Northern Ireland Executive are in place, we will save our existing implementation regulations to ensure that planned treatment can be delivered across the UK according to our obligations under the reciprocal healthcare arrangements that we have with the EU, EEA states and Switzerland. We have worked closely with the devolved Administrations in the drafting of the regulations and they have confirmed, through a formal consultation, that they are content.

We have included a Schedule to these regulations, which consolidates all the healthcare arrangements that the UK currently has with countries and territories around the world. It includes not only our arrangements with the European Union, which contain reimbursement provisions, but our existing international arrangements, where no money is exchanged and where the cost of treatment is waived, with countries such as Australia and New Zealand. To add a new country or territory to the Schedule, it must be amended by affirmative statutory instrument, providing noble Lords with the opportunity to scrutinise the implementation of any new arrangements.

The regulations enable the Secretary of State to make payments outside of an arrangement only when there are exceptional circumstances to justify the payment and only in countries or territories where a reciprocal healthcare arrangement with the UK is in place. Having this power means that we can support UK residents when they face difficulties and extraordinary situations when accessing healthcare abroad is critical. This will be accompanied by a policy framework, which we have developed and consulted on publicly. The framework will guide exceptional payment decisions while providing adequate flexibility for the Secretary of State to assess cases individually.

Finally, I take this opportunity to reassure your Lordships on concerns which were raised previously in the House about the interaction of reciprocal healthcare and trade. I reiterate that these regulations are not about trade deals or privatising the NHS; they are about implementing reciprocal healthcare arrangements and supporting UK residents to access healthcare abroad.

I am happy to bring forward this legislation today. These regulations are crucial to honour our current commitments and obligations under our existing healthcare arrangements, and to continue supporting the people who depend on these arrangements to access the healthcare they need while abroad. I beg to move.

My Lords, I congratulate my noble friend on bringing forward what I view as very welcome regulations for us this afternoon. I have to declare an interest, as I currently have an EHIC, which I assume will expire at the end of this year, and visit a very small number of the countries on this list. Given that the list on page 5 in the Schedule seems very full, I take this opportunity for my noble friend to put my mind at rest, because originally—it was a year ago, 2022—it was pointed out that the GHIC, which my noble friend explained will replace the EHIC in the regulations, originally did not cover countries such as Norway, Iceland or Liechtenstein, but they appear on the list. Is that because the original primary legislation did not cover them, or were we just waiting for the regulations before us this afternoon? Can he confirm that the EHIC covers those three countries and that the GHIC will also cover them?

From a practical point of view, I have never yet had to make a claim. I once, rather unfortunately, contracted salmonella poisoning as a Conservative candidate at a hotel which will remain nameless in north London, which rather sorrowfully served chicken drumsticks but did not have the foresight to defrost them. Unwittingly, I was so hungry I ate the chicken drumsticks, and within 36 hours I was in a very sorry way, but not as bad as some of my older colleagues at the time, who had to be hospitalised because of salmonella poisoning. I was then fortunate enough to be injected, not in my arm but in another part of my anatomy by a French doctor and had to have a course of whatever tablets they were.

Are we under these arrangements required to pay similar costs to those in that scenario up front, keep receipts and claim them back when we are back in the UK? Is that how it works? I think most of us are covered, and I know the department and the Foreign Office encourage all of us who travel outside the UK to have the fullest possible medical insurance that we can. Is it reciprocal? Does, say, a Norwegian, a Dane, a Liechtensteiner or someone from whatever third country pay here and is then reimbursed by their medical authorities—just to be absolutely clear on the reciprocity of the situation?

I give the regulations before us this afternoon a very warm welcome.

As I understood it, the Schedule on page 5 covers overseas territories and dependent territories. I note that the Cayman Islands is not listed. I have not had time to check whether anywhere else is off the list, but I wondered whether my noble friend could find out and let me know. I ought to declare an interest: one member of my family is working in the Cayman Islands, and there may be others. I recently attended a conference of all the overseas territories and dependent territories, and there seemed to be rather more than appear here, but that may be me and my memory bank. I leave that question with my noble friend.

My Lords, I also welcome this statutory instrument, which seems to be a helpful tidying-up exercise overall. Of course, it is humane and to our credit that we seek the maximum number of reciprocal arrangements so that people in the UK travelling to other countries can get healthcare when they need it and people coming here can benefit from our health service. That is important as a humane response.

First, on the comments from the noble Baroness, Lady McIntosh, I have a GHIC card; I think I was one of the first out of the traps in 2021. My understanding—the Minister will confirm this later—is that the “G” is rather more aspirational than material; that the GHIC is really an EHIC because it does not count in any other places, such as Australia or New Zealand; and that it is really a version of the EHIC rebranded with a rather fetching union jack. I am interested to hear from the Minister whether I have understood that correctly. Of course, it seems to be the Government’s aspiration that, one day, the “G” in your GHIC will be meaningful but as I say, as I understand it today, it is an “E” rather than a “G”.

We are pleased that there was consultation with Ministers in Northern Ireland, Wales and Scotland. Again, a regular theme of the stuff that we debate in this House is that there have been a number of other instances where that has not happened, such as with the minimum service levels Bill. It is good to see that, here, Ministers have given their approval.

I want to ask a few questions. The first is a material one on the scope of UK-insured persons; that is some of the language used in the instrument. My understanding is that there is a difference. For example, as long as they are a UK-registered resident, somebody who is resident and a taxpayer in the United Kingdom—whatever passport they hold—can get a GHIC card and use it in the European Union but they would not be able to do so in Switzerland because it has a narrower category of people who qualify; people there would, I think, need a UK passport to take advantage of the relationship.

That opens up a wider question: what is the Government’s policy? Is it that anyone who is a UK resident and taxpayer here should benefit from the reciprocal arrangements, or are the Government content to leave it such that we limit the scope in some countries? I followed the links to look at the information provided to people on GOV.UK. Oh my God; I am not sure whether I regret going there because it is incredibly complex. If noble Lords look at it, they will see that some countries want a driving licence, some want a passport—some want a UK passport while others want any passport—some want proof of residence and some want the magic card. There is a huge plethora of proofs of identity and qualification. Again, people’s expectations would be that, if they live in the UK and pay their taxes here, they should be able to benefit from the reciprocal arrangement. However, that is not what we see at the moment.

Regulation 6 says that the NHS Business Services Authority has a duty to

“maintain a service making available to the public information”.

Something useful could be done on the BSA working with GOV.UK to give people a much easier way to say, “I am going to country X: do I qualify? If I do, what documents do I need? At the moment, there is a long list that is incredibly confusing”. This is just a thought for the Minister as to whether Regulation 6 would include asking the Business Services Authority to improve the quality of the information offered at present.

My second substantive point concerns Regulation 7, which says that the

“BSA must assist the Secretary of State with the Secretary of State’s exercise of functions”.

Another critical piece of information here is understanding what is happening through this arrangement. What are the costs in and out? How many people from another country are using the NHS? How many people from the United Kingdom are using services in another country? Can the Minister clarify whether, as well as information about the workings of the reciprocal arrangement being provided to the Secretary of State, he anticipates such information being provided to the public and to us as parliamentarians? I do not mean to penny-pinch—as I say, the starting point should be that it is humane to offer treatment at both ends—but it is a matter of information.

The Minister referred to how additional countries might be added to the list. We would all welcome that but, again, when that happens, there will have to be a business case that must make predictions about how much usage of the scheme there will be. I welcome the fact that the Minister says that the addition of another country will come back to us for approval, but I hope that he can also commit to us being given the information we need on existing arrangements and predicted future arrangements to help us make those determinations.

Clarifications on those substantive points about eligibility and the provision of information and data on how the arrangements are working would be really helpful but, substantively, we welcome the instrument.

My Lords, I thank the Minister for his introduction to the SI and the other noble Lords who have spoken to it. For the record, we wanted to look very closely at it, given the discussions, commitments and reassurances made last year by the Government and the then Health Minister, the noble Baroness, Lady Penn, about the Government’s policy intentions on reciprocal health agreements during the passage of what is now the Health and Care Act.

We had strong concerns that any provisions under the Act which reflected post-Brexit arrangements should be confined to the implementation of reciprocal healthcare arrangements, not to the negotiation of international health agreements which could be used for wider and different purposes, such as the privatisation of parts of healthcare. The Healthcare (European Economic Area and Switzerland Arrangements) Act 2019 included explicit constraints to make such agreements on the powers of Secretary of State in this regard. We also had concerns that the new arrangements should not change the definition of future reciprocal healthcare agreements.

Reassurance from the Government that the purpose of the 2019 Act was not to implement trade deals and that reciprocal healthcare agreements do not relate to the commissioning and provision of services for the NHS were very welcome. We are therefore content that the SI properly reflects this; I thank the Minister for his reassurances in his opening remarks. We are also pleased that the affirmative procedure ensures that Parliament is able to be kept up to date with developments and that these issues are properly debated.

The Explanatory Memorandum is very helpful. I look forward to the Minister’s response to the issues raised by the noble Lord, Lord Allan, about scope, because they are important.

We recognise that the regulations are vital to implement international healthcare agreements following our exit from the EU. Reciprocal healthcare agreements support people to access healthcare in the listed countries. Those faced with the stress and worry of a healthcare emergency abroad will rightly expect suitable arrangements to be in place where possible. That is particularly true of people with a disability, those who are older or who live with a pre-existing or chronic health condition.

The amendments to the Act allow the Government to implement more complex agreements with the ability to make financial reimbursement at cost, as the UK currently does with many EEA countries, and confer further powers on the Secretary of State. Can the Minister outline further details about the Government’s plans for other international healthcare co-operation outside the EEA and Switzerland and what these plans might look like?

From our understanding of the SI, we think that payments can be made only if both the following conditions are met: the healthcare treatment is in a country with which we have an international healthcare agreement, and the Secretary of State considers that exceptional circumstances justify the payment. Can the Minister explain the Government’s thinking on what would constitute exceptional circumstances and how the policy framework might work? What guidance is being issued by the NHS Business Services Authority, which has certain administrative functions conferred on it through the SI?

The public consultation on the policy has just closed but we understand that the results and an analysis of it will be published this month. An early indication of the timetable and results would be welcome.

On the role of the NHS BSA, can the Minister provide more detail on the work currently undertaken to establish and maintain the public information and advice service on healthcare provision under relevant healthcare agreements, as set out in the SI? Again, the noble Lord, Lord Allan, mentioned this important function. The importance of transparency has been underlined. It will be crucial in the future to help people understand how reciprocal healthcare agreements work and can be accessed, to ensure they are doing all the right things to be properly covered, and to make claims, as the noble Baroness, Lady McIntosh, said.

I look forward to hearing answers to the questions about the issue of EHIC and GHIC. Specifically, can the Minister update the House on how the transfer from EHIC to GHIC has worked and whether any complications have been experienced—for example, the impact of the non-application to the UK of the EU cross-border healthcare directive, which enabled UK patients to pay for qualifying private healthcare in Europe and to receive reimbursement up to the amount that the treatment would cost the NHS? UK travellers can now no longer seek reimbursement, and I wondered if there had been any instances where the lack of awareness of that has caused problems—for example, for patients needing kidney dialysis where reimbursement for private treatment has not been allowed.

I appreciate that the Minister might need to come back to me on that. I think we are about to have a vote, but I look forward to his response.

I will try my best, potential votes notwithstanding. I thank noble Lords for their contributions to today’s debate and for the generally received welcome. To try to answer them in turn, on the point made by the noble Baroness, Lady McIntosh of Pickering, I believe the arrangements made with the EFTA countries were signed on 30 June 2023. The expectation is that they will become operational by the middle of 2024—saved by the bell.

Sitting suspended for a Division in the House.

My Lords, I understand that another vote is coming, so I do not think there is any point in having another few minutes of the Minister—fun though that may be. Shall we twiddle our thumbs until the next vote?

I am happy to try. We will see. I will write a detailed letter after all this, so noble Lords can decide, when the bell rings, whether they want me back for more. That was a nice break in terms of being able to get some—

Sitting suspended for a Division in the House.

I guess it is probably easier if I recap. On the question asked by the noble Baroness, Lady McIntosh, on the EFTA countries, the situation was that they were indeed under EHIC, but under the Brexit arrangements they effectively fell out. These arrangements mean that they have signed, so they are back in again and will be covered there.

As regards how it works, first, as I believe the noble Baroness got salmonella at a Conservative event, I apologise on behalf of the ex-CEO of the Conservative Party. The way the system should work in most cases is that you can show your GHIC—or your EHIC, which is still valid—and, in most cases, state-to-state paperwork and payment should be made on that basis rather than you having to pay personally. Unfortunately, there are examples where you have to do that. That might be just because a hospital is not fully aware of it at the time. However, there is also an NHS Business Services Authority hotline that you can ring, which can help you through all of it.

On the questions from the noble Lord, Lord Naseby, there is no reciprocal arrangement with the Cayman Islands and the Pitcairn Islands at the moment. There is a quota system, whereby the Cayman Islands and the Pitcairn Islands—he did not mention the latter but it is another example of the same situation—are allowed to send a number of their residents to us each year and they pay on a fully costed basis. However, there is no reciprocal arrangement; it is just on a pay-as-you-go basis. However, I clearly understand the issue, given the desirability of the Cayman Islands; I personally volunteer for a ministerial mission to negotiate there—with help from all sides, clearly.

On the question from the noble Lord, Lord Allan, about the GHIC rather than the EHIC, it is indeed clearly an aspirational ambition. However, there are additional countries—I think I already mentioned Australia, New Zealand and Montenegro—so it is an E-plus; maybe it does not quite deserve a “G” at the front of it yet, but clearly that is the direction of travel.

We know that the arrangements in each country are confusing, and one of my takeaways from this is that we probably need to do more work on our side to make it more user-friendly. However, each country has slightly different flavours of rules, for want of a better term. I understand that Switzerland, to take that as an example, wants to make sure that someone also pays national insurance contributions in the country they come from—the UK in this case—which is why it wants a proof of residency as part of that as well. Informally, it has said that it will accept a GHIC, but that is just informal. The situation with Switzerland is that it is checking whether those national insurance contributions are made.

We are trying to negotiate the wrinkles out of all these things, for want of a better word, but this shows that we need a country-by-country guide. I remember that we had something like that during Covid, with red countries and different rules for each country. I know that exists already but I will make an action to look at that with regard to clarity.

That is exactly the idea on some of the exceptional circumstances, because the picture is so confused. The numbers are handfuls—seven, eight, nine, 10, 15. They are published each year. I will give you a flavour of an exceptional circumstance in which, naturally, the Government paid: some mental health care was needed in the Netherlands, and it was thought that was covered, but in fact it comes under social services there, so that instance was not covered by the GHIC.

On the impact assessment and the analysis, we report things only above £35 million in one year or £50 million over three years, as the noble Lord might be aware. Clearly, in these circumstances, we are happy to make that information available. The detail is also covered in our annual reports. We will make sure that negotiations with new countries are also set out and covered.

I appreciate the comments of the noble Baroness, Lady Wheeler, about our assuaging those concerns— I hope—that this is not a back-door mechanism to negotiate things such as privatisation. I hope that the safeguards are in place. Please correct me if I am not correct, but I think that the team has done a good job on having extensive dialogue with noble Lords in this area. We are happy to do that at any point. I will obviously write in detail on all these points, but the team is always open if things such as round tables would be helpful in the future.

I hope that I have managed to cover the points there. Again, we will follow it up with a detailed letter as well. If that does the business—and before any more bells ring—I will commend the regulations to the Committee.

Motion agreed.

Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Russia (Sanctions) (EU Exit) (Amendment) (No. 2) Regulations 2023.

Relevant document: 45th Report from the Secondary Legislation Scrutiny Committee. Instrument not yet reported by the Joint Committee on Statutory Instruments.

My Lords, these regulations amend the Russia (Sanctions) (EU Exit) Regulations 2019. This instrument was laid on 19 June 2023, under powers provided by the Sanctions and Anti-Money Laundering Act 2018. It contains measures that increase the pressure on Mr Putin as we continue to support Ukraine and its people in their resistance to this illegal war.

I start by addressing the first part of this legislation. This amendment will enable us to keep sanctions in place until Russia pays for the damage it has caused to Ukraine. I know that this been of great importance to noble Lords. In March this year, the World Bank estimated that the reconstruction of Ukraine will cost more than $400 billion, a figure that, sadly and tragically, rises daily. On 21 and 22 June, as noble Lords will be aware, the United Kingdom cohosted the Ukraine recovery conference here in London, galvanising international support—including, importantly, from the private sector. International commitments topped more than $60 billion towards Ukraine’s recovery and reconstruction by the end of the conference.

My right honourable friend the Prime Minister’s message at the conference was clear: Russia must pay for the destruction it has wreaked. That is why we are keeping up the economic pressure on Russia, with an unprecedented package of sanctions targeting over 1,600 individuals and entities since the start of the invasion. This includes dozens of banks with global assets worth £1 trillion and more than 130 oligarchs, freezing £18 billion- worth of assets and costing Russia £20 billion-worth in trade. We have maximised the impact of these measures by co-ordinating with key international partners. Together, we are constraining the funding of Mr Putin’s war machine, inflicting a huge economic cost and demonstrating our direct support for Ukraine.

Russia’s economy posted a deficit of nearly $50 billion in 2022, the second highest of the post-Soviet era, and with our partners we are choking off Mr Putin’s access to key technologies that he needs on the battlefield. We have not stopped there. This legislation marks further progress in our battle against Mr Putin’s unwarranted aggression and more. Building on the commitment by G7 leaders in May that sovereign assets will remain immobilised until Russia pays up, the statutory instrument that we are debating enables us to keep sanctions in place until Russia does just that. I am proud to say that the United Kingdom is the first member of the sanctions coalition to make that commitment real.

We will continue to demonstrate international leadership as we look to increase the pressure on Mr Putin and those who support him. As my right honourable friend the Foreign Secretary said, in light of recent events, it is clear that cracks are emerging in Russian support for the war. As internal criticism of Mr Putin’s war grows, we will introduce a new route for those under sanction to request that their frozen funds are used for Ukrainian reconstruction. Let me be clear: there is no negotiation, no quid pro quo, no relief from sanctions, no access for those individuals to their assets while they remain under sanctions. But if they wish to do the right thing and use their frozen funds to help right the wrongs caused by Mr Putin’s invasion, there will be an approved route to allow them to do just that.

We will also tighten the net on those hiding assets in the United Kingdom. We will require individuals and entities in the UK, or UK persons overseas designated under the Russia sanctions regime, to disclose assets they hold in this country. Failure to do so could result in financial penalties or the confiscation of assets. We will legislate to require those holding assets in the UK on behalf of the central bank of Russia, the Russian Ministry of Finance or the Russian National Wealth Fund, to disclose them to the Treasury. Our action will increase transparency on where these assets are held, and limit opportunities for sanctions evasion. I am sure that noble Lords listened carefully to the discussion in the other place on 27 June. We continue to welcome parliamentary interest and support on this important matter.

Many noble Lords will be aware of the active debate with our international partners on the use of sanctioned assets to support Ukraine’s recovery. No country—as yet—has found a solution, but we are confident that we will work forward together. In that confidence, we must ensure that any solution is legally sustainable. We are also working very closely with our allies on the handling of seized Russian assets and will continue to do so. If progress is made by our international partners, we will learn from that. Nothing is off the table, and a cross-government task force is carefully considering all proposals—including those our partners may bring forward. 

I now turn to the second part of this legislation. It amends the definition of non-government controlled Ukrainian territory—including Crimea and the non-government controlled areas of Donetsk and Luhansk Oblasts—to incorporate the non-government controlled areas of the Kherson and Zaporizhzhia Oblasts. This change reflects the dynamic situation on the ground and allows our sanctions to adjust to the developments as they unfold. Measures applying to non-government controlled Ukrainian territory in areas of finance, trade and shipping therefore now apply to all those areas not currently under the control of the Ukrainian Government. 

The United Kingdom is unwavering in its support for Ukraine’s independence, territorial integrity and sovereignty. These measures will restrict the ability of the so-called authorities in these regions to access UK goods and services, investment and finance. Exceptions are in place to cover the delivery of humanitarian assistance or the maintenance of medical facilities to ensure these sanctions are targeted to avoid affecting civilians. 

To conclude, these latest measures demonstrate our collective determination to target those who participate in, or facilitate, Mr Putin’s continuing illegal war on Ukraine. I assure noble Lords that we will continue to work in unison with Ukraine and our important international partners until Ukraine is restored and the region is secure. The United Kingdom Government will not stop the pressure on Mr Putin and his associates until they have withdrawn from Ukraine, and we welcome the clear and continued strong cross-party support for the actions we have taken. I beg to move.

My Lords, I start by picking up the point that the Minister made at the end of his contribution, which is that the Opposition remain absolutely at one with the Government in supporting Ukraine and to ensure that there is a full withdrawal of Russia after its illegal invasion. I also welcome these new regulations, particularly as they are designed to ensure that Russia pays for its actions and that certain assets remain frozen so that it pays proper compensation, as the Minister said.

The noble Lord referred to the World Bank estimate of $411 billion as the cost of rebuilding Ukraine; of course, that figure is likely to increase. However, we know that some $300 billion in foreign exchange reserves held by the Russian central bank are currently frozen. The noble Lord knows I am going to ask this question because I have asked it before. At what point will we consider bringing forward legislation to repurpose those frozen assets, so that we can deliver on the commitments made at the excellent reconstruction conference and see that there will be progress in this regard?

I do not know whether the Minister is in a position to update the Committee on the implementation of the 2022 UN General Assembly resolution to establish an international mechanism for Ukraine’s reconstruction, but it would be good to have regular updates on that so that we can follow through on the commitments made at the reconstruction conference. That deals with the first part of the regulations.

The second part extends these sanctions and regulations to non-government controlled areas, such as Crimea and Sevastopol, to reflect latest developments in the war. Of course, Crimea and Sevastopol have been affected by UK sanctions for almost a decade, since the Government implemented the Export Control (Russia, Crimea and Sevastopol Sanctions) Order 2014, in response to the illegal invasion—or taking over—of Crimea. Will the Minister explain why this extension is only now being considered, given that we have had those export controls since 2014? I certainly welcome the extension and the action, but it would be good to get an understanding about those original sanctions and where we are now.

The other point is that, of course, Ukraine aims to liberate these areas to which sanctions now apply, so can the Minister tell us how the department is preparing to ensure that, in the event that places such as Donetsk and others are liberated by Ukraine, we can respond quickly to relieve sanctions on those areas and make sure that the Ukrainian Government can focus on rebuilding them?

My final point is about the impact assessment. It estimates a net cost to business of £24 million a year. Will the Minister explain exactly the cause of that cost? Is it monitoring or additional administration, or does it imply that we had substantial business interests still trading in those areas?

I conclude by repeating that we welcome these regulations, and we certainly support the Government’s actions in supporting the Government of Ukraine in trying to repel the Russian invasion.

My Lords, first, I again put on record our thanks to His Majesty’s Official Opposition for their strong support of the Government’s actions when it comes to sanctions on Russia and, indeed, those supporting Russia. I acknowledge many noble Lords, across all parts of your Lordships’ House, in this regard. We very much send a consistent message.

The noble Lord raised frozen assets. As I said, we are working closely with our key partners to look at the assets that are now frozen and what the legal and sustainable routes will be to ensure that no challenge is brought forward on the funds we hold. Those apply to UK funds—previously we have discussed Chelsea FC and its proceeds—and I assure him that much work is being done, particularly by our colleagues in His Majesty’s Treasury, to ensure that, first and foremost, structures are set up appropriately and that the measures we take are sustainable and withstand any legal challenge we may face.

In the same way, as we work very closely with our partners in the US, Canada and the EU, they are equally seized of this issue. If good practice prevails in one area, we will look to see how we can replicate that. Of course, as we find solutions, we will share them with our colleagues in the EU.

The noble Lord asked specific questions about settling our CB assets. We continue to explore lawful fund routes, as I have said, and we focused on this at the Ukrainian reconstruction conference. To add to what I have already said, I point out that beyond the EU—including our G7 partners—there is no legally tested solution yet, but I assure him that we will continue to provide updates as we make further progress in this regard.

The noble Lord asked the pertinent question of why we are doing this now and not before, particularly as these regions were annexed months ago. He will be aware of the sanctions we have introduced; his party has strongly supported them. Since the start of the invasion, the UK has sanctioned over 1,600 individuals and entities, including 29 banks, with global assets worth £960 billion; over 130 oligarchs, with a combined net worth of £145 billion; and over £20 billion-worth of UK-Russia trade. Together with our international partners, we have unleashed the largest and most severe package of sanctions ever imposed on a major economy. On his specific point, we are monitoring a very fluid area, particularly those regions which have been illegally annexed. We need to ensure that the actions that we are taking are co-ordinated and have the desired effect.

In terms of what I have announced about the governance of these new sanctions, we are certainly ahead of our partners. We are ensuring that they are replicated; I am sure that our partners are looking at how they can replicate some of the steps we have taken.

The noble Lord made an equally valid point about how quickly the sanctions can be lifted if these territories are liberated. We are watching a very fluid situation, but we will seek to minimise any kind of disruption as Ukrainian forces liberate regions of their own country which are illegally occupied. Tragically, we are a fair bit off that at the moment, particularly where the liberation of certain key regions is concerned, but I will update him in this respect.

Could I trouble the noble Lord to expand on the specific point he raised at the end and the figure he cited? I will seek to answer that now; if I cannot, I will write to him.

I was just seeking an explanation in relation to the impact assessment estimating that these regulations will have a net cost to business of £24 million. Is this based on the assumption that UK businesses were continuing to be active and trading in these areas?

I thank the noble Lord for that clarification. Obviously there are assessments and forecasts made. I will take that back and write on those points.

As someone who many years ago worked with a chief economist, I think the other issue with forecasting is that you are looking at the situations as they stand. With the increasing levels of sanctions imposed, the increasing geographical implications and the increasing number of sectors and entities, there will of course be an increase in the overall cost to countries and businesses which were previously dealing with some of these entities or individuals. When I write to the noble Lord, it will be with a snapshot at a given moment in time, but I will certainly follow up on that.

In closing, I once again thank the noble Lord for his strong support and that of His Majesty’s Opposition. I know that he and his party are at one with the Government on this. Once again, this House has sent a consistent and unified message that we stand with the people of Ukraine. This can end now if Mr Putin withdraws, and we will repeat that message through every channel.

The noble Lord also asked about broader issues within the UN structure and the UN Security Council to see how we can take that forward. My right honourable friend the Foreign Secretary will travel to New York—it is currently the United Kingdom’s presidency—and he himself will chair the debate on Ukraine, which will include announcements about further developments and recovery.

Motion agreed.

Industrial Training Levy (Engineering Construction Industry Training Board) Order 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2023.

My Lords, as the Committee will no doubt appreciate, the engineering construction sector is broad and a significant part of the UK economy. At the heart of the industry is its workforce, and it is vital that the industry has the skills base and expertise to build the infrastructure required to achieve net zero by 2050 and by 2045 in Scotland.

The ECITB predicts that at least 25,000 new roles will be needed for planned projects between now and 2025. This number is expected to grow as other projects are deployed—for example, the retrofitting of industrial sites with carbon capture and hydrogen production technologies, the further expansion of offshore wind, and increasing our plans for the deployment of civil nuclear to provide up to 25% of our projected electricity demand by 2050, as envisaged in the British Energy Security Strategy announced last year.

The ECITB was established in 1964 under the Industrial Training Act. It has a clearly defined role in identifying engineering construction skill needs and plays a part, with others, in addressing them. The ECITB has a role in addressing any market failure through its levy and grants system, which gives employees essential skills necessary to access and work on engineering construction sites, drive up skill levels and incentivise training that otherwise simply would not take place. This three-year levy order is expected to raise around £91.5 million, based on average industry growth scenarios, to invest in engineering and construction skills. The levy will be used to support strategic initiatives to help maintain and develop vital skills in the industry and create a pipeline of skilled workers.

I turn now to the details of the draft order; I thank the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee for considering it. The previous 2020 ECITB levy order introduced a phased increase to levy rates payable by off-site employees, while maintaining the same levy rates for on-site employees, across its three levy periods. This three-year 2023 levy order seeks to maintain the levy rates prescribed for the third phase of the 2020 order, currently in place, for each of the next three levy periods, and for both off-site and on-site employees. Those rates are 0.33% of the earnings paid by employers to off-site employees and 1.2% of those paid to on-site employees for those businesses that are liable to pay the levy.

Engineering construction employers with an annual wage bill of less than £275,000 for on-site employees will not pay any levy. Employers with an average wage bill of less than £1 million for off-site employees will also be exempted from paying the levy. It is important to note that these exemptions do not stop employers accessing the same ECITB support available to levy-paying employers. It is projected that approximately 18% of all employers in scope of the levy will be exempt from paying it.

The ECITB has consulted industry on the levy proposals via the consensus process required under the Industrial Training Act 1982. Consensus is achieved by satisfying two requirements: both the majority of employers likely to pay the levy and those employers who, together, are likely to pay more than half the aggregate levy raised must agree that the levy proposals are necessary to encourage adequate training. I reassure your Lordships that both requirements were overwhelmingly satisfied, with 85% of employers in scope of paying the levy—between them, they are likely to pay 97% of the aggregate levy—supportive of the ECITB’s proposals. I am delighted to say that this is a significant increase from 2019, when 75% of the likely levy-paying employers, who, between them, were likely to pay 87% of the aggregate levy, were in support of those levy proposals.

This order has significant industry support and will enable the ECITB to continue to carry out its vital training responsibilities. I beg to move.

My thanks go to the Minister for the clear and concise manner in which she laid out this statutory instrument and what it seeks to achieve. The Opposition welcome its current continuance.

We know that the purpose of the instrument is to enable the engineering construction industry to raise and collect a levy on employers. Some years ago, industry training boards were transformed from statutory to non-statutory bodies. The CITB and the ECITB retained their statutory status and powers. We are now considering this routine order.

The CITB exists to ensure that the construction workforce has the right skills for not just now but the future based on three strategic priorities: careers; standards and qualifications; and training and development. However, there is a distinct market failure in the development of skills in the construction industry. This is partly due to the trading conditions, incentives and culture that fail to lead to a sufficient level of investment in skills by employers.

Sadly, it is not just this sector of business. Many employers have failed and continue to fail their employees’ upskilling needs, which leads to low levels of productivity. The introduction of the apprenticeship levy six years ago pointed to this fact. The Government needed to encourage employers to invest in skill development, and legislation was needed to support this encouragement.

The economic success of any country relies on delivering key infrastructure. There is a further economic benefit, and this industry provides a wide range of employment opportunities, many of them well paid, highly skilled and with career progression.

Nevertheless, there are intrinsic sectoral barriers that hinder workforce training and the development of skills. Employment in the sector is linked closely to the actual project, which means that there are high numbers of temporary workers and a lot of movement between employers. Furthermore, training costs are high in such a skilled industry and many core engineering skills are transferrable to other industries. This results in individual employers lacking the incentive to train their workforce out of fear of plundering by rival firms. There are few incentives for individual employers to train since the work is often short-term and the labour force highly mobile. This means that long-term skills are overlooked; these are vital, especially in engineering.

The ECITB is right to claim that it helps to make the labour market in engineering construction more efficient and effective. Its intention is to address this market failure by providing grants to employers to train their workforces. I understand that funding from the apprenticeship levy supports apprentices across all sectors and occupations, whereas the ECITB is specifically for the engineering construction industry, using levy funds to provide direct grants to employers to train staff or develop the skills of their existing workforce.

Employers have long asked to be able to use the levy for a wide range of training, not just apprenticeships. Does the Minister have any update for us on whether that change might happen? We have seen more than a decade of decline in skills and training opportunities, which is making the United Kingdom poorer. Businesses, especially those in the engineering construction industry, are unable to fill job vacancies, are being held back by a lack of people with the skills they need and have growing skills shortages. How are the Government addressing these skills shortages in the short, medium and longer term?

Young people and adults are ambitious for their families’ futures. They want to learn new skills to get new jobs or progress at work. However, they are being let down and are unable to find training opportunities. Apprenticeship starts have plummeted, with 200,000 fewer people starting these training opportunities. More than 11 million people in the UK lack the basic digital skills needed in our economy while four in 10 young people are leaving education without the qualifications that they need to get on.

By harnessing the ambition and determination of British people, a Labour Government will face these challenges and create a skills system that works for businesses and people across our country. Labour will give businesses the flexibility that they are asking for to train their workforce and deliver growth. We will start by turning the apprenticeships levy into a growth and skills levy so that it can be used on the greater range of training courses that businesses tell us they need, so that adults can gain new skills and businesses not just in this sector but across the whole economy can grow.

In the intervening time, His Majesty’s Opposition support the continuance of the current scheme through this industrial training levy order.

I thank the noble Baroness for her support for this order and for recognising the importance of skills training in this area. She paints a rather bleaker picture of the situation as it stands today but certainly raises some helpful points, which I will try to clarify.

The noble Baroness asked what the Government’s vision for skills is, both in the short and medium term. I am not sure that time permits me to go into all that but I hope she will recognise that the Government have made a huge investment in skills and apprenticeships, whether that be in the new T-levels, many of which are targeted towards some of the skills demands in engineering and construction, as well as more widely, with the reform of level 4 and level 5 qualifications, the introduction of the lifelong learning entitlement and the provision of boot camps for skills—including digital skills, to which the noble Baroness referred.

With regard to the apprenticeship levy, although I absolutely do not suggest that the noble Baroness is in this camp, for the record, I feel that there is a slightly outdated understanding of the use of the apprenticeship levy. In the financial year 2021-22, 99.6% of the £2.5 billion apprenticeship budget was spent. I appreciate that, in previous years, there were underspends but, in fact, demand for apprenticeships is going up. The awareness and absolutely rightful recognition of the value of apprenticeships, including degree apprenticeships, is much more widespread among young people today than it was even just a few years ago. That programme has gained a lot of traction.

Returning to the order, it is clear from the support that the ECITB’s proposals received from levy-paying employers that the engineering construction industry continues to believe that it is right that training is funded through a statutory levy system. As previously stated, this sector is absolutely critical to delivering the infrastructure projects required to meet the environmental challenge of reducing the UK’s carbon emissions to zero by 2050. The levy system must continue to be used to help develop a pool of skilled labour, both now and in the future, for this critical sector.

If the levy ceased, it would fall on employers to determine their own training arrangements, devise their own standards and qualifications, and cover the full cost of training. Further, without the grants provided by the levy, many small businesses would simply not be able to afford to train their workforce. There is a firm belief that, without the levy, there would be a serious deterioration in the quality of training, creating a deficiency in skills levels and capacity and, crucially, leaving the sector unable to deliver key projects vital to the UK’s economic growth.

Motion agreed.

Electricity Capacity (Amendment) Regulations 2023

Considered in Grand Committee

Moved by

My Lords, these regulations were laid before the House on 12 June 2023. Before I outline the provisions made by this draft instrument, I will provide some context. The capacity market is at the heart of the Government’s strategy for maintaining the security of electricity supply in Great Britain. Through capacity auctions, we secure the capacity needed to meet future peak demand under a range of scenarios, based on advice from the capacity market delivery body, the National Grid Electricity System Operator.

Existing and new-build capacity compete in technology- neutral auctions, held one year and four years ahead of delivery, to obtain agreements. Those which win capacity agreements, known as capacity providers, commit to making their capacity available when needed in return for guaranteed payments. This supports the necessary investment in new and existing capacity to ensure security of electricity supply. The most recent capacity auctions, held in February 2023, secured the electricity capacity that Britain needs to cope with peaks in winter demand for 2023-24. Capacity providers that fail to deliver against their obligations are subject to financial penalties. Capacity payments are funded by electricity suppliers, which recover this cost from electricity consumers.

Since its introduction in 2014, the capacity market has contributed to investment in just under 17.5 gigawatts of new, flexible capacity to replace older, less efficient plant as we transition to a net-zero economy. To ensure that the capacity market continues to function effectively, we regularly make adjustments to the implementing legislation based on our day-to-day experiences of operating the scheme. Although the future geopolitical context is, of course, still uncertain, we recognise that the world is likely to face continued challenges next winter around the security of energy supply, considering Russia’s illegal invasion of Ukraine. The Government continue to work closely with Ofgem, the gas and electricity system operators, and all relevant stakeholders to build on the measures we put in place for winter 2022-23 and ensure we have the appropriate tools available to secure our energy supply for winter 2023-24.

The changes we are making to the capacity market this year, through both this draft instrument and changes to the capacity market rules, focus on longer-term changes that will impact capacity auctions held from February 2024 onwards, for delivery from winter 2024-25. In this context, this draft instrument makes changes to three electricity capacity regulations to deliver technical improvements that support the functioning of the capacity market, which have been identified and explored over the past year through consultation.

The capacity market is now well-established, with capacity auctions held every year since their inception in 2014. The Secretary of State has published their intent to hold these capacity auctions every year. This draft instrument aims to reduce the administrative burden associated with the process, as we believe it is more appropriate to instead notify the market when the intention is for an auction not to be held.

We have also been made aware that the existing transfer route that enables capacity agreements to be terminated in order to participate in the contracts for difference scheme cannot be used in practice, due to interactions between the definitions used in the regulations and delivery timeframes. This draft instrument therefore seeks to amend the definition of the contracts for difference transfer notice to better enable transfer routes to be utilised in practice.

Finally, the draft instrument seeks to improve administrative arrangements by extending the timescales associated with the settlement body’s calculation of penalties and issuing of associated invoices for non-delivery. This extension is required to ensure that the settlement body has sufficient time to receive relevant data, so that it can accurately calculate the appropriate penalties for capacity providers.

The amendments included in this instrument were consulted on between 9 January and 3 March this year and were broadly supported by respondents. We also consulted on a wider range of changes, including to the capacity market rules. As signalled in the Government’s response to the consultation, we intend to follow a two-phased approach to capacity market reforms. First, we intend to proceed with technical changes to strengthen security of supply and ensure better value for money for consumers. In the second phase, we intend to undertake further analysis and development before taking a final decision on implementation. This is to ensure we can have confidence that the changes we make remain aligned with the core objective of ensuring security of electricity supplies at the least cost to consumers, while minimising unintended consequences.

In line with the broad support for greater alignment of the capacity market with net zero, the Government remain committed to introducing an emissions limit reduction into the capacity market to help drive the transition to a net-zero power system by 2035—subject, as always, to security of supply. Further analysis is required to understand the impact these proposals will have on energy security. This is key to ensuring that the Government can progress their ambitions for a clean energy system in a way which takes account of increased geopolitical uncertainty and the resultant impact on energy security.

We also intend to make a number of technical amendments to the capacity market rules, which are due to be laid before the House shortly. These include technical changes to the way capacity is registered during pre-qualification to better reflect what a capacity provider can deliver when needed. The amendments also extend temporary measures introduced last year to increase opportunities for competition in capacity auctions, by removing identified barriers to participation for mothballed plant and allowing enough time for participants to have the necessary verifications in place. Finally, rule changes will be introduced to reduce administrative burdens for prospective capacity providers and to clarify how auctions are operated for the benefit of participants.

In conclusion, this draft instrument introduces a number of technical provisions which are necessary to enable the continued efficient operation of the capacity market, so that it can continue to deliver on its objectives. I commend these regulations to the Committee.

My Lords, I will concentrate on the Explanatory Memorandum in relation to the capacity market. As I understand it, last winter something did not go quite right in the sense that, at a certain point we had to use coal, which had not been planned for. Perhaps the Minister will correct me if it had been planned for, but my understanding is that it was not planned for. As we look at the coming winter, we have just experienced one of the hottest Junes ever and it is not inconceivable that we could have the coldest winter ever. As I understand it, there is definitely no coal available for this coming winter. Is that right? If the coal is not there, where is the extra capacity to come from?

I also notice that, for some reason, His Majesty’s Government have postponed bringing on small-scale nuclear. A number of us have kept a close watch on Rolls-Royce in particular, which I understand has been ready to get moving on small-scale nuclear, which would be part of a capacity situation. I am deeply concerned—and I am looking for a confident answer from my noble friend—that if we hit a really cold winter this year, we have the capacity for something to come on stream. There would be nothing worse for the United Kingdom as a whole if we found that we needed black- outs and fuel cuts.

My Lords, I inform the Committee that I have a close family member who works for Ofgem. He is responsible for energy security and has been making plans for next winter, but I have not discussed this SI with him.

The capacity market, brought in by a Liberal Democrat Secretary of State, has been a great success. This statutory instrument aims to continue that success by improving the processes and reducing the administrative burden. We are all in favour of that, especially the flexibility that makes it easier to transfer from capacity market schemes to contracts for difference, where appropriate. However, I have a few questions for the Minister about the scheme in general.

First, how well are the Government succeeding in minimising the use of fossil fuels in the capacity market? What percentage is expected to be clean energy, and within what timescale? I was glad to hear the Minister say in his introduction that there will be an emissions limit on those applying.

Secondly, what is the Government’s aim for enabling demand reduction, and what percentage of bids do they want to see for the demand-side reductions? This is just as important as generation if we are to decarbonise and reduce the potentially enormous grid capacity increase needed to reach net zero. How many of the successful companies in offshore wind round 4 auctions have reached financial close for their projects—that is, they have agreed their financing requirements to deliver the scheme with financial institutions? As I understand it, only one successful bidder has yet managed to reach financial close on their project, so the whole programme of offshore wind coming on stream is coming to a halt.

Moray West offshore wind farm, owned by Ocean Winds and minority shareholder Ignitis Group, has secured £2 billion of non-recourse project finance. Initially, bids were famously low, but with inflation now across the supply chain, perhaps the numbers do not add up for most of the schemes. How are the Government going to solve this? Given the financial situation, can the Minister say whether it is still wise to have most capacity market schemes for only 12-month projects?

I look forward to the Minister’s reply—particularly to the questions about coal.

My Lords, I thank the Minister for setting out the instrument and giving us advance warning that more is to come shortly. The capacity market is at the heart of maintaining a secure and reliable electricity system. It provides all forms of electricity capacity on a system during periods of electricity shortage and stress, such as when it is extremely cold or when the wind is low while demand is high. As the Minister said, the capacity market works by allowing eligible bidders to compete in T-1 or T-4 auctions on a one-year or four-year basis ahead of when they must deliver capacity. A successful bidder is awarded a capacity agreement which requires delivery during times of stress.

As the Minister said, this instrument makes changes to three areas of regulation. First, Regulation 10 of the 2014 regulations obliges the Secretary of State to set out whether capacity auctions are to be held. The change will require the Secretary of State to publish a decision only if the Government determine that an auction will not be held, helping to improve administrative efficiency. Does this effectively enrol a current capacity provider into the scheme automatically?

Secondly, Regulation 34 of the 2014 regulations allows capacity providers to seek termination of their capacity agreement with a view to becoming eligible to participate in the contracts for difference scheme. I think the Minister said that they are mutually exclusive as things stand. Currently, the LCCC, as the counterparty, has to give notice of such an intention. However, it cannot know in advance if the CMU will be successful in its bid for a contract for difference.

This instrument means that notice comes from a capacity provider seeking termination of their capacity agreement in order to become eligible to apply in a contract for difference allocation round. How many capacity providers have thus far been unable to use the process set out in Regulation 34? The Minister may say all of them, but how many would have wanted to use the termination process? Have the Government made any assessment of the impact of this, and will this change be kept under review?

Thirdly, I turn to Regulation 41 of the 2014 regulations. Capacity providers can be financially penalised, as the Minister said, if they fail to provide capacity in times of stress. Currently, the settlement body has 21 days to calculate the relevant penalty and to invoice capacity providers which must pay such penalties. This instrument increases the timeframe to 35 days. Does that mean that penalties that should have been paid were previously missed because they were not calculated in time? If so, could the Minister indicate the value of those? By contrast, is this change expected to increase the number and value of penalties that are enforced? I look forward to the Minister’s response.

First, I thank the noble Lords, Lord Naseby and Lord Lennie, and the noble Baroness, Lady Walmsley, for their valuable contributions on an important subject for the nation’s electricity supplies.

As I mentioned in my introduction, the capacity market is our main mechanism for ensuring the security of electricity supply. To address the point made by the noble Lord, Lord Naseby, I say that it has already secured the majority of Great Britain’s capacity needs right out to 2026-27, because the Government take no chances with the security of supply. We continue to believe that the capacity market is an effective insurance mechanism, providing secure and affordable electricity that families and businesses can rely on.

The capacity market is, indeed, tried and tested. The fact that it has supported investment in just under 17.5 gigawatts of new-build, flexible capacity since its introduction demonstrates that it can bring forward the capacity needed to meet future peak demand and replace older capacity as it retires and as we transition to a net-zero economy.

Furthermore, we continue to take steps to ensure its ongoing, efficient and effective operation. The Government are committed to ensuring that the right policy tools are in place for delivering a secure and affordable electricity system as we transition to net zero. That includes regularly assessing the performance of the capacity market and, as we are debating today, exploring improvements to the scheme.

As we noted in our 2023 government response to the capacity market consultation, we have set out a two-phased approach for reforms in the capacity market. This instrument seeks to implement purely technical amendments under the first phase to improve the administrative arrangements. In the next phase of reforms to the capacity market, the Government intend to undertake further analysis and development on the remaining proposals prior to taking a final decision on implementation. This includes proposals to align the capacity market with net zero, such as reducing the emission intensity limits for new-build plants and enabling low-carbon capacity with low capital expenditure to access multi-year agreements.

We will also look ahead to the future as part of the review of electricity market arrangements programme. REMA is exploring options to create an electricity market design that will enable us to transition efficiently from fossil fuels to renewables and other forms of low-carbon generation, which I hope will make us more resilient to overseas energy shocks and ensure energy security.

I will deal with the specific questions raised, starting with my noble friend Lord Naseby. I emphasise that spells of cold weather in winter 2022-23 actually helped to show the resilience of the UK’s energy supply. Our gas system was well supplied at all times, and the market responded effectively to increased demand where necessary. Electricity margins were, on occasions, fairly tight. This was resolved through the national grid’s standard tools. Our back-up coal plants, to which my noble friend referred, were warmed up, but only called into action once, where two coal-fired units were fired up in West Burton to help to maintain a healthy buffer of supply. For winter 2022-23, National Grid ESO agreed temporary extensions of the operation of certain coal-fired power stations to provide additional back-up generation, which retained about 2.4 gigawatts of non gas-fired electricity capacity.

Of course, while the future geopolitical context is still very uncertain, we recognise that the world is likely to face continued challenges next winter around security of energy supply, given the context of Russia’s illegal invasion of Ukraine. Having said that, the Government will continue to work closely with Ofgem, the gas and electricity system operators and all relevant stakeholders to build on and expand the measures that we put in place for winter 2022-23 and ensure that we have the maximum tools available to secure our energy supply for the winter coming up, 2023-24. To take an example, the T-1 capacity market auction has secured 5.8 gigawatts of electricity capacity for the delivery year 2023-24, bringing our total to 53.8 gigawatts.

My noble friend also mentioned small and advanced modular reactors. As I have said to him before in answer to Questions, we have announced £385 million of funding in an advanced nuclear fund to invest further in the next generation of nuclear technology—of course, as always, subject to value for money and future spending rounds. The Government intend to take two projects to final investment decision in the next Parliament, including SMRs and AMRs, subject to scrutiny approvals, value for money, and technology readiness and maturity.

On the points made by the noble Baroness, Lady Walmsley, I emphasise that agreements for up to 15 years are available to new-build projects. I am happy to write to her on the specific developments she mentioned. The capacity market helps to maintain public support for net zero by ensuring a secure electricity supply as we decarbonise the power sector. The Government also remain committed to achieving a fully decarbonised power sector by 2035—again, subject to security of supply—and the actions that will set us on course for this have been set out in our many publications: the energy White Paper, the Net Zero Strategy, the British Energy Security Strategy and the Powering Up Britain energy security plan.

The share of low-carbon technologies, including storage, DSR and renewables, awarded agreements in the capacity market auctions has, in fact, grown significantly in recent years. A second consultation on the review of electricity market arrangements in autumn 2023 will set out further details on a direction of travel and next steps on measures that will facilitate the net-zero transition of the power sector. Across the electricity system, there is a need to significantly increase the deployment of low-carbon flexibility to maintain security of supply, to integrate renewables and to meet our decarbonisation goals—all at the lowest possible cost. The 2021 smart systems and flexibility plan therefore set out a range of actions to remove barriers and reform markets for flexibility. This included considering how the capacity market needs to adapt to better align with our net-zero ambitions.

In response to the noble Lord, Lord Lennie, I emphasise that transfers between the capacity market and contracts for difference will not be automatic. The delivery body must make an assessment of the applications and will issue a termination only if these requirements, as set out in the regulations, are met. We are aware of a handful of capacity providers that have mentioned interest in the transfer route. We expect uptake in the route to be relatively small, but we are committed to monitoring the ongoing impact of the change.

Regarding the respondents who asked for broader consideration of the interactions with other government support schemes, as always, the Government intend to keep this under review to ensure continued alignment with the subsidy control principles and wider energy market developments.

On the requirement for penalties timelines, these changes are required to maintain the efficient delivery of the scheme. We have not had a system stress event since the inception of the scheme, which demonstrates the success of the capacity market in achieving its core objective of maintaining security of supply. We expect that the practical changes made through this instrument will simply improve the accuracy of the penalties that may be issued following a system stress event, but we do not expect impacts on the number of penalties issued.

Returning to the draft instrument before the Committee, the changes respond to three targeted and technical improvements to address issues that we have encountered through the operation of the capacity market. The amendments will ensure that the capacity market continues to deliver on its objective of ensuring secure electricity supplies—as always, at least cost to consumers. I therefore commend these draft regulations to the Committee.

Motion agreed.

Committee adjourned at 6.06 pm.