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The amendments before us try to enable this to happen by creating two arbitration procedures, one before proposed EU financial sanction notices and the other before further EU financial sanction notices for any periodic payments. They would mean that both authorities and the Minister would make representations to an independent arbiter who decides whether an EU fine can be passed on to an individual authority. That would take the Minister out of the decision-making process and it would help to ensure impartiality and independence as the decision is reached. Arbiters are not bound by court procedure rules so this compromise would be quicker, cleaner and cheaper than going through the courts. Of course, it does not come without costs-the losing party usually pays the other party's costs and arbitration costs-but the principle is tried and tested. It is a fair way to try to resolve the issue before us.

I am sure that the Minister is aware-or very soon will be if he is not already-that there is concern not just in the local government world but on all sides of this House. The Law Society, too, has expressed concern about this. Whether we are able to reach an acceptable solution today remains to be seen, but the Government will probably not be in a position to accept it. However, I urge them as strongly as possible, before we come to Report, to recognise that this is an issue of great concern to all sides of this House and that, before the Bill leaves the House, we have to find an independent and fair way of arbitration if Part 2 is to remain part of the Bill.

Baroness Gardner of Parkes: My Lords, I shall speak to Amendments 111 to 114. Part 2 makes it possible for a Minister to require a local authority to make a payment in relation to an EU financial sanction imposed on the UK by the Court of Justice of the European Union if the Minister is satisfied that the authority caused or contributed to the infraction of EU law. The amendments in my name, Amendments 111 to 114, would amend Clause 31, which among other things sets out the requirement for the Secretary of State to publish a statement of policy setting out the general principles on how the power to pass on all or

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part of the EU financial sanction will be exercised and the amounts determined. Many of the points that I am going to cover were covered also by the previous speaker. For that reason, there is quite a bit that we have in common.

Amendment 111 would amend Clause 31(4) to require the policy statement also to contain details of the arrangements for the appointment, constitution and operation of an independent review panel. Amendment 112 would require the Minister to take into account relevant determinations of the independent review panel when exercising his functions under this part of the Bill. Amendment 113 would make an EU financial sanction notice subject to the new clause as introduced by Amendment 117. Amendment 114 would determine the relevance of any determination issued by the independent review panel.

Amendment 117 would insert a new clause into the Bill to allow local and public authorities which have received an EU financial sanction notice to refer the notice to an independent review panel, as mentioned by the noble Lord, Lord Tope. The new clause sets out the grounds on which such a referral can be made and provides that the independent review panel may review any finding of fact on which the financial sanction notice was based. These grounds include if a Minister,



The new clause requires the independent review panel to determine the validity of the grounds of the referral and to provide a copy of its determination to the Minister who issued the EU financial sanction notice and the local or public body which received it. These amendments stem from the significant amount of concern, already mentioned, that has arisen from the provisions in this part of the Bill since it was first published last December. Throughout the Bill's passage these concerns have been voiced by Parliamentarians of all parties and are shared by the Mayor of London, the London Assembly, London Councils and the Local Government Association.

Understandably, the main area of concern has focused on the ability of a Minister to pass on a fine without any form of judicial or independent oversight. The need for independent oversight is particularly vital when one considers the complexity of the factors leading up to any infraction, not least in the area of air quality-I must here declare an interest in that where my home is in London is the most polluted air in the whole of the UK-and the fact that it is more than likely that one of the parties responsible for any breach will be the Government themselves. This concern was voiced eloquently by Jeremy Smith, barrister and former Secretary-General of the Council of European Municipalities and Regions, in the Municipal Journal in February. He said:

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"There is, however, a wider point of concern about Part 2 of the Bill. There is no independent decision-maker. The minister takes the decision to make the local authority pay-even though central government may be partly or largely responsible for the infraction in the first place, for example, through delayed action, poor drafting, or for myriad other reasons. This means the minister may be simultaneously prosecutor, judge, jury-and co-defendant. This is surely not a healthy legal precedent ... Therefore, Part 2 of the Localism Bill needs fundamental rethinking. If there is to be a claw-back provision at all, it should not be ministers who decide, since central government is almost certainly an interested party. The process should be for the minister to refer the matter to the High Court, or independent arbitrator, to determine any fair apportionment of the Article 260 fine imposed by the ECJ. The independent decision-maker can then take into account every party's share of responsibility".

The complexity of any infraction process and the need for independent oversight has been reinforced by my noble friend Lord Attlee in this House only recently. In response to an Oral Question from the noble Lord, Lord Berkeley, on air quality during the 2012 Games and who is responsible for this matter, my noble friend Lord Attlee responded:

"Everyone is responsible: the Government, the mayor, TfL, LOCOG, the ODA and, most importantly, individuals who make their own transport decisions".-[Official Report, 23/5/11; col. 1583.]

While I thank my noble friend Lord Attlee for his frank assessment of a complex situation, his words highlight not only the difficulty any Minister would have in apportioning responsibility, and a subsequent fine, for any infraction but also the fact that the Government will, in almost all instances, be an interested party, as I mentioned previously.

It is for this reason that I believe these amendments provide us with a way of building in the safeguards that are so vital to making this part of the Bill acceptable both to your Lordships' House and the broader community of local government beyond; a community that we must remember has no role in negotiating the very European legislation which could, if these clauses remain unchecked, be presenting them with a very substantial bill. Such a bill would be unpalatable at the best of times, let alone in the current financial landscape.

These amendments do not undermine the principle of this part of the Bill-a principle which was first outlined by the Government in Defra's consultation documents on the natural environment White Paper last summer-but they begin to build in the safeguards that will be necessary for the relevant stakeholders to have confidence in the process outlined in the policy statement. It is vital, therefore, that local or public authorities have the ability to refer any EU financial sanction notice to an independent review panel; a panel to whose written determination the Minister must have regard. I understand that the Government have already been in discussions with the GLA, the LGA and London Councils on the formulation of a draft policy statement and I hope that these amendments will facilitate further discussions on getting that statement right. It is vital that any arrangements for,

as provided for by Amendment 111, are sufficiently transparent and robust to garner the support of those who will be subject to this regime. I hope that the Minister will view these amendments as a helpful way

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of building consensus, something which your Lordships' House likes to achieve. They are essential if all parties are to have confidence in this part of the Bill.

Baroness Greengross: My Lords, first, I declare an interest as the vice-president of the Local Government Association. I decided to table Amendments 115 and 116 in this group because there is such widespread fear, some of which we have heard about today, in many local authorities and in other areas that this clause relating to the imposition of EU fines could be used as a mechanism for the Government to unload their own responsibilities onto those same authorities. That fear is absolutely understandable.

In her amendments the noble Baroness, Lady Gardner, suggests an ingenious mechanism for operating the system. Yet I am sure she would agree that, like other suggestions that have been made-for example, by the noble Lord, Lord Tope-it is a mechanism and no more. That leaves open the basic principles upon which the mechanism would operate. It is a bit like establishing a court of law without establishing the laws upon which it will base its judgment.

To my mind, those principles are very clear. Some people, in addressing this problem, have been arguing that EU fines should never be payable by local authorities. I find that a rather strange argument. In so far as it is prompted by the fear that a future Government might seek to use the legislation to pass their own responsibilities onto local authorities, it is, as I said, understandable but the solution is not the mere deletion of the clause. For local authorities the upside of the Bill is that, at long last, they get the powers that they should have. I totally agree with that but if they have the rights and the powers, they must surely accept the responsibilities that go with them. It must be right that if a local authority does something which, in part or in whole, results in the imposition of an EU fine it should, to that same extent, bear the responsibility. That is all this amendment calls for.

The amendment is merely a clear statement of the principle upon which the mechanisms for deciding the issue will operate. If I might be clear again: it merely says that if it can be proved,

Lord Beecham: In terms of proving "beyond reasonable doubt", would the noble Baroness accept that the arbitration procedure would be a legitimate forum within which that burden of proof would need to be discharged or is she suggesting some other mechanism, including the courts, by which that test would be applied?

Baroness Greengross: I am not suggesting the detailed mechanism now. I agree with the noble Lord that we have to get this clear but I am just trying to clarify the issue. I agree that the phrase "beyond reasonable doubt" actually does no more than bring with it a number of legal arguments and problems. Because this is a difficult thing to prove, if the Minister were to

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indicate, for example, that she would support such an amendment subject to those words being deleted, I would be happy to omit them.

5.30 pm

All I am trying to do with this amendment is to incorporate within the Bill a clear statement of the principle on which I, and I hope others, believe that the justice of the clause should be based. The Minister acknowledged all this in her introductory comments at Second Reading when she said:

"With central direction having been rolled back, it will also be necessary to ensure that local authorities are accountable for all the decisions they take. For example, where authorities fail to act in accordance with EU directives, and where this results in the EU taking infraction proceedings against the United Kingdom, it will be important that culpable local authorities take responsibility for their actions".-[Official Report,7/6/11; col. 149.]

That is all I ask. I know the Minister well enough to know that when she says this she means it. All I am asking is, please, put it clearly on the face of the Bill; and if there is a better way that the principle can be enshrined clearly in the legislation, I would be more than happy to be so guided and withdraw this amendment and what it entails. I ask the Minister to give this House a clear undertaking that this fundamental promise of fairness, not merely to local authorities but to everyone in this country, will be clearly enshrined.

Baroness Scott of Needham Market: My Lords, like many other noble Lords I share the concerns expressed about these provisions. I want to start by asking the Government to give us an absolute assurance that they are confident that legally an EU fine levied on a member state can then be passed on to a local authority. I am not entirely sure that that is the case and would appreciate being given some comfort that it is true. My personal preference would be to see these clauses deleted, because I am not sure that the Government entirely realise what a can of worms they are opening. The noble Baroness, Lady Greengross, talked about where it is clear who is to blame, but EU fines would be levied only for a huge infraction-for example, in connection with air quality. It is almost inconceivable that it would be easy to point a finger and say that a particular person or organisation was responsible.

In fact, a large number of organisations would be responsible. Seeing the noble Lord, Lord Berkley, reminds me of the situation within the rail industry, where there are hundreds of people employed to do nothing but allocate blame. Every time a train is late, they go into a little huddle and work out whether it was the fault of Network Rail or the operator. When I am stuck on a train, I do not much care. This Bill is supposed to connect people with local politicians. We could have a situation where legal arguments drag on for years and cost millions of pounds while arbitrators try to sort out exactly who is responsible for the air quality of London. In that case, who will pay the fine? The public will look with bemusement while this goes on and they will rightly ask, "Why on earth did you not spend that money trying to deal with air quality rather than have this huge legal battle?". I hope that the Government will think carefully about exactly what they are trying to do here.

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Finally, it is a great pity that the whole dialogue and ethos of fining goes against everything we should be trying to do in terms of relationships between central and local government. It should be about looking at the best ways of resolving problems, not about allocating blame in this way and certainly not about allocating fines.

Lord Jenkin of Roding: My Lords, a number of us mentioned this matter at Second Reading. One of the longest lists of noble Lords spoke in that debate and addressed the problem of these EU fines. I do not want to repeat what has already been said, but the most important factor we are dealing with is that the Secretary of State is an interested party, whether he or she likes it or not. Therefore, it cannot rest with the Secretary of State to decide how to deal with this EU fine if it emerges. It has never happened yet, but it may one day. It was my noble friend Lord Teverson, I think, who said the Secretary of State was not just judge and jury, but prosecutor and executioner. That puts it extremely well.

I have put my name to the amendments moved and spoken to most eloquently by the noble Baroness, Lady Greengross, and to the longer amendment tabled by my noble friend Lady Gardner. Both recognise, first, that there can be no allocation until there is responsibility, and, secondly, that it cannot be the Minister who does that; there has to be a process of arbitration. We are in the middle of a negotiation outside this House between local authorities, led to some extent by the Greater London Authority and the London boroughs and the department. What we hope to hear from my noble friend on the Front Bench is exactly what is happening there; what stage have these negotiations reached? Are we in the process of getting some sort of reasonable settlement? Clearly in Committee like this we do not take a final decision when we are, as the Romans said, "in medias res". We are in the middle of the affair, so we need to know what the Government have in mind and what negotiations have been going on, where they have got to and when they expect to reach a reasonable conclusion.

I share the view of the noble Baroness, Lady Greengross, that the solution is not to delete the whole part of the Bill. I heard what my noble friend Lord Tope said on this, but the fact is, bluntly, if there is a serious infraction of a European directive, whether on air quality, water quality or whatever else, is it to fall solely upon taxpayers in general, even if it is perfectly possible to point the finger at the individual authority? At Second Reading, I quoted the example of a directive on waste and the position if a particular local authority was consistently failing to comply. Is it really being seriously suggested that the general body of taxpayers should contribute to the fine?

Of course, the purpose of all these things, as my noble friend Lady Scott said, is to encourage authorities and everybody else to comply with the regulations. That is what is intended but, as I asked in my Second Reading speech, as regards the problem of Heathrow, who is responsible for the air pollution? Noble Lords will have seen reports in the press today of the increase in stacking over Heathrow in the four stacking areas, which is materially adding to air pollution in London.

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They said it is because Heathrow has been forbidden to expand. I and I think most noble Lords actually support that. Successive Governments and parties have taken that decision, but who is going to pay if it leads to an EU fine? It seems unfair that the whole body of taxpayers should pay.

There has to be some reasonable, fair, proportionate solution and it is my understanding that that is what the discussions are trying to find. I hope that my noble friend on the Front Bench is going to be able to help us. I am sure I am not the only one who received a paper from the Greater London Authority with a document saying "possible policy statement text" with a summary and a number of key principles. It says:

"The use of these provisions must be fair, reasonable and proportionate. There will be an Independent Review Panel. There will be no surprises, and authorities will have opportunities to make representations. Decisions must be evidence-based and transparent".

It goes on:

"Authorities will not be held responsible for breaches that were not within their power to avert and will only be fined if they have demonstrably caused or contributed to the fine and can afford to pay".

I find it rather a difficult document to absorb but it sets out a substantial flow chart, which I am sure other noble Lords have seen, that shows the number of stages-opportunities for appeal, occasions when notice must be given and so on-whereby an authority might become liable. We need to know more about this. However, I am inclined to agree with those who say that it is not sufficient simply to send it all away. We must recognise that if there is a fine, there must be some mechanism for dealing with the matter.

I refer briefly to Amendment 117A in my name, which was suggested to me by one of the big water authorities. These are now private undertakings and have expressed concerns as to whether Clause 36 applies to them. It is a question of whether a water authority that was found, for instance, to have breached the urban waste water treatment directive-possibly as a result of the discharge of sewage into the Thames-would be liable to having a fine imposed on it. I understand that the Government are quite sympathetic to this and that it is not the intention that private undertakings should bear any part of this. Part of the reason for this, which was explained to me by the water companies, is that they are already subject to stringent regulatory controls by the Government. If they comply with those controls, they should be within the law. If they fail to comply, it is open to the regulators to take proceedings against them to make them comply.

Thames Water, for example, has long been concerned about the amount of sewage that can periodically overflow and run into the Thames, with discharges the whole way along. As a result, Thames Water is now planning-work is well under way-to establish a long sewage pipeline under the Thames, for most of its length, which will eventually discharge into the sewage treatment plant at Beckton. This is a huge project, which involves lengthy tunnelling and must avoid all the other tunnels that pass under the Thames. Thames Water is doing what it feels is justified. Therefore, it feels it would be a monstrous infraction to have to pay

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an EU fine because of a breach of the water directive. I hope my noble friend will be able to give me some comfort on that.

Lord Best: My Lords, I support the two amendments in the name of the noble Baroness, Lady Eaton. She has to be at the LGA conference today, which will miss its usual presidential address because I am here. I was much convinced by the noble Lord, Lord Tope, and the noble Baroness, Lady Scott, who said that we should avoid this whole issue. It will get us into an awful lot of trouble and legal hot water. However, I suspect that that will not prove an acceptable course of action and there will have to be an apportionment of blame to decide who the polluter is when the polluter must pay. That leads us to worry that that apportionment of blame cannot be undertaken by the Secretary of State at the Department for Communities and Local Government or Defra. They would be parties to the case and it would offend natural justice if they were the ones to decide how blame should be apportioned.

5.45 pm

Therefore, we get into the world of independent arbitration. The amendments in the name of the noble Baroness, Lady Eaton, propose the relatively well trodden path of having the Chartered Institute of Arbitration choose the membership of a body that would do this. The noble Baroness, Lady Gardner of Parkes, suggests the alternative of an independent review panel that would be appointed by the Secretary of State. The danger there is that people would not see a body appointed by the Secretary of State as entirely independent of the Secretary of State. I wonder whether there is a middle position that would satisfy all parties. Would it be possible to set out in the Bill the composition of an independent panel to perform the arbitration role? There might be two appointees of the Secretary of State, two appointees of the Local Government Association and-since London comes into so many of these arguments-one appointee of the Greater London Authority or London councils, with an independent chair appointed by the president of the Chartered Institute of Arbitration. Perhaps having that in the Bill would establish the independence of an arbitration body that everyone could see was not a creature of the Secretary of State. I hope the Minister will be able to give us some satisfaction on this.

Baroness Valentine: I declare an interest as chief executive of London First, a not-for-profit business membership organisation that includes developers, infrastructure providers and others who may have an interest in the practical implications of the Bill.

As a general point of principle, it is unreasonable to transfer the financial sanctions that emanate from European law to a subsidiary body unless that body has been given adequate powers and resources to meet the law and, furthermore, the UK Government have fully discharged their own obligations. Fairly attributing responsibility for who has infringed the law and the extent to which they have done so is not simple, as other noble Lords have already pointed out. Therefore, I support Amendment 117, which would introduce an

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independent panel to determine such matters. However, the amendment still leaves the final decision about who will pay the fine with the UK Government. I should like to see the powers of the panel taken a step further, with it being given the power to make this decision. The legitimacy to do so would be derived from its independence, which is not something that the UK Government can claim to have.

In London, this has been raised as a matter of particular concern in the context of the air quality and waste water directives by the GLA, local authorities and private organisations that exercise public functions. Who, for example, is to blame for poor air quality at Marble Arch? Is it the GLA, Westminster City Council, taxi firms or the bus companies? These are complex issues that require independent consideration and a panel with the power to determine who should pay the fine.

While on the subject, I am also concerned about the provisions in this part of the Bill that relate to EU fines, which would allow the UK Government to transfer liability to local and public authorities that exercise a public function. This is an issue addressed by the noble Lord, Lord Jenkin, in Amendment 117A, which I support. The problem is that, for the purpose of the Bill, public authorities include private organisations that are already subject to existing government legislation and the power of independent regulators. Private organisations may also be subject to contractual obligations, including financial penalties, for providing services outsourced by the public sector.

In relation to EU fines, private organisations should not be held accountable for something that it is not wholly, or even largely, in their power to achieve. It is the UK Government who negotiate with the EU. It is their role to ensure that EU directives are transposed effectively into UK law, and that the right policy and regulatory framework is in place to achieve that. I would welcome any reassurances that Ministers can provide on that matter.

Lord Berkeley: My Lords, I support all those who have spoken so far to express concern about this group of amendments. I thought it would be interesting to examine just how many of these directives, infraction proceedings, reasoned opinions, pilots and so on are likely to be in place at any one time. I start with those relating to transport. In a Written Answer on 7 June the noble Earl, Lord Attlee, said that 21 transport proceedings under Article 258 are currently unresolved. We do not yet know how many of those will result in a fine. One hopes that very few or none will, but that is the kind of number that we are talking about in transport. Therefore, one could suggest that there would be several hundred across the whole Government. Perhaps the Minister will be able to tell us how many are at stake across government.

The next thing I am concerned about is who this should apply to. The noble Lord, Lord Jenkin, mentioned private water companies and he is quite right. It would be useful to look at some examples. I have two examples. The first is the Channel Tunnel, which I spent 15 years helping to build years ago. The Commission has a pilot, which is the first stage of these proceedings,

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against the British and French Governments alleging failure to implement European legislation. The two Governments subcontract, if that is the right word, the regulation of the Channel Tunnel to something called the intergovernmental commission, which is actually part of government, which is meant to regulate the infrastructure manager in order to comply with the legislation. In the first stage of that situation, the Government would have to fine themselves. They would then have to fine the intergovernmental commission. Perhaps the intergovernmental commission would then pass it on to the private sector infrastructure manager. It sounds a little complicated to me and I do not think that it would work legally. The same could be applied to Network Rail, which is in the private sector, if the Government decided to follow the line suggested by the noble Baroness, Lady Kramer.

The figures are big. Many speakers have talked about the air pollution problem in London. The figure I have heard from the Commission is that the likely size of fine could be £300 million. Whether it was the present mayor-it could not be the previous mayor even though he came from a different party-the present TfL, the Government or whoever else, £300 million is a very big figure. We should bear this in mind when we talk about how this should be resolved.

The other example I have is an interesting one because it applies to most local authorities in this country. It is the first stage in the complaint from the Commission that local authorities are not complying with the green vehicle procurement rules. The directive-2009/33-came into force on 4December 2010 and it,

and so on. The obligation extends to all purchases of road transport vehicles by public authorities or transport operators. There are many experts in your Lordships' House who know how many local authorities there are in this country-in England anyway, and Wales if Wales is included in it. However, working out a £300 million or £200 million fine between all those local authorities and then allowing each one to take this arbitration route, which I hope will be implemented unless the clause is lost completely, is just unthinkable.

I shall be interested to hear from the Minister how the Government will deal with that kind of failure to comply with the green vehicle procurement rules which apply to every local authority. How do they propose to apportion the fine even before it gets to arbitration? How much would this arbitration cost each time it was used? We all know who is going to pay for it. It will be the taxpayer in the end or the local authority ratepayer, depending on whose side you are on or who gets legal aid. With this kind of enormous scope for potential failure, before one starts apportioning blame, the whole thing should be scrapped.

Earl Cathcart: My Lords, as this is the first time I have spoken in Committee, I should declare that I am a landlord, a landowner, I have been a councillor in Norfolk for a number of years, and I am chairman of my parish.

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When I first saw these provisions, I did wonder who on earth had dreamt them up. It is all too easy and tempting to blame Brussels, but in this instance, I do not think we can. I do not know of any other EU country that is bringing in similar provisions. Here I am confused. If it came from the British Government, which I think it did, why does it apply only to English councils? Why the urgency? What have English councils done, or rather, not done, that merits these provisions?

We all know that Britain gold-plates all EU directives so that Britain complies, or rather, overcomplies, with all directives, unlike some member states. Why are these provisions necessary? After all, Britain has never been fined by the EU. Are the Government worried that we are about to be fined? If so, given that we gold-plate all EU directives, it must be that we face a possible fine for something we have signed up to that has been impossible to deliver. In that case, why penalise local authorities? After all, they were not party to the negotiations with the EC. This makes me wonder whether a fine will apply to things that have happened, or rather, have not happened, in the past. Will these fines be retrospective or will they apply only to future events and future non-compliance? The EU treaty quite clearly states that only Governments are liable for any fines. Here we have provisions that allow the Secretary of State to lay off the blame and the fine onto local authorities.

If the Government persist with Part 2 of the Bill-I hope that they do not-and they are successful in pinning the blame on local authorities, the big question is how local authorities are going to find the money. We know that local government finance is already under tremendous strain. To have to pay an EU fine might mean cutting front-line services. That cannot be the right answer and I do not believe that would be acceptable. After all, local authorities already have big enough trouble cutting their budgets. To do so again to pay an EU fine would be untenable.

How are local authorities going to find this extra money to pay the fine? They could increase council tax, but again that would be unacceptable. Why should households be penalised for something that is totally out of their control? Anyway, any increase in council tax can now be challenged. The only other source of income that local authorities have is from the central government grants. That would be like robbing Peter to pay Paul. There are provisions in the Bill that require the Minister to take account of the effect of any fine on a local authority's finances. So presumably, if a local authority is strapped for cash-and they all are-then no doubt central government will end up picking up the tab. Here we have a situation where the Government pass on their fine from the EU to local authorities which they, the Government, may well end up having to fund themselves.

Why bother with all these procedures: the Secretary of State publishing a statement of policy and then determining how the amounts are to be paid; apportioning the blame across various local authorities; giving warning notices; issuing a final EU financial sanction notice; the appeal process; the protracted legal battles between local authorities and the Government; and perhaps an independent arbitration system to ensure the Minister is not, as other noble Lords have said, judge, jury,

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executioner and co-defendant? There is all this protracted bureaucracy and legal wrangling when, at the end of the day, the final bill will probably be picked up by central government anyway. All because in the past the Government have signed up to something with the EU that they cannot deliver, because if they could deliver, we would already have gold-plated regulations.

Therefore, rather than squabbling among ourselves, would it not be better if the Government concentrated their efforts and firepower on challenging any fine, if and when one is imposed? They should renegotiate with Brussels, if necessary, and, in future, ensure that Britain does not sign up to anything that is not in our interests or that we cannot deliver. As things stand, I cannot see the point of all this. It is a clear case of cutting off one's nose to spite one's face.

6 pm

Lord Empey: My Lords, I wanted to speak briefly to Amendment 110 and to make a few other comments, but it would be a brave Ulsterman who would take on the noble Lord, Lord Wigley, on a Welsh amendment. However, I assure him that I want merely to talk about the principle here. Although the Bill does not apply specifically to Northern Ireland, the Northern Ireland Local Government Association has asked me to raise some matters of principle, because if the principle is established in the Bill that local authorities will or could be liable for EU fines, sooner or later it will have national significance. While some EU directives may often have specific geographical implications, others have wider national implications.

I do not have a problem with the principle that the polluter pays, but it has to be understood that local government throughout the United Kingdom is not a universal picture. Local authorities in Northern Ireland have far fewer powers than those in the rest of the United Kingdom. They also raise most of their own money-more than 80 per cent-by rates. Consequently, they do not have a large central government grant, as is the case in England. Therefore, it is not possible for the Government simply to reduce the grant that local authorities in Northern Ireland receive in order to take the money off them, because they do not get it in the first place. If you impose a fine on a Northern Ireland local authority, you impose it directly on the ratepayer. That has to be understood.

The other matter is that the powers of local councils vary considerably. The Department of the Environment in Northern Ireland is largely responsible for local government, but other groups and public bodies will perhaps share policy implementation with local councils. Air and water pollution have been talked about. Local councils obviously have or could have an environmental health role in this, but other public bodies might be responsible for other aspects, including water pollution, sewage and so on.

The Northern Ireland Local Government Association, in consultation with other local government bodies, including the LGA, has expressed concern-not only because they have not been consulted about the measures, but because, although the Bill does not directly affect them at present, they believe that sooner or later it will. That is because EU fines have a national implication, as well as a local one. It was, I think, the noble Lord,

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Lord Berkeley, who said that he was not aware that EU fines had started to be imposed. I can assure him that they have, because I know, at home, our Department of Agriculture is being fined very heavily over issues concerning mapping. Grants were being distributed on the basis of maps, and now we have armies of planners who, as a result of not having much to do during the recession, are poring over aerial maps, because in the designation of fields, the boundaries of areas of rough ground may have become unclear. Brussels is now saying that people have been double claiming and doing all sorts of things. I can assure the noble Lord that fines are being imposed, exemplary damages are being applied, and the fines are vastly in excess of the amount of money that may have been inappropriately spent or given to a particular claimant. The Government are being fined millions of pounds above that. We are talking about substantial issues.

Lord Berkeley: I should like to say that it was not me who suggested that the British Government had not been fined.

Lord Empey: I beg your pardon; I may have picked up a comment from someone else.

When the Government are finalising what they are going to do on this issue, they need to take into account the significant regional disparities. One understands that the Government are trying to establish the point that the polluter pays. However, the big issue with all this is that we send representatives to Brussels-and I do not know whether the late-night hospitality and the all-night sessions are to blame-decisions can be forced through at 4 am and our representatives keep putting their hands up to approve them. Then, five or six years later, they blame Brussels for enforcing those decisions when it is they who have agreed to them. I have to say: beware the late-night hospitality. We should pick representatives who are good at doing this at night. In a negotiation, I fear that the officials will know full well that a certain Minister has to get away to an event somewhere else, perhaps at 1 pm the following day, and know that if they push for a decision at 3 am or 4 am, the Minister will put their hands up and agree to anything. I seriously suggest that we be careful what we agree to, because it comes back to haunt us many years later.

I accept that the provision in the Bill does not apply to Northern Ireland, and it is not entirely clear as to whether it applies even to Wales. The Minister may answer that this is an England-only Bill, but while local government is a reserved or devolved matter in certain areas, EU fines are, of course, a national issue or a reserved matter. The interface where these issues collide is not entirely clear to me, and I sincerely hope that the noble Baroness will take this into account when she replies.

Lord Newton of Braintree: My Lords, it is probably rash of me to intervene in a debate that has so far been dominated largely by great gurus of local government, another of whom is yet to speak. However, it must have become obvious, at least to my Front Bench, that I am one of those who become more rash, rather than

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more cautious, as the years advance. I have endlessly declared my wife as an interest, in respect of Braintree District Council. I hasten to add that she has not told me to say anything about this issue. The council is well conducted-and I say that not just because she told me that. However, I support the noble Lord, Lord Tope, and say that the concern is confined not just to his Benches. That has admirably been made clear, but having geared myself up to speak, I decided that I would do so-albeit very briefly.

First, the noble Lord, Lord Tope, was right to say that this issue should have been discussed with local authorities, not just bounced out with the publication of the Bill. Secondly, I have every sympathy with what my noble friend Lord Jenkin said-whether or not something like this survives, the Secretary of State should not be judge, jury, prosecutor and executioner. That leads to my interest in some of the amendments in the group, including that of my noble friend Lady Gardner of Parkes. I noted that the noble Lord, Lord Best, who knows as much about all this as anyone, said-although he did not use this phrase-that the Government were opening a can of worms. The whole of the rest of the debate has demonstrated that it is indeed a can of worms, not least in the speeches of my noble friend Lord Cathcart and the noble Lord, Lord Empey. It may be too late to put the lid back on it, but my noble friends ought to contemplate whether they can squeeze it down a bit or at least make it a more palatable lot of worms.

I do not have much more to say, but I have two questions that link with the points made in recent speeches. I want to put them very directly. First, as was initially raised in uncertain terms by the noble Lord, Lord Wigley, just where does this stand in relation to the devolved Administrations? Since the noble Lord spoke, I have checked Clause 213 on the extent of the Bill. If I read that correctly, this lot does extend to Wales; but it does not extend to Scotland and, as we have just heard, it does not extend to Northern Ireland. Therefore a fine from the European Union would be imposed on the United Kingdom Government. We are the members of the European Union, not Scotland, even if it would like to be, or Wales, even if it would like to be, or Northern Ireland-I do not know whether it would or not. That means that in certain circumstances the United Kingdom Government could be fined, but if the fine related to a local authority in Scotland, the European Union could do nothing about it. Only an English council could have a knock-on fine under these proposals. If I got that wrong, I would be glad to be told; but that appears to me to be the meaning of the Bill and I do not think it is satisfactory.

Secondly, as was touched on by my noble friend Lord Cathcart, is this or is this not retrospective? I could just about understand it if councils knew what they were getting into when they made a decision that might lead to this risk. However, unless I have read the Bill wrongly, this is a backward-looking proposal. A fine could be imposed that related to something that had already happened, in circumstances in which a local authority had no reason to suppose that there would be a penalty. Most of us would regard that situation as deeply unsatisfactory, and I do not regard it as satisfactory on anything that I have heard today.

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From what the noble Lord, Lord Best, said the other day, we know that this clause was one of the top three targets of the Local Government Association, which is why he is here today, no doubt. He was very kind, and rightly so, to my noble friend Lady Hanham on the Front Bench for having been so conciliatory on its other two main targets-one was the issue of mayors, the other I cannot remember. I urge my noble friend to be conciliatory on this one as well.

Baroness Kramer: My Lords, I am afraid that I am a local government novice rather than a local government guru. However, I want to add a few words because in some of the last speeches there was a dangerous drift, I thought, towards implying that this was all the fault of Brussels and I think that has to be countered quickly. As a Londoner, I am very grateful that there is an EU air quality directive. The Mayor of London and his draft air quality strategy assess that PM10 particulates play a part in the premature deaths of more than 4,000 people per year here in London. In fact, if you look at the impact on heart disease, it is probably closer to 8,000 people. If we had that number of premature deaths from food poisoning, I would guess that there would be a very big response. The fact that it comes from air poisoning seems to have drifted past an awful lot of British Governments. As a Londoner, I suspect that many of us are reasonably concerned about that.

I agree with all the arguments that the Government cannot possibly turn around and pass these fines off to other authorities to act as judge and jury. That is against natural justice and it is important that we say so. However, this whole conversation that we have had today has made it clear that arbitration is complex, expensive and protracted; the wisdom of Solomon would rarely be adequate to make sure that proper allocation followed. In those circumstances, this strikes me as a classic piece of the gold-plating that we mention when we talk about how our country handles directives from Brussels. Going back to the original proposition, to simply eliminate this clause would be the far cleaner way in which to act. The Government have often said that they do not expect us to ever get any EU fines, in which case the argument is even stronger for simply eliminating all of this rather than following the gold-plating strategy that seems to be under consideration.

6.15 pm

Lord McKenzie of Luton: My Lords, I speak to Amendments 117ZA and 117ZB, to Amendments 110A and 114A, to which we have added our name, and to the other amendments in this group. This has been a fascinating debate but there seems to be one very clear strand that I think that pretty much everyone who has spoken has signed up to, which is that, if these provisions proceed, the Secretary of State cannot be the final decision-maker in respect of these fines. I am on the side of those who hope that these provisions go in their entirety. I will just touch upon the point raised by the noble Lords, Lord Wigley, Lord Empey and Lord Newton. According to the Notes to the Bill, my understanding is that these provisions relate to England only, so it seems to me entirely reasonable to ask the

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Minister whether there is going to be any proposition that will extend them somehow to Wales, Northern Ireland and Scotland. If the answer is no, then I say good luck to Wales, Northern Ireland and Scotland. Nevertheless, how do you address the point that the noble Lord, Lord Newton, made, that you could have an EU penalty that, you might argue, is the responsibility of a number of local authorities, some in England, some not, so that under these provisions an English authority would be forced to cough up and authorities in Wales and Northern Ireland would not have to? If that is the proposition, that is simply a nonsense and cannot be right.

If I may say to the noble Earl, Lord Cathcart, I think this issue around gold-plating of EU directives is, frankly, a myth. Every time an exercise is done to try to identify where that happens, the answer pretty much always comes back that it is very difficult to identify. I agree with the noble Baroness, Lady Kramer, that this is not about laying blame at the feet of Brussels. As I said a moment ago, I am on the side of those who believe that we should remove these provisions from the Bill in their entirety, along with the noble Lord, Lord Tope, the noble Baroness, Lady Scott, and others, for the reasons that the LGA touched upon; namely, that they are,

The noble Lord, Lord Tope, spoke to that, and other noble Lords made the point that it is the UK Government who have EU obligations, not local authorities. If there is an issue about recalcitrant local authorities, surely it has to be addressed by more effective regulation by powers of intervention that central government could take, not by this nonsense of trying to apportion fines on some basis with all the complexities and problems that noble Lords have identified today.

My understanding is-and the LGA briefing touches upon this-that the concerns are particularly around air quality, public procurement, services and waste. As a start, can the Minister confirm that those are the particular areas that the Government are concerned with? Can he also tell us at what stage potential infraction proceedings have reached over these various areas or others that might be under way? My noble friend Lord Berkeley gives instances of several hundred in relation to transport. If we cannot get these clauses out of the Bill, and if we are to try to work out the best process to deal with this, it is worth reflecting on what I understand to be the process leading to infraction proceedings and the raising of a penalty.

Looking at the more formal arrangements in Articles 258 and 260, it has to start with an informal letter of inquiry from the Commission, then a formal letter presenting an opportunity to respond to an alleged breach of Community law, followed by reasoned opinion, which is the 41 notice from the Commission advising a member state that it is in breach of its obligations, followed, if there is no satisfactory response, by an application of the Commission to the ECJ for a formal ruling.

Following that, if there is a determination that there is a breach, there will be a letter requesting information on the steps taken to put an end to the

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infringement. If there is failure to comply, there will be formal notice that the member state has failed to comply, following by a reasoned opinion, which is the formal determination by the Commission that the member state has failed to comply with the ECJ judgment, followed by a financial penalty.

Therefore, the process is extensive, and there are a number of occasions when member states can challenge the existence of a breach or attempt to rectify it. Indeed, is it not the case that, even before these processes occur, there will in practice be opportunities to discuss with officials any suggested breaches of the treaty, with an iterative process to try to reconcile matters? This can extend over many months, if not years. Is it not the case that they are not clear-cut issues and that compromises may have to be reached along the way? That is why it seems fundamentally unacceptable that under the Government's proposals an authority will be formally engaged with an EU financial sanction only when it has become a reality.

I shall run through some of the amendments in a moment. I do not think that any of them separately encompasses what we now consider to be a robust fallback position in removing these provisions, but I believe that in aggregate they present a cocktail of suggestions which I hope the Minister will digest, as he has time to do between now and Report.

In our view, any retention of these provisions-our preference is for them to be removed and we will not give up on that yet-must include safeguards which make it clear that the consequences of a failure of transposition of directives into UK law can never be visited on local authorities. There must be a requirement for the Government to use all the powers at their disposal to ensure compliance with ECJ rulings, whether they are powers relating to regulation or powers of intervention. Perhaps on that latter point the Minister would write to me setting out what powers the Government have over the various areas of concern and the extent to which they have been deployed to date or are planned to be deployed to avoid or mitigate any EU breach.

There must be a statutory opportunity for authorities whose actions or inactions are considered by Ministers to have potentially contributed to a breach to be notified at an early point, and certainly before the start of the processes set out in Article 258, with a right for such authorities to be kept up to date with developments and negotiations, and to be able to make representations to government about the conduct of such negotiations and to be given an opportunity to rectify any contributory breaches. There must be protections for authorities which do not wilfully and deliberately set aside a power or responsibility and where they have taken all reasonable steps to bring about compliance. There must also be a right for authorities affected to have access to some form of independent review, judicial or otherwise-and there seems to be strong support for that-which assesses not only whether the proposed levying of the fine received by the UK is fair but whether the processes and engagement leading up to the end result have been appropriate and consistent with the principles that I have set out.

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The collection of amendments before us covers much of that ground and, as I said, provides some of the key ingredients for a fallback position. While we will continue to argue for the removal of these clauses, we will consider supporting a fallback position if it is sufficiently robust. The onus is now on the Minister and his colleagues to take note of the mind of the Committee, although I suggest that it is pretty clear. I believe that he has a decent time to do that before Report and I urge him to do so.

Lord Beecham: My Lords, I entirely endorse the observations made by my noble friend Lord McKenzie. I was happy to ascribe my name to the amendments moved by the noble Baroness, Lady Eaton, and indeed I congratulate her on tabling them. I think the Committee would wish to join me in congratulating her on her tenure of office, which ends this week, as chairman of the Local Government Association. She has been a very distinguished representative of local government. She has been quite unafraid to express the views of the local government family to Governments of all three political colours over the past few years, and we look forward to her playing an even greater role in your Lordships House than she has felt able to pursue so far because of a slight feeling of a conflicted position.

My noble friend Lord McKenzie referred to the position of Wales and Northern Ireland, and he seems to be absolutely right. I obviously have every sympathy with the noble Lords, Lord Wigley and Lord Empey. One would not wish to see these fines imposed on either Wales or Northern Ireland, or indeed on Scotland. However, it would be ridiculous if they were excluded from and England were included in certain situations. For example, if the Tweed or the Severn were polluted from the north or the west of the relevant borders, the Welsh or Scottish authority involved might be exempt and an English authority held liable. That would seem quite absurd.

My noble friend Lord Berkeley and the noble Earl, Lord Cathcart, asked about the number of potential breaches. Noble Lords may recall-although probably not-that at Second Reading I referred to a Written Question and Answer in relation to this matter. The Question was what estimate the Government have made,

The Answer from the noble Lord, Lord Sassoon, was:

"The United Kingdom has never incurred a financial penalty under Article 260 of the Treaty on the Functioning of the European Union"-

or under the former articles-

I suggested at Second Reading that it was a little curious that in that case there should be provision in the Bill at all. However, the Answer went on:

"In the event of such a financial penalty, it is not possible to anticipate what proportion would fall to local authorities under powers proposed in the Localism Bill".-[Official Report, 24/5/11; col. WA 419.]

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Therefore, it could be a very large or a very small sum. In that context, I ask the Minister to indicate whether it is correct, as the Local Government Association believes, that the Government are considering fines relating to four specific EU laws so that councils could be forced to pay up to £1.2 billion in fines. It is alleged that the UK is facing a potential £300 million EU fine for breaches of air-quality targets. Is that correct?

Furthermore, a slightly worrying feature of the fines proposal is the reference to the breach being "caused or contributed to" by a local authority. A contribution can go from a small proportion to a very large one. What is the Government's thinking about the situation that would arise if it were not wholly the responsibility of an individual local authority or a number of local authorities? In those circumstances, how would the fine be apportioned and who would determine it? Presumably, on the basis of the Bill as it stands, it would be the Secretary of State.

I recall money being lost to the United Kingdom, and particularly to the region from which the noble Lord, Lord Shipley, and I come, not through the fault of local authorities but through the negligence of civil servants who failed, for example-this was in the days of the previous Government-to transmit bids for EU funding in sufficient time for the money to be allocated and received. The money went missing but unfortunately there was no question of the local authorities fining the Government for that negligence. It seems that this is a one-way street. When it comes to money being lost to the UK, only local authorities seem to be scheduled to be in the firing line.

There are real problems here with the processes. The noble Earl, Lord Cathcart, talked about Ministers signing up successive Governments to regulations, and he was right to say that. In particular, Governments have signed up to these regulations without consulting local government, upon which under the Bill and indeed perhaps more generally responsibilities would lie. The position now seems to be that if the Bill goes through unamended local authorities will be faced with decisions made on the basis of targets, deadlines and laws dating back more than 10 years-again without any consultation along the way.

6.30 pm

It is suggested that local authorities have defaulted on EU obligations on four directives: air quality, public procurement, services and the waste framework. Ministers have been asked to substantiate these claims but they have not provided the evidence. Perhaps the noble Lord would indicate what evidence there is for any such alleged breaches. In particular, there is the interesting example of Ministers apparently having claimed that 23 waste planning authorities have failed to submit their waste plans by an informal deadline between the Government and the European Commission, which could incur-allegedly-an EU fine.

The Government apparently failed to communicate the importance of that deadline to the councils in question or its link to the directive. It was eventually communicated at a workshop-a workshop, not in any kind of directive or guidance. It is not in European Union law or in the domestic legislation that implements it. The only official communication went out six months

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after the deadline had passed. In these circumstances it would be ridiculous for a fine to be levied on authorities if the Government were to seek to enforce it.

Others of your Lordships, including the noble Baroness, Lady Kramer, have referred to the difficulties particularly of air quality. Indeed, this was the subject of a review commissioned by Defra that was published in March 2010 when mandatory targets on councils were being considered. The Defra review said:

"Giving authorities responsibility for achieving a part of the target ... would be impossible to monitor and enforce; there would be no way of deciding conclusively the causes of any change to"-

pollution concentrations-

That is fairly obvious but it does not seem to be reflected in the Government's position. The problem is that there are a number of draft laws in the pipeline that could affect local government, and again I hope that the Minister will confirm when these are being considered this time around, as opposed to what has happened under previous Administrations, and that there will be adequate consultation.

Finally, one matter worries me slightly. The noble Baroness, Lady Scott, referred to passing on the fines. It may be that if the amendments succeed either the whole clause will be struck out or there will be an arbitration procedure. I am not normally paranoid, but sometimes in local government one feels that successive Governments, particularly their civil servants, are out to get us-perhaps the Treasury in any case is out to get us. If the situation arises in which the fines are struck out, I wonder whether it would not occur to some bright civil servant that the net cost to the Government of paying EU fines might not somehow be deducted from the revenue support grant that goes to local government, which would perhaps help individual authorities that might otherwise be made liable but would not help the totality of the local government family.

I would very much welcome an assurance from the Minister, if he is able to give it either today or subsequently, that, in the event of the fines not being levied on individual authorities but having to be paid by the UK, there is no intention to recoup from local government in this indirect method. I have no doubt that the noble Earl would not countenance it but there may be others around Whitehall who would, so it would be good to have some assurance that that would not follow.

Earl Attlee: My Lords, I thank the Committee for the time, effort and thought that has been put into the amendments on these clauses. I particularly welcome some of the sensible comments of the noble Lord, Lord McKenzie of Luton, after he gave me his fairly firm strictures. We welcome such constructive contributions. I have taken on board the strictures of the Committee and I accept that there is much more that we need to do on these clauses. I also believe that the House is well placed to find a solution. Given the significance of these provisions, I intend to give a full reply. However, I will avoid getting involved in a debate about the EU or the desirability of any particular directive. On any relevant points that I do not answer, I will write in due course.

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The basic principle is, I think, sound. The aim is to encourage authorities not to incur fines for the UK in the first place and, in the unprecedented circumstances that the UK is fined for an infraction, to achieve compliance quickly. We do not want to pay escalating fines to Europe. As many noble Lords have pointed out, we have never incurred fines for an infraction and do not see these provisions as a prelude to being more relaxed about infraction proceedings or fines. My noble friend Lord Tope, in his speech, accepts that it is very unlikely that EU fines will be incurred. The whole point of the policy is to avoid the fines in the first place.

My noble friends Lady Gardner of Parkes and Lady Scott of Needham Market, the noble Baroness, Lady Valentine, and others raised the issue of the air quality directive and the difficulty of apportioning liability to certain types of directive. The amendment of my noble friend Lord Tope deals with this problem in conjunction with the amendment of my noble friend Lady Gardner, although I have to caution that it may have unintended consequences in this respect, so further consideration is required. The noble Lord, Lord McKenzie, asked whether these clauses are aimed at just a few specific EU directives. I go back to my point that that is not the case; they are about avoiding problems in the first place.

Lord McKenzie of Luton: I understand that point. My specific question was whether those four areas that I identified are of particular concern at the moment, and in respect of those areas, how far, if at all, the early stages of infraction proceedings have got.

Earl Attlee: My Lords, I think I will be able to give the noble Lord some comfort later in my speech. The noble Lord, Lord Berkeley, rather exaggerated the spectre and size of related fines. He will recognise that most EU states are experiencing difficulties with the air quality directive, particularly in respect of NOx, but I will not weary the Committee with the technical reasons for that.

We should focus much more on preventing fines. I am therefore very interested in the amendment proposed by my noble friend Lord Tope and by the noble Lord, Lord McKenzie of Luton, on the Benches opposite. Taken together, as the noble Lord, Lord McKenzie, suggested, these would target and give a very clear warning only to authorities that are putting us at risk of a fine from Europe and just for the specific breach in question. That also deals with the point raised by the noble Lord, Lord Berkeley, about the potentially very large numbers. Actually, the numbers directed would be very small. This would involve a parliamentary process. The issues or any culpability could be clearly debated here and in the other place. In considering the merits of these amendments, we need to ask whether naming specific authorities could result in a greater desire on their part to comply and avoid any fine. This, as the Committee is aware, is the Government's overriding aim.

Listening to the debate it seems to me that noble Lords believe that a particular advantage of the amendments is that prior to a directive being designated,

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all concerned can concentrate on solving the problem rather than taking legal advice and protecting their position. That deals with the point raised by my noble friend Lady Scott of Needham Market. In other words, the meter is not running until the designation order has been approved. As such, noble Lords may consider that these amendments deal with the issue of retrospectivity raised by my noble friends Lord Cathcart and Lord Newton of Braintree and the noble Lord, Lord McKenzie. However, I make it clear that the Bill's clauses would have to apply to existing directives, not just new ones.

We must also ensure that the mechanism used as a last resort to recoup any fines works, otherwise there will be no incentive to avoid a fine.

Lord Newton of Braintree: My noble friend has been very reassuring on general retrospection and I think I understand the point about existing directives, but in respect of an existing directive, would the potential fine apply only from the date of the designation under an amendment along the lines that he appears to be discussing, because if it applies backwards it remains retrospective?

Earl Attlee: My Lords, I believe that that is the intention of my noble friend's amendment; the meter would run only from when the directive was designated.

The process must be fair, reasonable and proportionate. I therefore warmly welcome the draft policy statement from the Greater London Authority, mentioned by my noble friend Lord Jenkin, arising from discussions with the Government. A copy has been placed in the Library and I would welcome any comments on it. I was also very interested to see the amendments of my noble friend Lady Gardner of Parkes.

Lord Jenkin of Roding: I am sorry; my noble friend is clearly doing his best, but the draft statement was obviously drawn up after the discussions had got so far with the department. Are those discussions still going on?

Earl Attlee: My Lords, I will be delighted to deal with the noble Lord's point later in my speech.

I was very interested to see the amendments tabled in the name of my noble friend Lady Gardner of Parkes. In considering the merits of these, we would need to be certain that any panel would provide additional value on top of the existing availability of judicial review. Amendment 114A, tabled by my noble friends Lady Eaton and Lord Tope and the noble Lords, Lord Beecham and Lord McKenzie, would take this a step further. I do not feel, however, that arbitration is appropriate. This is not just about deciding between disputing parties on a breach of contract; it is a complex matter that involves myriad decisions, including on the apportionment of resources and most importantly on the ability to pay. It is not appropriate for a single unelected individual to make such decisions, any more than it would be for them to decide the local government finance settlement.

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The noble Lord, Lord Beecham, made a point about the revenue support grant. I go back to my point that it is not about raising money; it is about avoiding the fines in the first place.

Lord Berkeley: The Minister mentioned ability to pay. If a council has no money, does that mean that the Government will not have to pay?

Earl Attlee: Not quite, my Lords, but the decision-making process will have to ensure that what the council pays is affordable. It may hurt them, but there is no intention to bankrupt a local authority, which I think would concern noble Lords. There has to be an affordable fine. However, if an amendment similar to the one tabled by my noble friend Lady Gardner of Parkes were put in place, it would be hard for Ministers to ignore its advice without making themselves vulnerable to judicial review. I am very grateful for the clear way in which my noble friend explained her amendments.

I welcome the tone of the speech by the noble Baroness, Lady Greengross, and I can confirm that we will make clear in the policy statement our commitments to the principles of fairness, reasonableness, proportionality and no surprises. This is why I find the draft document from the Greater London Authority so helpful. Unfortunately, the amendment, which seeks to put tougher tests on culpability by using the criminal standard of law, causes some real practical difficulties. Unfortunately, the European Court of Justice proceedings are based on civil standards of proof. Rather than rerunning the European procedures here in the UK to the higher test, it is better to use a court's finding to focus on quickly achieving compliance.

My noble friend Lord Jenkin of Roding seeks to ensure that the Government cannot designate any private company. I agree that we should not penalise companies for their private services and functions. I believe that this amendment needs further consideration. We need to ensure clarity as to who is to be covered by these provisions.

Finally, to the noble Lord, Lord Wigley, whose amendment we are debating, I suggest that there is no need for his amendment. Clause 36 sets out that the powers apply only to English authorities exercising public functions in England.

Lord Wigley: As I flagged up at Second Reading on 7 June, the Minister in another place said that this is likely to come into force in other parts of the United Kingdom. If that is the Government's intention-and as the noble Lords, Lord Newton and Lord Empey, and others have said, it would have implications if it did not and it has implications if it does-at what stage would we know conclusively that this part of the Bill was not going to be changed to include us? If it is to be changed, can it be changed in time for us to table amendments as necessary on Report to deal with the consequences of this being applicable to Wales, Scotland or Northern Ireland?

Earl Attlee: I am coming to that. The noble Lord, Lord Wigley, asked whether the Government will give an assurance that the UK Government would not stop

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the Welsh Assembly Government from negotiating with the EU. The UK Government recognise that the devolved Administrations will have an interest in European policy-making in relation to devolved matters, notably when action by them may be required for implementation. The UK Government will involve the devolved Administrations as fully as possible in discussions about the formulation of the UK's policy position on all EU and international matters that touch on devolved matters.

The noble Baroness, Lady Scott of Needham Market, asked whether we are confident of our legal position. Parliament is sovereign and can give powers to Ministers to pass on EU fines in accordance with the law as passed by Parliament.

The noble Lord, Lord Berkeley, asked about the number of transport directives in difficulty. I cannot confirm his numbers. However, he will be aware that many problems are relatively minor and easily dealt with and some of these matters are progressing faster than others.

My noble friend Lord Cathcart talked about gold-plating, but we cannot be infracted for doing additional things. He also made the important point, which the noble Lord, Lord Berkeley, touched on, about the effect of any fines. As I said previously, the Secretary of State has to take into consideration the effect on a local authority of fines, and any arrangements that were put in place as a result of the solution that we devise would obviously have to have that effect.

My noble friend Lord Newton of Braintree and the noble Lords, Lord McKenzie and Lord Wigley, asked about the extent of these clauses. England and Wales are one legal jurisdiction, which is why the extent is England and Wales. However, the application of the clauses is to English authorities, but we are in discussions with devolved Administrations about how the clauses may be relevant to their areas for reserved matters, and we will be prepared to look at their requests very carefully indeed.

Lord Newton of Braintree: I had actually decided not to intervene, because it seemed almost unfair. There is nothing more certain, I would judge, than that if the UK Government approach the Scottish Government-I do not know about the Welsh-and say, "We have this policy and if we get a fine that applies either north of the border or across the border, will you pay your share?", they will tell us to get stuffed.

Earl Attlee: My noble friend Lord Jenkin asked where we are in negotiations with outside bodies. He is of course, correct in what he surmises. However, your Lordships and another place will have to decide what is to be done in the end. In conclusion, I would like the opportunity to consider, in consultation with ministerial colleagues, those suggested amendments which could provide a way forward and a solution.

While I am clear that putting the decision-making in the hands of a single unelected individual is not helpful, I am very willing to take away the other suggestions from noble Lords. I believe that together we can develop good solutions in time for Report. While I cannot accept a veto, I am very happy to

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continue discussions with outside bodies and noble Lords in order to develop this good solution before Report. In the light of what I have said, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Berkeley: Will the Minister explain his last reference to the different types of organisations that might be covered, which the noble Lord, Lord Jenkin, and I raised, be they water companies or railway companies? Is the Minister going to write to noble Lords who have spoken with more detailed responses to all these things, or is he going to recommend that we put down amendments on Report about which should be covered and which should not?

Earl Attlee: My Lords, I am very happy to enter into detailed discussions with any noble Lord.

Lord McKenzie of Luton: Noble Lords will be grateful for the response that the Minister has made because he has indicated that this is very much open and there is scope for a lot of further detailed discussion. Can I be clear that included in that discussion will be issues around the point at which local authorities will be notified of possible infraction proceedings and the opportunity to engage in the iterative, informal discussions and negotiations that go on before we get to an Article 258 situation? Any review and assessment of the outcome would cover that early engagement and its legitimacy as well as just looking at the divvying up of the fine that may result at the end of the day. Can we have the opportunity to engage with the Minister along the way so that we will have no surprises when we come to Report?

Earl Attlee: My Lords, the noble Lord will know that infraction proceedings are a very long process, even after the Lisbon process, which, I understand, makes it a little shorter. The designation procedure suggested by the noble Lord, Lord Tope, would provide a very clear signal. One of the questions that my noble friend would have to answer-and we can do this offline-is: at what point would you designate a local authority? I would suggest that it would be after you get to a difficult stage in negotiations with the EU. I would be very happy to discuss that point with the noble Lord.

Lord McKenzie of Luton: I know the Minister has gone through a lot this evening on this. It is not just a question of designating so that you know that you are potentially in the frame; it is an opportunity for a local authority to engage with the Government, who are obviously responsible for the negotiations. Since it is a negotiation, and a deal is often struck at the end of the day, where that deal is struck could affect a particular local authority or group of local authorities in ways that are different from the way others are affected. Therefore, that chance to impact on that process early seems vital if people are going to be assured that there is a reasonable process going forward. It is not just being designated; it is being designated at a point where you can engage with the ongoing pre-formal process of the infraction proceedings.

28 Jun 2011 : Column 1700

Earl Attlee: My Lords, the noble Lord makes an important point, but the amendment tabled by the noble Lord, Lord Tope, deals with it because until the directive has been designated, the Government can deal and negotiate freely with the Commission and with the affected local authorities to try to find a solution to the problem. Most of the time, we will be able to achieve compliance relatively easily. I hope we will never get to a situation where we cannot achieve compliance.

Lord Tope: Before the noble Lord, Lord Wigley, tells us what he is going to do with his amendment, which, as we were reminded just now, is the one we are supposed to be debating, I thank the Minister for his conciliatory response to us tonight and for recognising-indeed, after nearly two hours, he could hardly fail to recognise-that the clauses as drafted are not quite perfection and that more needs to be done. We are, of course, very willing to engage in constructive discussions to try to find a solution and a way through this. I think he will have heard many times during this debate that to have the Secretary of State as prosecutor, judge, jury and executioner is simply not acceptable to your Lordships, and he has made the point that a single unelected arbiter is not acceptable to the Government. Therefore we need to find some solution: an arbitration that is seen to be fair on all sides. That is perhaps where we should concentrate.

As my final word on this subject, I ask the Government to consider seriously the can of worms that others have referred to and which has been spoken of many times in this debate. I suspect that the Government did not fully recognise it when drafting this Bill. Given all the potential difficulties that are implied in all this, should the situation ever arise, is it really worth pursuing Part 2? I think it has been said on all sides of the Committee that our preference would be not to have Part 2.

Noble Lords: Hear, hear!

Lord Tope: I think that came from all sides of the Chamber. The Government have perhaps recognised that shadow mayors are not to be pursued. It may be time that they should also have the courage to consider whether Part 2 is worth all the trouble that it may potentially cause and whether the best solution to the dilemma we have spent the past two hours debating might be just not to pursue it at all.

Earl Attlee: My Lords, inspiration has arrived regarding one of the questions asked by the noble Lord, Lord McKenzie. He asked at what point local authorities would be notified that there is an infraction proceeding. They are made aware via relevant departments from the outset of formal proceedings-so, from an Article 258 letter of formal notice.

Lord Wigley: My Lords, I shall not detain the Committee very long in winding up this fairly substantial debate. I thank the Minister for the movement that he has indicated in response to representations on the generality of the problems arising with local government. The concerns of the Welsh Local Government Association

28 Jun 2011 : Column 1701

are very similar to those of the LGA and the extent that Part 2 can be amended between now and Report to meet those concerns will be equally as welcome in Wales as elsewhere, if the Act, as it will be, is to be applicable in Wales.

I concur entirely with what the noble Lord, Lord Tope, said a moment ago about doing away with Part 2 in its entirety. That would avoid all the problems, but judging from the comments made by the Minister in responding to the debate, it seems that there is still an intention to have a Part 2, albeit amended. If that is the case, I hope that the message will be taken loud and clear from this Chamber that the Minister made it clear that by virtue of Section 36, the Act will apply in England only as things stand now. That will be heard particularly by my good friend Mr Alex Salmond and by others as well, as will the comments of the noble Lord, Lord Newton, about the response if there were attempts to take money from local authorities in Wales, Scotland and Northern Ireland in relation to this Bill. I entirely understand that noble Lords from England will feel that there would be inequity if that was the case, and that is why I suspect that at some point in time we will find a formula that brings in Wales, Scotland and Northern Ireland.

If that is the case, it needs to be in the Bill. It needs to have an opportunity to be discussed and debated and to have all the opinions from those three areas brought on board before a final conclusion is reached in relation to the legislation. I very much hope that between now and Report, if there is to be movement away from what the noble Lord said-that it does not apply, as it presently stands, to the two nations of Wales and Scotland and to the Province of Northern Ireland-that can be made known to us in good time so that there can be discussion, if necessary, and discussion with the authorities in the devolved Administrations so that on Report we can address this in a way that will be acceptable, at least in terms of debate, discussion and parliamentary process, by those who have to live with the consequences. I beg leave to withdraw the amendment.

Amendment 110 withdrawn.

7 pm

Amendments 110A to 114 not moved.

Clause 31 agreed.

Clause 32 agreed.

Amendment 114A not moved.

Clause 33 : EU financial sanction notices

Amendment 115 not moved.

Clause 33 agreed.

Clause 34 agreed.

Amendment 115A not moved.

28 Jun 2011 : Column 1702

Clause 35 : Further EU financial sanction notices

Amendment 116 not moved.

Clause 35 agreed.

Amendment 117 not moved.

Clause 36 : Meaning of "local or public authority"

Amendments 117ZA to 117A not moved.

Clause 36 agreed.

Clause 37 agreed.

Amendment 118

Moved by Baroness Kramer

118: Before Clause 38, insert the following new Clause-

"Tax increment financing

(1) The Business Rate Supplement Act 2009 is amended as follows.

(2) After section 1 (power to impose a BRS) insert-

"(1A) A BRS may be in the form of tax increment financing."

(3) In section 14 (chargeable amount: supplementary) in subsection (2) after ""A" is" insert "for any form of BRS other than tax increment financing".

(4) In section 14, after subsection (2) insert-

"(2A) For tax increment financing "A" is-

(a) the increase in the rateable value on the chargeable day attributable to the project to which the tax increment financing relates, or

(b) if section 12(2) applies, the rateable value of the occupied part of the hereditament on that day."."

Baroness Kramer: My Lords, we have just been through a very important debate that has taken a good two hours. I sense that the House is absolutely exhausted, so I will try to be very brief in moving Amendment 118. I will speak also to Amendment 118ZA. Since the latter is the smaller, I will address it very quickly now.

This arose because my colleague and expert lawyer, the noble Baroness, Lady Hamwee, looked at the Bill and realised that there was a serious question in the wording of Clause 38(7), which refers to business rate supplements and makes various amendments. It says:

"The amendments made by this section do not apply in relation to a BRS imposed before the date this section comes into force".

That is an important date because on one side of the date of raising a business rate supplement there is in many cases no requirement for a ballot, and various other conditions are different, and on the other side of that benchmark the conditions are entirely different. It is absolutely necessary that any authority affected by business rate supplement rules knows when that date occurs. I apologise if we have made a mistake, but neither the noble Baroness, Lady Hamwee, nor I can find any definition to determine when "this section comes into force". This is an attempt to do that by replacing those words with the word "enacted". It seems that if this clause should pass and become part of the Bill in its final form there has to be some clarity

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from the Government. This is a technical issue but it could lead to an awful lot of confusion and litigation if it is not clarified.

Amendment 118 covers the issue of tax increment financing. I will take a moment or two to explain what tax increment financing is. I am sure many Members of this House are very aware of it but there might be one or two who are not. I will then explain why I have raised this in this Bill and at this point. Tax increment financing was first used in the 1950s by California and is now part of the framework statutes of every state of the United States bar Arkansas, as well as of various continental countries, in various forms. Essentially it is a mechanism that recognises that where regeneration takes place or where there is new infrastructure, land values consequently rise. Therefore, business rates associated with that increase in land values are attributable to the existence of the project. In effect, it allows the relevant local authority or other body to borrow against that predicted increase in the business rates that results from the construction and existence of the project.

In this country we have a great problem in building infrastructure. People often use the example of the London Tube system and the Jubilee line. We get the cost upfront-in the case of the Jubilee line, about £3.5 billion-but there is a huge benefit at the far end when the project is complete. The increase in benefit to landowners around the various stations on the Jubilee line is estimated at about £13 billion. In other words, huge value is created, but we rarely find any mechanism to let us capture that value in order to get the financing to build the project in the first place. This happens on a small scale as well as a large scale. Knowing the cash that is coming out at the end, are we going to take the steps to allow us to find a mechanism to tap that in order to get the project built?

In the United States, this is not often used on large-scale projects. It is used typically on small, local regeneration projects in blighted areas, but it need not be limited to that application. The Deputy Prime Minister, Nick Clegg, announced in September 2010 that the coalition would at some point allow local authorities to use tax increment financing to finance infrastructure projects. In a sense, this is a probing amendment to find out where on earth we are in this process. I speak partly as a Londoner because I know that so many infrastructure projects are necessary in this city, but it has to apply to the whole of the country.

This issue is relevant because of the various new clauses in the Bill that apply to the business rate supplement. I am conscious that a review is under way of local government revenue-raising powers and that tax increment financing is likely to be discussed as part of that. However, a problem arises from Clause 38 because of the new constraints that are applied to local authorities in raising business rate supplements- notably that a ballot is now necessary for every business rate supplement. Under the existing rules, no ballot is necessary if the business rate supplement provides less than one-third of the total cost of the project.

Crossrail was passed through a special hybrid Bill but the business rate supplement plays a significant part in the financing for it. Had all the businesses in

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London that are covered by this rate been balloted, they would not have passed the business rate supplement because many of them do not benefit from the existence of Crossrail. I am sure that this will be true on a small scale as well. It will become very difficult to achieve a business rate supplement when many businesses will look at the project that is very beneficial to the community but say that it does not benefit them directly. The joy about tax increment financing, if that were to be the basis on which businesses were balloted, is that you pay it only if you have benefited. You will pay a tax increment levy only if you have seen the increase in property values that comes because the project has been created. That, presumably, is something that businesses capture through rent or through the sale of property or in various other ways, but it is in their interest to make sure that the project happens.

That is why I have raised the matter in this context, although there is a more general Bill to come. It seemed to me that if we were going to see in this Bill new difficulties for using business rate supplements, we at least ought to have some discussion of mechanisms that would be put in place to give confidence to local authorities that they could proceed with infrastructure projects, regeneration and other necessary developments. They would then have some assurance that mechanisms would be coming their way that would allow them to achieve that. At a time when we talk about the importance of economic growth, infrastructure is perhaps more important than ever, so there is an urgency in clarifying this issue. That is why I have brought forward the amendment. I beg to move.

Lord McKenzie of Luton: My Lords, we understand why the smaller of the amendments has been introduced tonight. Doubtless the Minister will be able to give satisfaction on the date that these provisions enter into force for the reasons the noble Baroness has outlined. We also understand better now why she has attached tax increment financing to these provisions. As she said, a ballot is now required in all circumstances, whatever the level of funding, and there may be difficulties in securing that in the future.

Tax increment financing is about raising more money upfront by committing revenues which would not have arisen but for the project going ahead. We accept and support the importance of focusing at this time on tax increment financing when capital resources for local authorities are especially tight and the private-sector nervousness about the state of the economy means fund raising is extremely difficult. The noble Baroness will be aware that the previous Government set up a working party to examine this and an enlarged group has been working with the coalition Government. What I am not sure about is the grafting of these provisions on to the Business Rate Supplements Act 2009, which is about levying a supplement on the NNDR. It involves consultation arrangements and a ballot of those existing ratepayers affected. In concept, TIF is about ring-fencing additional business rates and almost hypothecating those to fund a borrowing arrangement. The current position is set out in the local growth document which the Government issued recently. That talks about introducing new borrowing powers to allow tax increment financing. It will be interesting to

28 Jun 2011 : Column 1705

hear from the Minister what the mechanism is for those borrowing powers to be introduced to facilitate tax increment financing. I do not think grafting it on to the Business Rate Supplements Act provisions will be the right way to achieve it. It looks as though the Government already are focused on changes to borrowing arrangements which will facilitate it and obviously, subject to the detail of that, it is a principle and a project which we would support because it is important to get this source of funding under way at the current time.

7.15 pm

Lord Shipley: My Lords, I want to add a word from the perspective of English core cities. The proposals around tax increment financing put by the eight largest English cities to Government three to four years ago have gradually been working their way through a number of committees, particularly in the Treasury. In the past 12 months added impetus has been given to tax increment financing. I hope that what my noble friend Lady Kramer is proposing here does not cause any delay to the move forward with the Government's proposals because tax increment financing is urgently needed to enable cities, in particular, and all councils to be able to borrow against future business rate income growth. At present local councils have the power to borrow prudentially, but prudential borrowing requires there to be an income stream guaranteed to enable that borrowing to proceed. Tax increment financing enables borrowing to be made against future growth and projections of that business rate income, as my noble friend Lady Kramer rightly pointed out.

These are not separate issues and they can sit happily together but we are looking for some clarity from Government that tax increment financing as a principle will go ahead as speedily as the Deputy Prime Minister announced that it would last year. Local authorities are waiting for the powers to be implemented and it could well be a further 18 months to two years before those powers come forward. They are urgently needed. Otherwise infrastructure funding that requires a capital investment based on borrowing on the markets needs to be progressed. Without it that investment will not take place. I look forward to my noble friend the Minister clarifying the speed with which tax increment financing can be introduced and how then that proposal lies with this proposal in the name of my noble friend Lady Kramer.

Lord Beecham: My Lords, the noble Lord, Lord Shipley, is quite right to refer to the support for the principle from the core cities and also, in general, from the Local Government Association. I endorse that. To help me understand the implications of this measure, can the Minister refer back to the point that she raised about this being more acceptable to business ratepayers because they will benefit from the projects that are being financed through this mechanism as opposed to something like Crossrail where they may not have done? This does not necessarily constitute an objection to the proposal, but I wonder whether that is right. The rates are borne by the occupier of business premises. The value effectively goes to the owner and they are not necessarily the same. We have had over many years

28 Jun 2011 : Column 1706

in local government finance the position where property owners contribute little to the regeneration of cities and the like. The financial burden falls on the tenants through the rents and they also pay the rates. I wonder whether she is not being a little optimistic in assuming that the occupiers of premises that may benefit from these developments will be as enthusiastic as she might suppose, although, as I say, that does not vitiate the validity of the proposal as a means of financing investment.

Lord Shutt of Greetland: My Lords, I hope I can be helpful on this but, while thanking all noble Lords who have spoken, I revert to the point that my noble friend Lady Kramer made in her initial remarks about this being a probing amendment.

The Government have committed to introduce tax increment financing but we should not pre-empt the outcome of the local government resource review that will conclude in July. The review is looking at both local retention of rates and tax increment financing as we need to make sure that tax increment financing proposals are consistent with our wider proposals on business rates retention. The amendment appears to increase the rates liability of businesses, whereas tax increment financing, as generally understood, does not increase the business rates that would otherwise be levied but uses those rates to repay the borrowing that helped to deliver a piece of infrastructure. The business rate supplement and proposals for tax increment financing are two separate models that are structured differently. Rather than integrate them, there is no reason why they could not be used alongside each other to facilitate the funding of infrastructure to support economic growth.

The amendment seems to create two types of business rate supplement. The first type is a traditional business rate supplement of up to a 2p levy on business rates payers within an authority area that occupy property rated above £50,000 for an economic development project. The second type is a business rate supplement for where tax increment financing has delivered some infrastructure project of up to a 2p levy within an authority area but is restricted to the increases in rateable value of properties rated above £50,000 as a result of some infrastructure that has been implemented by tax increment financing.

The amendment appears to be defective in a number of ways. There is no definition of tax increment financing. The amendment would also create some practical concerns. The tuppence maximum will apply to the area, so in London the proposal could not apply as the tuppence limit reached by the Crossrail business rate supplement has been dealt with. Applying the increase to the rateable value to adjust the impact of the tax increment financing project would require a second ratings list to be set up for all properties with rateable values both prior to and after the tax increment financing project delivery. A consequent increase in administrative costs is highly subject to challenges over the extent of any rateable value increase as a result of the tax increment financing project or other factors-refurbishment of a property, for example.

The tax increment financing scheme does not increase the business rates that would otherwise be levied but uses those rates generated by the infrastructure to

28 Jun 2011 : Column 1707

repay borrowing. Under existing arrangements, 100 per cent of business rate revenues collected by local authorities are pooled for redistribution to local authorities in England. By considering options to enable councils to retain their locally raised business rates, the current local government resource review provides an opportunity for significant changes in the way in which councils are funded. Such an approach could help to set free many local councils from dependency on central government funding and provide incentives for them to promote economic growth. The review is considering how we could manage the distributional impacts of any new arrangements. More deprived councils will continue to receive support.

Last September, the Deputy Prime Minister announced that the Government were committed to take legislation to allow for tax increment financing. Then, the local growth White Paper, issued in November, set out the Government's intention to carry out a resource review. The terms of reference for the resource review were published in a Written Ministerial Statement by the Secretary of State on 17 March 2011. The resource review will look at local retention and tax increment financing in the round and will conclude in July. The aim is then to move as quickly as possible towards implementation, taking into account the need for primary legislation.

I appreciate the spirit of Amendment 118ZA, which aims to ensure that any business rate supplement where the levy raises less than one-third of the overall project cannot be imposed between Royal Assent and the commencement order without a ballot. However, we do not think that bringing forward commencement of that part is necessary as we are not aware of any proposals for any new business rate supplement planned to be imposed-that would fund less than one-third of the overall project-as we have not seen an initial prospectus or consultation. The business rate supplement for Crossrail has already been imposed and would not be affected by the amendment. I should like to offer reassurance that the Government will bring into force the proposed change that will ensure a ballot for all future business rate supplements regardless of whether it funds more or less than one-third of overall costs.

Clause 38 will come into force following a commencement order to be made by the Secretary of State. We will look to make that commencement order for a date no earlier than two months after Royal Assent in line with convention that legislation is brought into force earlier only where necessary and in exceptional circumstances. I trust that that is a fair response to the noble Baroness and that she will feel able to withdraw her amendment.

Baroness Kramer: I thank the Minister. I am not sure that we are a whole lot clearer on the commencement date but perhaps the Government at the earliest possible opportunity will make that date clear to allow local authorities to handle their affairs in the most effective manner. I accept that I am not likely to get a clearer answer than that.

There are no absolute rules on tax increment financing. There is no absolute requirement that TIF applies only to the standard business rate. There is no rationale

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that says that it should not apply to a special business rate, which is what we might call the business rate supplement. If this begins to be a widely used measure, many communities and many business communities might rather see a special rate for a project that they consider to be particularly beneficial rather than forgo the project. I would be sad if the Government were ruling out flexibility around TIF from the beginning and going only with the very plain vanilla simplest form of TIF as they look at the various options in front of them.

The noble Lord, Lord Beecham, raised the point that very often the person or the business paying the business rate is not necessarily the one that benefits from the increase in value. I take his point. However, as the Minister pointed out, with the standard vanilla TIF, this would not be an issue because one is looking just at the standard business rate and it would be only where there was a special levy in order to create the project. It will depend on whether that increase in value results in increased benefits to the occupier. For example, a shop that suddenly finds there is much more traffic coming through the door may be very pleased to support the higher rate payment because, in effect, their business has benefited. I would say that that is not an absolute.

I would hope that local authorities are given the maximum amount of flexibility to be able to design projects around the needs of their community-and the benefits that will come to their community-to negotiate much of this with local business. I hope very much that as the Government deal with this issue, they will not try to be prescriptive but will allow that kind of financial flexibility which local authorities, I suspect, are best positioned to understand in detail.

I very much confirm that this was a probing amendment. I was rather flattered by the Minister's attempt to deal with some of it on a line-by-line basis. It was not written with that in mind. I very gladly beg leave to withdraw the amendment.

Amendment 118 withdrawn.

Clause 38 : Ballot for imposition and certain variations of a business rate supplement

Amendment 118ZA not moved.

Clause 38 agreed.

House resumed. Committee to begin again not before 8.30 pm.

Carbon Budget Order 2011

Copy of the Report

Motion to Approve

7.29 pm

Moved By Lord Marland

28 Jun 2011 : Column 1709

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland): My Lords, I beg to move that the Carbon Budget Order 2011, for the fourth carbon budget level, laid before the House on 24 May, and the Climate Change Act 2008 (Credit Limit) Order 2011, for the second budget period credit limit, laid before the House on 7 June, be approved.

I suggest that the two statutory instruments on the Order Paper in my name be considered together. Both instruments have been laid in accordance with the Climate Change Act which puts the UK at the forefront of the challenge to reduce emissions and the move to a low-carbon economy. The first order relates to the requirement to set the level of the fourth carbon budget. The five-yearly carbon budgets provide an effective framework for monitoring and delivering emissions reductions required to achieve our 2020 and 2050 targets. The second order sets the limit on the net amount of international carbon offset units that may be credited to the net UK carbon account for the second budget covering the period 2013 to 2017. I thank both the Joint Committee on Statutory Instruments and the Merits Committee for carefully considering the two orders before us. The Joint Committee on Statutory Instruments cleared these instruments without comment. The Merits Committee drew the special attention of the House to the draft order setting the fourth carbon budget on the grounds that it gives rise to issues of public policy likely to be of interest to the House.

I begin by introducing the first order, relating to the fourth carbon budget. This is the total permissible level of the net UK carbon account for the period 2023-27. The Act requires that this is set by 30 June 2011. The level in the Carbon Budget Order 2011 is expressed in units of million tonnes of carbon dioxide equivalent, the standard for measuring greenhouse gas quantities. It amounts to a 50 per cent reduction on 1990 emissions in the 2023-27 period. The proposed level of the fourth carbon budget, of 1,950 million tonnes of carbon dioxide equivalent over the period, ensures that the UK is on an optimum pathway to comply with the 2050 target of at least an 80 per cent reduction in greenhouse gas emissions. In proposing the level, the Government have taken into account, and agreed with, the advice of the Committee on Climate Change, published in December 2010. The Government aim to meet the proposed fourth carbon budget figure of 1,950 million through reducing emissions domestically as far as practical and affordable. But given the high number of factors that can affect emissions we also intend to keep open the option of carbon trading to retain flexibility. This is a pragmatic approach when considering the uncertainty involved in looking so far ahead.

I draw your attention to the Government's policy statement that I announced on the Floor of this House on 17 May, where I referred to a review of this carbon budget in 2014. Let me explain our reasoning behind this. The level of emissions reductions we achieve in the power and heavy industry sectors is dependent on the level of ambition in the EU ETS, which sets a cap on emissions for these sectors. Meeting the proposed fourth carbon budget would require a

28 Jun 2011 : Column 1710

tightening of the EU ETS cap from its current trajectory. It is therefore right that we come back to this issue in a few years' time to assess progress at the EU level in moving to more ambitious targets. If at that point our domestic commitments place us on a different emissions trajectory than that of the Emissions Trading System agreed by the EU, we will, as appropriate, revise our budget to align it with the actual EU trajectory, pending advice from the Committee on Climate Change and taking into account the views of the devolved Administrations. In the mean time we will continue to push as strongly as possible for greater ambition at the EU level. This brings me on to the second instrument we are debating today, the Climate Change Act 2008 (Credit Limit) Order 2011.

The Act requires there to be a limit set on the net amount of carbon credits that can be used for each budget period. This order sets the limit for the second budget period, covering the period 2013 to 2017, at 55 million tonnes of carbon dioxide equivalent in total. This must be set by 30 June 2011. Use of these credits would only apply to the non-traded sector; in other words, those sectors not covered by the EU Emissions Trading System. This proposed limit is consistent with the flexibility mechanism under the EU legislation covering the non-traded sector from 2013, which allows for limited use of international credits to help meet annual reduction targets set under the EU Effort Sharing Decision. There are already limits on the use of credits by participants in the EU Emissions Trading System through the EU ETS, which guarantees that at least 50 per cent of the emissions reductions between 2008 and 2020 will take place in Europe. Let me make it clear that we already have a robust policy framework in place to meet the first three legislated carbon budgets, and emissions projections show that we expect to meet these domestically without recourse to the purchasing of credits. In proposing the 55 million tonnes limit, the Government are just choosing not to rule it out at this stage; this is simply a contingency. I commend these orders to the House.

Lord Reay: My Lords, these orders are required under what I view as the Climate Change Act 2008. The Carbon Budget Order sets the limit for our permissible CO2 emissions for the fourth carbon budget as much as 12 to 16 years away, and the credit limit order states the proportion of our second carbon budget, from two to seven years away, that may be met by the use of so-called carbon credits, whereby we pay people in developing countries to do the emission reduction while we carry on doing the emitting.

The Explanatory Memorandum for the fourth carbon budget order has its usual quota of manifestly untrue assertions, including that on page 1:

that is, climate change-

There is certainly no consensus. On page 19 there is the statement:

"The scientific evidence for recent global warming continues to strengthen year on year".

In fact there has been no global warming for the last 10 years, so even with an elastic definition of the word "recent", that sentence makes no sense.

28 Jun 2011 : Column 1711

The order prescribes what the United Kingdom's CO2 emissions for the five years from 2013 to 2018 are to be on the way to achieving an 80 per cent reduction by 2050, over 1990 levels. The report of the Merits of Statutory Instruments Committee draws attention to the fact that the chances of the United Kingdom staying within that budget will depend on the degree of take-up of the Green Deal, and on early investment in carbon capture and storage. In fact it is quite likely that the public will find the Green Deal unattractively expensive, and where take-up does occur, it may well result not in CO2 emissions savings, but in people choosing to live in warmer homes. CCS is a rash punt by the Government on a scientific breakthrough that will enable it to be rolled out to scale economically. Meanwhile, of course, China rolls out a new coal-fired power station every week, quite uninhibited by any need to wait for carbon capture and storage to be oven-ready. The Merits Committee adds that,

This refers to the further contortions that the Government have to make in response to protests from the industry concerned in order to try to offset the effects on them of the carbon tax which the Government propose to introduce. So complicated is that process that the Government want to have until the end of the year to try to work out what to do.

The greatest chance of the Government being able to meet their distant carbon emission targets, including the 80 per cent target in 2050, ironically depends on the failure of the economy to revive. The Climate Change Act, and the policies adopted as a consequence, are doing their very best to bring that about. The Government must sometimes wonder, when by themselves, whether this outcome will please the general public when it becomes apparent and whether this pleasure might ever express itself in the ballot box.

The credit limit order relates to the second carbon budget starting in two years' time. The Government state in the Explanatory Memorandum that they expect the budget to be met comfortably by territorial emission reduction; that is to say, by emissions calculated to have been reduced on United Kingdom soil and that, therefore, there is likely to be no need to purchase ICUs-international carbon units. The provision in the order is therefore, as my noble friend the Minister said, purely a contingency.

The Government seem almost wistful about this, regretting this missed opportunity to give support to another foreign aid scheme. On page 6 of the Explanatory Memorandum, they state: "This option"-referring to one of the policy options, policy option 1, which is not the one in effect adopted-

In fact, the system just introduces new scams and corruption opportunities to developing countries, as if enough were not provided already by our aid budget.

28 Jun 2011 : Column 1712

It is not that the opportunities seem confined to developing countries. It was reported in the press that the legislature in Australia was giving consideration to awarding carbon credits for the funding of the extermination of Australia's 1 million-odd feral camels on the grounds that they were substantial emitters of methane gas and no doubt were a noxious pest in many a constituency in the Outback.

Our Government state, sadly, that they are strongly supportive of the international carbon credit system, notwithstanding the similarity that it seems to bear to the pre-Reformation church, when indulgencies could be bought from Rome to permit sinning at home with a clear conscience. Kyoto is the new Vatican.

The Climate Change Act should be repealed, its panoply of carbon budgets abandoned, all the agencies such as the climate change committee which drips its advice into the Government's ear sent packing, and a chance given to our economy to resurrect itself. Otherwise we have a grim and, very likely, a dim future.

Baroness Worthington: My Lords, I should declare my interest in this topic. While I worked at Friends of the Earth, I instigated the campaign that secured cross-party support for a new legal framework to tackle climate change in the UK. That campaign was based on a policy document where I argued in favour of a series of legally binding carbon budgets to deliver a steady trajectory of emissions reductions over time.

While on secondment to the Office of Climate Change, I was made part of the team tasked with drafting the Bill. There, the concept of carbon budgets was further developed and other elements were added, most importantly the creation of the independent Committee on Climate Change, an expert body set up to advise government on crucial aspects of the implementation of the Bill including, most importantly, the levels at which future budgets should be set.

It will come as no surprise, therefore, that I am a passionate defender of this world-leading legislation. I should also state that I am a director of a not-for-profit organisation that is a watchdog on the carbon market.

7.45 pm

The UK was the first country in the world to commit to a long-term, legal framework to deliver a low-carbon economy by 2050. This was a bold but necessary action to which we must remain committed. There are many reasons for pursuing legislation in the UK. On the one hand, there is the moral imperative. The UK is the home of the industrial revolution. This generated great wealth, no doubt, but the burning of fossil fuels also unleashed an unforeseen environmental risk of the gravest proportion. The countries and people who will suffer most from the effects of global climate change are those who have done least to cause it. We therefore have a duty to lead the way in delivering the next great energy revolution. The Climate Change Act is designed to do just that.

Then there is the economic imperative. The UK no longer enjoys large reserves of low-cost fossil fuel-based energy. We will become increasingly reliant on imported fuels if we do not act to increase our efficiency and exploit alternative forms of power. These will be

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predominantly renewable and nuclear power, but with the application of carbon capture and storage-all the elements of which have been proven; it is simply a case of joining them together to make it work commercially-making the continued use of fossil fuels possible into the future. If handled correctly, the shift to low-carbon sources of energy will deliver huge investment into the UK, creating jobs and boosting GDP.

Finally, there is the political imperative. At the time of drafting the Climate Change Act, we were hopeful that a new legally binding international treaty would be agreed in Copenhagen. Sadly, this did not come to pass and, even now, negotiations are proceeding at something akin to a snail's pace. There is now no certainty that a new framework will be agreed in time to extend existing commitments which run out at the end of next year. However, the rationale for legislating in the UK was to demonstrate political leadership and to inspire others to follow. I am pleased to say that, even in the absence of a UN-agreed framework, other countries are acting, and many cite the UK's Climate Change Act as a source of inspiration. A recent report by Globe International documented legislation in 16 countries, including some of the world's largest emitters. This does not include legislation at a sub-federal level, which is most notable in the US, where, sadly, lack of progress at a federal level remains disappointing.

Perhaps the most significant sign that the world is waking up to the threat of climate change and taking action to avert it is what is happening in China. While China's economy continues to be heavily dependent on fossil fuels, its latest five-year strategy set out clear commitments to invest in low-carbon technologies. It clearly sees that it is in its own interest to develop on a low-carbon pathway.

I should like to say a few words about the orders before us this evening. The first sets our fourth carbon budget for the period 2023-27. I am very pleased that the Government, after some apparent internal debate among Cabinet colleagues, finally accepted the proposals put forward by the Committee on Climate Change and have agreed to set a limit of 1.95 billion tonnes of carbon dioxide equivalent for this five-year period. This provides the clarity of intention that those companies seeking to invest in low-carbon infrastructure need.

On the second of the orders, the carbon credit limit order, however, the Government have ignored the advice of the committee, which recommended that no carbon offsets should be allowed as part of the second budget; that is, no emissions credits from projects overseas beyond those that are permitted in the EU Emissions Trading Scheme. Instead the Government are proposing that 55 million tonnes of emissions could be offset, with the UK's carbon budget effectively increased by that amount over the period. This is an unnecessary provision which undermines the security of investment that the budget framework is intended to create. It is unnecessarily timid.

Latest estimates published in June 2011 show that emissions for this period are already predicted to be 114 million tonnes below the level of the cap set in legislation. So we already have plenty of wriggle-room. My fear is that adding a further 55 million tonnes of potential emissions serves simply to undermine certainty.

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It could mean that weak policies are implemented. If we do not introduce policies now, we will have a very hard time ratcheting down later. In scientific terms, it makes much more sense to act earlier to avoid increasing the risk of climate change. This is an unnecessary provision, and it disappoints me that the Government felt it necessary to make it.

We must think of this in the long term. Each future budget requires us to take more action. If we simply take a strategy of offsetting we are just storing up more liabilities for ourselves in the future. Can the Minister please give us an assurance that this is a provision of the last resort and that the knowledge that such provision exists will not weaken the policy framework that will be put in place to deliver our long-term carbon budgets?

Lord Teverson: My Lords, I sometimes wish that I agreed with my noble friend Lord Reay on a number of issues because he speaks so eloquently and so certainly, although what he says is usually the direct opposite of what I think. However, there is one area on which we agree on this debate, which I will come on to later.

One of the great things about the Committee on Climate Change report on which the Government's decision was based-and I absolutely welcome the Government's decision to adopt the fourth carbon budget-was that the report did not just say what the committee thought should happen but actually went through from the basics: it looked at the 80 per cent target for 2050 and said that was still right; it looked at areas such as the 34 per cent reduction by 2020; and it then looked to see whether the evidence was still there that global warming is happening. Where I deviate very strongly from the speech of the noble Lord, Lord Reay, is that I accept that the report showed very clearly: that ocean levels are rising and have been rising consistently over the past decade; that temperatures at sea level and in the atmosphere are rising; and that the number of square kilometres of ice cover in September-I do not know whether it is a particular conspiracy that September of each year has been chosen-has gone down. There are various other indicators but those are the key ones, which show that this is really happening. That is the reality on our planet.

I sometimes think that the noble Lord, Lord Reay, sees the whole climate change strategy as a car accident in slow motion or waiting to happen, whereas I look at him as aiming for it and putting his foot on the accelerator, and I am sad that is the case. It seems to me that the science is there. I agree that there is perhaps less scientific evidence on whether global warming is created by the human race and all the industrialisation that has taken place, but there too I believe the evidence is very strong indeed. Whether we do something about climate change now or wait another couple of decades to see whether it really has happened is not an option we should consider. I agree that there is a difficult global consequence even though, as the noble Baroness has said, we sometimes underestimate the amount of work that other countries-whether developing or having intermediate income levels-have done and are doing in this area.

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There will be a number of challenges in meeting these targets. I still treat with some scepticism the argument made by the Committee on Climate Change that the effects on GDP of implementing these measures will be less than 1 per cent. I always think that is a fantastic bit of statistical evidence. Over that time period, the margin of error is probably something like 5 per cent either way. However, it is good to read that and there is evidence on that.

There are big challenges. The climate change report notes that we need something like £10 billion a year of energy investment-something that I recognise from Ofgem reports. I know the Government are very aware of this as well, even though over the past decade and more investment in the power sector has been under £2 billion per annum. That is a fivefold increase that we are looking for in our energy investment. Therefore, anything that we can do through smart grids, demand management and especially schemes such as the Green Deal to bring down energy usage will improve that figure quite considerably.

For this fourth carbon budget, which is 12 years ahead when it starts and 17 years ahead when it finishes, it has to be a good decision by the Government that we are nailing our flag to the mast and that, as with the first three budgets, we are at one with the recommendations of the Committee on Climate Change. That will be difficult, given the need for electric cars. By 2050, more or less all transport will have to be non-fossil-fuel based. That will require a major change, both technically and culturally-which in many ways may be far more difficult.

I disagree with my noble friend the Minister, very unusually, on carbon credits. I argued very strongly during the passage of the Climate Change Bill that we should not be able to borrow from and lend to other periods and budgets; we should not be able to trade credits if we do not meet domestic demand. I am sad in a way to see that proposal. Another issue on which there is perhaps some change from what the Committee on Climate Change would have liked is reassessing the budget in the future, when we look to see what Europe is doing. I think that that is completely sensible, as we cannot ignore the rest of the world and I am sure that, by the time we get to the budget period circumstances will change-they are entirely unpredictable now and we will need to look at the viability of the budget then. However, at the moment the policy is in that way.

I agree with my noble friend Lord Reay that carbon credits are wrong-but probably for completely different reasons-because they allow an out that we should not be able to have. I think that it is wrong that, with the agreement of the Committee on Climate Change, we should allow credits forwards and backwards under the EU Emissions Trading Scheme in terms of our accounting-even though that clearly happens in terms of a commercial reality, which I welcome. What that means is that, for about 40 to 50 per cent of our emissions, which are under the EU Emissions Trading Scheme, even if our greenhouse-gas intensive industries perform better than budgeted the UK does not get any benefit because we count that as exported credits and we still end up with the same amount, which means

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that all the pressure comes back on the rest of the sector. That is the only area where there is a real problem with carbon budgets as currently proposed.

My final point is that, although it is not mentioned in the Committee on Climate Change report, the committee has some sympathy with measuring our carbon footprint in terms of consumption as well as carbon production and the standard way that the Kyoto protocol looks at the carbon footprint for each nation. I would like to think that we would start to have carbon budgets, or at least carbon measurement, in terms of carbon consumption, where embedded carbon is taken into consideration, as well as the traditional way.

I congratulate the Government on their courage and good sense in agreeing to the fourth carbon budget. There is a very big task to be undertaken, on which we are providing leadership. We can have pride in that, but we desperately need to bring the rest of the world along with us and that, I agree, is not an easy proposition.

Lord Turnbull: My Lords, there is a strong danger of shooting the messenger here. One cannot criticise the Minister for bringing forward these orders at this time. They are mandated by the Climate Change Act 2008. Equally, one cannot expect the Government to do other than accept the bulk of the advice from the Committee on Climate Change since, otherwise, what would be the point of having it? However, we should not simply wade through these orders-I certainly do not want to-without registering the increasing concern in this House and outside about people becoming profoundly disillusioned by the whole framework created by the Climate Change Act.

8 pm

One can divide the climate change argument into three levels which broadly correspond to the three working groups of the Intergovernmental Panel on Climate Change. First, the science-what is the relationship between manmade emissions of CO2 and temperature? Secondly, on the impacts, for any given rise in temperature, what is the impact on rainfall, crops, glaciers, and sea levels et cetera? Thirdly, for any given view on temperature and impacts, are we choosing the best combination of policy measures to achieve the desired level of mitigation at least cost?

For many years, perhaps reflecting my Treasury training, I was a level-three critic. I took the science and impacts as given but had serious misgivings about the suite of policy responses: for example, the balance between renewables, especially wind versus nuclear power. These orders are not the place to debate those concerns-that is for another occasion-yet one feature of the policy response is relevant to them. That is the dogged and increasing unilateralism that they embody.

No other country has gone as far in building its climate change ambitions into a legal duty. No other country has set CO2 reduction targets that far into the future. For the coalition, and I suspect in particular its Liberal wing, this is a source of national pride but for many it is a cause of growing concern. For a country whose emissions account for 2 to 3 per cent of the world total, and falling, this unconditional unilateralism

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makes no sense. We could face double jeopardy by incurring the costs of a mandatory switch from low-cost to high-cost energy, as the policy requires, and still be left facing a bill for adaptation. There is an attempted justification in terms of green jobs but that argument is largely wishful thinking. You need to take account of the jobs that are lost before you can count any that are built up.

It is particularly worrying that the Secretary of State for Energy and Climate Change is championing the view that the EU should move from its target of a 20 per cent reduction by 2020 to a 30 per cent reduction, as envisaged in the event of an international agreement. However, that is being done at precisely the time when those international negotiations look like crumbling.

The more I studied the matter, the less confident I became in taking levels one and two for granted. At level two, there have been too many examples in the IPCC caucus of work of selective quoting from the so-called grey literature and even some outright errors. We are presented again and again with doomsday scenarios while the offsetting, positive benefits of warming are overlooked. For example, in a world which is warmer, wetter and more CO2-rich, crops and trees will grow faster. The most disgraceful example of scaremongering was by the previous Government in their notorious bedtime story video, the final scene of which showed the family dog drowning in a flood. That public money was used for such propaganda was a disgrace and I wonder which accounting officer signed that off.

Having lost faith in the impacts story, my agnosticism extended into the science itself. This was triggered, first, by the flaws in governance and impropriety revealed at the climate research unit and the IPCC, and even more so by the failure of the senior figures in the science world to do anything about it. The noble Lord, Lord Reay, referred to the sentence in the order that there is an overwhelming scientific consensus that it-climate change-is being caused by human activity but, as he remarked, there is no such consensus. There is probably agreement that manmade CO2 is one of the contributory factors. Beyond that, there is huge and often violent disagreement. There is no agreement even on the most fundamental relationship in the whole system, that between CO2 and temperature-the so-called climate sensitivity.

There is also disagreement about the contribution of all the other factors at work. Everywhere now, you are reading stuff about the sun and what is going on there so, clearly, to focus on manmade CO2 is only looking at part of the story. In my view, it is folly to believe that by controlling one element in the equation-manmade CO2-we can stabilise the whole climate. On these uncertain sands, a whole edifice of certainty has been constructed but the outcry in this country is growing-not just from the CBI and the energy-intensive industries but from those such as Age UK, with its concern about fuel poverty, and from those who are concerned about the waste of public money on ill-conceived subsidies, most of which are captured by the better off.

I predict that before too long, possibly when the Secretary of State for Energy and Climate Change is reshuffled, more sensible minds will start looking at

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the whole climate change framework of which these orders are a part. The noble Baroness, Lady Rendell, wrote a book called A Fatal Inversion. I believe that an inversion is taking place which could be fatal for the reputation of some people in this debate. Those who criticised the AGW consensus were portrayed as the zealots and the cranks. That is now being turned on its head and those who question the consensus are increasingly being seen as the rational moderates. It is the defenders of the consensus who are dogmatically driving the UK into ever more unilateralist positions.

The Duke of Montrose: My Lords, I am very interested to follow the noble Lord, Lord Turnbull. He talked about agnosticism and it seems that we are in the area of faith. The Americans believe "In God we trust", as they say on their dollar, while here we are saying, "In certain elements of science, we either trust or we do not trust".

I am grateful for the explanations offered in the notes and I was interested to see the estimate given of the cost that might be incurred by this fourth budget. It is stated as a least-cost path of £1.9 billion with a top figure of £7 billion, if we attempt to reach it purely through cutting emissions within the UK. I do not know whether this is of any comfort to the noble Baroness, Lady Worthington, but the 55 million tonnes that are mentioned in the Explanatory Note on the credit limit order-in a sort of back-of-the-envelope calculation, as far as I can see-are about 5 per cent of the total non-EU carbon credits that will be required. That is a pretty marginal effort.

However, that raises a question about the statement in the Explanatory Memorandum, which states that we are,

The noble Lord, Lord Turnbull, brought that up. I would be interested to know whether my noble friend the Minister could tell the House what stage that has reached. I hope he might accept that the marginal abatement cost goes up with each increase in the reduction target. Are there any figures of what they estimate this beefed-up target might incur? There is a question as to whether this credit limit on non-EU certified emission reductions includes any allowance to accommodate the revision in the EU target. As we said before, it is such a small element of the thing overall but it might have to be part of the review that has been mentioned.

Lord Prescott: My Lords, I shall make a brief intervention in view of the time. The noble Lord, Lord Turnbull, was in fact my Permanent Secretary at one stage and was the Cabinet Secretary when we established the lead on Kyoto and a legal framework. Clearly, he has done some rethinking on this matter since he joined this House and I look forward to further debates. Let us be clear, however: the previous Government established a lead, and we were proud of it. To be honest, this Government are continuing it. My main worry is: what if you do not achieve the legal framework that you are after? There is not a chance in hell of getting a legal framework. I am one of those who have advocated it, but China will not have it and the Americans

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cannot deliver it. Quite honestly, you might think that the Europeans are going to go to 30 per cent from 20, but I predict that is highly unlikely.

What worries me about that is that it will feed all the pessimism of people who feel that this will be a failure and run costly to our industry, but we must maintain the momentum of the Kyoto principles. That is important, but we should recall that 2012 is the end of the Kyoto period. Is it going to continue with a legal framework? No, it cannot do that by 2012, or you will find that the Kyoto framework will fall-as the Americans would want-and there would be renegotiation. I hope that the Minister has a plan B here. If we are having plan As and plan Bs, one of them should be to recognise that we will not get a legal framework by 2012, yet the Kyoto principles should not fall.

There will be great division between the developed and the developing countries. It is already on the cards that way so if that is not going to be achieved, what will happen then in Europe? Many of those in the central European belt and coal areas will say that they are not going to go to 30 per cent. There is a great possibility that we will not now be able to deliver on the Europe promise, which with courage the Government have said they will do. They are now going for an 80 per cent project, which has little chance, frankly, of being achieved, but then most of us will not be around by then to say whether we were right or wrong. There is a certain amount of posturing going on around this, which can undermine the momentum we have with the Kyoto principles.

I think I said this when there were Questions in the House: I fear we will then step back and say that we were the ones who led the way, but if we cannot get the others to follow, then blame them not us. There should be a plan B. We should already be thinking about how we carry on beyond that period. It is not unusual for Europe to stop the clock: it did it all through negotiations and continues to do it. It sets a timetable. Let me suggest that in plan B we go beyond 2012, perhaps to 2015. The voluntary framework agreed in Cancun and now being discussed in Durban is difficult enough to implement in all its many manifestations and we have to make sure that we have another plan in mind or it will collapse.

My fear is that we will get up and say that we were the ones who were leading, but we have got no army and nobody is following us. Then everybody will say that Kyoto 2 has failed; that you cannot get an agreement and that will damage the momentum to deal with the problem of climate change. In conclusion, I ask the Minister whether we have got a plan B. The Minister has already said that if we do not get Europe with us on 30 per cent we will reconsider the position. Is that right? We could still continue the legislative framework, if that is what we choose, while most of the world stays on a voluntary one. Have we alternatives so that we do not damage the possibility of a Kyoto 2?

Lord Grantchester: I thank the Minister for his introduction today to these two orders. It builds on the fourth carbon budget statement on 17 May. It is important that the objective to reduce emissions of

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greenhouse gases by 80 per cent of 1990 levels by 2050 has been enshrined in legislation. It underlines the commitment shared across the political divide-excepting the noble Lord, Lord Reay, and others I admit-over the long-term approach required to combat the effects of climate change. It sends a clear signal to the international community that the UK is committed to the low-carbon economy.

The noble Lord, Lord Teverson, has put forward a strong case that climate change is happening and I know many are frustrated at the low level of action by other governments. It is important that we also recognise the work of the Committee on Climate Change, that it is a crucial part of the assessment of the latest climate science, the evolving international framework and the critical pathways required. I pay tribute to it for its expert advice to Government.

That is not to say that these orders are not controversial. Indeed, the Minister may recognise that the importance of the imperative to make early progress across Government required the intervention of the Prime Minister. It has also not gone unnoticed that for the first time the CCC's recommendations have not been accepted in full. While it is recognised that the first three carbon budgets were set after the EU had already agreed the 2020 target, the fourth carbon budget is being set in advance of any EU decisions and without any overarching EU framework being in place. In the light of this, will the Minister outline the reasons behind the justification to reject the tightening of emission targets in the second and third carbon budgets covering the years 2013 to 2022?

I enjoyed and look forward to the contributions in your Lordships' House from my noble friend Lady Worthington. She brings great knowledge on these issues. She has asked the Minister about the size of the carbon offsets under the second order that were are debating today and the signal it may give. While it is understood that the Minister would like to have these credits as a fallback position, is he able to say why he fears these may be necessary, bearing in mind that the CCC recommended that they should not be relied upon and the budget should be met through reduced emissions?

8.15 pm

Under the Climate Change Act, emission reductions by the UK's industrial and power sectors are determined by the UK's share of the emissions trading system cap. This system has been the subject of attack and fraud and has been suspended at unfortunate regularity. Bearing in mind the reliance that the Government are now putting on it, is the Minister confident that its operation will be secure and that it will be fit for purpose?

What bearing will this have on the review he is reserving for Government in 2014? Should domestic commitments place the UK on a different emissions trajectory than that agreed by the EU? What level of divergence will lead to the Government revising their aims and what are the implications this may bring to policy commitments? The Government's clear prior view in the criteria for this review will be needed to ease uncertainty in industry and non-governmental organisations. Could the role and scope of the 2014

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review be clarified in the policy decisions that the Government will announce following this Motion today, due to be brought forward in October?

The Minister will not need to be reminded again how important it is for the market that there is certainty and consistency of measures if industry is to have the confidence to invest. There are two aspects to this. First, there is the necessity to encourage the renewables sector through the system of ROCs, RHI and feed-in tariffs to provide the long-term development of technologies. Does the Minister recognise the damage that has been done to this sector's confidence following the announcement of the review of that regime?

Furthermore, the Government have cut funding in green R&D, including funding of the Carbon Trust research into biofuels and funding for marine technology development. Secondly, in the interests of energy-intensive users, will the Minister give assurances that he will work with them exhaustively to ensure that UK jobs are protected and that continuous efforts towards energy efficiency and demand management in these industries are fully acknowledged? It is apparent that mechanisms to mitigate effects in this sector were not properly considered by the department before the carbon floor price was set in the recent budget.

It is important to get the balance right, the speed of change right, ensuring the UK maintains an industrial sector, greening that through new technologies and creating new green growth into the future. Consistency of policies and their implementation is vital to create the confidence required for the long-term investment needed-some £16 billion annually throughout the 2020s-that the UK is open for business.

With regard to setting the carbon floor price in the budget, and recognising that the budget is an annual event, will the Minister confirm whether this will be subject to annual review and restatement or the price announced will be adhered to?

In a Statement in May, the Minister said that the,

Is the Minister confident of this? I understand that Ofgem predicts a possible doubling of energy bills to £2,000 per household. It is understood that, with an expert body such as the CCC, the department does not need to consult consumers on today's Motion. However, is the Minister satisfied that the voice of the consumer is adequately heard in the CCC? Would he welcome some strengthening of that voice, especially through consumers' local representatives in local government? I say this fully appreciating that it will be some time before the Green Deal brings benefits to the housing sector and that the issue of local carbon budgets has yet to be resolved.

There is much that we can debate and there are many issues behind the setting of a fourth carbon budget. The noble Lord, Lord Teverson, has spoken about the importance of demand reduction. While the budget sets the objectives to be attained on the way to the ultimate goal of reducing CO2 emissions, the policies that will underpin attainment of these goals have still to be clarified and their detail examined. We shall look forward to the announcements in October and meanwhile support these orders tonight.

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Lord Marland: My Lords, I offer my appreciation for the contributions of those who have spoken on these orders, even though I do not necessarily agree with all of them. At one point my noble friend Lord Reay was a soothsayer but at another point a prophet of doom. He was very emphatic that there is no global warming, that the Green Deal is unattractive to the consumer and that the CCS is a rash punt. We shall see what happens. I do not agree with him and I am very happy that in the cities I have visited recently there is serious intent to take up the Green Deal. It will be of great value. I do not agree that it is unattractive to the consumer.

I pick up on a very good point made by the noble Lord, Lord Teverson. He always makes good points on these matters, although I was disappointed that he did not agree with everything I said, which does not go down too well. He said that it is all about demand management. The Green Deal will produce more effective demand management and will, we hope, be a way of reducing the amount of energy we use.

I congratulate the noble Baroness, Lady Worthington, on her first contribution on this subject. I am extremely wary of engaging with someone of such great knowledge but I welcome her to the debate. She made the point that we are the world leaders in this legislation due to her efforts and those of the noble Lord, Lord Prescott. I was about to call him my noble friend, given some of the nice things that he said. The noble Baroness made the point that at times we have ignored the advice of the Committee on Climate Change. Believe it or not, the Government do not always do what everyone tells them. We get advice and then determine whether it is applicable to the world that we live in. We must be seen as a pragmatic Government, and pragmatic is what we fully intend to be. That does not mean that we will not show leadership on this subject. Putting down the marker of a 30 per cent reduction in carbon to Europe shows genuine leadership and that we are moving forward while other countries in Europe are moving backwards. However, as the noble Lord, Lord Turnbull, said, we cannot walk out of tune with Europe. We have to exist within Europe and we are bound by European legislation, as the noble Lord, Lord Prescott, knows because he was very much part of it at the time.

We are on target for our credits. Having those credits is only a contingency. The noble Duke, the Duke of Montrose, was close; it is a 3 per cent, rather than a 5 per cent, contingency. There are great brains behind me, calculating every word I say. It is only a 3 per cent contingency, so it is not very large. We are committed to reviewing it in 2014. It is right that we should review these things. It is not right for us to commit this country to long-term things when we live in a fast-changing world.

The noble Lord, Lord Turnbull, was, I suggest, slightly sceptical about what we are embarking on. He looks at these things wearing a Treasury hat. My goodness, in government we quake at the thought of the Treasury hat. It is based on pragmatic and often cynical views on some of our inspirational plans. However, we recognise that the noble Lord comes from a pragmatic position and welcome his views. However, he would not deny that in government one

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has to show leadership. That is the way the previous Government and the current Government have determined the course and we intend to show leadership. I would take issue with him on the subject of green jobs or investment. We have to invest, as the noble Lord, Lord Teverson said, £10 billion in the infrastructure of this economy-not just low-carbon economy, but the economy. With investment-and even the Treasury and great officials from the Treasury would admit this-generally comes jobs.

I was surprised that the noble Lord, Lord Prescott, who has more experience in this field than I have in my little finger, asked about consideration. As he well knows, the Climate Change Act allows us to reconsider our position. It was actually set in stone by the previous Government. We are saying only what was laid down in the Act-that we do intend to reconsider our position.

The noble Lord, Lord Grantchester, quite rightly invited us to comment on whether the EU ETS trading platform is fit for purpose. We know that in certain parts of Europe the platforms were not right. We have shown leadership in this area because we have a robust platform-that does not mean we are being complacent-which must be tightened up but can show leadership to Europe of how this platform should operate. The noble Lord asked me a number of questions about ROCs and other things which, with all due respect, I will not debate now because I do not think them relevant to these orders. I also know that noble Lords are looking forward to a drink and something to eat so we will get on. However, the fundamental point he makes and wants me to answer is on the energy-intensive industries. We cannot just ignore them. As he rightly says, we have to work in co-operation with them and show them the pathway to improving their business. However, in the mean time, we must not destroy them because we are looking at very substantial employers who, for many years, have been the backbone of the country. We need to work with them. We must also recognise the role of the consumer and that everything we do is for the consumer's benefit. With that, my Lords, I commend these orders to the House.

Lord Moynihan: Before the Minister sits down, I wish to pursue the point made by the noble Lord, Lord Prescott, in recognition of the Climate Change Act. In the Explanatory Memorandum, it states that Government must, in making decisions on carbon budgets, take into account the estimated reportable emissions from international aviation and shipping emissions. It further states that international aviation and shipping are not currently included in the scope of carbon budgets but they may be included in the future. I wonder whether my noble friend the Minister could give the House his wisdom and say when the Government intend that to happen, if at all.

Lord Marland: I have just been told by my noble friend that if I pan this answer out for another two minutes, we will not have to adjourn during pleasure for another two minutes. I will try my best but the noble Lord has asked such a very straightforward question. The straight answer is 2012. I am sorry but I cannot carry this answer forward.

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