Howie of Troon, L.

Hunt of Wirral, L.

Hussain, L.

Hussein-Ece, B.

Hylton, L.

Inglewood, L.

James of Blackheath, L.

Jenkin of Kennington, B.

Jenkin of Roding, L.

Jolly, B.

Jones of Cheltenham, L.

Jopling, L.

Kalms, L.

Kilclooney, L.

Kirkham, L.

Knight of Collingtree, B.

Kramer, B.

Lamont of Lerwick, L.

Lawson of Blaby, L.

Leigh of Hurley, L.

Lexden, L.

Lindsay, E.

Lingfield, L.

Linklater of Butterstone, B.

Liverpool, E.

Livingston of Parkhead, L.

Loomba, L.

Lucas, L.

Luke, L.

McColl of Dulwich, L.

MacGregor of Pulham Market, L.

Maclennan of Rogart, L.

McNally, L.

Maddock, B.

Magan of Castletown, L.

Mancroft, L.

Manzoor, B.

Marks of Henley-on-Thames, L.

Mawson, L.

Mayhew of Twysden, L.

Montagu of Beaulieu, L.

Montrose, D.

Naseby, L.

Nash, L.

Neville-Jones, B.

Newby, L. [Teller]

Noakes, B.

Northbrook, L.

Northover, B.

O'Cathain, B.

Oppenheim-Barnes, B.

Paddick, L.

Palmer of Childs Hill, L.

Palumbo, L.

Parminter, B.

Patten, L.

Perry of Southwark, B.

Popat, L.

Quirk, L.

Randerson, B.

Rawlings, B.

Ridley, V.

Risby, L.

Roberts of Llandudno, L.

Rogan, L.

Roper, L.

Rotherwick, L.

Sassoon, L.

Seccombe, B.

Selkirk of Douglas, L.

Selsdon, L.

Shackleton of Belgravia, B.

Sharkey, L.

Sharp of Guildford, B.

Shephard of Northwold, B.

Sherbourne of Didsbury, L.

Shipley, L.

Shrewsbury, E.

Skelmersdale, L.

Spicer, L.

Stedman-Scott, B.

Stephen, L.

Stoddart of Swindon, L.

Stoneham of Droxford, L.

Storey, L.

Stowell of Beeston, B.

Sutherland of Houndwood, L.

Suttie, B.

Taverne, L.

Taylor of Holbeach, L.

Taylor of Warwick, L.

Teverson, L.

Thomas of Gresford, L.

Thomas of Winchester, B.

Tope, L.

Trefgarne, L.

Trenchard, V.

Trimble, L.

True, L.

Tugendhat, L.

Turnbull, L.

Tyler of Enfield, B.

Tyler, L.

Ullswater, V.

Verma, B.

Wallace of Saltaire, L.

Wallace of Tankerness, L.

Walmsley, B.

Warsi, B.

Wasserman, L.

Wei, L.

Wheatcroft, B.

Whitby, L.

Wilcox, B.

Wrigglesworth, L.

Younger of Leckie, V.

28 Oct 2013 : Column 1371

6.11 pm

Amendment 2 not moved.

Amendment 2A not moved.

Clause 5: General considerations relating to this Part

Amendment 3

Moved by Lord Whitty

3: Clause 5, page 5, line 22, after “electricity” insert “in general;

( ) the strategy and objectives to be set out under section 136 of this Act for addressing fuel poverty;”

Lord Whitty (Lab): My Lords, I do not think that this issue will take us quite as long as the previous debate. Indeed, it could be disposed of relatively straightforwardly as the Government could quite easily adopt this amendment. Frankly, they would be very wise to do so. If the Minister cannot do that, she can at least indicate that she will bring forward an equivalent but better drafted amendment at Third Reading.

This amendment concerns the issue of fuel poverty and its relativity to electricity market reform. Noble Lords will recall that when the Bill went through the House of Commons and first reached this House there was hardly any direct reference to fuel poverty in it—a glaring omission. The organisations concerned with fuel poverty and the people who suffer from it thought that was a serious omission and quite shocking in many ways. But we have moved on from that: in Clause 136, much later in the Bill, the Government have come up with a provision requiring them to provide a strategy on fuel poverty that will apply to the whole range of energy policies.

There are those who have doubts about the coalition Government’s commitment on this front. There has not been a great track record on fuel poverty so far. The hesitation and delay in bringing fuel poverty into this Bill has been worrying, as has the recent furore within the Government. As far as one can make out from the various statements by the Prime Minister and Secretary of State, there is still an argument going on in the Government. Many in the Conservative Party appear to have in their sights not only green levies in the strict sense of the word but also those levies that provide for resources to improve the energy efficiency of the homes of the fuel poor. I will be generous today and accept that the Government have agreed that a new strategy is to be provided, one which this Bill will give legislative requirement for. We can have a substantive discussion on fuel poverty at that point in the procedure of the Bill, some time next week.

The point today is that the Government have inserted in the clause that we have just dealt with that fuel poverty is one of the matters that Ministers must have in mind when setting decarbonisation targets. In relation to the electricity market reform, there is no such reference. I suggest that reference could be made most appropriately here in Clause 5. Clause 5 stipulates the issues that have to be taken into account in electricity market reform: decarbonisation, referencing the Climate Change Act, prices for consumers both domestic and industrial, and energy security. The environmental

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and economic dimensions of electricity market reform are there but the social dimension—that of fuel poverty—is omitted.

6.15 pm

Now that Clause 136 is part of the Bill—whether or not we improve it when we get to that point—surely we should now make sure that the Bill’s major intervention in the market, the complete reform of the electricity part of the market, is stipulated. We can obviously have the substantive arguments on Clause 136 later but that clause’s very existence and the Government’s acceptance of the need for it must mean that the social dimension of electricity market reform should be recognised and reflected at this point.

It would be sensible for the Government just to accept this amendment, although they could argue that it should be in both parts of Clause 5 rather than just one. It would be equally sensible if the Minister told me that she would come forward with a much better amendment at Third Reading. But, given the logic of what is now the Government’s point of view and for the House to recognise the importance of tackling fuel poverty as an equal part with the other strategic objective of the energy policy, we should adopt something like this amendment. I beg to move.

Baroness Maddock (LD): My Lords, I have great sympathy for the words spoken by the noble Lord. He and I and one or two others in this House have campaigned on fuel poverty for a number of years, although he will remember that, when as a Minister he wrote his draft fuel poverty strategy, he hoped to eradicate it by 2010. That indicates what a difficult issue this is. I am grateful to the Government for, after cross-party lobbying, putting into the Bill a strategy for fuel poverty. I am very pleased about that.

This is very pertinent at the moment. I do not know if noble Lords noticed that as the storm went through the temperature dropped. I only just made it in on my train today. As I walked across, I could feel the temperature dropping. Elderly people particularly are getting very worried about how they will pay their fuel bills this winter. We know but many do not understand that if you are older and have heart problems, problems with blood circulation and so on, you do not need to get very cold for it to have a serious effect.

I have campaigned on this issue for as many years as I care to think about. In my 20s, I lived in Stockholm in Sweden where pensioners did not die in wintertime because they were too cold. They did not have arthritis. They lived in properly heated houses. Here we are in 2013 and we have still not managed to achieve that. I recognise that it is a very difficult problem but I hope that my noble friend can at least give us some warm words in response to the noble Lord, Lord Whitty. Many noble Lords care passionately about this issue. It is time, as one of the richest nations in the world, that we dealt with it.

Lord O'Neill of Clackmannan: My Lords, I start by declaring an interest: I am a vice-president of National Energy Action and the president of Energy Action Scotland. The Government have made some moves on

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this issue in the course of the Bill’s passage, but it would help if they would add to the list of objectives they have set themselves the one concerning fuel poverty mentioned in this amendment tonight. That would be a signal that this is not an issue of party conflict, and indeed that the Government have recognised that one of the deficiencies in the Bill is that insufficient attention was initially given to fuel poverty.

Now that we have had recognition, we can probably argue about the niceties when the appropriate time comes. We are all in favour of the earliest possible elimination of fuel poverty. It is not just about prices. It is about handling our grossly inadequate housing stock. Before too long we may well have to look afresh at the Green Deal that at the moment has, as far as I know, attracted something like 57 successful completions—one for every one of Heinz’s varieties; that is perhaps all that one could say about the proposal. People may find the money and find it attractive to accept the Green Deal at the 7.5% interest that is being charged, but I very much doubt it.

More has to be done on this. It would be helpful to have a clear indication that an opportunity is available with this amendment to put in the Bill, as one of the overarching targets of the Government’s energy policy, that we should as a high priority be able to eliminate fuel poverty. If we all agree on it, why is it not there? It is not a particularly controversial amendment. It is one that would enhance the credibility of the Bill and make easier the passage of future elements in it, which I am sure the Minister is looking forward to bringing before this House.

Baroness Verma: My Lords, I thank the noble Lord, Lord Whitty, for his amendment and all noble Lords who have taken part in this short but important debate. It gives me an opportunity to lay out the Government’s objectives for reform throughout the development of the EMR proposals. These objectives have been set out in the published documents, from our White Paper in July 2011 and within Clause 5, to reflect our aims of reform. This does not mean that other aims, such as minimising fuel poverty, are not important. I agree with noble Lords that this area is incredibly important to us all. As outlined in Clause 5(2)(d), the Secretary of State will have regard to the likely cost of electricity to consumers. This means all consumers, including the fuel poor.

Our analysis suggests that, as a result of EMR, household electricity bills will be on average around 9%, or £63, lower per year over the period 2016 to 2030, relative to what they would have been if decarbonisation were achieved through existing policy instruments. The impact of EMR will be to reduce fuel poverty compared to what it would have been without those policies in place.

However, we should not be complacent. With or without EMR, electricity prices are likely to increase over time due to rising fossil fuel prices and the rising cost of carbon. This is why we have in place a strong package of measures to support low-income and vulnerable households with their energy costs. The energy company obligation ensures that help goes to low-income and vulnerable households to enable them

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to heat their homes more affordably on a long-term basis. Through the affordable warmth and carbon-saving communities obligations, we anticipate that support should reach around 230,000 low-income households each year. In addition, this winter around 2 million households will get help under the warm home discount scheme, including over 1 million of the poorest pensioners, who will receive £135 off their electricity bill.

In the last financial year, winter fuel payments helped over 12.5 million older people in over 9 million households with their fuel bills, providing between £100 and £300 tax-free to help pay for heating bills. During the same period, 5.8 million cold weather payments were made, targeted at those households that are most vulnerable to the cold. This Government are committed to helping the fuel poor, now and in the future. That is why earlier this year I proposed amendments to the Warm Homes and Energy Conservation Act, to put in place a new, rigorous and flexible framework for measuring the Government’s progress in tackling fuel poverty in England. As we move forward with ensuring a safe low-carbon future we must be absolutely sure that we do not leave the fuel poor behind.

The noble Lord, Lord Whitty, mentioned the Prime Minister’s announcements last week on green taxes and the review of their impact on the fuel poor. The Government are looking at how to get people’s energy bills as low as possible to help the very families to which the noble Lord refers. We are already increasing competition by bringing new players into the market to offer consumers real choice. The most vulnerable are getting direct help with their bills this winter. We will continue this work to make sure that consumers get a better deal. No one is talking about changing support for large-scale renewables or feed-in tariffs. We want to make sure that those who need help get help. I hope that the noble Lord, Lord Whitty, finds my explanation reassuring and on that basis will withdraw his amendment.

Baroness Maddock: Before the Minister sits down, can I apologise to the House for not declaring my interest? Like the noble Lord, Lord O’Neill of Clackmannan, I am a vice-president of National Energy Action, which is a charity that works towards eradicating fuel poverty.

Lord Whitty: My Lords, I also omitted to declare an interest. I am chair of a charity that deals with research into fuel poverty.

I am a bit disappointed by the Minister. It is correct that the Government have a number of policies coming on-stream that are directed at dealing with fuel poverty. Unfortunately the start of their period of office saw a substantial reduction in support given to tackling fuel poverty through the abolition of the Warm Front scheme, which was taxpayer-funded. For the first time in 30 years we are without a taxpayer-funded scheme to deal with fuel poverty. In so far as the objection to the ECO and other green tariffs is valid, it is partly because they are made on a poll-tax and not a progressive-taxation basis.

While the Government’s strategy has some commendable features that I hope move it in the right direction, it is not a sufficient answer to the failure of

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successive Governments to meet the targets that were set—as the noble Baroness, Lady Maddock, said—back in 2000 to eliminate fuel poverty in general. It was actually by 2016 rather than 2010, so we still have two years to do it, but we definitely need a new strategy, which Clause 136 recognises. In view of how the Minister has portrayed the current schemes dealing with fuel poverty as being adequate, I suspect that we will have a few arguments when we come to Clause 136. I am glad that it is there.

I hope that the Minister will go away and think about the point that I am making: electricity is the main form of energy that the fuel poor use. They rely on it disproportionately for their heating. Any electricity market reform part of this Bill should reflect that interest. The way that we deliver electricity, the choices that we make in terms of the source of that electricity and the kind of tariffs and levies that we impose on that electricity make an enormous difference to the way that they impact differentially on the fuel poor. It is correct that we are concerned about the cost to consumers in general—that is already in the Bill—but there is a differential effect depending on the nature and the mix of the policies that fall on the fuel poor. Before we leave electricity market reform, that should be reflected there.

I shall not push this tonight because I am not sure that my amendment fully reflects what I am saying, but I hope that the Minister will think about, at the beginning of the major section of this Bill dealing with electricity market reform, saying that one of the things with which we are concerned is the minimisation of fuel poverty. I beg leave to withdraw the amendment.

Amendment 3 withdrawn.

6.30 pm

Amendment 4

Moved by Lord Jenkin of Roding

4: Clause 5, page 5, line 24, at end insert—

“(f) the desirability of promoting effective competition between persons engaged in, or in commercial activities connected with, the generation, transmission, distribution or supply of electricity or the provision or use of electricity interconnectors, wherever appropriate”

Lord Jenkin of Roding: My Lords, this amendment stands in my name and those of my noble friends whom I shall mention in a moment.

The House will realise that this is an exceedingly complicated Bill. Anyone coming to it for the first time would recognise that. At the heart of it are the Government’s proposals for electricity market reform. The objectives were mentioned in the previous major debate. They are security of supply—the lights must not go out—support for low-carbon generation and affordable prices for consumers. From the outset, Ministers have been determined to say that to achieve these objectives, tougher competition is going to have to come. It is true that the regulator, Ofgem, has had some responsibility for this, but the general perception has been that it has not been as effective as it might have been.

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My right honourable friend the Secretary of State, Ed Davey, mentioned a problem on “Newsnight” the other day. He said, “We need more competition … We think the big six have been a real problem”. I have the figures. The big six have no less than 92% of the supply to consumers. The remaining small companies have a mere 8%. Generation is nearly as bad. It is an oligopoly. That is what we are faced with. I do not believe that existing arrangements for dealing with competition are strong enough, so there was a very positive welcome when my right honourable friend the Prime Minister said in the Commons the other day:

“So I can tell the House today that we will be having a proper competition test carried out over the next year to get to the bottom of whether this market can be more competitive. I want more companies, I want better regulation”.—[Official Report, Commons, 23/10/13; col. 293.]

And so say all of us. That is obviously necessary. We await with interest what my right honourable friend the Secretary of State is going to say in his statement later this week, or perhaps even tomorrow. What is this review going to involve? It is already clear that it is likely to take some time and involve not only Ofgem, the regulator, but the Office of Fair Trading and the Competition and Markets Authority. I will return to this towards the end of my remarks.

Three amendments in this group are tabled in the names of my noble friend Lord Roper, the noble Lords, Lord Berkeley and Lord Cameron of Dillington—a very cross-party group—and me. Our purpose is to make the determination to have tougher competition explicit in the legislation and that it should apply, where appropriate—it certainly is to the bit of the Bill I shall be coming to—to the Minister as well as to the regulator.

The part of the Bill with which I am chiefly concerned is Chapter 3 of Part 2, which introduces the capacity market. I briefly describe that as a managed-auction system to give clear incentives to generators to invest in new capacity. This can mean keeping open plant that might otherwise have been closed, bringing into production plants that have been mothballed—there is a good deal of that at the moment—or building new plant. It can also include measures to reduce demand.

The capacity market offers a real opportunity for Parliament to give the industry the opportunity to get more competition. That is what the Prime Minister was talking about when he said he wanted new companies—he was absolutely right—new entrants and smaller independent generators. They struggle to compete with the big six. Unlike the big six, which have strong balance sheets, smaller companies have to raise funds from the market for their investment. Unless they can see a reasonable prospect of a decent profit, they will not be able to do so. Investors will not come forward. That is the purpose of the capacity market; it is to give them the incentive to do that.

One would have thought that if everyone really wants more competition, it would be in the Bill. Yes, it is; there is quite a lot in the Bill. When you look at other clauses in the Bill—in particular Clause 47, dealing with power purchase schemes, Clause 127, dealing with the strategy and policy statement and Clause 132 on the modification of supply licences—they are specifically for the Secretary of State, and in all

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that, he has to promote competition. But when the Bill comes to the capacity mechanism, for some reason—and I have to confess that I had some difficulty understanding what it is—the competition duty does not apply to his role as the official with responsibility for the capacity market. That is the only instance in the Bill where there is no obligation on a Minister to be responsible for promoting competition. Yet the Secretary of State is in overall charge of the capacity market. Why? What is the difference?

The Government have done very well trying to spell out to the industry the complex details of the structure of electricity market reform: the contracts for difference, the capacity market and all the other features. They are not all quite there yet, but they are nearly there. The object of the exercise is quite clearly to create conditions where investors, particularly smaller and independent investors, can raise money in order to invest in the additional capacity which we certainly need and which will help consumers because it will bring more competition. It is not quite true that they have yet succeeded in doing that. The terms set out for the operation of the community charge—I perhaps do not need to go into detail—have been described to the Minister, who has been very good and met the people concerned, but they are not yet sufficient to enable them to do that. They will have the objective of doing it, but nothing will be achieved. Therefore, there have to be changes.

I have heard it said that the changes will have to be for the regulations, but as the House well knows, if regulations come before the House, they cannot be amended. They can be either rejected or accepted. That is not very satisfactory. Therefore, we must have clear authority imposed upon the Secretary of State to run the regulations in such a way that they generate the competition they want. That will require some changes in what has already been distributed and made clear to the industry. Ministers must be under a clear statutory duty when exercising their responsibilities for the capacity market to do so positively to promote competition. That is the simple purpose of Amendment 4, which adds to Clause 5 a sixth duty to promote effective competition in the several activities set out in the amendment. The other two amendments we have tabled, Amendments 42 and 43, specifically make this duty effective for the purposes of the capacity market set out in Chapter 3 to make it explicit that the duty for promoting competition covers Ministers as well as the regulator, Ofgem. Taken together, these amendments would enable potential investors to insist that the regulations and rules are drafted so they really will enable independent generators and new entrants to raise the funds they will need to invest in the new capacity in competition with the big six. Last week, the Prime Minister said he wanted new companies. This is the way to get them.

I referred a moment ago to the proposed high-level review. The first auction for the capacity market happens next year. For that to go ahead, the regulations have to have been finalised and approved by Parliament, and must be in force. The review we have heard about will be over the next year and it will be too late. I hope that when my noble friend replies to this debate, she will

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not take refuge in the review as a substitute for what we are asking here; it is not. I suspect that my noble friend, who is very bright on these things, has fully taken that on board.

We need these amendments now. I ask my noble friend to accept the amendments as they are tabled, or undertake to bring forward her own amendments, which have the same impact, when we reach Third Reading. I beg to move.

Lord Broers (CB): My Lords, I wish to speak in support of this amendment. I recognise that the noble Lord, Lord Jenkin, is applying it mainly to the capacity issue. I wish to address a very specific, simple point with respect to the operation of contracts for difference. In order to attract investment, this Bill allows—almost encourages—electricity suppliers to pass on to consumers the difference between the strike price and the reference price should the strike price exceed the reference price. However, there is nothing in the Bill to ensure that the suppliers return money to consumers should the reference price exceed the strike price. This might well be the case should the price of gas continue to rise, as several noble Lords, including my noble friend Lord Oxburgh, have suggested it may.

The Minister kindly discussed this with me and said it was the Government’s position that intervention was unnecessary as the market should ensure that suppliers reduce their charges in order to remain competitive. I am not fully convinced of this and favour a specific requirement that suppliers should return what might be described as a windfall profit to consumers if the reference price exceeds the strike price. The noble Lord’s amendment at least requires the Secretary of State to have regard to the desirability of promoting effective competition wherever appropriate. In this case, it would surely be appropriate. How else can we protect the consumer?

Lord Deben: My Lords, I very much like the thrust of this amendment and I hope the Government will take it seriously. I would like it to have included the issue of how one generates more competition. Interestingly, at least half of Germany’s renewable energy is generated by municipalities, co-operatives and individuals. That means that there is very widespread support for renewables, leading to some real competition. That is why the big boys are increasingly angry about renewables—they are bringing the price down and they are serious competition.

My concern is that it is difficult to see, as the Government have admitted, the sort of competition among the six that we would expect. I notice that the Opposition are now seeking to make significant changes on this, but one must admit some of the things that have gone wrong are the very changes they made last time. I think there is a certain cross-party understanding that things are not as they ought to be. The Prime Minister, I understand, has said he wants the six to become 60, and I notice that the Minister for Energy wants 600. That is certainly much closer to what I would like because this is a way in which the public as a whole could have a greater say in the way electricity is produced and would be more supportive of a much more competitive market.

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6.45 pm

Whether they accept this amendment or not, I hope that the Government will recognise that if we could only achieve a more competitive system, it would help explain to people the real costs of electricity. One of the difficulties is that we are forgetting that the biggest cost is actually for gas, so we are all talking here about what are in that sense marginalities. Therefore, achieving competition so that people feel there is a good reason to reduce their bills would be very helpful.

The biggest difficulty is that not one of the six has suggested that this is the moment to get new customers by not putting their prices up. They have all merely said, “everyone else is putting their prices up, so we’ll put them up as well”. That suggests we do not have quite the competitiveness that we want. The Prime Minister has made that point and the Opposition feel it too, so we should consider this as a very real issue in a way that does not just encourage another few big or even medium-sized companies. I want to see a world in which it is much more likely that people come into the industry because it is at that level of innovation that you really get the competition that in the end leads to lower prices.

Lord Roper (LD): The noble Lord, Lord Broers, and my noble friend Lord Deben have widened the amendment tabled by my noble friend Lord Jenkin to other, rather important issues on competition in the course of this Bill. Although it may take us a little time to get from six to 60, or even 600, this amendment is important because of the immediate impact upon independent generators when the capacity mechanism comes into operation next year.

As my noble friend Lord Jenkin points out, the Bill and the proposed rules for the capacity market would make it virtually impossible for independent generators to raise project finance and compete with the big six. My noble friends Lords Jenkin and the noble Lords, Lord Cameron of Dillington and Lord Berkeley, have talked to a number of them and they really do not see how they would do it. We have also talked to their bankers and they do not see how this would be possible for independent generators. That is why it is very important that the regulations and other provisions for the capacity market are drawn up in a way that is fair to smaller generators.

As my noble friend Lord Jenkin has said, we would obviously prefer it if the Minister were able to accept these amendments today. However, there may well be technical problems with them, so we hope that if she were not able to accept them today, she would be able to give us some indication that she will bring back something covering this ground at Third Reading.

Lord Cameron of Dillington (CB): My Lords, as this is my first intervention on Report, I must declare an interest as a farmer with a renewable scheme on my land.

Most of what needs to be said in favour of these amendments concerning competition has already been said and as a co-signatory I very much support them. However, I want to underline the fundamental point involved. It has become obvious to anyone reading newspapers in recent months that the electricity industry

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needs a huge amount of investment. In Europe it amounts to trillions of euros, and in the UK it is hundreds of billions of pounds. This investment is needed for generation, transmission, distribution and supply. If we do not have that investment, to believe some of our journalistic forecasters, we are likely to get power cuts with all the economic and social tragedies which that might involve. This investment cannot be provided by the government. It has to be provided by the private sector; that is, you and me or, rather, our pension funds in most cases.

The other issue on which anyone reading our newspapers in recent days and weeks will have come to a conclusion is that the oligopoly of the big six is not the political flavour of the month. While being aware that the root of the problem is the rise in the price of gas—I was going to say feedstock—there is something to be said for the fact, which I read in a newspaper, that this oligopoly has some sort of stranglehold. We have a vertically integrated oligopolistic situation within our electricity industry, as the noble Lord, Lord Jenkin, has pointed out. If you wish to deal with this stranglehold, it is crucial that you stick to the golden rule of in no way deterring investment in the panoply of the electricity industry. Investment is crucial. Either freezing electricity prices or putting a windfall tax on the big six does not conform to that rule.

What would conform to that rule, which you have to do, is to increase competition, which ensures that everyone can compete. As the noble Lord, Lord Deben, has said, that could involve very small competitors at every stage and in every sector of the electricity supply chain. Competition is vital to the success of the Bill and to the entirety of electricity market reform. The Bill will be judged on its long-term effects on the security of supply and on the decarbonisation of the electricity and, above all, on how effective it is attracting competitive investment.

Lord Berkeley (Lab): My Lords, I support Amendment 4 and will speak to my Amendment 5. Both concern competition. We had a good debate in Committee on Amendment 5, and there is a lot of support around the House for requiring the big six to divest themselves of their retail section and keep it completely separate. I found that to be a very good solution in many discussions on the European railway market, which is some way away, but separation seems to bring growth, competition and efficiencies. That is what we have in the UK, whereas looking across the Channel to France, the traffic in the rail freight and passenger sector is falling badly and the quality of the network is pretty bad, too.

I believe in fair competition and transparency in all the dealings. I liked the idea of the noble Lord, Lord Deben, of local generation. I remember visiting Denmark with a Select Committee about 10 years ago, to see how each village has its own little grouping of windmills. Of course, the villagers got a reduction in their electricity price and felt a sense of ownership; that is terribly important. They exported the surplus to the grid and imported it when there was no wind.

I am very pleased that the Prime Minister has announced the review of the regulation. According to the Daily Telegraph, this will cover,

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“prices, profits, barriers to new entrants and how easy it is for customers to get the best deal”.

I hope that they will add “fairness and transparency”. It is an excellent review, but my worry is that the big six welcomed it with such open arms. Is something going on which we do not know about? Ofgem probably needs a strong review. It has recently come up with some interesting figures addressing the price rises which we have all seen in the press, showing that the wholesale costs contribute only about an additional £10 to household charges. This means that that element of the average annual bill has gone up from £600 to £610. The regulator therefore estimates that the companies’ average net profit margin has more than doubled. The regulator is therefore doing something right; that is of course why the big six do not like it.

I do not think that competition is working for the smaller generators, as many noble Lords have said. A DECC analysis shows that 98% of the domestic supply market is dominated by the utilities; that is not quite the same figure as that given by the noble Lord, Lord Jenkin, but it is in the 90s which is, at any rate, much too high for any kind of competitive situation. The fact that there are eight small suppliers active in the market is a bit paltry if they each have only 0.25% of the market share.

I have had several meetings with people from the big six. Their response to these arguments is quite interesting. They say that there are many synergies upstream and downstream, with vertical integration. I wonder whether this gives them an unfair advantage in the market, and whether the consumer sees the benefits. They then say that it enables them to engage in wider dialogue. Well, of course, it does; but they have three representatives on each of the Ofgem working groups while the small independents are lucky to be able to field one. Yes, it is engaging a wider dialogue—in aid of their commercial advantage. As several noble Lords have said, the managing of uncertainty and hedging is one of the big problems.

Do the Government want the independents there, or are they happy to see what you would almost call a “cartel” of six as a fully functioning market? How would that market work? I am pleased that the Labour Party and Caroline Flint, MP—our shadow Secretary of State—are now supporting this. I know that the party has changed its view on this over the years but, if we have seen the light, that is very good. Caroline Flint is saying that separating the energy companies into the different parts of the business is a good thing, requiring energy companies to trade their energy in an open market by selling into a pool, with transparency. That is also fundamental. Then there is the introduction of a simple tariff structure so that people can compare prices; back to transparency again.

I expect the Government to welcome these two amendments since they both put the issues of competition into the Bill. They are necessary to ensure that competition is transparent and fair, and the lack of that, I am sure, contributes to rising prices.

Several noble Lords have mentioned the independence of the regulator. There is always a debate about to what degree Ministers should instruct regulators, to what degree regulators should be seen to be independent

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and to what degree they should act totally independently; we could have a big debate about regulatory capture, which I do not intend to have tonight. It is important for Ministers to be able to give this kind of guidance to the regulators in the next few years. We have the big six involved in these working parties while controlling 98% of the market. Having a duty to promote competition in the Bill seems to be a necessary protection for the smaller independent operators.

I would like to see the split of retail from generation. If the Government want real, transparent and open competition, they will either accept these amendments or possibly come up with their own similar ones at Third Reading.

7 pm

The Earl of Caithness: My Lords, my noble friend Lord Jenkin has yet again put his finger on a hugely important issue, but it is a little bit of motherhood and apple pie. We all want competition and there is no disagreement about that. Indeed, the Bill is all about competition, and the Government’s policy that has already led to more competition. It is worth remembering that in 2000 there were 14 major energy suppliers, but by 2010, within 10 years, they had shrunk to six. In the past two years, seven more energy suppliers have joined the market. The mere fact of what the Government are doing has already started to improve the position with regard to competition. Therefore, the question is: how do we expand that without in any way damaging the Bill?

This part of the Bill covers the trilemma which I mentioned on the first amendment that we debated. It covers the core matters of decarbonisation, security of supply and least cost. It is a very difficult balance to get right. As such, I think that this part of the Bill was quite well framed. It seems to be the wrong place to bring in something about competition when the whole Bill is about competition. It could also open up opportunities for other amendments such as securing the efficiency of the rural economy by having cheap energy. There are many other things you could add to this list once you start to move away from the core principles.

That leads me back to the question of how we get more competition without damaging the Bill. I would ask my noble friend Lord Jenkin: what is the situation where there is little competition? I am particularly keen on tidal energy. Living beside the Pentland Firth for the part of my life when I am allowed out of this place, I think there is huge potential for energy generation there. However, if I set up an energy company to try to exploit that, and the noble Lord down in Sussex set up a company, would he be able to say that he did not get a fair crack of the whip because there was not enough competition? If that is the case, what happens if he goes to judicial review on the wording of this amendment? That will only delay matters. My real concern is that we might be introducing something here that could delay the much-needed investment about which the noble Lord, Lord Cameron, and I were given a lot of evidence when we sat on the sub-committee together and which he has expanded on tonight. I agree with him totally.

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My concern is that this opens up the potential for a legal challenge. What about nuclear? As I said on Amendment 1, we were the world leaders, but now we have to go overseas. Can that be a possibility for a legal challenge? I would say to my noble friends Lord Jenkin and the Minister on the Front Bench that, since we all agree on this, can we somehow get it into the Bill? This is the wrong amendment in the wrong place, but the principle is absolutely right. Can we have a form of wording that gives effect to competition but which does not open loopholes that those who dislike a particular form of energy or want to delay a scheme could exploit to the disadvantage of all?

Lord Teverson: My Lords, I do not want to speak specifically in favour of the spirit of the amendment proposed by the noble Lord, Lord Berkeley, about the vertical integration of this industry. It has seemed to me over the past 12 months in particular that there has been, if I may say, a growing corporate arrogance in the energy industry. Power seems to have gone to the heads of many of those six organisations. They feel that they can do what they like to their own customer base and that they do not have to pay much regard to democratically elected Governments or Parliaments, let alone your Lordships’ Chamber.

I was particularly struck by this one evening when I visited my 94 year-old mother. She had just had a letter from British Gas which said that she would have to pay an increase of 10% on her bills for the year. Then it kindly went through—in very small type, which was not easy for a 94 year-old—all the reasons for the rise. It gave as the top reason, the first on the list of bullet points explaining why energy prices had gone up, not one of the reasons that we know are actually the reasons for the price increase; instead, it blamed the Government. It is a dual fuel tariff, so the charges are affected by the various bits of government legislation. I think that reflects a real arrogance. It is very difficult indeed to fix this competitive area, as noble Lords are trying to do. It is time to think what has previously been the unthinkable and say, although perhaps not tonight, “Yes, it is credible that we split supply from production”. That should be seen as a real way forward.

However, we have another problem, which leads to the arrogance that we are seeing within the industry. The companies know that we know that some £100 billion needs to be invested to keep the power lines going to make sure that we keep the lights on in terms of capacity. That is a dilemma for any Government. Nevertheless, we should start thinking what has previously been the unthinkable: that this arrogance is not acceptable. We expect them to be more responsive, not necessarily to us but certainly to their customer base and to the nation in terms of their pricing strategies. They should know that if we cannot solve the competitive issues, that split could indeed happen.

Baroness Worthington: My Lords, I am grateful to noble Lords for tabling this amendment. It enables us to have a debate about what I believe is an obvious missing element in the entire Bill, which is the need and the desire to promote competition. It is clear that there has been a quickening of pace in the thinking

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about energy policy since the conference season. That is largely because the Labour Party has called time on the existing system which is operating in our electricity market. We stated clearly that if we win the next election we would make dramatic reforms to introduce greater competition. It is evident that we have an oligopolistic system and that there is an insufficient downward pressure on prices. Otherwise, why would British Gas and other members of the big six opt to spend half a billion pounds on share buy-backs when they could have used that money to keep prices down for their consumers or to stop the price rises they have recently announced? It is absolutely clear that something needs to be done.

The amendments tabled go some way to trying to crowbar this issue into the Bill but, unfortunately, I do not think they go far enough. We certainly support the desire to put the requirement for further competition into the general considerations. We cannot see an argument against that and it seems very sensible.

The noble Earl, Lord Caithness, said that the Bill was all about competition. That could not be further from the truth. What the Bill actually does is deliver a system that will largely be determined by administrative negotiations between the Government and single parties quite often representing the big six. We have seen the first such announcement to emanate from this Bill, the contract awarded to EDF to build Hinkley Point C. Indeed, the noble Lord, Lord Deighton, was responsible for negotiating it. I have no doubt that he would have found it much easier to negotiate a price and length of contract that was better value for consumers if we had had more competition. What we needed was more competition in our choice of vendors of nuclear reactors. We were choosing one from one, which is never a good situation to be in.

I shall put that aside because I have used it as an illustration that the Bill does not introduce or increase competition, but narrows it. Later this evening we will debate—very briefly, I promise—my Amendment 7, which seeks to state that this contract for difference process must very quickly pass to a competitive process. It cannot continue as this bilateral, negotiated discussion behind closed doors with one or two very large companies that already play a dominant role in the market. In the interests of consumers and of competition, we must open up the whole process to competition so that we can keep prices down.

This group also contains the amendment in the name of the noble Lord, Lord Berkeley, which would split the big six. Again, we are very sympathetic. Rather than crowbar it into the Bill, we have already stated that we would use legislative powers on election to do exactly that. The argument in favour of the big six and vertical integration has always been that they need the balance sheet of the supply industry to be able to raise the finance required to invest upstream in generation, but that is not what they have been doing. They have not ploughed their profits back into investment; there has been a hiatus in investment.

The renewables industry, which has grown the most, has not relied on the big six. More than half of the investment that has gone into renewables has come from independent investors: new, independent companies. We should seek to support those companies and see

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them prosper. However, they report that it is becoming increasingly difficult to get power purchase agreements from the big six because they control the vast share of access to customers. Why is this? It is another clear signal that there is not enough competition in the market. We now have yet more contortions added to the Bill, such as purchasers of last resort and buyers of last resort, provisions that have been put in precisely because the big six are not offering decent contract terms to the independent investors. If that is not a signal that something is wrong, I do not know what is.

I will briefly touch on the reference made by the noble Lord, Lord Deben, to Germany. I fully support the idea that the big six should become the big 60, and ultimately the big 600. We need to democratise our generation of electricity. The signs are that it is already starting, from the man on the street fitting solar panels to communities coming together to find PV for their schools or building wind farms. Real change is happening and we must endeavour to make it happen more quickly and substantially. Only then will the big six or their equivalents be challenged. This is happening already in Germany, where after a relatively short period RWE, the giant of the German electricity industry, is claiming that its business model is broken. The support for decarbonised, community-owned power has broken that industry, which is a good thing, as it has been responsible for a huge amount of carbon emissions over the decades and has shown itself to be incapable of adapting quickly enough to the new, modern needs of electricity.

I will not go on any more. We have covered the main points: the big six system is broken and we absolutely need more competition in this market. The Bill, by introducing contracts for difference, makes it possible and credible for us to make the decisive move to split vertical integration and halt the market power that is gained from having generation and supply in the same companies. We are in principle supportive of this, and we look forward to the Minister’s response. It is a sticking plaster, but nevertheless a very important one.

Baroness Verma: My Lords, I thank my noble friends Lord Jenkin and Lord Roper, and the noble Lords, Lord Cameron and Lord Berkeley, for their amendments. They all relate to competition within EMR and the electricity market. I should like to reassure noble Lords across the Chamber that I fully recognise the importance of effective competition in the market. I also recognise my noble friend’s desire to help independent gas-fired generators in particular. My noble friend tabled Amendment 4 in Committee, and I have considered carefully the points he made. In particular, he said that this amendment would,

“help the Government to achieve their stated desire of having greater market competition”.—[

Official Report

, 18/7/13; col. GC 339.]

However, I still do not think that it will deliver the competition that he rightly seeks. We will make a difference to competition only if we take action and deliver actual reforms that are designed for that purpose.

The list of matters to which the Secretary of State must have regard in Clause 5(2) is about balancing different objectives: balancing the need to decarbonise

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against ensuring security of supply, and at the least cost to the customer. However, competition does not fit into such a list. We are not balancing competition against delivering decarbonisation or cost to the consumer. Competition is one of the means of minimising cost to the consumer, and the purpose of EMR is to move us to an electricity market where low-carbon generation can compete fairly on price. Amendment 4 could cause confusion as to the practical effect on the design and implementation of EMR. Noble Lords will recognise that we do not have the luxury of time at the moment, and that to understand the effect of such a change would undermine our efforts to quickly implement EMR and bring forward investment.

7.15 pm

Amendment 5 seeks to abolish the vertically integrated business model. While I certainly recognise that vertical integration plays a part in perpetuating barriers to market entry, it also delivers some benefits for consumers through lower costs of capital, efficient risk management and economies of scale. These benefits cannot be discounted without a clear sense of what the effects of a prohibition on vertical integration might be. There is no clear evidence that the divestment of retail businesses will increase competition or lower consumer prices. Instead, we should focus on delivering reforms that we know will increase competition. For instance, it is crucial to ensuring a reliable electricity supply that independent gas-fired generation and other forms of reliable capacity can compete in the electricity market. That is precisely what the capacity market is intended to achieve. It will do this, for example, by offering longer-term contracts to each plant, which will enable them to spread their cost of capital over a longer period. This is particularly important to independent players as they rely on securing project finance rather than financing from their balance sheet, as many of the big players do.

We have sought to factor competition into EMR, designed by running competitive auctions in the capacity market and signalling a clear intention to move to competitive allocation of contracts for difference as soon as possible. Of course, CFDs themselves will enable new low-carbon generation to compete in the market. More widely, Ofgem is taking forward an ambitious package of reforms to improve market liquidity and meet the needs of independent suppliers and generators.

Under these reforms major energy companies will be required to quote and trade at prices across a range of products up to two years ahead of delivery. This will allow independent generators and suppliers to lock in prices well ahead of delivery and will therefore enable new entrants to the market. Furthermore, I amended the Energy Bill in Committee to allow for the establishment of a power purchase agreement scheme. This will make it easier for independent renewable generators with CFDs to access the electricity market by guaranteeing access to an off-taker of last resort at a specified discount to the market price. This will provide investors and lenders with more certainty over maximum long-term route to market costs, which in turn reduces risks and therefore costs.

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Noble Lords will be aware of the work we have done to simplify retail tariffs and make it easier for consumers to switch. However, I can reassure noble Lords that the Government are listening to the concerns raised, and I agree that more can be done. That is why the Prime Minister has announced an annual review into the state of competition in the energy market. As my noble friend Lord Jenkin said, this review will be led by Ofgem in conjunction with the Office of Fair Trading and will draw on the expertise of the new Competition and Markets Authority. The details will be developed by the regulators and we do not want to prejudice that. The assessment may look at prices, profits, barriers to new entrants, and how easy it is for customers to get the best deal. My department will publish more details shortly.

I have met with a group of independent generators and lenders and have very much taken their concerns on board. We have indicated our willingness to look at the length of capacity agreements for new plant to ensure that we allow a long enough period to provide certainty to investors and encourage new capacity in the market at the best possible price for consumers. We are proposing a higher cap in the first capacity auction. We will continue to engage with independent gas generators and other stakeholders and have committed to further discussions during the consultation period with a view to securing the right design parameters that will support new investment in reliable capacity.

Baroness Worthington: I am sorry to interrupt, but I forgot to ask a question in my contribution, particularly on the capacity mechanism, in which I know the noble Lord, Lord Jenkin, is very interested. What representations have the Government had from independent gas generators on the penalty prices? We are being told that because of the way that the capacity market is stretched, they will not be able to raise finance with those punitive penalties within the capacity mechanism.

Baroness Verma: My Lords, while I wait for some inspiration to wing its way down to me, I will continue and respond later to the noble Baroness. I recognise what my noble friend Lord Jenkin and others have said about how liquidity reforms benefit consumers. These reforms make it easier for independent suppliers and new entrants to access the wholesale market. They will increase competitive pressure in the retail market, which will benefit consumers in terms of downward pressure on bills, greater choice, and better service, which is what I know all noble Lords want.

My noble friends Lord Deben and Lord Jenkin, and others, mentioned Ofgem’s liquidity proposal. We want to make the energy market as competitive as possible. An increasingly level playing field for independent suppliers and generators is precisely what will help drive competition, which delivers better value for consumers and business. Ofgem’s proposal to increase transparency in the way electricity is traded will give independent generators a foothold in the UK market and encourage new players to invest.

While I am waiting for inspiration, which has not quite arrived yet, I will touch on the proposals the noble Baroness, Lady Worthington, has mentioned on the price freeze. We cannot see the Labour Party’s

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proposals solving the problems of competition. What we see is that we will get price hikes before and after the freeze. What we need is to get a better understanding of where the Labour Party is coming from when it says that it wants to reset the energy market, because we do not know whether that is just jingoistic terminology or if there are some proposals in place.

The inspiration I was waiting for has arrived. We are engaging with industry. It said that it was pleased with our proposal for a higher cap in the first auction. I suspect that does not quite answer the noble Baroness’s question, so perhaps I will come back to her on that.

Lord Jenkin of Roding: I am listening with very great care to what my noble friend has said because this is all very important. She says that she has met the representatives of the industry and of their bankers and funders. Is she now saying that she will take account of what they said and of the three points they raised? My noble friend has mentioned the length of the contract; they say it must be not less than 15 years. There is the question of the penalties, which the noble Baroness, Lady Worthington, has mentioned. There is then the question of a cap. All three have to be right or, however much the noble Baroness, Lady Verma, says she wants competition she will not get in the new entrants and the independent generators.

Baroness Verma: My Lords, as I have said, I have taken very seriously what the independent generators and others have said to me, as well as what noble Lords have said. I think, however, that what our proposals are laying out answers many of these fears and the concerns of those generators. We of course agree that there needs to be greater competition. That is what I think this Bill will help to achieve.

I return to the penalties that the noble Baroness and my noble friend have mentioned. We have proposed cutting penalties between 101% to 149% of capacity payments in any year. We are aware of concerns from independent generators at the level of penalties, but it is crucial to balance investability against protection for consumers. The right thing is to focus our efforts on concrete actions that will make a difference by enabling low-carbon generation to compete, by helping gas-fired generators and other reliable capacity providers to remain economic and compete, and to bring reforms to the wholesale and retail markets.

I therefore urge my noble friend to withdraw his amendment. I hope I have demonstrated that the Government are taking clear action to increase competition at the same time as actively reviewing what more can be done.

Lord Jenkin of Roding: My noble friend went very fast, and at my age it is not always easy to hear everything that is being said. The Leader of the House is waiting to make his Statement about the European Council. I have the impression that she has been impressed by the people whom she has met and the discussions that she has had with me and others on this matter. She has given me every impression that she understands that, if these people are going to compete effectively, they have to be able to raise the finance in the market to do it.

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The initial terms which the Government pointed out, as originally indicated, would apply to them would have made them say, “Well, we cannot raise it. We only have 10 years? It is impossible”. There are various other things, and we have mentioned the penalties and the cap. I understand that my noble friend has given an undertaking—perhaps she will deny me if that is not right—that she will consider very carefully what those independent generators have said and the terms and conditions that they will have to have if they are going to enter the market. If they do not, whatever my noble friend has said about competition, it will not happen.

Baroness Verma: My Lords, I do not want to leave my noble friend in any grey area. I have listened very carefully to him, as I always do, but I think that the proposals I have laid out will respond to him and to those independent generators. I think the proposals and the Bill and what I am taking forward do answer those concerns.

Lord Jenkin of Roding: My Lords, I am going to take my noble friend’s word as what I think she is intending to mean. She is not giving any guarantees, but she does apparently understand the case that has been made if the competition is going to work through the capacity market in the way in which the Government have said it would. She has been told very firmly that unless she changes the conditions it will not work. She has given me the impression—and, I hope, other noble Lords as well—that she understands that and will continue talking with a view to getting acceptable conditions. If that is the case, it would seem to me to be quite wrong that I should take the opinion of the House. In those circumstances, I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

Amendment 5 not moved.

Consideration on Report adjourned until not before 8.27 pm.

EU Council


7.28 pm

The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford) (Con): My Lords, with the leave of the House, I will now repeat a Statement made in another place by my right honourable friend the Prime Minister. The Statement is as follows.

“In the past 24 hours the country has been hit by one of the worst storms for many years. I know that the thoughts of the whole House will be with the families and friends of the four people we know have lost their lives. I am sure the House will join me in paying tribute to our emergency services and to all those who have been working to clear up the debris and get our transport system moving again. All the agencies involved are working as fast as possible to get things back to normal.

Let me turn to last week’s European Council. The key subjects under discussion were business regulation, competitiveness and monetary union. We also discussed

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migration policy, following the Lampedusa tragedy, and the importance of the EU’s Eastern Partnership, specifically with respect to Ukraine. So the background to this Council was the state of the European economy.

There is no doubt that the outlook is better than it has been, and particularly here in Britain where Friday’s figures showed the fastest growth for three years. My aim at this Council was to do everything possible to enhance the prospects of a sustained, balanced recovery here in the UK. We made good progress on three areas in particular: cutting red tape; promoting trade and the completion of the single market in digital and services; and protecting British interests as the eurozone integrates further.

Let me briefly say a word about each. First, on cutting red tape, Britain’s Business Task Force produced an excellent report which was endorsed by a hundred European businesses. I chaired a meeting bringing members of the Business Task Force together with President Barroso and the leaders of Germany, Sweden, Italy, Poland, Finland, Estonia and the Netherlands. These countries representing all parts of Europe and all political traditions agreed on the need to make more progress in cutting regulation and helping businesses across Europe to create jobs, and the strong language adopted in the communiqué by all EU member states reflects this. It calls for rapid implementation of REFIT, the Commission’s own bureaucracy-cutting initiative, and a proper scorecard to measure exactly how much regulation is being cut. Deregulation is now part of the EU agenda in a way that it simply has not been before.

Secondly, on trade, we welcomed the conclusion of the EU-Canada trade deal. This new deal could be worth £1.3 billion to the British economy, with estimates suggesting British exports to Canada could go up by as much as a fifth. Last week’s agreement also means we can now move the focus on to the EU-US talks which we began at the G8 in Lough Erne. There were some attempts to link this potential US trade deal with concerns over US intelligence, but the Council rejected this idea.

Turning to the digital single market, once again the commitment was made to complete this by 2015, potentially boosting growth by as much as 4% of the EU’s total GDP. As Britain is a world leader in e-commerce, this is very much in our interests. We made good progress at the Council on issues like portability of data, e-identification, e-invoicing and payment services and an EU-wide copyright regime for the digital age, but we also agreed not to rush ahead with the data protection directive on an artificial timetable because the current draft has disproportionate burdens on small business and they need to be removed. In terms of the services directive, we agreed that it was time to look at a new sector-by-sector approach rather than just trying to remove all the outstanding barriers to free trade in services in one go—a process that has stalled in recent years.

Thirdly, on defending Britain’s interests, as I have argued repeatedly, the European Union is changing and the eurozone needs more integration and co-ordination. But Britain is not in the single currency, and we are not going to be, so we should not have to take part in these additional bits of co-ordination,

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whether they cover economic or social policy. So while members of the eurozone agreed to even more intrusive policy co-ordination, including on social policy, I was clear that Britain will not take part. This is reflected in the communiqué which says that all changes are voluntary for those countries not in the single currency.

On the tragedy at Lampedusa, we agreed the next stages of the work of Frontex, which is responsible for trying to stop people coming to the EU in the first place, but we rejected the idea that there should be additional burden-sharing for so-called ‘front-line states’, not least because, if you look at the figures, Britain, France, Germany, Belgium and Sweden between us received almost 70% of asylum applications recorded in the EU in the past 12 months. What is most important of all is helping to stop the problems at their source. The UK will continue to play a leading role in this: for example, through support for border security in Libya and the focus of our development assistance on helping countries that are at risk of instability. On the Eastern Partnership we agreed that countries which look towards Europe for support, such as Ukraine, should be free to enter into agreement with us while, of course, continuing to insist on proper standards of governance and justice that such a relationship should entail.

Finally, because of the recent controversies there was much discussion about the role of intelligence agencies. We agreed a statement signed as Heads of Government—because there is no EU competence in this area and nor should there be—that said European countries and America should have a relationship based on trust and that damage had been done by recent revelations. The UK has a very strong, long-standing trust-based relationship with the US, not least as part of the Five Eyes partnership together with Canada, Australia and New Zealand. In terms of our own intelligence services, we have a long-standing tradition that we do not comment on intelligence matters. We have parliamentary scrutiny of our intelligence agencies through the Intelligence and Security Committee and we have strengthened that oversight. Our agencies operate under the law and their work is overseen by Intelligence Commissioners. Of course, as technology develops and the threats we face evolve, so we need to make sure that the scrutiny and frameworks in place remain strong and effective. But we have every reason to be proud of our intelligences services and the way in which they are properly constituted in our country.

Since 2000, we have seen serious attempts at major acts of terrorism in Britain typically once or twice a year and, since 9/11, 330 people have been convicted in our courts—here in the UK—of terrorism-related offences. This year alone, there were major trials related to plots, including plans for a 7/7-style attack with rucksack bombs, two plots to kill soldiers and a failed attempt to attack an English Defence League march using an array of lethal weapons. There were guilty pleas in each case and 24 terrorists were convicted and sentenced to more than 260 years in jail. I quote these figures to demonstrate the scale of terrorist threats still facing this country.

Our intelligence has also allowed us to warn our EU allies about terrorist plots aimed at their people, cyberattacks on their businesses and infrastructure

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and attempts in their own states illegally to traffick drugs, people, arms and money. Our intelligence officers serve our country without any public recognition. Some have given their lives in this service and yet their names are not known and their loved ones must mourn in secret. We owe them, and every intelligence officer in our country, an enormous debt of gratitude. These silent heroes and heroines are keeping our country safe. They deserve our wholehearted support. I commend this Statement to the House”.

My Lords, that concludes the Statement.

7.37 pm

Baroness Royall of Blaisdon (Lab): My Lords, I am grateful to the noble Lord the Leader of the House for repeating the Statement made by the Prime Minister in the other place. I start by sending deepest condolences from these Benches to the families of the people who have died during the storm conditions in the past 24 hours. I also join him in thanking the emergency services for the work that they have done overnight to protect people and the work they are now doing to clear the debris. I would be grateful if the noble Lord could update the House on the 270,000 homes without power in south-west England, East Anglia and the Midlands, and if he could inform the House how long it is expected to take for the power to be restored.

On the European Statement, I join the Leader of the House in his support for the work of our intelligence services. It is vital, it keeps us safe, and by its very nature it goes unrecognised. I also join him in applauding the men and women who work for our services. On these Benches we support the summit’s statement on this issue. We can all understand the deep concerns that recent reports have caused in some European countries, especially Germany, so as well as providing that support for intelligence services it is right to ensure proper oversight of those activities.

I turn to the formal agenda of the summit. First, on trade, we welcome and support the conclusion of the Canada-EU trade deal and agree with the focus on the US-EU trade agreement. At the start of this year, a timetable for December 2014 was set to complete negotiations. Can the Leader set out any further developments on this challenging timetable and its feasibility? Does he agree that the possibility of this agreement is an important reminder, including to his Cabinet colleagues and much of his party, that a prosperous future for Britain lies inside, not outside, the European Union?

Secondly, we all agree that completion of the digital single market could have a significant impact on our prosperity. On numerous occasions the Government have stated their commitment to expand the single market in digital services. Will the Leader please tell us what has been achieved at this summit that was not achieved on previous occasions? Will he explain why the Prime Minister pushed for delay to the data protection directive, which would have enhanced citizens’ privacy across Europe?

On regulation, we will, naturally, look at the proposals of the task force. We agree with the need to restrain unnecessary regulation and welcome any progress on this, but we need to distinguish between good and bad

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regulation. Cutting bureaucracy and red tape can be welcome, where appropriate, but the Government’s emphasis on cutting red tape for business is in stark contrast to the red tape which they seek to impose on charities, the voluntary sector and unions in the transparency of lobbying Bill.

With regard to the task force’s report, does it really make sense to scrap new rules providing transparency about where the meat we eat has come from, in the light of the horsemeat scandal earlier this year? What about rules on agency work? They play an important role in deterring employers from using low-wage migrant labour to undercut local workers, but the task force says they should be watered down. What reassurance can the noble Lord provide that this will not simply mean cuts in wages and employment conditions—that is to say, a race to the bottom?

In relation to the tragedy at Lampedusa, I agree with the noble Lord that it is of the utmost importance to help stop the problems at their source and that the focus of our development assistance is on helping countries at risk of instability.

On broader economic policy, I note what the Prime Minister said at the end of his European summit press conference: that his priority was now to make sure it is a recovery for all. Does this represent an acknowledgment that, despite the welcome news on growth, millions of people still feel worse off because of the cost of living crisis? The Prime Minister also said after the summit that he wanted to help people “excluded from our economy”. That includes youth unemployment, mentioned in the communiqué. The shameful truth is that nearly one in five unemployed young people in Europe lives in Britain and those who are employed are often vastly overqualified. I am currently seeking a nine-month maternity cover for my PA/office manager and, of the tens of applications I have received, most are from people with a master’s degree and some have doctorates: many of them are working as unpaid interns. Something is wrong. The Government’s youth contract has recently been branded a failure by their own advisers.

What did the Prime Minister say at the summit about the changes needed in Britain when it comes to youth unemployment? For people struggling with their energy bills, seeing their wages falling, and for young people looking for work, is it not true that nothing is different after the summit than it was before? I fear that this European summit will feel like a lost opportunity for the citizens of the European Union, who share a common concern about growth, jobs and the cost of living.

7.42 pm

Lord Hill of Oareford: My Lords, I am grateful to the noble Baroness the Leader of the Opposition for her remarks about the efforts being made by the emergency services and various companies to respond to the effects of the storm. I am not able to give her precise figures, but they are working flat out to help people caught out by the storm. I agree very much with what she said about our intelligence services. It is important that there should be rigorous oversight. We have that and it is right that we should do so.

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On the subject of timing in relation to trade and Canada, the significant decisions on the deal have been taken so we are not expecting it to take long to resolve the remaining issues. I cannot give a precise timetable for the EU-US talks. The potential benefits of such a deal are, obviously, far greater than the EU-Canada deal. There was some possibility of an attempt to slow down the timetable for the EU-US talks at the European Council. That was resisted and the focus will now switch to trying to make progress on it.

There is a fair bit of detail in the communiqué about what was achieved on digital services. The real impetus of the Council was in terms of the digital single market, on which a number of conclusions were reached. It is very much in our interests that we make progress on that. We have a very active e-commerce sector which we need to capitalise on. There was a restatement of the timetables and an agreement to refocus efforts to make progress.

On the data protection directive, as the noble Baroness said, it is clearly the case that proper concerns about data protection must be addressed. There was no agreement to the earlier timetable which we sought because of concern about the cost which might be inflicted, particularly on small businesses—estimated at up to £300 million—by the over-early implementation of such a directive before the details were thrashed out. The position reached was to work on that—not to resile from it but to try and make sure that, when it is introduced, we do not have an unforeseen effect on small business.

There was significant progress made on regulation, not just here but reflecting a continuing process whereby the UK, working with its allies, is trying to shift the emphasis in a more deregulatory direction. This relates, in a way, to the noble Baroness’s final question about what difference this summit has made. The work of our own business task force contributes to that, as does the work the Commission itself is doing through the REFIT initiative, working in tandem with it.

As the noble Baroness says, there is good regulation which can increase competition, and there is regulation which harms prospects for employment or growth. We all agree that the urgent priority at the moment is to make sure we have economic growth across Europe so that more people can benefit from it, particularly the young. I know that the noble Baroness is concerned about youth unemployment. We all want to see much faster progress but, since the general election, the total number of young unemployed people has fallen by nearly 80,000. Our level is below the EU average and below that of France and of Italy. We have been creating more training opportunities, which are part of the solution. The noble Baroness will know that the number of apprenticeships has grown enormously: we have doubled the number and this is also part of the solution. The 1.4 million private sector jobs created since the general election are also helping. Altogether, the number of NEETs is now the lowest it has been for a decade. There is obviously an awful lot more work to do and ultimately the process starts with what goes on in schools, where we must try and make sure our young people have the skills they need to equip themselves for the growing number of available jobs.

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7.47 pm

Lord Alderdice (LD): My Lords, I would like to identify these Benches with the condolences to those who have been bereaved, the sympathy for the injured and the appreciation of the tremendous efforts being made by the emergency services in dealing with results of the storm.

I thank my noble friend for repeating the Statement made in another place by the Prime Minister. Much of it encourages me. I am encouraged to see improvements in our own economy and more widely. Thoughtful and appropriate deregulation is a useful step forward, although we have to be careful. Wider trade deals are bound to be very welcome, and that with Canada, with which we have such a long and friendly relationship, is particularly so, both for itself and for what it may lead to in the rest of North America.

I am also encouraged by developments on the e-commerce front although, as the Statement made clear, we have to be careful as it also opens opportunities for e-crime. I rather suspect that your Lordships’ House will have to face rather complex legislation over the next few years to deal with many aspects of this. It will not be easy because it will be a challenge for all of us to know exactly what we are legislating about in this area and to keep up with the changes.

I am encouraged by the clear statement that the way to deal with immigration problems is not to create a fortress Europe but to address the needs and problems of the countries from which people flee. They do not come because they are happy in their own countries: they come because they do not have a good future there. We have to try to help them improve on that.

Coming from my part of the United Kingdom, I have a particular perspective and a deep appreciation of the work that the intelligence services have done for us over many years in ensuring that our community did not fall apart and that we were able to engage later in a peace process. The intelligence services do important work for us and it is silent work at its best.

However, one part of the Statement gave me a little cause for concern. It was what the Prime Minister said in respect of countries outside the European Union and the eastern partnership. He said that we continue,

“to insist on proper standards of governance and justice that such a relationship should entail”.

Our right honourable friend the Prime Minister is right about that but in one country within the EU, Hungary, those standards of governance and justice simply do not apply any more, and it has been getting worse for a number of years. Sadly, this has been happening under the prime ministership of Viktor Orban. I knew him many years ago when he was, as he still is, the leader of Fidesz—in those days the young liberals. He was, like me, a vice-president of Liberal International and we served together on the officers’ board. I well remember the first thing that he did. Fidesz, because it consisted of young liberals, had a rule whereby when you were over 30 you had to resign and join the Alliance of Free Democrats. What did Viktor do? When he reached 30 he changed the rules, which has been and still represents one of his characteristics. When the rules tend to take away some of his power, he simply changes the rules. I remember

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well a meeting of the committee of Liberal International when he walked out and said that he was going to join a more conservative group. That is what he did and he has produced a more authoritarian country. My concern is that the Prime Minister entertained him in Downing Street this month before the European Council and friendly photographs are being used by Mr Orban in Hungary to show that this country is supportive of him. I seek a reassurance from my noble friend that the Prime Minister is pressing Mr Orban to address the real problems of authoritarianism, anti-immigration and the destruction of European values in that important part of the European Union.

Lord Hill of Oareford: My Lords, I shall not resist the temptation to say that my noble friend has highlighted some of the dangers of joining the young liberals. I know that he makes a serious point about his concerns.

I am grateful for his support for the Statement more generally. I am sure that many will have heard his remarks about Hungary. As with all EU member states, Hungary is subject to clear obligations and has to adhere fully to the laws and values of the Union. I am sure my noble friend knows that earlier this year the Commission launched a detailed review to ensure that newly introduced legislation in Hungary was brought into line with accepted EU standards. I understand that Hungary has engaged with the Commission on that review and is making changes to its constitution that have addressed many of the concerns. We welcome Hungary’s engagement with the Commission on areas that fall within EU competence.

Lord Davies of Stamford (Lab): My Lords, the noble Lord, Lord Alderdice, quite rightly was given a lot of scope because what he said about Hungary was well said. The progress on deregulation at the summit and the decision not artificially to hold up the progress of the US-EU trade negotiations are welcome. They will of course take a long time anyway. Is the noble Lord aware of any member state other than the United Kingdom which has made a public statement that on a permanent basis it will not join the banking union that is being put together? Is he aware of the substantial evidence presented to your Lordships’ Sub-Committee A by a series of witnesses and experts to the effect that if we remain outside the banking union our financial services industry will have an increasing handicap competitively over a number of years and we will end up paying a significant economic price for doing that?

Lord Hill of Oareford: I am grateful to the noble Lord for what he said about progress on regulation. We keep chipping away at this and there has been progress. The fact that seven countries joined the UK in lending support to the report produced by the British Business Task Force shows that there has been a shift. The Prime Minister has been working hard in that respect, particularly with Chancellor Merkel. I am also grateful to the noble Lord for what he said about how vital the EU-US talks are. I understand the noble Lord’s views on banking union. Obviously, the Government take a different view and their position has not changed as a result of the recent European Council.

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Lord Tugendhat (Con): My Lords, I, too, associate myself with what has been said about the emergency services and the intelligence services. I was encouraged by what my noble friend said about the deregulation agenda. In particular, I noted that the Prime Minister had chaired a meeting that brought together the leaders of a number of countries with President Barroso. There is of course a big difference between countries agreeing on the need for deregulation in general and agreeing on what precisely should be deregulated. Can my noble friend enlighten the House—if he cannot do so now, perhaps he can in some other way—as to the degree of agreement on the range of regulations and directives that ought to be repealed?

Lord Hill of Oareford: I am not sure that I can enlighten the House on a huge amount of detail but there are two strands to what the Prime Minister and those who agree with him in the EU are seeking to achieve. One is that the Commission has its own process under the REFIT programme that my noble friend will know about, which is coming up with a series of regulations, measures and so on that it thinks could be repealed, not introduced or otherwise revised. That is a Commission-led process. Alongside that, the Prime Minister has been working with British business, and the British Business Task Force has been working with European businesses, to come up with suggestions from a business perspective regarding further changes that could be made. A twin-track process is going on. One track is led by the Commission and, in the other, Britain with its allies is trying to take forward this issue of how one can have the right amount of regulation that will not hold back economic growth, which is our priority, and get that balance right.

Lord Deben (Con): Does my noble friend agree that the opposition Front Bench was a little curmudgeonly in the second part of its response on youth unemployment, given that this Government have done remarkably well on unemployment during a very difficult time? Was it not also true that his Statement showed just how important it is for Britain to be a full member of the European Union? None of these things would have happened in the way they have and to the degree they have had not the Prime Minister taken an active part. Is it not time that people stopped complaining about the European Union and in fact spent their time improving it in the way in which the Prime Minister is clearly doing?

Lord Hill of Oareford: My Lords, I would never—although perhaps I might occasionally—accuse the noble Baroness, Lady Royall, of being curmudgeonly. My noble friend is quite right about what has been achieved in terms of generating jobs generally and the improving trend of economic figures that we are beginning to see. There is much more to do but there has definitely been progress. He is also right about what has been done to tackle youth unemployment. On his broader point, the Prime Minister has demonstrated that it is possible both to argue strongly for Britain’s national interests and to build alliances with other similar-minded countries in Europe to bring about change for the common good. The issue is sometimes presented as a false dichotomy, whereby if you argue for Britain’s

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national interests you jeopardise your influence within Europe and you either have to go with the consensus or become an outist. The Prime Minister has set out that one can argue very strongly from within the EU for what is in the interests of the whole of Europe as well as Britain.

Lord Phillips of Sudbury (LD): My Lords, will my noble friend say a word more about trust in politics as he very wisely referred to it early on in the Statement. It seems to many here today that there is a slow but very worrying creep of disaffection across Europe with democratic politics. There can be no more signal demonstration of the cynicism that exists in some parts of the political establishment at the very highest levels than the bugging of the phone of Angela Merkel. I suspect that tens of millions of people will have noticed that who do not notice much else—good things—about the world they live in.

My question is this—I apologise if it is a question that cannot elicit a direct reply. Is there any consequence to that extraordinary event? It must have been a criminal offence in Germany and in the United States. Is there any accountability for what happened?

Lord Hill of Oareford: My Lords, I will make two points in response. First, my noble friend is right to point to a growing disaffection across Europe with the institutions and processes of the European Union. One of the things that many people are trying to work for is to bring the work of the Union more into contact with the everyday concerns of the citizens of Europe and overcome this growing democratic deficit as people call it. That is something that my right honourable friend the Prime Minister would say he is seeking to pursue by arguing against measures that would affect British businesses, choke off growth and all the rest of it.

Regarding the point about telephones, as my noble friend knows, he will not tempt me to comment in any detail on the work of our intelligence services. The leaders at the Council issued a statement after a great deal of thought in connection with the issue he raised and that has set out a way and a process in which the French and the Germans will talk to the Americans about what may or may not have gone on.

Lord Brooke of Sutton Mandeville (Con): My Lords, paragraph 10 of the European Council conclusions that accompanied this Statement stated that the EU was in 2011 faced with 300,000 unfilled vacancies in the ICT sector. It added that if this trend was not checked there could be 900,000 unfilled vacancies in the sector by 2015. Could my noble friend contemplate covering a domestic omission in this Statement by putting in the Library a breakdown of the UK’s statistics within these EU-wide figures?

Lord Hill of Oareford: I am afraid, my Lords, I do not know the basis for the calculation made by the EU and whether it was based on data drawn from individual member states. If there are any data I can find I will, of course, let my noble friend have them, but I cannot say with any certainty what the basis of that calculation was.

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Lord Flight (Con): My Lords, I cannot entirely agree with the comment of the noble Lord, Lord Davies, that Sub-Committee A was of the view that the UK would suffer if it did not join the banking union. The point was surely that the body to which the ECB is accountable has a voting structure and if virtually all EU members did end up joining the banking union, theoretically it would then be possible for it to tell the UK what to do. In the negotiations over the banking union this country should ensure that the independence of banking policy is safe.

Lord Hill of Oareford: I completely understand the points that my noble friend makes. Those are very alive in the minds of our Ministers and officials negotiating this because they are keen to safeguard the position that my noble friend sets out very clearly.

Lord Marlesford (Con): My Lords, I was very glad to see in the Statement the sentence:

“Deregulation is now part of the EU agenda in a way that it simply has not been before”.

I noted the distinguished membership of the meeting chaired by the Prime Minister on the Business Task Force report, including President Barroso and the leading countries in Europe. There was a startling and very prominent absence from that list of countries, which was France. Would I be right in thinking that part of the reason for France’s absence is that it does not share our approach on this matter at all? The biggest single bit of business regulation—and I would argue the most unjustified—that the French go in for is the 35-hour week, which is policed by a mixture of inspection and denunciation, which must be very bad for the business sector in France. Perhaps, in that sense, a bit of schadenfreude might be in order, but I do not express it. I say that it is wrong that the EU, if it means anything on these matters, should have such an example of business regulation.

Lord Hill of Oareford: My noble friend is right that the French approach things differently from us. When he talks of schadenfreude, the point to which I would refer him is the fact the Germans were there at the Prime Minister’s launch. Those who have, like my noble friend, studied the dynamic within Europe over a very long period of time would recognise the relationship between the UK and Germany. The work that my right honourable friend the Prime Minister has put into trying to strengthen that relationship is an important part of helping to counterbalance some of the views held by other member states to which my noble friend refers.

Baroness Royall of Blaisdon: With the permission of the House, perhaps I may ask the noble Lord to comment on the contrast between the search for deregulation in the business sector, which in many ways we welcome, and the imposition of bureaucracy and red tape on charities, trade unions and the voluntary sector in the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Bill?

Lord Hill of Oareford: As the noble Baroness would expect me to say, these are different matters. I refute her point that the proposals on charities in the Bill would be as intrusive and destructive as the kinds of

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regulatory burdens that are operating in some ways within Europe, which we seek to remove. Like the noble Baroness, what one always wants is a proportionate approach in all areas.

European Public Prosecutor’s Office: EUC Report

Motion to Take Note

8.10 pm

Moved by Lord Rowlands

That this House takes note of the Report of the European Union Committee on the Commission proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office (COM(2013)534, Council Document 12558/13) (3rd Report, HL Paper 65).

Lord Rowlands (Lab): My Lords, I beg to move the first Motion on the Order Paper in the name of the noble Lord, Lord Boswell. The noble Lord, Lord Boswell, and the noble Baroness, Lady Corston, present their apologies. Both are attending the COSAC meeting in Vilnius. As a member of Sub-Committee E, which prepared this report, I have the pleasure of inviting the House to agree to its recommendation. That recommendation is that the House issue a formal reasoned opinion that the Commission’s proposal to create a European Public Prosecutor’s Office breaches the principle of subsidiarity.

The principle of subsidiarity enshrined in Article 5 requires that the EU should take legislative action,

“only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States … but can rather, by reason of the scale or effects of the proposed action, be better achieved at Union level”.

No one now denies that there are significant problems with European Union fraud. Indeed, it was our committee which sought to highlight this point in its April report when it suggested that European fraud now ran to the tune of about £5 billion a year. We recognise that there are considerable shortcomings in the system for combating such fraud. We are not arguing this evening that one does not need to address these issues seriously but about in what way one should address them.

The Commission has now come up with the proposal that the way to deal with European fraud is to create a new supranational European body, with an independent power to investigate and prosecute EU fraud offences in national courts, called the European Public Prosecutor’s Office, or EPPO. Our report outlines, in detail, the structures and powers of the proposed public prosecutor’s office. I will identify some of the features that concern us most. The European Public Prosecutor’s Office will have a very wide jurisdiction as to what it investigates and prosecutes. Although the definition of European fraud has yet to be firmly fixed, it will be very likely to encompass any act or omission which has the effect of wrongly acquiring or retaining EU funds or assets or which results in the diminution of European Union revenue. It would include, for example, incitement, aiding and abetting such offences, and corporate criminal liability.

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The committee was particularly concerned about the proposal for the prosecutor’s office to gain exclusive jurisdiction over any other offence which is inextricably linked to a European fraud offence. That has the considerable capacity to further expand and involve the office in national jurisdictions and expand its own jurisdiction. We should all be concerned at the nature and potential character of that proposal.

The proposed office will also have exclusive power to investigate and prosecute a wide range of offences. It will have a wide range of investigative powers such as the right to search premises and intercept telecommunications, to be exercised in accordance with national law and subject to obtaining a judicial warrant where national investigators would be obliged to obtain one. It can require information and assistance from national authorities. The proposals also suggest that it can operate under its own rules on the admissibility of evidence.

The committee, in considering these proposals, concluded that the proposal fails the subsidiarity test. The report lists nine bullet points at paragraph 14 to justify that opinion. I will briefly underline or summarise a few of them. First, we suggest that there are better alternatives, based on the current framework, which is built on criminal enforcement by member states. More can be done to prevent fraud happening in the first place through good quality legislation and careful administration of resources by the Commission and member states. We should remember that 80% of all European Union funds are administered by member states themselves. That is a vital factor, which should be taken into account. Co-ordinated action needs to be improved, but we do not believe that this particular proposal for this particular kind of office is justifiable.

The EPPO would undermine the effectiveness of existing EU fraud-fighting organisations such as Eurojust and OLAF. Giving the EPPO exclusive competence would create an unnecessary faultline between national and European Union efforts to counter fraud, introduce complication, and risk the moral hazard that member states will feel that they can leave EU fraud to the European Public Prosecutor’s Office. By contrast, it must be a shared responsibility, particularly given that, as I emphasise again, 80% of all European Union funds are administered by the member states themselves. Our committee was concerned that the proposal would interfere disproportionately in the sensitive area of member states’ criminal law systems, by conferring exclusive powers on the public prosecutor’s office and giving it power to dictate how finite national criminal law enforcement resources are deployed and by allowing it to operate according to its own rules on the admissibility of evidence.

Our committee found that the Commission has not made its case adequately. It underestimates the costs and overestimates the benefits of such an office, particularly as at least two member states, the UK and Denmark, will not be participating. The Government have made it clear that the UK is not going to opt into this proposal and, indeed, that a referendum would be required for it to do so. It is nevertheless, in our view, appropriate for this House to issue a reasoned opinion,

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and it does not absolve the House from coming to a position on the issue of subsidiarity. All national parliaments have a special role to play in monitoring compliance with subsidiarity in accordance with the treaties, and many national parliaments have been very active on this proposal.

Although Article 86 of the Lisbon treaty specifically envisaged the creation of a European Public Prosecutor’s Office, that does not undermine our reasoned opinion. First, the article is permissive. Our opinion is consistent with the treaty—we do not challenge the right of the EU to create such a body, but are saying that this particular set of proposals is far-reaching, intrusive and infringes the principle of subsidiarity. Under the subsidiarity procedures, national parliaments can force European institutions to review a proposal—it requires, as I understand it, 14 parliamentary votes across the union. Fascinatingly, there has been, in the past few weeks, a growing groundswell of parliamentary opinion across the union critical of these proposals. I understand that we have already reached 14 parliamentary votes and five more are in the pipeline including, I hope, in this House tonight. The House should support the report and our reasoned opinion, and put further pressure on the Commission to review these radical and unacceptable proposals.

Lord Hodgson of Astley Abbotts (Con): My Lords, I rise to support the noble Lord, Lord Rowlands. He has laid out the case as to why this proposal to establish a European public prosecutor’s office does not comply with the principle of subsidiarity with forensic skill, and I will try to avoid repeating what he has said.

I was a member of Sub-Committee E, both at the time of issuing this subsidiary assessment and of the publication of the report, The Fight Against Fraud on the EU’s Finances. That report found that there appeared to be a significant level of fraud within the EU budget, and that official figures appeared, at least to us, to significantly underestimate the volume and value of that fraud. Therefore, at first blush one has some sympathy with a proposal that appears to have as its objective, the sharpening up of the organisational response to these defects. Further to that, our report found significant weaknesses in the work of the European anti-fraud office, known as OLAF, which included tensions between the supervisory committee and the executive arm of the agency; frequent turnover of representation so that consistent policies were not followed through; an absence of classification of fraud offences, which the noble Lord referred to; a reluctance to name and shame countries where it appeared that fraud was taking place; and last but not least, a lack of will among member states to report and follow up suspected cases of fraud.

To be fair to the commission, it has put in place a number of measures to improve OLAF’s operational efficiency, notably the regulations adopted just six weeks ago on 11 September. However, one of the more depressing features of the Brussels bureaucracy—at least to a Euro-agnostic like me—is the tendency, where an organisation is not operating up to par, not to undertake a serious attempt to improve the efficiency, but instead to pile on top of, or in this case alongside,

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that organisation yet another body to look after it. It is almost certain that an EPPO operating alongside OLAF and Eurojust will surely only serve to undermine OLAF’s work at this time, when the recent changes just introduced, as I mentioned, should give it a new sense of purpose and direction.

I particularly share the view expressed in the report that the anticipated costs of running the EPPO are woefully understated; a net annual cost of just €6.1 million is surely not credible. The reason for the subsidiarity judgment is that the fight against EU fraud needs to be developed from first principles, and they can be done without the introduction of the EPPO. The Commission needs to improve the clarity of its budgeting system; improve its own systems for overseeing that budget; and work more closely, where appropriate, through OLAF and Eurojust with member states so that they investigate and prosecute fraudulent activity with vigour and purpose.

The noble Lord, Lord Rowlands, quite rightly focused on the impact of this proposal on the national criminal law systems of individual member states. He was right to do so and I support him. However, I believe that even if it were possible to overcome these principle objections—and I, for the record, do not believe this would be possible—establishing the EPPO would, on purely practical grounds, likely offend the principle of subsidiarity and undermine the existing organisations of OLAF and Eurojust at the same time.

My concern on this point was underlined by the Written Statement published in Hansard on 15 October, which states:

“Vice President Reding presented her recent proposals for the creation of a European Public Prosecutor’s Office … There was support, in principle, from a large proportion of Member States … but less agreement on issues of substance, including scope; structure; competence; powers; jurisdiction and governance”.—[Official Report, 15/10/13; col. WS 52.]

In effect, the EU member states could not agree how this thing should be proceeded with on any practical level, and that is why I support this reasoned opinion.

Lord Dykes (LD): Since my noble friend described himself as a Euro-agnostic, I do not think I would offend my friend—not noble friend—on the Labour side if I called him a Euro-realist or sometimes a Euro-hesitator about a number of aspects which he analyses with great precision. I am an unashamed Euro-enthusiast and yet, none the less, I think there is agreement about this particular document and report as was seen in the way in which we couched our recommendations having studied this matter carefully.

The European Union is evolving after the Lisbon treaty in what I hope will be a gradually accelerated fashion. It is inevitably slowed down by the realities of economic austerity and slowed down in the national economies of all the member states, not just the leading ones. That is a reality that we see, as well as the constant difficulty of blending different national cultures in all sorts of areas. Perhaps one of the most difficult areas is the law and the legal sector, because of the noticeable difference of the Anglo-Saxon legal system, mainly in the UK and Ireland, the Roman legal systems of the other member states, mixed with some of the new member states since 2004.

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That is just the reality; it is not to be hostile to the evolution of Europe by annunciating those realities that we are facing in all sorts of complicated sectors. This one is particularly complicated, and I think that this is an occasion where the member states expressed a general support for the notion and the concept, but maybe for the future, as the noble Lords, Lord Rowlands and Lord Hodgson, mentioned without going into the details. Subsdiarity must be a real element of the Lisbon treaty in order to provide reassurance to the national publics of each member state, particularly the one in this country, which is particularly fragile in its Euro-hesitation; this disturbs me greatly because I think it is unnecessary, but it is because of the fight between the political parties and the rise of UKIP. It is necessary to balance all those things and not to rule out this concept for the future.

There is every prospect that the EPPO concept itself will gain confidence if it goes slowly forward but the national legal systems demand that the national prosecutorial authorities have the upper hand in the initial stages of that timeframe, which may be quite long, over a number of years, to gain reassurance. We have the co-operative tradition anyway between the forces of law and order in the European cockpit. Europol is proving to be a great success—under a UK executive head, I am glad to say—and is developing apace, and so are the other instruments that were mentioned by the two previous speakers in this debate.

If that is the way to do it, it may be that in future the EPPO will have a pragmatic construct, a special piece of instrumentation by way of a regulation agreed between the Council and the European Parliament that would include the national prosecutorial authorities inside the EPPO system to reassure the public, who will feel that subsdiarity will have therefore been satisfied. Our need for subsidiarity in a number of areas needs to be expressed. People should not be nervous about doing that. This is a classic example. I am very glad to be on the same committee as the noble Lord, Lord Hodgson, and to support enthusiastically this recommendation.

Baroness Smith of Basildon (Lab): My Lords, I thank my noble friend Lord Rowlands for his explanation of the committee’s report. There seems to be a remarkable degree of agreement between us all this evening. I am pretty sure that the Minister is not going to demur from that.

This is a very detailed technical issue and it is quite clear from the speeches we have heard that not only does it deserve detailed scrutiny, it has received that scrutiny. This is not a new proposal. It has been raised on a number of occasions. The negative response from the Government is not new either.

Even before the 2001 Green Paper from the Commission first proposed a European public prosecutor, the idea had been discussed, particularly in discussions on the Nice treaty, when an outline proposal was put forward but then dropped through lack of member state support. In response to the Green Paper, the European Scrutiny Committee in the other place reported in 2002, saying that it was,

“unnecessary, particularly given the existence of Eurojust”.

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At that time, the committee identified a number of concerns. Those concerns remain, for example: the combination of prosecution and investigative functions; the power of the EPPO to commit a person for trial and determine the location of the trial; the creation of differing standards of criminal responsibility for fraud depending on whether or not it related to fraud on the community’s financial interests; the lack of democratic accountability for the prosecution function; and, of course, the breach of the subsidiary principle and dilution of member state responsibility for prosecution of fraud.

Since then, the creation of a specialist EU prosecution authority has been raised again but still has not gained the support it would need to proceed. The 2011 European Scrutiny Committee echoed the concerns of the 2002 committee when, in recommending the 2011 communication for debate in the European Committee, it cautioned against the “inappropriate and unacceptable” use of national criminal justice systems in acting against crimes against EU finances.

However, as my noble friend Lord Rowlands made clear, it is fair to say that this proposal has not been thought up in a vacuum. It seeks to address a genuine problem and we recognise the seriousness of that problem, which is that there needs to be greater protection of the EU’s financial interests and we need to see further improvements in how the EU deals with fraud. The level of suspected fraud against the EU budget is obviously and rightly a source of concern. The report refers to the Commission’s estimate that it stands at around €500 million, or £425 million, in each of the last five years. British taxpayers bear part of the cost of that fraud, which is totally unacceptable. We must seek new and better ways of tackling this fraud, preventing it and bringing those responsible to justice.

The question that the European Union Committee was looking at was: is the EPPO the best way of achieving this? We again concur with the committee’s conclusion that it is not. We made our position clear when in government, and that has not changed. Our position remains, as my noble friend Lord Rowlands outlined very clearly, that the proposal for an EPPO breaches the subsidiarity principle. It is clear that the national-level approach, supported by existing EU mechanisms, is more appropriate.

When we signed the Lisbon treaty, we made it clear that although the treaty could allow for such an office, we were strongly against it, as the noble Lord will recall. We insisted on a “double lock” to ensure that it could not be established. Indeed, your Lordships’ House was, as always, very diligent in its scrutiny of this measure and, following debate, supported the position made very clear by my noble friend Lady Ashton of Upholland in 2008, when she said:

“We have secured legally watertight safeguards in the treaty against any move towards a European public prosecutor or subsequently, and just as important, towards extending that prosecutor’s role. It is what we would call a double lock”.—[Official Report, 9/6/08; col. 454.]

We were not just opting out at that point but securing essential safeguards for the future, which we are able to use today.

28 Oct 2013 : Column 1406

That double lock meant that, in order to proceed, the UK would first have to opt in and then, even if a future Government decided that they wanted to opt in, there would still need to be unanimity, and that would be retained for any decision to establish a prosecutor or extend the powers of any such prosecutor. Therefore, we concur with the comments made by the noble Lord, Lord Rowlands, on behalf of the EU committee, that the creation of the EPPO was not the appropriate response to tackling fraud.

8.30 pm

The noble Lord, Lord Rowlands, outlined a number of issues of concern and we concur with them, particularly the point that the proposal would transfer responsibility for tackling fraud against the EU budget away from national-level decision-making to a supranational authority. The European delegated prosecutors would be required to prioritise EU fraud above other crime at a national level. It has always been a red line for us that member states determine their own national priorities, and the consequent use of resources for those priorities, in tackling crime.

Also, an EPPO system would result in a duplication of established national-level efforts to protect member-state and EU financial interests, including organised crime. It is somewhat surprising—and I read the reports again in case I missed something—that, although the Commission has reported two consecutive years of decrease in fraudulent and other irregularities affecting the EU budget and their estimated financial impact, it has not waited to evaluate the impact of the proposed new directives on tackling this issue. There is a danger that the establishment of an EPPO could disrupt that work.

The best way to tackle fraud is through prevention; that is reflected in the UK's own policy of zero tolerance towards all fraud, using robust management controls and payment systems, and requiring all agencies with responsibility for distributing EU funds to have processes in place to monitor and report fraud. There are genuine and—we consider—justified concerns that an EPPO would cause a shift from prevention to reaction after crimes have been committed, because each member state would be, in effect, less responsible for anti-fraud work at national level. Therefore, in terms of the practicalities and the implications of such an office as I have outlined, the creation of the EPPO fails the test.

The creation of an EPPO also fails the test on the important principle of subsidiarity. The principle is that the EU shall act only when,

“the objectives of the proposed action cannot be sufficiently achieved by the Member States”,

and that case has certainly not yet been made. On that specific point, it would perhaps be helpful if the Minister could tell us what further proposals the Government have, and in what timescale they will be able to bring them forward, for the UK to play its part in tackling EU fraud. If he has that information with him tonight, it would be helpful if, as part of this debate, he could show that we are playing our role and that he has further proposals to bring forward.

I welcome the committee’s report on this issue, and I welcome the Government’s approach on it as well. I

28 Oct 2013 : Column 1407

hope that it remains the way forward for discussing issues relating to Europe, particularly on criminal justice matters. The Minister will be aware that we discussed similar issues on criminal justice on more than one occasion in this House, and he will be aware of our frustrations that government proposals seemed to be led by internal party and coalition concerns, rather than by what we regarded as being essential: the practical, principled and hard-headed examination of UK interests.

We have had the hokey-cokey of the opt in, the opt out and then the opt in again on justice and home affairs issues. In those debates, we fortunately had the wisdom of the European Union Committee of this House, and the debates we had then benefitted greatly by being shaped by the detailed, factual reports of that committee. As tonight, they were excellent, informative debates with contributions from noble Lords on the practicalities as well as the principles before us.

I appreciate—and I say this genuinely to the Minister—that Europe is a difficult internal issue for the Government, both in the Conservative Party and in the coalition, but we have to co-operate in order to have a real impact on crime. I am thinking particularly about cross-border crime, such as drugs trafficking, people trafficking and international fraud, where we greatly benefit from co-operation. Decisions must never be taken for internal party-management reasons; they must always be taken with a hard-headed practical approach in the national interest.

The tone of tonight’s debate is very welcome. We support maintaining the policy. We support the report from the EU Committee and the reasoned opinion. I look forward to hearing the Minister’s comments.

The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach) (Con): My Lords, I thank the noble Lord, Lord Boswell of Aynho, for tabling this debate. He cannot be here this evening because he is exercising his responsibilities as chairman of the European Union Committee. I thank the noble Lord, Lord Rowlands, for moving the Motions of the committee and its reasoned opinion on the European Public Prosecutor’s Office proposal and for presenting the issues so clearly—as does the report that the committee produced.

It is laid out in the EU treaties that the Commission must consider the principle of subsidiarity when drafting all EU legislation. It must also include a detailed subsidiarity statement in the published text. It should be,

“substantiated by qualitative and, wherever possible, quantitative indicators”.

In effect, the Commission should not only say that the principle of subsidiarity has been met but also clearly demonstrate how it has been met and provide well researched and accurate evidence. To assess this, there is a two-limbed subsidiarity test. The Commission should clearly demonstrate in its rationale and impact assessments that the objectives of a proposal cannot be sufficiently achieved at member state level—the first limb of the test—and then that the objectives of a proposal can be better achieved at EU level by reason of their scale and effect, which is the second limb and the so-called EU added-value test.

28 Oct 2013 : Column 1408

The EU treaties give this House and Parliament the right to decide whether the proposal meets both limbs of the subsidiarity test. If noble Lords believe that the Commission has failed clearly to demonstrate that EU-level action is necessary and is of added value, it is their right to say so by issuing a reasoned opinion. This is therefore a matter for Parliament and not for the Government. In the case of the European Public Prosecutor’s Office proposal published in July this year, as we know, the European Union Committee considered the two-limbed test and found that the proposal does not comply with the principle of subsidiarity. The reasoned opinion clearly lays out the reasoning. The Government agree with the European Union Committee’s assessment.

In the Government’s Explanatory Memorandum on the proposal, we made it clear that we do not believe that the principle of subsidiarity has been met in this case. We share the view that the Commission has not presented a convincing case. The figures used by the Commission to justify the EPPO are flawed and inflated, while other evidence draws on inappropriate, partial and unsubstantiated information. There are many gaps and blanks, especially in the costs of change and future funding needs. While of course the issue of fraud must be tackled at all levels—including when it involves funds that form part of the EU budget—we do not agree that the establishment of an EPPO is the right approach. The relevant legal base in the treaties—Article 86 of the Treaty on the Functioning of the European Union—says that a European Prosecutor’s Office “may” be established. The treaties do not say that it “shall” be created, yet the Commission presents that as the only solution.

The Commission has not allowed time for current reforms at national level to take effect and make a difference. For example, reforms to the European Anti-Fraud Office—OLAF—are currently being introduced to improve information exchange between OLAF and national authorities and to improve OLAF’s internal quality control. Indeed, a new regulation governing the work of OLAF entered into force only on 1 October. We hope that the improved quality of evidence provided by OLAF to national courts will address many of the conviction issues that the Commission raises in its assessment of the EU fraud problem. These changes need time to be implemented before any action is contemplated. The Commission has not considered adequately other options to strengthen the current system further. For example, it has not considered enhanced incentives or other options for reform at regional or national level in any detail or in a rigorous manner.

In the Government’s view, the best way to tackle EU fraud is through prevention. The UK has a zero-tolerance approach to all fraud, with robust management controls and payment systems in place that seek to prevent incidents of EU fraud. Additionally, we should continue efforts that are already being made to strengthen the current system. The House is also aware of our long-standing position in the coalition agreement not to participate in the establishment of any European Prosecutor’s Office. The details of the proposal serve only to reinforce that position. This proposal is unnecessary, unsubstantiated and unwelcome.

28 Oct 2013 : Column 1409

On the principle of subsidiarity, every reasoned opinion sends a political message to the Commission. If a quarter of the votes allocated to EU national parliaments were cast, the so-called yellow card would be triggered. The Commission would then be obliged to review the proposal. I am pleased to say that, as the noble Lord, Lord Rowlands, indicated, the 14-vote threshold has now been achieved in the case of the European Public Prosecutor’s Office. I firmly believe that this House should join that group and send a political signal to the Commission that its proposal does not meet the subsidiarity test.

I thank the noble Lord, Lord Rowlands, for the way in which he has presented the report of the EU Committee, members of that committee and my noble friends Lord Hodgson of Astley Abbotts and Lord Dykes for their contributions to the debate. It has been a thorough report and a good debate. I thank the noble Baroness, Lady Smith of Basildon, for her support on this issue. Time is of the essence. I understand that our votes have to be in by midnight tonight.

To conclude, this Motion is for Parliament. It is not for the Government to act. I can only encourage your Lordships to agree this reasoned opinion and exercise the right given to this House under EU treaties.

Lord Rowlands: Our committee will take great comfort and satisfaction in the nature of this debate and in the unanimity that exists. I will not be tempted to rise to the bait of the noble Lord, Lord Dykes, and describe my Euro-tendencies at this time, except to say that this is one of the rarer moments when he and I agree on European issues. We have not agreed in the past. We certainly can agree on this issue.

I thank all those who have spoken. The noble Lord, Lord Hodgson, rightly emphasised the changes that are occurring within the existing institutions; the door should be left open to carry them through. My noble friend Lady Smith on the Front Bench rightly said that the primary responsibility will lie with national jurisdictions. That is where 80% of the funds are administered. Article 325 of the treaty says that responsibility for dealing with European fraud lies both with the Union and with member states. This proposal is therefore in this context wrong and I am delighted that all of us who have spoken in this debate share that view.

Motion agreed.

European Public Prosecutor’s Office (Reasoned Opinion)

Motion to Resolve

8.44 pm

Moved by Lord Rowlands

To resolve that this House considers that the Commission proposal for a Council Regulation on the establishment of the European Public Prosecutor’s Office (COM(2013)534, Council Document 12558/13) does not comply with the principle of subsidiarity, for the reasons set out in the 3rd Report of the European Union Committee (HL Paper 65); and,

28 Oct 2013 : Column 1410

in accordance with article 6 of the Protocol on the application of the principles of subsidiarity and proportionality, instructs the Clerk of the Parliaments to forward this reasoned opinion to the Presidents of the European institutions.

Motion agreed.

Energy Bill

Energy Bill5th 6th 9th 11th Reports Delegated Powers Committee

Report (1st Day) (Continued)

8.45 pm

Clause 6: Regulations to encourage low carbon electricity generation

Amendment 6

Moved by Baroness Verma

6: Clause 6, page 6, line 4, at end insert “or (CFD notification: offer to contract on standard terms)”

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con): My Lords, I shall speak also to the other government amendments in this group. These changes provide important clarifications to the implementation of contracts for difference and in addition respond to a number of recommendations made by the Delegated Powers and Regulatory Reform Committee, for which the Government are very grateful. This group also contains a number of minor but essential and consequential amendments.

Amendments 16 and 38 on contracts for difference give the Secretary of State the power to issue and revise standard terms for contracts for difference, subject to consultation and under an explicit duty to consider the matters listed in Clause 5(2), and to publish those standard terms. Amendments 17 and 19 enable provision to be made for how the system operator will notify the CFD counterparty that an eligible generator has been allocated a CFD and, in turn, how the CFD counterparty is to offer a contract to an eligible generator.

Amendment 18 provides for the Secretary of State to set out how the system operator will run the allocation process, in particular through an allocation framework, which will cover such areas as: the process to be used, such as the competitive process in the event of a constraint; the timing of allocation rounds; and any targets, such as minima and maxima, which the system operator will need to consider. The Government are seeking to include this sort of provision in an allocation framework, as opposed to in a statutory instrument, because these are issues that might need to change at short notice in order to manage costs and to ensure value for money along with the smooth functioning of the allocation process. However, it is important to note that the allocation framework will not be free-standing. Provision for an allocation framework will need to be set out through regulations, which will be subject to the affirmative procedure.

Amendment 20 gives the CFD counterparty the power to agree minor and necessary modifications to the standard terms, prior to contract signature. This ensures that the CFD regime is open to the widest possible range of eligible generators, while maintaining a level playing field. Amendments 13, 14 and 15 are

28 Oct 2013 : Column 1411

consequential amendments, recognising that Clause 10 now refers only to contracts for difference that result from bespoke negotiations with the Secretary of State. This is because powers for contracts for difference that result from allocation by the system operator now have their own clause.

Amendment 21 enables provision to be made in regulations to enable calculations or determinations required by the regulations. Such calculations or determinations are to be made by specified persons—for example, the CFD counterparty. Amendments 6, 10, 26 to 37 and 39 are all consequential to the principal amendments that I have set out.

Amendments 8, 56 and 44 move most secondary legislation relating to contracts for difference, investment contracts and the capacity market to the affirmative resolution procedure, increasing parliamentary oversight in accordance with the recommendations of the Delegated Powers and Regulatory Reform Committee. Amendment 56 also goes beyond the committee’s recommendations by making all secondary legislation in Parts 1 and 3 of Schedule 2 subject to the affirmative procedure. This ensures that the provisions in Schedule 2 are consistent with the equivalent provisions in Chapter 2 on contracts for difference.

Amendment 40 also responds to the committee’s recommendations by preventing the authority—Ofgem—from conferring additional functions on itself when exercising the powers under Clause 28(3) to make capacity market rules, except with the consent of the Secretary of State. However, since tabling this amendment, the DPRRC has provided a further report and makes a recommendation in relation to this, which I will be considering carefully ahead of Third Reading.

Amendments 9, 45 and 57 make explicit provision that regulations made under contracts for difference, the capacity market and investment contract powers will not be treated as hybrid. I have tabled these amendments because the secondary legislation implementing EMR may specify determinations made by Elexon for the purposes of settlement of payments under these powers. As such, the regulations may potentially be considered hybrid and subject to investigation by the Hybrid Instruments Committee. The Government do not think that this is necessary or appropriate, as the existing duty to consult before making regulations will ensure that Elexon’s private interests are fully considered. My department is already working closely with Elexon, which has also confirmed that it has no objections to these amendments. To avoid the risk of delay to the programme and the investment that it will bring forward, I have tabled these amendments to make it clear that no hybridity will arise.

Amendments 11, 12 and 58 are minor drafting amendments with no impact on the substantial legal effect. They have been tabled in order to avoid any perception that we are giving the counterparty new powers to recover moneys owed to it. Amendment 46 is another minor change to make it clear that the duty to consult before making capacity market rules can be satisfied by consultation undertaken before Royal Assent. This aligns Clause 35 with other provisions of the Bill, such as Clause 18(2) and Clause 34(3).

28 Oct 2013 : Column 1412

Finally, Amendments 52 to 55 are minor and technical drafting amendments to clarify that an investment contract will continue to be an investment contract even where a party ceases to be an “electricity generator”, and that the definition of an “investment contract” is satisfied if at least one generator is under an obligation to make payments under the contract. I hope that noble Lords find that a helpful explanation of the government amendments and I beg to move.

Lord Roper (LD): My Lords, I have tabled Amendment 41 in this group to give the Minister an opportunity, to which she has already referred, to respond to the 11threport of the Delegated Powers and Regulatory Reform Committee. The committee felt that the proposal in Amendment 40 was not satisfactory as it would still give the authority power to confer functions on itself without the consent of the Secretary of State, even though the proposed new subsection would allow for such consent to be given generally in relation to the capacity market rules of a particular kind. In its report, the committee did not find that a totally satisfactory response. I ask my noble friend whether she will be able to give some consideration to this point and perhaps bring back at Third Reading an amendment to Amendment 40, which will go some way to respond to the committee’s report.

Baroness Worthington (Lab): My Lords, I am grateful to the Minister for introducing this group of amendments. This goes to show that the Government are listening—at least to the Delegated Powers and Regulatory Reform Committee if not, perhaps, to all sides of the House. It has obviously had more success in amending the Bill than some of us in our many days in Committee over the summer. There are a number of amendments here, many of which implement the recommendations.

To strike a serious note, it is important that the Government have listened and accepted the advice of the Delegated Powers Committee. This is quite an extraordinary Bill. It is quite an extraordinary intervention into the market and it carries with it quite considerable enabling powers that give the Secretary of State a huge amount of discretion in how he or she will intervene in the electricity market. It is only right and proper that those powers are subject to the affirmative resolution procedure in as many places as possible, so there can be a degree of parliamentary oversight in what is going to be a hugely significant intervention into the market.

The noble Baroness spoke to some of the amendments which relate to the allocation of contracts for difference under the levy control framework. I seek some form of comfort, and confirmation from the Minister that we will not descend into a system of micromanagement, trying to split up the pot of money into ever smaller, more precise groupings of technologies. We have seen this happen with other DECC policies; with the renewable heat incentive, for example, and the banding of FITs. This temptation to micromanage, to carve up the market and pick winners to make sure that we have control over what comes forward can make for a regrettable situation. It is regressive because it does not allow the market to demonstrate where there is a success. It does not allow the market to find solutions.

28 Oct 2013 : Column 1413

I find it quite odd that I am here on the Labour Benches chastising the Conservative Government for not allowing the market to deliver. However, it is clear that this is the current thinking: that we should not allow the market and competition to dictate but somehow try to use the powers in the Bill to organise and plan everything from the top down. That is a recipe for disaster. I am sure that others will agree with me that where we have already seen that in operation, with FITs and RHI, it has been shown to be really sub-optimal. I only say that as an illustration of why it is so important that the many regulations which will flow from the Bill are subject to full and proper parliamentary scrutiny, so that we can try to prevent some of those worst examples being repeated on a much larger scale.

I am grateful to the noble Lord, Lord Roper, for tabling his amendment, which is intended to correct one of the few issues which the Government have not conceded in response to the Delegated Powers and Regulatory Reform Committee. I look forward to the noble Baroness’s response to that, because it is evidently important that it has been raised here.

Baroness Verma: My Lords, I thank my noble friend Lord Roper for Amendment 41, which would remove paragraph (b). I am aware that this is in line with the recommendation of the Delegated Powers and Regulatory Reform Committee.

Before concluding on my noble friend’s amendment, I will respond to the noble Baroness, Lady Worthington, on splitting and micromanagement of the levy control framework. We are not looking to pick winners, but to ensure that costs can be controlled and that new technologies can come to the market. Like the noble Baroness, we want to see greater competition and new entrants. The last thing that we would want to do is to micromanage that and pick winners and losers. However, as with all things, there needs to be some management of ensuring that costs do not overrun or become artificially maintained.

I say to my noble friend Lord Roper and other noble Lords that I will consider carefully the committee’s recommendation and my noble friend’s amendment to the proposed powers in Clause 28 with a view to addressing them at Third Reading.

Amendment 6 agreed.

Amendment 7

Moved by Baroness Worthington

7: Clause 6, page 6, line 5, at end insert—

“(2A) The Secretary of State shall as soon as reasonably practicable, and no later than five years from enactment of this section, by regulations provide that contracts for difference are subject to a competitive tendering process.

(2B) These regulations shall be subject to the affirmative resolution of both Houses of Parliament.”

Baroness Worthington: My Lords, briefly, we had a good and thorough discussion about the need for greater competition in the Bill; I do not intend to fully rehearse all the earlier comments. The amendment is intended to ask the Government when we will move away from an administrated, bilateral negotiation of

28 Oct 2013 : Column 1414

CFDs to a more competitive tendering process. It seems that the entire Bill is subject to state aid approvals from the EU. I am sure that one of the main tenets of the argument being put to the EU will be that we are treating all technologies equally—that there is element of competition and a proper tendering process. That is not currently the case as the Bill is drafted at the moment. There is no indication in the legislation of a timeline to which the Government are working. There is no hint at when we will be moving to this competitive process. We hear that that is the intention but there is nothing in the Bill that compels it to be the case.

The reason for this amendment is to ask, if this amendment were accepted, that within five years of enactment the process of bilateral negotiation would cease and we would move to a competitive tendering process. Five years is perhaps too long or too short; I am not saying that it is a precise number. The point is that we cannot carry on for very long in this bilaterally negotiated world, where there is really no transparency at the moment and we do not see technologies being treated equally.

These are my two questions. What is the timeline to which the Government are working to get to this more competitive process? Can the Minister comment on any feedback that she has had from the EU on the need to get to this state and to move away from the bilateral negotiations?

9 pm

Baroness Verma: My Lords, I thank the noble Baroness, Lady Worthington, for this amendment. It offers us another opportunity to debate the important matter of competition within EMR. Amendment 7 relates to the competitive allocation of CFDs. I begin by reassuring the noble Baroness and noble Lords that we have carefully considered competition throughout the design of EMR. Of course, CFDs themselves will enable new low-carbon generation to compete in the market.

We recognise the role that the competitive allocation process, including auctions, can play in ensuring least-cost decarbonisation for consumers. Indeed, the Secretary of State has stated that the reforms in the Energy Bill are specifically designed to,

“blaze a trail towards competition”.

However, we view the competitive allocation of CFDs as a means to ensure low costs to the electricity consumer rather than as an end in itself. Competitive allocation can help drive value for money only when market conditions allow. Key tests of the market conditions include the supply of new low-carbon generation exceeding the amount we need to meet our decarbonisation commitments, and there being enough potential players to ensure sufficient competitive tension.

Moving to competitive allocation before these conditions are met may increase risks to developers and costs to the consumer, without necessarily bringing the benefits of a competitive allocation. Of course, it is possible that the conditions for competitive allocation may be met relatively soon. In respect of most renewable technologies, we have said that we will consider moving immediately to allocation rounds and introducing constraints for certain technologies or groups of technologies, which might have the effect of triggering

28 Oct 2013 : Column 1415

auctions for those technologies. In respect of nuclear and carbon capture and storage technologies, our officials are already working with stakeholders to explore how competitive tenders could work for those technologies. Where competitive allocation processes are not feasible or effective, I can reassure noble Lords that any final allocation decision will still be subject to strict value-for-money considerations and an assessment of an overall budget constraint.

Therefore, I say to the noble Baroness and to noble Lords who have expressed the concerns behind this amendment that we do care about value for money, but I do not think that a requirement to run competitive allocation processes within five years of enactment of the Bill is the right way to ensure value for money. Instead, we should focus on the action that we are taking to improve underlying conditions for new low-carbon generation and reduce barriers to entry, which may enable a faster move to competitive allocation processes. As I set out in an earlier debate, these include Ofgem’s ambitious package of reforms to improve market liquidity and meet the needs of independent generators, and our amendment to the Energy Bill to allow for the establishment of a power purchase agreement scheme, which will bring greater competition to the PPA and generation market.

The noble Baroness asked for an update about state aid. As she knows, we do not comment on discussions that we have with the Commission on state aid. As noble Lords might expect, it is likely to place importance on competition, as we do. However, I assure the noble Baroness that those conversations on state aid are taking place.

The noble Baroness also asked about the timescale for moving. Throughout my speaking notes I have tried to reassure the noble Baroness that we move as fast as we can. I therefore urge the noble Baroness to withdraw her amendment and be reassured that the Government take her concerns very seriously.

Baroness Worthington: I thank the Minister for her response. I am not fully reassured by her comments, but I am grateful for them. There is a bit of a problem here. The basic premise is to try to get to a point where all technologies can be treated equally. However, as the noble Baroness points out, not all technologies are at the same stage of development, so we find ourselves in quite an odd situation. We cannot allow this to persist. We must apply a discipline and a timetable to ourselves to ensure that when we move to the next decade, we will arrive at a point where we are able to compare apples and pears more adequately. We want to get to a position where, for the sake of the consumer, we fund only technologies that can deliver cost-effectively.

It is very good to hear the Minister mention value for money, as that is at the heart of my concern. At the moment we have strike prices here and there, and different contract lengths. We must seek to simplify this so that the best technologies can come forward. That will obviously take time. I hope that we can move swiftly to a much clearer and more competitive process, and I hope that time will achieve that. I beg leave to withdraw the amendment.

Amendment 7 withdrawn.

28 Oct 2013 : Column 1416

Amendments 8 and 9

Moved by Baroness Verma

8: Clause 6, page 6, line 24, leave out subsection (8) and insert—

“(8) An instrument containing regulations of any of the following kinds may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament (in each case, whether or not the regulations also make other provision)—

(a) the first regulations which make provision falling within each of the following—

(i) section (CFD notification: offer to contract on standard terms);

(ii) section (Modification of standard terms);

(iii) section 13;

(iv) section 14;

(b) regulations which make provision falling within—

(i) section 9;

(ii) section 10;

(iii) section (CFD notifications);

(iv) section (Allocation of CFDs);

(v) section 11;

(vi) section 12;

(vii) section 15;

(viii) section 16;

(ix) section 17.”

9: Clause 6, page 6, line 29, at end insert—

“( ) If, but for this subsection, an instrument containing regulations would be treated for the purposes of the standing orders of either House of Parliament as a hybrid instrument, it is to proceed in that House as if it were not a hybrid instrument.”

Amendments 8 and 9 agreed.

Clause 8: Duties of a CFD counterparty

Amendment 10

Moved by Baroness Verma

10: Clause 8, page 7, line 25, leave out “or the national system operator”

Amendment 10 agreed.

Clause 9: Supplier obligation

Amendments 11 and 12

Moved by Baroness Verma

11: Clause 9, page 8, line 31, leave out from beginning to end of line 33 and insert—

“( ) Any sum which—

(a) an electricity supplier is required by virtue of regulations to pay to a”

12: Clause 9, page 8, line 36, at end insert—

(none0) “may be recovered from the electricity supplier by the CFD counterparty as a civil debt due to it.”

Amendments 11 and 12 agreed.

28 Oct 2013 : Column 1417

Clause 10: Direction to offer to contract

Amendments 13 to 15

Moved by Baroness Verma

13: Clause 10, page 8, line 44, leave out “or the national system operator”

14: Clause 10, page 9, line 4, leave out “a direction under this section” and insert “this Chapter”

15: Clause 10, page 9, line 15, leave out subsection (6)

Amendments 13 to 15 agreed.

Amendments 16 to 21

Moved by Baroness Verma

16: After Clause 10, insert the following new Clause—

“Standard terms

(1) The Secretary of State may issue standard terms and conditions of CFDs (“standard terms”).

(2) The Secretary of State may from time to time revise standard terms.

(3) Standard terms issued or revised under this section must be in accordance with provision made in regulations.

(4) In issuing or revising standard terms the Secretary of State must have regard to the matters mentioned in section 5(2).

(5) The Secretary of State must publish standard terms as issued or revised under this section.

(6) In publishing standard terms the Secretary of State may designate particular standard terms as terms that may not be modified under section (Modification of standard terms).

(7) Different standard terms may be issued for different categories of CFD.”

17: After Clause 10, insert the following new Clause—

“CFD notifications

(1) The national system operator may, in accordance with provision made by regulations, give a notification to a CFD counterparty (a “CFD notification”) specifying—

(a) an eligible generator, and

(b) such other information as may be required for the purpose of making an offer under section (CFD notification: offer to contract) to contract with that generator.

(2) A CFD notification must not be given if regulations made by virtue of section 17 prevent the giving of the notification.

(3) Regulations may make further provision about CFD notifications and in particular provision about—

(a) the circumstances in which a CFD notification may or must be given;

(b) the kinds of information mentioned in subsection (1)(b) that must be specified in a CFD notification;

(c) appeals against decisions not to give CFD notifications.

(4) A CFD notification may not be given by virtue of regulations under this section in relation to an electricity generating station in Northern Ireland unless the Department of Enterprise, Trade and Investment consent to the CFD notification.

(5) But regulations may, with the consent of that Department, include provision for circumstances in which consent under subsection (4) is not required.

(6) In subsection (4) “Northern Ireland” includes so much of the internal waters and territorial sea of the United Kingdom as are adjacent to Northern Ireland.”