I am tempted to quote at length from the report’s summary, but in the context of this new clause, I will confine myself to just two central findings. Paragraph 16 says:

“Government has made no assessment of the overall impact of infrastructure on future bills or whether those bills will be affordable. Therefore government and regulators are taking decisions on behalf of consumers in the absence of full information about the situation for consumers”.

I do not think anybody would regard that as a satisfactory state of affairs. The report’s first recommendation is, in Paragraph 21:

“The Treasury should ensure that there are mechanisms in place to assess the cumulative impact of infrastructure investment on consumer bills and the affordability implications, particularly for low-income households”.

That sets out the problem very clearly. Not surprisingly, this report from the National Audit Office was taken up by the Public Accounts Committee in another place. Its fifth report was published in June, and the Government’s response followed very promptly. It was published on 1 July. The Government accepted three of the committee’s four main recommendations. They accepted the recommendations calling for the need to factor in the impact of complexity and uncertainty when making or changing policy; calling on regulators to pay closer attention to companies’ financial structures and to the standards of infrastructure providers; and, thirdly, calling on regulators to deliver a co-ordinated approach to their joint working arrangements. I shall follow that up a little later.

There was one important recommendation on which the Government disagreed. It was the recommendation that:

“HM Treasury should ensure that an assessment of the long-term affordability of bills across the sectors is produced and published”.

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They spelt out the reasons for that, and I have no doubt that my noble friend will refer to them and to the difficulty of the whole subject; how robust or meaningful an aggregate affordability analysis can be and so on.

However, there was an extra paragraph at the end from which I drew a little more comfort. The Government’s response at paragraph 3.4 states:

“Nonetheless, the Government agrees that there is scope to improve understanding of affordability in this important area and will continue to work with the regulators on these issues, including”—

this is what really pricked up my ears—

“through the UK Regulators Network which is considering affordability as a key element of its work-plan”.

I had not heard of this network and I therefore thought it right to consult the regulator I know best—namely, Ofgem. I had a very good meeting with its representatives last week. It turned out that that paragraph had virtually been written by Ofgem, so it knew what it was talking about and the organisation was extremely helpful. I was told that it is working through the newly formalised UK Regulators Network. Its aim is to provide an overview of approaches taken by regulators to address, among other things, affordability issues. It also aims to identify the extent of affordability pressures on consumers, primarily in the telecoms, energy and water sectors. It will be paying particular attention to the impact on vulnerable groups of consumers—that is, of course, the fuel poor.

When I discussed all this with my noble friend, I was not altogether surprised to have sight a few hours later of the UKRN Memorandum of Understanding, which I had not been aware of. It was published earlier this year and it is a very interesting and important document which I have studied carefully. I shall come back to that in a moment.

I turn now to my proposed new clause. As I have said, it is intended to write into the Bill the gist of the recommendation of the NAO and the Public Accounts Committee, which of course the Government have so far rejected. I should say at once that I am indebted to the consumer organisation Which?, which has helped me with the drafting of this amendment. I also thank the Public Bill Office for making sure that it is in order. When I first saw it, I had my doubts, but I have been assured that with a few tweaks the office could ensure that it is in order, and I am grateful. Subsection (1) empowers the Treasury to introduce regulations to achieve the main intention. Subsection (2) defines the scope and form of the regulations. Subsection (4) lays an obligation on the Treasury to scrutinise the data and assess the impacts on consumer costs for different groups of consumers. Subsection (7) sets out the list of regulators whose industries are to be covered by the clause.

The Memorandum of Understanding throws useful light on how this might work. Perhaps I may quote briefly from it. Paragraph 2.1 talks about:

Coherent and consistent economic regulation across sectors: we will give a clear joint view where cross-sector regulatory agreement or consistency is needed and will ensure that our actions deal effectively with cross-sector issues”.

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The next bullet point is headed:

Affordability and empowerment: we will work to understand cross-sector issues related to affordability of services, and work on consumer empowerment to ensure that consumers in regulated markets have the information and other tools necessary to engage effectively in markets”.

Those are very important words. Further on it talks about something which has been close to my heart, as my noble friend Lady Kramer will certainly remember—the “promotion of competition”. The noble Lord, Lord Berkeley and I, along with two other noble Lords, moved two amendments at a critical stage of the Energy Bill to improve competition.

The UKRN states:

Promotion of competition in the interests of consumers: we will work, including with the CMA”—

the Competition and Markets Authority—

“and through the UKCN, to improve the use of competition and regulatory levers where appropriate, making markets work better to improve outcomes for consumers”.

It sets out its work programme in Annex 1. I will not quote it all but it clearly refers to:

“Understanding affordability across sectors”,

which is exactly what the Government said in the paragraph I quoted earlier from their response to the Public Accounts Committee. They referred to the,

“scope to improve the understanding of affordability in this important area”.

Therefore, the machinery is there. But I have a number of questions for my noble friend and I wonder whether she will be able to help the Committee. What more can she tell us about the work of this new UK Regulators Network? Is it true that at present its basic staff consists of just two people? That is what I have been told and perhaps she can confirm that. How will its priorities be decided? Even its first-year work programme sets out quite a number of objectives that it wants to look at. Who will be responsible for its decision making? To whom will the UKRN be accountable? That is not clear from the documents I have seen.

If the House is going to put any credence on the statement in paragraph 3.4 of the Government’s response to the Public Accounts Committee, from which I quoted earlier, we need answers to these questions. I look forward to my noble friend’s reply. I beg to move.

Lord Berkeley: My Lords, I support this amendment. When I read it I thought that it was a breath of fresh air, which, from my small experience of some of these regulatory bodies, is very necessary and probably should have come earlier. The noble Lord, Lord Jenkin of Roding, talked about the importance of competition, which we discussed under the Energy Bill. An awful lot of the regulators, which he rightfully lists, under Section 7, are by definition monopolies, because that is the way they are.

I certainly believe that monopolies are generally inefficient because they are not subject to competition. One role of the regulators should be to make them more efficient and make sure that they reduce their costs as much possible and increase their efficiency. On the rail side, the Office of Rail Regulation has a duty to look at Network Rail’s costs and to make a

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decision on whether it is efficient. If it is not, the ORR has a duty to reduce its requirement and to reduce its costs while not affecting the efficiency of the operation. As I said in a recent speech in your Lordships’ House, the ORR has already reduced Network Rail’s costs by about 40% in 10 years. It is rightly intent to continue that trend with another 20% or 25%.

That is designed to make sure that the company is efficient and that, therefore, the customers, who largely are the train operators, get the services at the least cost and look after the interests of the customers. The other thing that the regulator has to do is make sure that the company is properly financed so that it can deliver on its objectives.

6.45 pm

One has to compare that with what Ofwat is or is not doing, in particular with the Thames tunnel, on which I had an Oral Question today. Ofwat’s job should be not only to make sure that the water companies are efficient and have the right financial structure and assets to do the jobs that they are supposed to do but to look after the effect on consumers. In terms of Thames Water, I have to say that Ofwat has probably failed on both counts. In my view, it has not ensured that Thames Water has the necessary assets to fund enhancements on its own. That is why it has gone through the convoluted process of getting another infrastructure provider and has ended up having it financed in Luxembourg with a government guarantee. Ofwat also seems to be quite happy with all 12 million Thames Water customers having to pay £80 a year extra for 40, 50 or 60 years to fund the tunnel. This is regardless of whether we think the tunnel is the right solution. I do not think that it has looked after the interests of its customers particularly well because it should also have looked at whether it was the right solution, and it should continue to do that as possible new alternatives are developed. Therefore, I think that there are some pretty good failures there.

If the amendment were adopted, it would increase the transparency of all these activities to a pretty dramatic extent. It would be a real benefit for consumers to see that these six industries are acting in their interests while making sure that the company has the right structure to undertake its work. Therefore, I congratulate the noble Lord, Lord Jenkin, and fully support his amendment.

Lord Whitty: My Lords, as a former consumer champion, I am fully in support of what the noble Lord, Lord Jenkin, is trying to do here and, in particular, I see the sense in putting it in the hands of the Treasury. The Treasury is the only government department, with the occasional exception of No. 10, which can ensure that individual departments do not go off at a tangent. The problem is not only the multiplicity of regulators but that each of them rests within a culture of a different department. The consumer function, insofar as it is reflected in Whitehall, is a very minor function of the business department’s responsibilities. It is only the Treasury that can insist that regulators and departments really look after the interests of consumers.

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Whether the Government follow through the amendment of the noble Lord, Lord Jenkin, or the NAO’s report, this is something that needs doing, and therefore I hope that we get a positive response.

Lord Davies of Oldham: My Lords, I, too, congratulate the noble Lord, Lord Jenkin, on putting forward a very useful amendment. However, as he indicated, in terms of the level of expertise available among staff currently devoted to aspects of this kind of work in the Treasury and the fact that we would also need some legislation, the whole proposal will produce enormously beneficial results but not next year, nor probably after that. It would take some time before we had the full range of expertise indicated in the noble Lord’s amendment.

He is absolutely right on one thing: of course the country is not prepared to take time over these issues because the consumer is all too well aware that they are bearing the costs of a great deal of interest by the companies. What the companies reflect is what they classically reflect in the private sector—the massive increases in pay for their directors and chief executives since they became independent operators, a significant increase in profit and a whopping price rise for the consumer, who has very little capacity to avoid such price rises.

We know that consumers are meant to move around among the energy companies—we know how easy that is with regard to water, for example, and other areas where the natural monopolies obtain. The noble Lord, Lord Jenkin, has identified what we on this side of the House have emphasised for several years: that the operation of a great deal of these services to the public through such private companies, some of which are natural monopolies, has produced a most distressing situation for people who we all know are seeing nothing in the way of increase in their own resources, with low wage levels, and are meeting ever increasing costs. I therefore strongly support the amendment and congratulate the noble Lord, Lord Jenkin, on making this great effort to produce an outline of what is necessary. However, we will expect the next Government to move more directly even than this proposal.

Baroness Kramer: My Lords, I am afraid that I wear a number of hats with this Bill. While much of the advice has come from the Treasury, I also speak at other times for Defra. I therefore speak as a government Minister across the breadth of a number of issues. I can assure the noble Lord that my noble friend Lord Deighton will be happy to meet him. I hope that he will take advantage of that opportunity, because it is important to share the thoughts that he has expressed eloquently today.

The noble Lord, Lord Whitty, said that departments pay little attention to the consumer and that it is a small part of what they do. That may have been true of the departments that he was part of in his time in government, but if he came today to the Department for Transport, he would hear almost nothing but the words “passenger”, “traveller” and “consumer”. They are key in the way that we have been shaping policy, and I think that one can see it in the response of a lot of the transport industry, which is now beginning to

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put passengers at the heart of what it does. Historically, that might well have been absent and one might have accused much of the industry of being engineering-biased, but I assure the noble Lord that it is certainly not the case in today’s world.

The Government fully recognise the importance of ensuring that infrastructure investment is delivered in a way which protects consumer interests and is affordable to current and future customers. I think that we can say that a lot of the pressures today are caused by the fact that investment in infrastructure essentially disappeared off the radar screen for virtually a generation. We want to be sure that we do not do that to future generations. It is central to government policy and to the work of economic regulators, such as Ofwat and Ofgem, operating in each sector.

However, the Government disagree with this amendment and have some serious reservations about trying to aggregate across sectors for infrastructure costs. Bang our heads as we might, we cannot think of a way in which one could do this that could be robust or meaningful.

Let me try to be practical about this. Different consumers in different parts of the country consume different amounts of travel by rail or air—I am now talking about transport, because it is my area—and different amounts of water and energy, all differently priced. Consumers also use very different amounts of these services depending on their needs and preferences, which makes any attempt to aggregate across sectors, to depict a typical household or clusters or types of household, pretty much impossible. Once one starts trying even to estimate an average, it becomes meaningless.

It is the sector-by-sector assessment of their customer base which regulators do in detail that we think is the effective way to assess consumer impacts and affordability. I am thinking of new transport infrastructure, which would obviously be included in this package. It might give the Committee some understanding of how it is near enough impossible to do this in an aggregate way. Transport investment affects personal affordability in many ways and affects different social groups in different ways. For example, if we bring in a smart motorway scheme, it leads to reduced congestion and you could argue that it leads to reduced fuel bills. On the other hand, because there is reduced congestion, more people may well use the road, so because they are travelling their fuel bills go up. However, it may be that they are making that journey because they now have access to a job or to additional business. You surely ought to net out that benefit in order to come to a conclusion on the additional cost caused by that additional piece of motorway. Getting this sorted out is virtually impossible.

HS2 is probably the biggest piece of infrastructure seen across Europe. We have said that there will not be premium fares, so what number do you put in for the burden on the consumer? Is it the standard fare? You were not including it when that standard fare was being used on the existing line. Is it the additional revenue? Then again you are netting out benefits. To try to unravel this into something that would let you have a formula that would make any real sense is near impossible. It is not really a sensible way in which to

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try to look at this. When we think about capturing cumulative effects in a way that has some meaning, it seems impossible to work your way through the human behaviours and their responses to infrastructure to get you to something that you want.

Back in the department, when we are trying to decide whether to fund a scheme, we try to look at this complex picture. How does the scheme impact on the individual, the environment, the economy or personal health? What happens, in terms of safety, to accident levels and to various other societal benefits? It is based on in-depth, long-standing scientific evidence about how people and businesses value different things. It is just a much more complex picture when we try to put this together into a scheme business case.

The fact that I am saying that cross-sector aggregate measures look at something too complex to come up with a meaningful answer does not mean that the Government fail to take affordability extremely seriously. The Government are taking targeted action on some of the costs that have been discussed today. We have introduced a range of measures to help hard-working families with the cost of living, which is surely what we are all trying to get at. For example, increasing the tax-free personal allowance has a big impact on the cost of living for individuals. Freezing fuel duty has a big impact on the cost of living, as does helping local authorities to freeze council taxes. Those are mechanisms for trying to deal with this set of issues and link in no way to the kind of cumulative cost assessment that is being discussed in this amendment.

Targeted action on bills includes action at the last Autumn Statement, in which the Government announced a series of steps saving the average household around £50 on its energy bills. We recently announced an extension of the freeze on rail fares. Last year, that saved season ticket holders around £70 over 2014 and 2015. It is completely separate from trying to calculate the specifics of a specific infrastructure investment. It has been possible because the Government have a long-term, credible economic plan.

For example, Ofgem undertakes detailed and regular assessment of energy market customers, the affordability of bills and consumers’ ability to pay. Ofgem has published a strategy on consumer vulnerability which set out to understand and identify the causes of vulnerable situations in the energy market and to reduce the likelihood and impact of such situations. It regularly monitors and publishes data on energy disconnections for debt and other issues related to supplier dealings with domestic customers. Suppliers are required by their licences to avoid disconnecting consumers who are of pensionable age, disabled or chronically sick in the winter months—the “winter moratorium”. Ofgem also requires the big six energy companies not to disconnect vulnerable consumers at any time of year, and to reconnect a customer as a matter of priority and usually within 24 hours, if they are later found to be vulnerable. Regulators take these assessments and monitoring of consumers very seriously indeed and see it as an absolutely core part of their role.

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7 pm

Investing in infrastructure is a central part of the Government’s long-term economic plan to build a stronger, more competitive economy. The country will pay a heavy price if we do not invest in the infrastructure essential for our future. To try to have some sort of cost analysis without a benefit analysis really gets you very little of the way that you need to go.

The Office of Rail Regulation estimates that there will be a 14% increase in demand from passengers over the next five years. I think that is an underestimate. There will be an overall increase in tonne kilometres of freight of 3% annually to 2033 and of 2.9% to 2043, all putting additional strain on the system. Much of the infrastructure that supports the network is already nearing its capacity limits. Commuter services into London and other regional centres are already oversubscribed, meaning that increasing capacity is increasingly important in the coming years. To take roads as a further example, if no steps are taken to address the need to increase the capacity of the road network and ease congestion, the UK will suffer economically. A 2006 study of the UK transport system by Sir Rod Eddington warned that the cost of congestion could potentially rise to £36 billion per annum by 2025. All that impacts on people’s lives in a very direct way.

The Government’s infrastructure strategy is based around providing the infrastructure that we believe the country needs now and in future to meet current demand through the renewal of existing infrastructure. Extensive use of the UK’s infrastructure, some of which is many decades old, means that maintenance and upgrades are essential to ensure that current and future generations continue to benefit from it. Upgrading infrastructure also keeps running costs low and ensures smooth and efficient operation with minimal disruptions. The Office for National Statistics forecasts that the UK population will grow to more than 73 million people by 2035, so it is imperative to have better and more efficient infrastructure serving more homes and increasing capacity on existing networks. To be a global player, grow a global economy, be competitive with an increasing number of countries around the world, attract business and skilled labour and trade in goods and services, we must have modern infrastructure networks, particularly on the transportation side, where you can see the impact that it has on inward investment.

The strategy addresses climate change and energy security. The UK needs a resilient and secure energy supply that allows it to meet people’s energy needs in a sustainable way. The UK will need to get 15% of its energy generation from renewable sources by 2020; the need to meet these kinds of targets has implications for our investment in infrastructure. For future growth, future prosperity and the standard of living for all, we must invest in infrastructure. In the past, that has been neglected, and we are currently living with the consequences. That does not mean that we do not recognise the importance of affordability. Defra’s strategic policy statement to Ofwat requires it to report annually on consumer affordability, and DECC already publishes a comprehensive annual report on future energy prices and bills. We want to make sure that we continue to

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develop that kind of analysis. It also means that we are not neglecting the understanding that you cannot just look at compartments: the problem is finding a formula or mechanism to cumulate fails to work.

That is why the formation of the UK Regulators Network, to which my noble friend Lord Jenkin referred, is so important: it enables regulators to consider consumer issues and affordability in each key infrastructure sector and then to consider how they can help to improve efficient investment in UK infrastructure. The UKRN, as it is called, draws together expertise from across its members to consider cross-sectoral regulatory issues. It is a step change from the Joint Regulators Group, which preceded it. It has a dedicated staff underpinned by a MoU that my noble friend Lord Jenkin described. Alongside it, there is a renewed commitment to cross-sectoral work by regulators. The Government are consulting on what more we can do to assist in that collaboration between regulators.

I shall specifically answer some of my noble friend Lord Jenkin’s questions about how it is resourced. The UKRN draws on resources and expertise from across its membership, so each work stream has a lead regulator responsible for co-ordinating and driving it forward, and it can therefore draw on the resource from its own operation. Other regulators contribute to the analysis being undertaken. The UKRN’s secretariat team has three staff members who oversee its work—of course, the work is largely being done within each regulatory body. The UKRN’s expert panel has four members who provide a challenge function to the CEOs’ group. That challenge function is crucial.

My noble friend Lord Jenkin asked how priorities are decided and who is responsible for making those decisions. The CEOs of each of the members of the UKRN are responsible for making decisions about the shape and direction of the UKRN, so its annual priorities are decided by the CEOs following consultation. Each CEO is then held accountable by their board for all their work, including their input into the UKRN. It is crucial that we appreciate the independence of our regulators and important that the network strengthens that, rather than in any way undermine or limit it.

I will not talk in great detail about the objectives of the UKRN, as my noble friend Lord Jenkin went through them, but I repeat that affordability and empowerment are key objectives. The UKRN says that it will work to understand cross-sector issues related to affordability of services and work on consumer empowerment to ensure that consumers in regulated markets have the information and other tools necessary to engage effectively in markets. The Government will continue to engage with the UKRN on its work to ensure that the framework within which regulators are working continues to provide companies with the right incentives to deliver essential infrastructure at the best cost to consumers.

I understand those who have said that we need a cumulative number but, unfortunately, that is one of those things that are easy to say; with any good sense, robustness or meaning, it is difficult to deliver. The network is a very effective direction in which to go; I

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hope that your Lordships will agree and that my noble friend Lord Jenkin will feel comfortable in withdrawing his amendment.

Lord Jenkin of Roding: I start by saying that I am most grateful to noble Lords who have voiced their support for the amendment. If we were to debate this in a wider forum, we might find a good deal more support. I certainly have that in mind. We may return to this matter on Report.

Having said that, I am very grateful to my noble friend for spelling out so clearly what she and her colleagues in government see as the difficulty of forming, as she came back to again and again, an aggregate view. I do not think that people are looking for an aggregate; they are looking for consistency and a common approach to find out how much of this investment will actually fall on consumers.

The example that the noble Lord, Lord Berkeley, gave of the Thames tunnel has been very carefully worked out by Thames Water with the help of Ofwat. What the charge is going to be on water consumers—I am one of them—is known, perhaps not over the next 80 years, but over the next two or three years. I do not know how long it will be. That is the kind of example that might well be extended to other interesting investments.

This is the impression I have formed on what the UKRN is going about. I was getting very depressed at one point when the Minister was spelling out the impossibility of doing what we were asking it to do. Yes, the UKRN is a very important innovation. It is a much stronger and more effective body than its predecessor. It is emphasising cross-sectoral issues and looking, as I said a few moments ago, for consistency. It will be able to add considerable wisdom over the next two or three years and help successive Governments to try to make a better estimate of what an investment programme of the size that we now face in this country, running into hundreds of billions of pounds, is going to cost consumers.

Baroness Kramer: The language of the amendment is that the Treasury must assess the,

“cumulative impact of infrastructure spending”.

That is why I used words such as “aggregate” and “cumulative”; I am happy to substitute “cumulative”. That is our problem.

Lord Jenkin of Roding: I quite understand that. I take that point. Indeed, I read the evidence that was given to the Public Accounts Committee by John Kingman. He made that point very thoroughly. He is an extremely able civil servant and he declared himself very firmly as the chief official in the Treasury concerned with the impact on consumers. He made the exact point my noble friend has made that there are great differences between the industries and the different circumstances.

One is looking for consistency on this—I keep coming back to that word. The UKRN is going to be in the position to throw a good deal of light on this. I was therefore very grateful when my noble friend said its establishment was an important step forward. That is a good start. Parliament is going to have to push this

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in both Houses. I do not know whether the Public Accounts Committee report and the Government’s response are going to be debated in another place, but we would certainly have an opportunity, in the context of this Bill, to air the matter again on the Floor of the House. We will certainly take account of the points my noble friend has made and perhaps revise the wording of the amendment accordingly. In the mean time, I am very happy to withdraw it.

Amendment 96ZA withdrawn.

Amendment 96ZAA

Moved by Lord Hodgson of Astley Abbotts

96ZAA: After Clause 28, insert the following new Clause—

“Revenue from shale gas: sovereign wealth fund

(1) The Secretary of State may, by regulation, establish a sovereign wealth fund to receive and deploy revenue from the extraction and sale of shale gas.

(2) The regulations shall provide—

(a) that the fund shall receive no less than 50% of any revenue received by the United Kingdom Government from any activity connected with the extraction and sale of shale gas;

(b) that the assets of the fund shall be deployed to serve long term public objectives other than those connected with monetary and exchange rate policy;

(c) that the assets of the fund may be deployed in the United Kingdom or overseas;

(d) that no more than 4% of the assets of the fund may be paid out in any one year; and

(e) for the governance, independent oversight and transparent reporting of the activities of the fund.”

Lord Hodgson of Astley Abbotts (Con): My Lords, it is with a strong sense of being tail-end Charlie that I rise to move Amendment 96ZAA, which follows on from a point that I made during the Second Reading debate on the Bill as long ago as Wednesday 18 June. It is a simple probing amendment at this stage, but one with some far-reaching practical and, indeed, psychological consequences. The amendment gives the Secretary of State power to establish a sovereign wealth fund and lays down certain basic parameters and criteria for its operation and governance.

For those unfamiliar with the term “sovereign wealth fund”, it means a fund created by a state to receive all or part of the revenue or profit from a particular source or activity. It operates under the auspices and laws of its host state. Its assets remain in that state’s ownership and those who manage the fund are answerable for their performance. To be absolutely clear from the start, the amendment does not propose the creation of an uncontrolled or uncontrollable body that can charge about like a rogue elephant.

7.15 pm

Before I turn to the details of the amendment, a word on the background. Every country has an asset base that varies according to geography, geology, history, culture and so forth. Our asset base in this country includes our fellow citizens, their skills, entrepreneurial drive and energy. We hope and trust that these abilities

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will be everlasting and preserved by succeeding generations. Successive Governments try to ensure that this is so by changes in the education system and a range of other socioeconomic policies. Our asset base will also include our built assets, which we have just been discussing in my noble friend’s response to the previous amendment—our roads, bridges, airports, schools, hospitals and great public buildings such as the one your Lordships are occupying this afternoon. As we have heard, these require funding for their construction. They also require a steady stream of funding for their maintenance over the years and, in the fullness of time, they become no longer fit for purpose and must be replaced.

Finally, there are our natural assets and resources. These can be subdivided into two categories. First, there are those that are, to all intents and purposes, infinite. They are the sun, wind and rain, the flow of our rivers, tides and the movement of the waves—all of which can be harnessed in different ways to the benefit of us all. However, there are also finite natural resources. The extent to which this country benefited in its industrial revolution from its huge reserves of coal—to which the noble Lord, Lord Whitty, referred earlier—has been well documented. In the 1970s, we discovered another great gift from nature—North Sea oil. At that time, it was anticipated that by this date, 2014, the oil would run out. However, thanks to new technology and the rising price of oil itself, it has proved possible to find and extract profitably a far greater volume than originally forecast. Today, while we have extracted 40 billion barrels, it is estimated that 24 billion barrels remain.

However, the important point, notwithstanding the above, is that it is a finite resource and it will one day run out—probably 25 or 30 years from now. Successive Governments since the 1970s have benefitted greatly from this gift from nature. Estimates vary as to the total resources and revenue streams but we can, for the purposes of our discussion, work on a figure of around £350 billion. Every penny of that money has been spent. We can discuss whether it has been spent wisely or poorly, but it has gone, and not a penny has been put aside formally for tomorrow.

Across the North Sea, the other country that has benefitted from this gift from nature, Norway, has taken a different approach. To be fair, it is a very different country to the United Kingdom. For a start, Norway’s population is much smaller—only about 10% of ours—and the amount of oil and gas discovered there is far greater. In consequence, the reserves per head of population are much greater indeed. Nevertheless, after a fierce debate, the Norwegian people, through their Parliament, decided to set up a sovereign wealth fund to receive part of the benefit from the country’s oil and gas reserves. The first money started to flow into it as recently as the mid-1990s. Noble Lords may be surprised to learn that in the short 20 years since, the Norwegian sovereign wealth fund has grown to approaching $900 billion—£600 billion—and is confidently expected to reach $1 trillion within the next few years. It returns about 4% per annum to the Norwegian state and consequently is generating around $30 billion a year, about £20 billion. To put that figure in context—this is not a party-political point—the Leader of the Opposition suggested in his party conference

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speech that we needed £2.4 billion to, I think in his words, “save the NHS”. I am not going to argue about whether that is going to save it or not. I put it in context just to realise that the Norwegian state receives about 10 times that—between £20 billion and £25 billion a year every year, and will do so in perpetuity. It is 10 times what the Leader of the Opposition thought we needed to save the National Health Service.

We can do nothing about North Sea oil: it is gone. We set it up the way we did and every penny we get from now until the end of time will be spent. But now nature has given us a potential second windfall—natural gas extracted as a result of the development of the new fracking processes. I argue in my amendment that we should learn from the decisions of the past as well as from the Norwegian example and create a sovereign wealth fund in the United Kingdom to receive part of the proceeds from this new development.

I do so on three principal grounds. First, despite every effort, there will always be lumps and bumps in government spending plans, especially those related to infrastructure projects. Returns from a sovereign wealth fund could be used to help plug or iron out some of these holes and bumps.

Secondly, it would work as an exemplar of what every Government are always exhorting us as individuals to do. Every Government say that we are living longer, that old age is expensive and consequently we need to forego immediate consumption in favour of saving. But Governments find it conspicuously hard to follow this advice on their own part. A sovereign wealth fund would at least be an example of the Government following the advice that they so freely give to their citizens.

Thirdly, and this is the most important point, I do not believe that these revenue streams are ours to spend selfishly on ourselves. The shale gas reserves have been built up over billions of years and should not be dissipated in less than half a century. This is an argument about fairness—about intergenerational fairness—leaving a legacy for our children, grandchildren and so on from assets that are surely as much theirs as they are ours.

With those background points, let me turn to the details of my amendment. First, it is permissive in that it gives the Secretary of State powers to establish a sovereign wealth fund but does not require him to do so. It requires those regulations that enable the establishment of a sovereign wealth fund to meet five key tests. Subsection (2)(a) requires that the fund receives no less than 50% of the revenue that the Government receive from shale gas extraction. This is the fairness argument again: 50% of any revenue can be spent by and on us and 50% needs to be left for future generations. Some might argue that 50:50 is already too generous to ourselves and that 80:20 might be more appropriate.

Subsection (2)(b) requires that the fund invests with the long term in mind and its assets should specifically not be used for short-term monetary policy such as quantitative easing. Subsection (2)( c) permits the fund to invest overseas as well as in the United Kingdom and subsection (2)(d) limits the maximum annual payout of the fund to 4% of the principal sum. A well

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managed fund should over time hope to achieve a 4% growth rate and, if so, a 4% maximum distribution should enable the fund to operate in perpetuity. More prosaically, the 4% ceiling prevents the fund from being raided to provide funding in the short term for some pressing major infrastructure development—HS2 comes to mind.

Subsection (2)(e), most importantly, provides that the operations and activities of the fund must be absolutely transparent and open to public scrutiny. Reading the literature, it is clear that that this transparency has been a vital part of creating trust and confidence among the Norwegian public in the operations of their fund.

I suspect that the Government will be doubtful about this idea. Every Government will always want to be able to spend every penny they can lay their hands on. Further, I suspect that the Treasury will hate the proposal. Anything outside its complete control is to be resisted at all costs. But I suspect that the general public will like it. A sense of fairness is an important part of our national make-up. Public support in a period when all political parties will be writing their general election manifestos should not be sniffed at.

In September 2013, speaking at the John F Kennedy School of Government, Norway’s then Prime Minister Jens Stoltenberg said:

“The problem in Europe with the deficits and the debt crisis is that many European countries have spent money they don’t have. The problem in Norway is that we don’t spend money we do have”.

He went on to tell his audience that this happy state of affairs “requires … political courage”. It is that political courage that I am looking for from the Minister tonight. I beg to move.

Lord Teverson: My Lords, I congratulate my noble friend on putting forward this excellent amendment. It would be very good if something like this appeared in the manifestos of however many parties we have in the general election next year.

This comes down to the stewardship of the proceeds of non-renewable resources. That is the point. My part of the world, Cornwall, was one of the richest mining areas in the 19th century. Over a period of about 60 years it had the equivalent of billionaires and some of the greatest exports. It was certainly one of the richest parts of the UK. Where is it now? It is one of the poorest EU regions and receives some of the highest forms of EU aid in the European Union. Not one penny of that income from tin, copper and arsenic was retained, so we have an example of how that generational opportunity was very soon dissipated and lost to today’s generation. Perhaps that is a very simplistic illustration, but it is a very real one. We have one small quasi-sovereign wealth fund in the UK: the Shetland Charitable Trust. There are issues around that, but that local authority has managed to keep some of the proceeds from North Sea oil.

The noble Lord, Lord Hodgson, made the point extremely well. As he said, the Norwegian fund is so large that for each citizen—some 5 million of them—it would be something like $200,000 within a three-year period.

Having spent the income from North Sea oil, I do not see that within a European context overall we are wildly ahead of some of our neighbours because we

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had that asset. Clearly it is a challenge to government, and I suspect that the Treasury is not so keen in this area, particularly when we are tackling a £90 billion per annum deficit. It may be that this is a difficult time to persuade the Treasury that we should start banking it rather than paying off the mortgage. However, I think this is an important area. It is intergenerational. We think more about those issues these days. You have to start somewhere with something like this. You start when you start to explore and use a new non-renewable resource, and unconventional gas or oil is one of those. The start may be modest but I hope that as we reduce the deficit in our public expenditure such a sovereign wealth fund can take up the slack and be of benefit to future generations.

Baroness Maddock (LD): My Lords, I am happy to support this amendment. It is probably two weeks ago today that I was in Norway on an Inter-Parliamentary Union visit. We were privileged to have a presentation about the Norwegian sovereign wealth fund: how it started, where it was and the fact that during the recession we have all suffered, the sovereign wealth fund did not suffer. It was interesting to see it from that point of view, but we need to be aware of two things that are very different there.

7.30 pm

Here in England, we find it quite difficult to get agreement across all parties—although today, of course, on shale gas we have had that here. There is a consensus across the political parties in Norway, despite the change of Government recently which we thought might change that. They have carried on with the way they deal with the sovereign wealth fund. It certainly gives them a real buffer for the future. Although it would be very difficult to do it here in exactly the same way as in Norway, there are a lot of lessons to be learnt. I found it absolutely fascinating to listen to the man in charge as he explained how this worked. Another person in this Room who is not allowed to speak in the debate is nodding his head. We enjoyed our visit and this is worth looking at.

One of the other things I picked up is not to do with the amendment. I thought about saying this earlier but did not. I do not know what figures we have looked at for what is coming out of the North Sea but all the predictions about what is happening to the gas and oil fields there have never been quite right. Technology has always advanced and we have always got more out. We need to be aware of that as well. That is an aside which is not about this amendment but I did not say it earlier as it did not seem appropriate to intervene.

We have a lot to learn. If we go down this road, we need to look very carefully at how they did it in Norway, what is applicable to us and what we can learn from that. It was incredibly impressive, particularly —I am repeating myself—the fact that during the recession their fund hardly dropped at all. They managed to keep it up.

Lord Davies of Oldham: My Lords, I will be very brief. First, I congratulate the noble Lord, Lord Hodgson, on his excellent exposition of a very important concept.

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We see much merit in it. The one thing that we cannot replicate as far as the Norwegians are concerned is that they launched their fund at a time of great and increasing prosperity. Any Government in power at present or for the foreseeable future in the United Kingdom are not faced with that same position.

Secondly, there is a community dimension to the issue of shale gas. We are all too well aware of the price that local communities might pay in terms of disruption while the shale gas is mined. Thirdly, I emphasise that while we may underestimate how much is there, of course we may overestimate it too. It is much easier to identify how much is there than to actually extract it. Therefore, we must be able to follow the greater balance of optimism that exists in some places. None the less, the Committee ought to be enormously grateful to the noble Lord, Lord Hodgson, for raising this issue. I hope that the Minister will give him a positive response.

Baroness Verma: My Lords, first, I thank my noble friend Lord Hodgson for his amendment and for the most eloquent way in which he explained the merits for the Norwegian people of having a sovereign fund. Of course, shale represents a huge economic opportunity for the UK. It could potentially create thousands of jobs, generate significant business investment and provide substantial revenue for the Exchequer in future.

However, unlike the offshore industry in Norway, the shale industry in the UK is still very much in its early stages. The Norwegian Government’s petroleum fund was established in 1990, as my noble friend said, but that was nearly 20 years after oil first started being produced and when the levels of revenue were well known. In the UK, shale gas is still in the exploration phase. My noble friend said that it was a potential but as yet an unknown. The Government will not be able to forecast the scale or timing of shale revenues until more work is done to determine the extent of gas that can be technically and commercially recovered. It would therefore be inappropriate to indicate now how potential future revenue would be used. As a result, the Government have no current plans to assess the possibility of creating a sovereign wealth fund from this revenue.

I recognise the arguments behind this amendment. Diverting future revenues from government finances to a specific shale fund, or one created by revenue from other natural resources, would come at a cost. Shale revenues may also be needed to make up for shortfalls elsewhere. The UK continental shelf is a mature basin and oil and gas revenues from the North Sea are declining; the Government would likely need to either raise additional tax revenue elsewhere or cut spending to maintain the fiscal balance. The Government consider that, in general, hypothecation, or earmarking revenues for a particular spending purpose, is not always an efficient way in which to manage the public finances. Like all government receipts, revenues are remitted to the consolidated fund to support general expenditure. My noble friend Lord Teverson recognised that fact. Once it goes to the Treasury, it becomes slightly difficult to extract it—but that is because of the methods that we have used, whichever Government have been in power. It allows the Government to allocate resources most efficiently across the economy.

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I thank all noble Lords for contributing. It has been a very informative debate, which has raised some very important points. The noble Lord, Lord Davies, said in his concluding sentence that I should be sympathetic to this proposal. Is it something that the Labour Party will put in its manifesto for the next general election? It would be interesting to know how that debate would follow.

Lord Davies of Oldham: Could I ask the Minister whether she thinks she will put it in her manifesto?

Baroness Verma: I have laid out very clearly our position in government. Generally, hypothecation of revenue is not something that we support.

I conclude by recognising that the noble Lord has made some incredibly important points, but I feel that I cannot accept his amendment and hope that he withdraws it.

Lord Hodgson of Astley Abbotts: I thank my noble friend. I feared that “inappropriate” and “hypothecation” would be words used in the arguments produced. I am grateful to noble Lords who have taken part in support of the amendment. The noble Lord, Lord Teverson, put his finger on the matter. If we do not set it up when we start, it will never get set up; it either happens now or it will never happen. Once the money starts to flow, no Government will ever take their hands off it, and the Treasury certainly will not. So we either set the framework up now or this will go the same way as North Sea oil.

The argument that my noble friend has not answered at all—it is unanswerable—is about the inter-generational fairness. Why should we spend it all on ourselves? No matter what the situation may be, if we have got ourselves in a hole we should clamber out of it and not try to rob future generations of what they should share with us. I shall not go on any further, but I am disappointed with what my noble friend has said, although I am not surprised. I shall discuss the matter with people who are more sympathetic with what I am trying to achieve and see whether they want to come back to this at a later stage. I beg leave to withdraw the amendment.

Amendment 96ZAA withdrawn.

Clause 29: Regulations and orders

Amendments 96ZB to 96A

Moved by Baroness Kramer

96ZB: Clause 29, page 28, line 35, after “26” insert “or (Levy on holders of certain energy licences)(11)”

96ZBA: Clause 29, page 28, line 35, at end insert—

“(ba) regulations under section (Payment scheme) or (Notice scheme), or”

96A: Clause 29, page 28, line 36, leave out “amend or repeal” and insert “amend, repeal or modify the application of”

Amendments 96ZB to 96A agreed.

Clause 29, as amended, agreed.

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Clause 30: Extent

Amendments 97 and 97ZA

Moved by Baroness Kramer

97: Clause 30, page 29, line 18, leave out “, 13 and 14” and insert “and 13 to 15”

97ZA: Clause 30, page 29, line 29, leave out subsection (4) and insert—

“(4) In Part 4 (energy)—

(a) sections 26 and 27, sections (Maximising economic recovery of UK petroleum) and (Levy on holders of certain energy industry licences), sections (Petroleum and geothermal energy: right to use deep-level land) to (Interpretation), and 28 and Schedules 5 and (The Licensing Levy) extend to England and Wales and Scotland, and

(b) section (The Extractive Industries Transparency Initiative) extends to England and Wales, Scotland and Northern Ireland.”

Amendments 97 and 97ZA agreed.

Amendments 97A and 98 had been withdrawn from the Marshalled List.

Clause 30, as amended, agreed.

Clause 31: Commencement

Amendment 98A

Moved by Baroness Kramer

98A: Clause 31, page 30, line 9, leave out “and 25” and insert “, 25 and (Provision in building regulations for off-site carbon abatement measures)”

Amendment 98A agreed.

The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab): I have to advise the Committee that if Amendment 98AZA is approved, I shall not be able to call Amendment 98AB for reason of pre-emption.

Amendment 98AZA

Moved by Baroness Kramer

98AZA: Clause 31, page 30, line 14, leave out subsection (5) and insert—

“(5) In Part 4 (energy)—

(a) sections 26 and 27, section (The Extractive Industries Transparency Initiative), sections (Petroleum and geothermal energy: right to use deep-level land) to (Interpretation), and Schedule 5 come into force at the end of the period of two months beginning with the day on which this Act is passed,

(b) sections (Maximising economic recovery of UK petroleum) and (Levy on holders of certain energy industry licences) and Schedule (The licensing levy) come into force on such day as the Secretary of State appoints by regulations, and

(c) section 28 comes into force on the day on which this Act is passed.”

Amendment 98AZA agreed.

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Amendment 98AA had been withdrawn from the Marshalled List.

Amendment 98AB not moved.

Clause 31, as amended, agreed.

Clause 32 agreed.

In the Title

Amendment 98B

Moved by Baroness Kramer

98B:In the Title, line 9, after “charges;” insert “to make provision enabling building regulations to provide for off-site carbon abatement measures;”

Amendment 98B agreed.

Amendment 99 had been withdrawn from the Marshalled List.

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Amendments 99A and 99B

Moved by Baroness Kramer

99A: In the Title, line 10, after “facilities;” insert “to make provision about maximising economic recovery of petroleum in the United Kingdom; to provide for a levy to be charged on holders of certain energy licences; to enable Her Majesty’s Revenue and Customs to exercise functions in connection with the Extractive Industries Transparency Initiative;”

99B: In the Title, line 10, after “facilities;” insert “to make provision for underground access to deep-level land for the purposes of exploiting petroleum or deep geothermal energy;”

Amendments 99A and 99B agreed.

Amendment 100 not moved.

Title, as amended, agreed.

Bill reported with amendments.

Committee adjourned at 7.42 pm.