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Grand Committee

Tuesday, 27 January 2015.

Arrangement of Business


3.30 pm

The Deputy Chairman of Committees (Lord Skelmersdale) (Con): My Lords, the Grand Committee is in session. If there is a Division in the House, the Committee will adjourn for 10 minutes.

Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015

The Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015

Motion to Consider

3.30 pm

Moved by Baroness Verma

That the Grand Committee do consider the Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con): My Lords, on 11 December I laid before the House a draft statutory instrument containing the decision of my right honourable friend the Secretary of State for Energy and Climate Change, as justifying authority under the Justification of Practices Involving Ionising Radiation Regulations 2004, that the generation of electricity from the nuclear reactor design known as the UK ABWR—the UK advanced boiling water reactor—is justified. Regulatory justification is one of the regulatory steps which are necessary before new nuclear power stations can be built in the UK. It is based on the recommendations of the International Commission on Radiological Protection which are used around the world as the basis for radiological protection.

These recommendations form the basis of the Euratom basic safety standards directive, which requires member states to ensure that, before any new practice involving ionising radiation—such as a new design of nuclear reactor—can be introduced, it must first undergo a high-level assessment to determine whether its economic, social or other benefits outweigh the health detriment that it may cause. The requirements were implemented into UK law by the 2004 regulations, which provide that a decision on whether to justify a new practice should be taken by the justifying authority—in this case, my right honourable friend the Secretary of State.

The decision follows two public consultations by my department. There was first a consultation on an application from the Nuclear Industry Association for

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justification of the UK ABWR. Following that, the department last year published a second consultation on a proposed decision that the UK ABWR should be justified. After considering the responses to these consultations, we announced on 11 December our decision that the UK ABWR was justified. Copies of documents setting out detailed reasons for the decision have been deposited in the Library of the House.

In summary, we see a clear need for the generation of electricity by the UK ABWR because of the contribution that it can make through increased security of energy supplies and reduced carbon emissions. One UK ABWR will be able to produce 1,350 megawatts of electrical power for a high proportion of its operating lifespan of 60 years—enough electricity to power 2.5 million homes. Nuclear power has long been a significant source of low-carbon energy and it can continue to contribute to our energy mix. Energy companies are investing significantly in the prospect of new nuclear power stations, including Hitachi-GE Nuclear Energy Ltd and Horizon Nuclear Power, which are proposing to build two UK ABWRs at each of the two new nuclear power stations at Wylfa in Anglesey and Oldbury in Gloucestershire.

Beyond direct investment and employment from new nuclear power stations, we can benefit through the development of a globally competitive nuclear supply chain and an improvement in the quality of the UK’s skilled workforce. Against these benefits, there is the potential for detriment, but this potential is small, well understood and guarded against by an established regulatory regime. The radiation dose which members of the public would receive from the normal operation of a UK ABWR on an annual basis would be below detectable risk levels in the context of overall radiation exposure, including medical procedures and background radiation. The safety features of the designs and the regulatory regime, which sets limits on the release of radiation and monitors compliance, will ensure that emissions will be minimised. The risk of health detriment is therefore very low.

Justification decisions apply to the management and disposal of radioactive waste that new nuclear power stations will produce, as well as to their operation. In making our decisions, we are satisfied that the regulatory regime will limit the risk of health detriment from waste management and disposal to very low levels. We are also satisfied that there is a robust process in place to identify a suitable site for a geological disposal facility and are confident that a site will be identified and that a GDF will be built. We also concluded that the possible environmental detriments arising from new nuclear power stations are likely to be avoided or adequately mitigated by the licensing and planning regime.

We considered the risk of detriments arising from an accident or terrorist incident. Such possible detriments already exist, and the risk of such incidents should be seen in the context of the regulatory regime, which is intended to prevent accidents and protect against terrorist attack. We are confident in the regulatory regimes for the safety and security of civil nuclear installations and materials in the UK, and consider that the likelihood of an accident or other incident giving rise to a release of radioactive material is very small.

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We have therefore concluded that the significant potential benefits outweigh the potential detriments, and that the generation of electricity by the UK ABWR should be justified. I commend the regulations to the Committee.

Baroness Worthington (Lab): My Lords, I am grateful to the Minister for introducing these regulations. Obviously, we support the regulations and we see that greater diversity in reactor designs in the UK will be a good thing. We generally support the building of new reactors at the site in Wylfa and believe that it is important for the UK to continue to keep its nuclear capabilities and capacity as we move towards decarbonising our electricity system.

My comment on the process, however, is perhaps more general. This process, which we are required to undertake under Euratom to justify activities involving non-ionising radiation under the 2004 regulations, means that we treat nuclear infrastructure in a very different way from other risks that exist in society. I have a question about what the Government think is the right way forward in terms of balancing risk, when it comes to assessing the role that nuclear power can play as we go forward. My reason for asking is that we have a particular regime for ionising radiation; however, as the noble Baroness pointed out, radiation is a naturally occurring phenomenon and background radiation levels differ greatly around the country.

There is probably now a need for a national conversation about risk and how we deal with it. In this case, nuclear power seems to be being singled out for treatment that is not necessarily commensurate with the scale of risk. I say that because, in aggregate, US climate scientist James Hansen often points out that nuclear has a massively beneficial impact on health in terms of lives saved from avoiding air pollution. That is just one example of the advantages of nuclear power when it is used sustainably and safely. There is a need for a public discourse about our perception of risk, particularly, as in other sectors of the economy we have nowhere near as tight regulation on activities that pose threats to human health. I include among them vehicle emissions and air pollution more generally, and the use of chemicals in our environment, particularly those which have the potential to disrupt endocrine systems. The list is a long one, but in this case we seem to have developed an incredibly detailed system which has a regulatory burden attached to it.

I would simply ask this: do the Government think that we should have a conversation about this, and if so, how would we go about it? As we weigh up the costs of mitigating climate change going forward, it is important that we have a thorough and detailed understanding of the relative risks. On nuclear, my sense is that we need to look at the issue again.

Baroness Verma: I am extremely grateful to the noble Baroness for her support for the draft regulations, and of course I agree with her that the sector by its very nature is heavily regulated, and rightly so in order to build confidence. I also agree that the discussions need to be much fuller and more informed, and of

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course I hope that we will take the opportunity to open that debate going forward. However, perhaps we need to wait until after May to begin so that it can be fully informed by all sides. I accept that what we do not want to do is single out a sector which is helping us to meet our carbon targets. We should not overly prescribe for one sector as against others. Given that, we need to ensure that there is confidence, trust and transparency in the system, so it is right that, until we have had that debate, we should continue in this vein. I am pleased that the noble Baroness has expressed her support and I commend the regulations to the Committee.

Motion agreed.

Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015

Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

3.42 pm

Moved by Baroness Verma

That the Grand Committee do consider the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con): My Lords, I am pleased to open the debate on the amendment regulations on the renewable heat incentive scheme. There are a number of amendments to cover today to both the domestic and the non-domestic RHI. These are the Renewable Heat Incentive Scheme (Amendment) Regulations 2015, the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015 and the Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Before I explain the details of the amendments, I would like to update noble Lords on the progress of the RHI. The RHI is a key part of achieving the Government’s vision of the future of heating in the UK: a future with secure supplies of low-carbon and renewable heat at affordable prices. The scheme first opened in November 2011 to the non-domestic sector. Since its launch, some 7,000 installations have been accredited under the scheme. So far, the scheme has paid for 2 terawatt hours of generated renewable heat. In April last year, the scheme was opened to the domestic market and we have seen more than 20,000 accreditations since its launch. Across the two schemes, we anticipate that the RHI could support over 7 terawatt hours of renewable heat in 2015-16. The RHI supports a diverse range of technologies, but currently we are seeing the highest deployment from biomass.

The year 2014 was a busy one for the RHI scheme. I have already mentioned the launch of the domestic scheme. We introduced amendments in May 2014 to make the non-domestic scheme easier to access, more efficient and open to additional renewable technologies. We also conducted a review of the non-domestic scheme

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from which some of the changes I will be introducing today have evolved. We continue to evaluate the scheme to ensure both that it incentivises uptake and that scheme administration is effective and efficient. We also published our consultation and response on the review of the biomethane injection to grid tariff.

To recognise the importance of innovation and technology development, we gathered evidence to assess the case for new technologies, or innovations to existing technologies, being included in the RHI. Following this, we have now published our guidance setting out the evidence requirements for considering new technologies. We have listened to stakeholder concerns about investment certainty for large-scale renewable plants. In December last year, we published a position paper on the introduction of tariff guarantees for the non-domestic scheme. These plants can take a considerable time to come online and can be affected by the lack of a guarantee on the tariff that will be available when they complete. The published position paper sets out what the policy may look like if the work is continued in the next Parliament.

3.45 pm

I now come to the proposed regulatory amendments before us today. These proposed regulations introduce a number of improvements to the non-domestic and domestic schemes. Biomass has seen the highest deployment of all renewable technologies across the scheme. Around 99% of the heat generated in the non-domestic scheme comes from biomass, biogas and biomethane. For the domestic scheme, around 48% of heat is generated by biomass installations.

Sustainability is of great importance to us. The biomass sustainability regulations we are proposing will ensure that we deliver significant greenhouse gas savings from this technology and protect our environment, at both a global and local level. We are introducing some of the toughest sustainability criteria in the world under the RHI. This will ensure that the UK continues to take a leading and robust role in developing the market for sustainable biomass. The biomass sustainability criteria will apply to current and future participants in both the domestic and non-domestic RHI schemes. It will affect users of solid biomass and biogas and biomethane injection participants who create their fuel from solid biomass.

The first biomass sustainability requirement is a minimum greenhouse gas emissions saving for all biomass supported by the scheme. This will allow biomass used in the RHI to continue to make an important contribution to our national carbon targets. Scheme participants will be required to demonstrate that the lifecycle greenhouse gas emissions of any biomass used do not exceed 34.8 grams of CO2 equivalent per megajoule of heat generated or biomethane injected. This limit is designed to ensure that, compared to the average emissions from fossil fuels used in the EU to generate heat, biomass supported by the RHI will deliver a 60% greenhouse gas emissions saving.

The second biomass sustainability requirement is the introduction of land criteria for solid biomass. For wood fuel, this means demonstrating that the feedstock comes from sustainably managed forests or other

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sustainable sources. In order to provide a close fit to existing forestry management practices, we will require participants to demonstrate that their wood fuel is consistent with the UK timber procurements standard. For non-wood fuel biomass, the land criteria correspond to those set out under the EU renewable energy directive for transport biofuels and bioliquids. These consist of restrictions on the use of biomass sourced from land with high biodiversity or high carbon stock value such as primary forest, peat-land or wetland.

To help implement the adoption of these new sustainability criteria for small-scale users of biomass, we have sponsored the creation of a biomass suppliers list. The list was launched to wood fuel and short-rotation coppice suppliers in April 2014. The BSL has been publicly accessible since September last year and provides an easy, free at the point of use, light-touch method for participants to comply with the sustainability criteria. The regulations allow for the creation of other biomass suppliers lists, subject to Secretary of State approval. We hope the industry will use this flexibility to take the lead in demonstrating the sustainability of their businesses.

Participants will either have to buy their biomass from the BSL, register as self-suppliers or provide their own evidence that their fuel is sustainable. In all circumstances, participants will need to provide an annual declaration to the scheme administrator, Ofgem, and demonstrate how they are meeting their biomass sustainability requirements. The draft regulations set out that participants must meet these mandatory requirements from October 2015. The time between now and October will help provide sufficient lead-in time for participants, biomass producers and traders to understand the requirements and develop plans to demonstrate compliance.

The biomass sustainability requirements are both ambitious and will deliver significant benefits from the biomass supported. We consider this is achievable and will represent a vital step in ensuring the long-term future for biomass as a heating technology in the UK.

Biomethane injection to grid has been supported since the launch of the scheme and is a key contributor to the uptake of renewable heat. A review of the tariff was announced in February 2014 in response to market intelligence and updated evidence on planned new biomethane plants with much higher capacities than the scheme originally envisaged. The review looked at whether the existing support based on a 1 megawatt waste plant was still appropriate for much larger plants that may benefit from economies of scale.

Following consultation and analysis of detailed evidence from market participants, we intend to introduce a tiered tariff structure based on three tiers. This was the preferred option for those who responded to the consultation. Biomethane injection to grid plants will receive 7.5 pence per kilowatt hour for the first 40,000 megawatt hours injected; 4.4 pence for the next 40,000 megawatt hours; and 3.4 pence for any subsequent biomethane injected in a 12-month period from the date of registration.

When compared to alternative options, such as banding where support is based on capacity size, a tiered tariff is less likely to lead to unintended consequences

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such as gaming. It is also simpler to administer as payments will be determined on the volume of gas injected rather than asking for installations to determine a system capacity. The new tariff will be applied to biomethane injection to grid plants registered from the date when the implementing regulations come into force. The new tariffs will ensure the biomethane market remains sustainable and better value for money for the taxpayer by making sure that large plants are not overcompensated while also providing the right level of support to incentivise the uptake of smaller plants.

As part of the routine budget management controls for the RHI scheme, we announced in November last year a 10% tariff reduction to the current biomethane tariff, which took effect on 1 January 2015. We have built into the draft regulations protection for the new biomethane tariffs from any tariff reduction as a result of the budget management mechanism. The earliest point at which these new tariffs could be reduced is 1 July this year. This should provide stakeholders with a period of tariff stability following the introduction of tiering.

We have improved our support for combined heat and power plants. Stakeholders asked us to provide them with greater flexibility in the eligibility rules. The CHP rules are now flexible enough to allow a combination of different fuels to be used to generate heat and feed the same CHP unit. This could be both fossil fuel and renewable, so CHP operators can make a phased switch to renewable heat avoiding plant downtime and reducing the need to commit to a large financial outlay at the outset.

We are introducing a suite of changes which will provide greater efficiency and improve the application experience for consumers. These will also give Ofgem greater flexibility in how certain requirements are met, reducing some of the current scheme complexity and improving the accreditation process. For example, the requirement to confirm that biomass boilers are designed to burn biomass as their primary source of fuel will no longer be needed as this can be evidenced from the air quality criteria and the incoming biomass sustainability requirements.

Ofgem currently has powers to apply sanctions if a participant is failing or has failed to comply with the scheme requirements. We are introducing changes which clarify where sanctions can be applied in some circumstances: for example, if incorrect information was provided when applying to the scheme which would have affected the eligibility of the installation.

Amendments to the domestic RHI will introduce a number of general scheme improvements to drive uptake of the scheme and several minor amendments and clarifications. These minor amendments have been introduced based on experiences and feedback since the domestic RHI was launched.

The scheme currently requires all applicants to have a Green Deal assessment. This provides information about efficiency measures suitable for their homes. For social landlords, who are already required to meet minimum energy efficiency levels under the decent homes standard, the requirement of a Green Deal

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assessment does not provide them with any supplementary information on energy efficiency measures. With a larger number of properties, a Green Deal assessment for each property is a potential barrier to installing a renewable heat technology. This change will remove the need for social landlords to complete a Green Deal assessment when applying to the scheme. They will still require an energy performance certificate that is less than two years old for each property, so that RHI payments can be calculated and to confirm that the scheme’s minimum energy efficiency requirements have been met. This amendment will remove a significant barrier to uptake of the scheme for social landlords.

The scheme will be amended to include two additional subsets of technologies which were part of our original policy intent. The draft regulations allow cooker stoves and high-temperature heat pumps to be eligible technologies. The inclusion of high-temperature heat pumps will open up the scheme to potential applicants whose properties may not be suitable for other eligible technologies. Updated microgeneration certification scheme standards will help to demonstrate that high-temperature heat pumps can meet the scheme’s minimum energy efficiency requirements. The amendment to include cooker stoves as an eligible technology will correct an unintended consequence where stoves with a primary heating and hot water function were originally excluded from the scheme. Both the non-domestic and domestic amendments will update the regulatory provisions setting out the current MCS standards to ensure that installations which have to comply with the standards will be eligible for the RHI scheme.

A number of minor amendments will provide further clarification to the scheme requirements. For example, we have clarified that houses with more than one building such as a separate office, annexe or outbuilding are eligible for the domestic scheme. RHI support will however be paid for only the main dwelling.

These amendment regulations are focused on changes to both the non-domestic and the domestic RHI scheme. Biomass sustainability will be introduced to both aspects of the scheme. This will help us to work towards achieving our Government’s goal to deliver significant reductions in greenhouse gas emissions. Biomethane will be an important contributor to renewable heat. The changes that I have outlined today will ensure that the biomethane market remains sustainable and offers good value for money to the taxpayer.

By introducing new eligible products this will diversify the scheme and provide a wider technology choice and mix to help increase uptake of the scheme. Our continuing work to evaluate and engage with stakeholders for feedback on the scheme has resulted in several scheme improvements. These will provide greater clarity and improve the application experience for consumers. I commend these regulations to the Committee.

4 pm

Lord Teverson (LD): My Lords, I very much welcome the Minister’s statement and her description of these schemes. When talking of trying to decarbonise power and energy in this country, we always think first of electricity but heating is very important particularly at this time in January—although my wood stove at

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home was a great comfort to me over the weekend, the solar thermal supply for the shower was perhaps not quite as good. These are really important technologies and it is good that we are continuing to modify these schemes.

I should like to put a couple of general questions to the Minister and then one specific question. I particularly welcome the greater emphasis on the sustainability of biomass, and I do so for two reasons. One is obviously that the sustainability of sources is very important in its own right. The second is that biomass is attracting a lot of criticism from a number of areas—maybe some of it rightly but perhaps some of it not so rightly—and it is very important that biomass’s image and reputation are kept strong and that it remains part of our renewable energy sources in the UK. Only by ensuring that we meet the sustainability criteria will we be able to do that.

One thing that we know—the Minister started to explain this quite broadly—is that, with biomass in particular, the supply chains are global. Much of the supply for some of the very large applications in the UK comes from across the Atlantic and maybe from even further afield—on the other side of the Pacific and from other parts of North America. When those supply chains are as long as they are, how do we know that the sustainability requirements are really met? Do we ever inspect them, or do we just rely on companies to do that? I ask that because I know from other areas of industry that things such as the sustainable forests code have been abused in the past. We know that relatively easy supply chains for food within Europe have not always been as good as they should be, even when the purchasing companies, such as the supermarket chains, have some of the tightest controls—or we thought that they had. I would be interested in hearing the Minister’s comments on that.

Secondly, I have a question relating to the European single market. If businesses want to purchase through other European Union countries, how is this legislation compatible with a single market if we have different standards in the UK? I assume that this has been got over, but I would be interested in understanding how that works.

A more specific question, on which I am not necessarily expecting an answer from the Minister today, relates to CHP. I understand from the Renewable Heat Incentive Scheme (Amendment) Regulations 2015 that, quite rightly, plants established before 4 December 2013 cannot claim back RHI because they were established before this type of scheme started. I understand that entirely. Where a CHP plant is added on to a CHP facility, particularly an AD one, that would be eligible for claiming RHI, but I understand that if that plant was built before 4 December 2013 and the CHP was then added on, it would not be eligible. That is a change of policy, as outlined by DECC following one of the earlier consultations. I know that that has affected certain plants and investment decisions, and I welcome that. As we all know, CHP is a very important late innovation in the UK and we wish to copy our European counterparts due to the success of those sorts of schemes in the past. If the Minister is able to answer that now or in correspondence, I shall be very grateful.

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I very much welcome the evolution of this scheme, which I regularly remind people does not affect consumer prices for heat and has no effect on increasing energy prices.

Baroness Worthington (Lab): My Lords, I, too, am grateful to the Minister for talking us through these regulations and for presenting a very clear and informative case for them. I have a number of questions relating to the regulations.

I notice that in the debate in the House of Commons, where these SIs were discussed previously, the Minister responding was a little loath to answer general questions about how the RHI is delivering against its targets. Specifically, when questions were asked about the budget, including the budget going forward, no clear answer came back. I therefore begin by reiterating those general questions to the Minister. Could she tell us when we might expect an update on how the RHI is doing in relation to where we need to be to hit our targets? Could she also give us a sense of when we might hear about how we are going in terms of the budget? Are we underspent or near to an overspend, and what are the budget projections going forward?

On the regulations, we certainly welcome, like the noble Lord, Lord Teverson, the introduction of sustainability criteria for biomass. It is a good idea, and it is very important that we restore the reputation of sustainable biomass. It is very easy to have one rotten apple in the barrel taint the perception of the whole system. It is important that we have transparent and robust information about sustainability and requirements on suppliers to meet those standards.

However, there is a point at which this ever increasing pressure to incorporate every single element of carbon emissions upstream on biomass is unique. It is not something that we do in other fuel supply chains. For example, gas is in the headlines a lot at the moment, and we hear debate about fracked gas versus LNG and versus gas coming from Russia, all of which have a different carbon intensity and carbon footprint, but that fuel supply chain is almost ignored and is not paid the same degree of attention. I understand why, but would just question when we might start to see a slightly more equal handling of fuel supply chains across the piece. Biomass certainly has a role to play in decarbonisation, but it should not be singled out. We ought to apply equal and fair treatment to all fuels, if we are going to pursue this very detailed accounting of upstream emissions.

I certainly welcome the list of suppliers and the department’s attempts to try to simplify this for both end-users and suppliers to ensure that the industry can get off to a good start.

I am also encouraged to hear from the Minister that she believes that biomethane injection to grid could be an important contributor to our renewable heat targets, but I am just curious to know to what extent biomethane is delivering. I imagine that we are now introducing tiered tariffs because there has been a relatively good uptake. What does the department now believe the potential for biomethane is? It would be very helpful to have it as the percentage of the total

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demand for renewable heat and gases, just so that we can get a sense of how we are doing and what the potential is. We expect that the RHI will uncover information about this market which, as has been said elsewhere, is a world first in terms of creating an open and widely applicable subsidy scheme for renewable heat. We would expect it to deliver quite interesting findings in terms of the least-cost options for decarbonisation. We simply have some curiosity as to where we see biomethane injection as we progress towards our targets.

We support the new powers to cause payments to be stopped and the interventions that are now possible. We have said this before in debates on the RHI. We remain concerned, and hope that the Government share our concern, that we must not see abuses of the RHI. We cannot afford negative headlines in the press about subsidies being abused or any wrongdoing, so it is important that the enforcement and sanctions parts of this intervention are got right. Why were these powers not originally included in the proposals? I am glad that they are there now, but I question why we had not thought through the need to do this earlier. I reiterate that I hope everyone in the department is fully aware of the need to ensure that, even if we take a slightly light-touch regulatory approach, we are very vigilant in ensuring that there is no potential for misuse of the funds, which are public funds in this case, not bill payers’ funds.

I have a question about the overall way we are going to move forward on the RHI. As we have seen from today’s discussions, this is now quite a complex policy area which has many triggers within it, including digressions and abilities to change different levels and to move technologies and bands. During the passage of the Infrastructure Bill through this House, an amendment was introduced by the Government that removed the need for an affirmative resolution for changes to some important parts of the RHI. At the time, I asked the Minister whether it would apply to tariffs and budgets applied to different technologies and whether it was appropriate. I am grateful to the Minister for writing to me on 17 November to confirm that moving from the affirmative resolution procedure to the negative resolution procedure would apply to tariffs for technologies. I reiterate my concern. I do not fully understand why it should be felt necessary to remove this part of the process which allows us to comment on statutory instruments and changes to statutory instruments. In her letter, the Minister said that it was to enable the Government to act quickly, but this is not a particularly slow process. It is an important part of the democratic process that ensures that we get proper scrutiny and an opportunity to question changes. It reassures the industry that due process will be applied to changes which will substantially affect plans for investment.

So again I ask: what is the real rationale for removing this important process? Perhaps it is for no other reason than that we will have fewer of these conversations, and that would be a great shame because I enjoy talking about the RHI. As the noble Lord, Lord Teverson, said, it is refreshing to be talking about something other than power when it comes to energy. I think we

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should maintain full scrutiny of these changes. This is a complex policy area, but it is an important one that we need to get right.

I am also slightly not reassured by the Minister’s statement that the Government will continue to “engage” properly with industry. I would like to hear a bit more about what engage properly with industry that means. I say that in the context of experience where, for example, on feed-in tariffs for solar, we saw very hastily introduced changes that were not properly consulted, and a great deal of bad feeling was created. If a change to the way we consider these SIs leads to anything like that in this market, it would be a great shame.

I would welcome the Minister’s comments on why we are moving away from the affirmative resolution procedure and, if they continue to pursue the negative resolution procedure, what the Government will do to ensure that they are properly listening to industry and engaging. Other than that, I am happy to support the regulations.

Baroness Verma: My Lords, I am extremely grateful to my noble friend Lord Teverson and the noble Baroness, Lady Worthington, for their support for the regulations. They have raised a number of questions. I shall endeavour to answer as many as I can, but if I miss out on any question, I shall write to them.

4.15 pm

My noble friend asked what measures we can use when we are trading at global level to ensure that the sustainability criteria remain at the heart of our trade. The UK Government have been a strong supporter of the UN-REDD+ mechanism. The processes that that entails enable us to keep on track of our global trading. My noble friend is right that we need to ensure that, as stringent as we are, our partners remain equally stringent. I reassure him and the Committee that the UK takes the process of trading very seriously, and we have been a leading advocate in ensuring that we are strong supporters of seeing UN-REDD+ being enforced and utilised at the very top.

My noble friend also asked whether the legislation is legally compatible with businesses being able to purchase biomass in the single market. The biomass sustainability criteria have been notified under the technical standards directive, so we do not think that the requirements will restrict trade, but in any case they are justified, as my noble friend rightly points out, for environmental protection purposes.

My noble friend also asked whether a CHP plant built before 2013 that has another facility added to it would be eligible to claim for RHI. In order to ensure value for money, of course it is necessary for an AD plant to be new. This policy will remain the same under the new regulations, so there has been no change. It continues in the same vein.

The noble Baroness asked whether we were meeting our targets. The Government are committed to meeting their ambitious renewables targets. We are committed to increasing the use of renewable energy by 2020 and we are on track to meet the 2013-14 interim target of 5.4% of final energy consumption from renewables.

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We have always stated very clearly that we want to see it from a wide range of renewables and not be focused on any one particular sector.

The noble Baroness also asked why powers of enforcement were not originally included. These changes are minor amendments to reflect experiences since the scheme was introduced and to make sure that Ofgem has all the powers that it needs and that those powers are clear.

The noble Baroness also spoke about the negative and affirmative procedures. The department undertakes formal and informal consultations with industry bodies and individuals. This is a very technical area. Sometimes, we need to make swift amendments to protect the value-for-money argument and ensure that there is technical delivery that is not hindered by process.

The noble Baroness also asked what DECC believes is the future of biomethane as we progress towards our targets. Overall, we expect the RHI to deliver between 5.2 terawatt hours and 7.4 terawatt hours by the end of 2015-16. We expect between 20 terawatt hours and 50 terawatt hours for the scheme by 2020-21. But it would be better for me to write to the noble Baroness because the answer is not as full as I would like it to be for her and for my noble friend.

The noble Baroness also asked when we will see the equal handling of fuel supplies across the scheme. The biomass sustainability criteria in the RHI apply to biomass, biogas, biomethane and bioliquids. Biomethane and bioliquids are not supported by the RHI, but where they are supported in electricity or transport, they are subject to the mandatory requirements of the renewable energy directive.

Baroness Worthington: Perhaps I did not articulate my question clearly enough. What I was asking about was not equal treatment within the RHI, but equal treatment across the energy sector. Why do we take a full “well to wheel” approach or a full lifecycle approach to biomass, but not to fossil fuels which, let us be honest, are inherently less sustainable? We do not treat them equally with biomass. My point was a broader one than simply about the RHI.

Baroness Verma: I am extremely grateful to the noble Baroness for that clarification, and clearly I failed to recognise the question as she originally put it. I think that the response needs to be made in a fuller, more formal letter to her. These are detailed criteria going forward, and of course what I cannot do is look retrospectively at the energy sources we have already.

Going forward with the schemes that we have control over today, we need to make sure that they are as sustainable and environmentally friendly as they possibly can be. Where we may have had trade-offs in the past, we want to ensure that those are now reduced to a minimum so that we can look not only at value for money for the consumer, but also that we play an active role in environmental protection, which is absolutely right.

I suspect that I have missed a number of questions, but since inspiration is not coming from behind me at this moment, I must assume that we will write.

27 Jan 2015 : Column GC68

I shall conclude by saying to the noble Baroness and to my noble friend that the contributions made by these schemes rightly should be reviewed regularly so that we can ensure that we are achieving the best value that we can offer to consumers without burdening the new sector itself. We also need to listen carefully to those in the sector to ensure that we do not inadvertently put up barriers that hinder their progress. We want to see newer technologies entering the marketplace, so a balance needs to be struck between reducing support when a technology matures and no longer needs so much support and encouraging the emerging ones. The noble Baroness mentioned the solar industry. Frankly, that is now seen as a mature part of the sector which needs less support, and rightly so.

In thanking both noble Lords for their support, I commend these regulations to the Committee.

Motion agreed.

Renewable Heat Incentive Scheme (Amendment) Regulations 2015

Renewable Heat Incentive Scheme (Amendment) Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.23 pm

Moved by Baroness Verma

That the Grand Committee do consider the Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015

The Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.23 pm

Moved by Baroness Verma

That the Grand Committee do consider the Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Protection of Freedoms Act 2012 (Code of Practice for Powers of Entry and Description of Relevant Persons) Order 2015

Protection of Freedoms Act 2012 (Code of Practice for Powers of Entry and Description of Relevant Persons) Order 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.24 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Protection of Freedoms Act 2012 (Code of Practice for Powers of Entry and Description of Relevant Persons) Order 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

27 Jan 2015 : Column GC69

Baroness Williams of Trafford (Con): My Lords, the Government recognise the importance of respecting human rights and are committed to preserving the rights of individuals in their homes and businesses not to undergo unnecessary intrusion. The Government have consistently made very clear their intention that public authorities should have fewer powers to enter people’s homes and that the privacy and rights of home owners and businesses should be protected and strengthened wherever possible. It is essential that powers of entry, as with any enforcement power, achieve the right balance between the need to enforce the law and ensure public protection, and providing sufficient safeguards and rights for the individual.

Powers of entry are statutory powers for a person to enter land or other premises for a specific purpose. Such powers are important tools that facilitate the protection of the public from harm, enable the effective investigation of offences and allow for the necessary enforcement of regulations. It is sometimes necessary to enter premises. However, we recognise that doing so can place burdens on businesses and individuals, and we have therefore sought to correct this.

The Protection of Freedoms Act 2012 introduced a number of measures to rationalise the more than 1,200 powers of entry that were available in statute. The Act required Ministers who have responsibility for powers of entry to, for the first time, examine those powers together, consider whether they were still necessary and proportionate and, crucially, consider whether they contained sufficient safeguards. Reports laid before Parliament in November last year proposed significant reform. The Act also provided for the introduction of a code of practice containing guidance about powers of entry and associated powers.

Following the review of existing powers of entry, this order provides for such a code of practice to come into force on 6 April this year. The order also describes those who will be covered by the term “relevant person” for the purposes of entry to premises. Subject to certain exceptions, this will mean that, in future, any person exercising a power of entry will be obliged to have regard to the new code. The two exceptions to the definition of “relevant person” are that, first, the person concerned is exercising a devolved power of entry and, secondly, that the exercise of the particular power of entry is subject to a separate statutory code of practice.

The relevant code of practice to which this order relates was first published last December. It provides guidance and sets out considerations that apply before, during and after the exercise of powers of entry—for example, that an occupier needs to be provided with written notice at least 48 hours before entry and that reasonable efforts should be made to obtain the informed consent of the occupier.

Of course, many of the considerations set out in the code already exist in statute in relation to certain powers of entry. It is therefore important that the code of practice does not override existing provisions and introduce unwelcome complication. The purpose of the code is simply to provide for a minimum level of safeguards to be applied broadly across powers of entry and to increase the consistency and transparency

27 Jan 2015 : Column GC70

with which they are exercised. Where particular safeguards already exist in statute, the code will not alter or replace them.

Under the recent review, we proposed significant reform to existing powers of entry under statute. This code seeks to build on that reform and ensure that all entry to premises is exercised in a more proportionate and less intrusive manner, while upholding effective enforcement where necessary. I beg to move.

Lord Rosser (Lab): My Lords, I thank the Minister for explaining the purpose of and background to this order. The Explanatory Memorandum indicates that the Secretary of State has been obliged to prepare a code of practice containing guidance about the exercise of powers of entry under, I believe, Section 47 of the Protection of Freedoms Act 2012.

Why does it appear to have taken a quite considerable period of time to produce the code? The public consultation took place over some six weeks at the beginning of 2013, and it does not appear that the Government were exactly overwhelmed with responses, since there were apparently just 28. What has been happening since the beginning of March last year? Could the Minister also say who was consulted on the code? The 2012 Act places a requirement on the Secretary of State to consult various people in the course of preparing the code of practice and in relation to the description of “relevant persons”.

4.30 pm

Paragraph 8 of the Explanatory Memorandum refers to government departments, operational and enforcement bodies, businesses that exercise powers of entry and the Association of Licensed Multiple Retailers being consulted, but this code also covers powers of entry into domestic dwellings, for example. How, and to what extent, was consultation carried out with home owners and other private citizens?

The Explanatory Memorandum refers to the review of existing powers of entry identifying 1,237 separate examples. Are all those 1,237 existing cases or examples now covered by this code? Have any of those 1,237 separate powers identified subsequently been abolished on the grounds that, on reflection, they were no longer deemed necessary or appropriate?

During the consultation that took place, which seems to have been mainly, although not exclusively, with those exercising the powers of entry rather than those on the receiving end of such powers, did any organisations or authorities currently exercising power of entry argue that the terms of the code of practice would make the operation of their powers of entry less effective or efficient in any way than is currently the case, and if so, in what regard?

A power of entry is by its very nature an intrusive device. I note that there will be an internal review of the working of the code of practice after five years. Why was five years chosen? What will happen if issues with the new code come to light early on? Will they have to wait for the end of the five-year period to be considered and addressed?

27 Jan 2015 : Column GC71

Although powers of entry and associated powers can be important in protecting the public from harm and in enabling effective investigations leading to the necessary enforcement of regulations, it is imperative that relevant persons are aware of the standards that should be met in exercising powers of entry. It is also important that there should be transparency in this area of activity in order to minimise, as far as possible and practicable, the impact of entry and intrusion into homes and businesses. We welcome the code of practice and the greater consistency of approach to the exercise of the power of entry and associated powers which it is designed to deliver, as well as the safeguards which the code contains. I hope the Minister will be able to give me a response to the points I have raised, either now or subsequently, but we support the order.

Baroness Williams of Trafford: My Lords, I thank the noble Lord, Lord Rosser, for his contribution and hope that I can satisfy him on some if not all of the questions that he asked.

The review of all existing powers of entry identified more than 1,200 such powers. The noble Lord, Lord Rosser, asked why it took so long. I suppose the answer is, in part, that there were more than 1,200 separate powers, exercised in a very broad range of circumstances, and the review was therefore quite a considerable and complex task. It was really the first time that the Government considered these powers of entry as a whole rather than in parts. Although it took a while, I hope the noble Lord is satisfied about why it did. The important thing is that the review was carried out.

Lord Rosser: I certainly do not wish to pursue this point in great detail, but the consultation on the draft code of practice finished at the beginning of 2013, so presumably the draft code of practice reflected the 1,237 separate powers and how they could be brought together into a draft code of practice to produce greater conformity and consistency. What I cannot understand is why, the consultation on the draft code of practice having ended early in 2013, it has now taken so long for us to be considering the code of practice in its final form.

Baroness Williams of Trafford: My Lords, I appreciate the point that the noble Lord makes. The consultation was completed in 2013, but the issue is complex. I assume that the Government had to consider the complexity of the matter as a whole. The noble Lord still does not look satisfied, so perhaps I should put it in writing in due course.

The noble Lord also asked who was consulted. We consulted widely with organisations responsible for exercising powers of entry as well as with the businesses and individuals who are subject to the powers. We believe the new code of practice will provide the much needed consistency and transparency that he talked about and will ensure that members of the public know what to expect when powers of entry are exercised without unduly restricting the ability of enforcement bodies to take necessary action.

27 Jan 2015 : Column GC72

I now have from the Box behind me another point about why it took so long to produce the code. It was in order to meet the concerns of other government departments. It was necessary to complete the review of existing powers before bringing forward the code of practice and take into account their concerns on the wording of the code. I will lay that out in writing to the noble Lord.

The code was subject to public consultation and was available on the Home Office website. Home owners at the time were able to access it. The review and the code were separate projects—that might also be helpful to the noble Lord. The review was about which existing powers should be revoked, have safeguards added or be rewritten, while the code is about what safeguards should apply to the exercise of powers of entry that remain on the statute book. I hope that helps to clarify the noble Lord’s concerns there.

The noble Lord, Lord Rosser, asked why it will be five years before an internal review takes place. Section 49 of the Protection of Freedoms Act 2012 places an obligation on the Secretary of State to keep the code under review. This obligation will bite from the point the code comes into force. I hope that explains that point.

The noble Lord also asked whether organisations say that the code will make them less effective than they are now. None of the organisations that responded to the consultation stated that the code will be less effective than the current arrangements. I hope that gives the noble Lord comfort.

The noble Lord also asked when changes proposed by the review will take effect. It is for the department to make the legislative changes that have been proposed in review reports. Timetables will take into account the wider policy context in which a particular power operates; for example, it might be appropriate to make changes to powers of entry alongside other planned reforms. The Protection of Freedoms Act 2012 provides statutory tools to repeal, add further safeguards to or consolidate powers of entry, and I am aware of a number of changes having been introduced.

I am sure that I have not answered everything that the noble Lord, Lord Rosser, asked, but I hope that gives him some satisfaction. With that, I commend the order to the Committee.

Motion agreed.

Regulation of Investigatory Powers (Communications Data) (Amendment) Order 2015

Regulation of Investigatory Powers (Communications Data) (Amendment) Order 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.39 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Regulation of Investigatory Powers (Communications Data) (Amendment) Order 2015

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

27 Jan 2015 : Column GC73

Baroness Williams of Trafford (Con): My Lords, this order concerns the important government commitment to reduce the number of organisations that can access communications data. Noble Lords will be aware of the significance of this subject and of the provisions on the retention of communications data currently being considered by this House in the Counter-Terrorism and Security Bill.

As noble Lords will know, communications data are the who, where, when and how of a communication but not its content. It is a crucial tool for fighting crime, protecting children and combating terrorism. Access to communications data is governed by the Regulation of Investigatory Powers Act 2000, known as RIPA. RIPA contains robust safeguards, including tests of necessity and proportionality. In July last year, in response to an adverse judgment of the European Court of Justice on the EU data retention directive, Parliament passed the Data Retention and Investigatory Powers Act, or DRIPA. This Act ensured that important capabilities were not undermined, while increasing safeguards.

While that legislation concerned data retention, the Prime Minister also announced a number of safeguards concerning access to communications data. One of those safeguards was a commitment to reduce the number of organisations with access to that data. This order fulfils that important commitment. A further safeguard in the Data Retention and Investigatory Powers Act will ensure that data retained under that Act can be accessed only via RIPA or through a court order or warrant. This order therefore replicates a power to access communications data that already exists in the Financial Services and Markets Act 2000.

I will now turn to the substance of the order. As I have said, it reduces the number of organisations that can access communications data. This is a crucial safeguard. I know that this Committee will agree that only those authorities that can make the strongest possible case should be allowed access. Following a recommendation from the Joint Committee on the draft communications data Bill, the Home Office conducted an exercise to ascertain whether some authorities should lose their powers to access communications data. This order removes powers from the following 13 authorities identified in that exercise: the Charity Commission; the Civil Nuclear Constabulary; the Department of Agriculture and Rural Development, Northern Ireland; the Department for Business, Innovation and Skills; the Department for Environment, Food and Rural Affairs; the Department of the Environment, Northern Ireland; the Environment Agency; the Food Standards Agency; the Pensions Regulator; the Port of Dover Police; the Port of Liverpool Police; the Royal Mail; and the Scottish Environment Protection Agency.

Some noble Lords may consider that we should have gone further and taken away powers from more authorities. The Government considered the business cases for all the authorities with communications data powers. I can assure noble Lords that there are very good reasons why the authorities that have retained their powers have been allowed to do so. When deciding which authorities should retain access, the Government

27 Jan 2015 : Column GC74

considered a number of issues, including the statutory responsibilities of the authorities with access, the seriousness of the offences they investigate and the number of requests that they made. Although identifying authorities to lose powers was not easy, the authorities identified in this order were not able to demonstrate that their continued access was strictly necessary.

It is worth noting that there is also a substantial amount of transparency on this issue. The most recent report by the Interception of Communications Commissioner listed all the authorities with access to communications data and the purposes for which they can access those data, as well as the number of requests that they made in the calendar year. I hope that the approach the Government have taken and the transparency available will assure noble Lords that the Government are taking the right action concerning which authorities should have investigatory powers. This brings me on to the other provision in this order.

The order also amends the Regulation of Investigatory Powers (Communications Data) Order 2010 to add a new purpose for which communications data may be acquired for the purposes of the Regulation of Investigatory Powers Act. This new purpose is specifically designed to replace powers that are currently available in the Financial Services and Markets Act 2000. The order specifies that only two public authorities will be able to use this purpose to access communications data: the Financial Conduct Authority and the Prudential Regulation Authority. The measure will ensure that all their requests for communications data are subject to the safeguards in RIPA. These two authorities are currently able to access communications data under RIPA for the purpose of the prevention or detection of crime. They are also able to access communications data under the Financial Services and Markets Act when investigating civil abuse of our financial system.

Noble Lords will understand, particularly in the light of experiences over the past few years, how serious and damaging the impact of abuse of our financial system can be. Communications data are capable of showing who contacted who and at what time. This power is fundamental in, for example, proving that insider dealing has taken place. So to be clear: this new purpose replaces powers that have been available in the Financial Services and Markets Act 2000 but ensures that they are subject to the robust safeguards in RIPA.

I know that the Committee will appreciate why we are bringing forward the provisions in this order. Equally, I know that the Committee will want to feel confident that we will keep under review whether the right authorities have the right powers. I can assure the Committee that we will. The Data Retention and Investigatory Powers Act 2014 provided for David Anderson QC, the Independent Reviewer of Terrorism Legislation, to undertake a review of investigatory powers and report by 1 May 2015. DRIPA also contains a sunset clause of December 2016. Therefore, legislation on communications data will be needed in the next Parliament. We look forward to the findings of the review and to using those findings to inform future legislation.

27 Jan 2015 : Column GC75

In closing, the order fulfils the important government commitment to reduce the number of organisations with access to communications data. It also ensures that all requests for communications data by the financial regulators are subject to the safeguards in RIPA. I beg to move.

Lord Rosser (Lab): My Lords, I thank the Minister for explaining the background and purpose of the order which, as she said, removes some public authorities from the list of bodies allowed to access communications data under the Regulation of Investigatory Powers Act 2000, and increases the grounds under that Act on which the Financial Conduct Authority and the Prudential Regulation Authority can access data to include non-criminal enforcement of financial services regulation.

However, why are the Government bringing forward the order now? The Explanatory Memorandum refers to the draft communications data Bill, as did the Minister, and a Joint Committee report published more than two years ago. The Explanatory Memorandum also states that while that Bill was being considered there was substantial consultation with the authorities from which this order removes powers, as well as with the Treasury in relation to the change affecting the Financial Conduct Authority and the Prudential Regulation Authority. All this appears to have been some time ago, and it is only now that the order is being brought forward, yet there have been other developments since the Joint Committee report on the consultations to which I have referred. As the Explanatory Memorandum itself says in paragraph 12—to which the Minister has already made reference—the Data Retention and Investigatory Powers Act of last July,

“requires the Independent Reviewer of Terrorism Legislation to carry out a review of investigatory powers, including communications data”.

That review should be completed by 1 May, in just over three months’ time. In addition, the Intelligence and Security Committee is determining how we can properly balance both security and liberty in online communications.

Why then have the Government decided to bring this already delayed order in now rather than wait for the pending reports and views on issues relating to communications data from the independent reviewer and the ISC? Is bringing this order forward now rather a case of jumping the gun in the light of developments in recent months, bearing in mind that this order appears to have been somewhat delayed? It would be helpful if the Minister could say why the Government deem it appropriate for the 13 organisations listed to lose access to communications data. One of them has undergone a fundamental change in ownership since the Government first started considering this issue. What were the criteria against which the decision that they should lose access to communications data was reached?

On the consultation that took place some time ago, which is referred to in the Explanatory Memorandum, can the Minister confirm what I think she said in her opening comments that all the 13 authorities concerned had agreed to the removal of their powers to access communications data? Will she also say whether the relevant Ministers did likewise in respect of the authorities

27 Jan 2015 : Column GC76

that came under their departments? Were any authorities originally on the list subsequently taken off the list of 13 we now have? Were any organisations that were not originally on the list subsequently added it?

During a debate in this House in July last year, reference was made to the Food Standards Agency, which is included in the list of 13 organisations and, in particular, to the egg inspectorate of the Food Standards Agency using RIPA. We were told that in the past few years people have gone to prison for multimillion-pound frauds restamping eggs. In that debate, we were told that billions of eggs were being brought in from France unstamped and processed in a factory in the Midlands. The egg inspectorate had to know about this, and there was a tip-off. The point being made in that debate was that any idea of the egg inspectorate not being able to use RIPA would seriously weaken the efforts of those who are there to protect us from the kind of activity I have just described. Will the Minister comment on that in the light of the fact that the Food Standards Agency is listed as one of the organisations losing access to communications data under RIPA?

We are not opposing the order, but I should be grateful if the Government respond in some detail—if not today, then subsequently—to the questions I have asked and the points that I have made.

Baroness Williams of Trafford: My Lords, I thank the noble Lord, Lord Rosser, for the questions he has raised. I am very grateful that he will allow me to write to him in due course, given that I have not had a Box behind me for most of the debate.

On why the order is required now and why we cannot do everything together, DRIPA has a sunset clause and everything will have to be reviewed in the next Parliament. In addition, the independent reviewer David Anderson QC will report his findings on 1 May 2015. There is no doubt about it: the Government and subsequent Governments will need to review the whole thing in the round anyway, and the sunset clause in 2016 will underline that need to review the whole issue.

The noble Lord also asked why we specifically chose the 13 organisations to lose power and whether they were satisfied with that loss. I understand that some concern was expressed by the Royal Mail. I do not know of any concern expressed by any other organisation. The primary reason they were chosen was they had made little if any use of the powers, and therefore were taken off the list. It is also important to note that the Joint Committee found it difficult to say which organisation should lose its powers.

Lord Rosser: As I understand it, the Joint Committee basically said that organisations should be looked at. That has been done and the 13 have emerged. It would certainly be helpful to know the criteria that we use to decide which ones should be on the list.

Baroness Williams of Trafford: I hope that I have explained that. It was the case that either little use or no use had been made of the powers. I assume that, as time goes on, organisations may be added to the list or be taken off it, depending on events. The noble Lord asked a specific question about the egg inspectorate.

27 Jan 2015 : Column GC77

As I understand it, the inspectorate does not have powers to access communications data. I hope that that helps.

Lord Rosser: Is the Minister saying that it does not have powers at present—not that it will not have them but that it does not have them at present?

Baroness Williams of Trafford: It has never had them, I understand. I will have to write to the noble Lord because I know that I have not answered all his questions, but I hope that he will be satisfied with that.

Motion agreed.

Motor Vehicles (Wearing of Seat Belts) (Amendment) Regulations 2015

Motor Vehicles (Wearing of Seat Belts) (Amendment) Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

4.57 pm

Moved by Lord Popat

That the Grand Committee do consider the Motor Vehicles (Wearing of Seat Belts) (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Lord Popat (Con): My Lords, this measure has already been considered in another place. It has long been an established fact that wearing seat belts is an important safety mechanism. Seat belts are a significant factor in saving lives in collisions, and they are therefore something that the Department for Transport takes very seriously. That is why the fixed penalty for not wearing a seat belt increased to £100 in 2013.

That said, there are some circumstances in which it is appropriate for individuals to remove their seat belts. An exemption from the requirement to wear a seat belt exists for those travelling in vehicles being used for police and fire-safety purposes. There is no parallel exemption for ambulance personnel when they are travelling in the back of an ambulance and providing treatment to a patient. Therefore, an ambulance worker who removed their seat belt to provide life-saving treatment, including chest compressions, to a patient or to deal with a paediatric or obstetric emergency would be committing an offence. That is an unfair position in which to put those whom we should properly be supporting. The outstanding and selfless work and commitment of those in the front-line ambulance service is one of the things that makes the NHS the envy of many other countries in the world.

In December 2011, as part of the Department for Transport’s Red Tape Challenge, a decision was taken to create a new exemption from the requirement to wear a seat belt for persons riding in an ambulance while providing treatment to a patient. In 2013, the proposal was considered in a consultation paper on speeding limit exemptions for emergency vehicles. There was unanimous support for the proposal from a range

27 Jan 2015 : Column GC78

of stakeholders, including representatives from the ambulance service, the police, road safety groups and members of the public.

There is a European directive which harmonises the compulsory use of seat belts in specific categories of vehicles across member states. The directive permits member states to grant exemptions from the requirement to wear seat belts in certain specified circumstances, provided that the approval of the Commission is obtained. One such circumstance is ensuring that the emergency services can perform their duties properly. The department requested the EU Commission’s approval in respect of the proposed exemption in November 2013, and this was granted in June 2014. The derogation granted by the Commission provides that the exemption should be applied when the patient requires treatment,

“which due to its nature or the medical situation of the patient cannot be delayed”.

These regulations will add an additional exemption from the requirement to wear a seat belt for persons travelling in an ambulance while they are providing urgent treatment to patients. The regulations are drafted in accordance with the terms set out by the European Commission.

The proposed changes have been drafted in consultation with the Department of Health. They have the support of the Association of Ambulance Chief Executives and seem entirely logical. This is a straightforward change which will allow the emergency services to do their job. I therefore commend the order to the Committee.

5 pm

Viscount Simon (Lab): My Lords, the Minister in his opening remarks has touched considerably on what I wanted to ask him. He mentioned road safety groups. I simply want to ask whether those groups include representatives from St John Ambulance and other charitable organisations. Will they covered by these regulations?

Lord Rosser (Lab): I thank the Minister for explaining the purpose of and reasoning behind this order, which we support. As the noble Lord said, the regulations exempt persons riding in an ambulance from the requirement to wear a seat belt while providing emergency medical attention or treatment to a patient for whom such treatment cannot be delayed. Indeed, one assumes that in reality ambulance personnel have been ignoring the existing regulation in these circumstances since, I am sure, they put the welfare and indeed the survival of their patients ahead of abiding by seat belt regulations—and ahead of their own personal safety. Not being in a position where seat belts can be worn places the safety of ambulance personnel in jeopardy if the ambulance itself is involved in a road accident or incident either directly or indirectly. I assume that the purpose of the order is to regularise a situation that I imagine has existed on almost a daily basis.

I would be grateful if the Minister could confirm—I am sure that the answer will be “yes”, given what is set out in the Explanatory Memorandum to the regulations—that this measure has also received the support of the trade unions which represent ambulance personnel.

27 Jan 2015 : Column GC79

Perhaps I may also take what is to an extent a liberty by raising another point. I hasten to say that I do not expect the Minister to respond to it today since I accept that, while it relates to an aspect of wearing seat belts, it is not one that even I could argue is covered by these regulations. It would be helpful if the Minister could let me know in due course either what decision the Government have made, or when they expect to make a decision, following a consultation in 2011 on the implementation and method of enforcement of the 2003 EU directive requiring children aged three and up to 14 travelling in a coach to wear seat belts. As I say, I appreciate that I am taking a bit of a liberty in raising this issue now, but if the Minister is subsequently able to give me the answer, I shall be extremely grateful to him. Again, we support the order before the Committee.

Lord Popat : I thank the noble Lord, Lord Rosser, for supporting the order. The noble Viscount, Lord Simon, asked a question about St John Ambulance. These regulations apply the definition of “motor ambulance” in Regulation 3(2) of the Road Vehicles (Construction and Use) Regulation 1986. A motor ambulance is defined as a purpose-built motor vehicle which is specifically constructed and equipped for medical purposes. I am pleased to say that that applies to St John Ambulance.

The noble Lord, Lord Rosser, asked what paramedics do at the moment when they need to provide treatment. Obviously, they do an excellent job. Given the imperative for paramedics to preserve life and give treatment to the patient in the ambulance, we understand that they will carry out treatment using their judgment and will remove their seat belt if necessary. I am glad they have that exemption now so that whatever work they do will be legal.

The noble Lord, Lord Rosser, also raised the outstanding issue of buses and coaches having seat belts for children under 14. This legislation took a long time to come here because we had to get permission from the European Union. Legislation requiring that seat belts are worn by children under 14 is being prepared by the Department for Transport and will be presented to the House for consideration when it is finalised and cleared.

I hope that I have answered all the questions. I will certainly look at Hansard and, if I have left anything out, I will be very happy to write to noble Lords.

Lord Rosser: I raised a question that relates to the order. It was about whether trade unions representing ambulance personnel supported the change. I am sure they did, but perhaps the Minister can confirm that.

Lord Popat: There was widespread consultation on this—a 12-week consultation about changes to specific exemptions, which closed in February 2103. A wide range of stakeholders responded, including representatives from the ambulance service and road safety groups. There was also widespread support for the proposal across all stakeholder groups. I guess that “all stakeholders groups” would include the CBI and the TUC.

27 Jan 2015 : Column GC80

I hope that I have addressed all the questions. As I said earlier, I will be very happy to look at Hansard and, if I have left anything out, I will respond.

Motion agreed.

Local Audit (Appointing Person) Regulations 2015

Local Audit (Appointing Person) Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

5.09 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Local Audit (Appointing Person) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Baroness Williams of Trafford (Con): These regulations are among a number necessary for local public audit in the new regime introduced by the Local Audit and Accountability Act 2014. That Act abolishes the Audit Commission and gives greater responsibility for auditor appointment to local public bodies. I will not take up the Committee’s valuable time by repeating the arguments put forward during the passage of the 2014 Act in this debate. There was broad support across the House for making the collective procurement of audit services available to local public bodies, and these regulations deliver on the commitment that we made then.

We recently updated our impact assessment: this is saving £759 million over the five years between 2012 and 2017—the duration of the outsourced audit contracts—and an estimated £1.35 billion over 10 years. As a direct result of this work being done by the private sector, the cost of external audit for local bodies will reduce by £30 million per annum.

Before getting into the detail of these regulations, I will explain the background. From 2017, a local public body will have to appoint its own auditor unless it chooses to opt in to the collective procurement arrangements we are providing for with these regulations. The Local Audit and Accountability Act 2014 already allows local public bodies to get together to jointly procure audit services. During its passage through Parliament, we amended the Bill to make broader collective procurement arrangements available in light of an appetite in the sector for this. In particular, the noble Baroness, Lady Hanham, worked with the noble Earl, Lord Lytton, to address and resolve concerns so that legislative provisions for collective procurement for smaller authorities would be suitable for the needs of that sector.

I will deal with the appointing person regulations first. As I said, we made provision for collective audit procurement in the Local Audit and Accountability Act in response to demand within the sector. We also consulted on a draft of these regulations. Responses were broadly content with these provisions, including those that we asked specific questions about: that the decision by local bodies to opt in must be taken at full council, and that the maximum period of the appointing body’s responsibility should be set at five years.

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This is a lengthy set of regulations, so noble Lords will understand if I do not discuss them in detail. They make the collective procurement of audit services available to the sector while meeting objectives of accountability, transparency, continued auditor independence and audit quality. To achieve this, they: provide for the Secretary of State to specify an appointing body in a transparent manner; allow more than one appointing body to be specified, enabling specialisation in audit procurement for different groups of authorities; set out how authorities can opt in to, and later opt out from, the appointing body’s arrangements; require the appointing body to consult authorities on audit fee scales; define the appointing body’s roles in relation to auditor appointment, resignation or removal; require the appointing body to monitor auditor independence and compliance with contractual obligations, and deal with any disputes or complaints relating to audit work or audit contracts; and provide that an authority which has opted in to these arrangements will not be required to have an independent auditor panel. The regulations also provide that the appointing body’s services will be available as an additional option to the Secretary of State if an authority which has not opted in to collective procurement arrangements also fails to appoint its own auditor.

The smaller authorities regulations have a similar objective to the set of regulations I have just spoken about, but for smaller local public bodies. They provide for the collective procurement of audit services for smaller bodies, with the same guiding principles as for principal authorities. Those are transparency and accountability in decisions taken about how a body’s auditor is appointed, and continued effective, independent assessment of the accounts of authorities subject to that audit.

As with an appointing body for principal authorities, the body’s remit is clearly defined and will be focused on achieving good value for money in audit procurements. If it does not, smaller authorities are unlikely to use its services.

5.15 pm

A key difference is provided in these regulations between the collective procurement arrangements for larger and smaller authorities. Principal authorities must choose to opt in to take advantage of their appointing body’s arrangements. Smaller authorities, however, must actively opt out of their appointing body’s arrangements if they prefer to appoint their own auditors. There are very many smaller authorities—nearly 10,000 in total—and we expect that the majority will want to remain opted in. It is more cost-effective and efficient therefore to opt them in as a default, but a smaller authority will be free to opt out if it chooses.

These regulations also make some audit provisions specific to smaller local public bodies. Authorities with a turnover above £25,000 but below £6.5 million must appoint an auditor, or have an auditor appointed to them, to provide a limited assurance on a financial statement. The regulations also provide that bodies with a turnover of under £25,000 are not normally subject to audit engagement but must comply with enhanced transparency requirements. We have taken a

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risk-based approach to the exemption for the smallest bodies: the exemption will not apply when such a body is new or where it is subject to a report in the public interest, or an item in its accounts has been declared unlawful. We have consulted the National Audit Office on this approach and it is content.

We undertook two rounds of consultation on these regulations. The first, in the autumn of 2013, was on an initial draft. Again, respondents were broadly content with their provisions, including: that a smaller authority should not be forcibly opted out by the appointing body; that the appointing body should publish a list of appointing bodies; that the Secretary of State should have the power to opt in a smaller authority which has failed to appoint an auditor; and that below-£25,000 authorities should not be exempt from a limited assurance audit if they are newly formed or have had an item in their accounts declared unlawful, or if they have been the subject of a public interest report in the previous year.

We undertook a second round of consultation in the summer of 2014. In particular, we asked whether the draft regulations met the objectives of transparency, quality and cost-effectiveness. Most expressing a preference agreed. However, chief among the concerns was that the regulations are complex and that many smaller authorities may remain unaware of the new requirements.

We recognise the complexity of these regulations and the challenge to many smaller authorities of interpreting their effect. Therefore, we have redrafted them to simplify and clarify them where we can. We are publishing a brief and accessible guide to the audit and transparency requirements applicable to smaller authorities, which we have shared with this Committee in draft. Again, this guide reflects considerable consultation with the sector.

In summary, the regulations provide for the Secretary of State to specify an appointing body for smaller authorities in a transparent manner. They set out how smaller authorities can opt out of, or later opt in to, the appointing body’s arrangements. They require the appointing body to consult representatives of smaller authorities on audit fee scales. They define the appointing body’s roles in relation to auditor appointment, resignation or removal, monitoring auditor independence and compliance with contractual obligations, and dealing with any disputes or complaints relating to audit work or audit contracts. The regulations set out that an authority opted in to these arrangements will not be required to have an independent auditor panel. They also require a smaller authority whose turnover is below £25,000 and is thus exempt from the requirement for limited assurance audit to self-certify by letting the appointing body know this and by publishing the fact.

These regulations were debated in another place last Wednesday and several issues were raised. While it is for the sectors concerned to set up audit procurement bodies, the Minister confirmed that the body for smaller authorities was to be in place later this year, and the Local Government Association was well engaged on the question of a body for larger authorities.

The Minister was also able to confirm that concerns expressed by the Institute of Chartered Accountants in England and Wales about the status of the limited

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assurance audit work carried out on smaller authorities were being addressed. Departmental officials have been engaging with the institute and with audit firms themselves. Audit firms are positive about the limited assurance work; many are already undertaking it. I understand that officials will next be meeting the institute to discuss their concerns on 2 February. With that, I commend the regulations to the Committee.

Lord Palmer of Childs Hill (LD): My Lords, I thank my noble friend the Minister for that detailed exposition. I need to declare—especially given her last comment—that I am a chartered accountant and that I was, until May, the chairman of a local authority audit committee. I think that is probably enough in that respect.

I see my role as being to pick holes, if there are any, in what I see in front of me. The main thing that I am looking at is the draft guide which my noble friend referred to. On page 3 of that guide, there is the comment that the annual accounts are subject to a limited assurance review. Within audit committees, internal audit teams have a way of classifying the work of each department or service area, and when they audit that service area, they deem its performance to have been satisfactory, limited or poor respectively. It is generally done with a traffic lights system. The term “limited assurance” has a specific connotation within the audit field, and by referring in the guide to a limited assurance review there is the complication that it will be viewed as part of what I call the traffic lights system in local authorities. It is a slightly careless use of words that are used within the realm of audit. Could my noble friend think about that and the confusion that it might cause?

There seems to be a very light mention within the paper of internal audits, which I mentioned in an earlier discussion on the Bill. Good local authorities rely very much on their internal audit teams. External auditors also rely on the internal audit to a large degree, although it depends very much on the firm and the internal audit. The idea is that you do not do the job if it has already been done. However, internal audit is hardly mentioned. It is mentioned on page 5 of the paper that there should be an internal control, but there does not then seem to be a relationship in terms of what regard external auditors can take of that internal audit. If we are aiming to drive down costs for local authorities and the like, there ought to be an acknowledgment of what good internal audits can achieve. I did this when I was chairman of an audit committee—internal audits tore the living daylights out of service areas, and if they did not perform better, they had to come back and explain why. That is what internal audits do, but there does not seem to be much mention of it here.

Annual appointments are complicated, as very few accountancy firms are deemed by the Institute of Chartered Accountants in England and Wales—I presume this is the case in Scotland as well—to have the stature, knowledge and capability of doing this. I cannot remember what the figure was—I am sure other noble Lords will—but it was no more than eight, and probably about five. There were about 10 firms that had the capability but only about eight were deemed to be able to do it. So there will be a very limited market for these

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firms. I do not know whether the Minister has inquired with the professional bodies as to whether they see any problem.

My last comment on this is about very small authorities. My understanding of the paper is that very small authorities—those with a turnover under £25,000—will not need to appoint an external auditor, unless someone raises a query. In practice, if a small authority that needs a set of accounts, and thus an audit, has a turnover of £25,000 or less, and somebody raises an accounting query, that local authority or body will then have to appoint an external auditor to deal with that query from a member of the public. I may have this wrong, and my noble friend will correct me, but my reading says that that is what needs to happen. Therefore, in practical terms, if Mr or Mrs Vexatious raises a problem with the accounts of a local body with a turnover of £25,000 or less, it has to appoint an external—not internal—auditor, whose fees will start, say, at £1,000 and may be a lot more. My noble friend should know that that is impractical. I hope that these points are addressed before the regulations are put on a firm basis.

Lord Beecham (Lab): My Lords, I declare an interest as a member of Newcastle City Council and of its independently chaired audit committee.

My noble friend Lord McKenzie and I whiled away a happy hour or three, as I recall, on these issues when the Bill was going through. Some of the reservations that we had then would apply also to the proposals before us, and my noble friend will enlarge on them. I concur with some of the questions raised by the noble Lord, Lord Palmer. In particular, he is right in his recollection that there are, apparently, eight firms—a couple of which are actually connected to the big five; so there is generally little choice in this field. One of the questions is whether that is acceptable to the Government or whether there should not be an attempt to encourage other, perhaps smaller, firms to develop an expertise, make more of an impact on the market and recognise that, in fact, the high cost of employing the major firms—the Deloittes, the PwCs and so on—is justified in the context of even a joint appointment. The fact that there is a joint appointment will not necessarily reduce the cost of an individual audit exercise, although perhaps the Government have done some work on that and can enlighten us.

One of the points that I, and I think my noble friend, raised was the desirability of positively promoting a change of auditor after a period of time, because there is a danger that the auditor and the local authority get too close together. The Minister has a long experience—although not quite as long as mine—in local government and as a council leader, and will therefore be familiar with these issues. A turnover is desirable, and perhaps the noble Baroness can indicate whether the Government might be prepared to facilitate that in this context.

One of the other issues facing all local authorities is, given the effective demise of the Audit Commission, the difficulty of comparing what goes on within one’s own authority with other authorities. The Audit Commission had its virtues and some problems from time to time, but at least it often provided information

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across the piece that one could look at and with which one could compare what one’s own authority was doing. I know that that is the view not just of political members of the audit committee in Newcastle but very much of the independent chair and independent members, and they miss such a basis for comparison. Given what I guess is the slightly smaller degree of experience in these matters among the smaller councils that we are talking about, have the Government any proposals to remedy this information gap? While all authorities can benefit from that kind of comparative information, it is probably more important, in some respects, for smaller authorities—particularly if independent members serve on them. It would be very much welcome to hear the Government’s position on that process.

The Audit Commission is not officially dead and buried but that part of its work regarding local authorities is effectively gone as far as local authorities are concerned. That is unfortunate and we have to live with it—at any rate, for the time being—but, given these new proposals, I hope that something will be done to assist members of smaller authorities, their officers, in so far as they have any, and those who ultimately do their accounts to be able to look at what comparable authorities are doing. That would certainly be a much more useful process for the audit committee’s oversight, or that of the local authority, of what is going on in their local patch.

5.30 pm

Lord McKenzie of Luton (Lab): My Lords, I thank the Minister for introducing these two sets of regulations. As she will have gathered from the debate in the other place, although we have some questions of detail, we will not seek to oppose these regulations.

I agree with much of what the noble Lord, Lord Palmer, and my noble friend Lord Beecham said, and I will come on to some of those points in a moment. However, on the issue of internal audit, I had no doubt that the noble Lord would raise it because he was very strong on this issue when we were discussing the Bill. My question is how under this regime the strength of internal audit is going to be reflected in the setting of fees. That was not clear from my reading of the regulations.

We are pleased that during the passage of the Local Audit and Accountability Bill, which is now an Act, the Government accepted the argument in favour of preserving some opportunity for ongoing collective procurement of audit services for those who wished to avail themselves of the opportunity, which is what these regulations cover. Although we were not supportive of retaining the Audit Commission with all its former powers, its precipitate demise forgoes the opportunity; we should have used it in some of the roles that are promulgated in these regulations. It is a pity that that decision was taken without thinking through the consequences.

The LGA has created Public Sector Audit Appointments Ltd which is due to manage ongoing audit arrangements. Until April 2015, it is the responsibility

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of the Audit Commission. It will use staff transferred from the commission, so we are getting rid of the commission and transferring some of the staff into this new body to carry out some of the activities that it was already carrying out in managing those existing contracts. How many staff are to be transferred under these arrangements and what are the expected ongoing annual costs of the new entity through to 2017?

My noble friend Lord Beecham touched upon the best value profiles and the ability of individual authorities to benchmark themselves against others. I understand from what I have read that the profiles will not be preserved in their previous form and therefore will not be available under the new regime.

Both the appointing person regulations and the smaller authorities regulations provide for the Secretary of State to specify the person or persons to appoint a person to appoint a local auditor. For principal authorities and smaller authorities the Secretary of State can specify different persons in relation to different classes of authorities. Will the Minister say a little more about what the Government have in mind in terms of these appointments, whether they will seek to appoint for different classes of authority, what experience they will look for in the person they appoint, how they propose to monitor the performance of such persons and by reference to what criteria?

The noble Baroness referred to the LGA. I do not know whether it is proposed that the existing LGA entity will become involved, whether there will be a new entity, or whether that will be part of the provision. Is it the intention that Public Sector Audit Appointments Ltd will be an appointee? It is noted that no appointment can be made for a financial year before 1 April 2017, but does this imply that the existing contracts will not be extended beyond their current term? I think that they can be extended to 2020. What is the earliest date that the run-on of existing arrangements can be triggered? If there is a desire to run them on to 2020, what is the earliest date when the decision is needed in respect of that?

The noble Lord, Lord Palmer, and my noble friend Lord Beecham touched on capacity. When outsourcing its audit contracts to the private sector the Audit Commission sought, although with limited success, some diversity of providers. My recollection is that most of the contracts went to the big four accounting firms. I think there were a few others, and Grant Thornton featured among them. I cannot remember how many other firms were sought, but there were precious few.

Lord Palmer of Childs Hill: Perhaps I may add that Grant Thornton did not mop up a large number of the contracts.

Lord McKenzie of Luton: I think that it was the fifth firm. I cannot remember whether there were any beyond that, but there may have been changes in the interim.

What requirements, if any, will be placed upon appointed persons in this regard to seek to bring diversity of providers to the market? The regulations

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cover the obligation of appointing persons to oversee issues of independence. Generally, this should cover the independence of the auditor from the authority being audited as well as the independence of the auditor from the appointing person. As the Minister said, there has been extensive consultation around these proposals, but significant and authoritative concerns still appear to have been raised in some quarters. I refer first to comments made by the Audit Commission, which chime with those made by the noble Lord, Lord Palmer. How does the Minister respond to the comments made by the Audit Commission in its letter to all noble Lords written in September 2014? I refer to two paragraphs in particular. The first says:

“Currently all local authorities have their financial documents subjected to review by an external auditor. This is at no cost to most councils spending less than £25,000 a year and has a maximum cost to them of £100 a year. Under the current government’s proposals, external checks will not happen routinely for local authorities spending less than £25,000 a year. However these bodies will have to appoint an auditor for when local people wish to contact one with formal questions or objections. Additionally, these parishes and other bodies will have to publish specified information on their website or, if they don’t have one, on the website of the district council. This will inevitably cost more than the current arrangements”.

That is precisely the point the noble Lord made. The commission goes on to say:

“The regulations making provision for all procurement possibilities (exempt opted-out authorities, exempt opted-in authorities, non-exempt opted-in authorities, and non-exempt opted-out authorities) are close to impenetrable. Administering these complex new arrangements will also require any collective procurement body to hold and keep up to date large amounts of information about all 10,000 or so small bodies across the country. This will include contact details, whether they want to be part of the body or not, all the audit appointments the body has made, and all the bodies where auditors have used their statutory powers. This will add to its costs and therefore increase audit fees”.

How do the Government respond to that?

Moving on briefly to the position of the Institute of Chartered Accountants in England and Wales, I should declare my interest as a fellow of the institute, although it is a long time since I practised to earn a crust. A key part of the new arrangements will be the NAO’s proposed Code of Audit Practice. The Minister will be aware of the responses to the draft code as well as the smaller authorities regulations, in particular that of the ICAEW. Although broadly supportive of the code, the institute has expressed some reservations about smaller authority assurance arrangements. It expresses these in two paragraphs in particular, and as an aside I should say that it also refers to the issue of value for money in arrangements going forward:

“We have noted the statement in paragraph 3.6”—

of the consultation document—

“‘should evidence of poor value for money become apparent during the course of the audit, the auditor should consider the implications of this for their work.’ It would be helpful to clarify that this does not require auditors to search for evidence of poor value for money, but rather consider the underlying arrangements where a significant situation might arise which identifies that value for money is not being achieved”.

Is that right and are the Government happy that that is the position?

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I now move on to small authority assurance engagements, to which the noble Lord, Lord Palmer, also referred. The institute states:

“As you know, ICAEW has had significant concerns about the government’s proposals in relation to smaller authority assurance engagements. In particular, our concerns have centred around the mis- understanding of the difference between ‘audit’ and ‘assurance’ engagements”.

It goes on to say:

“ICAEW would not be supportive of a change to the definition of audit as suggested by DCLG and we would strongly urge the NAO to also reject moves to create such confusion and to create a new definition. Indeed, as indicated in our response to government on the smaller bodies’ regulations … we would not recommend that any ICAEW member firm take this work on if significant changes to the regulations are not made and that the definitions of audit and limited assurance continue to be mis-interpreted”.

That is pretty strong language, and stronger than I have read in any representations that it has made before. The Minister said that the Government are still in discussion about that, but can she say something more about whether there is any movement or convergence of views on that with the institute? If the institute is advising its members not to engage, that is a very serious blow indeed. If these issues with the ICAEW have not been resolved, and the institute maintains its stance on discouraging member firms from taking on assignments, there is a major problem. Obviously, there is a little time before we get to 2017, but it would be good to know that there was some progress on that matter.

I have one or two further minor points for the Minister. An opted-in authority will not be required to have an auditor panel, but if it does, that panel must not be consulted on opted-in matters related to the audit or the auditor appointment. Why is that provision there? It is not apparent to me as it stands. For smaller authorities, the exercise of the public right to question and object must in future take place within the 30-day inspection period rather than in the period after it. What is the purpose of that change?

I have one final point. Under the transparency code for smaller authorities, there has to be an explanation of any differences between balances carried forward and total cash and short-term investments. How is that supposed to help? As it stands, it could be interpreted in myriad different ways. These regulations are exceptionally complex. We would not seek to stand in their way, and guidance will obviously help, but we hope that the complexity will not defer the opportunity to use this approach, which is an important strand of our discussions on the Bill.

Baroness Williams of Trafford: I thank all noble Lords who have contributed to this debate. Like them, I declare an interest in local government, but I do not declare an interest as an accountant—although I declare an interest as being married to one.

The noble Lord, Lord McKenzie, is quite correct that this is a complex area. The more we look into it, the more we realise how complex it is. I will go through the various points that noble Lords made.

I wonder whether my noble friend Lord Palmer is the same Lord Palmer who was on Barnet Council.

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Lord Palmer of Childs Hill: I was for 28 years until last May, yes.

Baroness Williams of Trafford: I conducted a peer review on Barnet Council some time ago and I wondered whether that was indeed my noble friend.

Lord Palmer of Childs Hill: As an opposition councillor, I was chair of the audit committee for four years.

Baroness Williams of Trafford: Marvellous, so our paths have crossed. My noble friend asked about the draft guidance on the limited assurance review and whether it was understood by the accountancy profession. It is well understood by the audit and accountancy professions because it is already in use. It is about European standards and defined in the guide, so I hope I can give him comfort on that.

My noble friend also made a point about internal audit and about there not being enough detail in the guide. It may be helpful if I point out that these regulations and the guide are about external auditors and do not really focus on internal audit. However, that is not to say that we do not agree entirely that internal audit is extremely important.

5.45 pm

My noble friend also made a point about vexatious queries and how time-consuming and money-consuming they can be for smaller authorities, asking how the regulations guard against such costs. The regulations allow for the auditors to ignore obviously vexatious claimants.

Lord Palmer of Childs Hill: The point is that a very small local authority would not have an auditor and would have to appoint someone if an action took place. If an auditor was in situ, I am sure that they would behave very responsibly—I have seen them do so—but my point concerns when you have to appoint one. I am sorry for interrupting my noble friend.

Baroness Williams of Trafford: I totally understand where my noble friend is coming from. If you are a small authority—for example, a parish council—and someone makes a vexatious claim against you, I am making the assumption, although I stand to be corrected if I am wrong, that the appointing body could do that for you. I understand that that is correct. Therefore, the body appointed by the Secretary of State could do that for you—it could take on the role that a larger authority would avail itself of. I hope that that helps my noble friend.

Both my noble friend Lord Palmer and the noble Lord, Lord Beecham, talked about the limited audit market. The Government’s view is that the repackaging of the audit contracts by a sector-led body could in fact open up the market. That is the hope. It may be helpful for noble Lords to know that we are working with the sector to encourage new entrants.

The noble Lord, Lord Beecham, talked about the turnover of auditors. The NAO will have a key role in complaints, similar to that of the current Audit

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Commission. I am happy to share with him the letter from Kris Hopkins MP and Andy Sawford MP on this very point if that would be helpful.

The noble Lord, Lord McKenzie, asked about the number of staff to be transferred and the cost of the transfer. If it is okay with him, I will write to him about that. He also talked about the specification and who the Government will appoint as the specified persons. Much will depend on what is put forward by the sector, but it is open to the sector to bring forward specialised bodies. In terms of extending the current contracts, as the noble Lord pointed out, we will run them until 2017. We can extend them to 2020, and we will make that decision in the summer of 2015.

The noble Lord also asked about the independence of the auditor from the appointing person. That is a very good point. The auditors’ own codes and proper practices remain in place under the new regime.

The noble Lord also mentioned the concerns raised by the Audit Commission, which we do not agree with because we are of the view that the new system is cheaper. It is true that smaller authorities may pay more due to no longer being cross-subsidised by larger authorities, as is currently the case, but I assume that, in pooling arrangements, they will try to make those processes more efficient.

In terms of the limited assurance engagement, the limited assurance order is already under way. This will not change. Officials understand that firms are eager to engage with limited assurance contracts and will be meeting them on 2 February.

The noble Lord, Lord McKenzie, mentioned that the arrangements are very complex to maintain for smaller authorities. Smaller authorities will all have to self-certify income, and this information will be held on a spreadsheet just as the Audit Commission holds it, so it is not as complicated as it may first seem. The new regime for smaller authorities is proportionate to their size and the amount of public money that they handle.

I hope I have covered most points. If I have not, I shall write to noble Lords. On that note, I commend the order to the Committee.

Motion agreed.

Local Audit (Smaller Authorities) Regulations 2015

Local Audit (Smaller Authorities) Regulations 201517th Report from the Joint Committee on Statutory Instruments

Motion to Consider

5.51 pm

Moved by Baroness Williams of Trafford

That the Grand Committee do consider the Local Audit (Smaller Authorities) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Committee adjourned at 5.51 pm.