Twenty Fourth Report Contents

Instruments drawn to the special attention of the House

Draft Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020

Date laid: 15 July 2020

Parliamentary procedure: affirmative

The purpose of these draft Regulations is to establish a debt respite scheme for people in problem debt. Under this scheme, people who receive professional debt advice may access a 60-day ‘breathing space’ in which fees, charges and interest are frozen and enforcement action is paused. The instrument also proposes an alternative route by which people receiving mental health crisis treatment may access these protections for the duration of their crisis treatment. This is a welcome policy that will provide significant protection for many people in vulnerable situations. As the Explanatory Memorandum (EM) provides limited information about the scope of the new scheme and how it will operate in practice, in particular how to ensure that people under pressure with problem debt can easily access appropriate advice, we have obtained additional material which is included in this report in Appendix 1. We have asked HM Treasury to revise the EM to reflect this material and provide a fuller explanation of the scheme.

These draft Regulations are drawn to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House.

3.HM Treasury (HMT) has laid these draft Regulations with an Explanatory Memorandum (EM) and Impact Assessment (IA). The purpose of the instrument is to establish a debt respite scheme for people in problem debt who receive professional debt advice. Under this scheme, people may access a 60-day moratorium, also referred to as ‘breathing space’, in which fees and charges and certain interest are frozen and enforcement action is paused. The instrument also proposes an alternative route by which people receiving mental health crisis treatment may access these protections for the duration of their crisis treatment. HMT intends for the new scheme to launch on 4 May 2021. It will be managed by the Insolvency Service.

Background

4.Estimates provided by HMT suggest that there are around nine million overindebted people in the UK, of which only around 1.1 million receive advice each year, and that an additional 0.65 to 2.9 million people would benefit from debt advice. HMT says that people who need debt advice often do not seek it and those who do often experience “sub-optimal outcomes” because they get the advice at a late stage, when they are already at crisis point. According to HMT, many debtors are only prompted to seek advice when their creditors start court proceedings or take enforcement action, leading to stress and anxiety and debtors choosing the quickest rather than the most appropriate solution.

How the new scheme will operate

5.According to HMT, this instrument aims to encourage more people who are in problem debt to access professional debt advice; to do so sooner; and to enable them to enter the debt solution that is most appropriate in their circumstances. The instrument proposes a 60-day moratorium during which fees and charges and certain interest are frozen and enforcement action is paused. This is to “give debtors time to engage fully with professional advice by reducing the stress caused by spiralling debt and impending enforcement action”. HMT says that improving the engagement between debtors and debt advisers will improve debt advice outcomes, including more creditor recoveries. The protections provided by the moratorium will be accessible only via professional debt advice in order to encourage more people to seek debt advice sooner. Debtors may access the moratorium once in each 12-month period.

6.The EM provides limited information about the scope of the scheme and how it may be accessed. Asked about the types of debt that qualify for the moratorium, HMT told us that all of an individual’s debts will be included, unless it is a non-eligible debt under regulation 5(4), and that there will be no maximum or minimum limits. An individual’s business debts will not be eligible if the debtor’s business is registered for VAT, or if they are in partnership with anyone else, and the debt they have accrued relates solely to the business. We asked whether the moratorium will cover arrears owed to central and local government, including council tax arrears, personal tax debts and benefit overpayments. HMT confirmed that such debts will be included and clarified that:

“Some specific public sector debts are excluded by regulation 5(4), mirroring the position in bankruptcy (e.g. debts incurred as a result of fraudulent behaviour; fines imposed by a court, including criminal fines; confiscation orders; child maintenance payments and debts that arise after an order made in family proceedings; social fund loans; student loans and personal injury liabilities).

If an individual enters breathing space in arrears on monthly council tax payments before the full outstanding annual bill has been requested, only outstanding monthly arrears owed on the debt will be included in the protections. The individual would continue to face enforcement action if they did not pay their ongoing monthly bill for council tax, given that council tax is an ‘ongoing liability’. However, if the individual had been served with a notice requiring payment of the full remaining bill by the time they enter breathing space, the whole of the amount contained in that notice will be included in the protections of breathing space.

Universal Credit [UC] advances and UC third party deductions are currently excluded, but will be included in the protections on a phased basis as early as possible following the start of the policy in early 2021, to ensure that IT changes required align with other requirements of the wider Universal Credit programme.”

7.We also sought clarification of the status of ongoing liabilities, such as utility bills, during the moratorium. HMT advised that:

“Breathing space is not a payment holiday. The person should keep paying their ongoing liabilities (defined in regulation 2, including mortgage, rent, insurance, taxes and utility bills) as they fall due. If they do not, and the debt adviser considers they have the means to do so, the debt adviser must decide to cancel their moratorium at the midway review unless the debtor’s personal circumstances would make it unfair or unreasonable.”

8.We asked who will be qualified to provide professional debt advice. HMT explained that a moratorium may only be initiated by an authorised person who has permission to do so (under the Financial Services and Markets Ac 2000 (Regulated Activities) Order 2001) or is exempt from this requirement, such as a local authority. HMT added that the moratorium “would be an option that any debt adviser meeting this description could offer, via online, telephone or face-to-face advice, provided the debtor met the eligibility criteria. The debt adviser would not be able to charge a fee.”

9.Given the large number of people who are under pressure with problem debt and could benefit from the new moratorium and the limited number of people who are authorised to provide professional debt advice, the Committee believes that it will be important for people to be given clear and timely advice as to who is qualified to initiate a moratorium. The Committee urges the Government to consider establishing a register of authorised professional debt advisers that may help in directing people to where they can receive the appropriate support.

10.We also asked how the 60-day moratorium period had been identified as the best option and whether it could be extended, for example in hardship cases. HMT said that:

“Campaigners originally proposed a six-week breathing space, which the Government proposed to extend to 60 days in its 2018 consultation. As set out in the 2019 consultation response, almost all consultation respondents welcomed the extension of the length of breathing space to sixty days, suggesting that this was a realistic length to enable an individual to seek debt advice and enter a sustainable debt solution. Breathing space cannot be extended, as the fixed period provides certainty to creditors. The only exception to this is in the mental health crisis moratorium, where the protections last for as long as the individual’s crisis treatment lasts, plus a further 30 days.”

Mental health crisis moratorium

11.HMT says that people receiving mental health crisis treatment will receive the same protections but will be able to access the moratorium without having to seek professional debt advice to reflect the fact that they may struggle to engage with such advice. The protections under the mental health crisis moratorium will apply for the duration of the crisis treatment, plus an additional 30 days. If people take professional debt advice subsequently, they may then also have access to the regular 60-day moratorium. HMT explains that as mental health problems may recur, no limit is proposed on the number of times that people may enter a mental health crisis moratorium.

12.We asked HMT about the process for accessing the mental health crisis moratorium and how people will be made aware of the new scheme. HMT responded that:

“As set out in the 2019 consultation response, Approved Mental Health Professionals (AMHPs) will be the professional group able to produce an assessment that an individual is receiving mental health crisis care to enter a mental health crisis moratorium. AMHPs may do this themselves, or because they are requested to do so, by the debtor or someone else involved in their care. This assessment will be the evidence that debt advisers then use to determine an individual’s eligibility for a mental health crisis moratorium and enter them into the protections of the scheme. The government will publish guidance for AMHPs later this year and work to make this a straightforward and low burden process for AMHPs, including by developing a standard form to use for assessments as part of professional guidance on the scheme.”

Register

13.While not mentioned in the EM, the instrument proposes the establishment of a register of individuals who make use of a moratorium. The register will be private. Creditors identified by the debt adviser will receive a notification when an individual enters the moratorium and they will have access to the register for that individual but will not be able to access details of other debtors in a moratorium. The register will be managed by the Insolvency Service.

Consultation

14.The Government conducted two public consultations on the debt respite scheme. An initial call for evidence between October 2017 and January 2018 received over 80 responses which were mostly supportive.1 While many respondents suggested that individuals in problem debt should have to seek debt advice before entering a moratorium, it was also noted that this would be inappropriate for people experiencing a mental health crisis. A subsequent consultation between October 2018 and January 2019 received over 130 responses from a wide range of stakeholders, including creditors, trade bodies, local authorities, charities, debt advice providers, credit reference agencies, utility companies and telecoms providers.2 According to HMT, the issues raised included the duration of the moratorium, eligibility criteria, the types of debts covered, the need for a register and the treatment of business debts. HMT says that responses were mostly supportive, including on the proposed eligibility criteria and protections for debtors. Following consultation, HMT engaged further with experts from the creditor and debt advice sectors.

Guidance

15.HMT says that non-statutory guidance will be published in due course to assist creditors, creditor agents, debt advice providers and AMHPs. HMT will also use other forms of publicity and work with the Money and Pensions Service, other government departments, creditors and debt advice providers to raise awareness of the scheme amongst users.

Impact

16.The IA estimates that, over a 10-year period, an additional 1.3 million debtors will seek advice because of the moratorium. The total costs for business, charities or voluntary bodies is forecast to be £2.1 billion over 10 years, including foregone interest and charges, delayed repayments and familiarisation, dissemination and administration costs. At the same time, the IA estimates the economic benefits to businesses, charities and voluntary bodies to be £6.1 billion, including higher recoveries for creditors, productivity benefits for employers and reduced negative mental and physical health outcomes amongst debtors. HMT estimates the impact on the public sector to be £7 million over the same 10-year period, and the wider benefits on society (net present social value) to be £9.2 billion.

Further changes

17.We asked about the second part of the scheme which the EM refers to without providing further information. HMT explained that:

“The second part is the Statutory Debt Repayment Plan, a statutory agreement that will enable a person in problem debt to repay their debts to a manageable timetable, with legal protections from creditor action for the duration of their plan. As set out in last June’s consultation response the Government intends to implement the SDRP over a longer timeframe, but has not set a specific implementation date for this part of the scheme.”

Conclusion

18.The purpose of these draft Regulations is to establish a debt respite scheme that offers temporary protection for people in problem debt who receive professional debt advice or mental health crisis treatment. This is a welcome policy that will provide significant protection for people in vulnerable situations. As the EM provided limited information about how the scheme will operate in practice, we have asked HM Treasury to revise it to give a fuller explanation of the new scheme. The draft Regulations are drawn to the special attention of the House on the ground that they give rise to issues of public policy likely to be of interest to the House.

Draft Greenhouse Gas Emissions Trading Scheme Order 2020

Date laid: 13 July 2020

Parliamentary procedure: affirmative

This draft Order proposes the establishment of a UK-wide greenhouse gas emissions trading system (UK ETS) as a possible replacement for the current EU Emissions Trading System (EU ETS) in which the UK will cease to participate at the end of the Transition Period. According to the Department for Business, Energy and Industrial Strategy, a replacement is necessary to help achieve the UK’s emissions reduction targets and the goal of net zero greenhouse gas emissions by 2050. The establishment of a UK ETS falls within devolved competence. Its development has therefore been one of several policy areas in which a Common Framework is being developed together with the Devolved Administrations. Proposals for an alternative carbon pricing policy, a Carbon Emission Tax, are being consulted on currently; a final decision on the replacement of the EU ETS from 1 January 2021 will be made as soon as possible to allow businesses enough time to make final preparations. The Department says that a link between a future UK ETS and the EU ETS may also be considered.

The draft Order is drawn to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House.

19.The Department for Business, Energy and Industrial Strategy (BEIS) has laid this draft Order with an Explanatory Memorandum (EM) and Impact Assessment (IA). The purpose of the instrument is to establish a UK-wide greenhouse gas emissions trading system (UK ETS) as a possible replacement for the EU Emissions Trading System (EU ETS) in which the UK will cease to participate at the end of the Transition Period (TP) on 31 December 2020. The UK ETS is to be operational from 1 January 2021.

Background

20.According to BEIS, the EU ETS currently covers around 33% of UK emissions and contributes significantly to the UK’s emissions reduction targets and the goal of net zero greenhouse gas emissions by 2050. The underlying idea of an ETS is that placing a price on carbon creates the incentive for emissions to be reduced in a cost effective and technology-neutral way, while encouraging the private sector to invest in emissions reduction technologies and measures. ETS schemes work on the ‘cap and trade’ principle, where a cap is set on the total amount of certain greenhouse gases that can be emitted by those taking part in the scheme. Within the cap, participants receive or buy emission allowances which they can trade with one another. This cap is reduced over time, so that total emissions fall.

21.The UK will cease to take part in the EU ETS at the end of the TP, subject to obligations in the Withdrawal Agreement in respect of 2020 compliance3 and the Protocol on Ireland/Northern Ireland. This draft Order proposes a potential replacement for the EU ETS.

Key characteristics of the UK ETS

22.The instrument covers the scope of the UK ETS, monitoring and reporting requirements, the total level of emissions permitted (cap), the rate at which the cap declines (trajectory) and the roles of the regulators in monitoring and enforcing the rules of the UK ETS:

Devolution

23.BEIS says that climate policy, including the establishment of a UK ETS, falls within devolved competence, and that the development of the UK ETS is therefore one of several policy areas in which a Common Framework is being developed. The Devolved Administrations will be laying this instrument before their respective Devolved Parliaments. 5

Consultation

24.The UK Government and Devolved Administrations conducted a joint public consultation on the UK’s future carbon pricing policy between 2 May and 12 July 2019. The consultation presented a UK ETS that is linked to the EU ETS as the UK Government and Devolved Administrations’ preferred carbon pricing policy and sought views on alternative options including a standalone UK ETS, a carbon emissions tax or remaining in the EU ETS. BEIS said that alongside the consultation, the UK Government and Devolved Administrations commissioned the CCC for advice on both a standalone and linked UK ETS. The consultation received more than 130 responses, from a range of stakeholders including current EU ETS participants and NGOs. According to BEIS, a majority expressed support for most of the proposals on the design of a UK ETS, and A large proportion of stakeholders expressed a preference to link the UK ETS to the EU ETS.6

Potential link with the EU ETS

25.BEIS states that the “UK Government is open to considering a link between a future UK Emissions Trading System (ETS) and the EU ETS, if such a linking agreement is in both sides’ interests, and recognises both parties as sovereign equals with our own domestic laws”, adding that “a link between the UK and EU trading schemes could help to establish a much larger carbon market, which could increase opportunities for emissions reduction and cost-efficiency of emissions trading”. According to BEIS, establishing the UK ETS before the end of the TP will enable the UK to negotiate a linking agreement with the EU, but that if such a link cannot be secured, the UK ETS could operate on a stand-alone basis or the UK could introduce a Carbon Emission Tax as an alternative carbon pricing mechanism. HM Treasury launched a consultation on the design of such a tax in July which will run until September.7

26.BEIS says that developing two alternative options provides maximum assurance that a carbon pricing policy will be in place in all scenarios after the end of the TP. We asked when a final decision would be made on the preferred carbon pricing policy. The Department said that:

“A decision on the preferred fallback will be made as soon as possible ahead of the end of year, to allow businesses enough time to make final preparations. This decision will be communicated widely through the most appropriate means at the time. This decision will be made collectively by the UK Government, ensuring the views of interested Departments and parties are taken into account.”

Further legislation

27.According to BEIS, a second affirmative instrument will be laid before the House of Commons under the Finance Act 2020 (subject to the Finance Bill receiving Royal Assent in its current form) to establish rules for the auctioning of emissions allowances and mechanisms to support market stability. A third instrument will be laid before Parliament under the negative procedure in November 2020 to introduce provisions for free allocation8 and an UK ETS registry.9 Additionally, a further affirmative instrument will be laid to enable the trading of emissions allowances in the UK ETS and to establish an oversight role for the Financial Conduct Authority in relation to the auctioning process and secondary market trading to prevent market abuse. Further secondary legislation would be required to make any agreement on a link with the EU ETS operational which BEIS would expect to lay in the first half of 2021.

Impact

28.The IA sets out the expected costs and benefits of the UK ETS in its initial years of operation (from 2021 to 2024) in a stand-alone scenario where it is not linked to the EU ETS. The IA estimates an overall range of monetised costs of between £36 million and £70 million, consisting of cost incurred by firms reducing their emissions to meet the cap (£25 million to £59 million), administrative costs to firms in complying with the new policy (£4 million) and the administrative cost to government, including regulators in establishing and administering the policy (£7 million). As the UK ETS is expected to lead to a greater reduction in emissions than if the UK had continued to participate in the EU ETS, the IA estimates the monetised benefit to be in the range of £102 million to £162 million.

Conclusion

29.This draft Order proposes a UK emissions trading system as a possible replacement for the EU system, which is currently a key element in the UK’s strategy for tackling climate change. The establishment of this new system falls within devolved competence and represents one of the policy areas in which a Common Framework is being developed with the Devolved Administrations. With a final decision on the future carbon pricing policy to be taken later this year and a potential future link with the EU system also to be considered, this instrument raises significant policy issues that the House may wish to explore. The draft Order is drawn to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of interest to the House.

Correspondence

Flow and volume of Brexit-related secondary legislation

30.As we approach the end of the Transition Period, we anticipate that there will be a surge in EU Exit-related secondary legislation. We wrote to the Leader of the House of Commons to seek information about the expected volume and flow of EU Exit-related statutory instrument in the forthcoming months. This correspondence is published in Appendix 2 of this report. We welcome the information that the Government have provided and will ask for an update of these figures in due course.


1 HMT, Consultation outcome: Breathing space: call for evidence (last updated 18 June 2018): https://www.gov.uk/government/consultations/breathing-space-call-for-evidence/breathing-space-call-for-evidence [accessed 22 July 2020].

2 HMT, Breathing space scheme: response to policy proposal (June 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/810058/______17June_CLEAN_response.pdf [accessed 22 July 2020].

3 HM Government, Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community (19 October 2019): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/840655/Agreement_on_the_withdrawal_of_the_United_Kingdom_of_Great_Britain_and_Northern_Ireland_from_the_European_Union_and_the_European_Atomic_Energy_Community.pdf [accessed 22 July 2020].

4 The Sixth Carbon Budget, required under the Climate Change Act 2008, will provide advice on the volume of greenhouse gases the UK can emit between 2033 and 2037. It will set the path to the UK’s net-zero emissions target in 2050. It is expected to be published in December 2020.

5 Common Frameworks seek to establish a common approach and an agreement on how the UK Government and Devolved Administrations will manage a policy area jointly in future.

6 HM Government and Devolved Administrations, The future of UK carbon pricing: UK Government and Devolved Administrations’ response (June 2020): https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/889037/Government_Response_to_Consultation_on_Future_of_UK_Carbon_Pricing.pdf [accessed 22 July 2020].

7 HMT, Consultation on a Carbon Emissions Tax, (21 July 2020): https://www.gov.uk/government/consultations/carbon-emissions-tax [accessed 22 July 2020].

8 Free Allocation involves free allowances given to UK ETS participants most at risk of carbon leakage which occurs when businesses transfer production to other countries with less stringent emissions constraints. Free Allocation aims to maintain the competitiveness of certain sectors covered by the UK ETS and to support the transition towards a low-carbon economy. The approach to free allocation in the UK ETS aligns with that under the EU ETS.

9 The UK ETS registry will hold UK ETS emissions allowances in registry accounts.

10 Health Protection (Coronavirus, Restrictions) (Leicester) Regulations 2020 (SI 2020/685).




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