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Local Government Finance

1.48 pm

The Secretary of State for Communities and Local Government (Mr Eric Pickles): With permission, I should like to make a statement on finance for English local authorities for 2013-14 and 2014-15.

The autumn statement sets out how the coalition Government are putting our public finances back on track after the catastrophic deficit left to us by the Labour Government. Local government has shown great skill in reducing its budgets. Committed local authorities have protected front-line services. Little wonder that at a time of retrenchment, satisfaction in council services has gone up.

This year’s settlement will see council expenditure fall in a controlled way. English local government accounts for £1 of every £4 spent on public services. It spends £114 billion. That is twice the defence budget and more than our spending on the national health service. It marks a new settlement for local government based on self-determination and financial independence, a move from the begging bowl to pride in locality. It begins the greatest shake-up of local finance in a generation. We are shifting power from Whitehall directly to the town hall and the county hall.

From April, local authorities will directly retain nearly £11 billion of business rates instead of returning them to the Treasury. Striving councils will benefit from doing the right thing for their communities. If they bring in jobs and business, they will be rewarded. Similarly, the new homes bonus remunerates councils for building more homes. Next year the bonus will be worth more than £650 million, and even more in 2014-15. Under our reforms, an estimated 70% of local authority income will be raised locally, compared with a little over half under the current formula grant system. That is a giant step for localism.

The start-up funding, which replaces the formula grant and gives each council a share, as was confirmed in the Chancellor’s autumn statement, will see £26 billion shared between councils across the country, with the smallest reductions for councils most reliant on Government funding.

We consulted local authorities on our proposals over the summer and have listened to what they told us. They said that less money should be held back from the settlement, so we have reduced the amount we are setting aside for the new homes bonus, the safety net and academies funding. I can announce that, in total, that means an additional £1.9 billion for local authorities up front in 2013-14.

Local authorities also told us that they wanted a stronger growth incentive, and we are happy to respond. We have made the scheme more generous, ensuring that at least 25p in every pound of business rate growth will be retained locally. The settlement leaves councils with considerable total spending power. I can announce today that the overall reduction in spending power next year will be just 1.7%. That represents a bargain to local authorities.

A small number of authorities will require larger savings to be made, but no council will face a loss of more than 8.8% in their spending power thanks to a

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new efficiency support grant. As the name implies, to qualify for the grant councils will have to improve services. It is unfair on the rest of local government to expect it to subsidise other councils’ failure to embrace modernity. However, the settlement is not about what councils can take; it is about what they can make.

Meanwhile, the settlement continues to protect fire and rescue as a blue-light emergency service. Today we can announce £140 million in capital grant money to fire authorities. Predictably, the doom-mongers have been consulting their Mayan calendars and issuing dire warnings about the end of the world as we know it on Friday and a £1 billion black hole in local budgets. Some have shamefully predicted riots on the streets. But Nostradamus need not worry, because all those predictions have come to nothing.

Concerns that the poorest councils or those in the north would suffer disproportionately are well wide of the mark. The spending power for places in the north compares well with those in the south. For example, Newcastle has a spending power per household of £2,522, which is well over £700 more than the £1,814 per household in Wokingham. We have also maintained the system of “damping”, whereby the Government set a floor that council funding will not fall below. This year’s average grant reduction for the most dependent upper-tier authorities will be less than 3%, compared with 8.7% for the wealthiest. That is more support and protection than last year.

I can also confirm today that local authorities will be able to use the receipts from asset sales raised from 2012-13 to fund outstanding equal pay claims. In addition to what I have announced today, the Secretary of State for Health will in due course confirm public health funding for local authorities.

In his autumn statement, the Chancellor recognised that local authorities have risen to the challenge. That is why local government, unlike most of central Government, will be exempted from the 1% top slice next year, which is worth approximately £240 million to councils. However, as it looks to 2014 and beyond, local government needs to continue finding better and more efficient ways of doing things. There remains scope for sensible savings. With the exception of a handful of authorities, nobody has got to grips with procurement. More can also be done to share offices and services, cut fraud and provide more for less.

I have also asked the outgoing chief fire and rescue adviser, Sir Ken Knight, to pinpoint practical ways to help fire and rescue authorities save money and protect the quality and breadth of front-line fire services. It is disappointing that the shadow fire Minister has signalled his opposition to that move—it is sad on so many levels.

Today I am returning to my ethnic roots by publishing 50 ways to save, setting out practical ways for councils to save money, big and small, but it all adds up. If councils merged their back offices, like the tri-borough initiative in London, they would save £2 billion. Procurement fraud costs taxpayers almost £1 billion a year. Councils are sitting on a record £16 billion of reserves—[Interruption.] Of course they are, and it is a record sum. Councils are not collecting over £2 billion-worth of council tax. Better property management could save £7 billion a year. We have also announced today that further savings will be made by the abolition of pensions for councillors. Councillors should be champions of the

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people, not the salaried staff of the town hall. Today’s guide gives more power to the elbow of the public to challenge crude cuts and champion sensible savings.

Next year’s exemptions will give local authorities time to put their house in order, but let us remind ourselves what this is all about: safeguarding vital public services, protecting families and pensioners, and ending the “something for nothing” culture. That is why, despite financial pressures, we will continue supporting, for the third year running, those who insulate residents from a further tax hike. We have set aside £550 million for local authorities to support council tax: £450 million over the next two years for the freeze and an additional £100 million for council tax support available in the new year. All councils have a moral duty to freeze council tax. It doubled under Labour and became unsustainable. We have cut it in real terms.

Just to be absolutely clear, this year’s freeze grant goes into the base for the spending review period and has the same status as every other item in that base. Those who would prefer to carry on with increases and see residents miss out should be ready to answer to their local taxpayers and not dodge them by setting the increase just below the threshold. For next year, we have set the referendum threshold at 2%.

I will also introduce a flexibility to support small district, police and fire authorities that have kept council tax low for years. My hon. Friend the Member for Great Yarmouth (Brandon Lewis), the local government Minister, has set out the details in a written ministerial statement today.

This is democracy in action: those who want to hike taxes should put it to the people. I contrast the action that we have taken to freeze council tax with the new housing tax being introduced in the Republic of Ireland. Tackling the deficit helps keep taxes down. If we deny the deficit, taxes on everyday families will rise.

To those who want to play the politics of division, let me say this. This is a fair settlement—fair to north and south, fair to rural and urban areas and fair to shires and mets. But it is also a watershed moment. For the first time in a generation, striving councils now have licence to go full steam ahead and grab a share of the wealth for their local areas and to stand tall and seize the opportunities of enterprise, growth and prosperity. I commend this statement to the House.

2.1 pm

Hilary Benn (Leeds Central) (Lab): I thank the Secretary of State for his statement and advance sight of it. We will, of course, study the announcement in detail and I look forward to debating it in the new year.

The House listened carefully to the Secretary of State, and it is clear that he is living in a world of his own. He simply does not understand the impact that his decisions on funding are having on services and the local people who use and rely on them. This is what his colleagues on the front line say about him. Baroness Eaton, the former Tory chair of the Local Government Association, described the right hon. Gentleman’s understanding of the effect of local government cuts as

“detached from the reality councils are dealing with”.

Sir Merrick Cockell, her successor, has called the cuts “unsustainable” and the Tory leader of Kent says that his county “can’t cope” with further reductions and “is running on empty”.

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The Secretary of State carries on regardless, ignoring what is happening on his watch. Last week, he told the Communities and Local Government Committee that the cuts were “modest” and that the LGA’s fears for the future were “utterly ludicrous”. He did not mention this, but this week his top tip for cash-strapped councils was that they should loan out their artworks in return for cash. What planet is he living on? Meanwhile, local authorities have made big efficiency savings, cut costs and laid off 230,000 staff—but still, it is services that are going.

Let us be clear about what is being lost due to the right hon. Gentleman’s unfair cuts—libraries, sports centres, Sure Start centres and places at women’s refuges. Birmingham city council says that because of the cuts and spending pressures, its controllable budget will reduce by half in the next six years. In one case, a council has already been pushed to the brink. Earlier this year, Tory-led West Somerset council was declared to be “not viable” in the longer term—not by Nostradamus, but by the Local Government Association.

Will the Secretary of State confirm that local authorities are facing a 28% reduction in Government funding over this spending review period—the biggest cut in the public sector—even though local government is

“the most efficient part of the public sector”?

Those are not my words, but those of the Prime Minister. On top of that, the Chancellor announced in the autumn statement that a further £445 million would be cut in 2014-15. Will the Secretary of State confirm that he is unfairly hitting the poorest areas hardest? The Audit Commission has found that

“the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure than councils in less deprived areas.”

Why are the 10 most deprived local authorities having their spending power reduced by eight times as much per head of population as the 10 least deprived authorities in England? Why will today’s announcement mean that Liverpool will see a 6.2% fall, of £35 million, in its spending power in 2014-15 compared with the previous year, when Mole Valley will see an increase of 0.6%? How on earth can the Secretary of State justify that? Does he have any idea how local councils’ efforts to grow their local economies, encourage apprenticeships and build more homes are being undermined every single day by the Chancellor’s disastrous economic policy, which simply is not working?

Yesterday, the leaders of the core cities wrote to the Secretary of State in blunt terms about the LGA’s graph of doom. They warned that if current plans are not changed,

“there will be no money for anything but social care and waste collection”

later this decade. [Interruption.] That is what the core cities say.

The sad truth is that the right hon. Gentleman is in denial. He has failed to stand up for local communities and he is trying to wash his hands of the consequences. Will he confirm that millions of people on low incomes will now face a council tax increase next April as a result of “poll tax mark 2”—not my words, but those of the man who invented poll tax mark 1, the noble Lord Jenkin?

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Councils should, of course, do everything that they can—and they will—to keep the council tax down in these difficult times for families, but the Secretary of State is being disingenuous when he talks about a moral duty not to increase the council tax. By cutting council tax benefit, he has decided that one group in the country will definitely see its council tax go up next year—people on low incomes; that is why they get council tax benefit in the first place. They will see their bills go up in the very same month when people on the very highest incomes will get a cut in their tax bills.

On business rate retention, can the right hon. Gentleman confirm that no council will be worse off from the change to the new system? Is it not the case that areas with less of an opportunity to attract new businesses will fall further behind as Government grant reduces? What impact does he expect appeals against business rate valuations will have on local authority income? What is the size of the adjustment he has made to the forecasts for this and for total business rate yield?

The Secretary of State did not mention the early intervention grant, but can he confirm whether the whole of the £150 million that has been held back will be allocated to local authorities and can he assure the House that that is being done on the basis of need? Local authorities want to know where they stand. Can he give us the figure for the amount that the Government will now be holding back from the settlement for the in-year safety net?

What provision is the right hon. Gentleman making for capitalisation and does that include the assistance that local authorities that face huge backdated claims arising from equal pay court judgments will clearly need? He mentioned asset sales, so can he tell us how much he estimates local authorities will raise in asset sales in respect of the councils affected? By how much has the Secretary of State reduced the hold-back for the funding of academies?

On public health, although the Secretary of State said that an announcement is yet to be made, will he tell the House what factors have been taken into account in distributing funding for public health? What changes have been made to the proposals for weighting, including for deprivation, that were part of the original Department of Health consultation? On the fire service settlement, why are the metropolitan fire authorities facing such a big percentage reduction in their spending power? How many firefighters does he expect to go as a result of what he has announced today and how will fire prevention services be affected?

Finally, on the local government pension scheme, why should a full-time council leader in a big city not be entitled to be a member of the scheme—the Secretary of State did not mention this—while mayors will be so entitled? Can he confirm to the House that continued membership of the pension scheme will be open to his friend the Mayor of London?

This is a bad day for local communities and the people they elect to look after their interests. They would have liked to hear from the Secretary of State a commitment to fair funding and a settlement that would help them through tough times, and they wish that he would understand the difficulties they are going through. Instead, they have a continuation of the profoundly

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unfair way in which funding has been distributed from a Secretary of State who simply refuses to recognise what is actually going on around him.

Mr Pickles: I am grateful to the right hon. Gentleman. It is entirely typical of him—perhaps he is not a very quick reader—that of the 50 tips he ignored the ones that are going to save billions of pounds, because apparently that is not terribly important. He was part of a Government who promised to deliver £52 billion of cuts. He stands at the Dispatch Box and pretends to local government that it would have faced no cuts under his Government. He knows as well as every single Member of this House that he would have been proposing similar cuts, and that remains the absolute truth. I remind hon. Members that the former Chancellor said in the Labour Budget of March 2010 that there would be £300 million of cuts to regional development agency regeneration, to the working neighbourhood fund—by the way, we picked up the tab for that—to the local enterprise growth initiative, and to the housing and planning delivery grant. On top of that there were £185 million of back-of-a-fag packet cuts to time-limited community programmes and rationalisations of others.

The right hon. Gentleman’s response might best be described as the Jo Moore memorial lecture, because the bad news that she sought to bury on 9/11 was about councillors’ pensions. Just to be clear, the contributions of those who have contributed will be protected, but from the middle of next year they will no longer be able to make a contribution. That will save £7 million, but £7 million probably means absolutely nothing to the right hon. Gentleman.

The right hon. Gentleman talked about Birmingham. Which local authority got itself into the most appalling mess over equal pay when the rest of local government was putting aside sensible savings? Birmingham, which now faces a potential bill of over £700 million. Who is getting Birmingham out of the mess? We are. We will be prepared to allow Birmingham to pay off this sum, which other councils dealt with sensibly over the past 20 years by the sale of assets. Birmingham should be grateful for that. I can further tell the House that out of the departmental expenditure limits—the money from Eland house not relating to local government—we have stumped up £100 million to help Birmingham in this process, because we recognise that it will take some time to deliver the results. Birmingham, and the right hon. Gentleman, would be in a right old mess were it not for us, and I look forward to receiving an apology from him.

The right hon. Gentleman asks why some authorities are actually increasing their spending power and says that it is an outrage. There is just one reason—the new homes bonus. [Interruption.] Oh, yes it is. It is exactly the reason, as the hon. Member for Halton (Derek Twigg) will see if he cares to look at the figures. In that lies the clue to this settlement, which ensures that local authorities now have greater control. That is due not only to the new homes bonus but to the retention of the business rate, which is how local authorities can make a big difference.

The right hon. Gentleman asked about academies. The figure is £150 million and the hold-back is £24 million.

One set of councils is seeking to tax the poor in the way that it is seeking to tax pensioners, widows and single mothers living at home—Labour councils. You

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will not catch a Tory authority trying to ensure that poor people have to pay 30% of the council tax. That is why we introduced the £100 million—to protect the people who have the misfortune to be represented by a Labour authority.

Dan Rogerson (North Cornwall) (LD): I welcome the localisation measures that the Secretary of State has announced, but he also referred to damping. In previous decades, authorities such as mine have suffered from their distance from the target figures to which the Department says they are entitled. Is there some hope in this for Cornwall? Are we moving away from a damping mechanism that means we will continue to get less money than we should?

Mr Pickles: The hon. Gentleman raises an important point and he deserves a serious answer. We looked at whether we would be able to do that. We took advice from local government, which said that it is keen to have some degree of stability through the introduction of the new system. We certainly hope that the people of Cornwall, who are renowned for their enterprise and for living in a wonderful place to visit, will rise to the new funding arrangements. The further away we move from the old formula, the more places such as Cornwall will be able to triumph.

Mr Clive Betts (Sheffield South East) (Lab): The removal of pensions from councillors will do nothing to encourage younger people in employment to come forward and stand for public service. Will he reflect on what he said at the Select Committee last week, and listen to his colleagues in local government? He dismissed the graph of doom then, but might he now start to think that this is not simply a fantasy, as he has claimed, but a reality of his own making, which has come into effect more quickly and more harshly with the withdrawal and destruction of public services in the poorest communities in our country?

Mr Pickles: I would have thought that the hon. Gentleman would be delighted that the spending power per household in his constituency is £2,421, which is much higher than in many Government Members’ local authorities, and that the drop in spending power represents only 2.7%. I have some faith in the entrepreneurial spirit of the people of Sheffield; the hon. Gentleman seems to want to keep them in chains. His point about pensions is frankly not worthy of him. A relatively small number of councillors have taken this up. It costs £7 million a year. It is perfectly acceptable to me, and I think that they will probably get a better deal, if they use part of the sums they receive out of the public purse to make their own arrangements.

Heather Wheeler (South Derbyshire) (Con): I congratulate the Secretary of State on his statement, which is about realism in the financial situation that the country faces. I declare an interest in that my husband is the leader of South Derbyshire district council, the most forward-looking council in the midlands and probably in the whole country. It is interesting that where councils see that they have a future when they look at the new homes bonus, the new businesses that are coming in, and the retention of business rates, they are entrepreneurial in going out there and getting business. That is the future for councils, not “The state will provide.”

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Mr Pickles: My hon. Friend, who speaks with enormous experience of local government matters, is right. Opposition Members seem to think that we are seeking to impose a strange alien world on local government, but this is how things operate in just about every local authority in the world. We have developed this strange world of resource equalisations, where the worse-off and the least enterprising get more, but if they show some gumption and a bit of enthusiasm, the Government will reward them by cutting the grant. Poor authorities around the world have been able to look after their population and ensure buoyancy in their funds by adopting these precise measures.

Heidi Alexander (Lewisham East) (Lab): The Secretary of Secretary will be aware that the Local Government Association has warned that if growing demand for social care and waste services is met over the next few years, other local authorities’ services—parks, leisure centres and libraries—will face cash cuts of 66% by the end of the decade. When will the Secretary of State accept responsibility for this situation instead of blaming council leaders of all political persuasions for a mess of his own making?

Mr Pickles: That certainly cannot be happening in the hon. Lady’s constituency, because it gets £3,236 per household and the reduction in its spending power is well below the average—it is only 1.4%. People need to show some gumption. Of course, all those things will happen if people just stand around doing nothing, but libraries need to show some entrepreneurial spirit. The hon. Lady need only travel to Hammersmith and Fulham to see thriving libraries where people go through the door and want to use them. Rather than paying homage to the 1950s, she should produce libraries that people actually want to go to by bringing in coffee shops and finding ways to use them better. Rather than continually standing there with her hand out, why does she not show some leadership in her community and get things going?

Mark Pawsey (Rugby) (Con): The need for growth is accepted throughout the House. Is not the best way to encourage local growth, to enable local authorities to retain and spend locally more of the additional business rate from new developments, exactly as the Secretary of State has set out today?

Mr Pickles: I am grateful to my hon. Friend for his question. Frankly, I could not have put it better myself. [Interruption.] On the Opposition Benches we see leaders of their communities, people who mock enterprise but who would have delivered cuts and said, “I’m very sorry, it’s not my fault,” and looked the other way. We on the Government Benches are different. We have been prepared to offer serious advice—50 ways to save. We are on the side of, and working alongside, those authorities, whether they be Labour, Conservative or Liberal Democrat, that want to work with their community to bring in prosperity.

Bill Esterson (Sefton Central) (Lab): If the Secretary of State were leader of Sefton council—[Interruption.] Heaven forbid, but if he were leader of Sefton council, would he cut services to vulnerable, elderly and disabled people, or would he close libraries? Sefton

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faces a cut of at least 40% in its budget and it cannot save both, whatever smoke-and-mirror act the Secretary of State tries to pull—that is the reality.

Mr Pickles: I cannot understand why that is happening, because the hon. Gentleman’s constituency has experienced a drop of just 2.2% in its spending power and it receives £2,265 per household, which is well above what local authorities represented by Government parties face. If I was the leader of Sefton council, I would obviously consider giving the hon. Gentleman the freedom of the borough. I would also look to make those libraries income-generating and apply that money to help the most vulnerable. After all, this settlement sees considerable, important amounts of money going from the national health service directly to local authorities to deal with precisely that issue. If the hon. Gentleman wants to go back to his constituency and be an apostle for change, he has my backing.

Several hon. Members rose

Madam Deputy Speaker (Dawn Primarolo): Order. A lot of Members want to ask questions to the Secretary of State and not make speeches, but at this rate not everybody will be able to participate, because we have urgent business. I would appreciate short, direct questions and short, direct answers, at which I know the Secretary of State is an expert.

James Morris (Halesowen and Rowley Regis) (Con): While the Secretary of State is dispensing advice, what advice would he give to council tax payers in Halesowen, who are seeing Dudley council spending thousands of pounds on a consultation exercise that calls for council tax rises of up to 4.6%?

Mr Pickles: I will watch the council’s progress with interest and our thoughts will be with the council tax payers at the ballot.

John Healey (Wentworth and Dearne) (Lab): Death and danger from fire do not discriminate, but the Secretary of State did in his first funding settlement by giving six southern fire authorities a rise in funding and the six metropolitan areas a deep cut. Why has he not done what he has done with the police and what MPs from all parties have urged him to do and given a flat, fair, across-the-board cut for all fire authorities in this settlement? Why is he continuing to hit the north harder than the south?

Mr Pickles: The mets benefit considerably from this settlement. The right hon. Gentleman is a serious Member of this House and deserves a serious answer. He will recall that the reduction in police funding was front-loaded and that that for firefighters and emergency services was back-loaded. One of the reasons why we have set up the Knight review is to arrive at that equilibrium and to offer fire authorities some help in that process.

Bob Blackman (Harrow East) (Con): I welcome today’s statement. Local authorities all over the country have no excuse whatsoever for increasing council tax. Will my right hon. Friend confirm that this settlement has sufficient funding to ensure that every council tax payer

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can look forward to a freeze this year and that local authorities should seek to maximise their resources for the benefit of their residents?

Mr Pickles: That is certainly the case. We are talking about a 2% trigger for a referendum. Local authorities can go for whatever figure they want, but they will have to face the people. We are offering 1% to local authorities, if they can get it down to that. Essentially, for those that want to increase council tax below 2%, we are talking about less than 1%. That seems to be a very dubious case, given that we are making it absolutely clear that this money is in the base.

Mrs Louise Ellman (Liverpool, Riverside) (Lab/Co-op): Liverpool is the most deprived area in the country. Liverpool city council works closely with local businesses to support investment, but the cuts announced today are an added blow to a city already reeling from cuts in local public services as a consequence of Government decisions. Indeed, people in Liverpool have already suffered cuts of £252 per head, compared with an average of £61 per head in England as a whole. Why does the Secretary of State show such contempt for the people of Liverpool?

Mr Pickles: The hon. Lady makes an extraordinary point. Let us be absolutely clear: Liverpool receives the enormous amount of £2,836 per household and its cut is on the average. The hon. Lady has made a point that I have often heard in this Chamber, namely: why are other parts of the country not receiving a bigger cut? Let us put this in context. I have the figures for Liverpool. In terms of the old formula grant—the start-up funding allocation—Liverpool receives £386 million, Manchester £391 million, Birmingham £783 million. Windsor and Maidenhead, however, receives £28 million, Wokingham £31 million and West Oxfordshire £5 million. Essentially, the hon. Lady is asking those authorities, which already contribute to the national pool, to increase their council tax by somewhere in the region of 60%. That does not seem like a sensible thing to do.

Robert Neill (Bromley and Chislehurst) (Con): Will my right hon. Friend, in due course, give the House further details of the efficiency support grant, which is a very welcome element of the statement? Will he confirm that it is a new initiative that, for the first time, will reward authorities that get on and do things, rather than subsidise those who sit back, carry on with the old ways and expect to be bailed out by central Government?

Mr Pickles: My hon. Friend will recall that that grant comes from the working neighbourhoods fund. When he and I were looking at that a couple of years ago, we found that the departing Labour Government had left no money to pay for it. We thought that that was completely unacceptable, so we created a transitional grant to help with the process. I am delighted to say that we are now down to about seven authorities that need such help. We are saying to those authorities, “You can’t expect the rest of local government to pay for you not doing the right thing. Provided that you give an undertaking that you will look towards better corporate government, joint working and getting your base down, we will give you the money next year, but if you haven’t made

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progress by the end of the year, you won’t get anything the following year.” It is completely unfair for local government to subsidise people who are being inefficient.

Derek Twigg (Halton) (Lab): If what the Secretary of State is doing is about being fair, why has Halton borough council, which covers the second most deprived area in the country, had a cut per head of twice that in the affluent Tory council in Cheshire East? Is this not about transferring money away from Labour councils and towards Tory councils?

Mr Pickles: No, that has not happened. There has been a significant shift away from Conservative authorities and towards Labour authorities. I note that the loss of spending power in the hon. Gentleman’s area is 1.8%, which is not materially greater than the national average, and that it is getting £2,416 per household. That does not suggest that a significant amount of money has gone away from his authority.

Simon Hughes (Bermondsey and Old Southwark) (LD): In the past, local government settlements have underestimated the population of many authorities, including mine. Will the Secretary of State assure me that the figures that he has announced reflect need, deprivation and the real number of people in each council?

Mr Pickles: We use the best available statistics. It is amazing that Opposition Members are suggesting that they are not, because they are based on the old system. The extra money that is available relates to the old system. As we move further away from that system, we will ensure that poorer authorities are safeguarded, but we will also ensure—because these are relative changes—that they will benefit when they start to bring in new jobs and enthusiasm.

I hope that my right hon. Friend will allow me at this point to address a question that the right hon. Member for Leeds Central (Hilary Benn) asked, but which I neglected to answer. There are always two things in these equations that one needs to be certain about: the population numbers and the income that is likely to be generated through business rates. In the bundle of documents, there will be an assessment of that, which I think offers good news for local authorities.

Several hon. Members rose

Madam Deputy Speaker (Dawn Primarolo): Order. Secretary of State, I know that you have an encyclopaedic knowledge of this subject, but we would be grateful if you did not share all of it with us this afternoon. May we have slightly shorter answers please, otherwise Members who want to put a question to you will be disappointed?

Shabana Mahmood (Birmingham, Ladywood) (Lab): May I remind the Secretary of State that Birmingham’s finances became a mess under a coalition of Conservatives and Liberal Democrats, and that it is a Labour administration that, since May, has been trying to put that right? However, Birmingham is facing some of the biggest cuts in local government history, with a reduction in income of £149 per person, which is more than double the national average. Will he meet me and a

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delegation of Members of Parliament from Birmingham to discuss the pressures that Birmingham is facing and to see whether we can find a way to mitigate the situation?

Mr Pickles: It is always a pleasure to see the hon. Lady under any circumstances. However, I politely remind her that the decisions on equal pay were taken 20-odd years ago under a Labour Administration. I am delighted to see that Birmingham has increased its balances by £24 million.

Annette Brooke (Mid Dorset and North Poole) (LD): Will the Secretary of State comment on the flexibility that he is introducing to support small, efficient district police and fire authorities that have kept council tax low for years, but that have little room for manoeuvre? There are many such examples in the south.

Mr Pickles: The hon. Lady can read the written ministerial statement by the Under-Secretary of State for Communities and Local Government, my hon. Friend the Member for Great Yarmouth (Brandon Lewis). Essentially, small authorities have in the past been capped at very small sums of money, so we will be introducing a de minimis sum of £5.

Clive Efford (Eltham) (Lab): When the Secretary of State reads out the spending capacity for my area, will he include the spending capacity of the 14,800 people who will become eligible to pay council tax next year under what has become known as the Pickles poll tax? What thought has he given to those people in the announcement that he has made today?

Mr Pickles: I am delighted to say that in order to protect those good folk from the excesses of a Labour council, we have found £10 million to ensure that nobody has to pay more than 8.5%. Perhaps I should give notice that if councils persist in charging the poor—it is only Labour councils that are doing so—I may take the necessary powers to prevent them from doing so. I am delighted to tell the hon. Gentleman, because he wants it to be read out, that his area receives £3,222 per household and has a loss of less than 0.9%.

Angela Smith (Penistone and Stocksbridge) (Lab): The leader of Sheffield city council has said that the Government’s cuts will mean the end of local government as we know it. As we have heard, the Local Government Association has declared that Tory-led West Somerset council is “not viable” over the longer term. Does the Secretary of State anticipate any other councils becoming no longer viable as a result of the Government’s huge cuts?

Mr Pickles: That is not what the leader of the council was saying when we were doling out all the extra money by way of the city deals. He was telling us how he was going to progress things.

Angela Smith: The leader is a she.

Mr Pickles: I beg the hon. Lady’s pardon. The light was not very good.

We are telling local authorities to work together and join services together. If they stay in the kind of dump or great fug that Opposition Members seem to want, in

19 Dec 2012 : Column 885

which they do not co-operate with one another, that prediction will come true, but if they co-operate, things will be better.

Mr Philip Hollobone (Kettering) (Con): As a member of Conservative-controlled Kettering borough council, I commend to the Secretary of State its triple-zero policy: zero cuts to front-line services, zero cuts to voluntary sector grants and zero increase in the council tax over a five-year period. Is it not true that the best councils do not moan and groan about their financial settlement, but get on with cutting waste and inefficiency?

Mr Pickles: I am so happy with Kettering borough council that I am thinking of taking a weekend break there to enjoy its good services.

Mr Adrian Sanders (Torbay) (LD): The previous Government extended the period until a referendum may be held to get rid of an elected mayor. I am thankful for the grant settlement for my area, which looks more generous than that for most other areas of Devon. However, we could go a lot further if we could get rid of our elected mayor and his unaffordable glory projects. Will the Secretary of State overturn the decision of the last Government and allow people to have a referendum before the end of the current mayor’s term of office?

Mr Pickles: I was rather hoping that, in the spirit of Christmas love and understanding, I might be able to bridge a rapprochement between the hon. Gentleman and the mayor. They are both wonderful people and it is a matter of some regret that they seem not to get on.

Caroline Lucas (Brighton, Pavilion) (Green): My constituents in Brighton have been singled out for the harshest cuts in the south-east. Will the Secretary of State explain to them why he is pursuing savage cuts that are not only socially devastating but economically illiterate? His Government’s plans to get local councils to drive economic recovery will never happen if he makes them cut so deep and so fast.

Mr Pickles: I do not know where the hon. Lady looks for her facts. Her council will receive £2,034 per household, which is a cut of 2.8%—slightly above average. To suggest, however, that people in the south-east have been picked out for the most savage cuts is utter bunkum.

Gavin Barwell (Croydon Central) (Con): My council will warmly welcome the localisation of business rates, but my question is about the distribution systems that the Secretary of State inherited from the previous Government. Ten out of 12 inner-London councils charge less than £1,000 at band D, and 18 of the 20 outer-London councils charge more than £1,000. Does the Secretary of State think that is due to the efficiency of those councils, or the fairness of the distribution system?

Mr Pickles: My hon. Friend and I have had many discussions on that issue, and as I said when replying to another colleague earlier, to a degree some of the inequalities and possible bias towards Labour authorities had to

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stay within the system because I wanted to deliver stability. I can promise, however, that as we move further away from the old settlement, the more efficiency we will see. Given its entrepreneurial feelings, I have little doubt that Croydon will benefit greatly from the system.

Mr Kevan Jones (North Durham) (Lab): I sometimes wonder what colour the sky is in the right hon. Gentleman’s world. When comparing Newcastle with Wokingham he cleverly uses statistics for spending per head. Does he agree, however, that Newcastle and other similar councils have larger demands on their services? Unemployment figures for central Newcastle are 1,280 compared with 175 in Wokingham. Even if the council were to implement each of the Secretary of State’s 50 recommendations, including No. 37 about not funding sock puppets, it would not be able to match the funding gap presented to it.

Mr Pickles: I commend the hon. Gentleman for thoroughly reading that document, although I trust he did not start from the back and work his way forward. The hon. Gentleman represents Durham—[Interruption.] Well, I would be superhuman if I remembered every single figure in my head. Per household, his council receives £2,228, and the reduction in its spending power is less than the national average. The hon. Gentleman should be thanking me rather than talking about sock puppets.

John Pugh (Southport) (LD): In his statement, the Secretary of State said that next year the new homes bonus will be worth more than £650 million, and even more in 2014-15. He later said, “We’ve reduced the amounts that we are setting aside for new homes bonus.” Will he clarify whether there will be a cut in the new homes bonus?

Mr Pickles: Very easily. We had discussions with local authorities, and we were going to hold back by way of the top slice a particular sum in order to pay for the new homes bonus. Local authorities put to us a number of reasonable points about how the new homes bonus and—for want of a better word—the cash flow will be paid. We thought they made a reasonable point and decided that we were not taking much of a risk by keeping close to what local authorities were saying.

Pat Glass (North West Durham) (Lab): The Secretary of State talked about £150 million of additional spending on academies. Is that part of or in addition to the existing £1 billion overspend on academies and free schools in the budget of the Department for Education?

Mr Pickles: I am grateful, because a scribbled note has arrived from the Under-Secretary of State for Communities and Local Government, my right hon. Friend the Member for Bath (Mr Foster), and the figure is not £150 million but £180 million. Those announcements will be made by the Secretary of State for Education.

Mr Peter Bone (Wellingborough) (Con): East Northamptonshire district council and Wellingborough council have embraced the Secretary of State’s reforms. They have a wonderful new leisure park, a retail park plan, 2,000 new jobs and the project is ready to go. The only thing stopping the project is the Secretary of State’s Department. Will he speed up the process and approve it?

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Mr Pickles: One looks at these matters in a quasi-judicial way, and despite my hon. Friend’s obvious charm, not even an invitation for a cup of tea with his delightful wife will persuade me to do anything other than observe proper process.

Richard Burden (Birmingham, Northfield) (Lab): During the Secretary of State’s tirades about Birmingham, would he care to get his facts right? As my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) observed, Birmingham was run by a Tory-led coalition from 2004 until last May. The Labour administration before that set aside money for dealing with equal pay claims, but that money was spent by the Tory administration. How can the Secretary of State justify a reduction in spending power of twice the national average? Is it not time that Birmingham got a fair deal at last?

Mr Pickles: I recall that I was a councillor when all that started. However, even in a year when the council is claiming poverty it managed to increase its reserves by £25 million. As a Birmingham MP, the hon. Gentleman must know that the council stands no chance of being able to deal with the enormous burden—just short of three quarters of a billion pounds—without the generosity of those on the Government Benches who are prepared to help Birmingham. They do so happily because we cannot allow our second city to go under.

Mr David Nuttall (Bury North) (Con): Does my right hon. Friend agree that when councils look to make savings, council tax payers should not be expected to pay the salaries of council employees who spend their time working for trade unions that then pay millions of pounds to the Labour party?

Mr Pickles: I am a very strong supporter of the trade union movement; it does absolutely marvellous work. In times of financial stringency, however, I am sure that the trade union movement will be embarrassed to receive money from the public purse. I will shortly issue best practice guidance to local authorities to find ways in which local trade unions can give money back to local government.

Diana Johnson (Kingston upon Hull North) (Lab): In his statement, the Secretary of State referred to a “moral duty”. Where is the morality in cuts that are directed at the poorest areas and those least well equipped to generate extra business revenue? Why has Hull had a cut so far of £163 per head compared with £2.70 per head in West Dorset?

Mr Pickles: Of course, West Dorset receives considerably less money than Hull. The hon. Lady’s council will receive per household a figure well above the national average at £2,371, and a drop in spending power of less than the national average at 1.4%. She should show some leadership.

John Hemming (Birmingham, Yardley) (LD): When Labour took control of Birmingham earlier this year, the council immediately put up costs by what will be £10 million a year by increasing wages for some staff by as much as 70%. It is now aiming to charge the poor council tax at 24%. Does the Secretary of State agree that we should protect the poor and not put up costs in a time of financial problems?

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Mr Pickles: It was an outrage that Birmingham increased some wages by 73%—

Steve McCabe ( Birmingham, Selly Oak) ) (Lab): Who? Name them.

Mr Pickles: Birmingham. The council put 16-year-olds on the same wages as adults. It made a mistake and it was foolish to do so—[Interruption.] The hon. Gentleman should listen, because he is probably not used to dealing with poor people—[Interruption.] No, no—a toff has an opportunity occasionally to meet the odd poor person. What was really bad about Birmingham involves the second part of the question from the hon. Member for Birmingham, Yardley (John Hemming) and how the council is seeking to get 23% council tax from poor people. As a committed socialist the hon. Member for Birmingham, Selly Oak should be on the phone now telling the leadership of Birmingham to look after the poor, not to tax them.

Mr Dave Watts (St Helens North) (Lab): The Secretary of State will be aware that the Audit Commission has made it absolutely clear that the biggest cuts are hitting the poorest communities and boroughs. What is the public to believe: his fiddled figures or the Audit Commission?

Mr Pickles: The hon. Gentleman is being very selective in his reporting, but it is absolutely clear that the poorest authorities are receiving a smaller cut than the more wealthy authorities. The protection that we have offered the former in this settlement is better than the protection offered under the Labour Government.

Julie Hilling (Bolton West) (Lab): Does the Secretary of State not realise that local authorities such as Bolton, which faces £100 million of cuts, are already doing all they can to support business growth, make efficiencies, share procurement and protect services? When will he admit that his actions are slashing services and hurting the most vulnerable?

Mr Pickles: What came out from the letter and the hon. Member for Birmingham, Selly Oak, who apparently meets the odd poor person at some of his surgeries, is that most of those authorities have done the odd thing on joint working or procurement, but I am talking about a much more fundamental realignment of local government services. I am looking not just at the back office, but at the front office. There have been far too many instances in the north-west of really good deals being turned down because people were concerned about the badge on the side of the van. I am therefore looking to the hon. Lady to show some leadership.

Helen Goodman (Bishop Auckland) (Lab): Will the Secretary of State share with the House his estimate of the value of the business rate retention in Durham and its value in Westminster?

Mr Pickles: Westminster will make a considerable contribution to the levy so that money goes directly to Durham. Money from Westminster will go directly to Durham, so if Westminster does very well—as it will—Durham will benefit.

Mr Andrew Love (Edmonton) (Lab/Co-op): My local authority, Enfield, faces a triple whammy under the Government. First, the rapid demographic change of which the right hon. Member for Bermondsey and Old

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Southwark (Simon Hughes) spoke is happening but is not recognised. Secondly, the Audit Commission reallocation from poor to richer authorities affects my area. Thirdly, the damping formula, which will be engaged for an extra two years, will affect my local authority. Can the Secretary of State give my constituents any reassurance that the Government recognise the problems of London boroughs?

Mr Pickles: Yes. I can helpfully tell the hon. Gentleman that, per household, he will receive £3,015, which is well above the national average. I am delighted to say that spending power goes down by just 0.6%, which is significantly less than other reductions. He is therefore sitting pretty.

Graham Jones (Hyndburn) (Lab): The Secretary of State has said that seven authorities will require larger savings to be made, but that no councils face a loss of more than 8.8% in their spending power, thanks to the new efficiency support grant, which replaces the transitional relief grant. Is that not a conditional, ring-fenced grant, and town hall to Whitehall, and therefore anything but localism? My local authority does joint services, and back-office and shared services, but how will it benefit from the Secretary of State’s statement?

Mr Pickles: The hon. Gentleman is a little confused. His authority is Hyndburn. I remind him that he would be receiving nothing additional had it been up to the Labour Government, who left no provision for the transitional grant. The transitional grant was wholly devised to help him, but his council must show some gumption. Who is paying for it? The rest of us are. He must ensure that Hyndburn starts to have joint services and better procurement—

Graham Jones: It is doing.

19 Dec 2012 : Column 890

Mr Pickles: No it is not—or not enough. I remember the hon. Gentleman’s Adjournment debate, and what he says is certainly not the case.

Steve McCabe (Birmingham, Selly Oak) (Lab): The people of Birmingham will be delighted to hear how kindly disposed the Secretary of State is towards them. Along with his list of 50 simple savings, will he agree to publish the recommended savings in cuts that his officials say can safely be made in Birmingham, so that I can share that with the Birmingham public?

Mr Pickles: I will e-mail that to the hon. Gentleman. Why should I not like Birmingham? It is a beautiful city and the second city in England. Anybody who wants to set up enterprise will find a welcoming hand there. I wish Birmingham nothing but success, but I must tell him—I have some familiarity with the finance—that the top few suggestions would help Birmingham out. I hope Birmingham takes that line. If it does, it will produce better services and have a much more secure future. I wish it well.

Luciana Berger (Liverpool, Wavertree) (Lab/Co-op): Further to the question from my hon. Friend the Member for Liverpool, Riverside (Mrs Ellman), may I remind the Secretary of State that Liverpool is the most deprived city in the UK? Will he tell the House why he is yet again disproportionately hitting both the Merseyside fire and rescue service budget and our council budget?

Mr Pickles: May I remind the hon. Lady that she has £2,740 per household, plus the amount for the fire authority? Metropolitan fire authorities are receiving a much higher level of settlement than other parts of the country. We have offered Liverpool a fantastic deal. The mayor of Liverpool had my complete confidence up to the point when he suggested that there will be riots on the streets—he was one of the first to offer reassurance during last year’s riots. I hope again to be able to work with Joe to the betterment of Liverpool.


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Point of Order

2.56 pm

Mr David Hanson (Delyn) (Lab): On a point of order, Madam Deputy Speaker. You have very helpfully held more than an hour’s discussion and questions to the Secretary of State for Communities and Local Government on the local government settlement. However, today’s Order Paper notifies us of only a written statement from the Home Office on the policing settlement. Compounding the fact that hon. Members cannot question Home Office Ministers on the important matters of police cuts, reductions in police officers and other matters, the statement from the Home Office is not released until the end of the statement from the Secretary of State for Communities and Local Government.

I know that these matters are outside your gift, Madam Deputy Speaker, but is it possible for you to examine with the Government whether they can have parity in their treatment of statements, so that we can question the Home Office on serious and damaging police cuts across the country?

Madam Deputy Speaker (Dawn Primarolo): The right hon. Gentleman in fact answered his own point of order when he pointed out that it was outside the gift of the Chair to force the Government to make oral statements. As he will know, it is entirely a matter for the Government how they present information to the House, whether by written or oral statement. He has his point on the record, but I do not think that I can help him any further.

Royal Assent

Madam Deputy Speaker (Dawn Primarolo): Before we proceed, I need to notify the House, in accordance with the Royal Assent Act 1967, that Her Majesty has signified her Royal Assent to the following Acts and Measure:

Civil Aviation Act 2012

Prisons (Interference with Wireless Telegraphy) Act 2012

Financial Services Act 2012

Police (Complaints and Conduct) Act 2012

Small Charitable Donations Act 2012

Church of England Marriage (Amendment) Measure 2012

19 Dec 2012 : Column 892

Charities Act 2011 (Amendment)

Motion for leave to bring in a Bill (Standing Order No. 23)

2.59 pm

Mr Peter Bone (Wellingborough) (Con): I beg to move,

That leave be given to bring in a Bill to amend the Charities Act 2011 to treat all religious institutions as charities; and for connected purposes.

On Monday this week, I delivered a letter to the Prime Minister at No. 10 Downing street. It was signed by 113 right hon. and hon. Members, drawn from many different political parties. It urges the Government to restore the presumption of charitable status to all religious institutions. The Charity Commission has recently ruled against a Plymouth Brethren church, stating that it is not of public benefit and can therefore no longer be seen as having charitable status. The repercussions of such a ruling could have a disastrous effect on religious institutions and the excellent work they do in the charitable sector.

The Charities Act 2006, which was consolidated into the Charities Act 2011, removed the presumption that religious institutions have charitable status. That has led to the unintended consequence of the state being able to interfere, through the Charity Commission, with religious institutions. Simply put, this is state interference in religious institutions through the back door. The 2006 Act removed the presumption that religious institutions were given charitable status—indeed, religious institutions now have to give tangible proof to demonstrate that they are a public benefit to be classed as charities.

My hon. Friend the Member for Isle of Wight (Mr Turner) led Her Majesty’s official Opposition on the Charities Bill in 2006. On Second Reading, he expertly pointed out the problem of religious institutions having to demonstrate their public benefit. Using the example of prayer, my hon. Friend asked the question:

“how can it be demonstrated that prayer is of a public benefit?”—[Official Report, 25 October 2006; Vol. 450, c. 1583.]

He later explained that religious institutions would find it hard to prove the benefit of prayer to a sceptical and secular group such as the Charity Commission. In that debate, the former Member for Maidstone, Ann Widdecombe, spoke on this subject. Deftly describing the situation regarding the previous legal presumption for religious institutions, she said:

“‘If it ain’t broke, don’t fix it.’”—[Official Report, 25 October 2006; Vol. 450, c. 1589.]

As usual, I wholeheartedly agree with what Ann said. I believe that the presumption for religious institutions should be returned to the Charities Act 2011. The 2011 Act clearly states in section 3(1)(c) that the advancement of religion should be considered a charitable purpose. Surely, if the advancement of religion is considered to be a charitable purpose, the presumption to grant religious institutions charitable status is the logical action to be taken by the Charity Commission, but the current commissioners are determined to misinterpret the law.

The advancement of religion is not the only category of public benefit that religious institutions bring to society. For example, the Salvation Army, a Christian organisation for more than 200 years, has provided help

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to the elderly, the young, offenders, drug addicts and disabled people. It provides food and shelter for the homeless, and it operates food distribution centres. From my own experience, as the chair of the all-party group on human trafficking, I know that the Salvation Army has helped the victims of human trafficking, by providing them with support and accommodation. Its efforts have been recognised by the Government and it has been awarded almost £2 million to support such victims. In future, if the religious practices of the Salvation Army are deemed not to be for the public benefit by the Charity Commission, will the Salvation Army lose its charitable status?

The commission’s ruling on the Plymouth Brethren makes the most extraordinary statement:

“There is no presumption that religion generally, or at any more specific level, is for the public benefit, even in the case of Christianity or the Church of England”.

There we have it: not even the Church of England is safe. Does this mean that the Plymouth Brethren are but the first to feel the wrath of the secular, biased Charity Commission? Will Judaism, the Catholic Church or indeed the Church of England itself come under pressure by the commission to prove their public benefit? The hon. Member for Dover (Charlie Elphicke) recently told the Public Administration Committee about the Plymouth Brethren and said that the commission

“are committed to the suppression of religion and you are the little guys being picked on to start off a whole series of other churches who will follow you there.”

I am reminded of the poem “First they came”, describing the persecution of different groups, in darker times. Today, it could be amended to read, “First they came for the Plymouth Brethren and I did not speak out because I was not a Brethren. Then they came for the Evangelical Church and I did not speak out because I was not an Evangelical. Then they came for the Catholic Church and I did not speak out because I was not a Catholic. Then they came for me and there was no one left to speak out for me.”

I fear that if the presumption for religious institutions to have charitable status is not reinstated in the Charities Act, we will bring about consequences that will not only be detrimental to the charity sector, but to the very fabric of our society. In fact, the removal of the presumption in the Charities Act 2006 was never intended by the previous Government to penalise charitable religious institutions. In Committee, the then Under-Secretary for the Cabinet Office and now Leader of the Opposition, the right hon. Member for Doncaster North (Edward Miliband) stated that

“religious organisations need to be given reassurance and confidence that those that have charitable status will continue to enjoy it and that the Bill does not affect their status. We can give them that assurance in broad terms.”––[Official Report, Charities Public Bill Committee, 4 July 2006; c. 66.]

The right hon. Gentleman went on to reiterate that religious institutions providing access to worship and the advancement of religion are “clearly a public benefit”. How can it be that the 2006 Act, championed by the current Leader of the Opposition through Parliament, who gave clear guarantees to protect religious institutions of their charitable status, can be used and abused by the Charity Commission in a clear misinterpretation of the

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public benefit requirement? For more than 400 years, since the Charitable Uses Act 1601, the advancement of religion has been considered a charitable purpose.

Recently, the Charity Commission ruled that the Plymouth Brethren did not fulfil the public benefit requirement as a charity. How can a group active in the role of advancing religion that contains more 16,000 members of the British public not be considered a public benefit? If the advancement of religion on its own as a charitable purpose cannot be seen as an identifiable benefit to the public, I will provide one of many examples of the selfless work of the Plymouth Brethren.

During the recent flooding, in the Bicknacre and Danbury areas, members of the Plymouth Brethren church helped local residents by sandbagging their properties, assisting in moving residents and their belongings from the flooded St Giles home for the mentally disabled, and using their 4x4 vehicles to remove vehicles from flood water—I am sure at some personal risk to themselves. If those acts cannot be described as selfless and charitable, then I do not know what can.

There is clearly an almighty mess. When I find such a situation, I have two default positions. First, it must have been caused entirely by the Liberal Democrats. Now, that just is not the case here. Many Liberal Democrat Members support the Bill and one is a sponsor, so that is clearly not the reason. I therefore move on to my second default position, which is that in nearly all cases the cause of all problems is the European Union. I have gone through every EU directive, but I cannot find one that imposes this restriction. What is happening is creeping secularism in society. With just a few days before we celebrate the birth of Jesus Christ, and in recognition of religious freedom, I urge right hon. and hon. Members to support my ten-minute rule Bill.

Question put (Standing Order No. 23).

The House divided:

Ayes 166, Noes 7.

Division No. 126]

[

3.09 pm

AYES

Adams, Nigel

Afriyie, Adam

Aldous, Peter

Allen, Mr Graham

Amess, Mr David

Anderson, Mr David

Baker, Steve

Baldry, Sir Tony

Bayley, Hugh

Bebb, Guto

Begg, Dame Anne

Beith, rh Sir Alan

Beresford, Sir Paul

Bingham, Andrew

Binley, Mr Brian

Blackman, Bob

Bottomley, Sir Peter

Brady, Mr Graham

Bray, Angie

Brazier, Mr Julian

Bridgen, Andrew

Brine, Steve

Buckland, Mr Robert

Byles, Dan

Campbell, Mr Ronnie

Carmichael, Neil

Cash, Mr William

Chope, Mr Christopher

Clarke, rh Mr Tom

Clifton-Brown, Geoffrey

Coffey, Dr Thérèse

Colvile, Oliver

Crausby, Mr David

Crockart, Mike

Davies, Glyn

Davies, Philip

Davis, rh Mr David

de Bois, Nick

Dinenage, Caroline

Djanogly, Mr Jonathan

Dobbin, Jim

Donaldson, rh Mr Jeffrey M.

Donohoe, Mr Brian H.

Doyle-Price, Jackie

Edwards, Jonathan

Ellis, Michael

Elphicke, Charlie

Evans, Jonathan

Fuller, Richard

Gapes, Mike

Garnier, Mark

Glindon, Mrs Mary

Goggins, rh Paul

Goldsmith, Zac

Gray, Mr James

Griffiths, Andrew

Hain, rh Mr Peter

Halfon, Robert

Harris, Rebecca

Hart, Simon

Haselhurst, rh Sir Alan

Hayes, Mr John

Heaton-Harris, Chris

Hemming, John

Henderson, Gordon

Hendry, Charles

Hermon, Lady

Howarth, rh Mr George

Howarth, Sir Gerald

Johnson, Gareth

Jones, Andrew

Jones, Mr Marcus

Joyce, Eric

Kelly, Chris

Latham, Pauline

Lazarowicz, Mark

Leadsom, Andrea

Lee, Dr Phillip

Leech, Mr John

Lefroy, Jeremy

Leigh, Mr Edward

Lewis, Dr Julian

Liddell-Grainger, Mr Ian

Lilley, rh Mr Peter

Lloyd, Stephen

Lopresti, Jack

Loughton, Tim

Luff, Peter

MacNeil, Mr Angus Brendan

Main, Mrs Anne

McCartney, Jason

McCartney, Karl

McDonnell, John

McFadden, rh Mr Pat

McPartland, Stephen

Meale, Sir Alan

Mills, Nigel

Mitchell, rh Mr Andrew

Morrice, Graeme

(Livingston)

Morris, Anne Marie

Morris, David

Morris, Grahame M.

(Easington)

Mowat, David

Mundell, rh David

Murray, Sheryll

Neill, Robert

Newmark, Mr Brooks

Nokes, Caroline

Nuttall, Mr David

Offord, Dr Matthew

Owen, Albert

Parish, Neil

Patel, Priti

Pawsey, Mark

Pearce, Teresa

Percy, Andrew

Phillips, Stephen

Pincher, Christopher

Pugh, John

Raab, Mr Dominic

Rees-Mogg, Jacob

Reevell, Simon

Robertson, Mr Laurence

Rosindell, Andrew

Roy, Lindsay

Ruffley, Mr David

Russell, Sir Bob

Sanders, Mr Adrian

Shannon, Jim

Sharma, Alok

Sharma, Mr Virendra

Sheridan, Jim

Skidmore, Chris

Skinner, Mr Dennis

Smith, Henry

Smith, Sir Robert

Soames, rh Nicholas

Spelman, rh Mrs Caroline

Spencer, Mr Mark

Stevenson, John

Stewart, Iain

Stringer, Graham

Stuart, Ms Gisela

Stunell, rh Andrew

Sutcliffe, Mr Gerry

Tomlinson, Justin

Turner, Mr Andrew

Twigg, Derek

Tyrie, Mr Andrew

Vickers, Martin

Walker, Mr Charles

Walker, Mr Robin

Walter, Mr Robert

Watkinson, Angela

Weatherley, Mike

Weir, Mr Mike

Wharton, James

Wheeler, Heather

Whiteford, Dr Eilidh

Whittaker, Craig

Whittingdale, Mr John

Wiggin, Bill

Wollaston, Dr Sarah

Wood, Mike

Wright, David

Zahawi, Nadhim

Tellers for the Ayes:

Mr Peter Bone

and

Mr Douglas Carswell

NOES

Blunt, Mr Crispin

Corbyn, Jeremy

Esterson, Bill

George, Andrew

Hopkins, Kelvin

Horwood, Martin

Jackson, Glenda

Tellers for the Noes:

Mr Philip Hollobone

and

Mark Reckless

Question accordingly agreed to.

19 Dec 2012 : Column 895

19 Dec 2012 : Column 896

Ordered,

That Mr Peter Bone, Steve Baker, Nick de Bois, Mr Douglas Carswell, Mr Christopher Chope, Philip Davies, Robert Halfon, Mr David Nuttall, John McDonnell, Tessa Munt, Stephen Phillips and Jim Shannon present the Bill.

Mr Peter Bone accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 1 March 2013, and to be printed (Bill 114).

Caroline Lucas (Brighton, Pavilion) (Green): On a point of order, Madam Deputy Speaker. Yesterday in my Adjournment debate on high-carbon investment, the Minister of State, Department of Energy and Climate Change, the hon. Member for South Holland and The Deepings (Mr Hayes) said that

“the Committee on Climate Change has recognised in its recent progress report…that we are on track to meet our first three carbon budgets”.—[Official Report, 18 December 2012; Vol. 555, c. 828.]

That did not sound right to me, so I returned to the report to check the details to which he had referred and sought clarification from the committee directly. I can confirm that the committee’s report states clearly that the current rate of progress is

“sufficient to meet the first and second…budgets, but not the third and fourth budgets,”

and that the

“rate of underlying progress is only a quarter of that required to meet future carbon budgets.”

Given this afternoon’s debate on the Energy Bill and the crucial matter of decarbonisation, I wonder whether you might invite the Minister to correct the record on this matter, Madam Deputy Speaker.

Madam Deputy Speaker (Dawn Primarolo): The content of speeches in this House, whether by Back Benchers, Ministers or shadow Ministers, is thankfully not the responsibility of the Chair. The contributions made as a matter of debate in this House are the responsibility of the Member who makes those observations, so it is not a point of order for the Chair. The Minister is here; I am sure he took note of the hon. Lady’s comments and will want to engage again in debate on those facts.

19 Dec 2012 : Column 897

Energy Bill

Second Reading

Madam Deputy Speaker (Dawn Primarolo): Before I call the Secretary of State to move Second Reading, may I say to all hon. Members that there is a very long list of Members who have indicated that they wish to speak in this debate? Even with a tight time limit, it will not be possible in the time we have left to call every Member. I regret, therefore, that some Members will be disappointed and will not be able to participate in this afternoon’s debate. May I also inform the House that the Speaker has selected the amendment in the name of the Leader of the Opposition, Mr Edward Miliband?

3.25 pm

The Secretary of State for Energy and Climate Change (Mr Edward Davey): I beg to move, That the Bill be now read a Second time.

We need to pass this Energy Bill if Britain is to have a credible and ambitious energy and climate change policy. The Bill represents both a practical and a radical approach to reforming our electricity market. It is essential if we are to deliver on our three objectives for energy and climate change policy—namely, secure energy that is affordable and clean—yet I believe the Bill offers the country much more than a better energy policy. With our current economic difficulties, as we along with many other nations strive to ignite sustainable growth, this Bill offers a significant opportunity to stimulate the sort of infrastructure investment that our country desperately needs, for both the short and long term. We estimate that an enormous £110 billion of energy infrastructure investment is needed between now and the end of the decade in low-carbon energy generation and the grid network.

Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP): What hope, assurances or promise can the Secretary of State give to those wishing to engage in renewable energy generation in the Hebrides that the infrastructure will reach the Hebrides? Will the interconnector come?

Mr Davey: The hon. Gentleman knows that I set up a group to look at this issue, which has got together with the councils from the various islands, officials from my Department and others. We must await its work. I know he welcomed it at the time and I am sure that he, too, will await its work with patience.

This is not just an energy Bill; it is a growth Bill. I believe it can lead to new jobs in every region and nation of our country. If right hon. and hon. Members vote for this Energy Bill, they will be voting to give the British economy the long-term boost it needs.

Dame Joan Ruddock (Lewisham, Deptford) (Lab): I am most grateful to the Secretary of State for allowing me to intervene at this early stage, but is not the very best boost we could give our industry in this country, particularly the renewables sector, to have the decarbonisation target for 2030 on the face of the Bill, as recommended by the Committee on Climate Change, as argued for by 1,500 companies and the CBI, and as apparently endorsed by the Prime Minister just two years ago?

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Mr Davey: The right hon. Lady knows that I am very sympathetic to that argument. We will come to that argument and debate many times, not just today, but no doubt throughout the passage of the Bill.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): Does my right hon. Friend agree that in order to ensure the investment that the hon. Member for Na h-Eileanan an Iar (Mr MacNeil) described, it is crucial that we get this Bill through, with its contracts for difference and its market reform? To do that, the Bill has to receive a Second Reading, so the best thing that hon. Members on both sides of the House can do is reject the reasoned amendment, which would delay any movement towards getting this new Bill through.

Mr Davey: My hon. Friend is absolutely right. Targets are important—they have a role to play—but we need practical measures. We need market reform. If we are to stimulate the investment in low carbon that our country needs, we need the Bill, contracts for difference and all.

Huw Irranca-Davies (Ogmore) (Lab): Will the Secretary of State give way?

Mr Davey: I shall make some progress first, and then I shall take some more interventions.

I pay tribute to the many people who have contributed to producing a Bill which, let’s face it, could not be described as having been rushed. Even before the pre-legislative scrutiny so ably undertaken by the Select Committee on Energy and Climate Change—I thank it for its work—it was long, long in the consultation. Some have even argued that the fingerprints of the Leader of the Opposition can be found on the first designs for it, but in the event of a paternity test, I think that the name of my right hon. Friend the Member for Eastleigh (Chris Huhne) would probably end up on the birth certificate. Its careful nurturing owes much to my hon. Friend the Member for Wealden (Charles Hendry). Indeed, Members in all parts of the House have played a role in its production, and it is a better Bill for that level of cross-party development and scrutiny.

The reason why members of all parties recognise the need for a major change is easy to explain. First, about a fifth of Britain’s existing power plants are scheduled to close during this decade, which will reduce supply. Secondly, even if we are heroically successful in terms of energy efficiency and reducing energy waste, overall demand for electricity is set to rise—partly because of population growth, but also because our transport system is likely to be more electrified over the next two decades, as are our heating systems. What with supply falling and demand increasing, we would have a real energy problem if we sat back and did nothing. Energy security—keeping the lights on—is a critical rationale for the Bill.

Mark Reckless (Rochester and Strood) (Con): Will the Secretary of State confirm that the key reason for the energy crisis is the fact that a vast amount of coal-fired generation is being forced to close down, not because of carbon dioxide emissions but because of emissions of sulphur dioxide, which, if anything, counters carbon dioxide. That is due to the European Union and its large combustion plant directive.

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Mr Davey: My hon. Friend is right to mention that directive. Its aim is to clean our air, which is a good thing for a number of reasons. I support it, as do many others.

Huw Irranca-Davies rose—

Mr Brian H. Donohoe (Central Ayrshire) (Lab) rose—

Mr Davey: I want to make a little more progress, but before I do so I will give way to the hon. Member for Ogmore (Huw Irranca-Davies), because he tried to intervene earlier.

Huw Irranca-Davies: May I make a point about the reasoned amendment? It is because of the go-ahead for licences for a new fleet of combined cycle gas turbine power stations, the potential for shale gas, and the current absence of the development of carbon capture and storage technology in this country that it is necessary to top up with a 2030 decarbonisation target. I think the Secretary of State is more than sympathetic to that idea, and that he would implement it if he were not encumbered by Cabinet colleagues.

Mr Davey: I am grateful for the hon. Gentleman’s intervention. He has merely convinced me more that this will be a hot topic of debate. However, I can confirm to him and the House that one of the purposes of the Bill is to decarbonise our electricity supply. That is a critical purpose. We need to move from coal to gas, from fossil fuels to low carbon. We need a more diversified energy mix, with renewables, carbon capture and storage, and new nuclear all playing their part in enhancing the security of our electricity supplies. Low-carbon energy security will help to insulate consumers from fossil fuel price spikes and will help us to meet our climate obligations, including our emissions and renewables target.

The key challenge that prompted the Bill was the need to attract tens of billions of pounds of investment, including investment in low carbon, while keeping energy bills affordable. Given that global gas prices had almost doubled since 2007, which was already putting huge upward pressure on bills, the need to stimulate that essential energy investment as cheaply as possible became a central consideration. Whatever the many debates in which we will rightly engage today and during the Bill’s passage, let no one lose sight of the three core challenges that it was designed to meet: attracting more than £100 billion of investment, creating the world’s first ever market in low-carbon energy, and helping people and businesses around our country who were struggling in the face of rising world energy prices. I think that those aims are widely shared across the House.

Caroline Lucas (Brighton, Pavilion) (Green): I agree with the Secretary of State about the importance of reducing fuel bills, but if that is important, why does the Bill enshrine a dash for gas? Organisations from the CBI to the International Energy Agency say that that will not reduce fuel bills, whereas much greater investment in renewables and efficiency certainly would.

Mr Davey: I reject the notion that our policy supports a dash for gas, and I absolutely reject the suggestion that the Bill is designed to do any such thing. On the contrary, it is designed to reform our electricity market.

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It favours not fossil fuels but low-carbon sources, and I should have thought that the hon. Lady and, indeed, all Members would support it for that reason.

You will understand, Mr Deputy Speaker, why I am genuinely disappointed that the Opposition decided to withhold their full support for the Bill in their reasoned amendment. They say that they want our economy to grow, they say that they support low-carbon energy, and they say that they want a better deal for consumers and business, but if they vote against the Bill, they will be opposing growth, opposing decarbonisation and opposing help for people who are struggling with high energy bills. Just a few years ago all the major parties worked together to deliver the Climate Change Act 2008. Why is a party led by the architect of that landmark Act refusing to support the practical reforms that will help to deliver its lofty objectives?

I predict that we will have many debates and exchanges about a decarbonisation target for the power sector—an issue that features prominently in the Opposition’s reasoned amendment—yet it should be noted that this Government will legislate so that the next Government can set a decarbonisation target alongside a fifth carbon budget, even though at the last election the manifesto of no party argued for such a power sector decarbonisation target. We will no doubt hear that industry would benefit from such a target, and I strongly sympathise with that argument, yet industry would be seriously damaged if we were not to take forward our wider reforms of the electricity market.

The right hon. Member for Don Valley (Caroline Flint) has the power to send a much stronger signal to energy investors in the UK even than setting a 2030 decarbonisation target. Almost every investment in energy is a long-term investment lasting far longer than any Parliament, and investors therefore worry about political risk. They worry about what happens if the governing party or coalition is replaced, and they therefore listen to what the Opposition say.

I presume that the right hon. Lady will press her amendment to a Division. If it is defeated, however, will she and her party colleagues support the Bill on Second Reading? I am happy to give way to her if she wants to answer that question—I am afraid she has not been tempted to respond. We shall, therefore, all await her speech with even greater anticipation, to discover whether she intends to vote against the Bill on Second Reading.

Mr John Leech (Manchester, Withington) (LD): My right hon. Friend’s support for such a target has been well documented, so I suppose the current position is one of the practical realities of coalition Government, but what will be the effect of setting a target in 2016 rather than 2012, and what impact will that have on our reaching the target in 2030?

Mr Davey: My hon. Friend makes an interesting point. National Grid will have the job of setting the first stage of the electricity market reform delivery plan, and I will give it guidelines, as agreed with the Chancellor, on how it should set that plan. We will make it clear that it must consider power sector decarbonisation even ahead of the target that will be set in 2016.

It is worth reminding the House that the renewables energy target for 2020 was set in 2008, some 12 years ahead of the target date. If we set a decarbonisation

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target for 2030 in 2016, that will be a full 14 years ahead of its target date. It is therefore clear that we are planning for the longer term and that we have logic on our side. It would have been great if the Opposition could say that they had argued for this before, but they did not. I am glad they are joining us now.

The Bill’s central objective is to achieve electricity market reform, with a new investment mechanism at its core: the feed-in tariff with contracts for difference. Contracts for difference will provide long-term electricity price stability, and therefore revenue certainty, to developers and investors in technologies such as carbon capture and storage, renewables and nuclear.

Neil Carmichael (Stroud) (Con): The Bill’s measures will provide clarity and certainty for investors wishing to develop infrastructure. Does the Secretary of State agree that that is imperative in delivering the model he is talking about?

Mr Davey: My hon. Friend has great expertise in this area, and I entirely agree with what he says. Revenue certainty will reduce investment risk, and it should therefore also reduce the cost of financing—the cost of capital. That is far more important for low-carbon technologies than for fossil fuels, because so much of the cost of renewables and nuclear is the set-up capital cost. Our electricity market reform is, essentially, shaping a new low-carbon market, in order to stimulate the energy investment Britain needs.

Mr Donohoe: Does the Secretary of State agree that one way to overcome the problem of the deficit in energy generation would be if the nationalists were to allow new nuclear stations to be built north of the border? Does he agree with that as a way forward?

Mr Davey: The hon. Gentleman notes that the energy debate is an important part of the debate on independence for Scotland, but I would not want to cloud that debate by suggesting that there should be new nuclear power plants there. He will know that our new nuclear build proposals include three consortiums, none of which is proposing new nuclear build in Scotland. We have a long way to go before that question arises.

Mr Mike Weir (Angus) (SNP) rose

Mr Davey: I think I should give the nationalists a right of reply.

Mr Weir: I was not looking for a right of reply, but I thank the Secretary of State for giving way anyway. Many are concerned that the contract for difference will not be introduced until later on and there is a real danger of a hiatus in investment because of uncertainty if the renewables obligation is closed in 2017. Will he consider extending that deadline if there are real challenges in obtaining that investment?

Mr Davey: I am grateful to the hon. Gentleman for his question. We have certainly spoken to people in the industry who make that argument, but our response has been to note that we have the final investment decision enabling contracts for difference, which will prevent a

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hiatus in investment in the immediate future. We are running contracts for difference side by side with the renewable obligations certificate to help people get more familiar with them before 2017. Some of the problems people had raised are now being answered and I hope that I will be able to persuade the hon. Gentleman that he need not have those concerns.

Several hon. Members rose

Mr Davey: I am afraid that I want to make a little more progress—this even applies to my hon. Friends on the Liberal Democrat Benches.

Mike Crockart (Edinburgh West) (LD) rose

Mr Davey: As I know him so well, I will give way to my hon. Friend, but I will then make some progress.

Mike Crockart: I am merely astounded by the nationalists’ interest in the renewables obligation for 2017, given that they hope that Scotland will be independent by that point.

Mr Davey: My hon. Friend makes a very good point. Perhaps the nationalists have given up before the referendum has even started.

It has been pointed out to me that my constituency neighbour and good friend, the hon. Member for Richmond Park (Zac Goldsmith), wishes to intervene, and, given his knowledge on this subject, I would like to take his intervention.

Zac Goldsmith (Richmond Park) (Con): I thank my right hon. Friend for allowing me to intervene. Energy efficiency is by far the easiest, quickest and cheapest method of reducing bills and emissions. I know that the Government are consulting on measures to reduce electricity demand, but can he reassure the House that time will be made available for genuine scrutiny of the amendments when they eventually arrive and that they will be radical enough to ensure that efficiency is a core part of our energy programme?

Mr Davey: I am grateful to my hon. Friend for pointing out that we are consulting on electricity demand reduction. I am passionately keen to see that taken forward, but I do not want to prejudge the outcome of the consultation. There are a number of ways of taking forward that policy measure. It might require amendments to the Bill and if so, we have time to introduce them, but there might be other ways to make progress on that policy objective.

Mr Ian Liddell-Grainger (Bridgwater and West Somerset) (Con): Will the Secretary of State give way?

Mr Davey: No, I am going to make some progress, I am afraid.

Some have argued that CFDs are somehow complex, but I disagree. Generators will receive the market price for their electricity plus a top-up to an agreed level known as the strike price. When the market price is above the strike price, the generator will pay back the difference, ensuring value for money and greater price stability for consumers.

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CFDs are also a major improvement on the current system of renewable obligation certificates, because they keep the cost of energy to the consumer lower. During the scrutiny of the draft Energy Bill, one issue dominated the debate about CFDs, and the Energy and Climate Change Committee spent some time considering it. It was, in essence, the payment system and how generators would get their money in a CFD. The Select Committee recommended that the Government change the draft Bill in that respect and appoint a single counterparty to these contracts for difference so it was easier for investors to know who would pay them. We have accepted that proposal. There will now be a new Government company that will sign and manage the contracts over their lifetime and collect money from suppliers to meet the payments due to generators.

Electricity market reform will stimulate investment in new low-carbon energy, but low-carbon energy sources have different generating features from fossil fuels, so our market reforms must take account of them. For example, wind and solar are intermittent, and may need either storage technologies and/or back-up generation. Both nuclear and renewables tend to have low margin running costs and are likely to mean that fossil fuel power stations run at lower load capacities than in the past. If we do not consider the implications of such things, there might in the future be a danger of insufficient investment in the flexible generating capacity needed at certain times, especially at the peak, for example on less windy days.

Moreover, given that new nuclear reactors will take some time to come online, and that new renewables may not fill the energy gap created by the closure of old coal and nuclear quickly enough in the next few years, there is the challenge of ensuring energy security over the next decade or more. Alongside CFDs we will introduce a capacity market to ensure that sufficient reliable generating capacity is available to meet electricity demand as it increases over the next decade. The capacity market will provide an up-front payment for capacity, reducing the risk of investing in flexible generation. The capacity market will provide an insurance policy against the possibility of future black-outs—for example, during periods of low wind and high demand.

Mr Liddell-Grainger: I want to take the Secretary of State back to the rates retention scheme and community benefit, which both this Government and the previous Government have talked about. The scheme is not in the Bill, but can he confirm that it will help local investment and local communities, and that above all it will ease the pain of very large infrastructure projects for local communities?

Mr Davey: My hon. Friend has campaigned on the issue and he initiated a recent Adjournment debate on it. Whether it is new nuclear, onshore wind or other energy infrastructure, we need to consider how local communities can benefit, and we will do that. I give him that assurance again today.

Dr Alan Whitehead (Southampton, Test) (Lab): Is the Secretary of State aware that according to his impact assessment, a market-wide capacity payment system would cost the customer 11 times more on their fuel bill than a strategic reserve system of capacity arrangements? Does he intend to take that into account as the Bill progresses?

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Mr Davey: I urge the hon. Gentleman to read the impact assessment a little more carefully. The bit he draws to the attention of the House assumes a perfectly operating electricity market. One reason why capacity payments will be a lot less than indicated in the part of the impact assessment he quotes is that without a capacity market, peak-demand electricity prices could go very high. One of the benefits of a capacity market is that it will smooth out the price of energy, so consumers will not have to pay high prices at the peak. That will offset the payment, and he needs to take that into account. The impact on the consumer will be far more beneficial than he suggests.

Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op) rose

Mr Davey: No, I will not give way.

The two new instruments I have just outlined—CFDs and the capacity market—will be underpinned by a robust and transparent institutional framework that will provide certainty for industry and investors. Government will retain responsibility for both instruments, and will make decisions on strike prices for CFDs, taking into consideration our objectives for the electricity sector, and wider economic and sustainability impacts as appropriate. The system operator, National Grid, will administer and deliver both the CFDs and the capacity market, and Ofgem will regulate the system operator.

The Select Committee argued that there is a risk of conflicts of interest arising between National Grid’s existing role, including owning the transmission infrastructure, and the new role, so to reassure investors, we are working jointly with Ofgem to assess that risk, mindful of the very good reasons why the system operator should take the role. The Bill provides the Government with powers to manage any conflicts of interest if necessary, and ultimately to confer the functions on an alternative delivery body.

Industry and investors have urged us to press on with our reforms to the electricity market, but it would be damaging and costly if in anticipation of an improved investment environment, they postponed final investment decisions on existing, shovel-ready projects in the meantime. I want to ensure that those decisions can be taken with confidence, even before our reforms come into effect. Therefore, as a transitional measure, the Bill will enable the Government to give effect to early CFDs, referred to as investment contracts, on a case-by-case basis at an early stage, in advance of the CFD regime. Our intention is that any investment contracts will be transferred to the single counterparty once it has been established.

I am determined that the Bill will increase competition in all aspects of our energy markets, whether retail or wholesale, and I am particularly concerned about the lack of liquidity in the wholesale power market, and especially in the forward markets, which can deter investment by independent suppliers—so important for effective competition. By improving liquidity we would improve competition, promote long-term security of supply, reduce barriers to entry and increase the robustness of the reference price for CFDs. Ofgem is currently working on proposals to improve liquidity, but in the absence of significant improvements, Government intervention may be necessary. The Bill therefore provides for such intervention. It also provides for powers to

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intervene to support investment by improving access to long-term contracts for the sale of electricity. This is a key concern for independent renewable developers. While the CFD will significantly reduce risk for these developers, it is important to be able to act if necessary. I therefore refute the Opposition’s assertion that the Bill does not address liquidity and competition; it clearly does.

There are a range of measures in the Bill that deserve more attention than I can give them: the emissions performance standard, which will act as a regulatory backstop on the amount of carbon emissions that new fossil fuel plants are allowed to emit; the reform of Ofgem, with the introduction of a statutory strategy and policy statement, setting out the Government’s strategic priorities and intended outcomes with respect to energy policy, helping to align better the work of Government and the work of the regulators; and a new enforcement power for Ofgem, so where energy companies have breached regulatory requirements but are unwilling to provide redress voluntarily to affected consumers, Ofgem will be able to require them to do so, with fines going to the consumers affected, which will ensure fairer outcomes for consumers. There is also a key measure to support investment in offshore transmission systems, which is so vital to Britain’s offshore wind industry, specifically with an amendment to the Electricity Act 1989 which will provide confidence to offshore generators that for a time-limited period they can lawfully commission any transmission assets that they build. We also expect to introduce measures on tariff reform during the Bill’s passage, so that we can ensure consumers get the best deal; and after we have consulted on electricity demand reduction, we will consider amendments to the Bill to support this radical approach to saving electricity, at the appropriate time.

Yet there are two parts of the Bill that are substantial reforms but have received little attention to date, so I want to dwell a little more on those before concluding. The first is on the issue of nuclear regulation. Nuclear power has an important part to play in the low-carbon energy mix of the future, and the sector requires an appropriately resourced and responsive regulator. In April 2011 we set up the Office for Nuclear Regulation, and the Bill will place what is already a world-class regulator on a statutory footing. The ONR will build on its current strengths as a modern, independent regulator working to the principles of transparency, accountability, proportionality, targeting and consistency. Its five key areas of responsibility are nuclear safety, nuclear security, nuclear safeguards, the transport of radioactive material, and health and safety on nuclear sites. The ONR will have the financial and organisational flexibility required to meet its business needs on a sustainable basis. The Bill also contains an amendment to the nuclear waste and decommissioning cost recovery mechanisms, which contributes to the coalition’s commitment that new nuclear power stations should receive no public subsidy.

The final reform that I wanted to highlight is to the Government pipeline and storage system. This network was originally built for defence purposes, but is now predominantly used commercially, especially for civil aviation—it delivers around 40% of aviation fuel in the UK. Following a review, we have concluded that there is

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no need for this asset to be owned by the Government, and that its sale could encourage private investment in the system, potentially bringing wider economic benefits as well as reducing Government debt. We are confident that any continuing military requirements could be met through contractual arrangements with a purchaser, and that a sale would have no adverse effect on safety or security. A final decision on any sale will depend on striking the right deal with the private sector, with value for money a key consideration. The earliest date for a sale would be during 2014.

The House will see that the Bill is an ambitious one. It contains radical reforms, above all to secure the energy supply that Britain needs for our homes and businesses into the 21st century, boosting economic growth at the same time. The Bill will keep the lights on, it will help keep people’s energy bills down, and it will decarbonise Britain’s electricity system. I commend the Bill to the House.

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. Many Members wish to get in. I remind the House that there is a six-minute limit after the Front-Bench speeches. We may have to reduce the limit further, but if Members can be generous and try to shave some time off their speeches, they will be helpful to each other.


3.55 pm

Caroline Flint (Don Valley) (Lab): I beg to move,

That this House, whilst affirming its support for measures included in the Bill to reform the electricity market to deliver secure, clean and affordable electricity, declines to give a Second Reading to the Energy Bill because it fails to include a clear target to decarbonise the power sector by 2030, and because it fails to include direct measures to increase transparency, competition or liquidity or ensure that the energy market is properly regulated and works in the interests of consumers.

I am conscious of time so let me say at the outset that I will take very few interventions, as I welcome the positive way in which Members in all parts of the House have applied to speak this afternoon.

The challenge facing the Government is to produce a Bill that provides fairness for consumers today, security for consumers tomorrow and a sustainable energy supply for the future of our economy, our nation and our planet. These are the tests on which we will hold the Government to account during the passage of the Bill. As a responsible Opposition, we will support measures that balance the interests of the whole nation. On the broad objectives of the Bill, we have no disagreement.

We will support proposals that genuinely reform the electricity market to deliver secure, clean and affordable electricity. In part 2 of the Bill, we will support the establishment of the Office for Nuclear Regulation on a statutory footing—work begun under the previous Government, which the Bill will complete. In part 3, we support proposals on the Government pipeline and storage system, provided they are consistent with our national security and safeguard the resilience of our fuel supply. We will support the provisions on offshore transmission systems. They are a sensible modification enabling offshore wind generators to connect to the grid during the commissioning period. That is the good news.

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As to whether the Bill as a whole will meet its objectives, we remain to be convinced—hence, the reasoned amendment before the House today. At this early stage of the Bill, permit me to set out how it could be improved to genuinely reform the electricity market to ensure that Britain has a secure, clean and affordable power supply for the future. Let me start with security. As the Secretary of State has said today and in the past, in the next decade a quarter of the UK’s generating capacity will be shutting down as old coal and nuclear power stations close. To rebuild our energy infrastructure will require an unprecedented level of investment, not just in new generation, but in energy transportation.

To provide the incentives to attract the investment that we need, the Government have proposed three main mechanisms. I will deal with each in turn—first, the introduction of contracts for difference. Since the draft Bill, the Government have provided greater clarity on where the liability for CFDs will lie, which is welcome. In principle, if CFDs are executed correctly, they should provide investors with long-term certainty, but ultimately the success of CFDs will depend on the details. Many details, such as the length of contracts, how contracts will be allocated or paid for, what the balance will be between renewable, nuclear and carbon capture and storage, and the process for setting the reference and strike prices, are still to be worked out.

Mark Tami (Alyn and Deeside) (Lab): Does my right hon. Friend agree that we have to act now in a co-ordinated fashion, and not just talk about it? That has been the problem of previous Governments, both Labour and Conservative. We tend to have reviews but do not take the necessary action.

Caroline Flint: I agree. As has been said, the Climate Change Act 2008, led by my right hon. Friend the Leader of the Opposition when he was Secretary of State for Energy and Climate Change, was a world first. It put us in a position, with cross-party support, with a few honourable—or maybe not honourable—exceptions, in the forefront of change.

Mr Peter Lilley (Hitchin and Harpenden) (Con): Is she allowed to say we are not honourable?

Hon. Members: She?

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. If the right hon. Gentleman wants to make a point, he must stand up and do so to the Chair, not from a sedentary position. He should know better after so long in the House.

Mr Lilley: Is it in order to refer to hon. Members who oppose the speaker as not honourable?

Mr Deputy Speaker: It was a general reference.

Mr Lilley: It was not.

Mr Deputy Speaker: I am telling the right hon. Gentleman. When he says “she”, that is not acceptable language either. It is Christmas; we ought to give a little more humble time to each other, and certainly we do not want the debate to deteriorate. I hope we will have no further interventions from either side in that manner.

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Caroline Flint: The second mechanism is the introduction of a capacity market designed to address possible shortfalls in generation. Again, in principle a capacity market could work, but whether it does will depend on important details, such as whether a capacity market will actually be introduced, the format of the auction, how the amount of capacity needed will be decided, what should be the balance between supply and demand reduction measures and how the capacity payments will be funded. All that still needs to be worked out.

The third mechanism is the creation of an emissions performance standard that sits alongside the Government’s gas strategy. Gas will have a role in our future energy mix, especially as we move away from coal-fired power stations, but setting the emissions performance standard at 450g of carbon dioxide per kilowatt-hour, which allows unabated gas and planning to build as many as 40 new gas-fired power stations, would blow a hole through our carbon budgets. It would leave consumers vulnerable to price shocks and rising bills. It would put investment in clean energy and the jobs and opportunities that come with it at risk. It would leave us, as a country, exposed to a wide range of risks over which we would have little or no control. A second dash for gas is not the basis for a secure energy policy for the future.

David Mowat (Warrington South) (Con): On that point, will the right hon. Lady give way?

Caroline Flint: I will not give way to the hon. Gentleman.

Instead, we must shift our economy away from its dependence on fossil fuels and build a new low-carbon economy. But the hard truth is that the UK is now falling behind with green growth. Research by Bloomberg New Energy Finance shows that investment in renewable energy was half in 2011 what it was in 2009. Unless there is a remarkable upturn in the final quarter, investment will be lower this year than last year. The respected Pew Environment Group agrees. According to it, when Labour left office the UK was ranked third in the world for investment in clean energy, but today we are seventh. Figures published only last month from Ernst and Young paint the same picture. Its research on attractiveness for investment in renewable energy suggests that we have now fallen to sixth place, slipping below France, a country that generates nearly 80% of its electricity from nuclear.

The challenge for this Bill was obvious: to provide a clear policy framework to encourage investment in new, clean sources of energy. We know—this is very positive—that there is money out there to be invested in renewable energy, but unlocking it requires clear signals about the long-term direction of public policy. What the Bill needed was a commitment to decarbonise the power sector by 2030, because that is not only the most cost-effective way to meet our climate obligations, but the best way to protect our economy and consumers from volatile international gas prices and to attract long-term investment in new jobs and industries.

Of course, we have the levy control framework and the EU renewable energy target, which are already in place, but both will come to an end in 2020. For firms such as Vestas, Siemens and Areva—major energy and engineering businesses with operations all over the world—investment horizons extend well beyond 2020. For a business considering opening a new plant or

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factory, to justify the costs and the lead-in time they need to know what the order book will look like in 10, 15 or 20 years’ time.

So why have the Government failed to include in the Bill a commitment to decarbonise the power sector? Three reasons have been provided, so let me deal with each in turn before taking another intervention. First, the Secretary of State claimed that he did, in fact, want to set a target next year but was blocked from doing so by the Conservatives. Last month he told the Guardian:

“I wanted to set the decarbonisation target in 2013-14. The Conservatives wanted to wait”.

But the Minister of State, Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker), told the House last week that there is

“a unanimous view among DECC Ministers”—[Official Report, 13 December 2012; Vol. 555, c. 437]—

on the Government’s decarbonisation policy. Both statements cannot be true.

The second reason that has been given is that it would not make sense to set a target until 2016 because that is when the fifth carbon budget, which covers 2030, is set. That is a smokescreen. The view of the Committee on Climate Change is absolutely clear: decarbonisation of the power sector by 2030 is not only crucial to the 2050 economy-wide emissions target, but the most cost-effective way of achieving it. That was its view in 2008 and that is its view today. The suggestion that for some as yet unknown reason that will not be its recommendation in 2016 is not only wrong, but disingenuous. It is disingenuous because we all know the real reason why the decision has been put off—because the coalition wants to have it both ways. The Liberal Democrats want to insist that a target is just around the corner, and the Tories do not want to have to admit that, if they were ever elected on their own, they would have no intention of setting a target to clean up Britain’s power sector by 2030.

As I said in the House last week, if I am wrong and if there are good reasons for waiting until 2016 before setting a target for 2030, there is nothing to stop the Government setting an interim target before then. The third and fourth carbon budgets have already been agreed and they run until 2027. Why not set a target for 2027, 2025 or even 2022? There is simply no good reason for putting the decision off for another four years. Ministers have to understand that any delay in setting a target does not just fail to reflect the urgency of the situation that we face, but will make it more difficult and expensive to achieve.

The third excuse that we have been given is that we already have too many targets, but the exact opposite is true. Between 2020 and 2050, there are no more targets for cleaning up our power sector—no benchmarks or staging points along the way. For investors, there is no certainty about what contribution the Government expect renewables to provide for the overall energy mix beyond 2020. If there is no certainty, why would firms choose to invest here when plenty of other countries are competing for investment?

Mark Reckless: Under the Government’s proposals, one thing that is pretty certain is that, on average, electricity bills will go up by about another £100. Will

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the right hon. Lady explain how much more electricity would go up by if she tried to ensure that electricity was produced without any carbon at all?

Caroline Flint: I could not have had a better intervention; I am just moving on to how we can reform the market to get fairer prices.

At a time when we are asking consumers to underwrite tens, if not hundreds, of billions of pounds to pay for the investment that we need, we must have an energy market that delivers fair prices. For the first time ever, the average annual energy bill has now hit £1,400—up by nearly £300 since the last election. Just this week, the Government’s own advisers on fuel poverty warned that unless Ministers change course, another 300,000 households will fall into fuel poverty this winter and up to 9 million people could be in fuel poverty by 2016.

From what the Secretary of State has said today and in the past, I think there is agreement across the House that Britain’s energy market needs to be more transparent, competitive and liquid if it is to work in the public interest. Having identified the problem, however, the Bill fails to do anything about it. As far as I can see, there is no provision to increase transparency; of 126 clauses, only one—clause 34—even addresses the issue of liquidity in the energy market, and even that clause does not propose concrete action. All it provides is a back-stop power, a measure of last resort, with no information about how or when the Government would actually use it to encourage market participation or improve liquidity.

The Bill could have scrapped the old model of unaccountable markets and secret deals and created a new, open, competitive market for energy by introducing a pool. I know that the Secretary of State has been hostile to the idea of a pool, simply because it did not work in the past, but the market has changed. When the pool was last in operation, there were effectively just two generators and the pool was one-sided with only generators placing bids. Today there are many more generators, so the issues we saw with the dominance of National Power and PowerGen in price setting would be much less of a problem—particularly if the pool were two-sided and both buyers and sellers could bid into it, as happens with the Nord Pool in northern Europe.

A pool would have three clear advantages over the current market arrangements. First, it would increase transparency. At the moment, no one really knows the true cost of energy because most of it is bought and sold through bilateral trades that are never made public. If all energy had to be traded through an open pool, those secret over-the-counter deals would end, companies would no longer be allowed to self-supply and we could establish a robust market reference price. If energy companies tried to blame wholesale costs for putting up bills, we would be able to see for ourselves whether that was true. When setting strike prices and reference prices for contracts for difference, as proposed in part 1, we would be in a much stronger position to set the right price, which will be vital to ensure that consumers get a fair deal.

The second advantage of a pool is that it would increase competition. If energy companies had to sell all their generation and buy all their supply through an open pool, anyone could compete on price to generate power or sell it to the public. This would encourage new

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entrants to enter the market, provide fairer access for independent generators and community and co-operative energy schemes, increase competition and put a downward pressure on prices.

Thirdly, a pool would increase liquidity. We hear a lot about liquidity, but all it really means is whether the market is providing the things that people want to buy. While there have been some improvements in liquidity on the day-ahead market, one of the biggest barriers to effective competition is the lack of liquidity in the forward market. In order to compete, firms need to be able to buy energy a week ahead, a month ahead, a year ahead, or even further, to ensure that they are not over-exposed to sudden changes in the price of energy. However, many smaller suppliers struggle to get access to these longer-term contracts. The big vertically integrated companies are in a better position because they can, in effect, hedge their supply against their own generation. By introducing a pool, we would effectively ban self-supply, whereby energy companies can generate energy and sell it to themselves. If any company wanted a longer-term deal, it would have to secure it through the open market. What better way is there to improve liquidity than to insist that everything is sold in an open marketplace?

Alongside reform to the energy market itself, we must put in place a regulatory system that protects consumers. The views of the Opposition on the existing regulator, Ofgem, are well known. In our view, it has failed to use the powers that it already has to enforce its own rules. It has turned down new powers—on trading, for example—and time after time it has ducked the opportunity to get tough with the energy companies. Today I reiterate our policy: the next Labour Government will abolish Ofgem and create a tough new watchdog with the teeth to protect the public.

I recognise that that is not, unfortunately, the policy of this Government. Let me contrast their proposals on Ofgem with ours. Clause 117 will enable fines levied by Ofgem to be paid directly to consumers rather than going to the Treasury, as happens now. In itself, this is a perfectly reasonable change to make. Consumers who have been mistreated, not the Treasury, should receive redress. Over the past 10 years, the Treasury has received just over £30 million in fines from Ofgem. Evenly spread across all households, that works out at about 10p per household per year. However, according to research by the independent price comparison website, energyhelpline.com, the mismatch between the prices that energy companies pay for the energy they buy and what they charge their customers for it means that last year alone consumers could have missed out on savings of over £1 billion pounds—more than £50 per household.

The real issue is not about a redress framework for when companies get caught out misleading their customers or putting people on the wrong tariff but about creating a fair market in the first place. The first solution is to make the market more competitive and transparent, which our proposal for a pool would do. Given the dominance of the big six energy companies, their huge regional market shares, and the low numbers of people switching supplier, the second solution must be to create a regulator with the power to correct the existing market failure and force the energy companies to pass on savings to consumers when wholesale costs fall.

This Bill must provide a pathway to the world we hope to pass on to future generations. It must put the consumer first, providing the fair prices and fair dealing

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that they have demanded for too long, with a guard dog for a regulator, not a poodle. It must stand up to the energy giants, providing the means and the will to make the energy producers the servants of our nation, not its masters. It cannot be a fudge to hold together disparate factions of the coalition until an election; it must be a roadmap for our nation’s destiny beyond our own lifetimes. I urge this House not to pass a law that is forgotten in a few years but to pass the legislation that we need and of which future generations will be proud—legislation for one nation, but for many generations ahead. I commend our amendment to the House.

4.14 pm

Mr Tim Yeo (South Suffolk) (Con): I draw attention to my entry in the Register of Members’ Financial Interests. In this context, I point out that my passionate conviction that more urgent action is needed to address climate change and to cut greenhouse gas emissions from both the energy and transport industries was formed in 1993, when I had ministerial responsibility for these issues, and that the financial interests listed in the register were all acquired more than a decade later, after I left my party’s Front Bench.

I welcome the Bill, although its introduction is overdue. To keep the lights on, Britain needs huge new investment in generation and transmission capacity. To make energy costs affordable, we need a step change in energy efficiency and improved competition in both the wholesale and retail markets. To achieve our carbon emissions reduction commitments, we need the right incentives for low-carbon energy.

I welcome the Government’s acceptance of some of the recommendations made by my Committee—the Energy and Climate Change Committee—particularly the inclusion in the Bill of the aims of electricity market reform and the change to the counterparty arrangements for contracts for difference. I regret, however, that the Bill still needs Government amendments, particularly in relation to energy efficiency, which should be right at the heart of energy policy, not an afterthought tacked on under pressure from outsiders.

Obviously, I cannot deal with the whole Bill in the space of six minutes, so I will stick to a few headlines. To secure investment at the lowest cost to consumers, absolute clarity of policy is needed. That clarity does not exist if different Government Departments put out different messages or, even worse, if different messages emerge from within the Department of Energy and Climate Change itself. Mixed messages create uncertainty.

Investors seek higher returns to compensate for the extra risk of investing in long-term assets in a country where energy policy appears to be subject to short-term changes. That is one of the reasons we need a carbon-intensity target in legislation. The need for that target is supported by my Committee, by the Government’s statutory adviser, the Committee on Climate Change, and by a large number of companies. It is even accepted by the Government themselves, but they will not decide what that target should be until 2016.

Delaying that decision for four years leaves investors wondering whether energy policy will be based on the gas strategy, which envisages a possible increase in the fourth carbon budget and the construction of 37 GW-worth of new gas-fired power stations, or on the energy mix rightly favoured by the Department. Running 37 GW of

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unabated gas at more than a third of its potential would end any hope of cutting carbon intensity from electricity generation to even 100 grams per kWh, let alone the 50 grams per kWh advocated by the Committee on Climate Change.

Dame Joan Ruddock: Does the hon. Gentleman agree, like me, with the finding by the Committee on Climate Change that, largely as a result of the rising price of gas, a virtually carbon-free sector by 2030 would cost consumers £23 billion less than relying predominantly on gas in the 2020s? It is, therefore, of huge benefit to consumers, as well as to companies that want to invest.

Mr Yeo: I noted the views of the Committee on Climate Change with great interest. I also note that, up to now, both Government parties have accepted its recommendations without alteration.

Deciding the intensity target now, or even in 2014, when the fourth carbon budget will be reviewed, would helpfully clarify the position. Alternatively, emissions performance standards could be amended to curtail the operation of unabated gas plants after 2030, instead of allowing grandfather rights for those power stations until 2045.

I stress that my Committee was one of the first to call for Britain’s shale gas reserves to be exploited, but basing energy policy on the assumption that Britain has decades’ worth of cheap, recoverable shale gas reserves before a single flow test has been completed in this country would be reckless. Shale gas is a game changer in America, but there is no certainty that similar benefits in the UK would be so dramatic. Therefore, particularly as a result of high transport costs, the price of gas in both Europe and Asia may be significantly different and possibly higher than that in America for decades to come. Gas will and must play an important part in our energy mix, but we need low-carbon technologies as well. Carbon capture and storage has huge potential benefits, but there is no guarantee that it will be available at an economic price.

The model in DECC’s “Pathways to 2050” helpfully shows how hard it will be to achieve emissions reductions without new nuclear power stations. To bring new nuclear and other low-carbon technologies forward, we need clarity on strike prices. I accept that, initially, strike prices must be set centrally, but I hope that we can move to an auction system before too long. Auctioning would allow the benefit of cost reductions in the more mature low-carbon technologies to be captured for the benefit of consumers much more quickly than if strike prices are decided centrally in perpetuity.

Turning to energy efficiency and the demand side, we must be hard-headed about value for money. I commend the success in energy-rich Texas where, on some days, 30% of the electricity is generated by wind power without any subsidy at all. As has been shown in Texas, demand-side measures can reduce the need for capacity market payments, even if they do not eliminate that need entirely. Better incentives for electricity storage or a bigger strategic reserve are other ways of addressing problems of capacity and peak demand. I hope that the Government amendments will reflect the most cost-effective way of tackling those issues.