UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1605-ii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

ENERGY & CLIMATE CHANGE AND ENVIRONMENTAL AUDIT COMMITTEES

SOLAR POWER FEED-IN TARIFFS

THURSDAY 1 DECEMBER 2011

CHLOE SMITH MP AND JONATHAN MILLS

Evidence heard in Public

Questions 147 - 253

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Oral Evidence

Taken before the Energy & Climate Change and Environmental Audit Committees

on Thursday 1 December 2011

Members present:

Mr Tim Yeo (Chair)

Peter Aldous

Dan Byles

Katy Clark

Barry Gardiner

Zac Goldsmith

Mark Lazarowicz

Caroline Lucas

Sheryll Murray

John Robertson

Laura Sandys

Joan Walley

Dr Alan Whitehead

Simon Wright

Examination of Witnesses

Witnesses: Chloe Smith MP, Economic Secretary to the Treasury, and Jonathan Mills, Deputy Director, Energy, Environment and Agriculture, HM Treasury gave evidence.

Q147 Chair: Good morning. Thank you very much for making yourselves available for this joint meeting of the two Select Committees. You will be aware that there is considerable interest in the energy industry in the decision to consult on revisions to the feed-in tariffs, so there is a lot of interest in what you have to say. We had the opportunity of questioning Greg Barker on Tuesday afternoon, so you are very welcome here.

To begin, can I ask what role the Treasury has in setting feed-in tariffs and how you work with DECC when they come to be reviewed?

Miss Smith: Certainly. If I may, I will take a few seconds to give an introductory statement as well. I very much welcome the Committee’s inquiry. As you have said, the Committee has heard from Greg Barker and DECC officials as well.

In answer to your question, DECC is, of course, the lead Department on this policy. Treasury’s role is to work with it to oversee and agree overall parameters for the work in a financial sense, including the overall budget available in the levy-control framework. It is then the Department’s responsibility to design and implement policy within those parameters, and I am sure you had a chance to put questions of detailed policy design to DECC earlier in the week, rather than necessarily putting them to the Treasury.

The only other introductory point that I would like to make is to echo some of what Mr Barker said earlier this week. The Government are acting to ensure that policies are sustainable, affordable and good value for money. Of course, there are a number of factors going into the consultation at present.

To go further into your question, Chair, I think that as in any area of public spending the Treasury has worked closely with DECC to set overall limits on, first, spending in the spending review process in this case and, secondly, more recently and over time, on the levy-control framework as those policies have progressed. There has, of course, been interaction at official level at various points in this episode, as well as ministerial interaction.

Q148 Chair: The verbal transcript will pick up what I am sure was not a Freudian slip on your part, when you said that the Treasury’s role was to oversee. You then changed that to a different interpretation. Certainly the impression of some people in the industry is that it is, effectively, Treasury oversight. Whether that is the case or not, one of the areas of criticism is that DECC has perhaps reacted rather late in the day to what was clearly an unsustainable level of feed-in tariff for small-scale solar power. The problem of this rushed consultation that we are now in would have been averted if that trend, which, on the basis of the figures that we were shown, was certainly apparent by July and August time, had been picked up earlier. In light of that, has the Treasury been involved in any of the modelling work that DECC has done to look at new rates for solar feed-in tariffs?

Miss Smith: If I may, first of all, I emphasise that it was, of course, a slip of the tongue. I fully intended to say the word "overall", rather than "oversee", as I did on the record there.

In broad terms, your point is correct. It would have been very desirable to have acted sooner on this. Mr Barker said earlier in the week, on reducing the generosity of the scheme and slowing roll-out to more sustainable levels, "My only regret is that we didn’t do this earlier." On specific modelling, I should introduce Jonathan Mills, who is sitting next to me and who may be better able to answer that question. If you will forgive me, I have only been involved for six weeks.

Jonathan Mills: In terms of the modelling data that the DECC Minister and officials presented on Tuesday, the pattern of increase above expected levels became apparent over the latter part of the summer. As I think the permanent secretary pointed out, one of the questions that they then sought to address was whether that was a product of a seasonal variation or an ongoing trend; it turned out to be the latter. They are seeking to improve their forecasting data, and we will work closely with them on that. In fairness, some of the most difficult things to forecast are policies that are in a very early stage, where the market is developing fast and where both cost data and behavioural responses make it particularly difficult to predict.

Q149 Caroline Lucas: I wanted to follow up on what the Minister just said, quoting the DECC Minister, who last time, as the Minister has rightly said, said, "My only regret is that we didn’t do this earlier." One of the real mysteries for the Committee is precisely why the Government did not act sooner. When I put that as a question to one of the witnesses on Tuesday, we were told that the whole of the FiTs cap was based on a spreadsheet that nobody in the solar industry was ever consulted on. I have the spreadsheet here. It is four sides long. It does not look like a comprehensive piece of work, and it also came with massive health warnings. It kept saying, "This is a spreadsheet on which we are going to set the FiTs cap, but we really don’t know how it will be taken up in the next few years." Can she confirm whether the Treasury had any input into this spreadsheet? Was it really the case that the FiTs cap was fixed on the basis of, more or less, a four-page or five-page spreadsheet?

Miss Smith: First, I repeat that DECC’s responsibility is the detailed delivery. As I have said, the Treasury is responsible for working with DECC on the overall spending envelope. Again, if you will excuse me, I will refer to my officials to help answer the question.

Jonathan Mills: The discussions at the spending review were informed by official-level discussion of the modelling. The numbers that are agreed for forecasting are also subject to scrutiny by the Office for Budget Responsibility, because they are reflected in its overall forecast numbers.

Q150 Caroline Lucas: Did the Treasury itself have any input, scrutiny or comment on the spreadsheet?

Miss Smith: Personally, I am not aware of that. As I have said, I have been in this role for six weeks, so I am unable to answer in that context.

Q151 Caroline Lucas: Can you find out, because it is quite important? If a decision was genuinely taken, as the solar industry is telling us that it believes that it was, on the basis of an inadequate, highly caveated and speculative spreadsheet, it is very important to know what scrutiny the Treasury made of that spreadsheet. I appreciate that the Minister has only been in place for six weeks, but if we could get an answer on that as soon as possible it would be immensely helpful.

Miss Smith: Chair, I will be happy to do that.

Q152 Joan Walley: Just to add to that, we have had assurances, following the Government’s decision to get rid of the Sustainable Development Commission and in terms of decision making that involved the Treasury, that DEFRA and the Secretary of State at DEFRA would have an input into these cross-cutting decisions. I just wonder whether or not you could set out for us, from the Treasury’s perspective, what input at that high level has come from the Secretary of State at DEFRA.

Miss Smith: My understanding, in terms of the decisions that were taken that have led to this consultation, is that there were Cabinet Committee-level write-arounds involved, in which, no doubt, DEFRA would have-

Q153 Joan Walley: Sorry, Cabinet Committee-

Miss Smith: Cabinet Committee-level write-arounds, so specifically the Economic Affairs Committee, in which Cabinet colleagues of the Secretary of State for DECC would no doubt have views.

Q154 Joan Walley: Right. It would be very interesting for us actually to have details of the input from the Secretary of State at DEFRA on this specific issue. Could we have that as well, please?

Miss Smith: I don’t know whether I am able to promise that to you, as I am neither in the Cabinet nor in that Department, but I am sure that I could look into whether it is possible to get that for you.

Q155 Laura Sandys: We have had evidence from the solar industry itself and there have been lots of figures bandied around about job losses. When one is looking at a policy change and a policy decision, to what extent has the Treasury actually made what I call a proper balance-sheet assessment, or impact assessment, of the changes in the FiTs in terms of job losses or in terms of VAT, which is obviously a good revenue stream for the Treasury, when signing off this change-I suppose the Treasury does that, in many ways-in renewable subsidies?

Miss Smith: I would refer to the DECC impact analysis, which I believe these Committees have seen and spoken about earlier in the week. I understand that that analysis assessed the impact of these changes, consistent with the usual agreed approaches to both economic and fiscal factors. I would also cite the figure from that analysis, which is that the change in tariff is expected to have a net benefit to the economy of £9.3 billion.

Q156 Laura Sandys: Right. What is the assessment of job losses that the Treasury has made on that basis?

Miss Smith: Industry has cited some fairly large figures, such as 25,000, I believe. DECC’s figures suggest that only 14,000 full-time equivalents are currently employed in the sector, so I feel that the 25,000 figure looks slightly unfeasible compared with that.

Q157 Laura Sandys: But we are talking about the losses and not just the current employment.

Miss Smith: Indeed, but you can’t lose 25,000 jobs if you only have 14,000 jobs to start with. I think that is the point.

The Treasury’s interest in this is to try to get to an understanding of the difference between what you might call net and gross jobs. That is to say that, if you take action to control an unsustainable stream of spending, yes, by all means there are jobs and economic activity connected with that stream, but there are other areas of the economy which you then expect to benefit. In this case, we believe that will be greater than that stream that we are stopping, so therefore we expect this change, as I have cited from the DECC impact analysis, to have an overall net benefit to the economy.

Q158 Laura Sandys: That is obviously not what the solar sector itself feels. Have you looked at the overall effect on the economy from the proposed lower tariffs, perhaps taking account of those lost revenues in addition to that. Has the Treasury done any of its own assessment, or has it merely taken up the DECC impact assessment?

Miss Smith: As I have said, the Treasury has an overall responsibility for discussing the spending framework with DECC, but DECC will be responsible for the detailed implementation, which in this case would include the impact analysis.

Q159 Laura Sandys: Did it question the impact assessment, input any other data or add to the assessment that was put into this, or did it just accept it, sign it off and say, "Fine, whatever the Department has come up with is totally acceptable"? In other words, is that oversight or input?

Miss Smith: Can I ask Jonathan to answer that?

Jonathan Mills: The DECC impact assessment was conducted on the basis of agreed procedures and agreed guidelines across Government, which include how economic impacts are assessed. So, for example, in relation to assessing jobs impacts, differentiating between the gross jobs impact-the DECC impact assessment cites a figure for gross jobs impact-and the net impact on the economy as a whole, the latter takes into account the effect on jobs outside the solar sector of the energy costs being lower than they otherwise would have been and so an increased level of economic activity and an increased number of jobs outside the solar sector. The same argument applies to tax revenues. On that basis, the DECC impact assessment is consistent with the agreed approach across Government.

Q160 Laura Sandys: So it would be best to get rid of FiTs altogether? If you took the feed-in tariffs away altogether, would you get more jobs? That is the extrapolation of it.

Miss Smith: The political commitment to feed-in tariffs overall is clear. This programme has overall benefits, which have been laid out along the line here and by the previous Government. This is not new as of 2010. So, yes, we believe that proceeding with feed-in tariffs overall is of benefit, and we would hope that it assists not only at a household level but towards the growth in the green economy that we wish for this country.

Q161 Zac Goldsmith: I am interested in the £9.3 billion net figure that you have cited. I assume that in order to reach that figure you would have had to have had agreement between the Treasury and DECC on the extra costs to consumers of sticking to the April deadline, so I would like to know, just for the sake of clarity, what you think that cost would be. Somehow you would have to subtract from that an estimate of what would be lost in revenue, jobs, and so on, and, leading on from the question that Laura has just asked, I wonder whether you can put a figure to that. I assume that in order to reach that £9.3 billion figure there must be consensus on those two figures. That was an issue of some contention in our previous session, where certainly I was unable to reach any kind of clarity on the figures, so I hope that you can help us with that.

Miss Smith: I shall do my best. My understanding is that the DECC impact assessment estimates that doing nothing would lead to additional lifetime costs of £37 billion-no doubt that is already known to you. To put that a couple of other ways, that would equate to £9 on bills in 2015 or £26 on-

Q162 Zac Goldsmith: Can I interrupt you for one second? I think there is also consensus that the choice is not between this and doing nothing; the choice is between holding out until April at current rates and then reducing to 21p, which I think the industry accepts, or bringing it forward to December. So, if there is a choice between the two, what would be the cost of introducing the 21p rate in April? That is the figure I am looking for.

Miss Smith: Can I give that as a weekly figure, which I think is rather interesting? I understand that each week of delay has a lifetime cost of around £275 million. This being a consultation, both the rates and the dates are not yet set, although reference dates are given. The arithmetic will be done on that figure of £275 million.

Q163 Zac Goldsmith: For the record, I am not in a position to contest those figures, but it would be really useful if, in the shortest possible time, we could have a grid provided by the Treasury explaining how you reached those figures, again on the acceptance that there is consensus on the need to come down to around 21p by April. It would be really useful to have the Treasury’s accepted figures on that, because without them it is quite hard for us to take a view.

Miss Smith: As I have said, the Treasury has an overall interest in the framework of this, but it is DECC’s impact assessment, so I suspect that that question should be directed there.

Chair: There is a degree of collective responsibility here. If you are saying that the lifetime cost of delay is £275 million for every week at the present rate of feed-in tariffs’ extent-I think that is what you said-whether that is based on data generated in DECC or the Treasury is not of any concern to us. What we would like to see is the basis of the calculation. I happen to think it is also in the Government’s interest to publish that, because it would restore confidence in their arguments. We are not taking a view at this stage either way, but we would like to understand the basis on which the figure is calculated. We are quite happy if you want to pass that on when you walk back to the Treasury today and get the Department to answer it. Whichever Department does so, I genuinely think it is in your interest to have that published in detail.

Q164 John Robertson: Can I ask for clarification? That works out at roughly £3.5 billion, which cannot be right, between now and April. If it is £275 million a week extra cost, that works out at just over £3.5 billion between now and April. Surely that cannot be right.

Miss Smith: Those are lifetime costs; does that help?

Laura Sandys: It is the lifetime, because it is 25 years. Every contract that is signed has a liability of 25 years.

John Robertson: So it is even more? If it is £3.6 billion for five months-

Sheryll Murray: No, over 25 years.

Q165 Zac Goldsmith: I want to explore that a little bit, because I agree with John Robertson that I do not think that is possible. We have been told, and I think DECC agreed, that the extra cost of delaying until April was between 60p and £1 per consumer. I think that was the figure that was raised, although I am willing to be corrected. If that is the case, you would be looking at between £12 million and £20 million additional cost on the back of this delay per year. If you multiply that by 25 you are nowhere near the figure that has been cited. I think it is impossible for us to take a view on this without absolute clarity on those figures. It seems that the more we delve into the figures, the more confusion there is. I hope there is clarity at the Government level and I hope you can commit, from whichever Department, to providing that clarity, because our job is a lot more difficult without it.

Miss Smith: May I direct members of the Committee, if they have not already seen them, to the tables on pages 19, 20 and 21 in the impact assessment?

Q166 Dr Whitehead: Table 14 on page 21 of the impact assessment, which was signed off on 2 November so it was presumably reasonably accurate at that point, sets out the cost to consumers of lower tariffs with the 1 April eligibility date. It puts those costs at £110 million in 2011-12, £270 million in 2012-13, £280 million in 2013-14 and £290 million in 2014-15. By the end of the present spending period, therefore, that cost would be £950 million, compared with the levy cap budget revised total of just more than £1 billion for the same period. That information was supplied to the Committee by DECC immediately before the Committee’s last meeting. At first sight, it appears that the cost to customers is less than the total levy cap over the period to 2015. It may be that the figures that you have been suggesting are the entire lifetime of the cumulative commitments entered into as far as tariff payments are concerned, but they certainly do not appear to accord with what is in the impact assessment or indeed the material that DECC has supplied to the Committee. Are you able to shed any light on that?

Miss Smith: I note that the levy control framework line item for the FiTs budget is £357 million in 2014-15, which I do not believe I heard you mention.

Q167 Dr Whitehead: I was talking about table 14, not the budget. Table 14 shows the estimated costs and benefits of lower tariffs with the 1 April eligibility rate.

Jonathan Mills: To clarify, the numbers in the impact assessment are calculated on a standardised basis for all impact assessments. That includes deflating the costs for future years to take inflation into account, so they are in real terms rather than nominal terms, and also discounting in line with the general guidance on applying discount rates. The numbers in the budget, in line with the reporting to Parliament, are nominal terms and undiscounted numbers. That is the first reason why the numbers in the impact assessment are reporting on a lower basis. They deflate over time.

Secondly, the numbers in the impact assessment only refer to spending on the solar PV part of the feed-in tariff scheme. They don’t refer to the costs of other technologies.

Thirdly, I should probably mention what the DECC officials said on Tuesday about the data that they have been receiving since the impact assessment was formulated, which show that the deployment rates, even before their announcement, were escalating faster than some of the data in the impact assessment.

Q168 Chair: In the light of that, it would be helpful if you got together with your colleagues at DECC and gave us an updated estimate of what you think the difference in cost is between a line scheme to run on until April and cutting it off the week after next, which is the proposal in the consultation, rather than using up the rest of our session on this point. You know what information we want. I am sure that between you and DECC, you can produce it in the next day or two. It would be helpful to us and, I think, to the Government’s own argument.

Barry Gardiner: I heartily endorse that. Perhaps those figures should not include any spiking that has occurred as a result of the anticipation of the scheme closing, because that would, of course, be illegitimate on the Treasury’s part, as I am sure you appreciate.

Minister, have you seen the letter from Stephen Wiles at the Treasury to Lee Nicholson of the EAC dated 23 November?

Miss Smith: Yes, I have.

Q169 Barry Gardiner: Good. I did not want to ask you about something that you might not have had sight of. It says that you will be coming to discuss the issue on 1 December and will answer our further questions then. Here you are, and here they are.

In the answer to the first question, on the words "the agreed totals within the levy control framework reflect a judgment on affordability", can I get clarity from you as to affordability for whom? Is it Government affordability that we are talking about? I just want to be clear. I do not want to put a meaning on those words that they do not actually possess.

Miss Smith: Affordability in that sense clearly has a meaning for the Government-it would be wrong of me to deny that-but also, by nature of their being levies on bills and the way in which these policies impact on consumers, of course the phrase has a meaning there as well.

Q170 Barry Gardiner: Absolutely. It is good that you have teased that out, but you believe that in this context, particularly given that Mr Wiles goes on to say "value-for-money in this area and in relation to other areas of public spending", are we talking about affordability from a public spending point of view?

Miss Smith: Yes.

Q171 Barry Gardiner: Good. Can you tell me why?

Miss Smith: I beg your pardon.

Q172 Barry Gardiner: Can you tell me why it is about affordability for public spending? You rightly pointed out that the people paying for this are not taxpayers and the Government; it is actually the consumer, on their energy bills.

Miss Smith: Certainly. If I may, I will answer this in two halves. One is to ask Jonathan to go into the more technical definition of the ONS categories used in this case.

Q173 Barry Gardiner: Can I just caution you before you do? The written evidence submitted by the ONS-excuse me for quoting it-says: "The Feed-in Tariff Scheme is one of eight regulatory schemes that the National Accounts Classification Committee have been asked to give a formal decision on. In order to maintain consistent treatment across member states in the National Accounts individual schemes have been discussed in Eurostat, the Feed-in Tariff scheme has not been discussed. ONS has requested that a more general decision on treatment of levy-funded subsidy schemes is agreed by member states, which will allow ONS to classify all such schemes." At the moment, however-this is not a quote, rather I am paraphrasing the last part-they have not given a ruling on this, so I do not think that you can pray the ONS in aid of your position, because it has said very clearly that it does not have a position on it yet. Indeed, you will be aware-at least, I am sure that Mr Mills will be aware-that the European Court has ruled on a similar situation in Germany and found that these climate-levy funds do not have to be considered as part of the Government balance sheet.

Given those cautions-I am trying to be generous to you and not allow you to stray into areas that you may regret later-can you then explain why?

Miss Smith: I am aware of the ONS position and have no disagreement with it here in front of the Committee. It is the case that it is yet to proclaim in that area, and we are aware of that.

The more general point that I would make about this category of expenditure is that there is clearly a broader economic impact-perhaps some of the elements that Mrs Sandys was discussing-which I think rightly means that the Treasury would have an interest in the overall level.

Q174 Barry Gardiner: Sorry, Minister. The issues that Mrs Sandys was quite rightly discussing were about wider jobs and growth and of course that affects the Treasury, but this is not what Mr Wiles said here in response to question one, is it? What it talks about is a judgment on affordability. Have you got the money? You talk about it as public spending. Why are you talking about it as public spending when the European Court has ruled that it need not be public spending and when the ONS has yet to give any ruling to you on it? You are still considering this as public spending.

At any stage before this scheme went for review, did any of your officials say to DECC that you were concerned about affordability from a public spending point of view? Was that what precipitated this bogus consultation and the decision to end the scheme at the current tariffs on 12 December?

Miss Smith: I shall ask Jonathan to answer that, as he is one of the officials engaged in this area, with a few further points from me to answer your previous question on affordability specifically. First, it is fair to say, as I already have done, that affordability has to apply to households as well. Our cost decisions, to which I referred, are relevant to our previous discussion. So there is a household impact, which I think comes under the heading of affordability. I think that is valid. There is also the very important point that none of this is free money, wherever it comes from. It is all money that, by consumers’ or others’ choices, can be spent elsewhere in the economy. In that sense, the Treasury of course takes an interest. May I now ask my official to go further on the two specific points that were raised?

Jonathan Mills: In terms of the time line and the process here, Ministers agreed, at the time of the spending review, the scope that the levy-control framework would cover. That decision was consistent with the purposes that are set out for the framework in the document that is available on the DECC and Treasury websites. In terms of the specific question around ONS classification, the ONS has not yet taken a view on this. Ministers took the view that they needed to make a judgment about where they thought that classification was likely to come out. That judgment was made based on information from decisions that the ONS has already made and its description of the factors that it takes into account in determining whether something counts as tax and spending, which, in its terminology, it talks about as something being compulsory and unrequited and a transfer of resources, which are conditions that seem to be fulfilled by the feed-in tariff scheme.

Q175 Barry Gardiner: Grand. Thank you, that makes things clearer. Mr Mills, you have established that the Treasury at least regards this quite clearly as public spending in advance of a ruling by the ONS, and in defiance of a ruling by the European Court. That is helpful.

What I am less clear about is why you should find that there are concerns about the judgment on affordability, because, of course, Mr Wiles goes on to say in his response to question 2: "The spending on policies included in the levy-funded spending cap does not have a direct impact on the deficit to the extent that revenues match spending." Even though I would disagree with you about whether it should be regarded as public expenditure, you have taken that decision and that’s fine; you have then to operate within it. However, given that you said it is public spending, why are you concerned about its affordability, given that the income matches the outgoing?

Miss Smith: Because, as I say, of the other half of the question of affordability, which is that on the consumer-

Q176 Barry Gardiner: No, no, no. I’m sorry, Minister. That really won’t do, because the affordability, you have agreed, is in the context of public spending. I’m sorry, but you cannot just switch tracks like that and jump across.

Miss Smith: With respect, I thought my earlier answer acknowledged that there were two sides to that coin.

Q177 Barry Gardiner: For my own part, I would ask you why poor people who cannot afford to put these things on the roof should be subsidising rich people to do it. However, that is not the issue here; that is a fundamental philosophical issue with the whole scheme.

The question here is, why is the Treasury feigning concern about affordability of public spending, first, in defiance of the European Court’s ruling that it will not be public spending, and secondly, when it knows full well that the money it gets in is the same as the money it gets out, and therefore the issue of affordability does not arise?

Miss Smith: I am afraid I simply disagree. There is the need to act for those consumers who, in what you have just termed, I believe, as the principals of the scheme, have to bear the cost of all the decisions that are taken to install.

Barry Gardiner: Okay. I accept your argument then that this is simply a matter in which the Treasury was not concerned about the money that was coming out of public spending. The Treasury, in this one instance, was simply concerned about the effects on the poor consumer, or the poor bill payer, through the costs of this scheme. Thank you.

Q178 Dan Byles: There are separate caps for the feed-in tariffs, for the renewables obligation, and the warm homes scheme. How do you decide the appropriate level of those individual levy-funded spending caps?

Miss Smith: I return to the point I have been making in various places. The detail of that would be for DECC to do, and my understanding is that officials, at an official level between DECC and the Treasury, discuss such things, but that would be a question for DECC.

Q179 Dan Byles: DECC has now transferred some of the renewables obligation cap to the FiTs cap. In your understanding, given that you said this is a DECC decision and not a Treasury decision-but is a decision that I believe the Treasury needs to approve-was that done as part of a fundamental analysis of the requirements for both the renewables obligation cap and the FiTs cap, or was it done simply to stop the overall FiTs cap from being breached?

Miss Smith: If I may, I will answer that briefly, then offer Jonathan a chance to contribute. No formal request has been received by the Treasury to do so.

Jonathan Mills: To clarify how the framework operates here, the levy cap operates at an aggregate level. There are forecasts within that for expected expenditure on the different schemes. If the expenditure increases in one scheme and decreases in another, that is not necessarily something in itself that would need approval by Treasury Ministers, because it does not affect the overall cap level. I think you are asking about potential switches from the numbers recorded under the renewables obligation and those in the feed-in tariffs scheme. My understanding is that that is merely a classification change. It is not a change in the resources available for different activities; it is merely a correction of how some of that activity has been recorded.

Q180 Dan Byles: It is not a cap going forward; it is a recording of activity taking place?

Jonathan Mills: I thought I heard in your initial question-

Q181 Dan Byles: My understanding is that some of the individual levy-funded spending cap for renewables obligations has been transferred to the cap for feed-in tariffs.

Jonathan Mills: And my understanding of that point is that DECC has been considering changing how some of the activity is recorded, but that is not a change in the actual underlying activity-the actual installations on the ground-in being under one programme rather than another. It is merely a correction of how they are being picked up in the statistics; it is not a change.

Q182 Dan Byles: Thank you-that is helpful. Touching briefly on the point made by Mr Gardiner about affordability for consumers, your submission tells us that the tax and spend limits in the spending review are designed to reflect what are sustainable and appropriate levels-in this case, I believe, specifically referring to consumer bills rather than Government spending levels-but has the Treasury done any research into what level of energy bill supplements customers would regard to be sustainable and appropriate for FiTs? How are you making the decision that this is suddenly less sustainable, less appropriate or less affordable for customers?

Miss Smith: In my role as a new Minister, I have not seen such research in detail, so I shall ask Jonathan if there is previous work on that. In part, the answer to your question is there for all to see-if you are talking about £9 on a bill or £26 on a bill, you know as well as I do and as well as our struggling constituents do whether that is affordable or not. I am not sure of the need for a fuller analysis.

Q183 Dan Byles: So it is a wet finger in the air?

Miss Smith: No, the numbers will have been arrived at in a robust manner, but I think you were asking about whether those numbers are too high or too low, or costly or cheap. Of course, the cheapness of something is for the individual to have an opinion upon.

Q184 Dan Byles: But the Treasury has fundamentally changed the way the feed-in tariffs are working-to a great outcry from the industry-on the basis that this is going to be now unaffordable for consumers. There has to have been some sort of research into what is and is not unaffordable for consumers and over what time frame. You cannot just be looking at one figure and saying that it is bigger than another one.

Jonathan Mills: DECC has published, I think last week, its analysis of the impact of policies on bills, which gives an overview assessment and then, underneath those headline data, breaks down the impact of policies on bills. That provides the Government’s best assessment of the state of play.

In terms of the overall judgment about affordability, I come back to the arguments for why Ministers agreed that it was appropriate to cover these schemes in the spending review, which was because it informs an overall judgment about the fiscal affordability of the Government’s tax and spending plans. The money that is being spent through these schemes, paid for through energy bills, is economically equivalent to hypothecated tax and spending schemes, so the overall judgment on affordability would be one that was made as part of the fiscal judgment, in the form of the spending review.

Miss Smith: If I may further reinforce a point that was made earlier, a consumer who has not installed a solar panel on their roof-let us deal with a domestic case, although there are other examples-while somebody else has chosen to do so under this scheme, still runs some risk of exposure to that other consumer’s decisions. That is why there is this wider consideration of affordability and why it is not just a question of the choices made by consumers with solar panels.

One of the key points in the definitions used by the ONS is that of whether we can choose to have that spending or not. I underline the fact that, if we do not take control of the costs of the scheme, third parties are affected. In other words, those consumers who do not have the solar panel on their roofs may, through their connection to the same energy company as consumers who do choose to have them, have an impact on a third party. That is a realistic point, and that is why we take an interest in the overall affordability of the scheme.

Q185 John Robertson: Would the Treasury consider special dispensation for feed-in tariffs to take them out of the spending framework, thus removing the rigid levy-funded spending cap?

Miss Smith: That is not something that, in my short time as Minister, I have yet have the chance to consider, but I am sure that facts and figures relating to it can be considered.

Q186 John Robertson: Are you happy with the impact assessment, when you are dealing with it and reading it?

Miss Smith: Personally, yes.

Q187 John Robertson: Would you be surprised to hear that your colleague, Gregory Barker, was not?

Miss Smith: You may have to fill me in on what he said earlier to Committee.

Q188 John Robertson: Funnily enough, I can. He was asked about various things, and his answer was that the things were time dated and were only correct at the time, so they could not be used as up to date. My question has to be why are you happy with it, yet he is not? It is probably a rhetorical question. Perhaps you can discuss it with him. He said that the impact assessment is very reliable so far as it can be an economic document. He goes on later to say that it was right at the time. I am not sure whether something that was right at the time, given that we have moved on and had an autumn statement, can be relied on. Can it?

Miss Smith: I certainly agree with his view that it is a snapshot and, as such-

Q189 John Robertson: It is not be relied on then?

Miss Smith: It is snapshot and, as such, it has its uses. I also note that what is going ahead now is a genuine consultation, so there is an openness to good-quality data coming into that.

Q190 John Robertson: How did the autumn statement affect things?

Miss Smith: I do not believe that it did.

Q191 John Robertson: According to what is here, the autumn statement included further measures to help encourage growth. With FiTs, tax and spend not being part of the deficit reduction framework, is there not an opportunity to relax the cap-my first question to you-and give the economy a boost at a time when it really needs it?

Miss Smith: Certainly, the autumn statement was committed across many policy areas to giving the economy a boost but, in this case, I return to the point that DECC’s policy around feed-in tariffs is subject to a number of consultations at present, which is the guiding line of them.

Q192 John Robertson: My last question to you: will there be a new impact assessment?

Miss Smith: No doubt you would wish to ask DECC that question.

Q193 John Robertson: You wouldn’t suggest it to them?

Miss Smith: It would be a matter for DECC.

Q194 John Robertson: You have already said that you are really happy with this, and that you are happy to use it as evidence. I personally think that you don’t talk to each other.

Miss Smith: We talk to each other, but it would be matter for DECC for an impact assessment.

Q195 Joan Walley: Before we move on from Mr Robertson’s question, you just said that what is going ahead is a consultation. How would you, as a Treasury Minister, square that with the fact that decisions are being made in the industry that are making sure that there are certain outcomes ahead of the outcome of the consultation?

Miss Smith: I reiterate that it is a consultation, so in terms of the Government’s responsibility for these areas, they cannot control every single aspect of the economy. In this case, clear dates have been set out. There have also been clear questions proposed about the dates and the rates, and we hope for a mature response from industry.

Q196 Joan Walley: Do you not accept that it cannot actually be a consultation, because it is predetermining decisions about employment, and undermining investment decisions, which have already been made simply because contracts have already been honoured?

Miss Smith: I reiterate that a clear timeline has been given that enabled decisions to be made both by industry and by consumers.

Q197 Joan Walley: When contracts had already been entered into?

Miss Smith: My understanding is that many of those contracts are possible to fulfil. For example, in my constituency, I am well aware of fitters who are working six or seven days a week to do that. No doubt, you will be aware of such examples in your constituency.

Q198 Dr Whitehead: On the question of the impact assessment-as I think you are aware, it came out on 2 November and was signed off by the Minister then-you are clearly happy that that is an accurate picture of where matters were at that point. Can you remember the date that DECC informed you that it was taking the immediate decision that it did take to reduce the tariff in advance of the 12 April date, which would have been the case had the consultations run their course?

Miss Smith: If you will excuse me for just a moment, I am looking up that date because I would not have been the Minister due to the change-over time. I believe that, on 13 October, Chris Huhne wrote to the Economic Affairs Committee asking for agreement to publish the consultation on the first phase of the FiTs comprehensive review. After that, of course, there was a discussion, to which I have already referred, both at Cabinet level and official level.

Q199 Dr Whitehead: The date on the consultation was set. As far as I recall, the date for the announcement to be made by the Department-I assume you were aware of that-that it was going to reduce the tariffs in advance of the consultation was 29 October. Does that ring a bell?

Miss Smith: 31 October is the date I believe is relevant.

Q200 Dr Whitehead: Okay. That was the date when you understood that that process was to be undertaken? Is that right?

Miss Smith: 31 October was the date of the consultation.

Q201 Dr Whitehead: So, three days before the impact assessment came out. Is that right?

Miss Smith: As I have said, 31 October is the date of the consultation and, indeed, the date of the impact assessment is printed on the front.

Q202 Dr Whitehead: So, one might have thought the impact assessment would therefore be accurate at the time that that announcement was made, considering it was made before the impact assessment came out. Would that be fair?

Miss Smith: As I have already said, the impact assessment is certainly a snapshot. If that is the question you are asking?

Q203 Dr Whitehead: A snapshot that served to make a decision before it was published.

Miss Smith: No. Clearly, the work done to inform impact assessments is known to those doing the work before it is published.

Q204 Dr Whitehead: So those people making that decision would have been informed by the imminent publication of an impact assessment, which presumably would have been updated prior to its publication to make sure that the most accurate and up-to-date information was informing that decision?

Miss Smith: I beg your pardon, I am slightly unclear about the question you are asking. I assume you are asking me to comment on what appears to be a mismatch in date. Is that your line?

Q205 Dr Whitehead: That’s about right, yes.

Miss Smith: As I have said, the work done to inform an impact assessment is clearly known beforehand. I think it is the case that, within a consultation period, data will be published in the sense of an impact assessment. I do not think it is unusual to have that follow what I would call very shortly after a consultation period and, as I have already said to the Committee, in this case, that impact assessment certainly forms a snapshot. Is there any further detail, Jonathan?

Jonathan Mills: No.

Q206 Dr Whitehead: Okay, thank you. The levy cap that we have already talked about has within it what one might call a little wriggle room. The agreement that was drawn up with DECC states: "The acceptable headroom will initially be 20 per cent of the total cap."

Miss Smith: Yes. That’s correct.

Q207 Dr Whitehead: What is your understanding of how that headroom might work in terms of the operation of the levy cap?

Miss Smith: My understanding is as has been published within the levy control framework available on the Treasury website, which without a doubt is known here as well.

Q208 Dr Whitehead: For example, is it your understanding that if over the period of the spending cycle, any one horizontal line is exceeded by more than 20%, DECC has to take measures to put that back into line with its original agreement under the levy cap? Alternatively, is it your understanding that, in any one year, horizontally, DECC would, for example, have to bring its spending on a particular horizontal line into line with the 20% headroom?

Jonathan Mills: The levy cap operates on an annual basis. It is an annual figure.

Q209 Dr Whitehead: So it’s the latter. Is that right?

Jonathan Mills: It refers to spending in any given year, not to multiple-year periods.

Q210 Dr Whitehead: So overall spending on the various things in the levy cap, in any one particular year, would be within that 20% headroom?

Jonathan Mills: The 20% sets headroom for temporary deviations from forecast, and the levy framework distinguishes between those sorts of effects and trends or factors that have a potential impact on the overall long-term sustainability of the cap.

Q211 Dr Whitehead: You would presumably judge that by, as it were, the bottom line in each year as against the levy cap set out in the agreement, to see whether that 20% headroom had been exceeded or not?

Jonathan Mills: Does your question apply to the aggregate or the individual schemes?

Q212 Dr Whitehead: That’s what I was attempting to find out. Does it apply to the vertical line within a year?

Jonathan Mills: Yes. That’s correct.

Q213 Dr Whitehead: Therefore, the relevant figure would be the bottom figure within the cap matrix in each year? That is the total of the various items that are in the levy cap in that year. It should not exceed 20% of what has been agreed in that cap.

Jonathan Mills: The 20% allows for temporary variations up to the scale of 20% of the total cap for a year.

Q214 Dr Whitehead: But you wouldn’t, for example, regard that 20% excess as applicable to any one item within one year of that levy cap total?

Jonathan Mills: I think there are two slightly separate issues here. The 20% provides some temporary headroom for external factors that are causing the spending overall or in one area to be different from that which was forecast. DECC would also pay attention to the forecast trends in particular lines of spending to see whether they are sustainable and posing a threat to the integrity of the cap overall. If there were a circumstance where movement in one line of spending was containable within the 20% flexibility in one year, but still posed a structural risk in the longer term because there was an underlying trend that was not going to go away, the cap would suggest that action was needed at that point.

Q215 Dr Whitehead: But how would it judge, in the context of the requirement, as you have said, that the 20% is applicable to the bottom line within each year of the overall levy cap? It presumably has to set everything against everything else and then decide.

Jonathan Mills: It would look at all its forecast data together.

Q216 Dr Whitehead: But if, for example, in any one year, it was within 20% of that bottom line overall, you wouldn’t worry about that, from the point of view of the Treasury agreement?

Jonathan Mills: It’s important to distinguish between temporary, exogenous factors, which might lead to spend being slightly above profile in one year, and underlying structural issues that mean that, on an enduring basis, spending is going to be above the forecast, or that there is a trend that means that the cap is unsustainable. As the framework document sets out-

Dr Whitehead: The overall plan.

Jonathan Mills: In situations where spending in one area or overall poses a threat to the integrity of the cap overall, we would expect DECC to work to find ways to bring spending back within containable limits for the longer term.

Q217 Dr Whitehead: So, for example, if a budget line of about £100 million had such an overwhelming effect on an overall budget line within a year of £2 billion, you would worry?

Jonathan Mills: DECC would worry if it were in a position where one or more lines of spending were behaving in a way that led it to think that it was unsustainable in the longer term-that it either posed a threat to the cap as a whole or would mean that it had to make savings in other programmes that it did not think were appropriate.

Q218 Dr Whitehead: If DECC goes over that 20% headroom and does not do anything about it, you fine it, don’t you?

Jonathan Mills: The levy control framework contains a provision whereby deductions might be made from DECC’s resources, were that to be the case.

Q219 Dr Whitehead: How does that help with deficit reduction?

Miss Smith: Clearly, at a political level, it is intended as an incentive.

Q220 Dr Whitehead: Could you explain that to me? How might it be an incentive?

Miss Smith: An incentive towards sensible management of a budget before such a situation were reached.

Q221 Dr Whitehead: So to pay the fine for going over in that area, they would have to cut other projects in the Department.

Miss Smith: Well, no. As I say, if one were taking what you would hope to be a sensible management approach, you would identify these problems early, which is what I believe has happened in this case, and take action before the hard consequences in the framework were reached.

Q222 Dr Whitehead: But if they did not, you would take some of its projects away, basically?

Miss Smith: The framework sets that out, certainly, but as I say, the full intention on all sides would be to manage budgets sensibly before such an occasion were reached.

Q223 Caroline Lucas: Following on from that, the levy-funded spending cap covers a four-year period, and we are not even one year in. How much of the revised £446 million cap is left in the pot for future solar PV schemes?

Miss Smith: Just a moment.

Jonathan Mills: Just to clarify one point, as I said at the beginning, the levy cap operates on an annual basis, so the critical thing is the trend, rather than the spending overall. We have talked about the impact assessment numbers and committed to provide a sort of reconciliation of the numbers therein, but that would show what the current trend would spend in the last year, as opposed to what is budgeted for.

Q224 Caroline Lucas: Does that mean that you are unable to let me know what that figure is at the moment, looking at those current trends?

Miss Smith: I am sorry, but I am also slightly unsure which figures you were referring to in your original question.

Q225 Caroline Lucas: As I understand it, the decision was taken on 25 November by DECC, which announced that the Department had reallocated 25% of the individual cap for the renewables obligation to the feed-in tariff scheme instead. The individual FiT cap is £446 million by 2014-15. If that is what we are looking at spending by 2014-15, I want to know how much of that has already been spent, on current trends, to see whether we will be on track to come in under that amount.

Miss Smith: I beg your pardon for my initial misunderstanding; I was expecting you to have quoted £357 million, which is, of course, the published FiT budget. As I said on an earlier question, there has been no such formal transfer requested.

Q226 Caroline Lucas: If we do not yet have the additional 25% from the renewables obligation put over to make that figure up to £446 million, we can use the £357 million, and my question remains, in a sense. Looking at current trends, how much of that pot is left for the remaining period?

Jonathan Mills: To clarify two points, the difference between the £357 million and the £446 million is the issue that we talked about a little earlier in terms of the reclassification of some spending, so it has no impact on the amount of money available. It does not create any additional headroom.

Q227 Chair: It does for this particular technology, doesn’t it?

Jonathan Mills: The reclassification means that an amount of activity and an amount of budget have been transferred at the same time.

Q228 Chair: But what we are talking about is the amount available for solar projects here, and that has been increased-I am not quite sure what the status of that proposal is, but it might move from £357 million to £446 million-at the expense of some other technologies, for which ROCs were available.

Jonathan Mills: My understanding of the numbers is that, if you like, the difference between the £357 million and the £446 million is already spoken for in the Government’s plans for renewables. We should clarify that in the note that comes back to you.

Q229 Chair: Either way, I think that the question Caroline asked remains.

Jonathan Mills: The question was how much money is left in the pot, if you like. What I was trying to clarify was that the key figure to look at is the forecast spending in 2014-15, as opposed to the budgeted spending in 2014-15. My understanding from the impact assessment numbers, if they are unpacked into the same format as the budget caps, so we take away the deflator effect and things I talked about earlier, is that the do-nothing scenario would lead to the spending being as much as £700 million above the £350 million.

Q230 Caroline Lucas: We have had a long discussion about this do-nothing scenario, and we tried in the last hearing to put that aside, because no one is talking about a do-nothing scenario. People are talking about a scenario that comes into effect on 12 December, or one that comes into effect on 1 April. What I am tying to ascertain is, irrespective of whether the overall figure is £357 million or £446 million-or whatever it is-how much of that will be left after 12 December? If you cannot tell us that, I do not know how you can tell us that we will be overspent, or not overspent, or what the figures mean.

Jonathan Mills: The impact assessment sets out those numbers.

Q231 Caroline Lucas: Would you just remind us and point us to the right table, because it is quite complicated?

Jonathan Mills: Page 19 onwards sets out the likely difference in cost of the different options in each of the years of the spending review and over a longer period. As we pointed out in answer to an earlier question, these are not calculated on the same basis as the budget cap, and we committed to provide clarification of those numbers.

Q232 Caroline Lucas: Every time one feels one is in reach of finding a figure that is going to illuminate this discussion, it then clouds over, and you realise that you are chasing a rabbit down a hole again.

Leaving those figures aside, because time is getting on, maybe I could just ask you the question that I started off by asking, in a sense, right at the beginning of the meeting, which is why you did not look at action from DECC sooner, in order to be able to ensure that whatever the cap was it was phased in a more sensible way. This comes back to that very earliest question: given that the biggest regret of the Secretary of State or, indeed, of his Minister, was that they did not act sooner, why did the Treasury not give some indication that sooner action would mean that meeting the cap would have been easier or less painful?

Miss Smith: I think the response there takes in some of what I have been saying to the Committee throughout, which is that, certainly, DECC has operational responsibility for such a decision. The Treasury responded appropriately to its responsibilities through the write-around, which I have already referred to, and through official level dialogue. My understanding is that DECC acted as soon as data began to feed through to it, including, for example, data that come in from Ofgem on the registration of these installations. There may be a small lag in that, but it acted as soon as the situation became clear to it and we were made aware accordingly.

Q233 Caroline Lucas: The trouble is, we have had an awful lot of evidence from the solar industry to suggest that in fact it should have known and indeed was advised at least six months ago that the tariffs were being gobbled up far more quickly than any of these impact assessments suggested would be the case. Were you not aware six months ago, or six months before the decision was taken? Was the Treasury not aware that that was becoming a problem-and if you were not, should you have been?

Miss Smith: For myself, as I have said, I have come in part way through this process. I fully believe that we have been appropriately informed all the way through. Perhaps Jonathan would confirm any further details, if he is aware of them.

Jonathan Mills: I think that the data that we had were the same data that DECC provided. It provided them to us in a very timely fashion. There was obviously a distinction here between the small-scale solar FiT discussion that we are talking about now, and the large-scale solar issue which was somewhat earlier in the year. No, I do not have anything further to add to the Minister’s view.

Q234 Caroline Lucas: Are you satisfied that the proposals to change the feed-in tariff will now bring the scheme back in on budget and will now mean that it can come within the spending cap? Are you confident about that now?

Miss Smith: Yes, with the caveat that this is under consultation so I look forward to any further data that come in during the course of that.

Q235 Katy Clark: The Government’s second consultation on the feed-in tariff scheme is due at the end of this year and is going to consider cost-control measures for this scheme. Why haven’t these cost-control measures been included in this current consultation and what role do you see the Treasury having in adopting and devising these cost-control measures?

Miss Smith: I presume that you are referring to volume-related degression and such like in that instance.

Q236 Katy Clark: Could you maybe explain what you consider the appropriate cost-control measures for the scheme should be from your perspective?

Miss Smith: In relation to the second consultation or the first?

Q237 Katy Clark: The first question is why is it not included in the first consultation. If you were able to answer that, perhaps you could deal with it now, and then perhaps go on to what role you see the Treasury having and how you see those cost-control measures looking.

Miss Smith: Okay. The answer to both, to be honest, is the same, which is that the Treasury would be very happy to engage in discussion of any such measures brought forward. It would be for DECC to make detailed proposals including under the heading of cost control because they have operational and detailed responsibility for the policy area and both officials and Ministers would be happy to discuss such things.

Q238 Katy Clark: So have you been involved or are you aware of any discussions that have either been about when it should be included in the consultation or, indeed, what it is going to look like? Is it something that you have been involved in already?

Miss Smith: I have not myself. Jonathan, would you assist?

Jonathan Mills: We have ongoing discussions with DECC about all aspects of the review, of course, but they have taken the judgment that they needed to prioritise this element of the first phase and so, similarly, our discussions with them have been focused on that element too.

Q239 Katy Clark: So have there been any discussions so far about these cost-control measures?

Jonathan Mills: Cost-control measures have clearly been among the policy considerations that have been discussed throughout the development of this policy.

Q240 Katy Clark: Could you give us any detail whatever today?

Miss Smith: It would on the whole be for DECC to do so.

Q241 Laura Sandys: Very quickly, does the Treasury take any responsibility for or have any input into the Department’s regulation and how that impacts the economy? I ask that in relation to the evidence that we have been given by the solar industry itself. It stated that energy performance certificate C was going to have a much bigger impact on its industry than the change in feed-in tariffs. It said that that was going to be absolutely critical in how the business developed and possibly how many jobs might be lost. Does the Treasury expect the Department to come forward with a cost-benefit analysis on regulations, and if this regulation is going to go into the system, what regulation are you going to demand back out of the system from DECC?

Miss Smith: In line with the points made already about how, for example, DECC manages its own head room-

Q242 Laura Sandys: It is not financial; this is about regulation and the impact on business. I thought that the Treasury had a very clear responsibility to look at the impact that regulation across all Departments had on the success of the economy.

Miss Smith: I hate to be technical, but that would be BIS in terms of business regulation. For example, BIS is the Department with responsibility for the one in, one out system at present, which is governing how other Government Departments assess regulation.

Q243 Laura Sandys: But you would be interested in the economic impact of a regulation?

Miss Smith: Of course we would be interested in it. As I have said, technical responsibility would lie with BIS. The only point I was going to make was that, as I have said in response to other questions, we would expect DECC to come forward with worked proposals in relation to this area and energy performance certificates, too.

Q244 Joan Walley: Further to Ms Sandys’s point, this is not just about the regulation, is it? It is about the Green Book and how it determines and guides, in an informed way, overall investment. How is that being taken into account?

Miss Smith: Indeed, the Treasury takes a broad interest in-

Q245 Joan Walley: How?

Miss Smith: I feel that we have already covered that, if I might say so. Treasury has overall responsibility for assisting DECC with its public spending. Indeed, the Green Book rules are clear for all to know.

Q246 Laura Sandys: Could we see the Treasury’s analysis on this particular energy performance at C level? What analysis or review and consultation has it done on this proposal? What submission will it be making to DECC on that?

Miss Smith: I would be happy to go and look to see whether such work has been done, but, as I have said, the work should come from DECC to Treasury, not Treasury to DECC.

Q247 Joan Walley: Maybe we could urge the Treasury to do that work.

Miss Smith: It would be case of understanding what DECC has done and shared with Treasury.

Q248 Joan Walley: So the Treasury has no overall interest in this.

Miss Smith: I’m sorry, but that is twisting my words. No, as I have said, clearly, the Treasury has an interest in the overall operation of the economy. Clearly, BIS also has an interest in the overall operation of business regulation. In this case, talking about the policies that I believe Ms Sandys is driving at, it would be for DECC to come forward with detailed proposals.

Q249 Chair: I’m sure that if DECC has that work available, it will make it available to you even more quickly than it will to this Committee, so perhaps you could just call them up this afternoon and ask for it. If it were then available to us, it would certainly throw some light on what is a new area of concern in relation to the consultation.

Q250 Zac Goldsmith: I was going to ask more or less the same question that Laura asked, but I shall take the opportunity to point out that we would not be having this discussion and it would not be the case that a change was being brought in before the end of a consultation had DECC got its maths right at the start. I know that you are probably required, through your position, to defend DECC’s mathematics, but it is almost impossible to do so. It is very hard for us to see how that might be done. What assurance can the Treasury provide to the industry that DECC will get its maths in order and that we will not find ourselves having to repeat this kind of inquiry every six months? How can we be sure that DECC really is in a position of being able properly to predict the take-up and demand for the feed-in tariff, because it seems to be a shambles?

Miss Smith: I invite Jonathan to add any comments that he wishes, but I point to the importance of the series of consultations. Obviously a number of short-term measures have been required, and we have gone into detail about why it has been necessary to propose that changes take place in the very short term, but the quality of the consultation process that goes on from here will determine the confidence that industry can have.

Q251 Chair: Finally, because we are almost at 1 o’clock, in some other countries, there is a regular, incremental review of tariffs, which tries to take account of production costs and may allow a longer period of notice before changes are introduced. In the light of what has happened in relation to this process, is that an approach that might offer more predictability for businesses that are affected and, perhaps, even help the Treasury with its budgeting?

Miss Smith: I’m certainly aware of the work that other countries-notably France-are doing. I am sure there could be merit in receiving such data. I have tried to strike the tone throughout answers to the questions that data are extremely important, not least in a consultation period. Indeed, there might well be merit in what you have suggested, Chair.

Q252 Mark Lazarowicz: On that point, I draw attention to my entry in the Register of Members’ Financial Interests. Would it not be fair to conclude that a lot more comparison with other countries’ experience, both in the establishment of a scheme and a review, would have been worth while. Are you satisfied that there was enough analysis of experience of other countries when you carried out the review?

Miss Smith: If I may, I will ask Jonathan to confirm what other countries’ arrangements are.

Q253 Mark Lazarowicz: What have you learned from it? It strikes me it wasn’t much. I am sure plenty of people visited places. Were lessons learned?

Jonathan Mills: In terms of the decisions set out in the consultation document, I know that DECC considered comparative evidence and some of the changes that a number of other European countries are having to make to their schemes in assessing the options. In the terms of the options for phase 2 of the review and things such as cost control and so forth, I know that DECC draws widely on comparative evidence, and I expect it to do so again in this instance.

Chair: Thank you very much for your time this morning. You have given us some illuminating insights into the relationship between the Treasury and the Department of Energy and Climate Change, which will be a subject of further discussion in due course. We are grateful to you for coming, particularly so early in your ministerial stint at the Treasury.

Prepared 2nd December 2011