Arrangement of Business
The Deputy Chairman of Committees (Baroness Healy of Primrose Hill) (Lab)
My Lords, if there is a Division in the Chamber while we are sitting, this Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.
Medical Devices (Fees Amendment) Regulations 2026
(1 day, 9 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Baroness Merron
That the Grand Committee do consider the Medical Devices (Fees Amendment) Regulations 2026.
The Parliamentary Under-Secretary of State, Department of Health and Social Care (Baroness Merron) (Lab)
My Lords, I am glad to introduce these regulations, which will take effect from 1 April. These regulations will amend the fees structure for the relevant medical devices regulations and provide for a new annual medical device fee to replace an existing fee. The fee will enable funding for the MHRA’s strengthened post-market surveillance—or PMS—activities in respect of medical devices. I want to clarify that, for 2026-27, the fee will be part-subsidised by the Department of Health and Social Care, with the intention, subject to further ministerial and parliamentary approval, to move to a fully cost-recovering annual fee from 2027-28.
Why are these regulations needed? Post-market surveillance refers to the work that the MHRA does to collect, review and act on safety and performance issues relating to devices on the market. The Independent Medicines and Medical Devices Safety Review highlighted the need for a high-quality PMS framework. That is necessary because the framework strengthens the medical devices safety and surveillance framework, improving patient safety and supporting the Government’s risk-proportionate, pro-innovation approach to regulation. The framework is estimated to increase the MHRA workload by 60% to 70%, at an annual cost of around £17 million, so it is vital to get the right level of funding. Historically, PMS activities have been funded mainly by subsidy from the DHSC, and partly by the current device registration fee.
I should say that subsidising ongoing regulatory activity through general taxation is not the usual approach of the MHRA to fees and services. The usual approach is based on HM Treasury’s Managing Public Money guidance, which states that fees should be set on a full cost-recovery basis. Therefore, as noble Lords will appreciate, these regulations reduce subsidy by introducing an annual fee, so that those who benefit from access to the market fund the regulatory activity that supports it.
I turn to how the regulations are intended to operate in practice. The new annual fee apportions the overall costs of the MHRA activities by using the Global Medical Device Nomenclature system, or GMDN for short. The fee will be calculated using the number of registered devices with the MHRA. In practice, the MHRA will charge based on the number of chargeable GMDN categories in which a manufacturer has registered devices. If a manufacturer has multiple devices within the same category, it will be charged once a year for that category.
A consultation was done by the MHRA on this fee as part of its last statutory fees uplift, so this is a new fee rather than an additional increase to a fee in the last fees uplift. The consultation ran from the end of August to 24 October 2024, and it was widely promoted, including through an SME webinar. In the consultation, the annual fee was proposed at £210 per GMDN code, using the most granular level of the GMDN structure. Several changes have been made following the consultation feedback, which we appreciated, in response to the concerns that were raised. The MHRA set up a group of industry representatives to assist with this, to discuss the approach and to seek advice on implementation. This has been welcomed and has provided useful feedback and assurance.
To meet the concerns that were raised, the fee is being phased in. It will give the sector time to adapt, as I outlined in my earlier comments. The costs have been fully subsidised in 2025-26, and this instrument introduces a part-subsidised annual fee for 2026-27. The fee was remodelled to be charged at a higher grouping of GMDN category, rather than individual codes, resulting in the costs being more equitably spread. The MHRA estimates that 56% of manufacturers will pay £300 a year and 82% will pay no more than £900 a year. Small and medium-sized enterprises are likely to pay only £300 a year, as they are likely to have a more limited range of products compared to larger companies.
Let me put this in context. The medtech sector generated an estimated £48 billion in turnover in 2023-24, and the total PMS cost of £17 million represents about 0.035% of this. I recognise that businesses would prefer to avoid any additional costs, but I am satisfied that moving to a fair, predictable, cost-recovering approach, along with the changes that have been made, will help address the key concerns and make the measure workable and fair.
On implementation and readiness, the MHRA has been working with the sector. The phased rollout has given the sector time to get ready. The MHRA published guidance explaining the new fee, how it will be calculated, what account holders need to do to ensure that their registration data is accurate, and how and when payment will be made. The MHRA is improving its systems currently, so that businesses will be able to see their GMDN categories, which will help them understand what they will be charged for by 1 April this year.
In closing, these regulations introduce a necessary and fair new annual fee from 1 April to help fund the MHRA’s strengthened PMS work. The approach has been improved in response to consultation feedback—for which we are most grateful, as I said—and is being introduced in a phased way, giving the sector the time it needs to adapt while ensuring that the MHRA has the resource it needs to protect patients and maintain confidence in the market. I beg to move.
Lord Kamall (Con)
My Lords, I am grateful to the Minister for introducing these regulations. Although we support a strong and properly resourced system of post-market surveillance for medical devices, I am afraid we have significant concerns about the Government’s approach to this instrument.
As the Minister said, these regulations introduce a significant shift in how medical device registration is funded. As she outlined, manufacturers will now be required to pay an annual fee of about £300 per device category, replacing the previous one-off registration fee of £261. A further annual maintenance fee of £300 will also apply. This is a substantial change to the cost base for manufacturers. Of course, while large companies may be able to absorb these costs, there is huge concern among the small and medium-sized enterprises that make up a large part of the UK’s health technology sector.
The Government argue that these fees are necessary to fund the MHRA’s post-market surveillance functions. We do not dispute the importance of ensuring that devices used across the NHS are safe, effective and properly monitored. We also do not oppose the notion of charging fees. However, the question before us is not whether surveillance matters but whether the Government have provided the evidence and analysis required to justify the scale, structure and timing of these new changes.
I am afraid that, both here and in the other place, we are concerned that the Government fall short on these. The most striking omission is the absence of the full impact assessment. Instead, the Government relied on de minimis assessment on the grounds that the fee remains partially subsidised for one more year. Of course, we welcome that, because it helps to cut the costs for some of the manufacturers but, at some stage, manufacturers have to be weaned off these subsidies—or what some people term “corporate welfare”. Yet Ministers have already confirmed that the subsidy will be removed in 2027-28, when the full recovery model will be introduced. We think that this is an extraordinarily short-term approach for a regulatory change with such long-term consequences. It is difficult to understand how the Government can justify this new fee regime, when it clearly imposes additional costs on businesses without providing Parliament with a full and transparent assessment of its impact.
The Minister will know that industry bodies, including the Association of British HealthTech Industries and the British In Vitro Diagnostics Association, have repeatedly raised concerns about the uncertainty surrounding long-term fee levels. It is only right, therefore, that we raise their concerns here. The BIVDA has warned that, under the original proposals, some IVD manufacturers could have faced fee increases of up to 5,000% due to the granularity of the GMDN categories. Let us be clear: we are grateful that the Government have since moved to a higher-level categorisation—they should be given credit for that—but the underlying uncertainty remains. The MHRA’s own modelling suggests that the full cost recovery could require charges of more than £800 per device category. This is not a marginal adjustment for some of those small companies. It could be the difference between entering the UK market and walking away from it.
The Minister will be aware that these concerns were echoed in a Delegated Legislation Committee in the other place. Yet, despite these legitimate questions, the Government have still not provided clarity on how the new fee structure will affect different types of manufacturers. Unfortunately, they have also still not provided clarity on how they intend to mitigate the risk of reduced product availability, particularly for low-volume devices, including those used in diagnosis of rare diseases.
This is not an isolated change; it follows recent regulations on post-market surveillance on in vitro diagnostic devices. The cumulative effect is a regulatory environment that is shifting rapidly without the stability or predictability that businesses need in order to plan investment and product development.
We are disappointed by these regulations—not really their content but more the lack of the full impact assessment. The Government have not provided clarity on the long-term fee levels, addressed industry concerns about the risk of product withdrawal or given Parliament the information that it requires to scrutinise the consequences of this new fee regime. A proper impact assessment should have been conducted to avoid problems later.
Noble Lords will know that I take an interest in the phenomenon of unintended consequences. They will be aware of the “dash to diesel” when, in 2001, the then Chancellor of the Exchequer introduced a system of car tax to incentivise motorists to switch to diesel cars in order to meet lower CO2 emissions targets. That was understandable, but it was later found to have also led to an increase in emissions of harmful nitrogen dioxide and particulates. The reason I raise this is that, at the time, it had been claimed that some civil servants raised concerns about this consequence but were ignored.
This is not a party-political issue. The question is whether Governments of any colour have learned the lessons from that incident. How do we make sure that, when potential consequences are raised with the Government, they are seriously taken on board, particularly in terms of a full impact assessment? Given the current concerns that have been raised, rather than introducing these new charges now only to find out that, as a result of the consequences, they will have to be reversed or tweaked, surely it would be better for the Government to pause the process to introduce the new charging regime until a proper and full impact assessment has been conducted.
We understand that the running costs of the MHRA have to be met somehow and we agree with the Government that they have to wean companies off those subsidies in the adjustment. However, in the other place, my honourable friend the shadow Minister for Health, Caroline Johnson, pointed out that previous calculations of the cost base of the MHRA had not taken account of, for example, the impact of the rise in NI contributions on the running costs of the MHRA, so the Government have had to find some extra money to plug that gap. Perhaps that is why this SI has been rushed through without a proper, full impact assessment, although it may well not be.
My honourable friend also asked about a consultation that revealed widespread concern, with only 10% support. The Minister replied that changes had been made following discussions with a “trusted advisory group”. My honourable friend then asked:
“Who is in the trusted advisory group? Whose voices from micro and small businesses were heard in that group?”.—[Official Report, Commons, Third Delegated Legislation Committee, 21/1/26; col. 7.]
Unfortunately, she has not had an answer.
Baroness Merron (Lab)
I am grateful to the noble Lord for his interest in this important subject and for expressing his concerns, which I will address. I know that he is more than supportive of patient safety and taking a risk-proportionate and pro-innovation approach —I hope that is not putting words into his mouth, but that is my experience of him—and that is what this is about. I have heard his request to defer consideration of these regulations. I would not want to agree to that, not least because of the timetable we have set out. In running the consultation and responding very directly to the concerns raised, which were very real and appreciated, as well as by working with industry and being transparent and prepared, we feel that it is time for these regulations.
The noble Lord, Lord Kamall, referred to substantial additional costs on businesses. The impact on business is estimated at £4.3 million a year in total. Of course, de minimis assessments are not usually published. However, we have included that figure in the Explanatory Memorandum and committed—I hope that this will be helpful—to a full impact assessment for the fully cost-recovering fee in 2027-28. I hope that that will go some way to assist the noble Lord.
Lord Kamall (Con)
I completely understand if the Minister cannot answer this now, so maybe she could write, but can she explain why the Government have committed to the full impact assessment then, rather than now?
Baroness Merron (Lab)
My Lords, the noble Lord, Lord Kamall, asked further questions about the timing of the full impact assessment and why it is not being done this year. The reason is that the full impact assessment will refer to 2027-28, when the fees will be paid in full. Currently, because they are being subsidised for one year only, a de minimis assessment is required, but, when we have the full-fat version, that will be the right time for the impact assessment.
The noble Lord raised some questions that had been asked in the other place by Dr Caroline Johnson MP. I assure him that my ministerial colleague with responsibility for this area, Dr Zubir Ahmed MP, will reply to that Member of Parliament, and I will of course make sure that the noble Lord sees a copy of that response.
A question was raised about obsolescence and PMS. In response, I can say that if a manufacturer stops supplying a medical device, the company or its UK responsible person must update the MHRA registration by removing the product or stating that it has stopped being sold. Devices already on the market can stay in the supply chain or be used, as long as they are not recalled, and manufacturers are responsible for post-market surveillance duties. So, if the manufacturer no longer exists and has no legal successor, these duties do not transfer. For manufacturers outside the UK, the UK responsible person has to keep and provide plans and reports if requested. If there are any concerns, the MHRA will continue to monitor device safety and can act. The main summary is that manufacturers themselves or the UK responsible person are responsible for updating the MHRA.
The noble Lord, Lord Kamall, asked about the impact on small and medium-sized enterprises. I recognise, as I said in my opening, that new regulatory costs can be felt more sharply in this area, and that is why the MHRA listened carefully. It is also why the fee has been designed to spread costs more equitably across the sector, and why, once we had the consultation and the feedback, charging is to be based on a number of the GMDN categories that a manufacturer’s registered devices fall into, rather than the much more granular GMDN code. That matters for small and medium-sized enterprises because they are more likely to have closely related product variants that may attract multiple level 5 terms that sit within a single level 2 category. Under this approach, multiple products that are in one level 2 category are charged once a year, reducing repeat charges for minor product variations, which is important to SMEs. To re-emphasise, the MHRA estimates that about 56% of manufacturers will pay a single unit fee of £300 a year. It is SMEs that are most likely to fall into this lower charging group because they typically have a narrower product range than larger companies.
I can say to the noble Lord, Lord Kamall, that, as I said earlier, the charge is designed to be proportionate. I should say that if there were to be any waivers— I know that he did not specifically ask that but raised general concerns—that would simply shift costs elsewhere. We need to keep the charge predictable and proportionate, and to phase it in.
My final point is that SMEs stand to benefit from a stronger PMS framework. It will mean earlier identification of issues, fewer surprises and a more risk- proportionate, predictable regulatory approach. That is what supports responsible innovation, and I know that is of concern to the Grand Committee.
Taken together, these regulations put the funding of a strengthened PMS on a clearer, more sustainable and fairer footing, so that those who benefit from access to the UK market contribute fairly to the ongoing regulatory work that supports that access, because that regulatory work has to be paid for in some way. I cannot emphasise enough how the fee has been redesigned following the consultation. Often, noble Lords question the value of a consultation and whether it really makes change. I can say that, on this one, without a doubt, it has done, and I am grateful to all those who contributed.
Today, these regulations, if agreed by your Lordships’ Grand Committee, will mean that we can maintain confidence in the safety and performance of medical devices, support continued access, and ensure that the MHRA has the capacity to act quickly and proportionately should issues arise. For those reasons, I hope noble Lords will support these changes.
Social Security (Scotland) Act 2018 (Carer’s Assistance) (Consequential Modifications) Order 2026
(1 day, 9 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Baroness Anderson of Stoke-on-Trent
That the Grand Committee do consider the Social Security (Scotland) Act 2018 (Carer’s Assistance) (Consequential Modifications) Order 2026.
Baroness in Waiting/Government Whip (Baroness Anderson of Stoke-on-Trent) (Lab)
My Lords, I am grateful for the opportunity to debate this order today. As with all of the Scotland Act orders that we have considered since the start of this Parliament, this is the result of collaborative working between the UK and Scottish Governments.
The order before us will be made under Section 104 of the Scotland Act, which, following an Act of the Scottish Parliament, provides the power for consequential provisions to be made in the law relating to reserved matters or the laws elsewhere in the UK. Scotland Act orders are a demonstration of devolution in action. I am pleased to say that the Scotland Office has taken through 12 such orders since this Government came to power in July 2024.
The Scotland Act 2016 devolved responsibility for certain social security benefits and employment support to the Scottish Parliament. This included the carer’s allowance, which the Scottish Government replaced with the carer support payment in 2023. This order is being brought forward to make provisions in consequence of further changes that the Scottish Government have made to their carer support payment. The Scottish Government requested this order, and the UK Government have worked collaboratively with them on this draft order, showcasing devolution in action.
The draft order under consideration today makes amendments to relevant UK and Northern Ireland legislation as a consequence of the Carer’s Assistance (Miscellaneous and Consequential Amendments, Revocation, Transitional and Saving Provisions) (Scotland) Regulations 2025, which were made on 6 November 2025 and come into force for the provisions that are relevant to this order on 15 March 2026. The Scottish Government’s regulations introduce additional support for those receiving the carer support payment and caring for more than one person, in the form of the carer additional person payment; extend support for carers from eight to 12 weeks after the death of the person they care for; and introduce a new Scottish carer supplement, which will, for most carers, replace the carer’s allowance supplement that is currently paid under Section 81 of the Social Security (Scotland) Act 2018. This order will ensure that the changes the Scottish Government are making to the carer support payment are reflected in reserved benefits.
In summary, this order makes consequential amendments to UK legislation to reflect the introduction of changes to the carer support payment in Scotland. As I said, it is an example of devolution in action. It is about the UK Government working with the Scottish Government to deliver for the people of Scotland, and it reflects the continued strong co-operation between the Scottish and UK Governments. I beg to move.
Lord Bruce of Bennachie (LD)
My Lords, I thank the Minister for her introduction. I have one or two questions about both the general process of transferring social security to Scotland and its implications, specific to this instrument.
As I understand it, at the moment, the carer’s allowance is £83.30 per week, and that is the same in England, Wales and Scotland. Can that be varied? I assume that it can be, under this devolved measure, but, as I understand it, that is not the intention. What is being implemented is a supplementary payment, every six months, of £293.50 to carers in Scotland. I assume that the £293.50 that we get in Scotland will not be paid to people in England, and that is the differential clarification for that. Can the Minister confirm this?
This is the third or fourth instrument the Committee has debated that relates to the transfer of social security from the DWP to the Scottish Parliament and Government. I have raised this issue before but, unfortunately, we do not have SNP Members in this House, which would be useful, as they could explain exactly what is behind this. However, I can legitimately ask a UK Minister a question about the way this is presented and whether she is satisfied that the UK Government’s role in Scotland is not being undermined by the way that this is being delivered, rather than by the fact of it being delivered.
In other words, I do not oppose the devolution of benefits. Members know that the leader of my party is very strong on improving support for carers, and we support that, but there is an important point here. What has happened with this and other benefits is that the UK Government have made an assessment of the cost of the claimants in Scotland and transferred that amount to the Scottish Government, who then pay it, through their own instruments, and, if they wish, add additional benefits. The problem is that the contribution of the UK Government is obscured, at least, even though it is substantially more than the top-up that the Scottish Government provides. There is nothing wrong with that in principle, but there is a lot wrong with the politics of the way it is presented.
First, we have an election coming up in three months, and we are going to get SNP candidates saying that, thanks to the SNP, people will get wonderful additional benefits across the piece in Scotland. Most of those benefits are paid for by Scotland, but they have just added something. That does mean that people in Scotland are getting more—it is not as if they are not making a legitimate claim—but they are not really acknowledging where the bulk of the money is coming from. Secondly, we are heading for a financial crunch in Scotland, because a lot of these additional benefits are not being properly costed and funded. The projection I got from the Library is that the deficit on social security could be £1.8 billion in three years, and there is no real indication the Scottish Government have any way of funding that, and so a crisis might loom, or they might have to take money from somewhere else.
I will make a brief, slightly out of order reference to the situation with student grants and student loans. The previous coalition Government in Scotland effectively abolished tuition fees, although the final role was delivered by the SNP Government. They will boast, quite rightly, that those who go to university in Scotland do not pay fees. However, there are two problems from that: first, Scottish universities are going bankrupt from underfunding; and, secondly, to cap the budget, the number of places offered to qualifying students in Scotland has been pushed down. An awful lot of students in Scotland are going to universities in England because they cannot get a place in Scotland, so they are actually paying fees. This is presentational stuff that the UK Government should get a grip of.
I strongly believe in devolution and supported the creation of the Scottish Parliament, but I also strongly believe in the partnership between the two Governments. It is important that the people of Scotland know exactly what contribution the UK Government are making and the separate contribution that is being made by the Scottish Government. That is my point.
My final point has been slightly triggered by events in the last week. The leader of Reform in Scotland— I think he is still a Member of this House, for a few more minutes—said that the party would cut taxes in Scotland at a cost of £4 billion. He has not really explained it, but clearly the implication, which the party has acknowledged, is that it would be funded by massive spending cuts across a range of things. What if, if such a Government came into being—I hope that does not happen—they then turn around and say that they are going to abolish these security benefits? Could we see a situation in which people in Scotland get no benefits, or far reduced benefits compared with people in England, as opposed to now when they get a bit more but most of their benefits are still being funded by the UK?
My plea to the Minister is to take this away and have a real think about how the UK Government present the way that Scotland is being funded—what party it is does not matter, but taxpayers do. As somebody who lives in Scotland, I know that people are easily taken in by the idea that all these wonders are paid for exclusively by the magnificent stewardship of the Scottish finances by the Scottish Government, whereas anybody who knows anything about what is going on says that their stewardship has been a lot less than magnificent. We are heading for a major deficit while they are offering these kinds of sweeties to the electorate without explaining where the money comes from or how they can be funded in the long term. While in no way wishing to oppose what is being proposed, I urge the Government to have a proper look at the way in which this is presented in future and—to be frank— not allow politicians north of the border to get away with it.
Lord Cameron of Lochiel (Con)
My Lords, as the Minister has set out, this statutory instrument is technical in nature and its purpose is clear. It makes the necessary consequential amendments to ensure that the Scottish Government’s changes to carer support interact properly with a reserved benefit system. For that reason, we on these Benches will not stand in its way. It is right that new or additional devolved benefits do not lead to unintended knock-on effects elsewhere in the UK system, and this instrument sensibly preserves the agreed approach between the UK and Scottish Governments.
However, although we will not oppose this order, I wish to place on record our ongoing frustration with the Scottish Government’s approach to carer support. The creation of a parallel system, duplicating work already carried out more efficiently and at lower cost by the DWP, adds unnecessary layers of bureaucracy. This continual duplication adds complexity to what should be a simple and accessible system for carers, while also increasing administrative costs and wasting public money. This reflects a broader tendency towards unnecessary bureaucracy, with the bill ultimately falling on Scottish taxpayers.
We have always stood firmly behind carers and recognise the vital role that they plainly play. Our concern is not with supporting carers but with a system that prioritises administrative expansion over efficiency and value for money. For these reasons, although we will of course allow this technical instrument to pass, we remain critical of the wider approach that has made such extensive consequential legislation necessary in the first place.
Baroness Anderson of Stoke-on-Trent (Lab)
My Lords, I thank both noble Lords for their contributions to the debate this afternoon; some very important points were made, even if our time was short. I reiterate the point made by the noble Lord, Lord Cameron, about the vital role that carers play. Although this makes technical amendments, and the approach of the Scottish Government is a decision for them, we should all put on record our genuine thanks for the work that carers do every day to look after some of the most vulnerable in our society.
I turn to the specific points raised by the noble Lord, Lord Bruce. Regarding a clarification on finances, I will write to him so that he has it in writing. My understanding is that he is absolutely right—the core remains the core; it is the additional element—but I will write to him.
He raised a very important point about the strength of the union while we have devolved Administrations. As Noble Lords will be aware—many of us will be on the doorsteps in the coming months—a very important election is coming in Scotland. The noble Lord is absolutely right that the contribution of the British Government can be obscured on such points, when political parties tend to be interesting with their definition of events to make sure that they do well. There is a responsibility on the political parties represented here today to make an argument both for the union and for truth in how the British Government interact with the Scottish Government in the forthcoming elections. We have a proud argument to make. This Government strongly believe in devolution, but we also believe in the strength of the union, as we made clear during the referendum.
I clarify for the noble Lord, Lord Bruce, that the UK Government consider all changes to be in line with the fiscal framework that we have outlined. We may need to review that position if there is deemed to be a significant divergence in the future, such as in the costings associated with this policy.
Both noble Lords made points related to the increasing differences between the carer’s allowance and carer support payments, as well as how those now look across the country. The Scottish Government have designed their own carer benefit to be broadly similar to the carer’s allowance at the outset, with minor differences in the past presence test, enabling some carers to access the carer support payment while studying full-time. The UK Government consider all changes that the Scottish Government make to their social security benefits in line with the fiscal framework.
In this instance, the changes are not considered significant. This Scotland Act order ensures that the carer additional person payment, the Scottish carer supplement, the replacement for the carer’s allowance supplement and the extension to the carer’s support bereavement run-on, which come into force on 15 March 2026, are treated appropriately by reserved and Northern Ireland social security.
The noble Lord, Lord Bruce, also asked an important question about Reform, including any changes that a Reform Administration in Scotland may make and their impact. Obviously, as noble Lords will appreciate, many of us will be campaigning to make sure that that does not happen; I look forward to seeing Anas Sarwar as First Minister. However, devolution means that the Scottish Government are able to design their own benefits. We have to win the elections and convince the electorate to make sure that our view of the world wins in the forthcoming elections, so that we do not necessarily have to worry about some of the things that the noble Lord, who is about to depart, may or may not be saying.
Lord Bruce of Bennachie (LD)
May I seek some clarification? It occurs to me that this benefit is in two parts: the transfer of the benefit, which is the same across the UK; and the additional bit, which is funded by the Scottish Government. I appreciate that that part is entirely a matter for the Scottish Government but, if a Government in Scotland decided to reduce the basic allowance below the UK level, would there not be a reduction in the transfer of the cash? After all, the funding has been transferred on the basis of the assumption that the Scottish Government will continue to match the benefit. If the Minister cannot answer that now, she may write to me.
I seek clarification on this because, in effect, they do not have that money to fund tax cuts in Scotland if, in reality, the money will be withdrawn by the UK Government because it is no longer being put towards the purpose for which it was devolved. That seems perfectly legitimate to me, but clarification would be useful.
Baroness Anderson of Stoke-on-Trent (Lab)
That is a very interesting point. I will write to the noble Lord so that he has answer in writing; that will come soon.
In closing, this instrument demonstrates the continued commitment of the UK Government to work with the Scottish Government to deliver for Scotland.
Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025
(1 day, 9 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Wilson of Sedgefield
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Cryptoassets) Regulations 2025.
Relevant document: 47th Report from the Secondary Legislation Scrutiny Committee
Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)
My Lords, financial services are a key driver of growth in the UK. Embracing innovation is essential to sustaining the UK’s position as a leading global financial centre. As noble Lords will be aware, crypto assets’ usage has grown rapidly in recent years, and crypto assets are increasingly intertwined with traditional financial services. It is important, therefore, that the UK has a clear, proportionate and robust regulatory framework to oversee this emerging market.
This instrument establishes a comprehensive regime for crypto assets within the Financial Services and Markets Act architecture, ensuring that crypto assets are subject to regulations consistent with the framework that applies to other financial services. Taken together with detailed rules being developed by the Financial Conduct Authority, this framework will strengthen consumer protection, help tackle market abuse and provide the certainty that firms need to invest and grow in the UK.
There are already laws in place focused on addressing the most immediate risks from crypto assets, including anti-money laundering requirements and financial promotion rules. However, most crypto asset activities have not, to date, been subject to broader financial service regulations, including matters such as conduct and prudential requirements. Stakeholders and consumers have been calling on the Government to deliver a clear and comprehensive regime for crypto assets. The Treasury consulted on this regime in 2023, and in October 2024 the Government committed to implementing a regime largely in line with those proposals. The instrument before the Committee delivers on that commitment.
Specifically, the regulations would amend the 2001 regulated activities order to define crypto assets that would be within the scope of the regime, termed “qualifying crypto assets”, and to specify the new activities that will be regulated. Firms seeking to carry on those activities in the UK or deal with UK customers will be required to obtain authorisation from the FCA and comply with its rules, or risk committing a criminal offence. The new regulated activities are: issuing qualifying stablecoin in the UK; safeguarding the qualifying crypto assets and relevant specified investment crypto assets; operating a qualifying crypto asset trading platform; dealing in qualifying crypto assets as principal or agent; or arranging deals in qualifying crypto assets and qualifying crypto asset staking.
The instrument also uses the new designated activities regime to establish frameworks for public offers of qualifying crypto assets and their admission to trading on relevant platforms, alongside a market abuse regime tailored to crypto assets. Public offers of qualifying crypto assets will be restricted unless certain conditions are met. Firms will be required to publish disclosure documents so that investors have the necessary information when they are considering purchasing crypto assets, with clear rules around liability and compensation where information is untrue or misleading.
The market abuse provisions define “inside information” and prohibit insider dealing—the unlawful disclosure of inside information and market manipulation —thereby supporting market integrity and protecting UK consumers. The provisions would take effect from 25 October 2027. This timetable allows the FCA to finalise its detailed rules and guidance this year, and it gives firms time to familiarise themselves with the new rules and seek authorisation ahead of the enforcement date.
Noble Lords will know that the Secondary Legislation Scrutiny Committee raised this measure as an instrument of interest in its 47th report, published on 15 January. I am grateful for the consideration the committee has given this legislation. It noted some important points that I would like to reiterate here. First, on the costs to firms of the new regulations, the Government have published the de minimis assessment of the impact of the changes. The Government have taken a proportionate approach to the crypto asset regulatory regime to help manage the impact on firms. On FCA resourcing, the regulator confirmed that it has been increasing resources over the last few years to ensure that it has the right regulatory, technical and industry expertise needed to deliver the regime. Finally, the committee asked about the implementation timeline. As I said, the regime will be in force in October 2027, and the FCA expects the application period to be open later this year.
These regulations will raise standards, strengthen consumer protection, help prevent market abuse and support responsible growth in the UK’s digital asset sector. I beg to move.
Lord Holmes of Richmond (Con)
My Lords, it is a pleasure to take part in this debate on these regulations in Grand Committee. In doing so, I declare my interests, as set out in the register: as non-executive director of Avalanche (BVI) Inc and the Avalanche Foundation, a layer 1 blockchain protocol; and as adviser to Simmons and Simmons LLP.
I thank the Minister for the way that he introduced these regulations. They are a good thing and people have had time to consider them. They set out the Government’s position and ambition when it comes to crypto assets. We should all welcome this; there is an extraordinary opportunity for the UK when it comes to crypto assets, broader digital assets, tokenisation and broader allied technologies. We could take a stat from any of the main consultancies; all we need to know is that this is material to the UK economy and measurable in the billions.
What does this statutory instrument do to help us towards that objective? First, we should probably take a moment to slay two myths that dog this area and the broader technology space. The first is that you can have either regulation or innovation, not both. I believe that the Government’s approach to crypto assets and broader digital assets proves that it is possible to regulate in a way that enables innovation, proper regulation and the necessary consumer protection. We saw similar approaches with the fintech regulatory sandbox in 2016, the market intervention from the CMA with open banking and, decades ago, the approach that the UK Government took to the mobile telephony sector. We know how to do what I describe as right-sized regulation.
The second myth is that we cannot possibly legislate in time for these new technologies and financial instruments. If we look at just two recent examples—the Electronic Trade Documents Act and the Property (Digital Assets etc) Act—we can see clear, focused, specific legislation passed in good time that is already having a positive impact on our economy and businesses and for individuals right across the UK.
It should also be noted that we are not behind the curve when we compare other jurisdictions. Certainly the GENIUS Act in the United States has perhaps had more column inches and broadcast minutes devoted to it but, when we consider the timeline for the implementation of that Act and look at what is currently happening with MiCA in the EU, the UK should not feel behind the curve in any sense.
I welcome these regulations, but with one significant caveat—one wrinkle that I believe needs to be addressed. It is simply that the regulations as currently drafted roll together stablecoins and other crypto assets. For example, unbacked bitcoin is treated in the same way as fiat-backed stablecoin. I cannot believe that this is the intention of the Government in drafting these regulations, because unbacked bitcoin and fiat-backed stablecoin operate in very different ways and have extraordinarily different purposes. Crucially, the difference can be set out just in understanding the difference between something that is backed and something that is completely unbacked. Bitcoin could largely be considered a speculative investment; stablecoin is more of a payment methodology—money, if you will. I ask the Minister whether that is the intention of the regulations, whether that follows from the stated policy around crypto assets and stablecoins and whether a change to the regulations is not required at this stage to perfect what I would argue is a significant problem.
I do not believe it can be right that fiat-backed stablecoins are treated as investments—they are not investments. If they are, there is a clear and present threat to the burgeoning stablecoin industry in the UK, which, if these regulations go through, may be stifled before it has had time to even get thoroughly under way. To be clear, stablecoins and other potential payment methods, such as central bank digital currencies, are the cash leg to these new digital markets and digital economy. If we stifle that at this stage, we will be killing off all those broader possibilities from such digital markets.
Take, for example, somebody who wished to use fiat-backed stablecoins to make a payment, engage in FX, or be involved in a money market fund. They would be using a fiat-backed stablecoin rather than fiat itself. Can it be right that the regulations as currently drafted would treat that person differently just by dint of them using fiat-backed stablecoin rather than cash? It would necessitate FCA licensing, so an increased regulatory burden for doing largely the same thing, and, in reality, that licence would not be sought—the industry would simply choose not to use that stablecoin methodology, and thus it would be killed off at that stage.
I believe a solution exists, and it is relatively straightforward at this stage: to exclude qualifying stablecoins from the definition of qualifying crypto assets. It would not be problematic. It would fit very well with Deputy Governor Sarah Breeden’s speech on a multi-money universe. Consumer protection would be unaffected, because of the issuing provisions already set out. The safeguarding duties would kick in and have a positive impact. I do not believe any changes would be needed to the staking provisions. Crucially, it would leave policy in the correct place to enable stablecoins to be integrated into the upcoming overhaul of payment regulations. I argue that payment regulations is the correct place for stablecoins, as they are, in essence, money. Another solution could be to look at how the current definitions are set out around dealing and arranging. It is more complex, but equally doable. Two options exist to setting right this wrinkle in the regulations.
It is not that this is a minor drafting point. There will be clear, present and immediate harm to our industry and economy if the regulations are passed in their current form. This is not just a matter of theory. We can see this already in the EU, where the double regulation of stablecoins—MTS in that jurisdiction—is currently causing harm, hampering the development of that industry across the EU, and is already subject to review. We can avoid that issue before it becomes a problem if we make this change to the regulations.
The policy note that accompanied the regulations when they were first set out said that this is a draft SI and should not be considered final. Does the Minister agree that that continues to be the situation and that we can make these changes to the regulations? There is a great deal at stake for the UK here. This is such an important piece of the UK’s global aspiration when it comes to crypto assets, digital assets, tokenisation, and the whole digital market and economy transformation that we all want to bring about for the benefit of the citizen and the consumer, companies and our country. The opportunity exists. We cannot allow it to founder for want of this simple change.
The Government’s growth agenda can be effectively enabled through stablecoins and broader digital assets. Similarly, does the Minister agree that there is a real opportunity for the effective and efficient offshoring of government debt through the effective deployment of stablecoins? It is a real opportunity for the UK economy. If you want a use case to prove this point, just look at how USDC is currently operating.
At stake is a growth matter and a global economic matter. This is a way to effectively change how government debt is treated in a material way for the economy. More broadly, in considering the whole issue around crypto and digital assets, having even greater clarity from the Government, beyond growth and innovation, and making a clear statement as to what we want as the UK—what position we want to play when it comes to cryptocurrencies, assets, digital assets and stablecoins, sharpening the arrowhead of the Government’s mission—would be incredibly helpful across this industry. We have an extraordinary opportunity that we can take only if we make the changes to these regulations.
Will the Minister agree to meet me and other industry colleagues, potentially with the Economic Secretary to the Treasury, to discuss how we can perfect these regulations to be the positive, clear and consistent regulatory landscape that will enable industry and consumers to have the best experience and the most economically improving approach to crypto assets, stablecoins and digital assets in the UK? I look forward to the Minister’s response.
Baroness Kramer (LD)
My Lords, I confess that, when tried to work my way through this statutory instrument, I felt incredibly inadequate. I cannot pretend super expertise on crypto assets and stable coins. Most of the information that comes my way is, frankly, from the industry lobbying for the maximum amount of scope, along with assurances that this is just a much more efficient plumbing of the payment system—nothing troubling here, just an opportunity to enhance the economy.
I realise that a regulatory framework is necessary, as crypto has become mainstream and is no longer fringe. While I do not oppose the SI, I retain quite a degree of uncertainty. I start by picking up the issue of stablecoin. I know Chris, or the noble Lord, Lord Holmes, really well—I apologise for almost forgetting his name; I have moments of holes in the brain that I suspect come with age—but I question the assertion that stablecoin is essentially just fiat currency in another form. I know some of the stablecoin companies such as Tether argue that basically one Tether equals $1 in the form of treasuries. I am also clear that much of this is opaque. Those who I understand see the accounts of some of these firms say that, if stablecoins were really only matched one to one with a fiat currency, their earnings would be no more than the return you would get—if it was, for example, a dollar stablecoin—on US treasuries. That does not square with the earnings that they either report or promote as part of their future. There is certainly something opaque about stablecoin. We are much safer if we continue to regard this as a subset of crypto and look at it carefully before we give it any specialist position.
I understand the need for these regulations, but I am terribly conscious that the Government’s thinking in shaping all this has been much impacted by its membership of the joint UK-US Transatlantic Task Force for Markets of the Future. That has been guided and driven by the Trump Administration’s desire to use financial instruments as a means of extraterritorial control. We see this most obviously with trade tariffs—that is where Trump’s main speeches are and those are the instruments that he talks about. I understand that anybody who was at Davos and spent five minutes with US Treasury Secretary Bessent would have quickly understood that crypto and stablecoin are indeed instruments that, in the same way, offer great potential to advance US economic interests globally and for forms of what I think Mark Carney would probably have called financial coercion.
Baroness Neville-Rolfe (Con)
My Lords, as we move forward in an age of rapid technological change, it is right that we legislate to keep pace. This statutory instrument is, in many ways, an example of how Parliament can embrace that change. I thank the Minister for setting out how the regulations will work and for responding to the scrutiny committee’s concerns.
Baroness Neville-Rolfe (Con)
I was thanking the Minister for his response to the scrutiny committee’s concerns. I also thank the noble Baroness, Lady Kramer, for her well-informed insights, as usual, and her correct reference to risk. I very much look forward to the Minister’s response on that point.
While the Official Opposition are supportive of the direction of travel, we believe that the drafting is flawed. My noble friend Lord Holmes of Richmond explained that well; he called it a “wrinkle”. Fortunately, following the debate in the other place, I believe that the Minister and his crypto asset team have agreed to look into this with interested parties and that a follow-up meeting is planned between the Minister and our shadow Minister. I say at the outset that this is most welcome.
Crypto assets such as Bitcoin are commodities. They are bought and sold in anticipation of changes in value, much like shares or bonds. Stablecoins are different. They are backed by a fiat currency and act as a proxy for that currency. As such, stablecoins sit within the payment system and should be regulated as part of it. The draft instrument establishes the regulatory framework for crypto assets in the UK, including stablecoins. What we are therefore debating is critical to the delivery of the Government’s stated ambition for the UK to become a global hub for digital assets and blockchain technology—although I believe that the vast majority of such assets are held in the United States at present.
Equally, according to Bitpanda and Opinium, one in five adults in the UK has invested in crypto assets, and 40% of them are under 35. The possibility of high returns seems to be the main motivator, with portfolio diversification also being important. According to the same survey, the prime reason for transferring crypto is for the purchase of goods and services.
The Government’s policy note accompanying the original draft of these regulations made clear that it was published to identify errors or oversights that could lead to unintended consequences. My concern today is that such an oversight remains, so the instrument fails to achieve its stated aim.
A thriving digital asset market requires an effective form of digital cash. There are three such forms: central bank digital currencies, tokenised commercial bank deposits and regulated stablecoins. All three should be able to operate seamlessly alongside traditional fiat money with regulations that reflect how each functions in practice. The Bank of England has recognised that regulated stablecoins could deliver faster, cheaper and more functional payments, both domestically and across borders, as part of a multi-money system alongside commercial bank money. If we fail to regulate stablecoins in a way that reflects the real-world function, we risk losing ground to other jurisdictions. If using stablecoins means facing new regulatory hurdles, they simply may not be used.
In the UK, we have a long history of encouraging innovation in a regulated financial services sector. This record and the ability to innovate is vital to both growth and stability. With the current wording of the instrument, the UK could see the prize of innovation slipping away. Will the Minister comment on that concern?
The Government have attempted to address the problem in the context of payments by importing an existing exemption for the purchase of goods and services. However, that approach is ill suited to stablecoins and fails to provide clarity for all participants, particularly those who convert fiat into stablecoin and back again. Without certainty for these actors, the payment system may not be able to function effectively. A clearer approach would be a bespoke exemption for stablecoins or the use of an existing definition that captures payment activity within payment services regulations. I would be interested to hear about the current direction of travel on these various ideas.
Before I conclude, I would be grateful if the Minister would reflect on a number of broader questions that arise from this statutory instrument and the wider regulatory architecture within which it sits, and let me have a response—either today, which would be ideal, or in writing. I was very grateful to the Minister for the helpful letter he sent me following our last financial services discussion in Grand Committee. He will be aware that the House of Lords Financial Services Regulation Committee is planning an inquiry into crypto assets, so these questions are important, and the answers might be helpful to the debates that that committee will have.
First, how confident are the Government that the regulators are striking the appropriate balance between their statutory objectives for consumer protection, market integrity and financial stability, while also enabling the growth and innovation in our financial services sector that I think we both want? Given previous concerns that our regulatory system can at times err on the side of excessive caution, are the Government satisfied that the framework will not result in valuable crypto-related activity being driven offshore?
Secondly, how big is the risk of fraud, and what is being done to combat it? The noble Baroness, Lady Kramer, rightly talked about the danger of scams. Although she was less concerned about individual consumers, whom she sounded as though she felt were reasonably well protected, she made a very important point about scams hitting SMEs.
Thirdly, turning specifically to stablecoins, how significant do the Government believe sterling-denominated stablecoin activity could become in the United Kingdom? Does the Minister have concerns about potential disintermediation from the regulated banking sector and any consequent implications for banks’ capacity to lend to the real economy? If so, how do the Government intend to balance the imperative of supporting economic growth with the opportunity to foster innovation?
Finally, what steps are being taken to improve public understanding in this area? There is evidence that some young people are engaging with cryptocurrencies in a highly speculative manner, while others are deterred entirely by a lack of accessible information. Does the Minister share my concern that the continued absence of meaningful financial education within our various education curricula leaves many citizens ill equipped to make informed decisions in what is now an increasingly complex financial landscape?
We are united in our desire for the UK to do well in this field. It seems that the technical flaw, of which my noble friend Lord Holmes of Richmond also spoke, can be corrected, although I assume that this would have to be done by an amending SI rather than the withdrawal of the SI under discussion. In any event, I look forward to the Minister’s response to this and to the other questions that I have set out. This is an important area, and it is right that we take the time to scrutinise the intentions and effects.
Lord Wilson of Sedgefield (Lab)
My Lords, I thank noble Lords for their contributions. This has been an interesting debate. There are a lot of questions on this and I will do my best to answer them—I have been making notes. I may not get to respond to them all but, if I do not, as before, I will scour through Hansard and respond accordingly.
I welcome what the noble Lord, Lord Holmes, said about this going in the right direction, although there might be one or two problems—a wrinkle—that the department will probably look at and try to iron out, if they exist. We welcome the feedback. This SI enables the FCA, we believe, to respond nimbly to emerging demands. This is an area of continuing development. We will keep the regime under review, but we are not proposing to alter the instrument at this stage of the legislative programme.
Stablecoin and bitcoin are treated the same. It is right to note the difference between stablecoin and other more volatile crypto assets and to recognise the potential for stablecoin to play a significant role in payments. While stablecoin and other crypto assets are different in some ways, they share many characteristics and, therefore, risks. Regulating stablecoin in line with other crypto assets is, in many circumstances, the right approach. For example, firms dealing in or safeguarding stablecoin should be subject to similar rules as those for firms dealing in or safeguarding other crypto assets.
Baroness Kramer (LD)
My issue on this is related but slightly different. If we are dependent on dollar stablecoin for international trade, which is the direction of travel, and the US Government decide that they do not like either a policy that we have or a piece of trade, they can, through the companies that sit behind that stablecoin, in effect shut us down and cut us out. That is a very different set of circumstances from those in which we live today, where they might want to do that, but they cannot. They may try to make banks act in the way that they want, but they would have a far more challenging job in doing that. I am just concerned that that thinking is not embedded in the way that we are structuring this and doing the regulation. That is my concern. I see the plumbing advantages of stablecoin, but I worry about where the power levers are set. I cannot see that this addresses any of that.
Lord Wilson of Sedgefield (Lab)
That is a very important question about monetary sovereignty. While most stablecoins today are US-denominated—I think about 99%—and issued overseas, this instrument lays the groundwork for a thriving ecosystem, including UK- issued pound-denominated stablecoins. The Government are considering the regulators’ proposals on stablecoin-backed assets that include UK government debt. The Treasury will assess the fiscal implications and benefits of stablecoins in this context, and I think the Treasury is well aware of the noble Baroness’s concerns. It is something that we take very seriously, and we will probably hear more about that as time goes on.
The Government are committed to ensuring that the UK remains an open and connected financial centre, as we need to be in a globalised economy, and to upholding its commitment to international regulatory standards. We are working with the transatlantic taskforce on all these issues to enhance US-UK collaboration. We are aware of the issues that the noble Lord raised on capital markets, and the taskforce will explore options for short to medium-term collaboration on digital assets, additional opportunities for wholesale digital markets innovation and ways to improve links between our capital markets to enhance the growth and competitiveness of both UK and US markets.
On the specific quote used by the noble Baroness, Lady Kramer—
“same risk, same regulatory outcome”—
we think that this instrument allows the FCA, as the regulator, to set appropriate and detailed rules addressing market risks. We therefore do not believe that we have the same regulations as always for the risks.
Noble Lords asked whether there is a problem with the anti-money laundering requirements and whether this instrument goes far enough to look after consumers. To be clear, the Government are not weakening the anti-money laundering requirements; for example, they will continue to apply to crypto asset firms exactly as they do today. This legislation goes further by introducing a robust financial service regulatory regime that will require all firms offering crypto asset services, either in the UK or for UK consumers, to be authorised and regulated by the FCA and to comply with comprehensive conduct and prudential rules.
It is fair to say, I think, that this SI goes a long way to help to protect consumers. The creation of a register of authorised crypto asset firms will make it easier for consumers to identify legitimate firms. The requirement for those firms to comply with the comprehensive conduct regime will reduce the risk of poorly run firms and bad practice resulting in consumer harm. By defining and prohibiting market abuse—as well as placing an obligation on firms to put systems in place to prevent, detect and disrupt such abuse—this instrument will improve the integrity of crypto asset markets and lead to better consumer protection.
Also, the regime will leave the UK well-placed. There was a question about what Europe is doing as well. We continue to co-operate internationally with our partners, including the EU; we also continue to watch the development of the digital euro with great interest.
Both noble Baronesses asked about parliamentary scrutiny, in essence. We believe that this instrument sets out a clear regulatory framework that will ensure that the Government’s aims and objectives for the sector are reflected in the regulations’ final rules. Giving the FCA flexibility on the detail of the regime will allow it to respond nimbly to developments in this fast-evolving sector; that said, Parliament will be able to hold the regulator and government to account on an ongoing basis using the regime, once it is live, through normal means such as requiring attendance at Select Committees. Also, should it become apparent that the regime is not working as intended, the Government will have the option to return to Parliament and amend the framework under which the FCA operates.
Someone asked what the impact on small businesses will be. The impact assessment published alongside the instrument sets out the impact that the Government expect the regime to have on all businesses, including small businesses. The FCA has existing duties to consider the most appropriate way of implementing this regime.
I hope to get through all noble Lords’ questions. As far as our people know, in terms of what is regulated, firms authorised for the new crypto asset activities will appear on the FCA register in the same way as firms authorised for traditional financial services activities.
As far as payments are concerned, I think stablecoin was mentioned. Government work is under way in order to take forward broader work to modernise assimilated law on payments, including to ensure that the UK’s payments regime is fit for tokenised payments such as stablecoin. That work is ongoing.
We all know about the opportunities for cryptocurrency. We cannot disinvent it. We have to make sure that it works for the British economy and the British people; and that people are protected. This SI lays down a framework so that consumers can be protected.
I turn to the two final questions. The Government are committed to making the UK a world-leading destination for digital assets. Our regulatory regime has been developed through extensive engagement with industry and international partners, ensuring it is both internationally competitive and aligned with global standards. This legislation will support UK growth by giving crypto asset firms the regulatory certainty needed to invest here and drive innovation in our financial services sector. So, in answer to the question of the noble Baroness, Lady Neville-Rolfe, we do not think that this is too restrictive.
Finally, on financial education, which we are all keen to see in our schools and broader society, the Government want people to have the confidence and skills they need to manage their money. The Money and Pensions Service, an arm’s-length body of government, provides free, impartial guidance to consumers at every stage of their financial lives. More widely, the Government are taking steps to improve financial education. In November, we set out our plans for all school children in England to receive financial education. This reflects the Government’s wider commitment to financial literacy and building a population better able to make informed decisions about financial products.
I hope I have hit all the questions. If I have not done so, we will go through Hansard and get back to noble Lords about what perhaps we have missed out.
Baroness Neville-Rolfe (Con)
The Minister’s reply was extremely helpful. One thing I am a little uncertain about relates to the Treasury, or the crypto assets unit, looking at the possible wrinkle or flaw that my noble friend Lord Holmes mentioned. If that led to a change in the SI, my understanding is that it would not come back here. That is because, in answer to the question of the noble Baroness, Lady Kramer, the Minister explained that this is a ground-breaking SI and after that, because it is important to be flexible, the FCA would make any changes. Assuming that is right, this is a plea from us for an update as to the progress of those discussions when they have taken place. My understanding from our shadow Minister in the other place was that discussions were ongoing on this matter, which he was extremely grateful for. It would be useful for us to know the final outcome of those. If a small change has to be made to the regulations, I am sure we will be supportive.
I am delighted to hear about financial education. I look forward perhaps to giving the Minister a cup of tea and learning a bit more about that on a future occasion because it goes beyond the framework of today’s discussion. On SMEs, it is not only that we want the Government to think about them, which they are obviously doing, but to make sure that the scam issue with SMEs is part of either the Government’s or the FCA’s thinking. It is an important matter for struggling small businesses in the country. We do not want that issue to go further. I am happy to agree to the passing of this statutory instrument and thank the Minister and the Treasury for all the work that they have done in this area.
Lord Holmes of Richmond (Con)
My Lords, I likewise thank the Minister and the team for the thoroughness of the answers. To underline the point raised by my noble friend Lady Neville-Rolfe, can the Minister say today clearly whether there are ongoing negotiations, which is our understanding, around this specific point or whether this SI will through unamended and that is the Government’s position? Secondly, do the Minister and the Government accept the issue of double regulation, which would be a consequence of these regulations, and the broader point around that? That is because of the roles that particularly the Bank of England and the FCA are playing in this process, with firms potentially finding themselves subject to double regulation at different stages of their development.
Lord Wilson of Sedgefield (Lab)
On the question of what can be described as the wrinkle, I hope that, if there is any slight issue with all of this, we will try to work it out in regulation; however, the FCA is looking at it, and that might be the way to do it. Obviously, as I said earlier, if something needs to be changed, we have the right to bring it back to Parliament and have another go, basically; that may include further legislation.
On double regulation, in terms of the Government’s view of the Bank of England’s consultation on systemic stablecoin, the Government recognise that facilitating stablecoin innovation is important for UK competitiveness. The Treasury and the Bank of England are maintaining close, ongoing dialogue on the legal and regulatory treatment of stablecoin in support of the Government’s objective to make the UK a global destination for digital assets.
The main point is that we want this sector and these regulations to do several things: grow the economy; be flexible enough to change when they need to change; and look after the consumer. We are building on regulation that may have been there, as far as the consumer is concerned—on money laundering, for example—and we will go in that direction, but we will work very closely with the industry so that we have something that is suitable for both the consumer and the industry. This is a sector that we would like to see thrive; as I said, you cannot disinvent it, so we need to make it work for us.
Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026
(1 day, 9 hours ago)
Grand CommitteeRead Hansard Text Read Debate Ministerial Extracts
Lord Whitehead
That the Grand Committee do consider the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026.
Relevant document: 47th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, this order was laid before Parliament on 16 December 2025.
The UK Emissions Trading Scheme, or UK ETS, was established—perhaps I should say “re-established”—under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme, contributing to the UK’s emissions reduction targets and net-zero goal. The scheme is run by the UK ETS Authority, which is a joint body comprising the UK Government and the devolved Governments acting as one. Our aim is to be predictable and responsible guardians of the scheme and its markets.
Under the UK ETS, operators are required to monitor, report on and surrender allowances in respect of their greenhouse gas emissions. Although most allowances are purchased at regularly held auctions, operators in certain sectors at risk of carbon leakage are given a number of allowances for free; there are referred to as “free allocations”. Free allocations reduce the exposure to the carbon price for sectors at risk of carbon leakage and reduce the risk that decarbonisation efforts could be undermined by production and the associated emissions moving to other countries.
Under the UK ETS, an operator is the person or company with control over an installation. Installations are stationary units at which regulated activities take place. Sub-installations represent operations carried out at an installation for which operators that receive free allocation are required to report activity levels for the purposes of the UK ETS.
We have brought forward this statutory instrument to enable important changes and improvements to the scheme. The first change it makes is to enable operators of installations to be able to notify their regulator that they wish their activity data for the 2020 scheme year, or 2020 and 2021 scheme years, to be excluded from the calculation of their historical activity levels for the 2027-30 free allocation period. This is in recognition of the fact that production levels may have been impacted during the Covid-19 pandemic. These operators will be able to notify their regulator during the second stage of the 2027-30 free allocation application, from 1 April 2026 to 30 June 2026, that they wish to exclude their activity data for 2020, or 2020 and 2021.
A legal change to the free allocation regulation is needed because existing legislation would require regulators to calculate historical activity levels using activity data from all five years of the baseline period from 2019 to 2023. So, if amendments are not made, there will be no legal basis for regulators to exclude data from 2020, or 2020 and 2021, from the historical activity level calculation for any applicant. Using activity data for these years could result in historical activity levels that do not reflect normal activity, meaning that operators would receive less free allocation than they would otherwise be entitled to receive.
The second change the instrument makes is to gradually phase out free allocation for sectors covered by the UK carbon border adjustment mechanism—the UK CBAM—starting over the 2027-30 allocation period. This phase-out will be implemented through applying a UK CBAM reduction factor to the calculation of free allocation, and will apply at sub-installation level. To do this, operators will be required to report on which of their sub-installations serve the production of UK CBAM goods. This will enable regulators to apply the UK CBAM reduction factor to the relevant sub-installations.
A legal change is needed as operators currently classify their sub-installations only by a specific benchmark and the corresponding carbon leakage status of that sub-installation. This instrument requires operators also to classify each sub-installation as “UK CBAM” or “not UK CBAM”. Benchmarks are the efficiency standards used to calculate each installation’s free allocation entitlement. Installations closer to their benchmark have a higher proportion of emissions covered by free allocation, rewarding more efficient installations and incentivising decarbonisation.
The third change the instrument makes is to use current benchmarks for the purpose of calculating free allocation for stationary installations for the 2027 scheme year. This instrument also provides for the ability to update the benchmark values used to calculate free allocation for the years 2028, 2029 and 2030 of the 2027-30 allocation period. Maintaining current benchmarks for the 2027 scheme year will allow time for industrial participants to adjust to the changes.
A legal change to the free allocation regulation is necessary because, under existing legislation, there is no provision to update benchmarks during an allocation period. The principal intent is to use the updated ETS phase 4 benchmarks in the 2028, 2029 and 2030 scheme years; this will be decided once the EU benchmark values are available and will be subject to assessment of the impact.
Installations that permanently cease to operate are required to report on their activity in the final year of operation so that free allocation can be recalculated to reflect the cessation of activity. This amendment clarifies that operators must report on their activity levels in instances of permanent cessation or the surrender or revocation of their permit.
These intended changes follow comprehensive engagement and consultation with stakeholders. The UK and devolved Governments carried out consultations that covered the provisions included in this statutory instrument. The free allocation review consultation ran between 18 December 2023 and 11 March 2024, seeking views on proposals to alter the free allocation methodology for UK ETS stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed. The free allocation review carbon leakage consultation ran between 16 December 2024 and 10 March 2025. It sought views on a draft UK-focused carbon leakage list compiled by applying UK data to the existing carbon leakage list, as well as the trajectory for phasing out free allocations for sectors that will be covered by the UK carbon border adjustment mechanism. The relevant responses to these consultations were summarised in the UK ETS authority’s response.
In conclusion, the changes in the draft order will deliver on commitments made by the UK ETS authority, improve the fairness of the scheme and increase certainty for both regulators and operators. These changes will ensure that free allocation continues to provide meaningful support to UK industry while maintaining the incentive to decarbonise and rewarding efficient installations. The amendments to the UK ETS will support its role as a key pillar of the UK’s climate policy. They demonstrate that we will take action to improve the scheme where necessary. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful to the Minister for so comprehensively outlining the contents of the SI. Once again, I welcome him to the House and his position. We knew each other in the other place over a number of years and I was a great admirer of his during that time. I also welcome my noble friend to his Front Bench position, and I look forward to working with him in that capacity. I congratulate the noble Earl on the Lib Dem Benches for his conversion to a life peerage. We are now equals in that regard.
I will take the opportunity to put a few questions to the Minister. I understand that the year 2026 is a stand-alone year before we proceed to 2027 onwards. Is that of particular significance in regard to the changes that the Minister outlined? I understand from paragraph 11 of the Secondary Legislation Scrutiny Committee’s report that, in response to a number of concerns that were raised, the department
“emphasised that UK industry and wider stakeholders had ‘repeatedly’ called for linking with the EU ETS”.
The committee went to great pains to say:
“According to the DESNZ, linking does not mean re-joining and is expected to reduce costs for UK businesses by giving them access to a larger, more liquid market”,
and it said that it had published the submission.
Perhaps I ought to say that I am a pro-European Conservative, so it would not bother me if we rejoined the EU ETS. I know that I am in a minority of one in the Conservative Party on this point, but I want to put that on the record. It raises the question of why industry will be concerned. As I understand it, the UK ETS is very ambitious and operates with a stricter emissions cap, initially set at 5%, which I understand is higher than that set by the EU ETS. If that is the case, does the Minister agree that there are very strong arguments that the UK industry would wish to follow the EU ETS in this regard?
Earl Russell (LD)
My Lords, we welcome this order but I have some important questions to ask the Minister. My party has long argued that a robust, transparent, high-standard carbon market is a cornerstone of any credible pathway to net zero by 2050. When done well, emissions trading cuts carbon at least cost, drives innovation in clean technologies and gives industry the long-term policy certainty that it needs to invest confidently in the green transition.
This instrument makes a number of sensible technical adjustments, but this update carries more weight than most of the normal updates. We strongly support all the Covid measures; they are sensible, practical and needed.
However, uncertainty persists around our future carbon-market relationship with our closest trading partners. The Government’s own documents show that UK industry has repeatedly called for linking the UK ETS with the EU ETS, which has already been spoken to and which is a step we strongly favour. A stand-alone UK ETS would be smaller and more price volatile, driving up costs for British business compared to the stability and liquidity of a larger linked market. When paired with clean power, deeper market reforms and other measures, a linked system offers real opportunities to cut energy costs, modernise industrial processes and slash emissions.
This order moves us towards dynamic alignment by adopting EU benchmarks from 2028, alongside the phase-down of free allocation for CBAM-exposed sectors and by enabling import levies through the UK CBAM. This is the right direction. We cannot ignore the carbon costs embedded in goods we manufacture or import emissions unchecked, but this complex transition demands adaptability, coherence and close management by the Government as we move forward. We remain in a halfway house, following rules we no longer help to write, without gaining the full benefits of a larger carbon market. I seek clear reassurances that the Government are protecting UK industry, working towards positions where we are rule-makers again and ensuring that our needs are recognised and mitigated during the interregnum.
The impact assessment’s estimate of £9.8 billion net present social value shows gains from effective decarbonisation, yet the £92 million annual cost to business is far from trivial for energy-intensive industries. As free allocation pares down—particularly for cement, fertilisers, iron and steel, aluminium and hydrogen—we must not offset our emissions and jobs to less scrupulous jurisdictions. A carbon price that cleans up British industry is welcome; one that simply relocates it helps neither our targets nor our industrial base.
I therefore have just five questions for the Minister. First, the Minister’s department accepts that EU linking would reduce costs and provide price certainty. Adopting EU benchmarks facilitates that alignment. Can the Minister set out a possible timetable for negotiating a formal linking agreement? Does the Minister tend to think that any conditions might be attached to that? Industry must plan and make investment decisions now, not years ahead, so this certainty is important to it.
Secondly, on parliamentary oversight, concerns remain that dynamic alignment could allow changes to benchmarks and core design features with minimal scrutiny. Can the Minister confirm that any future changes to the 2028-30 benchmarks or material changes from further EU alignment will come by affirmative procedures and be debated in both Houses?
Thirdly, CBAM and ETS reforms help tackle import leakage, but export leakage remains mostly unaddressed. As free allocation withdraws, UK exports may face higher carbon costs than our international competitors do. So what WTO-compatible measures, targeted free allocation, export rebates or other measures are being considered to help protect exporters and strengthen our manufacturing base? On the sectors that are hardest to abate—ceramics were mentioned in the other place, and Ministers are having particular conversations with the ceramics industry—it feels that particular sectors will struggle to abate even if they want to and extra support is needed.
Fourthly, on regional fairness, the impact assessment highlights burdens on industrial clusters, particularly in Wales, Scotland, Northern Ireland and the north of England. A lot of these areas have already been hit by processes of post-industrialisation. So how do the ETS reforms integrate with wider decarbonisation strategies, including cluster sequencing, CCUS, hydrogen support and the shared prosperity fund?
Fifthly, obviously SMEs are mostly outside these schemes, but some are captured. Where they are, will tailored support and special consideration be given to their needs?
I have some general questions. How will the Government monitor and report the impacts of these measures, particularly in relation to carbon leakage? What mechanisms will track investment in clean technologies that the Government want to see and expect to happen? What mechanisms will track price changes and the competitiveness of the industries related to those?
My belief is that openness in this sector as we move forward is in everybody’s interests. We support the direction of this order but, without bolder steps toward EU ETS integration, the UK risks drifting—aligning in practice but isolated—and being subscale in market terms. That does not serve our industries, investors or climate objectives. We urge the Government to put linkage firmly on the agenda and give British industry the stable framework that it needs. Our climate and our industry standards cannot afford continued ambiguity.
Lord Moynihan (Con)
My Lords, I thank the Minister for introducing this statutory instrument. He generously banked the good will between the noble Earl, Lord Russell, myself and himself yesterday, and I assure him that he will have no need to draw down on that, because I am sure he will disassociate himself from his colleagues in another place when it comes to this scheme.
For once, this is a policy that is solely conceived by the Labour Government. It is a straightforward decision by DESNZ to increase carbon taxes on major industrial users which depend on hydrocarbons, particularly gas in the UK industrial market. Many industries have no choice but to use gas, and no alternative firm sources of supply; indeed, they face heavy dependence on high electricity prices to stay in business.
The Minister’s speech may sound technical, and it is true that 104 pages covering the order and the Explanatory Memorandum take some digesting, but a reread shows exactly what this statutory instrument does. The good news is that the noble Lord, Lord Lemos, sitting beside the Minister, is a good Lewisham man and he had no difficulty understanding every word of the particular trading scheme order that is before us. He will be able to help the Minister; I see he is already doing so.
What does this order do? It reduces the supply of free allowances—the key point that was made by the Minister—and thus it increases the carbon tax cost to many of the UK’s major energy industries in a highly competitive global market. These free allowances have been the mechanisms used to protect businesses such as ceramics, cement and steel from being undercut by cheaper imported products from countries that do not charge carbon taxes.
Take the very real example, considered and referred to by the noble Earl, Lord Russell, which was considered in another place yesterday by Gareth Snell, the Labour MP. He focused on the ceramics industry and said that this sector
“is very difficult to decarbonise”
but that it is
“producing things that are integral to the Government’s missions, whether that be house bricks for our house building programme or advanced ceramics to support our defence industry … because we cannot make steel in this country without ceramics … We are still at huge risk of carbon leakage. We work in an unfair market at the moment, not least because of the way in which non-market economy status countries import into this country … the ceramics sector is desperately trying to do all that it can to reduce its output of greenhouse gases, but that is really difficult when it has to run a kiln at several hundred degrees for many hours to do the bisque and the glaze firing, and run refractories for 12 to 14 hours at 1,500°C. Electrification is not available to many of those businesses at the moment, because the capital to invest … is simply not available; the profit margins on their products do not allow for it … We are wedded to gas for the foreseeable future”.
The sector fears that,
“as we move at pace to meet some of the decarbonisation agendas and reduce the overall cap through the emissions trading scheme, that will mean that the free allowances also have to come down, which will push the ceramics sector into having to buy many more free allowances”,—[Official Report, Commons, Delegated Legislation Committee, 27/1/26; cols. 9-10.]
leading to higher costs.
Even in the Government’s net-zero nirvana of green power plants, gas is the dispatchable power in the system. There is no other choice; nothing else will keep the lights on when the wind does not blow and the sun does not shine. This SI needlessly imposes a tax that inflates the price of gas to the industry and then passes the additional cost through to the consumer when they have no other choice.
Everybody wants clean rivers, clean energy and an improved environment with a clear commitment to tackle global warming. But these objectives should never purposely lead to deindustrialising the country, negating growth and increasing unemployment in our high labour-intensive, high energy-consuming industries on the altar of net-zero zealotry.
We have among the highest power prices in the world and today we are putting them up again. If you drain free allowances out of the system, energy costs rise yet more in comparison with international competitors. Not surprisingly, international companies will relocate abroad in more competitive markets and accelerate deindustrialisation in the petrochemicals sector, the steel sector, ceramics and refineries. Sadly, this may also apply to data centres in the future, with fewer choosing the UK for the very same reasons.
Lord Whitehead (Lab)
I thank noble Lords for their contributions to this debate, which were absolutely up to the rather technical nature of this SI—although I would say that the noble Lord, Lord Moynihan, managed to take in a large landscape on the whole question of whether a decarbonisation policy is good or not. I suggest that that debate is for another day because we are talking about some specific changes that are being made to a specific policy.
That policy relates, of course, to an overall adjunct to decarbonisation policy in general, which is to secure a good carbon price to underpin moves towards developing a more sustainable, low-carbon, green economy based on making sure that fossil fuels are at the margins of the energy economy, rather than at the centre of it; and that incentives are put in place for that to happen and for the economy to run on low-carbon energy in general.
If the noble Lord, Lord Moynihan, considers that a bad idea overall, perhaps he might say so; he has moved a little way along that path. I do not think that the Bank has yet cashed in all its good will, but we need to set one or two things straight about how that relates to this SI. The free allowances that are presently in place for a number of energy-intensive industries that are in danger of carbon leakage as a result of low-carbon policies are being continued for 2026 but are being tapered down—not because the Government think that they are a terrible idea and that we ought to stop giving out free allowances but because we are on the road to CBAM, which is in itself a comprehensive shield against carbon leakage.
Having a series of free allowances running alongside a CBAM arrangement would therefore duplicate the protections that are, and should be, in place. Having a mechanism that enables the CBAM process to come into place, while making sure that the industry has the free allowances it needs to move towards CBAM, seems a very sensible thing to do to keep the overall low-carbon energy show on the road in the longer term. I have not heard from the noble Lord, Lord Moynihan, whether he thinks that CBAM is a bad idea; the industry generally thinks that it is a very good idea.
Lord Moynihan (Con)
The Minister has put two points back to me. First, I have no dispute with that; I think that decarbonising the industrial sector over time is a sensible policy. The problem is that, if you try to accelerate that decarbonisation into 2030 and you must raise electricity prices to the level the Government have done through a carbon tax, you make industry uncompetitive. If you make industry uncompetitive on the altar of long-term decarbonisation, you will have serious employment problems; that precise point was made by an MP in another place in speaking on behalf of ceramics.
My issue, therefore, is not with the long-term decarbonisation of industry; I am totally at one with the Minister on that point. My point is that, if you hurry this along on an artificial timescale of three years, you will have to put up carbon taxes and you will put businesses out of business, in effect, from the moment when they must face these carbon taxes, which are not imposed by their competitors around the world; they may, therefore, find themselves uncompetitive.
I am not arguing against CBAM but I am making the obvious point that, if you then remove these allowances—say you have free allowances of 10 out of 100, and you take 10 of those free allowances away—you have to acquire the other 10 allowances from the market. There is a significant additional cost; that is outlined very clearly in the impact assessment before us today. Indeed, paragraph 18.8 of that document states:
“These factors combined can lead to domestic prices being consistently higher than import prices, enabling substantial price pass-through”.
It is right here in the very document that we have been considering today, and it proves my point about an increase in prices—a significant increase from what are already very expensive electricity prices—that must then be passed through. Also, the nature of that pass- through goes even further than what I have said. Paragraph 18.7 of the impact assessment says:
“The results suggest that most sectors could pass about 80-90% of cost increases to consumers”.
It is the consumers who will feel the pain of this measure; that is the Government’s own clear statement on page 70 of the impact assessment.
Lord Whitehead (Lab)
The Government are of course very well aware of the whole question of how energy prices should be kept within reasonable bounds. By the way, the noble Lord went on a bit about gas a moment ago. He should remember his own period in government, when the Government spent something like £70 billion trying to bring prices back down when they had got completely out of control with the spikes in the price of shipped gas coming into the UK, which rose to 600p per therm at one stage in the mid-2020s.
You could say that, because the Government at that time did not control international gas prices in the way that the noble Lord seems to think can be done— I very much doubt that the various measures he is proposing to regulate international shipped gas prices would have the effect on volatility that he thinks they would have—we are still open to that enormous volatility in gas across the world. Indeed, just recently the price spiked quite substantially—probably not to the extent that happened in the early 2020s, but that is a spectre that continues to haunt us with reliance on international gas and not going to a low-carbon economy.
I am on the side of insulating the UK economy from those enormous global changes in gas prices, particularly by moving, broadly speaking, not to a no-gas economy but to a low-gas economy as far as the future is concerned. That will be of tremendous benefit to UK industry and exports, and jobs and industry in general, because we will have a stable energy economy for the future, which will allow us to plan ahead properly without the spikes, volatility and panics that we have seen over the last few years. I think the noble Lord wants me to give way again.
Lord Moynihan (Con)
May I say how flattered I am that the Minister thinks that I was in government on this side of the turn of the century? I must look a lot younger than I thought I did. I have to go back to 1990, to be precise, when I was Minister for Energy and we started the offshore decarbonisation of gas. In fact, we stopped flaring at that time, at the same time as we set up a non-fossil fuel obligation to encourage renewables. We had low domestic and industrial gas prices in the United Kingdom because we encouraged combined-cycle gas turbines. I just wanted to place that on the record, but I say it in a spirit of deep gratitude to the Minister for thinking that I was in government only recently and that I obviously look far too young to have been a Minister in 1990—or perhaps I look far too old.
Lord Whitehead (Lab)
I thank the noble Lord for that correction as far as his status in previous Governments is concerned. I was making a point not about his own distinguished period as an Energy Minister, which I appreciate was much earlier and perhaps in a rather happier energy era than we have today, but about the mangled response from the Conservative Government to the last gas volatility crisis in this country, and what resulted in terms of the money going out of the Exchequer for the attempts to protect domestic consumers and businesses from that spike, since he raised it as one of his concerns about this SI.
I ought to add, by the way, that, in the Government’s industrial strategy—yes, we have an industrial strategy, unlike previous Administrations—we announced additional support for 7,000 energy-intensive firms through the British industrial competitiveness scheme, which will reduce electricity costs by up to £40 per megawatt-hour. Through the British Energy supercharger, the Government are increasing support for the most energy-intensive firms by covering more of the energy network charges they normally have to pay. From 2026, the discount on these charges—namely, legacy costs, capacity market feed-in tariffs and so on—will be discounted by 90% from their present 60% level. That is a substantial boost to industry, as far as prices are concerned, by the direct actions of the Government under these circumstances.
I am conscious that I have spent rather too long addressing what the noble Lord, Lord Moynihan, has perhaps wound me up to talk about more than I might otherwise have done. I have to now address the questions that were put to me by the noble Baroness, Lady McIntosh of Pickering—who I applaud for being, as it were, on the side of these particular measures and ideas from the other side—and the noble Earl, Lord Russell.
I have, to some extent, covered the questions that the noble Baroness put to me. The first allocation period will be extended to 2026 to ensure that the changes implemented from the free allocation review come into force in 2027, to align with the introduction of UK CBAM. On her questions on bills, emissions trading has been a key element of power sector decarbonisation. Therefore, maintaining a strong UK ETS and, dare I say it, aligning it with the much wider market that we can enter into, for the stability of the ETS, will not be a joining of the EU ETS but a linkage of the UK ETS to the EU ETS. The UK ETS will continue. It has been determined following a recent consultation discussion that it will continue until at least 2040.
Baroness McIntosh of Pickering
I want to press the Minister. We are being more ambitious under his scheme than under the original scheme, the EU ETS to which the UK originally subscribed. We are going for a stricter emissions cap, initially of 5%, and will probably be more ambitious as we go forward. We also have a shorter timeframe in which to subscribe. We are all being clobbered by this. It impacts on the Government’s growth agenda, as I mentioned, and on the cost of living that my noble friend mentioned from the Front Bench. I am honorary president of the warm homes front, and I know that particularly those living in challenging circumstances in heating their homes and in fuel poverty will find this incredibly difficult.
Lord Whitehead (Lab)
The issue is fairly complex because of the benefits and disbenefits that apply from having a really ambitious carbon pricing target. On the one hand, it drives the decarbonisation of home heating, domestic electricity delivery and all sorts of things like that in a low-carbon way, and, arguably, that is a substantial reducer of the price of household bills in the longer term.
Baroness McIntosh of Pickering (Con)
If it is going up from £100 to £138 per household, when are we going to see the reduction that we were promised in the general election?
Lord Whitehead (Lab)
The Government recently introduced an average reduction of £150 off electricity bills, through placing legacy bills into Exchequer arrangements rather than putting them back to households through obligations. We will continue to look at that on a wider basis. That is a good start for reducing energy bills, as it changes the nature of how the low- carbon economy works.
The noble Lord, Lord Moynihan, asked why we are changing these arrangements in a fairly rushed way. Part of the answer is that, if we are to have a good CBAM in place—after all, it is coming in a year after the EU CBAM—we have to get our skates on. We also have to get our skates on in linking the UK ETS with the EU ETS. The noble Earl, Lord Russell, is aware that, just six months after the linkage arrangements were agreed in principle at the EU-UK summit last April, the November negotiations and discussions started, and they are still under way at the moment. There are a number of answers on timescale and so on that I cannot give right now, but I assure the noble Earl that these are clearly under way and that there is a clear out from those negotiations.
I am conscious that we have spent a long time on this. I will write to the noble Earl and the noble Baroness on the remaining outstanding issues. I hope that I have been able to give a reasonably reassuring position on the need for this SI and the wider context of the underlying direction of all this policy and why this SI leads to a much better and more stable series of arrangements for both the UK ETS and CBAM, as it comes forward.
Earl Russell (LD)
We have had a good debate on this. We may have strayed slightly off the topic into some broader areas, but it is important that these issues are discussed and that, when we disagree, we disagree well. I thank everybody and the Minister for their responses.