Economic Environment: Growth and Jobs

Baroness Neville-Rolfe Excerpts

Thursday 11th July 2019 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

That this House takes note of the case for creating an environment which encourages (1) business growth, and (2) job creation, especially in relation to the tax system.

[Baroness Neville-Rolfe (Con)]

My Lords, I am honoured and delighted to be leading this debate at such an important time for our country. Of course, most of our thoughts are on the next 100 days, which will make a huge difference to our future and the 66 million people and 5.7 million businesses on these islands, but whatever happens to Brexit the success of business is important to everyone whether, say, they sit in the NHS in Salisbury or in a retirement home in Scarborough. This is because business produces the wealth on which we all depend.

I would like to reflect more deeply on this point. There are many excellent things about being appointed to the House of Lords, especially the chance to scrutinise legislation in a way that is not practicable in the House of Commons. However, I have to say that I have been disappointed by our failure to understand commercial interests and their importance to wealth creation and to the UK’s position in the world. However, I am comforted by the fact that, although no one is guiltless on this matter, attitudes in the Conservative Party are somewhat better than they are elsewhere. We should not underestimate the significance of a culture where enterprise is valued.

The same attitude seems to permeate society at large where too much attention is given to dividing up the cake and to regulating in ways that reduce it than to ensuring it increases. Growth was only 0.3% in the three months to May, despite annual population growth of 0.6%, and output per hour, the key measure of productivity, is now at best flatlining. Against this challenging background, I will explore some of the drivers of growth and what is getting in the way. A key question is whether our tax system helps the economy to grow in both absolute and relative terms. Does it help with our international competitiveness at a time when we will need to trade more broadly? Are we encouraging the magic of digital growth and taxing it fairly?

Before starting my main themes, I should like to thank the Library staff, who, as always, have been unfailingly helpful in assisting me to prepare for this debate.

I turn, first, to certainty. Businesses need to know where the country is going, and at present capital is being held on balance sheets rather than invested. Ask almost any CEO and they will say that US and other firms are holding back from investment. In March, many sought a delayed Brexit as they did not want a no-deal scenario, but I fear that we are now reaching a stage where delay in reaching a conclusion on Brexit is itself possibly the greatest negative factor affecting the economy. Businesses also fear the chaos and extreme socialism of the present Labour leadership. For all those reasons, the economy, hitherto resilient, particularly on employment, is now slowing.

On fiscal responsibility, there is an arms race of new ideas for taxation among both Conservative leaders and the Labour Party. Unfortunately, the necessary lodestone of fiscal responsibility is missing. We must not now put at risk all the good work that we have done in reducing the deficit created by the financial crisis. The national debt is still far too high, at £1.8 trillion, and it costs us £37.5 billion a year—money that could be put to better use.

The tax system is also creaking under the weight of its own complexity. Because I believe in taxing broadly and thinly, I think that we should keep VAT. However, there are hundreds of complications that have taken the entire tax code up to 10 million words—an estimate from the Institute of Chartered Accountants of Scotland, where I am off to after this debate. That is double what it was in 2009, according to the Telegraph. With a simpler approach, we could have avoided some embarrassments. I refer, for example, to Making Tax Digital, to those trading with the EU finding it so difficult to get the tax codes they need to export post Brexit and to the wretched loan charge fiasco.

On regulatory burdens, the complexity of the tax system, when allied with a confusing and growing regulatory system in sector after sector, leads to the dampening of business growth, whatever the underlying strength of the economy. It is no coincidence that labour productivity has been so poor since the crash in areas such as financial services and energy, where there has been so much new regulation. Noble Lords should beware of new uncosted, complex regulation in new areas if we are to retain international competitiveness.

I turn to education and digital education. Having studied what drives growth for so long, both at Tesco and as a Minister—like my noble friend Lord Henley—at the business department, and later at the Treasury, I am convinced that the most important driver of long-term efficiency and productivity is education. I welcome many of the Government’s reforms, including Teach First, and the improvement in standards, especially, for example, in London primaries. However, the schools are too full because the impact of immigration was not provided for under our short-term accounting system.

We are not preparing properly for the future. The apprenticeship levy was meant to herald the sort of vocational education that I have seen operate well in Germany and Austria. However, as was apparent when reading between the polite lines of last Thursday’s debate—which, sadly, I missed—it is a mess. It is not business led as it should be, and the levy in some cases has become simply yet another tax charge on the medium and large businesses that supply most of our quality jobs. Many fine businesses take the view that they are putting in much more than they gain. The apprenticeship levy needs to be turbocharged and simplified, and I await the Government’s review, which I welcome, with some trepidation.

Even more seriously, we are not preparing properly for the digital revolution, which will destroy some jobs as automation and AI take off. This must be balanced by a vast investment in digital skills in schools, alongside literacy and maths, and in higher education, apprenticeships and on-the-job training; otherwise, growth will bring jobs losses, not the job creation that we all seek.

Infrastructure is not for today’s debate but I support the Government’s infrastructure fund, which is another productivity driver. We just need to get on with building the roads, digital networks, housing and rail facilities in the Government’s plans. More competence is as important as more money.

I must refer to the Taylor review of working practices, to which my noble friend the Minister very helpfully drew my attention when we met earlier in the week. This analyses how to improve working practices to the advantage of all. I was particularly struck by section 4, on management-employee relations, where the objective is that workers are engaged and heard, which I know is so important. On the same theme—I refer to my business interests as listed on the register—I am a director of Capita plc, which has recently appointed two employee directors to the board; having met the individuals concerned, I am very hopeful that they will make a strong contribution to the success of the company.

I now turn explicitly to the tax system and must say how much I look forward to today’s contributions on the specifics. I have already criticised tax complexity—which is possibly top of my list, because it is a slow killer that people do not notice—but I would like to highlight some specific areas where the structure of tax, especially for business, needs to be looked at.

As a former retailer, as everybody knows, I know that retail, the heart of thousands of towns and villages across the country, is disproportionately affected by business rates. According to the British Retail Consortium, the industry constitutes 5% of the economy but pays 10% of business taxes and 25% of business rates. Moreover, the Treasury requires a fixed amount in business rates every year. This is no longer a sensible or viable policy; the take needs to be reduced. Also, the present system of transitional relief is unfair. Month after month, we see the bigger shops failing and taking with them many small shops. This week’s figures bring the problem home: in the three months to June, non-food instore sales fell by 4.1%, like for like, while online retail sales, excluding food, grew by 3.3%

I support the digital services tax in principle, but it should be higher and the proceeds should be used to offset business rates and help the desperate situation on the high street. Rates should be frozen with no upward adjustment until the vibrancy of our towns and cities is restored or the business taxation system reformed.

It is clear that the property market is slowing and that the recent increases in stamp duty have discouraged people from moving whenever it can be avoided—especially at the top end, where the level reaches 12%. This has had a deleterious effect on the movement of labour, which is vital to our growth. Stamp duty must be reformed, especially with a view to encouraging mobility and empty nesters trading down to release family homes. It is not just a matter of concern at the lower end, which leadership candidates have highlighted.

The Government should be congratulated on what they have done for small businesses on rates and their proposals to give the Small Business Commissioner more teeth. They have also established the British Business Bank, which is now five years old and the subject of an inquiry in the other place. My own view is that this bank needs to increase in scale and remit and that it can help smaller businesses enormously, not only in London but especially outside it.

However, the tax environment remains a struggle for millions of small businesses and, as your Lordships’ Economics Affairs Committee report Making Tax Digital for VAT: Treating Small Businesses Fairly highlighted, the change to digital returns has created great difficulties for some small businesses. The work I have done with business across the country also suggests that the complexity of the tax, national insurance and auto-enrolment pension systems—which I support—taken together are made much worse by the inadequacy of free advice from HMRC and others.

If we are to flourish in a world that is growing faster than us, we need to have more regard to international competitiveness. Some of this Government’s reforms to corporation and other taxes have been good and have reduced the incentive for offshoring. The reduction in corporation tax from 28% to 19% was George Osborne’s best move and has even increased revenues thanks to the magic of the Laffer curve. It will fall to 17% in 2020, which is a further boost to responsible, tax-paying businesses. Likewise, there is a good case for increasing thresholds for the higher marginal income tax rates, because it will encourage enterprise.

I am also a fan of a taxation and accounting system which supports our huge service sector, our invisible exports and intellectual property; these are all areas in which Britain is strong. I know how much BEIS has done to increase R&D funding in this country, but the tax system has also been supportive. UK-registered firms have claimed R&D tax credits worth £3.5 billion and 1,025 companies have saved £943 million in corporation tax from the patent box.

With such a myriad of taxes and so much complexity, I have barely scraped the surface of this important subject. However, I hope I have helped to make the case for a more informed and supportive attitude to business. While I know it is not my noble friend’s direct responsibility, I hope he agrees that the structure of business taxes needs to be looked at by the new leadership and that there is a case for change.

The Chancellor has already announced a welcome digital services tax on the larger digital players to help redress the unfairness of the current system, but it needs to increase quickly and be used to ease the burden of rates on the high street. It cannot be right that Amazon paid £4.6 million in UK tax in 2017 and the beloved Marks & Spencer paid £98.3 million.

Finally, we must support a culture of enterprise. If we do this, we are not only taking the right moral stance but we are bound to boost the economy further. The choice is not between lower taxes for business and more wealth for the public. Lower taxes, carefully crafted, will encourage growth to the benefit of all.

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[Baroness Kramer (LD)]

My Lords, I begin by picking up the issues raised by the noble Viscount, Lord Chandos, who made it clear that we cannot talk about anything to do with the economy without a real awareness of Brexit. It sets the framework; I know we do not want to focus on it today, but it is worth a comment or two here. Many people are acting as though uncertainty is something that exists until we decide to leave, and at that point uncertainty ends. As the noble Viscount said, we are then locked into five to seven years of future uncertainty. It becomes the fundamental of the British economy, and all we can be sure of in leaving is that British businesses will have less access to EU markets; the complex supply networks that are the foundation of the British economy will gradually erode, because that is the logic of the disengagement and separation; and British businesses will have to build their future from economies of scale in a domestic market of 65 million people, not 500 million. I could go on, but that is the context.

The noble Lord, Lord Popat, the noble Baroness, Lady O’Cathain, and others said that we are looking at a robust and healthy economy. Public services in this country are desperately underfunded. Many, particularly at local government level, are in crisis. This is repeated in almost every sector, including the police, prisons, schools, the health service and social care.

There are more than 14 million people still in poverty, with inequality at its widest since the 1980s. We talk about full employment, but real wages are still 3% below those in 2008. We have now normalised in-work poverty, a serious feature that we have to tackle. For many people, their employment feels precarious as they know that their employers are trying to work out what the future of their business will be.

Growth is geographically unbalanced. In recent years, foreign direct investment in the UK has plummeted. In 2018 it was one-third of what it was in 2016. When people talk about us receiving more foreign investment than any other area, I wonder whether they have looked at the value of the pound. Assets in the UK are at fire-sale value and, even with that, there is a decline in foreign investment.

I share the concerns of the noble Baroness, Lady Neville-Rolfe, about productivity. Our recent growth numbers are, frankly, awful. It is a not a situation in which we can be complacent because we risk being ineffective in driving the economy forward.

The issue raised by the noble Lord, Lord Haskel, goes to the heart of economic growth for the future. Times have changed. Big businesses, good businesses and the smaller entrepreneurial businesses no longer take a traditional view of their role in society. Many recognise that it is now time for a new social contract between business and society; that social justice matters; that their relationship with their customers, workforce and communities must be a positive and different one; and the necessity of tackling climate change. We are entering a different and new world, which has to be redefined and can no longer be classified in terms of profitability. This will lead to a different notion of what is a successful business and how it grows. Fairness becomes a fundamental and underlying principle. I use the word “fairness” because I am shall move on to address some of the issues raised.

Before I do so, however, I must step back and say that businesses also recognise both the opportunities and dangers of the fourth industrial revolution. The noble Lord, Lord St John of Bletso, referred to this. If we are to continue with research and development and science, and if we are to develop the skilled workforce we need, it will mean a revolution in how our businesses operate.

We have in place many of the right things to drive the economy forward, but we have them in miniature. I join others in praising the British Business Bank—it is perfect, but so small when compared with the challenge it is trying to deal with that it cannot make material change. It will take a change in thinking in this country to put into the British Business Bank the scale of resource and finance it will need for the future, especially as it will have to replace both the European Investment Bank and the European Investment Fund if we decide to leave.

Again, the industrial strategy has good policies, but in limited areas and on a limited scale. We are not undertaking the infrastructure challenge; we are not delivering the broadband we need; and we are not making the necessary changes in the rail and transport infrastructures. These are massive projects and will need substantial amounts of money behind them and a real drive to make them effective. It is the same with skills. Surely we all recognise now that life-long learning will be essential but comes with a heavy bill attached.

When I hear people talking about tax cutting as the key mechanism for driving the economy forward, I realise that we have to put a cross through virtually all the measures that we need to sustain and take forward our economy. I can think of nothing worse than tax cutting at this point in time. I ask those who think that cutting taxes will lead to a huge increase in the tax yield to go back and look in detail at the past few years. The rise in the tax yield has come because business has rebounded from a severe financial crash in 2007-08, not because taxes have been cut.

Unfortunately, part of the money has come in because business has been holding back on investment, as we have discussed. The work done by the IFS in looking at Jeremy Hunt’s proposal that we should cut corporation tax to 12.5% makes a nonsense of any suggestion that that kind of tax cut repays itself. If we are to repair public services and drive the economy forward, we certainly cannot afford to do any of that.

I have listened to many noble Lords who talk regularly to businesses. I do not find businesses asking for tax cuts. They ask for all kinds of long-term support, but I have never heard a request for tax cuts from any major business.

[Baroness Neville-Rolfe]

What about business rates?

[Baroness Kramer]

The noble Baroness, Lady Neville-Rolfe, is being kind to me in raising the issue of business rates because, as she knows, my party supports a policy of abolishing them—they are part of a Victorian past—and replacing them with a commercial landowner levy. I do not want to try the patience of the House in the time allocated by taking noble Lords through the details, but it is one of the crucial ways forward. It gives businesses every incentive to grow because the tax is on the underlying land value, not on the additional value that they create by future investment. It also helps the regional distribution of businesses. I suspect we have found another supporter for that policy in the noble Baroness, Lady Neville-Rolfe, and I appreciate that.

I agree with the noble Baroness that we have to tackle the issue of digital taxes. I am not sure whether I support the French proposal, announced today, of a 3% tax on digital revenues but it would be interesting to look at that issue because something has to be done, rather than just talking about it. I am concerned that the US is now considering that this would be an opportunity to retaliate against any European country that sought to tax digital companies more seriously. I hope any future Administration here would have the backbone to stand up to the Trumpian “America first”, which would make fair taxes impossible.

I believe in fiscal responsibility and investment. The old notion that you either support business or the ordinary people in the workforce is nonsensical. We are in a modern era where everyone must pull together. That is accentuated further by the fourth industrial revolution, and I hope we will begin to think about that new era rather than lock ourselves into the past.

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[Baroness Neville-Rolfe]

My Lords, this has been an excellent and good-humoured debate, which is frankly long overdue. I thank all noble Lords from across the House for their thoughtful contributions at this critical time. I will send them, elegantly edited by our friends in Hansard, to the two aspirant Prime Ministers, with one of my beautiful blue ribbons. As my noble friend the Minister said, business pays the taxes that pay for the public services we all value—a key insight for the next 100 days.

Motion agreed.

Consumer Rights Act 2015 (Enforcement) (Amendment) Order 2019

Baroness Neville-Rolfe Excerpts

Tuesday 25th June 2019 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, this order aims to strengthen the ability of the Office for Product Safety & Standards to carry out its role in leading the response to national product safety incidents and to ensure consistency across the product safety system.

The order has a threefold purpose. First, it will enable the Secretary of State, and the Office for Product Safety & Standards on his behalf, to investigate potential safety issues related to consumer products regulated by the General Product Safety Regulations 2005, using the investigatory powers listed in Schedule 5 to the Consumer Rights Act 2015. Secondly, it will enable enforcement authorities in the UK, including local authority trading standards, district councils in Northern Ireland and the Secretary of State, to use those same investigatory powers to investigate claims about gas appliances and personal protective equipment. Thirdly, it makes a minor amendment to the Measuring Instruments Regulations 2016, and to the related reference in paragraph 10 of Schedule 5, to correct a typographical error.

The majority of claims about unsafe consumer products that fall under the General Product Safety Regulations 2005 are investigated by local authority trading standards in Great Britain and by district councils in Northern Ireland. So why give these investigatory powers to the Secretary of State? Part of the remit of the Office for Product Safety & Standards, created last year, is to take the lead in a serious product safety incident that needs managing at a national level. The office published Strengthening National Capacity for Product Safety: 2018-2020 Strategy, setting out its approach to managing this sort of incident. This order continues the process of developing the office’s national incident management capability. It allows the office to investigate claims of unsafe products in the context of a national incident, where a local trading standards authority or other relevant enforcement authority lacks the resources or expertise to do so. It does this by giving the office equivalent investigatory powers to those of local authority trading standards.

The order provides the full range of powers contained in Schedule 5 to the 2015 Act. This schedule includes powers to require the production and potential seizure of documents and to inspect and purchase products, as well as to test equipment and seize and detain goods. These are essential aspects of undertaking effective checks and actions in relation to unsafe goods. It is vital that our new national regulator has these powers across the broad spectrum of consumer products. These will enable it to provide leadership in incidents of national importance. The Secretary of State, and the Office for Product Safety & Standards on his behalf, can already exercise these powers in relation to the enforcement of sector-specific regulations, such as those for electrical equipment and lifts. The Government want to ensure that the Secretary of State can lead across the wide range of consumer products, not just those that fall under sector-specific regulations. The order therefore allows the Secretary of State to investigate any type of product covered solely by the General Product Safety Regulations 2005, should the need arise. The office will thus have the authority to provide the leadership and action needed to deal with national incidents.

The second purpose of the order is to make sure that the Secretary of State, local authority trading standards in Great Britain and district councils in Northern Ireland can investigate safety issues concerning gas appliances and personal protective equipment. New regulations were introduced last year by the negative procedure and this order provides for the amendment of the Consumer Rights Act by affirmative procedure. It now enables enforcement authorities to use the investigatory powers in Schedule 5 in relation to these products covered by the 2018 regulations.

Finally, the intention underpinning the enforcement of the Measuring Instruments Regulations 2016 has always been that the enforcement authorities should have access to the investigatory powers in Schedule 5. This order corrects that typographical error in the relevant provision in both the regulations and Schedule 5.

In conclusion, the order improves the ability of the Secretary of State to investigate claims about unsafe consumer products, protecting consumers and preventing injury and loss of life. It ensures that the Office for Product Safety & Standards can fulfil its regulatory role in the area of product safety by leading and co-ordinating responses to national product safety incidents across the wide range of consumer products within its remit. It enables the Secretary of State, local trading standards and district councils to investigate the safety of gas appliances and personal protective equipment regulated by the 2018 regulations. It contributes to the Government’s aim of promoting and protecting law-abiding businesses by preventing unfair competition through the placing of unsafe products on to the United Kingdom market. I commend the order to the House and beg to move.

[Baroness Neville-Rolfe (Con)]

My Lords, I support this measure, which will improve the enforcement framework for unsafe consumer products—always a concern of mine because of my background in retail and at the business department. I want to raise two issues. The first is the adequacy of resourcing for trading standards in their important work on product safety. I welcome the new Office for Product Safety & Standards in Birmingham and hope that, through the Minister’s good offices, some of us might be able to visit it on some future occasion. Local authorities are squeezed. I fear that trading standards, which do such an excellent job across the country, do not have the funding they need to tackle product safety and product counterfeiting, which is often a cause of safety incidents in some local authority areas.

The second issue is Whirlpool. I would like an update on the recall of Whirlpool tumble dryers. I am not entirely clear on what this SI adds in the case of electrical white goods, which, as the Minister said, are already regulated, but Whirlpool is mentioned on page 3 of the Explanatory Memorandum and the 10 days of BEIS consultation on the recall are nearly up. What are the Government’s plans in respect of this matter and, even more importantly, of future enforcement of product safety more broadly? What are the criteria for recalls and speed of response, which in the case of Whirlpool has sadly been very slow—I think nearly four years, although I must commend current Ministers for moving ahead on that. Can the Minister clarify the numbers involved? I understand from Which? that the recall will involve 300,000 to 500,000 dryers, which is a fall of about 500,000 in the department’s estimate of the number of unmodified dryers since last year. Yet only some 50,000 have been modified since then, so I do not see how the numbers add up. Can the Minister also kindly advise—in writing if need be, because I appreciate that these are detailed questions—on the number of modified dryers that have caught fire, and on why the Government are comfortable, as stated in Parliament on 17 June, that they are low risk. I hope for all our sakes that this judgment is correct. We should give the owners of modified dryers further comfort if that is possible.

[Baroness Burt of Solihull (LD)]

My Lords, I thank the Minister for his explanation of how the investigatory powers of consumer law enforcers will be consolidated and simplified through this statutory instrument. It seems that these measures are needed in the face of mounting consumer concerns over the safety of the products that we buy.

It seems eminently sensible for the Secretary of State, or the Office for Product Safety & Standards on his behalf, to be able to investigate claims about unsafe consumer products falling within the ambit of the General Product Safety Regulations.

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[Lord Henley]

My Lords, I think the noble Baroness is probably right that Whirlpool has absorbed something in the order of 14 different companies, so that what an individual will think of as an X machine is in fact a Whirlpool one. If it is possible to publish that list, I will certainly make it public; I do not think that there is any secret about it. The important thing is that we try to identify as many of those who still have unmodified machines so that they can be identified. My understanding is that Whirlpool—I do not speak for it—has already achieved considerable success in previous recalls in identifying quite a high percentage of potential owners of machines, certainly compared with other recalls that have happened. However, it will probably be better if I write in greater detail to my noble friend, copying it to the noble Baroness, on the names of the individual companies to deal with that point at greater length.

[Baroness Neville-Rolfe]

A letter from my noble friend would be extremely helpful. Regarding food safety, which I also know a lot about from my background, there was a practice whereby unsafe products would be listed in a newspaper or on a website almost as a routine matter. Even if for some reason it is not possible to do that on this occasion, that is one of the criteria that should be looked at for the future so that when there is publicity about a product safety problem, consumers can check easily whether there is an issue with their machine.

[Lord Henley]

Again, my noble friend is absolutely correct. I can remember seeing campaigns of exactly that sort. It is important for the consumer, or rather the original purchaser of a machine, to be able to identify what it is, which is why on occasion there have been such advertisements, as my noble friend points out. As I said, I would prefer to write in further detail to her on that issue.

I will now deal with the whole question of resourcing, not only of the new OPSS but of local authorities. As we have made clear, some £12 million has been made available to the OPSS, and we believe that that figure is an adequate sum. My noble friend asked whether she could visit its office, and I am sure that such a visit can be arranged through my department. If she would like to get in touch, we can send her up to Birmingham as soon as the Whips allow such visits to take place, and if other noble Lords wish to take part, that is obviously a matter for them. That money is for the OPSS; local authorities are funded through the general local authority grant, and there is no ring-fenced budget. However, we believe that, whatever difficulties local authorities might have, by giving the OPSS equivalency of investigatory powers, it can certainly support trading standards at a local level. The support of the OPSS, which employs some 300 staff, can be of extraordinary use to local authorities, providing training, for example.

I turn next to the question of EU exit, raised by the noble Baroness, Lady Hayter. Again, I make it clear that—although this issue is possibly beyond my pay grade—delivering the negotiated deal remains the priority and we continue to make appropriate arrangements in the event of no deal. We have created a new, UK-specific market surveillance database that will allow market surveillance authorities to record product safety and compliance incidents. That database will give the United Kingdom a rapid alert mechanism for dangerous products which will allow for product recall to protect consumers.

I turn now to the impact on small business. The noble Baroness, Lady Burt, was worried about the lack of an impact assessment. There is no impact assessment because the order gives powers to public bodies and does not place a burden on business itself. A full impact assessment was carried out in 2013, which I can make available to her. It concluded that there was a zero cost to business and a net benefit to business of £5.3 million by consolidating and simplifying the process. There is no reason to assume that those underlying assumptions have changed.

Whirlpool Tumble Dryers: Product Recall

Baroness Neville-Rolfe Excerpts

Monday 17th June 2019 Lords Chamber

[Lord Henley]

My Lords, all I can say is that I await my noble friend’s question in due course. As for the number of fires caused, I quoted the figure, saying that some 724 last year were caused by tumble dryers but that that was a decline. One must remember that any white goods are going to have a risk, and the important thing is that manufacturers ensure that they are as risk-free as possible. That is why on this occasion, as I said, we want to hold Whirlpool to account and ensure that it gets to as many machines as possible to make sure that they are dealt with. However, it is right and proper that we not only deal with tumble dryers where there is a problem but ensure the safety of all other white goods.

On the question of our exit from the EU, I assure the noble Lord that the department will make sure that safety remains an absolute priority in dealing with these matters. Ensuring that we have a robust system of market surveillance to make sure that we can protect our border from unsafe products will be a priority for the department.

[Baroness Neville-Rolfe (Con)]

I was very glad to hear of the recall, albeit it is rather late in the process. It is, I think, three and a half years since these fires were first identified, and I hope we will learn from the process.

I have two questions for my noble friend. As the department knows, because they were very helpful, I have two Whirlpool tumble dryers. In fact, they are Hotpoint; as noble Lords will know, Hotpoint was taken over by Whirlpool, a US company. The second was modified only after my meeting with the Minister. In the Statement my noble friend suggested that the risk from modified tumble dryers was low. There have been examples of fires in modified dryers, though, so how can the Government be sure that they are safe? Modifying the dryers is quite a long process, as I observed it for two hours on my lawn.

My second question, which I think is the more important one, is: is the system for the recall of white goods good enough, given the danger to the British consumer if there are fires? What changes have the Government made, or are they planning, to ensure that we can sleep safely in our beds?

[Lord Henley]

My Lords, on my noble friend’s first point, I can confirm, as I said in the Statement, that the risk from modified tumble dryers is low. I cannot quantify it, but I can repeat that assurance. It is certainly an improvement on what was there before. As I said in response to the noble Lord, Lord Razzall, one can never remove all risks with white goods; obviously, any electrical product inherently has some danger. However, we must do what we can—or rather, manufacturers must do what they can—to ensure that all products are as safe as possible. It is then the Government’s job to hold those manufacturers to account.

My noble friend also asked whether the system was good enough. We will always keep the system under review. We introduced the Office for Product Safety and Standards a little over a year ago and we will monitor how it is going. If one looks at the figures for domestic fires, including those caused by electrical products, and sees their steady decline, one can say that we are heading in the right direction. This has been happening for some time.

Competition and Markets Authority: Legislative and Institutional Reforms

Baroness Neville-Rolfe Excerpts

Wednesday 8th May 2019 Lords Chamber

[Baroness Neville-Rolfe (Con)]

My Lords, this debate is on an important subject—namely, how to improve the UK’s regulatory regime on competition and consumer law. The Secretary of State asked the new chairman of the CMA to outline ways in which this might be improved, and today we are discussing the latter’s ideas. I should register my interest, notably as a company director outside the FTSE 100 in tech services and banking.

I am grateful to the noble Baroness, Lady Hayter, for proposing this debate. She and I worked together on the Consumer Rights Act 2015, which ushered in some important consumer safeguards, not least in the digital content area and on secondary ticketing, which she mentioned and which was a long story. I am not sure that the new rules have had time to settle in, as new laws always take time, and I disagree with a number of things that she said.

Responding to consumer needs has underpinned my whole career. I worked on the Citizen’s Charter, which was about making government measure and act on feedback about its services. Then I was at Tesco for over 15 years, where objective data from consumers—we called them customers—were always the harbinger of success or failure. If you looked after the consumer, you were successful.

I am not convinced that more legislation now is the best way ahead, not least because the costs get passed on to the consumer. We have already seen some adverse impacts from the energy price cap, which was imposed against the advice of the CMA, and we do not know whether we will be in or out of the European Union and its laws in the months and years ahead.

I am very glad that we will hear from the noble Lord, Lord Tyrie. On one point—the final recommendation in his letter—I agree unequivocally. The package as a whole, and indeed any fundamental reform of the regime, should be submitted to open and rigorous external scrutiny.

I also believe that before embarking on new laws—there is a great washing line of new proposals in the CMA document, from new duties and director responsibilities to enhanced penalties—we should always look carefully at what already exists, whether it is managed well and how improvements can be made.

Let us take local government. I am unfashionable in valuing the work done by local authorities, which are close to citizens and know local businesses and local rogues. Trading standards have been persistently unappreciated and starved of funding, but they represent good value for money. I know from the work I have done with them—for example, on online and offline counterfeiting when I was the IP Minister—that there are multiple benefits compared with the relatively small sums spent on that in local government.

I have attended many tutorials and seminars on competition and am convinced that Adam Smith—another reference—was right. Competition is required if a capitalist society is to operate as well as it can for the benefit of all. Recognition of the advantages of competition is what distinguishes a capitalist society from a socialist one, with the latter’s preference for nationalisation and, hence, monopoly. The results are manifest in the much greater economic success of capitalist societies. Oddly, the best recent examples are China and India, which ditched most aspects of socialist economics and consequently made extraordinary progress.

In some areas of life, strong competition comes about naturally, but that is not the case everywhere. It is more or less universally acknowledged that there is a need for a public body to investigate cases where competition has or might become weakened to the detriment of others—notably consumers. The mechanism by which these needs are met in the UK is the CMA. I think we are all agreed that it has an important job and, that being so, it is sensible to examine whether that job could be done more effectively. Whether it was ideal to ask the body in question to conduct such a review is another matter. Most bodies consider that the world would be better if they had more powers and, to nobody’s surprise, that is what the CMA chairman’s letter proposes. It might have been better to ask an outsider to make recommendations.

One component of the CMA’s powers has always concerned me—the fact that in some matters it acts as both the investigating body and the judge issuing fines and so on. One understands why the CMA came to be established in that way, since it largely mirrors the equivalent powers enjoyed by the European Commission under the EU treaties. It has also taken steps to mitigate the dangers of this dual role. However, when all is said and done, in some cases the CMA acts as both prosecutor and judge. I will share with the House some of my own experiences when I was a Tesco executive.

In 2002-03, the British dairy industry was going bust. There were many comments in the press and indeed by Ministers of the Crown to the effect that something must be done and that the supermarkets were to blame. The farmers came to see the top people at Tesco and they—a very hard-nosed bunch—were convinced from the figures that the industry was unsustainable. They regarded it as their moral duty to do something about it. They agreed quite independently to implement price increases, from which all or most of the benefit would go to dairy farmers. Other super- markets followed suit.

In due course, the OFT claimed that what had happened, with everyone raising their prices together, constituted a cartel and it sought to fine Tesco and others vast sums—in Tesco’s case approaching £100 million. I suggest that even if the law was, strictly, broken, this ought to have been regarded as a technical breach, since it had little relation to people meeting in secret to set prices. Everything happened in the full glare of publicity and for motives which many had accepted were worthy.

The OFT showed no signs of appreciating, still less accepting, the point. Instead, it proceeded with unnecessary vigour, not recognisable from the points that the noble Baroness, Lady Hayter, made. Our legal advisers recommended going quietly and paying up. They usually do. The other main supermarkets no doubt received the same advice and acted on it, since they pleaded guilty. That is an indictment of the system. We did not do so, for one reason. The CEO and, indeed, all of us were so incensed by the idea that we had taken illegal steps to cheat our customers that he ordered us to fight every inch of the way. Slowly the case unravelled. The charges against us were dropped one by one. Eventually, we reluctantly accepted one low-level charge and a fine well below £10 million on a dairy product.

The CMA has long since taken over from the OFT, but I think that that episode should have taught it that juggling the role of judge and jury is hard. It shows how difficult it is for investigators to stand back and appreciate that their initial enthusiasm might have been unbalanced.

It is salutary to look at the letter that we are discussing in the light of that example. Its most prominent proposal is that an extra provision should be added to the statute making it clear that the overriding duty of the CMA should be to consumers. Reflecting on that suggestion, I suspect that, had it been in place when our milk case was live, it would have undermined Tesco’s position. Justice, I suggest, can need many factors to be weighed, and the balance between them can vary in ways that cannot be foreseen. Seeking to give one factor overriding importance risks skewing investigations and imposing an intolerable burden on businesses—or, of course, driving them overseas if they are mobile.

An existing safeguard for those investigated by the CMA is the right of appeal to the Competition Appeal Tribunal; here the letter suggests what amounts to a clipping of the tribunal’s wings. I think we should reflect long and hard before accepting a proposal from one body that a second one, the function of which is to review decisions taken by the first, should have its powers trimmed.

Effective competition is essential if the economy is to operate to everyone’s advantage. Abuses need to be challenged and stopped, and the body charged with defending competition needs powers adequate to its remit. But all bodies—indeed all people—have a bias in their own favour. That is why the courts have rightly developed doctrines to eliminate bias from their proceedings. These safeguards are as important in matters of competition as anywhere else.

Corporate Governance

Baroness Neville-Rolfe Excerpts

Monday 29th April 2019 Lords Chamber

[Lord Henley]

I agree with the noble Lord on the first part of his question, which is that this is a matter for companies, and it is right that they should get it right. On levels of trust, what I have been trying to make clear is that we have seen a growth in public trust in business. It is still too low, but the most recent 2019 Edelman global trust barometer shows a small increase, which is to be welcomed and something we would encourage. As the noble Lord says, it is too early for me to comment on the CMA.

[Baroness Neville-Rolfe (Con)]

My Lords, I am glad to hear my noble friend’s comments about trust, but could more be done to enforce the existing rules of corporate law? There is a problem in that the bad eggs give business a very bad name, so good enforcement early on of the right kind, led strongly by the FRC, can be extremely helpful. Does my noble friend agree?

[Lord Henley]

My Lords, I do agree with my noble friend. I think that she will agree that we have done a great deal on corporate governance ever since we published the Green Paper in 2016, and there is the work done by the FRC and others right up to publishing and bringing into operation the new code in January of this year.

Companies (Miscellaneous Reporting) Regulations 2018

Baroness Neville-Rolfe Excerpts

Monday 9th July 2018 Lords Chamber

[Baroness Bowles of Berkhamsted]

The time shown on the timer is not all mine.

With regard to employee engagement, I take this opportunity to suggest that it is worth looking at employee-owned businesses—that is, businesses where, alongside some share ownership, employees have a significant say through various different mechanisms. I commend to noble Lords the report The Ownership Dividend, launched at the end of July, which followed a year’s inquiry and, for the first time, substantial collection of UK data. I had the honour to chair the inquiry so I declare an interest. The inquiry showed that many governance problems are solved, including those around wider stakeholders, and that productivity increases when there is employee ownership. So embracing the formal involvement of employees is nothing to shy away from, even if it is not within a formal employee-owned structure.

I have spent some time on the Section 172 and stakeholder matters because they are key to culture. The fact that these regulations need more pages dedicated to executive pay than the other governance matters is itself a sad reflection on corporate and executive culture. I welcome the additional transparency and ratio comparisons; the truth needs to be told, and unfairness and mechanistic escalators exposed. Hopefully, some rebalancing will happen, whether that be through shareholders or shaming.

[Baroness Neville-Rolfe (Con)]

My Lords, I declare my interests as set out in the register, and as a director of companies over a number of years and as a chartered secretary. I will not delay the House, but I am doubtful of the value of some of these changes, which represent micromanagement and/or bureaucracy, and there is a decidedly mixed level of support for some of them, as can be seen on pages 49 to 51 of the impact assessment.

I am a huge supporter of good governance, but it should be geared towards long-term value creation, and in a responsible way. Good companies create value, and the tax-take from such companies—not only company taxes but all the taxes they collect: VAT, rates and income tax—finances our schools, hospitals and public services.

There is no sunset clause but perhaps the Minister can confirm that there will be a review of these arrangements in five years’ time. Further, does he agree that creating long-term value and companies’ contribution to our economy, including productivity, which was mentioned by the noble Lord, Lord Haskel, should form part of that review?

[Baroness Drake (Lab)]

My Lords, I am conscious that Members of the House want to move on to other business, so I shall concentrate on two issues in the regulations that I think warrant being brought out and receiving attention.

There is a cross-cutting concern that, in referring to directors’ reporting responsibilities in relation to engagement with and having regard to the interests of their employees, the regulations do not refer to their “workers”; they refer only to their “employees”. This is a weakness in the regulations, as they do not encompass the reality of modern employment practices and business models, explicitly referred to in the Taylor review and the impact assessment. Reporting on a company’s impact on employment should be reflective of the entire workforce and not just direct employees.

A significant minority of the UK’s workforce is now not covered by the term “employee” and there is a correlation between indirect employment and low pay and insecurity. Excluding indirectly employed workers, some of whom are the most vulnerable, from the scope of these regulations contradicts a key rationale for statutory intervention—promoting equality and fairness. It will mean that directors’ reports will present an incomplete picture of engagement with the people whose work contributes to companies’ output and value. Therefore, do the Government intend to review Section 172 of the Companies Act to allow reporting on directors’ duties to address the workforce as a whole and not restrict it to employees only?

Another element of the regulations concerns me. Regulations that require reporting on the pay ratios of CEOs’ remuneration to employees’ remuneration are to be welcomed, but there is a risk that these regulations will fall short of what is needed. Again, they refer to employees and not the whole workforce, and that could result in misleading evidence on those pay ratios. The public interest is in the gap between wider workforce pay and executive remuneration. There is a precedent: gender pay-gap reporting covers both workers and employees, not just employees.

If evidence on pay ratios is to contribute to restoring public trust in business, it is important that there is integrity around the data collected and reported. Clear audit requirements need to be put on these pay-ratio exercises, and the lessons learned from the reported gender pay gap, highlighted by the Financial Times analysis, should not be missed. The Financial Times revealed that one in 20 UK companies that has submitted gender pay-gap data to the Government has reported numbers that are statistically improbable and therefore almost certainly inaccurate. Therefore, when do the Government intend to extend pay-ratio reporting to cover both workers and employees, and how will they satisfy themselves about the quality of the data provided on these pay-ratio reports?

Domestic Gas and Electricity (Tariff Cap) Bill

Baroness Neville-Rolfe Excerpts

Report stage (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

Moved by

[Baroness Neville-Rolfe]

7: Clause 7, page 5, line 3, leave out paragraphs (b) and (c)

[Baroness Neville-Rolfe (Con)]

My Lords, our concern is to ensure as far as possible that the cap ends in 2020. Many people are unconvinced of the value of price caps, which are against most economic theory and can have unintended consequences. There is also a strong consensus that the cap should be temporary, as we discussed in Committee and as the Energy Minister, Claire Perry, noted in the Commons. Moreover, a price cap where the case is strongest already exists. This covers prepayment meters in 4 million house- holds and 1 million vulnerable consumers following action by Ofgem. This in turn followed recommendations by the CMA, which did not favour an overall price cap.

A number of us are also concerned that the tariff cap could have an adverse effect on competition. Its existence might prevent or deter Ofgem or the Secretary of State from finding that the conditions for effective competition are in place and so the cap would have to be extended in 2020, frustrating the purpose of the discretion in the Bill. BEIS officials have helpfully suggested that this is not a risk. They know that the cap might in practice damage competition and say that the judgment to be made is that the Secretary of State considers that the conditions are in place for effective competition for domestic supply contracts—not that effective competition is in place.

Has the Minister been able to think further about these matters and how to respond to my amendment, which I am retabling following the helpful discussion in Committee and his helpful comments about the direction of travel on the cap? Can he agree that the cap will end in 2020, all being well; and, given the concerns expressed by many distinguished industry experts, which I have sought to summarise, can he also confirm on the parliamentary record the BEIS interpretation of the conditions for any extension? I beg to move.

[Baroness Featherstone (LD)]

My Lords, I support the amendment, to which I have added my name. The first basis on which I do so is that, like the noble Baroness, Lady Neville-Rolfe, I regard the cap as an unfortunate necessity. The ambition and the emphasis must be to end the cap as soon as possible. Therefore we need to focus minds on the creation of that effective marketplace.

--- Later in debate ---

[Baroness Vere of Norbiton]

My Lords, I was doing really well until the last sentence. I tried to follow my noble and learned friend. Of course, there will be a period leading up to the point at which the Secretary of State has to make the decision on whether to keep the cap. At that time, he will look at the information that is available to him and make a judgment on whether the conditions for effective competition are in place.

[Baroness Neville-Rolfe]

My Lords, I thank my noble friend for her full and helpful answer. I was very clear when she sought to sit down that all was well. I will need to read my noble and learned friend Lord Mackay’s intervention before we come back at Third Reading. My expectation is that we can find a way through this to meet my concern that, conditions permitting, the cap can end in 2020, and to meet the concerns that have been expressed by a number of learned experts from the industry on the correct discretion on the extension of the cap. I beg leave to withdraw my amendment.

Amendment 7 withdrawn.

Energy Policy

Baroness Neville-Rolfe Excerpts

Monday 25th June 2018 Lords Chamber

[Lord Henley]

My Lords, I do not think that I can take the noble Lord much further in his accusations of lack of vision. I think that he would be one of the first to say that it would show a lack of straightforward common sense and financial honesty to go ahead with a scheme that was going to cost quite so much, and quite so much to the Welsh consumer and Welsh businesses in terms of their costs for electricity.

[Baroness Neville-Rolfe (Con)]

My Lords, I declare an interest as the Energy Minister at the time when the Hendry report was under way. The truth is that this is the most attractive of projects. However, sadly, it is dreadful value for money—so I agree reluctantly with the Government’s conclusion. What progress are the Government making with nuclear renewal, not only at Hinkley Point C—which has been mentioned and which is creating jobs and apprenticeships and helping us to fill the decline in the nuclear baseload—but with the new nuclear fleet, notably in Wales and Cumbria?

[Lord Henley]

My Lords, my noble friend will be aware of the announcement that my right honourable friend made about Wylfa the other day and of the work that is being done in Anglesey on the prospect of having a nuclear power station there. She will also be aware that work has started at Hinkley. We therefore hope in due course—in about 2025, I think—to see further nuclear energy coming on as baseload to assist with our energy security. I also hope that in due course we will see more nuclear energy at Moorside in Cumbria, which my noble friend is well aware of. As a Cumbrian, I too am aware of it. As I said earlier, I hope that we will hear more about the prospects of other work in due course.

Brexit: Creative Sector

Baroness Neville-Rolfe Excerpts

Wednesday 20th June 2018 Lords Chamber

Asked by

[Baroness Neville-Rolfe]

To ask Her Majesty’s Government what risks they have identified to the creative sector, especially to the intellectual property it generates, as a result of Brexit.

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Henley) (Con)]

My Lords, the UK has one of the best intellectual property regimes globally. The creative industries’ concerns focus on copyright, where reciprocal protections are underpinned by international law, and unregistered designs, which the UK will continue protecting. Some EU-derived copyright provisions and the reciprocal EU-UK protection of unregistered designs will be a matter for our future relationship.

[Baroness Neville-Rolfe (Con)]

My Lords, copyright is of fundamental importance to the creative sectors. They range from music to TV to art to the written word and, indeed, increasingly to traditional businesses, as the digital revolution gathers pace. It has been established, for example, by UK Music that around 17% of music is accessed illegally. At present, the EU provides important protections for copyright. As the UK leaves the EU, could the Minister reassure the House that this protection will be maintained and, if possible, enhanced, for example by online services taking a greater degree of responsibility for clamping down on copyright infringement?

[Lord Henley]

My Lords, my noble friend is right to highlight the importance of this sector, and I want to emphasise just how big the creative industries are as an exporting sector and in terms of what they produce in this country. I stress, as I did at the beginning, that much of our reciprocal copyright protection is underpinned by international law, but obviously there are parts that need protection that involve EU-UK law. That will obviously be a matter for our future relationship, and that is a matter for the ongoing negotiations taking place at the moment.

Domestic Gas and Electricity (Tariff Cap) Bill

Baroness Neville-Rolfe Excerpts

Committee: 1st sitting (Hansard): House of Lords
Monday 11th June 2018 Grand Committee

[Lord Carlile of Berriew (CB)]

My Lords, I want to speak, if I may, in favour of Amendment 23 in the name of the noble Lord, Lord Grantchester. At Second Reading, I referred briefly to my attempts to change tariff with my electricity and gas supplier. I think I described it as a parlour game on a computer system that did not always work. It seems to me that what we need to give the public is, first, clarity and, secondly, the capacity to compare one supplier with another.

Let me give two analogies, one good and one bad. The first occurred to me on Saturday when I was standing at a bus stop in central London alongside a hoarding advertising a new credit card deal. At the bottom of the advertisement, in big letters, it said, “Interest rate 57%”. On the face of it, that is quite a high interest rate, but the company has to advertise that interest rate so that it is really clear to the consumer. That is the sort of clarity we need. The bad analogy relates to train fares. Noble Lords who travel a great deal by train may, like me, go on to one of the internet sites that offer you the timetable and the train fares. With train fares there is absolutely no way of making a decent comparison between the different options available. Indeed, it is so complicated that, if you buy your ticket in Llandrindod Wells to go to Paddington, it may be a different price for precisely the same ticket if you buy it in Paddington to go to Llandrindod Wells.

If we are going to do this job now in the Bill, what is required is to ensure that consumers are able to make a proper comparison between the supplier they have and the alternative suppliers available. It does not mean that they will necessarily take the cheapest supplier. The noble Lord, Lord Lennie, made a point about green suppliers. Some of us might decide that we are prepared to pay a few pounds extra for the purposes of a better environment, but at the moment we have no way of knowing what sort of value green suppliers present. We have to go on to their website and take their word for it, which is not necessarily good enough. Amendment 23 at least makes a start in achieving those joint aims of clarity and the ability to compare.

[Baroness Neville-Rolfe (Con)]

My Lords, I join others in thanking the noble Lord, Lord Berkeley, for setting off a discussion on this important issue of communication with consumers on electricity prices and the cap. I was going to add to the discussion from my own experience as a householder in Wiltshire. I have had a letter from SSE which is meant to tell me simply how my electricity prices are increasing, what I could do and how I might be able to pay less. I have to say that it is very difficult to understand, so there is a problem outwith the legislation that we are putting through. It is also wrong to suggest that energy companies are always trying to dissemble. How well they do depends on satisfying the consumer and the better ones want to be able to say clearly what is happening.

If we were to add to the system a requirement to communicate about the tariff cap provision, it would make the sort of letter that I have already described yet more complicated. My own experience is that these things can be costly to business. When the minimum wage came in, I remember being telephoned by the business department—I was at Tesco at the time—to ask whether we could put the minimum wage on our payslips. Having talked to our ICT people, I discovered that it would cost us an extra £1 million to put the minimum wage on the payslip. It was therefore agreed that the minimum wage could be communicated in other things. I worry that if we in this Committee put down requirements, it could have a similarly escalating effect on costs.

I have looked at the impact assessment—noble Lords will remember that I am always passionate about the usefulness of impact assessments—but this one does not go into any detail. It just suggests that there are savings to consumers. If we were to add extra provisions on communication, we would need to consider the cost of that because it would then get passed through to the consumer. That cost will apply to the small, new entrants to the industry as well as to the bigger suppliers.

That leads me to one final thought. When we took through the Consumer Rights Bill, in which we were also concerned about communication to consumers, the department worked with the industry to produce special communication. That was then used across the retail industry to inform shops as to the new rights that were coming in for consumers. I wonder whether some of the concerns raised today could not be met by voluntary action within the industry, dedicated to improving clarity for consumers in this important area.

[Lord Berkeley]

The noble Baroness cited a figure for the cost for communication but in terms of the total cost to the businesses we are talking about, that figure must still be very small. Given the example that I quoted of the banks being required to provide paper statements for anybody who wanted them, surely it is more important that anybody should have access by whatever reasonable means to the information, even at the expense of them paying a little more on communication. The people who will suffer are those who cannot fiddle with their emails, even if they can get the information by email.

[Baroness Neville-Rolfe]

I can understand that. Clearly, there may well be a case for requiring some communication to be online and some on paper because some people cannot manage online. However, what I am saying is that this will involve changes in systems across however many energy suppliers there now are—I do not know whether it might be 40, 50 or 60—and there is a cost to that, which we have not looked at or costed. How that fits in with suppliers’ information systems can make a big difference. Clearly, the Bill is going ahead rather rapidly. I have seen no analysis of this angle of things, which is why I support these amendments this afternoon, at least in the form of probing amendments.

--- Later in debate ---

[Lord Henley]

What it will do, as I thought I had made clear, is make it easier to open the door to innovative third-party switching devices, such as the devices I referred to, I think, during the debate on the Smart Meters Bill. These will allow the consumer to find himself automatically shifted from one supplier to another if he says, “I always want the cheapest tariff”, or, “I always want the greenest tariff”. Such things are being developed and midata will help towards that.

[Baroness Neville-Rolfe]

I now understand why the letter I received is so difficult to understand. It reflects the provisions that the Minister has explained that Ofcom has imposed about having to show how you could pay less even if you cannot in fact pay less, which is the situation in my letter. That leads me to make a small request. It would be great if the Minister were able, between now and Report, to look at how communication is actually decided in the Ofcom area. Is there proper communication with consumers who might be recipients of these letters? We tend to be policy-driven rather than customer-driven, and I heartily endorse what the Minister said about keeping it simple. Talking to consumers about what they are going to be sent might be very helpful.

[Lord Henley]

I am more than happy to consider that and to write to my noble friend so that we can perhaps consider this again on Report. As I was saying in winding up, we all have the same desire: we want to make sure that the consumer has the right information to make the appropriate decisions that they wish to make. With that in mind, we hope that Ofgem—not Ofcom—will continue to develop its work in that field.

--- Later in debate ---

Moved by

[Baroness Neville-Rolfe]

29: Clause 7, page 5, line 3, leave out paragraphs (b) and (c)

[Baroness Neville-Rolfe]

My Lords, in moving Amendment 29 I will speak to linked Amendments 30 and 34. I should perhaps express my regret that I arrived too late to speak at Second Reading as a consequence of other commitments.

The purpose of these amendments is to make it more difficult to extend the duration of a price cap and to ensure that it is temporary, if I may pick up the useful word used by the noble Baroness, Lady Featherstone, in her amendment to Clause 2. As the helpful notes on the Bill say in paragraph 15:

“The cap applies until the end of 2020 but it may be extended, for a year on up to three occasions, if the conditions for effective competition in the market for supply contracts are not in place”.


The basic point is that I am unconvinced of the merits of price caps. Setting prices at a low level may seem superficially attractive but experience in many jurisdictions shows the problems that they create. For example, in California in 2001 retail prices were capped at levels that ended up being below the wholesale cost of energy. As a result, retailers found themselves $20 billion in debt and one of them went bankrupt. The state then had to step in. Price caps are against most economic theory and have unintended consequences, as we have discussed, so there is no need for me to labour the point.

If I may, though, I will share one personal experience of price regulation somewhat akin to what we are now discussing. As a junior civil servant, I was responsible for the milk costing system, administered with the help of a leading accountancy firm. In effect, we were responsible for setting the permitted retail price of milk. Unfortunately, a member of the departmental team unwisely agreed that a visit to an international dairy conference in Miami was a legitimate expense. As a result, everyone paid more for their milk. This was an early lesson in why it is better to avoid government interference in pricing.

Still, we are where we are and we need to improve the Bill. I believe it would be much better if the cap ended in 2020 and that, as drafted, it is far too easy for the Government to extend it. Indeed, there seems to be almost no prospect of ending it before 2023. Yet the Minister, Claire Perry, said in Committee in the Commons that there was,

“strong consensus in the Committee”,

that the cap should be temporary and that a proposal under discussion to extend it further,

“creates disincentives and uncertainty in a market where we have to have certainty to generate investment”.—[Official Report, Commons, Domestic Gas and Electricity (Tariff Cap) Bill Committee, 15/3/18; cols. 86-88.]

I would add that price caps where the case for a cap is strongest—for those 4 million households with prepayment meters, and for a million vulnerable consumers—have already been introduced by Ofgem. I ask the Minister to update us on the impact of those before the Bill leaves Committee. The noble Lord, Lord Whitty, made some powerful points about those very consumers and the complications of dealing with them. I hope his commission will come up with some simple innovative ideas that we can all support.

I heartily dislike needless regulation. I would like the Government to come back to Parliament and seek primary legislation if they want to extend these temporary controls beyond 2020. Clause 8 makes it far too easy to extend them, and my amendments would return this power to Parliament. I know from my wide experience of government as a civil servant, from working in business and as a Business Minister that getting rid of regulation is always a low priority in the modern world. This hurts competitiveness and is bad for our economy. I very much welcome the use of a sunset clause but it should be just that. As for the detail of what is proposed, my Amendments 29, 30 and 34 would remove the possibility of extending the cap by deleting most of Clause 8 and making related amendments to the review procedure in Clause 7.

I have to accept that there is a political dimension to the proposed price cap, and I know the Minister will have to support the Bill in the round. However, I would ask him to go away and think about whether we should really extend the cap beyond 2020 without primary legislation—that is, another Bill—and the process of review that always precedes such legislation. I beg to move.

[Lord Stevenson of Balmacara]

My Lords, this is a somewhat complicated group of amendments because within it are points of view that are mutually contradictory and indeed on which we hold contradictory positions. So we are not going to agree on this, and I look forward to hearing the Minister trying to weave a way through that does not upset one side or the other too much. He does not normally care too much about whether he does that, but that is for another time.

Our amendments are probably based on the assumption that the rather high aspirations that you can read into the Bill in terms of how it might reform and change the basic market for electricity and gas supply will be achieved, and takes the sanguine view that they are not going to be achieved in time for the cap to be reduced at the appropriate time. If that is the case, it also has the benefit of making sure that vulnerable consumers are not caught by the other schemes referred to by the noble Baroness, Lady Neville-Rolfe, which we discussed earlier. They would continue to operate and we would take that to be a good thing, but as we have discovered, that is of course not the primary purpose of this Bill.

--- Later in debate ---

[Lord Henley]

My Lords, I hope that I can deal with this group of amendments in the two, three or four-dimensional manner that the noble Lord, Lord Stevenson, has asked me to. Given that my noble friend Lady Neville-Rolfe moved the first amendment, I should say that, like her, generally speaking the Government are not convinced about price caps. We have our doubts and we made it clear at Second Reading that we do not like to go down this route and we said that it had to be temporary, albeit with an ability to extend the cap for a short while, year by year, but no more than that.

The aim of my noble friend’s amendment is to end it in 2020. The noble Baroness, Lady Featherstone, also has some sympathy with that, as she returns her party to classic, 19th-century liberalism—a wonderful development. We believe that it should be a temporary measure and that 2020 is the right time to end it, with the ability to extend it to a final, absolute sunset in 2023. I do not think that removing the possibility of extending would provide consumers with protection if the conditions for effective competition were not in place at the same time. As I said, we prefer to do it that way. I rather dread the thought of further primary legislation each year if we wanted to extend it or do it for another year. We have already had that with other Bills.

My noble friend asked if I could report a little on the prepayment meter cap and the effect it has had. The evidence seems to be that, since the cap, prices have come down to below it. There has been some bunching of prices, but there is competition below the cap in the prepayment market. That shows that these things can occasionally work. However, as I said to my noble friend, philosophically we do not like the idea of caps. I rather agree with her.

I turn to the other amendments in the group. The noble Lord, Lord Stevenson, spoke to Amendment 32, the purpose of which appears to be to create a firm link between the price cap’s removal and the completion of the rollout of smart meters. It seems to suggest that the cap can be extended in circumstances where the smart meters programme has been completed, but the conditions for effective competition are not in place. The rollout of smart meters is but one of many possible indicators that define a competitive market. There will be other indicators of the conditions for effective competition. Ofgem’s consultation points towards other factors that might indicate that the conditions for effective competition are in place, including ways of improving customer engagement and increasing switching. I am sure that the amendment aims to be helpful, but I believe it is simpler and safer to leave it to Ofgem to assess the conditions for effective competition, rather than put provisions on the face of the Bill that would link statements about the future of the price cap to particular programmes.

The noble Lord also spoke to Amendments 33 and 35. The Government would not wish to see an inversion of this Bill’s policy intention by removing the price cap’s sunset clause. I repeat that we have no intention of delivering an indefinite price cap. As I have made clear on a number of occasions, this is a targeted and temporary intervention until the conditions for effective competition are in place. I think that is why the Bill achieved broad, cross-party consensus in another place and was endorsed by the BEIS Select Committee. Amendment 35 would also increase the risk of transforming this temporary measure into a permanent feature of the retail energy market. Again, we do not believe that that would be appropriate.

Finally, I turn to Amendment 37, which is a probing amendment seeking to understand the purpose of Clause 9. Clause 9 empowers Ofgem to modify the standard supply licence conditions following the removal or cessation of the tariff cap as specified under Clause 8. The clause allows Ofgem to modify the standard supply licence conditions as it considers necessary or expedient, but with the requirement that Ofgem publishes the modifications to alert all stakeholders as to the impact of the modifications. The publication of the Secretary of State’s decision will alert stakeholders to the cap coming to an end. This provision would enable the licence conditions to be tidied up to reflect the cap being lifted. Otherwise, they would remain in the licence but would be redundant.

We have been clear that the price cap is a necessary intervention in the market, but one that should only remain until the conditions for effective competition are in place. The decision on extending or removing the cap will be made in the light of the report and recommendation from the expert regulator. The Government are not prepared to enable this price cap to be a permanent feature as it could risk distorting the market, but noble Lords will wish to note that Ofgem has enduring powers to protect consumers and specific duties regarding vulnerable consumers. Indeed, Ofgem has indicated that it may be necessary to have in place price protection for a narrower set of consumers once the price cap under this Bill has ceased to be in place.

I hope I have provided the appropriate assurances. Though the amendments are coming from rather different directions, I hope first of all that my noble friend will withdraw her amendment with the assurance I have given and, secondly, that the noble Lord, Lord Stevenson, will not feel it necessary to move his amendments.

[Baroness Neville-Rolfe]

I thank my noble friend for his philosophical reassurance. Certainly, I would not want to add a link to smart meters because, as he said, it is only one factor that we will need to take into account. The extension power in Clause 8 gives the Executive too much power and I ask the Minister to give the matter further thought before Report, but I withdraw my amendment with great pleasure.

Amendment 29 withdrawn.

--- Later in debate ---

[Baroness Kennedy of Cradley (Lab)]

My Lords, I shall speak to my Amendment 36A. I am very grateful to the noble Lord, Lord Teverson, for putting his name to it.

The discussions around the Bill have touched on the loyalty penalty and the tease-and-squeeze tactics mentioned by my noble friend Lord Stevenson of Balmacara, which are the root cause. In good consumer markets, competition drives down prices to deliver good outcomes for all customers—even those who shop around only every once in a while—because new customers see the same prices as loyal customers. In bad consumer markets, competition pits a small minority of highly engaged customers against the vast majority of those who, quite reasonably, engage only occasionally. These loyal customers cross-subsidise deals for a tiny minority of new customers for the first year of their deals. We know that those who can least afford it are disproportionately losing out under this broken market. To put it another way, our poorest citizens are subsidising the better-off in society. Currently, this loyalty penalty runs to hundreds of pounds per year being overpaid by millions of people to companies that exploit them. It is good that the absolute price cap will set an upper limit on the effects of this detriment, but it will still allow the behaviour to continue. It would be a wasted opportunity to allow this legislation to pass without also addressing the cause of the loyalty penalty.

Amendments 36 and 36A propose a relative price cap: a limit between a supplier’s cheapest tariff and its most expensive. In moving Amendment 36, my noble friend Lord Stevenson of Balmacara set out the arguments for a relative price cap. I want to add my support to this for two reasons. The first is fairness. We must bring an end to the grotesque idea that markets must necessarily punish those customers who do not relentlessly police them. Britain’s consumer regulations are some of the best in the world. They embody the principles of transparency and fair play to ensure that customers operate on a level playing field with corporations, so that our citizens can use their collective consumer power to get a better deal for everyone. That means that shopkeepers who short-change us, or manufacturers that mislabel their products, can be brought to justice.

However, in this area, our regulations simply fail, and they fail our most vulnerable citizens the hardest. They must be updated for the modern era. We must send a signal to markets—and the companies that seek to operate within them—that a “divide and conquer” or “tease and squeeze” approach to customers is not acceptable. Our hard-working citizens deserve to buy a product from a retailer without having the price hiked up when they are not looking. We must banish the principle of tease and squeeze.

Secondly, the role of legislation should be to bring lasting, meaningful reform that addresses the root cause of the problems facing our society. The loyalty penalty is a self-perpetuating dynamic. Efficient suppliers who want to offer good-value prices to their customers and not inflict tease-and-squeeze deals on them are disadvantaged in a market in which competition is purely driven by their position on a price comparison website. We have already seen this happen with some of the early challenger suppliers, which have started to ape the behaviour of the big six so that they can succeed in the market. Unless we break this cycle, the market will continue to be dysfunctional. The absolute cap will partially mask the symptoms for a couple of years, but the core detriment will continue and return with full force once the cap is lifted.

Introducing a limit on the gap between a supplier’s cheapest tariff and its most expensive will force companies to compete equally for new customers and loyal customers. This will reveal once and for all which companies are genuinely driving costs down and which companies are masking the real cost all along through pricing trickery. Some well-meaning people have warned that a relative price cap could lead to the big six removing their cheapest deals from the market, but we know that these so-called cheap deals are anything but, as 95% of people will roll on to an expensive tariff at the end of their first year, and end up paying more overall. Losing these deceptive deals would be good riddance to bad rubbish.

What is more, once we make pricing transparent, we will unleash the forces of the dozens of newer, more efficient suppliers. Once they are able to compete on a level playing field, customers will see a daily price war for their custom, as we see for groceries. By cleaning up energy pricing, customers who switch can be confident of getting a cheaper supplier, not one that is simply dangling misleading offers. Switching will be worthwhile, instead of being a merry-go-round, and we will restore consumer trust in a market that currently does not deserve it.

In moving Amendment 36, my noble friend Lord Stevenson of Balmacara has already proposed that a relative price cap should be implemented after the price cap, but why wait to introduce meaningful reform to a market that has already been failing customers for two decades? If something is worth doing, it is worth doing now. What is more, we are going to see a full-scale rollout of smart meters in the next two years. That gives us an imminent deadline to clean up pricing and restore trust in the market. Otherwise, we face a real danger that people will reject the opportunities that smart energy can provide.

Amendment 36A proposes that the relative price cap should be introduced immediately, alongside the absolute price cap, and be ongoing. Amendment 36 will therefore give customers the choice to stay where they are without fear of being exploited and remove the need to hunt every year for a fair price. It could be a step towards reducing the number of tariffs on the market, making buying energy even simpler for customers. Introducing a fair mechanism into the UK energy market is long overdue and benefits everyone, from those who buy energy to their suppliers, who are forced to improve their efficiencies to compete. That is why a relative price cap is a good idea for everyone and why it should be implemented at the same time as the absolute cap and be ongoing. I hope the Minister will see the benefits in both these amendments.

[Baroness Neville-Rolfe]

Noble Lords will know that I am not in favour of extending the cap, in whatever way. However, I am interested to hear about the relative tariff differential and would like to understand further how that works. I think the proposal here is that it should be imposed as well as a cap—it seems to me that that gives you a double regulation and I am not convinced that that is necessary. It would, however, be good to understand—the Minister may well be able to comment on this—what the advantages are of a relative cap in relation to the end I think we all seek, which is a more competitive market.

The noble Baroness mentioned retailers. As I was a retailer, I know that 19% to 20% of customers changing their supplier annually is quite a high figure, but the key point is that the underlying dynamics in the market are encouraging players to reduce prices and to innovate. That is what we want to see in energy. It would be good to hear from the Minister how he sees that happening in a situation where we have a cap, whatever its nature.

[Lord Henley]

I welcome the noble Baroness, Lady Kennedy of Cradley, to our discussions. Amendments 36 and 36A are broadly similar in asking the Secretary of State to develop an ongoing relative tariff differential. However, Amendment 36 says:

“The relative tariff differential shall take effect on the termination of the tariff cap conditions”,


while Amendment 36A, in the name of the noble Baroness, Lady Kennedy, to which a Liberal, the noble Lord, Lord Teverson, has joined his name—it must have good free-market credentials—says:

“The relative tariff differential is to take effect on the commencement of the tariff cap conditions and to be ongoing after the tariff cap conditions cease”.


They are broadly similar but would come into effect at different times. They would cap the most expensive advertised variable and default rate tariffs as a proportion of the cheapest, and Ofgem would set the differential.

There may be a need for further protections once the cap has ended, particularly for vulnerable consumers. Ofgem has indicated as much and has enduring powers to operate protections but I do not think it would be sensible to seek to determine the precise form that any protection takes, if it is needed at all. The energy market is likely to change significantly between now and then. Smart meters are just one part of that. The new clause inserted by these amendments would seem to introduce an indefinite relative price cap. It is not the intention of the Bill or the Government to put in place such a permanent cap.

We have come back again to tease and squeeze, which the noble Lord mentioned earlier. I briefly responded to that. I appreciate that the aim is to get rid of the practice of tease and squeeze. However, there is the risk that under the amendments suppliers would raise their least expensive standard variable and default tariffs, rather than decrease their most expensive. That is the Government’s fundamental concern about any kind of relative price cap. The Government and others, including the BEIS Select Committee, believe that a relative price cap would not work. I do not see how the outcome of a relative price cap would be any different, whether it was in place alongside an absolute cap or after the absolute price cap had been removed. A relative cap as a permanent feature of the market risks undoing the work of the temporary absolute cap.

The best way of ending the practice of tease and squeeze will be the detailed work, as I said, that Ofgem is undertaking to test better ways to secure customer engagement; the work to make switching quicker and more reliable; and the many other programmes to make the market work better. Recent changes mean suppliers can now make their default tariff a fixed-rate rather than a variable-rate deal, and many have done so. The Government believe that better engagement and better switching that leads to more effective competition is a proportionate and sustainable solution, rather than concurrent and permanent relative price caps. I hope that my explanations will satisfy noble Lords and my noble friend. I hope, therefore, that the noble Lord will feel able to withdraw his amendment.