Lords consideration of the Energy Bill Relief Scheme Regulations 2022 - Nov 16

Moved by

Lord Callanan

That the Grand Committee do consider the Energy Bill Relief Scheme Regulations 2022.

Relevant document: 17th Report from the Secondary Legislation Scrutiny Committee

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

My Lords, these regulations were laid before the House on 31 October. The EBRS GB and EBRS NI schemes are necessary in response to exceptional global circumstances affecting energy prices. Putin’s illegal war in Ukraine has led to an unprecedented rise in energy prices, affecting businesses and vital services right across the UK. The Government have moved swiftly to introduce emergency legislation to protect consumers from these inflated prices, which will stop businesses collapsing, protect jobs and limit inflation. I am grateful to the opposition parties for helping us speed the legislation through the House. The wider negative effects of this economic pressure, including on the businesses of gas and electricity suppliers themselves, would be severe and would materialise very quickly in the absence of an intervention of this kind.

The Energy Bill Relief Scheme Regulations 2022 and Energy Bill Relief Scheme (Northern Ireland) Regulations 2022—the EBRS regulations—have been created under the Energy Prices Act, which, as the House knows, gained Royal Assent on 25 October 2022. The Energy Prices Act, introduced in Parliament on 12 October, provided the legislative footing needed to ensure that businesses across the UK receive support with their energy bills this winter through this EBRS. The regulations are essential secondary legislation, needed to implement and operationalise the ERBSs.

The regulations reduce the charges for electricity and gas supplied by licensed energy suppliers to eligible non-domestic customers and make payments to suppliers in respect of those reductions in Great Britain and Northern Ireland. The schemes represent significant and bold action by the Government to protect all eligible non-domestic customers—including businesses, charities and the public sector—such as hospitals and schools, from excessively high energy bills over the winter period. As a result, the scheme will run for a six-month period from 1 October 2022 to 31 March 2023.

Turning to the detail of the regulations, the EBRS GB and EBRS NI regulations set out that, with few exceptions, all non-domestic customers with electricity and gas contracts from licensed non-domestic energy suppliers will be eligible for a discount. The discount will be applied to the wholesale price element of bills, and the regulations set out how this discount has been calculated. The regulations cover the process by which the energy supplier is reimbursed by the Secretary of State for the discount. Regulations give powers to the Secretary of State to delegate this function where he considers it appropriate. Further provision is included to prevent suppliers or customers deriving greater benefit than is intended, in order to protect the integrity of the schemes.

The regulations also provide for an additional reduction to be applied for qualifying financially disadvantaged customers who are supplied under so-called “deemed” or “out-of-contract” contracts. The EBRS NI regulations prevent end-users who are outside Northern Ireland receiving the discount to their bills. The regulations also cover essential operational matters, including information and reporting obligations, enforcement powers and powers to impose civil penalties in respect of missing or defective declarations.

To accompany the regulations, we have published a suite of legally binding rules and non-statutory guidance, which provides further detail on how the schemes work in practice. Given the urgency of ensuring that organisations receive the support they need this winter, we have not been able to launch a formal consultation. Instead, we have had extensive informal consultations with energy suppliers, regulatory bodies and delivery bodies. We commit to reviewing these instruments as necessary following their implementation, based on stakeholder feedback. Additionally, separate pass-through requirement regulations were laid in Parliament to ensure that intermediaries such as landlords, who have received energy price support, pass through the benefit obtained to end-users—for example, non-domestic customers in rented properties. This also includes the laying of separate regulations to ensure the pass-through of EBRS benefits to heat network customers.

The regulations’ objectives are to support economic growth and to limit inflation, and we expect their most significant impact to be the avoidance of the closure of many firms, and therefore of redundancies. The benefits of avoiding closures will accrue to business, while the benefits of avoiding redundancies will of course provide broader benefits to society. Our aim is that the support delivered through these schemes will enable public services such as schools and hospitals to continue to operate this winter.

The EBRSs remain a source of critical support for non-domestic customers across the United Kingdom. Let me emphasise that the measures in these regulations are crucial for the effective operation of the schemes. The schemes will complement the other large-scale support the Government are providing with energy and the cost of living. I hope the House will be able to support these measures and their objectives. I commend the draft regulations to the House.

Baroness McIntosh of Pickering (Con)

My Lords, I take this opportunity to congratulate the Government and my noble friend the Minister on bringing through the enabling Act and in particular the regulations before us this afternoon. I commend the support the Government are giving both to non-domestic and domestic customers. If my noble friend will permit, I have a number of questions I would like to press him on, but that does not detract from my overall support for the scheme.

The Secondary Legislation Scrutiny Committee prepared a very helpful brief, which states that the instruments are made to delegate powers to enable the Secretary of State to make technical rules for the effective operation of the EBRS, including rules for the calculation and recovery of accounts. Paragraph 7.1 of the helpful Explanatory Memorandum appended to the regulations states that the Secretary of State

“can reimburse licensed non-domestic energy suppliers applying price reductions on customers’ bills representing the wholesale energy price element of the bill. This will allow non-domestic customers to receive the benefit of such a discount.”

I welcome what my noble friend said about landlords passing this on to those who operate the businesses; that will be very welcome indeed.

Paragraph 7.2 of the Explanatory Memorandum say that the Secretary of State is required,

“within 14 days of the schemes’ introduction date, to make rules about further reductions”.

The rules will apply to the supply of gas and electricity for the period referred to by my noble friend. Will there be an opportunity for the Committee or the House to see them in advance and to scrutinise them? Will they be laid before the House? I realise they are technical rules, but it would be helpful for us to see them.

Paragraph 11.1 refers to stakeholders, individual organisations and so forth. I would like to make plea for the plight of publicans in pubs, restaurants, bars and cafés, who will benefit from this scheme until the end of March. It is particularly welcome in the run-up to Christmas, and in January and February, which tend to be slow months, as it recognises their need to incur high energy and electricity costs to make a welcoming atmosphere. My noble friend is probably not in a position to tell us today—we will have to wait until tomorrow or even the March Budget—what will happen after this scheme expires. I do not want to be like Oliver Twist and ask for more, but it would be helpful for businesses to know what the future will be. My noble friend has rightly identified that the regulations and the enabling legislation under which they fall are intended to prevent closures and job losses resulting from high wholesale energy costs, which we know are largely global in nature.

I also make a plea for non-domestic customers and businesses that operate in rural areas. The Minister and I are from the north-east of England. I grew up there and represented part of North Yorkshire for 18 years in the other place. In about a week’s time, we will have the first anniversary of Storm Arwen, when a number of businesses closed. Those who were not fortunate enough to have generators were heavily penalised. As part of learning from that, I met our local director of the NFU, which is keen to work with the Government and other bodies to see how we can enhance infrastructure and the grid in rural areas where we are heavily dependent on off-grid fuels such as oil, solid fuel and LPG, and to look at what prospect there might be for developing those off-grid resources. It is basically about lessons learned from Storm Arwen, in what was a very difficult time.

These regulations were debated in the other place by the Delegated Legislation Committee on Monday 14 November. It was asked then why there had not been a greater assessment of the impact of administration and resource costs on Ofgem, which will be heavily involved in monitoring compliance. Has BEIS looked at that? Will it have time to do so in the next few weeks? Secondly, if a company has outstanding debt on bills of greater than 28 days, it effectively does not qualify. For what reason has that benchmark been chosen? With those few questions, I wish Godspeed to the regulations and congratulate my noble friend and his department on the work they have done in this regard, for both non-domestic and domestic customers.

I have one further question, which relates more to domestic customers. What I would identify as sharp practices are being developed by electricity providers on the back of the Government’s generosity in this regard. When a customer is in credit, their direct debit payments are going up, which I can see no rhyme or reason for. If a customer is in credit, why on earth would you seek to increase their direct debit, particularly when the Government have lent the generous help that they have? Another such practice happens when, no matter how many meter readings they may give, the customer ends up with an estimated bill. Again, that seems to be a way of bumping up the price. I would welcome any response that my noble friend has to what seem to be developing sharp practices.

Lord Teverson (LD)

My Lords, we on our side very much welcome this relief for businesses and commercial operations with regard to energy prices. Again, I very much echo the noble Baroness, Lady McIntosh, on the fact that the evaluation does not take place until three months. I understand the issue of how you would evaluate it before that, but there is no obligation to put forward further plans until the end of the scheme, after six months. I would be interested to hear an answer on that.

4.30pm

I have just two questions for the Minister—and I will keep it just to two, so I get an answer today. The first is on the issue of second homes sometimes masquerading as holiday lets which are often used by the owners as well. I want to understand where they are in this. In a lot of seaside areas where local residents are not necessarily particularly well off, there would be a concern if homeowners who have had their properties registered as businesses for business rates received these payments. That is quite an issue, and I would be interested to understand how the Government will look at that.

My second question is on the issue of fraud. I cannot remember where it was in the Explanatory Memorandum, but I welcome the fact that that is discussed in these papers. It must be relatively easy to police this scheme to make sure that retail energy companies pass on the money to consumers. I do not see that as a big issue; it is relatively easy. However, the other area that was brought up is where landlords effectively pass on an electricity cost separately to their tenants. As the Minister will know, often for small businesses the balance of power between landlord and tenant is very much in favour of the landlord, and often tenants do not want to have arguments with their landlords. The paper suggests that the department will keep a close eye on that. I do not understand how that can happen. I am not saying that that will be an easy area of policing, but I would be keen to hear the Minister’s opinion on how that would be policed and enforced, given that asymmetric power that often is in that relationship. However, I welcome the secondary legislation.

Lord Lennie (Lab)

My Lords, first, I thank the Minister for bringing forward the instruments today and thank the stalwarts of the energy debates, the noble Baroness, Lady McIntosh, and the noble Lord, Lord Teverson, for their questions and comments, which I am sure will be responded to.

These are the first two instruments from the Energy Prices Act, which we debated recently. We supported the Bill during its passage and appreciate the pressing need to have these arrangements in law as soon as possible. As such, we will not be preventing the passage of these instruments. This also means that many of the points that we have made in regard to these instruments have already been debated in passing the Energy Prices Act. I will not spend time dealing with that and repeating points but rather will focus on the specific contents of the instruments before us today, not least as we will be considering more before too long.

As we have heard, between them these two instruments make provision for the implementation of the energy bill relief scheme—the EBRS—for non-domestic customers across the UK, with powers derived from the Energy Prices Act: Section 9 for Great Britain and Section 11 for Northern Ireland. To comment on a point that the noble Baroness, Lady McIntosh, raised, what these instruments do not do is to set out the exact terms of the scheme, neither for the first six months, which is now clear, nor for the following 18-month period that the Act allows these powers to provide for. We now know the Government’s plans for the first six months—they were recently revealed—but we have heard little on their plans for the period thereafter. Like the noble Baroness, Lady McIntosh, if the Minister is able to, I would appreciate it if he could elaborate on what is proposed, or at least update us on the progress of their consideration as to what might happen for the latter part of the period that this Act governs.

Part 3 of the instrument relates to discount recovery, on which I have a small item to raise. I understand that Energy UK previously expressed concerns to the Minister about the arrangements in this part. Its interpretation is that energy suppliers would not receive financial cover to cover the difference between normal and capped unit rates, which is inconsistent with what the Energy Prices Act suggested. That issue appears to have been fixed, which is welcome, but it is troublesome that it was not the case from the outset. I am keen to hear an explanation from the Minister of how these issues emerged and some reassurance that, in action, energy companies will have no difficulty receiving their entitlements.

I also understand that the consultation to resolve the issue took place under non-disclosure agreements, which not only is concerning in itself but, as Energy UK raised, often means that not all suppliers are included in talks and that the industry cannot work together with the Government to come to the best solutions. This seems neither a sustainable nor an effective way of creating policy.

Part 5 of the instrument, which relates to qualifying financially disadvantaged customers, requires the Secretary of State to make rules about further reductions that the suppliers must apply to the amounts payable of these customers within 14 days of the scheme’s introduction date. As the Explanatory Memorandum says,

“The current levels of many deemed and out-of-contract tariffs mean that, even with the discounts provided by the rest of the EBRS scheme, these customers … would often still experience particular difficulty in obtaining a supply of energy at a reasonable rate”.

It is welcome that additional support will be set out. However, given the situation, waiting until 14 days after the scheme’s introduction does little to offer reassurance to these customers and makes it difficult, if not impossible, for your Lordships to scrutinise the plans. Perhaps the Minister could give some advance notice of the Government’s plans for this section.

Before I finish, I briefly revisit one broader area from the Energy Prices Act, regarding the powers of the Secretary of State, some of which allow them to escape secondary legislation. Of course, that is not the case here, as we are debating secondary legislation, but I use this opportunity to repeat our regret that other significant powers given by the Act are not subject to parliamentary debates such as this.

Baroness Hoey (Non-Afl)

My Lords, could I intervene before the Minister responds? I have carefully gone through the Energy Bill Relief Scheme Regulations 2022 and the Energy Bill Relief Scheme (Northern Ireland) Regulations 2022, which are about the same thickness, to see where the differences are. Obviously, we know that the situation is different in Northern Ireland, so there have to be some differences, but it would be helpful if, in winding, the Minister could clarify any substantial differences between how the scheme is going to work in Northern Ireland and in the rest of the United Kingdom. As the Minister is aware, we in Northern Ireland are always wary of being treated slightly differently for some unknown reason that we find out about later. I appreciate that there have to be separate regulations on this, but I would appreciate clarification on any substantial differences.

Lord Callanan (Con)

I first thank noble Lords for their contributions to this debate. As I said, the Government have implemented the EBRS GB and NI schemes to ensure that non-domestic consumers are protected from excessively high energy bills over the winter period. The schemes will make sure that the amount that eligible businesses pay for their wholesale energy costs comes down to a reasonable level, with some saving over 50% on those costs.

I am sure it is reassuring for the House to know that the schemes are already in force and delivering support to organisations across the UK. I hope this reassures the public that the Government are committed to taking decisive action to alleviate at least part of this energy crisis.

As well as providing immediate relief, these schemes will support economic growth and have the happy effect of limiting inflation caused by increasing energy bills and the knock-on effects on prices, labour, goods and services. As I said at the start, we are confident that the schemes will seek to avoid firm closures and redundancies and will ensure that vital public services and charities can continue to operate over the winter.

We will continue to monitor the schemes to ensure that this support is provided to the people and businesses that they are designed to help. We are committed to reviewing the schemes by the end of the year and will continue to work with stakeholders to ensure that their feedback is taken into account. We will use the review to look at how best to offer further support to customers who are most at risk from energy price increases beyond April 2023.

I start off with the contribution of my noble friend Lady McIntosh, who asked whether the House would have the opportunity to review the rules accompanying the statutory instrument. It is worth pointing out that the schemes have been set up at pace, and the House of course helped by passing the legislation at pace, to deal with the crisis. Therefore, it is right that the more technical details of the scheme have been included in statutory rules, which have been published on GOV.UK. The first tranche of EBRS GB and NI rules were published on 1 November; amendment rules relating to discount recovery were published on 4 November; and a third tranche of amendment rules relating to disputes and treatment of financially disadvantaged customers was published on 9 November. Minor changes made via amending rules were published on 10 November. If the noble Baroness wants to check on GOV.UK, she can while away her weekend reading the rules in detail. The business support scheme is intended to give immediate relief to businesses and other non-domestic consumers from the current level of inflated electricity and gas prices.

The noble Lord, Lord Lennie, and my noble friend Lady McIntosh asked the good question about what will happen in six months’ time, once these schemes come to an end. I cannot say that I have an answer for the Committee at the moment, because we are still to conduct the review of the scheme, which we have said that we will do by the end of the year. Perhaps if I set out what the review will consider, that will give the Committee some clues as to where we intend to go with this. The review will consider how best to offer further support to customers who are most at risk of energy price increases. By their very nature, they are likely to be those who are least able to adjust—for example, by reducing their energy uses or increasing their energy efficiency. Of course, any further support will begin at the end of the initial six-month support scheme.

My noble friend Lady McIntosh asked something that, I have to say, has nothing to do with these regulations, about lessons learned from Storm Arwen. We have had extensive discussions on that subject in this House. We published a comprehensive review of the recommendations for improvement of the electricity sector in response to Storm Arwen. There were a number of key recommendations covering enhancing system resilience; protecting customers; and additional support, such as compensation. The recommendations are due to be finalised by December 2023, but the majority are already complete, ahead of this winter.

My noble friend also asked about the assessment of the impact of administration and resource costs to Ofgem. Of course, we are working very closely with Ofgem to ensure the effective enforcement of the scheme requirements, and we will ensure that it has the necessary resources to carry out its role in this and many other government schemes operating in the energy sector. Given the pace at which we had to deliver the impact assessments of this time-bound intervention, we have focused on the largest and most significant impact—of course, the direct costs to the Exchequer.

My noble friend also asked about the 28-day disqualification policy. The arrears rule already referred to applies only to the additional discounts that suppliers are required to apply to those qualifying disadvantaged on deemed or out-of-contract contracts. That is in addition to the main EBRS discount.

On the points made about suppliers increasing energy bills, the EBRS scheme is shielding businesses across the country from soaring energy prices. The vast majority of energy suppliers are operating responsibly and within the spirit of the scheme. Of course, we are aware of reports that some companies are being faced with excessively high quotes this winter. I can tell the House that we will take a robust approach to this, and we are working with Ofgem to ensure that the licensing conditions have not been breached and that businesses are able to see the full effects of support offered by the scheme.

My noble friend Lady McIntosh also raised the issue of the UK’s energy resilience in winter. We have a secure and diverse energy system, and we are confident of our plans to protect households and businesses in the full range of scenarios this winter, in light of Russia’s illegal war.

4.45pm

My noble friend will be aware that to strengthen this position further we have put plans in place to secure supply, and the national grid, working alongside energy suppliers and Ofgem, will launch a voluntary service to reward users who are able to reduce their demand at peak times. Happily, unlike many other parts of Europe, Britain is not dependent on Russian energy imports, and we are at a strategic advantage through access to our own North Sea gas reserves and steady imports from reliable partners, such as Norway, the second largest LNG infrastructure in Europe in Europe, and a gas supply underpinned by robust legal contracts—and, of course, the enormous investment that we are making in clean energy sources. So, although we are not complacent, we are in fact in a much better position than many other countries in Europe.

The noble Baroness, Lady McIntosh, raised a point about consumers who are in credit—she was talking about consumers, whereas this scheme concentrates on non-domestic customers. I will answer the question now, but it is more appropriate for the next debate about direct debit payments. Ofgem have looked into this and found no evidence that direct debits are being widely inflated, but it identified some weaknesses in some suppliers’ processes that could result in suppliers setting some direct debits incorrectly. It is very important at this time that consumers can trust that their direct debit is an accurate reflection of their consumption and are given enough information to understand why they are paying the amount they are. It is worth pointing out that you can contact your supplier to ask for your direct debit to be reduced. I know that because I have done it myself. My account was in credit and, therefore, I was able to say, “You have put my direct debit up too much. I do not need to be paying this much” and the supplier happily reduced it, so it is possible to do that.

The noble Lords, Lord Lennie and Lord Teverson, both asked about the enforcement of the pass-through requirements, which were in SIs tabled separately. The legislation makes it clear that intermediaries must pass the benefit through to end users and must also ensure that the end user is equipped with the information to understand what benefit they are entitled to and be able to dispute this and/or how it has been applied. We have introduced regulations to allow end users to pursue recovery of benefits as a debt through civil proceedings. End users can recover claims to pass through amounts as civil debts in the county court, in the same way that other outstanding amounts owed to an individual can be claimed.

We have also introduced guidance on the pass-through requirements for energy price support, including a link to how to make a court claim for money. Although I understand the point the noble Lord, Lord Teverson, made about the relative imbalance of power in some of these relationships, we are doing all we can to make sure that people are able to exercise the rights that this legislation has given them. The enforcement system is the same across all the schemes, with a slight nuance for heat networks under the EBRS. The legislation requires heat networks also to pass on the benefits of the EBRS to their end consumers in the form of lower heating bills, and if heat network customers do not receive the pass-through or information from their heat supplier, they will be able to raise a complaint with the energy ombudsman.

In response to the noble Lord, Lord Lennie, who asked how we are ensuring that companies receive these vital discounts, again, we are working closely with energy suppliers on the development of the scheme. Energy suppliers have already submitted their first payment requests to the department and they will be paid shortly. Discounts will start to appear in customers’ bills from this month, backdated to cover their consumption from 1 October.

As I mentioned earlier, rules regarding Part 5 of the regulations have now been published. The additional reductions introduced through this new rule will be applied by energy suppliers in line with the savings they are making thanks to EBRS reducing the overall risk that customers cannot pay their bills on time. A further reduction may also apply if the amount charged is considered unduly onerous under section 7.4 of the relevant standard licensing conditions, which is enforceable by Ofgem.

In response to the noble Baroness, Lady Hoey, who asked about the substantial differences between the Northern Ireland and Great Britain schemes, they are essentially similar, but the Northern Ireland scheme’s delivery approach diverges slightly from GB’s in that it requires suppliers in Northern Ireland to abide by obligations in the regulations enforced by the Northern Ireland utility regulator, UREGNI—I am sure the noble Baroness is more familiar with that than I am. The regulations reflect this and the role of the Northern Ireland utility regulator in enforcing the schemes. There are a number of other technical differences, including an additional contract type, the day ahead index price contract, and there is an extra discount recovery process in Chapter 4 to prevent a Northern Irish recipient of supply eligible for the EBRS NI from then passing on that reduction to an end user in the Republic—which I am sure is something the noble Baroness would strongly support.

Lord McCrea of Magherafelt and Cookstown (DUP)

I listened to what the Minister said and return to a point raised by the noble Baroness, Lady McIntosh. Do I take from the Minister’s remarks that there is going to be a review after the winter period that is covered by the present legislation? There are many small businesses scattered across the community in Northern Ireland that are totally dependent on electricity and have therefore met this volatility in energy prices. It is hard for them to plan for the future without knowledge of where we will go after the short period covered here. How long does the Minister think the review will take, because these businesses certainly need to plan for the future?

Lord Callanan (Con)

The noble Lord makes a very good point. As I said, we will conduct a review as soon as possible with the aim that it will be published before the end of the year. That will inform businesses of where we hope to go with the scheme after its expiry in April. That applies not just to businesses in Northern Ireland but to small businesses across the whole United Kingdom.

In conclusion, the Government remain committed to ensuring that consumers receive help with the rising cost of living and with energy costs. These regulations are vital to ensuring that support is delivered this coming winter. I commend this draft instrument to the Committee.

Lord Teverson (LD)

I thank the Minister for his reply to my point on fraud but, as he has not replied on holiday home lets, I assume that, if they are on business rates, they will get this benefit.

Lord Callanan (Con)

There are two aspects to this support. The price guarantee applies to domestic consumers and the EBRS applies to business consumers. If it is registered as a domestic premise, the home owner would receive this support in the same way as other owners of multiple homes would receive it—under the domestic scheme. If it is registered as a business, again they would receive a price discount. That applies to all businesses across the UK, with a few exceptions for some generators.

I take the noble Lord’s point about how this will probably go down badly in the areas concerned, but the scheme was rolled out at pace. We saw similar effects with the Bounce Back Loan Scheme during the pandemic. By the very nature of these schemes, if you do not spend years putting the scheme in place, going through every detail and exempting certain groups that might perhaps be undeserving of the support, there will be cases that most people regard as slightly unfair. That is in the nature of rolling something out quickly. We needed to get the support out quickly, which is why this has been done that way.

Motion agreed.