My Lords, I am afraid that I wear a number of hats with this Bill. While much of the advice has come from the Treasury, I also speak at other times for Defra. I therefore speak as a government Minister across the breadth of a number of issues. I can assure the noble Lord that my noble friend Lord Deighton will be happy to meet him. I hope that he will take advantage of that opportunity, because it is important to share the thoughts that he has expressed eloquently today.
The noble Lord, Lord Whitty, said that departments pay little attention to the consumer and that it is a small part of what they do. That may have been true of the departments that he was part of in his time in government, but if he came today to the Department for Transport, he would hear almost nothing but the words “passenger”, “traveller” and “consumer”. They are key in the way that we have been shaping policy, and I think that one can see it in the response of a lot of the transport industry, which is now beginning to
put passengers at the heart of what it does. Historically, that might well have been absent and one might have accused much of the industry of being engineering-biased, but I assure the noble Lord that it is certainly not the case in today’s world.
The Government fully recognise the importance of ensuring that infrastructure investment is delivered in a way which protects consumer interests and is affordable to current and future customers. I think that we can say that a lot of the pressures today are caused by the fact that investment in infrastructure essentially disappeared off the radar screen for virtually a generation. We want to be sure that we do not do that to future generations. It is central to government policy and to the work of economic regulators, such as Ofwat and Ofgem, operating in each sector.
However, the Government disagree with this amendment and have some serious reservations about trying to aggregate across sectors for infrastructure costs. Bang our heads as we might, we cannot think of a way in which one could do this that could be robust or meaningful.
Let me try to be practical about this. Different consumers in different parts of the country consume different amounts of travel by rail or air—I am now talking about transport, because it is my area—and different amounts of water and energy, all differently priced. Consumers also use very different amounts of these services depending on their needs and preferences, which makes any attempt to aggregate across sectors, to depict a typical household or clusters or types of household, pretty much impossible. Once one starts trying even to estimate an average, it becomes meaningless.
It is the sector-by-sector assessment of their customer base which regulators do in detail that we think is the effective way to assess consumer impacts and affordability. I am thinking of new transport infrastructure, which would obviously be included in this package. It might give the Committee some understanding of how it is near enough impossible to do this in an aggregate way. Transport investment affects personal affordability in many ways and affects different social groups in different ways. For example, if we bring in a smart motorway scheme, it leads to reduced congestion and you could argue that it leads to reduced fuel bills. On the other hand, because there is reduced congestion, more people may well use the road, so because they are travelling their fuel bills go up. However, it may be that they are making that journey because they now have access to a job or to additional business. You surely ought to net out that benefit in order to come to a conclusion on the additional cost caused by that additional piece of motorway. Getting this sorted out is virtually impossible.
HS2 is probably the biggest piece of infrastructure seen across Europe. We have said that there will not be premium fares, so what number do you put in for the burden on the consumer? Is it the standard fare? You were not including it when that standard fare was being used on the existing line. Is it the additional revenue? Then again you are netting out benefits. To try to unravel this into something that would let you have a formula that would make any real sense is near impossible. It is not really a sensible way in which to
try to look at this. When we think about capturing cumulative effects in a way that has some meaning, it seems impossible to work your way through the human behaviours and their responses to infrastructure to get you to something that you want.
Back in the department, when we are trying to decide whether to fund a scheme, we try to look at this complex picture. How does the scheme impact on the individual, the environment, the economy or personal health? What happens, in terms of safety, to accident levels and to various other societal benefits? It is based on in-depth, long-standing scientific evidence about how people and businesses value different things. It is just a much more complex picture when we try to put this together into a scheme business case.
The fact that I am saying that cross-sector aggregate measures look at something too complex to come up with a meaningful answer does not mean that the Government fail to take affordability extremely seriously. The Government are taking targeted action on some of the costs that have been discussed today. We have introduced a range of measures to help hard-working families with the cost of living, which is surely what we are all trying to get at. For example, increasing the tax-free personal allowance has a big impact on the cost of living for individuals. Freezing fuel duty has a big impact on the cost of living, as does helping local authorities to freeze council taxes. Those are mechanisms for trying to deal with this set of issues and link in no way to the kind of cumulative cost assessment that is being discussed in this amendment.
Targeted action on bills includes action at the last Autumn Statement, in which the Government announced a series of steps saving the average household around £50 on its energy bills. We recently announced an extension of the freeze on rail fares. Last year, that saved season ticket holders around £70 over 2014 and 2015. It is completely separate from trying to calculate the specifics of a specific infrastructure investment. It has been possible because the Government have a long-term, credible economic plan.
For example, Ofgem undertakes detailed and regular assessment of energy market customers, the affordability of bills and consumers’ ability to pay. Ofgem has published a strategy on consumer vulnerability which set out to understand and indentify the causes of vulnerable situations in the energy market and to reduce the likelihood and impact of such situations. It regularly monitors and publishes data on energy disconnections for debt and other issues related to supplier dealings with domestic customers. Suppliers are required by their licences to avoid disconnecting consumers who are of pensionable age, disabled or chronically sick in the winter months—the “winter moratorium”. Ofgem also requires the big six energy companies not to disconnect vulnerable consumers at any time of year, and to reconnect a customer as a matter of priority and usually within 24 hours, if they are later found to be vulnerable. Regulators take these assessments and monitoring of consumers very seriously indeed and see it as an absolutely core part of their role.
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Investing in infrastructure is a central part of the Government’s long-term economic plan to build a stronger, more competitive economy. The country will pay a heavy price if we do not invest in the infrastructure essential for our future. To try to have some sort of cost analysis without a benefit analysis really gets you very little of the way that you need to go.
The Office of Rail Regulation estimates that there will be a 14% increase in demand from passengers over the next five years. I think that is an underestimate. There will be an overall increase in tonne kilometres of freight of 3% annually to 2033 and of 2.9% to 2043, all putting additional strain on the system. Much of the infrastructure that supports the network is already nearing its capacity limits. Commuter services into London and other regional centres are already oversubscribed, meaning that increasing capacity is increasingly important in the coming years. To take roads as a further example, if no steps are taken to address the need to increase the capacity of the road network and ease congestion, the UK will suffer economically. A 2006 study of the UK transport system by Sir Rod Eddington warned that the cost of congestion could potentially rise to £36 billion per annum by 2025. All that impacts on people’s lives in a very direct way.
The Government’s infrastructure strategy is based around providing the infrastructure that we believe the country needs now and in future to meet current demand through the renewal of existing infrastructure. Extensive use of the UK’s infrastructure, some of which is many decades old, means that maintenance and upgrades are essential to ensure that current and future generations continue to benefit from it. Upgrading infrastructure also keeps running costs low and ensures smooth and efficient operation with minimal disruptions. The Office for National Statistics forecasts that the UK population will grow to more than 73 million people by 2035, so it is imperative to have better and more efficient infrastructure serving more homes and increasing capacity on existing networks. To be a global player, grow a global economy, be competitive with an increasing number of countries around the world, attract business and skilled labour and trade in goods and services, we must have modern infrastructure networks, particularly on the transportation side, where you can see the impact that it has on inward investment.
The strategy addresses climate change and energy security. The UK needs a resilient and secure energy supply that allows it to meet people’s energy needs in a sustainable way. The UK will need to get 15% of its energy generation from renewable sources by 2020; the need to meet these kinds of targets has implications for our investment in infrastructure. For future growth, future prosperity and the standard of living for all, we must invest in infrastructure. In the past, that has been neglected, and we are currently living with the consequences. That does not mean that we do not recognise the importance of affordability. Defra’s strategic policy statement to Ofwat requires it to report annually on consumer affordability, and DECC already publishes a comprehensive annual report on future energy prices and bills. We want to make sure that we continue to
develop that kind of analysis. It also means that we are not neglecting the understanding that you cannot just look at compartments: the problem is finding a formula or mechanism to cumulate fails to work.
That is why the formation of the UK Regulators Network, to which my noble friend Lord Jenkin referred, is so important: it enables regulators to consider consumer issues and affordability in each key infrastructure sector and then to consider how they can help to improve efficient investment in UK infrastructure. The UKRN, as it is called, draws together expertise from across its members to consider cross-sectoral regulatory issues. It is a step change from the Joint Regulators Group, which preceded it. It has a dedicated staff underpinned by a MoU that my noble friend Lord Jenkin described. Alongside it, there is a renewed commitment to cross-sectoral work by regulators. The Government are consulting on what more we can do to assist in that collaboration between regulators.
I shall specifically answer some of my noble friend Lord Jenkin’s questions about how it is resourced. The UKRN draws on resources and expertise from across its membership, so each work stream has a lead regulator responsible for co-ordinating and driving it forward, and it can therefore draw on the resource from its own operation. Other regulators contribute to the analysis being undertaken. The UKRN’s secretariat team has three staff members who oversee its work—of course, the work is largely being done within each regulatory body. The UKRN’s expert panel has four members who provide a challenge function to the CEOs’ group. That challenge function is crucial.
My noble friend Lord Jenkin asked how priorities are decided and who is responsible for making those decisions. The CEOs of each of the members of the UKRN are responsible for making decisions about the shape and direction of the UKRN, so its annual priorities are decided by the CEOs following consultation. Each CEO is then held accountable by their board for all their work, including their input into the UKRN. It is crucial that we appreciate the independence of our regulators and important that the network strengthens that, rather than in any way undermine or limit it.
I will not talk in great detail about the objectives of the UKRN, as my noble friend Lord Jenkin went through them, but I repeat that affordability and empowerment are key objectives. The UKRN says that it will work to understand cross-sector issues related to affordability of services and work on consumer empowerment to ensure that consumers in regulated markets have the information and other tools necessary to engage effectively in markets. The Government will continue to engage with the UKRN on its work to ensure that the framework within which regulators are working continues to provide companies with the right incentives to deliver essential infrastructure at the best cost to consumers.
I understand those who have said that we need a cumulative number but, unfortunately, that is one of those things that are easy to say; with any good sense, robustness or meaning, it is difficult to deliver. The network is a very effective direction in which to go; I
hope that your Lordships will agree and that my noble friend Lord Jenkin will feel comfortable in withdrawing his amendment.