Powers of the OGA to charge fees

Energy Bill [Lords] – in a Public Bill Committee at 2:00 pm on 26 January 2016.

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Photo of Alan Whitehead Alan Whitehead Shadow Minister (Energy and Climate Change) 2:00, 26 January 2016

I beg to move amendment 11, in clause 13, page 8, line 44, leave out subsection (3).

This amendment, together with amendments 12 and 13 would require the amount of income the OGA raised by fees and charges to be kept by of the OGA and used to reduce the amount of income raised by the levy on licence holders.

With this it will be convenient to discuss the following:

Amendment 12, in clause 13, page 9, line 1, leave out subsection (4).

This amendment should be read together with amendment 11.

Amendment 13, in clause 14, page 9, line 38, after “period” insert

“minus the income derived from fees under section 13”.

This amendment should be read together with amendment 11.

Amendment 14, in clause 14, page 10, line 15, leave out subsection (6).

This amendment, together with amendment 15, would require the OGA to keep the income from the levy on licence holder, rather than pay it into the consolidated fund.

Amendment 15, in clause 14, page 10, line 17, leave out subsection (7).

This amendment should be read together with amendment 14.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Energy and Climate Change)

I should draw hon. Members’ attention to the fact that this is going to be a little obscure. It could be long and obscure, medium-length and obscure or short and obscure—it depends how the debate goes. I want to do what is best by the Committee, so if it thinks that short and obscure is the best way to proceed I am happy to do that, although hon. Members may find the exposition rather more obscure than short. [Laughter.]

The amendments relate to what the OGA is required to do in regard to its income and expenditure and the way it may charge fees and obtain income from a levy on licence holders. The understanding during the discussions, particularly with the industry, about how the OGA would be set up was that while the OGA itself would be run essentially from a levy on industry, the industry would have assurances about the extent of that levy. Indeed, one can look at assurances in the Bill. The extent of the levy would essentially be balanced by what the OGA would get through in terms of running costs. In theory, the levy on industry would effectively fund the OGA for its activities. If the OGA were to be profligate with its expenses and the way it went about things, in theory that levy could get a little larger, but the industry, which is clearly under considerable financial pressure because of what is happening in the North sea, felt positively that paying a modest levy for the OGA to work well in partnership with it and on its behalf in the North sea was worth it, provided that levy could be put into clear context.

There are powers in these clauses to enable the Secretary of State to ensure that that is the case as far as possible. The Secretary of State can exercise a power, as set out in clause 14(2), to ensure

“that the total amount of licensing levy which is payable in respect of a charging period does not exceed the sum of…the costs incurred by the OGA…and…the costs incurred in respect of that period by the Lord Chancellor in connection with the provision of Tribunals to consider appeals against decisions of the OGA”.

Moving back to the previous clause, the OGA has the power to charge fees. In principle, one might think that the levy arrangements—a levy is charged but that levy is reasonable—might extend to the powers of the OGA to charge fees. One might think, in principle, that the total amount of levy charged on licence holders and the total amount of OGA income from fees would be the amount required to run the OGA, and that the income from fees to the OGA would be a minus category relative to the levy—one would offset the other—so there would be a total amount required by either process for running the OGA. That is what the industry probably understood would happen, but it is by no means apparent to me from the wording of the Bill that that is, in fact, what will happen. Indeed, it appears that when the OGA charges fees, those fees, by and large, should not go towards offsetting the levy on licence holders and lowering it. Instead, as clause 13(3) states:

“The OGA must pay into the Consolidated Fund any amount which it receives in…fees”.

Consolidated Fund is obviously another term for Her Majesty’s Treasury.

Money that comes in from fees is paid to HMT and is not offset against the levy on licence holders to make that levy more appropriate regarding the overall running cost of the OGA. That seems to undermine some of the confidence that the industry might place in the OGA as a body that really does, with the contribution of a modest fee, undertake its activities on the industry’s behalf. I do not want to put it in too nasty a context, but if the industry considers that part of the process may look, at least in part, like a money-making scheme on behalf of HMT, that hard-pressed industry may have a few words to say about whether that is indeed the best way to set up the OGA.

The purpose of the amendments is to ensure that it really is the case that the income that comes into the OGA from the levy and from fees stays with the OGA and is used to carry out the OGA’s functions and nothing else. I do not want to see, as the eventual outcome of how the OGA is funded, a system that looks rather like a penny machine in an arcade at the end of a pier, where people put money in and think they have won something but some of the money goes off the side before they have actually got their winnings in. I do not want to see that and I do not think the industry does either.

I hope that all the consequential amendments which go on the back of this attempt to tuck in the idea that the costs incurred by the OGA are minus fees and that additional fees do not go to the Consolidated Fund will be taken positively on board by the Minister as an effort to ensure that the OGA’s funding is as transparent as possible for the industry, and therefore that the OGA retains the confidence of the industry in its operations. If the Minister thinks that there are some consequences that I have not spotted which need to be considered, I would of course be very happy to take that on board, but I hope that she will want to take that principle on board this afternoon. If it is necessary to table amendments at a future date to make this work properly, I would be very happy for that to happen.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill 2:15, 26 January 2016

I rise to speak to amendments 11 to 15. The Scottish National party would welcome the powers for the OGA to levy charges for services such as attending or carrying out tests or inspections on applications, storage, samples or information. We recognise that the licence holder levy is an important piece of funding infrastructure for the OGA. We recognise that subsection (4) of the clause provides for the Secretary of State, with the agreement of the Treasury, to do exactly what Labour’s amendments suggest. Nevertheless, we would be happy to support the Labour amendments if they went to a vote. We also recognise that subsection (7) of the clause actually provides for the Secretary of State, again with the agreement of the Treasury, to do exactly what Labour’s amendments suggest, but we would still be happy to support these amendments on the basis that they would guarantee that the funds raised by the OGA are kept by OGA.

Photo of Andrea Leadsom Andrea Leadsom The Minister of State, Department of Energy and Climate Change

I love the analogy of the penny arcades. I have spent many an hour on those myself, and I know the frustration they can bring. I can assure the hon. Member for Southampton, Test that that is not the case here, and I would gently point out that to suggest this is to misunderstand what is intended.

The amendment are designed to allow the OGA to keep the proceeds of fees and charges made under clauses 13 and 14 and to subtract that from the levy, but in accordance with Government policy that the user pays, the OGA will be funded by the industry through fees—for licences and consents, for example—and through the levy. These are separate income streams to recover the costs of the OGA in carrying out certain functions.

Clause 14(2)(b) specifically provides

“that no levy is payable in respect of costs incurred in the exercise of functions— for which fees are charged under section 13”.

The prospect about which the hon. Gentleman is concerned of somehow charging double will not arise. It is standard practice for legislation to provide that income paid to a body such as the OGA is paid into the Consolidated Fund, hence the wording of the clauses. However, the Bill also contains provisions that provide that this does not apply if the Secretary of State, with the consent of the Treasury, directs otherwise. That will enable income paid to the OGA to be retained by it and not transferred to the Consolidated Fund. We have reached such an agreement with the Treasury, so levy income will be retained by the OGA, and we are considering the position on fees.

The key point for the hon. Gentleman to note is that while we have the agreement to enable the OGA to retain levy income, the clauses need to remain because theoretically that agreement could be revoked at some point. That is not to say that we anticipate that it would be, but that is the purpose of the clauses being there. I hope that hon. Members will appreciate that the proposed amendments, while absolutely genuinely intended to solve a problem, are in fact unnecessary. I hope the hon. Gentleman will not press them.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Energy and Climate Change)

I am not minded to divide the Committee on this. We are trying collectively, I hope, to arrive at a position where what goes into the OGA is what the OGA uses to run its activities, as the Opposition have suggested. It is important that a very clear line of accountability ensures that that happens so that the industry has confidence in the OGA in the future.

I am a little concerned about subsection (4). Clearly, we have a Secretary of State who is honourable and straightforward and a Treasury that can consent to an honourable and straightforward view that she may take about directing the circumstance outlined in subsection (4) to come about. However, it still worries me that the lever that allows that to happen is in the Bill, but the actual process is not.

I therefore make the caveat that that requires that no one at any stage attempts to rob—not to put too fine a point on it—some of the funds for other purposes by not otherwise directing, not coming to an agreement or by otherwise interfering with the process. That possibility is still there.

I am greatly reassured by the Minister’s suggestion that agreement with the Treasury has already been obtained on how this will work. That appears to be a very solid way forward. However, if this goes seriously wrong over the long term, further guidance, either in secondary legislation or primary legislation may be necessary to put it right. With the assurances I have received, I am not minded to press the amendment to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 13 ordered to stand part of the Bill.

Clause 14 ordered to stand part of the Bill.

Clause 15