Oral evidence: The work of the BEIS Department, HC 529

Oral evidence, 28 June 2022.

Witnesses

Rt Hon. Kwasi Kwarteng MP and Sarah Munby.

Chair

We are resuming this session of the Business, Energy and Industrial Strategy Committee. I am delighted to welcome the Secretary of State, Kwasi Kwarteng, and Permanent Secretary, Sarah Munby, to the Committee this morning for a general work of the Department discussion. To begin with a couple of questions from me in respect of your energy brief, Secretary of State, could you give us an update on the sale of Bulb Energy, please?

Kwasi Kwarteng

As I have said publicly before, we have a number of parties interested in acquiring the business. Those conversations are ongoing. Lazard is the financial adviser. My understanding is that Teneo is the administrator. We want to conclude a deal as quickly as possible.

Chair

The latest administrators’ report showed that it is a loss-making business with £1.5 billion of costs compared to £1.1 billion of income from billpayers. If the sale of Bulb does not recover all of those costs, which currently your Department is on the hook for covering, how will that cost be recovered? Will it just become an expense for the Treasury or will it go on to consumers’ energy bills?

Kwasi Kwarteng

I am afraid we are getting ahead of ourselves, because we do not know what the actual deal will be. We do not know what the consideration will be and that is what we are negotiating.

Chair

This is a point of principle. In the special administrative regime, if an energy company that needs to be taken over incurs costs, is it Government policy that those costs are taken up by the Treasury or on energy bills?

Kwasi Kwarteng

I am not prepared to comment either way on that.

Chair

Is that because that is not written down anywhere in the SAR process, so it will be on a case-by-case basis, or you do not want to comment specifically because it is Bulb?

Kwasi Kwarteng

I am sure Ms Munby will want to come in. As far as the SAR process is concerned, as my understanding is, this is the first time that it has ever happened. It is without precedent, this situation. The eventuality you describe, we would have to meet when it occurs. I am not sure in the legislation that there is any attribution of liability. I might be wrong about that.

Sarah Munby

For the SoLR process, there is quite a fixed timing and process for reclaiming the costs. The same is not true of the SAR process. There is more flexibility. The default expectation has always been, in the past, that it would go on consumers’ bills at a timing to be selected, as a matter of policy at the time. Clearly, we will have to see what happens in this case, but there is not an automatic process that makes that happen in the same way that there is for SoLR. It is discretionary.

Kwasi Kwarteng

My understanding is slightly different. There is not any assumption that the costs at the moment will be absorbed in the way you describe. It is a completely unique and unprecedented set of circumstances.

Chair

“We do not know”—that is essentially the answer.

Kwasi Kwarteng

Exactly, so to say there is a presumption that consumers will pay is not right.

Chair

We do not know, which is why we are asking. Of course, the figures suggest that there is about a £600 loss per customer for Bulb. If that were to go on energy bills, that would be a very significant increase for billpayers.

Kwasi Kwarteng

You will appreciate that there is more than one party interested in buying the firm. We are in negotiations as we speak about what price they are going to pay. If I were to say, “Such-and-such a loss and deficit would be guaranteed by such-and-such,” that would affect the commercial negotiation, absolutely. I am not prepared to do that.

Chair

We are just interested, because of course it is taxpayers’ money. We want to know what your position is on it.

Kwasi Kwarteng

Of course it is. It is also in the interest of the taxpayer that we get the best price for the company.

Chair

I agree. We will look forward to future updates from you on Bulb Energy. Secretary of State, I know you did not agree with the idea of a windfall tax but it has been introduced. There was some suggestion it would be extended to include electricity generators, as opposed to just oil and gas companies. Is that still happening?

Kwasi Kwarteng

Just to clarify, I was against what I would call a vanilla windfall tax, whereas this energy profits levy, which is properly called a windfall tax, does have a strong incentive for investment. That was something that I was very keen to see. I am very pleased that the Treasury has built that into the profits levy.

Chair

Will it be extended to electricity generators?

Kwasi Kwarteng

That is a matter for the Chancellor of the Exchequer.

Chair

That is for the Chancellor to decide. If it does get extended to electricity generators, do you have a view on whether community-owned electricity generators should be included in that?

Kwasi Kwarteng

I do not have a view as to who will be in the scope of the mooted tax. It is a matter for Treasury. I am sure we will have discussions with them as to how it would operate, but it is not clear to me one way or the other whether it is going to be introduced.

Chair

The Environmental Audit Committee called on your Department to make a particular effort to support the idea of community-owned or very local energy projects. The Department rejected the recommendation from the Environmental Audit Committee. Are there particular concerns you have about community-owned energy projects compared with the big companies?

Kwasi Kwarteng

We have had some issues of financial irregularity. There was the Robin Hood company that was owned by Nottingham Council.

Chair

Sorry, I mean generation, not supply—a community wind turbine for example.

Kwasi Kwarteng

My example is apt, because even though Robin Hood was a supplier, the same issues would be relevant to local authorities using balance sheets.

Chair

It is often not local authorities.

Kwasi Kwarteng

No, or local groups of entrepreneurs. There is certainly risk in there. They are not well capitalised; that is the issue. Should prices or the financial environment be unstable, there is a lot of risk in that.

Chair

Moving on to electricity pricing, the Prime Minister said last week that he wanted to see the pricing of electricity and gas decoupled. At the moment they are coupled together. When will that happen?

Kwasi Kwarteng

We are working on this right now. Intellectually, it is a very simple problem. At the moment, all of us—all consumers; all our constituents—are paying a price for electricity that is directly related to the marginal cost of gas production. You can see that in the system of 40 years ago, which was largely based on coal and gas, that made sense. As we progress into the 2020s, we have a system, uniquely in Britain actually, where we have a huge diversity of sources of power. The price that you are paying, if it is being designed or priced off the marginal cost of gas, does not reflect the actual cost of generation. That is a fair problem. Other countries across Europe are facing the same problem. They have more renewables on their system and they want to have an electricity system pricing that reflects the actual cost of all the generation that the renewables are doing, not simply gas. That is something that we are working through. I cannot give you a date, but we are trying to work at pace on this.

Chair

Do you have any early ideas about how that might work? There is some suggestion you might need two markets, one of which is about renewables.

Kwasi Kwarteng

Yes, there are different ways you can approach this problem. One way is, as you say, to have basically a bifurcated market where you have renewables, and you work out what that is, and then you have gas as well, and you can get maybe a blend. There are other ways, looking at average costs and how you can relate the average cost of the generation across different technologies to the end price that the consumer pays.

Chair

You have recently consulted on the balance of levies between electricity and gas. When will you announce the outcome of that consultation?

Sarah Munby

Our fairness and affordability review looks at levies right across the bill system and the right balance between gas, electricity, consumers and industry. We are expecting the results of that later this year.

Chair

That is this calendar year.

Sarah Munby

Yes.

Tonia Antoniazzi

Good morning, Secretary of State. The BEIS main estimate contains £11.7 billion for the energy bill support scheme. How much of this will be recovered from the windfall tax for energy companies?

Kwasi Kwarteng

The estimate that was publicly announced from the Treasury was £5 billion, so £5 billion is going to be raised from the EPL. Of course, that is an estimate because we do not know to what extent they are going to reinvest those profits. We do not know what those profits will be, but the estimate was £5 billion.

Tonia Antoniazzi

On the council tax rebate, we really had a big issue with that and its delivery in April this year. What assurances are you able to give, Secretary of State, that the £400 per household discount will be delivered on time to people when it comes?

Kwasi Kwarteng

You have to remember where we started from. In the initial proposal, it was £200 that was going to be reclaimed over five years, whereas this is just a much more straightforward £400 grant, which is much easier to deliver and administer than the £200, which was going to be essentially clawed back over a five-year period.

Tonia Antoniazzi

Are there any hitches that you are anticipating?

Kwasi Kwarteng

It should be a fairly straightforward process. There are challenges in all sorts of distribution like that, but it is, from my point of view, a much better-structured form of intervention than giving someone £200 and then claiming it back off their bills over a number of years.

Tonia Antoniazzi

The administration goes out to people. For example, will people get the £400 more than once because they may have more than one property or expenses paid on another property? I am particularly thinking about Members of Parliament. Have you put in place that that will not be paid to people who have more than one property? Does it just go to them once?

Kwasi Kwarteng

My understanding is that we are looking at the delivery and how equitable that is. I certainly think, as I repeat, that the £400 grant is a much simpler way of helping people than having £200 that you are going to reclaim of bills. For me, this was definitely an improvement.

Tonia Antoniazzi

Given that the support on offer is not going to cover the expected increases to people’s energy bills, are the Government planning to provide any further support to billpayers?

Kwasi Kwarteng

Of course, that is a matter for the Chancellor. One of the things that we are very keen to do in BEIS is to look at this precise question that I have just talked about in relation to the electricity market and the pricing mechanism. It cannot be the case that we can forever link our electricity prices directly to gas prices when gas is only a portion of the electricity-generating mix.

Tonia Antoniazzi

Are you planning to work with Ofgem to stabilise the energy market going forward?

Kwasi Kwarteng

We talk to Ofgem all the time. You will know that 26 or 29 companies—something like that—exited the market and effectively went bust. The supplier of last resort—SoLR—process worked very effectively in that period, but we have to work out a way to make the suppliers more robust. The kinds of things that Ofgem is looking at are the periodicity of the price gap and trying to ensure that companies that enter the market of energy suppliers are properly capitalised and have financial resilience, which I am afraid the companies that went bust clearly did not have. There are ways that we can try to make the market more robust, and we talk to Ofgem about this regularly.

Tonia Antoniazzi

The windfall tax includes a new 80% investment allowance. Given that larger energy companies are more likely to be able to afford to invest in energy projects, this means that the windfall tax disproportionately impacts smaller energy organisations. Why is this sensible or fair?

Kwasi Kwarteng

The large companies have larger profits. In a way, the windfall tax affects them because they are going to pay more in terms of the tax. Smaller businesses will get incentives, in terms of capital investment, proportionate to how much they invest, just as the larger companies do.

Tonia Antoniazzi

Is there any reason why this investment allowance from the windfall tax does not include investments into renewables?

Kwasi Kwarteng

This is a Treasury policy, but the logic behind that is that renewables are already considerably supported if you look at the contracts for different mechanisms or the various grants we give to promoting renewables and manufacturing offshore wind turbine. There is already a lot of Government support in that investment; that was what we were thinking about in trying to design investment incentives for oil and gas.

Tonia Antoniazzi

If net zero is the way forward, surely that would be the extra added incentive to push forward with your Government’s net-zero ambitions.

Kwasi Kwarteng

You are right, but if I look at my budget, a huge amount is put towards net zero. There is a lot going into CCUS, hydrogen and offshore wind. All of these technologies are supported to the tune of billions by the Government already, and so there is a lot of incentive. We can see that in the offshore wind deployment. We already have 11.3 gigawatts installed. It is the second largest amount after China. We were only overtaken last year, and we already have 8 gigawatts in the pipeline. That is clearly working. We are incentivising investment in offshore wind.

Tonia Antoniazzi

The way that moves forward—that it is not going into renewables—aligns with your Government priorities towards net zero.

Kwasi Kwarteng

I think so. If we look at the last two or three years, there has been a huge amount of energy and thought put into this by the Department. We have had the Prime Minister’s 10-point plan; that was only in November 2020. We have had the energy White Paper. We have had the net-zero, energy security, and heat and buildings strategies. We have had lots and lots of papers, all of which are pointing in the same way. They are asking, “How can we achieve net zero by attracting private investment?” We do that through various mechanisms like the CFD, but also in terms of upfront grants for things like CCUS and hydrogen. We are supporting renewables to the extent that, even three years ago, we were nowhere in these things.

Mark Pawsey

Secretary of State, I wanted to switch to business and the challenges faced by business more broadly. I meet regularly with my local Federation of Small Businesses and my chamber of commerce, and the issue that I hear about more than anything is labour shortages. The ONS did a report in June telling us that 15% of companies reported a shortage of workers. I am honestly quite surprised that it is that low, but that rises to 35% in the hospitality sector. The next biggest sector is construction, and 44% of businesses are saying they are unable to meet their customers’ demands because of a shortage of people. Do you acknowledge that problem that businesses are facing right now? Where does that rank, as far as you are concerned, in the challenges businesses face? Is there a role for Government in dealing with that or is it purely a matter for businesses themselves?

Kwasi Kwarteng

It is a bit of both. It is also important to stress that the labour shortage is a global phenomenon. We have inflation, very high demand and very constricted supply chains. Pretty much every employer in the world is suffering from the same tightness of labour supply. That is the first issue. The second issue that comes up is that, just as much as there is a shortage of labour, there is a shortage of skills. I am sure, Mr Pawsey, when you speak to businesses, they will talk about the shortage of skills. The shortage of skills is something that we are addressing. We are working with DWP and DfE. We set up a green jobs taskforce. We really need to upskill the workers. There are two issues there. Government have a role in trying to attract people into professions. We had this issue with HGV drivers at the end of last year. Their salaries went up, but we are still trying to attract people into those professions. You are absolutely right that there is a shortage right now.

Mark Pawsey

Is that shortage contributing to inflation? I hear from manufacturing companies about having to pay golden handshakes to hold on to skilled people or golden hellos to people they are recruiting. Is that issue driving up the costs of businesses that they are in turn having to pass on to consumers?

Kwasi Kwarteng

I am not a macroeconomist, but in my view they are all symptoms of the same phenomenon. You have lots and lots of demand globally and you have too little supply. Essentially, that is my understanding of what is driving the inflation. This is a symptom of that. Some people will say it is a pure monetary issue; they would argue that we are printing too much money. I think this is a genuine problem in terms of the macroeconomy.

Mark Pawsey

We have 500,000 who are economically inactive at the moment. Some of those are people who have benefited from what has been described as “the great resignation”. A whole host of people took the pension freedoms that we gave to draw down part of their pension and exit the workplace. In many cases, those are skilled workers in businesses, coming towards the end of their careers, who we need to remain in those businesses to hand on those skills to the next generation. Often, they have the knowledge of the business itself. Should we be doing anything, Secretary of State, to get those people back into the workplace?

Kwasi Kwarteng

We can try to attract them back but, if someone wants to draw down their pension and retire early, that is absolutely their prerogative. I am enough of a free marketeer to think that we cannot bind them into work longer than they want to be. It is up to businesses to incentivise people to stay. If someone reaches the age of 58, decides to take an early retirement and feels that they have enough resources to fund that, that is perfectly within their rights.

Mark Pawsey

Is there a way we could appeal to the need for them to remain in the workforce for the benefit of the businesses that they previously worked for and the economy as a whole? Can we do anything in terms of encouraging businesses to be more flexible in their employment? For example, could there be more part-time work and flexible hours so that we could keep that skill within our businesses?

Kwasi Kwarteng

There are things that we can do in relation to how we define small and medium enterprises and in terms of the numbers of full-time equivalent or part-time workers. There are things we can do on the edges. We can also encourage businesses to retain some of their staff, but a business owner or employer also has an interest in keeping people on. It is up to them. As a champion of free enterprise, you will appreciate that in many cases the business owner’s conversation with the employee is what will affect this. There are things that the Government can do, as I have said, but it is ultimately something between employers and employees.

Chair

Just on skills, Secretary of State, who really owns this agenda for adult skills and training in the workforce? Does BEIS own that overall responsibility?

Kwasi Kwarteng

Three Government Departments really have equities in this. DfE is in charge of further education, where a lot of the people in the first instance will get skills when they get their first jobs. BEIS interfaces with business, and we have a strong sense of where skills are lacking, particularly digital skills and some soft skills like marketing. Of course, DWP also has various programmes like Kickstart that address this.

Sarah Munby

Our job in the skills system inside Whitehall is to help amplify the demand signal from business. What are we hearing? It is exactly the things we have just heard about. We are making sure that that is loudly heard by those who are on more of the supply side of the skills system in both DWP and DfE. That is particularly true in the sectors that we are most closely involved in. In both construction and manufacturing, where we know there are substantial skill-based shortages, we have been asked by the Prime Minister to take on a particular role and responsibility in liaising with employers and making sure that the system as a whole, which needs to operate as a collective, has a really good understanding of the issues. For example, in construction, we have a skills delivery group that involves us, DfE, DWP and the industry, critically, to make sure there is a common understanding of the issues and where Government need to act specifically in that sector, on top of the general programmes that take place all the time anyway.

Chair

For people out of work it is DWP. For young people, or people who are doing FE or HE courses, it is DfE. For people who are in work or being trained in the workplace, that is BEIS.

Kwasi Kwarteng

That is fair. The way I see it is that BEIS is at the interface with business. If you think of people who are essentially being trained as the workforce, BEIS’s role is to interact with the employers and businesses to find out their needs because none of the other two Departments has more interface or interaction with business than we do. Our job is to make sure we reflect what business wants. That was why, only last year, I commissioned a skills audit so that I could see, through our interaction with business, what particular skills we were lacking. It came up again and again that digital skills were a really big part of the requirement. In terms of getting people up to those digital skills, you can see that FE colleges and some of the DWP programmes can directly feed into that. In the first instance, the role of BEIS is very much as the interface and interlocutor with business.

Charlotte Nichols

Secretary of State, the International Energy Agency has warned that Europe must prepare immediately for the complete severance of Russian gas exports this winter, urging Governments to cut demand and keep ageing nuclear power stations open. A reasonable worst-case scenario briefing drawn up by officials in your Department has shown that 6 million UK households could face blackouts as a result of gas shortages in this event. Having spoken to a number of industry experts, including those with site-specific knowledge of Hinkley Point B who said that it would have been possible to extend its life given advanced notice, what conversations did your Department have with EDF about the extension of Hinkley Point B’s operation?

Kwasi Kwarteng

The thing to remember about Hinkley Point B is that it has already been extended by 15 years beyond its original life. It has been a very long extension. Any further extension had to be done in connection with health and safety. You will appreciate that a nuclear asset that has worked for 15 years longer than it was originally intended to has risks. It was something that we talked about. If it had been extended, it would only have been for a month or two beyond the added 15 years. We have conversations all the time, and it was not something that we felt we needed to pursue. In the meantime, in terms of winter resilience, this department was set up very recently. We have a new DG specifically responsible for winter resilience. I was lucky and privileged enough to see Equinor and Centrica sign a gas deal that means that we have 1 billion cubic metres of gas over the next three years. That will power something like 4.5 million homes. We are doing a lot in terms of winter resilience, and the report about the blackouts was just stating what was an extreme possibility. Of course, any responsible Government have to plan for extreme possibilities, but I am not expecting anything in that line or to that extent.

Charlotte Nichols

In response to a written question from me, the Minister Greg Hands responded that, while there has been parliamentary and public interest in the potential for life extensions, the Department has no formal role in these decisions, so has not received any formal requests, which tallies with what you have just said there. The decommissioning of Hinkley Point B means the loss of 1.3 gigawatts—enough electricity for 1.7 million homes—of capacity within our energy mix. This is a marked contrast to the Government intervention to seek to defer the closure of Drax or West Burton coal power plants. Why the difference in approach?

Kwasi Kwarteng

The coal power plants are already there; I am stating the obvious. The nuclear fleet has been there for a long time but, once it is decommissioned, there are huge health and safety issues, and it is very difficult to prolong the life. As I have said, it has already been prolonged by 15 years. In fact, it is interesting, given where we are—I do not often stray into wildly partisan politics—but, for 13 years under the Labour Government, we did absolutely nothing on nuclear. We are now in a place where we are essentially starting from scratch. That is why we have committed to 24 gigawatts in the British energy security strategy. That is why we are in negotiation on Sizewell C. The hiatus and the fact that we did not do anything for all those years—and it was not just Labour Governments; it was Conservative Governments as well in the 1990s—mean that there is a potential shortfall. I am confident that the shortfall will be covered by renewables, particularly offshore wind, where we have a 50 gigawatt target for our 2030 ambition, and other technologies. You are quite right to say that, in the next few years, we will have less nuclear-generated electricity than we have had in the recent past.

Charlotte Nichols

I will point out, as a partisan counterpoint, that, of course, your Government have been in power for the last 12 years.

Kwasi Kwarteng

I agree with that, but we are now all focused, with the exception of Mr Brown over here, on developing more nuclear capacity.

Charlotte Nichols

You have spoken about the difficulty and complexity around nuclear and extending the life of some of our existing fleet at the moment. A lot of the expertise is based in my own constituency, doing the safety cases for that sort of work.

Kwasi Kwarteng

Is Springfields near you?

Charlotte Nichols

No. Sellafield and pretty much every nuclear company with a footprint in the UK is represented in my constituency. If it is this issue of complexity, as you say, do you have sufficient competency within your Department to make necessary decisions on nuclear and, indeed, to have departmental oversight of Great British nuclear?

Kwasi Kwarteng

It is not the complexity per se; it is about health and safety. When you are dealing with nuclear materials and waste, you have to have the most stringent, highest standards of health and safety. That is where the challenge is.

Sarah Munby

I just have a few thoughts to add. One is that, of course, we are talking about a system here. The Office for Nuclear Regulation, which is housed within DWP, is full of deep experts in nuclear safety. The kind of decisions that you are talking about are ultimately the responsibility of the ONR. You have deep expertise in that chunk. I would point to the expertise of the NDA. I recognise what you have said about Sellafield, an absolutely world-leading centre of expertise in nuclear decommissioning. It will, of course, take on responsibility for decommissioning the current AGR fleet as it comes off between now and 2028. Inside the Department, we have very many colleagues who have been working in this field for a considerable period of time. It is also worth saying that, as part of the work we are doing on Great British nuclear, we are bringing in the best of the private sector so that we are learning from industry and putting that alongside the internal expertise of the Civil Service, to make sure that we have an offer that really works. It is about bringing in the best of expertise from multiple sources and recognising that we have a lot, but not everything, inside BEIS.

Kwasi Kwarteng

In that context, just to add a coda to what Ms Munby said, we have Simon Bowen, who is a very well‑recognised expert in the nuclear field. He is essentially being the point man, or the “tsar”, which I think is the informal term, on Great British nuclear and our ambitions in that area.

Chair

I just have a quick question on nuclear financing. In the designation of NNB Generation Company Limited for Sizewell C, the BEIS document said, “The whole project is expected to be on the Government’s balance sheet as part of the new regulated asset-based financing arrangements”, which we assume is around £20 billion. Is it your intention that all of the future nuclear reactors that the Government are intending to build will also be entirely on the Government’s balance sheet, or is this just for Sizewell C?

Kwasi Kwarteng

We have to be careful about this because the issue here is that there are different ways you can arrange the capital. One of the things is a joint venture. If it was a joint venture structure, we would have a responsibility for it to an extent, but some of the risk would also be borne by the joint venture partners. We cannot be prescriptive and say that, whatever the capital structure of Sizewell C turns out to be, we will replicate that in each and every nuclear installation from here until 2050.

Chair

Forgive me if I am being a little dim but, just to clarify, all of the capital costs for Sizewell C will be on the Government balance sheet, but that will not necessarily be the case for future nuclear.

Kwasi Kwarteng

That is my understanding, yes.

Chair

We are aiming to get eight reactors. We have two at Hinkley and two at Sizewell. We need another four.

Kwasi Kwarteng

I need to explain the rationale of where the eight comes from. If you look at the energy security strategy, the target for 2050 is 24 gigawatts; I know that because I set it. We started off with a figure of about 16, and I said, “No, we could be more ambitious”. If you look at what Hinkley Point C, which has two reactors, can generate, that is 3.2 gigawatts. If you times eight by three, you get to 24 gigawatts.

Chair

I think it was the Prime Minister who said eight.

Kwasi Kwarteng

Yes, that is where the eight comes from. Of course, we are also interested in SMRs. If SMRs take off, we can get to the 24 gigawatt target through a mix of SMRs and large-scale nuclear. That is all clearly set out in the strategy. We have talked about this before, have we not?

Charlotte Nichols

Just to follow up, as I have mentioned in my previous questions, I represent a constituency with around 5,500 people working in the civil nuclear industry.

Kwasi Kwarteng

Could you remind me which constituency it is?

Charlotte Nichols

Warrington North.

Kwasi Kwarteng

Okay, brilliant.

Charlotte Nichols

One of those constituents, who is an expert in the industry, has texted me following what you just said to tell me that the mooted extension of Hinkley Point B was for six months, not for one or two. Would you like to correct the comments you made to the Committee?

Sarah Munby

Without access to live texting, we probably should confirm that in writing after the session.

Kwasi Kwarteng

Sure, we should do that. My understanding was that it was a lot lower than six, but we will have to confirm that.

Chair

Very good. Maybe we should get a live Twitter feed.

Richard Fuller

As Secretary of State for Business, what is your top-level view of the state of regulation in the UK?

Kwasi Kwarteng

We can do much more to have nimbler regulation. I am very pleased at the TIGRR report. We can do a lot more after Brexit. There are a lot of areas in terms of defining what SMEs are or taking regulatory burdens off smaller businesses to encourage them. We can do a lot.

Richard Fuller

Why are you not doing it?

Kwasi Kwarteng

We have a huge amount on the energy side. We had a lot of success on net zero and innovation, and we are very focused on enterprise. I am looking forward to publishing the enterprise strategy later in the year. That will set out very clear regulatory plans, and we are using the rest of the Parliament to try to bring in some legislation that will make our business environment even friendlier than it is today.

Richard Fuller

A lot of the taskforce recommendations were about agile regulation, but it was forward looking for new regulation for new sectors.

Kwasi Kwarteng

That is right.

Richard Fuller

It was not looking at the existing burden of regulation on businesses. Why are you not looking at that?

Kwasi Kwarteng

We are exactly looking at that. There were two views about this, in terms of the post-Brexit world. There is one view that we should look at the stock of EU legislation and go through it systematically.

Richard Fuller

It is the stock of existing regulation as well. We do not need just the EU regulation.

Kwasi Kwarteng

You are right, but the EU bit is also relevant to that. Then there is a forward-looking approach. Any lawyer will say that the stock of legislation becomes less relevant as time passes. If you were to freeze the statute book and then roll the clock 50 years, you would find that a lot of that regulation would fall away. There is a school of thought that we should be looking more at the flow in terms of future regulations. You are quite right that that is the TIGRR approach, and we are doing both. We are working very closely with Jacob Rees-Mogg in the Cabinet Office to see what we can do in terms of removing legislation that hinders business.

Richard Fuller

It was six years last week since the original decision to leave the EU.

Kwasi Kwarteng

Yes, it was.

Richard Fuller

There were some shenanigans before you came in, but there is a—

Kwasi Kwarteng

Yes, there is an urgency.

Richard Fuller

Is the heart of this Government really in deregulation in general, or is it just warm words? Do we pretend that we are conservatives who are in favour of low taxes and regulation, when our actions do not follow our words?

Kwasi Kwarteng

You are quite right that it has been six years since the vote took place. You will remember. I do not know whether you were in Parliament throughout that time.

Richard Fuller

I was.

Kwasi Kwarteng

For most of those six years, we were not getting anywhere. We only got the TCA at the beginning of 2021. In that time, we had the pandemic to deal with. You are quite right to say it has been slow, but we only landed the deal three and a half or four years after the initial vote. Now, in the midst of wars, record inflation that we have not seen for 40 years and a post-Covid world, we are rightly focused on making our regulation nimbler.

Richard Fuller

For those of us who were looking for a Brexit dividend and thought that we could unleash all of the potential in this country by getting rid of unnecessary regulation, there were really two thoughts. One is that there was not sufficient scope for doing that. You have said that you are not going to change the regulations on employment. We seem to be talking about lots of environmental regulations being in lockstep with the EU. Perhaps there is just not the scope, Secretary of State, and there was no Brexit dividend—

Kwasi Kwarteng

No, there is a scope.

Richard Fuller

—or you are just not giving it the same attention as those of us who want to see the Brexit dividend that deregulation would bring. Which is it?

Kwasi Kwarteng

I admire and fully support your impatience on this, but we need to step back and look at the process. It was only in December 2019 that we had a majority for this; this is two and a half years ago. That was the only time. Forget about the vote in June 2016. For three years, we had a Parliament that was completely logjammed and we could not decide whether it was Monday or Wednesday. It was a very frustrating time. Some of you were MPs at that time. We got nowhere in that period. It was only as a consequence of the general election in December 2019, admittedly two and a half years ago, that we managed to unlock this. Unfortunately, we then had Covid. You are a person who follows public finance. We spent £450 billion.

Richard Fuller

Can you reassure this Committee, Secretary of State, that your heart really is in deregulation?

Kwasi Kwarteng

I am totally focused on it, but I am just saying that a lot has happened. We were in stalemate for three and a half years after the vote, from June 2016 to December 2019, and it was only when we got a majority of 80 that we could do anything. Three months after we got the majority, we had a global pandemic.

Richard Fuller

We just want to know your heart is in it. Let me move from deregulation to something else on which I want to hear where your heart is: free trade. Free traders do not believe in giving bailouts to producer interests. What is your view on steel tariffs?

Kwasi Kwarteng

I am in favour of that because I am a free trader, but I am also a reciprocal trader. Every single G7 country produces steel and every single one supports that industry. The reason they support it is that it is strategic. If they, crudely, want to build tanks or military hardware, they do not want to have to enter into some free trade international market depending on China. They want to be able to produce the steel in their own country. That is the American, French and Italian view.

Richard Fuller

The media have been saying that the UK is going to break WTO rules. You have just said that every country is doing it. Is the WTO going to take a different approach for the United Kingdom?

Kwasi Kwarteng

Every country—

Richard Fuller

Is the WTO taking a different view with the United Kingdom?

Kwasi Kwarteng

I was answering your initial question, which was about steel tariffs generally. That was my understanding. I was trying to explain it because you and I share free market views, but I also want to be a reciprocal trader. FDR called it “reciprocal trade”. Free trade is all very well but, if everybody else is supporting a strategic industry, there is a strong argument for us in this country to do so. I would hate to see a Britain where we did not produce any steel, we were completely reliant on the international market in a totally laissez-faire way, and we had no capacity when we needed to make the steel.

Richard Fuller

FDR was the President when they passed Smoot-Hawley.

Kwasi Kwarteng

No, he was not. They passed it in 1930; he came in in 1932.

Richard Fuller

He did not get rid of it, did he?

Kwasi Kwarteng

That is another issue.

Richard Fuller

I would not expect a Conservative Secretary of State for Business to come here and say FDR is the model.

Kwasi Kwarteng

I do not want to go into economic history.

Richard Fuller

On the specifics of steel, steel has come to this Select Committee, year after year, asking the Government to bail it out for higher energy costs, to bail it out for something else, to put in more tariffs. A year ago, the Trade Remedies Authority said, “You know what? We can get rid of tariffs in these areas,” and the Government overruled the TRA. Are we going to overrule it again?

Kwasi Kwarteng

We will see. I do not know what the final decision will be.

Richard Fuller

You would support extension.

Kwasi Kwarteng

That is for the Prime Minister. May I, with your permission, ask you a question? Do you want to see the steel industry go in the UK?

Richard Fuller

I believe in free trade.

Kwasi Kwarteng

You would see it go.

Richard Fuller

I do not think that one producer group deserves Government support over another. No, I do not.

Kwasi Kwarteng

I understand that doctrine.

Richard Fuller

I am not here to answer questions.

Kwasi Kwarteng

I understand that doctrine, but there are not market forces. They all protect: the Chinese, the Americans and the French. This is not a free market. That is the first thing to establish. The logic of your position is that you would essentially see the end of steelmaking capacity.

Richard Fuller

No.

Kwasi Kwarteng

You would.

Richard Fuller

I am sorry. I know I have run over my time but, Secretary of State, if that were the case, the Trade Remedies Authority, the body this Government set up to look at the economic impact of tariffs on steel companies, would have said, “Continue with the tariffs.” It did not because there was no economic cost. This is just special pleading by the steel industry, and you are falling for it.

Kwasi Kwarteng

I do not agree with you at all. There is an absolutely enormous strategic interest in the UK to have steelmaking capacity.

Chair

I am sorry to get in the middle of this, but you might have to agree to disagree.

Kwasi Kwarteng

Yes, clearly.

Chair

There is this review on regulatory reform between the Cabinet Office and BEIS. It was originally with Lord Frost and is now with Minister Rees-Mogg. It seems to have been put on the backburner. Do we have a date when that review is going to be published?

Kwasi Kwarteng

I am not sure. Are you sighted on that?

Sarah Munby

I am sorry. Which review are you talking about?

Chair

After the TIGRR report that the Prime Minister commissioned from Back Benchers, the Cabinet Office and BEIS agreed to do a formal review of regulation and where you might be able to cut it. It was led by Lord Frost and BEIS. Lord Frost resigned; Jacob Rees-Mogg took it on. I just do not know where that has got to.

Sarah Munby

We published our consultation on reforming the framework for better regulation, which goes into all the systemic forces across the system that drive overuse of regulation, like better scrutiny earlier in the process to make sure that regulation is not introduced where there could be an alternative. There has also, since that time, been the January 2022 paper on the benefits of Brexit, which takes the TIGRR elements and puts them into plans.

Kwasi Kwarteng

On your actual question, I do not know. I will get back to you. I do not know when the review that you mentioned is going to be published.

Chair

Thank you. The Cabinet Office published the retained EU law dashboard last week. There are 318 retained regulations from the European Union that belong to BEIS. What are your top three for repealing?

Kwasi Kwarteng

We will announce measures on that very soon. I do not want to prejudge that, but there are some interesting developments in that area.

Chair

We look forward to reading them.

Alan Brown

Good morning, Secretary.

Kwasi Kwarteng

Good morning.

Alan Brown

The Port of Nigg near Cromarty Firth is soon going to be home to the UK’s largest manufacturing facility for offshore wind. It is going to have laydown and berthing facilities for assembly of floating wind hulls, which advance the floating offshore sector. Looking at green hydrogen developments, as an easy opening question with a one-word answer, would you be willing to visit the Port of Nigg soon to see how critical it is?

Kwasi Kwarteng

Absolutely, I am always happy to see colleagues and friends over the border.

Alan Brown

Thanks. When was the last time you spoke to the Scottish renewables sector about transmission grid charge, the fact that the Scottish generators pay the highest charges in Europe and the risk that has to long-term investment?

Kwasi Kwarteng

I speak to people a lot about this. I think it was earlier this year or maybe the end of last year that I was up in Moray East with the Prime Minister. We talked about this, particularly with ScotWind. Again, it is an Ofgem issue. That is something that it is very aware of, and it is trying to work to some sort of resolution.

Alan Brown

Is it something you have spoken to Ofgem about?

Kwasi Kwarteng

I have on a number of occasions

Alan Brown

When is a policy and position statement going to be prepared for Ofgem?

Kwasi Kwarteng

I am not sure. I can get back to you on that, but it is definitely an issue that we have talked about on a regular basis.

Alan Brown

You mentioned ScotWind. Crown Estate Scotland was successful with 25-gigawatt bids for leasing through the ScotWind process, but National Grid ESO has allowed for only 10 gigawatts of that in its planning for the future grid. Surely that is a disconnect that is further blocking Scottish investment. Is that something that your Department could look into?

Kwasi Kwarteng

Run through the numbers again.

Alan Brown

For ScotWind, there was agreement for leasing arrangements for 25 gigawatts of offshore wind generation, but National Grid ESO has allowed for only 10 gigawatts of that in its planning. That is a potential big block in development.

Kwasi Kwarteng

I do not think it is because 10 gigawatts is a huge amount of capacity, as you will appreciate. We have a 50-gigawatt target. We have 11.2, I think, installed now. We have eight in the pipeline. That takes you up to about 19, so there are only 30 left to hit the 2050 target. As you say, the Crown Estate in Scotland, which is separate from the Crown Estate in England, has given a lease for 25 gigawatts. In order to make it a competitive situation, the ESO has rightly limited that to 10 gigawatts because we want to have more competition from around the UK to generate the capacity.

Alan Brown

You are saying more will lose out than gain from that 25 gigawatts of leasing for Scotland.

Kwasi Kwarteng

No. If you look at how the Scottish offshore wind market capacity has developed, it punches way above its weight in terms of our delivery of offshore wind. As I said, I was in Moray East, which is a new field for offshore wind. There is huge opportunity for offshore wind generation in Scotland.

Alan Brown

Going to pumped storage hydro, I have raised this several times. Last time I raised it, you said I had been bringing it up for 18 months. Will you commit timescale to agreeing a cap and floor mechanism that would allow pumped storage hydro schemes to progress? We know Coire Glas and the Cruachan dam extension. They can both be built within this decade, but it just needs you and your Department to agree a pricing mechanism.

Kwasi Kwarteng

You essentially want a CfD.

Alan Brown

Or a minimum price, but some sort of route to market for these projects. They are privately financed. All they need is that agreement to sell out to the rest of the grid.

Kwasi Kwarteng

They have been successfully privately financed in many instances. They are generating power.

Alan Brown

They need a route to market. Can you give a timescale for your Department to agree a pricing model?

Kwasi Kwarteng

We are engaging with them. Do you have that?

Sarah Munby

Sorry, I do not have it off the top of my head.

Alan Brown

Can you come back on that?

Kwasi Kwarteng

Yes, I can.

Alan Brown

As you have pointed out, I have raised it time and again.

Kwasi Kwarteng

You raise it all the time, and I always say to you that we are supporting lots of different types of technology across the UK. We are supporting offshore wind.

Alan Brown

I know, but pumped storage hydro would give you renewable energy and dispatchable low-carbon energy.

Kwasi Kwarteng

It should be stressed that it is a very specific technology to Scotland. Obviously, we are looking at renewable generation across the UK.

Alan Brown

It still supports the grid UK-wide.

Kwasi Kwarteng

Mr Brown, there are lots of competing technologies for our money.

Alan Brown

Moving on, is it feasible for a company to lose £8 billion over a couple of years and carry on as normal, or would it need to try to recover these costs?

Kwasi Kwarteng

In terms of business, it is possible for companies to lose money over a very long period, and many have done. It is for the shareholders, investors and creditors to step in if they feel that this is unsustainable, or they can go bankrupt. I am sure you are going to reveal which company you have in mind, but it is generally not the job of the Government to intervene.

Alan Brown

Yes, so, if we move on to the reveal, Hinkley Point B has increased by £8 billion in price over the last couple of years. The risk allegedly lies with EDF.

Kwasi Kwarteng

It does.

Alan Brown

But it is surely the case that EDF needs to recover that £8 billion that is over the predicted construction costs.

Kwasi Kwarteng

Where EDF is very vulnerable—and this has been for public consumption—is the fact that 85% of its shares are owned by the French Government. It has been particularly financially vulnerable this year because the French Government has essentially put a cap on the price that it can charge for electricity in France. As a consequence of that, it has essentially lost €6 billion. That is where its financial vulnerability lies. As far as the Hinkley project and any Sizewell project, it remains absolutely committed. As I said, it is pretty much a French Government-owned organisation. The Hinkley project—I have been three times—is developing really well. It is something we think will be able to power 3.2 gigawatts and millions of people’s homes in electricity in the way that Ms Nichols described.

Alan Brown

It is “developing well” as in it is years away and £8 billion over in cost. We still do not have an EPR nuclear reactor system that is generating to the grid at the moment.

Kwasi Kwarteng

You will know that all nuclear investment takes time. Sometimes, it is over the allotted time that they have allocated, and it runs over budget. Given the nature of nuclear investment—

Alan Brown

It is not running well, then. I will just move on—

Kwasi Kwarteng

Do not cut me off, please.

Alan Brown

I need to move on, Secretary of State.

Kwasi Kwarteng

No, because I am rebutting very strongly this idea that Hinkley Point C is not working well. It is developing well. The project will be completed, and it will supply electricity for millions of people.

Alan Brown

The impact assessment that went with the Nuclear Energy (Financing) Bill had an upper estimate for capital and financing cost of a new nuclear station of £63 billion. Do you stand by that or might that estimate go upwards given current inflation rates?

Kwasi Kwarteng

I do not know what your £63 billion refers to.

Alan Brown

It is in your impact assessment.

Kwasi Kwarteng

The £63 billion is way above the cost of a large-scale nuclear power station.

Alan Brown

I can tell you that table 3 of the impact assessment that went with the Nuclear Energy (Financing) Bill has a post-1990 optimism bias assumption of £63 billion for a hurdle rate of 6%.

Kwasi Kwarteng

I need to look at those figures.

Alan Brown

They are your figures.

Kwasi Kwarteng

If you look at Hinkley Point B, the cost is in the region of about £22 billion for that.

Alan Brown

That is upfront capital. It is actually £26 billion now. These are financial and capital costs of £63 billion that get added to the bills.

Kwasi Kwarteng

This is over the 60-year period.

Chair

Maybe we can clarify the detail in exchanging correspondence.

Kwasi Kwarteng

There is an upfront cost, and then there is a running cost. The running cost will be over the life of the reactor, which could be up to 50 or 60 years. We need to know what number you are referring to.

Chair

We will make sure that gets sorted in correspondence afterwards. I have two final questions on energy. It was reported that the Government were about to announce a new home insulation programme taking money from the boiler replacement voucher scheme and the public sector decarbonisation scheme. Is that right or wrong?

Kwasi Kwarteng

We are looking at energy efficiency measures, and we are very keen to roll out a new programme in the next few months. That will be announced very soon.

Chair

Presumably you do not want to see money taken from PSDS, do you?

Kwasi Kwarteng

Some of the money has to be reallocated. I absolutely think that, and I have made those decisions. If we are going to have a high-speed, ambitious energy efficiency rollout, we cannot simply just print more money to finance that.

Chair

Last time you were here, we agreed that the public sector decarbonisation scheme was working pretty well. There is quite a lot of work that needs to be done. Would it not be a shame for money to be taken out of that?

Kwasi Kwarteng

We have to make decisions. As I recall, the conversation we have was in particular relation to the green homes grant. When we look at the green homes grant, 50% of it was through the LAD and Salix, the public finance arm. I said that that 50%, the local authority delivery bit and the public sector decarbonisation bit, was successful; I totally agree with that. In terms of a new, ambitious energy efficiency scheme, I cannot simply go beyond my CSR envelope and print new money to drive that. There has to be some degree of reallocation of existing budget to drive that. That is one of the things, as you say, that we are looking at.

Chair

Is there any early indication as to how successful the boiler replacement voucher scheme has been?

Kwasi Kwarteng

My understanding is that it was launched in April or May, and it is going pretty well.

Sarah Munby

I have the numbers somewhere here, although it might take me a second to find them. It is up and running. Applications are coming in. Responses are going out sensibly through Ofgem. It is really early days. There are a couple of thousand applications—at that sort of level. It is just the early weeks. We are putting it in the “so far, okay” category with a close eye.

Chair

Money might come from that fund as well.

Kwasi Kwarteng

I do not know exactly where the funds will come from, but the principle of working within the budget and the CSR envelope is something we are going to stick to.

Ms Ghani

Good morning—it is just about morning—Secretary of State. I have a few questions on supply chains and then on national security. I read that you were recently at the Quantum Computing Summit, and you launched a £1 billion programme on quantum literacy and sharing knowledge. That is £1 billion that will be spent up to 2024—forward mapping there. I could not find any reference in your speech to resilience in supply chains so that we are able to buy computers, quite frankly. We are doing an inquiry into semiconductors at the moment and there is some anxiety that China has a semi-monopoly on semiconductors. How much work has been done on supply chain?

Kwasi Kwarteng

There is a huge amount of work. This was a five-minute speech for people who were essentially very enthusiastic about quantum computing. It was not, in the first instance, a supply chain conference. You are quite right to say that China is very actively, as far as I can see, trying to hoover up semiconductor assets. In my free trade days, I would have said, “Let them do it. It is a free market”. In this world, we have powers, particularly in the NS&I Act, to call some of these deals in. This is a contravention of strict free market principles, but it is absolutely necessary in terms of national resilience and security.

Ms Ghani

The US has gone even further and is encouraging fabrication facilities to be established. Would you go further and think about something similar?

Kwasi Kwarteng

Yes, we have to think about a way of approaching this. Anyone who has tried to buy a car in the last year or two has had a direct experience of what the Chinese have done, which is corner the market in semiconductors. Once they were in lockdown, the price of these things became very expensive. It had a knock-on effect to the point that there was a total dearth in the market for cars. We need to have some resilience in that. There are other areas. For me, steel is one of them, but there are other products for which it would make sense to have capacity here in the UK.

Ms Ghani

Talking about other products, there are other critical minerals: lithium, graphite, nickel, cobalt and copper. The Government will not be able to reach their energy transition without access to these minerals, so what is the plan?

Kwasi Kwarteng

We have a critical minerals strategy. I am not sure whether you are aware of that; that is coming out very soon. It is the first of its kind. We are in a different world to the 1980s and 1990s. We have big geopolitical threats and we do not want to live in a world in which our critical supply chains are essentially being run and held by potentially hostile powers. We need to source a lot of these critical minerals in an independent way, and that is one of the reasons why we speak to Canada and the US. The US is very keen that we have an alliance of like‑minded democracies that can have resilience in these critical minerals. The Chinese, frankly, have had a very strategic view about this over the last 25 years. For lots of these minerals, they have a supply chain from places like the Congo in Africa. They mine a lot of these critical minerals themselves. We cannot live in a world in which we are totally dependent on supply from China. It is not just about hostile states; it is just a prudence point of view because, as we have seen, the Chinese Government go into lockdown, nothing comes out of Shanghai, and the price of very critical minerals and semiconductors can go through the roof. That can have a crippling effect on our economy. We need a safe and secure way of getting these critical minerals.

Ms Ghani

I am looking forward to the strategy, but we are going to have to walk the walk as well. I noticed that, at COP 26, there was a huge amount of discussion about solar panels and how we are going to be engaging more in solar panels. The majority of these are built in Xinjiang, which was determined to be the home to an ongoing genocide. It was determined by Sir Geoffrey Nice QC, who oversaw the determination of genocide against the Bosnians. Are we going to be buying solar panels from Xinjiang?

Kwasi Kwarteng

Again, as the critical minerals strategy has suggested, you reinforce the exact point I am trying to make. Over the last 20 years, the Chinese have had a very strategic game. They could see which way the global economy was going, and they essentially monopolised and gathered extensive capacity in their own hands. We are in a world now where we are trying to get away from overdependence. That is one of the things that I am really focused on, and that is why we are looking at these different supply chains. We have these different critical mineral strategies. We are working with partners in the US and Canada to figure out a way we can essentially break dependency on Chinese production of critical minerals.

Ms Ghani

We can start at home as well, ensuring that our contracts are clean.

Kwasi Kwarteng

We can do that.

Ms Ghani

We produced a supply chain report with 12 recommendations. There was legislation in the United States just last week—the Uyghur Forced Labor Prevention Act and the Xinjiang import controls. There is no reason why we cannot be working with our partners in America, Canada and Australia and implementing the same legislation.

Kwasi Kwarteng

There is no reason for us not to do that. I want to stress that it is not just anti-China thing. This is not just about excluding China. It is very important that we have domestic resilience in our own supply chains, and that is the prism through which I look at this.

Ms Ghani

Would you commit to review the recommendations in the supply chain report that was produced by the Select Committee, and write to us and give an update, considering what has happened internationally?

Kwasi Kwarteng

We should do that.

Ms Ghani

Thank you so much. You may not be aware because you are busy with your own Department, but the DWP has recently banned surveillance equipment. It is removing CCTV cameras made by Hikvision amid Whitehall security concerns. Will you do the same for BEIS?

Kwasi Kwarteng

I think we have removed them.

Sarah Munby

We have a completely closed system at 1 Victoria Street. It is not linked up to any other system. It is a fully closed system inside 1 Victoria Street. At the moment, we have not removed anything, because there is not something to respond to.

Ms Ghani

The issue is, Ms Munby, that when I and other sanctioned Members of Parliament try to get that written up in written ministerial questions, or we present them, we do not get an answer that is satisfactory to say you do not have surveillance equipment from Hikvision. If we could just have it in writing so we can be clear what you do and do not have, instead of saying it is a closed system. Either you have Hikvision technology or you do not. We just want some clarity.

Sarah Munby

I am happy to come back to you with a description of our system. It is just worth logging one very administrative but important point here. You will doubtless, in your close following of the Department, have noted that, in a year’s time, we are due to move our HQ location to a new location in Whitehall. As a consequence, you will see me bearing down hard on costs on 1 Victoria Street that involve any replacement, simply because we only have a year to run in that location.

Ms Ghani

Thank you so much, Ms Munby. The UK biometrics and surveillance camera commissioner has recommended that the UK Government withdraw or reconsider contracts for companies that could become a security risk. Hikvision is one of those. I have recently tabled an amendment to the National Security Bill. I assume then, Secretary of State, you are probably going to be 100% supportive of that amendment.

Kwasi Kwarteng

I would have to look at the amendment. I cannot give you a guarantee that we are going to support. You have been a Minister; you will understand that I cannot, in this Committee, guarantee that we are going to support your amendment.

Ms Ghani

But the amendment says that we should take the advice of the UK biometrics and surveillance camera commissioner, and we should not be engaging in contracts with companies that could be exposing our data to hostile states.

Kwasi Kwarteng

It sounds perfectly reasonable but, in terms of the actual process of getting the Bill through Parliament, I cannot give you a guarantee here in this Committee that we are going to be backing your amendment.

Ms Ghani

Considering it is good enough, Secretary of State. I had one final question, but have I run out of time?

Chair

You have.

Ms Ghani

I have run out of time. Secretary of State, you are saved by the bell.

Kwasi Kwarteng

I am very grateful for that.

Paul Howell

Good afternoon, Secretary of State.

Kwasi Kwarteng

Good afternoon, Mr Howell.

Paul Howell

Picking up on a couple of things that have already being said here, I absolutely endorse the skills challenge that we are facing across industry. I want to talk from the context of meetings I have had with the businesses on NETPark in my constituency, the businesses on that 10,000‑job industrial estate that is Newton Aycliffe, and the different things that have come down. I want to focus on two areas in the initial thing, which are space and semiconductors. We talked a second ago about the steel industry and its supply chain. We have talked about the semiconductor thing. Of the semiconductor supply chain, it is very well recognised that we cannot build a fab that is going to be big enough to control that supply chain. The question then comes: how do you get resilience into the semiconductor supply chain? It seems that that discussion is heading to being about having the right partners.

Kwasi Kwarteng

That is right.

Paul Howell

Do you feel that that is an appropriate way to do things? Is that a reflection of something that could be done in the steel industry, for example? Why would we not go from one to the other, in terms of using good partners to have resilience?

Kwasi Kwarteng

It is not an all or nothing thing. Something like 17 critical minerals are listed in the strategy and, on top of that, you have semiconductors; you have material like steel. It is not the case that we can make all of these 17 things and produce them all in the UK, for various geological reasons, for capacity reasons, for industrial investment reasons. It is not the case, nor is it the case that we have nothing. It is always going to be a mix. We can produce some materials domestically. We can produce steel domestically, and we do. We could produce lithium domestically. We have some great companies down in Cornwell. I have visited the sites of British Lithium and Cornish Lithium. These are great companies.

Paul Howell

There is potentially something in Weardale.

Kwasi Kwarteng

Yes. In some materials, we cannot. We do not have the resources. We do not have the geological makeup to be able to source them domestically. That is where we have to work with partners. We have some expertise in semiconductors. It is a hugely capital-intensive industry, and we also need to work with partners to make sure that we get resilience in that.

Paul Howell

Moving on with the semiconductors a little further, of the businesses I talk to on NETPark, some are at the very innovative end of semiconductors using alternative materials, diamonds and things like this, instead. How do we get businesses like them supported? When I talk to them, they are telling me that the ability to get investment is incredibly difficult. They are not seeing anything from anywhere in the UK. They are almost having to move to overseas investors to come into this space, through the institutions or whatever. What consideration is there for trying to improve that landscape for them?

Kwasi Kwarteng

Mr Fuller will be pleased to know that I do not believe Government should just be writing cheques for these businesses willy‑nilly. There has to be some degree of commerciality to this. There has to be some ability on the part of these companies to attract investment from the private sector, because otherwise, if they cannot do that, there is no point in BEIS writing cheques.

Paul Howell

Sorry to interrupt, Secretary of State. It is more about getting our private sector to be supporting them in coming in, as opposed to having to go overseas for the investment.

Kwasi Kwarteng

That is my point.

Paul Howell

Is there anything we can do in terms of that platform and that space to try to encourage them?

Kwasi Kwarteng

We try to attract private sector investment into these areas, and that is how I see BEIS. Every pound we spend is always measured through the lens of how much we are actually leveraging in from the private sector, but we cannot simply spend money where the private sector is nowhere to be found. If you look at NETPark and some of the businesses that I have seen there, many of them get funding from things like Innovation UK, from other bits of UKRI or from BEIS. One of the things I want to stress to the Committee is that, if you look at the CSR last year, BEIS had the highest uplift of any Department, which shows that there is a strong Treasury commitment, and UK Government commitment as a whole, to driving innovation and these new technologies. Many of the companies in your constituency have benefited from some of that Government investment.

Paul Howell

I do not disagree. There are a number that have. As I say, it is more about the broader landscape. Just moving on slightly, we have had some good discussions with what is evolving as the north‑east space hub in terms of the work that is going on there. When we talk to potential big inward investors and things like this, we find that it is not about Government investment, but Government messaging and how that comes, and making sure that the messaging of a Government direction on things like space, as an easy example, is not about investing for 2025 or 2030. It is about giving them a confidence that there is a 2040, 2050 or 2060 vision, and that there is a long-term horizon for serious investment, as opposed to just dabbling around the edges.

Kwasi Kwarteng

In 2022, it is very difficult to say what the investment environment will be in 2050 or 2060. That is very ambitious. You are right, and I do agree with you, that we need to show some direction in terms of where the Government see opportunity. People complain to me all the time: “You have so many strategies”. That is why we have them. The strategies are not for academics or for politicians. They are for actual investors. When I have roundtables with investors, they really appreciate them. They say, “This is the innovation strategy. These are the technologies you want to see progress in”. We had a space strategy, and the sector had issues with it, but it was happy that there was one. We had never done that before. The strategies are really important because they actually show investors what capability we have, what ambition we have, and how we want to sustain that ambition over maybe 10 or 20 years. Beyond that is more challenging, because we do not know what innovations there will be. You are absolutely right to say that investors want to see longer-term commitment. That is why we come up with these strategies. It is not just for the hell of it.

Paul Howell

Whatever you can do to give that certainty of intent without specifics can only encourage businesses.

Kwasi Kwarteng

I am fully in agreement with you. I am always wary when people talk about 2050 and 2060. There is a whole host of innovation. If I had sat here 30 or 40 years ago, half the things that we take for granted did not exist. There was no internet, there were no mobile phones, there was no social media—there was none of that. None of that was even predictable in 1985 or whatever. I am always very reluctant to make those big commitments but, yes, in the next five, 10 or 15 years, we can show direction.

Paul Howell

Coming back to probably a shorter-term thing, one of the important footprints for us all is transitions to green energy, etc. We all know about, for example, the motor industry and the way that it needs to transfer to electric vehicles and things. That will find serious companies within the supply chain needing to change where they are. An easy example would be a company that produces subframes and things like this. It will be a different thing because it will be carrying a battery rather than an engine. Is the approach of BEIS to not just be looking for inward investment from companies that are going to support the Nissans of this world, but rather to look at the supply chain as a whole and making sure that we give opportunities for companies to transition from where they are to where they could be, as opposed to just looking for the newbies to come in and get a big shiny new investment?

Kwasi Kwarteng

I agree with that. We are working with existing companies and trying to help them do the transition. I will stress that there is a massive role for the private sector to play in this. We do not run a state‑run economy, thank God. I was just reflecting on my previous answer. If, in 1982, the DTI Secretary had said, “We need a 40-year plan,” they would have just said, “We need more efficient fax machines”. The whole digital world was not something they would have even factored in. We have to be nimble enough to understand that innovation is really important and cannot simply be directed from the centre.

Paul Howell

If you take your fax machine example, I think the message would be about communications rather than the fax machine.

Kwasi Kwarteng

Maybe, but you take my point.

Paul Howell

It is about keeping the generalism.

Kwasi Kwarteng

Communications are very broad. I can sit here and say, “I want better communication,” but no one in this room has any idea what that might be in 30 or 40 years’ time.

Paul Howell

I am getting hard looks from the Chair, so I had better move on, even though I have not used the time he told me I could have.

Chair

I am counting and you are two minutes over. The NHS might like these more efficient fax machines, by the way, if we can send that to the Department of Health and Social Care.

Alexander Stafford

I am going to focus on two sections: hydrogen initially and then a bit more on critical minerals, if that is okay. We have talked a lot about green hydrogen. Recently in a speech you said that green hydrogen production by electrolysers is a critical part of our approach to greater energy dependence. Does this mean the Department is planning to step away from blue hydrogen?

Kwasi Kwarteng

No, not at all. It is important to remember that, when I was Energy Minister two and a half years ago, we were not going to have a hydrogen strategy. We were going to have it as part of the industrial decarbonisation strategy. It became rapidly apparent to the Department and me that we needed a hydrogen strategy. The cornerstone and centrepiece of that hydrogen strategy is what I call the twin-track approach. The twin-track approach involves the production of hydrogen through methane reformation, as you know, and through electrolyser‑produced hydrogen. The rationale behind that is not only that methane reformation sits well with carbon capture, because you cannot have the blue hydrogen without the carbon capture element, but that we have natural resources in the UK that are very well suited to carbon capture. Even now, at very high gas prices, blue hydrogen production is cheaper than electrolytically produced hydrogen. The twin-track approach was always very much part of the strategy, to produce blue hydrogen as a gateway, if you like, to incentivise the production of green hydrogen, because the electrolysers needed to be more efficient. They needed to have more investment, but the best way you could attract people to invest in the production of green hydrogen was to have a hydrogen economy and market, which would be, in the first instance, met by producing blue hydrogen.

Alexander Stafford

We have already talked a lot about nuclear. What are your thoughts about purple or red hydrogen—hydrogen produced from nuclear?

Kwasi Kwarteng

I can never remember what the different colours are. I think I know turquoise.

Alexander Stafford

It is a new one. What are your thoughts on the production of hydrogen from nuclear power, especially the SMRs?

Kwasi Kwarteng

In the European taxonomy and our taxonomy, and I have always been very clear about this, nuclear power is sustainable. It is not the same as fossil fuels. There is no reason why you could not have electricity generated by nuclear power used in electrolysers to make green hydrogen. I think that would still be green, but there is a debate about this.

Alexander Stafford

You are clearly quite passionate about hydrogen, which is good. However, dare I say that the DfT is not nearly as passionate, especially when it comes to hydrogen-powered vehicles? We clearly are lagging a bit behind in the UK when it comes to buses, for instance, let alone cars. How are you trying to persuade your DfT colleagues to get on board, because they are clearly not, or do you just think hydrogen for vehicles is not the way forward?

Kwasi Kwarteng

There is a whole debate about hydrogen for vehicles. They can work well in heavy goods vehicles—larger vehicles. There is also some interest in hydrogen trains. That is something that officials in BEIS engage with DfT about.

Sarah Munby

The hydrogen economy will be a system with multiple types of supply, as you have been talking about, and multiple sources of demand. We think that pushing on any one of those levers helps them all move more quickly. The work we do on hydrogen supply, getting the business models out, which we have done, and getting the initial allocation rounds out, is the pull factor that helps get the transport industry to move as well.

Kwasi Kwarteng

If I may, Sarah’s team has done a brilliant job in driving this forward. Only two and a half years ago, in January 2020, we had one person in the hydrogen team. That team now has about 25 people and they are all working extremely hard to make this happen. It is something that we have moved very quickly in trying to establish.

Alexander Stafford

You already mentioned that strategies are leading the way to help business. When it comes to things like buses and stuff, we need a clear direction from the Department or the Government, saying, “We want low-carbon heavy vehicles like buses and trucks”. Maybe you can press more on your DfT colleagues to push that forward.

Kwasi Kwarteng

We speak to DfT colleagues a great deal. You have not mentioned this, but we also speak to them on decarbonising aviation. The Jet Zero Council is something that Secretary of State Shapps and I co-chair, and we are making progress on that.

Alexander Stafford

On critical minerals now, earlier this year President Biden invoked the Defense Production Act, with legislation originally from the Cold War reinvented to include provision for critical minerals such as cobalt, lithium and manganese for the US military. Given that military technology requires minerals like these, and obviously the increased threat from Putin, are we get to look at something similar?

Kwasi Kwarteng

As I said, we have a critical minerals strategy. It is the first time we have ever had one. Minister Rowley is essentially taking the lead on that.

Alexander Stafford

Do you think that would include some of the defence aspects?

Kwasi Kwarteng

I have read bits of it, and I think it will allude to that, but I cannot promise that because, obviously, these things get edited and what have you.

Alexander Stafford

We have talked about the production of critical minerals and what we have, but what about critical mineral recycling? Is that something that the Department is looking at as well, including from phones? I know the automotive transformation fund has really helped for critical mineral mining. Are we looking to potentially extend that to include critical mineral recycling plants? I do not think you have talked about the recycling element of it.

Kwasi Kwarteng

You are right. We could do more on that. The emphasis on critical minerals at the moment is very much on the production side, securing the supply chain. There is more we could do in terms of recycling. I just want to stress that these are very early days. The thought of recycling EV batteries, when the market is quite nascent, still in its early days, probably needs more thought.

Alexander Stafford

This may be in conversations between you and the Foreign, Commonwealth and Development Office, but what about looking at the Five Eyes critical minerals alliance? How would we work in it? The world we are in today is a very different world from the one we were in even a year or two years ago, when it comes to people like Putin and to China, as we mentioned. Is your Department exploring with comparable Departments in the “Five Eyes” how we can work together for that whole end-to-end supply chain, including production, repurposing and recycling?

Kwasi Kwarteng

There are a number of things here. “Five Eyes” works very well in defence. If you look at the components of the “Five Eyes”, you need only look at AUKUS, where we had Australia, the UK and the US, which has worked out a very good defence arrangement in relation to submarines and other hardware. In terms of the critical minerals strategy, we are talking bilaterally all the time with the US and Canada. I cannot promise an exact replica of “Five Eyes”, but I can assure you that we are working with some of those countries in trying to work out what the best plan would be. It is no accident that the Canadians also have published, or are about to publish, their critical minerals strategy. I think they published it. Lots of like‑minded countries are thinking about the same problems.

Alexander Stafford

My very last question is what keeps you up at night.

Kwasi Kwarteng

I would not tell you.