Oral evidence: Work of the Department 06 02 19, HC 604
Oral evidence, 6 February 2019.
Witnesses
Rt Hon. Greg Clark MP and Alex Chisholm.
Chair
Thank you very much, Secretary of State and Alex Chisholm, for coming in to give evidence today on the work of the Secretary of State. As you know, we are going to be focusing today on the issues of Brexit and nuclear policy, and there might be a few extra bits and pieces at the end if we have time—so you can decide how quickly you want to go through it and whether you want to get to those extra bits and pieces.
Mark Pawsey
Good morning, Secretary of State. Thank you for coming in today. I want to start off by asking you about how prepared businesses are for leaving the EU. I will tell you about an email that I received just before the Christmas break, which read as follows: “We have a small engineering company. Our biggest customers are in Europe. Can you tell me what contingency plans I can make when we have no idea of the outcome? How can I reassure my staff that their jobs are safe? What can I tell them as we finish for Christmas? They have children, mortgages and other responsibilities.” Immediately after Christmas, I went to visit LG Farmer Engineering, who employ six to eight people. They are specialists in electroplating, involved in sticking diamond on to metals, but significantly, 25% of their turnover is with customers in Ireland and Italy. They were bothered about having to get involved in customs regimes, and they said they’d been on to the BEIS website and printed off reams and reams of technical notices and advice, but they did not believe there was anybody really telling them how they should go ahead. We are now only 51 days away from leaving the EU, so how can we reassure businesses such as LG Farmer Engineering?
Greg Clark
Obviously, the Permanent Secretary, our colleagues and I meet with businesses up and down the country all the time. We meet with representative organisations, and throughout the last two and a half years, a huge amount of time has been spent with businesses and their organisations, helping them prepare as far as is possible for our relationship with the European Union after Brexit. The best source of advice—the best way for businesses to consider what they need—is to go to the gov.uk website, where there is a very useful guide. It asks certain questions that will then tailor the advice to the particular sector and particular type of business. That is the best way to not have to download all of the documents, but to select the ones that are suitable for the particular business.
Mark Pawsey
But isn’t the biggest problem that we are no further forward? We still do not know the terms on which we are going to be leaving on 31 March, and businesses need some certainty and need to know how to plan. Isn’t time getting rather tight now, Secretary of State?
Greg Clark
It is getting tight. I agree with you, Mr Pawsey: it is a fact that we do not know the terms of our future trading relationship with the rest of the European Union. If we agree the withdrawal agreement that has been negotiated, one of the advantages of that—as the Committee will know—is that it provides what most businesses that have expressed an opinion want to see, which is a transition period of nearly two years in which there will not be any sudden change on 29 March. The reason why that was such a prominent feature of the requirements of business is, precisely as you say, if there is to be a different kind of trading relationship, the more time you have to prepare for that the better. But it is a fact that we do not know for sure that we are going to have that transition period, so the advice on the website provides guidance as to what traders with the European Union should do to prepare for the contingency of no deal. That is obviously a sensible step.
Mark Pawsey
The concerns of LG Farmer Engineering are those of small businesses, but a couple of evenings ago, some of us met with the Society of Motor Manufacturers and Traders, who pointed out that it takes six weeks for a vehicle to come from Japan to the UK—that is, 42 days. We have 51 days before we leave, so cars that are going to be sold in the UK market are on the dockside, ready to be loaded on to ships now. Isn’t it an extraordinary state of affairs that manufacturers in overseas countries will not know what the regime for the sale of those products will be when they get here?
Greg Clark
More particularly on that, it is the other way around as well. Actually, for the regime we have here, we can unilaterally continue the approvals and the regulatory standards that we have applied; there is no reason why we should change them overnight, and in the event of no deal, we would not. We would have continuity there. However, I do not want to detract from the point that you make, because if you take it the other way around, we are an important exporter to the far east, and if it takes six weeks for a product to arrive—if it is shipped, literally, on the seas—then it needs to set off within the next few weeks. Perfectly reasonably, if they are going to Japan or Korea for example, exporters need to know—or at least it is important that they should know—the terms on which they should be admitted. Will they have to pay tariffs? Will they be subject to rules of origin checks that will no longer be met? That is one of the reasons why I have been very outspoken in saying that we should not regard the time until 29 March, or 28 March, as the time that we should be prepared to take to conclude a deal. People often say that these things are done at the last minute. The last minute for important exporters is fast approaching over the next few days and weeks.
Chair
You say the next few days or weeks, but when is the deadline?
Greg Clark
I will give you an example. The furthest sea journey is from here to Japan. I am told that that takes about six weeks, so it is six weeks back from that.
Chair
So you are saying in nine days’ time.
Greg Clark
Mid-February.
Chair
Nine days’ time will be 42 days to go. That will be next Friday—the 15th.
Greg Clark
In that instance. This is something to which my attention was drawn by engineering employers, who share the concern that Mr Pawsey expressed. They shared it in order to make us all in the House of Commons aware of these deadlines.
Chair
Just to be clear, Secretary of State, you are saying that the deadline for getting a deal is not the 28th. To give businesses that are exporting certainty, they need 42 days’ notice. That’s next Friday, isn’t it, Secretary of State?
Greg Clark
Those that are exporting to Japan by sea will need to make decisions about whether they send consignments over the next couple of weeks.
Mark Pawsey
Are the messages you are getting from your work with business getting stronger? Is the anxiety level and the concern that business has about the possibility of leaving with no deal getting greater?
Greg Clark
Yes, it is very evident that it has. This Committee over the last two years has taken evidence in public about that, and I am sure the concerns that you detected have increased. That is obviously the case. How could it be anything other than the case when it is now a matter of weeks to go before we leave the European Union, and it is not clear what our future trading relationship will be? It is not just about the European Union. I mentioned Japan and Korea because the trade agreements that we have that come via the European Union would fall if we don’t have an agreement.
Mark Pawsey
Apart from Dyson, JCB and Wetherspoons, are there any businesses telling you that there are great big opportunities and advantages to our leaving the EU with no deal?
Greg Clark
I think it would be wrong to characterise the opinion of a business as completely uniform. There clearly are businesses—you have mentioned some—that don’t share the concerns of others, to the same extent. What I would say—the Committee meets many businesses—is that I think it is an accurate reflection to say that most businesses that are in the business either of exporting, or that rely on supply chains that are international, want to see this uncertainty ended and want to see a resolution through a deal.
Mark Pawsey
Secretary of State, you have been a strong advocate of the Prime Minister’s deal. There are those who are opposed to it on the one side who say that it isn’t leaving because it restricts our ability to do future trade deals, and there are others on the other side who say that the deal isn’t as good as the one we have already got. Do you think those groups of people recognise the great damage that is being done to British industry, manufacturing and jobs by our failure to get together around a deal?
Greg Clark
I think it is important that everyone understands that. It is right to listen to and respect the evidence from the companies and businesses that employ our constituents up and down the country. That should be looked at, considered and, in my view, acted upon. It is fair to say that, in this respect, some businesses campaigned during the referendum campaign and advised against the population voting to leave the European Union. It is notable that the majority of businesses—small businesses that are engaged in international trade, as well as large businesses—say that the deal that has been negotiated should be approved. It meets their needs. It is obviously not the same trading relationship that we have at the moment, so there is some change and compromise there. It is notable that they recognise it. I am just looking at some of the companies that have made recommendations on that. In the car industry, Ford, Aston Martin, Maclaren, Toyota and the Japan Automobile Manufacturers Association have all said that the deal is something that would actually ease the concerns they have.
Anna Turley
Hello, Secretary of State, and thank you for joining us. You know the importance of Nissan to the north-east and to Britain—7,000 direct employees and 35,000 in the supply chain. In your letter to them in October 2016, you promised to ensure that their ability to export to and from the EU is not adversely affected by the UK’s future relationship with the EU, and that you would vigorously pursue continued access to the European market. In the evidence that you gave to this Committee on 16 December, you said, “What I said to Nissan and would say to any company is that I understand and we understand the importance, as part of our negotiation, to look to secure the continued access, tariff-free, to the single market and to avoid the kind of bureaucratic impediments that will disrupt trade”. Can you still make that promise, and how do you think Nissan will judge the last two years on those pledges?
Greg Clark
Yes, that is still Government policy. You quoted what I said accurately, but partially. I have said in public and in writing that it would be a critical priority of our negotiation to ensure their ability to export. That is the case. It is not possible for me to say that this will definitely be the outcome—I wish it were. It would be much more reassuring to them if it were, but I have always had to be clear that it depends on an agreement being conducted. It is, and has been, very important that over the last two and a half years I have spent a lot of time in boardrooms around the world, who have been looking with anxiety at our future prospects. I have been able to say with confidence that the policy of the Government—the priority in the negotiations—has been to secure an ability to continue to trade closely without tariffs and without introducing new, unnecessary impediments. That has been, and is, our policy. While it does not provide the certainty that businesses would prefer to have, at least they know that that is what we want, and that we recognise that we are not indifferent to their needs and concerns—far from it. They know that we listen and act on the evidence, and that our interest is in securing a deal of that type.
Anna Turley
Thank you. Going back to the pledges and the commitments that you made to Nissan back in 2016, you said before this Committee that the assurances you gave them were on business support, place, battery storage, electric vehicles, and the importance of trade. On “Question Time” you said, “There’s no chequebook. I don’t have a chequebook.” Why didn’t you inform the Committee or Parliament that there was £60 million of state aid registered with the European Commission and published on their register?
Greg Clark
It is very evident that I do not have the ability to write a cheque. What I said right at the start in my statement—
Anna Turley
I am sorry, Secretary of State, but you did write a cheque. You pledged to them £60 million of state aid. We have also seen that you pledged to Toyota £21.1 million, Ford £14.6 million, BMW £6.3 million, Jaguar Land Rover £6 million, Maclaren £9 million and Aston Martin £7 million. Is this the tip of the iceberg? Is this a Brexit bill that we have not been discussing publicly because it has just been published on a European Commission website, so it has not been actively discussed as vital support to an industry that otherwise is looking at fleeing the country?
Greg Clark
It is exactly what I said in my statement to the House at the time. You have just illustrated that I talked about our successful and long-standing programme of support for the competitiveness of the automotive sector, including Nissan. The support is available to firms for skills and training the local workforce, R&D and innovation in line with EU and UK rules. I said that since 2010 the Government have invested £400 million in the automotive sector, but the decision in each case is not mine. It needs to be applied for, and it needs to be scrutinised independently and passed by a body that was set up by Parliament called the Industrial Development Advisory Board, which is completely independent. An illustration of that was that they were initially applying for about £80 million of support from these funds for training, development and the rest of it. What was approved by the authorities was £61 million. I have no ability to provide any funds myself. What I pointed out in my letter and what I pointed out to the House—I am very proud of the programme we have, which has been very successful in this sector and in other sectors—is that we need to ensure that we can support investment. If you are making a new investment that requires new employees and they need to be of a certain level of skills and they are not available in the local population, then of course you partner with the industry to provide those skills. We have always done that, and I hope we always will.
Anna Turley
Is this not an acknowledgment that you are desperately having to throw money at these companies to stay in the UK because Brexit is threatening their long-term stability here?
Greg Clark
No. The success—we have talked about our industrial strategy, which builds on some strong foundations. If I think of the automotive sector, the Advanced Propulsion Centre is a joint Government and industry-supported institution. From memory, I think it has put £1 billion into research and development for the powertrains for the next generation of vehicles. It is essential that we do that. We have a motor industry in this country that every member of the Committee knows is completely transformed compared with where it was in the 1970s and early 1980s. One of the foundations of that was making it much more sophisticated in technology and being at the cutting edge of technology. That is reflected in a strong partnership in R&D and in training the workforce. It is very important that we send the message—you have helpfully listed a number of other businesses with whom we have worked. It is fair to say that is small businesses as well. If the Committee cares to visit the campus of Warwick University, you will see one of the most magnificent new institutions anywhere in Europe, which is the National Automotive Innovation Centre. It is about to be opened. It is a centre that brings small businesses and large businesses together for innovation. It has a particular wing for start-ups and scale-ups. It is the biggest automotive research centre in Europe, and we are very proud of it.
Anna Turley
So aside from automotive, what other sectors and businesses have you given assurances and pledges of money to? Are there any more state aid commitments that we should be trawling the European Commission website for, to see what support we have given for people to stay in this country?
Greg Clark
You can see in the industrial strategy across all the areas—take the Faraday grand challenge that we have for investment in the next generation of battery technology. That has brought together the automotive sector and the energy sector, which we are going on to talk about, to ensure that—
Chair
Anna is specifically asking what things you have had to register with the EU as state aid, Secretary of State.
Greg Clark
I do not know whether the Permanent Secretary has—
Alex Chisholm
The regional growth fund is the main mechanism used for these types of grants. The other sector that is very much affected—you talked about the auto ones—is aerospace. The aerospace growth partnership is another 10-year scheme run jointly with industry for support in that area.
Chair
In the letter that the Secretary of State wrote to me on 4 February, he said: “lndeed, these amounts have already been published on the European Commission's database”—the £61 million for Nissan—“and for reference the grant amounts are visible at the link here…For ease, the details are visible by entering ‘Nissan’ as the name of the beneficiary” and then the date. What other companies would I be able to enter into that database, apart from the other car manufacturers that Anna Turley has already mentioned, to find out which have had state aid? Or are there no others?
Alex Chisholm
It seemed like a comprehensive list just from listening to it. I did not write down all the names.
Chair
So it is only the automotive sector.
Alex Chisholm
You would have the same in aerospace if you looked at that.
Chair
That is what I am asking, Secretary of State. What are the other companies? Because you had not previously published the information to Parliament—the £61 million to Nissan—you have written to me now to tell me that if I had gone to this website that I was not previously aware of and entered “Nissan” and “21/06/2018”, I would have been able to find that £61 million. What other British companies do I need to go on that website and search for to find out, or could you just tell us today?
Greg Clark
I can’t tell you today but I can write with a full list. All state aid has to be disclosed; it is all in the public domain and they are all on that website.
Chair
It is if you know where to look for it, Secretary of State, but we asked you previously to disclose the amount of money that was being made available to Nissan and you didn’t make that available to this Committee. You made it available on 4 February, this week. It was registered on this European Union website on 21 June 2018. I am asking today if, in future, all state aid to British businesses registered on that website will be made available to this Committee. Anything made since the referendum in June 2016, I would like in writing to the Committee, the date and amount.
Greg Clark
Of course.
Chair
I would have liked that information available today. Yesterday there was an article in a newspaper that had obviously trawled through the database and found the amounts of money that Anna Turley referred to. Secretary of State, with respect, that is not how this Committee should find out how the Government make decisions about state aid to British businesses. Do you understand that view of the Committee?
Greg Clark
All state aid that is paid and approved is in the public domain. I am happy, as a matter of course, when information is uploaded, as it is required to be, on public websites to ensure that the Committee is informed, and to do that retrospectively as well.
Chair
Can I ask a couple more questions on the Nissan decision? Can you explain exactly why Nissan are not building the X-Trail here, despite having previously said that they would?
Greg Clark
The reasons that they have given for that are that they are putting more investment in newer technology—electric and hybrid powertrains—for the existing vehicles. So they are putting more capital investment into the Sunderland plant and others. To save capital investment in order to do that they have decided not to expand the production facilities for the X-Trail outside of Japan.
Chair
But I asked why they have made that decision when previously they were going to make the X-Trail here. What reasons did they give you?
Greg Clark
The reason that I have just given. They have decided they have capital to allocate; they have made a decision to put more capital into the production facilities for electric vehicles and hybrid vehicles and so are spending more on that. As it happens, in Sunderland they have said they are investing more than they expected to in 2016. They are cutting back on the investment in what is an existing model—the X-Trail—which is exclusively produced in Japan.
Chair
You make this sound as though it is good news for Britain.
Greg Clark
No, it’s not.
Chair
You didn’t mention Brexit in your answer then. Is Brexit a reason for them not building the X-Trail in this country?
Greg Clark
All I can do is reflect what the company have said. I am not the decision maker when it comes to their investments.
Chair
I would have thought that as Secretary of State you might want to explore some of these issues, because they might have implications for other investment in this country.
Greg Clark
They said that they had decided to put more money into the newer technologies and to consolidate, or retain in Japan the single production line for the X-Trail. That is what they have said. You asked whether that was good news. Obviously, I’m disappointed that what would have been 740 extra jobs that would have been created in Sunderland will now no longer take place. That will no longer happen. That is, of course, a source of disappointment but it is their decision to do that. It is worth acknowledging that their commitment to the models that are there was also announced. That is extremely important for Sunderland. They did mention the uncertainty and that is in line with the discussion that we have had already about the European Union. In discussions around this announcement, they said to me that political uncertainty over a no-deal Brexit cast a shadow over our future. That is something that everyone needs to reflect on, in just the way we are talking about. Manufacturers who create and maintain very good jobs in this country are concerned that we should resolve our future trading relationship.
Chair
Thank you, Secretary of State. You said to Nissan in 2016 that they would not be adversely affected after the UK left the EU. Is that an assurance that you would be able to give to Nissan, or indeed any other British manufacturing, today?
Greg Clark
What I said was—as I said to Anna Turley—that our objective in the negotiations was to maintain our ability to trade without introducing unnecessary frictions and without tariffs, precisely through the ways we have talked about. In our industrial strategy, we make a very prominent commitment to ensure that the strengths we have in the automotive sector are built on. Our programmes in the industrial strategy of investment, whether in battery storage and new battery technology or in connected and autonomous vehicles, now have international recognition, which serves us well. At a time when Brexit uncertainty has provided a reason for people to be concerned about investment in Britain, it shows all the more the importance of emphasising the fundamentals of the British economy and what we are doing to strengthen them through the industrial strategy.
Chair
The problem is, Secretary of State, that you cannot give those assurances today. Although you support the Prime Minister’s deal, it was rejected by 230 votes in Parliament, and we still do not have a date for it to come back to Parliament to be voted on again in whatever form that might take in the future. If there is not an agreed deal, what do you say to businesses will happen on 29 March?
Greg Clark
We have had some discussion around that. There are certain things that we can do in this country unilaterally, including making sure that the product standards we have recognised through being a member of the European Union will be able to continue. But there are certain aspects that we won’t know, such as—to take a case in point made in this country—whether there are tariffs on the export of cars. That is one of the reasons why I am very concerned that we should resolve this question of the uncertainty. The motor industry is a good example of this, because it is very successful. It is an area in which we are acknowledged as being successful—we are a world leader in some of the innovation, and consistently.
Chair
We agree with all of that, but we are focusing specifically on the Brexit issues. The SMMT told us in December 2018 that a no-deal Brexit would be catastrophic for the sector. You said on Monday that it would be “ruinous”. What do you mean by that, and what are you going to do to ensure that it does not happen?
Greg Clark
The first is, again, that I think it is important to look at and consider the evidence of the people who are running these businesses. You mentioned that the SMMT represents the sector. I want to mention Vauxhall, which is a very important employer in Luton and on Merseyside and has dealerships across the country. Their chief executive said that there would be “dramatic consequences” for their UK operations if we do not have a satisfactory Brexit. The chief executive of BMW said that they would move production of the Mini, potentially including the new electric Mini, to the Netherlands. Ford’s group VP for Europe said that if Britain leaves without a deal, it “would be pretty disastrous” and would “force us to think about what our future investment strategy for the UK would be.” I think we need to listen to these people, who employ hundreds of thousands of our constituents up and down the country. When they say that, I think they should be listened to.
Chair
Well then, don’t you think that we should rule out leaving without a deal?
Greg Clark
I think we should have a deal. How do you rule out leaving without a deal, other than by having a deal or revoking article 50?
Chair
You could either revoke or pause article 50. You could ask for that.
Greg Clark
Pausing article 50 would not cure the uncertainty; in fact, it would extend the uncertainty. The only way to stop no deal is to either have a deal or revoke article 50, and I don’t think that Parliament simply cancelling the referendum and pretending it never happened would be a sustainable outcome.
Chair
What I am trying to explore today is how we can give businesses certainty that they will be able to export and bring in their parts. That is what all of us want to happen after 29 March, and I think you agree with us on that, Secretary of State.
Greg Clark
I do.
Chair
What I am asking is, in the not unlikely circumstances that the Prime Minister’s deal is rejected again—I repeat, the last chance we had to vote on it, it was rejected by 230 votes—what happens then?
Greg Clark
We need to find a deal that can command the support of the House of Commons. The only way to cure the uncertainty and bring a resolution to this is to agree a deal that commands the support of the House of Commons.
Chair
That is a statement of fact, Secretary of State.
Greg Clark
Indeed.
Chair
But what I am asking is if the Prime Minister’s deal—and it is only the Government that can bring back a deal—cannot command that support in the House of Commons, what are you going to say to businesses then? What are the options on the table if the deal is rejected again?
Greg Clark
As business knows, the only way to provide for a certain future is for us to conclude our negotiations. We have to agree a way to come together across parties and across the House, make compromises and find a deal that represents a majority in the House. That is the only way in which we can provide that certainty to business.
Chair
So if that is not possible—if the Government cannot command a majority for their deal—I will ask again, Secretary of State: what happens then?
Greg Clark
Parliament needs to grasp the nettle and agree a deal that it can support.
Chair
I will ask again, Secretary of State: what if they don’t pass a deal? What happens then?
Greg Clark
Then the uncertainty continues for businesses.
Chair
Well, the uncertainty only continues for a few days, because then we reach 29 March. What happens then?
Greg Clark
As you imply, Chair, if we don’t have a deal on 29 March, the Act of Parliament that both Houses passed requires that we leave without a deal.
Chair
Would you still be a Government Minister in a Government that took us out of the European Union without a deal having been agreed?
Greg Clark
I have always very strongly expressed the view that we need to have a deal, one that allows us to continue the good trading relationships that we have, and you have seen that I have been a constant advocate for that. As long as that remains the policy of the Government, I will be a vigorous proponent of that, but I think it is obvious to everyone that if it were ever to be the policy of the Government to leave the European Union without a deal—if that were to be a matter of policy—there would be many people on all sides of the House who would regard that as unacceptable.
Sir Patrick McLoughlin
May I ask, Secretary of State, when the Department first knew, and then when you first knew, that there was doubt over the Nissan investment expansion? How long have you known?
Greg Clark
On Friday afternoon.
Sir Patrick McLoughlin
That was the first that any of your officials had been told.
Greg Clark
That is right.
Vernon Coaker
Can I just ask you, Secretary of State, building on what the Chair just said and the earlier comments of Mark Pawsey, about you seemingly ruling out pausing article 50, what would you say to ships in Japan and other businesses looking to send off equipment or materials to us, given that Japan is six weeks away? In a sense, the point you were making—and I think the Chair was making, or Mark Pawsey was making—was that essentially, for them, it is not 29 March. What is your message to somebody deciding whether to send how many millions of pounds’ worth of equipment to our car manufacturers, leaving a port in Japan, Australia or Korea? What are they supposed to do—leave on a wing and a prayer? They will not know what the trading arrangements will be when their ships are in the middle of the ocean. If we get into those circumstances next Friday, wouldn’t the sensible thing be to say that maybe we will have to pause article 50? What are you saying to them—“sail on a wing and a prayer”?
Greg Clark
Mr Coaker, you know that the information that I have is the same as what you have.
Vernon Coaker
Yes, but you are the Business Secretary. What are you saying to businesses that are getting supplies from Japan, Korea or wherever, or that are sending equipment out there? How are they supposed to know on what basis they are trading when a change may be six weeks away? They have to know not by 29 March but by next Friday; otherwise, they are sailing without any clue as to tariffs and so on. Is that not the case?
Greg Clark
I have to describe the reality, which is that, in those circumstances, we cannot know for sure what the regime will be.
Vernon Coaker
But that is a week on Friday.
Greg Clark
Indeed. I say to them, as I have said to the Committee, and as I have urged the Committee to do, to make the case for coming to a resolution.
Vernon Coaker
But it is a week on Friday.
Greg Clark
Absolutely.
Chair
But the Prime Minister will not even bring a deal back by a week on Friday. Even MPs who want to vote for her deal will not have the opportunity. Next Friday, the Government will be in a position in which they have not given Parliament a choice to vote on a deal that would give businesses that certainty.
Greg Clark
Well, as I understand it, the Prime Minister will bring proposals back next week.
Chair
Well, she is going to bring a motion. She is not going to bring a meaningful vote back next week, is she?
Greg Clark
She’s bringing a proposal that is an amendable motion.
Peter Kyle
That’s not a binding motion.
Chair
That is very different, Secretary of State. She is not bringing a deal back next week, is she?
Greg Clark
As I understand it, she is there negotiating the deal. I think we have to wait until she comes back. I do not think she is coming to Prime Minister’s questions today, because she is in Brussels negotiating it and discussing it. But it is very clear: we need to make a deal. For those who say we can play this to the wire and leave it until 28 March, I say no—we have to resolve it.
Antoinette Sandbach
Secretary of State, you have heard the expression, “kicking the can down the road”. At what point will the Cabinet make a decision that there has been enough can-kicking and that we have to face up to the very serious and severe consequences that no deal would mean for this country?
Greg Clark
I think it is overdue that we should all do that. To be fair, it is not in the discretion of the Cabinet to ratify an agreement. It is incumbent on all of us in this House, across party, to come together and recognise precisely what you have described.
Antoinette Sandbach
With the greatest of respect, the dire lack of leadership in this country is causing huge damage to the reputation of Britain in boards around the world, who look at us and see confusion and do not understand what has happened in Britain. Parliament has never been given an opportunity to hold a series of indicative votes around what it might agree to—never. The Prime Minister has never put to Parliament her negotiating red lines and had those tested. At what point do the most senior advisers to the Prime Minister, namely her Cabinet, decide to come to Parliament and make sure that we get those options and those choices?
Greg Clark
I think that’s unfair to what the Prime Minister has consistently sought to do, which is meticulously to understand what is needed in a deal. I can tell you from personal experience that she has focused on and understood the evidence that has been laid before her on the needs of different sectors of the economy and has reflected that in the kind of deal that she has negotiated. She is completely aware of that. She needs to propose a deal that can command the support of the whole House. It is evident that that is very difficult. I think it was evident—
Antoinette Sandbach
Secretary of State, forgive me, but at no point has the Prime Minister come to Parliament with a series of options, and the evidence to support those options. The criticism is always that Parliament does not say what it is for, but we have not had an opportunity to say what it is for. If the Prime Minister cannot command a majority in the House for her deal, which thus far she has been unable to do, and given the dire consequences of a no-deal Brexit—an international trade observatory indicates that in a no-deal Brexit, 83,000 jobs are at risk in the north-west—at what point is there going to be a decision to allow the House an opportunity to indicate what it might coalesce around?
Greg Clark
Two things. First, it is the responsibility of the Prime Minister, which she takes very seriously, to try to propose a deal that can command the support of the House. She is absolutely focused on doing that, and I think even her critics respect the tenacity and seriousness with which she has approached that. Again, from my personal dealings with her, I think she has very much personally in mind the responsibility that she and all of us bear for the livelihoods of ordinary men and women around this country. This is not a matter of theology and hypotheticals; I think she has clearly in mind the consequences that the decisions before us have, and she is absolutely focused on that. In terms of the question on how the House can express its view on different options—different variants—it has the ability to do that. It had the ability to do that last week. The motion that was brought forward allowed amendments to be tabled to it, which I think is a good mechanism. It will come back again. My view is very clear: parties should come together and Members of Parliament should come together, to try to find a compromise with each other that can command the support of the House.
Chair
Okay. You have said that.
Peter Kyle
Your responses to various Members, and particularly to Mark Pawsey’s final question, seem to imply that the Commons was objectively wrong to vote against the deal. Can you tell me who bears the most responsibility—a Government who bring forward a Bill that is the least popular Bill in the history of our Parliament, or Parliament, for voting against it?
Greg Clark
Well, let us look at why people voted against the deal in such large numbers—
Peter Kyle
That was not my question at all.
Greg Clark
It will help us to answer your question. The truth is that many of our colleagues voted against the deal because they thought it kept us too closely tied to the European Union. Many others voted against it because they thought it took us too far away from a close relationship with the European Union. You had a combination of Members, who no doubt had valid criticisms, from where they came, and voted against it. That is not going to get us—
Peter Kyle
You are talking about the two extremes but you are ignoring the middle. A 230 majority against is not the two extremes; it was also right the way down to the middle. Only 10 MPs on your side that were not on the payroll voted for the deal, so it is not the two extremes. This is the result of a Government that did not listen all the way through the process and then brought forward a Bill that the Commons had known for a very long time would not be able to pass the Commons, yet the lack of engagement led to that point. My question to you is, you seem to be suggesting that MPs should shoulder the responsibility for not backing a deal that the Commons had said consistently throughout that it was unhappy with. All the way through the formation of the red lines—the red lines in the various speeches, from the Florence speech right the way through to the Chequers announcement—it became patently clear that the Commons, as a majority, was not going to accept it, and yet the listening did not start until two weeks ago.
Greg Clark
First, I made no mention of extremes. There were large numbers of people on both sides who, no doubt sincerely, felt that the deal either took us too far away or kept us too close. That was, I guess, not entirely unexpected, since the result of the referendum was very close. So it is evident that if you are to command a substantial majority for a deal, people are going to have to compromise. Those that think that there is a purist Brexit that severs our relationship with the European Union I think will, if we are to do a deal, have to compromise and back a proposal that takes us out—
Peter Kyle
You’ve said that, and I get that. Churchill made very clear recommendations to MPs as to how they should decide how to vote—country first, constituency second, party third. What is your advice, then, to MPs when they are faced with a deal that they believe in their hearts offers less opportunity, less prosperity and fewer opportunities for future generations than the deal that we currently enjoy with the European Union? What are your recommendations to those MPs? Should they vote against their instincts, their insight and experience—vote against what they believe is best for the country and their constituency—simply to pass this Bill?
Greg Clark
I think they should be active rather than passive. If they feel, for the perfectly good reasons that you mentioned, that they cannot support a deal, it is incumbent on us all to do what we can to find the compromises and common ground between us—not just to sit with folded arms and vote against things that we do not like. That is not going to resolve the matter, as is evident. I think we need to come together and find a deal that can be approved.
Chair
With all respect, the 432 MPs who voted against the deal are not sitting there with folded arms, trying to get someone else to sort out the problem. Many of the amendments last week from people who voted against the deal were to try to find a way forward, whether by extending article 50 for a period of time to try to get a deal, or having indicative votes on the Floor of the House. I find your suggestion that MPs who voted against the deal are sitting there with folded arms—
Greg Clark
That wasn’t my suggestion.
Chair
Then what is? You think that MPs who voted against the deal are sitting there with folded arms?
Greg Clark
No; quite the opposite. I think that people who—
Chair
Who are the people sitting there with folded arms, then, Secretary of State?
Greg Clark
I was making the point that, in terms of resolving an impasse where we have a substantial majority against it, every one of us should be seeking to find common ground and to find a path through it. That is what Parliament has done throughout our history. We have been a Parliament that has been ready to—
Chair
If that path was your objective, Secretary of State, I would have thought you might have voted for the Dominic Grieve amendment, which might have helped to find that common path. We are running out of time, and that is something that I think concerns all members of this Committee. You have already said that next Friday, 15 February, is the day by which we need a deal to give certainty to the businesses that you see all the time as Secretary of State, and that we see as members of this Committee. We are running out of time. If article 50 is not extended then I just do not see how we will have a deal by 29 March.
Stephen Kerr
Going back to scrutinising the work of the Department in relation to no-deal planning, how much money has been spent on no-deal planning, and what has it been spent on?
Greg Clark
I will ask the Permanent Secretary to make his first intervention.
Alex Chisholm
We were allocated £185 million by the Treasury for spending this year on EU exit preparations. That is in addition to ordinary work that would be done by the Department on European matters, so we had already re-prioritised some staff on to it. That money, as you may or may not have seen from my supplementary updates, has now been adjusted to £139 million this year. The money we were going to spend on preparations for business has been reallocated to the Cabinet Office for its public information campaign, which, as you may have seen, has been rolling out from the beginning of the year, and some of the money from the Joint European Torus project and the work on the UK alternative to Galileo has been moved into the next quarter. It is £139 million. To break that down, about £71 million is on admin—mainly staff and non-staff costs, some within the core BEIS Department but also across 12 different partner organisations—£12 million is on resource expenditure, mainly for things like databases for product safety and market surveillance, and nuclear safeguards; and then about £53 million is on capital, the biggest portion of which is for the global satellite system.
Stephen Kerr
Has that money all been spent?
Alex Chisholm
We are on track to spend almost all the £139 million, yes.
Stephen Kerr
How many extra staff?
Alex Chisholm
About 700.
Stephen Kerr
In total?
Alex Chisholm
Yes.
Stephen Kerr
Are they all in place?
Alex Chisholm
Yes, we were able to recruit them all on time.
Stephen Kerr
Predominantly in London?
Alex Chisholm
Mostly in London, yes. Some of those people working in partner organisations will be spread across the UK, and we have added some posts in Birmingham, particularly for the work on product safety.
Stephen Kerr
I hope we have time to come back to where staff are and where the BEIS Department is situated. What about Brexit-related legislation? You told us, I think, that we needed about 150 SIs.
Alex Chisholm
I think the original estimate was about 130. We have been able to make some changes both by concentrating on ones we thought it vital to have on the statute book before the end of March and by consolidating and bundling different instruments, for Parliament’s time and ours, and for business users and others out there. The total number of SIs we need to have in place has gone to 62, and those have been laid before Parliament. That is in addition to primary legislation—particularly the Nuclear Safeguards Bill, which was passed and became an Act last summer.
Stephen Kerr
So there are 62 still—
Alex Chisholm
No, 62 have been laid. We have perhaps one or two more to do.
Stephen Kerr
Just one to go?
Alex Chisholm
Yes.
Stephen Kerr
What about the balance? What happens when we get to 29 March? What consequences are likely to flow from that?
Alex Chisholm
There is not a balance of outstanding legislation that needs to be in place. That has been achieved through consolidation.
Stephen Kerr
Okay, so the 62 take care of everything?
Alex Chisholm
Yes.
Stephen Kerr
Okay—very good. Let me ask you about the work streams you described last time you were with us. You said there were 68 Brexit work streams. You described 21 as a priority and said 12 required new IT systems. It always sends a shiver down my spine when Governments talk about new IT systems, for obvious reasons. What progress has been made on that? Is everything on track?
Alex Chisholm
Very good. The number is 66 now—again, it moves around a bit because programmes change shape. All of those are on track. That is independently verified by DExEU, and we have had 39 independent reviews of our exit programme since last January, 32 by the Infrastructure and Projects Authority and seven by our internal audit function. It is very much verified that we are on track for both deal and no deal, which obviously is an important complicating factor here. The only ones showing up as not 100% on track relate to the single electricity market in Ireland, which is a cross-border undertaking. On a no-deal basis, where there was no agreement about the terms on which we had left, we cannot be sure what actions would be taken on the other side of that cross-border undertaking.
Stephen Kerr
Are there no bilateral discussions with the Irish about the consequences of that?
Alex Chisholm
We have certainly worked very closely with the authorities in the Republic and in the north—with the regulators and the practitioners, and at Government level as well. Obviously, the overall negotiations are led by the European Commission rather than by the Government in Dublin, but we certainly have worked with them. There is a very strong commitment by the UK Government, the Government in Ireland and the European Commission to try to preserve the single electricity market, which is seen as a very important development that is of interest to everyone in the market.
Stephen Kerr
It is pretty vital. Question marks against the single electricity market in Ireland would be hugely significant. How confident are you about what will happen on 30 March if there is no deal?
Alex Chisholm
As I say, we are reasonably confident, in the sense that there will be no immediate effects in terms of lights going out or electricity supply being affected. Indeed, we have just completed an auction for electricity to be available next winter, which has successfully cleared, so there is a reasonable level of security of supply. On the other hand, we can’t assure the overall legal standing of something that is outside a legal framework. Clearly, if there is no agreement, it would be outside a legal framework. We will do what we can unilaterally, but that is not the same as saying that the whole thing is covered by an agreed body of law. That would be provided by the withdrawal agreement and, in particular, the Northern Irish protocol, but if there is no agreement, that legal framework will not be in place.
Stephen Kerr
Let’s go back to staffing for a moment. Are the 700 extra staff all working on Brexit-related stuff?
Alex Chisholm
Yes.
Stephen Kerr
How many of the existing staff have been taken off what they would have been doing ordinarily and are working on no-deal planning or Brexit-related stuff?
Alex Chisholm
In our first year of full Brexit work—2017-18—we moved 100 people across from other work to Brexit work. In our second year, we moved a further 100, so that is 200. We have 700 additional people who come with the Treasury funds, so that is 900, and we have mobilised a further 335 over the last two months to work on Brexit work. In total, we have 1,235 staff working on Brexit work within the Department.
Stephen Kerr
And consultants?
Alex Chisholm
Consultants—hardly any.
Stephen Kerr
Hardly any?
Alex Chisholm
A dozen, perhaps. Maybe digital specialists. It is a very marginal part of our work.
Stephen Kerr
So what is not being done as a result of this reallocation of resource? There are various things that the Department was working on that you have gone very quiet about. For example, the share buyback stuff—we have heard nothing about that, and that’s way overdue.
Alex Chisholm
That would be an example of something we would like to proceed with. Obviously, that hasn’t been a priority for the last few months. There are other things that we have obviously had to go a bit more slowly on and have smaller teams.
Chair
Like what?
Alex Chisholm
For example, we have talked before in this Committee about the role that hydrogen might play in the economy and in the UK’s heating system in the future. That will be very important in the 2030s and 2040s to meet our climate change obligations and everything else. The work on that has been pushed back by about a quarter or maybe six months, because it hasn’t been vital to do it by the end of March, unlike some of this other work.
Stephen Kerr
What criteria have you applied to the priorities that you have set? Are they political decisions? Are they financial decisions?
Alex Chisholm
That is absolutely something to discuss with Ministers, No. 10 and the Cabinet Office. Clearly, we have legal obligations that we have to meet. We have vital work that we are doing right across the BEIS family estate, such as decommissioning nuclear work, rolling out smart meters and licensing offshore platforms. That type of work can’t stop. All that needs to continue. In our discussion with Ministers, they have been very clear about the industrial strategy, which is obviously one of the core things that the Department is there for. It needs to be delivered, and people would not say, “We will stop work on that because of Brexit work,” because it is vital to the future of the economy and for everyone working in it.
Stephen Kerr
Okay. It would be interesting to know when exactly we are going to hear more about the share buybacks. It would be interesting to know what the Department intends to do about the consultation on insolvency, because Carillion has posed so many questions, and we can’t wait for answers. Then there is the consumer Green Paper. All those things are outstanding, and it would be good to know exactly when we can expect something to happen in relation to those issues.
Sir Patrick McLoughlin
Of those 1,235 jobs, how many are in London and how many are outside London?
Alex Chisholm
I don’t have the exact breakdown. I can say that, across the BEIS family organisations, 82% of our employees are outside London.
Chair
In BEIS itself, not the different departmental bodies.
Alex Chisholm
I don’t have the exact breakdown of that group.
Sir Patrick McLoughlin
But you can assure me that a fair proportion of those are outside London. They are not all London-based.
Alex Chisholm
They are not all London-based, no.
Chair
How many staff do you have?
Alex Chisholm
About 3,300 at BEIS.
Chair
Roughly, how many are in London?
Alex Chisholm
The large majority.
Chair
95%?
Alex Chisholm
Less than that, because we have got quite a number in Aberdeen, Birmingham and Cardiff. Those are all substantial offices.
Chair
90%?
Alex Chisholm
Maybe around that, yes.
Chair
So about 3,000 in London and about 300 elsewhere?
Alex Chisholm
A bit less than 3,000 in London.
Stephen Kerr
How can BEIS implement a UK-wide industrial strategy when you have so little presence across the United Kingdom? I represent a Scottish constituency and I am very anxious about how the Union works. BEIS has a responsibility in Scotland—in my constituency, with a city deal. There is very little evidence or presence of BEIS in Scotland.
Alex Chisholm
We do have representation in Edinburgh now, and we have a big office in Aberdeen—we are one of the biggest employers there, with the Oil and Gas Authority and the offshore licensing.
Stephen Kerr
Yes, but BEIS is much more than oil and gas. Small business confidence in Scotland—you probably saw the index—is minus 33 points.
Alex Chisholm
It is very low, yes.
Stephen Kerr
It is horrendous. BEIS needs to have a presence in Scotland.
Chair
I would have thought, given what we have said to you, Alex Chisholm, and Ministers before, this opportunity to recruit all these new people might have been an opportunity to get some staff outside London. Most other Departments do it in much higher numbers than BEIS manages it. Do you think that our concerns are misplaced or are you actually going to do something about it?
Alex Chisholm
As I say, 82% is a lot outside of London and that proportion continues to increase.
Chair
No, no, no. We are asking about the Department that you manage—the 3,300 people who you manage in your Department—not the non-departmental bodies. If you could focus on that, please.
Alex Chisholm
I am responsible for all that expenditure as the accounting officer, so—
Chair
I am asking about your Department—the 3,300 people who are responsible for policy. All those people who are responsible for policy are based in London, apart from 300—maybe a little bit more. Some 90% are in London, despite the fact that energy policy and industrial policy have got to be delivered around the country. Do you really think that is a good balance?
Alex Chisholm
We do have offices right across the country. All the offices I mentioned—Aberdeen, Birmingham and Cardiff—are expanding considerably. Where we have the opportunity to do so, we will certainly take that. The Office for Product Safety and Standards, for example—
Chair
So how many jobs did you say you had recruited—700?
Alex Chisholm
Those 700 were additions, yes.
Chair
When you advertised those jobs, how many were advertised as London-based?
Alex Chisholm
I do not have that figure.
Chair
Can you get back to me with that? Are you happy with the balance of your staff being 90% in London?
Alex Chisholm
It is an inherited situation.
Chair
No it is not—you just recruited 700 staff.
Stephen Kerr
Only 2.2% are outside London.
Alex Chisholm
There is a terrific efficiency to having people being able to move between floors within a building and work closely with Parliament. We have officials coming into Parliament every single day Parliament sits to work with other Whitehall Departments. Brexit particularly, with the people working on Brexit, has required a very high level of co-ordination with a number of different Departments, particularly DExEU of course, and the Cabinet Office, the Treasury, DEFRA, DCMS and DfT. We are meeting those Departments every single day of the working week. That is a factor.
Chair
Greg Clark, are you comfortable with that?
Greg Clark
You know my views on building up the power of the economy around the country. I want to see not just a big shift in terms of the number of staff employed by my Department, but actually devolution so that, for example, you have people in the west midlands taking decisions that were once taken in Whitehall and Westminster. That has been my approach.
Chair
Maybe you would like to have a little word with your Permanent Secretary and see whether some of those jobs might be advertised in the West Midlands, Yorkshire or Scotland in future. Whatever the Permanent Secretary says, I think most people round this table believe that you can get great efficiencies and great staff by recruiting outside the narrow pool of people you get if you recruit in London. With all respect, it might result in some better policy ideas coming out of the Department as well.
Stephen Kerr
Only 2.2% of the 680 people recruited by the end of September last year were outside London.
Chair
That is because of the great efficiency of having everybody in London and missing out on the talent of 90% of the country.
Stephen Kerr
And everybody can move between floors.
Chair
You have managed to unite Stephen Kerr, me and the whole Committee on that issue.
Sir Patrick McLoughlin
How much spare office space have you got? Where have you put those people?
Alex Chisholm
They are distributed between our two main offices in Victoria Street. Most of the people—
Sir Patrick McLoughlin
So they were very under-occupied then.
Alex Chisholm
No, we do not have much spare office space at all. We have had to move 800 people in the Department between floors to consolidate and fit people in. We have introduced smaller desks and we have had to budge up. That is the reality of the situation.
Chair
I am going to move on. That will not be the last time we mention this. Maybe by next time you will have done something about it, with all respect.
Peter Kyle
I have two very quick questions, Secretary of State. First, there has been a lot of media attention this morning on an idea raised by your colleague at the Department for International Trade to have zero tariffs on imports should there be a no-deal Brexit. Is that something you would support, given the impact it will have on domestic production?
Greg Clark
Well, that would need to be agreed across Government.
Peter Kyle
But would you support it? Is it a good idea—yes or no?
Greg Clark
As is evident from our discussions, I want to see zero tariffs with our trading partners in the European Union wherever possible. However, there are some areas in which there are trade defences—
Peter Kyle
Unilateral zero tariffs on imports, but with the same export tariffs remaining in place. Is that good or bad? Would you support it, yes or no?
Greg Clark
I want to see low tariffs, but I want to make sure that we do not ignore the importance of defending ourselves against dumping by our competitors.
Peter Kyle
You want reciprocal tariffs, not a unilateral drop to zero tariffs on imports?
Greg Clark
I think it needs to be a bespoke arrangement. In general, with our European partners, they should of course be zero. We want to preserve that. We do not want any disruption in trade. There are some industries—such as the ceramics industry, which I think has a very important future, as well as being important now—in which there has been some very aggressive, anti-competitive dumping, particularly by China. We need to maintain our defences on that.
Peter Kyle
Thank you. That was not entirely ambiguous.
Chair
Have you spoken to the Secretary of State for International Trade about this?
Greg Clark
Of course.
Chair
So you were happy for these ideas to be floated today?
Greg Clark
There is a process in Government, as is evident, of taking the opinions of colleagues from across Government and proposing a policy that is then collectively agreed.
Peter Kyle
But he has announced it unilaterally. It has been leaked to the press, going outside all those barriers. We are asking you to be as candid as he has been.
Chair
Business desperately wants some reassurances, Secretary of State. You are saying that all these things need to be looked at, but businesses in Staffordshire and Stoke, and the steel industry across the country—what is left of it—are looking at this and wondering what future there is for them in this country. They would like something a little bit clearer from you, Secretary of State, on what you think of these proposals.
Greg Clark
I can tell from the grin on Mr Kyle’s face that he has the advantage of social media giving him a report. You would expect me to observe the proper process for collective—
Peter Kyle
But your colleague has floated a balloon today. I am asking you to shoot the balloon down.
Greg Clark
I have not read my colleague’s comments that you refer to.
Peter Kyle
Finally from me, the Prime Minister has gone back primarily to renegotiate the backstop. I have been through and analysed the five days of debate on the withdrawal agreement, and concerns about trade were mentioned three times more—by Members from both sides of the House—than the backstop. Trade is a far greater concern to the majority of MPs than the backstop. What have you done to impress upon the Prime Minister that, if she is going back to seek changes to the withdrawal agreement and the political declaration, what the House actually really needs is more certainty about trade, which was raised far more often than the backstop?
Greg Clark
The withdrawal agreement provides for uninterrupted trade with our partners in the European Union, which is one reason why I think it important to agree such a deal.
Antoinette Sandbach
BEIS estimated in January last year that our electricity imports would quadruple between 2017 and 2025. Interconnectors are an important part of electricity provision. Where are we in relation to implicit trading for electricity and the plans to join the XBID platform if there is no deal? Does the political agreement cover the circumstances to allow for implicit trading in the subsequent negotiations if the deal is passed?
Greg Clark
The ability to continue to trade electricity is an important feature of our relationship with the rest of the European Union, and exactly as you say, in the context of the next round of negotiations, that is our objective.
Antoinette Sandbach
Sorry, I asked what the implications were for XBID in relation to no deal, because the cost to the UK consumer estimated by the UK Energy Research Centre is £270 million a year. That is a significant cost to the consumer.
Greg Clark
Indeed.
Antoinette Sandbach
Are we going to remain part of XBID? Are we going to join XBID?
Greg Clark
In the event of no deal, those arrangements would come to an end.
Antoinette Sandbach
So that is a consumer cost of £270 million from 29 March.
Greg Clark
I am not familiar with the figures.
Antoinette Sandbach
Could I move on to projects of common interest status? We received €100 million from the Connecting Europe Facility between 2014 and 2018 to build our interconnectors. I understand that the French regulator is concerned about the impact of Brexit, and has referred the case to the European Agency for the Co-operation of Energy Regulators. How are you going to replace that lost EU funding? I mean, €100 million is pretty close to £100 million these days.
Greg Clark
That takes us into our discussions with the Treasury about various aspects of replacing EU funding. I don’t know whether you want to give an update on that.
Alex Chisholm
Yes. First of all, on interconnectors, as you rightly say, they are an important part of the energy system in the UK—about 5% at the moment—and we are expecting that to increase by perhaps two, three or even four times over the years ahead, as you mentioned. The picture is more varied. It is true that the regulator in France has asked to pause the interconnector that we are in the process of constructing with them, but other interconnectors are proceeding: the north-south one in Ireland, for example. I was also over in Belgium just a few weeks ago to open the new so-called Nemo link between the UK and Belgium, which is up and running.
Antoinette Sandbach
But those were all built with support from that fund, so what is happening about the replacement? That is €100 million lost.
Alex Chisholm
The scheme of support for those interconnectors is managed by Ofgem, and they provide an assurance about what is the minimum price that will be achieved.
Antoinette Sandbach
So in other words, not only are UK consumers going to pay more for their electricity because we are going to be outside XBID, but Ofgem are going to put money on consumer bills to pay for the cost of interconnectors, which we previously got from grants in Europe.
Alex Chisholm
Certainly, there were funds available from Europe, but they were a small part overall. On the whole, they have been privately funded in the expectation of future revenues. Some of those revenues come just from what they’re able to sell into the market for, but they have also had top-up payments to make sure that this additional capacity is there. It is actually quite low-cost electricity, because we only import it when we need it. In other cases, we are actually exporting—we have a surplus—so because that balancing overall is very efficient, it is lower-cost electricity than others we use.
Antoinette Sandbach
That does not accord with the UK Energy Research Centre assessment that that’s going to cost consumers £270 million a year, does it?
Alex Chisholm
I have not seen that particular research.
Antoinette Sandbach
Maybe you could have a look at it and write to us.
Chair
If you could get back to us on that, if we pass you the information—
Antoinette Sandbach
Can I just ask what is happening on whether the EU ETS should be replaced with a UK ETS, or a carbon tax? Has there been a decision about that?
Alex Chisholm
Certainly in the context of an agreed deal, we would propose to remain part of the ETS scheme during the implementation period, which we believe would be beneficial for market participants in the UK. In the context of no deal, in order to try to replicate the effects of the ETS as quickly and efficiently as we can, a carbon tax would be introduced at approximately the level necessary to make up for the withdrawal from the ETS.
Antoinette Sandbach
And has that been agreed with the Treasury, then, so in effect there would need to be an emergency Budget to introduce the new carbon tax?
Alex Chisholm
That tax level has been agreed with the Treasury, and I think they said they would readjust it every six months, according to what is necessary.
Vernon Coaker
Mr Chisholm, for the people in Northern Ireland, and the whole island of Ireland, watching this, just briefly—Mr Kerr answered some of this, but can you just say more loudly and clearly? The integrated single electricity market, which is the whole island of Ireland—how is this going to operate in future? What no-deal planning have you done? How does the negotiation taking place at the current time around the withdrawal agreement affect the operation of that single electricity market, if it changes? The existing withdrawal agreement, as I understand it, protects it. What happens if it changes? Just say a little bit about the no-deal planning that has taken place, because there have been all sorts of things, and some people just dismiss it as scaremongering; other people say this is a real threat. Briefly, so the people of Northern Ireland understand, what is the future of energy in the whole island of Ireland, and the protection of the integrated single electricity market?
Alex Chisholm
Thank you very much for your question. First of all, it is a single electricity market, north and south, and that is the case both at the physical level—like the infrastructure—but also in terms of how it actually works as a market. It is effectively a software system that enables the trading of energy to take place right across the island of Ireland—a set of algorithms. Those will continue to operate, so even if we had left with no deal—
Vernon Coaker
Imagine you are speaking to people in Northern Ireland who have switched the light on. We know all that—what you have said.
Alex Chisholm
There is no immediate interruption, in effect. Equally, there is nothing that the Government of the UK will do to try and impair the continued operation of the single electricity market. That is also very much the view of the Government in Dublin—and we have spoken to them to that effect—and also of the regulators, who have key responsibilities in this place. We have also met with the market practitioners, both north and south, the people who actually operate the system—the system operator for Northern Ireland—it is part of EirGrid. I have been in a room like this with all of those players even a few weeks ago and they have said they are absolutely committed to making sure the single electricity market—
Vernon Coaker
So the lights are not going to go out.
Alex Chisholm
The lights are not going to go out. There is no short-term interruption. Where we have some concerns is that if you are operating without a full legal framework, that creates some uncertainties for the medium and long term.
Vernon Coaker
What does that mean?
Alex Chisholm
It means that the reason we have a full legal framework in place—
Vernon Coaker
Yes, but what does it mean? Concerns—what does that mean? That there is an interruption to supply? If there is a concern, what is it?
Alex Chisholm
There could be challenges to the legal framework—
Vernon Coaker
Yes, but what is a challenge? What is it?
Alex Chisholm
Litigation could occur, for example.
Vernon Coaker
Well, that’s electricity supply, isn’t it? Do you see what I mean? What is it?
Alex Chisholm
It is also going to affect, if there is less confidence, the market—it may affect the price of electricity.
Vernon Coaker
Yes, but what is it? Is it that the light won’t come on, or the electricity isn’t—
Alex Chisholm
We have been very clear that prices could be affected—
Vernon Coaker
Up or down?
Alex Chisholm
If confidence reduces, investors will typically demand more of a premium, so prices go up.
Vernon Coaker
So prices could go up.
Alex Chisholm
That is certainly a risk of operating without a full legal framework for the single electricity market.
Vernon Coaker
Disruption to supply?
Alex Chisholm
We do not foresee that in the short term, and that is one of the reasons why, as I mentioned earlier, we have actually secured electricity for next winter, which is the typical peak time.
Vernon Coaker
You can see how important it is, and I think people would want to know you are on the case, because it is obviously not discussed as much as it might be, apart from our Irish colleagues and here and there. But it is really important.
Alex Chisholm
Absolutely. And there is sufficient capacity in the north and the Republic and also by both the electricity and gas interconnectors from the UK—from GB.
Chair
Thank you.
Albert Owen
Good morning. Can I move on to the future of civil nuclear and ask you, Secretary of State, considering that a number of developers have either paused, suspended or got out of the nuclear build programme, are you still committed and confident that new nuclear will play a part in the future?
Greg Clark
Yes, and we see, with Hinkley Point C—and Mr Liddell-Grainger has some personal experience of that—that it is rising from the ground and is, I think, one of the biggest construction projects in Europe. Associated with that, there has been a revival of investment in the supply chain and in nuclear skills, with people being trained from apprentices and universities putting on new courses. That is very much there. You will be aware, Mr Owen, that the nuclear sector deal that was struck with the sector last year makes a number of joint commitments, on decommissioning as well as new builds, including a commitment to research and development on the next generation of nuclear, in particular advanced nuclear reactors.
Albert Owen
But the reality is that the Centricas of this world, NuGen and many others—we are not talking about small companies here—have decided no longer to invest in new nuclear. You had an ambitious target—the previous Government did—for so many to be rolled out by the mid-2020s and the 2030s. That is no longer the case. My question, which I think you have partly answered, is whether you remain committed and whether that remains part of your policy.
Greg Clark
Yes. The two projects have very different circumstances. Toshiba has gone through very significant financial difficulties and has decided to refocus its business across the world. When it comes to Wylfa, the project has been suspended, as we know. As I said in the statement I made at the time, the economics of energy has changed very rapidly over the last eight years. The costs of many alternative sources of energy, including renewables, have fallen much faster than was predicted. There was scepticism in the past about whether they could be deployed on the grid, but that has been technically achieved. At the same time, the cost of new-build nuclear has increased, so you have had a challenge there because of the scale of the projects. This was the difficulty with Wylfa; it was hard for Hitachi to fund it.
Albert Owen
I understand that, but we are talking about a decade where it has been stop-start all the way along. Many of these developers feel the funding model for this to happen is not in place, and there is uncertainty. You have proven technologies and proven developers, but they do not seem to come together, because ad hoc projects and ad hoc deals have gone ahead. Do you understand the frustration at many of these sites? At Moorside, the third developer has pulled out. At Wylfa, the third developer has pulled out. This is not a recent phenomenon; it has been going on over a decade. You have said you are committed to it. What new features are you going to bring into the nuclear sector with the nuclear sector deal to make this happen? It is needed.
Greg Clark
As I think you know, in the case of Wylfa we explored a different funding model, in which we were prepared to have some equity participation, but that was not enough to be able to finance it. We have said that we will look at the potential for a different model—the RAB model, as it is called—to have the regulatory asset base used to finance construction.
Albert Owen
So you had those discussions with Hitachi/Horizon?
Greg Clark
Not just with Hitachi but with other players. We have committed to concluding that assessment and being able to make a statement on it by the summer.
Albert Owen
Before I go on to Wylfa specifically, the sector deal was launched in north Wales and I am fully supportive of its content. SMRs were part of that. What is the progress with SMRs? When are they going to be developed? Are they going to be developed domestically in this country? Is the technology there? What is missing? Why can’t you fast-track small modular reactors?
Greg Clark
SMRs have great potential. A consortium led by Rolls-Royce has made a bid to the industrial strategy challenge fund. As we have already discussed, these funds cannot simply be allocated by Ministers; they go through an independent assessment process, in this case by UK Research and Innovation, but I have seen the bid and it is well constructed.
Albert Owen
With respect, I was on the Energy and Climate Change Committee, which went up to Sheffield and had these discussions many years ago. You now have a sector deal and a framework, so when I say “accelerating”, I don’t mean cutting corners; I mean getting on with the job and producing SMRs in this country.
Greg Clark
Absolutely. The bid is a very substantial bid. It is being evaluated by the appropriate body—UK Research and Innovation. I don’t know, Alex, whether you can give an update.
Alex Chisholm
I can give a few more facts on that, if it might be useful for Mr Owen. We have spent £44 million on R&D for advanced modular reactors, and one of the things that we said we would do last year was to begin the process of engagement between themselves and the Office for Nuclear Regulation—it is obviously an independent body, not part of our Department, but it has a vital role; we would not be able to roll out SMRs without proper regulatory approval—and also with the Environment Agency. That has now happened, so five mature SMR designs are now part of that regulatory engagement system with the ONR and the Environment Agency. So both on the R&D side and on the regulatory side, there has been good progress, as well as, as the Secretary of State mentioned, in relation to a substantial bid that has been received.
Albert Owen
You will understand the frustration over the large scale—I’m talking about SMRs now. Have we got a date, in BEIS, when you think the first SMR will be operable? Then we can work back from that.
Alex Chisholm
No, we don’t have that, in truth, and in fact the process for trying to get generic design approval for a new nuclear system of any kind typically takes two or three years, and the submission of that normally takes companies a very large amount of time and money to do. We are not at that point yet. So until we have started that process, I wouldn’t like to give a forecast about when it will be over.
Albert Owen
Thank you. Can I move now to the specific issue of Wylfa? We have had this discussion, and I want to put on record my thanks to you, Secretary of State, for the engagement that you have had with me and with north Wales MPs, because this will impact on the whole region. But it’s not very helpful when you get the chairman of Hitachi going to Davos, where I think politicians and senior businessmen go to drop their guard, and saying specifically—his words—“Nationalisation is the only path” to save this nuclear project. Four hundred people are receiving their redundancy notices in my constituency. The company is making a statement saying it’s suspending this and giving a timeframe and, as you said, looking for another model. But then you get the chairman of that very company making this public statement.
Greg Clark
Mr Nakanishi is a great ally of the UK. The investments that Hitachi have made, including in Wylfa, where they have invested about £2 billion, followed a very significant commitment to the UK.
Albert Owen
I have worked with them closely and am aware of that.