Energy-Intensive Industries
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Graham Evans (Weaver Vale) (Con)
I beg to move,
That this House has considered energy intensive industries.
It is a privilege to serve under your chairmanship, Mr Chope.
Energy-intensive industries are defined in the 2000 EU regulations on pollution prevention and control and further directives as companies whose energy intensity is more than 3%. This means that their energy costs are at least 3% or more of their total production costs. However, it is important to note that the figure is often significantly higher than this. For example, electricity accounts for 70% of chlorine production costs at the INEOS Runcorn site in my constituency. The companies that tend to fall into this bracket come from a wide range of sectors, including chemicals, steel, paper, minerals, glass, ceramics, and industrial gases, among others.
Protecting the competitiveness of the UK’s foundation industries is vital to our long-term economic success. Energy-intensive industries account for 4% of the UK’s total gross value added, directly employing more than 200,000 people. These foundation industries are crucial to the success of other companies through their supply chains, meaning that the multiplier effect on economic growth and jobs is far greater. In a report for the CBI, Tata Chemicals estimated that for each direct job it creates, a further five jobs are created in the supply chain. These are often high skill, high wage jobs that are vital to the future prosperity of the UK economy.
Energy-intensive companies, much like other industries, draw competitive advantage from clustering. This is a result of the existence of a pool of specialised workers, the provision of specialised suppliers, and the rapid flow of industry-specific knowledge among firms. As a consequence, regional economies can often be heavily dependent on a small number of energy-intensive firms in the area. Because energy-intensive industries compete globally, their export success is critically dependent on secure and competitively priced energy supplies.
UK industrial energy prices are the most expensive in Europe: 75% higher than Germany; 45% higher than France; and nearly 80% higher than the EU average. Energy-intensive industries are typically paying between £80 to £90 per MWh for electricity. Of this, £14 is attributable to the cost of carbon through the EU emissions trading scheme and the carbon price floor.
A further £20 goes towards the cost of renewable subsidies, such as the renewables obligation and the feed-in tariff. The UK-only carbon price floor results in UK-based energy-intensive companies paying four times the cost of carbon paid by their continental competitors such as France or Germany. The Department for Business, Innovation and Skills has been paying compensation since 2014 to lessen the impact of the EU emissions trading scheme and the carbon price floor. This support is limited to 80% of the impact by EU state aid rules.
Graham Evans
I welcome the announcement in the autumn statement last year that energy-intensive industries will be exempt from the policy costs of the renewables obligation and feed-in tariffs, which will ensure that they have long-term certainty and remain competitive. Energy-intensives whose electricity costs exceed 20% or more of their gross value added are eligible for renewables compensation, capped at 85% of the impact by the EU state aid rules. However, I am concerned that energy-intensives that fail to meet the 20% criterion and therefore do not receive the compensation are often in direct competition with others that meet the criterion and do receive it. That puts some companies at a profound competitive disadvantage. Officials at the Department for Business, Innovation and Skills are exploring the feasibility of alternative options to support those companies, which is a welcome development. I look forward to the results of that.
I represent a constituency in Cheshire, where the energy-intensive chemical industries are of historical significance. INEOS Chlor and Tata Chemicals, among others, are significant employers of people in Runcorn and Northwich, and in the wider M56 corridor throughout Cheshire. Chemistry is the bedrock of manufacturing, and strong, competitive chemical industries underpin all great manufacturing nations in the developed world. The UK chemical and pharmaceutical industries have a strong record of manufacturing.
Kevin Hollinrake (Thirsk and Malton) (Con)
Is my hon. Friend aware that the shale gas industry has revolutionised the fortunes of the chemicals industry in the US? According to PricewaterhouseCoopers 1 million jobs will be created in manufacturing by 2025 as a direct result of shale gas energy and associated chemical feedstocks.
Graham Evans
I am grateful to my hon. Friend, who has certainly made his mark on this place since he was elected. He is right; the east coast of America is an example of how countries can reinvent themselves as manufacturing nations.
The chemical industry is manufacturing’s No. 1 export earner, adding almost £9 billion to the UK’s GDP each year. More widely, the Royal Society of Chemistry claims that £222 billion of GDP and 5.1 million jobs are partially reliant on UK chemical research and the UK chemical industry. The industry faces the additional challenge of using energy supplies both as fuel and as feedstock. Supplies of North sea gas for use as feedstock and fuel are diminishing, meaning that there is increased reliance on less secure supplies of imported gas. The political realities in Russia and Ukraine, as well as in parts of the middle east, show in no uncertain terms the increasing importance of energy security in the coming years. We have only to look across the Atlantic to the east coast of America to see the impact on the chemical industry of lower energy prices and booming supply. Cheaper energy combined with cheaper feedstock and Government investment has kick-started the US chemicals industry, which has since attracted more than $100 billion in investment.
As my hon. Friend the Member for Warrington South (David Mowat) pointed out in January, that success is a direct result of a cheaper economic model and a business case, and as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) said in his excellent intervention, more than a million jobs have been created along the eastern seaboard of the US.
I want to talk about bricks—I am not talking about Brazil, Russia, India and China; I am referring to bricks and mortar. At the general election, almost every Member stood on a manifesto commitment to increase house building and home ownership. The English housing survey suggests that home ownership is increasing for the first time in a decade, which I am sure we all agree is fantastic news, but the inescapable fact is that if we want to build, we need bricks. The owner of Michelmersh, Britain’s fourth largest brick producer, estimates that Britain requires 2.2 billion bricks a year. The country is at full capacity, making 2 billion, with the rest made up of imports, largely from Germany.
The Federation of Master Builders’ state of trade survey highlighted the scale of the challenge. Two thirds of small and medium-sized enterprises face a two-month wait for new brick orders, almost a quarter are waiting for up to four months and 16% face a wait of between six and eight months. Arrangements for compensating energy-intensives such as brick makers are significantly more generous in countries such as Germany. Although the brick industry is starting to recover and reinvest in some of the kilns mothballed during the recession, that will place British firms at a distinct competitive disadvantage as the demand for bricks soars. An opportunity exists to address that and to help truly kick-start the brick making industry, to complement the burgeoning construction industry and get Britain building.
It is important to keep energy-intensive industries competitive in a global market, not just to safeguard them but to maintain a far wider range of UK industrial sectors. Our foundation industries make the raw materials that go into everything from clothing and medicine to buildings, vehicles and computers. Energy-intensive industries and the jobs associated with them are almost exclusively located outside of London, and they form a vital part of the northern powerhouse and regional growth and development.
By 2030, the world population will be 8.3 billion and 60% of the population will live in urban areas. There will be 2 billion cars on the road, and 50% more primary energy will be needed. Such huge challenges cannot be met without embracing energy-intensive industries. They are the building blocks on which manufacturing rests, and on which our future prosperity will be built.
David Mowat (Warrington South) (Con)
It is a pleasure to serve under you, Mr Chope. I congratulate my hon. Friend and neighbour the Member for Weaver Vale (Graham Evans) on securing the debate, which is the second this week on energy-intensive industries. We did ceramics earlier in the week, so we are giving it a bit of a go, and it is good that we are because we do not talk about it enough. As he said, there are something like 900,000 jobs in the industry and its supply chain and, by and large, those are well paid, good jobs that we do not want to lose, particularly by accident or through carelessness.
On my validation for speaking in the debate, I do not have a particularly major industry in my constituency, but at one time in my life I worked at the Port Talbot steelworks. I remember seeing the blast furnace at Port Talbot and I suggest that all BIS Ministers and shadow Ministers see a blast furnace—while they are still here—because they are a magnificent sight.
Kevin Brennan (Cardiff West) (Lab)
While the hon. Gentleman is on that point, can I tell him that my father worked for more than 20 years at Llanwern just a few miles down the road from Port Talbot? I was fortunate enough to be employed there for six months as a young man and came in close proximity to a blast furnace. Unfortunately, at the time I was there, three workers were killed by a gas leak from one of the blast furnaces.
David Mowat
The shadow Minister has validated himself in the debate. They are a sight that will always be remembered—I will certainly always remember it. I did not spend six months there, but I did work there.
Many industries have Ministers in this place who are directly responsible for them. We have a Minister for the City or banks, a Minister for farming, a Minister for sport, a Minister for IT and digital, a Minister for arts and a Minister for small business. Those are all important segments, but there is no Minister for the foundation industries and I think that shows a little.
Let us recap on what we are talking about—ceramics and bricks, chemicals, steel and aluminium. I should have said that I am the chair of the all-party parliamentary group for the UK aluminium industry, which is an interesting group to chair because globally aluminium is a real growth industry. It is increasingly displacing ferrous and other metals in the car industry. It is actually a very green material that is light and strong and we are seeing it used more and more. In the UK, though, that industry, which used to have three primary smelting works, now has only one, and that one—in fact, it is in Scotland—is under consultation for closure.
That is not to say that the aluminium industry in the UK is in bad shape. We are going more into secondary processes, which are higher value processes and there is an element of logic in that, but it is a shame that we are losing the raw material-producing capability that is also at risk in other industries such as steel. I will reflect on some of the reasons for that. I will talk about two things: energy prices, as my hon. Friend did, and what we are doing to ourselves—it is nearly all to ourselves—in that regard; and some of the aspects of our position on market economy status vis-à-vis China. I would like clarification from the Minister on that. Others may also talk about that, because some bits of it are not clear to me.
The basic premise is that it is not possible for us as a country to have a march of the makers, with a resurgence in manufacturing—that is in the north by definition, because much of that is in the north—on the back of differentially higher energy prices vis-à-vis our neighbours, whether in Europe or in the United States. We are not talking about China; we are talking about differences in approach in Europe and, to a lesser extent, in the United States.
In terms of energy, there are two sorts. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) talked about the gas industry in the United States and what that has done. This is not a debate about fracking other than to say that we sometimes talk about it as though it is a new industry and we are deciding whether it, and all that goes with it, will happen. The truth, of course, is that fracking has already happened—it has been going certainly for more than a decade—and it has transformed the United States’ eastern seaboard. Something like a million jobs have been created and the gas industry—gas is not just a raw material for energy but a feedstock for chemicals—in the United States has been transformed by it.
It is also worth reflecting that, as a result, the United States’ carbon emissions have massively come down, faster than any other country in the world. The United States did not sign up to Kyoto, but had they signed up they would have made their targets because of the displacement of coal by gas. All of us who are concerned about the environmental aspects of that need to reflect on that.
One of the interesting questions is: have the million jobs created in the United States affected us in the UK? Actually, yes, they have—only at the margin, but everything in all these industries happens at the margin. By and large, whole industries do not get moved; by and large, industries such as the one in Teesside are not closed down. What happens is that a decision is made about an individual process plant. It is now more cost-effective to put that plant in the United States than in Teesside, where it may have gone 10 years ago, because they are paying one third of the price for that gas there. Those of us who are taking opportunistic positions regarding fracking—whether it is INEOS in Grangemouth or elsewhere—need to reflect on what that means for the 900,000 workers in this industry.
Vis-à-vis the rest of Europe, our gas prices are not out of line; in fact, if anything, they are a little cheaper than much of the rest of Europe. Electricity prices in this country are broadly 80% higher than the European mean, as my hon. Friend the Member for Weaver Vale said. This morning, Germany and France were paying 4p per unit. Our energy-intensive industries are paying 9p per unit, and there are two components of that. One is the carbon price floor, which I am sure the shadow Minister will rightly address. That is a tax on manufacturing, and it is arguably a tax on the north. It is certainly not a tax that I like.
As well as the carbon price floor, which we have unilaterally imposed in this country, there is the renewables and climate change stuff that we continue to impose on this country unilaterally. I want to consider the massive differences between what we are doing on this and what others are doing—not the Chinese or the Indians, because it is quite reasonable that they do less than us as they have so far to catch up, but the rest of the EU.
One of the big myths about carbon policy is that it is the EU making us do all this stuff. There was a bit of that in some renewables directives, but by and large, that is not the case. By and large, nothing going on now in climate change policy—policy that we may or may not agree with—is caused by the EU. It is caused by us, by the Climate Change Act 2008 and the Committee on Climate Change.
The point that needs to be made—and the Minister and shadow Minister need to be cognisant of it—is that the 2008 Act has imposed on our industry the need to reduce carbon emissions by 80% over a 60-year period. The European submission to the Paris summit requires a change of 40% over 40 years. That is a lower gradient, and furthermore, it is easier to get a higher gradient to begin with. They are doing the easy bit at a much lower rate. If we take the UK out of the overall European submission to Paris, it means that—roughly speaking—they have signed up for an emission reduction rate of 50% to 60% lower than us. Either we are right or they are right, but it seems odd to me.
The reason for the difference is clear: in those countries, the people who run the foundation and heavy engineering industries have much more lobbying power with Government, perhaps as the banks do in our country. As a result, they look at the proposals and say, “We’re going to do what’s reasonable. We’re not going to bankrupt ourselves.” The trajectory of emission reduction to which the EU has signed up is 60% lower than the one we are giving ourselves in the UK. The EU has not even assigned that amount by country yet; it is just a total EU level. That should give us all pause for thought. Maybe we are right, maybe they are right, but our trajectories are certainly different.
The European emissions trading scheme was supposed to reduce carbon emissions. The European Parliament had a vote three or four years ago because the ETS did not set a high enough price for carbon. It implies a carbon price of €5 per tonne of CO2. The vote was to try to get that price up, but the Germans, the French and others would not agree to it. That is one reason that on Monday night, an Opposition amendment to the Energy Bill will advocate going further down the path of unilateral action here—in that case, because of the failure of the emissions trading scheme in Europe. If it were not so serious for the 900,000 people whose livelihoods we are talking about, it would almost be funny.
In terms of progress on emissions and climate change, a very good database called EDGAR—the Emission Database for Global Atmospheric Research—shows emissions per capita, per unit of GDP for all the countries in the world, and how they are moving and changing. It is worth reflecting that Austria, a relatively prosperous, affluent part of Europe, has increased its carbon emissions per head by 20% since 1990, while we have decreased ours by something like 15% or 20%. There is no consistency of approach, which is extraordinary.
We have talked in the past about the fact that countries such as Germany are building a new generation of coal power stations. Their renewables are not going up, but in fairness, they have done a lot on renewables in terms of emissions. However, Germany’s carbon emissions are one third higher than the UK’s per unit of GDP and about 30% higher per capita. We need to reflect on that and on the actions that we think it is necessary to take. I make the point again that either we are right or they are right, but for too long, we have listened to people’s words on this subject and not looked at their actions.
I asked the Committee on Climate Change at a meeting recently, “What about these industries? All other things being equal, if we decide that we wish to continue having the highest energy prices in Europe and so on, what does that mean for them?” One person on the committee said, “It’s about comparative economic advantage.” The theory of comparative economic advantage says that a developed economy should probably not be doing some of these things. The implication is that it is probably right to leave steel production behind and move into making aeroplanes and so on. That is the thinking in some parts of the Committee on Climate Change. Either parliamentarians wish to challenge that, or we accept it. At the moment, that is the consensus on action—I personally think it is wrong.
Kevin Brennan
The hon. Gentleman makes, as ever, an expert speech. That kind of thinking is wrong because whatever the economic theory of comparative advantage says—having taught it, I know what it says—it is ultimately in our country’s strategic interest to maintain a steel-making capacity. Does he agree?
David Mowat
I completely agree. That is precisely why that sort of thinking must not gain currency. However, let me be quite clear: it is out there.
I want this to be a debate and to talk about the facts, but that thinking is out there in parts of the Labour party as well. I have often reflected on why many Labour MPs who represent seats in the industrial north are less concerned about this issue than I would expect them to be. It is the same in Scotland. I think it is because there are almost two Labour parties. I do not want to get into a fight, but there are the guys who represent the big industrial communities and understand the issues, and then there is what I would call—I do not mean to be pejorative—the Primrose Hill branch of the party, which believes in cutting emissions at all costs at all times to show leadership to the world. Frankly, the consequences will be the consequences. That is what we should be talking about today.
It is important that the Front Benchers understand the points I have made and that unilateral action will take us to a place where we do not want to be. This is not only about energy-intensive industries. All industries use electricity—for example, the manufacturing industry uses electricity—with the possible exception of the banks, although even they need to put the lights on and get their computers to work.
Finally, I want to ask the Minister about market economy status and why the UK Government are apparently so keen to fight for that for the Chinese when we know what the implications are likely to be for this industry. I am looking for clarification, because when people lobby me and ask why we are doing this, I say, “Well, there must be other industries that benefit from China having market economy status.” I am interested to know whether she can tell us which industries on the other side of the coin will benefit, because my guess is that it will be financial services and banking. If that is the case, we should be clear and just say that, and that it is a decision we have made for the UK economy.
In summary, let me repeat these points. There will not be a march of the makers or if there is, it will be a march to the EU, to the USA and to China, if we continue to concede a massive gas price advantage to the United States and a massive electricity price advantage to the European Union, and if we are not careful about the issue of dumping in China. The Minister is not from the Department of Energy and Climate Change, so she may not be able to answer this question, but I also want to know why the UK is going unilaterally so much further than others and whether there is any chance of others following us in future, because it is very clear that they have not followed us yet.
Margaret Ferrier (Rutherglen and Hamilton West) (SNP)
It is a pleasure to serve under your chairmanship, Mr Chope. I congratulate the hon. Member for Weaver Vale (Graham Evans) on securing this important debate.
Support for energy-intensive industries is a matter that I care a great deal about. My hon. Friend the Member for Motherwell and Wishaw (Marion Fellows) and I represent the two constituencies with Scotland’s remaining steel mills, and those are sadly at risk. I have worked hard since my election to fight to save our steel industry. Although the Clydebridge steel treatment mill employs far fewer people than mills in other constituencies, it is no less devastating when jobs are at risk and when such an iconic industry stands to be lost from the constituency.
As the steel industry transitions to lower-carbon forms of production, it deserves our support. When crisis hit in my constituency, First Minister Nicola Sturgeon moved swiftly to establish the Scottish steel taskforce. That has resulted in positive action to retain jobs and hopefully to save and protect this established industry. If an alternative operator takes over, production will be able to resume swiftly due to the Scottish Government’s steelworkers retention plan. Action has been taken on business rates, and in addition to new public procurement guidance on steel, the Scottish Government have released an ambitious and visionary new action plan entitled “A Manufacturing Future for Scotland.”
The Scottish Government’s decarbonisation of industry steering group promotes and co-ordinates action to support energy-intensive industries, such as the steel industry, in making the transition to lower-carbon forms of production.
Wendy Morton (Aldridge-Brownhills) (Con)
The hon. Lady and I both sit on a newly formed all-party parliamentary group on ceramics. Does she agree that not only the steel industry but industries such as the ceramics industry face huge challenges? There are a number of firms in those industries in my constituency.
Margaret Ferrier
I thank the hon. Lady for that intervention, and I will come to ceramics later, if she will bear with me.
The Scottish Government’s steering group specifically helps them to deliver their emissions reductions under the EU emissions trading system and to meet legal obligations such as the UK climate change levy and the energy savings opportunity scheme.
It is clear that the Scottish Government are committed to protecting the steel industry as a key strategic asset in the Scottish economy, and on behalf of my constituents, I would like to put on record my sincere appreciation of that. The UK Government have gone some way, but there is still more to be done.
On the issue of ceramics, in addition to a very long-established steel mill, there is a brickworks in my constituency—Scotland’s only remaining clay brick company, in fact. Raeburn Brick is an established family- run business in Blantyre. Somewhere in the region of 15% of the bricks used in Scotland are produced by Raeburn, which means that about 85% are imported from outside Scotland. Those figures might not mean much to others, but to me they show that there is a real opportunity for more domestic business.
Graham Evans
I was interested to hear the hon. Lady mention the figure of 15% being made by that family business. Does she have the figure for how much is imported from outside the United Kingdom?
Margaret Ferrier
The figure I have is that 85% of bricks are imported from outside Scotland, but I am not sure how many are within the UK or the EU. I can certainly get back to the hon. Gentleman about that.
If we are serious about long-term and sustainable economic growth, companies such as Raeburn need support. There is clearly room for the Scottish market to expand and reasons why it is being held back. The manufacturing sector is highly important, and I certainly do not wish to see Raeburn at risk, as the Tata steelworks at Clydebridge is. The ceramics industry is looking for a level playing field, just like the steel industry, and is calling for assistance and action on carbon emissions, energy costs and trade, as well as on the housing supply chain.
How do we support energy-intensive industries? I acknowledge and welcome the action that has been taken already. State aid clearance for the UK Government’s energy-intensive industries support package will go some way towards easing costs for those industries.
We need only look at Sweden, for example, to see that electricity prices in the UK are needlessly high. According to Eurostat, the statistical office of the European Union, Swedish industry pays only €0.067 per kilowatt-hour for electricity. In the UK, the figure is exactly double that. Sweden has decided that fracking is not economically viable and is also phasing out nuclear. Renewable energy in the form of hydropower is now the single large source of electricity in the country, and wind power production is growing at a phenomenal pace—it has more than quadrupled over the past six years. We must aspire to cleaner, lower-carbon, sustainable forms of energy if we want to support industry in the long term.
The Scottish renewables sector has massive potential. The waters surrounding Scotland have the potential to provide it with a sustainable, renewable energy source—they are estimated to account for up to 25% of Europe’s tidal power and 10% of its wave power, as well as about 25% of European offshore wind resource potential. That renewable potential is being impaired, however, by the regressive energy policies of the UK Government, who are cutting support for onshore wind and vital support for solar energy projects, and slashing hydro tariffs.
We have an opportunity to develop new, low-carbon products and services, both to accelerate economic recovery in the short term and to drive long-term, sustainable economic growth. In short, low carbon is an environmental and economic imperative.
David Mowat
It is interesting that the hon. Lady has chosen the example of Sweden, because along with France it has, as she says, the lowest electricity prices in Europe, but both are characterised by a very high proportion of nuclear power. That is the reason.
Margaret Ferrier
I thank the hon. Gentleman for his intervention.
The hon. Member for Weaver Vale stated that energy-intensive industries are foundation industries. In the UK they account for 4% of gross value added and employ 200,000 people, who are highly skilled, high-wage and very important to the UK economy and especially to regional economies. He mentioned his concern about the 20% criterion, which leads to some companies being put at a disadvantage in direct competition.
The hon. Gentleman then spoke about chemicals. Tata and INEOS are significant employers with a strong manufacturing record. The industry is worth £9 billion to the UK economy and brings 5.1 million jobs—I hope I have got that right. Energy security is very important. The hon. Gentleman then mentioned bricks and the need for a commitment to house building in the UK. We need 2.2 billion bricks a year. Germany does better than the UK, so we need to look at that as the demand for bricks grows. I hope that the Minister will consider those points.
The hon. Member for Warrington South (David Mowat) mentioned that we do not want to lose jobs and spoke fondly of his time at Port Talbot. The hon. Member for Cardiff West (Kevin Brennan) also has fond memories of working in the industry.
Energy-intensive industries include not just steel and bricks but ceramics, chemicals and aluminium. As the hon. Member for Warrington South said, aluminium is a growth industry and a green material, but we are down to just one smelting capability, which apparently happens to be in Scotland. There is also a risk in the steel industry, and we must look at energy prices. He said that the gas industry in America is not new and has been going for more than a decade, but we must reflect on its environmental aspect. He said that China and India still have to catch up in their carbon policy.
The hon. Gentleman mentioned the difference between emissions in the UK and the EU—the EU seems to have signed up to a 50% to 60% lower emissions reduction than the UK. He then spoke about the emissions trading system and the failure to make progress on climate change. He mentioned Austria—it is interesting that its carbon emissions have increased. He asked the Minister who is right—are we going down the right road, or are other countries?
One comment that the hon. Gentleman made, if I picked it up correctly, was that Labour MPs in the north are less concerned about the issue. I am not sure whether I agree—perhaps I picked up on his comment incorrectly. I know that there are not many Labour Members in the Chamber today, but perhaps the Opposition spokesperson will be able to take that argument forward. Labour Members have certainly been strong advocates for the steel communities in the north.
David Mowat
I completely accept that. The point I was trying to make was that whenever we discuss climate policy, those MPs press for us to go further unilaterally, which is a little odd in the context of the industries and communities they represent. I completely accept that they care passionately about those industries.
Margaret Ferrier
I thank the hon. Gentleman for his intervention.
Finally, the hon. Gentleman wanted to know which industries will benefit from China gaining market economy status. We have heard many times from the Minister why she feels it would be okay to give China market economy status, and I am sure she us will give that answer again at the end.
Kevin Brennan (Cardiff West) (Lab)
I congratulate the hon. Member for Weaver Vale (Graham Evans) on securing this debate. It was not so long ago that we debated similar issues in this Chamber, led by the hon. Member for Thirsk and Malton (Kevin Hollinrake), and we had similar discussions about some of the issues relating to energy-intensive industries, with a particular emphasis on fracking.
The hon. Member for Weaver Vale rightly pointed out how crucial these industries are to the foundation of our economy and to jobs in the supply chain particularly. They have a multiplier effect. Even from the basic statistics, we can extrapolate far beyond them to the ripple effects throughout our economy, often with good quality, high-skilled jobs.
The hon. Gentleman talked about the problem of energy prices in the UK and, as ever, gave a thoughtful and informative speech. He was followed by the hon. Member for Warrington South (David Mowat) who, in a way, put his finger on many of the fault lines. I will perhaps return to his comments about the Labour party in a moment, but until yesterday, none of us was sure which Department would respond to the debate. Only at the last moment did I find out that it would the Department for Business, Innovation and Skills instead of the Department of Energy and Climate Change. The information from official channels was that there was some question. That is not a criticism and I hope the Minister does not take exception, but it emphasises the fault line in this area that the hon. Gentleman explored in his comments about the tension in the appropriate desire for us to do something about climate change.
We have the Climate Change Act 2008, as the hon. Gentleman rightly pointed out, which was supported cross-party—not by everyone in the House obviously, but certainly by those on both Front Benches. It is an appropriate ambition. We want to save the planet from the possible consequences of not acting, but the tension arises from the need to make sure that in doing so we do not kill off our vital industries. The hon. Gentleman pointed out the tension, which exists not just in my party, but probably in the Conservative party to some extent. The fact that this debate was allocated late, with apparently some internal debate about who should take it, illustrates his point.
The hon. Gentleman’s speeches are always informative and educational for all of us. He brings a level of expertise that is sometimes unusual among elected Members. He would probably make a very fine Minister in this area if he received a call from No. 10. I have probably killed of any prospect of that by mentioning it, but it is without question. He always provides us with a challenge and food for thought in his remarks.
From time to time, people try to say that we should not talk politics in the House of Commons, which is vacuous as a statement. If one cannot talk politics in the House of Commons, where can one? The hon. Gentleman made a point about tension in the Labour party, which he said he had identified between some part of north London—
Kevin Brennan
The Primrose Hill lot. I am not an expert on the areas of London. MPs from the north, Wales and other parts of the United Kingdom may be more au fait with the industries we are talking about. He may be right about that tension. All political parties are broad churches, including his own. There is a strand in his party of people who are extremely laissez-faire in their attitude to the economy and would take the view that if the steel industry cannot survive in the bitter winds of market forces, it is appropriate for it to suffer the consequences and to diminish and disappear. The emphasis is more on the comparative advantage that the UK has enjoyed in industries such as finance, banking and so on.
To an extent, both the hon. Gentleman and I want to see a broader and stronger consensus develop on the need for an industrial strategy, with a recognition that the Government have a serious role to play if we are to have a march of the makers. In recent years, I have felt that that political consensus was genuinely developing. I pay some credit to a previous Secretary of State for Business, Innovation, and Skills, Lord Mandelson, who came back from the European Union having had an epiphany of sorts while a European Commissioner. When he was a Trade and Industry Minister previously, I felt that he had displayed too much of that laissez-faire attitude towards British industry, but having seen other countries in the European Union and how they do things, he came back realising that it was vital for the British Government to take a much stronger interest in UK plc and particularly the high-skill, often energy-intensive industries that would genuinely help to rebalance our economy away from the unhealthy state that it had got into with too much reliance on the banking and finance industries.
We can perhaps create that stronger consensus in British politics, given the views that are shared among all parties across the House, to achieve a longer-term strategy for British industry.
David Mowat
I probably am a bit more laissez-faire than the hon. Gentleman. Having said that, I do understand that an industrial strategy is needed in some cases at some point. To the extent that the Government have got involved in these industries, however, it has been to impose—apparently without necessarily understanding that they were doing it—higher energy costs than their competitors in the EU. We have already intervened in an unhelpful way. That is really my concern.
Kevin Brennan
Indeed, and that was the central strand, obviously, of the hon. Gentleman’s remarks and why I described them as a challenge to us all. The points that he made provide deep food for thought about what is the best way forward to ensure that we fulfil our obligations in relation to climate change, but also have the kind of strategy that will make sure that these industries can be sustained and can prosper into the future, because of their importance to our economy.
The hon. Gentleman went on to talk about market economy status for China. My view would chime with his remarks in that regard as well. I am interested to hear the Minister’s response to his question about the beneficiaries, and the request to be more overt about the anticipated beneficiaries of the UK’s support for market economy status for China. My fear is that if we roll over too easily on that subject—whoever the beneficiaries are—it could have extremely negative consequences for some of the industries that we are discussing.
At a time when Chinese steel is being sold at under cost price in European markets and in the UK, with the consequences that we all know about for British jobs and British industry, it seems extraordinary that we are going out of our way to be favourable towards market economy status for China, instead of perhaps using it as a bargaining lever when discussing the Chinese Government’s policy on the steel industry. It is 70% state owned after all, so one would have thought that the Chinese communist Government had some influence over it. I know that some of the consequences of that over-production are now being felt in China. At the recent congress of the Chinese communist party, it had to announce a reduction in steel making in many of those areas.
The hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) told us about energy intensive industries in Scotland. She mentioned tidal power, which leads me to ask the Minister whether she can give any update— I think I might know what the answer will be—on the Government’s proposals in relation to the Swansea bay tidal lagoon. That is a current issue—no pun intended—and I hope that she will be able to say something about it when she responds to the debate.
I do not want to detain hon. Members too long today, but we did receive a briefing ahead of the debate from EEF, the Manufacturers Organisation. It posed some questions, and it would be helpful if the Minister could respond to them, in the spirit of the debate that we are having today. I will outline the four challenges that it poses—that is probably the easiest thing to do—rather than repeating what has been said already.
EEF says:
“The Government should support industry’s calls for major changes to the proposed reforms of the EU Emissions Trading System (ETS) post 2020.”
I wonder what the Minister’s position is on that. EEF also says:
“Ministers must bring political pressure to bear on the EU Commission to approve the ‘second’ state aid application in relation to the EII compensation package without further delay.”
Again, I wonder what the Government’s response is to that challenge from EEF. It also says that in the Budget
“the Government should look to announce a scrapping or phasing out of the Carbon Price Floor.”
The hon. Member for Warrington South rightly mentioned that. EEF continues:
“At the very least we must see a commitment to continue the current freeze.”
EEF also says:
“Government must use the 2050 Roadmap project to devise a radical new approach to the decarbonisation of energy intensive industry. This must include a credible industrial carbon capture and storage (CCS) strategy and serious consideration of financial support for industry.”
I do not want to detain hon. Members too much longer, but I wonder whether the Minister could respond to the points that EEF has helpfully provided to us for this debate.
The Minister for Small Business, Industry and Enterprise (Anna Soubry)
It is, as always, a pleasure to serve under your chairmanship, Mr Chope. I congratulate my hon. Friend the Member for Weaver Vale (Graham Evans) on securing the debate. This is an important issue and, as other hon. Members observed, it is not the first time this week that we have debated the subject, because we discussed the future of the ceramics industry on Tuesday.
I am a little confused about why the Opposition were confused about who was to respond to this debate, because we in BIS were in no doubt at all. EIIs are very much within our responsibility, so I was always going to be responding. I think that my hon. Friend the Member for Warrington South (David Mowat) said, “Do we have a Minister for energy-intensive industries?” He was berating the fact that we do not have one. I do not know whether it is good or bad news from his point of view—I hope he will be happy—but I am the relevant Minister, because I am the Minister for Small Business, Industry and Enterprise, and at the heart of that industrial brief are these great EIIs, these great manufacturing industries, which many would say form the absolute hard core of our economy, are certainly at the heart of our manufacturing sector and are incredibly important to our economy.
No one should be in any doubt as to the huge value that we place on the steel industry. I do not want to dwell too much on it, because I think we want to talk about other sectors, notably chemicals, but my right hon. Friend the Prime Minister has made it clear that steel is a vital industry. I obviously have repeated that. My right hon. Friend the Secretary of State has also repeated it. It is not just that it is a vital industry; in relation to steel production, not just the electric arc way of making steel but the blast furnaces, notably at Port Talbot and Scunthorpe, we have no doubt; we are determined to do everything that we can to secure their future.
Kevin Brennan
On a point of clarity, it is not a matter of being confused. The Minister may not realise this, because I do not think she has been a shadow Minister. How this works is that we receive a notification from the Government through the usual channels of who is speaking in a debate, and the information received from the Government said “To be confirmed”.
Anna Soubry
Well, I do not know. It does not really matter, does it? We were not in any doubt; we knew we were doing it. I knew I was doing it as soon as my hon. Friend the Member for Weaver Vale secured the debate and, as I said, I congratulate him on that.
As we know, our manufacturing industries face difficult times, and EIIs face those pressures perhaps more than most, given their considerable consumption of energy—something like 20% of all UK energy as heat. However, these sectors play an essential role in delivering the UK’s transition to a low-carbon economy, as well as contributing to economic growth and the rebalancing of the economy.
My hon. Friend the Member for Weaver Vale used a different set of measures from the ones that I have, which were kindly supplied by my officials, but here are some facts. EIIs employ about 2% of the UK’s workforce and contribute an annual £50 billion to the economy, approximately 4% of the UK’s gross value added. With Inovyn and Tata Chemicals in my hon. Friend’s constituency, he will know at first hand the significant contribution that these industries make to our national and local economies and the impact that is felt by the local community and industry supply chains when sites reduce their operations.
I want to say a little about the chemicals sector. The Chemical Industries Association has pointed to real confidence in growth across the UK’s chemicals sector. Since 2010, the UK chemicals industry has seen the strongest growth of the major EU chemical producers, with the exception of France, and has grown more than twice as fast as UK manufacturing as a whole. That is the trajectory we want to retain and grow, particularly given the sector’s strategic importance in underpinning UK manufacturing and supplying raw materials and inputs to a range of sectors. I am happy to meet that group, as I do regularly, and I was delighted at our previous meeting to hear of the progress that the sector is making. I am not saying for one moment that there is not more to be done, and of course we know the problems with the high cost of energy, but I was delighted to hear about some of the progress on exports, for example. I am pleased that the sector has an excellent working relationship with UK Trade & Investment—it has a new form now. I am keen to ensure that we continue that strong working relationship and continue looking into increasing our contribution to exports.
It is a challenging time. There is a shift in the emerging economies from importers of chemicals to being producers and exporters. China accounts for roughly a third of the current global chemicals demand, but is expected to generate more than half the global demand growth for chemicals for the rest of the decade. As such, the Chinese economy has slowed down. It is still growing, but not quite as fast as we thought. That will have a greater impact on chemicals than perhaps any other sector.
With these economic backdrops, it becomes even more vital to create the right environment for maintaining manufacturing capacity and attracting new investment. I went to Brussels a few weeks ago for a summit on energy-intensive industries, where various representatives of those industries spoke without fear or favour, and very frankly. Their asks were interesting. They do not ask for any subsidies or for anything particularly special. All they ask for is a fair playing field so that they can compete in a difficult global situation. They just want that level playing field and I completely agree with them, which is why I will now turn to energy costs.
I pay tribute to the excellent speech of my hon. Friend the Member for Warrington South, who is becoming a delightful thorn in my side. I make no complaint if he hunts me down to come to every debate we have on this matter. He can continue to ask his questions, to make his points and to probe. I agree with much, although not all, of what he says. He made a point about getting the balance right and I absolutely agree with him about that. We want our children to inherit a world that is in a better state than the world we inherited from our parents, and that includes being cleaner and greener.
We have to get the balance right in our country by reducing our carbon emissions and playing our part in all that, but not at the expense of these vital manufacturing industries. It is difficult. It is not all about green taxes, if I can use that expression. Such is our concern in the Department for Business, Innovation and Skills that only today I spoke to one of my officials about the high cost of electricity. We talked about why, as my hon. Friend the Member for Warrington South explained, it is higher in this country than in Germany and France. One of the reasons, as well as the reasons my hon. Friend mentioned, is the higher cost of transmission. We want and need to look at that, and we will work with our colleagues in the Department of Energy and Climate Change to ensure that we are doing the right thing by industries throughout the UK.
I pay tribute to my right hon. Friend the Secretary of State for Energy and Climate Change because, in her, we have somebody who can combine these twin drivers: ensuring that we play our part in reducing carbon emissions and keeping our planet cleaner and greener; and, at the same time, not doing so at the price of undermining and having an adverse impact on our excellent manufacturing sector. I wanted to put that on the record and make it clear.
We understand the concerns about the need to compensate our EIIs. Of course, we have now won the compensation that had been long argued for and sought from the European Union for those EIIs that are particularly high consumers of energy. We have achieved that and we have gone further. From April next year, it is our intention to move from a compensation model to an exemption model. Instead of taking money away from industry only to give some of it back, which I always thought was a rather bizarre way to go about things, we are now doing the right thing, which is not to put those burdens on industry in the first place.
The exemption model means that the industries will no longer have to pay the renewables obligation and the small-scale feed-in tariff. However—and I am going to say it because it is true—that does not include all those industries that have a very high consumption of energy. Other schemes are being looked at. There is more work to be done in the EU, and we will continue to do that. Hon. Members can be sure that, in this Minister, they will always have a champion for great manufacturing industries, particularly the EIIs.
I will continue to do all I can, notably over in the EU where we are making great progress. I am one of those who firmly believes that we will be stronger, safer and better off remaining within the EU. I think a wind of change is blowing through it and I am proud of my Prime Minister for leading that change. I am drifting off so I will come swiftly back to this debate because it is important.
I pay tribute to what we have. The hon. Member for Cardiff West (Kevin Brennan) says that we need to have an industrial strategy. It is all very well and good having bits of paper, strategies and all the rest of it, but what matters is what we are doing about it. We have the 2050 road maps that we debated earlier this week, in which we work with the industries to look at how they can improve the way that they go about getting and using their energy. We want to ensure that we do everything we can to help them to reduce their carbon emissions and that they do everything they can to keep their energy costs down. It is great work that includes: industrial carbon capture and storage; clustering and value chains collaboration; heat recovery; access to finance; and removing barriers to industry using renewable resources such as biomass and the biogenic materials in waste as energy and feedstock.
I thought that the hon. Member for Cardiff West made the most bizarre speech from a Member of Her Majesty’s Opposition—not giving us any clue about the Opposition’s policies on this and what they would do. Instead, he read out a series of questions, helpfully provided by the Manufacturers Organisation. That was quite peculiar.
Anna Soubry
No, not yet. Perhaps that perfectly explains and is an example of the exact point made by my hon. Friend the Member for Warrington South. The Labour party is now led by, almost, the Islington intellectual left elite, compared with the days when it was led by people from those great chunks of the industrial north. It is not fair to look around the Chamber and think that the Members present are the only ones interested in the debate. Many will read it in Hansard or watch it in their offices, as they cannot be here. However, the three people here who represent the Conservative party—well, they represent their constituents, who happen to be Conservatives—all come from the north of England. However, the hon. Member for Cardiff West is the only person on the Labour side. He is now going to intervene and, no doubt, say something very interesting.
Kevin Brennan
I am sorry that the Minister does not like my asking those questions but would she be so good as to answer them?
Anna Soubry
I did not say that that I did not like the questions. I just thought that it was rather perverse that Her Majesty’s Opposition could not make a speech telling us what they would do if they were in Government and what their policies are, and actually challenge us.
Anna Soubry
I will answer the questions. If I do not, the usual rules apply—I will write to hon. Members.
I will go through some of the points that have been raised. The EU will decide whether to give China market economy status, as I have said many times. I am aware of the arguments against it as much as the arguments in favour. I keep on saying this and I will say it again: the ability of the EU to impose tariffs on China is not precluded if it acquires market economy status. There is a very good argument that ensuring that China stops dumping things could be an important part of any negotiation in relation to MES. Russia enjoys MES, but it does not stop the EU imposing tariffs on it. The debate will continue in the EU about whether China should have that status.
My hon. Friend the Member for Warrington South suggested that we have a different trajectory to decarbonising from the rest of Europe. I am told that the UK’s trajectory is in line with the emissions reduction trajectory set by the EU and applied in other member states. That does not mean that I will not take that important point away and make further inquiries.
David Mowat
The Climate Change Act 2008 mandates a far steeper decline in emissions than any equivalent European legislation. I am sure of my ground on that point, so it would be good if the Minister chatted with her officials about that afterwards.
Anna Soubry
I absolutely will. I want to do so for my own benefit, as well as for my hon. Friend, who raises on important point. I certainly need to know about it, and we need to address it properly.
Returning to the points raised by my hon. Friend the Member for Weaver Vale, he is right to raise the question of shale and whether we will continue fracking, as is my hon. Friend the Member for Warrington South. Two licences have been issued for shale gas exploration in my constituency, and even if that exploration is successful, the next stage will not come until at least 2020, which is still a long time. The Labour party in my constituency is absolutely opposed to fracking, rather bizarrely because the Labour party has quite a good policy on fracking, which is that there is nothing inherently wrong with it. So long as fracking is done properly, going through the right processes and procedures, and is safe, it seems eminently sensible. We have to realise and understand what is going on in the real world, because I have no doubt that shale gas is an important source of energy that must not only be explored but exploited for all the undoubted benefits that it would bring.
We are delivering on the asks made in relation to the steel industry. As we know, it is not just about steel but about aluminium and all the metals, the processing of which uses a great deal of energy. We worked with the Metals Forum on a metals strategy, and we are considering how else we can help it to ensure that metals also have a sustainable future.
My hon. Friend the Member for Weaver Vale rightly spoke about the brick industry, which, perversely, faces challenges from increased home building. As we have heard, we continue to import bricks, which is pretty barmy. We are already doing a lot of work on improving supply and ensuring that we meet the need with British-made bricks, rather than having to rely on imports. That work will continue because, with a few exceptions, it is always better if we can buy British. The general picture on brick supply is one of continued readjustment. We are pleased to see the general increase in capacity, but I do not doubt that we can do more and that we will continue to do so.
I have not answered the questions of EEF, the Manufacturers Organisation, but I will write to the hon. Member for Cardiff West. In any event, I will write to EEF to answer its very good points. I hope that hon. Members will take from this debate that the Government understand the problem and are determined to get the right balance and do the right thing by our energy-intensive industries, wherever they are on the scale—not just the ones at the very top but the ones all the way through the scale—to ensure that we do not shift the burden from one part of EIIs to another. We have to do this fairly, and we have to do it right, but we really need to ensure that we have not just a continuing and regular supply of energy but cheaper energy in our country. If we start to do that, whether by ensuring that we do not overly burden people with green taxes or by getting the prices down in the ways suggested, we will create the level playing field for which this excellent part of the British economy asks. EIIs are hugely important, and I pay tribute to everyone who works in that sector. They are usually very highly skilled and absolutely devoted and dedicated, and they have a champion in me.
Graham Evans
I thank the feisty Minister with responsibility for energy-intensive industries. She is doing a great job, and I urge her to carry on with her good work. Locally, it is all about jobs. My hon. Friends the Members for Warrington South (David Mowat) and for Thirsk and Malton (Kevin Hollinrake) and I represent the north of England, but the situation is the same in south Wales, Scotland, the north-east and the other regions of the country. One reason why there are no Labour Members here is that it is Thursday afternoon, which is not a great time for such a debate. They are busy in their constituencies, but they sent their apologies and wished us well.
For me, it is about jobs—well paid, long-term and greener, cleaner jobs. As Members of this House, we have a duty to future generations, who should be able to work in such industries. It is about competitive advantage. We have spoken at length about fracking. I was determined not to mention it, but there is nothing new in it. I believe that fracking is safe, so long as it is done safely. As my hon. Friends mentioned, the industry is being transformed on the east coast of America, with good-quality, well paid jobs being created. I want that for the north of England, Weaver Vale, Wales, the north-east and Scotland. I want a slice of the action. It must be done properly and safely, but I am sure that we can all agree that we need competitive energy prices.
It is also about rebalancing the economy. When this Government came to power with the coalition in 2010, they mentioned rebalancing the economy away from London and the south-east, and away from the financial industries. My hon. Friend the Member for Warrington South asked whether the strategy and policy was to benefit the banking industry. We are in the business of ensuring that industry keeps providing good-quality jobs in the north of England.
We are currently the second largest economy in Europe. If we are to be the biggest—we could well be, because Germany has some structural issues—we need these foundation industries, the energy-intensive industries. The future is bright for Great Britain, but it is not guaranteed. We must work together to ensure that we provide good-quality, highly paid jobs in manufacturing and the energy-intensive industries that are so important to our constituencies: chemicals, steel, paper, glass, ceramics and others. I am in the business of the future and providing good-quality jobs for a future that is brighter, greener and more prosperous for our children and our children’s children.
Question put and agreed to.
Resolved,
That this House has considered energy intensive industries.