Finance (No. 3) Bill

Geraint Davies Excerpts

Tuesday 5th July 2011 Commons Chamber

[Kerry McCarthy]

I have touched on the fact that there needs to be greater Government engagement in Europe to try to deal with the matter at a pan-European level.

I turn to the nuclear subsidy. As I have said, the carbon price support rate will hurt families and industry in the immediate future, yet it seems likely to fail to reduce carbon emissions. We have to wonder why the Government decided to implement it. The obvious explanation is that they got it wrong, again. It would not be the only tax that they have bungled in this Finance Bill. I have already mentioned the difficulties over the fuel duty stabiliser and the North sea oil tax, which was—[Interruption.] Sorry, I have been thrown off slightly by a sedentary heckle from the Economic Secretary. As I was saying, the Government introduced a last-minute supplementary charge on North sea oil in response to growing public protest about prices at the petrol pump. We have subsequently seen how ill thought out that was, and it has led to the Government having to perform U-turns at a fairly rapid pace.

One explanation of why the Government want to introduce the carbon price support rate is the money that it will raise. Is it perhaps a revenue-raising measure in disguise? The 2011 Budget report reveals that it will raise £740 million in 2013-14, more than £1 billion in 2014-15 and £1.4 billion in 2015-16. If it fails to encourage faster green investment, as some predict, the tax could go on to raise much more as the carbon price approaches £70 a tonne. In fact, the Budget report states explicitly:

“The decisions the Government is taking to strengthen the tax system—including…the introduction of the carbon price floor announced at this Budget—will also help to support the long-term sustainability of the public finances.”

[Geraint Davies (Swansea West) (Lab/Co-op)]

Does my hon. Friend agree that the problem with having a unilateral carbon price in the UK is not just that it will make international investors such as Tata Steel near Swansea think of moving their investment to Europe, and therefore helping Europe rather than Britain? She may be interested to know that in Port Talbot, near Swansea, a specialist steel is being developed. When wrapped around buildings, it produces its own heat and reduces the carbon footprint. Does she agree that the Government’s measures are undermining global market-changing technology to reduce carbon footprints, as well as destroying jobs in Britain?

[Kerry McCarthy]

That is an important point. Although there is concern about the carbon emissions of energy-intensive industries, in cases such as my hon. Friend has outlined they are actively working on measures to reduce carbon emissions. It is important that we do not throw the baby out with the bathwater and prevent that type of green investment.

The carbon price support rate will actually provide an effective subsidy to the nuclear industry, as the Economic Secretary has confirmed in a written answer. In fact, it will benefit nuclear power twice as much as the renewables sector, with an average value of £50 million a year for nuclear between 2013 and 2030, compared with just £25 million a year for renewables.

We support building new nuclear power stations as part of the UK’s energy mix, but the problem is that the Government explicitly promised voters that they would not grant nuclear power stations a public subsidy. In fact, there is meant to be cross-party agreement that we are against nuclear subsidies. The Conservative party said in its manifesto that it intended

“clearing the way for new nuclear power stations—provided they receive no public subsidy”.

The coalition agreement stated that the Conservative party was

“committed to allowing the replacement of existing nuclear power stations…provided that they receive no public subsidy.”

The Prime Minister himself said in the House in March:

“What we should not be doing is having unfair subsidies.”—[Official Report, 23 March 2011; Vol. 525, c. 950.]

Then there are Liberal Democrat Members, who were elected on a manifesto that opposed nuclear power entirely. At their party conference last year, a resolution was passed stating that

“any changes in the carbon price”

should not

“result in windfall benefits to the operators of existing nuclear power stations”.

When we delve deeper, it turns out that this is not the only nuclear subsidy by stealth that the Government are trying to sneak past the House. When I say “subsidy by stealth”, I am of course borrowing a phrase from the hon. Member for South Suffolk (Mr Yeo), the Chair of the Select Committee on Energy and Climate Change. Writing about the Government’s wider package of electricity market reforms, he has warned that they

“must not impose a one-size-fits-all reform on all low-carbon generation in order to avoid singling out nuclear for support.”

He said that the Government’s proposed design for feed-in tariffs

“seems to be more about concealing the fact that it is providing financial support for nuclear power than it is about coming up with the best approach.”

Even if the Government do support public subsidy for new nuclear build, they need to explain why they want to subsidise existing nuclear stations—and, for that matter, existing renewable power stations. Calling the carbon price support rate a green tax surely implies that it is intended to provide an incentive for future green behaviour. However, the Economic Secretary said to the Public Bill Committee:

“We are clear that ensuring that a tax is structured to drive positive environmental behaviour is one thing; ensuring that that can happen on the ground, and that people can change their decisions of the future is another.”––[Official Report, Finance (No. 3) Public Bill Committee, 19 May 2011; c. 242.]

A public subsidy for existing power stations, whether renewable or nuclear, is not behaviour-changing.

We should remind ourselves exactly where the subsidy comes from. The Economic Secretary may argue that it is not a public subsidy per se, because it does not involve taxing and spending. In fact it has a much more direct impact on every electricity bill payer, whether they are working families or manufacturing firms, and it is still a public subsidy in every sense. The hon. Member for South Suffolk says that the Government

“needs to be upfront about its financial support for nuclear energy”,

and I agree with him. That is why we have tabled the amendment.

The Government are using money taken from people and from energy-intensive industries to subsidise nuclear power stations, which they explicitly promised voters they would not do. They are also using that money to subsidise existing power stations, which makes no sense. We have tabled the amendment to give them an opportunity to explain why they have done that. If they are still sticking to their policy that there should not be a subsidy, I want to know how they will put that right.

--- Later in debate ---

[Ian Swales (Redcar) (LD)]

I wish to speak to amendment 21, in my name and that of my hon. Friend the Member for Westmorland and Lonsdale (Tim Farron).

I, too, support the carbon price support mechanism and its objectives, but without mitigation measures its introduction will have the surely unintended consequence of seriously damaging energy-intensive industries through higher electricity prices. Cumulative electricity prices in the region of 20% will make production costs higher in the UK than in European and international competitors. Analysis shows that the profitability of UK-based energy-intensive businesses could fall by up to 150%, or disappear altogether. They are mostly international businesses, and the competition cannot believe their luck that the UK seems determined to make itself much less competitive.

[Geraint Davies]

I agree with that point. Is the hon. Gentleman aware that Airbus, whose wing production is based in north Wales and which commands 55% of the total global plane market, is producing its latest generation of planes with a carbon composite that requires 30% less fuel consumption? It is therefore contributing to lower carbon footprints. By discouraging it through this ridiculous pricing technique, we are inadvertently harming the planet rather than helping it, and harming jobs as well.

--- Later in debate ---

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to follow my north-east neighbour, the hon. Member for Redcar (Ian Swales), and if I may, I shall reiterate some of what he said.

I agree with both amendments, particularly amendment 12 tabled by my right hon. and hon. Friends. If this country was portrayed as a heat map, with particular emphasis on different components of industry, such as nuclear energy, energy-intensive industries and renewable energies, my constituency would burn the brightest. We on Teesside provide a large part of this country’s energy needs. I have a nuclear power station in my constituency, and just outside there is a gas turbine station and a combined heat and power facility. Petroplus, Europe’s biggest independent refiner and wholesaler of petroleum products, has significant oil and gas refining capabilities in my constituency.

Although we generate a lot of the country’s energy requirements, we use a lot of it too. As the hon. Member for Redcar said, we have significant energy-intensive industries—not just refining but petrochemicals, speciality and fine chemicals, plastics, biotechnology and pharmaceuticals. I also have a world-class steel pipe mill in Hartlepool supplying essential components in the supply chain for the oil, gas and chemical industries, although unfortunately the pipe mill has just laid off 90 people. Some 60% of the UK petrochemical industry is based on Teesside, as well as more than one third of our country’s pharmaceutical and chemical industry. The Tees valley has the largest concentration of petrochemical industry anywhere in western Europe, and we have the largest hydrogen network on the continent.

A single venture in Teesside, GrowHow UK, which makes nitrogen fertilizer in my area, uses 1% of the UK’s entire natural gas capacity. About 40,000 people are employed directly in the process industries on Teesside, with a further 250,000 employed indirectly through the supply chain. Energy-intensive industries generate one quarter of my region’s gross domestic product, with about £10 billion of sales. As the hon. Member for Redcar said, the importance of Teesside and these industries to the national economy, let alone the regional economy, cannot be overstated.

Like my hon. Friend the Member for Bristol East (Kerry McCarthy), who sits on the Front Bench, I agree with the principle of a carbon floor price. However, given the importance of energy-intensive industries to my area, I remain very concerned that the proposals in the Bill for carbon floor pricing represent a serious threat to UK competitiveness.

[Geraint Davies]

Does my hon. Friend agree that this carbon floor pricing will, first, run contrary to the strategy of shifting from reliance on banking to manufacturing and a broader base and, secondly, move the production of things such as steel, which is environmentally controlled and relatively clean, from Britain to somewhere such as south America, where the same amount of steel will be produced much less cleanly? The impact will be to harm the environment and the economy, which is ridiculous.

[Mr Wright]

I absolutely agree with my hon. Friend on both points. We are exporting not just jobs but carbon emissions to elsewhere in the world where there might not be the same high level of regulation on carbon emissions.

The point that I want to emphasise as much as possible is that my area is doing exactly what the Government want it to do—we are rebalancing the economy and have an emphasis on manufacturing and, in particular, export-based industries that can provide wealth and job creation. It seems that we are doing everything right according to the Government, but we are being penalised and not provided with a level playing field.

My hon. Friend the Member for Bristol East and the hon. Member for Redcar quoted the managing director and chief executive officer of Tata Steel’s European operations. I want to be as balanced as I can. He praised the Government’s enterprise zones and stated:

“It is good news that the Tees Valley is to be among the first of the government’s newly created Enterprise Zones, as Tata Steel will remain a major employer in that region”.

To expand on the quotes already given, however, I should add that he went on to state:

“The extension of the Climate Change Agreements and the return of the discount on the Climate Change Levy to 80% will come as modest but welcome relief to Britain’s hard-pressed energy-intensive industries. However, these benefits are likely to be dwarfed by the introduction of the Carbon Floor Price (CFP), which represents a potentially severe blow to the sustainability of UK steelmaking. European steelmakers already face the prospect of deteriorating international competitiveness because of the proposed unilateral imposition by the European Commission of very significantly higher emission costs under Phase 3 of the EU Emissions Trading System. The CFP proposal will impose additional unilateral emission costs specifically on the UK steel industry by seeking to artificially ensure that these costs cannot fall below government-set targets which no other European country will enforce. This is an exceptionally unhelpful and potentially damaging measure.”