Finance (No. 3) Bill

Kerry McCarthy Excerpts

Tuesday 5th July 2011 Commons Chamber

Supplies of commodities to be used in producing electricity

[Kerry McCarthy (Bristol East) (Lab)]

I beg to move amendment 12, page 45, line 5, at end insert—

‘(2) The Schedule shall not come into force except as specified in subsection (3) below.

(3) The Chancellor of the Exchequer shall bring the Schedule into force by order within six months of the passing of this Act.

(4) A statutory instrument containing an order under subsection (3) shall be accompanied by a report which details—

(a) any effective subsidy provided to, or additional profits accruing to, operators of existing and new nuclear power stations as a result of the provisions in the Schedule;

(b) the immediate impact of the provisions in the Schedule on consumers and on fuel poverty;

(c) the immediate impact of the provisions in the Schedule on energy-using manufacturing industries and on employment in those industries;

(d) the expected effect of the provisions in the Schedule on investment in new renewable power generation and on investment in new nuclear power generation;

(e) the measures that the Chancellor intends to adopt in a future Finance Bill in order to recoup any effective subsidy to or additional profits accruing to the nuclear industry as a result of the Schedule; and

(f) how the monies raised by those measures will be used to mitigate the immediate impact of the Schedule on consumers and on manufacturing industries and to encourage green investment.’.

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss amendment 21, page 45, line 5, at end insert—

‘The Schedule shall come into force on a date specified by the Treasury by an order made by Statutory Instrument, which may not be made until an agreed packaged of mitigation measures for energy-intensive industries has been laid before the House of Commons and approved by a resolution of the House of Commons. The dates specified in paragraphs 8(3) and 9(5) of the Schedule shall be replaced by the date specified in the order under this section if it is later.’.

[Kerry McCarthy]

Let me start by confirming that Labour Members support the principle of a carbon floor price. We believe that carbon price support could be an excellent opportunity for the UK in providing a high and stable price for carbon. It could encourage investment in low-carbon power and green technologies, create a new generation of green high-skilled jobs which the UK sorely needs, enable the UK to make radical reductions in its carbon emissions, and contribute to meeting our carbon budgets. Unfortunately, however, we cannot support the way in which the Government have implemented this measure. It will hit those who can least afford it, damage the prospects of developing a UK green industry, and fail to reduce carbon emissions. We have to question whether we can call the carbon price support rate a green tax at all.

First, I shall deal with the impact on consumers. We know that people are struggling to pay their fuel bills. The OECD estimates that, on May’s figures, energy prices are nearly 10% higher than they were a year ago. Scottish Power recently announced electricity bill rises of 10% and gas bill rises of 10%, and other companies are expected to follow suit. The Government are not helping. Rising energy bills and fuel bills are coming on top of higher taxes, cuts to tax credits and cuts to public services. This year the Government have cut the winter fuel payment by £50 for people over 60 and £100 for people over 80, with no mention of that in the Budget statement or the pre-Budget report. That comes after their promise in last year’s Budget to protect key benefits, including winter fuel payments, for older people. They may claim that they inherited this from the previous Government, but we could and would have looked again at that decision in the light of rising energy prices, and so could they; that is the point of having an annual Budget statement.

These are the circumstances in which the Government have proposed a carbon floor price designed in such a way that it will cost working families by raising their energy bills. We understand that in the long term, if the policy is designed in a way that encourages a switch to low-carbon energy production, there should be no significant effect on consumer bills—that is why we support the principle of the carbon floor price—but right now, in the short term, there will be price rises for consumers at a time when they are already finding their fuel bills unmanageable. The Government have not included any counterbalancing measures to help working families to deal with those price rises. If the measure goes ahead in the form that the Government propose, between 30,000 and 60,000 more households will fall into fuel poverty in 2013, rising to between 50,000 and 90,000 more households by 2020. Those are the Government’s own estimates. Earlier this year, Consumer Focus said:

“In its current form there is a real risk that this policy may simply displace detriment.”

In other words, even if it did have a positive impact on green investment, that would be at the cost of more people falling into fuel poverty.

There have recently been somewhat hysterical reports about green taxes, alleging that they are the biggest factor in causing consumer bills to rise. That is not true. Ofgem figures from March show that environmental and social costs make up just 8% of the typical dual fuel consumer bill, and that has risen by just one percentage point since 2008. Climate change deniers cite figures suggesting that hidden green taxes add some £200 to energy bills, but those figures do not stack up. That does not mean, however, that now is the time to add to those costs. The Government have got it wrong. Ordinary working families were clearly the last thing on their mind when they designed this policy. That is why the amendment calls for them to look again at the effect that it will have on people in fuel poverty.

I turn to manufacturing, which several of my colleagues will wish to discuss too. Rising energy prices will affect not only consumers but firms that employ thousands of people across the country. In particular, they will hit energy-intensive industries such as steel, aluminium and chemicals. There is a danger, particularly in the absence of a credible Government plan for growth, that growth and jobs will be exported to other countries. According to a report by Thomson Reuters Carbon Point earlier this year, the carbon floor price will impose additional costs on businesses amounting to £9.3 billion. We understand that that effect might be mitigated in the long term if there is a switch to greener sources of energy, although that is not certain given the problems that I will come to in a moment. In the medium term, however, UK industry will be at a disadvantage, and jobs and growth will be put at risk. That is why the director general of the CBI and industry bodies such as the Chemical Industries Association have called for an exemption from these extra costs for high energy-using industries.

Concerns have been expressed by firms such as Tata Steel, which employs 1,000 people in Teesside. Its chief executive officer said:

“The introduction of the carbon floor price represents a potentially severe blow to the sustainability of UK steelmaking.”

Rio Tinto Alcan, an aluminium producer in the north-east, may close, shedding 600 jobs, and 1,800 jobs are at risk at INEOS ChlorVinyls in Runcorn. Some of the industries threatened by this measure are not only major employers but among the UK’s biggest export sectors. For example, the chemical industry, which accounts for 12% of total UK manufacturing, exports the bulk of its production, with a trade balance in 2008 of nearly £6 billion.

There is also the danger that we will harm our own prospects of building a UK green industry. This sector represents huge opportunities for the UK. For example, the wind energy sector provides over 10,000 jobs, and it expanded by 91% in just two years from 2007 to 2009. The solar energy industry in the UK provides over 10,000 jobs. There is a danger that we may not be able to sustain these sectors in the UK, despite any efforts from the Government, if the necessary materials are not available here. This would be yet another own goal for the “greenest Government ever” after their ill-thought-out change of policy earlier this year on feed-in tariffs, which has put thousands of green jobs at risk. The solar sector is a vital, nascent green industry in the UK. Until the Government’s announcement, the 10,000 jobs that it currently supports was expected to rise to 17,000 this year. The Government’s promised green investment bank was supposed to boost investment in new green industries, but it has been watered down: it will be a fund, and not a real bank, until 2015. That makes a mockery of the Government’s green credentials. Our amendment calls on the Government to look again at the carbon floor price and its effect on high energy-using industries. This is the wrong time to put jobs and green investment at risk without a plan to protect them.

I now move on to the impact on green investment. We accept that a well-designed carbon floor price can deliver reduced emissions and higher green investment, which is why we support the idea in principle. However, we doubt whether the Government’s proposal will deliver those goals. The UK is part of the EU emissions trading scheme, so any carbon permits that are not sold in the UK will simply be sold elsewhere in Europe. The Department of Energy and Climate Change commissioned Redpoint Energy, a consultancy, to examine the options for a carbon floor price. It said in a footnote to its report:

“Under the EU ETS, it would be expected that lower emissions from the GB electricity sector in a given year would be offset by higher emissions elsewhere within the trading scheme.”

A recent report by the Institute for Public Policy Research agreed that

“this policy would have no direct effect on emissions reaching the atmosphere.”

It went on to say that

“it is important to be clear that the UK would be meeting climate change targets in a way that has zero direct effect on emissions.”

The Treasury’s own consultation document admitted that for power stations covered by the ETS, the carbon price floor will not directly impact on the Government’s ability to meet their carbon budgets.

Consumers and companies facing higher energy bills because of this policy would be right to question whether this is a worthwhile use of their money. Will the Government’s policy encourage more investment in renewable power? The Energy and Climate Change Committee expressed doubt:

“when it comes to low-carbon investment, the effect of the Carbon Price Support will depend on the confidence of investors in the long-term reliability of the Carbon Price Support.”

[The Economic Secretary to the Treasury (Justine Greening)]

Perhaps I can just tell the hon. Lady that the Institution of Civil Engineers said that the policy will create a “more conducive environment” for investment. Does that allay her fears? If she has concerns about the structure of the policy, it would be helpful for Members to hear the Opposition’s alternatives.

[Kerry McCarthy]

As I will go on to explain, there are concerns about future stability, as we have seen with the North sea oil tax, which we discussed yesterday. Investors need stability to plan for the long term, particularly in solar and wind power, which need long-term investment. People need to know what to expect and what impact proposals will have.

As for what the Opposition are saying, I refer the Minister to our amendment, which calls for a review of three main points, which I am discussing in my speech. Those are the impact on fuel poverty, the impact on energy-intensive industries and the fact that this is, in effect, a subsidy for nuclear power, which I will discuss later. It is important for us to look at the consequences of this policy because, as with so many things, the Government have introduced it in haste and without thinking through the consequences. It is not until we look at the impact on these sectors that we will see what the ideal solution might be. It is premature of the hon. Lady to ask us to come up with an alternative before we have done that analysis and reached a consensus with the industry on what the impact will be. As I have said, we agree in principle with the carbon price support, but because of the way it is being implemented, it will not achieve any of the objectives that she presumably wants it to achieve.

[Justine Greening]

As we will no doubt debate later, we carried out an extensive impact assessment on this policy. Indeed, the hon. Lady has quoted a couple of figures from it. I reiterate what I said earlier. If she agrees in principle with the policy, which I very much welcome, it would be helpful to hear how she thinks the delivery of it ought to differ from what the Government are doing.

[Kerry McCarthy]

As I said, we are calling for a full-scale review. I am not convinced that the Government’s impact assessment examined in sufficient detail the impact on fuel bills, for example. As the Economic Secretary is intervening on me, it is obviously not the time for me to pose questions to her. When she speaks later, perhaps she can enlighten us as to what it was judged that the impact would be on consumers in meeting their fuel bills, on fuel poverty and on energy-intensive industries. What impact does she think that will have on jobs and growth in the areas where energy-intensive industries are based? Perhaps she could also respond to the questions that I will soon pose about whether it is wise to, in effect, create a subsidy for the nuclear industry when there are other competing priorities, on which some people would argue the money would be better spent.

--- Later in debate ---

[David Mowat]

I have listened carefully to the hon. Lady’s remarks on behalf of the Labour party. Can she make it clear for the House whether the Labour party supports a carbon floor? I thought that that was settled policy. If it does support a carbon floor, what is the particular aspect of the announcement that is causing such concern?

[Kerry McCarthy]

I am not sure where to start in responding to the hon. Gentleman. My opening line was that we support the idea of a carbon floor price in principle. Everything that I have said since has outlined why we have reservations about the way in which it is being implemented. I simply refer him to the speech that I am making.

I appreciate that there are difficulties in getting this policy implemented at an EU level. It would be easier if we could look at the EU emissions trading scheme in the round. Experts have said that measures on carbon pricing should first be considered at EU level, and that a UK-only solution is a second best option. Lord Turner, the Chair of the Committee on Climate Change, has said that, and it was echoed in the Institute for Public Policy Research report. The Government appear to have done nothing to explore the EU option. The coalition agreement says that the Government will

“make efforts to persuade the EU to move towards full auctioning of ETS permits.”

However, it does not mention any intention to talk to our EU partners about a carbon price floor. Perhaps that is unsurprising, given the Government’s record on dealing with the EU. For example, the Government’s MEPs tabled no proposals to reduce the EU budget, whereas Labour MEPs tabled amendments that could have cut more than €1 billion of waste from EU spending.

[Justine Greening]

Is the hon. Lady aware that one of the main reasons why the UK’s contribution to the EU budget is going up is that the former Labour Prime Minister, Tony Blair, gave away part of the rebate?

[Lyn Brown (West Ham) (Lab)]

Enough now.

[Kerry McCarthy]

The Whip is telling me that we do not have time to reply to that point. It is a bit rich of the Economic Secretary to say that, when she made great play of going to Europe and saying that we would not accept any rise in the EU budget—there was a lot of grandstanding and playing to the crowd on that issue—and then her party’s MEPs tabled no proposals at all to tackle the issue. That is far more relevant to what we are discussing than something that happened many years ago.

[Andrew Percy (Brigg and Goole) (Con)]

I am encouraged by what I think I am hearing about the European Union. My policy would be simply to leave it. Is it now the policy of the Labour party to cut the EU budget? If so, why did it not seek to negotiate a reduction in the EU budget when it was in power?

[Madam Deputy Speaker]

Order. Perhaps we can stick to this debate. If the hon. Gentleman wants to know the answer to his question he can discuss it privately with the hon. Lady outside the Chamber. We should return to the important issue of climate change.

[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.

[David Mowat]

Will the hon. Lady give way?

--- Later in debate ---

[Kerry McCarthy]

No, because I am just reaching the end of my speech. The hon. Gentleman will have an opportunity to intervene when other Members are speaking.

The hon. Members for Redcar (Ian Swales) and for Westmorland and Lonsdale (Tim Farron) have tabled amendment 21, which calls for mitigation measures for energy-intensive industries. I hope that they and other Liberal Democrat Members will feel able to support amendment 12. It has 11 signatories, not all from the Labour party, and like them we call for support for energy-intensive industries. In addition, we have called for help for consumers and support for green investment. Our amendment also calls for the nuclear subsidy to be recouped, as did the hon. Member for Cheltenham (Martin Horwood) this weekend, according to the Daily Mail.

The Government have confirmed that there will in fact be a windfall for the existing nuclear industry, despite the Liberal Democrats’ party conference decision last year. Fortunately, the coalition agreement allows Liberal Democrat Members to vote against that without its being seen as an issue of confidence in the Government. I hope that they will make use of that ability today.

The Government’s carbon floor price will not do what they said it would do. It is a missed opportunity for the country. We could have seen a new generation of green investment and jobs, but instead we see ordinary people being hit at the time when they can least afford it. We see UK manufacturing being hit when the Government say they want to promote growth, yet we will not see carbon emissions into the atmosphere reduced by a single tonne, and we might not see green investment. The Government have got the policy wrong, and our amendment asks them to go back and think again.

[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.