Finance (No. 3) Bill

Debate between Michael Connarty and Sammy Wilson

Tuesday 26th April 2011 Commons Chamber

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

Despite what the hon. Member for Bristol West (Stephen Williams) has just claimed about the Bill’s great achievements, I am afraid that the Liberal Democrats will be remembered for only one thing—the fact that they all, including their leader, pledged not to raise tuition fees. That is never going to go away, and everything else that they say will be seen in the light of that betrayal of the future of our young people in this country.

I was pleased to hear the thoughtful contribution from my right hon. Friend the Member for Croydon North (Malcolm Wicks) on the proposals on pensions, and particularly on pension ages. If we look back at the history of the actuarial analysis that was used to set the pension age at 65, we see that it was set at that age because most working-class people—there were many more people in heavy industry then—died before they reached the age of 65 years and six months. The calculation was made to minimise the amount that would have to be paid to the working class for their pension contributions. The change that is now being introduced adheres to that same principle. It does not involve earned rights through contributions. Rather, as my right hon. Friend said, it is seen as an imposition if someone without an adequate income lives too long, and has to rely on the state for support.

I am going to disappoint my right hon. Friend now, because I am going to return to the subject of the oil and gas industry. The contribution by my hon. Friend the Member for Aberdeen North (Mr Doran) was important but, like that of the hon. Member for Dundee East (Stewart Hosie), it related to the upstream industry—the oil and gas exploration and production industry. I shall quote from the June report of the House of Commons Select Committee on Energy and Climate Change, which the Government do not seem to have read. It says:

“The oil and gas industry operating on the UK continental shelf currently faces a quadruple whammy of high costs, low prices, lack of affordable credit and a global recession. Unless the fiscal and regulatory regime is well designed and highly attractive then the likelihood is that the UK may not recover anything like as much of its reserve as would be desirable.”

The Committee did not realise that there was another spectre to add to the quadruple whammy—a predatory Chancellor who did not even consult the industry when he brought in a £2 billion rise in the tax burden. This is not so much about the level of the rise as the method of its introduction. Changing a tax regime overnight without consultation creates uncertainty, which increases risk. According to the economists with whom I trained when I was studying, when the net present value calculations are made when looking at board bids for investment, such activity can reduce the investment’s attraction. We heard that again and again from the Members who spoke about the upstream industry.

I have been pursuing the so-called responsible Department with questions about the downstream industry—the UK oil refining industry. I tabled an early-day motion on 29 March drawing attention to the fact that two oil refineries were up for sale. They have since been sold to overseas investors. I said at the time that 150,000 jobs were involved. Those jobs are now genuinely under threat.

We have looked at the opportunities as well as the warnings, however. One opportunity involves the fact that there are massive deficits in low-sulphur, high-quality diesel and in aeronautic fuel in the EU at the moment. With the right incentives, it would be attractive for someone to invest in those. The Budget proposals that the Government are putting forward in the Bill should therefore provide those incentives.

It is interesting to note that an opportunity was spotted by Mr Ifty Nasir, who owns Essar, an Indian oil company, which bought a refinery at Stanlow. He said on 11 April 2011 that he intends to expand Stanlow’s shipping terminal in the Mersey to provide a UK entry point for diesel and petrol produced at the Vadinar refinery in India—one of the biggest refineries in Asia, which is in the midst of a £1.7 billion expansion that will allow it produce euro high-quality, low-sulphur diesel. That is the very opportunity that should exist for our refineries, for our companies and for British workers.

I wrote about this to the Minister of State, Department of Energy and Climate Change, the hon. Member for Wealden (Charles Hendry). I asked what future support for our refineries in the UK would be forthcoming. In his reply of 5 April, he said:

“We work closely with the downstream oil industry and its representatives to understand the impact of policy on the sector and to ensure this understanding is shared across a range of Government Departments.”—[Official Report, 5 April 2011; Vol. 536, c. 886W.]

We had an hour and a half’s debate this morning in Westminster Hall about oil refining. I come here tonight to ask Ministers about the Treasury’s understanding of this issue and what its response has been, as I can find no indication that the Chancellor is joined up to the real world in any way in respect of his Budget proposals that will affect the UK refining industry.

Let us consider the background to oil refining. When the climate change levy and the EU emissions trading scheme were brought in, they were to have an impact on manufacturing, but were also to be tax-neutral. The scheme was about redistributing energy-reduction incentives in other parts of the economy, and it is about to become the European trading system mark 3. It puts £15 million a year on to the cost of refining oil in Grangemouth, a refinery in my constituency, alone. That is a high price to pay, but the industry accepted that environmental standards meant accepting it.

What we have effectively is a 15% disadvantage in EU refining, of which we are part, in comparison with the rest of the world, including India. If we bring in the new carbon tax, which the hon. Member for Bristol West seemed to be lauding, it will add another 10% disadvantage on top of that 15% one—and for UK refining alone. We will be disadvantaged in Europe by 10%, and in the rest of the world by 25%, in terms of the environmental taxes we pay. The cumulative cost to UK manufacturing business in general—we should remember that the Government said that they were going to “rebalance” the economy with their taxes and incentives—will be £9.3 billion. That price will not be faced by other parts of Europe or other parts of the world.

I want to know from Treasury Ministers what thought went into this policy. What extrapolation did they make? What cost-analysis or impact-analysis did they do when they thought up this scheme? The scheme does not attract me, when 1,350 jobs are at stake in the refinery in my constituency. Beyond that, another 4,000 or 5,000 jobs in Scotland are dependent on that downstream work. About 150,000 people working in the refinery industry can see someone coming over from India to import a product that is refined in India where the pollution standards are much lower than here, yet the Indian owner does not have to pay either the emissions trading scheme costs or the carbon floor price. I want an explanation of why that tax is in this Budget.

Let me illustrate what happened on the day of the Budget because of the announcement that a carbon price will be introduced in 2013. A forward pricing exercise run by Heren shows what happened to electricity prices on that day. The electricity price for 2013 went up by £2.20 per megawatt-hour because of the fear and risk that had to be factored in. We spoke of the same thing earlier in connection with the impact of the Government’s decision to plunder the profits of the offshore industry. The price has now risen by another £3 to £56.50. That 5% increase will affect all industries that are heavy electricity users. The oil refining industry cannot pass it on, because its margins are so small. The Government said that they would rebalance the position in favour of the manufacturing base of our economy, but instead they have laid that burden on it.

The second tax that I wish to discuss is the carbon reduction commitment, which was designed by the Labour Government as a tax on office spaces and other entities that could not be reached by the emissions trading scheme. It has since been simplified, and we understand that it will also apply to the manufacturing industry and to United Kingdom refining. The UK Petroleum Industry Association has described it as no more than another general tax. Will the Treasury exempt manufacturing industries and the UK refining industry from that tax? If not, it will impose another burden on the UK’s manufacturing capability.

[Sammy Wilson]

Not only has the tax been extended to a wider range of bodies, but the Treasury has removed an incentive for firms to reduce energy consumption. Some of the money that they had paid into the scheme used to be returned to them, but that will no longer be the case.

[Michael Connarty]

The hon. Gentleman has hit the nail on the head. That incentive has gone. Ports such as Grangemouth, in my constituency, cannot pass the tax on to those who rent or are sublet property. It will not make people who rent property more energy-conscious, although it was originally designed by the Labour Government—who employed an excellent methodology involving a great deal of consultation with the industry—as an incentive for the reduction of energy use.

The Department for Business, Innovation and Skills is probably partly responsible for matters involving the oil refining industry, although it seems to be burying its head in the sand and kicking that responsibility over to the Department of Energy and Climate Change. The two Departments are supposedly engaged in a study of the cumulative impact of climate change and energy policies. However, the Treasury must be involved as well, and it must take responsibility for the damage that it will do if it does not moderate its carbon taxes. Specifically, anyone who pays the costs of the European emissions trading scheme should be exempt from them. It has been calculated that the carbon price in the UK is likely to reach €54 per tonne, while the price on the European mainland will be only €36 per tonne. We are therefore at a disadvantage in relation to Europe, let alone the world.

There is a further tax that the Treasury consistently hang on to. Those who import a fuel oil must pay tax on what they land at the depot or terminal. If, for example, Grangemouth refinery supplies the terminal in the north of Scotland by tanker, it will pay tax on the amount of product that it puts into the tanker. However, an evaporation factor places an additional burden on every tanker load, so no one with any sense will convey fuel from a UK refinery to any UK destination. INEOS in Grangemouth prefers to import it from Lavera in France, because it pays less tax on the same tanker load, because of evaporation. Regardless of which party is in Government the Treasury has retained that tax, but it is time to reconsider. If we want products to be made in this country and taxed in this country, we must have a tax system that gives incentives to industry rather than punishing it.