The Exchequer Secretary to the Treasury (Priti Patel)
I welcome today’s debate and congratulate the hon. Members for Stockton North (Alex Cunningham) and for Redcar (Ian Swales) on securing it, not least because it puts me through my paces in understanding the remit, this whole field and carbon taxes. It has been an insightful debate. The Government’s position has been discussed by a number of hon. Members, but we are clear in recognising the significant role that energy-intensive industries play in the UK economy. As my right hon. Friend the Chancellor said back at Budget 2011, we are committed to ensuring that manufacturing is able to remain competitive during the shift to a low-carbon economy and have pledged to do everything we can to help manufacturers play a valuable role.
We also recognise the difficulties that EIIs have faced as a result of high energy costs, and various cases and accounts of challenges that companies have faced have been cited in today’s debate. That is why we introduced a package of reforms at Budget 2014 radically to reduce the costs of energy policy for business, particularly for manufacturing, while improving security of supply—all right hon. and hon. Members would emphasise that we must do that—and maintaining the Government’s ambition for renewable generation deployment. That package will benefit every household, business and region in the country, saving a total of up to £7 billion by 2018-19. Businesses alone will save a total of £6 billion and the package will particularly benefit the most energy-intensive manufacturers, about 80% of which are based in the north of England, Scotland and Wales, as we have heard. The package will improve incentives for companies to return their manufacturing to the UK and help existing firms to compete in the global race. I do not want us to underestimate that term: we are about competition, we are open for business, and the Chancellor has consistently made the case that this is about British jobs and keeping the United Kingdom a competitive place for manufacturing in EIIs.
Manufacturing fell from being 19% of the total economy in 1997 to 10% in 2010, as my hon. Friend the Member for Warrington South (David Mowat) mentioned, but it has grown strongly in the latest quarter, at 3.3% compared with a year ago. Currently, energy-intensive sectors are responsible for 35% of UK manufactured goods exports. Obviously, the Government want to make the recovery of manufacturing last for the long term and be sustainable, and to have growth that is balanced across the entire UK. I think we would all agree that lowering energy costs is therefore vital for the international competitiveness of UK manufacturing.
If we had not introduced any measures at Budget 2014, UK firms would have been paying just above the average price for electricity among the 29 members of the International Energy Agency, with the proportion of this price attributable to policy costs rising over time, reaching about one third by 2020. That is why the Government announced the series of measures at Budget 2014 radically to reduce the costs of energy policy for business, particularly in EIIs. The measures included capping the carbon price support rate at £18 per tonne of carbon from 2016 to the end of the decade; extending EIIs’ compensation for the cost of the carbon price floor and the emissions trading scheme until 2019-20—I will address the points raised about compensation shortly; introducing compensation for EIIs for the costs of the renewables obligation and feed-in tariffs from 2016 to 2020, which is worth almost £1 billion, in order to protect these energy-intensive manufacturers from the rising costs of the renewables obligation and the feed-in tariffs; introducing, from 2015, an exemption to the carbon price floor for fuels used to produce good-quality electricity by combined heat and power plants for on-site purposes; and introducing new measures to make energy markets more competitive for very small businesses and to help them use smart meters to cut their bills.
I met a range of small businesses this morning. Although we are talking about large EIIs in this debate, these things also have an impact on small businesses, and the Government are very committed to listening to their concerns and addressing the issues they face. I am pleased to say that all businesses will see their electricity bills reduce as a result of this package, provided it receives the necessary EU state aid approval, which was also a subject raised in today’s debate. There will be a total reduction for business of up to £6 billion by 2018-19. The companies that use electricity intensively will see radical cost savings, as, when previous announcements are taken into account, they are now compensated for all Government policy designed to support low carbon and renewable investment up until 2019-20.
A typical energy-intensive business receiving the compensation measures in the package will save about £19 million by 2018-19. Such businesses include Lotte Chemical UK Ltd in the constituency of the hon. Member for Redcar, and GrowHow in the constituency of the hon. Member for Stockton North. Other manufacturers will also see a reduction in their bills through the capping of the carbon price support, which it is estimated will save a typical heavy industrial firm about £800,000 and a typical mid-sized manufacturer £50,000 in 2018-19 alone. That will increase the competitiveness of the UK’s energy intensive industries, which is important as this is all about supporting those industries to be more competitive, particularly in the global race. All businesses have recognised that this is about international competition and our place in the world. The Confederation of British Industry stated that our 2014 Budget package will
“put the wind in the sails of business investments, especially for manufacturers.”
The chief executive of the Engineering Employers Federation said that the Government clearly recognise the need to make UK competitiveness a priority. It is fair to say that the Government are doing their utmost to ensure that the UK is a place in which to do business. We have always said that to achieve a resilient recovery, the UK must back manufacturing.
The chief executive of Tata Steel’s European operations, which has a plant in the constituency of the hon. Member for Redcar, said:
“The measures announced in the Budget are extremely welcome. The Government has listened to the concerns of the foundation industries by introducing a limit on the policy costs they face. These measures are a clear and meaningful contribution to forging a more competitive and sustainable future for UK steelmaking sites, which employ 18,000 people directly and several times that number indirectly.”
The package of measures proves that the Government are determined to see manufacturing remain at the heart of the UK economy and competitive on the international stage.
On carbon pricing, over the next decade we need to attract investment worth more than £100 billion to replace and upgrade our energy infrastructure and to diversify the energy mix. The investment will help to ensure that the UK meets our long-term legally binding greenhouse gas emissions reducing targets and, importantly, to safeguard the country’s long-term energy security, on which we have only just touched in this debate. Establishing a minimum carbon price sends a credible signal to help drive that level of long-term investment in low-carbon electricity generation—a point that was made by the hon. Member for Newcastle upon Tyne Central (Chi Onwurah). But diversification is not concerned with renewable energy alone. The Government are committed to developing a wide range of energy sources to ensure that energy prices remain competitive in the future, and of course nuclear energy and shale gas are central to that.
We welcome the announcement made by INEOS last month that it plans to enter the UK shale gas market, because we are convinced of the benefits that shale gas can bring to industrial production.
Alex Cunningham
The Minister mentioned shale gas and other issues, but in the north-east of England, coal gasification could be a huge saver both for our region and the country. I hope that she will encourage the development of that industry.
Priti Patel
The hon. Gentleman is right that this is not about one or the other or even a trade-off, but about all players in the energy mix. We are talking about long-term energy, security of supply and competitiveness in the long-term energy market, and that requires diversity.
We are also continuing to look into the issues faced by energy-intensive industries. Today, Members have touched on the issues of carbon-reducing options and the competitive impacts. My hon. Friend the Member for Rugby (Mark Pawsey), who talked about CEMEX and the cement plant, touched on the fact that there are a range of sectors that are not on the European Commission’s list when it comes to exemptions and approval of indirect costs. Let me reassure Members that this is about not just an occasional conversation with the European Commission but about being absolutely firm and clear with it and pressing it on this issue. The Government, too, will look at the competitive impacts of their carbon reduction options through a series of road maps. I am talking here about the involvement not just of the Treasury but of the Department of Energy and Climate Change and the Department for Business, Innovation and Skills. This will help focus policy making more on the opportunities and barriers that energy intensive industries face, and allow Government and industry to agree on actions to deliver cost-effective decarbonisation while safeguarding competitiveness.
Over in Brussels, we will press the European Commission to review the list of energy-intensive sectors that are eligible for compensation, with the aim of extending it, given the higher energy costs they receive as a result of the EU emissions trading scheme and carbon price floor. This is an ongoing matter. It is fair to say that we are well placed when it comes to pressing the European Commission and to making our case.
We will press the Commission to provide a more targeted list of sectors most at risk from carbon leakage as a result of the EU emissions trading scheme, for its next phase which begins in 2021, so that the free allowances that these sectors receive can be best focused on those energy-intensive industries that need them the most. The Government are well aware of the cost pressures on the EIIs, and we have developed a suite of measures to reduce those costs, as well as the measures announced in Budget 2014.
Let me address the points that the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) made about compensation. In Budget 2011, we made it clear that £200 million was available, and much that has been spent thus far is within the eligibility of the constraints of the state aid clearance process, and that is all within the framework of the process that has been set out. The hon. Lady rightly said that the Commission published its guidance on eligibility schemes in April this year. That has not been lost on us. We are not thinking, “Well, that’s that. It’s been and gone.” We are absolutely on to this matter. I will if I may come back to the hon. Lady on this with some specifics. It is absolutely not the case that we are not looking at this any more. We want to do everything possible to ensure that that money is going where it is needed and supporting the EIIs that need that compensation. Of course, this comes back to the statement that was made by the Chancellor in 2011. We announced measures in the Budget this year, but we know that more needs to be done, so we will follow this matter through.
We are continuing work in this area securing investment in low carbon technologies; supporting the development of a wider range of alternative energy sources; and working with individual industries as they seek to improve their energy efficiency. It makes business sense for those industries to improve energy efficiency, and they are all going through that process. We welcome this opportunity to set out the wide range of work this Government are doing to support energy-intensive industries as the UK transitions to a low carbon economy.