Budget Statement

Baroness Worthington Excerpts

Thursday 27th March 2014 Lords Chamber

[Baroness Worthington (Lab)]

My Lords, it is a pleasure to speak in this debate, which is my third successive Budget debate, and I am sure it will come as no surprise if I focus much of my attention on the parts of the Budget that relate to energy and the environment. However, if noble Lords will bear with me I will begin with a more general observation.

I watched the Chancellor of the Exchequer last week and have listened to the Minister this afternoon, and I congratulate them both on eloquently presenting a very seductive argument: “We, the Government, have been making the hard decisions to get us to live within our means and so reduce our deficit, grow the economy and give everyone a higher standard of living as a result”. How appealing—what Government would not wish to try to achieve those aims? The problem, as the noble Lords, Lord Hollick and Lord Myners, have eloquently pointed out, is that it is easy to say one thing but then do something else. This Government have shown that they have not learnt from past mistakes and are instead relying on sleight of hand to boost the economy, creating another unsustainable housing bubble, increasing government debt and shifting borrowing on to the private sector, where it will necessarily cost more. The Government have also avoided making the tough decisions needed to make our economy resilient for the future. That is nowhere more evident than in the case of energy policy.

The truth is that most people’s judgment of how well they are faring is not measured by one simplistic GDP growth metric. Their sense of security and optimism for the future is determined by a complex mixture of factors, including the extent to which social capital and cohesion are being maintained and how much they believe that the Government are standing up for their interests, now and in the future. That our economy is finally clawing its way back to good health despite, rather than because of, this Government’s actions is good news. However, there is a huge way to go before that will be felt by everyone, up and down the country, and an even longer way to go before the Government can claim to be tackling the really big challenges facing this country.

A good example of the Government’s, and in particular the Treasury’s, failure to accept and tackle big challenges is provided by the response in the Budget to the dreadful floods that we experienced this winter. By necessity, this Budget included a £140 million fund for repairs to flood defences and a further £200 million for pothole repairs—a problem exacerbated by the extreme weather that we experienced. We can expect these sorts of cost to increase over time as the impacts of climate change become more apparent.

However, until recently, spending under this Government on flood defences was in decline. At the time of the floods, the Prime Minister acknowledged that climate change was one of the most significant threats we face. However, in this Budget, in which a whole section is devoted to risk, there is scarcely one mention of climate change and none at all of the singularly high exposure of the UK Stock Exchange to international coal assets that risk becoming stranded assets, significantly devalued as the world collectively starts to take action to reduce its emissions of greenhouse gases. Taken overall, this appears to be one of the least green Budgets produced in recent times, from the supposedly greenest Government ever. Is it perhaps the case that the Prime Minister and the Chancellor do not see eye to eye on this issue? If this is so—and I believe it is—is it therefore any surprise that investors have no idea what they should believe or trust in when making their investment decisions?

As graciously acknowledged by the Minister, 12 months ago the focus of my speech was on the fact that the Chancellor had failed to mention a new inflationary tax on electricity, which began in April last year and was set to double year-on-year, raising the Treasury around £4 billion from electricity bill payers over just three years. This year, this almost universally disliked policy did warrant a mention, only for it to be announced that, less than a year after it started, the policy has been changed and the tax frozen. The curious thing is that the Chancellor now appears to be seeking credit for reducing the impact of a tax that he introduced which distorts competition against our European neighbours and, even in its frozen state, will still add around £9 per megawatt hour, taking an estimated £1.5 billion per annum off bill payers for no obvious purpose other than revenue raising. Attempts have been made to justify this tax on the basis that it will encourage investment in low-carbon infrastructure. The fact that it is has already been so drastically altered, and that this was always likely to be the case given how poorly thought through it was, simply serves to confirm that no investor worth his salt would put any store by it at all.

Given the pressure the Government were under before the Autumn Statement to reduce electricity bills, I am also curious to know why the announced change was not trailed at that time. I can only conclude that it was because the Government’s Energy Bill was still being debated in this House. The one purpose it could be argued that this tax—known as the carbon price floor—was performing was to help return gas-fired power stations to a state of profitability relative to coal stations. The plight of gas and the roll back to old unabated coal was repeatedly raised as a concern in this House. With the carbon price support now frozen, the roll back to coal is much more likely. A cynic might argue that, because of this tax, the Treasury now has an incentive to protect the rich revenues being generated from our ageing and inefficient coal stations. It is now in the Treasury’s interests to maintain them for as long as possible in a state of suspended animation. Perhaps this explains the expunging of any real mention of climate change from this Budget.

The problem is that, in addition to being huge contributors to climate change, unabated coal stations also contribute massively to poor air quality and diminished human health and so are rightly subjected to regulations requiring that they be cleaned up. Meeting these regulations would require investment over the next few years that will only ever patch up these stations for another decade or so at the expense of more long-sighted investment in low-carbon alternatives, which will last for many decades. This kind of short-term investment will deteriorate our productivity by decreasing the efficiency of our electricity fleet still further—more inputs of coal but fewer outputs of kilowatt hours. How will this help address our productivity challenge? Thanks to the frozen carbon price support, the investment will not even ensure prices are lower, since the big six can happily pass the costs of this tax on to the consumer for as long as they remain vertically integrated. There we have it: the Government’s ideology in a nutshell—failing to make the difficult decisions, failing to stand up to vested interests and favouring a short-term quick fix over doing the right thing in the longer term.

If this stop-start policy on energy were affecting only gas and coal investments that would be bad enough. However, the change of heart will also have an impact on investment in renewables and nuclear. The Energy Act, which we worked so hard to try to improve last year—to no avail—introduces new support mechanisms for these technologies but the level of that support is capped by the Treasury through the levy control framework. The level of that cap was set on the assumption that this electricity tax would proceed as announced last Budget. This is no longer the case. Therefore, the cap is very likely to be insufficient to support the level of investment needed to meet our targets. Can the Minister reassure the House that when it states in the Budget that,

“the buying power of the Levy Control Framework will be unaffected by other Budget decisions”,

this means the basis on which the framework was calculated will be revised? If this is true, when might we hear from the Treasury what that new level will be? If it is unchanged, I fear we will have wasted a great many hours of parliamentary time last year labouring under false pretences. An unchanged cap on the amount of support for energy market reforms will inevitably lead to the cannibalising of one low-carbon technology by the other, with existing coal stations carrying on unaffected, paying into the Treasury coffers but damaging our resource efficiency, our climate and our health.

There are signs that this is already happening, with plans to convert Eggborough, a coal station, into biomass having been derailed and a dedicated biomass plant being dropped. Despite the welcome announcement from Siemens this week that it will build a manufacturing plant for offshore wind in Britain, even offshore wind farms are being discarded. Meanwhile the great white hope of Hinkley Point nuclear power station—a project the Minister is well acquainted with—has run into state aid problems, potentially causing the construction timeline to slip even before it has begun. The most depressing aspect of all of this is that had the Treasury and DECC listened to the debate in this House and accepted more amendments, including the one that was won here to introduce a more cost-effective policy to constrain unabated coal and boost investment in all alternatives, we would not be in this predicament.

Rather than showing that this Government are up to the task of tackling the long-term challenges facing this country, this is a Budget based on short-term thinking and a misreading of where our future prosperity lies. Rather than learning from the past, they appear to trying to reproduce it by fuelling another dangerous housing boom, pursuing the chimera of growth based on oil and gas—that is clearly no longer cheap or easy to extract—and failing to understand that we are stronger as a country when we acknowledge and face up to the real global challenges ahead of us that we cannot escape. I hope that before this Government leave office, which, given their short-term thinking, they seem to have accepted is likely to be very soon, we will see a Budget that is genuinely sustainable and wholeheartedly embraces the benefits brought by the low-carbon industrial revolution that we are now embarked on, as we lead the world in tackling climate change.