Finance Bill

Debate between Alison McGovern and Nigel Adams

Tuesday 8th September 2015 Commons Chamber

[Nigel Adams]

I agree with the right hon. Lady. Companies need certainty and time to plan, and 28 days’ notice is clearly ludicrous. A two-year notice period would allow companies to honour contracts they have signed, allow the industry to adapt and, above all, it would be fair.

I know that this is a topic of considerable interest and that other hon. Members wish to make their views known, so I will conclude my remarks by returning to my original point: nothing in life is guaranteed, including the availability of energy in our homes and businesses. I believe that we are entering a very precarious time for the UK, when our capacity margins are getting ever tighter and when plant closures continue to leave us reliant on gas imported from the middle east. Against that backdrop, we are in a global marketplace where investors are taking a sober, pragmatic approach to energy projects, and not just in the UK but elsewhere. We should be giving them greater certainty that the UK is a reliable environment to invest their money in, because that money is needed to deliver the energy projects that will power this nation in future. My concern is that the proposed revision to the climate change levy will do exactly the opposite. That is why, with great regret, I shall not be supporting the Government on this issue.

[Alison McGovern (Wirral South) (Lab)]

It is a pleasure to serve under your chairship, Mr Howarth.

I rise to speak to Opposition new clause 2 relating to the Government’s changes to the climate change levy in clause 45, which have already been outlined by hon. Members. The climate change levy is a carbon tax on the non-domestic use of energy. Clause 45 is concerned with the removal of the exemption currently available to electricity generated from renewable sources in the form of levy exemption certificates. For some years now, these certificates have ensured that electricity generated from clean sources has not been liable to what is, or was, essentially a tax on carbon emitted from the generation of non-domestic energy supplies. In removing the certificates, the clause reverses that principle, leaving us in the utterly perverse situation where renewables generators will be taxed for their contribution to climate change, regardless of the fact that they make little or no such contribution. Several Members have mentioned the apple juice analogy, so I will hold back from repeating it, but it goes without saying that it is an excellent one.

The clause is just one aspect of this Government’s new approach to energy and climate change, which entails abandoning the most cost-effective forms of renewables, reviewing environmental taxes, and, apparently, abandoning their commitment to tackling climate change. That approach risks undermining an area of the economy that has some of the most promising prospects for the future. That sector offers more productive, higher-paid, higher-skilled jobs, particularly in the northern regions and in Scotland; and one would think that it was central to the Chancellor’s so-called productivity plan and his alleged northern powerhouse.

New clause 2 would therefore require the Government to set out the cumulative impact of the removal of the exemption on existing renewables generators and projects currently in the pipeline, where almost all the projects and the banking arrangements or investment decisions underpinning them will have been based on the current fiscal and subsidy framework; on investor confidence in the UK’s green energy sector, which is clearly vital to the future of the green economy and the high-skilled, more productive jobs that will flow from it; and on the UK’s ability to meet its climate change obligations, in which renewable energy has a vital role to play and may make up the shortcomings in other sectors—something that Ministers do not recognise at the moment.

Clause 45 retrospectively removes the exemption from the climate change levy—a tax levied on all non-domestic energy use—for electricity generated from renewables from 1 August 2015. The climate change levy was introduced in 2001. Its aim was to help the UK to meet domestic targets for cutting greenhouse gas emissions. It has always been charged as a flat rate of energy consumed for non-domestic use. However, energy generated from renewable sources has always been exempt from the levy in the form of the exemption certificates that are awarded to renewables generators and, in turn, sold to electricity suppliers for less than the cost of the levy. This regime has helped to make clean energy more attractive and provided greater financial support to renewables projects for their lifetimes.

The Government have set out two justifications for the removal of the levy exemption from renewables: first, that it seeks to correct a so-called imbalance in the tax system whereby renewables generators based overseas benefit from the levy exemption when, according to the Government, they already receive state subsidies in their origin countries and are therefore unfairly benefiting from British taxpayers’ money; and secondly, that it provides so-called better value for money for UK taxpayers—or, to put it another way, raises a considerable amount of revenue to help the Chancellor balance the books. According to the tax information impact note accompanying this measure, the renewables exemption, as it stood, would cost nearly £4 billion over the course of this Parliament, one third of which would go to overseas generators. HMRC claims that there is evidence to suggest that some of these overseas generators receive support in their own countries, although it does not provide any specific evidence. Perhaps the Minister might like to comment further. Regardless of that, the fact is that what was essentially a carbon tax is now becoming simply an energy tax. As Friends of the Earth has asked,

“When is a carbon tax not a carbon tax? When it is a tax on zero-carbon things.”

It is quite straightforward really.

These changes to the climate change levy come on the back of a raft of announcements since the general election, most notably from the new Energy and Climate Change Secretary, which reflect the Government’s apparent U-turn on tackling climate change. Since 7 May we have heard that subsidies for large onshore wind projects are to be axed, while other subsidies for onshore wind and solar photovoltaics are set to end a year earlier than previously announced. The previous coalition Government’s commitment to increase the proportion of tax take from environmental taxes is to be abandoned, while all environmental taxes are to be reviewed. The coalition Government’s flagship green deal scheme to provide energy efficiency standards in homes—which, sadly, proved to be a complete flop—will be not reformed but scrapped. The link between a vehicle’s tax liability and its CO₂ emissions is to be loosened under the reform regime. The zero-carbon homes commitment, first made in 2006 by the then Chancellor Gordon Brown and which would have ensured that all new-build homes from 2016 were self-sufficient, is to be scrapped.