Economy: Budget Statement

Baroness Worthington Excerpts

Thursday 22nd March 2012 Lords Chamber

[Baroness Worthington]

My Lords, I aim my comments towards the measures in the Budget that address green energy and the environment. The grouping of these topics within the Budget might imply that there is some overall cohesive vision linking our green future and energy together. Sadly, as the Budget shows, that is not the case. The Budget has been described by Greenpeace as a “polluter’s charter”. It is a ragbag of measures that appear to give great benefit to the fossil fuel industry at the expense of the green energy industry.

In opposition, the current Chancellor George Osborne made a great pretence of being green. He talked about how he would make the Treasury join DECC in championing action to tackle climate change. He said:

“The Treasury will no longer be the cuckoo in the Whitehall nest when it comes to climate change”.

He was right. It has become an albatross sitting round the neck of the low-carbon industry. We can be grateful that he seems to have dropped his more obviously outright hostility towards the UK leading on climate change but this is a long way from being a green Budget. He does not seem able to help himself. Even as he praises renewables, he then immediately undermines that by making a veiled reference to the fact that he obviously considers the renewables sector to be costing industry and consumers too much. He said:

“Renewable energy will play a crucial part in Britain’s energy mix, but I will always be alert to the costs that we are asking families and businesses to bear”.—[Official Report, Commons, 21/3/12; col. 798.]

Why single out renewables in that case? It is obviously clear that we need to subsidise low-carbon technologies but why single out renewables?

The policy that the Treasury introduced that supports investment in low-carbon technologies is the carbon floor price. It is quite a controversial policy. The announced level for 2014-15 in the Budget is now as high as £9.55 per tonne of CO₂—almost double what it was—because there has been a big falling-off in carbon prices in Europe. We have to pay more to meet our desired level. We are now paying more than double the traded price in Europe. This is having an impact on businesses and consumers, but to what end? Essentially, it does not guarantee investment and it rewards existing generators who already built their infrastructure many years ago. It is accruing large amounts of money to our nuclear generators. Why no mention of the costs that nuclear puts on the consumer and business?

The Chancellor also appears to have some strange logic. He says that, “Gas is cheap”. In what way is gas cheap? If it is cheap, why would he also then have to announce a call for evidence on the barriers to investment in gas? The answer is that gas is not cheap at all—quite the opposite. Increases in gas prices are what are putting pressure on energy bills, not renewables. I am not against the increased use of gas. What concerns me is the Chancellor’s blithe disregard for the facts. People cannot invest in gas because it is expensive. There is a real possibility that it will remain so in future. Instead of making sure that we have a sensible contingency plan by giving unqualified support for renewables—a sector that is delivering investment, jobs and growth now—he sets about undermining them.

Why is gas expensive? In part, that expense has been driven by record oil prices. A couple of weeks ago, the oil price hit £80 a barrel. No one really considers or seriously believes that that will come back down in a significant way. That then makes the Chancellor’s fair fuel stabiliser policy completely redundant since it only kicks in if oil returns to £45 a barrel. Could the Minister help us understand the logic of this policy and tell the House when he expects oil prices to return to that level? That would certainly help our economy. I guess that the answer is never, and that the oil majors must be delighted to have successfully negotiated a break on the taxation of their product.

It does not stop there. They have also received more help in the form of substantial tax breaks for offshore drilling and decommissioning. In these difficult times, the Budget rewards not just rich individuals but also the most profitable businesses. Why does an industry making such huge profits need to receive yet more help from government? The noble Lord, Lord Marlesford, said that,

“it is immoral to give … handouts to those who do not need them”.

The offshore oil and gas industry is not a poor one. We do not need to spend £3 billion of lost tax revenue helping it get more oil out of sensitive areas in our seas.

It is not just the oil and gas industry that the Treasury has seen fit to help out. There is also something in the Budget for the coal lobby: an exemption from the carbon floor price for the use of coal slurry to generate electricity. That does not sound at all green to me. I struggle to see how that can be justified. This is apparently a low-carbon policy yet we are giving an exemption for a high-carbon-emitting source of fuel used to make electricity. That makes no sense. Again, could the Minister explain that logic? We do not need to give tax breaks to the coal industry under the banner of an environmental policy.

We could talk about many other measures, such as the Government’s double-dealing with the combined heat and power sector. We have helped the industry by giving it an exemption from the carbon floor price but we are also removing its exemptions from the climate change levy. Overall, the industry is a net loser: £45 million is saved from the carbon floor price but £110 million is lost from the CCL exemption removal.

Then we come to the carbon reduction commitments. I admit that I am not a great fan of this policy but it addresses the important point of those people not currently caught by the EU Emissions Trading Scheme. I welcome the fact that we will look again at this and the potential for a different, simpler environmental tax. I suggest that one option is to think about the extension of the upstream Emissions Trading Scheme to the suppliers of heating fuels. Since they are outside the cap, any measure to price carbon there would definitely be additional. That would be a revenue-raiser for the Treasury and could replace the CRC in creating a price signal to encourage investment in energy efficiency.

There have been many other criticisms of the Budget on green issues. The Chancellor made great play of the terrible burden that the habitats directive placed on business. That has obviously been proved to be a complete red herring. There is also the concern about the deregulation of planning leading to urban sprawl and essentially a developer’s charter. There is now a presumption in favour of sustainable development but my fear is that, having seen the Budget, “sustainable development” includes absolutely everything from coal slurry to offshore oil and gas, and gas fracking. That could all be put in under this definition of sustainable development. I would like to hear some reassurance that that is not the case.

So many things could have been different. We could have seen a proper investment in the renewable sector. The engineering giant, Alsthom, has recently invested quite heavily in creating a wind turbine manufacturing plant in France for offshore wind turbines. That is despite the fact that the overall market for offshore wind in France is very small in comparison to that in the UK; the problem is a huge amount of policy uncertainty and a sense that the Government are not pulling together behind the renewables industry. The Chancellor has a lot of responsibility for giving that impression.

One policy could have been in there and would have given a sign that the Chancellor cares and understands what will help us to achieve our low-carbon economy: providing more help for energy efficiency measures. One example is the use of voltage optimisation technology, which is an excellent example of UK expertise and has come out of the University of Liverpool. We now have world-leading technology that helps householders to save electricity without doing anything; it simply optimises their use of electricity, taking around 10 per cent off their Bills. The Government have absolutely failed to be able to provide any support for that sector, which is currently excluded from the Green Deal for reasons of huge bureaucracy rather than it not being a good technology. It is a good technology and is already used in DECC and No. 10 to save money, yet it has not been supported for others to take up the policy. A lower reduced rate of VAT could have been given for that technology; it would have boosted jobs and helped to breed a very good UK sector in something that we excel at.

Overall, the Budget fails miserably to match up to the expectations that we might have from the greenest Government ever, and I am sorry that I cannot be more positive.