Draft European Research Infrastructure Consortium (Amendment) (EU Exit) Regulations 2018

Debate between Chi Onwurah and Claire Perry

Monday 3rd December 2018 General Committees

[Claire Perry]

I thank hon. Members for that series of interesting and helpful questions, which I will try to answer.

There was a series of questions about our post-Brexit position on ERICs and the scientific leadership that we wish to exert. It is absolutely right that we continue to discuss this. I should have declared an interest, Mr Sharma: I am married to a world-leading scientist—Professor O’Neill of Cambridge University—who has participated not in ERICs, but in a number of Europe-wide research projects. I know very clearly what the risks and benefits are of continuing or not continuing international collaboration.

The point about the talent pool is significant, because of course scientists are not fungible. Part of the reason why we have been able to attract so much investment, both domestically from private sector sources and from overseas, including Horizon—as of 28 September, we were second only to Germany in the funding commitments we have received—is that we have an astonishingly strong science and innovation research base. Arguably, we need to focus on scale-up to get from research to commercialisation, but that has nothing to do with our position in the European Union; it is to do with our will to harness industrial investment after early stage research and development.

I and the Department remain very positive about the outlook for the UK’s role in participating in world-leading science and innovation. We have taken a couple of domestic measures, including providing an additional £7 billion to the public funding of R&D from 2017 to 2020, which I understand to be the biggest increase that has ever been made. We are also working through sector deals to try to align the principles of the industrial strategy with the very practical steps that different sectors are taking forward, including on R&D-specific projects, places and individuals funded through those sector deals. It feels to me entirely fundamental to the UK’s progress—I believe that this should have happened regardless of our decision on Brexit—to harness that world-leading science and innovation base in a way that delivers more of an alignment with the industrial strategy.

[Chi Onwurah]

I thank the Minister for the tone of her response, but I take issue with her proposition that the ability of UK companies to scale up is not related to whether we are part of the European Union. Funding is one thing, but access to talent and potential markets for scale-ups are obviously related to whether we have access to one of the world’s biggest trading blocs.

[Claire Perry]

The hon. Lady is right. It is why the proposed framework is to have as close as possible alignment on goods. I know she speaks to many universities and researchers, so she will know that we have an endemic problem with scale-up. What tends to happen is that the intellectual property is sold overseas before the commercialisation stage, and often the full commercialisation of projects and services is done by overseas companies, rather than the IP being held back in the UK—but I am digressing slightly. Forgive me, Mr Sharma.

I am going to address the migration points. I thank the hon. Member for Wallasey for her contributions to the European Statutory Instruments Committee. I know she has a lot of stuff going on with that, and these are important questions. Third countries cannot host ERICs, so there is a question about hosting versus participation. We host two ERICs and we are members of 12. This relates to our future negotiations, which are spelled out in the political declaration, but we have expressed a desire to continue to host. We hope that our special status as one of the world leaders—I cannot remember the patent numbers, but I believe we are up there with economies very much larger than ours—will allow us some special status for ERICs hosting. I believe that is part of the future negotiations.

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[Claire Perry]

Thank you, Mr Sharma.

[Chi Onwurah]

In the context of ERICs, I feel that it is important to emphasise that we all wish for more women not just to come forward, but to be encouraged to be part of science. Speaking as an engineer myself, I know the virtue of collaboration is that different people from different disciplines and different backgrounds come together to create innovation. That is not an issue with regard to whether or not home-grown women are accessing the skills pool.

[Claire Perry]

The hon. Lady is absolutely right. I think she rather supports the point that I made earlier, which is that scientists are not fungible. That is why I believe that we should maintain very strong confidence in the UK’s incredible reputation in science and innovation. We have world-leading science bases and research, and that is entirely strengthened by collaboration, as she said. Projects such as ERIC will help to facilitate such collaboration. I would be grateful to the Committee for allowing the regulations to proceed, because they are simply a technical clearing out of some rules that will no longer apply, and they will enable us to maintain our membership of ERICs post-exit, or to join new projects. I therefore commend the regulations to the Committee.

Question put and agreed to.

Draft Renewables Obligation (Amendment) (Energy Intensive Industries) Order 2017

Debate between Chi Onwurah and Claire Perry

Thursday 23rd November 2017 General Committees

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

It is a great pleasure to serve under your chairmanship, Ms McDonagh. I start by thanking the Minister for bringing the draft order forward, and the Government for devoting attention to this important area—though not in as timely, transparent or logical a fashion as we would have desired.

For the benefit of the Whips and those Members with pressing engagements, I shall start by saying that the Labour party does not oppose this statutory instrument. We support the ends: the aim of lowering the cost of electricity for industries that use electricity intensively, where that cost is increased by green and social obligations. However, we have serious concerns about the means that the statutory instrument uses to lower those costs and regret that the Government are incapable of providing the support that energy-intensive industries merit.

Although energy costs account for 3% of UK business expenditure on average, there are sectors where that figure reaches 10%, including steel, cement, paper, ceramics, glass, chemical industries and others. They are referred to, as the Minister set out, as energy-intensive industries. Those industries play a crucial role in our economy, contributing more than £52 billion to our GDP and supporting 600,000 high-quality, skilled jobs. That is an important point, because our economy lacks high-quality, skilled, well-paid jobs.

Steel in particular has being crying out for support. It produces an economic output of £1.2 billion and employs 31,000 people, contributing 0.1% of the UK economy and 0.7% of manufacturing output. Let me emphasise again that those are high-quality, highly skilled jobs, which we wish to see retained and expanded in a productive economy.

The value that those industries bring to the UK economy in terms of jobs and economic output is therefore considerable. They are an important part of our manufacturing base and have a crucial role to play as part of any successful future industrial strategy. Energy-intensive industries are frequently foundation industries, producing materials that are an important part of supply chains for other industries in the UK. In an increasingly volatile world, we need strong foundation industries in Britain to ensure security in the supply of the materials on which our economy depends.

However, as we work towards a greener future and fulfil our international obligations to reduce carbon emissions, we need to develop manufacturing methods that are sustainable, including in their use of energy. That was what the renewables obligation, which was brought in by the last Labour Government in 2002, sought to achieve, by providing support drawn from energy bills for the development of renewable energy, and thus contributing to meeting the UK’s EU target to produce 15% of our energy from renewable sources by 2020 and our low-carbon goals. As the Minister set out, that system was superseded by a combination of the feed-in tariff for small-scale generators and contracts for difference for large-scale generators, but existing projects benefited from the renewables obligation and will continue to do so for a number of years.

This policy necessarily exposes companies in energy-intensive industries to higher electricity bills, to which they are more vulnerable than other electricity consumers. The costs are significant. For a business using 10 GW of electricity a year, we are talking about £215,000. As most energy-intensive industries operate in international markets, those costs place them at a competitive disadvantage, and increase the risk of investment leakage through businesses choosing instead to make investments in countries with less ambitious climate policies.

That would be disastrous for UK industry and for the security of our supply of foundation materials, as I have indicated. As the Minister hinted, it would also effectively export our carbon emissions: we would continue to use the same or greater amounts of steel, ceramics and other materials, but would have to import them from countries where environmental regulations are weaker. It is worth noting that even before the effect of the renewables levies, UK energy prices are high by global standards. UK prices were equal to industrialised country averages in 2010, but 40% higher than the average by 2015.

The order intends to address the continuing cost of the renewables obligation on energy-intensive industries. As the Minister set out, it will set up a regime whereby energy-intensive industries are exempt from 85% of the cost that would otherwise accrue to them as a consequence of the renewables obligation regime. It replaces a scheme set up in 2015 that provided for a rebate to go to companies operating in energy-intensive industries. That scheme was suspended in the summer of this year for reasons that the Government have still, even after the Minister’s speech, not made entirely clear. I would appreciate it if the Minister provided some more clarity on that point.

The new regime that will be established by the statutory instrument differs substantially from the scheme that was previously in operation, chiefly in so far as it exempts energy-intensive industries from renewables obligation costs, and places the cost of exemption on to other non-exempted energy users. It is quite literally robbing Peter to pay Paul.

[Claire Perry]

I want to clarify that, because I raised exactly the same question at the briefing. As I understand it, right now the funding for this obligation and for contracts for difference is basically paid for by taxpayers. It comes out of the BEIS budget. Taxpayers are also energy consumers, so this is simply a question of whether we take the money out of our taxes or directly from the companies. It seems to me that it is probably a much more efficient scheme to—

[Chi Onwurah]

indicated dissent.

[Claire Perry]

The hon. Lady shakes her head, but she and I both know that getting money out of the Government is complicated. If we want to help these industries, which she and I violently agree are critical to Britain, given the jobs within them, it seems to me far more streamlined and beneficial for them to work directly with their suppliers, rather than having to apply to BEIS and get money out of taxpayers, which is essentially coming out of our pockets.

[Chi Onwurah]

I thank the Minister for that intervention—it is always good to have a debate—but I disagree with her strongly. It should be difficult to get money out of the Government; that could be called accountability. The reason we have a Government is that they take decisions on behalf of the population—the citizens as a whole—that support the Government’s values and objectives. The Department for Business, Energy and Industrial Strategy should set out those objectives, including greater renewable energy and support for our foundation industries, in its industrial strategy, and be prepared to support them financially. Perhaps that is a key difference between my, and Labour’s, vision of Government and that of the hon. Lady. We believe that the Government and the public sector can make positive interventions in an entrepreneurial and innovative way to fulfil the ambitions and the potential of our industries and citizens.

[Claire Perry]

The hon. Lady is very smart; she really is one of the few intellectual thinkers. The Government do not have their own money. Government money comes from the same people who are paying the electricity bills. It is other people’s money. It comes in as taxes and we also pay our energy bills. She and I, and everybody in this room, contribute to Government funds. I am sorry, but this is a very important point. As a Government—

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[Claire Perry]

I apologise profusely.

[Chi Onwurah]

Thank you, Ms McDonagh. I am glad to have inspired such passion in the Minister. You must allow me a brief response on the difference between taxation and energy bills. Taxation is decided by the Government, comes generally from the people—hopefully in a progressive way, where the greatest shoulders bear the greatest burden; not as it is under this Government—and is then redistributed. When it comes to energy bills, however, the people who are the poorest and coldest may bear the greatest burden. Ms McDonagh is looking at me as if I may be exhausting her patience, so let me move swiftly on.

The explanatory memorandum suggests that the legislation will cause real problems, specifically for small and medium-sized companies, which will see their bills increase substantially. The Minister made reference to consumers, and the increase that they will see. According to the explanatory memorandum, for small business energy users the increase is likely to be £160 per year, but for a medium-sized business energy user it is likely to be about £6,700 per year. To put that in context, the Business Energy monitor sets out that the average small business spends just over £2,000 per year on electricity, and the average medium-sized business spends £3,146 per year on electricity. The increase necessitated by the statutory instrument is huge—seemingly a tripling of electricity bills for medium-sized businesses. I hope that the Minister will say what the actual impact on businesses will be in percentage terms, and what discussions she has had with the Federation of Small Businesses, for example, to assess that impact. From a party that styles itself as the party of enterprise and the entrepreneur, this is alarming to say the least.

How did the Government arrive at such a drastically unfair solution to what should have been a reasonably simple exercise of updating or replacing the rebate system? In spring 2016, the Department for Business, Innovation and Skills consulted on a new scheme to replace the rebate scheme. The consultation ran for eight weeks and looked in detail at the plans to implement an exemption scheme, receiving 69 responses. I am unclear as to how, after consulting on the proposals, the Government arrived at this solution, which will hit the bills of ordinary energy customers, and particularly small and medium-sized enterprises. Are the Government happy that this exemption scheme will put costs up for small businesses—the backbone of our economy? Have they considered any other methods of ensuring that non-exempted customers do not have to bear the costs of the scheme in the way that has been set out?

It is worth noting that the effect of the statutory instrument is to replace an energy-intensive industries compensation scheme for the effects of the renewables obligation with an exemption scheme. That means that the Government will save the money that previously went out in compensation and require the equivalent of what they have saved to go on to customers’ bills instead. The additional costs on bills undoubtedly will need to be shown. Is it the Government’s intention simply to lump them in with green and social costs, or to account for them separately? Will the Minister also say how, where and whether the money that has been saved—as she set out—from the BEIS budget is being spent, or whether it is returning to the Exchequer?

The Minister mentioned that the timing of the new scheme is falling behind. The explanatory note published with the order states a firm intention that the exemptions should come in on 1 January. The Minister set out that that date will now be missed, with a four-month delay until 1 April, as I understand it. Why has that delay been allowed to happen, and what effect will that have on the finances of energy-intensive industries? It gets worse, because the Government intend to make the changes set out in the instrument alongside another statutory instrument, the Electricity Supplier Obligations (Amendment and Excluded Electricity) (Amendment) Regulations 2017.

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[Claire Perry]

I will endeavour to be brief and less passionate. I thank the hon. Lady for her thoughtful response. I am delighted that we are in violent agreement about the need to support these incredibly valuable industries and the thousands of high-skilled, productive jobs for the people they employ across the UK.

I will clarify a couple of points. The current scheme has not been suspended—I am not quite sure where that came from. It continues until the exemption is introduced, which will now be in April, so the normal rules will apply.

The hon. Lady asked a sensible question about the impact of the order on small businesses. SMEs can apply as well; it is not a size test, but a measure of what percentage of a company’s gross value added is spent on energy.

[Chi Onwurah]

I thank the Minister for that clarification; it is an important point. SMEs can apply for the exemption but they would need to be in energy-intensive industries, as set out in the schedules to the 2015 order, which I understand will be updated. They may not know, as yet, whether they can apply for it. They may have a large bill without necessarily being in an energy-intensive industry.

[Claire Perry]

I am happy to clarify again. First, because the schedule of energy-intensive industries is already known—businesses already know if they are classified as in that sector—the test is whether they are energy-intensive users, regardless of their turnover. The measure is based on energy as a percentage of profits and labour costs. Businesses of all sizes can apply. Because the order effectively aligns the RO measures with the CfD measures, it is the same certification process. Based on the legislation that we introduced recently, businesses will already know and will be able to say, “We have the certification and we will take that to our suppliers.” There should be certainty out there among businesses as to whether they can apply. The hon. Lady and I have the same thinking: what happens if energy bills fluctuate wildly? My understanding is that when a business is certified as eligible, that certification lasts for five years, so that gives businesses a sense of certainty for their future cost planning.

On the hon. Lady’s point about additional costs, the overall impact is assessed at something like 0.5% of energy costs. I will write to her with the exact number. She is right that we want to ensure that there is no enormous uplift for businesses. As I tried to point out, one way of thinking about it is that businesses already pay a number of obligations to the state, such as corporate taxes and business rates. In effect, some of that money was coming back to them in the form of exemptions, but it was not coming back to all businesses. I think the fact that businesses that were not getting the money back will now see a bit going on their energy bills provides a more transparent system, as she said.

This is not a new levy; it is an application of the old scheme. The hon. Lady understands about business and she knows that it can be difficult for someone trying to manage their cash flow to have to apply to Government and wait for money that could take several months to come through. Simply having that money taken off their bills before they pay them has to be a better way for a small business owner or a financial manager to operate.

I am delighted that we have the Opposition’s support on this. It is an important measure to support some of our most strategic industries. I thank Committee members for their patience and support. We want to try to safeguard the competiveness of these industries. I therefore commend the draft order to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Renewables Obligation (Amendment) (Energy Intensive Industries) Order 2017.