Finance Bill

Damian Hinds Excerpts

Monday 27th June 2016 Commons Chamber

[The Temporary Chair (Sir Roger Gale)]

With this it will be convenient to discuss clauses 133 and 134 stand part.

Amendment 183.

Clauses 135 and 136 stand part.

[The Exchequer Secretary to the Treasury (Damian Hinds)]

Clauses 132 to 136 set out changes to the climate change levy, or CCL, which is a tax levied on the supply of energy to businesses and the public sector. It was introduced in 2001 to incentivise industrial and commercial energy efficiency. The Finance Act 2015 removed the climate change levy exemption for renewable electricity generated on or after 1 August 2015. A consultation was then held to seek views from industry on the appropriate length of time for the transitional period.

Clause 132 sets the length of the transitional period during which electricity suppliers can continue to exempt from the climate change levy renewably sourced energy generated before 1 August 2015. The clause provides for an end date for the transitional period of 31 March 2018. Setting a transitional period will minimise the administrative impact on electricity suppliers by giving them time to retain the benefit of renewably sourced electricity acquired before the date of the change.

Following a review of the business energy tax landscape and consultation with industry, it was announced at Budget 2016 that the Government would abolish the complex and unduly burdensome carbon reduction commitment energy efficiency scheme and move to a single tax—the existing climate chance levy—from 2019. Moving to one tax will provide a clearer price signal for business energy use, incentivising energy efficiency while reducing administrative burdens.

Clauses 133 and 134 set the main rates of the CCL from 1 April 2017 and 1 April 2018 to increase by the retail prices index. Legislating for those increases now provides certainty for businesses before the wider business energy market reforms take place.

Clause 135 will increase the climate change levy rates above RPI from 1 April 2019, to recover the revenue that will be lost from abolishing the CRC. Increasing climate change levy rates will strengthen the incentive for businesses with the greatest potential to save energy. At the same time, rebalancing the rates for different taxable commodities from 1 April 2019 will update an outdated ratio and more closely reflect the carbon content of the energy used. That will help to deliver on our commitment to achieve greater carbon savings.

Clause 136 will increase the levy discount for energy intensive sectors with climate change agreements. That will ensure that businesses in those sectors will pay no more in the climate change levy than the expected RPI increase in April 2019, thereby enabling them to maintain their international competitiveness. Those reforms will take place in 2019, providing a three-year lead-in time for businesses to adjust to the new business energy tax landscape.

Several hon. Members have in the past voiced concern over the impact of the clause to remove the climate change levy exemption from renewably sourced electricity, so allow me, if you will, Sir Roger, to repeat the reasoning for the removal of that exemption. There is no doubt that the exemption was increasingly providing poor value for money for British taxpayers. Without action, the exemption would have cost almost £4 billion over the course of this Parliament, providing only indirect support to renewable generators.

Other Government support for UK low-carbon generators demonstrates this Government’s commitment to renewable energy. Since 2010, nearly £52 billion has been invested in renewables, and that has led to a trebling of the UK’s renewable electricity capacity. There was another record year in 2015, with £13 billion invested in renewable electricity. Removing the exemption will provide better value for money for UK taxpayers, contribute to fiscal consolidation and maintain the climate change levy price signal necessary to incentivise business energy efficiency.

The Government’s consultation with industry showed that the current business energy tax landscape was too burdensome and complex. Clauses 132 to 136 demonstrate the Government’s commitment to simplify and improve the effectiveness of business energy taxes in order to meet our environmental targets.

Amendment 183 stands in the name of the hon. Member for Salford and Eccles (Rebecca Long Bailey) on behalf of the Opposition. If I may pause for a moment, I want to take this opportunity to congratulate her on her elevation today. It is an extremely well-deserved promotion and we wish her all the best in her new role. On this occasion, however, I am afraid that her amendment has slightly less merit. It would require the Chancellor to publish a report detailing the impact of the climate change levy in reducing carbon emissions within 12 months from the passing of the Finance Bill, but such a review is unnecessary.

Following a hearing on the 2015 summer Budget, the Chancellor wrote to the Treasury Committee on the impact of the removal of the CCL exemption. He made it clear that the exemption would not directly affect our commitment to reduce carbon emissions. In addition, the Department of Energy and Climate Change already intends to publish a consultation on a simplified energy and carbon reporting framework later this year. That will be accompanied by an impact assessment, which will examine the removal of the carbon reduction commitment and propose adjustments to reporting requirements.

The impact of ending the exemption from the climate change levy for renewable electricity has been discussed at length over the course of debates. It has been confirmed to Parliament in writing by the Chancellor that removal of the exemption will not impact on the UK’s ability to meet its carbon budget targets. I therefore urge the hon. Lady to withdraw the amendment, but should she be minded not to do so, I urge the Committee to reject it.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I thank the Minister for his kind comments and for being a fantastic duelling partner in these debates. He has been nothing less than respectful and I have enjoyed debating with him.

I rise to speak to clauses 132 to 136, which make various changes to the climate change levy, and to amendment 183, which stands in my name and those of my hon. Friends the Members for Hayes and Harlington (John McDonnell), for Feltham and Heston (Seema Malhotra), for Wolverhampton South West (Rob Marris) and for Leeds East (Richard Burgon).

Clause 132 relates to the removal of the exemption for electricity from renewable sources. Since the climate change levy’s inception in 2001, electricity from renewable sources has been exempt when supplied under a renewable source contract agreed between an energy supplier and its customer. In Budget 2015, the Chancellor announced that that exemption for renewable electricity would be removed from 1 August 2015 and that there would be a

“transitional period for suppliers...to claim the CCL exemption on any renewable electricity that was generated before that date.”

Following an informal consultation, which received 18 responses, the Government announced that the transitional period would end on 31 March 2018, legislated for in this Finance Bill.

The House will be aware that we, along with several Government Members, opposed the removal of that exemption in the Finance Act 2015, and we maintain that position. We will therefore abstain on the clause, but I would like the Minister to address one particular point. In answer to written questions, the Government have refused to publish a summary of responses to the informal consultation, as they contained “commercially sensitive information”, and they refuse to publish an average of suggested timescales. Will the Minister give us an assurance that the length of the transitional period was, in fact, in line with the recommendations of the respondents?

Clauses 133 and 134 will increase the main rates of the climate change levy in line with inflation in April 2017 and again in April 2018. It has been standard practice to increase the rates in line with inflation in each year’s Finance Bill since 2007 and, as the explanatory notes set out, wider changes to the CCL from 2019 are being legislated for in this Bill, so it makes sense to make provision for the next two years at the same time.

Those wider changes are the subject of clause 135, which significantly increases the main rates of the climate change levy to recover Exchequer revenue lost from the abolition of the carbon reduction commitment. In doing so, the ratio of electricity to gas is rebalanced somewhat to 2.5:1, and it is the Government’s intention to rebalance the ratio further to 1:1 by 2025, to reflect the fall in gas prices and the expected increase in consumption as a result.

The following clause increases the CCL discount available to energy intensive businesses subject to climate change agreements, to compensate equivalently for the increase to the main rates. The CCL discount for electricity will increase from 90% to 93%, and the discount for gas will increase from 65% to 78% from 1 April 2019. That provision mitigates a knock-on effect from clause 135.

Our amendment to clause 135 would require the Government to conduct a review of the impact of the climate change levy on carbon emissions. The review will have particular reference to the removal of the exemption for electricity generated from renewable sources, the abolition of the carbon reduction commitment and the reporting requirements for companies and public sector bodies.

--- Later in debate ---

[Philip Boswell (Coatbridge, Chryston and Bellshill) (SNP)]

I will focus on clauses 132 to 136, in part 9, and amendment 183, which pertain to the climate change levy. Both the hon. Member for Salford and Eccles (Rebecca Long Bailey) and my hon. Friend the Member for Aberdeen North (Kirsty Blackman) have spoken comprehensively on this subject, so I will keep my speech relatively short.

I have particular concerns about the removal of the exemption for electricity generated from renewable sources. I believe that this counterproductive decision will grossly undermine the development of the UK’s energy sector. The long-term future of our energy market is in renewables. The UK, and Scotland in particular, has extraordinary potential in the renewables sector

Scotland has 25% of the wind and tidal potential in all of Europe, and 10% of the wave potential in Europe. For a small country—in both landmass and population, although it none the less represents a third of the UK landmass—these figures represent enormous potential not just for leading the world in renewable energy production, but in creating tens of thousands of jobs and ushering in substantial economic growth.

However, this Conservative UK Government seem determined to tear down any progressive policies that are designed to encourage and incentivise the production of green energy. Just this year, the Government have begun the process of privatising the Green Investment Bank, as the hon. Lady said. In addition, this Government have cut subsidies for small-scale solar panels by 65%, which is a massively damaging blow to the industry that can save households a few pounds.

As the hon. Lady and my hon. Friend the Member for Aberdeen North did, I will mention the scrapping of support for onshore wind, the removal of the biomass renewables obligation subsidy level guarantee, the killing of the flagship green homes scheme and the cancellation of the carbon capture initiative, which I was heavily involved in. What about the future? What hope is there for the Swansea Bay tidal programme, given the track record of this Government?

The climate change levy was a positive step in the right direction. It was a policy designed to provide a disincentive for polluting technologies. It is perverse that the climate change levy has been applied to green, clean energies. That is not what it was intended for. This change will have a disproportionate impact on Scotland, which despite having under 10% of the UK population, as my hon. Friend said, produces a third of the UK’s renewable energy.

Despite the austerity implemented by this UK Government, Scotland has continued to drive forward in reducing its carbon footprint and increasing the use of green electricity. As my hon. Friend also said, earlier this month it was announced that we in Scotland had reached our target of making a 42% reduction in carbon emissions by 2020, which is six years earlier than expected. The SNP Scottish Government have now set a more ambitious target of a 50% reduction in carbon emissions by 2020. However, I fear that despite our progress, unfortunate choices by the Conservative UK Government —both their ill-advised and counterproductive austerity obsession and the mishandling of the EU referendum, leading to a vote for Brexit—will mean regression, rather than progress on climate change and the promotion of renewable energy.

For those reasons, I wholeheartedly support amendment 183, in the name of the hon. Member for Salford and Eccles.

[Damian Hinds]

The climate change levy makes a significant contribution to the Exchequer’s revenues. It had been on a declining path, but with the changes that have come in, its path has been stabilised. It had been providing increasingly poor value for money, partly because a third of its value was going to generators overseas: that generation does not contribute to UK targets, and quite often benefits from subsidies and other benefits at home.

There was also only indirect support for renewables. This is a really important point that goes to the heart of what the hon. Members for Aberdeen North (Kirsty Blackman) and for Coatbridge, Chryston and Bellshill (Philip Boswell) were saying. The renewables obligation and contracts for difference are much more effective at providing direct support, at a higher level than the £5.54 per hour, to bring on the generation that we need.

The success of the deployment of renewables in this country paradoxically has an adverse impact on the effectiveness of the CCL exemption, such that by the early 2020s it would not be effective in stimulating new capacity to come on stream. Its value to generators would be declining, because the supply of renewables and therefore of the levy exemption certificates would exceed in volume the total potential demand from eligible customers in business and the public sector.

[Kirsty Blackman]

If the Minister is saying that the exemption will not be effective after 2020, does he concede that it would therefore be effective to keep it in place now?

--- Later in debate ---

[Damian Hinds]

Sir Roger, he does not. As I was trying to say, this is not a cliff-edge thing. Its effectiveness has been declining over time and a lot of the value leaks overseas. Most important of all, there are other ways of directly stimulating new renewables provision. Without getting too far into the weeds and the details of what goes where, those other ways make sure that the benefit goes directly to the generators rather than being split between different parts of the value chain. CfDs stabilise the price relative to some of the fluctuations of the wholesale market, which in turn increases investor confidence and can help drive investment.

The hon. Member for Salford and Eccles (Rebecca Long Bailey) asked about the transitional period, and her various parliamentary questions about the responses received to the informal consultation on that. Suppliers were invited to respond; of those that did, only one requested a transitional period in excess of three years. All others were content with an end date of 31 March 2018. Most said that they would have used their levy exemption certificates within a year. We have not published the results of that consultation because, as she rightly said, it included commercially sensitive information. The size of the sample and the number of responses mean that it does not make sense to speak in terms of the average period that was called for.

I turn to the abolition of the carbon reduction commitment and changes to the climate change levy main rates. Those are major simplifying moves. We had extensive consultations—both written consultations and meetings, a number of which I sat in on—and businesses said loud and clear that they wanted to simplify how it all worked. They valued the discussions that had taken place and the elevation of the role and salience of energy efficiency within their companies. But the CCL as a single tax will be a straightforward price signal. We will also be removing some of the additional administrative burden.

The Government will also consult on a simplified reporting framework this year, to encourage large businesses to identify energy efficiency savings. In addition to the tax changes, that will further enhance the UK’s ability to reduce its carbon emissions. The Department of Energy and Climate Change intends to publish an impact assessment of the changes later this year, alongside its consultation on a simplified reporting framework. That will include analysis of the impact on carbon emissions. Rebalancing CCL rates towards gas will better incentivise emissions reductions from that fossil fuel, as well.

I will finish by restating, lest there be any doubt, the very firm commitment and strong track record of this Government on reducing emissions. Since 2010 we have reduced the UK’s greenhouse gases by 14% and outperformed our closest European counterparts with the largest cuts in greenhouse gas emissions since 1990. As the hon. Member for Aberdeen North mentioned, we secured the first truly global, legally binding agreement, the Paris agreement, COP21, with our Secretary of State playing a key role. Annual support for renewables will more than double, to more than £10 billion in 2020-21. We are the first major developed economy in the world to commit to phasing out unabated coal, the dirtiest fossil fuel, by 2025. We are the world’s leading player in offshore wind, with just over 5 GW installed, a figure that is forecast to double by the end of the Parliament.

There can be no doubt about the Government’s credentials when it comes to our commitment to reduce emissions. With these tax changes, we have reformed a tax that was proving less effective, over time, with regard to its original aim as stated in 2001, when of course the proportion of renewable electricity generation was so much lower—I believe it was 2.5% in those days. With the changes to business taxation we are keeping the price signal very firm—indeed, making it sharper—by reducing administrative burden. I encourage all hon. Members to support the clauses but not amendment 183.

Question put and agreed to.

Clause 132 ordered to stand part of the Bill.

Clauses 133 and 134 ordered to stand part of the Bill.

Clause 135

CCL: main rates from 1 April 2019

Amendment proposed: 183, page 189, line 13, at end add—

‘(3) The Chancellor of the Exchequer shall conduct a review of the impact of the Climate Change Levy in reducing carbon emissions within 12 months of the passing of this Act.

(4) The report shall have particular reference to—

(a) the removal of the exemption for electricity generated from renewable sources;

(b) the abolition of the Carbon Reduction Commitment; and

(c) reporting requirements by companies and public sector bodies for energy usage and carbon emissions.”—(Rebecca Long Bailey.)