Finance (No. 3) Bill

David Mowat Excerpts

Tuesday 5th July 2011 Commons Chamber

[David Mowat (Warrington South) (Con)]

The hon. Lady is making a case for the higher taxation of banking bonuses and salaries. Does she think that high salaries in other professions such as the oil industry, financial services, insurance—

[David Rutley]

And football.

[David Mowat]

Indeed. Does she think that higher salaries in all those professions should be taxed more? If that is the case, the most logical option would be to have higher income tax.

[Alison McGovern]

As I said earlier, I think we all agree that inequality is a problem. We have tabled an amendment that deals with a specific problem. Do not we all agree that inequality in this country is a problem that needs to be tackled? I thought that that was politically pretty uncontroversial these days.

[David Mowat]

Will the hon. Lady give way again?

[Alison McGovern]

Many people wish to speak, so perhaps it would be better if I did not take any more interventions. I am assuming that the hon. Gentleman was not about to tell me that inequality is not a problem.

I want to outline what we could do with the extra income that could be generated if our amendment were accepted. I also want to build on the remarks made by my right hon. Friend the Member for East Ham (Stephen Timms). His analysis of the future jobs fund was thorough and it accords with my research on that subject. I pay tribute to him as one of the House’s experts on youth unemployment. His constituency is in the London borough of Newham, which has done extensive research into that issue and probably knows more than many places in this country about what can best be done to tackle it.

I want to make a further point. In January, I asked the Minister for Employment whether he could provide business planning projections of how much the Department for Work and Pensions expected to have to pay for 16 to 24-year-olds on jobseeker’s allowance for each year of this Parliament’s life. I was told that by the end of this Parliament the Department expected to pay jobseeker’s allowance to 279,000 16 to 24-year-olds. It thought that just under 280,000 young people would be on the dole. To check what had happened as a result of the Government’s economic policies coming into force, I asked that self same question in June, when the Minister for Employment was forced to tell me that his Department projected having to pay 303,000 such young people on the dole. The DWP has had to up by 24,000 its own forecast of the number of young people on the dole by the end of this Parliament. Nobody can say that this problem does not need to be dealt with. The Government know from their own DWP projections that this problem has to be dealt with—and it has got worse, not better, over the last six months.

I applaud the Government’s approach to apprenticeships and many other things, but the fact is that we had a programme and a set of policies that were working well for young people. The future jobs fund will be much debated and there is more research to come on the subject, yet the DWP’s own research provides evidence of how that particular scheme worked. The best way to get a job is to have a job; we demonstrated that basic fact through the future jobs fund.

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The green technology industry has expressed scepticism similar to that of the oil and gas industry, especially given the Government’s recent track record, including the change of policy on feed-in tariffs, which could cost up to 7,000 jobs in the solar industry. The carbon price support rate must be set by the Government at the next Budget. The Government will face the most pressure to renege on their promise at the very times when the biggest effort will be needed to maintain the carbon price. Given the Government’s record on sticking to their policy announcements, they need to do a lot more to create certainty for green investment in this country.

[David Mowat]

I have listened carefully to the hon. Lady’s remarks on behalf of the Labour party. Can she make it clear for the House whether the Labour party supports a carbon floor? I thought that that was settled policy. If it does support a carbon floor, what is the particular aspect of the announcement that is causing such concern?

[Kerry McCarthy]

I am not sure where to start in responding to the hon. Gentleman. My opening line was that we support the idea of a carbon floor price in principle. Everything that I have said since has outlined why we have reservations about the way in which it is being implemented. I simply refer him to the speech that I am making.

I appreciate that there are difficulties in getting this policy implemented at an EU level. It would be easier if we could look at the EU emissions trading scheme in the round. Experts have said that measures on carbon pricing should first be considered at EU level, and that a UK-only solution is a second best option. Lord Turner, the Chair of the Committee on Climate Change, has said that, and it was echoed in the Institute for Public Policy Research report. The Government appear to have done nothing to explore the EU option. The coalition agreement says that the Government will

“make efforts to persuade the EU to move towards full auctioning of ETS permits.”

However, it does not mention any intention to talk to our EU partners about a carbon price floor. Perhaps that is unsurprising, given the Government’s record on dealing with the EU. For example, the Government’s MEPs tabled no proposals to reduce the EU budget, whereas Labour MEPs tabled amendments that could have cut more than €1 billion of waste from EU spending.

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[Kerry McCarthy]

That is an important point. Although there is concern about the carbon emissions of energy-intensive industries, in cases such as my hon. Friend has outlined they are actively working on measures to reduce carbon emissions. It is important that we do not throw the baby out with the bathwater and prevent that type of green investment.

The carbon price support rate will actually provide an effective subsidy to the nuclear industry, as the Economic Secretary has confirmed in a written answer. In fact, it will benefit nuclear power twice as much as the renewables sector, with an average value of £50 million a year for nuclear between 2013 and 2030, compared with just £25 million a year for renewables.

We support building new nuclear power stations as part of the UK’s energy mix, but the problem is that the Government explicitly promised voters that they would not grant nuclear power stations a public subsidy. In fact, there is meant to be cross-party agreement that we are against nuclear subsidies. The Conservative party said in its manifesto that it intended

“clearing the way for new nuclear power stations—provided they receive no public subsidy”.

The coalition agreement stated that the Conservative party was

“committed to allowing the replacement of existing nuclear power stations…provided that they receive no public subsidy.”

The Prime Minister himself said in the House in March:

“What we should not be doing is having unfair subsidies.”—[Official Report, 23 March 2011; Vol. 525, c. 950.]

Then there are Liberal Democrat Members, who were elected on a manifesto that opposed nuclear power entirely. At their party conference last year, a resolution was passed stating that

“any changes in the carbon price”

should not

“result in windfall benefits to the operators of existing nuclear power stations”.

When we delve deeper, it turns out that this is not the only nuclear subsidy by stealth that the Government are trying to sneak past the House. When I say “subsidy by stealth”, I am of course borrowing a phrase from the hon. Member for South Suffolk (Mr Yeo), the Chair of the Select Committee on Energy and Climate Change. Writing about the Government’s wider package of electricity market reforms, he has warned that they

“must not impose a one-size-fits-all reform on all low-carbon generation in order to avoid singling out nuclear for support.”

He said that the Government’s proposed design for feed-in tariffs

“seems to be more about concealing the fact that it is providing financial support for nuclear power than it is about coming up with the best approach.”

Even if the Government do support public subsidy for new nuclear build, they need to explain why they want to subsidise existing nuclear stations—and, for that matter, existing renewable power stations. Calling the carbon price support rate a green tax surely implies that it is intended to provide an incentive for future green behaviour. However, the Economic Secretary said to the Public Bill Committee:

“We are clear that ensuring that a tax is structured to drive positive environmental behaviour is one thing; ensuring that that can happen on the ground, and that people can change their decisions of the future is another.”––[Official Report, Finance (No. 3) Public Bill Committee, 19 May 2011; c. 242.]

A public subsidy for existing power stations, whether renewable or nuclear, is not behaviour-changing.

We should remind ourselves exactly where the subsidy comes from. The Economic Secretary may argue that it is not a public subsidy per se, because it does not involve taxing and spending. In fact it has a much more direct impact on every electricity bill payer, whether they are working families or manufacturing firms, and it is still a public subsidy in every sense. The hon. Member for South Suffolk says that the Government

“needs to be upfront about its financial support for nuclear energy”,

and I agree with him. That is why we have tabled the amendment.

The Government are using money taken from people and from energy-intensive industries to subsidise nuclear power stations, which they explicitly promised voters they would not do. They are also using that money to subsidise existing power stations, which makes no sense. We have tabled the amendment to give them an opportunity to explain why they have done that. If they are still sticking to their policy that there should not be a subsidy, I want to know how they will put that right.

[David Mowat]

Will the hon. Lady give way?

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[Caroline Lucas]

I will not give way again, because I want to talk about amendment 12, which I have tabled.

I agree that an effective carbon price mechanism has the potential to reduce greenhouse gas emissions from electricity power, mainly by increasing the carbon liability attached to energy use and thereby making energy efficiency measures and renewables more attractive. It also embodies the “polluter pays” principle, which, of course, I also support. I fear, however, that the proposed carbon floor price will not ensure that investment in energy generation is directed towards low-carbon technologies.

I hold that view for a number of reasons, including the fact that market-based solutions to direct investment in low-carbon generation have proved pretty weak in the past. For example, the EU emissions trading regime has so far failed to maintain the cost of pollution allowances at high enough levels to make any significant difference in reducing emissions. It is also true that, because the floor price will be subject to annual votes in Finance Bill debates such as this, it will fail to provide the price stability that is needed to boost certainty and security for investors in low-carbon energy sources. Furthermore, it can be difficult to judge the level at which a carbon floor price should be set to give appropriate incentives to the various technologies that the Government wish to support.

It is clear from those inherent weaknesses that a carbon floor price will maximise its potential to support a low-carbon economy only if any additional revenues that it raises are ring-fenced for use in support of that transition. That must include, in particular, energy efficiency measures for the fuel-poor. Many Members have raised that subject this evening. The Institute for Public Policy Research estimates that an additional 30,000 to 60,000 households could be pushed into fuel poverty in 2013 as a result of the carbon floor price because it will push up the cost of electricity.

It is therefore crucial for flanking measures to be introduced alongside a carbon floor price, including measures that will properly support and protect those in fuel poverty. They should include proper capitalisation of the green investment bank, support for the implementation of the green deal—for instance, ensuring that the “eco” element is increased considerably, given that it is the part directed at the fuel-poor—and, indeed, assisting in the development of innovative renewable energy technologies. Failure to ring-fence the revenue of the carbon floor price would mean missing a real opportunity to focus efforts on the technologies that will most quickly cut emissions from power generation.

Many other Members have reinforced the idea that the carbon floor price must not deliver windfall profits to the well-established nuclear industry, which has already been heavily publicly supported for many years. The Government’s own figures show that existing nuclear generators stand to gain £50 million a year from it until 2030. It is vital for the Government to clarify whether such a windfall constitutes the kind of subsidy for nuclear power that they have repeatedly said they will not provide. It looks very much like a subsidy to me, and it looks very much like a subsidy to the Chair of the Energy and Climate Change Committee, the hon. Member for South Suffolk (Mr Yeo), who has said that the Government should be upfront about the fact that it is a subsidy. He has also said that

“it would be deeply irresponsible to skew the whole process of electricity market reform simply to save face.”

I hope that Ministers will benefit from his expertise, and will recognise that rigging the electricity markets simply to try to provide more support for nuclear generation is entirely wrong.

[David Mowat]

The hon. Lady is making a powerful case against the nuclear industry, but a few moments ago she made a case against high electricity prices and their impact on the poorest in our society. Electricity costs in France are between a third and a quarter less than those in this country owing to decades of cheap nuclear power, which has a beneficial impact on both heavy industry and consumers.

[Caroline Lucas]

The hon. Gentleman will not be surprised to learn that I do not agree with the tenor of his intervention. The truth is that the price people pay for nuclear power does not represent its true cost in terms of liabilities, decommissioning and clearing up after an accident. People in Japan are not paying the true cost of clearing up after Fukushima. That £250 billion was not included in people’s energy costs. Nuclear subsidies are incredibly untransparent, but, essentially, people are paying a great deal more for nuclear power. I agree with the hon. Gentleman that we need electricity prices that people can afford, but the answer is to invest in renewable energy and energy efficiency, which will become far more competitive and far cheaper than nuclear power very soon if we give them the support they require.

If the Government recognise that this is a subsidy, they should claw it back through a windfall tax. I tabled a new clause that would have allowed them to do exactly that, but, sadly, it was not selected for debate.

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[David Mowat]

It may be true that renewables will become more cost-effective over time, but there is an long way to go: a factor of about four in the case of solar power.

[Caroline Lucas]

I entirely disagree. I wish that the hon. Gentleman had been at a meeting with representatives of the solar industry that took place a few days ago in Portcullis House. We were shown presentations by Ernst and Young and others which demonstrated that if a small amount is invested now, solar energy will be able to compete with all fossil fuels and with nuclear power in four or five years.

Although an improved carbon floor price mechanism could help to deliver a less carbon-intensive energy sector, it is important for the Government not to see it as a “silver bullet” solution. Other stronger levers, such as a well managed—I underline “well managed”—feed-in tariff regime and a strong emissions performance standard must also be part of the overall picture. Sadly, however, the Government are falling short in those respects as well. I should like them to devote at least as much effort to stepping up their work at EU level to ensure that the next phase of the EU emissions trading scheme is much more effective than the current phase. The recent collapse in the cost of EU carbon allowances under the scheme is clear evidence of their over-allocation, and the shortcomings of the scheme are becoming increasingly obvious.

I should also like the Government to work with European partners to ensure that, as a minimum, allowances are in line with the policy of cutting EU emissions by between 80% and 95% by 2050, as agreed by member states; that allowances cannot be banked from the second phase of the EU ETS into the third phase; and that a reserve price is set on the auction of permits into the market. Any permits that the market does not want to buy at the reserve price or more should be retired from the scheme.

I urge the Government to undertake to produce the report for which the amendment calls, and to take the opportunity to show how the benefits of a carbon floor price can be maximised and any unintended consequences eliminated. If the carbon floor price is to be effective, we need a tax on the windfall profits of the nuclear industry, along with flanking measures to ensure that those in fuel poverty do not suffer as a result of this policy.