Whitsun Recess

David Mowat Excerpts

Thursday 24th May 2012 Commons Chamber

[Mr Thomas]

I am grateful for the support of the hon. Gentleman and, I think, the support of my right hon. Friend the Member for Rotherham (Mr MacShane) for this great cause.

London Welsh players responded in the best way possible to the news last night when they won the away leg at the Cornish Pirates’ ground 37 points to 21. We take a 16-point lead into the home game at the Oxford Kassam stadium next Wednesday evening. I hope that members of the RFU board will come to that stadium to see just how well that ground could house premiership rugby next year.

[David Mowat (Warrington South) (Con)]

I thank the hon. Gentleman for giving way and I note that the fourth issue he has addressed, rugby, has attracted a lot more interest in the Chamber than the previous three. I endorse the comments that we have just heard about the quality of administration in the RFU. If he or his club would like to come to the rugby league to see an example of fine administration they should do that.

Let me make a serious point about London Welsh, which I think would be replacing Newcastle in the premiership. I have nothing at all against London Welsh, but it would be a pity if the whole of the rugby union premiership became dominated by teams from the south and did not include fine teams such as Rotherham and Newcastle, which have dropped out of that league.

[Mr Thomas]

The hon. Gentleman makes an important point about the need for rugby union to have a very diverse base across the country. I certainly hope that when Newcastle takes its place in the championship, as I hope it will, it continues to benefit from the RFU’s support and largesse so that it can have a genuine chance of winning a place back in the premiership. Nevertheless, we have to allow proper promotion and relegation to take place. I do not think London Welsh has been properly treated thus far. I raise this issue in the House today because I hope that the Deputy Leader of the House might encourage the Minister for Sport and the Olympics to use his influence to encourage the RFU to publish the full details of its assessment and how it reached the decision to reject London Welsh’s application for the premiership, so that London Welsh has all the facts in front of it as it prepares its case for appeal.

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[Mr Denis MacShane (Rotherham) (Lab)]

It is a pleasure to follow the hon. Member for Rugby (Mark Pawsey), whose suggestion I entirely endorse. He revealed, though, two of the biggest problems that all hon. Members and, indeed, Government Front Benchers, face: the “not invented here” syndrome; and the Whitehall expert who knows best and will always find a reason why something cannot be done and should not be changed.

I always admired Gladstone, who brought in a tax for just six months. We should experiment, try the graduated driver’s licence scheme for a year or two and see whether it produces good results. I have seen it work over a number of years in France. After someone passes their driving test in that country, they have to drive around for a year with a large letter “A” on the back of their car, for “apprentice”. That is what it means in French.

The hon. Gentleman’s point about people not going out late at night when they have taken drugs or had a drink is extremely important. Fatalities in France are much higher for lots of other reasons, such as bad road management, speed limits and drink driving, but they are coming down fast. We have a good record, but each life lost—particularly that of a young person—is a terrible tragedy for the families concerned, so I wish him all the very best with his campaign.

I wish to talk briefly about the steel industry and my region of south Yorkshire, and it is an enormous pleasure to do so in the company, on the Opposition Front Bench, of my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith), because she has one of Britain’s most important steel engineering plants in her constituency and is a doughty champion of it. That plant is linked to a major one in Rotherham, and on this issue we have been able to combine action over a number of years.

The issue has to be set in the broader context of today’s extraordinarily sad news from the Office for National Statistics, which reports that our economy is again contracting. We are shrinking. We have that extraordinary malady of the ever-shrinking British economy under this Government. In the first quarter of this year it was down 0.3%, which is an increase in negative growth on the first estimate of 0.2%, but within that overall figure we have some rather more worrying statistics, which impact on the broader south Yorkshire manufacturing economy, including not only steel, but engineering, construction and all the things that go into “making” Britain, rather than the financial services or the huge amounts of money that the City makes. Indeed, one of the huge problems with the current Government is that the Cabinet knows the south of France better than it knows the north of England.

According to the ONS, construction output declined by 4.8% in the first three months of this year, after a 0.2% decline in the fourth quarter last year. That is absolutely catastrophic, and one of the biggest components of any aspect of construction, from roads, to houses, office blocks, new schools and hospital wings, is steel, so, when the construction industry declines by 5% under our nation’s current economic stewards, that signals very bad news for steel.

There has been no growth at all in manufacturing. There are of course some pockets of growth, and, as my right hon. Friend the Member for Warley (Mr Spellar) pointed out earlier today, the car industry is doing better, so I accept fully that the situation is uneven, but we are a United Kingdom Parliament, not a south of England Parliament or a Parliament just for the City, and our policies have to help all of the country, not just parts of it.

Debt is the enemy of any good stewardship of the nation, although I have to say that I have probably been in debt all my life: it is called a mortgage. But, providing I have been able to manage that debt and to pay the interest rates, I have not been crippled by it. When William Pitt became Prime Minister in 1784, the average national income of Great Britain was £23 million and the national debt of Great Britain was £240 million. In other words, the national debt was 10 times the national income. That did not faze Pitt, but it seems to faze his old Etonian successor, our current Prime Minister, who thinks that an infinitesimally smaller level of debt is something that has to bring the entire UK economy to a juddering halt. I am not suggesting that we return to Pittite days of massive debt to national income ratios, but we have to strike a balance, and we will certainly not tackle any of our debt if we do not swiftly move to growth.

I accept that some Ministers, including the Secretary of State for Business, Innovation and Skills, are interested in steel and have come to the advanced manufacturing plant in Rotherham, on the border with Sheffield, to see the excellent work done there by Rolls-Royce, Boeing and other companies. I invite a Minister to come to a steel plant, either in my constituency or that of my hon. Friend the Member for Penistone and Stocksbridge, where they will be told about the extraordinarily international nature of the steel industry and about the fact that what goes into making steel entirely determines its profitability and the future sustainability of any part of the industry.

The big problem that we face is the obsession with front-loading on to the steel industry the general problem of climate change. I am talking about steel, but I am not excluding other industries. I am sure that hon. Members with connections to the glass or ceramics industry, or to other high-energy-using industries, would make the same point on their behalf. There has been a culture, not necessarily under this Government, of saying, “Heavy industry bad; anything else good.” Well, I am sorry, but we are not going to move away into an economy of which steel does not remain an essential component. Steel is vital, sometimes in very small elements, whether it be in our cars, our mobile telephones or the planes we travel in—modern steel, high-tech steel, flexible steel. Steel is also a huge recycling industry. It is not generally understood that steel production is based on gobbling up and reusing old, unused steel that would otherwise have to go into landfill or clutter up the landscape.

In this year’s Budget, our southern-oriented Chancellor outlined policies that will have a detrimental effect on the UK steel industry. He confirmed that the Government will calculate the 2014-15 prices support rates, equivalent to £9.55 per tonne of carbon dioxide, in line with the carbon price floor, using the methodology set out in the 2011 Budget. This has increased from the indicative rate set last year of £7.28 per tonne. That is a response to the dramatic fall in carbon prices seen last summer. EU allowances reached record lows at the beginning of this year, so the support rate or tax applied in the UK needs to go up to achieve the floor. That means that next year the rate will be nearly double that in 2014, which was meant to stand at £4.94 per tonne but is now set much higher.

I am sorry that this is quite complicated, technical stuff to bring to the House. I am not trying to make a partisan point; indeed, I pay tribute to Ministers, who have always been willing to receive delegations of MPs from steel industry areas. Part of the problem is that such a level of technical detail is impossible to get across in parliamentary questions. One has to dig into fairly technical steel technology and steel industry publications to find this material, because it never features on the front page of any newspaper or business section.

In response to the increase in the carbon price floor, BIS has allocated £250 million in compensation to cover the 2013-15 period. Given that our steel industry has a value of about £3 billion a year, £250 million will not be sufficient to counteract the negative effect of the carbon price floor. That might cause lasting damage to the British steel industry.

I plead with the Government—the Department for Business, Innovation and Skills and the Department of Energy and Climate Change—to rethink their policies. They can, by all means, insist that we reduce CO₂ emissions. However, they should not use methodologies and prices that are changing so rapidly that they will do damage when rigidly applied. Believe me, when civil servants want to apply something rigidly, they do. On the whole, Ministers, however well-intentioned they are, are not across every detail of such decisions. Without it being an intended consequence, if we allow the present structure of carbon reduction through price support mechanisms to continue, we may face serious damage to our steel industry.

Secondly, there is the pledge to consult on simplifying the carbon reduction commitment energy efficiency scheme, or CRCEES as it is known in the trade, to attempt to reduce the administrative burden on business. The Government have said that they are ready to look at replacing those revenues with an alternative environmental tax. However, they have not specified how an environmental tax will be paid and which industries it will affect. We also had the statement on feed-in tariffs earlier today.

Last night, I had the most extraordinary exchange with Mr Nigel Farage on LBC. His new term for the Prime Minister is a “warmist”. I had never heard of warmism before, but in the lexicon of the UK Independence party, it is apparently used to denounce people who like renewable energy and wind turbines, and who think that we are facing global warming. Mr Farage obviously knows better that global warming is an EU conspiracy to undermine Britain. He thinks that the louder he calls the Prime Minister a warmist, the more people will flock to vote for UKIP. I do not know whether that is the case.

At the moment, only non-energy-intensive firms and organisations are bound by the carbon reduction commitment. We have to look at other ways in which we can support energy intensive industries, and the steel industry in particular. It is the most extraordinary sight to see steel being melted in Rotherham. Scrap is poured into a giant metal pot and a red-hot electrode goes in at about 2,000° or 3,000°. There is a huge explosion, upon which I have seen distinguished colleagues shake. It demonstrates the raw power of industry. In a sense, it is a process that has not changed since the days of Vulcan—heat is applied to iron ore or scrap metal and out flows molten steel—except that the process is magnified in temperature and size many times over. It is fantastically dramatic; sometimes tragically so, as accidents still happen. That is the raw nature of what has to be the core of our economy, because however high-tech, Googley and Facebooky we want to make the British economy, and however much we want to base it on the City and the financial services industry, it will still need houses, cars, hospitals and metal manufacturing.

The third problem is the extraordinary discrepancy between the fuel costs in this country and those of our major competitors. The most dramatic difference is with the United States, where shale gas is significantly reducing the cost of energy. I have graphs here, but I do not really want to give more figures. The price of fuel in the US is about 50% lower than that in the United Kingdom. That is why I support a dash for gas, based on shale gas. That could significantly reduce the UK’s dependence on imported energy sources. I am not against wind farms—how can one be?—but they will never provide the electricity that is needed to melt steel. Everybody wants to be able to press a switch and on comes the light, on comes the heating, on comes the hot shower, on comes the air conditioning or on comes whatever else, but that ain’t gonna happen from renewable sources.

Finally, I want to consider the problem of electricity prices. I have a chart illustrating the estimated prices in 2015. I cannot hold it up, because we cannot do PowerPoint stuff in the Chamber, but the best estimates show that the cost per megawatt-hour delivered in Germany will be about €50, and in the United Kingdom €70. In the United States it will be €35, in the Nordic countries €45 and in France a bit less than in Germany, maybe €48. Those are estimates, but we—by “we” I mean our steel industry—pay higher tax on electricity than the United States or our main European steel-making competitors.

I understand the desire to reduce our carbon output and the Treasury’s perfectly reasonable desire to get what tax it can from whatever source it can. I know that my speech could be described as special pleading, but the comparators with most other countries show that the British steel industry remains fundamentally disadvantaged by the higher cost of electricity, which is needed for melting steel. It cannot be done with a Bunsen burner or by putting the gas cooker on, it needs 2,000° C to 3,000° C-worth of electricity delivered fast and hard.

[David Mowat]

I agree with the right hon. Gentleman that every Member should spend some time looking at a blast furnace. The one that I saw was in Port Talbot. It is quite an emotional experience.

The right hon. Gentleman is making a case about high energy prices, and it is a fact that they destroy jobs and value in industries of the type that he is representing today. However, I am not quite so clear about what his solution is, given everybody’s apparent desire to have more windmills.

[Mr MacShane]

It is to invest in a mixture of energy sources, and I would focus on nuclear. We simply need a wider national debate about what is important, including maintaining a steel and manufacturing sector as part of the broader economy. It is reducing in size and will never generate millions of jobs again, but we need a debate about whether it is worth while, particularly in the part of England that is getting less and less attention from this very southern-focused Government. The hon. Gentleman made the point that if Newcastle were knocked out of the rugby union premier league, rugby union would become an entirely southern-based sport. I want more balance in our economy and our sport, much though I am delighted that Chelsea beat the Germans on Saturday.

I will finish by quoting Karl-Ulrich Köhler, the managing director of Tata Steel here in the UK. He praised the Budget, saying:

“The Chancellor is rightly aiming to reward work”,

but he said that it

“did little to ease the additional unilateral energy costs that UK industry must bear. The benefits to industry pale into insignificance against the costs imposed on them from existing energy and climate change regulations, which are rising alarmingly in the UK.”

That is “Made in Britain” regulation. It has nothing to do with the EU. I am going to sit down now, but I could make the case that the European model of manufacturing, steel and energy prices is much more intelligent and co-ordinated than ours. If we had the same model, it would hugely benefit manufacturing, particularly the steel industry. I urge Ministers to pay particular attention to the matter.

I would get on my knees to say that even if we have much better and fairer electricity prices, we can make all the products we want, but while we have a recession-focused Chancellor who seems to draw some weird pleasure from the British economy shrinking, there will be no money to buy those products and the firms of Rotherham will face a very bleak future. That goes not just for our huge steel industry but for every firm that needs a decent level of demand in the economy, which is currently being denied the UK.

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[David Mowat (Warrington South) (Con)]

I will endeavour to speak succinctly on one issue. I rise as a Back Bencher, and I am aware that many of us make suggestions to the Government about policies that usually have the characteristic of costing money. I am delighted to say that the proposal I am going to outline will save the Government about £30 billion per annum. The case I wish to make is for the abolition of tax relief on pensions. If we were to get rid of that relief, it also would enable us, if we so wished, to increase the basic pension by between 50% and 60%, and to reverse the tax raid that resulted from the previous Government’s changes to private pension arrangements. Private pension arrangements in this country are a disaster.

The question might arise as to who would lose from this proposal. They would not be the people who are saving for their retirement, because the industry with which they have saved has failed completely to enable them to do that. I will develop that point a little further later. As far as I am able to make out, the only significant losers from this proposal would be estate agents in Kensington and Chelsea, which is where the supernormal profits from the industry that is supposed to look after our retirements are going.

In broad terms, there are two models for pensions. One is the one we have, whereby tax relief is given, people are encouraged to save in their own right and they then have their pots, which they can use at the end. The other model is that used in most of the rest of Europe, whereby the state has a much higher position in helping and the consequence is higher basic pension provision by the state. In general, I would prefer our model, if it worked—it would be a model that I am more comfortable with. It is a market-based model that encourages people to do the right thing and then have more money in retirement. Unfortunately, it has not worked and is not working, and there is a real policy issue to address for Governments of whatever type.

Let me give some evidence of the failure: approximately 50% of people have a poor view of the retirement industry; one third of people in the private sector do not save at all for their pensions; and another third who do save have an average pension pot in the order of £35,000, which will buy them a pension of about £1,500 per annum. The further evidence of failure in this area is that the Government, rather than reforming the current system, are introducing compulsion, because people will not save under the existing structures.

All this has happened because we have a market failure. As I say, I would prefer a market-based solution. We have a market that is too complex, in which there is no transparency and, most seriously, a massive asymmetry of information between the suppliers of these financial products and the people buying them. Punters need to demonstrate a massive degree of intellectual self-confidence in challenging the people who are selling pensions, the fund managers and so on. That is not going to be fixed by better financial regulation, although the situation could have been fixed with better advice—that is really what should have happened. The difficulty is that the advice industry of individual financial advisers was entirely hijacked by the pension fund provision industry in terms of commission, trailing commission and all that goes with that. As a result, independent advice has not been available and that has compounded the issue.

I want to say a couple of things about charges. The Financial Services Authority estimates that 31% of private pension pots go in charges. That does not include the so-called churn charges, which are the cost of buying and selling shares at differing rates and the equity within that, as the average pension fund churns every seven months. If we take churn charges into account, it is nearer to 50%.

Over the past decade, at a time in which pension funds have been increasing in size, one would expect economies of scale to have taken down the average pension percentage charge. In that decade, charges have risen because of the market failure. Significantly, a lot of academic research says that the difference between the pension fund industry in this country and that of the US is about 100 basis points a year—1% a year in extra charges that are almost certainly going on supernormal profits. That is the money that the Government are providing through pension tax relief.

I am keen not to take too long, so I would like to leave my hon. Friend on the Front Bench with a figure for the savings, with a description of how I got to that number. In broad terms, the fund industry in this country is worth £2.5 trillion a year. So, the funds under management are £2.5 trillion and if we accept—it is pretty clear that it is true—that 1% of that represents the supernormal overcharging caused by the market failure that I have described, which does not exist in other countries, there is a supernormal profit of £25 billion to £30 billion a year. Conveniently, that is pretty close to the amount of money that we give the industry in tax relief. I do not think that the industry expects it to continue, as it is as astonished about it as many of the rest of us are.

It is not good enough for the Government to make proposals for compulsion through auto-enrolment when they are superimposing them on the rotten industry, which continues to fail, rather than reforming it. The reform could take place through caps on charges, which the Government introduced for the stakeholder industry and will not do for this. The National Employment Savings Trust, the Government’s own provision of auto-enrolment fund management, could then be given a higher profile. Some of the restrictions on NEST should not remain, either.

I leave the Deputy Leader of the House with the thought that my proposal offers £30 billion to £35 billion and I do not even want any commission.