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David Mowat Excerpts

Tuesday 10th June 2014 Commons Chamber

[David Mowat (Warrington South) (Con)]

It is always a pleasure to follow the hon. Member for Perth and North Perthshire (Pete Wishart). I have been desperately trying to think of something that I could agree with him on at the start of my remarks, but we will just have to let that pass.

I support the provisions in the Queen’s Speech. There is a great deal in it about modern slavery, about child protection, on which we heard from my hon. Friend the Member for Erewash (Jessica Lee), and about trafficking. In particular, there is a great deal about cybercrime and strengthening the legislation around disabling IT systems. We need a reorientation in the criminal justice system to address that issue, which is a massive and growing problem that threatens not only financial loss but organisations’ economic stability.

Of the 11 Bills in the Queen’s Speech, I want principally to address my remarks to those on pensions tax and private pensions, and the Bill on infrastructure and what it means for our energy security and for fracking. The pensions legislation was described by the Prime Minister as the centrepiece of the Queen’s Speech, which in many ways it is. It is hard to think of an issue that affects so many people so much as what they will have to spend in retirement. We have systematic under-provision of retirement income throughout the country. There is a rule of thumb that says that pensioners are divided into three slugs of a third each. One third broadly has some kind of public sector pension, possibly not enough, but nearly always more generous than the next third, who are broadly in some kind of private sector scheme. Increasingly, the gold-plated private sector schemes have been closed, but even those people are better off than the final third who have no provision at all. The pension reforms in the Queen’s Speech, and lately in Parliament, have addressed those last two-thirds.

In the comparison between public and private pensions—this is not a dig at public pension provision; we need good and generous provision—it is worth reflecting on the fact that a pension that is inflation-proofed at around £15,000 per annum would cost £400,000 to purchase in the private sector. Virtually no one can do that. The average pension pot in the private sector is about £35,000. A problem is about to hit us.

The structural issue in the UK comes of a policy point versus the EU. We have chosen to pay relatively low pensions to people on the assumption that they will be topped up by the private sector. Nearly every other country in Europe has chosen not to go down that route but has higher provision. The Pensions Minister has made some progress in addressing that. We have paid £40 billion per annum tax relief into the pension system to mitigate this problem, but it has not worked and it is not working. There is a massive distrust of the pension system among the punters out there. I have lost count of the number of people who have told me that they would rather bite off their right arm than invest in a pension. Typically, that is because there is a view that so much goes in charges. There has been a market failure. For a pension pot, about 30% or 40% can go on charges, and the provisions need to address that.

The same is true of annuities. Until quite recently, pensioners have been buying annuities without going on the open market. There have been inconsistent and inappropriate products. In my constituency, about 1,200 people per annum are buying an annuity, of whom more than a half are buying the wrong product. That is just wrong. This is compounded by the auto-enrolment initiative and its success, making the need for action even stronger.

The Government have introduced legislation to allow small pots to be combined; they have provided a cap on pension charges at 0.75%, half the amount the Opposition had in terms of stakeholder provisions; they have dramatically and structurally changed the annuity rules so that annuities no longer need to be taken out, which has burst the whole market wide open; and they have removed many of the abusive features of pension funds, such as active market discounts whereby pensioners who remain in a pension fund having left the company pay more in charges. Most interestingly, in this Queen’s Speech they have brought forward a collective defined contribution idea, which is a paraphrase of the Dutch solution, to try to make progress on costs. Broadly, the assumption there is that there is a collectivisation of risk with pension schemes coming together with the idea that costs will be reduced, which I very much hope happens. There is evidence that in Holland the average pension is 20% to 25% higher than in the UK. The collective schemes may be one reason for that, and another is a much higher propensity to use passive investments. I very much welcome what is going on in that area.

It is worth pointing out that in Holland these collective schemes, which are brought forward in the Queen’s Speech, tend to be industry-specific. Pensioners share the risk, but there is also an element by which pensioners can be penalised, even after they have retired, something which is not currently allowed in UK law. There is therefore an intergenerational issue to be fixed there, but it is an important first step, which I support.

In summary, the Government have addressed some of the issues in the pensions industry, including under-provision in the private sector, but there will remain a massive problem, which I have not talked about at length. The £40 billion of tax relief that we have put into the pension system is to a large extent misdirected, and at some point some Government will have to address that and make progress on it.

The Infrastructure Bill, and the encouragement it gives to the exploitation of unconventional gas, either coal gas or shale gas, is important in relation to the three tenets of our energy policy—decarbonisation, lower cost and security of supply. We hear a lot about whether we should frack. Is it important that we do so? We talk as though it is an option, as though no one else is fracking.

The world has changed when it comes to fracking. It changed about five years ago when the United States went into the industry at great velocity. That changed our entire energy supply market. It is now a net exporter of energy and gas, as opposed to an importer. That has implications for its foreign policy—what it does in the gulf of Arabia and all that goes with that—but even more important in terms of how it relates to us is the fact that now its chemical feedstock and electricity costs are one-third of what ours are in the UK. That is a massive competitive change; it is a game-changer. The consequence of that is not necessarily whole businesses immediately moving from here or from Germany to America; it is rather that a new unit or distillation plant in Teesside or the north west will now be built by global companies in America to take advantage of costs that are one-third—not 10%—cheaper than ours. We have to address this situation.

[Daniel Kawczynski]

I do not know about my hon. Friend’s constituents, but this week alone I have received more than 100 letters from mine who are concerned about fracking. Does he accept that the Government need to do more to convince British people of the need for fracking, and what is his constituents’ perception of fracking?

[David Mowat]

I thank my hon. Friend for his intervention. I accept that we need to do more to convince people that we need fracking; that is one of the reasons I am making a speech about it. It is a little bit about leadership—if we think something is the right answer, we go with it.

I do not want to say that there are no environmental issues associated with fracking, and of course it is important that we frack in the right areas; there will be some places where we should not frack and some places where we should. All that is true, but it is not a reason to turn our backs on this industry. The case that I am putting to my hon. Friend and to other Members is that the world is already fracking. This week, Germany gave the go-ahead for fracking; it had been reluctant to do that, but did so under pressure from its industry. We need to decide as a country how competitive we wish to be, but one of the vehicles of being competitive is cheap prices for energy and chemical feedstock, and fracking is one of the ways in which those cheap prices will be delivered.

There are three tenets of energy policy, the first of which is decarbonisation. Fracking—or gas, I should say—is an element of any decarbonisation strategy that we seriously wish to pursue. In this country, something like 50% of electricity comes from coal and oil. Replacing that coal and oil with gas is the single quickest and most effective way of reducing our carbon footprint. Indeed, of all the countries in the OECD, the one that reduced its carbon by the most in the last five years is the USA. It has done that because it has reduced its coal expenditure and usage, and instead used gas.

The UK—perhaps slightly counter-culturally—already has one of the lowest amounts of carbon per capita and per unit of GDP in the EU. A strategy based on replacing our coal with gas, and doing so more quickly, would lead to even more progress in that regard.

I have talked a little bit about cost, but it is self-evident that there is a correlation between GDP and energy usage. We cannot rebalance our economy on differentially high energy prices, particularly if we are rebalancing it towards manufacturing, and part of the solution is cheaper gas prices.

It has been said that our having unconventional shale gas in the UK does not necessarily reduce prices, and to an extent that is true. However, it is rather like saying we should not have exploited North sea gas or oil 30 years ago because there is a world market for North sea oil and we cannot guarantee that lower prices would—

[Sammy Wilson (East Antrim) (DUP)]

The hon. Gentleman is doing a very good job in answering the question that his colleague, the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski), put about selling the whole idea of fracking. Does he agree not only that there are environmental benefits to fracking but that when one way to tackle fuel poverty, provide fuel security, make UK industry more competitive and even attract some industries that have gone overseas to come back again is to have our own supply of gas from the shale gas available to us?

[David Mowat]

I agree with the hon. Gentleman on all those points, and he made them succinctly and well. Fracking is not something that we can turn our backs on, and I am very pleased that it is in the Queen’s Speech. The point I was making was on the relative cost of energy. I have heard it said in this place that just because we produce shale gas, that will not necessarily reduce our gas prices by 60% or 70%, to the level they are in America. Of course, there is some truth in that; there is a worldwide market in gas, in the same way that there is in oil.

That said, the gas market is a little bit less mobile than the oil market. The European gas hub, which would be affected by gas prices, is smaller than the global market for crude oil. One of the reasons that we in this country cannot benefit from US gas in the way the US benefits from its gas is that the cost of the US sending it to us would probably double its price; it would still be cheaper, but it would be double the price that we would pay vis-à-vis the US. The summary of all this is that we need to get on with it.

The final point, which was mentioned by the hon. Member for East Antrim (Sammy Wilson), is that of security of supply. Whether we like it or not, North sea production is coming down. There may be many things that we can do, either with an independent Scotland or with Scotland within the United Kingdom, to keep that supply going for as long as possible, but gas production in particular is considerably down; it is now something like half what it was at its peak.

Although we in this country have not up till now had to use Russian gas—most of our imported gas has come from Norway—I think I saw a report last month saying that Gazprom and Centrica have signed their first deal, so there is an element in all this of security of supply vis-à-vis the geopolitics of Europe as well.

I hope that the provisions in the Queen’s Speech to make it easier to exploit shale are proceeded with. What the legislation is really saying is that someone’s property rights do not necessarily extend to stopping people drilling a mile under their house or land. That seems to me as logical as saying that someone’s property rights do not extend to preventing aeroplanes from flying over their land. I believe that that was an issue in the USA at one time, and it had to be legislated away in much the same way as we are legislating here for fracking.