Finance (No. 3) Bill

David T C Davies Excerpts

Tuesday 5th July 2011 Commons Chamber

[Ian Swales]

I am not aware of Airbus’s activity in detail, but I will support the hon. Gentleman’s point later by saying that such industries have a role to play in our future, and that they are not just of the past.

The hon. Member for Bristol East (Kerry McCarthy) has mentioned the comments of the head of Tata Steel. He also said:

“European steelmakers already face the prospect of deteriorating international competitiveness because of”

EU emissions costs. On the provision in the Bill, he added:

“This is an exceptionally unhelpful and potentially damaging measure.”

As well as steel, other large sectors are at risk—including chemicals; oil and gas; cement; aluminium; glass, bricks and ceramics; tyres; and paper. There could be more. Those are broadly the sectors that are most affected, but the EU has gone further and drawn up a list of 164 industrial sectors and sub-sectors that are deemed to be exposed to what it calls carbon leakage. That means that the EU recognises that the EU emissions trading scheme and other measures could disadvantage European companies that compete internationally. The sectors and sub-sectors that are judged to be at risk of carbon leakage are estimated to account for around a quarter of the total emissions covered by the EU emissions trading scheme, but for around 77% of the total emissions from EU manufacturing industry.

The UK Government's proposing to add a further tax to those already in place is bound to have an effect. We have just witnessed fresh closures and 1,500 job losses from Tata in Scunthorpe and Teesside. I see a number of hon. Members in their places who are directly affected by that. Tata again mentioned UK energy prices as a factor in its recent decision, but in the fourth carbon budget statement, the Secretary of State for Energy and Climate Change said that

“we need to ensure that energy-intensive industries remain competitive and that we send a clear message that the UK is open for business.”—[Official Report, 17 May 2011; Vol. 528, c. 177.]

The announcement has been welcomed, but there is concern that, to date, there has been insufficient detailed consultation on, and impact assessment of, the proposals with respect to energy-intensive industries. Consequently, the fear is that the Government might underestimate the risk to those sectors.

[David T. C. Davies (Monmouth) (Con)]

I am grateful to my hon. Friend—I suppose I should call him that—for giving way on that point. Does he find it slightly ironic that Members of all parties in this House have for years called for all sorts of extra costs on any industry that generates carbon in any form, but that now, all of a sudden, when the consequences of that become clear, they begin to express their reservations?

[Ian Swales]

I thank my—yes—hon. Friend for his intervention. It seems that the issue is becoming more prominent. That is due partly to industry lobbying. Earlier this year we set up an all-party parliamentary group on energy-intensive industries. I have major concerns for my constituency and the Tees valley, and I am an officer of that group—at least one other officer is in the Chamber. The very high level of interest shown in the group by companies from all sectors indicates the potential gravity of the problem.

Those industries are looking not for special favours, but simply for a level playing field on which to compete internationally. Despite what some commentators claim, there is already a price issue. Even before the Bill, the increase in bulk electricity prices in the UK over the past 10 years was 22% more than in Germany, 29% more than in France and 64% more than in Spain.

The inconvenient truth about UK carbon reduction performance is that it is partly due to the rapid decline in manufacturing. As we have heard in this Chamber many times, under the previous Government manufacturing reduced from 22% to 11% of the economy. Our goal should not simply be to reduce our energy usage at the expense of those industries which, by their nature, are energy intensive. A tonne of steel cannot be melted, and chlorine cannot be made from brine, without using a huge amount of energy—it is simply not possible. Our goal should be to improve our energy efficiency for the same level of activity, not to reduce activity. Otherwise, the trend of the UK exporting jobs and importing carbon will continue.

To ensure that the UK makes a real contribution to climate change, we cannot look just at carbon production; we must also measure carbon consumption. I say that mainly to ensure that the effect of imports is recognised, but we must also acknowledge the contribution of export businesses to our economy. There is no better example than the restarted Redcar steelworks, which will contribute almost 1% to the UK’s carbon emissions, but whose output will go almost wholly to Thailand. Whose carbon is that?

The Government’s policy has far wider economic consequences. Energy-intensive industries play a vital economic role. For example, as the hon. Member for Bristol East said, the chemical industry is a vital exporter—in fact, I believe that it is our biggest exporter. That illustrates how important such industries are to our national economy as well as our local economies. Those sectors feed many other industries, such as automotive, aerospace and green technology, which needs materials for wind, wave and solar power.

We should also remember that the service economy does not exist in isolation—it partly depends on manufacturing, all the way from office cleaners to corporate lawyers and merchant bankers. Pricing those industries out of the UK would mean that tax revenues fell because of closures, and a lack of further investment. That will have the knock-on effect of higher unemployment and an increased burden in welfare costs. I therefore hope that the Minister considers the wider economic consequences of the effects of the Government’s policy on energy-intensive industry.

Energy-intensive industries are often capital intensive, which means that companies cannot just pick up their kit and move. The key thing for the UK is whether executives in boardrooms across the world are writing off the UK as a place to invest and reinvest. International businesses have options on where to put their money. I know from experience in the chemical industry that a business can take up to 20 years to die after an exit decision is effectively made by ceasing to reinvest.

Energy-intensive industry does and will continue to play its part in improving energy efficiently. It also produces a range of environmentally beneficial products, such as catalysts, insulation, lightweight plastics, and, as we have heard, energy-saving aerospace products. The all-party group recently heard how developments in tyre technology reduce fuel use in vehicles, how new types of glass reduce heat loss from buildings, and which industries are needed to make photovoltaic cells. To give another example, I am aware of a research project in my constituency between Tata, the steel producer, and the Centre for Process Innovation, to make construction-grade photovoltaic panels. Such developments are vital in moving the UK towards a low-carbon economy. We do not want that expertise to be lost to the UK. Energy-intensive industries are not sunset industries that stand in the way of our low-carbon goals, but crucial allies in delivering the necessary technology to make them a reality.

There is therefore an urgent need for simplicity in carbon taxes and for long-term certainty for the industry. Energy-intensive industries need such clarity before the carbon price support mechanism is introduced. Will the Minister assure me that she supports the Energy and Climate Change Secretary, who said—and I repeat—that

“we need to ensure that energy-intensive industries remain competitive and that we send a clear message that the UK is open for business”?—[Official Report, 17 May 2011; Vol. 528, c. 177.]

Will she ensure that the Government engage in comprehensive consultation, and take steps to ensure that a full package of mitigation measures is agreed and legislated for, ahead of the introduction of carbon price support?