Renewable Heat Incentive Scheme (Amendment) Regulations 2016

Desmond Swayne Excerpts

Wednesday 19th October 2016 General Committees

[Sir Desmond Swayne (New Forest West) (Con)]

As a signed-up member of what I call the classical liberal elite, I have a prejudice against any kind of subsidy. Subsidies distort the market. The advantage of a free-moving price is that it ensures that there is sufficient demand to command a price that makes it worthwhile for the producer to incur the production costs to furnish that demand. By introducing a subsidy, one distorts that mechanism and misallocates resources accordingly. I would therefore ordinarily expect to support a measure such as this one that, if only in part, withdraws a subsidy, with some enthusiasm.

However, even for me—an ideologue—the question of equity arises. Yesterday I received representations, particularly on behalf of the poultry industry, that suggest that investments were made on the basis of the Government’s commitments that are now unviable as a consequence of the regulations. I would be most grateful if my hon. Friend the Minister could reassure me on that count.

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[Jesse Norman]

I absolutely give my hon. Friend that reassurance. I simply direct him to the recent announcements on Hinkley, on offshore wind and on the contracts for difference that will shortly be coming forward. Funding for the renewable heat incentive is due to rise from £430 million in 2015-16 to £1.15 billion in 2020-21. Those are hardly the signs of a Government who do not take these issues seriously or are unwilling to make plans on the lengths of time suitable for investment or licence.

I want to pick up the point, en passant, raised by my right hon. Friend the Member for New Forest West. He is a classical liberal and made a wonderful intervention on the importance of avoiding subsidies. I remind him that any classic liberal of a modern slant would recognise two things: first, that markets can perform not very effectively or efficiently—in some cases in the environment area, pollution is a classic externality generated by market behaviour—and secondly, that markets are instruments of public policy, so it is perfectly proper for a Government on behalf of the public interest more generally to seek to blend objectives in how they treat markets.

[Sir Desmond Swayne]

I would argue that markets are marginally more efficient than Governments in that respect. I hope the Minister will bear that in mind as we move forward to an industrial strategy. Traditionally, that is something that Governments have not done well —so the less we expect of them, the better.

[Jesse Norman]

My right hon. Friend makes a wider point, and I enjoy the move to head off the Government. Two things: first, whether markets perform more effectively than Government depends on the question we are seeking to answer. I certainly do not accept the claim that they are always more effective. [Interruption.] I am afraid I cannot hear the hon. Member for Aberdeen South chuntering from a sedentary position. He is welcome to make the point in an intervention, if he wishes.

The second point to my right hon. Friend is that although in some cases industrial strategy has been done badly, in others it has been done rather effectively. Parts of Scandinavia have seen effective industrial policy, although I am not suggesting for a second that the industrial strategy that this country develops will necessarily model that. I am sure it will take the best of all thinking on this topic. It is perfectly proper for Government to seek to decarbonise industry, given that industry has an intrinsic market-driven tendency to burden the environment with costs that it need not meet itself through what economists call “externalities”.