Finance (No. 3) Bill

Iain Wright Excerpts

Tuesday 5th July 2011 Commons Chamber

[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?

[Mr Iain Wright (Hartlepool) (Lab)]

It is a pleasure to follow my north-east neighbour, the hon. Member for Redcar (Ian Swales), and if I may, I shall reiterate some of what he said.

I agree with both amendments, particularly amendment 12 tabled by my right hon. and hon. Friends. If this country was portrayed as a heat map, with particular emphasis on different components of industry, such as nuclear energy, energy-intensive industries and renewable energies, my constituency would burn the brightest. We on Teesside provide a large part of this country’s energy needs. I have a nuclear power station in my constituency, and just outside there is a gas turbine station and a combined heat and power facility. Petroplus, Europe’s biggest independent refiner and wholesaler of petroleum products, has significant oil and gas refining capabilities in my constituency.

Although we generate a lot of the country’s energy requirements, we use a lot of it too. As the hon. Member for Redcar said, we have significant energy-intensive industries—not just refining but petrochemicals, speciality and fine chemicals, plastics, biotechnology and pharmaceuticals. I also have a world-class steel pipe mill in Hartlepool supplying essential components in the supply chain for the oil, gas and chemical industries, although unfortunately the pipe mill has just laid off 90 people. Some 60% of the UK petrochemical industry is based on Teesside, as well as more than one third of our country’s pharmaceutical and chemical industry. The Tees valley has the largest concentration of petrochemical industry anywhere in western Europe, and we have the largest hydrogen network on the continent.

A single venture in Teesside, GrowHow UK, which makes nitrogen fertilizer in my area, uses 1% of the UK’s entire natural gas capacity. About 40,000 people are employed directly in the process industries on Teesside, with a further 250,000 employed indirectly through the supply chain. Energy-intensive industries generate one quarter of my region’s gross domestic product, with about £10 billion of sales. As the hon. Member for Redcar said, the importance of Teesside and these industries to the national economy, let alone the regional economy, cannot be overstated.

Like my hon. Friend the Member for Bristol East (Kerry McCarthy), who sits on the Front Bench, I agree with the principle of a carbon floor price. However, given the importance of energy-intensive industries to my area, I remain very concerned that the proposals in the Bill for carbon floor pricing represent a serious threat to UK competitiveness.

[Geraint Davies]

Does my hon. Friend agree that this carbon floor pricing will, first, run contrary to the strategy of shifting from reliance on banking to manufacturing and a broader base and, secondly, move the production of things such as steel, which is environmentally controlled and relatively clean, from Britain to somewhere such as south America, where the same amount of steel will be produced much less cleanly? The impact will be to harm the environment and the economy, which is ridiculous.

[Mr Wright]

I absolutely agree with my hon. Friend on both points. We are exporting not just jobs but carbon emissions to elsewhere in the world where there might not be the same high level of regulation on carbon emissions.

The point that I want to emphasise as much as possible is that my area is doing exactly what the Government want it to do—we are rebalancing the economy and have an emphasis on manufacturing and, in particular, export-based industries that can provide wealth and job creation. It seems that we are doing everything right according to the Government, but we are being penalised and not provided with a level playing field.

My hon. Friend the Member for Bristol East and the hon. Member for Redcar quoted the managing director and chief executive officer of Tata Steel’s European operations. I want to be as balanced as I can. He praised the Government’s enterprise zones and stated:

“It is good news that the Tees Valley is to be among the first of the government’s newly created Enterprise Zones, as Tata Steel will remain a major employer in that region”.

To expand on the quotes already given, however, I should add that he went on to state:

“The extension of the Climate Change Agreements and the return of the discount on the Climate Change Levy to 80% will come as modest but welcome relief to Britain’s hard-pressed energy-intensive industries. However, these benefits are likely to be dwarfed by the introduction of the Carbon Floor Price (CFP), which represents a potentially severe blow to the sustainability of UK steelmaking. European steelmakers already face the prospect of deteriorating international competitiveness because of the proposed unilateral imposition by the European Commission of very significantly higher emission costs under Phase 3 of the EU Emissions Trading System. The CFP proposal will impose additional unilateral emission costs specifically on the UK steel industry by seeking to artificially ensure that these costs cannot fall below government-set targets which no other European country will enforce. This is an exceptionally unhelpful and potentially damaging measure.”