Finance (No. 3) Bill

Ian Lavery Excerpts

Tuesday 5th July 2011 Commons Chamber

[Tom Blenkinsop]

I thank the hon. Gentleman for his comment, and I entirely agree with him. The industries are in it to make money, and it is obvious to anyone who knows them that they need to reduce the amount of energy that they expend to make their products.

British manufacturing output as a whole has been growing for decades, according to figures from the Office for National Statistics. Why is that? Output in the chemicals industry has increased, unlike in other sectors. During the 2008-09 downturn, the industry suffered the second smallest decline in production. The development of the chemical industry over the last decade under Labour has been largely unreported. Only now is it being seen as a sexy subject. However, in places such as Middlesbrough, Redcar and Billingham, we have always referred to ourselves as proud smoggies, in the knowledge that our manufacturing endeavours have far more worth than the machinations of the City.

According to DECC statistics on greenhouse gas reduction, the disappearance of the chemicals sector would directly save an average 10.79 million metric tonnes of CO₂ equivalent, out of the total UK generation of 627.85 million metric tonnes of CO₂ equivalent. Across industry, the chemicals sector is responsible for only 3.9% of energy-related emissions. The growth reviews in November and December last year gave good signals to manufacturing. However, the rhetoric contained in those reviews assumed that a low-carbon economy could emerge only by pricing energy-intensive users out of the market. The flaw in that logic is the assumption that the full substitution of fossil fuels will miraculously come about if intensive energy users are strangled. A further flaw is that the technology that will develop green industries actually flows from the existing energy-intensive industries, their research and development, and their skilled work forces, but they will obviously no longer exist in the UK if we force them abroad.

The December growth review stated that high energy prices were a barrier to advanced manufacturing growth, yet the Secretary of State for Environment and Climate Change said at the same time that recovery does not come from old industries “bouncing back”, and that the low-carbon industries would be an important part of our growth story over the next 10 years. That was in his speech to the Institute for Public Policy Research on 1 December last year.

For every tonne of CO₂ emitted in producing insulation, 233 tonnes of CO₂ are saved, and, as my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith) said, for every tonne of CO₂ emitted in producing a wind turbine blade, 123 tonnes of CO₂ are saved. For every tonne of CO₂ emitted in the production of energy-saving tyres, 51 tonnes of CO₂ are saved—and so on, and so on. In the case of insulation, one year’s CO₂ emissions created producing insulation saves 2.4 billion tonnes of CO₂.

At the heart of the issue is the lack of understanding in the Treasury and DECC that these chemical companies cluster, as they always have done, and as they previously did within the large-scale set-ups of ICI. As NEPIC—the North East of England Process Industry Cluster—has proven in my region, locally produced products often feed on-site sister businesses or other company-owned plants. That integration produces better economies of scale, efficiency, profitability and technological development. It is regional clustering, as exemplified by NEPIC in north-east England, which was set up by One North East, that exemplifies industrially-led industrial activism. The Government’s carbon floor pricing policy, on the other hand, fragments industrial integrative clustering.

Unfortunately, the Government assume that secondary industries will not leave the UK, even if the primary chemical industries do. Indeed, the Secretary of State for Energy and Climate Change has said that

“quite a few of the high energy users have forms of natural protection like high transport costs so the impact is rather less than you might expect.”

Unfortunately, empirical evidence wholly contradicts the Government’s stance. As Jeremy Nicholson, director of the energy intensive users group has said:

“The idea that downstream industries are likely to remain here indefinitely if primary production goes might have a theoretical case but I’d say just look at the empirical evidence: downstream manufacturing thrives on co-location with primary industry and why would you expect that to cease in the future?”

Real life examples clearly show just how fragile downstream companies are. Let us consider Wilton, the former ICI site in the constituency of the hon. Member for Redcar (Ian Swales). The plants were balanced with the ICI ethylene cracker at the top of the production pyramid; as foreign ethylene became cheaper and producers produced offshore, the requirement for the cracker was reduced, leading to other plants downstream such as the Dow plant also being affected.

When Dow closed, 55 direct jobs were lost. That is not as big a media story as the events that unfolded at the mothballing of the Redcar blast furnace at the then Teesside Cast Products Corus plant, but the repercussions of Dow were just as profound. An estimated 2,500 jobs were lost downstream as a result of the closure of Dow’s ethylene oxide production plant—the only ethylene oxide plant in the UK. NEPIC has bounced back, bringing in other investments to Teesside, but it is acutely aware of the loss of primary chemical production and of lost opportunities for technological developments that could be made on Teesside, securing new green markets in turn.

More than this, however, the Secretary of State’s comments condone the loss of primary chemical production as a result of the carbon floor pricing while actually actively pursuing it. The question I must ask is: if industry flees within two years, as feared, how on earth will this carbon floor pricing levy taxation apply when the energy-intensive industry is no longer here? An industry cannot be taxed if it will not hang around to be taxed, which leaves Britain with neither the tax nor the industry.

As many primary raw chemicals are very expensive to transport and in some cases are banned from transportation, the Secretary of State’s relaxed approach appears uninformed. Many secondary production companies are small and medium-sized enterprises, often with fewer than 10 employees, and economies of scale for the transportation of such vast quantities of chemicals are just not viable, making the whole operation futile and highly costly for such small operations.

Amendment 12 would ensure that the Government look at the immediate impact of the provisions in the schedule on energy-using manufacturing industries and on employment in those industries; and at how the moneys raised by those measures will be used to mitigate the immediate impact of the schedule on consumers and on manufacturing industries and to encourage green investment. At the very least the Government must monitor and review their own policy and its consequences, which I fear will be devastating for energy-intensive industry and for my area of Teesside. A review will allow the Government to take stock.

[Ian Lavery (Wansbeck) (Lab)]

Is my hon. Friend aware of the double whammy of the European trading scheme and the carbon floor price, which will have a devastating effect not just on Scunthorpe and Teesside but on Lynemouth in my constituency? Rio Tinto Alcan is the company there and it makes a current profit of £50 million a year, which will be totally wiped out as a consequence of this double whammy, putting 600 quality jobs at risk. Does my hon. Friend agree that special measures must be put in place to overcome these unjust taxes?

[Tom Blenkinsop]

I thank my hon. Friend for his intervention. Yes, I certainly do. To finish, let me say that a review will allow the Government to take stock of the policy and to make quick changes to it, as I fear they might have to before it is too late.