Electricity Network Grid Charges

Debate between James Cartlidge and Anne-Marie Trevelyan

Thursday 8th July 2021 Commons Chamber

[The Minister for Business, Energy and Clean Growth (Anne-Marie Trevelyan)]

I congratulate the hon. Member for Kilmarnock and Loudoun (Alan Brown) on securing an important debate.

Network charging arrangements are central to the delivery of a secure and affordable net zero energy system, and the Government absolutely understand that. By law, network charging is a matter for Ofgem, as the independent regulator. Network charges are governed by the principle that the user pays. For the transmission network, that means higher charges for generators in Scotland, as much electricity is sent over long distances to centres of demand in the rest of Great Britain. By contrast, homes and businesses in Scotland pay lower transmission charges than consumers elsewhere in Great Britain. This cost-reflective approach ensures the efficient use of the network and keeps costs down for all bill payers.

Ofgem recognises the critical importance of charging arrangements in progressing to net zero. Last week, it published its consultation on a number of reform proposals as part of its access and forward-looking charges review, including a proposed reduction in the up-front charge paid by generators and demand users connecting to the distribution network. Ofgem’s consultation also noted potential issues with transmission charging arrangements and signalled that it is considering a wider and more holistic review of them.

As the pace of the energy transformation accelerates, it will be important for Ofgem to have clear sight of the Government’s policy priorities for energy decarbonisation. We have therefore committed in our energy White Paper to consulting on Ofgem’s strategy and policy statement in 2021. It will set out the strategic priorities of the Government’s energy policy, the policy outcomes sought and the role of the Government, Ofgem and other parties collectively responsible for delivering these goals.

For the Government’s part, we remain firmly committed to the roll-out of renewable generation projects and are taking a number of measures to support it. We will continue to support low-carbon projects across Great Britain through our contracts for difference scheme. Scotland has benefited significantly from the scheme since its inception in 2015; 34% of all projects are located there. The next round will open at the end of this year.

We have launched the offshore transmission network review to improve the delivery of transmission connections for offshore wind generation. We are working very closely with the devolved Administrations on that.

[James Cartlidge (South Suffolk) (Con)]

The offshore transmission review, as the Minister knows, means a lot to my constituents because they strongly support net zero. Offshore wind has been an amazing achievement in East Anglia, but it is bringing new infrastructure and we have the threat of new pylons across open countryside. On pricing, is it not true that one should look not only at the charging, but at expenditure on capital items that are relieving infrastructure pressure? For example, the eastern link, a huge undersea cable off the coast of Scotland that will relieve pressure on the countryside, will be more than £3 billion. People in East Anglia will hope to see similar expenditure so that they have a defrayment of the infrastructure that would otherwise be going over the countryside.

[Anne-Marie Trevelyan]

My hon. Friend is a doughty campaigner on the matter and continues to drive the Department to make sure that we are moving the offshore transmission network review at pace to find the right solutions that work for the whole country. We will be working on the review to improve delivery.

If I may, I will reply in detail in writing to the very long series of questions asked by the hon. Member for Kilmarnock and Loudoun, to ensure that he gets as full an answer as possible. In closing, I emphasise the importance of the network charging arrangements, which support the delivery of net zero in a fair and efficient way. The reforms that Ofgem is progressing will help us to achieve that.

Question put and agreed to.

Value Added Tax Bill

Debate between James Cartlidge and Anne-Marie Trevelyan

Friday 8th February 2019 Commons Chamber

[James Cartlidge (South Suffolk) (Con)]

It is a great pleasure to follow my hon. Friend the Member for Erewash (Maggie Throup). She has highlighted how the VAT rules do somewhat take the biscuit when it comes to gingerbread men. My hon. Friend the Member for Christchurch (Sir Christopher Chope) has shown that, on Europe, we really cannot have our cake and tax it.

I wanted to clarify one point that my hon. Friend the Member for Christchurch made earlier in reference to me. He very kindly referred to me as a former senior Treasury adviser. In fact, I did serve a brief apprenticeship after leaving university at the Policy Research Unit when it was founded, but I then started my own business. I was never at the Treasury—although it can feel like that when running a business.

Interestingly, when I was a mortgage broker, I found that mortgages were exempt—mortgage commissions are exempt from VAT. We were very much of the belief that mortgages would one day be done online—this was back in 2004—and, of course, many of them now are. When we invested for the first time in a new souped-up piece of IT kit, we received a very expensive bill with VAT on it, which we could not offset, and that created many problems for us. Since then, we have diversified. Most of our income is VATable: we run a big home show at the QE2 and a property portal for shared ownership properties. It is a good business. The great frustration that I have with VAT is that it is very unpredictable in those quarterly comings and goings, particularly as we have a home show every six months. As my hon. Friend said, we should run our businesses as if we are reviewing them quarterly to make sure that we can fund them.

The key point that I wanted to touch on with this Bill is the issue of unfunded tax commitments—a central point on which, in effect, my hon. Friend the Member for Christchurch and I debated through interventions. We were joined by my hon. Friend the Member for Harborough (Neil O'Brien) who was here earlier. That is not to say that any of the measures in this Bill would not be desirable. As I said earlier, I represent a rural constituency. Most of my constituents are on heating oil, so why would I object to cutting the VAT on heating oil? Of course I would not do so on principle. The same is true for sanitary products. My hon. Friend the Member for Berwick-upon-Tweed (Anne-Marie Trevelyan) made a very good case for reducing the VAT on those to zero, which I am sure the Treasury will do once it has the power. The question is not necessarily about desirability, but, of course, about affordability.

[Anne-Marie Trevelyan]

My hon. Friend and I both have rural constituencies and constituents who do not keep their houses as warm as they should because the cost is too high. The question is one of breaking the silos of government to assess the differential in loss to the Treasury compared with the saving to the NHS for those health and lung issues that would not end up in the health service at all. The challenge, if we need to prove it before we make a change in policy, is how we do that across departmental boundaries.

[James Cartlidge]

Of course. Although that is a very good point, it does assume a competitive marketplace where that tax change would be passed on in full to the consumer, and it remains to be seen whether that would be the case.

The point that I was trying to make is that when the Labour party makes unfunded commitments, we talk about the magic money tree. I have to say that I was trying to keep a tally as my hon. Friend the Member for Christchurch was speaking, and he seems to have opened up something that we might call a wondrous wonga arboretum of revenues. At one point, we were looking at £7.6 billion, once we added in the heating exemptions and the potential increase in the threshold to half a million pounds. These are not inconsiderable sums of money. The key thing that we have to remember is that, yes, there are those who argue about dynamic effect on behaviour, which means that these things are revenue-neutral. Perhaps I am a small c conservative, like a former great Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke), whom I admire greatly. He was talking about this very Budget. He used to take the view that we should never rely on forecasts; everything has to be paid for. If we make a commitment, we have to find a corresponding item to fund it. I take that view as well. That is how one should run a business. It is cautious—one always assumes that there is a downside and an upside. Unfortunately, we now live in an era in which we cannot talk about downsides, because there is this “Project Fear” thing, but that is the sensible way of politics and prudence.

--- Later in debate ---

[James Cartlidge]

That is a good point. I was simply trying to make the point that we are talking about the impact of VAT on the consumer, yet if the no-deal scenario that some Members wish for happens, consumers will face onerous costs. By the way, even if we decided that we wanted to cut tariffs unilaterally, we could not; we are not taking back control of France, Germany and the rest. We cannot cut tariffs on our exports, and we would have far less leverage in trade deals. That is an extremely serious prospect, and we need to think about it.

[Anne-Marie Trevelyan]

I have a large number of lamb farmers in my constituency—the finest lamb comes from Northumberland, of course—and the challenge for them is: what are the Government preparing to do in the case of no deal? I certainly would not prefer that outcome; it would be much more constructive to have a deal. Should we leave without one, however, I hope very much that my Government will be prepared, and that there will be plans—contingency plans, if we want to call them that—in place to support the farming industry.

One of the great challenges has been the lack of communication from the Treasury and DEFRA. That is quite understandable, because we are still making our best endeavours to reach a deal, but there is a real difficulty in suggesting that it is therefore better to say we cannot have a no-deal scenario because of the risk. That leaves the business community at the greatest risk of facing challenges without knowing the answers.

[James Cartlidge]

I am grateful to my hon. Friend for that intervention. It will be the last intervention that I take, because I am a strong supporter of the Bill promoted by my right hon. Friend the Member for Chipping Barnet (Theresa Villiers), and I want her to be able to speak to it shortly.

I want to finish with a point about productivity and investment, which has been made by several people. Going back to what I said earlier about IT and so on, the key to productivity is investment, and as a country we under-invest, relatively speaking. For most of the larger companies that want to invest, the ability to offset VAT is fundamental. If I had a wondrous wonga arboretum and I was told that I could cut some money for business tomorrow, I would go for business rates. I would do so because business rates are an on-cost that directly hits investment in small businesses, and I am convinced that they are what is holding back productivity in the SME sector. I will stop there, because I think the next Bill is an excellent one. I hope that if the Bill promoted by my hon. Friend the Member for Christchurch makes progress, we will find a prudent and responsible way of implementing it.