Finance (No. 3) Bill

Joan Walley Excerpts

Tuesday 26th April 2011 Commons Chamber

[Joan Walley (Stoke-on-Trent North) (Lab)]

Does the right hon. Gentleman accept, however, that there is concern about the amount of hidden subsidy for the nuclear industry in the Finance Bill, and given the coalition agreement that there is to be no subsidy for nuclear power, does he share my concern on behalf of manufacturers, particularly in my constituency, that if there is any windfall tax it should be directed to promoting energy and waste-resource efficiency in terms of manufacturing? Is there not a complete mismatch here?

[Danny Alexander]

I understand the concern, and I know that it has been expressed by a number of lobby groups, although I have to say that I think it has been grossly exaggerated. The purpose of the carbon price floor is to ensure a stronger, and strengthening, market over future years for investment in low-carbon energy. It will deliver a genuine incentive for green and renewable energies to be developed and invested in. Meeting the carbon reduction targets, which I think all Members support, will require several tens, or even hundreds, of billions of pounds of new investment in renewable and other energy sources, and I think that introducing a carbon price floor is exactly the right mechanism to achieve that.

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[Danny Alexander]

I recognise the force of the hon. Gentleman’s concerns, and I have great respect for the detailed way in which he puts them forward, which I have learned about through the relationship we have had as a result of his role as Finance Minister in the Northern Ireland Assembly Government. On this point however, I have to say that I think he is wrong. I hope that the carbon price floor will, alongside other measures, encourage investment in low-carbon power generation, including in Northern Ireland. That is what we are seeking to achieve through this mechanism. I think he also referred to energy-intensive industries, and we have announced that the climate change agreements, which are to the benefit of such industries, are to be rolled forward for another phase and that the relief given through those agreements is to be significantly increased. I hope that will ensure that such energy-intensive industries will be able to make the transition to lower, or different, energy use in a way that does not have the economic effects he describes.

[Joan Walley]

Given what the right hon. Gentleman has just said about the importance of investment, does he agree that the Budget should actually be giving the advantage to energy efficiency? Because of the delays in developing the green investment bank, are there not now real concerns about where we are going to get the resource efficiency from?

[Danny Alexander]

I agree that energy efficiency is important, of course. That is precisely why the Department of Energy and Climate Change has been working so hard to bring forward the green deal scheme, which will start next year. It is designed precisely to give additional encouragement and incentive, and to provide a mechanism for people to engage in the sort of action on domestic energy efficiency in which they have not previously engaged over the years, which I hope the hon. Lady agrees is very important. Also, there are not delays in respect of the green investment bank. Quite the contrary; we announced in the Budget both a trebling of the amount of public money going into the bank, partly through asset sales, and that it will start its operations in September next year, thereby providing yet another strand to the additional investment we all want to see in green energy.

The measure I have been discussing will make us the first country in the world to introduce a carbon price floor for the power industry. It will help to provide an incentive for the billions of pounds of investment in cleaner sources of energy that this country needs, so ensuring we are on course to meet our carbon reduction targets. We have also preserved the link between the climate change levy and prices, through clause 23, to act as a further incentive to low-carbon investment.

The Bill will also help to address other important social issues. The new duty on high-strength beers in clause 15 will help to tackle problem drinking, increasing the cost of a typical can of high-strength lager by 25p. That is coupled with a reduction in the duty on lower-strength beers to help encourage the consumption of alcohol in a more responsible way.

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[Peter Aldous (Waveney) (Con)]

I largely support the Bill and the Chancellor’s Budget proposals. He has inherited a poor hand, which he has played well. He is sticking to his plans to reduce the budget deficit, a strategy that is supported by the International Monetary Fund and the OECD and that will ensure the country’s long-term prosperity.

The Bill contains proposals that will help achieve two important objectives. First, the Chancellor is creating an environment that will encourage businesses to grow and to create new jobs. Policies such as reducing corporation tax, getting rid of red tape, reforming the planning system, investing in science and innovation and promoting apprenticeships will help create a business-friendly environment in which businesses can flourish and create jobs. The proposal to create 21 new enterprise zones is to be applauded, and I am an enthusiastic participant in the competition that he has launched, helping to promote an energy enterprise zone in Lowestoft, in my constituency, and the adjoining Great Yarmouth.

Secondly, the Chancellor has made proposals that will help to rebalance the economy in the move towards a low-carbon future. The establishment of a carbon floor price, the renewable heat incentive and the green investment bank will help achieve that objective. My personal preference would have been for the green investment bank to have had borrowing powers straight away, but I recognise the difficult financial constraints in which he has had to work and commend him for providing an additional £2 billion of investment to be added to the £1 billion already allocated, and for bringing forward the bank’s start date to 2012.

The Chancellor is to be congratulated on recognising the difficulties that people and businesses are experiencing due to high fuel prices, and on coming forward with proposals to ease the burden by cutting fuel duty by 1p, by deferring future fuel duty increases and by abolishing the fuel duty escalator and replacing it with a fair fuel stabiliser. However, those proposals are to be funded by an increase in the taxation of the oil and gas industry, which I believe requires further scrutiny and refining.

I make my observations having listened to people and businesses in my constituency who work in the oil and gas industry in the southern North sea. There is concern that, as matters stand, the proposals will discourage further investment, which could jeopardise jobs and threaten the move towards improving the nation’s energy security.

I have two specific concerns, which are along the lines of those set out in detail by the hon. Members for Aberdeen North (Mr Doran) and for Dundee East (Stewart Hosie). First, a flat-rate tax would unfairly penalise smaller oil companies looking to work marginal fields. Such an approach could well result in such projects becoming financially unviable and companies diverting their activities to other countries where the taxation regime is more favourable. Not only would that lead to the loss of local jobs and income to the Exchequer, but it would mean that, as a country, we would become increasingly reliant on energy imports, often from areas of high political risk. It is important that the Government do all they can to ensure that we utilise our own oil resources fully.

Secondly, I am worried that the proposals will have a significant adverse effect on the gas sector, which is particularly important in the southern North sea. As we have heard, the financial parameters of gas projects are very different from those of oil schemes. Gas prices are considerably lower than oil prices. Whereas Brent crude is trading at approximately $120 a barrel, UK wholesale gas trades at approximately $57 per barrel equivalent. Although development costs are lower, they are not lower by a proportionate amount, so a tax increase would push lower gas returns down ever further. That would result in gas projects becoming uneconomic, with the result that schemes would not proceed and lower-priced North sea gas production would be replaced by higher-priced gas imports. That would feed through to higher gas and power prices for domestic and business consumers.

The East Anglian coast has the opportunity to play a vital role in providing for the country’s future energy needs. I am worried that the proposals in question jeopardise that role, and I wish to make three further observations about them. First, they could discourage investment by energy companies that work on a global stage and are footloose in deciding where to invest. Britain has a proud record of providing a stable political and fiscal regime that is conducive to attracting such investment, and it is vital that we do not lose that reputation.

Secondly, offshore renewables provide an exciting future and can help towns such as Lowestoft and Great Yarmouth reverse years of economic decline and create new long-term jobs. Many of the skills employed in the oil and gas sector are transferable to wind and wave technology. If we discourage investment in oil and gas in the North sea, there is a danger that the supply chain and skills base could be irretrievably damaged. In due course, that could deter investment in renewable energy.

[Joan Walley]

The hon. Gentleman, like me, serves on the Environmental Audit Committee, and he speaks with great knowledge about the renewable industries. Does he agree that the problem that he describes would affect not just constituencies such as his but manufacturing areas such as mine? We are seeking to manufacture the ingredients, if I can put it like that, of the renewable energy industries. If the Government do not adjust their plans towards his vision, we will not have the manufacturing capacity that we need or the ability to get people back to work.

[Peter Aldous]

I agree wholeheartedly with the hon. Lady. I would love that manufacturing to take place in my constituency, but if it is not to be there, I hope it is in hers.

Finally, there will be a time lag before investment in offshore renewables results in electricity coming on stream. Until that happens, the gap needs to be plugged so that the nation’s lights do not go out. That could be achieved by making the best and full use of our national oil and gas assets in the North sea, thereby providing a triple dividend of more jobs, additional income for the Exchequer and improved energy security.

I request that the Government look closely in Committee at their proposed tax increase and that they address two issues. First, smaller oil companies should not be discouraged from making investments in marginal fields. Secondly, there should be a different taxation regime for gas to reflect the differences between the oil and gas sectors and the lower profitability of gas.

The Bill has a great deal to commend it, but it contains a fundamental flaw that I urge the Government to address.