King’s Speech

Lord Lilley Excerpts

Thursday 18th July 2024 Lords Chamber

[Lord Lilley (Con)]

My Lords, I welcome the new Ministers to their posts. I wish them well and sincerely hope that they will succeed in their mission to promote economic growth.

The great advantage of speaking in this Chamber is that we can speak perfectly frankly in the certain knowledge that nothing we say here will ever leak out to the world outside, so I want to take advantage of the privacy of this Chamber to offer some advice to Ministers opposite and to tell them some possibly inconvenient truths that we, or I, certainly would not be allowed to voice on the BBC and which they may not even hear from their officials. That is not to impugn the integrity of officials. My officials over 10 years in government were wonderful. Only twice in 10 years did two very virtuous officials succumb to the “noble lie” temptation of concealing information from me or distorting it because they thought that if I knew the truth I might misbehave. I hope it will be rare in the Minister’s department for that sort of thing to happen, but unfortunately virtuous enthusiasm and groupthink go together, so he may find that it is a bit more prevalent than it was in my days.

I met recently an official from my old department who said that they were initially very disconcerted when I took over, because when they gave me some facts or arguments that they were convinced would be absolutely in line with my prejudices, my instant response was, “But is it true?” I urge Ministers to take the same attitude, not least in this area.

The Government promise that tackling climate change and accelerating the move to net zero will lower energy bills and generate economic growth, but is it true? There is no doubt that cheap energy is a prerequisite for growth. America has proved, relative to Europe, that because it has cheap energy it is growing far faster. Equally, we know that expensive energy kills growth. I became an energy analyst in the early 1970s. In 1974, the quadrupling of oil prices killed growth—the end of Les Trente Glorieuses, as the French say. The 30 years of rapid growth after the war was signalled by that and we had much slower growth thereafter. We tend to forget that, in 2009, the great financial crisis was triggered by a rise in oil prices, and growth worldwide has been slower since then.

I therefore support the production of energy from whatever sources are cheapest for this country—I welcome the removal of barriers on offshore wind, for example—but I am sceptical, to say the least, as to whether the Government’s commitment to double onshore, triple solar and quadruple offshore will give cheaper energy. My scepticism has nothing to do with global warming. I studied physics at Cambridge and did the online course on climate change at Chicago University, so I know that the science of global warming is rock solid. My concern is about the costs and economics of the ways we are trying to tackle it.

I was just as sceptical about the claims that achieving net zero would give us cheaper energy and faster growth when they came from Boris Johnson as when they come in the Labour manifesto—indeed, I never expected to find Boris being comparatively a paragon of honesty and understatement until I read the Labour manifesto.

There is a respectable case for saying that we must incur higher costs and forgo cheap energy to prevent the impact of climate change on future generations, but it is surely unlikely that this will be costless, let alone miraculously provide a cornucopia of cheap energy and rapid growth. I therefore urge Ministers to ask their officials why, if it is cheaper, renewable energy needs subsidies. I urge them to ask why, if renewable energy is cheaper, UK electricity prices have risen in 22 of the 27 years since we started the transition to renewables.

If officials say that new offshore fields will provide electricity at below £50 per megawatt hour, Ministers should ask them why the recent contracts for difference, in March this year, offered more than £100 per megawatt hour for offshore wind fields and £89 per megawatt hour for onshore fields. They should ask too why they claim that gas is more expensive than offshore wind. They have set offshore wind at more than £100 per megawatt hour, yet the DESNZ energy generation costs document of last year shows that the cost of a new gas-fuelled plant, excluding tax, is only £60 per megawatt hour.

How come wind is supposedly cheaper when it is more expensive? They will say, “Oh, it’s because if you include in the cost of gas the social cost of carbon, that raises it”. And so it does; that is a perfectly reasonable argument. But it is generally accepted that the social cost of carbon is about £50 per tonne—that is about £10 per megawatt hour—so gas is still cheaper if we include that. But then the officials will come back and say, “Oh, well, we don’t use the social cost of carbon. We impose a tax called the appraisal tax”. That is the tax necessary to make gas uneconomic, so it is a self- referential conclusion. Ministers should therefore ask them some hard questions about that sort of thing.

Ministers should also ask why officials always quote costs as levelised costs of energy and do not take the advice of Dieter Helm, the leading energy economist in this country who was asked by the previous Government to do a review, and compare firm costs: the cost of providing energy, including some of the cost of providing back-up power—in the case of wind and solar when the wind is not blowing and the sun is not shining. Why not include some of that cost? It is the obvious and logical thing to do.

If the back-up is gas, we have to include not only a share of that back-up cost but the carbon capture and storage that will be necessary to extract the CO₂ from the gas in the back-up. Incidentally, I welcome the fact that this Government are proposing to maintain a fleet of gas plants and accept that gas and oil will be needed well into the future. They might also ask officials why they rely on figures from think tanks—and, indeed, their own officials—rather than on the costs of fields, which are produced and published in companies’ documents that are certified by accountants, who would go to jail if they were lying. Those figures show that there is no significant decline in the cost of offshore oil; it remains high, and higher than that of gas.

The second item in the Government’s rosy outlook is that green investment will generate growth. For the sake of argument, let us put aside the impact on growth of higher energy costs. How will the move to green investments produce growth? The noble Lord, Lord Vallance, formerly an impartial adviser and now a Labour Minister, claims in the Labour manifesto that growth will come from selling technology abroad. He says that we can treat this

“like the vaccine challenge … exporting our solutions worldwide”.

However, he says that that will work only if we do it rapidly because

“if we choose to go slowly, others will provide the answers, and ultimately we’ll end up buying these solutions rather than selling them”.

But what are we going to sell to the rest of the world as a result of this great revolution? It is not going to be generators, wind vanes or towers, and it is not going to be batteries. Unless the Government can tell us what it is, we had better invest in things where we have a comparative advantage, rather than one where the rest of the world is overinvesting already.