Finance Bill

Nigel Adams Excerpts

Tuesday 8th September 2015 Commons Chamber

[Caroline Lucas]

I wish that the hon. Gentleman had done a little bit more homework before making that point, because it is simply not the case. The point about the subsidies to the solar industry is that it has always been deemed that they would come down over time. The objection here is that they are suddenly being forced to reduce overnight at a time when the industry had been told that there was going to be a very different economic situation. Of course the costs of solar are coming down; they have been coming down in a remarkable way, and all credit to the solar industry for achieving that. But they are coming down in spite of the Government—in spite of their chopping and changing, their uncertainty and their lack of vision—and not as a result of something that they have done.

In conclusion, if the Government go ahead with applying this climate change levy to the renewable energy industry, they will strangle an industry that has so much potential for getting climate emissions down, creating jobs and bringing on a stronger and more resilient economy.

[Nigel Adams (Selby and Ainsty) (Con)]

I am grateful to be able to contribute to this debate. Members on both sides of the Committee will agree that keeping the lights on is one of the primary duties of any Government. Some of the more senior Members in this Chamber will recall the three-day week in the 1970s—I apologise for glancing over my shoulder to my right hon. and learned Friend the Member for Rushcliffe (Mr Clarke)—when British businesses were forced to conserve their electricity at great commercial cost and television companies could not broadcast beyond 10.30 in the evening. We have come a long way since those bad old days and we cannot and should not allow this nation to find itself in a similar situation ever again.

With that in mind, we also need to recognise that the energy industry in modern Britain cannot be taken for granted. Like any other business, energy companies make difficult decisions every day. They decide what projects to invest in, using reasonable commercial principles. It has not been fashionable in recent years to praise energy companies, but we should not forget the significant number of jobs that rely either directly or indirectly on energy companies in this country. Many Members present will be aware that in my own constituency in North Yorkshire, energy companies have played an important role in the community over many decades, employing thousands of local people and generating millions of pounds in business for local companies.

Recent events in my constituency have prompted me to participate in today’s debate. Sadly, last week the Czech owners of Eggborough power station announced that the station was set to close, shedding 240 jobs in the process. That is not only a great personal loss to my constituents but a great loss to the nation, given that Eggborough provides roughly 4% of the UK’s electricity. I remind the Committee that National Grid recently announced that the capacity margin this winter is only 1.5%, and many analysts predict it could be much lower next winter.

[Andrew Percy (Brigg and Goole) (Con)]

Eggborough power station employs a lot of my constituents, as it does my hon. Friend’s. Does he agree that the assessment undertaken by Ofgem is simply not robust enough and does not take account of that 4% figure? All it will take in 2016-17 is for the wind not to blow, for there to be a problem elsewhere on the plant or for the winter to be a little bit colder, and if Eggborough goes we will face blackouts. As I said on the radio recently, Governments that allow blackouts on their watch normally get their lights put out at the next election.

[Nigel Adams]

I could not agree more with my hon. Friend and neighbour. Whoever is in charge of ensuring that we have security of supply must ensure that they have robust numbers, and I am sure that my hon. Friend and I will be asking serious questions of them over the forthcoming weeks.

It saddens me greatly that this is not an isolated event. Many Members have communities that have been affected in some way by similar announcements in recent months: Longannet in Scotland, Didcot in Oxfordshire, and Ferrybridge, right next to my constituency in west Yorkshire. The Chancellor is rightly keen to create a northern powerhouse, and so am I, but I would rather see a northern powerhouse with some power in it. I do not want to see a no-power house.

There are no easy answers left on energy policy. I urge those hon. Members in opposition and in government who believe otherwise to think again, or to visit areas such as mine and talk to the constituents whose livelihoods are being put at risk. This is a commercially challenging time for the energy sector. Wholesale electricity prices are at the lowest level in years, in no small part due to the crash and the glut of oil in the global marketplace. That makes the investment case for any energy project, be it biomass, nuclear, gas or wind, incredibly challenging.

It is at times like these that our constituents and the energy industry look to Government for genuine leadership, and it saddens me greatly to say that on this issue the Government led by my party appear to have fallen short. “Investor confidence” is a phrase that is readily thrown around in debates like this and is perhaps too easily taken for granted, but when an esteemed member of the investment community such as Neil Woodford is quoted in a national newspaper in the days following the Government’s announcement on this issue as saying:

“If Government cannot be trusted to fulfil its long-term commitments then it will have to accept that it cannot rely on support from institutional investors”,

it would be irresponsible of me and other hon. Members not to heed his words.

It seems sensible to me that at a time when the energy sector is in such a sensitive and precarious place, policy decisions should be taken in the round rather than in isolation. The Government have already made public the saving they believe they would accrue as a result of removing the CCL exemption, but what about the consequences, intended or otherwise?

Drax Group, an energy company of which Members will be aware and that is based in my constituency, has invested hundreds of millions of pounds in recent years to become the largest renewable generator in the UK. It lost £425 million of its value on Budget day—£425 million in one day, a third of its total value. To me, it is incredible that a Conservative Government have effectively done that to a company that has done all that has been asked of it. The superb management team at that station has delivered Europe’s largest decarbonisation project. It is producing the lowest-cost renewable power available when we take into consideration full system costs, and it has done so while providing 8% of the UK’s power day in, day out. Furthermore, that is money that could otherwise have been invested back in the company further to fund its biomass operations or to support White Rose, one of the country’s two flagship carbon capture and storage projects. That is not an isolated case. I understand that many other renewables companies saw huge falls in their value on the back of the decision.

Discontinuing the CCL exemption would also eliminate the only financial incentive for businesses in the UK to use renewable energy instead of fossil fuels, and it has been in place for over a decade. Hon. Members will know that it is a rare occurrence indeed when I agree with Friends of the Earth, but its observation that the situation is comparable to imposing an alcohol tax on apple juice seems spot on. It appears to me to be a retrograde step, and one that will put small business owners, for whom I have the greatest respect, given my background before entering the House, in a position of uncertainty. Furthermore, as a Conservative it pains me to say that, far from being the removal of an unnecessary burden on business, the removal of the CCL exemption is the extension of a tax. Every business in the UK, whether large or small, must now pay the CCL; they can no longer avoid it by using renewable power.

I understand that one of the Government’s principal objectives in removing the CCL exemption is to prevent taxpayers’ money benefiting renewable generation abroad. However, the reality is that more than 70% of the income generated by levy exemption certificates went to UK-based energy producers. Furthermore, generators supplying renewable energy to the UK through interconnectors are currently exempt from a range of transmission charges that British generators are required to pay. Surely it would be better for the Government to look carefully at that loophole, rather than at measures, such as those proposed in the Bill, that will make the economics of generating in the UK less appealing.

As hon. Friends will know, I am not given to highlighting problems without suggesting solutions. I believe that all that Drax and the renewals industry are asking for is to be treated the same as other industries. When exemptions were removed from the combined heat and power industry, it was given two years’ notice. That contrasts with the 28 days’ notice given this time.

[Caroline Flint (Don Valley) (Lab)]

I thank the hon. Gentleman for giving way—it is not easy to come to the House and take issue with one’s own party. Following his last point, does he agree that there were other ways to deal with any sense of unfairness about renewable energy coming through interconnectors, rather than taking a big hammer to smash a small problem in the system? We know how many jobs and how much future investment are based on business plans, whether at Drax, which I have had the pleasure of visiting, and at other renewables firms, small and large, across the country, which are doing their best to put some growth back into the British economy.

[Nigel Adams]

I agree with the right hon. Lady. Companies need certainty and time to plan, and 28 days’ notice is clearly ludicrous. A two-year notice period would allow companies to honour contracts they have signed, allow the industry to adapt and, above all, it would be fair.

I know that this is a topic of considerable interest and that other hon. Members wish to make their views known, so I will conclude my remarks by returning to my original point: nothing in life is guaranteed, including the availability of energy in our homes and businesses. I believe that we are entering a very precarious time for the UK, when our capacity margins are getting ever tighter and when plant closures continue to leave us reliant on gas imported from the middle east. Against that backdrop, we are in a global marketplace where investors are taking a sober, pragmatic approach to energy projects, and not just in the UK but elsewhere. We should be giving them greater certainty that the UK is a reliable environment to invest their money in, because that money is needed to deliver the energy projects that will power this nation in future. My concern is that the proposed revision to the climate change levy will do exactly the opposite. That is why, with great regret, I shall not be supporting the Government on this issue.

[Alison McGovern (Wirral South) (Lab)]

It is a pleasure to serve under your chairship, Mr Howarth.

I rise to speak to Opposition new clause 2 relating to the Government’s changes to the climate change levy in clause 45, which have already been outlined by hon. Members. The climate change levy is a carbon tax on the non-domestic use of energy. Clause 45 is concerned with the removal of the exemption currently available to electricity generated from renewable sources in the form of levy exemption certificates. For some years now, these certificates have ensured that electricity generated from clean sources has not been liable to what is, or was, essentially a tax on carbon emitted from the generation of non-domestic energy supplies. In removing the certificates, the clause reverses that principle, leaving us in the utterly perverse situation where renewables generators will be taxed for their contribution to climate change, regardless of the fact that they make little or no such contribution. Several Members have mentioned the apple juice analogy, so I will hold back from repeating it, but it goes without saying that it is an excellent one.

The clause is just one aspect of this Government’s new approach to energy and climate change, which entails abandoning the most cost-effective forms of renewables, reviewing environmental taxes, and, apparently, abandoning their commitment to tackling climate change. That approach risks undermining an area of the economy that has some of the most promising prospects for the future. That sector offers more productive, higher-paid, higher-skilled jobs, particularly in the northern regions and in Scotland; and one would think that it was central to the Chancellor’s so-called productivity plan and his alleged northern powerhouse.

New clause 2 would therefore require the Government to set out the cumulative impact of the removal of the exemption on existing renewables generators and projects currently in the pipeline, where almost all the projects and the banking arrangements or investment decisions underpinning them will have been based on the current fiscal and subsidy framework; on investor confidence in the UK’s green energy sector, which is clearly vital to the future of the green economy and the high-skilled, more productive jobs that will flow from it; and on the UK’s ability to meet its climate change obligations, in which renewable energy has a vital role to play and may make up the shortcomings in other sectors—something that Ministers do not recognise at the moment.

Clause 45 retrospectively removes the exemption from the climate change levy—a tax levied on all non-domestic energy use—for electricity generated from renewables from 1 August 2015. The climate change levy was introduced in 2001. Its aim was to help the UK to meet domestic targets for cutting greenhouse gas emissions. It has always been charged as a flat rate of energy consumed for non-domestic use. However, energy generated from renewable sources has always been exempt from the levy in the form of the exemption certificates that are awarded to renewables generators and, in turn, sold to electricity suppliers for less than the cost of the levy. This regime has helped to make clean energy more attractive and provided greater financial support to renewables projects for their lifetimes.

The Government have set out two justifications for the removal of the levy exemption from renewables: first, that it seeks to correct a so-called imbalance in the tax system whereby renewables generators based overseas benefit from the levy exemption when, according to the Government, they already receive state subsidies in their origin countries and are therefore unfairly benefiting from British taxpayers’ money; and secondly, that it provides so-called better value for money for UK taxpayers—or, to put it another way, raises a considerable amount of revenue to help the Chancellor balance the books. According to the tax information impact note accompanying this measure, the renewables exemption, as it stood, would cost nearly £4 billion over the course of this Parliament, one third of which would go to overseas generators. HMRC claims that there is evidence to suggest that some of these overseas generators receive support in their own countries, although it does not provide any specific evidence. Perhaps the Minister might like to comment further. Regardless of that, the fact is that what was essentially a carbon tax is now becoming simply an energy tax. As Friends of the Earth has asked,

“When is a carbon tax not a carbon tax? When it is a tax on zero-carbon things.”

It is quite straightforward really.

These changes to the climate change levy come on the back of a raft of announcements since the general election, most notably from the new Energy and Climate Change Secretary, which reflect the Government’s apparent U-turn on tackling climate change. Since 7 May we have heard that subsidies for large onshore wind projects are to be axed, while other subsidies for onshore wind and solar photovoltaics are set to end a year earlier than previously announced. The previous coalition Government’s commitment to increase the proportion of tax take from environmental taxes is to be abandoned, while all environmental taxes are to be reviewed. The coalition Government’s flagship green deal scheme to provide energy efficiency standards in homes—which, sadly, proved to be a complete flop—will be not reformed but scrapped. The link between a vehicle’s tax liability and its CO₂ emissions is to be loosened under the reform regime. The zero-carbon homes commitment, first made in 2006 by the then Chancellor Gordon Brown and which would have ensured that all new-build homes from 2016 were self-sufficient, is to be scrapped.

--- Later in debate ---

[John Redwood]

I have no more time than the right hon. Lady for over-charging vulnerable customers. I, too, look forward to an informed and sensible response to the report she mentioned. I do not think, however, that it is very relevant to the levy and the tax change that we are debating here today. The issue before us is whether this change to the levy will make it more difficult to keep the lights on and more difficult to deliver cheaper energy. I do not think it does, but the Government need to respond to the other crucial issues posed by my hon. Friends the Members for Selby and Ainsty and for Brigg and Goole.

Given that the margins are now extremely tight—in view of the huge reduction in traditional capacity that we have experienced, some people are pessimistic about the next two or three winters—can the Government do more, and do it cheaply and sensibly, at the same time as making the levy change? That should ensure that the great power stations we still have available can be either kept in the system and running to provide more power—preferably base load power, but it may have to be variable power, given how the thing is now run—or at least be kept available on standby. We may have to pay a price for that as part of that guarantee of supply. The three power stations we have heard about from colleagues this evening are part of the possible answer. We need to know that there is a future for traditional stations and that they can be priced into the system while we are in this period of transition, trying to work out what a modern electricity generation system will look like in five or 10 years’ time.

[Nigel Adams]

Will not this change in the levy, which is being made so quickly and with so little notice—28 days—make things extremely difficult for generators such as Drax, and will not the likelihood of capacity that is safe for us all be greatly reduced over the next couple of years?

[John Redwood]

My hon. Friend has made a powerful case in defence of Drax. I hope that discussions are taking place between the Government and Drax about how Drax can continue to make a contribution and the Government’s intention—which I will be supporting this evening—can be preserved. I think it entirely possible to change the levy while also coming up with a solution for Drax.

Many people wondered about the advantage of switching from coal to wood, and about whether that was quite what we wanted to do as part of a so-called decarbonisation strategy. Perhaps there is a better answer, but I return to my original proposition: I want an answer that will keep the lights on and provide the best possible value for money, and I think that there needs to be more discussion between the Energy Department and the big power stations to meet those two aims.

What I liked about the Minister’s opening remarks was his constant stress on the importance of value for money. That must be what drives Government policy. We want the productivity improvements that are now coming through. It is remarkable how, when Labour Members complain about something, that nearly always transforms it for the better. They complained about the cost-of-living crisis, and energy prices collapsed. Then they complained about the lack of productivity growth, and productivity started to take off. We are very grateful to them for those wrong calls, which seem to provide the stimulus that we need in order to create a better world; but if we are to drive productivity forward, providing more and cheaper power is crucial, because many modern processes, particularly in industry, are very energy-intensive.

The danger of some of the policies that have been followed by the European Union and by the last Labour Government is that we price ourselves out of energy-intensive industries—not in a way that spares the planet the carbon dioxide that those processes generate, but in a way that simply drives the businesses to another part of the world. No one should be happy about that. Those who believe that the fundamental priority is cutting carbon dioxide must take a global view; they cannot take a parochial, single-country view. Again, those whose main concern, like mine, is the prosperity and wellbeing of the British people cannot be happy if the decarbonisation policy has worked in one country, but has produced an equal or bigger amount of carbon dioxide somewhere else because the jobs and the industry have simply been transferred. That makes no sense whatsoever.

My hon. Friend the Minister will have my support—and, I am sure, that of many Conservative Members—if this proposal is tested shortly in the Lobbies, but we see it as only one part of a much bigger picture. We believe that if it is to work in removing the anomaly between different types of power and allowing some power from overseas to benefit, we must ensure that other elements of the policy mix are able to deal with the fundamental issues of supply, availability and value for money in the power system.

What the Government must do—and what they are beginning to do in a way that is shocking some Opposition Members—is revisit the huge cat’s cradle of subsidies, environmental tax, environmental tax breaks and rules which are extremely complicated, and which may, indeed, be having perverse consequences. They may be driving carbon dioxide-generating business out of this country while not cutting the global totals; they may be jeopardising our security of supply; they may be making it more difficult to deliver what we wish to do for, in particular, lower-income consumers who find current energy prices very challenging; and they are obviously in danger of undermining important, big, traditional investments in this country that could serve us better for longer if they were not driven out of business by environmental controls emanating from previous Governments and, particularly, from the European Union.

I urge my hon. Friend the Minister to justify the support of our party for this one element by reminding us that it must be part of a bigger picture, and that that bigger picture must be driven by a more rational policy that can deliver both the security of supply and the cheaper energy that the United Kingdom needs.

--- Later in debate ---

[Damian Hinds]

On the right hon. Lady’s last point, that is not the only inefficiency in this scheme, as I was outlining earlier. She is correct about the consultations that are going on and about us fulfilling our manifesto commitment on onshore wind, but that does not mean that we will not continue to be absolutely committed to our environmental objectives. As I go through my remarks, I will talk some more about how we are on course to fulfil those objectives.

New clause 2 put forward by the Opposition would require the Chancellor, six months after the passing of the Finance Bill, to publish a report detailing the impacts of clause 45. Such a report is not necessary in that timeframe. The Chancellor has already presented a report to the Treasury Committee, which was published on 26 August.

I will take the opportunity to respond to some of the points that were made during the course of this debate. My hon. Friend the Member for Selby and Ainsty (Nigel Adams) spoke about Drax. He will understand that I cannot comment about that particular company because of the current judicial proceedings. He also spoke very passionately about his constituents in Eggborough, as did my hon. Friend the Member for Brigg and Goole. Clearly and obviously, it is a very disappointing decision for everybody connected with Eggborough and for those who now face much uncertainty. There is no easy thing to say to someone in that situation.

Importantly, the value provided by the climate change levy exemption was relatively minor when compared with the other elements of Government support that are available for renewable energy. Most generators were expecting the exemption to have a negligible value for them by 2020, so it would not typically be a large factor in their long-term investment decisions.

[Nigel Adams]

On that basis, will the Minister at least consider a delay until 2017 if the value is so low by 2020?

[Damian Hinds]

We are not in a position to be able to change the approach. My hon. Friend asks about the timing. The exemption would have cost around £40 million a month to maintain. Without our change, more than £150 million of support would have gone to overseas renewable generation in 2015-16, and that figure would have risen to £300 million by 2020-21. My hon. Friend asked why not follow the same timings as the exemptions for combined heat and power, but those are on a very different scale and the timing was in the context of the coming of the carbon price floor, which would support CHPs. As I said earlier, more efficient and effective schemes have come about to support renewables through the renewables obligation and contracts for difference.

The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) spoke about the particular impact of the measure in Scotland, but I can confirm that Scotland receives a high level of renewables support from the UK Government. In the first contracts for difference auctions, 11 out of the 25 contracts were awarded to Scottish projects, and 30% of the support provided by the renewables obligation is for schemes in Scotland. That support, as I have said, is much more significant than that offered by the CCL renewables exemption.

The hon. Member for Brighton, Pavilion asked about the Government’s green credentials, a point that came up again in an intervention. I repeat that the Government take our environmental responsibilities extremely seriously and we are absolutely committed to meeting our climate change commitments, but as cost-effectively as possible. We are making good progress, with emissions down 30% since 1990, and we are on track for 30% of electricity supply to be from renewables by 2020. At the same time, we want to help consumers, keep energy bills down and keep British business competitive. It is vital that we take careful account of the costs of our policies so that we are not imposing unnecessary burdens on households and businesses, making household bills unaffordable or putting the UK at a competitive disadvantage.