Energy Intensive Industries

Debate between Paul Farrelly and Brian H. Donohoe

Wednesday 4th December 2013 Westminster Hall

[Paul Farrelly (Newcastle-under-Lyme) (Lab)]

I thank Members and the Minister for attending this early-morning debate, which appears on the Order Paper with the catchiest of titles: “Cumulative electricity tax burden for energy intensive industries”—truly a headline writer’s dream. Their presence speaks volumes for the importance industry gives this issue. I have been approached in the corridors this morning and in the past two days by people who cannot be here, but who are closely following the issue because they have had representations from their local manufacturers, too.

I and other colleagues applied for the debate at the urging of the British Ceramic Confederation, which represents tableware firms and brick and tile makers in my area—north Staffordshire—and across the country. Indeed, on Friday, I am visiting one of them—Ibstock Brick, in Chesterton, in Newcastle-under-Lyme—to view first hand its £20 million investment in brand-new kilns, which use the Etruria marl in the company quarries just a couple of miles away in Knutton and Silverdale, in my constituency. The fact that we are having this debate is also due in no small part to the urging of my hon. Friend the Member for Penistone and Stocksbridge (Angela Smith), who has been cracking the whip for not only her local industry, but the sector.

The debate is very timely. It comes not only as energy prices for domestic customers have taken centre stage following the price-freeze initiative introduced by my right hon. Friend the Leader of the Opposition, but just a day before the autumn statement. The ceramics industry has lobbied the Chancellor of the Exchequer and the Minister hard for measures to tackle rising energy costs. It is not only the ceramics industry that has done that, but the glass, steel and chemicals industries—all sectors that describe themselves as highly energy intensive industries. In short, they are the cream of the UK’s manufacturing industry. We will no doubt learn tomorrow whether their pleas have fallen on deaf or, hopefully, receptive ears.

When it comes to my local ceramics industry and the potteries, I am more used to hearing cries of anguish over gas than electricity, because gas mostly fires the kilns. Only last week, 13 Members with ceramics interests, from across the parties and across the country, signed a joint letter to the Select Committee on Energy and Climate Change ahead of its session last Thursday on gas storage. A delegation of us also recently met the Minister to raise issues along the same lines on behalf of the industry. In our representations, we questioned the Government’s recent decision not to involve themselves in actively encouraging more storage to tackle gas price volatility and future security of supply. We were pleased that the Committee’s members took those concerns on board in their questioning of key representatives of the gas industry last week.

The debate is about the cost of that other staple and crucial energy source: electricity. On average, the ceramics industry uses more gas, but quite a number of our manufacturers employ some of the most electro-intensive processes in the UK and, indeed, Europe.

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

I congratulate my hon. Friend on securing the debate. Three of the five biggest users of energy are located in Scotland, so he will understand my interest in this subject and, in particular, in the effect of Government policy. These industries are not able to get the grants available to their competitors in mainland Europe, which is leading to the possibility of job losses. Does he accept that the Government need to do more in those circumstances?

[Paul Farrelly]

I totally agree. Without a level playing field, the issue is not just the possibility, but the reality of job losses, not least in Scotland, and I will come to that shortly.

--- Later in debate ---

[Paul Farrelly]

I hope that everyone will put the report on their Christmas reading list and that the Government will take note of the evidence base and the recommendations.

What is to be done? Industry, although deeply concerned, is not totally ungrateful to have had the Government’s ear in recent years. There has been a welcome for the announcement in the Budget that ceramics and other industries would be exempted from the full cost of the climate change levy. I recall that in giving that news the Chancellor paid tribute to his Tea Room discussions with my hon. Friend the Member for Stoke-on-Trent Central (Tristram Hunt), who chairs the all-party group on energy intensive industries. Of course Opposition Members thought that that compliment meant that his political career was done for, but changes since then have happily proved us wrong. The reality is that the tax exemption is hardly what the British Ceramic Confederation calls a game-changer. Welcome though that gesture was, it will save only an estimated 2% of energy costs for ceramics, mineral and metallurgical companies. Similar things can be said about the £250 million package to compensate energy intensive industries in the 2011 autumn statement—relief that was extended in the recent Budget—and about the sentiments behind the exemption, which the industry argues is too limited, from the UK’s new contract for difference charges.

What further things would those vital industries like from the Minister today and from the Chancellor, if not tomorrow, then in the future? One thing is further news on practical implementation, without state aid complications, of the climate change levy exemption. Looking further ahead, they would like the compensation package that has already been announced to be linked to the carbon price floor, so that it remains for the duration of the policy, and so that its value will reflect the trajectory of the price floor, if that continues. The industries would also like a widening of the contract for difference exemptions, so that there will be help for more companies than the estimated 10% of the ceramics industry that it is thought will be helped. They would certainly like a bigger helping hand in relation to Brussels. There was dismay, a fortnight ago, in the ceramics, glass and cement industries at the discovery that they would be excluded from compensation under the EU emissions trading system, even though highly electro-intensive processes are employed in the sector.

[Mr Donohoe]

I am grateful again to my hon. Friend for giving way. I have had many representations from the glass industry about its being excluded. There is a highly successful glass factory in my constituency, but its concerns are so great that it is bound to lose jobs as a consequence of being excluded from compensation. Does he agree?

[Paul Farrelly]

I certainly do. As I move to the final page of my remarks, I have some brief comments on the glass industry that reflect my hon. Friend’s concerns.

What the industry wants most of all, however, is a radical change of approach to stop our international competitiveness from being eroded further and even faster. The carbon price floor has inflicted pain on the industry for no discernible benefit, and its dream scenario would have the Chancellor abolish it entirely tomorrow. As with the measures affecting household bills, energy intensive industries would also like to see new climate-related charges, such as contracts for difference, paid from general taxation, because the nature of their businesses are such that they cannot protect themselves against such charges.

Other hon. Members will no doubt want to talk about industries other than ceramics, but before I let them, I will just say a few words about glass, which is another staple industry that is crying out for help. British Glass tells me that, since the UK climate change agreements took effect at the turn of the millennium, half of UK glass manufacturing sites have closed, with some 3,500 jobs lost. Despite the difficulties, it is still a £1.7 billion a year industry, employing 7,000 in the UK, but because it faces rising costs through rising green taxes and being ineligible for the EU help that my hon. Friend the Member for Central Ayrshire(Mr Donohoe) referred to, it fears that yet more jobs will go. We will then simply import more glass, which is bad for our balance of payments.