Energy-intensive Industries

William Cash Excerpts

Wednesday 24th November 2021 Westminster Hall

[Stephen Kinnock (Aberavon) (Lab)]

It is a pleasure to serve under your chairship, Ms Nokes. I congratulate the hon. Member for Stoke-on-Trent South (Jack Brereton) on securing this very important debate.

Manufacturing is the backbone of the British economy, but it is a backbone that has been dangerously damaged in recent decades. By failing to back our manufacturing sector, successive Conservative Governments since 2010 have only succeeded in offshoring jobs. As a result, they are ripping the heart out of our local communities, while also offshoring our carbon emissions. The Government’s No.1 priority should be to do whatever it takes to support and regenerate our manufacturing sector.

Steel is the cornerstone of that manufacturing sector, and it will continue to be so for decades into the future. Steel is the homes that we live in, the vehicles that we drive and the offices that we work in. Steel will build the smart cars and the wind turbines that power our economy forward. The Government appear to believe that steel is a sunset industry, but nothing could be further from the truth. The steel industry is a hotbed of innovation and pioneering technology.

Tata Steel is the largest private sector employer in my constituency, and the company is absolutely determined that there should be a future for UK steelmaking, while also recognising the importance of decarbonisation. It recognises that for UK steelmaking to enjoy a prosperous future, the industry needs support and partnership from the UK Government, first by working with the industry to manage a pathway to net zero on both public and private investment, but also by the Government levelling the playing field in order to ensure that the industry is competitive against its European counterparts.

Let us be clear—the current energy spike has played havoc with energy-intensive industries.

[Sir William Cash (Stone) (Con)]

The hon. Gentleman is making a first-class speech. I was brought up in Sheffield and lived there for 20-odd years. I know what he is talking about and he is completely right. I am not going to make a speech, but I want to congratulate him.

[Stephen Kinnock]

I thank the hon. Member for his kind words.

Let us be clear—the energy spike has played havoc. November 2021 prices peaked at 50 times the 2020 average, at £2,000 per megawatt hour. The monthly average wholesale costs are 50% higher than in Germany. These extraordinary electricity prices are leading to smaller or completely eliminated profits, and thus to less reinvestment and even pauses in production for some companies. Higher electricity prices also act as a disincentive for investment from international steel companies, with the UK being seen as a less favourable investment environment than other places.

The potential for a widening price gap between the UK and our European competitors means a loss of market share, both in the UK and in key export markets. That is why it is utterly self-defeating for Ofgem to recommend that network energy prices rise even higher. The Business, Energy and Industrial Strategy Committee has rightly called for the steel industry to be exempt from this price hike; let us hope that Ofgem, the Secretary of State for Business, Energy and Industrial Strategy and the Minister, who is in his place today, will take heed of the Committee’s recommendations.

Other European countries have taken quicker and more expansive action than the British Government by offering support to energy-intensive industries. As has already been mentioned, the Portuguese Government have announced a minimum 30% reduction in network charges for industrial users. The Italian Government have pledged over £4 billion to eliminate renewable levies on gas for industry and electricity for small and medium-sized enterprises. In Spain, we have seen tax cuts and the temporary reduction in extraordinary profits made by energy companies, including extending the existing suspension of a 7% power generation tax through year end. They will also cut their special electricity tax from the current 5.1% to 0.5%.

What we need to see in this country now is the provision of 100% compensation for costs of carbon in electricity bills, through a carbon price floor and a UK emissions trading scheme, up from the current 75% allowed for under EU state aid rules. We need to provide 85% compensation for the capacity market fee and an 85% reduction in network costs, in line with France and Germany, as well as full exemptions for the renewable levies or the introduction of additional compensation.

The Minister will point, of course, to the energy-intensive industries compensation fund, but that was half a decade ago, and the gap I have just described exists after that fund is taken into account. We have had enough of warm words; we must now commit to levelling the playing field for our steel companies. It is the least British workers in industrial communities deserve. What a contrast between the Government’s dithering and Labour’s bold and ambitious £3 billion steel renewal fund. In that fund, we pledge serious investment while the Chancellor had absolutely nothing to say about steel in the Budget. It is a dereliction of duty and makes a mockery of the Government’s so-called levelling-up policies. Tragically, successive Conservative Governments have failed to support our steelworkers and their families and communities. What a contrast with our party and our steel unions, which truly grasp the central importance of the steel industry to the past, present and future of our country. Let us hope that the Government will at some point recognise the need to unleash a modern manufacturing renaissance, with steel at its heart.

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[Chris Green (Bolton West) (Con)]

It is a pleasure to serve under your chairmanship, Ms Nokes. I congratulate my hon. Friend the Member for Stoke-on-Trent South (Jack Brereton) on securing such an important debate at such an important time. I wholly agree with and endorse much of what has been said so far.

One of the key starting points for energy-intensive industries—the focus of this debate—is having affordable energy, but we must have reliable energy too. One of my concerns is that the energy mix we get in the coming years must be reliable, not just in its provision—there are obvious concerns with wind turbines and solar panels—but in the costs. We ought not to be susceptible or vulnerable to these massive price fluctuations that can jeopardise businesses.

I do have a broad interest in the nuclear sector, as a north-west Member of Parliament. Much of the UK’s nuclear industry is based in the north-west of England, and the Springfields fuels centre, near Preston, is not too far away. Warrington is also a key centre. If we go down the small or advanced modular routes, the leadership scene in Rolls-Royce, in Derby, will also provide very powerful growth within the UK. If we can capture the market early on and have that manufacturing and intellectual property side in the UK, we can then sell further afield.

[Sir William Cash]

Does my hon. Friend agree that the nuclear delivery group is doing an extraordinary job? In the last two months, we have moved, very substantially, down a strong, stable route towards getting better nuclear delivery.

[Chris Green]

I agree entirely. It is welcome that the Government have renewed their focus on nuclear organisations, and that groups of colleagues within Parliament are increasingly giving that focus to the nuclear sector. I appreciate that is not universally appreciated, but the narrative and strength of argument is building up for the sector. If we want to have energy-intensive industries, we need that strong foundation of reliable energy. Even if it is a little more expensive than some alternatives, that certainty of production is immensely important, because if a business is going to invest, it has to have that confidence in the first place.

When we discuss levelling up, we have to think about the energy-intensive industries in the north of England and the midlands from ceramics to the steel industry, glass and chemicals. We have to think of levelling up as focusing in a significant sense on manufacturing—and heavy manufacturing—that requires that intensive provision of energy. It would be a positive thing if the Government set out more clearly their support for those sectors. I was concerned with the Cumbrian coal mine, which was going to produce metallurgical coal for the steel industry, but that has been challenged, not because it is going to produce thermal coal, which is a different type of coal used for different reasons. We have to have that clarity and be able to support the industry when it needs it.

We have had a trend over many years of offshoring manufacturing and allowing other countries, perhaps with lower environmental standards than ours, to take our manufacturing industry. If we are looking at COP26 and the agenda that so many countries around the world focused on and championed, we have to recognise that in recent years we have been exporting manufacturing, therefore manufacturing jobs, carbon and other emissions for domestic consumption. We do not have the emissions in the UK, but we are still creating those emissions overseas.

My hon. Friend the Member for Scunthorpe (Holly Mumby-Croft) captured the sense very well when she talked about free markets. We all ought to champion and support free markets, but we ought to be cautious when other countries around the world do not champion free markets and do not have the same appreciation of a level playing field that we do.

I welcome the Government’s direction of travel. I wish they would be even more supportive. There will be many more ways, especially listening to my hon. Friend the Member for Stoke-on-Trent South, to make it more competitive to invest in energy-intensive manufacturing in the United Kingdom.

[Jonathan Gullis (Stoke-on-Trent North) (Con)]

It is a pleasure to serve under your chairmanship for the first time, Ms Nokes. I congratulate my hon. Friend the Member for Stoke-on-Trent South (Jack Brereton), who is a doughty champion of Stoke. He is Stokie born and bred and boasts regularly that nearly half of Stoke-on-Trent North was built with his family line, so I look forward to seeing Brereton Place soon when I am out campaigning on the trial.

[Clive Efford in the Chair]

I also want to give a shout-out to my hon. Friend the Member for Scunthorpe (Holly Mumby-Croft) who gave an absolutely outstanding speech; one of the best I have heard since I became a Member of this place. I hope that a lot of those asks are taken up by the Government and acted on.

The city of Stoke-on-Trent is absolutely steeped in its ceramics, not just in its history but in its future. My hon. Friend the Member for Stoke-on-Trent South talked about Lucideon, one of the leading UK advanced ceramic manufacturers which was recently awarded £18 million with the Ceramics Manufacturing Group, which is looking at how we can have new and exciting ways for this technology to work, alongside the traditional industries. I have companies such as Steelite, Churchill China and Burleigh, which are still making their world-leading products, which we can enjoy in this place if we go into Portcullis House or the Members’ Dining Room. It is a shame that when I go into Government Departments when I am turning or when I visit a Minister, I do not see a Stoke-on-Trent mug. I am absolutely dumbfounded when I visit a Minister and see that they do not have Stoke-on-Trent ceramics in their office.

One of the things the Minister should take away from this is to ensure that we properly procure Stoke-on-Trent’s world-leading ceramics in every single Government Department, because it sends a message that a UK Government are backing UK production.

[Sir William Cash]

I commend my hon. Friend on making an excellent speech, as they all have been today. With sovereignty we can stand on our own feet and insist on a level playing field in energy, which never existed in the EU, and promote our own manufacturing on a proper basis.

[Jonathan Gullis]

I am grateful to my hon. Friend for his intervention. As a co-Staffordshire MP, he has absolutely championed our world-leading ceramics manufacturing in Stoke-on-Trent and Staffordshire, as well as being a doughty champion for the coal industry. A lot of ex-miners in my community always wish to pay their respects to him for all the work he did for them.

Turning to covid-19 and the energy price rise, if we take Steelite International as an example, 99% of its turnover comes from the hospitality industry. In April 2020, as covid-19 forced us into our homes and away from pubs, restaurants and cafes, Steelite lost 95% of its turnover overnight. Despite that being hugely damaging to Steelite as a hospitality operator, it failed to qualify for the rates relief offered to hospitality businesses as part of the emergency package announced in 2020, and it was classed as a manufacturer.

The ceramics industry is crucial to the hospitality sector and should also benefit from the 50% one-year business rates discount announced recently by the Chancellor. As a company that depends on hospitality, Steelite was one of the businesses hit hardest by the pandemic, and now by gas prices. Gas prices have risen rapidly across Europe in 2021, but the UK has been exposed to considerably higher prices than elsewhere, with prices rising to five times what they were this time last year.

Many ceramic companies forward purchase their gas and electricity. However, during lockdown when demand for the hospitality sector drastically decreased, gas that had been forward purchased was not used. That meant companies had to sell it back at a loss, making many reluctant to forward purchase again due to uncertainty over future lockdowns and levels of demand. As a result, the ceramics industry has been left particularly exposed to the current exceptional gas prices. On average, gas is roughly 10% of the cost of manufacturing a plate. However, companies have been exposed to gas costs five times of what they were last year. Companies should, of course, aim to build in some resilience in their processes, but this kind of market fluctuation is beyond anything they could have reasonably planned for. For large manufacturers, it could add as much as £500,000 to £1 million per month to production costs. It is simply impossible for ceramics companies to continue to swallow these increased costs, especially at a time when orders from the hospitality sector are still not up to the previous levels in 2019.

Costs will need to be passed on to customers. However, while we are still recovering from the hangover effects of the pandemic, customers are looking to cut costs, not increase them. Passing on extra costs to customers risks encouraging them to turn to cheap imports from abroad, where Governments have taken decisive action to support intensive industries. Spain has introduced tax cuts, including extending an existing suspension of a 7% power generation tax until the end of the year and cutting the special electricity tax from 5.1% to 0.5%. At the end of the day, we must take action and protect these industries. I hope the Minister will take away everything that has been said, and I congratulate my hon. Friend the Member for Stoke-on-Trent South for securing the debate.

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[Lee Rowley]

I am grateful to my hon. Friend for her intervention. She is right to point out that there two factors here. One is the volatility and how the price has moved and the second is the compactor. The latter point is well made by colleagues from all parties. I know hon. Members will acknowledge that we have provided more than £2 billion of support in under a decade in price-release schemes for energy-intensive industries. I accept that there are significant concerns about the position we are in and where we are seeking to go. I hope that that will be acknowledged and contextualised within that reality.

When formulating where we do or do not go in future, I hope hon. Members will accept that the situation is extremely complicated. We have a very diverse group of energy-intensive industries—more than 70 sectors—as the hon. Member for Southampton, Test highlighted. We have a range of exposures, challenges around efficiencies and hedging strategies. My hon. Friend the Member for Stoke-on-Trent North (Jonathan Gullis) pointed out the challenge of hedging strategies in recent months. Other forms of mitigation might be possible.

[Sir William Cash]

Will the Minister give way?

[Lee Rowley]

If my hon. Friend does not mind, I have to make progress. If I have a moment at the end, I will happily give way. This is a diverse sector, but we are seeking to see what may be possible. Announcements will be made in due course, should they be possible.

My hon. Friend the Member for Stoke-on-Trent South made a very good point about eligibility criteria. He is aware—it has been referenced already in the debate—that a review is under way at the moment. A consultation ran between June and August. There were more than 30 responses, and we will make further announcements in due course. He is absolutely right to highlight the longer term, as other hon. Members have done. The Prime Minister mentioned that point in his speech on Monday. He highlighted the importance of manufacturing, of energy-intensive industries and of making sure that electricity prices over the long term are in place, so that the viability and competitiveness of those industries are ensured. He highlighted nuclear. I know there are a range of views in the room about nuclear, although happily the majority of us seem to be in favour of making progress. I hope we can do so in the months and years ahead.

I want to give my hon. Friend a couple of minutes at the end of the debate to wind up, but I have a couple of points on the long term. Obviously, we are in a long-term process of decarbonising our electricity grid. That continues and will have a real impact over the long term for energy-intensive industries, and elsewhere. There is a lot of work under way, a lot of schemes, a lot of funding and a lot of Government subsidy that has already been announced, such as the £315 million industrial energy transformation fund, £40 million of which has already been awarded, including to steel companies such as Celsa, to brick manufacturers, to glass and to metal casting. The second stage will close on 6 December.