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11.56 am

Mr. Matthew Taylor (Truro and St. Austell): I echo the closing comments of the hon. Member for Bury, North (Mr. Chaytor) and appeal to the Government to stick to their 20 per cent. target.

I shall not rehearse the arguments for tackling climate change or the evidence for the process of catastrophic climate change that we face. Time is short, so I shall concentrate on practicalities, not least for the reason mentioned by the hon. Member for Bury, North--the reality of climate change is widely accepted, except by a tiny minority in the House and outside.

I shall focus on the process of introducing environmental taxes, and the series of mistakes made by Governments that have brought that process into question politically. The hon. Member for East Carmarthen and Dinefwr (Mr. Williams) highlighted the political difficulties in tackling the issue. We must change ways of life and ways of doing things, though perhaps not as much as people imagine. There are alternative ways that need not make us poorer, but may protect our environment. Nevertheless, these are politically contentious issues.

The way in which Governments have gone about introducing the three significant environmental tax changes that have been introduced during my time in the House has considerably undermined the process. The first was the claim by the previous Conservative Government that VAT on fuel, which they introduced contrary to the promises in their general election manifesto, was an environmental tax measure. That caused serious problems in making the case.

First, the tax was not well directed at the issue, and it was not a carbon tax--it applied to all fuel and was particularly burdensome on the domestic sector. Secondly, it was contrary to a manifesto promise, so no attempt had been made to establish the basis for it. Thirdly and most significantly, it was a means of raising tax, and was never intended as an environmental tax. By dressing up a tax grab as an environmental tax change, the Conservative Government undermined the case for environmental taxes.

To win the case for environmental taxes, there must be a tax shift, not a tax increase. Why should people accept the need to pay ever more tax by the back door, simply because it is dressed up in a green way? That is no more likely to be popular than any other tax increase. However, if there is a tax shift--if there is a clear cut in other taxes--it can be popular.

The second environmental tax that was introduced, the fuel escalator, had greater success in its early life, partly because the need for it was better understood and, more importantly, because it had broad cross-party support in the House. Both the then Labour Opposition and we Liberal Democrats had the opportunity to stir up opposition to it, because it was a tax increase and failed on that score again, but that opportunity was not taken. Of course, we had points of disagreement on the basis on which it was introduced.

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We believe that the fuel duty escalator should have been used to cut other taxes directly, most significantly by abolishing vehicle excise duty--the annual car tax--for most car owners. Something should have come back to people, which would have left many poorer drivers, including those in rural areas, better off as a result. Nevertheless, it was introduced as a necessary measure without coming under the sort of attacks that the Conservative party is making in opposition. Those attacks are particularly disreputable, because it is seeking to wipe out history--it introduced the measure in the first place--even though the escalator was introduced for important environmental reasons which have since become more important.

The fuel duty escalator was not an easy tax to introduce, and it had a more direct impact at the petrol pump and became a significant political issue when oil prices rose. I would have understood if Conservative spokespersons had wanted to review it in the circumstances, but they effectively deny their part in the process. However, the fundamental problem has been that people have received nothing in return: taxes have not been cut, at least not explicitly, nor has there been direct investment in improved public transport, which people might have considered to be an alternative.

Mr. Brake: Does my hon. Friend agree that it is incumbent on any political party that proposes abolition of the fuel duty escalator to say where it will get the extra tax take from?

Mr. Taylor: That will certainly come up in the Budget should such a move be made. It could be one use for the election war chest, but I would rather see investment in education and health.

The climate change levy succeeds in one key area in which the other two measures did not: there is an explicit link to a tax cut--national insurance. We will reduce taxes on a good--jobs--and instead put a tax on a bad--pollution. Although the Treasury has accepted that argument, the problem is that the tax is not well tuned to environmental issues because the process has been Treasury rather than environment led. The measure is undermining its own case once again and, therefore, the case for other environmental taxes.

The climate change levy is not a carbon tax and goes across the board on fuels, including renewable energy and combined heat and power schemes. As long as that is the case, it cannot credibly be argued that it is an effective environmental tax because we will be taxing the very things to which we want people to switch. If we simply wanted people to use less energy, that would be correct, but we do not want that. There is nothing wrong with using energy and the goods it provides; the use of carbon fuels is the problem.

The measure is being introduced in one go, but the Liberal Democrats propose that a carbon tax should be introduced gradually at about 1 per cent. per annum to stabilise the fall in fuel prices and to give a clear indication that, in the long term, there will be a gradual pick-up. That would be a signal to business to change its capital investment priorities so that higher priority was given to fuel saving, and it would allow it to engage in a

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process of change. Introducing the measure in one go simply tells business that it will be paying for its past decisions and that there will be no way out until that process of capital renewal takes place over the longer term. That has fundamentally undermined the tax with industry.

As a result, industry is mounting a campaign effectively to emasculate the tax so that it will have no real impact where it could be of most use in reducing energy consumption and is asking for all sorts of cuts, discounts and exemptions. The measure was badly designed for the purpose it was meant to serve and, if recent newspaper reports are to be believed, the fear is that that may lead to the virtual emasculation of the levy. If that were to happen, for the third time in a row, bad tax design would have undermined the principle of environmental taxes, which I very strongly support.

12.4 pm

Mr. Mark Fisher (Stoke-on-Trent, Central): I congratulate the hon. Member for Carshalton and Wallington (Mr. Brake) on initiating a further debate on this important issue. Like other hon. Members, I welcome the general intention behind the climate change levy and what the Government are seeking to achieve, but can my hon. Friend the Minister ensure that the way in which the Government put these proposals into practice does not inadvertently discriminate against manufacturing industry in general and those manufacturers who have invested heavily in recent years in reducing emissions in particular? The Government's stated aim of achieving revenue neutrality across the economy could, I fear, inadvertently lead to precisely such discrimination and imbalance.

The hon. Member for Ceredigion (Mr. Dafis) highlighted exactly that point and considered the measure geographically, from area to area. I agree with what he said, but I am sure that he agrees that we must also consider its impact from sector to sector. It could mean--and, if crudely interpreted, it will mean--that service industries such as banks, insurance companies, shops, hotels and offices in general will benefit in relation to manufacturing industry. That cannot be the Government's intention and is surely the wrong approach. Indeed, it would damage manufacturing industry, and so jobs and exporters, all over the country.

Unlike my hon. Friend the Member for Bury, North (Mr. Chaytor), I have been approached by companies in my constituency--almost every ceramics company, for example, and other large manufacturers such as Michelin. That may not come as a surprise to him, but, like him, I have been impressed that companies have recognised that the overall intention is virtuous. I have also been impressed by the way in which so many companies--famous names such as Wedgwood, Royal Doulton, Spode, Dudsons, Steelite, Portmeirion, H. and R. Johnson and Gerald Tams, which are the cream of our ceramics industry--have made huge efforts to invest in energy-saving techniques over the past 10 years. They have done so for their own benefit and for their own profits, but also to try to save jobs and ensure the continuity of their industry, so it would be perverse if their good work was not taken into account.

However, precisely because those companies invested in the past, the easy pickings of savings over the next few years will not be available to them as they will be to less

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responsible manufacturers, who will easily be able to achieve substantial savings when the levy is introduced. I cannot believe that the Government want to introduce a levy that would benefit irresponsible manufacturers over responsible manufacturers who have so invested.

There are further hidden problems. How will companies such as Acme Marls in Stoke-on-Trent, which makes kiln furniture, be treated? It has been developing a new generation of kiln furniture that will conduct energy more efficiently and reduce the energy needs of its customers. Producing that furniture is more energy expensive and, perversely, it will be increasing its energy costs in order to pass on to its customers techniques that will reduce energy consumption considerably. What it is achieving overall is virtuous, but there is a danger that it will be penalised because its energy costs will increase in order for it to save energy for other people.

Those examples show that implementing the measure will be a great deal more difficult than it appears to be at first, and I welcome the discussions that the Government have been having with manufacturing industry in general, in which the British Ceramic Confederation has been taking part. I hope that that suggests that they recognise the importance of manufacturing industry. We are not a service industry economy; manufacturing industry employs more than 4 million people and still accounts for 60 per cent. of our exports. We must listen to its concerns, particularly the concerns of responsible manufacturers.

I hope that the Government will take those points on board when the discussions with manufacturing industry come to fruition and that they find a way of implementing this important levy in a way that benefits manufacturing and encourages it to invest in energy-saving techniques. They should not penalise the most responsible manufacturers.

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