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Mr. Drew: Is the hon. Gentleman buying euros, then?
Mr. Gill: No, nor must we join the euro--[Interruption.] That would be catastrophic for the whole country.
When our currency does depreciate, industry will find that the cost of its raw materials from abroad will be higher and a lot of the competitive advantage that allows the Government to impose taxes with a degree of impunity will no longer exist. In those circumstances, industry will find that the extra taxes imposed through, for example, the climate change levy and other measures, added to the increased cost of raw materials, will make our businesses very uncompetitive.
As has already been mentioned in the debate, 40 per cent. of the energy used in manufacturing will not be eligible for rebate. I think that my right hon. Friend the Member for Wells was quite right to instance the very topical issue of the current situation--which we all know about--in the motor industry. My right hon. Friend the Member for Fylde also rightly highlighted the situation in horticulture.
9.15 pm
The hon. Member for North Tayside (Mr. Swinney) mentioned the situation in farming. He briefly mentioned the pig and poultry sectors, which will be very adversely affected by the integrated pollution prevention and control regulations charges. I must point out to Ministers the very real danger that the imposition of even greater overhead costs and burdens on those two agriculture industries will simply result in the export of those two industries. If that happens, the United Kingdom will be driven to import ever more pigmeat, egg and poultry products.
The hon. Member for North Tayside also correctly said that the cut in employers national insurance in the agriculture industry will be but a drop in the ocean
compared with the charges that they will have to pay. The number of people employed in agriculture has been drastically reduced, especially in the past few years. Therefore, the scope for the industry to recover a reasonable sum by a cut in employers national insurance simply does not exist.In my constituency there is relatively little manufacturing industry. However, I do have one big employer--a most substantial manufacturer which is involved in converting aluminium. Two weeks ago, on Second Reading, I drew attention to the fact that aluminium converters will not be eligible for rebate, although aluminium smelters will be eligible. In much the same way, the hon. Member for Barnsley, Central (Mr. Illsley) was able to explain how glass manufacturers would be eligible for the rebate, whereas glass benders would not.
In the past 48 hours another example has been brought to my notice. In metal forging, there is a process in which two types of equipment--a hammer or a press--can be used. Under the IPPC, sites using the hammer-based process will be eligible for a negotiated agreement, whereas those who use presses will not, although the latter process is more efficient and is used by 70 per cent. of the industry. Those are but three examples, but they demonstrate how nonsensical the situation will be in various industries.
Mr. Loughton: Does my hon. Friend think that those nonsensical inconsistencies have anything to do with the fact that one of the United Kingdom's largest aluminium smelting plants is next to the Chancellor of the Exchequer's constituency?
Mr. Gill: That is an interesting point. However, I think that aluminium smelters would be in the category of industry that I described a moment ago as currently benefiting from relatively cheap imported raw materials. That situation will change, and the climate change levy, on top of the overheads that that industry already bears, will be the straw that breaks the camel's back. I think that my hon. Friend would confirm that aluminium smelters in other countries--I think that Iceland leads the field--have many natural advantages that do not exist in the United Kingdom. The aluminium smelters, and therefore probably the converters as well, are already in a parlous situation without the imposition of this tax.
The Government make great play of consultation. Whenever they face a difficult problem, they put it out to consultation. Talking to people, finding out their views and giving them an opportunity to be involved in the decision-making process may seem entirely reasonable, but it is all too evident in the Bill and many other aspects of the Government's work that, although an enormous amount of time and energy is spent on consultations, they are virtually disregarded when it comes to settling the Budget.
There are three clear examples in the Budget of industries that have been ignored after a consultation process: the small brewing industry, the quarrying industry and the manufacturing industry, which is the subject of this debate. There was a lot of consultation, but the Government have done nothing to meet the representations from industry.
This is a thoroughly bad tax. The basis for the eligibility for rebate is deeply flawed. It will exclude 40 per cent. of the energy used by manufacturing and will
lead to distortions between and within industrial sectors. I have illustrated that for the industries to which I have referred. For individual firms operating in highly competitive international markets, such as the aluminium converter in my constituency, whose margins have already been tightly squeezed by the value of sterling, the tax will mean increased costs and thus pressure on competitiveness and jobs. I heard what the hon. Member for Preseli Pembrokeshire said about that, but I disagree with her. If any business has its overheads increased, they eventually become unsustainable and either the business folds or it reduces its costs. The first cost to be looked at is generally the labour cost and if reductions are made, it means job losses.The Confederation of British Industry has pointed out that before the Budget, business made constructive proposals to the Treasury for modifications that would extend eligibility for the rebate, allowing more firms to help reduce emissions by signing up to legally binding agreements, delivering real energy efficiency improvements in return for the 80 per cent. rebate. So far all those proposals have been rejected with little explanation. Business is keen to bring forward revised proposals to address the concerns that the Government might have, but cannot do so without knowing fully the reasons for rejection. That is why it is regrettable that the Minister has not yet given us the Government's reasons for the tax. The CBI also believes strongly that the Government should give priority to explaining to sectors the detailed reasons why they have rejected business proposals for extending negotiating agreement eligibility. There is more that could be said on that subject, but others wish to speak.
I conclude by saying that our proposal is the most appropriate change that could be made in the circumstances. This is a bad tax, and the only sensible thing for the Government to do is to withdraw it.
Mr. Loughton: I am a member of the Select Committee on Environmental Audit, which produced a report on the energy tax and had the interesting experience of interviewing the Financial Secretary before the Budget. I found it odd that the Financial Secretary did not open this part of the debate with some words in support of the climate change levy. It was even more odd that so few Labour Members wanted to contribute to the debate, despite the fact that the proposal takes up more than 80 pages of the Bill.
The history of the energy tax has been one of complete fudge for the last 18 months, when it first appeared on the radar screens. One of the worst examples of the fudge and muddled thinking was given by my right hon. Friend the Member for Fylde (Mr. Jack) in respect of the horticulture industry. That industry--which absorbs carbon dioxide and emits oxygen, and is one of the biggest contributors to the Kyoto targets on its own--is severely threatened. The Government have had to climb down, but only partly, in the Budget to prevent the horticulture industry from moving lock, stock and barrel to Holland, in particular, where the industry is exempt from energy tax.
Another example concerns liquid petroleum gas, and we have all received memos from Calor Gas. Again, there was only a 50 per cent. climbdown by the Government on an environmentally friendly fuel. The Government
have been entirely inconsistent with last year's Budget, in which they recognised the environmental benefits of LPG by reducing fuel duty for vehicle LPG by 29 per cent.--only to clobber LPG for non-vehicular uses with the energy tax this year.The main point, which the Minister continues to duck, concerns competitiveness. A classic example is the effect of the tax on the British steel industry. We are at the stage where the majority of steel used in this country is imported from overseas, with a large quantity coming from countries such as Korea, South Africa and India, none of which is bound by the terms of the Kyoto protocol.
Does the Financial Secretary seriously think that, under such uncompetitive terms, British steel production will remain in Britain when it can move to anywhere in the world, including the three countries to which I have referred where there is no energy tax on steel production and the costs are much lower? Closer to home--and much worse--the industry could move to the continent; in Belgium and Luxembourg, for example, there is a 100 per cent. exemption for steel production.
In the Environmental Audit Committee, I pointed out that even after the full rebates on offer to the British steel industry, there will be a tax equivalent to £2.40 per tonne of steel produced in this country, which compares with 4p per tonne in Germany and an average for Europe as a whole of 40p per tonne. When I pointed out that that might just impact on the competitiveness of the British steel industry, the Financial Secretary said that he imagined that the industry was pleased with the much more favourable position in which it finds itself. That was woefully inadequate.
Some 72 per cent. of car components used in new cars in the UK are now imported from overseas--a major component being steel. That is an increase of more than 10 per cent. over the last three years. Despite all the good work done in reducing fuel consumption by the British steel industry over a number of years and despite signing a memorandum of understanding with the Department of the Environment, Transport and the Regions on energy savings in December 1999, the British steel industry will be caned heavily.
The Financial Secretary pretends that countries such as Korea, South Africa and India--which would benefit from the production of steel moving abroad--can exist in some sort of environmental dome; that the carbon dioxide emissions that they produce in a much less regulated system than that of this country can be contained within their own airspace. That is a complete nonsense, of course, and if the Government are serious about global environmental improvement, they need to take account of the competitive advantage they will give to less environmentally friendly countries on the other side of the planet.
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