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Mr. Timms: There was some procedural confusion among Opposition Members at the outset of the debate. We have not been debating an amendment--this is a clause stand part debate, which I am responding to in the normal way.
In opening the debate, the right hon. Member for Wells (Mr. Heathcoat-Amory) made a series of wild and uncharacteristically ill-informed generalisations criticising the climate change levy. He made several inaccurate comments, and I look forward to putting them right in Committee.
Having made some wild generalisations, the right hon. Gentleman fastened on a couple of specific complaints, but no amendments have been tabled on combined heat and power, the integrated pollution prevention and control basis for negotiated agreements or any of his points. That is why I found his speech confusing. The hon. Member for Hazel Grove (Mr. Stunell) rightly said that the right hon. Gentleman did not refer to the seriousness of the problem of climate change, and nor did he refer to the Kyoto objectives, which we have a statutory obligation to meet. By those omissions, he reflected the Tory party's dreadful record on the environment.
The hon. Gentleman was right to acknowledge those points and to support the principle of introducing the levy, which should be supported by everyone concerned about climate change and global warming. The levy is strongly supported by environmental organisations, and there has been a steady and encouraging stream of letters from constituents to Members of Parliament saying that the Government must stick to their guns on the climate change levy. That is what we shall do.
Climate change is the single greatest environmental threat facing the world today. Globally, average temperatures are rising by about 0.15 deg C per decade, and 1998 was the warmest year on record. The intergovernmental panel on climate change predicts that if no action is taken to limit greenhouse gases, global average temperatures could rise by up to 3.5 deg C by the end of the next century. That would cause extreme changes in weather patterns, rising sea levels, damage to agriculture and population displacement with potentially catastrophic effects in some parts of the world.
At the Kyoto Summit in 1997, the developed countries agreed a legally binding commitment to reduce greenhouse gas emissions. The UK's contribution was set at a 12.5 per cent. reduction in emissions on 1990 levels. Following that agreement, in March 1998 my right hon. Friend the Chancellor asked Lord Marshall--then president of the Confederation of British Industry--to produce a report on economic instruments and the business use of energy. His report was published in November 1998 and said that there
Revenues from the levy will be recycled to business through cuts in employer national insurance contributions and additional support to promote energy efficiency, including renewable sources of energy.
Mr. Tyrie: Would the Minister substantiate the point that he made early in his remarks that the recycling of the money--implying fiscal neutrality--would be achieved within the manufacturing sector? How can that be ensured?
Mr. Timms: It has been ensured. It was set out in the pre-Budget Report last November. I am surprised that more hon. Members were not aware of that. However, I shall address that point as several Members have referred to the matter.
We made it clear that the climate change levy will be charged on the industrial and commercial use of energy. It is aimed at maximum environmental effectiveness while safeguarding the competitiveness of UK firms. We also wanted to make it as simple as possible to administer and, thanks to extensive consultation, we have achieved that. The tax is well designed as a result both of the wide discussions that have taken place since the Chancellor's announcement a year ago and of the changes that we made subsequently.
For social policy reasons, the levy will not be charged on the domestic use of energy, because of our concern at the current high rate of fuel poverty. The existing rules used to establish which supplies of fuel and power are charged at the lower rate of 5 per cent. value added tax will be used to determine domestic consumption. As a consequence, the non-business use of energy by charities will also not be subject to the levy.
Several hon. Members referred to combined heat and power. As I pointed out in an intervention, the exemption from the levy for combined heat and power will create a favourable environment for the development of such systems. I anticipate that many firms--to some of which I have spoken--will invest in CHP as a result.
I am aware of the case of British Sugar, which intends to defer decisions on a couple of CHP systems because it would prefer an even more favourable environment. However, it is right that the most favourable regime under the levy should be for renewable energy sources; renewable energy is much less well established in the UK and, critically, it produces zero emissions, whereas there are emissions from CHP.
The hon. Gentleman also suggested that some funny money was involved in the package of support for energy efficiency measures. That is not true. The 100 per cent. capital allowances are certainly not funny money; they will cost the Exchequer £100 million in year one and rather more in year two. Of course, the real incentive for extra investment and for extra effort to save energy is provided by the levy itself. It will increase the incentives for people to reduce energy usage. I can assure him that there is a genuine and substantial Exchequer cost in the capital allowance part of the energy efficiency fund as well as in the £50 million to which he also referred.
Mr. Loughton: The Minister told the Select Committee on Environmental Audit that the £100 million was purely capital allowances that are now available in year one rather than later, so the actual amount of tax that companies will pay is no less--the matter relates only to the timing of the payment of the tax.
Mr. Timms: I made the point that in year one there is a £100 million cost to the Exchequer as a result of that package of allowances. Of course, as the hon. Gentleman will know, capital allowances are extremely popular among firms and undoubtedly have a significant effect in encouraging investment of that kind.
The right hon. Member for Fylde (Mr. Jack), in his customarily well-informed, engaging way, made a point about the strict consents policy that I have heard him make a couple of times now. The lifting of the strict consents policy has already been announced. It was only ever intended to be a temporary policy--that was always made absolutely clear--and the three years of its application will not have a measurable impact on emissions by 2010. Therefore I hope that we can dispose of that argument, ingenious although it is.
The right hon. Gentleman made the slightly idiosyncratic suggestion that we should put all our eggs in one basket, the basket in question being short-rotation coppicing. I believe that there is a role for short-rotation coppicing. I have visited the first power station to make use of such coppicing; it is being developed by Kelda in the constituency of my hon. Friend the Member for Selby (Mr. Grogan). I do not know whether the right hon. Gentleman has been there; I recommend him to go if he has not been. It is an interesting visit. There are some issues surrounding the cost of producing energy in that way, but I believe that there is a role for it, alongside other renewable power generation methods. The levy will help; that perfectly illustrates its importance. The levy is precisely the type of measure that is needed to stimulate new and renewable energy generation methods, because they are completely exempted from the levy whereas conventional methods are not. That will provide an incentive effect.
However, the right hon. Gentleman seemed to suggest that there was some easy, obvious, painless solution, which no one would ever notice, to address the problem of emissions in the United Kingdom. There is not. That is illusory, and I do not think that that view should be expressed.
My hon. Friend the Member for Preseli Pembrokeshire (Mrs. Lawrence) made some important points about the commercial opportunities for the UK in the development of these new techniques, and in environmental modernisation. She is absolutely right about that.
The right hon. Member for Fylde asked me about the Treasury's work with other Government Departments. Unlike the Government he was a member of, ours is a joined-up Government, and that is certainly the case in this area, as in every other.
Several hon. Members asked me to go into more detail--in fact, the hon. Member for Chichester (Mr. Tyrie) just asked me to do so--about revenue neutrality. All the proceeds of the levy will be recycled to business, but beyond that, the levy will indeed be broadly neutral between the manufacturing and services sectors. That means that the impact of the combination of payments under the levy, the reduction in employer's national insurance contributions and the additional support for energy-saving measures in the £150 million fund on the manufacturing sector or on the services sector will broadly balance each other out. That was spelt out in the pre-Budget report in November. Very many firms will be net beneficiaries from the package. I was pleased that the right hon. Member for Wells said that he was a director of two of them.
Of course, the effect of a levy such as this, which is revenue neutral overall but shifts the burden on an unchanged overall sum in tax from employment to energy use, will be a further boost for employment in the UK. That is another reason why the levy is such good news.
Finally, I want to respond to the points that the hon. Member for New Forest, West (Mr. Swayne) and others made on horticulture. The Bill would provide the horticulture sector with a uniquely favourable arrangement. Opposition Members should have welcomed that. It is a significant change on what was said in November. I did not notice much of a welcome. It is a very favourable step from the viewpoint of the horticulture sector. There will be a ring-fenced fund, within the wide range of the efficiency package, to help energy-efficient investments in horticulture. Thermal screens will be eligible for help from the fund. Finally, the levy will be set at the 50 per cent. rate for up to five years.