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Horticulture
Motion made, and Question proposed, That this House do now adjourn.--[Mr. Jamieson.]
7 pm
Mrs. Marion Roe (Broxbourne): I am grateful for the opportunity to speak about the United Kingdom glasshouse horticulture industry. The industry is close to my heart, not just because there are several dozen glasshouse nurseries in my constituency but because, until a few years ago, I was parliamentary adviser to the Horticultural Trades Association. My interest in horticulture goes back many years.
My constituency is on the western side of the River Lea in Hertfordshire. The Lea valley has been a renowned glasshouse growing area for well over 100 years. Today, the total area of glass in mainstream protected crop production amounts to some 275 acres, and the Lea valley is one of the three principal areas of glasshouse production in the United Kingdom. The other two are on the south coast and on Humberside.
The principal crops grown in the Lea valley are salads, especially cucumbers and lettuce, but there are also significant acreages of ornamental crops, bedding and potting plants, flowers to be sold as cut flowers and aquatic plants. The local industry is wealth-creating, and is a major employer.
The last few trading years, however, have not been good for the industry. The increasing commercial power of the major multiple retailers, who are competing more and more ferociously, continues to depress prices to their suppliers. Growers must find more and more ways of reducing their production costs, and trading more effectively and efficiently. Moreover, the continuing strength of sterling--or, perhaps more accurately, the continuing weakness of the euro--has meant that more and more exports of cheap produce reach our shores from the United Kingdom glasshouse industry's principal competitors, the Dutch and the Spanish.
Imports from those countries are made all the easier by the fact that fuel and transport taxes are lower abroad. Not only will a Dutch exporter receive more guilders for the pound realised on his produce sold in the United Kingdom; he will be able to transport that produce more cheaply than the UK growers or marketing organisations that are servicing their own markets. There may be free trade throughout the European Union, but the bases of that trade are far from equal.
I recently met representatives of the Lea valley glasshouse industry to discuss various issues of importance to their businesses. I learned that glasshouse growers in my constituency and elsewhere in the Lea valley--indeed, throughout the UK--view with alarm the Government's proposal to impose a tax on energy usage in the UK with effect from April 2001. The climate change levy will impose a particularly heavy burden on the glasshouse industry, which is energy intensive.
As a party to the Kyoto protocol, the UK became legally bound to reduce greenhouse gas emissions by an agreed amount. However, the Department of the Environment, Transport and the Regions has announced that the Government wish to exceed that target, and aim for a domestic goal of a 50 per cent. cut in carbon dioxide emissions by 2012. The principal instrument that they will
use to achieve their target is taxation--presumably on the basis that the more expensive the commodity, the less of it will be used.With effect from April next year, and for 2001-02, the climate change levy will be imposed on electricity at a rate of 0.43p per kilowatt hour, on coal and natural gas at a rate of 0.15p per kilowatt hour and on liquid petroleum gas at a rate of 0.07p per kilowatt hour. Most of the revenue from the levy will be used to cut employers' national insurance contributions by 0.3 per cent.; the remainder of the estimated £1 billion tax raised in the first year will be used to provide additional Government support for energy efficiency measures. The Treasury claims, therefore, that the levy package is designed to be revenue-neutral for the private sector as a whole.
What would this mean for the glasshouse industry? Of course no two glasshouse nurseries operate in exactly the same way, and different crops require different methods of production and heating levels. However, the National Farmers Union estimates that on average the levy would impose a tax burden of some £3,750 per acre of glasshouse. As I said, the Lea valley contains some 275 acres of glasshouses, so the levy would cost growers in that area alone more than £1 million.
Although glasshouses are energy intensive by reason of their function, nurseries are not generally employee- intensive. Any rebate to be had from the cutting of national insurance contributions would have an almost negligible impact on the overall tax cull from horticulture. There is no doubt that a tax of this magnitude would plunge UK glasshouse horticulture into inviability, forcing the closure of many nursery businesses and the loss of thousands of jobs.
To be fair, the Treasury has, to some extent, heeded the warnings of the glasshouse industry, and special provisions for horticulture were recently announced in the 21 March Budget. Essentially, those special provisions promised, first, to introduce
- a transitional 50 per cent. discount on the levy for horticultural firms (for a period of up to 5 years), to help protect their competitiveness whilst . . . energy efficiency measures take effect,
- the setting aside of part of a £50 million "energy efficiency" fund to finance a special package of measures for the horticulture sector to improve further the sector's energy efficiency.
It would, of course, be churlish of my glasshouse grower constituents not to welcome the special provisions that have been made for horticulture. Of course, those provisions are appreciated. However, they may not be as beneficial as they seem.
First, glasshouse growers have noted that the Treasury is introducing a 50 per cent. discount on the levy for horticultural firms
- for a period of up to 5 years.
-
Growers have especially noted the words "up to". It is unlikely that those words were chosen unthinkingly. Of course, the statement thus constituted would allow the Treasury to reduce the relief period to, say, three years or even one year, and/or to reduce the amount of the relief from 50 per cent. to a much lower figure.
As regards the "energy efficiency" fund, it is by no means clear at present how the fund will be operated, and what part of it is to be specifically allocated to horticulture. Indeed, details of the "special package of measures" have not been forthcoming, so it is rather difficult at this stage to know to what extent that will benefit the horticulture sector.
As for the enhanced capital allowances, it is commonplace to say that any business welcomes the opportunity to save tax. Nevertheless, such tax-saving opportunities are available only to those businesses that are making profits. If none is, and that is already the case with many horticultural businesses, there is no tax to be saved.
Combined heat and power systems would appear to be the answer, therefore. As I have said, the Government have given an exemption to such systems and the Treasury has highlighted those as being of particular benefit to the horticultural sector. However, the exemption is reserved for "good quality" systems, to use the Treasury's own words. The definition of "good quality" is highly complex and it is difficult to see how it might apply to horticulture.
A CHP unit must be efficient in terms of the use of both heat and power. That will cause problems. CHP is expensive, so most growers will be obliged to enter into agreements with electricity companies that build the units on horticultural sites. Such companies will require a minimum CHP size of around 4 MW. That is because of cost, especially the cost of linking into electricity supply lines to export surplus energy to the grid. Many smaller glasshouse growers will not be able to use all the heat that a 4 MW unit produces. Thus, it may not qualify as "good" CHP because the heat use is too low.
Furthermore, many growers will not have CHP available to them because they are located too far away from a gas supply line to fuel the CHP plant, and/or they are too far away from electricity lines to export the surplus power. Also, CHP may not be practical for producers of ornamentals, who require more light than heat.
That said, I am bound to report that a small number of CHP plants have been, or are being, established on glasshouse nursery sites in the Lea valley. It is sincerely hoped that all will fall into the Treasury's category of "good quality" systems. Those installations have become possible because of a collaborative project of a number of growers whereby a gas pipeline has been laid to supply a series of nurseries in the Lea valley.
The project has been massive, involving an overall investment of more than £750,000. However, it has enabled not only a few growers to install CHP plants, but
the remaining growers to convert their nursery heating systems to the far more "environmentally friendly" fuel of gas. Gas is also a more efficient fuel in a nursery context, and its direct supply by pipeline obviates the need for regular deliveries of fuel by road transport, as is the case for oil. That in itself is energy efficient, as energy must be consumed by lorries in the delivery process.It has also been possible for those growers who have converted to gas to extract carbon dioxide from the waste gases produced by the burning of the fuel and to distribute that carbon dioxide to the glasshouses. The glasshouse plants absorb that gas in the growing process. It is of course an irony for those growers that, having invested heavily in a more efficient heating system for their nurseries, and while actively taking up greenhouse gases, they are now to be penalised by having a heavy tax imposed on them. What savings they might have made will for the most part be wiped out by the payment of the climate change levy, yet they will also have consumed the carbon dioxide that has been produced in the new combustion process.
The levy's aims are to encourage energy efficiency and to reduce greenhouse gas emissions. To what extent those aims will be achieved in the glasshouse sector is a moot point. As we have seen, growing plants absorb the principal greenhouse gas, carbon dioxide. Furthermore, growers do not need the blunt instrument of a swingeing tax to want to reduce energy consumption. Energy costs can count for between 20 to 40 per cent. of all costs in glasshouse crop production, and that has been incentive enough for growers to find, over many years, ever more ways of reducing those costs and fuel consumption.
The United Kingdom glasshouse industry has an exemplary record of energy saving, particularly since the energy crisis of the early 1970s, when fuel costs increased by more than 400 per cent. in one year alone. One clear proof of that can be found in tomato production. In 1985, 1 kg of tomatoes required 17 KWh to be produced. In 1999, that figure had fallen to ll kWh. That is a drop of approximately 40 per cent. in energy consumption, which by any standards is a remarkable achievement. It shows that growers are committed to doing their bit to tackle climate change. Growers will continue to use all technology at their disposal to improve fuel efficiency and environmental effectiveness without the need for the added spur of an unfair and punitive tax.
The Treasury has said that its aim throughout has been to design the levy in such a way that the competitiveness of UK firms is protected, but how is that to be achieved in horticulture? The UK's competitors in protected crop production are mainly Holland and Spain. However, Dutch glasshouse growers have been exempted from paying their equivalent of the tax, and the Spanish seem so far to have made no proposals to introduce an energy tax at all.
Growers from those European Union states operate within the single market, and Dutch and Spanish growers have free and unrestricted access to UK markets. When the proposed levy--ignoring for the moment the temporary reliefs--imposes a financial burden of £1 million on growers in the Lea valley alone, I wonder how the Government can possibly argue that our growers' competitiveness is to be protected.
Competitiveness can, of course, be interpreted widely, and one might cite differential tax regimes generally in different member states. However, it would be difficult to
find a tax advantage that UK growers might have over their Dutch and Spanish counterparts. It is recognised, I believe, that the tax regimes in the UK are generally more onerous than elsewhere in the EU. What will happen is that many UK glasshouse nurseries will lapse into unprofitability and close down, although demand for glasshouse produce in the UK, both edible and ornamental, will not decline. Indeed, the opposite is the case; we are seeing an ever-increasing demand for such produce. The produce will therefore come from abroad--from Holland and Spain, once again.Those countries will need to consume the energy to produce the product. There will, therefore, be no energy saving. Even worse, it will be necessary to transport the produce to this country, thereby actually increasing energy usage. The climate change levy will ensure not only that the UK's fuel usage is exported to our competitors abroad, but that our livelihoods and jobs are exported as well. The balance of trade in horticultural produce will lurch irretrievably in favour of those competitors abroad. The CCL impinges most unfairly on the glasshouse sector in the UK. The levy package may be designed to be revenue neutral overall, but that will clearly not be the case for growers. As the tax burden will fall substantially and negatively on the UK glasshouse industry, it follows that others must benefit from the levy--that is to say, those with relatively low energy use but high numbers of employees, because their national insurance rebate will greatly exceed the amount of the energy tax. Those organisations will have no incentives to achieve energy efficiencies, thus negating one of the Government's principal aims. That is clearly neither desirable nor equitable.
If the CCL is imposed on the UK glasshouse industry in 2001, serious consequences for the viability of the sector will ensue. Given the determination of growers to continue to achieve energy efficiency, coupled with environmental effectiveness and the situation in respect of the levy, vis-a-vis their principal EU competitors, the only possible course of action for the Government is to exempt totally the UK horticulture industry from that inequitable tax.
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