Examination of Witnesses (Questions 380
TUESDAY 18 JANUARY 2000
TIMMS MP, MR
380. By adopting the IPPC definition, we have,
of course, created some anomalies. Major energy-dependent sectors
and employers such as the water industries, industrial gases and
the china clay industry may be completely or partially non-eligible.
How are you dealing with those anomalies?
(Mr Timms) It is the case, as I said a few moments
ago, that industry sectors outside the scope of IPPC do not have
the IPPC regime, they do not have to carry the IPPC regime, so
in that sense they are being more lightly dealt with under the
Directive than the sectors which are within the scope of the IPPC.
It is the case as well that a number of sectors, perhaps in the
category that you are describing, will benefit from the exemption
for combined heat and power; they will also benefit, of course,
from the reduction in the overall quantity of the levy compared
with where they would have been if we had gone ahead with the
proposal which was announced in the Budget. However, as I have
said, if there are proposals to extend a measure of special treatment
for energy-intensive sectors subject to international competition,
which are outside the scope of IPPC, then if they meet the criteria
which I have listed, we will look at those.
381. The IPPC Directive applies to firms above
a certain size. There are a number of small firmsfor example,
in glass makingwho are highly competitive with much larger
firms. That seems also to be an anomaly created by operating the
(Mr Timms) I think we have resolved that, because
we have said that firms which would be covered by the IPPC or
sites which would be covered by the IPPC but are not, simply by
virtue of being too small, are eligible for participation in the
negotiating agreements. So I think that one has been resolved.
382. Have you made any calculations, Minister,
as to how much extra energy savings or carbon dioxide reductions
will be delivered by the CCL by 2010 as against simply operating
the IPPC Directive?
(Mr Timms) I guess the answer is four million tonnes,
is it notthe figure which I have referred to earlier. Perhaps
Simon can deal with this.
(Mr Virley) Yes, the four million tonnes figure is
broken down, as we indicated earlier, into the levy itself saving
at least two million and the negotiated agreements saving a similar
amount, and the last figure is calculated by comparing what we
expect emissions to be under a "business as usual" scenario
with what the latest agreements or the state of play in the agreements
suggest they might be able to achieve with the agreements in place.
383. Finally, witnesses who have been before
us have suggested that the Environmental Agency has not been fully
involved throughout this process and has been carrying on implementing
the IPPC Directive on a side-by-side basis, irrespective of what
is going on regarding CCL. Has there been any discussion with
the Environmental Agency? If so, in what direction has that taken
(Mr Timms) My understanding is that there has been
a great deal of discussion with the Environmental Agency and,
of course, discussion with the Department of Environment, Transport
and the Regions which we have been working with very closely on
this, so I am surprised to hear that. My understanding is certainly
that the Agency has been very much in the loop.
384. If I may, I would like to turn to the progress
which has been made on the negotiated agreements. In turning to
this issue, I do recognise that it is perhaps a little bit of
an unenviable task. I am interested to know what fine-tuning there
has been. I am conscious also that some companies, including ones
which seem to be shedding a large number of jobs in my constituency,
seem not to have escaped some of their commitment to this. I am
thinking about Corus British Steel. Could you tell me what is
in the "first wave" heads of agreements which I understand
the Government have now signed with ten industrial sectors, when
do you expect the contracts to be drawn up and how much more work
is going to be required before those contracts can be agreed?
(Mr Timms) The "first wave"the memorandum
of understanding signed on 20 Decemberwas a very big step
forward in developing the levy and the negotiated agreements.
We think we are on course to sign full agreements with all the
eligible sectors in the coming months. There is a good deal of
work to be done between the memorandum of understanding and the
final legal agreements.
385. Will the final legal agreements be done
by the end of March, as was originally planned?
(Mr Timms) I would certainly very much hope so, yes.
So I think in summary the answer is that we are making good progress
on the agreements.
386. Can I ask what of that progress might be
the sticking points between having the hoped-for agreements by
the end of March and perhaps having to wait a little bit longer
before you get them signed, sealed and delivered? What are the
(Mr Timms) At the moment I do not see any insoluble
difficulties in concluding the agreements in the timetable which
we have outlined. Do you want to add to that, Simon?
(Mr Virley) Perhaps if I may just add to that, there
are some sectors for which the data on emissions and energy use
is of a less good quality than it is for the sectors which the
Department of the Environment has been studying for many years.
So there are some data issues which need to be resolved, and also
the treatment of certain processes in different sectors and exactly
the scope of the exemptions which have been announced in the Pre-Budget
Report where discussions are continuing.
387. In terms of getting access to that data
which you need, this brings me on to my second question really.
Is that a matter for the trade associations, or is that a matter
for you to be resourcing and actually getting that information?
Who is going to be providing that audit, if you like, or that
(Mr Timms) The information will need to be provided
by the participants in the agreements, but we also think it is
important that there should be independent audit from outside.
Quite which body is going to play that role has not yet been decided.
We think it is important that there should be a consistent approach
across the full range of the negotiated agreements, but precisely
who is doing it has not yet been determined.
388. When you talk about the need for independent
audit in terms of getting the information in the first place to
bring about the agreements, will that be linked up subsequently
to monitoring what actual agreements have been made at the start,
what then happens next, who will be responsible for it and who
you actually think might do it?
(Mr Virley) Yes, it would very much be part of that.
There will be independent audit of these agreements. As the Minister
has indicated, it has not been decided who exactly would be responsible
for doing that.
389. Who might be?
(Mr Virley) It is clear that the Department of the
Environment would have to be involved, and a potential candidate
might be the Environment Agency, but those are subject to ongoing
390. Can I ask a little bit more about trade
associations and the individual companies in terms of the negotiated
agreements? Have you reached agreement on how that will be proceeded
(Mr Timms) I am not quite with you.
391. I am asking whether or not we are talking
about a group of companies who together form a trade association,
and the agreement being with the trade association, or whether
or not it is likely to be with each individual who may not at
this stage be under the umbrella of a trade association, or whether
or not, for the purposes of the Climate Change Levy, they might
have to subsume the responsibility for the trade association agreement
under a trade association to which they do not at this stage belong.
(Mr Virley) A variety of different models have been
offered as to the exact form the different agreements might takewhether
it is just with the trade association, or whether they have back-to-back
agreements with each of their individual members. Obviously we
try to be as flexible as possible in allowing the sectors concerned
to choose the form of agreement which most suits their needs.
392. Could I also ask about the majority of
"first wave" sectors which have opted for, as I understand
it, efficiency targets rather than absolute carbon reduction targets?
What assurances can you give that the Government will meet its
greenhouses targets and that the energy efficiency targets will
not undermine that?
(Mr Timms) We gave the sectors a choice for the negotiated
agreements in order that they could use whichever approach was
the most applicable for implementing and monitoring in their industry.
Whichever target they choose, it will require significant action
on the part of the firms involved within that sector, and we are
confident, as I said earlier, that the result of the negotiated
agreements will be a saving of at least two million tonnes of
carbon a year. But we thought it was important to give the firms
the choice about the approach that fitted their circumstances
best, or give the sectors that choice.
393. I understand, or there have been reports,
that you were negotiating in the second wave sectors, or sub-sectors,
with as many as 40 different sectors. Is it feasible to have so
many different agreements to have to deal with?
(Mr Timms) The second wave discussions are going ahead,
we expect there to be a memorandum of understanding which they
have signed up to by the end of February, so, yes, we do think
this is a manageable task.
394. How do you propose building the concessions,
if that is the right word to useI am not sure it isthe
extra advantages which the Government has given in order to proceed
with the agreements that we now have which relate to the extra
money, the most welcome money, which will be available for environmental
technologies for energy efficiency, into the comprehensive spending
review so that money will be quickly and easily available and
the information got out to companies which might want to take
advantage of it?
(Mr Timms) We are consulting currently on the detail
of quite how those arrangements are going to work. I do not think
there is going to be any difficulty in identifying the money because
it is a stream within the climate change levy. But there is a
consultation document, and consultation is going on at the moment
about precisely how those arrangements will work.
395. Minister, are you satisfied that even with
an 80 per cent rebate for British Steel, for example, it will
have no serious impact on its competitive position?
(Mr Timms) I am satisfied that we are achieving two
objectives with the climate change levy. Firstly, we are maximising
its environmental benefits and, secondly, we are not jeopardising
the competitiveness of UK firms. In the case you have cited, there
is a very, very large reduction in the impact of the levy following
on from the announcements which were made in November. The same
is the case, for example, in the chemicals industry where the
leading figures in that had a lot of concerns and they have acknowledged
they are no longer worried about what the levy is going to do
to their industry. So I am satisfied that we have met the twin
objectives of maximum environmental effectiveness and maintaining
the competitiveness of UK firms in the announcements we have made.
396. Would you not acknowledge that even with
the 80 per cent rebate to which British Steel may be entitled
that works out, I gather, still as an energy tax of approximately
£2.40 per tonne of steel, which compares with the equivalent
rate in Germany of 4p per tonne and an average for Europe of 40p
per tonne? How is that going to maintain the competitive position
of British Steel even after your most generous rebate?
(Mr Timms) It is necessary, of course, to look at
the overall taxation position of British businesses and, as you
will know, we have a very good, a very competitive, business tax
environment in the UK. I think it is important to look at the
overall picture in assessing the competitive position of UK firms.
I would say that the figure British Steel was looking at after
the Budget in the spring was very, very much greater. I have had
discussions with Members of Parliament and others about the effect
of the levy on that firm and others, and I imagine that British
Steel is very pleased with the much more favourable position that
they find themselves in now.
397. It is encouraging to hear you talk about
the overall tax burden rather than the headline tax rates, because
I think on that basis the overall tax burden is just up by £40
billion under this Government, but that is another issue altogether.
(Mr Timms) No, the tax burden is falling.
398. It is up by £40 billion according
to the House of Commons Library but we will not go into that,
that is for another Committee, another problem, another day. Within
those sectors there are obviously still anomalies in terms of
the agreements which are going to be made and some firms will
qualify for a full 80 per cent, some say 50 per cent, some 60
per cent, some will be liable for the full whack of tax. Can you
give any examples of any other taxes where there are variable
rates not determined by Parliament but determined by individual
agreements between civil servants and companies themselves?
(Mr Timms) No, I cannot give any such examples but
the climate change levy is not going to be such an example. There
will be an 80 per cent reduction for those firms covered by negotiated
agreements but there will not be a sliding scale for others.
399. So some will have 100 per cent payment
and some will get 20 per cent payment effectively?
(Mr Timms) Yes.