Examination of Witnesses (Questions 1240
- 1259)
THURSDAY 27 JANUARY 2000
MR MIKE
WALKER, MR
KEITH SEXTON,
MR BEN
GILL, AND
MR JACOB
TOMPKINS
1240. What energy saving do you think we should
have?
(Mr Walker) The potential varies from company to company
and we have done work with all the companies to determine that
figure. There is great potential for energy saving but also huge
potential for renewable energy and that would offset energy use.
Perhaps Keith can expand on that.
(Mr Sexton) We have been trying to do some sort of
analysis by company. As Mike said, it does vary from company to
company. If you look at the average penetration of renewable energy
within the water industry, the percentage of internal energy which
is generated by renewable means the average is about 4.6 per cent
across the totality of the water sector. Some companies have figures
of 10, 11, 12 per cent. So you can see there is some head room
in there to extensively increase the amount of renewables. Equally,
there are a number of feed-backs we have had from numbers of companies
which show that the potential from similar types of energy efficiency
projects could bring the total for some companies to an average
of about 10 per cent. So given the sheer scale of the energy we
use, that sort of potential is a very valuable contribution to
the UK's climate change. The other point I would like to make
is that it is a factor of the water industry that we tend to move
in five yearly cycles. We have just gone through the AMP 3 process,
which is effectively setting up an engineering project series
for the next five years with a spend of something like £16
billion. That is a staggering sum of money being spent on refurbishing
and increasing our quality of water production and waste water
treatment.
Mrs Dunwoody
1241. It is not a very startling figure compared
with your rate of profit.
(Mr Sexton) The interesting thing is purely in terms
of that degree of spend. £16 billion does mean a phenomenal
degree of investment is going back into the industry. My point
is that we will miss a trick if we do not put in all practical
measures of energy efficiency within that next five year programme.
We are saying as an industry, as the third most energy intensive,
we have been willing to talk to Government about the potential
of negotiated agreements with the 80 per cent rebate that is on
offer with the idea of trying to use that money in the next five
year programme where we have a real opportunity to sort out some
infrastructure which, as Mike said, will be in the ground for
the next 20, 30 years. If we miss the opportunity now, I think
we have really missed a trick.
Mr Forsythe
1242. What sort of projects would become economic
at the reduced rates of the levy?
(Mr Sexton) That is exactly the problem we have been
trying to sort out. Because we have been getting very mixed signals
in terms of whether we are potentially in or out of the negotiated
agreements and with a lot of resources going into the five year
review, there is only a limited number of companies prepared to
put money into that. The majority of the projects we have seen
coming forward have been renewable energy projects and again,
speaking to the Energy Efficiency Adviser in North West Water,
things the industry is increasingly trying to deal with are things
like sewage sludge and drying sewage sludge. Historically, we
would have put electric dryers in but people are now starting
to think innovatively and saying, "Perhaps we could put micro-combined
heat and power plants in, put gas in, dry it, generate electricity".
So there is potential but those will not be cost effective without
some degree of an effective subsidy back from the negotiated agreement.
Mr O'Brien
1243. What is the percentage of wastage now
estimated in the water industry?
(Mr Walker) That varies from company to company—
1244. What is the estimate for the industry?
At one time you were talking about 25 per cent, so 25p for every
£1 spent on electricity was going to waste. What is it now?
(Mr Walker) I am not actually sure about the overall
waste for the industry. I think it is less than 20 per cent but
I could come back to the Committee.
1245. If it is 15 per cent, it does mean that
15p out of every £1 spent on electricity for pumping water
around the system is going to waste. Does that not follow the
point made by my colleague, that if we repair the system that
will save 15 per cent of the energy used for pumping water? Why
are we waiting for that to happen?
(Mr Walker) That is quite right, pumping costs would
be reduced, but you have to look—
1246. We are talking about saving energy here.
(Mr Walker) Yes, but we have to look at it in terms
of the cost of repairing that network and the upheaval that would
cost.
1247. So what you are saying is that we do not
bother about saving energy because it will cost so much to repair
the network?
(Mr Walker) At the moment that is the
way it is skewed, definitely.
1248. So why do you go on screaming then that
the levy is an imposition on the industry?
(Mr Walker) Because the Government and regulators
have accepted the need for an economic level of leakage to meet
targets. That is accepted throughout the water industries in the
world. In fact, compared to other international water industries,
our leakage is very low.
Chairman
1249. But there are leakage rates for some of
the companies which are now below 10 per cent, are there not?
Others are over 20 per cent and that really is unacceptable. At
this point, can I say that I am pleased to see the NFU is here.
Would you like to introduce yourselves for the record please?
(Mr Gill) Chairman, apologies for being late. As you
are probably aware, the roadworks in Central London meant that
Trafalgar Square was gridlocked and we had to revert to walking
here from Covent Garden.
1250. I did think it was probable that you were
not still milking the cows!
(Mr Gill) Thank you, Chairman. I am Benn Gill, I am
the President of the National Farmers Union of England and Wales,
and on my left is Jacob Tompkins, our adviser in this area.
Mr Donohoe
1251. What is the clear evidence you say you
have about the impact of the levy on the UK agricultural industry?
(Mr Gill) In terms of the state of the industry at
the moment, I am sure members are very acutely aware that the
income situation has dropped to an all-time low in the last six
decades, paralleling the 1930s, and many of the sectors are in
a loss situation. The levy itself would affect particularly acutely
the pig, poultry and the horticultural sectors. The pig and poultry
sectors are subject already to the potential imposition of some
counter-charges from Integrated Pollution Prevention and Control
which could amount in many sectors to an initial charge of £12
to £14,000 with annual charges of £5,500. Some of that
is offset but when you add this charge on to the charges which
are proposed by the CCL, and then you look particularly also at
horticulture where there is no potential for offset against IPPC,
we see the potential for job losses as being absolutely enormous
particularly in the horticultural sector where figures as high
as 10,000 job losses have been collated. That is made more so
when we look at what our competitors in the horticultural sector
in other Member States are doing. Our latest findings from our
competitors in that area are: Spain, no proposals for a CCL; Portugal,
no proposals for a CCL; France, no proposals for a CCL; Holland
has a CCL but will ensure it is budgetary neutral for every business
in the horticultural sector. So what we are risking here is introducing
a levy which will export our industry and will not solve the fundamental
problem which, Chairman, I would like to make quite clear. We,
only too acutely, are aware of climate change, being at the sharp
end of it and seeing how it affects our every day living and how
we have to farm the land.
1252. How much would the full levy as charged
add to the typical pig farmer?
(Mr Tompkins) In terms of poultry, we were looking
at £2,500 before the 80 per cent negotiated reduction, after
the reduction we are looking at £500 per business. That might
not sound that great but that would mean that 25 per cent of those
we surveyed would move from profit into loss. That is how low
incomes are in the sector at the moment. The situation on pigs
is similar if not worse. The difficulty we have in the pig sector
is that businesses are going out of business all the time, so
the data we are collating is worse and worse.
1253. We have had some indication but what would
it be as a cost to the individual horticulturalist?
(Mr Gill) It is very difficult to say with an individual
horticulturalist because there are so many differences within
the horticultural industry between protected and unprotected crops
and, within theose, within the flower crops and other aspects,
there is the size of it, the location of the greenhouse facility
and so on.
1254. Is the calculation that you have done
taking into account the reducing cost of electricity?
(Mr Tompkins) Obviously the cost of electricity varies
by area. We have taken an average across the country. In terms
of horticulture, the average cost to a protected horticultural
business is £9,000 per hectare per annum.
(Mr Gill) That is protected.
1255. Is that after you take wages out of the
system?
(Mr Tompkins) Yes. That is taking off the NIC reduction
as well. In fact the cost of the Climate Change Levy to the agricultural
and horticultural business will be £17 million, the NIC rebate
would be £6 million, so we are looking at a total loss of
£11 million across the whole, but obviously it is focused
specifically into those energy intensive areas such as pigs, poultry,
dairy, horticulture, and some of the smaller businesses like crop-dryers
and hop-dryers.
1256. So across all of those whom you represent
inside the NFU, this is going to have a net cost of £11 million
per annum?
(Mr Gill) That is the actual clear figure but there
is another figure which I believe could almost equate to that
which is very difficult to quantify, and that is the hidden cost
of auditing what is happening in the industry. When we have so
many SMEs and very small businesses—
Chairman
1257. Can I appeal to you not to use these initials?
There are probably one or two people who will watch this on television
and they probably have difficulty with a lot of these initials.
(Mr Gill) Apologies, Chairman. The agriculture and
horticulture industries are made up of so many small and medium
sized enterprises, therefore we are looking at thousands—some
20,000 potentially, minimum—of affected businesses within
membership of the NFU, and an unknown quantity outside membership;
another 3,000 outside membership. Also, you have to look at quantifying
that and auditing the trail. We presume it would have to be done
against the backdrop of measuring external factors, so if we have
a temperature rise in the summer, for example, you will need to
use more energy to cool intensive houses rather than the other
way around, or vice-versa, so you need to have some basis to audit
what you have done, which is probably a moving target.
Mr Donohoe
1258. That does indicate that you have a cost
in addition to everything else because of climate change, and
that is perhaps even more reinforced within your industry than
it would be in others.
(Mr Gill) The cost I am referring to in this case
would be the bureaucratic cost of monitoring whether or not you
do achieve the targets that you have set to reduce your energy
usage and auditing that to a sufficient degree of accuracy.
1259. But, with the greatest respect, you are
not even addressing the question, and that is the question if,
as an industry, you are being affected by climate change, as you
are suggesting you are—
(Mr Gill) I believe we are.
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