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Session 1999-2000
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Standing Committee Debates
Finance Bill

Finance Bill

Standing Committee H

Thursday 18 May 2000

[Part I]

[Mr. Frank Cook in the Chair]

Finance Bill

(Except clauses 1, 12, 30, 31, 59, 102 and 113)

1 pm

Mr. Andrew Stunell (Hazel Grove): On a point of order, Mr. Cook. I wish to draw to your attention the remarks made by the Financial Secretary at our sitting on Tuesday. He said that a written parliamentary answer would be published about the climate change levy and combined heat and power. It was published yesterday and referred to documents that had been placed in the Library. As a result of my inquiries, I found that those documents were not available to right hon. and hon. Members until ten minutes to 1 o'clock this afternoon, immediately before the commencement of our proceedings. That puts members of the Committee who needed such information to take part in our debate at a severe disadvantage. I hope that you, Mr. Cook, will draw the matter to the attention of Madam Speaker and the Department of the Environment, Transport and the Regions, so that we are not put at such a disadvantage in future.

The Chairman: I am sure that the hon. Gentleman will understand that that is not a matter for the Chair, whose remit is restricted to the Bill. I am sure that the Financial Secretary will have heard his comments, will register them in the appropriate place and will ensure that such action is not repeated.

Mr. Oliver Letwin (West Dorset): On a point of order, Mr. Cook. I seek your guidance. The Financial Secretary offered to write to members of the Committee, particularly my right hon. Friend the Member for Charnwood (Mr. Dorrell), about the level of interest rate rise assumed by the Government in their forecast. We are grateful for the letter, but it contains no reference to the question that was asked. Is that an appropriate way in which to deal with matters pertaining to our proceedings?

The Chairman: I am sure that the hon. Gentleman has sufficient experience to know that that is not a matter for the Chair. However, he can count himself fortunate that he has managed to get it on the record. I am sure that he will receive an appropriate response from the appropriate quarter. Now, can we get on?

Schedule 6

CLIMATE CHANGE LEVY

Mr. Stunell: I beg to move amendment No. 77, in page 152, line 32, leave out from `Schedule' to end of line 32 and insert

    `a reduced rate supply to horticultural producers is a taxable supply payable at one third of the amount ascertained from the Table in paragraph 40, and in'.

The Chairman: With this it will be convenient to take the following amendments: No. 35, in page 152, line 32, leave out from `Schedule' to `the' in line 33 and insert

    `supply is not taxable if'

No. 36, page 152, line 36, leave out `intends' and insert

    `would have intended'.

Mr. Stunell: Amendment No. 77 and the other two amendments, tabled by the right hon. Member for Fylde (Mr. Jack), relate to the application of the levy to the horticulture industry. The Government have responded to some points made to them by the industry. Originally, the levy was to apply at the full rate on the horticulture sector, which would have been catastrophic. Paragraph 41 allows that, for the first five years, a half-rate levy will apply, which will be better than paying the full rate. However, it is far from satisfactory and will damage the horticultural sector.

The amendment would reduce the climate change levy that will apply to the horticultural sector from one half to one third of the standard rate. It is designed to test the Government's short-term and medium-term intentions for the horticultural sector.

In its more refined forms at least, horticulture is a major international industry. Under the auspices of the National Farmers Union, I met horticultural growers in this country, one of whom also had horticultural interests in Chile. It may surprise hon. Members to know that routine flights from Chile bring horticultural produce to this country and the rest of western Europe. It is an international trade, especially in flowers.

Therefore, growers in this country are preparing products not simply for a local market, as they might have been 100 years ago, or a regional or national market, as they might have been 20 years ago, but for an international market. The impact of the levy on their business will be correspondingly severe.

That might be said of a number of industrial and commercial sectors, as no doubt the Financial Secretary will argue. However, the horticultural sector is different, in that those who work in it are not net contributors of greenhouse gases to the atmosphere. Because of the stage of the cycle at which they operate, in fact they withdraw carbon dioxide from the atmosphere, because that is what plants do in order to grow. It might be argued that, at a later stage, when the flowers are discarded, the carbon cycle continues, but horticulture is nevertheless a net carbon-neutral industry. It is therefore clearly different from the high energy users covered by the integrated pollution prevention and control agreements, and from some of the industries that are high energy users but are not currently covered by any of the negotiated settlements. Therefore, an industry that is international in scope and earnings potential and, net, carbon-neutral faces the imposition of the new tax, albeit at a reduced rate.

A further point has been put to me by horticultural growers. In order to make their plants grow more robustly, the more sophisticated operations recycle some of the carbon dioxide produced in combusting fuel to blow over the plants to increase absorption of carbon. By doing so, they participate in cleansing by using the carbon dioxide produced when they burn fossil fuels. Therefore, it is not always practical for them to use renewable sources of energy. In some cases it may be, and I encourage them to do so. In other cases, however, the emission of carbon dioxide by the burning of fossil fuels is beneficial. It is, in effect, a fertilizer, provided as a by-product of the burning of fossil fuels.

The horticultural sector, which operates in an international market, produces a net carbon-neutral emission and can make beneficial use of the carbon dioxide released from burning fossil fuels, faces the levy and all its associated difficulties. No doubt the right hon. Member for Fylde will make some additional points and provide further particulars on the matter.

Welcome as the half rate is in principle, it does not go far enough to guarantee and secure the continuance of that international industry. Its time-limited nature is a problem, too, because unless horticulturalists in the United Kingdom make significant investments in the next five years, they will be knocked for six by the imposition of the full rate when the end of the temporary rebate period arrives. There will not be a viable investment climate for horticulturalists to install new equipment over the next five years if they take a tax hit while having to fight vigorously in an international market in which the valuation of the pound provides additional difficulties. I hope that the Financial Secretary will respond sympathetically to all three amendments in the set, and to amendment. No. 77 in particular, which would reduce the current rebate so that horticulturalists pay not one half but one third of the levy.

Mr. Michael Jack (Fylde): I join the hon. Member for Hazel Grove (Mr. Stunell) in thanking the Government for listening carefully to the representations that the horticulture industry has made about the matter that we are discussing. I speak as someone who made his living in the horticulture industry before coming to Parliament. The company that I worked for was—

Mr. Graham Allen (Nottingham, North): Scrumpy Jack.

Mr. Jack: Not Scrumpy Jack, but a company that made its living by selling fresh produce to major supermarkets as well as being a grower in its own right. Part of that operation produced glasshouse tomatoes. I want to work through a case not so much to support my amendment, which suggests a 100 per cent. reduction in the effect of the climate change levy on the horticulture industry, as to make an appeal on behalf of such producers.

I appreciate that it is not in the gift of the Financial Secretary to admit that he wishes that he could adopt my arguments and agree with my proposal. Part of the measure that I seek to amend, which the Government negotiated with the industry, has come about—as paragraph 6.32 in the Red Book rightly counsels us—as a result of discussions with the EU about the state aid rules. However, there might be more flexibility in those rules and in their application to the industry, and I want to pray in aid the comparative position of the United Kingdom industry and that of our European competitors. It would be fair to ensure that United Kingdom growers are no worse off than our principal horticultural competitors after the application of the climate change levy in Europe.

Traditionally, United Kingdom growers of glasshouse tomatoes or cucumbers could expect to have the United Kingdom marketplace to themselves between March and the end of October. However, improved growing techniques in Portugal and Spain mean that the so-called English season is reducing, so that the period over which horticulturalists—especially protected growers—can make a living is more constrained. As the hon. Member for Hazel Grove said, the horticultural business is a world business. With the advent of relatively low-cost air freight, produce can be imported from all over the world. For many years, it has been the tradition that in March, April and early May we enjoy tomatoes from the Canary islands—which have no problems with climate change or energy.

1.15 pm

When mainland Spain extends its season, starting earlier or finishing later, our glasshouse producers face a hitherto unknown form of competition. In the case of tomatoes, for example, many producers are using their ingenuity and plant-breeding techniques to develop new varieties that are grown especially for flavour and which, in certain cases, incorporate properties that help fight cancer. Such are the efforts that our industry is making to survive in the competitive world of horticulture. However, if it has to bear the additional expense occasioned by the climate change levy, its struggle to survive will be all the more difficult. I shall develop that point later by giving some real-world examples of how the climate change levy impacts on the horticultural industry.

The other factor in the European context that bears heavily on our growers is the current level of the pound against the euro. This means, for example, that last season tomato growers faced some of the worst prices that they have experienced for many seasons. Until the rate of exchange between the pound and the euro becomes more balanced, our industry will continue to struggle through no fault of its own. It has to bear additional costs and its long-term survival is put at risk.

Why should we be bothered about the survival of our horticulture industry? In parts of the country where its presence is significant, it employs a disproportionately large number of people. The Minister will be aware that part of Merseyside—one of the few remaining objective 1 areas—covers part of the west Lancashire plain, in which some of the protected growers that I have mentioned carry out their business. The Minister needs no lessons from me in explaining how important it is to sustain high levels of employment in the Merseyside area.

Beyond the boundary of the objective 1 area, many activities in horticulture provide, as I know from my experience in the industry, employment opportunities for people who live in areas of comparatively high unemployment. The industry's survivability is therefore important, not just to the north-west but to places like East Anglia and parts of the south, which have significant areas of protected cropping.

To sum up, the length of the season, competitive forces, the exchange rate of the pound versus the euro, and the employment situation all affect the industry. There is one other crucial factor. The forces of competition in the marketplaces into which the horticultural industry sells have mounted and will continue to do so. It is a market-based industry, which can easily negotiate price increases. The only way in which additional revenues can be recouped is, as I said earlier, through the use of technology and skill in developing products that enable our industry to find its place on the supermarket shelves. Even with the discount of 50 per cent. in the climate change levy, the horticultural industry still faces a cost that is irrecoverable in the short term.

I say ``short term'' because while my amendment would effectively give the industry a 100 per cent. discount, I recognise that, as paragraph 6.32 of the Red Book reminds us, the Government understandably seek to maintain their discount for a five-year period.

That was partly to be compatible with state aid rules and partly to recognise the fact that they have offered further financial assistance to the horticultural industry so that it can improve its energy efficiency by using the energy efficiency fund. I welcome that as a pragmatic and sensible way to acknowledge the difficulty with the industry. I also acknowledge the capital allowance help on thermal screens.

From my discussions with growers who were my colleagues and from considering the financial state of the industry I know that there is a little financial room for manoeuvre, especially among smaller and medium-„sized growers. Their ability to take advantage of investment opportunities is restricted, but the Van Heynigen brothers, with a massive 200 acres plus a glasshouse production unit on the south coast, can work with electricity providers to use combined heat and power systems, which go some way towards mitigating the burden of the levy.

Our earlier debate showed that there are limitations on what types of holdings can use combined heat and power, and that some interesting and important questions are being asked about the rate of return to be gained from that approach to energy saving. Many growers do not have an obvious way out of the problem, and they will have to consider other techniques.

I shall give some real-world examples to show the financial burden that the climate change levy will place on growers, even at the current 50 per cent. discount. Flavourfresh has approximately 20 acres of glasshouse production in Lancashire, and its gas costs associated with growing amount to £363,000. Even with the discount, its gas costs alone will be £50,000 extra. The climate change levy would cost the company a further £3,000 on electricity, so the bill would be £53,000. Netting off the national insurance rebate would subtract £5,416 from the bill, leaving that enterprise with a net bill of £47,584. How will it meet that cost? It cannot instantaneously introduce energy-saving techniques that will immediately deliver that saving.

Donaldson's is a flower grower in the south of England. It has a turnover of £882,000. Its energy costs are £92,180 from gas and electricity and £49,523 from oil. The levy on Donaldson's bill would be £5,873. Perhaps the Committee thinks that that is not a substantial sum, but I am advised that the profit on the enterprise was £40,000 last year. In terms of its total energy cost for this year, it predicts a lowering to £24,827. I am not talking about companies with an awful lot of financial muscle. It is a real burden on that relatively small flower producer to find that its profitability is being reduced, even by a little less than £6,000.

 
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