Finance Bill

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John Healey: I am glad that the hon. Gentleman and his constituents are no longer terrorised, as he puts it, by such activities. I recognise the vote of confidence that he has just given in the enforcement measures that attach to the provisions. I simply repeat that the Government constantly review the operation and effect of all taxation legislation and will continue to do so.

Question put and agreed to.

Clause 119 ordered to stand part of the Bill.

Clause 120

Climate change levy: electricity produced

in combined heat and power station

Mr. Chope: I beg to move amendment No. 237, in page 98, line 19, leave out from 'after', to end of line 20 and add

    '1st April 2002, although the reduced rate may not be applied in practice until the section has been approved by the European Commission.'.

This is a short amendment designed to ensure that the benefit accrues as soon as approval has been obtained under state aids and that it is backdated as far as possible. It is equivalent to a similar provision that the Government accepted on the aggregates tax. The time at which such a benefit will be payable is rather vague in the Bill, and my amendment would make it more precise.

John Healey: I hope that I can set the hon. Gentleman's concerns to rest. We are confident that the Commission will accept the benefit as an acceptable state aid for environmental reasons. However, the exemption can be applied only from the date that such a decision is made; it cannot be implemented until and unless the EC agrees that it is an acceptable state aid. Once the Commission has given its agreement, we shall bring the clause into effect straight away by means of an appointed-day order. With those comments, I hope that the hon. Gentleman will see fit to withdraw the amendment.

Mr. Chope: In the light of that helpful clarification, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 120 ordered to stand part of the Bill.

Clause 121 ordered to stand part of the Bill.

Clause 122

Climate change levy: exemption

for renewable sources

Question proposed, That the clause stand part of the Bill.

10 am

Dr. Pugh: We shall reserve the thrust of our attack on the measure for Report, but I wish to make some

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points of principle rather than technical points on the climate change levy at this time.

I read a ministerial reply somewhere that said that energy costs were a small factor for industry and that the climate change levy was a small factor within those energy costs. That is true. Much as we welcome this softening of the regime—all these measures represent something of a softening—it is undoubtedly true that in some sectors of industry, especially manufacturing, any increased cost is a serious problem because those industries work to very tight margins. They have to deal in very competitive export markets. At the moment, there is a constant refrain in one Treasury question session after another about the climate change levy and its effect on manufacturing industry.

No one would object to everyone taking their share of the climate change levy, but certain sectors of industry, manufacturing in particular, feel that they are taking more than their fair share. Although environmental taxes are a good thing and although the principle that the polluter pays is a good one, it seems that, in general, some polluters pay more than others. We welcome the softening that the measure gives manufacturing industry in many respects but I do not think that champagne corks will be popping in that industry yet. The whole raft of changes basically leaves the status quo. As far as manufacturing industry is concerned, the status quo is a problem. We shall not table amendments at this stage, but the effect of the climate change levy on manufacturing industry is of serious concern to us. I am sure that the Economic Secretary will bear that in mind.

John Healey: I welcome the recognition from the hon. Member for Southport that the Government have been ready to consider refinements to the climate change levy regime where those have been justified. That is the purpose of several clauses that we are considering this morning. The hon. Gentleman is right about the concerns for manufacturing industry that are raised regularly in Treasury questions in the Chamber, and that are due to be raised again this morning, as I know too well.

The hon. Gentleman is right to remind the Committee that any consideration of the impact of the climate change levy as a tax on business must be considered and recognised in the context of overall business taxation. We have now had cuts in corporation taxes that have left the UK with the lowest ever level of corporation tax—the lowest rate in any major industrial country. We have had cuts in capital gains tax and recently introduced research and development tax credits for large and small companies, which particularly benefit manufacturing. The OECD recognises that the tax burden on UK business is lower than the EU average and lower than that in 12 of our EU partner countries.

The narrow provisions of clause 122 relate to and affect the rules for the balancing mechanism that operates in the exemption for electricity from renewable sources. That mechanism exists because the Government accept that some renewable sources, such as wind power, are unpredictable. It enables energy suppliers to balance their purchase and supply of renewable-source electricity over a two-year period.

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If, at the end of that period, supplies exceed purchases of renewable electricity, the supplier must pay levy on the debit balance.

The clause has a twofold purpose. First, it corrects a cross-reference in legislation. In keeping with the original intention of the law, that correction will allow levy to be collected in circumstances where a business ceases to make exempt renewable supplies, having claimed exemption on more renewable electricity than had been purchased. Ceasing to make renewable supplies should not excuse a business from its responsibilities under the tax. That potential tax-avoidance loophole is therefore removed.

Secondly, the clause removes the facility whereby suppliers of electricity exempt under the renewables scheme may alleviate their levy liability if they sell to any customers entitled to reduced-rate relief. Such customers obviously choose to benefit from the full exemption on renewables rather than the reduced rate, which relieves only 80 per cent. of the levy charge. When it comes to the end of the averaging period, suppliers have been permitted under the law to attribute any excess of renewable supplies over renewable purchases to their reduced-rate customers and so discount their levy liability to the reduced rate of 20 per cent. In reality, the supplies making up the excess could quite easily consist of sales made on a basis other than the reduced rate. There is no reason for such treatment within the already generous renewables scheme, so that is being rectified. The clause has effect in relation to averaging periods ending on or after Royal Assent. I hope that, after that somewhat technical explanation, the Committee will feel able to support the clause.

Question put and agreed to.

Clause 122 ordered to stand part of the Bill.

Clause 123

Climate change levy: electricity produced

from coal mine methane

Question proposed, That the clause stand part of the Bill.

Mr. Chope: Most Committee members will have received a communication from the Association of Coal Mine Methane Operators, which, while welcoming clause 123, says that it will not deliver the full benefits. The organisation says that to tackle comprehensively the problem of coal mine methane escaping into the atmosphere from disused mines, the industry needs the same energy prices that are available to other renewables, such as methane from landfill sites, which would enable it to capture the emissions from a further 300 abandoned mine sites. It is arguing that coal mine methane should be defined as a renewable source under the Utilities Act 2000. I know that an amendment to that effect that was tabled has not been called, but I hope that the Economic Secretary will take the opportunity offered by this clause stand part debate to answer the charge that the Government are going so far to help coal mine methane operators, but not far enough. As this organisation says:

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    ''Much of the benefit of this welcome measure has been eroded by the continued fall in electricity prices . . . restoring the industry to its price position of about 18 months ago''.

I hope that the Economic Secretary can do something to assure those who are responsibly trying to make something productive out of coal mine methane.

John Healey: The clause will exempt electricity generated from coal mine methane from the climate change levy. It may help the Committee if I explain why methane is so important in this context. Methane is a potent greenhouse gas that escapes into the atmosphere from abandoned coal mines; it has a global warming potential 21 times greater than an equivalent unit of carbon dioxide. Trapping coal mine methane in order to generate electricity results in environmental benefits, as well as giving economic benefits to former coalfield areas. Using coal mine methane to generate electricity reduces its global warming potential by about 85 per cent. The exemption will be reviewed after 2004–05 in light of further data on the environmental benefits being delivered by the technology. Provided further monitoring shows that coal mine methane continues to deliver environmental benefits, the Government would expect to continue the exemption. It is fair that I point out to the Committee that introduction of the measure is subject to EU state aid approval.

I shall try to be helpful by telling the hon. Member for Christchurch that there are several reasons why his may not be the best solution to assist the coal mine methane industry, and may not be appropriate for our environmental objectives. First, including coal mine methane in the renewables obligation would potentially displace renewable sources such as offshore wind, wave and tidal power. Secondly, if the obligation target were increased to make way for coal mine methane, there would be a substantial additional cost to the electricity consumer that has not yet been justified. I am keen to point out to the hon. Gentleman that that is not to say that the Government are unsympathetic to what the industry is attempting to do. Indeed, we support the industry and are actively looking at appropriate means by which we can support it in its efforts to expand the use of emissions from abandoned mines, which would otherwise vent out into the atmosphere, with an environmental impact that I have already discussed.

Finally—this may be the answer to the hon. Gentleman's point about the amendment's not being selected—giving coal mine methane a renewables obligation is outside the scope of the Finance Bill, which is limited to matters of national debt and public revenue.

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