Examination of Witnesses (Questions 220-239)
12 MAY 2004
JOHN HEALEY
MP, MR PAUL
O'SULLIVAN AND
MS FIONA
JAMES
Q220 Mr Chaytor: This is quite a turnaround
in Treasury policy, is it not?
John Healey: No. We have been
very clear really from the outset that we understand that there
is an argument for sectors that were not previous eligible for
CCAs but we had to find a basis that was consistent, that was
legally well based, that met the criteria we had for it and, as
I say, the implementation of the Energy Products Directive in
Europe has now given us the framework through which we can do
that, but that did not exist two years ago.
Q221 Mr Chaytor: What estimate have you
made of the cost to the Treasury if all of these sectors currently
outside the 80% exemption and outside IPPC now came within it?
What is the cost of extending the exemption to these sectors?
Equally, what are the likely savings of CO2 emissions going to
be?
Mr O'Sullivan: It was around 21
million pounds. The CCA savings we get in terms of CO2 will partly
depend on the negotiated Climate Change Agreements which Defra
will have to make with up to a dozen sectors or so that might
be eligible. We do not have a good estimate yet.
Q222 Mr Chaytor: Again, this relates
to my earlier intervention about the landlord's tax allowance:
does it not always make sense to have an estimate of what the
likely CO2 emission saving is going to be before changing the
policy? You will then never know what the cost per tonne of carbon
reduction will be, and this could be a hugely expensive way of
saving carbon.
John Healey: It is impossible
to make that assessment reliably at this point. If up to a dozen
sectors become eligible under the new system or the additional
system to negotiate Climate Change Agreements, and none of them
choose to do so, which is clearly a matter for them, there will
be zero impact. Depending, then, on the nature of the agreements
that are then struck, and the sort of targets for greater efficiency
and emissions reduction that Defra are able to negotiate as part
of that process, once again, it will be an obvious feature in
the climate change impact if they are in place. It is difficult
to do what you are obviously principally interested in from an
environmental policy point of view at this stage, except to say
the evidence so far from the sectors that have taken this up leads
us to believe that it is likely to be an efficient way of trying
to make further progress.
Q223 Mr Chaytor: Could you tell us broadly
how many installations or sites currently have Climate Change
Agreements and what is the net reduction in CO2 emissions that
those agreements have brought about? You mentioned three times
more than you anticipated, but in real terms, do we have figures,
or could you let the Committee know?
John Healey: I certainly can.
I cannot remember off the top of my head how many installations
are covered by those 44 sectors. I think it is around 10,000 but
I can certainly let you have that data, and the CO2.
Q224 Mr Chaytor: When the Climate Change
Levy was introduced, my recollection is that there was a special
grant scheme for industrial and commercial users to provide grant
aid to implement energy efficiency measures to offset the increased
cost of the Climate Change Levy. What has been the take-up of
that? My recollection is it was something like £150 million
over three years or something of that order, and I vividly remember
speaking to large companies in my constituency who were complaining
about the Climate Change Levy and saying to them "Yes, well,
the levy is the stick but here is the carrot. You can apply for
this grant in order to improve the efficiency of energy use in
your business." I know of one extremely good example of an
engineering company in my constituency that did take up the grant.
My question is: what has been the general picture on take-up and
what is your general assessment of how firms are responding to
the need to introduce insulation measures and generally improve
the productivity of their energy usage?
John Healey: I think we may be
talking about the portion of the Climate Change Levy that was
redirected not to the cut in National Insurance for employers,
which, of course, the vast bulk of the levy was directed towards,
but was to set up the Carbon Trust. One element of the Carbon
Trust's services on offer is indeed grants. It offers a wide range
of other ways of assisting companies assess their energy efficiency
performance and improve it, including direct advice, including
some grants, but also including, interestingly, having some investment
capital available. So the Carbon Trust I think is probably the
route that your company took.
Q225 Mr Chaytor: The point was that the
selling of the policy at the time was that this Budget would be
totally available for companies to bid for for energy efficiency
measures. I admit this was before the Carbon Trust was established.
John Healey: The principle on
introduction of the Climate Change Levy was that this was not
about increasing the tax take to the Treasury, hence the across-the-board
National Insurance cut to all employers and hence a part of the
anticipated levy take being directed to set up the Carbon Trust,
grants being part of what they had available. My general assessment,
which is what you ask for, is that the Carbon Trust is now really
beginning to take off. I think it is really rather an innovative
body, that does more than just process grant applications from
companies that want to see a slice of public money. It is gaining
a greater credibility and profile in the business world. I can
certainly let the Committee have the latest annual report from
the Trust that would give the sort of data that you are interested
in.
Q226 Mr Chaytor: In most companies, in
most industries, other than the energy-intensive users, energy
consumption will be a comparatively small proportion of total
turnover. At the same time, the whole thrust of government approach,
in particular DTI approach, I would imagine, as the sponsoring
department for the main energy producers, is that maintaining
cheap energy is the way to benefit industry. How, from the Treasury's
point of view, can you reconcile, on the one hand, the fact that
the pressure from one source of government is to constantly drive
energy prices down, and thereby maintain them at an insignificant
level in terms of the business's turnover, and on the other hand,
draw attention to the significance of energy efficiency by fiscal
measures to encourage them to implement energy efficiency measures?
Is not the reality that the only way firms will start to take
energy efficiency seriously is when the price of energy goes up
and therefore it becomes a more serious issue for them in terms
of their turnover? Is that not the dilemma?
John Healey: I do not think it
is as crude as that, but you have very succinctly exemplified
what is in many policy areas within government a question of identifying
the tensions. The Climate Change Levy is a very interesting one.
From the government point of view, you have an interest in seeing
the energy consumption costs of industry being as low as possible.
It makes businesses more productive, more profitable, more likely
to survive, more likely to create jobs and play a part in the
successful economy that we want to see. However, we have clearly
recognised that competing with that outright economic objective
is a concern for the environment, the threat of climate change,
and therefore alongside that the rationale for introducing the
Climate Change Levy and indeed, with that first-in-the-world economy-wide
emissions trading system in the UK, pursuing at the same time
an environmental objective. In the design of the Climate Change
Levy, we have designed it not as a carbon tax, as some argued,
but as a downstream energy tax, principally to avoid the domestic
energy user having to pay a part of the levy, because certainly
as we came into office in 1997 and considered these issues over
the first couple of years, we had a major concern about levels
of fuel poverty in the UK, in other words social concerns and
objectives, and this is a very good exemplar therefore of the
factors that in government and across government need to be balanced,
economic concerns and objectives, environmental objectives and
social concerns as well. People will take a different view as
to whether or not we have struck the right balance, but the evidence
suggests, I think, that the introduction of the Climate Change
Levy with the Climate Change Agreements, and the operation of
the Carbon Trust, has led to both an awareness within industry
and an interest and incentive to tackle inefficient energy use,
which does not hinge on driving the price up, because in fact
the reforms we have made to the energy generation and supply have
meant that for some time now we have had low wholesale energy
prices. If one takes the research from the CBI on the operation
of the Climate Change Levy and Climate Change Agreements, what
this demonstrates is that, with the introduction of the Climate
Change Levy, 42% of firms either have taken action to improve
their energy efficiency or have plans in place to do so. For those
that are under the Climate Change Agreement, interestingly, it
is double that at 87%. So there are ways of achieving these environmental
aims without crudely and simply trying to drive up the price and
risk therefore pricing business and jobs out of the UK.
Q227 Mr Chaytor: So you do not accept
that if it is not hurting it is not working?
John Healey: I do not accept that
it is as crude as that, and I would argue to you that the task
of government is to make a more sophisticated judgement that inevitably
has to balance a number of competing and potentially conflicting
objectives.
Q228 Mr Thomas: While we are on climate
change, you will no doubt remember the concerns and interest of
this Committee in aviation and the growth of emissions from aviation.
How confident are you now that the Government's aim of having
aviation as part of the Europe-wide Emissions Trading Scheme by
2008 is going to happen?
John Healey: It is too early to
tell, and it is relatively soon after the Aviation White Paper,
but we are working hard on that. We have identified it as a priority
for the prospective UK presidency of the European Union in the
second half of July 2005.
Q229 Mr Thomas: If you do not succeed
in that aim—and I have to say that judging by when we recently
as a Committee visited Brussels and talked to the Climate Change
Policy Unit there we think you will not, but who knows?—what
is your other plan? You will remember that the report of this
Committee said that the increases in aviation emissions would
out-do and outweigh the savings that we have spent the last hour
discussing that the Government is achieving. So if you are not
going to make 2008, and I sense a slightly cautious approach from
you this afternoon, what is Plan B?
John Healey: I hope you are wrong.
You will also remember that in the Aviation White Paper we did
signal a commitment that we would carry on working and looking
at the possibility of short-term instruments that might have an
impact on the environmental performance of the aviation industry,
and that work is going on.
Q230 Mr Thomas: Does it not strike you
as slightly ironic that this week, of course, BA have slapped
a surcharge on their tickets due to the fact that oil prices are
going up anyway, yet the Government has shied away completely
from any such aviation tax itself? Does it not show that the market
can stand this after all?
John Healey: Not really. We do
have an aviation tax, the Air Passenger Duty, which delivers £800
million a year to the public purse.
Q231 Mr Thomas: But it is not linked
to CO2 savings.
John Healey: Precisely. The problem
is that it is an aviation tax. It is not actually an instrument
which is directed at all to the environmental policy objectives
that you and I both share, Mr Thomas, because it has no connection
to the environmental performance of the industry. In its current
form, it will not play the role that I think this Committee was
originally interested in seeing. Some might argue for other reasons
there is a case for raising it, but all I would say is that there
is not a good environmental argument for looking at Air Passenger
Duty as a mechanism to try and internalise the environmental costs
of this industry and there is not a good argument for looking
at that if one is interested in improving the environmental performance
of airlines.
Mr Thomas: No doubt as a Committee we
will return to this.
Q232 Chairman: I am sure we will, but
just before we move on, you referred just now to some short-term
fiscal measures that you were looking at in relation to aviation.
Can you just give us a hint of what those might be?
John Healey: I think it is quite
difficult for me to do at this stage. All I am saying to the Committee,
Mr Chairman, is that that commitment was contained in the Aviation
White Paper and that work is still being conducted within government
and within the Treasury.
Q233 Chairman: What type of things are
we looking at?
John Healey: Some have argued,
for instance, the case for looking at Air Passenger Duty and seeing
whether it might be reformable so that it could operate as an
environmental instrument. There are some restrictions and constraints
over our ability to do that, largely as a result, as this Committee
will know better than anyone, of the legal framework that restricts
the degree of taxation that can be levied on this industry, and
a whole web of international agreements, but we have in principle
made our position clear, first of all that this is an industry
that should be paying its way in terms of its environmental impact,
and secondly, the protection that is currently afforded by this
web of international conventions and agreements over duty and
other taxation on the use of fuel and other activity is no longer
justified.
Q234 Chairman: This is, I think, a change
of position as far as this Committee is concerned. We have not
heard you speaking like this before, and it is intriguing.
John Healey: I think you will
probably find the words in the Aviation White Paper. I am not,
I am afraid, breaking any new ground here.
Q235 Chairman: We have got used to being
told that you did not want to price people off planes.
John Healey: That does remain
the case.
Q236 Chairman: Do you know when you might
be in a position to say something more concrete about the work
that is currently going on in the Treasury?
John Healey: No, but the general
pattern and cycle on which the Treasury does this work is tied
in general to Pre-Budget Report and Budget announcement.
Chairman: We will watch this space.
Q237 Mr Thomas: I wonder if you can recall
a bloke called Brynle Williams.
John Healey: Yes. He is a member
of your Assembly now.
Q238 Mr Thomas: Indeed he is, though
not of my party.
John Healey: Nor mine.
Q239 Mr Thomas: You will recall that
he was leader of the fuel tax protests and he has announced this
week that he expects his campaign to restart. Does that not fill
you with dread?
John Healey: I think what is interesting
about what he is saying is that he is also rather at pains, as
an elected politician for a mainstream party, to point out that
he will play no part in leading it, unlike in earlier years. I
meet very regularly with haulage associations and the haulage
industry. I am conscious in particular for hauliers about the
impact of fuel prices. At the moment they are clearly being driven
by world markets and by the pressures there. They are not being
driven by what government can directly control. I am well aware
of the tensions and pressures there, but I have to say to you,
if you look back at the press cuttings round about this time during
the summer last year, you will see Mr Williams making very similar
comments in the run-up to Bank Holiday weekends. Certainly I do
not want to see any fuel protests. I do not believe they are justified.
In a sense, the decisions of these oil companies and the world
situation is quite difficult to demonstrate against, even if it
is a cause for concern, but we have heard it before from him.
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