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Alan Johnson: We have issued more licences in the past year than ever before—a record number. In regard to the tax regime, all Governments have to strike the
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right balance between the amount of tax relief that they give to companies exploiting this natural resource and the interests of the country in which it is found. The Chancellor said in his pre-Budget report that the tax regime should change, but he also gave a guarantee that there would be no further changes during this Parliament.

Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): The unfortunate thing about that reassurance from the Chancellor is that it contradicts his reason for imposing the increase. He claims that that reason is the high price of oil, yet he says that if the oil price were to go down or to collapse, he would not take the tax away. Clearly, therefore, the tax is linked not to the high price of oil but to his need to get money at short notice.

Alan Johnson: If the oil price were to collapse, we would then face a very different set of problems from those that we are facing now.

Mr. Jenkin: Gas production in the UK is effectively taxed at a rate of 75 per cent., which is one of the highest tax rates in the world. The increase in tax on North sea oil is simply not in the long-term national interest.

Alan Johnson: The Chancellor pointed out in his pre-Budget report the corresponding taxes on exploration in the United States and other parts of the world, and his proposals are consistent with those. However, we shall return to that issue at the time of the Budget.

The first of the challenges and problems that we face relates to renewables, and the second is the fact that our energy reserves are in decline, as I mentioned earlier. The third is that prices have been rising. We all have to face the fact that the days of cheap energy have gone, probably for ever. World prices for fossil fuels have increased by a half over the past three years, and oil prices have reached record highs. This in turn has had a direct impact on gas prices. Those global effects have been compounded by the decline in North sea production and market nervousness about a tight gas supply situation in a winter predicted to be colder than usual.

Fourthly, our nuclear reactors, which currently supply a fifth of our energy, will all be decommissioned by 2035, and most of them will be out of service by 2025. Decisions need to be taken on whether we need a new generation of nuclear power stations, or whether we are content to see nuclear disappear from our energy mix.

Mr. Tobias Ellwood (Bournemouth, East) (Con): Does the right hon. Gentleman agree that had the EU sorted out a proper gas market two or three years ago, we would not be affected by such high gas prices now? As France and Germany own much of the infrastructure, they can subsidise their gas prices and pass those prices on to the UK domestic market.

Alan Johnson: The hon. Gentleman is absolutely right. I will deal with that during my speech.

Mr. David Drew (Stroud) (Lab/Co-op): On nuclear, even at this late stage, will my right hon. Friend
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reconsider the decision to sell Westinghouse, given that if this country is to have a nuclear future, we must have the means to bring forward the technology and expertise? Westinghouse was one way of providing that, and surely it is a travesty that we are pushing ahead with the sale at this time.

Alan Johnson: I thought long and hard about this issue, as did my hon. Friend the Minister for Energy. In effect, keeping Westinghouse in British ownership would inhibit our ability with regard to future nuclear new build. If the UK were to go down that route—that is a big "if"—it would be difficult for companies to find an objective view from a publicly-owned Westinghouse. In addition, in relation to developments in China, where Westinghouse is involved in building four nuclear power stations, there is a large degree of risk involved, and the British taxpayer should not be involved in meeting that risk. For that and other reasons, although it is an important issue that we considered long and hard, I think that the sale of Westinghouse is the right road to go down.

Joan Ruddock (Lewisham, Deptford) (Lab): I know how scrupulous my right hon. Friend is in other presentations, and I am sure that his remark that nuclear contributes one fifth of our energy was a slip of the tongue. I think that he might have meant to refer to our electricity generating capacity. In terms of primary energy, of course, nuclear contributes around 7 per cent.

Alan Johnson: I am grateful to my hon. Friend for correcting that, on the record, in Hansard.

Mr. Dennis Skinner (Bolsover) (Lab): The Secretary of State paints a long-term picture of diminishing oil and gas, problems with nuclear and so on. Will he address the imminent and important question of the 33 per cent. of our energy that we get from coal, much of it imported? A number of mines are left in Britain, one of which is Haworth, which employs 288 men and will be closed within weeks, not years, if money is not allocated to it to save those jobs. I ask him to get on with it and get the decision made. I see that the Minister for Energy is whispering to him, and I hope that he has said that he will pay the money shortly. Is that correct?

Alan Johnson: Not entirely correct. My hon. Friend the Minister for Energy was saying to me that we are aware of the issue, we are due to respond soon to the company's request, and we will do so. As for making progress on the five issues, I will do so if I can stop taking interventions and get on to some of the good news.

Paddy Tipping (Sherwood) (Lab): My hon. Friend the Member for Bolsover (Mr. Skinner) has made a strong point about Haworth colliery, whose work force is listening closely to the debate. The Minister for Energy said in an Adjournment debate in Westminster Hall yesterday:

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The clock is ticking, and we need a decision before the end of January. If we are to have an indigenous coal industry, we need a positive decision.

Alan Johnson: Those two interventions have achieved their purpose. We recognise the need to move swiftly, and we are even more determined to move swiftly than we were before we started the debate.

The fifth problem or challenge that we face is rapid change in the geopolitical climate. Rapid economic growth in countries such as India and China is placing huge demand on world markets. China is already the world's second largest consumer of energy. The international dimension of those problems was highlighted over the new year, during the dispute between Russia and Ukraine over gas supplies. That dispute has reminded us all of the need for diverse energy supplies, which applies both to what energy we source and to where it comes from. A vital challenge for the G8 this year will be to ensure that when supplies are scarce, the scarcity does not lead to conflict as it might have in the past but is resolved through diplomatic channels.

Joan Walley (Stoke-on-Trent, North) (Lab): Does my right hon. Friend accept that there is a difference between scarcity of supply and gas price speculation? Intensive gas users are finding that the market itself is causing price increases. Gas can be sold as many as 27 times before it is used.

Alan Johnson: I shall come to that shortly, but it is the spot market that is causing a problem. I know from recent discussions with energy producers that in this country we are far more inclined to buy from the spot market than to contract on the futures market. Perhaps that sends a message to companies.

John Hemming (Birmingham, Yardley) (LD): Does the Secretary of State agree that one of the difficulties with the market is that the vast majority of demand, and variability in demand, relates to fixed prices? As the spot market covers only a small part of the overall market, changes tend to be exacerbated.

Alan Johnson: We should see the position in proportion. The problems are really affecting intensive energy users. The situation is caused by the market, and the market will find a way of resolving the issues. However, for the purposes of this winter and, I would suggest, next winter, we must concentrate on how to facilitate our transition from being a net exporter of energy to being a net importer.

It is against the backdrop of those five challenges and problems that we will conduct our review of energy policy.

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