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29 Mar 2006 : Column 273WH—continued
Brick Industry
11 am
Jeff Ennis (Barnsley, East and Mexborough) (Lab): The stimulus for this important debate was my recent visit to the Carlton brickworks in Grimethorpe in my constituency. Grimethorpe is my place of birth, and I am proud to be associated with such a great place.
I remember Grimethorpe in the 1970s and 1980s, when everything in the village revolved around the colliery. Not only did we have the pit; we had a Coalite plant, and a power station provided electricity not just for the pit but for the local communities. The area was powered not by the national grid but with local coal. We also had a fluidised bed plant, a clean-coal technology technique that was then funded by 20 countries. It is a pity that we did not keep that plant open, and now, with the present energy situation, we are reaping the results of the mis-advice that led to its closure. Also, of course, we had the Carlton Main Brickworks. Altogether, there were more than 4,000 jobs in Grimethorpe, a village with a population of about 6,500.
The only industry to survive from that era is the brickworks. It opened alongside Grimethorpe colliery in the mid-1890s, and has been producing quality bricks for well over a century. Indeed, Carlton Brick is the largest independent brick manufacturer in the United Kingdom, producing approximately 5 per cent. of all British bricks. It produces 34 million bricks a year, in more than 30 styles. An average house requires about 10,000 bricks.
The brickyard currently employs about 80 staff, and for the past 30 years or so the kilns have used gas rather than the original heat source of coal. Therein lies the main reason for today's debate. It can be summed up succinctly in the letter that I recently received from Carlton Brick, thanking me for my recent visit. Oliver Stevenson, the company chairman, wrote to me on 30 January. He said:
"It was a pleasure to show you around the factory and to introduce you to so many of our staff; the feedback has been very positive! We also appreciated the time you gave us in the office, when were able to describe to you our concerns over the cost of Energy and Gas. As you know, this has become a major problem for the brick industry, as well as for all sectors of energy-intensive manufacturing. We feel very threatened by European competitors who manufacture in a much more benign environment. As we discussed, it is not only the high of Gas that is causing us trouble, but also the volatility of the market, which has rendered planning almost impossible."
Before expanding further, I want to explain why bricks are so important to British manufacturing and the British economy. Bricks have been used since ancient Egyptian times, so they are a very old construction product. Bricks are the most reliable fundamental building material; they stand the test of time; they do not deteriorate; and they improve with age. They do not biodegrade, unlike other construction products such as timber. They are reusable if salvaged well, and they are ecologically neutral. Their life expectancy is greater than any other building product. They have a good thermal mass, so they provide good heat and sound insulation. Brick houses are built to last, especially compared with the timber-clad and vinyl-clad houses in New Orleans which were seen floating away in
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the floods after hurricane Katrina last year. Bricks are adaptable. They can be used successfully with all other construction materials, including concrete, glass and timber. Bricks will work in the future.
The UK brick industry employs more than 6,500 people in its factories. On top of that are the plant and machinery manufacturers, subcontractors and truck drivers, plus 115,000 bricklayers. Only yesterday I was speaking to my good friend the Chancellor of the Exchequer. When he asked what I was doing, I said that I was going to the Library to put the finishing touches to my speech on the future of the brick industry. He said, "It's funny you should say that, because I was at Battersea power station yesterday talking to a group of young women who have trained as bricklayers." Even the Chancellor is on board.
I return to the problem of energy prices. In November 2005, the price of gas quadrupled, and since then the market has been volatile. The cold weather in March and the supply problems caused by the shut-down of the Rough gas field have made the price rocket again, and on 15 March we saw the highest day-ahead price of 227p per therm. The high cost of gas has been crippling for all industries, not just for brick companies. Manufacturers in the energy-intensive sector have raised their prices in order to combat those increased commodity prices. I shall not confine myself to the brick industry. The problem affects also the steel and glass industries. The latter is important to the future of Barnsley, as a number of big glass manufacturers operate in the area—not, unfortunately, in my constituency but in that of my hon. Friend the Member for Barnsley, Central (Mr. Illsley). The cost of energy is just as important to the glass and steel industries as it is to the brick industry.
One method of combating the energy crisis is to reduce production, and therefore the consumption of gas. That is bad news for the UK's GDP, and also for local employees who have seen their hours and wage packets reduced accordingly. The wild swings in price from one day to the next have put industry into a new environment, where planning for the future has become nearly impossible. Those swings in price mean that we are unsure of how to plan costing and pricing budgets.
Capital investment planning is difficult because of the uncertainty caused by that volatility. It is known that larger companies with multinational manufacturing plants now prefer to invest in their European factories rather than in Britain. The greatest cause of concern is that the problems of the UK gas market are not being experienced by our European counterparts. That environment has seriously disadvantaged our industry, and it is known that bricks have been successfully imported from Europe, where the manufacturing cost base is less onerous.
Why has this been happening? The reason for the high prices in the UK is that our gas market has been liberalised in a way that the European markets have not. This means that third parties such as banks and traders are able to buy and sell gas speculatively, and the price is driven up and down according to the sentiments of the day. Those sentiments may be based on fundamental facts, such as cold weather forecasts and shortages in the gas fields, as in the Rough field to which I referred earlier, or they may be based on rumours such as
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forecasts of very cold winters, as was the case last November. It is of paramount importance that the market becomes more appropriate to the needs of industry, including the needs of the electricity producers; it should also be more in line with the markets of our European counterparts.
Industry is struggling to deal with the European emissions trading scheme legislation. That fits on top of our legislation dealing with the emissions that our factories send out into the environment. We are ahead of the rest of Europe in implementing that legislation, but we are doing it without first removing our own legislation. As a result, our industry is likely to be faced with two legislative hurdles rather than one. Furthermore, the burden of bureaucracy being placed on manufacturers is hard to bear.
Many brick companies are struggling to deal with that extra work, as it takes an ever larger proportion of management time. Not only that, but elements of the European emissions trading scheme are not fair; for instance, it puts great pressure on companies to reduce their emissions and, perversely, it is an incentive for companies not to reduce emissions before the legislation kicks in. Furthermore, if a large company such as Ibstock shuts an inefficient plant but at the same time starts up a new state-of-the-art brickworks, the new brickworks cannot adopt the emission permits of the old works.
David Taylor (North-West Leicestershire) (Lab/Co-op): Ibstock village is right next to my village. We are a major construction products constituency. As my hon. Friend said, gas prices quadrupled in November from 31p to 128p per therm, and have since gone up further. Does he agree that if the Minister does not reply to this point today, he should approach his ministerial colleagues to tackle the dysfunctionality in the European energy market, not just in terms of liberalisation, but in terms of the mergers and takeovers that have taken place, which mean that the market is damaging important firms such as Ibstock in my constituency, and Heather, my home village?
Jeff Ennis : I thank my hon. Friend for making those salient points. I hope that the Minister was listening because I shall certainly reinforce them later.
The Carlton Bricks of this world are much smaller than the Ibstocks. The brick industry is a broad church. We want to ensure that it remains so, and that it can maintain brick manufacturers of the size of Ibstock as well as smaller manufacturers such as Carlton Brick.
In a recent report commissioned by Centrica, Global Insight calculated that users of gas in Britain will pay an extra £10 billion this year because energy markets in continental Europe are failing to liberalise fully. That figure is half of the total gas supply bill for the UK. The report said that since the opening of the European gas interconnector, British Gas spot prices have been highly influenced by movements in European gas contract prices, which were directly linked to changes in oil and
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oil product prices. Trevor Sikorski, the lead author of the report, said:
"Our analysis shows that there can be little doubt that UK consumers are paying the price for Europe's failure to sufficiently open its energy markets as we become increasingly dependent on gas imports."
The Minister knows that I wrote to his colleague, the Minister for Energy, about this problem on 6 December 2005. I am grateful for the Minister for Energy's response, dated 20 February, which intimated some of the initiatives that the Department has embarked on to try to resolve this issue, including the establishment, in 2004, of the gas prices working group, which is chaired by the Secretary of State. I know that the Minister for Energy met representatives from the industry at No. 10 on 9 November 2005. His letter states that
"at the end of November, Ofgem announced the steps it was taking to ensure that the causes of recent movements in wholesale gas prices reflect changing supply and demand factors rather than market abuse or other distortions."
The letter then details those steps, the first of which is
"writing to the European Commission asking them to investigate why the interconnector has not been flowing at full capacity when UK gas prices are much higher than those in Europe".
"asking the Commission to look at market arrangements in other countries that may be distorting trade"
"asking National Grid to make sure that arrangements are in place to allow other companies to deliver"
"asking Interconnector UK to provide us with information about who holds import capacity this winter to assist our ongoing analysis."
EU energy market liberalisation has to be a key priority as we become a net importer of gas. We need fair network access and greater integration of national energy markets, including more cross-border infrastructure to establish a level playing field across the whole of Europe. I hope that in his response, the Minister will expand on what progress is being made in this regard and what further steps need to be taken.
I opened the debate by talking about the industries in Grimethorpe that were closed under the Conservative Government: the pit, the Coalite works, the power station and the fluidised bed plant clean-coal technology. In its last six weeks of production in 1993, Grimethorpe colliery made an operating profit of a quarter of a million pounds. Clearly, that pit was closed because of political dogma rather than economic necessity. There are 60 million tonnes of known workable coal deposits embedded in the ground beneath Grimethorpe, which, hopefully, will be used at some point in the future. It would be ironic if the one long-established industry left in Grimethorpe which survived the Thatcher years were to close under a Labour Government because we could not establish a properly regulated, competitive energy market across the European Union. I look forward to hearing the Minister's response.
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11.15 am
The Minister for Industry and the Regions (Alun Michael) : It is a pleasure to speak under your chairmanship, Mr. Benton, which is benign but strict, as ever.
I congratulate my hon. Friend the Member for Barnsley, East and Mexborough (Jeff Ennis) on securing this debate. I should refer to him as the hon. Member for Grimethorpe, as he has conjured up images of the industrial skill and hard graft for which that area is famous.
I appreciate the difficulties faced by companies in the brick manufacturing industry. As my hon. Friend acknowledged, many parts of UK industry have experienced significant energy price increases. Domestic and industrial energy prices have an impact on both fuel poverty and international industrial competitiveness. We can take a certain amount of pride in the way the liberalisation and deregulation of the gas and electricity markets and the introduction of full retail competition have enabled market mechanisms to ensure competitive prices in the long term. However, there are some immediate problems, to which my hon. Friend has rightly referred.
Clearly, energy prices are linked to the competitiveness of industry. The Government share concerns about the potential loss of jobs and investment, but we must view the spike in prices that was experienced in the latter half of 2005, and the current pressures on the energy market in the UK, in the wider context. The Secretary of State for Trade and Industry and the Minister for Energy, who is taking forward the energy review, take the situation seriously, as do I, especially in relation to the industrial sector and the building industry. We are seeking solutions that reduce the impact on industry, especially energy-intensive users such as brick manufacturers.
My hon. Friend will acknowledge that as we become a net importer of energy—there has been an acceleration of that process in the past few years with gas in particular, which was faster than anticipated—we need to consider energy supplies in the long term. That is the underlying theme of the energy review policy, which the Minister for Energy is taking forward vigorously. That needs an intelligent debate. The slogans that come from some quarters—that nuclear is the total answer, that nuclear needs to be excluded, or that wind power is an answer and so on—are not helpful. We need an objective, well informed debate. I know that my hon. Friend and many other Members, on this side of the House at least, want such a debate.
David Taylor : The Minister will be aware that there were pre-existing trends in the brick industry that were not encouraging. Between 2000 and 2005, the delivered number of bricks fell by about 11 per cent. to 2.6 billion. Naturally, people who work in the industry and depend on it are especially concerned and will welcome today's debate.
Alun Michael : My hon. Friend is right. That was the underlying theme of the opening remarks of my hon. Friend the Member for Barnsley, East and Mexborough about the trends that we face as we become a net importer of energy being compounded by the short-term
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problems to which I have referred, and the fact that high-energy users such as the brick industry were already under pressure before those conditions occurred.
Jeff Ennis : The energy review is very important. The consultation will end midway through next month, if my memory serves me correctly. My right hon. Friend mentioned nuclear, but not coal. Does he see a future for coal as a major long-term energy provider in this country?
Alun Michael : My point was that we need to look objectively and afresh at all sources of energy to get balanced answers. I do not want to trespass outside my brief to speak for or against any of the options. I was merely encouraging hon. Friends to take seriously the objectivity of the consultation, as I know my hon. Friend does. As he knows, we have made a considerable effort to engage with all parts of industry ahead of this winter and with the more immediate problems to which he has referred.
Officials from the Department of Trade and Industry have held regular discussions with industry since the start of 2005 through the gas prices working group and more recently through the demand side response working group. The brick industry is represented on these bodies through the energy intensive users group and is directly represented on the business and Whitehall climate change group.
In addition, we have endeavoured to keep industry informed about the gas supply situation this winter by issuing a frequently asked questions pack in mid-December and again in early February. UK gas supplies are likely to be tight over the remaining part of this winter and, to some extent, next winter as the UK switches to being a net importer. Reliance on gas imports is not a new feature of the UK energy supply mix, but the scale of dependence will be higher.
There is evidence of projects coming forward to meet the gap between Great Britain's gas demand and the UK's continental shelf production as projected over 10 years from 2005, which include a 50 per cent. increase in the Bacton-Zeebrugge interconnector capacity on top of the doubling already completed in November 2005, two new pipelines from Norway and the Netherlands and two major liquefied natural gas import terminals in addition to the new Isle of Grain terminal, which is already open.
In the short term, we have raised issues with the European Commission and want to see the competitiveness of the energy market across Europe encouraged vigorously by appropriate action from the Commission. Gas is one of the key fuels used to generate electricity in the UK, so higher gas prices will inevitably lead to higher electricity prices.
In January 2006, prices in the UK were below the EU median for both domestic electricity and gas prices and will remain so even after the increases. Up to October 2005, industrial prices were no higher on the EU median. Provisional January 2006 estimates will be published in March 2006. In some parts of industry, particularly those that have already felt the impact of high energy costs and have had to deal with emissions issues such as those that have been referred to, energy prices were at the top of the agenda.
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I find that different parts of the industry have different responses. Some look, as they have for a long time, towards a mix of short and long-term purchasing of energy. Others appear to be reliant entirely on spot purchases, which mean lower prices, but they were disproportionately affected by the steep rise in prices in the spike towards the end of last year. It is clear that not only do the Government need to pay attention to energy prices, but industry needs to consider the long-term viability of its supplies.
Indications are that industrial gas prices are likely to be around the 1988 level in real terms, while industry electricity prices, including the climate change levy, are likely to be around 1997 levels in real terms. Provisional 2005 estimates for industry will, of course, be published in March 2006. In real terms, international oil prices are still below the levels reached in the late '70s and early '80s. Petrol and diesel prices, including tax in cash terms, have both fallen from the peaks reached in September 2005. There is a difficult area of volatility. We know that it is a problem, but the extent of the problem for different parts of industry is perhaps a little more difficult to define precisely.
It is also important to look at the future of the brick industry in terms not only of energy prices but of what is going on more broadly in the construction sector of which it forms a part. Bricks have been a key building block—I am sorry about the pun—of the sector for centuries. However, buildings are evolving and the brick industry needs to do so as well. It needs to be a core part of the industry improvement agenda, which is an active one. The brick industry is central to the future of our construction industry, which I regard as a success story.
I have had a lot of contact with the construction industry over many years. I chaired the planning committee of Cardiff city council. I was involved in the training end of the industry with young unemployed people, and I had experience as a client when we built St. David's hall and, more recently, during the preparations for the Cardiff Bay opera house.
From that period, and coming back into direct contact with the construction industry in my role as the Minister responsible for construction, I have been struck by how much more professional the industry is. It operates more through teamwork and has a better focus on the supply chain issues than was the case even a few years ago. It has responded very quickly, for instance, to the opportunity offered by the Olympic games. An industry committee, which I invited Peter Rogers to chair, has come back quickly with propositions to put the industry in the frame and to use the Olympic games in 2012 as a showcase. The
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construction industry obviously needs to be at the front of that, and we hope that all industries will take that major opportunity for a showcase.
It is important for the brick industry to engage in integrated teams to ensure that it understands what clients really want and need; what the issues are for project teams that use specific products within the construction industry; and how the sector can address such issues and delight those who use its products. I am sure that my hon. Friend will agree that the brick industry does not want its products to be counted merely on the number it takes to build a house, impressive though that is, but for the quality and texture of the material used for the best.
Perhaps I can take one example of that engagement with the wider interests of the industry. I know that the brick industry has had a love-hate relationship with the concept of modern methods of construction which the Deputy Prime Minister has promoted so hard. I can understand industry concerns that a prescriptive view of what comprises a modern method of construction should not be taken by Government. However, the approach has its roots in the Egan agenda and its purpose is to encourage innovations in construction to produce more and better housing in less time. It is not about promoting one particular system of technology.
Modern methods can include a range of approaches both on and off-site, using all materials: steel, timber, concrete and brick. My Department is working closely with the Office of the Deputy Prime Minister and the National Audit Office to see whether a performance-based definition can be devised that picks out key facets, such as productivity, quality, safety and sustainability. Industry will be deeply engaged in that work. We will be looking to industry to take a challenging view of the measures and benchmarks that might be used for the benefits of clients and society as a whole. I see it as a way to encourage innovation and continuous improvement. I welcome initiatives from the brick industry, such as the development of brick slips for use with off-site manufactured panels, as a way for the brick industry to engage with wider industrial development.
The problem is that people sometimes view the construction industry as a mature, low return, dangerous and, perhaps, from a City viewpoint, unexciting industry. That could not be further from the truth, as I know only too well from my engagement with the sector, which started when I worked on a building site in Berlin in 1964, if anybody really wants to look back.
11.30 am
Sitting suspended until half past Two o'clock.
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