Draft Climate Change Agreements
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John Healey rose— Mr. Francois: I will gladly give way again, but I would be even more willing to give way if the Minister could promise to give me answer. John Healey: Of course I will give the hon. Gentleman an answer; he has worked in front of me long enough to know that I always answer questions—[Interruption.] I am grateful to him for giving way, and this will be my last intervention. I will ask him an even easier question: does he accept that as independent analysis suggests, the climate change levy and the associated climate change agreements with it are set in fact to deliver 3.5 million tonnes of carbon savings by 2010? Mr. Francois: The Minister asks me whether I will accept that in fact, but he is asking me to accept as a matter of fact what may take place over the next four years. The most logical answer is that we shall get to 2010— John Healey: Will it be in your review? Mr. Francois: We shall get to 2010 and then see how the levy has done. We can come back then—I hope that I will be sitting on the Government Benches and
To summarise, the statutory instrument is, of itself, relatively non-controversial, in that it expands the list of processes that qualify for climate change agreements, thus effectively reducing the taxes that companies pay to the Exchequer. As my party called for the list to be expanded, I repeat that we welcome the Government’s acceding to the request, which, as I said, did not come from us only. The measure takes place against a background in which the Government achieved only moderate success at the Montreal talks and in which their review of climate change policy is turning into something of a Norse saga. We are not opposed to the instrument per se, but we are opposed to the delay in the publication of the Government’s overall policy. As the Minister made a point of saying that he always likes to answer the question, I end with this one: before we rise, will he please tell the Committee when the review will be complete and when its conclusions will be announced? 3.1 pmDr. Vincent Cable (Twickenham) (LD): I, too, welcome you to the Chair, Miss Begg. As the Conservative spokesman, the hon. Member for Rayleigh (Mr. Francois) said, these are fairly uncontroversial changes, but they are made necessary by a tax that is over-complicated and badly designed from the outset. Perhaps I can start with areas of agreement. My party shares the Government’s concern for measures that reduce carbon emissions and that take a firm position on climate change—that is agreed. We agree that the best way of tackling the problem is through market instruments such as environmental taxes and traded permits rather than through complex controls, and we agree that the measures should be tax neutral. Broadly, the climate change levy is tax neutral, as the revenue goes back through national insurance rebates. The point of disagreement is that we take the view that a proper carbon tax would be a much better way of dealing with the situation. Unlike the Conservative spokesman, I am not ambiguous about this. A carbon tax would be applied up-stream—at the wellhead and coalpit—and the tax would then flow down through costs. There would be a clear incentive to economise on energy use and to choose the least carbon intensive fuel throughout the system. There would be no need for further Government intervention. Instead, the Government have gone for a much more discriminatory system that is targeted on the manufacturing industry. The difficulty is that manufacturing industry is also the part of the economy that is involved in international trade and, therefore, competitiveness is affected. To accommodate that problem, the Government have decided to give the industry extensive rebates, and that in turn drives a large hole through their carbon objectives so that they then have to have complicated climate change agreements. That is an elaborate structure to achieve
Having said that, we are where we are. The Government have a system up and running, and it is better to have it than not have it. Consequently, they have to make adjustments to the arbitrary definition of energy-intensive industries, and we understand the difficulties. I am sure that the exemptions for some of the industries—for example, kaolin—will be welcomed by Members who represent those concerns. I understand that at the margin the Government are trying to be helpful in an unhelpful overall structure. I have a problem with the basic method that has been employed. The Government define energy-intensive industries, necessarily, in an arbitrary way. As I understand the definition, the industries that can obtain help are those that have an import penetration of 50 per cent. I am not sure that I entirely understand that. For example, what would happen if an industry had very little by way of competing imports but was an export-based industry? Would that not also involve competitiveness? Why is that particular definition employed? I also know from technical work that I did in this area many years before becoming an MP that the definition of import penetration is at an aggregated level. I believe that it is three digits and the industry code, which sounds complicated but is a broad brush that cuts across the activities of many companies. We are dealing with an arbitrary system whereby some companies are in and some are out, with the boundaries constantly having to be adjusted. I understand where we are and that, given the structure, the Government have had to make adjustments. There is an odd reference in the explanatory note to the regulatory impact assessment. I am probably something of an anorak, but I am genuinely interested in how RIAs work, because they attempt to make regulation more transparent. However, the explanatory note comes up with a mysterious conclusion. It says:
The whole purpose of the regulation is to impact on business. The impact may be favourable or unfavourable, but impact it will. I suspect that either somebody in the Treasury has been lazy, or the principle of RIAs is being taken for a ride. Will the Minister explain that peculiar conclusion? Mr. Francois: We have both picked up on that point in our remarks. To expand on what the hon. Gentleman said, the Government sometimes argue that there is a de minimus level of £5 million, and if the impact is below that, they do not bother to produce an RIA. As we have heard, the net impact in a full year is likely to be about £25 million, so that would not be an excuse. May I encourage the hon. Gentleman to press the Government on that point? Dr. Cable: Yes, I will, and I thank the hon. Gentleman for his elaboration. I was not aware of the limit, but his comment was helpful. It is true that some
3.6 pmMr. Dan Rogerson (North Cornwall) (LD): I echo other Members’ comments that it is a pleasure to serve under your chairmanship, Miss Begg. Although I appreciate that this is an intervention on a Treasury debate by someone from a different team, the regulation has huge implications for the Government’s objectives on climate change, as other hon. Members have pointed out. I, too, shall attempt to be brief, because I am sure that Members want to get on with other urgent business. However, there was one question that the Minister might like to answer. I appreciate that DEFRA is a different Department from the Treasury, but on its website, of the 42 sectors, only 21 met the agreed targets outright in the second period of assessment. The website goes on to say that in a further 17 sectors, all facilities had their climate change levy discounts renewed. If the agreed targets were not met outright in those 17 sectors, why did all facilities have their discounts renewed? It raises questions about the scheme’s extension. I accept what my hon. Friend the Member for Twickenham said about the kaolin industry, which has great resonance with the people of Cornwall. We must examine how the scheme has worked up to now before we give our blessing to its extension to further industries. If the operation of the scheme within those 42 sectors has been less than satisfactory up to now, perhaps we should call into question its extension. I agree that the climate change levy has had some effect; it would be bizarre if it had not. I agree with my hon. Friend when he said that, rather than focus on one or two interests, and on the manufacturing sector in particular, a carbon tax would be a far better way of tackling energy needs throughout the entire country. I should welcome comments from the Financial Secretary, if he can provide them. He may refer me to DEFRA. I should be interested in his comments on how, following assessments of the existing sectors, the scheme’s renewal of discounts has worked up to now. 3.9 pmJohn Healey: This has been an interesting discussion, which has ranged rather widely. I shall take the points in reverse order, starting with the hon. Member for North Cornwall. He asked me specifically about the operation of existing climate change agreements introduced under a different system and rather a long way from the content of the rather more modest order that we are considering. As he is a Liberal Democrat shadow spokesman for DEFRA, he will know that the operation of climate change levy agreements is dealt with by DEFRA, and I will ensure that the DEFRA Ministers answer his questions.
I can clarify the point made by my hon. Friend the Member for Northampton, North (Ms Keeble) and confirm that the paper industry is already covered by climate change levy agreements. Firms in that industry negotiated their agreements through their trade federation with DEFRA and draw down the 80 per cent. climate change levy discount. We know that the hon. the Member for Twickenham thinks intelligently about these matters and knows a good deal about the technicalities, but it is not clear what the Liberal Democrats stand for in this area or what he is proposing. It is interesting to note that the orange book gives fairly short shrift to concerns about the environment, but I shall try to respond to the specific points that he raised after his preamble. The first referred to the regulatory impact assessment, and the hon. Gentleman quoted from that. Only a small compliance cost will be involved for businesses as a result of the regulations. We anticipate that only about 300 employers will be affected by them, and he will understand that in aggregate the measure is modest. However, as the hon. Member for Rayleigh said, for each and every one of those companies, the regulations could be significant to their energy costs. In aggregate, the likely cost of compliance—the cost of administering the proposals—is well under the de minimis level, although the level for requiring a RIA is not £5 million but £3 million. To reply to the hon. Member for Twickenham in general terms, far from treating RIAs in a cavalier and casual way, the Treasury and HM Revenue and Customs, on the contrary, have set many of the standards by which the Government as a whole have developed the RIA system. He may have missed this, but alongside the pre-Budget report we published the first three post-implementation reviews of whether we got RIAs before taxation legislation right after the event. In so doing, we are trying to take the development of the RIA process and to refine it a stage further. Dr. Cable: I was waiting for the Minister to finish his lengthy response and I am grateful for it. He asked me at the outset to be clear about what we were recommending. He may disagree with our recommendation, but it is clear. We suggest that the climate change levy should go and be replaced with a carbon tax to achieve the same carbon reduction objective. That is our policy. John Healey: I am grateful for that clarification, as I am sure are other Committee members. Column Number: 16 Mr. Francois: On another point of clarification about RIAs, I can also be a minor anorak. At an earlier sitting, we discussed the RIA and the Minister said:
That is the figure that the Minister gave me last June, which I happen to recall off the top of my head to reiterate this afternoon. If I am in the wrong, I shall apologise to the Minister, but I was quoting the figure he gave me. Would he tell whether the policy has changed and that the threshold has been dropped? If it has, that would be an interesting point. John Healey: The essential point about whether a RIA is required in this case turns on the fact that in implementing the climate change agreements for some 300 companies in the sector that we are discussing, the compliance costs are likely to be very small, particularly in the context of the significant savings that the companies affected are likely to make. Those savings will dwarf any of the compliance costs that are likely to flow from administering the changes. I turn to the points that the hon. Member for Rayleigh put to me earlier. I shall confine my remarks to the questions and points he raised on the regulations, although in general terms I say to him that, for any political party, if one wills the ends, one has to be prepared to will the means. Backing some important and serious measures to tackle climate change is inevitably necessary. The hon. Gentleman asked me about the RIA, which I have dealt with, and he asked me about consultations. The consultation about whether we can extend climate change agreements and eligibility criteria goes back to 2003, as I indicated in detail, not only for sectors potentially affected but business organisations more generally, both before the 2004 Budget and afterwards. We have kept up that close discussion with sectors potentially or actually affected by the extended criteria since then, and DEFRA will pick that up as it negotiates and tries to come to terms with climate change agreements. The hon. Gentleman asked me about the British Ceramic Confederation. If he re-reads my opening remarks, he will find that I was pretty clear about which groups have agreements in place and state aid approval—and how long they will have to wait after we pass the order—and groups that have an agreement in place with DEFRA but have not yet received state aid approval, which may have to wait a little longer. The British Ceramic Confederation has reached an agreement with DEFRA; it did so after we laid the regulations in Parliament. We had to decide whether to pull the regulations and delay the benefit for other sectors affected in order to include the BCC or return with additional regulations to deal with that sector later, which is what we have decided to do. The hon. Gentleman asked me about the four sectors that I mentioned with which DEFRA is in discussion about agreements and eligibility for climate change agreements. I did not specify those sectors, but
The hon. Gentleman asked me to confirm the cost of the relief, as I think I did at least twice during my earlier remarks. The tax benefit to companies as a result of the order will be about £25 million a year, which is exactly what we anticipated when we made the announcement in the Budget 2004. Regarding the contribution to the environmental climate change challenge, he will understand that the figures are estimated and understand the scale of them in the context of what I said earlier. We are dealing with a relatively small number of companies, but in addition to the sectors that I mentioned, DEFRA is continuing discussions with sectors that have a greater climate change contribution to make and a larger number of companies are involved in that. The sectors involved are all fairly small in terms of their aggregate natural energy consumption. Based on the agreements struck with DEFRA so far, we reckon that the contribution of the climate change agreements that we have been considering this afternoon will contribute some 26,000 tonnes or more of carbon saving per year. The hon. Gentleman asked me about the climate change programme review. He urged me not to fall back on the response that it was a matter for DEFRA
The hon. Gentleman asked me two further questions: when will the review be completed, and when will it be announced? The review will be completed shortly. It will be announced before too long. [Laughter.] I hope that members of the Committee will appreciate that we have had to balance a complicated range of factors in drawing up the regulations. I hope that they will appreciate also that there could be significant tax savings for the companies involved as a result of the 80 per cent. CCA discount on the climate change levy. Further, I hope that the Committee will appreciate that the measure will make a valuable contribution to dealing with concerns about the environment and climate change as a whole in this country. Addressing those concerns has all-party support, which I welcome. On that basis, I hope that members of the Committee will feel able to give this modest but valuable measure their approval. Question put and agreed to. Resolved,
Committee rose at twenty-one minutes past Three o’clock. |
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