Select Committee on Liaison Minutes of Evidence

Examination of Witness (Questions 180-199)


3 JULY 2008

  Q180  Michael Connarty: It does seem that everyone is looking for popular selfishness to get votes. It worries me that, in fact, we are not willing to take on the big issues and say we really have to do something unique in the developed countries, particularly in the EU, half a billion people who are quite well off in the privileged world, particularly in our very advanced economies. We do not seem to be willing to do that because it is all about the voting side.

  Mr Brown: The worst thing that could happen in this particular period is that the world resorts to an old form of protectionism, and there is a danger, yes, of protectionist sentiment rising. It is rising because people can see the losses from globalisation and are not appreciating the gains. People see their jobs being lost as a result of the big transfer of manufacturing strength in which about a million jobs a year are going from America, Europe and Japan to the developing and emerging market economies, and people are, therefore, worried about the cost of living. What they are not appreciating, of course, is that they are able to buy cheaper consumer goods as a result of that, that our economies are capable of adapting and developing high value added goods and services, that we are actually capable of competing in an open global economy, but it has got to be an inclusive economy. In other words we have got to make sure that we take care of the needs of people who are being forced to make big changes.

  Q181  Michael Connarty: Tell me specifically about biofuels in the EU. The recommendation of the European Environment Agency Scientific Committee is that the ten per cent target which has been set should be abandoned because of its effect on food prices. Do you think the UK should be pushing the EU to focus on sustainable biofuels, for example, using sugar rather than the general biofuels policy it has at the moment?

  Mr Brown: I think this debate has veered from over-optimistic predictions about what biofuels can achieve and now very pessimistic views of the damage that biofuels are doing to basic food production without actually making for better environmentally sensitive products. I think probably in the end we will get to a better equilibrium in this debate, that there are good biofuels and there are bad biofuels, which is the implication of your question. We will be publishing very soon the Gallagher Report on biofuels. We have looked at the scientific evidence, or the review has, very carefully. It will make its recommendations, and on that basis we will approach the European Union with our proposals for any changes that are necessary in policy. I think it is really important, as your question implies, to look at the scientific evidence.

  Q182  Michael Connarty: Can I turn to the wider economic institutions. We referred generally to the Bretton Woods Institutions, but I have been in discussion with people who are interested in development aid and growth, and they say the World Bank, the IMF and the body which later became the World Trade Organisation were established in 1944. Are they really equipped to deal with the commodity price problems and the changes in the world that we now face, or do we need a new Bretton Woods, which has been talked about in the context of the twenty-first century?

  Mr Brown: I think you are absolutely right. We are part of a group of the Commonwealth countries as well as part of a discussion in the European Union about major reform of the international institutions. I think we found with the financial crisis, the credit crunch, that we have got no proper early warning system about issues of financial stability for the world economy. We have got the Financial Stability Forum, which we actually played a part in setting up, but I think the International Monetary Fund, which used to deal with balance of payments crises that countries had in what were basically sheltered economies, has got to change for the new global economy; so we need that early warning system, we need to be better at dealing with issues of financial stability at a global level. You have national regulators, but you have global capital markets you need to change. I think the World Bank has got to change fundamentally. It has got to be able to deal not just with the problems of poverty but the problems of the environment and climate change, and if we are to get an agreement at Copenhagen on climate change which would cut emissions substantially, then there is no way that the poorest countries in the world, the emerging markets or the developing countries in the world can finance the climate change changes that are needed without substantial injections of finance, whether in loan finance or grant finance, and you will need a body with the size and capacity of the World Bank to be able to guarantee that there are flows of money for the investment needed in alternative sources of energy. I also think, as far as the United Nations are concerned, that we will see over time, whether it be Burma or Zimbabwe or before that Darfur or Rwanda or countries in the eastern part of Europe around the break up of Yugoslavia, we will need better ways of establishing stability, reconstruction as well as peacekeeping and humanitarian aid, and we do not have the international organisations that can help us by moving into countries on request with civil society as well as military people that can help reconstruct these societies when they are failed states or failing states.

  Malcolm Bruce: I wonder if we could turn to the domestic impact of rising fuel prices.

  Q183  Peter Luff: Prime Minister, I was very glad to hear you say earlier on that we are not at the mercy of world events entirely when it comes to energy, you said there is a great deal in the UK to do with rising energy prices. Let us look at what the British Government can do in respect of energy, security, cleanliness and affordability. The first thing we can probably do is make sure the European markets are properly liberalised. I do not mean progress in respect of electricity, but the wholesale gas market is a scandal. Should you not be spending your time persuading our European colleagues to liberalise their gas markets rather than giving lectures to the King of Saudi Arabia about how he should invest his money?

  Mr Brown: I was not actually giving lectures to anybody about how they should invest their money. I am trying to find a way that, instead of a conflict of interest between oil producers and oil consumers, we can find whether there is a common interest in us working together to reduce our dependence on oil. You are absolutely right that we want to see greater progress in the liberalisation of gas, electricity and energy markets in Europe. There was progress made at the June European Council, but there is a lot more to do and the single market has over time to become a reality in all areas.

  Q184  Peter Luff: You have been saying this for years, Prime Minister, and there is progress—

  Mr Brown: There is progress.

  Q185  Peter Luff: ---but wholesale gas markets in Europe are still desperately illiquid, and that has huge consequences for British consumers, domestic and industrial.

  Mr Brown: Yes, and one of things that we have tried to do of course is to increase competition in these markets, but at the same time, I am telling you today, we want to reduce our dependence on oil and gas and there are ways that we can make domestic decisions about nuclear energy and renewables to do so, and that is where the environmental agenda and the economic imperatives of our times come together.

  Q186  Peter Luff: Well, I agree with you about that and that is what I want to ask you next in fact. The 2003 White Paper on Energy was really disappointing. Really, it relegated nuclear power to two paragraphs, it said very little about carbon capture and storage and virtually nothing about gas storage, so that means that here we are five years on, we are still talking about building nuclear power stations and actually we are not much further forward—

  Mr Brown: I do not accept that.

  Q187  Peter Luff: Well, five years on and we still have not got any sign of a starting point.

  Mr Brown: I do not accept that. The issue is, first of all, are we going to replace existing nuclear power stations as they themselves reach the end of their lives, and that is the decision that we made and, secondly, will we need to do more, and that is a decision that we are looking at. I just have to say that we are leading the debate around the world about the expansion of nuclear energy. Sixteen out of 27 of the European countries are now either expanding their existing nuclear energy or considering it, or considering having nuclear power for the first time, so we are leading this debate and will continue to do so.

  Q188  Peter Luff: But, if we had been there five years ago, as we could and should have been, we would not be where we are now, we would not be facing the loss of electricity supplies in a few years' time and we would not be facing competition for the skills and resources to build those nuclear power stations.

  Mr Brown: I just do not accept that. I think the right time to make decisions about nuclear power is as we look to replace existing nuclear power stations, and of course there is the debate now about whether we should go even further than that and whether we should have more of our electricity supplied by nuclear, but I think we have actually led the world and other countries still have not followed. Italy announced a few weeks ago that it was going to do something about nuclear, and we have been debating this and making decisions on this in the last few months. Over the last year, not with all-party support, I may say, not with all-party support, we have made a decision on nuclear, we have made a decision on the planning system that will allow us to speed up the development of these new energy sources and we have made big decisions also about housing and big decisions about infrastructure, so we are trying to make the long-term decisions that are essential for our country.

  Q189  Peter Luff: You will understand that I do not accept the point about all-party support. I think my Party's policies on nuclear power are more robust than yours and I think the planning policies you have brought out have sacrificed democracy unnecessarily to achieve an objective which is not secure. I think national policy statements on their own would have done it, we do not need such a planning regime, but, never mind, that is the difference between us.

  Mr Brown: I just do not accept that. A national policy statement on its own will not deliver the result that is necessary; you will still have six-and-a-half-year planning inquiries or seven-year planning inquiries—

  Q190  Peter Luff: No, that is not true, Prime Minister.

  Mr Brown: We had to have a way of speeding it up.

  Q191  Peter Luff: That is not true. If you look at Sizewell B, it was overwhelmingly dominated by national issues and, if you take them out, you can address local issues properly, but, never mind, let us move on. Gas supplies—

  Mr Brown: I think it is probably better for you if you do move on!

  Q192  Peter Luff: I think you are on very weak ground there, Prime Minister.

  Mr Brown: I do not think so.

  Q193  Peter Luff: What about gas storage? We have a fraction of European gas storage levels and that means that our industrial consumers, in particular, suffer very real levels of price volatility as they try to plan their businesses forward.

  Mr Brown: You probably know, and perhaps it is not really the best time to go into it in detail, but we are discussing the very substantial changes in how we can guarantee the supply of gas to this country in the future, and there will be announcements made soon.

  Q194  Peter Luff: But again, if we knew this was happening ten years ago, this should have happened much sooner.

  Mr Brown: The truth is that for the last 30 years we have had oil and gas from the North Sea. That has provided a very substantial amount of the energy needs of this country. As the North Sea oil and gas runs down, as it is running down, we are making alternative arrangements. We have led the way on nuclear, and I just remind you that your Party was against nuclear, we have led the way on renewables, we have led the way—

  Q195  Peter Luff: Prime Minister, we have never, ever been against nuclear power.

  Mr Brown:—we have led the way on renewables and we have now published last week our proposals for dealing with the renewables issue. We are now about to become the world leader in the amount of offshore wind power, basically using the North Sea, which was used for oil, for wind power as well, so we are moving forward with that agenda, and, I agree with you, it is necessary to move quickly on this agenda to reduce our dependence on oil and gas.

  Q196  Peter Luff: Well, we could debate nuclear power at greater length, but we will not now. Just one last question on energy efficiency: quite understandably, you have targeted a lot of your assistance on the vulnerable pensioners who have experienced very real price increases which they cannot tolerate as a result of rising fuel prices worldwide, but you do not seem to do quite so much for other vulnerable households, particularly those with young disabled people in them, for example. In that context, after years of welcome increases in the Budgets for the Warm Front Programme, why are you planning over the next three years to significantly cut support for the Warm Front Programme?

  Mr Brown: I think you will find that we have just signed an arrangement with the utility companies that will help exactly the low-income households that you are talking about, particularly those that use meters. Up to now, about £50 million has been made available by the utility companies for this. The arrangement is that it rises to £100 million and £150 million and that is money that will go directly to low-income families. As far as Warm Front is concerned and measures to improve the insulation, the draught-proofing and the energy efficiency of homes, we are doing more than we used to do and I think you will find that we will be doing even more after further announcements later.

  Q197  Peter Luff: Well, the announcement you made on 30 June, in a written answer, showed you were cutting the budget over the next three years. That is 30 June, the parliamentary answer I have here, so that answer is inaccurate, is it?

  Mr Brown: I think you will find that in times like this, where the need for greater energy efficiency through insulation and draught-proofing can both save energy and cut the bills of households, there will be further measures that will be announced soon.

  Q198  Malcolm Bruce: Just before we move on to the effect on transport, you have mentioned the North Sea, Prime Minister, and not only did you go to Saudi Arabia and encourage them to increase production, but you met oil companies in Aberdeenshire to have a similar discussion. We are currently still 90 per cent self-sufficient in oil and 70 per cent self-sufficient in gas and the estimate is that there is probably as much oil to be got out of the North Sea as we have yet produced, so can you tell us what you are prepared to do to ensure that we maximise the production from our own resources for oil and gas in the UK and, if I may make a local point, what you will do to support the infrastructure on the ground that is necessary to enable the companies to deliver that degree of extra oil and gas resources from the UK rather than from Saudi Arabia?

  Mr Brown: It is true to say that some estimates suggest we have only taken half the oil from the North Sea that is available and, therefore, there is a considerable amount of resource there. The difficulty is we are moving to a new stage of exploration and development where you are dealing with small fields, you are dealing with difficult-to-recover oil and you are dealing with the West Shetlands, so there are three specific types of problem that have got to be dealt with. That is why we are looking at the incentives for exploration and development and we will bring forward proposals, if we think it is right to do so, and that is why the activity in the North Sea has tended to move from the big majors to smaller companies who are more willing to spend their energies developing particular fields that are more difficult for extraction and demand special expertise.

  Q199  Malcolm Bruce: Those are the ones who could do with the unexpected tax changes that you imposed upon them in the past.

  Mr Brown: Well, we have given, as you know, special tax incentives for exploration for these particular types of companies and we will look at what we can do. There is this other issue about existing fields where we have only extracted about 40 or 50 per cent of the oil, but it is harder to get to the rest of the oil and we are going to look at that as well, so these are the three problems, the small fields, hard-to-extract oil in big fields and the West Shetland activity, and we are looking at all of these things.

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