Pre-Budget Report 2008: Green fiscal policy in a recession - Environmental Audit Committee Contents


Examination of Witnesses (Questions 100-119)

ANGELA EAGLE MP

3 FEBRUARY 2009

  Q100  Dr Turner: Last summer we recommended that the Government introduce a car scrappage scheme because there are an awful lot of old, highly polluting cars out there. People are paying them to trade in their cars for greener models. The French have in fact introduced such a scheme. The Germans have announced that they will do so, too. Treasury did not rule it out last year but told us they were monitoring the situation, and this is what Ministers were saying last week. What exactly are you monitoring and what test does it need to pass before you will adopt the measure?

  Angela Eagle: We are a bit sceptical about its value for money, so we are continuing to monitor it. When the French scheme was introduced initially it was actually thought to be revenue-neutral. It is now costing up to €200 million a year and being far more expensive than they originally estimated. Interestingly, they have just extended it to cars which emit up to 160 grams of carbon per kilometre. You are quite right; the Germans are looking at a scrappage scheme, and Austria has announced that it is thinking of a scrappage scheme, but there is widespread scepticism in other parts of the European Union as to whether it is good value for money. Not everybody can afford to buy a new car, even if they have a government grant for scrapping their old one. That is one of the difficulties. We are not ruling it out at all but we are still quite sceptical that it is a good use of taxpayers' money.

  Q101  Joan Walley: On that point, can I ask what value you are putting on the environmental benefits of that when making this assessment?

  Angela Eagle: I do not know whether we are measuring it in that way, but I am certainly happy to send you a note about how we are assessing scrappage schemes.

  Q102  Joan Walley: I return to the questions about the £535 million, which included the money that is spent on the rail carriages, that being part of a bigger £3 billion stimulus package and obviously a £1 billion investment package announced by the Department for Transport. Can I ask you about all the projects that will then be funded and what assessment the Treasury has made of the net impact on carbon emissions for this whole fiscal stimulus package?

  Angela Eagle: Because the green stimulus part of the Pre-Budget Report is money brought forward, with the exclusion of the £100 million from Warm Front which we can measure and there will be certain carbon savings from that, we can let you know, again in a note, about the loans to the automotive industry and the package for ultra low carbon vehicles, which is extra money that has been announced since the Pre-Budget Report. By definition, money that is brought forward will not add, except at the margins, to carbon savings because it will just mean that homes are insulated a year or two earlier than they would have been without the extra money, and so that will be quite minor. In terms of jobs and supporting the economy when that is needed, we believe that because of where we are in the economic cycle, having a green part of the fiscal stimulus was a good and timely thing to do. We believe that the recession gives us a great number of challenges economically. One of the ways of actually dealing with the challenges economically is to keep in mind and certainly not forget that we need to transform our economy from a green point of view as well and to take every opportunity that we can to try to arrange that in these circumstances; it gives us benefit in the future. That is what the green stimulus was about.

  Q103  Joan Walley: Is not the crux of all of this that we have measures being taken by Government, measures being proposed by the Treasury—the Pre-Budget Report is a part of all that—but that needs to go hand-in-hand with the new green deal ideas. Therefore, is this not exactly the time, if Government is bringing forward capital investments now to help us through these difficult times of recession, that the Government should now be accepting that this is a transformational time and the green aspects of this need to be superimposed on the new arrangements? It is no good having, for example, road widening or new contracts for cars if we have an opportunity to do green transport, an opportunity to do low carbon cars? Why is it not a requirement that everything has to pass this green test? This is a once-in-a-lifetime opportunity, surely?

  Angela Eagle: I think it is important that we separate out some of the money that has been brought forward, the £535 million, which is already allocated in the Comprehensive Spending Review to be spent slightly earlier, a year or two earlier than it would have been in normal circumstances, from the transformational monies that are being spent anyway, the £50 billion I was talking about earlier, and the new legal structures that we have put in place, the carbon budgets, with the renewable strategies and all of those things. The fiscal stimulus is merely moving forward monies that had already been allocated. The transformation is happening I think all around us. If you look at the extra money that has been announced for ultra low carbon vehicles and the extra £1 billion of loans to the automotive industry, those do bring forward and hopefully speed up and pull through new technologies and enable them to be applied in this country and used earlier.

  Q104  Joan Walley: Given what you have said earlier, that the Government has changed the response and now has an 80% carbon target, and that has come about relatively recently, is there not a case to have a similar shift in terms of looking from a different perspective at these capital projects brought forward? We have already heard in evidence in the previous session that, for example, some of the contracts for the new low carbon cars involving new environmental technologies are not being connected up across different government departments. There does not seem to be a mechanism for that to happen.

  Angela Eagle: I think that you are right that this is a transformational time. Some of the work that is being done to tackle the problems that have been caused by recession will put us in a better position than we would have been without these challenges to transform a range of our infrastructures. If you are saying we should prevent all investment unless it is absolutely green, I think the paradoxical result of that might be less expenditure and cuts in public spending, which would have the opposite effect on the recession. We have to be pragmatic and pull forward those things that we can; we also have to recognise that many green technologies are at an earlier stage of development. We have to support them and certainly ensure that they can carry on being supported in their early stages and not let down by the lack of venture capital funds, for example, and we are taking a close look at how to do that. We have to protect our future green industries in that way. It would be a mistake to assume that we are ready to go with many of these things immediately. We are trying to do this in an appropriate sequence.

  Q105  Joan Walley: May I put three questions on the Warm Front Scheme or the Home Energy Saving Programme. May I turn to that? There is £6.8 billion in this programme. Could you perhaps say how many jobs in the UK are being sustained by this spending?

  Angela Eagle: I do not know whether I have the exact numbers of jobs in the UK that are being sustained by the funding. You can see how that is made up: we have the CERT (Carbon Emission Reduction Targets) monies, which is £2.8 billion of spending over three years on energy efficiency issues in households, ranging from boilers and more efficient heating and insulation; the spending of a 20% increase in that target as part of our response to the current conditions; a Community Energy Saving Programme, which taken together with the 20% increase is nearly £1 billion of extra expenditure; nearly £900,000 of Warm Front expenditure[19]; and £2.2 billion of expenditure on energy efficiency issues within the Decent Homes monies. All of that is to be spent in households in the UK to put in energy efficiency measures. I cannot imagine that that would be anything other than very job-intensive in this country. If you are asking me for an exact figure of jobs that that creates, I do not think I have that. I do not know whether we have an estimate: 350,000 people are already employed in the UK low carbon goods and services sector. We cannot put a figure on this package but we estimate that the number of jobs could rise to one million in the next 20 years. Clearly, the thing about packages like this is that they have to be delivered in the UK in the houses of everybody, so it is very domestically based.

  Q106 Joan Walley: In respect of the funding that goes into the Home Energy Saving Programme, how much of the money is spent on energy efficiency measures and how much is helping people pay winter fuel bills? It is a programme that was originally a fuel poverty programme but has somehow been married with an environmental programme. It would be useful to have a breakdown of the costs there.

  Angela Eagle: The £6.8 billion figure that I have mentioned today is all about the actual programmes for improving energy efficiency. None of that involves any of the monies that are spent on winter fuel payments; that is separate. There is £2 billion a year extra spent on winter fuel payments; and about £150 million, there or thereabouts, on the cold weather payments, although I suspect that will have gone up after this week in terms of the way we think it is going.

  Q107  Joan Walley: To clarify that, none of the money in that figure you have given us is going towards the money that the energy companies spend on helping vulnerable people who have difficulty paying bills? That is separate from the winter fuel payments.

  Angela Eagle: Yes.

  Q108  Joan Walley: In terms of the money that has been spent by the energy companies, presumably they are having to charge higher bills in order to recoup their money. How are you making sure that that responsibility on the energy companies is not pushing their people into fuel poverty?

  Angela Eagle: Clearly, the issue with the numbers of people in fuel poverty is very sensitive to the price of energy, and the price of energy can be very volatile, as we have seen in recent times. Obviously, the measures that have been taken have been concentrated particularly on those who are vulnerable and fuel poor to begin with. We monitor energy prices to make certain that if any of the costs of CERT are passed on, we know exactly how. Again, I can get you more information about that if you want it.[20]

  Q109 Mark Lazarowicz: I have some questions about Heathrow Airport expansion, which was mentioned briefly. This relates very much to the economic issues rather than perhaps the wider issues. One of the things that the Secretary of State for Transport said in his statement when he announced approval of the expansion was that the decision to expand Heathrow would "help secure jobs now and in the future". When does the Government expect the construction work on the new runway and terminal actually to begin? How does that relate to the economic stimulus package at the present time?

  Angela Eagle: It clearly does not relate to the fiscal stimulus package. This is an ongoing circumstance that has been contemplated for many years. I think 2003 was the appropriate Transport White Paper that dealt with this issue. A process has been going on since then. I do not think anybody on either side of the argument has tried to claim that building a third runway at Heathrow would be anything to do with the fiscal stimulus package that the Pre-Budget Report dealt with. There is a huge planning process to go through before anything happens with the third runway at Heathrow. That all has to be done and clearly that will not be happening in the next couple of months; it is an ongoing process. There was an economic assessment of the proposals, as you will know. I can give you some Treasury views on that, but if you want practical detail of how the Department for Transport are going to go ahead, I think you had better get them in here and ask them,

  Q110  Mark Lazarowicz: I understand that and I appreciate there are many aspects on the issue. The Secretary of State did specifically say that the decision would help secure jobs now and in the future. Could I get some indication now and for the future what form this will take.

  Angela Eagle: Today Heathrow directly employs 70,000 people; indirectly it employees 30,000 people. My understanding of the impact assessment of the additional jobs created as a result of a proposed third runway would be 10,000 jobs directly, 15,000 indirectly, and 60,000 temporary construction jobs, but I do not think that anybody would want to stand up and claim that these jobs are going to come into existence this month or next month to deal with the economic downturn that we have now.

  Q111  Mark Lazarowicz: Do the figures you have give any indication of when they might start having an effect?

  Angela Eagle: They are not going to start having an effect until after planning permission is applied for and granted by the authorities. Clearly, apart from a few jobs in design and engineering, I do not think you are going to see jobs on the site imminently until those processes are over.

  Q112  Mark Lazarowicz: Can I ask a specific question about the air passenger duty receipts aspect of the decision? The controversy relates very much to your responsibilities in the Treasury. As I understand it, the Government has counted the projected increase in receipts from APD at Heathrow towards the calculation of economic benefit to the country, but surely that could be to some extent at least counterbalanced by the fact that UK residents will be paying APD which will be set against the benefits received by the Treasury if we are going to have a correct calculation?

  Angela Eagle: There is an economic impact assessment that has been done on the entire proposals, and I know they are controversial, to create a third runway at Heathrow. That has been peer reviewed by Michael Spackman, who agrees that the Department for Transport's methodology for assessing economic and environmental impact is in line with Treasury guidance. We agree it is in line with the guidance. I do not think it is very helpful for me to go into great detail about how that impact assessment was decided. It is completely and perfectly up to you to disagree with all aspects of it or particular aspects of it. The impact assessment came to the conclusions it did. Its methodology was peer reviewed and approved as a sensible and appropriate methodology. Clearly, if there are arguments about the detail of that, then they have to be had, but that is the context in which the Treasury reviews the decision.

  Q113  Mark Lazarowicz: Can I ask a specific question which is not about the methodology but about one particular way in which the methodology was applied, returning to the APD question. If you cannot provide an answer today, maybe you can provide one at a later stage. Did the Treasury, in calculating the economic benefit of the APD receipts, take into account the extent to which the APD would be paid for by British taxpayers?

  Angela Eagle: I think I am happy to write to you about that.[21] That is probably the best way of dealing with a point as specific as that in a vast and very large impact assessment. I merely

  make the point that the approach that the Department for Transport made in the impact assessment has been peer reviewed independently and agreed as appropriate. I accept that you have a different view, and I am happy to write to you about the specific point on APD that you make.[22]

  Q114 Mark Lazarowicz: I have one even more technical question on APD, which you may wish to write about. As I understand it, transit passengers or those catching connecting flights that have not originated in the UK do not pay APD. Do you know how many of the projected additional passengers resulting from a third runway will fall into that category? If you cannot find the answer today, perhaps you could write to us?[23]

  Angela Eagle: I know that the impact assessment assumed that those who are transit passengers did not add to positive economic impact; and it assumed that whether they were UK citizens or foreign born citizens, those that do travel to or from UK destinations do add to economic wellbeing, presumably because it is assumed that they are going to involve themselves in some economic or leisure activity that would benefit our economy. Apart from that general observation, again I am happy to write to you.[24]

  Q115 Mark Lazarowicz: Would it not make sense perhaps to try to charge APD on those who fall into that category, precisely because they are not having an impact on the UK economy otherwise?

  Angela Eagle: There are any number of assumptions you can make in economic impact assessments in great detail. This economic impact assessment has been done in line with Treasury methodology by the Department for Transport. It has been peer reviewed by independent economic consultants who agree that it is an appropriate way of appraising policy which accords with Treasury guidance. Again, it is up to you obviously to object to any particular part of that. The only thing I can do is to make the general point that it has been regarded and judged to be an appropriate way of doing an economic assessment. It came to the conclusion that there were economic benefits that outweighed the environmental costs of developing a third runway. I know that is controversial. That is the approach that was taken. That is the decision that was announced, but I accept that you have difficulties with individual aspects of it. Rather than having particular views about assumptions, all I can do is make the general observations that I have made about the appropriate nature of the economic impact assessment that was made and published by the Department for Transport.

  Q116  Mark Lazarowicz: My question was not actually challenging the economic impact assessment. All I was doing was asking if you have any plans to levy a tax on those transit passengers or others who currently will not pay APD because of the way APD was defined?

  Angela Eagle: I think the important thing about developments in aviation taxation is the successful agreement that aviation will enter EU ETS, the emissions trading scheme, in 2012, which will mean that we can cap aviation emissions thereafter and ensure that we can keep them at a set level and then bear down on them. I think that is probably the most important decision with respect to aviation that we have been able to come to in a very long time. Therefore, we can ensure that the carbon emissions that come from aviation can be capped and thereafter reduced over time. Issues on how we apply taxation are looked at in every budget process. I do not think it would be appropriate for me to speculate on what we might do with such taxes in the future.

  Q117  Chairman: Just so that we are clear, transit passengers do not, in your judgment, confer an economic benefit on this country. We know they do not pay air passenger duty. They do of course add to carbon emissions. Why are we using the existence of transit passengers as one of the justifications for expanding in the UK?

  Angela Eagle: Firstly, I did not say that that was my opinion. I said that that was an opinion and a judgment that was made in the impact assessment.

  Q118  Chairman: So you disagree with it?

  Angela Eagle: No, I am not going to say I disagree with it. I am not an expert on the technicalities of impact assessments. I make the point that I have made quite clearly about the policy appraisal and the appropriate methodology according to Treasury guidelines, which informed the Department for Transport's economic impact assessment, and they were peer reviewed. I know it is controversial. I expect that many people will disagree with aspects of it. All I have said today is that it is being judged by independent appraisal to be an appropriate methodology for doing this kind of assessment, and it has come up with the results that it has come up with. It is incumbent on all of you, if you wish, to object to different aspects of it. That is fine. All I am saying is that it has been judged to be an appropriate approach to try to measure an economic impact assessment and try to see whether the environmental costs of this development outweigh the economic costs. The judgment has been made that they do not, as those of you who listened to the Secretary of State for Transport in his statement will have realised.

  Q119  Martin Horwood: I have one last question about the technicalities of the impact assessment, I am afraid. You factored in the future cost of climate change using the so-called shadow costs of carbon. The person who did the evaluation, Michael Spackman, said it was in line with Treasury guidelines. It may well have been. That does not necessarily mean it is appropriate, as you have just claimed, because it used a very different calculation to Lord Stern's recommendation, did it not, because it used a discount rate that was more in line with traditional economics rather than the almost negligible discount rate that Stern recommended, which was 0.1% or something, thereby effectively valuing our grandchildren's lives almost equally to our own. Have you rejected Lord Stern's advice in that case?

  Angela Eagle: No. Lord Stern's price of carbon in his analysis was making the assumption that there would be business as usual, a scenario that there would be no attempt to deal with climate change in a business as usual environment which would put that cost on carbon. The shadow price of carbon is a price which has been developed to deal with policy appraisals and the cost policy appraisals in a different environment, which is where we are fighting to ensure that we mitigate the costs of climate change. That is why there is a difference between the discount rate that Lord Stern used in his report and what is known as the shadow price of carbon, which is used for policy assessments in the environment we are in now.



19   Note by Witness: Warm Front expenditure is, in fact, £900million, not £900,000. Back

20   Ev 46 Back

21   Ev 46 Back

22   Ev 46 Back

23   Ev 46 Back

24   Ev 46 Back


 
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