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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 202-ii House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENTAL AUDIT COMMITTEE
MR ANDREW SIMMS MR ADRIAN WILKES, MR PETER YOUNG and MR IAN DICKIE ANGELA EAGLE MP, MR ALEX DAWTREY and MR BEN DAY Evidence heard in Public Questions 55 - 156 USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environmental Audit Committee on Members present Mr Tim Yeo, in the Chair Colin Challen Mr David Chaytor Martin Horwood Mark Lazarowicz Jo Swinson Dr Desmond Turner Joan Walley ________________ Memorandum submitted by the Green New Deal Group
Examination of Witnesses Witnesses: Mr Andrew Simms, Green New Deal Group, gave evidence. Q55 Chairman: Thank you for coming in. We are very interested obviously in the idea of the Green New Deal. The report that you produced refers to the "triple crunch", the financial crisis, climate change and peak oil. How interlinked are all these problems and, in particular, how interlinked might the solutions be? Mr Simms: I would say both are firmly interwoven. The reason that we did it was that we found there were a number of us, and this is one of the reasons why I do feel I have to apologise for the fact that it is only me today because the point of us coming together and producing this report as a group was that we brought specialisms ranging from financial expertise to the understanding of energy issues to the understanding of climate change issues, and we were all aware that, separately, each of the issues that we were dealing with was capable of triggering a fairly substantial threat to the healthy functioning of the system. Together, the three of them were the sort of perfect economic and environmental storm, so we saw both that the trajectory that the global economy was on in terms of its energy use, the frailty of the system created by the debt bubble or the credit bubble, depending upon your preferred way of describing it, and the vulnerability of the system in terms of the energy shock that it was facing and the scale of the change implied in how we do business by climate change was so substantial that, when they came together, they posed this enormous threat, and we thought that you could not tackle any one of them in isolation. Thinking about the need to find the resources to tackle the energy transition problem, we were mindful of the fact that, if you go not that far back in history, when we made the huge energy transition from coal to oil, for example, it took about 50 years to achieve it. We saw, in the face of the deflationary circumstances following the credit crisis, that we needed to find a way to stabilise the economy, hopefully to re-inflate the economy, but one which also dealt with the fact that we have, if we are lucky, perhaps a window short of eight or so years to make the change in how we use energy in the face of the climate change problem and in the face of the global peak, plateau and ultimate long-term decline of oil in the global economy, even if we listen to some of the most conservative voices from the International Energy Agency, for example, who are predicting a capacity crunch as soon as perhaps 2012/2013 and have finally admitted in public that the year of peak oil may be as short a time away as 2020, and others will tell you it is much shorter than that. However, we had to achieve a number of complicated things in a very short period of time and there was both an enormous threat and an enormous opportunity in that, if we respond to the problem of the credit crisis by using a range of financial resources, both public, private and personal, and redirect those to achieving the ends that we need to achieve anyway in terms of tackling our energy security and in terms of tackling the massive unprecedented change in the economy and in our behaviour and lifestyles implied by climate change, not only was this perhaps the biggest threat that we had ever collectively seen, but it was also perhaps the biggest opportunity to achieve, in a short period of time, what we needed to achieve. Q56 Chairman: Has the Treasury been showing any interest in your sort of analysis? Mr Simms: We had a very nice letter from the Prime Minister, thanking us for our efforts and then outlining everything that the Government was already doing on the environment, and we had a nice letter from Hilary Benn. I have to say that we have had relative silence from the Treasury, perhaps in keeping with that Department's track record of enthusiastic defence of a habitable planet. We also had a very nice letter from the Chairman of the Intergovernmental Panel on Climate Change and a tidal wave of interest from around the world, but, as yet, relative silence from the Treasury. Q57 Chairman: Given that you started all of this before the worst of the credit crunch was apparent, what is your feeling now about how this recession is going to develop? Mr Simms: I have to say, I am afraid that we have not seen the worst of it yet. We first started thinking about this when an academic publisher, Macmillan, back in 2003 published a book called The Real World Economic Outlook in which were the sort of outline and the contours of the current credit crisis, and I know it is kind of a bit of a popular sport these days, saying, "We told you so", but we did actually sort of fairly accurately describe how things were going to go. I think that, because of the continuing unknown unknowns, there is still an enormous amount of potential instability in the system. I think that perhaps the most important thing to say about it is that, in the shape of our responses, we think that the biggest mistake would simply be to try to reboot the economy to where it was before the crash happened. We think that, and this is one of the reasons why we used the language in the framework of the Green New Deal, if we want to achieve the softest landing possible for the economy and we wish to put some sort of zip back into it, then the way to do that will be to try and reboot it to a different way of working. I think the last thing we want to do is to sort of look for signs of recovery through the return of binge consumerism on the high street. I think, if we want to look for signs of recovery, that we want to look for that in the way that we might, for example, begin the wholesale refurbishment of our building stock along the lines of energy efficiency and along the lines of re-imagining the structure and the nature of our energy system, rethinking grids, rethinking sources of energy. I think we might look for it through the training of a whole generation of people who are equipped to implement energy efficiency in homes, implement new renewable energy systems, a wide range of skill bases from sort of low-skilled, medium-skilled, high-skilled, retraining a workforce and that we look to do it in such a way that maximises the social, environmental and economic value in our own communities. I think there is so much low-hanging fruit in that area that we have barely even begun to scratch the surface, and we are in the process of looking at it in more detail, but, even at a cursory glance, looking at what we had in the PBR, we were incredibly disappointed at the missed opportunity. It felt a little bit as if, if I might indulge in a sporting metaphor, the Chancellor was one of those footballers who finds himself in the unusual position of being on the goal line with the ball at his feet and somehow manages to kick it over the bar because there seemed to be so many opportunities and, when you peel away the layers of what has been announced, you are left with, and I would not want to be too definite about these figures yet because we are going to look at them in more detail, but what does not look like a very substantial sum of new and additional spending and the degree to which even that has been brought forward and offset against cuts in future spending makes it look even less impressive. If we end up with a sum of maybe possibly £100 million of new spending and put that into context, well, at a quick look at the workings of one of the other committees of this House, the Committee of Public Accounts, that is about the amount that was lost to the taxpayer through the handling of the privatisation of QinetiQ or, alternatively, a slightly more unusual one perhaps, the cost of obesity to the NHS in Reading on an annual basis, so I feel that we have barely scratched the surface. Chairman: Well, if you do any more work on the figures, let us know if it is before we conclude our Report. We are probably going to have another look at this whole issue in broader terms later on in the summer actually, so I guess we may want to explore this in a lot more detail in due course, but this is in the context of our annual Pre-Budget Report. Q58 Mark
Lazarowicz: You advocate in your report a proven
investment in new energy supply systems of about £50 billion per year. What were your main priorities for that
spending and what effects would it have on Mr Simms: I think, without doubt, two first priorities are, on the one hand, decarbonising the electricity supply and, on the other hand, improving the energy efficiency of building stock, both domestic and commercial. If one looks at the range, and there have been quite a range of assessments of what it would take to get Britain on a path towards a minimum of 80 per cent cuts by 2050, if we look at the work either of the SDC or the Centre for Alternative Technology or IBPRs and the assessment that spending upwards of £50 billion a year would be able to set us on that path without the need for recourse to some of the more controversial suggestions for diversifying the electricity supply, such as nuclear, I think the low-hanging fruit of improving the energy efficiency of the building stock is one of the ones which would probably be most employment-intensive in generating new jobs, and I am also kind of heartened by the fact that the sort of renewable energy technologies that we are looking to are also the most employment-rich and that, pound for pound, investment in renewable technologies does seem to generate significantly more jobs per buck than the old centralised forms of generation. Q59 Mark Lazarowicz: Are you able to give any kind of broad figures of the kinds of employment creation that could arise from that kind of investment programme? Also, how do you address the issue of trying to make an impact on the economy quickly because I take all you have just said about the need not to return to binge consumer spending as a long-term solution, but there is a problem of course in that there is a perceived need to try and re-inflate the economy quickly before the situation spirals out of control, so how quickly would the employment impacts be felt because I think it is actually quite important in terms of recommendations we might make? Mr Simms: On the first point on the numbers of jobs, we are also in the process of doing a more specific piece of work on this which we hope to have completed in the next two to three months and, as soon as we have those figures, we will be delighted to send them across. There are some other figures which I can forward to the Committee after this session which give ballpark figures for the kinds of jobs per buck you get in different technologies. Now, obviously where renewables are concerned, they are incredibly site-specific and they are incredibly scale-specific as well, so it will be different for each one, but there are some figures out there and I am very happy to forward those to you. I think that, if you are looking for a quick win in terms of benefiting or softening the descent in the economy at the moment, if you made the resources available, you could put people to work tomorrow working on the kind of rehabilitation of the building stock that we are talking about. I think the effects could be in employment terms and in training terms. Now, where you are talking about implementing some of the different technologies and you are talking about developing different types of grids, that is the sort of short to medium term, but, in terms of the short term, the easy win and one of the most cost-effective ways of tackling the energy and the climate problems as well would be on the building stock, and there is absolutely no reason that we could not start something like that tomorrow. Q60 Mark Lazarowicz: Do you really think so because I have done a lot of work on this in my local area as well and, technically, yes, you could do it tomorrow, but all the kind of organisational problems of getting it done, even with sometimes small-scale projects, are immense and, in terms of having an impact, are we actually geared up to do that tomorrow or as quickly as we need to proceed within the weeks and months rather than years? Mr Simms: I think this is a very
interesting question and I think it is a very, very political question. I think it is a question of how we set our
ambitions. When you look at the fate of
certain infrastructure projects in Q61 Mark Lazarowicz: There are points there which I might pursue, but I will just ask another question which relates to what you have been telling us anyway. Can you tell us something more about your proposals for financing the Green New Deal? I ask you because in your report you refer to "the increase in the Treasury's coffers from rapidly rising carbon taxes and carbon trading", and there are questions about the carbon market, as I am sure you know, and you refer to high energy prices, and again obviously we know what is happening there. You may well say, "Well, we see ups and downs, but the long-term trend for energy prices is upwards", and I accept that, but can you rely, for financing the Green New Deal, on very fluid sources of finance, susceptible-to-high-levels-of-change types of finance to fund the Green New Deal? Mr Simms: Not entirely, no, and, in the round, we look at a wide range of different potential sources of funding for the Green New Deal, and it is interesting to note having this today that, regardless of the volatility of the oil price, I note that BP have still been able to come in with a fairly cool profit of £18 billion shortly on the heels of Shell who managed £20 billion, so it does seem to be in some cases that, whatever happens to the oil price, the oil companies do very nicely out of it. That is just one particular example of something where one of the things we have called for as a potential source of funding to pay for this transition is what we have called an 'oil legacy fund', which is something sort of loosely modelled on what Norway has done by having an additional and specific tax on its fossil fuel industries which, over a period of time and through prudent management of it, have built up a huge pot of money relative to the size of the country. It will be larger now, but it was equivalent, the last time I looked at it which was about a year ago, to about £57,000 for every man, woman and child in Norway. However, you might want to look at it as something like a recurrent windfall tax, but that was just one particular thing. The other way of course, I suppose, one would need to look at this is thinking that, rather than investing in the Green New Deal as being something of a burden on the public purse, we would see it very much as being an investment, and it would have its own multiplier, as all investments of that kind do. We think also there is the possibility for the necessary redirection towards more stable forms of longer-term investment of pension funds. I think it was in one of the national broadsheets quite recently that "safe was the new sexy when it comes to investment", and I think people are going to be looking to long-term investments and in large infrastructure investments perhaps in the green energy side which are safe and which will guarantee a steady and long-term return over a long period of time. One study from one of the European investment banks looked at the ways in which, for example, simply by tightening the rules of existing pension funds in the light of the new vulnerabilities that would create a pool approaching $2 trillion worth of investment that would be looking for new, safer sources. We also look at ways in which we can be innovative with things like local authority bonds, something which is done widely in the United States, and, with the exception of Transport for London, has not been done in this country for a long time, even though there are no legal restraints on it, so we are looking at a range of sources of finance from people with their own personal savings looking for longer-term, safer, reliable, if not spectacular ways and places to put their money to direct investment from government as well as new and innovative ways of raising funds which can be invested in this kind of long-term and stable infrastructure. We do not just see it being a case, if we are successful, where obviously there should be the returns ultimately to the Treasury through taxes, but we would see that as being only one of a variety of ways in which we would want to see the Green New Deal being funded. Q62 Mark Lazarowicz: On that theme briefly, it has also been suggested by some groups that the Treasury should somehow seek to "green the bank bail-outs", in other words, link the financial support to some of the banks to requiring in some way investment to be directed more to sustainable businesses and less to carbon-intensive businesses. What is your view on that suggestion? Is that feasible, in your view? Mr Simms: I think it is absolutely feasible. One of the biggest challenges we have at the moment is getting money out of the old energy industries, the fossil fuel energy industries, and into the energy industries of the future. We know that there is profound inertia built into the system, there always has been historically, and it takes a jolt to move the system on. If we take the example of RBS which has been one of the biggest fossil fuel-investing banks and obviously their circumstances have changed radically now, we think that the Government now has the opportunity to show leadership. It can set the tone of investment priorities, it can change the tone of investment priorities of the bank and we think that it would be bizarre now, having taken on the risks of a large section of the banking sector, not to see the positive opportunities for using leverage to move us in the right direction, so I would think there is a very profound role for the Government in doing that. Q63 Joan Walley: It is all very interesting, Andrew, and we have heard the response that you have had from different government departments. You have got this vision of Green New Deal, but I do not quite see how the connection is going to be made towards making sure that this vision ties up with the Government's vision and that it can actually get implemented at a both national, international and local level. I just am interested in what the missing connections are that would actually mean that the proposals that you have got in your document could actually become a reality. Mr Simms: Well, I suppose ultimately that would be a question for the Government to answer itself. I do note that there has been something of an upward bidding process about green new deals. At Davos, we know that there was the Prime Minister's contribution in which he spoke about the upcoming Government's Green Industrial Strategy, the details of which are sort of sketchy at the moment, but which appear to include at least some good things, but we note some comments with regard to comparing what we are planning to do as a country with what Barack Obama is planning to do with his Green New Deal in the United States, that we are told that our Green New Deal is going to be bigger than their Green New Deal. I think obviously that, until we actually see some of the detail, we do not know what that is going to look like. All we can do, and I suppose in this case I am really speaking on behalf of the Green New Deal Group rather than the New Economics Foundation that I work for because it was the Green New Deal Group that produced this report, all we can do is put forward a rational policy case and try to make sure that everybody hears and hears it loud and clear and sees that there is an opportunity, an almost unprecedented opportunity in the political sense for a win, win, win. To us, it really is something of a no-brainer that you have a problem of a massive deflationary circumstance coinciding with a very short period of time in which we need to re-engineer a lot of our infrastructure, our energy infrastructure, not to mention a very short period of time in which we need to avert irreversible and potentially catastrophic climate change, and the fact that all these three things come together with a range of solutions which can be mutually self-reinforcing, to us, would seem to be a no-brainer. That said, I am fully aware that the political process is not always a rational policy process and that other things need to fall into place, but I do honestly get the feel that the climate is more strongly in favour of this now than it has been, well, at any other time that I can recall. Q64 Joan Walley: You say that you are waiting to see the details of what is going to be proposed in the Government's rescue package for where we are, but surely it is those very details which will need to have people working on them who are familiar with this whole agenda, so the question then is: has the Treasury and have government departments actually got those skilled, knowledgeable and visionary people with the detailed knowledge to put into practice, as part of the proposals, what is needed? Also, given that the original New Deal was very much about building roads, building bridges, it was very much an economic thing, whereas now it needs to be matched to the environmental agenda, how is that going to come about in the timescale that is needed to actually get it implemented? How are you going to make sure that the environmental boxes are ticked and that they can actually get done, not just as an idea in somebody's head, but in practical measures and in every part of the UK where we are suffering from the recession? Mr Simms: Well, this is my deepest fear, I suppose, and darkest worry that there is, or there appears to be at least, for all the talk of joined-up government and I seem to remember that, when the Labour Party came to power in 1997, shortly afterwards one of the announcements from Gordon Brown himself, as Chancellor of the Exchequer, was that from now on we were going to be entering an era of evidence-based policy, and I did not kind of think for a moment what they were basing it on before, but it is one of my deepest worries that, where the Treasury is concerned, there seems to be almost a cultural animosity towards the mere idea of an environmental agenda. That puts it quite strongly, but the evidence of the last sort of ten years or more does seem to support that, that, where in some other government departments there seems to be an understanding of how things have moved on, an understanding that you can manage an economy in such a way that you can get it to operate within its environmental budget, the language of prudent budgeting is supposed to be synonymous with the Treasury, but that just seems to go out of the window the moment that we start to think about our natural capital and our natural resources, so it is a real worry and I have no illusions about our own sort of power and influence as a group. The Group that produced this is just eight people who produced it with no resources whatsoever other than a very small grant to actually pay for the cost of printing the report, so what we have is the power of an idea and the power of the ability to be able to talk to people. I would say to you that we will carry that as far as we possibly can, but, of all the various projects and initiatives that we have been involved in over the last five, six, seven or eight years, nothing has taken off with the speed, rapidity, depth and spread as this idea. Now, obviously we are quite careful to point out that, even though we drew the historical analogy to the New Deal as being the a period of time in which many things were done very quickly and with quite dramatic effect, we are quite clear that a Green New Deal is not about building roads and dams, but the Green New Deal is about something quite different. We now understand far more about the tolerance thresholds of the environment and how this is actually to do with not just a kind of blanket rebooting of the economy, but actually a re-engineering of the economy to a different way of working. All I can say to you is that it seems to have put the cat among the pigeons so far and we will continue to do so as much as we can and we will use what contacts we have with government to get that message across. Q65 Joan Walley: You suggested that, as fossil fuels become more expensive, it is the cost savings from switching to low-carbon energy use which will fund the repayment of loans made under the Green New Deal. I just really wanted to press you on that because obviously that would, or could, generate savings in years to come, but there will be a requirement to pay back the money that is being borrowed now and invested now in energy efficiency work and low-carbon energy projects. I would just like to ask you how you square that circle? Mr Simms: Obviously, I would just say again that that is not the only way in which we see the Deal being financed, and I would also say that, regardless of what has been happening with the oil price, we do think that the drop in the price will not last for ever, but, even regardless of that, just two oil companies alone have reported yearly profits knocking on the door of £40 billion, so I think the money is out there and I think it is a case much more of political will in designing the system. I think one of the problems we have obviously is the volatility of the oil price and the likelihood is that, over a long-term upward curve, it may bounce around a lot more like this and that is a real problem. It is a real problem in terms of sending the right signals to the new energy sectors as well and getting a stable price signal is one of the most important things that we are going to need to have, but, given the volatility of the markets at the moment, that is a real problem and I would not underestimate it. Q66 Mark
Lazarowicz: You mention in your report, in passing really,
but there is some reference to it, the Civilian Conservation Corps promoted as
part of the New Deal under Mr Simms: I do, yes, yes, I do. With the best will in the world, in the next year or two, there are going to be a lot of people in this country with time on their hands. Even the best-motivated individuals pursuing work in this turbulent time will find that they have periods in which they could be employed in doing things, and I think there is huge potential there. How might one think about it? Well, not very long ago I was walking along just on the other side of the river from the House here and I was walking behind an American couple who were chatting amongst themselves and I overheard a snatch of conversation in which one, pointing at the new bridge that crosses the river in front of the Royal Festival Hall, said to the other, "Look at that bridge! How far does it go?" I sat there, thinking, "Well, I hope it goes to the other side". When we think about what we have to achieve, I think everything comes down to averting runaway climate change because I think that, even in this time of financial crisis, it is useful, and it is also useful for the Treasury, to remember that the economy is a wholly owned subsidiary of the environment ultimately and that a little bit of humility in the face of that is called for. Our most profound challenge is to avert climate change of the nature that will be possibly impossible to control, so we need to get from A to B, we need to get to this position of not going above the two degree temperature rise threshold, so I think, if one were thinking about what a modern-day equivalent of the Civilian Conservation Corps might be, it is about a group of people providing a bridge to the future, so, whether you might call it the 'bridge to the future corps' or something like that, I do not know. Maybe we could have a competition about how we might describe it. Q67 Mark
Lazarowicz: Have you, or anyone else you know, done any
work to look at how that might apply in the Mr Simms: Well, this is the point at which I humbly have to point out that our organisation is not a core-funded organisation and we would be delighted to do a piece of work like that if we found a nice charitable trust which was prepared to fund us to do it. I think it is begging to be done at the moment and, probably given the size, health and diversity of the voluntary sector in this country, I am quite convinced that there will be plenty of organisations out there, and it is not an entirely new or different idea either. I think that, in some senses, some of the work, and it is slightly different, but some of the work that Mikhail Gorbachev did with his Green Cross, for example, there have been suggestions and obviously there are things of this nature which are still the legacy of the Civilian Conservation Corps in the environmental movement, and the voluntary sector in the United States is still there and it is still active and I think that probably, if you spoke to a number of the voluntary organisations in this country, a number of them would say that they are trying to fulfil this kind of function already. However, I think again, as with all of these things, what is needed now is to recalibrate the scale of our action so that it is commensurate with the nature of the problem, and that is much, much bigger than anything that is happening at the moment. Q68 Chairman: Unfortunately, to preserve the integrity of our timetable this morning, that is going to have to be the end of this part of the session. Thank you very much for coming in. Perhaps, if the work you are continuing to do progresses during the period of this inquiry, you might communicate with us again in writing. Mr Simms: I would be delighted to, and I apologise for being here on my own and having to play the role of the generalist, whereas, if I had been able to drag in more of my colleagues, you may have had more detailed responses on some of the questions, but I am very happy to follow up with further information, and I may leave a few things with the Clerk as well, just some follow-up information. Chairman: Thank you very much. Memoranda submitted by the Environmental Industries Commission and the Aldersgate Group
Examination of Witnesses
Witnesses: Mr Adrian Wilkes, Chairman, Environmental Industries Commission; and Mr Peter Young, Chairman, and Mr Ian Dickie, Director, Aldersgate Group, gave evidence. Q69 Chairman: Congratulations on overcoming the terrible hazards this morning! We have half an hour as we have the Minister coming at eleven, so we will have to be quite brisk and disciplined, so I will leave it to you to decide how you want to allocate questions. Do not feel, all three of you, you have got to answer every question from this side. Perhaps, to begin with, you could just give us your impression of how business sees the environmental aspects, such as they were, of the Pre-Budget Report both from the point of view of the environmental industries themselves and perhaps also from the point of view of business as a whole. Mr Wilkes: Firstly, apologies from my
colleague William Averdieck who is stuck in the snows of Mr Young: At Aldersgate, we represent sort of big businesses, like BT, Barratts, United Utilities and Tesco as well as quite strong, deep green movements as well, and it is that common ground that we look at, so our members are particularly the leaders and they are looking for some short-term solutions to the short-term competitive disadvantages of being leaders into the green economy, and really they were underwhelmed in the extreme by this. As Adrian said, some of the trailing does give some hope and hopefully there is a lot more to come and this Low Carbon Industrial Strategy, I think, is absolutely crucial to that, but in terms of the joined-up thinking from government that big business is looking for to give more consistency and more compunction regarding the need to invest and to get early-mover advantage, this was a really mixed message. There is a little bit of acceleration, which is good, there are one or two good ideas in there, but it really is not of the standard which business was looking at for that. It is that systematic shift really to moving the tax approach to non-renewable resources to getting some urgency behind the need to respond to climate change that did not seem to be there. Just to pick up a personal-level example, the equivocal statement regarding the taxation for vehicle duty with respect to delaying the differentiation there, when you have something like that in there, it is a mixed message and we cannot afford a mixed message at the moment. Q70 Colin Challen: This recession is certainly giving in to green investment or talk of green investment. After the recession is over, is it going to be back to business as usual or, if not, to what extent can we expect this to become embedded rather than just a quick-fix kind of political discourse? Mr Wilkes: Well, of course, sadly, the amount of green investment that is coming out of the City's financial institutions over the last six to nine months has been falling off, and I think the level of investment will always be determined by the government policy framework. You have got to remember that environmental issues are essentially a market failure, that no one owns our climate, for instance, therefore, it is quite free to pollute it. We do not have a price on the environment and we do not have a price on our climate rights, so they are not factored into our economic system, so, unless that market failure is addressed, whether that is government regulation in terms of "You must not emit so much carbon" or fiscal policy by putting a tax on carbon, for instance, or putting in place a trading scheme if that is deemed more effective, ultimately you need the government policy framework and, without that, you will not get the investment. That is the underlying reality and I always remember getting that message loud and clear when we organised a meeting with a whole range of City investors ten years ago; it was very clear. Mr Dickie: I would say a few things about the recession in this context. As well as obviously being a source of major social problems, it is also a time of economic restructuring, so the economy is not going to go back to the same anyway. The fact that it is a time of restructuring is also an opportunity, so, when you are restructuring anyway, it is easier to put the changes you want to make in place than when you have already set off on a course of action. In the context of the fiscal stimulus package that the Chancellor has designed, you only get that kind of opportunity to use those resources once at best in an economic cycle and you cannot keep doing that all the time, so, if you use those resources to tackle the economic crisis, it stops you being able to use them to tackle the climate crisis and, as the previous witness was saying, we urgently need to tackle both. Q71 Martin
Horwood: Can I just ask a sort of devil's advocate
question to Mr Wilkes: Well, in certain areas that is certainly the case, but, when you look at the growth projections, basically the whole world does face not just a climate challenge, but there are water and air pollution issues as well all around the world, and they rise up the public's agenda and the politicians' agenda as a result as people get wealthier and care about these things. We have got this $3 trillion worldwide market, as some figures out from the British Government suggest it is currently, and that could well double over the next ten years, so you have got a large chunk and you have got, in many areas, novel technologies that are innovated and coming to market, so the game is still on, absolutely, but that is why it is so important to move, as Peter mentioned, to get the first-mover advantage. Mr Young: I would just like to reinforce that. I think there is a lot more to be had there, but we should also turn and look at where our competitive advantages can come from and there are three things that I would highlight. One, in terms of the renewable side, is that we have got some exceptionally good renewable resources and we must exploit those in a way whereby the jobs are captured within the UK economy and that we look at the whole supply chain and the whole skill base needed to do that rather than come at the opportunity to generate the energy after other countries have already invested in the RD&D to provide and sell us, effectively, a black box that does the trick. I think a second area which is really important for us is to look at our innovation ability and drive that through regulation. There is no doubt about it, as has been said, that the market failures here do need some government intervention and that we should be able to see clear enough regarding the global need to address some of these areas and actually put in sufficient regulations and sufficient activities now to ensure that we create the early markets that people can move into. I think the third area is to not expect to pick single winners, but to recognise that we have to have the ambition to have a whole number of alternative technologies supported and encouraged so that we definitely pick those which make the global markets and we do not find that we have picked the wrong horse. If I give one example of that in carbon capture and storage, carbon capture and storage technology is very, very early on at the moment and we actually have the opportunity and we have the right engineering and science base to demonstrate all the potential runners on that and prove that we were there first, whatever they may be, and probably a number of different technologies will succeed in different parts of the globe. There is a real risk that we will sit there with only one chip on the table and it might not actually be the one that wins the bet and that is a real risk for us in terms of some of those future markets. Q72 Martin Horwood: In terms of resource advantage, you basically mean wind, wave and tidal, do you? Mr Young: Yes, I think those are the principal ones, but I think also we need to look at some of the other things, like we are a very population-dense country, we have a high intensity of infrastructure, so some of the issues around creating a devolved electricity network, effectively an internet for electricity, we are also actually very well-placed for that because we have not got huge distances, like America, for example, where it is not going to be possible to do that over the whole country. Mr Wilkes: May I just add a
supplementary to that because Peter talked about comparative advantage and one
of the things that has disappointed me is that, for several years now, I have
been asking different bits of government, "Have you done studies into where the
UK has comparative advantage?" and, if I could humbly suggest, it would be an
ideal question to throw at the departmental witnesses you have and a friendly
MP taking some questions around this issue to the Treasury, DBERR and
Defra. This sort of thinking in
government, and it reflects what the previous witness mentioned, this
antagonism towards environmental protection and, therefore, indirectly towards
the Q73 Dr
Turner: You have put the £535 million package into
some sort of international context and clearly are fairly unimpressed by its
scale. Having said that, do you think
that there is enough there to make any difference both to environmental
protection and to competitiveness of the Mr Wilkes: Well, last week when we launched
our Green Jobs Growth Strategy, we called for a £10 billion green jobs
investment fund and we were calling for an increase in low-carbon social
housing and energy efficiency combined with increased tax breaks. We have got something called the 'Enhanced
Capital Allowance Scheme' which has been in place for ten years now, but it is
quite narrow in its application and our industry and our members would like to
see that increased from 100 per cent to 150 per cent to provide a real stimulus
to the rest of industry out there, the problem-holders, to employ new
environmental protection technologies.
If we went at it seriously enough, yes, we would have an impact and that
is what is going on around the world. I
was shocked when I heard what Q74 Dr Turner: Am I right in thinking that the sort of money which you think should be spent is going to be to the order of £8-10 billion rather than £1/2 billion? Am I right in thinking that, from what you have said already? Mr Wilkes: Yes, and it is not all going to flow to the environmental industry. We are calling for £6 billion for investing in low-carbon social housing to put the housing workers back. Q75 Dr Turner: You seem to regard environmental industries as having a rather limited scope and you do not seem to show great interest in, for instance, low-carbon energy amongst your industrial group. How would you spend it? If you had £10 billion at your disposal, how would you spend it to greatest effect in saving carbon and providing jobs at the same time? Mr Wilkes: Well, you already have support mechanisms in place to support the renewable energies industry. Q76 Dr Turner: But the renewable energies industry would question the effectiveness of those measures very seriously. Mr Wilkes: Are they calling for big chunks of further public direct investment? Q77 Dr Turner: In a sense, yes. Mr Wilkes: Well, our focus is in the other areas because actually, if you look at what is the cost-effective way of saving carbon, it is to use energy more efficiently, so that is why we are focusing on investments in energy efficiency and investments that combine with the social need to put the house workers back to work and help people in low-income housing. Mr Young: Can I add, from Aldersgate's perspective, on that question just to broaden it. I think it is important not to get too distracted by a definition of where this sort of woolly boundary of the environmental industries is. From a bigger point of view, to answer your question, where money would be well-spent right at the moment, from the Aldersgate point of view, when we produced our Better Regulation for the Sustainable Built Environment, we highlighted the fact that within the existing built environment that is where the biggest immediate opportunities are. If you look at any cost abatement curve, you get a better return for that side, it is construction industry jobs, it actually is something where we have to raise our ambition so that we are not taking the scale that was in the Pre-Budget Report, but probably an order of magnitude bigger, making the availability of support for that much more universal. One of the examples in our Green Foundations 2009 report was Kirklees Borough Council where they actually adopted that approach and got a far higher take-up through that because, for an immediate fiscal and job stimulus, there is an immediate benefit and it actually is improving all of our results going forward in terms of our impact on climate change and reducing costs to households and allowing them as well to be more resilient in difficult economic times, so that would be just one example to answer the question. Until that job is done, the more that can be found to do that, actually the better the return will be, even in the medium term, so perhaps two or three years, that is all it will take to recover that cost. Mr Dickie: If I could quickly go back to something else you said, you said assuming that this money is intelligently used, but, to me, it is not being intelligently used because the changes to the tax system are working in an opposite direction to the green fiscal stimulus, so the two are working at crossed purposes inevitably and not using the resources efficiently. Q78 Joan Walley: You have argued that regulation is a real driver of the stability for the long-term investment for the green environmental technologies and yet, particularly at a time of recession, there is also the case you are arguing that, if you sort out the fiscal stuff, why not sort out the green stuff at the same time, but up and down the country chambers of commerce are saying that they do not like all this regulation and that is a cost to industry. Basically, the question really is, playing devil's advocate: what is the answer to all the businesses up and down the country who are just saying, "We just want to be able to stay afloat and survive this recession"? I am just wondering what your answer is to them, and I am also wondering what interest you have had from the Secretary of State at DBERR and how much he has engaged with you on this agenda that you are putting forward. Mr Wilkes: Well, in reverse order, I
have to commend Lord Mandelson for various speeches he has made over the last
few months about his intent to make, I think I am right in quoting him as
saying, " Mr Young: I would just like to add, from the sort of macroeconomy point of view, looking at the big early-mover companies, again one of the most important things in those chambers of commerce is talking about the supply chains in which many of those companies are involved in providing services, and what we have at the moment is an opportunity to adjust those supply chains towards a much more resource-efficient economy. I will give one example at the moment which is taxing a lot of people, the automotive industry. Now, I have just been talking to a very major business which is looking seriously at the gap between the business case for electrifying a huge fleet of vehicles which ultimately is the only way they are going to decarbonise the transport impacts which is a huge part of what that business does. Now, through the electric vehicle network with top-up places, the design and construction of that, there is a real opportunity to build a whole new supply chain using our extremely strong automotive skills and capabilities. What is necessary is something which, in the short term, bridges that gap so that, for all of those people further down the supply chain who are currently worried about their existing demand dropping off, we will not return back to the same scenario we were in before, but we will return to a different scenario with a different compunction within transport and we have to make sure that we capture the jobs here so that those suppliers and those micro and SMEs that are involved in that business, and there is a huge number, there are thousands and thousands of them, as we are discovering through the Reach Directive, that they are actually aligned to that new market which, as Adrian has said, is where the export potential is for us in the longer term by being actually one of the first countries to be able to develop that approach. We have some companies who are willing to lead on that once they can make the business case and that is where the fiscal support is needed in order to leverage that willingness to take first-mover advantage. Q79 Joan Walley: So you are actually talking about a fiscal case, you are talking about getting presumably something through the Pre-Budget Report which would actually help to meet that gap and bridge this transitional funding so that it does then become long-term competitive. I am just wondering what contact you have got with the Treasury and how you are looking at the detail of all of this with the Treasury and whether or not they are as in favour as you are of the tighter regulations or whether or not there seems to be an attitude that it has been watered down at this time of recession. That then brings me on to the way in which the Treasury is, or is not, in your view, connected with the other departments, so whether or not you have got an ally, for example, with what is being done in DBERR and how DBERR is engaging with you on this. Mr Young: As a former commissioner of the Commission of Environmental Markets and Economic Performance, I think one of the key things that we were saying there that led to the low-carbon economy is that we have to get the government departments working together, and I think you have touched upon the key problem that is still there. Q80 Joan Walley: But are they? Mr Young: No. If we just take those specific recommendations which are in there which, if you go round, you will find civil servants who actually own even now, although it is not known outside, those recommendations and how they are implemented, they are being diced and sliced to such a degree that you have a number of independent initiatives which often actually act against one another. Just one immediate thing at the moment that we are trying to tackle with respect to carbon, we have the Climate Change Act, absolutely excellent, setting long-term targets, exactly the kind of long, loud, legal signal that we were looking for, but the reporting elements of that are being wrestled with by a group of people in Defra within DEC, we have the people who are looking at the carbon reduction commitment and how to design that, which is creating unintended conflicts, and we have within DBERR a group of people looking at how to stimulate the renewables industry largely which is built on how we design that carbon reporting and the various instruments that we have got, like the Carbon Reduction Commitment and the Climate Change Agreement. Just achieving that in one simple area it seems that, as an outsider, our group is having to engage within a number of independent groups and try and get them to understand one another's position, and the Treasury is really just another example of that. I am prepared to be optimistic with respect to the Treasury in the sense that I think they do hear these arguments, but, until we have a higher-level commitment, whether or not it is like we saw historically ten or 20 years ago when the Cabinet Office was sort of feared much more and came on and banged heads together or whether it is actually through some of the new vehicles we have got with the Climate Change Act and the like, I do not know, I do not care, but there has to be some compunction which means that this collective good, if you like, overrides the individual departmental priorities, and I think the Treasury is as affected by that as any other department. Q81 Joan Walley: How much does the decline in prices for energy and raw materials destroy your arguments and undermine your case and, so far as investment in energy efficiency is concerned, will it perhaps not be as rewarding as it might have been? Mr Young: Again, the comment I would make is that it is the difference between those who have some vision and are looking at actually having sustainable business and economic models going forward where this is a really unwelcome distraction, it is causing difficulties. It causes difficulties in discussions with the banks and with the boards, but it can be overcome compared with the shorter-term business outlook where this is completely distracting and merely causing us to delay even further from recognising the ultimate truth which is that we are on a resource-constrained planet, we are in a resource-constrained economy and we are on a pathway where climate change is going to come back and cost us more every year that we delay in taking action. Q82 Chairman:
Mr Wilkes: Just very quickly, just to reiterate the point that environment is market failure, the Government have to intervene one way or another, whether that is through prices or trading schemes or straight regulation, so leaving the environmental investments to a free-floating market price around, eg, energy will not work and it will not leverage in the investment, as we were talking about earlier. Q83 Chairman: Well, I am afraid, we invited the Minister for eleven and I have just been told that she is waiting, so we will have to leave it there. Thank you very much for coming in. There may be one or two more points we would like to put to you in writing which we were not able to cover, so we will write to you, if we may. Mr Wilkes: We will be very pleased to help. Mr Young: Thank you for inviting us. Witnesses: Angela Eagle MP, Exchequer Secretary to the Treasury, Mr Alex Dawtrey, Head, Environment and Transport Tax, and Mr Ben Day, Energy, Environment and Agriculture, HM Treasury, gave evidence. Q84 Chairman: Minister, good morning and thank you very much for coming. As you know, this is an annual event for us. We are grateful to you for coming to see us in this parliamentary way. I do not think we need introductions. We know you and therefore we know who the officials are. Could I start by asking you this? There have been quite a lot of criticisms of the Pre-Budget Report about the fact that the scale of green investment was much too small. We have heard some of that repeated in the evidence we heard this morning. How do you respond to that? Angela Eagle: I think the first thing I would say is that the green fiscal stimulus part of the Pre-Budget Report is only a very small part of the overall plan and approach that the Government is taking in this whole area, so it would be wrong to mix up the £535 million of green stimulus that was in the Pre-Budget Report with the £50 billion that we think is a conservative estimate of future investment we are putting into greening our economy as a whole. I would probably also say that the £535 million is effectively part of the £3 billion of investment brought forward. By definition, that has to be investment that was planned for in the CSR period, brought forward in order to be part of a fiscal stimulus, not extra investment, although there are small amounts of that that are extra, such as £100 million of new funding for Warm Front to do more insulation. Q85 Chairman: We will look at some of the specifics in a moment. We heard last week from Professor Tim Jackson from the Sustainable Development Commission, which is a government watch-dog. He was very outspoken in his criticisms, and he also said that there had been no response from the Treasury to what he had said. Does that mean you do not pay much attention to the work that the SDC does on economic issues? Angela Eagle: No. We do pay attention. I have not seen the evidence that he gave last week but I am quite happy to give you a written response if you want me to respond to it. We are used to people being impatient, I suppose, about progress in these areas, and understandably, given the urgency of the problem, we have to have appropriate responses. I think quite a lot of the approach to this underestimates or discounts the major changes that we are making. We have the basic infrastructure of law in place now with the Climate Change Act; we have changes forthcoming in the Planning and Energy Act; we have the work we are doing with the European Union to meet the targets that have been agreed there, specifically obviously the renewables target, which is extremely challenging, the shift from where we would be without any action, about 5 per cent to 15 per cent of renewables by 2020. The Department for Climate Change (DEC) is doing a series of publications with BERR on some of the implications of that with a forthcoming Strategy for Heat. There is a great deal of work going on. I think sometimes people miss the shifts that are actually being made, not only in legislation but in the way Government is gearing up to make the re-engineering of our economy, which we clearly need to tackle - the threat of uncontrollable climate change. I suppose I would be rather worried if there was not impatience and outspoken criticism of the Government from this sector. That is partially why they are there, but I think it is slightly unfair to discount some of the changes we have made already and the plans already in train. Q86 Chairman: I do no think you need have any anxiety about the impatience or criticisms. Angela Eagle: I understand it. Q87 Chairman: You mentioned the £535 million package and I think you said that £100 million of that was new money. Is that right? Angela Eagle: That is right; that was the new funding for Warm Front. We brought £50 million of extra funding forwards but we included £100 million of new funding for the insulation and improved energy efficiency in houses. Q88 Chairman: Part of that package was to pay for 200 new rail carriages. Do you know where they are going to be manufactured? Angela Eagle: That is still in procurement and so it would be quite wrong of me to speculate on that, but I can tell you that the contracts are due to be awarded by April. With a little bit of patience, we will all be able to see in due course. Q89 Chairman: Should we find that it was not possible for them to be manufactured
in Angela Eagle: I accept that argument but I have to be very careful as a Minister for Procurement not to make it look like we have a view ahead of the procurement contract itself as to who is going to win the business. It has to be won in a competitive environment, but I hear what you say. Q90 Chairman: It will not be a case of British jobs for British workers? Angela Eagle: I think that you will have to wait and see what happens with the contract. I am not going to rise to that kind of provocation, Mr Chairman. Q91 Chairman: Quite a bit of the £535 million is capital spending, which has just been shifted from future years forward a bit. What is going to happen after the earlier years? Does that mean we are going to have a collapse in capital spending? Angela Eagle: By definition, that is money that has been shifted forward from already allocated monies from the Comprehensive Spending Review, which was announced prior to the economic circumstances we now find ourselves in. I think if you look at some of the latest developments you will see that there was extra money allocated that was unallocated at Comprehensive Spending Review time; for example, the £1 billion of loans to the automotive industry to fund investment in fuel-efficient vehicles, which is entirely new; and the £250 million package for ultra low carbon vehicles, which the Department for Transport announced as part of what I know is controversial and perhaps more so in this Committee, the Heathrow expansion. Q92 Chairman: We will come back to that as well. Angela Eagle: I am sure you will. Q93 Chairman: Are you anxious at all about the financial difficulties in PFI schemes, that that might have an impact on environmental programmes; for example, on recycling programmes? Angela Eagle: Clearly, we are in the circumstances of the credit crunch where conditions in the financial sector are not what they were. There are difficulties in world financial markets, but the Treasury is working closely with departments and contracting authorities to ensure that those projects which are in procurement at the moment can reach financial closure. We are keeping a very close eye on it. I can say that certainly in waste, with the investment we have made already at CSR, we will meet our 2010 target. We have 14 projects on waste and recycling delivered already; there are 13 more in procurement, and obviously we are working closely with the relevant departments and areas to ensure that we can bring those to an effective close. Q94 Chairman: The PBR referred to the investment of £50 billion in the low carbon economy. In fact, you have mentioned that yourself earlier this morning. Is that just a summary of ongoing programmes or does it include some new investment? Angela Eagle: It is a summary of some ongoing programmes, but it is also
interesting what it does not include. We
actually think it is quite a conservative estimate of the investment we will
see going forwards to transform our economy.
For example, it does not include the value of EU ETS allowances or
R&D tax credits for low carbon technologies; it does not include any
investment in the gas distribution grid, enterprise investment schemes, venture
capital trusts or the Q95 Colin Challen: Lord Stern has recently suggested that the percentage of GDP spent on tackling climate change should be 2 per cent. Does the Treasury accept that figure and would that be new money? Angela Eagle: I think that we are in a circumstance which changes constantly here as the science shifts. We have certainly accepted Lord Stern's analysis in his report. Obviously, we are understanding the science more. We have just recently I think come to realise that we need larger cuts in greenhouse gas emissions than were originally in play when Lord Stern wrote his report than we thought we did, which is why we have increased our target to 80 per cent, and the Climate Change Commission has just reported on how we should be dealing with that. So clearly this is a rolling analysis, and we have to look to see, as progress goes on, whether the percentages of GDP go up. I am not going to sit here and say Lord Stern is wrong at all. I think it is important that we take action as timely as possible. The more we spend now, the cheaper it will be in terms of GDP allocated, and we will know also that we have to get international agreement in order to make that a reality in terms of preventing catastrophic climate change, simply because we are only 2 per cent of the world's emissions. So we have to get international agreement. I think all of us agree that doing nothing is the far more expensive option. Q96 Colin Challen: If we did accept the 2 per cent figure and we did accept it was new money, which is worth between £26 billion and £30 billion a year at the moment, how long would it take us to ramp up to that level of effort? Angela Eagle: Obviously, it takes an amount of time by definition to ramp up, as you put it. If we take, for example, the issues around renewables and the shift we have to make into renewables energy, if you look at the Bowers analysis, which was published late last year, it is a great stretch for us to make 15 per cent by 2020. As we have all said before, and I think the Climate Change Committee has confirmed, the more investment we make now, the cheaper it is in the long run. We can ramp up but there are practical constraints. Since we are such a small percentage of current world carbon emissions, we also have to remember that we have to get agreement and use credits elsewhere to try and help other countries also reduce their emissions. In the end, it is overall global carbon emissions that matter. The ones we produce are important but that is not the only solution to the problem. Q97 Dr Turner: You have given a £2.3 billion loan package to car manufacturers. Will this act as a green stimulus, do you think? Will it do anything to promote the production of greener cars? Angela Eagle: The extra £1 billion that was announced by the Business Secretary
is specifically for encouraging investment in low carbon technologies and
speeding them along. In fact one of the
ways of assessing whether these loans should be given is not only that they
should offer value for taxpayers' money but they should also enable Q98 Dr Turner: Can you tell us how those loans are structured? Is the Government actually lending like a bank or is it underwriting loans? Angela Eagle: You will have to discuss the work on the detail of that with BERR because that is the department that is putting together the process to deliver these loans. I know that they are in contact with the European Union as well to get the appropriate approvals on state aid grounds. I suspect that you will probably have to ask them the details of precisely how it is going to work but I know that they are working on all of those details now. Q99 Dr Turner: Over what sort of timescale? Angela Eagle: As quickly as possible, clearly. I know that they are trying to get the European Union permission to have a look on state aid grounds and give its approval as quickly as possible. 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 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 that you have earlier said that the Government has changed the response and now has an 80 per cent 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 reflect 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 Angela Eagle: I do not know whether I have the exact numbers of jobs in the 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 recap 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. Q109 Mark
Lazarowicz: I have some questions about 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. 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. 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 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. 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 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 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 per cent 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. Q120 Martin Horwood: Is that not a completely self-defeating strategy because if you use a discount rate and a shadow price for carbon which assumes everything is going to succeed, thereby you give yourself permission to do the very things that will actually undermine it? Angela Eagle: You have to look at the overall cost of emissions and mitigating emissions overall in a global context. I do not think there would be much support for work to deal with climate change if we said that particular sectors somehow could not change or expand. Clearly, the overall level of emissions is what is important. I think that if you look at global emissions, you have to look at all sectors together and not particularly say that you cannot have any expansion in airport capacity or aviation going into the future. Q121 Martin Horwood: I was not thinking about aviation at all. Are you going to use this shadow price of carbon for all sectors? Angela Eagle: The shadow price for carbon is what is used for policy appraisal across government. The Stern analysis was about imagining a scenario and trying to cost in a business-as-usual, no mitigation scenario. That is why there is a difference between them, Q122 Martin Horwood: He was recommending a methodology, was he not, for us to use in policy? That was the whole point of the analysis. Angela Eagle: He had a methodology in which he was trying to price the cost of no action and then price the cost of mitigation to demonstrate, I think, that the price of doing nothing is greater than the price of taking action in terms of costs of GDP, as Mr Challen was talking about earlier, if we take action now. His analysis enabled us to come to the conclusion that the faster and the sooner we take action, the cheaper it would be. I know there was again controversy about how we calculated this cost of carbon but he justified his methodology in the piece of work he did. Martin Horwood: It was controversial amongst traditional economists because it took a long-term view. Q123 Joan Walley: Given that exchange, may I ask what steps you have taken as Exchequer Secretary to the Treasury to satisfy yourself that the Treasury guidance which relates to this, and which relates to the economic impact assessments that have been carried out, are actually fit for purpose and take account of the environmental imperatives that are subsequent to the 2003 Aviation Transport Paper and come about as a result of the Stern Report and the Government's response to it? Angela Eagle: These are very technical issues as indeed are --- Q124 Joan Walley: They are technical but they matter. Angela Eagle: I understand that they matter. I met regularly with Lord Stern to talk about how we proceed in this entire environment. I am satisfied that we have the approach right, but clearly we are in a circumstance where times are changing quickly and analyses may have to shift too, especially as the requirement for even more carbon abatement gets stronger and stronger. Q125 Joan Walley: It is too late now, is it not, because the Government has already made the decision on Heathrow? Angela Eagle: The Government clearly has made the decision on Heathrow that is obviously controversial and of which some people do not approve. Again, I am not one of those who thinks that the battle against climate change means that we should artificially restrict air travel. We need to ensure that we develop better, greener aircraft. I think that part of the answer to this would hopefully be a worldwide agreement of the EU ETS type for aviation, which would mean that we could cap global aviation emissions. I am extremely happy that we have managed to negotiate aviation as a sector into the EU Emissions Trading Scheme, and I think that approach is the one that we probably --- Q126 Joan Walley: My question is about the Treasury guidance. Angela Eagle: All right. I am satisfied that the Treasury guidance is fit for the purpose that it was intended but, as with all of these things, we keep it under review. Q127 Martin Horwood: May I ask one last supplementary on this theme, since we are on it. Based on your discussions that you have just said you had with Lord Stern, if we invited him back here to ask him whether he agrees with your use of the discount rate so much higher than the one he recommended, do you think he would say you were right or wrong? Angela Eagle: You would have to ask him. I am not going to second-guess what Lord Stern may wish to say to you about these things. Q128 Martin Horwood: Can I move on to green taxation? The basket of broadly defined green taxes as a percentage of tax in 1999 was about 9.7 per cent. In 2007 that had fallen overall to 7.4 per cent, almost consistently fallen each year. If you look at it as a percentage of GDP, in 2007 it was only 2.7 per cent, which is the equal lowest figure since 1993. There was an original policy statement I think to try to shift the burden of taxation away from 'goods' such as employment to 'bads' such as pollution. Is that strategy abandoned now? Angela Eagle: We have our green taxes still in place doing that job. I think that the decline that you are talking about is almost completely due to the fact that we have not kept the fuel escalator that was in place when the previous government left office in place in terms of fuel duty. I think it is important with respect to that that we balance costs and practicalities as rising petrol prices, as we saw last year for example, do cause hardship. We have to balance that out. I think you will find that the difference in those percentages is caused by the fuel duty policy. Q129 Martin Horwood: I think there were other contributors. Air passenger duty was one; a freeze in the climate change levy rates was another. Is it still government policy to increase that percentage again? Are you committed to reversing that downward trend? Angela Eagle: The important thing about green taxes is that they help us change behaviour. It is not always the most important aspect of green taxation that we have large amounts of money coming into the Treasury coffers from green taxes. Some of the best green taxes work when they change behaviour to such an extent that you do not get income from them. So there is a paradoxical element here. When you are trying to shift behaviour so people do not pollute, so people recycle and they change their behaviour in that way, if you tax the bad behaviour and they change their behaviour, your revenues from those taxes by definition go down. It is not always the best way of looking at whether you are making progress in these issues to look at the income that you are getting from green taxation. I suppose that is what I am saying to you. Q130 Martin Horwood: We are not talking about the absolute income. We are talking about the proportion of taxation that comes from this kind of taxation as opposed to the kinds of things that tax jobs like National Insurance. It was your Government's commitment in 1997 to shift that burden more towards things like green taxation. I am just trying to tease out whether that policy still stands. Angela Eagle: As I say, I think the reasons for the decline have been pragmatic ones. You are arguing essentially that we should have kept the fuel escalator. If we had done that, then I think your constituents might have had something to say about it. You have to ensure that when you are taxing things like fuel, which people do need to get about their daily business, that you take a sensitive approach to that. I think you have to remember as well that there are other ways of ensuring that transport can be greened rather than just fuel duty. These things shift around. Q131 Martin Horwood: I was not particularly identifying one green tax, but if we shift forward then to the Pre-Budget Report, is your impression that the overall package of tax measures will shift that burden again towards green taxation or not? Angela Eagle: The way that we define green taxation in the Treasury is by things like the Climate Change Levy where we actually recycle the income. We have changed behaviour that way. I suppose you could say that we could make major structural changes to taxation, which would be very much larger than the changes we have made - for example, the way the Liberal Democrats say they can shift to green taxes away from income taxes. It has not been the Government's view that we should shift our structure to that extent. You can take radical or pragmatic approaches to this. We have taken a pragmatic approach. Q132 Martin Horwood: I think the radical approach might turn out to be more pragmatic than your approach. Angela Eagle: Time will tell. Q133 Joan Walley: Could I turn to air passenger duty and ask why, when the 2008 budget said that the replacement of air passenger duty with a duty payable per plane would send "better environmental signals and ensure that aviation duty better reflects environmental costs" that has been scrapped in favour of a charge per plane? Angela Eagle: We did an extensive consultation about the announcements that we made and we also did analysis about the extra carbon that it would save. It was marginal and there were significant difficulties with freight and the potential effects on regional airports of the shift, particularly since we could not do it in a European context, There were potential problems as well of losing particularly freight but not only, sometimes hubbed passengers as well, to other European Union airports. There were some issues around that that gave us pause for thought. Given then the shift in the economic cycle and the approaching economic downturn, we felt that it was better to improve the environmental signal of the existing tax, the APD, and maintain as far as we could a stable environment for the aviation industry in the economic circumstances we were in. Our view was also assisted by the welcome agreement for aviation to go into EU ETS by 2012. Q134 Joan Walley: As for the detail of that, as I understand it, the rate for short haul economy flights to APD in 1997 was £10 but under the new rates that have come in it would be £12 in 2010/2011. I wonder how what effectively is a reduction helps change behaviour, given the importance that you attached earlier on to green taxes changing behaviour. Angela Eagle: I think that the changes were to introduce two new bands and to have them based on distance travelled as the best proxy that we can get for environmental attempts. If you look at the changes to the costs of the more long haul flights, you will see that is where the tax is. If you are saying that you want us to prevent domestic flights happening, then the changes in APD would have been much greater for short haul rather than long haul flights, but we have chosen to set the rate as a proxy for distance travelled and emissions in that sense, rather than say people should not use short haul flights. Q135 Joan Walley: That is very much a decision that is linked with a long-term transport infrastructure planning in respect of rail and so on. We had evidence earlier from the Campaign for Better Transport and the Director, Stephen Joseph, indicated that he had written to the Chancellor urging him to open talks with President Obama on revising the Chicago Convention so that governments could tax international flights in terms of fuel. I am curious to know whether or not the Chancellor will be doing this. Angela Eagle: We have certainly been pushing as the Q136 Chairman: The collapse in the oil price of course is a particularly good moment to try to raise this issue. Angela Eagle: Yes. We are aware of that. Q137 Chairman: Can we go back to vehicle excise duty? The Pre-Budget Report greatly watered down some quite bold proposals that were announced in the budget last year. Why was that? Angela Eagle: We have not changed the structure of the way that VED is being restructured at all. We will still have first year allowances or rates. I think that we felt, given where we were with the economic downturn and the price of petrol as was then, that we had to ease this change in perhaps over a longer period of time than we had originally wished to do. Q138 Chairman: Let us just separate new cars from second-hand cars here. First of all on new cars where there is clearly a collapse in sales currently that has been emerging in the last three months or so, are you going to lose your nerve on new cars as well? We have the budget watering down the proposals for new cars and VED? Angela Eagle: My best response to you on that is to say that it is not my job to come here and speculate about what is going to be in the budget. Q139 Chairman: Go on, do it? Angela Eagle: It might get me into some difficulties. Q140 Chairman: Not with the Committee. Angela Eagle: Not with the Committee, no, that is true. I think that we have demonstrated in the way we have restructured VED in both of those ways that we wish people to take account of the emissions of the cars they may buy, so that we wish people to buy more fuel‑efficient, lower emitting cars. Despite our staggering these changes over a longer period of time, of which I know the Committee will disapprove, all I would say in mitigation to you is that we have kept the structure. Q141 Chairman: A majority of the Committee warmly welcomed the fact that the budget last year recognised that most car purchases are actually not new cars but second-hand cars. What those proposals do is quote real incentives for people to choose more fuel-efficient models within any particular category. Given that that has now been substantially taken back and largely removed from the proposals, what do you think is going to encourage the purchaser of a second-hand car now to choose a fuel-efficient model? Angela Eagle: I think that is slightly unfair. We will still move to the 14 new bands and, over time, that will create a circumstance to make bigger differences between those bands with more advance notice, so that we do not get into the circumstances that we were in. I thought at one stage last year that the Committee were probably the only friends I had in the world. I now see that I have alienated you, too. This is just the way things go. The important thing is that we have kept the environmental-based structures of these taxes and we will have an instrument going forward to ensure that we can signal to those in the second-hand market, with plenty of advance notice, as well as those buying new cars that we really do want you to think about the emissions of the cars that you put on the road. Q142 Chairman: It sounds as bit as though you are hoping for the emergence of a bolder and greener government after the inconvenient matter of a general election has taken place. Angela Eagle: That would be putting terrible words in my mouth and I could not
disagree with you more from that point of view, Mr Chairman. I think you also need to remember that in
parallel, as you know, to this process of changing the VED structures, we are
also in a circumstance where EU regulations will mandate, over time, the
continuing improvement of the emissions of cars. I know that you will have read in great
detail the King Report that came out with the budget last year, which also maps
out the likely approach that we can take to encourage the emergence of entirely
new engine technologies. I hope that,
even though you will have noted the Heathrow decision with disapproval, you
will have noted the £250,000 million of new money allocated to encourage the
emergence in the Q143 Chairman: You mention the EU. Such is the power of the south German motor industry that those proposals for mandatory improvements have again themselves have been greatly watered down. Do we take what you say as an assurance that the British Government will be fighting very hard within the EU for much tougher standards to be introduced faster than the Germans currently want? Angela Eagle: Clearly in an EU context one has to get a qualified majority of the Environment Council to come to an agreement and therefore one has to build appropriate alliances to do that. You have rightly noticed that there are various vested interests around that have an opinion on these things. I think you will also have noticed that car manufacture is having to look to government all across the world for assistance in the current climate. That means that we can begin to mandate much faster, I hope, technological shifts in this area than perhaps would have happened naturally and without the circumstances in which we find ourselves. I am quite optimistic that we can make good progress in this area at EU level and also in our home-grown industry. Chairman: Certainly this Committee will be fascinated to see the detail of how the package of help for the motor industry is actually worked out because there is clearly an option there to use that to accelerate a switch to greener vehicles. Q144 Mr Chaytor: Minister, does the Treasury have a view on the oil price over the next three years? Angela Eagle: We do not forecast the oil price. We look at independent forecasts of the oil price to help inform our decisions. Q145 Mr Chaytor: What do these independent forecasts of oil prices tell you at the moment? Angela Eagle: We certainly would not have a view either way on what should be happening to the oil price. If you are asking me what my view of what the oil price will be in the next couple of years, I do not think it is useful for me to speculate. Q146 Mr Chaytor: Do you accept the view of the International Energy Agency in their report of late last year which predicted a major global fossil fuel price problem in 2012? Angela Eagle: It is clearly the case that as the global economy expanded, there were pressures on what is obviously a finite fuel, and that is why we saw the oil price spike that caused such hardship in the middle of last year. It is also clearly sensible that developed economies should be looking to see how they can replace those energy supplies as finite fossil fuels approach the end of their supply. I do not think I want to go into any greater detail than that. Q147 Mr Chaytor: Minister, I think we want you to go into greater detail because that is why you are here. Angela Eagle: Treasury Ministers pontificating about the price of oil is not usually a very sensible place for me to be. Q148 Mr Chaytor: I am asking you what the Treasury as an institution thinks about this and does the Treasury accept that there will come a point in the not too distant future when we reach what is commonly called peak oil? Are you preparing for this and if so, why are you not more up-front about the evidence of peak oil? Angela Eagle: I think that there are different views about when peak oil is going to arrive. Q149 Mr Chaytor: What is the Treasury's view about when it will arrive? Angela Eagle: The Treasury's view of when it will arrive can be shifted by sudden
new oil finds that happen that nobody assumed would happen. It is also important to realise that there
are technologies which mean that oil that would not have been extracted in
certain circumstances can be economic to extract if the price goes up. The price spike for example last year in
petrol made a range of deposits in the Q150 Mr Chaytor: In terms of the public rhetoric of the Treasury and the way the Treasury tends to project policies to the general public in budgets and pre-budget reports, is it not true to say that there is still an assumption that cheap energy will stay for ever and that cheap energy should be the goal of public policy? Indeed, this is what you have down with the fuel duty issue in the Pre-Budget Report because the VAT cut will make a nil effect and you have projected that as something positive. Is there not a problem for the Treasury in the fact that you are not prepared to engage the public as a whole in the reality of rising fossil fuel prices? Angela Eagle: The important thing that the Treasury needs to do is ensure that there is a diversified enough energy supply going forward to make it possible for our economy to work and develop. I think we have been neutral about whether that was fossil fuels or any other kind of energy but clearly, given the challenges that we are facing with respect to climate change, we need to develop energy generation in places that would, in the past, have been regarded as economically inefficient because they were too expensive to develop, such as wind and wave. There will be a range of new issues and problems that come with having a grid supplied by that, not least the intermittent nature of that kind of energy supply. There is a range of issues about that that the Treasury is very engaged with. Clearly, if fossil fuels are used, we have to mitigate the climate change effects, the carbon emissions effects, of that, which is why we made the announcements we made on carbon capture and storage. Q151 Mr Chaytor: If I can bring you back to fuel duty policy, the budget last year in the commentary is claiming as a virtue that by 2010/11 fuel duty rates will still be 11 per cent lower than they were in 1999. If the Government wants to embark on a Dutch auction of the fuel duty with the Opposition, that is not consistent with a policy that is trying to inform the public about the imminence of a fossil fuel crisis, is it? Angela Eagle: I do not think it is the Treasury's role to inform the public about the imminence of the fossil fuel crisis. I think we have a general issue to debate these things in democracies. We also have to ensure that in our taxation policy we do not get to the stage where we prevent people, via the costs of travel, being able to get to work and perform as economic actors. I think it is always a balance. We try to put forward these observations in a neutral way. I would not say that we were boasting about the cost of fuel being 11 per cent cheaper in real terms. I think on those kinds of figures, you also have to remember that because engines are more efficient, people will travel far more miles with the fuel that they put in their car than they used to. There are gains in efficiency as well as changes in price that are accounted for in some of those calculations. Q152 Mr Chaytor: Can I come back to the Treasury's role as an institution. We are now told that nobody in the Treasury could have foreseen the impact of weak regulation of the financial services industry and no-one in the Treasury foresaw the impact of the American sub‑prime crisis on the British economy. Is there not a danger that because the Treasury has not grappled more with issues of peak oil, we might get to 2012, find ourselves in this oil and gas price crisis that the IEA predicted, and the Treasury deciding that it did not see it coming? Angela Eagle: I do not think we have a crystal ball and I do not think our role is to produce reports about what might happen. We have structures where we look at threats to stability. We have structures where we look at the way that the economy can demonstrate resilience in particular scenarios, but we do not see it as our role, I do not think, other than looking at academic treatises and analyses of the kind that you have quoted, to take account of that in our policy making but not to have some kind of national running commentary about it in our budget reports. Q153 Mr Chaytor: Minister, would you accept that this may well be part of a major problem for government and the country because, in terms of influencing the perceptions of business, for example the Stern Report was very powerful in winning the economic argument, but in terms of influencing the perception of 20 million motorists or 15 million tabloid newspaper readers, then there has been a complete absence of success? This is a problem for government and you and the Treasury are part of this. The question is: should the Treasury not be more proactive in triggering a national debate, not only about climate change but also about the evidence of peak oil? Angela Eagle: There may well be people in the Treasury who think an expansion of our already broad remit would be a desirable thing. I am certainly happy to take it away and think about it. We do a lot of this kind of work in the conferences we have, in the reports that we produce, and you have mentioned the Stern Report as one example of that. But I am not sure it is the role of the Treasury alone to analyse this and have a debate with the 15 million readers of tabloid newspapers. That is something that the whole of our political structure needs to do. I am not sure it is particularly a Treasury core function. Q154 Mr Chaytor: Would you accept that if it is the responsibility of the whole of the political structure, then their efforts so far have been a complete failure? Angela Eagle: I think that we have to have a far more grown up, sensible discourse in our political structures about some of the major structural challenges that we will face in the future than perhaps we have managed in the past. I like to think that rather dry technical economic treatises like the Stern Report inform that but the way that it then gets out and diffused into the debates that we have in wider society is not only a matter for the Treasury; it is a matter for the whole of our civil society. Q155 Mark Lazarowicz: I have one very specific question. Some groups have suggested that the financial support given by the Treasury to banks, particularly in terms of taking equity holdings, should be linked in some way to encouraging a sustainable approach by those banks to the way they provide support for business members, encouraging a more sustainable business rather than a carbon-intensive business. What is your view on that suggestion? Angela Eagle: We took the action we did first of all to stabilise the banks to prevent them from collapsing. We have taken subsequent action to try to unfreeze the credit markets and ensure that credit flows to business that needs it. I think it would have been quite difficult to say, "But we only want credit to flow to businesses that we approve of" in that sense. We know that part of the results of the work we have done in trying to unfreeze credit will be to support those businesses, but I am not sure that we could have got ourselves into a circumstance where we were somehow saying to banks, "But you cannot lend to those that are not green enough". Q156 Mark Lazarowicz: I do not think we are saying that you should give that kind of specific direction but can you not, for example, say to the people who are UK FI appointed to look at a bank's board that one of your objectives should be to try to ensure as far as possible a green approach to the investment policies of a bank? Is that not quite sensible, given the long-term trends in the economy? Angela Eagle: Once we have got ourselves into a position where we have stabilised the banks and got lending working again, we will be in a position to look to see during our stewardship of these institutions whether there are any other parameters that we might wish to put before them. I think at the moment the important thing is that we end up with a financial system where credit is flowing again, and that is the overriding aim of the work we have done. I am not saying absolutely not in the future but at the moment we have to be able to ensure that credit begins to flow again to all business so that we can try to deal with and mitigate some of the effects on the real economy that have been caused by the global credit crunch. Chairman: Thank you very much indeed, Minister. We have covered a reasonable amount of ground this morning and we are very grateful to you for coming. |