So far, generating electricity from coal has failed the environmental test because of its carbon emissions, but clean coal offers a number of strategic advantages, including the ability to ensure sustainable and competitively priced electricity and to offset security issues and the cost of importing from volatile countries in the middle east and Russia, which is key. In the past, when I challenged Ministers who said that they were more than comfortable with our arrangements with overseas suppliers, they pointed me to the fact that we have imported a vast amount of our food over the past 50 years and we have certainly never been too concerned about that. The arrangement has worked very well, but it is important
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to recognise that that has been during a period in which food production has been on an enormous scale and food has been plentiful. The situation may change the second we reach a position where we are short of food.
Russia decided last year not to export a single grain of wheat. That had an enormous impact on global wheat prices overnight. I can see us in a situation in which a very similar thing happens to energy. We all remember images on the news of French lamb farmers blockading their ports and stopping imports of British lamb. Such images stick with me. Can we really depend on our neighbours when we are up against the wall? Will they look after their own taxpayers and can they look after British taxpayers at the same time? That makes me very nervous. Such situations make me think that we should ensure that we are on a secure footing and that we have enough energy in the UK to supply ourselves.
Mr David Hamilton: The hon. Gentleman does not need to turn to food for an example, because only a few years ago the Russians turned the gas off to the country next to them, and prices spiked right after. If that happened over a long time and more countries did it, it would really harm our energy requirements.
Mr Spencer: I thank the hon. Gentleman for that intervention because he makes a pertinent point. The other areas with which we are dealing, for example those in the middle east, are not as politically stable as they could be. We can easily foresee circumstances in which our ability to source energy from those parts of the world is compromised by political upheavals similar to those happening now. That could leave us exposed. I hope that we can find a way of securing our energy. We must meet rising electricity demand and smooth the less predictable output from renewables. We need to foster and promote a high-growth, low-carbon economy.
I shall now address the point raised by the hon. Member for Blackley and Broughton (Graham Stringer) on wind power and explain why I feel that wind power is not adequate to support our needs. Fitting clean coal technology to the UK’s 16 power plants would cost an estimated £6 billion. In comparison, 2,000 wind turbines will be put up in the UK over the next six years at a cost of £9 billion. The Government’s renewable energy policy is currently over-dependent on wind energy. That imbalance is largely the result of the renewables obligation, which provides no clear boundary as regards the merits of various renewable technologies, so the cheapest option in terms of start-up costs—wind power—has been pursued, irrespective of its failures on grounds of unreliability and secure energy.
The dangers of over-relying on wind power were demonstrated in Ireland on 4 December 2003, when the electricity regulator had to take emergency measures to reduce the amount of wind power on the Irish electric grid following major concerns about the security and stability of the power system. Simply because the wind blew too hard, too much power was being generated, so pretty quick action had to be taken to resolve it.
In contrast, Demark has the most intense concentration of wind generation in Europe. At peak output, Danish wind farms can account for nearly 64% of Danish peak
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power demand. That rarely occurs, but it does happen on occasion. Last year, Danish carbon emissions rose, because the Danish grid fell back on older fossil fuel generation to plug the gap left by underperforming wind farms. Danish power stations used 50% more coal than in 2005 to cover wind’s failings and wind turbines generated 21.7% of electricity, which is down from 29.4% in 2005. To put it in simple terms, when the wind does not blow, the turbines do not move and the power is not there. As the Danes have to have a stopgap base load, they use coal. Ironically, during that period the use of fossil fuels rose, which demonstrates the frustrations with the system that we are pursuing.
Graham Stringer: I agree with the hon. Gentleman completely, but the situation is actually worse in Denmark. The Danes have stopped investing in wind, because it is too expensive and destabilises the grid. When the wind is blowing, they are effectively subsidising energy in Germany and surrounding countries. They have made a terrible mistake and it would be a great pity if this country carried on subsidising wind farms—quite frankly, it would be insane given the economic state we are in.
Mr Spencer: I thank the hon. Gentleman for that intervention. The irony of the situation is that the German energy the Danish are reliant on is often produced with brown Czech coal, which is worse in terms of carbon emissions than UK coal. It does not make much sense at all.
I am conscious that I am taking up quite a lot of time, and I know that other Members wish to speak, so I will try to conclude as quickly as possible. If we look at the international competition, it is clear that we need to step up and ensure that we keep up with, if not stay in front of, the competition in terms of producing clean coal technology. In 2009, the Australian Government produced a White Paper entitled “Securing Australia’s Energy Future”, which backed the use of clean coal technology with coal from indigenous reserves, and UK climate change economist Sir Nicholas Stern recently told an Australian audience:
“I think Australia will be at the forefront of that technology”.
In the US, coal production is at full capacity. In 2005, 951 million tonnes were produced from indigenous reserves for energy supplies and for industrial use in steel and associated industries. President Obama said:
“We need to act now and make the US a leader in putting in place the incentives that ensure developing countries also embrace clean coal.”
The EU is also adopting a positive attitude towards clean coal technology, with President Jose Manuel Barroso stressing to an audience in February 2007 the need for
“an acceleration of the commercial use of clean coal”.
The UK must demonstrate a firm commitment to clean coal technology if it wishes to influence the behaviour of other nations, such as China and India, where rising C02 emissions from fossil fuels will otherwise dwarf any savings made in the UK. By 2020, China’s consumption of electricity is forecast to increase sixfold and to be 30 times that of the UK.
What is the Government’s role? Ensuring our energy security currently appears to involve laying cables under the channel, and I am concerned about how secure such an arrangement is. I can see how it could work in the
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short to medium term, when energy is in plentiful supply, but, as I said, I do not think French taxpayers would like their country to move to a three-day week to keep the lights on in southern England. As I said, comparisons are made with the food supply, and it is difficult to understand why we are exposing ourselves to the issues involved, when we could do better.
The Government have said that we will continue public sector investment in carbon capture and storage technology for four coal-fired power stations, but the criticism levelled at us is that we have thus far completed only the first of those four. We really need to speed up and get on with things.
In conclusion, I hope the Minister can lay some of my concerns to rest. We must keep the lights on; it is fundamental that we keep the electricity coming to this nation of ours. All the issues that we fall out about in this place will become insignificant if there is no power. Wind turbines may be of assistance, and offshore wind certainly has a role to play, albeit a small one, but I am concerned about how dependable such turbines are. Fundamentally, the base load must come from nuclear or coal, but the nuclear power stations we need to build will not be on stream in time. We are behind the game, and we need to act now to catch up and secure Britain’s energy supply, if we are to keep the economy running and the lights on.
3.13 pm
Mr David Hamilton (Midlothian) (Lab): I did not intend to speak in the debate, because I did not think I would be here, but another meeting was cancelled. I have nothing much in the way of technical details to add to the 40-odd minute speech by the hon. Member for Sherwood (Mr Spencer), so I will not try.
Many people would assume that I naturally support coal because I am an ex-miner, but there is much more to it than that. I was in the pits for 20 years, although there is not a single pit left in Scotland. We now deal with open-cast mining in Scotland, and there are still one or two pits in England and southern Wales.
If we drive the market through carbon capture, that will give deep mining in the UK long-term security. We do not want to talk about carbon capture and then import all the coal that feeds the power stations. There is therefore an issue about creating employment opportunities in the UK and beginning to develop a strategy for developing our coalfields, which have millions of tonnes of coal. We are fortunate that we have more coal reserves than anywhere else in Europe. That is an important issue, which we must address.
My view is quite specific. Four or five years ago, I changed my opinion about something that had been close to my heart all my life. Until then, I had been anti-nuclear all my life, but I began to realise that this country’s security of supply is far more important than any view that I might or might not have about nuclear energy. When it comes to this country’s energy requirements, everything should be on the table. That is an important issue, which we have to address. This is not a matter of one thing or the other.
I accept the point about wind power and all the problems with it, and I agree with many of the points made by the hon. Gentleman and my hon. Friend the Member for Blackley and Broughton (Graham Stringer). However, we need a big mixture, although the base load
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must come from a few sources. We cannot rely on Russia for fuel, and we should not rely on the middle east, because the supplies can be stopped at any time. Every week in Parliament, we debate the middle east, and things there could blow up at any time; our energy supplies could be cut off at any time, which would mean another price spike.
China is the engine house of the world. Although it was going through a difficult time, it is coming back. That means that we will have to compete with it when it starts to make gains in terms of power. When it buys the power, we will have to pay astronomical prices, because it will determine what is pulled in. It is building power stations and opening up collieries because that provides quick and easy access to energy supplies.
If we are not careful, our leading position on carbon capture and development will be quickly lost, and we will be overtaken. America is putting a lot of money into carbon capture development, and China is doing the same. Indeed, it already has a project that is supported by Germany and others. We are at the tail end.
I was part of the previous Government, and I know the Minister is supportive of coal. The issue, however, is the timing as we move forward on carbon capture projects. The contract at Longannet has to be signed by the end of the year, but the project will not take off until some years later. We also need to get the other three projects up and running. If we want to be at the forefront, we must be able to develop our strategy quickly. I make a plea to the Minister to sign the contracts by September and to bring the other three projects online as soon as possible for the sake of everyone in this country.
We can have all the arguments we want about clean coal technology, sulphur content and everything else, but if the lights go out, not a single person out there will thank us; indeed, my constituents will drum my door down. The bottom line is that we are here to protect and support the people we represent, and we are here to support industry and this country. The only way we will do that is by ensuring that our energy policy utilises everything we have. This is, therefore, an important debate, and I hope that the Minister takes it on board.
Before I sit down, I have one other thing to ask the Minister. When he has his discussions with the Scottish Government, will he ensure that they invest the same amount as us in the Longannet complex? If that fateful day ever happens and Scotland goes independent—I hope it never does—I would not like this country to be putting money into Longannet, when the Scottish Government are not putting a penny in. I would therefore like to hear what the Minister has to say about the Scottish Government putting money into that important project.
Jackie Doyle-Price (Thurrock) (Con) rose—
Mr George Howarth (in the Chair): Order. Before I call the hon. Lady, I should point out that I intend to call the first of the Front-Bench spokespeople at 3.30 pm, and I ask the hon. Lady to bear that in mind.
3.18 pm
Jackie Doyle-Price (Thurrock) (Con):
I will be brief, Mr Howarth. First, I congratulate my hon. Friend the Member for Sherwood (Mr Spencer) on introducing
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this extremely important debate. A compelling case for coal has been made by hon. Members on both sides of the Chamber, and the debate is all the better for that.
I fully endorse my hon. Friend’s comment that energy security is hugely important and that coal must play a major role in it. That said, I want to make a few points about the other opportunities for coal-fired power stations through reference to the Tilbury power station in my constituency.
Tilbury has been running for 50 years on its current site. Until March this year, it was a coal-fired power station, but thanks to investment by RWE npower, it is now becoming the world’s largest biomass-fired power station. That gives the opportunity of a new lease of life for some of our older coal-fired power stations, which will have to be decommissioned because of the EU directives. I therefore beg the indulgence of hon. Members today, while I give the story of Tilbury.
At its peak, Tilbury employed 750 people. Today it employs 250, in highly skilled jobs. It was facing closure in 2014, which would have left a big hole in the economy of Tilbury, which is quite a small town. The power station generates more than 1,000 MW—enough to power 1 million homes. It has never breached its environmental licence, in 50 years of operation. Looking at the debate from the point of view of climate change and environmentalism, it is worth bearing that in mind, particularly as the general manager tells me that when sulphur emissions in the locality have been measured at dangerous levels it is not because of the power station but, generally, when there is traffic congestion on the A13 and the M25. That raises the question whether we are looking at the right things, in our rush away from coal.
RWE npower, which runs the station, originally intended to construct a new cleaner coal power station at Tilbury and its plans were far advanced, but it had to reconsider the decision in November 2009. That was because of the cost, in the economic climate at the time, but also—and this reinforces the point made by my hon. Friend the Member for Sherwood—because of the unclear regulatory status of investment in cleaner coal. It is important to lay the foundations to establish a clear regulatory picture so that companies are prepared to make the investment. Considerable amounts of money are involved.
Having decided not to go ahead with that plan, the company was still wedded to the site at Tilbury—it is a very responsible company and wanted to maintain the relationship. It decided to investigate the burning of wood pellets instead of coal. There was a lot of scratching of heads, but the management decided to have courage and invest money in trying it out. It was a great success.
In March this year the power station burned coal for the final time. I lament that, but what is happening now is very exciting. The company is converting the existing station to burn wood pellets for the remainder of the hours that will take it to 2014; it also intends to invest in creating a new biomass generator beside it. The new arrangement is not quite as efficient at generation as coal. In comparison to the previous figure of 1,000 MW, the wood pellet scheme reaches 750 MW, but it is still an efficient system and it will contribute massively to the national grid—much more than the wind turbines that we have been hearing about, in relation to investment.
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The power station will begin generating and contributing to the grid from December. I encourage the Minister to visit the plant. It is exciting and groundbreaking, and gives an opportunity of a new lease of life to some coal-fired power stations. RWE npower deserves to be congratulated on having the courage to make the investment and see whether it would work. It has proved the process, which means that other power stations will find it much less risky.
I endorse the comments made by hon. Members on both sides of the House about coal, which must play a role in this country’s future energy supplies. I reiterate that we should do everything we can to encourage investment in the carbon capture technologies that my hon. Friend the Member for Sherwood so lucidly articulated.
3.23 pm
Graham Stringer (Blackley and Broughton) (Lab): I am grateful for the opportunity to speak, Mr Howarth, and am aware of the time; I did not intend to speak. I congratulate the hon. Member for Sherwood (Mr Spencer) on bringing this important matter before the House.
I have two or three things to say. The policy of the Government—this was true of the previous Government as well—is based on two illusions. One is that what this country does, both in relation to carbon dioxide, and industrially, will affect anyone else in the world. It will not, and the hon. Member for Sherwood developed that argument with his statistics, and illustrated it effectively.
The second illusion is that there is a shortage of fossil fuels in the world. If we read what environmentalists say and look at what is happening, we can see that the real problem will be a huge surplus of fossil fuels in the world in the next 300 or 400 years, not just because of the figures on coal and oil, but because of the new source of shale gas that is being developed, which has already dropped the price of fuel in north America by up to 50%.
That is the background against which this country must consider energy policy. There must be a hierarchy of priorities in thinking about energy policy, and security of energy supply must be at the top. At the moment we are staring at the prospect of a huge problem in three or four years’ time. The Minister shakes his head, and he may or may not be in his post in three or four years’ time, but European obligations at the moment put an absolute limit on the amount of coal that can be burnt in our power stations. If we get another cold winter and they burn twice as much coal as they intended, those power stations will have to be switched off. There will be a gap before we can build new nuclear power stations. Like my hon. Friend the Member for Midlothian (Mr Hamilton), I spent most of my life opposed to nuclear power stations, but in the world we now live in, the facts, and my opinions, have changed.
We must put the facts together. It will take shale gas some time to come on. Because of the dominance of Russia in the gas market, that is insecure. We know what is happening in the Arab world at the moment and we could be in for a real problem. Rather than putting vast subsidy into wind farms, which are likely to destabilise the national grid as they are put in, and to industrialise the countryside—not just because of the wind farms themselves, but because of the power lines, which will
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have to be taken at huge cost from the wind farms to the grid—we should be bringing the nuclear power programme forward and considering how to develop shale gas in this country. We have some of our own deposits in the north-west. We should also be thinking about how to develop the coal industry.
Unfortunately, because much energy policy is based on illusions, the Government are not focused on the world and the energy market as they are now. They are focused on what the Labour Government saw as priorities 10 to 15 years ago. The Government need to look objectively at the world and think about how to deal with the energy gap that will exist in four, five or six years’ time, and how to get the best value for money out of the investment we make in energy.
3.27 pm
Luciana Berger (Liverpool, Wavertree) (Lab/Co-op): It is a pleasure to serve under your chairmanship for the first time, Mr Howarth. I congratulate the hon. Member for Sherwood (Mr Spencer) on securing the debate and speaking eloquently on behalf of his local colliery.
Many hon. Members have spoken today of serious concerns about capacity and a future energy gap in the UK. My hon. Friends the Members for Midlothian (Mr Hamilton) and for Blackley and Broughton (Graham Stringer) spoke about the urgent need to deal with the issue, and several hon. Members have spoken about carbon capture and storage, which I shall mention later. I want to focus my remarks on how coal-fired power stations fit into Britain’s transition to a low-carbon future, and the integral role that clean coal has to play as we reconcile the competing demands of reducing the country’s greenhouse gas emissions and ensuring that enough energy is generated. I want also to highlight some of the challenges that we face.
It is clear that a low-carbon future will not be realised without some contribution from fossil fuels. The urgent challenge that we must overcome is how to ensure through the use of technological innovation that the fossil fuels that we use are cleaner. The UK must be a world leader in investment, research and development, infrastructure and planning across our energy portfolio; but the window of opportunity is closing. We have drifted from 2010 to 2011, still awaiting crucial decisions: from the re-banding of ROCs, to grid investment, to the detailed sign-off on the first CCS project.
At the UK coal conference in February the Minister said that detailed sign-off for CCS1 would be confirmed by July, but when the Energy Bill was in Committee he referred instead to the summer. I would be grateful if he clarified when we will have detailed sign-off of that crucial first CCS project.
At the risk of stating the obvious, it is worth explaining why we are where we are. A quarter of the UK’s energy generating capacity will close by 2018, and as much as 30% will need to be replaced by 2020. Without prompt action, we face an electricity generation gap in the next 10 to 15 years as our nuclear and coal-powered stations are retired. World energy demand is rising and highly politicised. As North sea reserves decline, we are increasingly reliant on imported oil and gas, and UK electricity demand is forecast to double over the next 40 years. Adapting to that increase in demand will require a
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rapid decarbonisation of our electricity supply and a diversification of the energy sector, moving us from a reliance on fossil fuels and unabated combustion, to an increased use of low-carbon and decentralised energy.
We need a new energy mix, combining renewables, new nuclear and clean coal, but to achieve that mix and meet our climate change targets we will be required to urgently develop carbon capture and storage technology alongside renewables. We will need to create sufficient capacity to meet electricity generation needs at all times, and we will need to put the necessary supply chains in place. We will require the development of smart grid and electricity networks to meet the needs of a reconfigured, smart and diverse electricity infrastructure and, of course, investment in coal and gas infrastructure. All that does not come cheap. Depending on what we read, it could cost between £200 billion and £450 billion to achieve. I have only touched upon the future of coal in the UK energy mix, but it has a strong future.
In 2009, coal-fired power stations produced approximately 28% of the UK’s electricity supplies, using 40 million tonnes of coal in total. Last November, the Minister said that the UK
“will rely on gas and coal for years to come”,
and he is right. Coal is the most abundant worldwide energy resource, yet, unabated, it is also the most polluting. Without finding a way to reduce its harmful effects, we will not be able to tackle climate change.
The question we therefore face is: how do we ensure that the lights do not go out while at the same time meeting the need for greenhouse gas reductions of at least 80% by 2050? In government, Labour committed to funding the first commercial-scale CCS demonstration plant, so we welcomed the coalition’s decision to continue it. As I mentioned earlier, however, we are still waiting for the detailed sign-off of that project.
In addition, many questions remain unanswered in relation to how the crucial second, third and fourth projects will be funded. The Government have committed to funding them from general taxation, but can the Minister give us more detail about where the money will come from? When does he expect the Treasury to release the funds to pay for the project?
It is not just the direct funding for CCS that is required. We need to build the right infrastructure, conduct further research and development into CCS projects, and develop innovative financial mechanisms to devise solutions to the financial challenges facing CCS. We are encouraged that the current CCS demonstration already includes support for nascent infrastructure that will be needed to support the deployment of CCS, but more needs to be done to develop the infrastructure of pipelines and encourage clusters of those facilities in certain areas beyond the demonstration phase.
What work has the office of carbon capture and storage at the Department of Energy and Climate Change done to ensure that those coal-fired power stations that may come forward are able to share infrastructure, such as pipelines and capture plants, with industry, to reduce the overall cost of CCS and to make those plants more economically viable? How will the electricity market reform proposals ensure that a viable supply chain can develop to deliver CCS retrofits to a time that is compatible with our decarbonisation trajectory, as set out by the Committee on Climate Change?
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If CCS is to be an integral part of our future energy security and carbon reduction—although we have to prove the technology on a commercial scale first—and if we wish to be at the forefront of the technology, so that we capture the benefits for the domestic and export markets in the future, from China, to India, to Brazil, to the US, we must provide the means. In fact, we have a duty to develop this technology, alongside our European neighbours, because with rising global use of electricity generated by coal, the downsides of delay are significant.
Any delay in the roll-out of CCS will mean higher atmospheric concentrations of CO2, which in turn will mean that subsequent attempts to limit temperature rises to less than 2°C will be harder to achieve. Some calculations suggest that for every year that widespread global deployment of CCS is delayed after 2020, the long-term atmospheric stabilisation level of CO2 increases by one part per million. Therefore, if we delay by more than a decade, the stabilisation of atmospheric concentrations of CO2 at lower levels becomes near impossible. According to the International Energy Agency, without CCS and if we were to rely on other technologies alone, the costs of tackling global CO2 emissions will rise by more than 70% each year. In simple monetary terms, it is a cost of $1.3 trillion annually by 2050.
During the deliberations of the Energy Bill Committee, the Minister referred to emissions performance standards, but I hope that he will provide more detail today. What will the introduction of EPS mean for the future of coal-fired power stations, and what representations has he received on the issue from industry? Will next month’s electricity White Paper identify the level at which the EPS will be set? What effect does he envisage the EPS having on the British coal industry? As the EPS applies only to new-build coal-fired power stations, is it the Minister’s intention that the carbon floor price will be the mechanism to incentivise a reduction in CO2 emissions from plants?
Despite concerns from those representing coal-fired power stations, particularly about the burden of an extra layer of legislation and the fact that it will apply to new-build stations, the right EPS, for example, could help drive investment in carbon capture and storage, but only if it is set at an intelligent level. In written evidence to the Energy and Climate Change Committee in January, energy solutions company Alstom said:
“An EPS at a technology-neutral level from, say, 2020, could provide support to the deployment of CCS, increasing the diversity and security of supply by enabling continued, but decarbonised, use of coal.”
As such—and while recognising the positive intention of the EPS to ensure that no new coal-fired power station should be built in the UK without CCS, and the danger, highlighted by Alstom, of the wrong EPS level resulting in no new coal builds—this makes it even more critical that the Government drive on with the four CCS projects, pre and post-combustion, with urgency.
Planning is another big and obvious problem for coal and other new generation capacity. Undoubtedly, with the closure of many coal-fired power stations over the next decade, many planning applications will be made for new coal and gas-fired power stations, alongside applications for new nuclear build, onshore and offshore wind, biomass plants, and so on. What will happen, therefore, now that the Infrastructure Planning Commission
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is being scrapped? Will there be adequate resources and expertise in the Planning Inspectorate to avoid it being overwhelmed by the resulting workload, or will it simply become a rebranded version of the IPC?
Before I finish, I wish to raise a few issues that I hope the Minister will address in his wind-up. What discussions has he had with the coal industry about the carbon floor price mechanism and capacity payments? What impact does he expect those mechanisms to have on the future of coal-fired power stations?
The European Union’s emissions trading scheme is a cap and trade system. If less CO2 is produced in the UK, is the Minister concerned that, as fewer CO2 allowances are used, the introduction of a carbon floor price will simply result in the migration of the carbon to elsewhere in Europe? That point was raised by the hon. Member for Nuneaton (Mr Jones) during an earlier intervention.
Will the proposed single tax rate under the carbon price mechanism disadvantage UK-mined coal against imported coal? There is concern that it will have a detrimental impact on UK coal producers, potentially leading to the closure of more pits, particularly deep mines, and resultant job losses.
Co-firing biomass with coal is a recognised renewable technology and receives renewables obligation support. The hon. Member for Thurrock (Jackie Doyle-Price) has made a powerful case in support of her local plant. However, concerns have been expressed about whether the technology receives sufficient funding. Can the Minister update us on the banding review of renewables obligation certificates? What is his intention in relation to co-firing biomass with coal?
In conclusion, coal is important to the UK’s energy future—as clean coal—to provide the bridge over our energy gap and to a low-carbon future. However, we face significant challenges and must move quickly to develop the required technology to overcome them, if we are to tackle the dangerous threat posed by climate change. I would be grateful if the Minister addresses in his closing remarks the issues I have raised.
Thank you, Mr Howarth, for your stewardship this afternoon. I also thank the hon. Member for Sherwood for securing the debate and all the Members whose eloquent contributions have ensured that we have had an informed discussion.
3.39 pm
The Minister of State, Department of Energy and Climate Change (Charles Hendry): It is a great pleasure to serve under your chairmanship this afternoon, Mr Howarth. I congratulate my hon. Friend the Member for Sherwood (Mr Spencer) on securing the debate and on the manner in which he introduced it. If there were any doubt about it, he has proved today that he is a very fine heir to the seat of Sherwood. The bipartisanship, expertise and understanding that he has shown on the coal industry and wider energy issues are certainly traits that Paddy Tipping and Andy Stewart had. I very much welcome the debate that he has instigated. It would also perhaps be appropriate to put on the record that the hon. Member for Ogmore (Huw Irranca-Davies) would normally reply to such a debate for the Opposition. He is understandably not here today because of family circumstances and our thoughts and prayers are with him and his family at a very difficult time.
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As I say, we have had an important and useful debate. There should be no doubt that we recognise that coal has been and will continue to be an integral part of our energy infrastructure. As my hon. Friend the Member for Sherwood reminded us, coal makes up on average 35% of our electricity generation, but on a cold winter’s day that figure could readily be 50%. It is therefore vital to our energy security. As we have heard during the debate, coal is also the most carbon intensive form of electricity generation, producing around twice as much CO2 per unit of output compared with a gas-fired power station, together with other environmental pollutants. He put the issue in an international context and outlined the role that coal is likely to play internationally over many years to come.
The imperative of tackling climate change means that we will need to decarbonise our electricity system. In the future, our energy supply will have to be diverse, adaptable and clean. The technologies that can help to deliver that are: nuclear, which should be built without public subsidy; renewable, including biomass, to which I shall return; and fossil fuels with the use of carbon capture and storage. I absolutely agree with the hon. Member for Midlothian (Mr Hamilton) that this should not be a debate about one technology versus another. We need to secure a tremendous amount of investment in our energy infrastructure, and we should be encouraging that to come from a wide balance of resources. I hope that we can agree that our energy security is enhanced by the breadth of that investment portfolio.
As my hon. Friend the Member for Sherwood mentioned, there is certainly a case for having back-up at times when the wind is not blowing, but that would not necessarily have to be coal; it could be gas. At the moment, the investment case would be much stronger for a new gas power plant than for coal with CCS because of the relative costs. That back-up supply could also be provided through interconnectors. For example, an interconnector to Norway could provide a huge amount of potential clean electricity and there could also be additional interconnectors to France or Iceland. They could be part of that process. During this decade, other storage technologies have been developed, such as battery, the use of hydrogen, compressed air or heating hot water. Those are all ways in which one can enhance the reliability of the renewables sector. Nevertheless, we recognise—and the structure we are looking to put in place recognises—that there will also need to be back-up power plant available.
We should also recognise the continuing role for gas in the mix, which has often been missed out in many of these debates. We have increased the expectation of the likely role that gas will play, which picks up the point made by the hon. Member for Blackley and Broughton (Graham Stringer). The world outlook on gas has changed beyond recognition in the past few years and it is right that energy policy should evolve to take account of that reality. When he noted that I was shaking my head, I was not disagreeing with him about the fact that there is an energy crunch, but about the time scale. My expectation is that the problem will not arise in four or five years, but towards the end of the decade.
A lot of new investment is coming through in gas plant. I opened a new Staythorpe 2 GW plant recently in the east midlands and there is also a new 2 GW plant coming onstream shortly in Pembrokeshire. A lot of
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new investment is coming through in gas; indeed, of the 20-plus GW of consented plant, 60% is gas. A great deal of new plant is coming through, but when we consider that we will lose a third of our coal plant by 2016—it may be more by the end of the decade—and much of our nuclear plant during this decade, there is a real urgency to secure new investment. During this decade, we are talking about an investment figure in excess of £100 billion in terms of electricity generation and the associated infrastructure.
The hon. Member for Liverpool, Wavertree (Luciana Berger) said that we had been drifting in terms of some targets, but I believe it is hard to see that drift. She talks about drifting on the CCS time scale, but in fact, we will secure that first project much quicker than was anticipated under the previous Administration. She talked about us drifting on the renewable obligation review; in fact, we have brought that forward by a full year from the time scale we inherited precisely to give clarity to investors. Where there was ambition before, we have decided to match that with a delivery programme, and put in place a road map for the development of carbon capture and storage, a dedicated Office of Carbon Capture and Storage and a developers forum to identify the barriers to investment, so that we can directly focus on those. I hope that we are putting in place a clear programme whereby we are saying, “We understand what the challenges are. How do we make dealing with those a reality?”
As I said, coal generation remains an important part of our energy mix. UK coal production to date is much stronger this year than last, with surface mine output up 400,000 tonnes and deep mine output up by almost a million tonnes. Consequently, this year, there has been a significant drop in the volume of imports, which I think we would all be pleased about. That is partly a result of destocking and partly because of a steady output from Daw Mill colliery—I was pleased that my hon. Friend the Member for Nuneaton (Mr Jones) was here to pay tribute to that. We very much welcome the development plans that UK Coal has announced for Thorseby and the extension of its life that that might bring about.
Total production in 2010 was up on 2009 at a little over 18 million tonnes, and total coal use was also up. The net effect of contributions from indigenous production and the use of stocked coal was to reduce UK coal imports from 38 million tonnes to 26.5 million tonnes, which is a significant fall of 30%. The generating sector continues to be the main market for coal from all sources, particularly from indigenous production. Some 80% of the coal we consume is used in electricity generation. I want hon. Members from all parties to be in no doubt whatsoever that I, and the Government, believe that there is an important continuing role for coal, including indigenous coal, in the energy mix. We need to put in place the right structure to secure the investment that will bring that forward. Indeed, we also need the right approach to carbon capture and storage.
We know that a third of our coal plant is closing as a result of the large combustion plant directive and that the industrial emissions directive will result in the closure of additional plant. If we reduce the sulphur oxide and nitrogen oxide emissions, it will improve air quality and bring environmental benefits.
I question my hon. Friend the Member for Sherwood when he calls flue gas desulphurisation a simple technology. I have been to Drax to see it. The technology may,
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indeed, be simple from a chemical and engineering point of view, but it is vast. It covers many acres and costs many hundreds of millions of pounds. The companies that are looking at such technology have to think carefully about the long-term viability of their plant before they decide to go through that process.
It is clear that the market structure as it currently stands will not enable enough new investment to come through in these low-carbon technologies. That is why, during the past year, we have started the process of electricity market reform. Although the old market structure brought benefits to consumers—we had some of the cheapest electricity and gas prices in Europe, although it did not always feel like that—it did not attract important investment in low-carbon technology.
The key elements that make up the electricity market reform process are, first, long-term contracts for low-carbon generation through a feed-in tariff—a contract for difference—linked with a capacity mechanism. That could be used to provide for the additional plant that is needed on stand-by for those cold days when the wind does not blow, for half-time during a world cup football match or whenever additional capacity is required. Alternatively, we could find better ways of spreading the demand more evenly across the day and using that additional plant more sensibly.
The electricity market reform process will also look at the emissions performance standard, which the hon. Member for Liverpool, Wavertree raised. We will set out our plans on that in the forthcoming White Paper. We have listened carefully to the industry. I agree with her that if we set the EPS at the right level, it could be a strong steer towards new investment. Such an approach will make this country more attractive to investors because they will know what is expected of them over the longer term—for example, what the approach to grandfathering will be and when the reviews might happen. The EPS could be a very important steer and plus point in terms of attracting investment into this country, although I think I heard her indicate that there may be a case at this stage for applying it to gas as well. My anxiety about that is that we are not in the position to turn away investors who want to invest in gas at this time, too. We need to be very clear and careful about how it is introduced. The main drivers for low-carbon technology would be less from the emissions performance standard, and more from the feed-in tariff arrangements that we will introduce. We have also said that we will introduce a carbon floor price in 2013, and increasing gradually to 2020. That gives an early and credible long-term signal to investors that we are serious about encouraging investment in low-carbon technologies.
I understand absolutely the point made by the hon. Member for Liverpool, Wavertree. We have been talking closely with the coal industry and other people who are intensive energy users. We have to balance the urgent need to bring forward investment at twice the rate in this decade than was achieved in the previous decade, to meet the security of supply requirements that this country faces, and to do so in a way that does not create carbon leakage. It would not be sensible to drive away from the United Kingdom industries that can be a critical part of our manufacturing process—carbon emitters and heavy energy users. That would only result in that carbon being produced somewhere else in the world. There
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would be no net gain to the world. We would lose the jobs and have to import the products at the end of it—there would be no gain. That is why we have committed, over the course of the rest of this year, to put in place a series of measures to protect critical industries that are energy intensive users.
That lays the foundations for a sustainable economy, and will help to bring billions of pounds of investment into the United Kingdom through greater certainty. It will help to safeguard jobs, and will help to bring some of that supply-chain investment to this country, too. That is a right and proper target and objective for the Government. It also means that we have to develop carbon capture and storage.
Carbon capture and storage is not a luxury add-on; it is a fundamental part of our energy approach. We recognise the role that coal and gas will play for many years. That is possible with CCS in a way that could not happen without the development of CCS technology. I am pleased to see the progress in this country at a time when we see CCS deployment slipping back in other countries—Norway has put it back to 2018, and Holland is just delaying it, as are other projects elsewhere in the world. Britain remains one of the leaders on this. The £1 billion is the largest contribution that any Government anywhere in the world has committed to a single project. We have built on the work of the previous Government. Paddy Tipping referred to this as the competition without end, because it was going on for so long. I am glad that, in the course of the next few months, we hope to bring that to an end, although it is a complicated process.
The issues raised by the hon. Lady on shared access for infrastructure all need to be tied up in legal contracts with a variety of partners. We want to bring that to a close as soon as we can, ideally in these summer months.
Mr David Hamilton: Will the Minister encourage us to find out just exactly what contribution the Scottish Government are making? I believe that the Scottish Government are entitled to make a contribution, if that is the first big project of its kind to go. Of course, never shall the day come when we have separation—because I am a Unionist through and through—but surely it is right for this Government to check and make sure that the Scottish Government make a contribution if that day ever did come.
Charles Hendry: Energy remains a retained power. Clearly, the Scottish Government have decision-making powers on planning. That is why they have ruled out such things as new nuclear in Scotland. Nevertheless, energy policy is driven from Whitehall and Westminster. We therefore believe that if this is something that we want to achieve as a national Government, then we should be in the driving seat. If the Scottish Government were to say, “Here is a few million pounds to make it happen”, we would of course be very enthusiastic and grateful to them, although there are not many indications so far that the cheque is in the post. Nevertheless, this will be taken forward by us, as a Government and as the Department of Energy and Climate Change, with a cross-party approach here, and I hope that we can find that agreement in the course of the next few months.
We have a range of technologies, an issue touched on by my hon. Friend the Member for Sherwood. This should not just be about post-combustion technology.
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We need to look at oxy-fuel combustion and pre-combustion technologies, and that is what we want to see coming forward. In the course of the rest of this year we will set out the nature of the competition for the remaining projects—projects 2 to 4—and look at where we would like that to add to our knowledge, the type of technology that we may wish to see coming through with that, and to apply that to gas, too. Again, the world outlook on gas has changed a great deal and we need to take account of that.
I would say to my hon. Friend the Member for Sherwood that this is a technology that is still in its infancy. We know that the individual parts of it can work. We know that it can be separated—we have seen that done on a small scale. We know that it can be transported and we know that it can be injected into the sea bed. However, nobody in the world has done that at scale, so we do not yet know what the challenges are of doing that at scale, or what the costs will be. In terms of a time scale, to have four projects running by 2020 is extremely ambitious. We are not going to arrive at a stage where we can move it beyond that. We can absolutely see this technology moving forward in the 2020s. Global ambition suggests perhaps 100 projects by 2020, but 3,000 projects by 2050. This is therefore a process that will inevitably start carefully, but then build up dramatically over time. Everything that we are doing here is determined to ensure that the United Kingdom can be in a real leadership position. What we also see from industry shows that it wants to be part of that process. The NER300 process is a European competition, and almost half of the schemes coming forward for CCS are in the United Kingdom. That shows the appetite among our industry, our universities and our whole supply chain to help lead in this area.
Mr Spencer: I am grateful to the Minister for giving way, as I have taken up more than my quota of time. Given that the new technology will not be on the street until 2020, we will not be in a position to build nuclear power stations to that time scale, and renewable energy will not be large enough to make the shortfall, does he anticipate that the only way we can supply the nation will be by importing that power from our neighbours?
Charles Hendry:
No, I do not, although I see it as being an important contributor. The investment in gas that we are seeing shows that the energy company industry is keen to invest in the gas infrastructure, too.
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We want to see that bid grow out of renewables, but some of those technologies for UK tidal would be in the 2020s. We want to see offshore wind ramping up in the course of this decade. My hon. Friend is absolutely right that nuclear is towards the end of this decade, but as we start to deal with the crunch to which the hon. Member for Blackley and Broughton referred, we need to see additional gas infrastructure, too. We should not rule out interconnecters as part of that process.
Finally, I want to come to the issue of biomass. I am grateful to my hon. Friend the Member for Thurrock (Jackie Doyle-Price) for the point she made on that. Electricity from biomass is important to our renewable energy targets, because it brings security of supply benefits. It is dispatchable; in other words, when we need more power, we can generate more power. It can be turned up and it can be turned down. It is one of the few renewable energy sources that is genuinely adaptable in that respect. Large-scale dedicated biomass has the potential to develop significant levels of renewable electricity by 2020. Electricity from dedicated biomass is cheaper than some other large-scale electricity sources. If biomass generation needed to meet the renewable energy target was displaced by more expensive technologies, then inevitably there would be a higher cost to consumers.
It is encouraging to see the interest from Drax, which is developing dedicated biomass. The work at Tilbury is ground-breaking and I join my hon. Friend the Member for Thurrock in paying tribute to RWE npower for the work it is doing to make that happen. Part of the renewables obligation banding review, which, as I said, we have brought forward by a year, will be to determine the appropriate level of support to bring forward either biomass conversion or co-firing, because of the contribution that they can make.
In conclusion, we believe, without any doubt, that coal can play an important role in our electricity-generating mix in the future, but only if its carbon dioxide emissions can be reduced significantly. Electricity market reform will provide the commercial incentives to deliver new low-carbon plant, and our CCS demonstration programme will ensure that there is a cost-competitive solution to the emissions from coal.
I congratulate my hon. Friend the Member for Sherwood. This has been a long-overdue debate, and one that has been extremely constructive. I rejoice at the fact that we can talk about coal, with Members on both sides of the House talking about its opportunities and its importance. I welcome that—it is a big step forward.
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Local Rail Services (Bristol)
3.59 pm
Charlotte Leslie (Bristol North West) (Con): This debate is on the future of local Bristol rail, an issue that affects not only my constituency of Bristol North West and the city of Bristol but, because the south-west is so important a part of Britain, our nation as a whole.
Bristol is a significant city facing enormous developments, but the transport infrastructure is poor. Traffic congestion at our key motorway junctions can stifle the city and—not unrelated—bus fares are among the highest in Europe. Indeed, instead of being the gateway to the south-west, Bristol and its region can be described as the tourniquet of the south-west. The city is not standing still, however, with a new deep-water port at the port of Bristol making the docks of greater national and international significance, the possible sale for commercial use of Filton airfield in the constituency of my hon. Friend the Member for Filton and Bradley Stoke (Jack Lopresti) and the substantial housing development across the northern arc of Bristol. They are all opportunities but, unless the city’s transport infrastructure is capable of supporting them, opportunities could represent burdens. I asked for this debate to emphasise to the Government the importance of supporting long-term transport infrastructure in Bristol, and to point firmly towards rail providing the bedrock of that transportation.
I am delighted that electrification of the Bristol to London line is going ahead—a major boost for the city—and it paves the way for the kind of long-term thinking we need.
Stephen Williams (Bristol West) (LD): I agree with my hon. Friend that the electrification of the Great Western main line is a fantastic announcement by the coalition Government. Does she agree that that announcement will be enhanced if we could get a commitment from the Government for the Severn Beach line, which is merely a small spur off the main line, to be electrified at the same time?
Charlotte Leslie: My hon. Friend makes an extremely good point, which anticipates what I was going to say. He has done a lot of work lobbying for electrification, and I thank him for that.
The electrification is fantastic and, as I said, long-term thinking is massively important, not that the current smaller schemes for improvement are not welcome. However, unless we also think long term, and think big, those improvements will merely scratch the surface and we will not have the available infrastructure to maximise the effects of the small schemes. I am tempted to draw an analogy with Joseph Bazalgette’s building of the great London sewer system. There is no more time for devising more effective ways of throwing waste out of the window. For transport in Bristol, we need to devise a structural system that completely changes the way we do things.
When we come to the solution, there is good news: the bare bones of that new structure for transport in Bristol already exist. Disused and used freight lines lace the city, in particular in and around my constituency of Bristol North West, in the north of the city, and there are disused stations such as Henbury. The city of Bristol is sitting on a dormant giant of rail travel.
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I have campaigned with the Friends of Suburban Bristol Railways and others for a Henbury station and a Henbury loop line. The solution is a no-brainer: the resurrection of our local lines in Bristol, to complete the circle line around the city that we partially enjoy already with the Severn Beach line. A Henbury loop circle line could link with the major stations of Bristol Temple Meads and Bristol Parkway, and could provide a reference point for shuttle transport to major visitor destinations such as the Mall at Cribbs Causeway, in the constituency of my hon. Friend the Member for Filton and Bradley Stoke. He cannot be here today because he is opening the new St Peter’s school in Pilning, but he has rightly said that, given the likely commercial and residential development if the sale of Filton airfield goes ahead, the case for examining existing rail provision and the possibility of resurrecting mothballed stations such as Filton would be really strong. With section 106 moneys coming from the significant housing development in the area, investment for such infrastructure does not seem out of the question.
In Bristol, which in the past I have talked about in terms of “A Tale of Two Cities” because of the deep socio-economic divides running through it, a circle line could open access and economic regeneration to some of the more deprived pockets of our great city, but the economic benefits do not end there. I understand that some Ministers have already travelled on the Severn Beach line, which runs from Temple Meads station up the west side of the city. That suburban line provides a demonstration of the untapped need and desire for local railway infrastructure, and the benefits of pump-priming investment. Since welcome investment by Bristol city council in 2008, which my hon. Friend the Member for Bristol West (Stephen Williams) was active in campaigning for, introducing more frequent services on the Severn Beach line, passenger numbers have rocketed by about 60%, enabling a long-term subsidy decrease as the service becomes economically more successful. Were the circle line circuit complete around the city, that percentage of passenger increase and revenue would likely be an awful lot higher—but what we need is joined-up thinking.
Among parliamentarians, I am delighted there is broad and energetic consensus on the need to work together for the future of rail in our region. Sadly, in the past, however, a certain lack of co-ordination has led to our region missing out on some major transport investment opportunities. That is why I take this opportunity to back strongly the creation of an integrated transport authority for the region. Other areas, such as West Yorkshire and Merseyside, have seen a major resurrection of their local suburban rail services and they have something significant in common: an ITA. So I congratulate our local paper, the Evening Post, and a one-man campaigning army, Dave Wood, on making the case for an ITA so energetically.
An integrated transport vision is as central to the beating heart of our city as a circulation system of veins, arteries and capillaries. With a strong, united voice, bids for projects such as the reopening of the Portishead line and the Henbury loop line can be more effective. If other regions can do it, why cannot we? The strong progress of our local enterprise partnership gives further hope and might provide a great basis for more joined-up thinking. So the big vision is a circulation
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system of rail around Bristol, linking with cycling and bus routes, and park and ride, to make all the schemes more effective.
More specifically, a major structural concern is to secure quadruple tracking up the Filton bank to Parson Street station, to alleviate the significant bottleneck which limits services locally. Failing to secure that now is a false economy, holding us back for the future, in particular given the existing demonstrable demand for more services. The electrification of the Bristol to London route is incredibly welcome, not only in itself but for the further opportunities it will provide, but any update from the Minister on how far the electrification will extend—for example, to Yate or Weston—would be most appreciated. Such an extension would open enormous opportunities for the suburban lines, with greater flexibility in rolling stock, new routes and diversionary routes for electric trains when needed. A 30-minute service from and to all stations in the former Avon area would be transformational, although it is quite a modest vision when compared with other major cities around the country.
As I said, the reopening of the Henbury loop and Portishead lines are particularly important specific proposals. An issue worked on and frequently raised by the hon. Member for Bristol East (Kerry McCarthy) is the safeguarding of Plot 6 at Temple Meads for a bus and train interchange. In the more immediate term, I seek clarification from the Minister about additional carriages for crowding relief in Bristol; more rolling stock is badly needed, which is an indication of the appetite for rail travel and the enormous unmet demand. I ask him to consider that seriously.
A Henbury loop line circuit is big thinking indeed, but rail gets to the core of tackling the underlying problems of Bristol’s transport system. Rail infrastructure for Bristol would be an absolute game changer for all the other methods of transport that we need to improve, freeing up the roads for buses and cyclists and transforming the park-and-ride potential. The idea has backing—indeed, the scheme is recommended in Network Rail’s route utilisation strategy—and I ask the Minister to look specifically at backing the scheme with practical financial support. Yes, the thinking is ambitious and long term, but I argue strongly that long-term strategic thinking and infrastructure investment is exactly what is needed if the entire Bristol region is to meet the real, pressing and ever-increasing transport challenges of the future. I called for the debate today because the future comes sooner than we think.
Chris Skidmore (Kingswood) (Con) rose—
Mr George Howarth (in the Chair): Order. Before the hon. Gentleman starts his speech, I should point out that I intend to call the Minister at 15 minutes past 4.
4.10 pm
Chris Skidmore (Kingswood) (Con):
I thank my hon. Friend the Member for Bristol North West (Charlotte Leslie) for securing this extremely important debate, and I am pleased to see my hon. Friend the Member for Bristol West (Stephen Williams). It is rare to be able to talk about local issues in Parliament, and this debate is a great opportunity to do so. It is a shame that more hon. Members could not be present, but I want to give a personal apology from my hon. Friend the Member for
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Filton and Bradley Stoke (Jack Lopresti) who, as my hon. Friend the Member for Bristol North West said, is in his constituency. It is a shame that the right hon. Member for Bristol South (Dawn Primarolo) and the hon. Member for Bristol East (Kerry McCarthy) are not here, because we would then have had a full complement of local MPs to discuss transport issues in our local area.
As the MP for Kingwood, I do not specifically cover Bristol rail matters, but they are vital for my constituents in terms of integration, and I fully support the development of the rail networks: the West of England Partnership and local enterprise partnership have done excellent work in pressing the case, as the Minister knows, for rapid transit links to the northern fringe. My hon. Friend the Member for Filton and Bradley Stoke asked me to read out a statement that he would have made if he had been here:
“The Henbury loop line, presently a freight line used by coal trains from Avonmouth, will become a very important line for the local area with expansion of the Avonmouth Docks. It is also a very important diversionary route; there is a lot of residential and industrial units being constructed in North Bristol so this line needs to be opened up as a passenger line.
To achieve this a new station could be built at Henbury, and the closed North Filton station could be rebuilt with a park and ride site perhaps on land near the now closed airfield.
Filton North station is next to the A38 main road. Airbus, Rolls Royce, GKN Systems, Royal Mail and countless other firms are based in the near vicinity and the re-opening of this station could alleviate some of the rush hour traffic problems that the local area currently experiences.
With the closing of Filton airfield, land which is likely to be redesignated to residential and commercial needs, we must get the local transport infrastructure right to ensure that we can avoid serious traffic problems stifling the local area.”
Although my constituency lies outside Bristol, all those issues affect the greater Bristol area, and as united coalition partners we want to ensure that we regenerate Bristol for the better. I again thank my hon. Friend the Member for Bristol North West, and look forward to the Minister’s reply.
4.12 pm
The Parliamentary Under-Secretary of State for Transport (Norman Baker): I congratulate my hon. Friend the Member for Bristol North West (Charlotte Leslie) on securing this debate, and my hon. Friends the Members for Bristol West (Stephen Williams) and for Kingswood (Chris Skidmore) on contributing to it. The subject is important and timely.
My hon. Friend the Member for Bristol North West set out with great clarity the importance of the rail network in Bristol to the local economy, and how it can contribute to helping to address congestion problems in and around the city. She said that Bristol is the gateway to the south-west, and the Government fully recognise that in our planned investment in the inter-city rail network to Bristol. Indeed, it would not be possible to discuss local rail issues—I will return to them later—without referring to the significant developments that are planned for the network over the next five to 10 years, and which will transform Bristol’s links with London and the south-east.
The announcement that the Great Western main line between London, Bristol and Cardiff will be electrified has been warmly welcomed in the west of England, and
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I am pleased to hear hon. Members’ support for that project today. The line will be equipped with brand new inter-city express trains, and the current proposal is for four trains an hour to run between Bristol and London, two an hour via Bath and Chippenham and two an hour via Bristol Parkway. Those via Bristol Parkway will transform the links between the constituency of my hon. Friend the Member for Bristol North West and London, given the proximity of Bristol Parkway station.
Both routes into Bristol will be electrified and, with electrification of the Severn tunnel route through to Cardiff, three of the local routes—Cardiff to Bristol, Bristol Parkway to Bristol, and Bath to Bristol—will be able to accommodate electric trains. There are no plans to electrify the line to Weston-super-Mare or the Severn Beach line. However, because some of the new inter-city trains will be bi-mode trains and able to run on electric or diesel power, some inter-city trains will continue to operate to Weston-super-Mare, as they do today, and will switch seamlessly—at least, I hope so—from electric to diesel power at Bristol Temple Meads.
Another recent announcement is significant for the area. The Secretary of State has announced that the Thameslink route through London will receive new rolling stock from about 2015. That means that, as far as Bristol is concerned, there will be a pool of electric rolling stock available to operate some Bristol area local rail services should the operator of the new Great Western franchise choose to use them. I realise that capacity is an issue. We are currently negotiating with First Great Western for provision of additional diesel carriages, but I cannot confirm at the moment when they will arrive or what the exact number will be. However, the prospect of electric trains will ease the position considerably.
I said that this debate is timely, and there are three reasons. First, detailed planning of the electrification scheme is now under way, and there may be opportunities to add to the scheme better to meet the needs of the local area if funding can be identified locally. Secondly, First Great Western has recently announced that it is taking up the option that the previous Government made available to it under the terms of the franchise of terminating it in 2013 rather than 2016. Therefore, detailed work will have to be carried out on the specification for the new franchise. Local authorities need to be ready to input into the process, and to discuss their ideas with bidders when they emerge in due course. For the avoidance of doubt, we welcome local people’s views of the new franchise arrangements which we are putting in place throughout the country. Thirdly, we are keen to explore the scope for devolving further aspects of rail to local authorities, and a good time to do so is when a franchise is due for renewal and the area is set to benefit from major investment.
The electrification scheme creates major opportunities for the local rail network around Bristol. Electric trains are cleaner, quieter and have better acceleration than diesel trains, so they are ideally suited to providing local rail services in densely used urban areas. The journey-to-work area in Bristol is expanding, as my hon. Friends know only too well, so now is the time for the local authorities to consider how the local rail network can be adapted to maximise the benefits of electrification.
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That may require some reconfiguration of local services, but the local authorities are well placed to understand passengers’ needs. For example, we are aware that the West of England Partnership is keen to see the local rail service extended from Bristol Parkway to Yate. We would welcome local input into matters such as whether a short extension of electrification from Westerleigh Junction to Yate would offer value for money. Likewise, new stations have been suggested for the Bath route, and now is the time for the partnership to consider such issues.
We are keen that proposals for infrastructure enhancement are robust and based on sound evidence. It is in nobody’s interest to promote unsustainable or undeliverable schemes or schemes that have little chance of securing funding. It is therefore important that work is undertaken to understand the viability of those options. I want to make it clear that the Government are pro-rail. We have a major programme of investment in the rail network. Indeed, it is reasonable to conclude without hyperbole that our rail investment programme is the biggest since the Victorian era.
In the Bristol area, the local authorities work closely together as the West of England Partnership. Although they are free to consider whether there might be benefits in forming an integrated transport authority—my hon. Friend the Member for Bristol North West referred to that, and some people believe that there would be significant benefits—it is not essential that they do so for the purposes of securing improvements or investment in local rail services. If local people want to consider forming an ITA, we will pay close attention to that. The partnership has a number of plans for rail, and there are no institutional barriers preventing them from achieving them.
We are keen to see the local authority partnership aligned with the local enterprise partnership, and together to play a leading role in determining the future of the local rail network. For example, that structure could deal with the safeguarding of Plot 6 at Bristol Temple Meads. The West of England Partnership already takes an active role in transport, and has established a rail protocol with train operators and Network Rail. I understand that the local enterprise partnership has plans for regeneration around Temple Meads station.
The West of England Partnership has created the concept of a Bristol metro network of regular-frequency local rail services, and has been very supportive of North Somerset council’s efforts to reopen the Portishead line. The next step will be to identify how those enhancements could be delivered and, more importantly, funded. The reopening of that line would require the reopening of passenger services on a freight-only line from Parson Street junction to Portbury junction, and the reinstatement of track from Portbury junction to a new station at Portishead. Our rough estimate is that reopening would cost £35 million to £40 million. Steps are obviously under way to make Network Rail more efficient, and to drive down costs, but that is our present estimate. Such a move would require the provision of new train services, perhaps every half hour during peak times and every hour off-peak. At the moment, that would need an ongoing subsidy, which is an important consideration when working out the economics of any reopening.
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Reference was made to the possibility of reopening the line to passenger services between Avonmouth and Filton Abbey Wood. That would create a north Bristol circle line that would run from Temple Meads via Clifton Down to Avonmouth, and back to Temple Meads via a reopened Henbury station. I am sure that such a circle line would be more reliable than the one I use on a regular basis, which runs not far from this Chamber.
Stephen Williams: I share the vision of that north Bristol circle line with my hon. Friend and neighbour the Member for Bristol North West (Charlotte Leslie). It would also provide the opportunity for new stations along that route. My hon. Friend mentioned some stations that she would like in her constituency, and I will add Ashley Hill station to that list. It would be on the Filton Bank line and serve about 20,000 residents either side of where the station used to be—the platform is still there. It would also serve Gloucestershire cricket club and Fairfield high school.
Norman Baker: My hon. Friend has long campaigned very strongly on these issues and I welcome his involvement. Objectively, if we are to reopen a line it is a good idea to attract as many passengers as possible, and the provision of extra stations could be a useful way to achieve that. A cost-benefit analysis would be carried out for each station to look at whether reopening it would make sense to the project as a whole. My hon. Friend has given several examples of why he believes that would be the case for the station that he mentioned.
Although the line between Filton Abbey Wood and Bristol is intact, we would need to increase its capacity, and Network Rail is considering how to accommodate the extra trains. There would also be the question of how to serve the branch line from St Andrews road to Severn Beach. In the first instance, the West of England Partnership will determine whether that scheme should be a priority, although to date it has provided no indication that it would seek to explore that proposal, given that the Bristol metro and the Portishead line appear to be higher priorities. Hon. Members from the Bristol area may wish to pursue that point with the West of England Partnership. Bristol city council funds additional services on the Severn Beach line, which has contributed to a significant growth in the usage of the line. Perhaps that model could be employed elsewhere in the area.
Let me take the opportunity to congratulate the community rail partnership. It has done tremendous work in improving stations, promoting the network around Bristol and, importantly, involving local people in its schemes. That has produced a tremendous sense of pride and ownership in the local rail network. My right hon. Friend the Minister of State for Transport recently visited the line and was impressed with the achievements of the community rail partnership. She was keen for me to refer to those achievements in my remarks today.
Conditions already exist for local authorities to take on greater responsibility for local rail services. The Department for Transport will be happy to discuss ways of achieving that with those local authorities, and help as best it can. As I have already mentioned, there may be scope to modify the electrification scheme to take
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account of local needs and aspirations, and as we have seen, local authorities are already able to finance rail services and schemes using funds available for local transport. We believe it is important that decisions on local priorities are made by local authorities rather than central Government, so there are currently no plans to establish a central fund for local rail schemes. Instead, local authorities should identify which local funding sources are most appropriate for a rail scheme, and decide whether such a scheme should have a higher priority than, for example, a highway or bus scheme.
Although the coalition Government’s current priority must be to reduce the budget deficit, we are making available a significant amount of money—£560 million—through the local sustainable transport fund. That is more money for local transport than was provided over the past four-year period, despite the difficult economic climate that we face. We are also making a contribution to the regional growth fund to enable some schemes to proceed before 2014. All that is in addition to the major local transport schemes budget, and in September the West of England Partnership will make five bids to the Department for schemes linked to the development pool. We will make decisions on those schemes around Christmas. The area has already had one scheme approved for the Greater Bristol bus network, which is nearing completion. The West of England Partnership has made a key component bid and a large project initial proposal to the local sustainable transport fund, and an announcement on the key component bid will be made shortly.
We will soon be consulting on a more devolved approach to major local schemes that will be in place from April 2015. Such an approach will provide the opportunity for groups of local authorities, working with local enterprise partnerships, to consider once again the transport priorities for their area that the fund might help to meet. That is particularly important for the reopening of the Portishead line, which has been frequently mentioned in this debate, through correspondence with the Department, and in other forums.
The aspiration is to reopen that line by 2017, but it is essential to first establish that that is the best way to meet the needs of the area and a priority for investment among other potentially competing claims. The local authority has carried out important work with Network Rail through the governance for railway investment projects process—GRIP. It also, however, needs to establish demand for the scheme and to demonstrate that there is a business case and that ongoing financial support is affordable. Initially, that must be demonstrated locally and not by the Department. We will respond to that local pressure.
To conclude, electrification brings opportunities for improvements to the local rail network around Bristol. There is an important role for local authorities, working together through the West of England Partnership, to carry on the good work and seize the initiative by taking advantage of such schemes. The Department will be happy to provide advice and guidance to hon. Members, councillors and others in the Bristol area, to ensure that people are able to maximise the opportunities in their area. Ultimately, however, it is for local people to lead on such matters, and the Department will have a supportive role.
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Computer Games Industry
4.26 pm
Jim McGovern (Dundee West) (Lab): It is a pleasure to serve under your chairmanship, Mr Howarth, and I thank the House and the Speaker’s Office for giving me the opportunity to raise an issue of great importance to my constituency: the computer games industry.
As hon. Members will be aware, calls for the Government to provide more support to this important industry have been made for some time, and during both the previous Parliament, and this Parliament, I and many of my colleagues have asked the Government to act. The previous Labour Government committed themselves to introducing tax breaks to encourage start-up companies and overseas developers to establish operations in the UK. The election of the coalition Government saw that policy scrapped, despite the support of Liberal Democrat and Conservative Front-Bench spokespeople before the election.
The UK computer games industry is a substantial contributor to investment in the UK. In Scotland alone, £30.2 million is invested in salaries and overheads, £27.5 million is contributed to the Exchequer, and a direct and indirect contribution of £66.8 million is made to UK GDP. In the UK as a whole, those figures rise to a £1 billion contribution to GDP, and £400 million a year that goes to the Treasury.
In Dundee, the arrival of a successful games developer has been a major factor in the revival of the city’s fortunes, following the loss of major manufacturing industries in the 1980s and ’90s. The computer games industry has contributed to help Dundee fast become a destination of choice for investors. Millions of pounds have been invested into the city and much-needed high-quality jobs have been created. Such investment has also provided an opportunity for young graduates, many of whom studied in Dundee, to pursue graduate careers in the city when before they would have left to work elsewhere. That has had a tremendously positive effect on the city.
All that, however, is now at risk. Like many major industries, the computer games industry operates in a globalised economy and faces stiff competition from abroad. In that environment, just as in many others, global competition is squeezing British industry. Like ship building, general manufacturing and steel production before them, UK creative industries are being tempted away by countries that offer ever more enticing business environments. Canada is a particular threat. Last week the Entertainment Software Association of Canada produced a report highlighting the fact that Canada’s computer games industry has significantly benefited by poaching companies from the UK. It estimates that because of tax breaks, the industry will grow by 17% over the next two years. Between 2008 and 2010, the Canadian games industry grew by 33%; over the same period, the UK’s games industry fell by 9%.
We have seen recent evidence of that phenomenon in the UK when a games developer in Warrington closed and staff were offered positions in the company’s Canadian office. There is more bad news for the UK industry. The US state of Pennsylvania announced this week that it is to introduce a 25% tax break for games developers. That makes it the 17th US state to offer such support.
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Alongside that, the Irish Culture Minister, Jimmy Deenihan, announced at the start of this month that the Irish Government were looking to implement tax breaks to encourage games developers to move to Ireland. That is all the more concerning given what we know of Ireland’s ability to attract high-investment technology companies to its shores—its banks notwithstanding. I am referring to companies such as Microsoft and Apple.
That is why I am calling on the UK Government to reconsider their approach to Government support for the industry. There is a significant risk that our industry will be further outmanoeuvred by countries such as Canada, Ireland and the United States and we will lose the investment that communities such as those in my constituency cannot do without.
Jim Sheridan (Paisley and Renfrewshire North) (Lab): I congratulate my hon. Friend on securing this debate, which is important for jobs in Dundee. As he rightly identified, just five weeks before the general election, both coalition partners promised that they would introduce tax breaks for the industry. Has my hon. Friend had any indication as to why that policy has changed?
Jim McGovern: I thank my hon. Friend for his intervention. I can quote from the evidence taken by the Select Committee on Scottish Affairs, which conducted an inquiry into this subject. It was said in that Committee that on 29 March—just five weeks before the general election—the then shadow Minister said that the Conservatives were
“going to support tax breaks for the video games industry…We are fully behind game tax breaks. This is my unequivocal statement. It’s been approved by George Osborne.”
However, in the very first Budget, in June 2010, they scrapped that. I have never heard a reasonable explanation of why that happened. Perhaps this afternoon we will hear one.
Lindsay Roy (Glenrothes) (Lab): I, too, congratulate my hon. Friend on securing this very important debate. As I understand it, the Government tell us that the key to recovery is growth and support for small and medium-sized enterprises. Is my hon. Friend saying that we are entering this competitive field with one hand tied behind our backs?
Jim McGovern: I thank my hon. Friend for his intervention. The Government seem to be saying that differences in corporation tax and research and development tax credits are good enough to support the computer games industry. My view and that of TIGA, the association that represents the computer games industry, is that a one-size-fits-all policy is not good enough and there should be a specific solution for specific industries, such as the computer games industry.
The one policy difference between the UK and our competitors is a scheme of tax incentives for games developers. Canada offers tax breaks of 17.5% to 37.5% on labour expenditure. As I said, Ireland is investigating how best to implement tax breaks, and Pennsylvania is offering a 25% tax break, which is similar to that offered by the other 16 US states that offer such support. It is clear that the UK is being outdone by those tax
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regimes. That is why I am calling on the UK Government to introduce a tax incentive scheme that rivals those other countries’ schemes.
As the Minister will be aware, the Scottish Affairs Committee investigated the current state and benefits of the computer games industry in Scotland. Its conclusion on tax breaks was clear. It said that there were compelling reasons to introduce tax breaks and that the UK Government should begin a consultation process to see how best to achieve that. That is additional to recent calls by major international developers. Three of the largest—Activision Blizzard, THQ and Ubisoft—have publicly stated that tax breaks in the UK would make them much more likely to invest here. There are many reasons why they do so now.
Justin Tomlinson (North Swindon) (Con): I thank the hon. Gentleman for giving way on that point in this very important debate. Has there been an estimate of the long-term tax revenue that could be generated if the UK’s share of the market was to grow through the use of tax incentives?
Jim McGovern: There has been an estimate. TIGA reckons that tax breaks would help 2,500 new jobs to be created and would maintain and protect 3,000 current jobs.
Mike Weatherley (Hove) (Con): Does the hon. Gentleman agree that we need to think not just about the short-term position, but the long term? Given that this is such a transient product, which can go from border to border, we need to think about how the whole market is developing. Therefore, tax breaks are important in our thinking about how we can maximise revenue going into the future, not just in the short term.
Jim McGovern: I certainly do agree. We do need a long-term strategy. Everyone involved with the computer games industry—it is a big thing in my constituency of Dundee West—agrees that a long-term strategy is required, but in the short term, to prevent companies from going bust or moving to Ireland or Canada, tax breaks would be very important. They would be a big factor in helping companies to survive.
I and many others are deeply disappointed that the present Government have ignored the call for tax breaks and stubbornly remain of the view that that is a policy they choose to disregard. The Government’s one-size-fits-all approach to tax incentives simply is not working. While the UK Government remain outwitted by our international competitors, it is highly likely that inward investment will be lost. As with other major economic sectors previously, the UK will lose out because of a Government who choose to ignore the calls of industry, rather than listen.
I will move on to another way in which the UK Government can support the industry. This is a case not just of tax breaks, although they are fundamental, but of the range of measures that developers feel would support them. The Scottish Affairs Committee stated in its report that the Government must work with industry bodies to best determine how to better publicise the availability of R and D tax credits and to introduce a more targeted R and D scheme to the industry.
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I welcome the recent changes to R and D tax credits, but the Government could do much more in that regard. Only some of the recommendations have been met. I call on the Government to extend that programme to make the available tax credits more generous and to work with the industry to discover how best the scheme could be tailored to its needs.
That brings me to the third way in which the Government could make the business environment more attractive to games developers. Start-up developers face serious trouble in securing loans and financing from the banks. I know that that is a wider problem experienced by small and medium-sized enterprises throughout the UK, but I ask the Government to redouble their efforts to ensure that the banks grant the finance required for start-ups to get going.
Research conducted on behalf of the Department for Business, Innovation and Skills and the Department for Culture, Media and Sport by Dr Stuart Fraser of Warwick business school and IFF Research in May highlights the worrying extent of the difficulties that creative industries face in securing financing. They are much more likely than other industries to be turned down by the banks. That was highlighted in the Scottish Affairs Committee report on this subject. According to research by the trade body TIGA, the majority of 104 surveyed games companies reported either that there was no difference in their ability to borrow from their bank or that the situation had got worse in the course of last year.
The Government have committed themselves to improving the access to finance from banks from the all-time low that we experienced due to the banking crash. Clearly that has yet to produce any results for the computer games industry. As with many creative industries, there is risk associated with games developers, as the sad demise of Realtime Worlds in my constituency illustrates. A product that fails to sell can have a dramatic impact on a company. However, without some risk being taken, industry and the economy simply will not grow. I ask the Government and the banks to work in partnership with the industry to see investment increased and jobs created.
Lindsay Roy: Is it not ironic that the Government have invested heavily in Abertay university to enhance the skills profile? If these jobs are not available, we will see a drain from that investment overseas.
Jim McGovern: I thank my hon. Friend for his intervention. He is absolutely correct. When we took evidence at Abertay university, we were told that, every day, students there who are studying the computer games industry and will graduate in that subject are receiving phone calls from France, Ireland and Canada saying that they will be offered a job there. Most of the students who study computer games do not end up employed by a company in the UK; they end up starting their own business. It is extremely galling for people in Dundee, who want to locate in Dundee, to find that it is much easier to move abroad than to stay in the UK, so I thank my hon. Friend for that point.
On that subject, if we stifle young companies with a lack of finance, we cannot hope to see economic growth. We must return to rewarding those who take appropriate, but not reckless, risk in starting and running businesses.
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There are other proposals that the UK Government could implement to support UK games developers. TIGA has called for the creation of a creative content fund. That would allow for funding on a pound-for-pound basis up to £100,000 for companies that produce highly creative content. The UK Government must acknowledge that computer games developers and other creative industries have specific requirements that are not being addressed. The creation of a creative content fund would target funding on those industries, and show that their needs were catered for. It would encourage investment, growth and job creation. I ask the Minister to draw up plans to consult on introducing these measures, and to work with the industry and the Treasury to put in place a policy that encourages and rewards creative investment.
As for the value of higher education and of a skilled work force for the industry, I am well aware that higher education spending is a devolved matter, but the Government could do a number of things. A major requirement for developers is a highly skilled and trained work force. The industry is populated largely by graduates and, as I mentioned earlier, securing jobs for Dundee graduates has had a great effect on the city.
I welcome the Government’s decision earlier this year to award funding to Abertay university. However, it remains a small sum compared with the support that could be offered. The Scottish Affairs Committee’s report highlighted the real concern that there are too few mathematics and computer science graduates to sustain the industry. Abertay has led the way on this, and I urge the Government to work with universities and industry to ensure that we have the work force and skills base that the economy needs. Abertay has acted as an experiment on what can be done in partnership between higher education institutions and the private sector. I ask the Government to work with the Scottish Executive to develop working relationships of that sort, and to ensure that public spending cuts do not harm access to higher education or the quality of teaching and research.
The theme that runs through my speech today is a call for a more coherent and aggressive growth strategy from the Government. I well understand Ministers arguing that we need a simplified tax incentive structure. I am sure that we would all agree that unnecessary complication would be a hindrance to economic growth. However, we sometimes need an element of necessary complication. The temptation to find simple solutions to complicated problems can be far too alluring; instead, we should accept that there is a case to be made for having specific solutions to specific problems. Individual industries require tailored support to meet their needs. Whether it is tax breaks for the UK film industry or tax breaks for games developers, the Government must introduce policies that actually work for the many important industries that we have in the UK.
Mike Weatherley: The hon. Gentleman is generous in giving way. Does he agree that it is important not only that the Government are behind the financial incentives but that there is copyright protection for those who produce the product?
Jim McGovern: I certainly would not disagree. As I said earlier, the Government could do much more. The hon. Gentleman makes a valid and important point.
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I sincerely fear that we have an overly simplistic one-size-fits-all solution that does not address the differing needs of UK businesses. Economic growth is stagnating, inward investment has fallen sharply since the crash and remains low, and computer games developers say loudly that the Government are paying no attention to the problems that they face. That is why I ask the Government to think again about their broad-brush and overly simplistic attitude to supporting business. They must get stuck in and get their sleeves rolled up, working out appropriate solutions for UK business and taking on the job of creating economic growth. Their do-nothing strategy is simply not working.
The best place for The Government to start—I hope that I do not flatter myself—is to commence work on the proposals that I have outlined today to support the UK computer games industry. Constituencies such as mine of Dundee West, and constituencies throughout Scotland and the UK, suffered when the last Conservative Government failed to stand up for UK business, allowing us to be outwitted by foreign competitors. I strongly ask this Government not to make the same mistake.
4.43 pm
The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (John Penrose): It is a pleasure, Mr Howarth, to see you in the Chair and looking after us this afternoon. I thank the hon. Member for Dundee West (Jim McGovern) for initiating the debate. As he says, the computer games industry is an important part of our national economy. It is responsible for many high-quality and high-skilled jobs, and it is also part of the knowledge economy. The debate is therefore most timely, and I congratulate him on securing it.
I start with a brief apology, Mr Howarth. You may have noticed that I am not the Minister who was supposed to have answered this debate. The reason is that the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Wantage (Mr Vaizey), is currently at an OECD conference in Paris—some people have all the luck, you may say—on the subject of broadband and the internet. I am therefore standing in for him. I toyed with the possibility of getting my ministerial colleague to represent himself by Skype, possibly by superfast broadband, as he is also Minister with responsibility for the digital economy, but I thought that might be a step too far even for the newly modernised House of Commons. I therefore stand in his stead.
I am not sure that the hon. Member for Dundee West and I will agree on all points of industrial strategy—I suspect not—but I shall respond to some of the points that he made. In particular, I respectfully take issue with his comment that the Government are pursuing a “do nothing” strategy. We are doing a great deal, although not necessarily precisely what he suggests. I shall say what we are doing, and then we can debate whether there is room for additional activity.
I am sure that we agree that the economic and cultural value of the UK video games industry is high. The long-term potential of the global market is exciting. PricewaterhouseCoopers suggests that the global market for video games will grow from $56 billion in 2010 to $82 billion in 2015; that is an 8.2% compound annual
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rate of growth. The hon. Gentleman and I have also said that games companies are typically knowledge-intensive and high value, and offer high-quality jobs. They fit well with our aim to rebalance the economy, both in terms of sectoral ability and geographical coverage, and to move away from the historic over-reliance on things such as the financial services industry and the south-east.
Lindsay Roy: I understand that different approaches are taken for the film industry and the video games industry, but they both have huge opportunities for creative development. Why do we have that differential?
John Penrose: I think that the hon. Gentleman is referring to the fact that a tax break is already in place for the film industry, but we do not have quite the same system for the video games industry. There is a piece of history here, which I offer as an explanation.
The film industry has an existing state aid exemption; it is an acknowledged piece of state aid that is registered with EU authorities and anyone else who needs to know. We are registering it under the next iteration of those rules, which is coming up. The reason is that it seemed at the time—we continue to agree—that it was an important piece of cultural ambassadorship as much as a business opportunity. We cannot necessarily say that for “Grand Theft Auto”, important though it may be for the UK industry and for jobs. The film industry does both jobs. It fulfils the role of cultural ambassador; the video games industry is economically important. That is the historic explanation. The shortage of money, which I intend to deal with in my response to the hon. Member for Dundee West, is why we are where we are; there is no money to extend such provision, even if we could.
Jim McGovern: I thank the Minister for giving way. The figures given to the Scottish Affairs Committee during its inquiry suggest that the tax breaks received by the film industry cost in the region of £110 million a year. The previous Government committed themselves to tax breaks for the computer games industry worth £55 million a year. However, the computer games industry generates more for our GDP than the film industry. Further to that, the Committee said that calling them video or computer games was rather misleading, as the industry is also involved in medical research and architectural science. It is not just people playing “Grand Theft Auto” or “APB”.
John Penrose: The hon. Gentleman is quite right to say that there is a broader aspect to the matter. I was using “Grand Theft Auto” as a quick example rather than a widely based covering comment.
As for the numbers cited by the hon. Gentleman, I say this. Businessmen should always face many more ideas that would produce a positive return on their investment than they can afford. That is a fact of life in any industry, and certainly in the creative industries. There might be 100 options that could increase the bottom line, but they will not be able to afford to use them; they will not have the cash, the people or resources in general. That is the case with the Government. We inherited a terrible fiscal position, and the country’s balance sheet was in a very bad state. There are all sorts of things that might create a positive return, but we physically do not have the cash for them.
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One of the major points of difference between the hon. Gentleman and me in our approach to macro-economics in general and to the industry—and also on a micro-economic basis—is that I am unsure where we would find the money to do some of the things that he suggests, such as tax breaks here and there. I respectfully suggest that he will need his own Treasury Front-Bench team to sign up to what he suggests. I suspect that those Front Benchers will be leery of doing so, because they would then have to explain which bits of other budgets, such as health or education, they would cut in order to release money for this, which taxes they would raise to pay for the additional tax breaks, or how they would persuade the financial markets, on the day that Greece is voting for its austerity package, that we should be borrowing more money for this, that or the other. This is an essential piece of macro-economic prudence, and I suspect it is a fundamental difference of approach between us. I understand where he is coming from, but I am trying to explain where we are.
Justin Tomlinson: I understand 100% the point the Minister makes about the constraints in the financial sector. However, he also referred to the fact that this is a growing market and there is an opportunity. Can we at least have an assurance that the Government are continuing to consider ways to support the industry and that, as and when opportunities arise, they will be considered?
John Penrose: I can absolutely make that assurance. I would like to go back to some of the things that we are already doing, which I hope will bring a significant benefit to this industry and others.
Jim McGovern: The Minister said that I should ask my Front-Bench colleagues to sign up to this. Obviously, they have: they made a commitment prior to the general election that they would give tax breaks to the computer games industry. The Minister’s party also supported that, as did the Liberal Democrats and the Scottish National party. I am not looking for a U-turn; I am looking to the Government to honour their commitment. The Minister makes the point about the Labour legacy, which I think everybody is getting a bit scunnered listening to. If that is the case, why can Ireland offer tax breaks but the UK cannot? Ireland is held up as an example of a country that is economically worse off than the UK.
John Penrose: That brings me neatly to one of the other points made by the hon. Gentleman. He accused us of having an over-simplistic, one-size-fits-all policy. The difference between here and Ireland is that, over 13 years under the previous Government, the UK developed one of the most complicated, long, difficult, baroque and over-ornamented systems of business taxation in the developed world. We start with an incredibly complex taxation system, so moving gently towards a slightly simpler approach does not mean we are becoming over-simplistic or deciding that one size fits all. We would have to go a long way to get anywhere near the scenario the hon. Gentleman describes. Ireland is not starting from that over-complicated position. It has all sorts of other constraints. It has major macro-economic and public finance problems, as he rightly says, but it is not starting from one of the most complicated and baroque business tax systems in the world, as we are.
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We need to move to a simpler system. It is difficult to argue that decisions on whether to invest in this or that part of a business will be driven effectively and productively by a system that requires encyclopaedic PhD-level knowledge and understanding of business taxation. What actually happens in business—and having been in business, I can vouch for it—is that one makes the right decision on the basis of what customers want and what is affordable and one tries to position the business in that way. One then turns to the bloke who runs the finance department and says, “Can you retro-fit any of this into some kind of useful tax break that the Government have already introduced?” That does not drive decision making, unless it is a very large and particular kind of system, of which there are few.
Therefore, that kind of over-complicated tax system is fundamentally less effective than it should be in driving investment decisions. That is why one needs to move to a simplistic system with straightforward incentives: if someone invests and does the right thing for customers, they will earn more money, it will drop through to the bottom line and investors will do well. That is the thinking behind it.
That said, as I mentioned to my hon. Friend the Member for North Swindon (Justin Tomlinson), we are trying to do a series of things that will help the industry and others. I will lay out some of those, as the hon. Member for Dundee West challenged me to do so. I want to ensure I respond, to show that we are not a “do nothing” Government. However, he is right to say that the UK faces strong competition for video games investment from overseas, particularly from Canada, which offers targeted tax incentives for games producers. I am aware, of course, of the trade association TIGA’s campaign for the introduction of a specific tax relief to support video games production in the UK. Its job is to campaign for such things; it would not be doing its job well if it did not make that argument. In someone else’s famous phrase, “They would say that, wouldn’t they?”
The Chancellor of the Exchequer, as I have mentioned before, keeps all decisions on tax policy under review. However, we believe that in general providing a low corporate tax rate with fewer reliefs and allowances, as I have explained, will provide the best incentive for business development and promoting economic growth. Many games companies in the UK will benefit from the reforms announced in Budget 2010 and Budget 2011. To remind hon. Members, the UK’s main rate of corporation tax will fall to 23% by 2014. That means we will have the lowest rate in the G7 and the fifth lowest in the G20, ensuring the UK remains a competitive place to do business.
The hon. Member for Dundee West said that businesses are leaving. It is worth pointing out that many major global games companies choose to locate their European headquarters in the UK, and continue to do so. For example, we have Sony Computer Entertainment, Sega, Disney Interactive and Activision all here in the UK.
The Government have also made major reforms to the R and D tax credit. From 1 April 2011 the rate of tax relief for small and medium-sized enterprises increased from 175% to 200% of qualifying tax relief. From 1 April 2012 that will rise further to 225%, subject to
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state aid approval. I know that many in the games sector have warmly welcomed those reforms as a boost to innovative video games businesses in the UK.
The Government also announced changes to the schemes that help to incentivise equity investment in small, high-growth companies. The hon. Gentleman mentioned the importance of those to this industry, and many others. Those schemes are the enterprise investment scheme and venture capital trusts. We welcome the news that consultants Olswang plan to work with others on an independent analysis considering how measures such as EIS and VCTs can be exploited by games developers and the investment community to boost levels of investment in the sector.
I should also say that it is not just a matter of tax policy, although that is important, and the hon. Gentleman rightly focused many of his remarks in that area. There are other things that can and need to be done to improve the environment for enterprise in this country. For example, the enterprise finance guarantee will provide up to £600 million of additional lending to around 6,000 viable SMEs in 2011 and, subject to demand, over £2 billion in total over the next four years. For the enterprise capital funds, the Government are increasing their commitment by £200 million over the next four years, providing more than £300 million venture capital investment into the equity gap for early stage innovative SMEs with the highest growth potential.
The regional growth fund has made £1.4 billion available over three years for projects or programmes that deliver the fund’s objectives to stimulate enterprise by providing support for projects and programmes with significant potential to drive economic growth.
Lindsay Roy: Is there not a criticism that there is a lack of strategic focus on the video games industry? I strongly support the investment in the Abertay graduate programme, but evidence indicates that the majority of young people who graduate from there are going abroad. They are not staying in the UK, whether they are from Dundee or south of the border.
John Penrose: That is a fact of life in an increasingly globalising market. This is a globalising market, not just for the product of video games, but for the staff. Many other industries are already incredibly globalised, everything from financial to medical services. This sector will be going the same way. I am sure we will all be delighted to see British brains and talent travelling the world. It is true to say that many people come back to the UK later in their career and start up businesses here or join at a senior level.
I am conscious of time so would like to draw to a close by saying that I fear the hon. Member for Dundee West and I are not going to agree on a fundamental point about macro-economic policy. I hope I have, none the less, laid out that the Government are doing a series of things. Unfortunately, they are not precisely what he recommends. However, it is not true that we are a “do nothing” Government; we are doing a great deal. I fear that he and I will have to disagree on precisely what that should be.