Examination of Witnesses (Question Numbers
18 MAY 2011
By way of introduction, can I say that we are expecting a vote
at 4.00 pm. As you can see, we are an exceptionally large Committee,
so we obviously have a lot of material to cover. We understand
that you would like to make a very brief opening statement to
us, but could I ask you if, in making that opening statement,
you could perhaps refer as well to how much green taxes really
do feature in the Plan for Growth? Could you bear in mind
the concerns that were expressed at the Liaison Committee yesterday,
when interviewing the Prime Minister, that there were real concerns
that the Budget should be looking at environmental issues, but
there seems to be scant reference to it, and it seems to be much
more as an add-on? Could you perhaps respond to that in your opening
Yes, of course.
Chair: Then we shall move
straight on to direct questioning.
Well, thank you very much. I am delighted to be here. Perhaps
the first thing I ought to do is introduce you to Mike Williams,
who is our lead official in this area. Hopefully, if there is
any incredibly technical stuff that some of you want to know about,
we can either get you an answer or write to you separately. In
response directly to your first question, green taxation is something
that this Government does take incredibly seriously. One of our
coalition agreement commitments is to be the greenest Government
ever. As you are aware, we have an additional commitment in relation
to growing green tax and environmental tax as a proportion of
the overall tax take.
I think the key to success for us has been to ensure
the measures that we bring in and the instruments that we put
in place actually work effectively. That means having the range
of discussions that we have had with stakeholders from industry,
also from the green groups and a whole host of other groups, agencies
and charities that we have been talking to over the past year.
As you will know, we did hold some workshops to pull together
those stakeholders for the first time earlier this year.
In terms of principles of how we approach this and
our baseline, I know you will have some more questions on that,
no doubt, as we go through the questioning today, so perhaps I
will not go into that too much now. Suffice it to say, I think
that your report can play an important role in helping us work
through some of the finer details of how we do that. I think the
inquiry that you are doing is potentially of real help and interest
to Government, particularly at this moment. So we very much welcome
this work that you have undertaken.
I am not going to talk about the principles right
now, because I think we will get on to those later. In terms of
the Budget, though, we have pressed ahead already with increasing
the proportion of our tax take from environmental taxes. In fact,
Budget 2011 did announce a number of taxation and spending measures
that contributed towards achieving a low carbon economy and also
wider environment benefits. Perhaps the most important, if I can
run through them, were the introduction of the carbon price floor,
which was the first mechanism of its kind and that should incentivise
investment in low carbon electricity generation. We also introduced
the progress that we made towards allowances under the Carbon
Reduction Commitment, and made an announcement that those allowances
will be priced at £12 per tonne of carbon dioxide for 2011-12.
We are legislating to increase the standard rate of landfill tax.
In fact, that is probably something we will cover at the next
session of the Finance Bill Committee that we are in now.
As you will also be aware, on the spend side, we
went beyond our initial commitment at the Spending Review to put
£1 billion against the Green Investment Bank. We also increased
that and said that we would channel another £2 billion to
take that total of £3 billion from proceeds from asset sales.
So there are a number of steps in the Budget that did absolutely
relate to transition to a low carbon economy, making sure we deliver
our coalition agreement to increase the proportion of taxation
from environmental taxes. With that brief introduction, it is
may be wiser now for me to hand over to you.
Chair: I think it is sufficient,
Q55 Martin Caton:
When you were last here, Minister, you were in the process of
reviewing environmental taxes, including holding workshops. Can
you tell us what came out of that review, and are you now in a
position to produce a strategy on environmental taxes?
When we got the workshops set up back in January, I think we were
very open-minded about how they would work. It was something that
I don't think the last Government had done. I don't think that
was a particular criticism; it was just a recognition thatperhaps
in this agenda more than any otherthere is a need to pull
people together because it is about finding a balance. Interestingly,
I was at a breakfast with the all-party parliamentary motor group,
where their attitude towards the Budget was, in some ways, it
was too green. They felt some of these measures were going to
be a hindrance.
One of the things we recognised is we have to square
that circle. That means getting people with different perspectives
in the same room at the same time. That was helpful. It has given
us a base on which nowpost-Budgetto look at how
we view green taxation and what some of the opportunities were,
in terms of changing behaviour. The other important discussion
we had, which we can talk about now, is what those people told
us about the principles perhaps that we needed to have behind
our approach to green taxationaround fairness, for example.
So I think they were very important.
We do have a timetable in the Treasury every year,
because we have the Budget every year. We see that as an ongoing
annual challenge to make sure that, each year, we are making progress
towards meeting our coalition agreement.
Q56 Martin Caton:
Will you be producing and publishing a strategy on environmental
taxes? Will you be producing explicit statements on the intended
outcomes of specific taxes? Will you be publishing any Treasury
analysis of how well environmental taxes are achieving their aims?
We will be, because one of the things we need to set out is our
assessment of what the baseline is that we are working from. Although
we have already in advance of that taken steps on the carbon price
floor, on the Carbon Reduction Commitment, which will increase
the proportion of the tax base that comes from environmental tax,
you are right that nevertheless, we need to set out the principles
and we will be doing that over the coming weeks. In fact, as I
go back to my previous comments, in a sense, I think your report
has a potentially important role to play in helping us finalise
our views, in terms of what those principles should be and the
Q57 Martin Caton:
You have already mentioned, Minister, the Government's intention
to increase the proportion of tax revenue accounted for by environmental
taxes. Have you a target proportion that you are aiming for?
That will ultimately be very much driven by the baseline that
we decide andas I am going to guess we will come on tothere
are different ways in which you can set that baseline. For us,
perhaps more than targets, we are keen to make sure that our direction
of travel is right because any baseline that we set in terms of
percentage will, to some extent, be in part driven by the rest
of the taxation base, if you see what I mean, and possibly what
is happening in terms of the economy. I think what is most important
is that we have a baseline that drives the right kind of decision
making in Governmentto challenge Government to make sure
that a higher proportion of that underlying tax base is driven
by environment and environmental behaviour, and driving good environmental
Q58 Martin Caton:
From the additional briefing you submitted for this session, it
appears you don't count motoring taxes or Air Passenger Duty as
environmental taxes. Changes in the Budget to these taxes reduce
future revenue. Does excluding these taxes affect that pledge
to increase the proportion of environmental taxes?
Martin Caton: Thank you.
Q59 Zac Goldsmith:
One of the reasons for environmental taxes is to encourage businesses
to clean up their act and change their behaviour, but the system
of green taxation, environmental taxation, is increasingly complex.
Is there anything the Government is doing to simplify the systems
so it will be easier for businesses to see how much tax they can
avoid by changing their behaviour?
That is one of the key things that came out of the workshops.
In a sense, the first decision we have taken is to try to not
make the landscape any more complicated. For example, there was
the Carbon Capture and Storage Levy that was due to have been
introduced. It would have been yet another tax that would have
been added on to this overall landscape. We haven't gone ahead
with that and, instead, we plan to fund any future demonstrations
from public spending, as we did with the Spending Review for the
We also have to challenge ourselves to look at the
individual policies and say, "Do they work as effectively
as possible?" It is one of the reasons why, although we have
gone ahead with the Carbon Reduction Commitment, we had a very
clear message from business that they have seen it as something
that is too complex, which is why DECC is looking over the next
few months at how we can introduce it, but make sure that it is
more straightforward for business to use.
Then, the final piece I think is important, Zac,
is, perhaps now more than ever before, it is important for us
to understand what the totality of this is on business, particularly,
for example, energy-intensive industries. There is a piece of
work that has now been kicked off between BIS and DECC absolutely
to get that oversight, so that we are very clear what all of this
adds up to.
Q60 Zac Goldsmith:
Just on that, who is driving that processthe review on
the energy-intensive businesses?
It is a joint process from BIS and DECC.
Zac Goldsmith: They are
Q61 Zac Goldsmith:
Another problematic area in relation to green taxes is that, for
many members of the public, environmental taxes look like they
are stealth taxesthat they are an excuse to raise money.
There is a general question: is the Government doing anything
or does it have any proposals for bridging that gap and tackling
that scepticism? The second follow-up is more of an answer than
a question: is the Government willing to consider or reconsider
its position in relation to hypothecation, which is the most obvious
way of creating a more transparent system, because they see why
they are being taxed and where the money is going?
On the first point, you are right that people have to feel like
it is fair. I think one of the biggest problems that people have
encountered in the past is they feel like they are being taxed
for their green behaviour when they haven't been able to change
it. In the worst cases, they were taxed for their retrospective
behaviour, which they couldn't possibly go back and change. In
terms of the principles that we have in place, we want to be very
explicit on the tax measures we bring forward: first of all, we
are up-front and we say this is about the environment, this is
about tackling emissions; secondly, we are very clear that the
purpose of the tax is to encourage environmentally positive behaviour.
In other words, it has to be something you haven't done yet, otherwise
you can't change it. Then the third thing is that the tax has
to be structured to do that.
Possibly an interesting example is to go back to
the road tax change in 2008, where it was said to be a green tax.
Fair enough: that is a tick for that principle. Arguably, it was
structured like a green tax. That was the third example, so a
second tick on the third box. In terms of whether it could encourage
positive behaviour change: no, because people had already bought
Q62 Zac Goldsmith:
I understand the Treasury has been clear on this issue of hypothecation,
but if you were to look at all the examples of environmental taxation
over the last few decades in this country, the only one that has
clearly worked, been accepted and has had a measurable impact
is probably the landfill tax, which was originally hypothecatednot
completely, but there was a link there. Is there not a case, then,
if not for immediate or complete hypothecation, at least for a
partial hypothecation where at the very least, a tax raised somewhere
is seen to be matched by a tax decrease elsewhere, or an investment
elsewhere for something that might also lead to a change in behaviour?
At least the link is made in people's minds and becomes therefore
I think you can make that case. In fact, it is something that
we, in Opposition, had talked about, saying that people need to
feel that it is not just always tax on top of tax. As long as
we are very clear cut that, in the same way that we are switching
the base of taxation more to environmental taxthat it is
a switch at the base, it is not just a growth that is gratuitous
on either business or on the public. You are right that Treasury
does not like hypothecation because we think that they are separate
things, in terms of how you structure types of change of behaviour
and then where that money then goes, but at the broader level
people do want to see a switch. They do not want to see green
tax adding on.
Q63 Zac Goldsmith:
It was absolutely the case, certainly in our manifesto and I think
also in the coalition manifestoan absolute commitment to
neutrality, revenue and tax neutrality, when it came to green
taxation, which is in effect a kind of hypothecation. At least,
if it goes up somewhere you imagine therefore it has to come down
I want to ask you one specific point, because we
are running out of time, that has been referred to it by DECC
in relation to the Green Deal. I asked Chris Huhne whether or
not he might be making the case to the Treasury for introducing
a stamp duty rebateso obviously, at the point where a home
changes ownershipfor those homes that are very energy efficient,
which are plugged into the Green Deal. I get the very strong impression
that DECC are keen for the Treasury to accept such a move and
I certainly think it would provide a massive boost for the Green
Deal, which is obviously the flagship project. Is that something
that the Treasury has considered and, if not, is it something
the Treasury will very seriously consider?
I think the first thing to say is that the ministerial team in
DECC is genuinely passionate about the agenda that they have within
their Department. I think they have been very effective in making
their case across different Government Departments, in pursuing
how they feel the overall policy landscape can help them support
the strategy that they need to deliver.
In terms of explicit tax, I don't think I am going
to go into saying what we can or can't do on something like stamp
duty and land tax, because I think that would be pre-empting what
is quite a lot of work that will go on over the coming year, and
of course at the moment
Who is it a matter for, if you can't?
I guess what I am saying is: I don't think it is right for me
to pick out individual taxes and set some hares running in that
respect. That is not how the Treasury wants to go about making
taxation policy. What we want to do is talk with our stakeholders;
obviously, to hear from Select Committees; we want to have a consideration
then of what our options are. Having done that, we then want to
launch consultation papers that we then get responses on. We have
a much more long-term policymaking approach to taxation than perhaps
a glib statement in a Select Committee.
What I would say, Zac, is that we are working with
DECC to make sure that the Green Deal is successful, because it
is so important that it is successful. Perhaps, a lot of what
the Budget looked at was around how we can challenge business,
but there is a huge part of this agenda that is around individuals,
and we recognise that. That is one of the reasons why we wanted
to make sure that we get our principles and our baseline right,
because of course it is a baseline that has personal taxation
in, as well as business taxation.
Before we leave this subject of definitions of environmental taxes,
and picking up the reply that you gave to Martin Caton just now,
for the record can I check with you: you were very explicit in
saying that the way that you define taxes would not affect your
pledge to increase the proportion of environmental taxes. If I
can just finish this pointbut isn't that contrary to the
methodology that is used in the ONS and in respect of how the
Office for National Statistics goes about defining taxes, where
it actually says, "All energy and transport taxes are classified
as environmental taxes"? I wonder how the Treasury squares
I suspect we are going to have to wait until after
the Division, because I think that Members will want to go and
It is entirely up to you. I am happy to
Okay, we will come back to that, no problem.
Sitting suspended for a Division in the House.
Q66 Chair: Minister,
if I can recap and perhaps if we could follow on from where we
left off before the Division, I would be grateful. Just on this
issue about the definition of what is or isn't an environmental
I think the question was: how can we keep our coalition agreement
commitment to increase the proportion of green tax if we are using
a different definition, for example, from the ONS. I think the
first thing to say is obviously, intellectually, wherever you
draw the line, you can improve from it, and what I would say is
the way we have looked at it isand again, I am interested
to get the Committee's views because the OECD have their definition,
and EUROSTAT have a slightly different definition againthere
is a debate to be had about this.
Q67 Chair: I think
the point is: the ONS uses an internationally agreed definition.
So, if HM Treasury is departing from that and if we are changing
the definition of environmental taxplus the points that
Zac Goldsmith was making, which related to behaviour change and
so on and so forthand if we don't have certain taxes that
previously were defined as an environmental tax, which now no
longer are, how can we then look at changing all the different
behaviours? How can we tick the boxes when the Treasury is not
in sync internationally?
A couple of things: first of all, if you look at how we term "environmental
taxes" now it is no different, if you look at parliamentary
questions that the last Government put out talking about the percentage
of the tax base that was driven by green tax. I think the other
issue is you have to go back to why we are doing this. Am I doing
it to have some kind of interesting PhD-style thesis on what is
or isn't an environmental tax; or am I doing it to set Government
a baseline that I think, first, is understandable, but secondly,
will drive the right kind of pressure for good decision making
going forward? My sense is that I think we should be challenging
Government to say, "Well, there are only a limited number
of taxes we have at the moment that are truly environmental".
There are only so many that are not only explicitly meant to be
environmental but are about changing behaviour and, on top of
that, are overtly structured in order to drive positive behaviour
change towards the environment. That is the reason I have taken
the approach that I have taken, because I think it will mean that
we are more likely to challenge ourselves in Government and say,
"Well, this currently doesn't meet all these principles and
if we do want it to we are going to have to go back and make it
better in terms of how it works".
Q68 Chair: So it
would be fair to conclude from what you have said that the Treasury
is not including: fuel duty, VAT on fuel, Vehicle Excise Duty
and Air Passenger Duty as environmental taxes?
Say the list again and I will absolutely double check that I agree
with it; just for completeness. I don't want to say "yes"
when actuallyso, it was fuel duty?
Chair: Fuel duty, VAT
on fuel duty, Vehicle Excise Duty and Air Passenger Dutythe
issues that arise from the additional supplementary evidence that
the Treasury submitted to our inquiry, but if you would like to
get back to us on that, that is fine.
I can give you my reaction to it, in a sense, because I think
it is helpful for the Committee to build in. On fuel duty, no,
I don't think that is a green tax. I don't think it is structured
in order to change behaviour. That is not why it was brought in.
That is not how it is structured, in my opinion. On APD, we have
looked at this as a Government, and I think our sense is APD may
have some environmental benefits but it is not so overtly structured
as a green tax.
Chair: To cut you short,
if I may. We will be coming to the detail of these taxes. I was
just concerned at this stage
Later on this session?
Chair: I was just concerned
to get the definition of what is or isn't an environmental tax
at this stage.
It is just that I would accept that there is a debate to be had
over VED. So it is not a pure "yes".
Chair: Okay then, thank
Q69 Caroline Lucas:
I wanted to turn to the issue of carbon floor prices, and wonder
if you agree with the conclusion of the Energy and Climate Change
Committee in its inquiry into electricity market reform, where
it said very clearly that it felt that the carbon floor price
was indeed a subsidy; I wonder what your view is on that.
It is not a subsidy. It is about putting in place a level playing
fielda floor on the carbon price that will encourage a
shift away from high carbon power generation. Therefore, that
is what it is intended to do and I don't think it particularly
overtly favours any low carbon power generation over another.
Q70 Caroline Lucas:
In an answer that you gave to the hon. Member for Cheltenham,
you acknowledged that the benefit that nuclear will get from a
carbon floor price is £50 million a year; renewables are
down there on £25 million. Those are your figures, so that
looks like a significant benefit to one particular energy source.
I think that is a function of the decisions that power companies
have already taken in terms of their power generation portfolio,
more than it is in terms of the way in which we structured our
policy. The whole point of this is to make sure that over the
coming key five-to-10-year time frame, when we know that we need
an awful lot of investment in power generation to take place,
that we have a taxation structure that supportsalongside
electricity market reformmaking sure that that investment
goes into the low carbon power generation that we want to see
as part of our future power mix.
Q71 Caroline Lucas:
I think there is a little confusion over what the Government understands
by the word "subsidy". It seems that because a level
of support is going to more than one energy sourceand,
yes, it is going to all low carbon energy sourcesit seems
that, just because it is going to more than nuclear, somehow in
the Government's interpretation that means that it is not a subsidy.
Surely it still is a subsidy, even if it is going to renewables
and nuclear; even if its purpose is to do a range of other things,
it is still a subsidy.
I don't agree with that at all.
Q72 Caroline Lucas:
Can you define what you understand by the word "subsidy"
in this context?
I think it is a very consistent tax mechanism that works evenly
across the board, precisely because it puts in a consistent
Caroline Lucas: It is
not even. It just seems as if it
Precisely because it puts in a common floor price for carbonand
we know that one of the biggest challenges across this agenda
is that the different policy measures, effectively, cost carbon
in different ways. So I don't think I agree with you at all that
it is a subsidy. It will no doubt be a continuing matter for debate.
I hoped that you would welcome the carbon price floor. I don't
know whether you think it has been set at the right level. I suspect,
looking at some of the evidence given before, you would like it
to be higher, but I think the point is: it is a step in the right
direction, in terms of our green tax agenda and in making sure
we do get the right investment in the right low carbon power generation
Q73 Caroline Lucas:
Could you define the word "subsidy" in this context?
What do you understand is a subsidy?
I don't think I have a dictionary definition of "subsidy"
on me at the moment, Caroline, but I am sure I can fish one out
and send it to you.
Q74 Caroline Lucas:
I look forward to it, thank you. In the meantime, whatever it
is, nuclear is getting £50 million a year as a direct result
of the carbon floor price. Would your Department considering levying
some kind of tax on the nuclear power generators, to make sure
that in a sense they are not getting a windfall tax, so that they
are paying the same amount as operators from oil and gas, for
As you know, in terms of how we structure tax, one of the key
things first of all is general issues of state aid. So, in other
words: are we perhaps benefiting one particular sector more than
we are another, disproportionately? Secondly, this concept of
fiscal neutralitywhich means we can't suddenly unilaterally
tax one particular area in a way that is deemed unfair to other
areas. So we don't have perfect freedom to do that, and I think
the way in which we have approached the carbon price floor is
probably the most sensible way to ensure that we create investment
certainty. Because one of the messages we get back from people
needing to invest in this area is, they want to know what their
returns are, but secondly to make sure that there is this comparability
across the board so that low carbon is not disadvantaged.
Q75 Caroline Lucas:
I think the renewables side of it might not see it as being a
particularly fair way of moving forward, but will the carbon floor
price be accounted for as a subsidy in the national accounts,
like the renewables obligation? What is the advice coming from
the ONS about how to classify it?
It is not going to be classed as a subsidy and I think probably,
Mike, you may know the precise way in which the ONS is going to
handle it within the national accounts.
I doubt that they will take a final decision until they change
to the levy regimes that are put in place, but it is an adjustment
to existing tax structures. That is how the floor is put in place.
I think the ONS will take quite a lot from that, rather than looking
at it completely separately from that. What we are doing, for
example, is removing a rebate or reducing the level of a rebate,
depending on the fuel used to generate the electricityso,
I mean the changes to the structure of existing levies and duties.
Q76 Dr Whitehead:
On that issue, you have, however, also introduced a Treasury control
cap on DECC levy spending. In that control cap at the moment come
ROCs, FITs and warm homes discount, defined by ONS as imputed
tax and, therefore, subsidy. There are a number of other items
under consideration by ONS and, indeed, it is possible that the
energy company's obligation could be considered under that category.
I presume that ONS will look at carbon floor price at some stage.
Now all of those potential imputed tax and subsidy candidates,
if they are indeed determined as imputed tax and subsidy, would
come within the Treasury control framework within the present
spending round, would they not?
Yes. We have set up a spending control framework in order to get
a better ability to work with DECC on this issue of the levies
and the funding of the subsidiesfirst, how high they are,
and the likelihood then that they will obviously flow through
into consumables so that we have a better control of that across
Q77 Dr Whitehead:
What is the control total over the spending period on that?
We will have to write to you to give the exact figure because
it is obviously part of the DECC overall Spending Review total,
which I don't have on me today. I am sure if you had a DECC Minister
they could probably provide you with that, and I am very happy
to provide that data.
Q78 Dr Whitehead:
It is also annually capped, isn't it?
It flows across the Spending Review period and then, within that,
yes, there are the annualised totals.
Q79 Dr Whitehead:
If any of those particular items are classified as imputed tax
and spend, and are so classified within the present spending period,
they would come within that control total and, presumably, would
have to be taken out of that control total in order to be realised,
put into practice.
I don't understand the last partI understood most of your
question"to be realised and put into practice".
I think what you are saying is, do DECC have to stay within that
overall spending control framework within their Spending Review
agreed totals? The answer is, yes.
Q80 Dr Whitehead:
Yes. So, for example, if the energy companies' obligation was
to be classified, or the carbon floor price was to be so classified,
it would have to come within that control total in the present
We are determined to make sure, within the overall spending review
total that DECC have, that this framework gives us some control
to enable us to manage the levy fund of subsidies as a whole,
and we are already clear on which of those levies and which of
the levy fund of subsidies are treated by ONS as tax spend. Those
are the ones that we have in the control framework.
Q81 Dr Whitehead:
Would it be your understanding that, say, if the carbon floor
price or energy companies' obligations were to come within that
framework, the only way of making that work would be to take away
some of the money that has already been placed within the control
framework for things such as renewable obligation, feed-in tariffs
or the warm homes discount, for example?
I don't think you are going down the right road of questioning
in terms of carbon price floor. I don't think that is an issue
within carbon price floor. That is a Treasury policy that we have
brought forward; it is not a DECC policy.
Q82 Dr Whitehead:
Energy companies' obligation then, which is clearly
That is already part of the Spending Review settlement that we
worked out with DECC. Obviously there are policies that they have
in place nowlegacy policies, many of them. Then there are
policies that they plan to introduce.
Q83 Dr Whitehead:
However, since we don't know what the energy companies' obligation
will consist of right now, if it were to be quantified and it
were to be determined to be imputed tax-and-spend by ONS, that
would then be placed within that pot, in terms of the total amount
of spend that DECC could undertake in that period.
It is part of the DECC overall control framework. It is one of
the policies that we discussed with them at the Spending Review
and agreed that they should be bringing forward. Therefore, it
is part of the Spending Review overall settlement and, therefore,
it is part of that overall control framework.
Q84 Dr Whitehead:
Do you think that that control framework, whether it has arguments
in its favour in terms of the question of the extent to which
levies are exponential for environmental purposes, nevertheless
produces a brake on the extent to which any of these policies
can come forward for environmental purposes within the present
spending period, since they appear to be within that overall control
I think what it means is that we need toas we have with
businesshave some sense of the totality of these policies,
and how they can feed through that into company bills and household
bills. I think having some mechanism by which there is an overall
control on that is quite sensible. It is a far healthier position
for Government to be in than to have the potential, as we otherwise
would have done, where you could have had a whole range of policies
that could have fed through independently into household bills
without any mechanism to say, "Well, at some point, it becomes
too much", or "At some point we need to go back and
challenge whether the totality of it is not going to deliver what
we want"; which is: to find a balance between shifting to
a low carbon economy in the whole range of ways but, at the same
time, doing it in a way that is sustainable for people as we go
down that route. It is not easy to get there but I think we have
a sense that, if we can put in some controls, then it would give
Government some assurance. Hopefully, it will give businesses
and the public some assurance that we are conscious of that particular
problem for them.
Q85 Dr Whitehead:
You are happy there is no "baby and bathwater" problem
No, I think it is long overdue that we recognise that we have
this very difficult balance to strike. It is my personal view
that for too long the debate has been about targets and purely
where we end up, and probably not enough on how we get there,
some of the risks that we need to manage, and the different phases
that we might go through as we transition. I think across Government
now there is a lot more focus on, "What does it mean for
the next five years, the next 10 years?" and whether it is
carbon price floor and we have set a trajectory. I think there
is much more understanding that it is not enough to say where
the end point is; you have to be a bit more explicit about the
framework that gets us there.
Q86 Chair: Before
we leave this complex issue of carbon floor price, and I accept
it is complex, we have had companies expressing concerns that
their international competitiveness will be hit by the unilateral
introduction of a carbon floor price in the UK. I wondered what
you can realistically do to influence the EU ETS scheme, so that
it creates a sufficiently high price of carbon on its own. Connected
to that I would be very interestedand this is a brief question,
the second partif you could give an indication of how the
money from the ETS auctioning will be spent in the UK.
In answer to the first question, as I have said to the Committee,
in a sense we are conscious of the fact that introducing the carbon
floor price is done in a way that it has to bite, but we want
to make it bite in a way that is sustainable. As you will know,
we have climate change agreements that help do that and, specifically
in relation to energy-intensive industries, we are also looking
across the piece at them.
In terms of the European aspect, we are absolutely
working with other Member States to have a debate to press for
a much higher percentage of allowances to be auctioned and, in
fact, as you probably know, we want to see 100% of allowances
auctioned. The fact that we are continuing to show leadership
in this area, as we did earlier this week in accepting the Committee
on Climate Change's fourth carbon budgetI think it was
starting to say, "We are willing to take these steps but
we want to see other countries do it too", and the message
from yesterday was exactly that. Yes, we are willing to step up
to the plate but we want to make sure that we see other countries
come along that path too, in order to make sure that this risk
of competitiveness is properly managed.
Q87 Chair: In respect
of how that EU ETS auctioning will be spent in the UK.
That feeds into the General Fund that funds public services; is
that the question you are asking there?
Chair: We talked about
hypothecation earlier on, and I am interested in how it is
In that case it is. So, yes, it just comes back into the totality
of our overall
Q88 Chair: So it
is not going to be specified for investment in renewables or any
of those other things?
It is not going to be hypothecated, but then you have to bear
it in mind that on different measures we are channelling investment
into moving to a low carbon economyfor example, the Green
Investment Bank. So I think we do look at things overall to say,
"What are we able to do, not just within DECC but across
the piece to drive investment?"
Chair: We must move on.
Q89 Neil Carmichael:
We have touched upon the question I was going to ask, which was
about fuel duty. You have already said that it is more of a tax
than an environmental instrument, so I won't pursue that much
Has the Treasury ever done any calculations to compare
the cost of environmental damage by motoring to the tax revenue
received; any sort of analysis of that typecost of motoring
versus tax revenue received?
You mean in terms of carbon?
Q90 Neil Carmichael:
Yes, but other things might be thrown into the pot as well, like
congestion or whatever.
I think Treasury has periodically, alongside the DFT, done quite
a lot of work to look at the overall burden of taxation in relation
to the externalities caused by motoring. I have no doubt that
motoring stakeholder groups would be adamant that the level of
taxation that we get from motoring taxes was in excess of perhaps
some of those externalities.
The 1 pence fuel duty cut will have had a minor impact
overall on the emissions from motoring. In a sense, what it shows
is it backs up my argument, which is: I don't think in reality
fuel duty is a green tax. There is an aspect of it but it doesn't
drive environmental behaviour. It is not a pure green tax because,
at the end of the day, clearly the oil price has fed through far
more to changing behaviour than fuel duty was able to do.
Q91 Neil Carmichael:
An extension to that question: if you were thinking in terms of,
let's say, tackling car use or emissions, what instrument would
you think of?
I think there are probably two elements: one is short term and
the second is long term. There is a wholeI was going to
sayplethora. It is probably not quite a plethora but there
are a fair number of tax incentives in terms of capital allowances,
regulation issuesthings like plugged-in placesthat
we have put in place, building on what the last Government had
put in place as well, to try and drive this modal switch, if you
want to call it that, from petrol cars to electric vehicles. The
other reason why the carbon price floor is important is that,
in a sense, it is all very well doing that, and hopefully we will
do it successfullywe can help in terms of domestic consumption
through the Green Dealbut we have to make sure that if
you are in an electric vehicle, the electric you are using is
in itself green. Overall, we have these sorts of jigsaw pieces
that we have to put together, and that is why carbon price floor
becomes quite important alongside electricity market reform.
Q92 Neil Carmichael:
Absolutely. Last but not least, in the last Budget report you
produced an interesting assessment of the impact of the Budget
Sorryon what, Neil?
Neil Carmichael: The impact
of the Budget.
Chair: On households.
Neil Carmichael: Households.
How about a similar sort of structure for the impact on environment
Once we have published our assessment of the baseline I think
that will put us in a position to start saying, "Well, this
is where we are. This is how our policies will affect it".
As you know, we already have an element of the Budget Book that
talks about what we think the emissions impacts will be of some
of the policies. At that stage, then we will have a baseline and
we will be able to say, "These are the things that have changed
in it as a result".
Neil Carmichael: Great,
Q93 Caroline Nokes:
I am sticking with motoring. You did make reference to "plugged-in
places", but specifically didn't the Budget almost act as
a disincentive to people to move away from motoring? There was
a drop in fuel duty and the amount of subsidies for electric cars
has been reduced. So do you not think the Government was sending
a bit of a strange message therethat you are not trying
to encourage people to make a shift in the way that they move
No. I think that people understood, given the high price of oil
and how it fed through into pump prices, that we did want to do
something in the short term to try and alleviate the pressures
on the cost of living for people. Does it perhaps change that
long-term message they havethat the next time they buy
a car, because it is so expensive now for people to fill up a
petrol car, they will want to see what they can do to get some
kind of a hybrid or an electric vehicle? No, I think those incentives
are still there. Again, it comes back to saying, well, for us
as Government I think, depending on which area you are looking
at, you will use different mechanisms to try and drive behaviour.
So, clearly, the price of fuel is having a major
impact on motorists. We wanted to try and at least somewhat alleviate
that for them in the short term, but I think it is now at a level
where people are saying, "The next time I buy a car I will
look at getting a more fuel-efficient one", and I think you
also have the industry continuing to challenge itself on emissions.
We have seen emissions from individual vehicles drop on average
steadily year on year, and I think now you see huge investment
going into not just electric vehicles but fuel cells. You can
see a progression of technology coming through there.
So I think it very much depends on the area that
you are looking at, but particularly on motoring, I think we will
have a range of other incentivesincluding the company car
structurethat hopefully over time will drive this modal
Q94 Caroline Nokes:
Yet there was a focus on helping household budgets with their
transport costs when it came to the private car, but we have seen
a significant increase in the number of people using the train.
We know that coach travel is one of the most environmentally friendly
forms of travel but there was no support for that, no encouragement
to people to shift to those modes of transport.
I think we come back to the underlying challenge faced by Government,
which is: unfortunately, there is not an awful lot of spare cash
slopping around the place to perhaps give us the flexibility that
I am sure lots of Governments would like. I think what we can
do is make sure thatfor people who don't have much of an
alternative to the behaviour they have to use, which is to get
in their car to go to work, particularly in maybe more rural areaswe
do support those people. We are seeing the Department for Transport
work with local bus operators and local councils to say, "Well,
in terms of the grants that they get to subsidise fares, how can
we make sure we get more out of them?" You are right: they
are constrained, and I think it is just in the sense of the fact
of the public finances that we have been handed over, unfortunately.
Q95 Caroline Nokes:
I suspect the public finances are going to feature largely in
this next response. The Budget removed tax incentives for motorists
to use biodiesels, specifically those made from used cooking oil,
which have significantly lower emissions over the lifecycle. So
do you regard that as a retrograde step, to have removed those
Those were simply plans that had already been in place from the
last Government, so they were ones that we simply implemented
having had them put in place. In terms of the renewable transport
fuel obligation, that is a DFT policy and that whole issue of
biofuels now falls within that, so it is something that they are
Q96 Caroline Nokes:
Is that, in itself, a bit of a problem: how does the Treasury
work with the other Government Departments so that changes in
taxes in that way don't cut across other policies, other Departments?
You are right that we have to make sure we work in a joined up
way, but I think we do do that. I do have meetings with my counterparts
in the DFT and in DECC, so from my perspective I think we do work
closely together. I think it is because, particularly in this
agenda maybe more than others, you do have to look at the whole
package that you are bringing forward. Tax is one part of that,
but there is often regulation; there is often industry; voluntary
behaviour; there can be public spending, like you say. Those often
happen outside of Treasury, and so we do absolutely work with
those other Departments to make sure that it adds up as a whole.
Q97 Chair: Before
we move on from fuel duty, you said in relation to Neil Carmichael's
question that you had done calculations that compare the costs
of environmental damage done by motoring with the tax revenue
received. I think the Committee would find it very helpful if
you could let us have a summary of the work that has been done,
perhaps in written form. I am not suggesting that you give it
to us now verbally, but it would be very interesting to see how
that has been done and how it takes into account different aspects
I think that will involve work on the environmental side done
by DFT, and then we will match that up with our taxation.
Chair: It is just that
you said it had been done, so I think we would like to see it.
Q98 Simon Wright:
The coalition agreement refers to replacing Air Passenger Duty
with a flight duty, and as you know the Budget overturned that
previous goal. I wonder if you could perhaps provide a bit more
information on the legal advice that the Treasury sought before
coming to that conclusion.
To be clear, the coalition agreement talked about us looking at
the options to reform APD, including looking at this per plane
duty. I think realistically, looking at the legalities of how
we would pursue it, it simply wasn't going to be sensible to do
it. Because what became clear was that the international legal
framework that we operate in, including the Chicago Convention,
certainly right now meant that we couldn't go down a per plane
tax route. What we want to do, what we are going to be doing,
is working with other international partners to see if we can
perhaps build some more consensus for this.
My sense is that when the Chicago Convention was
brought in, in 1944, those people didn't have any intention of
stopping individual countries taking action in the future to structure
their aviation taxation in a way that would improve the environment.
Nevertheless, that framework is a real hindrance in enabling us
to bring forward per plane.
So our sense was that therefore, we should make sure,
first of all, that we responded to some of the other criticisms
that we had had on Air Passenger Duty. In many cases those centred
around people feeling it was unfair, and we had a number of representations
from a number of MPsparticularly those with communities
that had, for example, family ties back to places like the Caribbeansaying
that they felt the way in which it was structured at present was
fundamentally unfair. So we decided that we would consult on some
of those issues, and, fine, we have to stick with APD, but let's
try and make sure that it raises revenue, but in a way that we
think is broadly fairer and tries to tackle some of these other
issues people raise. Of course, the other thing we did try to
make it fairerthe other thing we proposedis that
we extend it to business jets.
Q99 Simon Wright:
Thank you. The Policy Studies Institute published a paper in June
last year in relation to the Chicago Convention. They concluded
that they think PPD on fuel used, or carbon, would not be compatible
with the Convention. However they did suggest looking at other
bases, which would include NOx landing and take-off emissions,
number of engines and maximum take-off weights as a good way of
alternatively looking at the environmental impact. Were those
areas that you pursued?
I can assure you we looked at a number of different ways in which
we could structure this taxation to try and encourage better environmental
behaviour, but I think it comes back to what I was saying to Caroline
Nokes, in a way. At the end of the day, I think our sense wasparticularly
on things like NOx, for examplethat there were better ways
of making improvements on that than through tax: that if we wanted
to do what we want to do as a Government, which is to have a more
simple tax system, one that is not excessively complicated, the
best thing to do was to work with the DFT, for example, to get
industry improvements in aviation to tackle some of those other
environmental issues, and then to try and get some more international
consensus around moving to per plane and whether that can be made
possible, but in the meantime to make APD fairer.
I think it is also fair for me to say to the Committee
that the other thing that was very clear cutI remember
going and looking at how often the Chicago Convention has been
changed since 1944, and the answer is it has been changed several
times but it tends to be incredibly small technical amendments,
so this would be quite a dramatic changewas that we just
had to be realistic that we can pursue that route but, in the
meantime, we should try and tackle some of the current issues
with APD that people had raised with us.
Q100 Simon Wright:
Thank you. The APD consultation lists 31 bodies that have been
consulted since the Budget, but only one of these was an environmental
body: the Campaign for Better Transport. Why hasn't the Government
sought views from more environmental groups?
Well, we have. We had a workshop earlier in the year that a whole
range of environmental groups attended. In addition to the formal
consultation, as you can imagine, I met up with a number of groups
who came into Treasury to talk to me about their individual concerns,
so we did interact quite a lot. I think our overall conclusion
was: we do want to see improvements in terms of aviation in the
environment, but the best way to do that was through the Emissions
Trading Scheme and the fact that aviation is going to become part
of that from 1 January next year.
Q101 Neil Carmichael:
The EU Emissions Trading Scheme has not exactly been a striking
success at reducing CO2 from the aviation sector; hence
there are various other measures. What do you expect to happen
to the trading scheme in the foreseeable future?
It is hard for it to have been a striking success in terms of
aviation because aviation is not in it yet. I think once it is
in there, what we want to see across the board is a higher proportion
of allowances auctioned. In other words, we think that will be
a far better way of making sure this system can work effectively.
I think I am right in saying we are on phase 2, and
I think the point is: as we go through the next phase that is
what we are going to be arguing for as a Government. I think there
is obviously a general debate about what is the best way to go
about that. Our sense is, we want to show some leadership in this
area and we think that is a smarter way to make sure we get people
to follow us. But as I said, in terms of the fourth carbon budget
being clear cut, we are not just going to go it alone and see
our competitiveness eroded. We want to see other countries come
Q102 Neil Carmichael:
It is going to take a fair bit of leadership to get from the position
where we effectively are at the moment towards a target for 2050,
which is an 80% carbon reduction. So, what big changes do you
expect to see, because that is a huge reduction?
At the moment, I think I am right in saying that the Committee
on Climate Change say we are on track in the course of this first
carbon budget, so what we need to do is make sure that this transition
plan is put in place. So Treasury has a role to play in that in
terms of carbon price floor. DECC clearly has a huge role to play
in it; so does Defra. I think that on the retail side of demand
from the public, Green Deal is a key part of that. Then, as you
will be aware, there isI think I am right in sayingon
the DECC website some of the DECC modelling they have done: people
can go in and plug in different combinations of where the power
generation mix will come from, to see how much that then reduces
Of course, the other unknown is that, ultimately,
although we can track what we think the forward curve of the price
of carbon will be, what we definitely know is that, as the Stern
report made clear, if we don't get ourselves down this route the
cost of inaction will be greater than the costs of action. We
just need to make sure that the costs of action are minimised
in terms of cost-effectiveness and that we understand where they
bite, so that we don't have negative consequences that we can't
Q103 Neil Carmichael:
It is difficult to imagine an aeroplane flying using electricity,
so you are effectively tied to technology which is certainly capable
of significant incremental steps to reduce emissions. There is
no doubt about that if you look at the way in which jet engines
have advanced in the last 20 yearsand certainly the technology
of, say, the Airbus 380 and so forth, given the number of passengers
and the materials used, and so on. Is there any long-term plan
that the Government is thinking about to advance still further
that sort of technical solution?
Realistically, you are probably better off putting that question
to a Transport Minister who works with the industry day to day.
My understanding of one of the key challenges within that whole
agenda is this interplay between emissions and noise, for example.
If you have a fatter, shorter plane, you have one particular kind
of environmental challenge in terms of how much thrust you need
to get it off the floor and then land it. Then if you have a thinner
plane, my understanding isI think I have this rightperhaps
you need less thrust to get it off the floor. I know there is
one switch, but it is noisier, or the emissions are higher. In
other words, there are some choices to be made by all of us about
what matters most. I don't think they are easy to get over, and
there are some literally simple science facts that the industry
is trying to grapple with, in terms of making progress on all
fronts at the same time.
Neil Carmichael: Undoubtedly.
Because, of course, if you go back to the Brabazon Committee,
which effectively paved the way for the development of aviation
in Britainnamed after Lord Brabazon who was the Minister
at the timevirtually every step we took was the wrong step,
as it happens. The Brabazon was too heavy, it needed a long runway;
the Comet dropped out of the sky because it had square windows;
Concorde couldn't fly because it just absorbed so much fuel. Ironically,
the Americans always managed, almost by accident, to get the right
answer without any rational planning at all, which is an interesting
comparison of a public policy.
Chair: I think we need
to just bring it back to the focus if we can.
Q104 Neil Carmichael:
It is quite an interesting question. Anyway, the last question:
is there a rationale for lowering the rates of Air Passenger Duty
if you are moving on to the ETS?
Chair: Mr Williams, do
you want to come in?
It links back to your question, Mr Carmichael, about emissions
trading that, yes, we have to make a very sizeable reduction in
CO2 emissions by 2050, to meet the target, but the
big advantage of an Emissions Trading Scheme is that you achieve
that reduction in emissions in the cheapest way. So if it turns
outand I think we can't speculate about technological developments
20 or 30 years down the linethat it is particularly hard
for the aviation industry to reduce emissions, then you have,
through the Emissions Trading Scheme, a way of getting the emissions
reduced by some other part of the economy which can more readily
reduce it. You are avoiding the sort of planning effect, which
you described with previous attempts to co-ordinate what happens
in the aviation industry.
Neil Carmichael: Yes.
I thought I would bring it all round in a circle. Thank you.
Q105 Chair: I am
just going to bring in Dr Whitehead, but just on this, given that
taxation is all about having public support for what the Treasury
doesor hopefully having public supportand it is
about behaviour change, and given the previous report of this
Committee on offsets in respect of aviation, are you concerned
at all that there doesn't appear to have been very much progress
by the air companies in making it easier for people who do want
to offset their flying to do so easily? Does that feature on your
radar at all?
I would say I think that is principally a matter for the Department
for Transport in terms of the rest of theI was going to
sayregulatory structure, but obviously this is outside
of that: the mix of things that can be done to try and bear down
on aviation's impact on the environment. Obviously, we take an
interest in all of this.
Q106 Chair: It is
a cross-cutting agenda, isn't it?
In terms of the responsibility for that particular piece you talk
about, then that more readily fits within DFT.
Q107 Dr Whitehead:
It is true that within carbon budgets, and obliquely within EU
ETS, you can switch between heads in order to maximise the benefit
of carbon reductions, even if some areas are not keeping up to
the extent they might. The effect of aviation coming into EU ETS
is calculated as only requiring about a 5% reduction in emissions
from the aviation sector by 2020. At the same time, if the total
of aviation continues to grow at the rate it is at the moment,
on those sorts of figures you would have to undertake some enormous
changes in other area headings in order to compensate for that
very small change. Do you think that is a problem as far as the
entry of aviation in the EU ETS is concerned? I think the EU Commission
has already agreed to undertake an element of auctioning in phase
3, but do you think that alone would provide the bridge, or do
you think there is a problem in terms of the size of the change
related to the sort of switching around that would be possible
within a carbon budget?
I think it is one of the reasons why, if we could drive to see
the Chicago Convention changed, that would give us more options
around the rest of the tax structure in relation to aviation.
That would mean we could perhaps start to have more options to
try and tackle some of those issues. At the moment, as Mike said,
really we are left with an ETS system. Obviously, we absolutely
support the fact that aviation is coming into it, but it is the
mechanism principally by which we can have a fiscal incentive
to bear down on aviation in terms of emissions. One of the reasons
why we are keen to see whether we can make some common cause with
other countries, in terms of the Chicago Convention, is that I
think it would be better if we had more opportunities.
Chair: I want us to move
on to the Green Investment Bank, and I am going to bring in Peter
Q108 Peter Aldous:
Thank you, Madam Chairman. Minister, thank you very much for your
answers so far. Just looking to the Green Investment Bank and
the announcements that were made on 23 March, which I think were
threefoldthe additional £2 billion of start-up funding;
the announcement starting next year; and finally, not being able
to borrow to 2015-16one of the things I think the Government
have promised is that before the end of May they would announce
the design and operational model for the Green Investment Bank.
I am conscious the end of May is approaching, and I just wonder
where we are on that.
That is still our intention. So, as you say, the end of May is
approaching. We suggest you will be hearing something shortly.
Q109 Peter Aldous:
We can expect something next week?
It is not even the end of May at the end of next week. I think
we are aiming to meet that timeline that we set ourselves.
Q110 Peter Aldous:
One of the issues that also needs to be addressed is, there is
an issue with regard to state aid that needs to be clarified with
the EU Commission. I just wonder where the Government is on overcoming
that particular hurdle.
Mike, can you fill in the latest on that?
In broad terms, we obviously need to make sure that the Commission
is happy with there not being state aid difficulties. As in other
areas, ultimately it is not possible to get a commitment from
the Commission until you have completely specified what you are
going to do, obviously. So it will be an iterative process to
make sure that we are not going to re-jig the state aid rules.
Q111 Peter Aldous:
Have there been any discussions with them so far on that?
I think we need to write to you on that. That is not directly
my area. We have a lot of areas where state aid impacts on Treasury
business, so to that extent there are areas where the rules are
very clear and areas where they are less clear, and we need to
make sure we are operating in the right area.
I think the other thing I would point out on this is it is a BIS
lead, so the lead on this has come from them rather than Treasury.
What we want to do is make sure that the Green Investment Bank
is capitalised to a level that we think is going to make it worth
while. Of course, we have had the discussion about making sure
the borrowing powers are done in a sustainable way, given that
debt is a big problem for our country at the moment.
Q112 Chair: On state
aid, if I may, given that I think Sheryll Murray raised this issue
on the previous occasion when you came before the Committee, it
is a great concern to us that, if it is BIS led, it shouldn't
be that we don't know what the Treasury are doing in respect of
making sure there aren't going to be any last-minute hiccups through
this whole issue of state aid. In terms of Peter Aldous' question,
I think we would like to know chapter and verse on what the Treasury
is doing on it.
I think what I will say, Chairman, is that we will make sure we
talk to BIS to make sure we can get you an update from them, as
the lead Department, about this particular issue. But, as Mike
has been right to say, clearly we will have something to get their
take on in Europe once we have come out with our proposed working
model later this month. I think right now, we have been having
our discussions across Government about the objectives, what the
structure should be, how much it should be capitalised, and there
is a challenge for the EU in saying whether they think there would
be any state aid issues, when we haven't finalised what that model
will look like. We are nearly there now and I think at that stage
the process can get properly under way, but what we will make
sure we do is to clarify that process with BIS and then write
to the Committee.
Q113 Peter Aldous:
Thank you for that, Minister. Moving on, I believe the Chancellor
did state that the seed corn of the £3 billion start up funding
would help get in an additional £15 billion of investment
by 2014-15, and I would be interested to know the basis on which
that prediction was made.
I think it is done on the basis of looking at normal venture capital;
what a normal institution in this sort of arena might be expected
to be able to leverage in. In some way it is contingent on the
model that we end up with, but I think our sense is that that
is a realistic amount that we could expect: a £3 billion
capital base to be able potentially to leverage it over time.
Q114 Peter Aldous:
Did you have a look at what other models in Europe, the Dutch
model or the German model might have
As you can imagine we have looked at an awful lot of those different
models. There is in some cases a comparability issue. If you look
at those sorts of banks that we see in other countries, a lot
of them were set up literally 100-plus years ago. So they are
in a slightly different place and it is not always quite easy
to say, "Well, they have this amount of capital base and
they have leveraged in that amount of extra money". Some
of them don't go on that model anyway, but I think we have had
a relatively good go at understanding how much extra we can get
in on the back of this capital base.
Q115 Peter Aldous:
So it is a realistic, sensible assumption assessment?
We believe so.
Q116 Peter Aldous:
Moving on and looking at the decision to delay the ability to
borrow to 2015-16, the Chancellor and the Treasury set out the
reasons for that, but I am conscious that the CBI, in particular,
did question the rationale for that. I will read what they said:
"While the initial funding is certainly a good start, it
is insufficient to make a significant impact on the total investment
required. The Government has chosen to postpone the GIB's borrowing
powers to avoid any adverse impact on its debt and deficit reduction
targets. But as far as the financial markets are concerned, if
the GIB is to issue debt, the timing of this is largely irrelevant.
If investors are to have confidence in this important institution,
it must have the power to raise funds on the capital markets as
soon as possible". How would you respond to what the CBI
I think "as soon as possible" is relative. The GIB is
still being set up. The business model will be planned to be put
out into the public arena by the end of the month. We think that
the action we took in the Budget, in terms of asset sales and
adding on to that £1 billion Spending Review total, will
mean that it can start investing sooner, in 2012-13. But if you
look at when we are saying it should have the ability to start
borrowing, in 2015-16, I think that is a pretty sensible and pragmatic
balance between saying, "Well, the thing has to get up and
running and we have to understand it is up and running in a way
that is robust"it is not going to be able to do it
on day twoand at the same time that we want to make sure
that we meet our overall public finance imperative of getting
rid of the structural deficit and making our borrowing levels
We understand those sorts of comments, but they have
to be seen in terms of, realistically, when we would want to see
any new institution having borrowing powers, having just been
put in place in 2012, and having made its first investments possibly
some time after that. So I think that is probably a pragmatic
Q117 Peter Aldous:
So it is a different timescale as between yourself and the CBI,
No, I think in many respects they probably recognise that it is
a very sensible, structured approach that we are taking towards
getting this bank set up. We ought to make sure it works in the
long term, and I think that is the most important thing. That
means making sure it is structured right and then, over time,
making sure it is financed appropriately. I think that is what
we set out in the Budget.
Q118 Peter Aldous:
Moving on, last week the Committee on Climate Change identified
that there is a crucial window of opportunity with regard to the
funding of offshore wind, which is coming up in the very near
future. Do you feel, with just the £3 billion and with the
ability to borrow being put back, that that is sufficient to tackle
that particular problem?
I think that, in terms of the overall amount of investment that
we need to get into low carbon power generation across the board,
of which offshore wind is part, the GIB is one of the policy mechanisms
to do that. I think we recognise that it is not on its own going
to be enough. It is one of the reasons why we have looked at electricity
market reform; we have brought through the carbon price floor
because we need to improve the overall policy landscape to encourage
that investment to come in.
Q119 Peter Aldous:
Just one final point, when this Committee had its inquiry on the
Green Investment Bank, I think the Treasury did tell us at that
time that capitalising the bank from Government asset sales would
not impact on your fiscal rules. Can we take that perhaps as meaning
that you might consider additional funds to the GIB in due course?
I think it would be very dangerous of me to pre-empt what my two
Treasury colleaguesthe Chancellor and the Chief Secretarymay
want to agree with Departments in the future. We set out the Spending
Review for the course of the Parliament, but I think we have always
been very clear-cut that we want to see a Green Investment Bank
set up that will be successful at the end of the day. I think
the key is making sure the model is right, and making sure it
is done in a way that can leverage in all of this extra external
capital. I think that is the key to its success.
Q120 Chair: Will
there be circumstances that would perhaps lead you at least to
look at that suggestion from Peter Aldous as an option?
I would say, let's get the Green Investment Bank set up first.
Let's get these asset sales done. Let's get the thing moving,
and I think that is probably step one, but I have no doubt that
your Committee will want to look at its success over the years.
Q121 Simon Kirby:
Thank you, Minister, for a very interesting afternoon. Defra are
looking very carefully at valuing natural capital. Well, you can
value natural capital a number of different ways, and I am wondering
if you are working alongside them and whether you see any scope
for any part of the tax system to help protect our natural capital.
Defra are engaged in that work and, from a Treasury perspective,
we would be very interested to work with them on that. The Green
Book that we have in place across Government is a very good base
on which already to start to place some monetary valuation on
broader environmental costs and benefits that I think, perhaps
in years gone by, we haven't been able to do. In fact, there is
a piece of work happening right now thatI think I am right
in sayingDefra led but also with input from Treasury, which
is looking at how we can improve it.
The other thing I would point out, which might get
this point across to the Committee, is the French have asked to
translate the Green Book.
Chair: So it is truly
So I hope that will be seen as somewhat of a sign, because I am
sure they do many things in their mind incredibly well, but this
is one of the areas where they have wanted to translate our Green
Book, because they clearly think it is of use. So we are very
keen to continue working with Defra to make sure that we do have
a better valuation of these non-financial issues, mainly because
the better we can do it, then the better decision making we will
get and the better balance we will get of the environmental positives
and negatives of policy decisions that we may take.
Q122 Simon Kirby:
That is interesting, Minister; they do have a financial value
as well. Not only is there an environmental aspect; in the Conservation
Credit Scheme, for instance, money derived from one place can
be used somewhere else. I am just wonderingif I can press
you againhow closely you have been working with Defra on
that scheme, for instance?
It is a Defra lead but as you can imagine, to the extent that
it can weigh on business, it is going to be a new mechanism, potentially,
that we bring in. Of course, Treasury wants to make sure that
we feel it is something we are happy with too, but I think we
do want to look at seeing how and whether we can make that sort
of approach work successfully.
Simon Kirby: Okay. Thank you.
Chair: Well, thank you
very much. I think we have covered quite a lot of ground, so may
I thank you for your patience with us? I think we have only slightly
extended our deadline on account of the Division. We very much
look forward to seeing how, in the fullness of time, the Treasury
can have a Green Book that is truly green and that includes environmental
issues. So thank you both very much for your time this afternoon.