Budget 2011 and environmental taxes - Environmental Audit Committee Contents


Examination of Witnesses (Question Numbers 54-122)

JUSTINE GREENING MP, AND MIKE WILLIAMS

18 MAY 2011

Q54   Chair: 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 statement?

Justine Greening: Yes, of course.

Chair: Then we shall move straight on to direct questioning.

Justine Greening: 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, thank you.

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?

Justine Greening: 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 that—perhaps in this agenda more than any other—there 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 now—post-Budget—to 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 taxation—around 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?

Justine Greening: 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 strategy.

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?

Justine Greening: That will ultimately be very much driven by the baseline that we decide and—as I am going to guess we will come on to—there 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 Government—to 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 behaviour.

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?

Justine Greening: No.

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?

Justine Greening: 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 first one.

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 process—the review on the energy-intensive businesses?

Justine Greening: It is a joint process from BIS and DECC.

Zac Goldsmith: They are working together.

Justine Greening: Yes.

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 taxes—that 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?

Justine Greening: 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 the car.

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 hypothecated—not 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 more acceptable.

Justine Greening: 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 tax—that 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 manifesto—an 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 elsewhere.

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 rebate—so obviously, at the point where a home changes ownership—for 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?

Justine Greening: 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—

Q64   Chair: Who is it a matter for, if you can't?

Justine Greening: 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.

Q65   Chair: 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 point—but 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 that circle.

I suspect we are going to have to wait until after the Division, because I think that Members will want to go and vote.

Justine Greening: It is entirely up to you. I am happy to—

Chair: Sorry.

Justine Greening: Okay, we will come back to that, no problem.

  

Sitting suspended for a Division in the House.

On resuming—

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 tax.

Justine Greening: 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 is—and again, I am interested to get the Committee's views because the OECD have their definition, and EUROSTAT have a slightly different definition again—there 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 tax—plus the points that Zac Goldsmith was making, which related to behaviour change and so on and so forth—and 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?

Justine Greening: 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?

Justine Greening: 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 actually—so, it was fuel duty?

Chair: Fuel duty, VAT on fuel duty, Vehicle Excise Duty and Air Passenger Duty—the 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.

Justine Greening: 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—

Justine Greening: Later on this session?

Chair: Yes.

Justine Greening: Fine; okay.

Chair: I was just concerned to get the definition of what is or isn't an environmental tax at this stage.

Justine Greening: 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 you.

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.

Justine Greening: It is not a subsidy. It is about putting in place a level playing field—a 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.

Justine Greening: 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 supports—alongside electricity market reform—making 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 source—and, yes, it is going to all low carbon energy sources—it 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.

Justine Greening: I don't agree with that at all.

Q72   Caroline Lucas: Can you define what you understand by the word "subsidy" in this context?

Justine Greening: 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—

Justine Greening: Precisely because it puts in a common floor price for carbon—and 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 going forward.

Q73   Caroline Lucas: Could you define the word "subsidy" in this context? What do you understand is a subsidy?

Justine Greening: 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 example?

Justine Greening: 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 neutrality—which 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?

Justine Greening: 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.

Mike Williams: 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 electricity—so, 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?

Justine Greening: 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 subsidies—first, 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 Government.

Q77   Dr Whitehead: What is the control total over the spending period on that?

Justine Greening: 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?

Justine Greening: 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.

Justine Greening: I don't understand the last part—I 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 spending round?

Justine Greening: 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?

Justine Greening: 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—

Justine Greening: That is already part of the Spending Review settlement that we worked out with DECC. Obviously there are policies that they have in place now—legacy 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.

Justine Greening: 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 total box?

Justine Greening: I think what it means is that we need to—as we have with business—have 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 here?

Justine Greening: 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 interested—and this is a brief question, the second part—if you could give an indication of how the money from the ETS auctioning will be spent in the UK.

Justine Greening: 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 budget—I 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.

Justine Greening: 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—

Justine Greening: 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?

Justine Greening: 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 economy—for 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 further.

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 type—cost of motoring versus tax revenue received?

Justine Greening: 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.

Justine Greening: 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?

Justine Greening: I think there are probably two elements: one is short term and the second is long term. There is a whole—I was going to say—plethora. It is probably not quite a plethora but there are a fair number of tax incentives in terms of capital allowances, regulation issues—things like plugged-in places—that 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 successfully—we can help in terms of domestic consumption through the Green Deal—but 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 on families.

Justine Greening: Sorry—on what, Neil?

Neil Carmichael: The impact of the Budget.

Justine Greening: On families?

Chair: On households.

Neil Carmichael: Households. How about a similar sort of structure for the impact on environment protection?

Justine Greening: 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, thank you.

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 there—that you are not trying to encourage people to make a shift in the way that they move around?

Justine Greening: 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 have—that 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 incentives—including the company car structure—that hopefully over time will drive this modal shift.

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.

Justine Greening: 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 that—for 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 areas—we 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 tax incentives?

Justine Greening: 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 pushing forward.

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?

Justine Greening: 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 of this.

Justine Greening: 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.

Justine Greening: 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 MPs—particularly those with communities that had, for example, family ties back to places like the Caribbean—saying 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 fairer—the other thing we proposed—is 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?

Justine Greening: 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 was—particularly on things like NOx, for example—that 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 cut—I 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 change—was 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?

Justine Greening: 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?

Justine Greening: 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 with us.

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?

Justine Greening: 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 is—I think I am right in saying—on 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 our emissions.

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 alleviate.

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 years—and 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?

Justine Greening: 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 is—I think I have this right—perhaps 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 Britain—named after Lord Brabazon who was the Minister at the time—virtually 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?

Mike Williams: 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 out—and I think we can't speculate about technological developments 20 or 30 years down the line—that 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 does—or hopefully having public support—and 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?

Justine Greening: I would say I think that is principally a matter for the Department for Transport in terms of the rest of the—I was going to say—regulatory 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?

Justine Greening: 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?

Justine Greening: 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 Aldous.

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 threefold—the additional £2 billion of start-up funding; the announcement starting next year; and finally, not being able to borrow to 2015-16—one 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.

Justine Greening: 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?

Justine Greening: 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.

Justine Greening: Mike, can you fill in the latest on that?

Mike Williams: 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?

Mike Williams: 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.

Justine Greening: 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.

Justine Greening: 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.

Justine Greening: 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—

Justine Greening: 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?

Justine Greening: 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 have said?

Justine Greening: 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 two—and 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 more sustainable.

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 timeline, yes.

Q117   Peter Aldous: So it is a different timescale as between yourself and the CBI, then?

Justine Greening: 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?

Justine Greening: 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?

Justine Greening: I think it would be very dangerous of me to pre-empt what my two Treasury colleagues—the Chancellor and the Chief Secretary—may 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?

Justine Greening: 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.

Justine Greening: 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 that—I think I am right in saying—Defra 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 green.

Justine Greening: 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 wondering—if I can press you again—how closely you have been working with Defra on that scheme, for instance?

Justine Greening: 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.


 
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