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Hypothecation can also be useful in revealing the degree to which the programme can be budget-neutral overall. In other words, taxes in area A could be offset by taxes in area B. This is subject to the qualification that the overseas account, which is the net balance of receipts or payments on overseas credits from the EU Emissions Trading Scheme and so on, will need to be slotted into the UK budget, where the ultimate incidence will lie. Of course there will be the question of what will be in and what will be out of this financial carbon accounting.

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One or two examples are very familiar to us. Money from the London congestion charge is going into improvements in public transport. Earlier, the Labour Party objected to it: was it okay for the driver of a Rolls Royce to scatter £50 notes along Piccadilly, pricing the Ford Escort full of lesser breeds off the road? On due reflection, it started to appreciate that, with hypothecation, all those £50 notes would be pushed into public transport. That was the argument of John Prescott and Ken Livingstone—bless them both—among others. It therefore had a socially progressive, redistributive element to it. We are now seeing the increased use of differential taxation rates for motor cars being adopted more widely, not necessarily via congestion charging but, as in last week’s Budget, nationwide, with road tax biting differentially on different sizes of engine.

In transport more generally, we have the taxation of road versus rail freight. Such a non-transparent set of taxation arrangements needs to be set out in a proper accounting system. I welcome the consultation exercise on this at the present time, and I think the results will be conducive to a further step forward in the share of rail freight in our freight transport system.

One could go from home heating to aviation, shipping and so on, not to mention plastic bags, but the central point about the consolidation and transparency of carbon tax accounting as a whole is that now is the time for government to step up to the plate before others do. If we are to treat the public as adults, we need an adult transparent accounting system for the income and expenditure on the carbon account. That and the straightforward questions and answers that will flow from it will go part of the way to winning hearts and minds. Otherwise, we will not have a cat in hell’s chance of achieving this vast shift from a positive growth coefficient of carbon as the economy goes forward to a negative one. The first thing to avoid, therefore, is being accused of selling a pig in a poke.

Ministers may be nervous about a full-frontal approach to presenting this, but let me distinguish first the technical level and secondly the level of the man and the woman in the pub in Burton-on-Trent. This sort of two-legged approach to looking at public policy was a very useful idea that we always bore in mind when we wrote policy papers at the TUC—of course, the TUC was and remains a paragon of all administrative virtues.

At the first level, I assume that Ministers are paying a lot of regard to the Stern report’s implied hypothesis—it might have been helpful if the Minister had been a little more explicit, but it is there in all the research papers—that choking off demand is largely to do with price, which in turn can be effected in a number of ways through taxes and subsidies, which are on the same Treasury balance sheet.

I was interested in the remarks of the noble Lord, Lord Turnbull, on the amendment tabled by the noble Lord, Lord Woolmer, in that the examples that he immediately touched on related to taxation. There can be no doubt that taxation will be at the centre of the stage and that the statistical conventions will be hard to determine. Taxation will not do the whole job, but will do a large part of it—I would say more than 50 per cent of it—but I will be interested to hear

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whether the Minister thinks that I am in the wrong ball park. The carbon tax forum would be able to commission studies about the price elasticities in different markets. The price elasticity for domestic heating may well be different from the price elasticity of carbon for air travel. I am still a bit of a sceptic about this, until more evidence is available to compare apples with apples. The example of doubling of demand for air travel after halving an air fare can be the same elasticity as putting up petrol by 10p a litre and seeing a slight reduction in growth. The scale of the price is different, and that is all. I should like to see that examined. At the second level, the forum would perhaps need to have something like a road show visiting Burton-on-Trent. I remember doing that in 1965 on the—retrospectively much-derided—national plan, but it was a highly productive exercise.

I need to say something about how my amendment fits into the Bill as far as Whitehall is concerned. A few days ago, I rang the Treasury to find out whether it would be briefing a Minister to reply to my amendment. But it said that all these matters were with Defra. I pressed the point and said, “Do you mean that all these taxation and subsidy questions are being decided by Defra?”. The man concerned obviously wanted to get me off the phone and said, “All these matters are being dealt with by Defra”, and that was the end of the conversation. No one believes that, and I sympathise with the Minister, for whom I have the very highest regard, as he knows, and who has been in the wars recently on so many fronts. Having to respect this line is another cross that he has to bear, but it is one which all of us would have to take up if we were Ministers.

In that connection, I know that some noble Lords have thought that the answer to all this is for the Prime Minister or the Chancellor to chair the Committee on Climate Change. I think that that is the wrong question and certainly is not the rationale of my amendment. The climate change committee has a big job on its hands and I largely agree with the Government’s line about not overloading it. But there is another big job to do on what might be called the executive action side, which is for the Government.

If our discussions are to be successful, we must turn to taxation, which raises its ugly head at every turn. No one will want to pay these taxes with great enthusiasm and there will be all sorts of stealth taxes. But that is precisely why we should take the initiative to demonstrate that these are not stealth taxes. They are open taxes, which are openly arrived at after very clear discussion, including with those who will be affected; that is, business and workers’ representatives, as well as consumers and so on. That is where the Prime Minister and the Chancellor indubitably have a great responsibility. As we saw last week—this also concerns the Prime Minister—there will be the European dimension: hence, my inclusion in the amendment a reference to the European Globalisation Adjustment Fund. It is in everyone’s interests to work closely with colleagues in the EU on this.

But there is the bigger picture of the European dimension in trading and taxation. In 1999, my maiden speech was on the need for a common approach to European energy taxation. Only this past week, as

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confirmed by the Prime Minister’s Statement to Parliament, yesterday, we have seen in effect the beginnings of a British Government shift towards the acceptance that,

should be used on a common basis and be deployed as one of the weapons in our armoury. This will fit into a wider jigsaw and I look forward to the analysis of the famous Brussels bureaucrats recognising, as they do, that there is competition between European industries, and competition between European industries and the industries of the rest of the world. On competition between European industries, a level playing field is very desirable and will enable us all to look the rest of the world in the face on a united basis.

We have to put the VAT arithmetic into the whole carbon tax jigsaw puzzle with the emissions trading scheme and the estimate by the European Commission on 23 January that €50 billion a year will be transferred through the scheme to the developing countries by 2020. That is not in 50 years’ time but in 12 years, which means starting now, to quote the Chinese proverb. I assume that we in Britain will be paying the best part of €7 billion or €8 billion of that €50 billion, which also needs to be budgeted for. In that connection, the remit that President Barroso has been given by the Council of Ministers is side by side with the review of the energy taxation directive to bring it more into line with climate change objectives, as concluded by the Council yesterday.

5.15 pm

It will look into the question of a common European approach entailed in VAT discounts for certain sorts of carbon-reducing products. This is clearly part of a complex exercise of how member states do their carbon budgeting—in the proper use of that term—and it would be useful if President Barroso, in carrying out that remit, were to collect information on how 27 member states are carrying out their carbon budgeting, and how in the financial sense they will present their accounts. The European statistical services will have to raise their game professionally as time goes by on the rather difficult statistical rules on how this should proceed.

There is a paradox in that at the global level the idea of carbon credits is based on the implicit precept in Stern that everyone in the world is entitled to a notional ration card of 1 tonne per annum of carbon. That does not mean that every Nigerian has a ration book, any more than it means that everyone in Burton-on-Trent has one. On a global basis, undoubtedly heavy users will buy the units that the lighter users do not need, which is some sort of redistribution from the rich to the poor. It would be entirely contradictory if the poor were redistributing to the rich in the United Kingdom through regressive taxation. It is rapidly becoming less unfashionable—certainly in the Labour Party—to discuss income inequality in this country. I cannot see how it can be a function of the Committee on Climate Change to take this matter very far. I am not of course averse to it discussing the issue, but it could become a dog’s breakfast if everything was piled on to its agenda. We need to find a mechanism, which

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I believe my amendment to be, for making sure that there is a clear road map for achieving social equity.

Treasury instinct, of course, is to guard every item of information as if it were the secret of how to make an atom bomb. Yet, in adopting that line now it is rapidly becoming its own worst enemy. This hugely ambitious exercise will be largely down to it in an operational sense. As it will take the flak, it had better learn how to win hearts and minds, which means going up and down the country—even north of Watford.

I will listen carefully to what my noble friend has to say and then decide how to pursue the matter this evening and at Third Reading. I gratefully acknowledge the assistance and arguments put forward on parallel lines, publicly and at other levels, by my noble friends Lord Puttnam, who I am glad to see in his place this afternoon, and Lord Whitty, who is unable to be here but who wished me well with the amendment. I know—or at least hope and believe—that such support has been a factor in persuading the Government to pay attention to this analysis and its conclusions.

I know that Rome was not built in a day, but I trust that my noble friend will be able to analyse my points. Even if he cannot say yes today, and accept the amendment at the second time of asking, he might indicate where he has found some constructive points that members of the Cabinet can take on board before the Bill gets to the Commons in a month’s time. I beg to move.

Lord Puttnam: My Lords, I support entirely the principle of the amendment moved by my noble friend Lord Lea and I certainly recognise his frustration because I feel it myself from time to time. In a speech made in Japan last week, the former Prime Minister Tony Blair said the following:

He finished by saying,

Revolutions are not best dealt with by adopting an attitude of business as usual, and there is a sense that much of this Bill has drifted through in such an atmosphere. My noble friend makes a very good point by saying that the party that has failed to come to the table here is the Treasury. From time to time during the passage of the Bill I have felt that in discussions relating to Treasury matters, we are dealing with a small town bank manager who is looking at the bottom line from a very narrow perspective rather than as something that we all agree is urgent and of real global importance.

I hope that when the Minister comes to respond, he will accept the fact that many people, not just in this Chamber but outside it as well, sincerely believe that the degree of urgency running across Government—I am not talking about individual departments because I happen to have the highest regard for Defra—and the sense of a possible revolution in the air are not as palpable as some of us would wish.

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Lord Rooker: My Lords, I shall do my best to answer my noble friend’s points. First, however, I want to respond to my noble friend Lord Puttnam on what Tony Blair said. We are doing what he said because that is what is encompassed in this Bill. It will lead to action. Moreover, I share the frustration of my noble friend that this Bill has sailed through your Lordships’ House as though the outside world does not exist. I did warn a Member of the other place whom I passed on the escalator this morning that they have no idea of what is coming down the Corridor. The Bill is incredibly complex and technical, and they will have to dig deep to get at the politics if that is what they seek to dig for—I should add that I was not talking to a member of the Labour Party. That is not to say that we do not do politics in the other place—I do not want to be misunderstood—but the fact is that when the Bill arrives in the other place, it will get reported as though it has not been through your Lordships’ House. I share my noble friend’s frustration over that, but it is a fact of life. A big success in this place is not getting something reported. We are an unelected Chamber. We are dealing with this Bill, and some issues will be raised in the other place where it is quite right to raise them. However, I think that we have done an absolutely first class job on the Bill, not by revising it because we have dealt with it in the first instance, and we have performed our role. I am convinced that, save for one or two technical adjustments in the voting Lobbies, this Bill will leave the House a much better piece of legislation than it was when it came in.

My noble friend has pre-empted one of my problems with his amendment, which is that using the Bill to set up a new stakeholder forum is not the right way to address his real concerns. I shall explain that in more detail shortly. The point is that the Government are sympathetic to the underlying point. It is absolutely crucial that parts of society understand the challenge that we face and are engaged in the debate. On the other hand, the people of England let alone GB do not want a revolution. They do not want the language of revolution used because it is completely misunderstood. People want to get on with their lives, bring up their families, go to work, have their bread on the table and basically lead a peaceful life. Where the change has to occur, they have to be convinced of it. They have to be convinced of the connection between their daily existence and these planetary issues. It is our job to seek to make that connection—this Bill is a part of that. If we can make that connection we will get changes of behaviour in individuals, families and companies. They do not want it done in a revolutionary way.

When the Government bring forward measures for reducing greenhouse gas emissions, it is important that full consideration is given to the economic and social impacts and their distribution over society. I am absolutely four square with that. We work hard to ensure that any new measures, taxes or otherwise, do not have a disproportionate impact. You can have some unintended consequences if you are not careful about these things, the most important being having the electorate turn on you. We need to take people along with what we are doing.

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Creating a carbon price through appropriate measures has a number of effects. It ensures that the environmental cost of carbon emissions is taken into account in decision-making, motivating behaviour change and energy-efficient behaviour. That part of the message is slowly getting across. While we do not intend or expect it to encourage firms and households to switch their spending towards other, less emission-intensive goods and services, our policy approach is not a simplistic attempt to choke off demand. We are not seeking to do that. It also provides a financial incentive to deploy and research new technologies which reduce carbon emissions.

To tackle climate change at the lowest cost to individuals in the economy, we need to address the other market failures that prevent businesses and households responding efficiently to a carbon price, particularly in installing energy-efficient measures that will save them money as well as reduce emissions. The carbon emissions reduction target obligations on energy companies represent a doubling of our ambition on carbon savings to be achieved from the household sector through energy efficiency and will be supported by resources for a green homes service to give people the advice and support they need.

My noble friend argues that we should hypothecate tax revenues from climate change-related policies to spending on climate change. This is not as simple as it might sound for a number of reasons. Hypothecation is against widely accepted principles of sound public finance. It is an inefficient means of determining the relative prioritisation of competing public expenditure programmes. It links funding for a particular programme to the revenue stream used to finance it rather than to need and increases the risk of unpredictable funding.

My noble friend also made it abundantly clear that he was concerned that the Treasury is not sufficiently engaged in these important questions which, as he rightly identified, have significant implications for the economy, households and government policies and revenues. I assure him that for exactly those reasons the Treasury is closely involved. The Chancellor announced that, recognising the important economic and fiscal implications of the decisions required, the Government would set out their first carbon budgets arising from the Bill and their plans to meet them alongside the Budget of 2009. I am not the spokesman for the Treasury in your Lordships’ House but my noble friend Lord Davies is. He dealt with the issue in Committee as we are dividing up issues. The Treasury is intimately involved in all the discussions on the Bill and all the amendments the Government have brought to your Lordships’ House. None of those has been brought forward just by Defra Ministers, as noble Lords will appreciate; they have been brought forward on behalf of the Government. Indeed, some amendments have not been brought forward because of governmental discussions, even though I have been pressured to do so. Sometimes that has been because of the financial implications of the measures where, as I have said before on some issues, we want to maintain the maximum possible flexibility when we are seeking to change the behaviour of businesses and individuals. We do not want to get caught by the unintended consequences of what looks like a quick fix.

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5.30 pm

As my noble friend Lord Davies said in Committee, the Government are working with the public and business to raise awareness of climate change and the challenges to come, to a greater or level degree of success. Last June, we launched a web-based calculator that enables people to calculate their own individual or household CO2 footprint from their use of home energy, appliances and personal transport, and recommends steps users could take to cut their own emissions. We Defra Ministers used that calculator, and I have to say it was not always a happy story. I do not know how many hits the website has had, but we encouraged people to use it and lots of them have.

We are targeting substantial funds to help support disadvantaged households and tackle the effects of increased energy prices, which are primarily the result of changes in international energy prices rather than environmental policy or the EU emissions trading system. For instance, since the year 2000 the Government have spent in the region of £20 billion on tackling fuel poverty across the UK. That includes funding for fuel poverty programmes and benefits such as Warm Front, the decent homes programme and the winter fuel payments. In addition, Defra has funded a range of grant schemes that have helped to support environmental objectives in tandem with social justice.

As well as specific policies already being in place to address social justice issues, it is crucial that future policies are also designed the right way. As my noble friend Lord Davies explained in Committee, a rigorous impact assessment process is already in place to ensure that the wider impacts of all government policies are taken into consideration from the start of their development.

My noble friend Lord Lea mentioned the Stern report. The report’s executive summary makes the following helpful point:

The overlying message of the report of the noble Lord, Lord Stern, who was not then a noble Lord, was that if we start now we can do it at virtually no cost to the economy; leave it 10 or 20 years and it will be a major cost to the economy and individuals. So we are starting now.

The global policy framework to tackle climate change is the pro-growth strategy for the longer term. The economy will continue to grow but at a slightly lower rate, in the order of 1 per cent slower than if there had been no other constraints including climate change. For those reasons we cannot see the need for a specific forum as proposed by my noble friend Lord Lea, but I hope he is reassured that social justice and equity are at the heart of government policy-making in total and will be given full attention as we work towards meeting our carbon budgets. I have no doubt that when the Bill get to the other place—that needs to be as soon as possible, otherwise we are going to miss out on all the budgetary deadlines set for later this year—these issues will be raised by the elected Members, but they will get the same answer about the way the Government are operating.

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