Orders of the Day — Budget Resolutions and Economic Situation

Part of the debate – in the House of Commons at 7:50 pm on 10th March 1999.

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Photo of Gareth Thomas Gareth Thomas Labour, Harrow West 7:50 pm, 10th March 1999

I join other Labour Members in congratulating my right hon. Friend the Chancellor and his team on yet another excellent Budget. He impressively balanced the need for radical new measures to promote enterprise and the need to deliver additional support to those who need it most, while at the same time not putting at risk our hard-won economic stability. The 16,500 pensioners in my constituency will be particularly delighted by the £1 billion package of extra help for pensioners, especially the uprating by average earnings of the minimum income guarantee.

In Harrow, we are lucky to have high numbers of people in work and a high proportion of small businesses. The new l0p rate for income tax and the 1p cut in the basic rate, coupled with my right hon. Friend's measures to stimulate investment and growth in the small business sector—rewarding, as they do, hard work and entrepreneurial talent—will be extremely well received.

I want to concentrate my remarks on the Government's welcome commitment to the introduction of a business energy tax in April 2001. I never believed that environmental protection and economic growth were direct opposites. I also never had much confidence in the arguments and mindset of those on the right or the hard left of British politics, who seemed to believe that sustainable development and enterprise were at different ends of the policy spectrum. There is clearly a third way which marries environmental aims with economic goals. Economic instruments such as the business energy tax which stimulate effective business and market responses to the environmental challenges which we face are examples of sensible new Labour policies.

Over the past few weeks, Labour Members have had to endure much windy piffle-paffle from Conservative Members about the Government's attitude to Select Committees. The centrepiece of the Environmental Audit Committee's response to the last two pre-Budget reports has been to call for the implementation of a business energy tax. I congratulate the Government on their sensible response to those reports. Such a tax will be an important tool in meeting the targets that were set at Kyoto for reducing greenhouse gas emissions and will clearly encourage industry to conserve energy and switch to much cleaner forms of energy.

Crucially, the commitment to make the levy fiscally neutral will also protect business competitiveness. The notice that has been given and the consultation that my right hon. Friend the Chancellor has announced will give business time to plan and an opportunity to work with the Government to decide on the details of the levy.

As countries across the world consider how they will meet their climate change commitments, the introduction of a business energy tax is increasingly recognised as a useful and essential tool. Six European countries have already introduced an energy or carbon tax since 1990, and Germany and Italy are working on similar proposals.

In the middle of the next decade, carbon emissions are projected to start increasing again in the UK. According to the projections of the climate change consultation paper, the proportion of the six Kyoto greenhouse gases accounted for by CO2 will rise from 78 per cent. in 1990 to 84 per cent. by 2010. As my right hon. Friend the Chancellor made clear yesterday in his statement, we are locked in, rightly, to a legally binding target of a 12.5 per cent. reduction in our carbon dioxide emissions.

Labour Members recognised a long time ago the necessity of reducing carbon dioxide emissions—hence our manifesto commitment to reduce them by 20 per cent. That is an ambitious goal, and it is a recognition not only of the present Kyoto targets, but, more importantly, of the stringent requirements that are likely to follow the first round of the agreement.

Industry produces 40 per cent. of those carbon emissions in the UK and will, along with other sectors, have to make a significant contribution towards meeting climate change targets. A signal needed to be given to the whole of industry that energy efficiency and the use of renewable energy supplies had to be a priority in its future investment decisions.

In an ideal world, I would have preferred the tax to be levied according to carbon content, rather than pure energy usage, but I recognise the difficulties that would arise in trying to calculate accurately the carbon content of electricity, as well as the inevitable complexity and resulting uncertainty that it would introduce.

I welcome the comment in the consultation document that my right hon. Friend the Chancellor will keep under review the possible exemption of energy supply from small-scale renewable generators, albeit if pool reform allows. Studies cited by Lord Marshall's report demonstrate that energy taxes effectively produce cuts in emissions. The Swedish environmental protection agency has estimated that the introduction of its carbon tax has reduced emissions by 2 per cent. My right hon. Friend the Chancellor estimated that the levy alone would save about 1.5 million tonnes of carbon a year by 2010. That, together with the other measures that he announced, would achieve an overall reduction of 3 million tonnes of carbon, which is equal to about 2 per cent. of Britain's emissions. That would be a significant contribution to our climate change targets.

There is no reason per se why a business energy tax should hurt Britain's competitiveness. I have already referred to the fact that many of our European neighbours are implementing or considering proposals for an energy tax. That tax will not place Britain at a competitive disadvantage with our major trading partners.

I welcome my right hon. Friend's announcement that the revenues from the levy will be recycled back to business through the national insurance system, ensuring that there is no increase in the overall tax burden for business. That clearly demarcates the tax as one for environmental purposes and ensures that it will be judged on that basis.

The announcement that energy-intensive industries can seek voluntary agreements to reduce their levy in return for undertaking energy-efficient measures is clearly sensible. The energy tax in Denmark works in a similar fashion to protect the competitiveness of its energy-intensive industries, and has lower tax rates for companies in those sectors that agree to invest in energy-efficient measures. That is in line with the aims of our levy to reduce emissions by focusing on changing industry behaviour, not loading extra costs on business or raising revenue for the Treasury.

Research quoted in Lord Marshall's report found considerable scope for cost-effective energy-saving measures in all sectors, including those identified as energy intensive. Another important feature of the Danish energy tax is the strong support given to small businesses to improve their energy efficiency. The CBI has rightly argued that if a business energy tax were to be introduced, it should include support for small businesses to adopt energy-saving technologies through the provision of information and advice. Clearly, the welcome £50 million investment fund will provide some support, and it will help to promote an expansion in renewable energy.

The exemption for renewable energy where it is supplied direct to the consumer is also sensible and welcome, and reflects the environmental benefits that accrue from renewable power sources, which are not currently recognised in their prices.

A significant increase in the supply of energy from renewable sources is important in the interests of a long-term, secure, diverse and low-emission energy supply in the UK. In that context, I look forward to the renewables review due to be published by the Department of Trade and Industry shortly.

Under the previous Administration, we had the worst record in Europe for exploiting renewable energy sources. Eurostat figures reveal that, in 1995, the renewable share of inland energy consumption was 0.7 per cent. in the UK, compared with 25 per cent. in Sweden, 24 per cent. in Austria, and a European Union average of 5.3 per cent. I therefore particularly welcome the Chancellor's commitment to examine whether further incentives could be given to promote the take-up of renewable sources of energy by utilising part of the revenues from the business energy levy. Other European countries have implemented various means of supporting renewables which have resulted in a much larger share of the energy market for that sector. Capital credits on the purchase and installation of new renewables equipment to overcome the barriers of high initial costs have been utilised in Belgium and Finland.

Another model that has been suggested is the Dutch system of tax relief for green investment funds. Banks managing the funds in the Netherlands are able to offer good rates of interest to green projects that would not otherwise have been financed, while still providing a reasonable rate of return to investors. So far, £1 billion of private sector finance has been levered into those green funds.

My right hon. Friend has delivered undoubtedly the greenest Budget that we have seen. It builds on the lead that Britain gave at Kyoto and will continue to ensure Britain's place at the forefront of the drive to reduce greenhouse gas emissions. I warmly welcome it.