Clause 122 - Climate change levy: exemption

Finance Bill – in a Public Bill Committee at 10:00 am on 20th June 2002.

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Question proposed, That the clause stand part of the Bill.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

We shall reserve the thrust of our attack on the measure for Report, but I wish to make some

points of principle rather than technical points on the climate change levy at this time.

I read a ministerial reply somewhere that said that energy costs were a small factor for industry and that the climate change levy was a small factor within those energy costs. That is true. Much as we welcome this softening of the regime—all these measures represent something of a softening—it is undoubtedly true that in some sectors of industry, especially manufacturing, any increased cost is a serious problem because those industries work to very tight margins. They have to deal in very competitive export markets. At the moment, there is a constant refrain in one Treasury question session after another about the climate change levy and its effect on manufacturing industry.

No one would object to everyone taking their share of the climate change levy, but certain sectors of industry, manufacturing in particular, feel that they are taking more than their fair share. Although environmental taxes are a good thing and although the principle that the polluter pays is a good one, it seems that, in general, some polluters pay more than others. We welcome the softening that the measure gives manufacturing industry in many respects but I do not think that champagne corks will be popping in that industry yet. The whole raft of changes basically leaves the status quo. As far as manufacturing industry is concerned, the status quo is a problem. We shall not table amendments at this stage, but the effect of the climate change levy on manufacturing industry is of serious concern to us. I am sure that the Economic Secretary will bear that in mind.

Photo of John Healey John Healey The Economic Secretary to the Treasury

I welcome the recognition from the hon. Member for Southport that the Government have been ready to consider refinements to the climate change levy regime where those have been justified. That is the purpose of several clauses that we are considering this morning. The hon. Gentleman is right about the concerns for manufacturing industry that are raised regularly in Treasury questions in the Chamber, and that are due to be raised again this morning, as I know too well.

The hon. Gentleman is right to remind the Committee that any consideration of the impact of the climate change levy as a tax on business must be considered and recognised in the context of overall business taxation. We have now had cuts in corporation taxes that have left the UK with the lowest ever level of corporation tax—the lowest rate in any major industrial country. We have had cuts in capital gains tax and recently introduced research and development tax credits for large and small companies, which particularly benefit manufacturing. The OECD recognises that the tax burden on UK business is lower than the EU average and lower than that in 12 of our EU partner countries.

The narrow provisions of clause 122 relate to and affect the rules for the balancing mechanism that operates in the exemption for electricity from renewable sources. That mechanism exists because the Government accept that some renewable sources, such as wind power, are unpredictable. It enables energy suppliers to balance their purchase and supply of renewable-source electricity over a two-year period.

If, at the end of that period, supplies exceed purchases of renewable electricity, the supplier must pay levy on the debit balance.

The clause has a twofold purpose. First, it corrects a cross-reference in legislation. In keeping with the original intention of the law, that correction will allow levy to be collected in circumstances where a business ceases to make exempt renewable supplies, having claimed exemption on more renewable electricity than had been purchased. Ceasing to make renewable supplies should not excuse a business from its responsibilities under the tax. That potential tax-avoidance loophole is therefore removed.

Secondly, the clause removes the facility whereby suppliers of electricity exempt under the renewables scheme may alleviate their levy liability if they sell to any customers entitled to reduced-rate relief. Such customers obviously choose to benefit from the full exemption on renewables rather than the reduced rate, which relieves only 80 per cent. of the levy charge. When it comes to the end of the averaging period, suppliers have been permitted under the law to attribute any excess of renewable supplies over renewable purchases to their reduced-rate customers and so discount their levy liability to the reduced rate of 20 per cent. In reality, the supplies making up the excess could quite easily consist of sales made on a basis other than the reduced rate. There is no reason for such treatment within the already generous renewables scheme, so that is being rectified. The clause has effect in relation to averaging periods ending on or after Royal Assent. I hope that, after that somewhat technical explanation, the Committee will feel able to support the clause.

Question put and agreed to.

Clause 122 ordered to stand part of the Bill.