Clause 13

Finance Bill – in a Public Bill Committee at 3:15 pm on 10th May 2007.

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Rates of climate change levy

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

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

We now move on to the climate change levy. Any discussion of it is bound to bear a resemblance to our discussion during the Committee of the whole House on air passenger duty in one important respect, although the first is explicitly linked to carbon reduction and the second is not: both have been described as blunt instruments. In the case of the APD, the phrase was the Financial Secretary’s, and in the case of the CCL, it was used by the Royal Commission on Environmental Pollution.

As far as I know, a man called Tony Grayling is still an adviser to the Secretary of State for Environment, Food and Rural Affairs—he certainly was at one point fairly recently. He said of the CCL that it does not provide an incentive to switch to lower carbon fossil fuels. For example—it is quite an important example in relation to the discussion on the CCL—the single rate for electricity under the CCL provides no incentives for electricity generators to switch to renewables. That is not surprising. The CCL undoubtedly has a blunt effect; it is essentially an energy tax, levied on the supply of energy to business, paid downstream by energy consumers. It has been frequently argued, by us and others, that a structure that first establishes an energy tax, then pays out a series of rebates to businesses and then introduces a set of climate change agreements that enables firms to escape from the structure of the taxation of rebates that the Treasury has established in the first place is not especially transparent. We want to see the CCL reformed into, or replaced by, a carbon levy that is more closely linked to carbon emissions. To borrow a phrase that I think was once used by Rab Butler, the climate change  levy is the best climate change levy that we have at the moment and therefore we do not intend to oppose the clause.

However, I would like to press the Financial Secretary about the views expressed by Mr. Grayling and by the Institute for Public Policy Research—I think that Mr. Grayling has done some work for the IPPR—with which the hon. Gentleman will be familiar. In a study for the IPPR, Mr. Grayling suggested that the rates should be increased towards £70 per tonne of carbon, which is the official figure used by the Department for Environment, Food and Rural Affairs for the social cost of carbon. I realise that it has proved difficult to establish a precise figure for the social cost of carbon, but what is the Treasury’s view on that cost?

Returning to the point about the rate for electricity, the IPPR study also recommended that the tax rate should vary according to the fuel mix of the supplier, based on carbon emissions because that would encourage investment in clean coal technologies. Again, what is the Treasury’s view on that issue?

A recent study by the Institute for Fiscal Studies said that the climate change agreement targets were too lenient. I quote the study:

“Firms would have achieved their targets in any case and as such were enjoying a reduced-rate CCL for effectively doing what they would have done.”

Another study, by Cambridge Econometrics and the Policy Studies Institute, concluded:

“Only for one sector...did we find that the CCA target would have been missed had no CCL ever existed.”

Were the IFS and the PSI wrong? Again, I look forward to the Financial Secretary’s response.

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

First, the hon. Gentleman is wrongin many respects about the climate change levy andthe commentators are wrong about climate change agreements. Together, these measures have delivered for this country more than a quarter of the target for emissions reduction that we are working towards under our Kyoto obligations; that is a very significant contribution to our efforts to help the world to tackle the climate change problems that we face.

I suppose that I should welcome the fact that the hon. Gentleman will not oppose this legislation and this increase. I suppose that, in some ways, we are making progress, because he and his party opposed the climate change levy when we introduced it in 2001. The Chief Secretary, who I think was responsible for that legislation at the time, remembers how fiercely it was opposed by the Conservatives, who would not accept the case for trying to introduce an Act to tackle climate change and would not accept the case for the climate change levy.

In fact, by 2010 the climate change levy will deliver carbon savings of more than 3.5 million tonnes a year; the climate change agreements will deliver climate change savings of more than 2.8 million tonnes a year, and together they are a central plank in our efforts to make such savings.

The levy itself was designed less to have an impact on generators and more to encourage greater energy efficiency among energy users, particularly business users. To that extent, it is succeeding in the specific aims that we set  for it. We monitor constantly the way in which the levy and climate change agreement operate. Clearly, we must consider some longer-term questions, particularly given the interaction with a strengthened European Union emissions trading scheme.

That is for the future, however. The clause will increase the rates for the climate change levy in line with inflation from April next year. We have always said that the rates at which the climate change levy are charged should rise with inflation over time. We legislated for this year’s increase in last year’s Finance Bill. We are doing the same this year to provide advance notice for the industry and others affected by the changes to the climate change levy.

Question put and agreed to.

Clause 13 ordered to stand part of the Bill.