Powers to carry amounts from one budgetary period to another

I beg to move amendment No. 52, in clause 16, page 8, line 44, leave out ‘1%’ and insert ‘0.5%’.

This is a probing amendment. We propose to reduce the amount of carbon units that can be carried back from one budgetary period to the preceding budgetary period—the latter period would be reduced so the previous period could be increased. We propose to reduce the amount that we are allowed to borrow from the future from 1 per cent. to 0.5 per cent. Although we appreciate that external factors, such as the weather, might make this so-called banking and borrowing useful to a degree, we want to ensure that the budgets are robust and not pliable, especially under political pressure.

We are also concerned that too generous a carry-back period might allow any Government of the day to hide their failure to meet the budgets and allow them to pass the buck on to the next Administration. The issue of banking and borrowing is worth probing further, particularly in the light of our earlier discussion about indicative annual ranges. There is a clear link between the width of any indicative annual range and the corresponding width in the banking and borrowing between budgetary periods.

I have already argued that the indicative annual range must not be too broad. I understand that the 1 per cent. banking and borrowing provision under clause 16 only affects the five-year budgetary period. However, we still need further clarity on their relationship. For example, how would banked reductions at the end of a five-year budget affect the next year’s annual range? Would the Government be allowed to count their banked reductions towards meeting the first year’s annual range, or would they have to spread them out over the entire period? Conversely, if a budget period began with 1 per cent. already borrowed from it, would all the annual ranges for that period be adjusted to reflect that?

Spreading out the effect of banked or borrowed reductions across the entirety of the next budget seems to make sense. It might not be possible to recoup the entire borrowed 1 per cent. within the first year of the next budget. Similarly, it would not be appropriate to use banked reductions to make it seem like the annual range for the first year had been achieved when in fact the Government were relying on the success of the previous five-year period—much like the way in which the current Government rely on the success of the previous Administration to achieve their Kyoto target. My right hon. Friend the Member for Suffolk, Coastal played a heroic part in that success.

If the carry-back provision was narrower, that sort of thing would not cause the same problems in the calculations of indicative annual ranges.

Has my hon. Friend heard any argument other than the weather for all this? The British have a tendency to blame the weather for everything. The truth is that if we consider climate change, the weather should have a less adverse effect than previously. Will he ask the Government whether the weather has become the universal explanation for not tightening this up more effectively?

Once again, my right hon. Friend has put his finger on it. I have not heard of any meaningful explanation other than the weather of why these indicative ranges would have to be changed so materially. Although there may be more violent weather events, we expect the weather to become milder and less severe in our part of the world. Perhaps the Minister can enlighten us.

It is vital to know what a Secretary of State can count towards a given target or range of targets. I am sure that the Minister can clarify the relationship between banking and borrowing and indicative annual ranges, and I would appreciate a detailed explanation. I do not move this amendment to undermine the evident benefits of having a banking and borrowing system, because I fully accept that that is a sensible thing for any Government to have in reserve. I know that the necessity for such a facility is already reflected in the Kyoto protocol, and for some existing national level cap-and-trade schemes, such as the US acid rain scheme, which is mentioned in the Stern report. I also appreciate the importance of banking and borrowing with regard to the carbon price and the cost of mitigation, and I understand the importance of having a carry-back facility in case of adverse weather or other unforeseen circumstances. Notwithstanding those issues, I wish to probe the Minister for more detail about the relationship between the breadth of the indicative annual ranges and the similar breadth of the carry-back facility.

I wish to make a brief comment on amendment No. 52 in anticipation of a separate clause stand part debate.

The amendment, which is identical to one tabled in the other place, would replace one arbitrary figure with another arbitrary figure, albeit one that is smaller. It would be interesting to know from the Minister the thinking behind 1 per cent. and whether it is anything more than something along the lines of saying, “It’s not very much, is it?”, which is how I think the figure was derived.

As for the magnitude of the figure, it is a percentage of the five-year aggregate carbon budget. That means that it is bigger than it looks because 1 per cent. of the five-year total is equivalent to 5 per cent. of one year’s total—[Interruption.] It took me years to work that one out. This is important. It sounds innocuous, but in the context of 80 per cent. cuts over 50 years, with 1 or 2 per cent. as a typical annual figure, the amount under this provision could be 5 per cent. of the annual figure, which is large.

As I shall explain in the stand part debate, I object to the principle of borrowing. However, if we have to do that, we need the figure to be justified, and we should certainly err on the side of a much smaller figure, given that, in effect, it is five times as big as it looks. If all we can have is a smaller figure, I would rather have that and I would support the amendment, but I prefer not to have the principle at all.

I thought that the amendment was one of the cleverest that has been tabled because of the point made by the hon. Member for Northavon. The figure sounds small but, as in all such matters, the devil is in the detail. He is right that the amendment was discussed at some length both in Committee and on Report in the other place, and I refer members of the Committee to the Hansard record of those debates.

The accusation has been made that the figure of 1 per cent. has been plucked out of the air. Nothing is further from the truth. All the figures under the Bill are scientifically based and have been debated robustly. In case the hon. Gentleman mistakes my tone of voice, let me reassure him. Why do we consider that the 1 per cent. borrowing limit is appropriate? Our analysis suggested that allowing up to 1 per cent. of a future budget to be borrowed would be consistent with the rising emissions that might result during odd weather. The right hon. Member for Suffolk, Coastal reminded us of the importance of that to the British—I think that he referred to the English, but I am sure that he meant that it was the British predilection to discuss it. Furthermore, we must bear in mind the uncertainty of emissions data.

There have been three large emission rises due to unexpectedly cold winters since 1990, the coldest of which led to emissions in those years that were between 3 per cent. and 4 per cent. higher than in the year before. Translated into the clause, that means that if 0.8 per cent. of the subsequent budget was borrowed—4 per cent. divided by the five years of the budget period—the shock could be absorbed within a 1 per cent. limit on borrowing and the budget would still be met. That is my methodology. I agree that it is not rocket science, but it makes mathematical sense. It is symmetrical.

A more serious point is that those extremes of climate are, of course, expected to increase with climate change.

Mr. Gummerrose—

I knew that I should not have said that.

According to the Stern report and other reports, the problem is that we shall have a decrease in emissions as a result of cold weather and an increase in emissions as a result of hot weather because of less emissions due to heating and more emissions due to air conditioning.

Does the Minister accept that it would be rather good for the nation if it knew that it had to face the fact that the Government were going to stick to the targets? The nation would react much better if, rather than the Government’s saying, more or less, every time one of these things happened, “When it is particularly bad, we have this stuff in our back pocket that we can bring out”, they said, “We are not going to change this because we are stuck with targets that are fixed not because of our ability to meet them but because of the reality of the threat.” That is why I would be much happier with a smaller figure and a greater degree of straightforwardness from the Government.

I hesitate to argue this point on common sense because when Ministers or Front-Bench spokesmen start using that argument, it shows that they are on weak ground.

Desperate.

Not desperate, but on weak ground. I counter with the opposite argument and say that the British public would not understand if we were not able to have that point of view. Again, we are not trying to wriggle out of this.

Let me complete my argument about the emissions data. All of us in the world of politics and Parliament talk about emissions data as if it were a pure measurement of geometry: it is not, I am afraid, although hopefully it will be in future. Provisional figures for emissions in the final year of the budget period will be available shortly after the period ends—such figures are generally accurate to within a few per cent.—but the final confirmed emission figures are not available until later. That is part of the frustration of the job. As the budget period would already have ended, if the emissions for the last year of the budget period were to be revised upward by the amount proposed, the Government’s options would be limited. The 1 per cent. limit is therefore considered the most appropriate approach to providing a small degree of flexibility because it meets the five-year point that the hon. Member for Northavon mentioned—I am talking about the end of the period, of course—without undermining the clarity and certainty that the budget system as a whole provides, which are crucial.

It is important for the United Kingdom and UK plc that we have ensured that a robust system of accountability is in place, in that the UK Government must seek and take into account the advice of the Committee on Climate Change and consult the devolved Administrations before using either the banking or borrowing powers in the clause. That will mean that any decision to bank or borrow emissions will be based on robust independent analysis. Further to that, analysis suggests that allowing up to 1 per cent. of a future budget to be borrowed would be consistent with the rise in emissions that  might result from these two factors. We have followed the advice of the other place and provided a credible argument for 1 per cent. I confess that it is not scientific and can be challenged, as it has been.

I am grateful to the hon. Member for Bexhill and Battle for moving his amendment to question why that 1 per cent. figure was chosen, because he has rightly forced the Government to outline their methodology and rationale; that is the raison d’être of Committees. I am sure that the hon. Gentleman will hold me, or my successors, to account on this point.

I am grateful to the Minister for that explanation. I am certainly more informed. This is a probing amendment and I do not intend to press it to a Division. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

We have considered the specific number, but there is a wider principle about the banking and borrowing idea. Do we need this power at all? If there is a problem with hitting the carbon budget in any period, a facility is available to buy in credits, because this is the UK carbon account, not UK carbon emissions. Assuming that we do not get to 31 December at the end of the fifth year and suddenly think, “Ooh ‘eck, we’re in trouble”, and assuming that things will be very closely monitored by experts, scientists, forecasters, meteorologists and all manner of people, presumably it should not come as a total shock if we are on course to miss the target. If there is any prospect of missing the target, mechanisms other than those in the clause are available to deal with it—for example, we could buy in credits.

A facility for injecting savings into the current period appears unnecessary, therefore, but the opposite provision of pushing savings into the next period is, if anything, more worrying. It suggests that, if we do really well in the first period, we could give ourselves a few weeks off in the next five-year period. It is almost like working overtime and then having a vacation, which is fine in working life, but does not represent a sane or desirable carbon strategy. The clause will allow us to say, “Not only will we hit our targets, but we will have some slack and carbon savings to spare, so we will push a few into the next period, which means that we will not have to try so hard.”

Given everything that we discussed at the start of our proceedings—about this being a global challenge, of which the UK is a small point, and about how we need to do as much as we can—if we over-achieve, we should literally bank that and continue to be adventurous by maintaining the trajectory, but from a new starting point. We should not simply pat ourselves on the back and say, “We have done quite well. We consider ourselves to have achieved our goals already, even if we don’t do very well in the next five-year period, because it is already in the bank.” That is not the mindset with which we should approach this issue.

I would be very worried if we were skating so close to the upper limit of the five-year target that provisions would be necessary in case we breached it. After all, we are dealing with ranges, so I hope that we would aim to meet the targets comfortably, but fail-safe mechanisms are in place if it looks as though we are going to exceed  them. On the other side of the coin, if we are over-performing and doing really well, which gives us breathing space, we should not just relax, but say, “That’s great. We’ve achieved good things, so let us press on from a new starting point, rather than have a few weeks, months or years off.” I cannot see any reason for clause 16 to stand part of the Bill.

I disagree with everything that was just said. If we are to run this thing sensibly, we should provide for the ability at either end to sort things out. As anyone who knows anything about writing books knows, before starting, one must say, for example, “I’ve got to write 10,000 words a day”. However, on completing those 10,000 words, it is a great mistake to do another 5,000, because the next 10,000 never get done the next day. It is necessary to keep to an organised system. There is a great deal to be said for tough targets run sensibly and a Government who stand by their word, but who have the necessary opportunity at the end of each of those otherwise artificial periods to carry over amounts.

I am worried about what book the right hon. Gentleman is writing and when it will be delivered. A draft copy for review would be dealt with in strictest confidence. I remind him that the incentives for early action and over-achievement are recognised by the Kyoto protocol, for the reasons that he gives.

We must be tough with ourselves and do this properly. Furthermore, we must not let ourselves down by being pusillanimous over the targets and carbon budget or get into the position of the iron maiden.

The right hon. Gentleman makes some very good arguments. In addition, I use the example of the evidence cited in the Stern review about the United States acid rain programme, which the right hon. Gentleman and others will recall. Allowing for banking between phases of that programme helped to deliver early reductions and improved participants’ efficiency. The evidence suggests that, because of the ability to bank from the first phase into the second phase, the emissions reduced in phase 1 were twice that required to meet the cap.

I take the arguments of the hon. Member for Northavon. They are slightly purist, but I do not criticise him for that. He is right to press the issue, but in practice it makes sense, from experience and from analysis, that we allow some give and take.

Question put, That the clause stand part of the Bill:—

The Committee divided: Ayes 17, Noes 2.

Question accordingly agreed to.

Clause 16 ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.