Clause 77 - Supplies of commodities to be used in producing electricity

Finance (No. 3) Bill – in a Public Bill Committee at 9:30 am on 9th June 2011.

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Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe 9:30 am, 9th June 2011

I beg to move amendment 184, in clause 77, page 44, line 5, at end add—

‘(2) The Schedule shall come into force on a date specified by the Treasury by an order made by Statutory Instrument, which may not be made until an impact assessment of the effect of this Schedule has been laid before the House of Commons; and approved by resolution of the House of Commons; and the dates specified in paragraphs 8(3) and 9(5) of the Schedule shall be replaced by the date specified in the order under this section if it is later.’.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Substitute Member)

With this it will be convenient to discuss the following:

Clause stand part.

That schedule 20 be the Twentieth schedule to the Bill.

Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe

I am pleased that this amendment stands not only in my name and those of my hon. Friends the Members for Walthamstow and for Southampton, Test but in the names of the hon. Members for Brighton, Pavilion (Caroline Lucas) and for Richmond Park (Zac Goldsmith). That there is cross party support for this reflects the level of concern both in the country and across the House. The amendment asks for a proper impact assessment to be undertaken before enacting this part of the Bill because there are two areas of significant concern about the clause and the associated schedule. First, the penalty to manufacturing industry is disproportionate. Secondly, the proposals fail to deliver a green tax that has the support of environmentalists. For the Government to unite the representatives of manufacturing industry with Greenpeace and WWF in opposition to these proposals is a real achievement.

The real challenge we have as a nation is how to balance greening the economy with growing the economy. I am afraid that the proposals as they currently stand fail to meet that challenge. The UK is competing internationally for investment. The Humber is competing with Bremerhaven for green investment. And those making investment decisions too often sit outside our shores as they weigh up options. The carbon floor price represents a serious threat to our competitiveness. We are in danger of exporting UK jobs to countries like Ukraine and Russia, boosting global warming rather than reducing it. We need an energy security policy in place that assures investors. And we need to ensure that the UK taxpayer and the UK energy bill payer fund jobs here in the UK that will help the recovery and help  drive the economy forward. The current proposals on the carbon floor price are in danger of exporting jobs and importing CO2—the worst of all possible worlds.

My own community in the Scunthorpe area faces serious challenges after Tata announced that it was putting 1,200 jobs at risk at the local steelworks. When he came to Scunthorpe last month the CEO of Tata Steel’s European operations, Karl-Ulrich Köhler, cited the sustained downturn in demand for long products as the prime reason for the restructuring in the UK, but he added that the other reason was the regulatory outlook. He made the following point:

“EU carbon legislation threatens to impose huge additional costs on the steel industry. Besides, there remains a great deal of uncertainty about the level of further unilateral carbon cost rises that the UK government is planning.”

As we build low-carbon energy sources, improve energy efficiency, drive advancements in low-carbon construction, help create the vehicles of the future and expand low-carbon travel networks, steel will be in high demand. The UK’s low-carbon economy should be built with steel produced in the UK, rather than steel imported from China, Russia, Ukraine and other steel-producing countries that do not face the same regulatory constraints.

The carbon floor price will cost Tata Steel’s UK operations £20 million in the first three years, and it is estimated that it will cost £20 million a year by 2020. So the carbon floor price is likely to damage not only international competitiveness but the ability to compete within the single market. The net cost of the carbon floor price for the UK steel industry as a whole is estimated to be £13 million in 2013, £21 million in 2014 and £29 million in 2015.

It is not only the steel industry that will be affected. Tom Crotty of INEOS ChlorVinyls wrote to me recently saying that

“the government’s plans to introduce Carbon Price Support in the Finance Bill will seriously damage intensive manufacturing in the UK, and as a consequence stifle regional economic recovery, cause job losses and lead to a loss of revenue from this sector.”

Michael O’Sullivan of Hargreaves Services plc wrote:

“The proposal in its current likely to be extremely damaging to a number of interests (jobs, reclamation, etc) in those areas of the country least able to accommodate such damage”.

North Lincolnshire’s Singleton Birch has made similar comments to me.

Let us listen to what EEF, the manufacturers’ organisation, said in its 2011 Budget submission:

“The case for a carbon price floor....has not been made.”

In March the CBI observed that policy changes should ideally be made at EU level, but if carbon price support is introduced

“it should start at a low level and build up towards the anticipated EU ETS price by the end of the decade.”

The Energy Intensive Users Group, which represents sectors such as steel, chemicals, paper, cement, glass, ceramics, industrial gases and aluminium smelting, recently said:

“The effect of the CPS proposals would be to guarantee a higher carbon price impact on UK power prices than for any other EU state, which has obvious implications for intra-EU  trade in energy intensive products. It cannot be acceptable for Treasury to disadvantage UK-based manufacturing in this way, tipping the playing field in favour of our European competitors.”

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West 9:45 am, 9th June 2011

I am listening carefully to what the hon. Gentleman says, because I am expected to have sympathy with some of his remarks. At the start of his speech he cited environmental non-governmental organisations that have misgivings about the clause, but he seems to be making an argument that is based on economic protectionism. Which is it? Is it the environmental case, or is it the protectionism case?

Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe

I do not think it is a protectionist argument. It is about creating a fair, level playing field, which is the argument being made by the manufacturers and manufacturing organisations that I have quoted. It is not about protectionism, it is about a level playing field.

The hon. Gentleman will be pleased to know that I am now moving on to the green arguments against the proposals. The green lobby’s view is that the proposals for carbon floor pricing give an unacceptable windfall to the existing nuclear generators by creating an uplift in the marginal price of power with no additional cost. Let me make it clear that nuclear power almost certainly will be needed, as part of the mix of sources, to create the secure energy supply that the UK requires. This is not an anti-nuclear argument; it is an anti-windfall argument when there is no return on that windfall. Indeed, in a written answer to a parliamentary question, the Economic Secretary acknowledged that the carbon price support clause will put up consumer energy bills and deliver windfall profits of £50 million a year from 2013 to 2030 for existing nuclear reactor operators. Greenpeace has calculated that the figure exceeds £1.3 billion by 2020.

The proposals are, therefore, a bad deal for bill payers. Almost £1 billion will be given to the nuclear industry for doing absolutely nothing new. It will not add to energy output or to Britain’s energy security. There will be no requirement for companies to invest the windfall in national priorities such as energy efficiency programmes or meeting our renewable energy targets. It will simply add to the profits of certain companies, which last year made a combined profit of more than £3 billion while their CEOs recouped annual compensation of up to £2 million. Such bill increases are likely to compound fuel poverty and risk public hostility to the idea of green taxes.

The £1 billion windfall will come directly from the pockets of bill payers. As taxpayers do not have a choice about paying electricity bills and the rule change is being introduced by the Chancellor, this is effectively a tax and it clearly amounts to a subsidy for nuclear power. The Energy and Climate Change Committee investigated the issue recently, and MPs were concerned that Government proposals would effectively provide subsidies to nuclear generators through a carbon price floor that could hand them windfall profits. The coalition agreement committed to there being no new public subsidies for nuclear power.

Photo of Ian Murray Ian Murray Labour, Edinburgh South

My hon. Friend is making an incredibly powerful case. The Environmental Audit Committee looked at this in great detail, and there is potential for the green investment bank also to  provide subsidies to nuclear. We are, therefore, seeing a modal shift from normal generation of power to nuclear, based on public subsidy.

Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe

My hon. Friend makes a good point, and we need to be careful about where we are using public subsidy. Public subsidy should be there to support areas of risk and development, not to support existing provision, which is what is happening here. I am concerned if the same thing is happening through the green investment bank.

Both the Conservative and Liberal Democrat parties stood in the 2010 general election on manifesto commitments—it is a morning when manifesto commitments are in the headlines—not to allow subsidies for nuclear power. The carbon floor price proposals break those promises to the electorate. There is no electoral mandate to support the windfall subsidy that the Bill will generate.

I am hoping that Liberal Democrat Committee colleagues will take cognisance of the recent YouGov poll that showed that only 15% of Liberal Democrat voters were willing to support the party leadership on failing to keep that manifesto promise. There is an opportunity for Liberal Democrat Committee members—indeed all Committee members—to demonstrate that on this issue they are true to their principles and promises by voting with us in support of the amendment, which simply asks for a full impact assessment to be undertaken before any legislation of this sort is enacted.

In its present form, the tax is very badly designed. It will not drive the significant investment that is needed to develop clean, safe alternatives to fossil fuels or the technological improvements that are needed in energy-intensive industries. However, it will penalise British industry and endanger British jobs. It will hurt the consumer but fail to deliver our green ambitions.

The amendment we are debating would give the Government the opportunity to take time to think the policy through and to consider the concerns of the green lobby and manufacturing industry. It would allow them to pause before charging headlong into a policy that they will regret at leisure.

Photo of Tom Blenkinsop Tom Blenkinsop Labour, Middlesbrough South and East Cleveland

I will be brief in responding to my hon. Friend’s argument. He has made an excellent point. Given the current circumstances in Scunthorpe and the difficulties in the steel industry there, he has made a brave argument in trying to defend the manufacturing jobs that will help our economy.

The Government’s position on carbon floor pricing is bizarre. The Chancellor is constantly saying that UK manufacturing is returning, but in this policy he is unilaterally undermining it to the extent that 650,000 jobs in chemicals and steel are potentially at risk. It is not just companies such as Tata that are making the manufacturing argument. As my hon. Friend the Member for Scunthorpe said, companies such as INEOS and, on Teesside, Lucite, SABIC, GrowHow and other chemical firms are terrified by the carbon floor pricing proposals.

Under CFP, a tonne of CO2 will be £16 by 2013 but around £30 by 2020. The energy bills for those intensive industries will be at such a level that the profits generated  will not be able to cover the costs. We on the Committee have to think about the manufacturing future for Britain. In terms of climate change, are those products that are manufactured here produced in a far greener way already and can they be made even greener? If this policy is implemented, how will it affect British manufacturing and climate change across the globe? From talking to colleagues in this Committee Room and outside, I know that there are many reservations about how this policy will be implemented across the country and how it will affect our competitiveness. For example, given that the chemical industry makes up more than 30% of UK exports at the moment and is the largest sector for exports, this policy in and of itself will undermine manufacturing.

I speak in favour of my hon. Friend’s amendment. I will be supporting it and I hope that Government Front Benchers and Committee members will realise the logic of a pause in relation to this policy. When we had an Adjournment debate on the UK steel industry and we asked how the consultation process on this policy was implemented, it was clear from the Department for Business, Innovation and Skills Minister that BIS had absolutely no involvement in that consultation process. The Department of Energy and Climate Change had a tokenistic involvement in the process, but this policy is Treasury-led. It is not business-led or environment-led; it is purely about getting tax in. If that is the case, the Government will destroy a UK manufacturing sector that at this time could be fantastically developed. Particularly in the Teesside conurbation, projects are waiting in the wings and people want to invest. All they want is certainty from this Government.

We have gone through the battles for Teesside cast products and fought for two-and-a-half years to get a new buyer in Sahaviriya Steel Industries for that site. The beam mill has gone down, as well as other jobs in Hartlepool and down the road in Scunthorpe—all areas that I know very well—so I find it incredibly frustrating that a Government who keep preaching about manufacturing intend to implement this policy. I hope that everyone in this room realises that the amendment contains a common-sense solution.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

I do not intend to speak for very long as I know that time is tight today. However, I want to put on the record my support for the amendment and for the principle of an impact review. We need to try to understand what this effective subsidy will mean for not only our energy security but our manufacturing base and our ability to meet some of our environmental commitments.

All of us recognise that strong challenges face our society in trying to reduce carbon emissions and support our economic recovery, and a good evidence base for making policy is key to much of that. Many of us are deeply concerned about the importance of reducing our dependency on particular forms of energy while ensuring that we meet the needs of our economy, and we recognise that there may be better ways to cut the cake. That is the point addressed by the amendment. If we are putting money, by default, into particular forms of energy production through carbon floor pricing, we need to know what we are doing and understand whether we are getting best value for money—again, I speak with my public accounts hat on.

Providing an effective subsidy for one part of industry without asking whether that could also be used to generate efficiency in other parts of industry and encourage renewable sources of energy, is a debate that we have missed so far and something that could be offered by an impact assessment. I hope that the Government will look at the amendment and the concerns behind it with an open mind, and open an inquiry into how we could better use public subsidy to achieve the things that we wish for in our economy, such as a thriving manufacturing sector, and in the long term, a reduction in carbon emissions.

Photo of Ian Mearns Ian Mearns Labour, Gateshead 10:00 am, 9th June 2011

Does my hon. Friend wonder, as I do, how the global climate will be helped by our exporting jobs and manufacturing processes to countries where the regulatory framework is nothing like as tight as it is—quite rightly—in this country? Health and safety is one thing, but the impact on global climate change if we export jobs and manufacturing processes of this nature to places such as Ukraine and Russia, should not be underestimated

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

My hon. Friend makes a fair point. I am also concerned about what we can do to fast-track the development of renewable energy sources in our country. There is much debate about whether we have the capacity to generate more electricity through renewable energy sources, including wind and solar power, and I am also interested in microgeneration. One point about this proposal, and the subsidy that it will generate for the nuclear industry, relates to whether some of that money could be used to support the development of renewable industries. That would allow us to have a greater energy mix that relies on a wider range of sources and encourages the development of renewable energy. We would all like to see such a development, and there is no disagreement across the House that the more we do to support processes such as microgeneration, the better.

Above all, the review asks for better evidence on which to base our policies and move forward, so that we have more confidence in supporting our manufacturing industries and make the best use of our support for renewable energy and our energy mix as a country. I hope that the Government will take the amendment in that spirit and look closely at the proposals.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The crucial point about the amendment is that it calls for an assessment of the implications of this measure. As we have seen with many other things that the Government have done, not only in the Finance Bill but in other Departments, the crux of the matter is that the policy has not been fully thought through and its impact on different sectors may be slightly contradictory. As the hon. Member for Bristol West suggested in his intervention, the impact of the measure on energy-intensive industries and its environmental impact may not necessarily square. That is why it is so important to make a thorough assessment and for the Government to be clear about the objectives of the carbon floor price mechanism. Labour Members do not oppose the principle behind the mechanism; in Government, we were fully committed to carbon reduction and we passed the world’s first climate change Act.  There are, however, several serious problems with the way the Government have chosen to implement the policy, and I have a number of questions for the Minister.

Our first concern is the impact on ordinary consumers of energy and their household bills. I have cited a number of times the quote from the director of the Institute for Fiscal Studies about the Government giving with one hand, and taking away with many other hands. This measure is yet another example of that and of the Government hitting ordinary people where it hurts most. Energy prices are already rising fast. The cost of energy has been a problem for many years, and fuel poverty is certainly a concern for many of my colleagues. The OECD estimates that consumer energy prices in the first quarter of the year were 9.3% higher than the year before, compared to general consumer inflation of 4.1%. This week, ScottishPower announced that the cost of electricity would increase by 10%. Along with the 19% increase in the price of gas, it means that bills will rise by £170 a year.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Lady is right to flag up the cost of living, part of which is the cost of energy. I presume that she has read the tax impact information note, which clearly states that moving to more low-carbon energy generation in the long term will result in lower fuel bills.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister hits the nail on the head by saying that it will be in the long term. I was about to challenge her on that. In the longer term, it is obviously desirable to reduce energy bills, but the question is what impact the changes will have in the short term. People are already being hit by rises in fuel prices, yet the Government have cut the winter fuel payment by £50 for people over the age of 60 and by £100 for those over 80, despite saying in their Budget of June 2010 that they were committed to protecting key benefits for older people, including the winter fuel payment.

Consumer Focus said in February:

“In its current form there is a real risk that this policy may simply displace detriment”.

We are concerned that there will be increased fuel poverty and even more pressure on squeezed family incomes. What assessment did the Government make of the impact of the schedule on consumers, including fuel poverty, particularly in light of the cuts to the winter fuel allowance and fast-rising energy prices? Rather than speaking of the long term, will the Minister tell the Committee what impact it will have in the short to medium term? Did the Government consider the suggestion from groups such as Consumer Focus that revenues from the carbon price support rate should be hypothecated and used to help consumers in these difficult times?

Our second concern, which has already been explained to great effect by my hon. Friends the Members for Scunthorpe and for Middlesbrough South—

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Thank you. I knew that it was a long name, but I am glad for that name check.

Our second concern is the effect that the change will have on manufacturing. We heard earlier that because the Government have chosen to implement the mechanism,  energy-intensive industries such as steel, paper, glass, ceramics and others expect to be particularly hard hit. These sectors directly employ 225,000 workers and contribute more than £15 billion to our GDP. Many international industries are worried about the effect that it will have on their competitiveness abroad. Many of these firms and industries are large inward investors and, as has been said, they are vital if we want to develop the high-technology and green sectors in the UK.

Despite this, the Government have structured the mechanism in such a way that energy-intensive industries will bear the brunt of the policy, but that makes a mockery of their so-called plan for growth, and particularly their aim to encourage investments and exports as a route to a more balanced economy and to drive investment in green infrastructure. Even if the proposals were successful at encouraging investment in renewables, the measure would have a severe impact on other jobs, and on investment and exports. What options, if any, did the Government consider for mitigating the impact of the policy on those industries, or was it considered a price worth paying?

Thirdly, as was touched on earlier, the Government’s choice of mechanism for carbon price support would provide a subsidy to the nuclear energy industry of a reported £50 million a year, yet they explicitly promised not to subsidise it. The Conservative party manifesto, the coalition agreement and even the Prime Minister have said that the nuclear industry should receive no public subsidy, so either the Government have brought in this nuclear subsidy accidentally or they are attempting to bring it in by the back door.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

Will the hon. Lady clarify the Labour party’s position? When the current Labour leader was Energy Secretary, he confirmed that there should be a new generation of nuclear power stations as part of our energy mix. It is debatable whether that is the right thing to do. However, the hon. Lady’s colleagues prayed in aid NGOs such as Greenpeace and the World Wide Fund for Nature, which do not want a new generation of nuclear power stations—it is not only that they do not want a subsidy; they do not want nuclear power it at all. What is the current position of the Labour party? Does it want nuclear power to be part of our energy mix or not?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

We are talking about Treasury matters.

Photo of Tom Blenkinsop Tom Blenkinsop Labour, Middlesbrough South and East Cleveland

I find that sort of position from Government Members a bit rich. We had a good plan for nuclear in Britain, which would have had the component parts built in Britain, just down the road from the constituency of the leader of the hon. Member for Bristol West, at Sheffield Forgemasters, instead of being contracted to firms in Korea. The Opposition understand the need for manufacturing, but Government Members are still going over old ground and do not have that much understanding of manufacturing.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Labour party is committed to supporting nuclear energy, but the issue is to do with the Department of Energy and Climate Change rather than the Finance Bill, so I will not get into any detailed discussion.

We are talking about a subsidy, which the Liberal Democrats explicitly ruled out—a subsidy by stealth for the nuclear industry. The Conservative Chair of the Energy and Climate Change Committee, the hon. Member for South Suffolk (Mr Yeo), wrote that another of the Government’s energy markets proposals seemed

“to be more about concealing the fact that it is providing financial support for nuclear power than it is about coming up with the best approach.”

Perhaps the Minister can answer on behalf of the Liberal Democrat supporters of the Government as well, but is it Government policy to subsidise nuclear power stations by stealth, or is that an unintended side effect? Even if Government policy were to subsidise new nuclear build, does she agree that there is no good reason to subsidise existing stations, which the introduction of the mechanism would do?

The Liberal Democrat members of the Committee must recall that their party conference resolved that

“any changes to the carbon price” should

“not result in windfall benefits to the operators of existing nuclear power stations.”

I am happy to take an intervention from the hon. Member for Bristol West to explain how, presumably, he will support the provision in a moment. How will he square that with the decision of his party conference? It is another decision taken or action endorsed by the Liberal Democrats in government that does not tie up with what their party members feel and with what they promised the electorate.

The coalition agreement dealt with nuclear power, providing for Liberal Democrat Members to be able to oppose nuclear power without the issue being seen as one of confidence in the Government. The hon. Gentleman is a supporter of nuclear power, so perhaps that does not apply to him, but I ask the Liberal Democrat Committee members as a whole why they have not proposed any amendments to schedule 20. Do they intend to oppose it entirely, or are they happy to go ahead and support a subsidy to the nuclear industry?

The final issue is the impact on emissions. Will the mechanism really result in more long-term investment in renewables? More importantly, will it actually reduce carbon emissions? On the first point, DECC commissioned the consultants Redpoint to look at the options for energy reform. They reported in December that,

“our analysis suggests that the effectiveness of Carbon Price Support in driving low-carbon investment is dependent on the confidence that investors have that this policy will not be subject to future change.”

In other words, the success of the carbon support measures depends on whether investors believe the Minister’s promises.

The Committee, however, needs no reminding of what the Government have done. They raised VAT by 2.5 percentage points after the Prime Minister repeatedly said that he had no plans to do so. Only weeks after assuring the oil industry that they would preserve the stability of the North sea oil regime, they sprang an ill-conceived surprise attack, which we have discussed in some detail in Committee. They also shocked the green energy industry in this country by proposing radical reductions to small-scale feed-in tariffs. I have had  conversations with companies in my constituency—I know many other Members have had such discussions—about the impact. Investing in renewables cannot happen overnight: some people were lined up for projects on the basis that the feed-in tariff regime would apply to them, but it was whisked away from under them.

The solar energy sector provides 10,000 jobs in the UK. A solar specialist at the Renewable Energy Association said in response to the move to reduce feed-in tariffs:

“This industry has been strangled at birth” by the Government. Investors are all too aware that the Government’s record on keeping their tax promises and supporting the industry is somewhat flaky. Will the Minister tell the Committee how the Government intend to restore their credibility with the industry, particularly the renewables sector?

On the second point, there are serious concerns that, even if the Government’s proposed rules reduced emissions in the UK, they would simply increase them elsewhere in Europe. Redpoint, the consultants commissioned by the Department of Energy and Climate Change, said in its report, hidden away in a footnote:

“Under the EU Emissions Trading Scheme, it would be expected that lower emissions from the GB electricity sector in a given year would be offset by higher emissions elsewhere within the trading scheme.”

An analysis in The Guardian suggests that the effect of the Government’s proposals by 2020 would be a drop in the European carbon price of about 8%, and a windfall to polluting firms in the EU of around £1.3 billion pounds. Will the Minister tell us whether the Government believe that a net reduction in carbon emissions will be a key measure of the success of this scheme? What talks has she had with her counterparts in other EU Governments to explore the possibility of working with them on this policy?

Photo of Karl McCartney Karl McCartney Conservative, Lincoln 10:15 am, 9th June 2011

The hon. Lady mentioned The Guardian. I know that it was some time ago, but we have heard a lot about The Daily Telegraph, and I wondered whether she had quotes from it today.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I do not believe I have any quotes from The Daily Telegraph. I may endeavour to find one for our sitting this afternoon, just to keep the hon. Gentleman happy, but I do not believe that I will quote from it this morning.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Lady has been speaking for some time about her concerns about this approach, but the bottom line is that her party supports the clause. Is that not right? Is she not simply blustering about points that people outside have raised with her, when she ultimately agrees with us that this is the right step to take?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

As I said, we support the principle of carbon price support. That is not the same as supporting the way in which the Government have chosen to implement it. With due respect, we will support the amendment  tabled by my hon. Friend the Member for Scunthorpe. It is for him to decide whether to press it to a vote, and I hope that he does.

I shall be interested to hear the Minister’s response to my specific questions, but my suspicion is that she will not be able to answer our questions about the impact of the measures. My hon. Friend’s amendment calls for an impact assessment before the clause goes ahead, and that is the right approach. We need to know the impact on manufacturing, consumer energy prices, the renewables sector and across the board. In response to the Minister’s recent point, we may want to return to the issue on Report, particularly if we do not receive decent answers from her now.

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

I want to make some general comments about the clause, and to refer specifically to the amendment tabled by the hon. Member for Scunthorpe. The clause is one of the most important in the Bill, because of its possible effect on manufacturing, which has been mentioned, and because of the long-term effect on our climate change targets in this country. It introduces carbon price support, which will lead to a proper carbon tax in future. This country will not be the first to take that step. Such a tax exists in other parts of the developed world. Sweden has one, and also has a well-developed, high value-added manufacturing industry, which co-exists with a carbon tax. Denmark has one. The Netherlands has one. In case I am upsetting my coalition colleagues by naming too many EU member states, I point out that British Columbia, in Canada, also has a carbon tax, in an economy that is hugely based on resource extraction.

My right hon. Friend the Secretary of State for Energy and Climate Change confirmed three weeks ago that the Government would adhere to the recommendations of the Committee on Climate Change in the fourth carbon budget. Of course, carbon budgets were introduced as a result of the Climate Change Act 2008, which the hon. Member for Bristol East mentioned. The fourth carbon budget, for the period from 2023 to 2027, commits us to having a ceiling of 1,950 megatonnes of carbon dioxide equivalent, which means a 50% reduction on the 1990 level of emissions by 2025. That puts us on course for the 80% reduction by 2050 that the 2008 Act, with cross-party agreement, committed us to achieving.

In 2008, all three parties were committed to the Act. In fact, significant improvements were made to the Bill, which started in the Department for Environment, Food and Rural Affairs. Amendments were tabled by my party and the Conservative party and were supported by non-governmental organisations. It is very strong legislation, and across the House we have reason to be proud of it. However, there is no point in having that legislation and a series of carbon budgets from now until the mid-2020s if we do not have the fiscal and policy instruments in place to achieve those demanding carbon reduction targets.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I wonder whether the hon. Gentleman would be surprised to learn that in The Daily Telegraph in April, the chief executive of E.ON said that the measures being put forward by the Government were an unacceptable additional tax on consumers. Would the hon. Gentleman be interested in reflecting on that?

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

I thank the hon. Gentleman for his intervention, but it does not surprise me that the CEO of an energy company complains about new taxes being levied on his industry that will affect what he currently does to produce his profits and will require him to change his business behaviour. That does not surprise me at all; indeed, I welcome the fact that he is discomfited by the policy because if he were not, there would be no point in having it.

Photo of Ian Murray Ian Murray Labour, Edinburgh South

If the costs for a particular business in the energy sector go up, where does the hon. Gentleman think that the added burden of those costs will fall?

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

The hon. Gentleman makes an important point. At the end of the day, we are all consumers, whether we are consuming the energy directly in our own homes through our electricity or buying products that have required a carbon-intensive industry to bring them into the high street where we can purchase them, so a carbon tax will fall, indirectly, on all of us as citizens. That is important because we need to change our own behaviour. However, what we do with the revenue from a carbon tax—I am ranging a little too far outside clause 77, so I will not dwell too long on this—is important as well. I think that taxes should be reduced elsewhere and, in particular, vulnerable households should be protected from the impact of increasing taxes.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

A significant number of people in the hon. Gentleman’s constituency live in fuel poverty.  I know that particularly well because two of the most deprived wards in the south-west used to be part of my constituency and are now part of his. Is he happy that those constituents of his who are living in fuel poverty will bear the burden—a significant burden—as a result of this mechanism?

Photo of Stephen Williams Stephen Williams Liberal Democrat, Bristol West

Well, yes, I am not happy that increased taxes fall on individuals that do not reflect their ability to pay those taxes. As I was saying in response to the intervention by the hon. Member for Edinburgh South, what we do after introducing a carbon tax is important as well. There will need to be protection for vulnerable households to ensure that they are not exposed to taxes in the same way that I am. I am able to bear an increased carbon tax, but of course I recognise that many of my constituents may not be able to do so. Perhaps that could be dealt with through the income tax mechanism, through the benefits system or through giving a direct rebate to each citizen from the proceeds of the carbon tax. There are many things that we can do to ensure that the burden of this taxation falls fairly on individual households. Many of the other measures that the Government are introducing, such as the green deal, which is being discussed in a Committee Room further along this corridor, will help households to come out of fuel poverty by retrofitting their houses.

The Chairman adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at One o’clock.