Clause 45 - Allowances for energy-saving plant and machinery

Finance Bill – in a Public Bill Committee at 2:00 pm on 14th June 2012.

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

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

The clause relates to the feed-in tariffs scheme, another area in which consistency is at stake, as are jobs and investment. As we all know, feed-in tariffs were introduced by the Labour Government to support producers of solar panels.

I have visited Gough and Kelly, a business in my constituency of Leeds West that is involved in the installation of solar panels, and I am sure that other hon. Members have been to similar businesses in their constituencies—if they have not, I would recommend that they do so. That business employs about 30 people and has supplied solar panels to homes and businesses in my constituency and across west Yorkshire and the country. Its industry relies on the feed-in tariffs.

I first visited the business at the end of 2011 and I did so again earlier this year, with my hon. Friend the Member for Liverpool, Wavertree (Luciana Berger), one of the shadow Energy and Climate Change Ministers. It is worried about keeping its staff in their jobs because of changes to how feed-in tariffs operate. It is a good employer that cares about its staff and is making a difference to energy bills in households across the city, as are many other companies. It has been hit hard by the cuts in the feed-in tariffs for solar panels. The rules changed almost overnight in the middle of a consultation period, which took it by surprise.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

It is a pleasure to serve under your chairmanship, Mr Amess. I am grateful to my hon. Friend for giving way. I have had significant discussions with Carillion, which employs many people in my constituency and neighbouring constituencies. There was consternation at the pace of the change to the feed-in tariffs. The way the change was brought about was subsequently declared illegal. No one in the industry expected that amount of change. Everyone expected change, but not the amount of change, which made the business almost unsustainable for many.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank my hon. Friend. His intervention shows that the changes affected businesses large and small. Like Carillion, Gough and Kelly said that it expected change. Because technology changes the cost of installing and producing solar panels changes, so it expected the feed-in tariffs to change to reflect that. They went from a generous system, to one that did not make it worth while to do business.

Like many others, the company I went to see went into the solar panel industry due to difficulties in the wider economy. It wanted to diversify into an area that it thought was growing and had prospects for the future. The changes, which were later declared illegal as my hon. Friend the Member for Gateshead said, took place almost overnight during a consultation period, so were particularly difficult for that company and other companies to absorb.

Across the country, the solar industry employs 25,000 people. Since feed-in tariffs were introduced in 2010, over 90,000 solar installations have been completed in the UK. A survey conducted by the Renewable Energy Association found that of 138 firms across the solar industry, 57% anticipate laying off at least half their staff.

Photo of Steve Barclay Steve Barclay Conservative, North East Cambridgeshire

Will the hon. Lady clarify something? Is the Opposition position that the feed-in tariff was value for money at the rate it was set? If it should have changed, what should it have changed to?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank the hon. Gentleman for that intervention. As I said, industry expected the feed-in tariffs to change as technology changed and the cost of solar panels reduced. It expected and understood that the feed-in tariffs would have to change.

Several hon. Members rose—

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I will give way to other hon. Members in a moment.

The change should have happened in consultation with industry and reflected the changing costs. The system should not have changed overnight from a generous system without consultation, as I am sure all hon. Members accept. [Interruption.] The hon. Member for North East Cambridgeshire is speaking from a sedentary position. I do not know what he is saying. I am happy to take a further intervention.

Photo of Steve Barclay Steve Barclay Conservative, North East Cambridgeshire

I thank the hon. Lady. I was simply wondering whether she was going to address the question. Was the feed-in tariff value for money at the point it was set, as the technology was then, and what price should it be adjusted to? I note her remarks about consultation with the industry. Does the industry not have a conflict of interest?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

When the tariff was set, it offered value for money. It was creating jobs at a time when far too many people are losing their jobs. It is reducing the cost of energy at a time when energy costs are going up. It was value for money, but it could have been reduced to save money, although that should have been done in the right way—through consultation with the industry and stakeholders. That did not happen in this case, which is why so many people are angry about the change and why it was deemed illegal.

Photo of Ian Lavery Ian Lavery Labour, Wansbeck

Is it not fair to say that the industry was outraged by the fact that there was a reduction in the feed-in tariff before the consultation period had ended? How outraged would my hon. Friend be?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank my hon. Friend for that intervention. He expresses well the industry’s view. That view is shared by businesses, charities and individual householders who wanted to install solar panels because they thought it was the right thing to do and that it would save them money. They found out, however, that the economics no longer stacked up, so they cancelled those arrangements.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I am grateful to my hon. Friend for giving way again; she is very generous with her time. The previous Government invested in the feed-in tariffs at a particular level to stimulate significant initial growth in the industry, and there was broad, cross-Parliament support for their doing so. I think that the industry would have accepted a reduction in feed-in tariff to 20p after consultation and discussion, but at 16p, a large proportion of the business is, frankly, unsustainable.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank my hon. Friend for that intervention. We are considering value for money, but it is not good value for money to have the highest levels of unemployment in 17 years and 1 million young people out of work when they could be in work, paying their  taxes and contributing to the economic recovery. That is an extreme waste of money, and it is why the Government are having to borrow £150 billion more than they planned to in the course of this Parliament. That is the cost of their economic failure, and the impacts on the green economy go from there.

I delve into the matter of feed-in tariffs because I believe that hon. Members will be concerned about any changes that are made to the scheme, given the chaotic approach that has defined the Government’s policy on such matters since May 2010. Local manufacturers are uncertain, and their employees will be rightly concerned about their jobs, particularly as the manufacturing figures that we saw yesterday showed a worrying further decline in the industry.

The clause provides that where feed-in tariffs or renewable heat incentive tariffs are paid in respect of electricity or heat generated, 100% first-year allowances will not be available for expenditure on plant or machinery that generate or produce it. I agree with the Government that businesses must not be allowed to receive a double benefit, and I welcome the clause’s anti-avoidance aspect. However, given the wider concerns about the Government’s policies in this area, which have been expressed by many in Committee and have been recounted to me in my constituency, can the Minister give assurance that the provision will not unnecessarily increase the administrative burden related to the feed-in tariff scheme? On this occasion, has the policy been designed in consultation with the industry? Are the rules clear for businesses?

From talking to the business Gough and Kelly and to colleagues, I understand that the consultation on changes to the feed-in tariffs was six weeks long, which is half the recommended consultation period, and that the changes came into force almost two weeks before the consultation concluded. Many of the businesses that operate in this area are small employers. They may not find it easy to understand the rule changes without having received notice or proper consultation. Businesses need such consultation, and information about complex matters, if they are to do the job of creating business, investing and employing people.

Finally, will the clause remain effective regardless of changes made to the feed-in tariff scheme or will we have to revisit the matter in the Finance Bill next year? I note that the Government have made numerous changes to the scheme since 2010. It is important to ensure that HMRC, the Treasury and the Department of Energy and Climate Change are alert to the ramifications of other changes to the scheme that are related to the measure, given the administrative burden faced by companies already concerned about staying in business and employing people. I reiterate that we support the Government’s intention to close tax loopholes, but such matters must be properly dealt with in consultation with business and industry.

Photo of Graeme Morrice Graeme Morrice Labour, Livingston 2:15 pm, 14th June 2012

It is a pleasure to serve under your chairmanship, Mr Amess. I will crack on, because I know we have a lot of ground to cover this afternoon and there is not much time left. I follow the excellent contribution of my hon. Friend the Member for Leeds West.

Members will be aware that the trade bodies that represent businesses in the solar power industry expressed anger about the Budget in March, declaring that the industry was singled out for “rough treatment” by the Chancellor. That strong response followed the industry’s concerns about the proposed changes to capital allowances, with the Renewable Energy Association stating that

“the government has disadvantaged a certain sector of industry—the renewable industry—relative to other investment opportunities.”

How has the Minister engaged with industry representatives to address concerns about the impact the changes might have on the delivery of feed-in tariffs?

If there is one issue that encapsulates the chaotic and confused way in which the coalition Government make policy, FITs are probably that issue. The Government’s rushed and ill-considered changes to the scheme not only hit families that are trying to protect themselves from soaring energy bills, but put thousands of jobs in the solar energy industry in jeopardy.

At the time of the announcement last October, several businesses in my constituency contacted me to express their anger and frustration with the Government’s botched handling of the changes.

Photo of Steve Barclay Steve Barclay Conservative, North East Cambridgeshire

Is the hon. Gentleman saying that his constituents who are facing the most acute difficulties with paying their fuel bills, which is a very real issue, have sufficient capital to afford the up-front investment in solar energy?

Photo of Graeme Morrice Graeme Morrice Labour, Livingston

Of the many people who have suffered high energy prices due to the Government’s policies, a fortunate few are able to acquire capital investment to do something about it through renewable and solar energy, and they seek effective Government support to do so.

The aforementioned businesses in my constituency recounted how the Government’s policies have resulted in massive confusion for customers, lost orders and serious disruption to the business plans of those working in the industry. A survey conducted by the Renewable Energy Association and the Solar Trade Association last year found that up to 40% of jobs in the sector were feared to be at risk. More than half of the companies surveyed anticipated having to lay off staff, and a third were concerned about having to fold entirely.

We now know that more than 6,000 people employed in the solar industry have lost their jobs since last summer. Since the Minister’s cuts came into force, solar panel installations have fallen by almost 90%, which has been a devastating blow to an industry that had previously seen significant expansion following the introduction of tariffs in 2010.

As well as businesses, I have also heard from constituents who had already installed solar power and have lost out because of delays in registering their home. Thousands of other people across the UK may have suffered the same fate, which seriously undermines public confidence in the initiative. At every stage, the Government have failed adequately to consult or listen to expert advice. They are driven purely by the desire to cut costs without considering the wider, long-term impact on jobs, the economy and the environment.

No one disputes that the tariff level needs to be brought down in an orderly fashion, but the Government could have done things differently and achieved the  same outcomes without damaging jobs, consumers and the industry. Despite the Government’s chaotic mismanagement, solar power remains a viable proposition. The Government must now work in partnership with the industry to restore confidence and to help the industry recover. I look forward to the Minister’s response.

Photo of John Mann John Mann Labour, Bassetlaw

What a pleasure it is to serve under your chairmanship, Mr Amess. You are a fine advocate for the caravan industry, which has benefited from a VAT reverse.

This is a bit of a belter: the Government have stuck up petrol by 24p a gallon since the Chancellor came in—the highest non-wartime increase of any Chancellor, by a huge degree—so people are paying more for petrol. That is part of their green policy.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I am fascinated by the hon. Gentleman’s reference to its being the highest non-wartime rise. I wonder whether petrol rose by the equivalent of 5 shillings a gallon during the war. That seems extraordinarily high.

Photo of John Mann John Mann Labour, Bassetlaw

The hon. Gentleman, a keen historian, will know that the increase under this Chancellor is the third highest Chancellor’s increase in relative petrol prices since petrol was invented. [ Interruption. ] A lot of people have suddenly woken up in this room. Petrol prices in 1942-43 and in 1915-16 went up higher for various war-related reasons. We have a war at the moment, but it is a different kind of war. I am talking about the great wars; I am not suggesting that we do not have conflict now. My point is that these increases are clearly part of a green policy and the greens love it.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I want to point out for the record that 24p is much closer to four and nine pence ha’penny.

Photo of John Mann John Mann Labour, Bassetlaw

I thank my precise and diligent comrade for that intervention.

The petrol price increases are one part of the Government’s green policy. We know the other part: cover our green and pleasant land—every hill and every backyard—with windmills. We will have windmills on our roofs, on our heads—everywhere. We will have these huge monstrosities, reaching hundreds of feet up into the air, a dozen a time. There is a bit of a fight back in rural Lincolnshire and elsewhere, and I commend those fighting back against this imposition on the English countryside—an imposition on the part of the Government that we are seeing everywhere.

One thing that the general public would like, as opposed to windmills everywhere and a vast rise in petrol prices, is solar panels and ground source heat, because that reduces their bills and allows people to make a small contribution to the environment. It can be sold on both counts. Who would lose out? We heard in previous interjections that this policy was all about rich people with pots of money, but in many parts of the country it is not, because local authority building departments are about to set up huge schemes, in social housing, for pensioners. Retired miners in my area, for example, want the free hot water and other benefits.  The majority of mining stock is perfectly situated, with gardens and huge south-facing roofs. Retired miners are demanding solar panels so that they can make their contribution to cleaning up the environment and benefit financially in these difficult times. What do the Government do? They pull the rug out from underneath. One could not make it up.

No wonder this Government are becoming so despised. Polls demonstrate that, but knocking on doors and listening in communities demonstrates it more vividly. People think that the Government do not get it. They look across to the once green Liberals. The handful of people who would still consider voting Liberal—I appreciate that it is down to 2% in the north of England—think, “What’s the point in voting Liberal, when the Liberals are Tories?” We have a demonstration of that here. We need common-sense politics. This country is falling behind the rest of the world, and Germany is getting a lead on us economically because of it. Even the French, the Italians and the Spanish are ahead of us. You could not make it up.

Photo of John Mann John Mann Labour, Bassetlaw

The Government Whip sums it up. He does not care about this. He does not care about the environment or energy bills. That demonstrates the arrogance of this Government in power; there can be no clearer representation. That is why they have lost the plot. I implore the Minister to show a bit of common sense and accept modest amendments.

Photo of David Gauke David Gauke The Exchequer Secretary

It is always a pleasure to follow the hon. Gentleman, whose remarks so often enliven our proceedings.

Clause 45 makes two changes to the capital allowances treatment of expenditure that generates renewable electricity or heat, and that qualifies for special tariff payments. The first change ensures that 100% first-year allowances are not given for plant and machinery in respect of which tariff payments are received. That change ensures value for money by enabling enhanced capital allowances to complement other Government policies, rather than duplicating other investment incentives.

The second change designates the rate of allowances for solar panels at the special rate of 8% a year from April 2012. That ensures a fair and appropriate rate of allowance for assets with the expected economic life of solar panels, and provides a clear and consistent rate of allowance for all businesses.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

Most of the debate so far has been about the solar panels part of the clause. Is the Minister aware of the representations from the Combined Heat and Power Association, and companies such as INEOS and Sembcorp, about the mixture of policies he mentioned that apply to this area? Perhaps an unintended consequence of the Government’s measures is that they might reduce the incentives for energy-saving projects on combined heat and power in industry.

Photo of David Gauke David Gauke The Exchequer Secretary

Before I respond to that intervention, it would be helpful for the Committee if I set out the purpose of the clause. We have had a rather broad  debate this afternoon on policy relating to renewables, feed-in tariffs and so on. I fully understand why hon. Members wished to have that debate, and why my hon. Friend the Member for Redcar broadens it further and raises a significant issue for his constituency.

In truth, clause 45 relates to something a little narrower. Let me set out what it seeks to do and put the clause in context. The changes generally take effect from 1 April 2012 for companies or 6 April 2012 for businesses in the charge to income tax. For expenditure on combined heat and power equipment, the change to the enhanced capital allowances rules will not apply until April 2014, because the tariff rate for the technology is still under review, which is a matter of interest for my hon. Friend the Member for Redcar.

It may help if I provide the Committee with some background to the measure. At Budget 2011, it was announced that there would be a consultation on capital allowances treatment of expenditure in this area. The plant or machinery in question would be that which qualifies under either of the Department of Energy and Climate Change’s two regimes for incentivising renewable energy. Those two regimes are, of course, the feed-in tariff and the renewable heat incentive.

The aim of the consultation was to ensure that the capital allowances treatment of assets qualifying for tariffs was fair, consistent and affordable. Currently, some, but not all, of the technologies that qualify for feed-in tariff or renewable heat incentive payments can also qualify for 100% enhanced capital allowances. That results in the potential for some renewable energy technologies to obtain the benefit of more than one investment incentive, but that does not apply to all items. Recently, there has also been uncertainty as to whether expenditure on certain electricity or heat generation equipment should correctly attract allowances at the main rate of 18%, or at the special rate of 8% per annum.

The clause ensures that, from April 2012 onwards, enhanced capital allowances are not available for plant and machinery where feed-in tariff or renewable heat incentive payments have been received. It also designates the special rate of allowance as the appropriate rate for business expenditure on solar panels incurred from April 2012 onwards.

We have had a somewhat broad debate, and I can understand why hon. Members wanted that. Of course, the values of feed-in tariffs have recently been revised by the Department of Energy and Climate Change. However, given that the incentives provided by tariffs are separately calculated by DECC without any reference to capital allowances, it is perfectly reasonable to review either incentive independently. Also, most technologies that qualify under the feed-in tariff scheme do not in fact qualify for enhanced capital allowances, so the revision is unlikely to have much impact on a business’s capital allowance position.

I hope that the Committee understands—I am sure that, in your position, you will understand, Mr Amess—that I am keen to remain focused on what clause 45 is about. It is about ensuring value for money by preventing the duplication of incentives, by providing greater certainty, consistency and fairness for business, and by designating  an appropriate rate of capital allowances for expenditure on solar panels. It is a common-sense approach and an attempt to protect the interests of the taxpayer and to ensure that the incentives are right, fair, and appropriate, and not greater than Government intended. I hope that the clause will stand part of the Bill.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury 2:30 pm, 14th June 2012

I thank the Minister for his response and hon. Members for their useful and insightful contributions. My hon. Friend the Member for Livingston mentioned the rushed and ill-considered nature of the changes to the FITs, and particularly the impact that they will have on families and businesses, and he is right. In response to interventions from Government Members, my hon. Friend the Member for Bassetlaw rightly pointed out that those taking advantage of solar panels and other measures in order to cut their energy bills and make a contribution to our environment are not just people with piles of cash, but people on a whole range of incomes, particularly because of the innovative schemes that many councils and local authorities have put in place.

I urge the Minister to ensure that policy, whether in the Treasury or other Government Departments, is put in place in the right way and is not, as my hon. Friend the Member for Livingston said, rushed and ill-considered. It should offer continuity and certainty for businesses, particularly small businesses, which we need to grow, to create employment and to invest, so that we can get the economy back on track and growing once again.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.