Climate change levy: exemption for mineralogical and metallurgical processes

Finance (No. 3) Bill – in a Public Bill Committee at 2:30 pm on 6th December 2018.

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Photo of Clive Lewis Clive Lewis Shadow Minister (Treasury) 2:30 pm, 6th December 2018

I beg to move amendment 124, in clause 63, page 45, line 13, at end insert—

“(6) The Chancellor of the Exchequer must review the expected effect of the changes made by this section to paragraph 12A of Schedule 6 to the Finance Act 2000 on companies with up to 250 employees and lay a report of that review before the House of Commons within six months of the passing of this Act.”.

This amendment would require the Chancellor of the Exchequer to review the impact of Clause 63 on SMEs.

Photo of George Howarth George Howarth Labour, Knowsley

With this it will be convenient to discuss the following:

Amendment 125, in clause 63, page 45, line 13, at end insert—

“(6) The Chancellor of the Exchequer must review the expected effect of the changes made by this section to paragraph 12A of Schedule 6 to the Finance Act 2000 in the event that—

(a) the UK leaves the European Union without a negotiated withdrawal agreement,

(b) the UK leaves the European Union following a negotiated withdrawal agreement.

(7) The Chancellor of the Exchequer must lay a report of the review under subsection (6) before the House of Commons within two months of the passing of this Act.”.

This amendment would review the impact of Clause 63 in the event the UK leaves the EU under (a) no deal or (b) a withdrawal agreement.

Amendment 126, in clause 63, page 45, line 13, at end insert—

“(6) The Chancellor of the Exchequer must review the expected effect of the changes made by this section to paragraph 12A of Schedule 6 to the Finance Act 2000 on divergence between the regime that applies to mineralogical and metallurgical processes in the United Kingdom after it has left the European Union and that which applies in the European Union.

(7) The Chancellor of the Exchequer must lay a report of the review under subsection (6) before the House of Commons within two months of the passing of this Act.”.

This amendment would require the Chancellor of the Exchequer to review the effect of Clause 63 on divergence between the UK’s regime for mineralogical and metallurgical processes and the EU’s, after the UK has left the EU.

Amendment 127, in clause 63, page 45, line 13, at end insert—

“(6) The Chancellor of the Exchequer must publish a statement annually listing the companies to which the exemption for mineralogical and metallurgical processes under paragraph 12A of Schedule 6 to the Finance Act 2000, as amended by this section, applies.”.

This amendment would require the Chancellor of the Exchequer to publish an annual statement listing the businesses to which the exemption for mineralogical and metallurgical processes applies.

Amendment 128, in clause 63, page 45, line 13, at end insert—

“(6) The Chancellor of the Exchequer must carry out an impact assessment of the exemption for mineralogical and metallurgical processes under paragraph 12A of Schedule 6 to the Finance Act 2000, as amended by this section, considering the impact on—

(a) tenanted businesses that carry out mineralogical and metallurgical processes,

(b) revenue effects,

(c) the UK’s ability to meet its third, fourth and fifth carbon budgets,

(d) the UK’s ability to meet its greenhouse gas emission targets.

(7) The Chancellor of the Exchequer must lay the impact assessment under subsection (6) before the House of Commons within two months of the passing of this Act.”.

This amendment would require the Chancellor of the Exchequer to carry out an impact assessment of the changes made by Clause 63 and their impact on tenants, HMRC revenues, the UK’s national carbon budgets, and carbon and other greenhouse gas emission reduction targets.

Clause stand part.

Photo of Clive Lewis Clive Lewis Shadow Minister (Treasury)

I am particularly pleased to have the opportunity to speak to our amendments to clause 63, which relate to the climate change levy exemption for mineralogical and metallurgical processes. I hope that I do not have to say that too often—it is a bit of a tongue-twister—and that the Minister will answer some questions on the Government’s proposed measures.

The clause may seem technical, but the overall issue could scarcely be more important, as I hope I illustrated earlier. As the Minister no doubt will outline, business do not have to pay the climate change levy on the energy they use for some specified purposes, including mineralogical and metallurgical processes. The clause amends the definition of mineralogical processes so the exemption for energy used in those processes will remain operable following the UK’s departure from the EU. In addition, it clarifies that a landlord can claim the exemption for both mineralogical and metallurgical processes on behalf of a tenant.

Although it is estimated that the measure will have a minor impact on the Exchequer, we have a number of concerns. We appear to be lacking assessments of the market impact of the clause, its effect on our leaving the European Union and its consequences for the UK’s carbon budgets and other greenhouse gas emissions reduction targets, as well as for tenanted businesses covered by it.

Amendment 124 would require the Chancellor to review the impact of the clause on small and medium-sized enterprises. We are surprised by the Government’s lack of consideration of this matter, as SMEs, which lack the staff and financial resources of large companies, often struggle to cope with the impact of new financial regulation. As SMEs are important to maintaining existing jobs and creating new jobs and apprenticeships, will the Minister support our proposed review and help that critical part of our economy, which is already hard pressed?

Amendments 125 and 126 would require the Chancellor to review the impact of the clause in the event that the UK leaves the EU either in a no-deal scenario or under a withdrawal agreement, and its effect on divergence between the UK and EU regimes for these processes if the UK leaves the EU. Again, we are surprised that the Government have not seen fit to carry out such assessments. Does the Minister intend to do so? If not, why not?

Amendment 127 would require the Chancellor to publish annually a list of the businesses to which the exemption for mineralogical and metallurgical processes applies. As the Government are only too aware, there is nothing like keeping on top of matters to ensure that legislation has the desired outcome and markets respond appropriately to the necessary signals. Will the Minister support our amendment so we can all follow the unfolding impact of the climate change levy and its exemptions in this sub-sector?

Given the stark realities of the latest scientific findings submitted to the conference of the parties under the UN framework convention on climate change, which is meeting this week in Poland, the Minister surely agrees that nothing is more important than continuously monitoring, with an eagle eye, the greenhouse gas emissions of every sector in the UK. Monitoring leads to measurement, which leads to management. We must carry out official assessments if we are most effectively to support British industry and companies to reduce their carbon and other greenhouse gas emissions. That means embracing opportunities to modernise our industrial processes as we rapidly move along the path to a zero-carbon economy and help the world stay within the boundaries of the 1.5° warming target of the Intergovernmental Panel on Climate Change.

Amendment 128 would require the Chancellor to carry out an impact assessment of the effects of the changes made by the clause on tenants, the revenues of Her Majesty’s Revenue and Customs, the UK’s national carbon budgets, and carbon and other greenhouse gas emission targets. The guidance notes to the clause state that its impact on the Exchequer is negligible, but will the Minister please explain how, unless it investigates, HMRC will know how many heavy industry or fossil fuel use tenants will be affected? Without a confident quantification, that assertion is meaningless, as I am sure he agrees.

Moreover, by extending relief, the clause in effect encourages those tenants, alongside existing owners and plant operators, to continue emitting carbon and other greenhouse gases rather than switching to alternative generation methods with lower emissions. Will he please explain why the Government would want that, and what complementary measures they are taking to support businesses that want to convert to lower-emission modes of generation?

Given the imperative to reduce greenhouse gas emissions following the latest IPCC report and to contribute to stabilising the average annual temperature increase to no more than 1.5°C, the Government should take all possible measures to help industry to adapt and to retrain and re-skill workers so that they can secure well-paid jobs in the emergent low to zero-carbon economy—the so-called just transition. In that vein, it is also necessary to calculate a new greenhouse gas emissions budget for any policy change likely to encourage more intense fossil fuel use and therefore higher greenhouse gas emissions. Will the Minister tell us whether that calculation has been undertaken and inform the Committee of its results? If it has not been, will he agree to look into the matter and inform the House of any further findings?

This is a small but important change to the Government’s levy. Taken as it stands, it is, sadly, in tune with their refusal to use the levy in the way it was intended—to reduce greenhouse gas emissions. However, like the former Chancellor’s irresponsible and perverse decision to impose the levy on lower-carbon, renewable forms of generating electricity, such as solar and wind power, the clause exempts industries that should be incentivised to use less-polluting alternatives.

We deeply regret Government decisions over the last few years, including axing the fund to support work on carbon capture and storage, which could have helped to make us a world leader in a growing new industry, as well as in tackling climate change. However, similar objectives can be achieved through the Bill by offering clear incentives, through the tax system, to clean up these sectors, and not by offering tax breaks like this levy exemption to continue down the high-emission path. For that reason, we must question the wisdom of this measure. Unless the Minister gives a clear assurance that the measure is in the context of other steps to reduce climate change emissions, we will not be able to support the clause.

Photo of Robert Jenrick Robert Jenrick The Exchequer Secretary 2:45 pm, 6th December 2018

Clause 63 makes changes to the definition of mineralogical processes in the climate change levy exemption for energy used in mineralogical and metallurgical processes, to ensure that the exemption remains operable following the UK’s departure from the EU. In response to representations, it also clarifies that tenants can benefit from the exemption where they are supplied with energy via a landlord.

The changes will come into effect following Royal Assent to the Bill. They are minor, technical changes designed to maintain the status quo and to provide continuity for businesses. Overall, we judge that they will have a negligible impact, as we set out in the relevant tax information impact note published in July.

The clause does two things. First, it removes “by a person” and “to a person” from the current wording of the exemption, to clarify that it is the energy used in mineralogical and metallurgical processes that qualifies for exemption, rather than the person carrying out the process, as the current drafting suggests. This means that all firms using energy to carry out these processes can claim the exemption. I believe this will be widely welcomed by those who have approached us previously.

Secondly, the clause replaces the reference to the energy taxation directive in the definition of mineralogical processes with a reference to the appropriate NACE code. These codes are an internationally recognised system for classifying economic activity and are of UN origin. This aligns the definition with the way metallurgical processes are defined, which already refers to NACE codes. I hope that is clear.

Amendments 124 and 128 would require the Government to assess the impact of these changes on small and medium-sized enterprises, tenants, revenue, carbon budgets and greenhouse gas emissions reduction targets. Amendment 127 would require the Government to publish an annual statement listing the companies that have benefitted from these changes.

While the first change that the clause makes will have a negligible impact, as set out in the relevant tax information impact note earlier this year, the second change will have no impact on these businesses and sectors. Indeed, if we did not make these changes, there would be an impact as we leave the European Union.

Amendment 125 would require the Government to review the effect of these changes in both a no-deal and a negotiated exit from the EU. Amendment 126 would require the Government to review the effect of those changes on any divergence between the exemption in the UK and similar exemptions in the rest of the European Union. Both changes made by the clause will ensure the exemption continues to operate exactly as intended now and after the UK leaves the EU.

The changes introduced by the clause do not affect how the exemption works in the UK compared with other European countries; they apply equally while we remain in the EU, if we were to leave the EU with a negotiated deal or in the event that we leave with no deal. I therefore urge hon. Members to reject the amendments. The information required to fulfil the requests made in the amendments is either already in the published impact assessment or, for the reasons I have just described, unnecessary.

There was a question from the hon. Member for Norwich South about how the Government know that the impact on revenue from landlords and tenants is negligible. We do not have data in terms of specific numbers, because the tax is paid to HMRC by energy suppliers, not tenants and landlords, but this issue has not resulted in any lobbying or representations to us, which suggests that the numbers are extremely low, if not negligible.

This clause maintains the current scope of the exemption processes following the UK’s departure from the EU and, in response to representations from stakeholders, ensures that businesses entitled to the exemption are not precluded from benefiting, purely because they are tenants. I therefore move that the clause stand part of the Bill.

Photo of Clive Lewis Clive Lewis Shadow Minister (Treasury)

I thank the Minister for that response. All I will say is that, if I understand it correctly, the reason he is confident of those numbers is that no one is complaining. That is an interesting statistical analysis on which to base it, but I will accept it for now. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 128, in clause 63, page 45, line 13, at end insert—

“(6) The Chancellor of the Exchequer must carry out an impact assessment of the exemption for mineralogical and metallurgical processes under paragraph 12A of Schedule 6 to the Finance Act 2000, as amended by this section, considering the impact on—

(a) tenanted businesses that carry out mineralogical and metallurgical processes,

(b) revenue effects,

(c) the UK’s ability to meet its third, fourth and fifth carbon budgets,

(d) the UK’s ability to meet its greenhouse gas emission targets.

(7) The Chancellor of the Exchequer must lay the impact assessment under subsection (6) before the House of Commons within two months of the passing of this Act.”—

This amendment would require the Chancellor of the Exchequer to carry out an impact assessment of the changes made by Clause 63 and their impact on tenants, HMRC revenues, the UK’s national carbon budgets, and carbon and other greenhouse gas emission reduction targets.

Question put, That the amendment be made.

The Committee divided:

Ayes 8, Noes 9.

Division number 34 Finance (No. 3) Bill — Climate change levy: exemption for mineralogical and metallurgical processes

Aye: 8 MPs

No: 9 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Clause 63 ordered to stand part of the Bill.

Clause 64