Finance Bill

Although we are covering quite a lot in this group of amendments, I shall try to be brief. I begin by referring the House to comments made on Second Reading by the hon. Member for Wolverhampton, South-West (Rob Marris), who is not in his place at the moment, about the need for a carrot as well as a stick in encouraging environmental behaviour. The amendments and the new clause relate to clauses 20 and 21. In the Budget, it was announced with a great fanfare that people who produce electricity on domestic property through microgeneration would be exempt from income tax and, furthermore, that that exemption would extend to the sale of renewable obligations certificates. That announcement included income tax as well as any capital gains tax that people might otherwise have been liable to pay. Paragraph 7.43 of the Red Book states:"““as announced in the Pre-Budget report, Finance Bill 2007 will legislate so that, where an individual householder installs microgeneration technology in their home for the purpose of generating power for their personal use, any payment or credit they receive from the sale of surplus power is not subject to income tax””." The Red Book goes on to explain the freedom from income tax and capital gains tax for ROCs. Those measures in the Budget were accompanied by another announcement in the Chancellor’s speech of further investment in the low-carbon buildings programme and that grants for the installation of microgeneration technology will be increased by a another £6 million. That announcement was in response to the massive popularity of the scheme, which was demonstrated by events on 1 March 2007 when the domestic grant allocation went on the first day of the month. I see that you are looking at me somewhat quizzically, Sir Alan. That point relates to our amendment (a) to new clause 1, which I will explain in due course—I promise you that I shall be brief, Sir Alan. Rather than increasing capacity, those events led to the suspension of the low-carbon buildings scheme for April. To date, the scheme is still not up and running. Amendment (a) would introduce into new clause 1 a requirement on the Chancellor to consult Departments. We tabled the amendment because the low-carbon buildings programme and the extension of funding to it was such a mess. Perhaps the Treasury did not inform the Department of Trade and Industry that it was planning to make such a generous offer, even though the industry itself had asked for an extra £15 million to deal with the popularity of the scheme. Because the DTI was not informed, the programme has been suspended rather than extended, and capacity has been reduced as a result, because members of staff are being laid off as a result of the suspension. On the face of it, the provisions appear to fulfil the principle that the Chancellor outlined in his Budget speech, but there are significant limitations in terms of the qualifications placed on the exemption from income tax. Clause 20(1) says:"““No liability to income tax arises in respect of income arising to an individual from the sale of electricity generated by a microgeneration system””." Paragraph (a) says that it must be domestic microgeneration. That seems fair. However, paragraph (b) says that it must be the case that"““the individual intends that the amount of electricity generated by it will not significantly exceed the amount of electricity consumed in those premises.””" The phrase about intention as to the amount of electricity generated crops up again in clause 21 in relation to obligation certificates. The exemption from income tax applies only if someone intends not to generate more electricity than is required. The point of the amendments is to ask the Minister why he thinks it necessary to include that qualification, given that the existing definition of ““microgeneration”” makes clear the limits of the income tax relief. Section 26 of the Climate Change and Sustainable Energy Act 2006 says that"““‘microgeneration’ means the use for the generation of electricity or the production of heat of any plant””." It then lists the sources of energy and technologies that must be used through microgeneration systems: biomass, biofuels, fuel cells, photovoltaics, water, wind, solar power, geothermals and combined heat and power systems. It also defines the capacity by a microgeneration system: 50 kW for the generation of electricity and 45 kW thermal for the production of heat. Given that, why is it necessary to introduce a further qualification whereby an individual installing a domestic microgeneration system has to intend that they are not going to exceed significantly the amount of electricity consumed? If it is blowing a gale in the middle of the night, does that mean that the energy production of someone with a wind turbine will significantly exceed their requirements and they will therefore be unable to extend their exemption from income tax to the electricity generated in that situation? Surely we should be encouraging people to maximise the capacity of their microgeneration systems so that we are not placing such great demands on the national network and on non-renewable energy sources. I do not understand why the Treasury thinks it necessary to introduce the qualification with regard to intention. There is a practical issue as regards how the exemption from income tax will be measured and achieved. I notice that the Red Book contains no projections of the cost to the Treasury of providing it. Friends of the Earth raised a concern that it does not understand how its achievement can be physically measured. It said that, if the exemption were part of a wider scheme, with a roll-out of smart meters, it would be easier to do something. The chief executive of Scottish Power said that the policy would be meaningless without a wider roll-out of smart meters. Does the Chief Secretary intend to make the policy more meaningful? We are worried that the policy constitutes spin over substance. Organisations such as Friends of the Earth would have liked a package of measures to encourage microgeneration, not to limit it in the way in which the Bill does. I am worried that, in the case of climate change, a token gesture is worse than doing nothing because it fools people into believing that action is being taken, when it is actually limited. We do not know whether the income tax exemption will cost the Treasury anything. That shows its small scale given the few people who will benefit from it. New clause 1 would provide for a package and extend the scheme to small-scale local energy generation. It would also create a sense of accountability by providing for the preparation of a report to show that the Government are consulting local authorities and other relevant bodies. We will support the new clause, which would provide for a wider approach. Amendment (a) to new clause 1 would allow for consultation to include other Departments. One would believe that that was a given in any Treasury consultation, but the experience of the low-carbon buildings programme and this year’s fiasco suggests that it needs to be clearly set out to ensure that it happens. The amendments and the new clause propose comprehensive changes and signal a more strategic approach, which would significantly improve the scheme. I hope that they will help provide greater stability to schemes such as the low-carbon buildings programme and other cross-departmental work. They are reasonable proposals and I hope that the Chief Secretary will accept them.