I thank the Minister for his kind comments and for being a fantastic duelling partner in these debates. He has been nothing less than respectful and I have enjoyed debating with him.
I rise to speak to clauses 132 to 136, which make various changes to the climate change levy, and to amendment 183, which stands in my name and those of my hon. Friends the Members for Hayes and Harlington (John McDonnell), for Feltham and Heston (Seema Malhotra), for Wolverhampton South West (Rob Marris) and for Leeds East (Richard Burgon).
Clause 132 relates to the removal of the exemption for electricity from renewable sources. Since the climate change levy’s inception in 2001, electricity from renewable sources has been exempt when supplied under a renewable source contract agreed between an energy supplier and its customer. In Budget 2015, the Chancellor announced that that exemption for renewable electricity would be removed from 1 August 2015 and that there would be a
“transitional period for suppliers...to claim the CCL exemption on any renewable electricity that was generated before that date.”
Following an informal consultation, which received 18 responses, the Government announced that the transitional period would end on 31 March 2018, legislated for in this Finance Bill.
The House will be aware that we, along with several Government Members, opposed the removal of that exemption in the Finance Act 2015, and we maintain that position. We will therefore abstain on the clause, but I would like the Minister to address one particular point. In answer to written questions, the Government have refused to publish a summary of responses to the informal consultation, as they contained “commercially sensitive information”, and they refuse to publish an average of suggested timescales. Will the Minister give us an assurance that the length of the transitional period was, in fact, in line with the recommendations of the respondents?
Clauses 133 and 134 will increase the main rates of the climate change levy in line with inflation in April 2017 and again in April 2018. It has been standard practice to increase the rates in line with inflation in each year’s Finance Bill since 2007 and, as the explanatory notes set out, wider changes to the CCL from 2019 are being legislated for in this Bill, so it makes sense to make provision for the next two years at the same time.
Those wider changes are the subject of clause 135, which significantly increases the main rates of the climate change levy to recover Exchequer revenue lost from the abolition of the carbon reduction commitment. In doing so, the ratio of electricity to gas is rebalanced somewhat to 2.5:1, and it is the Government’s intention to rebalance the ratio further to 1:1 by 2025, to reflect the fall in gas prices and the expected increase in consumption as a result.
The following clause increases the CCL discount available to energy intensive businesses subject to climate change agreements, to compensate equivalently for the increase to the main rates. The CCL discount for electricity will increase from 90% to 93%, and the discount for gas will increase from 65% to 78% from 1 April 2019. That provision mitigates a knock-on effect from clause 135.
Our amendment to clause 135 would require the Government to conduct a review of the impact of the climate change levy on carbon emissions. The review will have particular reference to the removal of the exemption for electricity generated from renewable sources, the abolition of the carbon reduction commitment and the reporting requirements for companies and public sector bodies.
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In order to explain the reasoning behind our amendment, it might be helpful to outline briefly how the Government arrived at the changes implemented by clause 135. In Budget 2015, a consultation on the business energy
efficiency tax landscape was announced to consider approaches to simplify and improve the effectiveness of the regime. Launched in September, the consultation set out the current range of business energy efficiency policies and regulations, and it received 356 responses from a variety of businesses, energy providers and trade associations.
The consultation sought to improve the effectiveness of the policy framework by: first, simplifying reporting and taxes to reduce administrative burden; secondly, targeting policy levers at cost-effective energy efficiency potential identified in business sectors and heat use; thirdly, using policy instruments to help to raise the profile of energy efficiency on carbon reduction with decision makers; and, fourthly, improving the case for investment in energy efficiency and low-carbon alternatives. As a result of that consultation exercise, the Chancellor announced in his March Budget that the carbon reduction commitment would be abolished and the climate change levy increased to recover the lost revenue—the purpose of this clause. In the Treasury’s written response to the consultation exercise, the Government also committed to consulting later in the summer on a new, simplified energy and carbon reporting framework for introduction by April 2019.
My hon. Friends and I fail to see how these measures meet the objectives outlined previously, except the first one. Let me stress that we acknowledge comments from businesses that indicate that the current overlapping tax and reporting requirements are burdensome, and we do not disagree with the principle of streamlining energy taxation to make it less cumbersome. However, it must be done in such a way as to make the regime equally, or preferably more, effective at reducing carbon emissions and improving energy efficiency.
We feel quite strongly that the Government have missed a perfect opportunity to make some really radical changes to the energy policy landscape—a sentiment shared by the UK Green Building Council, which has indicated that such slight reform is disappointing when a three-pronged approach to taxation, reporting and incentives would have really driven change. I want to stress to the House and the Government how necessary such radicalism is.
The game-changing United Nations COP 21 conference held in Paris at the latter end of last year marked a watershed moment in tackling climate change, because it became a priority on the world stage. The final agreement provided for a limit on the temperature rise to below 2°, because the consensus among scientists is that a greater increase in temperature would be incredibly dangerous. The UK signed up to that agreement, and the Prime Minister even delivered a speech in Paris, in which he said that
“instead of making excuses tomorrow to our children and grandchildren, we should be taking action against climate change today.”
The Secretary of State for Energy and Climate Change played an integral part in the negotiations. I understand that she was responsible for the section of the talks that dealt with immediate actions to tackle global warming between now and 2020, together with Pa Ousman Jarju of Gambia.
Unfortunately, the Prime Minister, the Secretary of State and the Government are better at talking the talk than they are at walking the walk. In the six months
before the Paris discussions, they had reneged on many of their environmental and climate change commitments. They are in the process of privatising the UK Green Investment Bank without protecting the requirement to invest in green projects, and they have scrapped its zero-carbon homes pledge. They have cut the feed-in tariff, a subsidy for solar, by 64%, and tax relief for clean energy projects has been abolished. That could lead, as the Government freely admit, to more than 18,600 job losses. New onshore wind farms will not receive subsidies after 2016. Changes have been made to vehicle excise duty that severely reduce the incentives for low emissions vehicles by introducing a flat rate of VED, regardless of CO2 emissions, after the first year.
I could go on. A £1 billion fund to invest in carbon capture and storage technology has been scrapped, breaking a manifesto pledge. The Government have stripped away safeguards to reduce the environmental risks of fracking and they have green-lighted fracking under national parks. Finally, the Government have still not committed to maintaining for the long term a reduced rate of VAT on solar panels, wind turbines and water turbines, an amendment on which we will discuss another day.
Time and time again, the Government pay lip service to the world’s appetite for better climate change policy, but they will not commit to any substantive action in Whitehall. That is not good enough. We need radical thinking if we are to achieve radical change. Around the world, Governments are supporting and promoting green energy. Germany’s energy transition policy has taken it to the point where, last year, 33% of its electricity was generated from renewable sources and the sector supported 355,000 jobs. In France, all new roofs must be nature or solar. In California, all new buildings up to 10 floors must be solar PV or solar thermal. Those are great examples of why radical policy is so important and the Government’s failures are so disappointing.
That lack of ambition is integral to our amendment. The climate change levy in its current form is an inadequate driver for the reduction of carbon emissions and energy usage at a time when we desperately need more radical action. It has become a tax raising measure that is levied on energy, not on carbon. Until very recently that was not the case; electricity from renewable sources was exempted from the climate change levy. As we have seen, that exemption was removed by last year’s Finance Act, despite an outcry from the renewables industry. We are not aware of any assessment of the efficacy of the climate change levy since the removal of the exemption, which is why our amendment would require the report to make particular reference to it.
The second point of reference for the review will be the abolition of the carbon reduction commitment, which is why the rates of the levy are being increased. The carbon reduction commitment contained a requirement for participants to measure and report electricity and gas supplies annually, after which their carbon dioxide emissions would be calculated. Participants had to buy allowances for every tonne of carbon they emitted as calculated under the scheme. The CRC scheme therefore forced companies to be proactive, making participants think about and acknowledge their carbon emissions and actively work to reduce them in order to reduce their allowances. Labour Members are concerned that because the climate change levy has become a
straightforward consumption tax, it will just be absorbed into a company’s costs and will not require the same level of proactive thought.
The Government’s response to their consultation on energy taxation stated that respondents supported financial incentives to drive energy efficiencies and that views on the mechanism to deliver effective incentives were mixed. But the Government
“decided not to introduce a financial incentive at this stage as it believes a simplified tax in the form of the CCL is a sufficiently robust signal”.
Will the Minister confirm exactly why the Government decided not to introduce a financial incentive when it was popular with respondents, and why they believe that the climate change levy is a “sufficiently robust signal”?
A recent ENDS report stated:
“It remains to be seen whether CCL alone will drive energy-saving effort and investment among the 2,000 or so CRC participants. To date, while there is evidence the CRC has driven change, there has been no clear evidence that CCL has done so outside Climate Change Agreements, other than through an ‘awareness effect’ when it was first introduced. The other concern has to be that the link between CCL and carbon reduction was weakened in the 2015 summer budget after business exemption for renewable electricity was removed.”
We would, therefore, like the Government to assess properly how effective the CCL will be in replacing the advantages of the carbon reduction commitment, as outlined.
The final point of reference for the review will be the reporting requirements by companies and public sector bodies for energy usage and carbon emissions. I am aware that the Government have, as the Minister mentioned, committed to consulting on a new, simplified energy and carbon reporting framework to be introduced by April 2019 and to be published later this summer. The Government will propose
“mandatory annual reporting for the organisations within its scope, with board or senior level sign-off and some public disclosure of data”.
We would certainly welcome that, but we are concerned that scrapping the CRC scheme may leave a few gaps whereby companies that previously had to report carbon emissions and energy usage no longer have to do so.
Indeed, the Committee on Climate Change highlighted the fact that the CRC scheme covered a range of large energy consuming organisations and energy intensive small and medium-sized enterprises. It said that the evidence suggests there is a gap in the overall policy framework to encourage energy efficiency and carbon reduction in SMEs. The committee recommended that if the CRC scheme is abolished, that should be accompanied by measures to enhance the policy landscape to stimulate energy efficiency and carbon reduction in SMEs.
If the Government think that simply raising the climate change levy will make up for scrapping the carbon reduction commitment, we would like to see their evidence. Does the climate change levy provide an equal incentive specifically to reduce carbon emissions? Will some companies that were required to report not now be required to do so? It is not good enough for the Government to streamline the regime if all they are doing is taking organisations out of having to address their emissions altogether. Labour Members therefore want assurances that the reporting requirements on
businesses included in the CRC scheme will be considered when assessing how effective the climate change levy will be in reducing emissions.
The Government are tinkering around the edges of existing climate change policy without a clear strategy for how to meet our targets agreed on the world stage. If we are to have any chance of meeting the said targets, we simply must take more radical action, as evidenced in other nations across the world. The Opposition do not necessarily oppose scrapping the carbon reduction commitment or increasing the rates of the climate change levy, if doing so will be effective in reducing emissions. However, we remain to be convinced that that will be effective, and we will therefore push for a proper assessment from the Government before we support the measure in full. I therefore urge hon. Members to support amendment 183.