HC Deb 15 June 2000 vol 351 cc1211-8

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Jamieson.]

7 pm

Mrs. Marion Roe (Broxbourne)

I am grateful for the opportunity to speak about the United Kingdom glasshouse horticulture industry. The industry is close to my heart, not just because there are several dozen glasshouse nurseries in my constituency but because, until a few years ago, I was parliamentary adviser to the Horticultural Trades Association. My interest in horticulture goes back many years.

My constituency is on the western side of the River Lea in Hertfordshire. The Lea valley has been a renowned glasshouse growing area for well over 100 years. Today, the total area of glass in mainstream protected crop production amounts to some 275 acres, and the Lea valley is one of the three principal areas of glasshouse production in the United Kingdom. The other two are on the south coast and on Humberside.

The principal crops grown in the Lea valley are salads, especially cucumbers and lettuce, but there are also significant acreages of ornamental crops, bedding and potting plants, flowers to he sold as cut flowers and aquatic plants. The local industry is wealth-creating, and is a major employer.

The last few trading years, however, have not been good for the industry. The increasing commercial power of the major multiple retailers, who are competing more and more ferociously, continues to depress prices to their suppliers. Growers must find more and more ways of reducing their production costs, and trading more effectively and efficiently. Moreover, the continuing strength of sterling—or, perhaps more accurately, the continuing weakness of the euro—has meant that more and more exports of cheap produce reach our shores from the United Kingdom glasshouse industry's principal competitors, the Dutch and the Spanish.

Imports from those countries are made all the easier by the fact that fuel and transport taxes are lower abroad. Not only will a Dutch exporter receive more guilders for the pound realised on his produce sold in the United Kingdom; he will be able to transport that produce more cheaply than the UK growers or marketing organisations that are servicing their own markets. There may be free trade throughout the European Union, but the bases of that trade are far from equal.

I recently met representatives of the Lea valley glasshouse industry to discuss various issues of importance to their businesses. I learned that glasshouse growers in my constituency and elsewhere in the Lea valley—indeed, throughout the UK—view with alarm the Government's proposal to impose a tax on energy usage in the UK with effect from April 2001. The climate change levy will impose a particularly heavy burden on the glasshouse industry, which is energy intensive.

As a party to the Kyoto protocol, the UK became legally bound to reduce greenhouse gas emissions by an agreed amount. However, the Department of the Environment, Transport and the Regions has announced that the Government wish to exceed that target, and aim for a domestic goal of a 50 per cent. cut in carbon dioxide emissions by 2012. The principal instrument that they will use to achieve their target is taxation—presumably on the basis that the more expensive the commodity, the less of it will be used.

With effect from April next year, and for 2001–02, the climate change levy will be imposed on electricity at a rate of 0.43p per kilowatt hour, on coal and natural gas at a rate of 0.15p per kilowatt hour and on liquid petroleum gas at a rate of 0.07p per kilowatt hour. Most of the revenue from the levy will be used to cut employers' national insurance contributions by 0.3 per cent.; the remainder of the estimated £1 billion tax raised in the first year will be used to provide additional Government support for energy efficiency measures. The Treasury claims, therefore, that the levy package is designed to be revenue-neutral for the private sector as a whole.

What would this mean for the glasshouse industry? Of course no two glasshouse nurseries operate in exactly the same way, and different crops require different methods of production and heating levels. However, the National Farmers Union estimates that on average the levy would impose a tax burden of some £3,750 per acre of glasshouse. As I said, the Lea valley contains some 275 acres of glasshouses, so the levy would cost growers in that area alone more than £1 million.

Although glasshouses are energy intensive by reason of their function, nurseries are not generally employee-intensive. Any rebate to be had from the cutting of national insurance contributions would have an almost negligible impact on the overall tax cull from horticulture. There is no doubt that a tax of this magnitude would plunge UK glasshouse horticulture into inviability, forcing the closure of many nursery businesses and the loss of thousands of jobs.

To be fair, the Treasury has, to some extent, heeded the warnings of the glasshouse industry, and special provisions for horticulture were recently announced in the 21 March Budget. Essentially, those special provisions promised, first, to introduce a transitional 50 per cent. discount on the levy for horticultural firms (for a period of up to 5 years), to help protect their competitiveness whilst … energy efficiency measures take effect, and secondly, the setting aside of part of a £50 million "energy efficiency" fund to finance a special package of measures for the horticulture sector to improve further the sector's energy efficiency. In addition, the Treasury plans to introduce a system of 100 per cent. first-year capital allowances for firms—not just horticultural ones—making energy-saving investments. That is deemed to include the following technologies: combined heat and power systems, boilers, lighting systems, refrigeration equipment, pipe insulation and thermal screens. The Treasury had announced earlier that it intended to exempt from the levy electricity generated from "new" forms of renewable energy and in "good quality" CHP plants.

It would, of course, be churlish of my glasshouse grower constituents not to welcome the special provisions that have been made for horticulture. Of course, those provisions are appreciated. However, they may not be as beneficial as they seem.

First, glasshouse growers have noted that the Treasury is introducing a 50 per cent. discount on the levy for horticultural firms for a period of up to 5 years. Growers have especially noted the words "up to". It is unlikely that those words were chosen unthinkingly. Of course, the statement thus constituted would allow the Treasury to reduce the relief period to, say, three years or even one year, and/or to reduce the amount of the relief from 50 per cent. to a much lower figure.

Moreover, the levy rates listed earlier apply for the year 2001–02 only. Might not subsequent years see those rates rise, perhaps even annually? Thus, even if the 50 per cent. relief for horticulture were to continue for the full five years, the full impact of the total levy would eventually be felt on growers' incomes, such that any energy-efficiency savings that may have been made will merely be paid to the Treasury in taxation.

As regards the "energy efficiency" fund, it is by no means clear at present how the fund will be operated, and what part of it is to be specifically allocated to horticulture. Indeed, details of the "special package of measures" have not been forthcoming, so it is rather difficult at this stage to know to what extent that will benefit the horticulture sector.

As for the enhanced capital allowances, it is commonplace to say that any business welcomes the opportunity to save tax. Nevertheless, such tax-saving opportunities are available only to those businesses that are making profits. If none is, and that is already the case with many horticultural businesses, there is no tax to be saved.

Combined heat and power systems would appear to be the answer, therefore. As I have said, the Government have given an exemption to such systems and the Treasury has highlighted those as being of particular benefit to the horticultural sector. However, the exemption is reserved for "good quality" systems, to use the Treasury's own words. The definition of "good quality" is highly complex and it is difficult to see how it might apply to horticulture.

A CHP unit must be efficient in terms of the use of both heat and power. That will cause problems. CHP is expensive, so most growers will be obliged to enter into agreements with electricity companies that build the units on horticultural sites. Such companies will require a minimum CHP size of around 4 MW. That is because of cost, especially the cost of linking into electricity supply lines to export surplus energy to the grid. Many smaller glasshouse growers will not be able to use all the heat that a 4 MW unit produces. Thus, it may not qualify as "good" CHP because the heat use is too low.

Furthermore, many growers will not have CHP available to them because they are located too far away from a gas supply line to fuel the CHP plant, and/or they are too far away from electricity lines to export the surplus power. Also, CHP may not be practical for producers of ornamentals, who require more light than heat.

That said, I am bound to report that a small number of CHP plants have been, or are being, established on glasshouse nursery sites in the Lea valley. It is sincerely hoped that all will fall into the Treasury's category of "good quality" systems. Those installations have become possible because of a collaborative project of a number of growers whereby a gas pipeline has been laid to supply a series of nurseries in the Lea valley.

The project has been massive, involving an overall investment of more than £750,000. However, it has enabled riot only a few growers to install CHP plants, but the remaining growers to convert their nursery heating systems to the far more "environmentally friendly" fuel of gas. Gas is also a more efficient fuel in a nursery context, and its direct supply by pipeline obviates the need for regular deliveries of fuel by road transport, as is the case for oil. That in itself is energy efficient, as energy must be consumed by lorries in the delivery process.

It has also been possible for those growers who have converted to gas to extract carbon dioxide from the waste gases produced by the burning of the fuel and to distribute that carbon dioxide to the glasshouses. The glasshouse plants absorb that gas in the growing process. It is of course an irony for those growers that, having invested heavily in a more efficient heating system for their nurseries, and while actively taking up greenhouse gases, they are now to be penalised by having a heavy tax imposed on them. What savings they might have made will for the most part be wiped out by the payment of the climate change levy, yet they will also have consumed the carbon dioxide that has been produced in the new combustion process.

The levy's aims are to encourage energy efficiency and to reduce greenhouse gas emissions. To what extent those aims will be achieved in the glasshouse sector is a moot point. As we have seen, growing plants absorb the principal greenhouse gas, carbon dioxide. Furthermore, growers do not need the blunt instrument of a swingeing tax to want to reduce energy consumption. Energy costs can count for between 20 to 40 per cent. of all costs in glasshouse crop production, and that has been incentive enough for growers to find, over many years, ever more ways of reducing those costs and fuel consumption.

The United Kingdom glasshouse industry has an exemplary record of energy saving, particularly since the energy crisis of the early 1970s, when fuel costs increased by more than 400 per cent. in one year alone. One clear proof of that can be found in tomato production. In 1985, 1 kg of tomatoes required 17 KWh to be produced. In 1999, that figure had fallen to 11 kWh. That is a drop of approximately 40 per cent. in energy consumption, which by any standards is a remarkable achievement. It shows that growers are committed to doing their bit to tackle climate change. Growers will continue to use all technology at their disposal to improve fuel efficiency and environmental effectiveness without the need for the added spur of an unfair and punitive tax.

The Treasury has said that its aim throughout has been to design the levy in such a way that the competitiveness of UK firms is protected, but how is that to be achieved in horticulture? The UK's competitors in protected crop production are mainly Holland and Spain. However, Dutch glasshouse growers have been exempted from paying their equivalent of the tax, and the Spanish seem so far to have made no proposals to introduce an energy tax at all.

Growers from those European Union states operate within the single market, and Dutch and Spanish growers have free and unrestricted access to UK markets. When the proposed levy—ignoring for the moment the temporary reliefs—imposes a financial burden of £1 million on growers in the Lea valley alone, I wonder how the Government can possibly argue that our growers' competitiveness is to be protected.

Competitiveness can, of course, be interpreted widely, and one might cite differential tax regimes generally in different member states. However, it would be difficult to find a tax advantage that UK growers might have over their Dutch and Spanish counterparts. It is recognised, I believe, that the tax regimes in the UK are generally more onerous than elsewhere in the EU. What will happen is that many UK glasshouse nurseries will lapse into unprofitability and close down, although demand for glasshouse produce in the UK, both edible and ornamental, will not decline. Indeed, the opposite is the case; we are seeing an ever-increasing demand for such produce. The produce will therefore come from abroad—from Holland and Spain, once again.

Those countries will need to consume the energy to produce the product. There will, therefore, be no energy saving. Even worse, it will be necessary to transport the produce to this country, thereby actually increasing energy usage. The climate change levy will ensure not only that the UK's fuel usage is exported to our competitors abroad, but that our livelihoods and jobs are exported as well. The balance of trade in horticultural produce will lurch irretrievably in favour of those competitors abroad. The CCL impinges most unfairly on the glasshouse sector in the UK. The levy package may be designed to be revenue neutral overall, but that will clearly not be the case for growers. As the tax burden will fall substantially and negatively on the UK glasshouse industry, it follows that others must benefit from the levy—that is to say, those with relatively low energy use but high numbers of employees, because their national insurance rebate will greatly exceed the amount of the energy tax. Those organisations will have no incentives to achieve energy efficiencies, thus negating one of the Government's principal aims. That is clearly neither desirable nor equitable.

If the CCL is imposed on the UK glasshouse industry in 2001, serious consequences for the viability of the sector will ensue. Given the determination of growers to continue to achieve energy efficiency, coupled with environmental effectiveness and the situation in respect of the levy, vis-à-vis their principal EU competitors, the only possible course of action for the Government is to exempt totally the UK horticulture industry from that inequitable tax.

7.16 pm
The Minister of State, Ministry of Agriculture, Fisheries and Food (Ms Joyce Quin)

I congratulate the hon. Member for Broxbourne (Mrs. Roe) on securing a valuable and timely debate on horticulture, which is an important sector of UK agriculture. The debate is timely because of the discussions that are taking place between Government Departments and the industry, and because the Finance Bill is making progress through Parliament. Some of the debates on that Bill relate to the sector concerned.

The hon. Lady rightly recognised the contribution that the glasshouse sector makes and she is familiar with it, because of the presence of the horticulture industry in her constituency. She is well aware of the diversity of the produce of the sector, which includes vegetables, fruits and the ornamental sector. Some parts of the industry have been a particular success. For example, the heated tomato crop has seen great increases of 50 per cent. in yield between 1988 and 1999, which have allowed our annual production to be maintained at just over 100,000 tonnes, despite a decrease in planted area in that period. We certainly have an innovative and enterprising industry, and I pay tribute to it.

I appreciate the comments that the hon. Lady made about certain of the difficulties that the sector has faced in recent months. There is no doubt that, when competing with imports and seeking to export, the strength of sterling has proved a real problem. As the hon. Lady pointed out, the specific weakness of the euro has also caused many of the difficulties. The euro has strengthened recently, but it is still much lower in value than when it first came into being, and therefore the difficulties are not at an end.

My Department has a strong commitment to the horticulture sector, and this afternoon in Committee I spoke on the draft Horticultural Development Council (Amendment) Order 2000, which will exempt some of the smaller horticultural producers from the levy because it will raise the threshold. In Committee, hon. Members from both sides emphasised the importance that they attach to the Government-funded research and development effort on behalf of horticulture, and the industry's efforts and contribution through the horticulture levy.

Certainly, Government-funded research and development has contributed to the success of many sectors of horticulture. My Department at present spends £2.25 million on providing strategic research and development to help the glasshouse industry improve its efficiency overall. That improvement includes reducing reliance on pesticides and developing biological control programmes. They can be important in helping the industry to reduce costs—a welcome advance at this time.

Support is also provided through the European Union fruit and vegetables regime and the EU flower promotion scheme. We hope that that support will be increased in future years. We are also glad that horticulture fared well in the first round of the agriculture development scheme, which is aimed at promoting marketing initiatives. I was delighted that horticulture accounted for about a quarter of the grant allocations made under that programme, and my Department is keen to help horticulture.

Substantial benefits for the industry have arisen from the 1996 reform of the EU fruit and vegetables regime. Producer organisations receive funding for work to improve production techniques, quality, preparation for market, marketing and promotional activity, as well as for developing the use of environmentally sound practices. Total EU payments to UK producer organisations for work done in 1999 will be in the region of £9 million.

The hon. Lady will know that, in our proposals for the future direction of agriculture and for exploiting the EU rural development regulation, one of our priorities was to help sectors such as the horticulture and pigs and poultry sectors, which up to now have received little support from EU common agricultural policy sources. The rural development regulation applies to all sectors of agriculture, and its introduction opens up possibilities for the horticulture industry which it would do well to identify. My Department is keen to work with the industry, to help it exploit some of those opportunities.

The hon. Lady devoted much of her speech to the climate change levy. I can assure her that the Government are very much aware of the concerns of glasshouse businesses about the impact of the levy on their profits, competitiveness and employment. However, I also welcome the opportunity to discuss this matter further with the industry. Ministers in my Department have received a considerable postbag on this issue, and it has included letters from glasshouse businesses located in the Lea valley, about which the hon. Lady spoke at some length.

Ministers have also seen copies of correspondence about the levy between the sector and Ministers in the Treasury and in the Department of the Environment, Transport and the Regions. Furthermore, the hon. Lady may know that, in the run-up to the Budget, my hon. Friend the Financial Secretary met the president of the National Farmers Union. I met him too, as well as leading horticultural members of the Union, so that I could listen to their views in person.

I think that the hon. Lady recognised that my Department has taken the sector's concerns seriously and that we have been happy to represent them to our colleagues in other Departments. There has also been a lot of contact between officials. My officials in the Ministry of Agriculture, Fisheries and Food met their counterparts in the NFU and various parts of the horticulture sector.

Many glasshouse owners are concerned about the possible economic impact of the levy. They fear that the levy will increase running costs and thus cut net margins. They are also concerned that the levy will force them to raise the price of their produce and thus reduce competitiveness, particularly within the EU, as the hon. Lady emphasised.

The UK market for horticultural produce is fiercely competitive. In some EU countries horticultural producers enjoy considerable natural advantages such as a warmer climate and longer daylight hours. In other countries, they receive different treatment under their respective energy tax regimes. I am keen that the Department and the Government monitor what is happening in other countries. I am always interested to hear of any examples that come to the attention of hon. Members so that we can investigate them. If we suspect that unfair subsidies are being given, we raise the issue with the European Commission. In recent years, we have done so in relation to a number of areas of agricultural policy.

As the hon. Lady recognised, energy taxes are not the only ones that affect businesses in the European Union. The position is more mixed than she said. Certainly UK corporation tax rates are the lowest of any major EU economy. We need to look at the overall taxation system.

The framework that the Government have chosen to implement the climate change levy will provide some relief for sectors that are already meeting the obligations required under the integrated pollution prevention control directive which largely, but not entirely, also encompasses the intensive energy users. However, we appreciate that horticulture is a special case. Before this year's Budget, the Government listened very carefully to the concerns expressed by the glasshouse sector about the impact of the levy. We appreciate that the sector is an undoubtedly substantial user of energy, but does not fall within the scope of the IPPC directive. That means that, under the levy, the glasshouse sector cannot negotiate an energy saving agreement with Government in return for an 80 per cent. discount on the rate of the levy.

In recognition of that unique set of circumstances, my right hon. Friend the Chancellor of the Exchequer announced in his Budget this year that, subject to obtaining EU state aids clearance from the European Commission, the Government will provide a special package of measures to protect the competitiveness of the glasshouse sector.

The hon. Lady recognised that, at this stage, we cannot be categorical about the effect of the levy, partly because the package is still under discussion in Brussels, so it is difficult to give precise details about the overall package and its effect on different parts of the horticulture sector. However, I assure the hon. Lady that I intend to monitor the position closely and to continue discussions with the sector. I am also happy to meet people from her constituency and others.

Let me explain the position so far. First, there will be a special package of support to the glasshouse sector from the £50 million energy efficiency fund set up under the levy. The idea is to help the sector to further improve its energy efficiency and to take account of the competitiveness aspects of the levy. My officials are in touch with their counterparts at the NFU and the DETR to consider the types of services and measures which will best help the sector to improve the efficiency of its energy consumption. The NFU has developed some ideas on this score.

Secondly, the list of energy efficient investments which qualify for 100 per cent. first-year capital allowances is being extended to include thermal screens used in glasshouses.

The motion having been made at Seven o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at half-past Seven o'clock.