Manufacturing Industry: Energy Taxation (Hansard, 28 June 1999)

§ Lord McIntosh of Haringey
My Lords, the climate change levy will entail no increase in the overall burden of tax on business since the revenues will be fully recycled via a 0.5 percentage point cut in the main rate of employer national insurance contributions and additional support for schemes aimed at promoting energy efficiency. The Government recognise the need for special consideration to be given to the position of energy-intensive industries under the climate change levy proposals, given their high energy usage and exposure to international competition. The Government intend to set significantly lower rates of the levy for those energy-intensive sectors which agree targets for improving their energy efficiency.

Lord Campbell of Croy
My Lords, I thank the noble Lord for that Answer. As he would expect, I recognise the need to make the reductions in gas emissions which were agreed at Kyoto. However, will the Government carefully consider adjustments to their proposal for a climate change levy, because it would discriminate against firms already hard-pressed by other factors? The starting date is nearly two years ahead. Furthermore, is the noble Lord aware that the proposal to offset the levy by a general reduction in national insurance would penalise firms having small workforces but large energy requirements?

§ Lord McIntosh of Haringey
My Lords, I am pleased that the noble Lord recognises the urgency and size of the problem which we face if we are to adhere to the Kyoto targets. For exactly the reasons he mentions, we are giving special consideration to the position of energy-intensive industries. We are negotiating with the steel, chemical and aluminium industries, among others, to ascertain what we can achieve in the period available, which is deliberately long, by means of energy reduction targets rather than the full force of a climate change levy.

§ Lord Brookman
My Lords, I welcome the Minister's remarks, but is he fully aware of the position of some of the major energy users; for example, the steel industry? I am told that it is currently making substantial losses and that if the carbon tax is not satisfactorily modified, it will have additional costs in excess of £300 million. Does he agree that against the backdrop of its current difficulties, that is unacceptable?

§ Lord McIntosh of Haringey
My Lords, my noble friend knows far more about the steel industry than I will ever know This is not a carbon tax. If it were, we should have considerable difficulties in calculating the 10 figures. The figure that my noble friend quotes assumes a rate of levy which has not yet been decided and will not be announced until next year's Budget. It does not assume any results from the negotiations we are now carrying out with the steel industry on emission reduction, which I believe will be successful.

§ Lord Saatchi
My Lords, why are the Government opposed on these proposals by distinguished environmentalists such as my noble friend Lord Campbell and by representatives of manufacturing industry? Is it not because this is a textbook case of a government mixing their social objective of more "greenness" with their tax objective of more revenue, and ending up satisfying neither?

§ Lord McIntosh of Haringey
My Lords, I welcome the noble Lord, Lord Saatchi, to his position at the Dispatch Box. I believe that he is wrong. He should recognise that our proposals are precisely those put forward by the noble Lord, Lord Marshall of Knightsbridge, the former president of the CBI, who specifically said that we must have a combination of taxation and traded permits in order to achieve the objectives. This series of proposals has been worked out closely with industry, particularly manufacturing industry.

§ Lord Dormand of Easington
My Lords, can my noble friend say what effect the increase in energy taxation is having on the British coal industry? I have recently received two letters from the chairman of the country's biggest coal company expressing concern about the issue. Is my noble friend aware—I am sure that he is—that the British coal industry has greatly reduced in size and that some of us believe that it ought to continue?

§ Lord McIntosh of Haringey
My Lords, again, my noble friend knows far more about the coal industry than I do or ever shall. However, he is making assumptions about the rate of the levy and about our success or otherwise in achieving reductions by agreement. It would be unwise to anticipate either of those points. That is exactly why we set a two-year period for negotiations.

Viscount Eccles
My Lords, I have been employed in the foundry industry—another energy-intensive industry—for many years and I do not recognise the balance to which the Minister referred. Crudely, his proposals appear to raise energy costs by 15 per cent. The national insurance rebate represents 1 to 2 per cent of that. Does the noble Lord agree that a rebate system will provide little comfort to managements which daily seek greater energy efficiency and often achieve it? Does he also agree that a scheme of this kind is bound to lead to job losses and a worsening of the balance of trade?

§ Lord McIntosh of Haringey
My Lords, the targets which we were set at Kyoto, and which we have set for ourselves, are most demanding. We must reduce carbon 11 emissions by 1.5 million tonnes a year by 2010. It has been calculated that that involves expenditure of £1.75 billion a year. It is true that the reduction in national insurance contributions will not cover all of that extra expenditure for most energy-intensive industries, but that reduction is intended to cover industry as a whole. It is exactly the point of employment which is the basis of the negotiations we are carrying out in particular with the steel, chemicals and aluminium industries.