Standing Committee D
Thursday 26 February 1998
[Mrs. Ann Winterton in the Chair]
10.30 am
Mrs. Cheryl Gillan (Chesham and Amersham): On a point of order, Mrs. Winterton. I have received a polite note from the hon. Member for Hazel Grove (Mr. Stunell), who, sadly, will be unable to join us this morning. That is a great shame because as we heard at our previous sitting, he intended to press his amendments to a vote. Do you have any advice as to what the procedure will be, given that the hon. Gentleman is absent and that amendments in his name are on the amendment paper? Would it be in order for us to press his amendments to a vote, or will the opportunity to vote on them pass?
The Chairman: I am sure that the Committee will commend the courtesy of the hon. Member for Hazel Grove in apologising for not being here. I assure hon. Members that any member of the Committee who so wishes can press the amendments to a vote when the time comes.
Mrs. Gillan: I am most grateful for your advice, Mrs. Winterton.
Clause 1
Supplies on which levy charged
Amendment proposed [24th February]: No. 1, in page 1, line 6, at end insert--
`(1A) For the title of the section there is substituted--``Electricity levy''.'.--[Mrs. Gillan.]
Question again proposed, That the amendment be made.
The Chairman: I remind the Committee that with this we are taking the following amendments: No. 2, in page 1, line 6, at end insert--
`(1A) In subsection (1)(a), there is substituted for the word ``levy'' the words ``uniform levy which shall not distinguish or discriminate between suppliers or classes of supplier or between supplies or classes of supply''.'.
No. 11, in page 1, line 10, at end insert `or'.
No. 9, in page 1, line 12, leave out from `fuel' to end of line 15.
No. 6, in page 1, line 15, at end insert--
`(d) is generated by a hydro-electric generating station otherwise than in pursuance of qualifying arrangements except where such generation is powered by release of water previously pumped for the specific purpose of such generation by use of leviable electricity.'.
No. 10, in page 1, line 21, at end add--
`provided that nothing in this subsection shall be construed as permitting a levy to be applied to any electricity generated from renewable sources.'.
No. 7, in clause 2, page 1, line 22, leave out `Fossil Fuel' and insert `Electricity'.
Mr. Philip Hammond (Runnymede and Weybridge): I am disappointed that the hon. Member for Hazel Grove is not here because I was looking forward to dealing with some of the points that he had raised on his amendments.
I was also slightly disappointed when I read the report of Tuesday's sitting. My valiant attempts to finish on the point of 1 o'clock with a complete sentence have been thwarted by the Official Report. I feel obliged to complete my remarks on amendments Nos. 1 and 7. In the interests of avoiding repetition, I shall not repeat the part of the sentence that I had already uttered, but merely finish the sentence by saying that I hope the Minister accepts the amendments. With that, I conclude my remarks on amendments Nos. 1 and 7 and move on to amendment No. 2, which stands in the name of my hon. Friend the Member for Chesham and Amersham (Mrs. Gillan).
Amendment No. 2 would require the Government to impose the fossil fuel levy at a uniform rate. The Minister will, quite correctly, tell us that it has always been levied at a uniform rate, and that is clearly the case. The Government are, however, seeking to give themselves the power to widen the scope of the levy in the Bill. This is the appropriate moment at which to write into the Bill the requirement that the levy be charged at a standard rate for different types of electricity generation. That would ensure that the levy is used simply as a balancing mechanism to pay for expenditure as defined under section 32 of the Electricity Act 1989.
We want to avoid a multi-band levy being used as a discriminatory form of taxation for different types of energy generation. I do not wish to imply that such a use would necessarily be a bad outcome, but it would be if it came through the back door as a result of a permissive clause being slipped into the Bill. If the Government decided in future to consider, for example, a carbon tax in the form of disciminatory taxation on electricity generation that gives rise to emissions with a negative environmental impact, the House and, subsequently, a Committee, would want to discuss that.
The amendment's purpose is to ensure that we do not inadvertently create, or allow to continue, a mechanism that could be used to impose discriminatory levies. For example, the Government might decide that coal, as clearly the most polluting form of energy generation, should be subject to a much higher levy than cleaner forms. Political common sense suggests that that environmental imperative might be stood on its head: the Government might decide that gas, notwithstanding the fact that it is a relatively clean form of generation, should be subject to a discriminatory levy because of the threat that it poses to the future of the UK coal industry.
There are arguments for and against the use of discriminatory taxation in seeking to manage the energy equation. I accept that this is a complex issue and that at some stage we shall have to tackle the environmental question and discuss whether we can use market pricing mechanisms to do so. However, discriminatory taxation should not be imposed through the fossil fuel levy, which the Government, as a result of the Bill, will be able to extend to all forms of electricity generation. Perhaps the Minister will comment on that.
I am certain that when the Electricity Act 1989 was first enacted, it was not envisaged that different rates of levy would be imposed on different forms of generation, but I understand that the Act contains nothing to prevent that. The history of Government attempts to micro-manage markets by fine-tuning and discrimination is not auspicious, and we would want carefully to scrutinise any such proposals in the form of primary legislation. That is our reason for tabling amendment No. 2.
Mr. Ian Bruce (South Dorset): On that point concerning the pricing of different forms of generation, does my hon. Friend agree that, in the debates that took place in 1989, it was not even suggested that gas was a primary fuel, because it was much too expensive? Politicians are bad at predicting prices, and once they start to interfere, problems result such as those associated with the common agricultural policy, so it would be unfortunate if the Government did not accept the amendment.
The Chairman: Before the hon. Member for Runnymede and Weybridge (Mr. Hammond) responds, I point out to the Committee that interventions should be brief. I should be grateful if those who seek to intervene would remember that.
Mr. Hammond: My hon.Friend the Member for South Dorset (Mr. Bruce) may well be right, and it may be that these issues were not foreseen when the 1989 Act was passed. I believe that, at that time, gas-fired generation, if indeed it had started, was not being carried out on any scale. When the levy was introduced by the previous Government, we all recognised that its purpose was not what is now envisaged, namely the support of non-nuclear renewable generation.
Another matter relating to amendment No. 2 is my general concern that the levy could be used as a revenue-raising opportunity. I accept that whatever revenue is raised through section 33 of the Electricity Act must be spent in relation to section 32. However, it is not beyond the wit of man to imagine an expansion of that section and of the powers under it that would effectively turn section 33 into a tax-raising provision. The Opposition will return to that theme when the Committee debates amendment No. 4, but I thought that I should touch upon it now.
I am anxious that the Minister seems to have the idea that raising tax on renewable energy can support its development. On Second Reading, the hon. Member for Hazel Grove asked the Minister what criterion he would use when considering the application of the levy to renewables. The Minister replied:
``We intend simply to say that, at some time in the future, instead of coming back here to legislate, we may be able to do even more to support fledgling renewable technologies''.--[Official Report, 5 November 1997; Vol. 300, c. 364.]
That reply suggests that the Minister believes that imposing more tax will somehow assist those technologies. The Opposition will seek to probe the matter deeply.
The Minister will say that powers under section 33 of the 1989 Act have not been used as revenue-raising powers. I accept that that is right to date. He will also say that those powers have not been used discriminatorily so as to try to manage the energy equation, if I may call it that. He will, however, accept that clause 1(3) broadens the scope of section 33 of the 1989 Act. I hope that the Minister will agree that it would be appropriate to clarify the issue, and to make it clear that the levy will be a neutral and non-discriminatory tax on the various forms of electricity generation that are subject to it.
Liberal Democrat amendments Nos. 9, 10 and 11 were tabled and spoken to on Tuesday by Mr. Stunell. Amendments Nos. 9 and 11, while they are well meaning, are somewhat muddled. They would not do anything substantive to encourage renewable generation, if I have understood the relevant mechanisms correctly. I think that Mr. Stunell--
The Chairman: Order.
Mr. Hammond: The hon. Member for Hazel Grove.
The Chairman: The hon. Gentleman should not refer to the hon. Member for Hazel Grove by name.
Mr. Hammond: I beg your pardon, Mrs. Winterton.
The hon. Member for Hazel Grove was, I think, expressing concern about the application of the levy to renewable generation that is part of a qualifying arrangement. Amendments Nos. 9 and 11 appear to be based on the opinion that removing such qualifying arrangements from the scope of the levy would somehow assist such generation and make it more competitive.
As I understand it--I am ready to be corrected--the mechanism for calculating the subsidy payable by the non-fossil fuel purchasing agency means that it will be of no consequence whether electricity generated from renewables under qualifying arrangements is subject to the levy. Therefore, I believe that amendments Nos. 9 and 11 would have absolutely no impact, although I accept that they are well meant.
Amendment No. 10 is slightly different. Its purpose is to neuter clause 1(3). I do not disagree with that purpose, and the Opposition have tabled amendments that would have the same effect. I shall refer to them in a moment. Amendment No. 10 would effectively elimate any purpose in clause 1(3). If the amendment were accepted, the scope of the levy could not be extended to renewables. I have racked my brains, and I cannot think of any extension under clause 1(3) that would then be possible, at least within the scope of current technology. Perhaps the Minister could advise us of any such extension. We agree with the substance of the amendment in the name of the hon. Member for Hazel Grove that the extension of the levy to unsubsidised renewable production--which we think would result from the powers given to the Government under clause 1(3)--would be unhelpful.
10.45 am
We have seen over the first four rounds of the non-fossil fuel obligation a steady convergence of pricing to market prices, which everyone welcomes. That is the purpose of providing the subsidy--not to continue subsidising some forms of generation indefinitely, but to provide--to use a discredited terminology--an infant industry subsidy which would allow the renewables energy industry to reach a critical mass and develop its technology to a point where it can stand on its own two feet. We are, as I understand it, very close in certain technologies to the point where renewable generation can stand on its own two feet. As I said on Second Reading, an important psychological message or signal is being sent to the industry. To take power to levy renewable energy outside of qualifying arrangements, which is currently not subject to the levy, would be a retrograde step. It would send the wrong signal; it suggests a moving of goalposts in an industry which has, over a period of time, made significant steps toward reaching the goal that the Government set it when the mechanism was introduced--namely, reaching convergence with market electricity pricing.
I accept that there is an issue over large-scale hydro-electric generation. The Minister said on Second Reading that such existing, established generation was in his mind when clause 1(3) was drafted. When I speak to amendment No. 6, I shall suggest that we have an alternative solution to dealing with hydro-electric generation that will not send the wrong message to other renewables generators, particularly in the technology bands, such as landfill, gas and wind, which are moving towards convergence with market prices.
I should like to raise two other issues which I think are best raised within a discussion of this group of amendments. They are general points relating to the development of the renewables industry and the incentives and signals that the Government send it. First, the big problem facing the renewable generation industry is not so much pricing and the need to converge to market prices but that associated with planning permission. There are far more contracts awarded under the non-fossil fuel obligation than there are projects that have been brought to fruition. Almost invariably--
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