Webb on CO2 and Green Taxes

4.54.28pm GMT Tue 18th Mar 2008

[Mar 17] . . Steve Webb (Northavon, Liberal Democrat): The Secretary of State will be well aware that measuring the right thing is critical.

He will know that the narrow measure used for Kyoto tells one story while the broader measure in the nation's environment accounts, produced by the Office for National Statistics, tells a different story. Does he accept that on that basis, according to a comprehensive measure, CO2 emissions have not fallen at all since 1990 and have increased since 1997? Is that not a cause for grave concern?

Hilary Benn (Secretary of State, Department for Environment, Food and Rural Affairs): According to the measure that we use to report to the United Nations, because that is the way it asks for the figures to be submitted, it is clear that UK emissions of greenhouse gases have fallen by 15.4 per cent. and emissions of CO2 by 6.4 per cent. We also report to the UN figures on emissions from aviation and shipping, which are included in a footnote when they are published. As the hon. Gentleman will be aware, the ONS does its own estimate in the environmental accounts. That calculates emissions from flights in a different way and also includes estimates resulting from UK citizens who live and work in other countries. It clearly would not make sense for those figures to be included in the UK totals that are reported to the UN framework convention on climate change. The way in which we report fulfils the requirement that the UN places on us, and we are making the progress that has been set out. Aviation and shipping are issues that we need to deal with internationally.

The changes that we are putting in place mean that 12 months from now-only a short time-meeting our carbon budgets will be on an equal footing with meeting our financial budgets. The House will, I am sure, appreciate that that is a profound change in the way in which we do things. As the first of its kind in the world, the Climate Change Bill is also a sign of the UK's international commitment. As the House will be aware, the world agreed in Bali just before Christmas to start negotiations on a new global climate deal to take us beyond 2012.

Getting the United States of America, Australia, China and India into formal negotiations on a new deal is a huge step forward, but the hard part starts now. We have to get every country in the world to play its part. That is why leadership in Europe is so important. As we have just heard from my right hon. Friend the Prime Minister, the European Council has reaffirmed its commitment to cut greenhouse gas emissions in Europe by 20 per cent. by 2020, with legislation next year. Part of the agreement is that Europe will go further, with a 30 per cent. reduction by 2020, if an international agreement is reached.

I am sure that the House will recognise that international leadership by any country is not enough. We can bring to the negotiating table only that which we can contribute at home. That means that the UK must take bold action both to make possible progress in the negotiations and to reduce our carbon footprint.

Our approach to reducing emissions across the economy-in our homes, our businesses, the public sector, transport and energy supply-is based on three principles. The first is pricing carbon, through a trading tax or through regulation, to get the most cost-effective reduction. The second is encouraging innovation in low-carbon technologies, and the third is removing barriers to action, including encouraging long-term behavioural change. The Budget does those things by setting out the steps that we intend to take in each of those areas. Each of us as individuals has a role to play in tackling climate change.

. . . Steve Webb : It is always refreshing to follow the hon. Member for Nottingham, South (Alan Simpson). Of the three contributions so far, his gave us the breadth of vision to match the scale of the problem. I come to the issue relatively fresh, having been the party spokesman only since Christmas. I have been astonished by the gap between the scale of the problem, as per the rhetoric in the Budget and the scientific evidence, and the time scale and scope of the proposed measures. The Budget is a classic example of the contrast between what is actually being done and what needed to be done. My hon. Friend the Member for Twickenham (Dr. Cable) described the contrast between the "apocalyptic language" and the "minimal and deferred" changes, which summed up the situation nicely.

It is important to give the background to the Budget, as the hon. Member for East Surrey (Mr. Ainsworth) did. It is timely that the National Audit Office produced over the weekend the report that he cited, because it gives us a different take on what has been going on-a take that does not reflect terribly well on successive Governments' approach to climate change. I think that it was the Minister for the Environment who at Thursday's oral questions gave us the figures for carbon dioxide cuts. The figures he gave were technically correct with regard to the Kyoto definitions, but he will know that they are narrow definitions, although I fully accept that they are internationally standardised.

In response to an intervention of mine, the Secretary of State said that aviation and shipping were a footnote to the international statistics. [ Interruption. ] As he says from a sedentary position, that is where they are-they are a footnote. He knows perfectly well, as we do, that in reality they are a huge and important issue. In judging how well this country is doing on this vital issue, surely we should look for the most comprehensive measures possible, not congratulate ourselves on progress against a narrow measure that simply excludes a whole set of carbon emissions that are just as damaging as the ones in the figures. That is not just a debating point or a claim that the Government pick the figures that look best and the Opposition pick the figures that look worst. We should be concerned about the real impact of CO2 emissions, which are surely most relevantly measured against the broadest measure produced by the Office for National Statistics.

Phil Woolas (Minister of State, Department for Environment, Food and Rural Affairs): I do not want to take up time, but I must say in response to a point that has been made in the debate and in national newspapers that the figures I gave, as I said at oral questions, related to greenhouse gases, not specifically to CO2. The Government have always been clear about the difference.

Steve Webb : I fully accept the distinction, but given that CO2 is the largest of the greenhouse gases by a long way, the Minister will surely be as disturbed as I am by the line in the NAO report that says:

"There have been no reductions in UK carbon dioxide emissions if measured on the basis of the environmental accounts."

The principal difference between the environmental accounts and the Kyoto figures is aviation and shipping. I accept there is an issue about British people overseas, but the exclusion of those factors is fundamental. On the more comprehensive definition from the Office for National Statistics, we have made no progress in 17 years, which is truly shocking. Against that backdrop, the Budget measures seem all the more timid.

There has been some discussion of what the hon. Member for East Surrey called indulgences-or the buying of credits. In a sense and at one level, the Secretary of State is right. What matters is that we get emissions down, and it could be argued that it does not matter so much where that happens, but in the long term buying credits puts off the day of transformation to the low-carbon economy that the hon. Member for Nottingham, South mentioned, while other countries make the necessary changes. If we believe that the situation is really urgent, what we do should be additional to what other countries are doing, as far as possible. We should not allow them to do it instead of us, because that just puts off the evil day.

Without the amendments in the other place, the 60 per cent. cuts proposed in the Climate Change Bill could have been entirely achieved by buying other people's CO2 cuts. We would not have needed to cut our domestic emissions at all and we could still have satisfied the 60 per cent. target, and that is totally unacceptable.

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Nick Hurd (Ruislip - Northwood, Conservative): Do the Liberal Democrats therefore support a cap on the purchase of overseas credits, and if so what level would they put that at?

Steve Webb : I do support such a cap, and before the Bill reaches this House, I shall read the debates in the other place, in which their lordships agreed a figure of 30 per cent. I shall certainly oppose Government attempts to reverse that, but I have an open mind on whether it should be lower. The key point is that we need to lock into a low-carbon structural economy, and buying our way out simply defers that.

The other contextual point that I want to make is about the contrast between the bits and pieces-such as the plastic bags-and the fact that in almost the same week the Government encouraged expansion at Heathrow and Stansted. A whole new generation of coal-fired power plants, without carbon capture and storage, is likely to go ahead. Marginal changes are being made, but the whole thrust of policy in other areas, run by different Departments-that is a key point-is in completely the other direction. All hon. Members in their places today would probably wish more power to the Secretary of State's elbow. We wish that he had more influence on the Government, but so often his Department nibbles around the edges and does its best, but another Department comes trampling down the track and reverses that. That has to change.

I fully accept that green taxes are only one lever among many, but they work. I wish to cite-and I do not do this very often-a very successful Conservative initiative on green taxation in the 1980s: the switch to unleaded petrol. Actually, that was a green subsidy, not a green tax-a differential in favour of unleaded petrol. At the start of the 1980s, who would have thought that by the end of the decade cars that ran on leaded petrol would be oddities? It did not take long to change because the incentive structure was put in place. The same could happen with the vehicle excise duty tiering that we have heard about-

Kelvin Hopkins (Luton North, Labour): Another example of a transformation that took place quickly and effectively was the switch from coal gas to natural gas. If there is a will, such things can be done.

Steve Webb : That is right, and such examples expose the timidity of the 2019 goals for various measures in the Budget. If we have drive and vision, these things can be achieved much more quickly, sometimes by mandate, as with the gas switchover, and sometimes by incentives.

I take the point made by the hon. Member for East Surrey about not using the cash from the VED change-the showroom tax-for other tax cuts, but my worry is that it stops. In other words, if I am thinking of buying a gas guzzling luxury car, even a VED of £900-as opposed to one of £400-is neither here nor there if it lasts for only one year. Why not persist with it? Given that the purchase is the critical decision, why not keep the VED at that rate for the lifetime of the vehicle? That would send a strong signal and it would encourage manufacturers to start thinking about the new cars that they put on sale. That might lead to a much quicker transformation in what is offered.

The Secretary of State was right to point to the issue of best in class. There are very fuel efficient versions of almost every vehicle, be they rural 4x4s or family cars. It is not that people cannot have big family cars or 4x4s, but we need strong incentives for them to purchase the more fuel-efficient models. The incentive at the point of purchase would be much stronger if it were not a one-off hit, which is probably quite marginal to the cost of purchase.

John Redwood (Wokingham, Conservative): The hon. Gentleman makes some interesting points. Is it Liberal Democrat policy to accept the levels that the Government propose but to make them annual, or does he think that the levels should also be raised?

Steve Webb : We certainly think that the increased VED should continue: it should not be a one-off hit. We also think that green tax, as broadly defined, should represent a significantly bigger share of the total tax take. As the hon. Member for East Surrey said, that should not be part of an overall tax increase, and green taxes should be used to cut other taxes. We have identified the standard rate of income tax that lower and middle earners pay.

This Budget takes the green tax share to 2.8 per cent. Ten years ago, it was 3.6 per cent. The share of green taxes has therefore fallen by about a third in 10 years. The proposed taxes are by no means swingeing new green taxes: they will not even fractionally reverse the decline in the past 10 years. Given that we have to raise a certain amount in taxation, surely it is common sense to raise that on pollution and the marginal choices that increase carbon emissions, rather than on income and the things that we want people to do. The present balance is wrong, and I do not understand why the Government do not address that. I take the point made by the hon. Member for Nottingham, South that the risk is that the Government will totally discredit the notion of green taxation, which is one of the key levers we have at our disposal.

How much green taxation was in the Budget? The Institute for Fiscal Studies says that by 2010 additional green taxation will be £1.8 billion a year. In the context of Treasury estimates of revenue, that is a rounding error. The Chancellor routinely revises his income and expenditure figures by far more than that every six months. The idea that the Budget contained some huge tax switch that will transform our battle against climate change is nonsense, and in his heart of hearts the Secretary of State knows that. The scale of what is proposed is simply not up to the scale of the problem.

We have heard of the endless deferral-to 2019-on new buildings. The schools programme has a target of 2016. The Department for Children, Schools and Families is rebuilding schools up and down the land, so for another eight years new schools, which will presumably stand the test of time for decades, will be built to inadequate standards, locking in sub-standard carbon performance. That should be dramatically improved-and quickly.

We have heard already about the small scale of the green homes service-£1 per household. The Secretary of State used to hold the same position at the Department for International Development. The British Government will clearly contribute worldwide to attempts to deal with the consequences of climate change, and we know that many of the poorest countries will be the first to suffer. Does he therefore share my view, and that of the leader of the Liberal Democrats, that our spending on alleviating the consequences of climate change should be additional to the 0.7 per cent. target and should not eat into it? Surely it would be a double penalty on the world's poorest people to say, "Actually, we were planning to spend money on clean water, education, disease protection and all those things, but we are not going to spend as much on them. Our actions of decades past are ruining your natural environment, so we will take a bit of the money that we were going to use to try to stop your children dying before the age of five to make sure that your earth doesn't flood." Surely, if 0.7 per cent. of GDP was a proper target for the humanitarian and infrastructure work that needs to be done anyway, the climate change mitigation work that we will do overseas should be additional. I hope that the Minister who responds to the debate will give us the Government's position on that.

I want to say a few things about the energy efficiency and fuel poverty aspects of the Budget. I intervened on the Secretary of State and queried some of the cuts in his departmental budget. Obviously, when it comes to energy efficiency, we have another example of that, which is the freeze on the Warm Front programme. The people who perform the home installations reckon that compared with the previous three-year period they will soon be able to do fewer houses. The cost is going up and the budget has been frozen in cash terms.

Warm Front is a highly impressive, highly effective programme. It is not without its flaws, but it is an excellent scheme. I am therefore concerned that cuts have been made. When we ask Ministers about that, they cite other schemes and initiatives, such as the carbon emissions reduction target-CERT-but that is not an adequate substitute. It is not as good, for a number of reasons. For example, it rewards a company for saving carbon emissions among its customers. However, a company gets a better return from saving carbon emissions for a big, wealthy customer with high carbon emissions than it does for a small consumer-perhaps a single pensioner living on their own. In other words, for a given amount of insulation, companies get more return by going for, in some cases, the more prosperous.

I know that there are minimum quotas, but they have gone down, too. I understand that the number who have to be in the target groups has gone from 50 per cent. to 40 per cent. and that the target groups have been broadened, which is crazy. We want the priority to be the fuel poor. The Government know who the fuel poor are, broadly defined-they certainly know who receives means-tested benefits. Companies in the CERT programme do not know which of their customers are on means-tested benefits, so they have to spend time, effort and money finding out or speculating about that, when the Department for Work and Pensions knows.

I hope that the Secretary of State's Department- [ Interruption. ] The Minister for the Environment says it is because of data protection. I quite understand that the Department for Work and Pensions cannot simply hand over benefit details, but why, for example, could not every recipient of pension credit receive a certificate, once a year, with their annual uprating statement? They used to get certificated housing benefit, entitling them to a rent rebate and to have their council tax paid. Why should they not receive a certificate of eligibility for Warm Front or CERT, or for whatever scheme happens to be running, that they take to their supplier? The supplier would not have to know which benefit they were on or what their income was. No databases would have to change hands. It is a relatively simple idea. The mailing is going out anyway. I am reassured that the Secretary of State is reaching for his fountain pen, and if it happens, I am happy to share the glory with him.

Hilary Benn (Secretary of State, Department for Environment, Food and Rural Affairs): It is a felt tip.

Steve Webb : That will do.

Martin Horwood (Cheltenham, Liberal Democrat): In fact, there is a precedent for a very simple system: the charitable gift aid process. Donors make a declaration based on their knowledge of their tax status without revealing their tax details to the charities. It works very well.

Steve Webb : I am grateful to my hon. Friend. There is probably a variety of ways of doing it, of which that is one. My central point is that expecting the fuel companies to try to identify their poor customers, when the Government already know-when one bit of government wants it done but another will not give that information-does not seem to be joined-up government.

I want to raise another point that might interest the Minister, about which something could be done quite quickly. We know that over the next 10 years or so the Government want everyone to have a smart meter. One of the key issues for me is the potential smart meters have to benefit the environment and tackle fuel poverty.

I have in mind what I would call a super-smart meter. The big worry about the domestic energy market is the alleged lack of competition. All sorts of investigations are going on, and consumers think that the companies all put their prices up together. Clearly, we want maximum switching and want people to go for the best tariff for them. We want energy efficiency tariffs and so on. If a smart meter records someone's actual consumption of gas and electricity, why should not the information be sent to a website such as moneysupermarket.com-it has to be a two-way flow of communication-so that it can look at all the tariffs and shop for the customer? The customer would not have to be online, web-savvy or anything like that. The smart meter would do it for them. It would come back and-it might have a Stephen Hawking-style voice-it would say, "It's EDF for you this quarter", or whatever else. In other words, it would match customers' circumstances with the optimum tariff and switch them to it.

The technology would probably be fairly straightforward. The company would need bank details-practical issues would have to be resolved-but instead of having managed methods of controlling the energy market and competition, it would almost be the economist's dream of perfect competition. We would have an almost infinite numbers of buyers, perfect information, negligible transaction costs and regular switching, which keeps companies on their toes. Fuel companies will hate it, because they will not have the stickiness that means customers stay with them when they should not. I say this to every Minister I meet, and I hope that at some point someone will take me seriously and adopt it. [ Interruption. ] I am pleased to hear the Minister for the Environment say that it is a good idea. I am grateful for that.

I have a couple of final observations. I listened with interest and a lot of sympathy to the hon. Member for East Surrey. I agreed with a great deal. I waited for the answer. He came up with some of the things that the shadow Chancellor has said, many of which are gimmicks. He asked where the green ISAs were. I travelled in by tube from Paddington to Westminster, and there is an advert that says, "Get your green ISA."

Gregory Barker (Bexhill & Battle, Conservative): With respect, before the hon. Gentleman starts to criticise policy he ought at least to take time to understand it. A green ISA would be an extra amount in addition to the current ISA, which could be invested exclusively in companies at the forefront of green innovation and on course to meet our national CO2 reduction targets. It is in addition to the existing ISA, not just another product. Perhaps he could take time to understand the idea before he attacks it.

Steve Webb : It clearly is a gimmicky idea, and I say that for a reason. There is a cost-benefit analysis for each measure, as we heard from the hon. Member for Nottingham, South. Each scheme has a cost and a return. The idea that the presumably higher rate tax relief for many investors delivers the best bang for the buck in delivering improved energy efficiency is extremely implausible. The investment will be made in tiny chunks. The scale of investment needed for such things is vast. A few thousand pounds will come in from, on average, relatively wealthy individuals at the cost of a hefty tax break. Essentially, such ISAs are tax breaks for the well-off. There are far better ways of spending that money that would benefit the fuel poor, such as home insulation. I put it to the hon. Member for Bexhill and Battle (Gregory Barker) that money spent insulating a poor pensioner's draughty house delivers a vastly better return for Government cash than tax breaks for high earners through additional ISAs.

Gregory Barker (Bexhill & Battle, Conservative): The hon. Gentleman does not grasp that we need to do all those things. Is he aware that there are 17 million ISA savers-albeit that most of them currently hold those accounts in cash because of the unfortunate economic situation? As there are 17 million ISA holders, they are not just the prerogative of the high-income few. This is about driving dynamic industrial change across our economy, making genuine change, driving capital markets and recognising excellence in British companies.

Steve Webb : There was an interesting elision-in fact, the hon. Gentleman corrected himself as he spoke. He knows full well that the majority of ISAs are cash ISAs. He is talking about a further tier of ISAs, so the savers who can make that additional contribution will, by definition, be the wealthiest. The poorest people cannot even reach the existing threshold. They would need thousands of pounds more. A relatively small proportion of ISAs are equity ISAs, and I will bet any money that a high proportion of the equity ISA holders tend, on average, to be higher income earners. This is potentially a highly regressive way of delivering marginal benefit. There are so many better and more efficient methods, but because the shadow Chancellor has no substantive policies, he goes for these grand gimmicks.

It was interesting to hear the hon. Member for East Surrey ask about the proceeds from the third round of emissions trading auctions. He posed the rhetorical question, "Where will the money go?" but he did not say what the Conservatives would do with it.

Peter Ainsworth (East Surrey, Conservative): rose-

Steve Webb : Can the hon. Gentleman tell me that the shadow Chancellor has said to him that the money can go on public spending? I should be very interested to hear a crystal clear answer to that question.

Peter Ainsworth (East Surrey, Conservative): I hesitate to intervene on the hon. Gentleman, because I sense that the House is getting rather tired of him. We have already said that we will use some of the proceeds from auctioning the permits to fund the feed-in tariff system.

Steve Webb : We are talking about a £9 billion windfall in the second round, and the third round of licences will presumably raise even more. Simply to say "some" when the amount could be between nought and £12 billion is far too vague for a party that has pretensions to government.

Kelvin Hopkins (Luton North, Labour): I want to make a point in support of the hon. Gentleman. He says that investing in insulating poor people's houses is a much better way of spending money. There is an opportunity cost to both courses of action, but we should spend all the money on investing in poor people's home insulation, to the benefit of everybody.

Steve Webb : I certainly share the view that that is a priority, and it is an improvement that we can make now, rather than in 2019 or whenever. To draw together the threads of my speech, my priority is to stress the urgency of the situation. There is a mismatch between the grave tone of the rhetoric and the scale of the problem on the one hand, and the extreme modesty of the measures on the other.

I want to mention one other thing that can be done now. We know that even sober-suited organisations such as Ofgem have said that there is a £9 billion windfall for energy companies in the second round of EU emissions trading. It is a huge opportunity to spend money on the things that we have been talking about-home energy insulation and encouraging renewables-without increasing the tax burden. As the hon. Member for East Surrey says, we do not have to wait until the third round of EU emissions trading in 2012; the windfall in the current round could be used to encourage renewables through feed-in tariffs, which we support. The windfall could also be used for investment in carbon capture, which is another part of the mix. That would have been so much bolder, so much more effective, and so much more in line with the scale of the problem. We have had a huge disappointment. I hope that in years to come we do not rue the fact that we failed to take action now, and do not, as Nick Stern says, have to take much more expensive and dramatic action.