Catherine replied to a debate on energy intensive industries in her role as Shadow Economic Secretary to the Treasury this week (11th September). You can read a transcript of her speech here:
Catherine McKinnell (Newcastle upon Tyne North) (Lab):I congratulate my hon. Friend the Member for Stockton North (Alex Cunningham), the hon. Member for Redcar (Ian Swales), who is no longer in his place, and the Backbench Business Committee on securing this important and pressing debate on the impact of carbon taxes on energy-intensive industries. I speak in my capacity not only as a shadow Treasury Minister but as a fellow North East MP. The North East is one of the most energy-intensive areas of the country, and a base for the many companies that have been mentioned today: Wilton International, INEOS and Tata Steel are just a few of the largest. I am therefore aware of the importance of this issue for the future of our productive industries, for jobs and for economic growth in the region and across the UK.
The Government’s own figures suggest that, at national level, the chemicals, paper, ceramics and metals industries directly contribute about 2% to UK gross value added. They have a combined turnover of £130 billion and directly employ about 330,000 people. The TUC estimates that, if we include those working in the wider supply chain, there are about 800,000 people working in the energy-intensive industries—or foundation industries, as my hon. Friend the Member for Stockton North prefers to call them—and the supply chain.
I recently visited Ibstock, which has a brickworks in Throckley in my constituency. It is the largest brick producer in the UK, with 19 sites across the country, employing around 1,500 people. The North East Process Industry Cluster estimates that 1,400 such companies across the region export £12 billion worth of product each year. So, if we are to achieve a balanced recovery and build a highly productive, more export-led economy, we have to recognise that manufacturing, ceramics, glass, chemicals and steel—all energy-intensive industries—are an important part of that picture. There is agreement across the House on the importance of supporting those industries and ensuring that they create the jobs and economic growth that we all want to see.
The motion before us today refers to the imposition of carbon taxes and levies, and rightly welcomes the relief announced in this year’s Budget to limit future rises in the carbon price floor. However, the bottom line is that this support—capping the future costs of carbon and providing an exemption for combined heat and power plants—has come too late. It is more than 12 months since the measure was meant to begin compensating energy intensives, but that was certainly too late for one company on Teesside, which told me that it had had to close one of its coal boilers in 2014, resulting in 100 job losses. There have been other cases in which manufacturers, steelworks and brickworks have fallen victim to the ill-thought-out carbon price floor, as my hon. Friend the Member for Stockton North has shown.
I understand that the hon. Member for Warrington South (David Mowat) thoroughly resents what he describes as crowing from the Labour Benches on these issues, but many of the problems that these companies are facing in relation to the changes in the taxation system have arisen under this Government, and we warned of the consequences throughout this period. The carbon price support rates of the climate change levy, which underpin the carbon price floor, were entirely the creation of this Conservative-Liberal Democrat coalition Government. They were introduced in the Finance Act 2011, despite the deeply held and loudly voiced concerns of Opposition Members who tried to amend the legislation on a number of occasions before its implementation.
My hon. Friend the Member for Bristol East (Kerry McCarthy), then shadow Economic Secretary to the Treasury, tabled an amendment calling on the Government to at least consider the impact of this carbon tax on a whole range of affected parties, from energy bills and fuel poverty to renewables and the energy sector more widely. More importantly, the Opposition also asked the Government, in carrying out that review, to take stock of the impact of the carbon price floor on energy-using manufacturing industries and on employment in those industries. My hon. Friend said at the time that there was a danger, particularly in the absence of a credible Government plan for growth, that growth and jobs would be exported to other countries, that UK industry would be at a disadvantage, and that jobs and growth would be put at risk. Those concerns, and our amendment, were dismissed at the time, but unfortunately many of those concerns have been realised. The Government’s U-turn in this year’s Budget has recognised that fact, but for some it has come too late.
In March this year, for example, Thai-based steelmaker SSI, located in the constituency of the hon. Member for Redcar (Ian Swales), revealed that it had yet to turn a profit despite producing 5 million tonnes of steel. It has regularly raised concerns about the risk to jobs. Indeed, SSI raised concerns about the carbon price floor, along with the rest of us, back in 2012. In March 2012, we lost Rio Tinto Alcan’s aluminium smelter plant in Lynemouth on the Northumberland coast with the loss of more than 500 jobs. It had been a source of employment in the area for more than 40 years. Rio Tinto Alcan had estimated that its energy costs would jump from £7 million to £100 million as a direct result of carbon taxes—including, of course, the carbon price floor.
I want to turn to the question of compensation. In 2011, the Chancellor promised a £250 million compensation package for the worst-affected heavy energy-intensive industries for the “indirect costs” of the EU emissions trading system and the carbon price floor. Three years later, however, Ministers’ statements and answers to parliamentary questions suggest that only 53 energy-intensive companies have been compensated for the costs of the EU ETS, and that—as far as I am aware; I would be grateful if the Minister could update us on this—absolutely none has been compensated for the costs of the carbon price floor, even though state aid clearance was finally received for that in May.
Energy-intensive industries, having being promised by the Chancellor in 2011 that, thanks to Government support, they would not be priced out of the world economy, have now been waiting for around 18 months for help on the coalition’s carbon tax, but that help remains out of sight. It seems that, due to the delays, the Government have only paid about £31 million of the £250 million compensation that they promised in the 2013 autumn statement. Will the Minister clarify whether the Government intend to pay out the full £250 million by the end of this Parliament, as was originally promised? The Chancellor talked about the world economy, but what about the European economy? The Government’s own figures suggest that our heavy industry has been priced out there, too, as the motion before us today notes.
A recently published consultation paper included estimates from the Department for Business, Innovation and Skills and the Department of Energy and Climate Change of electricity prices faced by energy-intensive companies in the absence of Government intervention, compared with other countries around the world. Given that there is effectively an absence of Government intervention at the moment—aside from EU ETS compensation to just 53 of the thousands of companies affected—the Government’s figures drive home the stark reality of the impact on our productive industries. UK energy-intensive industries face the highest costs of any country in the world. The figures predict that in 2015 our energy-intensives’ electricity costs will be almost double those of their counterparts in Germany—a country already known for its high energy prices—let alone of those further afield in Japan, the US or China, whose electricity prices are dwarfed by ours.
I put to the Minister today the same question that I have put to her predecessor and to other Ministers: when will energy-intensive companies finally start receiving compensation for the costs of the carbon price floor, which the Chancellor promised three years ago? More importantly, will she clarify whether the Government have given up on backdating compensation for the last 18 months in which energy-intensive companies have had to pay for the carbon price floor without any of the help that the Chancellor had promised? The former Energy Minister, the right hon. Member for Sevenoaks (Michael Fallon), originally suggested back in February that the Government would continue to press the case for backdating. Yet, in a delegated legislation Committee in July, he appeared to backtrack on that, saying that it was a “lost cause”. Perhaps today’s Minister will clarify the point: have the Government given up on backdating as a lost cause?
I wish to press the Minister on one further point. Welcome though the state aid clearance in May was, it also turned out to be a further blow for the hopes of many other energy-intensive industries, particularly the glass, ceramics and minerals sectors, which the EU Commission deemed to be:
“less exposed to higher energy prices”
and which were therefore excluded from the list of eligible industries. The then Minister of State—he is now Defence Secretary—said in July that he “remained concerned” about this decision and that the Government would seek a review of eligible sectors with the Commission “later this year”. The Financial Times recently reported that the UK Government were “considering options” in that respect and pushing ahead with an application to compensate these newly excluded sectors, although it commented that the chances of success “look slim”. Given that previous Minsters have promised to press the case, only later to seem resigned to lost causes, what reassurances can this Minister give hon. Members and these companies, which we know are interested and following this debate, that the Government are doing everything they can to secure this much-needed support for industries struggling to remain internationally competitive?
Earlier this year the Opposition commissioned Mike Wright, executive director of Jaguar Land Rover, to conduct an independent review of advanced manufacturing in the UK. His report clearly set out the challenges we face, including, most importantly for this discussion, on how we have a proper long-term industrial strategy that promotes investment and helps us realise our full productive, innovative potential. Inherent in that is striking the right balance between becoming world leaders in tackling climate change, and in the technical solutions that come with it, and not putting our businesses at a competitive disadvantage compared with other advanced industrial economies.
I wish to conclude by reminding hon. Members of the Chancellor’s words in 2011. He told this House in his autumn statement:
“We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs from this country”.
Most importantly, he concluded that:
“businesses will fail, jobs will be lost, and our country will be poorer.”—[Official Report, 29 November 2011; Vol. 536, c. 807.]
I could not agree more, but unfortunately that has been the consequence of many of the Government’s ill-thought-through carbon taxes to date, which, in the absence of any comprehensive support or compensation, have damaged our competitiveness, cost vital jobs and served only to export carbon emissions abroad and not to eliminate them.