22:02 Mr. Philip Dunne (Ludlow) (Con)

Carbon leakage is another principal issue. The Government’s climate change levy is one of the main culprits in this regard, in addition to their failure to introduce an effective energy policy over so many years. The climate change levy is a tax on energy use, not on carbon emissions. The UK climate change agreement, which was introduced in 2001, is now in its final reporting period, and I wish to say a few words about it. First, the aluminium industry has been at the forefront of achieving carbon reductions through its efforts since 1990. If we compare the carbon emissions targets to which the Government have signed up with the 1990 baseline, we see that the aluminium industry as a whole has reduced its emissions by 39 per cent. That is within 1 per cent. of the target, and it is a remarkable achievement. Yet, as a result of the climate change levy and the Government’s proposals, it will be penalised for this success. The goalposts are being moved in such a way that past success is not recognised. Raising the targets on an absolute, rather than a relative, basis makes it more difficult for businesses that have already achieved reductions in carbon emissions to be able to meet the next target without further significant investment. Given the competitive position of the industry and the uncompetitive position of operating with the current energy costs in this country, it is very hard to argue for that.

There is also the issue of the consequences of the Government’s introduction in the pre-Budget report of a further element of gold-plating. The Government propose to reduce the climate change levy rebate for companies in energy-intensive industries who are participants in the climate change agreement from 80 to 65 per cent. from 2011. The Aluminium Federation is the trade body for the industry. It has estimated that its 45 member companies who participate in the climate change agreement will see a direct increase in their costs of some £4 million to £5 million a year. That cost will have to be absorbed straight off their bottom line, at a time when they are reeling from the impact of the recession and very low margins apply. This is completely unnecessary. This tax takes this country beyond the measures required under the EU emissions trading scheme. It is purely a tax revenue-raising measure, as perceived by the industry, and it penalises growth in the industry, for the reasons that I have set out. The estimated cost to the manufacturing industry of the measure announced in the pre-Budget report is some £50 million. We will have to wait to see whether the cost emerges in the Budget—if we ever have one. I urge the Minister to make representations to his colleagues that this measure is ill-founded and will merely accelerate the demise of many of the heavy manufacturing industries in this country.

An example of this measure’s ineffectiveness in tackling carbon emissions is the Government’s own estimate that the introduction of this reduced relief will save only some 200,000 tonnes of carbon emissions—that works out at a cost of some £250 per tonne. No logical argument can be made that this is being introduced to reduce climate change and emissions, because of the inconsequential reduction involved; this is purely a tax-raising measure.

The answer to this situation is to change the whole basis of levying tax on heavy industrial companies and, as my colleagues have been urging for some years, to use a carbon levy as a replacement for the climate change levy, which has the effect of raising tax and costs, without reducing carbon to the degree that it was stated to do.

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22:16 Albert Owen (Ynys Môn) (Lab)

The aluminium sector faces a number of challenges, not least from competition from countries such as China. The hon. Gentleman referred to the announcement made by the Chancellor in the pre-Budget report of a cut in the climate change levy rebate, which this Government introduced, from 80 to 65 per cent., and that is a big blow for the industry at this delicate juncture. The rebate is part of an agreement whereby intensive energy users, such as the aluminium sector, have cut their emission levels severely and well. It is a success.

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22:22 The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Ian Lucas)

We know that a lot of activity is going on. We take the state of the aluminium sector very seriously indeed, and the hon. Gentleman asked a specific question about the climate change levy. I know that the industry has already made representations about the levy to him and to my hon. Friend. My right hon. Friend the Minister for Business, Innovation and Skills is meeting the Aluminium Federation later this week, when I am sure that the matter will be discussed further.

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