Environmental Audit Committee
Oral evidence: How green was the Budget?, HC 1802
Wednesday 12 December 2018
Ordered by the House of Commons to be published on 12 December 2018.
Members present: Mary Creagh (Chair); Geraint Davies; Caroline Lucas; Kerry McCarthy; Anna McMorrin; Alex Sobel.
Witnesses
I: Nick Molho, Executive Director, Aldersgate group, Julian Kirby, Lead Plastics-Free Campaigner, Friends of the Earth, and Josh Burke, Policy Fellow, UK Climate and Energy Policy, Grantham Research Institute.
II: Robert Jenrick MP, Exchequer Secretary, HM Treasury, Philip Duffy, Director, Enterprise and Growth Unit, HM Treasury, Neil Kenward, Deputy Director, Energy, Environment and Agriculture, HM Treasury, and Anne-Therese Farmer, Deputy Director, Energy and Transport Tax, HM Treasury.
Witnesses: Nick Molho, Julian Kirby and Josh Burke.
Q1 Chair: I call the Committee to order. Not many people in the audience today, for which I can only apologise. We are carrying on diligently with our work scrutinising the Government while all around us lose their heads. Can I ask the panel to introduce themselves, starting from my left with Nick?
Nick Molho: Nick Molho, Executive Director of the Aldersgate Group.
Josh Burke: Joshua Burke, Policy Fellow for the Grantham Research Institute, LSE.
Julian Kirby: Julian Kirby from Friends of the Earth.
Q2 Chair: Can I ask you to sit forward, breathe from your diaphragm and give us your answers from there, please? Thank you.
This is the first time this Committee has inquired into the Budget and it has come out of our overarching work scrutinising the role of Government. We thought the Budget was pretty light on some of the major environmental initiatives that are implicit in the clean growth strategy and some of the initiatives that we as a Committee had also asked for. What tax or spending changes are missing?
Nick Molho: To echo that, first of all I would describe the Budget as not living up to the Government’s clean growth ambitions. There is definitely a content issue here, but there is also a presentation issue that I briefly want to flag. In the way in which the Budget was presented to Parliament there were very few references to climate change, let alone the importance of clean growth to the UK economy. That was quite surprising, given that it came within three weeks of a major scientific report highlighting the economic risks of unabated climate change. It also came 10 days after Green GB Week, where a lot of effort had been done, especially by BEIS, to highlight the importance of clean growth to the UK economy. Having so little reference to it in the Budget was surprising and, from a business and investor perspective, it does undermine the impression that there is good cross-government co-ordination on this.
In terms of the content, while there were a few good announcements in the Budget, there were quite a few things missing when it comes to plugging the gaps in the clean growth strategy. At the very least we would have expected confirmation that announcements would be made shortly to plug some of those gaps.
Two examples jump to mind. The first one is on buildings. For a number of years now there has been a fairly strong level of consensus that if we are to increase energy efficiency investment in buildings we need binding regulatory drivers such as EPC targets, but we also need well-timed fiscal incentives such as stamp duty rebates or VAT rebates for energy efficiency measures to really drive the uptake of energy efficiency. We understand from the Government’s response to the CCC progress report that a building energy efficiency action plan is due before the end of the year and we really hope that it is going to be providing more clarity on that.
Another important example is transport. A couple of months ago the Government reduced the plug-in grant for zero-emission vehicles at a time where there is no clear evidence that the cost of EVs has really gone down. There is actually a fair amount of consensus that electric vehicles and zero-emission vehicles generally are not going to reach cost parity in terms of upfront cost with conventional vehicles before the mid-2020s. If anything, we really need to see the grant being extended to the mid-2020s and we need to look at fiscal incentives to compensate for the cut in the plug-in grant to really help consumers with the upfront cost of EVs.
Chair: Great, thank you very much.
Josh Burke: I would like to echo some of the comments that Nick said. Coming so soon after the IPCC report, it did not feel like the two were particularly well aligned, even more so given the fourth and fifth carbon budgets are likely to be missed. It did not feel like the Budget was picking up on some of those shortcomings.
In terms of what was missing, we have gone through what the CCC has picked out as being at-risk areas and tried to cross-reference them with the Budget to see what was lacking. Energy efficiency in particular is quite a big problem. They have a £315 million Industrial Energy Transformation Fund, which is intended to help with heavy industry, but that is at the expense of enhanced capital allowances. For my mind, particularly around the SME sector, there is quite a risk there about access to capital and the fiscal incentives for those companies to take up energy efficiency measures. The Industrial Energy Transformation Fund might help with heavy industry and energy intensives, but it is the SME sector that might miss out on that. Energy efficiency in particular seemed to be lacking.
Nick touched on the fiscal measures. I would like to throw green mortgages out there and other levers that can be pulled. You could link EPC rates to business rates in the business sector, and on the domestic side we could look at green mortgages and things like that, which are starting to come forward. We could have had a bit more there.
One of the other at-risk areas that the CCC had highlighted was nuclear. I am not going to go into whether that should or should not go forward, but the financing mechanisms around new nuclear power stations were not there. Obviously, we have heard about the challenges of Wylfa and Sizewell at the moment. In terms of areas where the UK could do more or need to achieve the fourth and fifth carbon budgets, nuclear is in there but there was nothing really in the Budget that was looking at new financing models.
The last two things I would say is that for farming and land use there is quite a big policy gap in the Budget and the clean growth strategy. That is a pressing issue for me around farming and the various different policy strategies that are floating around, whether that is the post-CAP frameworks, the Agriculture Bill or the clean growth strategy. They all tangentially link the role of farming and land use but there is no coherent messaging around that.
The CCC has also highlighted the importance of the ability to increase the uptake of low-EVs. On the one hand, we are putting £30 billion in for new roads and locking in high-carbon infrastructure there. The CCC has said that the carbon implications of that might be quite negligible but it is going to be even worse if the vehicles that then drive on those roads are not electric vehicles because the grants have now been taken away. It feels like you are missing an opportunity there.
Chair: Thank you.
Julian Kirby: We would echo much of what has been said here. Perhaps to add a sense of urgency, we are looking at catastrophic climate change. That is not an advertising slogan that sits on the side of a bus, it is what we are really facing. We have the likes of Sir David Attenborough—let’s remember he is often criticised for not being forthright enough about the impact on the environment—talking about the potential collapse of human civilisation, which is what he came out with the other day. Yet, as my colleagues here have just said, we have seen a lot of money going into transport, roads in particular, and money being starved from public transport and buses, for example.
I think we may come on to the fuel duty freeze shortly, but there is clearly an issue there. Any debate around whether we ought to raise fuel duty has to look at the broader picture of what the alternatives are. If public transport is being squeezed as aggressively as it is—particularly outside of London bus services are in a calamitous state and going backwards—then we are not only very much failing to achieve what we need to do in terms of climate change but we are also very much going backwards in terms of environmental and social justice.
My lead area is plastic pollution and—
Chair: We are going to come on to that.
Julian Kirby: I will just say that there is a join-up between climate and plastic that perhaps is not well enough understood, but I am sure it will be in due course. The Energy Transitions Commission, headed by the former chair of the Committee on Climate Change, Adair Turner, recently said that on business as usual for plastic production we will see the production and incineration of plastic accounting for 20% of the available carbon budget in a 2 degrees centigrade world, and of course we need to go much lower than that.
I know we will come on to plastics, but I wanted to make this point now when we are looking at what the tax system does and what is missing in terms of taxes. We had no clear plans for taxes on plastic there, which is very much a climate change as well as a plastic impact.
Q3 Chair: Is that 20% by 2050 or 2030?
Julian Kirby: I believe from the commission’s report it is the available carbon budget for 2050.
Q4 Chair: Thank you. You mentioned the fuel duty freeze. That is locking in high-carbon infrastructure, isn’t it? It is a popular move but it is locking this in. We have seen President Macron making that move in France as well. The trade-offs between what works for people and what works for the environment are difficult, aren’t they?
Julian Kirby: Yes, absolutely. We need to look across the board at the options people have for transport. We need to see electrification of vehicles. The target for complete electrification of road vehicles should be brought forward to 2030, in our view. If we are going to drive behaviour change out of individual vehicle ownership and use and towards public transport then, of course, it has to be a cheaper option for people. Yet we are seeing rail prices hiking and we are seeing bus options disappearing for people. While as an environmentalist you might expect me to say, “Yes, we should raise the fuel tax”, there is no way we should do that if we do not have those other options also being looked at. That is not happening in the Budget and that ought to have happened.
Chair: Yes, that is a fair point.
Nick Molho: If I could jump in precisely on that point, given the social aspects of fuel duty, all this speaks for making the alternatives as affordable as possible, and at the moment Government policy is not doing enough to make the alternatives as affordable as possible. We have reduced the plug-in grant for zero-emission vehicles at a time when, as the BEIS Committee reported a couple of months ago, there is no evidence that cost parity is going to occur before around 2025.
Q5 Chair: That is all for people who can afford £25,000 new cars. We are talking about people who use buses. They do not have a car. They do not have a choice. I know that car companies want to sell more electric vehicles and more hybrid vehicles, but isn’t the point that we need massive investment in buses rather than a massive investment in hybrid vehicles, some of which have not ever been plugged in? That is one of the Government’s arguments. When the Minister comes in, he will be saying to us, “We have had fleets and no one has ever plugged their car in. They have just used it on petrol, particularly the hybrid ones”.
Nick Molho: The alternatives are both in terms of technologies and systems. Clearly, improving the affordability, reliability and accessibility of public transport is part of the alternative and not enough is being done there. At the same time, in terms of those who do own a car or are able to purchase a new car, not enough is being done to promote the technological alternative either.
In between both of those there is also the second-hand market. The BEIS Committee made an interesting recommendation a couple of months ago, which was to look at fiscal incentives to promote the purchase of low-emission vehicles in the second-hand market as well. That is something we should be looking at, to make sure we have really looked at all stages of the chain.
Q6 Chair: Can I come back to you, Nick? The Government have put aside £315 million for this Industrial Energy Transformation Fund, and I think you touched on it as well. What is this money for? How will it be spent and does it make up for the enhanced capital allowances? You seem to be saying that it is a transfer of tax breaks from small companies to large companies, is that about right?
Nick Molho: I think that is the point that Josh made. The way I would look at it is there are two angles to this. In terms of having an Industrial Energy Transformation Fund, it is a good idea in the sense that heavy industry is a sector where cutting emissions is more difficult; therefore, businesses in those sectors need support to significantly improve energy efficiency, and also to look at important technological innovation such as fuel switching. I understand that that is one of the things that the fund may be used to support. There is a consultation, which I think is going to be launched in Q1, around exactly what the fund should be targeted at.
From discussions with the UK Green Building Council, I understand that there is a risk that, having abolished enhanced capital allowances for energy technologies, investments in energy efficiency for businesses that are not energy intensive could become less attractive. The Government rationale for removing enhanced capital allowances has been that the take-up has been pretty low.
I understand that there are two important caveats to this. The first one is that even when businesses do not apply for enhanced capital allowances they still factor those in when they consider a potential investment in energy efficiency in a commercial building, for example. That shortens the payback period, thereby making the investment look more attractive when the decision is made.
The second important caveat is that a tax incentive on its own may not be enough to encourage businesses to invest in energy efficiency, but if they are accompanied by proper regulatory drivers such as minimum energy efficiency standards that are properly enforced, then they become effective. The argument that the UK Green Building Council put to me was that the lack of take-up of enhanced capital allowances is more to do with the lack of minimum energy efficiency standards and the lack of proper enforcement of those standards than it is with a flaw in the capital allowances system as such.
Chair: Thank you. Josh, do you want to come back on that?
Josh Burke: Yes, if I may come back very quickly on the previous point about the fuel duty in France. I think that really highlights the importance of taking the consumer with you and also the distributional impacts of these taxes. We really need to look at how we make these taxes more acceptable, whether we can return the revenue back to households around that, and the importance of making fiscal reform part of a broader package of reform to minimise the impacts. The French fuel duty thing is representative of a much wider social inequality issue there, but lessons certainly can be learnt here.
The one thing I would say about the Industrial Energy Transformation Fund is that access to capital is the biggest issue for businesses when it comes to energy efficiency. If the transformation fund is one mechanism through which companies can access new capital, that might bridge one of the main barriers to energy efficiency.
Nick talked about fuel switching. The hydrogen team that sits within BEIS is unsure where it will get its money from. They might be able to access some funds from the transformation fund for fuel switching.
I see the transformation fund and the ECAs as two different things. The transformation fund is looking at lowering the cost of new technologies. Enhanced capital allowances are there to increase the uptake of existing technologies, make them essentially cheaper and the payback period shorter, as opposed to lowering the cost of something a bit more transformational. They are moving the pot of money from one area to another, essentially.
Q7 Caroline Lucas: I wanted to throw in something about the transferrable tax history. Have you been following the Treasury’s consultation on transferrable tax history and the North Sea? It feels to me really strange that there is not more outrage about this. As I understand it, what it means is that if a company is choosing whether or not to buy some old kit that is out in the North Sea in order to try to get harder to reach fossil fuels out of the ocean, then this will give them an incentive to do so because, in a sense, it is bit of a tax break. I am amazed that there was not more coverage of that. I understand it adds up to about £3 billion in lost revenue to the Treasury over 10 years. I wondered whether you think that is a big issue. It feels like a big issue to me.
Josh Burke: I do. Grantham at LSE has a report coming out in January that looks at the just transition for oil and gas workers, so this fits very much in with what we are doing. The key question of our work is that the UK hopefully will be moving towards net zero, yet at the same time they are putting in policies to maximise the extraction of oil and gas from the Continental Shelf. To what extent are these policies contradictory and, if they are, what are the implications for workers? If we move towards net zero the demand for these fuels will hopefully go down, but then there are implications for the communities who work from there.
Yes, it seems to me very odd. They have policies that maximise extraction, reduce taxes and make the incentives around second use of these platforms greater by the transferrable tax liability. Yes, it seems to be odd, the UK’s decarbonisation pathways and policies to maximise oil recovery.
Q8 Caroline Lucas: That is reporting in January? That sounds very useful.
Josh Burke: Touch wood; it is almost ready.
Q9 Anna McMorrin: We are in the middle of a plastic pollution crisis. The Government announced plans to introduce a virgin plastic tax by 2022. What will be the impact on our environment by not taking action sooner, immediately in effect? Julian, can I ask you first?
Julian Kirby: When we talk about tax on plastics there are so many different products and so many different stages in the production of plastic that a “plastic tax” would need to be a many and varied beast. What we have in the Budget is a suggestion that there may be a tax on products that have less than 30% recycled content in them. That is a notional figure for now because they will consult on what that is.
I am coming in a roundabout way to answer your question because what we need to do right now is to start banning products that are unnecessary, plastic products that are pointless. There is talk about some of those, such as plastic-stemmed cotton buds, coffee stirrers and things like that. However, that is very, very partial and very, very piecemeal. When I am out with my kids on the beach and they are asking for lollipops, I look around me and there are lollipop sticks on the sand that are made of plastic. Why would you ban plastic-stemmed cotton buds but not lollipop sticks? They are exactly the same once they get in the sea. There is a lot that needs to happen right now that we could, and should, be doing even before tax.
Q10 Chair: The answer to that is that the EU is banning them. The Government have failed to take action so the EU is banning them and we are going along with the EU as long as we are there.
Julian Kirby: Scotland was taking a lead there as well, yes, absolutely. You might say it is an open door to walk through in those policy areas, but we need to look at all of the other products as well. We need to look across the board. We need to take a framework approach, essentially, of looking at what are the main sources of plastic pollution. They are not just what many of us start and stop thinking about, which is supermarket packaging, stirrers and things like that. Huge amounts of plastic pollution are coming from car tyres, from the soles of our feet and the clothes that we wear, all of these different things. An approach that focuses on the problem, which is plastic pollution, would look at those different sources.
We believe we should be legislating for a Committee that would advise on the best ways of getting rid of plastic pollution from these different sources. Some you can act on very quickly with immediate product bans or immediate taxes, levies and such like, and this Committee has proposed one, of course, with the latte levy. For others, such as car tyres, it will take longer to figure out what to do. We could be innovating, we should be investing and we should be setting ourselves a longer-term target to make sure we have done away with pollution from those sources.
I often talk about the plastic pollution crisis as being very analogous to the carbon pollution crisis because there are so many different sources of it. We did not know when we decided we needed to act on climate change and when we legislated for it—10 years ago, almost to the week—how to go about it in every sense. We set up the legislation. We passed the legislation that committed us to the downward trajectory and we set up a committee that would tell us how to do it. The same applies with plastic, but the key difference between plastic and carbon is that we do not have a sense of what the available plastic budget is. When you ask what the impact would be right now on the environment—I cannot remember exactly how you worded your question—
Q11 Anna McMorrin: By delaying, basically, until 2022 what are we missing in the meantime?
Julian Kirby: It is hard to answer that with a scientific quantifiable sense of what is the available budget that we would be eating into, which we can do with climate. We know that plastic pollution is getting in right at the bottom of the food chain. We are familiar with the impacts on wildlife of larger plastics; they get snared in it, they eat it and starve and that kind of thing. However, they break down into smaller plastics, into microplastics and even nanoplastics.
Chair: We have done an inquiry into microbeads so assume we understand microplastics.
Julian Kirby: Forgive me, yes. Without going over all of that, the point I was trying to say is that we know there is a really serious risk to not just the environment but human health and so on. Therefore, under a precautionary principle approach, we ought to be slamming on the brakes on the release of plastic pollution right now. Every day that we are not taking that action we are stacking up the risk to our health and our environment. It is hard to know exactly how and why but we know it is serious.
Nick Molho: The step that we could take right now through the resources and waste strategy, as and when it comes out, is to look at how we can put more focus on product design. How are plastic-based products designed in such a way that they are easier to reuse or recycle? The EU is currently in the process of expanding its EU accords and regulations. Up until now they have just focused on energy efficiency and now are going to focus increasingly on resource efficiency in order to promote the reuse of secondary materials. I think we should be looking at that particular aspect of the plastics strategy in Europe as providing an interesting proposal going forward.
Another thing in the plastics strategy in Europe that I think is worthwhile taking on board is a working committee on standardisation and a working committee on chemical contamination, looking at how we can remove some of the barriers to plastic reuse. A lot of the time there is nervosity in secondary markets that reused plastic will be suitable for reuse, will be good quality. Generally, that tends to be linked to concerns around contamination or to varying quality of plastics. Putting more focus in our approach to waste not only on taxation but also looking at the early stages of how you design those things and making sure they are suitable for reuse and recycling would help pay dividends in the near term.
Q12 Anna McMorrin: That needs a complete reform of the waste system at the moment, which you may be aware I have my own Back-Bench Bill on about reforming all of that and looking at these issues, and that is gaining increasing support.
Nick Molho: It is a really important area to look at.
Josh Burke: To add to that, there are definitions around what becomes waste after the point it has been used and that can often be a real barrier to reusing materials. Once an item is put in a dump, for example, and goes in a certain pile it cannot be reused, even if it is of a suitable standard. There is a legal grey area where recyclers are letting people come and take these materials because they can be reused but technically they are a waste and need to be going through a certain type of process. I am sure there is work we can do around what the definitions of waste are to increase the reuse of material.
The last thing I will say is around the stimulation of secondary markets and getting recycling rates up.
Q13 Anna McMorrin: It is about finding that market for the recyclers?
Josh Burke: Yes, exactly. The economics of recycling are so challenging right now that unless we stimulate those secondary markets recycling rates are not going to increase. When it comes to deposit return schemes and other things we might get a greater collection of material, but unless the end use in the secondary markets works economically, then there is no mechanism to deal with that, even if we increase our uptake.
Q14 Anna McMorrin: Can I move on to a secondary question on that? How effective do you think this tax is going to be once it is implemented? There are huge barriers here. As you said, it is very broad. There is a lot of detail that needs to be worked out. How effective really is this, or is it just a greenwash?
Julian Kirby: It would make some contribution but it would be a very, very small contribution. Let me just set that in context. We are talking here about recycling. When you are talking about reusing plastic, I think even there what you meant was recycling, the reuse of recycled plastic, rather than reusing a product. The problem with plastic in particular—this applies to most materials but plastic in particular—is that recycling is really not the answer to this problem. We are looking at a quadrupling in production of plastic and plastic waste over the next few decades to 2050. Recycling at the moment is only managing to recover about a third of that. You can only recycle plastic five or six times and then it is ending up in landfill or incinerators. I reference my point earlier on about Adair Turner’s calculation about the climate impacts of incinerating all of that plastic.
For that and all sorts of other reasons—which include the loss of plastic pollution through abrasion of the product during its lifecycle and that recycling will not do anything about car tyres going bald and shedding that plastic and so on—the focus has to be on reduction of the amount of plastic we are using.
Chair: Would the tax be effective was the question.
Julian Kirby: Yes, and it won’t be in that sense because it can only be a tiny bit effective. Unless you do something about the overall amounts of plastic that we are using—at the moment business as usual sees a massive increase, a quadrupling, in plastic production—then recycling a bit of it is not going to help much. It is just going to mean we might increase the proportion that is recycled a little bit, but in absolute terms, of course, even more will be getting released into the environment.
Q15 Anna McMorrin: It is not going to work?
Julian Kirby: No.
Q16 Anna McMorrin: Okay. Any other comment on that?
Nick Molho: Compared to the status quo it is a helpful contribution, although exactly how it is going to work on the ground depends on what is actually proposed in the consultation. It is hard to comment on that without seeing the consultation. Clearly, on its own it is not going to be enough. That is the whole point of why we need a comprehensive resources and waste strategy, to be able to look at how we do things better in terms of how we design things and how we do things better in terms of how we stimulate demand for more resource-neutral products, including products that move away from using particular types of materials where those create a long-term waste issue.
Chair: We are going to move things along because I am slightly concerned we are going to have a vote, so apologies if we have to run out.
Q17 Caroline Lucas: I wanted to ask a question of Josh and Nick about the carbon price support scheme, which has been a key factor in reducing the UK’s reliance on coal. The Government said they are looking at reducing the carbon price support after 2021. My first question is: how do you think that is going to affect plans to phase out coal by 2025? Do you think that it will have an impact on that if they phase that out?
Josh Burke: I should start by saying I thought the carbon pricing element of the Budget was probably one of the strongest elements from an environmental perspective. The level of ambition they showed, particularly in the no-deal Brexit scenario, was quite high in my view. They essentially raised the implicit carbon price to £34 a ton as opposed to what they set it at, £24 a ton, previously. I thought that was good.
What will it do in terms of driving coal off the system? Most analysts suggest that you need a carbon price around £24 to £28 a ton to keep coal off the system. In the short term we probably will be okay through the early 2020s. The key determinant of all of this is what happens to the wholesale price of gas. What we have had previously is a higher wholesale price of gas and that has made gas switch back to coal, so you needed a higher carbon price to mitigate that. We will never know what will happen with the gas forecast going forward, no one can predict that, but what happens with the wholesale price of gas is a key variable in all of this. It is probably at a sufficient level to keep coal off the system, subject to the wholesale price of gas. There is only certainty for two years. They said what they would put in place for a no-deal Brexit would only be until 2020 and then we would have another vote, so there is a massive degree of uncertainty.
One of the things I was going to suggest was that you could ask the Minister—I do not know if you are going to have that session after this now—Robert Jenrick or whoever is at the Treasury the question around at what level it becomes uncompetitive. They said if it gets to a point where it is so high, then it is at their discretion to lower the carbon price support to mitigate the loss of competitiveness for industry. It seems a fairly arbitrary way of deciding—
Q18 Caroline Lucas: You are suggesting we ask the Minister to tell us at what point he thinks it becomes uncompetitive?
Josh Burke: Yes, what metrics are they going to look at to determine whether they think it is too high or too low? The key question is in their minds what is too high and what will trigger that.
Caroline Lucas: Thank you.
Nick Molho: I would echo that. In terms of the carbon tax aspect of the announcement out to 2021 it is the best they could have done given the situation with Brexit. We need to have a clear carbon price escalator late in the 2020s. It is not just about phasing coal out of the system, it is thinking beyond that.
We published a report from UCL a few months ago on industrial power prices. In that we made the point that a long-term carbon price escalator will be particularly important once coal is phased out of the system. Once you take coal out of the system, the impact of the carbon price on the electricity price goes down by 50%. If you want the carbon price to act as an investment signal into low-carbon alternatives, you will need a carbon price escalator once coal is off the system.
The other advantage of having a clear carbon price strategy well in advance is you can think then, in Government policy terms, as to how you can put forward the best possible policy package to support heavy industry. One of the recommendations we made in our report was that one of the most cost-effective ways for heavy industry to get its power going forward would be to enter into long-term power contracts, green power contracts, with onshore wind farm operators. Not only is the electricity now really cheap if Government play a role in restoring confidence in that market, it also would allow heavy energy intensives to bypass the carbon price altogether. In order to make those sensible decisions, you need to have a clear carbon price trajectory signal well in advance.
Q19 Caroline Lucas: Can I ask a question about the event of no deal? The Government have announced, as we are saying, a carbon emissions tax. Have you done any work looking at how effective that tax will be compared to a carbon trading scheme?
Josh Burke: Yes, we have started to do some modelling internally. I think the Government are quite keen to stress that all four options for carbon pricing are on the table, whether that is a domestic ETS, a linked ETS or carbon tax. All options are on the table at this point. I have my reservations about a domestic tax not linked to Europe. I think most people’s preference is for an ETS or to stay in the ETS, and if you cannot stay in the ETS have one that is in the UK but linked to Europe so you have access to that market and the liquidity.
Q20 Caroline Lucas: Is your worry about the first one the fact that there will be domestic pressure to keep it low for competitive reasons?
Josh Burke: My worry would be, if we had a domestic ETS that was not linked to Europe, whether there would be sufficient liquidity in that market. That would be my main concern. There is enough ambition that has been shown through the Budget that they will keep the carbon tax at a relatively high level, so I have less of a concern around what the price will be and more around the post-Brexit carbon design. There are a lot of questions in the design element; how would you replicate free allowances for industry in a tax, for example, and those kinds of things.
Q21 Caroline Lucas: In those four options you have described, is there a risk that one of them will be more likely than any of the others to make it cheaper to be an emitter in the UK? How much do we need to be worried about this particular aspect of a no-deal Brexit?
Josh Burke: If there is a domestic ETS that is linked to Europe, then there will be a degree of price harmonisation between the two, which should mitigate that. With a carbon tax, because the price is absolute as opposed to the quantity in ETS that are traded, then at that point you might have a big price divergence with Europe, and then you might have questions around competitiveness and consequently that could result in more tweaking of the price support. A tax would give you less flexibility over price, so that might undermine some of the messaging around that. There are some ways you might be able to have the price linked. You might have a tax but that tax component is linked to the ETS price. There are ways of designing it.
Q22 Alex Sobel: Returning to plastics and particularly the issue of disposable coffee cups, Eunomia has found that the UK uses as many as 5 billion coffee cups a year and the UK produces 30,000 tonnes of coffee cup waste a year. It is already a year since we produced our report on disposable coffee cups where we recommended that the Government set a target that all single-use coffee cups should be recyclable by 2023 and if the target is not achieved the Government should ban disposable coffee cups. The Government did not respond in kind, it would be fair to say.
Julian, your colleague Liz Hutchins said, “It’s astonishing that the Chancellor has gone cold on a ‘latte levy’, just when we needed him to turn up the heat on plastic polluters”. That is a great soundbite from Liz. What do you think are the impacts of the Government’s decision not to introduce a levy on disposable coffee cups?
Julian Kirby: It was disappointing. I think that many of us expected that it would happen. There had been a thorough inquiry and your Committee clearly presented a well-thought-through idea based on research from a number of expert contributors. We were surprised it did not happen.
Obviously, single-use coffee cups are one product among many thousands, but not acting on them, particularly where there is such a firm evidence base and a high degree of popularity for acting on it, sends a very poor signal as to whether the Government rhetoric around dealing with plastic is actually going to be followed through.
I would like to make a point alongside this that recapitulates the point I was making earlier on about production versus recycling. On the day that the Budget was released, there was also a report by the Paper Cup Recovery and Recycling Group. They are proud, obviously, of the growth in recycling rates of single-use paper cups—which, of course, are not just paper, they are plastic, too—from less than 1% up to I think 4% and projecting getting through to 9%. The first point is that that still leaves over 90% that would not be getting recycled. However, the graver point is that during this period 500 million more cups were being thrown away. Once again, you have the increase in recycling being vastly swamped by the increase in production. The focus has to be on reducing the use in the first place.
Q23 Alex Sobel: With regard to the point about behaviour change, the industry is pushing back against a 25 pence charge. What do you think would be the effect of a 25 pence charge on changing people’s behaviour away from disposable to reusable coffee cups?
Julian Kirby: The evidence has been that it would encourage people to make that shift, particularly as people and the companies that run the coffee shops find out about what the alternatives are. I just recently discovered the Freiburg Cup, which is a scheme where 80 participating coffee shops across the city effectively share between them a reusable coffee cup, so you can have a reusable cup on the go and they will accept and return. Clearly, that would be a very good thing for the environment but it would not be a good thing for all the paper cup manufacturers. I would be interested to know what the Minister’s steer was because Mr Hammond, announcing the Budget, said that they had heard of good progress being made by the industry. Was that good progress reported on the basis just of increases in recycling without a report of the overall growth in the production, consumption and binning of these things?
Chair: That is an excellent point. We are expecting a vote so I am going to suspend the sitting for 15 minutes until 3.15 pm and we will come back. There are two very quick questions that we are going to wrap up with you on then. Thank you.
Sitting suspended for Divisions in the House.
On resuming—
Q24 Chair: I thank the panel for their patience. Sorry, that dragged on. We did not anticipate two votes but there we are, welcome to our world. Things that we do not anticipate often happen here. We are going to conclude with our final question from Alex.
Alex Sobel: The Budget included £420 million spending on roads but only £10 million on urban tree planting. Do you think the Budget strikes the right balance in terms of our environmental priorities?
Nick Molho: From the announcement of the national roads fund, it is not yet clear exactly how much is going to be spent building new roads versus upgrading and improving new roads. Our biggest difficulty with the announcement is the lack of measures that would ensure that the investment takes place in a context where you are accelerating emission cuts from the transport sector.
There are two specific types of measures that we would like to see greater focus on. One of them is a greater focus on looking at different types of investment when Government consider investing in big-scale projects. For example, back in its national infrastructure assessment in July, the National Infrastructure Commission talked about the need to have greater competition between rail projects and new road projects in terms of comparing what projects might provide the best value for money, what might be most efficient in terms of freight and passenger transport and what might be most efficient in terms of emissions. We would like to see a greater focus on that when big investment decisions are made.
The second aspect is that there was not anything around how you improve the overall efficiency of the transport system. Part of that is around the way you structure your public transport, which we touched on earlier. Another aspect is to do with freight and there is growing evidence that if we move a certain amount of freight away from road and on to rail we could deliver important emission savings. All of those considerations need to be made when we are introducing big investment decisions like that.
Josh Burke: There is a level of ambition that is lacking when it comes to the tree planting side of things and also in the allocation of the Budget. There is £50 million for tree planting but £30 billion for roads, so there is quite a large disparity there.
Going back to the level of ambition, the CCC has talked about increasing forestation from 13% to 19% by 2050. Michael Gove has talked about increasing forestation rates by 2%, from 10% to 12%. Again, there is a level of disparity there between what the CCC recommends and what Michael Gove is recommending. There is also the Independent Panel on Forestry that has talked about increasing tree cover by 5% so there is a degree of difference there. It seems that the Government are at the bottom of those three levels of ambition.
There is a point around the level of ambition and there is a point around policy coherence as well. You have the post-common agricultural policy framework, the 25-year environment plan, the clean growth strategy and the Budget, all these various things that make references to tree planting, but there is no clear co-ordination of what the purpose of this is for. Is it for flood prevention? Is it for carbon sequestration? Is it for public good? It straddles all of these areas but there is no unifying piece of work that says, “This is for X, Y and Z”. It seems like the tree planting is straddling lots of areas and lacks a bit of coherence.
The last thing I would say is on net gains. This was not in the Budget technically but there was an announcement around the concept of having net gain or building in net gain into planning decisions. If they are looking to get planning permission they can reduce woodland cover in one area on the premise that there is a net gain of biodiversity in another area. I would say this is fine in principle but it really needs to be clearly bounded and there need to be circumstances where it is just not okay to get rid of certain types of woodland, ancient trees, SSRIs and things like that. The net gain principle should be bounded that these are not areas that can be removed and it should not be a way of circumventing planning rules is the last thing I would say.
Q25 Alex Sobel: We have all said there has been a significant amount of investment in the Budget in terms of roads announced. My constituency does not have a single public electric vehicle charge point. How might the Government invest in encouraging the take-up of more environmentally friendly forms of transport in terms of their approach in the Budget? What do you think they should do?
Nick Molho: You mean specifically in terms of charging?
Alex Sobel: Not necessarily in terms of charging but generally lower carbon forms of transport, moving away from diesel and petrol vehicles.
Chair: We will pause for a moment for the bell. Our apologies, it has been quite a trying day in so very many ways. That was suspending for English votes for English laws. That is what is happening there, just to explain to colleagues who may not be aware. Sorry, Nick, to interrupt.
Nick Molho: That is absolutely fine. What can Government do to make it easier to invest in low-carbon alternatives? We have a report that will be tackling that coming out towards the end of February. There is a range of options. We spoke about some of them at the start of the session. Ultimately, we need to grow the market for zero-emission vehicles and at the moment there are not enough incentives, even for people who can afford to buy new vehicles, to overcome the cost barrier. We cannot anticipate cost parity between zero-emission vehicles and conventional vehicles before around 2025.
In a context where the plug-in grant has been reduced, we need to look at how we can extend clarity around the length of time for which plug-in grants will be available. We would suggest they should remain available until the mid-2020s. We need to consider what kind of fiscal incentives might be available to also boost the uptake of low-carbon alternatives. There have been various suggestions around providing preferential rates for vehicle excise duty as being one way forward. If ultimately the sales trajectory for lower-carbon alternatives does not match where the CCC says it needs to go in order to stay on track for reducing emissions from road transport, we may need to think about more radical financial incentives, such as VAT cuts. That is what Norway has done. Norway has a penetration rate of 29% electric vehicles versus 1.5% in the UK. That is on the upfront cost. There might also be measures we can look at for the secondary market.
On charging specifically, last year the Government announced a charging infrastructure fund of £400 million; £200 million is private sector and £200 million is public. That is mainly focused on charging infrastructure that provides a commercial return. It is a welcome announcement but what it is not yet targeted at is roading and charging infrastructure where the business case is more complex, such as in rural areas, and that is really where it needs to go next.
Josh Burke: Nick covered a lot around the consumer side, but there is also a big role of the Government channelling funds towards local authorities, for example. It could be put towards hydrogen buses. Some of the work we have looked at is that the total cost of ownership of a hydrogen bus is comparable to that of a non-hydrogen bus, but there is upfront cost barriers. Are there Government grants that could be given to local authorities to decarbonise their bus fleet, for example? I think that there is a role there to target local authorities as well and maybe plugging into the UK100 network might be a good way.
Q26 Alex Sobel: Moving on to air quality, for instance, in Leeds, in my own city, we are one of the first mandated clean air zones. We have just applied for £40 million from the Government to support measures for that and were turned down, but at the same time tens of millions of pounds of Government money is being invested in the roads. How do you think investment in the roads affects the funding needed by local authorities to meet the air quality targets? It seems to be dissonant. They will not fund air quality measures but they will fund road measures, nothing to do with air quality.
Julian Kirby: If I can pick up on answering that and the previous question, the Committee on Climate Change has been very critical of the Department for Transport as its plans are not in alignment with what was required for the carbon budget. Obviously, the Treasury is complicit in that to a significant degree, with the enormous investment in roads and so on.
Also, as we are talking here about local authorities, there is a direct and a less direct impact on the services you are looking for locally with your last question and relevant to air quality. That is that we should be funding and supporting a shift towards more public transport, more buses, more cycling and more walking. A good deal of that would be delivered by local authorities, but we are seeing an ongoing squeeze on local authority budgets, which itself will, therefore, be having an impact at that level.
It is really important that when we think about electric cars and all the rest of it, it is clearly an improvement on the status quo at the moment, but a significant amount of air pollution is coming from the car tyres and from the car brakes. That is another reason—of course, there is plastic pollution as well—why we need to be much more on a modal shift towards public transport. Local authority budgets need to be sufficient to enable that and at the moment they are having to be prioritised around primary care and such like.
Q27 Chair: The Budget has an extra £13 million for flood risk management, to go towards pilot projects to help property owners have the best information on protecting their homes and expanding the flood-warning system. Do you think that is the right priority? Is that something any of you want to have a comment on?
Nick Molho: It is a welcome announcement and generally adaptation always struggles to get through Budget announcements. It is positive to see the £13 million and also to see the referral to the National Infrastructure Commission to review the resilience of our infrastructure to climate change.
The comment I would make on the actual funding announcement is that while the announcement is welcome, it comes across as a bit ad hoc. What we really need is much more of a long-term funding strategy for adapting to climate change. The Met Office published a report two or three weeks ago making it clear that we are going to be more and more prone to extreme weather events, which includes greater risk of flooding. We have to assume those problems are here to stay and, therefore, we need to have a long-term funding strategy to adapt to those extreme weather events.
Josh Burke: I agree. It is good it is at the national level but we also need to be looking at the sub-national level and the role of local authorities given the way the shifting of funding has moved from central government to local areas. As many local areas struggle, research by my colleagues has shown in granting planning permission in high-risk areas they require developers to pay for the flood risk management, so there is that movement of responsibility away from local authorities into the private sector, which might not necessarily be the most efficient.
It leads back to this point around the just transition for oil and gas workers, but there is also a just transition point for areas that are at risk of flooding. One and a half million people live in socially vulnerable neighbourhoods with over 50% of these people living in just 10 regions, so it is very localised. These are areas that tend to suffer from social deprivation, so there is a real link here between flooding and a just transition. We need to be cognisant of that as well.
Chair: We are going to close the panel there. Thank you all very much indeed for your patience. It has been a slightly longer session than usual but the Minister is waiting outside.
Witnesses: Robert Jenrick MP, Philip Duffy, Neil Kenward and Anne-Therese Farmer.
Q28 Chair: I call the panel to order and apologise for the delay. We are all doing our duties in the House one way or another today. Can I ask you to introduce yourselves from left to right, starting with Mr Duffy?
Philip Duffy: I am Philip Duffy. I am the Director of Enterprise and Growth at HM Treasury.
Robert Jenrick: Robert Jenrick, Exchequer Secretary to the Treasury.
Anne-Therese Farmer: Anne-Therese Farmer, Deputy Director for Energy and Transport Tax in the Treasury.
Neil Kenward: I am Neil Kenward, Deputy Director for Energy and Agriculture in the Treasury.
Q29 Chair: You are all very welcome here with us today. We have just been hearing from our previous panel that there is a disconnect between the scale of the climate change challenge that we face, the Government’s intentions as set out in the green growth strategy celebrated in Green Business Week, and then the ambition in the Budget.
One of the criticisms that the previous panel of experts made is that the £315 million for the Industrial Energy Transformation Fund could see a transfer of money from small SMEs to very large heavy industrial users. Do you think that is going to happen? What implications does that have for small businesses that are trying to make their businesses more energy efficient?
Robert Jenrick: First, thank you very much for inviting me here today. I am sorry if we are not necessarily the main act this afternoon, but we will try to give you good answers.
With respect to the Industrial Energy Transformation Fund and the enhanced capital allowances, we are very committed to using enhanced capital allowances where they work. You will have seen in the Budget that we extended the enhanced capital allowances with respect to electric car charge points for another couple of years to ensure that we gain more—
Q30 Chair: 2020, isn’t it?
Robert Jenrick: 2020, exactly. That was an example of where the evidence is not yet available to determine how successful they are. The feedback we receive is positive, but we wanted to keep the measure going longer, understand whether it is effective and, if it is effective, then we will obviously take action at that point to decide what the next steps will be. We have to be in a position where we analyse whether these allowances are effective or not.
The evidence that we received very clearly with respect to the energy and the water allowances was that they were not doing the job that we hoped they would do. Obviously, they were created with the right intentions, but the evidence that BEIS had provided to us through its survey of industry suggested that they were not widely known and only a very small number of managers were influenced by them in making decisions in terms of purchasing new technology to reduce their energy footprint.
The decision to bring them to a close in April 2020 was purely that we felt that that public money could be better directed through other means. We are doing that through two initiatives. One is the Industrial Energy Transformation Fund that, as you say, could be seen as directed more at larger companies. We are also, at the same time, introducing the annual investment allowance, which is now going to be increased from £200,000 a year to £1 million a year. To answer your question directly, the smaller businesses will be able to make use of that. We think that around 99% of businesses will be able to use that for all of the investments they wish to make in terms of plant and machinery, including those that will reduce their energy costs and put them on a more environmentally sustainable footprint. The larger businesses that wish to spend more than £1 million a year will then, by April 2020, be able to make use of the Industrial Energy Transformation Fund, which will be in place at that point.
Q31 Chair: Can you not also write down the cost of new tools and things like that against AIA so it is not purely for energy efficiency? I know from my own constituency that is how you write down the cost of developing new machinery, isn’t it?
Robert Jenrick: That is right. It is not a specific initiative to encourage a business to invest in energy efficient—
Q32 Chair: It has had a chequered history, hasn’t it, because it has been cut? It has certainly been cut over the last eight years and now it has been put back.
Robert Jenrick: It is currently £200,000 a year. What we have said in this Budget is it will increase for a two-year period. Of course, that could be extendable but that will be a decision for future fiscal events. It will be extended from £200,000 to £1 million. The message to smaller businesses in our constituencies and across the country is that that will be a very generous allowance that will enable them to invest in, as you say, any form of plant and machinery; hopefully, in addition to the other investments they might wish to make, those that will help to cut their energy costs and put their business on a more sustainable footing.
By April 2020, by the time we bring the two earlier allowances to a close, the Industrial Energy Transformation Fund will be up and running, having been consulted on and hopefully designed in a way that will maximise its potential. That will be available for any investment in excess of £1 million, particularly targeted at larger users of energy.
Q33 Chair: You need to be a pretty rich business to either have £1 million sitting in the bank to be able to take the cash flow hit or to be able to make that sort of investment in plant and machinery, don’t you? We are talking about very big businesses. We are not talking about momma and poppa businesses, are we?
Robert Jenrick: The existing allowances did not appear to work for those businesses either. We did have a first year tax allowance that was designed to enable businesses that were perhaps loss making to invest. Phil or Anne, correct me if I do not have the figures correct but, as I understand it, only around £300,000 or £400,000 was ever claimed as a result of that. There were not lots of small businesses making use of the allowance that we did put in place to help in exactly that sort of scenario, if you were a loss-making business that might want to invest in this area.
Anne-Therese Farmer: The analysis that the Minister referred to on the effectiveness of these schemes showed that fewer than a quarter of energy managers felt the ECAs were influencing their decision, and fewer than 20% of manufacturers selling the relevant equipment felt that ECAs had an impact on the sales of their equipment. It seemed to be the case that they were not having the sort of impact they were designed to have.
Q34 Chair: How will you ensure that this money is spent effectively now then, so we are not replacing one failed policy with another failed policy? This is the trouble with chopping and changing capital allowances. People get used to one thing, it disappears and something better and more exciting starts with a different name, and people are not sure how to apply. What is the messaging to business, Minister, on this?
Robert Jenrick: That is a fair challenge. We have to obviously be able to evaluate capital allowances or other interventions. If they are not working and not succeeding in the objectives that I think we share, then it is right to bring them to a close and replace them with something we think will be more effective.
What we will now do is consult early next year on the design of the Industrial Energy Transformation Fund. Your Committee and other interested parties will be very welcome to take part in that and we would like to hear your views. We hope that we can design that in a way that it does help those larger users of energy, to put them on a more sustainable footing, to invest in new technology—innovative technology in particular—and a range of different interventions that will reduce their carbon footprint and will obviously make them more competitive as well by reducing their energy costs.
Q35 Chair: Thank you. Speaking of policies and stop-starts, one of the great tragedies of the predecessor Government was the scrapping of the Green Deal, the energy efficiency side of things. At the moment there are no policies currently in place that replace the Green Deal, which did not work. There is no policy in place to encourage greater energy efficiency in owner-occupied homes. When can we expect to see progress there?
Neil Kenward: If you will let me answer, Chair, the ECO scheme is a scheme that does help. Hundreds of thousands of homes have had energy efficiency measures installed under the ECO scheme. That is a very powerful way in which we are improving the energy efficiency of domestic households.
Q36 Chair: Is this the one where they have to borrow it and then pay it back at a commercial rate?
Neil Kenward: No, this is a supplier-led programme. It is an obligation on energy suppliers to install a certain number of energy efficiency improvements in homes every year. It has delivered improvements in 1.8 million homes since it started in 2013. The Government have committed to extend that programme now to 2028 at least. There is a very successful programme in place that is delivering energy efficiency improvements. You are probably aware that the building regulations have been tightened over the last few years to improve energy efficiency in homes, which will apply to extensions, loft conversions and so on. There are ways in which the owner-occupied sector is seeing improvements in energy efficiency.
Q37 Chair: We have been very concerned about the overheating of buildings given what happened in the summer and the fact we know that excess deaths occur very quickly and suddenly, particularly in the poorest areas. We have seen reports in the press that Treasury is opposed to implementing legally binding targets on the Government’s 25-year environment plan. Is that true, Minister?
Robert Jenrick: No, we are working very closely with the Department for Environment. As a Minister I have worked very closely with Michael Gove, as has the Chancellor. We agreed with the Department for Environment, who obviously lead on this area, that the current EU principles will be placed in primary legislation in the Environment Bill. If you are suggesting there is a difference of opinion between us, I do not think that is correct.
Q38 Chair: You are happy with legally binding targets for environmental progress?
Robert Jenrick: It has been agreed that the existing environmental principles will be placed into primary legislation in the Environment Bill.
Q39 Chair: Yes, but that is not the question I am asking. I am sure you will have read our report into the 25-year environment plan. This Committee recommended that we set biodiversity budgets with legally binding targets—moving towards the clean air, the clean water, the healthy wildlife and the healthy nature that we want to see—in the new environmental regulator if we leave the EU, obviously a moot point and up for discussion. Hope for the best, plan for the worst. There have been reports in the press that this has been resisted by Treasury; these targets that would link farm payments and the environmental regulator and being able to report on a five-yearly basis on how we are progressing towards making the environment better over the next 25 years. Is that a row you have been involved in?
Robert Jenrick: It is not an issue I have been involved in. Obviously, the Treasury has discussions, as you would expect, with the Department for Environment on all matters. It is really a question for the Secretary of State for the Environment as to what he plans to be within the Environment Bill. I gather he is coming before the Committee shortly.
Q40 Chair: The environmental principles have to be in because they are in the Irish backstop, aren’t they? They are in that annex 4 document, articles 2 and 3. An environmental regulator has to be in as part of the Irish backstop as well. We are assuming that in a backstop situation we would not then be able to have lower environmental emission standards and potentially the ECJ could take the UK Government to court, am I right on that?
Neil Kenward: The Government are obviously committed to establishing a new statutory body to hold the Government to account on environmental law. The Government are also committed to not letting green standards reduce, and indeed to increase them potentially, after Brexit. Those commitments stand. The Government have also committed to publish a set of metrics to go alongside the 25-year environment plan and that is still the intention.
Q41 Chair: Where the Government have agreed to set up a regulator that can be taken to court, so the Government can still be sued by members of the public, is that in the backstop?
Neil Kenward: I do not know for sure.
Philip Duffy: The main point here is that we are under a statutory obligation as a Government to publish the environment law before 26 December, so we do not have very long to wait before that has to be published. I understand that the Environment Secretary is coming before this Committee next week and no doubt that will be a subject you will want to discuss with him.
As you correctly say, Chair, we have agreed on this environmental regulator—we do not have a name yet—along with some metrics to monitor it. For what it is worth, the Treasury is discussing very intensively with DEFRA a number of features of the future regime. We are strong supporters of having a much more rigorous reporting framework for biodiversity in particular across that. That is no easy task. It is one that is necessary, both for us to establish a credible environmental land management system to replace the common agricultural policy and to help us appraise the impacts of various policies. You will have spotted in the Budget that we committed to using net biodiversity gain as a principle in the Oxford to Cambridge arc, which is a major programme of work that we want to be a test bed for this, but we do not currently have the evidential basis for doing that.
The ONS is working very hard on how we might create more effective metrics that the Treasury and others could use to monitor progress against those targets. We clearly need that work to be completed before we can have a rigorous system for ELM and the CAP replacement.
As the Minister said, I do not think there is any tension between us and DEFRA on those questions. There are a number of areas where we want to make more progress but we need to have more rigour in order to be able to monitor whether we are actually delivering that progress. Biodiversity is a great example of that where at the minute there is no framework on which we can monitor the overall biodiversity impact of something like the Budget, for example. We do not have the evidence in the way we have for carbon or other kinds of factors.
Q42 Chair: That is why in our report that we published in June we suggested the metrics, the method and even gave a name for the new regulator. It is not very catchy, though. I cannot remember; it is EEAO anyway. It is to audit; audit is what gets measured gets done. It is the Environmental Enforcement and Audit Office. We share that with you and do recommend that you have a look at that because that may help your thinking if and when this goes forward.
Philip Duffy: Yes, we will do.
Q43 Alex Sobel: It is good to see you, Minister, again so soon after the Finance Bill Committee only just concluded.
Robert Jenrick: We have had some of these arguments before, I suspect.
Alex Sobel: Yes, although not me personally on this one. In the Red Book you stated that you intend to introduce a tax on the production and import of plastic packaging from April 2022. Many—sometimes from quite unlikely sources—expressed surprise at this. Daniel Lyons, head of tax policy at Deloitte, said, “There will be a single use plastic tax, but not until April 2022, ... Quite a few people thought it might come in a bit sooner”. Jeff Rhodes, head of Environment and External Affairs at Biffa, said, “The Chancellor refused at this stage to go so far as introducing a tax on single-use plastics” and Biffa shared its disappointment with us. Why has the Government delayed the implementation of a tax on virgin plastics?
Robert Jenrick: First, can I say thank you to the Committee for your work in this area? That undoubtedly influenced our thinking and helped to galvanise public interest. When we held our call for evidence over the summer we received—
Anne-Therese Farmer: 160,000.
Robert Jenrick: —160,000 responses, which is the biggest the Treasury has ever had on an issue. The public do not always respond to Treasury’s tax calls for evidence but they certainly did to this one. The interest undoubtedly was there.
I am actually proud of this intervention. We will be one of the first countries in the world to create a plastics tax. Clearly, it takes time to design it in a way that ensures that it works. We will be consulting on it shortly and will continue to work with stakeholders. We did very extensive engagement over the course of the last few months. I met dozens of environmental groups, charities as well as manufacturers, retailers and so on. Among Treasury officials we met close to 100 different stakeholders. There was no shortage of work and hard yards put into bringing this to fruition at the Budget.
It will enable us to design in the months ahead a specific intervention that we hope will have a really significant contribution. We chose to do something that was addressing the issue across the whole of the economy, so it is not simply focusing on one particular item, although we do not dispute that there are occasions where you would want to do that.
Alex Sobel: We are coming on to that.
Robert Jenrick: Well, not necessarily yourself, Alex.
Alex Sobel: No.
Robert Jenrick: We are, in fact, doing that in terms of banning certain particularly offensive items. This will enable us to set a long-term direction of travel whereby manufacturers who produce single-use plastics—the sorts of items that are too frequently produced and thrown away in our everyday lives—will have a significant incentive to increase the amount of recycled content in those packaging items. That is something that could be increased over time as a growing incentive, rather like the landfill tax has been something that was an intervention that was important to get right, made a major impact and then has been ramped up over the years since then. I appreciate that it will take longer to design, legislate and implement this than some might wish, but it is very important that we get it right.
The second thing I would say is that we hope that the manufacturers of these products will not just sit on their hands in the interim, but that behaviours will start to change very quickly and they will use those years productively to increase the amount of recycled content in their materials, for retailers to take the right decisions potentially to reduce the amount of plastics altogether in the products they are selling. We have seen that in other interventions the Treasury has done. To take the example of the soft-drinks industry levy—for which there was also a long period leading up to its implementation—we found that before the tax was even implemented over half of the soft drinks in the UK had been reformulated so that they did not need to pay the tax by significantly reducing the amount of sugar in them. I would expect and hope manufacturers to take action immediately and that by the time we reach the implementation of tax we already will have seen significant behavioural change.
Q44 Alex Sobel: In terms of not implementing until April 2022—the three and a half years we are going to have between now and then—have the Government made an assessment of the environmental impact of such a delay, for instance, the amount of plastics going in the waste stream, plastics going into the rivers and oceans? Has such an assessment been carried out?
Robert Jenrick: I think that would be very hard to measure. It is not unusual to proceed in this manner. As a country we do consult on new taxes, so that is the right way to behave as a mature economy. We do not just create taxes and impose them on the economy overnight. We do take time to consult and ensure that we get the design of them right. I think that you have already heard from the previous individuals who you have questioned that there are complexities in designing this tax. We need to ensure that we do get it right so that we capture the right products and we ensure that it is fair so that manufacturers of products in the UK are not disadvantaged and those products being imported into the UK are also caught. There is work to be done by HMRC in that respect to design it in such a way that it is meaningful and has a real impact, and that is what we will use the coming months of the consultation to determine.
Chair: I am very sorry, we have to suspend for 10 to 15 minutes as we have to go and do our duty.
Sitting suspended for a Division in the House.
On resuming—
Q45 Chair: We will get back to work. I would think that is the last Division of the day.
We were looking at the tax on virgin plastic. I had a couple of follow-ups. Minister, you said we are going to be one of the first countries in the world. Who are the other countries and what are the lessons?
Robert Jenrick: I do not think there are any other countries that have done this, so I think that we would potentially be the first country in the world to do this. There are other countries like France who have made public statements that they are interested in developing taxes. Of course, it is possible that another country might develop one before we implement ours, but at the moment, as I understand it, we would be the first country to do so, but correct me if you hear evidence to the contrary.
Q46 Chair: Okay. When is the consultation going to begin?
Robert Jenrick: It will begin early next year.
Q47 Chair: What is the definition of early?
Robert Jenrick: Sorry not to be more precise. We do not have any desire to hold this up. We are preparing the document at the moment and will open the consultation as soon as we can.
Anne-Therese Farmer: That is right. We always said we will aim to consult very close to the consultation on the reform of the producer responsibility system because of the need for those two changes to align.
Q48 Chair: Finally, I think that there is a misunderstanding here about what is needed from you as regulators. You talked about it being like the sugar tax and everyone will do the right thing, but the problem here is what you are asking industry to do is invest in plastics reprocessing plants, which at the moment are loss making because there is not a market for the product that they sell. As soon as the price of oil comes down, no one wants to buy recycled plastic, and we are talking pennies in a ton, which will put people out of business and people have gone out of business. They went out of business when they did the HDPE plastics. They were going to do a closed loop, recycled milk bottles. The price of oil went down, virgin plastic went down, the business folded and people got burnt. The reason regulation is required is not as a stick to make them change their habits. They already want to change their habits. Coca-Cola and various others have said they want to move to recycled.
The question is: where are they getting the feedstock from when we have a model that exits it out of the country into China, Vietnam, Malaysia, places where we are not sure what is happening with it, as opposed to keeping it in our own country for that reprocessing purpose? The regulation is so important here and that is why the tax is so important, because you are sending that signal that says, “Cost to pay back of my capital investment is five to seven years”, rather than, “In three years’ time I can start thinking about investing”. There is a cart and a horse aspect here with this particular part of the economy where I think you might need to bring it in sooner because you need to send that investment signal to the reprocessing industry. Is that fair?
Robert Jenrick: Yes, I hear that and we will take those views into consideration as we design the tax. What this will do, essentially—and, in fact, we already have as a result of the Budget—is signal that if you are in the market for producing single-use packaging you need to consider how you can increase the amount of recycled content in the packaging that you produce. We have given 30% as the level, but that is to be consulted upon and could conceivably be higher than that but that is the level that we are consulting on. Anyone in the industry who is not already meeting that target will now need to think carefully about how they can do so within a relatively short period of time.
We are also doing other interventions to help the industry to make the changes that you are looking for. We have already announced an innovation fund for plastics that we are launching, and that is designed to help businesses who already produce plastics but also those that might like to get into the market to design coffee cups of the future and so on, to design new products and to innovate to reduce the amount of plastic content in products or to use polymers that are easier to recycle or increase the amount of recycled content, so to design the products of the future. Then the resources and waste strategy that will be published shortly, which perhaps you may have further questions on, we are working very closely with DEFRA in designing that so that the interventions that we have made through the tax system work very closely alongside that and that we are not approaching this through different competing angles but there is a holistic view of how we can tackle this across the whole of the economy.
Q49 Anna McMorrin: On that, you just touched on the waste strategy. That is absolutely key to all of this because at the moment the waste system is broken. The marketplace is not there for dealing with recyclate and enough recyclate in the products. I am talking to producers and organisations who are trying to recycle but they cannot get the market. In order to do that, that means fundamental reform and adequate reform. Are you willing to go far enough to get that reform?
Robert Jenrick: You will have to judge when you read the resources and waste strategy, but I personally have worked closely with Michael Gove in designing the resources and waste strategy, as have the team at the Treasury. I think that has been very productive. We have been very aligned in what we are seeking to achieve. It will be ambitious and it will sit alongside other interventions such as the deposit return scheme, which is going to be consulted on, and the individual items that we have already announced that we wish to see banned.
The Chancellor said in the Budget that we want to see a number of other major changes, so the resources and waste strategy will address, for example, the issue of polymers that are difficult to recycle, like black carbon plastic, for example, which we would like to see heavily reduced, if not taken out of the economy altogether. There may be some instances where it is required, but that is something that we would like to see addressed in the resources and waste strategy.
As a result of PRN reform, there will be a substantial increase in the amount of investment in the UK in the recycling infrastructure, which we hope will drive major change in the years ahead and enable us to take more radical steps in the future.
Q50 Chair: Is that money going to go to local councils that have seen their budgets and their direct grant cut by about 60% over the last eight years? They are on the front line. They are the ones that pay 90% of the cost now.
Robert Jenrick: Yes. As I understand it—correct me if I am wrong—the receipts from PRN are ring-fenced for recycling infrastructure—
Q51 Chair: Yes, but they do not go to local authorities.
Robert Jenrick: It is not tax receipts that would flow to the Treasury. They will be used for increasing the amount of recycling infrastructure.
Q52 Anna McMorrin: That is a model that is broken at the moment, isn’t it, and that is what needs addressing through the waste strategy?
Robert Jenrick: Yes, unless Anne-Therese wants to—
Anne-Therese Farmer: That is going to be a key part of both the resources and waste strategy as a strategy but also the consultation on the reformed producer responsibility system. I think that is something that there will be more on in the consultation.
Q53 Chair: There is going to be another consultation on PRN reform?
Robert Jenrick: No, the resources and waste strategy will be consulted upon but that will be included. That is included within the resources and waste strategy.
Anne-Therese Farmer: It will be one of the consultations under the umbrella of the resources and waste strategy, so yes, it will have a consultation.
Chair: In the long run we are all dead.
Anna McMorrin: Before Christmas, apparently.
Chair: Yes, maybe. Okay, we are going to carry on. Alex has a question.
Q54 Alex Sobel: Moving on to disposable coffee cups, in the Budget Statement the Chancellor said, “I have concluded that a tax in isolation would not, at this point, deliver a decisive shift from disposable to reusable cups across all beverage types”. However, as we have just talked about, there will be a tax on virgin plastic so this is not a tax in isolation, the disposable coffee cup levy. What are the plans around the disposable coffee cup levy?
Robert Jenrick: We paid very careful attention to your report, which has clearly led the debate in this regard. We do think there is an issue. We all know that in our everyday lives. I know that in the Treasury, as an organisation, which is not an unusual one but like any other modern office building, a very large quantity of disposable cups are being used. We want to see that heavily reduced.
I suppose the first thing to say is we chose to make a wider intervention than purely on coffee cups, not to say that is not one that we might consider doing in the future, but we chose to go down the road of the single-use plastic packaging tax, which we think will have a broader application than simply on one particular item. The Chancellor said in the Budget speech, as you have just described, that we want to see the manufacturers and retailers taking action. Many of them are. We have, like you I am sure, met with them and encouraged them to do so. We want to give them some time to take those steps. If they do not, then this is something that we will return to. It is also something that the resources and waste strategy will address. I am afraid you will have to wait to see what is in that, but that also looks at this issue.
There were some practical issues with the so-called latte levy, which it is at least worth you considering. One point was that it would be very difficult if we approached this through the lens of a tax to do so purely on hot beverages. It would have to apply to all forms of cup, which would mean that it would apply both to a £3 or £4 latte you might buy in Starbucks or Costa but equally to a hot drink or, in fact, any other drink you might get in a transport café in your constituency where you might pay 50 pence or 60 pence. It would also apply to cold drinks. It would apply to fizzy drinks you might buy in a fast-food shop, for example.
That poses two challenges. First, at what level would you set it? There is a very wide range of price points from £3 or £4 down to potentially 50 pence or a pound. If you were seeking behavioural change, you would clearly have to set it at a certain level that would be impactful and it would be difficult to do that when there is such a wide variety of price points.
You would have to do it in the knowledge that it would be applied to more than just lattes and drinks bought on the go but also those sold in other settings and other types of drink. That is not to say we would not consider it. What I hope I am showing is that we did give this very careful consideration. A great deal of work was done at the Treasury in the months leading up to the Budget and we did come to the conclusion that at this stage, partly because of the practical difficulties and partly because we heard from the manufacturers and retailers that they were already taking significant steps, the best thing would be to let them continue that. We would review that very carefully and be willing to take action in the future if they do not satisfy us.
Q55 Chair: It was interesting that they chose the day of the Budget to put out their report that showed that an extra half a billion cups had been used since we did our report. It has gone up from 2.5 billion cups a year to 3 billion. As the economy grows, you would expect cup use to grow and guess what, that is exactly what has happened, so a good day to bury that bad news.
Whatever steps they are taking they are not working. If we do not bend the plastic curve, then it is going to be 20% of our carbon budget by 2050. We will not be able to land planes because we are going to be drinking out of cups. These are the choices that you, as a Minister, have to make going forward on to our fourth and fifth carbon budgets that we are set to miss. What are we going to spend our carbon on? If we do not start behaving honestly with people and telling them that they cannot just have a cup and a chuck every single time, then they will not change their behaviour. We have done it on carrier bags and we know that people respond better to a charge than they do to a discount. It has worked when Starbucks has done it. It has quadrupled their reusable cup use and people’s behaviour is changing slowly—not quickly enough—and alternative beverages are available if you go in for a takeaway cold drink. There are cans. There are plastic bottles.
What we have to do is capture all of these systems, and we have one system that is not being captured, which is the cup system. The cans have a value. The bottles have a value. The cups do not and that is a problem. It is not a question of innovation. There is all sorts of stuff out there, people with alternative cups. Innovation is not the problem; behaviour change is the problem, and that is harder. I think that is where we have perhaps missed a trick on this. We are going to move on.
Q56 Anna McMorrin: Moving on to carbon pricing, we know that the carbon price support scheme has been a major factor in reducing reliance on coal. However, the Government have said they are looking into reducing carbon price support after 2021, despite the fact that your own Government in 2017 highlighted the fact that it is a key factor in reducing reliance on coal. Does this mean the Government have changed their priorities on trying to phase out coal?
Robert Jenrick: No. I think that is a mischaracterisation of what we have said. We have said that we would take into account the competitiveness of the British economy and, if necessary, we would consider changing the price but that we do not have any plans to do so at the moment. Is that correct, Philip?
Philip Duffy: That is right. We would also take into account where the ETS has gone. The ETS is highly unstable recently. We have seen significant swings in price. I think that the combination of the current level of the ETS and our existing carbon price support gives us a very front-footed position where we see a carbon price that is over £30, consistently over £30. That is further ahead than I thought we would be at this point in the process. I do not think that it is right to say the Government have changed their stance. In fact, if you look across what we said about a no-deal Brexit and what we are now seeing in the market of ETS, this is a Government that are being very front-footed, quite aggressive, on carbon pricing. I do not think I see any sign of that changing.
Q57 Anna McMorrin: But you did freeze it in 2014 and then extended that to 2021.
Philip Duffy: Just have a quick look back along the ETS prices over recent years, going as low as £6 and now, I think from recollection, today it is about £19. We are seeing a significant increase in cost for emissions over that period. We introduced this as a way of making sure we did not end up with a £6 price but one that was more credible. It is currently credible. It will remain credible whether we are in a deal or no-deal scenario for Brexit, and I think that is a sign of a Government that are very committed to maintaining pressure on coal as we move into the later carbon budgets.
Robert Jenrick: It is one of the highest levels in Europe.
Philip Duffy: It is.
Neil Kenward: It is, and that high price has meant that coal has been priced off the system and that has continued this year as well. The decline in coal as a percentage of our electricity has been a sharper decline in the UK than in any other country in the world according to a recent study.
Anne-Therese Farmer: The key thing is the combination of the EU ETS price and the CPS price, and because of the EU ETS price has risen so much recently you have a very strong carbon price signal overall, which is incentivising the behaviour change that the policies are designed to incentivise.
Q58 Anna McMorrin: Is that going to be maintained? The higher carbon price is critical to decarbonisation. How do you foresee this working regardless of what happens with Brexit, if we leave or remain? As things stand, how do you see things moving forward with the carbon price?
Robert Jenrick: With respect to Brexit we have—
Anna McMorrin: Regardless of that.
Robert Jenrick: Okay.
Anna McMorrin: We will move on that. I will ask you another question about that in a minute.
Philip Duffy: What the Treasury is doing, quite properly, is it is looking that the carbon budgets that the Climate Change Act gives us and it is looking at whether we are on course or off course against those budgets.
Chair: Off course.
Philip Duffy: We see the need to maintain a high carbon price as part of that trajectory. There is no two ways around that. When the Government were asked in the Brexit context what would be the tax under no-deal, they named the price at £16 for the potential carbon tax to replace the ETS because that was the average of the previous six months. As it happens, the price has gone higher than that currently. We are currently over the £16 point, which I think shows that this is not a Government that are overly concerned at that level about seeing a reduction. I think that it is quite a committed Government. They do not have much margin for manoeuvre because of the statutory obligations we have under the Climate Change Act.
Q59 Anna McMorrin: What timeframe do you see, then, in removal of reliance on coal?
Neil Kenward: The Government have committed to reduce coal for power use by 2025 in the UK, and there are some European regulations that will ensure the vast majority comes off the system in the early 2020s. I do not see any reason why the combination of those regulations and the high carbon price will not ensure that coal does continue to diminish as a share of that.
Q60 Anna McMorrin: You have Will Gardiner, who is chief executive of Drax, formerly Europe’s largest coal plant, saying this week that analysis has found a cut to CPS would see coal stay on the system longer and risk the UK’s legally binding carbon budgets.
Neil Kenward: The critical point is that the Government have not cut the CPS rate, and even the consideration in the Budget around that was because, as has been explained, the ETS price has trebled in the last 12 months or so. We also have to consider, as the Minister explained at the beginning, the competitiveness impacts, but at the moment the Government are holding the carbon price to make sure that those decarbonisation goals are met.
Q61 Anna McMorrin: In a no-deal scenario then, you have considered introducing a carbon emissions tax. How will this compare to the current EU ETS scheme?
Anne-Therese Farmer: We have tried to aim it at a level that will provide a similar price signal that the EU ETS provides at the moment. The EU ETS, obviously because it is a trading system, the price moves around and that would not be appropriate for a tax. We have had to set a rate to provide businesses certainty about what would happen in a no-deal scenario, but it is intended to from April next year provide a similar price signal.
Robert Jenrick: We have legislated for that or are in the process of legislating for that at £16. Over the course of the last year or so, ETS has fluctuated between £6 and £20. There were those who encouraged us to set it significantly lower so that in a no-deal scenario you gave a competitive advantage to certain parts of the British economy. We have not done that. We have set it at a level that was, at the time of the Budget, seen to be approximately—it is difficult to judge where ETS will go in the next 12 months, but we looked at the previous 12 months and futures for the next 12 months before coming—
Anne-Therese Farmer: Yes, we looked back six months, I’m sorry, and forward six months on the futures and set it at that.
Robert Jenrick: We have tried to have, as far as we can, parity with EU ETS.
Q62 Anna McMorrin: The aim if we leave with a deal is to try to remain within the EU ETS, although isn’t that going to be quite difficult being outside if we are outside the single market?
Robert Jenrick: If we leave with the Prime Minister’s proposed deal, during the implementation period then we remain within EU ETS, and indeed if the implementation period was extended under the deal. Beyond that, the political declaration sets out that we would like to remain in a system that is linked to the EU ETS and that will be a negotiating point for the months ahead.
We are not prejudicing that in the sense that we have not ruled out the option of a carbon tax, which I think is an interesting idea worthy of a full debate involving groups like yourselves who no doubt have opinions on that. We are very aware of some of the reports that have been written, like the Policy Exchange one, which has garnered a degree of cross-party support. We will take that into account and also the devolved Administrations and others who have an interest in this before reaching a conclusion. At the moment the political declaration sets out that our—
Q63 Anna McMorrin: Everything is uncertain, basically?
Robert Jenrick: No, I do not think that is the right characterisation at all. The actions we have taken in the Finance Bill were precisely to give certainty to the industry. We responded to the concerns of the industry by setting a price and ensuring that in any eventuality the system will, broadly speaking, continue for the foreseeable future.
Q64 Anna McMorrin: Okay, but everything to be negotiated, surely. Anyway, that is a Brexit debate.
During our recent Green Finance inquiry, the former chair of the Committee on Climate Change, Lord Adair Turner, suggested we need to extend carbon pricing across the rest of the economy to take carbon out of, for example, plastics production, chemical, steel, cement and other industrial sectors. What timescale do you see this happening? Are you going to take up this advice and how do you see it working?
Neil Kenward: The question of having an economy-wide carbon tax obviously would need to be looked at in great detail, and we certainly appreciate Lord Turner’s view on it. I would caution against a number of things like the distributional impact because such an economy-wide tax could have quite significant impacts on energy bills, which would hit the poorest hardest, for example.
The Government would need to take a lot of things into account when they looked at this. If we look at the power sector, the carbon prices we have just been discussing have been instrumental in getting the shift going from coal to gas, but the carbon price has not really been the driver of the rapid growth in renewables. That has needed a separate tool, which has been the contracts for difference. I think what the Government will do is—
Q65 Anna McMorrin: Which is failing in itself, but anyway.
Neil Kenward: I would dispute that, but what the Government are going to do is obviously look for the right tools to deliver the objectives. Sometimes that would be a tax and sometimes it would not, I think is probably the most likely outcome.
Philip Duffy: If you look at energy intensive industries, which are important in local economies—ceramics, steel and so on—and the question of how they should effectively decarbonise, you end up looking at very high costs on those sectors. How can we support those sectors? One of the reasons why we brought in, in the Budget, the industrial energy efficiency fund is that there is a very good case both for wider innovation but also to help those particular sectors in supporting them in doing things like building parts of the CCUS supply chain, which is not something an energy business could do.
We would be worried if you just raised the overall cost of energy without some kind of sectoral support or support for elements of transition through a mix of spending and regulation. You might have some particularly perverse effects that need to be dealt with. I think that it is a very interesting proposal but it needs a bit of thought.
Q66 Chair: There were no signals in the Budget around new nuclear finance. We have talked about coal and the triumph there, but what signals are being sent to the nuclear industry and how are you going to tackle the 7% policy gap in the fourth carbon budget?
Neil Kenward: I suppose there are two separate questions. For new nuclear the Government have a commitment to bring forward further new nuclear power stations, as you know.
Q67 Chair: It is not going too well at the moment, is it?
Neil Kenward: We have obviously seen the media reports as well. I do not wish to comment on those, but the Government are having conversations with Hitachi but are also hoping to develop an alternative financing route for a sustainable procurement of new nuclear through the RAB structure. That is work we are doing very closely with BEIS at the moment.
Q68 Chair: What is RAB? Sorry, that is a bit off our—
Neil Kenward: Regulated asset base. It is the funding mechanism used for sectors like water and the national grid for power and electricity. It is where you get a privately operated and funded infrastructure provision but because you have the security of a regulated income stream from consumers and a guaranteed income stream from consumers, it brings down the risk and the cost of capital. It can be very effective at funding high capital cost infrastructure, which obviously is what nuclear is.
Chair: Okay. It obviously did not work for the Thames tideway tunnel, though. That is very interesting. We are going to move on.
Q69 Geraint Davies: Broadly, the Budget has been criticised for not doing very much for green initiatives and doing a lot for the so-called grey infrastructure, roads and the like. Can I ask whether you feel that is fair, whether you have done much in the environment, and whether there are ways of integrating some of these things? There is lots of talk of, for instance, generating solar energy from road infrastructure in the United States. There is lots of talk about putting plastics into roads. Some of these environmental problems can be solved within the infrastructure, but there seems no appetite or creativity from the Treasury to combine these in a fiscally attractive way.
Robert Jenrick: As you would expect, I do not think it is a fair criticism that the Budget was not sufficiently forward thinking on the environment. We have already talked about some of the measures that were in the Budget, whether that is in terms of industrial energy transformation. We also announced the consultation for energy efficiency for businesses, particularly targeted at SMEs, essentially a business eco programme, which we hope to take forward in the future. We had the plastics tax. As we have just described, we will probably be the first country in the world to do that. We had interventions on air quality and on trees. There were a number of different elements within the Budget that come together as quite a strong package.
You also have to view the Budget in the context of the other interventions we have made as a Government in the last year, whether that is the 25-year environment plan, the work on air quality and the industrial strategy, which obviously we are involved in at the Treasury. The clean growth strategy sits alongside that. We have supported all of that and tried to take it forward.
In terms of the investment in infrastructure, we do think they are very important because this is about raising productivity, growing the economy, increasing living standards for all of our constituents, but we are not deaf to the concerns about how that interacts with the environment. Many of those initiatives do have an environmental lens through which you could view them. For example, on roads and infrastructure, the transforming cities fund, which is now a £2.5 billion fund, is about trying to improve congestion in urban areas, particularly in our larger cities like Manchester, Liverpool, the West Midlands, Nottingham and many others. There are significant investments in low-emission buses, in park and ride schemes, in cycling and walking and in the future of transportation linking great cities with suburban areas and towns that feed into them and trying to take a long-term view of that.
Q70 Geraint Davies: Yes, but there is no creative thinking on, as I mentioned by way of example, solar power in roads and plastic in roads. You have mentioned the 25-year environment plan and all this, and the intergovernmental panel found that the 1.5 degree change feared by Paris will be met within 12 years, by 2030, yet a lot of these solutions kick in in 2040 for the universal recyclability of plastic or getting rid of fossil fuel cars and this sort of thing. Isn’t it all too little too late? It is the same with your plastics tax, we are going to do something sometime, when you will probably be in another job.
Robert Jenrick: Perhaps Philip could answer the question about innovation and then I will answer the other bits.
Philip Duffy: I think that you make an extremely important point about the fact that in modern infrastructure the classic way of looking at things sector by sector by sector, energy, water, telecoms, starts to break down. The regulators in the UK I think are pretty forward thinking about that and have been asking questions about, “If I have an electric vehicle, for example, is its battery part of the grid system and, if so, how is that regulated? What are the consumer rights involved with those questions?”
In the Budget we announced a programme of work for the National Infrastructure Commission. It has already done a project for us on open data and the use of data in infrastructure. The next project that we have asked it to look at is about innovation across regulation and, in particular, exactly the point you raise about whether there are methods of regulating effectively to bring benefits between sectors. Classically, that would be about making sure the water sector can support digital infrastructure, for example, or the railway system can support better access to broadband. There are other areas, particularly around energy, where there are these synergies that we want to explore. I say that recognising that we have a very successful model of economic regulation in the UK and we are quite cautious about that because we want to make sure that the strengths of our current system have been preserved.
I do not think I quite answered your question directly, but I think that some of the areas you raised, solar use to recycled plastics, are things that we are considering quite actively and we will listen carefully to what the NIC has to say.
Q71 Geraint Davies: When will you have the first solar road?
Philip Duffy: There are two issues there. I think that you are blurring a question about whether it is right to consider energy when you build a road to the question of whether solar is right for the UK and at what volume, and they are different questions. On the question of innovation, I know they are thinking very hard about innovation, thinking hard about net biodiversity gain, and thinking quite hard about smart motorways and whether they can reduce the demand for new roads by making better use of existing road space.
On the question of solar specifically, Neil might want to comment, but this question of what the future is for solar in the UK is one that we have given a lot of thought to.
Neil Kenward: Solar power obviously has a role to play, but as we get more and more renewables, indeed more and more solar power on the system, you can see a point at which in the middle of summer we will have far more power than we need, but solar generates nothing in the winter when our demand is higher. That informs the overall approach to solar power.
Q72 Geraint Davies: Can I move you on to fuel?
Robert Jenrick: May I just answer your question about Paris and what we are going to do?
Geraint Davies: Of course, yes, because we are simply not doing enough in the time, yes.
Robert Jenrick: As you probably know, in October, during the Green Great Britain Week, we announced that we would commission the Committee on Climate Change to advise us on the implications of the 1.5 in terms of our carbon emissions targets. As soon as we receive that advice, working closely with BEIS and other interested Departments, we will clearly respond.
Q73 Geraint Davies: Are you looking to bring forward some of these ambitions given that a 1.5 change in degrees was not expected to be reassessed to occur in 12 years but we have not, therefore, brought forward our plans, whether it is on plastics, whether it is on getting rid of fossil fuel cars or whatever? We are still going along as if everything is all right when, in fact, the world is being destroyed around us.
Robert Jenrick: I do not think that is correct. We have met or are on course to meet our first three carbon budgets. I appreciate that there is concern about the fourth and fifth ones, although we are close to meeting those. We do not intend to sit on our hands. We intend to bring forward further policies to ensure that we do and, of course, we hope that technological change will help us in that regard. We have asked the Committee on Climate Change to advise us and we will obviously respond to their recommendations in designing the policy interventions that we will bring forward at future budgets.
Q74 Geraint Davies: Can I just bring you forward on to fuel duty? There are two problems. There is another year of freezes and, secondly, there is no attempt to nuance, maybe in a fiscally neutral way, the tax regime to drive us towards more sustainable transport, even if it was changing the differentials between diesel and petrol—both have problems—in the light of the fact that diesel is so much worse for public health. In particular, you will know that 40,000 people die prematurely a year and we are told that it is worth £20 billion of public cost that you could be saving. Why didn’t you, even if you did not want to bring down the overall level of fuel duty, adjust it so it moves us into the healthier, more sustainable pathway?
Robert Jenrick: I appreciate the argument. We do feel it is important to freeze fuel duty. It is clearly an expensive intervention by the Government but it is one that helps the cost of living for all of our constituents. There are many people in this country on low incomes who require a car for their daily lives to get to work or to do other things. In a rural constituency such as mine, it is definitely an important intervention by the Government to help people with the cost of going about their daily lives. We do use the tax system to encourage people to make environmentally friendly decisions. We do that through vehicle excise duty. We have done it through incentives such as the plug-in car grant to encourage people to purchase low-emission vehicles. There is a differential in cost between diesel and petrol, a significant one, so there is an incentive today to purchase a petrol car.
Q75 Geraint Davies: May I say, Minister, there are strategic questions here. Instead of growing more and more roads and not increasing the price of petrol and diesel—and incidentally if I had a diesel car and a petrol car and I drove from here to Swansea, it would be much cheaper for me to do it by diesel. The incentives are still there and the only reason people are buying less diesel is because we read in the paper that it is choking their children and giving them chronic conditions for life. Would it not be better, rather than spending money, freezing duty and building roads, to invest in public transport more and say to people, “You are not losing out because we are giving you all these trains and buses”, even though the marginal cost of diesel travel is more?
Robert Jenrick: No, I appreciate that. It is not a zero sum game and we are helping people with the cost of living by freezing fuel duty, but we are also investing very significant amounts of money in our public infrastructure. Under this Government and in the course of this Parliament, levels of public investment in infrastructure—roads, rails and other forms of infrastructure, like digital infrastructure, for example—will be at the highest levels since the 1970s. There is a very substantial increase in the amount of capital going into long-term infrastructure. Of course, some of that is to the benefit of people who drive cars, but they are the same roads that people travel along in buses.
When we come up with interventions like the transforming cities fund, they are designed to think about the way that we travel, not just today but in the future. They take an area, for example the West Midlands, and ask those communities—or the mayor in the case of a mayoral area—to think and work with the Department for Transport about a long-term plan as to how people can get about in those areas today and how they will do in the future with electric vehicles, cycling and walking. Many of those investments have been in public transport. For example, Andy Street, the mayor of the West Midlands, has invested in the tram there.
If you look at Liverpool, Steve Rotheram, the mayor, is investing in improving the buses in Liverpool, many of which were out of date, and he is investing in ones that will be low-emission buses. Significant amounts of this extra investment in infrastructure is going into environmentally friendly, sustainable or more sustainable forms of transport and improving public transport.
Q76 Geraint Davies: On the examples you have used, and they are interesting examples of trying to build localised economies, I was instrumental in the Croydon tram that goes to south London. Instead the Government tend to be investing in how to get in and out of London more quickly, whether it is HS2 or other schemes. What it does is drive up the price of houses in London and makes people travel further each day to where they can afford to live from where they are forced to work. Would it not be better to look at another strategy of regional clusters and having an infrastructure there? You need all these roads because people are moving more. Shouldn’t there be a strategy for them to stay where they are and work on the internet and build local infrastructure? What thought has been given to that?
Robert Jenrick: It is an interesting point. That is one of the ideas behind the transforming cities fund. I represent a community in East Midlands. One of the successful bidders is the area around Nottingham and Derby and that is taking two cities and a series of commuter towns and villages surrounding them who feed into those cities. They will have received funding now to think carefully about the future of their transport, so they will receive around £50,000 for initial work, and then if they are successful they will receive potentially substantial sums of money to help to do exactly what you are talking about, the long-term investment in helping people get in and out of cities, not about commuting to London.
If you look at our spending decisions on infrastructure, we have increased the amount of money being spent outside of London and the south-east. Central government funding, as set out by the Infrastructure and Projects Authority, clearly demonstrates that. In fact, the north-west will be the region over the course of this Parliament that will receive the largest amount of transport investment from central government, not London and the south-east.
Philip Duffy: This Government set out a fiscal remit for the National Infrastructure Commission as our advisers on what should be built, 1% to 1.2% of GDP. We have then, in the Treasury, supported that by making this generous capital allocation, which was repeated in the Budget. What the NIC then said in their first five-year review of the national infrastructure requirements, the NIA—which covered a whole range of issues: water, energy—was that while it was right to prioritise some particularly egregious areas of underinvestment—railways in the north of England, the TransPennine links, the state of the road and rail systems—there was also a very strong case over time for moving away from the very large projects and investing consistently more in the local and intracity transport.
The transforming cities fund is a down payment on that shift and we are trying to achieve that while also maintaining momentum on some pretty major programmes, notably High Speed 2 but also the TransPennine rail upgrade, which is £2.5 billion, and the Northern Powerhouse rail project, which we gave development funding to in the Budget. I think this is a Government that is thinking holistically about that and they very much are not focusing all on London.
I will make one more point if I may, which is that the roads investment numbers are large. Nearly £30 billion goes into the RIS2 strategic roads settlement, but they are also matched by a very large amount of money going into the nation’s railways through the CP6 settlement, which we announced just before the Budget. I do not think it would be right to characterise this as a Government that are investing in roads at the expense of other forms of mass transit. The railways in particular are getting significant support from this Government.
Q77 Geraint Davies: Can I finally say, then, that on the infrastructure investment it is the case that we invest something approaching 10 times as much in London per head as in, say, Wales and the north. It is a big multiple. We have that problem, so in places like Swansea they have just cut the electrification and so on and say not enough people work and live there. Partly it is because we have not had the investment over the years. That is the infrastructure capital investment.
Then on the revenue side, why isn’t the case that we are signalling to people that in a few years’ time if you have a diesel car it will cost you much more than if you have an electric car so that people change their behaviour now, as industry did in response to, as you say, sugar tax and when we talk about plastics, so they know where we are going? At the moment, all the signals are we are reluctantly making gesture politics to the environment, not making a strategic shift towards a sustainable transport system where we have more equality across a regional infrastructure.
Robert Jenrick: I hope that is not the case. In terms of per capita investment in transport infrastructure, the quanta of difference that you have described are not correct. We have redressed the balance very significantly. As I said earlier, the north-west will have per capita the highest level of transport investment over this Parliament, not London and the south-east. There are still some—
Q78 Geraint Davies: A fraction of if you lived in London per head, yes.
Chair: Is that including or not including the Crossrail bailout that was announced this week?
Philip Duffy: Let me answer that directly.
Chair: Because we certainly did not get £2 billion for anything in the north.
Philip Duffy: I need to answer your question very directly because I think it is entirely wrong to characterise it as some sort of bailout. That is not the right phrase to use at all.
What we have said to London is that London must bear the cost of its own transport. It is a wealthy economy. The mayor has significant flexibilities to raise income and manage the transport system across London, not only the fare box but also the road network. What we have done on Crossrail—and the mayor has accepted this entirely—is that we have said that this is London’s problem and that although we are willing to extend a loan—a loan with an interest charge to the mayor—we expect that to be repaid in full. Therefore, we are not going to be cutting investment in things like the TransPennine rail route to fund further investment in Crossrail.
I wanted to clarify that because I think it is a very sensitive issue and very important that we are completely clear on the terms of the agreement we have reached with the mayor of London.
Robert Jenrick: It is not a grant, it is a short-term loan to—
Q79 Chair: Paid back over how many years?
Philip Duffy: We are in discussion about that but it will be short, short meaning five, eight, 10, something in that order of years.
Q80 Chair: Treasury short, okay, not longer short. That was a function of Treasury cutting Crossrail’s budget, wasn’t it, in 2013, cutting £2 billion off, and it has now come in at exactly the budget that was originally set out for it?
Philip Duffy: I do not think I could accept that either. What the Treasury has done in all these major programmes is consistently challenge scope and we have challenged the affordability of that scope and, in particular, whether the costs are reasonable. We act at several stages removed from the management of these major programmes because we are not managing them directly from the Treasury, but we have a perfectly legitimate role in asking whether all of the functionality that is being proposed for any of these large schemes is right. We have done that on High Speed 2. We have done that previously on Crossrail. We will no doubt do it on future major programmes of that sort. That is entirely healthy.
As I understand it, everything is being done that could be done by the mayor of London to reduce the cost overrun on Crossrail. The reasons are complex. They will no doubt emerge in due course. I do not think I would accept that the challenge the Treasury makes towards programme scope is a cut. It is about asking project promoters what is necessary and freeing up those savings for other programmes that we need. Clearly, in the case of Crossrail we are acutely aware of the pressure to improve as quickly as possible rail services across the M62 corridor in the north of England and we want to make sure that the costs of London investment are properly scrutinised and managed. I think that is the entirely proper role for us.
Chair: I think we can all share your desire to improve the M62 corridor.
Q81 Anna McMorrin: The Government say £30 million is to go towards pilot projects to ensure property owners have the best information on protecting homes, expanding the flood warning system. Why are the Government providing such an insignificant amount of money towards flood management?
Neil Kenward: This comes on top of a very large programme of spending on floods. There is the capital programme for flood defences, a major maintenance programme that amounts to £1 billion over six years, and the construction programme, sorry, is £2.3 billion. There is a very large programme of spend.
There is additional money that has been given for flood services and in this Budget £30 million was released to expand a flood warning service to cover all high-risk properties now in the UK, or certainly in England. Obviously, we think that is a very sensible use of the money and it is one of a number of initiatives taken to help properties with their flood resilience.
Q82 Anna McMorrin: Was there an appropriate allocation to Wales, then, accordingly?
Neil Kenward: Apologies for not knowing whether that is a GB number. If it is England only, which it might be, it will have been properly Barnetted.
Q83 Anna McMorrin: Okay, which we know is not enough anyway. If it is Barnett formula, it does not provide adequate funding. Minister, would you care to comment?
Robert Jenrick: I think what you just heard from Mr Kenward is correct. We made a very significant intervention previously. That work is being carried out across the country. It is a major programme of work that the Environment Agency and others are implementing. If further investments are required, then that will be something that will be considered at the spending review next year.
Q84 Anna McMorrin: With the 2013 commitment to reduce risk of flooding to 300,000 properties by 2021, will this help you meet that target?
Neil Kenward: That 2013 commitment is being met through the six-year programme that I mentioned, which will better protect at least 300,000 properties. It is a six-year programme of investment that runs to 2021.
Q85 Anna McMorrin: You believe it is adequate?
Neil Kenward: It certainly delivers on the promise. Yes, I believe it is.
Q86 Anna McMorrin: Would you mind getting back to us, then, on the Wales figure?
Neil Kenward: I am very happy to do that and apologies for not knowing.
Q87 Anna McMorrin: How many properties will become at risk of flooding, though, due to climate change and population growth in the meantime? Are you keeping a watch on that?
Neil Kenward: Yes, and there all sorts of regulations. I believe it is not a Treasury lead to ensure that new properties are built to minimise flood risk and are not in the highest risk areas. In fact, in the coming year the EA will be publishing its 50-year strategy on floods and the Government will publish a policy statement on long-term flood and coastal erosion policy because we recognise the rising threats and risks from climate change both for coastal communities and from extreme weather.
Philip Duffy: We took a lot of note of what was said by DEFRA in its recent report on domestic impacts of climate change, and we are reassured to hear that the scenarios being considered by the Environment Agency include a 4-degree increase over that time period. Obviously, that is not what we want to see but we do have to start thinking about some quite radical levels of flood risk. I think that we can give some reassurance that no one in Government is failing to engage with the very real risk that we might see rising problems for flooding given the climate change forecasts that DEFRA has made.
Q88 Chair: Some of this flood resilience work is being funded by increasing the standard rate of insurance premium tax by half a percentage point. I did some maths earlier. I do not have the figures in front of me, but my calculation was that everything that you are raising from the insurance premium tax is not being spent in alleviating flood risk. Would you agree?
Neil Kenward: My understanding is that all the additional money that was announced a couple of fiscal events ago is—the £13 million is only a small part of that extra funding that is being raised. I am very happy to go back and provide that information to you. I do not have it in front of me.
Q89 Chair: I have it in my head from conversations with the insurance industry, who are watching every penny as you would expect because they are collecting it on your behalf and then passing it on. There was a discalculus between what was raised and what was being spent.
Neil Kenward: The commitment was to spend that money on flood defences and related activities and it is being drawn down successively in different fiscal events.
Q90 Chair: Could you write to us on that? That would be very helpful.
Neil Kenward: I am very happy to.
Q91 Kerry McCarthy: There was a commitment in the Budget to give £15 million to charities and others to distribute surplus food so that it ends up feeding people in need. Can I just ask this as a preliminary question? I think that your brief, Mr Kenward, covers agriculture. It does not cover food policy per se. Is there somebody in—
Neil Kenward: It does.
Kerry McCarthy: It does, all right, okay.
Neil Kenward: My team have all DEFRA policy and spending issues.
Q92 Kerry McCarthy: All right. It is just a bit old-fashioned in terms of the days of the Ministry of Agriculture rather than recognising that “F” stands for food now.
Neil Kenward: Environment and agriculture I should have said when I introduced my title, yes.
Q93 Kerry McCarthy: It is food policy, okay. This Committee did an inquiry a year or so ago on the SDGs and then we did a follow-up one-off session fairly recently particularly on the Zero Hunger goal. What contribution do you think that this £15 million in the Budget will make towards helping us meet that Zero Hunger goal?
Neil Kenward: We hope it will make a significant contribution. It is money that DEFRA will be spending. It is for it to determine how to spend it to best effect, but I hope it is a welcome contribution to an important issue, which will both help with families who need that extra food but also will reduce food waste.
Q94 Kerry McCarthy: How did you come up with the £15 million figure?
Neil Kenward: This was in conversation with DEFRA.
Q95 Kerry McCarthy: Did they ask for £15 million or did they ask for more and get less?
Neil Kenward: It would not be usual for us to reveal the exact contents of that conversation, but they were very content with the funding they received.
Q96 Kerry McCarthy: They were content, okay. We will ask Michael Gove about that next week. I am sure he will say he was happy but would still like more. How will the Government monitor the effectiveness? When you make a spending commitment like this, what role does the Treasury have in terms of monitoring whether it has been effective?
Neil Kenward: The Treasury will obviously try to keep track of all the major spending programmes. In this case it is a relative small amount of money, so I would expect DEFRA to very much take the lead on ensuring it is spent effectively, monitoring that that is the case.
Philip Duffy: It is worth adding that in the resources and waste strategy they do intend to have a number of further steps on reducing food waste. This may be supporting financing of those measures and that will give us some metrics for how we can monitor progress.
Q97 Kerry McCarthy: I know we expect to see it before Christmas. Are we likely to see that next week, the strategy?
Philip Duffy: Indeed.
Q98 Kerry McCarthy: That is the intention. That is what I thought it might be.
We had four Ministers in front of us for the SDG follow-up hearing and we could not get an answer from anyone as to where the responsibility for meeting this SDG on ending hunger lay in Government. I am slightly concerned that that still seems to be the case. I would think that ending poverty was very much a Treasury objective, yet you are saying in terms of this money, which is going to support surplus food donations obviously with the end goal of trying to meet the hunger goal, it is very much a matter for DEFRA?
Philip Duffy: It is their money that they are spending, so necessarily we would expect them to be responsible for the proper design and delivery of that spend. The sustainable development goals are important and the UK has been one of the countries that has stepped forward and said it will publish a voluntary national review. That will set out, I am sure, our progress against all 17, including ending hunger, so I think you will see in due course when that review is published proper measures of progress and a report from the Government on the issue.
Q99 Kerry McCarthy: In terms of the Treasury allocating money towards Departments’ ambitions, I do not think it was particularly framed by DEFRA as wanting this money in a bid to meet the SDG. I think that was probably incidental to it. It was more just about the food waste issue per se. I am just trying to get to the bottom of what sort of mechanisms there would be in the Treasury when you come to approve departmental spending requests. Where do the SDGs fit into that? Basically, would a request for spending get extra attention or extra priority because it helped meet the SDG agenda?
Philip Duffy: The first thing to say is that the Treasury uses the Green Book for doing its appraisals of proposals for spending from Departments. That covers obviously the classic business case consequences that are cashable, but it also covers things that are not cashable currently or where we lack clear quantitative evidence. I mentioned earlier the biodiversity area that we are concerned about and having a lack of that sort of data. Within the Treasury during the Budget process, it is worth saying that Treasury officials do provide a distributional analysis. You will see both in the Red Book and in the flanking documents the distributional analysis of the Budget measures. That is a very important part of our work because that links very clearly to our wider economic policy and anti-poverty goals. That is a process we go through.
It is also worth mentioning when we get proposals for spending and from DEFRA or any other Department we are not just looking at how much ideally we would spend. We also look at the Department’s capability of spending that money and our experience, particularly for innovation and technologies, is there is a maximum speed at which you can spend money on particular new technologies. We will look at that when we name a number through the discussion we have with Departments.
Q100 Chair: Can I just ask a quick follow-up to that before we get on to the final question? The bid that DEFRA put in to you for this £15 million, is it aimed at the supply chain or the backdoor of supermarkets?
Neil Kenward: I do not know how specifically they will use the money. I think that they will look at a range of options to deliver the objectives. As we know, in supermarkets there is a huge amount of food waste, and anything that can help to utilise that food rather than have it wasted and redistribute it for families who can use it has to be welcomed. I think that DEFRA will be looking at a number of issues. I believe the Secretary of State may be coming in front of your Committee next week and may have more detail on the actual spend.
Q101 Chair: Okay. The final question; you have been very patient and I know the Minister has to go and do his party duty. Minister, we were told during the EU Withdrawal Bill that any inflight European legislation would be cut and pasted into our domestic legislation as long as it took place before the end of the transition period. We note that the EU is proposing sustainable finance legislation on taxonomy and on proposals for environmental, social and governance disclosures by asset managers. We want to know why those two proposals—I think there might be another one—are not picked up in your Financial Services Bill, which is currently being scrutinised in the House of Lords.
Robert Jenrick: That is a question I do not know the answer to. I do not know if, Phil, you—
Philip Duffy: No, I don’t. I can say that following the green finance taskforce we have been supporting and working closely with the PRA on a series of measures that do exactly what you describe, bring consistency to reporting, bring consistency to standards, and help people through climate-related financial disclosure rules be clearer on the consequences of their investment areas. We think that is a world-leading framework.
We are also supporting the green finance area through further investment. We have a £20 million investment in the clean technology fund. I think that we have quite a strong story on green finance and making London a centre for green finance in future, but perhaps since we do not know the answer on the directive we may want to write to you.
Robert Jenrick: I can write back to you with an answer to that.
Q102 Chair: Yes. We obviously did our report on sustainable finance in particular with risks focusing very much on the pension side of things, but this is an issue that is very close to our heart. The sustainability taxonomy, which is how you describe if something is a green bond or not, is not included. ESG disclosures by asset managers: this is something that is going to be a very big focus of our fast fashion inquiry where you have an industry that is founded on labour abuse in this country and abroad, which is obviously a social risk to the companies. The third proposal in the package, to include low carbon benchmarks, is included within the scope of the Bill. We can let you have the detail on that, but we would certainly be grateful to you if you could let us know. What it does is raise the wider issue of what is happening in every other Department with inflight legislation as well.
Robert Jenrick: Yes. Let me come back to you on that. I think we have made a pretty clear statement that inflight legislation will be implemented in the usual way both now and during the implementation period. Were we to go into the backstop, which clearly none of us wish to do so, then that would be different, but we have promised that there would be no regression from the standards as they are at the point at which we entered the backstop. There should not be any reason why the measures that you have described would not be brought into effect, but I will find out an accurate answer for you and come back to you.
Q103 Chair: I am sure we can always introduce them when it comes to the Commons as business progresses. Thank you all very much indeed. It has been a slightly disjointed session, but it is wonderful to welcome some old faces and some new faces as well. Thank you all very much.
Robert Jenrick: Thank you very much for your time today.