Let me get back to the serious matter in hand. As part of our review into LIBOR and the strength of the financial regulatory architecture, we will examine if there are any gaps in the criminal regime inherited by this Government and we will take the necessary steps to address them. I cannot comment today on possible criminal investigations into individuals involved in this

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activity. The authorities are exploring every avenue open to them but, shockingly, the scope of the FSA’s criminal powers, granted by the previous Government, does not extend to being able to impose criminal sanctions for manipulation of LIBOR. As part of our review into LIBOR and the strength of the financial regulatory architecture, we are examining whether strengthening the criminal sanctions regime for market abuse and market manipulation is warranted, and if so, we will provide for these powers quickly.

Next week, the Government will be publishing a consultation in response to the report on the failure of RBS and will consider the possibility of criminal sanctions for directors of failed banks when there is proven criminal negligence. Under the previous Government’s regime, fines paid to the FSA are used to reduce the annual levy other financial institutions are asked to pay. I am far from convinced that in all cases that is the best use of the money and we are considering amendments to the Financial Services Bill that ensure that fines of this nature go to help the tax-paying public, not the financial industry.

I have also asked my officials to investigate urgently whether that legislation could be applied to the fine imposed on Barclays bank. It is clear that what happened in Barclays, and potentially in other banks, was completely unacceptable and was symptomatic of a financial system that elevated greed above all other concerns and brought our economy to its knees.

That brings me to my final point. As I have said, a number of individuals are under formal investigation by the FSA, and that number is expected to increase as the investigations continue. The Serious Fraud Office is aware of the matters under investigation and there are ongoing discussions between the FSA and the Serious Fraud Office about the evidence as it develops. The chief executive of Barclays has some very serious questions to answer today. What did he know and when did he know it? Who in Barclays’ management was involved and who therefore should pay the price? It is quite right that the Treasury Committee has asked him to appear urgently to account for himself and his bank, and I congratulate the Chair of the Committee on doing that. We all want to hear his answers. The story of irresponsibility is not over yet.

Our financial services should be a source of economic strength and national pride for this country, but failures in our banks and financial system have cost the country billions and put thousands out of work. Those responsible should be held responsible. We want our financial services to support the creation of jobs and prosperity for millions. This Government are sweeping away the regulatory system that failed. We will protect taxpayers, punish wrongdoing and put right the wrongs of an age of irresponsibility.

12.31 pm

Rachel Reeves (Leeds West) (Lab): I start by thanking the Chancellor for advance notice of his statement, which was handed to me at 12.19 pm—two minutes before he delivered it. [Hon. Members: “Where’s Balls?”] As my right hon. Friend the shadow Chancellor is addressing the Local Government Association’s annual conference in Birmingham, I am responding for the Opposition.

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Nine months ago, the Leader of the Opposition talked about “irresponsible, predatory capitalism”, of which this is one of the worst cases yet. The public had been assured that the banks had cleaned up their act. Ordinary borrowers and savers were told they could trust the banks again, but these unfolding revelations shine a new light on shocking practices in one of Britain’s most important banks. What should have been an impartial process of reporting independent interest rate statistics became an exercise in cooking the books, cheating the system and fixing the market.

Financial stability and the effective regulation of our banking and wider financial services industry are vital for stability, for consumers to save and for businesses to invest. Getting the balance of regulation right is an important task for the Government, especially when hundreds of thousands of jobs depend on the industry and when all of us and small businesses in all our constituencies rely so much on the financial services sector.

There are three areas in which I have questions for the Chancellor, the first of which is dealing with the people who are responsible. Are those responsible in the banks being held—[Interruption.]

Mr Speaker: Order. This is an extremely serious matter which warrants serious consideration. Let it be absolutely clear to hon. Members on both sides of the House that if they want to shout out, they will not be called to ask a question on the statement. They should not shout, but if they think they are going to shout and then be called to ask a question, I am afraid they are rather deluded.

Rachel Reeves: Thank you, Mr Speaker. I could not agree more with you about the importance of this issue.

On dealing with those who are responsible, are those responsible in the banks being held accountable, or will this whole thing just return to business as usual? Are criminal investigations progressing, and which law authorities will be leading the conspiracy and fraud cases that might arise? Has the Chancellor reflected on the consequences for competition and has he considered involving the Office of Fair Trading, the Serious Fraud Office or the City of London police? We need to know who knew what and when, and criminal prosecutions should and must follow against anyone who might have broken the law.

Millions of home owners with variable rate mortgages, small businesses with floating loans and consumers who depend on affordable credit could have lost money because of what amounts to a price-fixing scandal. What support will be available for individuals and small businesses who have potentially lost out because of the market fixing and who contact the Financial Ombudsman Service or the bank directly? Is the FSA also investigating the role of the bank’s auditors in tracking and reporting the manipulation of the figures between the rate submitters and the traders involved? What is happening to ensure that other banks that have manipulated markets in a similar way are brought to justice?

Secondly, what is being done to prevent anything like this from happening again? We raised our concerns with Treasury Ministers about the regulation of LIBOR recently. On 6 March, during a debate on the Financial Services Bill about the set of unregulated financial activities that the Chancellor evidently felt should remain

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unregulated, the shadow Financial Secretary, my hon. Friend the Member for Nottingham East (Chris Leslie), asked the Financial Secretary directly about the

“billions of pounds of trades that are subject to the LIBOR rating”––[Official Report, Financial Services Public Bill Committee, 6 March 2012; c. 359.]—

and why that might need to be regulated. When asked whether he had a view—any view at all—about ending self-regulation, the Financial Secretary to the Treasury had a one word answer: “No.”

The Chancellor made a conscious decision to exclude LIBOR from the Financial Services Bill in its current form, even when he must have known that a massive FSA investigation into precisely that matter was under way. The reputation of the City of London and our financial services sector is at stake. Instead of Ministers’ saying that the Treasury has no view, surely we need swift action to prevent the market abuse? Will the Chancellor urgently revisit his decision not to regulate LIBOR arrangements and instead amend the Financial Services Bill, which is still before Parliament?

Thirdly, a much wider issue is the culture in the City of London. As Bob Diamond said only last year, culture is about

“how people behave when no one is watching,”

but people in his organisation thought they could do anything they liked, just to make a fast buck. They thought they would never be held to account and that they were effectively above the law. We cannot allow Britain to become a place where the privileged and the powerful act according to their own set of moral standards. That is why we are calling for the strongest punishment for those who have broken trust and broken the law, tough regulation to prevent such practices in future and a culture change in our banking industry. We must get our economy working for the majority, not just a few at the top. The Government must act.

Mr Osborne: The whole House will be both surprised and disappointed that the shadow Chancellor is not here to account for himself today. He was certainly there every single day while these abuses were taking place, as the City Minister responsible for regulating Barclays and other banks. The hon. Lady says that the Government should do this and that. We are doing all those things; the question is why did the Labour Government not do those things when all this was actually happening?

Let me answer the hon. Lady’s specific questions. She asks whether the individuals responsible will be held to account. Absolutely, and the authorities are carrying out investigations into individuals. She asks whether people who have broken the criminal law will be held to account. That is absolutely what the authorities are looking at but as I have said, the FSA’s criminal powers granted by the previous Government do not extend to criminal sanctions for manipulation of LIBOR. [Interruption.] The hon. Member for Nottingham East (Chris Leslie) asks, “Why is it unregulated?” It is because he did not regulate it—that is why. We are introducing a major Financial Services Bill, which has been through the House of Commons and is going through the House of Lords, to deal with the abuses that happened under the previous Government.

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Secondly, the hon. Lady talked about the regulation of LIBOR. Of course the Government have been reviewing LIBOR while awaiting the publication of this report, which we knew was coming. As I have said, we have considered it carefully and we are looking at criminal sanctions for market manipulation. The hon. Lady did not ask about this, but it is an important point so I shall repeat that we are looking at what can happen to the fines levied on companies under the Act passed by the previous Government. Those fines are used simply to reduce the levy that is paid to the FSA by the rest of the financial sector, so the money paid by Barclays would just go to reduce the levy paid by other banks to the FSA. We are considering changing that, looking at whether that is appropriate in all cases and, specifically, whether the fine that Barclays will pay can go to the general taxpayer, who has suffered so much as a result of the failures of the financial system.

Finally, the hon. Lady talked about a culture change in the City and in banking. I completely agree. That is why the Government have introduced very tough new rules on remuneration and the clawback of remuneration, which is what will happen in this case. It is why we asked John Vickers to look at the whole structure of our banking industry, and the Business Secretary and I are implementing reforms that will ring-fence our retail banks to protect them better. It is why we have before Parliament as I speak the Financial Services Bill, which will sweep away the financial regulatory system that failed this country so badly. The Labour party’s trouble is that it is led by the cheerleaders for the age of irresponsibility, but they have yet to say sorry for it.

Several hon. Members rose

Mr Speaker: Order. A very large number of hon. and right hon. Members are seeking to catch my eye, but I remind the House that there is significantly subscribed business to follow, under the auspices of the Backbench Business Committee; therefore, I must appeal for short questions and short answers.

Mr Andrew Tyrie (Chichester) (Con): What is now left of trust between Parliament and the banks? Barclays and probably other banks were profiting by lying and rigging the markets at a crucial time in the last crisis, when the Government had a right to expect that they would supply the then Chancellor with reliable information on the basis of which to conduct policy. The Treasury Committee will now investigate properly. Under the current legislation, as the Chancellor has pointed out, the Financial Services Authority has no power to bring a criminal prosecution in relation to not only LIBOR, but derivatives. Will the Chancellor undertake now to amend the Financial Services Bill to include derivatives and LIBOR in the legislation before Parliament?

Mr Osborne: I completely agree with the sentiments that my hon. Friend has expressed. I congratulate him and his Committee on acting swiftly to ask Mr Diamond to come and account for himself. As I said in my statement, we are looking at strengthening the criminal sanctions regime in general for market abuse and market manipulation, not just of LIBOR but in other parts of the market; and next week, as planned, the consultation on potential sanctions for directors of failed banks will be published. Sadly, the Government have been in this

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situation before with the FSA’s report into the failure of Royal Bank of Scotland, when the authority reported to us that it did not have the powers it would have liked to hold to account those responsible for the failure.

Mr Alistair Darling (Edinburgh South West) (Lab): I am sure that, in his quieter moments, the Chancellor will reflect on the fact that we are kidding ourselves if we think that the UK was the only country where this sort of thing was going on. The American authorities are just as concerned as our authorities. The situation is symptomatic of a culture that prevailed for much of the last decade, when, frankly, anything was allowed to go.

Does the Chancellor accept two things? First, LIBOR now has to have some degree of independent supervision. It cannot be a work of fiction. It is so important, especially at times of financial crisis—in 2008, we were concerned about the financial health of Barclays and other banks—to know exactly what it is costing them to borrow. Secondly, although the FSA may not have criminal powers, I am pretty sure it does have powers to take out of banks and put off the road the people who are responsible for doing this, the people who tolerated it, and those gained from it and condoned it. If that is not done, we have no chance whatsoever to move on in what remains a very important industry for this country.

Mr Osborne: The former Chancellor is of course right: there was poor financial regulation in American markets too, and part of the investigation has been conducted jointly with the American authorities—but LIBOR was set in London, which is why it is called LIBOR.

The right hon. Gentleman raised two points. The regulation and supervision of LIBOR is precisely what we are investigating, although we have to make sure that we are not regulating the LIBOR market as it existed three years ago. That market today is somewhat different and changing quite a lot, so we have to get the regulation right for 2012, not for 2006-07. His second point was on the individuals concerned and the FSA’s powers. I have spoken to Adair Turner and I am absolutely clear that the FSA is pursuing cases against individuals, but it is a prosecuting authority and it would not be appropriate for me to comment about those individuals and ongoing cases.

Mr David Ruffley (Bury St Edmunds) (Con): Can the Chancellor indicate how widespread the investigation is? How many other British banks are under investigation for market manipulation?

Mr Osborne: HSBC and RBS are two of the banks under investigation, but international banks such as UBS and Citigroup are under investigation too, partly for activities conducted in this country.

Mike Gapes (Ilford South) (Lab/Co-op): The Chancellor referred to the costs and penalties that the general public have suffered. Is there any estimate of how much per head ordinary people in this country have suffered from the activities of a group of corrupt banksters?

Mr Osborne: First, I hope the hon. Gentleman does not mind me saying on behalf of the whole House that we very much welcome him to his place. He has the deepest sympathy of the whole House for the tragedy in his family. It is good to see him back here.

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There is no estimate of the cost to individuals or consumers, and it would be very difficult to construct one. We are talking about the daily rate set, in the case of these abuses, over a three or four-year period, and it was used to set mortgage rates, loan rates and all sorts of other things. Sometimes the rate was manipulated to be too low and sometimes it was manipulated to be too high compared with the true market price. We do not have an estimate, but it is clear that, as the FSA says, the manipulation contributed to the risk to the entire financial system, which then, in effect, collapsed, not because of that, but as part of the culture we have been talking about, and the country has paid many billions for that.

Andrew Selous (South West Bedfordshire) (Con): I agree with what the Chancellor said about the failure of the previous regulatory regime, but as far as the senior management of the banks are concerned, does he agree that ignorance is absolutely no defence? They should have known what was going on.

Mr Osborne: I completely agree. One of the things that has shocked the entire country in the aftermath of the financial crisis is how little people appeared to know about what was going on in their banks. That is why it is very important that Mr Diamond accounts for himself and his management and explains what they knew and when they knew it.

Sir Stuart Bell (Middlesbrough) (Lab): May I build on the question put by my right hon. Friend the former Chancellor of the Exchequer about the independence of LIBOR? The Chancellor has not referred to the British Bankers Association, which was involved in 1984 in putting the rate together. Is it appropriate to talk again to the association to see if we can get a true, independent LIBOR?

Mr Osborne: The BBA is concerned about what has happened and has already instituted a review into the operation of LIBOR. I should like to hear its thoughts on that, but we need to look at the regulation of the rate and its independence. LIBOR is a very important rate that is used to set mortgage and loan rates for pretty much everyone in the country, so we want to make sure that what happened never happens again.

Claire Perry (Devizes) (Con): When I heard about the situation, it made me think that “light touch” should be substituted with “clueless”. I am extremely concerned about the damage to Britain’s international reputation as a world-leading financial centre. Has the Chancellor had any conversations with his international counterparts to keep them apprised of the investigation, and does he think this is happening in other markets?

Mr Osborne: The fact of the investigation was something I discussed with Finance Ministers and representatives of other Governments, but I have not spoken with any of them since the FSA report was published yesterday because the issues immediately before us are about Britain and a British bank. As I indicated in my response to my hon. Friend the Member for Bury St Edmunds (Mr Ruffley), however, a number of international banks were potentially involved, such as UBS and Citigroup, which are not British banks and are in part regulated by overseas authorities. The whole FSA investigation is part of a joint international effort with the US Department of Justice and the Securities and Exchange Commission.

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Mr Dennis Skinner (Bolsover) (Lab): If we are going to study the culture of the banking system and the changes that have taken place over the years, would it not be fair to start from the fact that the late ’80s, with the big bang in the City, is when the culture of the banks changed dramatically? If we are going to lay blame, let’s get the history books right.

There is another scandal with the banks. Now that the Chancellor is in the mood to tame them, what about looking at the question that blind and disabled people are contributing more to reduce the Government’s deficit than all the banks put together? Sort that out as well. As for saying somebody is absent, the Chancellor ought to be explaining why he did not turn up at the BBC and face the music with Paxman.

Mr Osborne: It is one thing not to appear on the BBC’s “Newsnight”, and another not to be in the House of Commons to answer to the public and to Parliament for one’s own mistakes during the years of irresponsibility. That is the question the shadow Chancellor will no doubt have to answer today. As for history lessons, let me say this to the hon. Member for Bolsover (Mr Skinner): he has never once got up and apologised for the mistakes of the Government he consistently supported over 13 years. It is no good blaming what happened in the 1980s; we are talking about what happened in 2005, 2006, and 2007, when he and his cronies were in charge.

Mr Desmond Swayne (New Forest West) (Con): When I left banking 16 years ago, we were a dull profession, but capable of giving solid advice. When did it go so horribly wrong? When did bankers start treating their customers as punters to be exploited or devoured? Can my right hon. Friend assure the House that his reforms will restore the status quo ante?

Mr Osborne: I think the answer to my hon. Friends question is: when he left the industry.

Mr Pat McFadden (Wolverhampton South East) (Lab): The Chancellor concentrated heavily on regulation in his statement. He was less keen to tell the House that throughout the period in question, he and his colleagues were calling for less regulation, not more. Does not the responsibility for wrongdoing really lie with those who did wrong—in this case, the traders in Barclays, and very possibly other banks, who participated in a rotten culture, far removed from the job that we want banks to do, which is supporting savers, home owners and businesses? If it really does come down to regulation, why will the Chancellor not accede to the request made by Opposition Front Benchers and now the Chair of the Treasury Committee to include LIBOR in the Bill that is going through Parliament?

Mr Osborne: First of all, when in opposition, we actually objected to the creation of the FSA, the tripartite system of regulation, and taking the Bank of England out of supervision. We voted against that. By the way, I remember—I was the shadow Chancellor at the time—the previous Prime Minister endlessly berating us for voting against that particular piece of legislation.

When it comes to responsibility, of course those involved should be held responsible. I have made that absolutely clear, and that is what the FSA is doing. However, I point out that the Government at the time

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should be held responsible for the culture that they presided over. As I say, we will take the steps necessary to prevent this happening again, and we are looking at the regulation of the LIBOR market to get it right.

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. A lot of Members want to speak and I want to get everybody in, but we need brevity in both questions and answers.

John Thurso (Caithness, Sutherland and Easter Ross) (LD): This ruling surely confirms that the financial markets, as many of us suspected, have been neither free nor fair, but rather a sewer of systemically amoral dishonesty. Is not the case for separation of retail banking from merchant banking now so overwhelming as to be unanswerable?

Mr Osborne: I agree with my hon. Friend that we should separate retail banking from investment banking, but the best way to do that is through the ring-fence as proposed by John Vickers. We asked him and his distinguished commission to look at the structure of banks, and explicitly to consider the option that some had proposed of completely separating retail and investment banking. The commission considered and rejected that option, and instead proposed an approach that it thought would be stronger for financial stability, and particularly for the stability of retail banking. That is the ring-fence approach, for which we will now legislate.

Stewart Hosie (Dundee East) (SNP): Notwithstanding that Barclays has been hit with a very large fine, it is truly shocking that market manipulation of this sort is not a criminal offence, particularly as the FSA final notice tells us that the abuses went on for three and a half years. I echo the comment made by the Chair of the Treasury Committee and others: we should look again at legislating now, in the Financial Services Bill, particularly as regards the powers of the Financial Conduct Authority—the conduct-of-business authority that will be responsible for this matter—to make sure that it has the powers and the sanctions it needs to deal with this sort of problem.

Mr Osborne: I agree with the hon. Gentleman. Of course the Financial Services Bill is before Parliament and there is still some time to go before it completes its passage, so it is a readily available vehicle, but we want to make sure that we get this right, given what went so badly wrong with the previous attempt to regulate the financial services industry.

Mark Garnier (Wyre Forest) (Con): While £60 million may sound like a great deal of money to the average man in the street, when it is compared with the size of Barclays’ balance sheet and the potential claims for compensation, does my right hon. Friend not agree that it is a relatively small amount of money? When he is looking at compensation for those who have lost out, will he take care to ensure that Barclays is liable for its own liabilities—that they will not necessarily be shared with other banks and that each bank takes care of its own liabilities?

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Mr Osborne: Under the current regime, it is up to the FSA to consider whether there is loss, and it is up to individuals who feel that there has been loss to bring their case forward. As I say, the Government have not been able to come up with a round figure for the total impact on the financial services industry and the economy of what went on, and nor has the FSA. If individuals feel that they have been affected, there are channels available to them.

Chris Bryant (Rhondda) (Lab): Is not the truth of the matter that all the political parties were so nervous about financial services business going abroad, because it is so international a business, that we were effectively in thrall to them? Would it not make perfect sense for Mr Diamond, when he appears before the Select Committee, to give evidence on oath?

Mr Osborne: It is entirely up to the Treasury Committee to decide how it wishes to conduct its business.

This Government are introducing far-reaching changes to our regulatory system and the structure of our banking system. It is far from clear that that receives the support of the shadow Chancellor. He has gone out of his way to point out what he thinks are the flaws in the Financial Services Bill, and he has gone out of his way at the Dispatch Box to defend the tripartite system that he designed. The hon. Member for Rhondda (Chris Bryant) talks about all-party consensus; let us have all-party consensus on clearing up the mess that the previous Government presided over.

Stephen Barclay (North East Cambridgeshire) (Con): First, I declare that before I joined the House, I worked for Barclays—[Laughter]and before that, the FSA.

As the Chancellor may recall, I wrote to him on 7 February calling for a change in the way fines were treated, and for an amendment to paragraph 16 of schedule 1 to the Financial Services and Markets Act 2000, so I welcome his announcement that other banks will not profit from the wrongdoing of banks that have breached rules.

I turn to an issue that the former Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), picked up: the ability to take enforcement action against senior managers, particularly at executive level. Lord Turner set out in his RBS report the difficulties of that, in terms of the evidential level required. Can the Chancellor update the House on when a response, in the form of a discussion paper from the Treasury, will be forthcoming? Will it be before the summer recess?

Mr Osborne: I am grateful to my hon. Friend for sharing his CV with the House. [Interruption.] At least he did not work for the shadow Chancellor. The answer to his question is that we are publishing the consultation next week.

Helen Goodman (Bishop Auckland) (Lab): The Chancellor has very sensibly said that he will look at how fines are used, but his answer to my hon. Friend the Member for Ilford South (Mike Gapes) about calculating how much people have lost is somewhat disappointing. Can he not look into whether the fine money can be used to compensate people? Surely he is not expecting every individual to make their own case against a large institution such as Barclays bank?

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Mr Osborne: I am happy to take away, because it has been raised by several Members, the issue of the total impact on the economy and on individuals. I would point out to the hon. Lady that that might be extremely difficult to work out, because the LIBOR rate was manipulated up as well as down. Sometimes the rate was too low for the true market price, and sometimes it was too high. It was manipulated by its derivative trading floor to suit the particular position that the bank had taken on that day, and that is why it is a difficult calculation to make. The FSA has made it clear, however, that that contributed to a risk to the country’s financial stability, and the cost of that is enormous.

Matthew Hancock (West Suffolk) (Con): In January, I set out the case for criminal sanctions against irresponsible management at significant financial institutions, so I welcome the announcement that that will be taken forward. May I push the Chancellor to make those sanctions as firm as can be done responsibly to ensure that those who profit from deep irresponsibility do not face the threat of walking out of the door and spending more time with their money but instead have the full force of the law against them if they do things wrong?

Mr Osborne: My hon. Friend was prescient in making his case. He has pointed to something that concerns a number of people: the apparent ability of, for example, authorities in the United States to use criminal sanctions, while the authorities in the UK have not been granted those powers by Parliament. That is precisely what we are looking at.

Mr Nicholas Brown (Newcastle upon Tyne East) (Lab): The Government’s new financial services regulatory architecture puts a lot of power and responsibility on the shoulders of the Governor of the Bank of England, but proposes no change to the relationship between the regulator and Parliament. May I ask the Chancellor to reflect again on the relationship of the House and the other place with the regulator, and how best we can establish a continuing—not adversarial—dialogue with the regulator so that problems, such as the one that he has shockingly reported to the House, can be explored and reflected on in a mature way, and not subjected to party political point scoring?

Mr Osborne: Of course, it is important that the regulator, including the Bank of England, is accountable to Parliament for its actions, and has to answer for its actions, while at the same time—and I think that there is cross-party support for this—we maintain the independence of the Monetary Policy Committee and the Governor in his role. The Financial Services Bill includes many new tools to increase accountability to Parliament and to the public. In the White Paper that accompanied publication of the Bill, we set out further changes that we are making in the House of Lords to increase that accountability.

David Mowat (Warrington South) (Con): Had price fixing on that scale taken place in other industries, under competition law, a fine of multiples of turnover could have been levied. Will the Chancellor tell us whether there is any possibility of a further fine, because £60 million is not a great deal to Barclays?

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Mr Osborne: The FSA, which is the appropriate authority, has concluded its work on assessing the fine that Barclays has to pay, but there is also the important question of what happens to the fine. I do not think that other financial institutions or banks benefit from the lower FSA levy as a result. We are therefore looking at precisely that in the Bill, specifically at whether the Barclays fine can go to the taxpayer, rather than to the financial services industry.

Kevin Brennan (Cardiff West) (Lab): Further to the words of my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), may I gently remind the Chancellor that he told Andrew Marr two things on 4 December 2005, when asked what he would have done differently if he was Chancellor? One was about taxes and the other was that

“we need…a lower regulatory environment”.

Why is his hindsight so different from his foresight?

Mr Osborne: First, the Opposition voted against the creation of the tripartite regime. Secondly, I remember the joyous occasion, when I was shadow Chancellor, at Mansion House in 2007 of all years, when the former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), told us about the

“new golden age for the City”,

and the right hon. Member for Morley and Outwood (Ed Balls) praised the virtues of the light-touch regulatory regime of which he claimed sole authorship, although these days, funnily enough, he does not talk about that very much.

Dr Thérèse Coffey (Suffolk Coastal) (Con): Does my right hon. Friend agree that, as the report by the Economic Affairs Committee showed, under Labour’s failed system, it was unclear who was in charge of regulating the banks? Is it fair to say that, sadly, Labour just dropped the ball on this one?

Mr Osborne: It is true that the tripartite regulatory system—and one of the three parts was the Government of the day—failed. That is self-evident, which is why we are making these changes. It is disappointing that they do not command the full support of the Opposition Front Bench, but perhaps the hon. Member for Nottingham East (Chris Leslie), on his 40th birthday, will reconsider his position now that he has reached a new age of maturity.

Frank Dobson (Holborn and St Pancras) (Lab): Does the Chancellor of the Exchequer agree, in view of the fact that the already overpaid bankers have been revealed to have bolstered their bonuses by corruption and criminal conspiracy, that it is about time that the Government and, in particular, the news media gave far less credence to bankers and their apologists when they come out urging austerity on everyone else?

Mr Osborne: Of course, the credibility of the industry has quite rightly taken a hit because of what happened. However, we have a new pay regime so that we can claw back some of that money from the traders and bank chiefs involved, which is a good thing. Secondly—and we are all rightly concerned about what has happened, and we need to change it—we have to change the

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financial services industry from one that was part of the age of irresponsibility to an industry that employs many hundreds of thousands of people and which creates jobs and prosperity in this country. It is the largest private sector employer. Knowing the right hon. Gentleman’s constituency, it is almost certainly the largest private sector employer there. Yes, we have to hold those responsible to account, but we must also rebuild the industry, because it is absolutely vital to our economy.

Sir Tony Baldry (Banbury) (Con): The City of London and its integrity are crucial to our country’s welfare. Does my right hon. Friend agree that this rather sorry, sad state of affairs is a wake-up call for every individual and institution in the City of London which, collectively, has to rediscover and reassert that sense of integrity?

Mr Osborne: I completely agree with my hon. Friend. As I said, this is an incredibly important industry for our future, despite the problems that the banking sector in particular has caused in our recent past. It is important that we do not taint the entire financial services industry with what went wrong. That industry includes insurance companies and all sorts of other businesses that were not involved, but the banks themselves, as the most prominent institutions in the industry, have a huge responsibility to change their culture and image with the rest of the country.

Mark Durkan (Foyle) (SDLP): What we are looking at essentially is daily daylight robbery, with a culture that said, “Anything goes, but nobody knows”. In light of what we do know, would it not be a dereliction to introduce the Financial Services Bill without specifically addressing LIBOR and looking again at the data competence of the regulators? Without wishing to draw the Chancellor on what criminal charges might be brought, does he believe that the forfeiture committee should look at the cases of other bankers who may be implicated?

Mr Osborne: The part of the country that the hon. Gentleman represents has been affected perhaps more than any other by what went wrong in financial services. Northern Ireland has suffered enormously from the failure of banks in the UK and in the Republic, and it has paid perhaps a heavier price than anyone else, so he speaks with authority and passion on this. Let me make it absolutely clear: we are going to deal with the regulation of LIBOR, and we will choose the most appropriate vehicle. The Financial Services Bill has been introduced in the House, so it is a convenient vehicle but, as I said, let us introduce the right regulation and get this right after its having gone spectacularly wrong in the past. As for the forfeiture committee, it is completely independent of the politicians of the day, he will be glad to know. No doubt, its members will have heard what he said.

Paul Uppal (Wolverhampton South West) (Con): Continuing the “Newsnight” theme, last night Lord Myners, when asked about the previous Government’s role, shrugged his shoulders and said that this was nothing to do with them. Does my right hon. Friend agree that although Opposition Members are anxious to distance themselves from banking involvement, the anything-goes culture was driven by light-touch regulation, and that if we are to make progress, those who sit on green benches or on trading desks must ultimately take responsibility for their involvement?

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Mr Osborne: My hon. Friend makes a good point, which is that those responsible in government at the time have to apologise and account for their own role before they will be listened to when speaking about their plans for the future. At present they do not seem willing to do that.

Derek Twigg (Halton) (Lab): I must check up on what Barclays says about customer care, following the debate today. In view of what the Chancellor told the House today, do he and the Governor of the Bank of England have full confidence in the senior management of Barclays?

Mr Osborne: What I have said is that the chief executive of Barclays has some very serious questions to answer about who knew what when, and who in the management knew that.

Stephen Williams (Bristol West) (LD): All our constituents will be outraged but perhaps not surprised by yet another scandal rocking the foundations of part of a functioning liberal democracy. A fine on the bank is all very well; that just hits the shareholders. The directors of that company have, at the very least, failed in their fiduciary duties to those shareholders and may have done or sanctioned an awful lot worse. What sort of sanctions should be taken against directors who preside over such terrible practice?

Mr Osborne: The Government whom the hon. Gentleman and I both support have introduced clawback so that the bonuses that were given to executives, traders and others in the banks can be clawed back if necessary. That did not previously exist. We are looking specifically at the responsibilities of directors of failed banks. The consultation on that will be published next week as a result of the FSA inquiry into what went wrong at RBS, and as I say, we are responding to today’s report by looking at the regulation of LIBOR, at the criminal sanctions that are available for prosecution, and at what happens to the fine, so that it is the people of Bristol who benefit from the fine that is paid, rather than other banks in the City of London.

Mr Andrew Love (Edmonton) (Lab/Co-op): This inquiry was started by the US authorities. The fines that have been imposed, which have been mentioned by many Members, were four times as large in the United States as they are in the United Kingdom. The US authorities also imposed stringent conditions on the operations of Barclays in this area. When will we get robust regulation in this country? When will the FSA send out e-mails entitled, “You’re nicked, big boy”?

Mr Osborne: It sounds like one of the e-mail exchanges that the traders were engaging in at the time, if one reads the report. The US authorities are rightly involved, because much of the manipulation happened with the US dollar market so it is perfectly understandable why they would want to be involved. I have raised this question. Perhaps it is an issue that the Select Committee would also want to consider—why in the US there seem to be more powers available to the authorities than in the UK, and what we can do in this House to make that change here so that the UK authorities have the full range of powers available to them.

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Mr David Burrowes (Enfield, Southgate) (Con): It is right that the focus of attention should not be just on the greedy bankers drinking Bollinger and the like, but on constituents—victims who have had their businesses and homes trashed as a result of this scandal. As they are the victims of gross irresponsibility, is it not time for some basic responsibility, with the chief executive of Barclays stepping down and the shadow Chancellor saying sorry?

Mr Osborne: As I say, the chief executive of Barclays needs to account for his actions, and the Treasury Committee provides the platform where he can do that, and as I said, the shadow Chancellor needs to account for his actions too.

Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab): Across the House there is agreement on the need for better regulation of investment banks, but does the Chancellor think regulation on its own, however well designed, will be enough to deal with the rotten culture at the heart of our investment banking, which this episode has revealed? Does it not need a change in leadership to change that culture fundamentally, going forward?

Mr Osborne: Where I would agree with the hon. Gentleman is that regulation cannot do everything and we need the right culture of management in the banks, but there is also a job for the regulators here. One of the purposes of the Financial Services Bill is to put the Bank of England in charge and allow the regulator to exercise more judgment. As I have said before in the House, the Royal Bank of Scotland ticked every single box when it came to its takeover of ABN AMRO, yet many people were asking at the end of 2007, “Is that a sensible transaction?” We need the regulators to be empowered to make judgment calls, not just to check whether every line of the regulation has been complied with.

Clive Efford (Eltham) (Lab): I agree with everything that the Chancellor said in his statement, but following that, all he has done is try to heap responsibility on the Opposition Front-Bench team, rather than dealing with the bankers who are at the heart of the problem. We all know that lighter-touch regulation would have come in had he been Chancellor at the same time. That is not the point. The point is that people out there are angry. Those people are thieves and criminals, and they have made beggars of many of our constituents, who want to know what this Government are going to do about it. Can the Chancellor say whether the financial regulatory Bill before the House deals with all the issues that have been raised as a result of the report from the FSA yesterday? If not, what is he going to do about it?

Mr Osborne: I will tell the hon. Gentleman what this Government are doing. First, we are getting rid of the tripartite system that failed. Secondly, we are changing—[Interruption.] I will tell hon. Members what failed—the regulation of financial services. The hon. Gentleman’s constituents and mine and everyone else are paying a very heavy price for that, so we are changing the regulator, changing the structure of banks in order to have ring-fenced retail banks—

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Clive Efford: No. The right hon. Gentleman is doing nothing. It is business as usual.

Mr Osborne: The hon. Gentleman voted for 13 years for a Government who failed this country. We are changing the regulation, changing the structure of banking—[Interruption.] and we are dealing with this latest abuse— [Interruption.]

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. We have heard the question. The hon. Gentleman should have the courtesy to listen to the answer, even if he does not like it. There is no need to get so excited—

Clive Efford: Plenty of people out there are excited.

Mr Deputy Speaker: Order. Is the hon. Gentleman questioning me?

Clive Efford: I apologise, Mr Deputy Speaker.

Jeremy Lefroy (Stafford) (Con): The prices of many important international commodities are set in London, such as cocoa and robusta coffee, and tens of millions of smallholder farmers and poor people around the world depend on these. Is my right hon. Friend confident that the kind of problems that we have seen with LIBOR are not spreading to such markets, which are so important for people around the world?

Mr Osborne: Of course we should be vigilant in the supervision of all markets. Although there have been many complaints of the kind that my hon. Friend makes, every investigation here and, as far as I am aware, in other jurisdictions has not found the kind of market manipulation in those commodity markets as we see in LIBOR.

Jonathan Edwards (Carmarthen East and Dinefwr) (PC): In Iceland bankers have been prosecuted, as well as those politicians who presided over the 2008 financial crash, including the then Prime Minister, on charges of gross negligence. What lessons has the Chancellor learned from Iceland on how to hold politicians and bankers to account for their actions?

Mr Osborne: The hon. Gentleman really is tempting me. As we do not see so much of the previous Prime Minister, perhaps we should send him off to Iceland, where I think he would be particularly welcome.

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Bob Blackman (Harrow East) (Con): It is clearly vital that we rebuild confidence in the banking system after this further scandal, but there are questions to ask about what compliance regime was going on in Barclays during the mid-2000s and in every other bank. Does my right hon. Friend agree that no matter what the regulations are, it is now vital that the banks come out with a clear, transparent and independent compliance regime to make sure that people who disobey the rules are caught very quickly?

Mr Osborne: My hon. Friend is right that the compliance regime is absolutely the first line of defence in the financial services industry. To be fair, Barclays did raise concerns about the LIBOR market operation in late 2007 and early 2008. I think that we can draw a distinction, as the FSA does, between what was going on in 2005-06 and early 2007 and what happened once the crisis hit. He is absolutely right that the compliance regime is vital, and if there are any banks listening to what has happened today that are not looking carefully at their compliance regimes and ensuring they are up to scratch, I think that they are being pretty foolish.

Ben Gummer (Ipswich) (Con): The Chancellor will know that concerns about the setting of LIBOR go back some time. A paper circulated by New York university’s Stern business school in 2008 raised the issue of the manipulation of LIBOR. Indeed, in that year the panel changed the criteria for and composition of the setting of LIBOR because of concerns about the fairness of the rate. What investigation will he undertake about the concerns raised at the time, whether they were picked up by the FSA, whether the American authorities passed any concerns to the Treasury and the FSA and, if so, what was done about them?

Mr Osborne: My hon. Friend is right that concerns were raised in late 2007 and in 2008 once the markets had frozen and become very illiquid. Barclays raised its concerns with the FSA, which is why the report draws a distinction between the situation before the summer of 2007 and the situation after, because different things were going on. In 2007-08 Barclays, and potentially other banks, were concerned about their reputation and the high cost of funding they were being charged, so he is right to draw that distinction. The FSA began investigating the complaints in 2009, as set out in the report. He asks a good question on whether any evidence was passed to the authorities by international bodies or other Governments. That is not in the report, so I am happy to get back to him on whether there was anything specific.


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Backbench Business

Green Economy

[Relevant documents: The Twelfth Report from the Environmental Audit Committee, Session 2010-12, A Green Economy, HC 1025; and The Sixth Report of the Committee, Budget 2011 and Environmental Taxes, HC 878, and the Government Response, HC 1527.]

1.22 pm

Laura Sandys (South Thanet) (Con): I beg to move,

That this House urges the Government to promote the right fiscal and regulatory framework to accelerate green growth as an intrinsic part of the UK’s economic recovery strategy.

I want to thank the Backbench Business Committee for providing time for this important debate at this moment in the economic cycle, when we are considering the draft Energy Bill, which will reform the electricity market, and different issues relating to the renewables obligation and other fiscal measures. I also thank the Economic Secretary to the Treasury for agreeing to respond to the debate and so many colleagues on both sides of the House for signing the motion.

Few terms in today’s industrial dictionary are as loose and ill defined as the word “green.” People talk about “the green economy” and “green jobs.” The word—I mean no disrespect to the hon. Member for Brighton, Pavilion (Caroline Lucas)—places a set of philosophical values around policies that, I believe, are not about debating sandal economies. I strongly believe that the measures the Government have put in place are aimed at increasing productivity, improving output, supporting greater competitiveness and building a resilient economy that is both lean and keen for the future.

In my constituency, I have seen at close hand the construction of a multi-billion pound wind farm. It is much more about heavy engineering than traditional green jobs. Those working at the cutting edge of new energy sources, vibration technology, surface engineering and friction reduction will deliver the so-called green revolution, but those individuals hold degrees in mechanical engineering, not sustainability. The green deal will implement energy efficiency measures in homes and offices throughout the country thanks to skills that are as wide ranging as construction innovation, research in plastics and synthetic materials and, of course, practical installation. From heavy engineering and the white coats in our university laboratories to those who fit cavity wall insulation, all these jobs and all these opportunities comprise part of that wide term, “the green economy.”

Today, the green economy is no sideshow; it represents a significant part of the UK economy, with more jobs than in information and communications technology, finance and insurance, and the motor trade. With low-carbon and environmental goods and services growing by 4.6% in 2009-10, it is a growth sector. However, we also need to talk about our industrial and energy policy in an international context. Why are South Korea, China and other Asian countries placing renewable energy and energy efficiency at the core of their industrial growth strategies? They are not overburdened with Green party candidates, and in some cases, such as China, they do not even need to secure votes. They are trying to build what is absolutely essential to this country: a

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strong, sustainable and resilient economy in which energy consumption and fossil fuel inputs are considered vulnerabilities, not assets.

Kelvin Hopkins (Luton North) (Lab): I note in the papers that have been provided for the debate that the Foreign Secretary has apparently been strongly converted to green energy, but that some of his Cabinet colleagues have not. Will the hon. Lady make every effort to get more people on the Foreign Secretary’s side in these matters?

Laura Sandys: I do not think that the Foreign Secretary has needed much persuasion or that there is any lack of will or determination in the Government. As I will continue to iterate, it is absolutely crucial that the policies we have put in place are sustained consistently into the future to attract the significant investment we need in the energy sector and the green economy.

If we look internationally, we will see that the so-called tiger economies are combining economic policies, subsidies, industrial focus and energy efficiency solutions to build their stronger economies. It is that co-ordinated model that I propose to the Minister today. Globally, there will be a race for resources, including energy, water and food. Energy consumption will grow by 33% over the next 20 years, with 50% of that growth coming from China and India. Even the Governor of the Bank of England has acknowledged that we must be cautious about our exposure to fossil fuels and that they could be considered a risk to financial security. Any country that is serious about future economic competitiveness, not least this one, will ensure that it limits its reliance on fluctuating and politicised energy inputs. Energy security, domestic production and low-input process re-engineering are not, in my view, things that it would be nice to have; they are a total necessity.

In many ways that creates a challenge for politicians. We need to come clean with the public and the private sector. We cannot con them that energy prices will come down today, tomorrow or even any time soon. The increase in global consumption is so marked that even the great shale gas discoveries in the US will not have a long-term impact on global costs. From the domestic perspective, Ofgem has calculated that domestic energy prices will rise by 60% by 2016.

It is the Government who will need to take an important role in the development of a long-term, secure and resilient energy supply. Frankly, there are some of us in the Energy and Climate Change Committee who believe that, whatever energy solution we adopt in the next few years, the Government will have to stump up a lot more money than they thought to keep the lights on, but that is a debate for another day. We need to deliver a strong and sustainable energy sector that delivers as much value as possible to the energy consumer and jobs and economic growth at the same time. To do that, we must look at energies in similar terms, whether tax incentives on fossil fuels or subsidies for the renewables sector.

Caroline Lucas (Brighton, Pavilion) (Green): Does the hon. Lady agree that the £3 billion earmarked in the Budget to support the fossil fuel industry—oil and gas drilling—undermines precisely the green agenda she is setting out?

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Laura Sandys: It does not undermine that agenda. We need to understand where subsidies, incentives and tax reliefs are deployed throughout our energy sector. I look to a future with a mixed energy economy that utilises all the different energy resources, but we must be transparent about where those subsidies lie.

Oil and gas exploration, for example, has been hugely beneficial to this country, as no one can deny, and that is why we subsidise the sector. Oil taxation measures, oil allowances, petroleum revenue tax safeguards, the ring-fenced expenditure supplement, the field allowance and coal investment aid are all important parts of the energy industrial strategy. As John Browne, formerly of BP, has said:

“People forget the government supported the oil and gas supply chain in its early days: with generous tax incentives, training programmes, strategic infrastructure; and supportive regulation.”

The Government are still doing so today.

Mr Peter Lilley (Hitchin and Harpenden) (Con): Will my hon. Friend draw breath and think again? On this suggestion that we have been subsidising oil and gas, we have very high taxes on petroleum products and an extra tax on petroleum production called the petroleum revenue tax, so where does she get this “subsidy” from?

Laura Sandys: The International Energy Agency states that the fossil fuel sector is currently subsidised by $480 billion.

Mr Lilley: In what form?

Laura Sandys: In all sorts of forms, from production right the way through to—

Mr Lilley: Rubbish!

Laura Sandys: Well, by 2020 the subsidy will amount to $660 billion.

Andrew George (St Ives) (LD): My hon. Friend will be aware that the noble Lord Stern, who produced a seminal work just a few years ago warning of the consequences of ignoring the impact of climate change, emphasised the way in which past Governments have given, and the current Government still give, tax breaks and other subsidies and support to the fossil fuel industry—to the disadvantage of renewable energy.

Laura Sandys: I thank the hon. Gentleman for his comment. I do not see the issue as a positive for one sector or another, but we must have transparency across all the energy sources that we as a country decide to—let us say—invest in or to support in any way.

Ben Gummer (Ipswich) (Con): Without wanting to get tied up in the argument about subsidy, whether it existed or the lack of it, I note the certain truth that there was significant state investment in the oil and gas sector in the 1960s and ’70s, which was repaid only when the gas and oil started flowing. An analogy could be drawn now with the green technology industry, where we hope that such development might happen, too.

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Laura Sandys: I thank my hon. Friend for his comments, and, exactly as he says, there was an emerging industry and significant Government support, which saw the opportunities that the sector could offer to our industrial policy and to energy security and resilience. On industrial policy, we also supported the car industry. In the ’80s we gave generous incentives to Nissan to attract it to the UK, and, when we look at our long-term, and now leading, role in the motor sector, we find that that has been a huge success.

So it is neither unusual nor wrong for government to incentivise energy investment or to support industrial development, and that is why I am pleased that this Government have put in place so many fiscal measures to do just that in relation to the new generation of energy sources and to investment in green technologies.

There are unfounded rumours that some in government have gone cool on the modern green agenda, but I know that not to be the case. I know that the Chancellor is committed to inward investment and to ensuring that companies such as Vestas reconsider their investment in north Kent.

I know that my hon. Friend who represents Sheerness—

Gordon Henderson (Sittingbourne and Sheppey) (Con): Sittingbourne and Sheppey.

Laura Sandys: I know that my hon. Friend the Member Sittingbourne and Sheppey (Gordon Henderson), whose main port is Sheerness, is very keen to ensure that in the south-east we secure an important manufacturer of wind turbines.

I know that Treasury officials are totally committed, as they were to the oil and gas sector in the ’70s and ’80s, to attracting the new jobs and growth that are emerging from the fastest-growing business sector in the UK; and I am sure that all in government are focused on securing the £200 billion of funds to rebuild our energy sector in a highly competitive capital investment market, where policy certainty is fundamental to investment decision making.

All that the Government need to do to unlock those industrial opportunities is to sustain and reiterate their consistent and constant policies, with subsidies based only on proper evidence and with investment messages that resonate among the largest industrial companies in the world, such as Siemens and GE, and the large energy generators.

Caroline Lucas: I am grateful to the hon. Lady for giving way to me for a second time, but I cannot let pass what she has just said about the Government’s “consistent and constant” green energy policies, because they have been the exact opposite. Whether on solar or on wind, they have chopped and changed, and that is exactly why so many solar companies and wind companies are so furious—because they cannot plan for the future.

Laura Sandys: I totally disagree. On solar power and feed-in tariffs, in particular, we inherited a totally unsustainable policy and system, which needed to be addressed, and unfortunately we have spent the past couple of years recalibrating in order to ensure that we have in place sustainable, consistent and long-term policies that will provide investment certainty to such companies.

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The UK is a great place to invest, and it has a strong vision for a modern, green and forward-looking economy. On the impact of our fiscal measures and support, we have a choice: to build that modern economy and compete with the forward-looking, future-proofing countries, such as South Korea, China and Japan; or to hold on to an outdated energy model that will not cost us any less but will leave us and our businesses stranded in the past.

Several hon. Members rose

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. I am going to have to introduce a time limit, but let us see how we go. If Members try not to use this much time, I shall start off the limit at eight minutes, but I may have to reduce it. How is that?

1.37 pm

Joan Walley (Stoke-on-Trent North) (Lab): I congratulate the hon. Member for South Thanet (Laura Sandys), who serves with distinction on the Select Committee on Energy and Climate Change, on bringing the debate to the Commons this afternoon, and I note that the Economic Secretary to the Treasury, the hon. Member for Norwich North (Miss Smith), is in her place, because if we really are going to make progress on this most important issue, we will do so only if the Treasury puts the whole issue at the core of its policy making.

It has always seemed to me perverse that we have a Green Book that is anything but green, so the time has come to ensure that the Treasury’s guidance on the national infrastructure programme, in particular, guarantees that every single policy is appraised and joined-up in taking further forward the agenda of securing more renewable energy and more energy efficiency.

I shall try very much to comply with the limit on speakers—

Mr Deputy Speaker: Order. The limit is eight minutes, and we will not go beyond that, so if we can please keep to it that will be much more helpful. I do not want to have to use a big stick, as I want to get everybody in.

Joan Walley: I, too, want everybody in the Chamber to get into the debate.

Let me bring to the attention of the House the two reports that the Environmental Audit Committee has produced, and which for the benefit of Members we have tagged on the Order Paper: the Committee’s twelfth report on “A Green Economy” and its sixth report on “Budget 2011 and Environmental Taxes”, which shows how we have examined the Treasury’s role in the matter.

We intended the two reports to be a starting point and an overarching basis on which the discussions that now need to take place throughout business, local government, the private sector and international development might be brought together, so that our policies—including what we do, and how we keep scrutinising what happens, in Parliament—can be tied to that agenda. We found that two years after making the commitment to increase the proportion of tax revenues accounted for by environmental taxes, the Government still have no strategy for achieving this commitment. In addition, they have not published their definition of an

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environmental tax. In our further follow-up inquiries, we will do what we can to obtain that definition and to scrutinise what is happening so that we get some real progress.

A further relevant aspect is the Rio+20 summit that took place last week. Its outcome was extremely disappointing given the lack of a highly ambitious outcome and follow-up action plan. However, all the different parties who were there, from business people, to legislators, to parliamentarians, to members of civil society were in absolute agreement that if the high-level leaders cannot come up with significant outcomes, everybody else has to raise their game. So it is with our Parliaments. I urge the Economic Secretary to demonstrate that she understands this issue by saying what she is doing through Treasury policy and in making sure in Cabinet meetings that there is a joined-up approach towards environmental taxes.

I want to raise issues relating to my own constituency, because we will not deal with this situation nationally or internationally unless we can deal with it locally as well. It is a matter of great concern to me that a large number of people in Stoke-on-Trent are living in fuel poverty. Indeed, of the 40,678 households in Stoke-on-Trent North, 10,120 are in fuel poverty, which is absolutely outrageous. It is a rate of 24.9%, which compares with the UK average of 18.6%—and even that is shocking. If ever there was a reason we should be getting support from the Treasury to address these environmental issues, it is that. We have a commitment to eliminate fuel poverty by 2016, and we will not achieve that unless we scale up everything that is done and look at how revenues can be reinvested so that whole communities see the importance of moving towards the renewables future that is so urgently needed.

I say this as someone who represents a constituency where the industrial revolution started because of our reliance on carbon.

Ben Gummer: Will the hon. Lady comment on the fact that the Labour Government spent almost £5 billion on trying to eradicate fuel poverty through various measures, with the consequence that fuel poverty went up in their 13 years in power?

Joan Walley: I am not going to get involved in any kind of partisan debate. Unless we can bring in measures that deal with fuel poverty in the short term and the long term, and get people’s commitment to work on this agenda instead of making political capital at the expense of everybody else, we will not deal with the problem.

In Stoke-on-Trent, we want to work with the coal authority to extract geothermal heat, which we see as one part of the solution in the context of all the other things that need to be done, to provide the jobs that are required, to provide training for people in the skills that will be needed for the new investment in renewables, and to see what we can do to bring about district heating schemes for city centre developments. We want to use the water that is underneath our city—albeit in what is, to date, an innovative way—to do what other countries, such as the Netherlands, have done to get the investment that is needed. We cannot do that without fiscal changes and incentives, and ways of getting innovation and new technology on board very quickly.

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On fuel poverty, yes, we have had investment, but we have seen that piecemeal investments do not deal with the whole issue. That is why the previous Government invented the CERT—carbon emissions reduction target—scheme. If we deal with whole communities, often in areas of Victorian housing where there are huge issues with energy efficiency, it is possible to get the investment that is needed in one fell swoop. That is the kind of scaling up that is now so urgently needed.

We have aspirations to decarbonise our city. We have an untapped renewable resource, but at the same time we recognise the need for investment across a wide range of different industries and sectors. If this debate helps to take that agenda further forward, and if our Select Committees can examine and scrutinise every single action that the Treasury is taking to make these aspirations a reality, given the urgency of the need for greater energy efficiency, it will have been worth while.

1.45 pm

Mr Peter Lilley (Hitchin and Harpenden) (Con): I oppose the motion. I suspect that I will be the only person to do so. It is not because we cannot have green economy. We could—indeed, we once had a totally green economy. We relied on windmills to grind our flour, on watermills to saw our wood, on horsepower for transport, and on biomass—as burning wood is now called—for heat, but we abandoned those when we discovered that coal could fuel a steam engine, that oil could fuel the internal combustion engine, and that gas and nuclear could give us electricity. Since then, we have enjoyed huge increases in our material standard of living based very largely on comparatively cheap energy from fossil fuels.

The great Victorian economist, Jevons, pointed out nearly a century and a half ago why coal had ousted wind:

“The first great requisite of motive power is that it shall be wholly at our command, to be exerted when, and where, and in what degree we desire. The wind, for instance, as a direct motive power, is wholly inapplicable to a system of machine labour for during a calm season the whole business of the country would be thrown out of gear.”

Much the same can be said about the unreliability of solar and the discontinuity of tidal energy. My hon. Friends may want to return to a mediaeval economy that relies on unreliable, high-cost water, sunshine, wood and wind, but I do not. I am a conservative, not a reactionary. Of course, it may be that some time in the future new sources of energy will become available that are as reliable as, and cheaper than, fossil fuels—perhaps thorium reactors, nuclear fusion or cheaper battery storage, in conjunction with the intermittent renewables that we are developing at the moment. I will rejoice if those come about, but they are some way off.

Dr Alan Whitehead (Southampton, Test) (Lab): Does the right hon. Gentleman accept that since the time of the quote he read out, we have had three further industrial revolutions, which makes his assumptions completely obsolete, and that we are in the middle of a further clean-tech and biotech industrial revolution that will

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make obsolete the previous assumptions on industrial revolutions? Has he taken that into account in his calculations?

Mr Lilley: I do not know which industrial revolutions the hon. Gentleman is referring to, but they certainly did not rely on our subsidising the use of more expensive energy to replace less expensive energy.

There are perfectly respectable, if not entirely convincing, arguments for saying that we have to replace cheap energy with expensive, less reliable energy to reduce carbon emissions, and that that is a price worth paying, to coin a phrase. However, the premise of this debate is that we can generate economic growth by introducing fiscal measures to subsidise and promote green energy. Let us be clear what that means: it means subsidising the replacement of comparatively cheap and reliable energy from fossil fuels with more expensive and intermittent energy from renewables.

Andrea Leadsom (South Northamptonshire) (Con): Does my right hon. Friend agree that the debate should really be about whether we want to switch from higher-emitting to lower-emitting sources of energy, rather than having this complete confusion all the time about its being a question of carbon emissions or renewable energy? Renewable energy is very expensive, but there are plenty of sources of non-renewable energy that would be far less carbon-emitting.

Mr Lilley: My hon. Friend is quite right. We could halve our emissions by switching to gas from coal, but that does not please the greens.

Andrew George: Will the right hon. Gentleman give way?

Mr Lilley: I am sorry, but I have given way a couple of times.

To suggest that we can make ourselves richer by adopting more expensive energy is self-evidently ridiculous. Most of what has been cited as evidence of green growth involves creative accounting on a scale that would make Enron blush. First, there is the suggestion that a green sector has arisen, which allegedly employs 1 million people, produces goods and services worth £120 billion and, as the Deputy Prime Minister said the other day, contributes 8% to our GDP—although the House of Commons Library can find no source for that figure, other than the Deputy Prime Minister.

Those figures aroused my natural scepticism, so I tracked them down and found that they came from a Department for Business, Innovation and Skills report published earlier this year, entitled “Low Carbon Environmental Goods and Services (LCEGS)”. My scepticism was confirmed by the opening words, which explain:

“The definition of the LCEGS sector is the result of five year’s work”.

You bet it was! It carries on:

“The definition is broad”—

I can believe that—

“and includes activities that may appear under the overlapping headings of Enviro, Eco, Renewable, Sustainable, Clean Tech, Low Carbon or No Carbon (and any other we might have missed).”

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That is not my comment, but theirs. It goes on:

“In the strictest sense it is not a ‘sector’ but a flexible construct or ‘umbrella’ term for capturing a range of activities spread across many existing sectors”.

What does the sector contain? A quarter of it or more has nothing to do with low-carbon activities at all, but relates to things such as sewage and water treatment, double glazing and controlling noise. Those are all excellent things, but they are not what we are talking about today and nothing to do with the low-carbon economy.

The biggest sector within the low-carbon sector looks promising: it is called “Alternative Fuel Vehicle” and employs 105,000 people, making it the biggest employment area in the low-carbon sector. I thought, “Terrific, we are employing 105,000 people making electric cars.” Sadly, however, we are not. I know one of the producers of electric vehicles and, alas, it is no longer producing them. It turns out that the name relates to mainstream and other vehicle fuels. We are not starting off some great manufacturing revolution through all this subsidy at all.

Laura Sandys: Will my right hon. Friend give way?

Mr Lilley: I will, because I intervened on my hon. Friend, even though it will use up my time.

Laura Sandys: The largest wind farm in the world is off the shore of my constituency, and 5,000 people are going through the port of Ramsgate on the construction side. The investment that has come in to the area has been significant—

Mr Lilley: That is fine, but my hon. Friend has read her speech. It is a question I was hoping for.

The growth of such sectors is either natural, in which case it is splendid, or it is the result of subsidies, in which case it is tosh. Subsidies can boost one sector at the expense of the rest of the economy, but we cannot make ourselves richer by providing subsidies. If a person moves a pound note from their left-hand pocket to their right-hand pocket, they are no richer. Subsidies can make us worse off, however. If we invest in offshore wind, which is twice as costly as conventional energy generation, we get half as much energy for a given sum of money. That makes us worse off, not better off.

Joan Walley: Will the right hon. Gentleman give way?

Mr Lilley: Only if the hon. Lady is going to prove that we make ourselves better off by producing half as much electricity for a given sum of money. She is not. If she gives up on that, I am glad.

The only way in which subsidies might conceivably generate an economic revolution is if we subsided the producers of goods and services that we could export;, but we are not allowed to do that under European rules. Instead, what we do is subsidise users, consumers and those who install generating capacity in this country. Unlike the Chinese and the Koreans, we are not allowed to subsidise those who manufacture wind farms or photovoltaic cells. We may want to, but we are not allowed to. The pretence that the subsidies that we are giving will promote infant industries is untrue.

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Andrew George: Will the right hon. Gentleman give way?

Mr Lilley: No, I have given way lots of times, including when it has reduced my own time.

Let us give up on the belief that we will create a new industry. All we are doing is subsidising jobs in other countries, whose manufactured goods we import. It is quite clear from a look at the detailed figures in this bogus sector that we are not creating an infant industry.

I will now give way to the hon. Member for St Ives (Andrew George), who wished to intervene, because I have a couple of minutes to go.

Andrew George: I thank the right hon. Gentleman for giving way. He must address the fact that the low-carbon goods and services market, including the renewables sector that he is talking about, is worth £3.2 trillion a year, employs 28 million people and is growing at a rate of 4%. Either we turn our back on that as a market for the UK or we engage with it, in which case we have to have production capital here.

Mr Lilley: Exactly, but who is we? If we is the Government, the hon. Gentleman is proposing that the Government subsidise industries to go for that £3.2 trillion world industry. In fact, that is a bit of an exaggeration, but let us suppose that the figure is correct. The Government are not allowed to do what he wants because of European Union rules, which he supports. We cannot offer infant industries subsidies in this country, or indeed anywhere else in the European Union, although some of our partners may do so in concealed forms. We do not and cannot, so let us not pretend that we are doing so.

The subsidies that we deploy in this country go largely towards generating electricity by more expensive means than is necessary, which increases the cost base of our industry and makes it less competitive across the board. I hope that companies in this country will set up businesses in this sector, as in any other sector, to win exports across the world, but the Government are not allowed to support those companies, and let us not pretend that they are doing so when, in fact, they are subsidising imports.

1.56 pm

Dr Alan Whitehead (Southampton, Test) (Lab): It is a pleasure to follow someone who can be defined as the Don Quixote of this debate, both figuratively and literally tilting at windmills.

The answer to the speech we have just heard is that the green economy is about not just underwriting one form of energy out at sea, but putting the entire economy on a green footing in terms of resources, energy and demand, and including our homes and our vehicles. As the Government said a little while ago:

“A green economy is not a sub-set of the economy at large—our whole economy needs to be green. A green economy will maximise value and growth across the whole economy, while managing natural assets sustainably.”

That is what a green economy is about. Those are not my words, but the first paragraph of the Government document, “Enabling the Transition to a Green Economy”. There is precisely one paragraph in the document about

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what the fiscal incentives to move to that green economy might consist of, so this debate is timely. We must ask what fiscal incentives we should put in place to bring about those changes.

Our aim in the economic recovery should not be simply to return the UK economy to business as usual as it was before the crash; it should be consciously to use the opportunity provided by the need to reinvest and to re-engineer our economy to make decisive moves towards the green, sustainable, low-carbon economy that the first paragraph of that document suggests we should be aiming for. We need to be clear about what that entails in how we craft our fiscal policy.

The emergence of a green economy cannot be brought about just by changing the dials on a few economic levers; it is fundamentally asymmetric with what has gone before. Low-carbon sustainable energy, for example, does not have an investment or operational pattern that is anything like what we have been used to for the past 100 years. We cannot construct the next generation of low-carbon power plants and providers on the basis of what has gone before.

We can no longer rely on the assumption that we can generally predict what capacity will be needed and then work out how best to meet it. Future energy policy must be based on investing first in consciously reducing demand and then in decarbonising the remaining demand. In doing that, we have to move to a different paradigm of investment, because demand reduction is a process not an asset, and because low-carbon plants are capital intensive but mean on fuel. In other words, low-carbon plants take a lot of money to construct but, once constructed, use fuel that is either free or recovered from other processes. The model of low and basic construction costs and investment in sourcing, transporting and using fuel, and paying for it as we go, is no longer applicable.

We can no longer rely on the assumption that the purpose of investment in resourcing the economy lies in procuring material into the economy, using it and disposing of the consequences. A linear model of investment and expenditure no longer applies. We will need to move increasingly to a circular-resource economy, in which we do not throw things away—there will be nowhere to throw them. We still throw things away, however. Something like 520 million tonnes of material comes into our economy for domestic consumption, and 200 million tonnes leaves as waste. Only 20% of our material is sourced from secondary inputs.

The changes we need are about investing not just in the green economy, but in jobs. Contrary to what the right hon. Member for Hitchin and Harpenden (Mr Lilley) said, they are real jobs for the future. Moving our resource base to the 70% EU27 recycling target would create something like half a million jobs in the UK by the early 2020s.

Diana Johnson (Kingston upon Hull North) (Lab): I am listening carefully to what my hon. Friend says about jobs. If Hull becomes a wind turbine manufacturing site, 700 jobs will be created directly and up to 10,000 jobs will be created in the supply chain. Those are real jobs for real people in my constituency.

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Dr Whitehead: My hon. Friend is absolutely right: not only are the jobs real, but they are long-term, skilled jobs. Other countries are investing heavily in such jobs as that sixth-wave energy and industrial revolution takes off across the world.

My reference in an intervention to the several industrial revolutions since the horse and cart and steam relates to the fact that we are now beyond the information and technology revolution and moving into the clean-tech biotech revolution, which is taking off throughout the world. Who is the world leader in clean energy? We talk about its pollution and energy profligacy, but it is China—a country that is clearly engaged in a conspiracy of useless non-job creation in the green economy.

Mr Lilley: I pointed out that the Chinese are allowed to subsidise their manufacturers of, for example, wind turbines, whereas we are not. Is the hon. Gentleman saying that we should subsidise such manufacturers, and how does he propose to alter the EU regulations to enable that?

Dr Whitehead: As it happens, EU regulations enable the underwriting of investment in technology that will lead to a lower-carbon economy. The renewables obligation is regarded as state aid, but such investment can be underwritten precisely because it brings new technology to market, reduces its costs and increases its prevalence. That is why the Chinese invested £34 billion in clean energy in 2009, compared with £18 billion in the US. As the hon. Member for St Ives (Andrew George) has said, the goods for low-carbon markets are expected to reach something like £4 trillion by 2015. Put simply, if we are not in that market, we will be sidelined not temporarily, but permanently.

Curiously, the recession gives our country an opportunity to be far more proactive than we might otherwise be. The cost of capital is low and liquidity is high because of the paradox of thrift: there is no danger that investment in green goods, services and plants will crowd out other forms of investment. Fiscally, we can go for it, but in view of the asymmetry, there must be clear and long-term signals.

What might we do? We could invest in decarbonising our homes, for climate change purposes and for demand reduction purposes. We should insulate homes to make them fuel poverty-proof—as we know, the green deal will only scratch the surface. We will get £4 billion per annum over the next 15 years from the EU emissions trading scheme, carbon trading and the carbon floor price. As a fiscal measure—without hypothecating what is in the tax pot—we could invest a large amount of that money in ensuring that our homes are energy-efficient.

We should invest in low-carbon energy provision in the way that I have outlined. If the state wills the ends of that provision, it must underwrite it. That need not mean putting money in the pot, but it does mean underwriting at least some of the risk. It is ridiculous, for example, that there is no state backing for the contracts for difference that will replace the renewables obligation under the Energy Act 2011, and that no demand-side measures, underwritten by feed-in tariffs, are being introduced under the Act. We can get long-term value by taking such fiscal action.

Fiscal policy need not involve underwriting money. Holding the ring on risk and bringing new forms of low-carbon power home is key. To get us to a position in

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which we have a substantial number of ultra-low carbon vehicles on the road, why not have a “feebate” system, whereby we use, as a fiscal measure, additional fees on high-carbon consuming vehicles to underwrite the new low-carbon vehicles that come on stream? We have a target of 1.7 million ultra-low-carbon vehicles on our roads by the early 2020s. That is the sort of measure we should undertake.

Above all, we should get real about the green investment bank. The bank will have £3 billion as a fund until 2016, or perhaps later, depending on whether the Chancellor decides that it is ready for investment as a whole, yet last year KfW, the German public green investment bank, invested £24 billion—more than a third of its £70 billion —on energy and climate change measures. We can do that if the green investment bank is a bank, but it needs the ability to raise bonds and money at an early stage. That is the sort of fiscal underwriting we need for this green energy, resource and social revolution that we are going through. We need to get on with that urgently, and I urge the House to support the motion to assist with that process.

2.6 pm

Gordon Henderson (Sittingbourne and Sheppey) (Con): We will hear in the debate arguments for and against investment in renewable energy, although I can see only one person in the Chamber who is against such investment. Those on both sides of the argument would probably agree on two things: the first is that there is only a finite supply of fossil fuels, and the second is that Britain relies too heavily on foreign imports for the energy needed to power its homes and businesses.

Both factors are problems that need to be addressed if Britain is to have long-term energy security. Hon. Members have a choice: we can leave the problem for our children and grandchildren to solve in 40 or 50 years’ time, when it might be too late to find a solution, or we can get to grips with the problem now and ensure that future generations can switch on their lights.

The problems I mentioned are interlinked and can be solved only by finding replacements for the fossil fuels on which Britain has become too dependent. There are a number of options, including nuclear power, shale gas, clean coal technology, biomass energy, anaerobic digestion, ocean wave energy, tidal power and wind energy. The sensible long-term strategy would be not to major on any one of those alternatives, but to establish a national plan that draws in power from all of those sources to supplement the reserves of oil that will become increasingly scarce and expensive over the next few decades.

The advantage of establishing an alternative energy industry is that most of the components needed to generate power could be sourced in Britain. That is particularly true of the renewable energy sector. As an island, we have the advantage not only of a limitless flow of water, but also of access to all-year-round wind, particularly offshore, which leads me nicely to that part of the green economic sector on which I would like to concentrate.

Many oppose an expansion in Britain’s wind capacity. They either say that wind turbines will never produce enough electricity to make them viable, or object to the use of Government subsidies to encourage investment

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in wind energy, or both. I would have more sympathy for the first argument if wind turbine technology had stood still, but it has not. For instance, the new V164 offshore turbines, which are being developed by Vestas on the Isle of Wight, each generate 7 MW of electricity.

It was with deep regret that we learned one week ago that Vestas has decided not to renew its option for land at the port of Sheerness, which had been set aside as the site for a factory that would have produced the blades for the V164. That factory would have created 2,000 new jobs for my constituency, and many of them would have gone to people living in my constituency. Given that my constituency has a higher unemployment rate than the average south-east constituency—in Sheerness East, where the factory would have been built, it is more than 11%—the decision by Vestas has been another blow to the morale of my constituents.

In many ways, Vestas’ decision is surprising, because Sheerness is an ideal location for a wind turbine factory, which is why I will be working closely with Swale borough council, Kent county council and the Department for Business, Innovation and Skills to attract another manufacturer to the Isle of Sheppey. Full planning permission is in place, and we have the right infrastructure and a willing and ready work force; all we need is somebody willing to take Vestas’ place.

Mr Lilley: Will my hon. Friend confirm that the one thing that none of those organisations can do is offer a subsidy to anyone to come to his constituency to produce wind farm components? It might be desirable that they should—it would certainly be a better use of money than subsidising rich landowners to install wind farms—but it is not the case. Can he confirm that?

Gordon Henderson: I can confirm that none of those organisations can offer such a subsidy, but that is not to say that we cannot do something to attract an alternative.

Andrew George: The hon. Gentleman will surely acknowledge that one thing that the sector, particularly the production sector, wants more than anything else is the underbelly of a functioning sector—one where there is a market, even if only initially in the UK, and certainty. That is one thing that the Government can and need to provide.

Gordon Henderson: I agree, and I shall come to that in a moment. Vestas has not given any reason for its decision, so we can only speculate on why it decided to pull out of Sheerness. A few months ago, it announced that it was slowing down development of the V164 to take account of the current economic conditions and the needs of their potential customers, which is what the hon. Gentleman touches upon. As I said, though, I will return to that point later.

That slow-down has resulted in the slipping of the date for erecting the prototype VI64 from the end of 2012 to 2014. I can only assume that Vestas took the decision—quite sensibly from a commercial perspective—that it did not want to lay out more money in an option on land for which it had no need for the foreseeable future. What will happen in 2014 is anybody’s guess, and that is a big worry both for my constituents and those of my hon. Friend the Member for Isle of Wight (Mr Turner). It is still conceivable, I suppose, that

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Vestas will come to Sheerness in 2014, but it will only proceed with its project if it can obtain firm orders for the VI64, and no potential customers will commit to those orders until they are clear about the Government’s commitment to offshore wind energy. Currently, however, the Government’s position is not clear, so I would like it to be made clear.

That brings me to the issue of subsidies, which has been raised already. As a Conservative, I am not naturally in favour of taxpayers’ money being used to help any business. If a product is good enough, it should be able to stand on its own two feet. I accept, however, that strategically Governments often use taxpayers’ money to invest in research and development in some industries, particularly where such developments are in the national interest—the defence industry is a case in point, of course. I believe passionately that securing energy supplies into the next century is in our national interest and that it will benefit Britain if taxpayers’ money is used to encourage the development of alternative sources of energy, whether nuclear power, shale gas or offshore wind. For that reason, I will gladly support the motion.

2.14 pm

Kelvin Hopkins (Luton North) (Lab): I defer to the previous two speakers on their knowledge of energy matters, but I have some points I wish to make. I was interested in the suggestion from my near neighbour, the right hon. Member for Hitchin and Harpenden (Mr Lilley), who seems to be strongly in favour of getting rid of the EU’s restrictions on state aids. I completely agree. I am completely in favour of state aids, where appropriate, and we should not be constrained from applying them by the EU—but then my Eurosceptic views are, I think, fairly well known. My hon. Friend the Member for Southampton, Test (Dr Whitehead) made a thorough, erudite speech that I will read in detail with interest later.

My concern is about energy conservation. Massive investment in energy conservation has everything to commend itself, while investment in nuclear generation has nothing to commend itself. With energy conservation, every home, office, public building and factory in the country can save enormous amounts of energy, so rather than generating energy, we need to conserve it. It is cheaper, too, particularly for the less-well-off living in constituencies such as mine, where some people still do not have roof insulation—aerial photographs at night show the infrared glow from those homes. These are poor people who cannot afford to invest, so it is something that the Government have to attend to.

Investment in energy efficiency would be enormously cheaper than focusing simply on generation. The Association for the Conservation of Energy has produced a report in the past few months demonstrating that such investment would be as much as £1 trillion cheaper over time than investment in generation and would create hundreds of thousands of jobs. Many of those jobs, in home insulation, would not be high skilled, so a lot of unemployed people, particularly young people, in my constituency who do not have high skills would be ideally suited to working in the sector. We desperately need these sorts of jobs at every level.

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Energy conservation would be labour-intensive, rather than capital-intensive, which is what nuclear investment is about. I have been informed this week that officials in the Department of Energy and Climate Change are doing a deal that will be massively beneficial to EDF. All the other energy companies have dropped out of the nuclear programme in Britain, leaving EDF the monopoly supplier. It is effectively owned by the French Government—they own 85%—and our DECC officials are so obsessively pro-nuclear that they are going to strike a deal that will effectively subsidise EDF to the tune of £5 billion. That money will go to EDF, a French company, and will be used to benefit French taxpayers, French consumers and, no doubt, the French nuclear industry as well. It will not benefit us at all. That £5 billion could be spent in many other ways, particularly on energy conservation.

The right hon. Member for Hitchin and Harpenden is right that we need a base provision of core generation for peak times, but if we invest heavily in green energy of every kind in order to maximise energy provision in other ways, we could reduce that core requirement to its very lowest level. Germany has already done it. I understand that it has invested gigantic amounts in all sorts of alternative energy, such that, on warm summer weekend days, they can effectively shut down their power stations and tick over on the alternative energy provision.

Zac Goldsmith (Richmond Park) (Con): The hon. Gentleman is absolutely right about energy efficiency and nuclear power. I echo everything he has said. Will he join me in urging the Government to put more emphasis on energy efficiency in the proposed electricity market reforms, the original intention of which was to introduce the concept of “negawatts”, which would put energy saved on a par with energy generated and therefore revolutionise the energy market and fundamentally change the dynamic?

Kelvin Hopkins: I thank the hon. Gentleman for his informed intervention. The problem is that the energy companies have been far too influential in DECC and have been able to bend the arms of even our Secretaries of State, because the central core of government decided years ago that it wanted to keep the companies and nuclear power on side. Those companies make money out of selling energy, not conservation or solar power at a local level; they do not make a profit out of that kind of energy provision. Indeed, we must have strong Government intervention to achieve that. In Germany, they have done it; with their feed-in tariffs being brought in years ago, the Germans are effectively decades ahead of us. In just a decade or two, half of their energy will be provided by alternative means. We are talking about enormous proportions of energy, and we have to go for that.

It has been said so many times, but we have wind on our shores and we are surrounded by sea and tides. We are aware of a positive move towards using the Severn barrage, that will produce enormous amounts of our energy, but there are other forms of generation, too, which could be flexible and provide us with base load, such as generation by burning organic waste, or anaerobic digestion. Unlike with wind and sun, we can turn that on and off. If we invested heavily in anaerobic digestion, so that all the organic waste was used to produce

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methane, which could be used either directly or to generate electricity, it would provide a massive contribution to the core base load of our electricity and energy provision. We have to go in this direction. We have to resist the power and controls of the energy companies and go for an alternative energy and green energy society.

I congratulate the hon. Member for South Thanet (Laura Sandys) on securing this important debate. If we do not move in this direction, we will be in serious economic trouble as well as environmental trouble.

2.21 pm

Caroline Nokes (Romsey and Southampton North) (Con): I add my congratulations to those of other colleagues to my hon. Friend the Member for South Thanet (Laura Sandys) on securing today’s important debate. As a member of the Environmental Audit Committee, I am conscious—as our Chair, the hon. Member for Stoke-on-Trent North (Joan Walley), who is no longer in her place, mentioned earlier—of the need to have a green thread running through every area of Government policy. That, of course, gives us the opportunity to have a very wide-ranging debate today. I am conscious, however, of the number of Members who wish to speak, so I shall try to keep my comments brief and restrict them to just two areas.

First, we have seen over the last few days the importance of fuel tax as a fiscal measure, and we are all well aware of the impact of high fuel prices on our constituents—not just on motorists, but on the consumers of goods transported by road, which in this country is, of course, absolutely everything. The carbon emissions from road transport make up a significant proportion—over one fifth—of the UK’s total CO2 emissions. Passenger cars, in particular, emitting in the region of 76 million tonnes of CO2 annually, contribute 13% of all CO2 emissions.

Clearly, this is an area where Government policy must be used constructively not only to encourage shifts in modes of transport, but to encourage road transport users to look for cleaner, greener alternatives. I am a big fan of differential rates of vehicle excise duty, as there is nothing that concentrates the mind of the user quite so much as choosing to drive a car that attracts a lower duty tariff. I urge Ministers to ensure that ultra-low levels of duty are retained for the cleanest and most efficient engines.

I do not wish to dwell today on passenger transport and the private car, so I shall move on to road haulage and the freight industry. This is an area of policy relating to green transport, which is a matter of concern to me, and I have asked a number of parliamentary questions on the subject. I particularly emphasise today the duty differential for used cooking oil biodiesel, which expired in March this year. I appreciate that biodiesel is currently little used in the passenger car sector, although it does have potential; it is far more significant in freight transport, which accounted for 26 million tonnes of CO2 emissions in 2010.

Without the support of the duty differential, many biodiesel users will inevitably switch back to fossil fuels, resulting in higher emissions and risking the loss of up to 3,000 jobs in the low-carbon economy. The double certificates allowed under the renewable transport fuel obligation look unlikely to be able to support this

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sector, particularly given that recent certificate values have fallen as low as 10p. While this industry is maintaining an ongoing dialogue with the Minister’s colleagues in the Department for Transport, looking to find an alternative solution, Treasury support and awareness is also vital.

The second area of policy I wish to highlight is house building. The hon. Member for Luton North (Kelvin Hopkins) mentioned the efficiencies that can be made through better insulation. Better use of water should also be highlighted, as should better and more efficient boilers. Linden Homes, a house building company that operates in my constituency, has come up with an innovative way to help the Government to progress a zero carbon policy. Its proposal to create a “new homes sustainability bonus”, has the potential to contribute towards a zero carbon policy in a sustainable and affordable way, at a time when the industry faces significant challenges.

At present, all new homes constructed in the UK are required to meet stringent Government energy and water efficiency standards—and rightly so. This company’s idea, as part of the policy mix for national carbon reduction, is that developers could, for all new units built from 2013, contribute a new homes sustainability bonus paid into a central fund, which would then be used to find the most cost-effective ways to reduce carbon within the UK’s existing housing stock, which chronically falls behind new home standards and has significantly higher energy and water consumption. Only 40% of all homes currently have energy-efficient boilers.

Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con): My hon. Friend is making a very good point about existing housing stock, which is the majority of the stock in this country. Retrofitting and improving energy efficiency in those homes is good not only for business, but for consumers, particularly for those on fixed incomes such as the frail elderly and people in other vulnerable groups.

Caroline Nokes: I thank my hon. Friend for that comment. He makes exactly the point I was moving on to.

Last year, the Environmental Audit Committee went to visit the Sustainable Building Centre in Leamington Spa, where we learned that if everyone in the UK with gas or oil central heating installed a high-efficiency condensing boiler, we would save more than 6.5 million tonnes of CO2 every year—and that is only one aspect.

Kelvin Hopkins: The hon. Lady makes a good point, but a 20% VAT charge is still made, when it could be only 5% VAT. That would be one simple subsidy to encourage people to invest in better and more efficient boilers.

Caroline Nokes: I thank the hon. Gentleman for that, but my point is that if home developers were obliged to pay into a central fund, we could start to ensure that people in social housing and those on the lowest incomes do not merely think about cheaper energy-efficient measures, but have a grant to enable them to achieve that. The hon. Gentleman mentioned insulation earlier, but improvement is possible from double glazing, too.

Particularly at a time when my constituency and parts of the south-east are under water stress, we must start to look at finding better ways to use our water. We need to be more efficient through rain water harvesting,

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using grey water and taking simple measures to improve sanitaryware systems, so that the cistern from the lavatory uses less water. All these measures could be done very cheaply indeed.

According to the Energy Saving Trust, each person in the average UK home currently uses 150 litres of water a day. Level 6 of the code for sustainable homes seeks to reduce that usage to just 80 litres—but, significantly, that applies to new-build properties. As I have already said, however, they are a tiny proportion of our housing stock, and far greater savings—both in litres per day and cost to the consumer—can be achieved through working on older properties.

Independent research has indicated that by shifting the focus on to the existing housing stock of 25 million homes, rather than on the already energy-efficient new-build sector, great efficiencies and more value for money can be delivered for the nation as a whole. That scheme would mean that existing home owners would see reduced energy bills, social housing associations would benefit from reduced maintenance costs and local employment would receive a boost, thanks to the number of trades people needed to carry out the work. New home buyers would be spared additional costs, which would in turn help to ensure the viability of many development projects—a critical factor for the UK economy given the already chronic under-building due to economic constraints.

Mr Robin Walker (Worcester) (Con): I congratulate my hon. Friend on her speech. She is making some important points about both water and heating, and about the work that can be generated. Does she agree that it is vital for the Government, when designing schemes, to work closely with the installers, who are key to people’s decisions about how to implement these policies in their homes?

Caroline Nokes: My hon. Friend is right. The Government must work hand in hand with industry and the installers to ensure that we come up with schemes that not only look good on paper, but work in the real world.

Evidence suggests that if the hearts and minds of consumers are to be won over to energy efficiencies, there must be demonstrable cost savings for them. In response to a survey conducted in April this year, 41% of people said that they would be prepared to pay nothing more to make energy efficiency improvements in their homes. A scheme of this kind has the potential to provide grants for householders, enabling work to be done at no cost to them while also saving money, reducing emissions, and helping the Government to meet their targets. Surely that it is a win-win situation.

I have mentioned water efficiency. A company operating in my constituency, i2O, has developed the advanced pressure management solution, the world’s first system to monitor and control water pressure through a pipe network. It is an extremely successful design which has been deployed throughout the world, and is most widely deployed to regulate water flow and manage leakages. Last month South East Water awarded the company a £1.5 million contract to help to reduce its leakage problems. In view of last month’s drought conditions

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throughout the country, I am sure that such technology will be needed more and more, and I am pleased that South East Water wanted to install the system as soon as possible. I urge the Minister to support companies such as i2O which are employing innovative and sustainable ways of managing water levels and distribution.

Let me again congratulate my hon. Friend the Member for South Thanet on securing the debate. I look forward to hearing the Minister’s response.

2.30 pm

Caroline Lucas (Brighton, Pavilion) (Green): I congratulate the hon. Member for South Thanet (Laura Sandys) on securing this important debate.

I am genuinely pleased to observe a fight-back from many Tory Back Benchers who are now trying to make the Government see the huge economic and employment benefits of a green economy, as well as the obvious environmental benefits. The scale of the challenge that they face was amply demonstrated by the speech of the right hon. Member for Hitchin and Harpenden (Mr Lilley), who sounded as though he was still living in the dark ages.

I do not know where the right hon. Gentleman has been for the past few decades, but when I last looked, Germany did not seem to be an economy that was struggling. Germany is doing incredibly well, and it is being built on an economy that is light years ahead of ours in terms of the use of the green economy. Let me remind the right hon. Gentleman that we ended the stone age not because we ran out of stones, but because we found a cleaner, more efficient way of behaving. In the same way, we will leave the fossil fuel economy behind because we now see cleaner, more efficient ways of behaving.

As for subsidies, there is a world of difference between subsidies that are time-bound until new technologies reach, in this instance, grid parity, and subsidies that have been going on for decades—as they have in the case of nuclear and fossil fuels—and are driving us ever closer to climate catastrophe.

Much of the debate has rightly focused on fiscal measures. Three years ago, the green fiscal commission revealed that a “polluter pays” tax shift would provide a significant boost for UK low-carbon jobs, as well as increasing competitiveness. It suggested that such a measure would reduce emissions by more than 30% by 2020, that it would create about 455,000 jobs, and that it would receive a great deal of public support.

It is important to bear in mind how widespread that support potentially is. Let me quote these words:

“I don’t underestimate how difficult it will be to rebuild public confidence that green taxes are genuine environmental policy… not just stealth taxes… I am… determined to rebuild this trust… As leading green… Professor Paul Ekins has rightly pointed out, this type of green tax switch might be termed a ‘win-win-win’ outcome… The time for action is now. Future generations will not forgive us if we fail.”

Those are all words with which I agree, but if a week in politics is a long time, four years is evidently an eternity. Those words were spoken by the present Chancellor to a Green Alliance conference back in 2008. I agree with all his words from 2008, but unfortunately they have not been matched by any real action since he has been in a position to put them into action.

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I hope that today’s debate will enable us to remind the Chancellor of his words of four years ago, and help to convince him that he should throw his weight behind the UK’s aim of becoming a world leader in low-carbon industries. If he does not believe in the environmental reasons for such action, he certainly ought to believe in the economic and employment benefits. I also hope that we shall be able to persuade him to convince the Treasury that its flagship “green bank” ought to be given the power to borrow as soon as possible.

More broadly, I should like the Chancellor to consider measures such as “green quantitative easing”. I was interested to note that even the former Government chief scientist Sir David King has echoed my calls for green conditions to be attached to the billions of pounds that are currently being poured into our banks. I think that the money should be going directly into the economy rather than into private banks, but wherever it is going, the Government should at the very least ensure that green conditionality is involved, so that we can ensure that it goes into low-carbon infrastructure. Crucially, they should also recognise that the low-carbon economy is far more labour-intensive than the fossil fuel economy that it will replace, so it makes good employment sense to invest the funds in green rather than fossil fuel measures.

The one thing businesses are united in calling for is certainty. The CBI says about low-carbon investment:

“Businesses need, above all else, policy certainty, consistency and clarity over the long-term”,

yet that has been conspicuous by its absence under this Government—demonstrating a failure of leadership by them. The sad news about Vestas reversing its previous decision to invest in the wind turbine manufacturing plant at Sheerness is just the latest casualty of the Government’s failure to provide that most basic condition.

Nigel Adams (Selby and Ainsty) (Con): Is the hon. Lady aware that in the last three days Vestas has also decided to close a manufacturing plant in China?

Caroline Lucas: It does not make me feel any better to know it is also closing plants in other parts of the world. It has clearly said one of the reasons why it did not go ahead in Sheerness was that it did not have enough orders for turbines on the order book. If that is a problem here in the UK, we should be addressing that, rather than worrying about what is happening in China.

One measure that would provide huge and tangible benefits both in my constituency and the rest of the UK is a massive investment in making the UK housing stock super-energy efficient. As others have said, that would not only be good in terms of getting our emissions down and creating lots of jobs; crucially, it would help tackle fuel poverty as well. This measure should be funded not through more levies on energy bills—as the Government plan, and which is inherently regressive—but from using funds such as the revenue from the carbon price floor and auctions of carbon emissions permits through the EU emissions trading scheme. That would have benefits in job creation, tackling high energy bills and achieving rapid emissions cuts. Some 118 Members have now signed the early-day motion on the Energy Bill Revolution campaign, which calls for precisely this step.

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Members support that EDM because they know that, sadly, as it is currently designed, the green deal policy instrument is extraordinarily weak and the energy company obligation part of it—the bit that is supposed to be tackling fuel poverty—looks set to fail miserably both against the Government’s own objectives and in terms of doing what is needed to cut carbon emissions and end fuel poverty. The truth is that the final shape of that fuel poverty package could result in a 50% drop in the funding targeted at low-income and financially deprived households. There will be far less money in the ECO than there is in the measures that are being phased out—the carbon emissions reduction target, the community energy saving programme and Warm Front.

Dr Daniel Poulter (Central Suffolk and North Ipswich) (Con): I think the hon. Lady is being disingenuous, to say the very least, in respect of this Government. It is because of the policies of this Government that we are seeing investment in increasing numbers of offshore wind farms, not only off the Kent coast, but, as I am sure my hon. Friend the Member for Waveney (Peter Aldous) will point out in his speech, off our coast in Suffolk. Will the hon. Lady at least accept that there have been many good advances in green energy—some of which are being delivered right now in Suffolk?

Caroline Lucas: That has probably happened in spite of Government policy, not because of Government policy. [Interruption.] I hear the muttering on the Government Benches, but what I say is true. The measures of investment figures show that under this Government investment in green technologies has decreased.

Dr Poulter rose

Caroline Lucas: I apologise, but I will not give way again, as I do not have much time left.

For many low-income households the green deal financial mechanism simply does not stack up. [Interruption.] The mechanism is based on loans with interest rates of between 6% and 7%. That creates the risk that these loans will be taken up by middle-class and well-off households, which might be able to afford to take them up without needing any support, rather than by less-affluent families with next-to-nothing in their pockets. Although there are limitations in respect of this market mechanism, if we are going to use it, we will at least need support to bring interest rates down to a more realistic level—as Germany has done through the development bank, KfW.

Renewable energy enjoys massive public support. That is true even of wind—although judging by the outcry from some Tory Back Benchers, we would be forgiven for assuming otherwise. In November, a YouGov survey found strong support for renewables, with 60% of people supporting wind power subsidies. The Prime Minister said in his half-speech at the clean energy ministerial meeting in April that he passionately believed that the rapid growth of renewable energy was vital to the UK’s future, but, sadly, his Government’s policies do not reflect those warm words. Instead, we hear rumours that he and his Chancellor are seeking backroom deals for a 25% cut in subsidies to onshore wind. Any reduction beyond the proposed 10% cut to wind subsidies would fly in the face of environmental and economic common

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sense, jeopardising the future of both onshore wind and investment in other renewables across the country, as well as the thousands of jobs they could bring.

The solar feed-in tariff fiasco provides another example of coalition Ministers creating harmful uncertainty. As one solar company in my constituency described it, the industry has had to endure a series of “unsettling knee-jerk changes” that have undermined not only investor confidence, but public confidence in the solar industry. Solar energy has huge potential in the UK and it is a tragedy that we are not supporting it more.

Marine energy also has massive potential. With the right support the UK industry could seize almost a quarter of the world’s potential market, according to the Carbon Trust. That would be worth an estimated £29 billion per annum to the UK economy by 2050 and would support more than 68,000 jobs. Sadly, that potential looks hugely unlikely to be realised, given that we have a Government Budget with a £3 billion tax break for more offshore oil and gas drilling—

Mr Lilley rose

Caroline Lucas: I will not give way, because I am running out of time. I am sorry. I was going to say that we also have a draft Energy Bill that threatens to usher in a new dash for gas.

Finally, in my last 40 seconds, I wish to pick up on the way in which “accelerate green growth” is being used in the motion, as we need to be a little clearer about that. Of course we need faster growth in some sectors of our economy, including in renewable energy and energy efficiency, but we must stop pretending that we can have infinite growth on a planet of finite resources. The current economic crisis gives us the opportunity to change direction and get on the path to a very different kind of economy, one that it is not measured solely by GDP. The problem with GDP is that it measures everything in cash terms; it does not measure what is growing, and it does not give us any sense of the quality of the economy and whether it is delivering true well-being.

Several hon. Members rose

Madam Deputy Speaker (Dawn Primarolo): I call Nigel Evans. [Laughter.] I do apologise. I meant, of course, Nigel Adams.

2.41 pm

Nigel Adams (Selby and Ainsty) (Con): That is not the first time I have been mistaken for Nigel Evans, and I see that as a great compliment, so thank you, Madam Deputy Speaker.

I am pleased to be contributing to this debate on the green economy and the fiscal support it receives. Like many other hon. Members, I congratulate my hon. Friend the Member for South Thanet (Laura Sandys) on securing it. It is particularly important in my constituency, because of the substantial investment being made in sustainable biomass and carbon capture. Drax and Eggborough power stations are based in my constituency, as is Kellingley colliery, the deepest coal mine in the UK. Drax currently produces more than

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7% of the UK’s electricity, having generating capacity of just under 4,000 MW. It has been investing in research and development and in new facilities to co-fire with an increasing percentage of biomass. It has proven that its current plant can successfully operate with 12.5% co-firing, and there are plans to increase that to 20% and to build a new power station that would be fired with 100% biomass. Eggborough power station proposes to convert its 1,960 MW generating capacity to run entirely on biomass.

Those are the big wins we need if we are to secure our targets for reducing CO2 emissions and ensure that the green economy flourishes. Biomass results in 80 to 90% less net CO2 emission than coal, and these are the facilities we need to produce power when we need it and not just when the wind blows. They also currently provide secure employment for a large number of people.

We are talking about world-leading companies that have proven that their technology works and that have solved the supply and materials handling problems. However, they cannot provide a solution on financial viability without having a UK policy framework that supports it, which is why I am delighted that we have a Treasury Minister here with us today. Drax is already the UK’s largest producer of renewable energy, even without yet running its current renewable capacity to the full—the current renewables obligation framework does not make it financially attractive to do so. Drax is willing and able to go further, but the policy framework must support rather than hinder it.

Unlike onshore wind, the transition to biomass in my constituency enjoys considerable local support. The local labour force has the expertise to support the plant and sees it as a great new employment opportunity. Public support is important and these projects enjoy support rather than enduring local opposition. I am afraid that the same cannot be said of onshore wind farms, which are proposed in many numbers in my constituency. There is widespread knowledge about power generation and I am repeatedly reminded that more than 3,000 onshore turbines operating last year, which received nearly £400 million of subsidy, produced only 3.3% of the electricity consumed.

Such a level of subsidy for wind, which proudly claims to be the cheapest form of renewable energy, is not a particularly good use of the money that is being levied from the consumer, driving more of them into fuel poverty every year. Electricity that can be produced as and when required, at any time of the day or night, must be worth more than electricity produced only when the wind blows.

Electricity generated near to the industry and homes it supplies via a major node on the grid must be worth more than power from the wind generated in some remote location. Electricity generated competitively with a local labour force must be worth more than electricity that depends on imported turbines with low UK labour content. We should address those issues and I appeal to the Economic Secretary to the Treasury to allocate our financial resources accordingly.

2.46 pm