Why Labour is right to oppose Britain’s new carbon tax

By 2015, the coalition's carbon price floor will be inextricably linked with rising energy prices.

Just after 7pm on 5 July last year a significant but largely unnoticed piece of political positioning took place that will increasingly take centre stage at Westminster.  As MPs debated the Finance Bill, line by line, Labour’s Shadow Economic Secretary, Kerry McCarthy, announced that the party would oppose the coalition’s plans to impose a carbon price floor on electricity generators and industry from April 2013. 

The then Economic Secretary, Justine Greening, sought common ground in the debate but Labour stood firm and refused to withdraw its amendment. The House divided and the legislation passed with a majority of 59. Some nervous Tory MPs decided to raise their valid concerns over the impact of a new high carbon tax and three voted against the coalition's clause with many abstentions, but this was well before coalition policy U-turns had become an established fact of Westminster proceedings.

So why was this significant, and why could this play well for Labour in the run up to the next election? Ironically, one has to look at Australia where the incumbent Labor government has just introduced its own carbon price floor (known commonly as the carbon tax) and is now trailing the Liberal/Conservative opposition by up to 20 per cent.

So what is the problem? The price of carbon, traditionally set in the market through the European Union Emissions Trading Scheme (EU ETS), is arguably far too low at around £5/6 per tonne, and therefore, it is argued, too uncertain for the long-term low carbon investment decisions that need to be made. In response, the coalition has decided to impose a unilateral UK carbon price floor to set a guaranteed minimum price for carbon. It has turned its back on the EU scheme, which has kept carbon prices in the UK level with those across Europe.

In effect, the new policy will introduce a UK floor on the price of carbon emissions facing power generators and industry in the UK. If the ETS price is ever above the floor, the tax would be zero; if the EUA price is below the floor, the new tax would make up the difference.

The 2011 Budget confirmed the introduction of this tax from 1 April 2013. The floor will start at £16 per tonne of carbon dioxide (tCO2) and follow a linear path to target £30/tCO2 in 2020 (both in 2009 prices), rising to £70/tCO2 in 2030. According to Treasury, the new tax would raise £3.22bn in tax revenues by 2015-16, which is (unsurprisingly enough) roughly about the amount HM Treasury offered in giveaways at the 2011 Budget. But Britain’s policy to now go it alone with its own carbon price floor from next April risks, undermining any effective and consolidated move to deliver a similar minimum price for carbon in other countries, especially across our main economic competitors in the EU.

So Britain will abandon the EU Emissions Trading Scheme where its absence will allow the price of carbon on the continent to fall to new lows. Today, the price of carbon in recession-hit Europe is only around £5/6 per tonne. It is highly likely that from April next year, when British generators and industry are paying £16 per tonne for carbon, our European competitors could be paying a third of the price. 

Also, given that over 70 per cent of UK electricity is generated from coal and gas plants, this is likely to help electricity bills to spike from 2013 further boosting fuel poverty.  By leaving the EU ETS the government has abrogated its right to lead the fight for a pan EU carbon price floor which would have allowed the UK to operate on a level playing field with the rest of Europe.

The ongoing political debate has confirmed what investors have known ever since the policy was introduced - that the "floor" is nothing more than another fuel duty escalator that can't possibly be banked on, that it won't actually reduce net emissions in the EU; that the best way of introducing a carbon price floor is at a European level and this has been largely been ignored; and that it is a policy that will do nothing for investor confidence, except for providing a windfall to existing low carbon generation, particularly existing nuclear power stations.

So Labour goes to the general election opposing the coalition’s new carbon tax, which by 2015 will inevitably have its fingerprints all over rising energy prices and will have caused some sections of energy intensive industry to scale back plans and cut jobs. Whilst Ed Miliband might not sound or look like Australia’s Tony Abbott, his opposition to Britain’s new carbon tax could prove just as effective as Abbott’s, but with Britain’s voters.

Tony Lodge is a Research Fellow at the Centre for Policy Studies.  His new pamphlet, The Atomic Clock – How the Coalition is Gambling with Britain’s Energy Policy, is published by the CPS.


Electricity pylons crossing the Essex countryside. Photograph: Getty Images
David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide