Contribution
My Lords, Amendment 6 requires, perhaps by way of introduction, a few words on the structure of the subsidy and how it actually works. Bear in mind that prior to all this, as I said earlier, a sustainable aviation fuel mandate was put in place by statutory instrument some 15 months ago which guarantees the demand for the product. There is a guaranteed demand: in simplistic terms, it is like saying that everybody in the country has to eat half a pound of chocolate every day.
If that were to be the Government’s policy and they put that in place, you would expect chocolate factories to spring up. Existing chocolate factories might expand; new chocolate factories would come into existence. So, what is the problem? Why is it that putting the demand in place is not sufficient? Why do you need to go further? Why are factories and investors not producing this stuff for which you have put in place a mandatory and growing demand over the years ahead? I do not know the answer to that.
The Government have decided that putting the demand in place is not enough. To satisfy our somewhat rapacious foreign investor friends, they also need to be given a guaranteed price for the product. Not only is half a pound of chocolate going to be eaten every day, but you will have to guarantee the price in order to get the chocolate factories to work.
That is what the Bill does. It is not about putting the demand in place—that exists—it is about guaranteeing the price, and the way to do that is to provide some form of subsidy. Of course, a direct subsidy out of the coffers of the Treasury is almost unaffordable in our current circumstances, but it is also unnecessary because the Government have, as we know, discovered in the field of wind farms and solar panels the device of the contract for the difference.
A contract for difference is a way of guaranteeing a price, and it is done by putting in place a counterparty—separate from the Government, but essentially a government glove puppet—which will enter into contracts with these foreign investors to guarantee them a price. They will negotiate the strike price, but on what basis they will negotiate it, what skills they will bring to negotiating it, how they will be certain they are not going to be given the runaround and end up with a very adverse price—none of these things is put in place or explained to us. They will end up with a contract, which will be in place for a number of years. The effect of the contract will be to increase the price of the fuel. The increase in the price of the fuel is very likely to find its way through to ticket prices. So this Bill has an indirect but none the less fairly ineluctable consequence: it will increase air fares.
When you ask the Government by how much air fares will go up—and we are going to do that later, in group 5—they say they have done an assessment and it will be, per year, which I think means cumulatively every year, £1.50 up or £1.50 down. They do not know. It is a fairly small amount and fairly neutral, but it is almost impossible to discern how they reach that conclusion, or to find it very credible, because airlines are complaining that the HEFA they have to buy already, because the mandate is in place—and they were buying it even before the mandate came in—is turning out to be very expensive indeed compared with standard aviation fuel.
It is wrong that Parliament and the Government should burden future generations for unnecessarily long periods with these additional costs of travel and subsidies. Therefore, I propose that any contract entered into strictly by the counterparty—not by the Government but under the direction of the Government—should have a term of no more than 10 years.
Clause 1(7) of the Bill—I drew attention to this in the last group—envisages a sunset clause after 10 years. It is extendable under Clause 1(8), as the Minister said, but it has a sunset clause in it. That, however, is not a limitation on the length of the contracts that might be entered into during that 10-year period. You could quite lawfully enter into a contract with a life of 100 years within that 10-year period. There should be some limit put on that, because these costs will fall not on oldies like us, whose flying days are passing, but on young people over the rest of their lives and their careers. There may well be no justification for it by then. Who knows, by then we may well be paying people to produce a fuel but life has moved on and the fuel is not necessary. Yet we will have to buy them out of that, and that will fall on air passengers. So, a10-year limit on the contract should be quite enough for any foreign investor to start up this process and get it going. They have a guaranteed price for 10 years and after that they should be on their own. That is what the substance is of this amendment, which I beg to move.