Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 40 - 59)

WEDNESDAY 13 DECEMBER 2000

MR STEPHEN TIMMS MP AND MR CLIVE MAXWELL

  40. Can you not somehow force the oil companies to pass that on? If you were cutting duty you would be very surprised if you cut duty in beer or wine or cider and suddenly found that was not being passed on to people in the pubs. They would be rightly outraged.
  (Mr Timms) It would not be the first time.

  41. Can you not actually ensure this is going to happen?
  (Mr Timms) No. We do not have retail price maintenance on petrol and we are not proposing to introduce it. The reality is that competition for the supply of petrol will see to it that the duty reduction is passed on but that is not a matter which I control.

  42. You mentioned that two pence would happen once nationwide access was achieved for ultra low sulphur petrol. How are you going to determine when that nationwide access has been achieved? What is the criterion? Is it number of stations which have it across the country, percentage of stations, what is the criterion?
  (Mr Timms) What we have said is that we want to make sure that the fuel will be available in all parts of the country. At the moment, it is rising to round about 40 per cent of petrol sold being ultra low sulphur petrol. I am pretty hopeful, and certainly the oil companies have been quite reassuring, that by the time we get to the budget it will be available in all parts of the country but that is going to be the criterion we use.
  (Mr Maxwell) It is that regional dimension which is regarded as most important, partly because clearly petrol is supplied from refineries in different parts of the country. That is one reason why it is important that it is not areas around particular refineries which are getting low sulphur petrol but that it is available to all areas of the country.

  43. Is it that it reaches 50 per cent of all petrol stations, 60 per cent, 40 per cent? At what time do you actually say fine, we now have nationwide access therefore bring in the two pence cut?
  (Mr Timms) What we want is that everybody, wherever they are in the country, are within reach reasonably of ultra low sulphur petrol.

  44. Even in the rural areas.
  (Mr Timms) Yes; certainly.

  45. That is very reassuring to hear. On the actual diesel side that has been extremely successful because we now have 100 per cent usage of ultra low sulphur diesel. Therefore any further cuts in duty there will simply be a duty cut. Now that you have 100 per cent of the market you cannot actually encourage more of that market by cutting the duty level. So will you cut duty level?
  (Mr Timms) What we have wanted to ensure was that the current playing field, which we think is a fairly level playing field between petrol and diesel, is maintained. We want to introduce the incentive for ultra low sulphur petrol, for the reasons we have just been talking about, but in order not to tilt the playing field that requires a reduction of the same amount for low sulphur diesel.

  46. Even though it is now 100 per cent of the market.
  (Mr Timms) Yes. Clearly we are not aiming to incentivise further ultra low sulphur diesel because it is effectively 100 per cent already but we do not want to mess up the competitive position between petrol and diesel. We want to keep the current equilibrium which we think is about right.

Mr Jones

  47. To maintain your metaphor of the level playing field, the playing field is very level between petrol and diesel in this country. If we extend the playing field across the Channel, the playing field between petrol on either side of the Channel is rather sloped. The playing field between diesel on either side of the Channel is a precipice. What consideration does the Treasury give to the relative prices of fuel on either side of the Channel or indeed within Ireland?
  (Mr Timms) I am the Treasury Minister on the Road Haulage Forum and one of the topics we have been looking at on the Road Haulage Forum has been the competitive position of the UK haulage industry compared with the industry elsewhere in Europe. Clearly the different models of fuel duty here and elsewhere are an important element of that consideration but it is not the only one. Other tax levels also are important and the fact, for example, that we have very low levels of corporation tax is also a consideration, that we have much lower levels in National Insurance.

  48. Yes, but we cannot transport corporation tax. I know you can shift the company but in Ireland you can easily transport the fuel from one side of the border to the other, so it is a different issue.
  (Mr Timms) Yes; indeed.

  49. You can transport it across the Channel as well but not quite as easily as you can in Ireland.
  (Mr Timms) I take your point. Your question is: what attention do we pay to these matters? I was just making the point that we have been looking at the levels of taxation being applied to the haulage industry in the different countries of the EU. However, we have not only looked at fuel duty, we have looked at the other taxes as well. Specifically about Ireland and the encouragement to people to smuggle fuel across the land border, that is something we have looked at very carefully. I have received two deputations now from petroleum retailers in Northern Ireland who were obviously very concerned about the position. Our response has been to increase the customs input very substantially across Northern Ireland to the problem of petrol and diesel smuggling. The initial results I have seen from that have been very encouraging, that we are identifying substantially greater amounts than we were before of smuggled fuel and I hope that will have the effect of curtailing that problem, which has been a very serious problem for petroleum retailers in Northern Ireland.

  50. Do you think there are any good historical examples of countries being able to maintain a hugely different rate of revenue on a product which is transportable for any length of time?
  (Mr Timms) Yes; I think there have been numerous examples of that.

  51. Can you give me some then?
  (Mr Timms) We have had different rates of fuel duty; at one time we had a significantly lower rate than in Ireland. That carried on for quite a few years. I am not sure precisely what the differential was but there are several examples one could give.

  52. Would you agree that the fuel protestors and the transport lobby were essentially arguing a case for tax harmonisation? Did they not have a point? Answer the first rather than the second bit because I realise it is an easier political question to answer.
  (Mr Timms) I certainly did not see any banners saying "Harmonise Fuel Duties". The process in the EU that we have of course supported has been the development of the draft energy products directive, which would raise the minimum levels of duty which are applied to energy products. That is a process we have supported and supported for quite a long time. Some other members of the European Union take a rather different view to us and my impression is that that process is somewhat stalled at the moment. Certainly it would be helpful from a UK point of view and the point of view of lots of other countries as well, if there could be some progress in achieving a directive.

  53. What about the fuel protestors? Were they actually arguing for fuel harmonisation, whatever they may have called it? They may have called it a level playing field but that is another phrase for the same point.
  (Mr Timms) I am not sure what you mean. Certainly lots of people in the fuel protest, the hauliers in particular, were raising the fact that fuel cost less in other countries than it does in the UK. I do not think they would have expressed their demand in terms of harmonisation of fuel duties but the essential point you were making was certainly raised frequently nevertheless.

Joan Walley

  54. Earlier on in answer to Mr Chaytor you did say that when you were looking at the prospect of abandoning the fuel duty escalator you took account of social and environmental factors. Given that this Committee has really stressed the importance of environmental appraisal, I should be really interested to know what environmental appraisal you have carried out of the impacts of the new package of duty/VED measures which do not any longer include the fuel duty escalator.
  (Mr Timms) The measures we formally announced in the PBR are reflected in Table 6.2 in the PBR documentation and that sets out what our assessment is of the environmental impact of those measures. Those measures we are consulting on at the moment with a view to introducing in the budget we will set out there in the budget documentation what our assessment of the environmental impact, of the overall package, is. To the extent that measures have already been announced to be implemented, we have presented those, but there will be further information at the time of the budget.

  55. What confidence do you have about the environmental appraisal methodology that you are actually using?
  (Mr Timms) It is as good as you can get. There is some uncertainty in these matters and we are still learning as we go along. It is an exercise which we take seriously and I think the assessment we have made is as good as one can hope for, given the state of the art.

  56. All the detail on that has been made available to this Committee has it?
  (Mr Timms) Certainly the data in Table 6.2 is available. If you would like further information, that request will be made.

  57. In terms of the analysis of air quality benefits delivered relative to other emission reduction policies, what assessment has been made of air quality benefits in respect of the measures which are now proposed in the Pre-Budget Report?
  (Mr Timms) There are several measures which are intended to address air quality and I particularly point you to the way that diesel engines are being treated compared with petrol engines because there is a significantly greater local air pollution problem with diesel engines than there is with petrol. The surcharge for diesel is being waived in the case of diesel engines which meet the Euro 4 standard, precisely because the problems have effectively been resolved with that new technology. So there are several measures in the package which address that. Table 6.2 is on page 139 of the Pre-Budget Report. There are several references there to impacts.

  58. My concern really is with the quality of the analysis and the quality of the environmental appraisal, not just in respect of air quality but in respect for example of CO2 emissions as well. If we are going to have a full environmental appraisal I should have thought that we really want to have an analysis which looked at option one, option two, option three and which looked at the effect for example on air quality, perhaps increased amounts of emissions which could contribute to global warming. To my mind if that analysis is really going to be the quality analysis which I would have thought the Treasury would want, I should also want to see some reference to the kind of issues perhaps raised by Greenpeace in respect of renewable energy and green fuels, so that you took all the options into the equation rather than perhaps just came out with one aspect of it, so that you looked at it as a whole and on the strength of that analysis could then really do a genuine environmental appraisal. How much has that kind of entire environmental appraisal been taken on board by the Treasury and do you or do you not have the tools to do that? If you have not, where might you go to find them?
  (Mr Timms) On each occasion I have spoken to the Committee you have spent some time on Table 6.2 and its equivalent in previous publications so I hope the Committee will feel that what we now present is significantly improved on where we started. Certainly it has changed significantly and contains a good deal more information now than it did when we started and that is not least because of the points which have been made by this Committee. The aim of this documentation is to set out the impact of the measures which have been announced in the Pre-Budget Report. It is not to set out a range of alternative scenarios. That would be a rather different kind of exercise.

  Chairman: Should you not be doing that?

Joan Walley

  59. If you had your own environmental appraisal, would that not be the way to go forward? I appreciate that we are in early days in terms of environmental appraisals and perhaps we are having to wait a long time before it gets to the Treasury in its entirety, but should we not really be doing that, not just looking at the effects of one change or adaptation to policy but really looking at the options and making an environmentally based decision which looks at all the different impacts on the environments of every single kind? Should the Treasury not be doing that?
  (Mr Timms) Across government certainly large parts of that are being done but in rather different exercises to the Pre-Budget Report.


 
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