Members present:
              Mr John Horam, in the Chair
              Mr David Chaytor
              Mr Neil Gerrard
              Mr Dominic Grieve
              Mr Jon Owen Jones
              Mr Paul Keetch
              Mr Tim Loughton
              Mr Jonathan R Shaw
              Mr Simon Thomas
              Joan Walley
                 MR S TIMMS, a Member of the House, Financial Secretary, MR C MAXWELL,
           Head of Environmental Tax Team, Her Majesty's Treasury, examined.
        1.    Welcome to the Thatcher room.  Delighted to have you here.  Thank
  you for coming along.  We want to concentrate on the major elements of the
  Pre-Budget Report (PBR) and one particular thing is the ending of the
  automatic fuel duty escalator which is a significant announcement.  We shall
  lead off on that before discussing a number of other aspects of your
  responsibilities as a Green Minister in the Treasury.  Is there anything you
  want to say briefly before we begin asking questions?
        (Mr Timms)  I shall make a few brief remarks, if I may.  Thank you for
  your welcome and for the opportunity to speak to the Committee again.  May I
  first of all introduce Clive Maxwell who is the Head of the Environmental and
  Transport Tax Team at the Treasury.  Recent events have probably raised the
  profile of environmental concerns up and down the country, if anything
  increasing the impetus to protect the environment and using natural resources
  in line with the concerns of this Committee.  That priority was reflected in
  a pre-budget report.  You mentioned the issue of fuel duties.  Recent oil
  prices have hit people hard and I think it was right that we responded to
  that, but we did so in an environmentally responsible way and the changes to
  fuel duties, to vehicle excise duties, to car taxation rules are all focused
  on encouraging cleaner fuels, more efficient vehicles and greener transport. 
  The publication of the Government's climate change strategy has set out the
  measures which will move us towards a more sustainable low carbon economy. 
  Progress on one of the main elements of that strategy, the climate change levy
  which I have talked about to the Committee before, continues as planned.  The
  levy will come into effect on 1 April and in the PBR and in the Urban White
  Paper we have also embraced Lord Rodgers' vision of an urban renaissance to
  improve cities to reduce pressure for development on the countryside.  There
  is a number of measures in the Pre-Budget Report on that.  The Rural White
  Paper, also published recently, has set out the steps we are taking towards
  a countryside which is sustainable economically, environmentally and socially
  as well.  I hope the Committee can welcome this continuing progress on the
  environmental tax agenda and I shall be very happy to answer the questions you
  have hinted at and others as well.
        Chairman:   Thank you.  It is nice to hear a Minister tackle so many
  different aspects of Government policy.
                              Mr Chaytor
        2.    You referred to the climate change strategy and the reduction of
  traffic growth is a key component within the climate change strategy.  Now the
  fuel duty escalator has been abandoned, where does that leave fuel duty as a
  policy aimed to deliver the reduction in traffic growth?
        (Mr Timms)  The abolition of the escalator was announced in the November
  1999 Pre-Budget Report when the Chancellor said that he considered the
  appropriate rate of fuel duties on a budget by budget basis, taking into
  account all of the relevant economic, social and environmental factors;  so
  fuel duty only increased by the rate of inflation at the time of the last
  budget.  Taking into account the strength of the world oil prices, the other
  measures we have introduced to tackle climate change, the Chancellor made a
  further announcement in the PBR this year that the duty on all road fuels
  would be frozen in the coming budget and that will have the effect of reducing
  the rate of duty by about one penny and a half per litre in real terms. 
  Between 1997 and 1999 the rate of duty on ultra low sulphur diesel was
  steadily cut relative to conventional diesel with the effect that within a
  couple of years pretty much the entire diesel market was converted to cleaner
  fuel, cutting emissions of the most damaging local air pollutants and enabling
  the interaction of new pollution-reducing technology.  We have learned from
  that experience and in October we have already reduced the rate of duty on
  ultra low sulphur petrol by one penny per litre.  Last month the Chancellor
  announced that we want to go further with that and introduce a further two
  pence per litre cut in order to promote the takeup of ultra low sulphur
  petrol.  The package that the Chancellor announced on fuel duty in November
  did reflect widespread concern about the high price of crude oil and the
  effect on petrol and diesel prices, as expressed by members of the public and
  by hauliers and their concerns about UK competitiveness.  Those were reflected
  in the Chancellor's announcement but we were able to make some changes there
  in an environmentally very effective way.  The announcement was of course a
  balance, but I hope the Committee will feel that the balance the Chancellor
  struck was about right.
        3.    You mentioned the impact of high oil prices in leading to the
  decision to freeze the annual fuel duty rise.  Does it follow therefore that
  if oil prices start to fall you will again consider the need for an escalator?
        (Mr Timms)  We have set out the position for the coming year and the
  freeze will apply and we will be going further on ultra low sulphur petrol and
  ultra low sulphur diesel, subject to the conditions which are set out in the
  PBR about ultra low sulphur petrol being widely available.  That will be the
  position for the coming year.  We have also said that if the recent high
  prices of crude oil continue then we would expect the freeze to apply for a
  further year.  If on the other hand the price of crude drops sharply, then
  that cannot be taken for granted any more.  In a sense the answer to your
  question is yes.
        4.    May I compare the impact of the escalator between 1996 and 1999
  and the projected impact of the ten-year transport plan?  We are told that the
  reduction of carbon between 1996 and 1999 was somewhere between one to 2.5
  million tonnes of carbon (MtC) as a result of the escalator.  By contrast the
  estimate for the reduction of emissions as a result of the ten-year transport
  plan is going to be about 1.6 MtC of carbon.  By contrast the escalator seems
  to have been a very, very effective means of reducing emissions.  Does it not
  follow then that at some stage in the future, if we are serious about meeting
  the Kyoto targets, we have to return to the fuel duty escalator?
        (Mr Timms)  It is true that quite a large share of the reduction in
  emissions which would be achieved to meet the Kyoto targets, and go further
  in the case of the UK, has been borne by the transport sector.  However, the
  climate change strategy which we published sets out quite a wide range of
  measures alongside the one you have mentioned which will also reduce
  emissions:  the climate change levy in particular is a substantial
  contribution, the emissions trading scheme which we are developing, some
  changes to company car tax also which we reckon will save up to one million
  tonnes of carbon as well.  The point I want to make is that we have a wide
  range of policy strands to address the reduction in CO2 emissions, not only
  the transport ones but others as well and between them those will take us to
  the Kyoto target and indeed beyond that.  In the longer term of course calls
  are already being made for much much deeper reductions in CO2 emissions and
  I have no doubt at all that the targets set at Kyoto are not going to be the
  end of the story and we need to revisit all of these issues in due course. 
  The strategy which we have published, the measures we have taken, will achieve
  the Kyoto objectives and go beyond them in fact and then we shall need to do
  some completely fresh thinking about where we go in the longer term.
        5.    May I turn to the principles underlying the green taxation
  programme, the polluter pays principle?  There is now general agreement that
  the polluter should face the true costs of the environmental damage they
  cause.  In terms of the transport sector, what work has been done and what
  evidence is there for the true environmental cost caused by domestic transport
  in private cars and the haulage industry?  Do we have some indicators as to
  what the true cost is by which we could measure the cost which needs to be
  recouped through environmental taxation?
        (Mr Timms)  One of the pieces of work which I am aware of has been the
  environmental costs of lorries and that is informing the review of lorry
  vehicle excise duty which is under way at the moment and we are anxious that
  the new scheme will reflect more fully the environmental costs associated with
  each kind of lorry than the present arrangements do.  That is a particular
  piece of work I am aware of.
        (Mr Maxwell)   The only other thing to mention is the transport modal
  studies that the DETR have said they will be carrying out over the next year
  or two as part of their longer term work on inter-urban road charging issues.
        6.    You see my point.  If there is not at the moment a published body
  of evidence as to the true environmental costs then it is very difficult to
  assess the extent to which the taxation regime is making the pollutor pay. 
  We need both sides of the equation to come to some assessment of the
  effectiveness of the overall policy.  
        (Mr Timms)  In a lot of these areas there is still quite a lot of
  exploration on the regional thinking going on and being required and gradually
  a fuller picture is emerging.  Certainly there are still some gaps and I
  accept that.
        7.    May I continue this theme of environmental damage?  Where do you
  think the environmental damage is greatest within the transport sector and how
  is the fuel duty policy responding to that?
        (Mr Timms)  I suppose it depends how you measure the scale.  There are
  different ways one could measure it.  Clearly there are serious CO2 emission
  problems;  very large amounts of CO2 emissions.  Significant local air
  pollution problems are also being caused in the transport sector and the
  policies we have put in place are seeking to address both of those and to do
  so in an increasingly sophisticated way.  The effect of the fuel duty
  escalator is referred to and the new arrangements we have for vehicle excise
  duty and also company car tax reflect the amount of CO2 emissions being
  generated by the vehicles and the amount of duty which is payable depends on
  the amount of emissions, the amount of tax in the case of company car tax
  depends on emissions.  In both of those schemes there is also a supplement for
  diesel engines reflecting the fact that there are relatively more problems
  with local air pollution on diesel engines than on petrol engines which have
  the same CO2 emissions.  We now have quite a sophisticated array of measures
  in place to address both those problems.
        8.    Just finally to focus on the question of the diesel engine and
  the haulage industry, I think it would be agreed that it is the older lorries
  used in the haulage industry which contribute disproportionately to total
  emissions, but at the same time in the pre-budget statement we have a package
  of measures which actually reduces the volume of taxation on the haulage
  industry.  How do you reconcile this apparent contradiction with the haulage
  industry contributing most to environmental damage but at the same time having
  received the greatest benefits in terms of tax reductions in the pre-budget
        (Mr Timms)  A process is going on of switching the burden of taxation
  from usage to ownership and it is true we shall be reducing the amount of
  vehicle excise duty which is payable but we have not introduced the essential
  users fuel duty rebate which was being proposed and that is partly for the
  reason you have set out.  In addition to that I have said that the new vehicle
  excise duty scheme will encourage cleaner vehicles and in addition we have
  announced the 100 million ringfenced fund to be available over a three-year
  period for incentives to encourage the modernisation of the vehicle fleet in
  the haulage industry, including encouragement for cleaner lorries and new
  technology.  We have been able to make progress on that front as well.
        9.    Just on this lorry point, the DETR sustainable distribution
  strategy said that the impact of lorries is the equivalent of 28,000 per
  vehicle;  a very large sum.  I do not know whether we are near that in terms
  of actually offsetting that pollution effect, but surely Mr Chaytor is right
  in saying that we are going to lessen the effect, whatever effect we are
  having, as a result of your changes.
        (Mr Timms)  I hope that we can improve the incentives in the scheme for
  cleaner lorries by the changes we are making on vehicle excise duty and with
  the ringfenced fund, also by improved driver training.  There is quite a lot
  which can be done to reduce the environmental costs of lorries and two or
  three of the elements of the package are directed towards improving the
  environmental signals we are providing through the tax system.  I am not
  familiar with that total figure or how that matches up to the total amount.
        10.      Perhaps Mr Maxwell has a view.
        (Mr Maxwell)   No, not on that in particular I am afraid.  It is
  obviously the case that the measures announced are more to do with encouraging
  and incentivising particular shifts in behaviour and shifts in the choice of
  lorry driven or the types of engines used rather than internalising every
  single cost.  It is a bit of both going on.
                               Mr Thomas
        11.      I wanted to follow up the point Mr Chaytor asked about regarding
  the impact, where the greatest environmental damage was from.  In particular
  I have in mind private car use when asking this.  Would you agree that the
  price of fuel is lowest in the areas of the greatest pollution?  If we are
  looking at urban areas we find the market looking to deliver low cost fuel for
  private motorists where the supermarkets are congregating and in competition
  with each other, with different incentive schemes to buy 20 of goods in the
  supermarket and get 10 off your fuel bill and so forth.  On the other hand
  the price of fuel is highest in the areas where private car use is most
  essential and I am thinking in particular of rural areas where there are fewer
  alternatives and fewer choices in terms of transport switching.  Though a lot
  of that is about the market, there is obviously an interaction with fuel
  prices, fuel duty and any other incentives the Treasury might decide to bring
  in.  I wanted to ask you whether you accepted that premise, whether that shows
  that competition is not working very well towards your aims within the
  Government and that the market is not helping you in this regard and whether
  you have considered any other fiscal measures which could change that market
  pressure.  A windfall tax on oil company profits is one thing which was
  floated and we certainly saw their profits soar during the fuel crisis, which
  seems to suggest that as well as fuel duty, there is a question about the way
  the market works and delivers fuel to the consumer and the way that is not
  going hand in hand with the environmental objectives.
        (Mr Timms)  I am obviously aware that there is variation in the price of
  petrol in different parts of the country.  I think that is a matter which is
  determined largely by the market;  certainly I have not seen any evidence of
  a failure of competition in the supply of petrol in different parts of the
  country.  I know that has been looked at from time to time by the competition
  authorities but as far as I can see the competition is pretty effective in the
  supply of petrol around the country.  I am not sure whether this is one of the
  things you were driving at but from time to time there are suggestions that
  we ought to have different rates of fuel duty in different parts of the
  country.  That is not something I favour.  It would be extraordinarily
  difficult to implement and it would create no end of problems and would almost
  certainly be illegal under EU rules anyway.  We have not looked at tax
  measures which might have an impact and we are not proposing a windfall tax
  on the oil companies either.
                              Mr Gerrard
        12.      If we look at the real costs of motoring over a long period the
  UK sustainable development indicators show that from 1974 to 1998 the real
  cost of motoring hardly changed, whereas public transport fares have gone up
  by 50 per cent, disposable income had gone up very significantly.  Why do you
  think then that motorists have this perception that they are being unduly
  taxed?  If we compare with other things which are taxed higher, like
  cigarettes or alcohol, I am sure if you went into the nearest pub and you
  asked everybody in there they would say yes, there is too much tax on beer,
  but it does not seem to provoke the same reaction that there has been on fuel. 
  Why do you think it is that people have that perception?
        (Mr Timms)  I do not know.  I suspect you are probably in as good a
  position as I am to provide an explanation for that.  What has happened is
  that there has been something of a switch in the overall cost of motoring and
  that the costs of ownership and the element of that total accounted for by the
  cost of owning a car have fallen, whereas the running costs have not.  The two
  of them together have been broadly unchanged over a couple of decades or
  longer.  Maybe what has happened on the running cost side has had a
  disproportionately greater impact on people's consciousness than one would
  have expected.
        13.      Do you think perhaps there has not been sufficient effort to
  highlight publicly the environmental rationale for fuel duty?  It was quite
  noticeable during the fuel crisis that we had Prime Minister, Chancellor,
  talking about the possible economic effects on spending on hospitals, on
  schools, if there were changes in the rates of duties.  A great deal was not
  said about fuel duty.  Is that part of the reason, perhaps over a number of
  years, that that rationale has not been delivered publicly?
        (Mr Timms)  I think we have said quite a lot about the environmental
  benefits of the fuel duty escalator;  certainly I have talked about it at some
  length and others have done as well.  It was a very important element of the
  justification for the policy.  We have talked about it pretty widely.  The
  financial aspects are important as well but I do not think we have downplayed
  the environmental aspects of this.
        14.      You said earlier that you thought if all prices were to drop
  dramatically then the Chancellor would reconsider.  The freeze would stay if
  prices stay as they are or certainly if they go up.  Does that mean that you
  have really given up on price mechanisms in a sense and think that current
  prices are as high as they need to go?  If we want to encourage fuel efficient
  motoring, want to encourage unnecessary journeys, we have the prices as high
  as they need to be?
        (Mr Timms)  I do not think we have considered it in those terms.  Clearly
  the fact that crude prices are so high has a significant impact on prices and
  therefore without any more needing to be done on the duty side, the relatively
  high prices do their job in the way that the escalator was intended to.  I do
  not think I would want to speculate about what might happen in the future or
  how we would respond to that.  Those are decisions which can only be made in
  the light of all the circumstances at the time.
        15.      Is there a view that rather than using price as a major mechanism
  for discouraging unnecessary journeys we should look at other mechanisms?
        (Mr Timms)  We are looking at a variety of mechanisms, not only for
  discouraging journeys but for the ten-year plan for transport which will
  involve very substantial investments in public transport, so encouraging
  people to use public transport alternatives.  There are the incentives for
  cleaner engines which the tax system is increasingly presenting, so the
  journeys which are being run will be more environmentally benign than they
  have been in the past.  A wide range of initiatives needs to be taken and is
  being taken to ensure that transport is increasingly operating in a
  sustainable way.
        16.      Is that what the Chancellor was referring to in the pre-budget
  speech in 1999 when he announced the decision to stop the escalator and make
  decisions budget by budget?  He said then, "... having cut the deficit and
  introduced our new environmental policies, we are now in a position" to
  abandon the escalator and work budget by budget.  Are those the sort of new
  environmental policies he was referring to?
        (Mr Timms)  The point he made was that he wanted to determine the level
  of duty on the basis of the economic, social and environmental, all of those,
  considerations year by year.
        17.      He seemed to be suggesting that there were alternatives now.  We
  have new environmental policies therefore we do not need the escalator any
  more.  I just want to be clear exactly what those new environmental polices
  are supposed to be.
        (Mr Timms)  On the climate change side, the climate change strategy has
  set them out.  I mentioned some of them:  the climate change levy for example,
  the new arrangements for company car taxation.  So there are several clubs at
  our disposal which are having the effect of reducing emissions across the
  economy.  Because of the effect of all of those we shall achieve the Kyoto
  objectives and indeed do better than that.  The fuel duty escalator for the
  period it was in operation made a very significant contribution, but there are
  other measures now in place as well.
                               Mr Jones
        18.      Forgive me, Minister, you may not like my first question but it
  is prompted by that answer.  You were asked about what the Chancellor had in
  mind in the 1999 budget when he removed the fuel tax escalator.  You said
  there are environmental, there are economic and there are social reasons. 
  Surely with more candour could you not also say that there are political
  reasons and that there may be very strong environmental reasons why we should
  continue a particular tax, but politically you find it too difficult to do at
  the moment?  What is the problem?  Why does the Government not just say that? 
  Is that not the honest truth?
        (Mr Timms)  There is not a chasm between economic, environmental and
  social considerations on the one hand and political considerations on the
  other.  The position we were in in 1999 was that the fuel duty escalator had
  been operating since 1993, had contributed to a significant increase in the
  price of petrol and diesel and had had very significant environmental
  benefits.  I do not think it was ever envisaged that the escalator would go
  on and on for ever;  apart from economic considerations one has to bear in
  mind what other countries are doing.  It is not the case that we can set our
  fuel duties entirely disregarding what is happening elsewhere.  We have to
  take account of that.  That is one of the economic considerations the
  Chancellor takes into account.  I stand by the point I made, recognising that
  economic, social and environmental considerations always have political
  implications as well.
        19.      I want to ask some more about the point you made about relative
  fuel prices but before I do, is it your view now that the price of oil
  produced by a number of external factors to the Government is such that it
  really replaces the need for the fuel tax escalator?  It serves the same
        (Mr Timms)  It certainly has a bearing on the decision made each year
  about what the level of fuel duty should be.  Yes, that is undoubtedly the
  case.  Whatever the level of oil prices was to be, I do not think it was ever
  intended that the escalator would go on indefinitely.
        20.      Does the climate change levy in any way substitute for or help
  the effect of the fuel tax escalator?
        (Mr Timms)  It certainly helps meet the Kyoto objectives, which the fuel
  duty escalator also has helped to meet.  I do not see any element of
  substitution but rather it is addressing another element of the problem and
  we have taken a series of steps to ensure that emissions are addressed
  wherever they are generated across the economy.
        21.      With the introduction of the climate change levy, and the
  abandoning of the fuel tax escalator and the other tax incentives which have
  increasingly been given to the transport sector, there is a relative shift of
  taxation away from transport to the rest of the business sector.  How is that
  justified when we know that the area of the economy which is growing and
  increasing its pressure on carbon dioxide emissions is not the rest of the
  business sector, it is the transport sector, yet the Government is shifting
  its taxation burden away from transport to the rest of the business sector at
  this time.
        (Mr Timms)  The first point to make is that you talk about abandoning the
  fuel duty escalator and it certainly is the case that it has been cancelled,
  but the impact of those increases over a period of six or seven years is
  largely still in place and will be next year as well.  This is not a reverse: 
  it is simply that the automatic annual increases will not be applied in the
        22.      There is a shift in relative levels of taxation.  The relative
  level of taxation of those whose business is to transport things by road is
  going down, whereas the level of taxation for a business which makes steel
  will go up.
        (Mr Timms)  The level of taxation on transport usage will not have been
  very much reduced.  The big decreases in transport taxation next year are
  about ownership, the big excise duty changes.  I do not think I entirely
  accept the thesis you are making.  It is the case that CO2 emissions are
  generated in other bits of the economy as well.  The climate change levy
  addresses that issue.  I certainly do not see a shift going on deliberately
  seeking to change the balance of taxation between transport and the rest of
  the economy.
        23.      In the climate change programme the fuel duty escalator is
  described as supporting the European Union's carbon dioxide from cars
  strategy.  Now that you have abandoned, shelved, the escalator, why do you
  believe this supporting measure is no longer needed?
        (Mr Timms)  The influence of the duty increases in fuel on vehicle
  manufacturers remains in place.  The great bulk of the increase which has been
  made to fuel duty since 1993 remains in place and its influence remains in
  place.  We are taking other steps to address this.  For example, the
  encouragement of ultra low sulphur petrol will itself accelerate the
  introduction of gasoline direct injection technology which will also reduce
  CO2 emissions.  I do not see this as in any sense a U-turn.  It is simply the
  case that the escalator, in the light of what happened to crude prices, is no
  longer a useful instrument, but the effect of its applications since 1993
  remain a helpful and important contribution towards meeting our Kyoto
        24.      You will agree that the majority of the population does not like
  paying the levels of tax they do on petrol;  they do not like paying tax on
  lots of things but of late they have voiced their opinion loudly and the
  Government has apparently listened.  If the price of petrol were to drop
  because the oil price drops, does the Government have the intention to relook
  at this and does it have a price in mind, however that price is arrived at,
  whether it be the price of crude oil combined with the price of taxation?  Do
  you have a price level in mind at which it triggers increased taxation?
        (Mr Timms)  No;  no, there is not.  You are right about people's feeling
  about fuel duty and I described to Mr Chaytor what our position is, that the
  freeze will apply for the coming year and if crude prices stay at their recent
  levels then we would expect it to apply for another year.  No, we do not have
  a target in mind or a threshold or a figure or any of those mechanisms.
        25.      If the price of oil at the pumps went down from near $30 back
  down to $10 in the next two years, and the taxation policy did not change,
  then presumably the environmentally beneficial effect on the reduction of
  carbon dioxide which we have seen since the fuel tax escalator was introduced
  will go into reverse as people will respond to the incentive to drive more. 
  Surely the Government would be ready to react to that?
        (Mr Timms)  Yes, we certainly should.  There would be an entirely new set
  of economic and environmental considerations in effect if that were to happen
  and those would certainly be reflected in a decision at the time of the
  budget, whenever this arose, about the level of fuel duty.  Yes, it would be
  taken into account.
                              Mr Loughton
        26.      Implicit in what you say is that there is a desirability in
  keeping fuel prices relatively high for private motorists at least either by
  the mechanism of the fuel duty escalator as before, or now by the mechanism
  of naturally high oil prices which it can be construed have taken over that
  role.  Going back to basics then, what is the objective the Government is
  seeking to achieve from that policy?
        (Mr Timms)  Our objective in environmental terms has been to achieve our
  Kyoto targets.  The application of the escalator has certainly contributed to
  that.  We are pretty confident now that we will meet those targets and indeed
  go way beyond them.  Our latest estimate is that we should achieve a reduction
  of 19 per cent in CO2 emissions by 2010 which is well beyond the 12.5 per cent
  which Kyoto set for us.  In environmental terms that has been the key
  objective of our policies.
        27.      The high price of petrol has been part of that key objective
        (Mr Timms)  Certainly the fuel duty escalator has and no doubt it is the
  case that the high price of oil will have contributed as well, yes.
        28.      What always puzzles me on that basis - and I do not disagree with
  you - is when you look at the DETR's transport statistics and the last set
  published in 1998, when the fuel duty escalator was ripping away at that
  stage, the Government's own forecasts of road traffic numbers on a 30-year
  basis show a gradual and unhindered increase.  Against a base point of 100 in
  1997, by 2031 vehicle kilometres travelled by cars will have increased from
  100 to 150 and car ownership will have increased from 100 to 139 and the
  number of cars on the roads by 100 to 143.  Over 30 years something like a 40
  to 50 per cent increase either in car ownership, congestion, the number of
  cars on the road, or the number of miles travelled, which should be, on the
  basis of your argument, exceedingly sensitive to the price of petrol.  Your
  own forecasts, on the basis of the fuel duty escalator actually carrying on,
  or now being replaced, as I think you would say, by the high level of petrol,
  is not achieving those things whatsoever.  What is the objective?
        (Mr Timms)  It is achieving them.  There is no doubt at all that the
  increase in fuel duty arising from the escalator has had an impact on the
  distances driven.  The AA published information some months ago making that
  point.  I forget the figure for the elasticity which the AA quoted. 
        (Mr Maxwell)   It varies whether you look in the short term or the long
  term but the short-term figure is about 0.3 or 0.4, the longer term much
  higher than that.
        (Mr Timms)  It is an established fact that the price does have an impact. 
  You are right though that usage continues to rise and that is because there
  are all sorts of economic factors at work here.  Without a doubt, the numbers
  you are referring to in terms of usage in particular would have been greater
  had there not been the price impact.
        29.      It is not actually reducing.  I just cannot see that argument. 
  My argument would be:  surely what has made a greater contribution towards
  that 19 per cent achievement is technological advancement in cleaner engines,
  firstly, and, secondly, the figure you have quoted to us that you are looking
  to save something between one million and two and a half million tonnes of
  carbon per year pales into insignificance aside the figure of 7.5 million
  tonnes of carbon saved per year simply by switching over to 1200 megawatt coal
  fired power stations, to similar sized gas fired power stations, a vastly
  greater figure.  So the saving you are claiming on cars is a drop in the ocean
  compared to savings coming from technology and from coal fired power stations
        (Mr Timms)  Yes, technology certainly has been important and will
  continue to be very important.  We are looking for further technological
  improvements and the tax system is improving the incentives for further
  improvements and I certainly do not discount the importance of that.  You say
  it is a drop in the ocean.  In the end the reason we shall hopefully achieve
  our 20 per cent domestic CO2 emissions reduction target is because of quite
  a lot of drops in the ocean which added together will get us to the position
  we want to be in.  The up to 2.5 million tones from the fuel duty escalator
  could easily make the difference between us hitting 20 per cent and not doing.
        30.      But it is, at the most optimistic, one third of what is achieved
  simply by switching over to power stations.  When are you going to revise
  these figures?  If you are now saying that there is not going to be the
  remorseless rise in car usage both in terms of mileage and car ownership and
  you are quoting car organisations, although my understanding was that either
  the AA or the RAC had said that the price of petrol would need to rise to
  something in the order of 4 per litre before it would have a substantial
  impact on the actual usage of those vehicles, why have the DETR, on your
  advice, not altered their figures to forecast a slowdown at least, if not a
  reduction, in car usage over the next 10, 20 or 30 years?
        (Mr Timms)  I am not forecasting a reduction in car usage;  I hope I have
  not given that impression.  What I am saying is that the impact of the
  escalator has been to reduce emissions from what they otherwise would have
  been and that, together with the other steps we have taken, will allow us to
  achieve Kyoto and domestic CO2 emission reductions.  I do not think there is
  anything inconsistent between that point and the point that other government
  departments have made.
                               Mr Thomas
        31.      You are obviously confident that the current change of fiscal
  measures will hit the Kyoto targets indeed you have just said that they are
  likely to overshoot them, which I am sure is welcome.  However, the
  Environment Minister has said that the real long-term target for any
  government now which takes this seriously is the Royal Commission report on
  emissions which is looking for up to 60 per cent cuts in greenhouse gases by
  2050.  How can we reach that as a society if decisions are made on fuel tax
  or any other with environmental benefit on a budget by budget basis?  Was it
  not at least one of the virtues of the fuel duty escalator that it was
  continued through two governments, in other words a political change did not
  change that element of environmental benefit and improvement?  If we are in
  a position now where decisions are made on a budget by budget basis, how can
  we be sure that we as a society are moving towards those long-range targets
  which are really essential for the long-term future of the planet?
        (Mr Timms)  It has always been clear that the targets set at Kyoto were
  the beginning of the process and certainly not the end of the story and clear
  that we would need to go a good deal beyond them in due course, looking at 50
  years ahead and undoubtedly as the Royal Commission said we shall need to go
  a good deal further.  That will require some very fundamental changes in the
  way that we work.  My guess is that it is likely that it will be technological
  change which gives us the potential to go for those much bigger reductions
  that you have referred to.  What we are doing is building into the tax system
  currently, in the climate change levy, in the fuel duty vehicle taxation
  arrangements, incentives for cleaner technologies.  I would hope that in due
  course major breakthroughs will emerge which allow us to move in that
  direction in the longer term.  As you know, in the Pre-Budget Report the
  Chancellor announced an alternative fuels challenge, calling on industry to
  come forward with proposals for cleaner fuels.  We shall be issuing a
  consultation document about that shortly and I shall be looking with great
  interest, as will the Environment Minister, at the proposals which come
  forward.  There are several ideas around at the moment and one could see that
  some of them could make a very substantial contribution towards reducing the
  emissions which we are generating.  It is possible, by making fairly
  incremental changes in the tax system, to create an incentive for
  technological change which one could see over a period of 50 years or so could
  lead us into the sort of destination which you have referred to.
        32.      Is it therefore the case that you are looking much more now at
  an incentive-based regime and have turned your back on disincentive-based
  regimes, which the fuel tax escalator was, for whatever political or social
  or whatever reasons that shift is to be seen?  Would you accept that is
  happening and is the Government actively involved in that with the public and
  explaining the way that these processes have to move over the next ten or 15
        (Mr Timms)  It will always be a mixture of approaches but certainly in
  the last couple of years quite a number of significant incentives have been
  introduced to encourage people to use cleaner cars:  the new vehicle excise
  duty system with a lower rate of duty for cars which creates lower levels of
  emissions;  the incentive to use smaller second-hand cars because of the
  1500cc lower rate of VED;  incentives in the company.  We have introduced a
  range of new incentives but the beneficial effects of the overall rate of fuel
  duty will continue to be a significant element.  I would not want to give the
  impression that we abandoned what was happening before but we have evolved it.
        33.      Does that not mean that we shall get clean gridlock?
        (Mr Timms)  That will be better than dirty gridlock.
        34.      It is gridlock all the same.
        (Mr Timms)  The ten-year transport plan will have a significant impact on
  reducing congestion.
                               Mr Grieve
        35.      May I go back to the matter raised by Mr Loughton for one moment? 
  Clearly there was a major crisis in public perception of the fuel escalator
  and its impact, based in part on the rise in fuel prices and the added effect
  of the tax on it.  Can you let us have sight of the documentary information
  on which the Government bases its conclusions that the fuel escalator as it
  was before you stopped it - and you have talked about the possibility of
  reverting to it - does have this impact on road use growth which you claim it
  does?  It is quite apparent to me that the public are not persuaded by this
  argument.  If we are going to persuade the public that it is necessary for
  that purpose, it would be very useful to have the objective evidence which the
  Government has put together to justify it, which you seem to hint you had,
  although I must say I have never seen it.  Otherwise it leaves one with the
  situation where the impression which was conveyed as the fuel crisis grew was
  that in fact the justification for the fuel escalator was to provide for
  public services, which is a completely different matter altogether, as I am
  sure you would agree.  Can you help us on that and is that information
  available?  I appreciate you may not have it to hand today but you seem to
  hint that it is in existence and there to underpin the Government's fuel
  escalator policy.  Can we see it?
        (Mr Timms)  Certainly the most recent information which I am aware of on
  this is the work of Professor Glaister for the AA which I have referred to but
  of course it is important to make the point that we are not simply talking
  about reducing the distances which are driven by people in their cars,
  reducing their fuel consumption by other means, by switching to more fuel
  efficient vehicles, is also helpful in this regard.  It is not only about
  reducing the distances which are driven, but Professor Glaister's work is
  recent and publicly available and highly regarded.
                               Mr Keetch
        36.      May I ask you about ultra low sulphur fuels which you mentioned
  earlier?  Certainly the United Kingdom has a very low percentage of
  alternatively fuelled vehicles compared with France, Germany, Italy, etcetera. 
  What estimate have you made of the effect on CO2 emissions by reducing the
  duty on ultra low sulphur diesel and petrol?  How much do you think it will
  actually reduce CO2 emissions?  What is the target?
        (Mr Timms)  Directly ultra low sulphur petrol is no more beneficial from
  a CO2 point of view than conventional petrol.  So I do not see that directly
  contributing helpfully to this at all.  However, indirectly it is the case
  that ultra low sulphur petrol allows the introduction of gasoline direct
  injection technology.  That improves fuel efficiency by up to 20 per cent, so
  that will reduce CO2 emission and indirectly once that technology becomes
  widespread, which it is not at the moment, then I would expect it to have an
  impact.  Overnight it will not.
        37.      No, but indirectly 20 per cent.
        (Mr Timms)  Certainly GDI technology improves fuel efficiency by up to
  20 per cent.  One would have to make an assumption about what the penetration
  of GDI technology would be over a period and that is not a forecast that I
  have.  It certainly could be significant.  I think it will be.
        38.      By the fact of reducing the duty, there is a concern that those
  reductions, the penny in diesel last year and petrol this year, have been
  masked by the overall rise in the actual cost of oil and that also as a form
  of fuel they are more difficult and expensive to produce.  Does the Treasury
  tag and monitor the fuel prices to see that those duty cuts are actually
  passed on and that they are not simply overshadowed and thrown away by the
  overall increase in the oil price?
        (Mr Timms)  No, we do not.  We have had conversations with the oil
  companies about this and it is my impression - and I think the oil companies
  have issued a press release to this effect - that because of the effect of the
  forces of competition the additional two pence per litre incentive that we are
  proposing, subject to fuel being available right across the country from the
  budget, is likely to be passed on.  I suspect also that when petrol production
  increasingly and ultimately goes to 100 per cent low sulphur, which I hope
  will not take long, it may well be that some if not all of the existing one
  penny per litre incentive which came into effect in October might well be
  passed on as well.  It is not something we systematically study and our
  position is that pricing is a matter for the oil companies and normal market
        39.      You cannot guarantee to the public that those cuts in duty are
  being passed on to them at the pumps.
        (Mr Timms)  The two pence per litre change, if that comes into effect,
  will take effect from the budget.  I am pretty confident that it will be
  passed on to customers but I cannot give a guarantee about that because I am
  not responsible for setting petrol prices.
        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
        (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 LPG for the 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
        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 Green Peace 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.
        60.      It is how government joins them up together, is it not?
        (Mr Timms)  I defend the way we are joined up.  We work very closely
  indeed with DETR over things like the climate change strategy which does
  contain a lot of information about projections for CO2 emissions.  I think
  that has been a model of joint working.
        61.      I take that but I am just thinking that if we were really being
  successful in this, then presumably we would know exactly how much extra
  energy was being used, for example to produce ultra low sulphur petrol.  Did
  you take account of the extra energy which would then be contributing to the
  extra global warming which you would need to produce the ULSP?  Did you take
  that into account?
        (Mr Timms)  I did not receive a set of data weighing up that compared
  with the CO2 benefits of the GDI technology.
        62.      If we had generally an environmental appraisal would you not have
  received that?  Or could we look for that the next time round?
        (Mr Timms)  What is clear is that there will be significant environmental
  benefits from the introduction of ULSP and that is the justification for the
  incentive we have introduced.  I am not sure that it is necessary to do a
  point by point calculation about every single measure if it is clear that the
  measure we are talking about is a beneficial one.
        63.      How do you know if you have not actually looked?  If you have not
  actually taken account of the extra energy used for manufacturing, how would
  you know that it was clear that this was the most environmentally favoured
  option to take?  It is not a criticism, this is really to get at how much we
  do it.
        (Mr Timms)  Indeed.  From my understanding the point is that on balance
  in CO2 terms, as well as in sulphur terms, we can expect the change to be
  beneficial.  I take the point entirely.  There are some serious issues here. 
  For example, with the next generation of the low sulphur petrol there are real
  concerns about whether the amount of energy that is required to produce it
  would outweigh the benefits of introducing it and I know that research is
  being done at the EU on that subject specifically.  The point I am making is
  that it is not for the Treasury necessarily to be doing all this.
        64.      It is the Treasury which is actually making the recommendation.
        (Mr Timms)  Some of the work will be done in the EU, some of it will be
  done elsewhere in government and we have access to that in reaching our
        65.      We can look forward to the whole balance sheet on environmental
  factors being included in a more sophisticated version when we get the next
  document, can we?
        (Mr Timms)  What I should be interested to know is how the Committee
  feels about this form of the table, which is a considerable improvement as a
  result of what the Committee said previously on what we had before and if
  there is specific further information you would like to see then let us know
  about it and we shall certainly have a look at that.
        66.      The Committee would like the full environmental appraisal with
  the methodology and everything else so we can actually make an informed
  decision.  That is really what I think the Committee would wish to see.  The
  question is:  to what extent has that already been provided to us?
        (Mr Timms)  It depends what you mean by "full environmental appraisal". 
  I am not quite clear.
        67.      The Government has set out a model way of doing environmental
  appraisals with which we are all familiar.  We have discussed at endless
  length with endless Green Ministers a model way of doing it.  You have not
  done it on this occasion, have you?
        (Mr Timms)  What I would say is that we have supplied the information to
  the Committee and to members of the public.
        Joan Walley:   Environmental appraisal is different.
        68.      You have supplied conclusions.  You have not supplied the
        (Mr Timms)  It is the case - and I am being prompted to remind me - that
  we do assess all budget measures for their environmental impacts using the
  guidance which has been set out by DETR.
        69.      Can we see that?  Can we see the papers on the environmental
  appraisal which was done which you are now mentioning?
        (Mr Maxwell)   I know that the Government has made available the
  documentation about environmental appraisal of measures it has introduced.
        70.      Not to this Committee.  We have seen nothing in the nature of an
  environmental appraisal of the changes in fuel duty which have taken place. 
  Remember you did this back in 1999.  You stopped the fuel duty escalator in
  1999 so there has been plenty of time for you to do a thorough analysis
  exposed to the public on exactly why you are dropping the fuel duty escalator.
        (Mr Timms)  What I would suggest is that not increasing fuel duty is not
  changing things.  I know you have some difficult things and you carry out an
  environmental impact assessment of them.
        71.      I would say it is changing things dramatically.
        (Mr Timms)  No, not changing duty is not something which ---
        72.      Come on.  You are playing semantics here.  The Government has
  altered its view about the role of the fuel duty escalator.  There is no doubt
  about that.  That is a very significant change in a very sensitive area.  Why
  have you not done a proper full environmental appraisal and published it?
        (Mr Timms)  I do not think I am just playing semantics.  An automatic
  annual increase in fuel duty clearly has a significant environmental effect
  which one could discuss but that is the change which needs to be assessed. 
  Leaving duty unchanged in real terms, which is what we did in the budget this
  year, is not something we are going to talk about as having a significant
  environmental impact.
        73.      I think most people would disagree with you.  Clearly if you are
  changing policy, that is a major event.  We will want to know the reasons for
        (Mr Timms)  We have set out the reasons for it.
        74.      That is a proper environmental appraisal.  How can you quantify
  it?  What is the effect?  What other policies are affected by it and so on? 
  Surely you want to do this thoroughly.  This is the whole point about an
  environmental appraisal.  It is not just presenting conclusions in half a page
  of the Pre-Budget Report, it is exposing the logic behind it, the reasoning
  behind it.  You have had plenty of time to do it since you changed the policy
  in 1999.
        (Mr Timms)  I simply say that we have amply set out the thinking that we
  have been through which has led us to the conclusions that we have announced
  and published.  The difference between us is about our understanding of what
  the nature of the decision about the fuel duty escalator was.  We are not any
  longer going to have automatic annual increases.
        75.      Surely we agree that there has been a change in policy.
        (Mr Timms)  There has indeed.
        76.      That is right.  What we are saying is that every policy of this
  kind which has major environmental effects must have an environmental
  appraisal underneath it, sustaining it, discussing it and justifying it.  That
  is Government policy.
        (Mr Timms)  I am being reminded that we have sent a memorandum to the
  Committee on this topic specifically, presumably after I appeared here a year
  ago.  Maybe we should have a further look at that and if there is further
  information you would like us to provide ---
        Chairman:   You have changed the policy again.  You have now brought in
  other things like low sulphur content fuel and so forth.  The policy is
  developing but we have seen nothing to justify that other than a very small
  statement of your conclusions in the Pre-Budget Report.  That is not
  consistent with a proper environmental appraisal as anybody understands it.
                              Joan Walley
        77.      If you were doing a true environmental appraisal we should be
  able to take into account the recommendations, for example, that organisations
  such as Green Peace would want to look at in terms of how you perhaps move
  away from dependence on oil to other options instead, so you could look at the
  whole picture.  It is how you take that environmental process so we can
  measure, so we can audit and measure what effects policy options and
  subsequently the choice of policy which is adopted, what effect that has
  overall on the environment.  That is the situation we want to move towards.
        (Mr Timms)  I simply reiterate that I think we are providing the
  information which is needed to make those assessments.  If there are specific
  things that the Committee feels are missing, by all means draw our attention
  to them as you have done in the past and we shall certainly have a look at
                              Mr Loughton
        78.      Let us change the subject.  Let us go onto technology and where
  we are going to be in five or ten years' time.  Some people would say that our
  discussions so far, interesting though they be, particularly in the last five
  minutes, are tinkering because in five or ten years' time we shall have
  hydrogen fuelled cars and other forms of technology which will make
  discussions about different types of fossil fuel taxation rather redundant. 
  What is the Government actually doing about looking to the longer term to
  encourage these far more environmentally friendly forms of fuelling car
        (Mr Timms)  That is the background to the alternative fuel challenge
  which the Chancellor announced in the Pre-Budget Report.  I agree with you
  that I think we can look to very substantial improvements in fuel efficiency
  as a result of technological change, some of which, as in the case of hydrogen
  fuelled cars, may well be very radical indeed.  We are also taking a number
  of smaller steps.  For example, in the new company car tax arrangements we
  have discounts on the tax payments for electric cars for hybrid
  petrol/electric cars as well, which are a couple of models we have now seen
  on the market.  We are taking steps within the company car tax system as well
  and that is potentially very significant because in company car fleets you are
  getting relatively small numbers of organisations making very significant
  decisions about purchasing large numbers of vehicles.  If we can set the
  incentives right to encourage people to choose the most beneficial technology
  in company car fleets, there is the potential for us to have a very
  substantial and wider beneficial impact as well.
        79.      What specific tax incentives has the Chancellor given to the
  development of hydrogen fuelled cars?
        (Mr Timms)  I guess that could be one of the candidates for the
  alternative fuel challenge, if people want to propose that in response to the
  challenge the Chancellor has given.  What we have said is that once we have
  received all the responses to the challenge and made an assessment of them,
  we would hope to be in a position to introduce significant duty incentives for
  the most promising one or ones at the time of the next budget.
        80.      In terms of the development of the technology, why in all the tax
  reliefs on capital spend available for industry or the tax reliefs available
  to invest in venture capital opportunities for example is there no green angle
        (Mr Timms)  There is a variety of forms of support for environmental
  technology being channelled mainly through DETR.
        81.      What?
        (Mr Timms)  I am certain, although I do not know the details, that there
  is support for hydrogen fuel cell technology.  Certainly substantial support
  is being introduced for renewable energy technology, for example from the
  proceeds of the climate change levy amongst other things.  I do not think that
  is the case.  Support is being provided.
        82.      If it is, it is small pockets which come from DETR rather than
  from tax incentives from Treasury itself.  The Chancellor makes great claim
  about tax incentives to encourage smaller companies, particularly technology
  based high risk companies with which we would certainly agree, but nowhere
  have I seen any specific requirement that they should have an environmental
  good attached to them.  Surely what we are trying to encourage is not only
  companies to produce extra technology but to produce environmentally
  sustainable technology even more, but there is no bias towards that in any of
  the tax incentives which have come from the Chancellor which I have seen.
        (Mr Timms)  Look at the arrangements for renewable energy under the
  climate change levy.  The climate change levy will not be applied to renewable
  energy at all.  To go back to talking about playing fields, that is a very
  significant tilting of the playing field in favour of a very substantial tax
  incentive to encourage the development of renewable energy sources.  I do not
  agree with the point you are making.
        83.      It is a negative tax incentive because you are trying to clobber
  everything else.  Let me take one example of things you have tried in the
  past.  Let us just look at LPG which we all recognise as a more
  environmentally friendly way of fuelling cars and on one occasion the
  Chancellor has reduced the fuel duty significantly and we all certainly praise
  that.  He also introduced tax differentials for heavy goods vehicles and
  public transport buses switching from fossil fuels to LPG fuels.  These were
  introduced fairly early on;  I think it was in the first main budget.  Do you
  think they have been successful?
        (Mr Timms)  I am not sure of the impact on the bus side.  We have of
  course supported the power shift programme for converting private cars for use
  of LPG and other alternative fuels and we have set aside 9 million for that
  in the next financial year which is almost three times what has been provided
  in the current financial year.  That is a substantial increase and that has
  been very effective.  You made the point early on about the fact that we have
  significantly fewer LPG driven vehicles in the UK than elsewhere, but the
  number is rising very rapidly and certainly there is public support for that
  through power shift.  I am not sure about buses.  Do you know what the
  position is?
        (Mr Maxwell)   No, I am afraid I do not.
        84.      Would you like to take a stab at how many buses you think have
  taken advantage of that scheme to convert to LPG from fossil fuels?
        (Mr Timms)  I see a little bit of a trap opening up here.  My answer is
        85.      Would you be surprised to hear that in 1997 there were 24 HGV
  vehicles and 15 buses in the entire country which took LPG and at the last
  figures available 68 HGV vehicles and 36 buses in the entire country are
  powered by LPG?  In percentage terms that is terribly good but in real terms
  is not terribly impressive, is it?  The point I am putting to you is that some
  of your schemes, some of the Treasury instigated schemes which were trumpeted
  enormously at the time - I remember before your time at the Treasury, when I
  was on the Finance Bill these were trumpeted - as great ways of changing
  environmental attitudes amongst HGV drivers and bus drivers have actually been
  a complete and utter disaster.  What we do not want to see is the same
  happening with the next generation of much more environmentally friendly fuels
  in terms of hydrogen which seem to me not to be getting proper development
  capital, certainly tax incentives, at this stage.  I want to be more convinced
  of the evidence that the Government is really looking much beyond just the
  next budget, five or ten years, for a whole new generation of how we fuel our
  vehicles and really pushing us to the top of the ladder in giving industry
  every incentive to be developing that technology now.
        (Mr Timms)  On LPG vehicles as a whole we have a much better story to
  tell than the one which you have related.  It is the case that since the 1999
  budget there are about 9,000 more gas powered and bi-fuel vehicles than there
  were at the time.  The number of LPG refuelling sites has risen from 185 to
  560, so there is quite a significant shift taking place.  I hope that in due
  course that will be reflected in the commercial sector, buses, as well.  I do
  not underestimate the scale of the change that there needs to be.  I agree
  with you that there is an important role for the tax system in helping to
  ensure that change occurs.  I see the alternative fuel challenge as an
  important step in helping us to identify which are the fuels which we ought
  to be giving incentives to very quickly but no doubt there will be more in due
  course.  We are some way from having widespread availability of hydrogen fuel
  cell vehicles at the moment but at some point I am sure that will become an
  important issue.
                              Mr Gerrard
        86.      You mentioned in that answer the question of distribution and
  that there had been a significant increase in the last couple of years in
  sites where LPG was available but that was certainly a problem for some time. 
  With the newer technologies which are coming along, hydrogen fuel cells,
  biodiesel, ones which we know are available now and used much more in other
  countries than in the UK, is the Treasury looking at what might be done to
  help develop the infrastructure?  It is all very well encouraging a
  manufacturer to produce a vehicle but you need the infrastructure to support
  that, the distribution networks as well.  Is that something this challenge
  fund might support as well as the actual development of the vehicle or are
  there other ways in which we might look at supporting infrastructure
        (Mr Timms)  The challenge is specifically about the level of duty which
  is applied to the fuel.  Biodiesel certainly is a potential beneficiary from
  a lower rate of duty, depending on the outcome from the challenge.  I met a
  number of people in the runup to the Pre-Budget Report specifically about
  biodiesel and there may well be some promising possibilities there, including
  with the recycled vegetable oil which a few people came to talk to me about. 
  The question of how those fuels would be distributed would have to be a
  commercial matter for those who were seeking to distribute it.  That is not
  something I would expect us to be directly involved in.
        87.      You would not see any role for financial incentives from the
  Treasury to a company prepared to invest in infrastructure? 
        (Mr Timms)  That is what the effect of the duty incentive would be.  By
  charging a significantly lower rate of duty on the fuel, that will amount to
  an incentive which will have the effect what you are proposing would have.
                              Mr Chaytor
        88.      Two points on this issue, if I may?  First of all a general point
  about the hypothecation issue of fuel duty because in the 1999 budget, as I
  recall, the Chancellor announced that any future use of the fuel duty
  escalator would be hypothecated to public transport investment.  Of course the
  abandonment of the escalator has meant that pledge is now not irrelevant but
  at least not immediately important.  Is there not an argument for
  hypothecating a component of fuel duty to further investment in alternative
  fuels and would this not only be an efficient use of fuel duty but also be a
  way of persuading public opinion and concentrating the public mind on the
  importance of getting out of petrol and oil and getting into alternative
  fuels?  That is my general point about the possibilities of hypothecation of
  fuel duty to alternative fuels.  My specific point is about the power shift
  programme itself.  I would put to you that one of the difficulties, accepting
  the success of the programme to date and the numbers of vehicles which have
  been converted, one of the difficulties lies in a paradox whereby the power
  shift programme provides the incentive to the vehicles which are already the
  most fuel efficient in so far as the grant is only available for vehicles
  which are under 12 months' old.  Really almost by definition they are more
  fuel efficient than vehicles which are two or three or four years' old. 
  Accepting that there are questions of engine design, which constrain the range
  of vehicles which can be converted to LPG, is there not an argument which says
  we really ought to be getting the parameters widened a little bit, so that
  eligible vehicles could be two, three, four years' old.  The point also being
  that the overwhelming majority of vehicles under 12 years' old is bought by
  fleets and we are hardly impacting at all on the general public buying a
  private car for their own use.  In terms of influencing public opinion, is
  there not a role for the power shift programme to do that by broadening its
  eligibility criteria for older vehicles?
        (Mr Timms)  On hypothecation, we are seeing more uses of hypothecation
  than we have seen in the past.  We are seeing some of that in the
  environmental tax area and I am thinking of what the Chancellor said about
  future real term increases in fuel duties, which there have not been any of
  so that has not actually had an impact as yet.  However, as well, in the
  climate change levy of 1 billion, 150 million is being applied to promoting
  energy efficiency through a number of routes:  the aggregates levy.  We are
  setting up a sustainability fund to address the problems caused by aggregates
  extractions.  We are seeing more hypothecation.
        89.      There is a series of precedents in place which would justify
  hypothecation of part of the fuel duty revenue to investment in alternatives.
        (Mr Timms)  What one is sceptical about is what the value would be of
  going back and claiming that an element of an existing duty income stream was
  being applied to a particular thing.  What is the difference between that and
  just saying we are going to spend X money on this thing, whatever it is.
        90.      The argument would be that it makes the whole concept of fuel
  duty more legitimate in the public eye if it is seen to be re-invested and
  developed to alternative fuels because there is general public support for
  alternative fuels but there is general public hostility to fuel duty itself. 
  By tying the two together, it could be a way of influencing public opinion
  very significantly and legitimising the fuel duty to a far greater extent.
        (Mr Timms)  I am not sure that it would because in reality fuel duty does
  make a substantial contribution to the Government's overall income and it uses
  it for schools and hospitals.  I am not convinced it would increase the
  popular support for fuel duty.  I do not know, I should be interested in other
  people's views, but I think it might actually have the opposite effect.  Where
  there is a new measure and a new income stream is being received, then
  hypothecation is something one can consider, but I am sceptical about going
  back on previous income streams and reclassifying them.  I am not sure that
  is changing anything very special.  On power shift, we have very significantly
  increased the resources at the disposal of the power shift programme.  Whether
  we should be looking at the criteria I do not know.  That is perhaps something
  I should take away and have a look at.
                               Mr Thomas
        91.      Earlier on in reply to Mr Gerrard you said that you did not feel
  you had a role in the infrastructure for alternative fuels, LPG in particular,
  and that that was a commercial matter, albeit that the fuel duty is an
  incentive there.  Surely you, as a Government, have very firmly pinned your
  colours to the mast as far as ultra low sulphur petrol is concerned and the
  need for the infrastructure to deliver that to all areas of the country.  I
  would suggest that the public at large at least feel that the Government has
  given a promise that the reason for the three pence cut in fuel duty, which
  is only applied to low sulphur petrol but is interpreted by Cabinet Ministers
  together with MPs as an eight pence cut in fuel duty - that was the answer I
  had this afternoon from the Secretary of State for Wales - can only work if
  you can deliver that ultra low sulphur petrol to all areas of the country and
  meet the public expectations that you do that.  Why are you prepared to do it
  for that fuel, which makes no contribution towards CO2 emissions at all, but
  are not prepared to do it for the infrastructure of LPG or biodiesel which
  would make a huge contribution to a reduction in CO2 fuel?
        (Mr Timms)  I do not think we are doing anything for ultra low sulphur
  petrol that we would not be doing for alternative fuels which are successful
  in the challenge.  We are not providing resources to invest in ---
        92.      But you have nailed your political colours to the mast.  If oil
  companies do not deliver, you will to a certain extent be blamed for it.  I
  do not know how you have done it behind the scenes but you certainly made it
  clear that the political objective here is to deliver a three pence per litre
  cut in real terms to the public in response to the political demands which
  were placed upon you in the autumn but you are not doing the same for much
  more greenhouse friendly fuels, as it were.
        (Mr Timms)  We are not making any investment in infrastructure at all for
  ultra low sulphur petrol.  We are simply offering a duty incentive which will
  only be introduced if the fuel is available across the country.  Similarly on
  alternative fuels, we will offer a duty incentive and then it will be for the
  providers to distribute it.  I do not think there is any difference between
  the two.
        93.      There is no material difference but there is a huge political
  difference in the attitude you have struck and the way that comes across to
  the public.  For example, earlier on this afternoon you made it very clear
  that rural areas must benefit from ultra low sulphur petrol as well.  In my
  own very rural constituency I have one LPG fuelling depot;  just the one.  It
  is also an area which has older than average cars.  I know a lot of people
  would switch in rural areas to LPG if they could be part of the power shift,
  which they cannot, because the average car in a rural area is older than in
  urban areas and, secondly, if they could get access to it, which they also
  cannot.  Would you not agree that there is a task there for Government to be
  more explicit in its support for alternative fuels and to consider the points
  made by Mr Gerrard regarding a support for the infrastructure delivering that?
        (Mr Timms)  I am not sure what form of support you are proposing.  I
  think the evidence is that the very significant duty incentive which has been
  provided for LPG is leading to a very rapid takeup now of the fuel, a very
  rapid increase in the number of stations, something of the order of one a
  week, that sort of scale opening up around the country.  We expect that to
  continue.  The lesson I draw from that is that the incentive has worked and
  I would expect it to work well with the alternative fuels.
                               Mr Grieve
        94.      Can we move to vehicle excise duty?  As I understand the
  position, the primary change has been to cut vehicle excise duty for cars
  under 1500cc.  Remembering what the Chancellor had to say about this, there
  appeared to be an argument he was putting forward that this had some
  environmental justification.  It was going to produce an environmental
  benefit.  It was not, as I understand it, being put forward as merely a
  palliative to angry motor-car users, there was some wider justification. 
  Could you explain what it actually is and why it is seen by yourself that
  there is going to be an environmental good or plus from that change?
        (Mr Timms)  Yes.  The lower rate of VED for normal new cars less than
  1500cc will provide an incentive for people who are buying a secondhand car
  to buy a smaller one.  The question is:  what is the right place to set that
  threshold?  The view we have reached is that 1500cc is the right level to go
  for.  I can only judge this from my postbag.  My impression is that that is
  about right in terms of having a significant impact on quite a lot of people
  in making their choices about which secondhand car to buy.  Originally when
  this was introduced it was at 1100cc and I received very large numbers of
  letters from people with 1108cc cars who were very upset about it.  It was not
  my impression that it was having as big an effect as one might have hoped in
  encouraging people to obtain smaller cars than they otherwise would have done. 
  Probably at the 1500cc level it will have a better impact.  I do not want to
  overstate the significance of it, but it does send out the right signal in a
  way that is likely to be helpful.
        95.      Was there any appraisal as to what the likely environmental
  impact might be of this change?
        (Mr Timms)  I do not think it would be large enough to warrant an entry
  in Table 6.2.
        96.      The other way of approaching car engines is about fuel
  efficiency, which may in fact not be dependent on engine size at all. 
  Arguably that might be a much more logical, although perhaps more complex,
  approach to the rate you should have for excise duty but it is not the route
  that you have chosen.
        (Mr Timms)  It is;  for new cars that is precisely the route we have
  chosen.  The rate of vehicle excise duty will be graduated according to the
  CO2 emissions.
        97.      There is no reason why you could not do it on existing vehicles.
        (Mr Timms)  There is a reason.  The reason is that the CO2 emission data
  will only appear on vehicle registration documents from next March.
        98.      I do not quite follow that.  I appreciate that, but if you wanted
  to look at fuel efficiency in terms of types of engines in cars, that is
  something you could do with existing vehicles.  You just have to carry out the
  necessary tests on them.
        (Mr Timms)  No doubt one could introduce some kind of nationwide testing
  system which required everybody to have their car tested.
        99.      You could set up benchmarks on existing vehicles as to which are
  fuel efficient and which are not in type and model and base it on that.
        (Mr Timms)  I should be interested to know more about the system you
  envisage.  It sounds to me potentially an extremely cumbersome mechanism. 
  What is really important about all of this is that the system is extremely
  simple, that somebody can look at their vehicle registration document, they
  can read the CO2 emission data and they will know what excise duty they have
  to pay.  Anything more complicated than that and you very quickly start to
  lose the benefit and introduce a significant new bureaucratic burden which is
  not helpful.
        100.     The difference would be, would it not, to require the
  Government to take some view as to whether a particular vehicle is fuel
  efficient or not in its construction, which is something which could be tested
  and established?  If I understand it, that is what you are intending to do
  with new cars.
        (Mr Timms)  The point I am making is that for new cars the data is
  readily available, it will be on the registration document so everybody can
  see what it is.  I would not favour a system which required everybody to have
  their car tested in order to find out what level of vehicle excise duty they
  had to pay.  Would this be something which varied from one year to another
  depending?  We would be getting into levels of bureaucratic burden which would
  not be warranted.
        101.     Forgive me but I do not think the proposal I am putting to
  you is completely illogical.  Even when you do this for new cars, depending
  on the way people maintain their cars, it is soon going to make a huge
  difference to the level of fuel efficiency which is in fact being generated
  from any individual engine.  That is still the route you have decided to
  embark on, but it is not the route which you have decided to take in relation
  to existing vehicles.  I am just trying to probe a little bit about the
  reasonings behind all this.  I have to say to you that I am very unconvinced
  that there is an environmental benefit at all from this proposal to move it
  up to 1500cc, which is why I asked you whether there was an environmental
  appraisal.  We do not have it.  Is this a palliative to motorists or is this
  a reasoned, thought through process by your department in conjunction with
  DETR or whoever else it may be, that you have come up with a scheme which is
  going to have a really good impact on emissions and use of vehicles?  Is it
  the one or is it the other?
        (Mr Timms)  I do not want to claim too much for what will be achieved by
  this change.  The way that I see it is that it is sending out a signal which
  is clear and is actually going to be quite effective, that if people go for
  a smaller car they will pay rather less in duty.
        102.     A smaller bigger car or bigger smaller car you have decided,
  because previously you were trying to keep people down to 1100cc;  you have
  expanded it up to 1500cc.  So it is already an enlargement of the type of
  vehicle which is brought into the process.
        (Mr Timms)  Yes.  What it will do is provide an incentive for people who
  might otherwise have bought 1600cc plus to go for a sub-1500cc car.  It is
  addressing a different part of the car buying public and I suspect that where
  we have set it now is probably the most effective point.  I do think it is
  important that any arrangements of this kind are simple and do not require
  people to go through very complicated processes in order to work out whether
  they should be paying 105 or 155.
        103.     May I just turn to VED on lorries?  Is the change not
  inconsistent with your own ten-year transport plan which wants to see an
  80 per cent increase in rail freight by 2010?  With a halved rate of VED, what
  is the incentive to use rail or the waterways or take goods off the roads?
        (Mr Timms)  There are several points to make here.  Certainly one of the
  concerns which we have been looking at quite closely over the last year or so
  is the competitive position of the UK haulage industry compared with the
  industry in France, Belgium and elsewhere.  UK hauliers certainly are not only
  competing with rail, they are competing with hauliers elsewhere as well.  I
  think the international competition is an important part of the consideration
  here.  Equally of course it is the case that we have not gone anywhere near
  as far as people in the haulage industry were calling for in reducing the fuel
  duty which is paid by hauliers.  What we have done is to introduce a balanced
  package which addresses some of the competitiveness concerns that UK hauliers
  have been experiencing, which continues to ensure that other competitors to
  road haulage have a level playing field.
        104.     Forgive my saying it but during the period between September
  and the Chancellor's pre-budget statement, I remember oft repeated statements
  coming from the Chancellor, indeed I think from the Prime Minister, saying
  that the argument put forward by the road haulage industry that its costs were
  very much higher than its continental competitors was wrong because it was
  failing to take account of a series of indices which in fact showed that they
  could be very competitive because there were certain areas where they were
  much cheaper.  Suddenly, hey presto, Pre-Budget Report, we have a halving of
  VED.  Let us try to be realistic about this.  I appreciate governments are
  subject to political pressures.  Is not the reality that that was simply a
  response to political pressures from the road haulage industry and had
  absolutely nothing whatsoever to do with an environmental policy at all?
        (Mr Timms)  No, I do not accept that.  At the Road Haulage Forum which I
  attend, we have been looking at these issues over a lengthy period.  We have
  carried out a good deal of work.  I have mentioned the study carried out about
  the environmental costs of lorries and that was available to us as well and
  the conclusions of that work will be reflected in the revised scheme for lorry
  vehicle excise duty.  So it will be a properly considered new scheme, taking
  full account of all of the environmental issues which are appropriate and it
  certainly was not and it will not be an ill-thought-out knee-jerk response in
  the way you are proposing.  It is the case that if you look at the overall
  rates of taxation on hauliers in the UK compared with those in other EU Member
  States, the difference is nothing like as great;  for some of the countries
  there is not much difference at all but certainly the differences are nothing
  like the same as one would conclude if you only looked at fuel duties.  But
  of course things are changing.  Changes were made in some EU countries over
  the summer in response to increased oil prices and those are changes which we
  need to take account of as well.  The new scheme for VED will take very full
  account of environmental considerations.
        105.     I am grateful for that.  In effect this is the end of the
  DETR's sustainable distribution strategy.  We have been told authoritatively
  that the authoritative figure for a lorry on the road is 28,000 per vehicle
  in terms of environmental damage.  On the face of it, what you have just done
  does not contribute in any way towards achieving that policy objective, if it
  is really costing in environmental impact terms 28,000 per vehicle, and the
  DETR is aiming to try to deal with it - and that is their figure.  Forgive my
  smiling just a little bit but we are bombarded with figures on this Committee,
  authoritative figures, half-authoritative figures, non-authoritative figures,
  all telling us that there is an environmental strategy which can be pursued
  based on objective evidence.  It comes back in a sense to what I was asking
  you much earlier.  Yet here we have a decision which appears to fly completely
  in the face of the so-called objective criteria laid down by DETR.  Is the
  reality that the policy and political pressure considerations have just
  overridden whatever DETR thought about this?
        (Mr Timms)  No.  The decisions which we have announced will take full
  account of environmental and social and economic considerations.  I am going
  to ask Mr Maxwell to comment specifically on your question about 28,000.
        (Mr Maxwell)   In respect of the reform of the lorry vehicle excise duty,
  the existing scheme has something like over 100 different classes.  It is very
  difficult to work out where the incentives lie for different people to use
  different sorts of lorries.  One way of tackling the environmental cost of
  lorries is to encourage people to use cleaner lorries or to use lorries which
  impose less track damage.  The aim is that the reformed lorry VED scheme with
  fewer, simpler classes and those classes themselves based on environmental
  costs and the differences in environmental costs caused by different types of
  lorries, will help to encourage people to use cleaner lorries which damage
  roads less.  So it is possible to reduce those costs.  
        106.     Does that mean that the DETR is going to be coming up with a
  new impact survey, consequences, results, because I have not seen it?
        (Mr Maxwell)   There is an understanding that over time the improvements
  in lorry technology and in particular engine technology have reduced the costs
  associated with air pollution, for example local air pollution, and those are
  the sorts of things we factored in to the VED reform.
        107.     You would expect the DETR therefore to agree with you about
  this and to be in a position to come to us, just as an example, and say they
  have thought this through again and with all these extra things we are
  factoring in we have to look at it differently.
        (Mr Timms)  We are certainly working very closely with DETR on all of
  these issues and of course the licensing agency is a DETR agency.  There is
  very, very close cooperation between us.
        Chairman:   If you had produced an environmental appraisal on this it
  might have been to your advantage.
                              Mr Chaytor
        108.     May I return to the point on VED for private vehicles and
  just endorse the comments of my colleague, Mr Grieve, about the position of
  older vehicles?  I really must press you on this point as to why it is
  exceptionally bureaucratic to have a progressive system for older vehicles
  either through emissions' ratings which the manufacturers must have for
  vehicles or by using engine size as proxy, when the fact remains that for all
  the vehicles we simply have the one incentive, the 50 reduction for vehicles
  under 1500cc.  Really my question is:  do you not think there is a perfect
  logic for older vehicles to have a greater number of bands of engine sizes or
  emissions rating and a wider spread?  The point surely is that one of the
  greatest groups of polluters is large engined older vehicles.  At the moment
  there is little disincentive to get those off the road and to persuade people
  to trade them in for more efficient vehicles.
        (Mr Timms)  There are incentives.  Inefficient older vehicles consume
  more fuel and so that in itself provides an incentive for newer and more
  efficient cars.  There is a limit to what one can expect the vehicle excise
  duty system to deliver;  we are talking about 160 a year.  To introduce a
  system, which, if I have understood correctly what is being suggested, would
  involve some sort of annual test being carried out on the vehicle, is just ---
        109.     I am not suggesting an annual test, I am saying that the
  manufacturers are simply asked to give a rating to all of their vehicles still
  in production, whether they are registered in the year 2001 or whether they
  have been previously registered.  I am just challenging your notion that there
  is a responsibility on the individual to designate the rating of their vehicle
  and say this is information that the manufacturers must have.
        (Mr Timms)  It is very important that the system should be very simple
  and that people should be able very easily to tell what the level of duty they
  are going to have to pay is.  It is the case that the data is actually
  available for vehicles manufactured since 1998.  I suppose one could require
  people to ring up the manufacturer or find the information in that way, but
  that seems to me to be introducing a degree of complexity into what is a
  pretty limited system.
        110.     The onus would not be on the individual, surely.  The onus
  would be on the DVLA when they sent out reminders for renewal of vehicle
  excise duty.  The DVLA would keep a central record of the emissions rating of
  all vehicles up to a certain point and they would then send out with the
  reminder the appropriate charge and explanation as to why the charge was
  different.  There is no need for the onus to be on the individual to find out. 
  DVLA ought to keep this on record.
        (Mr Timms)  It would be a pretty big task for DVLA to set up a database
  for emissions.  I think the information has only been available since 1998
  anyway, so we are only talking about cars between 1998 and 2001.  It just
  sounds a bit over the top to me.
        111.     May I pick up on your other point about the limited use of
  VED because of the ceiling of 155?  With the emissions rating, am I right in
  thinking there will be four bands from next April?
        (Mr Timms)  Yes, that is right.
        112.     So my question there is:  is there not really a choice to be
  made of accepting that VED has limited impact because we have established four
  bands and the maximum VED is 155 and therefore the cash incentive is really
  quite small, or accepting that VED has potentially much more significant
  impact if it becomes more progressive and if the range of charge is widened? 
  I suppose the essence of my question is when are we going to see a Range Rover
  tax, is it not?
        (Mr Timms)  There is a bigger range in the rates;  70 between top and
  bottom as opposed to the 50 for the 1500cc.  So there is a wider range.  We
  need to see how that goes.  My hunch is that the signals that sends out are
  going to be quite effective in influencing people's behaviour but we will just
  have to see.  
        113.     Would you accept that there is potential for something far
  more progressive, as already applies in other western European countries, a
  much bigger range of VED levied according to emissions rating?
        (Mr Timms)  I accept that theoretically one could certainly do something
  along those lines.  Whether it is desirable is another matter.
                               Mr Jones
        114.     I want to come back to an answer you gave to Mr Grieve in
  giving the Government's justification for the reduction in VED on vehicles
  1500cc or lower.  You said that would give an incentive for people buying
  second-hand cars to buy a smaller vehicle.  I was trying to think through
  that.  I am a serial second-hand car buyer, in fact third-hand car, fourth-
  hand car buyer.  I enjoy going to car auctions and buying second-hand cars. 
  I do not understand how this works.  If I go and buy a car I am going to gain
  on the VED by buying a cheaper car.  But if I am trying to sell a car and I
  have a bigger car, what does that mean?  It means that I reduce the price of
  my larger vehicle to sell it.  How does it affect the proportion of the total
  number of cars on the road?  The gate is the cars which are sold new.  Once
  they are sold new, if 20 per cent or 30 per cent of your cars new are over
  1500cc, what do you suppose is going to happen to them?  Are they just not
  going to get sold?  Someone is going to buy them cheaper than they bought them
  before you reduced the VED on smaller vehicles, but those cars are not going
  to sit there not being sold because you have reduced VED.  How have you had
  any effect, any net effect, on the total number of smaller vehicles on the
  road with this policy?  What is the environmental justification?
        (Mr Timms)  I think that it will make smaller cars somewhat more popular. 
  I suppose one would have to look at the point at which vehicles ultimately get
  scrapped to come up with an answer to your question.  It clearly will reduce
  the cost of running a smaller car compared with running a larger one and at
  the margin that will have some impact.
        (Mr Maxwell)   It reduces the fixed cost of owning that car.  Of course
  it does not have a bad environmental impact of reducing the marginal costs of
  driving extra miles.  A change in vehicle excise duty of this nature does not
  increase the incentive for people to drive more miles.
        115.     I think we have established that whatever effect this policy
  has on the environment it is extremely marginal.
        (Mr Timms)  I do not know about extremely.  I have made the point that it
  is not huge.
                                Mr Shaw
        116.     Continuing the theme of working closely with the DETR I want
  to talk about regenerating our inner cities.  In protecting the environment,
  in the Pre-Budget Report at 6.80, you say that you are going to introduce a
  package of 8 million to encourage property conversion etcetera.  The Empty
  Homes Agency tell me that there are 250,000 properties which have been empty
  for a year or more.  The DETR are only able to tell me about properties which
  have been empty for a year because the local authorities provide that for them
  in their housing investment programme returns because they have a statutory
  requirement to do so.  How then are you able to assess the number of
  properties which have been empty for ten years or more, as you say you are
  going to reduce to zero the VAT rate for renovation?  What model have you
  used?  How have you obtained the information when the DETR do not have the
  information?  How many houses have been empty for ten years?
        (Mr Timms)  You have got me there.  Certainly this is information which
  I presume was obtained from DETR.
        117.     They did not have it in answer to PQs.
        (Mr Timms)  The answer is that we do not know but perhaps I may send the
  Committee a note.
        118.     You are saying you are prepared to spend 80 million but you
  have no idea of how many properties.  How do you arrive at that figure?
        (Mr Timms)  We do know the number of properties we think are involved.
  What I am not able to tell you is what the source of that data is and that is
  what I shall check and come back to you on.
        119.     The DETR do not know and they are the responsible department. 
  I wait with bated breath on that one.  Is the adjustment to zero rate of VAT
  for these something you are going to take up with Europe because previously
  you have always said when we tackled this issue that it is impossible to go
  to zero rate.  Are you going to zero rate because it is of an environmental
  nature which is beneficial to the end user as we have other zero rates for? 
  How can you do it on this one when you have not been able to do it on energy
  saving materials as you have told us in the past?
        (Mr Timms)  The EC rules on this are fairly complex and the EC law
  requires a reduced rate to have a social objective.  Our aim is to create
  relatively affordable housing units.  It is going to require some quite
  careful discussion and quite careful work with the European Commission to
  ensure that we do not fall foul of state aid rules, but I am pretty confident
  that we are going to achieve those negotiations successfully.
        120.     If we are talking about protecting the countryside and
  regenerating our inner cities, one of the central recommendations within the
  Rodgers' report was to harmonise the VAT in order that there is far more than
  just planning incentive, fiscal incentive for builders to renovate and a
  disincentive to build on greenfield sites.  At the moment greenfield sites are
  zero rated and we get zero rating for environmental reasons.  That simply does
  not stack up.  What was the thinking as to why you would not harmonise?  At
  the very least you could argue that it should be far more on a greenfield site
  to protect the countryside and much less on renovating and getting more from
  what we already have.
        (Mr Timms)  May I first of all go back to what you asked me about a
  moment ago and the position with the EU to correct what I said?  The
  adjustment to the scope of the zero rate for the sale of refurbished,
  previously vacant dwellings is just adjusting an existing zero rate.  It will
  affect dwellings which have been continuously vacant in the time from 1973 to
  1990 and then refurbished and sold after April 2001.  In other words there was
  an existing zero rate in place for properties which have been vacant since
  1973.  What we are saying is that in future it will be properties which have
  been vacant for ten years or more.  My understanding is that amending an
  existing zero rate in that way does not in fact require EC authorisation.
        121.     But we do not know how many.
        (Mr Timms)  We put in a figure of how many buildings we think are
  involved.  What I do not know is the source of that data and that is what I
  shall come back to the Committee on.  On your question about changing the
  basis for VAT, as you know, in Lord Rogers' report there was a large number
  of recommendations;  105 of them all together.  What we have done in the Pre-
  Budget Report and in the Urban White Paper is pick up very much the spirit of
  the report's recommendations.  We subscribe entirely to Lord Rodgers' vision
  of a major urban regeneration and I think that the package of proposals, not
  just on VAT but on stamp duty and other things as well which are in the Pre-
  Budget Report and Urban White Paper will enable us to take forward that
  vision.  It is perfectly true that we have not introduced all the individual
  measures which were recommended by Lord Rodgers but we have picked up the
  spirit of his report and we are going to see very significant progress as a
  result of these measures in the direction he has called for.
        122.     Would you agree that of the 103 recommendations the one I
  have referred to was number one?  I think that is the general consensus,
  certainly from what Lord Rodgers has said in the press in response to the Pre-
  Budget Report.
        (Mr Timms)  It was quite an important point in Lord Rodgers' mind.  It is
  important to make the point as well though that Lord Rodgers has warmly
  welcomed what we said, particularly on stamp duty.  I am not saying that we
  have done everything he has called for but we have made very significant
  progress in these announcements in the directions he has called for.
        123.     On stamp duty, how are you going to account for pockets of
  valuable property within deprived areas, so we do not have Lords of the Manor
  in a great big mansion getting money for doing up their properties, when we
  want to see the money being put into more modest property, particularly in
  certain parts of the UK where property might be below 60,000?
        (Mr Timms)  The key driver here is business property rather than
  residential.  What we really want to do is to encourage enterprise into the
  most disadvantaged wards in the country.  Removing stamp duty from public
  transactions in those wards will be quite an effective measure in encouraging
  businesses to locate in those areas and I think that will have a very
  substantial beneficial effect in regenerating those areas.  There will of
  course be a knock-on effect for residential property and on the whole if we
  are talking about the most disadvantaged wards in the country, then making
  residential property there somewhat more attractive than it otherwise would
  be, would probably have a beneficial effect as well.  It is really the
  business side which is important.
        124.     Can you confirm that where there is immediate tax relief for
  property owners on conversion, that is conversion from flats into a single
  house as well as a house into single flats?  I was talking to my colleague
  from Hastings and they actually have a shortage of family houses but an excess
  number of flats, Victorian properties?
        (Mr Timms)  I can confirm that.
                              Joan Walley
        125.     I want to press you a little more about how we are going to
  achieve what the Rodgers' report set out to achieve.  I agree with Mr Shaw
  that the number one priority really was to get this level playing field.  I
  am thinking about constituencies like my own where, as welcome perhaps as the
  stamp duty proposal is, I wonder how effective it will be because it might be
  that there might be properties which would not reach that basic minimum level
  anyway.  There is the added issue about VAT and its relationship not just to
  houses and to residential properties but I have an inner city area with lots
  of buildings where we are not necessarily looking for the buildings or the
  land to come into residential use, but to come to use which should be for
  business, small enterprises and so on and so forth.  That does not really seem
  to be covered in quite the way Lord Rodgers perhaps anticipated it would be.
        (Mr Timms)  I am sorry, I did not quite understand the point about
  business premises.
        126.     I am saying that as I understand it under the proposals in
  the budget on the stamp duty exemption for disadvantaged communities if you
  have derelict factories or buildings which were used for manufacturing
  purposes, then maybe the value of those will not bring such relief that would
  encourage growth because they would not be worth that much from the very
  beginning.  I am saying as well that in terms of residential properties, okay,
  you are looking at the prospects of VAT reform to encourage additional
  conversion of properties for residential use, but I can think of a lot of
  buildings in my constituency where we would not necessarily want residential
  use, we would want some of the former potteries, pot banks and so on to be
  converted into small-scale small- and medium-sized enterprises and units
  within those.  I do not see how these proposals will really bring about the
  investment that we are all crying out for on a scale that we need.
        (Mr Timms)  If there is a derelict factory somewhere in one of the areas
  which will benefit from this change, and somebody acquires that, stamp duty
  will not be charged, whereas stamp duty will be charged on an equivalent
  property in a different area.  It is a significant new incentive for
  businesses to locate in disadvantaged areas and that is what we are aiming to
        127.     I was just look at what the value of that dispensation or
  that exemption would be on the stamp duty where the value of property is very
  low in the first place.
        (Mr Timms)  If we are talking about a disused factory ---
        128.     Small factories.
        (Mr Timms)  My guess is that on the great majority of factories stamp
  duty certainly will be payable so the exemption will be a significant new
  incentive for businesses to use properties there rather than elsewhere.  It
  has to be part of a broader package and the package is set out in the Urban
  White Paper.  As an element in a strategy to bring enterprise into
  disadvantaged areas is going to be very useful.
        129.     So you will be keeping a very close monitoring brief on how
  effective the proposals are compared to the ones which were set out in the
  Rodgers' report.
        (Mr Timms)  Yes, we shall certainly be following that with great
        130.     May I ask very quickly about the issue of VAT for listed
  buildings and places of worship?  When I heard the budget statement, I
  immediately understood that many, many derelict or older churches would be
  eligible and I did not immediately pick up on the fact that it was only
  relating to listed buildings.  In many of our heartland areas, inner city
  areas, not all church buildings are listed buildings.  I am thinking for
  example of Methodist churches and buildings such as this where we really want
  to make sure this relief extends right the way across the board.  Will you be
  reviewing that or is it absolutely the case that it will only apply to places
  of worship, churches, which are listed buildings?
        (Mr Timms)  Yes, we are only proposing it for listed places of worship
  but that does include Methodist chapels and I understand that there are
  certainly Quaker Meeting Houses which are listed, synagogues, mosques.  It is
  not just traditional parish churches which will benefit but we are only
  proposing the exemption for listed places of worship.
        131.     That will exclude a lot of run-down churches in some of the
  most deprived inner city areas, will it not, or even the edge of town estates
  where we would want to be improving the quality of these houses?
        (Mr Timms)  It is targeting the relief on those buildings which are the
  most valuable, which is why they have been listed.  That is the right priority
  to set.
        132.     That is not directed towards the environmental benefit which
  would come about from addressing social exclusion and buildings which are
  going into disrepair because there is not the money to bring them into repair.
        (Mr Timms)  No, it is not going to solve all the problems.  By targeting
  listed buildings, including those in disadvantaged areas with high degrees of
  social exclusion, this could make a significant impact because raising the
  quality of those buildings which have that heritage potential can make a
  significant contribution towards improving the overall environment in the
                                Mr Shaw
        133.     That could actually benefit wealthy areas, therefore you are
  not targeting to deprivation in inner cities.  If the building requires to be
  listed in order to qualify for the grant, it could be in the most wealthy
  constituency in the country and it would qualify but the rundown church in
  constituencies such as yours would not qualify.
        (Mr Timms)  We do have some listed churches in Newham.  It is neutral. 
  It is true that this measure is not targeted at disadvantaged areas;  that is
        134.     This measure comes under regenerating Britain's towns and
  cities and it is not doing that.
        (Mr Timms)  No, it is, but it is true that this is not targeted just at
  disadvantaged towns and cities.
                              Mr Loughton
        135.     Whilst I do not wish to accuse the Government of being
  spiritually divisive, it is true, is it not, that 90 per cent of the churches
  which will qualify are Church of England churches and it is the Methodist
  chapels and Catholic churches which tend to be unlisted and newer which will
  not?  However, I do not want to pursue that point particularly as I have a
  vested interest as my father is a Church of England vicar.  I want to come
  back to be clear on the stamp duty matter.
        (Mr Timms)  Just as a matter of interest, the 90 per cent figure is not
  correct.  You are right that the bulk are, but I can tell the Committee that
  we think there are about 13,000 listed Church or England churches and over
  3,000 others.  It is not 90 per cent but it is the bulk.
        136.     It is convincing.  We will not use the word "extremely" but
  it is pretty convincing.  Let us go back to stamp duty because this is one of
  the key considerations for me in the regeneration package.  What you have said
  now, which is not what has been said before, because I have questioned this
  matter with the DETR Ministers in particular, is that the stamp duty exemption
  is to be targeted to businesses.  On the basis that last year stamp duty
  brought in approximately 2.1 billion, of which I believe just under
  1.1 billion was residential property and just under 1 billion was business,
  that is roughly a 50:50 split, then surely there is going to be a big knock-on
  effect on residential, not just a knock-on effect but a big knock-on effect
  because of where it is actually coming from.  Why do you not exempt
  residential property if the real aim is to advantage business investment in
  these disadvantaged areas which you have not yet defined?
        (Mr Timms)  I hope I have not confused the Committee.  I am not saying
  that this relief is targeted at commercial property.  What I am saying is that
  the real importance of it in regeneration terms is going to be the benefit for
  commercial property because that will encourage businesses to locate in
  disadvantaged areas when they might not otherwise do so.  That could have a
  potentially huge impact on regenerating those areas.  The benefits of the
  relief of course will be available for residential property transactions as
  well, but the real regeneration game, although that is helpful too, will be
  on the commercial property side.
        137.     The problem is that this is not focused, is it?  What I want
  to get at is first of all what qualifies as the disadvantaged area.  You spoke
  in terms of wards as well.  Is it not the case, certainly within wards in
  London and the South East and places like Hackney and Islington, that the
  biggest beneficiaries by far are the Georgian terraced houses worth over half
  a million pounds who will be exempt from four per cent stamp duty?  Against
  that, the number of properties in the whole of the country last year which
  sold for less than 60,000 is 660,000.  Some 45 per cent of all residential
  property sales last year did not qualify for stamp duty at all.  If you take
  out London and the South East the vast majority, a significant majority, of
  residential property sales, particularly in the most deprived areas, did not
  qualify for stamp duty at all, therefore there will be no knock-on effect to
  the most deprived areas who have very low property prices.  Is that not the
        (Mr Timms)  There will be benefit for commercial property transactions in
  those areas and that is the real gain from this, that it will encourage
  businesses to locate in disadvantaged areas when they would not otherwise have
  done so and that is going to be a powerful incentive for regeneration in those
  areas.  You asked about how we are going to identify what those areas are. 
  There is a DETR index of deprivation at the ward level.  Other approaches have
  been developed in the other countries of the United Kingdom and we shall be
  working with the administrations there to come up with a nationwide uniform
  assessment of disadvantage which will then apply across the country.
        138.     You have again come back to saying the biggest advantage, the
  biggest boost, will be given for commercial property, businesses investing in
  disadvantaged areas.
        (Mr Timms)  No, I am not saying that.  I am saying the biggest benefit in
  regeneration terms will be the commercial property advantages.  That is the
  point I am making.
        139.     I agree with you.  I completely agree with you.  On the
  figures I have given you therefore the knock-on effect on residential property
  will benefit very significantly people who do not need to be benefiting from
  stamp duty exemptions, that is benefiting from four per cent exemption on a
  0.5 million property, 20,000 to a resident of Islington.  Why not, on what
  you are saying, limit it to commercial property, or at least cap it on an
  upper value of a house?  Are you actually now confirming, because nobody has
  yet, that it will be determined on a ward by ward basis where inevitably you
  will have the Georgian terraces slap bang next to the tower blocks and the
  poor areas, particularly in London and the South East?
        (Mr Timms)  Let us wait and see until we know what the basis of the
  assessment will be.  My view is that it will need to be on a ward by ward
  basis because making an assessment on a sub-ward basis would be practically
  very, very difficult.  If one does select the most disadvantaged wards in the
  entire country, my guess is that the number of half million pound houses in
  those wards across the country will not be very great.  Let us wait and see
  what the selection is.  I would not favour introducing a different stamp duty
  regime for residential as opposed to commercial property.  That has never been
  done in the past by the previous government either.  That would introduce a
  degree of complexity to the stamp duty system which would not be warranted.
        140.     It is quite easy to do though, is it not?  We know what a
  business is and we know what a residential property is.
        (Mr Timms)  It introduces an additional complication into the system
  which is not there at the moment and it is not something I would favour.
        141.     It is not terribly complicated, is it?
        (Mr Timms)  There are complications and complications.  It is one we
  could do without.
                               Mr Thomas
        142.     May I briefly tease out some further ideas about what
  constitutes a deprived area?  You mentioned the DETR's list of wards with
  deprivation but you will also be aware that there are four areas in the United
  Kingdom which have been acknowledged as being deprived areas by the
  Government, which are the Objective 1 areas.  Those are the four areas which
  the Government has put forward to the European Union for particular regional
  assistance, saying these are our most deprived areas, larger areas than a ward
  I accept.  There is one in Wales and three in England.  Will those qualify for
  this relief as well?
        (Mr Timms)  There will need to be a ward by ward assessment and I have no
  doubt at all that many wards in those areas will meet whatever the threshold
  eventually turns out to be.  I would not anticipate a blanket passport so that
  anything which happens to be in an Objective 1 area automatically benefits
  from this.  It will not work like that, it will be an assessment made on a
  ward by ward basis.
        Chairman:   I wanted to ask you a few questions about your role as a
  Green Minister inside the Treasury but I am conscious that we have had a very
  lengthy session so I shall put these down in writing, if I may.  To your
  relief no doubt.  It remains for me to thank you for coming to the Committee. 
  We have had a very helpful and very meaty session.