Finance Bill

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Kevin Brennan (Cardiff, West): I apologise for being late, Mr. Benton, and am grateful to my hon. Friend the Financial Secretary for giving way. Is not a better analogy a drink such as Baileys Irish Cream, which is a mix of cream and spirits? It is taxed as a spirit. Is not that a more appropriate analogy for a fruit and spirit mix such as the one that we are discussing?

5.15 pm

Mr. Boateng: I shall avoid that one, because I do not want to get drawn into it. It would be pleasant to be drawn into a vat of Baileys; one can drown in a butt of malmsey wine or in a butt of Baileys—I know which I would prefer.

I do not intend to be drawn into that discussion. I believe that the measure is fair and that we have met the requirements of the principles that we laid down as the basis for taxation in this area. It is important to recognise that what we have done is completely consistent with what our predecessors—of all political parties—have done. I go back to the days of a former Chief Secretary to the Treasury, subsequently Chancellor of the Exchequer and First Lord of the Treasury, the former right hon. Member for Huntingdon, John Major, when he said in 1989:

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''The existing duty system allows the Chancellor the opportunity to take account of changes in the economic conditions affecting each of the drinks industries in setting duty rates.''

In 1990, the right hon. Member for South-West Norfolk (Mrs. Shephard), when she was Minister of State at the Treasury, said:

''we must not lose sight of the fact that the basic purpose of alcoholic drinks duties . . . is to raise revenue for the Government . . . To achieve that, successive Governments have set out to collect revenue from various drinks rather than from alcohol as such . . . To link duties on the basis of alcoholic strength would limit the Chancellor's room for manoeuvre and produce a major upheaval in the market place.''—[Official Report, 20 December 1990; Vol. 183, c. 573.]

That is the Conservative party's track record.

Hon. Members have said that we should have consulted the industry more closely so that we could tell them what we were planning to do and get their views before making the change. That is a Damascene change of attitude on the part of the Opposition. I do not recall their taking that view when they were in government or rushing to consult the taxpayer before they introduced a tax hike. I cannot think of any Government who have ever seen fit to constrain themselves in such a way when taking basic decisions on alcohol duty rates. We saw no value in consultation. We were confident in our decision and saw no reason to delay it, just as we saw no need to consult on our decision to freeze the other alcohol duties and to cut the rate for cider.

There is something else that I know will interest the right hon. Member for Fylde, when he actually looks at the figures. I am mindful that the 10-day period that we allowed for the industry to change its systems was used by some producers to engage in some serious forestalling. That is another reason why I think that an extended period of consultation would have been both unwise and unnecessary. I can make available to Committee members who would like to see it an interesting graph that shows what occurred when the right hon. and learned Member for Rushcliffe announced in 1995 a duty increase that was to come into effect from 1 January. What we then saw was massive trade forestalling before the sector dipped and then renewed its steady growth again. There would have been real dangers in my submission for us to have adopted the rather unusual principle that the Opposition seem to have latched on to during their period in opposition.

We have listened carefully to what right hon. and hon. Members have said, and we understand where they are coming from on the issue, but the measure supports the steps that we have consistently taken to deliver a fairer burden of taxation on different alcoholic drinks and their producers. The clause ensures that the drinks carry their fair share of duty at a rate that probably reflects the nature of the alcohol that they contain. As such, I commend it to the Committee and urge Members to reject the amendments.

Mr. Jack: I have listened with care to some very good points that the Financial Secretary made in response to the inquiring lines that we put forward. I would say to him that at times there were dangers when, via the means of a question from the Opposition, he began to impute a policy to us. I

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think that we have every right, and I speak from the Back and not the Front Benches, to probe the Government about the logic and thought that lie behind that move.

The Financial Secretary showed an unusual degree of sensitivity when I probed him about the percentage of tax that those products will now bear as a proportion of their price in the future. We have had an interesting insight into some of the thinking behind Government policy on alcohol taxation. When the Government set out to raise money, it is not always easy to justify it in an entirely acceptable fashion.

Mr. Bercow: I am grateful to my right hon. Friend for giving way. Does he agree that the Financial Secretary's response on the subject of the proposed amendments should be treated with certain circumspection in the light of the not-very-auspicious debut to the issue of challenges that the Financial Secretary has so far made? Is my right hon. Friend aware that, on 8 May, in consideration in Committee on the Floor of the House, the Financial Secretary—he seems very proud of it because he referred to it a few moments ago—challenged me to identify any period in which there had been a freeze on beer duties in two Budgets—[Interruption.]—Oh yes; it is on the record. The Financial Secretary cannot cavil at my recalling the record. Is my right hon. Friend pleased to be reminded that, between 1985 and 1988, there was indeed a freeze on beer duty? It confounds the Financial Secretary and it does not encourage confidence in the veracity of his judgments.

Mr. Jack: I am always pleased to be reminded of useful information, and my hon. Friend has given some more to the Committee. I think that it also bears out the fact that, when we were in government, we did consult on spirits. For example, we consulted the Scotch whisky industry about matters relating to its tax.

I want to return to what the amendment is about. It reflects the desire for information to explain Government policy. I do not think that the Government should be upset about providing that information. I fear that the amendment may well be lost, but I would say to the Financial Secretary that anything that helps us to understand better why the Government do what they do is a perfectly sensible and reasonable thing to request, and that is what the amendment is designed to do.

Mr. Chope: May I, too, welcome you to the Chair, Mr. Benton? My right hon. Friend the Member for Fylde has just given a good reason why we should vote for the amendment. In summing up for the Government, the Financial Secretary addressed some of the issues. He conceded that, although the Chancellor said in his Budget statement that at no material time had there ever been a justification for the concession, there has been a justification for the concession in the Government's eyes for quite a long time, so that situation has now changed. At least that is a minor concession.

The Financial Secretary has also been much more moderate in his views about the impact of the measure on binge drinking, and I am grateful to him for that.

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However, he has not answered the question that the industry is asking: where spirit coolers compete directly with bottles of Budweiser and Beck's in clubs, why is it fair to increase the tax on one by 60 per cent. while leaving the tax on the other unaltered? They are all fashionable drinks whose alcohol content ranges from 4.5 to 5.5 per cent. Information on that and a wider debate would be facilitated by amendment No. 1.

Question put:—

The Committee divided: Ayes 9, Noes 16.

Division No. 1]

AYES
Bercow, Mr. John Burnett, Mr. John Chope, Mr. Christopher Davey, Mr. Edward Flight, Mr. Howard
Grayling, Chris Hoban, Mr. Mark Jack, Mr. Michael Luff, Mr. Peter

NOES
Boateng, Mr. Paul Brennan, Kevin Casale, Roger Cruddas, Jon Cunningham, Mr. Jim Curtis-Thomas, Mrs. Claire David, Mr. Wayne Harris, Mr. Tom
Luke, Mr. Iain McKechin, Ann Marris, Rob Pond, Mr. Chris Ryan, Joan Southworth, Helen Sutcliffe, Mr. Gerry Wright, David

Question accordingly negatived.

The Chairman, being of the opinion that the principle of the clause and any matters arising thereon had been adequately discussed in the course of debate on the amendments proposed thereto, forthwith put the Question, pursuant to Standing Orders Nos. 68 and 89, That the clause stand part of the Bill.

Question agreed to.

Clause 3 ordered to stand part of the Bill.

Clause 5

Acquisition of information etc.

Question proposed, That the clause stand part of the Bill.

Mr. Jack: This is an interesting clause. Lest anybody think that a conflict of interest arises here, I remind the Committee that I am chairman of an agricultural consultancy.

Biodiesel is an interesting agricultural development, and I welcome the Government's decision to give it concessionary treatment in relation to hydrocarbon oil duties. However, I want to take a moment or two to explore with the Financial Secretary the Government's thinking behind the revised level of duty.

A little while ago, I received some correspondence from Cargill plc, not only outlining the potential for biodiesel in the United Kingdom, but making some important points about the factors that would affect the company's investment decisions in this area. I say that against the background of a European directive that sets targets for member states' use of biodiesel. Interestingly, I learned from the university of Aberdeen's helpful environmental information note, published on 13 September 1999, that in Germany

''Sales of bio-diesel, a renewable fuel from oilseed rape, increased to 100,000 tonnes in 1998. 800 German petrol stations now sell that

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green fuel. Sales have doubled since 1996 when motorists purchased 50,000 tonnes, available from 500 outlets.''

Biodiesel comprises 1 per cent. of German diesel sales.

I gave that example because in Germany biodiesel is not subject to duty, so there is an outright price advantage for that environmentally friendly form of diesel. The same note states that, in addition to the benefits of diesel in terms of carbon dioxide production and its contribution to reducing greenhouse gases, biodiesel produces sulphur-free emissions, which is a better performance than conventional fuel. There is every reason for the Government to encourage in clause 5 further production of biodiesel, but the success—albeit out of date—described in that note, reveals that a more advantageous tax regime than that proposed by the Government had a remarkable effect in encouraging the use of biodiesel in Germany, certainly for road transport use.

5.30 pm

Let us examine the position in the United Kingdom. Cargill advocates that in agricultural terms it would be a good idea to do better than at present because we have a surplus of wheat production. That surplus is lower grade wheat, which is often exported and requires export restitutions, costing this country money. As a result and because of the changes in agriculture, a high of some 543,000 hectares of oilseed rape—the source of the raw material for biodiesel—in the 1998–99 planting season has fallen to 395,000 hectares in the last full year for which I have figures. Cargill argues that the agricultural potential is clear and that the amount of oilseed rape grown could be increased substantially to satisfy demand for biodiesel by using some of the land that is currently used for surplus production of wheat to the 1998–99 level of harvested oilseed rape. Cargill states:

''With this scenario in mind, and given a domestic food industry oil need of about 500,000 tonnes, there would be approximately 450,000 tonnes of rapeseed oil available for biodiesel. The conversion of that oil to rape methyl ester would provide 450,000 tonnes of biodiesel for road transport fuel, sufficient to make a meaningful difference to greenhouse gas emissions and to air quality.''

That is powerful advocacy for better use of land and environmental benefits, but the economics of the Government's proposals get in the way. In a further letter to me, Cargill acknowledges the Government's concession in hydrocarbon duty in clause 5 and states:

''Whilst we welcome this move, we have constantly stressed that this rate will not be sufficient to encourage companies like Cargill to produce biodiesel in earnest in the UK on a scale that will realise the full environmental and economic potential. In fact''—

this is important—

''this duty rate will only serve to encourage the production of low quality biodiesel generated from recycled vegetable oil.''

That is important because the Government, in the shape of the Prime Minister, recently held a working group meeting at Downing street with Sir Donald Curry, the author of the report of the commission on the future of farming. As the Financial Secretary knows, part of Sir Donald's report put particular

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emphasis on innovation in UK agriculture. It laid stress on the development of new crops and new ways of using land. By and large, the Government have welcomed the Curry report. I should have thought that they would want to embrace, with considerable enthusiasm, the opportunity to deflect land producing an unwanted wheat surplus into something that would clearly produce considerable environmental gains and be to the significant advantage of UK agriculture, at a time when grain prices, as the Financial Secretary knows, have reached an all-time low.

Returning to Cargill, its letter says that

''we would prefer duty rates linked to the world price of vegetable oil, but have been informed by HM Treasury that such a formula is too complex. Therefore a further duty rate reduction of 15p, giving an overall rate of 10p per litre, would be sufficient to ensure that a commercially viable biodiesel industry could develop in the UK.''

It concludes with a very important point from a major world player in the field of agri-investment, saying:

''Cargill has a myriad of possible investment opportunities worldwide, and will move our investment elsewhere if we do not receive an indication of the Government's intention to further reduce the duty rate.''

In a way, it is disappointing to have a company that is quite clearly enthusiastic for the development of a biodiesel industry in the UK pointing out that, in its judgment, the concessionary rate referred to in clause 5 is not yet sufficient to encourage the investment in the infrastructure needed to give a boost of the type to which I referred in the context of Germany.

I hope that the Financial Secretary can share with us in some detail the discussion that the Government have no doubt had on this occasion with the industry and the thinking that led them to select the rate of duty that clause 5 invites us to approve. If a company such as Cargill is willing to make an investment but feels that the rates are not yet sufficiently advantageous to encourage it so to do, that has implications not only for its investment but for UK agriculture and the Government's backing of the Curry commission report.

 

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Prepared 14 May 2002