Finance Bill

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Mr. Burnett: Will the right hon. Gentleman address the sufficiency or otherwise of rape available for purchase by companies such as Cargill, and the impact of the integrated administration and control system regime on rape production in the UK agricultural sector?

Mr. Jack: The point that I made earlier, to which Cargill referred, was that going back to 1998 and 1999 planting levels of 543,000 hectares brings us, if my memory serves me correctly, within the envelope allowed by the controls in the common agricultural policy on the overall planting levels of oilseed rape.

I appreciate that there are different regional planting amounts, but I do not want to get too entrapped in a discussion of agricultural policy when the major focus of my remarks is the inducement to invest in capacity and to take advantage of what the UK agricultural sector clearly could produce—enough rapeseed oil to meet immediate demand. I do not think that Cargill is saying in any way that there is a shortage, although the hon. Gentleman rightly draws our attention to the fact that there is currently a

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constraint, under CAP terms, on the overall planting of oilseed rape.

I hope that the Financial Secretary can share with those of us who support the project the reasons why the Treasury cannot go further at this stage and realise the investment that companies such as Cargill and, no doubt, others would like to put into it.

Mr. Burnett: The Liberal Democrats welcome the clause too. I am particularly interested in the comments of the right hon. Gentleman, who has, as usual, illustrated graphically and intelligently the problems that Cargill faces. We want, as I am sure do the Government, greater investment in the manufacture, distribution and sale of a product that is environmentally benign and part of a worthwhile provision in the Bill.

I refer the Financial Secretary to ordinary diesel that can be purchased. Can he tell the Committee about the Government's views on diesel duty? We have a high rate on diesel compared with other European countries, although it has been proven for some years that diesel engines produce lower emissions, they are more durable and one generally gets more miles per gallon from them. Diesel should be encouraged. What do the Government have to say about that in formulating their taxation proposals on diesel?

Mr. Chope: I, too, look forward to hearing what the Financial Secretary has to say. Although the clause is a step in the right direction, paragraph 7.30 of the Red Book states:

    ''There are already signs that this initiative is stimulating activity, including investment in production facilities and plans by one major supermarket chain to use biodiesel in lorries.''

My right hon. Friend the Member for Fylde is on the ball; it is clear that the users of biodiesel do not think that there will be a sufficient financial incentive to switch their vehicles fully to biodiesel. The headline figure of a 20p per litre reduction in fuel duty for biodiesel sounds attractive, but the reality is that it is impossible to put 100 per cent. biodiesel into a vehicle; it must be diluted so that only 5 per cent. per litre of diesel is biodiesel. The effective reduction is therefore only 1p per litre, which means that the cost of biodiesel will be higher because the cost of its production is 2p per litre higher than for standard diesel. That is why the Freight Transport Association says that the reduction will make no impact whatever. Its manager of engineering policy, Geoff Day, says:

    ''The idea of a 20p per litre reduction in fuel duty for vehicles that may be using many thousands of litres per year is obviously very attractive. However, as no engine or fuel injection equipment manufacturer will approve of pure biodiesel''

it will not make much impact in practice.

If every hon. Member is enthusiastic about the benefits to the environment and agriculture that can flow from the development of biodiesel, we challenge the Government on why they are limiting its reduction in duty. Why are they not going further?

Mr. Boateng: One of the great advantages of a Committee such as this is that it enables all hon. Members to share experiences of their other lives to better inform our debates—[Interruption]—better to inform. The hon. Member for Buckingham is being

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pedantic because both phrases are fit for the purpose. We heard an example from the right hon. Member for Fylde, who has a detailed knowledge of the industry and shared with us the particular views of Cargill, to which I shall come in a minute.

Indeed, the hon. Member for Torridge and West Devon brings knowledge of farming, which is valuable, to the Committee.

5.45 pm

In bringing the measure forward, we have obviously consulted and worked closely with the Department for Environment, Food and Rural Affairs because we are well aware of the measure's implications for the farming industry and are anxious to get it right in order that it may benefit that industry and contribute towards our international commitments in relation to Kyoto and climate change.

I would caution the hon. Member for Torridge and West Devon about becoming too enthusiastic about diesel, an area in which I was particularly interested when I came into this job. I have considered it in greater detail than at any time since I was a member of the Environment Committee many years ago under the distinguished chairmanship of the then right hon. Member for Hornsey and Wood Green, Sir Hugh Rossi, whom a number of Government and Opposition Members will remember. We looked at some of those issues on the Environment Committee and I revisited them when I came into this job.

At first blush, diesel has the superficial attractions referred to by the hon. Member for Torridge and West Devon because it has some advantages on carbon dioxide emissions. The difficulty is that it has a worse impact on local air quality than petrol. Diesel presents problems for those—there will be many of us in Committee—who have particular concerns about environmental degradation and the impact of road usage on, for instance, children in schools. It is superficially attractive because it produces reduced carbon dioxide emissions and it is undoubtedly more efficient given the sort of engines that are now being produced, but the problem is its environmental impact on local air quality.

That is why we made the policy decision to tax both petrol and diesel at the same rate. The Liberal Democrat party may have come to a different view; it is an area in which one must make a balanced judgment. The view that we took, take and adhere to is that petrol and diesel should be treated alike, which is why we have approached the matter in this way. Clause 5 will introduce a reduced rate of excise duty on biodiesel used as a road fuel to permit the United Kingdom to benefit from its reduced greenhouse gas emissions. The purpose is to help offset the high cost of biodiesel compared with mineral-based diesel.

We launched the Green Fuel Challenge in November 2000 to promote the development of practical alternative transport fuels with environmental benefits, and we invited industry to come forward with practical proposals. In response to the proposals that we received, a series of duty cuts for alternative fuels was announced in the 2001 Budget, including a reduction in duty on biodiesel, which

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clause 5 will enact. The reduction will apply to both main types of biodiesel: rape methyl ester—RME—produced from rapeseed oil; and recovered vegetable oil—RVO—produced from waste vegetable oils. In terms of usage, the rate that will apply to biodiesel used as in-road fuel will be 25.82p per litre, which is 20p per litre below the rate for ultra-low sulphur diesel. There will also be a provision for duty paid on pure biodiesel used in certain off-road vehicles and other specified motor engines to be reclaimed. The overall result is that the same amount of duty will be paid on biodiesel as would be paid on road diesel—around 3p per litre. The Committee will discuss road diesel in due course.

Mr. Chope: Will the Financial Secretary address the issue that biodiesel has to be diluted?

Mr. Boateng: Yes, I will.

I should add that the duty incentive on biodiesel used as a road fuel will apply both to pure biodiesel and to biodiesel blended with mineral heavy oil. In the latter case, the incentive will apply in direct proportion to the amount of biodiesel in the blend. The reduced rate will come into effect on Royal Assent, provided that we have European agreement to our request for a derogation from the mineral oils structures directive. Agreement is expected shortly.

The right hon. Member for Fylde asked whether such an incentive was enough. The good news is that there are already signs that the duty incentive is stimulating activity, including investment and production facilities. As the hon. Member for Christchurch has been good enough to recognise, a major supermarket plans to run its delivery fleet on biodiesel, and we look forward to that announcement.

Some members of the British Association for Bio Fuels and Oils—Cargill is one of them—want a greater differential for biodiesel of up to 35p per litre. We have to make a judgment on that. The Government's climate change programme emphasises the need for cost-effective measures to tackle climate change to ensure that there is no disproportionate cost to society as a whole. We decided that a 20p per litre duty cut relative to ULSD was sufficient recognition of the environmental benefits from biodiesel and provided best value for money.

The Committee will want to give the Government some credit for adopting this form of fiscal instrument to promote environmental good. The hon. Member for Christchurch said that we have taken a few steps down the road. I hesitate to draw his attention to the fact that I was not aware that, when he and his right hon. and hon. Friends had governance of this nation's affairs, they took any steps at all. Therefore, there should be some recognition of the fact that the Government are going in the right direction as opposed to going backwards.

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