Finance Bill

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Mr. Chope: Perhaps the Financial Secretary can inform Committee members what the state of the biodiesel market was six years ago.

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Mr. Boateng: No. We must encourage, develop and stimulate a market. It always makes me laugh in one sense, because there was a time when Opposition Members were constantly giving us strictures—they do not do it so much now—about the values of the market. Yet it is this Government who have made the market work for the environment, and we should have some recognition for that. I shall not go on and on about it, but we should get some recognition for seeking, through the Green Fuel Challenge, to engage with the industry. No one pretends that it is easy, and there are some fine-balanced judgments to be made. We have drawn upon the industry, and it has been generous in proffering information, advice and assistance, which we have used to inform our balanced judgment. We have decided that 20p per litre is right.

The revenues and costs of the measure will depend on the extent to which the duty incentive encourages the production and use of biodiesel. Obviously, we will watch that closely—I take the point made by the right hon. Member for Fylde. We must ensure that the measure has the desired effect, and we must monitor it carefully. We estimate that the initial cost will be about £10 million a year, which is money well worth spending because the incentive will make a real contribution to the environment.

Several hon. Members rose—

Mr. Boateng: I had concluded my remarks, but I am always interested in observations from hon. Members.

Mr. Flight: Does the Financial Secretary agree that the main revolution in creating a market for environmentally friendly fuels was pioneered by the previous Conservative Government when they introduced a substantial duty encouragement of lead-free petrol? Would he be kind enough to address the specific point made by my hon. Friend the Member for Christchurch about dilution? Will 1p be sufficient, or is it the case that for dilution the equivalent of a 2p cut in duty is necessary?

Mr. Boateng: Our judgment is that the cut that we have made will achieve the desired result; no further cut is required. We think that the signs are good and promising but, as I have said, we shall monitor the situation closely.

Mr. Jack: I very much welcome the Financial Secretary's comments, particularly his assurance that the Government will monitor the situation closely. As he said, it is a matter of judgment. Commercial interests will seek the best investment opportunity and, therefore, will press for a lower rate than the Government judge is necessary, and the Government must strike a balance between their environmental targets and what they think they can afford to do. However, I wish to press the Financial Secretary a bit further.

The assurance that the Government will keep the matter under review is the sort of standard throw-away line that all Ministers use because they think that it will remove a line of criticism. Can the Financial Secretary assure us that a paragraph about reviewing progress will be included in the next pre-Budget report, which will be issued towards the end of this year, so

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that we might formally be informed of the Treasury's approach to the development? I appreciate that all taxes are kept under review, but it would be nice to have something more tangible as the result of the Financial Secretary's useful words of assurance.

The Financial Secretary, with his obvious, in-depth knowledge of diesel engine technology, will be aware of the environmental improvements that are the result of the second generation of common rail engines, which are now coming into greater use throughout Europe. If he is interested in helping the Government to achieve and perhaps even exceed their goals for the reduction of carbon dioxide and other noxious emissions from motor vehicle engines, he should consider the strong case for encouraging diesel cars and the even stronger case for fuelling them with biodiesel, for the reasons that I gave earlier. It would be helpful to have a written review, and the pre-Budget report would be an excellent vehicle, without creating a new one, for putting the information in the public domain.

Mr. Boateng: I would not claim for myself an in-depth knowledge of the technology, but I am lucky to work with several men and women who have such knowledge. As the right hon. Gentleman well knows, in this job one often meets—not only in the context of photo calls with various inanimate pieces of technology but generally—people who are real enthusiasts in that field. That is especially true in relation to biofuels, where enthusiasm sometimes borders on obsession. The right hon. Gentleman well knows that phenomenon. I have learnt much about that subject, and am very interested in it.

6 pm

In the course of my experience in this Committee when in opposition, I learned that Ministers must not, under any circumstances, for one moment allow themselves to be lulled, above party-political consensus, into believing that this is the place to write future pre-Budget reports, or enter into commitments to publish documents of any sort. I do not intend to be lulled by the right hon. Gentleman's blandishments into such a false sense of security. However, I can assure him that, as I think he can sense, such is the interest in that field and in the environment generally, shown not only by this House, in questions, but by the Environmental Audit Committee and others, that the process of review on environmental taxation has of its very nature to be a live one.

There is no hidden agenda here. We all want the same thing: to see the challenging Kyoto targets met. It is in our interests to ensure that we keep the matter under review, to be as open as possible about the processes that make up that review and to invite comment and contribution from as wide a range of informed people as possible. That is the nature of our intention to keep those matters under review. The formula has progressed a little since the right hon. Gentleman's day and now has a meaning that, I fancy, it might not have had when he uttered those self-same words.

Question put and agreed to.

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Clause 5 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 6

Regulating trade in rebated heavy oil etc

Mr. Chope: I was expecting the Financial Secretary to speak to the clause first, because I assumed that he would wish to counter the criticism made by the Federation of Petroleum Suppliers, the trade association for the oil distribution industry in the United Kingdom and the Republic of Ireland. It represents the majority of distributors in the UK, from the small family businesses that form the greater part of it to the distribution arms of some of the major oil companies.

The FPS met Customs and Excise to discuss its proposals for tackling misuse of rebated fuels before submitting comments on the consultation document in February. The whole of the industry, I am told, is united in its view that the Customs and Excise proposal

    ''will not be effective in tackling the problem but simply add to the burdens on industry, being particularly onerous for small businesses, which make up the majority of distributors.''

The FPS is

    ''very disappointed that the Treasury has gone ahead with its proposed approval scheme for distributors and has ameliorated its original proposal only very slightly in the light of''

the comments that it has made. It says:

    ''The Government made a commitment not to place excessive burdens on small businesses by way of regulation. With the majority of distributors beings small businesses, the scheme to limit misuse of rebated fuels repudiates this commitment, our view being supported by''

none other than

    ''the DTI's Small Business Service.''

Those are serious allegations being made against the Government. I hope that the Financial Secretary has an answer to them, because another point that the FPS makes is that the simple way to eliminate fraud is to lower duty on road fuels. It also says that the present scheme will be unworkable and unfair to distributors, and that it does not address the problems in Northern Ireland. We know from the National Audit Office report and other information that the problem of fraud and duty avoidance in Ireland, and particularly Northern Ireland, is by far the largest proportion of the overall problem.

Mr. Boateng: I certainly was intending to speak to the clause, and I am delighted to have caught your eye, Mr. Benton. I prefaced my intention to speak to it in my earlier reference to concerns about red diesel. The matter is something that would give any responsible person charged with consideration of the issues a great deal to think about, and certainly something to say.

I am bound to say that, having heard the hon. Member for Christchurch, I had rather hoped to have a more constructive and supportive response in tackling what is a very real problem: serious and increasing fraud involving the misuse of rebated fuel oils. All parties must take that issue seriously. I know that many right hon. and hon. Members sitting on

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Select Committees that have an interest in the matter certainly take it seriously, and we do as a Government.

In the calendar year 2000, mainland diesel fraud accounted for 4 per cent. of the market and cost at least £450 million. We estimate that, with no action, that fraud will have doubled by 2005–06. At present, there is little or no control over the distribution network for red diesel and kerosene after they pass the duty point. That enables fraudsters to purchase those fuels as if they were to be used for approved purposes and then misuse them as road fuel with relatively little fear of detection. Customs has increased its volume of intelligence-based investigations into oils fraud, and we have seen a tenfold improvement in detection rates as a result. I commend Customs and Excise for its vigour, but the fact of the matter is that we lack the basic information on the distribution of rebated fuels that would help us to target our resources in Customs and Excise investigations more effectively.

Unless we significantly tighten the control regime for rebated fuels, diesel fraud will continue to grow rapidly, with serious implications for revenues, the competitiveness of legitimate retailers and hauliers and for the environment. All parties have urged us to tackle that problem. That is why the comprehensive strategy announced in the Budget is designed to reverse the growth in oils fraud, reduce the illicit market share to 2 per cent. and secure £550 million against the pre-Budget revenue baseline by 2004–05. Instead of filling the fraudsters' pockets, that money will assist in implementing our public policy proposals.

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