Mr.
Goodman: As the Financial Secretary said, the clause deals
with technical changes relating to hydrocarbon oil duties. I would like
to make some general remarks about further changes
proposed,but they would be more appropriately made under
clause 7. We have no objections to the
clause.
Julia
Goldsworthy: We have no issue with this clause. It looks
back more than it looks forward and, as the Minister said, it will put
on the statute book changes that took place under statutory
instruments. We will talk about future changes, but it is more
appropriate to deal with those under future
clauses. Rob
Marris (Wolverhampton, South-West) (Lab): Can the
Financial Secretary tell me why the rate of duty on aviation
gasoline—avgas—is charged at one half the rate specified
for light oil, particularly in light of the environmental concerns that
many of us
have?
John
Healey: As my hon. Friend knows, the freedom of any
Government to charge tax on aviation fuel is heavily hedged in by a
network of international agreements and conventions, which constrain
the policy choices any Government can make in this
area. Helen
Goodman (Bishop Auckland) (Lab): In the light of what the
Financial Secretary just said, are the Government taking any steps to
re-open or reconsider those international treaties, or to initiate any
international negotiations on the
matter?
John
Healey: We have indeed taken such steps. We have publicly
and strongly argued the case that the special protections the aviation
industry has in relation to taxation are not warranted. Given the
rising concern about climate change and the evidence about the
impact that aviation has on producing gases and emissions that
contribute to climate change, that is becoming a more pressing
challenge. It is one that we must confront internationally, not just
because climate change is a global problem, but because any serious
solution to the legal constraints that exist in many areas will be
found internationally rather than domestically. Owing to difficulty
with progress on the tax front, it is also the reason why we have put
such a strong emphasis on other measures leading to effective
international action that contributes to the climate change challenge.
This Government were one of the strongest supporters of establishing
and operating the European Union emissions trading scheme, and we
remain so. Without wishing to test the limits of what is in order, Mr.
O’Hara, we were the first country to set up an economy-wide
emissions trading scheme—the forerunner of the EU emissions
trading scheme that is widely regarded as an important and effective
instrument.
Question put and agreed
to. Clause 6
ordered to stand part of the Bill.
Clause
7Rates
from 1st september
2006 Question
proposed, That the clause stand part ofthe
Bill.
John
Healey: This is a substantial clause, covering a number of
areas of excise duty for hydrocarbon oils and biodiesel. The hon.
Member for Ludlow will have a particular interest in some aspects of
it, because it offers opportunities for constituents such as his in
rural areas to diversify their production.
The clause changes the rate of
excise duty for hydrocarbon oils and biodiesel from 1 September. Our
established policy is that as the UK seeks to meet its targets of
reducing pollutant emissions and raising revenue to fund essential
public services, fuel duty rates rise each year at least in line with
inflation. Budget 2006, however, announced that because of continuing
oil market volatility, the inflation-based increase would be deferred
until 1 September. Not implementing the change on Budget day, but
delaying it to 1 September will cost the public purse £275
million in forgone revenue this year—a considerable saving to
the motorist in anybody’s terms.
Fuel duty rates were last
increased in October 2003, and since there were cuts in rates in
2000-01 to incentivise the delivery of less pollutant fuels, the main
duty rates for road fuels are lower in cash terms than they were in
March 1999, and 14 per cent. lower in real terms than they were in
2000. That is an equivalent saving of 8p per litre on road fuel for
motorists. Even after the September increase proposed in this
legislation, duty rates will still be lower in cash terms than they
were in March 2000.
Our policy on fuel duty has
been to balance a number of competing and complex issues: for example,
our environmental improvement objectives and our concern to raise
sufficient funding for public services, with the impact on families and
businesses when fuel costs may be higher than they need to be. We have
weighed the social, environmental and economic
imperatives in the duty decisions in the clause. We have been ready to
freeze duty when appropriate and to increase it when circumstances
dictated. Through that approach, we have been able to ensure that fuel
duty policy supports environmental goals while retaining flexibility at
times of high oil market volatility. Questions have been raised
about why we increased duty rates for rebated oils from 1 September in
the Budget, after we increased them in the pre-Budget report last year.
It is important to stress that the increase merely ensures that the
existing differential between rebated oils and main road fuels is
maintained and remains unchanged. Our HMRC analysis suggests that even
a small increase in the differential offers serious fraudsters
appreciable extra profits. Freezing rebated fuel duty while increasing
the main fuel duty rates would have widened the differential by 1.25p
per litre, significantly increasing the incentive for fraudulent misuse
of rebated fuels as road fuel. That could have undermined some of the
efforts and pressure that we are exerting on oils fraud through the oil
strategy. 5.45
pm However, I am
also aware that some industries are heavy users of rebated fuels and
that they form a significant proportion of their operating costs. We
announced in the Budget that the Government would work with sectors
that make heavy use of rebated fuels to examine the wider impacts of
the oil strategy, and those discussions have already
begun. We must
continue to recognise that transport is the second largest source of
carbon dioxide emissions in the UK, and that emissions are likely to
continue growing until the end of the decade as the UK economy remains
strong. Duty differentials help to encourage the use of more
environmentally friendly fuels and to stimulate the development of new
technology that can help to reduce greenhouse gases. They can therefore
help to reduce the impact that motoring may have on local air quality
as well as on climate
change. Therefore, the
clause covers the duty rate for biodiesel. It is worth reminding
ourselves of the impact of the differentials that we introduced for
biodiesel in July 2002 and for bioethanol in January 2005. Several
years ago, there was virtually no market for biofuels in the UK. It has
grown to 118 million litres, or 0.25 per cent. of the total road fuels
market. That is still a low base and there is still a long way to go,
but the measures that we are taking will increase usage to 5 per cent.
by 2010-11. The 2006 Budget proposes to encourage the wider take-up of
biofuels by announcing the extension of the 20p per litre duty
incentive for biodiesel and bioethanol until 2008-09, which will add a
degree of certainty for those who are planning to invest in and develop
the industry. We also
set out in the Budget further details on how we will introduce a
renewable transport fuel obligation, which will require transport fuel
suppliers to ensure that a percentage of their sales are from a
renewable source. It will be introduced in 2008-09 with the obligation
level set in the first year at 2.5 per cent. and in the following year,
2009-10, at 3.75 per cent., reaching the target of 5 per cent. in
2010-11.
The renewable transport fuel
obligation is a significant new measure that will give long-term
certainty to the development of the industry. Hon. Members may be
interested to know that it will also deliver savings of some 1 million
tonnes of carbon a year by 2010, which we estimate is the equivalent of
taking 1.4 million cars off the roads in Britain. I commend the clause
to the Committee.
Mr.
Goodman: We acknowledge that the Financial Secretary and
the Treasury have to balance several competing demands in this clause.
One is in respect of the impact on the environment. If there were no
increases in duties, the Treasury would be subject to criticism on that
score. Another demand is in respect of the impact on agriculture, about
which my hon. Friend the Member for Ludlow is extremely concerned. If
there were increases in duty, the Government would be criticised on
that score, so it is difficult for them to strike a
balance. Then there is
the question of fraud. The Financial Secretary and I considered the
matter previously, during a debate in January on a statutory
instrument. I asked him what the impact on fraud had been of reducing
the differential between main road fuels and rebated fuels. I wanted to
know to what degree any reduction in fraud had been the result of
beefing up fraud detection by the recruitment of more inspectors,
rather than narrowing the differential. I want to give credit to the
Financial Secretary, who said with commendable honesty that he could
not answer the question. He went on to say
that “analysing and
estimating the scale of fraud generally is a relatively inexact
science. Very often, it is not really possible to isolate the impact of
individual measures.”—[Official Report, Third Standing
Committee on Delegated Legislation, 9 January 2006; c.
10.] That raises the question of
how effective the anti-fraud element of the measures will be.
As the increases will not be
implemented before September and will generally be in line with
inflation, we shall not oppose them. I return, however, to the question
of balance. We are concerned, as is the National Farmers Union, about
the effects of rises on agriculture. The Financial Secretary and I know
that the NFU announced in the wake of the Budget that it intended to
write to the Chancellor seeking an exemption from the increase in the
cost of red diesel. I do not think that the Financial Secretary
confirmed that he received such a letter, but I should like to know
whether he did and, if so, what is the Government’s
response? We shall
not oppose the clause. We have serious concerns about the effects of
the rises on agriculture, and we will be watching closely what happens
in the run-up to next year’s
Budget.
Julia
Goldsworthy: I begin by commending the Financial Secretary
for the clause’s welcome measures to encourage more
environmentally friendly vehicle use. I hope that the introduction of
greater certainty to the duty differentials on biofuels will make a
difference and will encourage more people to make the necessary
conversions. However,
I would appreciate it if the Financial Secretary provided clarification
on the definition of
biodiesel. Any confusion about the definition could hinder the
development of the market. I understand that biodiesel must be
“of diesel quality,” which
means: “It must
be a liquid—not gaseous at a temperature of 15° C and
under a pressure of 1013.25 millibars; and
It must be made from biomass or
waste cooking oil;
The total ester content must
not be less than 96.5 per cent. by weight; and
The sulphur content must not
exceed 0.005 per cent. by weight or be
nil.” According to the
Hydrocarbon Oil Duties Act 1979, “diesel quality” means
that when blended with ordinary diesel, biodiesel will run an engine
that would normally run on diesel. Biodiesel does not have to be used
exclusively in the fuel tank, although that is
possible. I understand
that vegetable oil is not perfect for cars. In order to make it
suitable for car use, the oil must be modified in some ways. One way to
do so is through transesterification, which involves cleaning the
vegetable oil so that it can be used in a diesel engine. That uses a
great deal of energy and some methanol, and leaves glycerine as a
by-product that must be disposed of. It is also possible to add certain
things to vegetable oil to make it usable. On the other hand, it is
possible to make changes to the car so that it can accept vegetable oil
as it is. Does adding
chemicals make vegetable oil of diesel quality? If the car is modified,
does that make unmodified vegetable oil of diesel quality? There is
clearly an element of confusion that could lead to perverse tax
incentives for people to use changed vegetable oil, which has to go
through a damaging process that could harm the environment, while those
who go to the expense of modifying their engines or using additives
might have no similar incentives. If such incentives exist, does the
Treasury intend to make them
clear? I turn to the
deferred increase in hydrocarbon fuel duty rates. I understand that the
increase will not take place until 1 September 2006. When the
re-valorisation kicks in, it will represent an increase in line with
inflation. It will not be a real rise but will prevent a real-terms
fall. That is welcome; since 2000, when fuel duty began to decline in
real terms, the rate of increase in greenhouse gases has doubled. The
take of green taxation as a percentage of national income has also
fallen during that time. In 1999, green taxes represented 3.6 per cent.
of national income; that has now fallen to 3 per cent. Fuel duty
accounts for two thirds of the total take of green taxation, so the
rise will help to counter the decline.
However, a question similar to
those raised during our discussions of other measures on vehicles
arises: what changes will the clause make to behaviour? What other
measures is the Department considering to fulfil its environmental
obligations? The proposals are okay as far as they go, but is the
Treasury considering longer-term ways of producing changes that will
impact on behaviour, pollution and the environment?
The changes in the clause will
not achieve that; neither will the changes proposed for vehicle excise
duty. What meetings has the Treasury had with the Department for
Transport, which is considering proposals for road-user
charging—a real way of
making the polluter pay and relating vehicle use and the impact that it
has on
behaviour? | 
