Rob
Marris: No details on E85 then either.
I have a question for the
Financial Secretary. In terms of the renewable transport fuel
obligation target of 5 per cent. by 2010-11, to which he and other hon.
Members referred, what proportion of arable land in the United Kingdom
would be required to provide the bio part of the biofuels? It is all
very well talking about such targets, which is very laudable in terms
of cutting emissions, but if it means that we will have crops for fuel
at the expense of crops to eat, there may be a limit to how far we as a
relatively small country can go because of the amount of arable land
that we have. Was that availability of land, or lack thereof, taken
into account in setting the 5 per cent.
target? 6.15
pm
Mr.
Dunne: I will be brief as many of the points that I wanted
to raise have been covered by other Members.
On the level of oil
prices and the relationship between duty, VAT and price, which the hon.
Member for Dundee, East (Stewart Hosie) went into in some detail, when
these measures come into force at the beginning of September we are
likely to face a point of extreme political sensitivity. When I filled
up my car with petrol over the weekend, I paid 98.9p per litre. Once
this duty comes into force the price, assuming everything else stays
the same, will tip over the symbolically highly significant £1 a
litre point. A couple of years ago, the Chancellor responded to
pressures—in particular from the haulage industry, as was
referred to earlier—by deferring an increase in duty. However,
as my hon. Friend the Member for Braintree said, oil prices have now
risen considerably above the point of the 2005 Budget when that
deferral was introduced. I confidently predict that we will be living
with petrol and diesel prices that will rebound on the Government. That
could be good news for those of us who are not members of the
Government, but I am more concerned about the consumers who will have
to pay these prices to help the Chancellor with his public accounts
problems. I wish to
touch briefly on two other points: rebated oils and biofuels. In
respect of the rebated oils, I served on the Standing Committee that
discussed the last increase in January, when I declared an interest as
a farmer and therefore a consumer of red diesel, which I should do
again. I expressed the concern that at a time when agricultural incomes
are under great pressure we are adding to the difficulties of farming
for food in terms of making a profit by raising the Government’s
take of that endeavour. Yet again, I plead with the Financial Secretary
to consider whether it is really appropriate to maintain a duty
differential. I heard his arguments in relation to fraud on rebated
oils, but I am
unconvinced. On
biofuels, I wish to make a point that followson neatly from
something that the hon. Memberfor Wolverhampton, South-West
referred to. The renewable transport fuels obligation is welcome. It is
starting from a very low base, as my right hon. Friend the Member for
North-West Hampshire suggested. However, what is not included in these
measures, and in my view should be, is any suggestion that the
percentage of renewable fuels that the Government are rightly
encouraging should come from a sustainable source. At present, the
cheapest biofuels come from parts of the world where palm oil can be
produced, and palm trees, out of which palm oil is extracted, are being
planted in areas that hitherto were sources of the greatest
biodiversity on the planet—parts of the equatorial forests. We
should not put in place measures that will encourage the further
despoliation of forests in Brazil and elsewhere along the equator.
There should be a measure—if not in this Bill, then in the next
Finance Bill, which I look forward to discussing with the Financial
Secretary—that ensures that we are only supporting the use of
sustainable renewable
fuels.
Stewart
Hosie: In discussions with the National Farmers Union
Scotland last year, I was told that many of its members were desperate,
willing and able to grow oilseed rape to turn into biodiesel but the
processing capacity simply did not exist. Is the hon. Gentleman
suggesting that the processing capacity to
build up secure supply in this country should be addressed in a future
Finance Bill, so that we do not have the despoliation of the third
world by the growing of trees for palm oil there to provide cheap
supply to the
west?
Mr.
Dunne: I am grateful for that intervention but I suspect
that the Financial Secretary will respond by saying that that is
precisely why he announced the introduction of capital allowances for
biofuels in the Budget, a fact that I welcome. Nevertheless, it is a
valid point that by insisting on an arbitrary duty differential of 20p
per litre the Budget is not providing the right incentives to encourage
domestic biofuel production. No reason has been given that bears
scrutiny as to why the duty differential should be maintained at 20p,
and if there is a logical analysis supporting that figure I should be
interested to hear
it.
Helen
Goodman: The hon. Gentleman may not believe that there is
any logical reason for it, but I can tell him that industry members
fully support it and see its benefits for industry
financing.
Mr.
Dunne: I am grateful for that intervention because I think
that the hon. Lady misunderstands my point. I am not arguing that the
duty differential should be scrapped; I am arguing that it should be
maintained not at 20p but at 21.25p. There should not be an increase in
duty on the biofuels that are proposed in clauses 3 and 4. The hon.
Lady is acknowledging that from a sedentary
position. I shall make
the following final remarks because I take a great deal of interest in
biofuels for the purposes of agricultural diversification, as the
Minister was kind enough to say. In my constituency there is what I
believe to be the very first 100 per cent. biodiesel forecourt
pump—I was certainly told that when I opened it. It is in the
town of Bishop’s Castle, which is a leading innovator in all
forms of green effort. The feedstock for that plant comes from waste
rapeseed oil from the catering establishments of local authority
schools, which I am told is the only source of waste rapeseed oil that
is available in this country and which is clearly a very finite supply.
To expand domestic production we must undoubtedly put farmers in a
position where they can supply on an industrial scale, and my
understanding is that that is beginning to happen, although only
slowly. There are sugar beet farmers in my area who would welcome the
opportunity to turn sugar beet into bioethanol, but at present the only
plant under construction is in Norfolk, and it is probably uneconomic
to transport material to Norfolk from
Shropshire.
Rob
Marris: I caution the hon. Gentleman on his enthusiasm for
used rapeseed oil or canola oil deriving from schools. As the Ricardo
Associates report for the Department for Transport showed, either last
year or the year before, if that fuel is put in unmodified engines, the
pollution emitted from unmodified vehicles can be significantly worse
than if they were running on diesel or
petrol.
Mr.
Dunne: I am most grateful, and I shall not detain the
Committee by discussing with the hon. Gentleman the proportions of fuel
that should be ordinary diesel and biodiesel. Biodiesel is being
gradually introduced alongside regular diesel in Bishop’s
Castle—I am reliably assured that once the tank has been topped
up on a sufficient number of occasions it can be used at a 100 per
cent. level without engine damage. Fuel efficiency is also improved,
and by definition that reduces
emissions.
John
Healey: I shall try to respond to the points that have
been made in a wide-ranging and rich debate that has reflected the
different provisions in the clause. I welcome the interest that has
been shown on both sides of the Committee in developments in supporting
biofuels, including from the hon. Member for Ludlow, the right hon.
Member for North-West Hampshire and my hon. Friend the Member for
Wolverhampton, South-West. The primary policy purpose of the road
transport fuels obligation is environmental impact: the contribution it
can make to the UK’s effort to deal with emissions and climate
change. To deal with those things we want to expand the UK biofuels
market, and that is our principal purpose. The principal purpose is not
to expand the UK biofuels industry, although we hope that that will be
an important consequence of our approach and we are putting some
measures in place to support its development. There are signs that it
is expanding. A new biodiesel plant is coming into production and some
bioethanol plants are starting to be in process.
My hon. Friend the Member for
Wolverhampton, South-West asked whether the 5 per cent. RTFO could be
met by domestic rapeseed and crop production in the UK. The short
answer is that if he examines the studies that the Department for
Environment, Food and Rural Affairs has done, he will see that it is
confident that 5 per cent. production could be met entirely from
feedstock grown in the UK. That could be done without affecting the
production of food crops, which he is concerned about—partly, I
guess, because we are a net exporter of wheat. We also have a
substantial amount of set-aside land available, which could in theory
be turned over to such
crops. The principal
purpose of the range of support that the Government is putting in place
is to achieve environmental gains by expanding the UK biofuels markets.
It is not designed to be a new source of subsidy for UK farmers and
agricultural production.
Nia
Griffith (Llanelli) (Lab): Does my hon. Friend agree that
there is further potential with the reform of the common agricultural
policy, particularly in respect of sugar beet? There will be more
opportunities for the poorer nations of the world to export sugar cane
sugar to the EU. Subsequently, some areas in Britain where sugar beet
has been the main source of income will be interested in turning to
biofuels in the
future.
John
Healey: My hon. Friend is right. I do not think that she
joined the debate that I was involved in last night in the Commons
Chamber about the future financing of the European Union. The
imperative to reform the CAP further was a central part of the
agreement that was reached under the UK presidency
in December. On sugar, she might be aware that under the UK presidency
an historic reform of the EU’s sugar regime took place to remove
some of the indefensible levels of subsidy and protectionism that were
part and parcel of it.
The hon. Member for Ludlow made
the important point that in developing the RTFO we must be concerned
about the source of the feedstock, to ensure that there are no
unintended consequences that are environmentally damaging. He might be
interested to know that as part of the preparation for the introduction
and development of the obligation we are examining how we can put in
place a carbon assurance system that allows, on a life cycle
basis—this is precisely the point that he was making—an
assessment of the impact and the contribution that the obligation will
make. You might
remember, Mr. O’Hara, that the hon. Member for Braintree
promised the Committee this morning that he would never take a view
that was different from the view of those on his Front Bench. This
afternoon, he has been arguing that the inflation duty increase on road
fuels should not go ahead in September. He might have missed the hon.
Member for Wycombe saying a little earlier that the Conservatives
accepted the provisions in the
clause. 6.30
pm
Mr.
Newmark: Ever on the ball myself, I had a feeling that
that question would be asked. That is why I began my mini speech with
the phrase, “This is merely a probing
question”.
John
Healey: We are only on our first day in Committee,
although it feels a lot longer than that. I look forward to the further
probing questions that the hon. Gentleman may ask the Committee that
will be directed, I suspect, as much at those on his Front Bench as at
those on ours. The serious point is that the Government keep all
options under review, but it is our intention to increase rates in line
with inflation from 1 September this year. As in the past, we shall
take full account of all the economic as well as the social and
environmental
factors. If the hon.
Member for Dundee, East believes that there is a case for a different
fuel duty regulation regime, he may wish—as his colleagues in
the Scottish National party did last year—to frame such a
proposal as an amendment to the Finance Bill, which we could debate
fully in the future. He asked, in particular, whether we consulted
beyond what he might regard as the usual and obvious suspects,
including those associations that represent some of the essential users
of road fuels, including the haulage industry. I have met the Road
Haulage Association several times since the pre-Budget report.
Immediately before that, in part to examine the findings of the Burns
review, officials met the association almost weekly in the run-up to
the Budget. That important sector of the industry has had a fair chance
to put forward its point of view. It welcomed, as did Roger King the
chief executive of the Road Haulage Association, our decision to defer
the increase in fuel
duty. My hon. Friend
the Member for Bishop Auckland asked me a straight question about
whether domestic
aviation turbine fuels are taxable. I shall give her a straight answer:
the answer is yes, with the qualification that if the United Kingdom
took the unilateral decision to raise significant rates of duty on
AVTUR on domestic flights, the consequence might be precisely the
opposite to which she wants to achieve. She is worried about
environmental impact. Were we to take a unilateral decision, there
would not only be a risk to the commercial competitiveness of some of
our flights, but a serious risk that airline companies would tanker and
refuel outside the United Kingdom and therefore fly extra air miles to
service domestic routes, but doing so on fuel that was purchased
outside the United Kingdom. Such a proposal might defeat her
purpose. I had not
mentioned the enhanced capital allowances for biofuel plants, but the
right hon. Member for North-West Hampshire asked me about them. We
submitted the application for state aids clearance on Budget day. As he
would expect from his knowledge of how the Government work, we had
discussed it in detail with the European Commission before we put in
our formal submission. I therefore remain confident that we shall gain
the clearance that we seek for the enhanced capital allowances. I hope
that we can start the scheme early in
2007. The right hon.
Gentleman and the hon. Member for Ludlow questioned the 20p per litre
duty discount and support for biofuels. We set it at that rate because
we believe that it is a sufficient incentive to help support the
development of the biofuels market. Furthermore, because it is a
significant source of tax forgone to the taxpayer, we do not want the
public purse, in a sense, to be paying over the odds for that form of
support. If the right hon. Gentleman and the hon. Gentleman consult the
Budget document, they will see that, alongside the duty discount
support for the development of biofuels, we have announced that, with
the obligation, there will also be a buy-out mechanism. That
combination of duty incentive on the one hand, and penalty or
discipline through our buy-out level on the other, will give the
obligation the kick-start that it requires. It will also give the
industry and prospective investors the certainty for the long term that
they require from Government
policy. In response to
the hon. Member for Falmouth and Camborne, I point out that biodiesel
is eligible for duty discount if it meets the specifications set out in
the Hydrocarbon Oil Duties Act 1979. That is it. However, we announced
in the Budget that the HMRC would review the definition of biodiesel
and how it operates. I aim to report back from that review by the time
of the pre-Budget report this year, so if there are specific points
that she wishes the review to take into account, I suggest that she
lets me have them and I will ensure that they are properly
considered. On the
hon. Lady’s broader argument, we know that she wants to whack up
environmental taxes and price people out of their cars, but the hon.
Member for Wycombe reiterated my point that, when making decisions
about duty, there is inevitably a balanced judgment to make and a
balance of factors that have to be taken into account. Although the
hon. Lady is concerned for duty to be used as a way of raising prices
so as to discourage people from driving, I point out that when we made
our decision on the 2005 Budget,
the pump price that motorists were paying for petrol was 82p per litre.
We proposed a duty increase of just over 1p per litre, being conscious
that that might contribute to achieving our environmental ends, but
also balance the other factors. By the time of the pre-Budget report,
we decided that we would not go ahead with a duty increase, because the
pump price was 6p per litre higher. In those circumstances, because of
demand, the market had the environmental impact that the she advocates
that we should seek through duty. In the circumstances, we were right
not to go ahead with the duty increase and not to load those extra
costs on to motorists and hauliers; and for those concerned about the
environmental impact, the market and the price mechanism were doing far
more of the heavy lifting than the Government could or should do
through duty
increases. | 
