WEDNESDAY 14 MARCH 2001 _________ Members present: Mr John Horam, in the Chair Mr David Chaytor Mr Neil Gerrard Mr Tim Loughton Christine Russell Mr Simon Thomas Joan Walley _________ MR STEPHEN TIMMS MP, (Financial Secretary), MR CLIVE MAXWELL, Head of the Environment Tax Team, and MR JOHN HALL, Environment Tax Team, HM Treasury, examined. Chairman 1. Good afternoon, Minister, and thank you for coming to see us so quickly after the Budget. We appreciate that. Perhaps it is a little less hectic a time than it was before the Budget from your point of view. Is there anything you would like to say by way of a short introductory statement before we begin asking questions? (Mr Timms) Thank you, Chairman, for your invitation. I would like to say a few words at the outset. First of all I would like to introduce the two officials who are with me. Clive Maxwell on my right is the Head of the Environment and Transport Tax Team in the Treasury and has appeared before the Committee before, and on my left is John Hall who is an economist in that team. Sustainable development continues of course to be a Government priority. The view that economic development needs to be consistent with safeguarding the environment is a major concern for us and we have continued to deliver on that priority throughout the Budget of last week. I just wanted to draw attention to two or three of the elements that were in the Budget which may be of particular interest to the Committee. We have moved further in using the tax system to stimulate the development of innovative environmental technologies on 1 April as part of the Climate Change Levy package. We will be publishing a list of over a thousand energy saving products that qualify for enhanced capital allowances. Secondly, through the Green Field Challenge, the outcome of which we announced in the Budget, there will be tax incentives to encourage rose field gases, bio-diesel for the first time, pilot projects on bio-ethanol, bio-gas, methanol and, I think perhaps most significantly for the long term, hydrogen as well as those incentives available during the course of this year. Thirdly, as the next step in encouraging greater investment in environmental technologies, and I hope the Committee will feel able to welcome the Green Technology Challenge that was announced in the Budget, both the Green Fuel Challenge and the Green Technology Challenge provide significant new opportunities to encourage the most innovative and environmentally beneficial technologies. It is worth reminding the Committee that the other parts of the Climate Change Levy package, including the levy itself, will be coming into force as planned on 1 April and will deliver really significant CO2 emissions savings. We estimate now that the whole package plus the Emissions Trading Programme will realise a saving of at least seven million tonnes of CO2 emissions in a year by 2010, so that is a very big contribution to meeting our objectives. The Carbon Trust, with its remit to support energy efficiency, to support the development of carbon technologies, will start up its work, providing a big incentive to business to make energy efficient investments. There are a number of other elements. The package on pesticides, the package on urban regeneration, our challenge to the waste industry to meet demanding targets for allocating a bigger share of landfill tax credits to sustainable waste management projects - all of those are in the Budget and you may want to raise some of them with me. I suppose the point I want to emphasise in concluding this brief introduction is that the Budget has notched up a number of significant milestones in our pursuit of sustainable development and I will be delighted to discuss any aspects of that or any of the other policy initiatives we have in hand that the Committee would wish to raise with me. 2. Thank you very much for being brief, if fairly comprehensive. Just to be absolutely clear, you were drawing our attention to things which were in the Budget? (Mr Timms) Yes. 3. There was nothing absolutely new there? (Mr Timms) No. Chairman: It is simply drawing out things which were already announced. Thank you very much indeed. We would like to start off with the happy chance of the Prime Minister talking about the environment the day before the Budget and I know Ms Russell would like to come in on that. Christine Russell 4. The Prime Minister last Tuesday in his speech on the environment concentrated on the grim scenarios facing us in Britain and the world and yet only a day later the Chancellor in his Budget was making available 1.7 billion to motorists and hauliers. I just would like to know how you can say on the one hand that we are putting sustainable development at the centre of our policies and the Treasury is committed to green policies and yet the following day we get this announcement of 1.7 billion to motorists and hauliers. (Mr Timms) I think I can make that claim on a pretty sound basis, on the basis of the full programme of the measures that were in the Budget. Of course we announced in November a number of proposals for consultation on the transport front and we confirmed those in the Budget last week. It is worth making the point of course that there were within the 1.7 billion package some very advantageous measures from an environmental point of view. The incentive for ultra low sulphur petrol was clearly environmentally advantageous. The 100 million fund for modernisation in road haulage contains a number of very significant elements which will be environmentally beneficial, including 30 million in support of environmental adaptations for lorries, so I would not accept for a moment that there is any contradiction between that package and the environmentally sustainable development commitments that we have been developing and progressing in the Treasury over the last four years. 5. Minister, you particularly mentioned transport and I would like to focus on two aspects of transport policy. The first is that you mentioned the large increase in public money going into transport, but quite a large amount, I think 60 billion, is actually going into road schemes. Is that really sustainable development? For instance, have you done an assessment of whether or not that 60 billion could result in even more traffic on our roads? Have you done those assessments? (Mr Timms) From memory, and I have not got these figures in front of me, I think you are right, that the 180 billion package over the next ten years for major investment in transport, which I think is going to be a very important programme of investment that we need to ensure takes place, divides roughly a third/a third/a third between road, rail and local transport improvements. Clearly the other two-thirds I guess are of fairly obvious and direct environmental benefit but I would hope that the programme of investment in roads would have significant environmental benefits as well. Certainly, if we can be successful in reducing congestion, there are significant environmental benefits. There are obvious benefits from the construction of by-passes in particular locations that people feel very strongly about. I think that that element of the 180 billion package is going to be good news from an environmental perspective as well. We are expecting growth in road transport to continue over the coming years. The figure I have in mind for between now and 2010 is about 17 per cent increase that we are expecting in road transport, so of course it is very important that we continue to see improvements in vehicle engine technology so that the engines that are powering all these vehicles are doing less environmental damage than has been the case in the past. That is one of the reasons why the Green Field Challenge has been so important and some of the ideas that have emerged from that. There are other things that we need to do as well to make sure that the growth in transport that we expect to see does not have the damaging environmental impact that it could have if we did not make sure that that was not the case. 6. In that response you have conceded that mileage is likely to increase, but the question I was trying to ask was, has the Treasury actually done an environmental appraisal of the likely impact of that 1.7 billion tax give-away to motorists and hauliers that was announced in the Budget? Has there actually been an environmental appraisal of that amount, like, for instance, how much will the carbon emissions go up? (Mr Timms) So we are going back to the discussion we were having a moment ago about the Budget package rather than the 180 billion package? 7. Yes. (Mr Timms) Indeed we have. In table 6.2 in the Budget Red Book, which no doubt we will make a number of references to this afternoon, there is data addressing that directly. For example, the entry under road fuel duty differentials sets out what we expect from the differential for ULSP, the increase - and this catches the point that you are particularly raising with me - in carbon dioxide emissions arising from the real reductions in duty on ultra low sulphur diesel and ultra low sulphur petrol, the impact of the temporary cut in unleaded petrol duty as well, so we have and it has been published, as I know the Committee would wish us to, in the Budget Red Book. Mr Gerrard 8. In the evidence that we took on the pre-Budget report we got a number of comments from several different organisations who said that they really did not think that the Treasury had any overall strategy for environmental tax policy, that it was all a bit piecemeal with ad hoc decisions on individual cases. Do you think that is fair comment? (Mr Timms) No, I do not. We set out the principles that we felt should be applied to environmental taxation right at the start of this Government. The statement of principles published in July 1997 referred in particular to the benefits of shifting the burden of taxation from good things like employment to bad things like pollution, and having set out that statement of our vision I think we have been pretty effective in pursuing that vision into practical application in a large number of areas. I think that has been a pretty effective vision translated into action. I think it has been the right direction to move in as well. 9. An issue we have discussed before is that, when the Treasury is looking at the environmental impacts of taxation, really you ought to be looking across the board, not simply at taxation which has got a specific or explicit environmental intent. Looking at table 6.2 again, all it seems to cover again this year is the taxes which are explicitly environmental rather than looking broadly across the board, which is surely what a strategic approach ought to do? (Mr Timms) What we have aimed to include in that table is not only things that have an environmental purpose, although certainly all of those are there, but also anything that will have a significant environmental impact. Both categories of those are covered in the table. I would want to pursue the discussion with the Committee about all this because each time I come we do have a discussion about appraisal and the way we present this information. What I want to affirm is my view that we have made a great deal of progress, analysing and presenting the environmental impact of Budget measures. We do have after all a chapter dedicated now to that in the Budget documentation each time. I think it is worth reminding the Committee that there was nothing even resembling that in the documentation before the election. I hope the Committee would accept as well that having started to present this information in the Budget documentation we have improved it as we have gone along, not least in response to requests that this Committee has made. There is much more quantification of environmental impacts now. There is more detail on the methodology, on the sources that we have drawn on, and so I think I would want to defend the approach that we have taken. I would not have thought it would be helpful to seek to include in that table 6.2, for example, the widening of the 10p tax band, just to pluck out one other element of the Budget. I do not know how one would meaningfully attach an environmental impact to a measure of that kind. The last thing I would want to see is the documentation cluttered up with a great long list of measures alongside each one of which it said, "No noticeable impact". By restricting that table to things that do have a significant impact and things that have an environmental motivation we are presenting the information in the most effective possible way, but if there are further changes that the Committee would like to see then I would be very happy to discuss those. 10. I think it is more that we would like to feel confident that where something is not included in that table there has been some assessment and some objective measure to say yes, this is not simply a minor impact, rather than just being asked to take that for granted. It is perhaps something we can come back to later on. I would like to ask about one or two specifics. The Climate Change Levy and Aggregates tax are examples of environmental taxes that have been introduced on the basis of being revenue neutral. Is that an approach that is going to be maintained in the future? Is there an overall policy, say, that environmental taxes should be revenue neutral rather than being seen as a source of raising revenue? (Mr Timms) That approach certainly is consistent with the statement of principles of July 1997, that what we wanted to do was not to change the amount with these measures but to shift the burden of taxation towards pollution. The fact that in both the cases you have identified we have been able to introduce the measures in a revenue neutral way from the Treasury's point of view helps to establish the credibility of those measures as environmental measures. 11. On this question of shifting the burden, again an issue we have discussed before is measurement appraisal both of ONS and environmental economists have talked about sustainability gaps, and we ought to be looking for some objective way of trying to measure progress. Has anything more been done in conjunction with ONS to try and develop measures? (Mr Timms) I notice that ONS figures do show that environmental taxes as a proportion of the total have risen from 8.2 per cent in 1990 to 9.8 per cent in 1999, and from 2.9 per cent of GDP to 3.7 per cent. As I have said before to the Committee, I would not want to set too much store on those figures because one would hope that the revenue from a successful environmental tax would be a diminishing revenue. We have not done further work with ONS on that specifically. Just as a matter of note, however, the proportion has risen appreciably. 12. Has anything further been done with ONS in terms of trying to get some measures of progress towards sustainability rather than just proportions of taxation? (Mr Timms) I am not sure specifically about ONS. We have, as you know, published the indicators on sustainable development, 15 of them, a number of which featured in the public service agreements that were published with the spending revenue last summer, so there has been quite a lot of detailed work carried out on assessing sustainability. How much of that has been carried out by ONS I am not sure. I am sure you are familiar with the documentation that has been published on that. 13. You obviously think that we have got to treat these with a bit of care and that there is no simple indicator there which is saying, "This is the direction in which environmental taxes ought to go". It is not that difficult to measure. Presumably you would agree that things like the Climate Change Levy are shifting the burden of taxation. Is it really so difficult to find any measure as to whether the environmental taxes are going in the right direction or not? (Mr Timms) I am wondering what sort of measure you have in mind. There is a problem, as I said, about looking at the proportion of taxes coming from environmental measures, although one would prefer that to be dwindling rather than rising, or at least a bit of both, I suppose. If there are any ideas that the Committee has on how one might do that I would be interested to have a look at them. (Mr Hall) Some of the specific concerns you may be worrying about with that would be on such things as, within an overall take of fuel duties, if you create fuel duty differentials which incentivise the take-up of cleaner fuels, then they are clearly environmentally beneficial, but it simply would not be reflected in the measure. Some of our other concerns would be things like the enhanced capital allowances for energy saving materials, which again are a way of greening the corporation tax system, although there is no way we could call corporation tax itself a green tax. That applies to a number of measures such as reduced VAT rates for energy saving materials etc. 14. But we want to know that they are actually doing what they are designed to do. We want to measure the effects. (Mr Hall) Indeed. If you look at the environmental tax take-out as a proportion of revenue it is very difficult to reflect the majority of tax changes within that scenario. (Mr Timms) One point which is very important that you have raised is the question of monitoring after implementation what the impact of these measures has been. I think that is going to be an increasing focus of our attention and it is in a number of areas something that we have given a good deal of thought to. For example, the changes on company car tax which we have introduced will shortly be taking effect. The Inland Revenue has done a lot of work on how one can measure what the actual impact of those changes proves to be on the kinds of vehicles being used and the amount that they are driven and so on. With a lot of environmental tax measures like the Climate Change Levy about to take effect, I think this whole area of evaluating the effectiveness of the measures that we have taken is going to be an area of a lot of work and it needs to be so. 15. So that is something we can expect to see some development on? (Mr Timms) Indeed. 16. You have talked about shifting the burden of taxation from goods to bads and we have just had a Budget that cut the tax on fuel and froze the duties on alcohol and tobacco. Can we assume that that is temporary? I would not for one moment suggest that it is anything to do with an election. (Mr Timms) The position on fuel duty was set out in the pre-Budget report of 1999 when the Chancellor cancelled the escalator and said that in future he would make decisions about fuel duties on the basis of the economic, social and environmental considerations at the time. Of course, since then we have had a very big rise in the price of crude oil. Clearly the Chancellor will want to keep these matters under review. On this occasion, what was pre- figured in the pre-Budget report last November was a careful balance of all those factors influencing the decision. Chairman: You mentioned that the Climate Change Levy is coming in next month. We do want to ask you a bit about that. Mr Loughton 17. I want to ask about the Energy Tax. You have now signed section 11 agreements for 29 sectors. (Mr Timms) Forty now. The number is rising rapidly. 18. I am delighted to hear it. The Committee is concerned, having looked at this before because, out of the 29 of which I was aware (and it may be the 40), all but the steel sector have opted for relative efficiency targets. It is therefore unclear as to whether they will result in an overall reduction in energy use and carbon emissions. Nine of the 13 efficiency targets show reductions of less than 10 per cent which means that on the face of it what you are trying to achieve appears slightly disappointing, that is, ten per cent for the period 2002-2010. What are we actually getting in return for the 80 per cent rebates that are on offer? (Mr Timms) We are getting savings in CO2 emissions that we estimate to be at least two and a half million tonnes compared with "business as usual" by 2010. I think that is a very significant contribution to meeting our Kyoto and wider national objectives. I was present at a reception for the Chemical Industries Association recently and I was pleased to note that the Association was taking some pride in the fact that the agreement that it has signed up to will on its own account for almost a million of the two and a half million tonnes. In terms of the scale of the CO2 emissions that we have in the United Kingdom the impact at the margin of the two and a half million tonnes from these agreements is a very significant one. Certainly this whole process has sparked off an enormous amount of very hard work, very careful planning and analysis. I want to put on record my appreciation of the efforts not only by civil servants in the DETR but on the part of all of those in the industry associations who have worked hard on this and in individual companies as well. 19. But would not many of these agreements have resulted from the IPPC anyway? On your "business as usual" scenario does it include or exclude the impact of IPPC? What are the figures for the IPPC emission savings? (Mr Timms) We reckon that IPPC on its own would probably have contributed about 0.5 million, so there is a gain of a full two million tonnes at least from the negotiated agreements. 20. Are you going to produce for each sector base line environmental appraisals showing the absolute emissions and the Government's current estimates of future emission trends to 2010 with and without the energy tax? Presumably you must have carried out the base line assessments to have arrived at the two and a half million figure in the first place? (Mr Timms) Let me ask Clive Maxwell to comment, but let me first make the point that in terms of information that we are publishing I understand that as of today 27 of the 40 sector agreements are on the Web and can be seen there with all the information about those. That number is rising rapidly; it is just slightly behind the signing process but not far behind. (Mr Maxwell) On the specific question about the absolute emissions one has to go back to DETR and ask them what the numbers look like. I would point out that all of these negotiations have been performed by the Energy Technology Support Unit in the DETR which includes experts from the sectors who know how the sectors work, know what is realistic to achieve and they have been in negotiations. I do not think there is any doubt that the negotiation has been properly performed and is realistic in that sense, and that their analysis is available in the House library. 21. I want to come back to that but what mechanism has the Government put in place to encourage businesses to transfer to absolute targets in the future? Will the Government consider, for example, reducing the size of the rebate over a period of time? (Mr Timms) The way we approach this is to leave it up to the sectors which of the approaches they wish to pursue, which was the most appropriate for their business conditions. I think that has worked well. We certainly do not have any plans to change the level of the rebate. As you know, the state aids negotiations with the European Commission have been focusing on a ten-year period, so we want to have a period of stability for these agreements so that they can deliver the very substantial carbon dioxide emission reductions that we are all very anxious to see. 22. You pay tribute to all the hard work that has gone on to produce this and is still going on. What actual man hours other than in the DETR have been applied to this? I am just thinking in comparison with some of the regulators which have fairly large budgets. These are very complex and serious calculations you are trying to make for the first time. What investment has been put in, what sort of technical experts have been deployed to do that, the base line point being are you happy that what you are trying to achieve is effective and fair and sustainable and that you have not got a lot more work still to do? (Mr Timms) I am very confident that it is going to be effective, that it has been fair, that it will be sustainable. In terms of man hours in DETR, that is not a question for me to answer. I do not imagine we have got that information here. I am sure Michael Meacher will be very happy to provide information about that. I think it has been a good process. It has been very hard work for everybody involved. I would not want to minimise the scale of the exercise that has been undertaken by everybody but I think we are going to see that it has been a successful exercise and a very important one, dealing with a very big issue that faces us all. 23. Do you envisage changing the targets? (Mr Timms) Which targets? The targets within negotiated agreements? 24. Yes. (Mr Timms) As I have said, what we have sought from the European Commission is agreement that these agreements can be in place for ten years. Clearly at the end of that period one would need to review the whole process but I think it is important that we have agreements that everybody understands and are in place for a long period like that so that people can work towards the targets that have been set. 25. If, after a few years, it becomes apparent that for what you want to do businesses are getting off lightly, that because of the advances in technology, for example, the actual savings which they have signed up to for those targets are fairly negligible, as some people may say now, is there any scope for you to revisit those targets prior to the 2010 target date line? (Mr Timms) I do not anticipate that the targets are going to be light. Indeed, if you compare the objectives that have been set up within those agreements with the ETSU view for each sector of what can be achieved on a cost effective basis, then I think you will see that the targets all go a very long way towards the feasible reductions. There will though be reviews of what is happening in each sector in 2004 and 2008, so there is a mechanism there, but I see these as demanding agreements and I think that view will be borne out by experience. 26. In 2004 a review, as you term it, could mean that actually you are going to double the target? (Mr Timms) I would be extremely surprised if any change of that order were required. 27. All right, 50 per cent. (Mr Timms) These are demanding targets and I think people are going to have to go some to achieve them and I believe that they will, but there is a mechanism in place to review those. 28. So theoretically you do not rule out a shift in the goalposts within three years? (Mr Timms) I think it is unlikely that that will be necessary. 29. But you do not rule it out? (Mr Timms) I think I would go no further than saying it is unlikely that it will be necessary. 30. Can I finally touch on emissions trading? You have just completed a consultation on the subject which was slightly hurried, I think most people would admit. Can you just comment on how things are going and whether you are going to produce your proposals within the next month or so? (Mr Timms) They are going well. I am surprised that you describe it as a hurried consultation. I think it has been a very thorough piece of work that has been carried out on emissions trading. Certainly we see a key role for emissions trading as part of the long term solution to cutting greenhouse gas emissions. We have been working very closely with the Emissions Trading Group, which as you know is business led, to develop the scheme. We announced in the spending review last summer a financial incentive worth 30 million from 2003/2004 to help stimulate an early start to maximise the environmental benefit of the Emissions Trading Scheme. We announced in the Budget last week, by the way, that we will ensure that that incentive is worth the equivalent of 30 million after corporation tax. The responses to the consultation in November 2000 on the rules of the scheme are being considered. We will be publishing the framework for United Kingdom Emissions Trading Scheme shortly so that we will be on track for firms to take targets from next year. I made the point at the beginning, although I did not do so explicitly, that we believe that the Emissions Trading Scheme could contribute, on top of the five million tonnes of emission savings from the Climate Change Levy, a further two million. Again that is a very significant contribution to meeting the objectives that we have. 31. The reason we describe it as hasty is that I think the consultation document, after a lot of work, as you say, did not go out until the end of November with a target date for the Government to produce its response before the end of this month, which on a very complicated subject does seem a short space of time. Can you just comment on the Emissions Trading Authority which I gather you are not proposing to set up on a statutory basis? Surely without that statutory basis it will rather lack the teeth to enforce penalties? (Mr Timms) I am not entirely certain what basis DETR proposes for the Authority. If that is something you would like some further information I will send you a note on that. 32. How many companies do you expect to join it? (Mr Timms) In due course a lot. 33. Can you be a little more precise? (Mr Timms) To begin with I would expect a fairly modest take-up. Once the incentive comes into effect that number will certainly rise. We recognise, as did Lord Marshall in his report on this, that emissions trading is most appropriate for larger firms and that for smaller firms the mechanism available in the Levy is likely to be the more effective one. Mr Maxwell was just reminding me that of course there will be a particular incentive to participate in the scheme for firms who are party to negotiated agreements, so I guess those will be the immediate group of companies who are likely to enter the scheme but once the incentive is in place and once trading becomes a familiar part of commercial life then we would expect it to become much more widely taken up. 34. So you are not putting any targets down on which to judge the success of the scheme in terms of how many companies have joined up in the first three or four years, even those companies who are privy to these sector agreements? (Mr Timms) I think the key thing is going to be the achievement of the reduction of two million tonnes - I hope more - of carbon dioxide emissions a year by 2010. That is the real target that we have got in our sights. Joan Walley 35. Minister, we welcome all the progress that has been made in the Budget, but we always want to go further. Given that we had the Prime Minister's speech the very day before the Budget where he announced the very welcome news about extra money for renewables, I wonder if you could tell the Committee whether or not that money is new or whether or not it is recycled old money in any way? (Mr Timms) I can tell you where that has come from. The 100 million comprises 60 million from the Capital Modernisation Fund, 20 million from the Performance Innovation Fund, and the final 20 million is being re- allocated from within the DTI's own allocation, so there are three different sources for it. 36. Are those three different sources which together make up the new 100 million all new sources of money? (Mr Timms) New in their application to this purpose, yes. 37. But were they previously existing for renewable energy? (Mr Timms) No. 38. So they are absolutely new? (Mr Timms) Yes. 39. In that case could you confirm for me, if you look at the 1999 figures for the Energy Efficiency Fund, that the 50 million which was allocated over three years on a year by year basis continues to be allocated and is still available for energy efficiency purposes, that it is not part of this new money that was announced the day before? (Mr Timms) That is correct. This is the 50 million fund being created from the proceeds of the Climate Change Levy? 40. Yes. (Mr Timms) The point you have made is correct. There is, as you say, an element of that which is being dedicated to the development of renewable energy sources and that is outside the 100 million that the Prime Minister announced last week. 41. So this will be 50 million that was going to be 1999, 50 million 2000, and 50 million 2001, each of those three years, plus the extra money that was allocated from the Climate Change Levy for renewables? (Mr Timms) Let me ask Mr Hall to comment on that. (Mr Hall) The existing Energy Efficiency Best Practice Programme is being transferred into the Carbon Trust and that money has been ring fenced. In terms of the base line that is not changing. That goes into the Carbon Trust. On top of that the Carbon Trust has an additional amount of resources of 100 million over three years which will fund additional energy efficiency advice and will fund research into low carbon technologies. On top of that, again from the revenues from the CCL, there is 50 million over three years to promote renewables technology. None of that includes the stuff that the Prime Minister mentioned in his speech. 42. It would be enormously helpful, Minister, to have a note setting it out. One of the difficulties that we have is that there are so many initiatives and there are so many new initiatives and there are so many existing initiatives that it is really difficult to keep track of them all and to see how they are progressing through. (Mr Timms) I sympathise with the Committee's difficulty. I will be glad to provide a note. 43. Can you also confirm to me - and you have probably covered this already but just for the record - what has happened to the extra 40 million from the reduction in enhanced capital allowances in 2001/2002 and 2002/2003? (Mr Timms) No, I have not covered that. All that has happened there is that the announcement of the details of the qualifying technologies was delayed somewhat from what we originally intended, so things have gone backwards a little. That is why we now expect - and this is conjecture of course - a rather lower take-up of those in this first year because the information has been provided a bit later than we originally thought. We originally expected that we would be able to publish the details of that in December. We are now expecting to do so as soon as state aids clearance has come through at the beginning of April. Because the information is available a little later than we had expected we anticipate that the take-up will be a little lower in the first year than otherwise it would have been. That is all that has happened there. 44. Do you know why this is? Is this a failure in communications or not getting the message across? Why is there this failure to have the take-up that you had anticipated in the first year? (Mr Timms) Only that the information has not been available to people up till now. In fact, just yesterday the Commission did confirm its go-ahead for the enhanced capital allowances arrangements that we had proposed. When we put those figures together initially we expected to have that by December, but there has been a delay at the Commission's end; that is all. Chairman 45. There is a problem here which we touched on in your exchange with Mr Gerrard about transparency, about that information being followed through in a clear way year after year. Our suspicion was, having looked at your figures and having no help as it were other than our own resources, that the 100 million fund which the Prime Minister announced was not new money. Indeed, only 10 million of that appeared to be new money because 50 million had disappeared from the accounts into the Energy Trust and 40 million had gone from reduced estimates for enhanced capital allowances. We may be wrong, but without a clear explanation, running through the figures and making proper comparisons form one year to another, even we, who are looking at these things closely, do not know what is going on, and certainly the general public do not know what is going on. You can understand why there is a certain amount of suspicion: is this really new money or not? (Mr Timms) I guess that is why I am here, so that I can provide the explanation. As I say, I entirely sympathise with the Committee's difficulty on this. I can give a complete reassurance on that. All that has happened is that the information has been provided a little bit later than we originally expected, which means that the benefits have been put back three or four months, but there will be more later on. 46. Could we have a clear note on all this which would set the whole thing out? (Mr Timms) Yes, certainly, a note covering all the funding sources for renewable energy first of all, addressing Ms Walley's point, and explaining what has happened on enhanced capital allowances. Joan Walley 47. And to add to that, it further compounds the difficulty we have in understanding what has happened because we have got the press release which came out from the DTI on the occasion of the boost for green energy and in a way, if I can put this to you, perhaps through your work on the Green Minister Committee which I know will come up later, we are looking for some kind of an audit trail to be able to monitor what there is, how it has been spent, what there is from one year to the next and whether or not old money gets translated into new money. In a way, when we are looking at renewables, for example, I would suggest to you that that needs to be done in a holistic way in conjunction with the DTI. Here we have got from the DTI a list of different initiatives from the National Lottery and here, there and everywhere. Unless we can follow it all through we are left completely in the dark. Is that part of extra money? It needs to be done in a joined-up way with other government departments as well. When you give the Committee a note would you perhaps look at not just what is coming through from the Treasury but how it relates to other spending departments as well? (Mr Timms) That will certainly be the case. 48. One final question if I may. Some time back we did recommend that the Energy Saving Trust should administer the fund for sustainable energy from the Climate Change Levy. That was one of the recommendations from this Committee that was not taken on board. We now note that we are going to have this further body that is going to be created, the Carbon Trust. Could you tell the Committee what that is going to do that is going to be additional to what the Energy Saving Trust is already doing and why it was necessary to have a separate body and why our recommendation was not something which the Treasury felt it could agree to? (Mr Timms) The Carbon Trust has a very clear role in taking forward work which has been carried out in the past but in a more effective way, not least because it will have significant extra resources available from the proceeds of the Climate Change Levy. The very important part of what is going to happen over the next few months is that a lot of companies will want to get advice about how they can reduce their energy bills. They will see from next month entries appearing on their energy bills for the Climate Change Levy. They will want to know how they can reduce those payments, quite rightly, and it is very important that they have access to good quality readily accessible information and the provision of that will be a very important role for the Carbon Trust. 49. How is that going to take advantage of the expertise that is already there inside the Energy Saving Trust and other organisations such as the Energy Technology and Efficiency Best Practice Programmes? Have you thought through how you are going to get the best advantage from the expertise that is already there relating to these issues arising from the Climate Change Levy? (Mr Timms) Certainly the Carbon Trust will want to draw on expertise that is available from those organisations and others. Of course it is a matter for the DETR directly. 50. You are not afraid there is going to be more confusion from all these different quangos being set up between yourselves, the quangos, DETR and DTI? (Mr Timms) I hope there will be less confusion because I think the Carbon Trust will be seen as the place to go for good quality readily available information on this topic. I am delighted that Ian McAllister, Chairman and Chief Executive of Ford Europe, has taken the Chair of the Trust. I think it is going to be a high profile, readily accessible body. It is a different body in that sense and I am very optimistic about the effectiveness of its operations. Mr Gerrard 51. Can I ask you about two specific taxes? The first one is the Aggregates Levy. When this Committee looked at the question of the Aggregates Levy last year we came to the conclusion that there ought to be a levy but that there also ought to be rebates, a little bit like the Climate Change Levy, that you ought to be giving rebates to quarries that were being operated in an environmentally friendly manner. It appears from the Budget that you are proposing to move in that direction. Can you tell me: how is that going to operate? How far will that rebate operate? Is it going to be a question of making assessments of individual quarries? Are you going to make judgments about types of operation? How is it going to operate? (Mr Timms) That is an extremely good question. I do not yet know the answer and I think it will take some time to come up with good answers to the questions that you are raising which are extremely pertinent questions. Indeed, I think it will take beyond the implementation of the Levy, which will take place as you know in a year's time, April next year, until we have a good framework in place for having differential rates of levy for green quarries. As the Committee has rightly pointed out, and we have accepted, there are attractions for doing that, for rewarding environmental good practice, but quite how that is going to be done we do not know. Officials are in discussion with the Quarry Products Association, which is the quarries industry body, that is very keen on making this change, and I think we will find a way to do it but I think it is going to take quite a lot of work. 52. If there is that incentive how confident are you that it is actually going to be revenue neutral because the intention, as I understand it, was that the costs of the Levy would be equivalent to cutting national insurance contributions plus the Sustainability Fund. You have already suggested a figure of 35 million for the Sustainability Fund. Do you have estimates for the other two of what is actually going to be raised from the Levy (1.60 per tonne) is going to bring in and whether that equation is really going to balance, particularly if there are uncertainties about where is a rebate? (Mr Timms) It will be revenue neutral when it is introduced next April on the basis that we have announced. Clearly what happens beyond that we do not know yet. If there were to be a lower rate announced for certain kinds of quarries, then that would no doubt have an impact on the overall take from the Levy. That would depend on what the lower rate is and who qualifies and so on, and those are decisions we have not yet made and so we have not yet done the calculations. Certainly when it is introduced next April it will be revenue neutral. 53. Does that mean that you might end up with the position of subsidising the Sustainability Fund? Is that money guaranteed that it will stay at 35 if the take-up is not as you predict? (Mr Timms) I certainly would not want an outcome which led to a sudden fall in the Sustainability Fund. I do not think that would be in anybody's interests. Clearly it might well be the case, and indeed it very likely would be that, if we went ahead (as I anticipate we will and certainly I hope we will) with a differential rate for green quarries, there would be an impact on the overall tax take-up. That is inevitably going to be the case. 54. Is it possible to give us an estimate of what you anticipate the take being from the levy? (Mr Timms) When it is introduced next April? 55. Yes. (Mr Timms) I am sure we have got that figure. (Mr Hall) The costing which informed the decision in Budget 2000 was that the levy would raise 385 million on a full year basis and the costs of the reduction in employer NICs at 0.1 percentage points would be 350 million. That left 35 million. At the time that the Chancellor made the announcement in PBR 2000 on the Sustainability Fund additional funds for the levy were secured by a claim on the reserve for the two remaining years of the spending period and obviously the next spending period will take that forward. 56. One other factor that is going to affect how much you take in the levy is going to be secondary materials because, again, this was an issue that we discussed last year and the figures there are in defining exactly what secondary materials should be subject to the tax. What progress have you made on that in deciding what secondary materials ought to be taxed? (Mr Timms) I do not think that we have announced any changes on that front since I last talked to the Committee. As you know, there are some materials that are going to be exempted from the levy, for example china clay waste. We have had discussions with people who have suggested to us that other quarrying waste materials ought also to be treated in a more concessionary way but, as you have also said, there are some very serious difficulties about definition in doing anything along those lines. We have not announced any changes on that and are not proposing any at this stage. It is an issue that we will keep under review. 57. That was an area that the Committee had some concerns about. So we can assume at the moment that it will be the range of materials that was originally identified that will be subject in the first place? (Mr Timms) Yes. 58. But that you will review? (Mr Timms) We will certainly keep the matter under review but we are not proposing any changes to that at this stage. 59. Can I just turn to the pesticides tax. (Mr Timms) Yes. 60. Do you think now you are in a position where you are happy with the package that has been put forward by the Crop Protection Association? There have been some criticisms that it really is not very firm, it does not have clear targets, it does not have clear indicators. Are you happy that it is workable? How are you going to judge whether it has been successful or not? (Mr Timms) Let me just quote to you the comments that were made by English Nature, Pesticides Action, Network UK, RSPB, that has had a very close involvement in this, and the Environment Agency. They have written in making the point that they "welcome and support these measures which, if fully and satisfactorily implemented, should provide measurable environmental and biodiversity benefits". Effectively we have accepted the view that those organisations have taken. Of course, that statement does contain a caveat about "if fully and satisfactorily implemented". We, therefore, set out a timetable for starting that implementation process with a number of milestones between now and next February and we will then review progress in delivering the package in the run up to the Budget next year. Given that caveat about full and satisfactory implementation we can be very optimistic about the benefits that this package can bring forward. Again, it has involved a lot of work on the part of the industry, on the part of the farming industry and on the part of the NGOs who have taken part in this as well. I think it has been an interesting initiative and I very much hope it is going to prove to be successful. 61. Do you see any prospects in the longer term for change as we get nearer to the principle of polluter pays, particularly in relation to the costs of cleaning up water which now fall on consumers? (Mr Timms) I think the package will help. There will be a number of costs associated with implementing the package. I think we will need to see how much progress is made between now and next February and review things at that stage. We reckon that the cost to the industry of this package is going to be around about 13.5 million per annum, so it is a significant cost. 62. But longer term you would not rule out changes, especially in relation to water? (Mr Timms) Rule out changes to what? 63. The fact that at the moment the cleaning up of pollution in the water is paid for by the water consumer, not by the person responsible for the pollution. Is that not something that long-term we ought to try to address? (Mr Timms) I want to focus for now on this package being successful. I hope that will have a significant impact on reducing the environmental costs of pesticide use but at some point clearly we will need to review after a period of years, if it is successful, what the impact on reducing costs has been and we will need to have another look at it at that time. We are not doing any work at the moment looking beyond the period over which this package will operate. Joan Walley 64. Just to turn a little bit to energy efficiency and the issue of VAT as well. Certainly we feel that there is a great range of products which are eligible under the Government's own Home Energy Efficiency Scheme and yet there is a much more limited range of goods which are eligible for reduced rates of VAT. I am just wondering, given what you were saying about the importance of clarity and getting the message across so that it is clearly understood, is it not confusing the picture to have so many different lists, some of which apply to VAT, some of which apply to VAT on energy saving materials, and you have got a separate list of, if you like, initiatives which can be taken under the Government's own HEES Scheme but there is not any clarity about what is eligible for energy efficiency support of one kind or another? Would it not be better just to have a clear list of initiatives that would perhaps be of advantage to go ahead with? (Mr Timms) I hope that it is not too complicated. As you know, we have announced we will cut to five per cent VAT on services of renovating houses and flats that have been empty for three years or more, converting a property into a different number of dwellings, for example a house into flats, converting a non-residential property into a dwelling, converting a dwelling into a care home or vice versa and converting bedsits into dwellings or vice versa. We are adjusting the zero rate of VAT to provide relief for the sale of renovated houses that have been empty for ten years or more. I do not think it is too complicated, at least I hope not. 65. You do not think there is any inconsistency there when you look at that and compare that to what is eligible in terms of reduced VAT and what is eligible under the HEES Scheme? You do not think it is sending out a confusing message as to what is eligible for what, you think there is a consistency that goes through it? (Mr Timms) No, I do not think it is too confusing. Perhaps I am missing something. You can point it out to me if you think I am. 66. No, it just seems there is a lot of inconsistency when it comes to energy efficiency. There is also a further complication in that the Government is now introducing yet another list of qualifying technologies, albeit ones which are geared towards industry, under the proposals for enhanced capital allowances. Would you like to comment on that as well in terms of consistency? (Mr Timms) I do not see a consistency problem there at all. The enhanced capital allowances I see as a very important step forward in encouraging energy saving investments by commercial energy users. I think we are anticipating when that list is published on 1 April that around about 1,000 products will appear on it, if I remember rightly. We have also announced in the Budget a Green Technology Challenge where we are asking people to come forward perhaps with additional ideas for technologies that ought to have that opportunity available to them in the future. I do not see a problem of consistency there at all, this is something that is completely new which I think will be widely welcomed and will be a further encouragement to business users to invest to reduce their energy consumption. 67. If I can just move briefly to the Landfill Tax Credit Scheme. There has been a lot of concern about this and perhaps the way in which some companies are thought to take advantage of it while at the same time having some beneficial interests themselves as well. We are very keen to see the new proposed demanding targets for tax credits for, if you like, sustainable management projects coming in as quickly as possible. Do you have a date for that? Do you know when that is likely to be introduced? When can we expect details of the new proposals that the Government is intending to go ahead with? (Mr Timms) As you have said, there has been a lot of interest in this. The new targets that we are proposing to set for the industry to meet to be demanding for raising the percentage of tax credits going to sustainable waste management projects, I would expect those targets to be published within a month. As you know, there have been, and you have made the point, a number of concerns expressed about the operation of the Landfill Tax Credit Scheme. We take all those allegations very, very seriously and they have been thoroughly investigated. There are a couple of cases being investigated, I think, by Hertfordshire Police currently arising from allegations of that kind. On the whole we are satisfied that the scheme has operated satisfactorily in terms of propriety. I think the bigger concern I have is whether the resources coming through the Landfill Tax Credit Scheme have been deployed on projects which correspond as well as they should do to the Government's highest priorities. What has particularly been of concern is the proportion of the funds going to sustainable waste management projects has been falling of late. That was why we wanted to set these demanding targets and also why we are attracted in due course to the idea of replacing the credit scheme, either in whole or in part, with a targeted public spending programme where clearly we could ensure that the funds were being used on the highest priorities that we are facing. 68. Just to press you on that a little bit more. When you say that, does that mean that you have actually completed a review of the current Entrust scheme? About a year or so ago you were saying there would be a review of that. You mentioned matters relating to police investigations which I see as being separate from the review of the scheme as a whole. Have you actually carried out and undertaken a review of the current Entrust Scheme and have you reached a conclusion on the way forward, or is it nothing as specific as a review as such? (Mr Timms) I would not describe it as a review of Entrust. We have carried out a consultation process which has led us to the conclusion that we would wish in due course to replace the Landfill Tax Credit Scheme, either in whole or in part, with a public spending programme but there is a good deal more work to be done, not least in discussion with the environmental bodies and the others who have been the vehicles for the Landfill Tax Credit Scheme funds about how we take that forward, whether it should be in whole or in part, and if it is in part in what proportion and so on. There is lots of detailed work still to be done and that certainly is not complete. 69. Does that mean that there will be a consultation process on that with an opportunity to comment or is it a discussion that you will be having at the next stage? (Mr Timms) I would expect to be in discussion with a number of interested bodies as we take that process forward over the coming months. Mr Loughton 70. Minister, can we talk about the urban regeneration measures in the Budget, which we did discuss when you came to see us before in the Pre- Budget Report, and specifically on the Stamp Duty exemptions for the most deprived areas. When we discussed this before there seemed to be some confusion as to whether you thought this was a primarily business oriented incentive whereas the DETR Ministers were taking the line that this was a residential property oriented incentive. Has that apparent contradiction now been resolved between your two departments? (Mr Timms) I do not recall any confusion at all. 71. I do, very clearly. (Mr Timms) The proposal is that there will be no Stamp Duty charged on property transactions in the wards that are selected and that applies equally to residential and to business properties. 72. Indeed. When we asked you what was the purpose of it and what it was supposedly to achieve you very clearly took the line, and the record will show, that this was to encourage businesses to come into areas of deprivation, whereas in strict contrast in other meetings, and in fact in announcements in the House, the Environment Ministers have very much taken the line that it was a residential scheme, and in fact the split on Stamp Duty between residential and business is roughly 50/50 at the moment. The one thing that has not been elaborated on any further, which again we pressed you on at the time, is the definition of these deprived areas to which the Stamp Duty exemptions will apply. How much longer are we going to have to wait because you know the Committee did express reservations as to whether it was really going to target those people most in need of help as opposed to owners of expensive properties in deprived wards in Islington, for example? (Mr Timms) First of all, I think the real attraction, and in a sense you are quoting me correctly, of this measure from my point of view is in stimulating urban renewal by attracting businesses to locate in disadvantaged areas and also encouraging a mix of housing types. I think there are benefits on both sides. In terms of when we will announce the list of wards which will benefit, what we are aiming for is to identify the most disadvantaged wards on a basis which is fair and transparent across the UK, not least withstanding the scrutiny of this Committee which I know will be a close scrutiny. We want to make sure we get this right. We have been working with the devolved administrations to identify those wards that should qualify. A new ward based index of deprivation for Northern Ireland is going to be published in June and we need to take account of that in finalising the list. What I can say with some confidence is that we would expect the list of qualifying wards to be published very soon after Finance Bill Royal Assent with the exemption taking immediate effect. 73. On the basis of the various potential anomalies that we have raised before and on the continued lack of clarity on whether you are promoting it for business, although the DETR are still promoting it for residential, have you ---- (Mr Timms) I just make the point that I think there are benefits for both properties. 74. Absolutely, I have no disagreement with that. What I am trying to see is what is the rationale behind it, primarily to promote business or residential areas. Despite what you say, you are very clear what you think it is there for, the trouble is your colleagues do not agree with that. On the basis of the points we have raised, have you made any further progress towards having a capping limit, say, on the value of residential properties or, if what you say is really the case, purely limiting it either across the board or in certain areas just to businesses so that you do not have this anomaly? Whereas if it is to be done on a ward by ward basis, and you are confirming that it will be done on a whole ward on the basis of these indices ---- (Mr Timms) Yes. 75. Therefore you must admit there is a potential anomaly in the Islington case which I have brought up, and Members have brought up time and time again, where the owner of a 750,000 nice Georgian terraced house, not to name any potential owners amongst Government members, which happens to be in the same ward as a run-down estate, few properties on which will actually be worth above 60,000 and therefore not qualifying for any Stamp Duty at all, on the basis of what you are promulgating will benefit very nicely indeed and the people in the area of deprivation within that ward will benefit not one jot, or only slightly. If you are first of all admitting to that potential anomaly, what checks and balances are you considering bringing in to avoid that or are you happy it should be a blanket exemption? (Mr Timms) What I advise the Committee to do is await the list of wards and then we can have a discussion about these decisions and others. Of course, attracting new businesses in to disadvantaged areas does have very substantial benefits for the people who live in those areas. You were suggesting that the people living on estates where properties are of relatively low value would not benefit from this but they certainly will if we are successful, as I believe we will be, in attracting new businesses, new jobs, new enterprise into areas where there has been far too little enterprise in the past. I think that would be a very big gain. Most of the high value transactions that will benefit from this will be in commercial property or in land for development. There will, no doubt, also be some big residential properties that are purchased for conversion into residential units, multiple residential units, for sale or for rent. We see relief for transactions of that kind as being very valuable in encouraging the establishment of diverse communities. No doubt you will return to these matters when the list is published. I would not favour, and we did have this discussion last time I think, attempting to draw a distinction between residential and business properties in terms of this exemption, I think that is an unnecessary complexity. There are benefits, significant benefits, in terms of building prosperous and diverse communities for the Stamp Duty exemption on residential property as well as on business property. 76. We agree with all of that, Minister, but the point I am making, and you are not ruling it out, is that there is a very distinct possibility that the owner of the property, the example of which I gave, would save 30,000 and yet the number of people in properties on deprived estates in the same ward whose homes perhaps are worth more than 60,000 residential is negligible, and on that basis it would seem to be a rather self-defeating Stamp Duty on the residential side in which case you could just limit it to business, the merits of which are for everybody, and I agree with that, or you could cap it at people with properties above a certain level or it only applies to people doing conversions and everything else. That is purely the point I am making and I am just trying to see whether you are making any progress or you are happy that you do not need to make progress so that the less deserving, to put it one way, of the exemptions you are trying to bring in do not scoop the big exemptions. I do not think we will get any further on that. Can I just ask you about the Urban Regeneration Companies where in the Pre-Budget Report based on the three pilot companies which were established post-Rogers, those being East Manchester, Sheffield and Liverpool, the Pre-Budget Report, and the Urban White Paper a week later, promised up to a dozen further Urban Regeneration Companies, of which one has been announced in the form of Corby thus far. I am not aware there has been any progress report on the success or otherwise of those three pilots in the three places I have mentioned to warrant rolling out up to a dozen more. Is the Treasury happy that those pilots have been a success? If they are, on what criteria is that based and when will they publish the results? (Mr Timms) We are certainly taking a close interest in the development of Urban Regeneration Companies as they evolve beyond the three pilots. They are still pilots. I think it is too early to draw firm conclusions from those pilots about the way forward. We will consider, as we have said, providing Corporation Tax relief for company donations to Urban Regeneration Companies and similar bodies across the UK when we are in a position to do so. For now we want to wait until the final form and functions of those bodies are clear, which at the moment, because they are still pilots, is not the case. 77. Is this not slightly putting the cart before the horse, that without knowing, as you have just admitted, how well or not the three pilots have done, conceivably 12 more fully fledged companies could be in operation, of which you have already done one, before certainly we know and you have assessed the evidence to suggest whether they have been a success or not? Surely a pilot is something that needs to be tried, assessed and if it has been successful then turned into a real scheme? It strikes me that you are going to have 12 real schemes before you have even assessed whether the pilots have been beneficial or not. (Mr Timms) We do see them as a very promising initiative for effecting regeneration in our urban areas but we will take a view at a future Budget about the appropriate Corporation Tax treatment for them. I think that what we have done has been right, we have identified this as a promising initiative, we have identified a way in principle to assist them and we will make a decision on the detailed arrangements as soon as we are in a position to do so. 78. The Corporation Tax treatment of those companies is an entirely separate issue on which there have been no pronouncements from the Chancellor. All I am concerned about is whether they are a success in terms of are they doing the job that they are set up to do, on which I am not entirely clear. Do they have sufficient teeth to achieve the targets set by the Government? How much more resources do they need to achieve that? For example, what assurances are there that these Urban Regeneration Companies, be it three pilots or one fledgling company in Corby, will have environmental protection and sustainable development ideals and targets built into their remit? (Mr Timms) Let me just return to the Corporation Tax point because we have said that we will consider providing Corporation Tax relief for company donations to those companies and other similar bodies across the UK. That was the announcement that we made. 79. That is a side issue, it is not Corporation Tax of the companies themselves. (Mr Timms) No, indeed, it is the Corporation Tax relief point. The aims of the companies and the detailed briefs they are being given others are in a better position than I am no doubt to comment on, but I certainly would expect to see - I think one can be absolutely certain - that a commitment to sustainable development will be built into companies and other institutions having an urban regeneration brief, as these will. 80. But if they have not been built into the pilots, and we now have one fully fledged and it has not been built into that, how can we be sure that they will have an environmental and sustainability objective in their remit? It is ideal that it should be, certainly as far as this Committee has said we appear to agree with that, but when are we going to see it? (Mr Timms) I am very confident that they will but what I would advise the Committee to do is to take these matters up with the Ministers responsible for them. Christine Russell 81. Minister, we do welcome many of the measures that were contained in the Budget to encourage urban renewal and certainly measures like the capital allowances which will encourage more people to go and live over the shop. Having said that, I think there is great disappointment that the Budget did not address what was the central issue that was highlighted by the Rogers Report that at the moment there is not a level playing field between greenfield development and brownfield development, ie greenfield development is still zero rated and on brownfield development you still pay 17.5 per cent. I know that there were measures introduced in relation to contaminated land but in so many of our towns and cities it is just tracts of vacant spaces that have been previously used but they are not technically contaminated. What consideration have you given, are you giving, in the Treasury to getting rid of what is still a perverse incentive to build on greenfield sites? (Mr Timms) I think this Budget has constituted a substantial VAT reform package targeting resources where the market failures are the greatest and where they will do the most. It is an ambitious package and I think you made the point that the Committee welcomes it. I would not want the significance of it to be under-estimated. Having said that, it is the case that we do not plan currently to make big changes to the VAT base, that would require a lot of detailed research on the likely social, economic and environmental impacts of such a move. It would certainly be a very controversial thing to do and we do not have plans at present to do it. 82. Can I just ask you if you are prepared to commission that research, because the reality is that it is still a cheaper option to pour concrete on greenfields than face the challenge of inner city regeneration? Are you at least prepared to consider all of those impacts you have just listed? (Mr Timms) I think the package that we have announced represents a significant tilting of the playing field in the interests of the objective that you described. I notice, for example, that Lord Rogers himself responded to what we said in the PBR by making the point that "one of the best new proposals we have seen in recent months is the reduction in Stamp Duty on properties in inner city areas". I think that is going to make a significant difference. What I would like to do is see the impact of these changes. I am not proposing to commission research at this stage but, of course, we will keep the matter under review. Mr Chaytor 83. Minister, could I take us back to the Climate Change Levy very briefly and just pick up on a couple of points that I think are quite important. First, I just want to endorse what Mrs Walley was saying about the importance of transparency on the energy efficiency and renewable technologies front, but whenever I have discussed the Climate Change Levy over the last 12 or 18 months with companies in my constituency I have always explained to them that to offset their liabilities there will be a fund into which they can bid to improve their energy efficiency or develop renewable technologies, although I was not aware of what the process was by which they would bid. Are you assuring us now categorically that all of the bids for new money for energy efficiency innovation and renewable technology innovation will be channelled through the Carbon Trust and as soon as the Carbon Trust is established companies can then submit their bids? From my experience there is zero understanding not only from small companies but medium sized and some large companies about how they can submit a bid to the various funds that you outlined earlier. I think it is important not only do we have a comprehensive list of all the budget streams that are now available but that companies across the country have that list as well. (Mr Timms) I think the answer is everything except renewables, but let me ask Mr Hall to give you a full answer to that question. (Mr Hall) The Carbon Trust itself will have three elements. First, it will take over the existing energy efficiency best practice programme and expand that quite dramatically. Secondly, it will promote research into the low carbon technologies. Thirdly, it will be in charge of the list of the products that are going to qualify for the enhanced capital allowances and we expect there are going to be more than 1,000 on that. In response to your direct question about how do firms actually do this, there is an Energy Efficiency Helpline, the number of which I do not have in my head but we will certainly be able to supply to you. 84. One phone number? (Mr Hall) One phone number. You phone that number and you are given instant advice over the phone. If you wish to take the matter further then you can go into the form of an energy audit, which means people will come to your firm, have a look at the firm and give whatever advice is appropriate in terms of energy efficiency measures. 85. Thank you very much. Is that Energy Efficiency Helpline up and running from 1 April 2001? (Mr Hall) It is up and running already. Joan Walley 86. Could we have the number? (Mr Hall) I am in a position to give the number: 0800 585794. (Mr Timms) And it is in the Budget documentation as well. Mr Chaytor 87. Could I just pick up a second point on the Climate Change Levy. You assured us that the 100 million that the Prime Minister announced at the Chatham House Conference a week last Tuesday was entirely new money - 60 from the Capital Modernisation Fund, 20 from the Performance Innovation Fund and 20 reallocated from the DTI - but given the slippage on the predictions of the cost of the accelerated capital allowances there is presumably a net saving to the Treasury of 40 million there. So presumably the 100 million net growth that the Prime Minister announced has to be offset by the 40 million net saving and, therefore, the net increase to the Treasury as a whole is actually only 60 million. (Mr Timms) I do not think there is a saving to the Treasury. The profile of the cost has been put back a few months, that is all. So while in year one we would anticipate a lower take-up than would have been the case if the information had been available earlier, in a couple of years' time the cost to meet the profile will be greater. 88. In two years' time the figure now is 130 million whereas originally it was 140 million. (Mr Timms) That is for next year. 89. Even for the years ahead we are reducing the estimate of the cost of the capital allowances. (Mr Timms) I think I am right in saying the year after that we would expect a greater sum simply because the profile has gone back, that is all that has happened. 90. Within the current three year spending period there is still a net saving of 40 million. In the next three year spending period there may be a net increase. (Mr Timms) No, I do not think there is. (Mr Hall) It may be worth clarifying exactly where the fall in the number for the first year has come from. There has been no change in the list of technologies qualifying or the number of products that expect to take up, what has happened is originally it was envisaged this list of products would be made available in around about December 2000 and although firms could not claim enhanced capital allowances on those in the last tax year they would be able to retrospectively submit claims in the coming tax year. Because of the delay in the publication of the list, as the Financial Secretary said, by four months then the figure for 2001-02 now covers 12 months of take up rather than the originally envisaged 16 months, so all that investment is just pushed back and the profile has not changed. 91. So the profile has not changed and, therefore, in 2003-04 the estimated cost will be 40 million more than it would have been originally? (Mr Hall) I do not have the figures. Mr Chaytor: We need to know that to be absolutely clear. Joan Walley 92. You did promise that you would send a note setting out the details of that. (Mr Timms) We can certainly do that. Mr Chaytor: If I can just move along to some more general policy issues surrounding the Treasury as an institution. Minister, you will have detected in your visit to the Committee today, and I think in your previous visit, that we have a degree of scepticism about the extent to which the Treasury as an institution is committed to the values of sustainable development. What I want to ask you is do you think that is fair comment? Mr Loughton 93. Yes. (Mr Timms) I do not think that your scepticism is justified, no. In fact, I was talking to a very senior official of Friends of the Earth on Budget Day and he volunteered the point to me that in his discussions with Treasury Ministers and officials he identified this as a very, very serious agenda for the Treasury, and I think he is right to do so. Mr Chaytor 94. If it is not fair comment, why is it that in the Treasury's published aims and objectives there is no reference to "sustainable development" or "environmental protection" or some such similar phrase? (Mr Timms) I think the objective of sustainable development is clearly implied in the aims that we have set out which are in front of me here but I cannot put my hand on them. We do use the term "sustainable growth" and that is why it is there, precisely to pick up the importance of this agenda. 95. Nobody that I have come across ever used the term "sustainable growth" before the Treasury in recent years. I do not know quite what it means but if it means that we are against boom and bust then I am all in favour of it, and I suspect it does mean that. I think our suspicion is that sustainable growth is to do with evening out the ups and downs of the business cycle but still assumes a fairly traditional view of the models of economic growth and it does not really mean what we understand to be sustainable development with all the implications for market transformation and concern about the depletion of natural resources and concern about greater efficiency and use of natural resources. Is it not time to clarify this or somehow strengthen in the Treasury's aims and objectives the clear commitment to sustainable development, which appears everywhere else in Government policy statements? (Mr Timms) I think the key thing is the inclusion of the word "sustainable", which is there. No doubt you are right to indicate that one of the things we mean by that is that we do not want to return to boom and bust, that is true, we do not, but it also means that environmental sustainability needs to be achieved in the growth that we are working for as well. My perception is that the inclusion of the word "sustainable" there carries exactly the connotation that you are looking for. 96. Can environmental sustainability be achieved if we have a commitment to year on year economic growth of 2.5 per cent or thereabouts ad infinitum? You are using the traditional models of what constitutes economic growth. (Mr Timms) We need between us to ensure that it can, that is the central challenge that we face, and that is what this chapter in the Budget documentation addresses, how can we ensure that safeguarding the environment is consistent with our objectives on economic growth. I think it is absolutely vital for the nation that we are able to deliver on both. Certainly we see that as an important concern for us and the Treasury. 97. If I can just pursue this point in respect of the Treasury's relationship with other departments in the Public Service Agreements. Is there within the model Public Service Agreements for other departments any reference to the importance of environmental sustainability in their policies and practices? (Mr Timms) There certainly is, yes. The PSAs do contain a reference to most of the indicators of sustainable development. That was very clearly built into the Spending Review process and into the PSA process. I think we had a good deal of success in the Spending Review this time in building sustainable development into the process, it was an important part of the guidance at the outset. We discussed it at Green Ministers' meetings and I think the outcome has been quite widely welcomed as a successful exercise. 98. In terms of your environmental targets it was the case, I think, until this year that shifting of the tax burden from the taxes on labour to taxes on pollution was a key target for the Treasury itself. Is it the case that the commitment has slightly been watered down? Does that now appear in the PSAs, that specific commitment to shifting the tax burden? (Mr Timms) I certainly do not think it has been watered down at all, no. We are taking forward the Climate Change Levy, which is being introduced next month, which is a very big step in this direction. A year later we will be introducing the Aggregates Levy, which is a further step in exactly the same direction. No, it has not been watered down at all. 99. Does it still appear in the PSA documentation? Our understanding is that it has been dropped? (Mr Timms) The PSAs refer to the sustainable development indicators and I can provide a table for the Committee setting out exactly where they are. 100. It would be very useful if we could have a copy of that. (Mr Timms) I will certainly do that. 101. Could I just touch on an issue which I think was a point we raised at your previous visit to the Committee, the question of the Office for National Statistics and their indicators for green taxation. We had this debate before and I would like to push this again. Given what you have said about the Treasury's commitment as an institution, would it not be very useful if we could get the ONS to develop a more useful indicator of green taxes? This does seem to us to be a hole in the overall policy. There seems to be a mysterious reluctance on the part of the Treasury to push the ONS in that direction. (Mr Timms) We had an exchange about this earlier on this afternoon as well. I made the point then that I do not think the percentage of total taxes which are environmental is a good indicator because it is not clear whether that going up is a good thing or a bad thing, so while actually it has gone up I am not sure how much one can read into that. Increasingly we are going to need to carry out very careful evaluation of measures that we have introduced and to see whether the environmental benefits that we expected from those measures have actually been achieved. With such a lot of environmental tax measures taking effect recently and in the near future there is quite a lot of work that we will need to do and we are committed to doing that. I think that is the answer, to monitor effectively how successful we have been. 102. Has that process stopped yet or are you flagging up the fact that this will start to take place in the next few months? (Mr Timms) We have done a good deal of planning for this. I made the point earlier on that on the company car tax changes that are coming in the Revenue has put in a good deal of work to plan how we can see whether the million tonnes of COý emissions reduction that we expect from that is achieved. I think we are going to need to do similar pieces of work with other measures too. 103. On a similar point, in terms of the advice you gave to departments following last year's Spending Review in respect of sustainable development policies, has there been any follow-up to that? Has there been any monitoring of what individual departments are doing and how they are implementing their responsibilities in this respect? (Mr Timms) I think the monitoring, certainly in the first instance, will need to be carried out by the departments. Having signed up to the PSAs it is for them to monitor how they progress. Of course there will be a process centrally reviewing progress as well but the primary responsibility rests with the departments. 104. Has the second instance process started then in terms of you exercising your supervisory role over departments' work? Is that in place? Will that happen? (Mr Timms) We have not yet started the three year period, that begins at the beginning of the new financial year. We have not quite got there. 105. But there will be mechanisms in place by which departments will be monitored in this area? (Mr Timms) Yes. Chairman 106. Just to come back to this point about shifting the tax burden in Public Service Agreements. In your previous PSA for the Treasury you did have a target for shifting the tax burden and also Customs and Excise and the Inland Revenue had such a target but this is not in your new PSA, there is no target at all mentioned. Is that because you have intellectual doubts about the sense of this, as you have just indicated, or is it some other omission? (Mr Timms) There certainly has been no stepping back at all from the sustainable development commitments that we have entered into which are very firmly built into our work. 107. I appreciate that, but shifting the tax burden, which we were concerned about, that was a target in your previous PSA but not in your new PSA and I wonder why that is? (Mr Timms) What I would say is that I do very much see that as part of the sustainable growth commitment that we have been talking about and is in our objectives. It does very much imply that process we have put a huge amount of effort into and are continuing to put a huge amount of effort into to deliver. 108. I am wondering why it has been dropped? The specific target that was there is no longer there. Why has it been dropped and can it be replaced? (Mr Timms) There was a process and a conscious aim in the PSA round this time to reduce the number of targets and to shorten the ---- 109. So it is a victimisation of simplification. (Mr Timms) I hope nothing has been lost by the process. 110. It clearly has. (Mr Timms) Certainly there are not as many words as there were first time around and I think that is an improvement rather than a loss. Joan Walley 111. I would like to endorse what Mr Chaytor was saying about the importance of clarifying the difference between "sustainable growth" and "sustainable development". I do feel that maybe that is a job for the Green Ministers, to make sure that the language in which the Treasury expresses itself is not committed to growth per se but takes account of the sustainable development argument that we want to see at the heart of policy. Can I just ask you about your role as the Green Minister for the Chancellor's Department, which I understand includes the Inland Revenue and Customs and Excise. How many meetings have been you been to this year? (Mr Timms) I have been to two of the meetings. 112. Out of how many? (Mr Timms) Out of four. 113. Did you send a substitute? (Mr Timms) An official was present when I was not. I should say in self-defence that one of the meetings was on the morning of the Pre-Budget Report, so that was obviously a difficult one for me to attend. 114. I think you could be forgiven for that. (Mr Timms) Thank you very much. 115. We do not know how they work from outside and we want to get a flavour of how the Green Ministers Committee is actually changing things. Have you brought any best practice away from what you have seen in other departments back to the Treasury? (Mr Timms) Yes. What tends to happen is that there is a presentation from one of the departments that are present. I think I am right in saying that at the two meetings I have attended, both of which I found very valuable, at one there was a presentation on the part of the Home Office and at the other there was a presentation on the part of MAFF. For example, the sort of thing that happens, I guess, is part of the MAFF presentation dealt with work on energy crops which tied in very closely with the work that we were doing on the Green Fuel Challenge. That was very useful, to make that connection, and I subsequently had a discussion with the Minister involved. I see it as a very useful way for joining up efforts across Government to tackle all these issues. I certainly had not appreciated before that presentation the scale of the work that the Ministry of Agriculture, Fisheries and Food was doing on that and it was a valuable thing to know for my work as well. 116. Can I just follow on from that. Arising out of that, what consideration did you give to agriculturally supplied fuels? Do you feel that they should be given parity with fossil gas fuels in the Budget? Do you feel that the Green Ministers Committee can be a forum whereby, if you like, you can get parity, you can deliver on whatever issues are raised during the course of the Green Ministers meetings? (Mr Timms) Do you mean duty parity? 117. Yes, in terms of tax. It is interesting that you happened to give the MAFF presentation as an example of good practice. It seems that there are still so many things whereby we need to be much more joined up so we are not discriminating against some fuels that could be environmentally produced by MAFF to move towards a more sustainable route. (Mr Timms) Certainly MAFF, as I learned on that occasion, has an interesting, quite an ambitious programme on energy crops. In terms of decisions about levels of duty, of course they are a matter for the Chancellor. 118. You are the Chancellor's Green Minister, are you not? (Mr Timms) I am, yes, indeed. It is for the Chancellor to decide on the basis of a recommendation from me because I am the Minister who deals with these matters directly at the Treasury. We did announce a significant duty incentive for bio-diesel in the Budget, 20 pence a litre. I know from what people have said to me since the Budget, and indeed before the Budget as well, that that will be a significant incentive for the take-up of bio-diesel as an alternative fuel. 119. I think it is unfortunate that you mentioned the MAFF meeting because we have had a letter from the British Association for Bio-fuels and Oils and they are tearing their hair out because they feel that MAFF has not actually recognised the environmental issues on a level that they would have liked them to have done. (Mr Timms) Let me come on to that. I also receive a large number of letters from the British Association for Bio-fuels and Oils and I met Mr Clary, who I imagine would be the signatory of that letter, as part of the process of the Green Fuels Challenge. I have not spoken to him since the Budget but I think he will have been pleased by the announcement we made in the Budget on bio-diesel. I discussed with MAFF Ministers the right approach to this as part of that decision and I want to defend them. I think this was a good piece of joined up work that we put in together with a good outcome from everybody's point of view. 120. I just raise the Green Ministers Committee because I think it is so important that that forum starts to work effectively across Government. There is one issue that is concerning me as well which is following on from the commitment that the Government gave at Okinawa about the purchase of sustainable produced timber. It is clear to me, for example, that there are a whole load of issues which could be taken up whereby there is not a clear reporting system as yet despite one that was promised some nine months or so ago. It is really how the process of the Green Ministers Committee is enabling the Treasury to take on board these issues which comes back to the whole issue of parity and transparency that we have been raising throughout the course of this session. I would like to think that the Treasury has a system of reporting in respect of sustainable produced timber. Perhaps you could let us know about that. (Mr Timms) On that point, I would make the point that the Prime Minister, of course, did make a number of references to this point specifically in his speech last week. I think there will need to be mechanisms put in place across Government to deliver what is the Government policy. 121. It is the delivery mechanisms that I am concerned about which is why I think the Green Ministers Committee is so important. Just finally, and briefly, the Green Technology Challenge, you mentioned this in your introductory comments to the Committee, could you just very quickly tell us how much money you are going to commit to this initiative and how long the competition and consultation is aimed to be? Is it going to be in 2002 that people will be starting to have the effect of that? Are you going to be making it part of the long-term initiatives so that, for example, just looking at the long-term it is linked to other cleaner technologies innovation and design? How and when do you see it actually operating? (Mr Timms) To pick up your last point first, yes, I do see this as a long-term exercise. I am sure you will have noticed in the announcement about the Green Fuel Challenge the comment about hydrogen. It is clearly going to be some years before we see commercially available hydrogen fuelled vehicles but I think there is a widespread view that is the direction we are going to be going in and what we said in the Green Fuel Challenge about duty incentives or duty exemptions for pilots in that area I see as the first step, a fairly modest first step but a very significant first step, in a much longer term process of change in moving us towards a hydrogen economy, which I think is the direction we need to move in. Equally, the Green Technology Challenge I see as being a long-term exercise as well. We have not, as yet, put a timetable on how we see that challenge being developed. I would certainly hope we would have something significant to say by the time of the next Budget, but quite what the steps are going to be between now and then I am not certain at this stage, there is still some further work to be done. Mr Gerrard 122. Can I just come back briefly to this question of the evaluation of performance and reporting which we touched on earlier which Mr Chaytor asked about. There is nothing in the Treasury's Annual Report at the moment about environmental performance. There may be a table in the Budget but there does not seem to be anything in the Annual Report. When can we expect to see that information in the Annual Report, or might you even think of a separate environmental report or something? (Mr Timms) I think we have talked this afternoon about a good deal of work that we have carried out in the Treasury on sustainable development, sustainable growth. There is a lot in Treasury publications more generally on these areas. I hope the Committee will accept that these are matters we are taking extremely seriously. I must admit I cannot recall precisely what was in the Annual Report. I certainly regard what appears in a document like this one as much more significant and a much more important document setting out the policy objectives that we are pursuing. I would not want to read too much into what did or did not appear in the Annual Report. 123. I take the point that the Budget book is about policy objectives but we did agree earlier that a very important part of what needs to be done is looking at what has happened, evaluating performance, and that is something which maybe one would not find so easily in the Budget book. Can I ask a question on a connected issue, or I think it is connected anyway. You said to us in 1999 in your Greening Government memorandum that a specific environmental audit was a topic in the assessment of audit need to be put to the Treasury's Audit Committee in 2000. I am not necessarily sure I know exactly what that meant but if it meant that the Treasury was looking, for instance, at what internal audit capacity it needed to be able to do an environmental audit then that is obviously something I think we would want to see happening. Can you tell us what the outcome was? Did anything come out from the Treasury's Audit Committee specifically in relation to environmental audit or is that something that you may need to come back to? (Mr Timms) I think I need to check back on that reference. 124. It was in the 1999 memorandum from the Treasury on Greening Government, there was specific mention of that. (Mr Timms) I will check back on that. Can I just make the point that there is a section, I have been reminded, in the Treasury Annual Report on environmental performance. The Annual Report is very much an internally focused document. In external policy terms it is documents like this one that are more important. 125. The final point I want to ask is about associate bodies. The Treasury has not got a huge range of non-departmental public bodies that some Government departments have but each department was supposed to be producing an action plan by March 2001. It was the Green Ministers' deadline for an action plan for integrating sustainable development into the work of associate bodies. Has the Treasury actually done that? (Mr Timms) There has been a good deal of work to achieve that. We do have a number of bodies such as Customs and Excise, Inland Revenue, the Central Computer and Telecommunications Agency, the Buying Agency, ONS. 126. I was thinking more of, say, the Bank of England rather than people like the Inland Revenue who are to some extent within the Government departmental structure. (Mr Timms) The Royal Mint I can comment on, which has had a good record in this area. I think they hope to be accredited to the ISO 14001 standard by the end of 2001. 127. Has the Treasury actually done the action plan it was supposed to be doing that the Green Ministers said every department was supposed to do? (Mr Timms) Let me ask Mr Hall to comment on that. (Mr Hall) The Minister has asked to see the action plan within a month. 128. Within a month? (Mr Hall) Yes. 129. The deadline was March 2001, so we are slipping a bit. (Mr Timms) We might be a few days behind. Chairman 130. Minister, I think we are all very grateful to you for your patience this afternoon. We have covered a great deal of ground. Thank you very much again. (Mr Timms) Thank you for giving me the opportunity.