Mr James Clappison (Hertsmere, Conservative)

We now come to the changes in excise duty relating to goods vehicles, which will be of interest to the road haulage industry. I cannot let the matter pass without making a few remarks about the industry and its state.

The changes in clause 9 were announced by the Chancellor as part of the package in his pre-Budget report, in response to the pressures that I described in the previous debate. At the time of the pre-Budget Report, the Chancellor said that the changes were equivalent in value to a cut of 3p in the price of diesel to the haulage industry. However, that 3p is only a small fraction of the total increase in the cost of diesel that has come about since the Government came to office, an increase that has meant that British hauliers are at a significant disadvantage compared with their European counterparts. British diesel prices are still the highest in Europe by some distance; they are substantially higher than they were in 1997 and three quarters of that price is made up of tax and duty.

That disparity is particularly significant in Northern Ireland. According to road fuel prices supplied by the House of Commons Library for 9 April, diesel is 47p a litre in the Republic of Ireland and 77p a litre in the North. The Minister will have seen the interesting article in yesterday's Financial Times outlining the effect on the petrol and diesel retailing industry of disparity in the North. Industry has gone into decline and smuggling is taking its place, controlled by groups in the Province.

Given that the changes are said to be part of a package to help the haulage industry in the face of European competition, has the Minister any statistics for the increase in the number of foreign trucks operating in the United Kingdom in the past four years? Will he also address the question of cabotage, by which foreign firms operate in the domestic business carrying freight from one destination to another in the United Kingdom? What is the extent to which foreign hauliers are taking a share of the internal United Kingdom market?

We were told in the pre-Budget statement that the Chancellor wanted to introduce a vignette system under which non-British companies and lorries would pay their share to Britain for using British roads. The Chancellor apparently adopted it in his pre-Budget statement, although he did not mention it. An accompanying press notice stated that the Government had consulted on the matter and that they would continue to develop their plans to set up a vignette in the coming months. Given that we have been calling for such a system, we should be grateful if the Financial Secretary would tell us what is happening about it.

On the detail of the proposed changes, I ask the Financial Secretary to consider one category of vehicle in particular. I appreciate that several categories relate to goods vehicles and vehicle excise duty. However, I invite the Financial Secretary to give an account of the history of one such vehicle and the reasons for the Government's thinking on the matter. The 40-tonne vehicle on five axles has only recently been allowed on to United Kingdom roads following a European Union directive. The UK Government took the view that that particular lorry causes much more wear and tear on UK roads than the previously permitted and common 38-tonne lorry. I cannot give the technical reasons for that, but the Government have previously placed that fact on the record.

The wear and tear is so great that the 1999 Budget set a relatively high rate of vehicle excise duty for 40-tonne five-axle lorries. That rate was £5,750, compared with £3,210 for 38-tonne five-axle lorries—a significant differential. A press notice said that it was set at that rate

``to discourage strongly the use of these vehicles in view of the additional road damage that they cause''.

The 2000 Budget reduced the rate for the 40-tonne lorry to £3,950, and this year's Budget will reduce it further to £1,850 from December 2001. In view of that dramatic change of the 40-tonne lorry's position in vehicle excise duty, will the Financial Secretary say whether the environmental factors that were enunciated in 1999 and the effect on British roads still apply? Why have both the absolute VED for the 40-tonnes vehicle and the differential with the more common 38-tonne lorry fallen? We would appreciate an outline of the Government's thinking, given that they previously said that the 40-tonne lorry causes wear and tear to, and expense for, our roads.

Mr Howard Flight (Arundel & South Downs, Conservative)

I hope that all hon. Members are uncomfortable with a situation in which British trade or industry is put at an unnecessary competitive disadvantage to international competitors. The Minister will know that the British haulage industry has suffered badly during the past five or six years. Its costs have increased by some 16 per cent. since 1997 alone, and its profit margins range from 0 to 2 per cent. depending on the operators. Domestic trade has seen a substantial invasion by continental operators, which have increased their business by around 60 per cent. in Britain in the past five years. I recollect a KPMG study of two years ago that examined plusses and minuses for the British industry; it could point only to some labour cost advantages. Those are now under threat and there is a shortage of applicants for jobs because lorry drivers' pay is low compared with that in continental Europe.

In their consultations with the industry and representative bodies, were the Government able to argue that the proposal for a significant reduction in vehicle duty will restore any semblance of fair competitiveness in operating costs between the domestic industry and the continentals, which come into Britain after topping up with diesel in Calais? Is the reduction likely to shake off some of the bad practices that have gathered momentum—such as UK businesses moving their entire headquarters overseas, which is called changing flags—and some of the more criminal activities, such as the improper use of red diesel? There has been surprisingly little general media coverage. Obviously, the industry is pleased to have cuts. Having cuts is better than not having them, but I suggest that they are merely a temporary buying-off measure unless a robust case can be made that the British haulage industry will be put on a fair and competitive footing.

Mr Harry Barnes (North East Derbyshire, Labour)

Will my hon. Friend the Financial Secretary respond specifically to the points raised about the situation in Northern Ireland? The United Kingdom has a land border with the Republic of Ireland, and the disparity between duty rates presents many serious problems. It is almost impossible for anyone to run a petrol station in a place such as Belfast without taking in illegal petrol to survive. Many people have turned to illegal forms of activity because of the arrangements there.

There is a loss to the Revenue, because if people are within 30 or 40 miles of the border, it is worth their while to fill up their vehicles at the stations that have grown up along it. A massive amount of diesel is purchased in the Republic of Ireland, where the duty is paid, and then smuggled into Northern Ireland. Doctored material is also brought in illegally. The Select Committee on Northern Ireland Affairs has produced a report on that. Although we are talking about only 3 per cent. of the population, it is a serious issue.

Mr Stephen Timms (Financial Secretary, HM Treasury; East Ham, Labour)

I shall respond first to the points on fuel tax that were made by my hon. Friend the Member for North-East Derbyshire (Mr. Barnes) and the hon. Member for Hertsmere. Those issues were dealt with on the Floor of the House when clauses 1 and 2, which deal with fuel duty, were debated. I am certainly aware of the problem in Northern Ireland; Customs and Excise has substantially increased the number of officials working on it. The information that I have from people involved in Northern Ireland is that the extra effort seems to be having a significant impact.

The hon. Member for East Londonderry (Mr. Ross) observed in the Chamber on Monday that the way in which the border has been regulated as a result of the difficulties with foot and mouth seems also to have had a significant impact on reducing the amount of illicit fuel crossing the border. I certainly recognise that that is a serious issue. I have seen petrol stations in rural parts of Northern Ireland selling petrol remarkably cheaply. I wondered how they could do that and guessed what the answer was. Resources are being dedicated to dealing with the problem, and we hope that it will be brought under control.

I shall focus on the issues around vehicle excise duty for lorries, to which this clause relates. The Budget contained a 3p a litre reduction in the price of diesel, but the figure for the whole package, to which I think the hon. Member for Hertsmere referred, is 7p a litre. The reduction is not just 3p if we take account of the full package, which includes the measures on lorry VED and the road haulage modernisation fund.

We are talking about a fundamental reform of the structure of VED for lorries. We consulted the industry on the principles of reform through our public consultation and through the Road Haulage Forum, which has been meeting for well over a year and at which I have represented the Treasury. Those principles have received wide support.

The competitive position of the UK haulage industry compared with continental European industries, taking full account of all the factors such as labour costs, social costs and corporation tax, which is apparently much lower here, is not at all bad. That was the position before these changes. However, we are making a substantial further reduction in the burden of taxation on road hauliers to improve the competitive position of the UK haulage industry, reducing the tax burden on that industry by £300 million and bringing the UK rates for lorry VED down to among the lowest in Europe for the cleanest lorries.

I was asked how much cabotage there was in the UK. We commissioned some work on that in the Road Haulage Forum and it appears that the figure is very small. The survey was carried out in the early part of last year and showed that 0.06 per cent. of domestic haulage is carried by non-UK lorries. There was a good deal of surprise about that but the methodology for that survey was carefully agreed with the industry organisations. There are many non-UK lorries on UK roads but they are not generally doing domestic haulage work: they bring goods into, or carry exports from, the UK. The proportion of cabotage is extremely small.

We are reducing the tax burden, bringing UK rates down to among the lowest in Europe for the cleanest lorries. Secondly, instead of the more than 100 tax rates that have applied in the past, the new system contains seven broad bands. It will mean greater flexibility for operators who will be able to operate at a wider range of different vehicle weights and axle configurations without the need to re-plate and re-license. That is an important step, but we will continue, in consultation with the industry, to look for ways in which the administration of lorry VED can be modernised to reduce further the administrative burden on hauliers.

The new system provides strong signals to hauliers about the environmental impacts and the road wear caused by their vehicles. It builds heavily on the important work that was commissioned by the Department of the Environment, Transport and the Regions from National Economic Research Associates. It produced a methodology for assessing those environmental impacts and road wear. Its work is reflected in this new structure, which will come into effect on 1 December. Until then, the interim arrangements for lorry VED, introduced from 1 December last year, will continue to apply where there is, subject to the minimum rates, a straightforward halving of the lorry VED that was being paid. That is a substantial change.

The hon. Member for Hertsmere asked me about the proposed vignette scheme. We remain committed to the principle that all lorries should contribute towards the costs that they impose in the UK. The priority that we have set in this work has been on the introduction of the lorry VED reforms and the rebate scheme, because they will be of immediate benefit to the haulage industry and certainly reflected the industry's priority. We have had some useful discussions on the introduction of a road user charge with industry representatives. We are continuing to examine the options necessary for setting up such a scheme. The new structure of VED has been designed to take account of the requirements of EC directive 62/99, which sets out both the parameters governing a vignette scheme and the minimum rates of VED. That work will continue.

The hon. Gentleman asked me about the way in which 40-tonne, five-axle vehicles have been dealt with. I repeat that the new rates reflect several factors, including the research that I mentioned on road wear and environmental impacts of different types of lorry, which have influenced our thinking. We closely considered the treatment of 40-tonne lorries. During last year's Budget process, we were especially concerned about the competitive position of United Kingdom hauliers operating such lorries compared to continental operators. It was concern on that score that led to the significant change in last year's Budget to which the hon. Gentleman rightly drew attention. The new information about road wear and environmental impact and our concern to reduce the level of lorry bed close to European Union minimums for the cleanest lorries are the factors that have determined our decision.

Mr James Clappison (Hertsmere, Conservative)

On the last point, I must say that the technical side of the 40-tonne lorry is something of a mystery to me, but I took the Government at their word when they said in 1999 that, for some reason, the 40-tonne, five-axle lorry caused especial wear and tear on the roads. I should imagine that, if that were so then, the same applies today. No doubt those who are involved in such matters will want carefully to consider the Financial Secretary's words, but I am not sure that they provide a complete explanation. It appears that the concern that the Government themselves reflected by their differential rate for 40-tonne lorries has been allowed to subside, as the duty will be dramatically reduced.

I invite the Financial Secretary to take on board the comments made by the hon. Member for North-East Derbyshire in a previous debate about the effect of market forces on observation of the law. I do not want to go back over that ground, but when the differential in price is as striking—especially across a land border—as 30p a litre, that creates enormous strain, given the law and order situation in that part of the world. I hope that the Government will reflect on that. If foot and mouth has by coincidence brought about greater law enforcement, that is a good thing, but the underlying situation is serious, as the disappearance of petrol stations and the general state of trade in Northern Ireland attest.

I invite the Financial Secretary to consider that matter, which does not only affect Ireland, where the price difference is striking. United Kingdom firms face competition from foreign firms throughout Europe that pay much cheaper diesel prices. We have the highest prices by a mile, and whatever relief and mitigation the measure will give is only a fraction of the price difference under which United Kingdom firms must labour when competing with foreign firms. Across the channel, the pump price of diesel is 27p a litre cheaper. If companies go further afield, they can find even cheaper rates. Our diesel rate is by a long way the highest in Europe and has the greatest tax and duty component. It is because of that tax and duty that United Kingdom firms are in such a difficult competitive position. As we have made clear, we will continue closely to monitor the effects on the United Kingdom haulage industry of that desperate competitive position.

Question put and agreed to.

Clause 9 ordered to stand part of the Bill.

Schedule 2 agreed to.

Clauses 10 to 12 ordered to stand part of the Bill.