Clause 5 - Acquisition of information etc.
Finance Bill
5:15 pm
Mr Michael Jack (Fylde, Conservative)
This is an interesting clause. Lest anybody think that a conflict of interest arises here, I remind the Committee that I am chairman of an agricultural consultancy.
Biodiesel is an interesting agricultural development, and I welcome the Government's decision to give it concessionary treatment in relation to hydrocarbon oil duties. However, I want to take a moment or two to explore with the Financial Secretary the Government's thinking behind the revised level of duty.
A little while ago, I received some correspondence from Cargill plc, not only outlining the potential for biodiesel in the United Kingdom, but making some important points about the factors that would affect the company's investment decisions in this area. I say that against the background of a European directive that sets targets for member states' use of biodiesel. Interestingly, I learned from the university of Aberdeen's helpful environmental information note, published on 13 September 1999, that in Germany
''Sales of bio-diesel, a renewable fuel from oilseed rape, increased to 100,000 tonnes in 1998. 800 German petrol stations now sell that
green fuel. Sales have doubled since 1996 when motorists purchased 50,000 tonnes, available from 500 outlets.''
Biodiesel comprises 1 per cent. of German diesel sales.
I gave that example because in Germany biodiesel is not subject to duty, so there is an outright price advantage for that environmentally friendly form of diesel. The same note states that, in addition to the benefits of diesel in terms of carbon dioxide production and its contribution to reducing greenhouse gases, biodiesel produces sulphur-free emissions, which is a better performance than conventional fuel. There is every reason for the Government to encourage in clause 5 further production of biodiesel, but the success—albeit out of date—described in that note, reveals that a more advantageous tax regime than that proposed by the Government had a remarkable effect in encouraging the use of biodiesel in Germany, certainly for road transport use.
Let us examine the position in the United Kingdom. Cargill advocates that in agricultural terms it would be a good idea to do better than at present because we have a surplus of wheat production. That surplus is lower grade wheat, which is often exported and requires export restitutions, costing this country money. As a result and because of the changes in agriculture, a high of some 543,000 hectares of oilseed rape—the source of the raw material for biodiesel—in the 1998–99 planting season has fallen to 395,000 hectares in the last full year for which I have figures. Cargill argues that the agricultural potential is clear and that the amount of oilseed rape grown could be increased substantially to satisfy demand for biodiesel by using some of the land that is currently used for surplus production of wheat to the 1998–99 level of harvested oilseed rape. Cargill states:
''With this scenario in mind, and given a domestic food industry oil need of about 500,000 tonnes, there would be approximately 450,000 tonnes of rapeseed oil available for biodiesel. The conversion of that oil to rape methyl ester would provide 450,000 tonnes of biodiesel for road transport fuel, sufficient to make a meaningful difference to greenhouse gas emissions and to air quality.''
That is powerful advocacy for better use of land and environmental benefits, but the economics of the Government's proposals get in the way. In a further letter to me, Cargill acknowledges the Government's concession in hydrocarbon duty in clause 5 and states:
''Whilst we welcome this move, we have constantly stressed that this rate will not be sufficient to encourage companies like Cargill to produce biodiesel in earnest in the UK on a scale that will realise the full environmental and economic potential. In fact''—
this is important—
''this duty rate will only serve to encourage the production of low quality biodiesel generated from recycled vegetable oil.''
That is important because the Government, in the shape of the Prime Minister, recently held a working group meeting at Downing street with Sir Donald Curry, the author of the report of the commission on the future of farming. As the Financial Secretary knows, part of Sir Donald's report put particular
emphasis on innovation in UK agriculture. It laid stress on the development of new crops and new ways of using land. By and large, the Government have welcomed the Curry report. I should have thought that they would want to embrace, with considerable enthusiasm, the opportunity to deflect land producing an unwanted wheat surplus into something that would clearly produce considerable environmental gains and be to the significant advantage of UK agriculture, at a time when grain prices, as the Financial Secretary knows, have reached an all-time low.
Returning to Cargill, its letter says that
''we would prefer duty rates linked to the world price of vegetable oil, but have been informed by HM Treasury that such a formula is too complex. Therefore a further duty rate reduction of 15p, giving an overall rate of 10p per litre, would be sufficient to ensure that a commercially viable biodiesel industry could develop in the UK.''
It concludes with a very important point from a major world player in the field of agri-investment, saying:
''Cargill has a myriad of possible investment opportunities worldwide, and will move our investment elsewhere if we do not receive an indication of the Government's intention to further reduce the duty rate.''
In a way, it is disappointing to have a company that is quite clearly enthusiastic for the development of a biodiesel industry in the UK pointing out that, in its judgment, the concessionary rate referred to in clause 5 is not yet sufficient to encourage the investment in the infrastructure needed to give a boost of the type to which I referred in the context of Germany.
I hope that the Financial Secretary can share with us in some detail the discussion that the Government have no doubt had on this occasion with the industry and the thinking that led them to select the rate of duty that clause 5 invites us to approve. If a company such as Cargill is willing to make an investment but feels that the rates are not yet sufficiently advantageous to encourage it so to do, that has implications not only for its investment but for UK agriculture and the Government's backing of the Curry commission report.