Clause 172
Finance (No. 2) Bill
12:45 pm

George Young (North West Hampshire, Conservative)

It is a pleasure to see you in the Chair, Sir John. Thismay be my last contribution to this Finance Bill. It is 10 years since I last participated in a Finance Bill Committee, and I think it will be 10 years before I do another.

The clause changes the rate of the climate change levy, and I have no difficulty with the principle behind it. I should like clarification on two issues. As the explanatory note says, the rates are being increased to maintain their real value and environmental effect. In page 14 of the Red Book for the 2006 Budget, one sees:

“Climate change levy: revalorise from 1 April 2007...—20 —20 —20”.

Will the Minister explain why increasing the levy produces that negative effect? Perhaps it is because it is reinvested somewhere else and given back to industry, but it would be helpful to have an explanation.

My other point is about the relationship between the climate change levy and the cost of electricity. I want to find out whether there is a parallel between the treatment of the climate change levy and that of the duty on petrol. When the Government have reviewed the duty on petrol, they have looked at the market price of petrol. When that has escalated, they have taken the opportunity to defer the increase on the grounds that they want to use the price mechanism to promote efficiency. If the market price has gone up, that has an impact on the imperative to increase the petrol duty.

The same argument could apply to the climate change levy. If the market price of electricity is going up—and it is—does that impact on the Government’s policy on the climate change levy? In other words, is there a direct read-across between their policy on the petrol duty and that on the climate change levy, or is the climate change levy in a little box on its own, to be driven up irrespective of what happens to the market price of electricity? It would be helpful if the Minister shed a bit of light on that issue.

Paul Goodman (Shadow Minister (Childcare), Treasury; Wycombe, Conservative)

I have only one further question on the climate change levy. It is in the same territory as the question just asked by my right hon. Friend. Commenting on the change proposed in the Budget, the National Farmers Union said that

“it is not clear from the Budget documentation how the additional revenues from the increase in levy rates will be returned.”

I presume that they will be returned in the same manner as always, but I should like the Financial Secretary to cast a bit of light on that question.

John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)

As a current Treasury Minister, I say to the right hon. Member for North-West Hampshire (Sir George Young) that we measure our contributions on a year-to-year basis in Finance Bills; I am interested that he does so on a decade-to-decade basis. I look forward to the Finance Bill in 10 years’ time, when he makes a return appearance.

The right hon. Gentleman asked me two specific questions. The scoring in the Red Book is essentially the impact on the scorecard of revenues looked at from this current financial year onwards. Clearly, because we are delaying the revalorisation and not increasing by the rate of inflation this year, there is a hit to the public finances of about minus £20 million, which is what is scored.

On the question of the comparability—or the alignment of the decisions that we have taken on fuel duty—the right hon. Gentleman will remember from his period of serving in the Treasury that with any tax the specific decisions that the Chancellor takes on rates are taken as a result of a combination of factors. However, they are also taken in relation to the purpose of the particular tax itself.

The right hon. Gentlemen may remember that historically the principal purpose of fuel duty for Governments of all parties has been to make a significant contribution to the overall public finances. It has also played a part in dealing with the challenge of climate change. Historically, for several decades, the levels of fuel duty in the UK have been comparably and relatively high. If he examines the decisions that we have taken on fuel duty over the past six years, he will see that they have been made bearing in mind the imperative to raise revenue for public services, the concern about climate change and the costs and pressures on consumers and on road fuel-using industry.

The fact that we have consistently frozen fuel duty, although we raised it in line with inflation in 2003, means that cumulatively, in the face of rising world oil prices and pump prices, the relative take in tax of fuel duty has decreased. Since 2000, there has been a real reduction in the value of fuel duty of 8p per litre, which is of benefit to the motorist and the haulier. In addition, to a significant degree it offsets the price pressure, which is driven by world oil prices and reflected at the pumps. That is the balance of factors that the Chancellor took into account in making his decisions on fuel duty this year and in previous years.

I think the right hon. Gentleman will remember that when we announced the climate change levy back in 1999 we made it clear that our expectation was that when it was properly established it would be revalorised; it would be raised annually in line with inflation. That would be done to maintain its real value and, specifically, to maintain its incentive effect—that is its principal purpose, unlike fuel duty—to encourage business to invest in and do more on energy efficiency and make the gains that are possible.

Having seen a period of bedding in of the new levy since its introduction, the Chancellor’s decision and judgment is that now is the time to seek to revalorise the climate change levy. Given the pressure on fuel costs and energy prices, it is important both to signal that intention so that businesses can recognise that that is coming and take any steps that they might wish to improve their own business efficiency, and to delay changes until 1 April 2007. That is what the clause does.

In other words, the rates under clause 172 are being increased to ensure that the levy continues to have the beneficial effect that we intended—its principal purpose—of trying to encourage business to reduce its  energy usage and increase its energy efficiency. On that basis, I hope that all Committee members will give backing to the clause and in doing so give backing to the climate change levy and the essential contribution that it makes to the UK’s necessary set of measures to tackle climate change.