Clause 14
Finance Bill
1:15 pm
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
Sir Nicholas, I welcome you to the Chair this afternoon. I shall begin my brief remarks on clause 14 and schedule 6 on a note of consensus. I, too, agree with the Exchequer Secretary that it is a pity that the weather is so gloomy on the first day of the Test series, although I recall that the weather in the fine county of Cheshire yesterday was glorious.
Clause 14 and schedule 6 relate to the taxation of aviation gasoline, of the fuel used for private pleasure flying and of the fuel used in private pleasure craft. There are two areas that I would like to ask the Minister about. First, we recognise that the Government’s hand has been forced in the case of private pleasure flying, by the fact that various derogations held with the EU have not been extended. The Government, particularly with red diesel for private pleasure craft, sought to extend that derogation, and it is regrettable that that has not been achieved.
The Government have adopted a free-standing duty rate for avgas, which appears to be widely welcomed by the industry. The rate is 31.03p per litre and I would be grateful to know if that was the minimum level allowed under EU rules. I know also that representations were made that there should be exemptions, for flying emergency vehicles, for example, and that the Government’s position is somewhat restricted. In particular, will air ambulances pay the duty? Will vintage aircraft be exempt? There are still aircraft from the second world war flying. Will flight training be exempt? I would be grateful to know the Government’s position on those.
The Government are consulting on aviation duty. The proposals set out in schedule 6 and clause 14 will come into effect on 1 November this year, but new aviation duty may come into effect on 1 November 2009. Therefore, is it likely that we will revisit this area next year and that what we put in place now will only last for 12 months and then we will have a new regime?
I now turn to the issue of red diesel for private pleasure craft. I declare an interest in that the Grand Union canal runs through my constituency. This Saturday, I will be opening the Rickmansworth canal festival, an event that I can recommend to anyone who would like a fun day out. [Interruption.] Alternatively, one could watch the test match, but I will certainly be at the Rickmansworth canal festival.
Clearly, red diesel has been a concern for boaters, whether inland or otherwise. The Government’s original proposals suggested that private pleasure craft would be required to fit additional fuel tanks, but that is no longer the case. Although it is regrettable that the derogation was not extended, the Government have, in all fairness, taken quite a reasonable approach. If they had pursued their original proposals, one implication would have been that craft would have to have had two fuel tanks fitted. There was certainly an issue about whether operators would want to provide two sorts of fuel in more remote areas, with the result that private pleasure craft would not be able to visit such areas. The alternative approach is therefore welcome, but I would like to ask some questions about it.
Under the current approach, boat users must self-certify that they are non-commercial and they must distinguish between fuel for propulsion and fuel for heating, lighting and so on. On propulsion, the estimate in the Treasury’s impact assessment is that the price of gas oil could more than double. I would be grateful to know whether the Government still agree with that assessment, given the changes that we have seen in fuel prices in recent months.
I would be grateful for clarification of the distinction between propulsion and domestic use—heating, lighting and so on. Will that be made purely on the basis of self-certification, or will a standard percentage be used, as has been suggested?
I would also be grateful for confirmation that the European Commission has accepted the proposals and that the proposed route forward will not cause further difficulties. Similarly, will there be any difficulties with other member states not recognising the continued use of red diesel? That concern was raised in the consultation.
Her Majesty’s Revenue and Customs has made no estimate of the cost of increased enforcement. Given that we will rely heavily on self-certification, will there not be a need to enforce the arrangements and perhaps do spot checks? I would be grateful to know the Government’s position on that.
Finally, I want to raise a point that struck me as I read the impact assessment. The Exchequer will raise between £10 million and £15 million a year, depending on the balance between propulsion and domestic use, and I understand why there would be that range of uncertainty. However, there are also figures for the reduction in fuel used for propulsion for the purposes of calculating the carbon reduction. The figures range from 10 to 30 per cent., with the central forecast therefore being 20 per cent. In evaluating the carbon reduction, the Government appear, entirely reasonably, to be making a dynamic assessment—that if they put up the duty, less fuel will be used, with the central projection being a 20 per cent. reduction.
Have the Government undertaken the same assessment in calculating the Exchequer costs and therefore assumed a 20 per cent. reduction in use as a consequence of their proposals? If they have, that is entirely reasonable, although there is evidence of a dynamic effect. If they have not, why not, given that they have taken account of a dynamic effect in relation to the same tax in a different context? If the Treasury does take account of the dynamic effect on this tax, does it do so on other issues? I would be grateful if the Exchequer Secretary could answer those questions.