Clause 5 — Rebates on Hydrocarbon Oil Duties

Finance Bill – in the House of Commons at 4:30 pm on 13th May 2003.

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Question proposed, That the clause stand part of the Bill.

Photo of Stephen O'Brien Stephen O'Brien Shadow Paymaster General

Naturally, we are disappointed that the Government did not accept amendment No. 4. However, now that we are debating clause 5, which deals with rebates on hydrocarbon fuels, I wish to flag up a point made by the Federation of British Historic Vehicle Clubs. I am sure that a number of Members are interested in motor vehicles, and I should declare an interest as vice-chairman of the all-party group on classic cars and vehicles, as well as the proud owner of a defunct and yet to be restored 1954 Ford Popular. I am also on the hunt for a 1952 Austin K9 ex-Desert Rats signals lorry. Both those vehicles run on leaded petrol—[Interruption.] The Chief Secretary to the Treasury has prompted me to explain that I want an Austin K9 because I want to revive the memory of travelling across the Sahara and back in one in 1979, and relive my adventures.

The Federation of British Historic Vehicle Clubs has been in contact with the Economic Secretary, and I wish to flag up its concerns. We all accept the genuine importance to our country's culture of preserving our classic car heritage, and acknowledge the dedication of car owners and members of historic car clubs. Now that the car is well over 100 years old, it is an accepted part of our history. Two years ago, during the debate on the 2001 Budget, the Chancellor said that he was reducing the duty payable on road fuels by 2p a litre if they met low-sulphur criteria, but the resulting legislation excluded from that benefit the small amount of leaded petrol that continues to be sold in this country. Under EU legislation, up to 0.5 per cent of petrol sold may be leaded. In the UK, leaded petrol is taxed at a significantly higher rate than unleaded because of its lead content, so it is unreasonable that the reduction in duty does not apply to it. The president and executive of the Federation of British Historic Vehicle Clubs represent a large membership and, we believe, on the basis of somewhat dated figures, a historic movement worth a staggering £1.6 billion per annum in this country, employing in excess of 25,000 people. I can vouch for the large numbers in my constituency and in the neighbouring constituency of North Shropshire who are engaged in historic vehicle preservation and use.

Having had a meeting with the Treasury and Customs and Excise, representatives of the clubs were given great encouragement that their arguments had been understood and accepted. There may also have been an exchange of letters, but those have not been put in the public domain, as far as I am aware. Nevertheless, that is the fount of the confidence that has been represented to me.

The Government's position is that they do not wish to encourage the use of leaded petrol. The duty differential with other fuels is already significant. Speaking from my own experience, I know that older vehicles are very unhappy on anything but leaded fuel, and as testament to my inadequate mechanical practices, are very unhappy generally. With leaded petrol, at least I give my vehicle a slightly greater chance of being able to perform as it should than if it had to use unleaded. The conversion of such vehicle engines is problematic. Many of them are extremely sensitive, having run many miles in the past, and contain metals, especially valve systems, which are easily corroded by the additives necessary to produce unleaded fuel. Anybody who has a side-valve engine knows the difficulty of grinding a side valve. With eight of them for four cylinders, that becomes extremely tedious.

Apart from wishing for an easier life for those with side-valve engines, I support the representations that have come my way and argue that the duty differential with other fuels is already more than sufficient. The pump price is so great that no one would use leaded fuel unless they had to.

A further argument against the initiative is that the benefits of low sulphur without the use of modern technology—that is, catalytic converters—are minimal. The historic car clubs dispute that. They say that even if it is true, it is irrelevant, as the tax was reduced on leaded replacement petrol, which was developed specifically for older vehicles without modern technology. Perhaps it was not earlier understood that leaded petrol would automatically become low sulphur when that became the only base fuel available.

I do not intend to press the matter to a vote, but I raise it in order to give the Minister an opportunity to tell us whether any progress has been made on an issue that affects many people and the hobby that they all enjoy. If the hon. Gentleman wants to take the matter further, we will have an opportunity to consider it again on Report.

Photo of John Healey John Healey The Economic Secretary to the Treasury 4:45 pm, 13th May 2003

I shall respond briefly to the hon. Gentleman's point, and then address clause stand part. We carefully considered the representations on the matter before Budget 2003 and decided against the duty treatment that the hon. Gentleman advocates because we believe that it would send out the wrong environmental signals if we cut the duty on a fuel that was considered to be harmful. I remind him that with respect to historic vehicles, there is a vehicle excise duty exemption for cars registered before 1973.

Clause 5 increases the effective rates of duty on oils other than the main oils used as road fuels by 1p per litre above inflation. These increases apply to red diesel—that is, diesel that has been marked to show that it must not be used in road vehicles—and to fuel oil and light oil used as furnace oil. The increase came into effect from 6 pm on Budget day.

The policy rationale for the clause is that rebated fuels typically have much higher sulphur levels than the main road fuels. Their use continues to contribute to particulate emissions.

Photo of George Osborne George Osborne Opposition Whip (Commons)

Will the Minister tell us how much such fuels contribute to particulate emissions?

Photo of John Healey John Healey The Economic Secretary to the Treasury

The hon. Gentleman is sharp in mind and sharp to get to his feet. I was about to explain that red diesel has a permitted sulphur content of 2,000 parts per million, as opposed to 50 parts per million in the main road fuels. Most of the red diesel in UK vehicles has a sulphur content of about 1,300 parts per million—26 times the permitted level for the main road fuels. That gives him a measure of the differential.

Duty represents only a small percentage of the price of rebated fuels as compared with road fuel. The deferred increase envisaged for ordinary motorists will be greater with revalorisation than the total paid by users for rebated fuels. The duty on such fuels continues to be more than 40p a litre below that paid by ordinary motorists in respect of main road fuels. As my right hon. Friend the Chancellor announced in his Budget statement, in addition to the increase and as part of our continuing commitment to improving local air quality, the Government will consult in the summer to establish whether preferential duty rates for rebated oils with a low sulphur content would offer worthwhile environmental benefits.

Finally, kerosene, a low-sulphur oil that is used mainly for domestic heating, will continue to enjoy exemption from duty.

I commend the clause to the Committee.

Question put and agreed to.

Clause 5 ordered to stand part of the Bill.