Clause 8 - Definition of ''fuel oil''

Finance Bill – in a Public Bill Committee at 10:45 am on 6th May 2004.

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

Photo of Andrew Tyrie Andrew Tyrie Shadow Financial Secretary

The clause is a relatively minor anti-avoidance measure and should not detain the Committee for too long. The measure is designed to capture in tax the atmospheric residue that is left after the refining process. As far as I know, only one product will be affected by the measure: PULSAR, which is being sold by a relatively small number of companies. The Economic Secretary will be able to confirm whether that is the case—I think that I have already had that confirmation.

I have only one question of substance: are there any other perceived abuses—that is clearly what the Government consider is going on in this instance—which the Government intend to bring into the duty charge under the proposed statutory instrument? The clause falls into a category in which a relatively general anti-avoidance measure is introduced to cover a very specific issue. As my hon. Friend the Member for Arundel and South Downs said much earlier, he deprecates clauses that can have more general effects. I would like clarification from the Economic Secretary.

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

The clause enables the Treasury to amend the fiscal definition of fuel oil by statutory instrument. The Government intend to use the measure to extend the scope of the duty on fuel oil to encompass a class of hydrocarbon oils known as atmospheric residue. I confirm that its principal effect will be on PULSAR.

In taking this step, we are following the principle of internalising environmental costs into prices, or, in other words, making the polluter pay. From 1 September 2004, duty on fuel oil, which is a high-sulphur fuel used in electricity generation and in industry, increases to 6.24p a litre, but there is a loophole in the current fiscal definition that allows fuels classed as atmospheric residue to escape duty altogether. Since atmospheric residue is in direct competition with conventional fuel oils, there is a clear distortion of the marketplace as well as a resulting loss in revenue to the Exchequer. Before we use the power to remove that anomaly, we must ensure that the revised definition of fuel oil is robust, clear and does not result in any unnecessary regulatory burdens.

I can confirm to the Committee that Customs officials will be speaking to the industry during the coming months to find the best solution. The process will require consultation with the industry, drafting of regulations and formal consideration in Parliament. Therefore now is not the time to examine the drafting

of regulations, but I can confirm to the hon. Member for Chichester that our intention is to deal with this single fuel. The provision will allow us to do so with other fuels in the future because we want to have the capacity to respond to new fuels as they are developed and come on to the market. We have no other products in mind at present.

If we conclude that a duty differential for lower sulphur fuel is justifiable as a result of further discussions with the industry, we shall use the power under the clause to amend the definition to coincide with the introduction of a differential. I anticipate that the time scale will take us into the autumn. We shall conduct the consultation with industry with all possible speed and minimum delay. On that basis, I commend the clause to the Committee.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.