Clause 275 - Supplies to producers of commodities

Finance Bill – in a Public Bill Committee at 2:30 pm on 22nd June 2004.

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

Photo of Andrew Tyrie Andrew Tyrie Shadow Paymaster General

The clause is seemingly innocuous and inoffensive. Its purpose, which is to avoid the double taxation on certain fuels that is a consequence of the introduction of the climate change levy, is certainly sensible. However, a few points must be made about it.

The reason that we need the clause is the ever-increasing complexity of the levy itself. Many argue that it was designed the wrong way round. If its purpose really is environmental, the means of achieving the objective would be to put a tax on carbon-rich energy sources and to tax the producers of energy according to the pollution that they produce. It would also be worth examining the use of the tax system to affect the production of so-called greenhouse gases. However, because the Government did not do that, they now find themselves in a mess and introducing clauses such as this one.

The Government avoided introducing certain taxes because they did not want to hit domestic customers, so they went for a tax on firms. I believe that they were ultimately interested in revenue raising, despite their protestations of revenue-neutrality. The tax was designed back to front, which is why we have complexity.

Edward Troup, the head of business tax policy at Customs and Inland Revenue—the new joint department—has advised Governments of both political persuasions. He recently said something that has a bearing on this clause:

''Once the Government started down this particular road''—

the climate change levy road—

''from the wrong end of town, the complexities, dead ends and diversions it would find itself in were inevitable.''

Clause 275 is one of those complexities.

The Engineering Employers Federation made a similar point. It said:

''we have highlighted numerous anomalies and market distortions arising from the current design of the climate change levy and presented survey evidence on the impact''.

It is also worried about the issue. In previous years, we had lengthy debates about the climate change levy in Committee and on the Floor of the House. I do not think that the broader issues need to be reopened. The only point that needs and should be made at this juncture is that this complexity is an attempt to iron out the anomaly that is directly caused by the design of the tax. It is almost certainly not having the effects that were intended, or at least announced as the intention, when the Government introduced the tax.

I suspect that we will find, as time goes by, that the philosophy of the tax is askew, and sooner or later we will need a fundamental rethink. In the meantime, we will have to make do with letting clauses such as this through to try to mop up some of the more egregious difficulties, anomalies and complexities.

Photo of John Healey John Healey The Economic Secretary to the Treasury 2:45 pm, 22nd June 2004

This is indeed a narrow clause and I will not be tempted towards the broader territory through which the hon. Member for Chichester (Mr. Tyrie) roamed, except to say that, since its introduction in 2001, the climate change levy and the associated climate change agreements are starting to have a proven beneficial effect on the level of emissions and the UK's contribution to the global challenge that, we must recognise, is so serious—that of global warming.

On clause 275, it is in the nature of an energy tax that, where taxable energy supplies are used to make other taxable energy supplies, the initial supply should be exempted to avoid the problem of double taxation, as the hon. Gentleman said. The climate change levy has had such exemptions in its legislation ever since its introduction in 2001.

However, technological advances mean that there are new energy products on the market, such as biodiesel and bioethanol, which are produced from renewable material such as rapeseed, waste vegetable oil, tallow and, in the case of bioethanol, sugar and wheat. CCL legislation needs to be updated to take account of such products, to ensure that they are not subject to the problem of double taxation in the levy.

The clause will provide that cover. It will also provide that any necessary changes to the scope of the exemption be made by statutory instrument. That will allow us to incorporate supplies that are used to create further new fuels in the exemption without having to wait for the annual Finance Bill. This modest measure is welcomed by environmental groups and by the industry. It will also be a useful source of encouragement for the use of new, more environmentally friendly fuels in the future. I commend the clause to the Committee.

Question put and agreed to.

Clause 275 ordered to stand part of the Bill.

Clause 276 ordered to stand part of the Bill.