Clause 8

Finance (No. 2) Bill – in a Public Bill Committee at 6:30 pm on 9 May 2006.

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Road vehicles

Question proposed, That the clause stand part ofthe Bill.

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

The Hydrocarbon Oil Duties Act 1979 requires road vehicles to use fuel on which the full rate of duty is charged. However, schedule 1 to the Act describes excepted vehicles, which are entitled to run on rebated gas oil, popularly known as red diesel. This clause will introduce a power to enable Her Majesty’s Treasury to amend schedule 1 by statutory instrument.

The schedule for excepted vehicles was first introduced in 1935. It has failed since then to keep pace with changes in technology and commercial practice. As far as we can tell, the last serious review of that policy took place in the 1960s. Vehicle technology and design continue to evolve, creating new types of vehicles that were simply not envisaged when the framework for schedule 1 and the excepted vehicle status were first drawn up. For that reason, vehicle owners, enforcement agencies, tribunals and the High Court have interpreted the schedule on a case-by-case basis, which has resulted in some inconsistency of approach. Consequently, it has become increasingly unclear why some types of vehicle should benefit from excepted vehicle status and others should not.

In December 2004, the Government issued a consultation document on changes to the excepted vehicles schedule. A summary of responses to that consultation was published in December 2005 alongside proposals for changing the schedule against a set of principles for establishing greater clarity and consistency.

The reasons for the powers in clause 8 to amend the schedule by Treasury order are threefold. First, they will make it easier to keep the schedule up to date so that we do not stifle developments in new engine design and technology. Secondly, they will enable the Government to respond more quickly when loopholes are identified to ensure the degree of consistency and fairness that we seek in the system. Thirdly, they will give the industry the opportunity to contribute fully to ensuring that changes in definitions fit their industry and do not have unintended regulatory consequences and impacts.

Industry associations with particular interests inthe matter have welcomed our approach almost unanimously. The Agricultural Engineers Association commented that it considers it a practical solution.The International Powered Access Federation, the Construction Plant-hire Association and others have also backed our approach. We have published in draft the Treasury order to amend the schedule, together  with a partial regulatory impact assessment. Those have been circulated to Committee members and to associations and groups representing interests in the field.

In the long run, this valuable relief can remain viable only if it has clear rules based on consistent principles. The changes we have announced are aimed at restoring clarity and consistency to the schedule, and the power to add, amend or delete categories by Treasury order set out in clause 8 will ensure that the schedule continues to provide that clarity and consistency and continues to keep pace with modern developments.

Photo of Helen Goodman Helen Goodman Labour, Bishop Auckland 6:45, 9 May 2006

As the Financial Secretary has just intimated, this is an important clause because it introduces a new power for the Treasury to amend the list of vehicles permitted to use red diesel. Those are clearly considerable powers so this debate is rather like the one we had on the provisions in clause 2 that gave the Treasury similarly considerable powers.

At that time, I asked the Minister about consultation because I wanted to be sure that it had occurred. He has just said that a consultation document has already been published and that groups with which the Treasury has held consultations are satisfied. That is important because it is quite a wide-ranging power and we shall not have the opportunity to add to or subtract from the list in primary legislation. None the less, we shall not oppose the clause, but I have a question for the Financial Secretary.

This morning, he sent round a draft of the statutory instrument in question, which is quite detailed, and it defines agricultural tractors, agricultural machine handlers, mobile cranes and road resurfacing vehicles. It will clearly be an important statutory instrument. In the letter to my hon. Friend the Member for Chipping Barnet (Mrs. Villiers) that accompanied it, the Financial Secretary said that he enclosed a partial regulatory impact assessment for the Committee. We would like to know when the regulatory impact assessment will be complete and when others will be able to see it.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

I have a brief question based on the draft regulations to which the hon. Gentleman referred. Why are road surfacing vehicles included? It seems to me that most roads built in the UK are built directly or indirectly at the behest of the Government and financed by them. It appears cursorily that there is a swings and roundabouts effect in this case. Either those vehicles are not exempt, and therefore the cost of building the road is higher because they have to pay more for fuel, or they are exempt, and the costs of building roads are somewhat lower.

In the first case, of course, the Government will be getting the money back through taxation because of higher fuel prices. However, that removes an incentive for operators and constructors of road surfacing vehicles to make them more fuel efficient because they get to run them on cheaper fuel. It may appear to be a matter of swings and roundabouts in the context of total Government expenditure, but whether it comes through a lower bid price for a road with lower fuel  costs or a higher bid price with higher costs, environmentally it is not a good idea to lessen the incentive for those building and operating road surfacing vehicles by allowing them to pay red diesel prices rather than full prices.

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury

We welcome the proposals in principle as a way of overcoming abuse with regard to exempted vehicles and as a way of keeping up with the change in build, specification and technology of vehicles without referring back to primary legislation. They are also a way of overcoming adverse tribunal rulings that have highlighted the lack of clarity and ambiguity that exists in the current legislation.

Although I welcome the consultation that has taken place and I thank the Financial Secretary for the draft regulations, I am afraid that I did not receive the updated partial regulatory impact assessment and I wonder whether that is because it was not enclosed in the letter that I had, or because it went astray more widely. On that basis, I would like to ask the Minister how much of the annual fraud of £0.5 billion a year will be overcome by the changes, and will any additional resources be committed to enforcement measures to ensure that the level of fraud is reduced?

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

I merely have a brief question for the Financial Secretary. I notice that clause 8 is entitled “Road vehicles”, but my question is about the application of red diesel in respect of canal boats. The issue is of particular concern in my constituency because a major canal runs through it. Constituents have contacted me about the ongoing issue of red diesel, which I believe will no longer be available for canal boats. I seek further clarification, because there is nothing in the draft statutory instrument to which he referred in respect of that matter. It might be that as far as pleasure boats are concerned it is dealt with in a different regime, but I would be grateful for further clarification.

Photo of Stewart Hosie Stewart Hosie Shadow Spokesperson (Women), Shadow Spokesperson (Home Affairs), Shadow Spokesperson (Treasury)

I welcome the clause, not least, as the Financial Secretary said, because it will allow the Treasury to keep up to date, identify and close loopholes and allow the industry to engage to avoid unintended consequences. As I said, it might provide a mechanism to provide relief to certain other sectors and geographic areas. I am sure that that will be examined in the months and years ahead.

Like the hon. Member for Falmouth and Camborne, I think my partial regulatory impact assessment was put in a different envelope that has gone walkies. I would like to read it.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

Like the hon. Member for South-West Hertfordshire, who alluded to pleasure boats, I have received representations from a wider series of people who use red diesel in fishing boats and in boats where training is undertaken on one part and pleasure on another. Some activities qualify for red diesel and some do not and there are difficulties in trying to swap between the two. I am not sure whether certain things happened as part of that consultation exercise. Certainly pleasure craft, fishing boats and the marine industry as a whole have not been mentioned in the  statutory instrument. Are the Government still considering that matter or have they reached a decision?

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

In considering clause 8, I wanted briefly to reflect the concern of the road hauliers in my constituency. The issue is about a level playing field. The Freight Transport Association’s chief economist, Simon Chapman, said:

“Whether it is the cost of the diesel itself or the duty, every lp per litre on the price of diesel adds £140 million to industry’s overall operating costs. The Chancellor already takes £4.2 billion per year in diesel duty and lorry VED from heavy goods vehicles out of a total of £43.5 billion from all road users.”

Duty on diesel in the UK is 47p a litre, which contrasts with a European average of just 22p a litre.

Photo of Edward O'Hara Edward O'Hara Labour, Knowsley South

Order. I think that the hon. Gentleman is discussing the wrong clause. Clause 8 is about excepted vehicles.

Photo of Edward O'Hara Edward O'Hara Labour, Knowsley South

Order. If the hon. Gentleman would square the circle, I should be very pleased.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I am attempting to do so. Substantial problems are generated for the domestic industry, which is in competition against foreign vehicles that are working in the UK using cheap European fuel. About one in eight of the heaviest vehicles on UK roads now comes from overseas. The level playing field—

Photo of Edward O'Hara Edward O'Hara Labour, Knowsley South

Order. The hon. Gentleman is out of order. Clause 8 is about excepted vehicles.

Photo of Brooks Newmark Brooks Newmark Conservative, Braintree

I accept the Chairman’s charter.

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

I am glad that we have had the opportunity to hear several contributions to this debate, because the provision is important. The excepted vehicles schedule and scheme is important.

I am grateful for the welcome that the hon. Member for Falmouth and Camborne gave to the clause. The partial RIA will be posted shortly on the HMRC website. I will make sure that members of the Committee receive a copy and that it is available in the Vote Office for other hon. Members to consult. The full regulatory impact assessment, about which the hon. Member for Wycombe asked me, is a draft order out for consultation in order to help us finalise the provision. It will be published alongside the instrument, in the summer.

I shall tackle the question of my hon. Friend the Member for Wolverhampton, South-West by referring back to the purpose of the clause, which is to reintroduce a clearer set of principles to underpin the eligibility set out in the schedule. Whether or not different categories of vehicle qualify for excepted vehicle status would be made clearer and more consistent.

The principle derives from the fact that the duty on oil raises funds for the Government. We spend that revenue in various ways, including the upkeep of the road network. It has long been accepted, and was behind the original introduction of the scheme, that vehicles used in areas, such as agriculture and construction, that make only incidental use of public roads that are maintained in that way, should not make the same contribution to the upkeep of that road infrastructure. For that reason, categories of vehicle that only incidentally use the main road network are classified as executive vehicles and therefore eligible to use red diesel at the heavily discounted duty rate in comparison with main road fuels.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

My hon. Friend said that the regime has been amended and tweaked, to use my words, since it was introduced in 1935 when, I would venture to say, environmental concerns about emissions from vehicles were not high on the agenda of any Government or individual. By road surfacing vehicles continuing to use red, rather than full price, diesel, an incentive is removed that ought to be there for operators of those vehicles to buy road lane vehicles that are more fuel efficient. It is precisely because it goes back to 1935 that the provision is a historic hangover that the Government ought to address.

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

Once we start considering the environmental consequences of such matters, red diesel is a lot less clean than main road diesel. The types of vehicles involved in various facets of road construction need to be treated in the way that we propose under the schedule. Some are quite heavy users of the road fuel network, which is why some, according to our proposals, will not be eligible in the way that they have been in the past.

The principal case, which I have attempted to explain to the Committee, is the answer to the question of the hon. Member for Braintree. No one can say that road hauliers are anything other than heavy road users. There is no case and they have never been excepted road vehicles under the terms of schedule 1. Therefore, there is no case for their being treated as such even though they may wish to make other parallel arguments about the levels of fuel duty and the costs that they impose as part of their operations.

Finally, turning to the rather extraneous question that the hon. Members for South-West Hertfordshire and for South-East Cornwall (Mr. Breed) asked me, canal boats come under a separate regime. They are not excepted vehicles. However, they have a right to use red diesel rather than main road diesel paid at that rate. The reason is that the UK has a derogation from the energy products directive in the European Union. It allows private boat owners to continue to use red diesel—a derogation that is due to expire at the end of December of this year.

Following a long process of detailed discussion with many boating associations, and following detailed analysis within HMRC, we announced in the Budget that we believe that there is a strong case for arguing with the European Commission that we should havean extension of that derogation. The UK has the  opportunity to submit an application for that extension. We confirmed in the Budget that it is our intention to do just that. Alongside the Budget, we published our first regulatory impact assessment, which we built in consultation with the boating associations. That sets out our case quite strongly. We will apply in that way for the UK’s derogation, which would allow private boat owners in the UK to continue to use red diesel, and which would mean that we did not incur the cost and the consequences that an ending of the permission would entail.

The hon. Member for South-East Cornwall talked about fishermen in his constituency. Just to be clear, commercial boats are not subject to the derogation. Commercial boat owners and users can use rebated gas oil or red diesel anyway, without the provision of that derogation, so they will not be affected by the European Commission’s ultimate decision on whether  we will be entitled to extend the derogation that applies to private boat owners. I hope that that is helpful to the hon. Gentleman, and generally to Members who raised points about the clause. Given the hour, I hope that members of the Committee will allow clause 8 to stand part of the Bill.

Photo of Edward O'Hara Edward O'Hara Labour, Knowsley South 7:00, 9 May 2006

I allowed the debate to run on past7 o’clock because I could see that it was coming to a conclusion.

Question put and agreed to.

Clause 8 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. Heppell.]

Adjourned accordingly at two minutes pastSeven o’clock till Thursday 11 May at five minutes past Nine o’clock.