Clause 10

Finance Bill – in a Public Bill Committee at 1:45 pm on 10th May 2007.

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Fuel duty rates and rebates

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

I beg to move amendment No. 1, in clause 10, page 6, line 23, at end insert—

‘(2A) After section 6(1A) there is inserted—

“(1AA) The Treasury may, by order made by statutory instrument, specify lower rates of duty under subsection (1A) in respect of hydrocarbon oil products sold in remote areas.

(1AB) For the purposes of this section ‘remote areas’ shall be defined in regulations made by the Treasury by statutory instrument.

(1AC) Orders or regulations made under this section shall not come into force unless approved by a resolution of the House of Commons.”.’.

I should point out that we are now in the environmental section of part 1 of the Bill, which deals with charges, rates and thresholds. I am reminded of comments that the hon. Member for Wolverhampton, South-West made in the Committee of the whole  House, where he spoke, with regard to environmental measures, about the need for carrots and sticks to try to change behaviour. Since we are dealing with duty rates, the clause is obviously intended to be a stick to encourage changes in behaviour.

Of course, we welcome the changes outlined in the clause, which are proposed to take place in October 2007. Those changes represent indexation, following a freeze of these duties since 2003. What it will mean is that there will be some movement on the take of environmental taxes as a proportion of the total tax take. Therefore, it is an important step in the right direction, and one that we support.

However, what the amendment tries to highlight is the principle that, for some people, even if there is a very big stick they will still not have the opportunity to change their behaviour. The amendment would add a new subsection to clause 10, which would enable the Treasury to specify lower rates of duty on fuel in remote rural areas. It would go on to allow the Treasury to specify what it considers to be remote rural areas by statutory instrument.

The amendment relates to a principle that is allowed by article 19 of the EU energy products directive, which allows member states to apply for a derogation to reduce duty rates in specific areas. That measure was adopted in 2004 by the French Government, with the support of UK Ministers and other EU member states in the Council of Europe; Portugal and Greece have also adopted it. I am sure that this measure will be familiar to some members of the Committee, because it is identical to an amendment tabled by my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) on Report for the Finance Bill last year. It is because we have changes in fuel duty in the Bill this year that it is even more relevant to raise the issue now.

In future clauses, we will deal with greater differential rates for vehicle excise duty, so it is clear that there will be action to encourage people not to use their cars so much. It is very important at this stage that we consider those people in very remote rural areas—I am not talking about ordinary rural areas, but incredibly remote rural areas—who are hit not by a double whammy but a triple whammy. Very often, they have lower incomes than people in other parts of the country. In the highlands, including in the constituency that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey represents, average incomes are 85 per cent. of the national average. Across the whole of Cornwall, they are about 20 per cent. lower.

Therefore, in the first place, people’s incomes in remote rural areas are lower. Also, their costs of travel are higher, because they have further to travel and there is often no public transport at all. On top of all that, they then face higher fuel prices. It is the duty that forms a very large proportion of those prices. In some very, very remote rural areas, we are talking about differentials of 10p to 20p to the litre.

That is the issue that the amendment seeks to raise in order to highlight a principle. We welcome the action that the Government are taking, but do they recognise the impact that it will have in very remote areas? People in such areas have lower incomes, so their fuel costs will represent a much higher proportion of their outgoings. The measure will not only have an impact on the  personal finances of individuals living in those rural areas, but undermine the economic viability of many of those rural communities, because if people travel further away to buy petrol, thereby emitting more carbon, they will probably consume services and buy goods in that community as well, which will mean that their own local community, where fuel prices are higher, is undermined more widely than simply at the petrol pump. Goods that could be purchased in that local economic community will instead be purchased elsewhere. It will be undermined in that way as well.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

I would be grateful if the hon. Lady outlined which parts of the country she thinks would constitute remote areas. I suggest that that might include, say, the highlands of Scotland and the west country. What other factors do those areas have in common?

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

Obviously, the west country is well represented on the Liberal Democrat Benches, but I would intend the amendment’s impact to be very limited, because ultimately we want to support the benefit that other environmental taxes would have. I would expect only a very small number of communities or none at all in my own constituency to be included, because I represent the most densely populated part of Cornwall and it has relatively good transport links. The people in my area will not have to travel as far as others, and the differentials in petrol pump prices are not as great as elsewhere. However, in the highlands and islands of Scotland, where there are differentials of 20p a litre, the measure will clearly make a significant difference.

I say to the hon. Member for South-West Hertfordshire that the intention is to limit the impact of the amendment. It would target only communities and people who have no alternative to the car and for whom, even if public transport were available, it would be less fuel efficient, because there would be a bus driving one person around, rather than one person using their own car.

The point, with which I hope the Minister will sympathise, is that there is a need to recognise the difficulties that very, very rural communities face, and unfortunately there is not recognition of that fact at the moment. As I said, the impact of the amendment is intended to be very limited. Unfortunately, it does not matter how big the stick is, those communities will not be able to respond. All that people in those communities will see is fuel prices taking up a larger and larger part of their disposable income.

It is important, if the Government are to continue with their policy—I hope that they do—that the difficulties faced by those people are recognised. There are existing forms of duty, such as fuel duty and vehicle excise duty. The Government have said that in the long run they would like to move to road user pricing. Again, we would support them in that, because it would be the most efficient way of ensuring that the people least able to change their behaviour were not penalised unfairly, but in the meantime, if we are continuing with changes to fuel duty and vehicle excise duty, I make a plea to the Minister that—

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

The hon. Lady has just suggested a move towards road user pricing—something that her party imposed on Edinburgh. I am quite supportive of that in principle. I say that on the basis that I have moved similar amendments in the past, but at least there was previously the advantage of a VAT offset, so that we could fund such a measure. However, she has said that she intends the impact of the amendment to be very limited. She began by talking about rural and remote. She went on to talk about very, very remote and she ended up talking about very, very rural. The problem may lie in the definition, which I am sure other hon. Members will come to and which we have debated in the past. Can she give us a clear definition as to the number of people, percentage of population and percentage of land mass that she expects to be covered?

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

The key point is that the amendment would enable the Treasury to make that judgment. Indicators are available, but unfortunately they are not consistently available across the whole of the United Kingdom. I do not know why it would be impossible for the Treasury to compile that information.

We know the practical difficulties of rolling out road user charging and that there has to be a long-term policy. We also understand that it cannot be implemented overnight and that is why there are changes to the system in the Bill. We cannot introduce road user charging at this point. On that basis, I do not think there is any inconsistency in saying that it will ultimately prove more efficient, but we must deal with the here and now.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow

In responding to the useful intervention of the hon. Member for Dundee, East, the hon. Lady has illustrated the difficulty of her proposal. There is much sympathy for assisting those in rural areas with the added costs of their daily lives, but her inability to define the area that she describes as remote is palpable. If there are certain geographic areas that benefit from a reduced rate of duty because they are remote, there is a strong possibility that those who live in adjacent areas will merely drive the extra miles to get to the petrol stations offering petrol or other fuels at a cheaper price and drive back again. Therefore, they will contribute to excessive emissions because such journeys would be completely unnecessary were it not for price differentiation.

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

The point that I am trying to make is that, at the moment, we are talking about price differentials of 10p to 20p. We are not necessarily saying that fuel prices at the pumps should be dramatically cheaper in those remote areas. We are saying that they should at least be comparable and that there should not be a significant difference. On that basis, such a system would not alter behaviour.

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

May I just conclude my remarks? The final point that I wish to reiterate is that there is a precedent for this concept across the European Union. The derogation is up and running and has been used in  France, Greece and Portugal. It is not a new or impractical concept that the Treasury must try to get its head around. The key point, for which I hope there will be sympathy in the Committee, is that fuel costs are presently a significant problem for people in very remote areas. If the Government feel that the amendment is not a suitable way to address that problem, I would feel reassured if, at the very least, there was some understanding from the Treasury of the difficulties posed and the affordability problems for people who live in remote areas.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

It is “Groundhog Day” for those members of the Committee who were present at last year’s proceedings. I wish to inform the Financial Secretary that my researchers have found a copy of last year’s debate in Hansard, to which I will refer in a moment. I shall say on what points I agree with the hon. Member for Falmouth and Camborne and then what we disagree about somewhat—in fact, quite a bit. As she reminded the Committee, and this point is perfectly valid, people in remote rural areas often do not have access to public transport in the same way as people in less remote areas— I am not sure if that should be remote rural, rural remote or remote remote. In addition, their circumstances often do not make cycling or even walking practical.

The 2003 national travel survey for England showed that, of half the residents in rural settlements, less than 3,000 live within a 30-minute walk of a bus stop. According to the expenditure and food survey for 2002-03, households in such areas spend £70.60 a week on transport, compared with households in urban areas, which spend £45.50 a week on transport. There is less congestion in such areas, which can lead to some counter-intuitive results. Obviously, a bus in a remote area will be less environmentally friendly than a car if the bus has only a few people in it. The hon. Lady is right to say that people in such areas often need cars more than people in urban settings. Some of those points were made by us, by the Liberals at some length and by others during last year’s equivalent debate. In some respects, the amendment resembles the package that the Liberals tabled and that we debated during the Committee of the whole House on last year’s Finance [No. 2] Bill and on Report. The amendment that they tabled on Report was almost identical to this one: indeed, I cannot see any difference. They also tabled an amendment to raise band G VED rates in general, while reducing all bands for what were then old cars and all bands except band G for what were then new cars.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West 2:00 pm, 10th May 2007

The hon. Gentleman takes us back a bit. His recollection of last year is slightly different from mine, but probably better in parts. I recall that the Liberal Democrat amendments tried to give a definition for remote rural areas, but it was a pretty rubbish definition.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

If the hon. Gentleman checks in Hansard, he will find that different Liberal Members gave different definitions. I have a copy here if he wishes to borrow it to aid his research.

Other hon. Members and I were mildly critical of the Liberal Democrat amendments, because we were not  convinced—it says here—that a single convincing definition of the areas had been offered. Neither am I convinced that we have had one today. In last year’s debate, the hon. Member for Dundee, East, who specialises in this sort of observation, pointed out that one of the definitions would cover 98 per cent. of Scotland’s land mass. In addition, we were not convinced that cars would not be registered in one area and used in another, or that we had a single reliable estimate of the cost to public funds. In summary, we were not convinced that the House should rush either to cut VED or——turning to the amendment, which is the same as last year’s——that a case had been made for the need to put such a power on the statute book before we had a full assessment of the need for it and of the likely financial consequences.

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

The amendment does not seek to define remote areas, so it is difficult to say that we are not providing a consistent definition. It is meant as an enabling amendment that would allow problems to be recognised and then brought back to the House so that we could determine whether the Treasury’s proposals are fair and whether they address what I hope thehon. Gentleman accepts is a real problem in many communities.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I accept that it is a real problem, but I do not think that it is particularly enlightening to have no definition this year, whereas there were rather a lot of definitions last year. That does not take us forward. The enabling provision is premature, and I shall explain why in a moment. Whatever view one took of last year’s proceedings, it is significant that the Liberals’ amendments that called for a cut in band G rates in some areas were not resubmitted to the Committee of the whole House. Perhaps the Liberals were persuaded of the difficulties that we argued were inherent in those amendments, because they have not retabled them. [Interruption.] I am happy to let the hon. Lady intervene.

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

I am grateful. I was just wondering aloud whether, now that the hon. Gentleman and his colleagues have identified those problems, they intend to suggest any potential solutions, because I certainly have not seen any in the Bill.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

I was going to come to that. However, I note that the hon. Lady has not explained why her party did not retable the VED amendments in the Committee of the whole House, despite arguing that they were so very important or why it has not retabled them now.

I agree with the hon. Lady that we need a more detailed Treasury view on all this. Last year, the Liberals correctly pointed out that France has a derogation from the energy products directive that allows it to charge the equivalent of lower fuel duties in remote rural areas, as do Greece and Portugal. However, they did not point out what the Financial Secretary told us: that France was proposing a real increase in other, presumably urban, areas to offset the decrease in remote areas. Neither has the hon. Lady mentioned that today. The amendment would prepare  the ground for a fuel duty decrease in some areas without preparing the ground for an increase in other areas. I am not sure what revenue loss that would entail; perhaps the hon. Lady can tell us. I am not convinced that charging different fuel duty rates in different areas is practicable, and I shall ask my hon. Friends not to support the amendment if the hon. Lady insists on pressing it to a vote.

In summary, the hon. Lady wants to put the power on the statute book and then, presumably, to obtain from the Treasury a full assessment of its practicality. That is putting the cart before the horse. Surely, it is much more practical to obtain the assessment of the power that the proposal would introduce, including an assessment of any consequent fuel duty rise in urban areas, and then to consider whether it is practicable to put something on the statute book. With the greatest respect, the Liberal Democrats have got it the wrong way round.

The Financial Secretary said last year that France was due to introduce its proposal to cut duties in some areas and raise them in others this year. What news has he from France on what is happening there?

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

The Financial Secretary seems to be interpreting my remarks in a Shakespearean way. I know that he is extremely well briefed and well read. As he was able to report from France last year, I am sure that he will be able to report from France this year. Should the Treasury not now make, and in due course publish, an assessment of what is happening in France, rather than replying briefly to the debate? It should publish assessments of what is done there and in Greece and Portugal in relation to fuel duty, and see whether that has any applicability to the UK. Then we will be able to judge whether the amendment proposed by the hon. Member for Falmouth and Camborne will have any merit in the medium or long term.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

It is a pleasure to follow the hon. Member for Wycombe, with his usual eloquence. He has clearly done the homework and research that the hon. Member for Falmouth and Camborne has not. The chances of the amendment’s being agreed today are getting pretty remote, if not very remote. It is a typical Liberal Democrat amendment: unfocused, uncosted and contradictory. Apart from that, it might be all right. It is unfocused, because we have no definition of remote areas. Partly because of that, and because I did not hear the hon. Lady indicate otherwise, it is uncosted, although that is nothing new for the Liberal Democrats. It is contradictory partly for the reasons that the hon. Member for Wycombe pointed out.

A central plank of the Liberal Democrats’ tax policy is, as I understand it, to increase green taxes. So what have we here? An amendment that would, on the face of it, result in a cut in green taxes. One can talk about vehicle excise duty in lots of terms apart from its being a green tax, but the amendment mentions lower rates of duty. That implies a differential. There are two ways of having a differential—one can lower it for remote areas,  whatever they might be, or raise it for non-remote areas. Raising it for non-remote areas does nothing for people in remote areas. It might make them relatively better off, but it does not do anything for them. Conversely, lowering the rate for remote areas would go against what the Liberal Democrats have spent the past year telling us that they are—although I do not think that they are—which is the party of green taxes. I urge my hon. Friends to vote against this typical Liberal Democrat amendment, which is unfocused, uncosted and contradictory.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

I have to disagree with the hon. Gentleman. I usually agree with him, because he makes intelligent contributions, but when he decides to move away from those, he falls foul of his own rhetoric.

We appear to have agreement on the principle that those who live in certain parts of the country might suffer significantly more than others because of the general wish to increase fuel duty in the important cause of the environment. To an extent, we are asking for some discrimination, which is a good thing in framing many types of legislation. Although we want to try to drive it out everywhere, there are always small casesin particular parts of society that are badly done by in trying to get the benefits that we want for the whole, in terms of social and fiscal policies. If we accept that people are being discriminated against because they have no possibility of accessing public transport, and it would anyway be inappropriate to provide it, then, for fairness and justice, we ought to try to find ways in which we might be able to address that.

First, I think that we are talking about a very small number, which, to a certain extent, becomes rather self-defined. Most hon. Members will have seen in their constituencies a significant reduction in the number of filling stations, both in and out of towns. In remote rural areas, those that have survived are normally those that are charging 10p, 15p or even higher more per litre. They are being charged more for the fuel because it has to get there; they do not sell enough to sustain their overall costs. They have kept going because people have gone to them; they patronise them, not because they want to pay 10p, 15p or 20p more per litre than people who live closer to supermarkets and towns, but because it would be inappropriate for them to drive the distance purely to save the money on fuel. They tend to go to that reasonably local filling station, and that is why those stations have continued in business much of the time. If they were any closer to supermarkets or small towns, where fuel costs are significantly lower, selling petrol would become almost impossible. They would have to put their prices up to astronomic levels because they would sell so little fuel.

To a certain extent, the matter becomes self-defining. It is probably a distance around certain remote rural filling stations. I do not know what that would be; perhaps some people might be prepared to drive 10 miles, others a little more. However, essentially, it concerns those areas that surround those filling stations that charge the levels that we have been talking about.

Secondly, there is the concept of main residence, and what qualifies where people live. Our part of the world has quite a few people who have second homes in remote rural areas. Whether they would qualify as their  principal residences is another matter——probably not, so it would be much beyond their residential qualification.

Thirdly, harking back to the original point, there would perhaps be designated suppliers. It would not be applicable to every person but available only to certain designated purveyors of fuel. To designate filling stations in that way might be very helpful, because it might underpin some of their business. If they could sell fuel at the price that everyone else was selling at, they might be able to keep going longer. There are often places that sell food and provide other services. In considering underpinning the rural economy, it is an important factor that, if stations can provide fuel at a lower cost, it will stop people driving even five or 10 to get their weekly shop at the local supermarket and fill up at the same time. There is a plus point in looking at the fact that some remote rural filling stations might be able to hang on a little longer, and continue to provide a service for their surrounding area for longer than they may at present.

Photo of Philip Dunne Philip Dunne Conservative, Ludlow 2:15 pm, 10th May 2007

The hon. Gentleman is starting to cast a little light through the fog of the Liberal Democrat proposals. If I understand him correctly, he is proposing, first, that individual retailers should be designated as eligible for the lower rate of duty; secondly, that individual suppliers should be designated as appropriate to supply those retail outlets; and thirdly, and most importantly, that individual householders or motorists should be designated as suitable parties to purchase their fuel from those designated garages.

Surely, that would mean that a garage, even if it was in a remote area, would be able to supply the same fuel at two different rates to separate categories of driver. How does the hon. Gentleman envisage that the cost of the proposals would impact on the retailers who would supply these services? The bureaucratic nightmare that he conjures up is beyond belief.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

I hope that that is not the case. I do not know whether the hon. Gentleman, like me, was driving around as a designated user of petrol in 1972, when because of potential petrol rationing I was—for some unknown reason as an assistant bank manager—a preferential user. Should rationing have come in, I would have been able to purchase fuel at any petrol station because I had a particular requirement to do so. It was presumably felt that it would undermine the whole UK economy if one C. Breed could not drive around the countryside seeing his customers.

I was not alone in getting that designation, as my bank made an application for certain individuals to have the necessary access, which was quite easy to do. It was a relatively simple Government scheme, which did not require huge bureaucracy, but I can imagine the sort of bureaucratic nightmares that there might be today.

Fortunately, the scheme was never pursued, but it provided the opportunity for individuals not only to access fuel, but to access it at a certain price. There are clear examples of a similar situation in which differentials can apply. They have been introduced in other European countries and it cannot be beyond the  wit of the Treasury team and the massive numbers of civil servants in that Department to bend their minds around something involving a relatively small number of people.

That brings me to the losses. I understand that last year my hon. Friend the Member for, I think, Caithness—some unearthly, lengthy place somewhere in Scotland, the other end of the nation; it is a long way from the nation of Cornwall to the nation of Scotland—said that on very rough calculations, the losses in Scotland were of the order of £3 million to £5 million. I do not suggest that that is an entirely accurate estimate, but in terms of the total amount of duty that would be foregone—I will give way as my hon. Friend is coming to my rescue.

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

My hon. Friend may find it useful to know that the Exchequer yield for the next financial year, when the fuel duties kick in, is £490 million. In 2009-10, the additional yield will be £660 million a year.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

I hope that is helpful to the Committee.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

As a proportion, it is a tiny amount, so it will not require much more than a mite on everyone else’s fuel to equalise it. Equalisation is not a problem; the amount of money that will be foregone will be tiny in terms of the total cost of fuel duties. The definitions of remoteness and so on can be addressed and if we agree the principle it should not be beyond the wit of the Treasury and the Government to find a way to tackle a small, but nevertheless significant, injustice to a number of people. It is likely to persist for ever, because I do not think anything will be done.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

Is the hon. Gentleman saying that he wants a cut, not a rise, in non-remote areas, which is apparently what applies in France?

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

I am sure that I will be able to understand that when I read Hansard.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

It is very simple. Does the hon. Gentleman just want a cut, or does he want a cut offset by a rise in duty in urban areas?

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

I am grateful to the hon. Gentleman. No, I do not want a rise. The cut that would be required to address this injustice is so minimal as to be of little interest to everyone else. It is a very tiny amount. The remoteness is not likely to change very much. We have probably got it down to an irreducible minimum of filling stations that are serving certain remote areas. If petrol prices continue to rise, the motivation to go longer and to drive further to the supermarket or the local town will increase. We want to discourage that.

Photo of David Gauke David Gauke Conservative, South West Hertfordshire

The hon. Gentleman says that he does not want to see an overall rise in fuel duties to offset the cut in rural areas. As we have heard, his party is committed to raising more revenue from green taxes.  The Institute for Fiscal Studies stated that the overwhelming majority of green taxes, as it would define them, in this country are fuel duties. The figure is something like 80 per cent. If he does not want to increase fuel duties, how does the Liberal Democrat policy hold together?

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

We do want to increase such duties, but we have to recognise that very tiny minorities are sometimes unfairly dealt with by various aspects of policy. Liberal Democrats argue that there is a tiny minority who will never get a bus service and public transport. If we push on with more and more increases for good environmental reasons, those in that minority will become even more disadvantaged. Even the small petrol filling stations that they have are likely to disappear. People will have to travel further and further to get any fuel. We want to arrest that decline and recognise that this is a tiny amount. The amount of money that will have to be forgone is very small. In order to gain our environmental credentials and to satisfy the environmental agenda, we need to increase these duties. However, we also need to address the issue of the tiny number of people who will be severely disadvantaged on a continuing basis. I do not believe that it is impossible to find a way to do so.

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

The debate has powerful echoes of our debates in Committee on the Finance Bill last year. My arguments remain the same. I want to be clear about what this proposal would and would not do. First, it would break a long-standing principle of uniform tax rates in the United Kingdom. The proposal here is to reduce fuel duties in certain parts of the UK and not in others. It would also, as Members have pointed out, conflict with environmental objectives and create the potential for fraud.

What the proposal would not do is also important. It follows directly from the hon. Gentleman’s observations that there is generally less competition and therefore higher prices in pumps and filling stations in many remote rural areas. A duty cut for the provision of fuel in these areas would not guarantee any reduction at the pumps for the motorists and the residents whom the Liberal Democrats are concerned about. It would be impossible to guarantee that a fuel supplier who might benefit from a reduced rate of duty would pass such a reduction on at all, or in full, to its customers. That is especially the case in areas where there is little competition between suppliers because there are fewer of them: precisely those rural or remote areas that hon. Members are concerned about.

In addition, we must be clear that the duty system in the UK does not make any allowances for where oil is used. The duty becomes payable at the point at which oil leaves the refinery, regardless of where in the United Kingdom it will be used. The amendment would require a new system for petrol suppliers and diesel suppliers to account for and then reclaim the tax that they paid. I suspect that that would unpopular with many in the sector, because they would be required to deal with a complex system and a relatively high administrative burden.

The hon. Member for Dundee, East also pointed out that definitions are difficult. How do we define “rural”, “very rural”, “remote”, “very remote” or “Liberal”—there are probably no very Liberal areas in the country these days? With respect to the hon. Member for Falmouth and Camborne, she is ducking a central issue by simply saying that the definition would be for the Treasury to determine by order. Unless the proposal can be defined in a consistent way on a principled and rational basis, it will not have much merit.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

I recognise the significant problem in making reductions. On the point about locality, I do not think that rural suppliers make an exorbitant profit on their petrol; in fact, they have to buy fuel at a significantly more cost than those who provide it for towns. I do not think that they are making significantly greater profit from their margin than others.

On the definition of “remote areas”, not so very long ago we had to address the problem of foot and mouth and we had to define areas that would be available for special treatment because of their rural nature. We managed relatively easily, over a much larger area, to give such reasonable definitions so as to provide for certain areas that were going to get special treatment following foot and mouth. I do not take the Financial Secretary’s view that it is impossible to provide a definition.

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

In that case, may I look forward to the proposal returning to the Committee members considering next year’s Finance Bill, together with a formula for making such a definition stick?

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

Is the Financial Secretary saying that because of all the difficulties that he has listed, there is no merit in the Treasury making an assessment of the arrangements that apparently pertain to France and elsewhere on the continent?

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

The hon. Gentleman is on the ball, because I was about to turn my attention to France. Should he wish to intervene again, I shall be happy to give way after I have made my comments about France.

At the heart of the French scheme is a proposal not to reduce tax but to aim to raise additional revenue in certain areas—there is the flexibility to do that—in order to pay for functions that have been delegated from the centre to those regions. Hon. Members were right to press the hon. Members for Falmouth and Camborne and for South-East Cornwall about the intention behind their proposal. They may wish to use the model of the French scheme, but that is its aim and that is how it would work.

In terms of assessing the French scheme, it has taken advantage of the derogation, but the system came into effect only on 1 January, thus it is too early to tell with any clarity or certainty how it is working. I do not believe that the French model and the French use of the derogation, for the purposes that the hon. Lady proposed, have much merit. Such an approach would be hedged around with other complications.

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

The Financial Secretary is right about the French model; he is probably also right that it would not be mirrored exactly here. Does he agree that when we debated this issue in the past two years, it was  with urgency because petrol prices were high and the rises were sudden? That is perhaps less of an issue this year. Will he indicate that he will consider the matter in the longer term, calmly and outside the debate, to work out how we can protect remote, rural areas, whose inhabitants pay much higher prices? We must particularly recognise the possibility of similar episodes in the future, when the price may once again rise to a disproportionately high level.

Photo of John Healey John Healey The Financial Secretary to the Treasury 2:30 pm, 10th May 2007

I am conscious of the transport difficulties for people in rural areas. For some years when I was growing up, I went to school in rural north Yorkshire, so I am concerned about that issue. The Government remain of the fairly fixed view that such a solution is not the best way to deal with those problems. If the hon. Gentleman considers the situation in his own country, Scotland, he will recognise that the rural transport fund there has supported more than 150 rural transport projects since 1998. It is through that approach that we can best deal with some of the difficulties that are faced by those living in rural areas.

I hope that the hon. Member for Falmouth and Camborne will not feel it necessary to press her amendment; if she does, I shall call on my hon. Friends to resist it.

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

I shall not press the amendment. I am disappointed, however, because I introduced the amendments in a constructive tone, to highlight what is a serious issue for a small number of people. I should like to draw to the attention of the Committee a report that was commissioned by The Highland council to illustrate the scale of the problem. It was produced in 2000, but the principle was the same. It found that £88 million was spent on fuel in that remote, rural area, which represented 3 per cent. of its GDP. We are talking about a significant amount of money, £3 million of which was VAT windfall, so there was a roll-over effect. It is a significant problem for a small number of people who should not be overlooked.

I am frustrated because we have not heard anything new from either the Government or the Conservatives about what can be done to address the problem. I am partially reassured by some of the Financial Secretary’s comments, but I am disappointed because I feel that perhaps people were not paying attention. The amendment is clear: it is to allow for a reduction in fuel duty without any accompanying increases to compensate for that. That is not the same as saying that we would not support increases in fuel duty in line with inflation, such as those that will be introduced by the Bill.

Photo of Rob Marris Rob Marris Labour, Wolverhampton South West

The hon. Lady is obviously reading her amendment differently from the way that I do. Proposed new section 6 (1AA) says that the Treasury can

“specify lower rates of duty”; it does not say that “the Treasury shall lower”. In the context of her amendment, “lower” is an adjective, not a verb. The amendment is therefore quite clear that a differential could come about through the raising of duties in non-remote areas.

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

I am grateful to the hon. Gentleman. My understanding is that the Treasury may specify lower rates of duty for remote rural areas; it does not say that it may increase them for all areas that do not fall into that category.

I shall turn now to another point. The green tax switch, about which my hon. Friend the Member for Eastleigh (Chris Huhne) has spoken, is designed to encourage changes in behaviour. The point that we have been trying to make is that, in such circumstances, it would not encourage changes in behaviour. Our position is therefore not at all inconsistent. My hon. Friend the Member for South-East Cornwall clearly showed how limited the measure would be in terms of the number of petrol stations that it would affect.

The amendment does not say that we should adopt wholesale the scheme as it exists in France; it says that there is clearly a problem for a limited number of people. If the Government pursue their current policy, that will make the problem increasingly difficult for those groups of people. It also says that there is a precedent, a derogation, that the Government have supported other countries in adopting, but the Govt have so far chosen not to adopt that derogation themselves. That derogation may provide a way to alleviate the difficulty that these people face.

If the Government felt that the amendment is not an ideal solution, I had hoped that they would put forward a better alternative. Unfortunately, we have not heard such an alternative. Therefore, what most disappoints me is the fact that the principle that the amendment tries to put forward has been ignored. Until this issue is resolved, it will keep returning.

The Financial Secretary made some valid points about the difficulties of ensuring that that differential in duty ended up being passed on to the customer in terms of price; those are valid issues to raise. However, the concern is that this problem will not be addressed. A limited number of people face this problem, but to them it is a significant one, because a differential of 20p a litre will mean several more pounds for every tank of petrol. If people are travelling longer distances, that extra cost will be a significant proportion of their income. So this is an important problem that has not yet been addressed, and I am afraid that it may be “Groundhog Day” again next year, if there is not even an indication from the Financial Secretary that these issues will be examined. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Several hon. Members rose

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

I had anticipated making my comments after I had heard the other contributions to the clause stand part debate, but I am quite happy to make a few brief observations at this point.

The clause provides for an increase in the main road fuel duty rate of 2p a litre, and an increase in the duty  on the rebated oils of 2p a litre to maintain cash differential with the main road fuels rate in support of the oil fuel strategy. It also provides for consequential increases in duty rates for biofuels and road fuel gases, in order to maintain the differentials with the main road fuel duty, differentials that, of course, are guaranteed under the alternative fuels framework.

It is the Government’s policy that, in general, fuel duty rates should rise each year at least in line with inflation, and Budget 2007 set out fuel duty rates for the next three years, first for environmental reasons; secondly, to ensure funding for public services; and thirdly to provide greater certainty, alongside other tax reforms that were in the Budget. Increases in 2008 and 2009 will be provided for in subsequent Finance Bills.

In recognition of the impact on specific sectors, the duty rates for rebated oils will increase in future years by the same percentage as the main rates. That represents, therefore, a much lesser increase than has previously occurred; it also reflects the detailed discussions and analysis that we have conducted with heavy users of rebated oils, such as open-cast coal mining and rail companies. On that basis, I commend the clause to the Committee.

Photo of Paul Goodman Paul Goodman Shadow Minister (Childcare), Treasury

As the Financial Secretary just said, the Government have, in general, a policy of raising these duties in line with inflation. That is perhaps a properly cautious approach, and possibly the best assessment of the changes that he has just proposed was provided by the Financial Times. It said that he had

“deferred to motorists’ and lorry drivers’ sensibilities by imposing an increase in line with inflation, putting the increase off until October and announcing in advance planned increases”.

Those moves were typical of what the Financial Times called

“the cautious approach to fuel taxation that the Chancellor has taken ever since protests over fuel duty in 2000 forced him to abandon the fuel duty escalator”.

Certainly the Government do not want to go there again.

It is significant that these increases, like several others in the Budget, were set up quite a long way in advance. The Chancellor has left his successor with little room for manoeuvre if that successor should seek room for manoeuvre. The Government certainly have to reconcile what the Financial Secretary would call “complex interactions”—the phrase he used about tobacco duties in relation to fuel duties. They have a target of ensuring that 5 per cent. of all transport fuels should be renewable by 2010-11. They have to take into consideration not only the requirement to hit that target, but the competitive position of industry, the effect on agriculture and farming, the consequences for consumers and the effect on the balance between public and private transport. All the while, I am sure there is in the Financial Secretary’s mind the memory of the events of 2000.

Those are not very easy pressures to reconcile and we shall not oppose the changes, but I should like to ask the Financial Secretary a few questions that arise from the generally favourable comments on the rises issued by green organisations and the generally more  unfavourable comments issued by those who have a direct users’ concern with transport. Has he ruled out a return to the Environmental Audit Committee’s preferred solution, namely real-terms rises in fuel duty? Secondly, as the Chancellor announced in the pre-Budget report last year that revenues from any real-terms increases in duties would go straight into a ring-fenced fund for improving public transport and modernising the road network, can the Financial Secretary confirm that announcements to this effect will be contained in the comprehensive spending review later this year?

Thirdly, what analysis has the Treasury made of the effect of these rises on inflation, industry in general and the road haulage sector in particular? Finally, is there not an increasingly strong case for an increased duty differential for high blend biofuels in order to make them cost competitive as the Environmental Audit Committee has urged? That committee said that it recognised

“the environmental benefits of a properly sustainable and well-regulated expansion in the use of high-blend biofuels such as E85. Under the current fiscal regime, however, it is unlikely that the market for highblend biofuels will take off, due to its increased costs.”

It is worth noting, though, that it raised the same concerns about biofuel sourcing as Friends of the Earth raised about sustainability criteria. I look forward to the Financial Secretary’s response to these points.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

I have just a few observations. The Financial Secretary said that the objectives of these duties are for environmental reasons, to raise revenue for public services and to create certainty by laying out the future progression of these duties. They are all fairly admirable goals and I have no complaint with them. There is a danger that the green taxes are an excuse for revenue raising or that they obfuscate the drive to raise revenues by hiding it behind environmental issues. It strikes me that when we come to vehicles and the duties on vehicles, consumers quite possibly already pay many times more than it costs to tidy up the carbon they may be emitting from their exhaust pipes.

We are coming on now to vehicle excise duty with many different gradings. That is arguably a green tax. We have these fuel duties now escalating with the various differentials. Residents parking permits in some areas will be cost more for gas-guzzling or large vehicles, the cost of parking at railway stations is always increasing and then there is congestion charge in central London which is arguably an environmental or a green tax to a certain degree. Now we have talk of road pricing.

It strikes me that at approximately £30 per tonne to clear up CO2, there is no doubt that, if we are considering this as a green issue, the motorist is already well over-taxed in that area. That is why, to an extent, I am pleased with the Conservative party’s position, which is that if we raise green taxes, we will offset them against taxes in other areas of the economy. Can the Financial Secretary confirm—or advise otherwise—that there is an intention in here somewhere to offset the increases in what are called “green taxes” against  those in other areas? To echo my hon. Friends on the Opposition Front Bench, how much of the additional money raised from these duties will go directly to road improvements and carbon removal? The technologies are available, so is anything ring-fenced to be passed, for example, directly to carbon sequestration or other means of removing carbon from the atmosphere? It is not that I would argue for any form of hypothecation; I should just like to give the Financial Secretary a platform from which to tell us what measures are being undertaken and how much they have been increased, given that there is increased revenue from fuel duty.

Finally, on a point that applies to most broadly based taxes, does the Financial Secretary recognise that the increases in these duties will, by virtue of the kind of tax that they are, disproportionately affect the least well off?

Photo of Julia Goldsworthy Julia Goldsworthy Shadow Chief Secretary To the Treasury, Treasury 2:45 pm, 10th May 2007

I do not intend to add further to the comments that I made when introducing my amendment about our support for the re-indexation of fuel duty to inflation, but I have a very brief question. There is a differential in duty that is designed to encourage greater take-up of biofuels, but different biofuels come from more or less sustainable sources. That is a cause of great concern to many people. Is it possible to differentiate through the fuel duty mechanisms between biofuels from more and less sustainable sources?

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

First, there has been reference in passing to the road fuel transport obligation that we propose to bring in from 2008. That will require an increasing percentage of all fuel suppliers to supply biofuels as a part of their product. It will be introduced in 2008 and by 2010-11 it will affect 75 per cent. of them. It is designed to give a big boost to the biofuels market, with the environmental gains that can flow from it in the UK. A central feature of the introduction of and preparation for the obligation is an assurance scheme, which the Department for Transport is discussing with those who are interested, and on which it is leading the design work. The purpose of the obligation is to secure the environmental contribution to dealing with climate change. The quality and climate change impact of biofuels that will be encouraged by that means will be important to us as we introduce and develop the obligation scheme. I hope that that gives a degree of reassurance to the Committee and others, particularly to the green groups that have made that point and have helped us in the work.

I am grateful to the hon. Member for Windsor for his offer to give me a platform, and for the fact that he regards the rationale for the proposals in this clause to be fairly admirable goals. I shall come back to his question about offsetting green taxes, because that links to a point made by his hon. Friend the Member for Wycombe, who asked two or three questions. The first was, “Are the Government considering any real-terms increases in fuel duty?” We discussed this morning the basis of the Government’s forecasting in tax terms, and that element of the Red Book is the quarter three RPI figure for this year, which is 3.38 per cent. So the rises of 2p per litre this year, 2p per litre next year and 1.84p per litre the year after represent respective increases of just over 4 per cent., just under  4 per cent., and about 3.5 per cent. In answer to the hon. Gentleman’s question, we are already looking at three years of fuel duty rises that have a real rise element to them. We have been clear from the start that the resources that these will help to raise will help contribute to the Government’s spending on our priority areas, such as transport and environmental protection. Our decisions on that will be taken in the context of the comprehensive spending review.

I do not want to pre-empt the discussion that we may have on a subsequent clause, but would say that we have been clear about offsetting in relation to the proposed landfill tax rises. The rise in the landfill tax take from business will contribute to what we also announced in the Budget as offsetting significant cuts in the main rate of corporation tax.

Finally, on the question of biofuels, which was raised by the hon. Members for Wycombe and for Falmouth and Camborne, we are examining the place that they will have in the obligation framework. We are looking at ways to ensure that the framework can incentivise those. Hon. Members will be aware that we have given special support through the company car tax and vehicle excise duty systems to try to encourage high-blend biofuels. I remain unconvinced that a duty rate differential is the best way to encourage them, but they clearly have a potential to offer us a greater gain in our efforts to tackle climate change, and in particular, to offset what is at the moment, still an escalating path for the emissions that we anticipate from road transport. It is an area of policy that we are actively examining. I hope, on that basis, that the Committee will allow clause 10 to stand part of the Bill.

Question put and agreed to.

Clause 10 ordered to stand part of the Bill.