Clause 155

Finance Bill – in a Public Bill Committee at 4:45 pm on 17 June 2008.

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Fuel duty: definition of “ultra low sulphur diesel”

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

Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

It is a pleasure to see you back in the Chair after our lunchtime break, Sir Nicholas.

We should pause and read this important clause carefully. The Treasury’s explanatory notes tell us that the clause is intended to help oil companies to ensure the supply of sulphur-free diesel—an important fuel in helping to improve vehicle emissions. When that is combined with ultra low sulphur diesel, the duty rates paid at the moment, which are in line with those for heavy oil, are unfair. There should thus be amendment  so that combining sulphur-free diesel and ultra low sulphur diesel does not lead to rates of duty than are higher than they should be.

It might be helpful to put the clause in a wider context. The Department for Transport brought forward statutory instrument 2007/1608, which said that oil companies had to supply sulphur-free diesel to garages that sell more than 3 million litres a year, and ultra low sulphur diesel to garages selling less than 3 million litres a year, with effect from 4 December 2007. I understand that this was part of a broader attempt to help to move the industry towards the UK and European Union deadline of petrol and diesel at all garages being sulphur-free by 1 January 2009. However, there is an anomaly regarding ultra low sulphur diesel and sulphur-free diesel because, for various reasons, oil companies sometimes have to combine the two fuels. Rather than continuing to pay a duty in line with that for ultra low sulphur diesel, or for sulphur-free diesel, duty is charged at the rate for heavy oil—regular diesel—because the mixed fuel does not meet either definition of the two diesels.

Clause 155 amends the definition of what constitutes ultra low sulphur diesel by removing density and distillation requirements for the mixture to qualify as ultra low sulphur diesel, which means that the correct rate can be charged, rather than the rate for heavy oil. We do not necessarily oppose this attempt to correct an apparent unfairness in the duty rates, but I want to clarify a couple of points.

First, the clause provides that the provision is treated as having come into force on 4 September 2007. I want to check that, because statutory instrument 2007/1608 introduced a requirement to supply sulphur-free diesel to garage forecourts with effect from 4 December 2007, as was confirmed in a written ministerial statement on 26 July. The key date thus seems to be 4 December 2007.

I challenge that, because the background note to the clause in the explanatory notes states:

“The Government introduced a measure requiring oil suppliers to supply sulphur-free diesel...to garage forecourts from 4 September.”

However, the ministerial statement said that the requirement would come into force on 4 December. Will the Minister clear up the confusion about which date should be included in the clause? Should it be 4 December, which was when the SI came into force, or should it be 4 September, the date in the Bill? It is not clear why there should be a three-month difference.

It is a somewhat retrospective move to allow oil companies to get a rebate for oils that they have mixed in the past. Will the Minister tell us what calculations the Treasury has made about the revenue impact of clause 155 and the fact that oil companies will now be able to get a rebate for those blended fuel mixes for which they have paid at the standard rate rather than the reduced rate? The latest HMRC statistics show that about 12 million litres of sulphur-free diesel was released for consumption in 2006-07. What is the Treasury’s assessment of the amount of diesel that was blended that would qualify for that retrospective rebate?

We understand why the Government want to clear up what could be called an unfairness in the way in which the oils duty has worked for oil companies, but what about those who buy the fuel? With road tax, they are hit by retrospective tax rises that they cannot undo or avoid, yet the Government seem happy to tackle  retrospectivity for oil companies. We do not disagree with the measure, but I take this opportunity to urge the Minister to consider the unfairness of retrospectivity in other areas of motoring, such as vehicle excise duty.

I shall make one more brief point. On broader issues, such as on vehicle excise duty, I am still waiting for answers to parliamentary questions that were due to be answered by 8 May. That was well over a month ago. I would appreciate it if the Minister would finally provide me with answers to those important questions, alongside her response to the issues that I have raised about the clause.

Photo of Nick Palmer Nick Palmer PPS (Malcolm Wicks, Minister of State), Department for Business, Enterprise & Regulatory Reform 5:00, 17 June 2008

This clause, unlike some of the more abstruse ones, deals with an issue that we often get correspondence about. I would like to ask the Exchequer Secretary whether the difference in the price of diesel—there is no difference for unleaded petrol—between Britain and the continent reflects the standards of sulphur reduction in Britain, or whether other factors are involved, and whether that has influenced the setting of the duty.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I have probably got this wrong, but if the forecourt sells the diesel at a higher price because it expects to pay duty at a higher level and is therefore passing that on to the customers, that duty should go to the Treasury and the company should not get a rebate. I am not entirely sure that that has happened, but if it has it seems wrong that the Treasury is giving effectively a profit to the oil company.

Sir Peter Viggers (Gosport) (Con) rose—

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

Before I call Peter Viggers, perhaps it would be appropriate to congratulate him on the award of a knighthood in the Queen’s birthday honours list. It is richly deserved and we all congratulate him.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

Thank you, Sir Nicholas. Praise from you is praise indeed.

When the Exchequer Secretary responds, she owes us another sentence or so of explanation. The explanatory note on the clause uses the passive, which is always used when someone is trying to obscure an issue. It says:

“The Government introduced a measure requiring oil suppliers to supply sulphur-free diesel (SFD) to garage forecourts from 4 September 2007. It was recognised that occasions might arise when SFD and ULSD need to be mixed to guarantee the supply.”

It was recognised by whom, and when? We would like to know the chronology, because a mistake has been made. There has been a failure to realise the full implications of mixing the two kinds of diesel. I do not fully understand that note, and I hope that the Exchequer Secretary will be able to make it clear.

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

I hope that I can clear up the confusion, which has grown as the debate has progressed. This is a modest technical issue, which should not worry people too much. I will explain how it came about.

Clause 155 amends the definition of ultra low sulphur diesel with retrospective effect from 4 September 2007. The hon. Member for Putney is right about the wider  issue of the Department for Transport issuing regulations for the provision of sulphur-free diesel. That is a good thing—let us get that on the record. Moving from ultra low sulphur to sulphur-free diesel is of benefit to air quality and lowers emissions. We all ought to recognise that that is progress. The Department for Transport made that mandatory from 4 December, and set the duty rate at the same level as for ultra low sulphur diesel, namely 50.35p per litre.

As the hon. Lady hinted, there is a higher duty rate for heavy oil of 56.94p per litre. Due to the distribution mechanisms, which get the different forms of oil and petrol mixed and then out to distribution centres and thenceforth on to the forecourts, there was an issue with the changeover period and with the run-in to sulphur-free diesel supply becoming mandatory. The problem that it caused was that under existing legislation, although sulphur-free diesel and ultra low sulphur diesel have the same duty rate, mixtures of the two did not meet either of the definitions in place from earlier times, and the law said that an oil that did not meet those definitions would automatically qualify for the higher rate.

Members of the industry suggested that there were practical problems in the transition from the old duty rate to the new mandatory regime with sulphur-free diesel and that, as a result of how the pipes and distribution systems work, if they happened to mix ultra low sulphur diesel and sulphur-free diesel in order to get supplies to the pumps in an appropriate way, the resulting oil, which would sometimes contain a tiny residue of other oils, would not meet either definition. We therefore created a circumstance for that period. Retrospectivity applies so that they could gear up to supplying sulphur-free diesel. Retrospectively, we will not charge them the higher rate if there happen to be traces of oils from the mixing necessary for their distribution. It is all perfectly simple, as hon. Friends and Opposition Members can see.

Because the industry was moving toward supplying sulphur-free diesel in a timely fashion for the mandation on 4 December, and in order for members of the industry to get their distribution mechanisms right, we gave the industry assurance that we would not charge a higher rate of duty for three months before, as any inadvertent mixing might put industry members outwith the definitions then in law. It is a transitional measure to facilitate getting supplies of sulphur-free diesel where they needed to be in a timely fashion for the mandation to come into effect appropriately on 4 December. I see that the hon. Member for Putney is itching to get to her feet, so I will gladly give way.

Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

Can the Minister confirm that the background note to the clause is wrong when it says:

“The Government introduced a measure requiring oil suppliers to supply sulphur-free diesel (SFD) to garage forecourts from 4 September 2007”,

and that it should read “4 December 2007”? That is where the confusion on our part arose. It is different from the ministerial statement, and I think that it is wrong. Can she confirm that?

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

It sounds to me like it is wrong. I suspect that in the explanatory note, the two dates are simply mixed up.

I was asked about the revenue impact. It is nil. Ultra low sulphur diesel and sulphur-free diesel are charged at the same rate; it is only when they were mixed that the rate would have been higher. Mixing would not have happened if we had not given comfort that in the event of a technical breach we would not charge the higher rate, but then it would not have been guaranteed that supplies would be where they were meant to be in time for the mandation of sulphur-free diesel. It is purely a technical clause to shift from one system of defining fuel and fuel mixes to a more regulatory system under which sulphur-free diesel is mandated. It deals with the transition between the old regime and the new. I hope that hon. Members will be happy with those reassurances.

My hon. Friend the Member for Broxtowe is right to mention that fuel duty on petrol and diesel are the same. Differences in price, as I understand it, are due to bottlenecks in supply and slightly different ways of creating petrol and diesel, but I confirm that there is no tax differential between what the Government collect on petrol and what we collect on diesel. The price differences have to do purely with distillation, bottlenecks in supply, shortages of supply in the industry and so on, and have absolutely nothing to do with tax rates.

I hope that hon. Members will be happy to see clause 155 stand part of the Bill. It is wholly beneficial and will mean that there are less sulphur emissions, which we all want to see.

Question put and agreed to.

Clause 155 ordered to stand part of the Bill.