Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 20 - 39)

TUESDAY 4 APRIL 2000

MR STEPHEN TIMMS MP, MR JOHN HALL AND MS HEATHER MASSIE

  20. Thank you. On the 6th VAT Directive, is that under review by the EU at the moment? Can we take it, from the fact that this much greater degree of laxity has been introduced into interpretation, that this is something which is going to be comprehensively reviewed? Can you help the Committee on that.
  (Mr Timms) Yes, certainly the Commission is looking at this, and there may well be some significant changes in due course. I think our expectation now is that those are unlikely to take place before the end of 2002. If there is a change that is when it would be likely to occur.

Chairman

  21. You have based your defence of your change on new research linking fuel poverty and health and also on a more relaxed attitude by the European Union on the 6th Directive. We would be very grateful if we could have some evidence on this. Is there anything you can produce which spells out in more detailed form exactly what happened in these two areas which led to the Government being able to change its mind?
  (Mr Timms) Certainly the research I particularly had in mind was a project by the Joseph Rowntree Foundation called Housing Poverty and Excess Winter Death; and the emerging findings of that do establish, I think for the first time, direct evidence that housing quality may be linked to the large number of excess winter deaths from cardiovascular disease in the UK compared with other countries. I think that is quite a significant research finding. We can certainly provide information on that. On the point about the more relaxed attitude taken by the Commission—the Commission have made the statement that they do not dictate to Member States what their social policy should be; that does appear to represent the significant shift from earlier statements and, again, I can provide the detail on that.

Joan Walley

  22. Minister, I would like to unreservedly welcome the progress which has been made here. I would like to think it is some kind of partnership between those of us who have asked many, many parliamentary questions on this and persisted in taking this issue further forward. I hope that the Committee will be able to work closely with you on its detailed implications and implementation. Can I just say by way of an aside, it was interesting that you just mentioned the Joseph Rowntree Foundation. I hope that by the Treasury having taken on board the contents of that research it will now be possible for health guidance to be given in respect of the same contribution that warmer homes could make in terms of health improvements that need to be seen. Just to return to VAT, is this a list that is set in stone as to what needs to be eligible for the lower VAT rates to reduce VAT rates? My concern is that there are various items which currently are eligible perhaps for funding under the EESOPs arrangements which would not necessarily appear on this VAT list. Are there not energy saving matters which perhaps could be included in the list which are not going to be? What kind of joined up thinking could we have between the Treasury and this Committee in coming up with a list which perhaps had widespread credibility?
  (Mr Timms) Let me also thank you for your welcome on the progress we have made here. I think what you have said is absolutely right—there has been a lot of interest in this over a long period, not least from this Committee, and that is certainly helpful in taking this forward. Is the list set in stone forever? No. We are certainly willing to keep the list under review, and I would be happy to look at suggestions that the Committee makes on this. What we have wanted to do is to tie this in with the Home Energy Efficiency Scheme and to achieve some consistency with that. I guess that brings me to your other point about the Department of Health's interest on this. There is work going on across Government on fuel poverty. I attended a meeting quite recently with Ministers from other Departments. I think the initiative has been taken across Government and is being taken forward in quite a joined up way. Certainly, if there were other proposals the Committee wanted to make then we would look at those with great interest.

  23. Could you suggest a mechanism for us doing that? For example, I have got down on my list, as one of the things that should be eligible for a reduced VAT rate, low emission glass. What kind of mechanism could you suggest whereby we could look in detail, because the devil of these things is always in the detail. Now we have got this major concession from the Treasury how can we make sure it actually applies to those items and materials which are going to do the most to combat fuel poverty?
  (Mr Timms) I think the items which do most are in the list that is there at the moment. If the Committee wants to refer in its Report or write to me, or however suits the Committee best, to suggest we need to look at other things when we review the list in future budgets then I will be very happy to do that.

  24. That would be for future budgets and not to perhaps review the list in the course of a year if it makes glaring mistakes or if the Treasury made some glaring omission?
  (Mr Timms) I am confident we have not made any glaring mistakes, but I think any significant changes would need to be at the time of the Budget.

  25. We look forward to that. Just one other quick thing on VAT. One of the big concerns at the moment is the whole issue of urban regeneration. I have noted very carefully what is mentioned in the Budget 2000 for protecting the environment. In respect of the consultation is a possible stamp duty relief for new developments on brownfield land to encourage an urban renaissance—should there not have been something earlier in this Budget about it? Can we wait that long for consultation? Should not that work already have been put in hand before now? Is there not some urgency about getting this done?
  (Mr Timms) I think it is important that we make progress on urban renaissance. Indeed, in the Red Book there is a list of a number of steps the Government has already made in response to Lord Roger's report. There are 105 recommendations in the report. It is a very, very big programme of work and issues that need to be addressed. I think the consultation on the exemption from stamp duty for development on brownfield sites is a very important first step. It picks up one of the 11 national tax recommendations that were in the Roger's report; but I do not claim it is the end of the story, and I do not think it is too late either. I think it is timely to make a good start in addressing the Roger's agenda. I am sure there will be more to be done in the future.

  26. Finally, is it not perverse that VAT is zero rated in new building, whereas if you are talking about refurbishment on innercity sites, on the areas of the country where we have a real need to deal with urban decay is it not time that we should be looking at a VAT that is not perverse? What is the Treasury doing about that?
  (Mr Timms) We are looking very carefully at all 105 of the recommendations that Lord Roger's proposed, and 11 of them I think were specifically on national tax including the VAT point you have made. We are looking carefully at that. There are, of course, quite large sums of Government revenue at stake in this—these are not minor matters, so they do need to be looked at very carefully. We are doing that actively, and when we are in a position to make further progress then we will be doing that.

  27. Is that going to be part of the consultation in respect of stamp duty, or is that a separate exercise?
  (Mr Timms) No, that will be a separate exercise. There is, of course, the Urban White Paper which is due to be published later this year, which will be the Government's response to Lord Roger's report as a whole; and that will address a number of issues that he has raised.

  28. Could you suggest anything this Committee might do to perhaps add pressure to that core to get a fairer VAT in respect of brownfield sites?
  (Mr Timms) My impression on the whole is that the Committee does not have too much difficulty putting pressure on Government to do things in this area. No doubt the Committee will continue to do so on this and a number of other matters.

  Joan Walley: I look forward to working with you.

Mr Jones

  29. Minister, in the answer you have just given my colleague that there are large sums of money involved with the Exchequer in moving towards a zero-rated VAT on the repair and refurbishment of old building, is there not a way of at least levelling up the playing field between new build and the repair of older buildings by a fiscally neutral policy in which VAT is raised slightly on new build and reduced to some extent on repair?
  (Mr Timms) There are a number of options I think on how this might be done. I am not sure about raising the level of VAT on new build as a whole.

  30. It is zero now, is it not?
  (Mr Timms) There are a number of changes that could be made that would limit the impact on the Exchequer and we are looking at those, and that will clearly need to be part of the package if there is to be some change in this area in due course.

Mr Gerrard

  31. Last year in 1999 the abandonment of the Fuel Duty Escalator was announced, and this year there was no fuel duty increase in real terms. It seems that was based on oil price changes. Can you tell us what the approach is going to be in future? Is it going to be an ad hoc decision each year as to what will happen to fuel duty? What sort of methodology will be applied from one budget to another?
  (Mr Timms) The position remains as the Chancellor set out in November when he announced that he would be considering the appropriate rate of fuel duties on a budget-by-budget basis, taking into account all the relevant economic, social and environmental factors—and that is the basis on which he will be making decisions in future budgets. You are right, of course, that there has been a very substantial increase in the oil price since the Pre-Budget Report. It was about $23 a barrel then; it was $30 a barrel at the time of the Budget. In the light of that very substantial rise in the oil price the Chancellor felt that for this Budget it was not appropriate to introduce a real term fuel duty increase. I notice it has not stopped quite a number of people complaining about the fact that fuel duty has gone up albeit only by inflation. It is the first time for about 11 years there has not been a real terms fuel duty rise. In future the position will be made on a budget-by-budget basis.

  32. If there is not a commitment to a fuel duty rise, is there any sort of commitment that fuel prices will rise? You suggest that this year there has been a balancing of the two; because the oil price was going up there was a decision not to increase the duty in real terms. What can we expect to see on fuel prices?
  (Mr Timms) I think the decision will need to be made on the basis of a variety of factors. Environmental factors—and the one you referred to—would certainly be one; but economic and social factors will need to be taken account of as well. The helpful thing, of course, about an oil price rise is that it has effect everywhere in Europe. One of the concerns that has been raised with us on the economic front is that the relatively high level of fuel duty in the UK, compared with other parts of the EU, has caused some difficulties in some areas. That issue would need to be taken account of as well in each of the budgets. I cannot give a very simple answer to your question. There will need to be full account taken of a range of factors—economic, social, as well as environmental.

  33. If there is not a very clear strategy as to where we are going in the future, does that not create some problems for, say, business wanting to plan strategically? Business may not like a decision that is made, but at least if you know what has happened and what is going to happen it is easier to think and plan strategically, than if you do not really know from one year to the next what is going to happen?
  (Mr Timms) The response from business to the Chancellor's announcement in November of the Escalator has been a very positive one. Certainly I have not had raised with me any complaints about future uncertainty. I think business has generally welcomed the fact that the automatic Escalator will not be being applied in the future.

  34. What about the effects on car usage? If we look at the costs it seems quite remarkable that the real costs of car usage have changed so little over a long period of time compared with what has happened to the costs of public transport. Is there any view that car users ought to be bearing a steady increase in cost? If that is not going to be done through the Fuel Duty Escalator, how should it be done?
  (Mr Timms) I think it is important to bear in mind that changes in vehicle design and better alternatives to car use will continue to deliver carbon dioxide savings. There is some very good work I think being done in the car industry which is helpful to us in this respect. I think in a way the point you are making reinforces the need for us to look quite carefully at a range of issues before each Budget to allow the Chancellor to make the right decision on fuel duty.

Mr Jones

  35. I want to ask the Minister some questions about a pesticide tax, but before I do I would like to apologise for missing the earlier part of the contribution trying to be in two places at once. The Committee were rather surprised (and I do not know whether the industry were surprised) by the Prime Minister's announcement earlier in February that there would be no pesticide tax. On the face of it, it does not seem to be a useful negotiating ploy to tell the industry in advance of the Budget that they need not be concerned, that there would be no tax. Why did the Government choose to play its cards in that fashion?
  (Mr Timms) We certainly have not said there will never be a pesticides tax. The Prime Minister has said that we were attracted by the idea of a voluntary package, and we received proposals from the British Agrochemicals Association and, subject to the outcome of discussions with them, we were not proposing to introduce a tax in the Budget this year. We have not ruled it out forever. If those discussions were to prove unsuccessful then the option of a tax still remains. I do not think we have given away any negotiating cards with that at all.

  36. These voluntary proposals must have been pretty attractive to convince the Prime Minister in a fortnight, given all the rest of the things the Prime Minister has to do. Are you likely to make these voluntary proposals available to the Committee to see how tremendously attractive they are?
  (Mr Timms) Indeed, let me just set out the background to this. What we are aiming for (and I think I made this point when I last came to the Committee) is to minimise the environmental impact of pesticides used while ensuring there is nevertheless adequate crop protection. In January the British Agrochemicals Association brought forward initial voluntary proposals. It was indeed clear to us when we examined them that they did provide the basis for a worthwhile discussion; and that discussion is now taking place. If I remember rightly, when I last came I had not read the proposals at the time, I think they had just arrived on my desk that morning. What we have asked the British Agrochemicals Association to do is to develop those initial proposals further, submit a formal package of measures in the middle of this month. We want then to consult all those who have an interest in this on those proposals, and the proposals will be published and made public around about the middle of this month. Then we expect to be in a position to report on progress with the discussions by the time of the Pre-Budget Report in the autumn. Not just the Committee but anyone who is interested will be able to see what those proposals are.

  37. In your list of what the Government's objectives are I noted you did not mention the objectives of ensuring that the polluter, where possible, pays. Is that not an objective with regard to pesticides?
  (Mr Timms) The polluter pays principle is one we strongly subscribe to, absolutely. The question I think is how that principle, and the other principles we have set out in this area, can best be implemented in each of the areas we are addressing. We have taken the view that the proposals put forward by the British Agrochemicals Association are a worthwhile basis for discussion.

  38. Could you tell us any more about how the consultation about these proposals will be conducted?
  (Mr Timms) As I have said, the proposals will be published in April, in the middle of this month. There will be then, I imagine, a widespread discussion. We will be interested in the views of anybody who wants to put forward a response to the proposals when they become public. There certainly will be a discussion at the Pesticides Forum, which I think is due next to meet in June on this issue; and then we hope we will be able to reach a view on the consultation by the autumn.

  39. What criteria will Government be using to assess whether the proposals are really workable or not?
  (Mr Timms) We will be working very closely with Michael Meacher and the Department of Environment, Transport and the Regions officials. They are actively conducting detailed discussions with the BAA. Our intention, as I have said, is to minimise the environmental impact of pesticides usage, subject to there being nevertheless adequate crop protection. That is our aim, and that is what we will be measuring the proposals against.


 
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