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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