Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 400 - 420)

TUESDAY 18 JANUARY 2000

MR STEPHEN TIMMS MP, MR SIMON VIRLEY, MR DAMIEN MCBRIDE AND MS HEATHER MASSIE

  400. It is still a variable rate.
  (Mr Timms) There will be one concessionary rate which will be based on the negotiated agreement, or at least there has been an announcement about one concessionary rate. The other element here which we have not talked about, which might be worth referring to at this point, is the arrangement for emissions trading which of course connect with this. There are discussions still to be had about that. But there is not going to be a sliding scale or different rates between 0 and 80 per cent amongst the beneficiaries of the negotiated agreement.

  401. I want to come to emissions trading in a minute but the point I am trying to make is that different companies will be charged either the 20 per cent rate or the full rate on what you have just said, and the determination of which companies qualify for which rate of tax will not be made by Parliament but will be made by agreements within your Department, within the Treasury, with other civil servants making them. Would it not be much more sensible and fairer and achieve the same objective if the negotiations were sector by sector so it was revenue-neutral within certain sectors?
  (Mr Timms) Access to the 80 per cent reduction will be conditional on achieving the savings which have been agreed to within the negotiated agreement. It is the case as the levy is now proposed that it will be broadly neutral for the private sector, the package as a whole will be broadly neutral between manufacturing and services, and that is a change from the proposals which were described in the Budget in the spring. But I think it would be unrealistic to expect that one could go much further in achieving sector neutrality, at least if one wished to avoid the situation which you have charged me with introducing a moment ago, a very complex arrangement of different rates of discounts, a sliding scale, dependent on the position in each sector.
  (Mr Virley) Could I just add that there will be publication of the details of these agreements in due course once we are at the stage of signing heads of agreements with the sectors concerned for verification by Parliament and others. Whilst the climate change levy arrangements are pioneering for the UK, it is true to say that similar arrangements are used in other countries in their energy tax proposals such as Denmark and Holland.

  402. Minister, did I hear you say it was revenue-neutral for the manufacturing sector?
  (Mr Timms) The package as a whole is broadly neutral for the whole of the manufacturing sector, yes. If you take account of the additional sums we have built in to incentivise the energy efficiency investments which Joan Walley referred to a moment ago, yes.[4]

  403. So how is it going to work?
  (Mr Timms) How is what going to work?

  404. How is it going to make any energy savings if it is broadly neutral at the moment? Companies need not do anything and they will get their NI rebate and they have to pay the extra tax on energy by not increasing their efficiency.
  (Mr Timms) First of all, it is of course clear that there will be firms which are paying out more once the levy is introduced, but there will also be firms paying out less because what they save through the reduced national insurance contribution will exceed their liability under the levy. What I am saying is, if you look at the manufacturing sector as a whole, then the package now is broadly neutral in that those firms which gain under the package and those which have an extra liability roughly balance themselves out. But, of course, every firm in all sectors will have a greater incentive to reduce energy usage as a result of the introduction of the levy. The amount that they will be liable to pay under the levy will be, we anticipate, separately identified on their energy bills, so it will be quite clear what this extra is, and that will be a strong additional incentive for them to reduce energy usage and so achieve the objectives that all of us want to see delivered.

  405. I think a lot hinges on the definition of "broadly". Can we come on to emissions trading and can you give us an up-date of the state of play there and the Government's thinking and when we are going to start to see a scheme introduced?
  (Mr Timms) As you know, the Government is very supportive of emissions trading and we have been very pleased with the work which has been taken forward under the leadership of the CBI on what the arrangements for a domestic trading scheme might look like. The emissions trading group which has been set up is looking at the full range of possible incentives—fiscal and non-fiscal—for organisations to participate in a domestic emissions trading scheme and we will be looking very closely at their findings. But I think if emissions trading is going to make a valuable contribution, it has to be very strongly supported by us, by the DTI, by ministers in DTI. I have had two meetings now with Rodney Chase from BP-Amoco who is chairing that group and I am very encouraged by the progress they are making.

  406. Given we have a world-class financial services community in the City, what interaction is there going to be using that expertise and that framework already for trading these and make us a centre of excellence? Potentially, I think we are streets ahead of everyone else in the world and can really make a go of this, not just for the UK but trading internationally in trading permits.
  (Mr Timms) I think you raise a very important point. I think this is an excellent opportunity for the UK because of the skills in the City of London, and City players are engaged in the discussions which the emissions trading group is conducting.

Mr Gerrard

  407. You talked about the climate change levy as an exemplary process in terms of consultation which had gone on during the development of the proposals. How far do you think that is typical of the way the Government has handled discussions on environmental taxes generally? The impression that has been given to us is that on some of these taxes, for instance the aggregates tax, there has not been anything like that same degree of discussion and involvement.
  (Mr Timms) I will certainly be listening with interest to any points this Committee wants to make about any of these matters. If there are lessons to be learned from the past, then I will be very happy to learn them, but I would argue that the approach which we have taken has been pretty consistent across all of the measures which we have talked about today; that in each case there has been some serious research at the outset which has led to a report which has allowed for consultation, and then on the basis of that we have come forward with proposals. On the aggregates tax, the research which was carried out was, as I said earlier on, a very, very impressive piece of work, probably one of the biggest, if not the biggest and most authoritative pieces of work of its kind ever carried out. So I would hope that the Committee would feel on reflection that we have been consistent in the careful and thorough approach which I have described.

  408. There are two further points I wish to make, first of all on the question of the research. You mentioned the aggregates research as being very high quality. That was the London Economics research?
  (Mr Timms) That is right.

  409. Did not the Government actually have to go back on that and commission some further rounds of work on that?
  (Mr Timms) Yes, there were two rounds of it, and there was the international panel of experts which I mentioned earlier involved in round two. I think that simply illustrates the point that we have been very, very thorough, and that between those two rounds of work a very impressive piece of work was done.

  410. That is one example. Do you think there is sufficient expertise currently within Government to allow research and development of environmental tax proposals? The aggregates tax is just one example.
  (Mr Timms) Yes, I think there is, but it is important that we do make use of expertise right across Government and that all the departments involved are working closely together—and we are—but also that we have access to expertise outside Government as well. The study which we have been talking about was, as you have said, carried out by London Economics. I think it is important that we do not claim that Government has a monopoly of expertise in these areas, but there are people outside Government with a great deal of expertise which we need to access.

  411. I think everyone would agree that it would help this whole debate if we had greater consistency, greater consensus on the data so that we can discuss the proposals in the light of agreements. Do you think that the Government would look again at this? We have made the point several times on this Committee that we believe there is a good case to be made for a Green Tax Commission that would be able to do that sort of thing and would be able to commission the research, to develop the expertise, to provide the expertise to develop the proposals?
  (Mr Timms) I am not convinced that a quango of that sort would necessarily add much value to the process. We do have a number of bodies—the Advisory Committee on Business and the Environment, the Sustainable Development Commission and so on—who have expertise, make recommendations and give advice in these areas. Our mind is not absolutely closed to this, but at the moment I cannot see that it is going to add worthwhile value to our work. If the Committee wants to pursue that argument, then I shall certainly look at the suggestions which it makes.

  Mr Gerrard: I suspect we will.

Chairman

  412. Would not a Green Tax Commission help with the process of consultation? There has been some criticism, by bodies who have made representations to this Committee, about the difficulties they have experienced with consultation with the Government.
  (Mr Timms) We have talked a lot about the Climate Change Levy process which I hope would be widely recognised as having been exemplary in terms of consultation, so I think that demonstrates that we can consult very effectively and well, without the Green Tax Commission. If there have been difficulties, then I will do everything I can to learn the lessons from those, but I do not think the case is made that we need a commission to carry out consultation, because we have actually done well in a number of cases without it.

  Chairman: Minister, we had a point of comment from the Parliamentary Clerk in the Treasury who was kind enough to send a letter to the Clerk of this Committee about the VAT on energy-saving materials. We have only five minutes or so left, but we would like to ask you one or two questions about that.

Dr Iddon

  413. Thank you, Chairman. This question has dogged this Committee since we were set up in November 1997, as you well know, Minister. Common-sense tells us—and we put it in a number of reports—that if we are really serious about saving energy, then we ought to reduce the VAT on energy-saving materials and measures across the board, not just selectively, down to the minimum of five per cent. A number of us have written letters to you, we have put down Parliamentary Questions—I have one on the record today with an Answer—and we are wondering what the blockage is. It is the 6th European Directive, we know that, but we have been told that your Department has been having discussions with other countries in the European Union and, indeed, with the Commission to try to resolve this thorny problem. In an Answer you gave, I think, to the Member for Bury South, David Chaytor, I think I remember you saying that there has not been much contact in that respect with other countries in the EU or with the Commission on this subject in the last year, 1999, is that correct?
  (Mr Timms) I can acknowledge that this has been indeed a long-running episode. I wonder if I can go back and give an account of what has happened from our point of view so far. We implemented with effect from 1 July 1998 a new targeted VAT relief for the installation of energy-saving materials in social housing. That has extended the five per cent rate which applied to domestic fuel and power to that installation work. There are legal constraints on going further than that. In particular, there is not any scope for relief for do-it-yourself installation at the moment. That is why my predecessor as Financial Secretary, now the Paymaster General, wrote in September 1998 to Commissioner Monti to outline the step which we had taken and to suggest that the Commission and other Member States ought to consider changes to the current Community law in order that things could go further. He has replied and has confirmed that there is currently no provision for relief for energy-saving materials for do-it-yourself installation. He raised the possibility of future Commission proposals for changes to the 6th VAT Directive which you referred to, in Annex H which is the part which deals with reduced rates. He has acknowledged that these proposals would be the right place to tackle this question of energy-saving materials, and we expect the Commission to make some decisions on this during the course of this year. So there certainly has been contact between Customs and Excise and the Commission on this, and we expect some announcements in the course of the year.[5]

  414. Why has this Government not taken advantage of the experimental reduction in VAT on local labour-intensive services which France jumped the gun on before Christmas and which Italy appears to be doing in the early part of this year? Why have not we taken advantage of that?
  (Mr Timms) Essentially those are being presented, as I understand it—certainly the French change is being presented—as a job-creation measure. Essentially, as you know, we have a variety of other measures tackling employability—effectively, the New Deal and others. So I think the problem which is being addressed in France is being addressed rather differently here. I think it is the case that France has somewhat jumped the gun, but we are expecting some announcement from the Commission in this area in the course of the coming year.[6]

  Dr Iddon: Thank you.

Chairman

  415. How many discussions have taken place at ministerial level on this subject?
  (Mr Timms) I cannot answer that question off the top of my head.

  416. Have any discussions taken place at ministerial level? You mentioned quite a lot of consultation at official level, did you not?
  (Mr Timms) Yes.

  417. I wondered whether you or your predecessors have been involved at ministerial level?
  (Mr Timms) There have certainly been ministerial letters.

  418. Could you let us have a note on that?7
  (Mr Timms) Yes.

7  See supplementary memorandum from HM Treasury, p151-153.

Joan Walley

  419. Could there also be a note about the question of the agreements as well and this question of transparency?

  (Mr Timms) No doubt that suggestion can be forwarded to the group.

Chairman

  420. Unless any of my colleagues wants to ask you any further questions, we shall close this session, Minister. Thank you very much indeed for quite a long exposure to our criticisms. May I hope that you stay long in your post. Although this is your first appearance before the Committee, you are the third new Minister in the Treasury, and I think we would hope for some continuity over the remainder of this Parliament. We hope it is you.
  (Mr Timms) Thank you. I shall look forward to coming back.





4   See supplementary memorandum from HM Treasury, p151-153. Back

5   See supplementary memorandum from HM Treasury, p151-153. Back

6   As above. Back


 
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