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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