Examination of Witnesses (Questions 20
WEDNESDAY 13 DECEMBER 2000
TIMMS MP AND
20. Does the Climate Change Levy in any way
substitute for or help the effect of the fuel tax escalator?
(Mr Timms) It certainly helps meet the Kyoto objectives,
which the fuel duty escalator also has helped to meet. I do not
see any element of substitution but rather it is addressing another
element of the problem and we have taken a series of steps to
ensure that emissions are addressed wherever they are generated
across the economy.
21. With the introduction of the Climate Change
Levy, and the abandoning of the fuel tax escalator and the other
tax incentives which have increasingly been given to the transport
sector, there is a relative shift of taxation away from transport
to the rest of the business sector. How is that justified when
we know that the area of the economy which is growing and increasing
its pressure on carbon dioxide emissions is not the rest of the
business sector, it is the transport sector, yet the Government
is shifting its taxation burden away from transport to the rest
of the business sector at this time.
(Mr Timms) The first point to make is that you talk
about abandoning the fuel duty escalator and it certainly is the
case that it has been cancelled, but the impact of those increases
over a period of six or seven years is largely still in place
and will be next year as well. This is not a reverse: it is simply
that the automatic annual increases will not be applied in the
22. There is a shift in relative levels of taxation.
The relative level of taxation of those whose business is to transport
things by road is going down, whereas the level of taxation for
a business which makes steel will go up.
(Mr Timms) The level of taxation on transport usage
will not have been very much reduced. The big decreases in transport
taxation next year are about ownership. I do not think I entirely
accept the thesis you are making. It is the case that CO2 emissions
are generated in other bits of the economy as well. The climate
change levy addresses that issue. I certainly do not see a shift
going on deliberately seeking to change the balance of taxation
between transport and the rest of the economy.
23. In the Climate Change Programme the fuel
duty escalator is described as supporting the European Union's
carbon dioxide from cars strategy. Now that you have abandoned,
shelved, the escalator, why do you believe this supporting measure
is no longer needed?
(Mr Timms) The influence of the duty increases in
fuel on vehicle manufacturers remains in place. The great bulk
of the increase which has been made to fuel duty since 1993 remains
in place and its influence remains in place. We are taking other
steps to address this. For example, the encouragement of ultra
low sulphur petrol will itself accelerate the introduction of
gasoline direct injection technology which will also reduce CO2
emissions. I do not see this as in any sense a U-turn. It is simply
the case that the escalator, in the light of what happened to
crude prices, is no longer a useful instrument, but the effect
of its applications since 1993 remain a helpful and important
contribution towards meeting our Kyoto objectives.
24. You will agree that the majority of the
population does not like paying the levels of tax they do on petrol;
they do not like paying tax on lots of things but of late they
have voiced their opinion loudly and the Government has apparently
listened. If the price of petrol were to drop because the oil
price drops, does the Government have the intention to relook
at this and does it have a price in mind, however that price is
arrived at, whether it be the price of crude oil combined with
the price of taxation? Do you have a price level in mind at which
it triggers increased taxation?
(Mr Timms) No; no, there is not. You are right about
people's feeling about fuel duty and I described to Mr Chaytor
what our position is, that the freeze will apply for the coming
year and if crude prices stay at their recent levels then we would
expect it to apply for another year. No, we do not have a target
in mind or a threshold or a figure or any of those mechanisms.
25. If the price of oil at the pumps went down
from near $30 back down to $10 in the next two years, and the
taxation policy did not change, then presumably the environmentally
beneficial effect on the reduction of carbon dioxide which we
have seen since the fuel tax escalator was introduced will go
into reverse as people will respond to the incentive to drive
more. Surely the Government would be ready to react to that?
(Mr Timms) Yes, we certainly should. There would be
an entirely new set of economic and environmental considerations
in effect if that were to happen and those would certainly be
reflected in a decision at the time of the budget, whenever this
arose, about the level of fuel duty. Yes, it would be taken into
26. Implicit in what you say is that there is
a desirability in keeping fuel prices relatively high for private
motorists at least either by the mechanism of the fuel duty escalator
as before, or now by the mechanism of naturally high oil prices
which it can be construed have taken over that role. Going back
to basics then, what is the objective the Government is seeking
to achieve from that policy?
(Mr Timms) Our objective in environmental terms has
been to achieve our Kyoto targets. The application of the escalator
has certainly contributed to that. We are pretty confident now
that we will meet those targets and indeed go way beyond them.
Our latest estimate is that we should achieve a reduction of 19
per cent in CO2 emissions by 2010 which is well beyond the 12.5
per cent which Kyoto set for us. In environmental terms that has
been the key objective of our policies.
27. The high price of petrol has been part of
that key objective achievement.
(Mr Timms) Certainly the fuel duty escalator has and
no doubt it is the case that the high price of oil will have contributed
as well, yes.
28. What always puzzles me on that basisand
I do not disagree with youis when you look at the DETR's
transport statistics and the last set published in 1998, when
the fuel duty escalator was ripping away at that stage, the Government's
own forecasts of road traffic numbers on a 30-year basis show
a gradual and unhindered increase. Against a base point of 100
in 1997, by 2031 vehicle kilometres travelled by cars will have
increased from 100 to 150 and car ownership will have increased
from 100 to 139 and the number of cars on the roads by 100 to
143. Over 30 years something like a 40 to 50 per cent increase
either in car ownership, congestion, the number of cars on the
road, or the number of miles travelled, which should be, on the
basis of your argument, exceedingly sensitive to the price of
petrol. Your own forecasts, on the basis of the fuel duty escalator
actually carrying on, or now being replaced, as I think you would
say, by the high level of petrol, is not achieving those things
whatsoever. What is the objective?
(Mr Timms) It is achieving them. There is no doubt
at all that the increase in fuel duty arising from the escalator
has had an impact on the distances driven. The AA published information
some months ago making that point. I forget the figure for the
elasticity which the AA quoted.
(Mr Maxwell) It varies whether you look in the short
term or the long term but the short-term figure is about 0.3 or
0.4, the longer term much higher than that.
(Mr Timms) It is an established fact that the price
does have an impact. You are right though that usage continues
to rise and that is because there are all sorts of economic factors
at work here. Without a doubt, the numbers you are referring to
in terms of usage in particular would have been greater had there
not been the price impact.
29. It is not actually reducing. I just cannot
see that argument. My argument would be: surely what has made
a greater contribution towards that 19 per cent achievement is
technological advancement in cleaner engines, firstly, and, secondly,
the figure you have quoted to us that you are looking to save
something between one million and two and a half million tonnes
of carbon per year pales into insignificance aside the figure
of 7.5 million tonnes of carbon saved per year simply by switching
over to 1200 megawatt coal fired power stations, to similar sized
gas fired power stations, a vastly greater figure. So the saving
you are claiming on cars is a drop in the ocean compared to savings
coming from technology and from coal fired power stations conversion.
(Mr Timms) Yes, technology certainly has been important
and will continue to be very important. We are looking for further
technological improvements and the tax system is improving the
incentives for further improvements and I certainly do not discount
the importance of that. You say it is a drop in the ocean. In
the end the reason we shall hopefully achieve our 20 per cent
domestic CO2 emissions reduction target is because of quite a
lot of drops in the ocean which added together will get us to
the position we want to be in. The up to 2.5 million tones from
the fuel duty escalator could easily make the difference between
us hitting 20 per cent and not doing.
30. But it is, at the most optimistic, one third
of what is achieved simply by switching over to power stations.
When are you going to revise these figures? If you are now saying
that there is not going to be the remorseless rise in car usage
both in terms of mileage and car ownership and you are quoting
car organisations, although my understanding was that either the
AA or the RAC had said that the price of petrol would need to
rise to something in the order of £4 per litre before it
would have a substantial impact on the actual usage of those vehicles,
why have the DETR, on your advice, not altered their figures to
forecast a slowdown at least, if not a reduction, in car usage
over the next 10, 20 or 30 years?
(Mr Timms) I am not forecasting a reduction in car
usage; I hope I have not given that impression. What I am saying
is that the impact of the escalator has been to reduce emissions
from what they otherwise would have been and that, together with
the other steps we have taken, will allow us to achieve Kyoto
and domestic CO2 emission reductions. I do not think there is
anything inconsistent between that point and the point that other
government departments have made.
31. You are obviously confident that the current
change of fiscal measures will hit the Kyoto targets indeed you
have just said that they are likely to overshoot them, which I
am sure is welcome. However, the Environment Minister has said
that the real long-term target for any government now which takes
this seriously is the Royal Commission report on emissions which
is looking for up to 60 per cent cuts in greenhouse gases by 2050.
How can we reach that as a society if decisions are made on fuel
tax or any other with environmental benefit on a budget by budget
basis? Was it not at least one of the virtues of the fuel duty
escalator that it was continued through two governments, in other
words a political change did not change that element of environmental
benefit and improvement? If we are in a position now where decisions
are made on a budget by budget basis, how can we be sure that
we as a society are moving towards those long-range targets which
are really essential for the long-term future of the planet?
(Mr Timms) It has always been clear that the targets
set at Kyoto were the beginning of the process and certainly not
the end of the story and clear that we would need to go a good
deal beyond them in due course, looking at 50 years ahead and
undoubtedly as the Royal Commission said we shall need to go a
good deal further. That will require some very fundamental changes
in the way that we work. My guess is that it is likely that it
will be technological change which gives us the potential to go
for those much bigger reductions that you have referred to. What
we are doing is building into the tax system currently, in the
climate change levy, in the fuel duty vehicle taxation arrangements,
incentives for cleaner technologies. I would hope that in due
course major breakthroughs will emerge which allow us to move
in that direction in the longer term. As you know, in the Pre-Budget
Report the Chancellor announced an alternative fuels challenge,
calling on industry to come forward with proposals for cleaner
fuels. We shall be issuing a consultation document about that
shortly and I shall be looking with great interest, as will the
Environment Minister, at the proposals which come forward. There
are several ideas around at the moment and one could see that
some of them could make a very substantial contribution towards
reducing the emissions which we are generating. It is possible,
by making fairly incremental changes in the tax system, to create
an incentive for technological change which one could see over
a period of 50 years or so could lead us into the sort of destination
which you have referred to.
32. Is it therefore the case that you are looking
much more now at an incentive-based regime and have turned your
back on disincentive-based regimes, which the fuel tax escalator
was, for whatever political or social or whatever reasons that
shift is to be seen? Would you accept that is happening and is
the Government actively involved in that with the public and explaining
the way that these processes have to move over the next ten or
(Mr Timms) It will always be a mixture of approaches
but certainly in the last couple of years quite a number of significant
incentives have been introduced to encourage people to use cleaner
cars: the new vehicle excise duty system with a lower rate of
duty for cars which creates lower levels of emissions; the incentive
to use smaller second-hand cars because of the 1500cc lower rate
of VED; incentives in the company car tax system. We have introduced
a range of new incentives but the beneficial effects of the overall
rate of fuel duty will continue to be a significant element. I
would not want to give the impression that we abandoned what was
happening before but we have evolved it.
33. Does that not mean that we shall get clean
(Mr Timms) That will be better than dirty gridlock.
34. It is gridlock all the same.
(Mr Timms) The ten-year transport plan will have a
significant impact on reducing congestion.
35. May I go back to the matter raised by Mr
Loughton for one moment? Clearly there was a major crisis in public
perception of the fuel escalator and its impact, based in part
on the rise in fuel prices and the added effect of the tax on
it. Can you let us have sight of the documentary information on
which the Government bases its conclusions that the fuel escalator
as it was before you stopped itand you have talked about
the possibility of reverting to itdoes have this impact
on road use growth which you claim it does? It is quite apparent
to me that the public are not persuaded by this argument. If we
are going to persuade the public that it is necessary for that
purpose, it would be very useful to have the objective evidence
which the Government has put together to justify it, which you
seem to hint you had, although I must say I have never seen it.
Otherwise it leaves one with the situation where the impression
which was conveyed as the fuel crisis grew was that in fact the
justification for the fuel escalator was to provide for public
services, which is a completely different matter altogether, as
I am sure you would agree. Can you help us on that and is that
information available? I appreciate you may not have it to hand
today but you seem to hint that it is in existence and there to
underpin the Government's fuel escalator policy. Can we see it?
(Mr Timms) Certainly the most recent information which
I am aware of on this is the work of Professor Glaister for the
AA which I have referred to but of course it is important to make
the point that we are not simply talking about reducing the distances
which are driven by people in their cars, reducing their fuel
consumption by other means, by switching to more fuel efficient
vehicles, is also helpful in this regard. It is not only about
reducing the distances which are driven, but Professor Glaister's
work is recent and publicly available and highly regarded.
36. May I ask you about ultra low sulphur fuels
which you mentioned earlier? Certainly the United Kingdom has
a very low percentage of alternatively fuelled vehicles compared
with France, Germany, Italy, etcetera. What estimate have you
made of the effect on CO2 emissions by reducing the duty on ultra
low sulphur diesel and petrol? How much do you think it will actually
reduce CO2 emissions? What is the target?
(Mr Timms) Directly ultra low sulphur petrol is no
more beneficial from a CO2 point of view than conventional petrol.
So I do not see that directly contributing helpfully to this at
all. However, indirectly it is the case that ultra low sulphur
petrol allows the introduction of gasoline direct injection technology.
That improves fuel efficiency by up to 20 per cent, so that will
reduce CO2 emission and indirectly once that technology becomes
widespread, which it is not at the moment, then I would expect
it to have an impact. Overnight it will not.
37. No, but indirectly 20 per cent.
(Mr Timms) Certainly GDI technology improves fuel
efficiency by up to 20 per cent. One would have to make an assumption
about what the penetration of GDI technology would be over a period
and that is not a forecast that I have. It certainly could be
significant. I think it will be.
38. By the fact of reducing the duty, there
is a concern that those reductions, the penny in diesel last year
and petrol this year, have been masked by the overall rise in
the actual cost of oil and that also as a form of fuel they are
more difficult and expensive to produce. Does the Treasury tag
and monitor the fuel prices to see that those duty cuts are actually
passed on and that they are not simply overshadowed and thrown
away by the overall increase in the oil price?
(Mr Timms) No, we do not. We have had conversations
with the oil companies about this and it is my impressionand
I think the oil companies have issued a press release to this
effectthat because of the effect of the forces of competition
the additional two pence per litre incentive that we are proposing,
subject to fuel being available right across the country from
the budget, is likely to be passed on. I suspect also that when
petrol production increasingly and ultimately goes to 100 per
cent low sulphur, which I hope will not take long, it may well
be that some if not all of the existing one penny per litre incentive
which came into effect in October might well be passed on as well.
It is not something we systematically study and our position is
that pricing is a matter for the oil companies and normal market
39. You cannot guarantee to the public that
those cuts in duty are being passed on to them at the pumps.
(Mr Timms) The two pence per litre change, if that
comes into effect, will take effect from the Budget. I am pretty
confident that it will be passed on to customers but I cannot
give a guarantee about that because I am not responsible for setting