Examination of Witnesses (Questions 80
WEDNESDAY 13 DECEMBER 2000
TIMMS MP AND
80. In terms of the development of the technology,
why in all the tax reliefs on capital spend available for industry
or the tax reliefs available to invest in venture capital opportunities
for example is there no green angle whatsoever?
(Mr Timms) There is a variety of forms of support
for environmental technology being channelled mainly through DETR.
(Mr Timms) I am certain, although I do not know the
details, that there is support for hydrogen fuel cell technology.
Certainly substantial support is being introduced for renewable
energy technology, for example from the proceeds of the climate
change levy amongst other things. I do not think that is the case.
Support is being provided.
82. If it is, it is small pockets which come
from DETR rather than from tax incentives from Treasury itself.
The Chancellor makes great claim about tax incentives to encourage
smaller companies, particularly technology based high risk companies
with which we would certainly agree, but nowhere have I seen any
specific requirement that they should have an environmental good
attached to them. Surely what we are trying to encourage is not
only companies to produce extra technology but to produce environmentally
sustainable technology even more, but there is no bias towards
that in any of the tax incentives which have come from the Chancellor
which I have seen.
(Mr Timms) Look at the arrangements for renewable
energy under the Climate Change Levy. The Climate Change Levy
will not be applied to renewable energy at all. To go back to
talking about playing fields, that is a very significant tilting
of the playing field in favour of a very substantial tax incentive
to encourage the development of renewable energy sources. I do
not agree with the point you are making.
83. It is a negative tax incentive because you
are trying to clobber everything else. Let me take one example
of things you have tried in the past. Let us just look at LPG
which we all recognise as a more environmentally friendly way
of fuelling cars and on one occasion the Chancellor has reduced
the fuel duty significantly and we all certainly praise that.
He also introduced tax differentials for heavy goods vehicles
and public transport buses switching from fossil fuels to LPG
fuels. These were introduced fairly early on; I think it was in
the first main Budget. Do you think they have been successful?
(Mr Timms) I am not sure of the impact on the bus
side. We have of course supported the power shift programme for
converting private cars for use of LPG and other alternative fuels
and we have set aside £9 million for that in the next financial
year which is almost three times what has been provided in the
current financial year. That is a substantial increase and that
has been very effective. You made the point early on about the
fact that we have significantly fewer LPG driven vehicles in the
UK than elsewhere, but the number is rising very rapidly and certainly
there is public support for that through power shift. I am not
sure about buses. Do you know what the position is?
(Mr Maxwell) No, I am afraid I do not.
84. Would you like to take a stab at how many
buses you think have taken advantage of that scheme to convert
to LPG from fossil fuels?
(Mr Timms) I see a little bit of a trap opening up
here. My answer is no.
85. Would you be surprised to hear that in 1997
there were 24 HGV vehicles and 15 buses in the entire country
which took LPG and at the last figures available 68 HGV vehicles
and 36 buses in the entire country are powered by LPG? In percentage
terms that is terribly good but in real terms is not terribly
impressive, is it? The point I am putting to you is that some
of your schemes, some of the Treasury instigated schemes which
were trumpeted enormously at the timeI remember before
your time at the Treasury, when I was on the Finance Bill these
were trumpetedas great ways of changing environmental attitudes
amongst HGV drivers and bus drivers have actually been a complete
and utter disaster. What we do not want to see is the same happening
with the next generation of much more environmentally friendly
fuels in terms of hydrogen which seem to me not to be getting
proper development capital, certainly tax incentives, at this
stage. I want to be more convinced of the evidence that the Government
is really looking much beyond just the next Budget, five or ten
years, for a whole new generation of how we fuel our vehicles
and really pushing us to the top of the ladder in giving industry
every incentive to be developing that technology now.
(Mr Timms) On LPG vehicles as a whole we have a much
better story to tell than the one which you have related. It is
the case that since the 1999 Budget there are about 9,000 more
gas powered and bi-fuel vehicles than there were at the time.
The number of LPG refuelling sites has risen from 185 to 560,
so there is quite a significant shift taking place. I hope that
in due course that will be reflected in the commercial sector,
buses, as well. I do not underestimate the scale of the change
that there needs to be. I agree with you that there is an important
role for the tax system in helping to ensure that change occurs.
I see the alternative fuel challenge as an important step in helping
us to identify which are the fuels which we ought to be giving
incentives to very quickly but no doubt there will be more in
due course. We are some way from having widespread availability
of hydrogen fuel cell vehicles at the moment but at some point
I am sure that will become an important issue.
86. You mentioned in that answer the question
of distribution and that there had been a significant increase
in the last couple of years in sites where LPG was available but
that was certainly a problem for some time. With the newer technologies
which are coming along, hydrogen fuel cells, biodiesel, ones which
we know are available now and used much more in other countries
than in the UK, is the Treasury looking at what might be done
to help develop the infrastructure? It is all very well encouraging
a manufacturer to produce a vehicle but you need the infrastructure
to support that, the distribution networks as well. Is that something
this challenge fund might support as well as the actual development
of the vehicle or are there other ways in which we might look
at supporting infrastructure developments?
(Mr Timms) The challenge is specifically about the
level of duty which is applied to the fuel. Biodiesel certainly
is a potential beneficiary from a lower rate of duty, depending
on the outcome from the challenge. I met a number of people in
the runup to the Pre-Budget Report specifically about biodiesel
and there may well be some promising possibilities there, including
with the recycled vegetable oil which a few people came to talk
to me about. The question of how those fuels would be distributed
would have to be a commercial matter for those who were seeking
to distribute it. That is not something I would expect us to be
directly involved in.
87. You would not see any role for financial
incentives from the Treasury to a company prepared to invest in
(Mr Timms) That is what the effect of the duty incentive
would be. By charging a significantly lower rate of duty on the
fuel, that will amount to an incentive which will have the effect
what you are proposing would have.
88. Two points on this issue, if I may? First
of all a general point about the hypothecation issue of fuel duty
because in the 1999 Budget, as I recall, the Chancellor announced
that any future use of the fuel duty escalator would be hypothecated
to public transport investment. Of course the abandonment of the
escalator has meant that pledge is now not irrelevant but at least
not immediately important. Is there not an argument for hypothecating
a component of fuel duty to further investment in alternative
fuels and would this not only be an efficient use of fuel duty
but also be a way of persuading public opinion and concentrating
the public mind on the importance of getting out of petrol and
oil and getting into alternative fuels? That is my general point
about the possibilities of hypothecation of fuel duty to alternative
fuels. My specific point is about the power shift programme itself.
I would put to you that one of the difficulties, accepting the
success of the programme to date and the numbers of vehicles which
have been converted, one of the difficulties lies in a paradox
whereby the power shift programme provides the incentive to the
vehicles which are already the most fuel efficient in so far as
the grant is only available for vehicles which are under 12 months'
old. Really almost by definition they are more fuel efficient
than vehicles which are two or three or four years' old. Accepting
that there are questions of engine design, which constrain the
range of vehicles which can be converted to LPG, is there not
an argument which says we really ought to be getting the parameters
widened a little bit, so that eligible vehicles could be two,
three, four years' old. The point also being that the overwhelming
majority of vehicles under 12 years' old is bought by fleets and
we are hardly impacting at all on the general public buying a
private car for their own use. In terms of influencing public
opinion, is there not a role for the power shift programme to
do that by broadening its eligibility criteria for older vehicles?
(Mr Timms) On hypothecation, we are seeing more uses
of hypothecation than we have seen in the past. We are seeing
some of that in the environmental tax area and I am thinking of
what the Chancellor said about future real term increases in fuel
duties, which there have not been any of so that has not actually
had an impact as yet. However, as well, in the climate change
levy of £1 billion, £150 million is being applied to
promoting energy efficiency through a number of routes. And in
the case of the aggregates levy we are setting up a sustainability
fund to address the problems caused by aggregates extractions.
We are seeing more hypothecation.
89. There is a series of precedents in place
which would justify hypothecation of part of the fuel duty revenue
to investment in alternatives.
(Mr Timms) What one is sceptical about is what the
value would be of going back and claiming that an element of an
existing duty income stream was being applied to a particular
thing. What is the difference between that and just saying we
are going to spend x money on this thing, whatever it is.
90. The argument would be that it makes the
whole concept of fuel duty more legitimate in the public eye if
it is seen to be re-invested and developed to alternative fuels
because there is general public support for alternative fuels
but there is general public hostility to fuel duty itself. By
tying the two together, it could be a way of influencing public
opinion very significantly and legitimising the fuel duty to a
far greater extent.
(Mr Timms) I am not sure that it would because in
reality fuel duty does make a substantial contribution to the
Government's overall income and it uses it for schools and hospitals.
I am not convinced it would increase the popular support for fuel
duty. I do not know, I should be interested in other people's
views, but I think it might actually have the opposite effect.
Where there is a new measure and a new income stream is being
received, then hypothecation is something one can consider, but
I am sceptical about going back on previous income streams and
reclassifying them. I am not sure that is changing anything very
special. On Powershift, we have very significantly increased the
resources at the disposal of the Powershift programme. Whether
we should be looking at the criteria I do not know. That is perhaps
something I should take away and have a look at.
91. Earlier on in reply to Mr Gerrard you said
that you did not feel you had a role in the infrastructure for
alternative fuels, LPG in particular, and that that was a commercial
matter, albeit that the fuel duty is an incentive there. Surely
you, as a Government, have very firmly pinned your colours to
the mast as far as ultra low sulphur petrol is concerned and the
need for the infrastructure to deliver that to all areas of the
country. I would suggest that the public at large at least feel
that the Government has given a promise that the reason for the
three pence cut in fuel duty, which is only applied to low sulphur
petrol but is interpreted by Cabinet Ministers together with MPs
as an eight pence cut in fuel dutythat was the answer I
had this afternoon from the Secretary of State for Walescan
only work if you can deliver that ultra low sulphur petrol to
all areas of the country and meet the public expectations that
you do that. Why are you prepared to do it for that fuel, which
makes no contribution towards CO2 emissions at all, but are not
prepared to do it for the infrastructure of LPG or biodiesel which
would make a huge contribution to a reduction in CO2 fuel?
(Mr Timms) I do not think we are doing anything for
ultra low sulphur petrol that we would not be doing for alternative
fuels which are successful in the challenge. We are not providing
resources to invest in
92. But you have nailed your political colours
to the mast. If oil companies do not deliver, you will to a certain
extent be blamed for it. I do not know how you have done it behind
the scenes but you certainly made it clear that the political
objective here is to deliver a three pence per litre cut in real
terms to the public in response to the political demands which
were placed upon you in the autumn but you are not doing the same
for much more greenhouse friendly fuels, as it were.
(Mr Timms) We are not making any investment in infrastructure
at all for ultra low sulphur petrol. We are simply offering a
duty incentive which will only be introduced if the fuel is available
across the country. Similarly on alternative fuels, we will offer
a duty incentive and then it will be for the providers to distribute
it. I do not think there is any difference between the two.
93. There is no material difference but there
is a huge political difference in the attitude you have struck
and the way that comes across to the public. For example, earlier
on this afternoon you made it very clear that rural areas must
benefit from ultra low sulphur petrol as well. In my own very
rural constituency I have one LPG fuelling depot; just the one.
It is also an area which has older than average cars. I know a
lot of people would switch in rural areas to LPG if they could
be part of the power shift, which they cannot, because the average
car in a rural area is older than in urban areas and, secondly,
if they could get access to it, which they also cannot. Would
you not agree that there is a task there for Government to be
more explicit in its support for alternative fuels and to consider
the points made by Mr Gerrard regarding a support for the infrastructure
(Mr Timms) I am not sure what form of support you
are proposing. I think the evidence is that the very significant
duty incentive which has been provided for LPG is leading to a
very rapid takeup now of the fuel, a very rapid increase in the
number of stations, something of the order of at least one a week,
that sort of scale opening up around the country. We expect that
to continue. The lesson I draw from that is that the incentive
has worked and I would expect it to work well with the alternative
94. Can we move to vehicle excise duty? As I
understand the position, the primary change has been to cut vehicle
excise duty for cars under 1500cc. Remembering what the Chancellor
had to say about this, there appeared to be an argument he was
putting forward that this had some environmental justification.
It was going to produce an environmental benefit. It was not,
as I understand it, being put forward as merely a palliative to
angry motor-car users, there was some wider justification. Could
you explain what it actually is and why it is seen by yourself
that there is going to be an environmental good or plus from that
(Mr Timms) Yes. The lower rate of VED for normal new
cars less than 1500cc will provide an incentive for people who
are buying a secondhand car to buy a smaller one. The question
is: what is the right place to set that threshold? The view we
have reached is that 1500cc is the right level to go for. I can
only judge this from my postbag. My impression is that that is
about right in terms of having a significant impact on quite a
lot of people in making their choices about which secondhand car
to buy. Originally when this was introduced it was at 1100cc and
I received very large numbers of letters from people with 1108cc
cars who were very upset about it. It was not my impression that
it was having as big an effect as one might have hoped in encouraging
people to obtain smaller cars than they otherwise would have done.
Probably at the 1500cc level it will have a better impact. I do
not want to overstate the significance of it, but it does send
out the right signal in a way that is likely to be helpful.
95. Was there any appraisal as to what the likely
environmental impact might be of this change?
(Mr Timms) I do not think it would be large enough
to warrant an entry in Table 6.2.
96. The other way of approaching car engines
is about fuel efficiency, which may in fact not be dependent on
engine size at all. Arguably that might be a much more logical,
although perhaps more complex, approach to the rate you should
have for excise duty but it is not the route that you have chosen.
(Mr Timms) It is; for new cars that is precisely the
route we have chosen. The rate of vehicle excise duty will be
graduated according to the CO2 emissions.
97. There is no reason why you could not do
it on existing vehicles.
(Mr Timms) There is a reason. The reason is that the
CO2 emission data will only appear on vehicle registration documents
from next March.
98. I do not quite follow that. I appreciate
that, but if you wanted to look at fuel efficiency in terms of
types of engines in cars, that is something you could do with
existing vehicles. You just have to carry out the necessary tests
(Mr Timms) No doubt one could introduce some kind
of nationwide testing system which required everybody to have
their car tested.
99. You could set up benchmarks on existing
vehicles as to which are fuel efficient and which are not in type
and model and base it on that.
(Mr Timms) I should be interested to know more about
the system you envisage. It sounds to me potentially an extremely
cumbersome mechanism. What is really important about all of this
is that the system is extremely simple, that somebody can look
at their vehicle registration document, they can read the CO2
emission data and they will know what excise duty they have to
pay. Anything more complicated than that and you very quickly
start to lose the benefit and introduce a significant new bureaucratic
burden which is not helpful.