Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 80 - 99)



  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.

  81. What?
  (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 time—I remember before your time at the Treasury, when I was on the Finance Bill these were trumpeted—as 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.

Mr Gerrard

  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 infrastructure?
  (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.

Mr Chaytor

  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.

Mr Thomas

  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 duty—that was the answer I had this afternoon from the Secretary of State for Wales—can 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 delivering that?
  (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 fuels.

Mr Grieve

  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 change?
  (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 on them.
  (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.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 5 March 2001