House of Commons - Environmental Audit

Select Committee on Environmental Audit Second Report

PRE-BUDGET 2000: FUELLING THE DEBATE

Introduction

1. The present Government is committed to a Statement of Intent on Environmental Taxation.[4] Since it was established in November 1997, the Environmental Audit Committee has reported on the environmental dimension of each of the Government's Pre-Budget Reports and Budgets to assess its progress against this Statement.[5]

2. This Report continues the Committee's annual audit of progress in this area. The Pre-Budget Report 2000 (PBR 2000) proposed an important new package of fiscal measures intended to help tackle the environmental impacts of the transport sector whilst being mindful of UK competitiveness. The Committee therefore decided to focus its attention on the sustainable development implications of the Government's decision to introduce: a cash freeze in all road-fuel and other oil duties, new differentials between fuel duties based on environmental criteria, and a new package of Vehicle Excise Duty (VED) and company car taxation. In particular, we looked at the case for i) using fuel duty, amongst other measures, to help us meet UK climate change and air quality targets through reducing demand for road transport; (ii) the relationship between fuel duty and fuel prices and the value of long term signals to consumers; and iii) the Government's environmental appraisal of the new measures.

3. The Committee did not consider the competitiveness impact of the Pre-Budget fuel duty measures as this is the subject of a current inquiry by the House of Commons Trade and Industry Committee which is expected to report shortly.[6] We also did not discuss the impact on the road haulage industry in any great detail as this matter was considered by the House of Commons Environment, Transport and Regional Affairs Committee in their Fifteenth Report (1999-2000) The Road Haulage Industry.[7] A summary of the key conclusions of the latter is appended to this Report (see Appendix II).

4. The Committee took oral evidence from Mr Stephen Timms MP, Financial Secretary to HM Treasury as well as the Automobile Association, Transport 2000, BMW, BP and the Institute for European Environmental Policy (IEEP). We received written evidence from a variety of Non-Governmental Organisations (NGOs), transport groups and businesses as well as statutory bodies such as English Nature and the Environment Agency. We were assisted by specialist advice from Dr Paul Ekins of Forum for the Future and Keele University and Mr Chris Hewitt of the Institute for Public Policy Research.

Fuel Duty and the Environment

The Fuel Duty Escalator

5. Her Majesty's Customs and Excise has applied fuel duties in the UK since 1928[8] as a revenue-raising measure to support Government spending programmes—Government figures show that fuel duty raised £22.3 billion for the Exchequer last year (1999-2000).[9] In 1993, the Conservative Government initiated the presentation of fuel duty as an environmental tax. The then Chancellor, Rt Hon Norman Lamont MP, announced that it would be increased by at least 3% in real terms in future Budgets as part of a long term strategy to meet the UK's climate change commitments ie the UK's Kyoto targets.[10] This policy became known as the Fuel Duty Escalator (FDE).

6. The UK has a legally binding target under the Kyoto Protocol to reduce its greenhouse gas emissions[11] to 12.5% below 1990 levels over the period 2008-12. The Labour Government also has a domestic goal of a 20% reduction in carbon dioxide emissions below 1990 levels by 2010.[12] Carbon dioxide currently accounts for about 80% of UK greenhouse gas emissions and is therefore the focus of the UK's climate change programme.[13] The transport sector is a key sector to tackle as it presently accounts for about 23% of total carbon dioxide emissions with road traffic one of the fastest growing sources.[14] Between 1970 and 1997, carbon dioxide emissions from transport rose by 87% and the proportion of total emissions from road transport more than doubled to 26%.[15] Between 1970 and 1989, the growth in motor vehicle use outstripped that of economic growth.

7. Carbon dioxide is an unavoidable consequence of burning fossil fuels and with vehicles it is not practical to use "end-of-pipe" technologies to remove it from exhaust gases. The only options are to burn less fuel (either by improving fuel efficiency or reducing the total distance travelled) or to switch to a lower carbon fuel or power source.[16] Increasing the price of fuel can send a signal to the consumer to make these changes but there is little agreement on the effectiveness of this signal.

8. The Conservative Government maintained the FDE during its administration and the Labour Government continued the policy between 1997 and the "cancellation"[17] of the FDE in 1999. This change of policy is discussed in paras 25-38. Both Conservative and Labour Governments have been consistent in justifying the use of an FDE on environmental grounds—principally in terms of reducing carbon dioxide emissions—primarily through statements in successive Budget and Pre-Budget speeches, reports and press notices. Key Government statements from 1993-2000 are set out in Tables 1 and 2.

9. In the July 1997 Budget, the Labour Government acknowledged that the FDE met the general principles for good taxation as set out in the Government's Statement of Intent on Environmental Taxation. One such principle is that "polluters should face the true costs which their actions impose on society".[18] The statement also has a guiding principle of shifting the burden of taxation from "goods" to "bads". Analysis by the Office of National Statistics (ONS) indicates that this shift has been slowly taking place. Environmental tax revenues increased by 47% in real terms between 1991 and 1999, accounted for 9.8% of all tax revenue and amounted to 3.7% of GDP in 1999. The ONS attributes this increase largely to taxes on energy products (hydrocarbon fuel duty, VAT on that duty, and the fossil fuel levy).[19]

Table 1: Key Statements on the rise of the Fuel Duty Escalator

Year/ Source	Party/ Chancellor	Statement
1993 Budget	Conservative Norman Lamont	Announced that fuel duty would be increased by at least 3% in future Budgets as part of a long term strategy to meet the UK's commitment at the Rio Summit to reduce carbon dioxide levels to 1990 levels by the year 2000.[20]
1994 Budget	Conservative Kenneth Clarke	Announced that all road fuel duties would be increased on average by at least 5% in real terms in future Budgets. Increased road fuel duties by 3p per litre, representing an increase of between 8% and 10%.[21]
1995 Budget	Conservative Kenneth Clarke	"I intend to stick to my commitment to raise road fuel duties by at least 5 per cent on average in real terms...tax on petrol and diesel will rise by 3½p a litre. I also plan to increase the tax on super-unleaded petrol by a further 4p next May. This reflects its higher emission of pollutants such as benzene and the dangers to the revenue of switching from leaded petrol. Despite these increases, petrol prices in this country should remain lower than in any other major European country."[22]
1996 Budget	Conservative Kenneth Clarke	Reaffirmed the commitment to raise fuel duties by an average of at least 5% each year in real terms. He commented "I firmly believe that motorists should bear the full costs of driving—not only wear and tear and congestion on the roads, but the wider environmental costs.....We all ought to consider carefully the use of our car".[23]
1997 Budget	Labour Gordon Brown	Announced a significant increase in duty rates as part of a wider reform in tax policy. He made it clear that increased road fuel taxation met the general principles for good taxation set out in the Government's Statement of Intent on Environmental Taxation. "In line with this approach" he announced that, road fuel duties would increase by an extra 1% every year over and above the annual 5% real rate of increase established by the previous Government.[24] "The increased commitment to 6% recognises the environmental and other costs attached to road use. Road traffic is the fastest growing source of carbon dioxide and the increased commitment will therefore provide a significant contribution to meeting the Government's target for a 20 % reduction in emissions of carbon dioxide by the year 2010. Assuming that such 6% increases are made for the lifetime of this Parliament, this will produce additional savings, by the year 2010, of around 2½ million tonnes of carbon annually."[25]
1998 Budget	Labour Gordon Brown	The Chancellor confirmed the Government's commitment to increasing fuel duties by at least 6% in real terms each year and that the Government supported the principle of the FDE. He stated that "there was agreement that only with the use of an escalator can emission levels be reduced by 2010 towards our environmental commitments".[26]
1999 (March) DETR Sustainable Distribution Strategy	Labour	"The Government recognises the haulage industry's concern that the fuel duty escalator makes fuel in the UK more expensive than in other EU countries. However, the fuel duty escalator is the best way known to encourage fuel efficiency, for which there remains plenty of scope. It is also only one factor in haulage costs, albeit an important one; UK hauliers do benefit from more favourable company taxation and social costs than in many other EU countries."[27]
2000 (Nov) limate Change: The UK Programme	Labour	"One measure which has already delivered reductions in emissions from road transport is the fuel duty esclator...[which] has been very successful. It sent a clear signal to manufacturers to design more fuel efficient vehicles, and to motorists to avoid unnecessary journeys and to consider alternatives to the car."[28]

Table 2: Key Statements on the shelving of the escalator

YEAR		STATEMENT
1999	Pre-Budget	The Chancellor announced that the 6% fuel escalator would not apply in future Budgets. Since 1997, the escalator has been needed to reduce the £28 billion deficit that we inherited, as we put in place our new measures to protect the environment. Those who have opposed the escalator—including some of those who originally imposed it—have to explain how, without it, they would have cut the deficit, made money available for public services and met our environmental commitments in the past two years. Having cut the deficit and introduced our new environmental policies, we are now in a position—instead of the pre-announced 6% escalator—to make our decisions Budget by Budget, with the following commitment: if there are any real terms rises in road fuel duties, they will be lower and the revenues will go straight to a ring-fenced fund for the modernisation of roads and public transport.[29] The environmental signals from the significant increases in fuel duty over recent years will be reinforced by the reforms announced in Budget 1999 to Vehicle Excise Duty and company car taxation. These are intended to provide incentives to purchase and use cleaner, more fuel-efficient cars.[30]
2000	Pre-Budget	The Government acknowledged that fuel duties had "played an important role in helping the UK meet its Kyoto target for reducing greenhouse gas emissions....However the environmental benefits of higher fuel prices must be balanced with the Government's social and economic objectives. Recognising the continuing high price of oil since the Budget, and the other measures taken by the Government to tackle climate change, duty on all fuels will be frozen in nominal terms in the next Budget."[31]

The impact of the FDE

10. Since 1989, the price of road fuel to the consumer has been steadily rising despite falls in the dollar price of crude oil (See Figure 1). This can be partly attributed to the use of an FDE although duty rises have not been consistently reflected in the pump price. Over the last decade there has been a steady and marked increase in the price of petrol at the pump against a level to falling pre-tax price. The price of crude oil increased by nearly 200% between early 1999 and May 2000. This resulted in an increase of around 13p/litre and 11p/litre for petrol and diesel respectively.[32] The Government's baseline assessment document for its sustainable development indicators states that "since 1993, there has been some uncoupling of road traffic growth from economic growth—motor vehicle traffic has increased by 11% to 1998 while GDP has increased by 16%. This coincides with the period when the fuel price, gross of tax, has been rising in real terms."[33] ie whilst the escalator was in place.

Notes:

(1) Prices are in nominal terms (ie not adjusted for inflation).

(2) The pump price and pre-tax price are based on data for leaded petrol (4 star), as at January each year. Data for unleaded petrol shows a very similar profile.

(3) Oil price is based on average annual calendar year data.

(4) Data sources: DTI, House of Commons Library.

11. The Government has acknowledged the FDE as "very successful" in both its climate change programme[34] and 10 Year Transport Plan.[35] The climate change programme comments that the FDE "sent a clear signal to manufacturers to design more fuel efficient vehicles, and to motorists to avoid unnecessary journeys and to consider alternatives to the car".[36]

12. The climate change programme describes the fuel duty escalator as a "supporting" economic instrument, along with changes to Vehicle Excise Duty (VED) and company car taxation, for its framework for action to reduce emissions from the transport sector as well as the EU Auto-Oil Programme.[37] In March 1999, the Government said that its environmental assessment showed that if the escalator continued at its present level (of March 1999) until 2002 it would improve urban air quality and reduce greenhouse gases by between 2 and 5 million tonnes of carbon (MtC) a year by 2010.[38] The Government has since revised this figure to account for the halting of the escalator. The climate change programme attributes a saving of 1-2.5 MtC by 2010 to the operation of the FDE from 1996-1999. This still compares favourably with 1.6 MtC from the Government's £180bn ten year transport plan.[39] In addition, the FDE is credited with contributing to the reduction in deaths brought forward by air pollution which are expected to fall by approximately 18,000 in the period 1996-2005.[40]

13. The Railway Development Society (RDS) believes that the FDE had reached a stage where it was beginning to affect modal shift from road to water and rail. From 1995 to 1998 rail freight rose by 34%, reversing the steady decline of previous years, and road and water freight rose by 6% and 7% respectively during the same period. Although rail freight was privatised in 1995, there was no similar external factor to account for the rise in water freight. The RDS therefore concludes that the figures demonstrate that rail and water have been winning traffic at the expense of road.[41] Early indications for 1999 statistics show that, for the first time in a number of years, negative growth has been experienced in road freight whilst rail shows a continued healthy growth. This is against a background of a steady increase in GDP. The Government seems to support this view—the background analysis to the Government's ten year transport plan attributes this shift to the "joint efforts of the new rail freight operators, Railtrack, and Government (in particular through an increased budget and streamlined procedures for freight grants) to attract more traffic to rail".[42]

14. The Government wants to see a "significant increase" in rail freight's share of the freight market by 2010 and believes that by then it ought to be possible to increase market share to 10% (from the present 7%) provided that the rail freight companies can deliver improvements in performance and efficiency. This equates to an 80% increase in rail freight.[43] Thus, the RDS felt that it was somewhat ironic that the Government had chosen the Pre-Budget 2000 to "reverse" its policy.[44] The escalator was first halted in the 1999 Budget, but it is the 2000 Pre-Budget which makes real cuts in the price of fuel as well as making further cuts in HGV VED rates. The general freeze of fuel duties, coupled with the duty cuts for ULSD, is equivalent to an 8p per litre cut in the price of diesel which the RDS estimates to equate to a possible 3% increase in the productivity of HGVs viz-a-viz rail.[45]

15. Mr Timms told the Committee that it was "an established fact" that the price of fuel had an impact on the distances driven.[46] Indeed, much of the evidence which the Committee received indicated that there was a widely held view that higher fuel prices had encouraged a switch to more fuel-efficient vehicles, suppressed fuel demand, and had helped to decouple traffic growth from economic growth during the 1990s.[47] However, there was no consensus that fuel duty was the most effective means to tackle the environmental problems associated with transport. The AA, for example, refuse to accept that the case has ever been made for an FDE at all.[48]

16. The WWF believes that the Government should ensure that fuel prices remain high in the future to send a signal to consumers that they must reduce their fuel use.[49] However, they too caution that high fuel prices alone will not solve the problem and must be coupled with increased availability and incentives for alternatives in the form of public transport, alternative fuels and more fuel-efficient cars.[50]

17. The Royal Commission on Environmental Pollution's (RCEP) 1996 report Transport and the Environment suggested that a doubling in the price of fuel was required by the year 2005 to realise the technical potential for fuel efficiency.[51] The Commission did not believe that the 5% fuel escalator introduced in the March 1993 budget was sufficient to achieve this. However, the AA and CBI question the effectiveness of using duty on fuel to meet environmental objectives at all and see it as rather a crude instrument.[52] The CBI argues that, whilst fuel use is directly related to carbon dioxide emissions, it doesn't discriminate efficiently between rural and urban areas where congestion and traffic levels (and therefore pollution) will be highest or between congested and free flow conditions.[53] BP told the Committee that a car travelling at less than 10 miles per hour is producing twice as much carbon dioxide per mile as a vehicle which is travelling at 20 miles per hour.[54] There is therefore a carbon dioxide benefit from having free flowing traffic.

18. English Nature believes that road fuel duties have a clear role in helping to reduce carbon dioxide emissions from the road transport sector. The body also suggests that there is an important, continuing role for fuel duties in the medium term in tackling congestion (the resulting free flowing traffic also brings reductions in carbon dioxide emissions). English Nature acknowledges that local incentive schemes, including road use charging, are the most appropriate measures to tackle congestion. Indeed, the Government's Integrated Transport Commission has suggested less emphasis on fuel duties and more on such schemes. However, English Nature feels that such programmes will take time to get off the ground and are being promoted cautiously by Government.[55] In the longer term, English Nature supports a managed transition towards a wider mix of instruments.

19. The AA's Motoring Policy Unit joined with the UK Petroleum Industry Association (UKPIA) to commission a report reviewing the evidence on how fuel prices affect car use. This review was carried out by Stephen Glaister CBE (Professor of Transport and Infrastructure—Imperial College) and Dr Dan Graham (Research Fellow at the Centre for Transport Studies—Imperial College) and was published in September 2000. This research concluded that both the short and long-term effects of petrol prices on traffic levels tend to be less than their effects on the volume of fuel burned.

20. The study pointed out that motorists find ways of economising on their use of fuel so that raising fuel prices is more effective in reducing the quantity of fuel used than in reducing the volume of traffic. The short term effects of higher fuel prices on fuel consumption are therefore small—a fuel price increase of 10% perhaps leading to a 3% fall in fuel consumption. Glaister describes this as a relatively low price response.[56] The AA did not regard this elasticity as sufficient to warrant such a tax on the motorist. The motoring organisation told us that this elasticity was "absolutely swamped" by the normal growth in incomes in any year so that although it had an effect it did not have a material effect.[57] The CBI also highlighted this limited elasticity in its submission to the Committee.[58]

21. However, we recall evidence from to us from the Quarry Products Association in 1999 which argued against a tax on the basis of a slightly lower level of elasticity (-0.25%) for aggregates. At the time we concluded that this was "not negligible" and of course the Government has since decided to introduce an aggregates tax from April 2002.[59] Furthermore, Professor Glaister's report did acknowledge that improvements in the fuel efficiency of vehicles and other adjustments take place in the longer-term, with rising fuel prices. Thus, in the long-run the reduction in fuel consumption may be twice as much or more, between -0.6 and -0.8.[60] Professor Glaister comments that this is a significant response but still less than proportionate to the fuel price increase.[61] There is still substantial debate amongst analysts about the long term elasticities of fuel demand and some use estimates that are more proportionate.[62]

22. BP acknowledged this difference in long and short-term effect. They had noticed that when oil prices were very high, making fuel prices high, that there was an immediate reduction in fuel purchasing. However, within the price ranges which the UK had currently been experiencing, BP did not feel that the price of fuel was discouraging people from using their cars in the short-term.[63] BP did agree that very high petrol prices over the longer term did influence people's vehicle purchasing decisions in order to reduce their total fuel bill. Malcolm Fergusson from the IEEP agreed that longer-term signals gave the consumer time to factor higher fuel prices into their lifestyle decisions.

23. Mr Timms told the Committee that the Treasury did not have a target fuel price in mind to influence behaviour, "or a threshold or a figure or any of those mechanisms".[64] However, we regard the Government's constant reference to the use of fuel duty to create a signal as inevitably involving a judgement as to the inter-relationship between: price, behaviour and the level of external costs of motoring.

24. With so little evidence presented, we can only rest on the Government's earlier views that higher fuel prices have curbed demand for fuel, helped decouple levels of traffic and economic growth and are the best way known to encourage fuel efficiency. The relevant Pre-Budget press notice states that "the environmental benefits of higher fuel prices must be balanced with the Government's social and economic objectives".[65] However, this balance has never been set out.

Stepping off the escalator

Budget 1999—the first step

25. In Pre-Budget 1999, the Chancellor announced that the 6% fuel escalator would not apply in future Budgets. He explained that the escalator had been needed to reduce the £28 million deficit that the Labour Government had inherited as they put in place "new measures" to protect the environment. Now that the deficit had been cut and the new environmental policies had been introduced, the Chancellor said that the Government was in a position to make its decisions Budget by Budget with the commitment that any real term rises in road fuel duties would go straight to a ring-fenced fund for the modernisation of roads and public transport.[66] The Chancellor did not indicate which environmental policies he had in mind. This was the first time that the Government had presented the escalator as a temporary stop-gap until alternative environmental measures were in place to reduce the environmental impacts of road transport.

26. In the 1999 Pre-Budget Report, the Chancellor said that the environmental signals from the significant increases in fuel duty over recent years would be reinforced by the reforms announced in Budget 1999 to VED and company car taxation. These were intended to provide incentives to purchase and use cleaner, more fuel-efficient cars.[67]

The "Fuel Crisis"

27. The 2000 Pre-Budget was expected to provide a key signal as to where the Government was heading on fuel duty in the absence of an automatic escalator. In advance of the Chancellor's statement, the so-called 'fuel crisis' brought the spotlight on the Government's use of fuel duty. In protest at rising fuel prices, hauliers, farmers and the general public blockaded oil refineries and depots during September 2000 demanding to see significant cuts in duty in the Pre-Budget.

28. The Government chose to defend its fuel duty policy on its revenue-raising merits— providing the necessary funding for our schools and hospitals—rather than highlighting the environmental objectives which had been so frequently and publically stated in previous Budgets. In a News of the World article,[68] the Prime Minister, Tony Blair, stressed that a cut in fuel duty of tuppence would cost the Treasury almost £1bn and reminded the public that this was money which could be used to fund schools and hospitals.[69] He reiterated this message in an interview on BBC Radio 4's Broadcasting House programme, cautioning that cuts in fuel duty could lead to increased mortgage rates and reduce spending on pensions and schools.[70] These were two key media opportunities and the Prime Minister made no mention of the environmental objectives of fuel duty.

29. The Head of the UN Development Programme, Mark Malloch Brown, noted that environmental concerns had been "noticeably lacking" during the protests in western Europe over high fuel prices and that the British Government had not made clear that the basis for high fuel prices was environmental concerns for clean air.[71] However, Mr Timms did not feel that the Government had "downplayed the environmental aspects". He told the Committee that he himself had talked about the environmental benefits of the fuel duty escalator at some length.[72] He felt that it was a very important element of the justification for the policy. Nevertheless, it must have been clear at the time that the Prime Minister's statements on the crisis, not those of a Financial Secretary, would grab the headlines. The Prime Minister still chose not to mention the use of fuel duty as an environmental policy tool.

30. The environmental NGOs eventually made some moves to mount a visible defence of the use of fuel duty for environmental objectives. Directors of key environmental groups such as Friends of the Earth, Greenpeace, World Wildlife Fund UK and the RSPB joined together and held a joint press conference at the start of the Labour Party Conference to put the environmental case for putting taxes on petrol and wrote letters to the press. However, despite these efforts, the environmental case wasn't heard—it just wasn't the story. During the fuel crisis, Greenpeace offered free biodiesel at a disused petrol station and has since been adamant that it is not afraid to make the case for high petrol prices. The group has also made it clear that it feels that the Government has "been running away from the real justification for a fuel tax—to stop climate change and improve air quality."[73]

31. The Committee is disappointed that the Government only highlighted the revenue-raising aspects of fuel duty during the recent fuel crisis and neglected to make the link to its role in meeting the Government's environmental objectives. The Committee recognises the political difficulty, also evident internationally, of defending unpopular policies on their environmental merits. However, the Government is committed to promoting sustainable development and the Prime Minister has said he wants to "push green issues back up the political agenda".[74] The environmental pressures on policy-making are unlikely to diminish in the future and indeed are likely to become increasingly prominent. We therefore recommend that the Government seeks to tackle this issue.

Pre-Budget 2000

32. In Summer 2000, it was clear that the Government was approaching somewhat of a policy junction. Rising fuel prices per se were an issue with the public despite the fact that the real cost of motoring has hardly changed since 1974[75] whilst public transport fares have risen by 50% and real incomes have risen on average about 80%.[76] In addition, research commissioned by the Scotland Office, prior to the fuel crisis, has shown that British motoring taxes are slightly below the European average once taxes on car purchase, ownership and road tolls are included. The study by the economic consultants, Colin Buchanan and Partners, found that the average annual tax on a 1600cc car in Europe is £1,222 compared with £1,205 in the UK.[77]

33. The AA told the Committee that they thought the key factor in the public reaction was the realisation that duty and VAT represented 75% of the total fuel price.[78] The motoring organisation felt that "the fuel tax escalator was successful in raising general revenue until the public became aware of the rate of tax on fuel and overwhelmingly judged it unreasonable".[79] Mr Frank from BMW thought that this realisation had impacted so greatly because of an existing, underlying dissatisfaction with the total cost of fuel coupled with a lack of viable alternative options. This seems to be backed up by the results of recent opinion polls. A MORI poll commissioned by the Commission for Integrated Transport in 2000 found that 81% of people opposed any petrol rise whilst just 35% opposed congestion charging in certain circumstances. An NOP opinion poll commissioned by Greenpeace showed that the public was willing to pay the current fuel tax as long as a proportion of it was guaranteed to be spent on improving the environment by investing in public transport and developing "green" fuels.[80]

34. In Pre-Budget 2000, Treasury and DETR acknowledged that fuel duties had "played an important role in helping the UK meet its Kyoto target for reducing greenhouse gas emissions. However, the environmental benefits of higher fuel prices must be balanced with the Government's social and economic objectives. Recognising the continuing high price of oil since the Budget, and the other measures taken by the Government to tackle climate change, duty on all fuels will be frozen in nominal terms in the next Budget".[81]

35. Mr Timms told the Committee that "there is not a chasm between economic, environmental and social considerations on the one hand and political considerations on the other".[82] He felt that the Chancellor's pre-budget package reflected the widespread concern about the high price of crude oil and the effect on petrol and diesel prices, as expressed by members of the public and by hauliers and their concerns about UK competitiveness.[83] Mr Timms felt that it was right to respond to these concerns and that the Government had responded in an environmentally responsible way—with the changes to fuel duties, vehicle excise duties and car taxation rules. He said that the latter were all focused on encouraging cleaner fuels, more efficient vehicles and greener transport.[84] In the light of the recent oil prices, Mr Timms said that the FDE was no longer "a useful instrument" but the effect of its applications since 1993 remained "a helpful and important contribution towards meeting our Kyoto objectives".[85]

36. In a debate in the House of Commons on the fuel protests, the Environment Minister further justified Labour's change in policy—"when the price of oil continues to go down steadily and over a long period it is right to remind motorists that there is an environmental external cost of motoring that needs to be read into the petrol price. Now that we have had a tidal wave of price increases from the Organisation of Petroleum Exporting Countries [OPEC] it is absurd to continue with the fuel duty escalator. That is exactly why the Chancellor has abandoned it. He has also said...that he will take account of all the relevant factors—environmental and others—in determining, on a case-by-case basis, the appropriate rate of duty. He will certainly take account of the environmental cost".[86]

37. At the time of the fuel crisis, the Environment Minister, Rt Hon Michael Meacher MP is reported to have told the ITV Dimbleby Programme that there was a role for a FDE when the oil price was falling or gently rising.[87] However, this view seemed to be hastily corrected by the Chancellor and other Cabinet colleagues who stressed that the Government had no intention of bringing the FDE back and that Mr Meacher had merely been setting out theoretical possibilities in response to a series of theoretical questions.[88] However, it seems that Mr Meacher's "theory" is now becoming policy. Mr Timms told the Committee that if the recent high prices of crude oil continued then the Treasury would expect the duty freeze to apply for a further year. However, he also confirmed that if the price of crude dropped sharply, then the freeze could not be "taken for granted anymore" and that the Treasury would then again consider the need for an escalator.[89]

38. The Committee welcomes the Financial Secretary's assurance that the Treasury would reconsider the need for a fuel duty escalator in the light of a future sharp fall in the price of crude oil. If this assurance were formalised it would salvage the necessary long-term pricing signal. This should be coupled with a commitment to developing public transport and alternative fuels.

4 Statement of Intent on Environmental Taxation, HM Treasury, June 1997 Back

5 See the following Environmental Audit Committee reports:
First Report, The Pre-Budget Report, HC 547, Session 1997-98
Third Report, The Pre-Budget Report: Government Response and Follow-up, HC 985, Session 1997-98
Fourth Report, The Pre-Budget Report 1998, HC 93, Session 1998-99
Eighth Report, The Budget 1999: Environmental Implications, HC 326,Session 1998-99
Fourth Report, The Pre-Budget Report 1999: Pesticides, Aggregates and the Climate Change Levy, HC 76, Session 1999-2000
Sixth Report, Budget 2000 and the Environment, HC 404 Session 1999-2000 Back

6 The DTI memorandum submitted to that inquiry estimates that, looked at overall, spend on road fuels directly amounts to 1.3 percent of the value of output in the productive industries. Behind this, the overall figure for manufacturing is one per cent. Looking at the impact on overall relative cost competitiveness, the DTI expects that changes in motoring taxes are likely to be swamped by wider changes that influence relative costs such as shifts in productivity and earnings; and by developments in product and factor markets affecting the sectors themselves. Back

7 July 2000 Back

8 http://www.hmce.gov.uk/bus/excise/excover.htm Back

9 Budget 2000: Prudent for a Purpose, HM Treasury, March 2000, Table C9 Back

10 HC Deb 16 March 1993 c183 Back

11 Carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride Back

12 Cm 4913, Climate Change: The UK Programme, DETR, November 2000, p5 Back

13 Ibid, p56, para 16 Back

14 Tackling Congestion and Pollution: The Government's first report under the Road Traffic Reduction (National Targets) Act 1998, DETR, January 2000, p16 Back

15 Quality of Life Counts, DETR, December 1999, p178 Back