Select Committee on European Scrutiny Fortieth Report



Draft Council Directive to introduce special tax arrangements for diesel fuel used for commercial purposes and to align excise duties on petrol and diesel fuel.

Legal base:Article 93 EC; consultation; unanimity
Document originated:24 July 2002
Deposited in Parliament: 17 September 2002
Department:HM Customs and Excise
Basis of consideration: EM of 30 September 2002
Previous Committee Report: None
To be discussed in Council: Not known
Committee's assessment:Politically important
Committee's decision:Not cleared; further information requested

The document

  3.1  This draft Directive would amend Council Directive 92/81/EEC (harmonisation of the structures of excise duties on mineral oils) and Directive 92/82/EEC (approximation of the rates of excise duties on mineral oils). It would introduce a single harmonised excise duty rate on diesel fuel used for commercial purposes by 2010, with a transitional period from 2003, and would align the excise duties on petrol and diesel fuel at national level.

  3.2  Harmonisation would create a single EU-wide rate of duty on diesel used by commercial users - defined as hauliers with lorries weighing 16 tonnes or more and coach operators. The harmonised rate would be indexed in line with inflation. Decoupling the rate for commercially-used diesel from that for diesel privately used, would be accompanied by Member States having to tax diesel for private users at least as highly as that for commercial users, and being encouraged to approximate the rate for diesel for private users to the rate for unleaded petrol.

  3.3  The current rate of duty on diesel in the UK is more than one and a half times the central Community rate proposed to come into force on 1 January 2003. The transitional provisions in the draft Directive would allow the Government to set a rate that lay outside the central Community rate, whilst respecting the Community minimum rate. This derogation would be available for a maximum of seven years. The Government would also have to agree a convergence plan to bring the UK excise duty rate within the band applicable to the other Member States by 31 December 2009.

  3.4  The Commission adduces competition and environmental arguments in favour of its draft. It says that, although there are minimum rates in Directive 92/82/EEC, duties on mineral oils vary considerably between Member States. This leads to considerable distortion of competition in the internal market, particularly in the international transport sector.

  3.5  On the environmental issues the Commission says the principles of sustainable development require that transport users should pay their external costs. It argues more generally that the prices for goods, services and activities should cover any environmental damage they cause. The Commission suggests that taxation is an effective tool for dealing with diffuse sources of pollution such as CO2 emissions from motor vehicles.

  3.6  The Commission asserts that harmonising upwards duty rates for commercially-used diesel will address both the competition and environmental issues. It also asserts that the approximation of rates for diesel and petrol for private vehicles would allow Member States to balance more equitably the rates on these fuels with regard to their environmental costs.

The Government's view

  3.7  The Chief Secretary to the Treasury (Mr Paul Boateng) tells us:

    "The Government accepts the principle of minimum rates on diesel duty across the EC to protect the environment. However, the Government sees no reason for a harmonised excise duty rate and believes that instead Member States should retain flexibility to apply different duty rates, above the minimum, to diesel used by lorries and by cars. The Government therefore believes that this proposal unnecessarily restrains Member States' tax policy and will make this clear in negotiations."

  3.8  The Minister says also "If accepted, these proposals would more than halve the current rates of diesel duty paid by commercial users. A provisional estimate suggests that the cost of such a reduction to the revenue would be approximately £2 billion per annum."  


  3.9  This draft Directive is important: on the one hand it seeks to address perceived competition and environmental problems. On the other it would force on the UK a high degree of harmonisation and would greatly reduce revenues for the Exchequer.

  3.10  This proposal is in the initial stages of negotiation. We should like the Minister to keep us informed of progress. We should like also to see a Regulatory Impact Assessment as soon as the likely final shape of the draft Directive emerges. Meanwhile we do not clear the document.

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