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Mr. Laws: I am grateful to the Economic Secretary for giving way again, and accept the argument that he is developing. However, he seems to be suggesting that we have arrived almost by accident at exactly the right rate of duty on tobacco products. He said that the Government have dumped the 5 per cent. escalator. How did they reach the verdict that tobacco duties now are exactly right in real terms, and will he publish the evidence for that?

John Healey: The hon. Gentleman's assertion that we feel we have got the balance exactly right is absurd. As I have explained, our policy operates Budget by Budget, and was set out in the 1999 pre-Budget report. We have taken a particular decision for this Budget.

My hon. Friend the Member for Hemsworth (Jon Trickett) clearly outlined the health consequences of accepting the amendments. Smoking is the largest single cause of preventable illness and premature death in the UK. It kills 120,000 people each year and costs the British taxpayer about £1.5 billion a year in treatment bills alone. The amendment would only add to the smokers' death toll and increase NHS costs for the treatment of smoking-related diseases. On that basis, I urge the House to reject the amendments if the hon. Member for Eddisbury presses them to a vote, and to support clause 1 unamended.

Mr. Stephen O'Brien: The Minister's response demonstrates the stubborn approach to the Taylor report that has caused widespread disappointment for a number of years. When he checks the Official Report, he might like to reflect on the point made by my right hon. Friend the Member for Fylde (Mr. Jack), not least because it will be pursued by other people. It would therefore be appropriate for the Government to answer it fully and properly.

My hon. Friend the Member for Tatton (Mr. Osborne) asked whether the Government used a model when they looked at the complex interrelation of health policy, revenue raising, smuggling, cross-border retail and wholesale trade and freedom of choice under a civilised and democratic system of Government, which has been challenged in the past day or so. It would be good if that model were publicly aired so that when Members on both sides of the House looked at these difficult and important issues on behalf of their constituents they had a common basis of information and understanding. A lot of arguments and interventions today, including those made in response to my speech, queried the veracity of the evidence base, so it would be of great benefit if the Treasury produced that model so that we could all be better informed when making such arguments in future.

I hope that the Minister does not resent the fact that we have had this debate in Committee of the whole House, as we have heard a particularly good exposition of pressing issues that affect the health of our constituents and the prosperity of people who run corner shops and other outlets. We have also heard great concern about the loss of revenue properly raised

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on smoking products by all Governments. I am glad that those important points were taken seriously. I am also encouraged by the Minister's decision that the rates applied by the Government were for this Budget alone. He put particular emphasis on the word "this", and we are clutching at that straw. Perhaps some of the serious arguments made in today's debate will find favour in future and, in light of the publication of the Taylor report, it would be particularly helpful if the Treasury model were made available. With those comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 ordered to stand part of the Bill.

Clause 4

Rates of Hydrocarbon Oil Duties

Mr. Jack: I beg to move amendment No. 60.

The First Deputy Chairman: With this it will be convenient to consider amendment No. 4.

Mr. Jack: I remind the Committee of my business declarations, which have been properly included in the Register of Members' Interests.

Our debate will focus on important and wide-ranging aspects of the Government's environmental policy against the background of the derogation of duty on diesel produced from oilseed rape, better known as biodiesel. I want to look at whether that derogation is set at the correct level. The farming industry and I do not believe that it is, hence the amendment. I want to examine the arguments that the Treasury have made to back up its position, and I give notice that if the Minister cannot agree with me in substance—either refusing to accept that the matter needs to be re-examined or not accepting my amendment—I will wish to divide the House, as I believe that the matter is of considerable importance.

The background to the issue is the Government's commitment to sustainability. In a section of the Red Book entitled "Protecting the Environment", paragraph 7.2, which is headed "A strategy for environmental taxes", says:

"Taxes and other economic instruments can provide incentives for behaviour that protects or improves the environment".

The former Minister of Agriculture, Fisheries and Food, the right hon. Member for Newcastle upon Tyne, East and Wallsend (Mr. Brown), pointed out in the foreword to "Towards Sustainable Agriculture" that that document

"highlights the role of agriculture in helping to achieve sustainable development."

It went on to outline how that role might be fulfilled, stating:

"Agriculture plays an important part in that strategy. It can help society in the quest for a better quality of life for everyone, now and for generations to come."

Those are lofty and supportable objectives, but unless agriculture is properly encouraged to play its part, those objectives of the wider Government strategy on sustainability will not be met.

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In their overall approach on energy policy, the Government have made it clear that in the field of electricity generation there are renewables obligations that must be met by those who supply electrical energy. The mechanism for achieving that objective is effectively that all those who are distributors of electricity have to buy a quantity that is renewable and pay a premium for that. The costs of that premium are absorbed in the cost of the electricity.

In advocating a lower rate of duty on biodiesel than that which currently applies, the first challenge for a Treasury Minister is to make it clear that there is a cost attached. I wrote to the Economic Secretary following representations on the matter from Mr. Graham Secker, the managing director of Cargill plc, and in his reply the right hon. Gentleman stated that the Government

"cannot support these fuels at any cost."

That is almost like saying that the Government cannot afford to give anything, but the Economic Secretary knows that a derogation of 20p per litre has already been given. It is a good first defensive line, so let us deal with it straight away.

If the Minister genuinely wanted to encourage the use and the growth of biodiesel from the production of oilseed rape, he could have moved from a derogation of 20p per litre to a derogation of just over 28p per litre, as my amendment proposes, and he could have recouped the entire cost, over the total number of litres of diesel sold in the United Kingdom, by a fractional change in the duty rate charged on other forms of diesel fuel. He could, if he had so wished, have made that an even smaller increment if he had imposed it across the whole range of liquid hydrocarbon fuels derived from mineral sources.

The question is how to pump-prime the exercise to get biodiesel production up to speed. In the same letter, the Minister went on to say that he did not want to

"over-compensate biodiesel producers for bringing their product to market".

The Cargill company has done some detailed analysis to show why, in its judgment, 28.2p as opposed to 20p per litre reduction in duty is the right figure. I shall return to that shortly.

In his interesting letter, the Minister seeks to broaden the logic of the argument in order to justify his position. Instead of staying close to the issue of biodiesel versus other forms of green energy, he states that the reason why a more generous derogation of duty is not possible is that that would interfere with

"the 'price' of other environmental programmes that could also tackle climate change (for example, better home insulation)."

I do not disagree that pound for pound, better home insulation delivers a greater CO2 saving than does biodiesel, but I would have extreme difficulty in running my diesel car on home insulation. The Minister's attempt to compare apples and pears fails the first test of whether there is a logical basis for the Treasury's position on the matter.

Then the Minister goes even wider in his letter. According to him, my proposal

"could affect our ability to provide essential public services such as schools and hospitals."

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I did not know that the Government's investment in schools and hospitals rested on the differential of 20p to 28p of duty on biodiesel. Perhaps it illustrates the fragility of the current economic situation that the entire investment rests on that argument. With such fragile and inconsistent logic, the Minister triumphantly states in the letter:

"That is why we decided that a 20 pence per litre duty cut relative to ULSD"

that is, ultra-low sulphur diesel—

"is sufficient recognition of the environmental benefits both from biodiesel and bioethanol and provides best value for money."

The Minister has drawn that from a report commissioned by the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs from Sheffield Hallam university. I have a copy of that report, which is quite a thick document. I should be grateful if the Minister would cite the page on which the conclusion is reached that 20p, as opposed to 28p, is the right amount to stimulate agriculturally based biodiesel. In the time that I have had the report, I cannot claim to have read every word of the closely argued economic text, but that is not the conclusion that I have reached from my reading of it.

Although the Minister did not say so in his letter, the document is about comparing different ways of saving CO2. With reference to kilograms of carbon dioxide saved for every pound spent, the Minister would be entirely right in quoting from page ix of the report the figure of 478.5 for loft insulation. One of the other comparators that gives better value for money, electricity from short rotation coppice, saves 19.6 kg of carbon dioxide per pound of public investment. The only problem is that the one power station that burned short rotation coppice has just gone out of business.

Biodiesel from oilseed rape comes top of the liquefied fuels that have a carbon dioxide-saving property. If we compare like with like, biodiesel has a good basis, but the same report goes on to counsel us:

"Currently, there is no agreement on these estimates which provides a sound basis of consensus for setting a justified level of derogation for biodiesel".

In other words, the report admits that there is a flaw in the logic of all this comparative activity. Yet that is the platform on which the Minister bases his argument that his 20p is the right number.

In the interests of greater illumination of the facts of the matter, I tabled a question last week:

"To ask Mr. Chancellor of the Exchequer, if he will publish the calculations which he used to determine that £0.2710 shall be the biodiesel duty rate, as shown in clause 4 of the Finance Bill."

Given all the hard work, justification, letter writing and consideration of the matter in previous Finance Bills, one would think that by now the Minister would have no difficulty in giving me an answer. What was the reply?

"I shall let the hon. Member have a reply as soon as possible."

It is pathetic that the Economic Secretary was not able to share with the House the logic and calculation on which the rate of duty is based, so we are left to make up our own mind. Being a seeker after truth, I moved to the pre-Budget Report 2002 of the House of Commons Environmental Audit Committee, HC 167. I thought I

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might find an answer there about the basis for the calculation. In paragraph 10 of the report, on page 9, I discovered that the Committee had questioned the Economic Secretary on the level of biofuel duty. He said:

"The dynamics for the intervention that we believe we need to make in the case of bioethanol or biodiesel is different from that of the fuel gases"

—that is, liquid petroleum gas. The Committee made this comment on that arcane and incomprehensible sentence:

"We found his comments arcane, and requested further information on the extent to which the Treasury had carried out a comparative appraisal of the costs and benefits of different fuels."

It went on to state:

"We are concerned not only over the basis of such environmental costings but also at their selective use."

The more we look at the justification for the Treasury's position, the more we find that there seems to be a great secret. Perhaps this calculation falls into the same category as the points made about the Taylor report in respect of the previous amendment. For some reason, a Committee criticises the Economic Secretary for not coming clean and for selective use of information, and a question to which I wanted an answer was not answered.

Paragraph 13 of the report states:

"Promotion of biofuels could provide huge benefits in carbon savings, and indeed a recent report has suggested that a quarter of the UK's agricultural land could in principle provide sufficient biofuel to satisfy total transport demand."

The Committee concludes its observations thus:

"We are also concerned, in this context, at a certain tension between the Treasury's traditional desire for secrecy in relation to tax changes, and its new-found zeal for consultation and long-term signals."

That is a profound finding, as it suggests that there would be potential for an agricultural revolution if the duty rate was right. However, we do not know how the Treasury calculated its figures and some very interesting questions are raised about its conduct in these matters.

I therefore turned to the National Farmers Union for greater solace. It rightly reminded me—this is built on the back of what the Environmental Audit Committee said—of the following:

"Crops sequester carbon from the atmosphere as they grow, and recycle carbon when used as fuels, rather than re-introducing locked-up carbon into the atmosphere as fossil fuels do."

I make that point because it underscores the importance of the carbon cycle and the sustainability of an energy policy that is more strongly founded, certainly in relation to diesel fuel, on the use of biofuel. As I shall demonstrate in a few moments, the economics currently do not add up.

Let me return to the Sheffield Hallam university report, which goes into considerable detail about whether a good return is available for the expenditure involved. Through the arable area payments scheme, oilseed rape growers effectively receive a subsidy under the common agricultural policy. Those arrangements may change, but the status quo is the arable area payments scheme. The duty derogation that I propose in the amendment would give further encouragement on top of that scheme to induce farmers to move to the

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production of oilseed rape for the purposes of producing biodiesel. The Sheffield Hallam report refers to the oilseed rape contribution in reducing carbon dioxide and greenhouse gases:

"This demonstrates that biodiesel from OSR is more cost effective as a means of saving net carbon dioxide and GHG emissions than CNG".

As you, Mrs. Heal, may recall from discussion of previous Finance Bills, compressed natural gas is also a road fuel. The argument in favour of giving that fuel a duty derogation was sustained on health grounds and not CO2 grounds. Given the problems that the Government may have in meeting their international obligations in future, there is a powerful case to suggest that the production of biodiesel from oilseed rape should be encouraged. The report states that biodiesel gives a better return for the public purse on CO2 and greenhouse gas emissions than compressed natural gas as an alternative road fuel. That powerful finding features in a report that the Government prayed in aid in justifying not doing anything about the issue. As I said, the report also counsels us about the validity of the basis of the Government's arguments on their calculations.

I think that I have undermined the position that the Government have taken in justifying their stance and not doing anything about this matter in terms of the Environmental Audit Committee and Sheffield Hallam university reports. On the duty rate itself, I wish to deal with the effect that the current position would have. In a letter that Cargill sent to me, it gives the following counsel:

"If the Government were to follow EU guidelines targeting 2% biodiesel by 2005, this 400,000 litres per month"—

the current rate of production—

"must be expanded some 80-fold to 32 million litres per month".

The letter refers to the Motherwell plant, which will make biodiesel, but use waste food and animal products to do so. The Economic Secretary prayed that plant in aid in his letter to me, and implied that, because of what was happening at Motherwell, we did not need to do anything to encourage the production of biodiesel from oilseed rape. However, as I shall show in a moment, that is not the case. Cargill states:

"It is our understanding that the Motherwell plant is adding some 4.5 million litres per month, leaving a further 27 million litres"

to meet the European Union target. It goes on to state:

"This is simply not possible from the available quantities of RVO and tallow. At current market prices of rapeseed oil and crude mineral oil, the 20p per litre derogation for biodiesel is insufficient to stimulate the growth of additional UK rapeseed, nor the investment in biodiesel production facilities capable of producing this 32 million litres . . . per month required to meet the near-term targets."

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