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Mr. Stephen O'Brien: First, I would like to address the points made by my right hon. Friend the Member for Fylde (Mr. Jack) on the amendment tabled in his name, which is fully supported by my right hon. and hon. Friends in Her Majesty's official Opposition's shadow Treasury team. At the same time, I should like to speak to the amendment to clause 5, which has, for the House's convenience, been grouped with this amendment. Both amendments relate to the rates of hydrocarbon oil duties, but they none the less employ very different arguments.
In an attempt to maintain some kind of logic in this discussion on amendments that straddle two clauses which deal with very different sets of circumstances—despite being banded together under a common title—I would like to pay tribute to my right hon. Friend the Member for Fylde. His speech was a lesson to us all in identifying, researching and introducing an original perspective on the deliberations of the House. A Committee of the whole House is one of the few occasions on which we genuinely get the opportunity to consider carefully the effects of measures on which the Government naturally have to take decisions that are all-encompassing, in terms of brackets of categorisation. We discover, however, that those effects can have a direct impact when we drill down into the detail.
It would be an inefficient use of the House's time, and also less than respectful to the fine arguments that my right hon. Friend has deployed, if I were to try to demonstrate that I have understood them, although I like to think that I have. I would, however, like to place it on record that Her Majesty's official Opposition not only fully endorse my right hon. Friend's remarks but congratulate him on his tremendous exposition of the arguments. It will be very difficult for the Minister to resist them.
I note the support that the National Farmers Union has given in relation to this issue. Its chairman with responsibility for alternative crop uses has said:
- "The Chancellor recognised in his statement . . . that bioethanol has a valuable role to play in reducing pollution levels. We will continue to press for the necessary duty cut to get the industry off the ground."
Mr. Jack: I am most grateful for my hon. Friend's generous words. He has mentioned bioethanol. Is he aware that British Sugar is looking closely at the question of substantial investment in this area, particularly in relation to bioethanol and the use of raw materials derived from the sugar production process
and possibly even from potatoes? Does he agree that such developments would be dependent on a more generous derogation on the duty, to pump-prime what could be some very major investment?
Mr. O'Brien: My right hon. Friend is absolutely right. That information, albeit in summary form, has come in my direction as well. These are large and detailed matters, and the Committee of the whole House gives us the opportunity to ensure that they are put on record and that the Treasury Minister has the opportunity to consider them. None of us necessarily expects or even wants an immediate answer relating to some of the detailed points. Sometimes, following a good discussion, a Minister has to go away and consider—but we expect him to return with a reply that is both responsive and responsible.
3.45 pm
I have had to look into these matters in my constituency. One of my constituents is an amazing entrepreneur, Stephen Whittaker, who has been studying the conversion of used vegetable fats into what he calls e-diesel. It has been enormously successful. An old calf-rearing shed has been converted into a number of small vats. He now has a lorry, and has secured contracts with some of the country's major retail chains and hauliers. He has had to contend with all sorts of planning issues, and he naturally called on me for assistance and support. I feel that such initiatives should be supported in all their guises, and that the Treasury and local planning authorities should help whenever they can.
There is a genuine demand for alternative fuels, and they can be provided through incredibly hard graft, dedication and often sacrifice on the part of entrepreneurs and their families. Huge capital risk is needed to get such projects off the ground. We may never hear of the failures: some entrepreneurs, in the cause of what may be the country's best interests over time, and certainly the best interests of the environmental agenda, may well prove to be sacrificial martyrs.
The real opportunities lie in major capital investments such as those mentioned by my right hon. Friend the Member for Fylde, and the possibilities that he says British Sugar is considering. The main barrier in such instances may be not access to capital, but access to confidence in a resulting cash flow in a competitive context. That is the pump-priming opportunity that will persuade a business to make a decision. At present there is not a sufficient incentive. The proof lies in whether the decisions allowing for investments have yet been made. The Treasury should recognise that what we are discussing is both worthy and highly beneficial, and unlikely to cause consternation or controversy between parties.
Clause 5 provides for an increase in duties on rebated gas oil, known as red diesel, of 1p per litre, in addition to a rise in line with inflation of 0.09p per litre. Fuel oil use falls into two main categories. The first—with which we need not concern ourselves here—accounts for about two thirds of total use according to the latest estimates. The caveat relating to statistics has already been issued today. That first category covers domestic heating
boilers. The remainder is used in what are currently known as non-road vehicles, which in the past have been used mostly in agriculture—tractors and other farm vehicles. Nowadays, following the collapse of farming as a share of the rural, let alone the general, economy over the past three or four years, plant that is hired and operated on construction sites constitutes a larger element. I understand that it is right to describe such vehicles as "non-road" because they are not used on public road sites, but JCBs are used as tractors and categorised as such, and the same applies to plant hire vehicles, cement mixers and rollers. They use fuel oil that is marked with a dye and chemical markers, which is why it is known as red diesel.My hon. Friend the Member for Billericay (Mr. Baron) ably represented the interests of farmers in and around his constituency. An attempt has been made to justify the additional duty increase on environmental grounds. It has been argued that as red diesel currently has a higher sulphur content than road diesel, it contributes to local air quality problems. That may sound very worthy from a Government who are seeking to put forward yet another of their "green" taxes, but as we have discovered over time, they have always been revenue-raising and highly dubious. That was demonstrated not least in relation to the previous clause and the true vires of a "green" initiative that will deliver the goods.
An increase in the level of duty should therefore lead to a reduction, it is said, in red diesel use, ameliorating the environmental impact. However, agriculture, for example, is an essential user of fuel, and farmers will use only as much fuel as individual activities demand. The industry's current financial difficulties also mean that farmers will be looking towards the most efficient use of fuel on farm, so it is highly unlikely that the increased duty will lead to a reduction in usage.
So the environmental arguments for the increase must also be questioned, given that the duty on rebated ultra-low sulphur diesel is also being increased by 1p. The increase in duty will in fact result in an increase in the industry's fuel bill of about £25 million. This increase in duty comes at the same time as the Government's themselves campaigning against the European Parliament's proposal to harmonise fuel qualities for non-road diesel in line with those for ultra-low sulphur road diesel. I pay tribute to the Government for the UK's successfully arguing that the proposed harmonisation—an ever-present danger of the EU's agenda, as we all know—would impose an unacceptable increase in costs of about 2p per litre on the agricultural industry, with marginal environmental benefit.
I am simply arguing, on exactly the same ground, that red diesel should not face an unacceptable extra 1p per litre increase in such costs. Sulphur levels in red diesel are set to fall over the next five years, from their current level of 2,000 parts per million to 350 parts per million. If the current duty increase reflects the perceived environmental cost of red diesel, the benefits that lower sulphur levels are adjudged to bring should also be reflected by removing the extra 1p per litre, recognising that lower sulphur red diesel is, or is shortly expected to become, available.
The farming industry continues to be in crisis, and frankly this measure does nothing to help. If the Government are allowed to persist with it instead of accepting this amendment, a further body blow will be struck to the UK's rural economy and to our struggling farmers. Compared with 1995, income from farming in 2002 was down 62 per cent., at £2.36 billion; in 1996, it stood at £5 billion. Britain's rural economy continues to be mired in one of the deepest recessions that it has experienced since the first world war. The Government's inflation-busting increase in fuel duty on red diesel will do nothing to help our struggling farmers, who are still recovering from the Government's mishandling of the foot and mouth crisis and the slump in farm incomes.
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