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The Chief Secretary to the Treasury (Mr. Paul Boateng): That is quite unnecessary.
Mr. O'Brien: Well, the Chief Secretary will be interested to know, particularly given the reward that he receives—I wonder whether everybody in the country feels that it is fully earned—that in the year to December 2002, UK farmers earned, on average, £11,107. They work some of the longest hours of anyone; 75 per cent. work more than 60 hours per week, and on average they earn just £3.60 an hour. Labour's latest sting on rural Britain will see more family farms go bust, and falling incomes will come under intense pressure, forcing even more farmers to quit the industry. My constituency contains many farmers, whom I seek to represent, and there is a real feeling there and across rural Britain that this measure is yet further proof—if proof were needed—that Labour does not understand the countryside or the wider economic contribution that farming makes to Britain's economy. That ignorance is costing Britain dear. So there is a solution—
The First Deputy Chairman: Order. I have given the hon. Gentleman some leeway; perhaps he could now relate his remarks to the amendment in question.
Mr. O'Brien: I am grateful for your comment, Mrs. Heal, and having made the point I am happy to move on. However, this is a very serious issue for that part of the industry.
It is not just the farming community that is suffering. I have received correspondence from EWS, the rail freight company, which says that it uses rebated gas oil—red diesel—off-road, of course. The cost to EWS alone will be £1.81 million and, when additional costs imposed on other operators are added, the cost to the rail freight industry will be at least £2 million a year. We understand that the increased costs to the passenger rail industry—an industry already in terrible straits—will be more than £10 million, and the Government's measure will make it harder, not easier, to improve an essential public service.
- "The Government wishes to encourage the transfer of freight from road to rail. This tax will have the opposite effect. The environmental benefit of rail freight is considerable with significantly lower noxious emissions per tonne moved than by road. Therefore the imposition of an environmental tax that will lead to more traffic on the roads will actually have the reverse effect to that intended by the Chancellor."
- "The rail freight industry has a good track record of reducing its environmental impact. The Class 66 locomotive, used by most rail freight operators, produces one-tenth of the polluting emissions of older locomotives; this tax imposition fails to recognise our achievements in this area."
Mr. O'Brien: I certainly salute the hon. Gentleman's knowledge of class 66 locomotives, but I hope that his intervention does not signal his belief that operational efforts to produce more fuel-efficiency should be diminished simply because of the genesis of what drove the need in the first place. The current tax imposition will hardly encourage further improvement in that respect.
One important aspect of the red diesel imposition is overall environmental benefits. My hon. Friend the Member for Aylesbury (Mr. Lidington) put it well when he asked:
- "Is this Government measure not absurd when balanced against the negative environmental impact it may bring about by forcing more farmers, custodians of our landscape, onto the scrap heap?"
- "Agriculture is not just important economically; farmers and growers are the custodians of a landscape that is valued by the people in the cities as well as villages and which is a prime asset for our tourist industry."—[Official Report, 16 October 2002; Vol. 390, c. 391.]
I shall not take up the Committee's time in reading it out, but a new pamphlet was issued by Her Majesty's Customs and Excise on precisely that point. It is entitled "Buying red diesel, or rebated kerosene/paraffin for your own use" and includes new rules from 1 April 2003. Clearly, the publication of that document is part of the Government's investment in anti-avoidance. In order to buy diesel from 1 April this year, the document insists that people give information on name, address, postcode, phone number, VAT registration and VAT number, vehicle registration number—if the oil is collected—and intended use. That is a serious example of a compliance procedure based on red tape and bureaucracy. To my mind, all red tape is anathema, though it may be necessary for anti-avoidance.
Any counter-argument that the Treasury may have been advised could add to its potential armoury against our proposals today would be wholly misconceived, because anti-avoidance can be achieved through other
measures. This is a direct slap in the face of the interests of farmers, who are already suffering enough and are doing their best to bring themselves out of the deepest recession in farming since the 1930s.I have one other point that most properly belongs in the stand part debate. I leave it to your discretion, Mrs. Heal, as to whether you prefer me to leave it until then or to make it now.
The First Deputy Chairman: That is entirely a matter for the hon. Gentleman.
4 pm
Mr. O'Brien: I shall leave it to the stand part debate. We hope that we will receive recognition for our arguments on behalf of all current users of red diesel, especially the farming community. However, if we are not satisfied by the response from the Economic Secretary, we will press the matter to a vote.
John Healey: Clause 4 increases the main excise duty rates on hydrocarbon oils in line with inflation with effect from 1 October. The excise duty rate for biodiesel will also be increased to maintain the differential with ultra-low sulphur diesel in cash terms. I shall address the detailed points made by the right hon. Member for Fylde (Mr. Jack) in a moment.
Last year, the Chancellor described oil prices as high and volatile. In recent months, the military conflict in Iraq has contributed to exceptional volatility in crude oil prices. For example, prices this year have fluctuated from more than $32 a barrel to $24 a barrel, resulting in increases in pump prices for motorists. The oil price has started to fall recently to about $25 a barrel compared with the last few months, but when the Chancellor was making his Budget decisions he saw that there was a risk that international uncertainty could lead to continuing price volatility in oil markets. In those circumstances, instead of increasing fuel duty on Budget day, he deferred the increase until 1 October, by which time the risk of oil price instability should have reduced.
This is the first increase in fuel duty since 2000. The freezes that we have imposed have meant a cut in real terms, and since 2000 fuel duty has fallen by 5p per litre. Indeed, even delaying the introduction of the duty changes until October, for example, will cost £300 million in revenue forgone.
Income from fuel duty enables us not only to provide essential public services but to take account of the environment. Fuel duties and the regimes that we have introduced have contributed to the fall in transport-related emissions and play a continuing role in helping us to meet environmental targets such as those set at Kyoto.
The right hon. Member for Fylde may not agree with my response to his arguments, but I shall attempt to advance the debate in the same spirit in which he introduced it. We introduced the duty incentive for biodiesel of 20p per litre in July 2002, since when the production of biodiesel has increased sevenfold. That is a small beginning, and it is early days, but that sevenfold increase has occurred in only nine months. The incentive was chosen carefully to reflect the environmental benefits offered by the fuel. An incentive above that level—for which the right hon. Gentleman
argued—would not offer value for money for the taxpayer, and it would not be right for us to seek those environmental benefits at any cost.The right hon. Gentleman subjected that point, and others that I have put to him in correspondence, to a forensic examination. I am familiar with the Cargill analysis and I have met the company's representatives personally. Officials have also been in regular contact. The right hon. Gentleman also mentioned British Sugar. I have met representatives of that company and they, too, have had regular contact with officials. British Sugar has been able to supply detailed and high-quality information, evidence and analysis. That has been very valuable to the Government, and the information has helped us to move to a position where we believe that a similar bioethanol duty differential is also justified.
The principal policy purpose of the duty differentials is to secure a contribution to climate change. I am glad that the right hon. Member for Fylde does not disagree with my contention that home insulation, for example, has a more cost-effective impact on climate change, pound for pound. I hope that the right hon. Gentleman will bear in mind the policy purpose that I have outlined. The principal issue when it comes to cost is to set the duty incentive at a rate that reflects the environmental benefits offered by the fuel.
The right hon. Member for Fylde was right to say that the Sheffield Hallam university report looked at the different ways to secure the saving in carbon dioxide emissions that we seek. It assessed the environmental benefits offered by the different methods of securing that saving. That is why the right hon. Gentleman did not find the precise analysis that he was seeking in the report.
However, I know that a number of Labour Members have made arguments similar to the right hon. Gentlemen's. I am the Minister responsible for such matters, and I assure the Committee that the Government remain open to new arguments and evidence. We announced in the pre-Budget report in November that we believed that a duty differential to support bioethanol development could bring environmental benefits that justified that differential. Furthermore, my right hon. Friend the Chancellor confirmed in his Budget that the proposal would come into force in January 2005. That policy development came about because we had new evidence and analysis, and were persuaded of the case.
The right hon. Member for Fylde also mentioned road fuel gases, and gave the impression that the treatment of those gases was unfair and inconsistent with the treatment of biofuels. I reject those arguments, and I have rejected them in correspondence as well.
The duty rates for different fuels reflect the different environmental benefits that those fuels might offer. The environmental benefits of road fuel gases are found principally in local air quality benefits, rather than in climate change emissions. I note that there would need to be additional investment in infrastructure to distribute the road fuel gases.
The wider comments from the right hon. Member for Fylde on the future treatment of road fuel gases, and the benefits that could accrue in terms of carbon dioxide
emissions, have their place. He might wish to make his comments more fully, but I shall take what he said today as a contribution to the consultation on the future tax treatment of road fuel gases. My right hon. Friend the Chancellor announced that consultation in the Budget, and we will be undertaking it over the summer, jointly with the Department for Transport.It was not clear whether the right hon. Member for Fylde was advocating that 25 per cent. of the British countryside should be covered in rapeseed. However, in pressing the case for widespread rapeseed cultivation, he was arguing not just for greater biodiesel production but, in effect, for a production subsidy on non-food crops. Agricultural support is not the principal policy purpose of the biofuels duty differentials. Our reference point for decisions in this policy area are the environmental gains to be achieved through reduced carbon dioxide emissions, at a reasonable cost to the public purse.
The contributions from Opposition Members were rather confused. On the one hand, the Government are urged to support—more strongly and at greater cost— biodiesel as a cleaner fuel; on the other, we are urged to maintain support for red diesel, which is a relatively dirty fuel. That is rather mixed logic from the Opposition.
The second amendment is designed to limit the duty increase on rebated gas oil, or red diesel as it is commonly known, to 0.9p a litre. In other words, the increase would be limited to what is needed to revalorise the duty. I am glad to note that the Opposition endorse the principle of revalorising that duty, and I hope that they will therefore support the revalorisation contained in clause 4, but I am puzzled by the rationale behind the amendment. It is limited to rebated gas oil. It does not seek to mitigate increases on fuel oil, light oil used as furnace fuel and ultra-low sulphur gas oil, which are also provided for in clause 5. Since each of those fuels is, to some degree, in competition with others, the purpose of the amendment is confused and obscure. If accepted, it would lead to a larger duty increase being applied to the ultra-low sulphur version of gas oil, which is less polluting and more environmentally friendly than the higher-sulphur forms of gas oil. That would be perverse.
Let me explain the rationale behind the Government's proposals. In the UK air quality strategy, published in February, we set challenging new targets for local air quality. Rebated fuels can have much higher sulphur levels than the made road fuels, as the hon. Member for Eddisbury recognised, and their use continues to contribute to local air pollution.
The hon. Gentleman laid special emphasis on the interests of farmers, and it is important to put that into perspective. Red diesel is used in many sectors of the economy, both as a motor fuel and as a heating fuel. The measure is not specific to farmers, and farming groups have welcomed many of the Budget's proposals, including the freeze in lorry excise duty, extension of the capital gains tax business asset taper relief to landowners and the proposal that stamp duty should not be paid on leases where the net present value is less than £150,000.
There are no fully reliable figures for the amount of red diesel used by farmers, but oil industry estimates, which are probably the best we have, suggest that the
cost of the duty increase to the farming and food-producing industries should be around £10 million in real terms. That is £10 million out of an additional revenue from the measure of £80 million.We understand the value of the rebate to those who depend on it, but we are keen to pursue and meet our environmental objectives. That is why we will consult over the summer, as the Chancellor announced in the Budget statement, to establish whether preferential duty rates for such fuels would offer worthwhile environmental benefits. In doing so, we will consider, as we always do for questions of environmental taxation, the economic impact, social benefits and social redistributive costs.
At the moment, I see no justification for the amendment. I do not accept it and urge my hon. Friends to vote against it and to support the clause.
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