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Schedule 1 agreed to.

Clause 5


Mr. Andrew Tyrie (Chichester) (Con): I beg to move amendment No. 2, in page 4, line 9, leave out "£0.0664" and insert "£0.0435".

I have no interest to declare—so far as I am aware—beyond having a very large rural constituency with a coastline. Many of the farmers and boat-owners who live there will be hit by the red diesel fuel hike.

I want to begin by making a few general observations about clause 5, and in particular about the scale of the hikes involved and the enormous amount of tax being raised. The clause raises a further £1.6 billion in excise from fuel duties, nearly £1 billion of which is over and above revalorisation. These are very large increases in taxation on millions of people. There is an increase from 47.1p to 49p per litre for both low sulphur petrol and diesel, and an increase for fuel oil for home heating of 1p above revalorisation. Of course, all duty increases are to be frozen until 1 September 2004, as the Economic Secretary will doubtless point out in a moment. But as the chief executive of the Road Haulage Association said recently, this freeze

We will return to the issue of biodiesel when we go Upstairs into Standing Committee. The only point that need be made today is that maintaining the 20 per cent. incentive for biodiesel does little or nothing to encourage its use, as my right hon. Friend the Member for Fylde (Mr. Jack)—unfortunately, he cannot be here today—so clearly illustrated in a speech last year. Everybody who has looked at this issue agrees that the differential is too small to be meaningful. Yesterday, the Government published a consultation paper the title of which—"Towards A UK Strategy for Biofuels"—admits as much. In other words, there is no strategy at the moment. Regrettably, the consultation paper tries to argue that a differential of 20p might work, but nobody else thinks that such a differential will be enough.

My amendment seeks to highlight the hike in red diesel, which dwarfs even the large hikes that will occur elsewhere as a result of the clause. The Bill proposes increasing fuel duty on red diesel from 4.22p to 6.64p per litre. That is an increase of 57 per cent.—a huge hike—which will come into force on 1 September. The purpose
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of my amendment is to ensure that the rate of duty on red diesel increases not by 57 per cent., but broadly in line with inflation.

Of course, this is the second large hike: last year's Budget imposed a hike of 35 per cent. Indeed, the Government are accelerating the rate of increase. Last year, there was a 1.1p increase, and this year there was a 2.4p increase; I wonder whether there will be a 3.7p increase—if the Government get the chance—next year. There is a policy at work of steadily raising the tax on red diesel and narrowing the differential, but it is not being articulated as such. I shall come back to that point in a moment, and consider whether there is what amounts to a policy and whether it is in fact coherent.

This is a very large revenue-raising measure indeed. I estimate that increasing the fuel duty for red diesel to 6.64p per litre will raise about £141 million in a full year, and I should be grateful if the Economic Secretary confirmed that figure. That estimate assumes no behavioural effects, which, of course, there will be. People will use less red diesel; indeed, raising £140 million in this way will cripple some. They will either go out of business—it will be the straw that breaks the camel's back—or will simply use less red diesel.

It is worth looking into who is going to pay the £140 million that will be raised. Red diesel is used primarily by farmers in tractors and other off-road vehicles; by the quarrying industry, so building costs will go up; and by boat users. I have not seen an accurate breakdown of the share of the burden between those groups, but I hope that the Government have, if not a precise view, at least an estimate of the share of the burden. I would be grateful if the Minister could provide the House with a breakdown. If they can give me that information, it will be a sign that they have thought carefully about this. It is safe to say that everyone will be hit and that some will be badly hit. I should like to discuss two groups that will be particularly hit by the hike.

First, there is the motor boat and yachting industry. It is a large and growing industry, particularly significant in my constituency, and subject to vigorous global competition. The increase will reduce its competitiveness. As the Economic Secretary knows, the leisure boat industry also benefits from an EU derogation from harmonisation of fuel duty for a transitional period, so is the hike part of the preparation for the removal of that derogation? Do the Government intend to negotiate an extension of the derogation, which expires at the end of 2006? Will the hike in red diesel duty be seen as the harbinger of further, even larger, increases for the leisure boat industry? Many people will be listening to the Economic Secretary's reply.

Farmers will be the most gravely hit group. Many farmers in my constituency are, in effect, small business men. They are just recovering from a ghastly crisis of many years. Farm incomes have more than halved over the past 10 years. There has been a deep and prolonged recession in the industry. Farmers earn, on average, only half the average national wage. The most crucial consideration—I hope that the Government start to think it through—is that now is not the right time to clobber people in the agricultural sector, who have already been hit so badly. I believe that doing so is an insensitive move—and it will be seen as such.
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Why are the Government acting in this way, and do they have a policy? The stated policy for the hike that was given last year was:

In other words, it is viewed as an environmental measure, but the trouble is that that argument does not square with the Government's stated objectives and means of achieving them, as set out in the policy document, "Tax and the Environment", which was released at the time of the pre-Budget report of 2002. To the few Members present in the Chamber, I would particularly commend page 28, paragraph 6.19, of that document, which makes it clear that Government policy is quite different from the apparent policy for red diesel.

That document argues that the best way to meet environmental objectives is to tax vehicles that make use of the road system. After all, they are the ones that contribute most to pollution, congestion, noise, accidents and damage to roads. I believe that that is a reasonable viewpoint. The logic of the red diesel differential is, by implication, exactly the same. The vehicles that use red diesel are not road vehicles, so they should not be subject to the same level of tax.

It is true, of course, that red diesel contributes more pollution pro rata than forecourt diesels and the ultra-low sulphur fuels, but even that argument does not wash very well. We are increasingly told that it is other particulates, not just the amount of sulphur, that matter most. In any case, if the argument were environmental, all the logic of the Government's own policy documents would point to increasing road fuel duties by slightly more. I do not advocate that, but it would be a way for the Government to find the extra £140 million. However, they have not done that.

5 pm

In addition, the Government have destroyed what remains of the environmental argument for a hike by raising the rate for ultra-low sulphur red diesel by the same amount as the more environmentally unfriendly variety. What, therefore, remains of the environmental argument for raising the red diesel rate? I think that it hardly exists as an argument.

Environmental concerns have nothing to do with this proposed hike. It is a tax grab on groups, such as farmers and boat users, about whom the Government do not care much. After the tax revolt of 2000, the Government regard them as an easier target than road users.

The truth is that the Government need the money. Tax revenues are not as high as forecast, even though growth in the economy remains strong. The Chancellor has already spent the money that will be obtained, as he cannot afford to renege on the very large increases in public spending that he has announced. A number of people will have to pick up the tab for the shortfall. One such group is made up of boat users, members of the quarry extraction industry, and—most important of all—farmers.

Instead of producing all their other explanations for the narrowing of the differential, the Government would have done far better simply to say, "We need the
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money." I hope that when Conservative Members occupy the Government Benches again—and that may be sooner than people think—we will have the courage to say that, when we come to the House with proposals for tax increases whose main purpose is to enable us to get our hands on the money.

In 1981, the then Conservative Government introduced a large rise in fuel duties, and the Chancellor at the time had the courage to say, "We need the money." However, after another Conservative Government raised fuel duties in 1995, the environmental argument was peddled a little. That did not cut much ice with the current Paymaster General, who is sitting opposite me. On 23 January 1995, she told the House of Commons:

That is pretty much what I think about the Government's claim that the red diesel rise is an environmental measure. I hope that they abandon that argument.

Not all environmental arguments for hikes in fuel duties are bogus. In fact, there is much that is good in the Chancellor's 2002 document, to which I referred a moment ago. Nor are other arguments for narrowing the differential between excise levels on red diesel and road diesel always—at all times, and in principle—invalid. There may be something to those arguments, but raising red diesel duty now takes a great deal of justifying. It will hit a lot of vulnerable people who have had a very tough time already. As the Paymaster General also said on 23 January 1995:

I agree with that. We should reject this hike. If the Government persist with it, I shall be forced to press the amendment to a Division.

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