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Mr. Jack: I make no apology for rising again to discuss biofuels for a moment or two. I acknowledge at the outset the Financial Secretary's helpful comments when he wound up on Second Reading. Although discussions are taking place on the obligations, the emergence in the United Kingdom of a biofuels manufacturing industry still seems to be some way off, notwithstanding the observation in box 7.3 of the Red Book which states that
I continue to be worried by the representations made to my Committee, the Select Committee on Environment, Food and Rural Affairs, that the current duty derogation rate is not of sufficient attraction to start an industry using UK-sourced oilseed rape as raw material. A parliamentary answer, to which I referred earlier, indicated that some manufacturing capacity was coming on stream, but not enough will come from UK sources to meet the target of 2.5 per cent. of biofuels included in hydrocarbon fuel sources which we must meet by 2006, and which rises to 6 per cent. in 2008. I apologise to the Committee if those figures and dates were slightly wrong; I do not have my detailed notes with me so I am speaking from memory.
It is argued that if we increased the duty beyond the derogation rate of 20p a litre, the UK would attract overseas sources of supply. Indeed, I am certain that Brazil could supply all our bioethanol needs. That seems to dodge the issue, however. At a time when UK agriculture is going through a singularly important process of change, as it adapts to the revised common agricultural policy, I should have thought that Ministers would want to encourage home-grown sources, in both the bioethanol and biodiesel industries, so that UK agriculture could be involved. The Minister will be aware that British Sugar, which is pioneering work on bioethanol in the UK, has at least submitted a planning application for a plant, but only subject to the conclusion of discussions with the Government on some form of aid. The long and the short of it is that if we do not have duty derogation rates, or possibly capital allowances, of such an order as to get that embryo industry off the ground, we shall have to import our biofuels if the Government want to achieve the European targets for the incorporation of biofuels in the hydrocarbon fuel supply.
It is illogical not to encourage that industry at the outset, because there are precedents. When the liquefied petroleum gas industry sought help, especially for investment in the necessary fuel station infrastructure, the Government provided a generous 40p per litre discount, which is gradually being unwound because the infrastructure has been established. One stage back, when we were moving from leaded to unleaded fuel, there was also a generous initial discount that was
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gradually unwound. I have not yet received a cogent explanation from the Treasury as to why, if we want to get our manufacturing industry off the ground, we are not being more generous in the first stages, so that economies of scale in biofuels production will eventually take over and enable the price to come down.
In debate on a previous Finance Bill, I pointed out to the Treasury that they could have all that for nothing, simply through an obligation of inclusion. They could say that there will be 2.5 per cent. biofuel, with the balance of 97.5 per cent. being hydrocarbons, and that the price will be such and such. That would exactly mirror and match what happens under the renewable fuels obligation in electricity generation. So far, Treasury Ministers have shied away from that, although I think that the Energy Act 2004 contains such a provision to solve the biofuels conundrum.
Ministers' colleagues in DEFRA show great enthusiasm and have even produced a beautiful, coloured booklet to tell us about the benefits of biofuels and the 5,000 jobs that will be created in rural Britain, yet sadly the Treasury is still camping on the ground that 20p is sufficient. However, the facts, as confirmed to me in a parliamentary answer from DEFRA, tell a different story. Will Treasury Ministers tell us when we shall actually get our UK biofuels industry?
Mr. Timms: The right hon. Member for Fylde (Mr. Jack) will have heard me refer earlier to the continued discussions with industry about the possibility of providing an enhanced capital allowance for the cleanest processing plants, which would directly address the issue that he raises. However, he would agree that the key prerequisite is to have an attractive market for suppliers to address. So, as we confirmed in the pre-Budget report, we are carrying out a feasibility study on the renewable transport fuels obligation, and good progress has been made in that study. That is the reason why we introduced the 20p a litre incentive for biodiesel in 2002, and the same differential for bioethanol from 1 January this year.
The right hon. Gentleman was a little dismissive, but early indications of the impact of the support for bioethanol show encouraging signs. We expect sales to increase from zero to 60 million litres a year by the end of this year, so a substantial market is starting to emerge. In additionagain, to address another of the specific points that he raisedthose duty rates are guaranteed until 2008, under our commitment in the alternative fuels framework to provide industry with certainty and a three-year rolling guarantee for rates. So we are putting in place the building blocks for what I, too, hope will be a successful and sustainable industry in the future.
Mr. Jack: First, will the Financial Secretary confirm for the record where the 60 million litres of bioethanol will come from? Secondly, will he clarify whether he envisages a regime of twin-track fiscal help that combines the duty derogation with the capital allowances to which he refers? Will the two operate simultaneously?
Of course, the right hon. Gentleman is right to suggest that this is extremely early days for the industry and to make the point about the paucity of
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plants in the UK currently. Yes, I can confirm that we are simultaneously undertaking work on both the duty issues and the possibility of providing an enhanced capital allowance arrangement as well.
Mr. Francois: To comply with a self-denying ordinance that I announced a few minutes ago, I shall keep my remarks on the clause extremely brief, but I was attracted by the argument made by my right hon. Friend the Member for Fylde (Mr. Jack). He referred to the fact that the duty differential for liquid petroleum gas has allowed LPG to spread relatively widely over the past few years. Slightly fewer than 1 million LPG vehicles or dual-use, petrol or diesel-LPG vehicles are now in use in the United Kingdom. The duty differential has been important in persuading oil companies, for example, to invest in the technology necessary to make that fuel available at petrol stations around the UK. So an example is already extant of how such things can work, and my right hon. Friend is right to raise it.
The farmers in my constituency would be willing to invest in that type of product if and when they believed that it was truly economically viable. The feedback that I have had from them in informal meetings with my local branches of the National Farmers Union is that we are not quite there yet and that the tipping point has not been reached, although I take note of the 60 million litre figure that the Financial Secretary recounted to the Committee.
Part of the problem is that something of a lively debate has been going on behind the scenes between DEFRA on one hand and the Treasury on the other, and to some extent, DEFRA has been looking for movement in this realm and, to some extent, the Treasury has been resistant. So I should like briefly to press the Financial Secretary, on behalf of my right hon. Friend and UK farmers, on whether he has anything else to offer in the few minutes of the debate that remain that may be of comfort to them and positively affect the investment decisions that they must make in the next year or so.
This and the following clauses set the rates of corporation tax. In many ways, they are unexceptional. However, a number of issues are worth probing. The mainstream corporation tax rate of 30 per cent. has remained at that level for a long time. When it was brought down to that level, it was proudly boasted for a spell that it was the lowest in Europe. The small further fall took place after the main and very important reforms that were taken in the mid and late 1980s, which transformed the tax and the corporate environment in the United Kingdom. Incidentally, those reforms were vigorously opposed by Labour Members.
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The current rate of 30 per cent. certainly is not the lowest in Europe. Ireland has a rate of 12.5 per cent., Germany is announcing plans to bring its rate below 30 per cent. and a good number of accession countries have extremely attractive rates that are well below 30 per cent. I am a little concerned that the Government do not appreciate that the UK's rate is beginning to look a bit high. In a few weeks, we will be on the other side of the Committee and will be able to sort that out and start pointing a way towards further reform of the tax. We have already outlined one or two suggestions. I am particularly concerned that the Government do not appear to have a clear view about where they want to take corporation tax. I would be grateful if they said something about that and the competitive environment.
Another concern is that corporation tax is only one of a number of tax burdens on business that companies are expected to pay. Its yield constitutes only about a quarter of the total yield that comes from businesses, and that excludes pay-as-you-earn, national insurance contributions, salaries and VAT.
Can the Financial Secretary say a little about the recent European Court of Justice decisions that are coming through? What is his estimate of the likely losses to the UK's yield from those decisions? It is an important issue that we will have to address when we are on the other side of the Committee, but I shall be interested to hear whether the Government have made an effort to think it through.
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