Examination of
Witness (Questions 220-237)
JOHN HEALEY
MP
9 FEBRUARY 2006
Q220 Mr Hurd: How long would it normally
take to reach agreement on a proposal, assuming it is out at the
end of 2006? Is three years reasonable?
John Healey: Having dealt with
Europe as a Treasury Minister for about three years now I have
never been able to predict the length of time that European-related
processes take. As I say, I hope and believe we have a good chance
of getting aviation included, that we have a good chance of getting
it included during the second phase of the EU ETS. If we cannot
get it included for the start of 2008, what we will be pressing
for is that it is included as soon as possible after that.
Q221 Mr Hurd: Defra released a consultancy
report, which you may have seen, which suggested including aviation
in Phase 2 would have no impact at all on the price of carbon.
Does this not strike you as surprising, given the growth in aviation,
and does it not send a rather worrying signal about the kind of
rigour that governments will be taking to the negotiation of the
cap on aviation?
John Healey: I have not seen that
study but clearly I will now that you have raised it with me.
If the European Union countries were to accept aviation as part
of the EU ETS, (a) it would be a very strong signal that they,
like us, see aviation as a significant and growing source of emissions
for the future and (b) they are willing to see some action taken
to try and deal with it. We would be doing so in an area where,
once again, emissions from aviation are international in nature
and unilateral action from one country really does not hit the
mark, but we are heavily constrained by the web of international
conventions that, as was said earlier, date back to 1944.
Q222 Mr Hurd: The Defra report was released
on 1 February and it is a consultancy report by ICF Consultancy.
Are you satisfied that the Government and the Treasury are doing
enough to send signals to passengers about the link between climate
change and their travel? I am thinking of a Department for Transport
survey in 2002 which showed only 1:8 travellers made any connection
between flying and climate change. In that context, do you think
the air passenger duty tax is punching its full weight in terms
of sending signals to the consumer?
John Healey: No, because, as I
explained earlier, the air passenger duty is not an environmental
tax; it is not related to a concern about emissions, it is not
related to more efficient aircraft, it is not related at all to
more efficient use of the aircraft which are flying. I think there
is more that the industry could do, it is not just a question
of what government does. The climate of debate around climate
change and the potential problems it poses is much fiercer now
than it was even 12 or 24 months ago and I welcome that. It does
help to draw people's attention generally to what contributes
to it and what the risks are. There is more than the industry
itself can do and there has been, over the last 12 months or so,
some quite encouraging signs that major players, including British
Airways, are coming together to not just alert their passengers
more to the environmental impact of flying but taking some steps
on a voluntary basis to try and offset some of those impacts as
well.
Q223 Mr Hurd: Is the Treasury looking
at increasing the level of air passenger duty or considering levying
VAT on ticket sales? I believe we are the only country which does
not do that.
John Healey: We will look at all
these options, as we do with all taxes which are in place. Any
options on these are part of the Budget-making process. Where
people are making representations to us as part of that Budget
process, we would consider them carefully and in the end we will
make a judgment in the context of the Budget.
Q224 Mr Hurd: Are they under active consideration
now?
John Healey: To the extent that
the Chancellor has to make decisions each year on the rate of
air passenger duty, he will do so again in the Budget in a couple
of months' time.
Q225 Joan Walley: I think it is inevitable,
because it is such a far ranging inquiry in terms of the Pre-Budget
Report, we are going to flit over different issues. Just before
we move on, I want to go back to your response to Dr Turner's
question about the peak oil situation, where we are going to peak
in terms of oil and where the tipping point is and what we do
to prevent it. Given what you have just said, going along with
the fact that the UK economy should be weaned off its dependence
on oil, I just wonder what your comments are on the decision I
believe by the Swedish Government this week that they are now
setting a target of making Sweden oil free by 2020? I wonder if
you can tell the Committee what the UK's consumption of oil will
be by 2020 and whether or not you have any long-term plans about
how you expect to see the consumption of oil start to decline?
John Healey: I do not have those
figures but if we have them within the Treasury I can certainly
let the Committee know. In some senses what Sweden does is a matter
for Sweden, our situation is entirely different. We do have reserves
of oil and gas that Sweden does not have. They are broadly on
a declining production trend but, in fact, partly as a result
of some of the fiscal changes we made in the last Parliament,
companies in the North Sea are opening up new fields and will
edge back into being a net exporter of oil in 2006-07 as we open
up more capacity. We are very fortunate as a country to have these
natural reserves. They clearly mean that our approach to future
energy policy will be different from Sweden's but it does not
remove the long-term challenge and concern that we have, as I
explained, that we are already trying to develop, which is that
in the long-term these resources are finite. In the long-term
we must move to an ability to meet our energy needs from non-fossil
sources. In the end we have to do so as well in order to reduce
the emissions which are damaging the climate so badly.
Joan Walley: On that basis, it would
be quite helpful if you have got any information inside the Treasury
that you could let us have on that because I think the issue relates
very much to the point that Dr Turner was making about the need
to have long-term signals about the route of travel, the direction
of travel that we are taking. Obviously the point of peak oil
supply and where that stands, it is useful to have that as a long-term
indicator as to where we are with it. If you could let the Committee
have that it would be very helpful.
Q226 Mr Chaytor: Could I just comment
quickly on that. Accepting the difference between Britain and
Sweden in terms of oil reserves, do you not think, Minister, that
it does make sense, in terms of national policy, to have a goal
of energy self-sufficiency? Now Sweden may be able to get there
before the United Kingdom could possibly do but as an objective,
energy self-sufficiency, is it not something we should be aiming
at?
John Healey: I do not accept that
it should be the over-riding objective. Clearly, as we set out
in the Energy White Paper nearly three years ago, security of
supply and our ability to produce for ourselves as an important
element of security supply is an important goal of energy policy
but it sits alongside a concern for those who are fuel poor, it
sits alongside our concern for climate change emissions and it
also sits alongside our concern to see energy, where we can, delivered
and part of a competitive market.
Joan Walley: Mr Chaytor's point is very
much about the leadership that the UK Government is giving on
that.
Mr Chaytor: We will pursue that another
time.
Q227 Joan Walley: Very briefly on road
transport, because we have covered some of the points already
that we did want to make. I suppose we are wondering, given the
graph which I think you are familiar with, of the index of household
disposable income and cost of motoring—there seems to be
such a big gap, the disposable income has increased and the real
cost of motoring has declined—is there not a contradiction
there in terms of the Government's stated intentions in terms
of tax policy back in 1997 on the environmental front?
John Healey: There is not a contradiction,
there is a challenge there. I do not think you are arguing that
we should not be seeing household incomes increasing or that we
should not be seeing the economy growing. The challenge there
lies in general terms, like we have discussed before, how can
you encourage greater efficiency in the technology of engines
that power road transport, how can you encourage the development
of cleaner fuels, and how can you ensure, as we have done, seeing
the average emissions from new cars, for instance, falling every
year for the last 10 years, stepped up so that the increased activity
that comes often with increased economic activity does not do
such damage to the climate at the same time?
Q228 Joan Walley: Should we not be raising
fuel duty in line with inflation?
John Healey: It is our general
stance with all taxes that we at least look to raise taxes by
the level of inflation to revalorize so they maintain their real
value. I think we dealt at some length with the decisions on fuel
duty taken during the course of 2005. The general point to make
on that is that when the Chancellor makes these decisions he rightly
weighs up a range of factors which come into play. In the end
that is the purpose of us as politicians and the judgments we
have to make as a Government.
Q229 Joan Walley: At the heart of it,
is it not about the Government's communication strategy in terms
of the public buying into the need to address climate change through
the cost of fuel? Is it not about a communications strategy, how
we get the message across? Should that not be at the heart of
it?
John Healey: The communications
challenge is at the heart of it and it is an essential part of
it. I am not sure that fuel duty is the right focus for that.
If you look at the reforms we have made to Vehicle Excise Duty
or to company car tax, those are tax reforms to restructure tax
regimes in a way that (a) gives signals to domestic and company
purchasers of cars that encourages them to buy more efficient
vehicles and (b) rewards them for doing so. Now that is part of
the communication of the essential messages that you are talking
about. I am not sure the fuel duty is perhaps the right focus
for that.
Joan Walley: I will bring in Dr Turner
on that point.
Q230 Dr Turner: It is an appropriate
point because I want to ask about the company car tax regime and
the Vehicle Excise Duty regime. The Energy Saving Trust have told
us in their evidence that there was a leakage between the relatively
stringent company car tax regime to the less stringent Vehicle
Excise Duty regime, which is less punishing for very high emission
vehicles. Executives are taking the cash and buying their gas-guzzlers
rather than having the company car. Have you been aware of this
leakage? Do you have any proposals to plug it by, for instance,
making the Vehicle Excise Duty steeper at the top end?
John Healey: If I may say so,
Dr Turner, there are a number of questions there and one misunderstanding
at the heart of it. In terms of the Vehicle Excise Duty, you will
have seen how we reformed the structure of Vehicle Excise Duty
to make it reflect the environmental performance of different
vehicles. You will have seen in the Budget last year, the fact
that we raised the top two bands and froze the others in a way
to stretch the incentives and signals that are there within the
Vehicle Excise Duty regime. As part of the decisions again that
the Chancellor would take at the Budget, we would consider whether
there is a case for going further. On the question of the company
car tax, it is not a question that those that opt-out of the system
to which the company car tax applies somehow then haemorrhage
into the Vehicle Excise Duty. The Vehicle Excise Duty is payable
on all vehicles on our roads. If an individual company car driver
is not subject to company car tax then it will be because their
employers are offering them another form of support to their business
motoring and they will fall not within the VED but some other
form of income tax. The fact that numbers under the company car
tax scheme do appear to have been falling to some extent is a
reflection of a number of things we believe, and we are doing
some further work to try and analyse these, including different
incentives that employers happen to be offering their employees
in relation to company motoring and probably a misapprehension,
as we introduce the company car tax, of quite how stringent as
a fiscal change that might be.
Q231 Dr Turner: You must appreciate that
someone who has got a big enough cash bonus—a City trader
and so on—to go out and buy a £50,000 car is not going
to be deterred by a £10 or £20 hike in the Vehicle Excise
Duty. It needs to be much more significant before it bites, do
you not agree?
John Healey: The Vehicle Excise
Duty is not designed to take a slice of the bonus a City trader
might get, the income tax system does that. That is the distinction
I am trying to make. The company car tax is about taxing a benefit
that comes to an employee by virtue of the arrangement that the
employer puts in place for their motoring.
Q232 Dr Turner: You are incentivising
the purchase of fuel efficient vehicles by lowering the Vehicle
Excise Duty for them, all I am suggesting is that it would make
logical sense to increase the Vehicle Excise Duty at the high
end because once they have reached the level of owning a Ford
Mondeo it peaks.
John Healey: There are people
arguing strongly, including yourself, for us to make that decision.
To be clear that is a decision about the rates within the Vehicle
Excise Duty regime, unless I am missing something serious, it
is not linked to the operation of the company car tax.
Joan Walley: Differentials are obviously
a key part of this as well.
Q233 Dr Turner: Finally from me, the
renewables transport fuel obligation, which I greatly welcome—that
was announced in PBR—was great but I just wonder whether
the fuel duty bonus that you have given, the 20 pence per litre,
is going to work as effectively with that as it might, especially
given the fact that (a) industry tells me that 20 pence a litre
is not quite enough to kick the market in bio-fuels off and (b)
that the technical specifications associated with it are in fact
somewhat counter-intuitive to environmental considerations because,
for instance, bio-ethanol produced by fermentation, as I understand
it would not qualify whereas if it is produced by other chemical
processes which are themselves CO2 emitting then it would. Do
you have any plans to revisit the fuel duty rebates?
John Healey: I think there are
a couple of things tangled up in that. First of all, the definition
of a bio-fuel which attracts the 20 pence per litre discount is
set out in the 1979 legislation, the Hydrocarbon Oils Duties Act.
That is a specification that is about the nature and the quality
of the product, the oil, not about the processes at all producing
it. That is the first point. The question marks over what does
and does not fall within that definition are essentially determined
by HM Revenue and Customs. They do so by analysing the samples
of the fuels in question. The guidance and specifications about
what counts are very clearly set out. What I have said to some
small producers is that in the light of (a) the legislation and
(b) the guidance that has been produced I will, and we are, looking
at the way that this is working. Just to be clear, it is not related
to the process, it is related to the oil product at the end of
it. On the question of the duty discount, the scale of it, I have
had producers and potential producers making the same arguments
to me for some time. I thought the report a couple of years ago
of the Select Committee responsible for shadowing Defra was quite
significant in this. It took the view that I do that simply increasing
the duty discounts on bio-fuels would be unlikely to develop a
UK bio-fuels industry. Indeed about a third of the bio-fuels on
sale at the moment are imported. My view is that you need a range
of measures to help support the development of the market in bio-fuels
production in the UK. That is why we had the duty discount, that
is why we are putting the obligation in place. We have announced,
also, the entitlement to enhance capital allowances once we get
state aid approval of good new bio-fuel plant investments. I think
if you look at the increase in the bio-diesel and bio-ethanol
market since we introduced the discount, we are at a very low
base, I accept, but you are seeing very significant increases.
Joan Walley: Minister, I am aware that
we are time constrained in terms of the session, we want, very
quickly, to touch on sustainable housing. I suspect that what
we want to ask you on sustainable procurement probably we will
not reach. We may have to ask you, if necessary, to write to us
on that.
Q234 Mr Hurd: Carbon emissions are on
the rise in this country, 30% of them seep out of our own homes.
All the evidence to us points to consumer apathy being the major
roadblock to transforming attitudes to energy efficiency. The
evidence suggests that EEC is working reasonably well within its
limitations but that to achieve a real breakthrough requires fiscal
incentives to encourage good behaviour. Does the Treasury accept
this analysis and, if so, why has it done nothing in this area
for two years?
John Healey: In fact 25% of the
UK's emissions are coming from households. Households consume
30% of energy. The emissions from households are gradually declining,
we need them to decline further. What I do not accept is that
we have not put any measures in place, including fiscal instruments.
If you look at the range of reduced rate VAT measures that we
put in place, for instance, particularly on micro-generation technologies,
those are fiscal instruments designed in anticipation of a growing
market. You mentioned the energy efficiency commitment, that is
costing £300 million a year. We have introduced, also, the
Landlords' Energy Saving Allowance and confirmed in the Pre-Budget
Report the work that we are doing to turn that into a green landlords'
allowance, a fiscal measure designed to try and have some impact
on the housing sector that is most difficult in energy efficiency
terms which is the private rented sector. Clearly it is difficult
because there is market failure, the landlords have to invest,
the tenants get the benefit from lower monthly or weekly bills.
I do not accept that we have not been acting in this area. I am
ready to consider representations or arguments that we should
go further but I do not want you to feel misinformed or too pessimistic.
Q235 Mr Hurd: Have you looked at what
is happening in Braintree where the Council in partnership with
British Gas is offering rebates on council tax of £100?
John Healey: I have indeed.
Q236 Mr Hurd: Have you studied that case?
John Healey: Yes, and I have studied
the Energy Savings Trust report that they have done, making a
more general case for some use of the council tax system in a
similar way to the way Braintree Council have.
Q237 Joan Walley: On that point, because
our time has run out, I know you have to be away by 1.30, I simply
wish to put on record that we had we had more time now we would
have wished to pursue water efficiency and pollution and sustainable
procurement as well. Obviously these are all ongoing issues but
certainly if there are further thoughts you wish to share with
us about how we can make progress, more procurement issues, we
will be very pleased to receive them. On that point, I think you
want to be away by 1.30, can I thank you very much indeed for
your evidence today.
John Healey: Thank you. If you
would like me to set out the challenges on water and what Government
is doing on that, I am happy to do that and also on sustainable
procurement.
Joan Walley: Thank you. It would assist
us in our inquiry. Thank you very much, Minister.
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