Finance Bill

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Clause 14

Fuel for aircraft and boats, heating oil and fuel for certain engines
Question proposed, That the clause stand part of the Bill.
Mr. David Gauke (South-West Hertfordshire) (Con): Sir Nicholas, I welcome you to the Chair this afternoon. I shall begin my brief remarks on clause 14 and schedule 6 on a note of consensus. I, too, agree with the Exchequer Secretary that it is a pity that the weather is so gloomy on the first day of the Test series, although I recall that the weather in the fine county of Cheshire yesterday was glorious.
Clause 14 and schedule 6 relate to the taxation of aviation gasoline, of the fuel used for private pleasure flying and of the fuel used in private pleasure craft. There are two areas that I would like to ask the Minister about. First, we recognise that the Government’s hand has been forced in the case of private pleasure flying, by the fact that various derogations held with the EU have not been extended. The Government, particularly with red diesel for private pleasure craft, sought to extend that derogation, and it is regrettable that that has not been achieved.
The Government have adopted a free-standing duty rate for avgas, which appears to be widely welcomed by the industry. The rate is 31.03p per litre and I would be grateful to know if that was the minimum level allowed under EU rules. I know also that representations were made that there should be exemptions, for flying emergency vehicles, for example, and that the Government’s position is somewhat restricted. In particular, will air ambulances pay the duty? Will vintage aircraft be exempt? There are still aircraft from the second world war flying. Will flight training be exempt? I would be grateful to know the Government’s position on those.
The Government are consulting on aviation duty. The proposals set out in schedule 6 and clause 14 will come into effect on 1 November this year, but new aviation duty may come into effect on 1 November 2009. Therefore, is it likely that we will revisit this area next year and that what we put in place now will only last for 12 months and then we will have a new regime?
I now turn to the issue of red diesel for private pleasure craft. I declare an interest in that the Grand Union canal runs through my constituency. This Saturday, I will be opening the Rickmansworth canal festival, an event that I can recommend to anyone who would like a fun day out. [ Interruption. ] Alternatively, one could watch the test match, but I will certainly be at the Rickmansworth canal festival.
Clearly, red diesel has been a concern for boaters, whether inland or otherwise. The Government’s original proposals suggested that private pleasure craft would be required to fit additional fuel tanks, but that is no longer the case. Although it is regrettable that the derogation was not extended, the Government have, in all fairness, taken quite a reasonable approach. If they had pursued their original proposals, one implication would have been that craft would have to have had two fuel tanks fitted. There was certainly an issue about whether operators would want to provide two sorts of fuel in more remote areas, with the result that private pleasure craft would not be able to visit such areas. The alternative approach is therefore welcome, but I would like to ask some questions about it.
Under the current approach, boat users must self-certify that they are non-commercial and they must distinguish between fuel for propulsion and fuel for heating, lighting and so on. On propulsion, the estimate in the Treasury’s impact assessment is that the price of gas oil could more than double. I would be grateful to know whether the Government still agree with that assessment, given the changes that we have seen in fuel prices in recent months.
I would be grateful for clarification of the distinction between propulsion and domestic use—heating, lighting and so on. Will that be made purely on the basis of self-certification, or will a standard percentage be used, as has been suggested?
I would also be grateful for confirmation that the European Commission has accepted the proposals and that the proposed route forward will not cause further difficulties. Similarly, will there be any difficulties with other member states not recognising the continued use of red diesel? That concern was raised in the consultation.
Her Majesty’s Revenue and Customs has made no estimate of the cost of increased enforcement. Given that we will rely heavily on self-certification, will there not be a need to enforce the arrangements and perhaps do spot checks? I would be grateful to know the Government’s position on that.
Have the Government undertaken the same assessment in calculating the Exchequer costs and therefore assumed a 20 per cent. reduction in use as a consequence of their proposals? If they have, that is entirely reasonable, although there is evidence of a dynamic effect. If they have not, why not, given that they have taken account of a dynamic effect in relation to the same tax in a different context? If the Treasury does take account of the dynamic effect on this tax, does it do so on other issues? I would be grateful if the Exchequer Secretary could answer those questions.
1.30 pm
Angela Eagle: I must confess to experiencing a slight tinge of envy when the hon. Member for South-West Hertfordshire talked about the great event on the Grand Union canal this weekend. I used to be the Minister responsible for canals. One misses some certain things about one’s previous jobs—certainly being able to leap on a narrowboat and steer it through a few locks, which I did on occasion. I am slightly envious of how the hon. Gentleman will spend his weekend.
I am happy to do my best to answer some of the hon. Gentleman’s perfectly reasonable questions on clause 14. He is right—and I thank him for acknowledging it— that it was not the Government’s wish to be in a situation in which we had to deal with the ending of derogation for such fuel, but we reached the stage at which the European Commission would not allow the derogation to continue.
Clause 14 introduces changes in response to the loss of the UK’s energy products directive derogation and provides for free-standing rate of duty for aviation gasoline which, as the hon. Gentleman rightly said, is known as avgas, with effect from 1 November 2008. It also introduces schedule 6, which makes provision for charging duty on
“fuel used for private pleasure flying or private pleasure craft”
and for a partially-rebated rate of duty on heavy oil other than kerosene, which is a nil-rated oil because it is used for heating—hence the issue of propulsion and heating about which the hon. Gentleman asked.
Under energy tax directive 2003/96/EC, which is also known as the energy products directive, fuel used for pleasure flying and in private pleasure aircraft must be taxed at the full rate that member states charge on the equivalent fuel, and waste oil that is re-used as fuel must be charged with duty at the rate that member states charge on the equivalent heating fuel. The UK held derogations—[ Interruption. ]
The Chairman: Order. If the Government Whip wishes to negotiate with the Scottish National Party, he should do so outside the Committee Room.
Angela Eagle: Sir Nicholas, I was trying to earwig on that conversation as well. It was rather intriguing.
The UK held derogations permitting the application of exempt or reduced rates of duty of fuels used for those purposes. Unfortunately, they expired on 31 December 2006, and our applications for renewal were turned down. Consequently, the new free-standing duty rate on avgas set independently from other duties will be the rate that applies when the free-standing rate is introduced on 1 November. The current rate for avgas, which is set at half the rate for leaded petrol, is 30.03p per litre. The date of introduction coincides with the implementation of schedule 6.
The hon. Gentleman asked whether it was the minimum level allowed under EU rules. I can confirm that it is. He also asked about exemptions, particularly for emergency flying vehicles and vintage aircraft. The new regime applies only to private flying, so air ambulances and so on are not covered. We are considering in more detail the position of training flights, which he mentioned. I cannot usefully add anything on that, but I am sorry to disappoint him that there are no exemptions for fuel used in vintage aircraft.
The hon. Gentleman asked how the new rates might interact with the planned introduction of the new aviation duty in November 2009. The interaction with the new aviation duty will be considered fully as the details of that new tax are finalised. That issue is under consideration by the Government. He asked about fuel use for domestic purposes, which does not have to be charged at the full duty rate. We are talking about the difference between the purpose of heating and the purpose of propulsion. An allowance will be made for fuel used for domestic purposes, which will continue to be supplied at the rebated rate, because there is a zero rate for heating. Her Majesty’s Revenue and Customs will discuss appropriate allowances with representatives of the boating industry.
The work done on designing and introducing the new rates has been accompanied throughout by consultation of all the industry bodies to ensure that we are as aware as possible of the details and the technical problems that may arise. I have the impression that there has been good co-operation between HMRC and the industry representatives during the consultation. We have tried to make the introduction of the rates as technically effective as possible, with the least number of unintended consequences, and I hope that we can show that we have done that.
On the possibility of the EU not being happy with the way in which we have ended the derogation and introduced the new rates, there is no reason for the Commission to challenge our new arrangements. The Commission always keeps a close eye on what member states are doing, so I cannot say that there will be no objections, but we are not expecting objections, as we have ended the derogation as it asked and put in place systems that enable us to comply with the appropriate directive.
The self-certification approach raised a few eyebrows, but HMRC’s enforcement effort has to be proportionate to the risk, and this is quite a small area for fuel sales. In the context of the total yield of £24 billion from oil, use in private pleasure craft would account for—get ready for this—0.06 per cent. of the total revenue. The chief risks arise both from pleasure craft owners misleading suppliers about the nature of their boat, whether it is commercial or domestic, and inflating their entitlement to fuel supplied for domestic purposes, and from those who supply the fuel failing to submit returns or pay the revenue that they collect.
For aircraft, the only risk is that flyers will fail to declare any duty on fuel use for private pleasure flying, but the revenue risk is considered negligible, as private pleasure flying use of avtur—aviation turbine fuel—is estimated to be a fraction of 1 per cent. of the avtur that is used in the industry. HMRC will not give a free hand, but it will approach the paying of duty according to a risk-based assessment. That does not mean that if there are obvious examples of deliberate evasion of the duty, action will not be taken, but I hope that it gives the hon. Gentleman an insight into our approach.
On the 20 per cent. reduction in use deployed in calculating the cost, which the hon. Gentleman also mentioned, it is difficult to project the impact, especially when taking into account the concession on fuel for domestic purposes, because we do not quite know how that will work out. It will mitigate the impact to some extent, but that is a best guess. Clearly, the way in which it develops will be taken into account in refining the assessments of cost in the future. I hope that, with those responses to the hon. Gentleman’s quite reasonable questions, the Committee will be happy to pass clause 14 and schedule 6.
Question put and agreed to.
Clause 14 ordered to stand part of the Bill.
Schedule 6 agreed to.

Clause 16

Standard rate of landfill tax
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: It may benefit the Committee if I declare at the outset that it was expected that it was expected that my hon. Friend the Member for Putney, who has done a great deal of work on the clauses that we are debating this afternoon, would speak on behalf of the Opposition and that the Exchequer Secretary would respond. On behalf of myself and the Economic Secretary, I would like to say that we are to some extent performing the role of stand-ins. I know that a successful performance by the understudy in a theatrical performance or opera tends to result in standing ovations. I suspect that we will not receive them today—at least, not in response to my performance. I am grateful for the work of my hon. Friend the Member for Putney on the clauses.
I shall graze one or two matters regarding the landfill levy, which we are considering in relation to clause 16. There is an increase in the level of the landfill levy to £32 this year, which is the biggest jump in landfill tax from year to year since it was introduced in 1996. The levy was the UK’s first environmental tax, and it was introduced by the previous Government. It has been announced that in the following year, it will increase to £40 and the year after that, to £48. I would be grateful if the Minister explained why, given that it is an annual levy, it is necessary to make announcements in advance. I would be grateful for that clarification.
There are two points that I would particularly like to raise with the Minister. First, there has been a reduction in landfill during the years in which the landfill tax had been in place. No doubt, the landfill tax has played a part in incentivising industries, local authorities and individuals to be more efficient, but is the Minister concerned that one reason why there has been a reduction in landfill is fly-tipping? One of the unintended consequences of the significant increase in landfill tax may well be an increase in fly-tipping, which is of concern to all of us. I would grateful for the Minister’s views on that, and if she could tell us what steps will be taken to ensure that that does not happen.
My second concern is that to a large extent the big payers of the landfill tax will be local authorities and the public sector. Essentially, money will be circulated from local authorities, who will be paying more in landfill tax. That will, of course, need to be funded one way or the other—perhaps by increased council tax. The increase in landfill tax will place financial strains on local authorities. The Local Government Association has said that local authorities will face an equivalent of a £1 million rise to cover increased costs in 2008-09. Councils expect total landfill tax costs to be in the region of £2.3 billion over the next three years. That is a substantial additional cost, which will place a strain on local authorities. In my constituency, an attempt to find savings in recycling has resulted in an unpopular proposal to close the Tring recycling centre, which causes alarm to those who know the area well including, I think, the Economic Secretary—although I do not know whether she is aware of that particular issue.
There are concerns that these proposals may result in money being moved around different parts of the public sector and going from local councils to central Government. Local councils may find themselves paying an additional amount as a consequence of the proposals. There has also been a substantial increase in the revenue raised, although originally it was envisaged that it would be a neutral tax and additional environmental tax credits would be used in the circumstances. However, that does not seem comparable in any way with the amount raised in revenue. Is the landfill tax supposed to be revenue neutral? We return to the question, which has been raised a number of times, of whether landfill tax has two motivations: to raise revenue, and to change behaviour. Is it another way of raising revenue, or is it seen as revenue neutral?
The Chairman: Order. I have to interrupt the hon. Gentleman. If two Committee members—namely, the two Whips—leave, the Committee will become inquorate, and I will have to suspend the sitting. I say to the Opposition and Government Whips that I have, uniquely, requested a Doorkeeper to bring an additional Member back into the Committee. The hon. Member for Ealing, North has obliged, and I see that two more hon. Members have done so. I suggest to both Whips that they should realise that as the Chair, I must see 11 Members in the Committee. If the number of Committee members drops below 11, I am obliged to suspend the sitting. If both the Whips now wish to leave, they may do so with impunity, but I hope that they will not do so for long.
Mr. Brooks Newmark (Braintree) (Con): I appreciate your guidance, Sir Nicholas. I stepped outside to try to figure out a way to communicate to Conservative Back Benchers and tell them to come here without calling them on the phone, which I know would be a breach of the rules. That was all I was trying to do.
The Chairman: I assure you that I was seeking to be extremely helpful. I requested a Doorkeeper on duty to go into the corridor to ask one or more Committee members to return so that we could remain quorate. We have done so, but I ask both the Whips to take account of the need to remain quorate.
Mr. Gauke: I am grateful for your intervention, Sir Nicholas. We would certainly not want to suspend this sitting while addressing such matters, especially as, after looking out the window, I think it unlikely that play has resumed.
1.45 pm
Mr. Browne: Thank you, Sir Nicholas, for ensuring that I have at least a small audience for my brief speech. I was wondering whether Committee members were leaving to check whether play had resumed in the test match, and whether it would be helpful for you to inform us if that happens, so that our minds could be focused entirely on proceedings in Committee.
I have a couple of brief points to make about landfill tax, which my party supports for obvious environmental reasons. The hon. Member for South-West Hertfordshire asked a moment ago why the increases had been anticipated for future years. The explanation is simple: it allows companies interested in developing new technology to plan ahead with some reasonable assumptions about their future revenue stream. New Earth Solutions and TEG have campaigned on that basis. Mr. Steve Lee, chief executive of the Chartered Institution of Wastes Management, said:
“Raising the tax by £8 per tonne per year to £48 by 2010 for ‘active’ waste will make a whole range of waste treatment technologies financially viable—for all wastes, not just municipal. The three-year plan for the escalator is good, too. Businesses need time to change and even the anticipation of a £48 per tonne tax—plus steadily increasing landfill gate fees—will be enough to influence many waste and resource management decisions.”
On that basis, the Government’s proposals seem to be eminently sensible.
I will put a fly in the ointment, however, as concerns have been expressed that councils are not managing to get the money recycled—probably the appropriate term—into their coffers. The incentive for the councils to do so is partly because, as the hon. Member for South-West Hertfordshire said, there is a cost to them of meeting their obligations on landfill tax, but also because they might often use, or be able to use, the money for environmentally helpful projects, including new recycling plants and rubbish reduction and collection facilities. I would be grateful if the Minister told us what steps are being taken by the Government to ensure that local councils gain the benefits of the additional revenue.
I will finish by citing an example from my constituency. Last year, Somerset Wildlife Trust—an organisation of which I am pleased to be a member—planted a new woodland just outside Taunton, with £100,000 contributed from revenue raised from the landfill tax. There are clear environmental benefits, both in carbon emissions and the natural environment available for the public to enjoy, if the money can be made available for such projects. I hope that the Minister will be able to say some encouraging words in that regard.
The Economic Secretary to the Treasury (Kitty Ussher): May I say, Sir Nicholas, that it is an honour to make my Finance Bill debut under your chairmanship. It is true that I know the constituency of my fellow stand-in, the hon. Member for South-West Hertfordshire, although it was in about 1980 that I left the Tring vicinity. I am not sure that the recycling depot that he mentioned was in operation then, but I am deeply perturbed to find that the situation may change.
Turning to the matter in hand, the clause increases the standard rate of landfill tax, which applies to active waste disposed to landfill, by £8 per tonne to £40 per tonne next year, in line with previous commitments. We announced as long ago as the 2002 pre-Budget report that the standard rate would have to increase to encourage investment in alternatives to landfill. That approach has worked well, with the quantities of active waste going to landfill reduced by almost 19 per cent. between 1997/98 and 2006/07, while the economy grew by 28 per cent.
Turning to the points made by the hon. Member for South-West Hertfordshire, we are legislating for next year’s increases this year, because—the hon. Member for Taunton is entirely right—we wish to provide certainty and to achieve a behavioural impact on firms seeking to invest. It is consistent with the approach that we have taken in the Bill on other environmental taxes—the climate change levy and the aggregates levy—and with the approach that we took last year. Pre-announcing something as early as possible has a maximum affect on behaviour. On the issue of rate increases encouraging fly-tipping, we recognise that fly-tipping is a significant antisocial problem affecting communities, landowners and regulators alike. That is why my colleagues at Department for Environment, Food and Rural Affairs have been working with the Environment Agency to develop and implement a waste crime action plan, which aims to improve prevention, detection and enforcement with regards to fly-tipping. I understand that DEFRA will consult on proposals over the summer months this year to strengthen waste controls and to give enforcement authorities greater powers to stop and seize vehicles involved in illegal waste activity. In my constituency, it seems to be the determination and dedication of local authority staff, rather than the standard rate of landfill tax that makes a difference. We provide a programme of education and advice that encourages local authorities to do just that.
Revenue recycling is an important issue, which I am glad that hon. Members have raised. A number of local authorities have claimed that the increases have not been adequately factored in, adding pressure to council tax bills. The hon. Member for South-West Hertfordshire asked about that as well, but the answer is that that is not the case. The cost of landfill tax was taken into account when agreeing the sustainable settlement with local authorities. It is sufficient to ensure that excessive council tax rises are avoided. The local government settlement that provides continued real term increases with an average, annual increase of 1 per cent. above inflation takes into account local government’s landfill tax liability, including the increased costs that we are discussing today.
The corporation tax cut announced in the Budget would not have been possible without increases in landfill tax. That does not mean that we are not investing in ways of improving resource efficiency, particularly among businesses. In the current financial year 2008-09, £155 million is being invested in that way. I hope that, having answered those questions, the Committee will accept the clause.
Question put and agreed to.
Clause 16 ordered to stand part of the Bill.
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