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.
Finally, I want
to raise a point that struck me as I read the impact assessment. The
Exchequer will raise between £10 million and £15 million
a year, depending
on the balance between propulsion and domestic use, and I understand why
there would be that range of uncertainty. However, there are also
figures for the reduction in fuel used for propulsion for the purposes
of calculating the carbon reduction. The figures range from 10 to 30
per cent., with the central forecast therefore being 20 per cent. In
evaluating the carbon reduction, the Government appear, entirely
reasonably, to be making a dynamic assessment—that if they put
up the duty, less fuel will be used, with the central projection being
a 20 per cent. reduction. 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.
As
for the question of whether the tax is intended to raise revenue, the
answer is no. We are not seeking to increase landfill tax to raise
revenue, although the initial
introduction helped us to reduce corporation tax at the time. The tax
increase is aimed at stimulating a behavioural change to reduce the
quantities of waste sent to landfill and to encourage a move to more
sustainable waste management practices. It is important to remember
that the decision to increase the standard rate by £8 per tonne
from 2008-09 was taken as part of the overall package of reform of
business taxation. 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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