HC Deb 14 July 1981 vol 8 cc1127-34
Mr. Peter Rees

I beg to move amendment No. 6, in page 3, line 5, at end insert— '(1A) In consequence of subsection (1) above—

  1. (a) in sections 7 and 8(3) and (4)(c) of the said Act of 1979 and Article 3 of the Excise Duties (Gas as Road Fuel) Order 1972 (under which duty is charged by reference to the duty on hydrocarbon oil); and
    2. 1128
  2. (b) in section 92(2) of the Finance Act 1965 and section 14(2) of the Finance Act (Northern Ireland) 1966 (grants towards duty on bus fuel),
for the words "hydrocarbon oil" there shall be substituted the words "light oil".'.

Mr. Deputy Speaker

With this we may also discuss Government amendment No. 9.

Mr. Rees

Amendment No. 6 is consequential on the decision, which has been approved by the House, to halve the increase in the duty on derv. Subsection (a) of this amendment is designed to alter the road fuel gas duty which is normally set at half the rate for petrol and derv. This is a practical solution when the duties on the two fuels are at the same level. Since the duty on derv is now no longer at the same level as that of petrol, it is thought right to set the road fuel gas duty to half the rate for petrol only.

Similarly, the other part of the amendment is designed to cover the case of the bus fuel grant, which is again set at the joint rate of duty on petrol and derv. This amendment is designed to set it at the higher of the two rates—that is, the petrol rate only.

Amendment No. 9 marks the starting point for the reduced rate of duty on derv. It is to be set at 2 July. I have to admit that this will not become law until Royal Assent is given to the Bill and therefore, technically, the position is still covered by the original Ways and Means resolution and the Provisional Collection of Taxes Act. However—I hope that this will meet with the approval of the House—the Revenue proposes, subject to the approval of this amendment, to collect duty on derv at the new rate because it would be palpably absurd if it went on collecting it at the original increased rate and then refunded the duty following Royal Assent.

Amendment agreed to.

Mr. Cook

I beg to move amendment No. 7, in page 3, line 5, at end insert— '(A) In section 11(1)(b) of that Act (rebate on aviation turbine fuel and heavy oil other than kerosene at rate of £0.0077 a litre less than the rate at which duty is for the time being chargeable) for "£0.0077" there shall be substituted "£0.00155".'.

We come, in this amendment, to the second attempt by the Opposition to provide a modest measure of reflation in the economy, by offering assistance to manufacturing industry. I do not think we come to this amendment at a felicitous moment for a general debate on industry in the economy but this is an important matter and worthy of some of the time of the House. It is a serious issue for industrial manufacturing processes. Unfortunately, it will remain so for the forthcoming year because of the failure of the Budget and the Finance Bill to make any attempt to solve the problem encountered by industry in meeting its fuel costs.

2.15 am

I do not pretend, as did a Conservative Member when moving an earlier proposal, that this amendment is fiscally neutral. This amendment would have an effect on the revenue, and it is pointless concealing that fact. However, that effect would be rather more modest than new clause 1. Indeed, it would cost less than half the amount involved in that new clause. To that extent, I hope that it will commend itself to Treasury Ministers.

I must also admit that there is a flaw in the amendment. Inevitably, we have included additional rebate for aviation fuel as well as a rebate for heavy oil used by industry in the manufacturing process. That flaw necessarily arises from the nature of the statute that we are seeking to amend.

I note that the Liberal Party made a brave attempt to draft an amendment that confined the additional element of rebate to heavy oil. I do not know whether that was because the Liberals put greater effort in drafting their amendment than we did or whether they happened to open their mail that morning earlier than we did. In any event, their amendment suffered the fate of many other more complex amendments in that it was not selected. Therefore, the House will be unable to divide on the Liberal amendment.

In view of the element of flaw in our amendment, we do not propose to divide the House.

Mr. Lawson

That is not much good.

Mr. Cook

The Financial Secretary must not tempt Providence. His hon. Friends would be well advised not to utter the words of provocation that fell from his lips.

We do not propose to divide the House because we recognise that our amendment is defective. However, we wish to raise with Treasury Ministers—we hope that they will respond in that spirit—the element that penalises British industrialists, in that they must bear a heavy fuel duty on the oil they use in the manufacturing process.

I recognise that this is not a new problem to Treasury Ministers. Indeed, they recognise that a problem exists. We know that because the Chancellor of the Exchequer said so in his Budget Statement. The right hon. and learned Gentleman told the House: I recognise the strength of the representations put to me to bring the level of fuel oil duty in this country more closely into line with that of our major European competitors. I have carefully considered the case for doing so."—[Official Report, 10 March 1981; Vol. 1000, c. 776.]

Having carefully considered that case, which he recognised to be a strong one, the right hon. and learned Gentleman decided to do nothing about it. That is regrettable, because, as he recognised, Britain stands out on international comparison as having a heavy duty on fuel oil used by industry. We pay a tax of £8 per tonne on fuel oil. That is double the rate paid by any other Common Market country, with the solitary exception of the Republic of Ireland. The nearest figure to ours is the German figure of £4 per tonne, followed by the Netherlands figure of £3 per tonne. In Denmark and France, effectively no tax is levied on heavy oil used by industry in the manufacturing process.

The consequence of that differential is well known. Allied with other differentials in price, it means that British industrialists must pay a higher price for the fuel they use than their competitors in other countries, against whom they must compete for exports.

Treasury Ministers will be familiar with the NEDC study on industrial energy prices whose results came out in February. It found that for most of 1980 the heavy oil price paid by British industry was 20 per cent. above the average in Europe. As a result of that discovery, the NEDC report naturally recommended the removal of the heavy oil duty. The Opposition are more modest than "Neddy", which represents both sides of industry and is not affiliated to the Labour Party. We seek not the removal of the duty but a major reduction in its level, to remove British industry's disadvantage compared with its competitors abroad.

The effect of that disadvantage can be seen across a wide range of industry, particularly those industries that use heavy concentrations of energy. In the past two years—I draw no inference from the period, but it is the time that the present Government have been in office—the paper and board industry has lost 20 mills and 10,000 employees. In the glass industry employment is down 30 per cent. In that time six firms have ceased operation in Britain. I am advised that they are all involved in the melting rather than the processing of glass and, therefore use much higher concentrations of energy. In the clay industry employment is down 25 per cent., and several factories have closed.

One company has closed its factory in Britain as a matter of policy and moved it to Holland, specifically to benefit from the lower energy charges there. That shift of one factory, making roofing tiles, represents the export of 40 jobs to Holland.

In his last annual report, the chairman of Thomas Marshall and Company (Loxley) Ltd, which is in the clay industry, said: It is more and more difficult to sell abroad against competitors who are not penalised by a currency that is strong for the wrong reasons, who do not have to bear such high interest rates, and whose Governments have a more realistic approach to fuel prices. All that we are seeking is a more realistic fuel price, which is necessary to enable British companies to compete in export markets. Tragically, it is equally necessary to enable them to sustain their present penetration of their home markets, which have been threatened by the products of foreign manufacturers, who benefit from a lower fuel price in the country of origin, a price that reflects the much lower fuel duty levied by their Governments on the oil that they consume.

It is suicidal for us to impose on our own industry a cost penalty that is higher than the cost penalty that our competitors have to bear in their own countries. Not only is it counter-productive, militating against our own industry, but it makes our companies uncompetitive in the way that the Government constantly urge British industry to cease to be. The Treasury Bench has made many statements about the important need for British industry to become more competitive. In the debate on new clause 1, the Chief Secretary told us again that it was important for British industry to achieve international competitiveness.

It seemed to come as a surprise to the right hon. and learned Gentleman to learn that we agree about the need for British industry to be competitive. However, British industry cannot reasonably be expected to accept the exhortations of Conservative Members to become more competitive if they are not prepared to take the necessary steps in those areas in which they can directly influence the extent to which our industry is competitive.

The relative level of duty on the heavy oil used by industry as an essential fuel is an important part of that international competitiveness. It is open to the Government to influence that international level of competitiveness. If they do not act, they cannot complain if other parts of industry do not take the necessary action to become more competitive. Therefore, I urge the Government to review sympathetically our points and to reconsider the many representations that they have received on this point. They have admitted that they are based on a strong and sound case.

If the Government are unable to accept the amendment, as they might be, they should at least demonstrate that they are seized of the nature of the problem and that they will act before it is too late to rescue British industry from the consequences of having to carry a cost penalty that is not borne by our competitors.

Mr. John Wells (Maidstone)

The hon. Member for Edinburgh, Central (Mr. Cook) mentioned in passing the paper and board industry. I propose to address my brief remarks to it. My right hon. and learned Friend the Chancellor of the Exchequer implied, in his Budget speech of 10 March, that nothing could be done about this matter—although he was sympathetic to the idea of reducing the duty—because of certain commercial agreements between the British Gas Corporation and Norwegian gas undertakings.

Since 10 March there have been fundamental changes in employment in the area in which most paper-making is situated, in Kent. I refer in particular to North Kent and to my constituency. Those fundamental changes include the threatened rundown of the dockyard in Chatham, with the loss of about 7,000 jobs over four years, the announcement of considerable redundancies in the paper industry and the possibility that the British Rail workshops in Ashford—I am glad to see my hon. Friend the Member for Ashford (Mr. Speed) in his place—will shed some 800 jobs over the next six or seven months.

That means a sharp and sudden decline in the employment prospects of those in Kent. My hon. and learned Friend the Minister, who represents Dover and Deal, will need no reminding that Kent is a peninsula. A person who lives in Warwickshire can find a job in any direction, because Warwickshire is in the middle of England and there are 360 degrees of possible travel. However, a person living and working in North Kent cannot get a job to the north because of the Thames estuary. If he lives in Deal, he will not be able to get a job to the east because the whole area to the east is wet. Therefore, in a peninsula the prospect of getting a job is strictly limited. If no attention is paid to the duty, and if my right hon. and hon. Friends do not rethink the purely commercial undertakings that have been given by a commercial concern—albeit a nationalised one—it will bode ill for employment in an area in which unemployment has suddenly risen sharply. Unless something is done for the paper industry, the prospects of an improvement will be decidedly gloomy.

2.30 am
Mr. Barry Henderson (Fife, East)

The paper industry is of considerable importance to my constituents, as it is to those of my hon. Friend the Member for Maidstone (Mr. Wells). As the hon. Member for Edinburgh, Central (Mr. Cook) is not pressing his amendment and in view of the hour, I shall be brief. There are aspects of the energy policy that my constituents find it extremely difficult to understand, especially those aspects that relate to fiscal policy too. Some parts of the policies I can explain to my constituents, but others I find more difficult. I hope that my right hon. Friend and my hon. and learned Friend can make that job easier. I look forward to hearing their reply to the amendment.

Mr. Vivian Bendall (Ilford, North)

I concur with what my hon. Friends have said, that some areas of the paper industry will be affected by unemployment. The heavy oil duty is having a great effect.

Mr. Peter Rees

A powerful case has been made with his customary eloquence by the hon. Member for Edinburgh, Central (Mr. Cook) and some strong regional cases have been made by my hon. Friends the Members for Maidstone (Mr. Wells), Fife, East (Mr. Henderson) and Ilford, North (Mr. Bendall). I am as sensitive as any Member on the Treasury Bench to the points made by my hon. Friend the Member for Maidstone.

I shall endeavour to explain why the Government have considered and rejected with reluctance the case for a reduction in the duties. It is not just because the cost is £200 million, but, as I shall explain, we have engaged in certain offsetting provisions which cost about £168 million. It is, as my right hon. and learned Friend the Chancellor of the Exchequer mentioned in his Budget speech and as my hon. Friend the Member for Maidstone has reminded the House, that the British Gas Corporation many years ago entered into a series of contracts for the supply of gas. It is regrettable that a formula was built into those contracts—one cannot level criticism against those who entered into the contracts—so that if the duty were altered by this country the price paid by the British Gas Corporation would alter, too.

If we were to accede to the amendment—much as we should like to do so in many ways—it would have the inevitable consequence that the price paid by the British Gas Corporation, and therefore the United Kingdom's gas import bill and ultimately those to whom gas is supplied through the British Gas Corporation, would be substantially increased. Thus there would be a countervailing disadvantage. It was for that reason that with extreme reluctance the Government came to the conclusion that this was not a remedial measure that they could adopt.

My right hon. and learned Friend, in his Budget, announced measures costing in all about £168 million, which is slightly less than the £200 million that the amendment would cost, aimed at helping large energy consumers. I remind the House that British Gas is holding the renewal terms until December. That means that for customers on firm contracts prices will be 10 per cent. lower by December than they would otherwise have been. The additional flexibility in pricing introduced by the electricity area boards has, to date, been taken up by 160 large energy consumers, representing 25 per cent. of total electricity consumption in England and Wales.

Coal is, and I hope will remain, the cheapest fuel for bulk industrial use and the £50 million grant scheme for converting oil-fired boilers to coal-fired boilers should help industry to take advantage of that.

Mr. Campbell-Savours

The hon. and learned Gentleman says that he is confined by an agreement made some years ago which he did not wish to criticise. Is it not possible that a system of selective rebates could be introduced for energy-intensive using industries, thereby getting round the agreement and yet resolving the problems that have been drawn to the attention of the Minister, thereby helping industry such as steel and especially the paper and board industry, because that is where there is a difficult problem to resolve?

Mr. Rees

Clear legal advice has been received. It is regrettable—I do not pour scorn on it—that that solution would not work either. I assure the hon. Gentleman that the keenest legal minds have been applied to the documents. It is a regrettable stumbling block on what otherwise would have been an attractive route to follow. I am sure that there is unanimity in the House that this would be an attractive means of helping British industry. We are acutely aware of its problems. It was primarily for the reason that I have given that we were compelled to reject this solution.

Mr. Cook

The Minister will be aware that one of the reasons why there has been difficulty in persuading other parties of the merits of the case is that the contracts to which he refers are of a commercial character and are not in the public domain. Can he say what would be the overall added cost to British Gas as the penalty of reducing the heavy oil duty so that we may compare it with the figure that would be of benefit to British industry if a reduction were made in the duty? There is some doubt whether the additional cost to British Gas of purchasing the gas from the North Sea—which is, after all, only a part of the gas that is subsequently consumed by industry—could outweigh the advantage to all industry of a reduction across the board in the duty on the heavy oil that it consumes.

Mr. Rees

I should like to respond to the hon. Gentleman because I appreciate the concern that has been expressed, and also the reluctance of the House to accept the mere assertion by a Minister of this kind of proposition. I am unable to respond immediately, but I should like to consider the point and perhaps write to the hon. Gentleman about it. We are dealing with matters of high commercial confidentiality, and it is for that reason that I cannot lay the contracts in the Library or, indeed, refer to their terms in great detail. I hope that the hon. Gentleman will allow me to consider whether it would be possible in any way to give some idea of the formula and the likely increase of cost.

Mr. John Wells

Will my hon. and learned Friend give the house some indication of the period for which the contract will run? It is intolerable that the Government should have their hands tied, perhaps in perpetuity, to some commercial contract entered into by a commercial concern, albeit nationalised. If this is an open-ended commitment for ever and a day, we are in trouble.

Mr. Rees

As I have said, for reasons of commercial confidentiality I cannot refer in detail to the contracts. But I think I can say that they do not run for ever. I should like to consider how far it is possible to disclose to the House the relevant terms, because I appreciate that this is a matter of some importance and would enable the House more readily to come to a conclusion.

I hope that the House will forgive me if I leave the general assertion with it and see to what extent I can disclose to the House the relevant provisions, without breaching the commercial confidentiality of contracts to which the Government are not a party.

I was in the process of reminding the House of the package that my right hon. and learned Friend the Chancellor of the Exchequer announced at the time of the Budget. It may well be that the House would not consider that as a suitable offset. It was, however, the best that we were able to achieve with the money available and in the prevailing circumstances.

Much as I appreciate the thought underlying the amendment, and oppressed as I am by the considerations that my hon. Friends have urged on me, I have to advise the House not to accept it.

Amendment negatived.

Amendment made: No. 9, in page 3, line 7, at end insert ';but as respects the period beginning at that time and ending at 6 o'clock in the evening on 2nd July 1981 the rate of the duty of excise charged by section 6(1) of the said Act of 1979 shall, notwithstanding subsection (1) above, be £0.1382 a litre in the case of heavy oil as well as light oil and the provisions mentioned in subsection (1A) above shall have effect accordingly.'.—[Mr. Peter Rees.]

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