HC Deb 16 March 1993 vol 221 cc182-4

In recent years, there has been much debate on the subject of global warming and the role that tax measures can play in combating it. This has led the European Commission to propose a Communitywide carbon tax. There may indeed be a case for further co-ordinated international action on global warming, but I remain unpersuaded of the need for a new European Community tax. Tax policy should continue to be decided here in this House, not in Brussels.

Individual countries should, of course, take their own measures to give people the right signals to encourage the efficient use of energy. Today, I shall propose measures designed to do just that, and to raise revenue at the same time.

Last June, my right hon. Friend the Prime Minister signed the United Nations convention on climate change at Rio. This was a milestone in international efforts to halt global warming.

When Britain and other countries have ratified the convention, the Government will be committed to bringing forward measures aimed at returning greenhouse gas emissions from this country to 1990 levels by the year 2000. My right hon. Friend the Secretary of State for the Environment published last December a consultation paper which set out the various options.

The largest contribution to the growth in United Kingdom carbon dioxide emissions in the coming years is expected to come from the transport sector. I therefore propose to make clear today the Government's long-term intention on road fuel duty. We intend to raise road fuel duties on average by at least 3 per cent. a year in real terms in future Budgets, in addition to the increase I have already announced for this year.

In deciding the level of duty to be levied in any particular Budget, we will, of course, take full account of conditions at the time—including, if charges for motorways and urban roads are introduced, the overall level of taxes and charges which road users are paying. However, my announcement today will help manufacturers and consumers to plan ahead. It should provide a strong incentive for motorists to buy more fuel-efficient vehicles, and it will raise at least a further £520 million in 1994–95 and £950 million in 1995–96.

However, in order to meet the commitment that we entered into at Rio, action will be required not just in the transport sector, but across the whole economy, and in deciding how best to meet our carbon emissions target, we will need to ensure that the right incentives are in place throughout the economy—encouraging people to consume less and conserve more. Above all, it is crucial to avoid taking measures that will have a disproportionate impact on the competitiveness of British industry.

Against this background, I have one further measure to propose that will not only encourage greater energy efficiency in every household in the country, but will also raise a considerable amount of revenue for the Exchequer over the years ahead.

Fuel and energy supplies to industry pay VAT in Britain. Those to the home do not. In this respect, we are unique in the European Community. I therefore propose, over the next two years, to end the zero rate of VAT on domestic fuel and power. Again, this change will not come into effect immediately, but in 1994. VAT will be charged at 8 per cent. from 1 April 1994 and at 17½ per cent. from 1 April 1995.

This measure will raise some £950 million in 1994–95, £2.3 billion in 1995–96 and around £3 billion a year thereafter. For the first time, the rate of VAT on domestic fuel and power will be the same as that charged on goods like loft insulation material, which improve energy efficiency. This will bring to an end the current anomaly, which makes nonsense of any attempt to use the tax system to improve the environment.—[Interruption.]

Mr. Deputy Speaker

Order. The House should listen to the Chancellor.

Mr. Lamont

My intention is to legislate for this proposal this year.

Social security benefits will, of course, rise automatically to reflect the price effect of this change, but I recognise that this will cause particular problems for those on low incomes. My right hon. Friend the Secretary of State for Social Security will take this into account when the income-related benefits are uprated next year.

Taken together with the measures which have already been announced, these tax proposals take Britain two thirds of the way to meeting the Rio target, and they will do so in a way that does the least possible damage to the competitiveness of British industry. I am confident that the remaining gap can be filled through sensible energy-saving measures, as and when the convention is ratified by our major industrial competitors.

The measures I have announced so far will raise substantial revenue in 1994–95 and beyond. I turn now to my measures for business.

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