LOW CANCER-RISK PART-RENEWABLE BLENDED DIESEL

HC Deb 28 July 1997 vol 299 cc25-44

1. Low cancer-risk part-renewable blended diesel is fuel which consists of—

1. (a) a blend of heavy oil containing not less than 22 per cent. by volume of kerosene which when blended conforms to the specification in paragraph 2; and
2. (b) not less than 3.8 per cent. and not more than 15.0 per cent. by volume of methylester which is derived from rapeseed oil which contains not more than 0.02 per cent. by weight of free glycerine and which conforms to such other specifications as the Commissioners may direct.

2. The specification referred to in paragraph 1 is a blend of heavy oil—

1. (a) of which not less than 60 per cent. by volume and not more than 72 per cent. by volume distils at a temperature of 250°C;
2. (b) of which not less than 90 per cent. by volume distils at a temperature of 290°C;
3. (c) which has a density of 15°C of not less than 813 kilograms per cubic metre and not more than 819 kilograms per cubic metre;
4. (d) which has a minimum cetane number of 49;
5. (e) which contains not more than 0.0015 per cent. by weight of sulphur;
6. (f) which contains not more than 11.25 per cent. by volume of aromatic hydrocarbons and not more than 0.05 per cent. by volume of polycyclic aromatic hydrocarbons (containing three or more carbon rings); and
7. (g) which conforms to such other specifications as the Commissioners may direct."

(3) This section shall come into force on such day as the Commissioners of Customs and Excise may by order made by statutory instrument appoint.'—[Sir Michael Spicer.]

Brought up, and read the First time.

3.39 pm

Sir Michael Spicer (West Worcestershire)

I beg to move, That the clause be read a Second time.

Madam Speaker

With this, it will be convenient to discuss the following amendments: No. 33, in clause 11, page 7, line 26, at end insert—

'(4A) After section 6(2) of the 1979 Act, there is inserted—

1. "(2A) The Secretary of State may, by order made by statutory instrument, provide for duty of excise on hydrocarbon oil to be charged at a lower rate than that specified in subsection (1) above in rural areas; but no rate lower than that in force on 1st July 1997 may be specified under the terms of this subsection.
2. (2B) An order made under section (2A) above shall be laid before Parliament in draft and approved by resolution of each House before being made.".'.

No. 26, in page 7, line 28, leave out '2nd July' and insert '25th November'.

Sir Michael Spicer

To be completely safe, I must say that I am president of the Association of Electricity Producers, although that is a very indirect interest. In fact, I have no interest relevant to the new clause. I tabled the new clause on behalf of a constituent and it is the second time that I have raised the matter on behalf of that constituent.

The purpose of the new clause, which is quite long, is to give fuels whose fumes can create cancer the treatment that exists in tax law for fuels that produce high-sulphur emissions or those that produce heavy carbon dioxide emissions. The fume dealt with in the new clause is produced by polycyclic aromatic hydrocarbons, known as PAH. Can the Government confirm that the PAH content of fuel emissions is cancerous in its effects? There have been many studies of those emissions and the clear indication is that they are cancerous, but it would be good to have confirmation from the Government that that is the case.

I am very much aware that no Government would agree to a new clause that was specific to any company's interest; that would be quite wrong and would involve hybridity. The new clause, however, has been couched precisely with that point in mind and would have a completely generic application if accepted by the House. The new clause deals with a process that blends refined rapeseed oil with low-sulphur diesel. That generic technique, which is now well established and can be used by anybody who wishes to do so, would, because it meets a gamut of objectives in terms of cleaner air, benefit from the new clause.

Are there other ways in which to achieve those objectives? During points of order, we heard that the Government, on the "Today" programme, said that their way in which to deal with road pollutants was not to build any more roads. Presumably, if we did not have roads, we could not have cars. That seemed to be the way in which they intended to deal with these problems. The new clause is another way, and it is well established.

Clean air objectives have been dealt with through the tax system. The previous Finance Bill introduced the inducement to reduce high-sulphur fuels, and there is a discriminatory tax arrangement designed with that in mind. If the Government are serious in their attempts to reduce pollutants from fuels, they should give some priority to dealing with emissions that may be cancerous.

Do the Government accept that the PAH content in fuel is cancer bearing? Will they confirm the assurance given by the previous Administration, that there would be a full review of all detrimental emissions from fuels and that a full review would be made of the Government's approach to noxious emissions? I hope that we shall not end up with some emissions being dealt with through the tax system while other more dangerous emissions are ignored.

As we have used the tax system in the past to deal with the problem, there is an onus on the Government to explain carefully, if they decide not to accept the new clause, what they intend to do about dangerous emissions and what their general policy is on the taxation of noxious emissions. Do they accept that a distortion in the system that produces tax disadvantages for certain types of emission and not for others is the correct way in which to proceed?

3.45 pm

Mr. John Swinney (North Tayside)

I listened carefully to the remarks of the hon. Member for West Worcestershire (Sir M. Spicer); I wish to take up amendment No. 33, in the name of my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Morgan). The amendment is designed to provide a mechanism to enable the Government to vary the proposed increase in petrol duty, to compensate for the increased costs that will be suffered by those who live in rural areas. The issue has already been discussed, but it is important that the Government should have the opportunity once again to reflect on the proposals that are set out in the amendment.

The costs of the additional increase in petrol duty introduced by the Budget would increase the burden on those who live in rural areas by about £60 a year. That is on top of the £300-a-year increase that was introduced by the previous Conservative Government, through their commitment to an increase in petrol duty by an additional 5 per cent. on top of inflation.

The new Labour Government have added to that burden, and we seek through amendment No. 33 to encourage the Government to take a step back from the previous commitment. There is an undeniable case that rural areas are disadvantaged in this instance, and I shall provide some information on the subject.

The Highlands and Islands development board, in one of its publications in 1987, argued that a car in a remote area may be both highly unreliable and barely affordable but nevertheless essential to survival and any households without a car in remote areas, must be at a severe disadvantage. The study went on to examine the greater dependency of people in rural areas on the use of a car. It showed that on average 57.5 per cent. of households in Scotland had access to a car, whereas in the highlands and islands, which is the principal rural area in Scotland, the average was 68.5 per cent. It was 68.3 per cent. in Grampian and more than 70 per cent. in the northern isles.

It is interesting to contrast those figures with the dependence on and utilisation of public transport in rural areas. The contrast makes the burden clear. It is estimated that in the United Kingdom 3.66 per cent. of the population travel to work by train and 9.85 per cent. travel to work by bus. In the highlands and islands, 6.6 per cent. travel by bus and 0.65 per cent. by train. Access to public transport in rural areas is not as good or convenient as in city and urban communities. It is clear that in rural areas the burden of petrol duty is much greater than elsewhere, and dependence on the car is much more significant in all respects.

Over the weekend, I conducted a number of surgeries in the highland Perthshire area of my large rural constituency. Complaints and problems were brought to my attention by those who were seeking to use public services such as nursery education and primary school facilities, or other public services that involved substantial car journeys.

One lady was contemplating travelling 300 miles each week to take her young child to a nursery in Dunkeld. The increased burden that will be brought about by the proposed increase in duty will be formidable for that lady. Given the impact of increased transport costs in rural areas, people who live there are faced with a considerable burden. In many constituencies in the north of Scotland, local businesses, post offices, general stores and other small shops supporting life in the rural areas are haemorrhaging away, because of the spiralling costs of obtaining produce and supplies for sale.

The Government have suggested that the increase in petrol duty is being imposed on the wisest advice in respect of the environment. Certainly, travelling around London it is clear to me that there is a huge environmental problem caused by the over-use of cars and by the congestion that they cause. It is, however, unfortunate that the Government have tried to justify the increase in petrol prices on environmental grounds. It will punish rural areas even though it is dressed up as an environmental measure.

The Government need to pursue a long-term environmental strategy. Indeed, some of its details may have been announced by the Deputy Prime Minister during the past few minutes—who knows? Such a strategy will have to tackle congestion, among other issues, but it must not do so at the expense of fragile rural areas, not just in Scotland, but in England, Wales and Northern Ireland. Petrol prices are already high in those areas.

My last piece of evidence comes from an analysis published in the Petroleum Times Energy Report, which shows that the average price per litre of unleaded petrol in Scotland was 61.76p in June 1997; whereas the average price in England was 58.6p. That clear disparity of price is only exacerbated by the heavier dependence in rural areas on the use of the car. I urge the Government at this late stage in the passage of the Finance Bill to think again about that measure because of the damage that it will undeniably do to already fragile rural communities.

Mr. David Heathcoat-Amory (Wells)

rose—

Mr. Geoffrey Clifton-Brown (Cotswold)

rose—

Mr. Heathcoat-Amory

Would it be in order, Madam Speaker, for me to speak at this point?

Madam Speaker

Yes.

Mr. Heathcoat-Amory

In no way do I want to inhibit my hon. Friend the Member for Cotswold (Mr. Clifton-Brown), who I know has other points to make, just as he did in Committee.

I want to speak to the amendment in my name, No. 26, which we were not able to debate in Committee because of the operation of the guillotine. We did touch on the increase in hydrocarbon duty—but not on the biggest effect that it will have on people in business: the fact that these large increases are to be introduced not from the usual date of the Budget, which is November, but from 2 July. That represents an extra five months' duty; it went partly unnoticed at the time of the Budget, but it has certainly been noticed by the victims of that large tax increase in the weeks since.

The fact is that, on the day of the Budget, the Chancellor imposed a 4p-a-litre tax increase on all who use road fuel—for those still used to gallons, that means an 18p-a-gallon increase. That represents a 6 per cent. increase above and beyond the rate of inflation, which is higher than what had been planned by the previous Government.

When we were in government, we signalled that there would be an annual real increase in duties, to show what our intentions were. We did so for environmental reasons, and to give the automobile industry a chance to design fuel-efficient engines and equipment to meet the challenge of extra hydrocarbon duties.

Without any warning or mention in the manifesto, however, the new Government have increased petrol and diesel duty by 6 per cent. in real terms; most significantly, they have brought forward the increase by five months. Taken together, those two factors will raise an extra £730 million this year. The Government have, without warning, imposed a three quarters of a billion pounds extra tax increase through that petrol and diesel duty hike.

Since Budget day, there has been an immediate increase for all motorists. I emphasise the word "immediate" and shall return to it, to contrast it with a number of relief measures that the Government have carefully postponed. All the pain is immediate, while some of the relief is delayed. This tax increase affects not only all motorists but anyone who relies on transport of any sort. I shall deal with the effect on rural areas in a moment.

Mr. Andrew F. Bennett (Denton and Reddish)

Does the right hon. Gentleman accept that the previous Government were very keen to persuade motorists to use their cars less, and that their strategy was to increase fuel duties? If he does not agree with such increases, how does he suggest that we persuade the world to stop global warming and achieve the targets for reducing CO₂, emissions?

Mr. Heathcoat-Amory

The hon. Gentleman raises a matter which goes a little wide of the debate. I would love to engage with him in a wider environmental debate, but that would be out of order. People are indeed fairly attached to their cars. There is much evidence that increases in fuel duties do not necessarily lead people to switch to public transport, which is perhaps what lies behind the hon. Gentleman's question. The point that I am making, and with which I do not think the hon. Gentleman would disagree, is that yes, we did have a policy of increasing fuel duty, but the reason why the new Government have raised the rate of increase and brought it forward by five months has less to do with environmental aims than with raising money.

The effect of the increase on rural areas was outlined by the hon. Member for North Tayside (Mr. Swinney), and I agree with much of what he said. I represent a rural area, and a car is frequently not a luxury but a necessity for people living there. We must remember that not only cars but trains and buses will be affected by the increase in duty—in other words, public transport will also be hit. I know from first-hand experience in my constituency that many people are already regretting taking at face value Labour's promise, made during the election campaign, not to raise taxes.

The big and immediate effect of the increase is on transport, but domestic heating will also be affected. The Government have made much of the fact that they are cutting the rate of VAT on domestic fuel by 3 per cent., but the timing is interesting. That cut, modest as it is, does not come into effect until September. We discovered in Committee that there is a significant clawback of that benefit from low-income groups in particular—there will be a lower uprating of pensions and other benefits next April because of the cut in VAT. The modest benefit does not come into effect until September; why, therefore, have the Government brought forward to the date of the Budget itself the increase on heating oil which will affect many of the same people?

In summary, people are already being affected by many of the tax increases introduced by the Chancellor on Budget day. He announced 17 tax rises in general, but only one was promised in the manifesto. He did indeed promise us a windfall tax when in opposition, but when he was making plans for the windfall tax, he must have been making plans for the other 16 tax increases, including this huge extra burden on motorists and others.

Several hon. Members

rose—

Mr. Ivor Caplin (Hove)

Will the right hon. Gentleman tell the House how many of the previous Government's 22 tax rises were in the 1992 Conservative party manifesto?

4 pm

Mr. Heathcoat-Amory

We dispute the hon. Gentleman's arithmetic in calculating 22 tax rises. He alleges that there were 22 tax rises during our five years in government, but perhaps he would like to reflect on the fact that, in their first four or five weeks, the Labour Government have introduced 17 tax rises. If they continue at that rate, we shall be well into three figures by the next general election.

The Prime Minister, before the general election, promised not to increase tax. On 21 September 1996, his exact words were: We've no plans to increase tax at all". More recently—in January 1997—the Chancellor of the Exchequer said: It's my aim to get the burden down for ordinary people". The Chancellor has since discovered that ordinary people use transport. Even if people do not use their own car, they use public transport, and both forms of transportation have been affected by the Government's tax increases. Many people heat their homes with oil, and many have pensions—which I shall not elaborate on now, because I realise that we shall debate that issue tomorrow. So-called ordinary people have been hit by 17 tax increases.

Mr. Geraint Davies (Croydon, Central)

Does the right hon. Gentleman agree that there is a danger of the economy overheating and that, given that danger, the fuel tax is very welcome within the Budget's balanced portfolio of changes? Will he tell the House what changes, if any, the Conservatives would have made to fuel duty?

Mr. Heathcoat-Amory

I tell the hon. Gentleman straight that we would not have produced this Budget and, therefore, would not have introduced the huge extra increase in duty on heating oil, petrol and diesel. If he is right and the economy is overheating—the Chancellor of the Exchequer has said that it is—it is all the more surprising that the Chancellor did not try, as a general Budget strategy, to take money directly out of consumer expenditure. We know—as does the hon. Gentleman, because he was a member of the Standing Committee that considered the Bill—that the Chancellor's main tax-raising measure affected not current consumer expenditure but pension funds, thereby hitting long-term savings and not current consumer expenditure. If reducing such expenditure was the Chancellor's strategy, he went about accomplishing it in a pretty stupid way.

The Financial Secretary to the Treasury (Dawn Primarolo)

The right hon. Gentleman has been going on about heating oil and price increases. Does he accept that kerosene is the predominant heating oil, and that the Budget did not increase excise duty on it?

Mr. Heathcoat-Amory

No; the hon. Lady is a little out of date. Kerosene—or paraffin, as it is sometimes called—is no longer the predominant heating fuel of those on benefits. Just as many of them, if not more, use heating oil for heating their hot water or—with central heating—their homes. As from Budget day, the duty was increased. The hon. Lady has not answered the curious conundrum whereby she is happy to delay until September the VAT reduction on domestic fuel, whereas the Chancellor made the duty increase on heating oil effective on Budget day—thereby emphasising a point that I have already made.

Mr. Bennett

Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory

I shall give way once more to the hon. Gentleman.

Mr. Bennett

Are not those crocodile tears? How many people on low incomes does the right hon. Gentleman suggest are running central heating at this time of year? Does not he expect most of them to turn off their central heating system between now and September?

Mr. Heathcoat-Amory

Yes, I do. However, it may come as news to the hon. Gentleman that many people use the same fuel for heating water. They take baths, they wash their hands and they heat water for cooking. I am amazed by the ignorance sometimes displayed by Labour Members about how so-called ordinary people live. All the extra costs affect people now. As we sit in the Chamber, the additional tax on fuel is affecting our constituents, and I am surprised that the hon. Gentleman is apparently unaware of that.

The tax increase on petrol, diesel and various oils does not just affect individuals; it is a massive extra cost to industry. Industry is the main user of diesel. Most lorries, buses and trains use diesel, which has increased in price by more than 9 per cent. Directly or indirectly, that affects the price of just about everything that is transported. It is a big extra industrial cost, as well as affecting individuals who use buses and trains. It also affects competitiveness. We have been promised a White Paper, a review or discussion document about competitiveness in the British economy. The Government could have made a start by not increasing the burden on the competitive sector of the economy through large tax increases.

The trade sector of the economy has been most squeezed since the election as it is exposed to international competition. In particular, the export industries and the manufacturing sector have been hit by the strength of the pound. They will also suffer most from a direct tax on one of their most important raw materials. That has no doubt contributed to stock market movements since the Budget. Shares in the financial and banking sectors, the retail sector and importers have increased in value, while those in manufacturing industry, the engineering sector and exporters are relatively low, as those industries have been hit by the Chancellor's monetary policies and the tax rises since Budget day.

There is also a general effect on inflation and the retail prices index. That further twist to inflation has not yet been reflected in the RPI. However, between the date of the election and now there has been an increase in the actual or signalled rate of inflation. That is hardly surprising, as one of the first things that the Chancellor did in office was to weaken his inflation target. We had a target of 2½ per cent. a year or less. My right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the previous Chancellor, had met that target by the time we left office. The incoming Chancellor weakened the target to 2½ per cent. plus or minus 1 per cent. That sent a signal to the world that he would tolerate higher inflation. In addition, he failed to damp down any consumer boom that he identified in the economy—another missed opportunity—and increased inflation by his action in the Budget. The duty increase has still to feed through into the economy.

Jacqui Smith (Redditch)

Does the right hon. Gentleman accept that it is not the toughness of the inflation target that is most important, but the toughness of the action taken to achieve it, and that in many ways my right hon. Friend the Chancellor has already shown his willingness to take tough action, particularly through the independence that he has given the Bank of England in monetary matters?

Mr. Heathcoat-Amory

I quite agree with the hon. Lady that it is no good having a target unless one is tough about meeting it. Having set a looser inflation target, the Chancellor signalled that he would be rather relaxed in his efforts to meet it by producing an inflationary Budget. The figures are quite eloquent. A report in the Financial Times says that, according to the Office for National Statistics, the Budget will add a further 0.79 percentage points to the 'all-items' retail price index". The same article points out that the last Budget of my right hon. and learned Friend the Member for Rushcliffe added only 0.39 percentage points to the index. So there we have it. The Chancellor not only weakened his target, but set about breaching it.

The Budget forecasts in the Red Book project a breach of the inflation target. The Chancellor accepts in his arithmetic that he will not—

Mr. Clifton-Brown

Does my right hon. Friend agree that a judicious blend of fiscal and monetary policy is needed to meet the inflation target? Relying purely on fiscal policy could advance a possible recession, by creating the need to increase interest rates too high for the demand in the economy. We are heading in that direction.

Mr. Heathcoat-Amory

I agree with my hon. Friend. I am not a Keynsian, but I accept that fiscal policy has a part to play. It should not work in the opposite direction to monetary policy. Although interest rates should bear the main strain of keeping inflation under control, the lesson from countries such as Germany is that success comes from having a low-inflation culture, in which all the levers of economic management—fiscal policy and monetary policy—point in the same direction. We have not achieved that under the new Government. The separation of fiscal policy, which remains in the Treasury, from monetary policy, which now goes to the Bank of England, has within it the seeds of a considerable bust-up. The Budget was not in tune with the inflation target laid down by the Chancellor, even though—I repeat—that target is looser than the one that he inherited.

My concluding point concerns the effects on public services of the tax increase, particularly the fact that it is being brought forward by five months. From the day of the Budget, all services that use transport will cost more. There is a 4p-a-litre increase for all police cars, all ambulances, all school buses, all meals on wheels, the national health service and social services. All those services are already experiencing higher costs. There is no extra money for that. The Chancellor has almost made a fetish of the fact that his cash targets remain the same. It is true that, for the financial year starting next April, he has raided the reserve to allocate some more money to two items of public expenditure—education and health—but there is nothing for law and order, local government or any other public services. For the current financial year, which ends next March, there is not a penny piece of extra public money to fund services, even though—again, this is all in the Red Book—they face the inflationary consequences of the Budget.

Mr. Quentin Davies (Grantham and Stamford)

My right hon. Friend is touching on an important point. Is there not a serious danger of the public being bamboozled? They have been led to believe that the increases from the contingency reserve for health and education next year will buy more teachers, doctors or operations, adding to the output of those public services. It has not been explained to the public that a significant portion of that money will go on increased fuel costs and the consequences of the minimum wage—costs imposed on those services by the Government.

4.15 pm

Mr. Heathcoat-Amory

My hon. Friend puts it very well. What the Chancellor has done—the fuel increases are just one part—is to increase the cost of all public services while providing no extra money. That is a real expenditure reduction, which is already occurring.

The House should accept not just my word but that of the House of Commons Library, which has produced some very interesting figures that show that there is a real public expenditure reduction of £3 billion in the current financial year, rising to £5.25 billion next year. That is because of the extra inflation that the Chancellor is now projecting—part of which he has caused as a result of the Budget—which is colliding with the fact that there is no extra cash.

Dr. Rudi Vis (Finchley and Golders Green)

Will the right hon. Gentleman comment on the International Monetary Fund report concerning the Budget?

Mr. Heathcoat-Amory

There is nothing that I would like to do more, but I do not know whether the Chair would allow such a diversion into the IMF report. I shall just say that the IMF spotted the fact that we have incipient overheating on our hands, yet the Chancellor chose not to use the Budget as an opportunity to correct that through fiscal tightening. To go on a little from the IMF report, the only way in which he did attack consumers directly was in the most inflationary way possible, by the immediate increases in indirect taxation. I do not think that the hon. Gentleman will derive much comfort from the IMF report to counter what I have just described.

There we have it. We saw on Budget day a large and immediate tax increase levied on motorists of all sorts, especially those in rural areas, who will have to bear the increase without any way of switching to other forms of transport—notwithstanding the fact that many of the alternative forms of transport, such as buses and trains, are also hit by the duty increase.

We have seen how the increase works through into higher industrial costs and damages competitiveness, especially in the sector most exposed to world competition, which is trying to export. We have also demonstrated that, by feeding through into general inflation in the public services, unmatched by any extra cash to compensate, the increase will have a highly damaging effect on public expenditure in the years ahead.

For all those reasons, I invite the House to support amendment No. 26, which seeks at least to limit the damage, by pushing back to November the increase in hydrocarbon duties. The amendment will not halt the damage completely, but at least it will bring some respite to the hard-hit sectors that are the first but not the only victims of the new Labour Government.

Mr. Clifton-Brown

I wish to speak to amendment No. 26, which was tabled by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and relates to the timing of the fuel duty increases. They would, of course, have been enacted in November, rather than almost five months earlier in the July Budget. A 6 per cent. increase in fuel duties introduced five months early probably amounts to an increase of about 7 or 8 per cent. in real terms on a year-on-year basis. That is a pretty swingeing increase in fuel duties in one year.

The increases hit particularly those in rural areas and, more particularly still, poor people in rural areas who have to rely on their cars to obtain the absolute necessities of life at, for example, the post office or their local doctor's surgery. Those who are relatively affluent will not be deterred from using their cars.

The Government should be implementing a mixture of "carrot" and "stick" measures. They should be trying to encourage people through fiscal measures such as those in clause 11—some of which are to be welcomed, as I shall briefly explain—as well as encouraging people and heavy goods on to public transport.

In my constituency, we have opened two rural stations and I am battling to open a third. We should press for such measures to encourage the use of public transport. Another initiative in my constituency is a community bus. The scheme is organised by the community and funded by various Government bodies and through fund raising. The bus is driven by a rota of volunteers, and its schedule is tailored to the needs of the community. The scheme has expanded and now runs three or four buses, having started with one. Sadly, the swingeing increase in fuel duty will increase the scheme's running costs. I ask the Financial Secretary to exempt good community schemes from future increases in fuel duty or allow them to claim a rebate, because we should encourage them.

The increase in fuel duty is 6 per cent. in real terms, or 6 per cent. plus inflation. If we assume that the rate of inflation over the longer term is some 3 per cent., the increase is some 9 per cent. That means that fuel duties will double, in nominal terms, in seven years; that is a swingeing increase. I urge the Financial Secretary to consider the effect that the increase will have on poor people, especially those in rural areas.

As I have said, I welcome some aspects of clause 11, especially the encouragement of ultra-low-sulphur diesel. Through fiscal and other measures, we should be able to encourage—in a reasonably short time—all diesel users, including heavy goods vehicle drivers and car drivers, to switch to low-sulphur diesel. We all know the effects of the sulphur pollution that belches from the back of unserviced HGVs and cars, and it is possible to see the particulates and the white smoke and to smell the sulphur. We should encourage a universal switch to ultra-low-sulphur diesel, through fiscal measures, as we did with unleaded petrol. Ten years ago, the market for unleaded petrol was around 10 per cent. Today, it is some 90 per cent.

There is now no case for super-unleaded petrol, as the hon. Member for Denton and Reddish (Mr. Bennett) knows because he was a member of the Environment Select Committee which considered it. An environmentally friendly clause 11 would have introduced a differential in the rate of duty on ordinary unleaded petrol compared with super-unleaded petrol. Such a measure could be considered for a future Budget.

My right hon. Friend the Member for Wells mentioned the inflationary effect of clause 11. One reason behind amendment No. 26—to delay the increase in fuel duty—was to try to mitigate that effect. The increase in fuel duty will have an effect on the price of all service and delivery goods. Huge numbers of motor cars, vans and HGVs will experience an increase in costs. Whether that is inflationary in the long or short term, when it eventually feeds through into the economy, is a matter for speculation. The notes on clauses suggest that the measure, which will raise some £300 million extra, will push inflation up in the short term by 0.25 per cent., but if duty goes up year on year, the cumulative inflationary effect will be much greater. That must be taken into account.

It is all very well to tax the motorist out of existence, but certain sectors of society will be especially adversely affected, including the poor in rural areas. It is all very well for an urban-dominated Government to ignore those people, but those who live in rural areas are often some of the poorest in the land. They depend on their motor cars as a necessity and the Government have a duty to consider their plight in future Budgets.

Mr. Swinney

The previous Government increased petrol duty, which had a damaging effect on rural communities. Did the hon. Gentleman oppose that?

Mr. Clifton-Brown

I am not sure what the hon. Gentleman is talking about. He is probably talking about Norman Lamont's 1992 Budget. If he will clarify his question, I will answer it.

Mr. Swinney

The previous Government increased petrol duty by 5 per cent. over and above the inflation rate. The present Government have compounded that by increasing it by a further 1 per cent. The measure introduced by the last Government had a very damaging effect on rural areas.

Mr. Clifton-Brown

We can argue about semantics. We raised the duty by 5 per cent. The figure is now 6 per cent., but, in real terms, it is up to between 7.5 and 8 per cent., and each percentage rise causes a little more damage. I ask the Government to consider the effect that is caused over a period. This is a fairly swingeing increase—but I do not want to be provoked into speaking at length.

The Government could consider innovative ways of encouraging people to use public transport, on a "carrot" rather than a "stick" basis. In any of our major cities, queues of cars with only one occupant belch out smoke from unwarmed engines. Fiscal measures to encourage people to share cars could be introduced, along with a host of measures to encourage the return of heavier goods to the railways.

Some innovative suggestions have been made. Perhaps we could give special fiscal concessions to the drivers of lorries that, by means of special wheels, can go straight from the roads and on to the railways without the need for cross-handling of goods. I have seen that working effectively in north America. There could be a uniform business rate holiday for firms that were prepared to sign a 10-year contract providing for all their heavy goods to be transported on the railways instead of the roads. I should be happy to write to the Financial Secretary to the Treasury, or to the Minister of Transport, describing some of the suggestions that have been made.

Kali Mountford (Colne Valley)

The hon. Gentleman may be surprised to learn that, in my constituency, most people with low incomes do not use cars at all, but depend on public transport. The West Yorkshire passenger transport executive provides free transport for pensioners and disabled people who require it.

Mr. Clifton-Brown

The hon. Lady's area must be very different from mine. In many small villages in my area there is only one bus a week, and anyone with an urgent appointment with the doctor or an urgent need to claim benefit would still be waiting.

Mr. Heathcoat-Amory

Has my hon. Friend taken account of the fact that, as a result of the Budget, the cost of bus services will rise? The extra fuel increase must be borne not just by private motorists—who, of course, are of no concern to Labour Members—but by bus companies and other operators. They will have to raise their prices, which will drive the hon. Lady's constituents and others off the buses. Either they will be unable to travel at all or they will have to try to obtain lifts in private cars.

Mr. Clifton-Brown

I agree. As my right hon. Friend said in his speech, if public service costs are to be increased without there being a commensurate increase in public sector grant, the cost will inevitably fall on the consumer.

One of my predilections is listening to Jimmy Young on the way from my constituency to London. Anyone who listened to his programme this morning will have heard people telephoning the programme saying they did not use public transport because of the cost. One lady who lived in Edgware, or some such London borough, tried to give up using her car for a month, but had to start using it again because the cost of public transport was even higher than that of the car. How daft can the Government get?

I do not want to be further provoked into making a long speech. I have made my points, and I hope that the Government will consider them carefully when drawing up next year's Budget.

Mr. Quentin Davies

I was struck by the extraordinary way in which the Government are trying to justify this increase in duty. They seem to be using two arguments, and they are in a frightful muddle.

The first argument was that it was a good idea to take the opportunity of the Budget to increase consumption taxes. Indeed, if consumption is rising at an unsustainable rate and the economy is in danger of overheating—the analysis made by the Government in their Red Book—it might be sensible to take advantage of a Budget to reduce consumption spending. The Government have demonstrated, however, that that argument is not available to them because the major tax rises that they introduced were, first, on companies and the corporate sector—the windfall tax—and, secondly, on savings, with the abolition of the dividend tax credit, which will have exactly the opposite effect in so far as it reduces the return on savings—and, thus, the inducement to save—and so increases consumption. People will save less and spend a greater proportion of their disposable income.

4.30 pm

A Government who tax savings cannot coherently argue in the same Budget and Finance Bill that the increase on tax on hydrocarbon fuels is a measure to reduce consumption. If there were not already sufficient inconsistency between that argument and the attack on savings through the abolition of the dividend tax credit, the Government are at the same time reducing value added tax on domestic fuel. So they are reducing a consumption tax on a hydrocarbon fuel with one hand, while increasing a consumption tax on such a fuel with the other. There is no rhyme or reason about this Government and this measure.

Mr. Geraint Davies

Does the hon. Gentleman agree that the reason for that inconsistency is wanting, on the one hand, to stop or limit the environmental damage caused by exhaust fumes and the use of cars and, on the other, to help poor, elderly people to keep warm and to stop them dying of hypothermia during the winter? There is no inconsistency from our point of view.

Mr. Quentin Davies

I have dealt with one inconsistency—that of claiming that it is necessary to reduce consumption through this increase in tax on hydrocarbon fuels while increasing consumption spending by a slightly greater reduction in another tax on another set of hydrocarbon fuels and, at the same time, attacking savings to a considerable degree, which will only reduce the savings ratio and increase consumption.

There is no rhyme or reason. No doubt that is why the hon. Gentleman did not produce that argument in his intervention. He obviously agrees with me that the Government cannot credibly use that argument because they are in a state of complete contradiction over it. So he used the other argument, which I was coming to—environmentalism.

It is said that it is environmentally friendly to increase carbon taxes because that reduces emissions into the atmosphere of carbon dioxide and, indeed, of other substances, some of which might be toxic. I am very much in favour of using taxes to reduce the ill effects of environmental pollution. That is a good principle. It was taken a long way, under the distinguished period in office of the previous Administration, by a distinguished Secretary of State for the Environment.

Nevertheless, there seems to be another major confusion in the Government's attitude. This tax is being increased and there are attempts to use the tax system to push people to use diesel fuel. As has been said, using the tax system to increase the relative inducement to consumers to go for unleaded fuel has brought about the perversity of super-unleaded petrol, which contains a high element of benzene, which is a nasty carcinogen. That is hardly an environmentally friendly consequence of using the tax system to try to bias consumers' choice of petrol. There are the references to diesel, but there is increasing evidence that the effects of diesel fuel use are environmentally harmful, in that fine particles of diesel fuel in the atmosphere are absorbed through the lungs into the system and never really discharged. Medical evidence therefore suggests that, from the environmental or public health viewpoint, it is not a terribly clever idea to increase diesel consumption.

For the Government to justify bringing forward taxes on environmental grounds, we need a reasoned, coherent and systematic account of how the Government believe public health is negatively impacted by the use of different hydrocarbon fuels and what set of tax measures is likely to produce the optimal use of such fuels. We have not had that; we have had only piecemeal measures, justified by a mixture of electoral demagogy and last-minute financial pressures. Those measures are then masked by high-sounding general principles relating to the environment or to the fiscal management of demand in the economy. Those arguments are completely bogus and those principles are not being coherently or honestly applied.

Mr. Bennett

Did the hon. Gentleman make that criticism of the previous Government?

Mr. Davies

I have indeed made my points about benzene in super-unleaded fuel and the environmental impact of diesel fuel on a number of occasions, in the House and in Committee, under both the current Administration and the previous Administration. With the consent of the hon. Member for Denton and Reddish (Mr. Bennett), I intend to go on making these points until I feel that the Administration are listening to them. I hope that they will be addressed. They deserve to be addressed and I hope that the Financial Secretary will address them when she replies to the debate, because they go to the heart of the rationale of the new clause.

I represent a rural constituency—Grantham and Stamford, which is a large part of south Lincolnshire—and I am intensely conscious of the disproportionate burden placed on rural populations by any increase in hydrocarbon duties. I have to say to my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) that not only does it place a burden on people in the conduct of their private lives—going to school or to the doctor—but it places a burden on employment by increasing the costs of employment. One of the positive features of the modern world is greater mobility. Because they have cars, people can now take jobs not merely within walking or bicycling distance, as was the case some 50 years ago, but within a range of 10, 15 or 20 miles, depending on how good the road system is. That must be good for the economy, because it maximises the opportunity to use people's talents in the economy; and it is good for individuals, because they have a wider range of job opportunities. Anything that increases the costs of mobility reduces that mobility, as night follows day. One must be conscious of that.

Against all that, I accept entirely the environmental arguments. There is a double environmental argument relating to hydrocarbon fuels: they are non-renewable and it is sensible, over time, to try to economise in their use; and there are serious issues relating to atmospheric pollution and carbon dioxide in the atmosphere.

Mr. Geraint Davies

It seems that the hon. Gentleman's argument is leading towards a suggestion that any state intervention through charging excise duty on fuel is a fundamental constraint on freedom. He seemed to be proposing that we should cut all tax on fuel to enable people to make the maximum use of motor vehicles across Britain, without any limit, in the name of freedom. He has made only a passing reference to the environment.

Where does the hon. Gentleman stand? Does he not agree that when the Government consider public opinion, a balance must be struck? I believe that the Government have struck the right balance in favour of public opinion.

Mr. Quentin Davies

I always enjoy the hon. Gentleman's interventions on my contributions, and I have listened to a number of them in Committee. Most of them are attempts to caricature my position, but that particular intervention does not caricature it; indeed, it does not relate to my remarks at all. Under no circumstances did I take any of the lines that the hon. Gentleman has attributed to me.

I have always argued that a balance must be struck. I am extremely conscious of the burden placed on my constituents by any hydrocarbon fuel duties. On the other hand, as I have now had to repeat several times during my speech, as a result of interventions, I recognise a strong environmental case for hydrocarbon duties, which take a disproportionately high share of total consumption taxes. If I did not believe that, they should not be subject to excise duties at all, but simply to VAT. We have singled out those fuels, together with alcoholic drinks and tobacco, for special forms of consumption tax. I accept that principle, which was also accepted by the previous Government.

If we are to strike the correct balance, it is important that the Government should set out the parameters of the equation. They should explain what they are specifically trying to achieve in terms of the environmental impact of the taxes and, therefore, what levels of tax are appropriate for particular types of hydrocarbon fuel. That argument has not been made.

The Government seem to govern us from watertight compartments. When Treasury Ministers defend the hydrocarbon duties they do not engage with the environmental arguments that are used to justify, spuriously, the fiscal measures introduced. That is not good enough.

If the public are to be asked to pay a disproportionate burden of taxation through hydrocarbon duties, they are entitled to be given a clear and coherent account from the Government of the exact environmental purpose of those taxes. They should inform the public how those hydrocarbon fuels have been selected for tax with regard to their particular environmental attributes, positive or negative.

Dawn Primarolo

The increase in hydrocarbon taxes signals the Government's commitment to the environment. It is intended to raise sufficient revenue and achieve sustainable economic growth while protecting the environment.

To answer the point raised specifically raised by the hon. Member for Grantham and Stamford (Mr. Davies), that duty is designed to ensure that road users cover the economic costs that they impose as well as help to reduce harmful emissions. In particular, the duty will help to achieve the target that the Government have set themselves to try to reduce carbon dioxide emissions by 20 per cent. by 2010. The measure will contribute 2.5 million tonnes towards that target.

To pick up on the points raised by the hon. Members for Grantham and Stamford and for Cotswold (Mr. Clifton-Brown), which relate to new clause 4, this Government, in common with the previous Government, must continue to make assessments of the fuels used and their polluting nature. We must judge the impact of those fuels on health and the environment. The Government must consider the mechanisms available to them to encourage greater fuel efficiency and, therefore, less pollution.

Sir Michael Spicer

I am glad to hear what the Minister has said in answer to the points raised by me and my hon. Friend the Member for Grantham and Stamford (Mr. Davies) about a thorough, comprehensive review. If that is what is proposed, what would be the deadline for such a report and when would it be published? In the absence of such studies, how can the hon. Lady say that the new tax has a specific relationship either to economic costs, towards which, as she knows, the motorist pays far more than he gets back, or environmental costs?

4.45 pm

Dawn Primarolo

The previous Government's use of hydrocarbon taxes showed that they led to an increase in efficiency and a reduction in pollution and carbon dioxide emissions. For instance, I am sure that the hon. Gentleman is well aware of the debate surrounding leaded and unleaded fuel and the successful strategy of using the tax system to encourage the growth in unleaded fuel consumption.

This is the second year in which the hon. Member for West Worcestershire (Sir M. Spicer) has tabled such a new clause. It represents special pleading on behalf of a single product, ecodiesel. As he has already said, he is using the clause as a means of discovering the extent of the Government's intentions. Although we appreciate the environmental argument for blended diesel fuels, we took full account of the available products when setting the rate for the ultra-low-sulphur diesel. The problem is that if new clause 4 were accepted, it would create a need for a product that would have to be imported. The balance we have struck on the ultra-low-sulphur diesel has the advantage that the current definition of such a fuel means that the United Kingdom industry could immediately produce such oil if it chose to do so.

The hon. Gentleman has also asked about the Government's intentions. I am afraid that there are no definitive studies that can tell us about the exact polluting properties of all the fuels. Our knowledge of them continues to develop in line with scientific knowledge. We will, however, continue to review the case for tax incentives for environmentally friendly fuels, in line with our statement of environmental intent which was announced by my right hon. Friend the Chancellor at the Budget. Such assessment will continue and, each year, the Government will make a judgment on how best to use the carrot-and-stick approach, as described by the hon. Member for Cotswold, to enhance and develop fuel efficiency and to protect the environment.

The hon. Member for Grantham and Stamford was a little confused in his arguments about the environment. Information gained from the experience of the previous Government reveals that the use of tax incentives has helped to develop fuel efficiency and reduce pollution. They will also help this Government to achieve their target.

I shall now respond to what the hon. Member for North Tayside (Mr. Swinney) said about the impact of the measure on rural motorists. The requirement for the total cost of motoring to be borne by the motorist will apply in urban and rural areas, but he specifically identified the problems that people living in rural areas have with increased costs—in particular, the price of petrol is higher.

The Government are very sensitive to the needs of the rural areas and we are aware of car dependency, but it is not the place of the duty system necessarily to take that into account. The hon. Member for North Tayside knows that the Government are committed to reducing car dependency and encouraging greater use of public transport, and that the Deputy Prime Minister has announced his intention to publish a White Paper in the spring that will seek to address those problems. The White Paper will pick up on the points that the hon. Member for Cotswold made about seeking new partnerships with local authorities and the development of community transport schemes. I am sure that the Deputy Prime Minister will be delighted to receive representations from the hon. Member for Cotswold, who made a very positive contribution, supporting the Government's strategy to achieve their environmental objectives.

Amendment No. 33 proposes that a lower duty be levied in rural areas than in urban ones. The hon. Member for North Tayside probably knows that, because of the way in which duty rates are charged on oil producers, such a system would be impossible to administer fairly. Once the fuel had left the oil producer, how would we determine whether it was destined for rural or urban use or whether people who purchased it rurally would use it entirely rurally?

The Office of Fair Trading, responding to the Trade and Industry Select Committee investigation of 1996, has now launched an inquiry into petrol retailing, including the effects of possible predatory pricing. It will also study the impact on rural areas, because if there is a problem there, it will be a much wider problem than the rate of duty. I hope that the hon. Member for North Tayside will want to follow that investigation very carefully.

I remind the hon. Member for North Tayside that there are many influences on rural businesses other than road fuel duty. The preliminary results of a Scottish Office study suggest that transport costs, in relation to the value of output, are no greater in the highlands than in central Scotland or other parts of the United Kingdom. The issue is therefore the pricing of companies in rural, as opposed to urban, areas.

It is important that people seek out more efficient ways of using their car and more fuel-efficient technologies for their cars, but that problem will not be solved overnight. The Government very much have in mind the express desire of the electorate that the Government should take positive steps to protect the environment; in doing so with these duties, there are extra costs to be borne.

Mr. Swinney

I am sure that many people in the rural community that I represent would reiterate that they share the concern that we all feel about the environment, but I believe that rural communities are also waiting for signs that the Government understand that their circumstances are very different from those in urban areas. Some of the—undoubtedly effective—initiatives to improve public transport in other areas are meaningless to communities where buses come once a week.

Dawn Primarolo

I confirm to the hon. Gentleman that the Government are very concerned about the experience of people living in rural communities, the absence of public transport and the problem of access to shopping. Those are far wider issues and need to be viewed in the round. The Government are committed to doing that in their study on public transport and, for example, in following closely the outcomes of the study being undertaken by the OFT. However, there must be a balance: motorists must bear more of the costs that they create on the environment. The targets for the reductions in carbon dioxide emissions and pollutants in the atmosphere are crucial to that.

In amendment No. 26—a rather confused amendment—the Conservatives cannot make up their mind whether they are in favour of measures for the environment. They seem to want to oppose the measure simply because the Government suggested it. As I said, it reflects the Government's decision to place the environment at the core of our objectives for the taxation system, by discouraging environmental pollution by road users. It will contribute significantly towards the carbon dioxide savings necessary to meet the Government's targets. Those targets will be discussed at Kyoto in December, when the Government are prepared to envisage substantial cuts in carbon dioxide emissions.

The convention for duty increases coming into force has always been 6 pm on the day of the announcement. The aim is to limit the disorder in the marketplace, and traders are used to dealing with it in that way. These proposals balance the Government's need to reach our environmental objectives with the need to create revenue for the Government as part of the balanced approach to the Budget, ensuring that we have a deficit reduction plan—something which Opposition Members sorely neglected to formulate when they had the opportunity to do so. I ask the House to reject the amendments.

Mr. Heathcoat-Amory

I believe that my hon. Friend the Member for West Worcestershire (Sir M. Spicer) may reply on new clause 4. However, given that we are also discussing amendment No. 26, which is in my name, I shall respond briefly—although it is difficult to respond to the Financial Secretary to the Treasury because she did not answer any of the points made by Conservative Members. I have seldom heard such an inadequate and evasive response. She read out parts of her brief, all right, but she did not answer the points that we raised in debate.

Mr. Bennett

On a point of order, Mr. Deputy Speaker. It is highly unfair to criticise my hon. Friend for not replying to some of the points of the debate, as the hon. Member for Cotswold (Mr. Clifton-Brown), who made some substantial points, did not even stop to listen to the reply.

Mr. Deputy Speaker (Mr. Michael Lord)

That is not a point of order for the Chair.

Mr. Heathcoat-Amory

All that the Financial Secretary did in response to the matters that we raised was to say that our amendment was confused. It is not at all confused; it is quite simple.

We are saying that the Chancellor promised an emergency Budget to implement a windfall tax, and we expected precisely that. Instead, he introduced a 100-page Finance Bill, including this huge and unexpected hit for all who transport goods, drive cars or vehicles of any type or use heating oils.

Our message could hardly be clearer. We believe that the date of any increase should be returned to what it was in the original Budget statement in November 1996, which we understood that the Government had taken over. They took over all our expenditure targets. We assumed that, in the absence of anything to the contrary in the Labour manifesto, Labour would take over the projected revenue increases as well, with the single exception of the windfall tax. We were wrong about that and so were the British people.

What the hon. Lady has not dealt with is the fact that this big increase in duty has a large and damaging effect on the individuals whom we represent—we went into that in some detail—and on industrial costs, with which the House should certainly deal. The Government say that they are interested in competitiveness, but they do nothing about it. It also has a damaging effect on the retail prices index, which has gone up as a direct result and which affects the economy generally, and on public services. The hon. Lady did not even attempt to defend the Government, who have reduced real expenditure on public services by £3 billion this year. That figure comes from independent sources and it is interesting that the hon. Lady did not attempt to contradict it.

We can therefore take it that it is an established fact that public expenditure in real terms will fall by £3 billion in the remainder of the current financial year and by £5.25 billion in the next financial year. I do not want to worry Labour Members. They may not have thought that they had come into the House to increase public expenditure, but I am sure that they did not expect to have to defend a real reduction in public expenditure. That is what we have established, and the Minister is entirely silent on it.

In the light of the wholly inadequate response to the points raised, I signal that we shall press the amendment to a vote when we reach that part of our proceedings.

5 pm

Sir Michael Spicer

The Minister raised two arguments against new clause 4, one of which is certainly inaccurate and the other probably is. First, she argued that the product would be imported. This country has plenty of rapeseed and a large blending industry, so how does she know that the product would have to be imported? It was a strange argument for her to put forward. Secondly, she argued that it was product-specific. The new clause makes it clear that it is impact-specific, not product-specific. It simply asks for exemptions for products whose emissions can cause cancer, so I do not understand why the hon. Lady had to draw on that argument.

The Minister said nothing specific about the review. She talked in general terms about the cross-impact of all forms of emissions and their cost on the environment. As she has now promised the House that there will be a report, will she be more specific about when the report will be issued and what its general scope will be? At least we shall have elicited that from her.

Now that the Bill has raised petrol duties to such an extent, I should have thought that the Financial Secretary could at least hold down to the present level the duties on the products mentioned in the new clause. That would please some Labour Back Benchers because it would have the effect on the environment to which I alluded, and which she accepts, but would also have a desirable effect on the renewable industry, which would have an extra market.

The Government take little notice of what their Back Benchers think. I appreciate that in return they get little response from them. Labour Back Benchers sit mute for most of the time, except when they are making maiden speeches, and they find even that difficult to do. I accept that the Minister can ride roughshod over her Back Benchers, but I should have thought that this measure, at least, would please them.

Given the Minister's view, I will let the Opposition vote down the measure, to show at least that the Government's actions are different from the rhetoric that they espouse outside the House.

Question put and negatived.