Finance Bill

Public Bill Committee, 20 June 2002.

Standing Committee F

(Except clauses 4, 19, 23, 26 to 29, 87 to 92, 131 and 134, and schedules 1, 5 and 38)

John Healey (Labour, Wentworth)

On a point of order, Mr. Benton. For the record, I wish to draw the Committee's attention to a letter that I circulated to Committee members yesterday, clarifying a statistical point that arose during debate on clause 3. The Committee may recall that there was some discussion about the exact size of the increase in the retail price of spirit-based coolers, or alcopops, between 1999 and 2001. My right hon. Friend, now the Chief Secretary to the Treasury, undertook to clarify the figures supplied by the Office for National Statistics.

My letter explains that the Office for National Statistics has revised the original figures and we are pleased to set the record straight. It also explains that that statistical revision has no material impact on the rationale for the clause or its anticipated revenue yield. I hope that my letter and brief comments are helpful.

Christopher Chope (Conservative, Christchurch)

Further to that point of order, Mr. Benton. I am grateful to the Minister for having given me notice that he would raise it this morning and for his letter. I accept that the then Financial Secretary was unaware of the error when he told the Committee that there had been an increase in the retail price of coolers of 60p over two years when that increase was, as we now find out, only 20p.

The Economic Secretary said that that is not material and does not affect the substance of the argument, but you may recall, Mr. Benton, that much of the debate about clause 3 centred on the conflict between what the Treasury was asserting in relation to the retail price increase of coolers and what the industry was asserting through me and other Committee Members. The issue goes further than the Economic Secretary admitted. The explanatory notes to clause 3 state in paragraph 5:

''Consumption of spirit-based coolers has more than doubled between 1999 and 2001 and is continuing to grow at a rapid rate. However, over the same period the standard pub retail price rose by around 60 pence per bottle, despite the level of duty falling in real-terms. Tax as a proportion of the retail price is now lower for spirit-based designer drinks than for any other type of alcoholic drink, in both the on and off-trades.''

I do not know whether the Economic Secretary is telling us today that the second part of that is still correct in light of the recalculation. The figure was not peripheral but fundamental to the argument, which is why it was set out in the explanatory notes. Paragraph 7 of those explanatory notes states that

''the Government believe it is no longer possible to justify the concessionary duty treatment for this particular class of spirit drinks''

in

''the light of these factors''—

including those set out in paragraph 5.

It would be regrettable if we did not have the opportunity to return to that debate in light of the new information; perhaps that could be done on Report.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

Further to that point of order, Mr. Benton. I support what the hon. Member for Christchurch (Mr. Chope) said. Will it be possible to return to the matter on Report? I ask that because, as the hon. Gentleman said, the Government's whole argument on clause 3 was based on that set out in the explanatory notes that have just been read out. The Government made it very clear that their policy related to the fact that the retail price had increased so much. If one refers back to the Committee Hansard of that period, one can see that that was central to their argument. Because the information has changed so dramatically, I feel that there is a strong case for us to be able to discuss the matter further.

Joe Benton (Labour, Bootle)

May I suggest to the Committee that I am not in a position, as Chair, to give any sort of instructions about what happens on Report? I think that the suggestion that the matter may be mentioned at that point, made by both Opposition parties, is a good one, but that is not a matter for me. What I am concerned about at the moment is that the Economic Secretary has quite rightly brought the matter to the attention of the Committee. It is not, I think, appropriate for it to be discussed again at this stage. What happens on Report, although I suggest that that is the right way forward, will not be a matter for me.

John Healey (Labour, Wentworth)

For the record, may I say that I am grateful to the hon. Member for Christchurch for accepting that the discussion was based on error and that my right hon. Friend the Chief Secretary to the Treasury could not have been aware of the problem at the time of the debate on clause 3? I look forward to any discussion on the matter, should that prove to be in order, at a later stage. At this stage, I reassure the hon. Gentleman that the press notice on the website has been checked and revised to ensure that the date is correct. The explanatory notes for the clause have also been checked and will be revised accordingly, following this Committee sitting.

Christopher Chope (Conservative, Christchurch)

We now have a printed copy of the explanatory notes for the Bill in which the notes for clause 3 are totally wrong. Can the Economic Secretary say whether the Government intend to prepare a revised version of the explanatory notes or to publish a revised version of the notes on clause 3? For most people, their exploration of the Finance Bill does not go beyond looking at the explanatory notes. They will continue to take them as gospel and will not have regard to what has been said in Committee this morning.

John Healey (Labour, Wentworth)

The hon. Gentleman may have been distracted by the hon. Member for Buckingham (Mr. Bercow) when I was making it clear earlier that the explanatory notes on this clause have been checked and will be revised accordingly, following this Committee sitting, in light of the comments that I

have been able, with your indulgence, Mr. Benton, to place on the record.

Clause 118 - Air passenger duty: extension of area

Christopher Chope (Conservative, Christchurch)

I wish to make some short points on the clause. Can the Economic Secretary explain why the Treasury is taking the power to amend the list of qualifying countries by order? That power could be very useful; it could have been very useful following 11 September. Circumstances can change and the market can change. Can he give the Committee an idea of what criteria the Treasury will use in exercising the power that it is taking under the clause to amend the list of countries? Were there to be, God forbid, a similar tragedy to that on 11 September, would the Government think of using that power to help compensate for a fall in trade between this country and certain destinations overseas? I should also be grateful for confirmation that the reduced rate will apply to flights to northern Cyprus.

John Healey (Labour, Wentworth)

It may help the hon. Gentleman if I set out the purpose of the clause and some of its background. I shall deal with his specific points as I come to them. The answer to his questions will become clear in the course of my remarks.

Clause 118 introduces duty reductions for nearly 4 million air travellers a year by extending the areas in which airlines pay air passenger duty, APD, at the lower rate of £5 or £10, depending on which class of air travel passengers choose to use. The change will come into effect on 1 November 2002 to coincide with the start of the winter season.

At present, the lower rates of APD apply to passengers flying to European countries that are signatories to the 1992 agreement on the European Economic Area—the 15 European Union states plus Iceland and Norway—and to certain European Union member states' dependent territories. The clause's effect will be to extend the area to include Switzerland and countries that are applying to join the European Union. Therein lies the rationale for the power that the hon. Gentleman questioned. It will allow for expansion of the EU and an ability to make the provisions of the clause fit any future extension without resorting to primary legislation.

Passengers flying to Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, the Slovak Republic, Slovenia and Turkey will pay £15 or £30—depending on the class of flight—less per flight than at present. I shall return to Switzerland in a moment, which is the additional country under the provisions. We are introducing those changes in anticipation of EU enlargement, which was not catered for when the original air passenger duty legislation was drawn up under the Conservative Government in 1994.

We are also taking the opportunity to standardise the duty treatment of passengers flying to Switzerland. Currently, there are two Swiss airports where passengers can exit in both Switzerland and France. Those airports are considered to be inside the European Economic Area for the purposes of APD, whereas other Swiss airports are not. The two airports that come within the APD provisions are Basel and Geneva, and the three airports that do not are Lugano, Zurich and Bern. The change means that a passenger flying to any Swiss airport will pay APD at the lower rates.

The changes have been widely welcomed. The Association of British Travel Agents said:

''This is very good news—passengers, airlines and tour operators will benefit''.

In response to the EEA rates to Switzerland, the British-Swiss Chamber of Commerce was warm in its welcome. Immediately following the Budget in April, it said:

''The British-Swiss Chamber of Commerce . . . joins airlines and business leaders in applauding the decision of the British Government to slash air passenger duty''.

Edward Davey (Liberal Democrat, Kingston and Surbiton)

I am pleased to hear how many people in other countries are applauding the change. During a previous Finance Bill, I raised the issue of flights between Penzance and the Isles of Scilly on which APD is charged. Those journeys do not enjoy the zero exemption enjoyed by flights to the Scottish highlands and islands. Has the Economic Secretary had a chance to consider that, and will the Government ensure that the exemption will apply to those other internal UK flights?

John Healey (Labour, Wentworth)

We always take careful note of the hon. Gentleman's comments in debate, but the clause does not cover what he proposes.

Passengers flying to destinations in northern Cyprus or the rest of the island will pay the new lower rates of either £5 or £10 depending on their class of air travel.

The revenue effect of the measures will be a loss to the Exchequer of about £25 million in the current financial year, which will rise to about £70 million in a full year. Despite that, we have decided not to raise the rates of APD. It has been a difficult year for the airline industry and although there are some signs of recovery we concluded that in the present circumstances increases in the APD rates would not be appropriate. Given that explanation, I invite the Committee to support the clause.

Question put and agreed to.

Clause 118 ordered to stand part of the Bill.

Clause 119 - Landfill tax: rate

Christopher Chope (Conservative, Christchurch)

I have no quarrel with the increase of £1, which was first announced in 1999. Will the Economic Secretary explain why the explanatory notes state:

''The Government anticipates that the standard rate of landfill tax will need to be increased significantly in the medium term, beyond the current £1 per tonne . . . increase.''?

What is meant by the ''medium term''? Is that beyond 2004? What is meant by ''significantly''? Why do the Government anticipate that requirement?

Peter Luff (Conservative, Mid Worcestershire)

I find myself in a conflict of interest. Obviously, I share the Government's aspiration to reduce the use of landfill sites. There is a major landfill site in my constituency and I know that local residents would love to see fewer lorries going to it. Equally, local farmers and landowners have expressed their concerns about an increased rate of fly tipping. At present, the trade-off is about right, but I have concerns, which my hon. Friend has just expressed, about the explanatory note.

Significant increases in the landfill tax rate would produce perverse results if there were an increase in fly tipping and illegal waste disposal, which would be entirely contrary to the Government's objectives for the landfill tax because it would lead to a worse environment rather than a better one. I seek an assurance from the Economic Secretary that, in considering any future increase in landfill tax above that set out in the clause, he will conduct proper research and implement a monitoring operation to establish the level of fly tipping in the British countryside to ensure that the perverse results that I fear do not come to pass.

John Pugh (Liberal Democrat, Southport)

I want to make some similar comments. As with all environmental taxation, the question is not whether it is a good thing but whether it actually works and does the job that it is intended to do. I wonder what assessments have been made of the expected yield from the tax. It seems to me that the increase in landfill tax will simply be passed on to the council tax payer, which has already happened in many cases. If it not passed on and people recycle, as they are expected to do, and landfill diminishes, as it is expected to do, the Treasury's statistics should show a reduction in projected tax yield. Do they show such a reduction?

John Healey (Labour, Wentworth)

The clause will increase the standard rate of landfill tax from £12 to £13 with effect from 1 April 2002. The increase is designed, as is the tax itself, to encourage waste producers to seek more environmentally friendly alternatives to landfill. Waste producers and the waste management industry will therefore be encouraged to switch away from landfill towards waste minimisation, re-use and recycling. By setting out a long-term strategy of rate increases, in which this clause plays a part, the environmental effectiveness of the tax will be reinforced and waste producers and managers will be able to plan ahead.

As the hon. Member for Christchurch has pointed out, the explanatory notes make it clear that we anticipate that the standard rate of landfill tax will need to be increased significantly in the medium term beyond the current £1 per year escalator increase. That will need to be done as part of a mix of policies designed to deliver what are increasingly challenging commitments on sustainable waste management.

John Bercow (Conservative, Buckingham)

Will the Economic Secretary give way?

John Healey (Labour, Wentworth)

If the hon. Gentleman will allow me, I shall first finish responding to his hon. Friend's point.

The hon. Member for Christchurch should see the explanatory notes as a clear declaration of the analyses and serious policy work that we are undertaking on the problems of waste production, waste management and waste disposal. It also signals our serious policy intent, but at this stage I am not in a position to pre-empt the decisions that we will take on the matter. However, it is only fair to signal that the Government are giving close attention to it.

John Bercow (Conservative, Buckingham)

I am extremely grateful to the Economic Secretary for giving way, not least because it enables me for the first time to congratulate him warmly on his promotion, which is well deserved. That said, however, a cloud of ambiguity has now descended on the Committee.

I put it to the Economic Secretary that the Committee deserves somewhat better than the tautology that he has just offered. It is not good enough to say that ''significant'' means significant. It would be helpful if he were to give us a ballpark figure, or a range of figures being considered by the Government. Failing that, could he abandon his reticence, and at least tell us, without the need for further private study, what constitutes ''medium term''?

John Healey (Labour, Wentworth)

I appreciate the hon. Gentleman's kind comments, but I knew they were too good to last. Let me simply say that the clause that we are considering this morning is clear and unambiguous. It is a continuation of a tax escalator that has been in place for a few years. When we are in a position to clarify the sort of decisions and measures that we propose to take, we will of course do so. We will be extremely interested in the views of a range of parties, including the Conservatives, but it would be wrong to pre-empt those decisions because we have further policy analysis to undertake before we can do so.

If the hon. Gentleman will allow me, I shall move on to the point raised by his hon. Friend the Member for Mid-Worcestershire (Mr. Luff), who I am aware has quite a long standing interest in fly tipping.

Peter Luff (Conservative, Mid Worcestershire)

My specialist subject.

John Healey (Labour, Wentworth)

I have to say to the hon. Gentleman that most fly tipping is a problem produced by householders. Because householders do not directly pay the landfill tax, it is highly unlikely that the landfill tax has a direct impact on fly tipping by householders.

Peter Luff (Conservative, Mid Worcestershire)

I was thinking particularly of the waste generated by small gardening contractors and cowboy builders, who are definitely avoiding landfill tax and dumping their waste on farmland, rather than going to—in my case—the Hill and Moor landfill site as they should.

John Healey (Labour, Wentworth)

All Committee members will have some experience in their constituencies, albeit on a restricted scale, of that sort of problem, but the fact remains that the majority of fly-tipped waste is generated by householders. There is no hard

evidence to support the contention that the hon. Gentleman makes. The Tidy Britain group is probably one of the UK's authorities in this area.

John Bercow (Conservative, Buckingham)

A very respectable organisation.

John Healey (Labour, Wentworth)

As the hon. Gentleman has kindly confirmed, it is a very respectable organisation. Its 1999 survey showed that the majority of waste fly tipped comes from households. The Government take the illegal tipping of waste seriously. Penalties are severe, including unlimited fines or up to two years in prison. To reassure the hon. Member for Southport (Dr. Pugh), in considering any new proposals for taxation and in constantly keeping under review existing measures in this field, we shall consider all the issues in the round, including the points that he has made.

Christopher Chope (Conservative, Christchurch)

The Minister says that he will consider the matter in the round. There is a three-year spending review coming up later in the summer. For local authorities, the additional cost of a substantial increase in landfill tax would be a major burden. They will receive a settlement during the next three years. How can the Government assure us that they have a proper strategy if they are raising the prospect that in 2004 there will be a substantial increase in landfill tax that will not have been taken account of in the spending review covering that period, which will be decided in July?

John Healey (Labour, Wentworth)

With all due respect, the hon. Gentleman underestimates the thoroughness and comprehensiveness with which officials treat such issues. The matter will be taken into account, and he is right to point to the spending review. He may be aware that the Cabinet Office's performance and innovation unit is conducting a significant study into waste management and the sort of instruments that we may use, including economic instruments, to deal with the challenges that we face. Once it has reported, the Government will consider all the instruments that may be available to help tackle the problem and will report later this year.

Peter Luff (Conservative, Mid Worcestershire)

I did not hear the Economic Secretary promise an ongoing review. If he did, I missed it and apologise. While he was speaking, I recalled a very serious incident involving criminal activity on a large scale. A company called Ivory Plant Hire was bidding to take away waste from sites of reputable companies, such as the major Tesco development in my constituency, and was dumping it illegally on a massive scale all over the county. Thanks to a co-ordinated exercise involving Customs and Excise, the police, the district council, the county council and so on, we cracked down on the company. I believe that it is no longer operating.

My fear is that a company such as that, which deliberately wreaked massive environmental damage in my constituency to avoid the landfill tax, might be encouraged to resuscitate itself, or that other companies might follow its dreadful example. I urge the Economic Secretary not to be too cavalier about the matter. It may be that at present household waste

is causing most of the problem but, as a direct result of the landfill tax, people in my constituency were terrorised for two or three years by Ivory Plant Hire's activities. It may have been a one-off, but if increases are planned, the Government must watch out for that danger.

John Healey (Labour, Wentworth)

I am glad that the hon. Gentleman and his constituents are no longer terrorised, as he puts it, by such activities. I recognise the vote of confidence that he has just given in the enforcement measures that attach to the provisions. I simply repeat that the Government constantly review the operation and effect of all taxation legislation and will continue to do so.

Question put and agreed to.

Clause 119 ordered to stand part of the Bill.

Clause 120 - Climate change levy: electricity produced

Christopher Chope (Conservative, Christchurch)

I beg to move amendment No. 237, in page 98, line 19, leave out from 'after', to end of line 20 and add

'1st April 2002, although the reduced rate may not be applied in practice until the section has been approved by the European Commission.'.

This is a short amendment designed to ensure that the benefit accrues as soon as approval has been obtained under state aids and that it is backdated as far as possible. It is equivalent to a similar provision that the Government accepted on the aggregates tax. The time at which such a benefit will be payable is rather vague in the Bill, and my amendment would make it more precise.

John Healey (Labour, Wentworth)

I hope that I can set the hon. Gentleman's concerns to rest. We are confident that the Commission will accept the benefit as an acceptable state aid for environmental reasons. However, the exemption can be applied only from the date that such a decision is made; it cannot be implemented until and unless the EC agrees that it is an acceptable state aid. Once the Commission has given its agreement, we shall bring the clause into effect straight away by means of an appointed-day order. With those comments, I hope that the hon. Gentleman will see fit to withdraw the amendment.

Christopher Chope (Conservative, Christchurch)

In the light of that helpful clarification, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 120 ordered to stand part of the Bill.

Clause 121 ordered to stand part of the Bill.

Clause 122 - Climate change levy: exemption

John Pugh (Liberal Democrat, Southport)

We shall reserve the thrust of our attack on the measure for Report, but I wish to make some

points of principle rather than technical points on the climate change levy at this time.

I read a ministerial reply somewhere that said that energy costs were a small factor for industry and that the climate change levy was a small factor within those energy costs. That is true. Much as we welcome this softening of the regime—all these measures represent something of a softening—it is undoubtedly true that in some sectors of industry, especially manufacturing, any increased cost is a serious problem because those industries work to very tight margins. They have to deal in very competitive export markets. At the moment, there is a constant refrain in one Treasury question session after another about the climate change levy and its effect on manufacturing industry.

No one would object to everyone taking their share of the climate change levy, but certain sectors of industry, manufacturing in particular, feel that they are taking more than their fair share. Although environmental taxes are a good thing and although the principle that the polluter pays is a good one, it seems that, in general, some polluters pay more than others. We welcome the softening that the measure gives manufacturing industry in many respects but I do not think that champagne corks will be popping in that industry yet. The whole raft of changes basically leaves the status quo. As far as manufacturing industry is concerned, the status quo is a problem. We shall not table amendments at this stage, but the effect of the climate change levy on manufacturing industry is of serious concern to us. I am sure that the Economic Secretary will bear that in mind.

John Healey (Labour, Wentworth)

I welcome the recognition from the hon. Member for Southport that the Government have been ready to consider refinements to the climate change levy regime where those have been justified. That is the purpose of several clauses that we are considering this morning. The hon. Gentleman is right about the concerns for manufacturing industry that are raised regularly in Treasury questions in the Chamber, and that are due to be raised again this morning, as I know too well.

The hon. Gentleman is right to remind the Committee that any consideration of the impact of the climate change levy as a tax on business must be considered and recognised in the context of overall business taxation. We have now had cuts in corporation taxes that have left the UK with the lowest ever level of corporation tax—the lowest rate in any major industrial country. We have had cuts in capital gains tax and recently introduced research and development tax credits for large and small companies, which particularly benefit manufacturing. The OECD recognises that the tax burden on UK business is lower than the EU average and lower than that in 12 of our EU partner countries.

The narrow provisions of clause 122 relate to and affect the rules for the balancing mechanism that operates in the exemption for electricity from renewable sources. That mechanism exists because the Government accept that some renewable sources, such as wind power, are unpredictable. It enables energy suppliers to balance their purchase and supply of renewable-source electricity over a two-year period.

If, at the end of that period, supplies exceed purchases of renewable electricity, the supplier must pay levy on the debit balance.

The clause has a twofold purpose. First, it corrects a cross-reference in legislation. In keeping with the original intention of the law, that correction will allow levy to be collected in circumstances where a business ceases to make exempt renewable supplies, having claimed exemption on more renewable electricity than had been purchased. Ceasing to make renewable supplies should not excuse a business from its responsibilities under the tax. That potential tax-avoidance loophole is therefore removed.

Secondly, the clause removes the facility whereby suppliers of electricity exempt under the renewables scheme may alleviate their levy liability if they sell to any customers entitled to reduced-rate relief. Such customers obviously choose to benefit from the full exemption on renewables rather than the reduced rate, which relieves only 80 per cent. of the levy charge. When it comes to the end of the averaging period, suppliers have been permitted under the law to attribute any excess of renewable supplies over renewable purchases to their reduced-rate customers and so discount their levy liability to the reduced rate of 20 per cent. In reality, the supplies making up the excess could quite easily consist of sales made on a basis other than the reduced rate. There is no reason for such treatment within the already generous renewables scheme, so that is being rectified. The clause has effect in relation to averaging periods ending on or after Royal Assent. I hope that, after that somewhat technical explanation, the Committee will feel able to support the clause.

Question put and agreed to.

Clause 122 ordered to stand part of the Bill.

Clause 123 - Climate change levy: electricity produced

Christopher Chope (Conservative, Christchurch)

Most Committee members will have received a communication from the Association of Coal Mine Methane Operators, which, while welcoming clause 123, says that it will not deliver the full benefits. The organisation says that to tackle comprehensively the problem of coal mine methane escaping into the atmosphere from disused mines, the industry needs the same energy prices that are available to other renewables, such as methane from landfill sites, which would enable it to capture the emissions from a further 300 abandoned mine sites. It is arguing that coal mine methane should be defined as a renewable source under the Utilities Act 2000. I know that an amendment to that effect that was tabled has not been called, but I hope that the Economic Secretary will take the opportunity offered by this clause stand part debate to answer the charge that the Government are going so far to help coal mine methane operators, but not far enough. As this organisation says:

''Much of the benefit of this welcome measure has been eroded by the continued fall in electricity prices . . . restoring the industry to its price position of about 18 months ago''.

I hope that the Economic Secretary can do something to assure those who are responsibly trying to make something productive out of coal mine methane.

John Healey (Labour, Wentworth)

The clause will exempt electricity generated from coal mine methane from the climate change levy. It may help the Committee if I explain why methane is so important in this context. Methane is a potent greenhouse gas that escapes into the atmosphere from abandoned coal mines; it has a global warming potential 21 times greater than an equivalent unit of carbon dioxide. Trapping coal mine methane in order to generate electricity results in environmental benefits, as well as giving economic benefits to former coalfield areas. Using coal mine methane to generate electricity reduces its global warming potential by about 85 per cent. The exemption will be reviewed after 2004–05 in light of further data on the environmental benefits being delivered by the technology. Provided further monitoring shows that coal mine methane continues to deliver environmental benefits, the Government would expect to continue the exemption. It is fair that I point out to the Committee that introduction of the measure is subject to EU state aid approval.

I shall try to be helpful by telling the hon. Member for Christchurch that there are several reasons why his may not be the best solution to assist the coal mine methane industry, and may not be appropriate for our environmental objectives. First, including coal mine methane in the renewables obligation would potentially displace renewable sources such as offshore wind, wave and tidal power. Secondly, if the obligation target were increased to make way for coal mine methane, there would be a substantial additional cost to the electricity consumer that has not yet been justified. I am keen to point out to the hon. Gentleman that that is not to say that the Government are unsympathetic to what the industry is attempting to do. Indeed, we support the industry and are actively looking at appropriate means by which we can support it in its efforts to expand the use of emissions from abandoned mines, which would otherwise vent out into the atmosphere, with an environmental impact that I have already discussed.

Finally—this may be the answer to the hon. Gentleman's point about the amendment's not being selected—giving coal mine methane a renewables obligation is outside the scope of the Finance Bill, which is limited to matters of national debt and public revenue.

Christopher Chope (Conservative, Christchurch)

The Economic Secretary says that he is looking at treating coal mine methane as a renewable source of energy. When he does that, will he look at what happens in Germany, where renewable resources legislation introduced in 2000 treats coal mine methane as a renewable source of energy? As a result, the industry receives an incentive worth 5p per kWh compared with the United Kingdom rebate

of only 3p per kWh. Some 80 coal mine methane projects are being planned in Germany, and the industry says that it could be a case of a British technological lead in a new industry being lost to the Germans. Is the Economic Secretary concerned by that?

John Healey (Labour, Wentworth)

Perhaps I can make it clear to the hon. Gentleman that we are looking at the support that we can give to aid the expansion of the industry. We have looked at the question whether coal mine methane should be a designated or renewable source of energy. In doing so we were aware of the situation in Germany, but concluded that that would not be the right step to take.

Question put and agreed to.

Clause 123 ordered to stand part of the Bill.

Clause 124 - Climate change levy: incorrect certificates

John Healey (Labour, Wentworth)

I shall be brief. The clause will enable Customs to apply a civil penalty where any relief entitlement for supplies at the reduced rate or to combined heat and power stations is incorrectly notified to suppliers. The clause will take effect in relation to certificates given in respect of supplies made on or after 24 April 2002.

I can reassure the Committee that the Government are committed to ensuring that eligible businesses are able to enjoy the benefit of any reliefs available to the full extent of their entitlement. That said, it is only right that businesses should be penalised for providing incorrect information and certification that causes an energy supplier improperly to relieve a supply from the levy. A gap in the law has meant that Customs was powerless to impose a penalty on businesses providing incorrect certificates for two particular climate change levy reliefs. The reliefs concerned relate to supplies to combined heat and power stations and to energy-intensive users at the reduced rate. There is no good reason for those reliefs to be afforded differential treatment and the measure provides for their inclusion within the penalty regime.

The Government are determined to treat businesses in a consistent and fair manner. The clause will ensure that incorrect certificates, regardless of the relief claimed, are subject to the same provisions.

Question put and agreed to.

Clause 124 ordered to stand part of the Bill.

Clause 125 - Climate change levy: invoices

Chris Grayling (Conservative, Epsom and Ewell)

The clause is obviously welcome because it will protect some of the businesses affected by the climate change levy. Will the Economic Secretary consider the fact that the climate change levy is reaching businesses that arguably it

should not? I can give him one specific example of a butcher shop in Ewell village in my constituency which is subject to the levy. Although I understand the Government's motivations for the levy, a local butcher shop should not be caught in its net. Will he consider that over the coming weeks and months?

John Healey (Labour, Wentworth)

First, I shall directly respond to the hon. Member for Epsom and Ewell (Chris Grayling). I invite him to write to me with more precise details about the small butcher shop in his constituency to allow me to consider his case that such businesses should not be subject to the levy—that is his judgment call. I shall give the instance full consideration when I have more detail.

The clause introduces a civil penalty for the issuing of invoices that incorrectly charge levy, either by charging it where no levy is chargeable on the supply, or by overcharging. The provision is being introduced because such problems have arisen. The measure will take effect for invoices issued on or after the date of Royal Assent.

In recent months, we have become aware that some suppliers of goods are including a charge on their invoices which is purported to be the levy, but which is not accounted for to customers. That has happened in respect of supplies that are not taxable for levy purposes, either because they are not taxable commodities or because they have been relieved of the levy. It is not the Government's intention with the clause to prevent manufacturers recouping legitimate costs through their pricing structure, so long as customers are not deceived in that process. The inaccurate description by businesses, which are not energy suppliers, of charges as a climate change levy can bring both the tax and the Government policy that underpins it into disrepute. There is no good reason for businesses to pass on levy costs in that fashion; it would be rare for businesses to identify other costs in such a way.

The Government take a similarly dim view of the practice where bogus levy charges are raised by energy suppliers relieved of the levy, such as combined heat and power stations. We cannot stand by while the climate change levy reliefs are undermined in that way and certain suppliers make ill-gained profit at the expense of the tax.

To help prevent customers from being misled and to prevent levy reliefs from being undermined, the clause provides for the imposition of a penalty equivalent to the amount purporting to be the levy, which is subject to a minimum of £50. Similar provision exists for other taxes, such as VAT and landfill tax, so I suggest to the Committee that the new measure is necessary and consistent. For completeness, the penalty regime will apply to registered persons charging amounts by way of a levy on non-taxable supplies or overcharging on taxable supplies. I hope that the Committee will support the clause.

Question put and agreed to.

Clause 125 ordered to stand part of the Bill.

Clause 126 - Aggregates levy: transitional relief

Christopher Chope (Conservative, Christchurch)

I beg to move amendment No. 257, in page 100, line 21, leave out 'in Northern Ireland'.

Joe Benton (Labour, Bootle)

With this it will convenient to consider the following: Amendment No. 258, in page 100, line 24, leave out 'in Northern Ireland'.

Clause stand part.

Christopher Chope (Conservative, Christchurch)

The aggregates tax is turning out to be a disastrous, bureaucratic nonsense. If the Government ever wanted to ensure that unemployed officials were given employment, it is a good way of doing it. The tax generates no net benefit to the Revenue, but costs an enormous amount to administer and, because of its complexity and unworkable nature, is the subject of amendments, the first of which, in this clause, is designed to give some relief in the anomalous situation in Northern Ireland. My amendments would go further than the Government are going and give some relief to all the people who are suffering under the tax and give them a bit more time in which to adjust to it.

The biggest problem with the tax is that it does not even meet the Government's stated objectives. Their 1997 statement of intent on environmental taxation stated that

''environmental taxation must meet the general tests of good taxation. It must be well designed, to meet objectives without undesirable side-effects; it must keep deadweight compliance costs to a minimum; distribution impact must be acceptable; and care must be had to implications for international competitiveness.''

People in Northern Ireland who have quarries producing aggregates considered the implications for them of the tax and realised that it failed in all the objectives. It damaged their international competitiveness, because it gave an advantage to aggregates producers south of the border, and it had very high compliance costs and led to undesirable side effects such as smuggling. Smuggling of aggregates may seem a new problem, but it exists in the marketplace and is a direct result of market distortions that have been introduced by this ludicrous tax.

As I understand it, traditional quarries in the Fermanagh and South Tyrone areas have seen a 40 per cent. drop in output, the severity of which has been worsened by the relative ease with which untaxed aggregates can be smuggled across the border. The £1.60 unpaid tax in such cases effectively pays for aggregates to be smuggled 20 to 25 miles into Northern Ireland. Of course, that is not very good for the environment. Heavy-goods vehicles carrying lorry loads of aggregates are going much longer distances and, in so doing, are polluting the atmosphere, as well as avoiding tax and creating a new black market.

The whole situation is ludicrous. It is said that the temporary partial exemption for Northern Ireland does not address the root of the problem, which has been made clear in several hearings and reports from the Northern Ireland Affairs Committee. Underlying

that is the revelation that is clear from the Red Book that the yield from the tax is much lower than had been expected last year. There was an idea that, nationally, employers would benefit from a 0.1 per cent. reduction in national insurance contributions. The folly of that has been exposed by the Government's increasing national insurance contributions on employers by a full 1 per cent.—10 times as much as the expected reduction—from next year.

The policy is in disarray and in tatters, and the Opposition think that it would be much better to scrap the whole business. Unfortunately, in considering legislation in the Committee, we cannot do that straight away. However, we can seek from the Government an explanation as to why there is a provision to help Northern Ireland and why it cannot be extended to the whole of the aggregates industry in the United Kingdom as a start in the process of eliminating this ludicrous tax altogether.

John Pugh (Liberal Democrat, Southport)

In commenting on the measure, I do not want to discuss the efficiency or adequacy of the tax. In a sense, we take such comments as read. The usual question that I have asked hitherto is whether this environmental tax is actually achieving the environmental benefits intended. What assessment does the Treasury make of the effectiveness of its own tax? I have already seen evidence of the cost being passed on. Some of the biggest users of aggregates are local authorities and public bodies when they undertake major public works. They now factor in the aggregates tax. What is happening is not so much a recycling of benefit as a recycling of the charge—it is being recycled from the Treasury to the council to the council tax payer. What assessment does the Treasury make of that type of tax, where the only thing that seems ultimately to be recycled is the tax itself?

A briefing note from the aggregates industry has been made available to me. One would expect it not to welcome the tax, and indeed it does not. However, not all of its objections are in the self-serving category. Perhaps the Economic Secretary can respond to some of them. It suggests that there is a minimal recycling benefit from that tax and quotes not its own research but that of the British Geological Survey and the Department for Transport, Local Government and the Regions. It argues that there is, at most, a 1 to 2 per cent. gain in terms of recycling benefit.

The industry says—I think that this concerns some of my Liberal Democrat colleagues in constituencies that cover more far-flung places than mine—that there could be damage to employment in remote areas. Has the Economic Secretary considered that? It is an element in any taxation regime that ought to be taken into account. The industry also makes the point, which has some weight, that imported products made with aggregates are not subject to tax, so there will be strong product substitution from foreign countries—I think that one thing that the Government wish to preserve through all their taxation policy is international competitiveness for our industries. Will the Economic Secretary comment on those matters?

John Healey (Labour, Wentworth)

I can say to the hon. Member for Southport that, in designing any tax and in monitoring its impact, the Government consider all aspects, social and economic, including employment impacts. In this case, those have been considered alongside the potential environmental impacts in the design of the levy.

I shall cover a number of the questions raised by the hon. Member for Christchurch and then move on to an explanation of some of the rationale behind the provision in this clause and the clauses that follow. Before I do that, the hon. Gentleman mentioned the work of the Select Committee on Northern Ireland Affairs and I pay tribute to its work and the analysis that it has offered in considering the potential application and impact of the aggregates levy. The provisions in this clause reflect discussions with that Committee and points that it has raised with us.

The hon. Gentleman's starting point was that somehow this was a bad tax, which failed on all counts the criteria that we set for legislation. He will not be surprised to hear that I simply cannot accept that. This levy meets the Government's statement of intent, the very document that the hon. Gentleman mentioned, by incorporating the environmental costs of virgin aggregate quarrying. The levy is designed to be revenue neutral and is also in line with the statement of intent because it moves the burden of taxation on to pollution and offsets that by reducing employers' costs through a small cut in employers' national insurance contributions, plus a significant investment in the sustainability fund.

The hon. Gentleman asked why the yield has been reduced. The changes in the Budget forecast result from two factors. The first is the very recent changes in the volume of aggregates consumption; and the second is the impact of forestalling in anticipation of the introduction of this levy. The hon. Gentleman will see that the revenue in future years will be much closer to the original forecast.

I shall now deal with the suggestion that we are, somehow, either complacent about, or blind to, possible smuggling in the context of Northern Ireland. Customs is geared up for the introduction of the measure. It is not complacent about the potential for smuggling, but considers that the bulky nature of aggregates, their low value and their relatively low tax rate in relation to weight will significantly limit the incentive to smuggle that material. Resources have been allocated to combat potential smuggling in Northern Ireland. We shall keep a close eye on that and keep those resources under review.

Clause 126 authorises secondary legislation to provide a temporary aggregates tax credit scheme for Northern Ireland. Announced in the pre-Budget report 2001, it is transitional relief for companies in Northern Ireland that manufacture value-added products from aggregates. That is in recognition of the special circumstances of the long land border there. It allows the sector time to adjust to the changed market conditions by, for example, increasing the use of recycled or other non-taxed alternative material in

its processed products. The secondary legislation will allow the levy to be phased in over five years for aggregates used in the manufacture of concrete, mortar and asphalt. That measure has recently received state aid approval from the European Commission.

The amendments would extend the phased relief to the rest of the United Kingdom. However, as I have explained, the market conditions in Northern Ireland are unique, which is why the provision is restricted to that area. The change will take effect from Royal

Assent, but the secondary legislation will cover the period from 1 April 2002 to 31 March 2007. I hope that, with that explanation, hon. Members will reject the amendment and allow the clause to stand part of the Bill.

Debate adjourned.—[Mr. Sutcliffe.]

Adjourned accordingly at twenty-eight minutes to Eleven o'clock till Tuesday 25 June at half-past Ten o'clock.