Finance Bill

Public Bill Committee, 10 May 2007.

(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 5

Colin Breed (Liberal Democrat, South East Cornwall)

I welcome you to the Chair, Mr. Illsley, for our deliberations this morning. We are discussing clause 5 on duty and tax on alcohol sales.

Most people would accept that if access to almost anything is increased and the cost is reduced, consumption is likely to increase, although they would not be certain by how much. Access to alcohol has increased in recent years, as have licensing hours more recently, with availability in so many different outlets. Therefore, if there is not a reasonable increase in cost—for example, in line with inflation—consumption will increase in the way that it has. That has given rise to health and, more particularly, antisocial issues, because alcohol certainly has some influence on antisocial behaviour and perhaps on domestic violence and so on.

It is important and right that the Government maintain the cost of alcohol by increasing the duty in line with inflation. There may even be a case for increasing it beyond that, but I am happy with the proposal to increase it in line with inflation.

I want to emphasise a point to the Government. There is a difference between sales from licensed premises and from off-licence premises. On the whole, and particularly more recently with the tightening up of some of the licensing arrangements, licensees of public houses and so on have been more responsible. They exercise more control and if they fall out of line, they may have conditions placed on their licence or even lose it. In fact, only last week or the week before, a licensee in my constituency lost his licence because of problems inside and outside the premises. That is a warning to others.

I find in my constituency, as other hon. Members may find in their constituencies, that much of the antisocial behaviour and binge drinking on the streets, particularly under-age drinking, usually emanate from off-licence sales, which are far less protected by legislation and more likely to provide people with alcohol when they should not have it, either because they are already intoxicated or they are under age.

In recent times, pubs have been hit with more legislation, higher energy costs and so on, yet supermarkets have promotions that reduce the cost. The differential between the two outlets in terms of access and cost has become rather too wide. Have Treasury Ministers or the Government studied the option of an aspect of variable duty? Perhaps they could provide a different rate of duty for those sales made from off-licences and those made from on-licences, which would recognise the issue about the social aspects and availability. I believe that there is a case for at least considering some sort of differential rate for off-licence and on-licence sales of alcohol.

In passing, can I request an explanation of the treatment of the spirits tax? I think that the hon. Member for Wolverhampton, South-West referred to this earlier in our deliberations on the clause. I am not certain why that tax has been frozen for some time. It might well be a measure to protect the Scotch whisky industry and, in my part of the world, Plymouth gin sales, but that seems a little strange in terms of our promotion of free trade and so on. It might mean that the tax on spirits was out of line, and so it has been frozen to get it back into line. If that is the case, when do we anticipate that spirits taxation will be back in line so that it can start to increase again? However, the Financial Secretary might be able to give us another explanation.

Paul Goodman (Conservative, Wycombe)

The explanation given last year was that spirits are taxed significantly more than beer, so let us see whether the Financial Secretary gives the same explanation this year.

Colin Breed (Liberal Democrat, South East Cornwall)

That would fit in with the suggestion that I made earlier about the tax being out of line. If that is the case, it would be interesting to know when spirits will be back in line so that taxes on spirits can be increased in line with those on other alcohol sales.

Philip Dunne (Conservative, Ludlow)

It is a great pleasure to see you in the Chair today, Mr. Illsley. I want to raise two issues about the clause. First, I want to echo some of the comments from the hon. Member for Plymouth—

Colin Breed (Liberal Democrat, South East Cornwall)

For South-East Cornwall.

Philip Dunne (Conservative, Ludlow)

I think I can be forgiven that mistake.

There is a question about the distinction between on-trade and off-trade in respect of the increased duties for beer. It is particularly pertinent this year given the substantial increase in costs that have been imposed on the on-licence pub trade by the ban on smoking in public places. Publicans up and down the country have had to invest significantly in their pubs to retain their volume of business. The evidence from other countries that have already imposed a smoking ban—Scotland, and Ireland last year—is that there is a marked decline in trade in many pubs that do not offer food. Consequently, pubs are not only having to increase their costs but they are seeing their sales decline. To hit them with another increase in duty at the same time seems unduly harsh.

Jim McGovern (Labour, Dundee West)

The hon. Gentleman mentions the decline in trade in some pubs in Scotland that do not sell food. Does he agree that pubs in Scotland that sell food have seen a marked increase in trade?

Philip Dunne (Conservative, Ludlow)

The hon. Gentleman is clearly a much greater expert than I am on the state of the pub trade in Scotland. It would not surprise me if pubs selling quality food did better. In my constituency, we have a growing reputation—I believe the Financial Secretary is aware of this—for the quality of food in our pubs, which attracts tourists to the area. Providing that requires a considerable investment to upgrade the kitchens and catering arrangements. That costs publicans money, which is why there is a case for considering a differential rate of duty for on-trade and off-trade alcohol sales.

Paul Goodman (Conservative, Wycombe)

The British Beer and Pub Association claims that sales in Ireland fell by 7 per cent., so presumably that factors in pubs that sold food and those that did not. It would be interesting if the Financial Secretary could give us a total figure for Scotland, as well as for—[Interruption.] No one has yet referred to whether sales have risen or fallen in pubs in Wales, whether food is served or not. I am sure that the Financial Secretary, who is nearly always able to answer as many questions as we ask, will be able to answer that, too.

Philip Dunne (Conservative, Ludlow)

I am grateful for that intervention. Like my hon. Friend, I should be interested to know what is happening in Wales. My constituency is adjacent to Wales, so that issue is something on which I could do some research for when we next discuss it.

Having looked through the Red Book, I am confused about the impact of the proposed changes to alcohol duty, so I should be grateful if the Financial Secretary could clear that up for me. Table A1, on page 209, shows that the receipts to the Revenue appear to have declined in real terms over the three years identified, although in nominal terms they are of course rising significantly. I assume that that is to do with the differential on spirits not being increased in line with inflation. However, I should be grateful if the Financial Secretary could confirm that, because the inflation rate of 3.4 per cent. that has been used exceeds the Government’s favoured measure of inflation, but is less than the retail prices index measure of inflation. I should also appreciate it if he would say which measure of inflation has been used to uprate duty, and from what time.

Adam Afriyie (Conservative, Windsor)

Does my hon. Friend share my concern that talking about a just-below-inflationary increase in duties ignores the overall inflation of the price of those goods? If inflation is 5 per cent. and the price of a good rises by that much, there will also be the additional cost of the increase in the rate of duty, which means that the rate of inflation is in fact 7.5 per cent. The rate of increase in the duty on a good therefore increases the rate of inflation on that good overall.

Philip Dunne (Conservative, Ludlow)

I am grateful to my hon. Friend. Undoubtedly, if the price of a good and the duty on that good both rise, the overall cost of that good will rise by significantly more than the rate of inflation. Beer is currently a very marginal product, with brewers’ profits a matter of just 1p or 2p a pint when the Government are now taking substantially more than that, as we can tell from the measure.

The main issue that I want to cover, however, is duty on wine where the differential, to which my hon. Friend the Member for Wycombe referred, has been restored between still and sparkling wine. That contrasts with the Government’s approach three years ago, when the duty on sparkling wine was frozen. I should appreciate it if the Financial Secretary could explain why the Government have made such a U-turn so soon after deciding to freeze the duty on sparkling wine.

There is a marked distinction between the tax-raising approach that all Governments in this country have taken towards wine and the approach adopted by many of our partner countries in Europe, not least the wine producers. As we move into an era of accelerating climate change—as was evident last month—there is an increasing interest in the production of wine in this country, which needs to be taken seriously.

For those hon. Members who are not familiar with the rates of duty in our main competitor economies in Europe, I have taken the trouble of looking them up. In France, for example, which as everybody knows is one of the largest producers, the rate of duty per hectare litre is €3.4. In Italy the rate is zero and in Germany it is zero, too. To use euros as a comparator currency, the rate in the UK is—wait for it—€253.97 per hectare litre. That is a major barrier to the effective production of wine in this country, compared with our competitor countries.

I have done a little research into what is happening in the wine production sector in this country. I am pleased to tell the Committee that under the previous Conservative Government wine production in the UK grew markedly. In 1984, which is the earliest year for which I have figures, there were 281 vineyards in the UK, with 430 hectares planted to wine. By 1996, that had risen to 408 vineyards and 965 hectares, so the hectares planted had roughly doubled. I very much regret to say that under the Labour Government, the area planted to vines has declined markedly. It was down to a mere 350 vineyards in 2005, with only 793 hectares planted. I shall not attempt to draw a direct parallel between the political complexion and the propensity for vineyard operators to decide to plant vines, but the fact that duty has risen so significantly on wine compared with other agricultural produce may have had something to do with it.

Rob Marris (Labour, Wolverhampton South West)

I do not know whether the hon. Gentleman has them, but I strongly suspect that if he looks at the comparative figures for the major producers in France, Italy and Spain, he will find that the proportional decline in hectarage has been far greater. It is because of the quality of wine going up and the number of hectares under cultivation going down.

Philip Dunne (Conservative, Ludlow)

I readily accept that the biggest influence on wine production around the world has been the advent of the new wine producing regions outside Europe. The largest volume of wine imported into this country comes from South Africa, rather than France. The entry of South Africa, Australia, Chile and other markets and new producers is having an impact on traditional European producers. Proportionately this country is a tiny producer, but we are seeking to grow.

I have also looked at the yield of wine produced from our acreages and it struck a chord that in 1996 the yield reached a record level of 33.7 litres per hectare. It declined in 1997 to a mere 8.2 litres per hectare—the worst yield on record. While there was jubilation in many parts of the country at the advent of a new Government, with corks popping from many bottles of sparkling wine and champagne all over the metropolitan areas of Millbank, there was a very significant reduction in yield.

The point I am trying to make is that interest in domestic wine production has increased. I recently visited the Ludlow Food Centre in my constituency which opened last month and counted five bottles of regional wine that had been produced within a 30 mile radius of this emporium for local food, which I commend to any visitors to the west midlands. There is undoubtedly growing interest in this diversification in agriculture.

Colin Breed (Liberal Democrat, South East Cornwall)

If we are not careful we will all get in plugs for own areas. There has been a substantial increase in wine growing in Cornwall, partly because of the weather. We would all like to see that increased. Does the hon. Gentleman suggest that, like the Scotch whisky industry, which has perhaps had some preferential treatment, British winegrowers should be given some assistance to help to promote British wine, with the creation a variable duty for British-produced wine?

Philip Dunne (Conservative, Ludlow)

The hon. Gentleman pre-empts precisely what I was going to suggest. I know there are difficulties in distinguishing between country of origin, and under the state aid rules it would be a bit challenging to devise a form of duty that is geographically based. I think that Scotch whisky is separate from wine because it is treated in precisely the same way as other spirits. I do not believe that there is a differential rate of taxation for Scotch as opposed to gin or vodka, whether produced in this country or elsewhere. There are, however, special rules for cider, which is primarily because this country was one of the very few countries in the world that produced alcoholic apple juice in the form of cider.

I am sure that it is not beyond the wit of the Treasury to devise a scheme that would allow a preferential rate for domestic production. I urge the Minister to give consideration to that ahead of next year’s Budget.

James Duddridge (Conservative, Rochford and Southend East)

I welcome you to the Chair, Mr. Illsley. This is my first contribution to this, or indeed any, Finance Bill. I have spoken to a number of colleagues for advice, and I understand that so long as I pepper my speech with constant references to Mrs. Duddridge I will not go too far wrong. I thank my hon. Friend the Member for South-West Hertfordshire for that advice.

I do not know whether I need to declare an interest as a member of the Campaign for Real Ale. Indeed, I judged the real ale competition this year. I do not wish to use my membership of that organisation or, indeed, of the all-party beer group to lobby for that interest, but I do want to raise some more general points. The Budget has always been an exciting point in the political calendar, and the duty levied on booze and fags—or perhaps I should say alcohol and cigarettes—has always produced headlines. I rather suspect that the Government enjoy the fact that the headlines about cigarettes and alcohol put them, rather than a more substantive analysis of the detail of the Budget, high on people’s lists.

However, it is unhelpful to the drinks industry to change taxation at such short notice and so frequently. I would be interested to find out whether the Treasury has any plans to regularise the situation and put in a bit of long-term planning. Then we could say to the drinks industry that we would, for example, look at alcohol duty rates over the next three years. I note that in three of the past 10 years there were no increases in duty. That might have made business planning difficult. Perhaps the Treasury could introduce proposals to produce a little more consistency.

I note that it has been suggested in previous debates that tax codes might be getting a little too long. What consideration has the Treasury given to simplifying the taxation of alcohol? Rather than being complicated by spirits, wine and beer, it should take account of the amount of alcohol. I know that the Minister has said that this is not a health measure but a revenue measure, but it is the amount of absolute alcohol that does the damage rather than just the consumption of volume.

I should also be interested in the Minister’s comments on beer and micro-breweries. I have a good micro-brewery, Blanchfields, in my constituency, which was very supportive during the general election by putting out the “Tory Tipple”, of which much was consumed. Such breweries, rather like home-grown wine producers, need a particular level of support. It concerns us all that on every high street we see the same shops, pubs and other retailers. It is a great disappointment that the Cork and Cheese in my constituency, which is typical of a number real-ale pubs around the country, is closing down due to a number of pressures, taxation on alcohol being one of them and the smoking ban another. In that case, there were some local issues as well.

On the duty on spirits, I have always been confused by the fact that spirits and beer are treated differently. Earlier contributions mentioned bringing them in line rather than taxing them differently. Again, it would make a lot of sense to have a consistent plan for the treatment of alcohol that did not distinguish between different groups. I recognise that we are, for example, great producers of cider. However, as the hon. Member for Falmouth and Camborne mentioned in a previous debate, we treat strong beers differently, but there are also strong ciders. Having spoken to a number of constituents with mental health problems, I know that some of them use the phrase “self-medication” to describe simply knocking oneself out with the strongest beer or cider possible, so I think that there is a case for considering strong beers and strong ciders together.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman talks about simplifying the rates of duty on alcohol, but does he think that the micro-brewery in his constituency would welcome such a simplification, which would get rid of the tax break that the Labour Government gave to encourage micro-breweries? Does he think that beer producers, such as Marston’s in my constituency, which is one of the country’s major producers, would welcome a narrowing of the differentials between beer and wine, which would thereby put beer-producing jobs in this country at risk to the benefit of wine-producing jobs, principally abroad?

James Duddridge (Conservative, Rochford and Southend East)

There will be always be special pleading of cases. As a beer drinker, I appreciate the hon. Gentleman’s point, but it is important to simplify the legislation for the longer term. There are great inconsistencies in treating different types of alcohol differently.

On the consumption of alcohol from off-licences, clubs and pubs, the main problem in my constituency, unlike those of other hon. Members who have spoken, is not with alcohol sold in off-licences, but with cheap alcohol sold in pubs and clubs. One of the biggest social problems in Southend is that people come from London and all around to drink in the town and then get caught up in events that lead to crime and social disorder. I urge the Treasury to consider introducing measures that would approach the taxation of alcohol as a whole and not simply as a revenue measure.

Adam Afriyie (Conservative, Windsor)

An esteemed war-time Prime Minister once said:

“I have taken more out of alcohol than alcohol has taken out of me.”

I wonder whether that attitude is reflected in the slightly less well-esteemed Treasury, given the amount of revenue that it raises from alcoholic beverages. The Government seem to be committed to continually increasing the duties on beer, cider and wine broadly in line with inflation, although the rises have been slightly below the inflation rate in the past 10 years. The duties levelled on spirits, on the other hand, seem to be trailing inflation enormously. Why is that? What is so special about spirits? Is it their alcoholic content compared with those of beer, wine and cider, or is it about how they are used socially? What is fundamentally different? What social research studies underpin that clear policy of the past decade?

When I asked whether the increases in duty were driven by economics or social policy considerations, the Minister said that they were driven by revenue considerations. Clearly those considerations are not mutually exclusive, because raising the duties on alcoholic beverages will have an impact on their consumption. Of course, the rate of duty, VAT or any other tax on a good will affect its consumption. He seemed to imply, although I am not sure whether this is what he meant, that the changes in duties would not affect people’s behaviour and that the social policies and social outcomes that we seek should be effected through other means.

I have a degree in economics and I have been in business for about 20 years, and it is clear to me that if you change the price of a good or service, the demand for it and people’s behaviour towards it changes. [Interruption.] I am happy to take an intervention if anyone wishes to intervene. All the evidence and economics say that there is a direct impact on people’s behaviour in relation to alcohol.

Paul Goodman (Conservative, Wycombe)

I am sure that the Financial Secretary will correct me if I am wrong, but I recall that in the debate on tobacco in last year’s Finance Bill, he mentioned the health considerations explicitly near to the beginning of his remarks. It is clear that the Government do not apply to alcohol the considerations that they apply to tobacco.

Adam Afriyie (Conservative, Windsor)

I welcome that intervention, because that was my reading of the situation. I was concerned about the inconsistency. I am quite sure that the provision could not possibly be before us for the sake of expedience during this debate, but I should welcome clarification of the Treasury’s position on the social versus revenue-raising outcomes of such policies.

I accept the argument that a small change in price will have only a marginal impact on a marginal group of people. However, it is undeniable that there will be an impact. I should welcome clarification about that point when the Financial Secretary has reflected on it.

The tax system is used to change behaviours in many different areas of our lives. If one visits any magistrates court, it becomes abundantly clear that alcohol fuels a great deal of antisocial behaviour—there is no doubt about that—and violent crime. When we consider the rate of duty on, and our fiscal treatment of, alcohol, above many other products and services in society, the social consequences must be uppermost in our minds.

If alcohol were placed on the scale of harm by the Advisory Council on the Misuse of Drugs, it would rate highly. In terms of the harm that it does to the individual and to society, it would rate more highly than many other illicit drugs that we consider to be completely unacceptable. I am not arguing that we should ban alcohol; I simply seek to probe the thinking behind the consistent link of duties to inflation, with various rates on various products, because it would be quite easy to stagger on doing the same thing. The Bill is an opportunity to probe the Government’s thinking and to consider what outcomes we seek—other than tax-raising outcomes.

Given the harm, misery and upset that alcohol often causes, I must ask some specific questions about the Financial Secretary’s consideration of the social consequences of the Government’s duty regime. What studies has his Department or the Department of Health undertaken into the impact of fiscal measures on the behaviour of alcohol consumers? What discussions has he had with the Home Office, the Department of Health and the Advisory Council on the Misuse of Drugs about the clause? I am sure that he has considered the matter very carefully, but if he had not had any discussions with any such groups about the continual inflation-linked rise in duties, it would not be a particularly helpful way to proceed when we are concerned about the harm that the misuse of alcohol does to society.

There is an inconsistent approach. On the one hand, the Government appear to be liberalising alcohol use with their licensing measures and their vision of Britain as a more continental user of alcohol. There is a lot more drinking of wine in the afternoon sunshine nowadays—

Brooks Newmark (Conservative, Braintree)

Especially today.

Adam Afriyie (Conservative, Windsor)

Lots of champagne today.

On the other hand, however, the Government hand out antisocial behaviour orders and spend hundreds of millions of pounds on dealing with the social consequences. There must be consistency between the policy outcome of the clause before us and the other measures. I am sure that there must be, but I should welcome an explanation of how it makes sense.

Stephen Hesford (Labour, Wirral West)

Is the hon. Gentleman’s experience the same as mine? The number of people using the accident and emergency unit in my constituency on Friday and Saturday nights has gone down since the liberalisation.

Adam Afriyie (Conservative, Windsor)

I welcome that intervention. I am delighted that the hon. Gentleman has an A and E unit in his constituency and that the social outcomes of the licensing changes in his area appear to be moderately positive. That is not my experience in my area, however; nor does it appear to be the experience in many other areas around the country.

There must be a connection between the duty on, and the price of, alcohol and the level of alcohol usage. The hon. Gentleman is considering the social outcome and the health outcome in terms of visits to A and E, normally in the early hours of the morning. I am probing to find out the direction that the Government are taking and the philosophy behind it. What is the link between the different issues? Does the Government’s policy in this area make sense? Is it consistent? If the Financial Secretary persists—I feel sure that he will not—with the assertion that fiscal changes to duty do not have an impact on consumption, that will sadden me to some degree, not only because it does not make sense in the real world, but because it means that all the other Government policies to change behaviour must be faulty.

We have heard that air passenger duty is supposed to reduce the number of flights, for example. It is a revenue-raising measure, a bit like the duty on alcohol, but the Government have suggested that it will reduce the number of flights and so reduce carbon emissions by several million tonnes, although I do not remember the exact figure. The level of duty clearly has an impact on behaviour in that area, or at least the Government suggest that it does. Would the Financial Secretary argue that higher vehicle excise duty for vehicles with higher carbon emissions has no impact on behaviour? I do not believe so. We have only 10 or 12 low-carbon homes at the moment, if any at all—

Mark Francois (Conservative, Rayleigh)

None.

Adam Afriyie (Conservative, Windsor)

We have none? My goodness. [Interruption.] Is it 12? We do not know. I thank my hon. Friend for his intervention. We are told that taxation will be reduced to encourage the building of low-carbon homes.

Eric Illsley (Labour, Barnsley Central)

Order. The hon. Gentleman is straying from the subject of the debate.

Adam Afriyie (Conservative, Windsor)

I seek merely to draw the parallel with other areas of Government policy, where there is clear understanding that the level of taxation and the price of goods and services affect consumption and therefore affect social and policy outcomes. There seems to be a deep inconsistency.

I give the Government credit for being a modernising Government in many respects.

Brooks Newmark (Conservative, Braintree)

Why?

Adam Afriyie (Conservative, Windsor)

For using the language of modernisation. When I was reading through the Bill and the accompanying notes, however, I noticed references to hectolitres. Perhaps the Financial Secretary will explain why we continue to use that term. Why do not we use litres or some other standard unit of measurement? Why do we not take the opportunity to do so today, rather than stick with a marginally old-fashioned measure? There may be good reasons; I simply make the observation.

In another area of society, motorists are asked to pay money towards victims of crime who have nothing to do with the motoring offence. Has the Financial Secretary given any consideration to some form of hypothecation? I am not proposing it, but has he considered direct hypothecation from the duties raised on alcohol to health care and crime reduction?

It seems that the Government are blindly staggering on with the same regime in this Bill. I look forward to hearing the Financial Secretary’s comments on the issues that I have raised. I am particularly interested in the consistency, if there is any, between the duty regime on alcoholic beverages and the other Government policies that seek to change behaviour by changing taxation on the goods and services that we consider good or bad.

John Healey (Labour, Wentworth)

I welcome you to the Chair, Mr. Illsley, for the first time on a Finance Bill; I am delighted to see you. I do not know if that counts as a promotion or a penalty, in terms of the Speaker’s Panel of Chairmen.

Eric Illsley (Labour, Barnsley Central)

Penance.

John Healey (Labour, Wentworth)

We will do our best as a Committee to behave and make your job as easy as possible, Mr. Illsley.

By tradition, this Committee tends to take a particularly close interest in, and have particularly long debates on, the clauses in the Finance Bill that are related to alcohol. Today is no exception.

Perhaps I could start by welcoming the newcomer to the Committee, the hon. Member for Rochford and Southend, East. [Hon. Members: “Where is he?”] I am sorry that he has not been able to stay longer with us. He took his files and departed a little earlier. I also welcome his membership of the Campaign for Real Ale; I must say that that is a very fine organisation, championing a very fine cause.

The hon. Gentleman asked me about the simplification of the alcohol legislative and taxation regime. He is new to the Committee, so he probably did not see that in the 2006 Budget we announced more than 30 simplification measures for the alcohol regime. In Budget 2007, we announced that there would be more discussions with the industry about further, longer-term reforms and simplifications that we can introduce into what, after all, is an excise regime that is centuries old and ripe for the sort of fairly radical reform that we are undertaking.

Brooks Newmark (Conservative, Braintree)

I can only assume that, as with all things connected with this Government, while they give with one hand—that is by perhaps reducing the number of taxations—they take with the other, which probably explains why Tolley’s tax guide has increased from roughly 3,900 pages to 10,200 pages.

John Healey (Labour, Wentworth)

May I suggest that the hon. Gentleman consults the alcohol industry’s representative groups? If he does, he will see how welcome they find the moves that we are taking and they will tell him how involved they are in these measures. That may be something that he wishes to pursue after this Committee hearing.

May I also welcome the hon. Member for Windsor and his contribution, which rounded off the debate? I must say that he made what seemed to me an extraordinary point, by suggesting that somehow we should not be using tax to raise revenues for the public purse. That is a quite extraordinary proposition, and frankly it was implicit in his whole line of argument.

Adam Afriyie (Conservative, Windsor)

I consider that comment to be rather unfair. I made it clear all the way along that the implication was that fiscal changes have a direct impact on behaviour, and I was calling on him to explain why he was suggesting that these measures would not have an impact on behaviour.

John Healey (Labour, Wentworth)

Let me try to be a little fairer in the second point that I wanted to make about the hon. Gentleman’s contribution to the debate. He told the Committee that he is an economics graduate and also that he had spent 20 years in business. I find it extraordinary, therefore, that he has not come across the concept of demand elasticity in that time. Clearly that concept applies differently to beer, fags, cars and homes. Quite honestly, that is the simple answer to the question that he was raising.

Adam Afriyie (Conservative, Windsor)

I have a thorough understanding of economics, and by simply mentioning the word elasticity the Financial Secretary has acknowledged that there is an elasticity of supply and demand for every good or service. So he has made my point for me, and I thank him for doing so.

John Healey (Labour, Wentworth)

The demand for some things is relatively inelastic, as in the case of beer, so a rise in price does not necessarily affect demand directly or substantially; that is the nature of the concept of elasticity.

If the hon. Gentleman has a degree in economics, he probably knows the answer to one of the questions that he asked me, which was about hectolitres; a hectolitre is 100 litres. The reason that we continue to use hectolitres is that they are the measure set out in the European legislation that we have to implement and reflect in this country. I am afraid that there is no way around that.

The hon. Gentleman also asked me about the discussions that we had with the Department of Health and the Home Office in the run-up to the Budget. Of course, we have regular and detailed discussions with both Departments, and other Departments, in preparing the Budget. I must tell him, and the Committee, that I have the privilege, as the Treasury Minister responsible, to sit on the ministerial alcohol group. One of the main things with which that group has been concerned in recent months is the preparation for the summer launch of a renewed alcohol harm reduction strategy, which will draw on the capacity, the concerns and the contribution that all Government Departments might make to tackling that problem.

I am glad that the hon. Member for South-East Cornwall is happy with our proposals for a duty increase in line with inflation, as in clause 5. He is right about the increasing difference between on and off-trade sales, which members of the Committee would acknowledge principally reflects the changing patterns of consumption and leisure time. I must tell him and the hon. Member for Ludlow, who raised the same point, that it would not be legal for us to consider a duty differential for sales that depend on the location of off and on-trade. I have considered it, but that is the legal position; it is simply not possible.

I turn now to the series of comments that were made by the hon. Member for Wycombe, speaking from the Conservative Front Bench on Tuesday at Question Time. He started by observing rightly that alcohol duty changes in this Bill are contained in one clause. He asked why, as in last year’s Finance Bill it was two clauses. I must be honest: it is simply a reflection of the preference of parliamentary counsel. [Interruption.] My hon. Friend the Member for Wolverhampton, South-West murmurs and grunts, but he will appreciate the point that even parliamentary counsel, unlikely as this may seem to some, have a personal drafting style. It is that style that has given us such great assistance with this Finance Bill, and is reflected in the fact that we have one clause rather than two.

The hon. Member for Wycombe spent some time painting what I thought was a negative picture of the brewing industry in Britain. It is certainly the case that there is a long-term decline in overall beer sales. However, within that market in Britain now, we have vibrancy, innovation, and an increasing range of choice in beers, driven not least by an increasing number of local micro-breweries. The small breweries relief has been an important part of being able to encourage such growth and diversity. I know that the Campaign for Real Ale welcomes that. Small breweries often bring a boost to local economies, many of them in rural areas. They provide valuable employment in those areas, and we calculate that more than 130 new breweries have opened since we introduced the small breweries relief, creating more than 1,000 jobs in the industry.

I am not sure that I like the sound of the Tory tipple of the hon. Member for Rochford and Southend, East. However, I could recommend Wentworth pale ale, which is a product of the Wentworth brewery in my constituency. It is a small brewery that has benefited significantly from the small breweries relief. In fact, Steven Beech, the managing director of Wentworth brewery, recently said to me about the small breweries relief:

“This is undoubtedly as far as Wentworth Brewery is concerned a major and very positive step... The brewery has reaped the benefits in an increase in turnover and a corresponding increase to our workforce.”

He went on to confirm that turnover has increased by 50 per cent., and the work force have also increased by over a half. That is direct proof, he said, of the effectiveness of the small breweries relief. I suspect that a number of other members of the Committee have similar breweries in their constituencies.

I turn now to another source of concern that the hon. Member for Wycombe and other members of the Committee raised: the smoking ban in England from the beginning of July. It is interesting to note that just five days after the Budget, Greene King, one of this country’s significant and good brewers, was upbeat about the results of an independent survey that it reported, because they pointed to the opportunities that many brewers and pub-chain owners see in the smoking ban. The survey showed that one in three young couples with families who avoided pubs would consider buying family meals following the ban and that more women aged 45 to 54 were likely to visit following it.

Although it is early days, even in Ireland, certainly in Scotland and even more so in Wales, the experience suggests that the impact will vary from pub to pub and that, on balance, the status quo is likely to be preserved in the longer term. It is clear that pubs that do not prepare for the ban are likely to lose out.

Ian Lucas (Labour, Wrexham)

Picking up on that point, it is very much the case that in my constituency and Wales more widely the smoking ban that was introduced at the beginning of April has been warmly welcomed. A number of pubs pre-empted the ban themselves. I know that one pub introduced a ban in December and commercially has thrived as a consequence.

John Healey (Labour, Wentworth)

My hon. Friend’s experience in Wrexham is interesting and not atypical of the reports that I receive from hon. Members who represent constituencies in Scotland and Wales. He is right to say that the pubs that prepare can benefit rather than lose out from the ban—the experience is clear to that extent. On balance, landlords are positive about the prospect of the smoking ban. It will also help some of them, as well as some of their customers, to give up smoking.

Finally, the hon. Member for Wycombe made comments and raised questions on the state of the industry.

Paul Goodman (Conservative, Wycombe)

The Financial Secretary has quoted at least one survey on the effect of the smoking ban, but the British Beer and Pub Association has claimed that sales fell by 7 per cent. in Ireland. Has the Treasury studied the effect of the ban in Ireland? Can he confirm the figure that I have given?

John Healey (Labour, Wentworth)

I can confirm two things. First, I am aware of the representations and points made by the BBPA, which I saw before the Budget, as I do every year. Rob Haywood is a good chief executive of that association and represents the industry effectively. Secondly, we carefully study such evidence as it emerges from Ireland, Scotland and Wales. On balance, across the board the conclusion that we and others are drawing is that in the longer term the ban does not appear to be having a serious effect on the pub industry.

The hon. Gentleman also mentioned higher energy and raw material costs, which was a point put to me by the BBPA, and one that I also made in my opening remarks on the clause. He recognised in the end the balanced decisions that we must take in government, and I hope that he will take that stance when we come to decide whether to allow the clause to stand part of the Bill. We have tried to recognise the industry’s concerns, but at the same time we are trying to maintain the value of an important revenue stream to the public purse. That is essential to help us to support our investment in public services.

A number of hon. Members raised the question of using tax somehow to price and regulate the consumption of alcohol. They are right to say that it has been a long-standing element of the policy approach to the taxation of tobacco; that is true of the past 10 years of Government and was certainly true of the last 10 to 20 years of the previous Government. Doubtless, we shall come on to consider some of those questions in discussing the next clause.

I made the point to the hon. Member for Windsor that each case is different. It is clearly right that we examine the evidence, and the case has not yet been made that tax would be an effective way to reduce the social problems that come from the abuse of alcohol by a small, but nevertheless visible, minority. The Government remain of the view that social legislation and regulation, and active encouragement of pressure on the trade through self-regulation are better ways to tackle our concerns in our constituencies and nationally about the harm—the social problems and health difficulties—caused by the abuse of alcohol.

Adam Afriyie (Conservative, Windsor)

Considering the scale of harm done to society by antisocial behaviour resulting from alcohol abuse, can the Minister run off a quick list of studies that the Treasury or the Department of Health have commissioned on the elasticity of the demand and supply of alcoholic beverages?

John Healey (Labour, Wentworth)

I will do better than that. I will send the hon. Gentleman a copy of the publication in which we set out our modelling and our assessment of these issues, as we have done every year.

I am disappointed that at the end of the debate I am still not clear whether it is the policy of the hon. Member for Wycombe to raise taxes on beer and wine to take the price of those drinks out of people’s reach. Perhaps we will have to wait a little longer to find out. He would certainly have the support of some of his hon. Friends on the Back Benches, and of his wider party, for such a policy. It is the implication of this morning’s contributions and it is something that we will return to.

I return to the balance of taxation between different types of drinks. Hon. Members were right to point out that we have frozen the duty on spirits in 10 successive Budgets, and I am proud of that. Spirits are still taxed more heavily than any other form of alcoholic drink; 10 years ago, they were very much more heavily taxed. As I have explained to successive Finance Bill Committees, we have been consistent in that policy. Our judgment in respect of excise duty on alcohol is that there should be a fairer balance of taxation between the different alcoholic drinks—I repeat, a fairer balance, not an equalisation of the rates; the two are fundamentally different.

It is not our ultimate policy aim to equalise the taxation on different types of alcohol and drinks. The reason is self-evident: if it was the sole and principal aim of taxation policy decisions, which was rigidly adhered to, there would be little or no scope for taking into account other factors or pressures that may be relevant to a particular industry.

For example, in the last four Budgets, we have been able to freeze the duty on cider; in fact, we cut it in recent years, irrespective of the decision that we took on other alcoholic drinks, because the cider industry in Britain was seriously struggling and the industry is very important in supporting farmers in local areas and the rural economies. We could take that decision because of the economic circumstances in that industry, which were different from those relating to spirits, beer or wine. We need the scope to take broader and different dimensions into account when taking those decisions.

Colin Breed (Liberal Democrat, South East Cornwall)

That decision was welcomed, and in a broader sense it was especially helpful to the agriculture industry, even in Cornwall, which is not a cider area, but sends its apples elsewhere. Cider is not only produced in Somerset and Herefordshire. Although the Minister may not imbibe the Tory tipple, he might well sample a very good cider called Thatchers Ruin if he was in Somerset.

John Healey (Labour, Wentworth)

I have a lot of time for Mr. Thatcher, who has been a leading figure in the National Association of Cider Makers, and I have enjoyed my contact with him and his firm, although not his product, in recent years.

It is true that our decision substantially helped the cider industry. Clearances of cider in 2005-06 rose by 15 per cent., and all the market research and projections predict further growth in the industry for this coming year. It was in those circumstances that we took the decision this year not to freeze duty on cider but to raise it in line with inflation, as we are doing with beer and wine.

I was asked by the hon. Members for Ludlow and for Wycombe about duty on sparkling wine. They may be aware that the duty on sparkling wine has been frozen in the past six budgets. The level of duty has therefore fallen in real terms by a full 16 per cent. since 1997—in anybody’s book, a supportive tax treatment of sparkling wine over the years—and, over the past decade, sales of sparkling wine have nearly doubled. We took all those factors into account when making decisions for the Budget and the Bill.

I want to deal with the points that have been raised by the Committee. I hope that Members will indulge me a little further as I deal with two or three matters that the hon. Member for Ludlow raised but that I have not yet touched on. He asked about the figures in the Red Book. The projections of changes in alcohol receipts as a result of the Budget decisions announced in March, and the small reduction, take account of the decision to freeze spirits duty in the Budget. The measure of inflation that we use for those and other projections in the Red Book is well established. It is the quarter three retail prices index forecast for the year ahead.

The hon. Gentleman then dealt in some detail with the wine industry. In particular, he wanted to know whether some sort of preferential treatment for UK-produced wine might be possible. There are several points to bear in mind. First, all wine sold in the UK, whatever its country of origin, is taxed at the same rate. Secondly, the output of the UK wine industry, which is extremely good and increasingly well regarded worldwide, still represents only about 1 per cent. of wine consumption in the UK. According to the analysis of the Department for Environment, Food and Rural Affairs, it is regarded as a high-quality product—that is increasingly true of UK sparkling wines—but the tax treatment is entirely consistent across the board for products sold in this county, whatever their country of origin.

The hon. Gentleman then asked whether there could be a special taxation regime to favour UK-produced wine. Unfortunately—from his point of view—were we to introduce such a regime in Britain, it would constitute an illegal state aid. We would be legally prevented from doing that, so we cannot consider or pursue such a policy option.

I hope that I have dealt with the comments and concerns of members of the Committee, and that the indications that we have had during the debate mean that both sides of the Committee will be content to let the clause stand part of the Bill.

Clause 6

Brooks Newmark (Conservative, Braintree)

You took me by surprise, Mr. Illsley.

Eric Illsley (Labour, Barnsley Central)

In that case, I shall call the Minister.

John Healey (Labour, Wentworth)

I wish to move the clause formally.

Brooks Newmark (Conservative, Braintree)

As always, I turn to the explanatory notes when considering clauses. Paragraphs 4 and 5, which are in the background note section, are important because they show the thrust of the Government’s objective, and I shall reflect on them later when questioning the Minister.

The background note begins by saying:

“Keeping tobacco prices high is one of a number of measures set out in the Government White Paper on tobacco, Smoking Kills, intended to help existing smokers quit the habit”.

The Government are seeking, in part at least, to change behaviour. I appreciate that there are other ways of trying to change behaviour, but clearly this is a linchpin in changing behaviour. The background note continues:

“Research has consistently shown that the price of cigarettes affects demand. Cigarette prices in the UK are now at historically high levels.”

That goes back to the Minister’s discussion with my hon. Friend the Member for Windsor about price elasticity, what that does and how it impacts on demand. In normal cases I would agree that a higher price has an impact on demand. Unfortunately, it does not take into account—I shall go into this later—the increase in the illicit trade of cigarettes, particularly hand-rolled cigarettes. I want to probe a little further the assumptions about changing behaviour, price elasticity and the impact on the increase in supply of illicit tobacco.

I begin by noting that despite consistent increases in tobacco duty, revenue has been broadly flat for the past few years, given that the out-turn in 2002-03 was the same as the projection for 2007-08. Table C8 onpage 281 of the Red Book shows that tobacco duties were £8 billion in 2005-06 and £8.1 billion in 2006-07, and are projected to be £8.1 billion in 2007-08, so the increase has been relatively flat.

If duty rates are indexed to maintain the real price of tobacco, does the Treasury attribute the real-terms decline in receipts to there being fewer smokers or more cunning smugglers? Is the purpose of tobacco duty to raise revenue or to change behaviour, or a bit of both?

There are mixed messages here, as elsewhere. The Government say that smoking kills half of all smokers. Organised criminal gangs who smuggle tobacco provide a cheap and unregulated supply, which undermines the Government’s policy of using tax to maintain the high price of tobacco and to help to reduce smoking, especially among the young. That implies that the illicit trade has a measurable impact on public health. Is the Government’s anti-smuggling strategy focused on improving public health or safeguarding revenue, and what is their priority? Increasing tax has the potential to stimulate illicit trade and to provide better access for youngsters to indulge in tobacco products; hence the two objectives seem to be slightly contradictory.

The growth area in the illicit tobacco trade is in counterfeiting, which has both revenue and public health consequences. Last year, HMRC and the Treasury published findings that between 85 per cent. and 100 per cent. of cheap cigarettes sold in London were counterfeit. What is the latest estimate of the impact of counterfeiting on both public health and revenue? I shall be interested to hear whether the Minister has done some homework on that.

Last year, HMRC and the Treasury published a document with the tongue-twisting title, “New responses to new challenges—Reinforcing the Tackling Tobacco Smuggling Strategy”. Given that the Government admit that smugglers constantly change their strategy to avoid anti-avoidance measures, can the Minister offer the Committee an update on HMRC’s evolving strategy one year on?

HMRC goes on to argue that illicit market share is falling, although it admits to a statistical uncertainty, and it has moved to a definition of the illicit market based on a range between upper and lower estimates. That range, I read, is between 10 per cent. and 19 per cent. for 2004-05. Is the Treasury satisfied that data from consumer surveys and estimates with a spread of 9 per cent. are adequate for revenue forecasting purposes?

The Comptroller and Auditor General has to audit the tobacco duty revenue forecast based on data on the illicit market share dating from 2003-04 because of a lack of more recent firm data. I believe that that was outlined in the Budget 2007. The revised National Audit Office audited assumption assumes that the underlying duty paid on cigarettes will be 3 per cent. lower than the estimated out-turn for the current year. Again, I want to ask the Minister whether the Treasury is confident that no further downward revision of revenue forecast will be necessary.

In March 2006, the HMRC-Treasury paper admitted:

“Tobacco smuggling costs £2.9bn per year in lost revenue—the equivalent to 1p off the basic rate of income tax”.

That is equivalent to 35 per cent. of tobacco tax receipts; I get that number mathematically by 2.9 billion divided over 8.1 billion. How does that compare with HMRC’s estimate of the illicit market share as being between 10 per cent. and 19 per cent.? Would the cost of lost revenue as a percentage of total receipts not be a more useful way of judging the scale of the problem?

Is HMRC on track to meet the target for reducing the illicit market share to 13 per cent. by 2007-08, as outlined by the Government? This year’s Finance Bill contains plenty of anti-avoidance measures to protect receipts in other areas. Did Treasury officials consider the case for further legislation to tackle tobacco smuggling? Would tighter border controls help to tackle tobacco tax evasion? Would the reclaimed tobacco revenue not go some way towards paying for the new border police force suggested by the Leader of the Opposition, among others?

I read in HMRC’s report of 2005-06 that one in four cigarettes smoked in Britain is hand rolled, yet half of the hand-rolling tobacco used in the UK is thought to be illicit, costing £880 million in lost revenue in 2003-04. In fact, the major example of tax-motivated behaviour change has been the doubling of the number of those using hand-rolling tobacco since 1990. Given the continued growth in the market for hand-rolling tobacco and the level of tax evasion associated with it, is that the right kind of behaviour change for the Government to encourage?

Imperial Tobacco has said that its experience of a smoking ban in Scotland, introduced just a year ago, and the experience in other markets, such as Ireland, confirms its view that smokers will continue to smoke. Any initial dip in consumption diminishes over time. Does the Treasury concur with that assessment and how did it reach its revised forecast that the ban would lead to a loss of revenue of just £100 million in 2007-08 and £500 million in 2008-09? Finally, is it anticipated that further revisions to the projection will be necessary?

Eric Illsley (Labour, Barnsley Central)

For the avoidance of any further confusion, Members will notice that a number of clauses have no amendments so far. The question will be that the clause stand part of the Bill, which will enable debate. No one is required to move the question, as it is put by the Chairman, and any Member can speak to it.

Paul Goodman (Conservative, Wycombe)

Welcome to the Chair, Mr. Illsley. The Financial Secretary began by speculating about what your presence meant in terms of the goings on in the exalted world of the Speaker’s Panel. I would not be so bold as to follow him in that, but I know that you will enjoy every minute of these proceedings and I can see that you already feel thoroughly at home.

Eric Illsley (Labour, Barnsley Central)

Order. For the benefit of the Committee, it is a little disconcerting to look around the room and see that the hon. Member for Coventry, South and I are the longest-serving Members here. As a former Opposition Whip, I know a lot about Finance Bills. The disappointment is that they have changed very little since 1988.

Paul Goodman (Conservative, Wycombe)

My experience could not possibly compare to yours, Mr. Illsley. Although you may not know the background to this—I shall be very happy to tell you all about it afterwards—you will at least be pleased to see that I have been restored to my correct gender and political party in the Committee’s proceedings.

Edward Balls (Labour, Normanton)

We haven’t noticed.

Paul Goodman (Conservative, Wycombe)

For such an observant person as the Economic Secretary, I can scarcely believe that to be true.

Without any further ado, let me move on to what is left in the clause that my hon. Friend the Member for Braintree has not already covered in his masterly exposition. Just as with the corresponding clause in last year’s Bill, he has given the Committee a chance to explore the relationship between the rate of duty, the amount of revenue for the Treasury, and the effects as regards smuggling, counterfeit and lost revenue. There is obviously a relationship between those factors. The case for large increases in duties, which I think my hon. Friend the Member for Ludlow hinted at last year, is that they will help to reduce smoking and, on paper at least, bring in more revenue for public services. The case for lower rates, freezes or even cuts, which was hinted at last year by my hon. Friend the Member for Braintree—we were therefore able to have an interesting discussion—is that the law of unintended consequences applies. In other words, large increases will stimulate the smuggling of tobacco and counterfeit products, and thereby reduce revenue and fail to reduce smoking, as people switch from legal to illegal tobacco.

In what was his key quotation from last year—which will probably explain his thinking this year, too—the Financial Secretary acknowledged those competing pressures and trade-offs, when, with reference to a Treasury study, he said:

“The model’s main findings show that, with tobacco, we are close to the revenue maximisation point with cigarette duty. That means that any large real increase in duty rates would increase smuggling and start to reduce, not increase, revenues.”

I assume that that is the position this year, too. That analysis helps to explain why the Government abandoned the tobacco duty escalator in 2001. It also helps to make the case for this year’s inflationary rise, which we do not intend to oppose.

It is perhaps significant that the Tobacco Manufacturers Association’s response to this year’s rise has been muted. It said that the

“announcement of an inflation-only increase in tobacco duty is an indication that the Government acknowledges that tobacco duty is the cause of the UK’s high levels of smuggling and crossborder shopping”.

While calling for a “fundamental review” of policy, the association also said:

“We welcome this continued restraint but it is still an increase. It will serve only to widen the price differentials between the UK and the rest of the EU. It will further encourage smuggling and counterfeit activity and enhance the economic incentive for smokers to shop abroad or purchase tobacco products on the black market.”

None the less, the tobacco manufacturers seem on the whole to be reasonably satisfied.

The same cannot, apparently, be said for Action on Smoking and Health. As the Financial Secretary knows, sadly, we cannot please all the people all the time. ASH said that it was

“disappointed that the Chancellor missed a golden opportunity to raise the tax on tobacco above the rate of inflation”.

ASH had called for a 19p increase on a packet of 20 cigarettes, which is equivalent to a 3 per cent. increase above the inflation rate.

As I have said, we do not intend to oppose the rises. We suspect that the balance is about right. However, I should like to ask some broader questions about the Government’s anti-smuggling strategy, in which the rise proposed in the clause presumably plays a part, following the same line of inquiry as my hon. Friend the Member for Braintree.

Last year, against a background of increased freight movement and visits and a rise in the consumption of hand-rolled products, the Committee had an opportunity to hear estimates from HMRC of revenue loss from smuggling and cross-border activity. My hon. Friend mentioned the counterfeiting figures, and the estimates last year showed that after progress between 2001 and 2003, there had been a rise in the non-cross-border element in 2003-04, from £2.6 billion to £2.9 billion, and an overall rise in revenue loss from £4 billion to £4.2 billion. What are the figures for 2004-05? Has the trend corrected itself or has there been a similar decline? Has consumption fallen as it has each year since 1999?

The Financial Secretary reminded the Committee last year that the Government’s anti-smuggling strategies are underpinned by memoranda of understanding—memoranda, not memorandums, as the hon. Member for Wolverhampton, South-West said last year; so, that is satisfactory—signed with the majority of the tobacco industry. The manufacturers clearly favour that approach, and they unsurprisingly lobby energetically for freezes or reductions in duties. It is worth noting that the Financial Secretary said last year:

“Duty cuts would not produce proportionate reductions in tobacco smuggling. Only a large cut in duty would be likely to have any significant impact on the behaviour of consumers and suppliers.”—[Official Report, Standing Committee A, 9 May 2006; c. 17.]

I assume that we can rule out such a large cut, because of the effect that it would have on revenue.

Although the approach to countering smuggling via memoranda of understanding satisfies the tobacco industry broadly, it does not meet with the approval of ASH. It says that the Government should consult formally with what it describes as “independent stakeholders”—I presume that it considers itself to be one of those independent stakeholders—and the tobacco industry on smuggling and, in particular, the development of a system of covert markings. I should like to know the Financial Secretary’s response to that idea in due course.

The Financial Secretary will be well aware that ASH also says that the Government should sign up to the agreement between the European Commission and Philip Morris International on tobacco smuggling. Under the agreement, which was signed in 2004, the company announced that it will pay the European Commission $1 billion in a landmark deal on tobacco smuggling. Under the agreement, the company is heavily penalised if its products are smuggled into EU countries. Originally, 10 member states signed up to the agreement with the Commission, and the deal meant that court action against PMI in the US was dropped.

The key elements of the agreement are seizure payments, which penalise PMI if any of its products are smuggled into the EU, and compliance protocols. The agreement is reviewed annually. The Select Committee on the Treasury said:

“We are concerned to note...that Customs have not sought a similar agreement with Philip Morris... Whether it would be better for the UK to sign the EU agreement or to seek a separate memorandum of understanding with Philip Morris depends upon the arrangements that can be negotiated with the company. But doing nothing is unacceptable.”

Again, I should like to know the Financial Secretary’s response to that point.

HMRC has traditionally argued that there would be limited financial benefit to signing such an agreement. ASH’s counter-argument is that there may not have been a clear financial benefit to date, in 2004-05, but it goes on to ask about the subsequent years looking to the future.

I have two final questions. First, do the Government fully support the development of a legally enforceable and comprehensive illicit trade protocol under the framework convention on tobacco control, the international health treaty signed by 142 parties? Secondly, what progress has been made on the development of track-and-trace technology, which allows authorities to trace supply lines and product distribution? In particular, what discussions have the Government held with other Governments—

(Except clauses 1, 3, 7, 8, 12, 20, 21, 25, 67 and 81 to 84, schedules 1, 18, 22 and 23, and new clauses relating to microgeneration) - Clause 6

Paul Goodman (Conservative, Wycombe)

Welcome back to the proceedings, Mr. Gale. At the end of the previous sitting, I was about to ask the Financial Secretary what discussions the Government have held with other Governments that already use track-and-trace technology and with third sector organisations in the UK, such as ASH.

David Gauke (Conservative, South West Hertfordshire)

It is a pleasure to see you back in the Chair, Mr. Gale. I want to pursue the point relating to hand-rolled tobacco raised by my hon. Friend the Member for Braintree, particularly with regard to the difference between the duty on hand-rolled tobacco and that on manufactured cigarettes. I have been approached in respect of the matter, as I suspect other members of the Committee have been, by Philip Morris Ltd. Unlike most of its competitors, Philip Morris does not produce any hand-rolled tobacco, although it is a substantial producer of manufactured cigarettes. It has therefore taken an unusual position for a business because it is in favour of higher taxes to equalise the position of hand-rolled tobacco with that of manufactured cigarettes.

The figures that Philip Morris presented to me raise an interesting point. It provided them before the increases in the last Budget, but those changes did not fundamentally change the position. According to the figures, the tax on a packet of 20 manufactured cigarettes was £4.07, whereas the tax on an equivalent amount of hand-rolled tobacco was £2.15. That is clearly a substantial difference, which must be one of the causes of the substantial increase in the use of hand-rolled tobacco as a percentage of overall tobacco use in this country, to which my hon. Friend referred. As he said, the proportion appears to have doubled.

I have seen two sets of Government figures. Both show that in 1990 the use of hand-rolled tobacco represented 11 per cent. of tobacco use. That has increased to either 22 per cent., according to an answer given by the Minister of State, Department of Health, the hon. Member for Don Valley (Caroline Flint), to a written parliamentary question, or 24 per cent., according to the Treasury’s pamphlet “New Responses to New Challenges: Reinforcing the Tackling Tobacco Smuggling Strategy”, which was published in March 2006. There is clearly a substantial increase in the relative use of hand-rolled tobacco. It is worth pointing out that in the 16 to 24-year-old age group, the use of such tobacco among males increased from 10 per cent. in 1990 to 25 per cent. in 2005, and from 2 to 12 per cent. among females in the same period.

I assume that those increases are largely driven by the different taxation system. I suspect that the Government have a good reason for having lower taxation for hand-rolled tobacco, namely smuggling. I should be grateful if the Financial Secretary could confirm that.

Brooks Newmark (Conservative, Braintree)

To carry on my hon. Friend’s theme, the White Paper “Smoking Kills”, to which I referred, said that the Government’s objectives were to help existing smokers to quit the habit and to help children and young people to avoid becoming addicted in the first place. If, as he suggests, more and more people, particularly children, are using hand-rolled tobacco as an alternative to filtered cigarettes, is not hand-rolling tobacco much more dangerous than filtered cigarettes to the health of children and adults?

David Gauke (Conservative, South West Hertfordshire)

I am grateful for that intervention. My hon. Friend may well be right; I do not know whether hand-rolled tobacco is essentially more dangerous to people than manufactured cigarettes, but none the less it appears to be a growing market. We come back to the tension that sometimes exists, which my hon. Friend the Member for Windsor explored with regard to alcohol. Sometimes there is tension between raising revenue and discouraging a certain type of behaviour. I believe that the reason why the Government have kept hand-rolled tobacco duties at a lower level is because of the fear of smuggling. As my hon. Friend the Member for Braintree pointed out, something like half the consumption of hand-rolled tobacco is from smuggling sources. It would appear that it is easier to smuggle hand-rolled tobaccos simply because of the way in which it is packaged, and in many other European countries the rates of duty on hand-rolled tobacco, as with ourselves, are somewhat lower than for manufactured cigarettes. In relative and absolute terms, the difference is even greater, so there is a difficulty.

However, there are one or two problems, and I would be grateful if any figures are available to clarify matters. Given the relative increase in the use of hand-rolled tobacco over the last 16 or 17 years or so, what cost to the Treasury has resulted in that increase of use? Going forward, has the Treasury considered, given the different taxation systems that apply, that that relative use may increase even further, thus reducing revenues? I was also struck by the figure quoted by a number of hon. Members that the cost to the Exchequer of smuggling cigarettes was something like £2.9 billion. Does that figure take into account the fact that the duty on hand-rolled tobacco is kept low, presumably to try to reduce smuggling? I assume that it does not. No criticism is meant by that, but the problem would appear, in some respects, to be worse, given that steps are being taken to reduce it.

The Treasury’s paper on tackling tobacco smuggling refers to how, in 2000, the Government believed that the range of actions taken could be successful in reducing smuggling both of cigarettes and of hand-rolled tobacco. It states:

“However, as HMRC’s knowledge and understanding of the market has improved, it has become clear that the market for smuggling methods for HRT are different from those for cigarettes and different responses are needed.”

Specific policies were announced within that paper, which was produced a year ago, and a specific operational target was set out for hand-rolled tobacco, reducing the size of the UK illicit market by the equivalent of around 20 per cent. by 2007-08. We are now halfway through that period, and I would be grateful if the Financial Secretary could give us some information on what progress has been made.

It is also worth pointing out Sweden has abolished the distinction between the two levels of duty. They have now, in effect, a unified rate, and I do not know whether the Treasury has made any study to see what the consequence of that has been, and whether that has resulted in an increase or decrease in smuggling. As I also mentioned, there is an issue to do with a differential rate throughout the European Union, and I would be grateful to know whether the Government are in discussions with our fellow European countries on that to see whether any thought has been given to a co-ordinated approach to raising duties.

I also give the Financial Secretary an opportunity to scotch one myth, if indeed it is one. The duty on hand-rolled tobacco is lower because traditionally it was seen as being consumed by the poorest sections of society and the Government did not want to impose costs on them. I wonder whether the attitude of the Home Secretary in thinking that tobacco provides some pleasure in an otherwise unpleasurable life in certain sections of society influences Government policy. I am not saying that it does. I should be grateful if the Financial Secretary could confirm that smuggling has caused us to have a rate of duty that appears to encourage more and more people to smoke hand-rolled tobacco. It is one area in which the Government’s anti-smoking policy appears to be failing.

Colin Breed (Liberal Democrat, South East Cornwall)

We will not oppose the duty increases; indeed, we support them. I want to add to the case made by the hon. Member for Wycombe and others in respect of smuggling and counterfeit products, which make up what can be called the illicit market.

I will come to the obvious aspect of tax losses in a moment, but the duties have two other effects. They undermine one sector of the retail trade—the small-time tobacconists, which have lost a lot of their business to supermarkets. They are also losing out because of smuggled branded and counterfeit products, which still get into the country. Another, subliminal, effect is that it erodes people’s integrity if they find no difficulty in purchasing cigarettes and tobacco products which they know to be avoiding tax, and think nothing of it. That should not be encouraged, and we need to recognise the effect that it can have on people’s views of citizenship and so on.

On tax losses, the Minister will know that I tabled some questions to him recently which ultimately referred me, very helpfully, to the “Measuring Indirect Tax Losses— 2006” report and, specifically, to tables 3.3 and 3.4, on cigarettes and hand-rolled tobacco. I will not go into the details of individual figures, but the report helpfully provides some mid-point estimates—the figures are obviously not accurate, and guesstimates have to be made.

The mid-point range of the illicit market share in cigarettes has changed from 21 per cent. in 2001 to 14 per cent. 2004-05, the latest year for which figures are available. The underlying estimates of the revenues necessarily have a rather large range: from £2.1 billion to £3.3 billion in 2001 and from £1.2 billion to £2.5 billion in 2004-05. Whatever the mid-points of those figures ultimately turn out to be, they are very significant. The losses on hand-rolling tobacco were estimated to be in the range of £500 million to £850 million in 2000-01 and £680 million to £970 million in 2004-05, which are not insignificant figures.

I hope that the problem of smuggled and counterfeit products, the potential losses of revenue and the other consequences that I mentioned will exercise the minds of the Treasury. The smuggled market in Britain is beginning to be brought under control, but it is still a significant problem. It has been compared with that in countries such as Turkey. It has a market five times the size of the United Kingdom’s and is clearly geographically far more vulnerable, but it has the problem under much tighter control. There is a growing sense that the UK needs to put a solution in place as soon as possible.

Reference has been made to track-and-trace technology, which I understand is a proven solution to the problem of smuggled and counterfeit goods. It is a means of putting a covert marking on to products to enable enforcement orders to determine the point of diversion at which the product enters the illicit market. Voluntary measures, such as the memorandum of understanding, are insufficient on their own. They need strict compliance systems and legally enforceable sanctions if they are to be effective.

So far, the Treasury and Her Majesty’s Revenue and Customs have been unable to provide a sufficiently compelling explanation as to why the UK is the only member state not to have signed up to the agreement with the European Commission, referred to as the Philip Morris agreement. What is the reason?

Let me turn to the counterfeit market, which is becoming a greater problem. By definition, counterfeit goods will not be the same as the branded products. Thus, if there is a health problem in relation to branded tobacco products, there could be an even greater one in relation to counterfeit products that are not manufactured under the conditions that apply to branded products. The issue is substantially more complex than smuggling. However, it is the loss of potential tax revenue that needs to be at the forefront of our thinking today. There is broad agreement that voluntary arrangements are insufficient; there is a clear need for real protection. Every country that has implemented track-and-trace technology or its equivalent has seen a successful outcome as a direct consequence. In most cases, its introduction has been led by the Ministry of Finance or whatever the equivalent is in the country concerned.

Smuggling and counterfeit are both continuing problems. I note that in the 2006 Budget, the Chancellor published “New responses to new challenges: Reinforcing the Tackling Tobacco Smuggling Strategy”, which announced new measures further to strengthen the anti-smuggling strategy, including working with tobacco manufacturers to tighten controls along the supply chain. I shall be interested to learn what results that has produced. What meetings, discussions and agreements have taken place with the manufacturers and what controls have been tightened along the supply chain? The effective remedies probably boil down to three things: effective enforcement, international co-operation and tough penalties. Getting just one right will not do. We need action on all three if we are to stem tax losses and protect what is left of the retail sector of confectioners, tobacconists and newsagents, and the health of people who smoke counterfeit products.

Philip Dunne (Conservative, Ludlow)

It is a pleasure to serve under your chairmanship, Mr. Gale.

As a self-confessed, lifelong anti-smoking crusader, I could not resist the temptation to contribute to this part of the Committee’s proceedings, and to welcome the increases in duty. In my perusal of all the clauses, I have not been able to find any reference to the welcome measure announced in the Red Book of a reduction in the rate of VAT on smoking cessation products. I understand that there will be a reduction from the normal rate to a concessionary rate of 5 per cent., but for only one year from 1 July according to the Red Book. That is welcome, and sets a useful precedent for similar reductions in VAT to encourage good environmental behaviour—I shall come to that on later clauses.

Will the Financial Secretary explain why there is no reference to that reduction in the Bill? In case we do not have a further opportunity to discuss the matter, will he also explain why it will be in place for only one year? That seems perverse, particularly when it has been established through freedom of information requests that almost half of primary care trusts in this country cut their stop-smoking budgets in real terms during the financial year just ended. That VAT measure may provide some modest relief to help to restore the position, and it is an important means of reducing the amount of smoking by encouraging people to take up devices such as nicotine patches to help them to beat the habit, which I am sure we all want to see.

Adam Afriyie (Conservative, Windsor)

I want to try to establish again the Treasury’s direction of thought. What is the objective of the changes in duty? We have heard about the balance between smuggling, law and order, and illicit and legitimate cigarettes. Is the objective to stop smuggling—I am sure that the answer is, to a certain degree, yes—or is it revenue raising? We all accept that there is an element of revenue raising, which is understandable, but is there also a health objective to reduce the number of smokers in Britain by increasing the price and deterring consumption? Is there a demand-reduction goal?

The answer may be that there are three, four, five or six objectives, but if it is a combination of multiple objectives, will the Financial Secretary tell us how his Department deals with the conflict in objectives? To give a hypothetical example, if the anti-smuggling measures worked, all cigarettes were purchased legitimately and duty was being paid, the amount of duty would rise. But if there were a reduction in the amount of duty—this goes back to elasticity of supply—how would he resolve the conflict between raising revenue to the Exchequer by encouraging more smoking and the health objective of reducing the number of smokers? I want to probe the Government’s thinking to find out how that conflict resolution would take place when there are multiple objectives in the clause.

John Healey (Labour, Wentworth)

Welcome back to our proceedings, Mr. Gale.

The hon. Member for South-East Cornwall made a reflective contribution. He mentioned a concern that I am well aware of because I see the Tobacco Alliance every year in the run-up to the Budget, but which no one else has mentioned—the impact of smuggling and bootlegging on independent tobacconists and corner shops. I am conscious of how they are profoundly undermined by illegal tobacco and bootleg sales. Nevertheless, part of the pressure on them is a result of our shopping habits and the change in the way we lead our lives. It is not due just to tobacco duty or the level of smuggling.

The hon. Gentleman quoted a number of statistics that we published alongside the pre-Budget report just before Christmas on the level of the illegal market in the UK. The mid-point of the illicit market in 2004-05—he was not certain about this—was 14 per cent., which is down from 21 per cent. four years earlier when we launched our anti-tobacco smuggling strategy. If we had not taken action, it would probably have risen to 36 per cent.

Members are right to question the Government on whether the measures that we are taking are sufficient, whether they are having the necessary impact and how they are working—that applies particularly to the new ones. The hon. Gentleman called for legally enforceable sanctions and tough penalties in voluntary memorandums of understanding with UK tobacco manufacturers. I think that he served on last year’s Finance Bill. It might have slipped his mind, but at that stage we legislated for a framework that gave the Government the ability to raise penalties of up to £5 million on tobacco companies that do not follow the agreements and obligations when controlling their supply chains. I am glad to say that we have not had cause to use those yet, but we will not hesitate to invoke those penalties if necessary. I am sure that he accepts that they could be an important weapon in our armoury.

The hon. Gentleman is right also about counterfeits being a growing problem. According to the latest figures, in 2005-06, 51 per cent. of large-scale seizures made by HMRC were of counterfeits. I continue to believe, and to argue, that the UK’s memorandums of understanding are better than that struck between the EU and Philip Morris, because the latter does not cover counterfeit tobacco and cigarettes.

I shall turn briefly to the point made by the hon. Member for Ludlow. If he is a lifelong anti-smoking crusader, I congratulate him—this must be an important year for him. I am sure that he is pleased at the prospect of the smoking ban in July.

Philip Dunne (Conservative, Ludlow)

To clarify, I voted against the smoking ban in public places. I agonised over that decision, as the Minister will understand, because it put into conflict two vital principles—the freedom of the individual and the desire to reduce smoking. I am afraid that the freedom of the individual won out on that occasion.

John Healey (Labour, Wentworth)

It is interesting to hear how the hon. Gentleman wrestled with his principles. To rephrase, no doubt he welcomes what everyone anticipates—a reduction in levels of smoking as a result of the ban. Many on the Government Benches supported the measure, even if he did not when it came before the House. The provisions for reducing VAT this year on products that help people to give up smoking and to reinforce and support the ban are not in the Bill because we will introduce them under secondary legislation. Those regulatory powers are in legislation.

Brooks Newmark (Conservative, Braintree)

I wanted only to make a short quip: the Minister said that hon. Members supported the legislation, but was that before or after they went down to the smoking room?

John Healey (Labour, Wentworth)

As they say, some of my best friends are smokers. I know that it will not be easy for them in the coming months.

The hon. Members for Windsor, for Braintree and for South-West Hertfordshire tussled with what is undoubtedly a complex interaction—between duty, demand, revenues and levels of smuggling—and a complex set of considerations when weighing up the situation. The model that we use, which we developed with assistance from independent academic experts and had peer-reviewed by them, was published in December 2004. If the hon. Member for Braintree is interested in receiving a copy, I will ensure that he gets one. It shows that the inflation increase that we propose in this Bill will not increase smuggling, that the prices and duty levels of cigarettes are historically high in the UK and that the cigarette duty rates are close to revenue maximisation point.

The hon. Member for Wycombe kindly quoted my making this case during the consideration of last year’s Finance Bill, so I need not repeat myself. The effect of the measure means that any big rise in the rates of tobacco duty will reduce revenue and increase smuggling, so that is a central consideration for us as we weigh up these duty decisions. He is right to believe that my view and assessment of that has not changed.

Since 2000, the tax on hand-rolling tobacco has been increased by the same rate as the duty on cigarettes. As with cigarettes, our modelling and analysis suggests that a real increase in the duty on hand-rolling tobacco would significantly increase the smuggling problem and undermine our wider Government health objectives. The duty level on hand-rolling tobacco is higher here than in Sweden, and it is also close to revenue maximisation point.

That is the context in which we considered the duty decisions in the run-up to the Budget in March. The clause would increase the rate of duty on cigarettes, cigars, hand-rolling tobacco and other smoking and chewing tobacco in line with inflation. We are conscious in all this that smoking kills more than 100,000 people a year and is the single greatest cause of preventable early deaths in this country. Therefore, the increase supports the wider Government aim of reducing smoking levels by maintaining the real price of cigarettes.

As a result of the real-terms duty increases both under this Government in previous years and under earlier Governments, tobacco prices in the UK are now at record high levels. The duty decision will maintain that real price and will continue to encourage people to smoke less or to quit. It should also therefore continue to help to discourage children and young people from taking up the habit in the first place, and it sits alongside what I think all members of the Committee might recognise as a significant investment in national health services to support people who are trying to give up smoking.

In 2006, my own area of Rotherham’s stop smoking service saw more than 2,500 people, half of whom quit smoking as a result. As we approach the prospect of the smoking ban—this may also be the experience of other members of the Committee—there have been increasing calls on that service. I hope that it will be able to help an increasing number of people to give up the habit.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I am entirely supportive of the comments that the Financial Secretary is making about how the duties are used to support Government policy in helping to cut smoking. I am not sure how they are consistent with the comments that he made about alcohol, especially those relating to particular types of alcohol, such as special brew lagers. Such lagers are clearly linked to people with specific problems. Why does he feel that the same principles that he just explained in relation to tobacco should not and do not apply in specific cases relating to alcohol?

John Healey (Labour, Wentworth)

I have two things to say on that. I am sorry that the hon. Lady was not present for this morning’s debate, because it was quite a detailed debate about the elasticities and inelasticities of demand, and how they differ for beer, cigarettes, cars and houses. That is the economic reality. The other fact is that within our beer duty regime we tax according to the strength of beer and lager, so that strong lagers are taxed more heavily than weak ones. So an element of the system of tax on beer and lager already reflects the concerns that she has.

Alongside our duty decisions there is the prospective smoking ban in public places in July, the NHS stop smoking services and the fact that, in October, we shall raise the minimum age at which young people can buy tobacco from 16 to 18. I want to pay tribute in passing, Mr. Gale, to my hon. Friend the Member for Barnsley, East and Mexborough (Jeff Ennis), whose constituency sits between mine and that of your co-Chairman. He has been one of the leading advocates and campaigners for just such a rise.

We are very conscious when we set the duty levels about the potential impact on smuggling. We are confident that this inflation-only increase will not lead to a rise in smuggling. The impact of the anti-smuggling strategy since we introduced it in 2000 has been quite significant. It first of all stabilised and then drove down the illicit market share. It is clear that we need to do more on hand-rolling tobacco, as we announced in the Budget last year. We are also tightening up the provisions we put in place through the memorandum of understanding and the legislation last year. I was asked specifically about the Philip Morris International agreement. Apart from the fact that that was negotiated between the European Commission and 10 of the member states, as was pointed out to the Committee earlier, in part by dropping legal proceedings against the company in the US, the main strengths of our legislation to control the supply chain contrast with the Philip Morris agreement in various respects.

First, our arrangements apply to all tobacco manufacturers, not just to Philip Morris. Secondly, the Philip Morris agreement excludes any tobacco products on which duty is paid in another member state. Nearly all hand-rolling tobacco in the UK comes from other parts of the EU and has duty paid in those countries, so it would not be touched in this case. Thirdly, unlike in many other member states, Philip Morris has only about a 5 per cent. share of the market in the UK. Fourthly, as I explained to the hon. Member for South-East Cornwall, our penalties can range up to £5 million if companies under our arrangements are not following their obligations. Finally, as I have also pointed out, the Philip Morris agreement does not cover counterfeit tobacco, and counterfeit is clearly a growing problem about which we and manufacturers are concerned.

In relation to questions of track and trace and markets, we announced at the Budget—I hope that members of the Committee will not have missed it, but judging by some of their comments they may have done—that we had reached an agreement with the tobacco manufacturers in this country voluntarily to introduce covert markings on packs of tobacco products. That will enable the counterfeit products to be identified and traced more effectively. I expect those markings to begin to be introduced on packets during the course of the year. The hon. Member for Wycombe asked how we came to that judgment and this agreement. We consulted very widely, including with ASH, the tobacco manufacturers, other countries and potential suppliers of the sort of technology that we were interested in using.

In summary, this is a duty increase that continues our policy of maintaining a high price for cigarettes without hampering our efforts to tackle smuggling. It will help to reduce smoking. It will help to lower the costs associated with smoking. I am glad of the indication from both the Liberals and the Tories that they will not seek to oppose this clause.

Clause 9

John Healey (Labour, Wentworth)

We turn to amusement machine licence duty which is a slightly esoteric and long-standing excise duty. It is nevertheless important to those who run establishments in which gaming machines form a valuable revenue source. Since 27 October last year, our social regulation, or our social law, has allowed machines with a 30p stake and a £25 jackpot—in tax law, the so-called category C machines that are in pubs, clubs and arcades—to increase their maximum stake and prize to 50p and £35. In return, the industry agreed to a stronger code of social responsibility on the operation of these machines.

The definitions of gaming machines in excise law have traditionally followed those in social law. We have had this discussion before in Finance Bill Committees. However, as things stand, the definition of a category C machine in tax law can be amended only through primary legislation in a Finance Bill. The clause therefore amends the definition in line with social law, effective from22 March this year.

An operator of category C gaming machines can now increase the maximum prize that their machines offer from £25 to £35 without becoming subject to a higher level of duty. This is the first opportunity that we have had to legislate for this change, and I hope that members of the Committee—there are eight Members on each side who last year supported the cause of an increase in stake and prize levels by backing early-day motion 1503—will be glad that their campaign and their arguments have found favour, first with the Department for Culture, Media and Sport and now as reflected in our taxation change.

I also should confirm to the Committee that the change has been widely welcomed by the industry. The national president of the British Amusement Catering Trade Association, the trade federation that takes an interest in amusement machines, welcomed the Budget decision by saying that

“it’s a big thank you to Mr. Brown...It’s good news.”

In addition to bringing tax law in line with social law, clause 9 also amends the existing excise legislation so that in future we are not in this position. In future, commissioners may by order increase the maximum stakes and prizes permitted for each category of machine for the purpose of amusement machine licence duty. The clause will prevent tax law from getting out of step with social law, and I commend it to the Committee.

Paul Goodman (Conservative, Wycombe)

We have received no hostile representations on the clause, so do not intend to oppose it. I feel slightly apprehensive because I recollect that during the proceedings on a statutory instrument in the past year in which the Financial Secretary and I participated—unfortunately, my researchers have been unable to locate the debate—he disclosed the fact that the statutory instrument in question had been necessary because an error had crept into the legislation which the Government, the official Opposition, the Liberal Democrats and everyone else had entirely failed to spot. Despite that caveat, as we have received no hostile representations on the clause, we do not intend to oppose it.

Rob Marris (Labour, Wolverhampton South West)

My hon. Friend the Financial Secretary said that the stake had gone up from 30p to 50p, which is a 67 per cent. increase, and that the maximum prize had gone up from £25 to £35, which is a 40 per cent. increase. It seems that the two percentages are out of kilter, and that there is a bonus for the gambling industry. Perhaps he could say a little more about that and allay my fears that that is the case.

John Healey (Labour, Wentworth)

My hon. Friend may be aware that there is a system of regular review of stakes and prizes for gaming machines. It is conducted under the auspices of the DCMS, which has policy responsibility for the area. A review has been conducted and completed, and a recommendation was made to raise the stake to 50p and the prize to £35 for this category of machines, which is one of the most popular types of machine at many venues.

The DCMS, in part because it was considering the implications of changes in social regulation through the Gambling Act 2005, did not implement the stakes and prizes review recommendations. Finally, the Minister for Sport made the decision last autumn that, in fact, we would make that change. That was a decision for the DCMS. It set the new prize and stake levels. What we are doing in this tax legislation is simply bringing the tax category and tax treatment in line with the changes that have already been made in social regulation. I hope that that helps the hon. Gentleman.

Lastly, if the hon. Member for Wycombe really wants me to, I will track down the details of the debate that he asked about. I am just a little surprised, because normally his researchers are very good at such matters.

Clause 10

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I beg to move amendment No. 1, in clause 10, page 6, line 23, at end insert—

‘(2A) After section 6(1A) there is inserted—

“(1AA) The Treasury may, by order made by statutory instrument, specify lower rates of duty under subsection (1A) in respect of hydrocarbon oil products sold in remote areas.

(1AB) For the purposes of this section ‘remote areas’ shall be defined in regulations made by the Treasury by statutory instrument.

(1AC) Orders or regulations made under this section shall not come into force unless approved by a resolution of the House of Commons.”.’.

I should point out that we are now in the environmental section of part 1 of the Bill, which deals with charges, rates and thresholds. I am reminded of comments that the hon. Member for Wolverhampton, South-West made in the Committee of the whole House, where he spoke, with regard to environmental measures, about the need for carrots and sticks to try to change behaviour. Since we are dealing with duty rates, the clause is obviously intended to be a stick to encourage changes in behaviour.

Of course, we welcome the changes outlined in the clause, which are proposed to take place in October 2007. Those changes represent indexation, following a freeze of these duties since 2003. What it will mean is that there will be some movement on the take of environmental taxes as a proportion of the total tax take. Therefore, it is an important step in the right direction, and one that we support.

However, what the amendment tries to highlight is the principle that, for some people, even if there is a very big stick they will still not have the opportunity to change their behaviour. The amendment would add a new subsection to clause 10, which would enable the Treasury to specify lower rates of duty on fuel in remote rural areas. It would go on to allow the Treasury to specify what it considers to be remote rural areas by statutory instrument.

The amendment relates to a principle that is allowed by article 19 of the EU energy products directive, which allows member states to apply for a derogation to reduce duty rates in specific areas. That measure was adopted in 2004 by the French Government, with the support of UK Ministers and other EU member states in the Council of Europe; Portugal and Greece have also adopted it. I am sure that this measure will be familiar to some members of the Committee, because it is identical to an amendment tabled by my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) on Report for the Finance Bill last year. It is because we have changes in fuel duty in the Bill this year that it is even more relevant to raise the issue now.

In future clauses, we will deal with greater differential rates for vehicle excise duty, so it is clear that there will be action to encourage people not to use their cars so much. It is very important at this stage that we consider those people in very remote rural areas—I am not talking about ordinary rural areas, but incredibly remote rural areas—who are hit not by a double whammy but a triple whammy. Very often, they have lower incomes than people in other parts of the country. In the highlands, including in the constituency that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey represents, average incomes are 85 per cent. of the national average. Across the whole of Cornwall, they are about 20 per cent. lower.

Therefore, in the first place, people’s incomes in remote rural areas are lower. Also, their costs of travel are higher, because they have further to travel and there is often no public transport at all. On top of all that, they then face higher fuel prices. It is the duty that forms a very large proportion of those prices. In some very, very remote rural areas, we are talking about differentials of 10p to 20p to the litre.

That is the issue that the amendment seeks to raise in order to highlight a principle. We welcome the action that the Government are taking, but do they recognise the impact that it will have in very remote areas? People in such areas have lower incomes, so their fuel costs will represent a much higher proportion of their outgoings. The measure will not only have an impact on the personal finances of individuals living in those rural areas, but undermine the economic viability of many of those rural communities, because if people travel further away to buy petrol, thereby emitting more carbon, they will probably consume services and buy goods in that community as well, which will mean that their own local community, where fuel prices are higher, is undermined more widely than simply at the petrol pump. Goods that could be purchased in that local economic community will instead be purchased elsewhere. It will be undermined in that way as well.

David Gauke (Conservative, South West Hertfordshire)

I would be grateful if the hon. Lady outlined which parts of the country she thinks would constitute remote areas. I suggest that that might include, say, the highlands of Scotland and the west country. What other factors do those areas have in common?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

Obviously, the west country is well represented on the Liberal Democrat Benches, but I would intend the amendment’s impact to be very limited, because ultimately we want to support the benefit that other environmental taxes would have. I would expect only a very small number of communities or none at all in my own constituency to be included, because I represent the most densely populated part of Cornwall and it has relatively good transport links. The people in my area will not have to travel as far as others, and the differentials in petrol pump prices are not as great as elsewhere. However, in the highlands and islands of Scotland, where there are differentials of 20p a litre, the measure will clearly make a significant difference.

I say to the hon. Member for South-West Hertfordshire that the intention is to limit the impact of the amendment. It would target only communities and people who have no alternative to the car and for whom, even if public transport were available, it would be less fuel efficient, because there would be a bus driving one person around, rather than one person using their own car.

The point, with which I hope the Minister will sympathise, is that there is a need to recognise the difficulties that very, very rural communities face, and unfortunately there is not recognition of that fact at the moment. As I said, the impact of the amendment is intended to be very limited. Unfortunately, it does not matter how big the stick is, those communities will not be able to respond. All that people in those communities will see is fuel prices taking up a larger and larger part of their disposable income.

It is important, if the Government are to continue with their policy—I hope that they do—that the difficulties faced by those people are recognised. There are existing forms of duty, such as fuel duty and vehicle excise duty. The Government have said that in the long run they would like to move to road user pricing. Again, we would support them in that, because it would be the most efficient way of ensuring that the people least able to change their behaviour were not penalised unfairly, but in the meantime, if we are continuing with changes to fuel duty and vehicle excise duty, I make a plea to the Minister that—

Stewart Hosie (Scottish National Party, Dundee East)

The hon. Lady has just suggested a move towards road user pricing—something that her party imposed on Edinburgh. I am quite supportive of that in principle. I say that on the basis that I have moved similar amendments in the past, but at least there was previously the advantage of a VAT offset, so that we could fund such a measure. However, she has said that she intends the impact of the amendment to be very limited. She began by talking about rural and remote. She went on to talk about very, very remote and she ended up talking about very, very rural. The problem may lie in the definition, which I am sure other hon. Members will come to and which we have debated in the past. Can she give us a clear definition as to the number of people, percentage of population and percentage of land mass that she expects to be covered?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The key point is that the amendment would enable the Treasury to make that judgment. Indicators are available, but unfortunately they are not consistently available across the whole of the United Kingdom. I do not know why it would be impossible for the Treasury to compile that information.

We know the practical difficulties of rolling out road user charging and that there has to be a long-term policy. We also understand that it cannot be implemented overnight and that is why there are changes to the system in the Bill. We cannot introduce road user charging at this point. On that basis, I do not think there is any inconsistency in saying that it will ultimately prove more efficient, but we must deal with the here and now.

Philip Dunne (Conservative, Ludlow)

In responding to the useful intervention of the hon. Member for Dundee, East, the hon. Lady has illustrated the difficulty of her proposal. There is much sympathy for assisting those in rural areas with the added costs of their daily lives, but her inability to define the area that she describes as remote is palpable. If there are certain geographic areas that benefit from a reduced rate of duty because they are remote, there is a strong possibility that those who live in adjacent areas will merely drive the extra miles to get to the petrol stations offering petrol or other fuels at a cheaper price and drive back again. Therefore, they will contribute to excessive emissions because such journeys would be completely unnecessary were it not for price differentiation.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The point that I am trying to make is that, at the moment, we are talking about price differentials of 10p to 20p. We are not necessarily saying that fuel prices at the pumps should be dramatically cheaper in those remote areas. We are saying that they should at least be comparable and that there should not be a significant difference. On that basis, such a system would not alter behaviour.

Philip Dunne (Conservative, Ludlow)

Will the hon. Lady give way?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

May I just conclude my remarks? The final point that I wish to reiterate is that there is a precedent for this concept across the European Union. The derogation is up and running and has been used in France, Greece and Portugal. It is not a new or impractical concept that the Treasury must try to get its head around. The key point, for which I hope there will be sympathy in the Committee, is that fuel costs are presently a significant problem for people in very remote areas. If the Government feel that the amendment is not a suitable way to address that problem, I would feel reassured if, at the very least, there was some understanding from the Treasury of the difficulties posed and the affordability problems for people who live in remote areas.

Paul Goodman (Conservative, Wycombe)

It is “Groundhog Day” for those members of the Committee who were present at last year’s proceedings. I wish to inform the Financial Secretary that my researchers have found a copy of last year’s debate in Hansard, to which I will refer in a moment. I shall say on what points I agree with the hon. Member for Falmouth and Camborne and then what we disagree about somewhat—in fact, quite a bit. As she reminded the Committee, and this point is perfectly valid, people in remote rural areas often do not have access to public transport in the same way as people in less remote areas— I am not sure if that should be remote rural, rural remote or remote remote. In addition, their circumstances often do not make cycling or even walking practical.

The 2003 national travel survey for England showed that, of half the residents in rural settlements, less than 3,000 live within a 30-minute walk of a bus stop. According to the expenditure and food survey for 2002-03, households in such areas spend £70.60 a week on transport, compared with households in urban areas, which spend £45.50 a week on transport. There is less congestion in such areas, which can lead to some counter-intuitive results. Obviously, a bus in a remote area will be less environmentally friendly than a car if the bus has only a few people in it. The hon. Lady is right to say that people in such areas often need cars more than people in urban settings. Some of those points were made by us, by the Liberals at some length and by others during last year’s equivalent debate. In some respects, the amendment resembles the package that the Liberals tabled and that we debated during the Committee of the whole House on last year’s Finance [No. 2] Bill and on Report. The amendment that they tabled on Report was almost identical to this one: indeed, I cannot see any difference. They also tabled an amendment to raise band G VED rates in general, while reducing all bands for what were then old cars and all bands except band G for what were then new cars.

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman takes us back a bit. His recollection of last year is slightly different from mine, but probably better in parts. I recall that the Liberal Democrat amendments tried to give a definition for remote rural areas, but it was a pretty rubbish definition.

Paul Goodman (Conservative, Wycombe)

If the hon. Gentleman checks in Hansard, he will find that different Liberal Members gave different definitions. I have a copy here if he wishes to borrow it to aid his research.

Other hon. Members and I were mildly critical of the Liberal Democrat amendments, because we were not convinced—it says here—that a single convincing definition of the areas had been offered. Neither am I convinced that we have had one today. In last year’s debate, the hon. Member for Dundee, East, who specialises in this sort of observation, pointed out that one of the definitions would cover 98 per cent. of Scotland’s land mass. In addition, we were not convinced that cars would not be registered in one area and used in another, or that we had a single reliable estimate of the cost to public funds. In summary, we were not convinced that the House should rush either to cut VED or——turning to the amendment, which is the same as last year’s——that a case had been made for the need to put such a power on the statute book before we had a full assessment of the need for it and of the likely financial consequences.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The amendment does not seek to define remote areas, so it is difficult to say that we are not providing a consistent definition. It is meant as an enabling amendment that would allow problems to be recognised and then brought back to the House so that we could determine whether the Treasury’s proposals are fair and whether they address what I hope thehon. Gentleman accepts is a real problem in many communities.

Paul Goodman (Conservative, Wycombe)

I accept that it is a real problem, but I do not think that it is particularly enlightening to have no definition this year, whereas there were rather a lot of definitions last year. That does not take us forward. The enabling provision is premature, and I shall explain why in a moment. Whatever view one took of last year’s proceedings, it is significant that the Liberals’ amendments that called for a cut in band G rates in some areas were not resubmitted to the Committee of the whole House. Perhaps the Liberals were persuaded of the difficulties that we argued were inherent in those amendments, because they have not retabled them. [Interruption.] I am happy to let the hon. Lady intervene.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I am grateful. I was just wondering aloud whether, now that the hon. Gentleman and his colleagues have identified those problems, they intend to suggest any potential solutions, because I certainly have not seen any in the Bill.

Paul Goodman (Conservative, Wycombe)

I was going to come to that. However, I note that the hon. Lady has not explained why her party did not retable the VED amendments in the Committee of the whole House, despite arguing that they were so very important or why it has not retabled them now.

I agree with the hon. Lady that we need a more detailed Treasury view on all this. Last year, the Liberals correctly pointed out that France has a derogation from the energy products directive that allows it to charge the equivalent of lower fuel duties in remote rural areas, as do Greece and Portugal. However, they did not point out what the Financial Secretary told us: that France was proposing a real increase in other, presumably urban, areas to offset the decrease in remote areas. Neither has the hon. Lady mentioned that today. The amendment would prepare the ground for a fuel duty decrease in some areas without preparing the ground for an increase in other areas. I am not sure what revenue loss that would entail; perhaps the hon. Lady can tell us. I am not convinced that charging different fuel duty rates in different areas is practicable, and I shall ask my hon. Friends not to support the amendment if the hon. Lady insists on pressing it to a vote.

In summary, the hon. Lady wants to put the power on the statute book and then, presumably, to obtain from the Treasury a full assessment of its practicality. That is putting the cart before the horse. Surely, it is much more practical to obtain the assessment of the power that the proposal would introduce, including an assessment of any consequent fuel duty rise in urban areas, and then to consider whether it is practicable to put something on the statute book. With the greatest respect, the Liberal Democrats have got it the wrong way round.

The Financial Secretary said last year that France was due to introduce its proposal to cut duties in some areas and raise them in others this year. What news has he from France on what is happening there?

John Healey (Labour, Wentworth)

What news from France?

Paul Goodman (Conservative, Wycombe)

The Financial Secretary seems to be interpreting my remarks in a Shakespearean way. I know that he is extremely well briefed and well read. As he was able to report from France last year, I am sure that he will be able to report from France this year. Should the Treasury not now make, and in due course publish, an assessment of what is happening in France, rather than replying briefly to the debate? It should publish assessments of what is done there and in Greece and Portugal in relation to fuel duty, and see whether that has any applicability to the UK. Then we will be able to judge whether the amendment proposed by the hon. Member for Falmouth and Camborne will have any merit in the medium or long term.

Rob Marris (Labour, Wolverhampton South West)

It is a pleasure to follow the hon. Member for Wycombe, with his usual eloquence. He has clearly done the homework and research that the hon. Member for Falmouth and Camborne has not. The chances of the amendment’s being agreed today are getting pretty remote, if not very remote. It is a typical Liberal Democrat amendment: unfocused, uncosted and contradictory. Apart from that, it might be all right. It is unfocused, because we have no definition of remote areas. Partly because of that, and because I did not hear the hon. Lady indicate otherwise, it is uncosted, although that is nothing new for the Liberal Democrats. It is contradictory partly for the reasons that the hon. Member for Wycombe pointed out.

A central plank of the Liberal Democrats’ tax policy is, as I understand it, to increase green taxes. So what have we here? An amendment that would, on the face of it, result in a cut in green taxes. One can talk about vehicle excise duty in lots of terms apart from its being a green tax, but the amendment mentions lower rates of duty. That implies a differential. There are two ways of having a differential—one can lower it for remote areas, whatever they might be, or raise it for non-remote areas. Raising it for non-remote areas does nothing for people in remote areas. It might make them relatively better off, but it does not do anything for them. Conversely, lowering the rate for remote areas would go against what the Liberal Democrats have spent the past year telling us that they are—although I do not think that they are—which is the party of green taxes. I urge my hon. Friends to vote against this typical Liberal Democrat amendment, which is unfocused, uncosted and contradictory.

Colin Breed (Liberal Democrat, South East Cornwall)

I have to disagree with the hon. Gentleman. I usually agree with him, because he makes intelligent contributions, but when he decides to move away from those, he falls foul of his own rhetoric.

We appear to have agreement on the principle that those who live in certain parts of the country might suffer significantly more than others because of the general wish to increase fuel duty in the important cause of the environment. To an extent, we are asking for some discrimination, which is a good thing in framing many types of legislation. Although we want to try to drive it out everywhere, there are always small casesin particular parts of society that are badly done by in trying to get the benefits that we want for the whole, in terms of social and fiscal policies. If we accept that people are being discriminated against because they have no possibility of accessing public transport, and it would anyway be inappropriate to provide it, then, for fairness and justice, we ought to try to find ways in which we might be able to address that.

First, I think that we are talking about a very small number, which, to a certain extent, becomes rather self-defined. Most hon. Members will have seen in their constituencies a significant reduction in the number of filling stations, both in and out of towns. In remote rural areas, those that have survived are normally those that are charging 10p, 15p or even higher more per litre. They are being charged more for the fuel because it has to get there; they do not sell enough to sustain their overall costs. They have kept going because people have gone to them; they patronise them, not because they want to pay 10p, 15p or 20p more per litre than people who live closer to supermarkets and towns, but because it would be inappropriate for them to drive the distance purely to save the money on fuel. They tend to go to that reasonably local filling station, and that is why those stations have continued in business much of the time. If they were any closer to supermarkets or small towns, where fuel costs are significantly lower, selling petrol would become almost impossible. They would have to put their prices up to astronomic levels because they would sell so little fuel.

To a certain extent, the matter becomes self-defining. It is probably a distance around certain remote rural filling stations. I do not know what that would be; perhaps some people might be prepared to drive 10 miles, others a little more. However, essentially, it concerns those areas that surround those filling stations that charge the levels that we have been talking about.

Secondly, there is the concept of main residence, and what qualifies where people live. Our part of the world has quite a few people who have second homes in remote rural areas. Whether they would qualify as their principal residences is another matter——probably not, so it would be much beyond their residential qualification.

Thirdly, harking back to the original point, there would perhaps be designated suppliers. It would not be applicable to every person but available only to certain designated purveyors of fuel. To designate filling stations in that way might be very helpful, because it might underpin some of their business. If they could sell fuel at the price that everyone else was selling at, they might be able to keep going longer. There are often places that sell food and provide other services. In considering underpinning the rural economy, it is an important factor that, if stations can provide fuel at a lower cost, it will stop people driving even five or 10 to get their weekly shop at the local supermarket and fill up at the same time. There is a plus point in looking at the fact that some remote rural filling stations might be able to hang on a little longer, and continue to provide a service for their surrounding area for longer than they may at present.

Philip Dunne (Conservative, Ludlow)

The hon. Gentleman is starting to cast a little light through the fog of the Liberal Democrat proposals. If I understand him correctly, he is proposing, first, that individual retailers should be designated as eligible for the lower rate of duty; secondly, that individual suppliers should be designated as appropriate to supply those retail outlets; and thirdly, and most importantly, that individual householders or motorists should be designated as suitable parties to purchase their fuel from those designated garages.

Surely, that would mean that a garage, even if it was in a remote area, would be able to supply the same fuel at two different rates to separate categories of driver. How does the hon. Gentleman envisage that the cost of the proposals would impact on the retailers who would supply these services? The bureaucratic nightmare that he conjures up is beyond belief.

Colin Breed (Liberal Democrat, South East Cornwall)

I hope that that is not the case. I do not know whether the hon. Gentleman, like me, was driving around as a designated user of petrol in 1972, when because of potential petrol rationing I was—for some unknown reason as an assistant bank manager—a preferential user. Should rationing have come in, I would have been able to purchase fuel at any petrol station because I had a particular requirement to do so. It was presumably felt that it would undermine the whole UK economy if one C. Breed could not drive around the countryside seeing his customers.

I was not alone in getting that designation, as my bank made an application for certain individuals to have the necessary access, which was quite easy to do. It was a relatively simple Government scheme, which did not require huge bureaucracy, but I can imagine the sort of bureaucratic nightmares that there might be today.

Fortunately, the scheme was never pursued, but it provided the opportunity for individuals not only to access fuel, but to access it at a certain price. There are clear examples of a similar situation in which differentials can apply. They have been introduced in other European countries and it cannot be beyond the wit of the Treasury team and the massive numbers of civil servants in that Department to bend their minds around something involving a relatively small number of people.

That brings me to the losses. I understand that last year my hon. Friend the Member for, I think, Caithness—some unearthly, lengthy place somewhere in Scotland, the other end of the nation; it is a long way from the nation of Cornwall to the nation of Scotland—said that on very rough calculations, the losses in Scotland were of the order of £3 million to £5 million. I do not suggest that that is an entirely accurate estimate, but in terms of the total amount of duty that would be foregone—I will give way as my hon. Friend is coming to my rescue.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

My hon. Friend may find it useful to know that the Exchequer yield for the next financial year, when the fuel duties kick in, is £490 million. In 2009-10, the additional yield will be £660 million a year.

Colin Breed (Liberal Democrat, South East Cornwall)

I hope that is helpful to the Committee.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

As a proportion.

Colin Breed (Liberal Democrat, South East Cornwall)

As a proportion, it is a tiny amount, so it will not require much more than a mite on everyone else’s fuel to equalise it. Equalisation is not a problem; the amount of money that will be foregone will be tiny in terms of the total cost of fuel duties. The definitions of remoteness and so on can be addressed and if we agree the principle it should not be beyond the wit of the Treasury and the Government to find a way to tackle a small, but nevertheless significant, injustice to a number of people. It is likely to persist for ever, because I do not think anything will be done.

Paul Goodman (Conservative, Wycombe)

Is the hon. Gentleman saying that he wants a cut, not a rise, in non-remote areas, which is apparently what applies in France?

Colin Breed (Liberal Democrat, South East Cornwall)

I am sure that I will be able to understand that when I read Hansard.

Paul Goodman (Conservative, Wycombe)

It is very simple. Does the hon. Gentleman just want a cut, or does he want a cut offset by a rise in duty in urban areas?

Colin Breed (Liberal Democrat, South East Cornwall)

I am grateful to the hon. Gentleman. No, I do not want a rise. The cut that would be required to address this injustice is so minimal as to be of little interest to everyone else. It is a very tiny amount. The remoteness is not likely to change very much. We have probably got it down to an irreducible minimum of filling stations that are serving certain remote areas. If petrol prices continue to rise, the motivation to go longer and to drive further to the supermarket or the local town will increase. We want to discourage that.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman says that he does not want to see an overall rise in fuel duties to offset the cut in rural areas. As we have heard, his party is committed to raising more revenue from green taxes. The Institute for Fiscal Studies stated that the overwhelming majority of green taxes, as it would define them, in this country are fuel duties. The figure is something like 80 per cent. If he does not want to increase fuel duties, how does the Liberal Democrat policy hold together?

Colin Breed (Liberal Democrat, South East Cornwall)

We do want to increase such duties, but we have to recognise that very tiny minorities are sometimes unfairly dealt with by various aspects of policy. Liberal Democrats argue that there is a tiny minority who will never get a bus service and public transport. If we push on with more and more increases for good environmental reasons, those in that minority will become even more disadvantaged. Even the small petrol filling stations that they have are likely to disappear. People will have to travel further and further to get any fuel. We want to arrest that decline and recognise that this is a tiny amount. The amount of money that will have to be forgone is very small. In order to gain our environmental credentials and to satisfy the environmental agenda, we need to increase these duties. However, we also need to address the issue of the tiny number of people who will be severely disadvantaged on a continuing basis. I do not believe that it is impossible to find a way to do so.

John Healey (Labour, Wentworth)

The debate has powerful echoes of our debates in Committee on the Finance Bill last year. My arguments remain the same. I want to be clear about what this proposal would and would not do. First, it would break a long-standing principle of uniform tax rates in the United Kingdom. The proposal here is to reduce fuel duties in certain parts of the UK and not in others. It would also, as Members have pointed out, conflict with environmental objectives and create the potential for fraud.

What the proposal would not do is also important. It follows directly from the hon. Gentleman’s observations that there is generally less competition and therefore higher prices in pumps and filling stations in many remote rural areas. A duty cut for the provision of fuel in these areas would not guarantee any reduction at the pumps for the motorists and the residents whom the Liberal Democrats are concerned about. It would be impossible to guarantee that a fuel supplier who might benefit from a reduced rate of duty would pass such a reduction on at all, or in full, to its customers. That is especially the case in areas where there is little competition between suppliers because there are fewer of them: precisely those rural or remote areas that hon. Members are concerned about.

In addition, we must be clear that the duty system in the UK does not make any allowances for where oil is used. The duty becomes payable at the point at which oil leaves the refinery, regardless of where in the United Kingdom it will be used. The amendment would require a new system for petrol suppliers and diesel suppliers to account for and then reclaim the tax that they paid. I suspect that that would unpopular with many in the sector, because they would be required to deal with a complex system and a relatively high administrative burden.

The hon. Member for Dundee, East also pointed out that definitions are difficult. How do we define “rural”, “very rural”, “remote”, “very remote” or “Liberal”—there are probably no very Liberal areas in the country these days? With respect to the hon. Member for Falmouth and Camborne, she is ducking a central issue by simply saying that the definition would be for the Treasury to determine by order. Unless the proposal can be defined in a consistent way on a principled and rational basis, it will not have much merit.

Colin Breed (Liberal Democrat, South East Cornwall)

I recognise the significant problem in making reductions. On the point about locality, I do not think that rural suppliers make an exorbitant profit on their petrol; in fact, they have to buy fuel at a significantly more cost than those who provide it for towns. I do not think that they are making significantly greater profit from their margin than others.

On the definition of “remote areas”, not so very long ago we had to address the problem of foot and mouth and we had to define areas that would be available for special treatment because of their rural nature. We managed relatively easily, over a much larger area, to give such reasonable definitions so as to provide for certain areas that were going to get special treatment following foot and mouth. I do not take the Financial Secretary’s view that it is impossible to provide a definition.

John Healey (Labour, Wentworth)

In that case, may I look forward to the proposal returning to the Committee members considering next year’s Finance Bill, together with a formula for making such a definition stick?

Paul Goodman (Conservative, Wycombe)

Is the Financial Secretary saying that because of all the difficulties that he has listed, there is no merit in the Treasury making an assessment of the arrangements that apparently pertain to France and elsewhere on the continent?

John Healey (Labour, Wentworth)

The hon. Gentleman is on the ball, because I was about to turn my attention to France. Should he wish to intervene again, I shall be happy to give way after I have made my comments about France.

At the heart of the French scheme is a proposal not to reduce tax but to aim to raise additional revenue in certain areas—there is the flexibility to do that—in order to pay for functions that have been delegated from the centre to those regions. Hon. Members were right to press the hon. Members for Falmouth and Camborne and for South-East Cornwall about the intention behind their proposal. They may wish to use the model of the French scheme, but that is its aim and that is how it would work.

In terms of assessing the French scheme, it has taken advantage of the derogation, but the system came into effect only on 1 January, thus it is too early to tell with any clarity or certainty how it is working. I do not believe that the French model and the French use of the derogation, for the purposes that the hon. Lady proposed, have much merit. Such an approach would be hedged around with other complications.

Stewart Hosie (Scottish National Party, Dundee East)

The Financial Secretary is right about the French model; he is probably also right that it would not be mirrored exactly here. Does he agree that when we debated this issue in the past two years, it was with urgency because petrol prices were high and the rises were sudden? That is perhaps less of an issue this year. Will he indicate that he will consider the matter in the longer term, calmly and outside the debate, to work out how we can protect remote, rural areas, whose inhabitants pay much higher prices? We must particularly recognise the possibility of similar episodes in the future, when the price may once again rise to a disproportionately high level.

John Healey (Labour, Wentworth)

I am conscious of the transport difficulties for people in rural areas. For some years when I was growing up, I went to school in rural north Yorkshire, so I am concerned about that issue. The Government remain of the fairly fixed view that such a solution is not the best way to deal with those problems. If the hon. Gentleman considers the situation in his own country, Scotland, he will recognise that the rural transport fund there has supported more than 150 rural transport projects since 1998. It is through that approach that we can best deal with some of the difficulties that are faced by those living in rural areas.

I hope that the hon. Member for Falmouth and Camborne will not feel it necessary to press her amendment; if she does, I shall call on my hon. Friends to resist it.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I shall not press the amendment. I am disappointed, however, because I introduced the amendments in a constructive tone, to highlight what is a serious issue for a small number of people. I should like to draw to the attention of the Committee a report that was commissioned by The Highland council to illustrate the scale of the problem. It was produced in 2000, but the principle was the same. It found that £88 million was spent on fuel in that remote, rural area, which represented 3 per cent. of its GDP. We are talking about a significant amount of money, £3 million of which was VAT windfall, so there was a roll-over effect. It is a significant problem for a small number of people who should not be overlooked.

I am frustrated because we have not heard anything new from either the Government or the Conservatives about what can be done to address the problem. I am partially reassured by some of the Financial Secretary’s comments, but I am disappointed because I feel that perhaps people were not paying attention. The amendment is clear: it is to allow for a reduction in fuel duty without any accompanying increases to compensate for that. That is not the same as saying that we would not support increases in fuel duty in line with inflation, such as those that will be introduced by the Bill.

Rob Marris (Labour, Wolverhampton South West)

The hon. Lady is obviously reading her amendment differently from the way that I do. Proposed new section 6 (1AA) says that the Treasury can

“specify lower rates of duty”;

it does not say that “the Treasury shall lower”. In the context of her amendment, “lower” is an adjective, not a verb. The amendment is therefore quite clear that a differential could come about through the raising of duties in non-remote areas.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I am grateful to the hon. Gentleman. My understanding is that the Treasury may specify lower rates of duty for remote rural areas; it does not say that it may increase them for all areas that do not fall into that category.

I shall turn now to another point. The green tax switch, about which my hon. Friend the Member for Eastleigh (Chris Huhne) has spoken, is designed to encourage changes in behaviour. The point that we have been trying to make is that, in such circumstances, it would not encourage changes in behaviour. Our position is therefore not at all inconsistent. My hon. Friend the Member for South-East Cornwall clearly showed how limited the measure would be in terms of the number of petrol stations that it would affect.

The amendment does not say that we should adopt wholesale the scheme as it exists in France; it says that there is clearly a problem for a limited number of people. If the Government pursue their current policy, that will make the problem increasingly difficult for those groups of people. It also says that there is a precedent, a derogation, that the Government have supported other countries in adopting, but the Govt have so far chosen not to adopt that derogation themselves. That derogation may provide a way to alleviate the difficulty that these people face.

If the Government felt that the amendment is not an ideal solution, I had hoped that they would put forward a better alternative. Unfortunately, we have not heard such an alternative. Therefore, what most disappoints me is the fact that the principle that the amendment tries to put forward has been ignored. Until this issue is resolved, it will keep returning.

The Financial Secretary made some valid points about the difficulties of ensuring that that differential in duty ended up being passed on to the customer in terms of price; those are valid issues to raise. However, the concern is that this problem will not be addressed. A limited number of people face this problem, but to them it is a significant one, because a differential of 20p a litre will mean several more pounds for every tank of petrol. If people are travelling longer distances, that extra cost will be a significant proportion of their income. So this is an important problem that has not yet been addressed, and I am afraid that it may be “Groundhog Day” again next year, if there is not even an indication from the Financial Secretary that these issues will be examined. I beg to ask leave to withdraw the amendment.

Roger Gale (Conservative, North Thanet)

I shall call the Financial Secretary first.

John Healey (Labour, Wentworth)

I had anticipated making my comments after I had heard the other contributions to the clause stand part debate, but I am quite happy to make a few brief observations at this point.

The clause provides for an increase in the main road fuel duty rate of 2p a litre, and an increase in the duty on the rebated oils of 2p a litre to maintain cash differential with the main road fuels rate in support of the oil fuel strategy. It also provides for consequential increases in duty rates for biofuels and road fuel gases, in order to maintain the differentials with the main road fuel duty, differentials that, of course, are guaranteed under the alternative fuels framework.

It is the Government’s policy that, in general, fuel duty rates should rise each year at least in line with inflation, and Budget 2007 set out fuel duty rates for the next three years, first for environmental reasons; secondly, to ensure funding for public services; and thirdly to provide greater certainty, alongside other tax reforms that were in the Budget. Increases in 2008 and 2009 will be provided for in subsequent Finance Bills.

In recognition of the impact on specific sectors, the duty rates for rebated oils will increase in future years by the same percentage as the main rates. That represents, therefore, a much lesser increase than has previously occurred; it also reflects the detailed discussions and analysis that we have conducted with heavy users of rebated oils, such as open-cast coal mining and rail companies. On that basis, I commend the clause to the Committee.

Paul Goodman (Conservative, Wycombe)

As the Financial Secretary just said, the Government have, in general, a policy of raising these duties in line with inflation. That is perhaps a properly cautious approach, and possibly the best assessment of the changes that he has just proposed was provided by the Financial Times. It said that he had

“deferred to motorists’ and lorry drivers’ sensibilities by imposing an increase in line with inflation, putting the increase off until October and announcing in advance planned increases”.

Those moves were typical of what the Financial Times called

“the cautious approach to fuel taxation that the Chancellor has taken ever since protests over fuel duty in 2000 forced him to abandon the fuel duty escalator”.

Certainly the Government do not want to go there again.

It is significant that these increases, like several others in the Budget, were set up quite a long way in advance. The Chancellor has left his successor with little room for manoeuvre if that successor should seek room for manoeuvre. The Government certainly have to reconcile what the Financial Secretary would call “complex interactions”—the phrase he used about tobacco duties in relation to fuel duties. They have a target of ensuring that 5 per cent. of all transport fuels should be renewable by 2010-11. They have to take into consideration not only the requirement to hit that target, but the competitive position of industry, the effect on agriculture and farming, the consequences for consumers and the effect on the balance between public and private transport. All the while, I am sure there is in the Financial Secretary’s mind the memory of the events of 2000.

Those are not very easy pressures to reconcile and we shall not oppose the changes, but I should like to ask the Financial Secretary a few questions that arise from the generally favourable comments on the rises issued by green organisations and the generally more unfavourable comments issued by those who have a direct users’ concern with transport. Has he ruled out a return to the Environmental Audit Committee’s preferred solution, namely real-terms rises in fuel duty? Secondly, as the Chancellor announced in the pre-Budget report last year that revenues from any real-terms increases in duties would go straight into a ring-fenced fund for improving public transport and modernising the road network, can the Financial Secretary confirm that announcements to this effect will be contained in the comprehensive spending review later this year?

Thirdly, what analysis has the Treasury made of the effect of these rises on inflation, industry in general and the road haulage sector in particular? Finally, is there not an increasingly strong case for an increased duty differential for high blend biofuels in order to make them cost competitive as the Environmental Audit Committee has urged? That committee said that it recognised

“the environmental benefits of a properly sustainable and well-regulated expansion in the use of high-blend biofuels such as E85. Under the current fiscal regime, however, it is unlikely that the market for highblend biofuels will take off, due to its increased costs.”

It is worth noting, though, that it raised the same concerns about biofuel sourcing as Friends of the Earth raised about sustainability criteria. I look forward to the Financial Secretary’s response to these points.

Adam Afriyie (Conservative, Windsor)

I have just a few observations. The Financial Secretary said that the objectives of these duties are for environmental reasons, to raise revenue for public services and to create certainty by laying out the future progression of these duties. They are all fairly admirable goals and I have no complaint with them. There is a danger that the green taxes are an excuse for revenue raising or that they obfuscate the drive to raise revenues by hiding it behind environmental issues. It strikes me that when we come to vehicles and the duties on vehicles, consumers quite possibly already pay many times more than it costs to tidy up the carbon they may be emitting from their exhaust pipes.

We are coming on now to vehicle excise duty with many different gradings. That is arguably a green tax. We have these fuel duties now escalating with the various differentials. Residents parking permits in some areas will be cost more for gas-guzzling or large vehicles, the cost of parking at railway stations is always increasing and then there is congestion charge in central London which is arguably an environmental or a green tax to a certain degree. Now we have talk of road pricing.

It strikes me that at approximately £30 per tonne to clear up CO2, there is no doubt that, if we are considering this as a green issue, the motorist is already well over-taxed in that area. That is why, to an extent, I am pleased with the Conservative party’s position, which is that if we raise green taxes, we will offset them against taxes in other areas of the economy. Can the Financial Secretary confirm—or advise otherwise—that there is an intention in here somewhere to offset the increases in what are called “green taxes” against those in other areas? To echo my hon. Friends on the Opposition Front Bench, how much of the additional money raised from these duties will go directly to road improvements and carbon removal? The technologies are available, so is anything ring-fenced to be passed, for example, directly to carbon sequestration or other means of removing carbon from the atmosphere? It is not that I would argue for any form of hypothecation; I should just like to give the Financial Secretary a platform from which to tell us what measures are being undertaken and how much they have been increased, given that there is increased revenue from fuel duty.

Finally, on a point that applies to most broadly based taxes, does the Financial Secretary recognise that the increases in these duties will, by virtue of the kind of tax that they are, disproportionately affect the least well off?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I do not intend to add further to the comments that I made when introducing my amendment about our support for the re-indexation of fuel duty to inflation, but I have a very brief question. There is a differential in duty that is designed to encourage greater take-up of biofuels, but different biofuels come from more or less sustainable sources. That is a cause of great concern to many people. Is it possible to differentiate through the fuel duty mechanisms between biofuels from more and less sustainable sources?

John Healey (Labour, Wentworth)

First, there has been reference in passing to the road fuel transport obligation that we propose to bring in from 2008. That will require an increasing percentage of all fuel suppliers to supply biofuels as a part of their product. It will be introduced in 2008 and by 2010-11 it will affect 75 per cent. of them. It is designed to give a big boost to the biofuels market, with the environmental gains that can flow from it in the UK. A central feature of the introduction of and preparation for the obligation is an assurance scheme, which the Department for Transport is discussing with those who are interested, and on which it is leading the design work. The purpose of the obligation is to secure the environmental contribution to dealing with climate change. The quality and climate change impact of biofuels that will be encouraged by that means will be important to us as we introduce and develop the obligation scheme. I hope that that gives a degree of reassurance to the Committee and others, particularly to the green groups that have made that point and have helped us in the work.

I am grateful to the hon. Member for Windsor for his offer to give me a platform, and for the fact that he regards the rationale for the proposals in this clause to be fairly admirable goals. I shall come back to his question about offsetting green taxes, because that links to a point made by his hon. Friend the Member for Wycombe, who asked two or three questions. The first was, “Are the Government considering any real-terms increases in fuel duty?” We discussed this morning the basis of the Government’s forecasting in tax terms, and that element of the Red Book is the quarter three RPI figure for this year, which is 3.38 per cent. So the rises of 2p per litre this year, 2p per litre next year and 1.84p per litre the year after represent respective increases of just over 4 per cent., just under 4 per cent., and about 3.5 per cent. In answer to the hon. Gentleman’s question, we are already looking at three years of fuel duty rises that have a real rise element to them. We have been clear from the start that the resources that these will help to raise will help contribute to the Government’s spending on our priority areas, such as transport and environmental protection. Our decisions on that will be taken in the context of the comprehensive spending review.

I do not want to pre-empt the discussion that we may have on a subsequent clause, but would say that we have been clear about offsetting in relation to the proposed landfill tax rises. The rise in the landfill tax take from business will contribute to what we also announced in the Budget as offsetting significant cuts in the main rate of corporation tax.

Finally, on the question of biofuels, which was raised by the hon. Members for Wycombe and for Falmouth and Camborne, we are examining the place that they will have in the obligation framework. We are looking at ways to ensure that the framework can incentivise those. Hon. Members will be aware that we have given special support through the company car tax and vehicle excise duty systems to try to encourage high-blend biofuels. I remain unconvinced that a duty rate differential is the best way to encourage them, but they clearly have a potential to offer us a greater gain in our efforts to tackle climate change, and in particular, to offset what is at the moment, still an escalating path for the emissions that we anticipate from road transport. It is an area of policy that we are actively examining. I hope, on that basis, that the Committee will allow clause 10 to stand part of the Bill.

Clause 11

Paul Goodman (Conservative, Wycombe)

I beg to move amendment No. 25, in clause 11, page 8, line 12, at end add—

‘(11) This section shall come into force on a day which the Treasury may by Order appoint.

(12) No order shall be made under subsection (11) unless the Treasury has compiled and laid before the House of Commons a report containing an assessment of the impact of vehicle excise duty on farming, agriculture and on rural areas.’.

I would like to make it clear at the start that this is a probing amendment. I have absolutely no intention of putting it to the vote. We have no wish to deprive the Treasury of the £625 million that this increase will raise over three years, and we could have raised the concerns that we are about to air in the clause stand part debate. I am also mindful that we will return to some of the concerns when we consider clause 105.

However, tabling and speaking to this amendment send a signal—which we believe is important, as I indicated in the last debate on amendment No. 1 on fuel duties—that we are concerned about some of the long and medium-term effects of the Government’s strategy on VED on farming and agriculture more widely, and on people living in rural areas. I want to explore some of those concerns in this debate. To do so, it is necessary for me to describe what appears to bethe Government’s strategy in relation to important elements of VED.

This year’s changes represent a cautious widening of the differences between the top and bottom bands in order to widen the differential between the most and least polluting vehicles. I note in passing that, as so often in this Budget, the Chancellor has tied the hands of his successor, as appeared to be the case with the last clause, and has spelled out three years of changes. Widening the differential between the most and least polluting vehicles is clearly sensible, and we will not oppose the clause in the stand part debate. We want emission levels from new cars in the UK to fall from around 170 g per kilometre to 100 g per kilometre by 2020, and by 2030 we want that figure to be an average for all cars on Britain’s roads. Our quality of life policy group, chaired by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), is examining the means of achieving that aim, including VED, of course.

My right hon. Friend is also examining the effect of vehicle taxation on farming, agriculture and rural areas. A written answer from the Financial Secretary to my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice), the shadow Minister for Agriculture, points towards some of the effects. My hon. Friend asked what estimate the Treasury had made of how many band G vehicles, which are the most polluting, are expected to be affected by VED up to the year 2011. The Financial Secretary replied—I paraphrase—that approximately 227,000 vehicles are currently affected, representing the current stock in band G. Over the whole of 2007-08 that figure will rise to 310,000. In 2008-09 it will rise to 416,000, in 2009-10 to 605,000 and the following year to 740,000.

Will the Financial Secretary give us the figures for band A cars, so that we can see how successful that band is becoming? Perhaps that information can be passed to him. [Interruption.] My hon. Friend the Member for Fareham says that it is a very important consideration, so his answer will be very important.

Some of the band G vehicles will be Land Rover Discoveries and Toyota Land Cruisers that are registered and driven in urban areas and we are not—I repeat, not—making representations on their behalf. As time goes by, others will be sold on to farmers and agricultural workers and others who live in rural areas who consequently find themselves paying band G rates of VED. Some pick-ups used by farmers are also categorised as band G vehicles, although others are classified as light goods vehicles and thus qualify for lower VED.

When he replies to the debate, perhaps the Financial Secretary will tell us if he has an estimate of the proportion of those band G vehicles that will be used by farmers and agricultural workers in each year up to 2010-11, as the number is growing every year.

Rob Marris (Labour, Wolverhampton South West)

I see the direction the hon. Gentleman is going in, but, of the two sorts of vehicles that he referred to, are not those that are being used on farms getting red diesel, which is taxed at a much lower rate anyway? Will not the Toyota Land Cruisers, for example, be sold on by the Chelsea-tractor driver in the middle of Cambridge at a lower rate to the farmer precisely because it carries a higher vehicle excise duty? In that sense, the purchaser will not lose out.

Paul Goodman (Conservative, Wycombe)

Yes, I acknowledge what the hon. Gentleman said, but it is important to consider the combined effect.

The work and non-work problems are obvious. Farmers living in the countryside who need band G vehicles for work—for cattle trailers, for example—are not people living in urban areas who do not need band G vehicles for whatever work they do. The National Farmers Union claims that British agriculture and horticulture underpin £90 billion of our economy, help to provide 5 million jobs and involve approximately £400 million of unpaid conservation work. I will not list in detail the contribution that both make to the small business sector, to animal welfare standards and to reducing carbon emission by providing local food. Those working needs are clearly serious.

It is worth noting—inevitably we have received representations to this effect, as the Financial Secretary will also have done—that an off-road band G vehicle used infrequently for work purposes will produce fewer emissions than an on-road band C vehicle used frequently for work purposes. As for non-work purposes, such as leisure and caring responsibilities, the considerations that have already been discussed in relation to remote areas apply, to some degree, so I will not go over all of those again.

I do not want to anticipate the debate on clause 105, but I want to ask the Financial Secretary one question: will he investigate, or is he already investigating, the practicality of allowing an exemption for one band G vehicle? Since all farm holdings must be registered, the argument is that such a system would be relatively straightforward to administer and it would tend to favour smaller holdings, because on the whole they have fewer vehicles. Also, does the Treasury plan to produce, in relation to this year’s rise, any estimate of how many farmers will switch from band G vehicles to light goods vehicles that are more lightly taxed even though they may be more polluting? I look forward to hearing the Financial Secretary’s reply.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The amendment has many echoes of the principle that was referred to in our debate on an earlier clause and amendment. Again, there is a concern about the differential impact that these kinds of measures will have in rural areas where it is more difficult for people to change behaviour.

However, I listened very carefully to the comments by the hon. Member for Wycombe. I note that the amendment says:

‘No order shall be made under subsection (11) unless the Treasury has compiled and laid before the House of Commons a report containing assessment of the impact of vehicle excise duty on farming, agriculture and on rural areas.’.

I might not have been listening carefully enough, but I do not think that I heard any definition of what the hon. Gentleman might consider to be a rural area. Equally, I am not quite sure why other rural industries, for example horticulture, were not included in the report that the Treasury would have to make.

I take on board the comments by the hon. Member for Wycombe that he has no intention whatsoever of pressing this matter to a vote, but there is another inconsistency that I do not understand. I noted that the hon. Gentleman and his colleagues felt unable to support a similar amendment to the changes to air passenger duty, on the grounds that it delayed the introduction of environmental measures that should be welcomed.

Paul Goodman (Conservative, Wycombe)

The point is that, on that occasion, the hon. Member for Twickenham did not say in advance that he would not be pressing that amendment to a vote.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The hon. Gentleman makes a valid point that, as these changes ramp up—as they should be ramped up—there will be some rural areas that will be particularly disadvantaged.

However, I would like to put on record the fact that a large part of the demand for new 4x4s—I think that the figure is about a third of new 4x4s—is located in a handful of London boroughs. Therefore, not all the most polluting vehicles are 4x4s; not all 4x4s are agricultural vehicles, and it is possible to purchasenew working vehicles that would do the job perfectly well and also fall into the lower bands. If the impactof the changes that the Government have proposedin clause 11 encourages the industry to producemore fuel-efficient vehicles, of course that must be welcomed.

I sympathise with the points made by the hon. Member for Wycombe, but I am pleased that he will not be pressing the amendment to a vote, because I think that there are clear limitations in the amendment.

Philip Dunne (Conservative, Ludlow)

I rise to support the amendment and also to remind the Committee—I think for the first time—of my entry in the Register of Members’ Interests in connection with my partnership in a farming business. I do so first because farming is referred to in the amendment, but also because I am a proud owner of a 4x4 vehicle, which I require to visit the parts of my farm that I could not visit either in ordinary vehicles or on foot. It is an upland area with some steep banks.

On Second Reading, I raised my concerns about the impact of the significant increases in the rates of duty on working 4x4 vehicles that are proposed in this Bill and in the Budget for the subsequent Finance Bill. I berated the Government for not being imaginative enough to think about a descriptor which would allow working vehicles to be excluded from the increase. I hope that when we reach clause 105, which my hon. Friend the Member for Wycombe identified, the Government will seek to create an exemption for vehicles engaged in farming, horticulture and forestry. I hope that they have listened to the arguments that I and others made on Second Reading and that they will respond positively and constructively. I think it unlikely that the force of my argument has persuaded the Government that that is the right thing to do, but I would be absolutely delighted if the Financial Secretary would confirm that it has.

It is an important matter. My research shows that there are some 1.6 million sports utility vehicles, although not all are in the top band of emissions. About 250,000 are used for off-road purposes. According to the Countryside Alliance, about 60,000 are used on working farms, 18,000 in the equine industry, 5,000 by gamekeepers and about 2,500 by rural veterinary surgeons. An unknown number is used in the horticultural and forestry sectors. A company in my constituency called Ludlow Drains requires such a vehicle to transport its drain-cleaning equipment. There are many other small businesses that require such a vehicle for multifarious working purposes and would not necessarily benefit from the red diesel rates available to farming businesses.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The figures that the hon. Gentleman has given us are useful. Will he clarify whether he is referring to the total number of sports utility vehicles or the number of new sports utility vehicles that will be caught by the changes to vehicle excise duty that have been made last year and this year?

Philip Dunne (Conservative, Ludlow)

The figures are for all vehicles. I accept that the changes bite particularly on new vehicles, but the precedent having been set, they will affect all vehicles henceforward, as new vehicles become second-hand vehicles. The relevance to the farming industry of this issue is significant. According to the Countryside Alliance, the average net income of farmers last year was £21,300, so a £400 vehicle excise duty is effectively a week’s income to the average farmer. I must say that that average income figure is rather higher than I was expecting, and higher than the figure that I saw at the end of last year on the Public Accounts Committee, when we reviewed the single farm payment scheme. It is not appropriate to suggest that the measure will not have a significant impact on those who are engaged in such business and who generate low incomes. It is significant and that should be taken into account. I hope that the Financial Secretary will reassure us that the Government intend to take it into account at a later stage of the Bill.

John Healey (Labour, Wentworth)

This has been a usefully concise debate. VED rates are set at those levels for good reasons. They perform two functions: they raise revenue that we require for the public purse to fund public services, and they help us to achieve some of our environmental obligations and aims, which apply to rural areas as much as the rest of the UK. The VED is designed to signal at the point of purchase that the more polluting the vehicle, the more VED the purchaser will pay. Indeed, it is a signal. It is backed by a very good labelling scheme which is now in place. There is some evidence that there is a high level of awareness and that it is beginning to play a part in the purchasing decisions of car buyers. It is an important signal also, in the long term, to motor manufacturers and designers.

Hon. Members have been concerned about certain groups of vehicle users. I recognise that for some, especially those in rural areas, the car is a necessity, not a luxury. However, I do not accept that motorists have to drive vehicles that fall within the higher bands just because they live in rural areas. For example, various types of 4x4 vehicles fall in bands F and E, not necessarily in band G, of the VED system. In addition, the measure has been designed to affect not four-wheel drive vehicles but those with high CO2 emissions.

The hon. Member for Wycombe asked me how many band a cars we anticipate there being by 2010-11. It is difficult to tell for certain, but our forecast suggests that the number will increase by about two thirds between now and then. The number of cars on the road in the second-highest band, band B, which is also a low-emission category, is likely to almost triple to some 670,000 to 680,000 by then.

Turning to the principal concern of the Committee, it is important to bear in mind what the tax treatment of farmers and their vehicles is. The tax system is designed so that, where a vehicle is an essential component of the business activity, businesses can deduct from their turnover all the costs incurred for the sole purpose of generating business profits. Such motoring expenses are therefore allowable for deduction against turnover in such circumstances. Furthermore, agricultural vehicles are currently exempt from vehicle excise duty.

Hon. Members have mentioned clause 105. That will give the Secretary of State for Transport the power to amend the definition of agricultural vehicles to keep it in line with future technological and design developments. Beyond that, I can see no case for special treatment of farming, agriculture or rural areas within the VED system. Indeed, it would complicate it, and it is likely to be costly and open to fraud. Motorists would be able to register vehicles in rural areas and then use them mostly, if not entirely, in areas other than rural areas. It has been made clear that this was a probing amendment. I hope that I have been able to respond to some of the points that have been raised, and that the amendment will be withdrawn.

Philip Dunne (Conservative, Ludlow)

I am grateful to the Financial Secretary for having clarified the exemption in relation to agricultural vehicles, to which we shall come at a later stage. My understanding is that previously it applied to tractors and other very heavy equipment, and the proposal exemption would extend it to 4x4-type vehicles. Is it his understanding that the extension would recognise some of the difficulties?

John Healey (Labour, Wentworth)

Clause 105 provides an enabling power for the Secretary of State for Transport to amend the definitions in future. The sort of detailed discussion that the hon. Gentleman is tempting me to have on this clause is better stayed until we reach clause 105.

Paul Goodman (Conservative, Wycombe)

I beg to ask leave to withdraw the amendment.

Paul Goodman (Conservative, Wycombe)

Following the debate on agriculture and farming, I have a few brief questions about the generality of the proposals. First, the Environmental Audit Committee has said that the Treasury should at least publish its rationale for the VED differentials that it adopts. That suggests to me that the Committee finds the explanations of the rises year on year to be obscure. If the Treasury has not already published its rationale, will it do so, as the Committee wishes?

Secondly, Friends of the Earth has argued that this year’s rise in band G rate will not make much difference to emissions. It said:

“These changes are not enough to give people a strong incentive to purchase a greener car... the Government’s own research suggests a £150 differential would persuade 55 per cent of people to change.”

Does the Financial Secretary disagree with that claim, and if so, why?

Thirdly, it can be argued that large families need larger cars, and that a large family in any setting may need, say, a people carrier, whereas no single person in an urban setting can convincingly be argued to need a band G car. The Automobile Association has called for the creation of a new band H with an emissions threshold of 200 g/km, a rise on the current threshold of 226 g/km, which would place most models of people carrier into a lower tax band. [Interruption.] I thought that I heard the Financial Secretary snort. It appeared to be a dismissive noise in relation to the proposal. If he could kindly confirm the Government’s view on it, we would be grateful.

Finally, have the Government ruled out adapting the weights of VED—the idea is rather complex, and I would be interested to hear the Financial Secretary’s view on it—to reflect whether vehicles are fuelled by carbon-neutral materials.

Rob Marris (Labour, Wolverhampton South West)

My hon. Friend the Minister knowsmy views on the matter. The Government have gone some way with the proposed increase in clause 11 and band G. However, I urge him again, as I did last year when I tabled an amendment, to be a lot bolder. I would urge him even to be a lot bolder on Report, in terms of having a swingeing vehicle excise duty for vehicles above 250 g/km, which are bought new. It would not be retrospective. Part of the problem with band G, although I support it, is that it is retrospective. That is behind some of the concerns that have been expressed. We need to set a date two or three year’s hence and say to somebody, “If you buy a very polluting vehicle—say, above 250 g/km—you will pay through the nose for it, and we are warning you now, not retrospectively.” That would give the motor industry, including the west midlands, where I am an MP and where, for example, Land Rover is based, time to adjust.

Sadly, too much of the debate is about 4x4s as polluting vehicles. In the borough in Richmond, in the constituency of the hon. Member for Twickenham, it was widely reported that parking charges for 4x4s were being whacked up. I said to him, “Is this true, or is it for polluting vehicles?”, and he said it was for polluting vehicles, but that it had been widely reported as being for 4x4s as a kind of journalistic shorthand. In fact, as many hon. Members will know, nine out of the 10 most polluting new vehicles on sale in the United Kingdom today are not 4x4s. The only one is a top-of-the-range Range Rover. Most of the other nine are sports cars, such as Lamborghinis.

The hon. Member for Wycombe talked about people carriers, but some of those cars do not carry more than two people. They are ridiculous, and those vehicles are bought by very rich people who might not be put off if there were a swingeing new vehicle excise rate duty, such as band H, on a new vehicle. Sadly, that is not in force, but it would do two things. First, it would allow the Government to send a message. Secondly, if we had a swingeing rate of, say, £2,000 a year on those new vehicles, it would arguably affect the resale price of them, which would in turn affect the purchasing prices that some people make when considering whether to buy a polluting vehicle, or a less polluting vehicle, in two or three years. It saddens me that we are talking about greener vehicles. All vehicles are polluting. It is just a question of the extent to which they do it.

Adam Afriyie (Conservative, Windsor)

The hon. Gentleman’s ideas are very good for averting future behaviour without penalising people in the way I described. Why does he think that his Front-Bench team does not take up the radical proposals that are targeted at reducing the number of gas-guzzling cars?

Rob Marris (Labour, Wolverhampton South West)

I hope that my hon. Friend the Minister will be able to give reasons for that. I find it hard to conceive why, as a Government and a society, we cannot tell people that they will be taxed on future behaviour, so they should make their choices in advance. Such a framework would command some, although not universal, cross-party support and would also garner quite a lot of support within the country. Try as we may, in spite of what is talked about in the pubs and clubs and in the media, we must get away from this obsession with 4x4s. There are 4x4s that put out something like 172 g/km and are quite satisfactory for most agricultural, business and rural purposes, such as towing a horse box, or perhaps even for a drain company or whatever. Correspondingly, the most polluting vehicles are often things like sports cars.

It is possible to get people carriers that emit lower than 200 g/km, such as the turbo diesel models. In terms of sending a message about future behaviour by motorists, I should like clause 11 to introduce different tax proposals and to change the behaviour of vehicle manufacturers. There is not an instant technological fix for all of this but if one looks, as I do periodically, at what has been happening to vehicle emissions for new vehicles on sale in the UK, it is clear that more and more options are available. Sadly, these are often not the options chosen by the purchasers. For example, the Volkswagen Polo BlueMotion, which is being introduced in July this year for sale in the UK, will have emissions of 102 g/km. It does not break the magic 100 threshold. I believe that the new Smart car turbo diesel, which will be on sale on the continent but is not currently announced for sale in the UK, has emissions of 83 g/km. The petrol version, which will be on sale in Britain, is above the 100 threshold.

In terms of pressing the manufacturers and influencing the behaviour of buyers, we need to say now what the situation will be in two or three years’ time. That has happened a lot in the Budget already, and some hon. Members have suggested that the Chancellor is tying the hands of his successor. I do not buy into that. However, in terms of certainty for the future, I will support the clause, but I do not think that it is bold enough. Even now I hope that my hon. Friend can come back with a bolder clause 11 on Report.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

The clause is a welcome step forward from where we were last year when the differential between the top two bands was less than the cost of half a tank of petrol for the most polluting cars. That will begin to make a difference. However, have the Government undertaken an assessment of the number of people whose buying decisions will be affected by this differential band of vehicle excise duty? Research undertaken by MORI in 2003 indicated that the differential of the kind in the clause will probably affect 33 per cent. of buyers, whereas the level recommended by the Energy Savings Trust of £2,000 would have a much bigger impact and would influence the majority of people’s decisions when buying a new car. I would appreciate the Minister’s thoughts on why the Government chose the figure that they did. Perhaps he could give an indication of longer-term plans that they have to ramp it up to that higher level.

I do not want to add to what has been said about the retrospection element. There is a problem that people’s buying decisions and the resale value of the car that they buy is affected by retrospection. There is a certain unfairness. What work is the Minister doing with other Departments to try to encourage changes in behaviour? The measure will influence behaviour at the consumer end, but I note that there are no compulsory energy efficiency targets for manufacturers. Unless such targets are made compulsory, there will not be as quick a shift in behaviour at the production end. Such measures, rather than simply revenue-raising ones, would make a difference.

Finally, I wish to raise a point that was drawn to my attention by a constituent. He has a car with a larger engine which he has had retrofitted to run on liquefied petroleum gas, which means that its emissions are significantly lower. My understanding is that he cannot benefit from being taken down a band or two. Will people who are not buying a car but making the car that they have more energy efficient benefit from a lower VED rate?

John Healey (Labour, Wentworth)

If the hon. Lady writes to me with details about her constituent, I will have a look at the circumstances. On the question of dealing and liaising with other Departments, specifically on emissions targets for manufacturers and the progressive reduction that we want, that is very much a Department for Transport lead. The Treasury and I are, of course, very supportive of its efforts in that respect.

On the matter that the hon. Member for Wycombe raised, we set out in either the pre-Budget report or the Red Book an explanation or rationale for the decisions that we take on the differentials in vehicle excise duty. We have done that consistently. It does not greatly surprise me that the Environmental Audit Committee takes a different view. I appear before it regularly, and always look forward to doing so. It generally finds itself at odds with some of the tax decisions taken in the Treasury.

On vehicle excise duty, it is designed, as I said, to provide signals to those at the point of purchase about the impact of the emissions of the cars that they are considering buying. To that extent, it can have an impact not just on awareness but on the motivations at the point of purchase. Mrs. Brennan has not been introduced into the Committee’s proceedings before, but she is a significant illustrative case in point. My hon. Friend the Member for Cardiff, West tells me that his wife, Amy, recently bought a small Toyota. Its VED rate of £35 a year was described as a significant factor in her decision to buy that model. I welcome the contribution that Mrs. Brennan has been able to make to our proceedings, and I hope that it has been helpful.

On the AA’s view that we ought to be considering a further band in the VED system, and the view of my hon. Friend the Member for Wolverhampton, South-West that we need swinging rises at the top end of the VED system, I shall take both as early representations for Budget 2008.

Clause 13

Paul Goodman (Conservative, Wycombe)

We now move on to the climate change levy. Any discussion of it is bound to bear a resemblance to our discussion during the Committee of the whole House on air passenger duty in one important respect, although the first is explicitly linked to carbon reduction and the second is not: both have been described as blunt instruments. In the case of the APD, the phrase was the Financial Secretary’s, and in the case of the CCL, it was used by the Royal Commission on Environmental Pollution.

As far as I know, a man called Tony Grayling is still an adviser to the Secretary of State for Environment, Food and Rural Affairs—he certainly was at one point fairly recently. He said of the CCL that it does not provide an incentive to switch to lower carbon fossil fuels. For example—it is quite an important example in relation to the discussion on the CCL—the single rate for electricity under the CCL provides no incentives for electricity generators to switch to renewables. That is not surprising. The CCL undoubtedly has a blunt effect; it is essentially an energy tax, levied on the supply of energy to business, paid downstream by energy consumers. It has been frequently argued, by us and others, that a structure that first establishes an energy tax, then pays out a series of rebates to businesses and then introduces a set of climate change agreements that enables firms to escape from the structure of the taxation of rebates that the Treasury has established in the first place is not especially transparent. We want to see the CCL reformed into, or replaced by, a carbon levy that is more closely linked to carbon emissions. To borrow a phrase that I think was once used by Rab Butler, the climate change levy is the best climate change levy that we have at the moment and therefore we do not intend to oppose the clause.

However, I would like to press the Financial Secretary about the views expressed by Mr. Grayling and by the Institute for Public Policy Research—I think that Mr. Grayling has done some work for the IPPR—with which the hon. Gentleman will be familiar. In a study for the IPPR, Mr. Grayling suggested that the rates should be increased towards £70 per tonne of carbon, which is the official figure used by the Department for Environment, Food and Rural Affairs for the social cost of carbon. I realise that it has proved difficult to establish a precise figure for the social cost of carbon, but what is the Treasury’s view on that cost?

Returning to the point about the rate for electricity, the IPPR study also recommended that the tax rate should vary according to the fuel mix of the supplier, based on carbon emissions because that would encourage investment in clean coal technologies. Again, what is the Treasury’s view on that issue?

A recent study by the Institute for Fiscal Studies said that the climate change agreement targets were too lenient. I quote the study:

“Firms would have achieved their targets in any case and as such were enjoying a reduced-rate CCL for effectively doing what they would have done.”

Another study, by Cambridge Econometrics and the Policy Studies Institute, concluded:

“Only for one sector...did we find that the CCA target would have been missed had no CCL ever existed.”

Were the IFS and the PSI wrong? Again, I look forward to the Financial Secretary’s response.

John Healey (Labour, Wentworth)

First, the hon. Gentleman is wrongin many respects about the climate change levy andthe commentators are wrong about climate change agreements. Together, these measures have delivered for this country more than a quarter of the target for emissions reduction that we are working towards under our Kyoto obligations; that is a very significant contribution to our efforts to help the world to tackle the climate change problems that we face.

I suppose that I should welcome the fact that the hon. Gentleman will not oppose this legislation and this increase. I suppose that, in some ways, we are making progress, because he and his party opposed the climate change levy when we introduced it in 2001. The Chief Secretary, who I think was responsible for that legislation at the time, remembers how fiercely it was opposed by the Conservatives, who would not accept the case for trying to introduce an Act to tackle climate change and would not accept the case for the climate change levy.

In fact, by 2010 the climate change levy will deliver carbon savings of more than 3.5 million tonnes a year; the climate change agreements will deliver climate change savings of more than 2.8 million tonnes a year, and together they are a central plank in our efforts to make such savings.

The levy itself was designed less to have an impact on generators and more to encourage greater energy efficiency among energy users, particularly business users. To that extent, it is succeeding in the specific aims that we set for it. We monitor constantly the way in which the levy and climate change agreement operate. Clearly, we must consider some longer-term questions, particularly given the interaction with a strengthened European Union emissions trading scheme.

That is for the future, however. The clause will increase the rates for the climate change levy in line with inflation from April next year. We have always said that the rates at which the climate change levy are charged should rise with inflation over time. We legislated for this year’s increase in last year’s Finance Bill. We are doing the same this year to provide advance notice for the industry and others affected by the changes to the climate change levy.

Clause 14

Philip Dunne (Conservative, Ludlow)

I wish to address the clause because I am concerned that the Government are applying double standards in their attempt to justify a very significant increase in the aggregates levy of more than 20 per cent. after the levy has been stable for a number of years. The justification in the Red Book is that it will encourage the sustainable use of resources as some kind of green measure. Yet the Government then provide themselves with an exemption—they are saying that that is suitable for the private sector, but not the public sector. Highways have always been exempt from the aggregates levy and highways authorities are probably the largest users of aggregates in the country. Now the Government are seeking to exempt the railways—another Government user of aggregates. How do the Government square that? Should they not be subject to the same sustainability argument?

The main reason that I think that the clause applies a double standard is that increasing the cost of construction for UK-sourced materials will simply encourage the importing of materials. That was brought home to me when I read the comments of Mr. John Webster, who I believe is from a trade association. He said:

“There will be singing and dancing in the streets of Dublin and Brussels tonight as the Chancellor tilts even further the operational cost balance towards our overseas competitors”.

Many building products that can use pre-cast concrete for which aggregates are the main feedstock can alternatively use building materials made of timber imported from over seas. The environmental impact of encouraging imports of heavy and substantial building materials is far more significant than the alleged negative environmental impact of extracting aggregate resources. This country has plenty of the latter—they are not in scarce supply and can be sustainably extracted. It is a mockery to claim that the measure before us is anything other than a revenue-raising measure by the Government. Admittedly, it would not raise enormously significant revenues—according to the Red Book, the impact would be £40 million in the first year. None the less, it is significant for the construction industry because it will put up its costs. Those costs are not just for major infrastructure projects—it will put up the cost of the Olympics, over which the Government have been embarrassed already. It will also put up the cost of affordable housing, about which all Committee members will be concerned. The measure has not been thought through. It is a penny-pinching and inappropriate tax-raising measure cloaked in greenery.

Rob Marris (Labour, Wolverhampton South West)

I fully understand the hon. Gentleman’s comments. Is he aware that the aggregates levy was introduced on 1 April 2002? If the clause goes through, it will put up the levy by the amount to which he referred from 1 April 2008. That will be the first rise in six years.

Philip Dunne (Conservative, Ludlow)

I am aware of that. That is not in dispute, and we are not complaining about that. I am complaining that it will go up by 22 per cent. in one go for no apparent reason other than to raise revenue for the Chancellor. Of course, that is part of his job, but he is singling out that industry. That will have much wider ramifications, which have not been thought through, or clearly explained to the nation. I look forward to hearing how the Financial Secretary can justify them.

John Healey (Labour, Wentworth)

I do not know, Mr. Gale. Whatever the hon. Gentleman’s leader says, if you vote blue in Ludlow, you do not get green. This is not a revenue-raising levy. When we introduced the aggregates levy in 2002, we cut the national insurance rate for employers across the board. So, if anything, the Treasury is down on receipts from the levy rather than up. In addition, it is an environmental tax; it is an environmental tax for environmental purposes. Its purpose is, first, to incorporate some of the external costs that come from quarrying and, secondly, to try to encourage the greater use of recycled stone and gravel.

The assessment, including the independent assessment of the impact of the levy since its introduction in 2002, shows that between then and 2005 the amount of newly quarried rock, stone and gravel in this country was reduced by 18 million tonnes, and the amount of recycled aggregate used in this country over that time increased by 5.5 million tonnes, so it is having the sort of impact that it was designed to achieve.

David Gauke (Conservative, South West Hertfordshire)

I note the Financial Secretary’s point that when the aggregate levy was introduced there was a tax cut in another area to offset it, so it is, at best, neutral. However, according to the Red Book the increase in the aggregate levy will yield an additional £40 million in 2008-09 and £45 million in 2009-10. What taxes were cut to ensure that those increases will be fiscally neutral?

John Healey (Labour, Wentworth)

I know that the hon. Gentleman did not miss it; there were some significant corporate tax cuts in the Budget this year, and we discussed them in Committee this week, under the main corporation tax rate cut in clause 2.

Adam Afriyie rose—

Mr. Gauke rose—

John Healey (Labour, Wentworth)

I am going to make this point and then I will sit down. The aggregates levy has not changed, despite the principle on which we introduced it and our expectation that it would rise in line with inflation to maintain not just its real value but its real effect. As it was bedding down, we chose to freeze it each year until this year. This is the first rise that we have proposed; in many ways, this is a catch-up year. We are making this increase in the rate in order to maintain the environmental impact that the levy, in its earliest years, appears to be have been having.

Clause 15

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

We feel that everything possible needs to be done to encourage the diversion of waste from landfill. However, some problems are occurring as a result of the way in which the landfill tax works. In the Red Book, the increase in landfill tax is described as “supporting recycling”. I should like to dwell for a couple of minutes on how my local authorities are able to deal with the issue and the types of pressure that landfill tax puts on them.

Cornwall, like many other areas, has a two-tier authority. We have one authority responsible for collecting waste and another responsible for disposal. It is therefore difficult to transfer the pressures on—to divert waste completely from the principal authority. That creates great difficulties, as there are no direct incentives for recycling. The pressure seems to be towards anything that is a diversion from landfill. That can lock people into more environmentally unfriendly ways of dealing with their waste.

John Healey (Labour, Wentworth)

The hon. Lady is right; in certain areas, responsibility for the planning and management of waste disposal, particularly of household waste, is split between collection and disposal authorities, which can cause difficulties. Does she conclude from that thatit would be best to move to unitary and single-tier authorities in her area, or should collection and disposal responsibilities be lodged with one or other level of the authorities in her patch?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I agree that it is perverse that the county council has an agreement with the district authority that is based on the weight of rubbish that it collects, so there is no incentive to reduce it. In addition, we end up with several different means of collecting waste and rubbish for recycling in different district authorities.

Philip Dunne (Conservative, Ludlow)

To help the hon. Lady, and with regard to the intervention from the Financial Secretary, in those areas where people think through the issues carefully, it is quite possible for councils of different tiers to co-operate in a waste partnership, such as the Shropshire waste partnership, to form a single entity to collect and dispose of waste, without the need for a unitary authority.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I can see advantages in having greater strategic control, not only of waste issues, but on other levels. One reason why we support Cornwall’s bid for unitary status is that it would give the authority greater strategic control over the whole of Cornwall. Unfortunately, Cornwall county council has been locked into having an incinerator, which means that it is difficult to encourage more recycling. Having a strong voice throughout the county may allow the authority the time to explore other alternatives and to press the case for them. Energy from waste is the only option that Cornwall has been given so far, which means that the county will still suffer, although the decision has been taken and the council is doing all that it can to divert from landfill, as the incinerator will not be built for a few years.

Colin Breed (Liberal Democrat, South East Cornwall)

As my hon. Friend rightly said, Cornwall county council has grasped the rather unfortunate nettle of waste-to-energy, commonly known as incineration. I bring to her attention the neighbouring authority in Plymouth, which last Thursday passed from Labour to Conservative control. I hope that the new administration will reverse the current contractual arrangements, whereby Plymouth city council dumps all its household waste in a landfill site in my constituency.

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

I need say no more. The concern is that the council ends up locked into the decision, which has already been taken, yet the impact of the landfill tax will continue to have an effect and place pressure on council tax. There are difficulties, and I wonder whether the Financial Secretary has considered an alternative, such as a waste tax, which would encourage local authorities not only to divert from landfill, but proactively to encourage recycling. He might also consider measures to deal with packaging at the point of production, rather than work out how to deal with it at the other end. The provisions are useful for dealing with landfill, but there are limitations to what they can achieve. They can be improved, and I hope that the Minister’s mind is open to pursuing those improvements.

Rob Marris (Labour, Wolverhampton South West)

The basic rate of landfill tax is £2 a tonne; the clause will put that up to £2.50 a tonne. Will my hon. Friend the Financial Secretary reconsider that rate and work on classification issues with the Department of the Environment, Food and Rural Affairs and the Environment Agency? If certain things are classified as inactive or inert waste, they will attract the much lower rate of duty and probably be put into landfill, as the cost to the concern of doing so will be less. That would result in loss of revenue as well as environmental consequences. I am sure that DEFRA and the Treasury are already working on that.

I am particularly concerned with fly-ash, notto be confused with fly-tipping, which is produced principally by coal-fired power stations. I am indebted to Thomas Duve, who wrote an article for the “Science in Parliament” magazine in spring this year for the following information. Fly-ash is a glass, silica-rich mineral that is left over when coal is burnt, and a lot of coal contains it to a greater or lesser extent. It is currently classified as inactive waste and is landfilled at £2, which will increase to £2.50 a tonne.

In many other European Union countries fly-ash is recycled for other uses, so because of the classification and tax issue, which at £2 and what will be £2.50 a tonne is rather low, we are not recycling what our European neighbours are. That creates a double negative: we do not use the useful material that will be in heaps outside every coal-fired power station and we are clogging up landfill sites. Will my hon. Friend assure me that he will look at those two issues? First, will he reconsider the rate, even though it is increasing from £2 to £2.50 and it has been announced that it will go up to £3.00 a tonne for inactive waste? Secondly, will he discuss with his colleagues in DEFRA and the Environment Agency whether the classifications for materials such as fly-ash and others are right? If they are not right, we have a double-whammy because there is a loss of revenue and an environmental negative as material is going to landfill that need not do so.

John Healey (Labour, Wentworth)

I can give my hon. Friend the assurance he is seeking. I will look at the classification system for inactive waste—particularly the position of fly-ash. We have considered that before, but I am happy to take a fresh look at it.

I am not sure that I can be quite so positive in response to the hon. Member for Falmouth and Camborne. I am unconvinced about the need for a new waste tax, and, in the end, tax is not the only type of policy that needs to play a part in dealing with how we manage and dispose of waste and increase waste recycling. The Government have a number of measures in place and perhaps need to consider other future measures. She may be interested to know that the Secretary of State for Environment, Food and Rural Affairs will shortly publish a renewed waste strategy that pulls together much of the work that we have done across Government on how to raise our game for the future.

Clause 16

Paul Goodman (Conservative, Wycombe)

Members of the Committee will have received large numbers of representations about some clauses as they are of great interest to outside bodies. As a parliamentarian, one reads some clauses and finds one’s eyebrows rising. When I read the clause, I confess that I went to check the definition of a Henry VIII clause. I will return to that matter in a moment, but before I do, as members of the Committee will see on reading the clause, it empowers the Treasury to charge for community tradeable emissions allowances, which is reasonable enough. It states that the allowances will be allocated by regulation and the people who allocate them will be appointed by regulation. The regulations may impose fees, govern the making or forfeiting of deposits, impose penalties, charge interest on the recovery of penalties, and confer—and I presume withhold—rights of appeal relating to the forfeiting of deposits and the imposition of penalties.

The Financial Secretary is welcome to correct me if I am wrong, but I am not aware that I have seen the regulations yet. In summary, although the clause does not meet the definition of a Henry VIII clause, it does have a certain Tudor flavour. The breadth of its scope invites some questions. [Interruption.] I hear a learned, historical commentary from the Government Whip, but I will not please him by responding to it and compressing my remarks. Some of the simple questions surely are these: who will allocate the allowances; how high will the fees and the deposits be; how large will the penalties be; how much interest will be charged on recovered payments; and, above all, will there definitely be a right of appeal?

I expect the Financial Secretary to say that the answers will be provided in due course if the regulations have not already been published, but one point is clear about any regulations that either have been or will be published: they will not be amendable. No member of this or any Committee will be able to propose that the people who allocate the allowances should be different people or that the levels of fees, deposits, penalties or interest charged should be raised or lowered. Nor will any member of this or any Committee be able to debate the terms of any right of appeal. He or she may simply be faced with the choice of accepting or rejecting the proposals that emerge.

I say “may” be faced rather than “will” be faced with good reason. I have taken advice and I am told that the wording of the clause allows the Financial Secretary to choose either the positive or the negative procedure. That is, as it was put to me, unusual. In short, the proposals may not be considered by the positive procedure route, which is highly questionable.

If the regulations have not been published, when will they be? Can the Financial Secretary at least give the Committee an assurance—I gather that he is usually very reasonable in this regard—that they will be dealt with under the positive procedure, and can he give a guarantee that there will be a right of appeal, because that would seem to be important?

Julia Goldsworthy (Liberal Democrat, Falmouth and Camborne)

All the questions that the hon. Gentleman has raised are valid. I would like to underline the question of when we will get a sense of when the regulations will be produced. I note that the clause is limited in application to “Community tradeable emissions allowances”, but not specifically EU emissions trading schemes. That opens up the possibility of it being extended beyond Europe and beyond greenhouse gases. Given that it has that wider application, will we have to wait for more comprehensive regulations or will they be specifically limited to the EU, and when will we see them?

John Healey (Labour, Wentworth)

Hon. Members have rightly pointed out that this provision takes us into new territory. It allows us to provide the basis for auctioning some of the allowances under the European Union’s emissions trading scheme, but in phase 2, which does not start until 2008 and runs to 2012. As my right hon. Friend the Chief Secretary to the Treasury said in a letter to, I think, the hon. Members for Falmouth and Camborne and for Chipping Barnet yesterday, the question of regulations cannot precede the detailed design of the allocations and auctioning scheme. That matter will be dealt with as the arrangements for phase 2 of the EU ETS are firmed up across Europe. Once the scheme design is clearer, we will be in a position to devise the regulations, covering the sort of points that the hon. Member for Wycombe identified. When we produce the regulations, we will do so in draft and we will consult as widely as we need to on them. I can reassure the Committee that the points made this afternoon will be taken into account in drawing up the regulations.

I would not want the Committee to lose sight of the importance of introducing the possibility of auctioning into the allocation of allowances and permits under the EU ETS. They will be an important way of toughening up the trading scheme, hardening the carbon price within it and thus starting to generate the type of investment in alternative technologies that we require to reduce emissions and deal with climate change.

Paul Goodman (Conservative, Wycombe)

The Financial Secretary explained that the scheme has not been fully devised. Can he explain why it is necessary to introduce a provision for the regulations before the scheme has been designed, rather than afterwards?

John Healey (Labour, Wentworth)

I do not think that the hon. Gentleman would advocate two Finance Bills a year. It would be another year before we had the opportunity to put the legislative framework in place in a Finance Bill, so it seemed sensible to put the regulation-making power in primary legislation, as we may well need it before we get the opportunity to return to it in the next Finance Bill.