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Hydrocarbon Oil

Volume 82: debated on Wednesday 10 July 1985

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I beg to move amendment No. 1, in page 2, line 26, leave out subsection (2) and add—

'(2) In section 9(2) of the Hydrocarbon Oil Duties Act 1979 (oil delivered for home use for certain industrial purposes) the words "but do not include the use of oil as fuel or, except as provided by subsection (3) below as a lubricant' shall be deleted and there shall be inserted in its place the following:—
"(c) use in the bench-testing of an internal combustion piston engine by a motor vehicle manufacturer or motor vehicle engine manufacturer during the research development manufacture or preparation of such engine or any part thereof
but do not include except as provided in subsection 2(c) above the use of oil as fuel or, except as provided by subsection (3) below as a lubricant".
(3) Subsection (1) above shall be deemed to come into force at six o'clock in the evening of 19th March 1985 and subsection (2) shall be deemed to come into force on the passing of this Act.'.
The purpose of the amendment is to allow fuels used in research and development of automotive engines to be exempt from duty under the Hydrocarbon Oil Duties Act 1979. This is not a new idea or a new amendment. The amendment covers only the bench testing of engines for research and development in the motor industry. The cost to the Exchequer would be around £3 million a year for the industry as a whole. Ford carries out this type of work in my constituency of Billericay and would save about £500,000 a year.

My hon. Friend the Under-Secretary of State for the Environment has been closely involved in EEC moves to reduce pollution levels of vehicle exhaust gases. Like me, he believes that British development in lean-burn technology — that is, altering the ratio of the fuel to air mixture in the engine — is the key to more acceptable emission technology throughout Europe. The motor industry is spending millions of pounds to achieve these improvements, and much of the work is carried out by Ford at Dunton in my constituency, where the company employs 3,316 people. It is the largest employer of labour in my constituency.

This is a tax on innovation and is not levied in some of our overseas competitive markets, such as Germany, which puts the United Kingdom industry at a serious disadvantage when competing for research work of this nature. Engine research and production is vital for Britain if we are to maintain a high technology base, and is vital for our overseas trade. Ford produced over 780,000 engines last year in the United Kingdom and 46 per cent. of those engines were exported, earning for Britain £250 million.

The research being carried out into new generations of engines will have a continuing benefit for the United Kingdom balance of trade. Ford recently announced a £157 million investment in new engine development at Dagenham in order to produce about 200,000 engines a year, the majority of which will be for export. The developments are the result of long and expensive research activity in my constituency and bring to a total of £370 million Ford's engine investment in the United Kingdom in the last two years.

Lean burn still has enormous development potential; that is why we should be anxious to ensure that the United Kingdom motor industry does not suffer development costs that are not experienced by some of our competitors abroad. There is a case for arguing that all aspects of automotive engine research, which include engine testing both in vehicles and on test rigs, should be excluded, but the difficulty in controlling such exemptions is recognised, and this modest amendment applies only to rig testing where separate fuel storage facilities and records can be easily verified.

I hope that my right hon. Friend will look carefully at the points made in the amendment and be able to regard them with some favour.

I congratulate my hon. Friend the Member for Billericay (Mr. Proctor) on moving the amendment, and I shall be extremely disappointed if the Minister of State does not accept it.

The need for the amendment arises out of section 9 of the Hydrocarbon Oil Duties Act 1979 in which considerable concessions were made. The provision covers the exemption of petroleum products used in the manufacture of an article, for cleaning plant and for certain lubricating purposes. I should not have thought it unreasonable to extend it still further.

My hon. Friend was right to say that any tax on what we call research and development is a tax on innovation, enterprise and the way that the country is likely to go. I should have thought that the amendment was the right course to follow.

It might be helpful to read a short paragraph in a letter that I have received from Ford:
"the engines we produce at Dagenham and Bridgend have substantially increased our exports from the UK and offer the prospect of reduced emission levels and improved fuel economy."
The Minister of State should take account of this observation:
"But the payment of excise duty is imposing a substantial cost on our research and development programme in the UK. The petrochemical industry is not charged duty on fuel used in this way and certainly we are at a disadvantage compared with companies in Germany where there is a tax rebate on such uses of fuel."
Everyone knows that the motor car industry in the United Kingdom is struggling. We also know that our leading competitors are France, West Germany and elsewhere and that we must be on level terms with them. We are concerned not only with the lean-burn engine but with the use of ceramics for cylinder blocks. All these have to be experimented with, and many petroleum products have to be utilised to find whether they are suitable for the market. I should have thought that what leads to a better and more efficient engine and a more adaptable way of producing cars was what the Treasury in all its wisdom should encourage.

If my right hon. Friend fears that the fuel might be used for vehicle use on the open road, it could be dyed just as diesel is dyed, and some tracer compounds could be included in it. There are very few sites in which it would have to be organised in the United Kingdom, because it would involve only the main motor companies. Storage facilities could be agreed, and there could be a pipe feed between the storage facilities dedicated for the purpose and the few sites in question.

As my hon. Friend said, we are talking about static engine testing. It is for the motor industry, which is very competitive. Unless R and D work is done, the industry could be going into extremely heavy weather. Therefore, I support my hon. Friend's suggestion. I know that the Minister of State does not want to make many concessions on this occasion, but when the takes account of the importance of research and development to British industry, especially the motor industry, which is under considerable strain, bearing in mind that the amendment will deprive the Treasury of only £3 million a year, I hope that he will regard this as an area in which he should make a concession.

6.45 pm

I am not unsympathetic to the amendment, even if it comes from what I regard as a surprising source. Nevertheless, I should like to know a little more about the cost involved, and I await the Minister's response before advising my hon. Friends how to vote.

I am also not unsympathetic to the amendment, but I wonder whether it is the right way to proceed. I am worried whether there would be sufficient control, and I am not assured that it would add anything significant to research and development. I am all for increasing the sums that companies spend on R and D, but I should have thought that the best way to do that was to provide fiscal incentives generally rather than to go for it piecemeal, as this proposal seems to do.

As my hon. Friend the Member for Billericay (Mr. Proctor) said, the purpose of the amendment is to relieve from excise duty hydrocarbon oil—mainly it would be petrol—used in the bench testing by manufacturers of motor vehicle engines. As my hon. Friend said, this is not a new proposal. I understand that this relief or something similar to it has been sought for at least 20 years and that successive Governments have taken the view that it is inappropriate to grant it.

I was glad to note my hon. Friend's comments about the Ford motor company's research and engineering centre in his constituency. I am sure that we all welcome what is being done there to develop a lean-burn engine. Looked at in isolation, the case for giving duty relief on oil used as fuel in research and development of lean-burn motor engines especially is at first sight reasonable. The amount of revenue forgone in this very restricted area would be small as a proportion of the total yield. But if the relief was so drawn, only a few major motor manufacturers would be involved and the administrative effort would not be great.

Those are the simple arguments in favour of the relief sought by my hon. Friend. However, his amendment is drawn more widely, and there would be a strong probability of further repercussions. The amendment goes further than relief for research and development and seeks relief also for fuel used in bench testing during the manufacture or preparation of engines. It also covers the manufacture or preparation of parts.

The hon. Member for Birmingham, Hodge Hill (Mr. Davis) asked about the cost. From what I have said he will appreciate that it is very difficult to give an accurate estimate.

I have just explained why. It is very difficult to judge how far the amendment would go in covering the work being done by manufacturers. At the moment the best estimate that I can give is that it would be several million pounds. The best estimate that the Customs can produce of the non-road use of petrol is in the order of £50 million to £100 million, and it could be argued that a very substantial part of that, if not covered directly by the amendment, would be somewhat on all fours with the amendment, and I am sure that the case for equity would be argued by others saying that they should also benefit from it.

There are knock-on effects and, as my hon. Friend said, there are control difficulties, though he thought that they could be overcome. I am not sure whether the control arrangements that apply to diesel oil which is used for particular sections of industry, which are relieved, will be as effective as the hon. Gentleman thinks in dealing with the wider questions of control that would arise, if the amendment were accepted.

Will the Minister give us slightly more information about his estimate of the cost? He seems extremely vague on that subject. What estimates has he received, what consultations did he have, and what representations did he receive that lead him to believe that the cost would be several million pounds?

I received that advice from my advisers, who studied the terms of the amendment, which do not necessarily provide what the hon. Members who tabled the amendment wish to suggest. It is important on Report to deal with the words before us. The approach in Committee is different because we can deal more generally with the ideas behind the matter, and if the words are defective we can correct them later. My advice is that several million pounds are involved.

My hon. Friend is not unsympathetic towards the amendment. Will he undertake to consider the matter seriously and to see whether, within his terms, he can assist us? Will he bear in mind that such assistance is provided in Germany and other Continental countries, and that something should be done to help the British motor industry?

I am glad to undertake to have further consultations, and a better estimate of the cost involved, especially with a closer definition of the proposed changes, may be made.

The duty on petrol has generally been regarded by successive Administrations—I emphasise that this is not a new matter which has arisen in recent months—as one on the product itself, wherever it is used. Exceptions are made for refineries, fishing boats, and for petrol and oil when it is used as a manufacturing material and furnace fuel. The House will be aware of the reduced rates that apply for aviation gas. The exceptions are few, and successive Governments have maintained that line.

Apart from the control difficulties, which arise from possible abuse, revenue would undoubtedly be lost. I accept that my estimates are not as accurate as those which I normally give.

I shall continue to ignore the hon. Gentleman's series of interventions from a sedentary position.

The relief proposed in the amendment is not as clearly defined as one would wish. In those circumstances, and following the precedent of many of my predecessors who have replied to similar debates or dealt with similar representations from the industrial interests involved, I cannot commend the change to the House. If the amendment is not withdrawn, I hope that the House will reject it.

I thank my hon. Friend the Minister for replying to the points raised by my hon. Friend the Member for Bedfordshire, North (Mr. Skeet) and me. I was surprised that the hon. Member for Birmingham, Hodge Hill (Mr. Davis) was surprised that I moved the amendment. During the last Parliament, I represented more Ford employees than any other hon. Member, and in this Parliament I represent many Ford workers, some of whom work at the Ford research and development establishment in my constitency, some work in my former constituency of Basildon, and some may work at Dagenham, but live in Billericay, Wickford or other parts of my constituency.

I have respected the hon. Gentleman for his consistency in opposing subsidies, and this appears to be a subsidy to research and development.

I am certainly opposed to subsidies in principle. As the hon. Gentleman knows, one represents one's constituents to the best of one's ability, and there is no inconsistency in that.

I shall not give way to the hon. Gentleman, who seems to interrupt everyone from a sedentary position, but is not prepared to make a speech. He makes only stupid interventions.

I thank my hon. Friend the Minister for his remarks in replying to the debate. I am grateful for his undertaking to reconsider the point to see whether a more tightly defined amendment can be tabled in future. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Order. Before I call the next amendment, it may be appropriate to announce that I have reconsidered my provisional selection of amendments, and propose to select amendment No. 45 in the name of the right hon. Member for Taunton (Sir E. du Cann).