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Volume 450: debated on Thursday 26 October 2006

3. What pump-priming he plans to provide to research and development in creating biofuels from agricultural products. (97058)

We strongly support greater use of biofuels in Britain. The Chancellor’s announcements in the Budget of a new road transport fuels obligation and the extension of the duty discount on biofuels were welcomed by the industry and by this House. Those measures are helping to create the climate for new investment and expansion, and the latest figures show that sales of biofuels in Britain are about double last year’s levels.

I welcome that answer, but could the Minister give the House an indication of how long allowances other than those to which he referred—how long the Treasury’s whole regime for supporting biofuels—will last? My understanding is that the allowances are time-barred for three years, and that they will not run for a fourth year until that first three-year period is finished. However, to defray costs, people investing in bioethanol plants, particularly sugar beet, which is a key crop in north Yorkshire, are looking to write off the costs over 10 years, so we need to boost confidence in such investment over a longer period.

The guarantee on the duty discounts lasts for three years, and we deal with that on a rolling basis. The obligation is set at 5 per cent. until 2010-11, but we have made it clear that we want to extend it beyond that date. Another important element is the research and development tax credit, which is available to biofuels firms, just as it is to firms in other sectors. Some £1.8 billion has been claimed in R and D tax credits since we introduced them. That support is absolutely vital, as Britain’s capacity to compete internationally will in future depend ever more on our R and D, and on commercialising science and innovation. I can tell the hon. Lady that the prospects for the economy, the certainty that people want about biofuels, and the prospects for manufacturing, including in her constituency, would only be harmed by her party’s commitment to abolish the R and D tax credit.

In East Anglia a new bioethanol plant will shortly come on-stream, and of course we have many acres of sugar beet that can be processed into bioethanol. However, not many vehicles can use bioethanol. What discussions is my hon. Friend the Financial Secretary having with motor manufacturers to make sure that full-flex vehicles, such as those in Brazil that can run off both traditional petrol and bioethanol, are available in this country?

My hon. Friend, who follows the subject closely, will know that the obligation relates to blended fuel, which can be used in conventional engines and delivered through pumps on the forecourt. On the future generation of biofuels, he will have noticed that part of the Budget announcement on supporting biofuels concerned reducing vehicle excise duty for those with car engines that run on E85. Our ability to move further on the issue will depend partly on the European Union changing its fuel quality standards, and partly on the discussions that my right hon. and hon. Friends in the Department for Transport are leading with motor manufacturers, to ensure that there are improvements in engine technology that will allow greener future fuels to be used more widely in Britain, as elsewhere.