42.  The second argument cited by the Commission in its case for a single rate of excise duty on fuel is that tank tourism prompted by differences in duty rates "leads to a significant loss in budgetary resources for some Member States"—that is, those Member States with relatively high rates of excise duty. Commissioner Bolkestein estimated that for the UK the revenue loss from tank tourism is "at least €800 million per year" (Q1). So, the issue here is relatively straightforward: is there at present a problem of revenue losses for Member States with relatively higher rates of fuel duty?

43.  Intuitively, it is difficult to understand why Member States with relatively higher rates should suffer a net revenue loss from the current situation. Most trips, including all purely domestic trips, are unaffected by leakages from tank tourism: the higher tax rate is collected from a more or less given tax base. Where leakages do occur, such as in international trips, it is still the case that the narrower base is taxed at the higher rate. Hence, the result of applying a lower rate would be as follows:

·  a loss in revenues from applying the lower tax rate to all current payers—although this loss would be expected to be partially offset by an enlargement of the tax base as a result of increased demand; and

·  a gain in revenues from the enlargement of the tax base as a result of eliminating tank tourism—although this gain would be expected to be less than the current estimated loss, since the latter is estimated relative to the current higher rate.

The outstanding question is: could the gain in revenues arising from collecting taxes from some new payers (at the new lower rate) offset the loss from collecting a lower rate from all current payers?

44.  The Government have done this calculation. They estimated that implementing the harmonised rate proposed by the Commission would lead to a net revenue loss to the UK of £2 billion per annum. They calculated this figure as follows (p 15):

·  A reduction in revenues of £2.8 billion per annum from applying the lower tax rate to current payers—offset by a gain of £0.3 billion per annum as a result of increased demand.

·  A gain in revenues of 0.5 billion per annum as a result of eliminating tank tourism as well as smuggling and other forms of fraud—but this gain is roughly half the current estimated loss of £1 billion per annum, since the latter is estimated relative to the current higher rate of duty, which is roughly twice the lower rate proposed by the Commission.

45.  The Commission did not provide any argument or evidence to suggest that the UK or other Member States with relatively higher rates suffered net revenue losses as a result of tank tourism and would enjoy net revenue gains as a result of the introduction of the Commission's proposed harmonised rate.

46.  It is nonetheless true that the absence of a minimum rate could lead to significant revenue losses—not because States with relatively higher rates would suffer net revenue losses from tank tourism but because a 'race to the bottom' would put pressure on tax rates and hence on revenues.

47.  It follows that the increase in minimum rates via the Energy Tax Directive—if translated as it should be into an increase in average rates—should lead to an improvement in revenues for the sum of Member States, even if there is not a significant reduction in tank tourism.

Key conclusions on government revenues

48.  The Committee accepts the Government's findings that the Commission's proposal would lead to a significant net revenue loss to the UK and notes that the Commission has not presented any evidence to the contrary.

49.  The Committee accepts the need for minimum rates of fuel duty to protect government revenues across the EU. Moreover, we consider that the increase in minimum rates embodied in the Energy Tax Directive should serve to enhance revenues for the sum of Member States.