Thank you for your Explanatory Memorandum 7512/07 which was considered by Sub Committee A at their meeting on 1 May 2007. The Sub Committee notes the proposed increase in the minimum tax rates for diesel and unleaded petrol. It is the Sub Committee's view this is a superior proposal to that which both the Government and the Committee opposed in 2003. The Sub Committee decided to hold the Explanatory Memorandum under scrutiny.

  The Committee would welcome details of the Commission's argument for compulsory use of a non-discriminatory refund mechanism once you have obtained this from the Commission. In addition, the Committee would be grateful if you could provide more detail regarding your argument that this would not need to be a common system, as it appears that there might be benefits for consumers from a common approach.

  The Committee would also be grateful if you could confirm that this proposal only applies to motor fuel and not to supplies for excepted vehicles.

2 May 2007

  Thank you for your letter of 2 May about the above proposal. I am writing to provide some initial information to the Committee in reply to your questions.

  Member States' have now discussed the proposal at official level in the Council.

  You asked for details of the Commission's argument for a compulsory refund mechanism in the event a Member State takes advantage of the flexibility to lower its rate of commercial diesel duty. The Commission has not provided any detailed evidence to support making a refund mechanism compulsory for Member States. Thus far, it has argued that this is the only way that such a differential could be applied so as to be non-discriminatory. In addition, it says this is the option strongly favoured by the oil industry as it does not want to face a double streaming option (where there are two different pump prices).

  The Government does not consider the Commission's arguments convincing as a justification for establishing harmonised rules in this area. It is not clear why another means of implementing such a differential could not also be non-discriminatory, for example an option which involved two pump prices. Furthermore, the Government considers that it is for Member States to consider, in the context of any decision to lower its rate of commercial diesel duty, how best to implement this, having taken into account all relevant factors, including the burdens on oil companies and hauliers, the administrative costs, and the risk of fraud of any particular scheme. Following such an assessment, the most appropriate means of implementing a differential may well prove to be different in different Member States, suggesting that they should retain flexibility in this regard.

  In terms of whether there should be a common approach to any refund scheme, as set out in the EM, the Government does not believe this necessarily requires a common approach. First of all, we expect the number of Member States applying a separate, lower rate of commercial diesel duty to remain minimal in the short to medium term, meaning the number of Member States applying any refund scheme if it were agreed is likely to be low. Furthermore, while it is possible that there would be some minor benefit to hauliers from having one system, we expect that this would be matter of degree rather than kind—whether a haulier must fill out a number of similar forms or a number of slightly different forms to claim a refund is unlikely to result in significant benefits. The most important thing is that, if a refund scheme is applied by a Member State, it is non-discriminatory and simple for hauliers to use from an administrative point of view. For now, we intend to maintain our reserve on this aspect of the proposal and consider our position further in light of any compromise proposal produced during negotiations.

  I can also confirm that the proposal applies only to motor fuel and not to supplies for excepted vehicles.

  I will update the Committee again when there is further progress on the proposal.

  I hope you find this information helpful.

1 June 2007

  Thank you for your letter of 1 June regarding the above proposal which was considered by Sub Committee A at their meeting on 12 June.

  The Sub Committee noted that the Commission has not yet provided any evidence to support making a refund mechanism compulsory for Member States. The Sub Committee would be grateful if you could update them with this once it is received. In the meantime, the Sub Committee will retain the document under scrutiny.

13 June 2007