H.M. TREASURY Notes on Clauses

CLAUSE 3: INCREASED REBATE ON HIGHER OCTANE UNLEADED PETROL

INTRODUCTION

1. This clause reduces the rate of duty payable on higher octane unleaded petrol on 1 October 1999. The duty cut will take effect on 1 October 1999 to facilitate the introduction of Lead Replacement Petrol which will be treated as higher octane unleaded petrol for duty purposes.

DETAILS OF THE CLAUSE

2. Subsection (1) amends section 13A(1A)(a) of the Hydrocarbon Oils Duties Act 1979 to increase the rebate on higher octane unleaded petrol to £0.0367 per litre less than the duty on leaded petrol. The practical effect of this is to reduce the duty payable on a litre of higher octane unleaded petrol (also known as super unleaded) to £0.4921 (2 pence above the unleaded duty rate).

3. Subsection (2) provides that the duty cut will take effect on 1 October 1999. The duty cut will take effect on 1 October 1999 to facilitate the introduction of Lead Replacement Petrol which will be treated as higher octane unleaded petrol for duty purposes.

BACKGROUND

4. Leaded petrol will be banned from 1 January 2000, except for 0.5 per cent of total petrol sales which will remain, mostly to fuel classic cars. Lead Replacement Petrol (LRP) will be introduced in the second half of this year and will be available for motorists whose cars currently use leaded petrol. LRP will be dutiable as higher octane unleaded petrol.

5. The duty on higher octane unleaded petrol was increased in the 1998 Budget to bring it closer into line with the duty rate on leaded petrol. This was to take account of the high benzene content, a known carcinogen. Benzene levels in petrol will be regulated from 1 January 2000 and there will no longer be a health reason for distinguishing between rates of duty on unleaded and higher octane unleaded petrol. However higher octane unleaded is mostly used in older cars which are less fuel efficient and environmentally friendly than newer cars running on unleaded, hence a higher duty rate than unleaded petrol.

5. The estimated revenue effect of this change in 1999/2000 is +£20 million on an indexed base.