Special Report on Diesel Cars: Tax tease fuels the diesel debate: There is no sign of a coherent government policy to encourage greater use of more fuel-efficient engines, says Martin Derrick

IF THE Government has any policy concerning encouraging or otherwise the greater use of diesel fuel, that policy is deeply submerged under the weightier need to sort out its public sector borrowing requirement. Even if there is a feeling at Whitehall that in Britain diesel fuel is taxed too heavily and that its price at the pumps should ideally be brought more into line with that of our EC neighbours - each of whom maintains a significant differential in diesel and petrol prices - then there is no sign of this feeling being translated into action.

High diesel excise tax means high Government revenues and Mr Clarke, in his first Budget as Chancellor this autumn, is very unlikely to countenance any immediate reduction. The changes to the way in which company cars will be taxed announced by the previous Chancellor Mr Lamont at his last Budget in March did much to make deisels far more attractive to business buyers and user choosers.

Where company cars currently are taxed primarily according to the size of the engine, from next April, tax will be raised only on a percentage of the list price of the car. This is a sensible change that has been welcomed by the motor industry and by fleet operators; it has the effect of reducing the taxes paid by those running diesels as company cars.

But in making the change, the Chancellor never once suggested this was because he wished in any way to encourage the use of diesels. All he said was that 'the structure of the current regime remains unsatisfactory. In most cases the value put on the benefit and the tax that is payable, are determined not by the price of the car, but by the size of the engine.'

Norman Lamont has now smoothed distortions, but in the same Budget he ignored an opportunity to increase the differential between petrol and diesel prices by raising duties on all road fuels, including diesel, by 10 per cent. This had the effect in March of raising unleaded petrol and diesel pump prices by 12p a gallon, and leaded petrol by 15p. It might be argued that the Government is encouraging the use of more fuel-efficient diesels.

Its treatment of the taxation of fuel provided by an employer for private motoring can also perhaps be seen as an encouragement to use more fuel efficient diesel engines.

Even though Norman Lamont raised by 20 per cent the scale rates on both petrol and diesel fuels, there still remains a significant difference between petrol and diesel rates: the benefit of fuel provided for a petrol car up to 1.4 litres is assessed at pounds 600 a year, while that for a diesel engine car up to 2 litres is pounds 550. At the top end of the scale, petrol cars over 2001cc attract a scale charge of pounds 1,130, while that for a diesel car over 2001cc is only pounds 710. But according to the RAC, these minor encouragements, available only to company car drivers, are not enough.

'Diesel has an undeserved image and the Government could do a lot more to dust off the cobwebs', says Dr Jeremy Vanke, the RAC's environmental manager. 'Across the rest of Europe diesel accounts for 18 per cent of private cars yet in the UK it is a mere 9 per cent . . . We need to know the Government's environmental priority. If carbon monoxide emissions are the chief concern, then diesel vehicles need to be brought to the fore.'

This environmental concern was recently raised by one of the members of the Government's Urban Air Quality Committee who questioned the wisdom of further encouraging diesel use because diesels produce more nitric oxides (NOx) than catalytic converter-equipped petrol engines.

This was refuted by Peugeot, who rightly pointed out that while in isolation diesels do produce more NOx, the whole emissions spectrum has to be considered - and most crucially - its CO emissions are far lower. 'We consider that diesels are less damaging to the environment when taken as a whole', says Peugeot's spokesman. The Government, meanwhile, remains firmly on the fence.

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