Opposition Day — [18th Allotted Day]
Philip Hammond (Shadow Chief Secretary To the Treasury, Treasury; Runnymede and Weybridge, Conservative)
If those comments represent the hon. Gentleman's line of approach, I certainly did not take my ideas from his article. He is right that this is nothing to do with VAT. There can be arguments at the margin, but, broadly speaking, the VAT balances itself out across the economy. I also agree that oil price increases have a negative effect in other parts of the economy. However, if he will bear with me for a few moments, we will come to the evidence from the National Institute of Economic and Social Research about the net impact on Treasury revenues across the economy as a whole.
What will be the impact on the public finances? Let me deal with myth No. 1, which for shorthand I will call the Labour myth. The Chief Secretary has claimed that our proposal for a fair fuel stabiliser would lead to a £3 billion "black hole" in the public finances. Never mind the fact that she should not be the first person to talk about black holes in the public finances, but this is far from the truth, as I believe she very well knows. The truth is that the only independent UK economic forecaster who has done the necessary work to comment definitively on this issue is the National Institute of Economic and Social Research, and it has concluded that oil price rises generate a positive impact on the public finances, even after taking into account the secondary effects of oil price rises on the economy overall, and thus on non-North sea Government revenues. According to the National Institute of Economic and Social Research, the net benefit to the Treasury is about £140 million for every $1 dollar change in the price of a barrel of oil. So, when the oil price increases, net Government revenues, after taking into account all the effects across the economy of that oil price rise, also increase. It follows logically that when the oil price falls, Government revenues will also fall, by the amount of reduction in North sea tax revenues, less the positive effect from the increase in activity across the rest of the economy with which an oil price fall would normally be associated. Overall, there is a loss of revenue for the Government when oil prices fall. In other words, there is a spectacular misalignment of interests. An oil price rise, which is bad for families and for businesses, delivers a windfall to the Treasury, whereas an oil price fall, which is good for families and for businesses, creates a hole in the Treasury's revenues.
The fair fuel stabiliser aligns the interests of consumers with those of the Treasury, and it shares the pain and shares the gain. It makes the public finances more stable, by reducing the impact of changes in oil prices, upwards or downwards, on Treasury revenues, making it easier for it to project what future revenues will be and making those projections less vulnerable to the vagaries of the international oil market.