New Clause 3 — Vehicle excise duty: variation of graduated rates for light passenger vehicles

Orders of the Day – in the House of Commons at 2:45 pm on 2nd July 2008.

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'(1) The Treasury may by regulations made by statutory instrument vary the table in paragraph 1B (graduated rates for light passenger vehicles) of Schedule 1 to VERA (annual rates of duty).

(2) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.

(3) The power conferred by subsection (1) does not extend to the ending of different provision for vehicles first registered after 1 March 2001 and before 23 March 2006 and with a CO2 emissions figure exceeding 185 g/km.'.— [Justine Greening.]

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker

With this it will be convenient to discuss the following:

New clause 7— Vehicle mileage costs—

'The Treasury shall publish annually alongside the Pre-Budget report an estimate of the average cost of operating a motor vehicle (including associated running costs and depreciation) per mile for a vehicle driving 10,000 miles per year for—

(a) a vehicle registered before 1st March 2001 paying a pre-graduated Vehicle Excise Duty with an engine size 1549cc below;

(b) a vehicle registered before 1st March 2001 paying pre-graduated Vehicle Excise Duty with an engine size above 1549cc; and

(c) a vehicle registered after 1st March 2001 liable to pay graduated Vehicle Excise Duty in each of the VED bands A-M with effect from 1st April 2009.'.

New clause 8— Fuel duties: rates and rebates: general fuel duty regulator—

'(1) HODA 1979 is amended as follows.

(2) In section 6 (excise duty on hydrocarbon oil) after subsection (1A) (as substituted by section 11 of this Act) insert—

"(1AA) In every Budget Statement and pre-Budget Statement the Chancellor of the Exchequer must provide a forecast for oil prices and set out anticipated yield from fuel duty and VAT on fuel for that price and for a range of prices up to 50 per cent. above his forecast.

(1AB) The Treasury must, following each such statement, by regulations made by statutory instrument reduce the rates of duty specified in subsection (1A) in direct proportion to the increase in the costs accounted for by VAT.

(1AC) Whenever international oil prices rise above the level estimated by the forecast made in accordance with subsection (1AA), indexed fuel duty increases shall not take effect until the international oil prices return to the forecast level or the forecast price is amended by the next Budget or pre-Budget Statement."'.

New clause 9— Fuel duties: rates and rebates: road hauliers and remote rural areas—

'(1) HODA 1979 is amended as follows.

(2) In section 6 (excise duty on hydrocarbon oil) after subsection (1A) (as substituted by section 11 of this Act) insert—

"(1AA) In every Budget Statement and pre-Budget Statement the Chancellor of the Exchequer must provide a forecast for oil prices and set out anticipated yield from fuel duty and VAT on fuel for that price and for a range of prices up to 50 per cent. above his forecast.

(1AB) The Treasury must—

(a) following each such statement, by regulations made by statutory instrument reduce the rates of duty specified in subsection (1A) in direct proportion to the increase in the cost accounted for by VAT;

(b) provide a mechanism to pay the reduction directly to road hauliers with an 'O' licence including a restricted licence, a standard licence or a standard international licence;

(c) bring forward proposals not later than the pre-Budget Statement 2008 to provide specific fuel duty reductions targeted at fuel sold in remote rural areas.

(1AC) Whenever international oil prices rise above the level estimated by the forecast made in accordance with subsection (1AA), indexed fuel duty increases shall not take effect until the international oil prices return to the forecast level or the forecast price is amended by the next Budget or pre-Budget Statement."'.

New clause 14— Remote rural fuel discount scheme—

'(1) The Treasury shall by regulations provide for the introduction, by no later than 1 April 2009, of a remote rural fuel discount scheme.

(2) The purpose of the scheme is to provide a rebate on road fuel duty at qualifying retail outlets in qualifying areas to reduce the premium paid for fuel in such areas over the national average.

(3) Qualifying retail outlets under subsection (2) are outlets located in qualifying areas meeting any criteria as defined under subsection (4).

(4) Qualifying areas are remote rural areas as may be defined by regulations under subsection (4).

(5) Regulations under subsection (1) may—

(a) specify the amount of the fuel duty rebate;

(b) define "remote rural areas";

(c) define qualifying retail outlets, including any restriction;

(d) specify how the rebate is to be applied, including—

(i) authorising HMRC to define procedures and conduct audits, and

(ii) how any administrative costs are to be defrayed;

(e) provide for it to be an offence for a person fraudulently to supply or sell rebated fuel other than as proscribed by these regulations;

(f) provide for a system of registration of eligible retail outlets;

(g) provide for the scheme to be administered in Scotland by the Scottish Executive and in Wales by the Welsh Ministers.'.

Amendment No. 9, in clause 15, page 8, line 9, at end insert—

'(3A) In paragraph 1C (the reduced rate)—

(a) in sub-paragraph (1) for "or C" substitute "C or D";

(b) after sub-paragraph (4) insert—

"(4A) Condition D is that the vehicle is an off-road working vehicle.";

(c) in sub-paragraph (6) insert at the appropriate place—

""off-road working vehicle" means, subject to any provision which may be made by the Treasury in regulations made by statutory instrument, any vehicle which is used primarily for business purposes off adopted roads,".'.

Amendment No. 7, page 8, line 21, leave out from 'to' to end of line 22 and insert

'any licence taken out in respect of a vehicle first acquired on or after 13 March 2008.

(7) In this section "first acquired", in relation to a vehicle means acquisition when it has not previously been owned.'.

Government amendments Nos. 22 and 23.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

Today's debate on the cost of motoring relates to issues that have relevance to the lives of millions of people, so the need to get the policies right is paramount. The Government announced in the Budget and have begun to deliver through the Bill a vehicle excise duty policy that is unfair and ineffective, and will make life harder for large numbers of people in this country.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

If the policy is so unfair, why have five Conservative MPs on the Environmental Audit Committee stressed that it is a necessity?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

The hon. Gentleman has asked an interesting question. The answer is that we do not have a problem with graduated VED linked to the level of pollution of cars in principle. What we have a problem with is ineffective green taxation that is nothing to do with the environment and everything to do with eco-stealth taxes. If he is willing to stay in his place and listen to the remainder of what I have to say, I will carefully run through just how much the Government's policy on vehicle excise duty will affect the environment by 2020. If he thinks that that is not enough, I am sure that he will be happy to jump up and challenge the Government.

New clause 3, which, among other new clauses, is what we are all here to debate this afternoon, aims to get the rising impact of motoring costs out into the public domain. New clause 3 seeks to protect people from the serious consequences of the Government's planned retrospective changes to vehicle excise duty. I shall outline a number of concerns about the effects that the Government's vehicle excise duty changes will have, many of which new clause 3 attempts to tackle.

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Photo of Kate Hoey Kate Hoey Labour, Vauxhall 3:15 pm, 2nd July 2008

I very much support what the hon. Lady is saying about the retrospective taxation of people who bought their cars expecting to pay just the normal increase. Will she say what the Government would have to say for her to withdraw her new clause?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

I will not be withdrawing my new clause, because it is the best insurance policy we all have to ensure that the Government tackle the situation. I will say later why it is important to resolve the issue today, rather than finding ourselves, this time next year, in another situation like the 10p tax rate fiasco, which we got rid of yesterday, only this time with vehicle excise duty.

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Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

The hon. Lady used the word "retrospective". I should like to be clear what she means by that. Is she saying that any increase in vehicle excise duty that applies to existing cars is retrospective?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

What I am saying is that the hon. Gentleman's Government should take the same approach that they took when they introduced band G. When they introduced a higher band for vehicle excise duty based on pollution, they said that it should apply only to vehicles already registered going forward. That was a fair way of ensuring that people would not be taxed for past behaviour that they could not possibly change. I am happy to explain in more detail why I think the Government's proposal is so bad and why so many of the hon. Gentleman's colleagues agree with us.

There is no doubt that the proposed increase in vehicle excise duty will lead to a massive tax rise. The Treasury has admitted that its take from graduated VED will increase by more than 100 per cent. over the next few years. Figures released by the Treasury to me reveal that the take from graduated VED will increase from £1.9 billion in 2006 to £4.4 billion in 2010. I repeat: green taxes have to be offset by decreases in taxes elsewhere, precisely to ensure that families are not overburdened by tax at this time of economic hardship.

I use the term "green taxes" loosely when describing the vehicle excise duty changes announced by the Government. One would hope that a tax increase of several billions of pounds would lead to some impressive vehicle emissions savings, but that is not the case. The argument that the changes will help the environment is simply not true. The Government have admitted that minimal emissions savings will result from the changes to vehicle excise duty rates. According to the figure that I have been given by Ministers, they expect annual emissions from motor vehicles to reduce by 160,000 tonnes a year by 2020. That is a fraction of 1 per cent. of total transport CO2 emissions, which were 120 million tonnes back in 2006, just one year.

According to the Ministers sat in front of me, the long-term effect of the policy will be to change vehicle emissions by 160,000 tonnes a year by 2020. Did the Treasury concede that that is not a meaningful reduction? Did it promise to take a fresh look at the tax, to make it really work for the environment? No. Having released this statistic to me, its response was simply to repackage it. Instead of saying that it would involve a minimal amount each year, the Treasury tried to make it sound larger by saying that it would be 1.3 million tonnes by 2020. Actually, that is the total amount of emissions that will have been saved by the policy by 2020, yet, in every single year, there are 120 million tonnes of carbon dioxide emissions from motor vehicles.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

The hon. Lady makes an excellent point, and it is reinforced by the latest report from the Environmental Audit Committee, which has been signed by, I think, a different five Conservative Members from those to whom I have already referred, although there might be some overlap. The Committee is ably chaired by Mr. Yeo. The report's overview warns of the danger of abolishing the fuel duty escalator and other issues. It also warns that, unless more drastic action is taken, the reduction that is being sought will not be achieved. What drastic action is the hon. Lady suggesting should be taken? Does she endorse what her five colleagues have said?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

I endorse what nearly 50 Labour Members have done, which is to sign an early-day motion saying that these retrospective tax rises are deeply unfair. The hon. Gentleman does a disservice to green taxation by supporting a green tax that is so unfair. How can we possibly change people's behaviour on the environment in relation to something that has already happened?

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Photo of David Taylor David Taylor Labour, North West Leicestershire

I should like to correct the hon. Lady. The early-day motion to which she referred does not say that several Labour Members believe that the retrospection is "deeply unfair". It states:

"That this House is concerned at the retrospective effect of the vehicle excise duty changes announced in Budget 2008 to take effect from 2009; and asks the Government to reconsider."

I am a signatory to the motion. The hon. Lady is wrong to say that it used the words "deeply unfair", as they were not in the motion.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

The spirit in which the hon. Gentleman and I both believe that it is unfair to tax people because of the choices they have made in relation to motoring, in order to try to reduce emissions, is the same. There are clear similarities between us.

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Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

May I give the House a practical illustration of the unfairness of the proposal? Many of my constituents drive second-hand cars, and the value of those vehicles has now been reduced by several thousand pounds because of this retrospective taxation. Those living in rural areas depend on their cars and have already been hit by higher fuel prices. They have also been hit at home by the escalating cost of domestic heating oil.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

My hon. Friend is right. The result of this change will be more dramatic for taxpayers than the result of the 10p tax rate fiasco. About 1.2 million drivers will experience a tax rise of either £220 or £245, which they could not possibly have foreseen when they bought their cars up to seven years ago. A further 1.1 million will see retrospective increases of up to £100, and possibly more, between 2008 and 2010. That will mean that twice as many people will be worse off by twice as much money as we were talking about yesterday in relation to the 10p tax rate fiasco.

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Photo of Greg Knight Greg Knight Chair, Procedure Committee

On the issue of fairness, has my hon. Friend seen the report by Professor David Newbery of Cambridge university, which I believe succeeds the report from Environmental Audit Committee that has just been mentioned? In it, he concludes that if motorists were to pay a full contribution towards the effect that their vehicles had on the environment, they would be paying fuel tax at a rate of 20p a litre. Is my hon. Friend aware that fuel tax is currently 60p a litre? Motorists are therefore already paying far more than their fair share towards the environment, without having to pay these increases in vehicle excise duty, which are clearly not a green tax but a stealth tax.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

My right hon. Friend makes an interesting point. If we are to reduce motor vehicle emissions, we clearly need more effective tools than the one that the Government have proposed in this year's Budget on the change to vehicle excise duty. Those who will be affected by the proposals are people with older cars, people with family cars and people on low incomes who simply cannot afford to upgrade to a less polluting car. What kind of policy creates a situation in which the owner of a new Porsche will face a smaller tax increase than a family with an older family car? It is clear that we need to revisit this decision.

I want to focus for a moment on the most serious aspect of the retrospective part of this tax hike—namely, the impact on people on low incomes. From statements made by Ministers, and from the minuscule amount of data that I have received in answer to parliamentary questions, I understand that about 1.3 million people earning less than £15,000 a year will be hit by above-inflation increases in vehicle excise duty. Some of them will face rises of £245 a year. That is a week's take-home pay that the Government are going to take out of their pockets through this proposal. We believe that up to 750,000 of them will face increases that are triple the rate of inflation. It is completely unacceptable that these changes to vehicle excise duty should have a greater impact on those on the lowest incomes.

Whatever hon. Members' view of graduated vehicle excise duty might be, we would all have hoped that the Government would be honest about what was being proposed. That was not the case, however. They have proved to be disingenuous about the facts from the word go. The retrospective element of the changes to vehicle excise duty were buried in the fine print of the Red Book. I am not sure how many families the Chancellor imagines read the Red Book, but I think that it would have been courteous, respectful and decent of him to tell them about these changes in his Budget speech. At the very least, he could have clearly described the change in the Red Book for what it was—a retrospective tax. But he did not have the decency to do that either. Instead, it was left up to readers of the Red Book to infer from table headings and dates that changes to road tax levels had been put into the Budget in this way.

Another thing that was not mentioned in the Red Book was the transition period over two years for those worst affected by the changes announced in this year's Budget. I cannot help but think that that was introduced as an afterthought.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

Does the hon. Lady agree that the primary objective of a truly green tax should be to change behaviour? Does she further agree that it is an essential principle of fairness in such a case that the people involved should be able to change their behaviour, and that the people whom she is talking about have no option and cannot change their behaviour?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

The hon. Gentleman is right. This goes to the heart of new clause 3. In spite of the fact that the Liberal Democrats voted for clause 15 of the Bill—which contained these proposals when we originally debated them—I am pleased to see that cross-party consensus is now emerging on this issue, because it is important.

I was talking about the fact that the retrospective element of the vehicle excise duty proposals had not been fully disclosed in the Red Book. Additionally, the Government have repeatedly claimed that the majority of motorists would be unaffected or no worse off because of these changes. That claim has been made on numerous occasions by the Chief Secretary to the Treasury, the Chancellor and even the Prime Minister, as well as by Treasury Ministers who are sitting in front of me today. They continue to make that claim to this very day, despite it being demonstrated again and again that it is simply wrong. In fact, by 2010, 80 per cent. of motorists paying graduated VED will pay more as a result of these changes. A total of 18 million motorists will face above-inflation rises.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

Of course, one point of the vehicle excise duty is to change people's behaviour, but as John Thurso pointed out, a change of behaviour cannot occur in every circumstance—and I am thinking particularly of crofters and farmers. Could the Government use the single farm payment as a mechanism for exempting crofters and farmers from this retrospective tax?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

The hon. Gentleman raises an interesting point. What I am trying to do—I hope he will be pleased—is to ensure that nobody is hit by the retrospective element of the proposed tax rise. The reality is that the change will impact seriously on large numbers—literally millions—of people. Trying to hide it with a statistical sleight of hand, which is what Ministers have sought to do, is simply unacceptable.

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Photo of John Redwood John Redwood Conservative, Wokingham

Has my hon. Friend, like me, received many representations from people who simply cannot believe that this huge extra tax will be imposed on those with so little money to pay it? People are also worried that their older cars will plunge in value, making it difficult for them to sell and buy the newer sort of car that the Government want them to buy. Is it not surprising that we do not hear more from Members from all parties who should be representing the real anger that people are expressing?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

Like my right hon. Friend, I have received many representations. People up and down the country are, frankly, furious about being confronted with a tax rise that they have no way of avoiding. They will face it not just for one year; they will be locked into it for several years. As my right hon. Friend said, many people will be unable to afford to buy a new car because the value of their current car will have plummeted as a result of these tax changes.

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Photo of Anne Main Anne Main Conservative, St Albans

Does my hon. Friend know whether the Government have done any calculations of the amount of value that will be wiped off numerous second-hand cars owned by lower-income families? What does she expect will happen to those older cars in that changed car market?

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

A number of Members are expressing their concerns. My hon. Friend is absolutely right that it is unacceptable to introduce a retrospective tax in the Budget that people will be unable to avoid paying.

I have tried to find out the real impact of the VED changes announced in this year's Budget. I have tried to do so by tabling numerous parliamentary questions and I have even gone so far as to write to Ministers on two occasions. Everyone is concerned to understand the impact of those changes throughout the country, but to this day no details have been released from the Treasury to the public to help them understand that impact. I have 18 outstanding parliamentary questions asking about which people will be affected and to what extent. I await answers from the Treasury. Many questions relate to the impact on low-income families and some are getting on for two months' old. I tabled them almost immediately after the Budget and the start of debates on the Finance Bill. I have written letters to the Financial Secretary, but I have received no replies whatever. Disagreement on policy is one thing—it is part of the political process—but for Ministers to hold back the facts, bury their heads in the sand, exhibit a complete lack of transparency at every stage of the process and refuse to engage in a reasoned and informed discussion of the impacts of crucial policy decisions affecting millions of people is quite another and is simply unacceptable. It is a failure of the Government's duty to the House and to the people of this country.

The problems with the VED proposals are clear. They mean huge tax rises; they offer virtually no benefit to the environment; they are unfair in backdating retrospectively; and they will hit families and people on low incomes. The proposed changes cannot be allowed to stand. That is why I tabled new clause 3. It is designed to send a simple, clear and strong message to Ministers that although green tax on cars can be imposed, it cannot be right to punish people with tax rises in respect of decisions they made in good faith up to seven years ago. The issues in the clause go beyond party politics.

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Photo of Adam Price Adam Price Spokesperson (Communities and Local Government; Culture, Media and Sport; Defence; Transport; Ministry of Justice)

Does the hon. Lady agree that even from an environmental perspective, this retrospective policy makes no sense whatever, particularly if its purpose is meant to be carbon reduction? It ignores the huge carbon cost involved in the purchase of a new car. It has been estimated that even a Toyota Prius has to run for 100,000 miles before it pays for the carbon cost of swapping an older car for a new car. It makes no sense.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

The hon. Gentleman makes a very fair point, and the Treasury has admitted that this proposal will have virtually no impact on CO2 emissions from motor vehicles in the coming years. What we need to do today is to put aside our political differences and do the right thing for the people most hurt by the Government's VED proposals—namely, the public, families and particularly low-income families.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

I have given way enough to the hon. Gentleman.

I am asking Labour Members to do the right thing. What is more important to them—stopping families and people on low incomes from going under financially in the coming months and years, or toeing the party line? That is what the decision on new clause 3 comes down to.

If Members see no problem with the effects of the Government's policy of unfairly taxing people who cannot afford to pay, that is fine. If they can tell concerned constituents who speak of the pressures imposed by increases in tax and the cost of living that the Government's proposal went ahead and they voted for it, that too is fine. But if they cannot do those things, I think it worth remembering that our job here as Members of Parliament is to represent our constituents, and to give those people a vote. We have a chance today to send a message to Ministers that this proposal is wrong, and that they need to think again. We know from what followed the other great error of the Budget, the 10p tax rate fiasco, that they will listen if enough of us tell them that this simply is not good enough.

We have been trying to make Ministers listen. Early-day motion 1464, tabled by Mr. Campbell and signed so far by 68 Members—50 of them Labour—expresses concerns about retrospective increases in vehicle excise duty. Along with my colleagues who were members of the Committee, I have raised the issue again and again as the Bill has progressed through its parliamentary process. That process is nearing an end: the end will come today. We have all listened to the Government's explanations and excuses, and they do not stack up. The Government have not made their case, because there is no case to make. The time to correct this error is now.

Of course, there is an alternative. I did not have to table new clause 3. I could have let the issue drag on, and it could have remained high on the political agenda until next year's Budget. That is what I will do if we cannot address this falsehood of tax rises now, but in the meantime I have tabled new clause 3 in a genuine attempt to correct the mistake sooner rather than later. It is better for everyone—including, I believe, the Government, but obviously the British people most of all—if we can find a solution to this important problem now. Families need to plan for tomorrow, now more than ever. They need certainty in regard to what costs and financial constraints they are likely to face in the years to come.

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Photo of Mark Fisher Mark Fisher Labour, Stoke-on-Trent Central

I agree with the hon. Lady's criticism that a retrospective tax would be both unfair and ineffective, in that it cannot change a decision made four, five, six or seven years ago. It is an extremely unsatisfactory form of taxation. Any retrospective taxation is, per se, a very bad form of taxation, and I think the House should have no truck with it. But will the hon. Lady say something more about her solution? If retrospective taxation is, as I believe, an unacceptable way of levying taxes, so are statutory instruments, which are unamendable and are dealt with outside the Chamber.

The hon. Lady understands these matters. I agree with her criticism, but her suggestion of a statutory instrument is an extraordinary and, I think, a very poor parliamentary solution. We never create serious taxation through statutory instruments, and in my opinion doing so constitutes an offence against Parliament.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

I understand what the hon. Gentleman has said. I tabled new clause 3 because I felt that it was better for us to debate the matter this year, and the new clause was the best way of enabling us to do that.

I think we would all much prefer the Government to say today that they will not proceed with the retrospective element. What I am keenest to do, however, is give the House a voice, so that we can send a message to Ministers that we do not want their proposal to progress and we do not want to wait until next year's pre-Budget report to find out that it will be ditched. If that is to happen, we need it to happen now for the sake of the families who will be affected. I accept that my new clause may not be the most elegant, but it does give us a chance to have our say in this Parliament sooner rather than later. It would not be a complex matter to reverse the decision. It is not like the 10p tax rate fiasco. We know exactly what we need to do, and we can do it now—and we know how to do it, too, which is by voting for new clause 3. We agree with green taxes, but not with punishing people for decisions they made years ago and they are in no position to change.

There have been two big problems with this year's Budget: the 10p tax rate fiasco and vehicle excise duty. We have corrected one—we know the Government will listen when forced to do so—and we now need to correct the second.

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Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

I believe that the Government do have some thinking to do in relation to VED, and I will explain some of the reasons why shortly, but there is absolutely no way I will vote for this new clause. It is incoherent. Justine Greening says that this is a simple matter, but it is anything but simple to work out the relationships between taxation on cars based on their performance and their contribution to combating climate change and the influence of those factors on customer behaviour.

Even though I have some problems with the Government's proposals, I question the concept that what is being proposed—regardless of whether it is good or bad or somewhere in between—is retrospective. It is not retrospective. Why do I say that? We first have to ask why it is thought to be retrospective. The concept of retrospection is to do with time. Are we saying that any taxation levied on an existing vehicle is by its nature retrospective? We may agree or disagree with, let us say, either a flat rate or a graduated increase in VED, but they are not retrospective. From the point of view of the headlines, it is great to talk about this being retrospective taxation, but it simply is not.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

When the Government introduced new band G, they did so only for cars registered from the given date onwards. That is the difference between that change and the change and the new bands proposed now, which kick in not for cars registered from now on but for those that have already been bought, and bought by people who could never have known that they would fall into these higher tax bands.

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Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

What the hon. Lady says about the introduction of that new band is absolutely true, but that does not make a different kind of increase that applies to existing vehicles retrospective. She may agree or disagree, but that does not alter whether or not it is retrospective.

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Photo of Anne Main Anne Main Conservative, St Albans

To the public, this is semantics. Someone who bought a car seven years ago based their decision on how much it cost and whether they could afford to run it. Regardless of how the hon. Gentleman might wish to describe this, to introduce an additional cost seven years down the line—to cars that might be the family run-around, and which those families might be finding difficult to afford to run at all—will be seen by many people as retrospective, because those purchasers did not make the choice at the time to buy a higher-cost-to-run car.

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Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

I have some issues with the proposed scheme, but although the hon. Lady is right in that the public will not go through the fine detail of what we are saying, it is important that we are straight with them, and that includes not calling something retrospective when it simply is not.

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Photo of David Chaytor David Chaytor Labour, Bury North

Is it not the case that in every previous move towards variable emissions-based road tax, the changes have been levied on existing vehicles? That happened in the Budgets of 1999, 2002, 2003 and 2006. I do not recall the Opposition using the word "retrospective", incorrectly, to apply to any of those previous Budget decisions.

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Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield 3:45 pm, 2nd July 2008

My hon. Friend is right, and that is why the hon. Lady was being very selective when she chose to refer only to the change that introduced band G.

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Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

No. Obviously, I am not making myself clear, because I am arguing that this is not a retrospective change.

The key issue that we have to face is whether vehicle excise duty can be a useful way to combat rises in CO2 emissions. Given the interest in this debate, I am sorry that more hon. Members were not present yesterday when Julia King, of the King review, spoke to the all-party motor group and covered some of these issues. Some of the issues that arose were very interesting. The King review says that if people drive more efficiently, they can probably reduce their carbon emissions by about 15 per cent. It also says that if people choose the most appropriate car for their use, they could probably reduce their carbon emissions from transport by another 15 per cent. If they choose the most fuel-efficient car in the class of car that they use— whether they drive a hatchback or a 4x4—they can reduce their emissions by 25 per cent.

Most cars in this country are not the biggest or most expensive. The volume is in the middle and small ranges, so if we want to have an impact on the contribution of road transport, especially cars, on CO2 emissions, we must do something about the middle and lower ranges.

In the Opposition day debate on 14 May, I asked the Opposition spokesman if he believed that, in principle, vehicle excise duty should have a role in incentivising customer choice. He said that it should, but only in respect of cars not yet purchased. That is incoherent: it has not been the case before, and it is not the case now. VED rates already in existence apply to cars that people already own, not just those that they buy in the future.

When people buy cars, they do not, by and large, buy new cars. Fleets do, but private customers tend to buy second-hand cars. Therefore, the decisions about the rate of vehicle excise duty should apply to existing cars—those that people own already—and not just to new ones.

VED rates can incentivise people to embrace greener motoring in two ways. First, the incentive can be to buy a car with lower CO2 emissions. The second way is by influencing the decisions whether and when to change vehicle. The problem with the new clause is that it contains no incentive for people who already have cars with the highest emissions to change them. That is illogical, because the environmental performance of cars in all segments of the market is improving year on year. If, as some people suggest, taxation is weighted on to new vehicles and second-hand cars are exempted, people will be incentivised to keep vehicles that are less fuel-efficient, instead of changing to newer ones in the same class that are more fuel-efficient. As I said, the King review said that if consumers chose the lowest emission car in their class, they could reduce their carbon emissions by 25 per cent.

Do such incentives work in practice? I would like to think that exhortations to save the planet would get us somewhere. In fact, some surveys suggest that it is not as simple as that. What Car? did a survey on the impact of this year's Budget on whether people would choose a greener car next time they buy. The bad news is that 34 per cent. of people said no, the Budget would have no impact at all. However, of those who said yes 19 per cent. said that they would be incentivised to buy a greener new car because they felt that they were being encouraged to save the planet, while 47 per cent. of people said that they would buy a greener car because it would save them money. The economic aspects have an impact.

Of course, there is a balance to be struck with affordability, and that is why I have some problems with the Government's proposal. The problem with what the Government have been doing does not lie in the principle, and Conservative Members are wrong to say that it does. There are problems with the detail and the phasing of the change. It is right to increase the number of vehicle excise duty bands to equate better with the environmental performance of vehicles, but there can be a Catch-22 for low-income families if the increases and the way in which they are phased are too steep. Someone cannot get rid of an existing vehicle and move to a more fuel-efficient vehicle if, as an Opposition Member mentioned earlier, the second-hand value of their vehicle is reduced to such an extent that they cannot sell it and buy a different one. However, if they do not sell their original car, they are still hit by the increase.

There are issues with affordability and people's ability to pay. We must take on board the impact on families with children, who require bigger vehicles, on the disabled and so on. At a time where we have a difficult economic situation, with fuel prices making people think more carefully about the cost of motoring, the precise way in which the change is made needs to be rethought. However, the right way to do that is to think about the subject properly between now and the pre-Budget report and to consider the best way of achieving the objectives that we want to achieve, rather than having a knee-jerk reaction today.

We need to look at how the economic circumstances of the time relate to what we need to do with vehicle excise duty. We need to look at whether we can tax things better, particularly when fuel prices are fluctuating as much as they are at the moment. We could consider some forms of incentives to stimulate more fuel-efficient driving. We could consider, for instance, doing something about reducing the motoring taxation of people who go on eco-driving courses, which exist these days. We could look at incentivising the fitting of dashboard displays that remind people how much fuel they are using and, if possible, what that costs. We could provide more obvious customer information, and the King review has proposed a number of examples of how we could do that. People need to understand what is being proposed, and when taxes are raised through motoring they need to be clearly hypothecated towards road transport and the kind of objectives that we want, such as improving the fuel efficiency of cars.

Finally, we need to consider whether in the current climate it makes a lot of sense to maintain the price differential between diesel and petrol when diesel vehicles, by and large, are a lot more fuel-efficient than petrol vehicles. We need to think about how we can incentivise research and development into more fuel-efficient vehicles and put more money into investment in that R and D. That is why we need more thorough thinking on that matter and we need to take time to do it. That is why we have to do it in the pre-Budget report. It is completely wrong to try to bounce the view of the House and the public in an over-simplistic way, as the Opposition are doing today.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I shall take the opportunity to discuss the full string of amendments and new clauses that all come under the title of "Cost of motoring". So far we have had a narrowly confined discussion on vehicle excise duty, and although that is an extremely important issue—it is probably the most high profile of the amendments and new clauses before us—it is by no means the only one.

I am talking about the cost of motoring as a whole. I suppose that the reasons it has become such a contentious political area and aroused so much public interest are threefold. First, there has been a dramatic increase in oil prices in recent months. Secondly, there is the issue of environmental taxation and whether the Government are applying it fairly, and thirdly there is a squeeze on household income, so people are inevitably more price-sensitive than at times when wages increase faster. To set the scene before I turn to the new clauses, I shall quickly go through each of those factors in turn.

Supply and demand clearly drive oil prices around the world. It impossible to say at this juncture whether oil prices are spiking. We do not know whether we are at the beginning of a longer-term trend or whether prices will be higher or lower a year from now. All we can say with some certainty is that the trends appear to be upwards. That is a logical inference; one need only look at the number of two-car or even three-car households in the UK compared with 10 or 20 years ago. One need only consider countries such as China and India: in the big cities there, most journeys were undertaken by bicycle 20 years ago; now a large number of vehicles are being driven daily. There is clearly rising global demand for oil, and in the short term it is hard to satisfy that steeply increasing demand. People around the world are wondering whether it will be hard in the medium to long term as well. The problem is not unique to the UK.

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Photo of David Davies David Davies Conservative, Monmouth

The hon. Gentleman is making a genuinely interesting point, but surely he is aware of what Ministers in OPEC are saying, which is that there is no problem in meeting the world's demand of 88 million barrels a day, and that the increase in price is due more to speculation. That suggests that his hypothesis that there is a continual upward trend is not correct.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

We will have to agree to disagree on that. It is very hard to increase production capacity dramatically in the short term, yet there have been increases.

It might help the hon. Gentleman if I say that my hon. Friend Norman Baker, who is a doughty campaigner on these matters, asked the Department for Transport a question and received a written answer on 25 June, a week ago. He asked about increases in petrol and diesel prices in all the EU countries. He was told the prices in January 2005 and April 2008, which was extremely helpful and interesting. They are a few months out of date, and of course prices have since risen further, but the trend between the beginning of 2005 and a third of the way into this year is interesting and informative.

In that time, petrol prices rose by an average of 36 per cent. in the UK. That is a sharp increase, and markedly more than the increase in wages in that time. However, it is fair to say that in the comparable large economies of western Europe, the rises were even greater, although I acknowledge that they started from a lower base. In France, the rise was 51 per cent., and in both Germany and Italy it was 44 per cent. By April 2008, the UK no longer had the highest petrol prices in Europe. The average price of a litre of unleaded petrol was higher in Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Portugal and Sweden.

That is not true of diesel, for which we still have the highest price per litre in the EU, but other countries began to catch up with us in that period. The increase in the price of a litre of diesel in the UK was 39 per cent. I acknowledge that that is way in excess of the rise in income and means that people driving the same mileage are having a larger percentage of their overall household budget taken up by fuel costs than in January 2005. Nevertheless, it is reasonable to consider what has happened in other large western European economies and put on record the fact that prices went up by 60 per cent. in France, 56 per cent. in Germany and 52 per cent. in Italy.

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Photo of Russell Brown Russell Brown PPS (Rt Hon Des Browne, Secretary of State), Scotland Office

I thank the hon. Gentleman for giving way. I have written to two major supermarket chains and three major oil producers asking whether they can explain why the differential between unleaded petrol and diesel has risen to between 11p and 16p a litre, compared with between 2p and 3p a litre 18 months ago. Will he share with the House his views on why that may have happened?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 4:00 pm, 2nd July 2008

I am grateful for that intervention. I should declare an interest, in that my car has a diesel engine. Until about a year ago, I paid about 1p or 2p more per litre but—and this follows on from a point made in the previous speech—the greater fuel efficiency of diesel meant that the mileage was greater and that the cost differential was almost zero. The cost of diesel is quite a lot greater now, as a result of higher demand and restricted refining capacity. However, that prompts questions about whether the Government should introduce additional incentives for people to switch to diesel-fuelled cars, and that is territory that I do not intend to venture into in this speech.

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Photo of Russell Brown Russell Brown PPS (Rt Hon Des Browne, Secretary of State), Scotland Office

I thank the hon. Gentleman for giving way again. Does he think that the Office of Fair Trading might look at this matter?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I thank the hon. Gentleman for that question, but I do not want to be distracted, as I do not believe that the question is about the fairness or unfairness of trading; rather, it is about demand and oil producers' capacity to refine the product in the way that they need to if they are to bring it to market.

The rise in the oil price is the first reason why the cost of motoring is a high-profile issue in the country at large at the moment. The second is environmental taxation, and I shall say more about that as it forms the basis of most of the new clauses and amendments under consideration. The third reason is the squeeze on household incomes. That is worth mentioning, as the sizeable rises in fuel costs in the UK and other EU countries that I have just set out have been accompanied by increases in food, utility bills and council tax. All those rises are happening at a time when the income of most households is being held down; in many cases, it is even not rising as fast as the official inflation rate, which itself is not in line with most people's experience. We are dealing with a live and important issue that will not go away. Unless the Government confront aspects of it today, I fear that they will find that their woes only accumulate.

However, the Conservative record is also less than glorious. Justine Greening accused the Government of a "complete" lack of transparency when it came to environmental taxation. The Conservative party likes to give the impression that it is environmentally friendly. To Friends of the Earth, it emphasises its new-found environmental credentials, but its speeches to road hauliers are rather different.

The leader of the Conservative party has put a windmill on his house, changed his party's logo to an image of a tree and bought some extremely expensive recycled trainers that used to be old tyres. That is the entirety of Conservative policy on environmentalism. If he thinks that that will cut the mustard, he needs to have a higher regard for the intelligence of people in this country.

The speech by the Conservative spokesman, the hon. Member for Putney, contained a straightforward contradiction, and she may wish to intervene on me to clarify the point. She said that the Government were increasing the total VED tax take from £1.9 billion to £4.4 billion—a sizeable increase—but she then said that the policy was not working, as it would lead to emissions savings by 2020 of only 0.16 million tonnes.

The only logical inference from that observation is that the Government are not taxing fuel nearly aggressively enough. If the hon. Member for Putney believes that emissions are not being cut enough, and if she is in favour of environmental taxation, the presumption must be that she wants consumers to be even more incentivised to make greener choices.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

The hon. Gentleman seems to have completely missed my point. The tax is not having an impact on emissions because it taxes behaviour that has already happened—it is impossible for people to go back and change it. That is the primary reason for the tax not causing a greater decrease in motor vehicle emissions.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

The hon. Lady is right, of course. That is why we agree with the Conservative party. It has wisely come to agree with us on the need to give people real choices about the environment. However, we disagree with the Conservatives' attempt to hide from the electorate the consequences that would inevitably flow from their rhetoric. My party is in favour of differential VED rates, which were never introduced when the Conservatives were in government. The Conservatives seek to imply when they speak to environmental groups that they, too, want people to drive more fuel-efficient cars, but we do not hear a lot of that in their day-to-day discourse or in debates in the House.

If the hon. Lady does not think that the Government's policy is doing enough to cut vehicle emissions, the logical position for her to take, which is my party's position, is that VED differentials should be greater for all newly acquired vehicles and should take account of engine size, which would offer people greater incentives to pick more fuel-efficient vehicles.

This string of amendments contains some extremely interesting proposals about helping people who live in remote rural areas and about off-road working vehicles, and I am certainly disappointed that the Conservative party appears to take no interest in those subjects.

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Photo of David Chaytor David Chaytor Labour, Bury North

The hon. Gentleman makes a plea for greater differentials for new vehicles, but is that not exactly what the Government are planning for 2010-11, when the most-polluting vehicles will pay an additional first-year charge of £950? That answers his point exactly, and he should congratulate the Government on doing that.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

That is what the Government are doing, but our view and that of the Environmental Audit Committee, which, as we were reminded earlier, is chaired by the only Conservative who is allowed to follow the logic of his leader's position on this matter, is that those differentials must be greater to achieve the environmental benefits that my party wishes to achieve. In other words, people must be better rewarded for driving more fuel-efficient cars.

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Photo of David Chaytor David Chaytor Labour, Bury North

May I, as a member of the Environmental Audit Committee, correct the hon. Gentleman on that point? Our pre-Budget report last year called for an increase in the differentials on new vehicles. That is exactly what the Government have done in their Budget this year, as indicated by figures that appear in the Red Book. That response exactly deals with his plea for greater differentials on new vehicles in the future, so will he congratulate the Government on doing what the Environmental Audit Committee called for?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I will give way again if the hon. Gentleman can answer this question: did the Government introduce differentials as big as those recommended by the Environmental Audit Committee?

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Photo of David Chaytor David Chaytor Labour, Bury North

The Environmental Audit Committee did not recommend any size of differential; it gave an indicative range that is broadly reflected in the higher band figure that the Government have introduced.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

We are in danger of going into a cul-de-sac. Everyone says that they are in favour of differential VED—so we can agree on that—but the question is how big those differentials must be to achieve environmental benefits. My view and that of my party is that they need to be bigger than Government propose and that they should not be imposed retrospectively.

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Photo of Alan Simpson Alan Simpson Labour, Nottingham South

Let me try to help the hon. Gentleman and other hon. Members out of the cul-de-sac. Is not the great weakness of the Government's position and the proposals before the House that the issue is not about what happens in relation to progressive VED on new vehicles, but about how we change the performance of existing vehicles and the behaviour of those who own them? In that sense, there is nothing green about either the Government's position or these proposals. A greening of behaviour can come about only if there is some form of hypothecation of the taxes raised by the measure to allow and equip people to change the engine types of their vehicles to adopt lower pollution standards. Hypothecation is absent as a mechanism to allow existing vehicles owners to become lower carbon contributors in the economy that we are trying to construct.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

That was an extremely widely worded contribution. I do not disagree with it, but I fear that I would end up in many different areas if I tried to answer it in detail, so I shall try to answer it during the remainder of my contribution.

My hon. Friend John Thurso has tabled new clause 14, which deals with the remote rural discount scheme. I hesitate to intrude on the cosy metropolitan consensus that exists within ministerial ranks, but it is worth explaining to the House that in many parts of the country it is hard to use modes of transport other than the car because there is very little public transport. People use their cars not for leisure purposes, but for everyday purposes such as travelling to work. My hon. Friend will explain the proposed effects of his new clause in greater detail, but I urge the Government to look sympathetically on the circumstances of people who live in remote rural areas where there is no alternative to the private car.

The particularly interesting aspect of my hon. Friend's new clause is the provision whereby he seeks to enable the devolved Administrations in Scotland and Wales to implement and administer the scheme. That would be an interesting way for the Scottish National party in particular to demonstrate its commitment to such matters.

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Photo of Russell Brown Russell Brown PPS (Rt Hon Des Browne, Secretary of State), Scotland Office

New clause 14(5)(b) says, "define 'remote rural areas'". I appreciate that John Thurso will speak to the new clause, but would Mr. Browne care to share with the House his vision of exactly what "remote rural areas" means?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

They would have to be remote and they would have to be rural. The new clause deals precisely with that question, but as I am not the person who tabled it, it seems only fair and reasonable that the Member who did, my hon. Friend the Member for Caithness, Sutherland and Easter Ross, should deal with it in detail.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

The hon. Gentleman talks about issues in remote rural areas, but does he agree that even in urban areas where there are good bus networks, owing to the distances that many people travel to work and their shift patterns, there often are no buses, so the car is not a luxury and more people will be on the dole if the measures in the Bill go through?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I agree up to a point. I accept that many people use their cars in their everyday lives to take their children to school or to go to work, and that the car is not an option that they can easily drop even in some urban or suburban areas. I was only making the point—my hon. Friend will no doubt make it at greater length—that the situation is particularly problematic for people who live in remote rural areas, because less public transport is available, the distances travelled are typically longer and the price of petrol and diesel is often higher because of the cost of transporting it to those areas in the first place. There are particular concerns in remote rural areas, but in the spirit of consensus, there is a question about quantifying and qualifying who and where would be eligible for the discounts. That is the nub of the debate, and it is probably more appropriate if my hon. Friend leads it.

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Photo of Alistair Carmichael Alistair Carmichael Shadow Secretary of State for Northern Ireland, Shadow Secretary of State for Scotland

In an area such as the west side of Shetland, which by anyone's definition is remote, rural and very sparsely populated, having scheduled bus services running around with nobody on them does not make environmental sense. In such an area, the private car is the environmentally sensible option.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I have a lot of sympathy with my hon. Friend's point; he knows that part of the country better than I do. We have all observed that bus services can be underused, but I will avoid getting into a debate on buses, because that might take us too far off the beaten track.

Amendment No. 9, tabled by my hon. Friend Mr. Reid, deals specifically with off-road working vehicles. Let me touch briefly on that issue, which is also important. We are not talking only about farming vehicles; I shall give an example of the sort of company that would be affected. My constituency stretches right out into west Somerset and on to Exmoor, and it has a sizeable number of buildings that are not on mains water or mains sewerage systems. Companies go to such farms or remote cottages to fit sewerage and water systems for purification and to update the systems. Such buildings are often in inaccessible areas and those companies enable people to live there.

Such a company would not qualify for the discounts on fuel for which farming communities might be eligible, but it would still need off-road vehicles to get to remote rural farm houses or other dwellings, particularly during the winter. I will allow my hon. Friend the Member for Argyll and Bute—I should say that you will allow him, Madam Deputy Speaker—to speak about the issue later. However, as I understand it, we are talking about a small and tightly defined number of people who need vehicles with a greater off-road capacity to carry out their business. The vehicles that are suitable and necessary for that work incur higher costs; it is therefore only reasonable to seek to mitigate those costs.

I shall go quickly through two other issues. New clauses 8 and 9, tabled by the Scottish National party, can be seen jointly. My hon. Friends and I have some sympathy with the motivation of the new clauses; as I said, prices—especially of essential products such as food and fuel—have increased dramatically and squeezed family budgets. Petrol and diesel are essential products in rural communities. I have expanded on that point already and it is inescapably the case that a large number of rural communities are in Scotland. I understand why many of my hon. Friends who represent Scottish constituencies and MPs who represent other Scottish constituencies have a particular concern about these matters.

However, there are problems with new clauses 8 and 9. The Scottish National party appears to want to send out the signal that it is in favour of cutting petrol duty. I cannot see any intention behind the new clauses other than one to signify to the people of Scotland that the SNP wishes to help them at a time of rising petrol and diesel prices. However, if that is what it wishes to do, I have to ask SNP Members why they do not say it overtly. The Government can already make those changes. Why do SNP Members not ask the question about who should pay for them?

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury) 4:15 pm, 2nd July 2008

We will answer the question of who pays for them when we move the new clauses. Why is the hon. Gentleman making these idiotic partisan comments? The issue has nothing to do with the Scottish National party in the run-up to some election that is two years away. It is about recognising the real increases that people are facing now. It is to do not only with Scotland, but with the whole of the UK. Will the hon. Gentleman withdraw his pathetic, partisan comments and listen to the argument and some of the evidence before he makes his decision?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I simply do not know what provoked that intervention. I did not mention an election. In fact, far from being partisan, I acknowledged that there were particular concerns about petrol and diesel prices in rural communities, and that as large areas of Scotland are rural, those concerns must be felt keenly there. I could not have been less partisan; I was making an entirely conciliatory point. However, if Stewart Hosie invites me to be partisan, I will be a little more partisan. Cutting 2p off pump prices costs the Government about £1 billion, so if the Scottish National party wishes to send the electorate in Scotland—or the motorists of Scotland; let us take elections out of it altogether—the message that the party wants lower prices at the pump, it needs to answer the question: how will it fund those cuts? To be fair, that is a question that all parties in the House have to answer. I read in the newspapers yesterday that, behind the scenes, the Secretary of State for Business, Enterprise and Regulatory Reform is lobbying the Government to defer the 2p increase in petrol duty that is planned for the autumn.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I will in a moment. The Conservative party seems to be facing both ways on the issue; the shadow Chancellor supports The Daily Telegraph campaign to defer the 2p increase, but the party has not yet announced how it will make up the £1 billion shortfall that will result from that cut. The Conservative party has said that the proceeds of all its environmental proposals will go towards a family fund. As a result of the shadow Chancellor's intervention, that fund would already be £1 billion in deficit. That would have severe implications for families across the United Kingdom, if they were unwise enough to give the Conservative party a position of responsibility.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I will, shortly. [Interruption.] I will, but let me make some progress.

The more charitable explanation is that the Scottish National party is seeking to devise a mechanism that will address spikes in oil prices—a laudable objective. However, in their new clauses, SNP Members do not address the issue of what would happen if prices were to fall. If they were being more straightforward, they might say, "Here is a mechanism for artificially inflating petrol prices in the event of prices falling". If they are not willing to say that, all that they are saying is that the mechanism is about cutting prices. They have not yet said how they will address the issue of a price shortfall, but they may do so later.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I will, in a second.

SNP Members are considering the issue of oil revenue as though it were in a silo. About four hours ago, the Prime Minister made the point in the House that in any economy there will be revenue streams that go up and are higher than the Treasury anticipates, and revenue streams that fall, or go up by less than the Treasury had anticipated. The Treasury has to consider the public finances as a whole. If a Government ring-fence every area where revenue has risen by more than was anticipated, and say, "We must artificially reduce that," but do not seek to ring-fence any areas where the revenue is less than expected, they will end up with an overall revenue shortfall.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I see the Minister nodding; it is an obvious point to nod at. Anyone who can add up will work out that what I am saying has to be true. I do not see how anyone could regard it as anything other than a statement of the obvious, and if I have detained people by stating something transparent and obvious, I apologise.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

Is the hon. Gentleman aware that fuel is 30p a litre cheaper in the Republic of Ireland, which has a budget surplus?

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I have mentioned countries where the price of petrol is higher than it is in the United Kingdom; I could also mention countries where the price is lower. That is a choice that Governments have to make. If the SNP does not want to cut public spending—I have not heard it make any proposals for such a cut—it needs to try to raise the revenue elsewhere. However—surprise, surprise—I have not heard any proposals on how that revenue would be raised.

My final point on the Scottish Nationalist party amendments is that the Government have this mechanism in a rather cruder form already. One of the issues in this debate is whether the Government wish to implement, further defer or cancel altogether the 2p duty rise that is planned for the autumn. One of the considerations that they are presumably taking into account is the overall price of oil and the effects on businesses and private individuals. The Government already have the ability, if they so wish, to vary upwards or downwards the total amount of duty on petrol and diesel depending on wider economic considerations and the price of oil, without having to introduce a mechanism of this sort.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

Honestly, nobody has spent more time in Finance Bill discussions this year than I have, and there are some Members here who I have not even seen so far. However, I am more than happy to give way to all of them.

The motivations behind new clauses 8 and 9 are in many ways laudable, and I share many of them, but there are all kinds of practical problems that would be insurmountable.

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Photo of John Redwood John Redwood Conservative, Wokingham

The hon. Gentleman's comment was clearly not directed at me, because we were debating together yesterday in this very Chamber. His memory is obviously very short.

Will the hon. Gentleman withdraw the idea that we would be short of £1 billion of revenue if we made this adjustment? Is he not aware that there was a £500 million increase in oil and petrol revenues in the first six weeks of this financial year alone thanks to the increased price, increased VAT and increased oil revenues? Surely it would be right to try to get back to the Budget estimate.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

That is not the position of those on the right hon. Gentleman's Front Bench, but he has a long record of having different positions from his Front Bench, even when he was sitting on it, so I will not criticise him on this occasion. The Conservatives' position, as I understand it—it is hard to understand—is that they would introduce additional environmental taxes over and above those being implemented by the Government, so the starting point is where the Government are. From that starting point, the Conservatives are seeking to put a £1 billion annual hole in their budget for families, so that is the initial deficit that they need to overcome.

Finally—I have been speaking for longer than I wished to because I have been so generous in taking interventions—I want to discuss amendment No. 7 and new clauses 3 and 7, tabled by the Conservatives. My party takes climate change extremely seriously and always has, and we wish to achieve reductions in emissions from transport. Environmental taxation clearly has a vital role to play because transport contributes to a large degree to the total amount of CO2 emissions. Tax can make a contribution to changing behaviour. That is surely the Government's motivation, in addition to revenue-raising motives, in increasing tobacco taxation so that the taxation component is a high percentage of the overall price that the consumer pays when buying cigarettes and tobacco products. We support vehicle excise differentials and would support their being at a higher level so that consumers are even more incentivised to buy more fuel-efficient cars.

I agree that environmental taxation has, to a sizeable degree, been discredited by the approach that the Government have taken. They have used public concern about the environment and climate change as a way of raising additional revenue. I do not doubt that they are concerned about climate change, as are politicians in all parties. However, people are understandably cynical when the Government see an opportunity to raise additional revenue based on those concerns without that money then being used to offset and reduce other areas of taxation so that the overall effect is neutral but the environmental taxes form a greater overall component of the total Government tax take. That would be a responsible way for the Government to progress, but I am afraid that it has not always been their approach.

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Photo of Mark Harper Mark Harper Shadow Minister (Work and Pensions)

The hon. Gentleman was talking about the overall impact. Have he and his party reassessed their views about the correct level of vehicle excise duty, and taken into account the fact that because of the significant rise in oil prices and the subsequent rise in petrol and diesel prices, motorists have changed their behaviour, reflecting those costs? To have the same increase in VED without taking into account fuel prices does not seem sensible.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury) 4:30 pm, 2nd July 2008

That was a helpful intervention. The position of my party is one of greater vehicle excise duty differentials, so that people who choose to drive very fuel efficient cars, or moderately fuel efficient cars, will benefit financially. Those who choose—and it is entirely their choice, which is why we are against the retrospective aspect of the Government's proposals—to drive more fuel inefficient cars will have to pay a higher premium. But the additional revenue that we raise from that would be used to reduce taxes on individuals, specifically income tax. People would be paying more through environmental taxation, but less through income tax. The overall impact would be zero—it would be entirely revenue neutral. We believe that the proportion of taxation raised through environmental taxes ought to be higher and that the proportion of taxation raised on income ought to be lower.

I shall broaden that point momentarily. Our long-term objective is to abolish vehicle excise duty altogether. Ultimately, we want a system of motorway and trunk road pricing, where people pay for their use of major highways. That would be particularly beneficial for rural communities, which typically do not have motorways and trunk roads, and would allow us to reduce other, rather cruder forms of taxation on cars. However, given the nature of the current system, we favour greater differentials.

I shall conclude by talking about retrospectivity. People with older cars will be hit by the retrospective element of the proposals. It has been said by others that those people cannot easily sell their cars, and because it is harder to sell those cars, the market has corrected itself and the price of those cars is coming down, meaning that their problems are compounded further. Green taxes should incentivise people to make environmentally friendly choices, and people cannot be incentivised to make a different decision from the one that they have already made.

My party does not wish to get into the territory that the Conservatives have sought to occupy, which is to talk green but always vote against the green option. I want to make it absolutely clear that the Liberal Democrats are committed to changing behaviour and mitigating the effects of climate change by introducing environmental taxes that form a greater component of Britain's overall tax take. But we will not increase taxes overall; we will reduce them on income, and the overall effect will be absolutely neutral. We do not favour retrospective VED, but we do favour greater VED differentials. On that basis, we will support amendment No. 7—

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I am bringing my remarks to a close.

We support amendment No. 7, which stands in my name. If new clause 3 is pushed to a vote, we would be willing to support it, although it is deficient, particularly in the introduction of the element of a statutory instrument mentioned by Mark Fisher. Although it is badly drafted, it is better than the Government's current position.

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Several hon. Members:

rose —

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. Several hon. Members are hoping to catch my eye, but apart from this important group of amendments, further groups of new clauses and amendments are to be debated today.

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Photo of Ronnie Campbell Ronnie Campbell Labour, Blyth Valley

The debate has been pretty good up until now, and the retrospective bit is interesting. It is a good argument to say that if a car is 10 years' old, it should be taxed the same as one that is one year old. That is fair—if we tax a car, it does not matter how old it is, it should be taxed. In that respect, the argument is a good one.

However, the argument that I want to put up is for the working-class man or woman who drives a car. The tax is heavy, no matter how we put it—environmentally or in any other way. It means £250 to £300 on second-hand cars, which are bought, in the main, by working-class people—people who work—because they cannot afford new cars. Only Labour Members of Parliament can buy new cars—I am sure that Liberals and Tories buy them, too—and we can afford to pay the tax.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

The purchase is not usually based on the model, but on the cost of the car to the purchasers at that point, after which they can be hammered by vehicle excise duty.

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Photo of Ronnie Campbell Ronnie Campbell Labour, Blyth Valley

I accept that point. However, let us get down to the nitty-gritty. The decision is similar to that on the 10p tax rate—I do not want to go on about that too much—because it was a tax on the poor. It was a tax on pensioners and working people and it had to be taken away quickly because all hell was let loose. Again, we are considering a tax on working-class people. If we get into the same position as we were on the 10p rate and there is another mighty fiasco, we might have to withdraw it. It does not apply till April, so we, as a Government, have a chance to put it right.

As I have said, we are considering a heavy tax on working people—and not only those in rural areas—who need the car to get to work because our transport system is not that good. It is a retrospective tax, if people want to call it that, on working people. We should look at the matter carefully. The Government argue that they will examine it—I hope that they do. I will vote with the Government, with a heavy heart, in the hope that they come up with something in the autumn statement that will give the working-class people of this country a bit of a break.

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Photo of Alan Reid Alan Reid Shadow Minister (Northern Ireland), Shadow Minister (Scotland)

I apologise to hon. Members for rushing off after my brief speech, but I have an Adjournment debate in Westminster Hall at 4.45 pm.

I want to concentrate on amendment No. 9, which would allow a lower rate of vehicle excise duty for vehicles that are used primarily for business purposes off-road. Although I fully support giving people incentives to buy less powerful cars through higher rates of VED, there should be an exception for people who need to use the car off-road. I am thinking especially of farmers, gamekeepers, crofters and people who work in forestry. They use the car off-road and need a powerful vehicle to drive on muddy tracks to go about their business. They obviously cannot afford two cars—one for work and one to take the children to school, go to the village for shopping or tow loads on the public roads. It is therefore important to charge people in that position a lower rate of duty.

Amendment No. 9 builds on an amendment that Stewart Hosie tabled in Committee, and I believe that it deals with much of the criticism that was made of the latter by restricting the exemption more to vehicles whose primary purpose is to be used off-road for business. Vehicles that are used purely for agricultural purposes are exempt from VED, but we are considering those that are also used on public roads and are therefore not exempt. The new class of exemption should be included.

Let me deal with the proposals of the hon. Member for Dundee, East. Two issues need to be tackled. The first is the need for a lower rate of fuel duty to be charged in rural areas and the second is benefits for the haulage industry. Although I would happily support a proposal that was targeted more at the haulage industry to give it help and allow it to compete on level terms with Europe, new clause 9 is too widely drawn. To help people in rural areas, we should support new clause 14, which my hon. Friend John Thurso tabled. It is targeted at charging a lower rate for fuel in remote rural areas. To give an example, I recently paid a visit to Port Ellen on the Isle of Islay in my constituency, where fuel was selling at 15p a litre more than at Glasgow airport. Indeed, on some of the smaller islands there is always a greater difference.

Those additional costs work their way through the whole economy. We know that the price of fuel adds to the price of all other goods. High fuel prices make it more difficult to run and sustain a business in remote areas. People in those areas suffer from a triple whammy. Fuel prices are much higher than in urban areas; they have no alternative forms of public transport; and they have much further distances to travel. It would simply not be sensible for councils to subsidise bus services as an alternative, as buses would be running round with one or two passengers.

The cost to the Treasury of new clause 14 would be very small—much smaller than the cost of the amendment proposed by the hon. Member for Dundee, East—because it would apply only to a small part of the country. Cutting the price of fuel would not encourage people to drive more. People do not drive dozens of miles along twisting single-track roads because they enjoy it. They make such journeys because they have to. The car in such areas is not a luxury; it is essential. We had a meeting with the Exchequer Secretary in which she was sympathetic, and I know that the Chancellor is sympathetic, too. I urge the Government to accept our new clause.

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Photo of Mark Fisher Mark Fisher Labour, Stoke-on-Trent Central

I hope that not a single Member of the House would dispute the need to increase vehicle excise duty on engines of such a size. To that extent, the Government ought to be congratulated on listening to the Environmental Audit Committee and on increasing the VED on such vehicles. It is interesting that that is the dog that has not barked in this debate. Nobody has congratulated the Government on raising VED on future purchases, but they ought to be congratulated, because that is the right way for this country to go.

However, Justine Greening, speaking for the Opposition, was completely right to say that the change is retrospective. We can have a semantic argument about exactly what that change is, but she was right that although the increase is right for decisions made going forward, it is not right that a decision someone made five or seven years ago should also be subject to such an increase. That is unfair and retrospective, as well as being ineffective, because it does not change behaviour by making anybody who is considering buying a larger vehicle think twice before they do so. That is what the increase in duty is meant to do.

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Photo of David Chaytor David Chaytor Labour, Bury North

When this or any previous Government have changed the rate of stamp duty, for example, which happens from time to time, has any Member suggested that the new rates should apply only to new houses? Of course not.

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Photo of Mark Fisher Mark Fisher Labour, Stoke-on-Trent Central

I very seldom disagree with my hon. Friend and I have a great deal of time for him, but he is completely wrong. We are talking about changing behaviour through the increase in VED, which is very different from stamp duty on houses. The increase is retrospective and principled, but it is not pragmatic because it will not change behaviour.

The hon. Member for Putney has won the argument—we ought to listen to that—but she has lost the solution. It is the worst possible precedent for this House to start passing taxation legislation by statutory instrument. Nothing could undermine parliamentary democracy more than that.

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Photo of Jeremy Browne Jeremy Browne Shadow Minister (Treasury)

I would be grateful if the hon. Gentleman could say whether he supports my amendment No. 7, on the basis that it seeks to achieve the effect that he desires, but without the statutory instrument being required.

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Photo of Mark Fisher Mark Fisher Labour, Stoke-on-Trent Central

I have to confess that I have not read the hon. Gentleman's amendment, so I am at a loss.

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Photo of Mark Fisher Mark Fisher Labour, Stoke-on-Trent Central

Yes, I was interested that the hon. Gentleman did not speak to his amendment very much—indeed, I do not think that he mentioned it, and I would have been grateful to have had it brought to my attention earlier. I will go away and read his amendment afterwards, but I cannot respond now.

The hon. Lady's solution would set the worst possible precedent. We should not start making changes to taxation by statutory instrument. We do far too much by statutory instruments as it is. Such provisions are not amendable and they do not come before the House. That is a growing and pernicious development in our democracy. A mechanism that was intended purely for implementing agreed legislation is now being used, in effect, as primary legislation. It would be a disastrous step to take a big decision such as this—albeit a right one—by statutory instrument.

The hon. Lady has won the argument, but lost the solution. The House must choose tonight between a correct but unsatisfactory solution, and trusting—or hoping—that the pre-Budget report will show that the Government have listened to what is almost a unanimous view on this point.

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Photo of Andrew Smith Andrew Smith Labour, Oxford East 4:45 pm, 2nd July 2008

My hon. Friend makes a powerful point about how bad it would be to use a statutory instrument for this purpose. Is not the political reality that the extent of concern among Labour Members about the unfairness of this imposition on low-income families with older cars is such that the Government are going to have to look at the impact of motoring taxation in the round? As my hon. Friend suggests, the right way to do that is for them to come back to us in the pre-Budget report, and all Labour Members will expect our right hon. and hon. Friends on the Front Bench to do that.

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Photo of Mark Fisher Mark Fisher Labour, Stoke-on-Trent Central

My right hon. Friend is right. He used the word "expect", but I think that there is an element of hope involved as well. However, this action must be required of the Exchequer Secretary. She might not be able to give us a categorical undertaking tonight, but I believe that she has heard hon. Members very clearly indeed. If the Government do not reconsider this matter in the pre-Budget report in the way that my right hon. Friend has suggested, the House and the people of this country will be very angry indeed. Whatever semantic arguments we might have about the meaning of "retrospective", the truth is that the people of this country see this as an unfair retrospective tax—

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Photo of Mark Fisher Mark Fisher Labour, Stoke-on-Trent Central

I will not give way. We have had a very good debate, and I am sure that other people want to get in.

The people of this country, on whose behalf we are speaking, see this tax as retrospective and unfair, and the Government have to come back later this year and put this right.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

I wish to speak to new clauses 8 and 9. First, I should like to provide some background to new clause 8. As everyone knows, the spiralling increases in fuel prices are inflationary and they are strangling economies in remote rural areas. They are driving the haulage industry to the brink and putting the most enormous strain on family budgets.

I would like to put this into context. When I tabled a similar amendment in 2005, I said that, according to the AA, the price of unleaded petrol had risen to 86p and that it had gone up by 6p a litre over the previous six months. By the time we debated this issue on 15 May this year, fuel was priced at between £1.10 and £1.30 a litre. Now, six weeks later, it costs an average of £1.32 a litre. In 2005, I said that Brent crude had reached $60 a barrel, up from an average of $50 in the previous year. In the run-up to the last pre-Budget report, we saw an average of $83.60 a barrel, with an increase of $68 forecast. In the run-up to the Budget, we saw an average of $94 a barrel, and in four of the five working days before the Budget, we saw record prices. When I drafted this speech last week, the price was $132 a barrel, and we have crashed through $140 a barrel since.

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Photo of Tobias Ellwood Tobias Ellwood Shadow Minister (Culture, Media and Sport)

I visited Scotland recently and visited some farmers who operate combine harvesters. They used to pay 36p for diesel, but it has now gone up to 70p. It costs them about £700 to fill up their vehicles. Does the hon. Gentleman agree that we cannot wait for the pre-Budget report, and that we must act now? That is why some of these new clauses must be agreed to. We should not ignore this opportunity to seize the moment.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

I agree entirely. I think there is an immediacy about this issue. When I met the hauliers who were lobbying their MPs here today, they pointed out that some of them and others involved in the protest outside would not be in business by the time of the next pre-Budget report, so the hon. Gentleman is absolutely right about the immediacy.

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Photo of Russell Brown Russell Brown PPS (Rt Hon Des Browne, Secretary of State), Scotland Office

I agree that a fair degree of urgency is required; the hauliers made that abundantly clear today. However, if the hon. Gentleman's new clause is the answer to the problem today in 2008 and if it was an answer to the problem in 2005, why was it not an answer to the problem in 2006 and 2007?

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

We deal with the realities as we find them and we table amending provisions when we can. I think that this proposal was the answer in 2005, 2006, 2007 and 2008 and that it will be the answer in future. I will come on to explain why later, but fundamentally we need a mechanism in place to deal with spikes—now and in the future. I believe that such a mechanism is the answer, but if the hon. Gentleman is asking me why I did not table amendments in the years he mentioned, that is an entirely different question. The answer to that has more to do with time than my interest in the subject or my ability to table the provisions.

Let me return to my opening comments. We have seen a quite catastrophic and phenomenal rise in barrel prices and prices at the pumps. Where that leaves us, according to the AA last week, is with an average diesel price that has broken through £6 a gallon. I am grateful to the European Union for its weekly oil bulletin of 26 June last week, which also sets the scene. It tells us that at 53.2 per cent., the UK has the highest total tax take on a litre of diesel anywhere in Europe.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

I will give way to my hon. Friend, but then I am really going to make some progress.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

My hon. Friend may recall that when we last visited this issue on 28 April, I pointed out that diesel fuel in my constituency was retailing at £1.34 a litre. It is now, eight weeks later, between £1.43 and £1.46 a litre, representing a tremendous amount of money coming from the pockets of the Western Isles to the Treasury at Westminster—and that from an area already paying the highest fuel tax in the UK.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

That is absolutely right. Part of the intention behind the new clauses is precisely to help fragile economies where, for a variety of reasons, the price is highest, but it is not just the economies in fragile and remote rural areas that are struggling, and neither is it only certain industry sectors like the hauliers. Rather, we are looking at primary food producers in agriculture and fish, the tourist trade in parts of the country and, because of the inflationary effects, the household incomes of every family in the country—not just as they fill up their cars with petrol or diesel, but as they buy anything, at any time, in any shop.

Now that I have got to the second paragraph of my speech, I am going to make some real progress. At an average of 132p a litre, diesel is now about 35p more expensive than it was only a year ago. Almost half the rise—according the AA, about 14p—has occurred between mid-April and mid-June. It is precisely the sort of spike that the fuel duty regulator is designed to smooth out. At an average of 132p a litre, only Norway's average cost of 137p a litre is higher, but given that in many areas, particularly in the north of Scotland, that price was breached a long time ago, it is safe to say that in parts of the country we almost certainly have the most expensive gallon of diesel anywhere in the world. As I said, however, it is not just remote areas that are suffering; it is industry sectors of all kinds, and I am particularly grateful to the haulage industry for its support in my attempt to have the Government see sense. I am also grateful to the National Farmers Union, the Scottish Fishermen's Federation, the Scottish Taxi Federation and many others for their support.

The Sunday Herald reported in April that out of the average £37,000 it costs to tank up a 44-tonne truck, the Government take £25,000 in tax. The same article confirmed that a typical 20-vehicle haulage business would have to make an extra £30,000 a year to cover the increase in fuel costs—and that was in addition to the extra £30,000 that businesses had had to find to cover the increased costs last year. That was in April, however, and since then there has been a price rise of 14p per litre. That example was given when the industry expected the oil price to reach $115 a barrel by midsummer. It was $132 a barrel last week, and has exceeded $140 a barrel since.

Here is the rub: there is no indication that the rises we have seen will stop. Arjun Murti, the Goldman Sachs oil analyst, predicts a super-spike taking the price to $200 a barrel. That may help to deal with the point raised by Mr. Brown. My attention was drawn today to an additional fuel-driven cost faced by hauliers in particular: the fuel levy on ferries on which they transport their trucks, which is having an impact on the west coast of the United Kingdom, in Wales, England and Scotland. It is affecting truckers travelling to Ireland, and no doubt elsewhere on the channel coast.

It must be right to introduce now the mechanisms that we will need to smooth out future spikes, rather than driving hauliers to the wall and families into financial meltdown, and seeing rural economies strangled by the lack of action in the Bill. Let us make no mistake: a failure to act will result in the most appalling financial troubles across the country. When the haulage firm Ramage went into administration, its adminstrators cited the high cost of fuel as a contributory factor. Families are seeing their extra monthly costs rise. It is costing nearly £30 a month more to run a single diesel car, and petrol is costing more than £46 a month more for a two-car family.

As I have said before, it is clear that remote and rural areas are struggling. In a recent debate in the Scottish Parliament, the Liberal Democrat MSP Tavish Scott spoke of the plight of one of his constituents in Brae in Shetland. Perhaps this is how Mr. Browne should have approached his speech. Tavish Scott's constituent told him that

"despite the fact that I car share I made a decision that I could no longer justify working in Lerwick".

People are now questioning whether it is worth going to work. Jamie McGrigor, a Conservative MSP, said:

"Many rural industries depend on a good haulage service. Forestry, agriculture, fish farming and the food and construction industries—which deliver basic requirements—all depend on haulage, yet hauliers in Campbeltown are laying off drivers and selling their lorries."— [ Scottish Parliament Official Report, 28 May 2008; c. 9068-79.]

All those points are backed up by the various trade representatives. Phil Flanders of the Road Haulage Association has said:

"UK hauliers are struggling as never before to cope with continually rising fuel prices... a number have ceased trading and many more are in the process of cutting back the number of vehicles they operate."

Jim McLaren of the National Farmers Union of Scotland wrote to me saying:

"The cost of fuel, a significant constituent of which is tax in the form of VAT and duty, is jeopardising the future sustainability of Scotland's primary production and transport sectors, at the same time as exacerbating food price inflation, which is affecting every household in the country."

The Scottish Fishermen's Federation, contrary to some reports, is backing the fuel duty regulator. It has said:

"We add our support... Transport is of course a vital component of the fishing industry and cost increases there have applied even greater pressure, felt most acutely by the more remote fishing areas of the North West and the Northern Isles."

Given world food price inflation and concern over future supply, this is the wrong time to put further damaging pressure on the primary food producers in fishing and agriculture.

The Federation of Small Businesses has said:

"As the largest business organisation in the country and representing over 215,000 businesses, the FSB is firmly behind the introduction of any mechanism which automatically uses extra tax revenues generated by high oil prices to reduce prices at the pumps."

Even the Scottish Taxi Federation has written to me, not only to express its concern about the impact of rising fuel costs on the taxi trade but to

"reiterate the federation's full support for this amendment to the Finance Bill to introduce a Fuel Duty Regulator."

Its secretary, Bill Macintosh, made the point that taxi drivers' average monthly bills have increased by about £160 over a very short period. He said that

"with fuel prices rising on a daily basis... we need help immediately."

The Government must react positively to that demand for an immediate response, and that is what new clause 8 is designed to deliver.

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Photo of Alistair Carmichael Alistair Carmichael Shadow Secretary of State for Northern Ireland, Shadow Secretary of State for Scotland 5:00 pm, 2nd July 2008

The briefing I received from the Road Haulage Association this afternoon makes it clear that it sees the fuel duty regulator as a short-term fix at best, and that what it is looking for in the medium to long term is an essential users' rebate. That would be easy to introduce. There is the precedent of bus operators getting duty rebates. Does the hon. Gentleman agree that that would be simple, targeted and very cheap, and that if all the parties in this House were to work together we should be able to devise some mechanism for driving this forward?

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

I know that the long-term objective of the haulage industry is for there to be a Europe-wide professional users' rate, and there is a lot of merit in that. There may be an opportunity to put in place an essential user rebate, and my new clause 9 hints at that with the suggestion that it might be done by using the hauliers' "O" operating licence. Therefore, I have a great deal of support for that in the long term, but the hauliers are also telling me—and also, I am sure, other hon. Members of all parties—that they need help now. Most importantly of all, we need to agree the principle that a Government who take 60 per cent. of the price at the pump, and who are taking a massive windfall from the North sea, must put something back when those who use the fuel need help and need it now.

In new clause 8, proposed new subsection (1AA) would oblige the Chancellor at every Budget and pre-Budget report to provide both a forecast for oil prices and his anticipated yield from fuel duty and VAT from fuel. If we are going to use these forecasts, it is important that they are laid down in statute. Proposed new subsection (1AB) would oblige him through statutory instrument to reduce the level of duty in direct proportion to the value of the increase accounted for by VAT. I dislike in principle statutory instruments and regulation, too, but my overwhelming priority is that something must be done quickly, and this is the best mechanism by which to achieve that. Proposed new subsection (1AC) would ensure that when the price of a barrel of oil increases above the forecast, the next indexed fuel duty increase is automatically disapplied. That is important, because when the price goes up we can no longer have normal indexed duty increases withheld as a political whim; this must be an automatic consequence of a rise in fuel prices.

I have read all the debates we have had over the past few years to determine how the Government might oppose the measure. They may well argue that VAT yield is static—that as more VAT is taken from fuel, there is a reduction elsewhere. That argument suggests that no one eats into their savings or increases their debt, and it flies in the face of the evidence from the retail sector published by the Office for National Statistics on 20 June that sales increased in May by 3.5 per cent. The Government may also argue that yield from fuel sales is down because the price has risen, but the evidence from the Petrol Retailers Association is that there was only a very modest drop in sales earlier this year when the price rose dramatically, almost exclusively "from morning domestic sales", not from commercial trade or afternoon or evening business.

It is, I suspect, more accurate to claim that there is a long-term trend of increasing demand for total retail motor fuels. I shall refer briefly to a Department for Business, Enterprise and Regulatory Reform table on oil and oil products of December 2007. It shows that diesel sales increased in every quarter that is listed for 2007—the first three quarters—from 5.14 million tonnes to 5.32 million tonnes to 5.5 million tonnes. There is also a 7.8 per cent. increase between quarter three of 2007 and quarter three of 2006. Even taking into consideration the reduction in petrol sales as people move to diesel, there is still a net increase in diesel demand. At the start of those three quarters, diesel was 92p a litre, and it ended at 97p a litre—a 5 per cent.-plus increase, or twice the annual rate of inflation, in only nine months. Those who argue that there is elasticity in fuel demand should look at the figures from the Department for Business, Enterprise and Regulatory Reform. I argue that it is fundamentally inelastic. However, notwithstanding that an elastic situation can become inelastic over time, it is clear that there is an offshore windfall. Indeed, the Chancellor confirmed in his recent letter to my right hon. Friend Mr. Salmond that rising fuel costs

"do generate greater receipts from North Sea Corporation Tax and PRT."

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Photo of Lembit Öpik Lembit Öpik Shadow Minister (Housing), Department for Communities and Local Government

The inelasticity can be explained for rural areas because there is no other way to travel. Does the hon. Gentleman agree that it is that very dependence on diesel and petrol-powered vehicles in rural areas that makes people feel impotent in the face of these increases? Faced with a choice between driving less or reducing their expenditure on other things, they are forced to choose the latter.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

The hon. Gentleman is right and his comments mirror those of his colleague in the Scottish Parliament, Tavish Scott, who explained that people are questioning whether they can afford to go to work. Perhaps the hon. Gentleman should have a word with his Front Benchers, as his sensible approach runs counter to some of the comments that we heard earlier.

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Photo of Russell Brown Russell Brown PPS (Rt Hon Des Browne, Secretary of State), Scotland Office

Further to the point made by Lembit Öpik, households generally have a finite amount of money to spend. The argument may come from the Front Bench this evening that although additional income for the Treasury could be achieved through the increase in VAT, other sources of income are falling. There is great support on both sides of the House for the fuel duty regulator, but can Stewart Hosie tell the House honestly that the figures add up, because that is vital?

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

I agree, and I used the figures from the Department for Business, Enterprise and Regulatory Reform deliberately to show that over the first three quarters of 2007—the most up-to-date information that I have—there was a net increase in motor fuel sales across the board, notwithstanding the transfer from petrol to diesel, at a time when the price went up by twice the annual rate of inflation. Whether the fuel duty reduction comes from the onshore VAT windfall or the offshore North sea windfall, we can be certain that, in terms of total tax yield, this proposal is fiscally neutral.

The final criticism which the Government may make is that this is a one-way regulator. In the current climate, and with the very real fear of a "super-spike" in fuel costs, it is only right that my new clause addresses that. But there is nothing in new clause 8 to stop this Government introducing a claw-back measure to guarantee a minimum level of duty yield as per their forecast. They could do that in the pre-Budget report in the autumn at the same time as the first forecast required by the new clause.

There is no good reason why the principle of a fuel duty regulator should not apply, and very many reasons why it should. It would help the hard-pressed families who are paying £30 or £40 a month more for fuel for their cars. It would help remote and rural communities and the fishing and farming sectors, and protect the haulage industry, which keeps this country moving. It would also act as a measure to tackle inflation. Diverse sectors across the UK—not only from Scotland—have come together to back this measure, and I urge the House to do the same.

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Photo of Nigel Griffiths Nigel Griffiths Labour, Edinburgh South

I rise to oppose new clause 3. I am afraid to say that it is all too typical of the unprincipled politicking of the modern Conservative party, which has abandoned all its pretences at trying to claim the green agenda. Indeed, it repudiates the Conservative Chairman of the Select Committee on Environmental Audit, under whose chairmanship it produced a report in February that begged the Treasury to increase taxes on motoring. It stated clearly:

"Some motoring organisations have begun calling for the next planned increase in fuel duty to be scrapped" but said that the Treasury

"must not defer its planned rises in fuel duty."

The report gives the rationale behind its criticism of the Government and the Treasury. On page 11, it states:

"By 2009—10, main fuel duty rates will...remain 11 per cent. lower in real terms than they were in 1999."

Lower down that page, in paragraph 19, it warns that

"road traffic emissions in England went up by 12 per cent. between 1997 and 2006", and it links those emissions to that previous statement. And, as the report makes very clear on page 12:

"The forthcoming Budget is a test of the Treasury's environmental credibility: it must not defer its planned rises in fuel duty."

It might have been a test of the Treasury's environmental credibility, and my colleagues passed with flying colours. As a test of the credibility of Conservative policies, it showed them to be woefully inadequate.

In a previous report, the Committee stated:

"The Government should increase the differentials within Vehicle Excise Duty between the most and least efficient cars".

I think that that is what Justine Greening would call eco-stealth taxes. The Conservative MPs on the Committee, who are notable for their absence today, included the hon. Members for Ruislip-Northwood (Mr. Hurd), for The Wrekin (Mark Pritchard), for Beverley and Holderness (Mr. Stuart), for Wantage (Mr. Vaizey), for Bridgwater (Mr. Liddell-Grainger) and for Bexhill and Battle (Gregory Barker) and, of course, the Chairman, Mr. Yeo. All those Conservative MPs signed up and, to embellish the green credentials of their party, ensured that that unanimous report argued strongly for higher fuel duties.

The first report that I referred to made an interesting point that reflects on the debate when it asked the Treasury to consider ways to put the formulation of environmental issues outside the arena of electoral politics to some degree. Why, I wonder? Was it because the 2007 report of the quality of life policy group, co-chaired by Zac Goldsmith and Mr. Gummer, stated their proposals on vehicle excise duty very clearly? Their report said that

"we propose increasing the VED differential between the top and bottom bands of emissions performance" and that that change was

"aimed primarily at influencing the used car market".

The synthetic concern about backdating that we hear from Conservative Front Benchers is contradicted in the document that they paraded before Friends of the Earth and other green groups, which specifically said that the party had to aim primarily at the used car market. The document also proposed a new graded purchase tax, which would put 27.5 per cent. purchase tax and VAT on some larger cars, second hand or not.

Things have not changed so much since the Committee's report, which was produced in February. It reflected a considerable increase in fuel prices, but since February those prices have gone up even further. Are the Conservatives rowing back to take account of those prices, as some are urging? Far from it. This morning, on the BBC, the Chair of the Select Committee, the hon. Member for South Suffolk, was asked a direct question by Mr. Naughtie, who said:

"What about the back-dating which is very controversial"?

The hon. Gentleman replied:

"It is controversial; it is not of course back-dating in the traditional sense", but, he said,

"3 times as many people buy a second hand car as buy a new car so if we are going to use bigger differentials in Vehicle Excise Duty to influence our purchasing decisions they have to apply to existing second hand cars as well as to new ones".

That has been the consistent policy of the Conservative Members who have a track record of championing green issues, but there are very few of them. The challenge is this: I expect to see the seven Members of the Conservative party who pressed the Treasury not to back-pedal on vehicle excise duty or fuel duty in the Lobby with us, voting against the new clause. This evening, we will see whether even some Conservatives are willing to repudiate their Front-Bench team or whether, as the hon. Member for Putney suggested earlier, they will toe the party line and betray the environment.

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Photo of Peter Atkinson Peter Atkinson Conservative, Hexham 5:15 pm, 2nd July 2008

Over the years that I have been in the House, I have always known that Nigel Griffiths will leap up at the last minute to defend the indefensible if he needs to do that to defend his party. That is what he tried to do tonight. I wonder where he has been. His argument about the views of individual Conservative Members is irrelevant to the anger that the backdating of vehicle excise duty rises has caused. Does he go to Edinburgh and listen to his constituents? Does he understand the anger that has been caused?

Ministers would be wise to accept the advice of my hon. Friend Justine Greening and say today that they will not pursue the policy. There are certain trigger points that anger members of the public, our electorate. Sometimes they are irrelevant or extraordinary, but the backdating of the VED has caused anger. It is regressive, and many people who have decided to buy a particular car will lose thousands of pounds in the second-hand value of that car.

Mr. Chaytor mentioned stamp duty, but that was the wrong example. It would have worked as an example only if somebody had purchased a house and then the Government had said, "By the way, we're backdating the stamp duty. You now owe us another £150,000 for the house that you have already bought." People make decisions about what kind of car to buy on the basis of the cost at the time when they buy it. To change the ground rules is utterly wrong, which is why the vast majority of Labour Members, although not the hon. Member for Edinburgh, South, seem to agree with us on the spirit of the new clause, if not its details.

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Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Scotland), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Environment, Food and Rural Affairs)

Does the hon. Gentleman agree that the vehicle excise duty is Labour's poll tax on wheels? It is an annual charge, and it hits the poor hardest.

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Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

Absolutely. I agree entirely. It is not only regressive, but like all regressive taxation, it particularly hurts those who can least afford it.

My constituency is one of the most sparsely populated in England, and is on the Scottish border. Many of my constituents are not highly paid by any means, and they need their cars because there is virtually no public transport available. They have to travel many miles to find work, because work in agriculture and forestry has declined. It is common for people to drive 80 to 100 miles a day to get to and from work. Some work shifts, some are self-employed and some have to work weekends, so it would be totally impractical for them to use public transport.

People in my constituency are already taking a huge hit on fuel bills, and we have heard from hon. Members from Scotland that the situation is the same there, with fuel priced very highly. In addition, the decisions that those people must take about what kind of car to buy has been thrown into complete confusion because of the threatened change to VED. Some models of second-hand car that cost £10,000 a few months ago would be worth little more than scrap value now. People have little hope of part-exchanging a car like that for a new one of the type that the Government want them to buy.

People were encouraged to buy diesel cards because diesel was cheaper and gave more miles to the gallon. That was supposed to be a good thing to do, but it turns out that they would have been better advised to buy a petrol car.

The proposal affects women in particular, and I am surprised that the Exchequer Secretary to the Treasury is so unsympathetic to our arguments. Many women in my constituency work part time: they do 16 hours a week, or a few more, but many are having to give that up. They either cannot afford the fuel, or the need to sell one of the family vehicles means that they no longer have access to a car. Those women will then be trapped at home and possibly forced to live on benefits.

So far in the debate, there has been little discussion of another problem that people in rural areas suffer—the cost of kerosene heating oil. People in country areas do not get natural gas: we have electricity or oil, or we buy gas in cylinders. The prices of cylinder gas and kerosene have risen by more than the price of electricity and town or natural gas. The rises are huge: heating oil now costs more than 60p a litre, which means that 1,000 litres cost more than £600.

Those rises come on top of the Government's VED decision. From the Exchequer Secretary's demeanour, I do not think that she is inclined to listen to me, but I urge her to announce that she will not go ahead with the change. If she were to do so, she would reduce the anger that many people across the country feel.

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Photo of David Chaytor David Chaytor Labour, Bury North

We are all aware of the seriousness of the oil price crisis, which affects every individual, household and business sector in the country. I do not take that lightly, but some hon. Members do not appear to understand that the problem will not go away. We have reached a critical point in history, where global demand for oil exceeds supply. That is the background to this debate, but some hon. Members seem to want to ignore or forget that.

The only solution to all the complex issues with which we are grappling—such as variable VED and the fuel duty rise planned for October—is to increase the efficiency with which we use oil and all the other fossil fuels. Any political party that ignores that, or which rejects moves to increase that efficiency, is deceiving itself and the electorate.

I was delighted that my hon. Friend Nigel Griffiths was so critical of Opposition Front-Bench Members. Their amendment on VED has left them exposed as blatant opportunists. It has blown out of the water any shred of credibility that they might hope to gain in respect of their policies on the environment, transport and energy. I was also delighted to hear Mr. Browne demolish the case put by the Opposition Front-Bench spokeswoman—at least until he admitted that he agreed that the VED change should not apply to the existing fleet of vehicles.

I turn now to the question of retrospectivity. The VED proposal is not a retrospective, as it will come into force for the first time next year. The changes to the bands are retrospective, but such changes have been implemented in exactly the same way since they were first introduced in 1999.

I accept that people are worried about the resale values of vehicles in the second-hand market. However, when motorists change their vehicles—as most do every two or three years—what matters to them is the difference in the cost of doing so. That means that if the value of a 1994 vehicle falls, so will the value of the 1996 vehicle that a person may wish to change up to. It is the cost of changing vehicles that really matters.

Of course, what has driven the fall in resale values already is nothing to do with the variable VED that the Government propose for next year; it is entirely to do with the quadrupling of the oil price over the past three years. That is concentrating the minds of motorists, and it is already changing their motoring habits and their choice of vehicle. So the principle that underlies the change to VED is absolutely right, and I congratulate the Government on having the courage to make such a radical change. My only criticism is that it would have been helpful both to have introduced the change before and if the Treasury had shown a little more urgency over the past 11 years in taking on board the need for such changes to environmental taxes.

It strikes me from listening to the debate and the debate outside the House that many of those who seem to be fundamentally opposed to both the principle and the detail have not looked at the detail of the proposals. They have not looked at the way in which the current bands will be transformed into the new range of 13 bands in 2009-10. It is absurd to say that this is a massive attack on the low-income households. Some 10 million vehicles will not be affected by the change, or 10 million vehicles will pay less tax, and the drivers of those 10 million vehicles are overwhelmingly people on the lowest incomes. Vehicles registered before March 2001, which are overwhelmingly owned by low-income families, will face no change at all, because they are not affected by the enhanced variable regime. I urge my Labour colleagues, some of whom ought to know better, to look at what the Government propose before making sweeping accusations about the impact of the changes.

The principle of variable excise duty is fair, efficient and beneficial to the environment. It concentrates our minds on our individual responsibility to respond to the challenges of climate change, on the cost of motoring and on the efficiency with which we use fossil fuels. Yes, the tax changes are about changing behaviour. They will change behaviour; they have already started to do so in a small way over the past nine years. Of course, all taxes are about changing behaviour. That is one of the key purposes the tax system.

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Photo of James Paice James Paice Shadow Minister (Environment, Food and Rural Affairs)

I am very interested to hear the hon. Gentleman refer to changing behaviour, but what will he say to the thousands of people who made their choice six or seven years ago? He is suggesting that they can somehow change their behaviour today when they made the decision seven years ago. We are simply saying that retrospective taxation should not be applied to something that relates to decisions that people have already taken and cannot change.

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Photo of David Chaytor David Chaytor Labour, Bury North

People might look at the figures that the Government have published in the Red Book, which tell them exactly the decrease or increase in the variable bands that will come into force next year. They will see that 10 million vehicles will either get a tax cut or face no change, and they will find that, for the overwhelming majority of the 7.7 million vehicles that will experience an increase, it will be absolutely marginal in respect of both the present rate of VED and the overall cost of running a vehicle.

I have discussed the issue with the Minister on a number of occasions and explained that I thought that she was doing absolutely the right thing, but I stressed that that some points of detail could be improved. I hope that those points of detail will be taken on board before we finalise the arrangements of next year's Budget. Of course, if anyone takes the trouble to look at the table in the Red Book, it is pretty clear that the impact of next year's VED increase is only really a matter of concern for two of the new bands: new band J and new band K. The 10 lowest bands will experience a tax reduction, no change or an increase of about £15 to £25—a comparatively modest percentage increase. There are, however, issues about the vehicles that will be in VED band J and K next year, because some of them will incur a one-year increase of £90, which is almost a 30 per cent. increase.

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Photo of David Chaytor David Chaytor Labour, Bury North

Fifty per cent. I stand corrected.

That issue needs to be considered. Had the Treasury looked at the matter in more detail earlier, we might have phased in the increases year on year, and that would have given a stronger and more consistent signal to motorists.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party 5:30 pm, 2nd July 2008

The hon. Gentleman seems to be almost unaware of what his Government are proposing. First, the rises that he discusses are quite stiff, although they are nothing compared with the rises that people who are currently in band F will face when they go up to bands L or M by 2010. Then, they will face rises of £245. Secondly, he is probably not aware of the transition period, because he has demonstrated what I said originally—that the period was not mentioned at all. The Government are planning that people should be in transition across two years, precisely because they know how much the measure will hurt them.

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Photo of David Chaytor David Chaytor Labour, Bury North

I am looking at what the Government propose and reading from the chart in the Red Book. It is absolutely clear that new band J vehicles, with CO2 emissions ratings of 181 to 200 g per km, will pay £260 in 2009-10, which is a sizeable increase, but only a further £10 in 2010-11. I urge all Members who are concerned about the issue to look at the facts and at the increases.

It is true that from next year, 7.7 million will pay a higher rate, according to the Library analysis, but of those 7.7 million, the overwhelming majority will pay only a tiny—a marginal—higher rate. I return to the point that the real concern is the one-year increase next year, which is not carried through to 2010-11 to the same degree, in respect of new bands J and K.

Finally, the irony is that in respect of next year's rate, new bands L and M will show an increase of only £15 and £40, or 4 per cent. and 10 per cent., respectively. The paradox is that under the Government's proposals, the two highest-rated bands will pay less than the two bands lower down the scale, so there is an opportunity to make the system more progressive, fairer and more efficient. I hope that the Government will take those specific points on board.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

I rise to speak to new clause 14, which stands in my name and that of several of my hon. Friends. The debate has been fascinating and wide ranging. It would be very tempting to discuss some of the topics that have been debated, but I sense that the House may prefer me to confine my remarks to the new clause, and I shall do so.

I have a slight dilemma. As always, I have come well prepared with the detail of my arguments, but it would take a little time to expose, so I shall attempt to do the bullet-point version. I hope that if I skim across the detail, the House will forgive me but understand that the detail exists.

The genesis of the new clause was in an amendment that an hon. Friend tabled some years ago. My hon. Friend Danny Alexander reprised it last year, and I have addressed it on a number of occasions. It is, namely, the fuel premium that is paid in remote rural areas. The premium has varied over the years—when I first looked, it was 6p or 7p, and it is now 13p or 14p. It is specific to remote rural areas, for which I have a definition; and although it is perhaps a small issue in the wider context of the debate about the impact of high fuel prices on the economy generally, for my constituents in rural areas it really is salt in the wound. I want to speak briefly about the principle and details of what I seek to achieve.

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Photo of Roger Williams Roger Williams Opposition Whip (Commons), Shadow Secretary of State for Wales, Shadow Minister (Environment, Food and Rural Affairs)

I am sure that my hon. Friend will make this point, but the issue is not only the increase in fuel prices in rural areas, but the lack of a public transport alternative. That means that people have to have their own cars and feel the full effect of the higher prices.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

My hon. Friend is right on both counts: about the point that he has made and the fact that I would have made it. He has saved me that job.

The purpose of the new clause is to find a workable scheme for reducing but not eliminating the premium, to give some relief to people in remote rural areas, where, as my hon. Friend has just said, there is no alternative. In my constituency, there is a petrol station in Durness and in Tongue, which are about 50 miles—or an hour—apart. The average price of diesel on the north and west coasts is about 145p per litre; that is the scale of the problem.

In my intervention on Justine Greening, I alluded to the principle behind why something should be done. If one is seeking to change people's behaviour through taxation, people have to be able to make that change—in this case, people still have to be able to go places. In the remote areas that I am talking about, there is no capacity to make that change and there will not be. As my hon. Friend Mr. Carmichael pointed out, in many such areas the car is by far the most environmentally friendly option—far better than buses carrying nothing but fresh air.

The second point is that, broadly speaking, taxation should be equitable. It is clearly inequitable that in an area where there is no choice the tax should be higher, by virtue of the VAT element, than it is in other areas of the country. It is perverse that fuel costs are lower in many areas with public transport than in many areas where there is none.

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Photo of Danny Alexander Danny Alexander Without portfolio

I support what my hon. Friend is saying and his new clause. Does he accept that the issue is not only fairness in taxation, but the impact that the disparity has on the people whom it affects? In his constituency and mine, in the highlands, people's incomes are much lower than in the rest of the country. However, we ask those people to spend an awful lot more on their fuel and pay more tax on it, and fuel represents a greater share of their disposable income in the first place. The hardship caused is more real in such communities than almost anywhere else in the country.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

My hon. Friend makes a good point and saves me the trouble of making it myself; I shall move on.

Interestingly, the 30 per cent. rise in fuel costs across the country has resulted in a measurable percentage drop in car use. The theory of the impact of higher price has been tested. However, the interesting thing is that those drops are not reflected in remote rural areas because there people have no choice.

I have discussed the principle. As for the detail, I should say that I am grateful to Treasury Ministers. Until a year ago, whenever I raised this issue—as a subject for a debate or even as an amendment—I was totally stonewalled. However, the Chancellor expressed his sympathy in the Treasury Committee and, in answer to my hon. Friend Mr. Reid, the Financial Secretary, on behalf of the Exchequer Secretary, expressed sympathy and a desire to look at the evidence. As a result, I wrote a paper, which I have circulated and sent to the Chancellor; I hope that the relevant spokesmen for all the parties have received it, because I arranged for it to be sent to them.

The paper points out that first there needs to be a workable definition of "remote rural". My scheme is based on Scotland because I was able to get all the data on Scotland that I needed. I believe that similar data are available for England and Wales, but I do not have them. Scottish national statistics include what is called the eightfold urban-rural classification, which is shown on a very helpful map with very helpful definitions. For the example set out in my paper, I have chosen band 1, which covers about 2 and a bit per cent. of the population, and between a third and one half of the Scottish land mass. Other classifications could be used, depending on how exactly one wanted to target the scheme.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

In previous, similar debates, we have had a bit of fun on the issue of definitions, not least with Danny Alexander, but the eightfold model is very good because it includes a total of only 150,000 people in the most remote parts. The definition was a problem in the past, but the definition that we are considering is very good. That is why we will support new clause 14 tonight.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

I am grateful to the hon. Gentleman for making that point, and for clearly having read the paper that I sent him. The area is definable, but one needs a simple method by which the tax rebate can be passed through the system. I have discarded the concept of designating individuals—the proposal that was put forward last year—and the concept of designating vehicles. I instead suggest that we simply designate the retail filling station. That could be done very simply, because all the retail filling stations that one would want to designate clearly fall into the area in question. I am not concerned about the fact that a passing millionaire might benefit; if they happen to be passing through that part of the world, good luck to them. I do not think that we need make any difference according to who is in the area, whether tourist, visiting businessman or resident. The scheme works well, regardless.

If we agree that retail petrol stations should be designated, all that is required is a robust system of ensuring that the rebate is passed to the consumer, and is accounted for in a way that means that there is no fraud. My paper basically uses the VAT system of Her Majesty's Revenue and Customs, and the supply chain. I shall not go into further detail, but ask the House to take it from me that the system provides for a robust audit, and will ensure that the rebate arrives at the pump, and does not have to be paid for out of the pocket of the motorist, who is to benefit from it.

The major criticism that the Treasury has always made of the scheme, and the criticism that the Chancellor of the Exchequer raised in the Treasury Committee recently, was on the issue of cross-border exploitation. In other words, the fear is that somebody might cross a border to get cheaper fuel. That simply does not apply, because the premium is not being got rid of; it is simply being reduced. That provides no incentive for anybody to cross a border who was not already intending to cross it. It does give those who are thinking of crossing a border an incentive to recalculate and, as a result, not cross it.

In subsection (5)(g) of new clause 14, it is suggested that once the Treasury had agreed to the scheme, it might care to devolve it, and permit the Welsh Assembly and Scottish Parliament to operate it. There is clearly a difference of view on the importance of the scheme in different areas. I would encourage a UK-wide scheme, but if the Treasury would like to give us the ability to run the scheme in Scotland, I would certainly encourage that, too.

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Photo of Gregory Campbell Gregory Campbell Shadow Minister (Work and Pensions)

I hope that the hon. Gentleman remembers that Northern Ireland is also part of the United Kingdom.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

Indeed I most certainly do, but the advice that I had when framing this was not to include Northern Ireland, for whatever reason—I am not entirely clear.

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Photo of Russell Brown Russell Brown PPS (Rt Hon Des Browne, Secretary of State), Scotland Office 5:45 pm, 2nd July 2008

If there is any disappointment on my part, it is that I have not managed to see the hon. Gentleman's paper. Despite what other Members may think, I have some extremely remote rural areas in my constituency. There are locations in the highlands and islands where people visiting hospital in the central belt are given special payments, but people in my constituency in the extreme south-west of Scotland travel even longer distances and do not qualify for that kind of payment. That is why remote rural areas need to be tightly defined. I suspect that parts of my locality may not be included in his document, but I would be delighted if they were.

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Photo of John Thurso John Thurso Liberal Democrat, Caithness, Sutherland and Easter Ross

I am delighted to tell the hon. Gentleman that according to the colourful map that I possess, parts of his constituency are included, while small parts of mine, and indeed of his, are not. The detail was published by the Scottish Executive; they are robust figures, and I ask him to take my word for that.

There is a strong case for righting an obvious wrong. New clause 14 would permit that to be done, and when the appropriate moment comes I would like to commend it to the House.

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Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

Given the time constraints, I shall confine my remarks to new clause 3 on vehicle excise duty.

The Government propose to make changes to vehicle excise duty as from the Finance Act 2009, a year hence. It is right that they consult on that proposal, and that is happening. My views on the way forward are fairly well known. I think that the Government need to reconsider the VED proposals—I am fairly confident that they will—in the context of the overall tax system and the part that green taxes play in that matrix. That point was well made by my hon. Friend Richard Burden.

We need to consider what green taxes are. There has been a rather glib assumption that we are all talking about the same thing, and I am not sure that that is the case. Green taxes have a role to play in changing behaviour. The VED proposals that are on the table and out for consultation will have an effect on changing behaviour, but I am not sure that it is an effect that I would always wish to see. The proposals will, if implemented, lead to lower second-hand values for vehicles. That might mean, paradoxically, that an owner of such a vehicle, which might by next year be up to eight years old, may keep the vehicle instead of trading it in because they cannot afford to change it. The proposals might change behaviour as regards the earlier scrapping of vehicles that entered the fleet between March 2001 and the Finance Act changes in 2009. In the medium term a car might be scrapped when it is, say, 12 years old, because the VED changes would make it less economical to run than if they had not been introduced.

There may also be a change in behaviour that is exemplified by my mate, Steve Smith, who runs a 1990 Ford Granada. Some hon. Members will remember those—they are a right boat of a car. Steve is saying to me, "If these vehicle excise duty changes go through, because I have got a pre-2001 car I think I might just keep it a bit longer even though I know it's causing pollution." Another effect that the proposals would have in changing behaviour is that they would devalue the currency of and support for green taxes, which would be rather undesirable.

An aspect of green taxes that has not been mentioned is the "polluter pays" principle, which we already have indirectly through the emissions trading scheme. If an industrial plant pollutes a lot, it has to pay more for its carbon dioxide allowances through the European emissions trading scheme, and those prices will be ratcheted up in the future. That is a green tax, made on the "polluter pays" principle. Those who have been driving vehicles that pollute more, such as private motor cars or company cars, have—sometimes in all innocence—polluted our atmosphere, contributed to climate change and contributed to greater Government expenditure on addressing the effects of climate change.

For example, quite laudably, the Government have doubled spending on flood defences—both inland and coastal sea defences. One of the reasons that such increased expenditure is needed is that the climate has changed because it has been polluted, and it has, in part, been polluted by those who have, for the past seven years or more—and I suspect almost every Member is guilty in this regard—been driving polluting vehicles. The Government have to spend more money. We are going to have to spend more money on things such as reservoirs, and we have started to. The Government are spending more money on medical research because we are getting diseases such as malaria because of the changed climate. The Government are spending more money on biodiversity research, and on trying to prop it up—it is under considerable stress and pressure because of the pollution that has led to climate change.

It is not only a question of changing future behaviour with green taxes—desirable though that is—but a question of the "polluter pays" principle and the price that we have to pay as a society, often refracted through the medium of taxation, for tackling the effects of climate change. Research on plant biology and the sort of crops that we grow in this country has to be carried out. We need research on the re-engineering of our railways and roads. That is already under way and it will become a lot more necessary as the climate continues to change. Climate change causes changes in temperature, which means that such re-engineering is necessary, and it is driven, in part, by the pollution caused by people driving around in these cars.

I am not at all convinced by the Conservative position on new clause 3. There are problems with its technicalities—its need for a statutory instrument—to which my hon. Friend Mark Fisher so ably adverted. I do not like the technicalities. Moreover, the suggestion that the current proposals, which I hope the Government will reconsider, are in some way a stealth tax is one of the stupidest criticisms I have ever heard, given that vehicle excise duty is one of the few taxes where people get a bit of paper through their letterbox in advance, which says, "This is what the tax will be if you undertake this behaviour." It cannot be a stealth tax. I do not like the idea of stealth taxes anyway, but that really is a silly criticism of vehicle excise duty, of all things.

Although I find the hand-wringing of the Conservatives and their new-found concern for the poor heartening on one level, I hope that Justine Greening will forgive me when I say that I am rather suspicious about it. It seems rather opportunistic in this context. An early-day motion was introduced by my hon. Friend Mr. Campbell. I understand—and I stand to be corrected on the figures—that there are 69 signatories, 12 of whom are Conservatives. That is an example of why I am somewhat suspicious of their new-found concern for the poor.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party

We will see how many Conservative and Labour Members go through on our side compared to his.

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Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

I am quite confident that the Government will have a majority because the wording of new clause 3 does not address the issue at all, and because there is plenty of time for the Chancellor to reconsider.

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Photo of Anne Main Anne Main Conservative, St Albans

May I draw the hon. Gentleman's attention to the fact that some Members—from all parties—do not sign early-day motions on principle, preferring instead to put the effort into legislation. An early-day motion, as the hon. Gentleman is well aware, is merely a statement, and some hon. Members prefer to campaign and make arguments in the House, rather than sign a piece of paper that does not have much thought behind it. I am not decrying early-day motions, but please do not say that because someone has not signed one, they do not care. That is hardly a fair statement and the hon. Gentleman knows it.

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Photo of Rob Marris Rob Marris PPS (Rt Hon Shaun Woodward, Secretary of State), Northern Ireland Office

Again, I would have more sympathy with that critique if there had been an average attendance of Conservative Back Benchers that even approached 12 this afternoon. The hon. Lady's argument does not hold good. I stand to be corrected, but I have not noticed any Conservative Member tabling an amendment that sets out exactly what the Conservative party believes we ought to do about vehicle excise duty. Conservative Members have neither set out their policies nor tabled an amendment, so we do not know what their policies are. It is all very well their saying that they do not like the retrospection, that we are discussing a stealth tax and that they do not like this, that and the other. I have sympathy with that position, but they do not present their policies when they have every opportunity to do that. They simply do not avail themselves of it.

I emphasise to my hon. Friends on the Treasury Bench that I hope that the Chancellor reconsiders, but that he does so carefully and is not stampeded by some of the siren voices around us. The subject is complex and needs to be considered in the round, in the context of not only what we are pleased to call green taxes, but the overall structure of taxes in the United Kingdom, because if we lower one tax, we must raise another.

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Photo of Adam Price Adam Price Spokesperson (Communities and Local Government; Culture, Media and Sport; Defence; Transport; Ministry of Justice)

I shall concentrate on new clauses 8 and 9, which Scottish National party and Plaid Cymru Members tabled.

As ever, Rob Marris made an interesting contribution. There is a danger that some Government policies that we have discussed today will give green taxes a bad name and could undermine the necessary shift towards environmental taxation, which must be supported because of the "polluter pays" principle that the hon. Gentleman mentioned. Dr. Ladyman has an interesting article in Progress. He is a Labour Member who, as a former Transport Minister, should know about such things. He makes powerful points and supports our proposal for a fuel duty regulator.

There are three general reasons for needing a moderating mechanism for fuel duty. First, the unprecedented volatility in the price of oil has far-reaching social and economic consequences, and we need a mechanism to dampen the peaks and troughs. Secondly, environmental taxes must be linked to clear environmental criteria; otherwise the public will believe that they are simply a revenue-raising mechanism, and that undermines the broader importance of environmental taxation. Thirdly, surges in fuel prices disproportionately hit some sectors of the economy, some sections of the community and some parts of the country disproportionately that need and deserve Government protection. I shall consider each item briefly.

Volatility is the catalyst for the debate, as it was at the beginning of the decade, when there were also fuel protests. The oil price is historically high. It is the second oil price shock and I think that it is qualitatively different from the first because, if we have not yet reached peak oil—the moment when conventional oil production goes into irreversible decline—we are near the summit. After 1973, non-OPEC countries could expand exploration and production in response to the oil price surge. That eventually broke the power of OPEC and led to a collapse in the oil price in the mid-1980s. We are in a different position now. The growth of the emerging economies, especially that of China, has driven the oil price up in terms of demand, while the supply side is totally different from what it was. Non-OPEC conventional oil production is already in irreversible decline. The North sea may be a special case—perhaps Government policies and tax hold back production there. We will be in a position whereby OPEC has a far stronger grip on the oil market than before. From what we know of demand, OPEC will be able to hold up oil prices in the long term.

There are some counter-arguments about the lack of investment in refining. Some refining capacity will come on stream in India, Sri Lanka and the middle east. That will have some effect. There are discussions about the long-term prospects of tar sands, oil shale and even coal oil, but most people accept that we are in a period of high oil prices and that we will remain there, certainly until alternative fuels and technologies reach maturity—at least 20 years away. The fundamental driver is geological. Supplies are finite and they are running out, which is inevitable. That is the position that we are in.

There may be a fall in the oil price if the Chinese economy goes into recession or if the US economy gets into further difficulties, and it could be a dramatic fall, but that is the point. Even against the underlying trend, which has to be upward, there may be dramatic surges and falls along the way. That is why we need a moderating regulator to provide people with the stability to plan for this new era. We have moved from an era of cheap oil and are now in an era of premium oil, and that will continue.

We need to give people the ability to plan for a post-oil economy, as the Swedes are doing. However, we cannot do that if we are exposed to the vagaries of the international market. We need a planned transition to a post-carbon economy. A fuel regulator would be an important contribution towards enabling companies, families and individuals to do that. Large companies can do that through hedging, but we need to afford smaller companies and families some protection from massive fluctuations in the price of oil.

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Photo of Alan Reid Alan Reid Shadow Minister (Northern Ireland), Shadow Minister (Scotland) 6:00 pm, 2nd July 2008

The hon. Gentleman is talking about stability, so could he say by how much the regulator would bring the price of oil down under new clause 8, if it increased by 5p?

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Photo of Adam Price Adam Price Spokesperson (Communities and Local Government; Culture, Media and Sport; Defence; Transport; Ministry of Justice)

To be honest, I would have to pass on the detail of the hon. Gentleman's question, but the principle is vital. [ Interruption. ] Well, I would ask him how big a derogation he is talking about in rural areas. I support that principle, because we take a non-partisan approach to the issue. The Liberal Democrats' new clause 14, which deals with remote rural areas, deserves support from all sides of the House. Surely he can recognise that even outside remote rural areas there is a need for a moderating influence when oil price surges cause such distortion and devastation in our economy.

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Photo of Russell Brown Russell Brown PPS (Rt Hon Des Browne, Secretary of State), Scotland Office

The hon. Gentleman and his colleagues have undoubtedly talked in the past about the fuel duty regulator that operates in France. However, if the fuel duty regulator is the panacea for the problems that he is describing, can he explain why President Sarkozy is looking to go to the EU for a reduction in the VAT rate?

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Photo of Adam Price Adam Price Spokesperson (Communities and Local Government; Culture, Media and Sport; Defence; Transport; Ministry of Justice)

I am not familiar with the detail of the history of the French fuel regulator. Fuel regulators exist in various OECD countries—for example, Canada has regional fuel price regulators—but I will have to look into the issue. I understand that Sarkozy proposes looking into not only VAT, but a number of other mechanisms; indeed, the French have in the past supported harmonisation of EU diesel rates, which we might need to consider, given what is happening to our haulage sector. The principle of what President Sarkozy is suggesting is very much aligned with the principle behind new clause 8. We need a mechanism to smooth out the fluctuations, because they are having a devastating effect on our economy and the French economy.

All Governments get a windfall gain as a result of fuel duties. This Government get a particularly large one, because of the high level of the duty and because we effectively have double taxation, as we levy VAT on the fuel duty element, too. The reason fuel taxes are historically popular with Governments is the inelasticity of demand, as Stewart Hosie said. The estimated elasticity of demand is about 0.4 to 0.5, but is much lower in rural areas, at 0.2, for the reasons that we have heard. The result of the fact that elasticity is less than 1 is that fuel consumption falls in response to higher prices, but expenditure goes up. That is the key issue. There is a windfall gain.

The loss of revenue argument does not hold, because people are transferring expenditure from other goods and services in the economy on to fuel. If we were able to cut fuel prices through a fuel regulator, consumption in other parts of the economy would go up and the Government would get the VAT in that way. I have not even referred to the issue raised by the hon. Member for Dundee, East about the offshore windfall.

We have already heard about the problems of rural areas in relation to hard-pressed sectors and communities. The Government must acknowledge that it is particularly difficult for certain sectors of the economy to respond to rapid rises in fuel prices. Haulage companies, farmers and those in the fishing industry, for example, find it difficult to pass on increases in fuel costs to their customers, the end users, when oil prices are rising rapidly. That is because contracts generally last for an extended period, and there is no provision for additional fuel costs to be passed on until the contracts are renegotiated. The fact that these sectors come under pressure leads many companies within them to cut margins even further, resulting in cut-throat competition within the sectors because the companies have to go after the same contracts. This leads to a vicious circle. We are seeing haulage companies going bust in Wales and in Scotland. A fuel regulator could provide a degree of control over this situation and prevent those sectors from being exposed in this way.

Eventually, we shall have to make the transition to a post-oil economy, and the shift towards environmental taxation is an important part of that. However, if we lose public support for the notion underlying environmental taxation, it will be difficult for a Government of any party to make the necessary changes. I therefore urge the Government to listen carefully to those on their own Benches, and to support this very modest proposal from Plaid Cymru and the Scottish National party, which is backed by many of the sectors that have been affected, in order to bring about a degree of Government protection while we are going through this difficult time as a result of the massive price rises on the world oil markets.

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Photo of Robert Smith Robert Smith Shadow Deputy Leader of the House of Commons, Opposition Whip (Commons)

I echo what Adam Price said about the importance of green taxes not losing their credibility because they are being abused. The Government need to look again at the VED argument, and I hope that they will use this debate as an opportunity to respond to the concerns that have been expressed across the House.

My hon. Friend Mr. Reid asked the hon. Member for Carmarthen, East and Dinefwr what the effect of his regulator would be in relation to a 5p rise. My hon. Friend has worked out that the provision would result in a reduction of 1p. A far more important measure for the haulage industry would be an essential-user rebate, which would create a level playing field with the rest of Europe. The hauliers who have been lobbying Parliament are here listening to this debate. Will the Exchequer Secretary tell us how the Government view their ability to achieve a level playing field with the rest of Europe on haulage costs and, in particular, whether they would welcome the introduction of an essential-user rebate as a more targeted way of tackling the industry's concerns?

My hon. Friend John Thurso made an excellent case for new clause 14. I, too, strongly support the new clause because it attempts to address in a targeted way the problems of people in rural areas by recognising that they do not have a choice and that they have to use their cars. My hon. Friend made the excellent point that there would be no cross-border issues because the measure would create a level playing field. What would be the point of crossing the border if that were the case?

My hon. Friend also made a good point about working off-road vehicles, and the attempts to reach a compromise regarding the concerns involved. In a rural area, it makes no sense for the farmer, ski centre or forester to own two vehicles. They need to own a 4x4 off-road vehicle primarily for business use, but rather than increasing environmental costs by owning a second vehicle, they should use the same vehicle when they need it for personal use. I very much hope that new clause 14 will gain wide support across the House. It takes forward a constructive way of tackling a matter of rural concern.

I hope that the Exchequer Secretary will address the concerns of hauliers and clarify the Government's view on having an essential-user rebate as a means of levelling the playing field with Europe. One of the hauliers I met earlier told me that his margin used to be 6 to 7 per cent., but that it is now down to 1.7 per cent. He said that if things carry on in the same way for much longer, there will be no margin at all. In that case, he will not be in business and essential transport in Scotland will be damaged. I repeat my hope that the Government will look sympathetically on new clause 14.

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Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

We have had a fascinating debate with many interesting and thoughtful contributions, for which I commend Members.

The Government recognise the impact that high fuel prices are having on motorists at the moment and they understand the importance of addressing it. High fuel prices are being driven by changes in the international price of crude oil, which has almost doubled over the past year. The UK continues to work with international partners to ensure efficient and effective global commodity markets.

It was in recognition of the impact of high fuel costs on business and families, of which we have understandably heard a great deal today, that the Chancellor took the decision in the Budget to defer the planned 2p a litre increase in fuel duty. Since October and the last increase in fuel duty, fuel prices at the pump have risen by 20 per cent., even though tax rates have remained unchanged. The Chancellor will look closely at those and all the other factors when considering whether to go ahead with the planned 2p a litre fuel duty increase in October.

Since the fuel duty escalator that we inherited from the Conservative party was abolished in 1999, fuel duty has actually fallen by 16 per cent. in real terms. The current fuel duty rate is 50.35p a litre: had fuel duty gone up in line with inflation since 1999, it would be 61p a litre; and had it gone up in line with the Conservative party's 3 per cent. escalator, as it did prior to 1999, duty rates would now be 79p a litre—a full 29p a litre higher. Furthermore, figures from the Office for National Statistics show that the real cost of motoring has fallen by 13 per cent. in real terms since 1999. That is largely because the purchase price of cars has fallen while their fuel efficiency has increased.

I now wish to deal with the new clauses on vehicle excise duty in the context of the reform of 2001, which introduced graduated levels of VED to reflect the environmental impacts of different cars as assessed by their emissions of CO2.. This was welcomed by Conservative Members at the time, although it would be difficult to discern it from their opportunistic behaviour at the moment.

Since the 2001 reforms, carbon emissions from cars have fallen and VED is recognised as having had an impact. Total CO2 emissions from car use have fallen by 4.8 per cent. since 1997, but road transport still comprises nearly a quarter of UK carbon emissions, so we must go further in encouraging both the manufacture and purchase of low-carbon vehicles. That is why my right hon. Friend the Chancellor announced a package of measures in the Budget to support the decarbonisation of road transport, and it is in that broader context that the VED changes must be seen. However, the proposals we announced at Budget 2008 are not actually legislated for in the Bill. All we have to consider today are the Opposition new clauses and amendments, to which I now turn.

New clause 3 is designed to provide the Treasury with the power to alter VED rates by statutory instrument at any time during the financial year, but only for cars purchased after 23 March 2006. The new clause is undesirable for a number of reasons. The Government currently have two systems of VED—one for cars purchased prior to 2001, for which comprehensive data on CO2 emissions are not available; and one for cars purchased after 2001, for which data on CO2 emissions are available.

The new clause would create at least three systems of vehicle excise duty, and would further complicate the system by ensuring that rather than being based purely on carbon dioxide emissions, VED rates would be based on both carbon dioxide emissions and a new criterion, the tax age of the car. That would create huge confusion, and would blunt, if not completely eliminate, the overall environmental signal that the 2001 changes to VED were designed to introduce. For example, in the second-hand car market consumers would need to confirm not only the carbon dioxide emissions of a used car when making their purchase decision, but the year in which it was manufactured to determine which VED system it would then be allocated.

The new clause would also create the potential for further fragmentation of the VED system by allowing the rate to be set at any time throughout the year. It makes it possible for the Treasury to change certain VED rates, although not all, throughout the year, and potentially on multiple occasions in each financial year. That would lead to consumer confusion and uncertainty for manufacturers, and uncertainty for customers too. It would also create serious administrative challenges for the Driver and Vehicle Licensing Agency .

If, as new clause 3 would allow, VED rates were to be set for a financial year but could be changed at any point during that year, whenever they changed, it would be necessary for the DVLA either to provide refunds or to collect additional taxes from people who had already paid their annual car tax bills. It would also be strange to take the decision-making process for the new third VED system outside the Budget and Finance Bill cycle in which other tax decisions are made, creating uncertainty for the public finances. In particular, the system would separate the VED rate decisions from those on all other VED rates—for example, on motorbikes, vans and heavy goods vehicles, as well as all cars purchased before 2006. Under new clause 3, the Government would still be able to choose to increase or decrease those rates, affecting existing motorists, through the normal Budget process. Whatever views there may be on the proposals for future VED changes announced in the Budget—and I have listened carefully to what my hon. Friends have said—new clause 3 is undesirable, unworkable and downright peculiar.

Mr. Browne spoke very entertainingly for nearly 40 minutes, and managed to mention his amendment No. 7 on VED in the last sentence. The amendment poses problems similar to those posed by new clause 3. It calls for changes to the 2008-09 VED rates to apply only to new cars registered after 13 March 2008, a different date from that suggested in the Conservatives' new clause.

The amendment at least refers specifically to the changes in VED rates that took effect from 13 March this year and that were debated and voted on in the Committee of the whole House. Unfortunately, it would disrupt them in a way that I cannot believe the hon. Gentleman intended. His amendment would apply the new rates only to cars purchased since this year's Budget, rather than to all cars. The DVLA would need to contact and provide refunds for all the millions of people who have renewed their tax discs since 13 March.

Put together, new clause 3 and amendment No. 7 would create a nightmarish double whammy of administrative complexity and confusion. They would lead to a fragmented, confusing and unworkable system of VED. If both were passed, multiple systems of VED would be created for cars purchased on different dates. There would be one system for cars purchased before 2001, another for cars purchased between 2001 and 2006, and yet another for cars purchased between 2006 and 2008, for which rates could be changed at any point throughout the year. Amendment No. 7 would introduce a fourth system operating from 2008.

The combination would completely undermine the clarity of the carbon dioxide signal that the Government successfully introduced and that was supported by both Opposition parties, as well as creating a severe and costly administrative headache for the DVLA. In addition, none of the changes would affect the VED reforms announced in the 2008 Budget, which are due to be legislated for and to take effect in next year's Finance Bill.

These amendments serve one useful purpose, however: they highlight the inconsistencies in the arguments that have been advanced against the application of Budget 2008 changes to existing cars. Following the Committee of the whole House, the House voted on clause 15, which introduced new rates of VED for 2008-09, and these rates are currently in effect. They include an inflation-based uprating of most VED bands, and an increase of £100 on the most-polluting cars, and these changes apply to cars that were registered prior to the Budget this year. This is in line with standard Government practice: for example, when the Government introduced a new VED band for cars emitting less than 120 g/km in 2002, and a new band for cars emitting less than 100 g/km in 2003, these were applied to existing cars, giving them significant tax cuts, even though the owners had already acquired those cars.

Of course, on every occasion that the Conservative party increased VED between 1979 and 1997, it applied it to all existing cars. If the logic of the so-called "retrospection" had been applied to VED rates since 1979, we would currently have a system whereby those who purchased cars in 1980 would pay £60, those who purchased them in 1981 would still pay £70, and so on ad infinitum. Thus, vehicles that emitted more carbon dioxide but that were older would have lower VED rates. Where is the environmental signal in that?

It is entirely usual that the VED reforms announced at Budget 2008 will also apply to post-2001 cars that have already been registered. This is in no way retrospective. It is simply the way in which VED has always worked. As the debate on these new clauses and amendments has clearly shown, if it were decided to apply new VED rates only to cars registered after a certain date, it would not only be difficult to determine what that date should be, but it would be administratively complex, and, most importantly, would seriously undermine the environmental signal that is provided through the VED system, creating confusion, in particular in the second-hand car market.

New clauses 8 and 9 relate to fuel duty. If agreed to, they would introduce a mechanism that could lead to fuel duty reductions when international oil prices exceeded their forecast prices. This mechanism would, however, be very complex, involving very expensive changes to the road fuel duty and VAT systems with no guarantee of actually reducing prices at the pumps. These new clauses rely on the idea that higher fuel prices lead to higher overall receipts for the Treasury. This is simply not the case. As fuel duty is a fixed rate, increases in fuel prices will not lead to increases in revenue. Thus while petrol prices at the pump have risen 20 per cent. since the last fuel duty increase, fuel duty itself has not gone up. As it is expected that demand for fuel will fall as a result of higher prices, the Government's revenues from fuel duty are, in fact, likely to fall as a result of the current conditions in the international oil market.

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Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury) 6:15 pm, 2nd July 2008

Although it is right that the duty is constant, I am sure the hon. Lady will concede that the VAT receipts increase as the price rises. Notwithstanding whether or not there is a VAT windfall—I explained, rather well I think, why I believe there is—there is most certainly an offshore windfall, as confirmed by the Chancellor in a letter to my right hon. Friend Mr. Salmond. That could be used to offset some of the increase in the price at the pump.

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Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

There may well not be a VAT windfall, because when people spend more money on one good or service, they tend to spend less on others. They have only a certain amount of disposable income.

On the hon. Gentleman's point about offshore oil, we do not yet have the out-turn for this year's oil receipts—the Treasury will not receive them until July—and he needs to remember that oil company profits can be offset against investment decisions in the North sea. We will not have proper knowledge of North sea oil receipts until the pre-Budget report.

Overall, the wider VAT effects mean that there may be no windfall, and that is the difficulty with the proposed amendments. I understand and sympathise with the worries that are driving Scottish Members on both sides of the House to suggest mechanisms that would provide relief. I have met some of them to discuss those ideas and we will examine them. However, those Members must understand and acknowledge the difficulties with their ideas. There are no easy solutions to the pressure that families everywhere are feeling because of the huge rises in the price of oil and the knock-on effects on family budgets and business profits.

The difficulty with the new clauses and amendments is that they seek to redistribute a tax windfall that does not exist. New clause 9 also suggests that reductions in fuel duty as a result of the proposed fuel duty regulator should be paid directly to road hauliers. I have great sympathy for road hauliers, especially the smaller companies that find it much harder to pass on their increased costs. I have spoken to many hauliers and their representatives, and I am not unsympathetic, but why should the provision apply to hauliers and not to other equally deserving essential road users? Who would be in the scheme and how would we decide? The Government recognise the road haulage industry's concerns, and those of other businesses, over the current cost of fuel, and we continue to examine the position.

Requests for reduced duty rates for road haulage operators are often associated with the relative competitiveness of the industry compared with foreign operators. Studies have shown that European duty differentials are in many cases offset by other costs such as lower labour rates and other employer costs. Furthermore, a scheme would require the introduction of an administrative mechanism, with potentially high costs. Also any system would create significant compliance and fraud risks.

The Government have continued to support the industry through other policy measures such as the halving of, and subsequent freezes to, HGV vehicle excise duty rates, and the reduced pollution certificate scheme. Also the Government recently announced £24 million of funding for enforcement, in particular aimed at those conducting international trips. That will mean a 50 per cent. increase in the number of HGV checks carried out, including two new enforcement sites at key points on the road network.

I listened to John Thurso outlining his ingenious scheme, and he helpfully sent an explanation to the Chancellor. We continue to look at the detail of his proposals, but I hope that he will acknowledge that it would cause practical difficulties that are not easily solved. However, I am not unsympathetic to his case, and I commend him on his ingenuity.

Amendment No. 9 deals with VED for off-road vehicles and also relates to rural areas. It proposes that existing alternative fuel discounts should be extended to cover off-road working vehicles. Those used in agriculture are already exempt from VED and authorised to use red diesel. The VED exemption permits vehicles to travel on public roads for a distance of 1.5 km in order to travel between different land areas. To have any effect, therefore, this amendment would require the Treasury to make, and the DVLA to enforce, a new definition of off-road working vehicle that encompassed a broader range of vehicles. However, it is unclear how that could be achieved, and the new clause does not help with the definition. It is difficult to imagine how that could be done without providing an incentive to fraud, and therefore the need for a costly enforcement regime. However, I am happy to keep talking about those ideas.

Finally, let me turn briefly to Government amendments Nos. 22 and 23, which make minor amendments to clause 75. The clause extends for a further five years the 100 per cent. capital allowances scheme for businesses that invest in the cleanest cars. The clause updates the carbon dioxide emissions threshold to maintain the focus on the cleanest cars and rewards people appropriately. The Government amendments are required because two small consequential changes were initially overlooked. They are needed to effect the transitional provisions and to exempt businesses that buy or lease the cleanest cars. I therefore commend the Government amendments and urge the House to reject the Opposition new clauses and amendments.

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Photo of Justine Greening Justine Greening Shadow Minister (Treasury), Vice-Chair (Youth), Conservative Party 6:30 pm, 2nd July 2008

We have had an interesting debate. Mark Fisher talked about his hope and trust that his Government would remedy this unfair retrospective road tax in the the pre-Budget report, but we have had no indication from the Minister that that will happen. I do not share his confidence and I am sure that the public will not share it when they listen to the debate tonight and read about it in the papers tomorrow. The public will find it extremely difficult to understand how Labour MPs, who were so rightly concerned about the 10p tax rate fiasco, can dither tonight when it comes to tackling the vehicle excise duty that will hit twice as many people for up to twice as much money. The tax will hit older cars and lower income families, is deeply unfair and will not have any substantial impact on CO2 emissions. We should use new clause 3 to vote against that tax right now.

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Question put, That the clause be read a Second time:—

The House divided: Ayes 240, Noes 303.

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Question accordingly negatived.

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