[Un-allotted Half Day] — Cost of Living

Part of Opposition Day – in the House of Commons at 2:59 pm on 9th July 2008.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury) 2:59 pm, 9th July 2008

Let me add my congratulations to Mr. Campbell. A couple of weeks ago we had an Opposition day debate on the same subject, but no Ulster Members had an opportunity to speak on that occasion. As I do not want to restrict the time available to David Simpson, who is obviously waiting to speak, I shall be fairly brief.

A couple of distinctive Northern Irish issues are relevant to the debate. The first is that as Northern Ireland has a large rural hinterland, it is probably proportionally more affected by transport costs and by a relatively poor train system. The impact on the farming community is particularly significant, and it involves factors that also affect Scotland, Ireland, Cornwall and other parts of England.

A second issue that was mentioned by neither Mark Durkan nor the hon. Member for East Londonderry is Northern Ireland's proximity to the Irish border. Nowadays there is a large amount of cross-border trade and movement across the Euroland frontier. Anyone importing goods from southern Ireland or crossing the border to buy them will know of the substantial impact of sterling devaluation against the euro, which is probably about 15 per cent. That currency change is an important element of the increased cost of living in Northern Ireland, which may be mentioned in the winding-up speeches.

I want to develop some of the points made by the Minister and Justine Greening about the oil sector. Although the motion contains nothing desperately controversial—it is worded very openly, and I am happy to support it—I worry, like the Minister, about the constant references to a windfall from oil. It is tempting to jump on to the bandwagon, as the Conservatives and the Scottish National party have, and I am tempted to imagine that there is a pot of gold that can be spent on good causes, but I want to dwell a little on where the money comes from.

The sums that I have seen suggest that if we are talking purely about the existing windfall tax from the North sea—the petroleum revenue tax and the extra rate of corporation tax—if oil prices were maintained at their present level throughout the financial year, there could be an extra £6 billion from that source and, on similar assumptions, £3 billion or £4 billion from value added tax. That apparently quite large sum would come simply from higher oil prices.

There are two points to be made. First, we are talking about not a separate silo, but a single stream of Government revenue. What is happening to oil revenue is no different from what is happening to stamp duty or income tax. Some taxes are going up, while others are going down. This is not free money waiting to be allocated, and if it were allocated to something else there would presumably be an opportunity cost. That is the obvious point.

Secondly, there is a slightly more subtle point, which I think the Financial Secretary was trying to make, although I do not know how subtle it proved to be because I had to leave the Chamber. It is an economic point: as the fact that oil prices are rising contributes to a slow-down in the economy and therefore has an impact on income tax, corporation tax and all the other taxes that are going down, it is questionable whether there is a net revenue gain.

I am on the Financial Secretary's side, and I am somewhat sceptical about the existence of a net gain. The think-tanks have clearly reflected on the matter, which they consider to be complex, and they have not come up with any definitive conclusions. I think it would help the Government to make their own case, not only with Opposition parties but in the drawing rooms and pubs of Britain, if they explained the model that they use to produce their figures. I do not know whether the outcome would be positive or negative, but I think it would increase their credibility if they explained their calculations rather than the Financial Secretary simply telling us that she has the information on good authority. After all, it may or may not be good authority.

The hon. Member for Putney spoke of the new approach to the duty regulator. She is to be commended for coming up with a new idea that deserves serious discussion, and although I think that she will acknowledge that it is based largely on an idea that the Scottish nationalists have been advancing for some years, it has joined the mainstream of the debate, so let us discuss it.

On the basis of what the hon. Lady said today and what I heard her say on the radio during the rain intervals at Wimbledon on Sunday, I think that I have pieced the argument together, and I do not think what she is saying is enormously different from what the Government are doing. When oil prices rise, a decision is made not to increase the escalator. The difference is that the Government do that on an ad hoc basis, while the hon. Lady suggests that it should be done according to a formula.

During our last debate on the cost of living, the Chief Secretary acknowledged that the price of petrol had been reduced by, I think, about 16p a litre as a result of the freezing of the escalator since 1999. The hon. Member for Putney argues that such action could be taken more effectively if it were taken systematically. Her explanation—it was more detailed on the radio than it was today—is that because there is a cycle in prices, we can be reasonably confident that when prices rise the duty can be withheld, and when they fall again it can be increased. It all balances out in tax-neutral way.

The problem is that the oil market does not actually work in cycles. In the 19th century, when Daniel Day-Lewis was drilling for oil, there was a cycle, and then for the best part of a century there was not, because the oil industry was controlled by companies that had access to cheap oil. They controlled the supply to keep the price flat. Since then, we have had three rather random shocks: one caused by a cartel, one caused by a war and one caused by specifically economic conditions—rapidly rising demand in Asia and restrictions in capacity.

I think that to create a model based on the idea that there is some regular cycle, as the Conservatives seem to be proposing, does not correspond to the way the system works. To make their proposal work, they would need a reference price—a trend price—against which they could make judgments on whether the price was above or below normal. The price would have to be established somehow, and I do not know how they would establish it.

The honest truth is that no one, whether they know a lot about the oil industry or not, has the faintest idea what will happen to world oil prices. They could continue to rise indefinitely, as some theorists argue. If that were to happen, under this proposal there would have to be a permanent freeze on increased revenue, leading to a black hole of some kind which would have to be explained. The price might come right back down again because of a recession or increased supply, in which case the Conservatives would be able to pick up revenue, but they have not explained whether that would be possible to the extent of cancelling out the original concession, and whether there would be indexing. It would all be very difficult, although I do not want to be too damning, because the idea may be in its preliminary stages.

The hon. Lady was absolutely right to say that what she proposes would stabilise the impact on households. That is obviously true, and it is an advantage of her approach. It is, however, untrue to say, as she did, that it would stabilise Government revenue, because it would do the opposite. That is a simple matter of logic—it must destabilise Government revenue. When the hon. Lady's proposal is analysed by the Institute for Fiscal Studies and others, they will make that point very strongly. Putting in the hands of a future Chancellor a policy that destabilises Government revenue would not be terribly helpful. Perhaps we should return to the issue later, but it has some relevance to the debate, because the motion refers to the potential source of oil revenue.

The Conservatives are pushing their constructive idea on oil prices, and I am pushing mine on the housing market. I want briefly to refer to, as the hon. Member for East Londonderry has mentioned, the impact of the slow-down in the housing market in the Province. I should, perhaps, be less kind now to the Financial Secretary, as we had a debate a few months ago on what was happening in the housing market, and I ask her to read some of the things she said then, when I was accused of scaremongering, exaggerating and finding doom in that otherwise happy corner of the economy. If she looks back, she will find that what I was saying was deeply conservative compared with what is now happening with the falls in sales and prices and the ripples felt in the building industry, which have had devastating consequences, and which none of us, including me, had anticipated.

I commend to the Financial Secretary an idea that I and others, including some Labour Members, have been putting forward. One way of helping to stabilise the situation, and also of doing an important social good, would be to take advantage of the fact that there are now substantial amounts of unsold property and unfinished developments—including, I suspect, in the fairly prosperous suburbs around Belfast and elsewhere—which social landlords such as the council and registered social landlords could acquire at a very substantial discount and make available for rent on the basis of need. There is a major opportunity for the Government not to intervene directly, but to empower social landlords to do that. It would be a very attractive economic proposition. I am aware that it would raise borrowing levels, but as an economic intervention, it would be a sensible and helpful thing to do, and I ask the Government to reflect on that.

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