I beg to move,
That this House
notes that oil prices are now almost $150 per barrel;
further notes that diesel in the UK is the most expensive in Europe;
acknowledges the sharp rises in fuel prices over the past year and the resulting impact on headline inflation figures;
recognises the financial pressure this places on hard-pressed families already struggling with soaring food and housing costs;
condemns the Government's continued dithering over the implementation of the two pence increase in fuel duty, planned for the autumn, as neither a sustainable nor a stable way to make tax policy;
further notes that a balancing mechanism to adjust fuel duty in line with changes in the price of oil would have reduced the current price of petrol by five pence per litre since March 2008; and calls upon the Government to consider the implementation of such a balancing mechanism to ensure that the burden of rising oil prices is shared fairly between government and families, the sensitivity of the public finances to changing oil prices is reduced and the cost of carbon can be stabilised to send consistent environmental signals.
This morning, when I heard the announcement of the Government's climbdown on the 2p fuel duty increase, my first reaction was to see it as a triumph for Parliament. No sooner had we tabled a motion accusing them of dithering on the issue than they stopped dithering and acted—a triumph for parliamentary democracy. But then I remembered the by-election and the reality that the climbdown is a triumph not for democracy, but for cynical short-term political calculation.
I am sorry to have to disappoint the hon. Gentleman, but Glasgow, East is not top of the Conservative party's hit list for expected by-election victories. I know things have got bad for the Labour party, but we like to be realistic and we are not expecting to take Glasgow, East in a by-election, as I can reveal today.
Never mind the protestations that the time to announce any change is the autumn. Forget the always bogus claim that the change was unaffordable because there is no net Treasury gain from soaring oil prices. When the Prime Minister's neck is on the block, principle is thrown to the wind. Nothing cannot be unsaid. No price is too much to pay. For Crewe and Nantwich, it was £2.7 billion. For Glasgow, East, it is £1.1 billion a year in perpetuity. For the Prime Minister's sake, let us hope that he gets better value for money in Glasgow, East than he got for his £2.7 billion in Crewe and Nantwich. As my right hon. Friend the Leader of the Opposition said yesterday, we will have to take good care of Members of Parliament for the next 18 months, because at this rate the public finances cannot stand the cost of too many more by-elections. With the 10p U-turn and 2p U-turn now out of the way, I presume that it is only a matter of time—or perhaps timing—before we hear an announcement of the car tax U-turn.
As someone who spent time recently in Glasgow, East, and not for the first time, may I put it to the hon. Gentleman, first, that his hon. Friends will be astonished that he has conceded the by-election, and secondly, that nothing he has said so far relates remotely to anything I have been hearing in Glasgow, East?
I do not know which doorsteps the right hon. Gentleman has been on in Glasgow, East, but that is not what I hear from my hon. Friends who have been there.
After months of dithering, we have a decision—I know how difficult the Prime Minister finds it to make decisions—to cancel the tax rise in the run-up to an election. It is not surprising, as the soaring cost of living is the No. 1 concern for families in Glasgow, East and elsewhere. With earnings growth stagnant for the past two years, household debt at record highs, housing asset values sliding, and the price of everything we consume soaring, is it any wonder that families are feeling the pinch? Inflation is at its worst level for 16 years—more than double the rate the Government inherited from their predecessor in 1997. The latest figures published this week show the consumer prices index up 0.5 per cent. in a single month to nearly twice the Government's target, and factory gate prices rising 10 per cent. in the year—the biggest annual percentage increase since February 1982, and an indicator of potential further consumer price inflation to come. The Governor of the Bank of England warns that inflation is likely to rise still further and to persist at the higher level until well into 2009.
At the heart of that inflationary pressure is the soaring cost of oil, and the consequential increases in the price of petrol and diesel at the pumps. More than a quarter of the increase in consumer prices over the past year is due to the direct effects of fuel price increases, not counting the indirect impact that increasing fuel prices have on the cost of goods and services throughout the economy.
Is the hon. Gentleman aware that in my constituency average salaries have gone down 4 per cent. in the past 12 months? Coupled with the necessarily high dependence on private transport in a rural and sparsely populated area, the effect of the increase in fuel costs is exacerbated for those poorer individuals in Montgomeryshire.
I recognise the hon. Gentleman's point. The situation is worse in some places than others, but families across Britain are feeling the pinch.
The Government say that the problem is international—"Nothing to do with us, guv." But about 60 per cent. of the current retail price of fuel is accounted for by tax. At 115p—nice work if you can find it—the price of a litre of unleaded petrol is made up of just over 50p in fuel duty and 17p in VAT. Before I spell out the detail of how our fair fuel stabiliser will work, let us consider the system—for want of a better word—that is in place.
Instead of cushioning the blow and helping families to cope when oil prices rise, under the present system the Government add to the rising cost of living. Fuel duty is set to rise every year by at least the rate of inflation, regardless of what happens to the price of oil, before taking account of VAT, which rises automatically as prices rise. But that does not mean that the system runs smoothly. Inevitably, there is annual pressure on the Chancellor and the Prime Minister to postpone or cancel increases in fuel duty—a practice that the Prime Minister adopted regularly during his term in the Treasury. That pressure intensifies, as we have seen, if a Government are in trouble or face a tricky by-election. Far from automatic inflation increases in the rate of duty occurring predictably, the level of real duty is the subject of short-term political calculation, year after year, with the inflation increase having been cancelled or postponed in five years out of the last six, creating uncertainty for businesses and families, making the public revenues less predictable, and weakening environmental signals in the tax regime.
In the past few months, the Conservatives have accused the Labour Government of nicking some of their ideas, and they are right to do so. I know that the hon. Gentleman is a fair-minded Member of the House. Will he therefore accept and acknowledge that his stabiliser, or whatever it is called, is a direct snatch from the Scottish National party? Will he explain why, when the idea was put to the Finance Bill Committee by my hon. Friend Stewart Hosie, the Conservatives inexplicably failed to support that measure?
I welcome the hon. Gentleman's contribution, and I am happy to acknowledge the work that the Scottish nationalists have done on the challenges that we face on fuel prices, but I am going to reveal something to the House: the original author of the fair fuel stabiliser idea is, I think, none other than the Foreign Secretary. Hon. Members may remember that he urged the then Chancellor a couple of years ago to introduce something similar in his Budget.
It is enlightening that the hon. Gentleman manages to pray in aid the Foreign Secretary. The hon. Gentleman and I were on the Finance Bill Committee for seven weeks, and Stewart Hosie did indeed propose the policy. Not only did Mr. Hammond not support it in Committee—and I think he voted against it on the Floor of the House—but he explained at some length in Committee why it was a wrong policy.
My recollection is that the measure put forward by the Scottish nationalists in Committee was not as set out by the hon. Gentleman. However, before he rallies around the Chief Secretary in what he might think is a career-enhancing move, he should think about how it was the Foreign Secretary who urged the now Prime Minister to adopt the policy. The hon. Gentleman might think about his career prospects in those terms.
I am going to make a little progress.
As usual this year, the Government have dithered and prevaricated over the 2p rise originally scheduled for April, then postponed until October, and now off the table in July. Who knows what would have happened if it were not for the by-election? We had a nod from the Prime Minister at the Liaison Committee on
"you will find that in most years since 2000 that the duty has actually been frozen...it is clearly a matter that will be looked at very, very carefully over the next few weeks."
There was a wink from the Chancellor on
"I intend to come back to the issue of the fuel tax increase that would be due this October."
That is not a sustainable way to make tax policy. Instead of a clear formula based on transparent principles that people can understand, it is an ad hoc system driven by the political convenience of the Prime Minister rather than by sound economics.
We work hard on our policy announcements. We base them on sound research, which I shall be quoting in a moment, and we consult on them, unlike the Government, before we introduce new tax proposals.
I will make a little progress because the hon. Gentleman has intervened once already.
There is a better way. At times like this, people look to their Government to help them—to give them a hand when times are tough. The UK's unique advantage as an oil producer allows us to offer support to families when oil prices soar, to stabilise the public finances and make them more predictable, and to reinforce the long-term green signals that the tax system sends by adopting Conservative proposals for a fair fuel stabiliser that will build in the kind of response that we heard from the Government today, not as an ad hoc political statement but as an automatic and thus reliable response to rising oil prices. We must operate in that way if we are to deliver the climate of economic stability that Britain needs. We need government by clear principles, transparently and consistently applied, not government by nods and winks.
While the Labour party, clinging to office, treats fuel duty as a short-term political football and people like fools, the Conservatives in opposition have been doing the work to come up with clear, well thought through proposals to introduce the fair fuel stabiliser that Britain clearly needs. Before I explain how it would work, let me list five principles that we have set out which a reformed system of fuel duty should observe.
First, any reform must help families when the cost of living is rising, because part of the function of Government is to dampen the shocks that the economy receives by putting something aside during the good times to help out during the more difficult times. Secondly, any reform should reduce the inflationary impact on the economy from fluctuations in international oil prices. Thirdly, because of Britain's position as an oil-producing country, reform should reduce the sensitivity of the public finances to changes in oil prices, improving the Treasury's ability to forecast and budget for the future. Fourthly, despite—or perhaps because of—the immediate challenge posed by soaring oil prices, we should not lose sight of our long-term green agenda. Any reform should provide more certainty about the price of carbon, encouraging the long-term shift towards lower-emission vehicles and alternative methods of transport that will be necessary to meet our climate change objectives. Finally, any reform should be transparent and simple to administer.
Will the hon. Gentleman, or the shadow Chancellor, be responding to the letters in Monday's edition of the Financial Times, not least from Dr. Cable but also from Charles Brendon of Exeter College, who suggested that the Conservative party's economic capabilities were somewhat limited?
We will not take any lectures from Charles Brendon of Exeter College. The hon. Lady may or may not have done her research, but Mr. Brendon is a Labour party activist and a graduate student at Exeter. However, in a moment, I will refer to the letter in the Financial Times from Dr. Cable and to his previous comments.
The hon. Gentleman has referred to the environment. Although managed increases such as the Government's proposed new fuel duty escalator from 2010, with duty rising annually at 0.5p a litre above inflation, may well squeeze out unnecessary usage, does he agree that the reason we need a regulator-stabiliser-moderator is that when massive spikes are unmoderated, the use of managed increases as an environmental tool is completely destroyed?
I entirely agree. We must also bear in mind that there are downward movements in oil prices as well, which undermine the incentive to invest in fuel-economising technology.
So what is the fair fuel stabiliser? Let me put it simply: under a fair fuel stabiliser, when oil prices went up, fuel duty would fall, and, in a quid pro quo, when oil prices went down, fuel duty would rise. If our fair fuel stabiliser had been introduced in the 2008 Budget, fuel would be about 5p a litre cheaper at the pump, which would save about £3.50 on a tank of fuel for a Ford Mondeo, and inflation would be not 3.8 per cent. but about 3.3 per cent. Government revenues would not differ from the Budget predictions, which were based on an oil price of $84 a barrel. [Interruption.] It is amazing—is it not?—that the Treasury Whip, Mr. Blizzard, who sat in complete silence throughout the passage of the Finance Bill, now apparently cannot keep his mouth closed. He seems to have plenty to say.
If, instead of rising, oil prices had fallen since the Budget, fuel duty would have risen. Prices at the pump would have fallen, but not by as much as they would have without the fair fuel stabiliser. Government revenues would again not have differed from the Budget forecast. The overall effect of such a stabiliser is to dampen the impact of fluctuating oil prices, softening the blow of an increase in oil prices on the pump price of petrol and diesel, but dampening also the downward movement when oil prices fall and duty rises to offset part of the drop. Therefore, on every count the fair fuel stabiliser would deliver a better result than the current system, as well as being more transparent and predictable. A fair fuel stabiliser would help to stabilise family finances, stabilise the public finances, dampen inflationary pressures and improve long-term signalling of the price of carbon. When oil prices rise, family budgets are put under pressure. The fair fuel stabiliser would moderate the impact of oil price increases on families by offsetting about half of the increase with a corresponding reduction in fuel duty, so the pump price would rise by about half the amount it otherwise would.
Does the hon. Gentleman believe there is any evidence to suggest that speculation in the markets increases the price of oil?
That is slightly wide of the question we are dealing with, but from what I have seen there is no evidence that speculation is driving the price of oil in the markets. Obviously, speculation plays a role in the oil markets, but I have not seen any evidence that suggests that curbing oil futures trading activity would solve the problem we face today, as that is based on more fundamental factors.
To return to my earlier comments, of course there has to be a flip-side. When oil prices fell, the duty would go back up again so that prices at the pump would fall more slowly than they would under the current system. Nigel Griffiths asked what would happen if oil prices did not fall, implying that only when oil prices fell and the duty rose again could the public finances be put back into balance. I want to disabuse him of that notion. The balancing item in the public accounts is the windfall increase in North sea taxation that the Government receive when oil prices increase.
I would have thought that helping families by smoothing the violent fluctuations in the pump price that can otherwise occur might appeal to someone who once claimed to have ended boom and bust.
I am not going to viciously attack the hon. Gentleman's ideas because I do not think he stole them from the Scottish National party or the Foreign Secretary; instead, I think he stole them from an article I wrote in Progress magazine. However, he seems not to have taken account of the following point. It is true that when fuel prices increase, we might get more from VAT on the fuel, but if the price of fuel is taking up more of an individual's spend, the other areas of the economy will lose spend and the revenue will go down in those areas. Under the hon. Gentleman's measure, how will the Exchequer take account of such changes in the economy?
If those comments represent the hon. Gentleman's line of approach, I certainly did not take my ideas from his article. He is right that this is nothing to do with VAT. There can be arguments at the margin, but, broadly speaking, the VAT balances itself out across the economy. I also agree that oil price increases have a negative effect in other parts of the economy. However, if he will bear with me for a few moments, we will come to the evidence from the National Institute of Economic and Social Research about the net impact on Treasury revenues across the economy as a whole.
What will be the impact on the public finances? Let me deal with myth No. 1, which for shorthand I will call the Labour myth. The Chief Secretary has claimed that our proposal for a fair fuel stabiliser would lead to a £3 billion "black hole" in the public finances. Never mind the fact that she should not be the first person to talk about black holes in the public finances, but this is far from the truth, as I believe she very well knows. The truth is that the only independent UK economic forecaster who has done the necessary work to comment definitively on this issue is the National Institute of Economic and Social Research, and it has concluded that oil price rises generate a positive impact on the public finances, even after taking into account the secondary effects of oil price rises on the economy overall, and thus on non-North sea Government revenues. According to the National Institute of Economic and Social Research, the net benefit to the Treasury is about £140 million for every $1 dollar change in the price of a barrel of oil. So, when the oil price increases, net Government revenues, after taking into account all the effects across the economy of that oil price rise, also increase. It follows logically that when the oil price falls, Government revenues will also fall, by the amount of reduction in North sea tax revenues, less the positive effect from the increase in activity across the rest of the economy with which an oil price fall would normally be associated. Overall, there is a loss of revenue for the Government when oil prices fall. In other words, there is a spectacular misalignment of interests. An oil price rise, which is bad for families and for businesses, delivers a windfall to the Treasury, whereas an oil price fall, which is good for families and for businesses, creates a hole in the Treasury's revenues.
The fair fuel stabiliser aligns the interests of consumers with those of the Treasury, and it shares the pain and shares the gain. It makes the public finances more stable, by reducing the impact of changes in oil prices, upwards or downwards, on Treasury revenues, making it easier for it to project what future revenues will be and making those projections less vulnerable to the vagaries of the international oil market.
I am glad that my hon. Friend is making this point, because it is idiocy to say that there will be a black hole under this scheme when the oil price rises. As he said, there is a 60 per cent. tax at the pump. If the oil comes from the North sea, there is a further tax, which is not included in that 60 per cent. There is an average tax rate of about 42 or 43 per cent. on the economy as a whole, so, of course there will be more revenue when the oil price rises. I find it extraordinary that people go on making these idiotic remarks about black holes when the opposite is true.
We can speculate on why the Government have taken the line that they have. We do not rule out the possibility that, notwithstanding the Chief Secretary's fairly virulent attack on this policy when we launched it, we will find it in the pre-Budget report or in next year's Budget as the centrepiece of new Labour's fight back.
Given that oil prices have risen by more than the Chancellor predicted at the time of the Budget, will the hon. Gentleman inform the House what has happened to stamp duty revenues compared with the Budget estimates? Does he think that there should be a stabiliser in place to try to balance that part of the economy too?
Unfortunately, because we have not been given an interim statement from the Government, we do not know precisely what has happened to stamp duty revenues. I hear a whisper that they are substantially down, but that is a different argument, because we are talking about what is happening to oil prices and the impact on the economy of an oil price increase.
As we are dealing with the Lib Dems, let me address myth No. 2, which is propagated, surprisingly, by Dr. Cable. For the purposes of shorthand, I shall call this the Lib Dem myth, although there are many Lib Dem myths. The hon. Gentleman, who likes to think he knows a thing or two about oil, says that the fair fuel stabiliser would require the Government to predict the future price of oil. I am surprised at him, because although I do not always agree with what he says, I find that it is usually based on fact, and nothing could be further from the truth than that comment. The stabiliser will mean that Government revenues remain broadly the same, whether oil prices go up or down, because any windfall or shortfall from the North sea will be offset by a decrease or increase in fuel duty. The truth is that the present system requires the Government to predict future oil prices, when they make their revenue forecast in the Budget, thus leaving the public finances exposed to fluctuations in the oil market. Under the fair fuel stabiliser, that volatility in public revenues is removed, and the Lib Dem myth is demolished.
We are consulting on the precise level of the reduction in duty that should be associated with any given increase in oil prices. The example we have used and published, where the fair fuel stabiliser reduces the price increases at the pump by half, is broadly revenue-neutral to the Treasury on a conservative estimate of £100 million of net revenue gain for each $1 change in the price of a barrel of oil—that is a far lower figure than the National Institute of Economic and Social Research's model predicts.
At some stage this afternoon—I believe that this would be called a pre-emptive strike—I am expecting to hear from the Chief Secretary, in an attempt to shore-up the Labour myth, about the Institute for Fiscal Studies. She is fond of quoting that highly respected body when it suits her, but on this issue, for very good reason, it has little to say. The IFS correctly says that its modelling leaves it "unclear" about the precise size of the positive impact on the public finances from an increase in the oil price, over and above the cost of the 2p U-turn that the Government have done today. However, the IFS is in no doubt that the impact is positive.
The Chief Secretary has produced the IFS's statement with a flourish, as though it demolishes the NIESR analysis. It does not. "Unclear" means precisely what it says and the IFS is unclear for a reason. It does not have a dynamic macro-economic model that would allow it to analyse the likely impact of an external shock such as an oil price increase. That is not the business that it is in. The NIESR has such a model and is in the business of conducting such analysis. It is the body with the authoritative view on the subject and the Chief Secretary can quote the IFS as loudly and as often as she likes—its position, which we have checked again with it during the past few days, is that it simply does not know the answer to the question because it has not done the work and, what is more, it does not have the tools to do the work. So, the Labour myth is demolished, too.
I am grateful to the hon. Gentleman for his usual generosity. He is talking about the research. I do not know the answer to this question—a lawyer should never ask a question to which they do not know the answer—but is any other country using such a mechanism? If so, what does the research in that country suggest is its effect?
I do not have a precise answer about the work that has been done in relation to other economies. I have looked only at the work that has been done in relation to the UK economy. That is a fair question, and I shall kick myself for not having looked at it and I shall go away and do so. The hon. Gentleman's comment is very useful, and I am sure that my colleagues have looked into the matter—I shall talk to them about it.
The Labour myth is demolished. A fair fuel stabiliser would stabilise family finances and the public finances, but it will do more than that. It will also help to stabilise inflation. If half the increase in fuel prices over the past year had been offset by lower fuel duty, consumer price inflation would be 3.3 per cent., not 3.8 per cent. The pressure for wage increases and the industrial action behind them would be accordingly reduced. So there would be greater stability in family finances, greater stability in the public finances and lower inflation in a period of rising oil prices.
There is one other environmental benefit of the fair fuel stabiliser. Environmental taxes, such as fuel duty, can play an important role in reducing carbon emissions. They work mainly by encouraging a long-term shift towards lower emission vehicles and alternative methods of transport in response to higher fuel prices at the pump. A stable carbon price, as the Stern review argued, helps individuals and businesses to factor environmental costs into medium and long-term investment decisions and behaviour.
The fair fuel stabiliser would allow the average real value of fuel duty to be maintained to take inflation into account, as is supposed to happen now. When oil prices were rising, pump prices would rise, but by less than they do now. The long-term signal to consumers would be maintained. When oil prices fell, the price of fuel at the pump would fall, but by less than it would do otherwise. The incentive to consumers to adopt green behaviour would be strengthened. The risk of the message being undone by a downward movement in oil prices would be reduced. Overall, clearer, less volatile signals would be delivered, creating a stronger, more consistent environmental message.
So, we would have relief for families when oil prices were soaring, greater stability and predictability in the public finances, a reduction in the upward pressure on inflation and stronger, clearer and more consistent environmental tax signals. The fair fuel stabiliser is a practical, deliverable response to the challenges that fluctuating oil prices bring. As an oil producer, Britain is almost uniquely able among the industrialised countries to introduce such a measure and to give ourselves a competitive advantage in the globalised economy.
The proposal makes sense at every level. It would provide a long-term stabiliser for the British economy and much-needed relief for hard-pressed families facing soaring fuel bills and hard-pressed businesses struggling to compete with those who have access to lower duty fuel.
I am finishing now.
When times are hard, people look to their Government for leadership. They look to their Government for a helping hand. They look for practical actions to address the pressures that they are facing. They do not want excuses that it is all someone else's fault, or self-congratulatory lectures about how well prepared Britain is to weather the storm when it patently is not well prepared. People want practical help and, as we develop ideas such as the fair fuel stabiliser, they will know that a future Conservative Government—unlike this lot—will be on their side, not on their backs.
I beg to move, To leave out from "House" to the end of the Question, and to add instead thereof:
"recognises the pressure that the increase in fuel prices, caused by pressures from the international oil market, has put on business and families;
welcomes the Chancellor's decision to defer the planned two pence per litre increase in fuel duty that was due to take place in April 2008; notes that while fuel prices have increased by over 20 per cent. since last October, fuel duty has stayed constant;
also notes that had the escalator introduced in 1993 been in place since 1999, fuel duty would now be 29 pence per litre higher;
supports the Government's global leadership on this issue, in particular at the recent Jeddah Energy Meeting, and welcomes the Government's intention to host a follow up to this meeting in London later this year;
further recognises that the Government does not receive a significant windfall when oil prices rise, because any additional revenues from the North Sea are likely to be offset by other effects;
and therefore further notes that a system which would automatically cut fuel duty when oil prices rise would be destabilising, creating volatility for the public finances and uncertainty for the financing of public services, and would create considerable pressure for tax increases elsewhere."
I welcome the chance to reply to this debate. The entire world is affected by the big increases in the price of oil. A year ago, oil cost $77 a barrel, but this week it reached almost $145—nearly twice as high. Ten years ago, oil cost $10 a barrel, but it recently went up by $10 in just one day. The impact of the high oil price is being felt right across the world. It is driving up prices at the pump, and people's gas and electricity bills as well. We are seeing those price increases right across Europe and the world.
The effects are being felt here at home too. In Castleford this morning, unleaded petrol was going for more than £1.20 per litre. That places pressure on household budgets, and that is why we have deferred the fuel duty increase that was set for April. It is also why the Chancellor has announced today that the 2p fuel duty increase proposed for the autumn will not go ahead.
Can the right hon. Lady do something that the Prime Minister failed to do earlier this afternoon and concede that the 2p postponement is all to do with the by-election? If the Scottish National party can achieve that just by threatening one of Labour's most solid majorities, imagine what we can achieve when we win that by-election.
I have to say that that is complete nonsense. Fuel duty is often set to increase in the autumn, but on a number of occasions, the rise has been either postponed or put back. In 2004, for example, the deferral of the autumn increase was announced on
Will the Chief Secretary clarify for the House the impact of today's announcement on the forecast for public finances set out in the Red Book?
The hon. Lady is right that the announcement will reduce the amount of fuel duty revenue for this year. The precise figures will be set out in the pre-Budget report, as happened in 2004, 2005 and 2006. That is the normal practice that we have always followed.
I shall make one more point and then give way. The figures show that fuel duty has risen just three times since 1999, when we abolished the fuel duty escalator introduced by the previous Government. Fuel duty has fallen in real terms by 17 per cent. since then.
I find it quite incredible that the Chief Secretary can talk about a tax change that has been announced this morning yet refuse to tell the House what the cost will be. It is completely incredible that the Treasury is not capable of giving her a precise figure for the estimated loss of revenue. It is quite scandalous for her to say that the House of Commons will not be told the cost until November.
As I said, we have set out the information today in exactly the same way as we have done in previous years. I welcome the right hon. and learned Gentleman to the debate, as he was the author of the Conservatives' fuel duty escalator, which was introduced in 1993. I can tell the House that, had that escalator continued, fuel duty would be nearly 30p higher today, while the petrol price, including value-added tax, would be nearly 35p per litre more expensive. Indeed, had we increased fuel duty each year simply in line with inflation rather than with the escalator, fuel duty would also be 10p per litre higher today. As a result of the decisions that we have taken on fuel duty, vehicle excise duty and other car taxes, the tax revenue from fuel duty and VED is in fact lower now than in 1997, in real terms.
The Minister must know that she is hundreds of millions to the good so far this year, given the Budget estimates on total oil taxation. Will she tell the British public how many more pence per litre they are paying at the pump in total in tax on North sea oil routed through a British pump than was envisaged in the Budget forecast?
As I have said, we announced today that we are not going ahead with the 2p increase in fuel duty that was proposed for this autumn. I want to come on to the detail of the Opposition motion, as the Opposition have set out some details of their proposals.
I come back to the issue of cost, as it is rather important. Will the Minister not confirm that the cost of the change will be £500 million this year? That will be more than offset by the increase in North sea tax, given that the projections were based on a price of $84 a barrel, not $145 a barrel, which was the price yesterday. Will she at the very least confirm that the cost will be £500 million, but that that will be more than offset by increases in revenue from the North sea?
The hon. Gentleman is right to say that the figures that we set out at Budget time for increased revenue resulting from fuel duty will not now be as expected. However, the overall impact on the public finances of the increases in the world oil price, and other changes that have occurred simultaneously in the world economy over the past few months, will be set out as part of the pre-Budget report. We have to recognise that what has driven the big increases in oil prices, and in the price at the petrol pump, is changes in the world economy, the rising demand for oil from China, India and developing countries, and the fact that supply has not increased to keep up.
Before I turn to the detail of the Conservatives' motion, it is worth looking at what they did not include in their motion. There is no mention of the causes of the rise in world oil prices, no call for action on the world stage to increase oil production in the short term, no plan for working with international partners to get oil markets moving, and no proposals to cut dependency on oil in the medium term. Little wonder, because when it comes to those big questions, the Opposition have no answers at all.
The Conservatives turn their backs on Europe and their international partners, will not back nuclear power or the planning reforms needed to get alternative energy supplies moving, and will not face up to the big challenges facing the country. They will not do the things that are needed to reduce our dependency on oil, gas and fossil fuels in the medium and long term, or to reduce dependency across the world. The demand for oil from developing countries will not go away, so for the sake of the economy, and the planet, we need to reduce our dependency in the medium term. That means working with Europe and the G8, and doing all the things that the Conservative party, with its bunkered, anti-European mentality, refuses to do.
All the issues that the Minister mentioned may well be matters that should be considered in the House, but is today's debate not supposed to be about fuel duty?
It is indeed, and that is why I want to spend some time doing what the Opposition motion asks us to do, and consider the implementation of what the Opposition call
"a balancing mechanism to adjust fuel duty in line with changes in the price of oil" in a way that
"would have reduced the current price of petrol by five pence per litre since March 2008".
Hon. Members across the House will have noted that that proposal was first put forward by the Scottish National party during proceedings on the Finance Bill, and that there was a deafening silence from the main Opposition party on the issue, despite the fact that it had considerable opportunities to raise the matter during proceedings on the Bill.
I shall be delighted to. If my memory serves me correctly, it was on
It is funny that the Opposition just forgot to vote when they had a chance to, when the proposal was put before the House.
I have been given the report of proceedings in the Finance Bill Committee when this matter was discussed. When the Exchequer Secretary said that the hon. Lady seemed to be supporting that proposal, she responded:
"I just wanted to correct the Minister. Just before we adjourned after the morning sitting, she said that I had supported the new clause, but in fact I said that we did not." ——[ Official Report, Finance Public Bill Committee,
The hon. Lady clearly did not, as of a few weeks ago, support this kind of stabiliser. I am happy to give way to her again if she wants to clarify the position.
There is nothing particularly stunning about the fact that we saw a lot of merit in the fact that the Scottish nationalists were trying to tackle the underlying problem of a volatile oil price and its effect on fuel costs, but we felt that the particular way in which they were doing it would not quite work. There is nothing cynical about that, or complex; it is just that Ministers have such weak arguments that they now have to resort to picking out phrases and taking them entirely out of context.
I notice that later in the debate, when talking about the suggestion that Stewart Hosie had made to deal with the price rises, the hon. Lady said:
"I must say that it is not one that I agree with." ——[ Official Report, Finance Public Bill Committee,
I look forward later in today's debate to hearing her explain quite why the technicalities of the hon. Gentleman's proposals were not workable, but that her own proposals are.
I come now to the workability, or practicality, of the proposals of Mr. Hammond. The Opposition say that if their proposals had operated since the Budget, fuel duty would be 5p lower today. Their proposal is effectively for a 1p change in duty for every $6 change in the price of a barrel of oil. That would certainly keep Her Majesty's Revenue and Customs, and the industry, busy. Over a quarter of a year, we have seen not simply a $6 variation in the price of oil, but a $60 variation. On
Under the hon. Gentleman's proposals, therefore, fuel duty would have gone up by 1p yesterday alone. If fuel duty changed every time oil prices varied by more than $6 from the Budget forecast, rates would have changed more than 25 times just since the Budget 18 weeks ago: down on
May I also point out that the Conservative party's proposal lacks intellectual bravery? If it was intellectually brave about this, rather than putting forward a mechanism that would see the pump price rise by only half the increase in the oil price, if it arranged its figures differently it could stabilise the price completely, but it is not prepared to do that, because it realises that it would be unworkable. One of the Conservatives' five principles is for certainty, but even under their own mechanism there will not be certainty of pump prices.
My hon. Friend is right. In the end, the point is that when setting fuel duty, it is right to look at what is happening in the markets—at oil prices and at the prices at the pump. That is why we have decided not to go ahead with the increase in fuel duty in the autumn. It is also right to look at the impact on public finances and at what is practical and workable. That is where the Conservative proposals repeatedly fall down.
I now turn to what the impact of such a proposal would be not only on the public finances but on other tax and spending plans. The hon. Member for Runnymede and Weybridge claimed that the Budget forecasts would remain unchanged by the proposal. That claim is simply irresponsible. The proposal claims that windfalls from certain taxes would pay for the Conservatives' plans. Their figures take account of increased VAT from higher petrol prices and of higher North sea oil revenues, but they ignore the fact that fuel duty revenues are likely to fall, not increase, when petrol prices rise, as demand for fuel falls. They ignore the fact that people spending more on fuel will spend less elsewhere, reducing VAT revenues from elsewhere in the economy. They ignore factors such as production levels, capital and operating costs and the strength of sterling.
I have to choose between giving way to an hon. Member from the party that tabled the motion and giving way to one from the party that was really responsible for the original proposal. I give way first to the hon. Gentleman from the Scottish National party.
The choice is difficult, I know. I want to bring the Minister back to what she just said about revenue falling as the price rises. Will she look at the Government's own figures from the Department for Business, Enterprise and Regulatory Reform? They show that during the first three quarters of 2007, there was a net rise in the fuel price and a massive rise in the diesel price. Notwithstanding the change from petrol to diesel, and that kind of stuff, the figures show that despite a rise in price from 92p a litre to 97p a litre—a 5 per cent.-plus rise in nine months, more than twice the rate of inflation—net demand increased. I do not believe that the Minister's assertion is right.
When prices rise, particularly the price of things such as fuel, there will be a series of different impacts. Some people may drive less or consume less fuel. Others will spend less on other things, because in the end their spending will be limited.
I am grateful to the right hon. Lady for giving way to me. The National Institute of Economic and Social Research report, on which our policy is based, assesses the net impact on Government revenues after taking into account all those factors. The people at the institute are not undergraduate economists; they understand the point that she is making and they have taken all those factors into account. Can the Minister say which independent research she is citing when she says that we are wrong, and that revenues will fall when oil prices rise?
Let me tell the hon. Gentleman some of the factors that the National Institute of Economic and Social Research does not take into account in its analysis. It does not, for example, take into account factors such as production levels, capital and operating costs, or the strength of sterling, all of which impact on North sea oil revenues and all of which have meant that those revenues have increased by less than we might have expected in recent years, given the rising oil price. The institute ignores the fact that rising oil prices can, through utility bills as well as fuel bills, affect inflation. That, in turn, raises tax allowances, reducing revenues, and increases spending on benefits linked to inflation. It is also important to include the impact of higher oil prices on companies' profits, and therefore on the tax that they pay.
Let me quote someone whom I could not remotely describe as a competitor for the institute. He said:
"To be fair to the Government, when the price of oil goes up, corporation tax profits tend to go down, so corporation tax goes down and they suffer in other ways."
That was the hon. Gentleman's boss and party leader at the beginning of this month, before the Conservative party put forward its proposals. The Institute for Fiscal Studies has said:
"Taking all factors together, it is far from clear that there will be a net gain to the public finances from the higher oil price."
Perhaps most significant of all is the fact that the model used by the National Institute of Economic and Social Research depends on all other things being equal—whereas in fact, there is not only an increase in world oil prices, but an increase in world food prices and a global credit crunch, and they are all taking place at the same time. All those things will have an impact on the public finances. In the face of a world slowdown, to take any one tax in isolation and claim that there is a windfall available to spend is economically illiterate, irresponsible or just disingenuous. The Conservatives' proposals would have already cost an extra £900 million since the Budget, and would mean an estimated extra cost of more than £2.5 billion, to be paid for by additional borrowing, public spending cuts or tax increases elsewhere. Yesterday morning, the shadow Chief Secretary's leader said that he would back our spending plans, cut stamp duty and introduce his fuel duty measures. In the space of a three-minute interview, he promised an extra £3 billion that he could not fund.
The right hon. Lady has changed tack in the past minute and a half, so I would like to be clear about her argument. Is she now conceding that an oil price increase taken in isolation, with a shock to the economic model, produces a net increase in Government revenues after taking into account all the effects across the economy?
No; the hon. Gentleman is talking nonsense. We have always been clear that there will be increases in some taxes but reductions in revenue from others as a result of factors such as an oil price increase. For example, there will be increases in the amount that needs to be spent on benefits as a result of rising inflation, which is in itself linked to rising oil prices. In addition to those factors, there are other pressures on the economy that responsible Governments need to take seriously when they take decisions on the public finances.
Well, I will make one final effort. Does the Chief Secretary really think that a Minister addressing the House of Commons should go into such copious detail about the likely impact on revenues and the economy of an Opposition proposal but refuse to give any information at all about a decision announced by the Chancellor of the Exchequer this morning? Corrections to the last Budget have already cost more than £3 billion in estimated revenues, and the forecasts of revenues from corporation tax and elsewhere given at the last Budget are plainly over-optimistic when one sees where the economy is going. It is no good her saying that every time the Government have changed their mind in the past they have not given those details, and we have had to wait until November. Will she address the question of where we are with the Government finances, and whether the Chancellor is planning to raise other taxes, reduce public spending or simply allow public borrowing to let rip?
The right hon. and learned Gentleman is long enough in the tooth and has been long enough in the Treasury to know that, as always, we set out the forecast for the public finances at the time of the Budget and at the time of the pre-Budget report. Unusually, we said when we announced the additional increase in tax allowances that we would increase borrowing this year to pay for it. It is right to do that, given the pressures that the economy is under. We therefore set that out, in contrast to the Conservatives, who repeatedly set out policies that would result in huge additional costs yet never tell us where those funds would come from. This is not merely about the £3 billion of additional costs that Mr. Cameron mentioned in the "Today" programme interview. Little wonder that he also said that he could not rule out tax increases, as he knows that he would need them to pay for his fuel duty plans. The results of the Conservatives' Finance Bill votes alone would cost an extra £3 billion, but they never said how they would fund them. Their promises on Budget day would cost an extra £5.4 billion, but they never said how they would fund them. Their promises throughout the autumn would cost an extra £10 billion, but they never said how they would fund them. At the last election, they promised more than £35 billion in spending increases and tax cuts, but never said how they would fund that.
The Conservative motion is simply a con. Far from helping hard-pressed families, all that the Conservatives would do is push up their taxes elsewhere. Far from facing up to the serious problems of rising world food prices, they simply hide behind gimmicks, which would risk destabilising the public finances and the economy. Once again, we get showmanship, not substance. That is not what families or the economy need. That is why we should reject the motion.
I welcome the debate, partly because it gives us an opportunity to reflect on the statement that the Government made this morning. I do not know whether the decision was made because of the by-election or because of general political panic, but it was not a coherent policy statement and it does not give us key information, as Mr. Clarke pointed out.
The debate also gives us an opportunity to review the SNP-Conservative proposal—we should call it the Salmond-Osborne plan and give credit for authorship where it is due. I remember that several years ago, before Stewart Hosie came on the scene, Mr. Salmond set out the bones of the proposal. Although I do not necessarily agree with it, I want to award it proper authorship, and the "Salmond" comes before the "Osborne" in the description of the plan.
There is some common ground in the debate: everyone accepts that higher fuel prices have caused hardship and that it would be desirable, if possible, to find some way of alleviating the impact on motorists.
Let me finish my point and then I will take interventions.
We are especially concerned about the impact on people in rural areas, particularly remote rural areas, who do not have the alternative of public transport. If there were an intervention at this stage to help to alleviate the burden and share the pain, a targeting method would be better, examining differential duties in remote rural and in urban areas.
My hon. Friend has pre-empted my intervention. I support his comments that remote rural areas need a rural fuel discount. For example, the cost of unleaded petrol on Port Ellen on the Isle of Islay is 15p more than at Glasgow airport. That shows the effect of the higher cost of fuel on the islands and the damaging effect on the economy. I am therefore pleased that my hon. Friend supports the rural fuel discount plan that we proposed on Report of the Finance Bill.
I thank my hon. Friend for that intervention and I am happy to take one from another remote rural area—Edinburgh, South.
The hon. Member and I have corresponded on the issue. Two years ago, Mr. Reid called for a spending commitment to reduce tax on petrol and diesel in rural filling stations. He has long campaigned on that. Dr. Cable wrote back: "Alan was not, of course, advancing official policy. We are certainly looking at the implications of the recent European derogation of petrol duty to see if we can adopt it as policy". In those two years, what conclusions has he reached?
We have found that the policy is feasible in practice and entirely sensible and right. My hon. Friend Mr. Reid is right to have persisted with the matter. It can be financed by cross-subsidy or a small subsidy in relation to the sums of money that we are discussing today. I therefore endorse the policy, on which we have voted.
Let me try to work systematically through the Conservative motion. It gets off to a slightly odd start because it states that diesel duties in the UK are higher than anywhere else in Europe. First, that is not true—Norway has higher diesel duties, but that is by the by.
Let me finish the argument and then I will take an intervention. It is odd that Mr. Hammond spoke for half an hour but did not deal with the practical problems that arise from the fact that the UK has exceptionally high diesel duty. There is a policy problem because we know that large-scale tax arbitrage—in other words, smuggling—takes place, and there are practical proposals to deal with that, whether through the original Britdisc scheme or some cruder system of taxing European vehicles at the points of entry and exit to account for road use. We should be discussing that because there is a genuine problem in that the current policy—or lack thereof—results in a substantial leakage of revenue. It is a pity that we did not go further into the subject of diesel.
Does the hon. Gentleman recognise that the leakage to which he refers is particularly severe in Northern Ireland, because of the differences in duty between the Irish Republic and Northern Ireland? Indeed, those differences have led to large-scale operations by gangsters, who take hundreds of millions of pounds out of the economy every year through fuel smuggling.
Yes, I realise that Northern Ireland has special problems because it has a land border. Any system to counteract smuggling is bound to face difficulties because of the small rural roads that exist across Northern Ireland. None the less, we need to stop that large leakage of revenue, which also does great damage to the British road haulage industry.
My hon. Friend mentioned the Britdisc, which the Government abandoned. Does he think that road pricing for hauliers would be one way of ensuring that foreign lorries paid the same as lorries from this country and removing unfair competition from overseas lorries, which currently rely on cheaper fuel to take trade away from British hauliers?
That would be one way. Another way would be to check mileage at the points of entry and exit, and to charge a duty accordingly. There are various ways of dealing with the problem; I am simply surprised that we did not deal with it in the earlier exchange.
The other odd thing about the motion is that it singles out diesel, because of the exceptional rate of British duty. Given that this debate has been overwhelmingly about petrol, I am surprised that there have been no references to differential rates in petrol. As it happens, Britain has, I think, the eighth highest petrol duties—it is mid-table, according to the Automobile Association. Germany, Belgium and Italy have higher petrol duty than the UK, as a result of the various postponements to which the Ministers referred. By far the highest rate is that in Norway.
Norway is an interesting example. The Conservative spokesman said that Britain was in the unique position of being an oil producer that also consumed a great deal of oil. Britain is not unique, because there is another European country with those characteristics. There is a question to be asked of the Norwegians, but to which I do not know the answer—perhaps we should have a charter flight to Norway with the SNP and the Conservatives; I would be happy to go as an observer—as to why they do that. I suspect that one of the reasons is that the Norwegians are conscious, in a way that we perhaps are not—and as the Conservatives certainly are not—that oil is a valuable resource that needs to be conserved. The Norwegians use their tax policy to that end. We should therefore perhaps not be too flippant in dismissing that important history.
In defence of Mr. Hammond, I listened to him very carefully, and he said that we were in an "almost unique" position. I have spent a number of years in Canada, and it strikes me that, as well as Norway, to which the hon. Gentleman is referring, Canada is a major oil producer and a major western country. Indeed, it is a member of the G7. That is one of the reasons why I asked the hon. Member for Runnymede and Weybridge whether he was aware of any other country that had introduced a so-called stabiliser.
Indeed, Canada is another country that is both conscious of the environmental impacts and the need to conserve its valuable resources.
I am delighted and grateful that Rob Marris sprang to my defence. I made the reference twice: on the first occasion I referred to Britain being unique among EU countries, and on the second occasion I said it was almost unique among industrialised countries. From the comments that the hon. Gentleman has just made, it appears that he thinks the policy proposal that we have put forward applies only to petrol. It applies to fuel—it applies to diesel, as well as to petrol. I want to be absolutely clear about that.
That is very helpful. I thank the hon. Gentleman for that clarification and I acknowledge his point. The motion does not deal with differential rates; in fact, I think it would make that problem rather more complicated. None the less, I take his point and I am sure that it has been noted.
Let me move on to a second point in the Conservatives' motion, which accuses the Government of dithering. They obviously like that word, because we keep hearing it—I know that it rhymes with "wuthering", which makes quite a good joke. However, if I were trying to develop a serious critique of Government tax policy, I am not sure that "dithering" is the word that I would use. After all, the main criticism is not that the Government have dithered, but that they keep rushing in with not very well thought out proposals—capital gains tax, non-dom tax and inheritance tax come to mind. "Dithering" is perhaps not the proper criticism.
Perhaps, however, I could make a case for dithering. There is an argument for dithering in a case such as this. We do not know what the oil price will be in the autumn, and we have no idea what the revenue position will be. It has been rather embarrassingly exposed that the Government have not even made any preliminary estimates of that. Surely it would be sensible to wait until the autumn before rushing into a decision on fuel duty—
Indeed there is a by-election.
There is a sensible economic case, if not a political one, for waiting and not rushing into this decision. As I understand it, the problem has arisen entirely because of the way the Government have subordinated their tax policy to our rather peculiar definitions of recess. They have had to make their announcement now because they had committed themselves to a policy change on
On a point of information, the Prime Minister's spokesman said on the record a couple of weeks ago—I have the quote somewhere among my papers—that there was no requirement for an announcement on the postponement of the duty increase to be made while Parliament was sitting, and indeed stated explicitly that such an announcement could be made during the parliamentary recess.
That is very helpful, because I have been taken to task for saying exactly that. I am glad to get a bit of support, for once, from that side.
In telling the House why the Government might do better to dither, is the hon. Gentleman saying that the Liberals want to see the 2p tax rise happening in the autumn? Would he want businesses and families face to uncertainty over that tax rise throughout the summer?
I did not say that at all. I said I would very much like to wait and see what the position was in the autumn. If oil prices are indeed going through the roof and—who knows?—if there is an invasion of Iran and prices are completely out of control, people will obviously expect the Government to take compassionate remedial action to protect households. That would be entirely understandable. However, oil prices might well go the other way. Nor do we know how serious the impact of the decision on Government revenue will be. I am not making an argument for pressing ahead with the decision today. All I am asking is that we get a considered judgment, when we know what the Government revenue position is—which we do not at the moment.
We do know that oil prices are going through the roof. We know that the price at the pump is going through the roof, with half the 35p rise last year happening between mid-April and mid-June. We also know that many of the hauliers who were here protesting two weeks ago told us that they will not be in business by the time of the pre-Budget statement. I believe in evidence-based policy making, and surely we now have enough evidence to say that the Government should have not only postponed the 2p rise but introduced measures to help people much earlier than they have done.
I am all for introducing measures to help if they are practical and affordable. However, I think the hon. Gentleman's view of the oil market, which I know he has thought about, is based on the assumption that there is a spike, and that we need to deal with spikes. That might be true; I do not know. Certainly, my years in the oil industry have led me to believe that these things are very difficult to predict. I am therefore not as comfortable as he is that this is simply a temporary spike that needs to be dealt with on that basis. However, I totally accept his point that there is hardship and that road hauliers have a genuine problem, and of course we need to consider measures to help them, which is why we have focused on rural areas.
As I have had various helpful interventions from the Conservatives, I shall now turn to their own proposals and the consultative document that they have put forward. This might produce some less friendly interventions. Underlying their proposal is an assumption that it would be sensible to pool oil revenues from one sector of the economy. Their basic underlying idea is that we should have upstream oil windfall taxes and taxes on the product, and that these should be pooled and evened out. I do not understand why that should be the case. Other sectors of the economy have different streams of revenue that we would never dream of pooling in that way. For example, council tax is going up and stamp duty is going down, but we do not argue that we need a property tax regulator. It would be a strange economic arrangement if we were to have such a thing.
I think the hon. Gentleman is suggesting some philosophical or moral reason for linking the two, but I do not believe that at all. It is simply a practical observation that there is a linkage in that when oil prices are rising, the Government inevitably and necessarily achieve a windfall—from corporate taxes, petroleum revenue tax, North sea production and so forth. It thus provides a pool of revenue that always rises when the international price of oil rises. That is what enables this offsetting mechanism to be introduced.
I am trying to be not philosophical but practical in asking why this should be pooled with other sources of oil revenue. One of the reasons I ask the question, which concerns the silo approach to taxation, is that a few weeks ago the hon. Gentleman's colleagues produced a paper on the cost of living that had a different silo and a different box, whereby environmental taxes went into something called a family fund. There is a perfectly good reason for pairing the two, and we believe that environmental taxes should be offset with income tax. Three weeks ago, we heard the argument that green taxes, including taxes on fuel, should be put into a box and offset against income tax, but now we hear the argument that they should be put in a separate box and offset against upstream oil tax. Quite where this comes from—other than the fact that it makes a neat fit at a particular point in time—is difficult to say.
Let us pursue the Conservative argument. The case is that there is a real windfall of revenue from the upstream oil sector. The Conservatives may well be right: we heard the argument last week; they have gone through a model and it is creditable that they have done their homework to that extent. The Government have a different model and have reached a different outcome, and they should perhaps tell us what it is and publish it. I am willing to accept, however, that the hon. Member for Runnymede and Weybridge may be right and that the Conservative model is better than the Government's model. I do not know, but let us assume for the moment that it is and that there is a real windfall here. If we really have a windfall from North sea oil revenue, the question that arises is what is the most sensible way of using it.
Over the past few weeks, I have been going round the media studios, following or leading the hon. Member for Runnymede and Weybridge. Whenever I listen to his interviews, I always hear his phrase about a "hole in the roof". If there is such a hole in the Government finances, surely that should be the first priority for any windfall gains. That is what most oil-producing countries would do: if they have a windfall in oil revenue from their upstream producers, they put it into a separate sterilised fund in order to stabilise public finances. Surely that is what is required. It should be used either to reduce Government borrowing this year or to pay off Government debt. Either the Conservatives do not believe their own propaganda about holes in the roof or they are not taking it very seriously.
But surely the hon. Gentleman would acknowledge that holes in the roof need to be fixed while the sun is shining. Surely he is not advocating pro-cyclical fiscal policy.
In terms of oil revenue, I would have thought that the sun was shining. Is that not the whole point? The sun is shining on the North sea, so should not any extra revenue be used to stabilise public finances? I find it difficult to understand why the Conservatives would not give priority to that. I am trying to be sympathetic and to understand their argument. They seem to be saying that fixing the hole in the roof has to wait because there is such pain about and families need to be helped. I understand that argument. They want to introduce some mechanism that spares the pain for families by ensuring that taxation reflects the deteriorating conditions in the economy.
It is fair to say that a lot of taxation operates on that principle. Income tax goes down if incomes go down, with people moving to a lower income tax bracket. Stamp duty goes down if house prices go down, and people move into a lower bracket. The posh term for this is "automatic stabilisers" and I think that what the Conservatives are trying to do is to turn petrol duty into an automatic stabiliser. There is nothing fundamentally wrong with that, except that what happens with automatic stabilisers is that the revenue is much less predictable and that with a downturn in the economy, the deficits are much bigger.
In the autumn, we will have a test of the sincerity of this conviction, as the Government are going to face the House with some truly awful deficit figures for this financial year. I am fully confident of that. The hon. Members for Runnymede and Weybridge and for Tatton (Mr. Osborne) might jump up and say, "Well done, Government. You're applying your automatic stabilisers. Income tax revenue and petrol duty revenue are going down, and you're sharing the pain with the public," but somehow I do not think that that will happen. I think we will get a lecture on financial discipline, lack of control and excessive borrowing requirements. We will wait and see how that argument develops.
I have read the Conservatives' paper, but I may have misunderstood it as it is complicated. They make certain assumptions about the oil price. The hon. Member for Runnymede and Weybridge corrected me a few moments ago, as I had understood them to be saying that they take a price, which happens to be the price that the Government assume in their pre-Budget forecast, and if the price rises above that level, duty is reduced; and if it falls below it, duty is increased. That produces a revenue-neutral process. It is based on the assumption that oil prices go in cycles. We know that that is probably not the case, and that is what worries me about the proposals.
We have no idea what will happen to oil prices in the course of the year. Just notionally, I got one of my team to run the Conservative proposals through a little computer model to work out what the impact would be if, later this year, the oil price reached $200 a barrel. I am happy to pat that across as part of the Conservatives' consultation exercise. Effectively, they would be running a deficit of £10 billion a year on that aspect of their policies. The assumptions that one makes about the base oil price are fundamental to the revenue projections that the Government assume. The Conservatives might stabilise the impact on families, up to a point, but the proposals would import to the tax system a great deal of revenue instability.
I have had an exchange of notes with the hon. Member for Wolverhampton, South-West on exactly the same point while the hon. Gentleman has been speaking. He appears to be under the impression that the offsetting factor is the increase in duty in the future when oil prices go down, but the offsetting factor is the increase in Government revenues in the same time segment as a result of high market oil prices, which enable the Government to offset a decrease in fuel duty at the pumps—not between one period and another, but in the same period.
I thank the hon. Gentleman for the clarification. I may have misunderstood as a result of trying to reverse-engineer what the Conservatives are proposing, but I think that what he is now suggesting meets my objection. However, it creates an entirely different problem: petrol duty would have to be set in response to the predictions of the economic model in relation to the net windfall, which is an even more complicated exercise. May I suggest that there might not be any net windfall at all? The proposal would make tax policy unbelievably complicated and unpredictable, and in view of the Conservatives' long-term commitment to tax simplification I am surprised that they are proceeding with it with such enthusiasm.
We know that the hon. Gentleman does not like the idea of a regulator, a stabiliser or whatever. What would the Liberals do, therefore, to help the hard-pressed motorist? I do not know whether he has been to Glasgow, but the one thing that is consistent on the street is unhappiness with high fuel prices. Would the Liberals do anything about that?
I have indeed been to Glasgow and I spent the earlier part of my speech suggesting that there are measures that could be taken. I realise that Glasgow, East is not a remote rural area—I am particularly conscious of that, having lived in the city—but I suggest that we move to a more appropriate system of vehicle taxation. We have vehicle excise duty, which is a blunt way to tax motorists and bears little relation to environmental impact, and we have fuel duty. If we were able to move quickly to a road user pricing system that properly captured the environmental costs of congestion, that would be a much more attractive long-term option for people in Glasgow, East and everywhere else.
On that very point, the hon. Gentleman has moved his party's policy along considerably in the past two weeks. Two weeks ago, he was opposing the graduated vehicle excise duty on the existing fleet but supporting it on new vehicles. Today, he is proposing abolishing it on new vehicles. As for using road pricing only on motorways and trunk roads, has he thought through the impact of congestion and pollution on all other roads in rural areas and in urban and suburban areas?
As we have the vehicle excise duty system, and parking charge systems in certain cities, it seems entirely sensible that an environmental component ought to be built in where possible. My colleagues and I are arguing that in the longer term we move over to a system that more accurately reflects pollution costs, congestion costs and road use. It is a question of time periods. Given that we have the VED system, I have been happy to defend, and have voted for, a wider differential on new vehicles.
But surely that would not send the signals for demand reduction that my right hon. Friend the Chief Secretary mentioned earlier. For those who drive gas guzzlers, the signals that it sends are that as long as they stay off the motorways and trunk roads, they can drive as much as they want, in whatever vehicle they want, and the emissions of their vehicle are irrelevant. It is a blank cheque for Chelsea tractors in suburban areas.
In the longer term, a combination of road pricing and fuel duty will be needed. Essentially, however, one is taxing use, and those who drive vehicles that are prodigious consumers of fuels would pay relatively more.
I want to draw the hon. Gentleman back to the motion and his critique of the Conservative proposals. Does it strike him, as it does me, that the proposals would be incredibly complex? Either we would have changing prices at the pumps every day, or we would be trying to predict what the price of oil might be in a week, a month or whatever the time frame was for the change due to the so-called stabilisation. Not only would it be a burden on business to keep adjusting to that, but motorists would start second-guessing, saying, "I might not fill up my tank today; I'll fill it up tomorrow, because it might change again."
That would throw out the modelling completely again. Is the system not far too complex?
To be fair, I had a long discussion with the SNP, and its argument—I do not know whether the Conservatives have carried it forward—is that the adjustment would be every six months. That is the proposal as I understand it. One criticism concerns how on earth the windfall would be worked out, given the complex modelling problem. But it is fair to say that the proposal is not to change the duty every day.
Another aspect of the potential problems arising from an SNP-Conservative approach to oil taxation is that they have different agendas. If I understand Scottish nationalism sufficiently, it seems the idea is not to use oil revenues to keep down petrol prices in Runnymede, Tatton or Twickenham. I think that the scenario goes rather differently: some time in 2010, perhaps there is a change of Government—who knows?—but there are not many Conservative MPs elected, and they say, "There is no legitimacy; let's have a plebiscite." They vote to go their separate ways, and the revenue gets no further south than Edinburgh.
The question of where the revenue goes is to be resolved. I suspect that the unfortunate consequence of borrowing a Scottish nationalist policy is that the Conservatives find that the windfall on which their economic policy is predicated might not exist in two years' time. I do not want to anticipate interesting scenarios about British politics; I will leave that to them.
I enjoyed the speech of Dr. Cable, who made some important points. I will return to a couple of them.
One of the hon. Gentleman's points was particularly well made: those of us who feel that the way that motorists are taxed must change should ensure that we are not double accounting in relation to where the money comes from and goes to. If one revenue is to offset a tax, we must ensure that we are not offsetting in two different places. It is clear to me from the Conservatives' recent announcements that they are doing precisely that. As the hon. Gentleman pointed out, their family-friendly proposal is that fuel duties should be put into a pot to offset income tax and be treated as green taxes. However, they are also talking about offsetting those same revenues against motoring taxes. That is clearly double accounting and it does not stack up.
I am not going to attack the principle of what the Conservatives propose because, as I said in an intervention, I proposed something similar in an article on the Progress website. I would claim that they have nicked my policy rather than that of the Scottish nationalists. However, whether it is the SNP's policy or my policy that has been stolen, the only added value that we have had from the Conservatives is that they spent the past three weeks with a thesaurus, coming up with a different word to describe the policy.
I am not sure to what extent it applies to the hon. Gentleman's policy, but it certainly applies to the SNP policy, now that I have had a chance to read its proposal. Let me make it clear: the problem is that it relied on the concept of a windfall from VAT. I acknowledged in response to an earlier intervention that there is, broadly speaking, no windfall from VAT.
For the avoidance of doubt, while the value of the offset was the element of the increase that was accounted for by VAT, I made it perfectly clear in my speech two weeks ago that we were talking about the North sea windfall, which was confirmed in the letter from the Chancellor to my right hon. Friend Mr. Salmond only a week before that.
I am grateful to the hon. Gentleman for clarifying that. If this sort of fuel duty moderator is to work, it has to cover the whole package of revenues for which the Government have to account.
My right hon. Friend the Chief Secretary and her boss the Chancellor have a far more difficult job to do than the Opposition suggest. They have to be responsible for ensuring that there is no black hole in our revenues and that all the Government's spending commitments are fully funded. I point out to Mr. Hammond that the Conservatives have a proposal whereby they will stick by our total spending plans. They are not committed to spending the money in the same way, but they are committed to spending the same amount, which means that they also have to be committed to raising the same amount. They cannot offer tax cuts here and there without creating a black hole in their spending plans.
The criticism I would make of the Conservative proposal is that I do not think that the Conservatives have looked at the totality of the package of changes that would have to be made, and I modestly suggest that I tried to do that in my article. Several different changes would have to be made to achieve the green agenda of the Government and other changes. The inspiration for my article came from some of the think tanks that I believe the hon. Gentleman mentioned. I do not believe that what I call the fuel duty moderator was a novel idea. Other people have thought about it as well.
What I would say to the House is that we already have a fuel duty moderator. We have seen it work today. It is called the Chancellor's judgment. What he does every so often, and what the two Chancellors have done 11 times since 1997, is to look at the net revenues coming in and the pain or otherwise being felt in the economy and make a judgment about whether fuel duty is going to go up or not. What Chancellors do when they make that judgment is look back at the levels of revenue that the Government are receiving from all the different sources and all the complexities of the economy—whether the money is coming from VAT, North sea oil revenue, corporation tax, income tax or all the other things that are happening in the economy at the same time. They then make a judgment on whether the country can afford, or needs, a fuel duty rise. They have made that judgment today, so we can have a fuel duty moderator, but I would not necessarily recommend a formulaic fuel duty moderator such as the one proposed by the Conservatives.
I had not appreciated that the Conservatives were suggesting that their calculation would be made only every six months. My view was that the Chancellor should make a judgment about once every quarter, and should then compare his revenue stream at that point with the predictions in his Budget. If the revenue stream is in excess of his predictions, he should be able to make a change in fuel duty. Why do I consider that necessary?
Let me make a little progress. One reason why I consider it necessary is that there are 23 million motorists out there who clearly feel that the net package of taxation that they are having to pay is unfair and, as a proportion of taxation as a whole, places too great a burden on their shoulders. I believe that we need to get those 23 million motorists on side with our green agenda, because otherwise we will never be able to drive down carbon emissions from fuel-powered transport. That is why I believe that we must put together a package of measures that will make motorists instinctively feel that the taxation system is a bit fairer than it is today.
I fear that the hon. Gentleman is falling into the trap that he wrongly accused me of falling into earlier. He suggests that the Chancellor could assess revenue outturns in what Dr. Cable describes as a silo. However, we have explicitly recognised that the impact will affect more than just oil revenues, which is what the National Institute of Economic and Social Research model suggests. The Chancellor will not be able to make his assessment quite as easily as the hon. Gentleman is suggesting.
I need to make a little progress. I have only four minutes left, and no more injury time.
A critical aspect that has not been mentioned so far, although I think the hon. Member for Twickenham touched on it, is the freight industry. Although our petrol is far from the most expensive in Europe—I think we are now seventh or eighth on the list—because we charge the same duty for diesel as for petrol, we have the highest diesel prices in Europe. People are coming into our country in lorries and stealing work from United Kingdom hauliers.
According to a haulier who was involved in the fuel duty lobby the other week and whom I arranged to meet along with one of the Transport Ministers, between January and June 2007 the fuel bill for Les Knight Transport Ltd, which has a fleet of about 20 heavy goods vehicles, was £390,000. The bill for the same period this year was £484,000. That amounts to an increase of £94,000 so far this year. I asked how much of it the firm had been able to pass on to its customers. A fuel duty escalator is built into its contracts so that it can pass on some of the price, but so far it has only managed to get its customers to pay an extra £34,000. So far, £60,000 of extra cost has been imposed on the business in this year alone. No business could sustain that for long, and British hauliers will not be able to sustain it for long. I accept that that their social costs are lower, but we need to find a way of adjusting the balance on behalf of the haulage industry. Whether that is done through an essential user rebate—which is what it is asking for, but which seems to me to be a rather complicated mechanism—or a reduction in excise duty on heavy goods vehicles, we have to do something and do it fairly rapidly.
I have been arguing that we should re-open the case for the vignette. The hon. Member for Twickenham suggested that we should just charge people coming into the country, but that would be against EU law. We would have to have a simple vignette system that everyone—British hauliers as well as foreign hauliers—has to buy. A foreign haulier would, of course, buy it at the day rate, and the British haulier would buy it at a discounted annual rate, but what is important is that the revenue from that system would be used to offset UK excise duty on heavy goods vehicles. That would be a perfectly legal system under EU law, and it would be zero-cost to the Treasury and provide a considerable competitive rebalancing for the heavy goods vehicle industry.
The Government were considering that idea. They decided not to look into it any further in the Budget, but that was before the current huge oil price rise. I suggest that one of the things my right hon. Friend the Chief Secretary could do is take that file out again and have another look at it with the eye of a politician, and see if it might provide her with the mechanism we need to make the UK HGV industry a bit more competitive.
Thank you, Mr. Deputy Speaker, for giving me the opportunity to make my maiden speech. The pressure to make this speech at the earliest opportunity has come from some surprising sources. As I arrived here on my very first day, I was handed a telephone message from the local Oxfordshire press inquiring whether I had delivered it yet. Clearly, my predecessor's departure to be Mayor of London has liberated acres of column inches in my local papers that now need to be filled.
For seven years, Boris Johnson served the people of the Henley constituency with distinction, dedication and considerable panache. There can be few people in public life so well known that a surname is superfluous, and few who have had such an enviable ability to relate to people from all walks of life. London is, indeed, fortunate, and the people of my constituency are proud of Boris's success and achievement. During the election campaign, it became apparent on the doorsteps just how much Boris had done as a constituency MP. For a man used always to being in the limelight, most of this had been done without fuss, but in the knowledge that it made a real contribution to the lives of the people of south Oxfordshire. People in one village in the constituency recalled Boris making a complicated journey from London simply to play a cameo role in the village panto. His ability to arrive late for almost all occasions must have presented particular challenges for the theatrical management—but arrive on time he did, and he delivered his lines on cue. Incidentally, Boris's cameo role was playing Boris Johnson—a role he had no trouble playing. Boris's ability to make politics and life fun are undeniable, but they should not obscure a man of great intellect and ability who will be much missed in the constituency and will be a hard act to follow.
The Henley constituency occupies much of the area between Reading and Oxford and includes delightful and varied countryside from the Thames to the Chilterns. Its rural tranquillity is maintained by an almost complete absence of mobile telephone reception across large areas, which will no doubt prove a particular challenge for the Whips. Of course, many Members have recently had the chance to experience the constituency, and, I hope, to contribute to its local economy. Indeed, local estate agents are hoping that many will now come back permanently and that this will single-handedly buck any downturn in the property market.
It is a constituency that has played a major role in English history. The abbey at Dorchester-on-Thames was once one of England's premier cathedrals. The town of Thame has managed to retain its market town character despite the pressures of growth, and Henley itself is, of course, famous for its regatta. However, it is one of the anomalies of constituency boundaries that when people attend the regatta they are actually in the constituency of my right hon. Friend Mrs. May. The advantage of this is that it affords them a magnificent vantage point from which to look back into my constituency and the town itself.
Even within this rural idyll, there are problems. Sandwiched between Oxford, Reading and Didcot, the constituency is constantly under pressure from overdevelopment, particularly in the green belt. Funding for any accompanying infrastructure has been difficult to access, and the situation has not been helped by the caricature of the constituency as too healthy and too wealthy. It contains areas of considerable deprivation, such as the village of Berinsfield and, indeed, parts of Henley itself, but it is typical of the public-spirited nature of those who live in the constituency that there are also thriving voluntary and charity sectors.
The network of small rural villages scattered across the constituency illustrates well what the notion of community is all about. They provide the support and caring environment that has made it a joy to live there for 20 years and to have brought up my family there, but despite that, I remain concerned for the future because of the risk to all this from the increasing prospect of rural isolation caused by the steady erosion of local services.
The final stop in this tour of my constituency is RAF Benson, which is one of the UK's main operational helicopter bases, whose staff are operating in both Iraq and Afghanistan. We must never forget that our military capability depends on the good will of service personnel and their families. Local commanders understand that, and I will have no hesitation in holding the Government to account on delivering the fair deal that service personnel and their families rightly require.
May I turn briefly to the subject of the debate, about which I should like to make three short points? First, in his maiden speech, my predecessor said:
"many of my constituents find it very difficult to afford petrol these days".—[ Hansard, 12 July 2001; Vol. 371, c. 1010.]
He said that when the average price of a litre of unleaded was just about 80p. He went on to point out that there was no public transport alternative, with many villages having only one service per week. Seven years later, the situation is, in all senses, considerably worse in an area where the car is a necessity, not a luxury.
Secondly, I shall not argue over whose by-election should take credit for the Government's climbdown over the 2p autumn rise. I think that my constituents would feel that they had a role to play in it, because they regarded their by-election as, in many ways, a referendum on the Government's whole approach to the motorist and will be glad to have forced the Government into that climbdown.
Finally, if the Government find it hard to listen to us or to my constituents, perhaps they ought to listen to those who once would have been their natural allies. Last Friday, I returned to Oxfordshire county council, where, until recently, I held a portfolio that included human resources and its relationship to the unions. I was asked by the secretary of the Oxfordshire county branch of Unison to help draw to the attention of Treasury Ministers a 2,000 signature petition that it had raised on fuel duty. I was told that, for some reason, the union had been unable to find a Labour Member who was willing to do so. One can disagree with the detail of Unison's proposed mechanism to achieve the scrapping of the 2p increase and the further 10p reduction in fuel duty for which it is calling, but it is difficult to disagree with the sentiment it expresses: that pump prices are hurting businesses and individuals, particularly the poorest paid. I am pleased to have been elected to this House at a time when Conservatives are clearly trusted to represent the views of trade unionists, and I thank the House for its indulgence in listening to this speech.
One of the great pleasures of being Deputy Leader of the House of Commons was the enjoyment that I got from all the maiden speeches of colleagues who joined us in 2005. Many distinguished and impressive speeches were made, but none were more impressive than the maiden speech that we heard just now from John Howell. He showed great wit, flashes of independence—the Whips will have noted those, so he will be up for a promotion very soon—a keen appreciation of the conventions of this House, which he has clearly quickly grasped, and, most important for his constituents, a good knowledge of the issues that face them. Clearly, they are going to have a champion in him.
It is a great pleasure to speak in this debate, because I have rarely seen an Opposition motion so steeped in cant. The truth is that the people who led the charge to keep fuel duty high are on the Opposition Benches— [ Interruption. ] Mr. Hammond says "Come on!", but who brought in the fuel duty escalator? The last Conservative Chancellor. No wonder they lost. It is not Heathcliff who is responsible for the problem, but Rushcliffe—Mr. Clarke, who brought in the extra tax at the pump. Heathcliff abolished it. If the Tories had continued, about 30p would have been added through that tax to every litre, every day for the motorist filling up at the pump.
In February, less than five months ago, when petrol was already more than £1 a litre and diesel was more than £1.10, Mr. Yeo, the Conservative Chairman of the Select Committee on Environmental Audit, criticised the Government for abolishing the fuel duty escalator. He was joined in that by his Conservative friends the hon. Members for Bexhill and Battle (Gregory Barker), for Ruislip-Northwood (Mr. Hurd), for Bridgwater (Mr. Liddell-Grainger) and for Beverley and Holderness (Mr. Stuart), but their demands for higher fuel taxes did not stop there. They called in paragraph 14 of the Committee's report for air tax freight duty to be introduced for the first time. That would send the cost of some foods through the roof.
The Committee's fourth report of 2006-07 called for a sixfold increase in diesel for airport vehicles, when diesel cost 7.69p a litre. That would have sent up the cost to more than 46p a litre. The report produced in February went on to state that, by April 2009, fuel duties were set to go up by 6p a litre, but reminded the Committee and the House that fuel duty rates were still 11 per cent. below the price in 1999.
I do not quite know what the hon. Gentleman is rambling on about now, but let us get back to his criticism of my right hon. and learned Friend Mr. Clarke. Will the hon. Gentleman remind the House what the price of a barrel of oil was when my right hon. and learned Friend introduced the fuel duty escalator?
It was less than it is now, but as the price went up the Conservatives kept the escalator going. That would, of course, have meant that prices now would have been some 30p more than they are at the pump and up to about £1.50 a litre, according to the figures that I mentioned earlier, which were provided by the Automobile Association. The Committee's report is proof that the Conservatives have not learned a lesson about the fuel escalator. When the five Conservative Members I mentioned signed up to the report, which called for the Government not to back down on the rates of duty, they said that that would be a test for the Treasury. The report states:
"Some motoring organisations have begun calling for the next planned increase in fuel duty to be scrapped, given the rise in petrol prices due to increases in the price of crude oil. The forthcoming Budget is a test of the Treasury's environmental credibility: it must not defer its planned rises in fuel duty."
The problem, of course, was that even that was not enough for the Conservative report on green taxes produced by Zac Goldsmith and Mr. Gummer. It proposed to push up the vehicle excise duty differential to £500. They wanted a new graduated purchase tax with a variable VAT rate that would see a combined tax of 27.5 per cent. on larger cars. That was all aimed at hitting the motorist.
That is because the modern Tory party has abandoned the sort of principles that the right hon. Member espoused. It says one thing to one group, but allows the right hon. Member for Suffolk, Coastal to say another thing to another group.
In the same way, the Leader of the Opposition tries to curry favour by telling Friends of the Earth and Greenpeace what they want to hear, before he goes along to the motor manufacturers and the road lobby to tell them what they want to hear. That is the sort of U-turn that he does: one day it is hug a hoodie, then it is hug a tree, and now it is hug a Hummer. The Opposition cannot make their minds up about whether they are going to be environmental or not, although I pay tribute to Mr. Redwood for his consistency at least.
The problem is that when the cold economic winds blow across the Atlantic and reach Britain and the Leader of the Opposition, the shiver looks in vain for a spine to run down. People want action, not unbelievable and untried policies from an Opposition Front-Bench team that clearly has not bothered even to look at the fuel tax stabiliser in other countries, given that it appears that all of them have rejected the measure as being pie in the sky. What the public want are practical steps such as the action that we have taken today.
Does the hon. Gentleman accept that a fuel duty stabiliser along the lines that we have set out would work only in a country that was both industrialised and an oil producer? There are relatively few candidates available.
I shall tell the hon. Gentleman how it would work, if it would work at all, and that is if the oil price continues its reduction of the past few days. The hon. Member hopes that that will happen, but he failed to tell the House about what would happen if it keeps going up—and there have been predictions, and not just from the doom merchants, that it will rise inexorably and hit $200 a barrel. If the oil price continues to rise, what mechanism will ensure that people and motorists are weaned off the so-called stabiliser? If oil prices do not fall but keep rising, the stabiliser would have to be removed and fuel prices would rise. The stabiliser does not offer a long-term solution to the problem.
No, as I am afraid I shall be in injury time if I give way again.
The country wants a credible alternative to the stabiliser. The Opposition are offering something that no Government in the advanced industrial world, or indeed anywhere, have proposed. As my hon. Friends have pointed out, other countries are in the same position as Britain, being oil producers with advanced industrial economies. That is why the public will reject this gimmick from the Opposition. They clearly did not have sufficient confidence in it to test it in the Finance Bill Committee where, if it had not been debated to destruction, it would certainly have been thrashed around. To its credit, the Scottish National party allowed the policy to be tested. It was not adopted, but it has been partially stolen.
However, the nationalists have their own problems with fuel. Some months ago, my right hon. Friend the Chancellor set aside a sum of money for England and the devolved regions to ensure that bus companies could offset some of the fuel rises and duties and keep fares frozen. The Scottish National party Administration in Edinburgh did not pass the money on to local bus companies, with the result that very successful companies such as Lothian Buses and others up and down Scotland were forced to put fares up by 10 per cent. That is a direct result of the Scottish National party talking up its concern about fuel, but in fact pocketing the money that had been set aside and using it for something else. As a result, my constituents and other people all over Scotland, including in Dundee, have suffered increased bus fares.
People want the Government to take the sort of practical step that I have described. This Government set money aside, and it is a pity that it was not passed on by the Scottish Nationalist Administration in Edinburgh. However, the money was passed on elsewhere in the country, and it has helped to keep fares down, even at a time when diesel prices have escalated as the world price of oil has soared.
Today's decision by the Chancellor to defer the 2p fuel duty rise will be widely welcomed. However, it is important that we send the clear, not mixed, message that things will not get easier as regards fuel. My right hon. Friend the Prime Minister has rightly pressed at summits to ensure that oil production is increased, but we all know that if China—a rapidly advancing, industrialising country—started to use oil at the same per capita rate as the United States of America, the entire world's current annual output would be consumed solely by China.
It is right that we address issues of climate change and ensure that America—the largest consumer of oil—is part of that regime, recognises Kyoto, as it has started to do, and sets its own targets. We are not in a position to lecture the rest of the world unless we take steps in this country. I am very pleased that colleagues on my party's Front Bench have taken key steps on renewables. The measure that has been announced is necessary to bring some relief to hard-pressed motorists, and I welcome it. I am sure that they, too, will welcome it as a practical measure, and will reject the Opposition proposal as pie in the sky.
It is a great honour to speak in the same debate as my hon. Friend John Howell. In his maiden speech, he showed his insight into his constituency. I visited his constituency just before his election and got to know it a little better, so I understand some of the glowing references that he made to villages in the constituency, and to the town of Henley, which is one of the most beautiful parts of south Oxfordshire. It is a great pleasure to have him here, although I think I speak for many Conservative Members, and perhaps a few Labour Members, when I say that we will miss his predecessor, who, in his role as Mayor of London, is doing great things. However, we will miss his charm and wit in this place.
I am pleased to take part in this debate. It is clear that we are in a period of great economic uncertainty, and the situation is somewhat exacerbated by the recent massive fuel price increases. As a result of the Prime Minister's recent attendance at a meeting of the Organisation of Petroleum Exporting Countries in June, he is aware that it is unlikely that there will be any significant increase in oil supply in the next few years. That is why I found the comments of Dr. Cable interesting; he seemed, rather optimistically, to think that there might be changes in oil prices over the summer. I think that he may be looking at the world through rather rose-tinted spectacles, because as the Prime Minister said:
"This is the third great oil shock in three decades".
All our constituents, across the country, see that first-hand when they go to the pumps to buy fuel and people in rural parts of my constituency, who still have to rely on oil to heat their homes, see that when the lorry turns up to fill up their tanks. We recognise that problem, and constituents will be grateful to us for calling this debate so that we can really press the Government on practical ways to support our constituents.
The Government may say that they recognise the problem, but they are failing to show any of the leadership that we need to find a solution, and are failing to give business certainty; that is what people are crying out for. I am not sure that a six-month delay in implementing the 2p fuel rise will do anything to create the long-term certainty that families and businesses need on fuel costs. Let us consider the intricacies of the 2p delay. The cost of deferring the increase last time was about £550 million. We know that, as a result of the increase in fuel prices, the Government received in the first five months of this year alone a windfall that yielded almost that amount of money. Perhaps we could consider the issue in that context. As the Royal Automobile Club reminds us in its briefing, which sets out its reaction to the Government's announcement, the measure is just a drop in the ocean, given the £2 billion extra that the Treasury intends to take from motorists in the next two years.
I am very concerned about families across the country, who face the reality of increasing mortgage rates and food prices, as well as ever-increasing fuel prices. That is the case not just in the rural areas of my constituency, but in the town, where we have great problems sustaining the public transport networks that are needed if people are to rely on them rather than their cars. The Government should be listening a little more intently to some of the proposals of my hon. Friend Mr. Hammond.
I particularly want to direct my remarks to business. Basingstoke has more than 60,000 jobs, of which almost 4,000 are in the transport and communications sector, and almost 8,000 are in manufacturing, so the cost of fuel matters to businesses in Basingstoke, which is one of the top 10 areas of employment in the south-east of England. It makes a lot of money for the Government and they need to listen harder to businesses such as those in my constituency. Visiting and talking to people who are running businesses day in and day out in this economic climate might bring home the reality of some of the Government's policies.
On Friday, I was in a plastics manufacturer in my constituency, Holloid Plastics, which has been operating for more than 50 years. It is having to consider not just an annual price rise, but six-monthly price rises to try to keep on top of the fuel increases that it is having to endure. A delegation of local road hauliers recently came to the House and I was pleased to meet Mrs. Sandra Hunt and Miss Sarah Hunt. They are from L. Hunt and Sons Ltd, which has been in my constituency for more than 100 years, and they run a road haulage business out of Upton Grey that is enduring immense pressure as a result of the increases in fuel costs and that, again, has seen two price rises to its customers since April. Such price rises will be handed on not just to customers of road haulage companies but to their customers in turn, fuelling more of the inflation that we have seen in recent weeks and months.
It is the Government's failure to grasp the scale of the problem that concerns businesses most, and perhaps in her closing remarks the Exchequer Secretary could show that she has been listening to the concerns of businesses and families today by showing that she will consider some of the practical measures that have been put forward by my hon. Friends. The country really needs certainty and fairness when it comes to the future in this area. We have the highest diesel costs in the EU, and that is a result of the level of taxation, and that has been so for more than a decade now. Particularly concerning is the fact that the gap between the UK and other EU countries has increased markedly since the late 1990s. The UK duty rate has been increasing much faster than elsewhere and that is of particular concern.
I welcome proposals of my hon. Friend the Member for Runnymede and Weybridge on the fair fuel stabiliser, for which local businesses in my area have been calling directly. The Conservative party is taking on those issues and providing practical solutions in introducing the proposals for consultation. When fuel prices rise, we do not want to see the instability that the current situation is creating. The stabiliser could provide just the sort of solution that could help businesses to have a more stable and certain future. We cannot continue to lurch from one tax crisis to another, whether it is the 10p tax rate today or delaying a 2p tax rise for six months. As my hon. Friend said, this is simply no way to run our economy. I urge the Chancellor and his right hon. and hon. Friends to look more carefully at the fair fuel stabiliser as a way of providing the real long-term help that businesses in Basingstoke and throughout the country really need.
The issue before the House today is of consummate importance to businesses throughout the country and to our electors, so it is stunning to me that the Chief Secretary to the Treasury comes before the House and is unable to answer the simple question of by how much the pump price has gone up since the Budget as a result of the tax increases that the Government have imposed, or have allowed to be imposed by market movements, because some of the tax is ad valorem and some is fixed. We have a Chief Secretary who either does not know or will not tell us that very simple point of great interest to our constituents.
Worse still, as my right hon. and hon. Friends pointed out when she was still with us, the Chief Secretary was unable to tell us what the loss of revenue would be from today's very wise decision to forgo the extra 2p that had been due in the autumn. The Government had been threatening us with that rise for so many weeks and months, despite all the evidence that they were collecting far more tax than they were planning for in the Budget forecast, and all the evidence of the damage that petrol prices were doing to our constituents around the country.
It is surely not beyond the wit of the Prime Minister to find a Chief Secretary who knows how to do a few sums, and understands that she is paid a good salary to come to the House and tell us about the cost consequences of the Government's proposals. We would like to know how much extra revenue the Government are already getting from the windfall on North sea oil taxes as a result of the rise in the oil price, and from the windfall at the pumps that we have been describing.
An external estimate says that the Government got more than £500 million extra in the first six weeks of the financial year—an absolutely massive sum. One assumes that the figure has been higher in each succeeding six-week period, because the oil price has risen that much further. We have at last gleaned from the Treasury—it has confirmed—that it did its forecasts at $84 a barrel. The price today is $139 a barrel, so we can all see that there must have been a huge increase in the tax that they have claimed. We should then ask who is having to pay all the additional tax that the Government are allowing to be imposed, or have deliberately imposed through their own positive decisions.
We are back to the new Labour/old Labour story. The party seems to believe that only the rich should be allowed to drive, because the tax will bear disproportionately on those with older cars and lower incomes. We see much evidence around the country that families on low incomes in rural areas, or with work or school-run patterns that cannot be met by public transport, are under enormous pressure. Such families are in genuine fear of going to the filling station and filling up. They think about which other journeys they can cut out, or how they can adjust their lives in some way to try to deal with the weekly hit of an enormous fuel bill.
It is those on the lowest incomes who will have to sacrifice journeys or sacrifice the car. People on high incomes such as ministerial incomes and better—the lawyers and consultants whom the Government hire—will not find the situation that difficult. It may be slightly tricky for them, because they may have to cancel the extra glass of champagne, but it is not the end of the world. However, there are so many people for whom this means digging deep into their limited family budget, and being really afraid of what their Government are doing to them.
We have learned in this debate—this was not challenged by the Chief Secretary, at least—that at least 60 per cent. of the price at the pump goes to the Government. It may be more. It certainly is if North sea taxation is added; if we factored in the idea that the petrol we get at the pump is pumped via the North sea through a British refinery, the tax would be even higher. However, we can definitely conclude—and the Exchequer Secretary will have to agree—that most of the money collected by the oil companies at the pump goes to the Chancellor. We can agree that the amounts are massively higher than was forecast in the Budget, and than they were last year. We must conclude that when it comes to higher petrol prices, the Government are undoubtedly the main villain of the piece.
Families with difficult choices struggling on modest incomes are not the only casualties; another casualty is the British haulage industry. How many times have the official Opposition had to make the case in this House for British hauliers? How many times have the hauliers had to block the streets and undertake democratic protest because their Government are deaf and do not understand the point? Driving the British haulage industry out of business is not a green policy but a policy of the madhouse, because it will substitute foreign hauliers for British hauliers. Foreign hauliers do not pay the same taxes to own and run their lorries. They will bunker abroad. They will fuel up in Calais or the nearest port of departure from the continent and try to drive back to the continent with an almost empty tank so that they can refuel in a jurisdiction where the fuel is cheaper.
The right hon. Gentleman talks about the comparative costs of haulage in other European countries. Although he is right about fuel, he must factor in two other elements of the cost equation: first, that corporation taxes on the haulage companies are lower than in European countries; and secondly, that wage rates and suchlike are lower. Therefore, the overall cost of operation for companies in France, Holland and elsewhere is probably not substantially different from what it is here.
Does my right hon. Friend agree that the situation is much more unsustainable for hauliers in this country? For example, the operations director of a transport company based in my constituency, who operates nearly 100 large goods vehicles, tells me that if the price of diesel remains at its current level, that will cost his company approximately £1 million per annum on top of what he is already paying, which works out at nearly £4,000 per working day. That is clearly unsustainable.
That is a good example of my general point. Anyone who knows the haulage industry knows that on many cost grounds, particularly all those related to Government conduct, we have a much worse deal in Britain. That is why we are losing business, why jobs are going, and why haulage companies are closing down. If Labour Members still do not know that, they are in for a rude awakening at the polls. It will be yet another example of their not understanding what is going on and not speaking up for the people in this trouble.
The Chief Secretary to the Treasury and the other senior politicians in the Government seem to think that all this is a silly political game about black holes in public finances. I hope that I have illustrated that there is no black hole in this area of the accounts. There is a massive increase in revenue, and we are asking the Government to give a little bit of it away while oil prices are high, and at the same time have a stabiliser so that if the oil price plunges the Government will not be short of revenue, as they would otherwise be. Ministers do not even seem to be able to work out that if one charges an activity at 60 per cent. or more, and charges other activities at 40 per cent. or so, one will have more revenue if there is a rise in the price of the 60 per cent. tax item and less revenue if it falls. Anyone else can see that that must be true, because it is being taxed so much more highly than the other activity that it may be displacing to some extent when the price rises.
The Government must learn how to do the sums. They must understand that if they gave a bit away now, it would do them a lot of political good, help the British economy, and do a little to ease the phenomenal squeeze that they have decided to place on the British consumer and the average voter out there. At the same time, by adopting the Conservative proposal, they could have some kind of insurance against the possibility that there is speculative money as well as underlying demand in the oil market, and that the price will come down. It is a very unusual market that always goes up, and it would be foolish of the Government to plan all their Budget assumptions on the basis that the price of oil will always go up now that it has reached about $140 a barrel; indeed, it has been a bit higher than that in recent trading.
The black hole is the Government's black hole. If we are engaged in a debate about black holes, as the Chief Secretary says that we are, we would like to know exactly how much Northern Rock has cost them— £5.3 billion so far, and rising. We would like to know how much all these tacky packages to try to win votes in by-elections have cost them. They are probably already overrunning by £10 billion, yet they have the gall to criticise the Opposition for coming forward with a very modest proposal that would make a small reduction in the part of the tax budget that is rising so colossally because of how the Government have set it up. Now that the Government have at last realised, long after everybody else, that they cannot go on with a 2p rise in the autumn, it is important that they should think again and take something off the already over-burdensome high taxes at the pump.
I cannot remember such an intense squeeze on customers and consumers developing as quickly as is now happening as a result of the combined impact of the credit crunch and inflation. The inflation is occurring in the areas where the Government meddle most: in energy prices, where they have not allowed the permits to go ahead for an expansion of energy supply; in the oil products market, where they impose cripplingly high taxes and allow them to go up when the price is going up; and in food markets, where we have rigged prices thanks to the common agricultural policy and the Government's failure to get proper reform from our partners. We urge them to do themselves, as well as the country, a favour by seeing common sense and the need to cut those petrol prices immediately. That would reduce the retail prices index in the subsequent figures, which would help with other Government spending pressures because so much Government spending is linked to the RPI. Above all, it would help my constituents and the Minister's constituents, who have had it beyond belief with these price rises, and blame the Government for the petrol price rises because so much of that money is tax.
I enjoyed the maiden speech of John Howell. He is in the extraordinary position of having been a candidate with one policy and making his maiden speech with another. However, he has the advantage over all his Tory colleagues, in that the next time we vote on a fuel duty regulator, modulator or stabiliser, he can vote for it without the embarrassment of having not done so in the past. Having got that out of the way, I can say to the hon. Members for Putney (Justine Greening) and for Runnymede and Weybridge (Mr. Hammond) that they have done the right thing. They have fully considered the issues that affect 23 million motorists, the haulage sector and many others. They have clearly reached their own conclusions in their own time and developed a model for how their plan will work. However, it is fundamentally the same idea as many hon. Members have had.
My comments are not about claiming the credit, even though I tabled an amendment on the subject to the Finance Bill in 2005, but about building a coalition of support to back all those in the real world and deliver a modulating, moderating or regulating impact to temper increases when prices spike. Many support that.
Two weeks ago, when I tabled an amendment to the Finance Bill, I provided the context, so I will speak for only a few minutes; I want other hon. Members to be able to contribute to the debate. From 2005, when petrol was 86p a litre, the price has increased to an average of £1.32 a litre—£6 a gallon. In 2005 Brent crude had reached $60 a barrel—almost a 20 per cent. increase on the forecast for that year. Two weeks ago it was $132 a barrel, and yesterday the price reached $145 a barrel.
I have also consistently said that the rises that we have experienced are inflationary. Yesterday the inflation figures were published, showing, at 3.8 per cent., a half point rise to almost double the Government's target. Fuel and energy prices have risen by 24 per cent. in the past year. We are considering essential items, and for those on low incomes and others, such as the haulage sector, real inflation far exceeds the Government's official figures.
At 53.2 per cent., the UK has the highest tax take on a litre of diesel anywhere in the European Union. At £1.32 a litre for diesel—it is dearer in many parts of remote and rural Scotland—it is 35p more expensive than it was a year ago. Almost half of that rise—14p—happened between mid-April and mid-June, according to the AA. That is precisely the sort of spike that a regulator, modulator or stabiliser is designed to smooth out. Only in Norway, with an average price of 137p a litre, is diesel dearer than in the UK. For normal people, that means that it costs £30 more a month to run one diesel car, or £46 more a month for a two-car family with petrol cars. People will need to earn nearly an extra £1,000 a year to pay for the increase in fuel that a two-car family will experience.
It is important that fuel is regulated for all the reasons that I have outlined, but also to avoid the super-spike to $200 a barrel and more that Arjun Murti from Goldman Sachs predicted for this year. We must plan for those eventualities and have the mechanisms in place now, so that the Government do not rush around panicking when they happen.
Let me briefly consider the Government's action today, suspending or abandoning the 2p rise in duty. Of course, it is welcome—many of us have called for it for some time. However, it should have happened months ago as prices began to spiral way above inflation and the Government's forecasts. That is why we need a regulator. The suspension should have been automatic, not based on any politician's whim—and certainly not eight days before a by-election, although we in the Scottish National party claim credit for that.
The most important point is not about 2p here or 2p there; it is about having in place the regulator—or we could call it the modulator, the stabiliser or the mechanism—so that when the spiking occurs there are automatic corrections, and families and businesses can plan properly. In particular, that would mean that the haulage sector would not be crucified, and that, as we heard in the earlier example, modest companies would not have to find £60,000 net extra each year just to stand still.
With that, I will leave it, except to say that although there will probably be technical disagreements with the Tories when the full detail of their proposals comes out, I am pleased that they have moved. I hope that I had something to do with that. If we continue to build up support among all the parties, we might be able to help a great many people with such a measure.
As we have heard in this debate, the high price of fuel is having a severe effect on the economy throughout the country. However, it has a much more severe effect in remote rural areas than in urban areas.
In my constituency, the effects are felt particularly severely on the islands and on the Kintyre peninsula, because fuel there is sold at a much higher price than in urban areas. That means that people suffer from a triple whammy: they pay higher fuel prices; there are no public transport alternatives; and they need to drive longer distances. Let me cite an example: on a recent visit to the remoter parts of my constituency, I found that the price at the pumps in Campbeltown, at the end of the Kintyre peninsula, was 6p a litre higher than at Glasgow airport and that at Port Ellen on Islay, fuel was selling at 15p a litre higher. On the smaller islands, the difference is always much greater.
The Office of Fair Trading has on many occasions looked into the reasons for the high fuel prices in the highlands and islands. On each occasion, it has drawn the conclusion that the extra premium arises not from anti-competitive prices—local filling stations are not ripping people off; there has never been any such accusation—which can be dealt with through regulations, but from the way the market operates. In a small village, the number of pumps at the filling station and the turnover at each pump is less than one would find in an urban area. That means that the income required to cover costs is greater than that for urban filling stations.
Another problem is that because remote filling stations are owner-operated, they are dependent on regional wholesalers for their fuel supplies, whereas urban filling stations usually have direct access to a supply of fuel without the need for the middle man of the wholesaler. Another problem that small filling stations face is finding the money for the fuel up front. Even a small island filling station will need to pay more than £10,000 up front to fill the tank. That is a lot for a small business to find up front, which leads to interest charges, and therefore additional costs. For islands, there is the additional cost of the ferry fare for both the tanker and the driver, and of the driver's wages for the time that it takes to make the delivery and return to base. For smaller islands, that can mean two or three full days simply for one delivery. That all adds to cost.
One haulage company in my constituency pointed out to me earlier this week that it cannot get a discount fuel card that includes filling stations in Argyll. I was told that if it were operating in central Scotland, for example, there would be many fuel discount cards to choose from, with bulk-buying discounted rates. However, those rates do not apply in Argyll and Bute. All those costs add to the cost of both fuel at the pump and everything that is sold in the shops.
We proposed an amendment to the Finance Bill on Report that would have achieved the end of higher prices at remote rural filling stations. We proposed a rural fuel duty discount, which operates in many other countries. Highlands and islands MPs recently held a constructive meeting with the Exchequer Secretary. She and other Treasury Ministers have certainly been sympathetic and have promised to examine the evidence. I have sent evidence to the Treasury and will soon send more. I urge the Government to examine this evidence very carefully and to produce a rural fuel duty discount scheme for islands and remote parts of the mainland before the high fuel prices work their way through to job losses.
I guess that, first of all, I should pay tribute to my new hon. Friend, John Howell, for delivering such a fantastic maiden speech. I was a big fan of his predecessor, but I can see that I am going to be as big a fan of my hon. Friend. My only criticism of his maiden speech was that he definitely undersold the skills that he is bringing to the House in terms of his previous experience in business. Speaking as someone who also came into the House after working in industry and business, I am sure that he will be able to put those skills to good use on behalf of his constituents and his party, and I look forward to that happening.
Today's debate gave the House an opportunity for what I hoped would be a constructive discussion on what the Government could do about the rising price of fuel. The Conservatives have proposed a fair fuel stabiliser, and businesses, green groups and the public will all have a chance to give us their thoughts during our consultation on this proposal over the coming months. However, we thought that it would be sensible to give Parliament the opportunity to consider our proposals as well. Unfortunately, the Government's attitude during this debate has been one not of positive engagement, but of relentless defeatism and, in my opinion, criticism for criticism's sake.
As my hon. Friend Mrs. Miller and my right hon. Friend Mr. Redwood mentioned, the issues that we are discussing today are real ones. The cost of living—particularly the cost of transport—is one of the most serious issues facing families and many businesses in Britain right now. My hon. Friend the Member for Basingstoke and my right hon. Friend the Member for Wokingham, as well as my hon. Friend the Member for Henley, said that these are particularly pressing issues for families, and especially for businesses, which cannot necessarily change their business procedures to avoid the kind of fuel price rises that we have seen in recent months. In the past year, we have seen a rapid rise in the price of petrol at the pumps. In September last year, a litre of petrol cost 95p; now, it is more than £1.19. Petrol price inflation in the UK is almost the highest in Europe, running at 17 per cent. In fact, it is second only to that of Estonia.
These soaring costs are having a very real effect on families and businesses. The current rate of price inflation would have meant an increase of £185 a year in household fuel bills by the end of this year, which would put the average family's expenditure on fuel at more than £1,000 a year. As Stewart Hosie pointed out, this is a real problem for businesses and families. It is a serious burden for both those groups, and the Government would have been wise to take it seriously, but they have not done so. It is a burden that the Government could do something about, but they will not. Other hon. Members have looked for ways to tackle these issues. We have heard the ideas of the hon. Members for South Thanet (Dr. Ladyman) and for Dundee, East. However, when tasked with helping people at a time of real and urgent need, the Government have offered nothing more than excuses and token gestures, when they really needed to take responsibility and offer real solutions.
Somehow the public are meant to be grateful for today's announcement of a delay in the 2p rise. The Government are sending them a message, saying, "Don't worry, we've decided not to make things worse for you. We're just going to keep things as bad as they already are, and you should be grateful for that." Frankly, that is typical of the Government's attitude so far. They are showing a shocking unwillingness to tackle the issue, saying, "Don't blame us. What can we do?" The line coming from the Government—we heard it again today—is that rising fuel prices are to do with the global price of oil and are therefore beyond the Government's control. When they finally take decisions on fuel duty, instead of introducing substantive policies to tackle the issue in the longer term, they give us policy by press release and policy by parliamentary question and answer. We all know we simply cannot go on running the public finances in that way. Everyone knows the bottom line: this is about Glasgow, East and the Government's and the Prime Minister's political survival. It is not about proposing a long-term fundamental approach to addressing oil price rises and their impact on the cost of fuel. Ministers need to start tackling those issues.
What people want from the Government today is a helping hand to get them out of their financial troubles. Instead, what they see from the Government is no help at all. Far from providing a hand to pull them out of their troubles, the Government are pushing them further down into them. We heard nothing of value from the Chief Secretary today. Nigel Griffiths did not have much to say by way of alternatives and was quite happy to back up all the platitudes that we heard from the Chief Secretary. Ministers need to stop being buffeted by events and actually get a grip on the situation.
Our proposals are all about trying to find a way through these challenges for hard-pressed families and hard-pressed businesses. We believe that they will help families by stabilising their finances and we believe that they will help the public finances by helping to insulate them from oil price rises. We also think that they will have a welcome dampening effect on inflation. That has to be better than the sort of "nudge and wink" policy that we have had from Ministers today, as there is a sense that the Government's approach is unsustainable.
Will the hon. Lady explain how long the gaps will be between now and the adjustments taking place? If they are too long—six months was mentioned—the Chancellor will effectively decide, and if they are too short, the proposals will have what has been described as a yo-yo effect.
The hon. Gentleman raises a fair point. The reason for going through a consultation process is to ensure that, unlike with the Government's new policies on capital gains tax, non-doms and the 10p tax rate, we get things right first time. We have learned from the Government's mistakes, even if they have not.
The Tory document, under the heading "Questions for consultation", asks
"how frequently changes in fuel duty should be applied... and how they should be calculated" and it continues:
"Both oil prices and retail fuel prices are already monitored on a daily basis, so data collection is unlikely to pose significant challenges."
That sounds like the yo-yo effect to me.
Actually, it sounds like a response from a Treasury Minister who has no realistic alternative of her own. The reality is that the current situation requires action, not inaction, and it requires leadership rather than dithering. We have proposed this fair fuel stabiliser as a solution and we want to get it right first time. I would have hoped and expected that Government Ministers approached potential solutions to the impact of fuel prices on families with an open mind. Instead, when new ideas have been suggested, as today, they have simply been dismissed out of hand. In fact, Ministers have criticised other people's suggestions while offering no ideas of their own. They are struggling along on a day-by-day, by-election-after-by-election basis, desperately trying to provide the illusion of control. Frankly, it would be much better for families if they simply recognised a good idea when they have one put in front of them. They have done that on inheritance tax, capital gains tax and the 10p tax rate, so why not on road tax as well? Instead, they are putting their own political priorities ahead of what is right for the country.
I realise that no Government like to appear out of touch or out of their depth, but I have to tell Ministers that the public know that that is exactly what is happening. We have already reached that point with the current ministerial team running the country. The public can see that the Treasury is failing to cope with the challenges they have to face every single day. They need Ministers to rise above political posturing and tackle the problem. Businesses are going under; families are facing sky-rocketing fuel bills; and oil price fluctuations are destabilising the wider economy. We offer a solution that would be good for the Government, good for the economy and, most important of all, good for the people of this country who are struggling to cope.
I shall finish my contribution to this debate on fuel costs with a motoring analogy. We find ourselves with a Government and Ministers with so little direction that we feel inclined to give them a political sat-nav, but the problem is that they would not be able to put any political destination into it: half the Labour party would be shouting, "Left, left!" while the other half would be shouting, "Right, right!", with no clue where to go next.
Yet again today, we saw Labour MPs—self-proclaimed representatives of low-income families—justifying the Government's plan to keep high taxes on those very same families and crowing about their Government not going ahead with tax rises, as if that were some sort of achievement or success. On three Wednesdays running, I have watched them vote against relieving the financial burden on those families. Those constituents and families will ask themselves why MPs have taken no action on road tax, no action on the cost of living and no action today on fuel duty.
People will realise the answer to those problems: it is to get themselves a fresh Government with some fresh ideas who are willing to take a fresh approach to tackling the problems that our constituents face today and that need sorting out sooner rather than later.
This has been an interesting debate and I am grateful to all hon. Members who contributed to it. In particular, I want to pick out the maiden speech of John Howell, which we all enjoyed. It was a privilege to witness his arrival in the House. He has some interesting acts to follow and he alluded to that. He also mentioned his immediate predecessor, but among his predecessors in Henley there is quite a tradition of exciting, interesting haircuts at least. We on the Labour Benches will be interested to see whether anything interesting happens to the hon. Gentleman's haircut as a result of filling certain shoes. I congratulate him on making his maiden speech, and wish him a happy and enjoyable time as a Member of Parliament.
Dr. Cable made an interesting point when he asked why oil revenues should be pooled separately from other UK revenues. Why, uniquely, should oil revenues be pooled? The Conservative party needs to think about that. There is also the proposed green taxes pool, which would go into the family fund. One wonders where the Conservatives would collect their taxes to pay for general public expenditure. If they carry on like this, by the time we get to the next election they will have hypothecated the lot.
We listened to the advocacy of some of those who have been talking about stabilisers, regulators, moderators and various other words from the thesaurus in relation to fuel balancing plans. My hon. Friend Dr. Ladyman, who also suggested that approach, at least said that there needs to be a package of measures for fairer treatment for motorists—we would agree with that—but that we need to consider the totality of revenues, rather than particular pieces of revenue in isolation. We should all bear that in mind.
My hon. Friend Nigel Griffiths spent some time quite accurately pointing out the many different faces of Conservative environmental policy, depending on where one looks and which audiences the Conservatives happen to be addressing at the time. Again, that is something we should be well aware of.
Stewart Hosie, who is something of a pioneer in this respect, must be sat back enjoying the interest that his proposals are attracting and the ripples that they are causing across all the Opposition Benches. I congratulate him on that.
The background to the debate is the rapid rises in petrol prices over recent weeks and months. Those rises have been caused by global forces, which have led to rising world oil prices. They are putting real pressure on many businesses and on many families' finances. The Government have recognised that, which is why my right hon. Friend the Chancellor deferred the planned 2p per litre fuel duty increase in April's Budget. It is why he decided to postpone the rise planned for October this year, too.
By contrast, as my right hon. Friend the Chief Secretary demonstrated in her opening remarks, the Opposition have suggested a policy that would be a fuel duty destabiliser. It would achieve the very opposite of the things that they claim for it. Fuel duty is not the cause of the rapid petrol price rises of the past few months. Duty rates have not changed since October last year, yet fuel prices have risen 20 per cent., driven up by the near-doubling of the world oil price in the last year to record highs of more than $145 a barrel.
It is worth reminding the House of our record as a Government. Since 1999, we have abolished the Tory fuel duty escalator. Fuel duty rates have gone up only three times, and are now 17 per cent. lower, taking account of inflation, than in 1999. Instead of the current level of 50.35p, if fuel duty had gone up in line with inflation it would now be 61p a litre. If the previous Conservative Government's policy of a fuel duty escalator had been continued, the tax on fuel would now be 79p a litre, which is nearly 30p a litre more than the current level. Therefore, we need take no lessons from the Conservative party about helping ordinary working people and businesses to cope with challenging economic circumstances.
It was the last Conservative Prime Minister, when he was Chancellor, who said that if it is not hurting, it is not working. But we know that it is the legitimate role of Government to help people through turbulent economic times, and not just abandon them to market forces. It was the Leader of the Opposition, not any member of this Government, who recently made a speech blaming the poor and obese for their predicament, and denying that the state should have a legitimate role in helping them to overcome their problems. We, however, will continue to help people through challenging economic times.
That brings me on to the policy proposals outlined recently by the Conservative party for a fuel duty destabiliser. My right hon. Friend the Chief Secretary has dealt in some detail with that suggestion. She rightly pointed out that the Tory fuel duty destabiliser relies on redistributing a fantasy tax windfall—it simply does not exist, and cannot be redistributed to motorists or anyone else. The Tories' fuel duty destabiliser assumes an ability to forecast and define a "fair oil price"—the phrase that they use—when the reality is that any such figure would be completely arbitrary. The Tories' fuel duty destabiliser would cost £2 billion to £3 billion a year if duty rates were cut by 5p a litre as they suggest. There is no indication of where the money would come from.
There is no guarantee, however, that cuts in fuel duty would translate into lower prices at the pump—
No; I have only two minutes left.
Retailers would be likely to stop smoothing the impact of oil prices feeding through to petrol prices, as they tend to do at the moment. As well as being based on a non-existent windfall, the Opposition's proposal would make it incredibly difficult to forecast the public finances, given the notorious volatility of the world oil price.
The Red Book figures demonstrate that the cost is £550 million.
Since the beginning of this year, the oil price has varied between $146 and $86 a barrel. In one day alone, it increased by more than $10. Assuming that the Opposition's proposal would involve changing the fuel duty rate by 1p a litre for every $6, as they said, we would have had to change the fuel duty 25 times since the Budget 18 weeks ago. That is a ridiculous policy. Nor is there any guarantee that the duty reductions would be passed on in full to consumers.
Now that the Tories have their press release out, they have many questions to answer about their fuel duty destabiliser. Is it a pledge? Is it policy or just warm words? I notice that they are consulting on it. Does that mean that they will quietly drop it when they hope no one is looking, or can we add another £2 billion to £3 billion to the black hole in their finances? If it is policy, why on earth did they not vote for new clause 4 in the Finance Bill on
Question accordingly negatived.
Question, That the proposed words be there added, put forthwith, pursuant to
Mr. Deputy Speaker declared the main Question, as amended, to be agreed to.
That this House recognises the pressure that the increase in fuel prices, caused by pressures from the international oil market, has put on business and families; welcomes the Chancellor's decision to defer the planned two pence per litre increase in fuel duty that was due to take place in April 2008; notes that while fuel prices have increased by over 20 per cent. since last October, fuel duty has stayed constant; also notes that had the escalator introduced in 1993 been in place since 1999, fuel duty would now be 29 pence per litre higher; supports the Government's global leadership on this issue, in particular at the recent Jeddah Energy Meeting, and welcomes the Government's intention to host a follow up to this meeting in London later this year; further recognises that the Government does not receive a significant windfall when oil prices rise, because any additional revenues from the North Sea are likely to be offset by other effects; and therefore further notes that a system which would automatically cut fuel duty when oil prices rise would be destabilising, creating volatility for the public finances and uncertainty for the financing of public services, and would create considerable pressure for tax increases elsewhere.