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[Un-allotted Half Day] — Fuel Costs

Part of Opposition Day – in the House of Commons at 5:35 pm on 7th February 2011.

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Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 5:35 pm, 7th February 2011

I thank the hon. Gentleman for that intervention, but I am talking about the fuel duty stabiliser. I appreciate his confusion, because that has not been discussed much in this debate. The rural derogation is a separate issue. I am talking about how a stabiliser would be enforced.

Despite the concerns about a fuel duty stabiliser that were raised during the 2008 Finance Bill debates and afterwards, and the obvious difficulties in implementing one, the Conservatives could not resist dangling the prospect of reduced petrol prices before motorists' eyes. They published a consultation document in July 2008, which proposed the stabiliser:

"when fuel prices go up, fuel duty would fall. And when fuel prices go down, fuel duty would rise".

That continued to be Conservative party policy until polling day. A week before polling day, the Prime Minister told voters on a visit to a Coca-Cola plant that

"we'd be helping with the cost of living by trying to give you a flatter and more constant rate for filling up your car".

It was suggested by Conservative politicians in the media that it would be included in the new Government's first Budget.

Before the election, this Government made all the right noises about tackling high petrol prices. They led the public to believe that they would take action to slash fuel duty and bring down the price of petrol at the pumps. Since then, they have done nothing. Actually, that is not quite true. They have done nothing to implement the fuel duty stabiliser, which they made such a song and dance about before the election, but they have hit the motorist by whacking up VAT to 20%. They have increased petrol prices, not cut them.

Even the Office for Budget Responsibility, set up by this Government to give independent, impartial advice, has said that the fuel duty stabiliser would not work. The underlying economics of the stabiliser contain a simple, basic assumption that when oil prices rise, the Government receive an unexpected windfall from taxes on North sea oil production. The OBR said that that is not the case, at least not in the long term. In "Assessment of the Effect of Oil Price Fluctuations on the Public Finances", which was published on 14 September last year, the OBR reported that a temporary rise in the oil price would have a negligible effect on the UK public finances, and that a permanent rise would create a loss. The OBR said that it would be difficult for the Government to introduce a fair fuel stabiliser without a significant cost to the Exchequer:

"There is no improvement in the public finances to be used for stabilising the pump price in the case of a permanent shock."

In fact, a permanent increase in fuel prices would have a negative impact on the public finances after a year, given the effects on demand, inflationary pressures, household income and consumer spending.