Fuel Prices and the Cost of Living

Royal Assent – in the House of Commons at 2:49 pm on 16th March 2011.

Alert me about debates like this

Debate resumed .

Photo of Mark Pawsey Mark Pawsey Conservative, Rugby 2:58 pm, 16th March 2011

It is a pleasure to follow Nic Dakin, but I am disappointed that he chose to repeat the remarks of Opposition Members on the attendance of Front Benchers in this debate. It is pretty reasonable for us to expect that they would be working hard on a most important Budget, which will be delivered in this Chamber in only a week’s time.

I want to concentrate on the effects of fuel costs on small businesses. The success of our small businesses will be crucial to our work in rebalancing our economy, achieving economic growth and clearing up the economic mess left behind by the Labour party. Certainty and stability in the price of fuel are critical for small businesses—in some cases, they are more important than the price itself, although small businesses suffered massively as a result of rising fuel prices implemented by the previous Government over the past few years. In 13 years, the duty increased from 36p to 57p a litre.

Let me give the example of a medium-sized business in my constituency, Rugby. It is a business that I know well, because I owned and ran it for 25 years before arriving in this place. With 10 vehicles—five delivery vans and five cars for representatives—we served customers around the midlands, and the cost of fuel was a major budget consideration for us. In November each year, I would set my budgets for the following year, and try to estimate the price of fuel over the coming year. In recent years, that became almost impossible. In just the past two years—between January 2009 and January 2011—fuel costs have increased by £1,000 a month. The price per litre went up from 98p to £1.29 in that period; it is now closer to £1.40. The business is now spending £3,000 a month on fuel instead of £2,000. That is £12,000 in additional annual costs attributable to fuel alone. That comes directly from the bottom line; it is a reduction in the profitability of the business, which means that there is less available to reinvest in the business.

As was alluded to earlier, there is evidence from the business community that some suppliers are using the increase in the cost of delivering goods as a reason for price increases to small businesses. That is detrimental to small business profits and is inflationary. When fuel costs change, there are significant implications for distribution costs. Small businesses suffer disproportionately, because they are often in a weaker negotiating position and are thus unable to recoup the shortfall from their customers.

Certainty of price is what small businesses need, so that they can plan. That is often more important to them than price in isolation. I am therefore very sympathetic to the fuel duty campaigns calling on the Government either to freeze fuel duty or to implement the fuel stabiliser. To me, the fuel stabiliser seems a responsible decision, and although I recognise the complexity involved, I support any measure that will decrease the burden on small business.

The motion calls for a reduction in VAT on road fuel to take it back to 17.5%. As the Economic Secretary to the Treasury reminded us, a separate rate of VAT, as well as being illegal under EU law, will have no impact whatever on small businesses, because most of them simply reclaim VAT. If the motion were accepted, it would, of course, lead to additional tax complication for small businesses and make it more difficult for them to prepare their paperwork.

Photo of Tom Blenkinsop Tom Blenkinsop Labour, Middlesbrough South and East Cleveland

The hon. Gentleman makes an excellent case on small business and its financial concerns, but how does he think the price of fuel will affect the cost of running vehicles in the Home Office, the Royal Mail fleet, and the Department of Health?

Photo of Mark Pawsey Mark Pawsey Conservative, Rugby

The point that I am making is that the most important thing in any organisation is the ability to budget accurately across the business. The stabiliser proposal will deal with that; a reduction in VAT simply will not have any effect on that at all.

It is my contention that Labour Members are to blame for the situation that we are in, because this January, the Government implemented a rise in fuel duty for which the previous Government had legislated; the previous Government raised fuel duty 12 times when in office, and they planned for six further rises to take place after the general election. Businesses are looking forward to seeing what measures the Chancellor will bring forward in the Budget in a week’s time to ease the burden on the important small business sector.

Photo of Gemma Doyle Gemma Doyle Shadow Minister (Defence) 3:03 pm, 16th March 2011

I am delighted to speak in this debate, which is an important opportunity to highlight the real difficulties faced by people the length and breadth of the country as a consequence of the record price of fuel at the pumps and the squeeze that is being forced on people’s incomes by the Government. Those issues, along with the reckless pace of public spending cuts, are the concerns most widely raised by people in my constituency, and it is easy to understand why. The area has significant economic challenges, which are being made much greater in the current climate by the Government’s approach to the cost of living.

Unemployment in West Dunbartonshire is higher than across the rest of Scotland and the UK. According to the latest figures, published today, the local claimant count has risen to 6.5%, compared with 4.3% for Scotland and 3.8% for the UK as a whole. Recent analysis of pay across Scotland has highlighted that wages in West Dunbartonshire are 11% below the Scottish average, and of course unemployment and low pay have a clear relationship with poverty. West Dunbartonshire has a disproportionately high number of people living in deprivation, and people living there have a disproportionately low life expectancy. I say that not with pride, but to try to communicate to the Government the challenges found in areas such as mine—challenges to which they have seemed impervious, particularly in this debate.

West Dunbartonshire has a high percentage of people employed in the public sector. Of course, the Government are slashing jobs in the public sector; they seem to believe that the private sector will magically rush in to fill the gaps in employment. The last thing any business needs to contend with at the moment is record fuel prices. Far from growing the private sector, they may mean that even more people lose their jobs. Just this afternoon, the owner of a delivery business in my constituency contacted my office to outline the impact of record fuel prices on his business.

Given all those factors, it is clear to see why people in West Dunbartonshire are struggling to afford the squeeze on their family budgets and businesses as a result of record fuel prices, rising inflation, and cuts to the help for families on low and middle incomes.

Photo of Justin Tomlinson Justin Tomlinson Conservative, North Swindon

I agree with the hon. Lady’s comments on the effects of high fuel costs. Does she agree that there should be some regret for the Labour Government’s 12 fuel duty increases?

I

You are a bunch of twats. VAT was reduced to 15% and subsequently increased to 20% by this Administration. The knock on...

Submitted by Ian Duffy Continue reading

Photo of Gemma Doyle Gemma Doyle Shadow Minister (Defence)

There should be regret that this Government have raised VAT to 20% with no regard for people in my constituency. Never before have people in West Dunbartonshire been forced to pay £1.36 for a litre of unleaded or £1.43 for diesel, as they do now at some local forecourts. Every time they make a trip to the filling station, they find that it costs them a bigger share of their income to fill up their car.

As we know, the recent spike in the price of fuel has been driven in part by rising world oil costs, especially as a consequence of the crisis in the middle east, but the Government have heaped unnecessary extra pain on people by hiking VAT to 20%, adding 3p to a litre of fuel. It is astonishing that the Government have acted so callously in driving up the cost of fuel, given the pre-election promises made by both the Conservatives and the Liberal Democrats last year. I am sure that I am not the only Member who saw leaflets promising action to keep fuel prices down circulated at the last election by one or both parties, although to the best of my knowledge, the Lib Dems did not even bother using their Royal Mail freepost in my constituency in the election last year.

That the price of fuel at the pumps is now at a record level as a consequence of the Government’s actions is an unforgivable betrayal, but that is of course something that we are getting used to from the Government. The attack on ordinary families’ standard of living goes much further than rising fuel prices driven by the actions of this Government. The VAT hike will cost families with children around £450 a year. Unfair cuts to tax credits, child benefit and housing benefit will further erode the incomes of families who rely on that support.

Photo of Pamela Nash Pamela Nash Labour, Airdrie and Shotts

Does my hon. Friend agree that the Government have failed to recognise the impact that the VAT rise on fuel will have even on products that are protected from VAT, such as food and children’s clothing?

Photo of Gemma Doyle Gemma Doyle Shadow Minister (Defence)

My hon. Friend makes a significant point. I was about to say that a number of factors are adding up to put intense pressure on family incomes. For example, 1,000 families in my constituency will lose a further £400 a year as a result of the Government’s cuts to the child care element of the working tax credit. What makes that all so much worse is that while the Government are choking off help for hard-working families and recklessly cutting jobs and services, they have given the banks a huge tax cut this year. I know my constituents find it hard to understand how that can be squared with the Prime Minister’s claim that we are all in it together—a frankly laughable claim from a Cabinet of millionaires.

[Interruption.]

I am sorry if Government Members do not like to be reminded of how many millionaires are in the Cabinet, but I am afraid that that is a matter of fact.

The Government have heaped pain on families, but they could have made a different choice and relieved some of that pain. As my hon. Friend Ms Eagle said, the Government could use the £800 million raised from the bank levy immediately to reverse the VAT rise on fuel. Just as the previous Government often postponed fuel duty rises when oil prices were rising, as they are now, the Chancellor should look again at the Budget—that is why he should be here today, listening to the arguments—ahead of the planned 1% rise in April.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

Has the hon. Lady considered that the reason the Chancellor is not here today is that he is busy trying to sort out the Budget to undo the massive financial mess left by the Labour Government and deal with their economic incompetence?

Photo of Gemma Doyle Gemma Doyle Shadow Minister (Defence)

It is the duty of the Chancellor to listen to Members as he is putting together his Budget. Both he and the Chief Secretary to the Treasury should be present, listening to Members as we debate this important subject.

I have outlined a different approach, which would be the right approach. I notice that none of the Scottish National party MPs is present. Their proposal for a fuel duty cut in remote areas would do nothing to help my constituents in West Dunbartonshire. The name of the constituency may include the word “shire”, but on the whole it is not a rural area, although a small number of my constituents would consider themselves to be in a remote area. The majority of my constituents live in an urban or a suburban area and they are struggling with the record price of fuel. We need to go much further and bring down fuel costs for everyone in urban and rural areas.

I will of course support the motion in the name of the Leader of the Opposition. The Government can and must take action to provide some relief to people in my constituency and across the country. They can do this in the ways outlined today. Like numerous other Members, I urge the Chancellor to take that action and go some small way towards showing that he has not completely lost touch with the pain that British motorists are suffering.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole 3:12 pm, 16th March 2011

I can assure Gemma Doyle that I am not a millionaire. I would, in the words of Travie McCoy, quite like to be a billionaire, but I do not expect that will happen. There are plenty of rich people on the Opposition Benches—people in glass houses and all that.

We should begin by recognising that over the past couple of decades, Governments of all shades have hiked up fuel duty and, broadly, people have been in general agreement with that because it has been seen as a green tax. That is why it was created. An injection of honesty is needed to counteract the feigned anger that has suddenly appeared and the damascene conversion that has taken place among Opposition Members. Everybody supported fuel duty rises over the year, and their position lacks credibility.

I agree with much that is in the Opposition motion. We all have concerns about fuel costs. Obviously I do not agree with the part that asks us to do something that is illegal under EU law. My radical solution to that would be to leave the European Union, but that is a debate for another day. Before we accuse the Opposition of cynicism, it is incumbent on those of us on the Government Benches to prove that the pledges we made at the general election were not cynical. That is why I look forward to the Budget, on which the Chancellor and Chief Secretary are working so hard, and I look forward to the answers on fuel duty. I hope they include a fair fuel duty stabiliser.

I dished out leaflets to the good voters of Brigg and Goole—hounded them with leaflets, one might say—on the fuel duty stabiliser. I supported it, knowing of the work that had gone into that policy at Conservative central office. I look forward to the Budget next week, when I hope we will hear more details about stabiliser. The price of fuel is having a massive impact on my constituents across north Lincolnshire and east Yorkshire. I note the proposals in relation to the islands and I heard the comments from Mr MacNeil. He has been a passionate advocate on behalf of his constituents. I would say to him if he were here—I know that he is off trying to save coastguards, and I wish him the best of luck on that too—that the effect of fuel prices is not limited to the islands.

Constituents such as mine have to travel an awful long way to their places of work. I represent a largely rural constituency, and most of my constituents travel considerable distances, whether to Lincoln, Leeds, Hull, York or Doncaster. Much of the time they sit in traffic, which is not good for fuel consumption, I am told. The pressures that affect the islands of Scotland and the Scilly Isles affect our constituents too.

Photo of Justin Tomlinson Justin Tomlinson Conservative, North Swindon

I echo the comments of my hon. Friend. My constituency, North Swindon, has a considerable number of commuters who have no choice but to travel by car. The increased fuel costs impact on them as well.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

I thank my hon. Friend for that intervention. What we are both saying is that if any solution is applied to one part of the United Kingdom, it must be applied to other parts of it as well. If we are all about fairness, as I am sure we are, it must be a solution that is fair to everybody in the United Kingdom.

Photo of Simon Hart Simon Hart Conservative, Carmarthen West and South Pembrokeshire

Does my hon. Friend share my concern for 1,000 dairy farmers in west Wales, who cannot pass on the additional fuel duty to their customers because their milk price is fixed by supermarkets?

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

Absolutely. I share that concern for dairy farmers throughout the United Kingdom. I am sure the Minister heard that and I hope he will respond.

My constituency is a logistics hub. We have many transportation firms. A business owner, Paul Emms, came to see me at my surgery in Epworth this weekend. He said that because of fuel prices, he now faces the possibility of laying people off. Rather than contributing tax to the economy, not only has he been stung by tax rises on fuel, but he is putting people out of work whose payroll taxes will be lost and who will have to be funded by the taxpayer through their benefits.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

No, I will not. I have taken a couple of interventions already.

Fuel prices are a particular issue to my constituents and to businesses in our area. In our patch we also suffer the problems of rural transport. We have very little rural transport. My local Labour council—this is my dig at it—is proposing to scrap the Axholme shopper bus service, which costs only £13,000 a year to run. A political assistant at the council is still being paid several thousand pounds, but we are losing many of our rural bus subsidies. My constituents are not even in the privileged position of being able to rely on public transport as an alternative.

My plea to the Government is to listen to the genuine concerns that have been expressed. I greatly respect the Economic Secretary. She is one of the Ministers who accepts my invitations to visit Brigg and Goole. I heard what she said, and there seemed to be the possibility of some positive messages coming out of the Budget. My constituents cannot bear the prices as they are.

Figures out today show that the average wage in northern Lincolnshire is much lower than in the rest of the country. We pay a lot for our petrol and we have to drive a long way to get to a petrol station these days. This is a massive problem for my constituents, and I urge the Government to pay heed to the promises that we made at the general election—promises on which I was elected—which included doing something about fuel duty and introducing a fuel duty stabiliser. As I said, I am sure that was a well thought out policy before the election and will be implemented shortly.

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury) 3:18 pm, 16th March 2011

I welcome the opportunity to bring a Northern Ireland perspective to the debate, although I expect that it will not be all that different from what we have heard from all round Great Britain. There are a number of particular problems which the escalation of fuel prices brings to a place that is on the periphery of Europe and on the edge of the United Kingdom, with all the attendant costs for industry, whether for the transport of raw materials in or for the transport of goods out.

At a time when the Northern Ireland Executive are trying to rebalance the economy and promote the private sector, such increases in costs present particular difficulties. They also present a difficulty when the fuel duty in Northern Ireland is much higher than in other parts of the island. For example, on diesel there is a 60% tax take, whereas across the border in the Republic it is 55%. That distorts competition in industry. Northern Ireland also has a large and dispersed rural community with high levels of rural poverty, so escalating costs will hit people who can ill afford them, as many Members have highlighted for their constituencies.

Photo of Jeffrey M. Donaldson Jeffrey M. Donaldson Shadow DUP Spokesperson (Equality), Shadow DUP Spokesperson (Energy and Climate Change), Shadow DUP Spokesperson (Defence)

Does my hon. Friend agree that an added problem in Northern Ireland is that it is the only part of the UK that has a land border with another state and that fuel smuggling has been endemic for many years? Would the Government not be better served by putting more resources into HMRC’s capacity to tackle fuel smuggling and apprehend those engaged in that unlawful activity, as that could bring in a lot more revenue to the Exchequer?

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury)

I accept my right hon. Friend’s point: with a 20% price differential, fuel smuggling of course becomes a lucrative trade.

Although there are differences in approach, there seems to be a fair degree of unanimity that this issue needs to be dealt with. In fact, the only dissenting voice I have heard is that of the member of the Green party who sits in front of me, Caroline Lucas, who seems to think that it is a good idea that fuel prices go up. I think she is more interested in influencing temperatures in the world in 100 years’ time than dealing with the poverty people face in the present day—it is a quirky party, so of course it has quirky ideas.

A number of criticisms have been made of the motion before us, and I must say that I have some sympathy with them. I know that getting a derogation from Europe will not be easy. Indeed, after this debate I will be speaking with the Minister about the aggregates levy and derogations for it, and even for something that simple we are looking at more than a year for Europe to agree a variation on something that it has already accepted. One must bear it in mind that that is not a quick remedy. However, the motion at least highlights the issue, which is one reason I support it, and it does so in stark terms, setting out the impact that fuel price rises have on people.

The Economic Secretary’s response has been threefold. First, she spent quite a lot of her speech looking back. I suppose it is difficult for someone from Northern Ireland to criticise another for looking back, so you will have to allow me to overcome that irony, Madam Deputy Speaker. I admire the way the Economic Secretary made her argument. In fact, I like her style—head-butt the opponent, get them on the ground and kick them when they’re down. She should be an honorary Ulsterwoman. I appreciate her approach, but although the previous Government have a case to answer, I think that people outside are interested not so much in who did what in the past, but in what will happen in future. Although it was good to hear her robust response, it has to go further.

Secondly, the Economic Secretary gave a number of reasons why things could not be done. She talked about deficit reduction and the fact that there would be a cost attached to any action on fuel prices, but one point that has escaped mention in the debate is that we are talking about a windfall for the Government. The increase in money that has resulted from the price rises was not anticipated in the deficit reduction plan in the first place—at least I do not think that the Government anticipated there would be a war in Libya and that that would put up fuel prices and built that into their Budget. If they did, God help us, because if that kind of planning goes into a long-term Budget we should be very worried. It is a windfall tax, so the Government have an opportunity to give it back to the people; it does not impact on the deficit reduction plan and it alleviates a problem that they have identified.

Thirdly, the Economic Secretary said that she cannot pre-empt the Budget, and I suppose we must have some sympathy with that. I do not think that anyone would want her to do so, but if there is to be some good news in the Budget, I would have liked her to have at least softened us all up by giving some hope that that will happen.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

I am thoroughly enjoying the hon. Gentleman’s speech, but, to pick up on that point, Government Front Benchers could pre-empt the Budget by announcing now, as Labour did in the past, that the proposed increase will not happen. They do not have to wait until the Budget.

Photo of Sammy Wilson Sammy Wilson Shadow Spokesperson (Education), Shadow DUP Spokesperson (Treasury)

I was just coming to that point. Government Front Benchers could today at least have offered us some softening up, some promise or some hope held out, but that was not apparent in the speech we heard. Perhaps in the winding-up speech there will be such an opportunity. The one thing we do know is that in opposition and faced with increasing fuel prices and protests about them, the current Chancellor said that when prices and the tax take go up, taxes should go down, and that when prices go down, taxes should go up. That was the policy enunciated when Government Members were in opposition. I look forward to next Wednesday to see whether that promise and policy will be given some effect in the Budget. If that happens, this motion and this debate will have been worth while and there will be at least some alleviation of the hardship that fuel price increases have brought.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover 3:26 pm, 16th March 2011

It is a privilege and honour to follow Sammy Wilson, who made an entertaining, engaging and thoughtful speech on this issue, which we all feel strongly about. It has been an emotional debate on both sides of the House. Constituents write to me daily expressing concern about the cost of living and how they will manage, given the way the cost of fuel has risen in recent times. It is a just concern that is understood on both sides of the House. Hauliers in my constituency write to me expressing grave concern about the situation they find themselves in and their ability to compete with operators on the continent who undercut them.

However, I must say that for the Opposition to bring forward such a motion is the most extraordinary and shameless opportunism I can recall seeing in this House. It is shameful because we know that the Labour party increased duty 12 times in its period in office. We know that it took away the 10p tax rate. We know that tax discs went through the roof, and we know that the haulage industry was decimated in the last decade because the Labour Government had no interest or desire to ensure that that industry was safeguarded.

Photo of Chris Evans Chris Evans Labour, Islwyn

Does the hon. Gentleman agree that the most damning verdict on the coalition’s first year in government was when someone wrote to me and said, “Mr Evans, thanks to the increase in VAT on fuel duty, I’m worse off than I was a year ago”? Does the hon. Gentleman agree that most people in this country are worse off than they were a year ago?

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

Measures taken by this Government will take 800,000 of the poorest people in the land out of tax. The Chancellor is not in his place today; I hope very much that he is working out how he can look after the least well-off people in this country in his Budget. I hope that he will be listening and thinking carefully about how he can engage with people’s understandable concern about the cost of fuel and how the country can be put right after 10 years of being driven into the international sidings.

Photo of Elizabeth Truss Elizabeth Truss Conservative, South West Norfolk

Does my hon. Friend agree that in his Budget the Chancellor should be looking at areas such as South West Norfolk, where people have little alternative but to use their cars both for business and domestic purposes? In particular, does he agree that the rural fuel reduction should be extended to areas such as Norfolk, where there is very little public transport?

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

My hon. Friend makes a powerful point on behalf of her constituents, for whom she is such a brilliant advocate. As she and I know, the difficulty is the amount of money in the kitty, which is massively in the red. We have a structural deficit of £109 billion and borrowings this year of more than £150 billion. That is the poisoned economic inheritance that the previous Government left, having maxed out the nation’s credit card and brought this country to the brink of bankruptcy. What do they urge us to do? Opportunistically, they urge us to cut taxes. How would they do that? They would borrow more money, as we know from the shadow Chancellor’s Bloomberg speech, and raise interest rates on mortgages for the average householder, who struggles to get by as it is.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

Did the hon. Gentleman actually listen to what his hon. Friend the Economic Secretary to the Treasury said earlier about the impact of VAT rises and fuel cost rises on businesses? They mean that businesses go under, people are put out of work and they then buy less? Is that not the crux of the issue? If we want growth, we need to give people income with which to purchase things.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

The crux of the issue is that we have to stop the draining of money from the public finances, right the nation’s finances and get this country growing with a pro-business agenda. That is what the Government are looking at, and I hope that in the Budget next week we will see a pro-growth, pro-business, pro-jobs and pro-money economic policy, which we have not had for the past decade. We have been brought to the brink of ruin by the amount of debt that the previous Government encouraged ordinary people to get into and, indeed, managed to get the public finances into. This Government are about putting those things right: ensuring that our housekeeping personally and as a nation is put back on the level. That is really important.

Photo of Fiona O'Donnell Fiona O'Donnell Labour, East Lothian

Among all those tough choices, which does the hon. Gentleman think his Chancellor found tougher: taking money from his friends in the City and in the banks, or taking money from hard-working families in my constituency?

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I gently encourage the hon. Lady to be cautious when making remarks about rich people. The other day her right hon. Friend the Leader of the Opposition talked about how his house is worth millions and millions, so we should be careful before we start trading such ludicrous insults. This is a serious debate; we have people in our constituencies living in deprivation, and all she can do is trade political barbs. I encourage her to consider how we can create more jobs and money, and how we can grow the private sector, so that it includes real jobs and real money that will take this country forward and grow our economy. The priority has to be to ensure that this country gets back into the fast lane of economic growth in the international arena. We have been slipping down the global competitiveness league over the past 10 years, and we need to ensure that this country goes back to the head of the economic river.

Photo of Pamela Nash Pamela Nash Labour, Airdrie and Shotts

Does the hon. Gentleman not agree that rapidly rising fuel prices are doing exactly the opposite of what he says his Government are trying to achieve, with economic growth and the number of jobs throughout the country decreasing?

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I cannot control the weather; God controls that. Nor can I control world oil prices; they are controlled by the global markets. Would that we could just magic away the fact that global oil prices have risen, but we cannot, and global oil prices have been rising and creating the problem felt deeply by many of our constituents. The situation has not been helped by the past decade’s 12 rises in fuel duty, which saw it go up from 36p to 57p. That is a massive, 20p increase, and on top of that there is VAT. But, to come to this House and say, “Well, why don’t we just chop the VAT by 2.5%,” knowing that is illegal and unlawful, and that it would take six years to secure such a derogation, is a shameless and craven exercise in opportunism.

Photo of Tom Blenkinsop Tom Blenkinsop Labour, Middlesbrough South and East Cleveland

The Government are proposing enterprise action zones, so if I were to set up a petrol station in one of them, would I be able to sell petrol exempt of all taxes? That would present a problem for the hon. Gentleman’s argument that, under EU law, we are not able to roll back VAT.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I do not think the Chancellor would introduce any such enterprise zone on that basis, and nor should he; that would be a ridiculous thing to do.

Just as ridiculous is the fact that the previous Government did so little about smuggling across the border. We see it daily in Dover, where local hauliers complain to me bitterly about the people who fill up in Luxembourg but not in the United Kingdom. They bring goods in, pick up another load, leave and then fill up again in Luxembourg. They contribute nothing to duty, road funds or vehicle excise duty in this country; they come on a free pass, and the previous Government did nothing about it.

Photo of William McCrea William McCrea Shadow Spokesperson (Justice), Shadow DUP Spokesperson (Home Affairs), Shadow DUP Leader of the House of Commons

Does the hon. Gentleman understand the anger felt by law-abiding people in these days of great financial constraint about the fact that on Tuesday the UK’s biggest fuel laundering plant was found in Crossmaglen in Northern Ireland? That industrial-scale plant was capable of producing more than 30 million litres of illicit fuel a year, representing the equivalent of £20 million in lost revenue. Surely it is about time that such despicable action was stamped out.

Photo of Charlie Elphicke Charlie Elphicke Conservative, Dover

I completely agree with the hon. Gentleman, who makes a very fair point. We need to be firmer and tougher on smuggling and ensure that everyone pays their fair share. Two hauliers in my constituency, Martin Husk, and Tony Thompson of Comfret, stopped me the other day in Dover, complaining bitterly about the way they are hobbled by international competition, and I said that we should look carefully at daily road-user pricing. That would need a European derogation, but all other countries seem able to do it. We should look at introducing that as a longer-term, well thought-out, non-opportunistic measure.

We need measures on fuel which are lawful and affordable. We cannot just prey on people’s fears and be cravenly opportunistic; we have to be considered and careful. We need the Government to continue carefully considering the policy for the Budget next week, and to bring forward something that is affordable, credible, sensible and well thought-out, not the sort of ludicrous opportunism that we have seen from the Opposition.

Photo of Gregg McClymont Gregg McClymont Labour, Cumbernauld, Kilsyth and Kirkintilloch East 3:36 pm, 16th March 2011

Time is running away from me, so I will keep my contribution short. The Opposition have called the debate today because we have certain questions about the Government’s attitude to fuel, to living standards and to the economy more widely.

First, do the Government understand the squeeze on working families? Secondly, do the Government understand the need for a political economy that puts growth and jobs at the heart of everything government do? Thirdly, are they a Government who put the interests of the many above those of the few? [Hon. Members: “Yes.”] Well, I have to say—

Photo of Gregg McClymont Gregg McClymont Labour, Cumbernauld, Kilsyth and Kirkintilloch East

No, I will not give way, I am afraid. I have only three minutes. I am sure the hon. Lady will understand.

Government Members say “Yes”, but nothing I have heard so far in this debate leads me to believe that they have an affirmative answer to those questions. Reversing the VAT rise on fuel would be a statement—a declaration—of faith in working families in this country.

Photo of Gregg McClymont Gregg McClymont Labour, Cumbernauld, Kilsyth and Kirkintilloch East

I will not, I am sorry. I have only two and a half minutes now, and the hon. Gentleman will understand, I am sure, that there is no time to give way.

Reversing the VAT rise in fuel would be a small concession in the context of a cocktail of economic policies that amount to a sustained assault on the living standards of ordinary families in this country. The Chancellor, the Chief Secretary to the Treasury and other Front Benchers will claim that the squeeze in living standards is beyond their control, but the Deputy Prime Minister admitted at the weekend that this Government’s policies are their choices. They have chosen to make ordinary families pay the price for their chosen economic policy. Regressive indirect taxes are going up; taxes on bankers and financial services are falling. A return of the bonus tax on bankers would be strongly welcomed by Labour Members. Support for families and for children has been cut aggressively this year. The cut to the child care element in working tax credit will hit hard families up and down this country from April.

Ministers talk of rebalancing the economy, but over the next five years the Office for Budget Responsibility has predicted falling savings rates and a lower share of GDP going into the wages of ordinary families. We already know that lower wages, squeezed living standards and lower savings rates lead to higher personal debt, higher financial stress and more personal bankruptcy. Is this the rebalancing of the economy that we really want, where debt is shifted from Government to families? I, for one, do not think so.

Today we are calling for a reversal of the VAT rise on fuel. This would be a declaration of faith in ordinary families up and down the country, and I hope that the Government will look on it kindly.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 3:40 pm, 16th March 2011

We have heard today from Members on both sides of the Chamber about how ordinary working families and people are feeling the squeeze in these tough economic times.

My hon. Friend Fiona O’Donnell made an excellent speech in which she spoke up for the constituents who have contacted her by e-mail telling stories of how they are being hit by the fuel price rises. My hon. Friends the Members for West Dunbartonshire (Gemma Doyle) and for Scunthorpe (Nic Dakin) added their tales of woe from constituents who are finding times difficult. My hon. Friend Ian Murray mentioned a constituent who wrote to him about being hit from all sides by a litany of blows rained down on him by this Government. My hon. Friend Gregg McClymont referred to a cocktail of economic policies that amount to an assault on the living standards of ordinary working families.

My hon. Friend the Member for Edinburgh South talked about the impact on small businesses, as did Mark Pawsey, who spoke from first-hand experience as someone who used to run his own business. He said that the cost of fuel had gone up from £2,000 per month to £3,000 per month, which was obviously having a major impact on the ability to run a profitable business.

Photo of Rob Flello Rob Flello Shadow Minister (Justice)

Is my hon. Friend aware that organisations such as the Road Rescue Recovery Association, the Freight Transport Association, the Road Haulage Association and the Scottish Vehicle Recovery Association are asking, “When are the party in government going to honour their pledge about the stabiliser?” They are desperate for that to happen.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I will turn in a moment to the pledge about the stabiliser. Mr Walker called for it to be implemented very soon, as did Claire Perry, who is no longer in her place.

Photo of Tessa Munt Tessa Munt Liberal Democrat, Wells

Does the hon. Lady agree that the Minister will be very generous in seeing representatives of the FairFuelUK campaign, who have 140,000 signatures on their petition as of today? That is organised by Peter Carroll. The chief executives of the Road Haulage Association and the Freight Transport Association and the operations director of the RAC, together with Quentin Willson, the motor journalist, and I, coming from a hard-hit rural constituency, will discuss this tomorrow. We are suffering the double whammy of domestic oil and fuel oil—

Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. This is supposed to be an intervention, not an opportunity to make another speech or to put out an advert.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I would not expect any less of the Minister, as she certainly should be meeting the organisations. It is a shame that the Chancellor and the Chief Secretary to the Treasury were not also here today to listen to people.

Andrew Percy talked about his election leaflets hounding his constituents about the fuel duty stabiliser. He referred to the work that Conservative central office had put into the policy, which he described as a well-thought-out policy from before the election that will be implemented shortly. I may disabuse him of that delusion a bit later in my speech.

Nigel Mills talked about the impact in rural areas and the fact that people could not afford to go to work, and he urged the Chancellor not to go ahead with the fuel duty escalator. My hon. Friend Alex Cunningham ventured further afield and discussed the impact of fuel poverty on people who were having to spend more than 10% of their income on heating their homes, saying that what the Government are doing across the board is likely to push more people into fuel poverty. It was a very thoughtful speech.

Stephen Williams talked about petrol prices in Bristol. I am sure that one of the few things on which we can agree is that Bristol desperately needs to sort out its transport issues and develop a better public transport system. It has the worst congestion of any city in the country, and we need to address that. Mr MacNeil—did I pronounce that correctly?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Almost. The hon. Gentleman talked about the rural fuel derogation, but I do not think that he got an answer from the Economic Secretary. He asked when the pilot in the Outer Hebrides would happen and whether he could have more details.

Sammy Wilson went on a bit of a flight of fancy about the Economic Secretary engaging people in head-locks and bare-knuckle fighting, which, I am afraid, she missed. He then expressed disappointment that we had had no softening up from her—I am not sure where he was going with that. However, he also spoke evocatively about the impact of the fuel price rise on his Northern Ireland constituents.

Charlie Elphicke accused the Labour party of shameless opportunism in speaking up for constituents and trying to address the impact on hard-hit motorists. What I would describe as shameless is the Conservative party’s leading people to believe before the election that it could cut 10p off the price of petrol and then doing nothing about it.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am sorry, but I have no time to allow any more interventions.

We heard today that unemployment has now risen to more than 2.5 million. Another 27,000 people have been added to the dole queue in the past three months. Those who are in work find their income squeezed by the rising cost of living, with inflation surging over 5%, but average wages growing by just 2.3% and many in the public sector facing a cut in real terms. People are struggling to make ends meet.

This month, the Office for National Statistics added iPhone apps and online dating fees to its RPI shopping basket—I am not sure what was in its RIP shopping basket. The ONS believes that essentials such as food and fuel now make up an increasing proportion of the average family spend. Of course, we have heard today that the price of fuel is rising fast. A litre of fuel is now £1.32, which is up 7p from the beginning of the year. That is an extra £80 for the average driver.

We accept that the Government cannot control the price of oil. We understand that the turmoil in the middle east and north Africa is having an impact on global prices. However, the Government are not powerless. They have a choice. They could choose to help working families get through the tough times, or to carry on regardless down their reckless path of cuts, which are too fast and too deep, slashing support for families and putting the recovery at risk.

The Government have made the wrong choice. The Chancellor chose to raise VAT to 20%, which hits low and middle-income families hardest and has pushed up the prices of fuel, energy and food and, as we have heard, has hurt businesses, too.

Photo of George Freeman George Freeman Conservative, Mid Norfolk

Will the hon. Lady give way on that point?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am afraid that I do not have time.

Before the election, when a litre of petrol was 12p cheaper than it is now, the Conservative party said that it would consult on the fair fuel stabiliser. It said that it would ensure that families, businesses and the whole British economy were less exposed to volatile oil markets. The Prime Minister said that he would help with the cost of living by trying to give a flatter, more constant rate for filling up the car. The Chancellor said that that would be delivered in the Government’s first Budget. It was not. Conservatives led voters to believe that they could and would act. However, we now face the exact problem that the policy was designed to prevent. Rising oil prices have pushed up fuel prices at the pump beyond £6 a gallon, yet there is no sign of the fair fuel stabiliser. Not only that, but the Government have added nearly 3p to the price of a litre of petrol with their VAT rise this year.

The Government need to come clean about whether they will move ahead with the stabiliser and answer the criticisms of a host of commentators, who said that the idea would never work because rising oil prices do not necessarily lead to higher tax revenues. They include the Office for Budget Responsibility, the new head of which said that its analysis suggested that a fair fuel stabiliser was likely to make the public finances less rather than more stable, and the Institute for Fiscal Studies, which said that the claim that the Treasury receives a windfall gain that it can share with motorists when oil prices rise is incorrect. Even the Secretary of State for Business, Innovation and Skills said before the election that the fair fuel stabiliser would be “unbelievably complicated and unpredictable”.

The Government are no closer to introducing the fuel duty stabiliser now than they were a year ago. Rather than teasing the public and dangling the prospect before them, the Government need to nail their colours to the mast and tell us what they intend to do. Labour believes that the Government should reverse their VAT rise on fuels and reconsider the fuel duty escalator rise, which is due in April. In government, Labour often postponed fuel duty increases when oil prices were rising and families felt the pinch. It was clearly the right thing to do then and we urge the Government to reconsider now.

Obviously, there is a balance to be struck between raising revenue and ensuring that ordinary people who are trying to get on with their lives—earn a living, get the kids to school, get to work on time—are not unfairly penalised. For some, driving is a choice and they can cut down on their journeys when petrol prices increase, but what about those who rely on their cars every day and do not have the option of using public transport because the bus and rail services simply are not there, or those who run small businesses, or the self-employed who need to run vehicles as part of their work?

Ordinary working people did not create the global economic crisis; it began in the financial sector. However, under this Government, it is ordinary working people who are paying the price. The Government are taking away more money from families with children than they are asking for from the banks that caused the problem in the first place. The bank levy is expected to raise £2.5 billion, but the last Budget and the spending review took nearly £5 billion from families with children through cuts to child benefit, child tax credits and other measures. The Government have refused to repeat the bank bonus tax that Labour introduced last year, which raised £3.5 billion and could be expected to raise another £2 billion this year.

We believe that the bank levy, which is expected to raise £800 million more this year than was originally predicted, could be used to pay for a reversal of the VAT rise on fuel. That would be the right thing to do: helping people when times are hard, getting the economy moving again and asking the financial sector to pay its fair share. Asking ordinary people to pay and hitting them where it hurts most is the wrong choice. Government Members can try to pass the buck and blame the EU for their failure to act, but the fact is that they have a choice. They could choose to help ordinary working people in the Budget next week. I urge Members to support the motion.

Photo of David Gauke David Gauke The Exchequer Secretary 3:51 pm, 16th March 2011

This has been a helpful debate. There is little doubt that the cost of living and the rising price of fuel are difficult issues that affect all our constituents. I thank my hon. Friends who raised issues from their constituencies, in particular my hon. Friends the Members for Worcester (Mr Walker), for Amber Valley (Nigel Mills), for Bristol West (Stephen Williams), for Devizes (Claire Perry), for Rugby (Mark Pawsey), for Brigg and Goole (Andrew Percy) and for Dover (Charlie Elphicke).

When times are hard, things are clearly very difficult, and we understand that people want us to do something. We have to address the deficit. The plans that we inherited were not credible. One plan announced by the previous Government was to increase fuel duty six times over the course of the next few years. The Chancellor will, of course, update the House next week on our plans on all tax matters. I am sure that the points that have been raised today will be fully taken into account.

I will focus on one particular Opposition proposal: the suggested cut in VAT on road fuel. In advance of a Budget, the Opposition seek to find a popular and eye-catching policy to get some headlines and broadcast time. One can imagine the enthusiasm of the shadow Chancellor when he told the Leader of the Opposition of his cunning plan. He wanted to use the money from a tax on unpopular people—our bank levy—to reduce costs for motorists. However, rather than the obvious proposal of reversing fuel duty increases, which might have been a little awkward for the Labour party, he proposed to focus on VAT on fuel, and in so doing to distract attention from the fact that Labour is dropping its opposition to other parts of the VAT increase.

Photo of Angus MacNeil Angus MacNeil Shadow SNP Spokesperson (Transport), Shadow SNP Spokesperson (Constitutional Reform), Shadow SNP Spokesperson (Scotland)

I am grateful to the Minister. I did try to intervene on the Opposition spokesman. I wonder whether the Minister is aware that 37 days ago, on 7 February, there was a debate in this House calling for action on fuel prices, and Labour MPs abstained.

Photo of David Gauke David Gauke The Exchequer Secretary

I am grateful to the hon. Gentleman for raising that point.

With the new policy prepared, how could the shadow Chancellor’s plan possibly fail? An interview round was done on Sunday, a press conference was booked for Monday, and an Opposition day was planned for today—I believe by moving aside other plans. However, let us consider what happened. So quickly did the flagship policy of a cut to VAT on fuel unravel that the shadow Chief Secretary, in her 32-minute speech, completely skipped over it. She did not want to discuss it for a moment. What went wrong? The starting point, of course, is that the funds identified by the shadow Chancellor are a one-off amount of £800 million that is available this year from the bank levy. There are no funding plans for future years. Of course, the bank levy should be spent in myriad ways, according to the Labour party—I think it has committed it 10 times over.

Let us turn to how a VAT reduction on fuel duty would be achieved. As has been pointed out, the operation of VAT by EU member states has always been restricted by EU-wide rules. Of particular relevance is the fact that reduced rates may apply to certain specified items, but road fuel is not among them. Under the current rules in the relevant EU directive, we simply cannot do it.

Today’s motion states that we should seek a derogation, and the shadow Chancellor has said that France has obtained a derogation with regard to restaurants. That is correct, and it is perhaps worth describing the process required to obtain a derogation—unless, of course, Labour Members wish to leave the EU. That would liven up the debate, but I do not think that that is their position. If they wanted a derogation, there would have to be discussions with the European Commission, which would have to be persuaded to make a proposal. Each and every member state would have to agree to that proposal, and there would also have to be consultation with the European Parliament.

It is true that a new agreement was reached in 2009 on the list of excepted activities, but that agreement took nearly seven years from start to finish. There is no guarantee of success, either. Opposition Members dismiss the European situation, but they sought derogations to achieve lower rates of VAT for listed places of worship and green energy-saving materials. They were unsuccessful, and they abided by the decision. The VAT directive currently allows derogations only on the grounds of simplification or the prevention of avoidance or abuse, so the chances of success are slim. The shadow Chancellor’s position today is that we should begin a lengthy, and almost certainly unsuccessful, attempt to obtain a derogation that may result in our being able to reduce VAT on fuel in six or seven years.

That is not quite what the shadow Chancellor has been saying recently. On 27 February, on the “Politics Show”, he said in respect of additional VAT on road fuel that the Chancellor

“should say I will reverse that now.”

In The Sun on 28 February, he stated that the Chancellor should “act now”. Again on the “Politics Show”, on 13 March, he said:

“The VAT rise he could reverse immediately and I think he should.”

The same morning, on Sky News, he called on the Chancellor to

“act immediately on VAT…on Wednesday we’ll be urging Conservative and Liberal Democrat MPs to join with us in voting in parliament to urge the Chancellor, cut VAT on fuel now and give immediate relief to hauliers and motorists across the country.”

When he says “immediate relief” and that we should not wait until the Budget and that we should “act now”, what he really means is that we should start a lengthy process that just might, possibly, with a bit of luck and with the consent of 26 other member states, mean that we could take some action in about 2018. As an example of immediate action to help hard-pressed British motorists, that is somewhat lacking in effectiveness.

The cynical view is that the shadow Chancellor knew that that policy would not work, but it was enough for him to have something to say to get in the media. The cynics will point out his vast experience in the Treasury—he is, after all, a man with a past. How, they will ask, could he possibly be so incompetent? I think those cynics are being unfair to him. He could be that incompetent. After all, he has told us that he wants to cut VAT to help hauliers, but hauliers can reclaim VAT. He has talked about the cutting of VAT on fuel in the 1990s, but in fact that was domestic fuel. He has talked about asking for a VAT cut on fuel in rural areas, but now asks for a derogation on fuel duty.

If the Labour party is to have a shadow Chancellor who does not understand the tax system and who makes embarrassing mistakes, they would do a lot better with the previous one, who at least did that with a certain amount of charm. Only at the weekend, the current shadow Chancellor told The Guardian:

“My task is to rebuild Labour’s economic credibility, but that won’t happen in a week”.

That will certainly not happen this week. In a desperate attempt to have something to say on a matter of genuine concern, he has come up with a risible policy that is unfunded from next year and that cannot be implemented for years, if at all.

Once again the Labour party has demonstrated that on economic matters, it lacks credibility and competence, and I urge the House to oppose the motion.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.

The House divided:

Ayes 236, Noes 301.

Division number 231

See full list of votes (From The Public Whip)

Question accordingly negatived.

Question put forthwith (Standing Order No. 31(2)), That the proposed words be there added.

The House divided:

Ayes 307, Noes 239.

Division number 232

See full list of votes (From The Public Whip)

Question accordingly agreed to.

The Deputy Speaker declared the main Question, as amended, to be agreed to (Standing Order No. 31(2))

Resolved,

That this House notes that the Government inherited the largest deficit in UK peacetime history and that the previous Government and current Opposition has no credible plan to deal with the deficit; further notes that this Government has already taken steps to support families and that those on low and middle incomes will benefit from April 2011 from a £1,000 increase in the income tax personal allowance, above-indexation increases in Child Tax Credit and that pensioners will receive new ‘triple-lock’ increases in the basic State Pension; further notes the significant impact on fuel prices in the UK of the dramatic increase in the world oil price to over $100 per barrel and the impact on households and business; notes that the previous Government increased fuel duty no less than four times between December 2008 and April 2010, proposed introducing a fuel escalator from 2011 and planned for a further series of six consecutive fuel duty rises up to 2014; nonetheless recognises the significant impact of high fuel prices on motorists, hauliers and businesses and that the Government is considering a fair fuel stabiliser that could support motorists and businesses when oil prices are high; and in addition notes that a reduction in VAT on fuel would be deemed illegal under EU law and that the Chancellor will update the House on this issue at the time of the Budget.’.

Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

I now have to announce the result of a Division deferred from a previous day. On the question relating to environmental protection, the Ayes were 282 and the Noes were 20, so the Ayes have it.

[ The Division list is published at the end of today’s debates.]