Clause 19 — Fuel duties: rates of duty and rebates from 23 March 2011

Planning (Green Belt Protection) – in the House of Commons at 10:05 pm on 3rd May 2011.

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Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 10:05 pm, 3rd May 2011

I beg to move amendment 7, page 12, line 36, at end add—

‘(8) The Chancellor shall publish, within 3 months of the passing of this Act, an assessment of the impact of taxation on fuel prices.’.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The backdrop to today’s debate is an economy that is flat-lining, as the Chief Secretary to the Treasury admitted last week. Since the Chancellor’s spending review, we have had no economic growth, and it is ordinary people who are hardest hit by that stagnation, with 2.5 million people out of work, including nearly 1 million young people—one in five 16 to 24-year-olds. An increasing number of people have been jobless for more than a year—nearly 850,000 and rising. This year, as the Government’s cuts start to bite, hundreds of thousands more people could lose their jobs. I believe that that is what the Minister of State at the Cabinet Office called an

“immediate national crisis in the form of less growth and jobs than we need.”

Apparently, it is what the Chancellor describes as “good news” and a sign that the economy is on the right track. Families are feeling the effects of the crisis in their pockets. Prices are still rising by more than 5% on the retail prices index, while earnings are growing at just 2% a year.

Rising fuel prices are a big part of this squeeze. According to the Office for National Statistics, fuel prices are currently one of the most significant contributors to consumer price inflation. According to this week’s figures from the Department of Energy and Climate Change, the average UK pump price is now £1.36 for a litre of petrol and £1.42 for a litre of diesel. I am sure that many Members will be aware that at their local petrol pumps prices are even higher. That means that petrol is more than 3p a litre more expensive than it was last month, or 15p more than this time last year, and that diesel is 3p more expensive than last month, or nearly 20p more than last year. Unfortunately, the 1p saving we got from the Chancellor’s cut in fuel duty lasted barely a week before price rises at the pumps wiped it out.

Photo of John Spellar John Spellar Shadow Minister (Foreign and Commonwealth Affairs)

My hon. Friend rightly draws attention to fuel prices. Does she not find it extraordinary that the coalition Government are proposing to subsidise fuel prices in some of their friends’ constituencies, thereby increasing by default the duty on those in many of the urban constituencies that we represent?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My right hon. Friend is quite right that the Government are looking for a derogation in some rural areas, but only a very limited number. When the House last discussed the proposal, considerable representations were made by Government Members who argued that if there was to be a derogation, other areas should also benefit from it and that it was unfair that just a few remote islands should see the benefit.

Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

The argument that a derogation in remote and rural areas is somehow an increase elsewhere is an interesting one. Should we take it from that that the hon. Lady is opposed to the road equivalent tariff being implemented in the Western Isles as well?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The point that my right hon. Friend Mr Spellar was making was that if taxes are to be cut for some people somewhere, but the same amount of revenue has to be raised, that means that someone else is subsidising it. That is a fairly simple point to take on board.

As I was saying, it is not just rising fuel prices that are hitting people. Rises in fuel prices feed through to higher food prices and higher energy prices for household bills. Despite a recent up-tick, the OECD estimates that food prices in the first quarter of this year were nearly 6% higher than they were last year, and energy prices more than 9% higher. As real incomes fall, spending on basic items, such as food [ Interruption. ]

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

On a point of order, Mr Hoyle. You have many attributes, but you do not have eyes in the back of your head. Would it be possible for you to ask those Members behind the Chair to leave the Chamber in order to reduce the noise level, so that others can follow the debate?

The Chairman:

I must admit that, if there was noise interference, I did not know where it was coming from and could not hear it in front of the Chair. I am sure that Members will be quieter in future.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank my hon. Friend Mr Jones for that, because it certainly seemed quite noisy from where I was standing.

As I was saying, as real incomes fall, spending on basic items such as food, energy and fuel makes up an increasing proportion of the average family’s weekly spend, as the Office for National Statistics acknowledged in March when it changed the make-up of its retail prices index basket. That means that families are increasingly vulnerable when prices rise quickly.

The Opposition accept that no Government can control the price of oil, which the global markets set, and that the situation in the middle east is affecting people in countries throughout the world, to which the UK is of course no exception, but the Government have control over fuel taxation, and that has a significant effect on pump prices. When so many people are out of work and real wages are falling, the Chancellor has a responsibility to do all he can to help business and to promote economic growth and jobs; and when ordinary working people are struggling to make ends meet, he has a responsibility to do everything possible to help them get on.

That is why we tabled amendment 7. It is important that Parliament has the opportunity to scrutinise the Government’s policies on fuel taxation and their total effect on fuel prices at the pump, because the Chancellor’s cut in fuel duty, as set out in clause 19, is not all that it seems. In January the Government decided to increase VAT on fuel from 17.5% to 20%, even though the Prime Minister told voters just before the election that he had “no plans” to increase VAT. Without that VAT rise, petrol would be almost 3p cheaper now, swamping the 1p cut that the Bill brings in.

The Federation of Small Businesses said that the UK’s small and medium-sized enterprises would be “severely affected” by that hike in fuel tax. A survey of its members in January pointed to the increase as the single biggest threat to their business—something that will resonate with Government Members, who I am sure have been lobbied by the FSB on that point. Some 89% of businesses that responded thought that the Government’s measures would add £2,000 to their costs over six months. A spokesperson for the FSB said in response to the January rise in fuel tax:

“The Government have said it is putting its faith in the private sector to put the economy on a firm footing, yet 36% said they will have to reduce investment in new products and services and 78% said their profitability will be reduced—hardly conducive to growth.”

Many small business people in my constituency are struggling to stay afloat, particularly in the face of cash-flow difficulties. The VAT increase at the beginning of this year was expected to put severe strain on their cash flow, so the Chancellor’s 1p reduction in fuel duty has to be seen in that context.

Some people will be able to cut down on their use of fuel or even stop using petrol all together. Some people are switching to cycling or to public transport, and for those who are able to do so that is a good thing. As an MP for Bristol, which saw investment from the previous Labour Government so that it could become the UK’s first cycling city, I welcome people taking up cycling.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

The argument that my hon. Friend puts forward is very interesting, but does she agree that the situation is difficult for rural constituencies such as mine, where bus subsides are being cut because of the Government’s cuts to Durham county council and some communities will not have any access to any public transport whatever?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes an absolutely valid point, which I was just about to turn to. Some people will say that the rise in fuel prices is an incentive for people to use public transport such as buses, but they can only do so if they are in an area that is well served by public transport. Bus subsides are being cut, and increasingly some areas—particularly remote rural areas—are being completely left without a bus service, meaning that people simply have no choice but to use their car. They include not just people who are poorly served by public transport, but those who run businesses and have to visit customers and suppliers and transport goods throughout the country. They include those who have to run around in the morning dropping children off at different schools or at nursery and then get to work on time, and many other people besides. At a time when fuel prices are rising, adding to them with extra tax is hammering people at the worst possible time. These are often families who are already running a very tight budget, and even a few extra pounds a week on their bills makes a real difference to their ability to get by.

Photo of Chuka Umunna Chuka Umunna Labour, Streatham 10:30 pm, 3rd May 2011

Has my hon. Friend noticed the projections for the increase in household debt under this Government? The Office for Budget Responsibility is projecting that it will increase by more than £500 billion this year and over the next five years, and it is also saying that the reason for this is not only inflation but the comprehensive spending review and the Budget.

The Chairman:

Order. We must keep questions to the subject of the amendment that we are dealing with.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Before the election, the Economic Secretary said in this House during a debate on fuel duty:

“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.”—[Hansard, 16 July 2008; Vol. 479, c. 359.]

How astonishing, then, to find that that is exactly what she and her Government are doing. They may have made a show of helping people up with a small fuel duty cut, but that is after they have given them a much bigger push down with their VAT rise on fuel. Before the Chancellor gave his Budget statement, Labour Members called for him to look again at the fuel duty escalator, which I think the Economic Secretary is muttering about from a sedentary position. In previous Budgets, we cancelled or postponed fuel duty rises when pump prices were rising quickly. In the 2010 Budget, the then Labour Chancellor phased in the increase for that year in three stages to ease pressure on business and household incomes. In the 2008 Budget, the previous Government postponed the increase in fuel duty for six months, again to support the economy and help businesses and families. We therefore welcome the fact that the Chancellor has done so again in this Finance Bill. However, when that cut is put in context, we see that families and businesses are facing more pressure than before as a result of the Government’s policies on fuel tax.

This is not the only policy in the Bill that is not all that it seems when it is put in context. The Government have made much of their increase in the personal allowance for income tax. The Chancellor said:

“The increase in the personal tax allowance already announced will vastly exceed anything lost through employee NICs uprating”.—[Hansard, 23 March 2011; Vol. 525, c. 954.]

However, he failed to mention that the rise in the allowance is swamped by his VAT rise, which will take £450 a year, on average, from the pockets of families with children. Families earning as little as £31,000 could lose their child tax credits as the Government take £400 million out of the system, while the Government’s Welfare Reform Bill creates uncertainty for families over whether they will keep their child care support and free school meals. In a couple of years, a family with two children with a single earner earning just £44,000 could find that the Government have taken £1,750 a year away from them in child benefit. It is no wonder that the Institute for Fiscal Studies said that the Chancellor was

“giving with one hand…and taking away with lots and lots of other hands.”

Nor is it surprising that the economist Roger Bootle said today that household incomes were “all but certain” to fall.

All this comes at a time when Government cuts mean front-line cuts in services that people rely on—schools, the NHS, social care, even the police—and workers in those vital public sector jobs are facing redundancies. The Government may say that some factors are outside their control. When we were in government, oil prices rose substantially, as we are seeing now, but we left government with a proportional tax take on fuel lower than when we came into government—down from 75% to less than 65% on petrol and down from 74% to 64% on diesel. It is no coincidence that under the last Conservative Government fuel taxation shot up from 66% of the price of petrol in 1992 to 75% in 1997, and from 66% to 74% for diesel.

The Minister of State for International Development made the front pages in March, saying:

“if this does go wrong”,

referring to the Budget,

“£1.30 at the pump could look like a luxury, $200 a barrel is on the cards”.

He can hardly have expected that remark to put a stop to speculation in the oil markets.

Rather than helping people through the tough times, the Government seem to want to make things worse. There was an alternative for the Government. Before the Budget, we called on the Chancellor to scrap the hike in VAT on fuel. That would have been of genuine help to families and businesses.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

Is my hon. Friend, like me, extremely surprised at the lack of ambition from the Government parties when it comes to seeking a derogation for the rise in VAT on fuel? Given that President Sarkozy managed to get a derogation on VAT for French restaurants, does she not think that the British Government should do the same for fuel?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes a valid point, which I will come on to in a moment. [ Interruption. ] Ministers are peddling the line that it would take six years to achieve such a derogation from the EU. I ask them, have they even tried? I suspect that the answer is no. It is a fairly defeatist attitude to say that we will not even ask because we know what the answer will be. That is not fighting for Britain’s corner in the European Union.

As I was saying, there was an alternative for the Government. We called on the Chancellor to scrap the hike in VAT on fuel, which would have been of genuine help to families and businesses. It could have been paid for from the £800 million more than expected that was raised from the bank levy. Unlike the stabiliser proposed by the Conservatives in the run-up to the general election, that would not have been “unbelievably complicated and unpredictable”, to use the words of the Secretary of State for Business, Innovation and Skills.

The stabiliser is based on the idea that taxation will vary according to fluctuations in petrol prices, so that

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

to use a direct quotation from the Conservative party consultation document on the issue. The stabiliser was a flagship policy for the Conservatives in the general election campaign. The present Prime Minister made an issue of it when he visited a Coca-Cola plant in Morley just a week before polling day, where he said that

“it would give you certainty as you go about your lives, knowing what your salary is, knowing what your mortgage is, 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”.

When the Conservative party got into government, it soon realised that that was an empty promise, made glibly without doing the homework required, as we have seen with so many of its policies in its year in government. In the Budget, the Chancellor resorted to a different so-called stabiliser by increasing the supplementary charge on North sea oil. We will discuss that issue later tonight when we come on to the next group of amendments.

It is true, as my hon. Friend Andrew Gwynne mentioned, that asking for a special rate of VAT would require our asking for a derogation from the European Commission. The Chief Secretary to the Treasury said that the Government could not afford to “sacrifice income willy-nilly”. However, he was willing to go to the EU to ask for a derogation for remote islands, although not for the rest of Scotland or the UK. Even members of the Conservative party agree that the solution should apply to the rest of the UK.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I just want to check that the hon. Lady is aware that she is talking about two entirely different taxes. The tax that relates to rural areas is fuel duty, and the other derogation that her party is unwilling to accept is illegal to pursue relates to the EU VAT directive.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am making the point that there are precedents for applying to the EU for a derogation, and I will come on to examples of other Governments who have done so.

I was about to quote Andrew Percy, who said from the Conservative Benches when we were debating the rural derogation:

“The pressures that affect the islands of Scotland and the Scilly Isles affect our constituents too.”

He went on to say that

“if any solution is applied to one part of the United Kingdom, it must be applied to other parts of it as well.”—[Hansard, 16 March 2011; Vol. 525, c. 352.]

Incidentally, we have heard reports that the Chief Secretary’s derogation on that issue may be approved by this summer, after he applied only on Budget day. That is rather quicker than the six to seven years that the Government have claimed would be needed for a broader derogation on VAT for fuel.

The French Government were willing to go to the EU to ask for special dispensation for French restaurants, and several member states have asked for other derogations in the past. Derogations have been granted for goods as diverse as fertilisers, pesticides and works of art, and for services from amusement parks and hotels to cleaning and cable television. In 1994, the British Government secured a derogation for domestic fuel, and in the past derogations have been granted to some member states for reduced VAT on goods such as heating oil.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Since the hon. Lady gives a whole list of derogations, perhaps she will also be prepared to tell the Committee how long they took their respective Governments to achieve.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

As I said before, the Economic Secretary invents a mythical time frame which she says it would take for her to achieve a derogation from the EU on VAT on fuel. I have asked her several times now in various debates whether efforts have even been made to raise the subject with the European Commission, and answer has come there none.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Perhaps the Economic Secretary is going to answer now.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Lady obviously does not know the answer, but I do—it took more than six years. Does she think motorists should have to wait six years before her party’s policy can come into effect? It is unlikely ever to be accepted.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The hon. Lady invents a mythical obstacle to achieving a derogation, without even having tried. Many of her Back Benchers who are constantly urging Ministers to stand up to the European Commission will be very disappointed that they are using the Commission as an excuse. They could have avoided this situation by not introducing the rise in VAT on fuel earlier this year. They should have considered the consequences before entering into such a policy.

The UK has not applied for as many derogations as other member states. We have only one reduced rate, which is used largely for energy and energy-saving materials and a number of health products, as well as the zero rate. France, Italy and Poland have each secured three different reduced rates of VAT, in addition to a zero rate, so there is clearly scope for the UK to ask for a little more.

While Labour was in government, we never applied for a special rate of VAT on fuel, but the reason for that is simple: we never raised VAT on fuel in the first place. This is a problem that the Government have created, so rather than simply telling the Committee that a derogation would be illegal, perhaps the Economic Secretary can once and for all tell us whether the Government have made any serious attempt to start negotiations with the European Commission on the matter, or whether they are simply capitulating to the Commission without putting up a fight.

We have tabled the amendment so that the Government’s fuel duty cut will be shown for what it really is—a 1p cut that is wiped out by the 3p a litre increase resulting from their VAT rise on fuel. It comes at a time when petrol prices are already rising rapidly and reaching record highs, when families are already squeezed and when the economy is struggling to grow. It comes after the Government refused to take the alternative approach that we put forward, which would have been a genuine help to families. The amendment means that the Government will have to face up to the fact that they have made the wrong choice at the wrong time and are harming, not helping, working people.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

I rise to speak in favour of the amendment, which states clearly that the Chancellor should publish

“an assessment of the impact of taxation on fuel prices.”

It is a short but, I think, highly important amendment, not least because fuel prices are a key part of our economy and have an impact on inflation. I want to say a few words about why taxation on fuel has a bearing on inflation and why that is at the heart of some of the economic problems that we face today, not just from a dry, technical point of view but from the perspective of families in Wirral, Merseyside and elsewhere who are struggling at the moment.

This country has previously dealt with severely high inflation, but for many years we have had relatively low and stable inflation. That is also true across the globe. The nature of the fuel industry means that fuel prices have a specific impact on inflation, but I would point out that inflation in the UK is slightly higher than in the rest of the EU. That should be a warning signal to us. I am not particularly hawkish on inflation and on saying that fuel prices could drive problems in our economy. We need to recognise not the danger of returning to the days of terribly high inflation, but the danger of inflation of nearly 5% when wages are being held down, which limits people’s quality of life. People see food and fuel price increases when they go to the shops or fill up their cars—as my hon. Friend Kerry McCarthy correctly said, food prices are partly driven by fuel prices—yet their wages are held down, so at the same time, they face higher prices in the shops and less in their pay packets every month.

That means a falling quality of life for the average person in this country—[ Interruption. ] Some in the House clearly think that that is a laughing matter, and I will let my constituents know that they do—[ Interruption. ] I am very awake to the fact that my constituents are incredibly concerned about their quality of life and what this measure means. They understand that our economy has faced tough times, but they are not beating a path to my surgery to demand exaggerated pay settlements because of fuel and food prices. They are very realistic. However, as politicians, we must ask ourselves whether it is fair to expect people constantly to deal with higher prices in the shops and on petrol station forecourts when the Government are asking for their wages to be held down. That is an issue of fairness, by which I mean that it is not morally right to ask people to accept falling standards of living because of an economic situation that is no fault of theirs.

It would have been bad enough for the VAT increase to have occurred when wages are being held down just because of the period of economic cycle. My constituents would have seen their quality of life fall, but one of the biggest worries and fears that I hear of in my surgery every week is the impact of the Government’s other policies on people’s quality of life. My hon. Friend mentioned some of the impacts from this April. Cuts to the amount that parents can claim for child care will have an impact—they could be worth up to £1,560. That is not small fry. When it comes to making ends meet every week, the Government must think about the long-term plan for ensuring that, by and large, living standards for the average citizen in the country do not fall.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 10:45 pm, 3rd May 2011

The hon. Lady mentioned VAT. Given her concerns regarding the increase that she says the Government introduced, did she vote against it?

Photo of Alison McGovern Alison McGovern Labour, Wirral South

The VAT increase that the Government have introduced is clearly highly regrettable. I might just take the opportunity of the Minister’s intervention to correct a common way of phrasing what happened under the previous Government when my right hon. Friend Mr Darling, the former Chancellor of the Exchequer, temporarily lowered VAT. Government Members often say that Labour increased VAT, as though the decrease was not intended to be a temporary measure to help the economy. There is a difference: the Labour Government helped people through with a cut in prices, but this

Conservative-led Government think that the future of taxation in this country should be higher prices in the shops.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

A more relevant question to ask Conservative Members is why during the election they made a promise not to put up VAT, given that the first thing they did when they came into power was increase VAT.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

My hon. Friend is absolutely right. I thank him for that intervention.

We voted against the measure to put up VAT because it was not right to increase pressure on prices in the shops that everybody pays no matter what their income.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

And that is a fundamental principle that Labour Members hold dear.

Photo of Stewart Hosie Stewart Hosie SNP Chief Whip, SNP Deputy Leader, Shadow SNP Spokesperson (Treasury)

On a point of order, Mr Hoyle. It is entirely up to the hon. Lady to give way as she sees fit, but when the Scottish National party moved to strike out the VAT rise, Labour most certainly did not vote for it. Could she correct herself—

The Chairman:

Order. As Mr Hosie knows, that is not a point of order.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

Thank you, Mr Hoyle. It would be testing your patience not to stick to the amendment, as I shall endeavour to do for the rest of my remarks.

All Members will realise that the average family, the average couple and the average pensioner are facing a more and more difficult situation as the money coming in has to be stretched even further, and with prices going up in the shops. That is people’s experience. The impact of taxation on fuel prices and its role in driving up inflation and driving down living standards requires investigation and careful thought. This is not just my view or that of just some economist: when I looked into the possible causes of rising inflation in the UK, the first person I thought might have the answer was the Governor of the Bank of England, who, in his letter to the Chancellor about why the Bank had not met the inflation target, cited the VAT rise as one of the inflationary pressures facing the country.

As I said, I am not some inflation hawk who holds to a 1980s antediluvian economic philosophy that inflation is necessarily bad. Some countries have had relatively high inflation as well as growth. However, the important thing about taxation and fuel prices, and their role in inflation, is that it is possible to build in inflationary expectations in the long term through some of these measures. I wonder whether the Government have really thought about what they are doing in not combating some of the issues related to rising prices that we have seen.

There is also an obvious link with people’s worry about the lack of investment at this time. There is no doubt that investment means jobs today and productivity tomorrow, and therefore a more effective economy that enables people to have a better standard of living at less cost. That has to be the aim. At the moment, the Government are balancing the books using VAT and extremely flat taxes that do not pay regard to people’s income. They are asking people in my constituency on relatively modest incomes to pay the same higher prices at the fuel pumps as people in the Chancellor’s constituency down the road in Tatton, who by and large—not universally—are a bit wealthier. That is not fair.

We have to consider carefully whether the increased taxation on fuel resulting from the VAT rise is having a negative impact on the economy in a wide-ranging sense. It is not only about whether fuel prices are up—obviously that could be the result of several things—but, most especially, about what that is doing to inflationary expectations. We need to consider whether it is having a damaging impact on the broader economy, and whether it is a disincentive to growth and productivity improvements in the UK. We also need to consider what it is doing to the living standards of people such as those whom I represent in Wirral and Merseyside who have seen living standards fall severely in the past two years.

Photo of Steve Rotheram Steve Rotheram Labour, Liverpool, Walton

I am sure that my hon. Friend would agree with the old adage, “You can’t fool all the people all the time”, but that is exactly what the Chancellor tried to do with his 1p tax cut to fuel duty. However, is it not the case that since the Budget, petrol prices have gone up several times more than that 1p tax bribe, and that the VAT increase in fuel duty is causing damage to motorists and businesses—

The Chairman:

Order. Interventions must be short.

The Chairman:

Order. I am ruling that interventions must be short and letting the Committee know that we will be taking only short interventions.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

My hon. Friend makes an important, if a little lengthy point. People will not be fooled, because they will see fuel prices going up and ask themselves what the Government have done to help. People are connecting the impact on prices across the board with what happens when they fill up the tank. When they go to the shop, they see higher prices all around them and they wonder where they are coming from. There is one clear answer: No. 11 Downing street. The Chancellor has decided that people will have to pay more in the shops. Let us not imagine that he has said, “Well, I’m sorry everyone. These are tough times—we’re going to ask you to put your hands in your pockets until we can lower VAT again.” Rather, this is a permanent rise that will build in higher prices for the long term. Given the downward pressure on wages, the really worrying thing is that the rise is building in not only a reduction in quality of life, but inequality, which is very worrying and will hurt for many years to come.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I know that we are in Committee, but let me take this opportunity to send my best wishes to parliamentary colleagues from the north-east region who are unwell at the moment—Guy Opperman and my hon. Friend Pat Glass, who are both incapacitated. I am sure that the House joins me in sending our best wishes to them both.

The amendment calls for the Chancellor to publish an assessment of the impact of taxation on fuel prices within three months of the Bill being passed. I will concentrate on the differential impact of fuel duty policy in the English regions. I say “regions” with some trepidation, because I know that the very concept, or even uttering the word, causes phobic shudders in some quarters on the Government Benches, but an analysis of road freight statistics by the North East chamber of commerce has demonstrated the extra burden that fuel taxation places on businesses in regions such as the north-east. Each tonne of freight brought in or out of the north-east of England delivers approximately £4.16 in fuel taxes to the Exchequer; although that figure probably changes daily, it is 18% higher than the average for English regions, which is only £3.52, and 74% higher than the figure for London. That analysis shows that more careful consideration should be given to fuel duty rates’ economic impact in regions and to differential rates.

Road freight statistics show the extra distance travelled by goods transported into or out of the north-east compared with other parts of England. Every tonne of freight transported by road into or out of the north-east travels an average of 119 miles, compared with an average of 111 miles for businesses across the whole of England. Only businesses in the south-west of England transport freight further by road, with each tonne of goods going into or out of the south-west travelling an average of 192 km, which is ever so slightly more than the average of 119 miles for the north-east. Duty on diesel is currently at about 58p a litre.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

Does my hon. Friend agree that the impact of fuel duty is exactly the kind of issue that could be raised in the proposed report?

Photo of Ian Mearns Ian Mearns Labour, Gateshead 11:00 pm, 3rd May 2011

That is exactly what I am suggesting such a report could achieve.

The VAT chargeable on the duty element of the fuel price brings the total impact of fuel duty to about 69p a litre—that figure is a few days old, so it might be more or less than that now, depending on the daily price rate. Using a typical fuel consumption rate for road haulage of 8.5 miles per gallon, that means that each kilometre travelled provides 22p to the Exchequer; given an average load of 10 tonnes, each tonne of freight transported into or out of the north-east region delivers £4.30 to the Exchequer in fuel taxes, compared with an average for goods moved between English regions of only £3.52. We are already starting to see the impact on an economically deprived region in terms of businesses developing there and on its prospects for employment, given its peripherality to the bulk of the English economy.

Many hauliers in the North East chamber of commerce membership have no choice but to pass a proportion of those costs on to their customers, the vast majority of whom tend to be based in the north-east region. The chamber of commerce has argued that decisions on fuel duty need to take greater account of the impact on businesses in each part of the UK, and that a more considered approach is needed than that of the automatic increases that have been fixed into Government policy for the upcoming period. The figures I have quoted exclude those for goods transported within regions, as the impact of fuel duty would be the same in each region for that type of journey.

If the amendment were accepted, I would ask that a detailed analysis be included of the introduction of a measure that would help to stabilise fuel duty. In fact, that is exactly what the Federation of Small Businesses has been calling for. We have had debates in the past about some sort of fuel duty stabiliser, and it remains to be seen whether that would be a workable option, but surely when carrying out such an analysis, the Government could look at measures that would stabilise fuel duty and the cost of fuel.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

My hon. Friend is making a superb case stating the competitive disadvantage that the Government’s policies are placing on the road haulage industry in the north-east of England and in other English regions. Does he think that the reporting proposed in the amendment could help to determine Government policies for supporting economic growth in regions such as his?

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I am trying to point out to Ministers that fuel duty imposed nationally has a differential impact across the different regions and indeed nations of the United Kingdom in terms of contacting the main hub of economic growth, the south-east of England. There has been a debate in my region about the dualling of the A1 north of Newcastle upon Tyne, but the main driver of growth in the north-east economy is actually to the south and west of the region in terms of the contact with the main drivers of our economic future.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

Was not the Conservatives’ promise at the last election to dual the A1 another promise that they have reneged on?

Photo of Ian Mearns Ian Mearns Labour, Gateshead

What happened over a number of years—I am afraid that our Government were not immune from this—was that, rather than planning roads to encourage economic growth and development, we planned them to accommodate congestion. That was not always the best thing to do from an economic perspective. Down that road lies ruin, if you will pardon the pun.

The Federation of Small Businesses has asked for a fuel stabiliser. I am not saying that I necessarily agree with the federation, but stability in fuel prices is important. The Chief Secretary said of a fuel stabiliser:

“It’s a complicated idea and it’s difficult to see… how we achieve it, but it’s something that we are looking at very carefully to see if we can reduce the burden of fuel duty”.

I wonder whether the concept could be more straightforward. When oil prices increased, the stabiliser—or a stabilising impact effect—would allow the Government to reduce duty to a lower limit; when oil prices fell, the Government would be able to raise duty to a higher limit.

Critics cite the difficulty of knowing whether the fluctuations in the price of oil are temporary or likely to persist beyond the near term, saying that it would be difficult for a fuel duty stabiliser to set fuel duties effectively. To counter the volatility in the price of oil, a fuel duty stabiliser or a stabilising measure would need to be based on an official forecast of the future price of oil, and then adjusted regularly according to the actual oil prices. It will be difficult, given the volatility in how the international oil markets are working at the moment, but we need to try to find some measure to help our small and medium-sized enterprises through this difficult process at this difficult time; otherwise, we are in real danger of seeing fuel become a major blockage to economic growth, not only in particular regions, but across the whole nation.

Would this be bad for the public finances? The Chief Secretary said that we cannot “sacrifice income willy-nilly”. Critics argue that a stabiliser or a stabilising effect would be too expensive to implement during a time of austerity, but that criticism fails to take into account the wider implications of high fuel prices on the UK economy. If set correctly, the measure could be fiscally neutral for the public finances and help to provide much-needed economic stability for the UK economy. My main point in asking for some sort of analysis in a review is that the measure is needed so much more in the regions of England, particularly regions such as the north-east, but the south-west as well.

Photo of Mike Gapes Mike Gapes Labour, Ilford South

The amendment states that the Chancellor should

“publish, within 3 months… an assessment of the impact of taxation on fuel prices.”

I will address my remarks to the scope of such an assessment. It is important not to focus solely on the narrow issues surrounding VAT, although they are important, or on the global increase in fuel prices, which is one of the factors causing the revolutions in north Africa and elsewhere in the world as people suffer from rising food prices as a result of rising fuel prices.

There is something very specific about how we in this country choose to tax fuel. Compared with other European Union countries, we choose to have very high taxes on fuel. One consequence is the problems from which our road hauliers have suffered in comparison with some of their competitors in European countries that have road pricing.

It is interesting to note that in the 2010 general election, the Liberal Democrats proposed to move towards

“a rural fuel discount scheme which would allow a reduced rate of fuel duty to be paid in remote rural areas, as is allowed under EU law”,

as well as to prepare for a system of road pricing to be introduced “in a second parliament”. That was the Liberal Democrat position. The Conservatives, of course, had a completely different view, promising a “fair fuel stabiliser”, presumably designed to help people in the rural communities.

I represent an urban area. My constituents suffer high fuel prices in London and, unlike some people in rural areas, they do not have the advantage of having to pay only 11.14p duty on a litre of so-called red diesel, instead of 57.95p duty on a litre of low-sulphur diesel. We know that there is abuse of the red diesel system by certain people who, when driving on main roads, use diesel that should be used only for off-road activities. That opportunity is not open to my constituents. People living in Ilford and elsewhere in Greater London do not have access to red diesel that they can abuse in order to avoid paying tax. However, people who are represented by the Liberal Democrats, who are in favour of giving priority to remote rural areas but not to those of us who live in urban areas, or by Conservative Members who are happy not to enforce adequately the provisions against abuse of the red diesel system, are not concerned about that. I want the review to examine the abuse of the red diesel system. I believe that a lot of money that should be going to the Exchequer is not doing so and that there is discrimination against people who live in urban areas and have no access to red diesel for their motoring purposes.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

I take my hon. Friend’s point about the abuse of red diesel, but may I disabuse him of the fact that it is not available in urban areas? When I was chair of trading standards in Newcastle, the abuse of red diesel in urban areas was just as prevalent as it was in some rural areas. The fact is that certain criminal elements in London can gain access to red diesel fairly easily.

Photo of Mike Gapes Mike Gapes Labour, Ilford South

Obviously I am not as accomplished as my hon. Friend at making contact with the criminal elements in London. However, he has raised a serious matter: there are criminal elements who exploit differentials in duty. We have seen that in Northern Ireland, when terrorist organisations financed their activities by smuggling fuel across the border from the south to the north and vice versa, and we have seen it in other contexts.

If we are to have a policy on fuel taxation, we need to ensure that if we introduce measures that discriminate in favour of certain people in remote rural communities, we do not also create loopholes that will be used in a discriminatory way to undermine the sense of justice and fairness that our people want us to exercise. If we have high levels of fuel taxation in this country, which we do, and if that causes problems for our road haulage industry and discrimination between rural and urban areas, when the review is conducted—I hope that the Government will support the amendment, because it is vital that we look at these issues in—

Photo of Geoffrey Clifton-Brown Geoffrey Clifton-Brown Chair, Committee of Selection

On a point of order, Mr Hoyle. The amendment is very narrowly drawn. I have listened to the debate very carefully. Can you tell the Committee whether it is in order to discuss the matters that have been raised in it, ranging from the abolition of child benefit to the widening of the A1 and, now, the abuse of red diesel?

The Chairman:

The Chair will decide that. I find it strange that the hon. Gentleman, who is a very senior Member of the House, is questioning the judgment of the Chair.

Photo of Mike Gapes Mike Gapes Labour, Ilford South

Red diesel is taxed at a lower level than other diesel. We are discussing the taxation of fuel and the need for a review of fuel taxation. Surely that is extremely pertinent to the terms of the amendment.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

The amendment states:

“The Chancellor shall publish, within 3 months of the passing of this Act, an assessment of the impact of taxation on fuel prices.”

I am sure that that includes diesel.

Photo of Mike Gapes Mike Gapes Labour, Ilford South

I entirely agree.

I believe that one of the difficulties in our economy, which affects our haulage industry, arises from our tax levels compared with levels in other European Union countries. We all know that if we drive across to France and fill a tank with diesel, or “gas oil” as they call it, it is possible to pay—depending on where we are—40%, 50% or 60% of the amount that we would pay in the United Kingdom. The haulage industry based on the other side of the channel therefore has a competitive advantage. The great lorries with Polish and other countries’ number plates that we see bringing goods into this country have a competitive advantage over those of our own haulage industry.

We need to look at these matters. I have to say that I think the Liberal Democrats were right. [Interruption.] Yes, occasionally they are right, and I think they were right when they said we need to look at road pricing. Unfortunately, the only person who has done anything serious about road pricing is, of course, the former Mayor of London, Ken Livingstone, who introduced the congestion charge, which the Conservatives have now accepted even though they opposed it when it was first introduced.

The Chairman:

Order. I think we are now beginning to stray a little from the subject under discussion. I am sure we will return to the topic of the fuel levy.

The Chairman:

I do not think we really need to hear from the hon. Gentleman at this stage.

Photo of Mike Gapes Mike Gapes Labour, Ilford South 11:15 pm, 3rd May 2011

Thank you, Mr Hoyle. I will, as always, take your sagacious advice.

We need to look at the consequences of the way in which our economy is integrated globally, and the knock-on consequences of our competitive position in European markets. We need a review of fuel taxation, taking account of the position of the haulage industry and the discrepancies and disparities between different parts of the UK—I accept what my hon. Friend Ian Mearns said about the north-east region. There are difficulties and we need to look at this issue in the round. It is eminently sensible to have a comprehensive review of fuel taxation policy, as called for in the amendment.

Everybody agrees that the current arrangement is not working well. There is a huge amount of public disquiet—all of us receive e-mails and letters on the subject, and the Federation of Small Businesses and others write to us. People are concerned about high fuel prices. There are things we can control, such as not increasing VAT on fuel, and there are things we cannot control, such as the impact of global events, but as long as we have an economy that is dependent on fossil fuels and oil, we will always be vulnerable to such things. The debate embraces wider issues than are dealt with in the terms of the amendment. I will not talk about those issues now Mr Hoyle, but it is important that we address them in a comprehensive review of fuel taxation policy. I therefore support the amendment.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

First, I want to compare the records on fuel taxation of the most recent Labour Government and the previous Conservative Government. My view is that the Labour Government were a great deal kinder to the motorist, and the following figures are provided by the current Government. Figures from the Department of Energy and Climate Change show that in 1990, when the Conservatives were in power, 59% of the price paid at the pump by the motorist and road haulier for unleaded petrol was taken by the Government in fuel taxation, and that it rose to 75% during the following seven years of Conservative rule; the Government therefore took more and more and more in taxation. When Labour was in power, however, the proportion of the price of unleaded petrol taken in fuel taxation fell to 65%. The figures for diesel are almost the same. Under the Conservatives, the tax take rose from 57% to 74%, whereas Labour brought it down to 64%.

I would like the Economic Secretary to the Treasury to answer one question in her response, on the following subject. Since the general election, Government policy—not just Conservative policy, but Conservative and Liberal Democrat policy—has been to increase the tax on fuel by about 3p a litre through the increase in VAT and to give back roughly a third of that, 1p a litre, through the reduction in duty. That policy will slightly help road hauliers, because the duty element will reduce. The VAT element increases, but hauliers are able to recover the VAT, or at least pass it on in the VAT they charge their customers. So the effect of the Government’s policy will be to clobber the private motorist to the tune of 2p a litre, because they will have to pay the VAT increase out of their own pockets, while providing slight relief to businesses, particularly hauliers. I say “slight” because the price of fuel has increased as a result of a number of factors, including the increase in the cost of oil and the fall in the value of the pound on the international exchanges. So motorists and hauliers have been clobbered by the market and by the Government, but hauliers are being hit slightly less hard than the private motorist because they are able to recover the VAT increase.

My question to the Economic Secretary is as follows: is it a deliberate act of Government policy to make life slightly easier for businesses but to clobber the private citizen, or is it just an accident that that has happened? This is one of the things that ought to be studied in the review that the Opposition amendment proposes. We should examine the relative merits of taxing fuel for vehicles through VAT as opposed to through fuel duty, and who the gainers and losers are.

My hon. Friend Alison McGovern made a very powerful speech about the impact that the increase in VAT on fuel has had on family budgets, and the impact that inflation generally, and fuel inflation in particular, is having on families who are having their earnings squeezed. My Front-Bench colleagues’ amendment proposes that the review ought to consider that matter.

I would like such a review also to consider one other issue, because I do not believe that the Government have yet done so—although I would be delighted to be corrected if they have carried out the sort of analysis that I propose. The review should also examine the impact that taxation has on the demand for fuel. The previous Conservative Government, one and a half decades ago, introduced a fuel price escalator. I understand that their reason for doing so was environmental: they wanted to increase the price of fuel to depress the demand for it, and so reduce carbon emissions. That was the policy intention, and it is one of the reasons why Conservative policies cost taxpayers and consumers so much. I mentioned that the fuel tax take rose from

59% to 75% in their last seven years in office. I wonder whether the Minister can tell me whether that sharp increase in fuel taxation under the previous Conservative Government actually did depress the demand for fuel, because that is an important consideration. If we change the marginal rate of fuel taxation, economics suggest that there should be some elasticity in demand.

The Government say that they want to be the greenest ever, so they ought to consider the carbon emission consequences of changes to fuel duty and VAT on fuel. I hope that Treasury Ministers have taken advice on that from both the Department of Energy and Climate Change and the Department for Transport. They ought to have done, if they really are—[ Interruption. ] Does the Financial Secretary to the Treasury want to intervene? No, he is back in his seat. The Government ought to take advice before they make such proposals, so that they can assess the environmental impact of a fiscal measure. I am waiting to hear from a Minister, but it sounds as though that has not happened. It ought to if the Government are serious about the environmental consequences of their fiscal policy.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

The Economic Secretary wants to intervene, and I hope she can tell me that the analysis has been done and what its outcome is.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I direct the hon. Gentleman to the tax note that we issued at the Budget. The answers to his questions are there; clearly he has not read it yet.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

I have not read it—[ Interruption. ] That is why I ask the question. If the hon. Lady would care to read it to the Committee, I would be pleased to listen.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

As the hon. Gentleman could not read the note himself in advance of the debate, I shall read it to him now:

“Removing the fuel duty escalator and cutting duty by 1ppl could result in a small increase in CO2 emissions in 2011-12 of 0.4Mt. However, emissions from road transport are forecast to be approximately 1 per cent lower than current levels by 2015-16 owing to underlying trends in” fuel efficiency.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

Is it the Government’s policy, then, to use fiscal measures to reduce carbon emissions? Is that what brought about the carbon variation of 1.4 megatonnes—is that what the hon. Lady said? [ Interruption. ] It is 0.4 megatonnes; I am grateful to stand corrected. Has the reduction that she mentioned come about as a result of the Government’s proposed fiscal changes, or as a result of the economic downturn that is a result of their policies? There is an important difference. One would expect the fall in economic activity that we have seen as a result of the Budget—the Office for Budget Responsibility has revised down its forecast for growth as a result of the Government’s fiscal measures so far—to lead to a decline in carbon emissions from both road transport and other sources. I am not clear from what the hon. Lady has read out whether the reduction in carbon emissions will be a result of the fiscal measure or of a reduction in demand because of a contraction of the economy.

Photo of Barry Gardiner Barry Gardiner Labour, Brent North

If I interpreted the note correctly, it was a projection of what might happen as a result of the fiscal measures. It did not answer the question posed by my hon. Friend, which concerned an analysis of the results of the differing policies on carbon reduction hitherto. Does he agree that it is vital that we use green taxation only as a means of changing behaviour, and never solely as a revenue-raising measure? That is the question that he posed about past policy, and the Economic Secretary did not answer it.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

One would assume that a Government estimate has been made on the basis of some evidence. My hon. Friend shrugs his shoulders, but he was in government for a time and I certainly give a Government the benefit of the doubt. I believe that their civil servants would make the best estimate they could based on the evidence they had. Past responses to fiscal changes in the taxation of fuel would of course be a good indicator. Either the Minister can tell me that that is the basis on which the estimate has been made or she is not certain. If she is not certain she should be honest and say so, because we will then need the further analysis proposed in the amendment.

Photo of Jim Fitzpatrick Jim Fitzpatrick Shadow Minister (Transport) 11:30 pm, 3rd May 2011

Technological advances such as hybrid vehicles, greener cars, electric vehicles and biofuels might lead to a reduction in emissions. Could they therefore be incorporated into the review? They will surely have an impact on taxation policy in future.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

The premise that my hon. Friend puts forward is absolutely right. The fact that more and more people are using low-emission vehicles will obviously have an impact. However, the purpose of the review proposed in the amendment is to consider what effects the fiscal changes will have. If the price of fuel is raised, some people will consume the same amount of fuel anyway because they are in business and they do not want to contract their business, but generally speaking it has a marginal effect. Private motorists will reduce the number of discretionary journeys they make by trying to take their cars to the shops less frequently and perhaps abandoning some leisure trips, and businesses will look for ways of economising as prices rise. I have heard the Minister’s comments and I am grateful to her for drawing my attention to the estimate that the Government have made, but it is a fairly bald statement and it does not answer my question about whether the measure is driven by the Government’s environmental concerns or their revenue-raising concerns, and we need a clear answer on that.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

I am going to sit down shortly to let my hon. Friend himself make a speech, but I shall certainly give way.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

May I propose a third reason for the reduction—political expediency and creating the impression that the Government are doing something about fuel prices?

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

That could very well be the case, and we will listen with great interest to what the Minister says in reply to the debate. All we are asking for is transparency. We want to know whether the Government are doing this for environmental or revenue-raising reasons, what the implications of the rise will be in environmental and revenue terms and what the impact will be on family budgets. I believe—indeed, I know—that all that information is not known, so I think that the Opposition’s amendment is a sound one.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

I keep trying to sit down, but my hon. Friends are preventing me from doing so.

Photo of Julie Hilling Julie Hilling Labour, Bolton West

My hon. Friend mentions the potential effects on the environment, tax-raising and families. A project has been brought to my attention because it can no longer afford the fuel for the vehicle it uses to take young people with mental disabilities out on trips, so those disabled young people are no longer getting the benefit they used to get from going out. Is he aware of similar issues in his constituency?

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

Yes, I have had third sector organisations coming to me and saying how much more difficult life is getting because sources of funding are drying up.

It is clear from the interventions of my hon. Friends that the point I have raised has wider implications that ought to be studied by the Treasury and other Departments. I know what the process is for tabling amendments that ask for reviews and reports regarding legislation, and they are tabled not just to frustrate or irritate those on the Treasury Bench but to pose serious questions and seek serious answers. The Minister is waving her piece of paper again, and I promise I will read it properly, but what she read out to me did not answer my questions. It is an input—an estimate of one figure—but as we have heard, further study of the environmental and social impacts, the impact on family budget impacts and the overall economic impact is needed. I hope that as a result of that analysis the Government will produce better, more coherent cross-government proposals for the taxation of fuel in future.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

I support the amendment, which asks for a review. In the previous debate, we asked for a review of the implications of the bank levy. Similarly, the amendment calls for an assessment of the impact of taxation on fuel prices. It would be disingenuous to suggest that all Governments have perfect relationships when it comes to dealing with fuel duty. Clearly, the previous Government had problems with the cost of fuel and difficulties over taxation, but my hon. Friend Hugh Bayley exploded one of the myths about the tax-take from fuel duty. Under the Conservative Government from 1990 to 1997 the tax-take on unleaded petrol rose by 16%, and under the Labour Government between 1997 and 2010 the tax-take fell from 75% to 65%.

The Government delayed the planned fuel duty rise, as Labour Governments did previously, as oil prices rose. Was that the right decision? Yes. At a time when many hard-working families are affected not only by higher inflation and increased taxation, but by wages being driven down and in some cases by family members facing unemployment, the Chancellor’s VAT increase puts about £1.30 on the cost of filling up a 50 litre tank of petrol.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

Will the hon. Gentleman tell the Committee whether he voted against the VAT increase? I suspect he did not.

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

I am becoming concerned. The hon. Lady’s blood pressure does not seem stable tonight. She seems to be turning red and getting rather excited in tonight’s debate, which I am not sure is good for her health. Why did she argue for and push through an increase in VAT when she and her Prime Minister stood on a manifesto saying that they would not put VAT up? That is not being honest with the British people. What she has to explain to hard-working families in my constituency, North Durham, and in Putney is why she reneged on that promise.

There has been much talk in recent weeks about trust in politicians, and a lot of nonsense talked by the yes to AV campaign about whether MPs are hard working and trustworthy. When the Prime Minister and the hon. Lady say clearly that they will not increase VAT, and then that is the first thing she does, I understand why my constituents and hers are rather cynical about certain promises.

In the Budget the Chancellor used the gimmick of cutting the price of petrol by 1p. We will shortly debate how he will pay for it. It has had disastrous consequences for the economies of parts of Scotland and north-east England. He also increased VAT by 3p. He took it off with one hand and put in on with the other. Paying for that will have consequences for oil exploration in the North sea not only in the next year or so, but for a generation.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

Does my hon. Friend recall that the Chancellor of the Exchequer, soon after the Budget, took a very dim view of those retailers who did not pass on the 1p decrease in fuel duty, and does he agree that the purpose of having such a review is to see whether the Government’s policy was ultimately a success or a failure?

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

That is a very good suggestion. That is one of the issues that could be included in the review. Do the Government honestly think that they can con my constituents and others and that a 1p reduction in petrol duty will really be a vote clincher for them? Late last Friday I was in the excellent Sainsbury’s in Pity Me in Durham, and I noted that customers who spent £70 on their groceries could get 5p a litre off their fuel. It is a deal offered by other supermarkets—I do not want to favour Sainsbury’s. Are those on the Treasury Bench really convinced that constituents will be conned by the 1p reduction, when the cost is being increased by 3p, and if they can get 5p a litre off when they spend more on extra groceries?

My hon. Friend Mike Gapes made a good point, which I accept, about the differences in fuel prices in different parts of the country. I think that there is a case for part of the review looking at why fuel is priced differently across the country. I hasten to add that at the weekend, when I was in Worksop in Bassetlaw visiting my father, I went to a Sainsbury’s—it happened to be the supermarket there—and noticed that diesel was £1.38, although down here in London and in parts of Durham it is £1.42. Clearly the constituents of my hon. Friend John Mann are getting a good deal from the Sainsbury’s in Worksop. These are the issues that could be looked at in a review.

Photo of Graham Stuart Graham Stuart Chair, Education Committee

The hon. Gentleman is speaking movingly about his desire to see regional variations in taxation. He was a highly distinguished Minister in the previous Government, so will he tell us how many representations he made to the then Chancellor of the Exchequer when his voice stood a real chance of making a difference?

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

If the hon. Gentleman had been listening, he would know that I was not arguing for regional variations in fuel taxation. I was saying that if we are to have variations in fuel prices, which we already have, and if the Government are to introduce a derogation and cheap fuel for certain island constituencies, clearly buying off the Liberal Democrats, the effects on the economy need to be assessed. I would also argue that if that is to happen for some of those rural communities, it must also happen for parts of County Durham where having access to a car is not a luxury, but a necessity for getting into work along the A1 corridor to Newcastle and other places. The fact that the Government are also reducing the public subsidy that local government can give to bus companies means that in the next few months parts of my constituency will have no bus services whatsoever on some days of the week.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Health), Shadow DUP Spokesperson (Transport)

The hon. Gentleman mentions the price of fuel. In Northern Ireland this week the price of diesel was £1.44.9 per litre, which is probably one of the highest in the United Kingdom. If there is to be regional help for the islands of Scotland, there must also be help in Northern Ireland for rural communities. Although he might have some concerns about that, would he not agree that it is only fair that that should happen?

Photo of Kevan Jones Kevan Jones Shadow Minister (Defence)

It is, but the islands derogation has been brought in as a sop to the Liberal Democrats. They have to get something out of this coalition, after all, and a few pence off fuel may well help them at the ballot box, but I doubt it in the long term. The hon. Gentleman makes a fair point that, if we are to assess the effect of the increase, regional variations will need to be considered.

As I said to my hon. Friend the Member for York Central, the measure was clearly a political gimmick by the Chancellor, who thought that somehow he was the motorist’s friend, but a 1p decrease will have no effect on most households’ budgets, when they are affected by other prices going up—some of which have been mentioned already—in terms of the cost of living.

The other point that needs looking at, and which my hon. Friend Ian Mearns made very eloquently, is the cost of fuel for hauliers. There is a disproportionate effect on the north-east, and if any review were to be undertaken that would be an important one, because that cost sends the price of goods up. The point that Jim Shannon made about Northern Ireland could also be considered in any assessment.

The Government clearly do not want to go anywhere near the idea, however, because they realise that it will open a can of worms. I include not just this Government in that, but other Governments as well. It is time, however, that we took an overall look at how we tax fuel to ensure that we understand why fuel prices increase, the tax-take and how it impacts on the economies of certain areas and on individuals’ economies—on individual families and their household expenditure.

At a time when the Government are providing a tax giveaway to the banks of more than £100 million by reducing corporation tax, many hard-working families who are struggling to fill up their family car will find it unacceptable and unbelievable that they are being asked to shoulder a bigger proportion of the tax-take than those bankers, and the Government need to take that point into account.

The Government should support this amendment, which would allow us to address all the issues that have been raised in tonight’s debate, including the important points that were made by my hon. Friend the Member for York Central, who takes a great interest in green issues. I just hope that we can somehow persuade the Government, if not tonight then in the future and, possibly, with some cross-party support, to change the way in which we tax fuel to ensure that regions such as mine are not disadvantaged by arbitrary taxation increases, which this Government have imposed by increasing VAT.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 11:45 pm, 3rd May 2011

Clause 19 cuts fuel duty by 1p per litre. In fact, it has already happened—at 6 pm on Budget day. That was the first step in removing the Labour party’s planned fuel duty escalator and, instead, putting in place a fair fuel stabiliser, which will ease the burden on motorists.

The hon. Members for Gateshead (Ian Mearns) and for North Durham (Mr Jones) talked about the burden that the planned tax rises would have placed on their own region, and I can tell Hugh Bayley that, in fact, under the previous Government fuel duty rose by 55%, so it is simply wrong to focus totally on the previous Conservative Government. His Government increased the burden on motorists substantially.

The amendment calls for the Chancellor to publish an assessment of the impact of taxation on fuel prices within three months of the Act being passed, and it aims to determine the extent to which the cut in fuel duty has been passed on. By introducing such a measure, Opposition Members clearly intend to distract the public from their policy, which would have seen pump prices rise yet further as they introduced their planned escalator. In addition, the Opposition appear keen to suggest that the cut in fuel duty and the cancellation of their fuel duty escalator has not offset the effect of the VAT increase at the start of the year—a VAT increase that as a party they did not vote against.

I will go on to set out the Government’s assessment of the impact of this measure, as Members have requested, and to address the points raised in the debate, but perhaps I should start by explaining to the Committee why the Government took the action they did in the Budget to support motorists at this time of record pump prices. It is true that motoring is an essential part of everyday life for many households and businesses, as mentioned by Alison McGovern. The Government also recognise that the rising price of petrol has become an increasingly significant part of day-to-day spending, and we know that high oil prices are causing real difficulties in ensuring that motoring remains affordable. It is important that when shocks such as the steep rise in the oil price occur a responsible Government are able to listen and respond.

The previous Government would have introduced a fuel duty escalator, which involved seven fuel duty increases, three of which have been implemented, adding 3p to pump prices, and they had planned another above-inflation increase for the start of last month.

Photo of Andrew Gwynne Andrew Gwynne Shadow Minister (Transport)

Is the Minister not even slightly embarrassed that her Government did not seek the powers to get a derogation from the European Commission? Her party has gone from being the party of “No, no, no” on Europe to the Putney shrug.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Gentleman’s party does not even have a position on that because Labour Members abstained on it. If the policy in clause 19 is so bad, I expect them to vote against it, but I suspect that it will be another case of abstention making the heart grow fonder. I do not think that that will work with taxpayers, who remember exactly who was planning to bring in the fuel duty escalator had they remained in power.

This Government listened to hard-pressed motorists and businesses. We declined to increase the escalator and to introduce the 1p per litre fuel duty increase, which would collectively have added 6p to pump prices compared with what they are now. Instead, we responded with a £1.9 billion package to ease the burden on motorists at this time of record pump prices. We acted by cutting fuel duty by 1p per litre from 6 pm on Budget day. We cancelled the previous Government’s fuel duty escalator for the rest of the Parliament. We introduced a fair fuel stabiliser that will better share the burden of high oil prices between motorists and oil companies, and so fuel duty will increase by inflation only when oil prices are high.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

I read from a Library briefing:

“In its Budget in March 1993 the Conservative Government introduced a ‘road fuel escalator’—a commitment to increase duty rates on these fuels in real terms by a specified percentage each year”.

I accept that that was continued for a number of years by the Labour Government before being abandoned, but the Minister should not say that the public do not forget things and then gloss over the fact that it was a Conservative Government who brought in the fuel price escalator.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

I will tell the hon. Gentleman one thing we did not do, and that is hand over a huge fiscal deficit to the incoming Labour Government.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

No, we have heard enough from Labour Members.

We had to take decisions to support motorists in spite of the catastrophic state of public finances that Labour handed over. We have made sure that there are no fuel duty increases this year by deferring the inflation-only increase that was planned for April to 1 January 2012. This is real help for families and for businesses. As of 1 April, average pump prices are approximately 6p per litre lower than if we had continued with the previous Government’s escalator.

Photo of Penny Mordaunt Penny Mordaunt Conservative, Portsmouth North

I have listened to this debate with great interest, because I was previously spokesman for the Freight Transport Association and I remember that one year into the Labour Government’s stewardship of the fuel duty escalator hauliers were on the streets of London on a go-slow programme because of the way that they approached taxation.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

My hon. Friend is right to refer to the response of hauliers to the previous Government’s policy.

The hon. Member for York Central called the action that the Government have taken for hauliers in the Budget “slight”. Actually, the average haulier will benefit by approximately £1,700 in 2010-11 as a result of those measures compared with what they would otherwise have faced. I also draw his attention to the remaining part of the package for motorists, which includes freezing vehicle excise duty on HGVs, providing further help to hauliers. The package is even broader than that, because for motorists who are required to use their own vehicle for work, the approved mileage allowance payments rate, which had not been increased by the previous Government since 2002, was increased from 40p to 45p per mile for the first 10,000 miles. An average AMAPs user claiming for 2,500 miles a year will benefit by £125 a year.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington

In the Budget statement, the Government informed us that they were submitting a derogation request to the European Union for the rural fuel duty rebate pilot scheme. The Chief Secretary to the Treasury told us that permission would be received over the next few months. Will the Economic Secretary inform us of whether permission has been received? Given the representations that have been made today for an expansion to other regions, is that not something that should be considered as part of a review as a matter of urgency?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Gentleman will be aware that the derogation is to carry out a pilot to look at how we can support rural areas with a fuel duty discount. He is right to point out that we have submitted a formal request to the European Commission, and we wait to hear its response. I assure him that we got on with that derogation request, just as we said we would.

If I may, I will make progress on the issues that have been raised by hon. Members.

Photo of Hugh Bayley Hugh Bayley NATO Parliamentary Assembly UK Delegation

The Economic Secretary has been extremely generous. A few minutes ago she referred to the deficit and the debt inherited by the incoming Government. Has she forgotten that during John Major’s premiership, the national debt almost doubled, and that during the first 10 years that Labour was in power, the Government reduced the national debt by 40% through good stewardship of the economy?

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury

The hon. Gentleman is obviously one of the Labour party’s structural deficit refuseniks. He simply refuses to accept that the deficit exists. I am sure that he would also refuse to accept that his party left unemployment 400,000 higher by the end of its term in office. We understand the problems that our economy faces and the Budget was all about tackling them.

I will turn to the substance of the amendment. For motorists to realise the benefits of the cut in fuel duty, retailers need to pass it on at the forecourt. If the cut in fuel duty had been fully passed on to average pump prices, including VAT, they would have been 1.2p per litre lower. The amendment seeks a published assessment of the degree to which the cut fed through to pump prices. As I said, we have already published a tax information and impact note that sets out our analysis of the impact of the cut. Following the Budget, the website petrolprices.com, which gives independent average daily prices and which the previous Government used to track prices, showed that average pump prices fell by approximately 0.8p per litre between 23 and 28 March. It can be clearly seen that the reduction in fuel duty largely fed through to prices at the pump. Therefore, prices are lower due to our actions and motorists are benefiting from the cut in duty. Let us not forget that average pump prices are approximately 6p per litre lower as a result of the cut in duty and our scrapping of the previous Government’s planned escalator, which they would have gone ahead with.

Photo of Julie Hilling Julie Hilling Labour, Bolton West

I am a little bit confused, because the Economic Secretary is talking about how wonderful the Government’s actions on fuel prices have been, but it seems to me that in the past 12 months, fuel has gone up by something like 25%. I do not see why the Government are saying how brilliant their actions have been when people are paying something like £1.40 a litre instead of £1.10 a litre. A penny off, 3p on, 40p on—it does not make sense to me.

Photo of Justine Greening Justine Greening The Economic Secretary to the Treasury 12:00 am, 3rd May 2011

As Ms Eagle said back in May 2009,

“there are very few even socialist theorists who would suggest that commodity prices were somehow controllable”.—[Hansard, 13 May 2009; Vol. 492, c. 918.]

I do not think Julie Hilling can expect the Government to control commodity prices, but what we can do is take action to lessen the effects of swings in the oil price as they feed through to the pump. That is precisely what we are doing in clause 19 on fuel duty, and we will shortly debate the mechanism by which we can pay for that, which is the fair fuel stabiliser.

Of course, the Labour party has suggested that we should create a separate VAT rate for petrol. As has been pointed out even by Labour Members, that would have provided no help for hauliers, and I remind the Committee of why the Chancellor rejected the proposal. It would take six years, and it would not even be able to come into effect then, because the current EU VAT directive means that it is illegal. I do not think motorists should have to wait for six years, and the Government are not going to wait six years. We listened, and we responded as of 6 pm on Budget day.

Finally, I shall address the issue of VAT. I know that it is not strictly within the scope of the debate, Mr Hoyle, but it is important. The Opposition have been quick to point out that although the Government cut fuel duty by 1p in the Budget, pump prices have increased by about 3p following the VAT increase. They appear to be implying that motorists would be better off under their plans for an escalator and a VAT rate of 17.5%, although of course we know that Mr Darling was planning to increase VAT himself. I suspect that they wish to use the amendment to prove their point.

It is simply not true that motorists would be better off under the previous Government’s tax plans, and let me be absolutely clear that even comparing the changes that we announced in the Budget with the previous Government’s fuel duty and 17.5% VAT plans, it is likely that on 1 April pump prices were 3p a litre lower than they would have been. Even after the two increases in fuel duty next year, average pump prices could still be about 1p a litre lower than they would have been under the previous Government’s plans. Cutting fuel duty and scrapping their escalator more than offsets the impact of the VAT increase, and I should not need to explain to Opposition Members that an increase in VAT was needed to cut the deficit that they left behind. They did not even have the political courage to vote against that measure, which they were so upset about—absolutely shameless.

In government, Labour Members ran our country’s public finances into the ground, and now, in opposition, they bring forward this feeble and unnecessary amendment. Dare they even push it to a vote? We will find out. I suspect that in the case of clause 19, it will be a case of another day, another abstention. The Government are providing motorists with a fair deal. Where the previous Government left tax rises, we have taken action, and I ask the House to reject the amendment.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

We have had an interesting debate over the past couple of hours. It is notable that although we have had some significant and thoughtful contributions from my hon. Friends, not a single member of the Conservative party, apart from the Minister, or a single Liberal Democrat has felt the need to speak up for their constituents and talk about rising fuel prices. I am sure their constituents have lobbied them about it, but their silence in the Chamber today speaks volumes.

My hon. Friends the Members for Wirral South (Alison McGovern), for Gateshead (Ian Mearns), for Ilford South (Mike Gapes), for York Central (Hugh Bayley) and for North Durham (Mr Jones) have all highlighted the impact of the rise in fuel prices and of the Government’s decision—and it was the Government’s choice—to raise VAT from 17.5% to 20%. They described the impact on families’ living standards, on businesses in their constituencies, on the haulage industry and across the board.

The point is that the Minister’s view of the impact is short-sighted. She cited the impact of the measures in the Budget from 23 March to 28 March, which must be the smallest, most selective economic data ever cited in the Chamber. It would be interesting to know what happened after 28 March, to which she did not refer. She also tried to lead us down the garden path by talking once more about the fuel duty escalator, but she knows full well that the Opposition called for the Government to reconsider that in the Budget and welcomed the fact that they did so.

The debate is on the VAT increase, which the Government chose to introduce. We are asking simply that they publish an assessment, within three months of the Bill becoming law, of the impact of taxation on fuel prices. I do not think that that is too much to ask. I was surprised to hear the Minister say that we would not press the amendment to a Division, because I can inform you, Mr Hoyle, that we do indeed intend to do so. With that, I rest my case.

Question put, That the amendment be made.

The Committee divided:

Ayes 121, Noes 277.

Division number 262

See full list of votes (From The Public Whip)

Question accordingly negatived.

Clause 19 ordered to stand part of the Bill .

Photo of James Gray James Gray Conservative, North Wiltshire

On a point of order, Mr Hoyle. I should apologise to you and the Committee for an inadvertent breach of the conventions of the House, namely that having chaired the Committee earlier this evening, I inadvertently forgot the convention that I should not vote. I have, in fact, voted twice in Divisions since then. I apologise for that oversight.