Clause 20

Finance (No. 3) Bill – in a Public Bill Committee at 11:45 am on 17th May 2011.

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Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 11:45 am, 17th May 2011

I beg to move amendment 9, in clause 20, page 13, line 19, at end add—

‘(8) Subsections (2)(a) and (d) of this section shall not come into force should the average retail price per litre of unleaded petrol and diesel for the month of December 2011 in the UK be higher than the price for the week of 21 March 2011.

(9) The price used in subsection (8) is to be as published by the Department for Energy and Climate Change.’.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

With this it will be convenient to discuss clause stand part.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

We had a detailed debate on fuel duty when we dealt with clause 19 in the Committee of the whole House. Amendment 9 considers the inflation-linked rise that was due to come into force at the beginning of the financial year but was delayed by the Budget until next year, because of the high fuel prices.

I am sure that everyone on the Committee will have received representations, not just from constituents who are concerned about the cost of filling up their car tanks at the petrol pump but from people concerned about the knock-on effects, on food prices for example, and the substantial impact on businesses, particularly those that need to transport goods around the country or compensate their employees for the cost of using their cars.

The Minister knows that this is a significant issue, and I appreciate that the Government are trying to strike a balance by having an impact on the cost of fuel to the motorist and to businesses. As we argued on the Floor of the House, the Government’s decision to increase the rate of VAT this year from 17.5% to 20% has had a significant impact on the cost of fuel at the pumps, and we regret that decision, but the amendment is about the other rise that is due to come in.

The amendment proposes an automatic mechanism that would ensure that if by January fuel prices had continued to rise, the planned fuel duty increase would be cancelled. If, as announced in the Budget, the reason for postponing the increase in fuel duty this year was the high price of fuel, and its impact on motorists and businesses, surely it is common sense to have similar postponement in January. Indeed, by then the price could be even higher because there is no sign of any significant price reduction in the coming year, especially when we take into account various geopolitical events. I accept that things have calmed down slightly in some parts of the middle east, although that cannot be said of the situation in Libya and in other countries.

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

The motoring package that we introduced in the Budget was funded by £1.9 billion, but it was also funded by a tax rise on North sea oil. What the hon. Lady is proposing would obviously have a similarly large cost at more than £1 billion, and members of the Committee would be interested to know how it would be funded.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 12:00 pm, 17th May 2011

The Minister’s question is slightly simplistic because the revenues raised from fuel are dependent on the price. If the fuel price rises significantly during the year, the revenue from VAT and duty will rise significantly, but those increases will not be proportionate because people may simply choose to use public transport or to cut fuel consumption. We have already debated the fact that there is no such clear correlation in terms of predicting revenues, and it is difficult to factor that in now.

Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe

Can my hon. Friend confirm that her proposal would protect businesses and individuals from the pressures of higher fuel duties? In a sense, it would deliver the promises made by the Chancellor and the Prime Minister prior to the election to stabilise fuel duties in the future.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Rather rashly, the Chancellor and the Prime Minister promised the fuel duty stabiliser before the election. The impression given was that it was a simple mechanism that would ensure that when the price of fuel went up, the duty would go down, and vice versa, so that people would generally pay the same amount for their petrol. Once they got into power, the Government dropped that proposal—[Interruption.] The proposed North sea oil supplementary charge is different from what was floated before the general election. In the current climate, when we do not know the impact of global affairs on oil prices, it is difficult to make such promises.

As for the cost of our proposal, we cannot predict oil prices or the revenues generated from a rise in fuel price. Perhaps fuel prices will rise so much that the revenue raised from VAT and fuel duties will offset some of that cost. Perhaps that will not happen because people will modify their behaviour. The proposal would have to be costed, and funded, but it is a bit difficult to do that now because we do not know the likely revenue streams. Perhaps the Minister has detailed projections and calculations as to how much she expects will be raised from VAT on fuel and from fuel duties in the coming year. It is difficult to predict. We appreciate that there is a cost attached, but the underlying point is that, at the time of the Budget, the Government thought that it was wrong to impose the annual increase in fuel duty—it was on the cards—and the Chancellor thought it should be postponed because of the impact on families, the average motorist, and those who need their car for essential journeys. A car is not just a luxury, although I accept that some people can easily alter their lifestyles and opt to use public transport, walk to more places or shop locally instead of going to a supermarket. Lots of other people rely absolutely on their car, and those members who represent rural areas that are poorly served by public transport know that is a particularly important consideration.

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

I just want to check whether I have properly understood the hon. Lady’s argument, because she seems to be mixing up two different things. The first is the impact of the oil price as it feeds through into pump prices. The Office for Budget Responsibility made an independent assessment of that and concluded that the effect was broadly neutral in terms of overall tax revenues. Her amendment, however, is designed to cancel the inflationary increase in duty, but surely that would feed through directly into public finances, whatever the oil price. Will she tell the Committee how she believes the measure should be funded?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Obviously, as I have said, the measure would need to be funded. If the inflation-linked increase is added to the retail price of petrol at the beginning of next year, that will bring revenue to the Treasury. We do not know what the revenue will be from the increases in VAT and fuel duty, and we do not know what fuel prices will be for the rest of the year. The measure would entail a cost to the Treasury, but that must be balanced against the basic principle—recognised by the Chancellor —that revenue raising, although important, should be offset against attempts to ameliorate problems encountered by businesses and motorists who find fuel an increasing cost.

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

The Minister rightly said that the production of oil and its consumption elsewhere affects prices at the pump in this country. The Government’s policy on bioethanol is also forcing up the price at the pumps. The Ensus bioethanol plant near my constituency has recently been forced to close for four months due to Government dithering on other policies. The need for extra oil has increased because the bioethanol market is being undermined domestically.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank my hon. Friend for that intervention. At a later point we will discuss clauses on environmental taxation. The idea of shifting towards more environmentally friendly fuels is important, and we will come on to discuss that in more detail.

Photo of Alec Shelbrooke Alec Shelbrooke Conservative, Elmet and Rothwell

We will have a pre-Budget statement in the autumn. Surely it is better to keep the flexibility for the Chancellor to judge situations as he gets to them, rather than having automatic legislation.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

That is a fair point. The rise that was to be introduced this spring was postponed because petrol prices had reached a level that the Chancellor presumably thought was unacceptable and required action. We know that the measures introduced by the Chancellor were a last-minute response to growing public uproar about the rise in petrol prices. The North sea oil supplementary charge, which is the means of paying for some of those measures, was not discussed with industry. The impression given was that there would be stability and continuity in the treatment of industry, but the sudden increase in charges from 20% to 32% came out of the blue. That suggests it was a panic measure in response to certain newspapers, and to those consumers, customers and constituents who were lobbying their MPs and saying that petrol prices had reached an unaffordable level.

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

I want to be clear about the position of the hon. Lady’s party. We did not receive support for our cut in duty or for the North sea oil measure that funded it. Is she saying that her party was against the package introduced to support motorists, or was it in favour of it but not of the step needed to fund it? In the latter case, is that not another unfunded spending commitment?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister misunderstands the purpose of the Committee, which is to question the Government on the measures they are bringing forward. Perhaps you take a more lenient view, Mr Hood.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. Of all the things that have been said to me over the years, being lenient is not one of them.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am sure that you regard it as an immense compliment, Mr Hood, that nobody has accused you of being lenient. None the less, we are not here today to discuss Labour party policy on this issue.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. I have reminded the Committee that I am certainly not lenient. I invite the Minister not to get excited by the shadow Minister.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Thank you, Mr Hood. It was quite wise of you to refrain from using the phrase, “Calm down, dear,” even though it was perhaps implied in your contribution.

We made it fairly clear during the debate on the Floor of the House that the VAT rise in fuel had had a damaging impact.

Richard Harrington (Watford) (Con) rose—

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I will give way in a moment.

Today, we are here to discuss our amendment, which is a clear exposition of our stance on this issue. If the Government took the view in the Budget that petrol prices had reached a level that was impacting on motorists, essential car users and businesses and that it was wrong to introduce this rise, I cannot see why, if fuel prices are at the same level or higher later this year, it is right to introduce the measure then. Surely the reason the measure was postponed was to relax the burden on motorists, essential car users and businesses. What is different about the end of this year and the impact on them then? By then, the full effects of Government spending cuts and negative growth will be felt.

We have flatlining growth at the moment. Inflation rose to 4.5% in April. The consumer prices index rose from 4% in March to 4.5% in April, which was primarily due to a jump in transport costs, especially air and sea fares. That rise, which will impact on people who are importing and exporting goods and on alcohol and tobacco prices, was bigger than analysts had forecast and followed a surprise fall in the index last month.

All those factors will be impacting on people who are trying to do business in this country and on people who are trying to make the household finances stretch. They  will be impacting on people at the end of this year, probably to an even greater extent that they were at the time of the Budget this year. If petrol prices have not fallen by the end of this year, why would it be right to introduce the rise when it was not right to introduce it in March this year?

Photo of Richard Harrington Richard Harrington Conservative, Watford

Good morning, Mr Hood—I hope it is the lenient Mr Hood for the purpose of my intervention. I hope that the hon. Lady realises that some of us are still quite new to the ways of this House. I have been practising my best bemused and perplexed expression in the time between my asking to intervene and the hon. Lady gracefully giving way. Will she clarify a matter for me, and perhaps some of my more naïve colleagues? My understanding of these Bill Committees and of the scrutiny process is that an amendment is there to criticise what the Government are saying—I understand that. To help us to decide which way to vote, though, surely there must be some alternative, or am I completely wrong?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank the hon. Gentleman for his intervention. I remember serving with him on the Committee that considered the Finance (No. 2) Bill and we got on to the subject of the film industry, which is important in his constituency. He suggested then that there might be a role for me and one of my hon. Friends as extras in the next “Lord of the Rings” production. I am rather glad that he did not repeat that suggestion today. I have not seen any of the “Lord of the Rings” films, but I am sure that it was not a compliment.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. The lenient Chairman is going to call a halt to this conversation and invite the hon. Lady to carry on with her amendments.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

It was just an aside, Mr Hood. I am sure that the hon. Member for Watford would not dare to suggest that there could be a role for you in the next “Lord of the Rings” film.

As I said, I think I have made the case clearly for why we tabled the amendment. If the Government thought at the time of the Budget that petrol prices at the pump and for businesses had reached such a level as to be an unfair burden, the same would apply later this year.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Let me reply to this point, and then I will. Obviously, that could have a cost for the Treasury, but it is difficult to predict what that would be. I do not know whether the Minister has figures, but the overall cost to the Treasury would be affected by the increase in fuel prices across the board. As duty and VAT are charged as percentage rates, the cost to the Treasury could be offset as fuel prices go up. If petrol prices are much higher at the end of the year, the rise in the amount accruing as a result of those percentage duties and the VAT on fuel could compensate the Treasury, but the duty and the VAT could have such a negative impact on business and motorists that they reduce  consumption. It is difficult to judge, but I accept that if the measure were introduced, we would have to consider whether it was necessary to raise revenue elsewhere.

Photo of Brandon Lewis Brandon Lewis Conservative, Great Yarmouth

I thank the hon. Lady for giving way. I want to probe her a little further on the comment that she just made. If she is asking us to consider an amendment, it seems logical, in order for that amendment to have credibility, for it to be costed and worked out. If it is not—in her own words, things could change and so many fluctuations are possible—surely that is exactly why the Treasury would not and should not commit to something like that now. It should continue to monitor the economy and make Budget decisions based on what is right for the economy, according to its best predictions, given that even she is unable to predict what might happen under her uncosted amendment.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I have explained several times why it is not possible to do the costings straight away. The reason why we tabled the amendment is that the Government established a principle; in the Budget, they felt that they had to act. We support the fact that the Government have realised that the impact of rising petrol prices on our constituents, and particularly on businesses in our constituencies, must be addressed, but I repeat that if it was seen as needing to be addressed in the Budget this year, why would it not need to be addressed if petrol prices were at the same level or even higher later this year?

I imagine that our constituents and businesses in our constituencies will not be impressed at all if petrol prices are even higher at the end of the year and the rise is introduced. I suspect that if that happens, the Government will see a quick backlash from their constituents, businesses and the organisations representing business interests, and will probably make a humiliating, last-minute U-turn. Rather than allowing themselves to be forced into yet another panic-stricken, humiliating U-turn that they must scrabble around imposing charges on people to fund, the Government should establish the principle now that when petrol prices are at a certain level, there should be no increase.

Photo of Pamela Nash Pamela Nash Labour, Airdrie and Shotts

My constituency has a considerable area of rural land as well as towns. Families and businesses throughout both those areas are affected not just by the extraordinarily high cost of fuel but by the inability to plan ahead. Does my hon. Friend agree that the amendment would at least allow them to plan ahead for the high costs that are coming?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Yes. It is difficult to create complete stability. That goes back to the issue about the Prime Minister promising before the election that the mechanism would be introduced; he announced that to everybody at a Coca-Cola plant, I think, or it might have been Pepsi. The fact that the fuel duty stabiliser was dropped shows how difficult it is to implement such a measure, but at least it would give a degree of certainty. People would not have to worry when looking ahead, because they would at least know that there was some mechanism to reduce the burden on them.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

On that point, the Prime Minister actually said:

“Our plan is to say when the petrol price goes up the tax should come down.”

Is the problem not that, under the Government’s plans, fuel duty never comes down? It always rises. That, of course, is a broken promise. The amendment seeks to address that. On the other point about the impact of the amendment, there is a danger that the rises will have a negative impact on growth. That will reduce the income stream to the Exchequer.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes a very good point. The Government sought to act by cutting the duty by 1p in the Budget. We made the point on the Floor of the House, however, that the rise in VAT, which adds nearly 3p to the price of a litre of petrol, is far more significant than that. There seems to be muddled thinking on the part of the Government.

Photo of Nicholas Dakin Nicholas Dakin Labour, Scunthorpe

The points that are being made demonstrate that my hon. Friend is trying to be helpful to the Government, and is trying to find ways to help them deliver their commitments. For example, when the right hon. Member for Tunbridge Wells (Greg Clark) was interviewed on “Daily Politics”, he said:

“We think it should be a stabiliser…we have no plans to increase fuel duty.”

Obviously that has happened, but my hon. Friend the Member for Bristol East is stating a clear way forward that is very helpful to the Government in delivering their objectives.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank my hon. Friend for that intervention. It is quite easy for the Government to say that they have stuck to their pledge not to increase fuel duty—they have cut it by 1p—but the cost of petrol has to be looked at in the round. There has been an increase in VAT from 17.5% to 20%, which adds nearly 3p to the price of a litre of petrol. There are inflation-linked prices and potential rises in inflation in the coming year, though the RPI fell slightly to 5.2% from 5.3% in March. Boasting about cutting fuel duty by 1p is slightly meaningless when other measures that have been introduced add to the price. As far as motorists at the pump are concerned, it is irrelevant that they are paying less fuel duty when they are paying more VAT. Overall, they are paying more for their petrol; that is what matters to them, rather than the semantics of whether there is a fuel duty cut or a VAT rise.

Photo of Bridget Phillipson Bridget Phillipson Labour, Houghton and Sunderland South

I want to discuss further the effect on buses. In my constituency, many people are reliant on bus services. Many do not have access to cars—the north-east is among the areas with the lowest levels of car ownership—and we do not have the benefit of rail services. The difficulty constituents face is that, unfortunately, prices on buses are continuing to rise. That is in part due to the rise in fuel prices, but it is also due to cuts to local government. Councils can no longer continue to subsidise bus routes. Will my hon. Friend touch on that, as it is of concern to constituents?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

That is a very important point. So far, the Government have been let off the hook when it comes to cuts in the grants for subsidising bus services. Those cuts will have a real impact, particularly on people who live in remote areas where bus services may not be commercially profitable, but are essential for the  people who use them. As an MP for Bristol—the hon. Member for Bristol West will probably agree with me—I know that First Bus has very high bus fares, and we have the worst congestion in the UK. Until the issue of bus fares is resolved, people will be very reluctant to make the transition to buses, even if petrol prices go up and the cost of motoring is very high, because the bus services are expensive and unreliable, and there are other problems. That is something that has to be looked at in the round.

Ideally, people would use public transport a lot more than their cars. I think that we will see a switch towards public transport as petrol prices rise, but for some people, making that switch is easier said than done. I do not understand why people in central London use cars; they have a tube and bus network, and taxis if necessary, and those are far more efficient ways of moving around. However, there are plenty of places in the country where that is not an option, and that should be addressed.

Rising fuel prices are having a significant impact on the incomes of working people, which are already being severely squeezed. Last month’s figures from the Office for National Statistics show that wage growth is falling, and we know that many people in the public and private sectors have taken pay cuts or have become unemployed. In addition, we have had tax hikes. The Government, particularly Liberal Democrat members of the Government, have made great play of the rise in the personal allowance, which gives families an average of £48 a year, but that was dwarfed by the VAT rise in January, which cost families with children £450 a year.

Let us not forget that the Prime Minister told voters before the election that he had no plans to increase VAT. It took the Government just a month or so after gaining office to break that promise. We all remember the Deputy Prime Minister unveiling billboards about VAT bombshells. What happened to that concern about VAT rises when he became part of the Government?

Photo of Alison McGovern Alison McGovern Labour, Wirral South

My hon. Friend makes an important point. The amendment would, as my hon. Friend the Member for Airdrie and Shotts rightly pointed out, give people expectation about price rises. It is difficult for the average person to accept what the Government are saying—“Sorry, your pay can’t go up because that would be inflationary”—when the Governor of the Bank of England has said that the Government’s VAT rise was inflationary. People are expected to deal with pay cuts or freezes, but there is no realisation of the impact of the Government’s action on prices.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes a valid point. The consumer prices index jumped significantly to 4.5% in April from 4% in March. That will obviously have a real impact on people’s incomes and their ability to balance their decreasing wages and their budgets, which are being stretched in all sorts of other ways, at the end of the month. Families are also being squeezed by the Government’s cuts to tax credits and benefits.

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

I think I may have been in this very Committee Room when Labour Members abstained on a measure opposing changes to tax credits. If the hon. Lady is so upset about that, how come she did not vote against it?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister is again falling into the trap of not wanting to answer questions about her own Government’s policy. The overall impact of what they are doing with the cut in child care, which we will come to—

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am answering the point that the Minister made. Families had potentially lost thousands of pounds a year, and we voted against the Budget package as a whole. Instead of nit-picking, we fundamentally opposed the trajectory of what the Government are trying to do. They are making families and people on the lowest incomes bear the brunt of the cuts, instead of reintroducing the banker’s bonus tax, which would help to ameliorate things.

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

On that point, the hon. Lady spent a fair amount of time talking about VAT. Does she think that her constituents and those of many Labour Members will be surprised to find out that Labour Members abstained in the vote on that? They talk about how upset they are about a measure, but nod it through when it comes to the crunch.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The Minister knows full well that we voted against the Budget as a whole, and we certainly did not support the VAT increase to 20%, which flies in the face of all the promises made before the election by Conservative and Liberal Democrat members of the Government.

Photo of Alec Shelbrooke Alec Shelbrooke Conservative, Elmet and Rothwell

I want to put an end to the myth that the Conservative party said that there would not be a rise in VAT. It said that it had no plans at the time to raise VAT. That is very different. When the books were opened up, and the mess was seen, there was no choice. In the argument about VAT, where does the hon. Lady propose that the extra £13.5 billion would come from?

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Before I invite the hon. Lady to respond, I ask members of the Committee for a little more order. They should listen to the debate and resist the temptation to comment after they have asked questions or intervened.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury) 12:30 pm, 17th May 2011

Thank you, Mr Hood. The hon. Member for Elmet and Rothwell is, of course, quite new to the House, and although I suspect that he was fairly politically experienced before he was elected to Parliament, he may still have a certain innocence about him that I am sure will be rubbed off before long. However, I think that it is generally accepted now that a Minister saying, “We have no plans to do something,” is not quite the same as saying, “We are not going to do it.” In fact, it probably means that they have every intention of doing it; they just do not want to tell people that.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

If the hon. Member for Elmet and Rothwell wants to talk about VAT and having no plans to raise it, he should think back to before the 1992 general election, when John Major made exactly that comment and then VAT went up.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I thank my hon. Friend for that reminder.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I will let the hon. Gentleman come back in and then let my hon. Friend intervene.

Photo of Alec Shelbrooke Alec Shelbrooke Conservative, Elmet and Rothwell

I address my comments to the hon. Lady, as I would not want to intervene on an intervention. Surely the promise made in 1997—and 2001 and 2005—not to raise income tax, and then to double the 10p rate of tax and increase national insurance, which was a tax on income, was indeed a broken promise.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I think that we are straying—

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. This is an opportunity for the lenient Chairman to remind the Committee to address the amendment. Hon. Members have been tempted away from the amendment that is before the Committee and I invite them to come back to it. I also invite the hon. Lady to speak to her amendment.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Okay, Mr Hood. Could I allow my hon. Friend the Member for Gateshead to intervene?

Photo of Ian Mearns Ian Mearns Labour, Gateshead

I am grateful to my hon. Friend for allowing me to intervene, but I will resist the urge.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I have mentioned a few examples of the impact that the Government’s actions are having on families. As the Institute for Fiscal Studies said, in his Budget the Chancellor was giving with one hand and taking away with lots and lots of other hands. That broad comment was about everything that the Government are doing, but it could apply specifically to what the Government are doing in respect of fuel duty.

With real incomes hit, unemployment up and the economy flatlining, families are increasingly vulnerable to rising prices of basic goods, such as food, fuel and energy. The prices of those goods are rising steeply, in part because of the rising costs of distribution caused by rising fuel prices. Food is nearly 6% more expensive than it was last year. According to the OECD, food inflation at 4.6% is significantly higher than other consumer prices, which are rising at 4% on the CPI—that figure is slightly out of date now. The ONS increased the weighting of food in this year’s CPI basket by more than any other category. Energy and fuel prices are of more concern still: the OECD calculates energy inflation, which includes fuel prices, to be 10.2% in the UK, according to recent figures, and the ONS says that fuel prices are one of the most significant contributors to consumer price inflation.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

I wonder whether the shadow Minister also wants to reflect on the evidence that nearly half of households in the UK now find that their pay cheques do not stretch to the end of the month. The result of the freeze on wages and rising prices is that people simply  do not have enough money to make ends meet, so any increase in the price of any basic good, such as fuel, will have disastrous consequences for family finances.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes a good point. For those of us in this room, who are on relatively generous salaries, it sometimes might be difficult to understand the difficulties that some families have. That is why it is so important that MPs keep in close contact with their constituents and to hear about some of the issues that they are facing. If people, particularly those on fixed incomes, are trying to live on limited budgets, it does not take much to knock their expenses off kilter. If they are used to being able just about to make ends meet and struggle a bit towards the end of the month, little things matter—a cut in their income of a few pounds here and there, services that had been free suddenly attracting a charge, or the price of food going up.

I am aware of many people in my constituency and elsewhere having conversations about shopping around to find things that are just a little cheaper in one supermarket than another. To some of us, who probably care more about the impact on our time than on our pocket, it may seem slightly strange that people go out of their way to walk to a supermarket because something is slightly cheaper, but that is the reality of life for the many people who have to try to make their income stretch. It is a case of looking after the pennies as well as the pounds, so my hon. Friend has made a very valid point.

When we debated clause 19 in Committee of the whole House, the average UK pump price was £1.36 for a litre of petrol and £1.42 for a litre of diesel, according to the Department of Energy and Climate Change. As I have said, our amendment uses the prices agreed by DECC as a reference point. Today, petrol is already nearly 1p a litre more expensive than it was then, and diesel is also up by more than half a penny, which means that petrol is now nearly 16p a litre more expensive than it was this time last year and that diesel is now more than 20p a litre more expensive than a year ago.

The context of the amendment is the faltering economy. In March, the Chancellor said that his Budget was about “rescuing the nation’s finances”, but he announced that we will borrow over £46 billion more than was estimated at the time of the spending review. Far from the public finances being rescued, they appear to be on the wrong track. According to the Office for National Statistics, in the past two quarters we have had zero economic growth. That is no coincidence. We cannot put the public finances on a sustainable footing without economic growth.

Some 2.5 million people in this country are unemployed, and we have heard that 50,000 job cuts are planned for this year in the NHS alone. Unemployment is disastrous not only for those people, and particularly for young people, for whom a prolonged spell of unemployment can have a real impact on their earning power for decades—nearly one in five young people in this country are unemployed—but for the public finances. The Treasury is receiving less income tax and national insurance, and is paying out more benefits to those people.

Justine Greening rose—

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

If I may, I will allow an intervention in a moment, but I want to pin down this point.

The Treasury clearly receives less tax when businesses downsize or go bankrupt. The public finances cannot be made sustainable when businesses and jobs are at risk. Many of those businesses, especially small and medium-sized enterprises, are vulnerable to rises in fuel taxation. The Federation of Small Businesses has said that small and medium-sized businesses would be “severely affected” by the Government’s hikes in fuel tax. In January, more than a third of those responding to its member survey said that that was the single biggest threat to their business, and nearly four in five thought that the Government’s measures would add £2,000 pounds to their costs over six months.

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

The hon. Lady has set out how she thinks that unemployment is “disastrous” for the economy. Does she accept that that is a real indictment of her Government, who left unemployment 400,000 higher?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I am not sure that that is entirely relevant to what we are discussing, which is the impact of the Government’s Budget on increasing unemployment. My argument is that not addressing the issue of the impact of rising fuel prices on businesses might have a knock-on effect on unemployment. The figure cited by the Economic Secretary is a—I am not allowed to use the word that I was about to use—selective choice of statistics. As we know, in the majority of the 13 years that Labour was in government we made significant inroads on tackling the problem of unemployment. When we left office, the global recession had started and inevitably unemployment rose.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

My hon. Friend makes a vital point about the rising cost of fuel duty and its impact on employment. Does she agree that economists normally compare employment at similar points in the economic cycle? Comparing 1997 with 2010 does not stand up, but at the time of the last recession—[ Interruption. ]

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. Members must have order.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

I shall complete my intervention so that everyone can hear it. At the time of the worst global recession in living memory, unemployment and other important measures such as house repossessions were half of what they were in 1992.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend puts it well. It is a selective use of statistics to talk only about the unemployment figures.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I think that three other Members are waiting to intervene, but I want to reply first to my hon. Friend the Member for Wirral South.

When Labour left office in 2010, serious steps were being taken to ensure that the recession did not turn into a depression. The fiscal stimulus that we introduced was having a real impact. We were tackling some of the problems. I would argue—I am sure that my colleagues  will agree—that the steps being taken by the present Government mean that we run the risk of not reaping the benefits of the measures taken by the Labour Government; this Government are turning back the clock.

I shall give way first to my hon. Friend the Member for Sefton Central, then to my hon. Friend the Member for Gateshead and the hon. Member for Elmet and Rothwell.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

My hon. Friend makes a good analysis of the difference between the recessions in the 1980s and early 1990s, and the recession from which I hope we are just emerging. It is important to remember that the measures taken by the Labour Government meant that people were much better protected in a much deeper recession.

I want to comment on what my hon. Friend said about business. In my constituency, something like 40% of people earn their living from small business or self-employment. The increase in VAT and the potential rise in fuel duty is crippling for them. Such people are crucial to driving the recovery; those measures will damage the recovery in Sefton and beyond.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes a good point. It is hard to believe that his concern is not shared by Government Members.

Many in the Government’s ranks have raised the question of support for small businesses in debates, and spoken about what they see as the burden of red tape and regulation. Some of us believe that such measures are important in protecting workers and people’s incomes. I think, for instance, of the minimum wage and health and safety legislation. I remember that when fuel prices rose under the Labour Government, Conservative and Liberal Democrat Members—particularly those representing rural constituencies—were quick to call for Government action to tackle the problem and to ameliorate the impact of rising fuel prices on people and businesses in their constituencies. I suspect that those Members will not remain silent if, at the end of the year, fuel prices have risen and the Government are still contemplating this increase.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

In these debates and exchanges, we often hear accusations of deficit denial from the Government Benches. The Minister speaks of the rise in unemployment at the back end of the Labour Government, but we had just been through the biggest post-war international financing and banking crisis. That was not the product of Labour Government policy in Britain but of the international banking crisis.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Exactly; the Government choose to ignore the fact that it was caused by a global crisis that started in the US financial markets. History will prove that the Labour Government took exactly the right steps under the stewardship of my right hon. Friends the Members for Kirkcaldy and Cowdenbeath (Mr Brown) and for Edinburgh South West (Mr Darling). Although we were faced with external factors that were having a real impact on the UK, we took the necessary steps to limit the damage. Where possible, people’s jobs and livelihoods, and our businesses, were protected.

The car scrappage scheme was met with some cynicism from the then Opposition, but it was significant in propping up the car industry in what might have been a very difficult time for UK manufacturing. History will prove that we took the right steps, so it is entirely wrong of the Economic Secretary to quote selectively employment figures from 1997 and 2010 to try to make a point. We know that during our time in government, with measures such as the new deal, more people were in employment than ever before. All sorts of measures encouraged people to move from welfare to work, such as the tax credits regime and the minimum wage, so it is wrong to single out those figures to say that the track record of the Labour Government over those 13 years was a picture of rising unemployment.

Photo of Alec Shelbrooke Alec Shelbrooke Conservative, Elmet and Rothwell 12:45 pm, 17th May 2011

I do not agree with a word the hon. Lady has said, but she is very generous in giving way. I am almost incredulous at some of the points I am hearing. We are almost getting away from the Bill and into dogmatic politics. The Opposition argument seems to be, “Let’s just print the money and not worry about inflation.” With great respect, the hon. Member for Walthamstow discussed the pay freeze in the public sector—I shall move on from there—but in the 1970s we were basically giving in to pay demands and rising wages, and the inflationary effect of that was enormous. Inflation is rising and it is high.

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. Interventions should be a bit shorter than that.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

Thank you, Mr Hood. I know that the hon. Member for Elmet and Rothwell is not here to answer my questions; he is here to ask them. However, I pose a rhetorical question: he has expressed concern about inflation rising, but what impact does he think the rise in fuel prices will have on inflation in future? As I have said, it is having an impact on food prices, energy costs and everything else that contributes to the inflation index.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I think that the hon. Member for Watford wants to make an intervention first, or has he lost the will to do so, having listened to the other interventions?

Photo of Richard Harrington Richard Harrington Conservative, Watford

In the interests of Mr Hood’s policy of leniency, I shall withdraw my intervention in favour of the hon. Lady’s.

Photo of Stella Creasy Stella Creasy Labour, Walthamstow

I thank my hon. Friend the Member for Bristol East for giving way. I know that the Office for Budget Responsibility points out that there will be growth in the economy only if private debt further rises. Does she agree, therefore, that it is incredibly troubling that moneysupermarket.com has recently carried out a survey that shows that one in four families in Britain is struggling financially, and that the main cause of that is the cost of fuel?

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes a valid point. I know that she has campaigned on private debt and that at some point during our debates she will make other points about it. Certainly, we are happy to support her important campaign on loan sharks.

The cost of fuel has had a significant impact on household finances and many people are not in a position to change their lifestyles. To take a hypothetical example, people might live in an area that is not well served by transport. Many of my constituents are in that position and the issue comes up when people bring housing cases to me. They might live in social housing and be allocated a house that is very far from where their children go to school. They might have to get their children to two or three different schools, because one child might be in nursery, one in primary school and another in secondary school. If they work somewhere else in the city, it is impossible for them to do the daily round of dropping a child off here, there, and somewhere else by using public transport. The buses simply do not run to the right places and the timing does not work out to enable them to get to work on time.

That is a particular problem for lone parents who have part-time jobs. I have discussed with Jobcentre Plus how it tries to make single parents whose child has reached the appropriate age take a job, which may look suitable on paper because it is from half-past 9 to 3 o’clock, but simply does not work when dropping children at school and transport are factored in, even if the parent has access to a car, which many do not. People go into jobs temporarily—they are sacked or have to step down because they simply cannot make the equations add up.

Photo of Alec Shelbrooke Alec Shelbrooke Conservative, Elmet and Rothwell

There is no doubt on either side of the Committee that fuel price inflation is causing big problems. The amendment is about future fuel rises rather than the position today. Is it the Opposition’s policy to cut fuel prices by 20p a litre? That is the only way we will tackle the problems of high fuel prices. With the greatest respect to the hon. Member for Walthamstow, because I agree with everything she said—

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. Interventions must be short and without the conversation.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

The hon. Gentleman has conjured up out of thin air a suggestion that we might cut the price of petrol by 20p per litre. Everybody recognises that fuel prices have risen to such an extent that there is a genuine impact on people and businesses, which must be absorbed by businesses and motorists because there is no funding available to do what we would perhaps like to do to make transport costs more affordable.

There is a separate debate to be had on green taxation. One reason why the fuel duty escalator was introduced was to shift people’s behaviour towards using public transport and away from using their cars for unnecessary journeys. In previous debates on the escalator, there have been attempts to square the circle of a policy that applies to everyone equally across the board but has more impact on those who do not have the alternative of using public transport. It is a difficult issue. People in  rural constituencies, some of my hon. Friends from Scotland and Wales, and Members from the Conservative and Liberal Democrat ranks have pointed out that if the fuel duty escalator was introduced to shift behaviour so that people would use their cars less, it was not entirely fair on those who do not have a choice of mode of transport. A balance has to be struck between what is affordable and how to change patterns of behaviour and reduce congestion on the roads and the genuine concerns and grievances of people who cannot make ends meet or go about their daily lives.

When petrol prices reach a certain point, it does not just have an impact in terms of people being unable use their cars to go on trips to the seaside, but means that being in work is unaffordable. Jobcentre Plus does all sorts of calculations that show that people are better off in work. I have sometimes argued that those calculations do not necessarily take into account all the factors that they should—for example, if someone’s child has free school meals, which they would lose if they got into work, along with free prescriptions and dental services. Such factors have an impact on that “better off in work” calculation, and transport costs are a major element. As we have heard, bus prices are going up, in part as a consequence of rising fuel prices. When people are only slightly better off in work than on benefits, it does not take much to stop the sums adding up, and they find that they are worse off in work.

Photo of Pamela Nash Pamela Nash Labour, Airdrie and Shotts

Does my hon. Friend agree that it is sometimes difficult for politicians who spend most of their time in London to remember the state of public transport in the rest of the country? We are very lucky in London, but that network is not replicated across the UK.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

My hon. Friend makes a good point. Although I represent Bristol, it is often brought home to me just how difficult the situation is for people who live in places that are not so well served by public transport. While I have frequently referred to the difficulties that people in rural areas face, it is also a factor for people who live in the outlying areas of cities, where bus services do not run to some of the more remote estates. In south Bristol, there are estates with very high unemployment and the problem partly relates to remoteness from employment centres and the difficulty and cost of getting to them.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

In addition to the point made by my hon. Friend the Member for Airdrie and Shotts about the differential availability of public transport and, therefore, the lack of alternatives to buying fuel and going by car, does my hon. Friend agree that in parts of London and in cities outside London, the congestion makes this a non-choice? In my part of the world, we have a pretty decent metro rail service, but it is highly congested and getting worse. Things will only get worse in the future, so it is important that people understand what will happen to fuel prices.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

That is significant because congestion problems affect those who use cars as well as those who use public transport. The last Government gave Bristol £43 million to build showcase bus routes with bus lanes to try to encourage people to use buses and move faster  through the traffic. However, the incentive for people to do so is rather offset by the fact that bus prices are so high and the bus service is still unreliable. If fuel prices rise, that will affect bus fares too. First Bus, the bus company in my constituency, complains that congestion increases its costs so it has to raise fares. I always argue that if it reduced fares, more people would use the buses and not get in their cars, so congestion would be reduced. It should at least try running pilot schemes with reduced fares to see what impact that would have, perhaps on the most congested routes. It might find that it can run its service far better by charging less.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

Until deregulation in 1986, my area had a good, efficient, integrated transport system where the metro and the buses used to work together. Now they are in competition, which is wasteful, particularly when diesel duty at 81 p a litre is higher than anywhere else in Europe.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

That is a significant factor, although I think that my hon. Friend’s area has a passenger transport executive or authority or something like that. It is one of those things where the title is “strategic” one minute, and the next it is “integrated”. However, it would make a real difference if one was introduced in Bristol. As hon. Members have suggested, we should  not forget that public transport is as affected by the cost of fuel as people are in their private cars. It is not just a question of the impact on the motorist. Green and environmental groups have sometimes challenged, for example when we opposed the rise in VAT to 20% and challenged the impact it was having––

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

You didn’t oppose it. Be really careful. It is misleading. [Interruption.]

Photo of Jimmy Hood Jimmy Hood Labour, Lanark and Hamilton East

Order. I must ask the Minister not to hold conversations across the chamber. She is the senior representative of the Government in the Committee and she should know better.

Photo of Kerry McCarthy Kerry McCarthy Shadow Minister (Treasury)

I point out to the Minister that opposition is about what happens outside the House as well as what happens inside and we did vote against the Budget as a whole.

With the impact of VAT on petrol prices, some green groups––

The Chairman adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Four o’clock.