Fuel duty regulator regime

Finance Bill – in a Public Bill Committee at 4:15 pm on 7th July 2016.

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‘The Chancellor of the Exchequer shall undertake a review of fuel duty to establish the form of fuel duty regulator regime which would best ensure stability of pricing, and report to Parliament within six months of the passing of this Act.’—

Brought up, and read the First time.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

I beg to move, That the clause be read a Second time.

I understand that we are going to be running through new clauses 1 to 6. If it is your pleasure, Mr Howarth, I will speak to new clause 4, as advised.

New clauses 2 and 3 have already been debated. We are now dealing with new clauses 4 and 5, which are open to debate. Is that helpful?

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

So we do not vote on new clauses 2 and 3 now.

You could do if you wanted to. If there is a desire to have Divisions on them, the procedure allows for it.

Photo of Kirsty Blackman Kirsty Blackman Shadow SNP Spokesperson (House of Lords)

Apologies. It was our intention to withdraw them but we are unsure as to the stage at which we should do that.

They do not need to be moved.

Photo of Phil Boswell Phil Boswell Scottish National Party, Coatbridge, Chryston and Bellshill

I apologise for any confusion, Mr Howarth. It is a pleasure to serve under your chairmanship.

I rise to ask the Minister to review the need for a fuel duty regulation regime that could mitigate the worst excesses of fuel price fluctuations and best ensure the stability of pricing. It should be obvious to even the most casual observer that fuel prices fluctuate, but it is perhaps not so obvious that the oil price typically runs through a cycle of approximately seven or eight years. As sure as oil prices go down, they inevitably go up. The fluctuation of the price between $125 per barrel in 2012 to under $30 per barrel earlier this year has had a massive impact on producers and users alike. It is good news for some that oil prices appear to be on the rise again, with oil sitting at around $50 per barrel today.

The fluctuations seriously affect road haulage companies, private road users and other transport services, as well as domestic fuel users across the country. Some of the most severely affected are those who are subject to fuel poverty. As a responsible fuel-duty regulator should, the Government could protect the most vulnerable people from the worst vagaries of the markets. In Scotland, 35% of households are affected by fuel poverty, which I am sure the Minister will agree is unacceptable. I urge him to consider a review with the objective of regulating fuel prices via a fuel duty regulator. I advise the Committee that we will press new clause 4 to a vote.

Photo of David Gauke David Gauke The Financial Secretary to the Treasury

The Government oppose the inclusion of the new clause in the Bill. We recognise that, even with the recent fall in fuel prices, fuel costs remain a significant part of business and household costs, which is why it was announced at Budget 2016 that fuel duty would remain frozen for the sixth year in a row, thereby saving the average driver £75 a year and the average haulier £2,400 a year, relative to the pre-2010 fuel duty escalator. Our policy has provided greater certainty for consumers and businesses and has left pump prices much lower than they would have been.

The hon. Member for Coatbridge, Chryston and Bellshill is asking the Chancellor to undertake a review of fuel duty to establish a form of fuel duty regulatory regime that would ensure the stability of pricing. Members will remember that at Budget 2011 the Chancellor put forward a proposal for a fair fuel stabiliser that would have linked fuel duty rates more closely with oil prices. That policy would have meant that if oil prices were high, fuel duty rates would increase by RPI only, as the Government would have more revenues from the supplementary charge levied on oil and gas production. If oil prices were below the trigger price, fuel duty would have been increased by RPI plus 1p per litre, and the supplementary charge cut back to 20%. The fair fuel stabiliser was abolished in 2014 so that the Government could support the oil and gas industry without raising the tax burden on motorists. Had it been maintained, we would have had to raise fuel duty at the Budget.

A fuel duty regulator that links fuel duty to changes in oil prices would destabilise public finances by making receipts collected from the Government’s fifth-largest tax more volatile. Since 2010, oil prices have shown significant volatility, with the price per barrel ranging from between $30 to $130. By contrast, pump prices have not shown the same level of volatility.

In freezing fuel duty, the Government have lessened the impact of high oil prices on consumers and households. Indeed, the OBR has estimated that a £10 increase in oil prices could raise pump prices by 7p per litre if the increase is fully passed through. Offsetting the increase in pump prices via a reduction in fuel duty could cost the Exchequer £3.3 billion. In addition, establishing a fuel duty regulator could create uncertainty for business if the regulator resulted in several changes in fuel duty a year. This would be particularly burdensome for the transport sector where fuel forms a significant part of operational costs.

Finally, a fuel duty regulator would reduce the Government’s flexibility to adjust fuel duty beyond its set parameters. The Government chose to keep fuel duty frozen when oil prices were high, so even at that time the amount motorists paid in fuel duty was reducing in real terms. Now, when oil prices are lower, we have still kept fuel duty frozen. Motorists had to pay the price when oil prices were high; when they are low, it is right that they should see the benefit. I should also make the point that the United Kingdom is better placed to deal with oil price volatility, which can be significant, than an independent Scotland would be.

To conclude, the Government have already considered a fuel duty regulator and found that it would destabilise the public finances and could create uncertainty for businesses, which would be harmful for economic growth. I therefore hope that new clause 4 will be rejected.

Photo of Rebecca Long-Bailey Rebecca Long-Bailey Shadow Chief Secretary to the Treasury, Member, Labour Party National Executive Committee 4:30 pm, 7th July 2016

I have just a brief comment. Labour Members agree that the fluctuations in the price of oil in recent years is concerning. A review of how best to stabilise pricing would be sensible. We will therefore support the SNP Members if they choose to press the matter to a vote.

Question put, That the clause be read a Second time.

The Committee divided:

Ayes 5, Noes 11.

Division number 3 Christmas Tree Industry — Fuel duty regulator regime

Aye: 5 MPs

No: 11 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

New Clause 5